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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM _____ TO
_____.
Comdata Holdings Corporation Comdata Network, Inc.
Commission file number: 0-16151 Commission file number: 2-66729
COMDATA HOLDINGS CORPORATION
COMDATA NETWORK, INC.
(Exact name of each registrant as specified in its charter)
Comdata Holdings Corporation Comdata Holdings Corporation
Delaware 13-3396750
Comdata Network, Inc. Comdata Network, Inc.
Maryland 62-0813252
(State or other jurisdiction of (I.R.S. Employer Identification Nos.)
incorporation or organization)
5301 Maryland Way
Brentwood, Tennessee 37027
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code: (615) 370-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value, of
Comdata Holdings Corporation
Indicate by check mark whether each registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. X Yes No
--- ---
The aggregate market value of the voting stock held by non-affiliates
of Comdata Holdings Corporation was $83,000,000 as of March 4, 1994, based upon
the closing price of such stock as reported in the National Market System of
the National Association of Securities Dealers Automated Quotations System
("NASDAQ") on that day.
As of March 4, 1994, there were outstanding 14,726,929 shares of
Common Stock of Comdata Holdings Corporation. As of such date, 1,000 shares of
Common Stock of Comdata Network, Inc. were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE.
None
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PART I
ITEM 1. BUSINESS
OVERVIEW AND COMPANY STRATEGY
Comdata Holdings Corporation ("Holdings") was incorporated in the
State of Delaware in March 1987 for the purpose of acquiring, in a leveraged
acquisition, Comdata Network, Inc. ("Comdata" or the "Company"), a Maryland
corporation organized in 1969. Holdings acquired the outstanding capital stock
of Comdata in a merger transaction on September 9, 1987, and Holdings'
investment in Comdata and Comdata's subsidiaries represents Holdings' only
material asset.
Comdata is a leading provider of value-added payment and information
services to the transportation, gaming and retail industries. By means of its
proprietary computerized telecommunications network, in 1993, the Company
processed approximately 31.2 million funds transfer transactions for the
transportation industry and approximately 5.6 million cash advance transactions
at gaming locations and transferred in excess of $7.2 billion over its network.
The Company believes that a substantial portion of its revenue in 1993 was
generated from markets in which the Company is the leading provider.
Comdata is a leading provider of funds transfer and regulatory permit
services to the trucking industry. Comdata's funds transfer services are
available at numerous truck stops and other locations. Other trucking company
services include debit card issuance and authorization, in-truck driver
communications, telephone services and backhaul information, all of which make
use of the information processing or telecommunications capabilities of the
Company's network.
Comdata is also a leading provider of cash advance services to the
gaming industry. Comdata uses its network to provide a system by which
individuals may use MasterCard, Visa and Discover credit cards to obtain cash
in casinos, racetracks and other gaming locations. These services are
currently available in a majority of the casinos in Las Vegas, Reno, Lake
Tahoe, Nevada, and Atlantic City, New Jersey, and in many other locations,
including riverboat casinos.
Comdata also provides check authorization and guarantee services to
grocery stores and other retailers in several states. In addition, Comdata
provides retailers with collection services for returned checks.
Comdata's operating strategy is to increase revenue and operating
profits from its core business by emphasizing recurring revenues, maintaining
its historically low capital requirements and using its competitive advantages
in size, technological
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capability and diverse product lines to provide better service to its customers
and to increase its overall customer base. This strategy has various
components, including internal growth through expansion of its existing
customer base with existing products, development of new services for existing
and adjacent market segments, marketing of integrated services to new and
existing customers and development of strategic agreements and partnerships to
better provide superior services at lower costs.
In addition to expanding its operations by using its network to
develop new services for its customer base, Comdata has acquired other
companies engaged in similar activities. These acquisitions, as well as
internally generated growth, have resulted in an increase in revenue from
$103.1 million in 1987 to $212.3 million in 1993. Since September 1987,
Comdata has acquired 9 different businesses, ranging in size from $0.8 million
to $57.6 million in annual revenue at the time of acquisition. Considering the
Company's leadership status in transportation and gaming, there may not
be as many opportunities to grow future revenues from acquisitions as there
have been in the past.
The acquisition by the Company in 1988 of American Facsimile Systems,
Inc. ("AFSI"), a leading provider of specialized transportation permits,
enabled Comdata to consolidate its original permit services with those of AFSI
and to become a leading provider of these services. Since the AFSI
acquisition, Comdata has acquired several smaller, regional permit companies
with aggregate annual revenues of approximately $5.0 million. In June 1989,
Comdata significantly expanded its cash advance services for the trucking and
gaming industries by acquiring Fundsnet, Inc. ("Fundsnet") and the CashChek
International Division ("Cashchek") and the Financial and Communication
Services Division ("FCS") of First Data Resources, Inc. ("First Data").
On December 7, 1993, the Company acquired Saunders, Inc. ("Saunders"),
based in Birmingham, Alabama, for approximately $9.4 million. Saunders
revenues for the year ended December 31, 1993 were $12.1 million. Saunders is
a leading supplier of fuel tax, licensing and permit services to the trucking
industry. Through its wholly owned subsidiary, Cash Control Corporation,
Saunders also provides fuel purchase card and funds transfer services to
trucking companies and marketing services to truckstops. The Company believes
that the acquisition of Saunders will enable Comdata to increase its customer
base in transportation services and to achieve certain efficiencies by
eliminating duplicative overhead. In addition, Saunders provides several
services that Comdata currently contracts out, such as driver breakdown
services and road assistance programs. In addition, on February 23, 1994, the
Company acquired a software developer with applications for the transportation
industry. The purchase price was approximately $0.5 million, with contingent
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payments of up to $8.8 million over the next three years, based upon the
earnings of the acquired operation.
Over the past few years, the Company has entered into strategic
agreements with the following major providers of communications services and
equipment: American Telephone & Telegraph ("AT&T"), Advanced
Telecommunications Corporation ("ATC"), a wholly owned subsidiary of LDDS
Communications, Inc. ("LDDS"), and Integrated Systems Solutions Corporation
("ISSC"), a subsidiary of International Business Machines Corporation ("IBM").
These agreements have enabled the Company to become a value-added reseller of
communications services and equipment and to outsource substantially all its
internal data processing functions. Pursuant to certain of these agreements,
ATC invested $14.0 million in the Company in 1991, and ISSC made a $15.0
million payment to the Company in 1991.
TRANSPORTATION SERVICES
Comdata is a leading provider of funds transfer and regulatory permit
services to the trucking industry. Comdata also offers fuel purchase programs,
backhaul information, in-truck communications services and telecommunications
services to over 15,000 trucking companies. Revenue generated from the
Company's transportation services represented 58.7% of total revenue in 1993.
FUNDS TRANSFER SERVICES
Comdata currently has funds transfer agreements with more than 12,000
trucking companies, ranging in size from those with several thousand trucks to
those with fewer than five trucks. The majority of Comdata's trucking company
customers are common carriers (which account for 80% of all diesel fuel
transactions at truck stops), as opposed to private fleets. Many common
carriers do not employ their drivers, but instead contract with individual
owner-operators. Such owner-operators usually settle their expenses with the
common carrier after the completion of each trip. The Company's services are
useful in that they provide an accounting to the trucking company of trip
expenses normally within 24 hours after the completion of a given trip. The
Company's services are also particularly useful to its common carrier customers
because they enable the common carrier to maintain greater control over
expenditures by independent owner-operators, as well as their employees.
Funds transfer services provided to the trucking industry, including
fuel purchase programs, accounted for $71.7 million, or 33.7%, of the Company's
total revenue in 1993. In 1993, Comdata processed approximately 31.2 million
funds transfer transactions for the trucking industry and as part of such
transactions transferred approximately $5.2 billion over its network.
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THE BASIC FUNDS TRANSFER SYSTEM. The Company's funds transfer system
is designed to enable truck drivers to obtain funding for purchases at truck
stops and other locations en route to their destination. The system is also
designed to enable Comdata's trucking company customers to maintain control
over cash disbursements made to either their independent owner-operators or
their employees. The basic funds transfer system operates through the use of
an instrument known as a Comchek(R), which is a draft payable through a Comdata
bank account. The Company maintains a national network of 24-hour independent
service centers ("Service Centers"). Most Service Centers have point-of-sale
devices and other computer equipment to facilitate communication with the
Company's database and operations centers. Currently, there are approximately
8,000 truck stops that serve as Service Centers for the Company.
The Service Centers at which the Company's services are offered are
affiliated with Comdata only as the Company's agent pursuant to a Service
Center Agreement. The Service Centers are not required to act for Comdata
exclusively, and typically offer the funds transfer services of other
companies. Generally, either Comdata or the agents may terminate the
relationship on notice of 30 days or less, but Comdata has not experienced a
material number of terminations.
When a truck driver makes a request at a Service Center for a funds
transfer, Comdata verifies that the driver's company has established sufficient
credit. Upon presentation of valid identification, the Service Center obtains
an authorization number from Comdata and issues a Comchek draft. The Service
Center then deposits the Comchek draft in its bank account. The trucking
company remits to the Company the amount of the draft plus the service fee by
wire transfer or check, typically within six days. In most instances, the
Comchek draft clears the disbursing bank three days before payment is received
by the Company from its customers.
AUTOMATION OF FUNDS TRANSFER OPERATIONS. The Company has
substantially automated its basic funds transfer system by improving its
computer software and by installing magnetic stripe readers, printers and
modems in Service Center locations. Over 83% of Comdata's transportation
services funds transfer transactions are now fully automated, which has
significantly enhanced efficiency by eliminating the need for operator
involvement and by reducing the amount of time necessary to complete
transactions. In addition, Comdata maintains a 24-hour call center in its
Brentwood offices to handle transactions that require operator assistance.
FUEL PURCHASE SERVICES. The Company uses its proprietary network to
provide a sophisticated service that allows transportation customers to
purchase fuel and other services with an identification card. Fuel purchase
transactions are similar
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to ordinary credit card transactions; however, they allow the trucking company
customer greater control over its expenses by setting limits on the use of the
identification cards and by designating locations where the cards may be used
and the frequency with which they may be used. Some trucking companies also
have access to their transaction information on the Company's computer system
and may therefore promptly obtain information on recent transactions by their
independent owner-operators or employees. In 1993 revenue generated from fuel
purchase transactions were $36.3 million, or 17.1%, of the Company's total
revenue.
PERMIT SERVICES
Comdata, through its Transceiver(R) unit, offers value-added services
to trucking company customers by determining the permits needed for a designated
trip, truck and load, purchasing those permits on behalf of the customer and
electronically transmitting them to a convenient Service Center or truckstop
where they can be picked up by the truck driver. In many instances, a trucking
company customer will order permits directly from the issuing authority, and
Comdata will deliver these permits by facsimile machine to their designated
location. In addition to charging its customers for the costs imposed by the
state authority, Comdata receives a fee for each permit delivered on behalf of
a customer. Trucking companies may purchase permits directly from a state, but
it may be difficult for the company to deliver the permits to the driver. In
addition to providing permits to trucking companies, Comdata also provides
certain regulatory compliance services, such as auditing of driver logs and
reporting of fuel taxes. Permit transfer fees were approximately $25.5 million
in 1993, or 12.0% of the Company's total revenue.
OTHER SERVICES TO THE TRUCKING INDUSTRY
Telephone Services. Comdata offers long distance telephone services
to its trucking industry customers through the Directed Phone Card(TM), a
proprietary service that offers significant advantages over traditional
telephone credit card services. The Directed Phone Card is an identification
card that can be used as a telephone credit card, as well as a fuel purchase
card. The card enables Comdata's trucking company customers to maintain
greater control over the billable telephone use of their drivers by allowing
the trucking company to determine which locations the driver may call and to
preprogram those numbers into Comdata's voice response unit. The trucking
company can also limit the availability of the service to an independent driver
by dollar amount or number of calls. In this way, the trucking company has
complete control over the use of the service by the driver. In 1993, Comdata's
revenue from this telephone service was $5.3 million, or 2.5%, of the Company's
total revenue.
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IN-TRUCK COMMUNICATIONS. Comdata provides an in-truck driver
communications and vehicle tracking system known as DriverLink/24(R) pursuant to
an agreement with Motorola entered into in November 1990. Building on
Motorola's driver communications product marketed as CoveragePLUS(TM),
DriverLink/24(R) allows trucking company dispatchers and drivers to
communicate with each other 24 hours a day, seven days a week by calling the
Comdata communications center. This program was introduced in 1991 and
generated $4.1 million, or 1.9%, of the Company's total revenue in 1993,
including a $1.7 million one-time fee received as compensation for termination
of this service.
In November 1993, Motorola announced that it had agreed to sell its
CoveragePLUS communications business to QUALCOMM Incorporate ("Qualcomm"). The
Company is currently exploring alternatives to the continuation of this
service, but there can be no assurances that this product line will continue.
TELECOMMUNICATIONS SERVICES. In June 1989, Comdata entered into an
agreement with AT&T pursuant to which Comdata receives favorable rates from
AT&T based on volume of business. As part of the agreement, AT&T approved
Comdata as a value-added reseller of AT&T's communication services, allowing
Comdata to pass along its volume discount to other companies that cannot
qualify for these low rates.
In addition to AT&T communication services, Comdata offers for resale
long distance telecommunications provided by ATC, pursuant to a resale
agreement entered into in October 1991. As a result of the agreement, ATC
became the primary supplier of long distance telecommunications services to
Comdata, although AT&T continues to provide certain other telecommunication
services. In a related transaction, ATC purchased an aggregate 560,000 shares
of the Company's Series A Convertible Preferred Stock for a purchase price of
$25 per share. In 1993, revenue from telecommunications services was $13.0
million, or 6.1% of the Company's total revenue.
DIRECT BILLING. During the first quarter of 1992, Comdata began
offering truck stops a new service known as TransLink(TM) by which Comdata
provides direct billing and accounts receivable management services to trucking
companies and other businesses. In February 1992, the Board of Directors of
the National Association of Truck Stop Operators ("NATSO") decided to offer
this service to its members. As part of the TransLink program, Comdata assumes
the collection risk for direct-bill accounts receivable, thereby relieving the
truck stop of the risk and financial impact of uncollected accounts. Comdata's
fees for such services are intended to compensate it for assuming the risks of
collection and for providing the working capital needed to maintain such
accounts. The Company is still refining the
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TransLink(TM) program and it has not yet generated significant revenue.
BACKHAUL INFORMATION SERVICES. LoadMatcher(TM) is a computerized
shipment interchange system designed by Comdata to reduce empty backhauls by
making specific shipment information available to trucking company customers,
enabling them to match available shipments with available cargo space on a
nationwide basis. By use of this system, trucking companies are able to reduce
significantly the labor, communications, fuel and other expenses caused by
empty backhauls. This program generated $3.2 million in revenue, or
approximately 1.5%, of the Company's total revenue in 1993.
GAMING SERVICES
Comdata is a leading provider of cash advance services to the gaming
industry. The Company processed over 5.6 million funds transfer transactions
aggregating approximately $2.0 billion in gaming and other funds transfer
locations in 1993. These services accounted for $75.9 million, or 35.8%, of
the Company's total revenue in 1993.
CASH ADVANCE SERVICES
Comdata's network enables individuals to use MasterCard, Visa or
Discover credit cards to obtain cash at Comchek(R) Service Centers in gaming and
certain other locations. These cash advance services are essentially the same
as the funds transfer services provided to the trucking industry. In a typical
cash advance transaction, the amount of the Comchek(R), along with Comdata's
service fee, is charged to the individual's MasterCard, Visa or Discover
account. Upon authorization by the Company, the Service Center issues the
Comchek(R) draft, which is subsequently encashed. Comdata pays a commission to
the casino, racetrack or similar service center for each transaction.
Comdata's cash advance services are currently available in a majority of
casinos in Las Vegas, Reno and Lake Tahoe, Nevada, and Atlantic City, New
Jersey, and many other gaming locations, including riverboat casinos.
Comdata's ability to expand its cash advance services to nongaming
locations may be limited because of certain operating policies adopted by
MasterCard International Inc. ("MasterCard") and Visa USA, Inc. ("Visa") that
would prohibit use of MasterCard and Visa credit cards to obtain cash advances
from Comdata at nongaming locations. However, in October 1992, the Company and
MasterCard reached an agreement which permitted the Company to continue to
honor MasterCard credit cards and account numbers in providing cash advance
services at trucking locations and gaming locations, but which prohibited the
Company from honoring MasterCard credit cards for cash advance services at all
other
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types of locations after March 31, 1993 (subject to any prior contractual
commitments extending beyond that date). On December 2, 1993, Visa informed
the Company that it will permit the Company to continue to honor Visa credit
cards for cash advance services at gaming establishments and, for emergency
fund purposes, at truck stops and check cashing outlets. The Company may not
introduce cash advance services that accept such credit cards at other types of
locations and must discontinue such services at all existing non-approved
locations by March 1, 1996.
Cash advance transactions involving MasterCard or Visa credit cards
that occurred at the locations discontinued or to be discontinued accounted for
approximately 3.0% of the Company's revenue in each of 1991 and 1992 and
approximately 1.8% of the Company's revenue in 1993. The Company's cash
advance services are also subject to policies and regulations adopted from time
to time by such credit card association, which could have an adverse effect on
the Company.
RELATIONSHIP WITH PLAYERS INTERNATIONAL. In August 1991, Comdata
entered into an agreement with PCI, Inc., a subsidiary of Players
International, Inc., a leading provider of promotional and marketing services
to the gaming industry, pursuant to which PCI assumed responsibility for the
sales, marketing and field operations aspects of Comdata's cash advance
services in gaming facilities. Under the terms of the agreement, certain
employees of Comdata who had previously performed the duties assumed by PCI
became employees of PCI. As of January 1, 1993, Comdata reassumed
responsibility for the sales, marketing and field operations previously
outsourced to PCI, although PCI continues to provide certain sales and
marketing consulting services in connection with the Company's gaming cash
advance services. PCI is subject to a noncompete agreement in favor of the
Company which expires on December 31, 1998. While the outsourcing arrangement
with PCI was beneficial to the Company, management believes that the assumption
by Comdata of responsibility for the operations previously outsourced to PCI
will improve the effectiveness of this part of Comdata's business and that the
incremental cost of operations reassumed by Comdata plus the amortization of
expense attributable to the noncompete agreement will be entirely offset by the
reduction in fees payable to PCI.
RETAIL SERVICES
Comdata provides check acceptance, guarantee and collection services
through its retail services division to approximately 580 customers, primarily
supermarkets and other multi-lane retailers, in the metropolitan areas of
Atlanta, Georgia and St. Louis, Missouri, as well as throughout California and,
to a limited degree, in other parts of the United States.
The check acceptance service is based on data files containing
information with respect to individuals check writing history. In check
authorization transactions, if Comdata
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approves a check after review of its data file, the retailer bears the risk of
nonpayment of such check. In check guarantee transactions, Comdata bears the
risk of nonpayment of a check that it approves. Less than 8% of the checks
that Comdata processes are guaranteed transactions. The check authorization
and guarantee services reduce or eliminate the risk of loss to the retailer
from accepting bad checks, and save labor costs otherwise incurred in accepting
checks and collecting bad checks. This results in improved customer service
through faster check approval and greater customer convenience. Comdata
derives its revenue from fees charged to retailers for check transactions and
check collection services and fees paid by consumers for returned checks.
Revenue generated by Comdata's retail services was $11.7 million in
1993 or 5.5% of Comdata's total revenue.
CUSTOMERS
The Company provides transportation, cash advance and retail services
to over 25,000 customers nationwide. During 1993, no single customer accounted
for more than 1.1% of the Company's total revenue, although two retail services
customers accounted for 37% of retail services revenue during 1993. During
1993, the Company lost two large customers, one in its transportation division
and one in its retail division, as noted in Management's Discussion and
Analysis of Financial Condition and Results of Operations.
OPERATIONS
Comdata's principal communications center for its funds transfer
business is located in its corporate headquarters in Brentwood, Tennessee. The
communications system is made up of a network of long distance telephone lines,
as well as a number of dedicated telephone circuits terminating in Comdata's
operations facility. This communications system is controlled by AT&T's
Definity(TM) Communications System and utilizes an AT&T System 85
Communications System as a back-up. The processing of transactions is
controlled by three mainframe computer processors. The mainframe computer
processors are connected to approximately 525 Company-owned personal computers
installed in customer locations and approximately 750 terminals located in
Comdata's headquarters. Comdata also has other communications centers located
in Brea, California, Dallas, Texas and Atlanta, Georgia. The Company maintains
offices in 30 locations nationwide and in Canada.
The application software systems used by Comdata for funds transfer
and permit services are unique to the Comdata system and have been developed
internally by its staff.
The Company is highly dependent upon the proper functioning of its
telecommunications and computer equipment. The Company is
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also dependent on ATC, AT&T and other public telephone networks. Pursuant to
its agreement with ATC, ATC is Comdata's primary supplier of telecommunications
services. In the event ATC's services are not available for any reason, the
Company believes that it would be able to obtain similar services from AT&T.
While management strives to provide reasonable back-up provisions, there can be
no assurance that certain events, some of which are beyond the reasonable
control of Comdata, will not materially disrupt Comdata's business. Comdata
has never experienced any service disruptions that have had a significant
effect on its operations.
SYSTEMS OPERATIONS SERVICES
In September 1991, Comdata entered into a ten-year Agreement for
Systems Operations Services (the "Operations Services Agreement") with ISSC, a
subsidiary of IBM. Under the Operations Services Agreement, ISSC provides
substantially all the Company's internal data processing functions. In
connection with the Operations Services Agreement, ISSC paid $15.0 million cash
to Comdata and assumed certain lease obligations in order to acquire certain
computer equipment, to obtain access to the Company's software, to acquire the
right to extend employment to certain Comdata employees, to obtain access to
and use of the Company's facilities and to reimburse certain transition
expenses to be incurred by the Company. As a result of ISSC assuming
responsibility for these functions, including the related personnel and
operating costs, the Company has experienced improved effectiveness of its data
processing operations and technology improvements without any significant
increase in cost.
CUSTOMER CREDIT
It is the Company's general policy that trucking companies and other
money transfer customers must establish credit before they may use the Company's
services. The Company may require letters of credit or surety bonds and
generally will not authorize services if the aggregate service cost exceeds the
amount of the security or internally established credit limits.
COMPETITION
GENERAL. The Company competes directly with several companies that
offer similar products and services. In addition, Comdata competes with some
of its Service Centers (such as truckstops) and retail customers (such as
grocery stores) that offer similar products and services. The Company believes
that its competitive strengths include (i) its ability to provide services at a
large number of locations in the continental United States and Canada and (ii)
its ability to offer a variety of services, frequently tailored to an
individual customer's needs.
FUNDS TRANSFER. The principal competitive factors that are relevant
to the funds transfer industry are marketing efforts,
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pricing, computer systems and reliability, the provision of new techniques in
basic funds transfer services, reduction of the time required to effect
transactions and payment and security terms of customer agreements. The major
credit card companies and vendors of traveler's checks are also competitors of
Comdata in that they make cash available to holders of their cards and checks
on a nationwide basis. In terms of its fuel purchase program, Comdata competes
with several credit and debit card services, some of which are larger and have
greater resources than the Company. Certain of Comdata's competitors also
operate or franchise nationwide truckstop chains. Industry trends of
consolidation among trucking companies and truckstops could also affect the
Company.
The Company believes that at least eight companies offer funds
transfer services to the trucking industry. These competitors are smaller than
Comdata, although at least two are owned by companies significantly larger than
Comdata. One of the Company's competitors, Cummins Cash and Information
Services, was acquired by Electronic Data Systems, Inc. in 1992. In addition,
truckstops may negotiate directly with trucking companies for a direct billing
relationship.
The Company is a leading provider of cash advance services to the
gaming industry. At least one provider of cash advance services with
substantial financial resources competes with the Company in some gaming
establishments and the Company faces competition from certain large gaming
establishments themselves. The Company also faces competition from automated
teller machines that participate in national networks and from at least one
other national funds transfer company.
PERMIT SERVICES. In the business of transmitting special regulatory
permits, there is at least one other nationwide company and several regional
companies providing permit services similar to those provided by Comdata.
Competition in this market is influenced by price, the expertise of personnel
and the ease with which permits may be ordered and received.
RETAIL SERVICES. Comdata's check acceptance and collection services
have a number of regional and national competitors. Comdata believes that at
least three national companies, Telecredit, Inc. (a subsidiary of EquiFax), JBS
(a subsidiary of National Processing Company) and TeleCheck (a subsidiary of
First Financial Management Company), have larger retail customer lists,
although these three companies are not usually direct competitors in serving
grocery stores. Competition for this business is dependent upon pricing,
marketing efforts, computer and systems reliability and the amount and quality
of information with respect to check writers. Comdata operates in St. Louis,
California and Atlanta and is not a national operator with this business line.
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REGULATION
Many of the states in which the Company operates require persons
engaged in the business of selling or issuing payment instruments (such as the
Company's Comchek(R) instrument) or in the business of transmitting funds to
obtain a license from the appropriate state agency. In certain states, the
Company is required to post bonds or other collateral to secure the Company's
obligations to its customers in those states. Some state agencies have the
authority to deny licenses to, or revoke the license of, financially weak
companies. For its cash advance services in Atlantic City, New Jersey casinos,
the Company is required to hold a Casino Service Industry License issued by the
State of New Jersey Casino Control Commission. The Company believes that it is
currently in compliance in all material respects with the regulatory
requirements applicable to its business. The failure to comply with the
requirements of any particular state could have a material adverse effect on
the Company's business in that state.
SECURITY
Comdata maintains a system of internal control procedures relating to
its electronic data processing operations in order to reduce the possibility of
fraudulent conduct by its employees and the users of its services. Losses
resulting from fraud have never been material to Holdings financial results.
EMPLOYEES
As of December 31, 1993, the Company employed 1,818 persons, of whom
846 were located in Brentwood, Tennessee, with the remainder located
principally in Dallas, Texas, Atlanta, Georgia, Brea, California, Birmingham,
Alabama, Newberry, South Carolina, Toronto, Canada and Montreal, Canada. None
of the Company's employees is covered by a collective bargaining agreement.
The Company believes that its relations with its employees are good.
TRADEMARKS
Certain of the Company's products and services are marketed under
federally registered trademarks, including Comchek(R), Express Comchek(R),
Cashex(R), Instacom(R), Quik Cash(R) and Super Driver(R).
SEASONALITY
Due to several factors affecting the transportation and gaming
industries, the fourth quarter historically has a lower level of transactions
than the first three quarters of the year for these businesses. These seasonal
factors are primarily due to transportation and consumer gaming spending habits
during the holiday season. These effects have been lessened by growth in
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other services in 1993 and 1992. See Note 14 of Notes to Consolidated
Financial Statements for a summary of quarterly information.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in Brentwood,
Tennessee, and are leased for a term of twelve years that commenced on January
1, 1990. The lease may be extended, at the Company's option, for two
additional five-year periods. The Company also has the option to purchase the
headquarters during the fifth, seventh, tenth and twelfth years of the lease.
In addition to its corporate headquarters, the Company leases 28 other
properties for operational and sales offices.
ITEM 3. LEGAL PROCEEDINGS
Holdings, Comdata, certain former directors of Comdata and Alex. Brown
& Sons Incorporated ("Alex. Brown") are parties to a lawsuit currently pending
in the United States District Court for the Southern District of New York
brought by Alex Eisenberg, a former stockholder of Comdata. Filed in May 1991,
the complaint, which purports to be a class action on behalf of all former
Comdata stockholders except the defendants, alleges causes of action against
the individual defendants, who as directors of Comdata approved the acquisition
of Comdata by Comdata Holdings Corporation in September 1987, for breach of
fiduciary duties in approving the acquisition. The complaint also alleges
negligence and breach of contract by Alex. Brown in its role as financial
advisor to the Board of Comdata at the time of the acquisition.
Pursuant to Comdata's indemnification obligations, the individual
defendants and Alex. Brown have been dismissed from the action, and Holdings
and Comdata have assumed the defense of the claims in respect of such
defendants.
In September 1992, the Court entered an order dismissing the class
action allegations relating to the former directors of Comdata. The order also
dismissed all allegations that Alex. Brown had aided and abetted the alleged
breaches of fiduciary duties of the former directors. The order permitted the
plaintiff to pursue his individual claims against the former directors, as well
as his individual claims and the class claims against Alex. Brown in its role
as a financial advisor. No class has been certified in this litigation.
Prior to the end of 1993, counsel for Eisenberg and Comdata reached
agreement upon the settlement of the matter without material liability to the
defendants, subject to court approval and certain other procedures, which are
pending.
Comdata and certain unrelated financial institutions are parties to
two lawsuits filed in the Circuit Court of Cook County, Illinois and captioned,
respectively, Anthony Cie, et.
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<PAGE> 15
al. vs. Comdata Network, Inc. et. al.; and James C. Giannotti, et. al. vs.
Comdata Network, Inc. et. al. The lawsuits allege that credit card cash
advances obtained by the plaintiffs at gaming facilities are debts which are
null and void as violative of an Illinois statute declaring loans made for
purposes of illegal gambling as void and unenforceable. Comdata and the
financial institution defendants prevailed at the trial court level on motions
to dismiss.
The plaintiffs have appealed the trial court rulings to the Illinois
Appellate Court. Oral argument is currently expected to be scheduled for the
summer of 1994.
On February 5, 1992, Comdata filed a complaint in the United States
District Court for the Middle District of Tennessee, charging that Synapsis
Corporation, Ltd. ("Synapsis") and its owner, William S. Akel ("Akel"),
conspired with a computer programmer employed by Comdata to steal a proprietary
and confidential list for resale. The complaint alleges violations of the
Racketeer Influenced and Corrupt Organizations Act (RICO) and the conversion of
Comdata's list from its internal computer files. On July 7, 1992, Synapsis
filed an action against Comdata, Players International, Inc. and PCI, Inc. in
the United States District Court for the Central District of California. The
complaint alleged violations of Sections 1 and 2 of the Sherman Act, unfair
competition and invasion of privacy by Comdata and Players in connection with
the cash advance service offered by Comdata in various gaming establishments.
Pursuant to settlement agreements entered into by the parties, both
lawsuits were dismissed during 1993.
Cashex, Inc., a subsidiary of Comdata, was a party to a lawsuit
brought in the United States District Court for the Southern District of New
York by Caldor, Inc. The complaint, filed in May 1992, sought approximately
$850,000 in damages, plus interest, for what was alleged to have been breach of
contract relating to a services agreement between Caldor, Inc., a retailer, and
Cashex, Inc. pursuant to which Cashex rendered check authorization and
guarantee services for Caldor stores. Caldor claimed that Cashex misgraded
approximately 5,000 consumer checks as non-guaranteed items when, in fact, such
checks should have been graded as guaranteed and, thus, paid by Cashex.
Settlement of the matter was agreed upon, and the lawsuit was
dismissed during 1993.
Comdata is a defendant in certain other pending litigation arising in
the course of its business. While the final outcome of these lawsuits cannot
be predicted with certainty, it is the opinion of Management, after consulting
with its legal counsel, that any ultimate liability would not materially affect
the consolidated financial position of Holdings.
14
<PAGE> 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 25, 1993, Holdings' Board of Directors approved an amendment
to Holdings' Certificate of Incorporation to effect a reverse stock split of
Holdings' issued and outstanding Common Stock on the basis of one new share for
each three shares outstanding (the "Reverse Split"). In conjunction with the
Reverse Split, the Board also voted to amend the Certificate of Incorporation
to reduce the number of authorized shares of Common Stock from 200,000,000
shares to 100,000,000 shares and to reduce the number of shares reserved for
issuance under Holdings' Stock Option and Restricted Stock Purchase Plan from
6,000,000 to 2,000,000 shares.
The amendments described above were adopted by the written consent of
stockholders owning a majority of Holdings' issued and outstanding Common
Stock, Series B Convertible Preferred Stock and Series C Convertible Preferred
Stock, such written consent being dated and effective as of October 25, 1993.
Notice of such stockholder action was sent to all other Holdings stockholders
of record.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTER
Holdings Common Stock is traded on the over-the-counter market and
quoted on the NASDAQ National Market System under the symbol CMDT. The
following table sets forth the high and low last reported sales prices of the
Common Stock quoted on the NASDAQ National Market System for the periods
indicated (as adjusted for a 1-for-3 reverse stock split, effective on November
16, 1993).
HIGH LOW
---- ---
1992
First quarter . . . . . . . . . . . . $12.375 $9.375
Second quarter . . . . . . . . . . . . 11.625 9.000
Third quarter . . . . . . . . . . . . 10.125 4.500
Fourth quarter . . . . . . . . . . . . 9.000 5.250
1993
First quarter . . . . . . . . . . . . 7.875 5.250
Second quarter . . . . . . . . . . . . 7.875 5.438
Third quarter . . . . . . . . . . . . 10.500 6.375
Fourth quarter . . . . . . . . . . . . 14.625 7.250
As of March 4, 1994 there were 448 holders of record of Holdings'
Common Stock.
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<PAGE> 17
Holdings anticipates that it will retain all of its earnings for the
development and expansion of its business and repayment of debt, and therefore
does not anticipate paying dividends on its Common Stock in the foreseeable
future. To date, Holdings has not paid any dividends on its Common Stock.
Comdata's Revolving Credit Facility and the indentures governing its
subordinated debt (all of which are guaranteed by Holdings) limit the amount of
dividends that Comdata may pay to Holdings and that Holdings may pay to its
stockholders. In addition, the Common Stock ranks junior as to the payment of
dividends to the Series A, Series B and Series C Convertible Preferred Stock.
All dividends on Holdings' preferred stock have been paid in shares of common
stock, additional shares of preferred stock, or have accreted to liquidation
value.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data
for Holdings for the periods ended December 31, 1993, 1992, 1991, 1990, and
1989.
The selected consolidated financial data presented below have been
extracted or derived from, and should be read in conjunction with, the audited
consolidated financial statements of Holdings and the related notes thereto and
with Management's Discussion and Analysis of Results of Operations and
Financial Condition included elsewhere in this Annual Report. Such
consolidated financial statements were audited by Arthur Andersen & Co.,
independent public accountants, and the report of Arthur Andersen & Co. with
respect to such consolidated financial statements for 1993, 1992, and 1991 is
included elsewhere in this Annual Report.
16
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
(In thousands, except percentages and ratios)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue $ 212,316 $ 193,072 $ 184,468 $ 189,755 $ 158,974
Operating costs other than
depreciation and amortization 153,883 139,768 141,738 138,734 113,364
--------- --------- --------- --------- ---------
EBITDA (earnings before interest, taxes,
depreciation and amortization 58,433 53,304 42,730 51,021 45,610
Depreciation and amortization 14,778 13,813 15,298 51,081 22,401
Goodwill and other intangibles
write-off(a) 230,257(a) - - - -
--------- --------- --------- --------- ---------
Income (loss) before interest, taxes
and extraordinary item (186,602) 39,491 27,432 (60) 23,209
Interest expense, net (30,268) (37,078) (38,807) (40,773) (37,754)
--------- --------- --------- --------- ---------
Income (loss) before taxes and
extraordinary item (216,870) 2,413 (11,375) (40,833) (14,545)
Income tax benefit (expense) (235) - 850 - 2,833
--------- --------- --------- --------- ---------
Net income (loss) before
extraordinary item (217,105) 2,413 (10,525) (40,833) (11,712)
Extraordinary Item(b) - (20,503)(b) - - -
--------- --------- --------- --------- ---------
Net income (loss) (217,105) (18,090) (10,525) (40,833) (11,712)
Preferred dividend requirement (12,583) (1,430) (329) - -
--------- --------- --------- --------- ---------
Net income (loss) to common
stockholders $(229,688) $ (19,520) $ (10,854) $ (40,833) $ (11,712)
========= ========= ========= ========= =========
Earning per share-
Net income (loss) before
extraordinary item $ (15.03) $ 0.17 $ (0.75) $ (3.00) $ (1.04)
Extraordinary item - (1.44) - - -
--------- --------- --------- --------- ---------
Net income (loss) (15.03) (1.27) (0.75) (3.00) (1.04)
Preferred stock dividend requirement (0.87) (0.10) (0.02) - -
--------- --------- --------- --------- ---------
Net income (loss) per common share $ (15.90) $ (1.37) $ (0.77) $ (3.00) $ (1.04)
========= ========= ========= ========= =========
Weighted average common shares 14,447 14,282 14,147 13,597 11,286
========= ========= ========= ========= =========
Balance Sheet Data (at end of year):
Working capital (deficit) $ 13,949 $ 2,768 $ (11,352) $ (20,875) $ (19,781)
Total assets 226,171 433,732 429,054 478,128 567,544
Total intangible assets 93,005 321,143 322,462 330,022 388,043
Long-term debt, net 230,208 224,753 272,782 290,761 317,002
Total liabilities 345,497 337,352 395,706 448,494 534,343
Total stockholders' equity (deficit) (119,326) 96,380 33,348 29,634 33,201
Tangible net worth (deficit) (212,393) (224,763) (289,114) (300,388) (354,482)
</TABLE>
17
<PAGE> 19
SELECTED FINANCIAL DATA - CONTINUED
<TABLE>
<CAPTION>
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
(In thousands, except percentages and ratios)
<S> <C> <C> <C> <C> <C>
Other data:
Income (loss) before interest,
taxes, and extraordinary item as
a percentage of revenue (87.9%) 20.5% 14.9% 0.0% 14.6%
Interest expense, net, as a
percentage of revenue 14.3% 19.2% 21.0% 21.5% 23.7%
Capital expenditures $ 5,954 $ 2,794 $ 4,965 $ 5,982 $ 8,314
Number of employees at year end 1,818 1,668 1,696 1,938 1,898
</TABLE>
(a) During 1993, the Company wrote off the net carrying amount related to
goodwill and other intangible assets of its transportation and retail
business operations based on an assessment of the recoverability of
these amounts through future operations of these businesses.
(b) Extraordinary item consists of the premiums paid on the debt retired
and the unamortized discount and related debt issuance costs incurred
in connection with the December, 1992 Recapitalization.
18
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's services may be separated into the following principal
groups: transportation services consisting of funds transfer and related
services for the trucking industry; gaming services consisting primarily of
cash advance services to casinos and other legalized gaming establishments; and
retail services consisting primarily of check payment services. The following
table sets forth revenue in each of these areas for the periods presented.
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
---- ---- ----
Transportation services: (in thousands)
Funds transfer services $ 71,655 $ 67,979 $ 67,206
Permit services 25,485 24,474 23,207
Telecommunication services 18,283 12,336 13,180
Other services 9,281 5,357 3,842
-------- -------- --------
Total 124,704 110,146 107,435
Gaming services 75,927 71,042 65,980
Retail services 11,685 11,884 11,053
-------- -------- --------
Total revenue $212,316 $193,072 $184,468
======== ======== ========
The Company's operating costs, and such costs as a percentage of revenue,
its income (loss) before interest, taxes and extraordinary item, and its
interest expense for such periods were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
1993 1992 1991
----------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue . . . . . . . . . . . . . . $ 212,316 100.0% $193,072 100.0% $184,468 100.0%
--------- ------ -------- ------ -------- ------
Salaries and employee
benefits . . . . . . . . . . . . 53,241 25.1 49,606 25.7 50,999 27.7
Agent commissions . . . . . . . . . 30,252 14.2 23,988 12.4 25,666 13.9
Telecommunications . . . . . . . . 26,424 12.4 21,140 11.0 22,033 11.9
Depreciation and
amortization . . . . . . . . . . 14,778 7.0 13,813 7.1 15,298 8.3
Write-off of goodwill
and other intangibles . . . . . . 230,257 108.5 - - - -
Other operating costs . . . . . . . 43,966 20.7 45,034 23.3 43,040 23.3
--------- ----- -------- ----- -------- -----
Total operating costs . . . . . . . 398,918 187.9 153,581 79.5 157,036 85.1
--------- ----- -------- ----- -------- -----
Income (loss) before
interest, taxes and
extraordinary item . . . . . . . $(186,602) $ 39,491 $ 27,432
========= ======== ========
Interest expense . . . . . . . . . $ 30,303 $ 37,154 $ 39,088
========= ======== ========
</TABLE>
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<PAGE> 21
The Company is a leading provider of funds transfer and regulatory
permit services to the trucking industry, and in 1993 these services and
certain others provided to trucking companies accounted for 58.7% of the
Company's revenue. The Company's results of operations in this service area
are, therefore, highly dependent upon the level of activity in the trucking
industry, which, in turn, is affected by general economic conditions as well as
competition, the availability of acquisition candidates, and the growth of
additional products and services. The Company is also a leading provider of
cash advance services to the gaming industry. In 1993, gaming services
accounted for 35.8% of the Company's revenue. Demand for the Company's cash
advance services is affected by the overall level of gaming activities, by
competition for customers by resorts and other gaming locations and by
competition from other providers of such services.
Comdata's practice has been to examine cash flows, or EBITDA (earnings
before interest, taxes, depreciation and amortization) to determine goodwill
realization on its retail, transportation and gaming business operations
individually. In the fourth quarter of 1993, the Company determined that the
goodwill and other intangibles for the retail division were impaired. After
further consideration, the Company determined that it should evaluate the
realization of its transportation division goodwill utilizing projected net
income of the division versus EBITDA. The Company now believes that the net
income approach is a preferable measurement indicator of the fair value of the
transportation and consumer goodwill. This test reflected an impairment of the
transportation goodwill and other intangibles.
The cost of capital increased significantly for Comdata in 1993,
making it appropriate for the Company to consider financing costs when
examining the impairment, or realizability, of its goodwill and related
intangibles. All of the long term debt was issued in connection with business
acquisitions that generated the goodwill. The Company is likely to be
significantly leveraged for the foreseeable future and the leverage cannot be
separated from the goodwill realization. Also, because the Company's current
and anticipated tax paying obligations are prior to goodwill amortization, the
Company has also concluded that it is preferable to include income tax expenses
when examining goodwill impairment and recoverability.
The projections of net income for the transportation and retail
business units were made for a period of five years, and compared to the
amounts of amortization expense that would be recorded during those periods.
Revenues were projected to increase at the same rates as noted during the past
five years adjusted for the effects of acquisitions, and expense increases were
forecasted accordingly. Goodwill has been assigned to each business unit based
on specific identification of businesses acquired, where possible, or on
relative share of revenues as projected at the time of acquisition, for
transactions where more
20
<PAGE> 22
than one business was acquired. Interest costs were allocated based on the
level of capital used, including the allocated goodwill, reduced by cash flows
subsequently generated by the acquired businesses. The Company's projections
reflected a net loss prior to goodwill amortization in the retail business and
in the transportation business. The Company is not aware of any factors that
would suggest an improvement from the trend of the five year forecast in the
foreseeable future. Because of the results of these projections, the Company
has concluded that there was an impairment of goodwill and other intangible
assets in the transportation and retail businesses, and a charge of $230.3
million was recorded in the fourth quarter of 1993 to write-off the remaining
unamortized goodwill and intangible assets related to these businesses.
Before the write-off of goodwill in 1993, the Company would have
experienced its sixth consecutive year of losses for common shareholders, were
it not for a nonrecurring fee income of $1.7 million. The increase in pre-tax
income before the write-off of goodwill is due more to lower interest charges
than it is to increases in operating income. Cumulative losses since the
Company's inception are approximately $91,000,000, before the write-off of
goodwill in the fourth quarter of 1993. In the fourth quarter of 1993, the
Company was not able to complete a secondary stock offering which would have
significantly reduced its cost of capital, including interest expense and
preferred dividends.
RESULTS OF OPERATIONS
1993 VERSUS 1992
Revenue increased from $193.1 million in 1992 to $212.3 million, an
increase of $19.2 million, or 10.0%. Transportation services revenue increased
by $14.6 million, or 13.2% during 1993. Within transportation services, the
largest revenue growth came from telecommunications services, which increased
by $5.9 million, or 48.2%. Revenue growth in telecommunications services was
primarily attributable to a shift in sales responsibility for
telecommunications services from a small dedicated sales force to the Company's
larger general sales force. There are no assurances that the growth rate can
continue given competition for this business. Funds transfer revenue increased
by $3.7 million, or 5.4%, during 1993, primarily as a result of an increase in
the number of transactions. The effect of the increase in transactions was
partially offset by a decrease in average transaction fees. The decrease in
transaction fees resulted primarily from the shift in 1992 in the Company's
customer base from smaller trucking companies to larger ones, which often
qualify for volume discounts. Larger trucking companies also account for more
direct billing transactions, which have a lower fee because the Company is not
required to fund such transactions. Transaction fees are also subject to
reductions due to competitive pressures. Considering the industry
21
<PAGE> 23
consolidation of truckstops and trucking companies, there could be further
decreases in revenue per transaction, as these consolidated groups have more
purchasing power.
Increased competition was experienced in this sector, as a result of
the acquisition of one of the Company's competitors, CCIS, by EDS during the
fourth quarter of 1992. EDS has the resources necessary to compete effectively
in the transportation business. In 1994, the Company will be losing one of its
largest transportation customers to EDS, resulting in a loss of over $750,000
annually in revenue.
Permit services revenues increased from $24.5 million in 1992 to $25.5
million in 1993, an increase of $1.0 million or 4.1%. However, several changes
in state regulations governing the issuance of temporary trip and fuel permits
have been enacted recently that are expected to reduce the number of such
permits issued in the future.
Revenue from other transportation services in 1993 includes a one-time
fee of $1.7 million, received as compensation from a vendor following its
decision to discontinue its support of the DriverLink/24(R) in-cab
communication system. This service generated revenue of $2.4 million in 1993,
exclusive of this one-time fee. This service was launched to attempt to
increase the customer base and depth of service to the trucking industry. The
Company is currently exploring alternatives to the continuation of this
service, but there are no assurances that this product line will continue.
Gaming services revenue increased during 1993 by $4.9 million, or
6.9%. Increases in the number of transactions at gaming establishments
increased revenue before the merchant discounts assessed by the businesses that
process MasterCard and Visa transactions for the Company, but increases in such
merchant discounts offset a portion of the revenue increases. In October 1992
and April 1993, substantial increases in merchant discounts were instituted.
As a result of these increases, merchant discounts for 1993 were $3.2 million
higher than they would have been under the discounts in effect prior to such
increases. The MasterCard and Visa credit card associations have not announced
any additional increases in merchant discounts for 1994, although such
discounts have increased from time to time in the past and the Company is
unable to predict what pricing action the credit card associations may take in
the future. Such merchant discounts are treated as a reduction in revenue in
the Company's financial statements.
Comdata's network enables individuals to use certain credit cards to
obtain cash at the Company's service centers in gaming and certain other
locations. Comdata's ability to expand its cash advance services to nongaming
locations is limited by operating policies adopted by the credit card
associations. Cash advance transactions involving such credit card
associations that
22
<PAGE> 24
occurred at the locations discontinued or to be discontinued under such
policies accounted for approximately 3.0% of the Company's revenue in each of
1991 and 1992 and approximately 1.8% of the Company's revenue in 1993. The
Company's cash advance services are also subject to policies and regulations
adopted from time to time by such credit card associations, which could have an
adverse effect on the Company. See "Business - Gaming Services - Cash Advance
Services."
Revenue from retail services was approximately the same in 1993 as
compared to 1992. Recently, the Company was notified it will lose its largest
retail customer. After a transition period, there will be approximately $2.0
million in annual revenue which will have to be replaced, or total revenue in
retail will decline. New management was put in place at the beginning of 1993,
and charged with the responsibility of improving the financial results of this
product line. The Company has concluded that recent developments related to
the acceptance and use of debit and credit cards at supermarkets could
adversely affect its check authorization business.
Salaries and employee benefits increased from $49.6 million for 1992
to $53.2 million for 1993, an increase of $3.6 million, or 7.3%. During 1991,
an agreement was executed with PCI, Inc. ("PCI"), a subsidiary of Players
International, Inc. ("Players"), for the outsourcing of certain of Comdata's
sales, marketing and field support operations related to its cash advance
services in gaming facilities. The outsourcing of these operations to PCI
resulted in a reduction in the number of employees and in related salaries and
employee benefits. Effective January 1, 1993, the Company resumed
responsibility for certain sales and marketing functions that had been
outsourced by PCI, although PCI continues to provide certain sales and
marketing consulting services in connection with the Company's gaming cash
advance services. PCI continues to be subject to a noncompete agreement in
favor of the Company which expires on December 31, 1998. While the outsourcing
arrangement with PCI was beneficial to the Company, management believes that
the resumption by Comdata of responsibility for the operations previously
outsourced to PCI will improve the effectiveness of this part of the Company's
business. The resumption of these operations resulted in an increase in salary
and employee benefits expense of approximately $3.1 million for 1993, but also
resulted in a reduction of approximately $5.3 million in fees paid to PCI. The
fees paid to PCI were included in "Other Operating Costs" in 1992. Wage and
salary increases granted during the past twelve months account for the majority
of the remaining increase in this expense category.
Agent commissions increased from $24.0 million for 1992 to $30.3
million for 1993, an increase of $6.3 million, or 26.1%. These commissions are
paid to locations offering gaming cash advance services. In the 1993 period,
transactions increased at gaming locations, where agent commissions expense is
higher,
23
<PAGE> 25
compared to nongaming locations. In addition, the rates paid to certain
casinos were increased in response to competitive pressures. The trend of
increased transactions at gaming locations relative to nongaming locations is
primarily due to the Company's limited ability to expand its operations in
nongaming locations as a result of the Visa and MasterCard policies described
above and is expected to continue. As noted above, gaming revenue, after
deducting merchant discounts, increased by $4.9 million during this period,
while merchant discounts increased by $3.2 million. Without such merchant
discount price increases, gaming revenues would have more than offset the $6.3
million increase in agent commissions. Due to competitive pressures, there are
no assurances that agent commissions will not increase in the future at a
faster rate than growth in related revenue.
Telecommunications expense increased from $21.1 million for 1992 to
$26.4 million for 1993, an increase of $5.3 million, or 25.0% primarily due to
the 48.2% increase in telecommunications services revenue.
Depreciation and amortization expense increased from $13.8 million for
1992 to $14.8 million for 1993, an increase of $1.0 million, or 7.0%, primarily
due to the amortization of amounts recorded pursuant to the noncompete
agreement executed with PCI at the end of 1992 and to property additions.
Other operating costs decreased from $45.0 million for 1992 to $44.0
million for 1993, a decrease of $1.0 million, or 2.4%. The revision of the
outsourcing agreement with PCI eliminated $5.3 million of related expenses
during 1993. However, there have been increases in sales-related travel and
training costs (approximately $0.9 million) and increases in legal costs
(approximately $1.0 million), resulting from the fees paid in connection with
the antitrust suit brought by the Synapsis Corporation Ltd. against the Company
and Players, that have offset the reductions in expense attributable to the
termination of the PCI agreement. In addition, amortization related to a
deferred credit was $0.9 million less during 1993 than in 1992, and the Company
paid $0.7 million to a consulting firm to assist it in evaluating the
efficiency of its work force and procedures.
Interest expense decreased from $37.2 for 1992 to $30.3 million for
1993, a decrease of $6.9 million, or 18.4%, and preferred dividends were $11.2
million higher during 1993, as a result of the recapitalization the Company
completed in 1992. Dividends on preferred stock are payable in additional
shares of preferred stock with respect to Series A Convertible Preferred Stock,
or accrete to liquidation preference with respect to Series B and C Convertible
Preferred Stock, and in all cases do not require a cash payment.
The Company's effective tax rate is less than the statutory tax rate
because of the utilization of net operating loss
24
<PAGE> 26
carryforwards ("NOLs"). The Company had NOLs of approximately $12.0 million at
the end of 1993, which, if unused, will expire from 2005 to 2007. Because of
the utilization of the majority of such NOL's during 1993, the Company will
incur a much greater liability for income taxes in future periods.
1992 VERSUS 1991
Revenue increased from $184.5 million in 1991 to $193.1 million in
1992, an increase of $8.6 million, or 4.7%. Gaming cash advance revenue
increased from $66.0 million to $71.0 million, an increase of $5.0 million, or
7.6%, primarily as a result of increased transaction rates, as well as revenue
from new gaming establishments. The Company believes that new gaming
establishments will continue to provide a source of transaction growth, but is
unable to predict whether it will be able to continue to implement transaction
rate increases. Revenue related to transportation services increased $2.7
million, or 2.5%, in 1992. Revenue from funds transfer services was $0.8
million higher in 1992 compared to 1991. The number of transactions for these
services was higher during 1992, primarily due to an increased number of new
customers, but the effect of the increased number of transactions was partially
offset by decreases in average transaction fees. This decrease resulted in
part from a shift in the Company's customer base from smaller trucking
companies to larger ones, which often qualify for discounts. Larger trucking
companies also account for more direct billing transactions, which have a lower
fee because the Company is not required to fund such transactions. The Company
believes this trend is partially attributable to the effect of recent economic
conditions on smaller trucking companies. Any change in this trend will depend
on the state of the general economy. Permit services revenue increased
approximately $1.3 million, primarily due to acquisitions made in December
1991. Telecommunications revenue decreased due to limited new sales resources
being allocated to this product line. Other transaction services revenue
increased in 1992 as a result of revenue from Comdata's in-truck communication
service, DriverLink/24(R) , which began operations in the fourth quarter of
1991. Revenues from retail services increased due to the addition of new
customer contracts in this business.
In 1992, total operating costs decreased $3.5 million compared to the
$157.0 million expensed in 1991. All categories of costs were lower except
other operating expenses, which rose 4.6% in 1992. The Company's focus on
increasing efficiency, and the benefit of outsourcing agreements enabled the
lowering of total costs.
Salaries and employee benefits decreased from $51.0 million in 1991 to
$49.6 million in 1992, a decrease of $1.4 million, or 2.7%. During 1991,
agreements were entered into with ISSC for the outsourcing of Comdata's
internal data processing function and with PCI for the outsourcing of certain
Comdata sales,
25
<PAGE> 27
marketing and field support operations related to its cash advance services in
gaming facilities. The outsourcing of these operations resulted in a reduction
in the number of employees and in related salaries and employee benefits.
Agent commissions decreased from $25.7 million in 1991 to $24.0
million in 1992, a decrease of $1.7 million, or 6.6%. Agent commissions are
paid to locations offering gaming cash advance services, and the decrease is
due to a change in the mix of transactions from the major gaming centers in
Nevada and Atlantic City, New Jersey to gaming centers in other areas of the
United States where agent commission rates are lower. The Company believes
that the growth in cash advance services at gaming locations outside Nevada and
New Jersey will tend to lower agent commissions in those areas, but total agent
commission expenses will also be affected by the overall level of gaming
transactions.
Depreciation and amortization decreased from $15.3 million in 1991 to
$13.8 million in 1992, a decrease of $1.5 million, or 9.8%. This was primarily
a result of the elimination of depreciation on equipment sold to ISSC in
connection with the outsourcing of data processing services.
Other expenses increased from $43.0 million in 1991 to $45.0 million
in 1992, an increase of $2.0 million, or 4.7%. During 1992, Comdata incurred
$8.7 million in expenses under its agreement with ISSC for data processing
services, compared to $2.8 million in 1991. During 1992, expenses incurred
with PCI for sales, marketing and field support services for cash advance
services in gaming facilities were $5.3 million, compared to $1.8 million in
1991. The agreements with ISSC and PCI became effective in September 1991.
The revenue and cost benefits of these services, including a reduction in the
number of employees and in related salaries and employee benefits, a decrease
in depreciation expense for equipment transferred to ISSC and a reduction in
interest expense resulting from the application of proceeds from ISSC to reduce
debt and the assumption by ISSC of certain financing leases, offset
substantially all of the increase in other expenses attributable to the ISSC
and PCI fees. As discussed below, the fourth quarter of 1991 included expenses
totalling $5.8 million for recruiting and relocation, additional bad debt
provisions, legal fees and product development expenses. These expenses were
much lower in 1992, offsetting the increases in fees related to outsourcing
agreements.
Interest expense decreased from $39.1 million in 1991 to $37.2 million
in 1992, a decrease of $1.9 million, or 4.9%. During 1991, the Company raised
cash through the issuance of Series A Convertible Preferred Stock, and received
a payment of $15.0 million in connection with the outsourcing of its internal
data processing operations. These proceeds, together with cash generated by
operations, were used to reduce borrowings during the third quarter of 1991.
These reductions, together with lower
26
<PAGE> 28
prevailing interest rates, resulted in a reduction in interest expense.
During 1992, the Company's recorded $20.5 million as an extraordinary
loss on debt retirement in connection with the recapitalization that occurred
on December 29, 1992. This charge consists principally of the redemption
premiums and unamortized discount and debt issuance cost on the debt retired.
LIQUIDITY AND CAPITAL RESOURCES
RECAPITALIZATION
On December 29, 1992, Holdings and Comdata successfully completed a
recapitalization consisting of the replacement of Comdata's then existing bank
facility with the Revolving Credit Facility and the underwritten public
offering of $130.0 million principal amount of Comdata's 12.5% Senior Notes due
1999 and $75.0 million principal amount of its 13.25% Senior Subordinated
Debentures due 2002. In addition, Holdings raised equity by selling, for cash,
$25.0 million of Series C Convertible Preferred Stock and by issuing $53.0
million of Series B Convertible Preferred Stock in exchange for $52.0 million
principal amount of Comdata's then outstanding 11% Junior Subordinated Notes,
representing an exchange price equal to 102% of the principal amount of such
Notes.
As part of the recapitalization, Comdata redeemed $127.0 million
principal amount of its then outstanding 13.5% Senior Subordinated Discount
Notes due 1995 and $50.0 million principal amount of its then outstanding
13.75% Subordinated Debentures due 1997, at prices of 104% and 106% of the
principal amount, respectively, plus accrued and unpaid interest to the date of
redemption.
Comdata's Revolving Credit Facility provides for revolving credit loans
and letters of credit aggregating up to $50.0 million, with a $25.0 million
sublimit for letters of credit. In December 1994, the total amount of the
Revolving Credit Facility will be reduced by $12.5 million to $37.5 million.
As of December 31, 1993, there were outstanding loans under the Revolving
Credit Facility of $13.0 million and letters of credit totalling $13.5 million.
As a result of the recapitalization, Comdata is not required to make any
scheduled principal repayments on its senior bank debt or subordinated debt
until December 1995, when the Revolving Credit Facility terminates. In June
1995, Comdata is required to repay a $5.7 million note. In addition, $6.2
million of 11% Junior Subordinated Notes mature in October 1997. Scheduled
payments on Comdata's 12.5% Senior Notes begin in 1998.
Comdata's obligations under the Revolving Credit Facility are secured
by substantially all the assets of the Company and its subsidiaries, are
guaranteed by Holdings and bear interest at
27
<PAGE> 29
prime plus 1.75% or an adjusted Eurodollar rate plus 3%. The amount of credit
available under this arrangement is subject to limitations based on the amount
and nature of outstanding receivables.
The Revolving Credit Facility has provisions that require the Company
to maintain and transfer excess cash balances, as defined, into bank accounts
managed by the lenders. Such lenders have certain discretionary rights to
apply such cash balances against Comdata's outstanding loan amounts. At
December 31, 1993, the Company had $12.4 million in these accounts. Comdata,
on a daily basis, monitors its cash position and makes transfers and other
transactions necessary to comply with these provisions of the Revolving Credit
Facility.
Subject to certain exceptions, the Revolving Credit Facility requires
prepayment of indebtedness outstanding under the facility with the entire net
cash proceeds received by the Company or its subsidiaries from asset sales over
a certain minimum amount, 50% of the net cash proceeds received by Holdings or
the Company from permitted issuances of debt or equity and any excess cash flow
of the Company and its subsidiaries on a consolidated basis. The amount of the
Revolving Credit Facility is permanently reduced by an amount equal to such
mandatory prepayments.
The Revolving Credit Facility and the indentures governing the Senior
Notes and Senior Subordinated Debentures contain certain covenants that limit
or prohibit, among other things, Holding's ability to incur additional
indebtedness, to pay dividends or make other distributions, to engage in
certain transactions with affiliates, to issue or sell stock of subsidiaries to
third parties, to repay certain indebtedness prior to its stated maturity, to
create liens, to sell assets, to make certain capital expenditures, to enter
into a transaction that would result in a change of control, to incur certain
subordinated debt and to merge or consolidate with or to acquire any other
business. In addition, the Revolving Credit Facility requires the Company to
maintain certain specified financial ratios. As of December 31, 1993, the
Company was required to maintain a tangible net worth deficit of less than
$207.7 million, an interest coverage ratio in excess of 1.55 to 1, a current
ratio is excess of 0.85 to 1, and a debt to net worth ratio not to exceed 2.60
to 1, all as defined. As of December 31, 1993, the Company was in compliance
with all covenants and ratios, and its actual measures under these financial
ratio covenants were as follows: tangible net worth deficit, $199.4 million;
interest coverage ratio, 1.83 to 1; current ratio, 1.01 to 1; debt to net worth
ratio, 2.08 to 1.
WORKING CAPITAL
The Company's principal uses of funds for the next several years will
be for working capital, for debt service and for
28
<PAGE> 30
capital expenditures consisting of routine replacements of field computer
equipment and back office equipment, which expenditures are expected to be $4.5
million in 1994. New services offered by the Company will require additional
investments in working capital to fund growth in accounts receivable.
Management believes that funds generated from operations and borrowed under the
Revolving Credit Facility should provide sufficient cash to meet the Company's
anticipated liquidity needs during the next 24 months, even with the reduction
in December 1994 of the total amount of the Revolving Credit Facility by $12.5
million.
ACCOUNTS RECEIVABLE
In accordance with the Company's revenue recognition policy, revenue
from the Company's funds transfer, regulatory permit and gaming cash advance
services consists of the transaction fees charged to customers and does not
include the cost of goods or services provided by the Company (e.g., fuel
purchased, permit provided or cash advanced). The Company's accounts
receivable include both the cost of the goods and services provided and the
transaction fees, and drafts and settlements payable include the amount due to
the issuing agent for the cost of the goods and services. Accounts receivable,
net, increased by $18.7 million, or 21.0%, between the end of 1992 and December
31, 1993. Total revenue increased by 10.0% during the year ended December 31,
1993, as compared to the prior year. The volume of business conducted by the
Company during the last week of 1993 was greater than during the same period of
1992, and resulted in an increase in accounts receivable of approximately $11.0
million. The remaining portion of the increase in accounts receivable is
primarily attributable to the Saunders acquisition, which added approximately
$4.2 million to accounts receivable. For the years ended December 31, 1993 and
1992, the average days in accounts receivable outstanding, calculated based on
the average accounts receivable outstanding for such period, was approximately
6.2 and 5.8 days, respectively. Because the Company does not recognize the
entire amount of accounts receivable for settled transactions as revenue,
management believes that the average days in accounts receivable are
appropriately measured by the amounts transferred through its cash advance
system.
CASH FLOW
Comdata's principal source of internal liquidity has historically been
its cash flow from operations. In 1993 and 1991, operating activities provided
cash of $10.3 million and $48.4 million, respectively. In 1993, operations
included a non-cash charge of $230 million for the write-off of goodwill and
other intangibles. In 1992, however, operating activities used $9.5 million of
cash primarily due to increases in accounts receivable.
Net cash used for investing activities in 1993, 1992 and 1991 was
$15.4 million, $1.2 million and $6.7 million, respectively. These amounts
primarily represent payment for
29
<PAGE> 31
purchase business combinations, capital expenditures and additions to other
assets.
Net cash provided by financing activities for 1993 and 1992 was $2.7
million and $1.9 million, respectively, primarily consisting of net borrowings
under revolving credit agreements, and the effects of the refinancing
transactions at the end of 1992. In 1991, financing activities used $41.3
million, principally for payments on revolving credit loans.
NET TAX OPERATING LOSS CARRYFORWARDS
Effective January 1, 1992, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The Company has a net operating loss carryforward for income tax
purposes of approximately $12 million at December 31, 1993, which if unused,
will expire from 2005 to 2007.
CERTAIN ACCOUNTING POLICIES
The Company's funds transfer services for the trucking and gaming
industries require the Company to account for millions of transactions each
year. In 1993 the Company processed approximately 31.2 million transportation
funds transfer transactions and approximately 5.6 million cash advance
transactions at gaming locations and transferred in excess of $7.2 billion over
its network. In less than 0.15% of the total dollar amount of transactions,
the Company is unable to immediately settle such transactions. This may result
from a variety of reasons, including the Company's inability to match customer
remittances with specific transactions, the disproportionate cost of resolving
relatively small dollar credit balances and the failure of drafts and
settlements to clear in the normal course of the Company's business. As a
result of these circumstances, at any point in time the Company will have
unapplied cash balances that are carried as credits to accounts receivable or
as unsettled drafts payable. These balances will generally fluctuate with
transaction volumes. If the Company does not settle such transactions within a
period of twelve months, it is the Company's current policy to take the full
amount of the unsettled transactions into revenue.
In 1991, the Company recognized $10.5 million of unsettled
transactions as revenue and $1.9 million as a credit to its bad debt allowance,
thereby reducing bad debt expense. In 1992 and 1993, the Company recognized
$10.8 million and $9.2 million, respectively, of unsettled transactions as
revenue. The classification of amounts from unsettled transactions as revenue
or as a credit to expense does not affect the calculation of net income. In
addition, the change in classification does not have any effect on net cash
provided by or used for operating activities as presented on the Company's
statements of cash flows. The Company believes that its revenue recognition
policy
30
<PAGE> 32
for unsettled transactions is in accordance with generally accepted accounting
principles.
The Company believes that the twelve-month delay in recognizing such
revenue affords sufficient time to determine whether customers have valid
claims to such funds, and the Company has experienced insignificant claims for
unsettled funds after such twelve-month period. However, the Company may have,
as a result of its inability to settle definitively all transfer transactions,
contingent liabilities for unapplied cash balances. In certain cases, the
Company may have in its possession unclaimed or abandoned funds that may be
payable to governmental authorities under state escheatment laws. Because of
the Company's inability to settle all funds transfer transactions, the
magnitude of such unclaimed funds cannot be determined. Based on its past
experience, the Company does not believe that escheatment laws create material
liabilities for the Company, although no assurances can be given that such
liabilities will not be asserted in the future.
In 1992, the Company engaged Benton International, Inc. ("Benton"), a
management consulting firm in the financial and payment systems industry, to
review the Company's systems and procedures for handling funds transfer
transactions. A March 1992 study prepared by Benton for the Company
recommended a series of steps to improve the Company's transaction processing
abilities. The Company's management has reviewed the recommendations and
expects that most of such recommendations will be implemented over the next
several years and that, as a result, unsettled transactions will decrease as a
percentage of total transactions. The Company anticipates that the cost of
implementing the Benton recommendations, primarily the cost of computer
hardware and software, should be offset by increased employee efficiencies.
The implementation of the recommendations should also increase the capacity of
the Company's network and increase customer responsiveness.
NEW ACCOUNTING PRONOUNCEMENTS
In 1993, Holdings adopted the provisions of SFAS No. 112, "Employers'
Accounting for Postemployment Benefits - An Amendment of SFAS Nos. 5 and 43."
The adoption of this pronouncement does not have a significant effect on the
Company's financial statements. The Company's historical accounting policies
were consistent with the provisions of SFAS No. 112.
Holdings does not provide the benefits addressed by SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Financial Statements and Supplementary Data listed in the
accompanying Index to Consolidated Financial Statements
31
<PAGE> 33
and Schedules which appears on page 33 of this Annual Report. Information
required by other schedules called for under Regulation S- X is either not
applicable or is included in the consolidated financial statements or the notes
thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
32
<PAGE> 34
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Consolidated Balance Sheets as of December 31, 1993 and
1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Consolidated Statements of Operations for the years ended
December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . 37
Consolidated Statements of Cash Flows for the years
ended December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Schedule II - Amounts Receivable from Related Parties,
Underwriters, Promoters and Employees other than
Related Parties for the years ended December 31, 1993,
1992, and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Schedule V - Property and Equipment for the years ended
December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Schedule VI - Accumulated Depreciation of Property and
Equipment for the years ended December 31, 1993,
1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Schedule VIII - Valuation and Qualifying Accounts for
the years ended December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . 59
Schedule X - Supplementary Income Statement Information
for the years ended December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . 60
</TABLE>
33
<PAGE> 35
ARTHUR ANDERSEN & CO.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Comdata Holdings Corporation:
We have audited the accompanying consolidated balance sheets of Comdata
Holdings Corporation (a Delaware corporation) and subsidiary as of December 31,
1993 and 1992, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1993. These financial statements and the schedules referred
to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules 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 Comdata Holdings
Corporation and subsidiary as of December 31, 1993 and 1992, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1993 in conformity with generally accepted accounting
principles.
As discussed in Note 7 to the consolidated financial statements, effective
January 1, 1992, the Company changed its method of accounting for income taxes.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedules listed in
the index to consolidated financial statements and schedules are presented for
purposes of complying with the Securities and Exchange Commission's rules and
are not a required part of the basic financial statements. These schedules
have been subjected to the auditing procedures applied in the audits of the
basic financial statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Nashville, Tennessee
February 25, 1994
34
<PAGE> 36
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
December 31,
-------------------
1993 1992
---- ----
ASSETS (In thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,332 $ 15,716
Accounts receivable, less allowance for
doubtful accounts of $6,087,000 in 1993;
$5,839,000 in 1992 107,555 88,920
Prepaid expenses and other 2,226 1,703
-------- --------
Total current assets 123,113 106,339
Property and equipment: -------- --------
Buildings and improvements 2,460 2,087
Equipment 24,916 18,204
-------- --------
27,376 20,291
Less accumulated depreciation (17,760) (14,420)
-------- --------
9,616 5,871
Cost in excess of fair value of net -------- --------
assets acquired, net 79,618 304,506
Other assets, net 13,824 17,016
-------- --------
$226,171 $433,732
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Drafts payable $ 8,211 $ 6,753
Settlements payable 65,897 63,017
Accounts payable 10,410 10,421
Other accrued liabilities 17,312 15,921
Customer security deposits 6,632 5,413
Current maturities of long-term debt 702 2,046
-------- --------
Total current liabilities 109,164 103,571
-------- --------
Deferred credit 6,125 9,028
-------- --------
Long-term debt, net of current maturities 230,208 224,753
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share,
authorized 5,000,000 shares:
Series A, issued and outstanding 645,902
shares, 1993; 560,000 shares, 1992; stated at
liquidation preference, $25 per share plus
accrued dividends 16,232 14,354
Series B, issued and outstanding 562,033
shares, 1993; 572,226 shares, 1992;
stated at liquidation preference,
$100 per share plus accrued dividends 63,713 57,367
Series C, issued and outstanding 250,500
shares, stated at liquidation preference,
$100 per share plus accrued dividends 28,285 25,076
Common stock, par value $.01 per share,
authorized 100,000,000 shares; issued
and outstanding 14,721,929 shares,
1993; 14,375,057 shares, 1992 147 144
Paid-in capital 101,885 99,307
Accumulated deficit (329,588) (99,868)
-------- --------
Total stockholders' equity (deficit) (119,326) 96,380
-------- --------
$226,171 $433,732
</TABLE> ======== ========
See notes to consolidated financial statements.
35
<PAGE> 37
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
1993 1992 1991
---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C>
REVENUE (net of amounts paid to a
related party, $346 in 1993;
$397 in 1992) $212,316 $193,072 $184,468
-------- -------- --------
OPERATING COSTS:
Salaries and employee benefits 53,241 49,606 50,999
Agent commissions 30,252 23,988 25,666
Telecommunications (including amounts
paid to a related party, $11,211
in 1993; $7,673 in 1992; $456 in 1991) 26,424 21,140 22,033
Depreciation and amortization 14,778 13,813 15,298
Write-off of goodwill and other intangibles 230,257 - -
Other operating costs 43,966 45,034 43,040
--------- -------- --------
Total operating costs 398,918 153,581 157,036
--------- -------- --------
Income (loss) before interest, taxes
and extraordinary item (186,602) 39,491 27,432
Interest expense (30,303) (37,154) (39,088)
Interest income 35 76 281
--------- -------- --------
Income (loss) before income taxes,
extraordinary item and preferred
stock dividend requirement (216,870) 2,413 (11,375)
Income tax benefit (expense) (235) - 850
--------- -------- --------
Net income (loss) before
extraordinary item (217,105) 2,413 (10,525)
Extraordinary item: loss on
debt retirement - (20,503) -
--------- -------- --------
Net loss before preferred stock
dividend requirement (217,105) (18,090) (10,525)
Preferred stock dividend requirement,
payable in shares of stock or accreting
to liquidation preference (12,583) (1,430) (329)
--------- -------- --------
Net loss for common stock $(229,688) $(19,520) $(10,854)
========= ======== ========
EARNINGS PER SHARE:
Net income (loss) before extraordinary item
and preferred stock dividend requirement $ (15.03) $ 0.17 $ (0.75)
Extraordinary item - (1.44) -
--------- -------- --------
Net loss before preferred stock
dividend requirement (15.03) (1.27) (0.75)
Preferred stock dividend requirement (0.87) (0.10) (0.02)
--------- -------- --------
Net loss per common share $ (15.90) $ (1.37) $ (0.77)
========= ======== ========
Weighted average common shares outstanding 14,447 14,282 14,147
========= ======== ========
</TABLE>
See notes to consolidated financial statements.
36
<PAGE> 38
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
<TABLE>
<CAPTION>
PREFERRED STOCK
--------------------------------
SERIES A SERIES B SERIES C COMMON STOCK PAID-IN ACCUMULATED
----------------
AMOUNT AMOUNT AMOUNT SHARES AMOUNT CAPITAL DEFICIT
------ ------ ------ ------ ------ ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1990 $ - $ - $ - 14,126 $ 142 $ 96,674 $(67,182)
Issuance of preferred stock 14,000 - - - - - (28)
Preferred stock dividend
accretion - - - - - - (329)
Stock issued in acquisitions - - - 10 - 69 -
Stock options exercised - - - 30 - 209 -
Vesting of nonqualified
stock options - - - - - 318 -
Net loss - - - - - - (10,525)
------- ------- ------- ------ ------- -------- ---------
Balance, December 31, 1991 14,000 0 0 14,166 142 97,270 (78,064)
Issuance of preferred stock - 57,223 25,050 - - - (2,253)
Preferred stock dividend
accretion 354 144 26 - - - (1,430)
Payment of preferred stock
dividend - - - 136 1 1,234 -
Stock options exercised - - - 73 1 461 -
Vesting of nonqualified
stock options - - - - - 342 -
Foreign currency translation
adjustment - - - - - - (31)
Net loss - - - - - - (18,090)
------- ------- ------- ------ ------- -------- ---------
Balance, December 31, 1992 14,354 57,367 25,076 14,375 144 99,307 (99,868)
Preferred stock dividend accretion 1,878 7,496 3,209 - - - (12,583)
Preferred stock conversion - (1,150) - 192 2 1,148 -
Stock options excercised - - - 86 1 572 -
Stock issued in acquisitions - - - 69 - 525 -
Vesting of nonqualified
stock options - - - - - 333 -
Foreign currency translation
adjustment - - - - - - (32)
Net loss - - - - - - (217,105)
------- ------- ------- ------ ------- -------- ---------
Balance, December 31, 1993 $16,232 $63,713 $28,285 14,722 $ 147 $101,885 $(329,588)
======= ======= ======= ====== ======= ======== =========
</TABLE>
See notes to consolidated financial statements.
37
<PAGE> 39
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
1993 1992 1991
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) before extraordinary item $(217,105) $ 2,413 $ (10,525)
--------- --------- ---------
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation, amortization and write-off
of goodwill and other intangibles 245,035 13,813 15,298
Amortization of debt discount and issuance costs 2,844 2,855 13,090
Provision for losses on accounts receivable 5,055 6,004 8,600
Proceeds from Systems Operations
Services Agreement - - 15,000
Amortization of deferred credit (2,903) (3,754) (1,269)
--------- --------- ---------
Total adjustments before changes in
assets and liabilities 250,031 18,918 50,719
--------- --------- ---------
Change in assets and liabilities, net of
effects from purchase business combinations:
Accounts receivable (18,075) (23,907) 27,514
Prepaid expenses and other (362) 236 1,976
Drafts and settlements payable (4,644) 5,437 (18,198)
Other accrued liabilities 148 (12,565) (2,781)
Other 268 (44) (321)
--------- --------- ---------
Total changes in assets and liabilities, net of
effects from purchase business combinations (22,665) (30,843) 8,190
--------- --------- ---------
Net cash provided by (used for)
operating activities 10,261 (9,512) 48,384
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures (5,954) (2,794) (4,965)
Additions to other assets (2,005) - -
Payment for purchase business combinations,
net of cash acquired (7,486) - (2,067)
Proceeds from sale of property held
for resale and other assets 69 1,607 360
--------- --------- ---------
Net cash used for investing activities (15,376) (1,187) (6,672)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 573 462 209
Proceeds from issuance of preferred stock, net - 22,797 13,972
Net borrowing (payments) on revolving credit loans 5,708 (26,700) (53,000)
Principal payments on long-term debt and
capital leases (2,945) (2,214) (3,061)
Borrowings of long-term debt and capital leases - 188 532
Payment on subordinated debt - (177,000) -
Proceeds from subordinated debt - 205,000 -
Payment of debt retirement expenses - (9,649) -
Payment of debt issuance costs (605) (10,940) -
--------- --------- ---------
Net cash provided by (used for) financing activities 2,731 1,944 (41,348)
--------- --------- ---------
Net increase (decrease) in cash and equivalents (2,384) (8,755) 364
Cash and equivalents, beginning of period 15,716 24,471 24,107
--------- --------- ---------
Cash and equivalents, end of period $ 13,332 $ 15,716 $ 24,471
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
38
<PAGE> 40
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES:
Principle of Consolidation-
The consolidated financial statements include the accounts of Comdata
Holdings Corporation ("Holdings" or the "Company") and its wholly owned
subsidiary, Comdata Network, Inc. ("Network"). Unless the context otherwise
requires, references to "Holdings" or the "Company" include Comdata Holdings
Corporation, Comdata Network, Inc. and its subsidiaries. Holdings' investment
in Network represents Holdings' only material asset, and Holdings has no
operations except for its ownership of the capital stock of Network. All
significant intercompany transactions and accounts have been eliminated.
Cash and Short Term Investments-
Cash is generally held in banking institution accounts. These
accounts are insured up to the maximum amount allowed by law.
For purposes of the statement of cash flows, all highly liquid debt
instruments purchased with a maturity of three months or less are considered to
be cash equivalents.
Accounts Receivable-
The majority of the Company's receivables are due from customers in
the trucking industry located throughout the United States and Canada.
Receivables from certain customers are secured by cash deposits, bonds, and
letters of credit. The Company continuously monitors the creditworthiness of
its customers.
Property and Equipment-
Property and equipment are stated at cost. Depreciation is provided
on a straight-line basis over the estimated useful lives of the related assets.
The cost of assets retired or otherwise disposed of and the related accumulated
depreciation are removed from the accounts, and the gain or loss is reflected
in the statement of operations.
Cost in Excess of Fair Value of Net Assets Acquired-
The excess of cost over the fair value of net assets acquired
(goodwill) is being amortized on a straight-line basis over forty years. Prior
to the fourth quarter of 1993, the Company evaluated, on a continual basis, the
realizability of goodwill using measurements of earnings before interest,
taxes, depreciation and amortization, as well as operating cash flow for the
respective acquired operations. In addition, the Company
39
<PAGE> 41
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
considered the effects of external changes to the Company's business
environment, including competitive pressures, market erosion and technological
and regulatory changes.
In the fourth quarter of 1993, management evaluated the realizability
of its retail goodwill and determined that this operation's goodwill was
impaired. After evaluation of the 1993 events described below, the Company
determined that the projected net income of each major business unit of the
Company was a preferable measurement of impairment of its goodwill and related
intangibles. Management believes that measurements based on net income are
relevant measures because they include the significant costs of interest and
income taxes, which were not included in the method previously used. Financing
costs changed significantly after the Company's refinancing transaction at the
end of 1992, and the impact of income taxes on the Company's operations are
expected to increase as the Company's tax payments will be prior to goodwill
amortization. Based on the cost of the Company's recent refinancing and
inability to complete a secondary offering in December 1993, it is also
believed that such measures are a preferable measurement indicator of fair
value and more relevant to the users of the financial statements. In applying
the test, the Company determined that substantially all of its goodwill related
to the transportation business was impaired. The Company wrote-off the
remaining balance of goodwill and certain other long-lived intangible assets of
its retail and substantially all of its goodwill and intangibles for the
transportation businesses in the fourth quarter of 1993. See Note 2.
Other Assets-
Debt issuance costs are amortized over the term of the related debt
agreement. Noncompete agreements are amortized over the life of the agreement.
As discussed above and in Notes 2 and 5, the Company wrote-off intangible
assets with a net book value of $1,648,000 in 1993.
Revenue Recognition-
Revenue from the Company's funds transfer, regulatory permit and
gaming cash advance services consists of the transaction fees charged to
customers. Such revenue does not include the cost of goods and services
provided by the Company (e.g., fuel purchased, permit provided or face amount
of the Comchek(R) purchased and cashed.) However, the Company must pay the
issuing agent (e.g., truck stop, casino or state agency) for the full cost of
the goods and services provided and accordingly, bills the customer for such
cost as well as the transaction fee. As a result, the Company's accounts
receivable include both the cost of the goods and services provided and the
transaction fees. The Company's drafts and settlements payable includes the
amount due to the
40
<PAGE> 42
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
issuing agent for the cost of the goods and services. Revenue is recognized
for the amount of the transaction fee at the time the goods and services are
provided. In a small proportion of the Company's funds transfer transactions,
some customer transactions may not be settled, or drafts and settlements
payable cleared in the normal course of business. If such balances cannot be
settled within a period of twelve months, such amounts are recorded as revenue.
The Company believes that its revenue recognition policy for unsettled
transactions is in accordance with generally accepted accounting principles.
The delay in the recognition of such revenue is appropriate to permit
sufficient time to determine whether balances exist in favor of customers.
Unsettled credits and drafts that are outstanding for a period of twelve months
are recorded as revenue based on the Company's belief that such amounts are
earned revenue for goods and services rendered.
Disclosure of Fair Value of Financial Instruments-
The carrying amounts of cash and cash equivalents approximate fair
value because of the short-term nature of these items. Based on the current
market rates offered for the Company's publically-traded indebtedness, the fair
value of the Company's long- term debt exceeded the carrying amount by
approximately $23,000,000 at December 31, 1993. At December 31, 1992, the
carrying amount of the Company's long-term debt approximated fair market value
because substantially all the Company's debt was refinanced on December 29,
1992.
Reclassifications-
Certain reclassifications have been made to the 1992 consolidated
financial statements to conform to the 1993 presentation.
(2) GOODWILL AND RELATED INTANGIBLES:
As discussed in Note 1, the Company has evaluated the recoverability
of goodwill as of the end of fourth quarter of 1993. In evaluating goodwill,
management projected the net income of its product lines over the next five
years, and compared these projections to the amortization of goodwill to be
recorded during those periods. For purposes of these projections, goodwill was
identified with specific acquired product lines where possible, and was
allocated between units based on projections of revenues (at similar margins)
made at the time of related acquisitions where more than one product line was
acquired. Interest costs were allocated between units based on the level of
capital used in acquisitions, reduced by the cash flows subsequently generated
by the acquired units, reflective of the net assets of the product lines.
Revenues were projected to grow at the rates noted during the past five years,
adjusted for
41
<PAGE> 43
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
effects of acquisitions and other known industry trends, with corresponding
inflationary and other increases in operating expenses.
The Company's projections reflected a net loss prior to goodwill
amortization in the retail business and in the transportation business, after
interest costs and income taxes. The Company is not aware of any factors that
would suggest an improvement from the trend of the five year forecast in the
foreseeable future. Because of the results of these projections, the Company
has concluded that substantially all of its retail and transportation goodwill
is not recoverable in the future. Accordingly, a charge of $230,257,000 was
recorded in the fourth quarter of 1993 to write-off substantially all of the
remaining balance of goodwill and other long-lived intangible assets of these
units. This charge removes all the intangible assets related to these
businesses from the consolidated balance sheet, except for goodwill related to
an acquisition made in December 1993, which operation is expected to produce
sufficient net income to recover its related goodwill, and certain purchased
software of the retail unit which is being introduced during 1994.
The Company also has goodwill related to its gaming division that is
not impaired based on the realization tests. The Company will continuously
monitor the recoverability of gaming division goodwill.
(3) RECAPITALIZATION AND LOSS ON DEBT RETIREMENT:
On December 29, 1992, the Company completed a recapitalization
consisting of the replacement of its existing bank facility with a new
$50,000,000 senior secured revolving credit facility and the underwritten
public offering of $130,000,000 principal amount of 12.5% Senior Notes due 1999
and $75,000,000 principal amount of 13.25% Senior Subordinated Debentures due
2002. In addition, the Company raised equity by selling $25,000,000 of a new
Series C Convertible Preferred Stock, and by issuing $53,041,000 of Series B
Convertible Preferred Stock in a noncash exchange for $52,001,000 of
outstanding 11% Junior Subordinated Notes, representing an exchange price equal
to 102% of the principal amount.
As part of the recapitalization plan, the Company also called for the
redemption of $127,000,000 principal amount of its outstanding 13.5% Senior
Subordinated Discount Notes due 1995 and $50,000,000 principal amount of its
13.75% Subordinated Debentures due 1997. Funds sufficient to retire the debt
were placed into escrow on December 29, 1992, and the debt has been removed
from the accompanying consolidated balance sheet. The
42
<PAGE> 44
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
redemption took place January 29, 1993 at prices of 104% and 106%,
respectively, plus accrued and unpaid interest to the date of redemption.
As a result of this transaction, the Company has reported an
extraordinary loss on debt retirement of $20,503,000 in 1992, consisting
principally of the premiums paid on the debt retired and unamortized discount
and debt issuance costs related to this debt.
Unaudited pro forma results of operations for the years ended December
31, 1992 and 1991 are presented below, giving effect to the recapitalization
transactions. The pro forma effects are presented as if the recapitalization
transactions had taken place at the beginning of 1991.
<TABLE>
<CAPTION>
Pro Forma As Adjusted
Years Ended December 31,
------------------------
1992 1991
---- ----
(unaudited)
<S> <C> <C>
Revenues $193,072 $184,468
Costs and expenses 153,581 157,036
-------- --------
Income before interest and taxes 39,491 27,432
Interest expense, net (30,679) (31,710)
-------- --------
Income (loss) before income taxes 8,812 (4,278)
Income tax benefit (provision) (128) 708
-------- --------
Net income (loss) 8,684 (3,570)
Preferred dividend requirement (14,176) (12,542)
-------- --------
Net loss for common stock $ (5,492) $(16,112)
======== ========
Net loss per common share $ (0.38) $ (1.14)
======== ========
Weighted average common
shares outstanding 14,282 14,147
======== ========
</TABLE>
The pro forma financial information does not purport to be indicative
of the results that would actually have been obtained had the recapitalization
transactions been completed for the periods presented or that may be obtained
in the future.
(4) BUSINESS COMBINATIONS:
In January 1991, the Company purchased the net assets of a business
engaged in the distribution of audio tapes marketed to truck drivers, in
exchange for approximately 10,000 shares of common stock.
In December 1991, the Company completed the purchase of territorial
rights from two businesses and the stock of three other businesses engaged in
permit transmission services for an
43
<PAGE> 45
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
aggregate purchase price of approximately $1,735,000 in cash and $2,353,000 in
deferred payments and notes payable, including payments for noncompete
agreements from the sellers. In 1993, common stock of the Company with a
market value of approximately $525,000 was issued to certain sellers, pursuant
to contingent payment provisions of the purchase agreement.
In December 1993, the Company purchased the outstanding stock of a
company engaged in funds transfer and permit services in the transportation
industry for a purchase price of approximately $8,393,000 in cash and
$1,000,000 in notes payable, including payments made to retire outstanding
indebtedness of the acquired company.
In February 1994, the Company acquired the net assets of a business
that develops computer software for the transportation industry. The purchase
price was $500,000, plus contingent payments of up to $8,800,000 to be made
over the next three years based on the earnings of the acquired business before
interest, taxes, depreciation and amortization expenses.
These acquisitions were accounted for as purchases, and the results of
operations of the acquired businesses are included in the consolidated
financial statements from the effective date of the acquisitions. The
aggregate purchase price has been allocated to the net assets acquired based on
their fair values. The prior results of operations of the acquired businesses
are not material to those of the Company.
(5) OTHER ASSETS:
Other assets consist of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Noncompete agreements, net $ 2,255 $ 4,152
Debt issuance costs, net 9,342 10,924
Other noncurrent assets, net 2,227 1,940
------ -------
$13,824 $17,016
======= =======
</TABLE>
In 1992, as more fully described in Note 3, the Company wrote-off
$3,245,000 of its debt issuance costs and incurred $10,941,000 of new debt
issuance costs related to its recapitalization.
In 1993, as more fully described in Note 2, the Company wrote-off
intangible assets with a net book value of $1,648,000 pursuant to an evaluation
of the recoverability of such assets through future operations. These amounts
consisted principally of noncompete agreements and customer contracts in the
transportation services business.
44
<PAGE> 46
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(6) LONG-TERM DEBT:
Long-term debt at December 31, 1993 and 1992 consists of the following
(in thousands):
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Revolving Credit Loan $ 13,008 $ 7,300
12.5% Senior Notes due 1999 130,000 130,000
13.25% Senior Subordinated
Debentures due 2002 75,000 75,000
11% Junior Subordinated Notes, net of
unamortized discount of $552,000 and
$660,000, respectively, effective
interest rate of 14.2%, due 1997 5,684 5,576
Noninterest bearing note payable, due
June 30, 1995, interest imputed at 10%,
net of unamortized discount of $758,000
and $1,210,000, respectively 4,972 4,520
Other notes payable, interest at rates
from 7.5% to 12.5%, payable through 2001 2,246 4,403
-------- --------
230,910 226,799
Less - current maturities (702) (2,046)
-------- --------
$230,208 $224,753
======== ========
</TABLE>
The aggregate principal maturities of long-term debt are as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ ------
<S> <C>
1994 $ 702
1995 18,182
1996 637
1997 5,808
1998 134
Thereafter 205,447
-------
$230,910
========
</TABLE>
As discussed in Note 3, the Company completed a recapitalization on
December 29, 1992, pursuant to which its previously existing revolving credit
agreement was retired, its 13.5% Senior Subordinated Discount Notes and 13.75%
Subordinated Debentures were redeemed, and a portion of its 11% Junior
Subordinated Notes were exchanged for Series B Convertible Preferred stock.
45
<PAGE> 47
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Funds sufficient to retire the 13.5% Senior Subordinated Discount
Notes and 13.75% Subordinated Debentures and pay all call premiums and accrued
interest through the redemption date, January 29, 1993, were placed into escrow
with the respective trustees. Accordingly, such escrowed amounts and debt have
been removed from the accompanying consolidated balance sheet at December 31,
1992.
The Company's new Revolving Credit Agreement provides for revolving
credit loans and letters of credit aggregating up to $50 million, with a $25
million sublimit for letters of credit. The total amount of the Revolving
Credit Facility will be reduced by $12.5 million on December 29, 1994, and will
expire on December 29, 1995. The Company's obligations under the Revolving
Credit Facility are secured by substantially all the assets of the Company and
its subsidiaries, and bear interest at prime plus 1.75% or an adjusted
Eurodollar rate plus 3%. The amount of credit available under this arrangement
is subject to limitations based on the amount and nature of outstanding
receivables. As of December 31, 1993, outstanding letters of credit totaled
$13,547,000.
The 12.5% Senior Notes (the "Notes") in the principal amount of
$130,000,000 were issued on December 29, 1992. The Senior Notes are
obligations of Network on a senior unsecured basis, and are guaranteed on a
senior unsecured basis by Holdings. Interest will accrue from the date of
issuance, and is payable semi-annually on each June 15 and December 15,
beginning June 15, 1993. The Notes mature December 15, 1999, and a mandatory
sinking fund payment calculated to retire 50% of the Notes plus accrued
interest is required on December 15, 1998. The Notes are redeemable at any
time on or after December 15, 1997, at the option of the Company, in whole or
in part, at a redemption price of 101.786% of principal amount plus accrued
interest, declining to 100% of principal amount plus accrued interest on
December 15, 1998.
The 13.25% Senior Subordinated Debentures (the "Debentures") in the
principal amount of $75,000,000 were issued on December 29, 1992. The
Debentures are obligations of Network on a subordinated basis, and are
guaranteed on a senior subordinated basis by Holdings. Interest will accrue
from the date of issuance, and is payable semi-annually on each June 15 and
December 15, beginning June 15, 1993. The Debentures mature December 15, 2002,
and a mandatory sinking fund payment calculated to retire 50% of the Debentures
plus accrued interest is required on December 15, 2001. The Debentures are
redeemable at any time on or after December 15, 1997 at an initial redemption
price of 106.625% of principal amount plus accrued interest, declining each
year to par plus accrued interest on December 15, 2001.
46
<PAGE> 48
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The 11% Junior Subordinated Notes (the "Junior Notes") were issued in
1987 at a discount of $10,389,000, resulting in an effective interest rate of
14.2%. In June and December of 1992, Junior Notes in the principal amount of
$56,101,000 were exchanged for $57,223,000 of Series B Convertible Preferred
Stock. The Junior Notes are obligations of Network on a junior subordinated
basis and are guaranteed on a junior subordinated basis by Holdings. Interest
on the Junior Notes is payable at 11% semi-annually on April 15 and October 15,
although under certain limited circumstances, deferred interest notes may be
issued in lieu of interest payments. The Junior Notes are due in 1997, but the
maturity of all or part of the Junior Notes may be extended by Network until
October 15, 1998 under certain circumstances. Interest during the extended
period will be 12.5% per annum. The Junior Notes may be redeemed at the
Company's option, in whole or in part, at any time at a redemption price of
105% of principal amount through October 14, 1993 and declining each year
thereafter to 101% of principal amount on October 15, 1996, subject to certain
limitations.
The terms of the Company's debt agreements contain certain financial
covenants, including, among other items: (i) the maintenance of certain
financial ratios and compliance with certain financial calculations and
limitations; (ii) prohibition of the payment of cash dividends and the
incurrence of additional indebtedness and liens; (iii) restrictions on mergers,
acquisitions, and investments; and (iv) limits on capital expenditures.
Substantially all assets of the Company are pledged as collateral on the
indebtedness outstanding under the Revolving Credit Agreement. As of December
31, 1993, the Company was in compliance with all covenants.
The Revolving Credit Agreement has provisions which require the
Company to maintain and transfer excess cash balances, as defined, into bank
accounts managed by the lenders. Such lenders have certain discretionary
rights to apply such cash balances against the Company's outstanding loan
amounts. At December 31, 1993, the Company had $12,387,000 in these accounts.
The Company, on a daily basis, monitors its cash position and makes transfers
and other transactions necessary to comply with these provisions of the
Revolving Credit Agreement.
Cash interest paid during the years ended December 31, 1993, 1992, and
1991 was $26,511,000, $46,089,000, and $22,021,000, respectively. Interest
payments in 1992 included $11,930,000 paid early due to the retirement of debt.
(7) INCOME TAXES:
Effective January 1, 1992, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The Company had net
47
<PAGE> 49
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
operating loss carryforwards for financial reporting and income tax purposes of
approximately $25 million and $14 million, respectively, at December 31, 1991.
As a result, no adjustment for the cumulative effect of this accounting change
was required. However, since the accounting treatment for presenting
extraordinary losses and net operating losses under Statement 109 differs from
the Company's previous accounting method, the effect of the adoption is to
increase the amount of net income before extraordinary item by $.31 per share,
increase the amount of the extraordinary loss per common share by the same
amount, with no effect on net income per common share.
The provision (benefit) for income taxes is comprised of the following
(in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Current $ 235 $ - $ (850)
Deferred - - -
------- ------- -------
$ 235 $ - $ (850)
======= ======= =======
</TABLE>
In connection with the acquisition of Fundsnet, Inc., in June 1989,
the Company recorded an income tax liability of $1,000,000 for potential
assessments pursuant to Internal Revenue Service examinations that were in
process at the time of the acquisition. This amount represented the Company's
maximum potential liability under the terms of the purchase agreement. In
August 1991, these examinations were completed, and no additional tax liability
was assessed. Accordingly, an income tax benefit of $1,000,000 was recorded in
1991. This benefit was partially offset by a tax provision of $150,000,
resulting in a net tax benefit of $850,000 in 1991. In 1992, no taxable income
was generated.
The effective income tax rate as determined from the consolidated
statements of operations differs from the Federal income tax statutory rate due
to the following:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Federal income tax statutory rate (34.0%) 34.0% (34.0%)
Extraordinary loss on debt retirement - (187.0%) -
Amortization and write-off of cost in
excess of net assets acquired 37.3% 131.2% 27.6%
Examination adjustment - - (8.8%)
Net operating loss adjustment (3.3%) 20.3% 5.4%
State income taxes and other 0.1% 1.5% 2.3%
----- ------ -----
0.1% - (7.5%)
====== ====== =====
</TABLE>
At December 31, 1993, the Company had available net operating loss
carryforwards for income tax purposes of
48
<PAGE> 50
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
approximately $12,000,000. These carryforwards, if unused, will expire from
2005 to 2007.
At December 31, 1993, the Company has recognized a deferred tax
benefit of approximately $6,000,000, and a corresponding amount has been
reserved due to the uncertainty of realization. This amount is primarily
related to tax net operating loss carryforwards and expenses deducted for
financial reporting purposes not yet deducted for tax purposes.
No income taxes were paid during 1992 or 1991. During 1993, income
tax payments were $80,000.
(8) STOCK OPTION PLAN:
The Company has an employee stock option plan that provides for the
granting of incentive stock options and nonqualified stock options. Up to
2,000,000 shares of common stock may be issued under this plan, and options
granted vest ratably over a five year period from the date of grant. On August
3, 1993, the Company's Board of Directors approved the granting of a total of
619,166 stock options under the employee stock option plan at a price of $8.25,
the last sale price of the Company's common stock on that date. These options
were issued in exchange for a like number of options originally issued at
prices ranging from $9.00 to $18.39. At December 31, 1993, there were options
for 1,624,000 shares outstanding at option prices of $6.00 to $15.00 per share.
As of such date, options for 762,000 shares were exercisable at $6.00 to $15.00
per share. During 1993, 1992, and 1991, options were exercised for 85,000,
73,000 and 30,000 shares, respectively, at prices from $6.00 to $10.125 per
share, and options were canceled for 70,000, 184,000, and 195,000 shares,
respectively, at prices from $6.00 to $15.00 per share.
As of December 31, 1993 and 1992, unearned compensation related to
nonqualified stock options was $451,000 and $785,000, respectively. In 1993,
1992, and 1991, $333,000, $342,000 and $318,000, respectively, was charged to
expense and credited to paid-in capital for amounts earned through vesting of
nonqualified stock options.
(9) COMMITMENTS:
The Company leases office space, computer equipment, and other
equipment under noncancelable operating leases expiring through 2001. Future
minimum rental commitments required under operating leases having initial or
remaining noncancelable lease terms in excess of one year as of December 31,
1993 are as follows: 1994 - $3,598,000; 1995 - $2,435,000; 1996 - $2,038,000;
1997 - $1,942,000; 1998 - $1,930,000; thereafter, $6,042,000.
49
<PAGE> 51
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Rental expense charged to operations under operating lease
arrangements was $4,362,000, $5,580,000, and $5,574,000, for the years ended
December 31, 1993, 1992, and 1991, respectively.
In 1991, the Company entered into a Sales, Marketing and Operations
Agreement with PCI, Inc. ("PCI"), a wholly owned subsidiary of Players
International, Inc., under which PCI provided all sales, marketing, and field
support services for the Company's cash advance services in the gaming
industry. Under the terms of this agreement, PCI was entitled to monthly
service fees and additional payments to the extent PCI was able to increase
revenues or profitability at the gaming cash advance locations. During 1992
and 1991, the Company recognized expenses of $5,310,000 and $1,785,000,
respectively, under this agreement.
In December 1992, the Company and PCI modified this agreement to
provide that, as of January 1993, the Company resumed responsibility for these
sales, marketing, and field support operations. PCI continues to provide sales
and marketing consulting services, and is subject to a noncompete agreement
through December 1998. As compensation for these services and the agreement
not to compete, the Company granted certain concessions or made payments to PCI
totalling $992,000, and agreed to make payments totalling $500,000 per year
through the end of 1996. During 1993, the Company paid the remaining balance
due under this obligation at a discounted amount. The total of the concessions
and payments together with the net present value of the payments to be made
through 1996, have been recorded as a noncompete agreement in the accompanying
consolidated balance sheet, and is being amortized over the remaining term of
the noncompete agreement.
In September 1991, the Company entered into a Telecommunications
Services Agreement (the "Telecommunications Agreement") with Advanced
Telecommunications Corporation ("ATC"). Pursuant to the Telecommunications
Agreement, ATC became the Company's primary provider of long distance telephone
services through January 1999. The Telecommunications Agreement requires the
Company to purchase a minimum of $7,750,000 of long distance services from ATC
each year. Early termination of the Telecommunications Agreement by the
Company for convenience and without cause requires the payment of substantial
termination payments.
During 1993, the Company entered into an agreement with AT&T pursuant
to which it received certain promotional credits against telecommunications
expense totalling approximately $1,423,000, in exchange for a commitment to
purchase a minimum of $7,650,000 of long distance services from AT&T annually
over a three-year period. The credits received are being recorded as a
reduction of telecommunications expense over the term of the agreement.
50
<PAGE> 52
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(10) CONTINGENCIES:
The Company, Network, certain former directors of Network, and Alex.
Brown & Sons Incorporated ("Alex. Brown") were initially named as parties in a
lawsuit brought by Alex Eisenberg, a former stockholder of Network. The
complaint seeks $29.1 million in damages, and alleges breach of fiduciary
duties by the individual defendants in approving the acquisition of Network by
the Company in September 1987. The complaint also alleges negligence and
breach of contract by Alex. Brown in its role as financial advisor to the Board
of Network at the time of the acquisition. The individual defendants and Alex.
Brown were entitled to be indemnified by the Company for any liabilities under
the lawsuit and the expenses of defending the action. Pursuant to the
Company's indemnification obligations, the individual defendants and Alex.
Brown were dismissed from the action and the Company and Network have assumed
the defense of the claims in respect of such defendants. On September 24,
1992, the Court entered an order dismissing the class action allegations
relating to the former directors of Network. The order also dismissed all
allegations that Alex. Brown had aided and abetted the alleged breaches of
fiduciary duties of the former directors. The order permits the plaintiff to
pursue his individual claims against the former directors, as well as his
individual claims and the class claims against Alex. Brown in its role as a
financial advisor. Prior to the end of 1993, counsel for Eisenberg and Network
reached agreement upon the settlement of this matter, subject to court approval
and certain other procedures, which are pending.
Network and certain unrelated financial institutions are parties to
two lawsuits that allege that credit card cash advances obtained by the
plaintiffs at gaming facilities are debts which are null and void as violative
of an Illinois statute declaring loans made for purposes of illegal gambling as
void and unenforceable. Network and the financial institution defendants
prevailed at the trial court level on motions to dismiss.
The plaintiffs have appealed the trial court rulings to the Illinois
Appellate Court. Oral argument is currently expected to be scheduled for the
summer of 1994.
On February 5, 1992, Network filed a complaint charging that Synapsis
Corporation, Ltd. ("Synapsis") and its owner, William S. Akel, conspired with a
computer programmer employed by Network to steal a proprietary and confidential
list for resale. The complaint alleges violations of the Racketeer Influenced
and Corrupt Organizations Act (RICO) and the conversion of Network's list from
its internal computer files. On July 7, 1992, Synapsis filed an action against
Network, Players International, Inc. and PCI, Inc. in the United States
District Court for the Central District of California. The complaint alleged
violations of
51
<PAGE> 53
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Sections 1 and 2 of the Sherman Act, unfair competition and invasion of privacy
by Network and Players in connection with the cash advance service offered by
Network in various gaming establishments.
Pursuant to settlement agreements entered into by the parties, both
lawsuits were dismissed during 1993.
A subsidiary of Network was a party to a lawsuit filed in May
1992, that sought approximately $850,000 in damages, plus interest, for what
was alleged to have been breach of contract relating to a services agreement
pursuant to which the subsidiary rendered check authorization and guarantee
services. Settlement of the matter was agreed upon, and the lawsuit was
dismissed during 1993.
The Company is a defendant in certain other pending litigation arising
in the course of its business. While the final outcome of these lawsuits
cannot be predicted with certainty, it is the opinion of Management, after
consulting with its legal counsel, that any ultimate liability would not
materially affect the consolidated financial position of the Company.
(11) DEFERRED CREDIT AND SYSTEMS OPERATIONS SERVICES AGREEMENT:
In September 1991, the Company entered into an Agreement for Systems
Operations Services (the "Services Agreement") with Integrated Systems
Solutions Corporation ("ISSC"), a wholly-owned subsidiary of IBM. Under the
Services Agreement, ISSC will provide substantially all data processing
functions to the Company for a term of ten years through August 2001, providing
enhanced capabilities for systems and product development.
In connection with the Services Agreement, ISSC paid $15,000,000 in
cash to the Company and assumed certain lease obligations in order to acquire
certain computer equipment, to obtain access to the Company's software, to
acquire the right to extend employment to certain employees of the Company, to
obtain access to and use of the Company's facilities, and to reimburse certain
transition expenses to be incurred by the Company. This $15,000,000, net of
approximately $694,000 of net assets sold to ISSC, has been recorded as a
deferred credit in the accompanying consolidated balance sheet, and will be
amortized during the term of the Services Agreement.
The amount of expense recorded pursuant to this Services Agreement,
net of the amortization of the deferred credit, was $10,031,000, $8,669,000,
and $2,826,000 in 1993, 1992, and 1991 respectively. Because ISSC has assumed
responsibility for this function including the related personnel and operating
costs, the Company has experienced improved effectiveness and technology
52
<PAGE> 54
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
improvements without any significant increase in cost. The Services Agreement
currently provides for monthly payments of $1,060,000 through August 2001.
Annual payments are subject to adjustment for changes in the level of defined
services and inflation. Cancellation of the Services Agreement requires
payment of a substantial termination fee.
(12) STOCK SPLIT:
On October 25, 1993, the Company approved a 1 for 3 reverse split of
its Common Stock, effective on November 16, 1993. All share and per share data
set forth in these consolidated financial statements and related notes have
been adjusted to reflect the reverse stock split.
(13) PREFERRED STOCK:
The Company has authorized 5,000,000 shares of preferred stock. Of
these shares, 1,325,498 have been designated as Series A Convertible Preferred
Stock, 572,226 shares have been designated as Series B Convertible Preferred
Stock, and 250,500 shares have been designated as Series C Convertible
Preferred Stock.
In 1991, 560,000 Series A shares were issued to ATC at $25 per share,
resulting in proceeds of approximately $14,000,000. Dividends on these shares
accrued at a rate of 8.5% of the outstanding liquidation value until the terms
of the Series A shares were modified as described below. During 1992,
dividends on Series A shares were paid by issuing shares of the Company's
common stock.
The outstanding Series B and Series C shares were issued during 1992
in connection with the recapitalization described in Note 3. Upon completion
of this recapitalization, dividends on the Series A shares accrue at a rate of
12.5% of the outstanding liquidation value, and may be paid in cash or
additional Series A shares. Dividends on the Series B and Series C shares
accrue at rates of 12.5% and 12.25%, respectively, of the outstanding
liquidation value, and are payable in cash as declared by the Board of
Directors. Dividends on Series B and Series C shares not paid in cash
accumulate, and increase the liquidation value of the outstanding shares upon
which such dividends are calculated. The terms of the Company's debt
agreements and indentures contain provisions which limit the Company's ability
to pay cash dividends.
The Series A shares are convertible into the Company's common stock at
a price of $10.74 per share. Series B and Series C shares are convertible at
$6.00 per share. These rates are subject to adjustment if new common shares
are issued at prices below either the existing conversion prices or the market
price
53
<PAGE> 55
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
of the common stock, as defined. Series A Preferred stock is redeemable at its
liquidation value, at the Company's option, if the Company's common stock
reaches an average market price, as defined, of $18.75 per share. The Company
may elect to force conversion of Preferred Stock at the conversion rate if the
Company's common stock reaches a volume-weighted average trading price, as
defined, greater than $19.50 per share or the Company completes a placement of
common stock that meets certain requirements. There are no mandatory
redemption provisions.
During 1993, 10,193 Series B shares with a liquidation value of
$1,150,000 were converted into 191,692 shares of Common Stock.
(14) QUARTERLY SUMMARY (UNAUDITED):
<TABLE>
<CAPTION>
QUARTER
------------------------------------------
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1993
<S> <C> <C> <C> <C>
Revenue $49,023 $52,001 $55,961 $ 55,331
Income (loss) before
interest and taxes 9,995 10,601 11,927 (219,125)(a)
Net income (loss)
for common stock (681) (91) 992 (229,908)(a)
Net income (loss) per
common share $ (0.05) $ - $ 0.07 $ (15.84)(b)
</TABLE>
<TABLE>
<CAPTION>
QUARTER
------------------------------------------
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1992
<S> <C> <C> <C> <C>
Revenue $47,122 $47,790 $50,310 $ 47,850
Income before
interest, taxes and
extraordinary item 7,851 10,078 11,478 10,084
Net income (loss)
for common stock (1,598) 349 1,794 (20,065)(c)
Net income (loss) per
common share $ (0.11) $ 0.02 $ 0.12 $ (1.40)
</TABLE>
- --------------------
(a) The loss in the fourth quarter of 1993 is due to the write-off of
$230,257,000 of goodwill and other intangibles. See Note 2 for a
discussion of this write-off.
54
<PAGE> 56
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(b) The sum of the quarterly amounts for net income (loss) per common
share does not equal the annual amount of net loss per common share
due to the timing of common share issuances and quarterly net income
or loss results.
(c) The loss in the fourth quarter of 1992 is due to the extraordinary
loss on debt retirement of $20,503,000. See Note 3 for a discussion
of this transaction.
(15) RELATED PARTY TRANSACTIONS:
As described in Note 9, the Company has entered into a
Telecommunications Agreement with ATC, the owner of all the outstanding shares
of Series A Preferred Stock. During 1993, 1992, and 1991, the Company incurred
expenses of $11,211,000, $7,673,000, and $456,000, respectively, related to the
Telecommunications Agreement.
On June 30, 1992, the assets of the Citicorp Establishment Services
division, which provided services to Network with regard to the settlement of
MasterCard and Visa transactions until May 1993, were acquired by Card
Establishment Services, Inc. ("CES"), an affiliate of a significant
stockholder of the Company. During 1993 and 1992, Network incurred charges
from CES of approximately $346,000 and $397,000, respectively, with such
charges being reported as a reduction of the related revenue earned by Network.
In August 1992, the Company entered into an agreement with Welsh,
Carson, Anderson & Stowe IV ("WCAS IV"), a major stockholder, pursuant to which
WCAS IV agreed to guarantee a letter of credit on behalf of Network in the
amount of $8.6 million. The letter of credit was issued in favor of an
insurance company that had previously issued bonds required by certain state
regulatory authorities to support Network's funds transfer business in those
states. Network agreed to pay a fee of 2% per year of the amount outstanding
under this letter of credit to an affiliate of WCAS IV for arranging the letter
of credit. During 1992, the Company incurred expenses of $66,000 pursuant to
this fee. This arrangement was terminated on December 29, 1992, pursuant to
the recapitalization described in Note 3.
During 1993, the Company purchased data processing equipment and
computer software at a cost of approximately $3,326,000 from an affiliate of a
significant stockholder of the Company on an arm's length basis.
55
<PAGE> 57
Schedule II
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
-------------------------------------------
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES, UNDERWRITERS,
--------------------------------------------------------------------
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
---------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
-----------------------------------------------------
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ---------------- ------------ ------------ --------------------------- --------------------------
Deductions
--------------------------- Balance at End of
Balance Period
at Beginning Amounts Amounts --------------------------
Name of Debtor of Period Additions Collected | Written Off Current | Not Current
- ---------------- ------------ ------------ ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
1993 -
None
$ - $ - $ - $ - $ - $ -
============ ============ ============ ============ ============ ============
1992 -
Edward A. Barbieri $ - $ 292,000 $ 292,000 $ - $ - $ -
============ ============ ============ ============ ============ ============
1991 -
None
$ - $ - $ - $ - $ - $ -
============ ============ ============ ============ ============ ============
</TABLE>
56
<PAGE> 58
Schedule V
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
-------------------------------------------
SCHEDULE V - PROPERTY AND EQUIPMENT
-----------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
-----------------------------------------------------
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
- ------------ ------------ ------------ ------------ ------------- ------------
Balance At Balance At
Beginning Of Other Changes End Of
Description Period Additions Retirements Add (Deduct) Period
- ------------ ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
1993 -
Buildings and
improvements $ 2,087,000 $ 82,000 $ - $ 291,000 $ 2,460,000
Equipment 18,204,000 5,872,000 164,000 1,004,000 24,916,000
----------- ----------- ----------- ----------- -----------
$20,291,000 $ 5,954,000 $ 164,000 $ 1,295,000(1) $27,376,000
=========== =========== =========== =========== ===========
1992 -
Buildings and
improvements $ 3,333,000 $ 494,000 $ 1,740,000 $ - $ 2,087,000
Equipment 15,966,000 2,300,000 62,000 - 18,204,000
----------- ----------- ----------- ----------- -----------
$19,299,000 $ 2,794,000 $ 1,802,000 $ - $20,291,000
=========== =========== =========== =========== ===========
1991 -
Buildings and
improvements $ 1,780,000 $ 1,634,000 $ 81,000 $ - $ 3,333,000
Equipment 21,322,000 4,156,000 9,512,000(2) - 15,966,000
----------- ----------- ----------- ----------- -----------
$23,102,000 $ 5,790,000 $ 9,593,000 $ - $19,299,000
=========== =========== =========== =========== ===========
</TABLE>
(1) Represents the amount recorded for property in connection with the
acquisition of Saunders, Inc.
(2) Refer to Note 10 to the consolidated financial statements for discussion
regarding the agreement with ISSC. As part of this agreement, equipment
with costs of $9,220,000 and accumulated depreciation of $4,665,000 were
sold to ISSC and are included in this amount.
57
<PAGE> 59
Schedule VI
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
-------------------------------------------
SCHEDULE VI - ACCUMULATED DEPRECIATION OF PROPERTY AND EQUIPMENT
----------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
-----------------------------------------------------
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
- ------------ ------------ ------------ ------------ ------------- ------------
Balance At Additions Balance At
Beginning Of Charged to Costs Other Changes End Of
Description Period And Expenses Retirements Add (Deduct) Period
- ------------ ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
1993 -
Buildings and
improvements $ 750,000 $ 214,000 $ - $ - $ 964,000
Equipment 13,670,000 3,221,000 95,000 - 16,796,000
----------- ----------- ----------- ----------- -----------
$14,420,000 $ 3,435,000 $ 95,000 $ - $17,760,000
=========== =========== =========== =========== ===========
1992 -
Buildings and
improvements $ 520,000 $ 322,000 $ 92,000 $ - $ 750,000
Equipment 11,147,000 2,547,000 24,000 - 13,670,000
----------- ----------- ----------- ----------- -----------
$11,667,000 $ 2,869,000 $ 116,000 $ - $14,420,000
=========== =========== =========== =========== ===========
1991 -
Buildings and
improvements $ 317,000 $ 193,000 $ 87,000 $ 97,000(2) $ 520,000
Equipment 12,368,000 3,650,000 4,774,000(1) (97,000) 11,147,000
----------- ----------- ----------- ----------- -----------
$12,685,000 $ 3,843,000 $ 4,861,000 $ - $11,667,000
=========== =========== =========== =========== ===========
</TABLE>
(1) Refer to Note 10 to the consolidated financial statements for discussion
regarding the agreement with ISSC. As part of this agreement, equipment
with costs of $9,220,000 and accumulated depreciation of $4,665,000 were
sold to ISSC and are included in this amount.
(2) Represents reclassification of beginning balances.
58
<PAGE> 60
Schedule VIII
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
-------------------------------------------
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
-------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
-----------------------------------------------------
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ------------ ------------ -------------------------- ------------- ------------
Additions Uncollectible
Balance At Charged To Charged To Accounts Balance At
Beginning Of Costs And Other Deducted From End Of
Description Period Expenses Accounts the Reserve Period
- ------------ ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
1993 -
Allowance for
doubtful accounts $ 5,839,000 $ 5,055,000 $ 337,000(1) $ 5,144,000 $ 6,087,000
=========== =========== =========== =========== ===========
1992 -
Allowance for
doubtful accounts $ 9,753,000 $ 6,004,000 $ - $ 9,918,000 $ 5,839,000
=========== =========== =========== =========== ===========
1991 -
Allowance for
doubtful accounts $11,532,000 $ 8,600,000 $ 50,000(1) $10,429,000 $ 9,753,000
=========== =========== =========== =========== ===========
</TABLE>
(1) Represents amounts recorded for allowance for doubtful accounts in
connection with acquisitions.
59
<PAGE> 61
Schedule X
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
-------------------------------------------
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
-------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
-----------------------------------------------------
<TABLE>
<CAPTION>
Charges to Costs
and Expenses
----------------
<S> <C>
Year ended December 31, 1993:
Depreciation and amortization:
Depreciation of fixed assets $ 3,435,000
Amortization of costs in excess of
fair value of net assets acquired 9,342,000
Amortization of noncompete agreements 1,257,000
Amortization of deferred costs 744,000
Amortization of debt discount and debt issuance costs 2,844,000
-----------
$17,622,000 (1)
===========
Year ended December 31, 1992:
Depreciation and amortization:
Depreciation of fixed assets $ 2,869,000
Amortization of costs in excess of
fair value of net assets acquired 9,308,000
Amortization of noncompete agreements 873,000
Amortization of deferred costs 763,000
Amortization of debt discount and debt issuance costs 2,855,000 (2)
-----------
$16,668,000
===========
Year ended December 31, 1991:
Depreciation and amortization:
Depreciation of fixed assets $ 3,843,000
Amortization of costs in excess of
fair value of net assets acquired 9,219,000
Amortization of noncompete agreements 821,000
Amortization of deferred costs 1,415,000
Amortization of debt discount and debt issuance costs 13,090,000
-----------
$28,388,000
===========
</TABLE>
(1) Amount does not include $230,257,000 of expenses related to the write-off
of goodwill and other intangible assets. See Note 2 to the consolidated
financial statements for a description of this item.
(2) Amount does not include $9,012,000 of amortization of debt discount and
debt issuance costs included in the extraordinary item. See Note 3 to
the consolidated financial statements for a description of the
extraordinary item.
60
<PAGE> 62
PART III
---------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information as to the directors
and executive officers of Holdings:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
George L. McTavish.... 52 Chairman and Chief Executive
Officer, Director
Edward A. Barbieri.... 52 President and Chief Operating
Officer, Director
Dennis R. Hanson...... 47 Executive Vice President and
Chief Financial Officer,
Director
Henry P. Cincere...... 43 Senior Vice President
Michael Czwornog ..... 41 Senior Vice President
Charles P. Harris..... 48 Senior Vice President
Peter D. Voysey....... 48 Vice President, General
Counsel and Secretary
Bruce K. Anderson..... 54 Director
Patrick J. Welsh...... 50 Director
Dana J. O'Brien....... 38 Director
Louis P. Buglioli..... 44 Director
Stephen E. Raville.... 46 Director
Phyllis Haberman...... 45 Director
</TABLE>
- -------------------
Holdings' executive officers and directors also serve as executive
officers and directors, respectively, of the Company. All executive officers
serve at the discretion of the Board of Directors. All directors hold office
until the next annual meeting of stockholders and until their successors have
been elected and qualified. The By-laws of Holdings provide that two members
of the Board of Directors must be persons other than members of management or
an affiliate or associate (as defined) of Holdings.
BIOGRAPHIES
George L. McTavish was elected to the Board of Directors of Holdings
in November 1987. From November 1987 through March 1992, he served as
President and Chief Executive Officer of Holdings and as Chief Executive
Officer of the Company. In March 1992, Mr. McTavish was elected to the office
of Chairman of the Board of Directors of each of the Company and Holdings.
From September 1984 to July 1987, Mr. McTavish was Chairman and Chief Executive
Officer of Hogan Systems, Inc., a provider of computer software products to the
banking industry based in Dallas, Texas.
61
<PAGE> 63
Prior thereto, Mr. McTavish was Executive Vice President and Chief Operating
Officer of SEI Corporation, also a provider of computer software products to
the banking industry, based in Wayne, Pennsylvania.
Edward A. Barbieri was elected President and Chief Operating Officer
of the Company and Holdings in March 1992. Prior to joining the Company, Mr.
Barbieri held various positions with TRW, Inc. ("TRW") from 1977, and most
recently served as Vice President and General Manager of TRW's National
Accounts Division, Information Systems and Services. Mr. Barbieri was elected
to the Board of Directors of the Company and of Holdings in June 1992.
Dennis R. Hanson was elected Executive Vice President and Chief
Financial Officer of the Company and Holdings in March 1992. Before joining
Comdata, Mr. Hanson held various positions with NationsBank (formerly
C&S/Sovran Corporation) in Norfolk, Virginia, or its predecessors, from 1981,
most recently as Group Executive Vice President. Mr. Hanson was elected to the
Board of Directors of the Company and of Holdings in June 1992.
Henry P. Cincere was named a Senior Vice President of Holdings in
February 1991. Prior thereto, he served as a Vice President Holdings beginning
in June 1989. Mr. Cincere has been employed by Comdata since March 1984 and
has served in various other positions including President of the Network
Services Division since January 1993, in which capacity he continues to serve,
and President of the Transportation Services Division from February 1991 to
January 1993. Prior to joining the Company, Mr. Cincere was General Manager of
Triangle Fleet Service, Inc., as subsidiary of North American Van Lines, Inc.,
from March 1983 until March 1984.
Peter D. Voysey was elected Vice President, General Counsel and
Secretary of Holdings and the Company in May 1992. Mr. Voysey was most
recently General Counsel and Corporate Secretary for Citicorp Services Inc., a
Citicorp affiliate engaged in worldwide funds transfer and payments systems.
Prior to joining Citicorp in 1980, Mr. Voysey served as Group Legal Counsel for
Emhart Corporation from 1976 to 1980, and as an Associate for Winston & Strawn
from 1971 to 1976.
Bruce K. Anderson, who was Chairman of the Board of Directors of the
Company since it was acquired by Holdings in March 1987 through March 1992, has
been a general partner of the sole general partner of Welsh, Carson, Anderson &
Stowe IV, a New York limited partnership ("WCAS IV"), since it was formed in
1985 and of the sole general partner of WCAS Venture Partners, a New York
limited partnership ("Venture Partners"), since it was formed in 1986 and of
the sole general partner of WCAS Capital Partners, L.P., a Delaware limited
partnership ("Capital Partners"), since it was formed in 1987. WCAS IV,
Venture Partners and Capital Partners are major stockholders of the
62
<PAGE> 64
Company and are investment partnerships engaged in venture capital and
leveraged buyout investing. Mr. Anderson has been a general partner of the
sole general partners of associated limited partnerships since 1979. Mr.
Anderson is also General Partner of the sole general partner of WCAS V, WCAS VI
and WCAS Information Partners. Prior to 1979, Mr. Anderson was Executive Vice
President and a director of Automatic Data Processing, Inc., a data processing
company. Mr. Anderson also serves as director of The Continuum Company, Inc.,
FIserv, Inc., Genicom Corporation, Broadway & Seymour, Inc., American
Residential Mortgage Corp. and several privately-held companies.
Patrick J. Welsh, who has been a Director of the Company since it was
acquired by Holdings in March 1987, has been a general partner of the sole
general partner of each of WCAS IV, Venture Partners and Capital Partners since
their formation. Mr. Welsh has been a general partner of the sole general
partner of associated limited partnerships since 1979. Prior to 1979, Mr.
Welsh was President and a director of Citicorp Venture Capital, Ltd., an
affiliate of Citicorp engaged in venture capital investing. Mr. Welsh serves
as a director of The Continuum Company, Inc., Syntellect, Inc., Pharmaceutical
Marketing Services Inc. and several privately-held companies.
Dana J. O'Brien was elected to the Board of Directors of Holdings and
the Company in April 1990. He is Vice President of Prudential Equity
Investors, Inc.("PVP"), an investment firm engaged in venture capital and
leveraged buyout investing. He has been employed by PVP or its affiliates
since 1982. Prior thereto, he was employed in the National Banking Division of
Morgan Guaranty Trust Company. Mr. O'Brien was nominated to serve on the Board
of Directors of the Company and Network by PVP. Subject to certain conditions,
the Company has agreed to use its best efforts to nominate and use its best
efforts to cause to be elected to the Boards of Directors of the Company and
Network one individual nominated by PVP. Mr. O'Brien also serves as a Director
of several privately held companies.
Louis P. Buglioli was elected to the Board of Directors of Holdings
and the Company in June 1991. Mr. Buglioli has been President of Benton
International, Inc., a management consulting firm in the financial and payment
systems industry, since 1986. From 1983 to 1985, he was President and Chief
Operating Officer and a director of Telecredit, Inc., a company engaged
primarily in the third-party processing of credit card, check authorization and
point-of-sale debit card transactions. Prior thereto, he served as Senior Vice
President of Crocker National Bank.
Stephen E. Raville was elected to the Board of Directors of Holdings
and the Company in September 1991. Mr. Raville is President of First
Southeastern Corp. in Atlanta, Georgia. From 1985 until December 1992, he was
Chairman and Chief Executive Officer of ATC. Mr. Raville has also served as a
director of ATC, First Union National Bank of Georgia and Wellington Leisure
63
<PAGE> 65
Products, Inc. Mr. Raville's election as a director of the Company occurred
when ATC purchased shares of Preferred Stock of Holdings and entered into a
Telecommunications Services Agreement with the Company, pursuant to which ATC
provides long distance telecommunications services.
Phyllis Haberman was elected a Director of Holdings in January 1993.
Ms. Haberman is Vice President of Charterhouse Group International, Inc.
("Charterhouse"), a privately owned investment banking firm making equity
investments in a broad range of U.S. companies. Ms. Haberman joined
Charterhouse in September 1985 and was promoted to her present position in
August 1988. Ms. Haberman also serves as a director of Wundies Industries,
Inc. Ms. Haberman was nominated to serve on the Board of Directors of Holdings
by Charterhouse. Subject to certain conditions, Holdings has agreed to
nominate and use its best efforts to cause to be elected to the Board of
Directors one individual nominated by Charterhouse.
Michael Czwornog was named Senior Vice President and General Manager
of Network's Retail Services Division in January 1993, and was elected a Senior
Vice President of the Company in June 1993. From September 1990 to September
1992, Mr. Czwornog was employed by TeleCheck Services, Inc., a leading national
provider of check guarantee and collection services, most recently as President
and Chief Executive Officer. TeleCheck was previously a wholly-owned
subsidiary of McDonnell Douglas Corporation, where Mr. Czwornog had been
employed since 1980.
Charles P. Harris joined the Company in January 1992 as Senior Vice
President of Sales for Network's Transportation Services Division. He was
named Senior Vice President and General Manager of the Transportation Services
Division in January 1993 and was elected a Senior Vice President of the Company
in June 1993. Prior to joining Comdata, Mr. Harris was employed by Diebold
Incorporated for 17 years, most recently as Corporate Vice President, United
States Sales Group.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following Table summarizes the compensation paid or accrued by the
Company during the three years ended December 31, 1993 to those persons who, as
of December 31, 1993, were the Company's Chief Executive Officer and the four
most highly compensated Executive Officers other than the Chief Executive
Officer (such five officers, collectively, the "Named Executive Officers").
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<PAGE> 66
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
- ------------------------------------------------- -------------
NAME AND ALL OTHER
PRINCIPAL SALARY BONUS OPTIONS (18) COMPENSATION
POSITION YEAR ($) ($) (#) ($)
- -------- ---- ------ ----- -------- ------------
<S> <C> <C> <C> <C> <C>
George L. McTavish 1993 $325,000 - 94,667 (15) $ 4,814 (1)
Chairman and Chief 1992 325,000 $95,566 - 3,985 (2)
Executive Officer, 1991 275,000 - - (3)
Director
Edward A. Barbieri 1993 254,687 - 87,334 (13) 5,294 (4)
President and Chief 1992 194,231 74,125 133,333 100,750 (5)
Operating Officer, 1991 (6) - - -
Director
Dennis R. Hanson 1993 203,750 - 53,000 (14) 11,097 (7)
Executive Vice 1992 151,538 51,875 100,000 55,720 (8)
President and Chief 1991 (6) - - -
Financial Officer,
Director
Henry P. Cincere 1993 167,785 - 21,668 (16) 3,215 (9)
Senior Vice 1992 165,000 54,331 - 2,736 (10)
President 1991 148,625 - 16,667 (3)
Charles P. Harris 1993 132,000 - 33,834 (17) 35,052 (11)
Senior Vice 1992 120,000 18,000 - 40,382 (12)
President 1991 - - 16,667 -
</TABLE>
(1) Amount includes $3,086 for contributions by the Company to a 401(K)
plan and $1,728 for term life insurance premiums paid by the Company.
(2) Amount includes $2,257 for contributions by the Company to a 401(k)
plan and $1,728 for term life insurance premiums paid by the Company.
(3) Other compensation is not required to be disclosed for this period.
(4) Amount includes $3,566 for contributions by the Company to a 401(K)
plan and $1,728 for term life insurance premiums paid by the Company.
(5) Amount includes $78,534 of relocation cost reimbursements, $20,920 of
reimbursement for related income taxes, and $1,296 for term life
insurance premiums paid by the Company.
(6) This executive was not employed by the Company prior to 1992.
(7) Amount includes $6,701 of relocation cost reimbursements, $803 of
reimbursement for related income taxes, $2,549 for contributions by
the Company to a 401(K) plan, and $1,044 for term life insurance
premiums paid by the Company.
(8) Amount includes $42,565 of relocation cost reimbursements, $12,372 of
reimbursement for related income taxes, and $783 for term life
insurance premiums paid by the Company.
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<PAGE> 67
(9) Amount includes $2,632 for contributions by the Company to a 401(K)
plan and $583 for term life insurance premiums paid by the Company.
(10) Amount includes $2,175 for contributions by the Company to a 401(k)
plan $561 for term life insurance premiums paid by the Company.
(11) Amount includes $25,008 of relocation cost reimbursements, $6,724 of
reimbursement for related income taxes, $2,575 for contributions by
the Company to a 401(K) plan, and $745 for term life insurance
premiums paid by the Company
(12) Amount includes $29,114 of relocation cost reimbursements, $10,607 of
reimbursement for related income taxes, and $661 for term insurance
premiums paid by the Company.
(13) Amounts granted in 1993 include the repricing of 83,334 options
previously granted
(14) Amounts granted in 1993 include the repricing of 50,000 options
previously granted
(15) Amounts granted in 1993 include the repricing of 66,667 options
previously granted.
(16) Amounts granted in 1993 include the repricing of 16,668 options
previously granted.
(17) Amounts granted in 1993 include the repricing of 16,667 options
previously granted.
(18) Amounts with respect to options have been adjusted to reflect a
1-for-3 reverse split effective November 16, 1993.
OPTION GRANTS
Shown below is information concerning stock option grants to the Named
Executive Officers who were granted stock options during the 1993 Fiscal Year.
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<PAGE> 68
OPTIONS GRANTED IN LAST FISCAL YEAR (1)
<TABLE>
<CAPTION>
POTENTIAL REALIZED VALUE
VALUE OF ASSUMED ANNUAL
RATES OF STOCK PRICE
INDIVIDUAL GRANTS APPRECIATED FOR OPTION TERM
- -------------------------------------------------------------------------------------------- ---------------------------
% OF TOTAL MARKET
OPTIONS EXERCISE PRICE
OPTIONS GRANTED TO OR BASE ON DATE
GRANTED EMPLOYEES IN PRICE OF GRANT EXPIRATION
NAME (1) (#) 1993 ($/SHARE) ($/SHARE) DATE 5% ($) 10% ($)
---- ------- ------------ --------- --------- ----------------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
George L. McTavish 66,667 (2) 7.8% $8.25 $8.25 July 26, 1999 $187,334 $ 424,669
28,000 (3) 3.3% 8.25 8.25 August 3, 2003 145,320 368,200
Edward A. Barbieri 83,334 (2) 9.7% 8.25 8.25 March 23, 2002 415,837 1,045,842
4,000 (3) 0.5% 8.25 8.25 August 3, 2003 20,760 52,600
Dennis R. Hanson 50,000 (2) 5.8% 8.25 8.25 March 30, 2002 249,500 627,500
3,000 (3) 0.4% 8.25 8.25 August 3, 2003 15,570 39,450
Henry P. Cincere 8,334 (2) 1.0% 8.25 8.25 February 26, 2001 30,836 73,089
8,334 (2) 1.0% 8.25 8.25 January 1, 2001 29,919 70,422
5,000 (3) 0.6% 8.25 8.25 August 3, 2003 25,950 65,750
Charles P. Harris 17,167 (3) 2.0% 8.25 8.25 August 3, 2003 89,097 225,746
16,667 (2) 1.9% 8.25 8.25 December 19, 2001 68,668 165,837
</TABLE>
(1) All share and price data has been adjusted to reflect a 1 for 3 reverse
stock split effective November 16, 1993.
(2) Represents options repriced on August 3, 1993.
(3) Represents options granted on August 3, 1993 and vest over a five year
period at the rate of 20% per year.
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<PAGE> 69
OPTION EXERCISES AND FISCAL YEAR-END VALUE
Shown below is information with respect to exercises by the Named
Executive Officers during the 1993 Fiscal Year of options to purchase common
stock pursuant to Holdings' stock option plans and information with respect to
unexercised options to purchase common stock held by the Named Executive
Officers as of the end of the 1993 Fiscal Year.
AGGREGATED OPTION EXERCISES IN 1993
AND YEAR END OPTION VALUES
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS IN-THE-MONEY
AT OPTIONS AT
SHARES DECEMBER 31, DECEMBER 31,
ACQUIRED 1993 1993
ON VALUE
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
---- -------- -------- ------------- -------------
George L. McTavish - - 160,001 $266,668
68,000 -
Edward A. Barbieri - - 18,334 20,000
119,000 80,000
Dennis R. Hanson - - 15,000 20,000
88,000 80,000
Henry P. Cincere - - 30,001 53,334
18,334 -
Charles P. Harris - - 1,667 -
32,167 -
Holdings has not awarded stock appreciation rights to any employee and
has no long term incentive plans, as that term is defined in SEC regulations.
Holdings has a stock option plan. The Company presently has no defined benefit
or actuarial plans covering any employees of the Company.
In August 1993, Holdings' Board of Directors approved a repricing of
stock options issued to employees under Holdings Stock Option Plan. The
following table summarizes this repricing with respect to options held by the
named executives. All such information has been adjusted to reflect a 1 for 3
reverse stock split effective November 16, 1993.
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<PAGE> 70
TEN YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
Market Length of
Number Price of Exercise Orginial
of Stock at Price at New Option Term
Options Time of Time of Exercise Remaining at
Name Date Repriced Repricing Repricing Price Date of Repricing
- ------------------ -------------- -------- --------- --------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
George L. McTavish August 3, 1993 66,667 $8.25 $12.00 $8.25 6 Years
Edward A. Barbieri August 3, 1993 83,334 8.25 10.50 8.25 9.7 Years
Dennis R. Hanson August 3, 1993 50,000 8.25 11.25 8.25 9.7 Years
Henry P. Cincere August 3, 1993 8,334 8.25 10.50 8.25 7.6 Years
8,334 8.25 10.13 8.25 7.4 Years
Charles P. Harris August 3, 1993 16,667 8.25 9.19 8.25 8.3 Years
</TABLE>
69
<PAGE> 71
COMPENSATION OF DIRECTORS
Each director who is also an officer of Holdings receives no
additional compensation for service on the Board or on any committee of the
Board. Directors who are not also officers of Holdings receive an annual
retainer of $10,000, payable quarterly, in addition to $1,000 plus expenses for
each meeting of the Board which they attend.
EMPLOYMENT CONTRACTS
The Company has letter agreements providing severance arrangements for
Messrs. Barbieri and Hanson. Under each agreement, involuntary termination of
the employee without cause or elimination of the employee's position will
result in the employee's right to receive his normal base salary for one year,
plus one month's pay for each full year of completed service by the employee.
In addition, the above severance arrangement also applies to the employee if
the employee is forced to resign as a result of actions taken by the Company
which constitute good cause on employee's part for this termination, i.e., a
significant reduction in salary or a significant reduction in responsibilities.
The agreements do not define what is "cause for termination," "significant
reduction in salary" or a "significant reduction in responsibilities."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1993 the Board's Compensation Committee was composed of Patrick
J. Welsh, Bruce K. Anderson and George L. McTavish. Mr. Anderson is a former
Chairman of the Board, and Mr. McTavish is the current Chairman and Chief
Executive Officer of Holdings. Messrs. Welsh and Anderson are general partners
of the sole general partner of each of WCAS IV, Venture Partners and Capital
Partners, which are collectively the largest stockholder of Holdings. WCAS IV,
Venture Partners and Capital Partners are affiliates of WCAS.
- ----------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
All outstanding shares of the capital stock of the Company are held by
Holdings. The following table sets forth as of March 15, 1994 certain
information with respect to the shares of Common Stock of Holdings beneficially
owned by stockholders known to Holdings to own beneficially more than 5% of the
shares of such class and the shares of Common Stock beneficially owned by the
Company's directors and Named Executive Officers and by all of its executive
officers and directors as a group. The shares listed below and the percentage
of ownership for each person named below have been calculated assuming that all
outstanding shares of Preferred Stock have been converted into shares of
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<PAGE> 72
Common Stock and that all presently exercisable options and options that will
become exercisable within 60 days from the date hereof, that have been issued
pursuant to the Comdata Holdings Corporation Restricted Stock purchase Plan,
have been exercised.
71
<PAGE> 73
<TABLE>
<CAPTION>
Shares of
Common Stock
Name and Address of Beneficially Percent
Beneficial Owners (a) Owned of Class
- ------------------- ------------ --------
<S> <C> <C>
Welsh, Carson, Anderson & 2,889,840 (c) 9.0%
Stowe IV (b)
One World Financial Center
200 Liberty Street, Suite 3601
New York, New York 10281
WCAS Venture Partners (b) 75,000 .2%
One World Financial Center
200 Liberty Street, Suite 3601
New York, New York 10281
WCAS Capital Partners, L.P. (b) 5,655,127 (d) 17.7%
One World Financial Center
200 Liberty Street, Suite 10281
New York, new York 10281
New York Life Insurance Company 2,530,958 (e) 7.9%
51 Madison Avenue, Room 203
New York, New York 10010
New York Life Insurance and 2,530,958 (f) 7.9%
Annuity Corporation
51 Madison Avenue, Room 203
New York, New York 10010
Northwestern Mutual Life 2,274,450 (g) 7.1%
Insurance Company
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Prudential Venture 1,500,905 (h) 4.7%
Partners II (i)
717 Fifth Avenue
New York, New York 10022
Advanced Telecommunications 1,822,020 (i)(j) 5.7%
Corporation
945 East Paces Ferry Road,
Suite 2100
Atlanta, Georgia 30326
Charterhouse Equity Partners, L.P. 3,848,966 (k) 12.0%
535 Madison Avenue
New York, New York 10022
Bruce K. Anderson (b) 8,668,209 (c)(d)(l) 27.1%
Patrick J. Welsh (b) 8,668,209 (c)(d)(m) 27.1%
Dana J. O'Brien (n) 1,500,905 (n) 4.7%
</TABLE>
72
<PAGE> 74
<TABLE>
<CAPTION>
Shares of
Common Stock
Name and Address of Beneficially Percent
Beneficial Owners (a) Owned of Class
- ------------------- ------------ --------
<S> <C> <C>
George L. McTavish 283,334 0.9%
Edward A. Barbieri 28,334 0.1%
Dennis R. Hanson 25,000 0.1%
Henry P. Cincere 30,840 0.1%
Charles P. Harris 1,667 *
Michael Czwornog 5,334 *
Peter D. Voysey 4,666 *
Louis P. Buglioli - -
Stephen E. Raville - -
Phyllis Haberman (o) 3,848,966 (k) 12.0%
All directors and executive
officers as a group
(13 persons) (p) 475,659 1.5%
</TABLE>
- ----------------
* Less than 0.1%
(a) Except as otherwise noted below, the persons named in the table have
sole voting powers and investment power with respect to all shares set
forth in the table.
(b) WCAS IV, Venture Partners and Capital Partners are affiliates of WCAS.
Messrs. Anderson and Welsh, directors of Holdings, may be deemed to
own beneficially the shares of Common Stock owned by WCAS IV, Venture
Partners and Capital Partners because they are general partners of the
sole general partner of each of WCAS IV, Venture Partners and Capital
Partners. The shares listed opposite the names of Messrs. Anderson
and Welsh include shares owned or, upon conversion of shares of
Preferred Stock, will be owned, by WCAS IV, Venture Partners and
Capital Partners, respectively.
(c) Includes the shares of Common Stock issuable upon conversion of the
12,525 shares of Series C Convertible Preferred Stock owned by WCAS IV
and accrued dividends thereon through March 15, 1994.
(d) Includes the shares of Common Stock issuable upon conversion of the
254,999 shares of Series B Convertible Preferred Stock owned by
Capital Partners and accrued dividends thereon through March 15, 1994.
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<PAGE> 75
(e) Includes the shares of Common Stock issuable upon conversion of the
96,901 shares of Series B Convertible Preferred Stock owned by New
York Life Insurance Company and accrued dividends thereon through
March 15, 1994. New York Life Insurance Company controls New York
Life Insurance and Annuity Corporation and may be deemed to own
beneficially the securities held by it.
(f) Includes the shares of Common Stock issuable upon conversion of the
96,901 shares of Series B Convertible Preferred Stock owned by New
York Life Insurance and Annuity Corporation and accrued dividends
thereon through March 15, 1994.
(g) Includes the shares of Common Stock issuable upon conversion of the
103,024 shares of Series B Convertible Preferred Stock owned by
Northwestern Mutual Life Insurance Company and accrued dividends
thereon through March 15, 1994.
(h) Includes the shares of Common Stock issuable upon conversion of the
20,200 shares of Series C Convertible Preferred Stock owned by PVP and
accrued dividends thereon through March 15, 1994.
(i) Includes the shares of Common Stock issuable upon conversion of the
666,086 shares of Series A Convertible Preferred Stock owned by ATC as
of March 15, 1994
(j) Includes the shares of Common Stock issuable upon conversion of the
7,500 shares of Series C Convertible Preferred Stock owned by ATC and
accrued dividends thereon through March 15, 1994.
(k) Includes the shares of Common Stock issuable upon conversion of the
199,462 shares of Series C Convertible Preferred Stock owned by
Charterhouse and accrued dividends thereon through March 15, 1994.
(l) Includes the shares of Common Stock issuable upon conversion of the
2,500 shares of Series C Convertible Preferred Stock owned by Mr.
Anderson and accrued dividends thereon through March 15, 1994.
(m) Includes the shares of Common Stock issuable upon conversion of the
2,500 shares of Series C Convertible Preferred Stock owned by Mr.
Welsh and accrued dividends thereon through March 15, 1994.
(n) Mr. O'Brien may be deemed to own beneficially the shares of Common
Stock owned by or issuable to PVP because he is a Vice President of
the sole general partner of PVP. The shares listed opposite Mr.
O'Brien's name are owned by or issuable to PVP.
(o) Ms. Haberman may be deemed to own beneficially the shares of Common
Stock issuable to Charterhouse, because Ms. Haberman is a Vice
President of Charterhouse.
(p) The shares beneficially owned by WCAS IV, Venture Partners, Capital
Partners, PVP and Charterhouse, which are deemed to be beneficially
owned by Messrs. Anderson, Welsh, O'Brien, and Ms. Haberman,
respectively, are not included in shares owned by all directors and
executive officers as a group.
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<PAGE> 76
ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS
In March 1990, Holdings sold 148,148 shares of Common Stock to WCAS IV
and 1,111,111 shares to Common Stock to PVP, pursuant to the Common Stock
Purchase Agreement dated as of March 9, 1990 (the "Common Stock Purchase
Agreement"). Messrs. Anderson and Welsh, who are directors of Holdings, are
general partners of the sole general partner of WCAS IV. WCAS IV, Venture
Partners and Capital Partners are affiliates of WCAS and are engaged in venture
capital investing and acquisitions. WCAS IV, Venture Partners, Capital
Partners and certain general partners of WCAS are collectively the largest
stockholder of Holdings, beneficially owning 27.1% of the outstanding shares of
Common Stock on a fully diluted basis.
Pursuant to the Common Stock Purchase Agreement and subject to certain
conditions, Holdings has agreed to use its best efforts to nominate and to
cause to be elected to the Board of Directors of Holdings one individual
nominated by PVP. WCAS IV and Capital Partners have agreed, under certain
conditions, to vote their respective shares of Common Stock to cause such
nominee to be so elected. Mr. O'Brien is the nominee of PVP to the Board of
Directors of the Company.
In connection with the Acquisition, the Company issued a total of
$62.3 million of Junior Notes, of which $25.0 million was issued to Capital
Partners. In June 1992, Capital Partners exchanged $4.1 million aggregate
principal amount of Junior Notes, with a book value of approximately $3.5
million net of related discount and issuance costs, for 140,000 shares of
Series B Preferred Stock, having a stated price and liquidation value of $3.5
million. The remaining $20.9 million aggregate principal amount of Junior
Notes held by Capital Partners was exchanged pursuant to the recapitalization
of the Company on December 29, 1992, and the terms of the Series B Preferred
Stock issued to Capital Partners in June 1992 was modified to reflect the terms
negotiated with the other holders of the Junior Notes, including the issuance
of additional shares to reflect an exchange price of 102% of the principal
amount originally held.
Also in connection with the recapitalization, WCAS IV and PVP
purchased an aggregate 50,500 shares of Series C Preferred Stock.
In September and October 1991, ATC purchased an aggregate 560,000
shares of Series A Preferred Stock at a price per share of $25 or an aggregate
purchase price of $14.0 million. Concurrently with the purchase of the Series
A Preferred Stock by ATC, Comdata entered into a Services Agreement with ATC
pursuant to which ATC provides long distance telecommunications services to the
Company and its affiliates. This agreement expires on January 22, 1999 and
provides that the Company will purchase a
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<PAGE> 77
minimum $7.75 million of service for each year after the first year. This
agreement also provided that the Company pay a monthly service fee equal to
$34,000 through December 1992.
Commencing in the fourth quarter of 1991, Benton International, Inc.
("Benton") has rendered certain consulting services to the Company. The
Company had paid approximately 508,000 to Benton in connection with such
services. Louis P. Buglioli, a director of the Company and Holdings, is
President of Benton.
In August 1992, the Company entered into an agreement with WCAS IV,
pursuant to which WCAS IV agreed to guarantee a letter of credit on behalf of
Comdata in the amount of $8.7 million. The letter of credit was issued in favor
of an insurance company that had previously issued bonds required by certain
state regulatory authorities to support the Company's funds transfer business
in those states. Comdata agreed to pay a fee of 2% per year of the amount
outstanding under this letter of credit to an affiliate of WCAS IV for
arranging the letter of credit. During 1992, $66,000 in such fees were
incurred. The letter of credit guaranteed by WCAS IV was replaced by a letter
of credit issued under the new revolving credit facility upon completion of the
recapitalization in December 1992.
On June 30, 1992, the assets of the Citicorp Establishment Services
division, which provided services to the Company with regard to settlement of
MasterCard and Visa transactions until May 1993, were acquired by Card
Establishment Services, Inc. ("CES"), an affiliate of WCAS and PVP. During
1993 and the last six months of 1992, the Company paid CES approximately
$346,000 and $397,000, respectively, for these services, with such charges
being reported as a reduction of the related revenue earned by the Company.
During 1993, the Company purchase data processing equipment and
computer software at a cost of approximately $3.3 million from Broadway &
Seymour, Inc., an affiliate of WCAS IV.
The transactions described above with PVP, ATC, and CES were
negotiated on an arm's-length basis at a time when such parties were not
affiliated with the Company. In the judgement of the Company's Board of
Directors, the terms of the other transactions described above are fair and
reasonable and are not less favorable to the Company than those that could have
been obtained from independent third parties.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------
(a) 1. Financial Statements
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<PAGE> 78
The following consolidated financial statements of Comdata Holdings
Corporation and Comdata Network, Inc. are included herein:
Report of Arthur Andersen & Co., Independent Public Accountants
Consolidated Balance Sheets - as of December 31, 1993 and 1992
Consolidated Statements of Operation - for the years ended December 31,
1993, 1992 and 1991
Consolidated Statements of Stockholders' Equity - for the years ended
December 31, 1993, 1992 and 1991
Consolidated Statements of Cash Flows - for the years ended December
31, 1993, 1992 and 1991
Notes to Consolidated financial statements
(a) 2. Financial Statement Schedules
The following consolidated financial statement schedules are included
herein:
Schedule II - Amounts Receivable from Related Parties, Underwriters,
Promoters and Employees other than Related Parties
Schedule V - Property and Equipment
Schedule VI - Accumulated Depreciation of Property and Equipment
Schedule VIII - Valuation and Qualifying Accounts
Schedule X - Supplementary Income Statement Information
Schedules not listed above have been omitted because they are not
required, inapplicable or the required information has been given in the
financial statements or notes thereto.
(a) 3. Exhibits
The following exhibits are included herein or incorporated by
reference as indicated. Exhibit numbers refer to Item 601 of Regulation S-K.
77
<PAGE> 79
Exhibit
Number Description
- ------ -----------
3.1 Certificate of Incorporation of Comdata
Holdings Corporation (incorporated by reference to Exhibit 3.1
to Registration Statement No. 33-14332).
3.2 By-laws of Comdata Holdings Corporation
(incorporated by reference to Exhibit 3.2 to Registration
Statement No. 33-14332).
3.3 Articles of Incorporation of Comdata Network,
Inc. (incorporated by reference to Exhibit 3.3 to registrants'
Annual Report on Form 10-K for fiscal year 1987).
3.4 By-laws of Comdata Network, Inc. (incorporated
by reference to Exhibit 3.4 to registrants' Annual Report on
Form 10-K for fiscal 1987).
3.5 Certificate of Amendment to Certificate of
Incorporation of Comdata Holdings Corporation (incorporated by
reference to Exhibit 3.5 to Registration Statement No. 33-37172).
3.6 Certificate of Designations, Preferences and
Rights of Series A Convertible Preferred Stock of Comdata
Holdings Corporation (incorporated by reference to Exhibit 3.6
to registrants' Annual Report on Form 10-K for fiscal year 1991).
3.7 Certificate of Designations, Preferences and
Rights of Series B Convertible Preferred Stock of Comdata
Holdings Corporation (incorporated by reference to Exhibit 1 to
registrants' Report on Form 8-K filed July 6, 1992).
3.8 Certificate of Amendment to Certificate of
Incorporation of Comdata Holdings Corporation filed with the
Secretary of State of Delaware on July 21, 1992 (incorporated by
reference to Exhibit 3.8 to Registration Statement No. 33-52018).
3.9 Certificate of Amendment to Certificate of
Designations, Preferences and Rights of Series B Convertible
Preferred Stock of Comdata Holdings Corporation filed with the
Secretary of State of Delaware on August 14, 1992 (incorporated
by reference to Exhibit 3.9 to Registration Statement
No. 33-52018).
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<PAGE> 80
3.10 Form of Amended and Restated Certificate of
Designations, Preferences and Rights of Series A,
Series B and Series C Convertible Preferred Stock of Comdata
Holdings Corporation (incorporated by reference to Exhibit 3.10
to Registration Statement No. 33-52018).
4.1 Indenture dated December 29, 1992 among Comdata
Network, Inc., Comdata Holdings Corporation and IBJ Schroder
Bank & Trust Company, as Trustee, relating to the 12 1/2% Senior
Notes due 1999 (incorporated by reference to Exhibit 4.1 to
Registrants' Annual Report on Form 10-K for fiscal year 1992).
4.2 Indenture dated December 29, 1992 among Comdata
Network, Inc., Comdata Holdings Corporation and Fidelity Bank,
National Association, as Trustee, relating to the 13 1/4% Senior
Subordinated Debentures due 2002 (incorporated by reference to
Exhibit 4.2 to Registrants' Annual Report on Form 10-K for
fiscal year 1992).
4.3 Indenture, dated as of September 1, 1987, among
CMD Subsidiary Corporation, Comdata Holdings Corporation and
Commerce Union Bank, as Trustee, relating to the 13 1/2% Senior
Subordinated Discount Notes due 1995 assumed by Comdata Network,
Inc. (incorporated by reference to Exhibit 4.1 to Registration
Statement No. 33-16103).
4.4 First Supplemental Indenture to the Indenture,
dated as of September 1, 1987, between Comdata Network, Inc. and
Commerce Union Bank, as Trustee (incorporated by reference to
Exhibit 4.3 to Registration Statement No. 33-16103).
4.5 Indenture, dated as of September 1, 1987, among
CMD Subsidiary Corporation, Comdata Holdings Corporation and
Third National Bank in Nashville, as Trustee, relating to the
13 3/4% Subordinated Debentures due 1997 assumed by Comdata
Network, Inc. (incorporated by reference to Exhibit 4.2 to
Registration Statement No. 33-16103).
4.6 First Supplemental Indenture to the Indenture,
dated as of September 1, 1987, between Comdata Network, Inc. and
Third National Bank in Nashville, as Trustee (incorporated by
reference to Exhibit 4.4 to Registration Statement No. 33-16103).
4.7 Indenture, dated as of September 1, 1987, among
CMD Subsidiary Corporation, Comdata Holdings Corporation and
United States Trust Company of New York, as Trustee, relating to
the 11% Junior Subordinated Extendible Notes due 1997
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<PAGE> 81
assumed by Comdata Network, Inc. (incorporated by reference to
Exhibit 4.1 to Registration Statement No. 33-14332).
9 Letter, dated March 9, 1990, from Welsh,
Carson, Anderson & Stowe IV and WCAS Capital Partners to certain
purchasers under the Common Stock Purchase Agreement referred to
in Exhibit 10.12 (incorporated by reference to Exhibit 9 to
Registration Statement No. 33-37172).
10.1 Amended and Restated Common Stock and Note
Purchase Agreement dated as of May 6, 1987 among Comdata
Holdings Corporation, CMD Subsidiary Corporation and Welsh,
Carson, Anderson & Stowe IV, as amended (incorporated by
reference to Exhibit 10.1 to Registration Statement No. 33-14332).
10.2 Registration Rights Agreement dated March 23,
1987 between Welsh, Carson, Anderson & Stowe IV and CMD
Subsidiary Corporation (incorporated by reference to Exhibit
10.2 to Registration Statement No. 33-14332).
10.3 Form of Subscription Agreement (incorporated by
reference to Exhibit 1 to Amendment No. 1 to Registration
Statement No. 33-14332).
10.4 Revolving Credit Agreement dated as of
September 4, 1987, as amended, among CMD Subsidiary Corporation,
Comdata Holdings Corporation, The First National Bank of Boston,
First American National Bank of Nashville, The Citizens Fidelity
Bank & Trust Company, as banks, and The First National Bank of
Boston and First American National Bank of Nashville, as
co-agents (incorporated by reference to Exhibit 10.4 to
registrants' Annual Report on Form 10-K for fiscal year 1987).
10.5 Agreement, dated September 11, 1989, between
Comdata Network, Inc. and Citicorp Credit Services, Inc.
(incorporated by reference to Exhibit 10(a) to the registrants'
Annual Report on Form 10-K for fiscal year 1989).
10.6 Purchase Agreement for two mainframe computer
processors between Comdata Network, Inc. and National Advance
Systems Corporation, dated May 21, 1985 (incorporated by
reference to Exhibit 10(c) to the registrants' Annual Report on
Form 10-K for fiscal year 1985).
80
<PAGE> 82
10.7 Lease Agreement for computer hardware and
software between Comdata Network, Inc. and Pan American Systems,
Inc. (incorporated by reference to Exhibit 10(f) to the
registrants' Annual Report on Form 10-K for fiscal year 1985).
10.8 Comdata Holdings Corporation Stock Option and
Restricted Stock Purchase Plan (incorporated by reference to
Exhibit 10.8 to registrants' Registration Statement No. 33-30618).
10.9 Lease Agreement dated November 29, 1988, as
amended, by and between Comdata Network, Inc. and Eakin & Smith,
Inc. (incorporated by reference to Exhibit 10.9 to registrants'
Annual Report on Form 10-K for fiscal year 1988).
10.10 Purchase Agreement, dated as of June 30, 1989,
by and between Comdata Network, Inc. and First Data Resources,
Inc. (incorporated by reference to Exhibit 1 to registrants'
Report on Form 8-K filed July 14, 1989).
10.11 Common Stock Purchase Agreement, dated as of
March 9, 1990, among Comdata Holdings Corporation and the
several purchasers named in Schedule 1 thereto (incorporated by
reference to Exhibit 1 to registrants' Report on Form 8-K filed
March 16, 1990).
10.12 Registration Rights Agreement, dated as of
March 9, 1990, among Comdata Holdings Corporation and the
purchasers named in Schedule I to the Common Stock Purchase
Agreement referred to in Exhibit 10.12 (incorporated by
reference to Exhibit 2 to registrants' Report on Form 8-K filed
March 16, 1990).
10.13 Amendment No. 1, dated as of June 30, 1990, to
the Noncompete Agreement, dated as of June 30, 1989, among
Comdata Network, Inc., First Data Resources, Inc. and American
Express Information Services Company (incorporated by reference
to Exhibit 1 to registrants' Report on Form 8-K filed July 12,
1990).
10.14 First Amendment, dated as of June 29, 1990, to
the Subordination Agreement, dated as of June 30, 1989, among
the first National Bank of Boston, as agent for itself and
certain other financial institutions. First Data Resources,
81
<PAGE> 83
Inc., American Express Information Services Company, Comdata
Network, Inc., CDN Services, Inc., and Comdata Subsidiary
Corp. (incorporated by reference to Exhibit 3 to registrants'
Report on Form 8-K filed July 12, 1990).
10.15 Sales, Marketing and Operations Agreement,
dated as of July 1, 1991, between PCI, Inc. and Comdata Network,
Inc. (incorporated by reference to Exhibit 10.18 to registrants'
Annual Report on Form 10-K for fiscal year 1991).
10.16 Telecommunications Services Agreement dated as
of August 30, 1991, between Advanced Telecommunications
Corporation and Comdata Network, Inc. (incorporated by reference
to Exhibit 10.20 to registrants' Annual Report on Form 10-K for
fiscal year 1991).
10.17 Preferred Stock Purchase Agreement, dated as of
September 6, 1991, between Comdata Holdings Corporation and
Advanced Telecommunications Corporation (incorporated by
reference to Exhibit 1 to registrants' Report on Form 8-K filed
November 1, 1991).
10.18 Registration Rights Agreement, dated as of
September 6, 1991, between Comdata Holdings Corporation and
Advanced Telecommunications Corporation (incorporated by
reference to Exhibit 2 to registrants' Report on Form 8-K filed
November 1, 1991).
10.19 Agreement for Systems Operations Services,
dated as of September 6, 1991, between Comdata Network, Inc. and
Integrated Systems Solution Corporation
(incorporated by reference to Exhibit 10.23 to registrants'
Annual Report on Form 10-K for fiscal year 1991).
10.20 Stock Purchase Agreement, dated as of December
30, 1991, among Larry Babins, Paul St. Pierre, Comdata Holdings
Corporation, and Comdata Network, Inc. (incorporated by
reference to Exhibit 10.24 to registrants' Annual Report on Form
10-K for fiscal year 1991).
10.21 Stock Purchase Agreement, dated as of December
30, 1991, among Marlene St. Pierre, Chantal St. Pierre, Jennifer
St. Pierre, Janice Babins, and The Babins Family Trust
(incorporated by reference to Exhibit 10.25 to registrants'
82
<PAGE> 84
Annual Report on Form 10-K for fiscal year 1991).
10.22 Series B Preferred Stock Purchase Agreement,
dated as of June 30, 1992, between Comdata Holdings Corporation
and WCAS Capital Partners, L.P. (incorporated by reference to
Exhibit 1 to registrants' Report on Form 8-K filed July 6, 1992).
10.23 Registration Rights Agreement dated as of June
30, 1992, between Comdata Holdings Corporation and WCAS Capital
Partners, L.P. (incorporated by reference to Exhibit 2 to
registrants' Report on Form 8-K filed July 6, 1992).
10.24 Letter Agreement, dated August 14, 1992, among
Welsh, Carson, Anderson & Stowe IV, Comdata Holdings Corporation
and Comdata Network, Inc (incorporated by reference to Exhibit
10.31 to Registration Statement No. 33-52018).
10.25 Registration Rights Agreement, dated August 14,
1992, among Comdata Holdings Corporation, WCAS Capital Partners,
L.P. and Welsh, Carson, Anderson & Stowe IV (incorporated by
reference to Exhibit 10.25 to Registration Statement No.
33-52018).
10.26 Letter Agreement, dated August 14, 1992, among
Comdata Holdings Corporation, Comdata Network, Inc. and WCA
Management Corporation (incorporated by reference to Exhibit
10.26 to Registration Statement No. 33-52018).
10.27 Subscription and Exchange Agreement, dated as
of December 29, 1992, among Comdata Holdings Corporation,
Comdata Network, Inc. and the several persons named in Annex I
thereto (incorporated by reference to Exhibit 3 to Registrants'
Report on Form 8-K filed January 13, 1993).
10.28 Preferred Stock Purchase Agreement, dated as of
December 29, 1992, among Comdata Holdings Corporation and the
Purchasers listed on Schedule I thereto (incorporated by
reference to Exhibit 2 to Registrants' Report on Form 8-K filed
January 13, 1993).
10.29 Registration Rights Agreement, dated as of
December 29, 1992, among Comdata Holdings Corporation and each
of the persons named on Annex A thereto (incorporated by
reference to
83
<PAGE> 85
Exhibit 4 to Registrants' Report on Form 8-K filed January 13,
1993).
10.30 Credit Agreement, dated as of December 29,
1992, among Comdata Network, Inc., the financial institution's
signatory thereto, BT Commercial Corporation and Banque Indosuez,
New York Branch, as Agents and Bankers Trust Company, as Issuing
Bank (incorporated by reference to Exhibit 1 to Registrant's
Report on Form 8-K filed January 13, 1993).
10.31 Agreement, dated as of December 8, 1992,
between PCI, Inc. and Comdata Network, Inc (incorporated by
reference to Exhibit 10.31 to Registration Statement No.
33-52018).
10.32 Form of letter agreement from WCAS Capital
Partners, L.P. and Welsh, Carson, Anderson & Stowe IV to each of
the parties listed on Annex I thereto (incorporated by reference
to Exhibit 10.32 to Registration Statement No. 33-52018).
10.33 Stock Purchase Agreement, dated as of November 11, 1993, between
the Shareholders of Saunders, Inc. and Comdata Holdings
Corporation.
10.34 Assignment of Stock Purchase Agreement (Exhibit 10.33), dated as
of November 11, 1993, by Comdata Holdings Corporation to Comdata
Network, Inc.
10.35 Asset Purchase Agreement, dated as of February 23, 1994, among
RoTec - The Routing Technology Company, as Seller; Ronald J.
Dombrowski, Korf E. Penzien, David J. Ross, Steven T. Brown,
Ebrahim Airana, as Partners; and Comdata Network, Inc., as Buyer.
10.36 Comdata Holdings Corporation Stock Option and Restricted Stock
Purchase Plan, As Amended 10/25/93.
21 List of Subsidiaries of Comdata Holdings Corporation and Comdata
Network, Inc.
23 Consent of independent public accountants.
(b) Reports on Form 8-K filed during the last quarter of the fiscal
year ended December 31, 1993:
None.
84
<PAGE> 86
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, each Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COMDATA HOLDINGS CORPORATION
By /s/ George L. McTavish
------------------------------------
Chairman and Chief Executive Officer
Date: March 30, 1994
COMDATA NETWORK, INC.
By /s/ George L. McTavish
------------------------------------
Chairman and Chief Executive Officer
Date: March 30, 1994
85
<PAGE> 87
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of each Registrant and in the capacities and on the dates
indicated:
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
Chairman, Chief March 30, 1994
- -------------------------- Executive Officer, and
George L. McTavish Director (Principal
Executive Officer)
President, Chief March 30, 1994
- -------------------------- Operating Officer and
Edward A. Barbieri Director
Executive Vice President, March 30, 1994
- -------------------------- Chief Financial Officer
Dennis R. Hanson and Director (Principal
Financial and Accounting
Officer)
- -------------------------- Director March 30, 1994
Bruce K. Anderson
- -------------------------- Director March 30, 1994
Patrick J. Welsh
- -------------------------- Director March 30, 1994
Dana J. O'Brien
- -------------------------- Director March 30, 1994
Louis P. Buglioli
- -------------------------- Director March 30, 1994
Stephen E. Raville
- -------------------------- Director March 30, 1994
Phyllis Haberman
</TABLE>
86
<PAGE> 1
EXHIBIT 10.33
<PAGE> 2
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
THE SHAREHOLDERS OF SAUNDERS, INC.
AND
COMDATA HOLDINGS CORPORATION
DATED AS OF NOVEMBER 11, 1993
<PAGE> 3
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C>
ARTICLE I - PURCHASE AND SALE OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01. Transfer of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.01. Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.02. Payment of Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.03. Adjustment to Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.04. Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE III - CLOSING; OBLIGATIONS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . 11
3.01. Closing Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.02. Obligations of the Parties at the Closing. . . . . . . . . . . . . . . . . . . . 11
ARTICLE IV - REPRESENTATIONS AND WARRANTIES BY SELLERS . . . . . . . . . . . . . . . . . . . . . 13
4.01. Ownership of Shares; Validity and
Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.02. Organization, Good Standing and
Qualification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.03. Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.04. No Violation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.05. Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.06. Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.07. Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.08. Title to Properties; Encumbrances. . . . . . . . . . . . . . . . . . . . . . . . 19
4.09. Trademarks, Patents, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.10. No Undisclosed Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.11. Absence of Certain Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.12. Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.13. Compliance with Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . . 25
4.14. Absence of Questionable Payments. . . . . . . . . . . . . . . . . . . . . . . . 26
4.15. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.16. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.17. Product and Service Warranties. . . . . . . . . . . . . . . . . . . . . . . . . 27
4.18. Employees and Fringe Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . 27
4.19. Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.20. Contracts and Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.21. Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.22. Volume of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.23. Customers and Suppliers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.24. Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.25. No Breach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.26. Professional Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.27 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.28. Corporate Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.29. Full Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE V - REPRESENTATIONS AND WARRANTIES BY BUYER . . . . . . . . . . . . . . . . . . . . . . . 37
5.01. Organization and Good Standing. . . . . . . . . . . . . . . . . . . . . . . . . 37
5.02. Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.03. Valid and Binding Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.04. No Violation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.05. Professional Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.06. Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.07. Full Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VI - COVENANTS AND AGREEMENTS OF SELLERS . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.01. Conduct of Business Pending the Closing. . . . . . . . . . . . . . . . . . . . . . 39
6.02. Access; Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.03. Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.04. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.05. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.06. Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.07. Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.08. Non-Competition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE VII - COVENANTS AND AGREEMENTS OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.01. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.02 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE VIII - CONDITIONS TO BUYER'S OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.01. Representations and Warranties True;
Obligations Performed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.02. Operating Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.03. Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.04. Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.05. Assets and Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.06. Opinion of Counsel for Sellers. . . . . . . . . . . . . . . . . . . . . . . . . . 49
8.07. Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
8.08. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
8.09. Maximum Reduction of Purchase Price under
Certain Sections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
8.10. Consent of Senior Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE IX - CONDITIONS TO SELLERS' OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.01. Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.02. Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.03. Officer's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.04. Opinion of Counsel for Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.05. Maximum Reduction of Purchase Price Under
Certain Sections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE X - INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
10.01. Indemnification by Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
10.02. Indemnification by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
10.03. Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
10.04. Buyer's Remedy of Offset Against Escrow
Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
10.05 Indemnification in Certain Cases . . . . . . . . . . . . . . . . . . . . . . . . . 58
ARTICLE XI - SURVIVAL OF REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
11.01. Survival of Representations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
11.02. Statements as Representations. . . . . . . . . . . . . . . . . . . . . . . . . . . 60
11.03. Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
ARTICLE XII - TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
12.01. Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
12.02. Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
12.03. Specific Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
ARTICLE XIII - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
13.01. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
13.02. Assignability; Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . 64
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
13.03. Entire Agreement; Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . 64
13.04. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
13.05. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
13.06. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
13.07. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
13.08. Birmingham Office Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
13.09. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
EXHIBITS
A - Escrow Note
B - Termination Note
C - SouthTrust Escrow Agreement
</TABLE>
<PAGE> 6
STOCK PURCHASE AGREEMENT
This agreement (the "Agreement") is made and entered into this 11th
day of November, 1993, by and between Comdata Holdings Corporation, a Delaware
corporation having its principal place of business in Brentwood, Tennessee
("Buyer"), and the signatories to the Signature Annex attached hereto
(individually, a "Seller" and collectively, "Sellers").
WHEREAS, Buyer and Saunders, Inc., a Delaware corporation (the
"Company"), are each engaged in, and therefore are knowledgeable respecting,
the business of furnishing financial and other services to the trucking
industry,
WHEREAS, Sellers will at the Closing (as hereinafter defined) own all
of the issued and outstanding shares of the Company, and
WHEREAS, Buyer desires to acquire from Sellers, and Sellers desire to
sell to Buyer, all of the issued and outstanding shares of the capital stock of
the Company upon and subject to the terms and conditions contained in this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements herein contained, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
1.01. TRANSFER OF SHARES. Subject to all of the terms and
conditions of this Agreement, at the Closing, Sellers hereby agree to sell,
transfer and convey to Buyer, and Buyer agrees to purchase and acquire from
Sellers, free and clear of all liens, claims, charges, restrictions, security
interests, equities, proxies, pledges and encumbrances of any kind, 913,250
shares of the common
<PAGE> 7
stock, $.10 par value per share, 425,000 shares of the Series A convertible
preferred stock, $.01 par value per share, and 1,784,998 shares of the Series B
convertible preferred stock, $.01 par value per share, of the Company, which
constitute all of the issued and outstanding shares of the capital stock of the
Company (the foregoing shares of the Company are hereinafter collectively
referred to as the "Shares").
ARTICLE II
CONSIDERATION
2.01. PURCHASE PRICE. Subject to adjustment, if any, as provided in
Section 2.03 of this Agreement, the Purchase Price for the Shares shall be (a)
$10,100,000 cash and (b) a $1,000,000 promissory note of Buyer issued and
delivered in accordance with Section 2.02(i) hereof (such price, as adjusted
pursuant to Section 2.03 of this Agreement, being herein referred to as the
"Purchase Price").
2.02. PAYMENT OF PURCHASE PRICE. (a) At the Closing and based upon
written instructions from the Agents (as defined below) received by Buyer at
least two business days prior to Closing, the Buyer shall pay the cash portion
of the Purchase Price to the Sellers as follows: (i) the Buyer shall make
wire transfers to the holders of all outstanding debt of the Company, issued
pursuant to written loan agreements or promissory notes, in the then
outstanding principal amount of such debt (as confirmed in writing by the
holders thereof) plus accrued interest; (ii) the Buyer shall deliver checks in
amounts and for the accounts of those persons designated by the Company to pay
officer severance or other costs,
2
<PAGE> 8
which checks shall be delivered to the Agents for distribution to the
appropriate officers; (iii) the Buyer, acting upon instructions of the Agents,
shall make such payments to such other creditors of the Company and shall
satisfy such other obligations of the Company as shall be necessary to cause
the Net Assets of the Company (as defined below) as of midnight on the last day
preceding the Closing Date (as defined below), after giving effect to the
payments described in (i), (ii) and (iii) of this Section 2.02(a), to be
$125,000; and (iv) the Buyer shall make a final wire transfer to an account
designated by the Agents in an amount equal to the balance of the cash portion
of the Purchase Price. The Net Assets of the Company shall be determined on
the basis of the balance sheet of the Company on the last day of the month
immediately preceding the Closing Date, subject to adjustment in the manner set
forth in Section 2.02(b) below.
(b) Upon receipt of their wire transfer described in Section
2.02(a)(iv) above, the Agents shall then immediately: (i) withhold from the
cash portion of the Purchase Price amounts for the payments of fees and
expenses pursuant to Section 2.04(a) of this Agreement plus $300,000 (such
$300,000 being hereinafter referred to as the "Closing Balance Sheet Escrow");
and (ii) deliver to each Seller the balance of that Seller's portion of the
cash portion of the Purchase Price. The Agents shall hold the Closing Balance
Sheet Escrow pending a determination of the Final Closing Balance Sheet of the
Company (as defined below).
(c) Pursuant to the preparation of the Closing Balance Sheet
(as discussed in Section 2.02(e)), the Agents shall immediately on signing of
the Agreement engage Deloitte & Touche
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("Deloitte") to prepare an audit of the Current Assets and Current Liabilities
of the Company as of 12:00 midnight on the last day preceding the Closing Date,
prepared in accordance with generally accepted accounting principles, on a
basis consistent with past practices and after giving effect to payments made
pursuant to Section 2.02(a)(i), 2.02(a)(ii), and 2.02(a)(iii) above (the
"Current Account Audit"). Sellers and Buyer shall each pay 50% of the fees and
expenses of Deloitte relative to preparation of such Current Account Audit.
(d) Following the Closing, Mr. Boyd E. Jordan and the
existing accounting personnel of the Company who are presently responsible for
administering the current records of the Company shall be made available to
Deloitte for purposes of assisting Deloitte in preparing the Closing Balance
Sheet and Final Closing Balance Sheet of the Company (as defined below).
(e) Within 60 days of the Closing Date, Deloitte shall
compile and deliver to the Buyer and the Agents a Closing Balance Sheet of the
Company (the "Closing Balance Sheet") as of 12:00 midnight on the last day
preceding the Closing Date, which balance sheet shall give effect to the
payments of the liabilities of the Company made pursuant to Section 2.02(a)(i),
2.02(a)(ii) and 2.02(a)(iii) above, and shall be prepared in accordance with
generally accepted accounting principles on a basis consistent with past
practices, as long as past practices are consistent with generally accepted
accounting principles. Sellers and Buyer shall each pay 50% of the expenses of
Deloitte relative to the compilation of the Closing Balance Sheet.
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(f) Within five days following the delivery of the Closing
Balance Sheet of the Company pursuant to Section 2.02(e) above and subject to
the provisions of Section 2.03(e), the Buyer and the Agents may object to any
of the information contained in the Closing Balance Sheet of the Company. Any
such objection shall be made in writing and shall state the Buyer's or the
Agents' basis for such objection. The Buyer and the Agents shall undertake to
reach an agreement as to any matter as to which the Buyer or the Agents have
objected. In the event of a dispute or disagreement relating to the balance
sheet or the schedules which the Buyer and the Agents are unable to resolve,
all such disputes or disagreements shall be resolved by the Arbitrator pursuant
to Section 2.03(b) of this Agreement.
(g) Following resolution of all disputes, disagreements and
objections respecting the Closing Balance Sheet of the Company, Deloitte shall
prepare and deliver to Buyer and the Agents a balance sheet of the Company as
of 12:00 midnight on the last day preceding the Closing Date, giving effect to
the resolution of such disputes, disagreements and objections (the "Final
Closing Balance Sheet of the Company").
(h) Once the Final Closing Balance Sheet of the Company has
been prepared in the manner described above and if the Net Assets of the
Company equal or exceed $125,000, the Sellers' Agents shall deliver to each
Seller that Seller's portion of the Closing Balance Sheet Escrow; in the event
the Net Assets of the Company, as shown on the Closing Balance Sheet, are less
than $125,000, the Sellers' Agents shall pay such portion of the Closing
Balance Sheet Escrow as shall be necessary to cause the Net Assets to equal
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$125,000, (and the remaining shortfall, if any, shall be offset against the
Escrow Note) and the balance, if any, shall be paid to the Sellers in
accordance with each Seller's share. In the event the Net Assets of the
Company, as shown on the Closing Balance Sheet, exceed $125,000, an amount
equal to such excess shall be paid by Buyer to Sellers' Agents for immediate
distribution to Sellers.
(i) The Buyer shall pay the non-cash portion of the
Purchase Price to the Sellers by delivering to the Agents Buyer's promissory
note, which note shall be substantially in the form attached hereto as Exhibit
A and shall be in the principal amount contemplated by Sections 2.01(b) and
2.03(d) hereof (the "Escrow Note").
2.03. ADJUSTMENT TO PURCHASE PRICE.
(a) NOTIFICATION AND RESOLUTION OF EXCEPTIONS. Following
execution of this Agreement and except as provided in Section 2.03(e) hereof,
Buyer shall notify Sellers' Agents in writing if Buyer, in the reasonable and
good faith exercise of its judgment, determines that the Sellers are not in
full compliance with Sellers' obligations under the Agreement (the
"Exceptions"), and Buyer shall include in such written notice a good faith
estimate of Buyers' calculation of the dollar amount of the Exceptions. Such
written notice shall be delivered to the Agents by Buyer as soon as possible
after Buyer has reached a determination as to any Exception. After receipt of
Buyer's written notice, Buyer and the Agents shall promptly meet to discuss the
Exceptions, and shall cooperate in good faith in trying to reach agreement on
the dollar amount of such Exceptions which
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agreement, if reached, shall be set forth in a writing executed by Buyer and
the Agents; provided, however, that as of the Closing Date, Buyer and the
Agents either shall have reached an agreement as to the dollar amount of the
Exceptions and shall have set forth such agreement in a writing executed by
Buyer and the Agents or Buyer and the Agents shall have specified in a writing
executed by each of them the Exceptions as to which no agreement can be
reached. If the Agents determine that they cannot agree with Buyer on the
Exceptions, then the matter shall be submitted to arbitration as set forth
below.
(b) ARBITRATION. All claims, disputes and other matters
in question arising out of, or relating to, this Agreement, including, without
limitation, claims, disputes and other matters arising under Section 2.03(c) of
this Agreement, shall be decided by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association then in
effect. Buyer and Sellers have agreed upon the selection of KPMG Peat Marwick
(and if for any reason Peat Marwick cannot serve or chooses not to serve, then
the parties have agreed upon Price Waterhouse) (the "Arbitrator"), who shall
individually constitute the arbitration panel. The place of arbitration shall
be Birmingham, Alabama. In addition to any discovery that the parties to any
arbitration proceeding may, from time to time, agree upon, each such party
shall provide to the other the rights of: (i) production of documents and
materials, and entry upon land for inspection and other purposes accorded by
Rule 34 of the Federal Rules of Civil Procedure, and (ii) requests for
admission accorded by Rule 36 of the Federal Rules of Civil Procedure.
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The award rendered by the Arbitrator shall be final, and
judgment may be entered upon it in accordance with applicable law in any court
having jurisdiction thereof. The fees and expenses of the Arbitrator shall be
shared equally by the Buyer and the Sellers.
(c) DETERMINATION PRIOR TO CLOSING. Subject to Articles
VIII and IX hereof, if, (i) Buyer and Sellers' Agents have agreed upon the
dollar amount of the Exceptions prior to Closing, or (ii) the Arbitrator has
reached a final decision as to the dollar amount of the Exceptions prior to
Closing, then an amount equal to such dollar amount of the Exceptions shall be
reduced from the cash portion of the Purchase Price.
(d) NO DETERMINATION PRIOR TO CLOSING. If Buyer claims
that Exceptions exist as of the Closing, but, prior to Closing, the parties are
unable to agree as to the dollar amount of such Exceptions and the Arbitrator
has not reached a final decision as to the dollar amount of such Exceptions,
then, provided that the dollar amount of such claimed Exceptions by Buyer is
greater than $500,000, but less than $2,000,000, and provided, further, that
the Arbitrator has determined that all or some portion of such claimed
Exceptions, although not capable of being determined finally prior to Closing,
are sufficiently meritorious to warrant consideration by the Arbitrator after
the Closing (the "Post-Closing Exceptions"), the parties shall adjust the
Purchase Price so that the principal amount of the Escrow Note equals the sum
of (i) the dollar amount of the Post-Closing Exceptions, and (ii) $500,000, but
in no event shall the principal amount of the Escrow Note
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exceed $2,000,000. The cash portion of the Purchase Price will be decreased by
an amount equal to the increase in the Escrow Note.
(e) WAIVER OF CERTAIN PRICE ADJUSTMENTS. Buyer agrees
that it will not raise any Exceptions (other than the Company's clear title and
environmental claims) with respect to (i) the Company's furniture, fixtures and
equipment, (ii) equipment under capitalized leases (other than claims relating
to compliance with lease terms), (iii) real property, and (iv) all goodwill,
trademarks, and other assets not classified as current assets on any of the
Company's audited or unaudited balance sheets. In addition, Buyer agrees that
it will not raise any Exceptions relating to the income statement items set
forth on Schedule 2.03(e). Buyer's waiver of its right to raise the
aforementioned Exceptions applies to both pre-closing and post-closing price
adjustments.
2.04. AGENTS.
(a) Each Seller hereby irrevocably constitutes and
appoints Harris Saunders, Jr. and John Y. Williams, and each of them, as, and
the Agents hereby accept such appointment as, their agents and attorneys in
fact, with full power of substitution and revocation, to do any and all things,
and execute any and all documents on his behalf which may be necessary,
convenient or appropriate to facilitate the consummation of the transactions
contemplated by this Agreement, including, but not limited to: (i) amendments
to this Agreement, provided that no amendment shall materially adversely affect
the rights of the Sellers or materially increase the obligations of the
Sellers; (ii) extensions of the Closing Date, provided that the Closing Date
shall, in no event, be
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after December 31, 1993; (iii) waivers of the satisfaction of any of the
conditions set forth in Article IX of this Agreement; (iv) execution of
documents (including the Escrow Agreement, as defined in Section 12.02(b) of
this Agreement) and certificates, pursuant to this Agreement; (v) adjust the
Purchase Price pursuant to Section 2.03 of this Agreement and set-off against
the Escrow Note; (vi) receipt of payments under, or pursuant to, this Agreement
and the Escrow Note and disbursements thereof to the Sellers and others, as
contemplated by this Agreement; (vii) receipt and forwarding of notices and
communications, pursuant to this Agreement and the Escrow Note, and (viii)
payment of fees and expenses in connection with this Agreement and the
withholding of expenses from the Purchase Price.
(b) Buyer shall be fully protected in dealing with the
Agents under this Agreement and the Escrow Note, and may rely upon the
authority of the Agents to act as the agents of the Sellers. Any payment by
the Buyer to the Agents under this Agreement shall be considered a payment by
the Buyer to the Sellers. The appointment of the Agents is coupled with an
interest, and shall be irrevocable by any Seller, in any manner or for any
reason. This power of attorney shall not be affected by the disability or
incapacity of the principal pursuant to Section 34-6-103 of the Tennessee Code
Annotated, or any similar statute of Tennessee or any other state that may be
applicable.
(c) If at any time one or both of the Agents resigns,
dies, or becomes incapable of acting, a majority of the Sellers shall choose a
person who is a Seller, or an officer or director of a Seller, to act as Agent
under this Agreement.
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ARTICLE III
CLOSING; OBLIGATIONS OF THE PARTIES
3.01. CLOSING DATE. The closing (the "Closing") shall take place at
10:00 a.m., local time, on Tuesday, November 23, 1993 at the offices of Stokes
& Bartholomew, P.A., Nashville, Tennessee, or at such other time and place as
the parties hereto mutually agree (the "Closing Date"). The Closing shall be
effective as of Midnight on the day preceding the Closing.
3.02. OBLIGATIONS OF THE PARTIES AT THE CLOSING.
(a) At the Closing, Buyer shall deliver to the Agents:
(i) the consideration as specified in Section 2.01;
(ii) a copy of resolutions of the Board of Directors
of Buyer, certified by Buyer's Secretary, authorizing the execution, delivery
and performance of this Agreement and the other documents referred to herein
to be executed by Buyer, and the consummation of the transactions contemplated
hereby;
(iii) a certificate of Buyer certifying as to the
accuracy of Buyer's representations and warranties at and as of the Closing and
that Buyer has performed or complied with all of the covenants, agreements,
terms, provisions and conditions to be performed or complied with, by Buyer at
or before the Closing;
(iv) the opinion of Stokes & Bartholomew, P.A.,
legal counsel for Buyer, the terms of which are substantially as set forth in
Section 9.04; and
(v) Such other certificates and documents as
Sellers or their counsel may reasonably request.
(b) At the Closing, Sellers will deliver to Buyer:
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(i) Stock certificates for the Shares (as well as
stock certificates for the shares of Cash Control Corporation), free and clear
of all liens, claims, charges, restrictions, security interests, proxies,
pledges, equities or encumbrances of any kind, which certificates shall be duly
endorsed to Buyer or accompanied by duly executed stock powers in form
satisfactory to Buyer, and to which all required transfer tax stamps shall be
affixed;
(ii) A certificate of each of the Sellers
certifying as to the accuracy of Sellers' representations and warranties at and
as of the Closing and that they have performed or complied with all of the
covenants, agreements, terms, provisions and conditions to be performed or
complied with by each of them at or before the Closing;
(iii) Resignations of the officers and board of
directors of the Company and Cash Control Corporation, effective as of the
Closing Date;
(iv) The opinion of legal counsel for the Sellers,
the terms of which are substantially as set forth in Section 8.06;
(v) Such written evidence of release from the
Company's creditors (including without limitation releases from Timothy L.
Brooks and Anne B. Griffith) and officers who receive payments at the Closing
under Sections 2.02(a)(i) or (ii) as Buyer shall reasonably require, including,
in the case of creditors, releases and termination statements in recordable
form;
(vi) Written evidence of the release of the
mortgage on the Company's Newberry, South Carolina real estate as well as
termination statements for all other financing statements for
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indebtedness of the Company which is no longer outstanding (e.g., N. V. DeHooge
financing statements); and
(vii) Good standing certificates from the
jurisdictions listed on Schedules 4.02 and 4.03;
(viii) Such other certificates and documents as Buyer
or its counsel may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES BY SELLERS
Sellers, jointly and severally, except as otherwise hereafter
expressly limited, hereby represent and warrant as follows:
4.01. OWNERSHIP OF SHARES; VALIDITY AND ENFORCEABILITY.
Each Seller severally, but not jointly, represents and warrants that
(i) except as set forth on Schedule 4.01, such Seller is the record and
beneficial owner of the number of Shares set forth beside his name on
Schedule 4.01 attached hereto, free and clear of all liens, claims, charges,
restrictions, security interests, equities, proxies, pledges or encumbrances
of any kind; (ii) except as set forth on Schedule 4.01, such Seller has the
full right, power, authority and capacity to sell and transfer the respective
Shares owned by such Seller; (iii) by virtue of the transfer of the Shares
to Buyer at the Closing, Buyer will obtain full title to such shares, free and
clear of all liens, claims, charges, restrictions, security interests, equities,
proxies, pledges, or encumbrances of any kind. Except as set forth on Schedule
4.01, to the best knowledge of each Seller, without inquiry, each other Seller
is the record and beneficial owner of the number of Shares set forth beside
each such other Seller's name on Schedule 4.01,
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free and clear of all liens, claims, charges, restrictions, security interests,
equities, proxies, pledges, or encumbrances of any kind, and each other Seller
has full right, power, authority, and capacity to sell and transfer the
respective Shares owned by such Seller. This Agreement constitutes a legal,
valid and binding agreement of each of the Sellers, enforceable in accordance
with its terms. As of the Closing Date and upon receipt of the Purchase Price,
each Seller represents that he or it has no claims of any kind (whether
absolute, accrued, contingent or otherwise) against the Company.
4.02. ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is
a corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware. The Company has full corporate power and
authority to carry on its business as now conducted and possesses all
governmental and other permits, licenses, and other authorizations to own,
lease, or operate its assets and properties as now owned, leased, and operated
and to carry on its business as presently conducted. The Company is duly
licensed or qualified to do business as a foreign corporation and is in good
standing in each state wherein the properties owned or leased or the business
transacted by the Company makes such licensing or qualification to do business
as a foreign corporation necessary, except where the failure to qualify would
not have a material adverse effect on the Company, and no other jurisdiction
has demanded, requested, or otherwise indicated that (or inquired whether) the
Company is required so to qualify. Schedule 4.02 hereto is a complete list of
the states in which the Company or any Subsidiary is qualified to do business.
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4.03. SUBSIDIARIES. Schedule 4.03 hereto is a complete list of each
corporation, partnership, joint venture, or other business organization (the
"Subsidiary" or, with respect to all such organizations, the "Subsidiaries") in
which the Company or any Subsidiary owns, directly or indirectly, any capital
stock or other equity interest, or with respect to which the Company or any
Subsidiary, alone or in combination with others, is in a control position,
which list shows the jurisdiction of incorporation or other organization and
the percentage of stock or other equity interest of each Subsidiary owned by
the Company. Each Subsidiary which is a corporation is duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation and is duly qualified to transact business as a foreign
corporation and is in good standing in the jurisdictions listed in Schedule
4.03, which are the only jurisdictions where the failure to qualify would have
a material adverse effect on the Subsidiary and no other jurisdiction has
demanded, requested, or otherwise indicated that (or inquired whether) it is
required so to qualify. Each Subsidiary has the power and authority and
possesses all governmental and other permits, licenses, and other
authorizations to own or lease its properties and carry on its business as now
conducted. The outstanding capital stock of each Subsidiary which is a
corporation is validly issued, fully paid, and nonassessable. The Company and
the Subsidiaries have good and valid title to the equity interests in the
Subsidiaries shown as owned by each of them on Schedule 4.03 and except as set
forth on such schedule, free and clear of all liens, claims, charges,
restrictions, security interests, equities, proxies, pledges, or
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encumbrances of any kind. Except where otherwise indicated herein or unless
the context otherwise requires, any reference to the Company herein shall
include the Company and all of its wholly owned Subsidiaries.
4.04. NO VIOLATION. Except as set forth in Schedule 4.04 hereto,
the execution and delivery of this Agreement by each of the Sellers does not,
and the consummation of the transactions contemplated hereby will not, (a)
violate any provision of, or result in the creation of any lien or security
interest under, any agreement, indenture, instrument, lease, security
agreement, mortgage or lien to which the Company or each such Seller is a party
or by which any of the Company's or each such Seller's assets or properties are
bound; (b) violate any provision of the Certificate of Incorporation or Bylaws
of the Company; (c) violate any order, arbitration award, judgment, writ,
injunction, decree, statute, rule, or regulation applicable to the Company or
any Seller; or (d) violate any other contractual or legal obligation or
restriction to which the Company or each such Seller is subject.
4.05. CAPITALIZATION. The authorized capital stock of the Company
consists solely of 9,000,000 shares of which 4,000,000 shares, $.01 par value
per share, are Preferred Stock and of which 5,000,000 shares, $.10 par value
per share, are Common Stock. With respect to the authorized Preferred Stock of
the Company, 425,000 shares have been designated as Series A Convertible
Preferred Stock, $.01 par value per share, and 3,000,000 shares have been
designated as Series B Convertible Preferred Stock, $.01 par value per share.
The issued and outstanding capital stock of the Company (the "Shares"), all of
which are owned by the Sellers, consists
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solely of 913,250 shares of Common Stock, 425,000 shares of Series A
Convertible Preferred Stock and 1,784,998 shares of Series B Convertible
Preferred stock. Except as set forth on Schedule 4.01, all of the Shares are
duly authorized, validly issued and outstanding and fully paid and
nonassessable and will be transferred to Buyer. Except for the Shares and the
warrants and options set forth in Schedule 4.01, there are no shares of capital
stock or other equity securities of the Company issued or outstanding. As of
the date of the Closing, there will be no outstanding options, warrants or
rights to purchase or acquire from the Company or any of the Sellers any
securities of the Company, and as of the date of Closing, there will be no
contracts, commitments, agreements, understandings, arrangements or
restrictions as to which the Company or any Seller is a party or by which any
of them is bound relating to any shares of capital stock or other securities of
the Company (including the Shares), whether or not outstanding, except as set
forth in Schedule 4.01. The transfer of the Shares contemplated by this
Agreement does not and will not violate the preemptive rights of any Seller or
any other party.
4.06. FINANCIAL STATEMENTS. Sellers have delivered to Buyer: (a)
consolidated balance sheets of the Company as at December 31, in each of the
years 1990 through 1992, and the related consolidated statements of income,
changes in stockholders' equity, and changes in financial position for each of
the fiscal years then ended, including the notes thereto, together with the
report thereon of Deloitte & Touche, independent certified public accountants,
(the "Audited Financial Statements"), and (b) an
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unaudited consolidated balance sheet of the Company as at September 30, 1993
(the "Unaudited Balance Sheet") and the related unaudited consolidated
statements of income, changes in shareholders' equity, and changes in financial
position for the nine months then ended, including the notes thereto, (the
"Unaudited Financial Statements") (the Audited Financial Statements and the
Unaudited Financial Statements are collectively referred to herein as the
"Financial Statements"). The Financial Statements fairly present the
consolidated assets, liabilities, financial condition, and results of
operations of the Company as at the respective dates thereof and for the
periods therein referred to, all in accordance with generally accepted United
States accounting principles, subject, in the case of the Unaudited Financial
Statements, to normal recurring year-end adjustments (the effect of which will
not, individually or in the aggregate, be materially adverse) and the absence
of notes (which, if presented, would not differ materially from those included
in the Balance Sheet); the Financial Statements reflect the consistent
application of such accounting principles throughout the periods involved.
4.07. ASSETS. Schedule 4.07 hereto contains an accurate and
complete description of all material fixed and other tangible assets owned,
leased, or used by the Company, including, without limitation, improvements to
leased property and real property (including the approximate acreage of each
parcel of such property, the location thereof, the nature of any improvements
thereon, the identity of the record owner and lessee, if any, and a summary of
encumbrances thereon), plants and structures located thereon, equipment located
therein, vehicles and all personal property
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relating to the Company and its business and properties. All such plants,
structures, machinery and equipment are in good working condition and repair,
normal wear and tear excepted, and are adequate for the uses for which they are
now employed. All such plants, structures, machinery and equipment conform in
all material respects to applicable health, sanitation, fire, environmental
(including air and water pollution laws and regulations), safety, labor, zoning
and building laws and ordinances; and neither the Company nor the Sellers have
received any notification within the last five years of any violation of any
applicable ordinance or regulation of building, zoning or other law, in respect
of its plants, structures, properties or operations. None of such real
property is currently the subject of any eminent domain, condemnation, or
similar proceeding and to the best of the Company's knowledge, no such
proceeding is threatened. The Company is now in possession of each parcel of
such real property, there is no adverse claim against such real property and
there are no pending or, to Seller's knowledge, threatened proceedings which
might interfere with Buyer's quiet enjoyment of such real property.
4.08. TITLE TO PROPERTIES; ENCUMBRANCES. The Company has good,
valid, and marketable title to all properties and assets it purports to own,
real, personal and mixed, tangible and intangible, including, without
limitation, the properties and assets reflected in the Financial Statements
(except for inventory sold since the date thereof in the ordinary course of
business and consistent with past practice). Except as set forth on Schedule
4.08 hereto, none of such properties and assets reflected in the Financial
Statements (whether reflected individually or in the aggregate) (or any other
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properties or assets used in the business of the Company) are subject to any
mortgage, pledge, lien, security interest, conditional sale agreement,
encumbrance, or charge of any kind, except (a) liens shown on the Financial
Statements as securing specified liabilities (with respect to which no default
exists), (b) liens for current taxes not yet due, and (c) minor imperfections
of title and encumbrances, if any, which are not substantial in amount, do not
detract from the value of the property subject thereto, and do not impair the
use of the property subject thereto or impair the operations of the Company.
4.09. TRADEMARKS, PATENTS, ETC. Schedule 4.09 is an accurate and
complete list of all patents, trademarks, tradenames, trademark registrations,
service names, service marks, copyrights, formulas and applications therefor
owned by the Company or used or required by the Company in the operation of the
Company's business, title to each of which is, except as set forth in Schedule
4.09 hereto, held by the Company free and clear of all adverse claims, liens,
security agreements, restrictions or other encumbrances. There is no
infringement action, lawsuit, claim or complaint which asserts that the
Company's operations violate or infringe the rights or the trade names,
trademarks, trademark registration, service name, service mark, or copyright of
others with respect to any apparatus or method of the Company or any adversely
held trademark, trade name, trademark registration, service name, service mark
or copyright, and the Company is not in any way making use of any confidential
information or trade secrets of any person except with the consent of such
person.
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4.10. NO UNDISCLOSED LIABILITY. Except as set forth in Schedule
4.10 and as and to the extent of the amounts specifically reflected or reserved
against in the Financial Statements or disclosed in the notes thereto, the
Company does not have any liabilities or obligations of any nature, whether
absolute, accrued, contingent or otherwise and whether due or to become due
(including, without limitation, liabilities for taxes and interest, penalties
and other charges payable with respect thereto), except for those liabilities
incurred after the date of such Financial Statements in the ordinary course of
the Company's business. The reserves reflected in the Financial Statements are
as of such date adequate, appropriate and reasonable in accordance with
generally accepted accounting principles applied on a consistent basis.
Furthermore, except as set forth on Schedule 4.10 and for those liabilities
incurred after the date of such Financial Statements in the ordinary course of
the Company's business, Sellers do not know or have reason to know of any basis
for the assertion against the Company of any such liability or obligation of
any nature not fully reflected or reserved against in the Financial Statements.
4.11. ABSENCE OF CERTAIN CHANGES. Except as and to the extent set
forth on Schedule 4.11 hereto, since September 30, 1993, the Company has not:
(a) suffered any adverse change in its working capital,
financial condition, assets, liabilities, business or prospects, experienced
any labor difficulty, or suffered any material casualty loss (whether or not
insured);
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(b) made any change in its business or operations or in
the manner of conducting its business other than changes in the ordinary course
of business;
(c) incurred any obligations or liabilities (whether
absolute, accrued, contingent or otherwise and whether due or to become due),
except items incurred in the ordinary course of business and consistent with
past practice, or experienced any change in any assumptions underlying or
methods of calculating any bad debt, contingency or other reserves;
(d) paid, discharged or satisfied any claim, lien,
encumbrance or liability (whether absolute, accrued, contingent or otherwise
and whether due or to become due), other than claims, encumbrances or
liabilities (i) which are reflected or reserved against in the Financial
Statements and which were paid, discharged or satisfied since the date thereof
in the ordinary course of business and consistent with past practice, (ii)
which were incurred and paid, discharged or satisfied since December 31, 1992
in the ordinary course of business and consistent with past practice, or (iii)
which are permitted to be paid or discharged by this Agreement.
(e) written off as uncollectible any notes or accounts
receivable or any portion thereof, except for immaterial write-downs and
write-offs made in the ordinary course of business, consistent with past
practice and at a rate no greater than during the twelve (12) months ended
December 31, 1992;
(f) cancelled any other debts or claims, or waived any
rights, of substantial value;
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(g) sold, transferred or conveyed any of its properties
or assets (whether real, personal or mixed, tangible or intangible), except in
the ordinary course of business and consistent with past practice;
(h) disposed of or permitted to lapse, or otherwise
failed to preserve the exclusive rights of the Company to use any patent,
trademark, trade name, logo or copyright or any such application, or disposed
of or permitted to lapse any license, permit or other form of authorization, or
disposed of or disclosed to any person any trade secret, formula, process or
know-how;
(i) granted any increase in the compensation of any
officer, director, employee or agent (including, without limitation, any
increase pursuant to any bonus, pension, profit sharing or other plan or
commitment), or adopted any such plan or other arrangements, except as
otherwise disclosed to Buyer in writing; and no such increase, or the adoption
of any such plan or arrangement, is planned or required, except as otherwise
disclosed to Buyer in writing;
(j) made any capital expenditures or commitments in
excess of $50,000 in the aggregate for replacements or additions to property,
plant, equipment or intangible capital assets, other than as previously
planned by the Company in its fiscal year 1993 capital budget, a copy of which
has been furnished to Buyer;
(k) declared, paid or made or set aside for payment or
making, any dividend or other distribution in respect of its capital stock or
other securities, or directly or indirectly redeemed, purchased or otherwise
acquired any of its capital stock or other securities except the Company does
intend to cancel
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<PAGE> 29
certain warrants and options to purchase equity securities of the Company prior
to the Closing;
(l) made any change in any method of accounting or accounting
practice;
(m) paid, loaned or advanced any amount to or in respect of, or
sold, transferred or leased any properties or assets (real, personal or mixed,
tangible or intangible) to, or entered into any agreement, arrangement or
transaction with, any of the Sellers or the officers or directors of the
Company, any affiliates or associates of any Seller or the Company or any of
their respective officers or directors, or any business or entity in which any
of such persons has any direct or material indirect interest, except for
compensation to the officers and employees of the Company at rates not
exceeding the rates of compensation in effect at September 30, 1993 and
advances to employees in the ordinary course of business for travel and expense
disbursements in accordance with past practice, but not in excess of $1,000 at
any one time outstanding;
(n) agreed, whether,in writing or otherwise, to take any action
described in this Section 4.11.
4.12. TAX MATTERS. The Company has duly filed all tax reports and
returns required to be filed by it and has duly paid all taxes and other
charges due or claimed to be due from it by federal, state or local taxing
authorities (including without limitation, those due in respect of its
properties, income, franchises, licenses, sales and payrolls); and true and
correct copies of all tax reports and returns relating to such taxes and other
charges for the period since January 1, 1988 have been
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<PAGE> 30
heretofore delivered to Buyer. The reserves for taxes contained in the
Financial Statements and carried on the books of the Company are adequate to
cover all tax liabilities as of the date of this Agreement. The Company has
net operating losses for purposes of the Internal Revenue Code of 1986, as
amended (the "Code"), in excess of $7,000,000. Since December 31, 1992, the
Company has not incurred any tax liabilities other than in the ordinary course
of business; there are no tax liens (other than liens for current taxes not yet
due) upon any properties or assets of the company (whether real, personal or
mixed, tangible or intangible), and, except as reflected in the Financial
Statements, there are no pending or threatened questions or examinations
relating to, or claims asserted for, taxes or assessments against the Company,
and there is no basis for any such question or claim. Except as shown on
Schedule 4.12 hereto, the Company has not granted or been requested to grant
any extension of the limitation period applicable to any claim for taxes or
assessments with respect to taxes.
4.13. COMPLIANCE WITH APPLICABLE LAW. The Company has in the past
duly complied and is presently duly complying, in the conduct of its business
and the ownership of its assets with all applicable laws, whether statutory or
otherwise, rules, regulations, orders, ordinances, judgments and decrees of all
governmental authorities (federal, state, local or otherwise) (collectively,
"Laws"). Neither the Company nor any of the Sellers has received any notice
of, or notice of any investigation of, a possible violation of any applicable
Laws, or any other Law or requirement relating to or affecting the operations
or properties
25
<PAGE> 31
of the Company. Notwithstanding anything to the contrary in this Agreement,
including, without limitation, Sections 4.02, 4.03, 4.04, 4.07, 4.10, 4.12,
4.13, 4.15, 4.17 and 4.29 of this Agreement, the Sellers do not make any
warranty or representation with respect to any "sale of checks" acts.
4.14. ABSENCE OF QUESTIONABLE PAYMENTS. Neither the Company nor any
of its directors, officers, employees or affiliates has at any time used funds
for any illegal purpose, including without limitation, the making of any
improper political contribution, bribe or kickback.
4.15. LITIGATION. Except as set forth in Schedule 4.15, there are no
claims, actions, suits, proceedings or investigations pending or to Sellers'
knowledge threatened by or against, or otherwise affecting the Company at law
or in equity or before or by any federal, state, municipal or other
governmental department, commission, board, agency, instrumentality or
authority. Sellers do not know or have any reason to know of any basis for any
such claim, action, suit, proceeding or investigation. No claim, action, suit,
proceeding or investigation set forth in Schedule 4.15, could, if adversely
decided, have a material adverse effect on the condition (financial or
otherwise), assets, liabilities, earnings, prospects or business of the
Company.
4.16. INSURANCE. Schedule 4.16 hereto sets forth a complete and
accurate list and brief description (including policy numbers, deductibles,
carriers and effective and termination dates) of all policies of fire,
liability, workmen's compensation, health, title and other forms of insurance
presently in effect with respect to the Company. All such policies are valid,
outstanding and
26
<PAGE> 32
enforceable policies; and will remain in full force and effect at least through
the respective dates set forth in Schedule 4.16 without the payment of
additional premiums; and will not in any way be affected by, or terminate or
lapse by reason of, the transactions contemplated by this Agreement. The
Company has not been refused any insurance, nor has its coverage been limited,
by any insurance carrier to which it has applied for insurance or with which it
has carried insurance during the last five years. Schedule 4.16 discloses the
policies identified on Schedule 4.16 which provide for retrospective premium
adjustment. Schedule 4.16 identifies all risks which the Company has
designated as being self-insured and the amount of reserve set aside by the
Company to cover such risk.
4.17. PRODUCT AND SERVICE WARRANTIES. Except as described on
Schedule 4.17, the Company has not given or made any warranties to third
parties with respect to any products supplied or services performed by it which
may still be in effect at any time after the date hereof, except for warranties
imposed by law. Except as described on Schedule 4.17, there have been no
claims or investigations made with respect to any product or service warranties
which have not been fully settled and resolved or any unresolved warranty
claims which have not been adequately reserved against on the Financial
Statements. Sellers do not know or have any reason to know of any basis for
any other such claim or investigation.
4.18. EMPLOYEES AND FRINGE BENEFIT PLANS.
(a) Schedule 4.18 sets forth the names, ages and titles of
all members of the Board of Directors and officers of the
27
<PAGE> 33
Company and all employees of the Company earning in excess of $50,000 per
annum, and the annual rate of compensation (including bonuses) being paid to
each such member of the Board of Directors, officer and employee of the Company
as of the most recent practicable date.
(b) Schedule 4.18 hereto contains a list of each employment,
bonus, deferred compensation, pension, stock option, stock appreciation right,
profit-sharing or retirement plan, arrangement or practice, and each other
agreement or fringe benefit plan, arrangement or practice, of the Company,
whether formal or informal, whether legally binding or not, and whether
affecting one or more of its employees. Copies of each such agreement or plan
have heretofore been delivered to Buyer. The Company does not have any
commitment, whether formal or informal and whether legally binding or not, (i)
to create any additional such agreement, plan, arrangement or practice; (ii) to
modify or change any such agreement, plan, arrangement or practice; or (iii) to
maintain for any period of time any such agreement, plan, arrangement or
practice, except as accurately and completely described in Schedule 4.18.
Copies of policies heretofore delivered to Buyer contain an accurate and
complete description of the funding policies (and commitments, if any) of the
Company with respect to each such existing plan, arrangement or practice.
(c) Except as disclosed in Schedule 4.18, (i) each employer
who is participating (or has participated) in each plan (the "Sponsors") are in
compliance with the requirements provided by any and all statutes, orders or
governmental rules or regulations currently in effect, including without
limitation the
28
<PAGE> 34
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the
Internal Revenue Code of 1986, as amended (the "Code"); (ii) each plan and its
related trust, if any, are qualified under Code Section 401(a) and Code Section
501(a) and has been determined by the IRS to qualify, and nothing has since
occurred to cause the loss of the plan's qualification; (iii) all contributions
for all periods ending prior to Closing (including periods from the first day
of the current plan year to Closing) will be made prior to the Closing by the
Company in accordance with past practice and the recommended contribution in
the applicable actuarial report; (iv) all insurance premiums (including
premiums to the Pension Benefit Guaranty Corporation (the "PBGC")) have been
paid in full, subject only to normal retrospective adjustments in the ordinary
course, with regard to each plan for policy years or other applicable policy
periods ending on or before Closing; (v) that no accumulated funding deficiency
within the meaning of ERISA Section 302 or Code Section 412 has been incurred
with respect to any plan, whether or not waived; (vi) neither the Sponsors nor
any of their directors, officers, employees or any other fiduciary has any
liability for failure to comply with ERISA or the Code for any action or
failure to act in connection with the administration or investment of the plan;
(vii) no plan subject to Tile IV of ERISA has been completely or partially
terminated; (viii) the PBGC has not instituted or threatened a proceeding to
terminate any plan pursuant to Subtitle 1 of Title IV of ERISA; (ii) that there
is no pending or threatened legal action, proceeding or investigation against
or involving any plan and there is no basis for any legal action, proceeding or
investigation; (x) the Company does not have
29
<PAGE> 35
any liability for the termination of any single employer plan under ERISA
Section 4062 or any multiple employer plan under ERISA Section 4063; (xi) the
Company has not incurred, nor expects to incur any withdrawal liability (either
as a contributing employer or as part of a controlled group which includes a
contributing employer), which has not been satisfied, to any multiemployer plan
(as defined in ERISA Section 3(37) of ERISA 4001(a)(3)) in connection with any
complete or partial withdrawal from such plan occurring on or before the
Closing; (xii) the Company has no unfunded past service liability in respect
of any of its employee benefit plans; (xiii) the actuarially computed value of
vested benefits under any employee benefit plan of the Company does not exceed
the fair market value of the fund assets relating to such plan; (xiv) neither
the Company nor any plan nor any trustee, administrator, fiduciary or sponsor
of any plan has engaged in any prohibited transactions as defined in the ERISA,
or the Code; (xv) all filings and reports as to such plans required to have
been made on or prior to the Closing Date to the Internal Revenue Service, the
United States Department of Labor or other governmental agencies have been or
will be made on or prior to the Closing Date; (xvi) there is no material
litigation, disputed claim, governmental proceeding or investigation pending or
threatened with respect to any of such plans, the related trusts, or any
fiduciary, trustee, administrator or sponsor of such plans; (xvii) such plans
have been established, maintained and administered in all material respects in
accordance with their governing documents and applicable provisions of ERISA
and the Code and Treasury Regulations promulgated thereunder; and (xviii) there
has been no "Reportable
30
<PAGE> 36
Event" as defined in Section 4043 of ERISA with respect to any Employee Benefit
Plan subject to Subtitle B of Title IV of ERISA that has not been waived by the
Pension Benefit Guaranty Corporation.
(d) The Company has complied in all material respects with all
applicable federal, state and local laws, rules and regulations relating to
employees' employment and/or employment relationships, including, without
limitation, wage related laws, anti-discrimination laws and employee safety
laws.
(e) Except as set forth on Schedule 4.18 hereto, the Company
is not a party to any contract or agreement or requirement of law which would
require Buyer to hire, or subject Buyer to liability if it terminated or did
not hire, any employee of the Company or which would require Buyer to pay or
provide, or subject Buyer to liability if it did not pay or provide, any
employee benefits to any employee of the Company for periods prior to or after
the Closing Date (including any and all employee benefits and any compensatory,
over-time, vacation, sick or holiday pay).
4.19. ENVIRONMENTAL MATTERS. Except as set forth on Schedule 4.19:
(a) All federal, state and local permits, licenses and
authorizations required for the use and operation of the real property owned,
leased or used by the Company have been obtained and are presently in effect.
(b) None of such real property has been used by the
Company or to the knowledge of the Sellers, by any other person at any time to
handle, treat, store or dispose of any hazardous or toxic waste or substance,
nor is any of the real property,
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including all soils, ground waters and service waters located on, in or under
such real property, contaminated with pollutants or other substances, which
contamination may give rise to a clean-up obligation under any federal, state
or local law, rule, regulation or ordinance.
(c) There are no outstanding violations or any consent
decrees entered against the Company regarding environmental and land use
matters, including, but not limited to, matters affecting the emission of air
pollutants, the discharge of water pollutants, the management of hazardous or
toxic substances or wastes or noise.
(d) There are no claimed, or to the knowledge of Sellers,
threatened or alleged violations with respect to any federal, state or local
environmental law, rule, regulation, ordinance, permit, license, or
authorization and there are no present discussions with any federal, state or
local governmental agency concerning any alleged violation of environmental
laws, rules, regulations, ordinances, permits, licenses or authorizations.
(e) All operations conducted by the Company on such real
property have been and are, in all material respects, in compliance with all
federal, state and local statutes, rules, regulations, ordinances, permits,
licenses and authorizations relating to environmental compliance and control.
(f) There are no pending, or to Sellers knowledge, no
threatened, lawsuits or administrative proceedings against the Company that may
affect the Company regarding environmental compliance, control or liability.
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4.20. CONTRACTS AND COMMITMENTS. Except as set forth in Schedule
4.20 hereto:
(a) The Company does not have any contracts, commitments,
arrangements or understandings which may involve the expenditure by the Company
after September 30, 1993 of more than $50,000 for any individual contract,
commitment, arrangement or understanding or which was not entered into in the
ordinary course of business. Except as contemplated by this Agreement, the
legal enforceability after the Closing of the rights of the Company under any
of its contracts will not be affected in any manner by the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby.
(b) The Company has no sales or purchase commitments
which are in excess of the normal, ordinary and usual capacity or requirements
of its business or which are not terminable on 30 days' notice.
(c) Except as described in Schedule 4.18, the Company is
not a party to or bound by (i) any outstanding contracts with officers,
employees, agents, consultants, advisors, salesmen, sales representatives,
distributors or dealers that are not cancelable by the Company on notice of not
longer than 30 days and without liability, penalty or premium, (ii) any
agreement or arrangement providing for the payment of any bonus or commission
based on sales or earnings, or (iii) any agreements that contain any severance
or termination pay, liabilities or obligations.
(d) The Company is not a party to any licensing
agreement, either as licensor or licensee.
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(e) The Company is not restricted or purported to be
restricted by agreement or otherwise from carrying on its business anywhere in
the world.
4.21. ACCOUNTS RECEIVABLE. Except for the Joseph H. Pulliam note,
all accounts and notes receivable of the Company, whether reflected in the
Financial Statements or otherwise, represent sales actually made in the
ordinary course of business; none of such receivables is subject to any
counterclaim or set-off other than normal sales adjustments or allowances
consistent with past practice; and all such receivables are current and
collectible in accordance with their respective terms, net of any reserve
reflected in the Financial Statements.
4.22. VOLUME OF BUSINESS. The aggregate of all accepted and
unfilled orders for the sale of the Company's services entered into by the
Company does not exceed an amount which can reasonably be expected to be filled
in the ordinary course of business on a schedule which will maintain
satisfactory customer relationships.
4.23. CUSTOMERS AND SUPPLIERS. Schedule 4.23 hereto contains an
accurate and complete list of the names and addresses of the 10 largest
customers to whom the Company has sold or leased products or services during
the past two fiscal years and the 5 largest suppliers from whom the Company has
purchased supplies during the past two fiscal years. Neither the Sellers nor
the Company has received any indication from any customer or supplier whose
name appears on such list (or otherwise has any reason to believe) that such
customer or supplier will not continue as a customer or supplier of Buyer after
the Closing. No customer, or
34
<PAGE> 40
group of related customers, accounted for more than 10% of the Company's
revenues for the year ended December 31, 1992.
4.24. LABOR MATTERS. There are no collective bargaining agreements
in effect between the Company and labor unions or organizations representing
any of the Company's employees. During the past seven years, there has been
no request for collective bargaining or for an employee election from any
employee, union or the National Labor Relations Board. Except as and to the
extent set forth in Schedule 4.24, (i) the Company is in compliance with all
federal, state and local laws respecting employment and employment practices,
terms and conditions of employment and wages and hours, and is not engaged in
any unfair labor practice; (ii) there is no unfair labor practice complaint
against the Company pending or, to the knowledge of the Sellers, threatened
before the National Labor Relations Board or the United States Department of
Labor; (iii) there is no labor strike, dispute, slowdown or stoppage in
progress or, to the knowledge of the Sellers, threatened against or involving
the Company; (iv) no question concerning representation has been raised
or, to the knowledge of Sellers, is threatened respecting the employees
of the Company; (v) no grievance or arbitration proceeding is pending and, to
the knowledge of Sellers, no claim therefor exists; (vi) no private agreement
restricts the Company from relocating, closing or terminating any of its
operations or facilities; and (vii) the Company has not in the past five years
experienced any labor strike, dispute, slowdown, stoppage or other labor
difficulty.
4.25. NO BREACH. Except as set forth on Schedule 4.25, each
agreement (whether evidenced by a written document or
35
<PAGE> 41
otherwise and of whatever type) referred to in this Agreement or in any
Schedule hereto under which the Company has any right, interest or obligation
is in full force and effect; to the knowledge of the Sellers, there have been
no threatened cancellations thereof nor outstanding disputes thereunder; and
the Company has not breached any provision of, nor does there exist any default
in any material respect under, or event (including the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby)
which is, or with the giving of notice or the passage of time or both would
become, a breach or default in any material respect under the terms of any such
arrangement.
4.26. PROFESSIONAL FEES. Neither the Company nor any of the Sellers
has done anything to cause or incur any liability or obligation for investment
banking, brokerage, finders, agents or other fees, commissions, expenses or
charges in connection with the negotiation, preparation, execution or
performance of this Agreement or the consummation of the transactions
contemplated hereby, and Sellers do not know of any claim by anyone for such a
fee, commission, expense or charge.
4.27. CONSENTS AND APPROVALS. Sellers and the Company will have
obtained on or before the Closing all consents, approvals, authorizations or
orders of third parties, including governmental authorities, necessary for the
authorization, execution and performance of this Agreement by Sellers.
4.28. CORPORATE RECORDS. Sellers have delivered or provided to
Buyer for its review, or will do so promptly after the execution of this
Agreement, true, complete and correct copies of the following items, as amended
and presently in effect, for the
36
<PAGE> 42
Company and each Subsidiary: (a) Articles of Incorporation, (b) Bylaws, (c)
minute books, and (d) stock registration books (all hereinafter referred to as
the "Corporate Records"). The minute books contain a record of all
shareholder, director and executive committee meetings and actions taken
without a meeting from the date of the Company's incorporation to the date
hereof or, in the case of the Subsidiary, from the date of the Company's
purchase thereof. The stock registration books are complete and accurate and
contain a complete record of all transactions in the Company's capital stock
from the date of its incorporation to the date hereof or, in the case of the
Subsidiary, from the date of the Company's purchase thereof.
4.29. FULL DISCLOSURE. Neither this Agreement, nor any Schedule,
exhibit, list, certificate or other instrument and document furnished or to be
furnished by Sellers to Buyer pursuant to this Agreement, contains any untrue
statement of a material fact or omits to state any material fact required to be
stated herein or therein or necessary to make the statements and information
contained herein or therein not misleading. No Seller has withheld from Buyer
disclosure of any event, condition or fact which such Seller knows, or has
reasonable grounds to know, may materially adversely affect the Company's
assets, prospects or condition (financial or otherwise).
ARTICLE V
REPRESENTATIONS AND WARRANTIES BY BUYER
Buyer hereby represents and warrants to Sellers as follows:
5.01. ORGANIZATION AND GOOD STANDING. Buyer is a corporation duly
organized, validly existing and in good standing
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<PAGE> 43
under the laws of the State of Delaware and has full corporate power and
authority to enter into this Agreement and to carry out the transactions
contemplated hereby.
5.02. AUTHORIZATION. The Board of Directors of Buyer has taken all
action required by law, its Certificate of Incorporation, its Bylaws and
otherwise to authorize the execution and delivery by Buyer of this Agreement
and the consummation by Buyer of the transactions contemplated hereby.
5.03. VALID AND BINDING AGREEMENT. This Agreement constitutes, and
each of the Escrow Note and the Termination Note, when delivered, will
constitute, a valid and binding agreement of Buyer, enforceable against Buyer
in accordance with its terms.
5.04. NO VIOLATION. The execution and delivery of this Agreement by
Buyer does not, and the consummation of the transactions contemplated hereby
will not, (a) violate any provision, or result in the creation of any lien or
security interest under, any agreement, indenture, instrument, lease, security
agreement, mortgage or lien to which Buyer is a party or by which it is bound;
(b) violate any provision of Buyer's Certificate of Incorporation or Bylaws;
(c) violate any order, arbitration award, judgment, writ, injunction, decree,
statute, rule or regulation applicable to Buyer; or (d) violate any other
contractual or legal obligation or restriction to which Buyer is subject.
5.05. PROFESSIONAL FEES. Buyer has not done anything to cause or
incur any liability for investment banking, brokerage, finders, agents or other
fees, commissions, expenses or charges in connection with the negotiation,
preparation, execution and
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<PAGE> 44
performance this Agreement or the consummation of the transactions contemplated
hereby, and Buyer does not know of any claim by anyone for such a commission or
fee.
5.06. CONSENTS AND APPROVALS. Buyer has obtained all consents,
approvals, authorizations or orders of third parties, including governmental
authorities, necessary for the authorization, execution and performance of this
Agreement by Buyer.
5.07. FULL DISCLOSURE. Neither this Agreement, nor any certificate
or other instrument or document furnished or to be furnished by Buyer to
Sellers pursuant to this Agreement, contains any untrue statement of a material
fact or omits to state a material fact required to be stated herein or therein
or necessary to make the statements and information contained herein or therein
not misleading.
ARTICLE VI
COVENANTS AND AGREEMENTS OF SELLERS
Sellers agree that from the date hereof until the Closing, and thereafter
if so specified, they will, and will cause the Company to, fulfill the
following covenants and agreements unless otherwise consented to by Buyer in
writing:
6.01. CONDUCT OF BUSINESS PENDING THE CLOSING.
(a) Sellers and the Company will take such action as may be
reasonably necessary to maintain, preserve, renew and keep in full force and
effect the existence, rights and franchises of the Company, to preserve the
business organizations of the Company intact, to keep available to Buyer the
Company's officers and
39
<PAGE> 45
employees, and to preserve for Buyer the present relationships of the Company
with its suppliers and customers and others having business relationships with
it.
(b) Sellers and the Company will not do or omit to do any
act, or permit any act or omission to act, which may cause a breach of any
contract, commitment or obligation of the Company, or any breach of any
representation, warranty, covenant or agreement made by Sellers herein.
(c) The Company will duly comply with all laws applicable to
it and its respective business and operations and all laws, compliance with
which is required for the valid consummation of the transactions contemplated
by this Agreement.
(d) With respect to the Company, Sellers and the Company will
not (i) grant any increase in the wages or salary of any Officer, employee or
agent of the Company, except normal wage or salary increases for employees
(other than officers and other management employees) in the ordinary course of
business and consistent with past practice; (ii) by means of any bonus or
pursuant to any plan or arrangement or otherwise, increase by any amount or to
any extent the benefits or compensation of any such officer, employee or agent;
(iii) enter into any employment agreement, sales agency or other contract or
arrangement with respect to the performance of personal services which is not
terminable by it without liability on not more than 30 days notice; (iv) enter
into or extend any labor contract with any hourly-paid employees or any union;
or (v) agree to take any such action.
(e) The Company will not terminate or modify any lease,
license, permit, contract or other agreement to which it is a
40
<PAGE> 46
party, except to modify contracts in the ordinary course of business and the
Company does intend to terminate certain non-competition agreements with Leo
Krulitz, Mike Linn, Vince Cheatham, Boyd Jordan, Mark Russell, and Rob
Saunders.
(f) The Company will not mortgage, pledge or subject to
lien or any other encumbrance, any of the Company's assets.
(g) The Company will not enter into any transaction involving
more than $25,000 or a commitment extending more than six months.
(h) The Company will not declare, pay or make or set aside
for payment or making, any dividend or other distribution in respect of its
capital stock or other securities, or directly or indirectly redeem, purchase
or otherwise acquire any of its capital stock or other securities, except as
otherwise permitted or required by this Agreement.
(i) Sellers and the Company will not directly or indirectly
(through a representative or otherwise) solicit or furnish information to any
prospective acquirors, commence negotiations with any other party or enter into
any agreement with any other party concerning the sale of the Company's capital
stock or assets or any part thereof, or involving the merger, consolidation or
combination of or share exchange with any other entity.
(j) The Company will not enter into any transaction outside
the ordinary course of business.
(k) The Company will not enter into any agreement to do
any of the foregoing.
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6.02. ACCESS; FURTHER ASSURANCES.
(a) After the execution of this Agreement and continuing
until the Closing, Sellers shall cause the Company to permit Buyer and its
counsel, accountants, engineers and other representatives full access during
normal business hours to all of the directors, officers, facilities, properties,
books, contracts, commitments and records of or relating to the Company and
will furnish Buyer and its representatives during such period with all such
information concerning the Company's affairs and such copies of such documents
relating thereto, as Buyer or its representatives may reasonably request.
(b) At any time and from time to time after the Closing,
at Buyer's request and without further consideration, Sellers will execute and
deliver such other instruments of sale, transfer, conveyance, assignment, and
delivery and confirmation and take such action as the Buyer may reasonably deem
necessary or desirable in order more effectively to transfer, convey and assign
to Buyer and to place Buyer in possession and control of, and to confirm
Buyer's title to, the Shares, and to assist Buyer in exercising all rights and
enjoying all benefits with respect thereto. In addition, the Sellers and the
Company will take all such other action as may be reasonably requested by Buyer
in order to facilitate Buyer's favorable tax treatment with respect to the
transactions contemplated by this Agreement; provided that such actions do not
create or result in any adverse tax consequences or other material costs to the
Sellers.
6.03. SCHEDULES. Sellers shall have the continuing obligation to
supplement or amend promptly the Schedules being
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delivered pursuant to this Agreement with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or described in these
Schedules.
6.04. CONFIDENTIALITY. Without the written consent of the Buyer,
Sellers will not disclose to any other person not an employee of either the
Company or Buyer (or a person otherwise involved in the carrying out of the
transactions contemplated by this Agreement), nor make any public announcement
of, the transactions contemplated by this Agreement prior to the Closing.
6.05. TAXES. Sellers will be responsible for, and hereby agree to
assume and pay, all sales and similar taxes which may be due to any
jurisdiction or governmental body as a result of the sale and transfer of the
Shares.
6.06. CONSENTS AND APPROVALS. Sellers shall, in a timely, accurate
and complete manner, take all necessary corporate and other action and use all
reasonable efforts to obtain all consents, approvals, permits, licenses and
amendments of agreements required of the Company to carry out the transactions
contemplated in this Agreement.
6.07. EMPLOYEES. Prior to the Closing Date, Sellers shall cause the
Company to terminate Leo Krulitz, Vince Cheatham, Boyd Jordon, and Flora
Anderson (collectively, such individuals are hereinafter referred to as the
"Saunders Management Team"). Notwithstanding the foregoing, Sellers agree to
cause the Saunders Management Team to remain as consultants to the Company for
thirty (30) days after the Closing at no cost to the Buyer or the Company. The
compensation costs of the Saunders Management Team for such
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additional period of time shall be funded by the severance payments made to the
Company's officers pursuant to Section 2.02(a), and such payments shall be made
to the Saunders Management Team in accordance with the Company's normal payment
policies and pay periods.
6.08. NON-COMPETITION.
(a) Each Seller (except for W. Michael Linn) absolutely
and unconditionally covenants and agrees with the Buyer that, from the period
commencing on the Closing Date and continuing for a period of five years
following the Closing Date, each Seller will not, either directly or
indirectly, solely or jointly with any other person or persons, as an employee,
consultant or advisor (whether or not engaged in business for profit), or as an
individual proprietor, partner, shareholder, director, officer, joint venturer,
investor, lender or in any other capacity, compete with the business of the
Buyer in the continental United States. For purposes of this Agreement,
"compete with the business of the Buyer" shall mean providing financial
services to the trucking industry, including but not limited to fuel tax
reporting, in-cab communications, funded fuel, transportation licenses and
permits, emergency breakdown services or wire or other cash forwarding
operations.
(b) It is expressly understood, acknowledged and agreed
by each Seller (i) that the restriction contained in Section 6.08(a) of this
Agreement represents a reasonable and necessary protection of the legitimate
interests of the Buyer and that his failure to observe and comply with his
covenants and agreements in that paragraph will cause irreparable harm to the
Buyer; (ii) it is
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and will continue to be difficult to ascertain the nature, scope and extent of
the harm; and (iii) a remedy at law for such failure by the Seller will be
inadequate. Accordingly, it is the intention of the parties that, in addition
to any other rights or remedies which the Buyer may have in the event of any
breach of Section 6.08(a), the Buyer shall be entitled, and is expressly and
irrevocably authorized by each Seller, to demand and obtain specific
performance, including, without limitation, temporary and permanent injunctive
relief and all other appropriate equitable relief against such Seller in order
to enforce against such Seller the covenants and agreements contained in that
Section of this Agreement.
(c) If any court of competent jurisdiction shall at any
time deem the duration of the restriction contained in Section 6.08(a) of this
Agreement to be too lengthy or the scope thereof to be to broad, the
restrictive time period shall be deemed to be the longest period permissible by
law, and the scope shall be deemed to comprise the broadest scope permissible
by law. The parties hereby agree that such court may modify the objectionable
provision so as to make it valid, reasonable and enforceable and agree to be
bound by the terms of such provision, as modified by the court.
ARTICLE VII
COVENANTS AND AGREEMENTS OF BUYER
Buyer agrees that from the date hereof until the Closing, unless
otherwise consented to by Sellers in writing, it will fulfill the following
covenants and agreements:
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7.01. CONFIDENTIALITY.
(a) In the event the transactions contemplated by this
Agreement are not consummated, for any reason, Buyer promptly will return to
the Company all records and information provided to Buyer from the Company
(including any analysis based primarily on information provided to them by
Buyer) and Buyer will treat all such records and information as confidential.
(b) Buyer will not disclose to any other person not an
employee of either the Company or Buyer (or a person otherwise involved in the
carrying out of the transactions contemplated by this Agreement), nor make any
public announcement of, the transactions contemplated by this Agreement prior
to the Closing.
7.02 ACCESS. From and after the Closing Date, Buyer and the
Company shall provide to Sellers (and their accountants, counsel or other
representatives), upon reasonable request of any Seller, at such reasonable
times during normal business hours, all reasonable assistance of personnel of
the Buyer and the Company and all access to the Company's books and records as
such Seller may reasonably request in connection with (i) the preparation,
filing or audit of the federal, state, local or foreign income or other tax
returns of a Seller, or with respect to any dispute, refund, claim or
litigation relating to those returns and any taxes due pursuant to those
returns, (ii) initiation, prosecution or defense of any litigation by any
Seller or (iii) compliance by any Seller with any legal or regulatory
obligation. Buyer and the Company shall make such records available to the
Sellers for a period of not less than four years from the Closing Date.
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ARTICLE VIII
CONDITIONS TO BUYER'S OBLIGATIONS
All obligations of Buyer hereunder are subject to the fulfillment,
prior to or at the Closing, of each of the following conditions:
8.01. REPRESENTATIONS AND WARRANTIES TRUE; OBLIGATIONS PERFORMED.
(a) The representations and warranties of the Sellers,
set forth or referred to in this Agreement, shall be true and correct in all
respects as of the date of the Agreement and as of the date of Closing with the
same effect as though all such representations and warranties had been made on
and as of the date of Closing, except for (i) any change in the representations
and warranties of the Sellers that are expressly contemplated by or provided
for under this Agreement, and (ii) any breach of the representations and
warranties of Sellers that, individually or in the aggregate, does not have a
Material Adverse Effect on the Company (as defined in Section 8.05 below).
Sellers' certificate delivered to Buyer pursuant to Section 3.02(b)(ii) shall
contain a description of any breaches of the Sellers' representations and
warranties.
(b) Notwithstanding the foregoing, Buyer's obligation to
close hereunder will not constitute a waiver of Buyer's right and Sellers'
obligation that the representations and warranties be true and correct and that
the other closing conditions set forth in Article VIII be met in their
entirety, and following the Closing, Buyer shall retain all rights and remedies
under Article X hereto.
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8.02. OPERATING RESULTS. The Contribution to Overhead (as efined
below) in September and October, 1993 shall be equal to, or greater than, an
average of $200,000 per month, excluding the extraordinary expense items not
incurred in the ordinary course of business. Monthly Contribution to Overhead
shall mean Net Revenues of the Company minus divisional Operating Expenses of
the Company calculated in a manner consistent with the Contribution to Overhead
calculation for the six months ended June 30, 1993 (as corrected) and the eight
months ended August 31, 1993, previously furnished to Buyer without any
adjustment by Buyer.
8.03. CUSTOMERS. The Company shall not have sustained a net loss in
September or October, 1993 of Customers representing greater than $75,000 of
overall monthly revenues of the Company, exclusive of any loss of Customers to
Buyer.
8.04. DISCLOSURE. Special counsel to Buyer, the identity of which
shall be acceptable to Buyer and the Agents and the expenses of which shall be
borne equally by Buyer and Sellers, shall have advised the Buyer in writing
that, in the opinion of such special counsel, the Sellers have breached the
first sentence of Section 4.29 of the Agreement and that such breach was
accompanied by actual knowledge by the Sellers of the untrue statement or
omission of material facts alleged by Buyer to give rise to a violation by
Sellers of the first sentence of Section 4.29 of the Agreement.
8.05. ASSETS AND LIABILITIES. There shall not have occurred any
change in the Net Assets of the Company that, individually or in the aggregate,
has a Material Adverse Effect on the Company (as defined below). For purposes
of this Agreement,
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"Net Assets" shall mean, with respect to any given balance sheet of the
Company, total assets minus total liabilities. For purposes of Sections
8.01(a) and this Section 8.05, "Material Adverse Effect on the Company" shall
mean an event, change, or occurrence which either alone or when aggregated with
other events,changes and occurrences has resulted, or might reasonably be
expected to result, in a reduction in the Net Assets of the Company of
$2,000,000 or more, as compared, in each such case, to the amounts reflected in
the balance sheet of the Company dated August 31,1993 or the balance sheet of
the Company dated September 30, 1993, in each case prepared in accordance with
generally accepted accounting principles, consistently applied.
8.06. OPINION OF COUNSEL FOR SELLERS. Buyer shall have received an
opinion of the Sellers' counsel, Bradley, Arant, Rose & White and/or Booth,
Wade & Campbell, dated the Closing Date, in form and substance satisfactory to
Buyer's counsel, Stokes & Bartholomew, P.A. (a final draft of which shall have
been furnished to Buyer's counsel not less than three days before the Closing)
(the opinion of Sellers' counsel may rely upon a factual certificate from an
officer of the Company), to the effect that:
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
full power and authority to carry out the transactions contemplated hereby and
to carry on its business as presently conducted.
(b) Each Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
organization and has the power and authority to carry on its
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business as presently conducted (this opinion may come from the Company's
in-house counsel).
(c) The authorized capital stock of the Company consists
solely of 9,000,000 shares of which 4,000,000 shares, $.01 par value per share,
are Preferred Stock and of which 5,000,000 shares, $.10 par value per share,
are Common Stock. With respect to the authorized Preferred Stock of the
Company, 425,000 shares have been designated as Series A Convertible Preferred
Stock, $.01 par value per share, and 3,000,000 shares have been designated as
Series B Convertible Preferred Stock, $.01 par value per share. The issued and
outstanding capital stock of the Company, all of which are owned by the
Sellers, consists solely of 913,250 shares of Common Stock, 425,000 shares of
Series A Convertible Preferred Stock and 1,784,998 shares of Series B
Convertible Preferred stock. There are no other shares of capital stock or
other securities of the Company outstanding. The Company owns all of the
outstanding capital stock of each of the Subsidiaries. There are no
outstanding options, warrants or rights to purchase or acquire any securities
of the Company or any Subsidiary, and no securities of the Company or any
Subsidiary are reserved for issuance for any purpose; and to the best knowledge
of such counsel, after reasonable investigation, there are no contracts,
commitments, agreements, understandings, arrangements or restrictions to which
the Company or any of the Sellers is a party or by which either is bound
relating to any shares of capital stock or other securities of the Company or
any Subsidiary.
(d) This Agreement has been duly executed and delivered
by, and is a valid and binding obligation of, each Seller, subject
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to any applicable bankruptcy, reorganization, insolvency or other laws, now or
hereafter in effect, affecting creditors' rights generally, and subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be bought.
(e) Neither the execution nor the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, or
compliance with and fulfillment of the terms and provisions hereof will
conflict with or result in the breach of the terms, conditions or provisions
of, or constitute a default under, the Certificate of Incorporation or the
Bylaws of the Company or any Subsidiary of the Company or, based on a
certificate furnished such counsel by the Company, any agreements to which the
Company, any Subsidiary or any Seller is a party or by which any of them is
bound or any laws or regulatory provisions which are known to such counsel to
be applicable to any of them.
(f) Except as set forth in Schedule 4.15, and based upon
a certificate furnished such counsel by the Company, there are no claims,
actions, suits, proceedings or investigations pending or threatened by or
against, or otherwise affecting the Company or any Subsidiary or the
transactions contemplated by this Agreement, at law or in equity or before or
by and federal, state, municipal or other governmental department, commission,
board, agency, instrumentality or authority.
(g) Sellers and the Company have obtained all consents,
approvals, authorizations or orders or third parties, including governmental
authorities, necessary for the consummation of the transactions contemplated
hereby.
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8.07. CONSENTS AND APPROVALS. Buyer shall have received from the
Sellers executed counterparts of the consents referred to in Section 4.27
hereof and all other consents (the lack of receipt of which should not prevent
the Buyer from consummating the transactions contemplated hereby) required for
the consummation of the transactions contemplated hereby, all of which consents
shall be in form and substance satisfactory to Buyer. Buyer shall not be
obligated to buy any of the Shares hereunder unless it buys all of the Shares.
8.08. LITIGATION. Except as set forth in Schedule 4.15, and
exclusive of any proceeding instituted after the date hereof under any "sale of
checks" act, on the date of the Closing, neither the Company nor any Subsidiary
nor any Seller shall be a party to, nor will there otherwise be pending or
threatened, any judicial, administrative, or other action, proceeding or
investigation which, if adversely determined is reasonably likely, in the
opinion of Buyer, to have a material adverse effect upon the Company, any
Subsidiary, Buyer or the transactions contemplated hereby; and there shall be
no lawsuits pending against the Company, any of the Sellers or Buyer seeking to
enjoin, prohibit, restrain or otherwise prevent the transactions contemplated
hereby.
8.09. MAXIMUM REDUCTION OF PURCHASE PRICE UNDER CERTAIN SECTIONS.
If the Post-Closing Exceptions are equal to or greater than $2,000,000, then
Buyer shall not be obligated to consummate the transactions contemplated
hereby.
8.10. CONSENT OF SENIOR LENDERS. Buyer's senior lenders shall not
have failed after good faith application by the Buyer to
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give their consent required for the consummation of the transactions
contemplated hereby.
ARTICLE IX
CONDITIONS TO SELLERS' OBLIGATIONS
All obligations of Sellers under this Agreement are subject to the
fulfillment, prior to or at the Closing, of each of the following conditions:
9.01. REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by the Buyer in this Agreement shall be true in all material
respects when made and at and as of the time of the Closing as though such
representations and warranties were made at and as of such date.
9.02. PERFORMANCE. Buyer shall have performed and complied in all
material respects with all agreements, obligations, and conditions required by
this Agreement to be so complied with or performed.
9.03. OFFICER'S CERTIFICATE. Buyer shall have delivered to Sellers
a Certificate of the Vice President of Buyer, dated the Closing Date,
certifying as to the fulfillment of the conditions specified in Sections 9.01
and 9.02 hereof.
9.04. OPINION OF COUNSEL FOR BUYER. Sellers shall have received an
opinion of Buyer's counsel, Stokes & Bartholomew, P.A., dated the Closing Date,
in form and substance satisfactory to Sellers' counsel, Bradley, Arant, Rose &
White (a final draft of which shall have been provided to Sellers' counsel not
less than three days before the Closing), to the effect that:
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(a) Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
full power and authority to enter into this Agreement and to carry out the
transactions contemplated hereby.
(b) This Agreement has been duly executed and delivered
by, and is a valid and binding obligation of, Buyer subject to any applicable
bankruptcy, reorganization, insolvency or other laws, now or hereafter in
effect, affecting creditors' rights generally and subject to equitable defenses
and to the discretion of the Court before which any proceeding therefor may be
brought.
(c) Neither the execution nor the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, nor
compliance with the fulfillment of the terms and provisions hereof will
conflict with or result in the breach of the terms, conditions or provisions
of, or constitute a default under, the Certificate of Incorporation or the
Bylaws of Buyer or any agreement or instrument known to such counsel to which
Buyer is a party or by which it is bound.
9.05. MAXIMUM REDUCTION OF PURCHASE PRICE UNDER CERTAIN SECTIONS.
If, pursuant to Section 2.03 of this Agreement, (i) the reductions in the cash
portion of the Purchase Price to be paid to Sellers required by Buyer hereunder
aggregate more than $1,000,000, or (ii) the cumulative amount of the reduction
in the cash portion of the Purchase Price, plus the principal amount of the
Escrow Note, exceeds $2,000,000, Sellers shall not be obligated to consummate
the transactions contemplated hereby.
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ARTICLE X
INDEMNIFICATION
10.01. INDEMNIFICATION BY SELLERS. Subject to Sections 10.04 and
10.05 hereof, Sellers, jointly and severally, hereby agree to defend, indemnify
and hold harmless Buyer, the Company, the Subsidiaries, each fiduciary of
Buyer's employee benefit plans and each of Buyer's shareholders, affiliates,
officers, directors, employees, agents, successors and assigns ("Buyer's
Indemnified Persons") and shall reimburse Buyer's Indemnified Persons for, from
and against each claim, loss, liability, cost and expense (including, without
limitation, interest, penalties, costs of preparation and investigation, and
the reasonable fees, disbursements and expenses of attorneys, accountants and
other professional advisors) (collectively, "Losses"), directly or indirectly
relating to, resulting from or arising out of:
(a) Any untrue representation, misrepresentation, breach
of warranty or nonfulfillment of any covenant, agreement or other obligation by
or of any Seller contained herein, any Schedule hereto or in any certificate,
document or instrument delivered to Buyer pursuant hereto.
(b) Any tax liability of the Company not previously paid,
or for which adequate reserves have not been established in the consolidated
balance sheet of the Company as of September 30, 1993, which may at any time be
asserted or assessed against it for any event or period prior to the Closing
Date (regardless of whether the possibility of the assertion or assessment of
any such tax liability shall have been disclosed to Buyer at or prior to the
Closing).
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(c) Any cost, expense or liability incurred by the
Company in connection with any pollution of the soil or ground water of, or
originating from, any parcel of real property owned, leased or used by the
Company which exists on the Closing Date (regardless of whether the possibility
of such cost or expense shall have been disclosed to Buyer at or prior to the
Closing). The term "pollution" shall include any substance subject to any
federal, state, local or other law, rule, regulation or governmental regulation
of any kind, and the rules, regulations and orders promulgated thereunder, or
any other substance which constitutes a nuisance or hazard to the environment
or to the public health, safety or welfare.
(d) Any and all liabilities or obligations of any Seller
to the Company arising outside of this Agreement.
(e) Any other Loss incidental to any of the foregoing.
10.02. INDEMNIFICATION BY BUYER. Buyer hereby agrees to defend,
indemnify and hold harmless Sellers, and shall reimburse Sellers for, from and
against Losses directly or indirectly relating to, resulting from or arising
out of:
(a) Any untrue representation, misrepresentation, breach
of warranty or nonfulfillment of any covenant, agreement or other obligation by
Buyer contained herein or in any certificate, document or instrument delivered
to Sellers pursuant hereto.
(b) Any other Loss incidental to the foregoing.
10.03. PROCEDURE.
(a) The indemnified party shall promptly notify the
indemnifying party of any claim, demand, action or proceeding for which
indemnification will be sought under Sections 10.01, 10.02 or
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10.05 of this Agreement, and, if such claim, demand, action or proceeding is a
third party claim, demand, action or proceeding, the indemnifying party will
have the right at its expense to assume the defense thereof using counsel
reasonably acceptable to the indemnified party. The indemnified party shall
have the right to participate, at its own expense, with respect to any such
third party claim, demand, action or proceeding. In connection with any such
third party claim, demand, action or proceeding, Buyer and the Sellers shall
cooperate with each other and provide each other with access to relevant books
and records in their possession. No such third party claim, demand, action or
proceeding shall be settled without the prior written consent of the
indemnified party. If a firm written offer is made to settle any such third
party claim, demand, action or proceeding and the indemnifying party proposes
to accept such settlement and the indemnified party refuses to consent to such
settlement, then: (i) the indemnifying party shall be excused from, and the
indemnified party shall be solely responsible for, all further defense of such
third party claim, demand, action or proceeding; and (ii) the maximum liability
of the indemnifying party relating to such third party claim, demand, action or
proceeding shall be the amount of the proposed settlement if the amount
thereafter recovered from the indemnified party on such third party claim,
demand, action or proceeding is greater than the amount of the proposed
settlement.
(b) Notwithstanding any provision contained herein to the
contrary, neither Sellers nor Buyer shall have any obligation to indemnify or
to reimburse the other pursuant to Section 10.01 or 10.02 except to the extent
that the obligations to the other
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hereunder exceed in the aggregate $125,000, in which event the indemnifying
party shall reimburse the indemnified party for all Losses exceeding $125,000.
10.04. BUYER'S REMEDY OF OFFSET AGAINST ESCROW NOTE. At any time, or
from time to time, when Buyer is entitled to indemnification from Sellers
(except for indemnification for the breach of the representation and warranty
contained in Section 4.01 and for the matters addressed in Section 10.05), the
sole remedy of Buyer shall be to offset the amount of Losses incurred by it as
a result of such breach against the then outstanding balance of the Escrow Note
held by the Agents. In the event of a claim by Buyer that a Seller has
breached the representation and warranty in Section 4.01, then in addition to
Buyer's right to set-off against the Escrow Note, such Seller shall be
severally liable to Buyer for any Loss sustained by Buyer; provided, however,
that such additional liability shall be limited to such Seller's portion of the
Purchase Price. Each Seller agrees that the Agents shall be authorized to
agree to set-offs against the Escrow Note on their behalf.
10.05 INDEMNIFICATION IN CERTAIN CASES. (a) John R. Saunders,
Harris Saunders, Jr. and JYW, Inc. (collectively, the "Indemnifying Sellers"),
jointly and severally, agree to indemnify and hold harmless the Buyer's
Indemnified Persons from and against any Losses resulting from, or arising out
of (i) any cost, expense or liability incurred by the Company or Buyer in
connection with any pollution (as defined in Section 10.01(c)) of the soil or
groundwater of, or originating from, the Company's Newberry, South Carolina
real property, (ii) the lost Eugene C. Griffith $458,500
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promissory note, and (iii) any cost, expense or liability incurred by the
Company or Buyer from dealings with Joseph H. Pulliam ("Pulliam"), relating to
the Company's obligations to Pulliam under that certain Release and Settlement
Agreement among Pulliam, the Company and Cash Control Corporation, dated
October 15, 1990, and the redemption of Pulliam's Shares by the Company, which
redemption the parties contemplate may occur immediately after the Closing.
(b) Notwithstanding any provision contained herein to the
contrary, the Indemnifying Sellers shall not have any obligation to indemnify
or to reimburse the Buyer's Indemnified Persons pursuant to Section 10.05(a)(i)
except to the extent that the obligations thereunder exceed in the aggregate
$200,000, in which event the Indemnifying Sellers shall reimburse the Buyer's
Indemnified Persons for all Losses exceeding $200,000. Losses below $200,000
shall be offset against the Escrow Note pursuant to Section 10.04.
ARTICLE XI
SURVIVAL OF REPRESENTATIONS
11.01. SURVIVAL OF REPRESENTATIONS. All representations, warranties,
covenants and agreements by the parties contained in this Agreement shall
survive the Closing and any investigation at any time made by or on behalf of
any party hereto, and except for the representation and warranty contained in
Section 4.12 of this Agreement, all representations and warranties shall expire
on the second anniversary of the Closing Date. The representation contained in
Section 4.12 of this Agreement and the agreements made
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in Section 10.05 shall expire on the third anniversary of the Closing Date.
11.02. STATEMENTS AS REPRESENTATIONS. All statements contained in
any certificate, Schedule, list, document or other writing delivered pursuant
hereto or in connection with the transactions contemplated hereby shall be
deemed representations and warranties for all purposes of this Agreement.
11.03. REMEDIES CUMULATIVE. The remedies provided herein shall be
cumulative and shall not preclude the assertion by any party hereto of any
other rights or the seeking of any other remedies against the other party
hereto.
ARTICLE XII
TERMINATION OF AGREEMENT
12.01. TERMINATION. This Agreement may be terminated at any time
prior to the Closing:
(a) By mutual agreement of Sellers and Buyer.
(b) By Buyer, if there has been a material ("material"
for purposes of representations and warranties in this Section 12.01(b) is the
standard set forth in Section 8.05 hereof) violation or breach by the Sellers
of any of the agreements, representations or warranties contained in this
Agreement which has not been waived in writing, or if any of the conditions set
forth in Article VIII hereof have not been satisfied by the Closing or have not
been waived in writing by Buyer.
(c) By Sellers, if there has been a material violation or
breach by the Buyer of any of the agreements, representations or warranties
contained in this Agreement which has not been waived in
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writing, or if any of the conditions (other than Section 9.05) set forth in
Article IX hereof have not been satisfied by the Closing or have not been
waived in writing by Sellers.
(d) By either Buyer or Sellers if the transactions
contemplated by this Agreement shall not have been consummated on or before
December 31, 1993.
(e) By either Buyer or the Sellers if the other makes an
assignment for the benefit of creditors, files a voluntary petition in
bankruptcy or seeks or consents to any reorganization or similar relief under
any present or future bankruptcy act or similar law, or is adjudicated a
bankrupt or insolvent, or if a third party commences any bankruptcy,
insolvency, reorganization or similar proceeding involving the other.
12.02. EFFECT OF TERMINATION.
(a) In the event of the termination of this Agreement as
provided in Section 12.01, there shall be no further liability or obligation on
the part of the Buyer except as set forth in subparagraph (b) of this Section
12.02.
(b) If the Sellers shall terminate this Agreement
pursuant to Section 12.01(c), the Buyer shall promptly pay Sellers liquidated
damages in the amount of $2,000,000. Such parties hereto agree that such
liquidated damages are an estimate in good faith of such parties' actual
damages and do not constitute a penalty. To secure such obligation to pay such
liquidated damages, Buyer has delivered its demand promissory note in the form
of Exhibit B hereto (the "Termination Note") to SouthTrust Bank of Alabama,
National Association ("SouthTrust"). If the Agents and Buyer agree on the
release of the Termination Note or if the
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Arbitrator decides that the Termination Note should be released, then
SouthTrust shall release the Termination Note to the Agents and the Agents may
make demand on and will immediately be paid the indebtedness evidenced by the
Termination Note of Buyer. At the time this Agreement is executed, SouthTrust,
Buyer and Sellers shall enter into an escrow agreement (the "Escrow
Agreement"), in the form of the Escrow Agreement attached hereto as Exhibit C.
(c) Notwithstanding the foregoing, in the absence of
fraud or willful breach on the part of Sellers, or on the part of Buyer, then
Sellers will not have any liability to Buyer, or Buyer shall not have any
liability to Sellers, as the case may be, under this Agreement, if Sellers or
Buyer terminate this Agreement pursuant to Section 12.01. For purposes of this
Agreement, it is understood and agreed that a willful breach on the part of the
Buyer will have occurred if Buyer fails at the Closing to consummate the
transactions contemplated by this Agreement and its failure is not accompanied
by a failure of one of the conditions set forth in Article VIII hereof and the
Buyer is not otherwise entitled to terminate this Agreement pursuant to Section
12.01(b).
12.03. SPECIFIC PERFORMANCE. Sellers and Buyer acknowledge that the
rights of the parties hereto to consummate the transactions hereby are special,
unique, and of extraordinary character and that in the event any of the Sellers
or Buyer, as the case may be, violate or fail and refuse to perform any
covenant made by it or him herein, Buyer or Sellers, as the case may be, may be
without adequate remedy at law. Each party hereto agrees, therefore, that in
the event that it or he violates any covenant made by it or him herein which it
or he has the reasonable ability
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<PAGE> 68
to perform, Buyer or Sellers, as the case may be, may, at its or his election,
institute and prosecute an action in any court of competent jurisdiction to
enforce specific performance of such covenant. In the event that Buyer or
Sellers, as the case may be, institute such proceedings prior to the
termination and abandonment of this Agreement pursuant to Section 12.01
immediately above, then notwithstanding any provision of any such section, this
Agreement shall be terminated and abandoned thereafter only (a) by mutual
written agreement of Buyer and Sellers or (b) after a final judgment or order
is entered in such action or in any appeal therefrom denying specific
performance to the plaintiff in such action or dismissing or discontinuing such
action without the granting of such relief (and such judgment or order is not
then subject to appeal) or such action or an appeal therefrom is dismissed or
discontinued voluntarily with prejudice by Buyer or Sellers, as the case may
be, in such action or by agreement of the parties thereto without the granting
of such relief.
ARTICLE XIII
MISCELLANEOUS
13.01. EXPENSES. All fees and expenses incurred by Sellers,
including without limitation, legal fees and expenses, in connection with this
Agreement will be borne by Sellers and all fees and expenses incurred by Buyer,
including, without limitation, legal fees and expenses, in connection with this
Agreement will be borne by Buyer.
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<PAGE> 69
13.02. ASSIGNABILITY; PARTIES IN INTEREST.
(a) Buyer may assign any and all of its rights hereunder
to any affiliate or any direct or indirect subsidiary of Buyer, and Buyer shall
advise Sellers of any such assignment and shall designate such party as the
assignee and transferee of the securities purchased. Any such assignee shall
assume all of Buyer's duties, obligations and undertakings hereunder, but the
assignor shall remain liable thereunder.
(b) Seller may not assign, transfer or otherwise dispose
of any of its rights hereunder without the prior written consent of Buyer.
(c) All the terms and provisions of this Agreement shall
be binding upon, shall inure to the benefit of and shall be enforceable by the
respective heirs, successors, assigns and legal or personal representatives of
the parties hereto.
13.03. ENTIRE AGREEMENT; AMENDMENTS. This Agreement, including the
exhibits, Schedules, lists and other documents and writings referred to herein
or delivered pursuant hereto, which form a part hereof, contains the entire
understanding of the parties with respect to its subject matter. There are no
restrictions, agreements, promises, warranties, covenants or undertakings other
than those expressly set forth herein or therein. This Agreement supersedes
all prior agreements and undertakings between the parties with respect to its
subject matter. This Agreement may be amended only by a written instrument
duly executed by all parties or their respective heirs, successors, assigns or
legal personal representatives. Any condition to a party's obligations
hereunder may be waived, but only by a written
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<PAGE> 70
instrument signed by the party entitled to the benefits thereof. The failure
or delay of any party at any time or times to require performance of any
provision or to exercise its rights with respect to any provision hereof, shall
in no manner operate as a waiver of or affect such party's right at a later
time to enforce the same.
13.04. HEADINGS. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretations of this Agreement.
13.05. SEVERABILITY. The invalidity of any term or terms of this
Agreement shall not affect any other term of this Agreement, which shall remain
in full force and effect.
13.06. NOTICES. All notices, request, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered or mailed (registered or certified mail, postage
prepaid, return receipt requested) as follows:
If the Sellers:
Harris Saunders, Jr., Chairman
Saunders, Inc.
Building One, Third Floor
2801 Highway 280 South
Birmingham, Alabama 33223
With copies to:
John Y. Williams
Grubb & Williams, Ltd.
1790 The Lenox Building
3399 Peachtree Road
Atlanta, Georgia 30326
and
65
<PAGE> 71
C. Larimore Whitaker, Esq.
Bradley, Arant, Rose & White
1400 Park Place Tower
2001 Park Place
Birmingham, Alabama 35203
If the Buyer:
Comdata Holdings Corporation
ATTN: George L. McTavish
5301 Maryland Way
Brentwood, Tennessee 37027
With a copy to:
Carter R. Todd, Esq.
Stokes & Bartholomew, P.A.
424 Church Street, Suite 2800
Nashville, Tennessee 37219
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
only be effective upon receipt.
13.07. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Tennessee,
without regard to its conflict of law rules.
13.08. BIRMINGHAM OFFICE LEASE. Mr. Harris Saunders, Jr.,
individually and without limitation, agrees to hold Buyer harmless for any
reduction by Buyer in space utilized in the Protective Insurance Company
Building, up to all such space on reasonable notice by Buyer to Mr. Saunders of
any such space reductions.
13.09. COUNTERPARTS. This Agreement may be executed simultaneously
in one or more counterparts, with the same effect as if the signatories
executing the several counterparts had executed one counterpart, provided,
however, that the several executed counterparts shall together have been signed
by Buyer, and each of Sellers. All such executed counterparts shall together
constitute one and the same instrument.
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<PAGE> 72
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of Buyer and by each of the Sellers
on the date first above written.
BUYER:
COMDATA HOLDINGS CORPORATION
By: /s/ S.F. McNeil
---------------------------
Title: Chairman and CEO
------------------------
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<PAGE> 73
SELLERS:
/s/ John Robert Saunders
----------------------------------
John Robert Saunders
/s/ Harris Saunders, Jr.
-----------------------------------
Harris Saunders, Jr.
/s/ William Michael Linn
/s/ by Harris Saunders, Jr., Atty in J.
----------------------------------
William Michael Linn
/s/ Harris Saunders, Jr.
/s/ Mrs. William Michael Linn
-------------------------------------
Mrs. William Michael Linn
/s/ Elizabeth Saunders Linn
-------------------------------------
Elizabeth Saunders Linn
/s/ Elizabeth Saunders Linn
--------------------------------------
Elizabeth Saunders Linn
Custodian for
William Michael Linn, Jr.
Alexander Saunders Linn
Andrew Garrison Linn, and
Julius Beckett Linn
/s/ Jean R. Saunders, Trustee
--------------------------------------
Jean R. Saunders, Trustee under
that certain Trust dated February 16, 1967
for the benefit of
the children of Harris Saunders, Jr.
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<PAGE> 74
SELLERS:
Westward Capital B.V.
---------------------
by:Rene D.E. deu Hertop
Manager
----------------------
-----------------------
-----------------------
-----------------------
-----------------------
-----------------------
-----------------------
-----------------------
-----------------------
-----------------------
-----------------------
-----------------------
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<PAGE> 75
SELLERS:
JYW, INC.
------------------------
By: /s/ John Y. Williams
------------------------
Name: John Y. Williams
------------------------
President
------------------------
JYW, Inc.
------------------------
------------------------
------------------------
------------------------
------------------------
------------------------
------------------------
------------------------
------------------------
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<PAGE> 76
SELLERS:
Grubb & Williams, Ltd.
-------------------------------------
By: GW Partners, Ltd. General Partner
-------------------------------------
By: JYW Inc. General Partner
-------------------------------------
By: John Y. Williams
-------------------------------------
Name: John Y. Williams
-------------------------------------
Title: President
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
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SELLERS:
GW Investments, Ltd.
------------------------------
By: JYW, Inc., General Partner
------------------------------
By: /s/ John Y. Williams
------------------------------
Name: John Y. Williams
------------------------------
President
------------------------------
------------------------------
------------------------------
------------------------------
------------------------------
------------------------------
------------------------------
------------------------------
------------------------------
------------------------------
72
<PAGE> 1
EXHIBIT 10.35
ASSET PURCHASE AGREEMENT
DATED AS OF FEBRUARY 23, 1994
AMONG
ROTEC - THE ROUTING TECHNOLOGY COMPANY,
AS SELLER
AND
RONALD J. DOMBROWSKI, KORF E. PENZIEN, DAVID J. ROSS,
STEVEN T. BROWN AND EBRAHIM AMIRANA,
AS, COLLECTIVELY, PARTNERS
AND
COMDATA NETWORK, INC.,
AS BUYER
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I PURCHASE AND SALE OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01. Transfer of Purchased Assets. . . . . . . . . . . . . . . . . 1
1.02. Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . 4
1.03. Assumption of Certain Liabilities . . . . . . . . . . . . . . 5
1.04. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.05. Employees . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE II PARTICIPATION IN FUTURE EARNINGS . . . . . . . . . . . . . . . . . . . . . . 7
2.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.02. Calculation of Earnout. . . . . . . . . . . . . . . . . . . . 8
2.03. Payment of Earnout. . . . . . . . . . . . . . . . . . . . . . 8
2.04. Operating Policies During
Earnout Period . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . . . . . . . . . 11
3.01. Organization and Authority of Seller. . . . . . . . . . . . . 11
3.02. Due Authorization . . . . . . . . . . . . . . . . . . . . . . 11
3.03. No Conflict; Governmental Consents. . . . . . . . . . . . . . 12
3.04. Compliance with Laws. . . . . . . . . . . . . . . . . . . . . 13
3.05. Financial Information . . . . . . . . . . . . . . . . . . . . 13
3.06. Furniture, Fixtures and Equipment . . . . . . . . . . . . . . 13
3.07. Title to Personal Property. . . . . . . . . . . . . . . . . . 13
3.08. Payment Obligations . . . . . . . . . . . . . . . . . . . . . 14
3.09. Intellectual Property Rights. . . . . . . . . . . . . . . . . 14
3.10. Computer Software . . . . . . . . . . . . . . . . . . . . . . 14
3.11. Environmental Matters . . . . . . . . . . . . . . . . . . . . 16
3.12. Personal Property Leases. . . . . . . . . . . . . . . . . . . 16
3.13. Litigation; Judgments . . . . . . . . . . . . . . . . . . . . 17
3.14. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.15. Required Consents . . . . . . . . . . . . . . . . . . . . . . 17
3.16. Employees and ERISA . . . . . . . . . . . . . . . . . . . . . 18
3.17. Brokerage Fees. . . . . . . . . . . . . . . . . . . . . . . . 18
3.18. Absence of Questionable Payments. . . . . . . . . . . . . . . 19
3.19. Investment Representations. . . . . . . . . . . . . . . . . . 19
3.20. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.21. Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER. . . . . . . . . . . . . . . . .20
4.01. Organization and Authority of Purchaser . . . . . . . . . . .20
4.02. Power and Authority; Due Authorization. . . . . . . . . . . .20
4.03. No Conflict; Governmental Consents. . . . . . . . . . . . . .21
4.04. No Broker . . . . . . . . . . . . . . . . . . . . . . . . . .22
ARTICLE V COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
5.01. Conduct of Business Prior to Closing. . . . . . . . . . . . .22
5.02. Regulatory and Other Authorizations . . . . . . . . . . . . .23
5.03. Disclosure; Updates . . . . . . . . . . . . . . . . . . . . .23
5.04. Solicitation of Acquisitions. . . . . . . . . . . . . . . . .23
5.05. Full Access . . . . . . . . . . . . . . . . . . . . . . . . .23
5.06. Covenant Not to Compete . . . . . . . . . . . . . . . . . . .24
ARTICLE VI CONDITIONS TO PURCHASER'S OBLIGATIONS. . . . . . . . . . . . . . . . . . . .26
6.01. Representations and Warranties True;
Obligations Performed . . . . . . . . . . . . . . . . . . . .26
6.02. Approval of Purchaser's Bank Group. . . . . . . . . . . . . .26
6.03. Closing Deliveries of Seller. . . . . . . . . . . . . . . . .26
6.04. Further Assurances. . . . . . . . . . . . . . . . . . . . . .27
ARTICLE VII CONDITIONS TO SELLER'S OBLIGATION. . . . . . . . . . . . . . . . . . . . . .28
7.01. Representations and Warranties True;
Obligations Performed . . . . . . . . . . . . . . . . . . . .28
7.02. Closing Deliveries of Purchaser . . . . . . . . . . . . . . .28
ARTICLE VIII MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . .29
8.01. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . .29
8.02. Entire Agreement; Amendment; Waiver . . . . . . . . . . . . .29
8.03. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . .29
8.04. Assignment. . . . . . . . . . . . . . . . . . . . . . . . . .29
8.05. Binding Effect. . . . . . . . . . . . . . . . . . . . . . . .30
8.06. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . .30
8.07. Termination of Representations, Warranties, Agreements
and Covenants . . . . . . . . . . . . . . . . . . . . . . . .30
8.08. Indemnification . . . . . . . . . . . . . . . . . . . . . . .30
8.09. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . .31
8.10. Right to Terminate. . . . . . . . . . . . . . . . . . . . . .32
8.11. Governing Law . . . . . . . . . . . . . . . . . . . . . . . .32
8.12. Severability. . . . . . . . . . . . . . . . . . . . . . . . .32
8.13. No Third Party Beneficiaries. . . . . . . . . . . . . . . . .33
</TABLE>
<PAGE> 4
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of the 23rd day of February, 1994 by and among ROTEC - THE ROUTING
TECHNOLOGY COMPANY, a Connecticut general partnership (the "Seller"), RONALD J.
DOMBROWSKI, KORF E. PENZIEN, DAVID J. ROSS, STEVEN T. BROWN and EBRAHIM AMIRANA
(collectively, the "Partners"), and COMDATA NETWORK, INC., a Maryland
corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, Seller manufactures, designs, develops, markets and sells
tracking, planning, routing and delivery software products and services used
by, among others, transportation and delivery companies (the "Business");
WHEREAS, Seller desires to sell and Purchaser desires to purchase
substantially all of the assets and to assume certain liabilities of Seller
relating to the Business;
WHEREAS, the parties hereto desire to enter into this Agreement for
the purpose of setting forth the terms and conditions upon which the foregoing
will be accomplished;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and intending to be legally bound, the parties
hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.01. Transfer of Purchased Assets.
(a) Purchases by Purchaser. Subject to all of the terms
and conditions of this Agreement, Seller agrees to sell, transfer, assign, and
convey to Purchaser and Purchaser agrees to buy and acquire from Seller at the
Closing (as defined in Section 1.04 below) all of the assets used by Seller in
the operation of the Business whether owned or leased by Seller, including,
without limitation, the following:
<PAGE> 5
(i) all furniture, fixtures and equipment,
whether owned by Seller or presently subject to capitalized leases, used in the
Business ("Furniture, Fixtures and Equipment");
(ii) all accounts receivable, notes receivable,
deposits and advances arising from the operation of the Business and existing
on the Closing Date (hereinafter referred to as the "Accounts Receivable");
(iii) all rights as lessee under the Personal
Property Leases (as defined in Section 3.12 hereof);
(iv) all rights of Seller under open customer
purchase orders entered into in the ordinary course of business which have not
been filled as of the Closing Date;
(v) all rights of Seller under all other
contracts, leases, commitments and agreements relating in any manner to the
Business, including without limitation those identified on Schedule 1.03(a)
attached hereto;
(vi) all right, title and interest of Seller and
the Partners in and to all intellectual property rights embodied in or related
to the Business, including without limitation, all (i) patents, patent
applications, trademarks, trademark applications, trade names, trade name
applications, service marks, service mark applications, copyrights and
copyrights application, including without limitation, those identified on
Schedule 3.09 attached hereto and (ii) trade secrets, inventions, know-how,
designs, processes, specifications and formulas;
(vii) all databases, software, software codes and
hardware owned or licensed by or to Seller or otherwise used in or related to
the Business, and, including, without limitation, all source and object codes,
user documentation, and development plans, specifications, or documentation
related thereto.
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<PAGE> 6
(viii) all right, title and interest of Seller and
the Partners in and to the names "RoTec - The Routing Technology Company", "P&D
Planner", "LoadPlanner", "RoutePlanner", "ResourcePlanner", "ModePlanner", "RSA
Tool Kit", "NetworkPlanner", "Inteli-Tracs", "LocationPlanner", "EVRPlanner",
"ServicePlanner", "TripPlanner", "TripPlanner Business Locator Option", "DOS
Batch Street Router", and all derivatives thereof;
(ix) all books of account, files, invoices,
purchase records, customer lists, supplier lists, prospect lists, personnel
records, and other books and records used in or related to the Business; and
(x) all other businesses, franchises, rights,
privileges, properties, and assets of every nature and description, tangible
or intangible, real, personal, or mixed, and wherever located, included without
limitation, governmental permits, licenses, authorizations, approvals,
consents, and permissions, used or related to the Business.
(b) No Liens and Encumbrances. The assets being
transferred and sold to Purchaser under Section 1.01(a) above are hereinafter
collectively referred to as the "Purchased Assets". Except as described on
Schedule 1.01(b), Seller has good and marketable title to all of the Purchased
Assets and all of the Purchased Assets will be transferred to Purchaser free
and clear of all claims, liens, encumbrances, security interests, mortgages and
similar interests of any kind or nature whatsoever.
3
<PAGE> 7
1.02. Purchase Price.
(a) The Purchase Price for the Purchased Assets (the
"Purchase Price") shall consist of (i) a Five Hundred Thousand and No/100ths
Dollars ($500,000.00) cash payment (the "First Cash Payment") which will be
paid to Seller in accordance with Section 7.02(b) of this Agreement, (ii) a
Four Hundred Forty-Three Thousand Seven Hundred Fifty and No/100ths Dollars
($443,750.00) cash payment (the "Second Cash Payment) to be paid to Seller in
accordance with Section 1.02(c) of this Agreement, and (iii) participation in
the future earnings generated from the Purchased Assets in accordance with the
provisions of Article II of this Agreement (the "Earnout").
(b) Prorations. The Purchase Price shall be adjusted by
prorating between Purchaser and Seller on a per diem basis as of the Closing
Date: (i) the amounts of prepaid rent or accrued or unpaid rental payments
under the Personal Property Leases; (ii) all assessments, real estate taxes,
personal property taxes and other similar charges assessed against the
Purchased Assets for the current calendar year; (iii) charges, if any, for
utilities servicing the Business, including, without limitation, charges for
gas, electricity, sewer and water; (iv) all other similar charges and fees
customarily prorated and adjusted in similar transactions; provided, however,
that Seller shall pay (X) all sales and use taxes and similar charges, if any,
arising out of the transfer of the Purchased Assets pursuant to this Agreement;
(Y) any income, sales, use, business, occupation, withholding, employment,
security or similar tax, or any other taxes of any kind whatsoever with respect
to the Purchased Assets and the operation of the Business relating to any
period before the close of business on the Closing Date; and (Z) all transfer
taxes and similar charges arising out of the transfer of the Purchased Assets.
(If so permitted by the utility companies, Seller shall cause all utilities to
be metered as of the close of business on the Closing
4
<PAGE> 8
Date with instructions to the utility companies to bill Seller for charges
prior to the close of business on the Closing Date and to bill Purchaser for
charges commencing thereafter.)
(c) The Second Cash Payment. In the event the RoTec
Division has produced a positive EBITDA result, calculated in accordance with
this Agreement, during the period from April 1, 1994 through December 31, 1994,
then the Seller shall be entitled to receive the Second Cash Payment from the
Purchaser due and payable on January 6, 1995. The Second Cash Payment, if
paid, shall be deducted from any amount due to Seller for performance for the
Year Three Earnout Period, as defined in Article II hereof.
1.03. Assumption of Certain Liabilities.
(a) Assumed Liabilities. At the Closing, Purchaser
agrees to assume only the obligations of Seller arising from the Closing Date
under: (i) the rights and obligations as lessee under the Personal Property
Leases; (ii) all accrued vacation for those employees of Seller hired by
Purchaser; and (iii) the rights and obligations of Seller under those certain
agreements set forth on Schedule 1.03(a). The liabilities and obligations to
be assumed by Purchaser pursuant to this Section are hereinafter collectively
referred to as the "Assumed Liabilities".
(b) Exclusion of Other Liabilities. Except for the
Assumed Liabilities, it is expressly understood and agreed that Purchaser will
not be liable for any obligations, liabilities, contracts, debts, claims,
costs, expenses, agreements or understandings of any kind or nature whatsoever
related to Seller's operation of the Business or its ownership or use of the
Purchased Assets (the "Excluded Liabilities"). Purchaser, and not Seller,
shall be responsible for any liabilities or obligations resulting from events
or occurrences relating to the ownership and use of the Purchased Assets or the
operation of the Business after the Closing Date unless otherwise expressly
imposed by this Agreement.
5
<PAGE> 9
1.04. Closing Subject to the terms and conditions of this
Agreement, including, without limitations, the conditions precedent to the
obligations of Seller and Purchaser set forth in Articles VI and VII hereof,
the sale and purchase of the Purchased Assets contemplated hereby shall take
place at a closing (the "Closing") at Purchaser's offices on February 23, 1994
or at such other date or at such other place as the parties hereto may mutually
agree upon in writing (the date of Closing being referred to herein as the
"Closing Date".)
1.05. Employees.
(a) Except as hereinafter specifically provided and
without limiting the generality of Section 1.03(b) hereof, Purchaser shall not
assume any employment obligation, wage or salary payment obligation or employee
benefit obligation of Seller. Prior to the Closing Date, Seller shall afford
Purchaser a reasonable opportunity to interview its employees for prospective
employment by Purchaser. Purchaser shall have no obligation to offer
employment to any such person, but in its discretion may offer employment to
any such person on terms and conditions established by Purchaser. Seller will
furnish to Purchaser such information in its personnel files as Purchaser may
reasonably request in connection with determining whether to employ a person
presently employed by Seller.
(b) Seller shall terminate the employment of each person
employed by Seller, effective the Closing Date. On the Closing Date, or as
soon as practicable thereafter, Seller shall pay each such person all accrued
wage, salary, commission, bonus and other employee compensation payments for all
periods prior to the Closing Date. In addition, Seller shall pay or provide
for all other employee benefits maintained by Seller for all periods prior to
the Closing Date, all in accordance with applicable law. Purchaser shall
recognize the accrued vacation benefits of each of Purchaser's employees who
accepts employment with Purchaser to the extent disclosed to
6
<PAGE> 10
Purchaser in writing prior to the Closing and shall provide such vacation to
such employee while employed by Purchaser.
ARTICLE II
PARTICIPATION IN FUTURE EARNINGS
Seller may receive additional amounts as consideration for the
Purchased Assets based upon the earnings of the RoTec Division of Purchaser
from April 1, 1994 through March 31, 1997.
2.01. Definitions. The following definitions will be used
in calculating the amount of the Earnout:
(a) Earnout Period. The term "Earnout Period"
will mean:
Time Period Earnout Period
----------- --------------
April 1, 1994 - March 31, 1995 Year One Earnout Period
April 1, 1995 - March 31, 1996 Year Two Earnout Period
April 1, 1996 - March 31, 1997 Year Three Earnout Period
(b) EBITDA. The term "Earnings Before Interest,
Taxes, Depreciation and Amortization" or "EBITDA" will mean the annual (April 1
- - March 31) RoTec Division net income, excluding interest expenses net of
interest income, taxes on income, depreciation and amortization, and
amortization of the allocation of the excess Purchase Price paid (goodwill and
other intangibles). Unless otherwise provided in this Agreement, the values
utilized in calculating EBITDA shall be determined in accordance with generally
accepted accounting principles, consistently applied.
(c) Capital Used. The term "Capital Used" will
mean the amount of capital which in no event shall exceed One Million Five
Hundred Thousand and No/100ths Dollars
7
<PAGE> 11
($1,500,000.00), used by the RoTec Division including, without limitation, bank
borrowings and other debt including capitalized leases, net inter-company
balances with Purchaser or its affiliates, and book overdrafts, all as
reflected on the general ledger at the respective accounting month-end. Unless
otherwise provided in this Agreement, the values utilized in calculating
Capital Used shall be determined in accordance with generally accepted
accounting principles, consistently applied.
2.02. Calculation of Earnout. The Earnout will be calculated at the
end of each Earnout Period by using the below-described formula:
At the end of an Earnout Period, the Earnout for that Earnout
Period will be the EBITDA for that Earnout Period (not to exceed in the
aggregate $9,300,000 [including payment of the First Cash Payment and the
Second Cash Payment]) less the Capital Used for that Earnout Period. The first
payments to Seller pursuant to the Earnout shall be reduced dollar-for-dollar
by $500,000 (which is the First Cash Payment portion of the Purchase Price).
The final payments to Seller pursuant to the Earnout shall be reduced
dollar-for-dollar by $443,750 (which is the Second Cash Payment portion of the
Purchase Price) if the Second Cash Payment is paid pursuant to Section 1.02(c)
hereof. In no event shall the actual aggregate Earnout Payments for all three
Earnout Periods exceed $9,300,000 comprised of: (a) $8,356,250 available for
Earnout Payments, (b) $500,000 as the First Cash Payment, and (c) $443,750 as
the Second Cash Payment, if paid in accordance with Section 1.02(c) hereof.
2.03. Payment of Earnout.
(a) Within seventy-five (75) days after the end of an
Earnout Period, the Purchaser will pay to the Seller the amount of the Earnout,
if any, earned for such Earnout Period by delivery of Purchaser's certified or
cashier's check to Seller. Notwithstanding the foregoing,
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Purchaser shall have the right to offset against the Earnout pursuant to
Section 8.08 of this Agreement.
(b) In addition to the Earnout described above in Section
2.03(a), within seventy-five (75) days after the end of each Earnout Period,
Purchaser will cause an amount of stock (the "Comdata Stock") of its parent,
Comdata Holdings Corporation, a Delaware corporation ("Comdata"), as determined
below to be issued to the Partners (based upon their respective ownership
interests in Seller on the Closing Date). The total number of shares of
Comdata Stock to be issued will be an amount equal to forty percent (40%) of
the payment calculated in Section 2.02 above (as reduced by the First Cash
Payment and the Second Cash Payment, if paid in accordance with Section 1.02(c)
hereof) divided by the average closing sales price of Comdata Stock on the
NASDAQ National Market System for the last thirty (30) business days of the
Earnout Period. If Comdata Stock is not publicly traded at such time, then the
value of the Comdata Stock for the above calculation shall be an amount equal
to the good faith determination of Purchaser's Board of Directors.
2.04. Operating Policies During Earnout Period.
(a) During the Earnout Period, Purchaser, except as may
be necessary or appropriate in the exercise of its business judgment, agrees
that it shall use its best efforts not to implement any business policies or
plans for the sole purpose of minimizing or defeating Seller's rights to the
Earnout as described in Sections 2.01 through 2.03 of this Agreement.
Likewise, during the Earnout Period, the Partners covenant that none of them
will make any business decisions or implement any business policies or plans
for the sole or primary purpose of maximizing their rights to the Earnout as
described in Sections 2.01 through 2.03 of this Agreement. Purchaser further
agrees to provide such working capital (up to $1,500,000) during the Earnout
Period as shall reasonably be needed by the RoTec Division to have the
opportunity
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to achieve the Earnout. The need for such working capital shall be determined
quarterly in advance of each calendar quarter and shall take into account the
RoTec Division's prior results, likelihood of achievement of projected results,
industry conditions and such other matters as may be deemed material by either
(i) an executive officer of the Purchaser (e.g., the Chief Executive Officer,
the Chief Operating Officer, or the Chief Financial Officer), or (ii) the Board
of Directors of Purchaser. Working capital and other advancements shall be
made from Purchaser to the RoTec Division in accordance with the Purchaser's
policy for capital expenditures, as such policy currently exists and as the
same may be modified hereafter from time to time. Additional details regarding
this matter are set forth in Exhibit A, attached hereto and fully incorporated
herein by this reference.
(b) Not later than sixty (60) days following the
conclusion of each Earnout Period, Purchaser shall conduct an accounting of the
financial performance of the RoTec Division for the just completed Earnout
Period. Such accounting shall be in accordance with generally accepted
accounting principles, consistently applied, including, without limitation,
SFAS 86, as the same may be modified hereafter from time-to-time.
(c) The RoTec Division shall be entitled to receive
certain expense credits, for purposes of the Earnout calculation, for expenses
actually incurred in supporting projects of Purchaser, as designated by
Purchaser from time to time (individually, a "Purchaser Project"). Expenses
entitled to such credit shall be the actual salary costs for employees directly
involved in supporting Purchaser Projects. For those activities designated as
Purchaser Projects, Purchaser shall allocate expenses between the RoTec
Division and its other Divisions as follows: for the Year One Earnout Period,
50% of the expense shall be borne by the RoTec Division; for the Year Two
Earnout Period, 40% of the expense shall be borne by the RoTec Division; and
for the Year Three Earnout Period, 30% of the expense shall be borne by the
RoTec Division. For purposes
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of this Section 2.04(c), the foregoing expenses shall be limited to Purchaser
Projects implemented in Windows, Windows NT, and variant environments.
(d) At such time as may be required by Purchaser and in
accordance with Purchaser's policies as the same may exist from time to time
during the Earnout Period, the managers of the RoTec Division shall submit a
strategic and financial business plan for submission to, and approval by, the
Purchaser's Executive Committee or other appropriate persons employed or
retained by Purchaser. Additional details regarding this matter are set forth
in Exhibit A, attached hereto and fully incorporated herein by this reference.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller and the Partners, jointly and severally, hereby represent
and warrant to Purchaser as follows:
3.01. Organization and Authority of Seller. Seller is a general
partnership duly organized, validly existing and in good standing under the
laws of the State of Connecticut. Seller has all necessary power and authority
to own its properties and conduct its business as it is presently being
conducted. Seller is duly qualified or licensed to do business in each
jurisdiction wherein the nature of its activities or of properties owned or
leased by it make such qualification necessary.
3.02. Due Authorization. Seller has full power and authority to
execute and deliver this Agreement and each of the documents referenced herein
(collectively, the "Transaction Documents") to which Seller is or will be a
party and to consummate the transactions contemplated thereby. The Partners of
Seller have duly approved and authorized the execution and delivery of this
Agreement and each of the Transaction Documents and the consummation of
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the transactions contemplated thereby, and no proceedings on the part of Seller
are necessary to approve and authorize the execution and delivery of this
Agreement and such Transaction Documents and the consummation of the
transactions contemplated hereby. Assuming that this Agreement and each of the
Transaction Documents to which Purchaser is a party constitutes a valid and
binding agreement of Purchaser, this Agreement and each of the Transaction
Documents to which Seller is a party constitutes, or will constitute when
executed and delivered, a valid and binding agreement of Seller, in each case
enforceable in accordance with its terms.
3.03. No Conflict; Governmental Consents. The execution and
delivery by Seller of this Agreement and the Transaction Documents and the
consummation by Seller of the transactions contemplated thereby do not and will
not (a) conflict with or result in a breach of any provision of Seller's
partnership agreement; (b) violate or conflict with, or result in a breach of
any provision of, or constitute a default (or an event which with notice or
lapse of time or both, would constitute a default) under, or require consents
from any other party to, or result in the termination or cancellation or in a
right of termination or cancellation of, or accelerate or result in a right to
accelerate the performance required by, any contract to which Seller is a party
or will be a party, which in any such instance will affect the Purchased Assets
after the Closing, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the Purchased Assets, or result in being
declared or in the right to declare void, voidable or without further binding
effect any of the terms, conditions or provisions of any such contracts; (c)
violate any order, writ, jurisdiction, decree, judgment, ruling, law, rule or
regulation of any federal, state, county, municipal, or foreign court or
governmental authority applicable to Seller; or (d) require any consent,
approval or authorization of, or notice to, or declaration, filing or
registration with, any governmental or regulatory authority.
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3.04. Compliance with Laws. Seller is not in violation of, and to
its knowledge is not under investigation with respect to or threatened to be
charged or given notice of, any non-compliance with, enforcement action under
or violation of, any applicable law, statute, order, rule, regulation, agency
agreement, judgment, decree, arbitration award, penalty or fine entered by any
federal, state, local or foreign court or governmental authority relating to
the Purchased Assets, including, without limitation, any laws relating to
intellectual property rights, any environmental laws, laws concerning
occupational health and safety, or applicable zoning laws or regulations.
There are no facts known to Seller which, if known by a potential claimant or
governmental authority, would give rise to a claim or proceeding to which the
Purchased Assets would be subject.
3.05. Financial Information. Seller has furnished Purchaser with
its unaudited financial statements for its 1993 fiscal year (collectively, the
"Financial Information"). The Financial Information is true and correct in all
material respects and fairly presents the financial condition of the Seller and
its results of operations as of and for the indicated dates.
3.06. Furniture, Fixtures and Equipment. The Furniture, Fixtures,
and Equipment are in good working condition and repair, normal wear and tear
excepted, and are adequate for the uses for which they are intended. The
Purchased Assets constitute all the assets owned, leased or used by the Seller
which are in any way necessary to the continued operation of the Business as
now being conducted.
3.07. Title to Personal Property. At the Closing, Seller will have
good, valid and marketable title to the Furniture, Fixtures and Equipment, and
Leasehold Improvements (collectively, the "Personal Property") and the Personal
Property will be transferred to Purchaser free and clear of any liens, pledges,
charges, encumbrances, claims or similar rights of third parties.
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3.08. Payment Obligations. The Accounts Receivable to be purchased
by Purchaser have arisen and will arise in the normal course of the operation
of the Business, and constitute and will constitute valid and binding
obligations of the account debtors and obligors, enforceable in accordance with
their terms at the amount recorded therefor in the books and records of Seller
(without giving effect to any allowance for doubtful accounts) and are not and
will not be subject to any discounts, whether for prompt payment or otherwise.
3.09. Intellectual Property Rights. Schedule 3.09 attached hereto
lists and correctly describes all patents, trademarks, trade names, service
marks and copyrights (and all applications therefor) embodied in or related to
the Business. Seller (i) owns or has the exclusive right to use all such
patents, trademarks, trade names, service marks and copyrights (and all
applications therefor) and all trade secrets, inventions, know-how, designs,
processes, computer programs, specifications and formulas otherwise embodied in
or related to the Business and (ii) is not using any confidential information
or trade secrets of others. Seller is not obligated to pay royalties, fees or
other payments to any owner of, licensor of, or other claimant to, any patent,
trademark, service mark, trade name, copyright or other intellectual property
embodied in or related to the Business. Seller has not transferred or conveyed
any rights to others in the intellectual property of Seller embodied in or
related to the Business other than rights to use that are incidental to sales
of products included within the Business. Seller is not, nor has it received
notice with respect to, infringing upon or otherwise acting adversely to any
known right or claimed right of any person under or with respect to any
patents, trademarks, service marks, trade names, copyrights, licenses or other
intellectual property rights with respect to the Business. Other than as set
forth in Schedule 3.09 attached hereto, all computer programming with respect
to the Business has been performed by employees of Seller and constitutes
"works made for hire".
3.10. Computer Software.
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(a) Schedule 3.10 hereto contains a true and complete
list of all computer software developed, manufactured, marketed, or sold by the
Seller, including, without limitation, all planning, routing, and delivery
software products sold or licensed to transportation and delivery companies.
(b) The Seller is the sole and exclusive owner worldwide,
free of any liens, of the copyrights in and to such software products, all of
their component elements (including, without limitation, all ideas, program
logic, systems, layouts, concepts, methods, algorithms, formatting, computer
programs, source code, object code, development documentation, diagrams, flow
charts, support documentation (including instructional manuals), user interface
(including all commands and protocols), screen displays, and structure,
sequence, and organization) and all existing derivative works thereof
(collectively, the "Software Products").
(c) The company is the sole owner of, or sole rightful
applicant in its own name, of all registrations and applications for
registration of the Software Products with any applicable government authority.
A true and correct list of such registrations and applications for registration
is set forth in Schedule 3.10.
(d) The use (or non-use) of the Software Products by the
Seller is unburdened by any obligation to pay royalty, license fee, residual
compensation, or other amount, however characterized, or to obtain any third
party clearance or consent in respect thereof, including any obligation to
obtain any third party clearance or consent in respect of the transactions
contemplated hereby.
(e) There are no agreements, assignments, or other
instruments of any kind licensing to any third party, or otherwise granting to
a third party, any rights under or otherwise relating to the Software Products,
other than the end user agreements listed on Schedule 3.10.
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(f) Neither the Seller nor any Partner (i) has been sued
or been a defendant in any claim, suit, action, or proceeding relating to any
Software Product which has not been finally terminated prior to the date
hereof; (ii) has knowledge of any such charge or claim; or (iii) has knowledge
of or by any infringement of a Software Product.
(g) All Software Products were developed solely by (i)
employees of the Seller acting within the scope of their employment, or (ii)
independent contractors pursuant to valid and enforceable work made for hire
agreements between Seller and such contractors.
(h) All Software Products bear legible and accurate
copyright notices sufficient to confer upon Seller all statutory benefits of
such notices, in accordance with the United States Copyright Act, 17 U.S.C. 100
et seq., as amended, and the regulations promulgated thereunder.
(i) All Software Products have been duly registered and
deposited with the United States Copyright Office in accordance with the United
States Copyright Act, 17 U.S.C. 100 et seq., as amended, and the regulations
promulgated thereunder.
3.11. Environmental Matters. In the ownership of the Purchased
Assets and the operation of the Business, Seller has complied with all laws and
regulations relating to pollution and environmental control. Seller is not in
violation of any permits, plans for compliance schedules, or any law,
regulation, order or decree regulating emissions into the environment
(including solids, liquids and gases) and the proper disposal of materials in
the operation of the Business.
3.12. Personal Property Leases. Schedule 3.12 hereto contains an
accurate description of the material terms of all leases under which Seller is
lessee of certain equipment or other personal property used in the operation of
the Business ("Personal Property Leases"). True, correct and complete copies
of the Personal Property Leases and all amendments thereto have
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been made available to Purchaser. Such Personal Property Leases have not been
further modified in any respect and are valid and legally binding upon the
parties thereto and in full force and effect. There is not under any of the
Personal Property Leases (i) any default by Seller or, to Seller's knowledge,
the lessors or (ii) any event which, with notice or lapse of time, or both,
would constitute a default by Seller or, to Seller's knowledge, by any of the
lessors. Seller is lawfully in possession of all of the personal property of
which Seller is lessee under the Personal Property Leases. At the Closing,
Seller's interest in and under each of the Personal Property Leases will be
transferred to Purchaser free and clear of any liens or encumbrances. The
personal property so leased under the Personal Property Leases is in good
working condition and repair, normal wear and tear excepted.
3.13. Litigation; Judgments. There is no action, proceeding or
investigation pending or threatened against or involving Seller relating to the
Purchased Assets or the operation of the Business, or which questions or
challenges the validity of this Agreement or any action taken or to be taken by
Seller pursuant to this Agreement or in connection with the transactions
contemplated hereby. Seller is not subject to any judgment, order or decree
entered in any lawsuit or proceeding relating to the Purchased Assets or the
operation of the Business.
3.14. Insurance. Seller maintains property, fire, casualty,
liability, workmen's compensation, title and other forms of insurance relating
to the Purchased Assets and the operation of the Business against risks of the
kind customarily insured against and in amounts not less than the greater of
replacement cost or the book value of the Purchased Assets. Seller will
maintain such insurance policies through the Closing Date.
3.15. Required Consents. The execution and delivery of this
Agreement and the consummation of the transactions (or any of them)
contemplated hereby do not and will not
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require the consent, approval or action of, or any filing with or notice to,
any corporation, firm, person or other entity or any public, governmental or
judicial authority.
3.16. Employees and ERISA.
(a) Set forth in Schedule 3.16 is a list of Seller's
employees, with a brief job description of each.
(b) Except as described in Schedule 3.16 hereto the Seller
is not a party to, nor is it subject to: (i) any union contract or any
employment contract or arrangement, written or oral, with any officer,
consultant, director, or employee which is not terminable on thirty (30) days
notice or less without penalty or legal obligation to make termination payments
during or after expiration of such notice period; (ii) any plan, contract, or
arrangement, written or oral, providing for bonuses, pensions, deferred
compensation, termination compensation, retirement payments, profit sharing or
the like; or (iii) any other employee benefit plan.
(c) The Seller has complied in all material respects with
all applicable federal, state, and local laws relating to employment of labor,
including the provisions of the Employee Retirement Income Security Act of 1974
("ERISA") and the laws relating to wages, hours, collective bargaining, and the
payment of social security taxes; the Seller is not liable for any arrears of
wages or benefits or any penalties for failure to comply with any of the
foregoing; and there are no material controversies pending or threatened
between the Seller and its employees.
3.17. Brokerage Fees. In the negotiations leading up to the sale of
the Purchased Assets and the execution of this Agreement and the consummation
of the transactions contemplated hereunder, Seller has not retained or utilized
the services of any broker, finder or intermediary, or paid or agreed to pay
any fee or commission to any person for or on account of the transactions
contemplated hereby, or had any communications with any person which would
obligate Purchaser to pay any such fee or commission.
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3.18. Absence of Questionable Payments. Neither the Seller nor any
of its Partners, officers, employees or affiliates has at any time used funds
for any illegal purpose, including without limitation, the making of any
improper political contribution, bribe or kickback.
3.19. Investment Representations. Each Partner acknowledges that
the shares of Comdata Stock which he may acquire pursuant to this Agreement
will not have been registered under the Securities Act of 1933 (the "1933 Act")
or any state securities laws prior to their issuance and delivery to Seller.
Each Partner represents and warrants that he has no present plans to sell,
transfer or distribute such shares and he acknowledges that such shares may not
be sold or transferred by him except (i) pursuant to an effective registration
statement under the 1933 Act, or (ii) pursuant to a transaction which, in the
opinion of counsel, will not be in violation of the 1933 Act. Each Partner
agrees that the certificates for shares of Comdata Stock issued to him shall
bear substantially the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 and may not be
sold or transferred in the absence of an effective
registration statement for the shares under the Securities Act
of 1933 or an opinion of counsel to the Company that
registration is not required under said Act."
Each Partner further agrees that he will, at Closing, deliver to Purchaser a
letter, in the form of Schedule 3.19 hereto confirming the matters referred to
in this Section and such additional related matters as Purchaser may reasonably
deem necessary with respect to the delivery of the shares of Comdata Stock to
him without registration under the 1933 Act, under this Agreement.
3.20. Taxes. Seller (i) has duly and timely filed or caused to be
filed all Federal, state, local and foreign tax returns required to be filed by
it prior to the date hereof with respect to which Seller, any of the Purchased
Assets or the Business is liable or otherwise in any way subject, (ii) has paid
or fully accrued for all taxes shown to be due and payable on such returns
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(which taxes, to the best knowledge and belief of Seller, are all the taxes due
and payable under the laws and regulations pursuant to which such returns were
filed) and (iii) has properly accrued for all such taxes accrued in respect of
Seller, any of the Purchased Assets or the Business for periods subsequent to
the periods covered by such returns.
3.21. Full Disclosure. Neither this Agreement, nor any Schedule,
exhibit, list, certificate or other instrument and document furnished or to be
furnished by Seller or any Partner to Purchaser in connection with this
transaction, contains any untrue statement of a material fact or omits to state
any material fact required to be stated herein or therein or necessary to make
the statements and information contained herein or therein not misleading.
Neither Seller nor any Partner has withheld from Purchaser disclosure of any
event, condition, or fact which Seller or any Partner knows, or has reasonable
grounds to know, that may materially adversely affect Seller's assets,
prospects or condition (financial or otherwise).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as follows:
4.01. Organization and Authority of Purchaser. Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Maryland. Purchaser has all necessary corporate power and
authority to own its properties and conduct its business.
4.02. Power and Authority; Due Authorization. Purchaser has full
power and authority to execute and deliver this Agreement and each of the
Transaction Documents to which Purchaser is or will be a party and to
consummate the transactions contemplated thereby. The Board of Directors of
Purchaser has duly approved and authorized the execution and delivery of
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this Agreement and each of the Transaction Documents and the consummation of
the transactions contemplated hereby, and no other corporate proceedings on the
part of the Purchaser are necessary to approve and authorize the execution and
delivery of this Agreement and such Transaction Documents and the consummation
of the transactions contemplated hereby. Assuming that this Agreement and each
of the Transaction Documents to which Seller is a party constitutes a valid and
binding agreement of Seller, this Agreement and each of the Transaction
Documents to which Purchaser is a party constitutes, or will constitute when
executed and delivered, a valid and binding agreement of Purchaser, in each
case enforceable in accordance with its terms.
4.03. No Conflict; Governmental Consents. Assuming all consents,
approvals, authorizations and other actions listed on Schedule 4.03 attached
hereto have been obtained, the execution and delivery by Purchaser of this
Agreement, the Transaction Documents and the consummation by Purchaser of the
transactions contemplated thereby does not and will not (a) conflict with or
result in a breach of any provision of the Articles of Incorporation or Bylaws
of Purchaser; (b) violate or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time, or both, would constitute a default) under, or require consents from
any other party to, or result in the termination or cancellation or in a right
of termination or cancellation of, or accelerate or result in a right to
accelerate the performance required by, any material contract to which
Purchaser is a party or will be a party as of the Closing, which in any such
instance will result in being declared or in the right to declare void,
voidable or without further binding effect any of the terms, conditions or
provisions of any such material contracts; (c) violate any order, writ,
injunction, decree, judgment, ruling, law or regulation of any federal, state,
county, municipal, or foreign court or governmental authority applicable to
Purchaser and relating to the purchase of the Business; or (d) require any
consent,
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approval or authorization of, or any notice to, or declaration, filing or
registration with, any governmental or regulatory authority.
4.04. No Broker. In the negotiations leading up to the purchase of
the Purchased Assets, Purchaser has not retained or utilized the services of
any broker, finder or intermediary, or paid or agreed to pay any fee or
commission to any such person for or on account of the transactions
contemplated hereby or had any communications with any person which would
obligate Seller to pay any such fee or commission.
ARTICLE V
COVENANTS
5.01. Conduct of Business Prior to Closing. Seller agrees that
prior to the Closing Date and except as otherwise consented to or approved by
Purchaser in writing:
(a) Ordinary Course. Seller shall carry on its business
diligently, in the ordinary course and substantially in the same manner as
heretofore conducted. Without limiting the foregoing, Seller shall (i) not
transfer, assign or pledge any of the Purchased Assets being sold hereunder,
other than in the ordinary course of business or the replacement of other items
in the ordinary course of business; and (ii) not take any action, omit to take
any action or permit any third party to take any action (other than matters for
which Seller has no control) which would cause Seller to be in breach in any
material respect of any of Seller's representations, warranties or covenants
contained herein at the Closing Date.
(b) Business Organization. Seller shall use its best
efforts to preserve its existence and business organization intact, to maintain
its employees and to preserve its relationships with suppliers, customers and
others having business relations with Seller.
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5.02. Regulatory and Other Authorizations. Seller will use
its best efforts to obtain all authorizations, consents, orders and approvals
of all parties whose consents are necessary to consummate the transactions
contemplated by this Agreement. Seller will not take any action that will have
the effect of delaying, impairing, or impeding the receipt of any required
approvals.
5.03. Disclosure; Updates. Each party hereto agrees that it shall
not issue any press release or written statement for general circulation
relating to the transactions contemplated hereby, without prior consultation
with the other party hereto, except as otherwise required by law or upon the
advice of its counsel. In addition, each party hereto agrees that it will keep
the other advised of all material developments relevant to its business and to
the consummation of this Agreement.
5.04. Solicitation of Acquisitions. Prior to the Closing Date,
Seller and the Partners shall not solicit or encourage inquiries or proposals
with respect to, furnish any information relating to, or participate in any
negotiations or discussions concerning, any acquisition or purchase of all or a
substantial portion of the assets of, or of a substantial equity interest in,
Seller or any business combination with Seller other than as contemplated by
this Agreement; Seller shall instruct its Partners and its officers, agents and
affiliates to refrain from doing any of the above. Seller will notify
Purchaser if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated with, Seller.
5.05. Full Access.
(a) Between the date hereof and the Closing Date, Seller
shall afford Purchaser and its respective officers, employees and authorized
representatives full access to the Business and its books and records, and
shall direct and cause its agents, employees, accountants, counsel and other
representatives to do so, and a full opportunity to make such investigations
and
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review and copy such documents, instruments and agreements as it or its
representatives shall desire.
(b) Neither party will use any information obtained
pursuant to this Agreement for any purpose unrelated to the consummation of the
transactions contemplated by this Agreement, provided that Purchaser may use
such information in connection with other proposed business combinations to the
extent it is advised by counsel that it is necessary to use such information
in such connection (unless this Agreement has been previously terminated) and
each party will hold all information and documents obtained pursuant to this
Section 5.05 in confidence unless and until such time as such information or
documents otherwise become publicly available or as it is advised by counsel
that any such information or document is required by law to be disclosed. In
the event of the termination of this Agreement, each party upon request will
deliver to the other all documents so obtained by it.
5.06. Covenant Not to Compete.
(a) Each of Seller and the Partners hereby covenant and
agree with Purchaser that, during the Noncompete Period (as such term is
defined herein) and within the Noncompete Area (as such term is defined
herein), neither Seller nor any Partner shall directly or indirectly, (i)
acquire, lease, manage, consult for, provide (or cause to be provided) sales,
marketing, or programming services for, serve as agent or subcontract for,
finance, invest in, own any part of or exercise management control over any
business which provides any services competitive with the services provided by
the Business as of the Closing, or (ii) solicit for employment or employ any
person who at Closing or thereafter became an employee of Purchaser unless such
person is no longer employed by the Purchaser or an affiliate of Purchaser for
at least one (1) year, or (iii) disrupt or attempt to disrupt any past, present
or reasonably foreseeable future relationship, contractual or otherwise between
Purchaser, on the one hand, and any customer with whom
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Purchaser contracts with in connection with the Business, on the other hand.
The "Noncompete Period" shall commence at the Closing and terminate on the
fifth (5th) anniversary thereof. The "Noncompete Area" shall mean the
continental United States and in any other area where the business of the
Purchaser is now or hereafter conducted.
(b) In the event of a breach of Section 5.06(a) hereof,
Seller and the Partners recognize that monetary damages shall be inadequate to
compensate Purchaser and Purchaser shall be entitled, without the posting of a
bond, to an injunction restraining such breach, with the costs including
attorneys fees of securing such injunction to be borne by Seller and the
Partners. Nothing contained herein shall be construed as prohibiting Purchaser
from pursuing any other remedy available to it for such breach or threatened
breach.
(c) All parties hereto hereby acknowledge the necessity
of protection against the competition of the Seller and the Partners and that
the nature and scope of such protection has been carefully considered by the
parties. The period provided and the area covered are expressly represented
and agreed to be fair, reasonable and necessary. The consideration provided
for herein is deemed to be sufficient and adequate to compensate the Seller and
the Partners for agreeing to the restrictions contained in Section 5.06(a)
hereof. If, however, any court determines that the foregoing restrictions are
not reasonable in duration, geographic area or otherwise, the parties agree
that the court shall have the power to modify the unreasonable restriction(s)
to the maximum restriction permissible and to include as much of its nature and
scope as will render it enforceable, and, in its modified form, said
restriction shall be reasonable, valid and enforceable.
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<PAGE> 29
ARTICLE VI
CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligations of Purchaser under this Agreement to consummate the
purchase of the Purchased Assets shall be subject to the fulfillment on or
prior to the Closing Date of each of the following conditions:
6.01. Representatives and Warranties True; Obligations Performed.
The representations and warranties of Seller contained in this Agreement shall
be true and correct as of the Closing Date with the same force and effect as if
made as of the Closing Date, and all the covenants contained in this Agreement
to be compiled with by Seller on or before the Closing Date shall have been
complied with in all respects and Purchaser shall have received a certificate
to such effect from a Partner of Seller dated the Closing Date.
6.02. Approval of Purchaser's Bank Group. Purchaser shall have
received approval, in form and substance acceptable to Purchaser, from its bank
group related to the closing of the transactions contemplated by this Agreement
pursuant to and in accordance with that certain Credit Agreement, dated
December 29, 1992, among Purchaser, BT Commercial Corporation, as
administrative agent, and certain other financial institution signatories
thereto.
6.03. Closing Deliveries of Seller. At the Closing, Seller shall
execute and deliver to Purchaser, or otherwise cause to be delivered, as the
case may be, each of the following documents dated the Closing Date:
(a) Bill of Sale. A Bill of Sale in form and substance
reasonably satisfactory to Purchaser transferring the Purchased Assets to
Purchaser consistent with the terms and conditions of this Agreement.
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<PAGE> 30
(b) Personal Property Lease Assignments. A lease
assignment and assumption agreement for each Personal Property Lease in form
and substance reasonably satisfactory to Purchaser.
(c) Officer's Certificate. The officer's certificate
described in Section 6.01 above.
(d) Employment Agreements. Employment Agreements in the
form of Schedule 6.03(d) hereto between the Purchaser and each of Ronald J.
Dombrowski and Steven T. Brown (the "Employment Agreements").
(e) Possession of Purchased Assets. Seller will deliver
to Purchaser at the Closing Date full possession and enjoyment of the Purchased
Assets.
6.04. Further Assurances. At any time on or after the Closing Date,
Seller will execute and deliver any further assignments, conveyances and other
assurances, documents and instruments of transfer reasonably requested by
Purchaser, and will take any other action consistent with the terms of this
Agreement that may be reasonably requested by Purchaser for the purpose of
assigning, transferring, granting, conveying and confirming to Purchaser, or
reducing to possession, any or all of the Purchased Assets. If requested by
Purchaser, Seller further agrees to prosecute or otherwise enforce in its own
name for the benefit of Purchaser, any claims, rights or benefits that are
transferred to Purchaser by this Agreement and that require prosecution or
enforcement in Seller's name.
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<PAGE> 31
ARTICLE VII
CONDITIONS TO SELLER'S OBLIGATIONS
The obligations of Seller under this Agreement to consummate the sale
of the Purchased Assets shall be subject to the fulfillment on or prior to the
Closing Date of each of the following conditions:
7.01. Representations and Warranties True; Obligations Performed.
The representations and warranties of Purchaser contained in this Agreement
shall be true and correct in all material respects as of the Closing Date with
the same force and effect as if made as of the Closing Date, and all the
covenants contained in this Agreement to be complied with by Purchaser on or
before the Closing Date shall have been complied with in all material respects
and Seller shall have received a certificate to such effect from the President
or other executive officer of Purchaser.
7.02. Closing Deliveries of Purchaser. At the Closing, Purchaser
shall execute and deliver to Seller, or otherwise cause to be delivered to
Seller, as the case may be, each of the following documents:
(a) Personal Property Lease Assignments. Purchaser shall
execute and deliver to Seller the Personal Property Lease Assignments assuming
the rights and obligations of lessee arising from the Closing Date.
(b) Payment. At the Closing, Purchaser shall pay the
Cash to Seller by delivery of a certified or cashier's check.
(c) Officer's Certificate. The Officer's Certificate
described in Section 7.01 above.
(d) Employment Agreements. The Employment Agreements
described in Section 6.03(d).
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<PAGE> 32
(e) Assumption Agreement. Purchaser shall have entered
into an Assumption Agreement pursuant to which it assumes all of the Assumed
Liabilities.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.01. Headings. The subject headings of the sections and
subsections of this Agreement are included for purposes of convenience only and
shall not affect the construction or interpretation of any of its provisions.
8.02. Entire Agreement; Amendment; Waiver. This Agreement
constitutes the entire agreement between the parties pertaining to the subject
matter contained in it and supersedes all prior agreements, representations,
and understandings of the parties. No supplement, modification, or amendment
of this Agreement shall be binding unless executed in writing by both parties.
No waiver of any of the provisions of this Agreement shall be deemed, or shall
constitute, a waiver of any other provisions, whether or not similar, nor shall
any waiver constitute a continuing waiver. No waiver shall be binding unless
executed in writing by the party making the waiver.
8.03. Counterparts. This Agreement may be executed simultaneously
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
8.04. Assignment. Neither this Agreement nor any of Purchaser's or
Seller's rights or obligations hereunder may be assigned or otherwise
transferred to any other person, partnership, firm or corporation without the
prior written consent of the other party hereto, which consent shall not be
unreasonably withheld. Notwithstanding the foregoing, Purchaser may assign
this Agreement to an affiliated entity.
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<PAGE> 33
8.05. Binding Effect. This Agreement shall be binding on, and shall
inure to the benefit of the parties hereto and their respective legal
representatives, heirs, successors and permitted assigns.
8.06. Expenses. Each party hereto shall pay all of the fees and
expenses incurred by it in connection with the preparation, execution and
delivery of this Agreement.
8.07. Termination of Representations, Warranties, Agreements and
Covenants. If this Agreement shall be terminated pursuant to the provisions of
Section 8.10 hereof, this Agreement shall become void and have no effect,
except that the agreements of Purchaser and Seller in Section 5.05 pertaining
to confidentiality or the termination of this Agreement and Section 8.06 shall
survive such termination. All representations and warranties and all other
agreements and covenants of the parties hereto shall survive the Closing and
any investigation at any time by or on behalf of any party hereto.
8.08. Indemnification. Seller and the Partners, jointly and
severally, hereby indemnify and hold Purchaser and each of its affiliates,
partners, directors, officers, employees and agents harmless from and against
all claims, liabilities, lawsuits, costs, damages or expenses (including,
without limitation, reasonable attorneys' fees and expenses incurred in
litigation or otherwise) arising out of and sustained by any of them due to (a)
any misrepresentation or breach of any representation, warranty, covenant or
agreement of Seller contained herein or in any certificate, schedule, exhibit,
document, instrument or writing relating to, or delivered pursuant to, this
Agreement; (b) any liability or obligation relating to the Business or the
Purchased Assets not expressly assumed by Purchaser hereunder, including,
without limitation, any claims, liabilities, taxes, debts, contracts,
agreements, obligations, damages, costs and expenses, known or unknown, fixed
or contingent, claimed or demanded by third parties against Purchaser arising
out of the operation of the Business prior to and inclusive of the Closing Date
(including, without
30
<PAGE> 34
limitation, any liability, claim for refund or reimbursement, or other
obligation arising under, or in any way related to, work or services performed
for J.B. Hunt Dedicated Contract Services); and (c) the failure of the parties
ot this Agreement to comply with the provisions of the bulk sales law of any
state having jurisdiction over the transactions contemplated herein and the
Purchased Assets.
8.09. Notices. All notices, requests, demands, and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given on the date of service if served personally on the party
to whom notice is to be given, or five (5) days after the date of depositing in
same in the U.S. mail if mailed to the party to whom notice is to be given, by
first-class mail, registered or certified, postage prepaid, and properly
addressed as follows:
To Seller or any Partner:
RoTec - The Routing Technology Company
Attention: Ronald J. Dombrowski
191 Albany Turnpike, Suite 107
Box 259
Canton, CT 06019
To Purchaser:
Comdata Network, Inc.
Attention: George L. McTavish
5301 Maryland Way
Brentwood, TN 37027
With a copy to:
Comdata Network, Inc.
Attention: Legal Department
5301 Maryland Way
Brentwood, TN 37027
31
<PAGE> 35
Any party may change its address for purposes of this section by
giving the other party written notice of the new address in the manner set
forth above.
8.10. Right to Terminate. Either Purchaser or Seller may, without
liability to the other, terminate this Agreement on or before the Closing Date
by notice to the other (i) if any of the material conditions to the obligations
of the party giving such notice shall not have been fulfilled, or (ii) if the
Closing shall not have occurred by March 31, 1994 (the last possible Closing
Date contemplated under this Agreement) unless such date has been extended in
accordance with the terms of this Agreement or by mutual written agreement of
the parties hereto. In the absence of fraud or willful breach on the part of
Seller, or on the part of Purchaser, then Seller will not have any liability to
Purchaser, or Purchaser will not have any liability to Seller, as the case may
be, under this Agreement if Seller or Purchaser terminate this Agreement
pursuant to this Section 8.10.
8.11. Governing Law. This Agreement shall be construed in
accordance with, and governed by, the local laws of the State of Tennessee and
not the choice of law rules of such state. This Agreement and its subject
matter have substantial contacts with Tennessee, and all actions, suits, or
other proceedings with respect to this Agreement shall be brought only in a
court of competent jurisdiction sitting in Davidson County, Tennessee, or in
the Federal District Court having jurisdiction over that County. In any such
action, suit, or proceeding, such court shall have personal jurisdiction of all
of the parties hereto, and service of process upon them under any applicable
statutes, laws, and rules shall be deemed valid and good.
8.12. Severability. Any provision hereof which is prohibited or
unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition
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<PAGE> 36
or unenforceability in any jurisdiction will not invalidate or render
unenforceable such provision in any other jurisdiction.
8.13. No Third Party Beneficiaries. Nothing in this Agreement,
whether expressed or implied, confers any rights or remedies on any persons
other than the parties to this Agreement and their respective successors and
permissible assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability or any third person to any party to this
Agreement, nor shall any provisions give any third parties any right of
subrogation or action against any party to this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
"SELLER"
ROTEC - THE ROUTING TECHNOLOGY
COMPANY
By: /s/ Ronald J. Dombrowski
------------------------------
Ronald J. Dombrowski,
General Partner
"PURCHASER"
COMDATA NETWORK, INC.
By: /s/ George L. McTavish
------------------------------
George L. McTavish,
Chairman and Chief Executive Officer
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<PAGE> 37
"PARTNERS"
/s/ Ronald J. Dombrowski
------------------------------
Ronald J. Dombrowski
/s/ Korf E. Penzien
------------------------------
Korf E. Penzien
/s/ David J Ross
------------------------------
David J. Ross
/s/ Steven T. Brown
------------------------------
Steven T. Brown
/s/ Ebrahim Amirana
------------------------------
Ebrahim Amirana
34
<PAGE> 1
As Amended 10/25/93
EXHIBIT 10.36
COMDATA HOLDINGS CORPORATION
STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN
SECTION 1. PURPOSE. The purpose of the Comdata Holdings Corporation
Stock Option and Restricted Stock Purchase Plan (the "Plan") is to promote the
interests of Comdata Holdings Corporation, a Delaware corporation (the
"Company"), and its stockholders by providing an opportunity to selected
employees, officers and directors of the Company or any Subsidiary thereof as
of the date of the adoption of this Plan or at any time thereafter to purchase
Common Stock of the Company. By encouraging such stock ownership, the Company
seeks to attract, retain and motivate such employees and persons and to
encourage such employees and persons to devote their best efforts to the
business and financial success of the Company. It is intended that this
purpose will be effected by the granting of "non-qualified stock options"
and/or "incentive stock options" to acquire the common stock of the Company
and/or by the granting of rights to purchase the common stock of the Company on
a "restricted stock" basis. Under this Plan, the Board of Directors (or the
Committee) shall have the authority (in its sole discretion) to grant
"incentive stock options" within the meaning of Section 422A(b) of the Code,
"non-qualified stock options" as described in Treasury Regulation Section
1.83-7 or any successor regulation thereto, or "restricted stock" awards.
SECTION 2. DEFINITIONS. For purposes of this Plan, the following
terms used herein shall have the following meanings, unless a different meaning
is clearly required by the context.
2.1. "Award" shall mean an award of the right to purchase Common
Stock granted under the provisions of Section 7 of the Plan.
2.2. "Board of Directors" shall mean the Board of Directors of the
Company.
2.3. "Code" shall mean the Internal Revenue Code of 1986 as amended.
2.4. "Committee" shall mean the committee of the Board of Directors
referred to in Section 5 hereof.
2.5. "Common Stock" shall mean the Common Stock, $.01 par value, of
the Company.
2.6. "Employee" shall mean (i) with respect to an ISO, any person
including an officer or director of the Company, who, at the time an ISO is
granted to such person hereunder, is employed on a full-time basis by the
Company or any Subsidiary of the Company, and (ii) with respect to a
Non-Qualified Option and/or an Award shall mean any
<PAGE> 2
person employed by the company or any Subsidiary of the Company, including,
without limitation, directors and officers.
2.7. "ISO" shall mean an Option granted under the Plan which
constitutes and shall be treated as an "incentive stock option" as defined in
Section 422A(b) of the Code.
2.8. "Non-Qualified Option" shall mean an Option granted to a
Participant pursuant to the Plan which is intended to be, and qualifies as, a
"non-qualified stock option" as described in Treasury Regulation Section 1.83-7
and which shall not constitute nor be treated as an ISO.
2.9. "Option" shall mean any ISO or Non-Qualified Option granted to
an Employee pursuant to this Plan.
2.10. "Participant" shall mean any Employee to whom an Award and/or
an Option is granted under this Plan.
2.11. "Parent of the Company" shall have the meaning set forth in
Section 425(e) of the Code.
2.12. "Subsidiary of the Company" shall have the meaning set forth in
Section 425(f) of the Code.
SECTION 3. ELIGIBILITY. Awards and/or Options may be granted to any
Employee. The Board of Directors (or the Committee) shall have the sole
authority to select the persons to whom Awards and/or Options are to be granted
hereunder, and to determine whether a person is to be granted a Non-Qualified
Option, an ISO or an Award or any combination thereof. No person shall have
any right to participate in the Plan. Any person selected by the Board of
Directors for participation during any one period will not by virtue of such
participation have the right to be selected as a Participant for any other
period.
SECTION 4. COMMON STOCK SUBJECT TO THE PLAN.
4.1 The total number of shares of Common Stock for which Options
and/or Awards may be granted under this Plan shall not exceed in the aggregate
two million (2,000,000) shares of Common Stock.
4.2. The shares of Common Stock that may be subject to Options and/or
Awards granted under this Plan may be either authorized and unissued shares or
shares reacquired at any time and now or hereafter held as treasury stock as
the Board of Directors may determine. In the event that any outstanding Option
expires or is terminated for any reason, the shares allocable to the
unexercised portion of such Option may again be subject to an Option and/or
Award granted under this Plan. If any shares of Common Stock acquired pursuant
to an Award or the exercise of an Option shall have been
2
<PAGE> 3
repurchased by the Company, then such shares shall again become available for
issuance pursuant to the Plan.
4.3. Special ISO Limitations. (a) The aggregate fair market value
(determined as of the date an ISO is granted) of the shares of Common Stock
with respect to which ISOs are exercisable for the first time by an Employee
during any calendar year (under all Incentive Stock Option Plans of the Company
or any Parent or Subsidiary of the Company) shall not exceed $100,000.
(b) No ISO shall be granted to an Employee who, at the time the ISO
is granted, owns (actually or constructively under the provisions of Section
425[d] of the Code) stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary of the
Company, unless the option price is at least 110% of the fair market value
(determined as of the time the ISO is granted) of the shares of Common Stock
subject to the ISO and the ISO by its terms is not exercisable more than five
years from the date it is granted.
4.4. Notwithstanding any other provision of the Plan, the provisions
of Sections 4.3(a) and (b) shall not apply, nor shall be construed to apply, to
any Non-Qualified Option or Award granted under the Plan.
SECTION 5. ADMINISTRATION OF THE PLAN.
5.1. The Plan shall be administered by the Board of Directors or, if
established at any time by the Board of Directors, by a committee thereof (the
"Committee"). The Committee shall be appointed from time to time by, and shall
serve at the pleasure of, the Board of Directors. Each member of the Committee
and each member of the Board of Directors who shall participate in any decision
with respect to the Plan shall be a "disinterested person" within the meaning
of Rule 16b-3 as promulgated under the Securities Exchange Act of 1934, as
amended.
5.2. (a) Options. The Board of Directors (or the Committee) shall
have the sole authority and discretion under this Plan
(i) to select the Participants who are to be granted Options
hereunder;
(ii) to designate whether any Option to be granted hereunder is to
be an ISO or a Non-Qualified Option;
(iii) to establish the number of shares of Common Stock that may be
issued under each Option;
(iv) to determine the time and the conditions subject to which
Options may be exercised in whole or in part;
(v) to determine the form of the consideration that may be used to
purchase shares of Common Stock upon exercise of any Option
(including the circumstances under which the Company's issued
and outstanding shares of Common Stock may be used by a
Participant to exercise an Option);
3
<PAGE> 4
(vi) to impose restrictions and/or conditions with respect to
shares of Common Stock acquired upon exercise of an Option;
(vii) to determine the circumstances under which shares of Common
Stock acquired upon exercise of any Option may be subject to
repurchase by the Company;
(viii) to determine the circumstances and conditions subject to which
shares acquired upon exercise of an Option may be sold or
otherwise transferred, including, without limitation, the
circumstances and conditions subject to which a proposed sale
of shares of Common Stock acquired upon exercise of an Option
may be subject to the Company's right of first refusal (as
well as the terms and conditions of any such right of first
refusal);
(ix) to establish a vesting provision for any Option relating to
the time (or the circumstance) when the Option may be
exercised by a Participant, including vesting provisions which
may be contingent upon the Company meeting specified financial
goals;
(x) to accelerate the time when outstanding Options may be
exercised, provided, however, that any ISOs shall be
"accelerated" within the meaning of Section 425(h) of the
code; and
(xi) to establish any other terms, restrictions and/or conditions
applicable to any Option not inconsistent with the provisions
of this Plan.
(b) Awards. The Board of Directors (or the Committee) shall have the
sole authority and discretion under this Plan
(i) to select the Participants who are to be granted Awards
hereunder;
(ii) to determine the amount to be paid by a Participant to
acquire shares of Common Stock pursuant to an Award, which
amount may be equal to, more than, or less than 100% of the
fair market value of such shares on the date the Award is
granted (but in no event less than the par value of such
shares);
(iii) to determine the time or times and the conditions subject to
which Awards may be made;
(iv) to determine the time or times and the conditions subject to
which the shares of Common Stock subject to an Award are to
become vested and no longer subject to repurchase by the
Company;
(v) to establish transfer restrictions and the terms and
conditions on which any such transfer restrictions with
respect to an Award shall lapse;
(vi) to establish vesting provisions with respect to any shares of
Common Stock subject to an Award, including vesting provisions
which may be contingent upon the Company meeting specified
financial goals;
(vii) to determine the circumstances under which shares of Common
Stock acquired pursuant to an Award may be subject to
repurchase by the Company;
(viii) to determine the time or times and the conditions subject to
which any shares of Common Stock subject to an Award may be
repurchased by the Company (as well as the terms and
conditions of any such repurchase);
4
<PAGE> 5
(ix) to determine the circumstances and conditions subject to which
a proposed sale of shares of Common Stock subject to an Award
may be subject to the Company's right of first refusal (as
well as the terms and conditions of any such right of first
refusal);
(x) to determine the form of consideration that may be used to
purchase shares of Common Stock pursuant to an Award
(including the circumstances under which the Company's issued
and outstanding shares of Common Stock may be used by a
Participant to purchase the Common Stock subject to an Award);
(xi) to accelerate time at which any or all restrictions imposed
with respect to any shares of Common Stock subject to an Award
will lapse or otherwise remove any or all such restrictions;
and
(xii) to establish any other terms, restrictions and/or conditions
applicable to any Award not inconsistent with the provisions
of this Plan.
5.3. The Board of Directors (or the Committee) shall be authorized to
interpret the Plan and may, from time to time, adopt such rules and
regulations, not inconsistent with the provisions of the Plan, as it may deem
advisable to carry out the purpose of this Plan.
5.4. The interpretation and construction by the Board of Directors
(or the Committee) of any provision of the Plan, any Option and/or Award
granted hereunder or any agreement evidencing any such Option and/or Award
shall be final and conclusive upon all parties.
5.5. Directors of the Company (or members of the Committee, if
established) who are "disinterested persons" within the meaning of Rule 16b-3
as promulgated under the Securities Exchange Act of 1934, as amended, may vote
on any matter affecting the administration of the Plan or the granting of
Options and/or Awards under the Plan.
5.6. All expenses and liabilities incurred by the Board of Directors
(or the Committee) in the administration of the Plan shall be borne by the
Company. The Board of Directors (or the Committee) may employ attorneys,
consultants, accountants or other persons in connection with the administration
of the Plan. The Company, and its officers and directors, shall be entitled to
rely upon the advice, opinions or valuations of any such persons. No member of
the Board of Directors (or the Committee) shall be liable for any action,
determination or interpretation taken or made in good faith with respect to the
Plan or any Option and/or Award granted hereunder.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
6.1. ISOs. The terms and conditions of each ISO granted under the
Plan shall be specified by the Board of Directors (or the Committee) and shall
be set forth in an ISO agreement between the Company and the Participant in
such form as the Board of Directors (or the Committee) shall approve. The
terms and conditions of each ISO shall
5
<PAGE> 6
be such that each ISO issued hereunder shall constitute and shall be treated as
an "incentive stock option" as defined in Section 422A of the Code. The terms
and conditions of any ISO granted hereunder need not be identical to those of
any other ISO granted hereunder.
The terms and conditions of each ISO shall include the following:
(a) The option price shall be fixed by the Board of Directors (or the
Committee) but shall in no event be less than 100% (or 110% in the case of an
Employee referred to in Section 4.3[b] hereof) or the fair market value of the
shares of Common Stock subject to the ISO on the date the ISO is granted. For
purposes of this Plan, the fair market value per share of Common Stock as of
any day shall mean the average of the closing prices of sales of shares of
Common Stock on all national securities exchanges on which the common Stock may
at the time be listed or, if there shall have been no sales on any such day,
the average of the highest bid and lowest asked prices on all such exchanges at
the end of such day or, if on any day the Common Stock shall not be so listed,
the average of the representative bid and asked prices quoted in the NASDAQ
system as of 3:30 p.m., New York time, on such day or, if on any day the Common
Stock shall not be quoted in the NASDAQ system, the average of the high and low
bid and asked prices on such day in the over-the-counter market as reported by
National Quotation Bureau Incorporated, or any similar successor organization.
If at any time the Common Stock is not listed on any national securities
exchange or quoted in the NASDAQ system or the over-the-counter market, the
fair market value of the shares of Common Stock subject to an Option on the
date the ISO is granted shall be the fair market value thereof determined in
good faith by the Board of Directors.
(b) ISOs, by their terms, shall not be transferable otherwise than by
will or the laws of descent and distribution, and, during an Optionee's
lifetime, an ISO shall be exercisable only by the Optionee.
(c) The Board of Directors (or the Committee) shall fix the term of
all ISOs granted pursuant to the Plan, including the date on which such ISO
shall expire and terminate, provided, however, that such term shall in no event
exceed ten years from the date on which such ISO is granted (or, in the case of
an ISO granted to an Employee referred to in Section 4.3[b] hereof, such term
shall in no event exceed five years from the date on which such ISO is
granted). Each ISO shall be exercisable in such amount or amounts, under such
conditions and at such times or intervals or in such installments as shall be
determined by the Board of Directors (or the Committee) in its sole discretion.
(d) In the event that the Company or any Parent or Subsidiary of the
Company is required to withhold any Federal, state or local taxes in respect of
any compensation income realized by the Participant as a result of any
"disqualifying disposition" of any shares of Common Stock acquired upon
exercise of an ISO granted hereunder, the Company shall deduct from any
payments of any kind otherwise due to such Participant the aggregate amount of
such Federal, state or local taxes required to be so withheld or, if
6
<PAGE> 7
such payments are insufficient to satisfy such Federal, state or local taxes,
such Participant will be required to pay to the Company, or make other
arrangements satisfactory to the Company regarding payment to the Company of,
the aggregate amount of any such taxes. All matters with respect to the total
amount of taxes to be withheld in respect of any such compensation income shall
be determined by the Board of Directors in its sole discretion.
(e) In the sole discretion of the Board of Directors (or the
Committee) the terms and conditions of any ISO may (but need not) include any
of the following provisions:
(i) In the event a Participant shall cease to be employed by the
Company or any Parent or Subsidiary of the Company on a full-time
basis for any reason other than as a result of his death or
"disability" (within the meaning of Section 22[e][3] of the code),
the unexercised portion of any ISO held by such Participant at that
time may only be exercised within one month after the date on which
the Participant ceased to be so employed, and only to the extent that
the Participant could have otherwise exercised such ISO as of the
date on which the ceased to be so employed.
(ii) In the event a Participant shall cease to be employed by the
Company or any Parent or Subsidiary of the Company on a full-time
basis by reason of his "disability" (within the meaning of Section
22[e][3] of the Code), the unexercised portion of any ISO held by
such Participant at that time may only be exercised within one year
after the date on which the Participant ceased to be so employed, and
only to the extent that the Optionee could have otherwise exercised
such ISO as of the date on which he ceased to be so employed.
(iii) In the event a Participant shall die while in the full-time
employ of the Company or a Parent or Subsidiary of the Company (or
within a period of one month after ceasing to be an Employee for any
reason other than such "disability" or within a period of one year
after ceasing to be an Employee by reason of such "disability"), the
unexercised portion of any ISO held by such Participant at the time
of his death may only be exercised within one year after the date of
such Participant's death, and only to the extent that the Participant
could have otherwise exercised such ISO at the time of his death. In
such event, such ISO may be exercised by the executor or
administrator of the Participant's estate or by any person or persons
who shall have acquired the ISO directly from the Participant by
bequest or inheritance.
6.2 Non-Qualified Options. The terms and conditions of each
Non-Qualified Option granted under the Plan shall be specified by the Board of
Directors (or the Committee), in its sole discretion, and shall be set forth in
a written option agreement between the Company and the Participant in such form
as the Board of Directors (or the Committee) shall approve. The terms and
conditions of each Option will be such that each Option issued hereunder shall
not constitute nor be treated as an "incentive stock option" as defined in
Section 422A of the Code and will be a "non-qualified stock option" for
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Federal income tax purposes. The terms and conditions of any Option granted
hereunder need not be identical to those of any other Option granted hereunder.
The terms and conditions of each Option Agreement shall include the
following:
(a) The option (exercise) price shall be fixed by the Board of
Directors (or the Committee) and may be equal to, more than or less than 100%
of the fair market value of the shares of Common Stock subject to the
Non-Qualified Option on the date such Non-Qualified Option is granted.
(b) The Board of Directors (or the Committee) shall fix the term of
all Non-Qualified Options granted pursuant to the Plan (including the date on
which such Non-Qualified Option shall expire and terminate). Such term may be
more than ten years from the date on which such Non-Qualified Option is
granted. Each Non-Qualified Option shall be exercisable in such amount or
amounts, under such conditions, and at such times or intervals or in such
installments as shall be determined by the Board of Directors (or the
Committee) in its sole discretion.
(c) Non-Qualified Options shall not be transferable otherwise than by
will or the laws of descent and distribution, and during a Participant's
lifetime a Non-Qualified Option shall be exercisable only by the Participant.
(d) In the event that the Company is required to withhold any
Federal, state or local taxes in respect of any compensation income realized by
the Participant in respect of a Non-Qualified Option granted hereunder or in
respect of any shares of Common Stock acquired upon exercise of a Non-Qualified
Option, the Company shall deduct from any payments of any kind otherwise due to
such Participant the aggregate amount of such Federal, state or local taxes
required to be so withheld or, if such payments are insufficient to satisfy
such Federal, state or local taxes, or if no such payments are due or to become
due to such Participant, then such Participant will be required to pay to the
Company, or make other arrangements satisfactory to the Company regarding
payment to the Company of, the aggregate amount of any such taxes. All matters
with respect to the total amount of taxes to be withheld in respect of any such
compensation income shall be determined by the Board of Directors in its sole
discretion.
7. TERMS AND CONDITIONS OF AWARDS.
The terms and conditions of each Award granted under the Plan shall be
specified by the Board of Directors (or the Committee), in its sole discretion,
and shall be set forth in a written agreement between the Participant and the
Company, in such form as the Board of Directors (or the Committee) shall
approve. The terms and provisions of any Award granted hereunder need not be
identical to those of any other Award granted hereunder.
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The terms and conditions of each Award shall include the following:
(a) The amount to be paid by a Participant to acquire the Shares of
Common Stock pursuant to an Award shall be fixed by the Board of Directors (or
the Committee) and may be equal to, more than or less than 100% of the fair
market value of the shares of Common Stock subject to the Award on the date the
Award is granted.
(b) Each Award shall contain such vesting provisions, such transfer
restrictions and such other restrictions and conditions as the Board of
Directors (or the Committee), in its sole discretion, may determine, including,
without limitation, the circumstances under which the Company shall have the
right and option to repurchase shares of Common Stock acquired pursuant to an
Award.
(c) Stock certificates representing Common Stock acquired pursuant to
an Award shall bear a legend referring to the restrictions imposed on such
Stock and such other matters as the Board of Directors may determine.
(d) In the event that the Company is required to withhold any
Federal, state or local taxes in respect of any compensation income realized by
the Participant in respect of any Award granted hereunder, or in respect of any
shares acquired pursuant to an Award, or in respect of the vesting of any such
shares of Common Stock, then the Company shall deduct from any payments of any
kind otherwise due to such Participant the aggregate amount of such Federal,
state or local taxes required to be so withheld or, if such payments are
insufficient to satisfy such Federal, state or local taxes, or if no such
payments are due or to become due to such Participant, then such Participant
will be required to pay to the Company, or make other arrangements satisfactory
to the Company regarding payment to the Company of, the aggregate amount of any
such taxes. All matters with respect to the total amount of taxes to be
withheld in respect of any such compensation income shall be determined by the
Board of Directors in its sole discretion.
SECTION 8. ADJUSTMENTS. In the event that, after the adoption of the
Plan by the Board of Directors, the outstanding shares of the Company's Common
Stock shall be increased or decreased or changed into or exchanged for a
different number or kind of shares of stock or other securities of the Company
or of another corporation through reorganization, merger or consolidation,
recapitalization, reclassification, stock split, split-up, combination or
exchange of shares or declaration of any dividends payable in Common Stock, the
Board of Directors shall appropriately adjust (i) the number of shares of
Common Stock (and the option price per share) subject to the unexercised
portion of any outstanding Option (to the nearest possible full share),
provided, however, that the limitations of Section 425 of the Code shall apply
with respect to adjustments made to ISOs; (ii) the number of shares of Common
Stock to be acquired pursuant to an Award which have not become vested; and
(iii) the number of shares of Common Stock for which Options and/or Awards may
be granted under this Plan, as set forth in Section 4.1 hereof, and such
adjustments shall be effective and binding for all purposes of this Plan.
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SECTION 9. EFFECT OF THE PLAN ON EMPLOYMENT RELATIONSHIP. Neither
this Plan nor any Option and/or Award granted hereunder to a Participant shall
be construed as conferring upon such Participant any right to continue in the
employ of the Company or the service of the Company or any subsidiary as the
case may be, or limit in any respect the right of the Company or any Subsidiary
to terminate such Participant's employment or other relationship with the
Company or any Subsidiary, as the case may be, at any time.
SECTION 10. AMENDMENT OF THE PLAN. The Board of Directors may amend
the Plan from time to time as it deems desirable; provided, however, that,
without the approval of the holders of a majority of the outstanding stock of
the Company entitled to vote thereon at a meeting, the Board of Directors may
not amend the Plan to increase (except for increases due to adjustments in
accordance with Section 8 hereof) the aggregate number of shares of Common
Stock for which Options and/or Awards may be granted hereunder, (ii) to
decrease the minimum exercise price specified by the Plan in respect of ISOs,
or (iii) change the class of Employees eligible to receive ISOs under the Plan.
SECTION 11. TERMINATION OF THE PLAN. The Board of Directors may
terminate the Plan at any time. Unless the Plan shall theretofore have been
terminated by the Board of Directors, the Plan shall terminate ten years after
the date of its initial adoption by the Board of Directors. No Option and/or
Award may be granted hereunder after termination of the Plan. The termination
or amendment of the Plan shall not alter or impair any rights or obligations
under any Option and/or Award theretofore granted under the Plan.
SECTION 12. EFFECTIVE DATE OF THE PLAN. This Plan shall be effective
as of September 9, 1987, the date on which the Plan was adopted by the Board of
Directors of the Company and approved by the unanimous written consent of
holders of all the outstanding stock of the Company.
* * * * *
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EXHIBIT 21
LIST OF SUBSIDIARIES OF COMDATA
HOLDINGS CORPORATION AND
COMDATA NETWORK, INC.
- Subsidiaries of Comdata Holdings Corporation
Comdata Network, Inc.
- Subsidiaries of Comdata Network, Inc.
American Facsimile Systems, Inc.
CDN Holdings, Inc.
CDN Services, Inc.
Cal Permits, Inc.
Cashcall Ltd.
Cash Control Corporation
Cashex Holdings Corporation
Cashex, Inc.
Comcheck Permit Services, Inc.
Comdata Network, Inc. of California
Comdata Subsidiary Corp.
Fundsnet, Inc.
Fundsnet N.Y., Inc.
Interstate Investigation and Recovery Services, Inc.
Permits International, Inc.
Permicom Permits Services, Inc.
Saunders, Inc.
Stats CAVR Inc.
Transceiver Services, Inc.
Transceiver United, Inc.
Truckers Network, Inc.
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Annual Report on Form 10-K for the year ended
December 31, 1993 into Comdata Holdings Corporation's previously filed
Registration Statements No. 33-21788 and 33-30618.
Arthur Andersen & Co.
Nashville, Tennessee
March 25, 1994
