APRIL 30, 1999
Clean COPY
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark one)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended January 31, 1999
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 1-8460
UNIVERSAL MONEY CENTERS, INC.
(Name of small business issuer in its charter)
Missouri 43-1242819
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
6800 Squibb Road, Shawnee Mission, Kansas 66202
(Address of principal executive offices) (Zip code)
Issuer's telephone number: (913) 831-2055
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
Securities registered under Section 12(g) of the Exchange Act:Common Stock,
$.01 par value per share
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |_| No |X|
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. |_|
Issuer's revenues for the fiscal year ending January 31, 1999 were
$5,016,828.
The issuer is unable to determine the aggregate market value of the voting
stock held by non-affiliates of the issuer as of a date within the past 60 days.
The number of shares of the registrant's Common Stock outstanding as of
April 14, 1999 was 39,293,069.
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DOCUMENTS INCORPORATED BY REFERENCE
Incorporated by reference into Part III of this Form 10-KSB is the
information included under the captions entitled "Election of Directors",
"Security Ownership of Certain Beneficial Owners and Management", "Executive
Compensation" and "Certain Relationships and Related Transactions" in the
registrant's definitive proxy statement to be filed with the SEC pursuant to
Regulation 14A with respect to its 1999 annual meeting of shareholders.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
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UNIVERSAL MONEY CENTERS, INC.
FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
Section Page
PART I.................................................................1
ITEM 1. DESCRIPTION OF BUSINESS.....................................1
ITEM 2. DESCRIPTION OF PROPERTIES................................. 14
ITEM 3. LEGAL PROCEEDINGS..........................................15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........15
PART II...............................................................15
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...15
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION..16
ITEM 7. FINANCIAL STATEMENTS.......................................31
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCCOUNTING AND FINANCIAL DISCLOSURE......................49
PART III..............................................................49
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a)OF THE EXCHANGE
ACT......................................................49
ITEM 10. EXECUTIVE COMPENSATION....................................49
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT...........................................49
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............49
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K..........................49
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NOTE CONCERNING SEC REPORTS
Universal Money Centers, Inc. (the "Company") ceased filing periodic
reports with the Securities and Exchange Commission (the "SEC") under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), in 1987 as a
result of severe financial distress that placed the Company's continued survival
in serious doubt. Since 1987, the current senior management of the Company has
used the Company's limited financial resources to attempt to keep the Company
operating and to resolve the Company's serious financial problems.
As a result of recent improvements in the Company's financial condition,
the Company recommenced filing periodic reports with the SEC on April 29, 1999.
On that date, the Company filed with the SEC an Annual Report on Form 10-KSB for
the fiscal year ended January 31, 1998 ("1998 Form 10-KSB") and Quarterly
Reports on Form 10-QSB for the fiscal quarters ended April 30, July 31 and
October 31, 1998. A description of the Company's business, financial condition
and results of operations for the period from January 31, 1987 to January 31,
1998 is contained in the 1998 Form 10-KSB.
NOTE CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-KSB that are
not statements of historical fact constitute forward-looking statements within
the meaning of Section 21E of the Exchange Act. These statements involve risks
and uncertainties that may cause actual results to differ materially from those
in such statements. See Item 6, "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION - Cautionary Statement Concerning Forward-Looking Statements" for
additional information and factors to be considered with respect to
forward-looking statements.
PART I
Item 1. DESCRIPTION OF BUSINESS
Overview
Universal Money Centers, Inc., a Missouri corporation (the "Company"), is
engaged in the business of operating a regional network of automated teller
machines ("ATMs"). The ATMs provide holders of debit and credit cards access to
cash, account information and other services at convenient locations and times
chosen by the cardholder. Debit and credit cards are principally issued by banks
and credit card companies. At January 31, 1999, the network consisted of
approximately 297 ATMs owned by the Company or its affiliate, Universal Funding
Corporation ("Funding"), 70 ATMs owned by banks and 29 ATMs owned by third party
merchants. For a description of the relationship between the Company and
Funding, see " - Relationship with Universal Funding Corporation" and Item 6,
"MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - Comparison of
Results of Operations for the Fiscal
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Years Ended January 31, 1999 and 1998 - Revenues from Funding". ATMs in the
Company's network are principally installed in convenience stores and banks with
locations concentrated in the Kansas City and St. Louis, Missouri and El Paso,
Texas metropolitan areas, and the state of Kansas. The Company also provides ATM
network management services to banks and third parties owning ATMs that are
included in the Company's ATM network.
To maximize usage of ATMs in the Company's network, the Company has
relationships with national and regional card organizations (also referred to as
networks) which enable the holder of a card issued by one member of the
organization to use an ATM operated by another member of the organization to
process a transaction. The Company has relationships with Cirrus and Plus, the
two principal national card organizations, and HONOR, the dominant card
organization in its markets, all of whose members are banks and ATM network
operators and other companies sponsored by member banks. The Company also has
relationships with major credit card issuers such as Visa, MasterCard and
Discover which enable the holder of a credit card to use ATMs in the Company's
network to process a transaction.
The Company's revenues are principally derived from two types of fees,
which the Company charges for processing transactions on its ATM network. The
Company receives an interchange fee from the issuer of the credit or debit card
for processing a transaction when a cardholder uses an ATM in the Company's
network. In addition, in most cases the Company receives a surcharge fee from
the cardholder when the cardholder makes a cash withdrawal from an ATM in the
Company's network. The Company expanded its practice of imposing surcharge fees
in April 1996 when national debt and credit card organizations changed rules
applicable to their members to permit these fees. Subsequently, surcharge fees
have become and are expected to continue to be a substantial source of revenue
for the Company and other ATM network operators. In fiscal 1999 and 1998,
surcharge fees represented approximately 60.5% and 51.5% of the Company's total
revenues, respectively.
The Company's recent return to profitability coincided with, and has been
substantially dependent upon, the imposition of surcharge fees. Any changes in
laws or card association rules materially limiting the Company's ability to
impose surcharge fees would have a material adverse effect on the Company. See
"--Regulatory Matters - Surcharge Regulation."
In addition to revenues derived from interchange and surcharge fees, the
Company also derives revenues from providing network management services to
banks and third parties owning ATMs included in the Company's ATM network. These
services include 24 hour transaction processing, monitoring and notification of
ATM status and cash condition, notification of ATM service interruptions, in
some cases, dispatch of field service personnel for necessary service calls and
cash settlement and reporting services. The fees for these services are paid by
the owners of the ATMs.
Company Strengths
The Company believes it has important strengths which should enable it to
successfully pursue its business strategy and solidify its position as a
regional ATM network operator:
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Competitive Experience. The Company began operating an ATM network in the
early 1980's when ATMs were first being introduced by banks to their customers.
The Company's key executives have been actively involved in the Company's
business for over ten years. As a result, the Company has significant experience
addressing the technical and management challenges that arise in the operation
of an ATM network business. Moreover, the Company faced many of these challenges
with extremely limited financial resources. Management believes this experience
enhances the Company's ability to efficiently manage its network and provide
reliable service to customers. The Company believes this experience cannot
easily be duplicated by competitors, many of which have entered the business
since the advent of surcharge fees.
Transaction Processing Capability. The Company has the capability to
process (or "drive") transactions both on Company owned ATMs and ATMs operated
for third parties. Transaction processing ("driving") involves maintaining the
information systems capability to interface with card organizations and card
issuers through a computer switch. Management believes this capability provides
the Company many competitive advantages over ATM network operators who pay third
parties to perform this service. Most importantly, the Company believes it has
lower costs than some competitors because it is able to perform this service
less expensively than the service can be purchased from third party processors.
In addition, the Company believes it is able to provide better customer service
because it is less likely to suffer communication delays when there are ATM
breakdowns and network interruptions. Driving capability also improves the
Company's ability to manage its cash collections. See "-ATM Network
Technology".
Reliability. The Company believes that the reliability of its ATMs and
information systems technology is critical to the Company's success. ATM
failures and systems breakdowns directly result in lost fee revenue and are
extremely important factors in the selection of an ATM network operator by banks
and other third parties. To ensure reliability, the Company has invested in
system redundancies and advanced monitoring systems which protect against
network interruptions and ensure timely repairs. The Company has also purchased
advanced hardware and developed proprietary software and service systems which
provide state-of-the-art diagnostics and self-testing routines. The Company's
ATMs are monitored through dedicated, dial-up and wireless communication links
to the Company's central processing center in Mission, Kansas. When problems
with an ATM are detected, the Company either dispatches a field technician to
correct the problem, or notifies the customer that a problem exists.
Lower Cost Alternative. The Company believes that it offers banks and
third parties a lower cost alternative to building or operating their own ATM
networks because of the economies of scale associated with purchasing and
maintaining ATMs and network computer equipment, and maintaining the expertise
necessary to keep telecommunication and other services in working order. Banks
and third parties are offered a choice of services that include a connection to
the Company's ATM network as well as connections to national ATM networks. The
Company's ATM management services include transaction driving, 24-hour
monitoring from the Company's processing center of ATM operational status, the
monitoring of cash levels in the ATM, technician dispatch for necessary service
calls, ATM balancing and reconciliation, and transaction research. Management
believes the Company is more flexible than large
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transaction processing services in tailoring its services to the specific needs
of community oriented banks and small network operators.
Additional Service Capability. In addition to performing basic functions
such as dispensing cash and retrieving account information, many of the
Company's ATMs are modular and upgradable for additional services in response to
changing technology and consumer demand. The Company plans to continually
develop new products and enhance existing products and is specifically
investigating the ability and financial viability of dispensing postage stamps,
coupons and prepaid calling cards from some of its ATMs.
Business Strategy
The Company's strategy is to solidify its position as a regional ATM
network operator by expanding its network of Company owned ATMs and its ATM
transaction processing business. This strategy will be implemented by pursuing
the following initiatives:
Strategically Expand ATM Base and Transaction Processing Business. The
Company's principal focus in the near term will be to continue the expansion of
its base of Company owned ATMs in its existing markets. The Company will also
seek to grow its network processing business by establishing relationships with
additional banks and other owners of ATMs who do not have transaction processing
capability.
Continue to Form Strategic Relationships with Card Organizations. To
maximize usage of ATMs in its network, the Company's goal is for the ATMs to be
able to accept all credit and debit cards issued in its markets. The Company
currently has agreements with the leading national issuers of credit cards
(American Express, VISA, MasterCard and Discover), the leading national card
organizations (Cirrus and Plus), and the dominant card organization in its
markets (HONOR). The Company believes that these relationships enable most
holders of cards in its markets to use ATMs in its network. The Company
continually evaluates these relationships and will add new relationships when
appropriate.
Growth through Acquisitions. While the Company intends to focus
principally on internal expansion of its ATM network, management intends to
selectively evaluate and possibly pursue acquisitions that are complementary to
the Company's existing operations and to explore other geographic markets or
strategic business opportunities where it can make use of its operational
expertise. The Company believes there are many small ATM network operators which
may be attractive acquisition candidates. Other business and network
opportunities that the Company may evaluate include the expansion of its
operations through the acquisition of ATM networks from banks or other
businesses which support or complement its network. The Company believes that
many ATM networks could be run more efficiently and rendered more profitable by
the Company due to economies of scale or through consolidation or reorganization
of the networks. Acquisitions of strategic businesses which support the
Company's activities (including software providers or other transaction
processors) could permit the Company to procure necessary services more
inexpensively, increase network traffic, or expand more rapidly.
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The Company's ability to consummate an acquisition and pursue expansion plans
will be limited by its available financial resources.
Capitalize on Additional Revenue Opportunities. The Company plans to take
advantage of the various distribution possibilities of ATMs and credit and debit
cards beyond basic cash withdrawal and balance inquiry functions by providing
value added services through ATMs as new technology develops and the demand for
such services grows in its markets. Currently, the Company is investigating the
ability and financial viability of providing screen advertising and dispensing
postage stamps, coupons and prepaid calling cards. The Company is also
evaluating the possibility of offering point of sale authorization services in
the future. See "-The Company Network Other Services."
The Company Network
General. At January 31, 1999, the Company's network consisted of 297 ATMs
owned by the Company or its affiliate, Funding, 70 ATMs owned by banks and 29
ATMs owned by third party merchants. ATM locations in the Company's network are
concentrated in the Kansas City metropolitan area including Topeka and Lawrence
Kansas (approximately 170 ATMs), the St. Louis, Missouri metropolitan area
(approximately 60 ATMs), the El Paso, Texas metropolitan area (approximately 60
ATMs), and other areas in the state of Kansas (approximately 40 ATMs). Other
ATMs are located in California, Colorado, Florida, Illinois, Maryland, New
Mexico, North Carolina, Ohio, Oklahoma, and Pennsylvania.
The operation of the network involves the performance of many
complementary tasks and services including principally (i) acquiring ATMs for
the Company or its customers, (ii) selecting locations for ATMs and entering
into leases for access to those locations, (iii) in the case of banks and third
party merchants, establishing relationships with them for processing
transactions on their ATMs, (iv) establishing relationships with national and
regional card organizations and credit card issuers to maximize usage of ATMs in
the network, (v) operating and maintaining the computer system and related
software necessary to process transactions conducted on ATMs, (vi) processing
transactions conducted on ATMs, (vii) supplying ATMs with cash and monitoring
cash levels for resupply, and (viii) managing the collection of fees generated
from the operation of the network.
ATM Locations. The Company believes that the profitable operation of an
ATM is largely dependent upon its location. The Company devotes significant
effort to the selection of locations that will generate high cardholder
utilization. One of the principal factors affecting the Company's further
penetration of existing markets in the Midwest is the availability of attractive
sites. The Company attempts to identify locations in areas with high pedestrian
counts where people need access to cash and where use of the ATM is convenient
and secure. Management believes the identification of locations is supported by
the desire of retailers of all types to offer their customers access to cash as
an alternative to cashing checks, which avoids the financial exposure and added
overhead of cashing checks. Key target locations for the Company's ATMs include
(i) convenience stores and combination convenience stores and gas stations, (ii)
grocery stores, (iii) major regional and national retailers, (iv) hotels, (v)
shopping malls, (vi) airports, (vii) colleges, (viii) amusement parks, (ix)
sports arenas, (x) theaters, and (xi) bowling alleys.
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The Company enters into leases for its ATM locations. The leases generally
provide for the payment to the lessor of either a portion of the fees generated
by use of the ATM or a fixed monthly rent. Most of the Company's leases have a
term of approximately three years. The Company generally has the right to
terminate a lease if the ATM does not meet certain performance standards. The
ATM site owner generally has the right to terminate a lease before the end of
the lease term if the Company breaches the lease agreement or becomes the debtor
in a bankruptcy proceeding.
The Company has relationships with two operators of combination
convenience stores and gas stations for whom approximately 44 and 41 ATMs,
respectively, have been installed at their locations, as of January 31, 1999.
The aggregate revenues from these companies accounted for approximately 22% of
the Company's revenues in each of fiscal years 1999 and 1998. The Company
believes that it has good relationships with these companies. Nevertheless, if
one or both of the relationships was terminated and the Company was unable to
find new locations for the ATMs, the termination could have a material adverse
effect on the Company. The leases for the locations in which 44 ATMs have been
installed expire September 2001, and the lease for the locations in which 41
ATMs have been installed expires February 2001. Each of these leases
automatically renews for successive one-year terms, unless terminated by either
party prior to the commencement of a renewal term. In addition, each site owner
has the right to terminate the respective lease before the end of the lease term
under certain circumstances.
The Company believes that once a cardholder establishes a habitual pattern
of using a particular ATM, the cardholder will generally continue to use that
ATM unless there are significant problems with the location, such as a machine
frequently being out of service. It is the Company's goal to secure key real
estate locations before its competitors can do so, and become the habitual ATM
location of card users in its markets.
Typical ATM Transaction. In a typical ATM transaction processed by the
Company, a debit or credit cardholder inserts a credit or debit card into an ATM
to withdraw funds or obtain a balance inquiry. The transaction is routed from
the ATM to the Company's processing center by dedicated, dial-up and wireless
communication links. The Company's processing center computers identify the card
issuer by the bank identification number contained within the card's magnetic
strip. The transaction is then switched to the local issuing bank or card
organization (or its designated processor) for authorization. Once the
authorization is received, the authorization message is routed back to the ATM
and the transaction is completed.
Some card issuers do not maintain on-line balance information for their
cardholders, but instead periodically send the Company authorization limits on a
daily basis. The Company stores the cardholder authorization limits on its
processing center computers and authorizes transactions on behalf of the card
issuer relying on this information. The Company transmits records of all
transactions processed in this manner to the card issuers which then update
their cardholder account records.
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Authorization of ATM transactions processed on ATMs in the Company's
network is the responsibility of the card issuer. The Company is not liable for
dispensing cash in error if it receives a proper authorization message from a
card issuer.
Transaction Fees. The Company's revenues are principally derived from two
types of fees. The Company receives an interchange fee for processing a
transaction when a cardholder uses an ATM in the Company's network. In addition,
in most cases the Company receives a surcharge fee when a cardholder makes a
cash withdrawal from an ATM in the Company's network.
Interchange fees are processing fees that are paid by the issuer of the
credit or debit card used in a transaction. Interchange fees vary for cash
withdrawals, balance inquiries, account transfers or uncompleted transactions,
the primary types of transactions that are currently processed on ATMs in the
Company's network. The maximum amount of the interchange fees is established by
the national and regional card organizations and credit card issuers with which
the Company has a relationship. The Company (or its affiliate, Funding) receives
the full interchange fee for transactions on Company owned ATMs, but sometimes
rebates a portion of the fees to the owner of the ATM location under the
applicable lease for the ATM site. The Company also receives the full
interchange fee for transactions on ATMs owned by banks or third party vendors
included within the Company's network, but rebates a portion of each fee to the
bank or third party vendor based upon negotiations between the parties. The
interchange fees received by the Company vary from network to network and to
some extent from issuer to issuer, but generally range from $0.35 to $0.75 per
cash withdrawal. Interchange fees for balance inquiries, account transfers and
denied transactions are generally substantially less than fees for cash
withdrawals. The interchange fees received by the Company from the card issuer
are independent of the service fees charged by the card issuer to the cardholder
in connection with ATM transactions. Service fees charged by card issuers to
cardholders in connection with transactions through the Company's network range
from zero to as much as $2.50 per transaction. The Company does not receive any
portion of the service fees charged by the card issuer to the cardholder.
In most markets the Company imposes a surcharge fee for cash withdrawals.
The range of surcharge fees for ATMs in the Company's network owned by or
located in banks is between $0.50 and $1.50 per withdrawal. The range of
surcharge fees for other ATMs in the Company's network is between $0.50 and
$2.50 per withdrawal. The Company receives the full surcharge fee for
transactions on Company owned ATMs, but sometimes rebates a portion of the fees
to the owner of the ATM location under the applicable lease for the ATM site.
The Company also receives the full surcharge fee for transactions on ATMs owned
by banks and third party vendors included within the Company's network, but
rebates a portion of each fee to the bank or third party vendor based upon a
variety of factors, including transaction volume and the party responsible for
supplying vault cash to the ATM. See "Regulatory Matters Surcharge Regulation."
ATM Network Management Services. The Company offers ATM network management
services to banks and other third party owners of ATMs included in the Company's
ATM network. These services include 24 hour transaction processing, monitoring
and notification of ATM status and cash condition, notification of ATM service
interruptions, in some cases, dispatch of field service personnel for necessary
service calls and cash settlement and reporting
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services. Banks may choose whether to limit transactions on their ATMs to cards
issued by the bank or to permit acceptance of all cards accepted on the
Company's network The Company currently provides these network management
services to banks and other third parties owning approximately 70 ATMs and 29
ATMs, respectively, included in the Company's ATM network.
Other Services. The Company's network has capabilities for services in
addition to cash withdrawal and balance inquiry transactions. These include (i)
the ability to distribute financial and other products and services at a low
incremental cost, (ii) the ability to dispense postage stamps, coupons and
prepaid calling cards, (iii) the ability to provide on screen advertising, and
(iv) the provision of on-line point of sale authorization for purchases made at
retail outlets with credit and debit cards. In addition, a majority of the
Company's ATMs are upgradable for new technologies, including computer chip
"smart cards." Smart cards are electronic debit cards that can be used to
withdraw cash from ATMs and can be "charged up" through the ATM network and then
used to purchase goods from retail locations. The Company is exploring the
viability of these uses and may implement additional services as markets
develop.
Transaction Volumes. The Company monitors the number of transactions which
are made by cardholders on ATMs in its network. The transaction volumes
processed on any given ATM are affected by a number of factors, including
location of the ATM, the amount of time the ATM has been installed at that
location, and market demographics. The Company's experience is that the number
of transactions on a newly installed ATM is initially very low and increases for
a period of three to six months after installation as consumers become familiar
with the location of the machine. The Company processed a total of 8,389,752
transactions on its network in fiscal 1999, of which 2,675,198 were surcharge
transactions. The Company processed a total of 7,107,111 transactions on its
network in fiscal 1998, of which 1,972,307 were surcharge transactions.
Vault Cash. An inventory of cash ("vault cash") is maintained in each ATM
which is replenished periodically based upon cash withdrawals. A major factor
limiting the Company's ability to expand its owned ATM network is the Company's
limited available cash to place in the ATMs. Since 1989, vault cash for an
increasing percentage of the Company owned ATMs has been supplied by Funding,
because the Company has been unable to obtain financing from commercial lenders
at reasonable rates. Funding currently supplies vault cash for a majority of the
ATMs owned by Funding and the Company. See "--Relationship with Universal
Funding Corporation" and Item 6, "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION - Comparison of Results of Operations for the Fiscal Years Ended
January 31, 1999 and 1998 - Revenues from Funding". Certain Company-owned ATMs
are sponsored by banks. Vault cash for these ATMs is supplied by the sponsoring
bank. The Company does not supply vault cash for the ATMs in its ATM network
that are owned by banks and third party vendors.
ATM Network Technology
ATMs. Most of the ATMs in the Company's network are manufactured by
Fujitsu, IBM/Diebold, NCR, or Triton. As of February 28, 1999, approximately 70%
of the Company
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owned ATMs have been purchased within the past three years. The Company intends
to phase out the remaining older ATMs that are not Year 2000 compliant before
the year 2000. The wide range of advanced technology available for new ATMs
provides the Company's customers with state-of-the-art electronics features and
reliability through sophisticated diagnostics and self-testing routines. The
different machine types can perform basic functions, such as dispensing cash and
displaying account information, as well as providing revenue opportunities for
advertising and selling products through the use of color monitor graphics,
receipt message printing and stamp and coupon dispensing. Many of the Company's
ATMs are modular and upgradable so the Company may adapt them to provide
additional services in response to changing technology and consumer demand.
The consolidation of the financial services industry is increasing the
Company's opportunity to purchase sound, well tested used equipment. The
Company's field services staff then re-furbishes and tests each ATM prior to
placing it into the network. All ATM models considered for use in the Company's
network are first tested by the manufacturer and by independent testing
laboratories. The Company monitors field testing as well as live actual results
in the market place. Then, if there appears to be practical added value to the
Company, it will start its own internal testing and certification process. Upon
successful completion of this process, the Company will place the new equipment
into a limited number of sites for actual consumer use.
Processing Center. The Company operates a central processing center
located in the Company's headquarters in Mission, Kansas. The processing center
is connected to each ATM in the Company's network through dedicated, dial-up and
wireless communications circuits. The processing center is staffed 24 hours a
day, seven days a week by an experienced staff of information system
specialists. The efficient operation of the Company's processing center is
critical to the successful operation of the Company's ATM network.
At the processing center, the Company maintains a "switch" which links in
a compatible manner ATMs in the Company's network, the processing center and
similar processing or transaction authorization centers operated by card issuers
and card organizations. The switch makes possible the electronic exchange of
information necessary to conduct transactions at ATMs in the Company's network.
The switch consists of a Tandem computer system, telecommunications equipment,
and proprietary software developed for the operation of the Company's network.
The Tandem computer system currently used by the Company was leased by the
Company in 1997 and replaced an earlier Tandem computer system that had been in
use for a number of years. Management believes the new computer system has
sufficient capacity to meet any growth in transaction volume achieved over the
next three years and to permit the development of new services being considered
by the Company.
Although the switch translates between computers and makes routing
decisions, it does not execute the transactions. Transactions originated at ATMs
in the Company's network are routed by the switch operated in the Company's
processing center to the card organization and card issuer that processes the
account records for the particular cardholder's financial institution. In turn,
the switch
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relays reply information and messages from the computer center to the
originating terminal. The processing center also authorizes transactions
executed on the Company's network on behalf of card issuers that do not maintain
on-line balance information for their cardholders.
To protect against power fluctuations or short-term interruptions, the
processing center has full uninterruptable power supply systems with battery
back-up. The processing center's data back-up systems would prevent the loss of
transaction records due to power failure and permit the orderly shutdown of the
switch in an emergency. To provide continued operation in the event of a
catastrophic failure, the Company has an agreement with Sungard Recovery
Systems, Inc.
Relationship with Universal Funding Corporation
The Company has maintained a business relationship with Universal Funding
Corporation, a Missouri corporation ("Funding"), since August 1989. The
relationship began in 1989 as a result of the Company's severe financial
problems. The operation of the Company's ATM network generally requires that the
Company supply vault cash to ATMs owned by the Company to fund cash withdrawals.
As a result of the Company's financial problems, lenders were generally
unwilling to extend loans, partly because of the concern that the Company's
creditors would assert claims against cash physically located in ATM's owned by
the Company. The Company has not had sufficient cash to supply the vault cash
for these ATMs. In order to resolve this problem and to permit the Company to
continue to operate certain ATMs, Funding was formed in 1989 by David S. Bonsal,
the Chairman of the Company's Board of Directors, John L. Settles, the President
of the Company from April 1989 through late 1990, and William Smithson, a
shareholder of the Company. Each of these individuals has a one-third ownership
interest in Funding.
In 1989, the Company sold approximately 60 ATMs to Funding for which
Funding had agreed to provide vault cash. Funding requested the sale of the ATMs
to Funding as a condition to providing vault cash, in order to provide
additional protection against seizure of Funding's vault cash by the Company's
creditors. The Company and Funding also entered into a Management Agreement in
1989. The Management Agreement was designed to provide the Company with the
economic benefits of ownership and operation of the ATMs sold to Funding, while
providing to shareholders and lenders of Funding the protection from the
Company's creditors and the investment return necessary to attract their
investment.
In the Management Agreement, Funding agreed to enter into contracts with
site owners for the placement of the ATMs acquired from the Company, to provide
vault cash necessary for the operation of the ATMs and to contract for an
armored security service for deliveries of cash to ATMs. In exchange for these
services, Funding received all interchange fees for transactions processed on
the ATMs for which it provided vault cash. Under the Management Agreement, the
Company agreed to "drive" the ATMs sold to Funding and to provide accounting,
maintenance and communication services. In exchange for these services, Funding
agreed to pay the Company a management fee equal to Funding's "net income".
Funding's "net income" is defined in the Management Agreement as revenues from
interchange fees, less armored security charges, interest expense on funds
borrowed to provide vault cash, ATM location expenses, debt
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service related to the purchase of the ATMs, taxes or insurance on ATMs, and a
monthly payment to each of Funding's shareholders representing a return on their
equity investment in Funding. The amount of the monthly payment to the
shareholders is based upon the amount of their equity investment in Funding and
is paid on the equity investment at a rate of 18% per annum, or a total of
$24,894 per year. The management fee is to be paid to the Company on a monthly
basis after Funding has met all of its other cash expenses, including the
payment of interest on outstanding borrowings and the monthly payment to
Funding's shareholders. In addition, in the Management Agreement, the
shareholders of Funding grant the Company an option to purchase all of the
outstanding stock of Funding at any time for an amount equal to 110% of the
capital contributed by the shareholders to Funding plus any arrearages in the
payment of expenses due under the Management Agreement. Management believes that
the amount of the exercise price would have been $165,000 as of January 31,
1999. The Management Agreement extends for successive twelve (12) month terms,
unless either party provides written notice of termination to the other party at
least thirty (30) days prior to the end of a twelve (12) month term.
Since 1989, the relationship between the Company and Funding has expanded
to cover additional ATMs, as a result of the loss of other sources of financing
and in order for the Company to take advantage of opportunities to place
additional ATMs. Funding currently supplies vault cash for a majority of the
ATMs owned by Funding and the Company. Funding currently owns 41 ATMs in the
Company's ATM network. The Company-owned ATMs for which Funding provides vault
cash are leased to Funding for rent of $10.00 per month. Funding requested the
leasing arrangement for the Company-owned ATMs in order to provide protection
against seizure of its vault cash. Funding does not provide vault cash for ATMs
owned by banks or ATMs owned by third party vendors. At January 31, 1999 and
1998, Funding had vault cash of approximately $2,200,000 and $1,900,000,
respectively, located in approximately 242 and 209 ATMs, respectively, owned by
Funding and the Company. Pursuant to the Management Agreement, the Company
assumes the risk of theft or other shortages of cash from the ATMs for which
Funding supplies vault cash. The Company incurred losses of $10,075 and $22,616
from vault cash shortages in fiscal 1999 and 1998, respectively.
Funding borrows the funds that are used to supply vault cash principally
from (i) Electronic Funds Transfer, Inc., a wholly owned subsidiary of the
Company ("EFT"), (ii) David S. Bonsal, Chairman and Chief Executive Officer of
the Company, and a limited partnership in which Mr. Bonsal is the general
partner, (iii) employees of the Company, and (iv) other lenders. The loans
generally have a term of 30 days and typically are rolled over at maturity. As
of January 31, 1999, Funding paid interest on loans at rates ranging from 12 -
18% per annum. At January 31, 1999, the aggregate outstanding amount of the
loans was approximately $2,060,000, of which $0 was owed to EFT, approximately
$1,260,000 was owed to Mr. Bonsal and the related limited partnership,
approximately $14,400 was owed to Dave A. Windhorst, President of the Company,
approximately $32,700 was owed to other employees of the Company and
approximately $753,000 was owed to other lenders. The maximum outstanding
balance of the loans made by EFT to Funding in fiscal 1999 was $489,000.
The Company has investigated other sources of vault cash. The Company
attempted to negotiate an arrangement with Boatmen's Bank of Kansas City, under
which Boatmen's would provide vault cash for a number of the Company's ATMs.
Boatmen's informed the Company in December 1996 that it was terminating
negotiations, primarily because of the difficulty of tracking cash collateral
through an ATM network. The Company entered into an agreement with Pinnacle
Systems, L.L.C. ("Pinnacle") in August 1997 pursuant to which Pinnacle provided
funds for vault cash for a service fee equal to the amount of vault cash
provided multiplied by the prime rate published from time to time by the Wall
Street Journal, plus 2.5%. In addition to the payment of this service fee, the
agreement required the Company to pay monthly "bank" fees
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and insurance charges to Pinnacle. As of January 31, 1999, Pinnacle provided
$600,000 vault cash for approximately 40 ATMs. The agreement was terminated by
Pinnacle in March 1999. Pinnacle informed the Company that Pinnacle's lender
would no longer permit Pinnacle to provide vault cash to ATM companies because
of losses suffered by the lender due to problems monitoring vault cash transfers
through certain ATM networks (not including the Company's ATM network).
The Company will continue to investigate other sources of obtaining vault
cash and may replace the relationship with Funding in whole or in part to the
extent that alternative sources of funds become available on acceptable terms.
Competition
Competitive factors in the Company's business are network availability and
response time, price to both the card issuer and to its customers, ATM location
and access to other networks. The market for the transaction processing and
payment services industry and specifically ATM services is highly competitive.
The Company's principal competitors are national ATM companies that have a
dominant share of the market. These companies are based primarily in California,
Oregon, Texas, Minnesota and several east coast states. These companies have
greater sales, financial, production, distribution and marketing resources than
the Company.
The Company has identified the following categories of ATM network
operators:
Financial Institutions. Banks have been traditional deployers of ATMs at
their banking facilities. However, many banks are starting to place ATMs in
retail environments where the bank has an existing relationship with the
retailer. This may limit the availability of locations for the Company's ATMs.
Credit Card Processors. Several of the credit card processors have
diversified their business by taking advantage of existing relationships with
merchants to place ATMs at sites with those merchants.
Third Party Operators. This category includes data processing companies
that have historically provided ATM services to financial institutions, but also
includes small and regional network operators such as the Company.
Management believes that many of the above providers deploy ATMs to
diversify their operations and that the operation of the ATM network provides a
secondary income source to a primary business.
Since April 1996, when national debt and credit card organizations changed
rules applicable to their members to permit the imposition of surcharge fees,
the Company has experienced increased competition, both from existing ATM
network operators and from new companies entering the industry.
There can be no assurance that the Company will continue to be able to
compete successfully with national ATM companies. The competitive pricing
pressures that would result from a continued increase in competition could
adversely affect the Company's margins and may have a material adverse effect on
the Company's financial condition and results of operations. Furthermore, the
Company believes that if the market for retail based ATMs continues to grow, the
national ATM companies will likely devote greater resources to this market
segment and further increase competition in the Company's target market.
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Employees
At March 31, 1999, the Company had 25 full time employees. None of the
Company's employees is represented by a labor union or covered by a collective
bargaining agreement. The Company has not experienced work stoppages and
considers its employee relations to be good. The Company's business is highly
automated and the Company outsources specialized, repetitive functions such as
cash delivery and security. As a result, the Company's labor requirements for
operation of the network are relatively modest and are centered on monitoring
activities to ensure service quality and cash reconciliation and control.
Regulatory Matters
Federal Banking Regulation. Because the Company provides transaction
processing services to banks, the Company's procedures and operations are
indirectly subject to federal regulation by, and are monitored by, the Federal
Deposit Insurance Corporation ("FDIC"), the Office of the Comptroller of the
Currency ("Comptroller") and the Federal Reserve Bank ("Fed"). The FDIC, the
Comptroller and the Fed have adopted regulations addressing many aspects of the
Company's operations, including management, data security, computer systems and
programming controls, and electronic funds transfer procedures. The FDIC, the
Comptroller and the Fed conduct periodic examinations to ensure the Company's
compliance with these regulatory requirements. While the Company believes that
it is in material compliance with these regulations, and that it is taking
appropriate action to respond to recommendations made by regulatory authorities
as a result of their examinations, there can be no assurance that the Company
will be able to satisfactorily respond to all matters raised from time to time
by the FDIC, the Comptroller and the Fed.
Surcharge Regulation. The imposition of surcharges is not currently
subject to federal regulation but has been banned by several states in which the
Company presently has no operations. Legislation to ban surcharges has been
introduced but not enacted in many other states as a result of activities of
consumer advocacy groups which believe that surcharges are unfair to consumers.
The Company is not aware of the introduction of this type of legislation in any
of the states in which the Company does business. Nevertheless, there can be no
assurance that surcharges will not be banned in the states where the Company
operates, and such a ban would have a material adverse effect on the Company.
Most of the ATMs in the Company's network are located in Kansas (150 ATMs),
Missouri (135 ATMs) and Texas (63 ATMs).
Network Regulations. National and regional networks have adopted extensive
regulations that are applicable to various aspects of the Company's operations
and the operations of other ATM network operators. The Company believes that it
is in material compliance with these regulations and, if any deficiencies were
discovered, that it would be able to correct them before they had a material
adverse impact on the Company's business.
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Item 2. DESCRIPTION OF PROPERTIES
As of January 31, 1999 and the date of this Form 10-KSB, the Company's
principal executive offices and its central transaction processing center are
located in 11,138 square feet of leased space located at 6800 Squibb Road,
Shawnee Mission, Kansas. The telephone number for the executive offices is
913-831-2055. The Company leases the facility at rates the Company believes were
consistent with market rates at the time the facility was leased under a lease
that expires in 2001. The Company believes that the facility is adequate for its
needs for the foreseeable future.
The principal properties owned or leased by the Company are the component
assets of its ATM network, including ATMs, the Tandem computer and
telecommunication equipment. In fiscal year ended January 31, 1999, the Company
purchased 88 new or replacement ATMs pursuant to the following agreements:
1. Promissory Note dated April 9, 1998 between the Company and Bank 21
in the principal amount of $149,480. The Promissory Note permits the
Company to purchase 28 ATMs from Triton and requires monthly payments
by the Company through May 2003.
2. Capital Lease dated February 28, 1998 between the Company and Diebold
Credit Corporation in the principal amount of $51,680. The lease for
4 ATMs requires monthly payments by the Company through February
2003.
3. Capital Lease dated April 20, 1998 between the Company and Diebold
Credit Corporation in the principal amount of $89,544. The lease for
7 ATMs requires monthly payments by the Company through April 2003.
4. Capital Lease dated September 25, 1998 between the Company and
Diebold Credit Corporation in the principal amount of $71,555. The
lease for 11 ATMs requires monthly payments by the Company through
November 2003.
5. Capital Lease dated September 25, 1998 between the Company and
Diebold Credit Corporation in the principal amount of $96,060. The
lease for 12 ATMs requires monthly payments by the Company through
November 2003.
6. Capital Lease dated November 20, 1998 between the Company and Dana
Commercial Credit in the principal amount of $47,400. The lease for 6
ATMs requires monthly payments by the Company through November 2003.
7. Capital Lease dated January 18, 1999 between the Company and Dana
Commercial Credit in the principal amount of $159,500. The lease for
20 ATMs requires monthly payments by the Company through January
2004.
The Company believes its existing properties are adequate to meet its
anticipated needs for the foreseeable future and are in generally good
condition. Certain of the Company's ATMs that are not currently Year 2000
compliant are expected to be upgraded, replaced or phased out before
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the year 2000. See Item 6, "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION - Year 2000 Compliance."
Item 3. LEGAL PROCEEDINGS
As of January 31, 1999 and the date of this Form 10-KSB, the Company is
not a party to any material pending legal proceeding. The Company is a party to
routine litigation in the ordinary course of business from time to time.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of stockholders in the fourth
quarter of fiscal year 1999.
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information and Related Stockholder Matters
There is currently no public trading market for the Company's Common
Stock. The Common Stock was delisted by Nasdaq in August 1986 and by the Boston
Stock Exchange in the early 1990's. Management believes that quotes are
sometimes available from brokers in the over-the-counter market but that such
quotes generally have not been available since the stock was delisted.
It is not known whether a public trading market will develop for the
Common Stock now that the Company has recommenced filing periodic reports with
the SEC.
On January 31, 1999, there were 1,420 record holders of the Company's
Common Stock.
The Company has never paid any cash dividends on its Common Stock and does
not anticipate that it will pay dividends in the foreseeable future. The Company
intends to retain future earnings, if any, to provide funds for the growth and
development of the Company's business.
Recent Sales of Unregistered Securities
Since the end of fiscal 1996, the Company has issued 8,675,000 shares of
Common Stock in the following transactions that were not registered under the
Securities Act of 1933, as amended (the "Securities Act"). The Company believes
that these transactions were exempt
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from registration under the Securities Act pursuant to Section 4(2) of the
Securities Act, based upon the manner of each offering, the limited number of
offerees in each offering, the level of sophistication of each offeree and the
information made available to each offeree concerning the Company's business.
o The Company issued 8,600,000 shares of Common Stock to David S.
Bonsal, Chairman and Chief Executive Officer of the Company, in April
1996, as part of an offering of 10,000,000 shares of Common Stock for
$.01 per share. In January 1995, the Company made a commitment to the
Office of the Comptroller of the Currency to raise additional capital
to address the Comptroller's concerns about the Company's weak
financial condition. The offering was approved in May 1995, was fully
subscribed in September 1995 and was completed in April 1996. The
purposes of the offering were to raise working capital and to improve
the Company's financial condition. The remaining 1,400,000 shares of
Common Stock issued in the offering were issued in 1995.
o In 1996, in order to conserve cash, the Company issued 75,000 shares
of Common Stock to the following persons then serving as directors of
the Company, at an assumed value of $.01 per share, in lieu of
compensation for their services: 25,000 shares to Jeffrey M. Sperry;
25,000 shares to Arthur M. Moglowsky; and 25,000 shares to Stephan
Gorman.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
The Company operates a regional network of automated teller machines
("ATMs"). The ATMs provide holders of debit and credit cards access to cash,
account information and other services at convenient locations and times. The
network consists of approximately 297 ATMs owned by the Company and its
affiliate, Funding, 70 ATMs owned by banks and 29 ATMs owned by third party
merchants. ATMs in the Company's network are principally installed in
convenience stores and banks with locations concentrated in the Kansas City and
St. Louis, Missouri and El Paso, Texas metropolitan areas, and the state of
Kansas. The Company also provides ATM network management services to banks and
third parties owning ATMs in the Company's ATM network.
The Company's revenues are principally derived from two types of fees,
which the Company charges for processing transactions on its ATM network. The
Company receives an interchange fee from the issuer of the credit or debit card
for processing a transaction when a cardholder uses an ATM in the Company's
network. In addition, in most cases the Company receives a surcharge fee from
the cardholder when the cardholder makes a cash withdrawal from an ATM in the
Company's network.
Interchange fees are processing fees that are paid by the issuer of the
credit or debit card used in a transaction. Interchange fees vary for cash
withdrawals, balance inquiries, account transfers or uncompleted transactions,
the primary types of transactions that are currently
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processed on ATMs in the Company's network. The maximum amount of the
interchange fees is established by the national and regional card organizations
and credit card issuers with which the Company has a relationship. The Company
(or its affiliate, Funding) receives the full interchange fee for transactions
on Company owned ATMs, but sometimes rebates a portion of the fees to the owner
of the ATM location under the applicable lease for the ATM site. The Company
also receives the full interchange fees for transactions on ATMs owned by banks
or third party vendors included within the Company's network, but rebates a
portion of each fee to the bank or third party vendor based upon negotiations
between the parties. The interchange fees received by the Company vary from
network to network and to some extent from issuer to issuer, but generally range
from $0.35 to $0.75 per cash withdrawal. Interchange fees for balance inquiries,
account transfers and denied transactions are generally substantially less than
fees for cash withdrawals. The interchange fees received by the Company from the
card issuer are independent of the service fees charged by the card issuer to
the cardholder in connection with ATM transactions. Service fees charged by card
issuers to cardholders in connection with transactions through the Company's
network range from zero to as much as $2.50 per transaction. The Company does
not receive any portion of the service fees charged by the card issuer to the
cardholder.
In most markets the Company imposes a surcharge fee for cash withdrawals.
The Company expanded its practice of imposing surcharge fees in April 1996 when
national debt and credit card organizations changed rules applicable to their
members to permit these fees. Subsequently, surcharge fees have been a
substantial additional source of revenue for the Company and other ATM network
operators. The surcharge fee for ATMs in the Company's network owned by or
located in banks ranges between $0.50 and $1.50 per withdrawal. The surcharge
fee for other ATMs in the Company's network ranges between $0.50 and $2.50 per
withdrawal. The Company receives the full surcharge fee for transactions on
Company owned ATMs, but sometimes rebates a portion of the fees to the owner of
the ATM location under the applicable lease for the ATM site. The Company also
receives the full surcharge fee for transactions on ATMs owned by banks and
third party vendors included within the Company's network, but rebates a portion
of each fee to the bank or third party vendor based upon a variety of factors,
including transaction volume and the party responsible for supplying vault cash
to the ATM.
In addition to revenues derived from interchange and surcharge fees, the
Company also derives revenues from providing network management services to
banks and third parties owning ATMs included in the Company's ATM network. These
services include 24 hour transaction processing, monitoring and notification of
ATM status and cash condition, notification of ATM service interruptions, in
some cases, dispatch of field service personnel for necessary service calls and
cash settlement and reporting services. The fees for these services are paid by
the owners of the ATMs.
Interchange fees are credited to the Company by networks and credit card
issuers on a periodic basis which is generally either daily or monthly depending
upon the party. Surcharge fees are charged to the cardholder and credited to the
Company by networks and credit card issuers on a daily basis. The Company
periodically rebates the portion of these fees owed to ATM owners and owners of
ATM locations. Fees for network management services are generally paid to the
Company on a monthly basis.
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Comparison of Results of Operations for the Fiscal Years Ended January 31, 1999
and 1998.
Revenues. The Company's total revenues increased to $5,016,828 for the
fiscal year ended January 31, 1999 ("fiscal 1999") from $3,822,156 for the
fiscal year ended January 31, 1997 ("fiscal 1998"). This increase is primarily
attributable to an increase in the number of ATMs in the Company's network on
which the Company imposed surcharge fees for cash withdrawals to 373 in fiscal
1999 from 284 in fiscal 1998. Surcharge fees increased to $3,035,059 or 60.5% of
total revenues in fiscal 1999 from $1,967,594 or 51.5% of total revenues in
fiscal 1998. The increase is also partially due to an increase in the number of
ATMs in the Company's network to 396 in fiscal 1999 from 316 in fiscal 1998. The
increase in the number of ATMs resulted in an increase in the number of
transactions processed on ATMs in the Company's network. Revenues derived from
interchange fees increased to $981,667 in fiscal 1999 from $768,504 in fiscal
1998. Revenues received from Funding under the Management Agreement between the
Company and Funding decreased to $541,380 in fiscal 1999 from $726,389 in fiscal
1998. See the discussion below under "--Revenues from Funding." The Company's
revenues from network services provided to banks and third parties increased to
$458,722 in fiscal 1999 from $359,669 in fiscal 1998.
Revenues from Funding. The Company derives management fees from its
affiliate, Funding, pursuant to a Management Agreement between the Company and
Funding. Under the Management Agreement, Funding receives all interchange fees
for transactions processed on ATMs owned by the Company or Funding for which
Funding provides vault cash. At January 31, 1999 and 1998, Funding had vault
cash located in approximately 242 and 209 ATMs, respectively, owned by Funding
or the Company. In exchange for "driving" the ATMs sold to Funding and providing
accounting, maintenance and communication services, the Company receives a
management fee equal to Funding's "net income." Funding's "net income" is
defined in the Management Agreement as revenues from interchange fees, less
armored security charges, interest expense on funds borrowed to provide vault
cash, ATM location expenses, debt service related to the purchase of the ATMs,
taxes or insurance on ATMs, and a monthly payment to each of Funding's
shareholders representing a return on their equity investment in Funding. The
revenues received by the Company from Funding under the Management Agreement
were $541,380 in fiscal 1999, equal to Funding's "net income" under the
Management Agreement for the same period. Funding's "net income" of $541,380
consisted of $1,254,735 in revenues from interchange fees earned by Funding,
less Funding's expenses in the amount of $690,806 and Funding's return on equity
payment to shareholders of Funding in the amount of $24,894. Pursuant to the
Management Agreement, Funding's expenses for purposes of computing its "net
income" did not include Funding's depreciation, amortization and bad debt
expenses, which were $2,345 for the respective period. The revenues received by
the Company from Funding under the Management Agreement were $726,389 in fiscal
1998, equal to Funding's "net income" under the Management Agreement for the
same period. Funding's "net income" of $726,389 consisted of $1,328,530 in
revenues from interchange fees earned by
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Funding, less Funding's expenses in the amount of $577,247 and Funding's return
on equity payment to shareholders of Funding in the amount of $24,894. Pursuant
to the Management Agreement, Funding's expenses for purposes of computing its
"net income" did not include Funding's depreciation, amortization and bad debt
expenses, which were $4,702 for the respective period. The revenues earned by
Funding from interchange fees declined in fiscal 1999 from fiscal 1998, as a
result of fewer interchange transactions on ATMs for which Funding provided
vault cash. The number of transactions decreased despite the fact that Funding
provided vault cash for a greater number of ATMs in fiscal 1999. The number of
transactions decreased principally because a greater number of the Company's
ATMs charged surcharge fees in fiscal 1999. The imposition of surcharge fees on
cash withdrawals from an ATM generally causes a decrease in use of the ATM for
transactions for which interchange fees are charged. The increase in Funding's
expenses from fiscal 1998 to fiscal 1999 was caused principally by higher
outstanding balances on borrowings by Funding and higher armored security
charges.
Cost of Revenues. The Company's total cost of revenues increased to
$3,348,913 in fiscal 1999 from $2,354,751 in fiscal 1998. The principal
components of cost of revenues are salaries, telecommunication services and
transaction processing charges, interchange and surcharge rebates, ATM site
rentals, maintenance and repairs, and depreciation and amortization. This
increase is principally due to an increase in interchange and surcharge rebates
paid to banks and third party owners of ATMs included in the Company's ATM
network and to ATM site owners. These rebates increased to $1,774,687 in fiscal
1999 from $952,070 in fiscal 1998. In the past, rebates have generally increased
approximately in proportion to increases in total revenues from interchange and
surcharge fees. However, in recent years, as a result of increased competition,
rebates paid to banks and third party owners of ATMs included in the Company's
ATM network and to ATM site owners have increased at a higher rate than revenues
have increased. The increase in cost of revenues is also attributable to
increased depreciation associated with the larger number of ATMs owned by the
Company, and increased telecommunications expenses associated with the larger
number of ATMs in the Company's network.
Gross Margin. Gross profit as a percentage of revenues was 33.2% in fiscal
1999 and 38.4% in fiscal 1998. The decrease in fiscal 1999 was caused by a
number of factors, including increased interchange and surcharge rebates (due to
increased competition), increased depreciation expense resulting from the
purchase of new ATMs, and increased personnel expense and telecommunications
charges resulting from growth in the ATM network.
Operating Expenses. The Company's total operating expenses increased to
$1,215,100 in fiscal 1999 from $1,070,976 in fiscal 1998. The principal
components of operating expenses are professional fees, administrative salaries
and benefits, occupancy costs, sales and marketing expenses and administrative
expenses. This increase is principally attributable to increased professional
fees incurred in connection with the Company's efforts to resume filing periodic
reports with the SEC.
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Other Income (Expense). The Company, through its subsidiary, EFT, extends
short-term loans to Funding, which uses the proceeds as vault cash in the ATMs
owned by the Company and Funding. These loans generally have a term of one month
and bear interest at 12% per annum. Interest income primarily represents the
interest paid by Funding to the Company on the outstanding balance of these
loans. Interest income increased to $34,481 in fiscal 1999 from $22,016 in
fiscal 1998 as a result of higher average outstanding balances.
Interest Expense. Interest expense increased $105,605 to $174,626 in
fiscal 1999 from $69,021 in fiscal 1998. This increase was attributable to
increased capital lease obligations, notes payable related to the acquisition of
additional ATMs and fees paid to Pinnacle Cash Systems, L.L.C. for providing
vault cash.
Net Income before Taxes. The Company's net income before taxes decreased
to $312,670 during the fiscal year ended January 31, 1999 from $349,424 during
the year ended January 31, 1998 as a result of the factors discussed above.
Income Taxes. The Company paid no income taxes in 1999 and 1998, utilizing
operating loss carryforwards to reduce taxable income to zero. In addition, the
Company has recorded a deferred tax credit of $60,000 at January 31, 1999, which
is primarily a result of operating loss carryforwards which management believes
are more likely than not to be realized prior to their expiration between 2005
and 2015. Realization is dependent on generating sufficient future taxable
income to absorb the carryforwards. The amount of the deferred tax credits
considered realizable could be increased or reduced in the near term if
estimates of future taxable income during the carryforward period change. As of
January 31, 1999, the Company had approximately $173,000 of tax credits
available to offset future federal income taxes. These credits expire between
1999 and 2002. The Company also has unused operating loss carryforwards of
approximately $1,500,000, which expire between 2005 and 2015.
Liquidity and Capital Resources
At January 31, 1999, the Company had a working capital deficit of
$145,914, compared to a working capital deficit of $285,736 at January 31, 1998.
The ratio of current assets to current liabilities improved to .83 at January
31, 1999 from .62 at January 31, 1998. The decrease in the working capital
deficit and increase in the ratio of current assets to current liabilities was
due mainly to net income generated by the Company.
The Company has funded its operations and capital expenditures from cash
flow generated by operations, capital leases and borrowings from lenders. Net
cash provided by operating activities was $682,095 and $726,075 in fiscal 1999
and fiscal 1998, respectively. Net cash provided by operating activities in
fiscal 1999 consisted primarily of net income of $372,670 and depreciation of
$410,047, partially offset by deferred income taxes of $60,000 and an increase
in prepaid expenses of $23,199 and a decrease in accounts payable and accrued
expenses of $31,366. The cash provided by operating activities in fiscal 1999
and fiscal
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1998 allowed the Company to purchase plant and equipment (principally ATMs)
totaling $368,816 and $500,945 in fiscal 1999 and fiscal 1998, respectively. The
Company also utilized cash provided by operating activities in fiscal 1999 to
make principal payments on long-term debt and capital lease obligations due in
fiscal 1999. The Company had cash and cash equivalents of $601,922 at January
31, 1999, compared to cash and cash equivalents of $374,675 at January 31, 1998.
Non-cash items for fiscal 1999 and fiscal 1998 include purchases of ATMs
acquired under capital leases of approximately $517,750 and $101,166,
respectively, during the applicable fiscal year. The Company anticipates that
its capital expenditures for fiscal 2000 will total approximately $1,000,000,
primarily for the acquisition of ATMs and related ATM installation costs. This
includes $225,000 to be incurred in acquiring ATMs in connection with the
Company's Year 2000 compliance program. See "--Year 2000 Compliance". The
Company leases 102 of its ATMs under capital lease agreements that expire
between 2000 and 2004 and provide for lease payments at interest rates up to
10.5% per annum. See Note 5 to the Consolidated Financial Statements.
Much of the Company's cash requirements relate to the need for vault cash
for ATMs owned by the Company and Funding. Funding currently provides vault cash
for a majority of these ATMs. See Item 1, "DESCRIPTION OF BUSINESS-Relationship
with Universal Funding Corporation." The Company, through its subsidiary EFT,
loans funds to Funding for vault cash to the extent that Funding cannot obtain
financing on reasonable terms from other sources and to the extent the Company
has cash available to lend to Funding. The maximum outstanding balance of the
loans made by EFT to Funding in fiscal 1999 was $489,000. Certain of the ATMs
owned by the Company are sponsored by banks. Vault cash for these ATMs is
supplied by the sponsoring bank. Vault cash for ATMs in the Company's ATM
network that are owned by banks and third party vendors is provided by the ATM
owner. Currently, the Company does not directly provide vault cash to any ATMs
in its network. At January 31, 1999, Pinnacle Cash Systems, L.L.C. provided
vault cash of $600,000 for approximately 40 ATMs owned by the Company. In March
1999, Pinnacle Cash Systems, L.L.C. terminated its relationship with the
Company. See Item 1, "DESCRIPTION OF BUSINESS-Relationship with Universal
Funding Corporation." As a result of the termination, the Company, through EFT,
has had to lend additional available cash to Funding to provide vault cash for
these ATMs. The Company is currently engaged in discussions with two banks
regarding their willingness to directly provide vault cash for certain ATMs
owned by the Company.
Management believes that the anticipated cash flow from operations will
provide the capital resources necessary to meet the Company's current working
capital needs and existing capital expenditure obligations. The Company expects
that its capital expenditures will increase in the future to the extent that the
Company is able to pursue its strategy of expanding its network and increasing
the number of installed ATMs. Expansion requires funds for purchase or lease of
additional ATMs and for use as vault cash in the ATMs. These increased
expenditures are expected to be funded from cash flow from operations, capital
leases and additional borrowings, to the extent financing is available. There
can be no assurance that the Company will be able to obtain financing under a
credit facility on terms that are acceptable to the Company or at all. The
Company's expansion plans will be limited if the Company is unsuccessful in
obtaining a credit facility or other financing.
Impact of Inflation and Changing Prices
While subject to inflation, the Company was not impacted by inflation
during the past two fiscal years in any material respect.
21
<PAGE>
Trends
The following description of certain trends, events and uncertainties which
may affect the future financial results of the Company. Due to the potential for
change in factors associated with the Company's business, it is impossible to
predict or quantify future changes in the Company's business, results of
operations and financial condition. See "-Cautionary Statement Concerning
Forward-Looking Statements."
Since April 1996, when national debt and credit card organizations changed
rules applicable to their members to permit the imposition of surcharge fees,
the Company has experienced increased competition, both from existing ATM
network operators and from new companies entering the industry.
HONOR, a card organization for whom the Company processes transactions on
its ATM network, has recently lowered by $0.15 per transaction (approximately
25%) the interchange fee it pays to ATM owners, including the Company. For
fiscal 1999, HONOR accounted for approximately 20% of the total interchange fees
received by the Company. The reduction in interchange fees from HONOR has
generally not reduced the net amount received by the Company for transactions on
bank-owned and third party owned ATMs in the Company's network, because the
Company has generally reduced the amount of the rebate payable to the owners of
such ATMs by the amount of the reduction in the interchange fee from HONOR. The
Company cannot determine at this time the net impact of the reduction of these
interchange fees.
The Company has been required to pay higher interchange and surcharge
rebates to certain ATM site owners and owners of ATMs in the Company's network,
as a result of increased competition in the industry. Management believes that
rebates may continue to increase during fiscal 2000 due to competitive
pressures. A continuation of this trend could have a material impact on
earnings.
The amount of surcharge fee charged in the industry for withdrawal trans-
actions has recently increased from $1.00 per transaction to $1.50 per
transaction in certain markets. The Company has initiated the higher surcharge
fees in certain, but not all, of its markets.
Year 2000 Compliance
General Discussion. The Year 2000 issue is the result of computer code
being written using two digits to represent years rather than four digits, which
include the century designation. Without corrective action, it is possible that
computer programs could recognize a date using "00" as the year 1900 rather than
the year 2000. Additionally, certain equipment may contain embedded chips that
include date functions that may be affected by the transition to the Year 2000.
In some systems, Year 2000 problems could result in a system failure or
miscalculations causing disruptions of operations and an inability to process
transactions.
As the operator of an ATM network, the Company relies upon computers and
related telecommunications equipment for the operation of its business. The
Company acts as an
22
<PAGE>
intermediary for the transfer of data between its clients and third parties, and
in doing so supplies the operating and technical resources necessary to cause
electronic data to be transmitted. The Company also owns and operates ATMs,
which utilize computer hardware and software to operate.
The Company has initiated a Year 2000 Project ("Project2000") to locate
and address possible Year 2000 problems. The Company has assigned a project
coordinator for Project2000 who generally manages Project2000, ensures that
Project2000 meets or exceeds requirements set forth by banking regulatory
agencies including the Federal Deposit Insurance Corporation, the Federal
Reserve Bank, and the Office of the Comptroller of the Currency, and assists in
identifying points of concern and providing solutions.
Status of Year 2000 Readiness. The Company's Project2000 consists of the
following five phases: awareness, assessment, corrective action, validation
and implementation.
The awareness phase consists of defining the scope of the Year 2000
problem and establishing a corporate infrastructure and overall strategy to
perform compliance work. In the assessment phase, the Company attempts to
identify all hardware, software, networks, ATMs, other various processing
platforms and customer and vendor interdependencies affected by the Year 2000
problem. This assessment goes beyond information systems and includes equipment
and support systems that may be dependent on embedded microchips. The corrective
action phase involves code enhancements, hardware and software upgrades, system
replacements, vendor certification and other associated changes. The validation
phase involves the testing of incremental changes to hardware and software
components. In the implementation phase, systems are to be certified as Year
2000 compliant. For any systems that are not determined to be compliant, the
consequences must be assessed, and corrective actions or contingency plans put
into effect.
Awareness Phase. The Company's Project2000 encompasses an overall strategy
to address Year 2000 problems. The Company's Project2000 focuses chiefly upon
the in-house, real-time, on-line systems, but also includes assessing and
assuring year 2000 compliance from third parties. Because of the seriousness of
the year 2000 issues, the Company appointed a Project2000 Coordinator and
established a Project2000 team consisting of the Coordinator, all officers of
the Company and the Accounting Manager.
To determine the size of the compliance project relating to internal
systems, the Company searched all of its production computer programs for
references to, and actions taken by reference to, the date (year in particular),
and compiled a list of those programs for evaluation for Project2000 issues. The
Company searched for date references that related to performing calculations or
that provided application program logic affecting the decision path of the
application, and date-driven calculations using "00" as an operand.
The Company also identified all third parties whose ability to comply with
Year 2000 problems might affect the Company's operations, which include product
and service vendors and suppliers, including card issuers and other real-time
connections, and clients.
The Company has completed the awareness phase.
23
<PAGE>
Assessment Phase. The assessment phase involves three components: (1)
determining Year 2000 compliance of the Company's internal systems used to
process data and to transfer data between its clients and third parties,
including the Company's computer switch, (2) determining Year 2000 compliance of
its individual ATMs and (3) determining Year 2000 compliance of third party
vendors and clients.
Internal Systems. With respect to the Company's internal data process-
ing and transfer systems, in January 1985, as a result of incorrect year-end
date processing, the Company implemented a policy requiring all production
programs making date-related processing decisions to do so using Julian dates.
This form of date processing should not be sensitive to the century rollover.
Consequently, the Company's computer switch was developed using a year 2000
compliant philosophy. The principal piece of equipment comprising the computer
switch is a Tandem computer. In 1997, the Company entered into a lease for a new
Tandem computer that the Company believes is Year 2000 compliant. The Company
also believes that the operating software for the new system is Year 2000
compliant. To assess its internal systems, the Company evaluated all references
to, and actions taken by reference to, the date (year in particular), in its
internal systems. The Company also examined systems and equipment that may be
dependent upon embedded microprocessors. The Company concluded from the
evaluation that its internal systems were Year 2000 compliant. In order to
verify this conclusion, a comprehensive test was completed on September 30, 1997
of all of the Company's critical applications. Prior to cutting over from its
old production system to its new production system on that date, the Company had
the opportunity to set the clock forward in a controlled environment to test all
internal systems and program functionality with regard to the year 2000
rollover. The test revealed no Year 2000 problems.
The Company believes its conclusion is supported by the fact that
the Company's system is not highly date-dependent. The Company processes
transactions in segments from 2:00 p.m. one day through 2:00 p.m. the next day.
Consequently, the Company believes that the window of risk for the Company's
internal systems from the year 2000 rollover should be limited to a maximum of
24 hours. Furthermore, the Company processes dates and makes all programmatic
date decisions based on a Julian representation of the date which should not be
vulnerable to the year 2000 rollover. The Company believes that its conclusion
is further supported by the fact that all of the application code was developed
in-house, all source code is intact and available, and the Company has the
in-house expertise to revise and maintain the software as needed for the year
2000 rollover.
Individual ATMs. The Company has assessed whether its individual ATMs
are Year 2000 compliant and determined that as of February 28, 1999
approximately 70% of the Company's individual ATMs are Year 2000 compliant or
can be made Year 2000 compliant with the purchase of software upgrades from the
manufacturer.
Third Party Compliance. The Company has attempted to obtain
initial certification from its "higher risk" vendors as to Year 2000 Compliance.
The Company has mailed questionnaires to these vendors to identify and, to the
extent possible, to resolve issues involving Year 2000 issues. Responses to
these questionnaires have been verified against information included with
24
<PAGE>
current releases of vendors' products and services and on vendor web sites and
are shared with the Company's clients upon request. In addition, the Company has
engaged in joint testing with most of these vendors and service providers,
testing each party's system and the interface between the systems. The Company
believes that all mission critical vendors and service providers have completed
their internal Year 2000 corrective actions. Service providers, vendors and
suppliers whom the Company deems "no risk" will not be contacted. The Company is
also coordinating with its clients regarding their activities related to the
Year 2000 problem. Most of the Company's clients maintain their own application
programs, although they utilize the Company's computer and network resources.
The Company conducted its own testing on the systems of its largest clients, and
did not discover any Year 2000 problems.
The assessment phase is complete.
Corrective Action Phase. The corrective action phase involves
addressing compliance problems identified during the assessment phase.
Internal Systems. Because the assessment phase revealed no material
Year 2000 problems, the Company does not plan any system replacements, code
enhancements or hardware or software upgrades. However, the Company does plan to
implement "mature" releases of the Tandem operating system and to monitor Tandem
Year 2000 Compliance statements regarding such releases.
Individual ATMs. With respect to those ATMs that can be made Year
2000 compliant with the purchase of software upgrades from the manufacturer,
the Company expects to obtain software upgrades at no charge because of the
recent date of purchase of these ATMs. However, in the event the Company must
purchase ATM software upgrades, management estimates that the cost should not
exceed $50,000. With respect to the 30% of its ATMs that are not Year 2000
compliant and cannot be upgraded, the Company expects to replace approximately
half of these ATMs prior to the Year 2000 as part of an ongoing program of
replacing ATMs and other equipment for technology and maintenance reasons. Some
of these ATMs may be replaced with used Year 2000 compliant ATMs to minimize
cost. The balance of the ATMs that are not Year 2000 compliant are located in
marginally profitable locations, will not be replaced and will be phased out.
Third Party Compliance. Because no material Year 2000 problems have
been discovered to date, the Company does not currently plan any corrective
action with respect to service providers, vendors, suppliers and clients.
The corrective action phase has been completed as to the Company's
internal systems and third party vendors, although as described below, the
Company intends to continue testing in these areas. The corrective action phase
with respect to individual ATMs will be completed prior to the Year 2000 when
all replacement or upgraded ATMs are expected to be in operation.
Validation Phase. During the validation phase, the Company will continue
to test its internal systems, test its new and upgraded ATMs for Year 2000
compliance and engage in further testing with certain third parties.
25
<PAGE>
Internal Systems. The Company will test and validate all incre-
mental changes to hardware, software, and connections with other systems as
those changes (or additions) occur in the ordinary course of business prior to
Year 2000. All users of the Company's products and services have been asked to
validate the Company's Year 2000 compliance. All such testing should be complete
by August 31, 1999.
Individual ATMs. Year 2000 compliance of all replacement and upgraded
ATMs will be tested prior to or at the time such ATMs are brought on line.
Third Party Compliance. During the first half of 1999, the Company
intends to review and possibly "re-validate" certifications from outside service
providers, vendors, and suppliers for compliance and will request each to
provide quarterly statements of compliance through the end of 1999.
The validation phase will be completed at the times described above.
Implementation Phase. The Company plans a final full internal system test
on or about September 1, 1999. Any resulting component failure (internal and
external) will be resolved to the Company's satisfaction prior to December 30,
1999, or the component will be (1) eliminated or replaced or (2) suspended from
production on December 30, 1999 and implemented after January 1, 2000 and after
re-certification.
Regulatory and Independent Assessment. In addition to developing an
internal risk assessment methodology with respect to Year 2000 issues, the
Company is subject to external examinations and project reviews by regulatory
agencies and governmental bodies of the federal government. To date, these
examinations have not identified any material issues regarding the Company's
Year 2000 compliance efforts.
At this time, the Company does not anticipate obtaining verification or
validation by independent third parties to assess Year 2000 risk. The Company's
Project2000 team continues to review the Company's readiness for the Year 2000.
Year 2000 Compliance of Support Systems. In addition to computers and
related systems, the operation of office and facilities equipment, such as fax
machines, photocopiers, security systems, air conditioning, fire systems and
other common devices may be affected by Year 2000 problems. The Company does not
expect to devote substantial resources or time to evaluating potential Year 2000
problems with respect to these systems, other than contacting the manufacturer
or provider of these systems to determine Year 2000 compliance and taking or
arranging for appropriate corrective action.
Costs of Year 2000 Compliance. The principal cost incurred by the Company
in connection with Project2000 will be the cost of replacing obsolete ATM
equipment as part of the Company's ongoing process of upgrading and modernizing
its ATMs. As of April, 1999, approximately 70 NCR model 1773 ATMs currently in
operation are not and will not be made Year 2000 compliant. These ATMs are
predominately in low volume sites, many of which do
26
<PAGE>
not support the expense of replacement with new equipment. The Company expects
to simply pull out of the lowest tier of these sites, replace the medium volume
sites with low cost pre-owned equipment, and replace the highest volume sites
with new and higher end pre-owned equipment. The expected remaining cost of this
project is approximately $225,000. The Company has previously incurred
approximately $175,000 in expenses related to this project.
The Company has not identified any other significant costs directly
relating to the Year 2000 problem. The cost of compliance testing of external
client systems is billed to the Company clients. Testing and repair, and the
day-to-day burden of Project2000 has consumed incremental overhead of managers
and executive officers of the Company. Such overhead has been effectively
absorbed with no material effect on budgets and operations.
Possible Consequences of Year 2000 Problems. It is not possible to predict
with any certainty the extent and nature of Year 2000 problems that the Company
may encounter. Management believes that the following are possible consequences
of Year 2000 problems that could arise:
o operational inconveniences and inefficiencies for the Company and its
clients which will divert management's time and attention and
financial and human resources from ordinary business activities;
o serious system failures that will cause material business disruptions
or require significant efforts by the Company or its clients to
prevent or alleviate material business disruptions;
o routine business disputes and claims for pricing adjustments or
penalties due to Year 2000 Problems incurred by clients, which would
be resolved in the ordinary course of business; and
o serious business disputes alleging that the Company failed to comply
with the terms of contracts or industry standards of performance, some
of which could result in litigation or contract termination.
Contingency Plans. The Company has developed department-by-department
contingency plans to be implemented if its efforts to identify and correct Year
2000 Problems affecting its internal systems are not effective. Depending upon
the systems affected, these plans include accelerated replacement of affected
equipment or software; short- to medium-term use of backup sites, equipment, and
software, increased work hours for Company personnel; and similar approaches.
Disclaimer. Management of the Company believes that it is not possible to
determine with complete certainty that all Year 2000 problems affecting the
Company or its clients have been or will be identified or corrected. The number
of devices that could be affected and the interactions among these devices are
simply too numerous. In addition, no one can accurately predict how many Year
2000-related failures will occur or the severity, duration, or financial
consequences of any such failure.
The Company's policy is not to acquire hardware, software or other
technology that is not contractually represented by the vendor as Year 2000
compliant. However, the Company cannot be sure that all of these products are in
fact Year 2000 compliant. In addition, although the
27
<PAGE>
Company does not have any contractual responsibility to ensure that its clients'
application programs are compliant, if its clients experience Year 2000 problems
with such applications, such clients may reduce or cease use of the Company's
products and computing resources. The successful operation of the Company's data
processing and transfer systems is dependent upon the proper functioning of the
systems of third parties that utilize the Company's services. Any failure of
third parties to resolve Year 2000 problems in a timely manner could materially
adversely affect the Company's operations.
There can be no assurance that the Company will identify and resolve all
Year 2000 issues in a timely manner. Any failure by the Company to adequately
resolve all Year 2000 issues could have a material adverse effect on the
Company's business, financial condition, and results of operation. See Item 6,
"Management's Discussion and Analysis OR PLAN OF OPERATION Cautionary Statement
Concerning Forward-Looking Statements".
Future Changes in Accounting Principles
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes the accounting
for derivative instruments, including certain derivative instruments imbedded in
other contracts and hedging activities. This Statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. Management has
not yet determined the impact of adopting this pronouncement on the Company's
results of operations or financial position.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This SOP provides
guidance on accounting for the costs of computer software developed or obtained
for internal use. This SOP is effective for fiscal years beginning after
December 15, 1998. Management has not yet determined the impact of adopting this
pronouncement on the Company's results of operations or financial position.
Cautionary Statement Concerning Forward-Looking Statements
Certain statements contained in this Annual Report on Form 10-KSB that are
not statements of historical fact constitute "forward-looking statements" within
the meaning of Section 21E of the Exchange Act. These statements are subject to
risks and uncertainties, as described below.
Examples of forward-looking statements include, but are not limited to:
(i) projections of revenues, income or loss, earnings or loss per share, capital
expenditures, the payment or non-payment of dividends, capital structure and
other financial items, (ii) statements of plans and objectives of the Company or
its management or Board of Directors, including plans or objectives relating to
the products or services of the Company, (iii) statements of future economic
performance, and (iv) statements of assumptions underlying the statements
described in (i), (ii) and (iii). Forward-looking statements can often be
identified by the use of forward-
28
<PAGE>
looking terminology, such as "believes," "expects," "may," "will," "should,"
"could," "intends," "plans," "estimates" or "anticipates," variations thereof or
similar expressions.
Forward-looking statements are not guarantees of future performance or
results. They involve risks, uncertainties and assumptions. The Company's future
results of operations, financial condition and business operations may differ
materially from those expressed in these forward-looking statements. Investors
are cautioned not to put undue reliance on any forward-looking statement.
There are a number of factors that could cause actual results to differ
materially from those discussed in the forward-looking statements, including
those factors described below. Other factors not identified herein could also
have such an effect. Among the factors that could cause actual results to differ
materially from those discussed in the forward-looking statements are the
following:
o Changes in laws or card association rules affecting the Company's ability
to impose surcharge fees, and continued customer willingness to pay
surcharge fees;
o The ability of the Company to form new strategic relationships and
maintain existing relationships with issuers of credit cards and national
and regional card organizations;
o The ability of the Company to expand its ATM base and transaction
processing business;
o The availability of financing at reasonable rates for vault cash and for
other corporate purposes, including funding the Company's expansion plans;
o The ability of the Company to maintain its existing relationships with two
operators of combination convenience stores and gas stations at which the
Company maintains 44 and 41 ATMs, respectively, as of January 31, 1999;
o The ability of the Company to keep its ATMs at other existing locations at
reasonable rental rates and to place additional ATMs in preferred
locations at reasonable rental rates;
o The extent and nature of competition from financial institutions, credit
card processors and third party operators, many of whom have substantially
greater resources than the Company;
o The ability of the Company to maintain its ATMs and information systems
technology without significant system failures or breakdowns;
o The ability of the Company to cause its ATMs and information systems to be
Year 2000 compliant and the extent to which the systems of card issuers,
card organizations, banks and other companies on which the Company's
systems rely are Year 2000 compliant;
o The extent of losses from errors and omissions, employee dishonesty and
vault cash losses, for which the Company does not maintain insurance;
29
<PAGE>
o The ability of the Company to develop new products and enhance existing
products to be offered through ATMs, and the ability of the Company to
successfully market these products;
o The ability of the Company to identify suitable acquisition candidates, to
finance and complete acquisitions and to successfully integrate acquired
assets and businesses into existing operations;
o The ability of the Company to retain senior management and other key
personnel;
o Changes in general economic conditions.
Any forward-looking statement contained herein is made as of the date of this
document. The Company does not undertake to publicly update or correct any of
these forward-looking statements in the future.
30
<PAGE>
Item 7. Financial Statements
UNIVERSAL MONEY CENTERS, INC.
JANUARY 31, 1999 AND 1998
CONTENTS
Page
INDEPENDENT ACCOUNTANTS' REPORT............................. 32
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets........................................... 33
Statements of Income..................................... 35
Statements of Changes in Stockholders' Equity ........... 36
Statements of Cash Flows................................. 37
Notes to Financial Statements............................ 38
31
<PAGE>
Independent Accountants' Report
-------------------------------
Board of Directors
Universal Money Centers, Inc.
Mission, Kansas
We have audited the accompanying consolidated balance sheets of UNIVERSAL
MONEY CENTERS, INC. as of January 31, 1999 and 1998, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of UNIVERSAL
MONEY CENTERS, INC. as of January 31, 1999 and 1998, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
As described in Note 3, the Company has not filed certain of the financial
and other information required by the Securities and Exchange Act of 1934 with
the Securities and Exchange Commission (SEC) and its stockholders. The Company
has resumed its periodic reporting to the SEC and its stockholders and has filed
the Form 10-KSB for the fiscal year ended January 31, 1998 and the Forms 10-QSB
for the fiscal year ended January 31, 1999. No provision for costs or other
adjustments which could ultimately result from the outcome of this uncertainty
has been recorded in the accompanying financial statements.
/S/ BAIRD, KURTZ & DOBSON
Kansas City, Missouri
April 29, 1999
32
<PAGE>
UNIVERSAL MONEY CENTERS, INC.
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1999 AND 1998
ASSETS
1999 1998
--------- ---------
CURRENT ASSETS
Cash $ 601,922 $ 374,675
Accounts receivable--trade,less allowance for
doubtful accounts:1999-$21,370;1998-$21,380 39,012 87,256
Accounts receivable--affiliate 35,064 2,340
Inventories 300 300
Prepaid expenses and other 12,894 9,176
Interest receivable--affiliate 3,636 2,059
--------- ---------
Total Current Assets 692,828 475,806
--------- ---------
PROPERTY AND EQUIPMENT, At cost
Equipment 3,453,071 2,578,635
Leasehold improvements 117,803 117,803
Vehicles 9,722 9,722
--------- ---------
3,580,596 2,706,160
Less accumulated depreciation 1,873,919 1,475,325
--------- ---------
1,706,677 1,230,835
--------- ---------
OTHER ASSETS
Deferred income taxes 375,000 315,000
Other 30,531 12,383
--------- ---------
405,531 327,383
--------- ---------
$2,805,036 $2,034,024
========== ==========
See Notes to Consolidated Financial Statements
33
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
1999 1998
-------- ---------
CURRENT LIABILITIES
Current maturities of long-term debt and
capital lease obligations $ 314,606 $ 206,040
Accounts payable 313,319 296,455
Accounts payable--affiliate 35,551
Accrued expenses 210,817 223,496
---------- ----------
Total Current Liabilities 838,742 761,542
---------- ----------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 714,087 392,945
---------- ----------
STOCKHOLDERS' EQUITY
Common stock; no par value; $.01
stated value; 40,000,000 shares
authorized; 39,851,380 issued for
1999 and 1998 398,514 398,514
Additional paid-in capital 18,593,430 18,593,430
Retained earnings (deficit) (16,077,429) (16,450,099)
---------- ----------
2,914,515 2,541,845
Less treasury stock, at cost; common;
558,311 shares for 1999 and 1998 (1,662,308) (1,662,308)
---------- ----------
1,252,207 879,537
---------- ----------
$2,805,036 $2,034,024
========== ==========
See Notes to Consolidated Financial Statements
34
<PAGE>
UNIVERSAL MONEY CENTERS, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JANUARY 31, 1999 AND 1998
1999 1998
-------- ---------
NET REVENUES $5,016,828 $3,822,156
COST OF REVENUES 3,348,913 2,354,751
---------- ----------
GROSS PROFIT 1,667,915 1,467,405
OPERATING EXPENSES 1,215,100 1,070,976
---------- ----------
INCOME FROM OPERATIONS 452,815 396,429
---------- ----------
OTHER INCOME (EXPENSE)
Interest income 34,481 22,016
Interest expense (174,626) (69,021)
----------- ----------
(140,145) (47,005)
----------- ----------
INCOME BEFORE INCOME TAXES 312,670 349,424
INCOME TAX CREDIT (60,000) (315,000)
----------- ----------
NET INCOME $ 372,670 $ 664,424
========== ==========
BASIC AND DILUTED EARNINGS PER SHARE $ .01 $ .02
===== =====
See Notes to Consolidated Financial Statements
35
<PAGE>
UNIVERSAL MONEY CENTERS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED JANUARY 31, 1999 AND 1998
<TABLE>
<CAPTION>
Additional Retained
Common Paid-In Earnings Treasury
Stock Capital (Deficit) Stock Total
-------- ----------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 31, 1997 $398,514 $18,593,430 $(17,114,523) $(1,662,308) $ 215,113
Net income 664,424 664,424
-------- ----------- ------------- ------------ ----------
BALANCE, JANUARY 31, 1998 398,514 18,593,430 (16,450,099) (1,662,308) 879,537
Net income 372,670 372,670
-------- ----------- ------------- ------------ ----------
BALANCE, JANUARY 31, 1999 $398,514 $18,593,430 $(16,077,429) $(1,662,308) $1,252,207
======== =========== ============= ============ ==========
</TABLE>
See Notes to Consolidated Financial Statements
36
<PAGE>
UNIVERSAL MONEY CENTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 31, 1999 AND 1998
1999 1998
-------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 372,670 $ 664,424
Items not requiring (providing) cash:
Depreciation and amortization 410,047 287,997
Loss on disposal of property and equipment 298
Deferred income taxes (60,000) (315,000)
Changes in:
Accounts receivable 13,943 (5,715)
Inventories 7,873
Prepaid expenses and other (23,199) 2,806
Accounts payable and accrued expenses (31,366) 83,392
----------- -----------
Net cash provided by operating
activities 682,095 726,075
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (368,816) (500,945)
Proceeds from sale of property and equipment 150
Net cash used in investing activities (368,816) (500,795)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments under long-term debt and
capital lease obligations (250,445) (227,251)
Proceeds from issuance of long-term debt 164,413 51,000
----------- -----------
Net cash used in financing activities (86,032) (176,251)
----------- -----------
INCREASE IN CASH 227,247 49,029
CASH, BEGINNING OF YEAR 374,675 325,646
----------- -----------
CASH, END OF YEAR $ 601,922 $ 374,675
=========== ===========
See Notes to Consolidated Financial Statements
37
<PAGE>
UNIVERSAL MONEY CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Company is engaged primarily in providing network and switching services
for automated teller machines (ATMs). Fees are received from the members of the
Company's network as well as card users from other ATM networks using the
Company's network. The Company grants unsecured credit to its customers. As of
January 31, 1999 and 1998, the Company had approximately 396 and 316 ATMs in the
network, respectively.
Operating Segments
The Company conducts business under one primary operating segment: operating
and servicing of automated teller machines (ATMs). Revenues are generated from
surcharges, interchange fees and transaction processing in ATMs located in
California, Colorado, Florida, Illinois, Kansas, Maryland, Missouri, New Mexico,
North Carolina, Ohio, Oklahoma, Pennsylvania and Texas. The Company's major
revenue source, which exceeds 10% of revenues, is discussed in Note 9.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Property and Equipment
Property and equipment are depreciated over the estimated useful life of each
asset, primarily five to seven years. Annual depreciation is computed using the
straight-line method.
Principles of Consolidation
The consolidated financial statements include the accounts of Universal Money
Centers, Inc., and its wholly-owned subsidiaries, Electronic Funds Transfer,
Inc., Corporate Payment Systems, Inc., (inactive) and A.M. Corporation
(inactive). All significant intercompany accounts and transactions have been
eliminated in consolidation.
Income Taxes
Deferred income tax liabilities and assets are recognized for the tax effects
of differences between the financial statement and tax bases of assets and
liabilities. A valuation allowance is established to reduce deferred tax assets
if it is more likely than not that a deferred tax asset will not be realized.
38
<PAGE>
UNIVERSAL MONEY CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Inventory
All inventories are stated at the lower of cost or market. As of January 31,
1999 and 1998, inventory consisted primarily of repair parts for ATMs, with the
cost of such parts being determined using the FIFO (first-in, first-out) method.
Future Changes in Accounting Principles
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes the accounting
for derivative instruments, including certain derivative instruments imbedded in
other contracts and hedging activities. This Statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. Management has
not yet determined the impact of adopting this pronouncement on the Company's
results of operations or financial position.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This SOP provides
guidance on accounting for the costs of computer software developed or obtained
for internal use. This SOP is effective for fiscal years beginning after
December 15, 1998. Management has not yet determined the impact of adopting this
pronouncement on the Company's results of operations or financial positions.
NOTE 2: RELATED PARTY TRANSACTIONS
The chairman and chief executive officer (CEO), who is the largest
stockholder of the Company, is also the CEO and a stockholder of Universal
Funding Corporation (UFC). In addition, the other two stockholders of UFC are
also stockholders of the Company.
The Company receives management and leasing fees from UFC to provide
administrative services, computer switching, maintenance, ATMs and software for
the ATMs. Such fees totaled $541,380 and $726,389 for the years ended January
31, 1999 and 1998, respectively. Under the agreement, these fees are paid on a
monthly basis subsequent to UFC meeting all other monthly cash flow obligations.
The Company assumes the risks of theft or other shortages of cash from the
ATMs funded by UFC. As of January 31, 1999 and 1998, UFC had vault cash of
approximately $2,500,000 (located in 242 ATMs) and $1,900,000 (located in 209
ATMs), respectively. During the years ended January 31, 1999 and 1998, the
Company incurred losses of $10,075 and $22,616 from vault cash shortages.
Included in accounts payable--affiliate on the accompanying consolidated balance
sheet for the year 1998 is a payable of $35,551 to UFC for such shortages.
39
<PAGE>
UNIVERSAL MONEY CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
NOTE 2: RELATED PARTY TRANSACTIONS (Continued)
The agreement with UFC for management fees provides that the fee will equal
the net income of UFC (excluding depreciation, amortization and stockholder
return on original capital investment, which are treated as distributions). As
of January 31, 1999 and 1998, the Company had a receivable of $35,064 and
$2,340, respectively, for these fees.
Certain members of the Company's management extended loans to UFC. UFC used
the proceeds from these loans to provide vault cash to the ATMs. The interest
UFC pays on these loans directly reduces UFC's income subject to the management
fee. As of January 31, 1999 and 1998, the balance of these loans was
approximately $1,800,000 and $1,350,000, respectively, with interest rates
ranging from 12% to 18%, respectively. Additionally, the Company extended loans
to UFC to provide vault cash. For the years ended January 31, 1999 and 1998, the
maximum balance of the loans was $489,000 and $202,000, respectively. During the
years ended January 31, 1999 and 1998, the Company earned interest income of
$34,338 and $21,718, respectively, from these loans.
The Company has the option to purchase UFC from its current stockholders for
approximately $165,000.
Since the end of fiscal year 1987, the Company has issued 17,201,897 shares
which have not been registered with the Securities and Exchange Commission. All
of these shares are restricted as to resale. Of the shares issued, 12,112,644
were issued to related parties as follows:
o 9,600,000 shares were sold to the chairman and CEO of the Company for $.01
per share in two separate transactions; 1,000,000 shares in December 1994
and 8,600,000 shares authorized in a 1995 Board of Directors meeting and
subsequently issued in April 1996.
o 75,000, 200,000 and 975,000 shares were issued to the Board of Directors
and officers in 1996, 1995 and 1990, respectively, in lieu of compensation
for their services.
o 400,000 shares were issued to a former employee in June 1994 in lieu of
compensation. These shares were then repurchased by the Company as
treasury stock in June 1996 as part of a negotiated settlement with the
former employee.
o 843,894 shares were issued to an individual who is a one-third owner of
UFC. Of the 843,894 shares, 724,932 and 23,639 were sold to the individual
in 1987 and 1989 for $.1875 and $.08 per share, respectively. The
remaining 95,323 shares were issued in 1989 to the individual as
consideration for pledging a certificate of deposit as collateral for the
Company's outstanding debt.
o 18,750 shares were sold to a director of the Company in 1989 for $.08
per share.
The Company has a liability for back wages due to the chairman and CEO of the
Company of approximately $140,000 plus $30,000 in accrued interest (at 5%). This
represents an informal, negotiated deferral in compensation from 1993-1995 in an
attempt to improve the Company's cash flow during those years.
40
<PAGE>
UNIVERSAL MONEY CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
NOTE 3: FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION
Although the Company is a public company, it has not filed certain of the
information required by the Securities Exchange Act of 1934 including, but not
limited to, Forms 10-K, 10-Q and 8-K and other reports to stockholders.
The Company has resumed its periodic reporting to the SEC and its
stockholders and has filed the Form 10-KSB for the fiscal year ended January 31,
1998 and the Forms 10-QSB for the fiscal year ended January 31, 1999. The effect
on the Company's financial statements, if any, arising from these late filings
have not been determined.
NOTE 4: OPERATING LEASES
The Company leases office space under noncancellable operating leases which
expire through August 2001. Rent expense for office space for the years ended
January 31, 1999 and 1998 was $76,320 and $76,310, respectively.
The Company leases computer equipment under noncancellable operating leases
which expire through February 2001. The Company also leases locations to place
ATMs under noncancellable operating leases which expire through March 2001.
Total rent expense related to the lease of computer equipment and locations to
place ATMs for the years ended January 31, 1999 and 1998 was $97,014 and
$86,522, respectively.
Future minimum lease payments at January 31, 1999 are as follows:
2000 $155,846
2001 122,410
2002 48,763
--------
Future minimum lease payments $327,019
========
41
<PAGE>
UNIVERSAL MONEY CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
NOTE 5: LONG-TERM DEBT
1999 1998
-------- --------
Installment notes payable (A) $ 306,369 $224,278
Capital lease obligations (B) 641,357 286,100
Installment notes payable (C) 74,489 79,212
Installment note payable (D) 6,478 9,395
---------- --------
1,028,693 598,985
Less current maturities 314,606 206,040
---------- --------
$ 714,087 $392,945
========== ========
(A) Various installment notes payable; due on demand; if no demand
made, due at various dates through May 2003; with interest at
10.25% to 10.5%; collateralized by equipment and personally
guaranteed by the Company's Chairman and CEO. Subsequent to the
year ended January 31, 1999, the demand feature was waived through
January 31, 2000.
(B) Capital leases covering ATMs and office equipment with monthly
payments through January 2004 with $32,459 being personally
guaranteed by the Company's Chairman and CEO.
(C) Various installment notes payable; due at various dates through
February 2003, with interest at 9.25% to 10%; collateralized by
equipment.
(D) Installment note payable; due in monthly payments of $311 including
interest at 10% through December 2001; collateralized by equipment.
42
<PAGE>
UNIVERSAL MONEY CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
NOTE 5: LONG-TERM DEBT (Continued)
Aggregate annual maturities of long-term debt and payments on capital
lease obligations at January 31, 1999 are as follows:
Long-Term Debt Capital Lease
(Excluding Leases) Obligations
------------------ -----------
2000 $111,219 $239,966
2001 118,309 164,956
2002 99,409 120,623
2003 45,719 120,623
2004 12,680 84,904
-------- --------
$387,336 731,072
========
Less amount representing interest 89,716
--------
Present value of future minimum
lease payments 641,356
Less current maturities 203,387
--------
$437,969
========
Property and equipment include the following property under capital leases:
1999 1998
--------- ---------
Equipment cost $922,611 $558,054
Less accumulated depreciation 332,966 164,659
--------- ---------
$589,645 $393,395
========= =========
As of January 31, 1999 and 1998, the carrying amount of long-term debt
approximates its fair value.
43
<PAGE>
UNIVERSAL MONEY CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
NOTE 6: EARNINGS PER SHARE
The details of the basic and diluted earnings per share calculations for the
year ended January 31, 1999 and 1998 are as follows:
1999
----------------------------------------
Weighted
Net Average Shares Per Share
Income Outstanding Amount
------- -------------- ----------
Net income $372,670
--------
Basic and diluted earnings
per share:
Income available to
common stockholders $372,670 39,293,069 $ .01
======== ========== =====
1998
----------------------------------------
Weighted
Net Average Shares Per Share
Income Outstanding Amount
------- -------------- ----------
Net income $664,424
--------
Basic and diluted earnings
per share:
Income available to
common stockholders $664,424 39,293,069 $ .02
======== ========== =====
NOTE 7: INCOME TAXES
The credit for income taxes includes these components:
1999 1998
-------- --------
Deferred income taxes $ 82,000 $ 21,000
Utilization of net operating loss
carryforwards 24,000 110,000
Change in deferred tax asset
valuation allowance (166,000) (446,000)
--------- ----------
$(60,000) $(315,000)
========= ==========
44
<PAGE>
UNIVERSAL MONEY CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
NOTE 7: INCOME TAXES (Continued)
A reconciliation of income tax (credit) at the statutory rate to the
Company's actual income tax expense (credit) is shown below:
1999 1998
-------- ---------
Computed at the statutory rate $ 107,000 $ 119,000
Increase (decrease) resulting from:
Change in deferred tax asset
valuation allowance (166,000) (446,000)
Other (1,000) 12,000
----------- -----------
Actual tax credit $ (60,000) $ (315,000)
=========== ===========
The tax effects of temporary differences related to deferred taxes were:
1999 1998
-------- ---------
Deferred tax assets:
Allowance for doubtful accounts $ 7,000 $ 8,000
Accumulated depreciation 38,000 80,000
Accrued expenses 17,000
Net operating loss carryforwards 596,000 620,000
General tax credits 173,000 195,000
----------- -----------
Net deferred tax asset before
valuation allowance 814,000 920,000
----------- -----------
Valuation allowance:
Beginning balance (605,000) (1,051,000)
Decrease 166,000 446,000
----------- -----------
Ending balance (439,000) (605,000)
----------- -----------
Net deferred tax asset $ 375,000 $ 315,000
========== ===========
As of January 31, 1999, the Company had approximately $173,000 of tax credits
available to offset future federal income taxes. These credits expire between
1999 and 2002. The Company also has unused operating loss carryforwards of
approximately $1,500,000, which expire between 2005 and 2015.
45
<PAGE>
UNIVERSAL MONEY CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
NOTE 8: PROFIT SHARING PLAN
During the fiscal year ended January 31, 1999, the Company established a
SIMPLE IRA profit-sharing plan covering employees with two years or more of
service. Contributions are limited to 3% of total compensation paid participants
during the plan year. Contributions to the Plan were $16,900 for 1999.
NOTE 9: SIGNIFICANT ESTIMATES AND CONCENTRATIONS
Generally accepted accounting principles require disclosure of certain
significant estimates and current vulnerabilities due to certain concentrations.
Those matters include the following:
Significant Agreements
Approximately 11% and 19% for 1999 and 1998, respectively, of the Company's
revenues come from services provided for Universal Funding Corporation (UFC), a
related party (see Note 2). Additionally, the Company earned approximately 70%
of its surcharging fees from ATMs containing UFC's vault cash during the years
ended January 31, 1999 and 1998. Currently, UFC obtains cash to fund its ATMs
primarily from short-term borrowings from various private investors, including
members of Universal Money Center's management. UFC is uncertain if additional
sources of cash would be available if these notes were not renewed.
Significant Customers
The Company has relationships with two operators of combination convenience
stores and gas stations for whom approximately 44 and 41 ATMs, respectively, as
of January 31, 1999 have been installed at their locations. The aggregate
revenues from these companies accounted for approximately 22% of the Company's
revenues for 1999 and 1998.
Fees
Currently, the Company is permitted to charge a "surcharge" to users of the
Company's network who are members of other networks. Such surcharges are being
challenged at various governmental levels. Successful litigation to eliminate
these surcharges could have a material adverse effect on the results of
operations and financial condition of the Company. During the years ended
January 31, 1999 and 1998, the Company recognized revenue of $3,035,059 and
$1,967,594, respectively, from surcharges.
Filings with the Securities and Exchange Commission
As discussed in Note 3, the Company has resumed its filings with the
Securities and Exchange Commission and its stockholders.
46
<PAGE>
UNIVERSAL MONEY CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
NOTE 9: SIGNIFICANT ESTIMATES AND CONCENTRATIONS (Continued)
Year 2000
Like all entities, the Company is exposed to risks associated with the Year
2000 Issue, which affects computer software and hardware; transactions with
customers, vendors and other entities; and equipment dependent on microchips.
Management believes it has addressed all mission-critical issues and has begun,
but not yet completed remediating any potential Year 2000 problems. It is not
possible for any entity to guarantee the results of its own remediation efforts
or to accurately predict the impact of the Year 2000 Issue on third parties with
which it does business. If remediation efforts of the Company or third parties
with which it does business are not successful, the Year 2000 problem could have
negative effects on the Company's financial condition and results of operations
in the near term.
Insurance
The Company does not insure against possible losses from errors and
omissions, employee dishonesty or vault cash losses (see Note 2).
Deferred Income Taxes
The Company has recorded a deferred tax asset of $375,000 at January 31,
1999, which is primarily a result of operating loss carryforwards which
management believes are more likely than not to be realized prior to their
expiration between 2005 and 2015. Realization is dependent on generating
sufficient future taxable income to absorb the carryforwards. The amount of the
deferred tax assets considered realizable could be increased or decreased in the
near term if estimates of future taxable income during the carryforward period
change.
Litigation
In March 1998, a shareholder of the Company requested that the Board of
Directors of the Company immediately call meetings of the shareholders and
directors to consider a variety of matters, including the voiding of certain
related party stock transactions described in Note 2. The shareholder also
requested that the Company purchase the shareholder's shares of the Company
stock and threatened litigation against several parties, including the Company.
The Company has responded that it does not intend to attempt to void the
issuance of any stock transactions. If these issues are litigated, now or in the
future, management and legal counsel believe that the Company has reasonable
defenses.
47
<PAGE>
UNIVERSAL MONEY CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
NOTE 10: ADDITIONAL CASH FLOW INFORMATION
1999 1998
-------- --------
Noncash Investing and Financing Activities
Capital lease obligations incurred for
equipment $515,750 $101,166
Additional Cash Payment Information
Interest paid 145,326 69,021
48
<PAGE>
UNIVERSAL MONEY CENTERS, INC.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There has been no change in the Company's accountants during the two most
recent fiscal years or any subsequent interim period.
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Item 10. EXECUTIVE COMPENSATION
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information included under the captions entitled "Election of
Directors", "Security Ownership of Certain Beneficial Owners and Management,"
"Executive Compensation" and "Certain Relationships and Related Transactions" in
the Company's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A with respect to its 1999 annual meeting of
shareholders, is incorporated into Items 9, 10, 11 and 12 above by reference.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits required by this item are listed in the Index to
Exhibits set forth at the end of this Form 10-KSB.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the fourth
quarter of the year ended January 31, 1999.
49
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the registrant caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
UNIVERSAL MONEY CENTERS, INC.
/s/ David S. Bonsal
-----------------------------------
David S. Bonsal
Chairman of the Board
and Chief Executive Officer
Dated: May 3, 1999
In accordance with the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/David S. Bonsal Chairman of the Board, Chief May 3, 1999
- ------------------------ Executive Officer and Director
David S. Bonsal (Principal Executive Officer)
/s/Dave A. Windhorst President May 3, 1999
- ------------------------ (Principal Financial and
Dave A. Windhorst Accounting Officer)
/s/Jeffrey M. Sperry Director May 3, 1999
- ------------------------
Jeffrey M. Sperry
/s/Arthur M. Moglowsky Director May 3, 1999
- ------------------------
Arthur M. Moglowsky
*By: /s/David S. Bonsal
--------------------
David S. Bonsal
Attorney-in-fact
50
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
3.1* Articles of Incorporation of the Company, as amended
3.2* Amended and Restated Bylaws of the Company
4.1* Promissory Note dated June 3, 1996 issued by the Company to Bank
21 (formerly The Farmers Bank)
4.2* Business Loan Agreement dated June 3, 1996 between the Company
and Bank 21 (formerly The Farmers Bank).
4.3* Promissory Note dated August 26, 1996 issued by the Company to
Bank 21 (formerly The Farmers State Bank).
4.4* Business Loan Agreement dated August 26, 1996 between the
Company and Bank 21 (formerly The Farmers State Bank).
4.5** Commercial Security Agreement dated August 26, 1996 between the
Company and Bank 21 (formerly The Farmers State Bank).
4.6** Promissory Note dated April 9, 1998 issued by the Company to
Bank 21 (formerly The Farmers State Bank).
4.7** Negative Pledge Agreement dated April 9, 1998 between the
Company and Bank 21 (formerly The Farmers State Bank).
4.8** Commercial Security Agreement dated April 9, 1998 between the
Company and Bank 21 (formerly The Farmers State Bank).
10.1* Agreement dated August 15, 1989 among the Company, Funding,
David S. Bonsal, John L. Settles and William Smithson
10.2* Addendum dated August 29, 1989 among the Company, Funding,
David S. Bonsal, John L. Settles and William Smithson
10.3* Letter Agreement dated June 12, 1997 between the Company and
Funding
10.4* Master Equipment Lease Agreement dated October 18, 1996 between
the Company and Newcourt Communications Finance Corporation
(formerly AT&T Credit Corporation)
51
<PAGE>
10.5* Master Equipment Lease Agreement Schedule dated December 30,
1996, between the Company and Newcourt Communications Finance
Corporation (formerly AT&T Credit Corporation)
10.6* Master Equipment Lease Agreement Schedule dated October 30,
1996, between the Company and Newcourt Communications Finance
Corporation (formerly AT&T Credit Corporation)
10.7* Master Equipment Lease Agreement Schedule dated February 28,
1997, between the Company and Newcourt Communications Finance
Corporation (formerly AT&T Credit Corporation)
10.8** Master Lease Agreement dated February 28, 1998 between the
Company and Diebold Credit Corporation
10.9** Lease Schedule dated April 20, 1998 between the Company and
Diebold Credit Corporation
10.10*** Assignment and Delegation dated September 25, 1998 among the
Company, as assignor, Diebold Incorporated, as seller, and
Diebold Credit Corporation, as assignee.
10.11 Master Lease Agreement dated November 20, 1998 between the
Company and Dana Commercial Credit.
10.12 Master Lease Agreement dated January 18, 1999 between the
Company and Dana Commercial Credit.
21* List of Subsidiaries
24 Powers of Attorney
27 Financial Data Schedule
* Incorporated by Reference from the exhibit to the registrant's Annual
Report on Form 10-KSB for the fiscal year ended January 31, 1998 which bears
the same exhibit number.
** Incorporated by Reference from the exhibit to the registrant's
Quarterly Report on Form 10-QSB for quarter ended April 30, 1998 which bears
the same exhibit number.
*** Incorporated by reference from the exhibit to
the registrant's Quarterly Report on Form 10-QSB for the quarter ended October
31, 1998 which bears the same exhibit number.
52
DCC
MASTER LEASE AGREEMENT
Dana Commercial Credit
Lessee Information
LESSEE (Complete Legal Name) UNIVERSAL MONEY CENTERS, INC.
BUSINESS PHONES (913) 831-2055
BILLING ADDRESS 6800 SQUIBB ROAD
CITY SHAWNEE MISSION
COUNTY
STATE KS
ZIP 66202
Lease Acceptance (Sign and initial here for both the Master Lease
as well as for the Lease Schedule No. One below)
AGREEMENT TO ALL TERMS OF THIS LEASE (both front and back sides)
THIS LEASE IS NON-CANCELLABLE and consists of all terms on front and reverse
hereof. This Lease is the full and final agreement and cannot be modified or
terminated except by written agreement signed both by Lessee and Lessor.
LESSEE:
/s/ David S. Bonsal
- -----------------------------------------
(Signature(s) above and initial to right)
Print Name: David S. Bonsal
- -----------------------------------------
Title: CEO
- -----------------------------------------
Acknowledged and Accepted: /s/ DSB
--------------
(Please Initial)
LEASE SCHEDULE NO. ONE (If additional room is required, complete Schedule A and
attached signed Schedule A tot his Lease) shall be deemed a part of this Lease
and shall be subject to and shall incorporate all terms and conditions set forth
herein on both the front and back hereof.
LEASE TERM: 60 MONTHS
MONTHLY LEASE PAYMENT: $876.90 (EXCLUSIVE of Applicable Tax)
INTERIM RENT PAYMENT
An amount equal to 1/30th of the monthly payment multiplied by the number of
days from and including the Acceptance Date to the 1st day of the month
immediately following the acceptance date.
<PAGE>
QUANTITY: ___________
DESCRIPTION OF EQUIPMENT TO BE LEASED
(SEE ATTACHED SCHEDULE A EQUIPMENT)
SERIAL NUMBER: ___________
For Dana Commercial Credit Use Only
ACCEPTED BY DANA COMMERCIAL CREDIT CORPORATION, Lessor (the term "Lessor") shall
include its successors and assigns.)
Signature(s) ___________________ Date 11/20/98 Master Lease Number 5002179
- ------------------------------------------------------------------------------
THE MASTER LEASE AND EACH LEASE SCHEDULE ARE NONCANCELLABLE BY LESSEE. THE
MASTER LEASE AND EACH LEASE SCHEDULE SHALL BECOME EFFECTIVE UPON EXECUTION BY
LESSOR AT ITS OFFICE. THE PARTIES AGREE THAT THE MASTER LEASE AND EACH LEASE
SCHEDULE IS A "FINANCE LEASE" AS DEFINED BY ss.2A103(G) OF THE UNIFORM
COMMERCIAL CODE ("UCC").
This Master Lease Agreement ("Master Lease") between Lessor and Lessee is in
consideration of the mutual covenants, terms, and conditions herein contained,
and shall apply to certain items of machinery, equipment and other personal
property, together with all components, parts, replacements, additions and
attachments (collectively the "Equipment") now incorporated therein or hereafter
incorporated therein described in any Lease Schedule. This Master Lease sets
forth master terms and conditions. Each lease schedule executed by the parties
hereto ("Lease Schedule") shall incorporate all of the terms and conditions of
this master Lease as they may from time to time be amended and shall contain
such additional terms and conditions as Lessee and Lessor may agree from time to
time. Each Lease Schedule together with the terms and conditions of this Master
Lease shall constitute a separate and distinct lease between Lessor and Lessee.
Each Lease Schedule shall be enforceable according to the terms and conditions
contained therein without regard to any other Lease Schedule. In the event of a
conflict between the provisions of the Master Lease and any Lease Schedule, the
provisions of the Lease Schedule shall prevail in respect to that Lease
Schedule. Lessor agrees to lease to Lessee, and Lessee agrees to lease from
Lessor, in accordance with the terms and conditions of the applicable Lease
Schedule, Equipment identified on such Lease Schedule. Lessee authorizes Lessor
to insert in the Lease Schedule the serial numbers and other identification data
pertaining to the Equipment when delivered. The term of the Lease with respect
to any item of the Equipment shall consist of the term set forth in the Lease
Schedule relating thereto ("Lease Term") and shall commence upon acknowledgment
of the applicable Acceptance Certificate (as defined herein) by Lessor,
effective the date of the Acceptance Certificate.
1. TERMS AND CONDITIONS. In consideration of Lessor's purchase of the equipment
selected by Lessee, Lessor leases to Lessee, and Lessee leases from Lessor, the
equipment identified above and on any attached Schedule A pursuant to the terms
and conditions
<PAGE>
set forth herein. In no case shall the preprinted terms and conditions on
Lessee's or Supplier's standard transactional documentation (i.e., order forms
and invoices) apply to Lessor. The Equipment shall be deemed to have been
accepted by Lessee for all purposes under the Lease Schedule upon Lessor's
receipt of a certificate, in form satisfactory to Lessor, executed by Lessee
certifying Lessee's terms of acceptance (the "Acceptance Certificate"). Lessee
will sign the Acceptance Certificate authorizing Lessor to pay for the Equipment
only after Lessee has received and accepted the Equipment as fully operable for
Lessee's purposes.
2. LESSEE'S WARRANTIES. Lessee represents, warrants and covenants to Lessor, and
Lessor relies on the fact that: (a) Lessee has read and understood this Master
Lease and each Lease Schedule before it was signed; (b) LESSEE HAS SELECTED THE
EQUIPMENT BASED ON ITS OWN JUDGMENT, IS FULLY SATISFIED WITH BOTH THE EQUIPMENT
AND THE SUPPLIER OF THE EQUIPMENT, AND HAS REVIEWED AND APPROVED THE SUPPLIER'S
PURCHASE ORDER OR AGREEMENT COVERING THE EQUIPMENT PURCHASED FOR LEASE TO
LESSEE; (c) Lessee shall provide to Lessor within 120 days after the close of
each of Lessee's fiscal years, and, within 45 days of the end of each quarter of
Lessee's fiscal year, a copy of its financial statements which will be, (i)
accurate and correct in all material respects, and (ii) prepared in accordance
with generally accepted accounting principles consistently applied; (d) the
Equipment is leased exclusively for Lessee's established business purposes; (e)
Lessee has the form of business organization indicated, and is duly organized,
validly existing and in good standing under the laws of the state of its
incorporation or organization and is duly qualified to do business wherever
necessary to carry on its present business and operations and to own its
property; (f) Lessee has the power and authority to enter into the Master Lease,
all Lease Schedules and all other related instruments or documents hereunder
("Documents"), and such Documents (i) have been duly authorized by all necessary
action on the part of Lessee consistent with its form of organization and duly
executed and delivered by authorized officers or agents of Lessee, whose
signatures hereon are, in all respects, authentic, (ii) do not require the
approval of, or the giving notice to, any federal, state, local or foreign
governmental authority, (iii) do not contravene any law binding on Lessee or any
certificate or articles of incorporation or by-laws or partnership certificate
or agreement; (iv) do not violate, result in any breach of, or constitute a
default under, or result in the creation of any lien, charge or security
interest or other encumbrance upon any assets of Lessee or on the Equipment
pursuant to any agreement, indenture, or other instrument to which Lessee is a
party or by which it or any of its assets may be bound, and (v) constitute
legal, valid and binding obligations of Lessee enforceable in accordance with
their terms; (g) Lessee has experienced no material adverse change in its
financial condition or operations since the date of its financial statements
provided to Lessor nor does there exist any pending or threatened actions or
proceedings before any court or administrative agency which might materially
adversely affect Lessee's financial condition or operations; (h) the address
indicated by Lessee is the chief place of business and chief executive office of
Lessee; and (I) Lessee will pay all costs connected with the Equipment,
including, without limitation, taxes, insurance, repairs, shipping, early
termination fees, collection costs and other expenses normally paid in a net
lease. Lessee shall be deemed to have reaffirmed the foregoing warranties each
time it executes a Lease Schedule.
3. LESSEE'S WAIVER OF DAMAGES AND WARRANTIES FROM LESSOR. Lessee leases the
Equipment from Lessor "AS IS/WHERE IS". IT IS SPECIFICALLY UNDERSTOOD AND AGREED
THAT (A) EXCEPT AS TO QUIET ENJOYMENT, LESSOR MAKES ABSOLUTELY NO WARRANTIES,
EXPRESS OR IMPLIED; (B) LESSOR
<PAGE>
EXPRESSLY DISCLAIMS ANY WARRANTY OR REPRESENTATION AS TO ANY MATTER WHATSOEVER,
INCLUDING WITHOUT LIMITATION, THE MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR USE OF THE EQUIPMENT, ITS DESIGN OR CONDITION, ITS QUALITY, CAPACITY
OR WORKMANSHIP, THE CONFORMITY OF THE EQUIPMENT TO ANY LAW, RULE, REGULATION,
SPECIFICATION OR CONTRACT OR PURCHASE ORDER RELATING THERETO, OR PATENT
INFRINGEMENT; (C) NO REPRESENTATION OR WARRANTY BY THE SUPPLIER OR SALESPERSON
IS BINDING ON LESSOR NOR SHALL BREACH OF SUCH WARRANTY RELIEVE LESSEE OF
LESSEE'S OBLIGATION TO LESSOR HEREUNDER. IT IS FURTHER AGREED BY LESSEE THAT ALL
RISKS RELATING TO THE EQUIPMENT AND ITS USE ARE, AS BETWEEN LESSOR AND LESSEE.
TO BE BORNE BY LESSEE AND THAT LESSOR SHALL HAVE NO LIABILITY TO LESSEE,
LESSEE'S CUSTOMERS, OR ANY THIRD PARTIES FOR (A) ANY LOSS, DAMAGE, OR EXPENSE OF
ANY KIND OR NATURE ARISING OUT OF THE MASTER LEASE, ANY LEASE SCHEDULE OR ANY
EQUIPMENT; (B) ANY LOSS OF BUSINESS OR SPECIAL, DIRECT, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES OF ANY CHARACTER; OR (C) ANY DAMAGES BASED ON STRICT OR
ABSOLUTE TORT LIABILITY OR LESSOR'S NEGLIGENCE. LESSEE HEREBY WAIVES ANY CLAIM
AGAINST LESSOR IN CONNECTION WITH OR ARISING OUT OF THE OWNERSHIP, LEASING,
FURNISHING, PERFORMANCE OR USE OF THE EQUIPMENT AND THE BENEFITS OF ANY AND ALL
IMPLIED WARRANTIES AND REPRESENTATIONS OF LESSOR, AND LESSEE EXPRESSLY WAIVES
ANY AND ALL RIGHTS OR REMEDIES AGAINST LESSOR PROVIDED UNDER THE UNIFORM
COMMERCIAL CODE (the "UCC"). To the extent permitted by applicable, law, Lessee
hereby waives any rights Lessee may otherwise have to: 1) cancel or repudiate
any Lease Schedule or the Master Lease; 2) revoke acceptance of or reject the
Equipment; 3) claim a security interest in the Equipment; 4) accept partial
delivery of the Equipment; 5) sell or dispose of the Equipment upon rejection or
revocation; 7) claim an agency relationship between Supplier and Lessor. All
warranties from the Supplier to Lessor are, to the extent they are assignable,
hereby assigned to Lessee for the Lease Term or until an Event of Default
occurs, for Lessee's exercise at Lessee's expense.
4. PAYMENTS. Lessee agrees to make lease payments in advance and to pay such
other charges as provided herein. Lease payments shall be increased by any cost
or expense Lessor incurs to preserve the Equipment or to pay taxes, assessments,
fees, penalties, liens, or encumbrances. Unless Lessor gives written notice of a
new address, all payments under any Lease Schedule shall be sent to Lessor at
the address provided by Lessor. Each payment received, at Lessor's discretion,
will be applied first to the oldest charge due under the applicable Lease
Schedule. THE MASTER LEASE AND EACH LEASE SCHEDULE IS A NET LEASE AND LESSEE
SHALL NOT BE ENTITLED TO ANY ABATEMENT OR REDUCTION OF RENTS OR OF ANY OTHER
AMOUNTS PAYABLE HEREUNDER FOR ANY REASON, including, without limitation, any
problems it may have with the Equipment. Without Lessor's prior written consent,
any payment to Lessor of a smaller sum than due at any time under a Lease
Schedule shall not constitute a release or an accord and satisfaction for any
greater sum due, or to become due, regardless of any endorsement restriction,
unless otherwise agreed by both parties in a signed writing. LESSEE'S OBLIGATION
TO PAY ALL RENT AND ANY OTHER AMOUNTS DUE THEREUNDER OR ANY LEASE SCHEDULE SHALL
BE ABSOLUTE AND UNCONDITIONAL UNDER ALL CIRCUMSTANCES. If any rent or other
amount payable hereunder shall not be paid when due, Lessee shall pay Lessor:
(a) a one-time late
<PAGE>
charge in the stipulated and liquidated amount of $.05 per dollar of the amount
not paid or $5.00, if greater; (b) a late charge during every month after the
first month in which the sum is late computed daily on the amounts then due and
unpaid at a rate of 1-1/2% per month, or, if less, the highest applicable rate
permitted by law; and (c) all collection costs and expenses.
5. TAXES, ASSESSMENTS AND FEES. Lessee agrees to pay all licensing, filing and
registration fees; TO SHOW THE EQUIPMENT AS "LEASED EQUIPMENT" ON TAX RETURNS;
WHEN ALLOWED BY LAW, FILE ALL PERSONAL PROPERTY TAX RETURNS AND TO PAY ALL
PERSONAL PROPERTY TAXES ASSESSED AGAINST THE EQUIPMENT WHEN DUE; to pay when
due, and defend, hold harmless Lessor against liability for all other taxes,
assessments, fees and penalties which may be levied or assessed in respect to
the Equipment, its use or any interest therein, or any lease payments, including
but not limited to all federal, state, and local taxes, however, designated,
levied or assessed, whether upon Lessee or Lessor or the Equipment or upon the
sale, ownership, use or operation, excepting only any income taxes levied on the
rental payments made to Lessor. If any report or return for personal property
tax is required by law to be filed by Lessor, Lessee shall so notify Lessor
prior to the assessment date, and Lessee shall promptly reimburse Lessor for
personal property taxes paid, including any interest, fines or penalties
incurred as a result of late filing if Lessee fails to provide Lessor with the
notice required hereby. Lessee shall promptly provide Lessor with a copy of any
and all filings and tax assessment notices with respect to personal property
tax, and if Lessee fails to do so, Lessor has the right to charge Lessee an
assessment of an appropriate amount to insure against any tax liability. The
Lessee agrees to comply with all state and local laws requiring the filing of ad
valorem tax returns relating to the Equipment. Lessor may, at its option, pay on
Lessee's behalf such taxes and other amounts, file applicable returns, and
collect full reimbursement from Lessee. Lessee agrees that Lessor is entitled to
all tax benefits resulting from ownership of the Equipment. Lessee agrees that,
should any such tax benefits be disallowed, Lessee shall indemnify Lessor for
such loss by paying Lessor an amount equal to the value of the lost benefits.
Lessee agrees to pay Lessor a documentation fee to be billed with the first
lease payment to cover account setup and administrative costs.
6. SUCCESSORS AND ASSIGNMENTS. LESSEE SHALL NOT TRANSFER, SELL, SUBLEASE,
ASSIGN, PLEDGE OR ENCUMBER EITHER THE EQUIPMENT OR ANY RIGHTS UNDER THIS LEASE
WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR, and even with Lessor's consent,
Lessee shall remain jointly and severally liable to the full extent with
Lessee's assignee. ANY ATTEMPTED TRANSFER, SUBLEASE, ASSIGNMENT OR PLEDGE
WITHOUT LESSOR'S CONSENT SHALL BE VOID AND SHALL NOT RELEASE LESSEE OF ITS
OBLIGATIONS UNDER THE MASTER LEASE OR ANY LEASE SCHEDULE. However, in any case,
the provisions of this Lease bind all heirs, executors, administrators,
successors, trustees, and assigns of the Lessee and any guarantor. LESSOR MAY,
WITHOUT LESSEE'S CONSENT, ASSIGN ITS RIGHTS AND INTERESTS UNDER THIS LEASE
WITHOUT NOTICE. Lessee agrees that Lessor's assignee will have the same rights
and remedies that Lessor now has. Lessee agrees that the rights of Lessor's
assignee will not be subject to claims, defenses, or setoffs that Lessee may
have against Lessor. Lessee agrees that Lessor is not an agent of Lessor's
assignee and that Lessor has no affiliation with such assignee except for
assignment. Lessee stipulates that any such assignment by Lessor shall not
materially change Lessee's duties, obligations or risks under this Lease.
<PAGE>
7. OWNERSHIP AND TITLE. Lessor is the sole owner of the Equipment, has sole
title and all residual rights, has the right to inspect the Equipment, and has
the right to affix and display a notice of Lessor's ownership thereon. The
Equipment shall remain Lessor's personal property whether or not affixed to
realty and shall not be part of any real property on which it is placed. At
Lessor's request, Lessee shall obtain a landlord and/or mortgage waiver for the
Equipment. All additions, attachments, and accessories placed on the Equipment
become part of the Equipment and Lessor's property. Lessee agrees to give and
record such notices, obtain such waivers and take such other action at its own
expense as may be necessary to prevent any third party (other than an assignee
of Lessor) from acquiring or having the right under any circumstances to acquire
any interest in the Equipment or any Lease Schedule and Lessee shall, at its
cost and expense, defend Lessor's title against and keep all of the Equipment,
the Master Lease, any Lease Schedule and any of Lessor's interests thereunder
free of all liens, claims and encumbrances of any kind.
8. OPERATION AND TERMINATION. Lessee shall be solely responsible for the
installation, operation and maintenance of the Equipment and at its own cost and
expense, keep it in good condition and running order, and shall use, operate and
maintain the Equipment in compliance with applicable laws and any applicable
manufacturer's manuals. The Lessee, at its expense, shall maintain in full force
and effect throughout the Lease Term a maintenance contract with a party
acceptable to Lessor. Upon return to lessor the Equipment must be eligible,
without further cost or expense, for immediate continuation of coverage under
Supplier's standard maintenance contract. Lessee agrees to keep and use the
Equipment only at the business address specified in the applicable Lease
Schedule, to never abandon or move the Equipment from that address, nor
relinquish possession of the Equipment except to Lessor. Lessee shall give
Lessor one hundred twenty (120) days written notice prior to the expiration of
the Lease Term, and sixty (60) days written notice prior to expiration of any
renewal term of the return of the Equipment and Lessor will designate the return
location within the continental United States. At the end of the Lease Term
Lessee shall, at Lessee's expense, immediately crate, insure and return the
Equipment to the designated location in as good a condition as when Lessee
received it, excepting only reasonable wear and tear and in the condition
reflecting Lessee's full compliance with the terms and conditions of this
section. If Lessee fails to give notice or fails to return the Equipment, the
Lease shall automatically renew on a month to month basis for a period not to
exceed twelve (12) months. The extension period may be terminated by either
party by giving thirty (30) days prior written notice. Upon such termination or
at the end of the twelfth month of the extension, Lessee shall return the
Equipment as provided above. Until the Equipment is returned to Lessor, Lessee
shall continue to pay rent in an amount equal to the monthly average rent during
the Lease Term, on the same due date set forth in the Lease.
9. RISK OF LOSS AND INSURANCE. Lessee hereby assumes all risk of loss, damage or
destruction for whatever reason to the Equipment ("Loss") from and after the
earlier of the date (a) on which the Equipment is ordered, or (b) Lessor pays
the purchase price of the Equipment, and continuing until Lessee has returned
the Equipment to the designated location and such Equipment has been accepted by
Lessor. Lessee shall immediately notify Lessor of the occurrence of any Loss or
other occurrence affecting Lessor's interests or the Equipment and shall, at
Lessor's option, make repairs or replacements at Lessee's expense. In such
event, Lessee agrees to continue to meet all payment and other obligations under
the Lease Schedule. Lessee agrees to keep the Equipment insured at Lessee's
expense against risks of loss or damage from any cause whatsoever. Lessee agrees
that such insurance shall not be less than an amount
<PAGE>
equal to the total remaining stream of lease payments plus the higher of (i)
twenty percent (20%) of the total invoice cost of such Equipment and (ii) the
fair market value of the Equipment. Lessee also agrees that the insurance shall
be in such an amount as is reasonable to cover Lessor for public liability and
property damage arising from the Equipment or Lessee's use of it. Lessee agrees
to name Lessor as the loss payee and an additional insured. Each policy shall
provide that the insurance cannot be cancelled without thirty (30) days prior
written notice to Lessor. Lessee shall furnish Lessor with a copy of the
certificate of insurance annually. The proceeds of such insurance shall be
applied at Lessor's sole election toward the replacement or repair of the
Equipment or payment towards Lessee's obligations. Lessee appoints Lessor as
attorney-in-fact to make any claim for, receive payment of, or execute or
endorse all documents, checks or drafts for loss or damage or return of premium
under such insurance. Lessee has no right or claim to any insurance benefits
from Lessor.
10. INDEMNITY. Lessee assumes liability for, and hereby agrees to indemnify,
protect and hold Lessor and its affiliates harmless from and against any and all
liabilities (including, but not limited to, negligence, tort, and strict
liability), obligations, losses, damages, injuries, claims, demands, penalties,
actions, costs and expenses, including reasonable attorney's fees, of whatsoever
kind and nature (including without limitation, claims of injury, death, or
property damage), arising out of or related to (i) the Master Lease, each Lease
Schedule, or the Equipment, including, but not limited to, the manufacture,
purchase, financing, installation, use, condition (including, but not limited
to, latent and other defects and whether or not discoverable by Lessee or
Lessor), operation, ownership, selection, delivery, leasing, removal, return, or
other disposition of any Equipment, (ii) a breach by Lessee or any guarantor of
any representations or warranties under the Master Lease, any Lease Schedule or
guaranty, or failure by Lessee or any guarantor to perform or observe any
covenant or agreement to be performed by it under the Master Lease, any Lease
Schedule or any guaranty, or (iii) a violation of or non-compliance with any
law, including environmental laws. The indemnities and assumptions of
liabilities and obligations contained in this section and Section 5 shall
continue in full force and effect notwithstanding the expiration or other
termination of the Master Lease or any Lease Schedule.
11. DEFAULT AND REMEDIES. If any one or more of the following events (an "Event
of Default") shall occur, then Lessor shall have the right to exercise any one
or more of the remedies set forth in this section: (a) Lessee fails to make any
payment, of rent or otherwise hereunder when due; or (b) Lessee or any guarantor
breaches any of its warranties, representations, or other obligations under the
Master Lease or any Lease Schedule, or any other agreement with Lessor, and
fails to cure such breach within ten (10) days after Lessor sends Lessee notice
of the existence of such breach; or (c) Lessee shall default on any other
indebtedness obligation or agreement of any kind with Lessor and shall not have
cured such default within a period of grace provided by such other agreement or
instrument; or (d) any execution or writ of process is issued in any action or
proceeding to seize or detain any of the Equipment; or (e) Lessee fails to
return any Equipment when required under Section 8; or (f) Lessee or any
guarantor shall commence, or take corporate action to authorize, a voluntary
case or other proceeding seeking liquidation, reorganization, or other relief
with respect to itself or its debts; or seek the appointment of a trustee,
receiver, liquidator, custodian, or other similar official; or consent, or fail
to object, to any such relief or to the appointment of any such official or to
the taking of possession of any of its property or to the commencement of an
involuntary case or other proceeding commenced against it, or shall make a
general assignment for the benefit of its creditors; or (g) Lessee becomes
insolvent or fails generally to pay its debts as they
<PAGE>
become due; or (h) any guarantor revokes a guaranty provided to Lessor under the
Master Lease or any Lease Schedule or breaches any of its obligations under such
guaranty. Lessee shall promptly notify Lessor of the occurrence of any Event of
Default or the occurrence or existence of any event or condition which, upon the
giving of notice or lapse of time, or both, may become an Event of Default. If
an Event of Default occurs, Lessor may, in its sole discretion, exercise any or
all of the following remedies: (a) cause Lessee, upon written demand of Lessor
and at Lessee's expense, to promptly return any or all Equipment on any or all
of the Lease Schedules, to such location as Lessor may designate or to
immediately retake possession of the Equipment without any court order or other
process of law (and for such purpose Lessor may enter upon any premises where
the Equipment may be and remove the same); and Lessor may dispose of any or all
of the Equipment in good faith and recover from Lessee as damages all charges,
expenses or commissions incurred by Lessor in the transportation, care, custody
or disposition of such Equipment after the occurrence of the Event of Default or
otherwise resulting by reason of such default; (b) whether Lessor has recovered
the Equipment, or if so recovered, has elected to retain any or all of the
Equipment, dispose of the Equipment by sale, lease or otherwise, to recover as
liquidated damages for the loss of a bargain due to Lessee's Event of Default
and not as a penalty, the sum of the following: (i) all accrued and unpaid rent
and other amounts then due, plus (ii) as liquidated damages, the higher of fair
market value of the Equipment or an amount equal to the total remaining stream
of lease payments discounted to the present at six percent (6%) plus twenty
percent (20%) of the total invoice cost of such Equipment; all of the foregoing
amounts shall become immediately due and payable to Lessor, to the extent
permitted by UCC-2A, or any other provision of the UCC or other applicable law;
(c) exercise any remedy at law or equity, notice thereof being expressly waived
by Lessee, including any right or remedy which may otherwise be available to it
under the UCC; (d) with or without notice to Lessee, cancel the Master Lease or
any Lease Schedule without prejudice to Lessor's rights in respect of
obligations then accrued and remaining unsatisfied; and (e) exercise any remedy
at law or equity, notice thereof being expressly waived by Lessee, including any
right or remedy which may otherwise be available to it under the UCC. Lessor's
action or failure to act on one remedy constitutes neither (a) an election to be
limited thereto, (b) a waiver of any other remedy nor (c) a release of Lessee
from the liability to return the Equipment or for any loss or claim with respect
thereto. Nothing herein shall be deemed to prejudice Lessor's right to recover
or prove damages for unpaid rent accrued prior to default, or bar an action for
a deficiency as herein provided. The bringing of an action with an entry of
judgment against Lessee shall not bar the Lessor's right to repossess any or all
of the Equipment. Lessor's remedies shall be available to Lessor's successors
and assigns, shall be in addition to all other remedies provided by law, and may
be exercised concurrently or consecutively. LESSEE AGREES TO PAY ALL COSTS OF
COLLECTION, INCLUDING COLLECTORS' CONTINGENCY FEES, AND TO PAY LESSOR'S ATTORNEY
FEES AS DAMAGES AND NOT COSTS in all proceedings arising under the Master Lease
or any Lease Schedule.
12. MISCELLANEOUS. The provisions of the Master Lease and each Lease Schedule
are severable and shall not be affected or impaired if any one provision is held
unenforceable, invalid, or illegal. Any provision held in conflict with any
statute or rule of law shall be deemed inoperative only to the extent of such
conflict and shall be modified to confirm with such statute or rule. THE MASTER
LEASE, TOGETHER WITH ALL LEASE SCHEDULES, ACCEPTANCE CERTIFICATES AND RIDERS
ATTACHED HERETO FROM TIME TO TIME, OR BY REFERENCE HERETO MADE A PART HEREOF
CONSTITUTE THE ENTIRE AGREEMENT BETWEEN THE PARTIES WITH RESPECT
<PAGE>
TO THE SUBJECT MATTER HEREOF AND MERGES ANY OTHER UNDERSTANDING. At Lessor's
election the parties shall submit any matter arising out of this transaction,
including any claim, counterclaim, setoff, or defense, to binding arbitration by
the American Arbitration Association. The decision and award of the
arbitrator(s) shall be final and binding and may be entered as rendered in any
court having jurisdiction thereof. Lessee authorizes Lessor or its agents to
file, at Lessor's option, financing statements and/or fixture filings without
Lessee's signature and, if a signature is required by law, Lessee appoints
Lessor and its agents as Lessee's attorney-in-fact to execute such statements
and filings. Despite the express intent of the parties, in the event that any
Lease Schedule is not deemed to be a true lease, then solely in that event and
for that limited purpose, it shall be deemed a security agreement and, in that
regard, Lessee hereby grants Lessor a security interest in all lease payments
and Equipment, and all interest of Lessee therein, and all proceeds and products
thereof to secure Lessee's prompt payment and performance as and when due of all
obligations and indebtedness to Lessor under the Master Lease or any Lease
Schedule, but in no case shall this grant or any filing be deemed to contravene
a true-lease transaction. Without prejudicing the generality of this Section,
Lessor and Lessee intend to confirm strictly to the usury law applicable to this
transaction. Accordingly, it is agreed that the aggregate of all interest and
any other charges or consideration constituting interest under applicable law
that is contracted for, charged or received under any Lease Schedule or
otherwise shall under no circumstance exceed the maximum amount of interest
allowed by applicable law. If any usurious interest in such respect is provided
for in any Lease Schedule or otherwise, or if the acceleration or prepayment of
any indebtedness results in Lessee having paid any interest in excess of that
permitted by applicable law, then in such event, (a) Lessee shall not be
obligated to pay the amount of such interest to the extent that it is in excess
of the maximum amount of interest allowed by applicable law, (b) any excess
shall be deemed a mistake and cancelled automatically and, if theretofore paid,
shall be credited on any such indebtedness by Lessor, (c) the effective rate of
interest shall be automatically reduced to the maximum legal rate of interest
allowed by applicable law, and (d) all interest shall be allocated and spread
throughout the full term of any such indebtedness until paid in full so that the
rate or amount of interest does not exceed the applicable usury ceiling.
13. CONSENT TO OHIO LAW; JURISDICTION; VENUE, NOTICE. Lessee consents, agrees,
and stipulates that: (a) the Master Lease and each Lease Schedule shall be
deemed fully executed and performed in the State of Ohio and shall be governed
by and construed in accordance with the laws thereof; and (b) in any action,
proceeding, or appeal on any matter related to or arising out of the Master
Lease or any Lease Schedule, the Lessor and Lessee (i) SHALL BE SUBJECT TO THE
PERSONAL JURISDICTION OF THE STATE OF OHIO, including any state or federal court
sitting therein, and all court rules thereof; (ii) SHALL ACCEPT VENUE IN ANY
FEDERAL OR STATE COURT IN OHIO; and (iii) EXPRESSLY WAIVES ANY RIGHT TO A TRIAL
BY JURY so that trial shall be by and only to the court. Lessee agrees that any
notice or process served for any legal action or proceeding shall be valid if
mailed by certified mail, return receipt requested, with delivery restricted to
the Lessee, its registered agent, or any agent appointed in writing to accept
such process. Until Lessor and Lessee notify each other of any new address in
writing, any invoice, notice or transaction notice required by the Master Lease
or Lease Schedule or by law is validly given when mailed postage prepaid by
first class mail to the last known address.
DCC
DANA COMMERCIAL CREDIT
- --------------------------------------------------------------------------------
MASTER LEASE AGREEMENT
- --------------------------------------------------------------------------------
Master Lease Agreement Number 5002182 (the "Master Lease"), dated as of JANUARY
18, 1999, by and between DANA COMMERCIAL CREDIT CORPORATION, a Delaware
corporation (the "Lessor," such term to include its successors and assigns),
having an office and place of business at 1801 Richards Road, Toledo, Ohio 43607
and UNIVERSAL MONEY CENTERS, INC., a Kansas corporation (the "Lessee"), having
an office and place of business at 6800 Squibb Road, Shawnee Mission, Kansas
66202.
1. LEASE OF EQUIPMENT. This Master Lease sets forth master terms and conditions.
Lessor shall have no obligation under this Master Lease until the execution and
delivery of a lease schedule ("Lease Schedule") executed by Lessee and Lessor.
Each Lease Schedule shall incorporate all of the terms and conditions of this
Master Lease as they may from time to time be amended and shall contain such
additional terms and conditions as Lessee and Lessor may agree from time to
time. Each Lease Schedule together with the terms and conditions of this Master
Lease shall constitute a separate and distinct lease (the "Lease") between
Lessor and Lessee. Each Lease shall be enforceable according to the terms and
conditions contained therein without regard to any other Lease Schedule. In the
event of a conflict between the provisions of this Master Lease and any Lease
Schedule, the provisions of the Lease Schedule shall prevail in respect to that
Lease Schedule. Lessor agrees to lease to Lessee, and Lessee agrees to lease
from Lessor, in accordance with the terms and conditions of the applicable Lease
Schedule, certain items of machinery, equipment and other personal property
identified in each Lease Schedule, together with all replacements, parts,
additions, accessories thereto and any intangibles (collectively, the
"Equipment"). Lessee authorizes Lessor to insert in the Lease Schedule the
serial numbers and other identification data pertaining to the Equipment when
delivered. The parties agree that each Lease Schedule and this Master Lease is a
"Finance Lease" as defined by ss.2A-103(g) of the Uniform Commercial Code
("UCC").
2. DELIVERY, ACCEPTANCE AND INSTALLATION. Lessee shall be responsible to select
the type, quantity and vendor or manufacturer ("Supplier") of the Equipment, and
in reliance thereon, the Equipment will then be ordered by Lessor from such
Supplier, or Lessor may at its option elect to accept an assignment of any
existing purchase order from Lessee. The Equipment is to be delivered and
installed at the location specified on the applicable Lease Schedule. The
Equipment shall be deemed to have been accepted by Lessee for all purposes under
the Lease Schedule upon Lessor's receipt of a certificate in a form acceptable
to Lessor, executed by Lessee (the "Acceptance Certificate"). Lessee will sign
the Acceptance Certificate authorizing Lessor to pay for the Equipment only
after Lessee has received and accepted the Equipment as fully operable for
Lessee's purposes. Lessee shall be responsible for all transportation, packing,
installation, testing and other charges in connection with the delivery,
installation and use of the Equipment.
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3. TERM. This Master Lease shall commence upon execution by the Lessee and
Lessor and continue until full performance of all of its terms. The lease term,
as to all Equipment designated on any Lease Schedule ("Lease Term") shall
commence upon acknowledgment of the Acceptance Certificate by Lessor, effective
the date of the Acceptance Certificate ("Acceptance Date") with respect to such
Equipment and shall continue for the number of months, and any proration
thereof, specified in the applicable Lease Schedule. Delivery of the Equipment
does not constitute acceptance by Lessor of this Master Lease.
4. RENT AND OTHER CHARGES. Lessee shall pay Lessor rent for the Equipment,
without any deduction or set off and without prior notice or demand, in the
amounts as and when specified in the applicable Lease Schedule and Lessee shall
also pay, upon demand by Lessor, all other charges incurred in connection with
the Equipment, and any other charge or payment due hereunder. LESSEE AGREES THAT
TIME IS OF THE ESSENCE TO LESSOR AND LESSEE AGREES TO MAKE THE PAYMENTS WHEN DUE
UNDER THE MASTER LEASE AND ANY LEASE SCHEDULE. Without Lessor's prior written
consent, any payment to Lessor of a smaller sum than due at any time under any
Lease Schedule shall not constitute a release or an accord or satisfaction for
any greater sum due, or to become due, regardless of any endorsement
restriction. If any rent or other amount payable hereunder shall not be paid
when due, Lessee shall pay Lessor: (a) a one-time late charge in the stipulated
and liquidated amount of $.05 per dollar of the amount not paid or $5.00, if
greater; (b) a late charge during every month after the first month in which the
sum is late computed daily on the amounts then due and unpaid at a rate of
1-1/2% per month, or, if less, the highest applicable rate permitted by law, and
(c) all collection costs and expenses. All payments shall be made to Lessor at
the address shown above, or at such other place as Lessor shall specify in
writing.
5. NET LEASE. All Lease Schedules and this Master Lease shall be noncancellable
by Lessee. THIS MASTER LEASE AND EACH LEASE SCHEDULE IS A NET LEASE AND LESSEE
SHALL NOT BE ENTITLED TO ANY ABATEMENT OR REDUCTION OF RENTS OR OF ANY OTHER
AMOUNTS PAYABLE HEREUNDER OR THEREUNDER FOR ANY REASON. LESSEE'S OBLIGATION TO
PAY ALL RENT AND ANY OTHER AMOUNTS DUE UNDER THE MASTER LEASE OR ANY LEASE
SCHEDULE SHALL BE ABSOLUTE AND UNCONDITIONAL UNDER ALL CIRCUMSTANCES. Lessee
hereby waives any and all existing or future claims to any offset against the
rent payments due hereunder, and agrees to make the rent payments regardless of
any offset or claim which may be asserted against the Lessor.
6. RENT ADJUSTMENT. The rent payments in each Lease Schedule have been
calculated on the assumption (which, between Lessor and Lessee, is mutual) that
the maximum effective corporate income tax rate (exclusive of any minimum tax
rate) for calendar-year taxpayers ("Effective Rate") will be 35% throughout the
Lease Term. If, solely as a result of any new law (including, without
limitation, any modification of, or amendment or addition to, the Internal
Revenue Code of 1986 ("Code")), the Effective Rate is higher than 35% for any
year during the Lease Term, then Lessee shall pay to Lessor as additional rent a
lump sum equal to the amount necessary to enable the Lessor to receive the same
actual net after-tax economic and accounting yields and net after-tax cash flow
over the Lease Term that Lessor would have
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realized had such tax law change not occurred. Lessee shall pay to Lessor the
full amount of the additional rent payment on the later of receipt of notice or
the first day of the year for which such adjustment is being made. Lessee's
obligations under this Section 6 shall survive any expiration or termination of
the Master Lease or the Lease Schedules.
7. DISCLAIMER OF WARRANTIES AND LESSEE WAIVERS. Lessee leases the Equipment from
Lessor "AS IS/WHERE IS". IT IS SPECIFICALLY UNDERSTOOD AND AGREED THAT (A)
EXCEPT AS TO QUIET ENJOYMENT, LESSOR MAKES ABSOLUTELY NO WARRANTIES, EXPRESS OR
IMPLIED; (B) LESSOR EXPRESSLY DISCLAIMS ANY WARRANTY OR REPRESENTATION AS TO ANY
MATTER WHATSOEVER, INCLUDING WITHOUT LIMITATION, THE MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR USE OF THE EQUIPMENT, ITS DESIGN OR CONDITION, ITS
QUALITY, CAPACITY OR WORKMANSHIP, THE CONFORMITY OF THE EQUIPMENT TO ANY LAW,
RULE, REGULATION, SPECIFICATION OR CONTRACT OR PURCHASE ORDER RELATING THERETO,
OR PATENT INFRINGEMENT; (C) NO REPRESENTATION OR WARRANTY BY THE SUPPLIER OR
SALESPERSON IS BINDING ON LESSOR NOR SHALL BREACH OF SUCH WARRANTY RELIVE LESSEE
OF LESSEE'S OBLIGATION TO LESSOR HEREUNDER. IT IS FURTHER AGREED BY LESSEE THAT
ALL RISKS RELATING TO THE EQUIPMENT AND ITS USE ARE, AS BETWEEN LESSOR AND
LESSEE, TO BE BORNE BY LESSEE AND THAT LESSOR SHALL HAVE NO LIABILITY TO LESSEE,
LESSEE'S CUSTOMERS, OR ANY THIRD PARTIES FOR (A) ANY LOSS, DAMAGE, OR EXPENSE OF
ANY KIND OR NATURE ARISING OUT OF THE MASTER LEASE, ANY LEASE SCHEDULE OR ANY
EQUIPMENT; (B) ANY LOSS OF BUSINESS OR SPECIAL, DIRECT, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES OF ANY CHARACTER; OR (C) ANY DAMAGES BASED ON STRICT OR
ABSOLUTE TORT LIABILITY OR LESSOR'S NEGLIGENCE. LESSEE HEREBY WAIVES ANY CLAIM
AGAINST LESSOR IN CONNECTION WITH OR ARISING OUT OF THE OWNERSHIP, LEASING,
FURNISHING, PERFORMANCE OR USE OF THE EQUIPMENT AND THE BENEFITS OF ANY AND ALL
IMPLIED WARRANTIES AND REPRESENTATIONS OF LESSOR, AND LESSEE EXPRESSLY WAIVES
ANY AND ALL RIGHTS OR REMEDIES AGAINST LESSOR PROVIDED UNDER THE UNIFORM
COMMERCIAL CODE (the "UCC"). To the extent permitted by applicable law, Lessee
hereby waives any rights Lessee may otherwise have to: 1) cancel or repudiate
any Lease Schedule or this Master Lease; 2) revoke acceptance of or reject the
Equipment; 3) claim a security interest in the Equipment; 4) accept partial
delivery of the Equipment; 5) sell or dispose of the Equipment upon rejection or
revocation; 6) seek "cover" in substitution for any Lease Schedule from Lessor;
and 7) claim an agency relationship between Supplier and Lessor. All warranties
from the Supplier to Lessor are, to the extent they are assignable, hereby
assigned to Lessee for the Lease Term or until an Event of Default occurs, for
Lessee's exercise at Lessee's expense.
8. LESSEE'S WARRANTIES, REPRESENTATIONS AND COVENANTS. Lessee represents,
warrants and covenants to Lessor, and Lessor relies on, the fact that: (a)
Lessee has read and understood this Master Lease and each Lease Schedule before
it was signed; (b) LESSEE HAS SELECTED THE EQUIPMENT BASED ON ITS OWN JUDGMENT,
IS
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FULLY SATISFIED WITH BOTH THE EQUIPMENT AND THE SUPPLIER OF THE EQUIPMENT, AND
HAS REVIEWED AND APPROVED THE SUPPLIER'S PURCHASE ORDER OR AGREEMENT COVERING
THE EQUIPMENT PURCHASED FOR LEASE TO LESSEE; (c) Lessee shall provide to Lessor
within one hundred twenty (120) days after the close of each of Lessee's fiscal
years, and, within forty-five (45 days of the end of each quarter of Lessee's
fiscal year, a copy of its financial statements which will be, (i) accurate and
correct in all material respects, and (ii) prepared in accordance with generally
accepted accounting principles consistently applied; (d) the Equipment is leased
exclusively for Lessee's established business purposes; (e) Lessee has the form
of business organization indicated, and is duly organized, validly existing and
in good standing under the laws of the state of its incorporation or
organization and is duly qualified to do business wherever necessary to carry on
its present business and operations and to own its property; (f) Lessee has the
power and authority to enter into the Master Lease, all Lease Schedules and all
other related instruments or documents hereunder ("Documents"), and such
Documents (i) have been duly authorized by all necessary action on the part of
Lessee consistent with its form of organization and duly executed and delivered
by authorized officers or agents of Lessee, whose signatures hereon are, in all
respects, authentic, (ii) do not require the approval of, or the giving notice
to, any federal, state, local or foreign governmental authority, (iii) do not
contravene any law binding on Lessee or any certificate or articles of
incorporation or by-laws or partnership certificate or agreement, (iv) do not
violate, result in any breach of, or constitute a default under, or result in
the creation of any lien, charge or security interest or other encumbrance upon
any assets of Lessee or on the Equipment pursuant to any agreement, indenture,
or other instrument to which Lessee is a party or by which it or any of its
assets may be bound, and (v) constitute legal, valid and binding obligations of
Lessee enforceable in accordance with their terms; (g) Lessee has experienced no
material adverse change in its financial condition or operations since the date
of its financial statements provided to Lessor nor does there exist any pending
or threatened actions or proceedings before any court or administrative agency
which might materially adversely affect Lessee's financial condition or
operations; and (h) the address indicated by Lessee is the chief place of
business and chief executive office of Lessee. Lessee shall be deemed to have
reaffirmed the foregoing warranties each time it executes a Lease Schedule.
9. TAXES, ASSESSMENTS AND FEES. Lessee agrees to pay when due and does hereby
indemnify Lessor against, and hold Lessor harmless from, all licensing, filing
and registration fees, franchise, sales, use, personal property, ad valorem,
value added, leasing, stamp or other taxes, levies, import duties, charges or
withholdings of any nature, including but not limited to all federal, state, and
local taxes, however designated, levied or assessed, together with any
penalties, fines or interest thereon (a) arising out of the transactions
contemplated by this Master Lease, any Lease Schedule or relating in any manner
to the Equipment and imposed against Lessor, Lessee, or the Equipment, (b) upon
the sale, purchase, possession, lease, ownership, use, operation, shipment,
transportation or delivery or other disposition thereof, or (c) upon the lease
payments, excepting only income taxes levied on the rental payments made to
Lessor. If any report or return for personal property tax is required by law to
be filed by Lessor, Lessee shall so notify Lessor prior to the assessment date,
and Lessee shall promptly reimburse Lessor for personal property taxes paid,
including any interest, fines or penalties incurred as a result of late filing
if Lessee fails to provide Lessor with the notice required hereby. Lessee shall
promptly provide Lessor with a copy of any and all filings and tax assessment
notices with
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respect to personal property tax and, if Lessee fails to do so, Lessor has the
right to charge Lessee an assessment of an appropriate amount to insure against
any tax liability. The Lessee agrees to comply with all state and local laws
requiring the filing of ad valorem tax returns relating to the Equipment. Any
statements for taxes received by the Lessor shall be promptly forwarded to the
Lessee. Lessee agrees to reimburse Lessor for reasonable costs incurred in
collecting taxes, assessments, or fees for which Lessee is liable and any
collection charge attributable thereto, including reasonable attorney fees.
LESSEE AGREES TO SHOW THE EQUIPMENT AS "LEASED EQUIPMENT" ON TAX RETURNS, AND
FILE, WHEN ALLOWED BY LAW, ALL PERSONAL PROPERTY TAX RETURNS.
10. INDEMNIFICATION. (a) Lessee assumes liability for, and hereby agrees to
indemnify, protect and hold Lessor and its affiliates harmless from and against
any and all liabilities (including, but not limited to, negligence, tort, and
strict liability), obligations, losses, damages, injuries, claims, demands,
penalties, actions, costs and expenses, including reasonable attorneys' fees, of
whatsoever kind and nature (including without limitation, claims of injury,
death, or property damage), arising out of or related to (i) this Master Lease,
each Lease Schedule, or the Equipment, including, but not limited to, the
manufacture, purchase, financing, installation, use, condition (including, but
not limited to, latent and other defects and whether or not discoverable by
Lessee or Lessor), operation, ownership, selection, delivery, leasing, removal,
return, or other disposition of any Equipment, (ii) a breach by Lessee or any
guarantor of any representations or warranties under this Master Lease, any
Lease Schedule or guaranty, or failure by Lessee or any guarantor to perform or
observe any covenant or agreement to be performed by it under this Master Lease,
any Lease Schedule or any guaranty, or (iii) a violation of or non-compliance
with any law, including environmental laws.
(b) Lessee acknowledges that the rent payable under the applicable Lease
Schedule has been calculated in part based on the assumption that the Lessor
will be entitled to claim cost recovery deductions with respect to its entire
purchase price for the Equipment under the method specified in section 168(b)(1)
of the Internal Revenue Code of 1986 (the "Code") and over the period specified
in Code section 168(c)(1) for 5-year or 7-year property within the meaning of
Code section 168(e)(1) (the "Tax Benefits"). In furtherance thereof, Lessee
represents, warrants and covenants that (i) the Equipment is 5-year or 7-year
property as set forth in the Lease Schedule within the meaning of Code section
168(e)(1), (ii) as of the delivery date, the Equipment will be placed in service
for federal income tax purposes and (iii) the fair market value of the Equipment
is equal to the Lessor's purchase price therefor. If as a result of any act,
omission or misrepresentation of Lessee, Tax Benefits are lost, disallowed,
eliminated, reduced, deferred, recaptured, compromised or are otherwise
unavailable to Lessor (any of the foregoing being a "Tax Loss"), Lessee shall
promptly pay to Lessor on demand, as additional rent, such amount or amounts
which will, after deduction therefrom of all taxes required to be paid in
respect of the receipt thereof, enable Lessor to receive the same actual net
after-tax economic and accounting yields and net after-tax cash flow over the
Lease Term that Lessor would have realized had such Tax Loss not occurred, with
such computations to be made on the assumption that the Lessor is subject to tax
at the Effective Rate as defined in, and subject to increase as provided in,
Section 6 hereof, together with any interest, penalties or additions to the tax.
Any event which by the terms of the Lease Schedule requires payment by Lessee to
Lessor of the Stipulated Loss Value of the Equipment, shall not constitute the
act of Lessee for purposes of the foregoing sentence.
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Lessor hereby agrees to exercise in good faith its reasonable best efforts
(determined in the sole discretion of Lessor's tax counsel to be reasonable,
proper and consistent with the overall tax interest of Lessor) to avoid
requiring Lessee to pay the tax indemnity referred to in this Section 10(b);
provided, however, Lessor shall have the sole discretion to determine whether or
not to undertake or continue judicial or administrative proceedings beyond the
level of an Internal Revenue Service auditing agent; and provided, further, that
Lessor shall not be required to take any action pursuant to this sentence unless
and until Lessee shall have agreed to indemnify Lessor for any and all expenses
(including attorneys' fees), liabilities or losses which Lessor may incur as a
result of taking such action. For purposes of this Section 10, the term "Lessor"
shall include the entity or entities, if any, with which Lessor consolidates its
tax return.
(c) The amount payable pursuant to the preceding paragraphs shall be payable
upon demand of the Lessor accompanied by a statement describing in reasonable
detail such loss, liability, injury, claim, expense or tax and setting forth the
computation of the amount so payable, which computation shall be binding and
conclusive upon Lessee, absent manifest error. The indemnities and assumptions
of liabilities and obligations contained in this Section and in Section 9 shall
continue in full force and effect notwithstanding the expiration or other
termination of the Master Lease or any Lease Schedule.
11. ASSIGNMENT. LESSOR MAY, WITHOUT LESSEE'S CONSENT, ASSIGN OR TRANSFER THIS
MASTER LEASE, ANY LEASE SCHEDULE OR ANY EQUIPMENT, ANY RENT, OR ANY OTHER SUMS
DUE OR TO BECOME DUE HEREUNDER AND IN SUCH EVENT LESSOR'S ASSIGNEE OR TRANSFEREE
SHALL HAVE ALL THE RIGHTS, POWERS, PRIVILEGES AND REMEDIES OF LESSOR HEREUNDER.
LESSEE HEREBY ACKNOWLEDGES NOTICE THAT LESSOR MAY ASSIGN THIS MASTER LEASE, ANY
LEASE SCHEDULE OR ANY EQUIPMENT AND UPON SUCH ASSIGNMENT LESSEE AGREES NOT TO
ASSERT, AS AGAINST LESSOR'S ASSIGNEE, ANY DEFENSE, SETOFF, RECOUPMENT, CLAIM OR
COUNTERCLAIM, WHETHER ARISING UNDER THIS MASTER LEASE, ANY LEASE SCHEDULE OR
OTHERWISE. LESSEE AGREES THAT ANY SUCH ASSIGNMENT SHALL NOT MATERIALLY CHANGE
LESSEE'S DUTIES OR OBLIGATIONS UNDER THE LEASE NOR MATERIALLY INCREASE LESSEE'S
RISKS OR BURDENS. In the event this Master Lease or any Lease Schedule is
assigned by Lessor, Lessee shall: (a) promptly execute a Notice of Assignment
for the applicable Lease (to be provided to Lessee by Lessor) and promptly
return the same to Lessor; (b) pay all amounts due under the applicable Lease
Schedule to the applicable assignee ("Assignee") notwithstanding any defense,
setoff or counterclaim whatsoever that Lessee may have against Lessor or
Assignee; (c) not permit the applicable Lease Schedule to be amended or the
terms thereof waived without the prior written consent of the Assignee; and (d)
not require the Assignee to perform any obligations of Lessor. It is further
agreed that (x) any Assignee may reassign its rights and interest under the
applicable Lease Schedule with the same force and effect as the assignment
described herein; (y) any payment received by the Assignee from Lessee with
respect to the assigned Lease Schedule shall, to the extent thereof, discharge
the obligations of Lessee to Lessor with respect to the assigned Lease Schedule;
and (z) Lessor shall not be relieved of any of its obligations by such
assignment unless expressly assumed by the Assignee. LESSEE SHALL NOT SUBLEASE,
ASSIGN, TRANSFER OR DISPOSE OF ANY OF ITS RIGHTS OR INTERESTS IN THIS MASTER
LEASE, ANY
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LEASE SCHEDULE OR ANY OF THE EQUIPMENT WITHOUT THE PRIOR WRITTEN CONSENT OF
LESSOR WHICH SHALL NOT BE UNREASONABLY WITHHELD, INCLUDING, WITHOUT LIMITATION,
ANY ASSIGNMENT FOR SECURITY PURPOSES, AND ANY ATTEMPTED ASSIGNMENT, SUBLEASE OR
TRANSFER BY LESSEE SHALL BE VOID AND SHALL NOT RELEASE LESSEE OF ITS OBLIGATIONS
UNDER THIS MASTER LEASE OR ANY LEASE SCHEDULE.
12. LIENS AND ENCUMBRANCES; TITLE; PERSONAL PROPERTY. Lessor is sole owner of
the Equipment and no right, title or interest in the Equipment shall pass to
Lessee other than, conditioned upon Lessee's compliance with and fulfillment of
the terms and conditions of this Lease, the right to maintain possession and use
of the Equipment for the Lease Term (provided no Event of Default has occurred)
free from interference by any person claiming by or through Lessor. At its
option, Lessor may require Lessee to affix plates, markings or other notices on
the Equipment indicating Lessor is the owner. Lessee agrees to give and record
such notices, obtain such waivers and take such other action at its own expense
as may be necessary to prevent any third party (other than an assignee of
Lessor) from acquiring or having the right under any circumstances to acquire
any interest in the Equipment or this Lease and Lessee shall, at its cost and
expense, defend Lessor's title against, and keep all of the Equipment, this
Master Lease, any Lease Schedule and any of Lessor's interests thereunder free
of all liens, claims and encumbrances of any kind. The Equipment shall at all
times remain personal property, notwithstanding, the Equipment or any part
thereof may be (or become) affixed or attached to real property or any
improvements thereon.
13. OPERATION AND MAINTENANCE; INSPECTION. Lessee shall be solely responsible
for the installation, operation, and maintenance of the Equipment, and Lessee,
at its own cost and expense, shall (a) keep the Equipment in good repair,
condition and working order, in accordance with any applicable manufacturer's
manuals, instructions or requirements, (b) furnish all parts, mechanisms,
devices and servicing required therefor, (c) make all replacements, alterations
or additions to the Equipment that may be required by the Supplier or legally
necessary by parts that are free and clear of all liens and have a value,
utility and remaining useful life at least equal to the parts replaced, and (d)
make no other alterations or additions to the Equipment without Lessor's prior
written consent. Title to all parts that Lessee replaces and any alterations or
additions that Lessee makes to the Equipment shall immediately vest in Lessor
without cost to Lessor, or any further action, and such parts, alterations or
additions shall be deemed incorporated into the Equipment and subject to the
terms of the Lease Schedule as if originally leased thereunder. Lessee shall use
and operate the Equipment by competent and duly qualified personnel, and for
business purposes only in compliance with applicable law, applicable
manufacturer's manuals, instructions or warranty requirements and all insurance.
Lessee, at its own cost and expense, shall enter into and maintain in full force
and effect throughout the Lease Term, including any renewals, with the
manufacturer or such other party as may be acceptable to Lessor, a maintenance
agreement covering the Equipment. Lessee shall not move the Equipment from the
location specified in the Lease Schedule without the prior written consent of
Lessor, which consent shall not be unreasonably withheld, and, if granted,
without executing financing statements and completing filings or taking such
other actions as Lessor may reasonably request to protect Lessor's interest in
the Equipment. Lessee agrees never to abandon or relinquish possession of the
Equipment except to Lessor or its agent. Lessor may enter the
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premises where the Equipment is located during normal business hours and subject
to Lessee's standard security procedures for the purpose of inspecting the
Equipment and, during the last six (6) months of the Lease Term, for the purpose
of showing the Equipment to prospective purchasers or lessees of the Equipment.
14. TERMINATION, RETURN. Lessee shall give Lessor one hundred twenty (120) days'
written notice prior to the expiration of the Lease Term, and sixty (60) days'
written notice prior to the expiration of any renewal term, of its intent to
return the Equipment. Upon expiration of the Lease Term, renewal term or other
termination pursuant to the terms of the Lease Schedule unless Lessee purchases
the Equipment pursuant to Section 19 hereof. Lessee shall, at its expense,
immediately return to Lessor the Equipment and all related accessories, (a) free
of all advertising or insignia placed thereon by Lessee (other than advertising
or insignia placed upon the Equipment by Lessee at the request of Lessor), (b)
free and clear of all liens or encumbrances, and (c) in such condition, repair
and working order as when delivered to Lessee, reasonable wear and tear excepted
and reflecting Lessee's full compliance with Section 13. Upon return, if the
Equipment does not satisfy the conditions set forth in the preceding sentence,
or is not eligible for the manufacturer's standard maintenance contract without
incurring any expenses to repair or rehabilitate the Equipment, Lessee shall be
liable for and reimburse Lessor for all reasonable expenses incurred by Lessor
to place the Equipment in such condition. The Equipment shall, at Lessee's sole
cost and expense, be crated and shipped in accordance with the manufacturer's
specifications, freight prepaid and properly insured to such place within the
continental United States as is designated by Lessor. If Lessee fails to give
the notice required herein or fails to return the Equipment as required herein,
then the Lease Schedule except to the extent Lessee purchases the Equipment
pursuant to Section 19 hereof, shall automatically be extended on a
month-to-month basis, for a period not to exceed twelve (12) months. The
extension period may be terminated by either party by giving thirty (30) days'
prior written notice. Upon such termination or at the end of the twelfth month
of the extension, Lessee shall return the Equipment as provided above. Until the
Equipment is returned to Lessor, Lessee shall continue to pay rent in an amount
equal to the monthly average rent during the Lease Term, on the same due date
set forth in the Lease Schedule.
15. RISK OF LOSS. Lessee hereby assumes and shall bear all risk of loss, theft,
damage or destruction of the Equipment by any cause whatsoever including,
without limitation, economic loss through extraordinary or premature wear, or
condemnation, confiscation, seizure or requisition of the title or use of any of
the Equipment by any government entity and whether or not such Loss is covered
by insurance (collectively, "Loss") from and after the earlier of the date (a)
on which the Equipment is ordered, or (b) Lessor pays the purchase price of the
Equipment, and continuing until such Equipment is returned to, and accepted by,
the Lessor or such other entity designated in writing by Lessor. Lessor shall
not be liable or responsible for any loss or damage occasioned by any cause,
circumstance or event of any nature relating to the Equipment, including,
without limitation, loss or damage arising by reason of any failure or delay in
the delivery of the Equipment to Lessee for whatever reason. No Loss shall
impair any obligation of Lessee under the Master Lease or any Lease Schedule
which shall continue in full force and effect. In the event of Loss, Lessee
shall promptly notify Lessor in writing of the Loss and all related details and
any action related thereto, and shall, within thirty (30) days of the Loss, at
Lessor's option, (a) repair the Equipment and restore it to the same good
condition and working
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order as it was immediately prior to the Loss (assuming the Equipment was in the
condition required by the terms of Section 13); (b) replace the Equipment
affected by the Loss with like personal property with equivalent value, useful
life and utility, in good repair, condition and working order and transfer clear
title to such replacement property to Lessor whereupon such property shall be
subject to this Master Lease and the applicable Lease Schedule and be deemed the
Equipment for purposes hereof; or (c) pay Lessor an amount equal to the sum of
(i) all rent and other amounts accrued through the next regular payment date
following the Loss, plus (ii) the Stipulated Loss Value as of the next regular
payment date as set forth in the Lease Schedule, whereupon such Lease Schedule,
except for Lessee's duties under Sections 9 and 10, shall terminate with respect
to the items of Equipment for which such payment is received by Lessor. Upon
payment of the amount set forth in (c), the rent for such Lease Schedule shall
be reduced proportionately. Any insurance proceeds received with respect to the
Loss shall be applied, if option (c) is elected, in reduction of the then unpaid
obligations, including the Stipulated Loss Value, of Lessee to Lessor, if not
already paid by Lessee or, if already paid by Lessee, to reimburse Lessee for
such payment, or, if option (a) or (b) is elected, to reimburse Lessee for the
costs of repairing, restoring or replacing the Equipment affected by the Loss
upon receipt by Lessor of evidence, satisfactory to Lessor, that such repair,
restoration or replacement has been completed, and an invoice therefor.
16. INSURANCE. Lessee shall procure and maintain during the Lease Term, at
Lessee's expense, the following minimum insurance coverages: (a) Workers'
Compensation as required by law and Employer's Liability Insurance $1,000,000
limit; (b) Comprehensive General Liability Insurance including product/completed
operations and contractual liability coverage with minimum limits of $1,000,000
each occurrence, and Combined Single Bodily Injury and Property Damage,
$1,000,000 aggregate, where applicable; and (c) All Risk Physical Damage
Insurance, including earthquake and flood, on each item of Equipment, in an
amount not less than the greater of the replacement cost, new or the Stipulated
Loss Value of the Equipment. Lessor will be included under such policies as an
additional insured and loss payee, and each such policy shall be endorsed to
provide that the coverage afforded to Lessor shall not be rescinded, impaired or
invalidated by any act or neglect of Lessee or any other person. Under the
policies required in clauses (a) and (c) above, Lessee agrees to waive its right
of subrogation and cause its insurance carrier to waive its right of
subrogation, in each instance as such right may exist against Lessor and for any
and all loss and damage. All policies shall contain a clause requiring the
insurer to furnish Lessor with at least thirty (30) days' prior written notice
of any material change, cancellation or non-renewal of coverage. Upon execution
of this Master Lease, Lessee shall furnish Lessor with a certificate of
insurance or other evidence satisfactory to Lessor that such insurance coverages
are in effect; provided, however, that Lessor shall be under no duty to (a)
ascertain the existence of, (b) examine such insurance coverage, or (c) advise
Lessee in the event such insurance coverage should not comply with the
requirements hereof. Lessee shall also furnish Lessor with a copy of the
certificate of insurance annually thereafter. If Lessee fails to procure or
maintain insurance or to comply with any other provision of this Master Lease or
any Lease Schedule, Lessor shall have the right, but shall not be obligated, to
effect such insurance or compliance on behalf of Lessee. In that event, all
costs and expenses of Lessor in effecting such insurance or compliance shall be
deemed to be additional rent, and shall be paid by Lessee to Lessor upon demand.
The proceeds of insurance payable as a result of a Loss shall be applied as set
forth in Section 15. Lessee appoints Lessor as attorney-in-fact to make any
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claim for, receive payment of, or execute or endorse all documents, checks or
drafts for loss or damage or return of premium under all such insurance and
otherwise in respect of all awards or other compensation payable in respect of
any condemnation, confiscation, seizure or requisition of any Equipment.
17. DEFAULT. If any one or more of the following events (an "Event of Default")
shall occur, then Lessor shall have the right to exercise any one or more of the
remedies set forth in Section 18: (a) Lessee fails to make any payment, of rent
or other payment when due as provided in this Master Lease or any Lease
Schedule; or (b) Lessee or any guarantor breaches any of its warranties,
representations, or other obligations under this Master Lease or any Lease
Schedule, or any other agreement with Lessor, and fails to cure such breach
within ten (10) days after Lessor sends Lessee notice of the existence of such
breach; or (c) Lessee shall default on any other indebtedness obligation or
agreement of any kind with Lessor, or related thereto and shall not have cured
such default within a period of grace provided by such other agreement or
instrument; or (d) any execution or writ of process is issued in any action or
proceeding to seize or detain any of the Equipment; or (e) Lessee fails to
return any Equipment when required under Section 14; or (f) Lessee or any
guarantor shall commence, or take corporate action to authorize, a voluntary
case or other proceeding seeking liquidation, reorganization, or other relief
with respect to itself or its debts; or seek the appointment of a trustee,
receiver, liquidator, custodian, or other similar official; or consent, or fail
to object, to any such relief or to the appointment of any such official or to
the taking of possession of any of its property or to the commencement of an
involuntary case or other proceeding commenced against it, or shall make a
general assignment for the benefit of its creditors; or (g) Lessee becomes
insolvent or fails generally to pay its debts as they become due; or (h) any
guarantor revokes a guaranty provided to Lessor under this Master Lease or any
Lease Schedule or breaches any of its obligations under such guaranty. Lessee
shall promptly notify Lessor of the occurrence of any Event of Default or the
occurrence or existence of any event or condition which, upon the giving of
notice or lapse of time, or both, may become an Event of Default. In the event
Lessee fails to comply with any provision of this Master Lease or any Lease
Schedule, Lessor shall have the right, but shall not be obligated, to effect
such compliance on behalf of Lessee. In such event, all monies expended by and
all expenses of Lessor in effecting such compliance shall be deemed to be
additional rent, and shall be paid with interest at the overdue rate set forth
in Section 4 to Lessor at the time of the next rent payment.
18. REMEDIES. If an Event of Default occurs, Lessor may, in its sole discretion,
exercise any or all of the following remedies: (a) cause Lessee, upon written
demand of Lessor and at Lessee's expense, to promptly return any or all
Equipment on any or all of the Lease Schedules, to such location as Lessor may
designate or to immediately retake possession of the Equipment without any court
order or other process of law (and for such purpose Lessor may enter upon any
premises where the Equipment may be and remove the same); and Lessor may dispose
of any or all of the Equipment in good faith and recover from Lessee as damages
all charges, expenses or commissions incurred by Lessor in the transportation,
care, custody or disposition of such Equipment after the occurrence of the Event
of Default or otherwise resulting by reason of such default; (b) whether Lessor
has recovered the Equipment, or if so recovered, has elected to retain any or
all of the Equipment, or dispose of the Equipment by sale, lease or otherwise,
to recover as liquidated damages from Lessee for the loss of a bargain due to
Lessee's Event of Default and
10
<PAGE>
not as a penalty, the sum of the following: (i) all accrued and unpaid rent and
other amounts then due, plus (ii) the higher of fair market value or the
Stipulated Loss Value of the Equipment; all of the foregoing amounts shall
become immediately due and payable to Lessor, to the extent permitted by UCC-2A,
or any other provision of the UCC or other applicable law and taking into
account all applicable discounting (using a per annum interest rate of 6%) and
credits (Lessee in all cases being liable for any deficiencies) required
thereby; (c) recover from Lessee all reasonable costs and expenses including
without limitation any incidental expenses and legal fees and expenses incurred
by Lessor as a result of the Event of Default, less any credits due Lessee
pursuant to applicable law; (d) with or without notice to Lessee, cancel the
Master Lease or any Lease Schedule without prejudice to Lessor's rights in
respect of obligations then accrued and remaining unsatisfied; and (e) exercise
any remedy at law or equity, notice thereof being expressly waived by Lessee,
including any right or remedy which may otherwise be available to it under the
UCC. Lessee shall pay all collection costs and reasonable attorney fees as
damages and not costs in all proceedings arising under or connected with the
Master Lease or any Lease Schedule or Lessor's enforcement of any of their
terms, including without limitation, arbitrations, civil actions, bankruptcy
proceedings, mediations, and post-judgment actions or appeals. Lessor's action
or failure to act on one remedy constitutes neither (a) an election to be
limited thereto, (b) a waiver of any other remedy nor (c) a release of Lessee
from the liability to return the Equipment or for any loss or claim with respect
thereto. Nothing herein shall be deemed to prejudice Lessor's right to recover
or prove damages for unpaid rent accrued prior to default, or bar an action for
a deficiency as herein provided. The bringing of an action with an entry of
judgment against Lessee shall not bar the Lessor's right to repossess any or all
of the Equipment. Lessor's remedies shall be available to Lessor's successors
and assigns, shall be in addition to all other remedies provided by law, and may
be exercised concurrently or consecutively. Lessee agrees that with respect to
any notice of a sale required by law to be given, ten (10) days' notice shall
constitute reasonable notice. No waiver of an Event of Default under this Master
Lease or any Lease Schedule shall constitute a waiver of any other Event of
Default, or a waiver of any right, power, privilege, or remedy hereunder.
19. PURCHASE OPTION. (a) If no Event of Default exists, no event has occurred
and is continuing which with notice or the lapse of time or both would
constitute an Event of Default, Lessee has complied with all of the terms and
conditions of the Master Lease and the Lease Schedule and Lessee delivers to
Lessor an irrevocable written notice at least one hundred twenty (120) days
prior to the expiration of the Lease Term of the first Lease Schedule scheduled
to expire, Lessee shall have the option to purchase all, but not less than all,
of the Equipment at the end of the Lease Term at the Purchase Option Price (as
defined below). Lessee's election of the purchase option shall operate as
Lessee's election of the purchase option for each and every Lease Schedule.
(b) The "Purchase Option Price" of the Equipment shall be an amount equal to the
Fair Market Value (as defined below) of such Equipment, as agreed upon by Lessor
and Lessee or, failing such agreement, as determined by an appraisal, at
Lessee's expense, from an independent qualified appraiser selected by Lessor,
plus an amount equal to all sales, use, property or excise taxes, on or measured
by the sale of the Equipment to Lessee, plus any other expenses of transfer.
"Fair Market Value" is the selling price that would be obtained in an
arm's-length transaction between an informed and willing buyer and an informed
and willing seller, each
11
<PAGE>
under no compulsion to buy or sell; provided, however, such values shall be
determined on the basis that the Equipment conforms to all conditions specified
in the applicable Lease Schedule and is installed and/or in service. In
determining Fair Market Value, the costs of removing the Equipment shall not be
deducted from its value.
(c) If Lessee elects to purchase the Equipment, Lessee shall pay Lessor the
Purchase Option Price on or before the last day of the Lease Term in immediately
available funds and the sale of the Equipment by Lessor to Lessee shall be on an
AS-IS, WHERE-IS basis, without recourse to, or warranty by Lessor and the LESSOR
SHALL NOT BE DEEMED TO HAVE MADE, AND THE LESSOR HEREBY EXPRESSLY DISCLAIMS, ANY
REPRESENTATION OR WARRANTY, EITHER EXPRESSED OR IMPLIED, AS TO ANY MATTER
WHATSOEVER, INCLUDING WITHOUT LIMITATION, THE DESIGN OR CONDITION OF THE
EQUIPMENT, ITS MERCHANTABILITY OR ITS FITNESS FOR USE OR FOR ANY PARTICULAR
PURPOSE, THE QUALITY OF THE MATERIAL OR WORKMANSHIP OF THE EQUIPMENT, ITS VALUE
OR CONFORMITY TO ANY SPECIFICATIONS OR AGREEMENTS RELATING THERETO, NOR SHALL
THE LESSOR BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES OR FOR STRICT OR
ABSOLUTE LIABILITY IN TORT. The Purchase Option Price shall bear finance charges
for the period, if any, from the expiration of the Lease Term to the date of
payment, at the rate set forth in the Master Lease for payment of overdue rent.
(d) Notwithstanding any election of Lessee to purchase, the provisions of the
Master Lease and the Lease Schedule shall continue in full force and effect
until passage of ownership of the Equipment upon the date of purchase.
20. DISPUTE RESOLUTION. In furtherance of the resolution of any disputes
hereunder, the parties agree and stipulate that, at Lessor's election, the
parties shall submit any matter arising out of this transaction, including any
claim, counterclaim, setoff, or defense, to binding arbitration by the American
Arbitration Association. The decision and award of the arbitrator(s) shall be
final and binding and may be entered as rendered in any court having
jurisdiction thereof.
21. ADDITIONAL SECURITY, INTEREST RATE PROVISION. Lessee and Lessor acknowledge
and agree that this Master Lease and each Lease Schedule (a) shall be construed
to be a "true" lease and not a "lease intended as security" within the meaning
of Section 1-201(37) of the UCC, and (b) is not subject to Article 9 of the UCC.
Despite the express intent of the parties, in the event that this Master Lease
or any Lease Schedule is not deemed to be a true lease, then solely in that
event and for that limited purpose, it shall be deemed a security agreement and,
in that regard, Lessee hereby grants Lessor a purchase money security interest
in the Equipment, and all accessions, substitutions and replacements thereto,
and all interests of Lessee therein, and all proceeds (including insurance
proceeds) and products thereof, to secure Lessee's prompt payment and
performance as and when due of all obligations and indebtedness to Lessor
hereunder. Without prejudicing the generality of this Section, Lessor and Lessee
intend to conform strictly to the usury law applicable to this transaction.
Accordingly, it is agreed that the aggregate of all interest and any other
charges or consideration constituting
12
<PAGE>
interest under applicable law that is contracted for, charged or received under
this Master Lease, any Lease Schedule or otherwise shall under no circumstances
exceed the maximum amount of interest allowed by applicable law. If any usurious
interest in such respect is provided for in this Master Lease, any Lease
Schedule or otherwise, or if the acceleration or prepayment of any indebtedness
results in Lessee having paid any interest in excess of that permitted by
applicable law, then in such event, (a) Lessee shall not be obligated to pay the
amount of such interest to the extent that it is in excess of the maximum amount
of interest allowed by applicable law, (b) any excess shall be deemed a mistake
and cancelled automatically and, if theretofore paid, shall be credited on any
such indebtedness by Lessor, (c) the effective rate of interest shall be
automatically reduced to the maximum legal rate of interest allowed by
applicable law, and (d) all interest shall be allocated and spread throughout
the full term of any such indebtedness until paid in full so that the rate or
amount of interest does not exceed the applicable usury ceiling.
22. NOTICES. Any notices and demands required or permitted to be given under
this Master Lease or any Lease Schedule shall be given in writing by regular
mail and shall become effective when deposited in the United States mail with
postage prepaid at the address provided herein or to such other address as the
party to receive the notice hereafter designates in writing.
23. FURTHER ASSURANCES. Lessee shall promptly execute and deliver to Lessor such
further documents and take such further action as Lessor may require in order to
more effectively carry out the intent and purpose of this Master Lease and any
Lease Schedule, including, upon Lessor's request, executing and delivering any
and all financing statements which may be required to evidence the interest of
Lessor in the Equipment. Upon demand, Lessee will promptly reimburse Lessor for
any filing or recordation fees or expenses (including legal fees and costs)
incurred by Lessor in perfecting or protecting its interests in the Equipment
and under this Master Lease or any Lease Schedule. Lessee authorizes Lessor and
its agents to file, at Lessor's option, any such financing statements without
Lessee's signature and, if Lessee's signature is required, Lessee agrees Lessor
or its agent may execute the same for and on behalf of Lessee.
24. ENTIRE AGREEMENT. This Master Lease, together with all Lease Schedules,
Acceptance Certificates, addendums and riders attached hereto from time to time,
or by reference hereto made a part hereof, constitute the entire agreement
between the parties with respect to the subject matter hereof and merges any
other understanding. The term "Lessee" as used herein shall mean and include any
and all Lessees who sign hereunder, each of whom shall be jointly and severally
bound thereby.
25. WAIVER OF JURY TRIAL. LESSEE HEREBY EXPRESSLY WAIVES ANY RIGHT TO DEMAND A
JURY TRIAL WITH RESPECT TO ANY ACTION OR PROCEEDING INSTITUTED BY LESSOR OR
LESSEE IN CONNECTION WITH THIS MASTER LEASE OR ANY LEASE SCHEDULE.
26. CHOICE OF LAW AND FORUM. THIS MASTER LEASE HAS BEEN AND EACH LEASE SCHEDULE
WILL BE EXECUTED AND DELIVERED IN THE STATE OF OHIO AND THIS MASTER LEASE AND
EACH LEASE SCHEDULE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF OHIO (OTHER
THAN THE
13
<PAGE>
CONFLICTS OF LAW PROVISIONS). THE PARTIES AGREE THAT ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS MASTER LEASE OR ANY LEASE SCHEDULE MAY BE
COMMENCED IN THE STATE OF FEDERAL COURTS IN OHIO AND LESSEE SUBMITS TO SUCH
JURISDICTION AND AGREES THAT, IN ADDITION TO ANY OTHER MANNER OF SERVICE
PRESCRIBED BY LAW OR RULE OF COURT, A SUMMONS AND COMPLAINT COMMENCING AN ACTION
OR PROCEEDING IN EITHER SUCH COURT SHALL BE PROPERLY SERVED UPON LESSEE AND
SHALL CONFER PERSONAL JURISDICTION IF SERVED PERSONALLY OR BY UNITED STATES
REGISTERED MAIL, RETURN RECEIPT REQUESTED, TO THE LESSEE AT THE ADDRESS
INDICATED ON THE FIRST PAGE OF THIS MASTER LEASE.
27. MISCELLANEOUS. This Master Lease, any Lease Schedule and any amendment
hereto or modification hereof, and any waiver of any condition or provision
contained herein, shall not be valid unless in writing and signed by an
authorized officer of each party hereto. No failure to exercise, or delay in
exercising, any right, power, privilege or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power,
privilege or remedy preclude any other or further exercise thereof or the
exercise of any other right, power, privilege or remedy. The headings of
sections in this Master Lease are for convenience only and shall not be
considered in construing the meaning of the contents of such section. This
Master Lease and any Lease Schedule shall be binding upon and inure to the
benefit of the respective parties hereto, and upon and to their successors and
permitted assigns. Any provision of this Master Lease or any Lease Schedule
which is unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such unenforceability without invalidating the
remaining provisions hereof, and any such unenforceability in any jurisdiction
shall not render unenforceable such provisions in any other jurisdiction. To the
extent permitted by applicable law, Lessee hereby waives any provisions of law
which render any provision hereof unenforceable in any respect.
IN WITNESS WHEREOF, LESSOR AND LESSEE HAVE EXECUTED THIS MASTER LEASE AS OF THE
DATE FIRST ABOVE PROVIDED.
DANA COMMERCIAL CREDIT CORPORATION UNIVERSAL MONEY CENTERS, INC.
Lessor Lessee
By: /s/ Dana Commercial Credit: By: /s/ David S. Bonsal, CEO
------------------------------- ----------------------------------
Title: Title: CEO
14
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints David S. Bonsal, Dave A.
Windhorst and Christopher D. Greek, and each of them with full power to act
without the others, with full power of substitution, as the true and lawful
attorneys-in-fact and agents for the undersigned and in the undersigned's name,
place and stead, to sign in the name and on behalf of the undersigned the Annual
Report on Form 10-K of Universal Money Centers, Inc. for its fiscal year ended
January 31, 1999, and any and all amendments thereto, and to file the same, with
all exhibits thereto, and any and all other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents and each of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully as the undersigned might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them or their substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
Dated: March 12, 1999
/s/ David S. Bonsal
--------------------------------
David S. Bonsal
Chairman of the Board,
Chief Executive Officer and
Director
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints David S. Bonsal, Dave A.
Windhorst and Christopher D. Greek, and each of them with full power to act
without the others, with full power of substitution, as the true and lawful
attorneys-in-fact and agents for the undersigned and in the undersigned's name,
place and stead, to sign in the name and on behalf of the undersigned the Annual
Report on Form 10-K of Universal Money Centers, Inc. for its fiscal year ended
January 31, 1999, and any and all amendments thereto, and to file the same, with
all exhibits thereto, and any and all other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents and each of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully as the undersigned might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them or their substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
Dated: March 12, 1999
/s/ Dave A. Windhorst
---------------------------------
Dave A. Windhorst
President
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints David S. Bonsal, Dave A.
Windhorst and Christopher D. Greek, and each of them with full power to act
without the others, with full power of substitution, as the true and lawful
attorneys-in-fact and agents for the undersigned and in the undersigned's name,
place and stead, to sign in the name and on behalf of the undersigned the Annual
Report on Form 10-K of Universal Money Centers, Inc. for its fiscal year ended
January 31, 1999, and any and all amendments thereto, and to file the same, with
all exhibits thereto, and any and all other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents and each of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully as the undersigned might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them or their substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
Dated: March 12, 1999
/s/ Arthur M. Moglowsky
---------------------------------
Arthur M. Moglowsky
Director
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints David S. Bonsal, Dave A.
Windhorst and Christopher D. Greek, and each of them with full power to act
without the others, with full power of substitution, as the true and lawful
attorneys-in-fact and agents for the undersigned and in the undersigned's name,
place and stead, to sign in the name and on behalf of the undersigned the Annual
Report on Form 10-K of Universal Money Centers, Inc. for its fiscal year ended
January 31, 1999, and any and all amendments thereto, and to file the same, with
all exhibits thereto, and any and all other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents and each of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully as the undersigned might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them or their substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
Dated: March 12, 1999
/s/ Jeffrey M. Sperry
---------------------------------
Jeffrey M. Sperry
Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule Contains Summary
Financial Information Extracted From
the Consolidated Balance Sheets as of
January 31, 1999 and Consolidated
Statements Of Income For The Year Ended
January 31, 1999 and is qualified in
its entirety by reference to such
financial statements.
</LEGEND>
<CURRENCY> United States
<CIK> 0000702167
<NAME> Univeral Money Centers, Inc.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-1-1998
<PERIOD-END> JAN-31-1999
<EXCHANGE-RATE> 1
<CASH> 601,922
<SECURITIES> 0
<RECEIVABLES> 99,082
<ALLOWANCES> 21,370
<INVENTORY> 300
<CURRENT-ASSETS> 692,828
<PP&E> 3,580,596
<DEPRECIATION> 1,873,919
<TOTAL-ASSETS> 2,805,036
<CURRENT-LIABILITIES> 838,742
<BONDS> 714,087
0
0
<COMMON> 398,514
<OTHER-SE> 2,516,001
<TOTAL-LIABILITY-AND-EQUITY> 2,805,036
<SALES> 0
<TOTAL-REVENUES> 5,051,309
<CGS> 0
<TOTAL-COSTS> 4,564,013
<OTHER-EXPENSES> 174,626
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 174,626
<INCOME-PRETAX> 312,670
<INCOME-TAX> 60,000
<INCOME-CONTINUING> 452,815
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 372,670
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>