<PAGE>
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 (Fee Required) for the fiscal year ended July 31, 1996, or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange act of 1934 (No Fee Required) for the transition period from
____________ to ____________.
COMMISSION FILE NO.: 0-24420
PMT SERVICES, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE 62-1215125
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
TWO MARYLAND FARMS, SUITE 200, BRENTWOOD, TN 37027
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (615) 254-1539
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the shares of Common Stock (based upon the
closing price of these shares in the over-the-counter market on October 11,
1996) of the registrant held by nonaffiliates on October 11, 1996 ($19.50 per
share), was $645,578,837.
As of October 11, 1996, 33,106,607 shares of the registrant's Common Stock
were outstanding.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Documents incorporated by reference and the part of Form 10-K into which
the document is incorporated:
Portions of the Registrant's Proxy
Statement Relating to the Annual
Meeting of Shareholders to be held
on December 16, 1996..........................Part III
2
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
PMT Services, Inc. (the "Company") is an independent service organization
which markets and services electronic credit card authorization and payment
systems to merchants located throughout the United States. The Company's
operating and growth strategies focus on expanding the Company's customer base
of small merchants through trade and other association affiliations,
telemarketing, merchant portfolio purchases and superior customer service. PMT
has experienced rapid growth in its total merchant portfolio base which has
fostered significant growth in the Company's revenues and earnings. From July
31, 1989 to July 31, 1996, the Company's merchant portfolio base increased from
approximately 6,800 merchants to approximately 89,500 merchants. During this
same period, PMT's revenues increased from $4.3 million for fiscal year 1989 to
$149.8 million for fiscal year 1996. This increase in revenues resulted
primarily from the purchase of merchant portfolios and, to a lesser extent, new
merchant contracts generated through the Company's marketing and sales efforts
and revenue enhancements with existing merchants.
PMT targets small merchants as its primary customer base. These merchants
generally have a low volume of credit card transactions, are difficult to
identify and have traditionally been underserved by credit card processors.
Management of the Company estimates that there are approximately 3.0 million
merchant locations in the United States currently accepting VISA and MasterCard
credit cards in the small merchant market segment and that approximately 2.0
million of such small merchant locations utilize electronic processing for
credit card transactions. Management believes the small merchant market offers
the Company significant growth opportunities for (i) the "first time"
installation and subsequent servicing of credit card authorization and payment
systems and (ii) the conversion of small merchants currently accepting credit
cards from paper-based to electronic processing.
PMT utilizes exclusive contractual relationships with trade associations,
distributors and wholesalers ("Associations") to reach small merchants that
would otherwise be difficult to identify and locate using customary marketing
practices. Pursuant to these relationships, Associations endorse the processing
systems marketed and serviced by PMT and participate in originating new
customers for the Company. Following introductions generated by its Association
relationships, PMT employs direct telemarketing to solicit merchants on a
nationwide basis. Telemarketing represents an important element of the
Company's overall marketing strategy by affording the Company cost-effective
access to small merchants dispersed throughout the United States. PMT is
augmenting its telemarketing efforts with a field sales force. Through the use
of telemarketing and a field sales force, management believes the Company's cost
structures will continue to be competitive with the cost structures of its
competitors using only a field sales force as a result of the lower costs
associated with telemarketing.
Since fiscal year 1991, the Company has acquired 24 merchant portfolios,
ranging in size from approximately 100 to 15,000 merchant accounts. During
fiscal 1996, the Company purchased five merchant portfolios representing a total
of approximately 34,500 merchant accounts, generating approximately $3.3 billion
in aggregate annual charge volume. Management believes increased competition in
the industry and other factors have pressured certain competitors to dispose of
all or a portion of their merchant portfolios. As a result, management believes
many opportunities for portfolio purchases exist as the industry continues to
consolidate. The Company's experience in making merchant portfolio purchases,
coupled with operating efficiencies, enhances the Company's ability to
successfully integrate purchased merchant portfolios on a cost-effective basis.
3
<PAGE>
PMT provides comprehensive customer service and support to its merchants
requiring consultative problem solving and account management. Management
believes that providing cost-effective, reliable and responsive service is the
most effective long-term strategy to retain its merchant base. Through
internally generated sales of merchant accounts, purchases of merchant account
portfolios, retention of merchants and the increasing use and acceptance of
credit cards, management believes the Company has developed a stable and
recurring base of revenues.
INDUSTRY OVERVIEW
The number of credit cards in use has grown dramatically since their
introduction over 40 years ago. According to recent industry statistics, in
1994 there were approximately 746 million "general purpose" credit cards honored
by all types of merchants. General-purpose cards were dominated by VISA and
MasterCard in 1995, the total number of cards in circulation increased by 43.1
million to 405 billion from 1994. According to the Nilson Report, there are
currently over 7,000 financial institutions that issue VISA and MasterCard
credit cards in the United States. Approximately $575 billion was charged to
VISA and MasterCard credit and debit cards in 1995, as compared with $80 billion
in 1983. Despite this rapid growth, credit and debit card transactions
represented less than 20% of consumer spending in the United States in 1994 (the
majority of the remainder was either cash or check). Today, consumers
increasingly expect to be able to use their credit cards in almost all purchase
transactions, regardless of merchant location, type or size, as credit card use
continues to incrementally displace cash and checks. In addition, VISA and
MasterCard have aggressively attempted to increase the number of merchants
accepting credit cards as a method of payment. According to industry
statistics, in 1995 there were approximately 3.3 million merchant locations that
accepted VISA and MasterCard credit cards as a method of payment.
Electronic credit card transaction processing services encompass a variety of
functions including data capture, communication, authorization and settlement,
provided by several parties. A typical transaction begins when a customer
presents a credit card to a merchant for payment. The card is swiped through an
electronic terminal which has been placed with the merchant by a bank or a non-
bank service provider, such as PMT. The cardholder's purchase is electronically
authorized by the issuing bank. Simultaneously, pertinent data relating to the
transaction are recorded electronically by the terminal and transferred to a
processing bank where the data is stored for use in settlement and client
reporting. Both the authorization and data capture functions of the terminal
involve transmissions of data via an electronic network. The processing bank
transmits the total merchant charge to the card issuing institution through the
VISA and MasterCard credit card associations and arranges for funds to be
transferred to the merchant's bank. The merchant's account is credited with the
full retail purchase amount, generally within 24 to 72 hours, and the card
issuer then enters the transaction on the cardholder's monthly statement.
Historically, the larger acquiring banks have marketed credit card processing
services to national and regional merchants, not emphasizing small merchants
with a low volume of transactions, as small merchants are often difficult to
identify and expensive to service. This created an opportunity for non-banks,
including independent service organizations such as PMT, that recognized the
business potential of providing electronic processing to these small merchants.
Management estimates that there are approximately 3.0 million small merchant
locations nationwide accepting VISA and MasterCard credit cards, only
approximately 2.0 million of which process transactions electronically.
4
<PAGE>
The transaction processing industry has undergone rapid consolidation over
the last several years with the three largest acquirers controlling almost 50%
of the market share. The costs to convert from paper-based to electronic
processing, merchant requirements for improved customer service and the demands
for additional customer applications have made it difficult for some community
and regional banks and independent service organizations to remain competitive.
Many of these providers are unwilling or unable to invest the capital required
to meet those evolving demands, and are leaving the transaction processing
business or otherwise seeking partners to provide transaction processing for
their customers. Despite this ongoing consolidation, the industry remains
fragmented with respect to the number of entities providing merchant services.
In 1994, although the ten largest bankcard processors accounted for
approximately 62.1% of the total charge volume processed, there were over 400
additional registered service providers marketing and selling transaction
processing services to merchants. Management believes that these factors will
result in continuing industry consolidation over the next several years.
OPERATING STRATEGY
As of July 31, 1996, the Company serviced approximately 89,500 merchant
accounts. The following are the primary elements of the Company's operating
strategy:
Focus on Small Merchants. PMT has focused its marketing efforts on small
merchants which have traditionally been underserved by processing banks.
Management believes it understands the unique characteristics of this market
segment and has tailored its marketing and servicing efforts accordingly. The
Company is able to provide electronic processing systems at rates that generally
are lower than those available from small local processing banks as a result of
its transaction volume. See "Merchant Services."
Create Association Relationships. PMT utilized exclusive contractual
relationships with Associations to reach small merchants that would otherwise be
difficult to identify and locate using customary marketing practices. Pursuant
to these relationships, Associations endorse the processing systems marketed and
serviced by PMT and participate in originating new customers for the Company.
PMT's endorsement by local, state and national Associations are a continuous
source of leads for its telemarketing solicitation efforts. PMT is currently a
party to 177 Association endorsement contracts. Based upon information provided
by the Associations with which the Company has a relationship, management
believes these Associations represent approximately 990,000 merchants.
Minimize Marketing Expense. Using the leads generated by its Association
relationships, PMT employs direct telemarketing to solicit merchants on a
nationwide basis. Management believes telemarketing is uniquely suited to the
small business segment of the market because telemarketing, when combined with
Association relationships and a field sales force, provides the Company with a
cost-effective means of contacting small merchants that traditionally have been
difficult to reach.
Deliver Customer Service Support. Management believes providing cost-
effective, reliable and responsive service is the most effective long-term
strategy to retain its merchant base. The size of the Company's merchant base
enables it to support a customer service program designed to provide
consultative problem solving and account management. PMT is continuing to
upgrade its customer service information systems by installing new hardware and
creating proprietary software application to further enhance the customer
service it provides and to accommodate future growth.
Increase Operating Efficiencies. Currently, the Company outsources its
processing and network services from third parties which have excess capacity
and the expertise to handle the Company's needs.
5
<PAGE>
Management believes because its merchant base generates significant transaction
volume in the aggregate, the Company has been able to negotiate competitive
pricing from its processing and network providers at prices below what the
Company would experience to build and support these systems internally. The
Company has achieved significant reductions in certain operating expenses
through operational efficiencies, economies of scale and improved labor
productivity. The Company intends to outsource processing and network services
as long as it is economically more attractive than to develop and support these
services within the Company allowing management to focus on its core business of
sales, marketing and customer service.
Maintain a Stable and Recurring Revenue Base. Through merchant retention and
increased credit card use, the Company has developed a stable and recurring base
of revenues. In addition to its high customer service level, the Company's
endorsements from Associations provide an additional link to its merchants that
tends to reduce attrition. Furthermore, management believes that the low
transaction volume of its individual merchants make them less likely to change
providers because of the up-front costs associated with a transfer.
GROWTH STRATEGY
The Company's growth strategy is to pursue internal growth through its
internal marketing venues and to acquire complementary merchant portfolios.
Through the use of direct telemarketing solicitation and a field sales force,
PMT obtains new merchant accounts by offering merchants a more competitive
discount rate and by offering better levels of service than those obtainable
from other sources, particularly local banks. In addition to increasing its
penetration of the small merchant segment, management intends to continue the
Company's growth through purchases of merchant portfolios from banks and other
independent service organizations, assuming adequate financing and acceptable
transaction terms are achieved. From fiscal year 1991 through fiscal year 1996,
the Company has successfully acquired 24 merchant portfolios ranging in size
from approximately 100 to 15,000 merchant accounts. Management believes
portfolio acquisitions will continue to be an attractive source of new
customers. The Company's efforts have historically been focused on identifying
small merchant portfolios that typically are electronically processed and
average approximately 2,000 merchants, although the Company has made and is
focusing on acquisitions of substantially larger merchant portfolios.
MARKETING
The Company's marketing strategy is to solicit prospective merchants
primarily through the Company's Association marketing program. The Company
initiated its Association marketing program in 1988, and currently has entered
into exclusive marketing arrangements with 177 Associations. Under these
arrangements, PMT obtains the exclusive endorsement of the Association and
receives initial and ongoing marketing assistance from the Association to its
members. The Company's telemarketing force places calls to merchants whose
names and telephone numbers are obtained through its Association relationships.
If a merchant expresses an interest in the system, the telemarketer arranges for
the merchant to receive additional information regarding the system. If the
merchant agrees to utilize the system, the telemarketer assists the merchant in
completing the appropriate paperwork which is forwarded to a processing bank for
review and acceptance. As part of this review, an outside agency may be
utilized to inspect the merchant location, inventory and signage to confirm the
business is an active, going concern. PMT typically pays referral compensation
to the Associations in exchange for the continuing endorsement of PMT's
services.
6
<PAGE>
The average term of the Company's marketing arrangements with Associations is
three years and most of the agreements provide for automatic renewals for
additional one-year periods.
According to information provided by the Associations with which the Company
has a relationship, management believes such Associations represent
approximately 990,000 merchants. Based on estimates of the total market size of
these Associations and the current number of accounts served by the Company, the
Company's penetration into this market as of July 31, 1996 was approximately
1.9%.
The Company views pricing as the most important component of its marketing,
and believes it offers competitive pricing in the markets it serves. The
Company usually charges a one-time, negotiated set-up fee. The Company also
negotiates a specific discount rate and various fees, within the terms of the
Company's processing agreements, based on the number of transactions and
aggregate dollar amounts of the transactions processed through the card reading
terminal.
PORTFOLIO ACQUISITIONS
The Company expects to continue to acquire selected merchant portfolios that
complement the Company's existing customer base of small merchants. The Company
performs an extensive review of the cash flow characteristics of each portfolio,
the types of business conducted by and credit status of the merchants in the
portfolio, the Company's ability to control attrition of the portfolio and the
opportunities the portfolio provides for revenue enhancement and cost reduction.
The Company determines a valuation of each portfolio-acquisition opportunity
based on a combination of these factors.
Management believes the consolidation activity in the transaction processing
industry offers the Company many opportunities for portfolio purchases. The
Company's experience in completing merchant portfolio purchases, coupled with
operating efficiencies, should enhance the Company's ability to successfully
integrate purchased merchant portfolios on a cost-effective basis. Smaller
independent service organizations are the Company's primary source of portfolio
acquisitions. Typically these service organizations have built portfolios to
the limits of their servicing capabilities, are facing increasing competitive
pressures from larger, lower cost providers and/or are seeking additional
liquidity. In certain instances, the Company has completed multiple
acquisitions of merchant portfolios from the same independent service
organizations, a trend which the Company expects to continue. Another source of
portfolio acquisitions are commercial banks which, in an effort to lower their
internal overhead, often sell or outsource their credit card servicing
operations, creating the opportunity for buyers to acquire the existing merchant
portfolio. Often, the small-merchant portion of these portfolios is viewed as
being unattractive by acquiring banks or third-party processors and can be
acquired at favorable terms. Management believes the portfolio acquisition
market will continue to be an attractive source of new customers in the future.
Since fiscal year 1991, the Company has acquired 24 merchant portfolios, ranging
in size from approximately 100 to 15,000 merchant accounts.
RECENTLY COMPLETED ACQUISITIONS
In March 1996, PMT purchased a merchant portfolio consisting of approximately
15,000 merchant accounts with approximately $1.4 billion in annual credit card
charge volume from UMB Bank, n.a. ("UMB").
7
<PAGE>
In April 1996, PMT purchased a merchant portfolio consisting of approximately
7,000 merchant accounts with approximately $300 million in annual credit card
charge volume from Bankcard America, Inc., an Illinois corporation doing
business as American Bankcard Center ("ABC"). This acquisition represented the
sixth merchant portfolio purchased by the Company from ABC.
In July 1996, PMT purchased two merchant portfolios from two independent
service organizations consisting of an aggregate of approximately 7,500 merchant
accounts and approximately $1 billion in annual credit card charge volume. The
larger of the two acquisitions was accounted for as a pooling of interests.
Effective August 1996 PMT purchased three merchant portfolios consisting of
approximately 13,500 accounts with approximately $968 million in annual credit
card charge volume. One of these was accounted for as a pooling of interests.
PROCESSING RELATIONSHIPS
PMT markets and services electronic credit card authorization and payment
systems pursuant to contractual relationships with processing banks that are
members of VISA and MasterCard. Under such contractual relationships, PMT's
processing banks process merchant credit card transactions pursuant to
contracts, the terms of which have been negotiated by PMT (or certain other
independent service organizations from whom PMT has acquired merchant
portfolios) and approved by the processing bank. PMT's processing banks
withhold from the merchants a discount rate and various fees for the processing
of each credit card transaction. From PMT's discount rate revenues, amounts are
paid to the issuing bank, the network service provider, VISA or MasterCard and
to the processing bank.
Generally the Company's agreements with processing banks contain aspects of
both marketing and service. The marketing portions of the agreements permit PMT
to originate new merchants which then enter into contractual agreements with the
processing banks for processing of credit card transactions. The service
portion of the agreements permits PMT to provide appropriate service (including
terminal programming and shipping, employee training, equipment supply and
repair and operational support) to the merchants solicited to process on the
processing banks' systems. Although the marketing portion of the agreements is
limited as to time, the service portion of these agreements is not.
Accordingly, PMT has a right to continue to receive revenues from these
processors, notwithstanding termination of the marketing portion of the
processing agreements, so long as the merchant processes through the PMT
processing bank's system, PMT provides appropriate service to the merchant and
PMT otherwise remains in compliance with the agreement. Under the terms of
PMT's agreement with its principal processing bank, PMT is permitted to transfer
merchants to another processing bank, subject to the payment of termination
fees. See "Agreements with Processing Banks."
AGREEMENTS WITH PROCESSING BANKS
As of July 31, 1996, the Company relied on eleven banks to process the credit
card transactions of PMT's clients. At that date, the Company's agreement with
its principal processing bank, First National Bank of Omaha ("FNBO"), applied to
approximately 51.8% of the Company's aggregate merchant base. While the
marketing portion of the Company's processing agreements expires at various
times between 1996 and 2002, these agreements provide for the Company to
continue to receive revenues as long as the merchants subject to the agreement
process credit card transactions with the banks, PMT provides the
8
<PAGE>
appropriate service to the merchants and PMT otherwise remains in compliance
with the terms of the agreement. Under the FNBO agreement, the Company bears
liability for all unfulfilled chargebacks. The Company either shares with its
other processing banks or bears fully the liability for any cardholder
chargebacks for which merchants solicited by PMT do not accept responsibility,
and PMT is fully liable for any losses caused by PMT's negligence or wrongful
acts. Each of the Company's processing agreements may be terminated by either
party in the event of default of obligations, insolvency or receivership, or
failure to make payments when due or to abide by the rules and regulations of
VISA and MasterCard.
FNBO Agreement. The Company first entered into a direct marketing and service
relationship with FNBO in September 1989. PMT's current agreement was entered
into as of March 1, 1994, and is effective through 2002. FNBO is the primary
processing bank for which PMT, on a non-exclusive basis, solicits and services
merchants. At July 31, 1996, FNBO provided processing services for approximately
51.8% of the Company's total merchant base at that date.
The agreement provides PMT the right, at any time upon giving notice, to
transfer merchant contracts to other processors. In order to do so and
depending upon the status of the merchants, PMT must pay FNBO a termination fee
based on merchant transaction volume and/or the number of merchant locations
calculated at the time of termination.
Other Processing Agreements. At July 31, 1996 the Company's ten other
processing banks provided processing services for approximately 48.2% of the
Company's total merchant base at that date. Under processing agreements with
four of such processing banks, PMT solicits, on a non-exclusive basis, merchants
to process transactions with the processing banks. PMT has the unilateral right
to transfer merchants to other processors under arrangements with six of the ten
processing banks.
NETWORK SERVICES
Networks provide an electronic connection or pathway between the merchant and
PMT's processing bank and are paid a fixed amount per transaction. All
appropriate parties receive pertinent information from merchants via the
networks. PMT's relationships with its processing banks enable it to negotiate
directly with network service providers to obtain volume discounts for network
services. Currently, management believes that it is economically more
attractive to outsource network services than to develop and support these
services within the Company.
DISCOUNT RATE AND FEES
The primary source of revenue for PMT is the discount rate paid by the
merchant for each credit card transaction processed for that merchant. In
addition to revenues derived from the discount rate, the Company receives
periodic fees from most of its merchants for providing various services which
are reflected in the table below as "Average Fees per Transaction." See
"Merchant Services." The discount rate and fees are negotiated by the Company,
within the terms of the Company's processing agreements, with each of the
merchants to which the Company provides services. PMT contracts with third
parties to provide a portion of the services to the merchant, including
communication networks, transaction processing and monthly preparation of
detailed merchant statements. Additionally, PMT complies with the pricing
structures established by VISA and MasterCard associations for the interchange
fee paid to the retail consumers' card-issuing banks and the associations' fees.
The primary costs incurred by PMT in delivering its services to the merchants
are: (i) an interchange fee paid to the card-issuing bank which is set by the
VISA and MasterCard associations and which is calculated as a percentage of the
transaction amount, (ii) a fee calculated as a percentage of the transaction
amount that is paid to the VISA or
9
<PAGE>
MasterCard association which is established by the member banks of the VISA and
MasterCard associations, (iii) a fixed, per-transaction fee paid to the network
service provider which is negotiated between PMT and the network service
provider and (iv) a fixed, per-transaction fee paid to the processing bank which
is negotiated between PMT and the processing bank. Management believes, based on
information received from the Company's merchant customers, that the range of
discount rates offered by other service providers is approximately 1.4% to 4.0%.
The discount rates offered by the Company are within this range. The following
table illustrates a hypothetical $100 VISA or MasterCard transaction in which
the merchant discount rate is 2.0%.
<TABLE>
<CAPTION>
Method
Allocation of Determination Established By
----------- ------------------------- -------------------
<S> <C> <C> <C>
Purchase Amount................... $ 100.00
To Merchant....................... (98.00)
------
Discount Rate..................... $ 2.00 Percentage of Transaction PMT/Processing Bank
Average Fees per Transaction...... .09 Various PMT/Processing Bank
------
PMT's Revenue..................... $ 2.09
PMT's Cost of Revenue:
To Card-Issuing Bank............ (1.33) Percentage of Transaction VISA/MasterCard
To VISA/MasterCard Association.. (.09) Per Transaction VISA/MasterCard
To Network Service Provider..... (.08) Per Transaction PMT/Processing Bank
To Processing Bank.............. (.05) Per Transaction PMT/Processing Bank
------
Gross Transaction Margin.......... $ .54
======
</TABLE>
The Company's average VISA or MasterCard transaction size for the fiscal year
1996 was approximately $81.00. Excluding the UMB acquisition, the average
transaction size for fiscal 1996 was $96.00.
The Company recognizes as revenue in its statement of income the full
discount rate collected from the merchant (i.e., the $2.00 in the above example)
and various fees associated with servicing merchant accounts. Also, the various
costs incurred by the Company listed above (i.e., amounts paid to the card-
issuing bank and network provider) are reflected as costs of revenues. In most
cases, in accordance with PMT's contracts with its processing banks, the funds
collection and disbursement function for each of the items listed above is
performed on behalf of PMT by the processing bank. At month end, the processing
bank collects the total discount rate and various fees from the merchants and
disburses to each of the service providers its fees, except for the interchange
fee paid to the card-issuing bank for which the disbursements are made daily.
Shortly after month end, the processing bank disburses to PMT the remainder of
the funds collected from the merchant (effectively, PMT's gross transaction
margin or the $0.54 in the above example).
Although the Company's revenues reflect the full discount rate and various
fees collected, the cash flow statement is prepared using the "direct method" as
provided in Statement of Financial Accounting Standards No. 95, "Statement of
Cash Flows," and reflects cash received from merchants at the net amount
collected because the cash flows received by the Company from processing banks
are net of the amounts disbursed to the other parties described above (i.e., the
$0.54 in the above example). The cash flow statement presentation follows the
actual flow of funds to the Company.
Several factors can alter the profitability to PMT for merchant transactions.
Primarily, these include (i) improper use of the card reading terminal by the
merchant resulting in higher interchange fees paid to the card-issuing bank,
(ii) lower than anticipated average dollar sales of credit card transactions
thereby reducing the Company's gross transaction margin because many of the
transaction costs are fixed, (iii) losses incurred as a result of customer
chargebacks (PMT can be required to absorb the full retail purchase
10
<PAGE>
amount), (iv) the inability to collect the discount rate because of insufficient
funds in the merchant's bank account, (v) merchant fraud and (vi) excessive
volume of customer return transactions in which the Company again incurs all
transaction costs except interchange fees.
MERCHANT CLIENTS
The Company serves a diverse portfolio of small merchant clients, primarily
in the automotive, restaurant and general retail industries. Currently, no one
customer accounts for more than 7.0% of the Company's charge volume. This
client diversification has contributed to the Company's growth despite the
varying economic conditions of the regions in which its merchants are located.
Merchant attrition is an expected aspect of the credit card processing
business. The rate of merchant attrition as measured by the Company's primary
processing bank, for the period January 1, 1995 through December 31, 1995
approximated 1.1% per month of total merchants' annual charge volume.
Historically, the Company's attrition has related to merchants going out of
business, merchants returning to local processing banks or merchants
transferring to competitors for rates the Company was unwilling to match.
Merchant fraud is another expected aspect of the credit card processing
business. Generally, the Company is responsible for fraudulent credit card
transactions of its merchants. Examples of merchant fraud include inputting
false sales transactions or false credits. The Company and its processing banks
monitor merchant charge volume, average charge and number of transactions, as
well as check for unusual patterns in the charges, returns and chargebacks
processed. As part of its fraud avoidance policies, the Company generally will
not process for certain types of businesses which provide future services
wherein incidents of fraud have been common. In fiscal year 1995 and fiscal
year 1996, the Company did not experience material losses related to merchant
fraud. Generally, the Company is not responsible for cardholder fraud. The
Company evaluates its risks and estimates the potential loss for chargebacks and
merchant fraud based on historical experience. A provision for these estimated
losses is provided in the same period as the related revenue. Subsequent actual
fraud losses are charged against the reserve.
MERCHANT SERVICES
Management believes providing cost-effective, reliable and responsible
service is the most effective method of retaining merchant clients. The Company
maintains personnel and systems necessary for providing such services directly
to merchants and has developed a comprehensive program involving consultative
problem solving and account management. The Company maintains a department of
customer service personnel available 24-hours a day to respond to inquiries from
merchants regarding terminal, communication and training issues. Service
personnel provide terminal application consultation by telephone and regularly
reprogram terminals via telephone lines to accommodate particular merchant needs
regarding program enhancements, terminal malfunctions and VISA and MasterCard
regulations. In addition, merchants may obtain direct, personal assistance in
reconciling network and communications problems, including problems with network
outages and local phone company services. The Company has an ongoing program to
further enhance the customer service it provides and to accommodate future
growth of the Company's merchant base. In connection with upgrading the
Company's customer service information system, the Company will continue to
purchase new hardware and software. In addition, the Company's commitment to
providing comprehensive services includes the expansion of check guarantee and
debit services to merchants as such technology continues to develop.
11
<PAGE>
The Company may sell or lease a credit card terminal to its merchant
customers. The Company offers leases with an initial term of 12 months that are
automatically renewable on a month-to-month basis thereafter. The Company's
terminals are "down-loadable," meaning additional services, such as
authorization or payment services for additional credit cards, can be installed
in the terminal electronically from the Company's offices without the necessity
of replacement equipment or an on-site installation visit. Additionally,
peripheral equipment such as pin pads and printers can easily be forwarded to
the merchants upon request. The Company also loans, tests and ships point-of-
sale terminals directly to merchant locations, and provides complete repair-or-
replacement services for malfunctioning terminals. Generally, the Company can
arrange for delivery of replacement terminals by overnight courier.
COMPETITION
The market for placing and maintaining electronic credit card authorization
and payment systems with retail merchants is highly competitive. The Company
competes in this market on the basis of price, quality of customer service,
support and availability of additional features. Management believes merchants
initially select a processing service provider primarily based on price and
elect to sustain the relationship based on a combination of service and price.
See "Marketing".
Industry participants have elected to sell, merge or form strategic alliances
in recent years which has prompted many small independent service organizations
and other providers to examine these such options.
The Company's principal competitors are local banks. The Company also
competes with larger, vertically-integrated transaction processors as well as
numerous competitors that provide certain merchant services while using third
parties for network and other services. In addition, the Company competes with
large regional and national banks that have internal sales forces and/or have
developed relationships with independent service organizations that are
competitors of the Company. Management believes that by utilizing PMT's
Association relationships to focus its telemarketing solicitation efforts
supplemented by its field sales force, the Company has a competitive advantage
versus competitors relying solely on direct sales forces in establishing and
maintaining primary relationships with the underserved, small merchant segment
of the market.
Larger, more fully integrated companies may penetrate PMT's segment of the
market. Moreover, many of the Company's competitors have access to significant
capital, management, marketing and technological resources are greater than
those of the Company, and there can be no assurance the Company will continue to
be able to compete successfully with banks, other transaction processors and
merchant service providers.
EMPLOYEES
As of July 31, 1996, the Company had approximately 330 full-time employees,
consisting of 43 telemarketers, nine new merchant sales support personnel, 174
customer service personnel, 38 management and administrative personnel, and 66
field sales representatives. The internal growth of the Company's business will
depend upon its ability to attract productive telemarketing sales personnel and
sales representatives.
12
<PAGE>
ITEM 2. PROPERTIES
In the second quarter of fiscal year 1995 the Company moved its office
facilities to provide adequate space and effective July 1, 1995 leased
additional space in this new office facility from Highwoods/Forsyth Limited
Partnership (Successor-in-interest to Eastpark, L.P.). The lease agreement and
its amendments provide for a monthly rental of $34,898 through December 31,
1997, and $39,941 per month from January 1, 1998 through December 31, 2000.
Prior to the Highwoods/Forsyth lease agreement, the Company leased office space
from a partnership comprised of two of the Company's executive officers. This
office space lease agreement terminated in 1995 when the Company relocated.
Effective October 1, 1996 the Company has leased additional office space from
Centoff Realty Company, Inc., a Delaware Corporation. The lease and its rider
provide for monthly rental of $24,056 from October 1, 1996 through September 30,
1997, $25,016 per month from October 1, 1997 through September 30, 1998, $26,016
per month from October 1, 1998 through September 30, 1999, $27,057 per month
from October 1, 1999 through September 30, 2000 and $28,140 per month from
October 1, 2000 through December 31, 2000.
Management believes these arrangements and other available space are adequate
for the Company's current uses and anticipated growth.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in a lawsuit styled Glenn Francis, et al. v.
BankCard America, Inc., PMT Services, Inc., d/b/a/ U.S. BankCard, et al., Docket
No. 93-C5510, which is pending in the U.S. District Court for the Northern
District of Illinois.
The claim relates to the plaintiffs' relationship with defendant
BankCard America, Inc. The plaintiffs claim that they established certain
merchant accounts from which they were entitled to receive residual income.
BankCard America, Inc. ("BankCard") terminated its relationship with the
plaintiffs. The Company subsequently purchased a merchant portfolio from
BankCard that included the disputed merchant accounts. In connection with this
purchase, BankCard made various representations and warranties with respect to
its right to sell the portfolio and agreed to indemnify the Company for any
breach of those representations and warranties. This disputed purchase is one of
six purchases of portfolios made by the Company from BankCard or its affiliates
since 1989. A summary of the litigation to date is set forth below.
The lawsuit was filed on September 9, 1993, against BankCard and
certain of its affiliates alleging, among other claims, violations of the
Racketeering Influenced and Corrupt Organizations Act (RICO). On November 3,
1994, the court dismissed the RICO counts with prejudice.
The Company was initially named as a defendant on August 30, 1995. The
lawsuit currently purports to allege acts of fraud, misappropriation and unjust
enrichment, but not RICO violations. The plaintiffs claim actual damages in the
amount of $162,000 plus costs and attorneys' fees and punitive damages in the
amount of $500,000 against certain defendants other than the Company. With
respect to the Company, the plaintiffs seek to void the sale of the merchant
accounts in dispute.
On February 5, 1996, the U.S. District Court for the Northern District
of Illinois ruled against the principals of BankCard in a separate case
(BankCard America, Inc. v. Universal BankCard Systems,
13
<PAGE>
Inc., Docket No. 93-C-1969, U.S. District Court, Northern District of Illinois.)
In that case, which the plaintiffs now claim is related to the case pending
against the Company, a treble damages jury awarded in the amount of $6.69
million based on RICO violations was awarded against the individual defendants.
The Company was not a party to that lawsuit. The judgment is currently on
appeal.
Based on their success in this other case, on March 15, 1996, the
plaintiffs requested permission to allege various violations of RICO. The
plaintiffs now seek to name the Company as a defendant to the RICO claims. If
permission is granted by the court, plaintiffs will seek actual damages of at
least $800,000 from all defendants. If a violation under RICO is established, a
defendant could be subject to three times the amount of actual damages. The
Company is awaiting a ruling from the court on its motion to dismiss all claims
asserted against it.
Management believes that the Company has valid defenses to the RICO and
other claims made against it. The Company intends to vigorously defend all
claims made against it. Based on the status of the litigation to date and the
facts currently known to the Company, management does not believe that the
allegations in the lawsuit will have a material adverse effect on the business
or financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of shareholders during the fourth
quarter of fiscal 1996.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the Nasdaq Stock Market's National
Market (the "Nasdaq National Market") under the symbol PMTS. The following
table sets forth the range of high and low sales prices on the Nasdaq National
Market for the period from August 12, 1994, through July 31, 1996, as reported
by the Nasdaq National Market:
<TABLE>
<CAPTION>
1996 High Low
---- ---- ----
<S> <C> <C>
First Quarter.......... $ 9.25 $ 5.75
Second Quarter......... 13.42 8.46
Third Quarter.......... 20.08 11.50
Fourth Quarter......... 28.75 17.50
1995
----
First Quarter.......... $3.75 $ 2.67
Second Quarter......... 3.50 2.58
Third Quarter.......... 4.63 3.17
Fourth Quarter......... 6.58 4.42
</TABLE>
The stock prices above have been adjusted to give retroactive effect to the
Company's stock splits. The stock split for shareholders of record on December
14, 1995 was a two-for-one stock split effected in the form of a stock dividend.
The stock split for shareholders of record on May 28, 1996 was a three-for-two
stock split effected in the form of a stock dividend.
Based on the distribution of the Company's search cards, as of October 8,
1996, there were approximately 8,100 shareholders of the Company's common stock
including, 210 record holders.
The Company currently intends to retain all earnings to finance the
development and expansion of its operations and, therefore, does not anticipate
paying cash dividends or making any other cash distributions on its shares of
Common Stock in the foreseeable future. The Company's future dividend policy
will be determined by its Board of Directors on the basis of various factors,
including the Company's results of operations, financial condition, business
opportunities and capital requirements. The declaration of cash dividends is
currently prohibited by the Company's bank credit facility.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data which have been
derived from the Company's audited financial statements for each of the five
years in the period ended July 31, 1996. The Company's financial statements as
of July 31, 1995 and 1996 and for each of the years in the three-year period
ended July 31, 1996 are included elsewhere herein. The data set forth below
should be read in conjunction with the Financial Statements, the Notes thereto
and other financial information included elsewhere herein.
15
<PAGE>
Year Ended July 31,
----------------------------------------------
(in thousands, except per share and other data)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues (1)........................ $29,524 $35,571 $61,196 $89,007 $149,840
Cost of revenues.................... 23,953 28,555 48,367 68,197 115,652
------- ------- ------- ------- --------
Gross margin........................ 5,571 7,016 12,829 20,810 34,188
Selling, general & administrative
expenses.......................... 3,951 4,295 6,393 10,541 14,663
Depreciation and amortization....... 472 512 1,648 3,518 7,509
Provision for merchant losses....... 52 270 485 483 655
Stock award compensation............ 281 281 240 241 0
------- ------- ------- ------- --------
Income from operations.............. 815 1,658 4,063 6,027 11,361
Interest expense, net............... 210 113 384 (46) (1,741)
Other income, net................... 0 0 0 0 704
------- ------- ------- ------- --------
Income before provision for
taxes, extraordinary item and
change in accounting principle.... 605 1,545 3,679 6,073 13,806
Provision for income taxes.......... 330 589 1,400 2,433 5,181
------- ------- ------- ------- --------
Income before extraordinary item
and change in accounting
principle......................... 275 956 2,279 3,640 8,625
Net income (2)...................... $ 588 $ 1,545 $ 2,592 $ 3,640 $ 8,625
PER SHARE INFORMATION:
Income before extraordinary item
and change in accounting
principle......................... $ 0.02 $ 0.07 $ 0.18 $ 0.17 $ 0.30
Extraordinary item - net operating
loss carryforward................. 0.03 0.05 0.00 0.00 0.00
------- ------- ------- -------- --------
Income before change in
accounting principle.............. 0.05 0.12 0.18 0.17 0.30
Cumulative effect of change in
accounting principle.............. 0.00 0.00 0.02 0.00 0.00
------- ------- ------- -------- -------
Net income per share................ $ 0.05 $ 0.12 $ 0.20 $ 0.17 $ 0.30
======= ======= ======= ======== =======
Weighted average shares
outstanding....................... 12,725 12,808 13,008 20,940 28,539
July 31
-------
1992 1993 1994 1995 1996
------- ------- ------- ------- --------
BALANCE SHEET DATA:
Working capital $ 183 $ 198 $(8,926) $ (634) $106,728
Total assets 4,964 6,910 27,171 52,247 186,792
Long-term debt, less current
portion......................... 1,167 785 4,479 16,670 575
Total shareholders' equity
(deficit)......................... (2,432) (737) 2,468 29,697 179,355
</TABLE>
__________________________
(1) Revenue increased for fiscal years 1992 through 1996 primarily from the
purchase of merchant portfolios and, to a lesser extent, new merchant
contracts generated by the Company and fee enhancements with existing
merchants.
(2) Net income for fiscal years 1992 and 1993 has been increased through the
utilization of net operating loss carryforwards of $314,054 and $589,471,
respectively, the benefits of which have substantially or completely offset
the provision for income taxes. For the fiscal year ended July 31, 1994,
net income has been increased by $312,800 for a change in accounting
principle relating to income taxes.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of certain factors affecting the
Company's results of operations for each of the three fiscal years in the period
ended July 31, 1996 and its liquidity and capital resources. This discussion
should be read in conjunction with the financial statements and notes thereto
included elsewhere herein.
Overview
PMT Services, Inc. is an independent service organization which markets
and services electronic credit card authorization and payment systems to retail
merchants located throughout the United States. The Company's principal sources
of revenues are discount and merchant service fees. The remaining revenues
consist of rentals, commissions and sales relating to credit card processing
equipment and installation fees. The Company initiates the credit card
processing relationship with a merchant and negotiates a "discount rate" and
related fees, within the terms of the Company's agreements with processing
banks. The discount is a percentage of the dollar amount of each credit card
transaction.
Revenues derived from the electronic processing of transactions are
recognized at the time the merchants' transactions are processed. Revenues
related to the direct sale of credit card authorization equipment are recognized
when the equipment is shipped. Fees related to both the direct sale and
marketing of this equipment are recognized when installation is completed. Fees
received in advance of shipment or installation are deferred until realized.
Acquisitions and Mergers
Since fiscal year 1991 through July 31, 1996 the Company has purchased
24 portfolios, ranging in size from approximately 100 to 15,000 merchant
accounts. The Company purchased five merchant portfolios in fiscal year 1994,
nine in fiscal 1995 and five merchant portfolios in fiscal year 1996.
Significant purchases are discussed further below.
In April 1995, the Company purchased a merchant portfolio of
approximately 7,000 merchants from Bankcard America, Inc. ("ABC") for a purchase
price of $7.7 million. The Company paid $2.6 million in cash, issued a 3%
interest bearing note for $400,000 due May 1, 1995 and issued a $4.7 million
note bearing interest at 3% due July 1, 1995. The Company incurred direct costs
and expenses related to the purchase of the merchant portfolio of approximately
$1.3 million. The purchase agreement provided for additional consideration of
$2.5 million payable to the seller contingent upon the seller's ability to
negotiate the transfer of the merchant accounts, to the Company's primary
processing bank. In May 1995, an agreement was entered into providing for
transfer of the merchant accounts and pursuant to the terms of the purchase
agreement, the Company paid $2.5 million representing additional purchase price
for the merchant portfolio. Additionally, beginning June 1995, the Company's
amended processing agreement with its primary processing bank required a $1.5
million security deposit for a six month period as a result of the conversion of
other merchant portfolios to this processing bank. This deposit plus accrued
interest was returned to the Company in March 1996. A sum of $500,000 will
17
<PAGE>
remain on deposit with this bank as long as the Company participates in the
bank's Association Marketing Agreement.
In July 1995, the Company purchased two additional merchant portfolios of
approximately 10,500 merchant accounts for approximately $12.2 million. The
Company purchased two portfolios, credit card equipment inventory, a merchant
lease portfolio and other office assets.
The Company purchased a merchant portfolio from Imperial Bank consisting of
approximately 5,000 merchant accounts effective October 1, 1995. The Company
paid approximately $8.7 million for the portfolio from proceeds of the Company's
second public offering. In the third quarter of fiscal year 1996 the Company
purchased two merchant portfolios. The Company purchased approximately 15,000
from UMB Bank, N.A. ("UMB") for a purchase price of $13.5 million effective
March 1, 1996. Effective April 1, 1996 the Company purchased approximately
7,000 merchant accounts from Bankcard America, Inc. ("ABC") for a purchase price
of $6.3 million.
In the fourth quarter of fiscal 1996 the Company acquired two merchant
portfolios consisting of approximately 7,500 merchant accounts. The Company
accounted for the larger of these two acquisitions as a pooling of interests.
On July 1, 1996 the Company issued 594,019 shares of its common stock in
exchange for all of the outstanding common stock of Martin-Howe Associates, Inc.
("MHA"). The Company's consolidated financial statements have been restated to
include the accounts of MHA for all periods prior to the merger.
The growth in the Company's revenues and profitability for fiscal years
1995 and 1996 has resulted largely from the purchase of merchant portfolios.
Future growth is dependent upon, among other factors, the Company's ability to
continue to consummate additional purchases of merchant portfolios. See pro
forma operating results in Note 3 to the financial statements for information
relative to the potential effect of the acquisitions on the Company's
operations. Management believes the pro forma operating results reflected in
Note 3 are not indicative of what would have occurred had the purchases been
made at the beginning of fiscal year 1994 or fiscal year 1995, or of results
which may occur in the future because the cost structures of the acquired
portfolios are not directly comparable to the Company's.
18
<PAGE>
Results of Operations
The following table presents, for the periods indicated, the percentage of
revenues represented by certain line items in the Company's statement of income:
<TABLE>
<CAPTION>
Period-to-Period Changes
------------------------
Year ended July 31 Increase (Decrease)
------------------ ------------------------
1995 1996
vs. vs.
1994 1995 1996 1994 1995
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 45.4% 68.3%
Cost of revenues 79.0 76.6 77.2 41.0 69.6
----- ----- -----
Gross margin 21.0 23.4 22.8 62.2 64.3
Selling, general and administrative expenses 10.5 11.8 9.8 64.9 39.1
Depreciation and amortization 2.7 4.0 5.0 113.5 113.5
Provision for merchant losses 0.8 0.5 0.4 (0.4) 35.5
Stock award compensation 0.4 0.3 0.0 0.8 (100.0)
----- ----- -----
Income from operations 6.6 6.8 7.6 48.3 88.5
Interest expense, (income) net 0.6 0.0 (1.2) (112.0) (3,689.5)
Other income, net 0.0 0.0 0.5 0.0 100.0
----- ----- -----
Income before provision for taxes and
change in accounting principle 6.0 6.8 9.3 65.1 127.3
Provision for income taxes 2.3 2.7 3.5 73.8 113.0
----- ----- -----
Income before change in accounting principle 3.7 4.1 5.8 59.7 137.0
Cumulative effect of change in accounting
principle 0.5 0.0 0.0 (100.0) 0.0
----- ----- -----
Net income 4.2% 4.1% 5.8% 40.4% 137.0%
===== ===== =====
</TABLE>
Revenues
Revenues increased from $61.2 million in fiscal year 1994 to $89.0 million
in fiscal year 1995 and $149.8 million in fiscal year 1996. These increases
represent a 45.4% increase from fiscal year 1994 to fiscal year 1995 and a 68.3%
increase from fiscal year 1995 to fiscal year 1996.
The increases in revenues for all periods presented resulted primarily from
the purchase of merchant portfolios and, to a lesser extent, new merchant
contracts generated through the company's telemarketing efforts and fee
enhancements with existing merchants. The increases from fiscal year 1994 to
fiscal 1995 were primarily the result of the purchased merchant portfolios which
resulted in a 62.0% increase in revenues. In fiscal year 1995, the Company
added approximately 21,000 merchant accounts through nine merchant portfolio
purchases and in fiscal 1996, the Company purchased five merchant portfolios
consisting of approximately 34,500 merchant accounts. In July 1996, the Company
accounted for the purchase of approximately 6,000 merchant accounts as a pooling
of interests. Acquisitions accounted for approximately 74.2% of the increase in
revenues in fiscal 1996.
Cost of Revenues
Cost of revenues increased from $48.4 million in fiscal year 1994 to $68.2
million in fiscal year 1995 and $115.7 million in fiscal year 1996. These
increases represent a 41.0% increase from fiscal year 1994 to fiscal year 1995
and 69.6% increase from fiscal year 1995 to fiscal year 1996.
19
<PAGE>
The primary components of the Company's cost of revenues have generally
remained consistent as a percentage of revenues from fiscal year 1994 through
fiscal year 1996. A majority of the Company's cost of revenues are fixed as a
percentage of each transaction amount, with the remaining costs being based on a
fixed rate applied to the number of transactions processed. In fiscal year 1994
and fiscal year 1995 cost of revenues as a percentage of revenues decreased due
to the Company's increase in ancillary fee revenues received through merchant
portfolio purchases and merchant fee enhancements. In fiscal 1996, cost of
revenues increased as a percentage of revenues primarily due to significant
merchant acquisitions made late in fiscal 1996 which have a higher cost of
revenues as a percentage of revenues than those historically experienced by the
Company. This resulted from the Company assuming certain contractual obligations
which are less favorable than other existing agreements. In some cases, where
costs were initially higher than normal, the Company has been able to ultimately
lower the cost to deliver the services.
The Company's cost of revenues as a percentage of revenues can be
significantly effected by the cost structures of acquired merchant portfolios.
The remaining components of cost of revenues represent equipment sold and
rented, referral compensation paid to trade associations and other supplies and
service expenses. Referral compensation paid to associations, along with other
supplies and service expenses, increased in general proportion with the growth
in revenues from fiscal year 1994 through fiscal year 1996.
From fiscal year 1993 to fiscal 1995 the cost of equipment sold and rented
declined as a percentage of total revenues from 1.3% to 0.8%. This decrease was
the direct result of the growth in revenues, improved inventory management,
favorable pricing obtained through volume purchases and the decrease in rental
costs related to the purchase of rental terminals. Management does not expect
this trend of cost reduction to continue because cost reductions available from
inventory management have been substantially achieved. Decreases in equipment
costs have been partially offset by higher costs incurred as a result of the
replacement of malfunctioning equipment in the early months of merchant
portfolio purchases and conversions. Equipment costs as a percentage of total
revenues for fiscal 1996 remained consistent with fiscal 1995.
Prior to December 1993, the Company's merchants rented terminals directly
from a processing bank and the Company received a commission on each rental
payment. On December 31, 1993, the Company purchased these rental terminals and
related contracts from the processing bank, thereby improving gross margin.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $6.4 million in fiscal
year 1994 and $10.5 million in fiscal year 1995 and increased to $14.7 million
in fiscal year 1996. This increase represents a 64.9% increase from fiscal year
1994 to fiscal year 1995 and a 39.1% increase from fiscal year 1995 to fiscal
year 1996.
In fiscal year 1995, selling, general and administrative expenses increased
as a percentage of revenues when compared to fiscal year 1994. In fiscal year
1995, the Company incurred
20
<PAGE>
operating costs related to the field sales force, merchant portfolio purchases
and a Visa/MasterCard sales solicitation program.
The Company opened two field sales offices late in fiscal year 1994 and two
additional offices by January 1995, which increased payroll, rent, personnel
recruitment and office supplies expense. In fiscal year 1995, the Company
purchased nine merchant portfolios and incurred operating expenses and
additional labor costs related to servicing the purchased merchant portfolios.
The Visa/MasterCard sales solicitation program resulted in increased
selling, general and administrative costs in fiscal year 1995. The Company's
policy is to recognize these costs when incurred; however, revenues generated by
the program were not realized until fiscal year 1996. The Company incurred
approximately $325,000 of costs relating to the sales solicitation program
during fiscal year 1995.
In fiscal 1996, selling, general and administrative expenses increased in
amount but decreased as a percentage of revenues. The decrease in the
percentage continues to reflect the Company's overall improvement in utilization
of personnel and the addition of revenues from purchased merchant portfolios
which do not cause a proportionate increase in selling, general and
administrative expenses.
Depreciation and Amortization
Depreciation and amortization expense increased from $1.6 million in fiscal
year 1994 to $3.5 million in fiscal year 1995 and $7.5 million in fiscal year
1996. These increases represent a 113.5% increase from fiscal year 1994 to
fiscal year 1995 and a 113.5% increase from fiscal year 1995 to fiscal year
1996.
Depreciation expense has increased in amount from fiscal year 1994 through
fiscal year 1996 but remained relatively consistent as a percentage of revenues
due to the significant increase in revenues. The increase in depreciation
expense is a direct result of additional equipment and fixture purchases for
customer service and operations.
Amortization expense has generally increased in amount and as a percentage
of revenues from fiscal year 1994 through fiscal year 1996. Amortization
expense increases in periods when the Company purchases merchant portfolios.
The significant increases in fiscal years 1994 and 1995 are reflective of the
merchant portfolio purchases. In fiscal 1996, the acquisitions made in the
fourth quarter of fiscal 1995 and the Imperial and UMB acquisitions contributed
to significant increases in fiscal 1996 amortization expense.
In fiscal 1996, the Company entered into a merger with MHA which was
accounted for as a pooling of interests. Additionally, the Company has
accounted for another small merger as a pooling of interests in the first
quarter of fiscal 1997. There is no amortization expense related to these two
acquisitions, and to the extent that the Company should continue its growth
through significant acquisitions accounted for as a pooling of interests, the
amortization expense as a percentage of revenues could decline.
21
<PAGE>
Purchased merchant portfolios are evaluated by management for impairment at
each balance sheet date through review of actual attrition and projected cash
flows generated by each merchant portfolio in relation to the unamortized cost
of each merchant portfolio. If, upon review, an impairment of the value of the
purchased merchant portfolio is indicated, amortization will be accelerated and
any required loss in value recognized immediately. Subsequent to integration,
management anticipates merchant attrition rates for the portfolios acquired in
fiscal year 1996 to approximate normal rates historically experienced by the
Company's existing portfolios.
In the fourth quarter of 1995, the Company expensed as additional
amortization all remaining deferred processing costs totaling approximately
$203,000 associated with the March 1994 ABC merchant portfolio purchase in
connection with the conversion of processing of this purchased merchant
portfolio to its primary processing bank.
Provision for Merchant Losses
The provision for merchant losses decreased from $485,000 in fiscal year
1994 to $483,000 in fiscal year 1995 and increased to $655,000 in fiscal year
1996. The decrease from fiscal year 1994 to 1995 represents a 0.4% decrease.
From fiscal year 1995 to fiscal year 1996, the provision for merchant losses
increased 35.5% but decreased as a percentage of total revenue. In fiscal year
1995, the Company adjusted its provision to reflect more accurately recent
experience and historical trends. In fiscal 1996, the Company increased its
provision for estimated chargebacks and merchant fraud to reflect the increase
in merchant accounts serviced while continuing to evaluate the Company's recent
experience and historical trends
Stock Award Compensation
Stock award compensation increased from $240,000 in fiscal year 1994 to
$241,000 in fiscal year 1995. The Company recognizes noncash compensation
expense based on the vesting of certain stock awards. The vesting of awarded
shares accelerated upon completion of the initial public offering. As a result,
in fiscal year 1995 the remaining unearned compensation expense of $241,000 was
recognized at the completion of the Company's initial public offering.
Interest Expense
In fiscal 1994, the Company recognized net interest expense of $384,000.
In fiscal year 1995, net interest income increased from $46,000 to $1.7 million
in fiscal 1996. This represents a 112.0% increase from fiscal year 1994 to
fiscal year 1995 and a 3,689.5% increase from fiscal year 1995 to fiscal year
1996.
The Company consummated an initial public offering in August 1994, a second
public offering in October 1995 and a third public offering in April 1996. The
Company received net proceeds from the initial, second and third public
offerings of approximately $15.9 million, $40.8 million and $100 million (after
deducting underwriting discounts and commissions and expenses of the offerings),
respectively. With the first two offerings, the Company repaid all borrowings
outstanding under its credit facility. The Company received interest income
from the investment of the remaining net proceeds from the initial and second
offerings and on the total net proceeds from the April 1996 offering. To the
extent the Company should use the net proceeds from the third
22
<PAGE>
offering for acquisitions or working capital, management would not expect to
continue to recognize a significant amount of interest income.
Income Tax
As a result of the Company's increased profitability in fiscal year 1996
income tax expense has increased. Income tax expense increased from $1.4
million in fiscal year 1994 to $2.4 million in fiscal year 1995 and $5.2 million
in fiscal year 1996. The Company's effective income tax rate for fiscal years
1994 through 1996 has remained relatively consistent.
Effective August 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109 (SFAS 109) as required. Under SFAS
109, the liability method is used in accounting for income taxes, whereby
deferred tax assets of approximately $312,800 were recognized in fiscal year
1994 as a benefit upon adoption for the expected future tax consequences of
events that had been recognized in the Company's financial statements or tax
returns.
Seasonality
The Company's revenue volume is generated from consumer credit purchases.
However, the Company's revenues do not generally reflect the seasonal
fluctuations that are typically associated with traditional peaks in consumer
retail sales. The Company's merchants are largely engaged in retail operations
which do not display these seasonal fluctuations in consumer spending. As a
result, the Company experiences a generally even distribution of revenues
throughout its fiscal year with the third quarter experiencing a slightly lower
percentage of annual revenues.
Quarterly Information
The following table sets forth statements of income data for each of the
eight quarters in the two year period ended July 31, 1996. This income data has
been restated for the MHA acquisition effective July 1, 1996 accounted for as a
pooling of interests. This unaudited quarterly information has been prepared on
the same basis as the annual information presented elsewhere herein and, in
management's opinion, includes all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the selected
quarterly information when read in conjunction with the financial statements and
notes thereto. The operating results for any quarter are not necessarily
indicative of results for the entire fiscal year or for any future period.
23
<PAGE>
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
1995
----
Revenues $20,064 $20,790 $21,263 $26,890 $ 89,007
Gross margin 4,292 4,826 5,009 6,683 20,810
Income from operations 1,095 1,808 1,156 1,968 6,027
Income before provision for income taxes 1,090 1,883 1,247 1,853 6,073
Net income 670 1,167 691 1,112 3,640
1996
----
Revenues $30,671 $32,301 $37,914 $48,954 $149,840
Gross margin 7,152 7,908 8,695 10,433 34,188
Income from operations 2,400 2,828 2,931 3,202 11,361
Income before provision for income taxes 2,277 3,076 3,198 5,255 13,806
Net income 1,350 1,839 1,917 3,519 8,625
</TABLE>
The quarterly variances shown above are generally indicative of those
discussed for the annual periods. Specifically, the growth in revenues resulted
primarily from purchased merchant portfolios, revenue enhancement programs and
the growth from a Visa/MasterCard sales solicitation which contributed
progressively to quarterly profits.
In fiscal year 1996, purchased merchant portfolios generated higher
revenues and, accordingly, a higher gross margin. In the third and fourth
quarters of fiscal 1996, the Company made significant acquisitions late in
fiscal 1996 which have a higher cost of revenues as a percentage of revenues
than those historically experienced by the Company. In the first quarter of
fiscal year 1995 the Company recognized all remaining unearned compensation
relating to the vesting of certain awarded shares. The shares vested in August
1994 at the completion of the Company's initial public offering. Selling,
general and administrative expenses for the third quarter of fiscal year 1995
include operating expenses of approximately $325,000 relating to a
Visa/MasterCard sales solicitation program. Revenues generated by the program
were not realized until fiscal year 1996.
In all quarters of fiscal year 1996, and in all quarters of fiscal 1995
except the first, the Company reported net interest income. Following the
Company's initial public offering in August 1994, the Company repaid all
borrowings outstanding under its principal revolving credit loan and bridge
loan. The Company consummated a second public offering in October 1995 and a
third public offering in April 1996. The Company received interest income from
the investment of the remaining net proceeds from the first two offerings and
interest income on the total net proceeds from the third offering.
Liquidity and Capital Resources
The Company recognizes as revenue in its statement of income the full
discount rate and related fees collected from the merchant. The various costs
incurred by the Company, including amounts paid to the card-issuing bank, the
processing bank, and the network service provider, are reflected as costs of
revenues. In accordance with the Company's contracts with its processing banks,
all of the funds collection and most of the disbursement function is performed
on behalf of the Company by the processing bank. At month end the processing
bank collects the total discount
24
<PAGE>
rate and related fees from the merchants and disburses to each of the service
providers their fees, except disbursements for interchange fees paid to the
card-issuing bank are made daily. Shortly after month end, the processing bank
disburses to the Company the remainder of the funds collected from the merchant
(which represents a significant portion of the Company's gross margin).
Although the Company's revenues reflect the full discount rate and related
fees collected, the cash flow statement is prepared using the "direct method" as
provided in SFAS 95, "Statement of Cash Flows," and reflects cash received from
merchants at the net amount collected as the cash flows received by the Company
from processing banks are net of the amounts disbursed to the other parties
described above. This presentation follows the actual flow of funds to the
Company.
Several factors can alter the profitability to the Company of merchant
transactions. Primarily, these include (i) improper use of the card reading
terminal by the merchant resulting in higher interchange fees paid to the card-
issuing bank, (ii) lower than anticipated average dollar sales of credit card
transactions thereby reducing the discount rate collected because many of the
transaction costs are fixed, (iii) losses incurred as a result of customer
chargebacks (the Company can be required to absorb the full retail purchase
amount), (iv) the inability to collect the discount rate because of insufficient
funds in the merchant's bank account, (v) merchant fraud and (vi) excessive
volume of customer return transactions in which the Company again incurs all
costs except interchange fees. Actual losses realized as a result of customer
chargebacks, merchant fraud and the Company's inability to collect the discount
rate as a result of insufficient merchant funds were approximately $399,000 and
$721,000 for fiscal year 1995 and fiscal year 1996, respectively. The Company's
actual losses as a percentage of total revenues realized remained consistent
from fiscal 1995 to fiscal 1996. Management does not believe that the other
factors mentioned above have had a material effect on the Company's
profitability.
Working Capital
Cash flow provided by operating activities was $3.7 million in fiscal year
1994 as compared to $4.4 million in fiscal year 1995 and $13.7 million in fiscal
year 1996. The increase in cash flow from operating activities resulted from
increases in net income for each period which have been achieved principally
through purchases of merchant portfolios and internal generation of new merchant
accounts. The effect of net income increases is partially offset by increases
in working capital needs.
At July 31, 1996, the Company had working capital of $106.7 million, as
compared to negative working capital of $634,000 at July 31, 1995. This
increase in working capital primarily reflects the net proceeds from the
Company's third public offering in April 1996.
Accounts receivable increased $2,670,000 from July 31, 1995 to July 31,
1996. This increase was the result of increases in the number of merchant
accounts acquired through purchases of merchant portfolios and, to a lesser
extent, the internal generation of new merchant accounts. Additionally, at July
31, 1996 the Company had a current accounts receivable of $1.0 million for the
proceeds from a life insurance policy on the Company's former Chief Financial
Officer.
25
<PAGE>
Other assets, excluding non-competition agreements and deferred processing
costs, at July 31, 1995, increased from July 31, 1994 because of the restricted
cash balance of $500,000 required to be maintained in connection with an
acquisition. Additionally, in June 1995 when certain acquired merchant accounts
were converted to the Company's primary processing bank, the bank required a
restricted cash balance of $1.5 million to be maintained for six months. These
funds were released to the Company in fiscal year 1996. Additionally, other
assets increased as a result of deferred financing costs incurred in fiscal year
1995 as a result of amendments to the Company's credit agreement.
Accounts payable at July 31, 1996 increased $588,000 as compared to July
31, 1995, as a result of increased processing costs related to MHA's increase in
merchant accounts. Accrued liabilities increased $621,000 from July 31, 1995, to
July 31, 1996, primarily as a result of increased income and state franchise
taxes.
Capital Expenditures and Investing Activities
Capital expenditures were approximately $1.8 million for fiscal year 1996
as compared to $1.9 million for fiscal year 1995 and $1.5 million for fiscal
year 1994. The increase in capital expenditures was primarily the result of
additional expenditures related to the Company's management information system,
the purchase of additional credit card terminals, the Company's relocation of
its office facilities and the purchase of peripheral equipment for lease to
merchants. In addition to the increase in capital expenditures, the Company
used $8.4 million, $24.6 million and $31.8 million for the purchase of merchant
portfolios in fiscal years 1994, 1995 and 1996, respectively. The Company
purchased five merchant portfolios in fiscal 1994, nine merchant portfolios in
fiscal year 1995 and five in fiscal year 1996.
Financing Activities
The significant increase in cash provided by financing activities for
fiscal year 1995 resulted from the consummation of the Company's initial public
offering in August 1994. Cash provided by financing activities for fiscal year
1995 was $20.7 million which reflects the net proceeds of the initial public
offering after retirement of the Company's outstanding indebtedness to First
Union National Bank of Tennessee and to ABC for the March 1994 ABC purchase.
Additionally, the Company issued $15.3 million of long-term debt in connection
with three of the nine merchant portfolios purchased in fiscal year 1995.
The cash provided by financing activities for fiscal 1996 reflects the
Company's consummation of its second and third public offerings in October 1995
and April 1996, respectively. Net cash provided by financing activities was
$124.8 million in fiscal 1996 which reflects the net proceeds from the offerings
after retirement of the Company's outstanding bank indebtedness.
Future Capital Needs
Management believes that significant expenditures for the purchase of
additional merchant portfolios may be required for the Company to sustain its
growth in the future. Management expects to fund such purchases primarily
through cash generated from operations and additional bank borrowings.
Management believes the combination of these sources will be sufficient to meet
26
<PAGE>
the Company's anticipated liquidity needs and its growth plans through fiscal
year 1997. The Company, however, may pursue additional expansion opportunities,
including purchases of additional merchant portfolios, which may require
additional capital, and the Company may incur, from time to time, additional
short-term and long-term indebtedness or issue, in public or private
transactions, equity or debt securities, the availability and terms of which
will depend upon then prevailing market and other conditions.
The Company's revolving credit facility was amended and restated during
fiscal year 1995 to increase the line of credit to $17.5 million. The Company
repaid all outstanding debt related to this credit facility with the proceeds
from its second public offering during fiscal year 1996. The amended agreement
expires November 1, 1996 with all amounts then outstanding under the agreement
due on November 1, 1996, unless the agreement is extended or the outstanding
amounts have been converted to a term loan requiring equal monthly payments for
48 months.
Borrowings under the amended revolving credit facility are used to finance
purchases of merchant portfolios and equipment and for working capital purposes.
Borrowings are secured by substantially all the Company's assets and life
insurance policies on the lives of two of the Company's executive officers.
This report contains certain forward-looking statements under Section 21E
of the Securities and Exchange Act of 1934. Specifically, the forward-looking
statements relate to future growth through portfolio acquisitions and the
availability of capital to support such acquisitions. Each forward-looking
statement is accompanied by specific, cautionary language indicating important
factors that could cause actual results to differ materially from those in the
forward-looking statements. Results actually achieved thus may differ
materially from expected results included in such statements.
27
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors..................................................... 29
Consolidated Balance Sheets at July 31, 1995 and July 31, 1996..................... 30
Consolidated Statement of Income, each of the three years ended July 31, 1996...... 31
Consolidated Statement of Changes in Shareholders' Equity, each of the three
years ended July 31, 1996........................................................ 32
Consolidated Statement of Cash Flows, each of the three years ended July 31, 1996.. 33-34
Notes to Consolidated Financial Statements......................................... 35-51
</TABLE>
28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of PMT Services, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
PMT Services, Inc. and its subsidiaries at July 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended July 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for incomes taxes in fiscal 1994.
PRICE WATERHOUSE LLP
Nashville, TN
September 13, 1996
29
<PAGE>
PMT SERVICES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JULY 31,
-------------
1995 1996
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 475,145 $105,461,031
Accounts receivable................................ 3,876,888 6,547,321
Inventory.......................................... 369,962 556,251
Deferred income taxes.............................. 262,966 265,661
Other current assets............................... 235,318 759,909
----------- ------------
Total current assets.............................. 5,220,279 113,590,173
Purchased merchant portfolios, net of accumulated
amortization of 4,033,330 and $9,605,624.......... $ 36,801,599 61,404,794
Property and equipment, net........................ 3,523,800 4,355,738
Deferred income taxes.............................. 588,578 1,347,588
Intangible and other assets........................ 6,086,842 6,093,819
----------- ------------
Total assets...................................... $52,221,098 $186,792,112
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................. $ 185,336 $ 40,000
Accounts payable................................... 3,034,235 3,622,019
Accrued liabilities................................ 2,348,520 2,969,761
Deferred revenues.................................. 285,728 230,496
----------- ------------
Total current liabilities......................... 5,853,819 6,862,276
Long-term debt..................................... 16,670,164 575,000
----------- ------------
Total liabilities................................. 22,523,983 7,437,276
----------- ------------
Shareholders' equity:
Preferred stock, $0.01 par value, authorized:
10,000,000 shares; no shares outstanding
Common stock, $0.01 par value, authorized:
40,000,000 shares; issued and outstanding:
7,229,604 and 32,312,092 shares.................. 72,296 323,121
Additional paid-in capital.......................... 25,313,814 166,275,748
Treasury stock...................................... (68,500) (12,000)
Accumulated earnings................................ 4,379,505 12,767,967
----------- ------------
29,697,115 179,354,836
----------- ------------
Commitments and contingent liabilities (Notes 3, 11
and 14)
Total liabilities and shareholders' equity........ $52,221,098 $186,792,112
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
PMT SERVICES, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-----------------------------------------
1994 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
Revenues................................ $61,196,528 $89,007,061 $149,840,026
Cost of revenues........................ 48,367,317 68,196,712 115,651,792
----------- ----------- ------------
Gross margin........................ 12,829,211 20,810,349 34,188,234
----------- ----------- ------------
Selling, general and administrative
expenses............................ 6,393,670 10,540,796 14,663,007
Depreciation and amortization expense... 1,648,023 3,517,852 7,509,630
Provision for merchant losses........... 484,993 483,245 654,705
Stock award compensation................ 239,659 241,477 --
----------- ----------- ------------
8,766,345 14,783,370 22,827,342
----------- ----------- ------------
Income from operations.................. 4,062,866 6,026,979 11,360,892
Interest income......................... 32,745 311,760 2,086,502
Interest expense........................ (416,305) (265,805) (345,059)
Other income, net....................... -- -- 703,896
----------- ----------- ------------
Income before provision for income
taxes and change in accounting
principle........................... 3,679,306 6,072,934 13,806,231
Provision for income taxes.............. 1,399,662 2,432,779 5,180,855
----------- ----------- ------------
Income before change in accounting
principle........................... 2,279,644 3,640,155 8,625,376
Cumulative effect of change in
accounting principle................ 312,800 -- --
----------- ----------- ------------
Net income.................. $ 2,592,444 $ 3,640,155 $ 8,625,376
=========== =========== ============
Per share data:
Income before change in accounting
principle....................... $ 0.18 $0.17 $0.30
Cumulative effect of change in
accounting principle............ 0.02 -- --
----------- ----------- ------------
Net income per share......... $ 0.20 $0.17 $0.30
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
PMT SERVICES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL ACCUMULATED TOTAL
COMMON PAID-IN EARNINGS TREASURY UNEARNED SHAREHOLDERS'
STOCK CAPITAL (DEFICIT) STOCK COMPENSATION EQUITY
--------- ------------- -------------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1993........ $ 26,945 $ 1,163,225 ($ 1,342,549) ($481,136) ($ 633,515)
Stock awards earned........... 239,659 239,659
Shares issued................. 200 53,500 53,700
Stock warrants issued......... 261,000 261,000
Purchase of treasury stock.... ($45,000) (45,000)
Reissuance of treasury stock.. (3,000) 3,000 --
Net income for the year...... 2,592,444 2,592,444
-------- ------------ ------------- --------- ------------ ------------
Balance at July 31, 1994........ 27,145 1,474,725 1,249,895 (42,000) (241,477) 2,468,288
Stock awards vested........... 926,597 241,477 1,168,074
Shares issued................. 24,280 15,891,212 15,915,492
Expiration of put options on
redeemable common stock... 19,224 6,502,083 6,521,307
Stock warrants exercised...... 1,301 418,615 419,916
Stock options exercised....... 346 106,582 106,928
Acquire majority interest in..
subsidiary................. (510,545) (510,545)
Purchase of treasury stock.... (32,500) (32,500)
Reissuance of treasury stock.. (6,000) 6,000 --
Net income for the year....... 3,640,155 3,640,155
-------- ----------- ------------- --------- ------------ -------------
Balance at July 31, 1995........ 72,296 25,313,814 4,379,505 (68,500) -- 29,697,115
Shares issued................. 58,520 140,746,488 140,805,008
Stock options exercised....... 448 475,803 476,251
Stock splits.................. 191,857 (191,857) --
Purchase of treasury stock.... (12,000) (12,000)
Reissuance of treasury stock.. (68,500) 68,500 --
Minority shareholders'
contribution............... 120,000 120,000
Martin Howe fiscal year
conversion................. (356,914) (356,914)
Net income for the year....... 8,625,376 8,625,376
-------- ----------- ------------- --------- ------------ -------------
Balance at July 31, 1996........ $323,121 $166,275,748 $ 12,767,967 ($12,000) $ -- $179,354,836
======== ============ ============= ========= ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
PMT SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------------
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net cash received from merchants....................... $ 19,657,687 $ 34,353,326 $ 67,313,124
Cash paid to vendors and employees..................... (14,758,040) (28,467,472) (49,128,150)
Interest received...................................... 22,262 310,136 1,672,714
Interest paid.......................................... (268,586) (198,485) (505,856)
Income taxes paid...................................... ( 994,969) (1,600,405) (5,630,881)
------------ ------------ ------------
Net cash provided by operating activities 3,658,354 4,397,100 13,720,951
------------ ------------ ------------
Cash flows from investing activities:
Purchase of merchant portfolios........................ (8,415,055) (24,576,426) (31,787,725)
Purchase of property and equipment..................... (1,465,984) (1,917,395) (1,777,955)
------------ ------------ ------------
Net cash used in investing activities....... (9,881,039) (26,493,821) (33,565,680)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt............... 7,650,000 16,450,000 305,000
Payments on long-term debt............................. (1,163,170) (12,828,503) (16,545,500)
Proceeds from issuance of common stock................. -- 17,098,894 140,963,115
Payments to repurchase treasury stock.................. (45,000) (32,500) (12,000)
Proceeds from minority shareholder contributions....... -- -- 120,000
------------ ------------ ------------
Net cash provided by financing activities... 6,441,830 20,687,891 124,830,615
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents....... 219,145 (1,408,830) 104,985,886
Cash and cash equivalents at beginning of year............. 1,664,830 1,883,975 475,145
------------ ------------ ------------
Cash and cash equivalents at end of year................... $ 1,883,975 $ 475,145 $105,461,031
============ ============ ============
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
In connection with the purchase of merchant portfolios in fiscal years 1994
and 1995, the Company issued promissory notes totaling $5,061,804 and $80,500,
respectively.
The Company recognized a tax benefit of $318,517 for the year ended July
31, 1996 for the excess of the fair market value at the exercise date over that
at the award date for stock options exercised.
In connection with the purchase of a merchant portfolio in March 1994,
the Company issued 312,500 shares of common stock.
In connection with an agreement between the Company and a processing bank
entered into simultaneously with the purchase of a merchant portfolio in March
1994, the Company issued warrants to purchase 120,000 shares of common stock.
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
PMT SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Reconciliation of net income to net cash provided by
operating activities:
Net income........................................ $ 2,592,444 $ 3,640,155 $ 8,625,376
Martin Howe fiscal year conversion................ -- -- (356,914)
Adjustments:
Depreciation and amortization expense.......... 1,648,023 3,517,852 7,509,630
Provision for merchant losses.................. 484,993 483,245 654,705
Stock award compensation and other............. 239,659 241,477 120,395
Deferred income taxes.......................... (453,658) 35,982 (761,705)
Changes in assets and liabilities:
Accounts receivable......................... (1,562,961) (1,459,799) (2,125,510)
Inventory................................... (50,235) (157,087) (186,289)
Other assets................................ (1,716,464) (1,895,097) (501,353)
Accounts payable............................ 1,557,611 44,106 587,784
Accrued liabilities......................... 975,065 (223,411) 210,064
Deferred revenues........................... (56,123) 169,677 (55,232)
----------- ----------- -----------
Net cash provided by operating activities............. $ 3,658,354 $ 4,397,100 $13,720,951
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
PMT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Operations
PMT Services, Inc. (the "Company") markets and services electronic credit
card authorization and payment systems to merchants. The Company provides these
services to merchants pursuant to contracts between the Company and various
processing banks. Generally the Company's agreements with the processing banks
contain certain aspects of both marketing and service. Although the marketing
portion of the agreements is limited as to time, the service portion of
substantially all of these agreements is not. The marketing aspects expire at
dates ranging from 1996 to 2002 unless extended by either party.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries. Interests in the majority-owned
subsidiaries are reported using the full consolidation method. All material
intercompany balances and transactions are eliminated.
Basis of presentation
Certain financial statement items have been reclassified to conform to the
current year's presentation. The consolidated financial statements give
retroactive effect to the acquisition of Martin Howe Associates, Inc. ("MHA"),
which was accounted for as a pooling of interests (Note 3).
Management estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue and cost recognition
Revenues derived from the electronic processing of transactions (merchant
discount rate and related fees) on the credit card authorization equipment are
recognized at the time the merchants' transactions are processed. Related
commissions and processing charges are also recognized at that time.
35
<PAGE>
PMT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED )
Revenues related to the direct sale of credit card authorization equipment
are recognized when the equipment is shipped. Installation fees related to both
the direct sale and the marketing of this equipment are recognized when
installation is completed. Fees received in advance of shipment or installation
are not recognized as revenue until earned.
Cost of revenues includes interchange fees paid to the credit card-issuing
bank and fees paid to the network service provider, VISA and MasterCard and the
processing bank. These costs are recognized at the time the merchants'
transactions are processed and the related revenue is recorded.
The Company recognizes as revenue in its statement of income the full
discount rate and fees collected from the merchant. The various costs incurred
by the Company, including amounts paid to the card-issuing bank, the processor
and network service provider, are reflected as costs of revenues. In accordance
with the Company's contracts with its processing banks, all of the funds
collection and most of the disbursement function is performed on behalf of the
Company by the processing bank. At month end, the processing bank collects the
total discount rate and fees from the merchants and disburses to each of the
service providers their fees. Disbursements for the interchange fee paid to the
card-issuing bank are made daily. Shortly after month end, the processing bank
disburses to the Company the remainder of the funds collected from the merchant
which represents a significant portion of the Company's gross margin.
Although the Company's revenues reflect the full discount rate and fees
collected, the cash flow statement is prepared using the "direct method" as
provided in Statement of Financial Accounting Standards No. 95, "Statement of
Cash Flows," and reflects cash received from merchants at the net amount
collected as the cash flows received by the Company from processing banks are
net of the amounts disbursed to other parties described above. This presentation
follows the actual flow of funds to the Company.
Cash equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Financial instruments
The Company has various financial instruments, including cash, time
deposits, receivables, accounts payable, revolving credit facilities and accrued
liabilities. Cash, time deposits, receivables, accounts payable and accrued
liabilities are settled within a year and are not subject to market rate
fluctuations. Revolving credit facilities are at variable market rates.
36
<PAGE>
PMT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The carrying value of these financial instruments approximates their fair market
values at July 31, 1995 and 1996.
Accounts receivable
Accounts receivable primarily comprise amounts due from processing banks
which represent the discount rate and fees earned, after related interchange
fees and other processing costs, on transactions processed during the month
ending on the balance sheet date. Such balances are received from processing
banks approximately 20 days following the end of each month.
Inventory
Inventory of credit card authorization equipment is stated at the lower of
cost or market, with cost being determined by specific identification.
Property and equipment
Property and equipment are recorded at cost. Depreciation is computed
using straight-line and accelerated methods over the estimated useful lives of
the assets ranging from 3 to 10 years.
Purchased merchant portfolios
Purchased merchant portfolios are recorded at acquired cost. Amortization
expense is recognized on a straight-line basis over 10 years. Purchased
merchant portfolios are evaluated by management for impairment at each balance
sheet date through review of actual attrition and projected undiscounted cash
flows generated by each merchant portfolio in relation to the unamortized cost
of each merchant portfolio. If, upon review, an impairment of the value of the
purchased merchant portfolio is indicated, amortization will be accelerated to
recognize the diminution in value.
Reserve for chargebacks and merchant fraud
Disputes between a cardholder and a merchant periodically arise as a result
of cardholder dissatisfaction with merchandise quality or merchant services and
the disputes may not be resolved in the merchant's favor. In these cases, the
transaction is "charged back" to the merchant and the purchase price is refunded
by the merchant. If the merchant is unable to grant a refund, the Company or,
under limited circumstances, the Company and the processing bank, must bear the
credit risk for the full amount of the transaction. The Company evaluates
its risk
37
<PAGE>
PMT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
and estimates its potential loss for chargebacks based on historical experience.
A provision for these estimated losses is provided in the same period as the
related revenues.
Income taxes
On August 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109 (SFAS 109) as required. Under SFAS 109,
the liability method is used in accounting for income taxes, whereby deferred
tax assets and liabilities are recognized for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. The tax benefit of deductible temporary differences
is reflected within the various components of deferred tax assets and recognized
if the realization thereof is more likely than not (Note 13). The Company
recognized a benefit of $312,800 for deductible temporary differences upon
adoption of SFAS 109. This amount is presented as the cumulative effect of
change in accounting principle in the Company's statement of income for the year
ended July 31, 1994.
Net income per share
Net income per share for the fiscal years 1994, 1995 and 1996 is calculated
based on weighted average shares of common stock outstanding of 13,007,916,
20,939,535 and 28,539,255, respectively.
Stock splits
On May 13, 1994, the Board of Directors approved a stock split of four
shares of $0.01 par value common stock for one to be effected in the form of a
stock dividend. The stock split was effective June 10, 1994. On December 14,
1995 the Board of Directors approved a two-for-one stock split and on May 17,
1996 approved a three-for-two stock split, each to be effected in the form of a
stock dividend. The stock splits for December 14, 1995 and May 17, 1996 were
effective for shareholders of record at the close of business on December 29,
1995 and May 28, 1996, respectively. All earnings per share information included
in the accompanying financial statements has been adjusted to give retroactive
effect to the stock splits for all periods presented. Additionally, all share
information stated in Note 9 has been adjusted to give retroactive effect to the
stock splits.
NOTE 2 - STOCK OFFERINGS:
In August 1994, the Company consummated an initial public offering of
3,565,000 shares of common stock, 2,315,000 shares of which were offered by the
Company (the "Offering"). In connection with the Offering, the Company received
net proceeds of approximately $15.9 million, after deducting underwriting
discounts and commissions and
38
<PAGE>
PMT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
expenses of the Offering. The net proceeds were used to repay a $4.9 million
noninterest bearing note payable and all borrowings outstanding under the
Company's revolving line of credit and bridge loan. The remainder of the net
proceeds were used to fund merchant purchases, upgrade the Company's information
systems and for working capital needs.
Upon the effective date of the Offering, vesting of management stock awards
for 439,084 shares of common stock was accelerated and the remaining unearned
compensation of $241,000 was immediately recognized. The Company received a tax
deduction in fiscal 1995 for the fair value of the vested stock on the effective
date of the Offering. Compensation expense related to the stock awards was
recognized in the financial statements based upon the fair value of the common
stock at the date of the awards of $2.48 per share. The tax benefit arising
from the excess of fair value at the vesting date over that at the award date of
approximately $927,000 is recognized as additional paid-in capital.
Warrants for 130,060 shares of the Company's common stock were exercised
concurrent with the effective date of the Offering at a weighted average
exercise price of $3.23. Additionally, the Company delivered 112,500 shares of
common stock to the seller in connection with the March 1994 purchase of a
merchant portfolio.
In October 1995, the Company consummated a second public offering of
2,156,250 shares of common stock, 1,931,250 of which were offered by the
Company. The Company received net proceeds of approximately $40.8 million,
after deducting underwriting discounts and commissions and expenses of the
offering, and repaid all borrowings outstanding under its revolving line of
credit.
The Company offered 3,910,000 shares of its common stock in a third public
offering consummated in April 1996. The Company received net proceeds of
approximately $100 million after deducting underwriting discounts and
commissions and estimated expenses of the offering.
NOTE 3 - MERGERS AND ACQUISITIONS:
Acquisitions
The Company has purchased certain merchant portfolios which provide the
Company the right to service specific merchants under contract to processing
banks for electronic authorization and payment processing. The Company
purchased five portfolios in fiscal year 1994 and nine portfolios in fiscal year
1995. In fiscal year 1996, the Company purchased five merchant portfolios. In
connection with the purchase of merchant portfolios, the Company may enter into
a noncompetition agreement with the sellers of the portfolios. In such cases,
a portion
39
<PAGE>
PMT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
of the purchase price of each merchant portfolio is allocated to the related
noncompetition agreement (Note 5). Amortization expense related to purchased
merchant portfolios was $947,278, $2,276,138 and $5,586,499 in fiscal years
1994, 1995 and 1996, respectively.
Significant purchase transactions are as follows:
CROWN CARD SERVICES - The Company acquired the merchant portfolio and
retained the sales force of Crown Card Services, Inc. ("Crown Card") on January
1, 1994. The total purchase price for the merchant portfolio was $853,700, of
which $630,000 was paid in cash. A noninterest bearing note payable for
$170,000 and 20,000 shares of common stock valued at $53,700 were issued to
Crown Card.
ABC - The Company purchased a merchant portfolio from Bankcard America,
Inc. ("ABC") in April 1995 for a purchased price of $7,674,990. The Company
paid $2,600,000 in cash, issued a $400,000 note payable with interest at 3% due
May 1, 1995 and issued a $4,700,000 note payable with interest at 3% due July 1,
1995. The Company incurred direct costs and expenses related to the purchase of
approximately $1,300,000. The purchase agreement provided additional
consideration of $2,500,000 payable to the seller contingent upon the seller's
ability to negotiate the transfer of the merchant accounts from the current
processing bank to the Company's primary processing bank. In May 1995, an
agreement was entered into providing for transfer of the merchant accounts and
the Company paid $2,500,000 representing additional purchase price for the
merchant portfolio.
In connection with the purchase, the Company signed a guaranty for a
$1,000,000 note payable to the current processing bank by ABC expiring May 9,
1998. The Company received a security interest in stock warrants to purchase
120,000 shares of the Company's common stock currently held by a shareholder of
ABC. Additionally, beginning June 1995, the Company's primary processing bank
required a security deposit of $1,500,000 for a period of six months due to the
conversion of other merchant portfolios to this bank. Approximately $1,000,000
plus accrued interest was returned to the Company in March, 1996. A sum of
$500,000 will remain on deposit with this primary processing bank as long as the
Company participates in the bank's Association Marketing Agreement. This amount
is reflected as other current assets on the Company's balance sheet at July 31,
1996.
TERMNET AND CPS - In July 1995, the Company purchased two merchant
portfolios which were financed under the Company's credit facility. The Company
paid $6,200,000 to TermNet Merchant Services, Inc. ("TermNet") for a merchant
portfolio and inventory. The Company paid $5,951,000 to Consumer Payment
Services, Inc. ("CPS") for the second purchase in July 1995. In addition to the
CPS merchant portfolio, the Company also obtained a merchant terminal lease
portfolio, inventory and other office assets.
40
<PAGE>
PMT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
IMPERIAL BANK - In October 1995, the Company purchased a merchant portfolio
from Imperial Bank ("Imperial") for $8,650,000 with a portion of the proceeds
from the Company's second public offering. Operating results of the merchant
portfolio are included in the Company's financial statements beginning October
1, 1995, the effective date of the purchase.
UMB - In March 1996, the Company purchased a merchant portfolio from UMB
Bank ("UMB") for $13,500,000 with a portion of the proceeds from the Company's
second public offering. Additionally, the Company purchased merchant equipment
inventory from UMB in the transaction. Operating results of the merchant
portfolio are included in the Company's financial statements beginning March 1,
1996, the effective date of the purchase.
Unaudited pro forma operating results are presented below to provide
additional information relative to the potential effect upon the Company's
operations of significant acquisitions. Pro forma information is provided only
for acquisitions meeting certain size and other requirements set forth by the
Securities and Exchange Commission. Each of the above acquisitions meet these
requirements and are included in the unaudited pro forma summary for the periods
specified below.
<TABLE>
<CAPTION>
EFFECTIVE INCLUDED IN
DATE OF PRO FORMA RESULTS
PURCHASES BEGINNING FISCAL YEAR
--------- ---------------------
<S> <C> <C>
Crown Card January 1, 1994 1994
ABC April 1, 1995 1994
TermNet July 1, 1995 1994
CPS July 1, 1995 1994
Imperial October 1, 1995 1995
UMB March 1, 1995 1995
</TABLE>
These unaudited pro forma results have been prepared for comparative
purposes and do not purport to be indicative of what would have occurred had the
purchases been made at the beginning of fiscal year 1994 or fiscal year 1995,
or of results which may occur in the future. These amounts include the results
of MHA due to the restatement for the pooling of interests transaction.
41
<PAGE>
PMT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA
YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, 1994 JULY 31, 1995 JULY 31, 1996
------------- ------------- -------------
<S> <C> <C> <C>
Revenues $104,242,012 $161,844,144 $170,171,357
Income before extraordinary item
and change in accounting principle $ 733,146 $ 2,084,082 $ 8,720,687
Net income $ 1,045,946 $ 2,084,082 $ 8,720,687
Income per share before extraordinary
item and change in accounting principle $ 0.06 $ 0.10 $ 0.31
Net income per share $ 0.08 $ 0.10 $ 0.31
</TABLE>
Mergers
On July 1, 1996, the Company issued 594,019 shares of its common stock in
exchange for all of the outstanding common stock of MHA. The merger has been
accounted for as a pooling of interests and, accordingly, the Company's
consolidated financial statements have been restated to include the accounts and
operations of MHA for all periods prior to the merger.
MHA had a calendar year end and, accordingly, the MHA statements of
income for the years ended December 31, 1993, 1994 and 1995 have been combined
with the Company's statements of income for the fiscal years ended July 31,
1994, 1995, and 1996, respectively In order to conform MHA's year end to the
Company's fiscal year end, results of operations of MHA for the six-month period
ended June 30, 1996 have been excluded from the consolidated statement of income
for the fiscal year ended July 31, 1996. Accordingly, an adjustment has been
made in fiscal year 1996 to retained earnings for the exclusion of the net loss
of $356,914 for such six-month period. MHA's results of operations for this
six-month period includes revenues of $10,743,645, expenses of $11,022,698 and
net loss before provision for income taxes of $279,053.
Separate revenues, net income and changes in shareholders' equity amounts
of the merged entities for the periods prior to the merger are presented in the
following table:
42
<PAGE>
PMT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED UNAUDITED NINE
JULY 31, JULY 31, MONTHS ENDED
1994 1995 APRIL 30, 1996
------------ ------------- ---------------
<S> <C> <C> <C>
Revenues
PMT $53,506,857 $ 75,242,866 $ 87,299,482
MHA 7,689,671 13,764,195 13,585,887
----------- ------------ -----------
$ 61,196,528 $ 89,007,061 $100,885,369
============ ============ ============
Net Income (Loss)
PMT $ 2,492,514 $ 4,032,000 $ 5,432,934
MHA 99,930 (391,845) (327,023)
------------ ------------ -----------
$ 2,592,444 $ 3,640,155 $ 5,105,911
============ ============ ============
Other changes in
shareholders' equity
PMT $ 554,359 $ 24,131,717 $141,302,135
MHA (45,000) (543,045) 180,060
----------- ------------ -----------
$ 509,359 $ 23,588,672 $141,482,195
============ ============ ============
</TABLE>
Subsequent mergers and acquisitions
Subsequent to July 31, 1996, the Company consummated acquisitions of three
merchant portfolios. On August 2, 1996, Data Transfer Associates, Inc. ("DTA")
was merged into the Company and was accounted for as an immaterial pooling of
interests.
The other two merchant portfolio acquisitions in the first quarter of
fiscal year 1997 accounted for approximately 9,500 merchant accounts. Operating
results of the merchant portfolios will be included in the Company's financial
statements beginning August 1, 1996, the effective date of the purchases.
NOTE 4 - PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
JULY 31,
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
Office equipment...................... $2,045,726 $ 3,340,024
Studio equipment...................... 639,021 945,779
Credit card terminals held for lease.. 1,310,416 1,632,023
Office furniture and fixtures......... 412,452 582,106
Leasehold improvements................ 62,017 114,208
---------- -----------
4,469,632 6,614,140
Less: accumulated depreciation.. (945,832) (2,258,402)
---------- -----------
$3,523,800 $ 4,355,738
========== ===========
</TABLE>
43
<PAGE>
PMT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company leases credit card terminals to merchants generally under
operating leases on a month-to-month basis. Depreciation expense was $243,515,
$368,755 and $909,092 in fiscal years 1994, 1995 and 1996, respectively.
NOTE 5 - INTANGIBLE AND OTHER ASSETS:
<TABLE>
<CAPTION>
JULY 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
Noncompetition agreements.............. $3,148,016 $3,345,193
Restricted cash........................ 2,515,235 2,305,377
Other.................................. 423,591 443,249
---------- ----------
$6,086,842 $6,093,819
========== ==========
</TABLE>
Intangible and other assets include noncompetition agreements with various
sellers of merchant portfolios purchased by the Company (Note 3).
Amortization expense related to noncompetition agreements was $228,620,
$465,147 and $860,323 in fiscal years 1994, 1995 and 1996, respectively.
Accumulated amortization of noncompetition agreements was $843,357 and
$1,703,680 at July 31, 1995 and 1996, respectively.
Restricted cash represents funds withheld by certain processing banks
pursuant to processing agreements to cover potential merchant losses.
NOTE 6 - ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
JULY 31,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
Income taxes payable................ $ 779,329 $1,285,630
Compensation and payroll taxes...... 625,791 417,916
Reserve for merchant losses......... 528,673 468,602
State franchise taxes payable....... -- 356,042
Sales and property taxes payable.... 94,091 89,028
Interest payable on long-term debt.. 67,320 83,270
Other............................... 253,316 269,273
---------- ----------
$2,348,520 $2,969,761
========== ==========
</TABLE>
44
<PAGE>
PMT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 7 - LONG-TERM DEBT:
<TABLE>
<CAPTION>
JULY 31,
-----------------
1995 1996
---- ----
<S> <C> <C>
Revolving line of credit, due November 1, 1996
unless converted to a term loan with monthly
installments due over 48 months, interest
payable monthly at prime minus .25% (8.5%
at July 31, 1995)................................ $15,293,000 --
Noninterest bearing notes payable with interest
imputed at 8%, issued in connection with the
Company's purchase of merchant portfolios;
maturing at various dates through October 1996... 80,500 $ 40,000
Various lines of credit at 9% fixed rate initiated
in 1994 and 1995; no repayment terms; debt
serviced as funds allow.......................... 225,000 570,000
Other debts repaid in 1996.......................... 1,237,000 --
Other............................................... 20,000 5,000
----------- --------
Total long-term debt................................ 16,855,500 615,000
Less: current portion........................ (185,336) (40,000)
----------- --------
$16,670,164 $575,000
=========== ========
</TABLE>
The Company entered into an agreement on March 22, 1994 for a $12,500,000
revolving line of credit and $2,368,000 bridge loan. This credit facility was
amended and restated on May 31, 1995 and July 18, 1995, increasing the revolving
line of credit to $17,500,000 and terminating the bridge loan. The proceeds
from the loans were used to purchase merchant portfolios, to repay debt and for
general working capital purposes. The revolving credit facility matures on
November 1, 1996 unless converted to a term loan payable in monthly installments
over four years. Notes issued under the credit facility will bear interest at a
rate based on LIBOR, the bank's prime rate or at a fixed rate based on the bond
equivalent bid side yield of the U.S. Treasury Note. Borrowings under the
agreement are secured by substantially all the Company's assets and life
insurance policies on the lives of two of the Company's executive officers. The
agreement contains restrictive covenants which include, among other items,
maintenance of specified ratios of fixed charge coverage, debt to earnings
before interest, taxes, depreciation and amortization and to net worth. The
covenants also include restrictions on capital expenditures and prohibition of
new indebtedness and cash dividends.
45
<PAGE>
PMT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 8 - SHAREHOLDERS' EQUITY;
Changes in the shares of the Company's common stock are as follows:
<TABLE>
<CAPTION>
<S> <C>
Issued at July 31, 1993........... 2,694,535
Shares issued..................... 20,000
----------
Issued at July 31, 1994........... 2,714,535
Shares issued..................... 2,428,013
Exercise of put options.......... 1,922,372
Exercise of options and warrants.. 164,684
----------
Issued at July 31, 1995........... 7,229,604
Shares issued..................... 5,851,961
Exercise of options............... 44,805
Stock dividends................... 19,185,722
----------
Outstanding at July 31, 1996...... 32,312,092
==========
</TABLE>
NOTE 9 - STOCK OPTIONS AND WARRANTS:
The Company has an incentive stock option plan, whereby the Company has
reserved for issuance upon exercise of stock options a maximum of 2,295,000
shares of the Company's common stock. In addition to certain other provisions,
the plan provides for the option price of the shares to be determined by the
Board of Directors at the date of the grant provided, however, that in the case
of incentive stock options, the option price shall be no less than 100% of the
fair market value of the common stock on such date (110% in the case of an
individual who owns more than 10% of the total combined voting power of all
classes of stock of the Company). In the case of nonstatutory stock options,
the option price shall be no less than 85% of the fair market value of the
common stock on the date of grant.
The options expire at such times as determined by the Board of Directors at
the time of the grant, which shall be no later than ten years from the grant
date (five years in the case of an individual who owns more than 10% of the
total combined voting power of all classes of stock of the Company). The
Company is authorized to loan, or guarantee loans for, the purchase price of
shares issuable upon exercise of options granted under the plan.
In May 1994, the Company adopted an outside director stock option plan and
amended the plan at the December 1995 annual shareholders' meeting. The plan
provides for the grant of non-qualified stock options to outside directors and
authorizes the issuance of up to 300,000 shares of common stock pursuant to
options having an exercise price equal to the fair market value of the common
stock on the date the options are granted. Options were granted to each outside
director on the effective date of the Offering to purchase 30,000 shares of the
Company's
46
<PAGE>
PMT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
common stock for a total of 120,000 shares (Note 2). Options granted under the
plan are exercisable one-fourth each on the first, second, third and fourth
anniversaries of the grant date and expire ten years after the grant date. The
status of options under the plan (reflecting all stock splits) is as follows:
<TABLE>
<CAPTION>
NUMBER EXERCISE
OF OPTIONS PRICE EXPIRATION DATE
----------- ------------- ------------------
<S> <C> <C> <C>
Outstanding at July 31, 1993.. 458,700
---------
Outstanding at July 31, 1994.. 458,700
Granted..................... 1,361,724 $ 2.67 August 11-12, 2004
Granted..................... 24,000 $ 2.83 December 15, 2002
Granted..................... 15,000 $ 3.54 February 21, 2005
Terminated.................. (5,196)
Exercised................... (103,872) $ 0.83 - $2.67
---------
Outstanding at July 31, 1995.. 1,750,356
Granted..................... 69,000 $ 5.96 August 15, 2005
Granted..................... 16,500 $ 9.17 November 9, 2005
Granted..................... 84,000 $ 8.78 December 12, 2005
Granted..................... 150,000 $10.29 December 12, 2005
Granted..................... 24,000 $10.94 December 15, 2005
Granted..................... 120,000 $10.00 December 28, 2005
Granted..................... 48,000 $15.67 March 29, 2006
Granted..................... 40,000 $22.25 July 16, 2006
Terminated.................. (265,052)
Exercised................... (119,775) $ 0.83 - $2.67
---------
Outstanding at July 31, 1996.. 1,917,029
=========
Exercisable at July 31, 1996.. 558,175
=========
</TABLE>
Options for 740,772 and 550,324 shares were available for future grant
under the plan at July 31, 1995 and 1996, respectively.
The Company has granted stock warrants which give the holder the right to
purchase 120,000 shares of the Company's common stock at an exercise price of
$1.25 per share. These warrants expire March 22, 2004 (Note 3).
NOTE 10 - RETIREMENT PLANS:
The Company initiated a 401(k) retirement plan, the PMT Services, Inc.
401(k) Retirement Plan, in fiscal 1996. Following the initial enrollment,
employees become eligible for participation in the plan on the semi-annual
enrollment date following the employee completing 12 consecutive months of
employment and 1,000 hours of service or more. The Company
47
<PAGE>
PMT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
contributes an amount equal to 50% of employee voluntary contributions up to a
maximum of 6% of the employee's annual compensation. The plan expense for
fiscal 1996 was $64,015.
Prior to the merger with the Company, MHA's employees could participate in
the Martin-Howe 401(k) plan. MHA matched 50% of the employee contributions up
to 6% of salary. This plan was terminated subsequent to the merger with PMT
Services, Inc. MHA employees became eligible for participation in the PMT
401(k) Plan effective with the merger.
NOTE 11 - LEASES:
The Company leases equipment and office space under noncancellable
operating leases. Rent expense approximated $182,694, $568,467 and $734,311
during fiscal years 1994, 1995 and 1996, respectively. Office space was leased
from a partnership comprising two of the Company's shareholders during fiscal
year 1994 and a portion of 1995. Rent expense paid to shareholders for office
space amounted to $113,000 and $54,000 during fiscal years 1994 and 1995,
respectively. This office space lease agreement terminated in 1995 and the
Company relocated. None of the Company's current office space is with a related
party. Subsequent to July 31, 1996, the Company entered into an agreement to
lease additional office space beginning October 1, 1996. Future minimum payments
under all noncancellable leases with terms greater than one year at July 31,
1996 are:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDING
JULY 31
-----------
<S> <C>
1997 901,000
1998 933,000
1999 839,000
2000 802,000
2001 338,000
Thereafter --
</TABLE>
NOTE 12 - OTHER INCOME - NET:
The Company recorded a non-taxable gain of $1,000,000 in the fourth quarter
of fiscal year 1996 for the receipt of insurance proceeds on the life of the
former Chief Financial Officer of the Company. Additionally, the Company has
included in this line item all non-recurring transaction costs related to
mergers, including MHA, which was accounted for as a pooling of interests.
48
<PAGE>
PMT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 13 - INCOME TAXES:
The provision for income taxes comprises the following:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current tax expense:
Federal.................................................................... $1,289,529 $2,019,143 $5,016,005
State...................................................................... 240,620 377,654 926,555
---------- ---------- ----------
1,530,149 2,396,797 5,942,560
---------- ---------- ----------
Deferred tax benefit:
Federal.................................................................... (108,903) (89,662) (818,301)
State...................................................................... (21,584) (11,644) (138,235)
---------- ---------- ----------
(130,487) (101,306) (956,536)
---------- ---------- ----------
Increase in valuation
allowance.................................................................. -- 137,288 194,831
---------- ---------- ----------
$1,399,662 $2,432,779 $5,180,855
========== ========== ==========
The Company's effective tax rate differs from the statutory rate as follows:
YEAR ENDED JULY 31,
------------------------------------
1994 1995 1996
---------- ---------- ----------
Federal tax at statutory rate................................................ 34.0% 34.0% 34.0%
Increase in taxes resulting
from:
State income taxes (net
of federal tax benefit)................................................... 3.9 4.0 3.9
Minority interest.......................................................... -- 1.3 0.8
Valuation allowance........................................................ -- 2.3 1.4
Other...................................................................... 0.1 (1.5) (2.6)
---------- ---------- ----------
38.0% 40.1% 37.5%
========== ========== ==========
</TABLE>
Deferred income taxes under SFAS 109 reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets at July 31, 1995 and
1996 are as follows:
49
<PAGE>
PMT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
JULY 31,
-----------------------
1995 1996
---------- -----------
<S> <C> <C>
Current tax assets:
Compensation liabilities.......... $ 24,321 $ 30,897
Loss reserves..................... 200,896 178,069
Other............................. 37,749 56,695
--------- ----------
Net current tax assets.............. $ 262,966 $ 265,661
========= ==========
Noncurrent tax assets:
Merchant portfolio amortization... $ 682,907 $1,586,194
Net operating loss of subsidiary.. 137,288 332,119
--------- ----------
820,195 1,918,313
Noncurrent tax liability:
Depreciation...................... (94,329) (238,606)
--------- ----------
Net noncurrent tax assets.......... 725,866 1,679,707
--------- ----------
Valuation allowance................ (137,288) (332,119)
--------- ----------
$ 588,578 $1,347,588
========= ==========
</TABLE>
As of July 31, 1996, the Company has approximately $874,000 of federal and state
net operating loss carryforwards available to offset future taxable income of a
subsidiary of the Company. A valuation allowance has been established for these
net operating losses.
NOTE 14 - COMMITMENTS AND CONTINGENCIES:
In addition to the third-party debt guaranty and operating leases described
in Notes 3 and 9 above, the Company is subject to the following commitments and
contingencies described herein.
The Company entered into an agreement in July 1995 to purchase the rights
to service merchant accounts to be generated by another independent sales and
service provider ("service provider") under a contract with the Company's
primary processing bank. The Company's option to purchase may be exercised upon
the earlier of default by the service provider under its loan agreement with a
third party or December 1, 1997 and expires on January 31, 1998. The purchase
price will be derived as a multiple of average monthly cash flow generated by
the merchant accounts for the three months immediately prior to the purchase.
50
<PAGE>
PMT SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company's agreement with its primary processing bank was amended to
require the Company to purchase the service provider's merchant accounts by
January 31, 1998. Additionally, the Company has indemnified the processing bank
for any losses incurred by the processing bank with respect to the service
provider's merchant accounts. Additionally, the Company has indemnified the
processing bank for any losses incurred by the processing bank with respect to
the service provider's merchant accounts.
In connection with the option agreement, the Company has guaranteed the
service provider's loan to a third party in the amount of $250,000. The Company
has also entered into a service agreement whereby the Company will provide
customer service, processing equipment deployment and related services to the
service provider's merchant accounts for a monthly fee of $4.75 per merchant
account. At July 31, 1996, the service provider was a newly developed entity
without significant merchant accounts generated.
VISA and MasterCard require merchants accepting VISA and MasterCard credit
cards to contract directly with a processing bank that is a member bank of the
VISA or MasterCard associations. The Company is not a party to the merchant
processing agreements and is therefore dependent upon its contractual
arrangements with its processing banks in order to continue to service its
merchant portfolio. The Company has a contractual right to receive revenues
derived from the discount rate and fees earned on its merchant portfolio so long
as the merchant continues to process transactions on the processing bank's
system and the Company provides adequate service to the merchant and remains in
compliance under its agreement with the processing bank. Under the terms of the
Company's agreement with its primary processing bank, the Company is permitted
to transfer merchants to another processing bank subject to time limitations and
termination fees. This agreement provides mobility for substantially all of the
Company's merchant base. However, in order to transfer merchant contracts, the
Company must pay the processing bank a fee determined by a formula related to
the annualized aggregate transaction volume of the merchants transferred.
51
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
52
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS
<S> <C> <C>
NAME AGE POSITION
- ------------------------ --- -----------------------------------------------------
Richardson M. Roberts... 38 Chairman of the Board and Chief Executive Officer
Gregory S. Daily........ 37 President, Treasurer and Director
Clay M. Whitson......... 38 Vice-President of Finance and Chief Financial Officer
Joseph T. Stewart, Jr... 56 Chief Operating Officer
Vickie G. Johnson....... 37 Chief Accounting Officer, Secretary and Controller
</TABLE>
Mr. Roberts has served as Chief Executive Officer of the Company, Chairman
of the Board and a director since co-founding the Company in August 1984. Mr.
Roberts also served as President of the Company from August 1984 to December
1995. Mr. Roberts was previously employed with Comdata Network, Inc. as a
national sales representative.
Mr. Daily has served as Treasurer and a director of the Company since co-
founding the Company in August 1984. Mr. Daily also served as Vice-President
and Chief Operating Officer of the Company from August 1984 to December 1995,
and currently serves as President of the Company. Mr. Daily was previously
employed with Comdata Network, Inc. as a telemarketing representative.
Mr. Whitson has served as Vice-President of Finance of the Company since
joining the Company in January 1996 and currently serves as Chief Financial
Officer of the Company. Mr. Whitson was previously employed as Chief Financial
Officer of the Gemala Group, a diversified conglomerate based in Indonesia.
Prior to joining the Gemala Group in 1990, Mr. Whitson was a Director in the
Mergers and Acquisitions Department at The Chase Manhattan Bank, N.A.
Mr. Stewart has served as Chief Operating Officer of the Company since
joining the Company in January 1996. Mr. Stewart was previously employed as
Executive Vice-President of the Electronic Funds Services unit of First Data
Corporation.
Ms. Johnson has served as Controller of the Company since joining the
Company in October 1991. Ms. Johnson also serves as Chief Accounting Officer
and Secretary of the Company. Ms. Johnson was previously employed with Historic
Hotel Partners, Inc. as Regional Controller.
DIRECTORS
Information with respect to the Company's directors is incorporated herein
by reference from the Company's Proxy Statement relating to the Annual Meeting
of Shareholders to be held on December 16, 1996.
COMPLIANCE WITH REPORTING REQUIREMENTS OF THE EXCHANGE ACT
Information with respect to compliance with Section 16(a) of the Securities
Exchange Act of 1934 is set forth in the Company's Proxy Statement relating to
the Annual Meeting of Shareholders to be held on December 16, 1996, under the
caption "Section 16(a) Beneficial Ownership Reporting Compliance."
53
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated herein by reference from the Company's
Proxy Statement relating to the Annual Meeting of Shareholders to be held on
December 16, 1996, except that the Comparative Performance Graph and the
Compensation Committee Report on Executive Compensation included in the Proxy
Statement are expressly not incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated herein by reference to the Company's Proxy
Statement relating to the Annual Meeting of Shareholders to be held on December
16, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated herein by reference to the Company's Proxy
Statement relating to the Annual Meeting of Shareholders to be held on December
16, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following financial statements are included in Item 8 of Form 10-K:
<TABLE>
<CAPTION>
<S> <C>
(1) Financial Statements:
Report of Independent Auditors
Consolidated Balance Sheets as of July 31, 1996 and July 31, 1995
Consolidated Statements of Income, each of the three years ended July 31, 1996
Consolidated Statements of Changes in Shareholders' Equity, each of the three years ended July 31, 1996
Consolidated Statement of Cash Flows, each of the three years ended July 31, 1996
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules: Page
Independent Auditors' Report on
Financial Statement Schedule............. 55
Schedule II - Reserve for Merchant Losses... 56
The other schedules are omitted because the required information is
either inapplicable or has been disclosed in the consolidated financial
statements and notes thereto.
(3) Exhibits
The index to Exhibits is at page 57.
(b) Reports on Form 8-K
</TABLE>
The Company has not filed any current reports during the fourth quarter of
fiscal year 1996.
54
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of PMT Services, Inc.
Our audits of the consolidated financial statements referred to in our report
dated September 13, 1996, appearing on page 29 of this From 10-K also included
an audit of the Financial Statement Schedule listed in Item 14(a) of this From
10-K. In our opinion, the Financial Statement Schedule presents fairly, in all
material respects, the information set forth herein when read in conjunction
with the related financial statements.
PRICE WATERHOUSE LLP
Nashville, TN
September 13, 1996
55
<PAGE>
SCHEDULE II
PMT SERVICES, INC.
RESERVE FOR MERCHANT LOSSES
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING END OF
OF PERIOD ADDITIONS(1) DEDUCTIONS(2) PERIOD
---------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Fiscal Year 1994...... $168,660 $484,993 $208,894 $444,759
1995...... $444,759 $483,245 $399,331 $528,673
1996...... $528,673 $654,705 $720,500 $462,878
</TABLE>
______________________
(1) Additions represent amounts charged to expense during the respective
periods.
(2) Deletions represent actual chargebacks incurred by the Company during the
respective periods.
56
<PAGE>
(3) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
3.1 Amended and Restated Charter of the Registrant (1)
3.2 Bylaws of the Registrant (1)
4.1 Section 6 of the Restated Charter of the Registrant (included in
Exhibit 3.1) (1)
4.2 Specimen of Common Stock certificate (1)
10.1(a) Purchase Agreement, dated December 1, 1992, between the Registrant and
ISO America, Inc. (1)
10.1(b) Purchase Agreement, dated March 1, 1993, between the Registrant and
Electronic Access, Inc. (1)
10.1(c) Purchase Agreement, dated April 1, 1993, between the Registrant and
Direct Referral Networks, Inc. (1)
10.1(d) Purchase Agreement, dated April 1, 1993, between the Registrant and
Bankcard Network, Inc. (1)
10.1(e) Purchase Agreement, dated December 1, 1993, between the Registrant and
Crown Card Services, Inc. (1)
10.1(f) Purchase Agreement, dated December 16, 1993, between the Registrant
and Credit-Link Card Services, Inc. (1)
10.1(g) Purchase Agreement, dated March 22, 1994, between the Registrant and
Bankcard America, Inc. (1)
10.1(h) Purchase Agreement, dated April 28, 1995, between the Registrant,
Bankcard America, Inc., and each of Paul L. Alperstein, Samuel
Buchbinder and Sol Alperstein. (2)
10.1(i) Purchase Agreement, dated July 7, 1995, between the Registrant and
TermNet Merchant Services, Inc. (3)
10.1(j) Purchase Agreement, dated July 18, 1995, between the Registrant and
Consumer Payment Services, Inc. (4)
10.1(k) Option Agreement, dated July 25, 1995, between the Registrant and
Money Transfer Systems, Inc., Mel Ora and Greg Mohr. (7)
10.1(l) Purchase Agreement, dated October 25, 1995, between the Registrant and
Imperial Bank. (7)
57
<PAGE>
10.1(m) Purchase Agreement, dated March 12, 1996, between the Registrant and
UMB Bank, n.a. (8)
10.1(n) Agreement and Plant of Merger, dated June 28, 1996, by and among the
Registrant, PMT Acquisition Corporation and Martin-Howe Associates,
Inc.
10.1(o) Agreement and Plan of Merger, dated July 25, 1996 by and among the
Registrant, PMT Illinois Acquisition Corporation and Data Transfer
Associates, Inc.
10.1(p) Processing Agreement, dated March 1, 1994, between the Registrant and
First National Bank of Omaha, relating to the processing of bankcard
transactions.(1)
10.1(q) Amendment to Processing Agreement, dated May 10, 1995, between the
Registrant and First National Bank of Omaha.(7)
10.1(r) Amendment to Processing Agreement, dated July 18, 1995, between the
Registrant and First National Bank of Omaha.(7)
10.1(s) Amendment to Processing Agreement, dated August 7, 1995, between the
Registrant and First National Bank of Omaha.(7)
10.1(t) Amendment to Agreement, dated November 1, 1995 between the Registrant
and First National Bank of Omaha.
10.1(u) Fifth Amendment to Processing Agreement, dated May 29, 1996, between
the Registrant and First National Bank of Omaha.
10.1(v) Agreement Regarding Merchant Maintenance and Solicitation, dated March
17, 1994, as amended March 24, 1994, between the registrant and Rocky
Mountain Bankcard System, Inc., relating to the processing of bankcard
transactions.(1)
10.1(w) Independent Sales Organization, Sales Marketing and Service Agreement,
dated December 10, 1993, between the Registrant and Bank of Boulder,
relating to the processing of bankcard transactions.(1)
10.1(x) Credit Card Processing Agreement, dated July 1, 1992, between the
Registrant and First USA Merchant Services, Inc., relating to the
processing of bankcard transactions.(1)
10.1(y) Letter Agreement, dated March 31, 1994, relating to the processing of
bankcard transactions.(1)
10.1(z) Service Agreement, dated April 1, 1994, relating to the processing of
bankcard transactions.(1)
10.1(aa) Provider Agreement, dated June 15, 1995, between the Registrant and
Harris Trust and Savings Bank Charge-it Division, relating to the
processing of bankcard transactions.(7)
58
<PAGE>
10.1(bb) Acknowledgement and Consent, dated July 7, 1995, between the
Registrant, TermNet Merchant Services, Inc. and Bank South, relating
to the processing of bankcard transactions.(7)
10.1(cc) Acknowledgment and Consent, dated July 18, 1995, between the
Registrant, Consumer Payment Services, Inc. and Republic Bank,
relating to the processing of bankcard transactions.(7)
10.1(dd) Acknowledgment and Consent, dated May 29, 1996, between Registrant,
Consumer Payment Services, Inc. and Republic Bank, relating to the
processing of bankcard transactions.
10.1(ee) Processing Agreement, dated March 12, 1996, between the Registrant and
UMB Bank, n.a., relating to the processing of bankcard
transactions.(8)
10.1(ff) Processing Agreement, dated October 1, 1995, between the Registrant
and Imperial Bank, relating to the processing of bankcard
transactions. (9)
10.1(gg) Private-Label Credit Card Processing Agreement, dated March 12, 1996,
between the Registrant and UMB Bank, n.a., relating to the processing
of charge card transactions.(8)
10.1(hh) Assignment and Assumption Agreement, dated March 12, 1996, between
Registrant and UMB Bank, n.a. (8)
10.1(ii) Marketing Agreement, dated March 12, 1996, between the Registrant and
UMB Bank, n.a. (8)
10.1(jj) Transaction Processing and Payment Agreement, dated July 21, 1992,
between the Registrant and ENVOY Corporation, relating to the
processing of bankcard transactions.(1)
10.1(kk) ESP Extended Services Plan Agreement, dated May 3, 1994, between the
Registrant and LDDS Communications, relating to the processing of
bankcard transactions.(1)
10.1(ll) Service Agreement, dated November 17, 1993, between the Registrant and
Transaction Network Services, Inc.(1)
10.1(mm) Agreement, dated April 11, 1994, between the Registrant and Ceridian
Corporation.(1)
10.1(nn) Lease, dated August 31, 1994, between the Registrant and Eastpark,
L.P.(5)
10.1(oo) First Amendment to Lease, dated September 30, 1994 between Registrant
and Eastpark, L.P.(7)
10.1(pp) Second Amendment to Lease, dated May 11, 1995 between Registrant and
Eastpark, L.P.(7)
10.1(qq) Third Amendment to Lease, dated March 1, 1996, between Registrant and
Eastpark, L.P.
59
<PAGE>
10.1(rr) Fourth Amendment to Lease, dated May 1, 1996, between Registrant and
Highwoods/Forsyth Limited Partnership (Successor-in-Interest to
Eastpark, L.P.)
10.1(ss) Lease Agreement, dated July 31, 1996, between Registrant and Centoff
Realty Company, Inc.
10.2(a) 1994 Non-Employee Director Stock Option Plan. (1)
10.2(b) Non-Employee Director Restricted Stock Award Plan.
10.2(c) 1994 Incentive Stock Plan. (1)
10.2(d) PMT Services, Inc. 401(k) Retirement Plan. (6)
10.3(a) Amended and Restated Loan Agreement, dated May 31, 1995, between the
Registrant and First Union National Bank of Tennessee.(7)
10.3(b) Amended and Restated Security Amendment, dated May 31, 1995, between
the Registrant and First Union National Bank of Tennessee.(7)
10.3(c) First Amendment to Amended and Restated Loan Agreement, dated July 18,
1995, between the Registrant and First Union National Bank of
Tennessee.(7)
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Accountants dated October 15, 1996.
27.1 Financial Data Schedule.
- --------------------
(1) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1, Registration No. 33-79064.
(2) Incorporated by reference to exhibits filed with the Registrant's
Current Report on Form 8-K, filed on May 15, 1995, Commission
No. 0-24420.
(3) Incorporated by reference to exhibits filed with the Registrant's
Current Report on Form 8-K, filed on July 21, 1995, Commission
No. 0-24420.
(4) Incorporated by reference to exhibits filed with the Registrant's
Current Report on Form 8-K, filed on July 26, 1995, Commission
No. 0-24420.
(5) Incorporated by reference to exhibits filed with the Registrant's
Annual Report on Form 10-K for the year ended July 31, 1994.
(6) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8, Registration No. 33-97000.
60
<PAGE>
(7) Incorporated by reference to exhibits filed with the Registrant's
Annual Report on Form 10-K for the year ended July 31, 1995.
(8) Incorporated by reference to exhibits filed with the Registrant's
Current Report on Form 8-K, filed on March 27, 1996, Commission
No. 0-24420.
(9) Incorporated by reference to exhibits filed with the Registrant's
Current Report on Form 8-K, filed on November 9, 1995, Commission
No. 0-24420.
61
<PAGE>
EXECUTIVE COMPENSATION PLAN AND ARRANGEMENTS
The following is a list of all executive compensation plans and arrangements
filed as exhibits to this Annual Report on form 10-K:
Exhibit
Number Exhibit
*10.2(a) 1994 Non-Employee Director Stock Option Plan.
10.2(b) Non-Employee Director Restricted Stock Award Plan.
*10.2(c) 1994 Incentive Stock Plan.
**10.2(d) PMT Services, Inc. 401(K) Retirement Plan.
- -----------------
* Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1, Registration No. 33-79064.
** Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8, Registration No. 33-97000.
62
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly cause this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Brentwood, State of Tennessee, on October 14, 1996.
PMT SERVICES, INC.
By: /s/ Richardson M. Roberts
------------------------------
Richardson M. Roberts
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title(s) Date
---- -------- ----
<S> <C> <C>
/s/ Richardson M. Roberts Chairman of the Board, Chief October 14, 1996
- --------------------------- Executive Officer and Director
Richardson M. Roberts (principal executive officer)
/s/ Gregory S. Daily President, Treasurer and Director October 14, 1996
- ---------------------------
Gregory S. Daily
/s/ Clay M. Whitson Vice President of Finance and October 14, 1996
- --------------------------- Chief Financial Officer (principal
Clay M. Whitson financial officer
/s/ Vickie G. Johnson Chief Accounting Officer, October 14, 1996
- --------------------------- Secretary and Controller
Vickie G. Johnson (principal accounting officer)
/s/ Leslie D. Coble Director October 14, 1996
- ---------------------------
Leslie D. Coble
/s/ Charles R. Burtzloff Director October 14, 1996
- ---------------------------
Charles R. Burtzloff
/s/ Robert C. Fisher, Jr. Director October 14, 1996
- ---------------------------
Robert C. Fisher, Jr.
/s/ Harold L. Siebert Director October 14, 1996
- ---------------------------
Harold L. Siebert
</TABLE>
63
<PAGE>
AGREEMENT AND PLAN OF MERGER
AMONG
PMT SERVICES, INC.,
PMT ACQUISITION CORPORATION
AND
MARTIN HOWE ASSOCIATES, INC.
DATED: JUNE 28, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
RECITALS 1......................................................................... 1
ARTICLE 1 - THE MERGER.............................................................. 1
1.1 The Merger.................................................. 1
1.2 The Closing................................................. 2
1.3 Effective Time.............................................. 2
ARTICLE 2 - ARTICLES OF INCORPORATION AND BYLAWS AND OFFICERS
AND DIRECTORS OF THE SURVIVING CORPORATION.............................. 2
2.1 Articles of Incorporation................................... 2
2.2 Bylaws...................................................... 2
2.3 Directors................................................... 2
2.4 Officers.................................................... 2
ARTICLE 3 - CONVERSION OF MHA STOCK................................................. 2
3.1 Conversion of Shares........................................ 2
3.2 Fractional Shares........................................... 4
3.3 Exchange of Certificates.................................... 4
3.4 Stock Splits, Etc. of PMT Common Stock...................... 4
3.5 Conversion of Merger Sub Stock.............................. 4
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF MHA................................... 5
4.1 Existence; Good Standing; Corporate Authority;
Compliance With Law......................................... 5
4.2 Authorization, Validity and Effect of Agreements............ 5
4.3 Capitalization.............................................. 5
4.4 Prior Sales of Securities................................... 6
4.5 Subsidiaries................................................ 6
4.6 Other Interests............................................. 6
4.7 No Violation................................................ 6
4.8 Financial Statements........................................ 6
4.9 Contracts................................................... 7
4.10 No Material Adverse Changes................................. 7
4.11 Tax Matters................................................. 7
4.12 Employees and Fringe Benefit Plans.......................... 8
4.13 Assets; Leaseholds.......................................... 10
4.14 Lawfully Operating.......................................... 11
4.15 No Subleases or Licenses.................................... 11
4.16 Power of Attorney........................................... 11
4.17 Cash Flow of Merchant Accounts.............................. 11
4.18 No Litigation............................................... 12
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
4.19 Corporate Records........................................... 12
4.20 No Defaults................................................. 12
4.21 Inventory................................................... 12
4.22 Hazardous Substances........................................ 12
4.23 Labor Matters............................................... 14
4.24 Pooling of Interests........................................ 15
4.25 No Brokers.................................................. 15
4.26 PMT Stock Ownership......................................... 15
4.27 Full Disclosure............................................. 15
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF PMT
AND MERGER SUB.......................................................... 15
5.1 Existence; Good Standing; Corporate Authority;
Compliance With Law......................................... 15
5.2 Authorization, Validity and Effect of Agreements............ 16
5.3 Capitalization.............................................. 16
5.4 Subsidiaries................................................ 16
5.5 Other Interests............................................. 16
5.6 No Violation................................................ 17
5.7 SEC Documents............................................... 17
5.8 Litigation.................................................. 17
5.9 Taxes....................................................... 17
5.10 Absence of Certain Changes.................................. 18
5.11 No Brokers.................................................. 18
5.12 MHA Stock Ownership......................................... 18
5.13 PMT Common Stock............................................ 18
5.14 Pooling of Interests........................................ 18
5.15 Full Disclosure............................................. 18
ARTICLE 6 - COVENANTS............................................................... 19
6.1 Covenants of PMT and MHA.................................... 19
6.2 Registration................................................ 21
6.3 Blackout Period............................................. 23
6.4 Covenants of MHA............................................ 23
6.5 Covenants of PMT............................................ 26
ARTICLE 7 - CONDITIONS.............................................................. 27
7.1 Conditions to Each Party's Obligation to Effect the Merger.. 27
7.2 Conditions to Obligation of MHA to Effect the Merger........ 28
7.3 Conditions to Obligation of PMT and Merger Sub to
Effect the Merger........................................... 28
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE 8 - TERMINATION............................................................ 30
8.1 Termination by Mutual Consent............................... 30
8.2 Termination by Either PMT or MHA............................ 30
8.3 Termination by MHA.......................................... 30
8.4 Termination by PMT.......................................... 30
8.5 Effect of Termination and Abandonment....................... 30
8.6 Extension; Waiver........................................... 31
ARTICLE 9 - GENERAL PROVISIONS...................................................... 31
9.1 Survival of Representations and Warranties.................. 31
9.2 Notices..................................................... 31
9.3 Assignment, Binding Effect; Benefit......................... 31
9.4 Entire Agreement............................................ 32
9.5 Amendment................................................... 32
9.6 Governing Law............................................... 32
9.7 Counterparts................................................ 32
9.8 Headings.................................................... 32
9.9 Interpretation............................................. 32
9.10 Waivers..................................................... 32
9.11 Incorporation of Exhibits................................... 33
9.12 Severability................................................ 33
9.13 Expenses.................................................... 33
9.14 Enforcement of Agreement.................................... 33
9.15 Press Releases.............................................. 33
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement"), is executed as of
the 28th day of June, 1996, by and among PMT Services, Inc., a Tennessee
corporation ("PMT"), PMT Acquisition Corporation, a newly formed Texas
corporation and wholly owned subsidiary of PMT ("Merger Sub"), and Martin Howe
Associates, Inc., a Texas corporation ("MHA").
RECITALS
A. The Boards of Directors of PMT and MHA each have determined
that a business combination between PMT and MHA is in the best interests of
their respective companies and shareholders and presents a opportunity for their
respective companies to enhance the service provided to consumers and achieve
long-term strategic and financial benefits, and, accordingly, have agreed to
effect the merger provided for herein upon the terms and subject to the
conditions set forth herein.
B. For federal income tax purposes, it is intended that the
merger provided for herein shall qualify as a reorganization within the meaning
of Section 368(a)(2)(E) of the Internal Revenue Code of 1986, as amended (the
"Code"), and for financial accounting purposes shall be accounted for as a
"pooling of interests."
C. PMT, Merger Sub and MHA desire to make certain
representations, warranties and agreements in connection with the merger.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger
Subject to the terms and conditions of this Agreement, at the
Effective Time (as defined in Section 1.3), Merger Sub shall be merged with and
into MHA in accordance with this Agreement and the separate corporate existence
of Merger Sub shall thereupon cease (the "Merger"). MHA shall be the surviving
corporation in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation") and shall be a wholly owned subsidiary of PMT. The Merger shall
have the effects specified in Section 5.06 of the Texas Business Corporation Act
("TBCA").
<PAGE>
1.2 The Closing. Subject to the terms and conditions of this
Agreement, the closing of the Merger (the "Closing") shall take place (a) at the
principal offices of MHA at 10:00 a.m., local time, on the first business day
immediately following the day on which the last to be fulfilled or waived of the
conditions set forth in Article 7 shall be fulfilled or waived in accordance
herewith or (b) at such other time, date or place as PMT and MHA may agree. The
date on which the Closing occurs is hereinafter referred to as the "Closing
Date."
1.3 Effective Time. If all the conditions to the Merger set forth in
Article 7 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 8, the parties
hereto shall cause Articles of Merger meeting the requirements of Section 5.04
of the TBCA to be properly executed and filed in accordance with such Section on
the Closing Date. The Merger shall become effective at the time of filing of
the Articles of Merger or at such later time which the parties hereto shall have
agreed upon and designated in such filing as the effective time of the Merger
(the "Effective Time").
ARTICLE 2
ARTICLES OF INCORPORATION AND BYLAWS
AND OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION
2.1 Articles of Incorporation. The Articles of Incorporation of
Merger Sub in effect immediately prior to the Effective Time shall be the
Articles of Incorporation of the Surviving Corporation, until duly amended in
accordance with applicable law.
2.2 Bylaws. The Bylaws of Merger Sub in effect immediately prior to
the Effective Time shall be the Bylaws of the Surviving Corporation, until duly
amended in accordance with applicable law.
2.3 Directors. The directors of Merger Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation as of the
Effective Time.
2.4 Officers. The officers of Merger Sub immediately prior to the
Effective Time shall be the officers of the Surviving Corporation as of the
Effective Time.
ARTICLE 3
CONVERSION OF MHA STOCK
3.1 Conversion of Shares. At the Effective Time, each of the
outstanding MHA Shares (as defined below) shall be converted into the number of
shares of Common Stock, $.01 par value per share, of PMT (the "PMT Common
Stock") determined by dividing the Aggregate
2
<PAGE>
Issuable PMT Shares by the Outstanding MHA Shares. For purposes of this
section, the capitalized terms shall have the definitions set forth:
(a) "Aggregate Issuable PMT Shares" shall mean the PMT Base
Shares multiplied by a fraction, the numerator of which is the Outstanding
MHA Shares and the denominator of which is the sum of Outstanding MHA
Shares and the Dissenting MHA Shares.
(b) "PMT Base Shares" shall mean (a) 600,000 shares if the
Average Price is not less than $21.333 and not more than $25.333 per share
or, if the Average Price is less than $21.333 per share, that number of
shares computed by dividing $12.8 million by the Average Price (rounded to
the nearest 1/100 of a share) and, if the Average Price is greater than
$25.333 per share, that number of shares computed by dividing $15.2 million
by the Average Price minus (b) the number of shares of PMT Common Stock
determined by dividing the outstanding balance of the Compass Bank Debt as
of the Closing Date by the Average Price (rounded to the nearest 1/100 of a
share).
(c) "Outstanding MHA Shares" shall mean all of the issued and
outstanding shares of each series of MHA Common Stock immediately prior to
the Effective Time (including any shares which may have been issued upon
exercise of currently outstanding options or warrants) less Dissenting MHA
Shares.
(d) The "Average Price" of PMT Common Stock shall mean the
average of the daily highest and lowest sale price of PMT Common Stock as
traded on the Nasdaq National Market ("NASDAQ") for the twenty (20) trading
days which end ten (10) days prior to the Closing Date. For purposes of
determining the Average Price, the sale price of PMT Common Stock for the
trading days prior to the stock split effective on June 12, 1996, shall be
proportionately adjusted to reflect their equivalent post stock split sale
price.
(e) "Dissenting MHA Shares" shall mean outstanding shares of MHA
Common Stock, the holders of which have perfected their rights to dissent
to the Merger under the TBCA.
(f) "Compass Bank Debt" shall mean that certain debt obligation
due by MHA to Compass Bank as evidenced by a promissory note dated November
29, 1994, executed by MHA payable to the order of Compass Bank in the
original principal amount of $280,000, which in no event shall be greater
than $145,000 at the Effective Time.
Notwithstanding anything to the contrary contained herein, in the
event the Average Price is less than $19.333 per share, PMT may, at its option
and without penalty, terminate this Agreement unless MHA agrees to accept for
purposes of this Section 3.1 an Average Price of $19.333 per share.
3
<PAGE>
3.2 Fractional Shares. In lieu of the issuance of fractional shares
of PMT Common Stock, each shareholder of MHA, upon surrender of a certificate
which immediately prior to the Effective Time represented MHA Common Stock,
shall be entitled to receive a cash payment (without interest) equal to the fair
market value of any fraction of a share of PMT Common Stock to which such holder
would be entitled but for this provision. For purposes of calculating such
payment, the fair market value of a fraction of a share of PMT Common Stock
shall be such fraction multiplied by the Average Price, as determined in Section
3.1(d).
3.3 Exchange of Certificates. After the Effective Time, each holder
of an outstanding certificate or certificates theretofore representing
Outstanding MHA Shares (other than shares as to which dissenters rights have
been perfected and not withdrawn or otherwise forfeited under the TBCA) upon
surrender thereof, together with a completed letter of transmittal, to Waller
Lansden Dortch & Davis (the "Exchange Agent"), as exchange agent for PMT, shall
be entitled to receive in exchange therefor any payment due in lieu of
fractional shares and a certificate or certificates representing the number of
whole shares of PMT Common Stock into which such holders' Outstanding MHA Shares
were converted in a manner reasonably satisfactory to MHA. Until so
surrendered, each outstanding certificate representing Outstanding MHA Shares
shall be deemed for all purposes to represent the number of whole shares of PMT
Common Stock into which the Outstanding MHA Shares theretofore represented shall
have been converted. PMT may, at its option, refuse to pay any dividend or
other distribution, if any, payable to the holders of shares of PMT Common Stock
to the holders of certificates representing Outstanding MHA Shares until such
certificates are surrendered for exchange, provided, however, that, subject to
the rights of PMT under its charter, upon surrender and exchange of such MHA
certificates there shall be paid to the record holders of the PMT stock
certificate or certificates issued in exchange therefor the amount, without
interest, of dividends and other distributions, if any, which have become
payable with respect to the number of whole shares of PMT Common Stock into
which the Outstanding MHA Shares theretofore represented thereby shall have been
converted and which have not previously been paid. Under the terms of its
credit agreements, PMT has agreed not to pay any cash dividends.
3.4 Stock Splits, Etc. of PMT Common Stock. In the event PMT changes
the number of shares of PMT Common Stock issued and outstanding prior to the
Effective Time as a result of a stock split, stock dividend, recapitalization,
reorganization or any other transaction in which any security of PMT or any
other entity or cash is issued or paid in respect of the outstanding shares of
PMT Common Stock and the record date therefor is after the date of this
Agreement and prior to the Effective Time, the conversion ratio, as well as the
dollar amount set forth in Section 3.1(b), shall be proportionately adjusted.
3.5 Conversion of Merger Sub Stock. At and as of the Effective Time,
each share of common stock, $.01 par value per share, of Merger Sub shall be
converted into one share of common stock, $.01 par value per share, of MHA.
4
<PAGE>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF MHA
Except as set forth in the disclosure letter delivered prior to the
execution hereof to PMT and attached hereto as Exhibit A (the "MHA Disclosure
Letter"), MHA represents and warrants to PMT as of the date of this Agreement as
follows:
4.1 Existence; Good Standing; Corporate Authority; Compliance With
Law. MHA is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Texas. MHA is duly licensed or
qualified to do business as a foreign corporation and is in good standing under
the laws of any other state of the United States in which the character of the
properties owned or leased by it therein or in which the transaction of its
business makes such qualification necessary, except where the failure to be so
qualified would not have a material adverse effect on the business, results of
operations or financial condition of MHA (a "MHA Material Adverse Effect"). MHA
has all requisite corporate power and authority to own, operate and lease its
properties and carry on its business as now conducted. MHA is not in violation
of any order of any court, governmental authority or arbitration board or
tribunal, or any law, ordinance, governmental rule or regulation to which MHA or
any of its properties or assets is subject, where such violation would have a
MHA Material Adverse Effect. MHA has obtained all licenses, permits and other
authorizations and has taken all actions required by applicable law or
governmental regulations in connection with its business as now conducted,
except where such failure to obtain the same would not have a MHA Material
Adverse Effect.
4.2 Authorization, Validity and Effect of Agreements. MHA has the
full corporate power and authority to execute and deliver this Agreement and all
agreements and documents contemplated hereby. The consummation by MHA of the
transactions contemplated hereby has been duly authorized by all requisite
corporate action, including the required approvals by the Board of Directors of
MHA and the holders of the outstanding shares of MHA Common Stock. This
Agreement constitutes, and all agreements and documents contemplated hereby
(when executed and delivered pursuant hereto for value received) will
constitute, the valid and legally binding obligations of MHA, enforceable in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, moratorium or other similar laws relating to creditors' rights and
general principles of equity.
4.3 Capitalization. The authorized capital stock of MHA consists of
1,000,000 shares of common stock, $.002 par value (the "MHA Common Stock"). As
of the date hereof, there are issued and outstanding 998,000 shares of MHA
Common Stock. MHA has no outstanding bonds, debentures, notes or other
obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right to vote) with
the shareholders of MHA on any matter. All issued and outstanding shares of MHA
Common Stock are duly authorized, validly issued, fully paid, nonassessable and
free of preemptive rights. There are no options, warrants, calls subscriptions,
convertible securities, or other rights,
5
<PAGE>
agreements or commitments which obligate MHA to issue, transfer or sell any
shares of capital stock of MHA.
4.4 Prior Sales of Securities. All offers and sales of MHA Common
Stock prior to the date hereof were at all relevant times exempt from the
registration requirements of the Securities Act of 1933, as amended, and were
duly registered or the subject of an available exemption from the registration
requirements of the applicable state securities or Blue Sky laws, or the
relevant statutes of limitations have expired, or civil liability therefor has
been eliminated by an offer to rescind.
4.5 Subsidiaries. MHA has no subsidiaries, except as provided in the
MHA Disclosure Letter.
4.6 Other Interests. Except as set forth in the MHA Disclosure
Letter, MHA does not own directly or indirectly any interest or investment in
any corporation, partnership, joint venture, business, trust or other entity.
4.7 No Violation. After approval by requisite shareholder vote,
neither the execution and delivery by MHA of this Agreement nor the consummation
by MHA of the transactions contemplated hereby in accordance with the terms
hereof, will: (i) conflict with or result in a breach of any provisions of the
Articles of Incorporation or Bylaws of MHA; (ii) conflict with, result in a
breach of any provision of or the modification or termination of, constitute a
default under, or result in the creation of imposition of any lien, security
interest, charge or encumbrance upon any of the assets of MHA pursuant to any
material commitment, lease, contract, or other material agreement or instrument
to which MHA is a party; or (iii) violate any order, arbitration award,
judgment, writ, injunction, decree, statute, rule or regulation applicable to
MHA, the violation of which would have a MHA Material Adverse Effect.
4.8 Financial Statements. MHA has delivered its unaudited financial
statements for the year ended December 31, 1995 and for the four month period
ended April 30, 1996 and will deliver promptly unaudited interim financial
statements for each month and quarter subsequent thereto if prepared prior to
the Closing Date. Each of the balance sheets provided to PMT (including any
related notes and schedules) fairly presents in all materials respects the
financial position of MHA as of its date and each of the statements of income,
retained earnings and cash flows provided to PMT (including any related notes
and schedules) fairly presents in all material respects the results of
operations, retained earnings or cash flows of MHA for the periods set forth
therein (subject, in the case of unaudited statements, to the omission of
footnotes and to normal year end audit adjustments which would not be material
in amount or effect) in each case in accordance with sound accounting principles
consistently applied during the periods involved, except as may be noted
therein. Such financial statements have been prepared from the books and
records of MHA which accurately and fairly reflect in all material respects the
transactions and dispositions of the assets of MHA. As of April 30, 1996 or any
subsequent date for which a balance sheet is provided, MHA did not have material
liabilities, contingent or otherwise, whether due or to become due, known or
unknown, other than as indicated on the balance sheet
6
<PAGE>
of such date or the notes thereto except for those incurred in the ordinary
course of business since the date of such balance sheet. MHA has adequately
funded all accrued employee benefit costs and such funding (to the date thereof)
is reflected in the most recent balance sheet provided to PMT.
4.9 Contracts. Schedule 4.9 lists all material contracts and other
agreements to which MHA is a party including:
(a) any Independent Service Organizations ("ISO's") Agreements and
any Independent Training Organization ("ITO") Agreements
(collectively known as ISO/ITO Agreements);
(b) any agreements with authorization network vendors ("Vendor
Agreements");
(c) all agreements with processing banks; or
(d) any agreements that limit the right of MHA prior to the
Closing Date, or PMT, or its subsidiaries, after the Closing Date,
to engage in or to compete with any person in any business,
including the method by which any business may be conducted by MHA
prior to the Closing Date, or by PMT, or its subsidiaries, after
the Closing Date.
Each contract listed in Schedule 4.9 is in full force and effect, each
is a legal, valid and binding contract, and there is no material default (or any
event which, with the giving of notice or lapse of time or both, would be a
material default) by MHA, in the timely performance or any material obligation
to be performed or paid under such contract.
4.10 No Material Adverse Changes. Since May 31, 1996, there has not
been (i) any material adverse change in the financial condition, results of
operations, business, prospects, assets or liabilities (contingent or otherwise,
whether due or to become due, known or unknown), of MHA, except for changes in
the ordinary course of business consistent with historical experience resulting
from the seasonal nature of MHA's business: (ii) any extraordinary dividend
declared or paid or distribution made on the capital stock of MHA, or any
capital stock thereof redeemed or repurchased; (iii) any incurrence of long term
debt in excess of $50,000; (iv) any salary, bonus or compensation increases to
any officers, employees or agents of MHA, other than customary increases; (v)
any pending or threatened labor disputes or other labor problems against or
potentially affecting MHA; or (vi) any other transaction entered into by MHA,
except in the ordinary course of business and consistent with past practice.
4.11 Tax Matters. Except as set forth in the MHA Disclosure Letter,
MHA has duly paid all Taxes and other charges (whether or not shown on any Tax
return) due or claimed to be due from it by federal, foreign, state or local
taxing authorities; and true and correct copies of all Tax reports and returns
relating to such Taxes and other charges for the fiscal years from
7
<PAGE>
1991 through 1995 have been heretofore delivered to PMT (other than MHA's 1995
federal income tax return for which an extension has been filed). The reserves
for Taxes contained in the financial statements and carried on the books of MHA
(other than any reserve for deferred taxes established to reflect timing
differences between book and tax income) are adequate to cover all Tax
liabilities as of the date of this Agreement. Since April 30, 1996, MHA 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 MHA (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 MHA. MHA 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. MHA is not a party to any Tax allocation
or sharing agreement. If MHA has ever been a member of an affiliated group
within the meaning of Section 1504 of the Code filing a consolidated federal
income tax return (an "Affiliated Group"), each such Affiliated Group has filed
all Tax returns that it was required to file for each taxable period during
which MHA was a member of the Affiliated Group, and has paid all taxes owed by
the Affiliated Group (whether or not shown on the Tax return) for each taxable
period during which MHA was a member of the Affiliated Group. MHA has no
liability for the Taxes of any Affiliated Group under Treasury Regulation
1.1502-6 (or any similar provision of state, local or foreign law). MHA has
withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor or shareholder. For purposes of this Agreement, "Tax" means any
federal, state, local, or foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall profits,
environmental (including taxes under Section 59A of the Internal Revenue Code of
1986, as amended ("Code")), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or addition minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not.
4.12 Employees and Fringe Benefit Plans.
(a) The MHA Disclosure Letter sets forth the names, ages and
titles of all members of the Board of Directors and officers of
MHA and all employees of MHA 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 as of the most recent practicable date.
(b) The MHA Disclosure Letter lists each employment, bonus,
deferred compensation, pension, stock option, stock appreciation
right, profit-sharing or retirement plan, arrangement or
practice, each medical, vacation, retiree medical, severance pay
plan, and each other agreement or fringe benefit plan,
arrangement or practice, of MHA, whether legally binding or not,
which affects one or more of its employees, including all
"employee benefit plans" as defined by Section 3(3) of the
Employee Retirement Income
8
<PAGE>
Security Act of 1974, as amended ("ERISA") (collectively, the
"Plans"). All Plans which are subject to Title IV of ERISA or the
minimum funding standards of Section 412 of the Code shall be
referred to as the "Pension Plans."
(c) For each Plan which is an "employee benefit plan" under
Section 3(3) of ERISA, MHA has delivered to the Buyer correct and
complete copies of the plan documents and summary plan
descriptions, the most recent determination letter received from
the Internal Revenue Service, the most recent Form 5500 Annual
Report, and all related trust agreements, insurance contracts and
funding agreements which implement each such Plan.
(d) MHA does not have any commitment, whether formal or
informal and whether legally binding or not, (i) to create any
additional such Plan; (ii) to modify or change any such Plan; or
(iii) to maintain for any period of time any such Plan. The MHA
Disclosure Letter contains an accurate and complete description
of the funding policies (and commitments, if any) of MHA with
respect to each such existing Plan.
(e) MHA has no unfunded past service liability in respect of
any of its Plans; the actually computed value of vested benefits
under any Pension Plan of MHA (determined in accordance with
methods and assumptions utilized by the Pension Benefit Guaranty
Corporation ("PBGC") applicable to a plan terminating on the date
of determination) does not exceed the fair market value of the
fund assets relating to such Pension Plan; neither MHA nor any
Plan nor any trustee, administrator, fiduciary or sponsor of any
Plan has engaged in any prohibited transactions as defined in
Section 406 of ERISA or Section 4975 of the Code for which there
is no statutory exemption in Section 408 of ERISA or Section 4975
of the Code; all filings, reports and descriptions as to such
Plans (including Form 5500 Annual Reports, Summary Plan
Descriptions, PBCG-1's and Summary Annual Reports) required to
have been made or distributed to participants, the Internal
Revenue Service, the United States Department of Labor and other
governmental agencies have been made in a timely manner or will
be made on or prior to the Closing Date; 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; 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; there has been no "Reportable Event" as
defined in Section 4043 of ERISA with respect to any Pension Plan
that has not been waived by the Pension Benefit Guaranty
Corporation; and each Pension Plan and each Plan which is
intended to be a qualified plan under Section 401(a) of the Code
has received, within the last three years, a favorable
determination letter from the Internal Revenue Service.
(f) MHA has complied in all material respects with all
applicable federal, state and local laws, rules and regulations
relating to employees' employment and/or
9
<PAGE>
employment relationships, including, without limitation, wage
related laws, anti-discrimination laws, employee safety laws and
COBRA (defined herein to mean the requirements of Code Section
4980B, Proposed Treasury Regulation Section 1.162-26 and Part 6
of Subtitle B of Title I of ERISA).
(g) The consummation of the transactions contemplated by
this Agreement will not (i) result in the payment or series of
payments by MHA to any employee or other person of an "excess
parachute payment" within the meaning of Section 280G of the
Code, (ii) entitle any employee or former employee of MHA to
severance pay, unemployment compensation or any other payment,
and (iii) accelerate the time of payment or vesting of any stock
option, stock appreciation right, deferred compensation or other
employee benefits under any Plan (including vacation and sick
pay).
(h) None of the Plans which are "welfare benefit plans,"
within the meaning of Section 3(1) of ERISA, provide for
continuing benefits or coverage after termination or retirement
from employment, except for COBRA rights under a "group health
plan" as defined in Code Section 4980B(g) and ERISA Section 607.
(i) Neither MHA nor any "affiliate" of MHA (as defined in
ERISA) has ever participated in or withdrawn from a multi-
employer plan as defined in Section 4001 (a)(3) of Title IV of
ERISA, and MHA has not incurred and does not owe any liability as
a result of any partial or complete withdrawal by any employer
from such a multi-employer plan as described under Sections
4201,4203, or 4205 of ERISA.
(j) No Pension Plan has been completely or partially
terminated, nor has any plan been instituted by the PBGC to
terminate any such Pension Plan; MHA has not incurred, and does
not presently owe, any liability to the PBGC or the Internal
Revenue Service with respect to any Pension Plan including, but
not by way of limitation, any liability for PBGC premiums or
excise taxes under Code Section 4971.
4.13 Assets; Leaseholds.
(a) MHA owns the assets reflected on the April 30, 1996 MHA
balance sheet (including any patents, copyrights, trade names,
service marks and other names and marks used in connection with
its business), with good and marketable title, free and clear of
any and all claims, liens, mortgages, options, charges,
conditional sale or title retention agreements, security
interests, restrictions, easements, or encumbrances whatsoever
and free and clear of any rights or privileges capable of
becoming claims, liens, mortgages, options, charges, security
interests, restrictions, easements or encumbrances, except (i)
for certain of the assets which are encumbered by liens that MHA
has the means to remove prior to the Effective Time, (ii) as
shown on the title insurance policies previously furnished to
PMT, (iii) real property taxes not yet due and payable, (iv)
utility easements for utilities serving the Property, and (v)
minor imperfections of title which do not materially affect the
value and use of such assets.
10
<PAGE>
(b) MHA owns good and marketable leasehold title to the
premises leased by MHA, free and clear of any and all claims,
liens, mortgages, options, charges, conditional sale or title
retention agreements, security interests, restrictions,
easements, or encumbrances whatsoever and free and clear of any
rights or privileges capable of becoming claims, liens,
mortgages, options, charges, security interests, restrictions,
easements or encumbrances, except to the extent expressly set
forth in the leases. Following the Merger, MHA will continue to
have all its rights under such leases for the premises now leased
by MHA free and clear of any claims, liens, mortgages, options,
charges, security interests, restrictions, easements, rights,
privileges and encumbrances, except to the extent expressly set
forth in the leases, and the Merger will not result in any
increase in rents or charges under any lease.
4.14 Lawfully Operating. To the best knowledge of MHA, MHA has
been and currently is conducting and each of the premises leased or owned have
been and now are being used and operated, in compliance in all material respects
with all statutes, regulations, bylaws, orders, covenants, restrictions or plans
of federal, state, regional, county or municipal authorities, agencies or board
applicable to the same.
4.15 No Subleases or Licenses. There are no subleases or licenses
to use all or any portion of the premises leased by MHA, except as set forth in
the leases. The leases are valid, binding and enforceable in accordance with the
terms of each, and are in good standing. MHA is not in default in payment of
rent, or in the performance of any of its material obligations under the leases
and, to the best of MHA's knowledge after reasonable investigation, no ground
lessor to any such landlord or lessors is in default of any ground lease. To the
best knowledge of MHA, the landlords or lessors under the leases are not in
breach of any of their Obligations under the leases and no ground lessor to any
such landlord or lessor is in default of any ground lease. No state of facts
exists which, after notice or lapse of time or both, would result in a breach or
default under the leases by MHA. The copies of the leases which MHA has
delivered to PMT are true, correct and complete copies of the leases and MHA has
delivered to PMT all amendments, modifications, letter agreements and
instruments of whatever form which relate to such leases (except correspondence
sent or received in the ordinary course of business, including percentage rent
reports, which do not alter the terms of the leases).
4.16 Power of Attorney. There are no outstanding powers of
attorney executed on behalf of MHA.
4.17 Cash Flow of Merchant Accounts. Attached hereto as Schedule
4.17 is MHA's most recent Visa/Mastercard Settlement Report (the "Settlement
Report") issued by First USA and First Tennessee Bank. Since the date of the
Settlement Report, there has not been any material adverse change in the cash
flow of the merchant accounts with respect to which MHA receives residual
payments from MHA's processing banks (the "Merchant Accounts") taken as a whole.
11
<PAGE>
4.18 No Litigation. Except as set forth in the MHA Disclosure
Letter, there are currently no pending, and the directors and executive officers
of MHA are not aware of any threatened, lawsuits or administrative proceedings
or investigations against MHA or to which its assets are subject, which, if
adversely determined, could have a material adverse effect on the financial
condition results of operations, business, prospects, assets, or liabilities of
MHA. MHA is not subject to any currently existing order, writ, injunction, or
decree relating to its operations.
4.19 Corporate Records. True and correct copies of the Articles
of Incorporation and bylaws of MHA have been delivered to PMT. The corporate
minute books of MHA submitted to PMT for review correctly reflect all corporate
action taken at all the meetings (or by written consent in lieu thereof) of its
directors and shareholders and correctly record all resolutions thereof.
4.20 No Defaults. MHA has in all material respects performed all
material obligations to be performed by it under all contracts, agreements, and
commitments to which it is a party, and there is not under any such contracts,
agreements, or commitments any existing default or event of default or event
which with notice or lapse of time or both would constitute a default, which
default would have a MHA Material Adverse Effect.
4.21 Inventory. The inventories of MHA consist solely of items of
quality and quantity useable and saleable in the ordinary course of business and
will be maintained at normal levels continuously until the Closing Date.
4.22 Hazardous Substances. For purposes of this Agreement, the
following terms shall have the following meanings:
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. (S)(S) 9601 et
seq.;
"Environmental Claims" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, investigations or proceedings relating in
any way to any Environmental Law (for purposes of (i) and(ii) below, "Claims")
or any permit issued under any such Environmental Law, including without
limitation:
(i) any and all Claims by governmental or regulatory
authorities for investigation, oversight, enforcement, cleanup,
removal, response, remedial or other actions or damages pursuant
to any applicable Environmental Law; and
(ii) any and all Claims by any third party seeking
damages, response, costs, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from
Hazardous Materials or arising from alleged injury or threat of
injury to health, safety or the environment;
12
<PAGE>
"Environmental Law" means any federal, state or local statute, law,
rule, regulation, ordinance, code, policy or rule of common law now in effect
and as amended, and any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent, decree or judgment,
relating to the environment, health, or safety of hazardous, toxic or dangerous
materials, substances or wastes, including without limitation CERCLA; the Toxic
Substances Control Act, as amended, 15 U.S.C. (S)(S) 2601 et seq.; the Clean Air
Act, as amended, 42 U.S.C. (S)(S) 7401 et seq.; the Federal Water Pollution
Control Act, as amended, 33 U.S.C. (S)(S) 1251 et seq.; the Federal Insecticide,
Fungicide, and Rodenticide Act, as amended, 7 U.S.C. (S)(S) 136, et seq.; the
Hazardous Materials Transportation Act, as amended, 49 U.S.C. (S)(S) 1801 et
seq.; the Resource Conservation and Recovery Act, as amended, 42 U.S.C. (S)(S)
6901 et seq.; the Safe Drinking Water Act, 42 U.S.C. (S)(S) 300f et seq.; the
Clean Water Act, as amended, 33 U.S.C. (S)(S) 1251, Ct seq.; and any similar
state or local law;
"Hazardous Materials" shall mean those materials listed in Section
101(14) of CERCLA, as hereinafter defined, and any other substance defined as
toxic or hazardous under any federal, state or local law, rules, regulation,
ordinance code or policy, including, but not limited to:
(i) any petroleum or petroleum products, flammable explosives,
radioactive materials, asbestos, asbestos products, urea formaldehyde
foam insulation, polychlorinated biphenyls, including transformers or
other equipment that contain dielectric fluid containing detectible
levels of polychlorinated biphenyls, and radon gas;
(ii) any hazardous, toxic or dangerous waste, substance or
material defined as such in (or for purposes of) any current
Environmental Law or currently listed as such pursuant to any
Environmental Law; and
(iii) any other chemical, material or substance, exposure to
which is prohibited, limited or regulated by any governmental
authority:
"Improperly" means done in any manner that poses a threat to human
health, safety or the environment;
"MHA Property" shall mean (i) any real property and improvements
presently owned, leased, used, operated or occupied by MHA, and (ii) any other
real property and improvements at any previous time owned, leased, used,
operated or occupied by MHA, but only as to the time owned, leased, used,
operated or occupied by MHA;
"Release" means disposing, depositing, discharging, injecting,
spilling, leaking, leaching, dumping, emitting, escaping, emptying, seeping,
placing and the like, into or upon any land or water or air, or otherwise
entering into the environment.
To the best knowledge of MHA:
13
<PAGE>
(a) Hazardous Materials have not at any time been illegally or
Improperly generated, used, treated or stored on, or transported to or
from, any MHA Property;
(b) No asbestos containing materials or other Hazardous Materials
have been installed in or affixed to structures on any MHA Property;
(c) Hazardous Materials have not at any time been disposed of or
otherwise Released on any MHA Property;
(d) MHA is currently, and has at all times in the past been, in
compliance with all applicable Environmental Laws and the requirements of
any permits issued under such Environmental Laws with respect to any MHA
Property;
(e) There are no past, pending or, to the knowledge of MHA,
threatened Environmental Claims against MHA or any MHA Property;
(f) There are no facts or circumstances, conditions or
occurrences on any MHA Property or otherwise that could reasonably be
anticipated by MHA:
(i) to form the basis of an Environmental Claim against MHA
or any MHA Property; or
(ii) to cause such MHA Property to be subject to any
restrictions on the ownership, occupancy, use or transferability
of such MHA Property under any Environmental Law; and
(g) There are not now, nor have there been at any time, any
aboveground or underground storage tanks located on any MHA Property.
4.23 Labor Matters. MHA is not a party to any collective bargaining
agreement and has not been the subject of any union activity or labor dispute,
and there have not been any strike of any kind called or threatened to be called
against MHA. To the best knowledge of MHA, MHA has not violated any applicable
federal or state law or regulation relating to labor or labor practices. MHA has
no liability to any of its employees, agents, or consultants in connection with
grievances by, or the termination of, such employees, agents, or consultants.
4.24 Pooling of Interests. MHA has not taken or failed to take any action
which, to the actual knowledge of the management and Board of Directors of MHA,
would prevent the accounting for the Merger as a pooling of interests in
accordance with Accounting Principles Board Opinion No. 16, the interpretative
releases issued pursuant thereto, and the pronouncements of the SEC.
14
<PAGE>
4.25 No Brokers. MHA has not entered into any contract, arrangement or
understanding with any person or firm which may result in the obligation of MHA
or PMT to pay any Finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby. MHA is not aware of any
claim for payment of any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby.
4.26 PMT Stock Ownership. MHA does not own any shares of PMT Common
Stock or other securities convertible into PMT Common Stock.
4.27 Full Disclosure. All of the information provided by MHA (including but
not limited to information with respect to Compass Communications, Inc., a
subsidiary of MHA) and its representatives herein or in the MHA Disclosure
Letter are true, correct, and complete in all material respects and no
representation, warranty, or statement made by MHA in or pursuant to this
Agreement contains or will contain any untrue statement of a material fact or
omits or will omit to state any material fact necessary to make such
representation, warranty, or statement not misleading to PMT. None of the
executive officers of MHA has withheld from PMT or its representatives
disclosure of any event, condition, or fact that such officer knows, could
materially adversely affect the financial condition, results of operations,
business, prospects, assets, or liabilities of MHA (including but not limited to
information with respect to Compass Communications, Inc., a subsidiary of MHA),
other than business conditions affecting the credit card services business
generally.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PMT AND MERGER SUB
Except as set forth in the disclosure letter delivered at or prior to
the execution hereof to MHA and attached hereto as Exhibit B (the "PMT
Disclosure Letter"), PMT and Merger Sub represent and warrant to MHA as of the
date of this Agreement as follows:
5.1 Existence; Good Standing; Corporate Authority; Compliance With Law.
Each of PMT and Merger Sub is a corporation duly incorporated and validly
existing under the laws of the state of its incorporation. PMT is duly licensed
or qualified to do business as a foreign corporation and is in good standing
under the laws of any other state of the United States in which the character of
the properties owned or leased by it therein or in which the transaction of its
business makes such qualification necessary, except where the failure to be so
qualified would not have a material adverse effect on the business, results of
operations or financial condition of PMT (a "PMT Material Adverse Effect"). PMT
has all requisite corporate power and authority to own, operate and lease its
properties and carry on its business as now conducted. PMT nor any of its
properties or assets is in violation of any order of any court, governmental
authority or arbitration board or tribunal, or any law, ordinance, governmental
rule
15
<PAGE>
or regulation to which PMT is subject, where such violation would have a PMT
Material Adverse Effect. PMT has all licenses, permits and other authorizations
and has taken all actions required by applicable law or governmental regulations
in connection with its business as now conducted, where the failure to obtain an
such item or to take any such action would have a PMT Material Adverse Effect.
5.2 Authorization, Validity and Effect of Agreements. Each of PMT
and Merger Sub has the requisite corporate power and authority to execute and
deliver this Agreement and all agreements and documents contemplated hereby.
The consummation by PMT and Merger Sub of the transactions contemplated hereby
has been duly authorized by all requisite corporate action. This Agreement
constitutes, and all agreements and documents contemplated hereby (when executed
and delivered pursuant hereto for value received) will constitute, the valid and
legally binding obligations of PMT and Merger Sub, enforceable in accordance
with their respective terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights and general
principles of equity.
5.3 Capitalization. The authorized capital stock of PMT consists of
40,000,000 shares of common stock, no par value ("PMT Common Stock") and
10,000,000 shares of preferred stock, $.01 par value (the "PMT Preferred
Stock"). As of the date of this Agreement, there were 31,717,803 shares of PMT
Common Stock issued and outstanding, and no shares of PMT Preferred Stock issued
and outstanding. PMT has no outstanding bonds, debentures, notes or other
obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right to vote) with
the shareholders of PMT on any matter. All issued and outstanding shares of PMT
Common Stock are duly authorized, validly issued, fully paid, nonassessable and
free of preemptive rights. Other than as provided for in the PMT Disclosure
Letter, there are no options, warrants, calls, subscriptions, convertible
securities, or other rights, agreements or commitments other than letters of
intent which obligates PMT to issue, transfer or sell any shares of capital
stock of PMT.
5.4 Subsidiaries. PMT has no subsidiaries except for Merger Sub.
Merger Sub has been formed to effect the transactions contemplated by this
Agreement. The authorized capital stock of Merger Sub consists of 1,000 shares
of Common Stock, $.01 par value. Each of the outstanding shares of capital
stock of Merger Sub is duly authorized, validly issued, fully paid and
nonassessable, and is owned by PMT free and clear of all liens, pledges,
security interests, claims or other encumbrances. Merger Sub has not engaged in
any activities other than in connection with the transactions contemplated by
this Agreement.
5.5 Other Interests. Neither PMT nor Merger Sub owns directly or
indirectly any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, business, trust or entity.
5.6 No Violation. Neither the execution and delivery by PMT and
Merger Sub of this Agreement, nor the consummation by PMT and Merger Sub of the
transactions contemplated hereby in accordance with the terms hereof, will: (i)
conflict with or result in a breach of any provisions of the Charter or Bylaws
of PMT or Merger Sub; (ii) conflict with, result in a breach of any provision of
or the modification or termination of, constitute a default under, or result in
the creation or imposition of any lien, security interest, charge, or
encumbrance upon any of the assets of PMT or Merger Sub pursuant to any material
commitment, lease, contract, or other
16
<PAGE>
material agreement or instrument to which PMT or Merger Sub is a party; or (iii)
violate any order, arbitration award, judgment, writ, injunction, decree,
statute, rule, or regulation applicable to PMT or Merger Sub.
5.7 SEC Documents. Prior to the date hereof, PMT has delivered to
MHA copies of all of PMT's Annual Reports on Forms 10-K, Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K, as filed with the Securities and
Exchange Commission ("SEC") since June 14, 1996, and its proxy statement dated
November 14, 1995 (the "PMT Reports"). The PMT Reports (i) were prepared in all
material respects in accordance with the applicable requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act") and the rules and
regulations promulgated thereunder, and (ii) as of their respective dates, did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. Each of the consolidated balance sheets included in or incorporated
by reference into the PMT Reports (including the related notes and schedules)
fairly presents the consolidated financial position of PMT as of its date and
each of the consolidated statements of income, retained earnings and cash flows
included in or incorporated by reference into the PMT Reports (including any
related notes and schedules) fairly presents the results of operations, retained
earnings or cash flows of PMT for the periods set forth therein (subject, in the
case of unaudited statements, to normal year-end audit adjustments which would
not be material in amount or effect) in each case in accordance with generally
accepted accounting principles consistently applied during the periods involved,
except as may be noted therein. These representations shall be deemed to be
made with respect to PMT Reports filed subsequent to the date hereof at the time
of their filing. PMT has made all filings required to be filed by PMT under the
1934 Act.
5.8 Litigation. There are no actions, suits or proceedings pending
against PMT or, to the actual knowledge of the executive officers of PMT,
overtly threatened in writing against PMT, at law or in equity, or before or by
any federal or state commission, board, bureau, agency or instrumentality, that
are reasonably likely to have a PMT Material Adverse Effect except as set forth
in the PMT Disclosure Letter.
5.9 Taxes. The provisions for taxes shown on the PMT financial
statements for the year ended July 31, 1995 are adequate to cover the liability
of PMT for all taxes (including employer income tax withholding, social security
and unemployment taxes) to the date thereof.
5.10 Absence of Certain Changes. Since June 14, 1995, there has not
been any material adverse change in the financial condition, results of
operations, business, prospects, assets or liabilities (contingent or otherwise,
whether due or to become due, known or unknown), of PMT, except for changes in
the ordinary course of business consistent with historical experience resulting
from the seasonal nature of PMT's business.
5.11 No Brokers. PMT has not entered into any contract, arrangement
or understanding with any person or firm which may result in the obligation of
MHA or PMT to
17
<PAGE>
pay any finder's fees, brokerage or agent's commissions or other like payments
in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby. PMT is not aware of any
claim for payment of any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby.
5.12 MHA Stock Ownership. Neither PMT nor Merger Sub owns any shares
of capital stock of MHA or other securities convertible into capital stock of
MHA.
5.13 PMT Common Stock. The issuance and delivery by PMT of shares of
PMT Common Stock in connection with the Merger and this Agreement have been duly
and validly authorized by all necessary corporate action on the part of PMT.
The shares of PMT Common Stock to be issued in connection with the Merger and
this Agreement, when issued in accordance with the terms of this Agreement, will
be validly issued, fully paid and nonassessable.
5.14 Pooling of Interests. PMT has not taken or failed to take any
action which, to the actual knowledge of the executive officers of PMT, would
prevent the accounting for the Merger as a pooling of interests in accordance
with Accounting Principles Board Opinion No. 16, the interpretative releases
issued pursuant thereto, and the pronouncements of the SEC.
5.15 Full Disclosure. All of the information provided by PMT and its
representatives herein or in the PMT Disclosure Letter are true, correct and
complete in all material respects and no representation, warranty, or statement
made by PMT in or pursuant to this Agreement contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary to make such representation, warranty, or statement not misleading to
MHA. None of the executive officers of PMT has withheld from MHA or its
representatives disclosure of any event, condition, or fact that such officer
knows could materially adversely affect the financial condition, results of
operations, business, prospects, assets, or liabilities of PMT, other than
business conditions affecting the credit card services business generally.
ARTICLE 6
COVENANTS
6.1 Covenants of PMT and MHA. During the period from the date hereof
and continuing until the Effective Time (except as expressly contemplated or
permitted hereby, or to the extent that the other parties shall otherwise
consent in writing) each of PMT and MHA covenants with the other that, insofar
as the obligations relate to it:
(a) Each of PMT and MHA shall carry on their respective
businesses in the usual, regular and ordinary course in substantially the
same manner as heretofore conducted and shall use all reasonable efforts to
preserve intact their present business organizations, maintain their rights
and franchises and preserve their relationships with
18
<PAGE>
customers, suppliers and others having business deals with them to the end
that their good will and ongoing businesses shall not be impaired in any
material respect at the Effective Time.
(b) From the date hereof to the Effective Time, each of MHA and
PMT shall allow all designated officers, attorneys, accountants and other
representatives of the other access at all reasonable times during regular
business hours to the records and files, correspondence, audits and
properties, as well as to all information relating to commitments,
contracts, titles and financial position, or otherwise pertaining to the
business and affairs, of MHA and PMT.
(c) PMT and MHA shall cooperate and promptly prepare and PMT
shall, at PMT's expense, file with the SEC, as soon as practicable after
the Closing Date, a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "1933 Act"),
with respect to the resale of the PMT Common Stock issuable in the Merger.
PMT and MHA will cause the Registration Statement to comply as to form in
all material respects with the applicable provisions of the 1933 Act, and
the rules and regulations thereunder. PMT shall use all reasonable efforts,
and MHA will cooperate with PMT, to have the Registration Statement
declared effective by the SEC by November 30, 1996, or as promptly as
practicable thereafter. PMT agrees to use its best efforts to keep the
Registration Statement effective for a period of 150 days (plus any
Blackout Period) after the effective date or through February 28, 1997,
whichever is later, and to promptly file amendments to the Registration
Statement or promptly file such reports and/or statements required by the
Securities Exchange Act of 1934 ("Exchange Act"), as amended, to the extent
necessary so that such Registration Statement, including the Exchange Act
reports and/or statements incorporated therein, will not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. PMT shall use
its best efforts to obtain prior to the effective date of the Registration
Statement, and prior to the effective date of any registration statement
effected pursuant to Section 6.2 hereof, all necessary state securities law
or "Blue Sky" permits or approvals required to carry out the transactions
contemplated by this Agreement. PMT agrees that the Registration Statement
and each amendment or supplement thereto, at the time it is filed or
becomes effective, will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of circumstances under which they
were made, not misleading; provided, however, that the foregoing shall not
apply to the extent that any such untrue statement of a material fact or
omission to state a material fact was made by PMT in reliance upon and in
conformity with information concerning MHA furnished to PMT by MHA for use
in the Registration Statement. MHA agrees that the information provided by
it for inclusion in the Registration Statement and each amendment or
supplement thereto, at the time it is filed or becomes effective, will not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
19
<PAGE>
statements therein, in light of the circumstances under which they were
made, not misleading. No amendment or supplement to the Registration
Statement will be made by PMT or MHA without the approval of the other
party. PMT will advise MHA and each of the holders of the PMT Common Stock
issuable in the Merger, promptly after it receives notice thereof, of the
time when the Registration Statement has become effective or any supplement
or amendment has been filed, the issuance of any stop order, the suspension
of the qualification of the PMT Common Stock issued in connection with the
Merger for offering or sale in any jurisdiction, or any request by the SEC
for amendment of the Registration Statement or comments thereon and
responses thereto or requests by the SEC for additional information.
(d) Except as and to the extent required by law, PMT and MHA
hereby agree not to disclose or use, and each shall cause its
representatives not to disclose or use, any confidential information with
respect to the other party hereto furnished, or to be furnished, by such
other party or their representatives in connection herewith at any time or
in any manner other than in connection with its evaluation of the Merger.
Except as required by law, and as set forth in this subparagraph (d),
neither MHA nor its representatives shall make any public statements
regarding the Merger or this Agreement without the prior approval of PMT.
After reasonable prior notice to MHA, PMT may make such statements,
disclosures and filings as it is advised by its counsel are necessary or
appropriate for a public company. In the event the Merger is not effective
for any reason, the confidentiality letter agreement between PMT and MHA
shall remain in full force and effect.
(e) PMT represents that it believes it is currently eligible to
utilize Form S-3 and currently believes there is no material non-public
information which would preclude it from filing a registration statement on
Form S-3. PMT agrees to use its best efforts to avoid any event that makes
PMT ineligible to use Form S-3 in accordance with this Agreement.
(f) PMT agrees to use its best efforts to file with the SEC in a
timely manner all reports and other documents required of PMT under the
1993 Act and the Exchange Act.
6.2 Registration.
(a) Beginning after February 28, 1997, PMT and MHA agree that if at
any time thereafter PMT shall propose to file a registration statement with
respect to any of its Common Stock on a form suitable for a secondary
offering, it will give notice in writing to such effect to the registered
holders of the PMT shares of Common Stock to be issued in the Merger (the
"PMT Shares"), at least 30 days prior to such filing, and, at the written
request of any such registered holder, made within 10 days after the
receipt of such notice, will include therein at PMT's cost and expense
(except for the fees and expenses of counsel to such holders and
underwriting discounts and commissions,
20
<PAGE>
attributable to the PMT Shares included therein) such of the PMT Shares as
such holders shall request; provided, however, that if the offering being
registered by PMT is underwritten and if no other outstanding Common Stock
of any selling shareholder of PMT is included therein and if the
representative of the underwriters certifies in writing that the inclusion
therein of the PMT Shares would materially and adversely affect the sale of
the securities to be sold by PMT thereunder, the public offering of the PMT
Shares included in such registration statement shall be delayed for a
period of 90 days after the commencement of the underwritten public
offering, provided that the representative of the underwriters certifies in
writing that such delayed offering would not materially and adversely
affect the sale of the securities to be sold by PMT or, if the
representative of the underwriters will not so certify, the MHA
Shareholders shall not be permitted to participate in the registration.
PMT, at its own expense, will cause the prospectus included in such
registration statement to meet the requirements of the Securities Act until
the earlier of the date that is 270 days after the effective date of such
registration statement (or 365 days after such date if such offering of the
PMT Shares is delayed as set forth in this Section 6.2(a)) or until all
shares included therein have been sold.
(b) At the time any registration statement filed in accordance with
the provisions of Section 6.1(c) or 6.2(a) becomes effective, and at the
effective date of any post-effective amendment thereto, PMT will, at its
own expense, furnish to the holders of the PMT Shares included in such
registration statement pursuant to Section 6.1(c) or 6.2, an opinion of
PMT's counsel to the effect that the registration statement and the
prospectus contained therein, and each amendment or supplement thereto, as
of their respective effective or issue dates, comply as to form in all
material respects with the requirements of the Securities Act and the rules
and regulations thereunder. Such counsel shall also state that no facts
have come to the attention of such counsel that cause them to believe that
such registration statement, the prospectus contained therein, or any
amendment or supplement thereto, as of their respective effective or issue
dates, contains any untrue statement of any material fact or omits to state
any material fact necessary to make the statements therein not misleading
(except that no statement need be made with respect to any financial
statements, notes thereto or other financial or statistical data or other
expertized material contained therein). If for any reason PMT's counsel is
unable to make such statement, PMT shall so notify the MHA Shareholders and
shall use its best efforts to remove expeditiously all impediments to the
rendering of such opinion.
(c) PMT shall promptly notify the participating holders of the PMT
Shares of the occurrence of any event as a result of which any current
prospectus included in a registration statement filed pursuant to this
Section 6.2 includes any misstatement of a material fact or omits to state
any material fact to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing, and
shall promptly file amendments to the Registration Statement or promptly
file such reports and/or statements required by the Exchange Act to the
extent necessary so that such registration statement, including the
Exchange Act reports and/or statements incorporated
21
<PAGE>
therein, will not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein, in light of circumstances under which they were
made, not misleading.
(d) PMT's obligations under Section 6.2(a) with respect to each holder
of PMT Shares are expressly conditioned upon such holder's furnishing to
PMT in writing such information concerning such holder and the terms of
such holder's proposed offering as PMT shall reasonably request for
inclusion in the registration statement. In the case of each registration
effected pursuant to this Agreement, PMT shall indemnify each holder
thereof (and each underwriter for such holder and each person, if any, who
controls such underwriter within the meaning of the Securities Act) from
any loss, claim, damage or liability arising out of or based upon any
untrue statement of a material fact contained in such registration
statement or any omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except for any such statement or omission based on information furnished in
writing by such holder of PMT Shares expressly for use in connection with
such registration statement; and such holder shall indemnify PMT (and each
of its officers and directors who has signed such registration statement,
each director, each person, if any, who controls PMT within the meaning of
the Securities Act, each underwriter for PMT and each person, if any, who
controls such underwriter within the meaning of the Securities Act) and
each other such holder against any loss, claim, damage or liability arising
from any such statement or omission which was made in reliance upon
information furnished in writing to PMT by such holder of PMT Shares
expressly for use in connection with such registration statement.
(e) PMT shall furnish to each holder of PMT Shares such number of
copies of any prospectus (including any preliminary prospectus and any
amended or supplemented prospectus) in conformity with the requirements of
the 1933 Act, and such other documents, as such holder of PMT Shares may
reasonably request in order to effect the offering and sale of the PMT
Shares to be offered and sold, but only while PMT shall be required under
the provisions hereof to cause the registration statement to remain
current.
(f) PMT shall not be required to effect a registration under this
Agreement if in the written opinion of counsel to PMT, which counsel and
the opinion so rendered shall be reasonably acceptable to the holders of
PMT Shares requesting registration, such holders may sell without
registration under the 1933 Act all PMT Shares for which they requested
registration under the provisions of the 1933 Act and in the quantity in
which the PMT Shares were proposed to be sold, or if PMT shall have
obtained from the SEC a "no-action" letter to that effect.
6.3 Blackout Period. PMT shall be entitled, once per registration
statement, to (i) postpone the filing or effectiveness of any Registration
Statement contemplated under Section 6.1(c) and Section 6.2 hereof; or (ii) if
effective, elect that any such Registration Statement not
22
<PAGE>
be useable and require the MHA Shareholders to suspend sales pursuant to the
prospectus contained therein, for a reasonable period of time, but not in excess
of 60 days (a "Blackout Period"), if PMT determines in good faith that the
registration and distribution of the shares of PMT Common Stock (or the use of
the Registration Statement or related prospectus) would interfere with any
pending material acquisition, material corporation reorganization or any other
premature disclosure thereof. PMT shall promptly give the MHA Shareholders
written notice of such termination, containing a general statement of the
reasons for such postponement or restriction of use and an approximation of the
anticipated delay.
6.4 Covenants of MHA. MHA covenants and agrees that between the date
hereof and continuing until the Effective Time (except as expressly contemplated
or permitted hereby, or to the extent that PMT shall otherwise consent in
writing):
(a) Prior to the Effective Time, MHA agrees (a) that it shall,
and shall direct and use its best efforts to cause its directors, officers,
employees, shareholders, advisors, accountants and attorneys (the
"Representatives"), including such Representatives of any of MHA's
affiliated entities or persons, not to, initiate, solicit or encourage,
directly or indirectly, any inquiries or the making or implementation of
any proposal or offer (including, without limitation, any proposal or offer
to its shareholders) with respect to a merger, acquisition, consolidation
or similar transaction involving, or any purchase of all or any significant
portion of the assets or any equity securities of MHA (any such proposal or
offer being hereinafter referred to as a "Acquisition Proposal") or engage
in any negotiations concerning, or provide any confidential information or
data to, or have any discussions with, any person relating to an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make
or implement a Acquisition Proposal; (b)that it will immediately cease and
cause to be terminated any existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any of the foregoing
and will take the necessary steps to inform the individuals or entities
referred to above of the obligations undertaken in this Section 6.4(a).
(b) MHA will make all normal and customary repairs, replacements,
and improvements to its facilities, will not dispose of any assets (other
than inventory in the ordinary course of business) other than at fair
market value and with the prior written consent of PMT, and without
limiting the generality of the foregoing or the covenants set forth in
6.1(a), MHA will not, without the prior written consent of PMT which
consent shall not be unreasonably withheld with respect to the matters set
forth in (ix):
(i) change its Articles of Incorporation or bylaws or merge
and consolidate with or into any entity or obligate itself to do so;
(ii) other than a dividend in customary amounts payable
prior to Closing, declare, set aside or pay any cash dividend or other
distribution on or in respect of shares of its capital stock, or any
redemption, retirement or purchase with respect to its capital stock
or issue any additional shares of its capital stock.
23
<PAGE>
MHA may pay reasonable fees and expenses related to the transaction
contemplated herein in accordance with a schedule of estimated fees
and expenses approved by PMT;
(iii) other than normal payments on loans for borrowed
money, discharge or satisfy any lien, charge, encumbrance or
indebtedness outside the ordinary course of business, except those
required to be discharged or satisfied;
(iv) authorize, guarantee or incur indebtedness aggregating
in excess of $50,000;
(v) make any capital expenditures or capital additions or
betterments, or commitments therefor, aggregating in excess of
$50,000;
(vi) loan funds to any person;
(vii) institute, settle or agree to settle any litigation,
action or proceeding before any court or governmental body;
(viii) mortgage, pledge or subject to any other encumbrance
any of its property or assets, tangible or intangible;
(ix) other than ordinary and customary raises for employees
authorize any compensation increases of any kind whatsoever for any
employee, provided MHA shall pay owing or accrued deferred
compensation;
(x) enter into any material contract including leases and
real estate agreements; or
(xi) enter into any transaction outside the ordinary course
of business.
(c) [Intentionally deleted.]
(d) Without the prior written consent of PMT, MHA shall not take any
action which would cause or tend to cause the conditions upon the
obligations of the parties hereto to effect the transactions contemplated
hereby not to be fulfilled; including without limitation, taking, causing
to be taken, or permitting or suffering to be taken or to exist any action,
condition or thing which would cause the representations and warranties
made by MHA herein not to be true, correct and accurate as of the Closing
Date.
(e) MHA shall not take any action that will result, directly or
indirectly, in a material adverse change in the value of the Merchant
Accounts taken as a whole since April 30, 1996.
24
<PAGE>
(f) MHA, prior to the Closing Date, shall have delivered its unaudited
financial statements for the year ended December 31, 1995 and for the four
month period ended April 30, 1996, in each case in accordance with sound
accounting principles consistently applied during the periods involved,
except as may be noted therein. MHA shall promptly provide to PMT monthly
and quarterly financial statements of MHA.
(g) MHA, prior to the Closing Date, shall have arranged for the
cancellation or exercise of the outstanding options or warrants to purchase
MHA Common Stock.
(h) From and after the date hereof and until the Effective Time, MHA
shall not (i) knowingly take any action, or knowingly fail to take any
action, that would jeopardize the treatment of the Merger as a "pooling of
interests" for accounting purposes; (ii) knowingly take any action, or
knowingly fail to take any action, that would jeopardize qualification of
the Merger as a reorganization within the meaning of Section 368(a)(2)(E)
of the Code; or (iii) enter into any contract, agreement, commitment or
arrangement with respect to either of the foregoing.
(i) From and after the date hereof and until the Effective Time, MHA
shall not incur (i) liabilities to the shareholders of MHA in excess of the
unpaid principal of $750,000, plus accrued and unpaid interest thereon, and
(ii) liability to Compass Bank in excess of $145,000.
6.5 Covenants of PMT. PMT covenants and agrees that between the date
hereof and continuing until the Effective Time (except as expressly contemplated
or permitted hereby, or to the extent that MHA shall otherwise consent in
writing):
(a) PMT shall promptly prepare and submit to the Nasdaq National
Market a listing application covering the shares of PMT Common Stock
issuable in the Merger, and shall use its best efforts to obtain, prior to
the Effective Time, approval for the listing of such PMT Common Stock,
subject to official notice of issuance.
(b) PMT shall promptly send MHA copies of all filings with the SEC.
(c) Without the prior written consent of MHA, PMT shall not take any
action which would cause or tend to cause the conditions upon the
obligations of the parties hereto to effect the transactions contemplated
hereby not to be fulfilled; including without limitation, taking, causing
to be taken, or permitting or suffering to be taken or to exist any action,
condition or thing which would cause the representations and warranties
made by PMT herein not to be true, correct and accurate as of the Closing
Date.
(d) From and after the date hereof and until the Effective Time, PMT
shall not (i) knowingly take any action, or knowingly fail to take any
action, that would jeopardize the treatment of the Merger as a "pooling of
interests" for accounting purposes; (ii) knowingly take any action, or
knowingly fail to take any action, that would jeopardize
25
<PAGE>
qualification of the Merger as a reorganization within the meaning of
Section 368(a)(2)(E) of the Code; or (iii) enter into any contract,
agreement, commitment or arrangement with respect to either of the
foregoing.
(e) To the extent PMT elects, for whatever reason or no reason, not to
retain any MHA employees, for one year following the Closing Date, PMT will
not oppose such person's claim for unemployment benefits, and PMT shall
complete all appropriate questionnaires or claim forms required by state
officials in this regard.
(f) PMT agrees that after the Effective Time, it will indemnify any
person who has rights to indemnification from MHA to the same extent and on
the same conditions as such person is entitled to indemnification pursuant
to MHA's Articles of Incorporation or Bylaws as in effect on the date of
this Agreement.
(g) PMT shall report post-Merger combined results of MHA and PMT no
later than 60 days after the end of PMT's first fiscal quarter ending after
the date hereof including at least 30 days of post-merger combined results
following the Effective Time if the requirement for publication of 60 days
post-Merger combined results shall not have been satisfied in some other
manner by such time in compliance with applicable rules.
(h) PMT shall, as successor to MHA, satisfy the liabilities to the
shareholders of MHA as referenced herein at Section 6.4(i)(i) within thirty
(30) days of the Closing Date.
ARTICLE 7
CONDITIONS
7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) No action or proceeding shall have been instituted before a
court or other governmental body by any governmental agency or public
authority to restrain or prohibit the transactions contemplated by this
Agreement or to obtain an amount of damages or other material relief in
connection with the execution of the Agreement or the related agreements or
the consummation of the Merger; and no governmental agency shall have given
notice to any party hereto to the effect that consummation of the
transactions contemplated by this Agreement would constitute a violation of
any law or that it intends to commence proceedings to restrain consummation
of the Merger.
26
<PAGE>
(b) The PMT Common Stock to be issued in the Merger shall have
been listed on the NASDAQ, and all necessary state securities law permits
or approvals shall have been obtained.
(c) PMT and MHA shall have received an opinion of their own
counsel satisfactory to them, generally to the effects that (i) the Merger
qualifies as a reorganization under Section 368(a)(2)(E) of the Code, (ii)
no material gain or loss will be recognized by MHA or PMT as a result of
the Merger, (iii) shareholders of MHA who receive in the Merger solely
either PMT Common Stock or PMT Common Stock and cash in lieu of fractional
shares will recognize no gain or loss for federal income tax purposes with
respect to the PMT Common Stock received in the Merger, and (iv) the Merger
will not have a material adverse effect on the federal income tax
consequences of PMT; provided that the failure to satisfy the requirements
of clauses (ii) and (iv) of this subsection shall constitute a condition to
consummation of the Merger only if asserted by PMT, and the failure to
satisfy the requirements of clause (iii) of this subsection shall
constitute a condition to consummation of the Merger only if asserted by
MHA.
(d) All consents, authorizations, orders and approvals of (or
filings or registrations with) any governmental commission, board or other
regulatory body required in connection with the execution, delivery and
performance of this Agreement, including those required under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, shall have been obtained
or made, except for filings in connection with the Merger and any other
documents required to be filed after the Effective Time and except where
the failure to have obtained or made any such consent, authorization,
order, approval, filing or registration would not have a material adverse
effect on the business of PMT and MHA, taken as a whole, following the
Effective Time.
(e) PMT shall have received from MHA copies of all resolutions
adopted by the Board of Directors and shareholders of MHA in connection
with this Agreement and the transactions contemplated hereby. MHA shall
have received from PMT and Merger Sub copies of all resolutions adopted by
the Board of Directors of each respective company and the shareholders of
Merger Sub in connection with this Agreement and the transactions
contemplated hereby.
7.2 Conditions to Obligation of MHA to Effect the Merger. The obligation of
MHA to effect the Merger shall be subject to the fulfillment at or prior to the
Closing Date of the following conditions:
(a) PMT shall have performed its agreements contained in this
Agreement required to be performed on or prior to the Closing Date and the
representations and warranties of PMT and Merger Sub contained in this
Agreement and in any document delivered in connection herewith shall be
true and correct as of the Closing Date, and MHA shall have received a
certificate of the President or the Chief Operating Officer, dated the
Closing Date, certifying to such effect.
27
<PAGE>
(b) From the date of this Agreement through the Effective Time, there
shall not have occurred any material change in the financial condition,
business, operations or prospects of PMT, that would have or would be
reasonably likely to have a PMT Material Adverse Effect other than any such
change that affects both MHA and PMT in a substantially similar manner.
(c) MHA shall have received a written opinion, dated as of the Closing
Date, from the legal counsel of PMT, in form and substance satisfactory to
it, as to certain matters agreed upon by legal counsel of PMT and MHA.
(d) Prior to June 28, 1996, MHA shall not have notified PMT in writing
that MHA's review of PMT's business, operations, and the matters disclosed
in the PMT Disclosure Letter has revealed matters (described in reasonable
detail) which in MHA's reasonable business judgment would adversely affect
the business or operations of PMT.
7.3 Conditions to Obligation of PMT and Merger Sub to Effect the Merger.
The obligations of PMT and Merger Sub to effect the Merger shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions:
(a) MHA shall have performed its agreements contained in this
Agreement required to be performed on or prior to the Closing Date and the
representations and warranties of MHA contained in this Agreement and in
any document delivered in connection herewith shall be true and correct as
of the Closing Date, and PMT shall have received a certificate of the
President of MHA, dated the Closing Date, certifying to such effect.
(b) PMT shall be satisfied that the Merger will qualify for
accounting by PMT as a pooling of interests under generally accepted
accounting principles and under applicable rules and regulations of the
SEC. In connection therewith, PMT shall have received, on or before the
Closing Date, a letter from Price Waterhouse LLP (or any other accountants
of PMT's choosing) dated as of the Closing Date to the effect that the
transactions contemplated by this Agreement may be treated by PMT as a
"pooling of interests" for accounting purposes.
(c) [Intentionally omitted.]
(d) From the date of this Agreement through the Effective Time, there
shall not have occurred any material change in the financial condition,
business, operations or prospects of MHA, other than any such change that
affects both MHA and PMT in a substantially similar manner.
(e) [Intentionally omitted.]
28
<PAGE>
(f) PMT shall have received a written opinion, dated as of the Closing
Date, from the legal counsel of MHA, in form and substance satisfactory to
it, as to certain matters agreed upon by legal counsel of PMT and MHA.
(g) Prior to June 28, 1996, PMT shall not have notified MHA in writing
that PMT's review of MHA's business, operations, and the matters disclosed
in the MHA Disclosure Letter has revealed matters (described in reasonable
detail) which in PMT's reasonable business judgment would adversely affect
the business or operations of MHA.
(h) Prior to June 28, 1996, PMT shall have determined that the
consummation of the Merger meets all applicable requirements of any loan
agreements to which it is a party.
(i) In order to ensure that following the consummation of the Merger
certain directors and officers of MHA shall not engage in certain
activities as specified in the noncompetition agreements, the directors of
MHA shall have executed noncompetition agreements, in form and substance
satisfactory to PMT and the directors.
(j) The liabilities to the Shareholders of MHA as of the Closing Date
shall not exceed the unpaid principal of $750,000 plus accrued but unpaid
interest thereon.
(k) The Dissenting MHA Shares shall not exceed 10% of the total number
of outstanding shares of MHA Common Stock.
ARTICLE 8
TERMINATION
8.1 Termination by Mutual Consent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or after
the approval of this Agreement by the shareholders of MHA, by the mutual consent
of PMT and MHA.
8.2 Termination by Either PMT or MHA. This Agreement may be terminated and
the Merger may be abandoned by action of the Board of Directors of either PMT or
MHA if (a) the Merger shall not have been consummated by August 1, 1996, or (b)
a United States federal or state court of competent jurisdiction or United
States federal or state governmental, regulatory or administrative agency or
commission shall have issued an order, decree or ruling or taken any other
action permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree, ruling or
other action shall have become final and non-appealable; provided, that the
party seeking to terminate this Agreement pursuant to this clause (b) shall have
used all reasonable efforts to remove such injunction, order or decree.
29
<PAGE>
8.3 Termination by MHA. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, before or after the
adoption and approval by the shareholders of MHA, by action of the Board of
Directors of MHA, if there has been a breach by PMT or Merger Sub of any
representation or warranty contained in this Agreement which would have or would
be reasonably likely to have a PMT Material Adverse Effect, or (b) there has
been a material breach of any of the covenants or agreements set forth in this
Agreement on the part of PMT, which breach is not curable or, if curable, is not
cured within 30 days after written notice of such breach is given by MHA to PMT.
8.4 Termination by PMT. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, by action of the Board
of Directors of PMT, if (a) there has been a breach by MHA of any representation
or warranty contained in this Agreement which would have or would be reasonably
likely to have an MHA Material Adverse Effect, (b) there has been a material
breach of any of the covenants or agreements set forth in this Agreement on the
part of MHA, which breach is not curable or, if curable, is not cured within 30
days after written notice of such breach is given by PMT to MHA, or (c) the
Merger will not qualify for accounting by PMT as a pooling of interests under
generally accepted accounting principles and under applicable rules and
regulations of the SEC.
8.5 Effect of Termination and Abandonment. Upon termination of this
Agreement pursuant to this Article, this Agreement shall be void and of no other
effect, and there shall be no liability by reason of this Agreement or the
termination thereof on the part of any party hereto, or on the part of the
respective directors, officers, employees, agents or shareholders of any of
them.
8.6 Extension; Waiver. At any time prior to the Effective Time, any party
hereto, by action taken by its Board of Directors, may, to the extent legally
allowed, (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions for the benefit of such parry contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE 9
GENERAL PROVISIONS
9.1 Non-survival of Representations and Warranties. All representations
and warranties of PMT and MHA in this Agreement or in any instrument delivered
pursuant to this Agreement shall be deemed to the extent expressly provided
herein to be conditions to the Merger and shall not survive the Merger.
30
<PAGE>
9.2 Notices. Any notice required to be given hereunder shall be
sufficient if in writing, by courier service (with proof of service), hand
delivery or certified or registered mail (return receipt requested and first-
class postage prepaid), addressed as follows:
If to PMT or Merger Sub: If to MHA:
Gregory S. Daily E. J. Martin
President 17950 Preston Road
PMT Services, Inc. Suite 720
Two Maryland Farms, Suite 200 Dallas, Texas 75252-5635
Brentwood, Tennessee 37027
with a copy to: with a copy to:
J. Chase Cole Jeffrey L. Fisher
Waller Lansden Dortch & Davis Geary, Porter & Donovan, P.C.
511 Union Street, Suite 2100 16475 Dallas Parkway
Nashville, Tennessee 37219-1760 Suite 550
Dallas, Texas 75248
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
9.3 Assignment, Binding Effect; Benefit. Neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
9.4 Entire Agreement. This Agreement, the Exhibits, the MHA Disclosure
Letter, the PMT Disclosure Letter, the confidentiality letter and any documents
delivered by the parties in connection herewith constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings among the parties with respect thereto. No
addition to or modification of any provision of this Agreement shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.
9.5 Amendment. This Agreement may be amended by the parties hereto, by
action taken by their respective Boards of Directors, at any time before or
after approval of matters presented in connection with the Merger by the
shareholders of MHA and PMT, but after any such stockholder approval, no
amendment shall be made which by law requires the further approval of
shareholders without obtaining such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
9.6 Governing Law. The validity of this Agreement, the construction of
its terms and the determination of the rights and duties of the parties hereto
shall be governed by and
31
<PAGE>
construed in accordance with the laws of the United States and those of the
State of Texas applicable to contracts made and to be performed wholly within
such state.
9.7 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.
9.8 Headings. Headings of the Articles and Sections of this Agreement are
for the convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
9.9 Interpretation. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
9.10 Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
9.11 Incorporation of Exhibits. The MHA Disclosure Letter, the PMT
Disclosure Letter and the Exhibits attached hereto and referred to herein are
hereby incorporated herein and made a part hereof for all purposes as if fully
set forth herein.
9.12 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
9.13 Expenses. Each party to this Agreement shall bear its own expenses
in connection with the Merger and the transactions contemplated hereby;
provided, however, that if the Merger is not consummated for any reason other
than (a) a willful breach of this Agreement by MHA; (b) the failure by MHA to
satisfy the covenant set forth in Section 6.4(e); (c) MHA's taking or causing to
be taken any action which it knows, after reasonable inquiry to its independent
accountants, would disqualify the transaction as a pooling of interests; or (d)
the failure of MHA's shareholders to approve the Merger, then PMT shall promptly
reimburse MHA for its
32
<PAGE>
reasonable expenses incurred in connection with the preparation and audit of
MHA's audited financial statements.
9.14 Enforcement of Agreement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of competent jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
9.15 Press Releases. All press releases issued by PMT or MHA with
respect to these transactions shall be in form reasonably approved by PMT and
MHA.
33
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and
caused the same to be duly delivered on their behalf as of the day and year
first written above.
PMT SERVICES, INC.
ATTEST:
By:/s/ Shannon Morris By: /s/ J.T. Stewart
---------------------------- --------------------------
Director of Human Resources Joseph T. Stewart, Jr.
Chief Operating Officer
PMT ACQUISITION CORPORATION
ATTEST:
By:/s/ Shannon Morris By: /s/ J.T. Stewart
---------------------------- -------------------------
Director of Human Resources Joseph T. Stewart, Jr.
Secretary
MARTIN HOWE ASSOCIATES, INC.
ATTEST:
By:/s/ Daniel Martin By: /s/ E.J. Martin
------------------------ ------------------------
E. J. Martin
President
34
<PAGE>
AGREEMENT AND PLAN OF MERGER
AMONG
PMT SERVICES, INC.,
PMT ILLINOIS ACQUISITION CORPORATION,
DATA TRANSFER ASSOCIATES, INC.
AND
MARTIN R. BINDER, RICHARD M. BINDER
AND JOHN RANTE
AS STOCKHOLDERS OF
DATA TRANSFER ASSOCIATES, INC.
DATED: JULY 25, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
RECITALS............................................................................. 1
ARTICLE 1 - THE MERGER............................................................... 1
1.1 The Merger........................................................... 1
1.2 The Closing.......................................................... 2
1.3 Effective Time....................................................... 2
ARTICLE 2 - ARTICLES OF INCORPORATION AND BYLAWS AND OFFICERS
AND DIRECTORS OF THE SURVIVING CORPORATION............................... 2
2.1 Articles of Incorporation............................................ 2
2.2 Bylaws............................................................... 2
2.3 Directors............................................................ 2
2.4 Officers............................................................. 2
ARTICLE 3 - CONVERSION OF DATA TRANSFER STOCK........................................ 2
3.1 Conversion of Shares................................................. 2
3.2 Fractional Shares.................................................... 3
3.3 Exchange of Certificates............................................. 3
3.4 Stock Splits, Etc. of PMT Common Stock............................... 4
3.5 Outstanding Options on Warrants...................................... 4
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF DATA TRANSFER.......................... 4
4.1 Existence; Good Standing; Corporate Authority; Compliance With Law... 4
4.2 Authorization, Validity and Effect of Agreements..................... 5
4.3 Capitalization....................................................... 5
4.4 Prior Sales of Securities............................................ 5
4.5 Subsidiaries......................................................... 5
4.6 Other Interests...................................................... 5
4.7 No Violation......................................................... 6
4.8 Financial Statements................................................. 6
4.9 Contracts............................................................ 6
4.10 No Material Adverse Changes.......................................... 7
4.11 Tax Matters.......................................................... 7
4.12 Employees and Fringe Benefit Plans................................... 8
4.13 Assets; Leaseholds................................................... 10
4.14 Lawfully Operating................................................... 11
4.15 No Subleases or Licenses............................................. 11
4.16 Power of Attorney.................................................... 11
4.17 Cash Flow of Merchant Accounts....................................... 11
4.18 No Litigation........................................................ 11
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.19 Corporate Records.................................................... 12
4.20 No Defaults.......................................................... 12
4.21 Inventory............................................................ 12
4.22 Hazardous Substances................................................. 12
4.23 Labor Matters........................................................ 14
4.24 Pooling of Interests................................................. 14
4.25 No Brokers........................................................... 14
4.26 PMT Stock Ownership.................................................. 15
4.27 Full Disclosure...................................................... 15
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF PMT
AND MERGER SUB........................................................... 15
5.1 Existence; Good Standing; Corporate Authority; Compliance With Law... 15
5.2 Authorization, Validity and Effect of Agreements..................... 16
5.3 Capitalization....................................................... 16
5.4 Subsidiaries......................................................... 16
5.5 Other Interests...................................................... 16
5.6 No Violation......................................................... 16
5.7 SEC Documents........................................................ 17
5.8 Litigation........................................................... 17
5.9 Taxes................................................................ 17
5.10 Absence of Certain Changes........................................... 17
5.11 No Brokers........................................................... 17
5.12 Data Transfer Stock Ownership........................................ 18
5.13 PMT Common Stock..................................................... 18
5.14 Pooling of Interests................................................. 18
5.15 Full Disclosure...................................................... 18
ARTICLE 6 - COVENANTS................................................................ 18
6.1 Covenants of PMT and Data Transfer................................... 18
6.2 Registration......................................................... 20
6.3 Blackout Period...................................................... 23
6.4 Covenants of Data Transfer........................................... 23
6.5 Covenants of PMT..................................................... 25
ARTICLE 7 - CONDITIONS............................................................... 26
7.1 Conditions to Each Party's Obligation to Effect the Merger........... 26
7.2 Conditions to Obligation of Data Transfer to Effect the Merger....... 28
7.3 Conditions to Obligation of PMT and Merger Sub to Effect the Merger.. 28
ARTICLE 8 - TERMINATION.............................................................. 29
8.1 Termination by Mutual Consent........................................ 29
8.2 Termination by Either PMT or Data Transfer........................... 30
8.3 Termination by Data Transfer......................................... 30
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
8.4 Termination by PMT................................................... 30
8.5 Effect of Termination and Abandonment................................ 30
8.6 Extension; Waiver.................................................... 30
ARTICLE 9 - INDEMNIFICATION.......................................................... 31
(a) Indemnification by Controlling Data Transfer Stockholders............ 31
(b) Controlling Data Transfer Stockholders' Liability.................... 31
(c) Indemnification by PMT............................................... 31
(d) Conditions of Indemnification Pursuant to Sections 9(a) and 9(c)..... 32
(e) Release by the Controlling Data Transfer Stockholders................ 33
(f) Survival............................................................. 33
ARTICLE 10 - GENERAL PROVISIONS...................................................... 34
10.1 Survival............................................................. 34
10.2 Notices.............................................................. 34
10.3 Assignment, Binding Effect; Benefit.................................. 34
10.4 Entire Agreement..................................................... 34
10.5 Amendment............................................................ 35
10.6 Governing Law........................................................ 35
10.7 Counterparts......................................................... 35
10.8 Headings............................................................. 35
10.9 Interpretation....................................................... 35
10.10 Waivers.............................................................. 35
10.11 Incorporation of Exhibits............................................ 35
10.12 Severability......................................................... 36
10.13 Expenses............................................................. 36
10.14 Enforcement of Agreement............................................. 36
10.15 Press Releases....................................................... 36
10.16 No Third Party Beneficiaries......................................... 36
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement"), is executed as of
the 25th day of July, 1996, by and among PMT Services, Inc., a Tennessee
corporation ("PMT"), PMT Illinois Acquisition Corporation, a newly formed
Illinois corporation and wholly owned subsidiary of PMT ("Merger Sub"), and Data
Transfer Associates, Inc., an Illinois corporation ("Data Transfer") and Martin
R. Binder, Richard M. Binder and John Rante, stockholders of Data Transfer
(individually, a "Controlling Data Transfer Stockholder" and, collectively, the
"Controlling Data Transfer Stockholders").
RECITALS
A. The Boards of Directors of PMT and Data Transfer each have
determined that a business combination between PMT and Data Transfer is in the
best interests of their respective companies and shareholders and presents a
opportunity for their respective companies to enhance the service provided to
consumers and achieve long-term strategic and financial benefits, and,
accordingly, have agreed to effect the merger provided for herein upon the terms
and subject to the conditions set forth herein.
B. For federal income tax purposes, it is intended that the merger
provided for herein shall qualify as a reorganization within the meaning of
Section 368(a)(2)(E) of the Internal Revenue Code of 1986, as amended (the
"Code"), and for financial accounting purposes shall be accounted for as a
"pooling of interests."
C. PMT, Merger Sub, Data Transfer and the Controlling Data Transfer
Stockholders desire to make certain representations, warranties and agreements
in connection with the merger.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.3), Merger Sub shall
be merged with and into Data Transfer in accordance with this Agreement and the
separate corporate existence of Merger Sub shall thereupon cease (the "Merger").
Data Transfer shall be the surviving corporation in the Merger (sometimes
hereinafter referred to as the "Surviving Corporation") and shall be a wholly
owned subsidiary of PMT. The Merger shall have the effects specified in Section
5/11.05 of the Illinois Business Corporation Act ("IBCA").
<PAGE>
1.2 The Closing. Subject to the terms and conditions of this
Agreement, the closing of the Merger (the "Closing") shall take place (a) at the
offices of Waller Lansden Dortch & Davis, a Professional Limited Liability
Company, 511 Union Street, Suite 2100, Nashville, Tennessee, at 10:00 a.m.,
local time, on the first business day immediately following the day on which the
last to be fulfilled or waived of the conditions set forth in Article 7 shall be
fulfilled or waived in accordance herewith or (b) at such other time, date or
place as PMT and Data Transfer may agree. The date on which the Closing occurs
is hereinafter referred to as the "Closing Date."
1.3 Effective Time. If all the conditions to the Merger set forth in
Article 7 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 8, the parties
hereto shall cause Articles of Merger meeting the requirements of Section
5/11.05 of the IBCA to be properly executed and filed in accordance with such
Section on the Closing Date. The Merger shall become effective at the time of
filing of the Articles of Merger or at such later time which the parties hereto
shall have agreed upon and designated in such filing as the effective time of
the Merger (the "Effective Time").
ARTICLE 2
ARTICLES OF INCORPORATION AND BYLAWS
AND OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION
2.1 Articles of Incorporation. The Articles of Incorporation of
Merger Sub in effect immediately prior to the Effective Time shall be the
Articles of Incorporation of the Surviving Corporation, until duly amended in
accordance with applicable law.
2.2 Bylaws. The Bylaws of Merger Sub in effect immediately prior to
the Effective Time shall be the Bylaws of the Surviving Corporation, until duly
amended in accordance with applicable law.
2.3 Directors. The directors of Merger Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation as of the
Effective Time.
2.4 Officers. The officers of Merger Sub immediately prior to the
Effective Time shall be the officers of the Surviving Corporation as of the
Effective Time.
ARTICLE 3
CONVERSION OF DATA TRANSFER STOCK
3.1 Conversion of Shares. At the Effective Time, each of the
outstanding Data Transfer Shares (as defined below) shall be converted into the
number of shares of Common
2
<PAGE>
Stock, $.01 par value per share, of PMT (the "PMT Common Stock") determined by
dividing the Aggregate Issuable PMT Shares by the Outstanding Data Transfer
Shares. For purposes of this section, the capitalized terms shall have the
definitions set forth:
(a) "Aggregate Issuable PMT Shares" shall mean the PMT Base
Shares multiplied by a fraction, the numerator of which is the Outstanding
Data Transfer Shares and the denominator of which is the sum of Outstanding
Data Transfer Shares and the Dissenting Data Transfer Shares.
(b) "PMT Base Shares" shall mean 500,000 shares.
(c) "Outstanding Data Transfer Shares" shall mean all of the
issued and outstanding shares of each series of Data Transfer Common Stock
immediately prior to the Effective Time (including any shares which may
have been issued upon exercise of currently outstanding options or
warrants) less Dissenting Data Transfer Shares.
(d) "Dissenting Data Transfer Shares" shall mean outstanding
shares of Data Transfer Common Stock, the holders of which have perfected
their rights to dissent to the Merger under the IBCA.
3.2 Fractional Shares. In lieu of the issuance of fractional shares of
PMT Common Stock, each shareholder of Data Transfer, upon surrender of a
certificate which immediately prior to the Effective Time represented Data
Transfer Common Stock, shall be entitled to receive a cash payment (without
interest) equal to the fair market value of any fraction of a share of PMT
Common Stock to which such holder would be entitled but for this provision. For
purposes of calculating such payment, the fair market value of a fraction of a
share of PMT Common Stock shall be such fraction multiplied by the Average Price
of PMT Common Stock. The "Average Price" of PMT Common Stock shall mean the
average of the daily highest and lowest sale price of PMT Common Stock as traded
on the NASDAQ National Market ("NASDAQ") for the twenty (20) trading days which
end ten (10) days prior to the Closing Date.
3.3 Exchange of Certificates. After the Effective Time, each holder of an
outstanding certificate or certificates theretofore representing Outstanding
Data Transfer Shares (other than shares as to which dissenters rights have been
perfected and not withdrawn or otherwise forfeited under the IBCA) upon
surrender thereof, together with a completed letter of transmittal, to Waller
Lansden Dortch & Davis (the "Exchange Agent"), as exchange agent for PMT, shall
be entitled to receive in exchange therefor any payment due in lieu of
fractional shares and a certificate or certificates representing the number of
whole shares of PMT Common Stock into which such holders' Outstanding Data
Transfer Shares were converted in a manner reasonably satisfactory to Data
Transfer. Until so surrendered, each outstanding certificate representing
Outstanding Data Transfer Shares shall be deemed for all purposes to represent
the number of whole shares of PMT Common Stock into which the Outstanding Data
Transfer Shares
3
<PAGE>
theretofore represented shall have been converted. PMT may, at its option,
refuse to pay any dividend or other distribution, if any, payable to the holders
of shares of PMT Common Stock to the holders of certificates representing
Outstanding Data Transfer Shares until such certificates are surrendered for
exchange, provided, however, that, subject to the rights of PMT under its
charter, upon surrender and exchange of such Data Transfer certificates there
shall be paid to the record holders of the PMT stock certificate or certificates
issued in exchange therefor the amount, without interest, of dividends and other
distributions, if any, which have become payable with respect to the number of
whole shares of PMT Common Stock into which the Outstanding Data Transfer Shares
theretofore represented thereby shall have been converted and which have not
previously been paid. Under the terms of its credit agreements, PMT has agreed
not to pay any cash dividends.
3.4 Stock Splits, Etc. of PMT Common Stock. In the event PMT changes the
number of shares of PMT Common Stock issued and outstanding prior to the
Effective Time as a result of a stock split, stock dividend, recapitalization,
reorganization or any other transaction in which any security of PMT or any
other entity or cash is issued or paid in respect of the outstanding shares of
PMT Common Stock and the record date therefor is after the date of this
Agreement and prior to the Effective Time, the conversion ratio, as well as the
dollar amounts set forth in Sections 3.1(b) and 8.2, shall be proportionately
adjusted.
3.5 Outstanding Options on Warrants. Immediately prior to the Closing,
all outstanding options or warrants to purchase Data Transfer Common Stock will
be exercised to the extent exercisable and cancelled to the extent not
exercisable.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF DATA TRANSFER
Except as set forth in the disclosure letter delivered prior to the
execution hereof to PMT and attached hereto as Exhibit A (the "Data Transfer
Disclosure Letter"), Data Transfer and each of the Controlling Data Transfer
Stockholders severally represents and warrants to PMT that the statements
contained in this Article 4 are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date.
4.1 Existence; Good Standing; Corporate Authority; Compliance With Law.
Data Transfer is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Illinois. Data Transfer is duly
licensed or qualified to do business as a foreign corporation and is in good
standing under the laws of any other state of the United States in which the
character of the properties owned or leased by it therein or in which the
transaction of its business makes such qualification necessary, except where the
failure to be so qualified would not have a material adverse effect on the
business, results of operations or financial condition of Data Transfer (a "Data
Transfer Material Adverse Effect"). Data Transfer has all requisite corporate
power and authority to own, operate and lease its properties and carry on its
4
<PAGE>
business as now conducted. Data Transfer is not in violation of any order of
any court, governmental authority or arbitration board or tribunal, or any law,
ordinance, governmental rule or regulation to which Data Transfer or any of its
properties or assets is subject, where such violation would have a Data Transfer
Material Adverse Effect. Data Transfer has obtained all licenses, permits and
other authorizations and has taken all actions required by applicable law or
governmental regulations in connection with its business as now conducted,
except where such failure to obtain the same would not have a Data Transfer
Material Adverse Effect.
4.2 Authorization, Validity and Effect of Agreements. Data Transfer has
the full corporate power and authority to execute and deliver this Agreement and
all agreements and documents contemplated hereby. The consummation by Data
Transfer of the transactions contemplated hereby has been duly authorized by all
requisite corporate action, including the required approvals by the Board of
Directors of Data Transfer and the holders of the outstanding shares of Data
Transfer Common Stock. This Agreement constitutes, and all agreements and
documents contemplated hereby (when executed and delivered pursuant hereto for
value received) will constitute, the valid and legally binding obligations of
Data Transfer, enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights and general principles of equity.
4.3 Capitalization. The authorized capital stock of Data Transfer
consists of 100,000 shares of common stock, $1.00 par value (the "Data Transfer
Common Stock"). As of the date hereof, there are issued and outstanding 1,000
shares of Data Transfer Common Stock. Data Transfer has no outstanding bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or which are convertible into or exercisable for securities having the
right to vote) with the shareholders of Data Transfer on any matter. All issued
and outstanding shares of Data Transfer Common Stock are duly authorized,
validly issued, fully paid, nonassessable and free of preemptive rights. There
are no options, warrants, calls subscriptions, convertible securities, or other
rights, agreements or commitments which obligate Data Transfer to issue,
transfer or sell any shares of capital stock of Data Transfer.
4.4 Prior Sales of Securities. All offers and sales of Data Transfer
Common Stock prior to the date hereof were at all relevant times exempt from the
registration requirements of the Securities Act of 1933, as amended, and were
duly registered or the subject of an available exemption from the registration
requirements of the applicable state securities or Blue Sky laws, or the
relevant statutes of limitations have expired, or civil liability therefor has
been eliminated by an offer to rescind.
4.5 Subsidiaries. Data Transfer has no subsidiaries.
4.6 Other Interests. Except as set forth in the Data Transfer Disclosure
Letter, Data Transfer does not own directly or indirectly any interest or
investment in any corporation, partnership, joint venture, business, trust or
other entity.
5
<PAGE>
4.7 No Violation. After approval by requisite shareholder vote, neither
the execution and delivery by Data Transfer of this Agreement nor the
consummation by Data Transfer of the transactions contemplated hereby in
accordance with the terms hereof, will: (i) conflict with or result in a breach
of any provisions of the Articles of Incorporation or Bylaws of Data Transfer;
(ii) conflict with, result in a breach of any provision of or the modification
or termination of, constitute a default under, or result in the creation of
imposition of any lien, security interest, charge or encumbrance upon any of the
assets of Data Transfer pursuant to any material commitment, lease, contract, or
other material agreement or instrument to which Data Transfer is a party; or
(iii) violate any order, arbitration award, judgment, writ, injunction, decree,
statute, rule or regulation applicable to Data Transfer, the violation of which
would have a Data Transfer Material Adverse Effect.
4.8 Financial Statements. Data Transfer has delivered its unaudited
financial statements for the year ended December 31, 1995 and for the six month
period ended June 30, 1996 and will deliver promptly unaudited interim financial
statements for each month and quarter subsequent thereto if prepared prior to
the Closing Date. Each of the balance sheets provided to PMT (including any
related notes and schedules) fairly presents in all materials respects the
financial position of Data Transfer as of its date and each of the statements of
income, retained earnings and cash flows provided to PMT (including any related
notes and schedules) fairly presents in all material respects the results of
operations, retained earnings or cash flows of Data Transfer for the periods set
forth therein (subject, in the case of unaudited statements, to the omission of
footnotes and to normal year end audit adjustments which would not be material
in amount or effect) in each case in accordance with generally accepted
accounting principles consistently applied during the periods involved, except
as may be noted therein. Such financial statements have been prepared from the
books and records of Data Transfer which accurately and fairly reflect in all
material respects the transactions and dispositions of the assets of Data
Transfer. As of June 30, 1996 or any subsequent date for which a balance sheet
is provided, Data Transfer did not have material liabilities, contingent or
otherwise, whether due or to become due, known or unknown, other than as
indicated on the balance sheet of such date or the notes thereto except for
those incurred in the ordinary course of business since the date of such balance
sheet. Data Transfer has adequately funded all accrued employee benefit costs
and such funding (to the date thereof) is reflected in the balance sheet, except
as to bonuses payable as a result of the Closing which will be reflected on the
Closing Balance Sheet.
4.9 Contracts. Schedule 4.9 lists all material contracts and other
agreements to which Data Transfer is a party including:
(a) any Independent Service Organizations ("ISO's") Agreements and any
Independent Training Organization ("ITO") Agreements (collectively
known as ISO/ITO Agreements);
(b) any agreements with authorization network vendors ("Vendor
Agreements");
6
<PAGE>
(c) all agreements with processing banks; or
(d) any agreements that limit the right of Data Transfer prior to the
Closing Date, or PMT, or its subsidiaries, after the Closing Date, to
engage in or to compete with any person in any business, including the
method by which any business may be conducted by Data Transfer prior
to the Closing Date, or by PMT, or its subsidiaries, after the Closing
Date.
Each contract listed in Schedule 4.9 is in full force and effect, each is a
legal, valid and binding contract, and there is no material default (or any
event which, with the giving of notice or lapse of time or both, would be a
material default) by Data Transfer, in the timely performance or any material
obligation to be performed or paid under such contract.
4.10 No Material Adverse Changes. Since June 30, 1996, there has not been
(i) any material adverse change in the financial condition, results of
operations, business, prospects, assets or liabilities (contingent or otherwise,
whether due or to become due, known or unknown), of Data Transfer, except for
changes in the ordinary course of business consistent with historical experience
resulting from the seasonal nature of Data Transfer's business: (ii) any
extraordinary dividend declared or paid or distribution made on the capital
stock of Data Transfer, or any capital stock thereof redeemed or repurchased;
(iii) any incurrence of long term debt in excess of $50,000; (iv) any salary,
bonus or compensation increases to any officers, employees or agents of Data
Transfer, other than customary increases; (v) any pending or threatened labor
disputes or other labor problems against or potentially affecting Data Transfer;
or (vi) any other transaction entered into by Data Transfer, except in the
ordinary course of business and consistent with past practice.
4.11 Tax Matters. Except as set forth in the Data Transfer Disclosure
Letter, Data Transfer has duly paid all Taxes and other charges (whether or not
shown on any Tax return) due or claimed to be due from it by federal, foreign,
state or local taxing authorities; and true and correct copies of all Tax
reports and returns relating to such Taxes and other charges for the fiscal
years from 1991 through 1995 have been heretofore delivered to PMT (other than
Data Transfer's 1995 federal income tax return for which an extension has been
filed). The reserves for Taxes contained in the financial statements and
carried on the books of Data Transfer (other than any reserve for deferred taxes
established to reflect timing differences between book and tax income) are
adequate to cover all Tax liabilities as of the date of this Agreement. Since
June 30, 1996, Data Transfer 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 Data Transfer
(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 Data Transfer. Data Transfer 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. Data Transfer is not a
party to any Tax allocation or sharing agreement. If Data Transfer has ever
been a member of an affiliated group within the meaning of Section 1504 of the
Code filing a consolidated
7
<PAGE>
federal income tax return (an "Affiliated Group"), each such Affiliated Group
has filed all Tax returns that it was required to file for each taxable period
during which Data Transfer was a member of the Affiliated Group, and has paid
all taxes owed by the Affiliated Group (whether or not shown on the Tax return)
for each taxable period during which Data Transfer was a member of the
Affiliated Group. Data Transfer has no liability for the Taxes of any
Affiliated Group under Treasury Regulation 1.1502-6 (or any similar provision of
state, local or foreign law). Data Transfer has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor or shareholder. For purposes
of this Agreement, "Tax" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Section 59A of the Internal Revenue Code of 1986, as amended ("Code")), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or addition minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
4.12 Employees and Fringe Benefit Plans.
(a) The Data Transfer Disclosure Letter sets forth the names, ages and
titles of all members of the Board of Directors and officers of Data
Transfer and all employees of Data Transfer 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 as
of the most recent practicable date.
(b) The Data Transfer Disclosure Letter lists each employment, bonus,
deferred compensation, pension, stock option, stock appreciation right,
profit-sharing or retirement plan, arrangement or practice, each medical,
vacation, retiree medical, severance pay plan, and each other agreement or
fringe benefit plan, arrangement or practice, of Data Transfer, whether
legally binding or not, which affects one or more of its employees,
including all "employee benefit plans" as defined by Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")
(collectively, the "Plans"). All Plans which are subject to Title IV of
ERISA or the minimum funding standards of Section 412 of the Code shall be
referred to as the "Pension Plans."
(c) For each Plan which is an "employee benefit plan" under Section
3(3) of ERISA, Data Transfer has delivered to the Buyer correct and
complete copies of the plan documents and summary plan descriptions, the
most recent determination letter received from the Internal Revenue
Service, the most recent Form 5500 Annual Report, and all related trust
agreements, insurance contracts and funding agreements which implement each
such Plan.
(d) Data Transfer does not have any commitment, whether formal or
informal and whether legally binding or not, (i) to create any additional
such Plan; (ii) to modify
8
<PAGE>
or change any such Plan; or (iii) to maintain for any period of time any
such Plan. The Data Transfer Disclosure Letter contains an accurate and
complete description of the funding policies (and commitments, if any) of
Data Transfer with respect to each such existing Plan.
(e) Data Transfer has no unfunded past service liability in respect of
any of its Plans; the actually computed value of vested benefits under any
Pension Plan of Data Transfer (determined in accordance with methods and
assumptions utilized by the Pension Benefit Guaranty Corporation ("PBGC")
applicable to a plan terminating on the date of determination) does not
exceed the fair market value of the fund assets relating to such Pension
Plan; neither Data Transfer nor any Plan nor any trustee, administrator,
fiduciary or sponsor of any Plan has engaged in any prohibited transactions
as defined in Section 406 of ERISA or Section 4975 of the Code for which
there is no statutory exemption in Section 408 of ERISA or Section 4975 of
the Code; all filings, reports and descriptions as to such Plans (including
Form 5500 Annual Reports, Summary Plan Descriptions, PBCG-1's and Summary
Annual Reports) required to have been made or distributed to participants,
the Internal Revenue Service, the United States Department of Labor and
other governmental agencies have been made in a timely manner or will be
made on or prior to the Closing Date; 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; 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; there
has been no "Reportable Event" as defined in Section 4043 of ERISA with
respect to any Pension Plan that has not been waived by the Pension Benefit
Guaranty Corporation; and each Pension Plan and each Plan which is intended
to be a qualified plan under Section 401(a) of the Code has received,
within the last three years, a favorable determination letter from the
Internal Revenue Service.
(f) Data Transfer 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, employee safety
laws and COBRA (defined herein to mean the requirements of Code Section
4980B, Proposed Treasury Regulation Section 1.162-26 and Part 6 of Subtitle
B of Title I of ERISA).
(g) The consummation of the transactions contemplated by this
Agreement will not (i) result in the payment or series of payments by Data
Transfer to any employee or other person of an "excess parachute payment"
within the meaning of Section 280G of the Code, (ii) entitle any employee
or former employee of Data Transfer to severance pay, unemployment
compensation or any other payment, and (iii) accelerate the time of payment
or vesting of any stock option, stock appreciation right, deferred
compensation or other employee benefits under any Plan (including vacation
and sick pay).
9
<PAGE>
(h) None of the Plans which are "welfare benefit plans," within the
meaning of Section 3(1) of ERISA, provide for continuing benefits or
coverage after termination or retirement from employment, except for COBRA
rights under a "group health plan" as defined in Code Section 4980B(g) and
ERISA Section 607.
(i) Neither Data Transfer nor any "affiliate" of Data Transfer (as
defined in ERISA) has ever participated in or withdrawn from a multi-
employer plan as defined in Section 4001 (a)(3) of Title IV of ERISA, and
Data Transfer has not incurred and does not owe any liability as a result
of any partial or complete withdrawal by any employer from such a multi-
employer plan as described under Sections 4201, 4203, or 4205 of ERISA.
(j) No Pension Plan has been completely or partially terminated, nor
has any plan been instituted by the PBGC to terminate any such Pension
Plan; Data Transfer has not incurred, and does not presently owe, any
liability to the PBGC or the Internal Revenue Service with respect to any
Pension Plan including, but not by way of limitation, any liability for
PBGC premiums or excise taxes under Code Section 4971.
4.13 Assets; Leaseholds.
(a) Data Transfer owns the assets reflected on the June 30, 1996 Data
Transfer balance sheet (including any patents, copyrights, trade names,
service marks and other names and marks used in connection with its
business), with good and marketable title, free and clear of any and all
claims, liens, mortgages, options, charges, conditional sale or title
retention agreements, security interests, restrictions, easements, or
encumbrances whatsoever and free and clear of any rights or privileges
capable of becoming claims, liens, mortgages, options, charges, security
interests, restrictions, easements or encumbrances, except (i) for certain
of the assets which are encumbered by liens that Data Transfer has the
means to remove prior to the Effective Time, (ii) as shown on the title
insurance policies previously furnished to PMT, (iii) real property taxes
not yet due and payable, (iv) utility easements for utilities serving the
Property, and (v) minor imperfections of title which do not materially
affect the value and use of such assets.
(b) Data Transfer owns good and marketable leasehold title to the
premises leased by Data Transfer, free and clear of any and all claims,
liens, mortgages, options, charges, conditional sale or title retention
agreements, security interests, restrictions, easements, or encumbrances
whatsoever and free and clear of any rights or privileges capable of
becoming claims, liens, mortgages, options, charges, security interests,
restrictions, easements or encumbrances, except to the extent expressly set
forth in the leases. Following the Merger, Data Transfer will continue to
have all its rights under such leases for the premises now leased by Data
Transfer free and clear of any claims, liens, mortgages, options, charges,
security interests, restrictions, easements, rights, privileges and
encumbrances, except to the extent expressly set forth in the leases, and
the Merger will not result in any increase in rents or charges under any
lease.
10
<PAGE>
4.14 Lawfully Operating. To the best knowledge of Data Transfer, Data
Transfer has been and currently is conducting and each of the premises leased or
owned have been and now are being used and operated, in compliance in all
material respects with all statutes, regulations, bylaws, orders, covenants,
restrictions or plans of federal, state, regional, county or municipal
authorities, agencies or board applicable to the same.
4.15 No Subleases or Licenses. There are no subleases or licenses to use
all or any portion of the premises leased by Data Transfer, except as set forth
in the leases. The leases are valid, binding and enforceable in accordance with
the terms of each, and are in good standing. Data Transfer is not in default in
payment of rent, or in the performance of any of its material obligations under
the leases and, to the best of Data Transfer's knowledge after reasonable
investigation, no ground lessor to any such landlord or lessors is in default of
any ground lease. To the best knowledge of Data Transfer, the landlords or
lessors under the leases are not in breach of any of their Obligations under the
leases and no ground lessor to any such landlord or lessor is in default of any
ground lease. No state of facts exists which, after notice or lapse of time or
both, would result in a breach or default under the leases by Data Transfer.
The copies of the leases which Data Transfer has delivered to PMT are true,
correct and complete copies of the leases and Data Transfer has delivered to PMT
all amendments, modifications, letter agreements and instruments of whatever
form which relate to such leases (except correspondence sent or received in the
ordinary course of business, including percentage rent reports, which do not
alter the terms of the leases).
4.16 Power of Attorney. There are no outstanding powers of attorney
executed on behalf of Data Transfer.
4.17 Cash Flow of Merchant Accounts. Attached hereto as Schedule 4.17 is
Data Transfer's most recent Visa/Mastercard Settlement Report (the "Settlement
Report") issued by M & I Merchant Services. Since the date of the Settlement
Report, there has not been any material adverse change in the cash flow of the
merchant accounts with respect to which Data Transfer receives residual payments
from Data Transfer's processing banks (the "Merchant Accounts") taken as a
whole.
4.18 No Litigation. Except as set forth in the Data Transfer Disclosure
Letter, there are currently no pending, and the directors and executive officers
of Data Transfer are not aware of any threatened, lawsuits or administrative
proceedings or investigations against Data Transfer or to which its assets are
subject, which, if adversely determined, could have a material adverse effect on
the financial condition results of operations, business, prospects, assets, or
liabilities of Data Transfer. Data Transfer is not subject to any currently
existing order, writ, injunction, or decree relating to its operations.
4.19 Corporate Records. True and correct copies of the Articles of
Incorporation and bylaws of Data Transfer have been delivered to PMT. The
corporate minute books of Data Transfer submitted to PMT for review correctly
reflect all corporate action taken at all the
11
<PAGE>
meetings (or by written consent in lieu thereof) of its directors and
shareholders and correctly record all resolutions thereof.
4.20 No Defaults. Data Transfer has in all material respects performed all
material obligations to be performed by it under all contracts, agreements, and
commitments to which it is a party, and there is not under any such contracts,
agreements, or commitments any existing default or event of default or event
which with notice or lapse of time or both would constitute a default, which
default would have a Data Transfer Material Adverse Effect.
4.21 Inventory. The inventories of Data Transfer consist solely of items
of quality and quantity useable and saleable in the ordinary course of business
and will be maintained at normal levels continuously until the Closing Date.
4.22 Hazardous Substances. For purposes of this Agreement, the following
terms shall have the following meanings:
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. (S)(S) 9601 et seq.;
"Environmental Claims" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations or proceedings relating in any way to
any Environmental Law (for purposes of (i) and(ii) below, "Claims") or any
permit issued under any such Environmental Law, including without limitation:
(i) any and all Claims by governmental or regulatory authorities for
investigation, oversight, enforcement, cleanup, removal, response, remedial
or other actions or damages pursuant to any applicable Environmental Law;
and
(ii) any and all Claims by any third party seeking damages, response,
costs, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials or arising from
alleged injury or threat of injury to health, safety or the environment;
"Environmental Law" means any federal, state or local statute, law, rule,
regulation, ordinance, code, policy or rule of common law now in effect and as
amended, and any judicial or administrative interpretation thereof, including
any judicial or administrative order, consent, decree or judgment, relating to
the environment, health, or safety of hazardous, toxic or dangerous materials,
substances or wastes, including without limitation CERCLA; the Toxic Substances
Control Act, as amended, 15 U.S.C. (S)(S) 2601 et seq.; the Clean Air Act, as
amended, 42 U.S.C. (S)(S) 7401 et seq.; the Federal Water Pollution Control Act,
as amended, 33 U.S.C. (S)(S) 1251 et seq.; the Federal Insecticide, Fungicide,
and Rodenticide Act, as amended, 7 U.S.C. (S)(S) 136, et seq.; the Hazardous
Materials Transportation Act, as amended, 49 U.S.C. (S)(S) 1801 et seq.; the
Resource Conservation and Recovery Act, as amended, 42 U.S.C. (S)(S) 6901
12
<PAGE>
et seq.; the Safe Drinking Water Act, 42 U.S.C. (S)(S) 300f et seq.; the Clean
Water Act, as amended, 33 U.S.C. (S)(S) 1251, et seq.; and any similar state or
local law;
"Hazardous Materials" shall mean those materials listed in Section 101(14)
of CERCLA, as hereinafter defined, and any other substance defined as toxic or
hazardous under any federal, state or local law, rules, regulation, ordinance
code or policy, including, but not limited to:
(i) any petroleum or petroleum products, flammable explosives,
radioactive materials, asbestos, asbestos products, urea formaldehyde foam
insulation, polychlorinated biphenyls, including transformers or other
equipment that contain dielectric fluid containing detectible levels of
polychlorinated biphenyls, and radon gas;
(ii) any hazardous, toxic or dangerous waste, substance or material
defined as such in (or for purposes of) any current Environmental Law or
currently listed as such pursuant to any Environmental Law; and
(iii) any other chemical, material or substance, exposure to which is
prohibited, limited or regulated by any governmental authority:
"Improperly" means done in any manner that poses a threat to human health,
safety or the environment;
"Data Transfer Property" shall mean (i) any real property and improvements
presently owned, leased, used, operated or occupied by Data Transfer, and (ii)
any other real property and improvements at any previous time owned, leased,
used, operated or occupied by Data Transfer, but only as to the time owned,
leased, used, operated or occupied by Data Transfer;
"Release" means disposing, depositing, discharging, injecting, spilling,
leaking, leaching, dumping, emitting, escaping, emptying, seeping, placing and
the like, into or upon any land or water or air, or otherwise entering into the
environment.
To the best knowledge of Data Transfer:
(a) Hazardous Materials have not at any time been illegally or
Improperly generated, used, treated or stored on, or transported to or
from, any Data Transfer Property;
(b) No asbestos containing materials or other Hazardous Materials
have been installed in or affixed to structures on any Data Transfer
Property;
(c) Hazardous Materials have not at any time been disposed of or
otherwise Released on any Data Transfer Property;
13
<PAGE>
(d) Data Transfer is currently, and has at all times in the past
been, in compliance with all applicable Environmental Laws and the
requirements of any permits issued under such Environmental Laws with
respect to any Data Transfer Property;
(e) There are no past, pending or, to the knowledge of Data
Transfer, threatened Environmental Claims against Data Transfer or any Data
Transfer Property;
(f) There are no facts or circumstances, conditions or
occurrences on any Data Transfer Property or otherwise that could
reasonably be anticipated by Data Transfer:
(i) to form the basis of an Environmental Claim against Data
Transfer or any Data Transfer Property; or
(ii) to cause such Data Transfer Property to be subject to
any restrictions on the ownership, occupancy, use or
transferability of such Data Transfer Property under any
Environmental Law; and
(g) There are not now, nor have there been at any time, any
aboveground or underground storage tanks located on any Data Transfer
Property.
4.23 Labor Matters. Data Transfer is not a party to any collective
bargaining agreement and has not been the subject of any union activity or labor
dispute, and there have not been any strike of any kind called or threatened to
be called against Data Transfer. To the best knowledge of Data Transfer, Data
Transfer has not violated any applicable federal or state law or regulation
relating to labor or labor practices. Data Transfer has no liability to any of
its employees, agents, or consultants in connection with grievances by, or the
termination of, such employees, agents, or consultants.
4.24 Pooling of Interests. Data Transfer has not taken or failed to take
any action which, to the actual knowledge of the management and Board of
Directors of Data Transfer, would prevent the accounting for the Merger as a
pooling of interests in accordance with Accounting Principles Board Opinion No.
16, the interpretative releases issued pursuant thereto, and the pronouncements
of the SEC.
4.25 No Brokers. Data Transfer has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of Data Transfer or PMT to pay any Finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
hereby. Data Transfer is not aware of any claim for payment of any finder's
fees, brokerage or agent's commissions or other like payments in connection with
the negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby.
14
<PAGE>
4.26 PMT Stock Ownership. Data Transfer does not own any shares of PMT
Common Stock or other securities convertible into PMT Common Stock.
4.27 Full Disclosure. All of the information provided by Data Transfer and
its representatives herein or in the Data Transfer Disclosure Letter are true,
correct, and complete in all material respects and no representation, warranty,
or statement made by Data Transfer in or pursuant to this Agreement contains or
will contain any untrue statement of a material fact or omits or will omit to
state any material fact necessary to make such representation, warranty, or
statement not misleading to PMT. None of the executive officers of Data
Transfer has withheld from PMT or its representatives disclosure of any event,
condition, or fact that such officer knows, could materially adversely affect
the financial condition, results of operations, business, prospects, assets, or
liabilities of Data Transfer, other than business conditions affecting the
credit card services business generally.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PMT AND MERGER SUB
Except as set forth in the disclosure letter delivered at or prior to the
execution hereof to Data Transfer and attached hereto as Exhibit B (the "PMT
Disclosure Letter"), PMT and Merger Sub represent and warrant to Data Transfer
that the statements contained in this Article 5 are correct and complete as of
the date of this Agreement and will be correct and complete as of the Closing
Date.
5.1 Existence; Good Standing; Corporate Authority; Compliance With Law.
Each of PMT and Merger Sub is a corporation duly incorporated and validly
existing under the laws of the state of its incorporation. PMT is duly licensed
or qualified to do business as a foreign corporation and is in good standing
under the laws of any other state of the United States in which the character of
the properties owned or leased by it therein or in which the transaction of its
business makes such qualification necessary, except where the failure to be so
qualified would not have a material adverse effect on the business, results of
operations or financial condition of PMT (a "PMT Material Adverse Effect"). PMT
has all requisite corporate power and authority to own, operate and lease its
properties and carry on its business as now conducted. PMT nor any of its
properties or assets is in violation of any order of any court, governmental
authority or arbitration board or tribunal, or any law, ordinance, governmental
rule or regulation to which PMT is subject, where such violation would have a
PMT Material Adverse Effect. PMT has ail licenses, permits and other
authorizations and has taken all actions required by applicable law or
governmental regulations in connection with its business as now conducted, where
the failure to obtain an such item or to take any such action would have a PMT
Material Adverse Effect.
5.2 Authorization, Validity and Effect of Agreements. Each of PMT and
Merger Sub has the requisite corporate power and authority to execute and
deliver this Agreement and all
15
<PAGE>
agreements and documents contemplated hereby. The consummation by PMT and Merger
Sub of the transactions contemplated hereby has been duly authorized by all
requisite corporate action. This Agreement constitutes, and all agreements and
documents contemplated hereby (when executed and delivered pursuant hereto for
value received) will constitute, the valid and legally binding obligations of
PMT and Merger Sub, enforceable in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights and general principles of equity.
5.3 Capitalization. The authorized capital stock of PMT consists of
40,000,000 shares of common stock, no par value ("PMT Common Stock") and
10,000,000 shares of preferred stock, $.01 par value (the "PMT Preferred
Stock"). As of the date of this Agreement, there were 31,730,633 shares of PMT
Common Stock issued and outstanding, and no shares of PMT Preferred Stock issued
and outstanding. PMT has no outstanding bonds, debentures, notes or other
obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right to vote) with
the shareholders of PMT on any matter. All issued and outstanding shares of PMT
Common Stock are duly authorized, validly issued, fully paid, nonassessable and
free of preemptive rights. Other than as provided for in the PMT Disclosure
Letter, there are no options, warrants, calls, subscriptions, convertible
securities, or other rights, agreements or commitments which obligates PMT to
issue, transfer or sell any shares of capital stock of PMT.
5.4 Subsidiaries. PMT has no subsidiaries except for Merger Sub. Merger
Sub has been formed to effect the transactions contemplated by this Agreement.
The authorized capital stock of Merger Sub consists of 1,000 shares of Common
Stock, $.01 par value. Each of the outstanding shares of capital stock of
Merger Sub is duly authorized, validly issued, fully paid and nonassessable, and
is owned by PMT free and clear of all liens, pledges, security interests, claims
or other encumbrances. Merger Sub has not engaged in any activities other than
in connection with the transactions contemplated by this Agreement.
5.5 Other Interests. Neither PMT nor Merger Sub owns directly or
indirectly any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, business, trust or entity.
5.6 No Violation. Neither the execution and delivery by PMT and Merger
Sub of this Agreement, nor the consummation by PMT and Merger Sub of the
transactions contemplated hereby in accordance with the terms hereof, will: (i)
conflict with or result in a breach of any provisions of the Charter or Bylaws
of PMT or Merger Sub; (ii) conflict with, result in a breach of any provision of
or the modification or termination of, constitute a default under, or result in
the creation or imposition of any lien, security interest, charge, or
encumbrance upon any of the assets of PMT or Merger Sub pursuant to any material
commitment, lease, contract, or other material agreement or instrument to which
PMT or Merger Sub is a party; or (iii) violate any order, arbitration award,
judgment, writ, injunction, decree, statute, rule, or regulation applicable to
PMT or Merger Sub.
16
<PAGE>
5.7 SEC Documents. Prior to the date hereof, PMT has delivered to Data
Transfer copies of all of PMT's Annual Reports on Forms 10-K, Quarterly Reports
on Form 10-Q and Current Reports on Form 8-K, as filed with the Securities and
Exchange Commission ("SEC") since June 14, 1996, and its proxy statement dated
November 14, 1995 (the "PMT Reports"). The PMT Reports (i) were prepared in all
material respects in accordance with the applicable requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act") and the rules and
regulations promulgated thereunder, and (ii) as of their respective dates, did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. Each of the consolidated balance sheets included in or incorporated
by reference into the PMT Reports (including the related notes and schedules)
fairly presents the consolidated financial position of PMT as of its date and
each of the consolidated statements of income, retained earnings and cash flows
included in or incorporated by reference into the PMT Reports (including any
related notes and schedules) fairly presents the results of operations, retained
earnings or cash flows of PMT for the periods set forth therein (subject, in the
case of unaudited statements, to normal year-end audit adjustments which would
not be material in amount or effect) in each case in accordance with generally
accepted accounting principles consistently applied during the periods involved,
except as may be noted therein. These representations shall be deemed to be
made with respect to PMT Reports filed subsequent to the date hereof at the time
of their filing. PMT has made all filings required to be filed by PMT under the
1934 Act.
5.8 Litigation. There are no actions, suits or proceedings pending
against PMT or, to the actual knowledge of the executive officers of PMT,
overtly threatened in writing against PMT, at law or in equity, or before or by
any federal or state commission, board, bureau, agency or instrumentality, that
are reasonably likely to have a PMT Material Adverse Effect except as set forth
in the PMT Disclosure Letter.
5.9 Taxes. The provisions for taxes shown on the PMT financial statements
for the year ended July 31, 1995 are adequate to cover the liability of PMT for
all taxes (including employer income tax withholding, social security and
unemployment taxes) to the date thereof.
5.10 Absence of Certain Changes. Since June 14, 1995, there has not been
any material adverse change in the financial condition, results of operations,
business, prospects, assets or liabilities (contingent or otherwise, whether due
or to become due, known or unknown), of PMT, except for changes in the ordinary
course of business consistent with historical experience resulting from the
seasonal nature of PMT's business.
5.11 No Brokers. PMT has not entered into any contract, arrangement or
understanding with any person or firm which may result in the obligation of Data
Transfer or PMT to pay any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby. PMT is
not aware of any claim for payment of any finder's fees, brokerage or agent's
commissions or other like payments in connection with the
17
<PAGE>
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby.
5.12 Data Transfer Stock Ownership. Neither PMT nor Merger Sub owns any
shares of capital stock of Data Transfer or other securities convertible into
capital stock of Data Transfer.
5.13 PMT Common Stock. The issuance and delivery by PMT of shares of PMT
Common Stock in connection with the Merger and this Agreement have been duly and
validly authorized by all necessary corporate action on the part of PMT. The
shares of PMT Common Stock to be issued in connection with the Merger and this
Agreement, when issued in accordance with the terms of this Agreement, will be
validly issued, fully paid and nonassessable.
5.14 Pooling of Interests. PMT has not taken or failed to take any action
which, to the actual knowledge of the executive officers of PMT, would prevent
the accounting for the Merger as a pooling of interests in accordance with
Accounting Principles Board Opinion No. 16, the interpretative releases issued
pursuant thereto, and the pronouncements of the SEC.
5.15 Full Disclosure. All of the information provided by PMT and its
representatives herein or in the PMT Disclosure Letter are true, correct and
complete in all material respects and no representation, warranty, or statement
made by PMT in or pursuant to this Agreement contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary to make such representation, warranty, or statement not misleading to
Data Transfer. None of the executive officers of PMT has withheld from PMT or
its representatives disclosure of any event, condition, or fact that such
officer knows could materially adversely affect the financial condition, results
of operations, business, prospects, assets, or liabilities of PMT, other than
business conditions affecting the credit card services business generally.
ARTICLE 6
COVENANTS
6.1 Covenants of PMT and Data Transfer. During the period from the date
hereof and continuing until the Effective Time (except as expressly contemplated
or permitted hereby, or to the extent that the other parties shall otherwise
consent in writing) each of PMT and Data Transfer covenants with the other that,
insofar as the obligations relate to it:
(a) Each of PMT and Data Transfer shall carry on their respective
businesses in the usual, regular and ordinary course in substantially the
same manner as heretofore conducted and shall use all reasonable efforts to
preserve intact their present business organizations, maintain their rights
and franchises and preserve their relationships with customers, suppliers
and others having business deals with them to the
18
<PAGE>
end that their good will and ongoing businesses shall not be impaired in
any material respect at the Effective Time.
(b) From the date hereof to the Effective Time, each of Data
Transfer and PMT shall allow all designated officers, attorneys,
accountants and other representatives of the other access at all reasonable
times during regular business hours to the records and files,
correspondence, audits and properties, as well as to all information
relating to commitments, contracts, titles and financial position, or
otherwise pertaining to the business and affairs, of Data Transfer and PMT.
(c) PMT and Data Transfer shall cooperate and promptly prepare
and PMT shall, at PMT's expense, file with the SEC, as soon as practicable
after the Closing Date, a Registration Statement on Form S-3 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"1933 Act"), with respect to the resale of the PMT Common Stock issuable
in the Merger. PMT and Data Transfer will cause the Registration Statement
to comply as to form in all material respects with the applicable
provisions of the 1933 Act, and the rules and regulations thereunder. PMT
shall use all reasonable efforts, and Data Transfer will cooperate with
PMT, to have the Registration Statement declared effective by the SEC by
December 31, 1996, or as promptly as practicable thereafter. PMT agrees to
use its best efforts to keep the Registration Statement effective for a
period of 150 days (plus any Blackout Period) after the effective date or
through April 30, 1997, whichever is later, and to promptly file amendments
to the Registration Statement or promptly file such reports and/or
statements required by the Securities Exchange Act of 1934 ("Exchange
Act"), as amended, to the extent necessary so that such Registration
Statement, including the Exchange Act reports and/or statements
incorporated therein, will not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. PMT shall use its best efforts
to obtain prior to the effective date of the Registration Statement, and
prior to the effective date of any registration statement effected pursuant
to Section 6.2 hereof, all necessary state securities law or "Blue Sky"
permits or approvals required to carry out the transactions contemplated by
this Agreement. PMT agrees that the Registration Statement and each
amendment or supplement thereto, at the time it is filed or becomes
effective, will not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein, in light of circumstances under which they were
made, not misleading; provided, however, that the foregoing shall not apply
to the extent that any such untrue statement of a material fact or omission
to state a material fact was made by PMT in reliance upon and in conformity
with information concerning Data Transfer furnished to PMT by Data Transfer
for use in the Registration Statement. Data Transfer agrees that the
information provided by it for inclusion in the Registration
Statement and each amendment or supplement thereto, at the time it is filed
or becomes effective, will not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which
19
<PAGE>
they were made, not misleading. No amendment or supplement to the
Registration Statement will be made by PMT or Data Transfer without the
approval of the other party. PMT will advise Data Transfer and each of the
holders of the PMT Common Stock issuable in the Merger, promptly after it
receives notice thereof, of the time when the Registration Statement has
become effective or any supplement or amendment has been filed, the
issuance of any stop order, the suspension of the qualification of the PMT
Common Stock issued in connection with the Merger for offering or sale in
any jurisdiction, or any request by the SEC for amendment of the
Registration Statement or comments thereon and responses thereto or
requests by the SEC for additional information.
(d) Except as and to the extent required by law, PMT and Data
Transfer hereby agree not to disclose or use, and each shall cause its
representatives not to disclose or use, any confidential information with
respect to the other party hereto furnished, or to be furnished, by such
other party or their representatives in connection herewith at any time or
in any manner other than in connection with its evaluation of the Merger.
Except as required by law, and as set forth in this subparagraph (d),
neither Data Transfer nor its representatives shall make any public
statements regarding the Merger or this Agreement without the prior
approval of PMT. After reasonable prior notice to Data Transfer, PMT may
make such statements, disclosures and filings as it is advised by its
counsel are necessary or appropriate for a public company. In the event
the Merger is not effective for any reason, the confidentiality letter
agreement between PMT and Data Transfer shall remain in full force and
effect.
(e) PMT represents that it believes it is currently eligible to
utilize Form S-3 and currently believes there is no material non-public
information which would preclude it from filing a registration statement on
Form S-3. PMT agrees to use its best efforts to avoid any event that makes
PMT ineligible to use Form S-3 in accordance with this Agreement.
(f) PMT agrees to use its best efforts to file with the SEC in a
timely manner all reports and other documents required of PMT under the
1933 Act and the Exchange Act.
6.2 Registration.
(a) Beginning after April 30, 1997, PMT and Data Transfer agree that
if at any time thereafter PMT shall propose to file a registration
statement with respect to any of its Common Stock on a form suitable for a
secondary offering, it will give notice in writing to such effect to the
registered holders of the PMT shares of Common Stock to be issued in the
Merger (the "PMT Shares"), at least 30 days prior to such filing, and,
at the written request of any such registered holder, made within 10 days
after the receipt of such notice, will include therein at PMT's cost and
expense (except for the fees and expenses of counsel to such holders and
underwriting discounts and commissions,
20
<PAGE>
attributable to the PMT Shares included therein) such of the PMT Shares as
such holders shall request; provided, however, that if the offering being
registered by PMT is underwritten and if no other outstanding Common Stock
of any selling shareholder of PMT is included therein and if the
representative of the underwriters certifies in writing that the inclusion
therein of the PMT Shares would materially and adversely affect the sale of
the securities to be sold by PMT thereunder, the public offering of the PMT
Shares included in such registration statement shall be delayed for a
period of 90 days after the commencement of the underwritten public
offering, provided that the representative of the underwriters certifies in
writing that such delayed offering would not materially and adversely
affect the sale of the securities to be sold by PMT or, if the
representative of the underwriters will not so certify, the Data Transfer
Shareholders shall not be permitted to participate in the registration.
PMT, at its own expense, will cause the prospectus included in such
registration statement to meet the requirements of the Securities Act until
the earlier of the date that is 270 days after the effective date of such
registration statement (or 365 days after such date if such offering of the
PMT Shares is delayed as set forth in this Section 6.2(a)) or until all
shares included therein have been sold.
(b) At the time any registration statement filed in accordance with
the provisions of Section 6.1(c) or 6.2(a) becomes effective, and at the
effective date of any post-effective amendment thereto, PMT will, at its
own expense, furnish to the holders of the PMT Shares included in such
registration statement pursuant to Section 6.1(c) or 6.2, an opinion of
PMT's counsel to the effect that the registration statement and the
prospectus contained therein, and each amendment or supplement thereto, as
of their respective effective or issue dates, comply as to form in all
material respects with the requirements of the Securities Act and the rules
and regulations thereunder. Such counsel shall also state that no facts
have come to the attention of such counsel that cause them to believe that
such registration statement, the prospectus contained therein, or any
amendment or supplement thereto, as of their respective effective or issue
dates, contains any untrue statement of any material fact or omits to state
any material fact necessary to make the statements therein not misleading
(except that no statement need be made with respect to any financial
statements, notes thereto or other financial or statistical data or other
expertized material contained therein). If for any reason PMT's counsel is
unable to make such statement, PMT shall so notify the Data Transfer
Shareholders and shall use its best efforts to remove expeditiously all
impediments to the rendering of such opinion.
(c) PMT shall promptly notify the participating holders of the PMT
Shares of the occurrence of any event as a result of which any current
prospectus included in a registration statement filed pursuant to this
Section 6.2 includes any misstatement of a material fact or omits to state
any material fact to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances then
existing, and shall promptly file amendments to the Registration Statement
or promptly file such reports and/or statements required by the Exchange
Act to the extent necessary so that such
21
<PAGE>
registration statement, including the Exchange Act reports and/or
statements incorporated therein, will not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of
circumstances under which they were made, not misleading.
(d) PMT's obligations under Section 6.2(a) with respect to each holder
of PMT Shares are expressly conditioned upon such holder's furnishing to
PMT in writing such information concerning such holder and the terms of
such holder's proposed offering as PMT shall reasonably request for
inclusion in the registration statement. In the case of each registration
effected pursuant to this Agreement, PMT shall indemnify each holder
thereof (and each underwriter for such holder and each person, if any, who
controls such underwriter within the meaning of the Securities Act) from
any loss, claim, damage or liability arising out of or based upon any
untrue statement of a material fact contained in such registration
statement or any omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except for any such statement or omission based on information furnished in
writing by such holder of PMT Shares expressly for use in connection with
such registration statement; and such holder shall indemnify PMT (and each
of its officers and directors who has signed such registration statement,
each director, each person, if any, who controls PMT within the meaning of
the Securities Act, each underwriter for PMT and each person, if any, who
controls such underwriter within the meaning of the Securities Act) and
each other such holder against any loss, claim, damage or liability arising
from any such statement or omission which was made in reliance upon
information furnished in writing to PMT by such holder of PMT Shares
expressly for use in connection with such registration statement.
(e) PMT shall furnish to each holder of PMT Shares such number of
copies of any prospectus (including any preliminary prospectus and any
amended or supplemented prospectus) in conformity with the requirements of
the 1933 Act, and such other documents, as such holder of PMT Shares may
reasonably request in order to effect the offering and sale of the PMT
Shares to be offered and sold, but only while PMT shall be required under
the provisions hereof to cause the registration statement to remain
current.
(f) The Company shall not be required to effect a registration under
this Agreement if in the written opinion of counsel to the Company, which
counsel and the opinion so rendered shall be reasonably acceptable to the
holders of PMT Shares requesting registration, such holders may sell
without registration under the 1933 Act all PMT Shares for which they
requested registration under the provisions of the 1933 Act and in the
quantity in which the PMT Shares were proposed to be sold, or if the
Company shall have obtained from the SEC a "no-action" letter to that
effect.
6.3 Blackout Period. PMT shall be entitled, once per registration
statement, to (i) postpone the filing or effectiveness of any Registration
Statement contemplated under Section
22
<PAGE>
6.1(c) and Section 6.2 hereof; or (ii) if effective, elect that any such
Registration Statement not be useable and require the Data Transfer Shareholders
to suspend sales pursuant to the prospectus contained therein, for a reasonable
period of time, but not in excess of 60 days (a "Blackout Period"), if PMT
determines in good faith that the registration and distribution of the shares of
PMT Common Stock (or the use of the Registration Statement or related
prospectus) would interfere with any pending material acquisition, material
corporation reorganization or any other premature disclosure thereof. PMT shall
promptly give the Data Transfer Shareholders written notice of such termination,
containing a general statement of the reasons for such postponement or
restriction of use and an approximation of the anticipated delay.
6.4 Covenants of Data Transfer. Data Transfer covenants and agrees that
between the date hereof and continuing until the Effective Time (except as
expressly contemplated or permitted hereby, or to the extent that PMT shall
otherwise consent in writing):
(a) Prior to the Effective Time, Data Transfer agrees (a) that it
shall, and shall direct and use its best efforts to cause its directors,
officers, employees, shareholders, advisors, accountants and attorneys (the
"Representatives"), including such Representatives of any of Data
Transfer's affiliated entities or persons, not to, initiate, solicit or
encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to its shareholders) with respect to a merger,
acquisition, consolidation or similar transaction involving, or any
purchase of all or any significant portion of the assets or any equity
securities of Data Transfer (any such proposal or offer being hereinafter
referred to as a "Acquisition Proposal") or engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any person relating to an Acquisition Proposal, or
otherwise facilitate any effort or attempt to make or implement a
Acquisition Proposal; (b)that it will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing and will
take the necessary steps to inform the individuals or entities referred to
above of the obligations undertaken in this Section 6.4(a).
(b) Data Transfer will make all normal and customary repairs,
replacements, and improvements to its facilities, will not dispose of any
assets (other than inventory in the ordinary course of business) other than
at fair market value and with the prior written consent of PMT, and without
limiting the generality of the foregoing or the covenants set forth in
6.1(a), Data Transfer will not, without the prior written consent of PMT
which consent shall not be unreasonably withheld with respect to the
matters set forth in (ix):
(i) change its Articles of Incorporation or bylaws or merge and
consolidate with or into any entity or obligate itself to do so;
(ii) other than a dividend in customary amounts payable prior to
Closing, declare, set aside or pay any cash dividend or other
distribution on or
23
<PAGE>
in respect of shares of its capital stock, or any redemption,
retirement or purchase with respect to its capital stock or issue any
additional shares of its capital stock. Data Transfer may pay
reasonable fees and expenses related to the transaction contemplated
herein in accordance with a schedule of estimated fees and expenses
approved by PMT;
(iii) other than normal payments on loans for borrowed money,
discharge or satisfy any lien, charge, encumbrance or indebtedness
outside the ordinary course of business, except those required to be
discharged or satisfied;
(iv) authorize, guarantee or incur indebtedness aggregating in
excess of $50,000;
(v) make any capital expenditures or capital additions or
betterments, or commitments therefor, aggregating in excess of
$50,000;
(vi) loan funds to any person;
(vii) institute, settle or agree to settle any litigation,
action or proceeding before any court or governmental body;
(viii) mortgage, pledge or subject to any other encumbrance any
of its property or assets, tangible or intangible;
(ix) other than ordinary and customary raises for employees
authorize any compensation increases of any kind whatsoever for any
employee, provided Data Transfer shall pay owing or accrued deferred
compensation;
(x) enter into any material contract including leases and real
estate agreements; or
(xi) enter into any transaction outside the ordinary course of
business.
(c) [INTENTIONALLY OMITTED.]
(d) Without the prior written consent of PMT, Data Transfer shall not
take any action which would cause or tend to cause the conditions upon the
obligations of the parties hereto to effect the transactions contemplated
hereby not to be fulfilled; including without limitation, taking, causing
to be taken, or permitting or suffering to be taken or to exist any action,
condition or thing which would cause the representations and warranties
made by Data Transfer herein not to be true, correct and accurate as of the
Closing Date.
24
<PAGE>
(e) Data Transfer shall not take any action that will result, directly
or indirectly, in a material adverse change in the value of the Merchant
Accounts taken as a whole since June 30, 1996.
(f) Data Transfer, prior to the Closing Date, shall have delivered its
audited financial statements for the year ended December 31, 1995 and its
unaudited statements for the six month period ended June 30, 1996, in each
case in accordance with generally accepted accounting principles
consistently applied during the periods involved, except as may be noted
therein. Data Transfer shall promptly provide to PMT monthly and quarterly
financial statements of Data Transfer.
(g) Data Transfer, prior to the Closing Date, shall have arranged for
the cancellation or exercise of the outstanding options or warrants to
purchase Data Transfer Common Stock.
(h) From and after the date hereof and until the Effective Time, Data
Transfer shall not (i) knowingly take any action, or knowingly fail to take
any action, that would jeopardize the treatment of the Merger as a "pooling
of interests" for accounting purposes; (ii) knowingly take any action, or
knowingly fail to take any action, that would jeopardize qualification of
the Merger as a reorganization within the meaning of Section 368(a)(2)(E)
of the Code; or (iii) enter into any contract, agreement, commitment or
arrangement with respect to either of the foregoing.
(i) Data Transfer shall complete and file its federal and state income
tax returns for the calendar 1996 periods up to the Closing Date. PMT
shall provide reasonable assistance and financial information necessary for
Data Transfer or its agents to complete and file such income tax returns.
(j) Data Transfer shall accrue a liability, prior to Closing, for
distributions to its shareholders on a basis consistent with periodic
distributions declared and paid by Data Transfer in the historical
financial statements referenced herein. These distributions shall be in an
amount and form reasonably intended to allow the Data Transfer shareholders
to pay estimated income tax deposits attributable to the income flowing
through to the personal income tax returns of the Data Transfer
shareholders as a result of S- corporation status.
6.5 Covenants of PMT. PMT covenants and agrees that between the date
hereof and continuing until the Effective Time (except as expressly contemplated
or permitted hereby, or to the extent that Data Transfer shall otherwise consent
in writing):
(a) PMT shall promptly prepare and submit to the Nasdaq National
Market a listing application covering the shares of PMT Common Stock
issuable in the Merger, and shall use its best efforts to obtain, prior to
the Effective Time, approval for the listing of such PMT Common Stock,
subject to official notice of issuance.
25
<PAGE>
(b) PMT shall promptly send Data Transfer copies of all filings with
the SEC.
(c) Without the prior written consent of Data Transfer, PMT shall not
take any action which would cause or tend to cause the conditions upon the
obligations of the parties hereto to effect the transactions contemplated
hereby not to be fulfilled; including without limitation, taking, causing
to be taken, or permitting or suffering to be taken or to exist any action,
condition or thing which would cause the representations and warranties
made by PMT herein not to be true, correct and accurate as of the Closing
Date.
(d) From and after the date hereof and until the Effective Time, PMT
shall not (i) knowingly take any action, or knowingly fail to take any
action, that would jeopardize the treatment of the Merger as a "pooling of
interests" for accounting purposes; (ii) knowingly take any action, or
knowingly fail to take any action, that would jeopardize qualification of
the Merger as a reorganization within the meaning of Section 368(a)(2)(E)
of the Code; or (iii) enter into any contract, agreement, commitment or
arrangement with respect to either of the foregoing.
(e) To the extent PMT elects, for whatever reason or no reason, not to
retain any Data Transfer employees, for one year following the Closing
Date, PMT will not oppose such person's claim for unemployment benefits,
and PMT shall complete all appropriate questionnaires or claim forms
required by state officials in this regard. As of the date hereof, PMT has
made no representations, other than in good faith, regarding PMT's intent
to retain any Data Transfer employees.
(f) PMT agrees that after the Effective Time, it will indemnify any
person who has rights to indemnification from Data Transfer to the same
extent and on the same conditions as such person is entitled to
indemnification pursuant to Data Transfer's Articles of Incorporation or
Bylaws as in effect on the date of this Agreement.
(g) PMT shall report post-Merger combined results of Data Transfer and
PMT in a Current Report on Form 8-K no later than 30 days after the end of
the First full calendar month following the Effective Time if the
requirement for publication of 30 days post-Merger combined results shall
not have been satisfied in some other manner by such time in compliance
with applicable rules.
ARTICLE 7
CONDITIONS
7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
26
<PAGE>
(a) No action or proceeding shall have been instituted before a
court or other governmental body by any governmental agency or public
authority to restrain or prohibit the transactions contemplated by this
Agreement or to obtain an amount of damages or other material relief in
connection with the execution of the Agreement or the related agreements or
the consummation of the Merger; and no governmental agency shall have given
notice to any party hereto to the effect that consummation of the
transactions contemplated by this Agreement would constitute a violation of
any law or that it intends to commence proceedings to restrain consummation
of the Merger.
(b) The PMT Common Stock to be issued in the Merger shall have
been listed on the NASDAQ, and all necessary state securities law permits
or approvals shall have been obtained.
(c) PMT and Data Transfer shall have received an opinion of their
own counsel satisfactory to them, generally to the effects that (i) the
Merger qualifies as a reorganization under Section 368(a)(2)(E) of the
Code, (ii) no material gain or loss will be recognized by Data Transfer or
PMT as a result of the Merger, (iii) shareholders of Data Transfer who
receive in the Merger solely either PMT Common Stock or PMT Common Stock
and cash in lieu of fractional shares will recognize no gain or loss for
federal income tax purposes with respect to the PMT Common Stock received
in the Merger, and (iv) the Merger will not have a material adverse effect
on the federal income tax consequences of PMT; provided that the failure to
satisfy the requirements of clauses (ii) and (iv) of this subsection shall
constitute a condition to consummation of the Merger only if asserted by
PMT, and the failure to satisfy the requirements of clause (iii) of this
subsection shall constitute a condition to consummation of the Merger only
if asserted by Data Transfer.
(d) All consents, authorizations, orders and approvals of (or
filings or registrations with) any governmental commission, board or other
regulatory body required in connection with the execution, delivery and
performance of this Agreement, including those required under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, shall have been obtained
or made, except for filings in connection with the Merger and any other
documents required to be filed after the Effective Time and except where
the failure to have obtained or made any such consent, authorization,
order, approval, filing or registration would not have a material adverse
effect on the business of PMT and Data Transfer, taken as a whole,
following the Effective Time.
(e) PMT shall have received from Data Transfer copies of all
resolutions adopted by the Board of Directors and shareholders of Data
Transfer in connection with this Agreement and the transactions
contemplated hereby. Data Transfer shall have received from PMT and Merger
Sub copies of all resolutions adopted by the Board of Directors of each
respective company and the shareholders of Merger Sub in connection with
this Agreement and the transactions contemplated hereby.
27
<PAGE>
7.2 Conditions to Obligation of Data Transfer to Effect the Merger. The
obligation of Data Transfer to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) PMT shall have performed its agreements contained in this
Agreement required to be performed on or prior to the Closing Date and the
representations and warranties of PMT and Merger Sub contained in this
Agreement and in any document delivered in connection herewith shall be
true and correct as of the Closing Date, and Data Transfer shall have
received a certificate of the President or the Chief Financial Officer,
dated the Closing Date, certifying to such effect.
(b) From the date of this Agreement through the Effective Time, there
shall not have occurred any material change in the financial condition,
business, operations or prospects of PMT, that would have or would be
reasonably likely to have a PMT Material Adverse Effect other than any such
change that affects both Data Transfer and PMT in a substantially similar
manner.
(c) Data Transfer shall have received a written opinion, dated as of
the Closing Date, from the legal counsel of PMT, in form and substance
satisfactory to it, as to certain matters agreed upon by legal counsel of
PMT and Data Transfer.
(d) Prior to the Closing, Data Transfer shall not have notified PMT in
writing that Data Transfer's review of PMT's business, operations, and the
matters disclosed in the PMT Disclosure Letter has revealed matters
(described in reasonable detail) which in Data Transfer's reasonable
business judgment would adversely affect the business or operations of PMT.
7.3 Conditions to Obligation of PMT and Merger Sub to Effect the Merger.
The obligations of PMT and Merger Sub to effect the Merger shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions:
(a) Data Transfer shall have performed its agreements contained in
this Agreement required to be performed on or prior to the Closing Date and
the representations and warranties of Data Transfer contained in this
Agreement and in any document delivered in connection herewith shall be
true and correct as of the Closing Date, and PMT shall have received a
certificate of the President of Data Transfer, dated the Closing Date,
certifying to such effect.
(b) PMT shall be satisfied that the Merger will qualify for accounting
by PMT as a pooling of interests under generally accepted accounting
principles and under applicable rules and regulations of the SEC. In
connection therewith, PMT shall have received, on or before the Closing
Date, a letter from Price Waterhouse LLP (or any other accountants of PMT's
choosing) dated as of the Closing Date to the effect that the
28
<PAGE>
transactions contemplated by this Agreement may be treated by PMT as a
"pooling of interests" for accounting purposes.
(c) [Intentionally omitted.]
(d) From the date of this Agreement through the Effective Time, there
shall not have occurred any material change in the financial condition,
business, operations or prospects of Data Transfer, other than any such
change that affects both Data Transfer and PMT in a substantially similar
manner.
(e) By or before the Closing Date, each of Martin R. Binder, Richard
M. Binder and John Rante of Data Transfer, will have executed a valid non-
competition agreement, with Data Transfer.
(f) PMT shall have received a written opinion, dated as of the Closing
Date, from the legal counsel of Data Transfer, in form and substance
satisfactory to it, as to certain matters agreed upon by legal counsel of
PMT and Data Transfer.
(g) Prior to the Closing, PMT shall not have notified Data Transfer in
writing that PMT's review of Data Transfer's business, operations, and the
matters disclosed in the Data Transfer Disclosure Letter has revealed
matters (described in reasonable detail) which in PMT's reasonable business
judgment would adversely affect the business or operations of Data
Transfer.
(h) Prior to the Closing, PMT shall have determined that the
consummation of the Merger meets all applicable requirements of any loan
agreements to which it is a party.
(i) In order to ensure that following the consummation of the Merger
certain directors and officers of Data Transfer shall not engage in certain
activities as specified in the noncompetition agreements, the directors of
Data Transfer shall have executed noncompetition agreements, in form and
substance satisfactory to PMT and the directors.
(j) The Dissenting Data Transfer Shares shall not exceed 10% of the
total number of outstanding shares of Data Transfer Common Stock.
ARTICLE 8
TERMINATION
8.1 Termination by Mutual Consent. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, before or
after the approval
29
<PAGE>
of this Agreement by the shareholders of Data Transfer, by the mutual consent of
PMT and Data Transfer.
8.2 Termination by Either PMT or Data Transfer. This Agreement may be
terminated and the Merger may be abandoned by action of the Board of Directors
of either PMT or Data Transfer if (a) the Merger shall not have been consummated
by August 31, 1996, or (b) a United States federal or state court of competent
jurisdiction or United States federal or state governmental, regulatory or
administrative agency or commission shall have issued an order, decree or ruling
or taken any other action permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and such order,
decree, ruling or other action shall have become final and non-appealable;
provided, that the party seeking to terminate this Agreement pursuant to this
clause (b) shall have used all reasonable efforts to remove such injunction,
order or decree.
8.3 Termination by Data Transfer. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, before or
after the adoption and approval by the shareholders of Data Transfer, by action
of the Board of Directors of Data Transfer, if there has been a breach by PMT or
Merger Sub of any representation or warranty contained in this Agreement which
would have or would be reasonably likely to have a PMT Material Adverse Effect,
or (b) there has been a material breach of any of the covenants or agreements
set forth in this Agreement on the part of PMT, which breach is not curable or,
if curable, is not cured within 30 days after written notice of such breach is
given by Data Transfer to PMT.
8.4 Termination by PMT. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, by action of the Board
of Directors of PMT, if (a) there has been a breach by Data Transfer of any
representation or warranty contained in this Agreement which would have or would
be reasonably likely to have an Data Transfer Material Adverse Effect, (b) there
has been a material breach of any of the covenants or agreements set forth in
this Agreement on the part of Data Transfer, which breach is not curable or, if
curable, is not cured within 30 days after written notice of such breach is
given by PMT to Data Transfer, or (c) the Merger will not qualify for accounting
by PMT as a pooling of interests under generally accepted accounting principles
and under applicable rules and regulations of the SEC.
8.5 Effect of Termination and Abandonment. Upon termination of this
Agreement pursuant to this Article, this Agreement shall be void and of no other
effect, and there shall be no liability by reason of this Agreement or the
termination thereof on the part of any party hereto, or on the part of the
respective directors, officers, employees, agents or shareholders of any of
them.
8.6 Extension; Waiver. At any time prior to the Effective Time, any party
hereto, by action taken by its Board of Directors, may, to the extent legally
allowed, (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive
30
<PAGE>
any inaccuracies in the representations and warranties made to such party
contained herein or in any document delivered pursuant hereto and (c) waive
compliance with any of the agreements or conditions for the benefit of such
parry contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE 9
INDEMNIFICATION
(a) Indemnification by Controlling Data Transfer Stockholders. Subject to
the provisions of Sections 9(b), the Controlling Data Transfer Stockholders
shall severally indemnify, save and keep PMT (including Data Transfer following
the Merger) and its affiliates, successors and permitted assigns (the "PMT
Indemnitees"), harmless against and from, and will reimburse the PMT Indemnitees
on demand for, any liability, demands, claims, actions or causes of action,
assessments, losses, fines, penalties, costs, damages and expenses, including
reasonable attorneys' fees, disbursements and expenses (collectively,
"Damages"), sustained or incurred by any of the PMT Indemnitees at any time
after the Closing Date as a result of, arising out of or by virtue of, (i) any
misrepresentation, breach of any warranty or representation in any material
respect, or nonfulfillment of any agreement or covenant on the part of Data
Transfer or the Controlling Data Transfer Stockholders in any material respect,
whether contained in this Agreement or any Exhibit or Schedule hereto or thereto
or any written statement or certificate furnished or to be furnished to PMT
pursuant hereto or in any closing document delivered by Data Transfer or the
Controlling Data Transfer Stockholders to PMT in connection herewith, or (ii)
any final resolution, by settlement, adjudication, arbitration or otherwise, of
any litigation or other adversarial proceeding pending or threatened against
Data Transfer on the Closing Date as indicated in the DTA Disclosure Letter.
(b) Controlling Data Transfer Stockholders' Liability. In no event shall
the obligation of the Controlling Data Transfer Stockholders to indemnify PMT
Indemnitees pursuant to Section 9(a) hereof exceed $1.2 million. The
obligations of the Controlling Data Transfer Stockholders to indemnify PMT in
respect to any Damages shall be several and not joint. Subject to the
immediately preceding proviso, each Controlling Data Transfer Stockholder shall
be liable for his pro rata percentage (based on the number of shares of PMT
Common Stock received pursuant to Section 3.1 hereof) of Damages.
(c) Indemnification by PMT. Upon the terms and subject to the conditions
set forth in Section 9(d) hereof and this Section 9(c), PMT agrees to indemnify
and hold the Controlling Data Transfer Stockholders (the "Stockholder
Indemnitees") harmless against and from, and will reimburse the Stockholder
Indemnitees on demand for, any Damages sustained or incurred by any of the
Controlling Data Transfer Stockholder Indemnitees at any time after the Closing
Date as a result of, arising out of or by virtue of any misrepresentation,
breach of any warranty or representation in any material respect, or
nonfulfillment of any agreement or covenant on the part of PMT in any material
respect, whether contained in this Agreement or any Exhibit or Schedule hereto
or thereto, or any written statement or certificate furnished or to be furnished
31
<PAGE>
to the Controlling Data Transfer Stockholders pursuant hereto or
in any closing document delivered by PMT to Data Transfer or the Controlling
Data Transfer Stockholders in connection herewith.
(d) Conditions of Indemnification Pursuant to Sections 9(a) and 9(c). (i)
Promptly following the receipt by an PMT Indemnitee or a Stockholder Indemnitee
(as defined in Section 9(c) herein) as the case may be, of notice of a demand,
claim, action, assessment or proceeding made or brought by a third party,
including a governmental agency (a "Third Party Claim"), the PMT Indemnitee or
Stockholder Indemnitee receiving the notice of the Third Party Claim (A) shall
promptly notify the Controlling Data Transfer Stockholders or PMT, as the case
may be, of its existence, setting forth the facts and circumstances of which
such PMT Indemnitee or Stockholder Indemnitee has received notice, and (B) if
the PMT Indemnitee or Stockholder Indemnitee giving such notice is a person
entitled to indemnification under this Section 9 (an "Indemnified Party"), such
Indemnified Party shall specify in such notice the basis hereunder upon which
the Indemnified Party's claim for indemnification is asserted.
(ii) The Indemnified Party shall, upon reasonable notice by the
Controlling Data Transfer Stockholders or PMT, as the case may be, tender the
defense of a Third Party Claim to the Controlling Data Transfer Stockholders or
PMT, as the case may be (the "Indemnifying Party"). If the Indemnifying Party
accepts responsibility for the defense of a Third Party Claim, then the
Indemnifying Party shall have the exclusive right to contest, defend and
litigate the Third Party Claim and shall have the exclusive right, in its
discretion exercised in good faith and upon the advice of counsel, to settle any
such matter, either before or after the initiation of litigation, at such time
and upon such terms as it deems fair and reasonable, provided that at least ten
days prior to any such settlement, it shall give written notice of its intention
to settle to the Indemnified Party. The Indemnified Party shall have the right
to be represented by counsel at its own expense in any defense conducted by the
Indemnifying Party.
(iii) If, in accordance with the foregoing provisions of this Section
9(d), an Indemnified Party shall be entitled to indemnification against a Third
Party Claim, and if the Indemnifying Party shall fail to accept the defense of a
Third Party Claim that has been tendered in accordance with this Section 9(d),
the Indemnified Party shall have the right, without prejudice to its right of
indemnification hereunder, in its discretion exercised in good faith and upon
the advice of counsel, to contest, defend and litigate such Third Party Claim,
and may settle such Third Party Claim, either before or after the initiation of
litigation, at such time and upon such terms as the Indemnified Party deems fair
and reasonable, provided at least ten days prior to any such settlement, written
notice of its intention to settle is given to the Indemnifying Party. If,
pursuant to this Section 9(d) the Indemnified Party so defends or settles a
Third Party Claim for which it is entitled to indemnification hereunder, as
hereinabove provided, the Indemnified Party shall be reimbursed by the
Indemnifying Party for the reasonable attorneys' fees and other expenses of
defending the Third Party Claim that is incurred from time to time, immediately
following the presentation to the Indemnifying Party of itemized bills for said
attorneys' fees and other expenses. No failure by the Indemnifying Party to
acknowledge in writing its indemnification obligations under this Section 9
shall relieve it of such obligations to the extent they exist.
32
<PAGE>
(iv) Notwithstanding the foregoing, in connection with any settlement
negotiated by the Indemnifying Party, no Indemnified Party shall be required to
(A) enter into any settlement (I) that does not include the delivery by the
claimant or plaintiff to the Indemnified Party of a release from all liability
in respect of such claim or litigation, or (II) if the Indemnified Party shall,
in writing to the Indemnifying Party within the ten day period prior to such
proposed settlement, disapprove of such settlement proposal (which settlement
proposal will not be unreasonably disapproved) and desire to have the
Indemnifying Party tender the defense of such matter back to the Indemnified
Party, or (B) consent to the entry of any judgment that does not include a full
dismissal of the litigation or proceeds against the Indemnified Party with
prejudice; provided, however, that should the Indemnified Party disapprove of a
settlement proposal pursuant to Clause (II) above, the Indemnified Party shall
thereafter have all of the responsibility for defending, contesting and settling
such Third Party Claim but shall not be entitled to indemnification by the
Indemnifying Party to the extent that, upon final resolution of such Third Party
Claim, the Indemnifying Party's liability to the Indemnified Party but for this
proviso exceeds what the Indemnifying Party's liability to the Indemnified Party
would have been if the Indemnifying Party were permitted to settle such Third
Party Claim in the absence of the Indemnified Party exercising its right under
Clause (II) above.
(e) Release by the Controlling Data Transfer Stockholders. Effective upon
the Closing, the Controlling Data Transfer Stockholders hereby release and
discharge PMT and its subsidiaries and each of its officers and directors from,
and agree and covenant that in no event will the Controlling Data Transfer
Stockholders commence any litigation or other legal or administrative proceeding
against, PMT, its Subsidiaries or any of their officers or directors, whether in
law or equity, relating to any and all claims and demands, known and unknown,
suspected and unsuspected, disclosed and undisclosed, for damages, suspected or
consequential, past, present and future, arising out of or in any way connected
with their ownership of the Data Transfer Shares prior to the Effective Time,
other than claims or demands arising out of or in any way connected with this
Agreement and the agreements and other documents contemplated hereby and the
transaction contemplated hereby and thereby; provided, however, that nothing
contained herein shall relieve any obligations of PMT to indemnify the
Controlling Data Transfer Stockholders pursuant to Section 9 hereof.
(f) Survival. All of the terms and conditions of this Agreement, together
with the representations, warranties and covenants contained herein or in any
instrument or document delivered or to be delivered pursuant to this Agreement,
shall survive the execution of this Agreement and the Closing Date
notwithstanding any investigation heretofore or hereafter made by or on behalf
of any party hereto; provided, however, that all representations and warranties,
and the agreements of the Controlling Data Transfer Stockholders and PMT to
indemnify each other set forth in this Section 9, shall survive and continue
for, and all claims with respect thereto shall be made prior to the end of, 12
months from the Closing Date, except for (i) the covenants contained in this
Section 9 which shall survive until, and all claims with respect thereto shall
be made within, 60 days after the expiration of the applicable statute of
limitations, and (ii) representations, warranties and indemnities for which an
indemnification claim shall be pending as of the end of the applicable period
referred to above, in which event such indemnities shall survive with respect to
such claim until the final disposition thereof, and (iii) the covenants
33
<PAGE>
set forth in subsection 9(a)(ii) above shall survive until 60 days after the
final resolution of all such litigation and claims.
ARTICLE 10
GENERAL PROVISIONS
10.1 Survival. The representations and warranties of the parties and the
Controlling Data Transfer Stockholders shall survive until the first anniversary
of the Closing Date.
10.2 Notices. Any notice required to be given hereunder shall be
sufficient if in writing, by courier service (with proof of service), hand
delivery or certified or registered mail (return receipt requested and first-
class postage prepaid), addressed as follows:
If to PMT or Merger Sub: If to Data Transfer:
Gregory S. Daily John Rante
President President
PMT Services, Inc. Date Transfer Associates, Inc.
Two Maryland Farms, Suite 200 2700 South River Road, Suite 402
Brentwood, Tennessee 37027 Des Plaines, Illinois 60018
with a copy to: with a copy to:
Howard W. Herndon Howard G. Kaplan, Esq.
Waller Lansden Dortch & Davis Howard Gordon Kaplan Ltd.
511 Union Street, Suite 2100 180 North La Salle Street, 28th Floor
Nashville, Tennessee 37219-1760 Chicago, Illinois 60601-2501
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
10.3 Assignment, Binding Effect; Benefit. Neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
10.4 Entire Agreement. This Agreement, the Exhibits, the Data Transfer
Disclosure Letter, the PMT Disclosure Letter, the confidentiality letter and any
documents delivered by the parties in connection herewith constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements, discussions, negotiations, inducements and
understandings among the parties with respect thereto. No addition to or
34
<PAGE>
modification of any provision of this Agreement shall be binding upon any party
hereto unless made in writing and signed by all parties hereto.
10.5 Amendment. This Agreement may be amended by the parties hereto, by
action taken by their respective Boards of Directors, at any time before or
after approval of matters presented in connection with the Merger by the
shareholders of Data Transfer and PMT, but after any such stockholder approval,
no amendment shall be made which by law requires the further approval of
shareholders without obtaining such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
10.6 Governing Law. The validity of this Agreement, the construction of
its terms and the determination of the rights and duties of the parties hereto
shall be governed by and construed in accordance with the laws of the United
States and those of the State of Illinois applicable to contracts made and to be
performed wholly within such state.
10.7 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
10.8 Headings. Headings of the Articles and Sections of this Agreement are
for the convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
10.9 Interpretation. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
10.10 Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
10.11 Incorporation of Exhibits. The Data Transfer Disclosure Letter, the
PMT Disclosure Letter and the Exhibits attached hereto and referred to herein
are hereby incorporated herein and made a part hereof for all purposes as if
fully set forth herein.
10.12 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and
35
<PAGE>
provisions of this Agreement or affecting the validity or enforceability of any
of the terms or provisions of this Agreement in any other jurisdiction. If any
provision of this Agreement is so broad as to be unenforceable, the provision
shall be interpreted to be only so broad as is enforceable.
10.13 Expenses. Each party to this Agreement shall bear its own expenses
in connection with the Merger and the transactions contemplated hereby;
provided, however, that if the Merger is not consummated for any reason other
than (a) a willful breach of this Agreement by Data Transfer; (b) the failure by
Data Transfer to satisfy the covenant set forth in Section 6.2(e); (c) Data
Transfer's taking or causing to be taken any action which it knows, after
reasonable inquiry to its independent accountants, would disqualify the
transaction as a pooling of interests; or (d) the failure of Data Transfer's
shareholders to approve the Merger, then PMT shall promptly reimburse Data
Transfer for its reasonable expenses incurred in connection with the preparation
and audit of Data Transfer's audited financial statements.
10.14 Enforcement of Agreement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of competent jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
10.15 Press Releases. All press releases issued by PMT or Data Transfer
with respect to these transactions shall be in form reasonably approved by PMT
and Data Transfer.
10.16 No Third Party Beneficiaries. The terms and provisions of this
Agreement are intended solely for the benefit of the parties hereto and their
respective successors or assigns, and it is not the intention of the parties to
confer third-party beneficiary rights upon any other person.
36
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf as of the day and year first written
above.
PMT SERVICES, INC.
ATTEST:
By:/s/ Vickie G. Johnson By:/s/ Gregory S. Daily
------------------------ -----------------------------
Gregory S. Daily
President
PMT ILLINOIS ACQUISITION
CORPORATION
ATTEST:
By:/s/ Vickie G. Johnson By: /s/ Gregory S. Daily
------------------------ -----------------------------
Gregory S. Daily
President
DATA TRANSFER ASSOCIATES, INC.
ATTEST:
By: By:/s/ John Rante
----------------------- -----------------------------
John Rante
President
ATTEST: MARTIN R. BINDER
By: /s/ Martin R. Binder
----------------------- -----------------------------
37
<PAGE>
ATTEST: RICHARD M. BINDER
By: /s/ Richard Binder
------------------ ---------------------------
ATTEST: JOHN RANTE
By:
----------------- --------------------------
38
<PAGE>
AMENDMENT TO AGREEMENT
----------------------
This agreement effective as of November 1, 1995, by and between First National
Bank of Omaha ("FNBO"), a national banking association with principal offices at
One First National Center, Omaha, Nebraska, and P.M.T. Services, Inc.
("COMPANY") a corporation with principal offices at Two Maryland Farms, Suite
200, Brentwood, TN 37027.
WHEREAS, FNBO and COMPANY are parties to a Processing Agreement dated March 1,
1994 as well as an Amendment to Processing Agreement dated August 7, 1995 (such
Agreement, together with all its schedules and addenda and amendments is herein
called the "AGREEMENT");
WHEREAS, FNBO and COMPANY desire to amend the AGREEMENT to incorporate the terms
and conditions of the USBC Association Plan (an amendment to the FNBO Merchant
Application Guidelines);
NOW, THEREFORE, in consideration of the AGREEMENT, and their mutual promises
made herein, FNBO and COMPANY agree as follows:
1. Terms which are typed herein and are not defined herein shall have the
same meanings as when described in the AGREEMENT.
2. Attached hereto and incorporated into AGREEMENT by this reference is the
USBC Association PLAN. Company agrees to be bound by and operate
consistent with the terms and conditions stated therein.
3. FNBO may amend such USBC Association Plan from time to time as it deems
reasonable and appropriate.
4. Except as amended hereby, FNBO and COMPANY reaffirm the obligations of
each as they are contained in the AGREEMENT.
In witness whereof the parties have set their hands on the date first written
above.
First National Bank of Omaha: P.M.T. Services, Inc.:
By: /s/ Nicholas W. Baxter By: /s/Richardson M. Roberts
------------------------------ -------------------------------
Title: Vice President Title: Chief Executive Officer
--------------------------- ----------------------------
<PAGE>
FIFTH AMENDMENT TO PROCESSING AGREEMENT
This agreement made as of May 29, 1996, by and between First National Bank
of Omaha ("FNBO") a national banking association organized under the laws of
United States, and P.M.T. Services, Inc., doing business as US Bankcard Center
("COMPANY") a corporation with principal offices located at 2 Maryland Farms,
Suite 200, Brentwood, TN 37027.
A. FNBO and COMPANY executed a written Processing Agreement as of March 1,
1994, which was amended by a written Amendment to Processing Agreement dated May
10, 1995, an Amendment to Processing Agreement dated July 18, 1995, an Amendment
to Processing Agreement dated August 7, 1995, and an Amendment to Agreement
dated November 1, 1995. A copy of said Processing Agreement is attached hereto
as Exhibit B, and made a part hereof by this reference. Copies of said
Amendments to Processing Agreement are attached hereto as Exhibit C, and made a
part hereof by this reference. The Processing Agreement, including all
amendments thereto shall collectively be known as "AGREEMENT."
B. The parties desire to amend the AGREEMENT to provide for the processing
of additional MERCHANTS.
For good and valuable consideration, COMPANY and FNBO agrees as follows:
1. Terms set forth herein in all capitalized letters which are not
otherwise defined herein shall have the same meaning as set out in
the AGREEMENT.
2. Attached hereto, marked EXHIBIT A, and by this reference
incorporated herein, is a list of merchants which constitutes the
ACQUIRED PORTFOLIO merchants listed on pursuant to this AGREEMENT.
Henceforth the merchants listed on Exhibit A shall, therefore,
constitute MERCHANTS under the AGREEMENT.
3. This AGREEMENT, along with the exhibits attached, contains the
entire understanding between the parties hereto for the purpose set
forth above. This AGREEMENT may not be altered, amended or modified
except in writing executed by a duly authorized representative of
each party.
4. This AGREEMENT is not assignable by either party without written
consent of the other party.
5. This AGREEMENT is to be interpreted and construed under the laws of
the State of Nebraska.
6. Except as modified or amended hereby the parties ratify and confirm
their covenants and obligations contained in the AGREEMENT.
IN WITNESS WHEREOF, the parties have set their hands as of as of the date first
set forth above.
FIRST NATIONAL BANK OF OMAHA P.M.T. SERVICES, INC.
By: /s/ Kevin M. Keating By: /s/ Gregory S. Daily
------------------------------- ----------------------------
Title: Legal & Compliance Officer Title: President
---------------------------- ------------------------------
<PAGE>
ACKNOWLEDGMENT AND CONSENT
Come now REPUBLIC BANK ("Bank"), with principal offices located at 111
Second Avenue N.E., St. Petersburg, Florida 33701, CONSUMER PAYMENT SERVICES,
INC., d/b/a/ MERCHANT PAYMENT SERVICES ("ISO"), a Florida corporation, with
principal offices located at 600 Lakeview Road, Suite A, Clearwater, Florida
34616, and PMT SERVICES, INC., d/b/a U.S. BANKCARD CENTER ("PMT"), a Tennessee
corporation, with principal offices located at Two Maryland Farms, Suite 200,
Brentwood, Tennessee 37027, and agree, as of the 29th day of May, 1996, as
follows:
1. ISO and Bank have entered into a written ISO Agreement ("ISO
Agreement") dated March 8, 1993, wherein ISO agreed to become an independent
sales organization for Bank. All capitalized terms defined in the ISO
Agreement, the ISO/PMT Agreement (as defined herein below) and the ISO/PMT
Assignment (as defined herein below) shall have the same meanings herein, unless
separately defined herein.
2. ISO and PMT have entered into a written agreement ("ISO/PMT
Agreement") dated as of July 18, 1995, wherein the parties thereto agreed to the
transfer of responsibility for and revenue attributable to certain Merchants
from ISO to PMT effective as of July 1, 1995.
3. ISO and PMT have executed a Bill of Sale and Assignment ("ISO/PMT
Assignment") of even date herewith, wherein the parties thereto agreed to the
transfer of responsibility for and revenue attributable to certain Additional
Merchant Accounts from ISO to PMT effective May 1, 1996.
3. Attached hereto, marked Exhibit A, and by this reference made a
part hereof, is a list of additional Merchants ("Additional Transferred
Merchants") which represent the Additional Merchant Accounts described in the
ISO/PMT Assignment.
4. Except as set forth in paragraph 5 below, the parties hereto agree
that as of June 1, 1996 ("Effective Date"), ISO is entitled to no payments from
Bank accruing with respect to sales transactions of Additional Transferred
Merchants on or after the Effective Date, and all such obligations accruing on
or after the Effective Date that would otherwise be due and payable to ISO but
for the ISO/PMT Assignment and the transactions contemplated thereby shall be
paid to PMT as and when due.
5. To the extent that Bank owes ISO for residual payments pursuant to
the ISO Agreement, Bank agrees to make payment to ISO as to the Additional
Transferred Merchants with respect to
<PAGE>
sales transactions of Additional Transferred Merchants which occurred prior to
the Effective Date.
6. Each of ISO and PMT agrees to hold harmless and indemnify Bank
from any and all liabilities, losses, costs, expenses and attorney fees relating
to claims of third parties, including chargebacks, arising after the date hereof
in connection with the transfer of Additional Transferred Merchants to PMT,
except for such liabilities, losses, costs, expenses and attorney fees as may
result from acts, errors or omissions of Republic.
7. Bank acknowledges and consents only to those matters specifically
set forth in documents and agreements executed by Bank. ISO and PMT agree to
deliver a fully-executed copy of the ISO/PMT Assignment with all exhibits and
schedules thereto as promptly as possible after the date hereof.
8. This Agreement is subject to and construed and enforced in
accordance with the laws of the State of Florida. Time is of the essence. No
amendment of this Agreement shall be effective unless reduced to writing and
executed by the parties hereto. This Agreement contains all of the
understandings of the parties relating to the subject matter hereof.
IN WITNESS WHEREOF, the parties have set their hands on the date first
set forth above.
CONSUMER PAYMENT SERVICES, INC. PMT SERVICES, INC.
By: /s/Melvin Ora By: /s/Gregory S. Daily
-------------------------- __________________________
Its: President Its: President
------------------------- --------------------------
REPUBLIC BANK
By: /s/ John Fisher, Jr.
---------------------------
Its: Executive Vice President
--------------------------
<PAGE>
THIRD AMENDMENT TO LEASE
This Third Amendment to Lease Agreement (hereinafter the "Third Amendment") is
made and entered into this 1st day of March, 1996, by and between EASTPARK,
L.P., as "Lessor", and PMT SERVICES, INC. as "Lessee".
WHEREAS, Lessor and Lessee entered into a certain Lease dated August 31, 1994
(hereinafter referred to as the "Lease"), providing for the demise by Lessor to
Lessee of office space in a certain office building now commonly known and
designated as Two Maryland Farms, Brentwood, Tennessee, all as more specifically
set forth in the Lease; and
WHEREAS, Lessor and Lessee amended the Lease on September 29, 1994 and May 11,
1995; and
WHEREAS, Lessor and Lessee now desire to revise and amend the terms of said
Lease effective March 1, 1996.
NOW, THEREFORE, in consideration of mutual covenants and undertakings
hereinafter set forth by and between the parties hereto, the Lease is hereby
Amended as follows:
1. Amendment of Leased Premises "Schedule" Section. The third section of the
Schedule to Lease titled "Leased Premises" shall be amended to provide the
following change in square footage:
"The Leased Premises is 32,282 net rentable square feet and shall be
increased by 986 net rentable square feet located on the first floor and
shown as Exhibit A. The Leased Premises will now total 33,268 net
rentable square feet.
2. Amendment of Rent Schedule. The seventh section of the Schedule to Lease
shall be deleted and the following substituted:
From To Rate/SF Monthly
3/1/96 12/31/97 $11.74 $32,546.33
1/1/98 12/31/00 $13.56 $37,589.49
3. Lessee Improvements. None. Lessee agrees to accept the entire Leased Premises
in its "as is" condition.
4. Amendment of Right of First Refusal. Paragraph 41 of the Lease shall be
deleted and replaced with the following:
"Lessee shall have an on-going right of first opportunity to lease all
space that becomes available at Two Maryland Farms. Available space shall
be defined as any space that shall be vacated by an existing tenant who
does not renew or extend their lease at expiration or upon termination of
their lease. Lessor agrees to notify Lessee in writing of any available
space or any space that shall become available as soon as practical. Lessee
shall then have ten (10) business days to
<PAGE>
respond to Lessor in writing indicating whether or not Lessee wants to
exercise its right to bring the offered space under lease. If Lessee does
not respond within the ten (10) day period, Lessee shall have waived its
rights and the space will be available to other interested parties. If
Lessee does exercise its right of first opportunity, then Lessee shall
bring the space under lease at the then current market rental and build-out
rates with tenant improvements prorated for the number of months then
remaining on the Lease. If Lessee leases the space "as is", then the rental
rate and expiration date for the additional space shall be the same as
provided under the original Lease.
5. Definitions. Definitions and terms used in this Third Amendment shall have
the same definitions set forth in the Lease.
6. Incorporation. This Third Amendment shall be incorporated into and made a
part of the Lease and all provisions of this Lease not expressly modified or
amended shall remain in full force and effect.
In witness whereof, the parties hereto have executed this Third Amendment to
Lease Agreement by proper person thereunto authorize to do so on the day and
year first written above.
LESSOR: LESSEE:
EASTPARK, L.P. acting by and through PMT SERVICES, INC.
its property manager Eakin & Smith, Inc.
By: /s/ John W. Eakin By: /s/ Richardson M. Roberts
Its: President Its: Chief Executive Officer
<PAGE>
FOURTH AMENDMENT TO LEASE
-------------------------
This Fourth Amendment to Lease Agreement (hereinafter the "Fourth Amendment") is
made and entered into this 1st day of May, 1996, by and between
HIGHWOODS/FORSYTH LIMITED PARTNERSHIP (herein called "Lessor" and Successor-in-
Interest to Eastpark, L.P.) and PMT SERVICES, INC. as "Lessee".
WHEREAS, Lessor and Lessee entered into a certain Lease Agreement (the "Lease")
dated August 31, 1994 (hereinafter referred to as the "Lease"), providing for
the demise by Lessor to Lessee of office space in a certain office building now
commonly known and designated as Two Maryland Farms, Brentwood, TN, all as more
specifically set forth in the Lease; and
WHEREAS, Lessor and Lessee amended the Lease on September 29, 1994, May 11, 1995
and March 1, 1996; and
WHEREAS, Lessor and Lessee now desire to revise and amend the terms of said
Lease whereby Lessee shall expand into and occupy Suites 120 and 122 which
collectively total 1,707 net rentable square feet.
NOW, THEREFORE, in consideration of mutual covenants and undertakings
hereinafter set forth by and between the parties hereto, the Lease is hereby
Amended as follows:
1. Commencing June 1, 1996, Lessee shall lease and occupy an additional
1,707 net rentable square feet on the first floor of the Building (shown
as Exhibit A) for a term of 55 months and expiring on December 31, 2000.
The total Leased Premises will now contaiin 34, 975 net rentable square
feet.
2. Lessee shall pay base rent of $2,351.39 per month ($16.53/rsf) for the
use of the additional space commencing June 1, 1996.
3. Lessee Improvements. Lessor will provide a "turn-key" buildout of the
space based upon mutually acceptable and agreed to space plans and
construction documents. Lessee to provide space plan and finish on
or before May 3, 1996.
4. Definitions. Definitions and terms used in this Fourth Amendment shall
have the same definitions set forth in the Lease.
5. Incorporation. This Fourth Amendment shall be incorporated into and
made a part of the Lease and all provisions of this Lease not expressly
modified or amended shall remain in full force and effect.
<PAGE>
In witness whereof, the parties hereto have executed this Fourth Amendment to
Lease Agreement by proper person thereunto authorize to do so on the day and
year first written above.
LESSOR: LESSEE:
- ------- -------
HIGHWOODS/FORSYTH LIMITED PMT SERVICES, INC.
PARTNERSHIP (Successor-in-interest
to Eastpark, L.P.) acting by and through
Highwoods Properties, Inc., its General
Partner
By: /s/ Thomas Smith By: /s/Richardson M. Roberts
----------------------- ------------------------------
Its: Vice President Its: Chief Executive Officer
---------------------- -----------------------------
<PAGE>
KOGER LEASE
===== -----
THIS LEASE AGREEMENT, dated 31 July 96 by and between Centoff Realty Company,
Inc., a Delaware Corporation ("Landlord") with its principal office at 522 Fifth
Avenue, New York, New York 10036, and PMT Services, Inc., a Corporation
organized and existing under the laws of the State of Tennessee. ("Tenant")
with its principal office at Two Maryland Farms, Suite 200, Brentwood, Tennessee
37027.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. BASIC LEASE PROVISIONS
A. DESCRIPTION OF PREMISES E. ADDRESS FOR PAYMENT OF RENT AND
SECURITY DEPOSITS:
Suite Number: 300 Payee: Centoff Realty Co., Inc.
Building Name: Kingsport Building Address: Box D860534
Address: 215 Centerview Drive City/State/Zip: Orlando, FL 32886-0534
County: Williamson Tenant Account #: 3015030504 (note on remittance)
City: Brentwood
State/Zip: Tennessee 37027 F. ADDRESSES FOR NOTICES
Center: Nashville Tenant: PMT Services, Inc.
Two Maryland Farms
B. PRINCIPAL LEASE TERMS: Suite 200
Lease Terms (Months) 51 Brentwood, TN 37027
Commencement Date: 01 October 96 Tenant Fed I.D./SSN: 62-1215125
Expiration Date: 31 December 00
Landlord: Centoff Realty Co., Inc.
Monthly Base Rent: $24056.00 522 Fifth Avenue
Sales or Use Taxes: $ 0.00 New York, New York 10036
Total: $24056.00
Security Deposit: $ 0.00 Landlord Fed I.D.: 13-6065186
C. LEASED AREA With a copy to: Koger Equity, Inc.
Approximately 19908 rentable square feet. Attn: President
(Including Tenant's share of common area.) 3986 Blvd. Center Drive
Jacksonville, FL 32207
D. MANAGER: Koger Equity, Inc. is
the designated agent of Landlord as to all G. GUARANTOR(s): n/a
matters pertaining to this Lease, including its
execution and amendment and granting or
withholding of consents, excluding any
activities prohibited by law.
</TABLE>
The provisions contained in Sections 2 through 36, inclusive, which appear
after the signature lines below, are a part of this Lease and are incorporated
in this Lease by reference. The Tenant and the Landlord have executed or caused
to be executed this Lease on the dates shown below their signatures, to be
effective as of the date set forth above.
<TABLE>
<CAPTION>
<S> <C>
Tenant: PMT Services Landlord: Centoff Realty Company, Inc.
By: Koger Equity, Inc., as Agent
By: /s/ Paul Nee (SEAL) By: /s/ Bradford A. Chaffin (SEAL)
--------------------------------------- ------------------------------------------
Print Name: Paul Nee Print Name: Bradford A. Chaffin
-------------------------------
Title: Vice President Operations Title: Vice President
------------------------------------
Attest: Attest: /s/Sylvia S. Gooding
----------------------------------- --------------------------------------
Print Name: Print Name: Sylvia S. Gooding
------------------------------- ----------------------------------
Title: Title:
------------------------------------ ---------------------------------------
(Corporate Seal) (Corporate Seal)
Date: Date: August 27, 1996
------------------------------------- ----------------------------------------
Signed and sealed in the presence of: Signed and sealed in the presence of:
(1) /s/Richardson M. Roberts (1)
----------------------------------- ------------------------------------------
Print Name: Richardson M. Roberts Print Name:
------------------------------ ----------------------------------
(2) /s/Todd Burke (2)
-------------------------------------- ------------------------------------------
Print Name: Todd Burke Print Name:
------------------------------ ----------------------------------
As to Tenant As to Landlord
</TABLE>
1 of 9
<PAGE>
LEASE PROVISIONS INCORPORATED BY REFERENCE
2. LEASE OF PREMISES; The Landlord hereby leases to the Tenant and the Tenant
hereby takes from the Landlord the premises (the "Premises") which include the
Suite(s) shown and described on exhibit "A", together with any other parts of
the Building used exclusively by Tenant, which Premises are or will be contained
in the office building (the "Building") located at the address stated in Section
1A, upon the terms and conditions contained in this Lease. For the purposes of
this lease, "Property" shall mean the property referred to at the street address
in Section 1A which is more specifically described in the legal description
maintained in the Landlord's records. For the purposes of this lease, "Center"
shall mean The Koger Center referred to in Section 1A.
3. TERM: The term of this Lease (the "Term") shall commence on the date (the
"Commencement Date") which is the earlier to occur of: the date stated in
Section 1B, or the date the Tenant first occupies all or part of the Premises.
The Term shall expire on the date (the "Expiration Date") stated in Section 1B
unless sooner terminated as otherwise provided in this Lease or unless extended
pursuant to Section 27 or other extension provisions contained herein.
4. USE AND POSSESSION: The Tenant covenants and agrees that the Premises are to
be used by the Tenant for general office purposes and for no other purposes
without the prior written consent of the Landlord, which shall not be
unreasonably withheld. The Tenant shall not occupy or use the Premises or permit
the use or occupancy of the Premises for any purpose or in any manner which:
(a) is unlawful or is in violation of any applicable legal, governmental or
quasi-governmental requirement, ordinance, rule or code; (b) may be dangerous to
persons or property; (c) may invalidate any insurance policy held by the
Landlord or increase the amount of premiums for any insurance policy affecting
the Building or the Property (if any additional amounts of insurance premiums
are so incurred, the Tenant shall pay the Landlord the additional amounts on
demand as Additional Rent, provided that such payment shall not authorize such
use); (d) may create a nuisance or disturb any other tenant of the Building or
the occupants of neighboring Property or injure the reputation of the Building
or the Center; and (e) violates the "Rules and Regulations" of the Building as
may from time to time be adopted by Landlord, or any restriction of record. The
Tenant agrees that Tenant shall be responsible for any costs incurred by
Landlord by reason of Tenant's misuse of the Premises or the Building and common
areas, including without limitation any damages incurred by Tenant in moving
into or out of the Premises. If any costs are so incurred by Landlord, the
Tenant shall pay the Landlord such costs within 30 days of Landlord's demand as
Additional Rent.
The Landlord agrees to have the Premises substantially completed and ready
for possession on or before the Commencement Date, subject to delays caused or
occasioned by strikes, insurrections, Acts of God, general labor unrest,
shortage of materials, civil disturbances and other casualties or unforeseen
causes or events beyond the control of the Landlord ("Unforeseen Causes").
Notwithstanding the foregoing, however, if Landlord does not have the Premises
substantially complete and ready for possession on or before the Commencement
Date, this Lease shall not terminate, but Tenant's obligation to pay Monthly
Rent and Additional Rent shall not begin to accrue with respect to the Premises
until the date that the Premises are substantially complete and ready for
Tenant's occupancy. The Tenant agrees to accept possession of the Premises
within ten (10) days after the receipt of notice by the Landlord of substantial
completion (if after the date specified in Section 1B).
5. RENT: Tenant agrees to pay to Landlord at the address specified in Section
1D, or at such other place designated in writing by Landlord, the Monthly Rent,
and any Additional Rent, plus any sales or use taxes (collectively called
"Rent"). "Monthly Rent" shall mean the initial monthly base rent stated in
Section 1B for the first twelve months following the Commencement Date of the
Term of this Lease ("First Lease Year"), and the Adjusted Monthly Rent, as
adjusted under Section 7. Rent shall be paid without any prior notice or demand
and without any deduction whatsoever. Monthly Rent shall be due in advance of
the first day of each month of the Term. The first installment of Monthly Rent
shall be paid by Tenant to Landlord upon execution of this Lease. Rent for any
partial lease month shall be prorated. Monthly Rent will be adjusted in the
manner set forth in Section 7. Tenant's obligation to pay Rent to Landlord
shall be independent of every other covenant or obligation of Landlord under
this Lease. All delinquent Rent shall bear interest at the rate of 10% per
annum from the date due until paid. Rent shall be considered delinquent after
the 10th day following the date it is due. If Tenant fails to pay Rent or any
other charge when due under this Lease, then Tenant shall pay and Landlord shall
be entitled to receive a late
2 of 9
<PAGE>
payment service charge, in addition to any interest charge due hereunder,
covering administrative and overhead expenses incurred by Landlord caused by
such late payment, which the parties stipulate and agree are hereby liquidated
and shall be equal to five percent of the overdue amount. Tenant shall pay a
charge for any checks written to Landlord which are returned for insufficient
funds equal to $25.00 per returned check or the amount to which Landlord is
entitled under State law, whichever is greater.
6. SALES AND USE TAX: In addition to the Rent and other amounts due to the
Landlord under this Lease, the Tenant shall pay to the Landlord and the Landlord
shall remit to the appropriate governmental authorities any sales, use, or other
tax, excluding Federal or State income taxes, now or hereafter imposed upon
rents and other amounts due to the Landlord under this Lease, notwithstanding
the fact that any statute, ordinance, enactment, or regulation may impose any of
those types of taxes on the Landlord.
7. NOTICES: For the purpose of any notice or demand under this Lease, the
respective parties shall be served by overnight delivery, personal delivery or
certified or registered mail, return receipt requested, addressed to the Tenant
at the address as set forth in Section 1E and to the Landlord at the addresses
set forth in Section 1E or other such addresses designated in writing by
Landlord. Any notice shall be effective when delivered.
8. ORDINANCES AND REGULATIONS: The Tenant shall comply promptly, at the
Tenant's sole cost and expense, with all present and future laws, codes,
ordinances, rules and regulations of any municipal, county, state, federal, or
other governmental authority, including environmental laws, and any bureau or
department thereof, and of the Board of Fire Underwriters or any other body
exercising similar functions which may be applicable to the Premises and
Tenant's use or occupancy of the Premises, and shall comply with the
requirements of all of Landlord's policies of insurance at any time in force
with respect to the Building in which the Premises are located. The Tenant
agrees for itself and for its subtenants, employees, agents, and invitees to
comply with the Rules and Regulations, promulgated from time to time with
respect to the Premises, Building, Property and Center, a copy of which is
available in the management office in the Center.
Notwithstanding any other provision of this Lease to the contrary, Landlord
hereby represents and warrants to Tenant that the Premises, the Building and the
Common Areas comply with the Americans with Disabilities Act ("ADA") as such are
currently used. During the term of this Lease, Tenant shall comply with the ADA
in its use and occupancy of the Premises and shall make any modifications to the
Premises necessary to so comply during the Term. However, Landlord shall be
responsible for any modifications to the Common Areas and the Building (except
the Premises) necessary to comply with ADA and Tenant shall have no
responsibility or liability therefor. Tenant agrees that any and all steps
taken or to be taken by Landlord, in Landlord's judgment, now or hereafter to
comply with the ADA with respect to the Building and its Common Areas are
authorized and permitted under the Lease and shall not constitute an
interruption, disturbance or other breach of Tenant's rights under the Lease
provided, however, that Landlord shall use reasonable efforts to avoid
unreasonably disrupting Tenant's use of the Premises.
Tenant covenants and agrees that Tenant shall not at any time maintain on, or
dispose or discharge from the Property or the Premises any "Hazardous
Materials", as defined below, except Tenant may use and store minor quantities
of Hazardous Materials for cleaning purposes only or in connection with the use
of office equipment so long as the quantities and use are exempt from applicable
governmental regulation and such Hazardous Materials are disposed of in
accordance with all applicable laws. The failure to comply with all applicable
laws regarding Hazardous Materials and this covenant shall constitute an Event
of Default by the Tenant under this Lease and shall entitle the Landlord to all
rights and remedies provided in this Lease, at law or in equity. The term
"Hazardous Materials" as used herein shall mean collectively, any hazardous
waste, any hazardous substances, any pollutant or contaminant, all as defined by
42 USC (S)9601, and any toxic substances, petroleum products, other hazardous
materials, or other chemicals or substances regulated by any environmental laws
of any county, state or federal government or any other governmental entity.
Tenant's obligations as set forth in this paragraph shall survive termination of
this Lease.
9. SIGNS: The Tenant shall not place any signs or other advertising matter or
materials on the exterior or on the interior of the Building or at any other
location on the Property or Center, without the prior written consent from the
Landlord. Any lettering or signs placed on the interior of the Building shall
be for directional purposes only, and such signs and lettering shall be of a
type, kind, character, location and description which have been approved by the
3 of 9
<PAGE>
Landlord in writing. Directional and identification signage provided by the
Landlord shall be limited to the tenant directory of the Building.
10. SERVICES: The Landlord shall provide the following: heat and air
conditioning in the Premises, during normal business hours (Monday through
Friday, 8:00 a.m. to 5:00 p.m., excluding national holidays), to the extent
necessary for the comfortable occupancy of the Premises, according to Landlord's
standard, under normal business operations and in the absence of the use of
machines, equipment, or devices which affect the temperature otherwise
maintained in the Premises: automatic elevator service, water from the regular
Building fixtures for drinking, lavatory, and toilet purposes: customary
cleaning and janitorial services in the Premises Monday through Friday,
excluding national holidays: customary cleaning, mowing, grounds keeping, and
trash removal in the Common Areas: Landlord's customary security services for
the Property; and electricity for normal business usage according to Landlord's
standard. Additional capacity or usage shall be provided at the option of the
Landlord (reasonably exercised) and at the sole cost and expense of the Tenant
as Additional Rent. The Landlord shall provide Landlord's standard amount of
free non-exclusive parking for the employees and visitors of the Tenant on the
parking areas adjacent to the Building and appurtenant to the property.
The services to be provided by Landlord at its cost under the terms of this
Lease shall not include any maintenance or replacement of non-standard building
items such as kitchen or break room fixtures and appliances including, but not
limited to sinks, disposals, dishwashers, water heaters, refrigerators, ice
makers, special air conditioning or heating units, and card access systems or
special facilities such as showers. All cost for the maintenance or replacement
of such items shall be the obligation of the Tenant.
The Tenant agrees that the Landlord shall not be liable for damages for
failure to furnish or delay in furnishing any service if attributable to any of
the causes described in Sections 16 and 17 or as a result of unforeseen causes.
No failure or delay resulting from the foregoing reasons shall be considered to
be an eviction or disturbance of the Tenant's quiet enjoyment, use, or
possession of the Premises. If the Tenant shall require electrical current to
operate equipment or machines, including heating, refrigeration, computer(s),
data processing, or other machines or equipment using electrical current or
maintain office hours that will increase the amount of the electricity usually
furnished by the Landlord for use in general office space, the Tenant will
obtain the prior written approval of the Landlord and pay to the Landlord the
additional direct expense incurred, including any installation or maintenance
cost, as Additional Rent. Landlord reserves the right to install a submeter for
such service.
11. ALTERATIONS: The Tenant, by occupancy hereunder, accepts the Premises as
being in good repair and condition and suitable for Tenant's intended use of the
Premises. The Tenant shall maintain the Premises and every part thereof in good
repair and condition, reasonable use, wear and tear and damage from fire or
other casualty excepted. Landlord shall maintain or cause to be maintained in
good repair and condition all of the Building (except the interior of the
premises) and the Common Areas. The Tenant shall not permit any lien or claim
for lien of a mechanic, laborer, or supplier or any other lien to be filed
against the Center, the Property containing the Building, the Premises, or any
part of such property, arising out of work performed, or alleged to have been
performed by, or at the direction of, or on behalf of the Tenant.
The interest of Landlord in the Property or any part thereof shall not be
subject to liens for improvements made by Tenant or by persons claiming by,
through or under Tenant, and Tenant agrees that Tenant shall notify any person
making any improvements on behalf of Tenant of this provision. Upon request of
Landlord, Tenant will execute a short form of this Lease which states that the
terms of this Lease expressly prohibits any liability to Landlord or the
Landlord's property for any improvements made by, through or under Tenant which
may be recorded by Landlord.
12. QUIET ENJOYMENT: Subject to the provisions of this Lease, the Tenant shall
be entitled to peaceful and quiet enjoyment of the Premises, so long as the
Tenant is not in default under this Lease.
13. LANDLORD'S RIGHTS: The Landlord and its agents shall have the right, at
all reasonable times during the Term of this Lease, to enter the Premises for
the purpose of inspecting the Premises and of making any repairs and alterations
as the Landlord shall deem necessary. The Landlord and its agents shall also
have the right to enter the Premises at all reasonable hours for the purpose of
displaying the Premises to prospective tenants during the ninety (90) day period
prior to the Expiration Date of this Lease. Landlord and its agents shall have
the right at all times to
4 of 9
<PAGE>
alter, renovate, and repair portions of the Building which do not include the
Premises, notwithstanding any temporary inconvenience or disturbance to Tenant
caused by such repairs, renovations, or alterations.
14. DESTRUCTION OF PREMISES; If the Premises, the Building, or the Property is
rendered substantially untenantable by fire or other casualty, the Landlord may
elect, by giving the Tenant written notice within ninety (90) days after the
date of the fire or casualty, either to: (a) terminate this Lease as of the
date of the fire or other casualty; or (b) proceed to repair or restore the
Premises, the Building, or the Property (other than the leasehold improvements
and personal property installed by the Tenant), to substantially the same
condition as existed immediately prior to fire or other casualty.
If the Landlord elects to proceed pursuant to 16(b) above, the Landlord's
notice shall contain the Landlord's reasonable estimate of the time required to
substantially complete the repair or restoration. If the estimate indicates
that the time so required will exceed ninety (90) days from the date of the
casualty, if any, pursuant to Section 23, then the Tenant shall have the right
to terminate this Lease as of the date of such casualty by giving written notice
to the Landlord not later than twenty (20) days after the date of the Landlord's
notice. If the Landlord's estimate indicates that the repair or restoration can
be substantially completed within one hundred eighty (180) days, or if the
Tenant fails to exercise its right to terminate this Lease, this Lease shall
remain in force and effect.
If the Premises are damaged by fire or other casualty but the Premises are
not rendered substantially untenantable, then the Landlord shall diligently
proceed to repair and restore the damaged portions thereof (other than the
leasehold improvements and personal property installed by the Tenant), to
substantially the same condition as existed immediately prior to such fire or
other casualty, unless such damage occurs during the last twelve (12) months of
the Term, in which event the Landlord shall have the right to terminate this
Lease as of the date of such fire or other casualty by giving written notice to
the Tenant within thirty (30) days after the date of such fire or other
casualty.
If all or any part of the Premises are damaged by fire or other casualty and
this Lease is not terminated, the Rent shall abate for that part of the Premises
which are untenantable on a per diem and proportionate area basis from three (3)
days after the date of the fire or other casualty until the Landlord has
substantially completed the repair and restoration work in the Premises which it
is required to perform, provided, that as a result of such fire or other
casualty, the Tenant does not occupy the portion of the Premises which are
untenantable during such period.
15, CONDEMNATION; If all or part of the Premises, Building or Property is
taken or condemned by any authority for any public use or purpose (including a
deed given in lieu of condemnation), which renders the Premises substantially
untenantable, this Lease shall terminate as of the date title vests in such
authority, and the Rent shall be apportioned as of such date.
If any part of the Premises, Building, or Property is taken or condemned but
the Premises are not rendered substantially untenantable (including a deed given
in lieu of condemnation), this Lease shall not terminate. If the taking reduces
the rentable square feet in the Premises, Rent shall be equitably reduced for
the period of such taking by an amount which bears the same ratio to the Rent
then in effect as the number of square feet so taken or condemned bears to the
Leased Area set forth in Section 1C. The Landlord, upon request and to the
extent of the award in condemnation or proceeds of sale, shall make necessary
repairs and restorations (exclusive of leasehold improvements and personal
property installed by the Tenant) to restore the Premises remaining to as near
its former condition as circumstances will permit, and to the Building and the
Property to the extent necessary to constitute the portion of same not so taken
or condemned as complete.
The Landlord shall be entitled to receive the entire price or award from any
sale, taking or condemnation without any payment to the Tenant and the Tenant
hereby assigns to the Landlord the Tenant's interest, if any, in such award.
However, the Tenant shall have the right separately to pursue against the
condemning authority an award in respect to the loss, if any, to leasehold
improvements paid by the Tenant without any credit or allowance for the Landlord
and for any loss for injury, damage, or destruction of the Tenant's business
resulting from such taking. Under no circumstances shall the Tenant seek or be
entitled to any compensation for the value of its leasehold estate which Tenant
hereby assigns to Landlord.
5 of 9
<PAGE>
16. ASSIGNMENT AND SUBLEASE: Tenant shall have the right to sublet all or any
portion of the Leased Premises without the prior written consent of Landlord;
provided that each such sublease shall be subject and subordinate to this Lease
and Tenant shall remain liable for the performance of all of its covenants and
agreements under this Lease. Notwithstanding the foregoing, Tenant shall not
assign this Lease in whole or in part without the consent of Landlord, which
consent shall not be unreasonably withheld, provided that, without the consent
of Landlord; Tenant may assign this Lease to (i) any subsidiary or other entity
owned at least 51%, directly or indirectly, by Tenant (ii) to any person, firm
or corporation who is the purchaser of all or substantially all of the assets of
Tenant or is the successor to substantially all the assets and business of
Tenant by virtue of a corporate merger or consolidation of, with or into Tenant,
or (iii) any general partner of Tenant. No such assignment without the consent
of Landlord, shall be effective unless each such assignee by written instrument
or operation of law, shall assume and become bound to perform and observe all of
the covenants and agreements of Tenant under this Lease, provided that Tenant
shall not be released of liability for the payment of Rent and for the
performance and observance of all of the other covenants and agreements of
Tenant under the Lease after the effective time of such assignment.
17. HOLDING OVER: If the Tenant, or any assignee or sublessee of the Tenant,
shall continue to occupy the Premises after the termination or expiration of
this Lease (including a termination by notice under Section 24 or a termination
or expiration under Section 27), without the prior written consent of the
Landlord, such tenancy shall be a Tenancy at Sufferance. During the period of
any hold over tenancy by the Tenant, or any assignee or sublessee, the Landlord,
by notice to the Tenant, may adjust the Rent to an amount equal to one hundred
and fifty percent of the Rent of the last month of the Term in which Rent was
payable. Acceptance by the Landlord of any Rent after termination shall not
constitute a renewal of this Lease or a consent to such hold over occupancy nor
shall it waive the Landlord's right of re-entry or any other right contained in
this lease or provided by law.
18. SUBORDINATION AND ATTORNMENT: This Lease and the right of the Tenant
hereunder are expressly subject and subordinate to the lien and provisions of
any mortgage, deed of trust, deed to secure debt, ground lease, assignment of
leases, or other security instrument or operating agreement (collectively a
"Security Instrument") now or hereafter encumbering the Premises, the Building,
the Property, or any part thereof, and all amendments, renewals, modifications
and extensions of and to any such Security Instrument and to all advances made
or hereafter to be made upon such Security instrument. The Tenant agrees to
execute and deliver such further instruments, in such form as may be required by
Landlord or any holder of a proposed or existing Security instrument,
subordinating this Lease to the lien of any such Security Instrument as may be
requested in writing by the Landlord or holder from time to time
In the event of the foreclosure of any such Security Instrument by voluntary
agreement or otherwise, or the commencement of any judicial action seeking such
foreclosure, the Tenant, at the request of the then Landlord, shall attorn to
and recognize such mortgagee or purchaser in foreclosure as the Tenant's
landlord under this Lease. The Tenant agrees to execute and deliver at any time
upon request of such mortgagee, purchaser, or their successors, any instrument
to further evidence such attornment.
The Tenant shall from time to time, upon not less than seven (7) days' prior
written request by the Landlord, deliver to the Landlord a statement in writing
certifying that this Lease is unmodified and in full force and effect, or, if
there have been modifications, that this Lease, as modified, is in full force
and effect; providing a true, correct and complete copy of the Lease and any and
all modifications of the Lease: the amount of each item of the Rent then
payable under this Lease and the date to which the Rent has been paid; that the
Landlord is not in default under this Lease or, if in default, a detailed
description of such default; that the Tenant is or is not in possession of the
Premises, as the case may be; and containing such other information and
agreements as may be reasonably requested.
Notwithstanding anything in this Lease (including, without limitation, this
Section 20) to the contrary, however, Landlord shall cause the holder of such
Security interest shall execute and deliver to Tenant a nondisturbance and
attornment agreement which provides that so long as no default has occurred and
is continuing beyond the period of time allowed for the remedy thereof under the
terms of this Lease, the holder of the Security Interest (i) shall not disturb
Tenant's leasehold interest or possession of the Premises in accordance with the
terms hereof, (ii) shall permit application of all proceeds of insurance and all
awards and payments in connection with the exercise or threatened exercise of
the power of eminent domain in accordance with the provisions of this Lease, and
(iii) waives all rights or
6 of 9
<PAGE>
interests in any trade fixtures of either Tenant or any of its subtenants. It
shall be a condition to the effectiveness of this Lease and Landlord shall
deliver to Tenant a subordination, nondisturbance and attornment agreement in
accordance with the terms of the preceding sentence, with respect to each
Security Interest which now constitutes a lien against the Building of the
Property.
19. WAIVER AND INDEMNIFICATION: To the full extent permitted by law, the
Tenant hereby releases and waives all claims against the Landlord and its
agents, employees, officers, directors, and independent contractors, for injury
or damage to person, property or business sustained in or about the Property,
the Building, or the Premises by the Tenant, its agents or employees other than
damage proximately caused by the gross negligence or willful misconduct of the
Landlord or its agents or employees.
The Tenant agrees to indemnify and hold harmless the Landlord and its agents
and employees, from and against any and all liabilities, claims, demands, costs,
and expenses of every kind and nature, including those arising from any injury
or damage to any person (including death) or property sustained in the Premises,
or resulting from the failure of the Tenant to perform its obligations under
this Lease; provided, however, the Tenant's obligations under this section shall
not apply to injury or damage resulting from the negligence or willful act of
the Landlord or its agents or employees.
The Landlord agrees to indemnify and hold harmless the Tenant, and its
respective agents and employees, from and against any and all liabilities,
claims, demands, costs and expenses of every kind and nature, arising from any
injury or damage to any person (including death) or property sustained in or
about the Building proximately caused by the gross negligence or willful act or
omission of the Landlord; provided, however, the Landlord's obligations under
this section shall not apply to injury or damage resulting from the negligence
or willful act or omission of the Tenant, or its agents or employees.
Landlord and Tenant on behalf of themselves and all others claiming under
them, including any insurer, waive all claims against each other, including all
rights of subrogation, for loss or damage to their respective property
(including, but not limited to, the Premises) arising from fire, smoke damage,
windstorm, hail, vandalism, theft, malicious mischief and any of the other
perils normally insured against in an "all risk" of physical loss insurance
policy which are normally not insured against in a "named peril" insurance
policy, regardless of whether insurance against those perils is in effect with
respect to such party's property and regardless of the negligence of either
party. If either party so requests, the other party shall obtain from its
insurer a written waiver of all rights of subrogation that it may have against
the other party.
20. SURRENDER OF PREMISES; Upon the expiration or termination of this Lease or
the termination of the Tenant's right of possession of the Premises, the Tenant
shall surrender and vacate the Premises immediately and deliver possession of
the Premises, the Tenant shall surrender and vacate the Premises immediately and
deliver possession thereof to the Landlord in a clean, good, and tenantable
condition, except for a) damages from fire or other casualty; b) reasonable use;
c) ordinary wear and tear. Any movable trade fixtures and personal property
that may be removed from the Premises by the Tenant at the end of the Lease
term, but which are not so removed, shall be conclusively presumed to have been
abandoned by the Tenant and title to such property shall pass to the Landlord
without any payment or credit; or, the Landlord may, at its option, either store
or dispose of such trade fixtures and personal property at the Tenant's expense.
21. EVENTS OF DEFAULT: Each of the following shall constitute an event of
default by the Tenant under this Lease: (1) the Tenant fails to pay any
installment of Rent or Additional Rent within ten (10) days after the date on
which the installment of Rent or Additional Rent first becomes due; (2) the
Tenant fails to observe or perform its obligations under sub-section (d) of
Section 4 above and such violation continues for more than 24 hours after such
notice or Tenant fails to observe or perform any of the other covenants,
conditions or provisions of this Lease other than the payment of any installment
of Rent or Additional Rent, and fails to cure such default within fifteen (15)
days after written notice from the Landlord to the Tenant. In the event that 15
days is an insufficient time during which to cure such failure, Tenant shall
have a longer, reasonable period of time during which to correct such failure,
so long as Tenant commences such correction with 15 days after receipt of
Landlord's notice and thereafter diligently pursues such correction to
completion; (3) the Tenant fails a second time to observe or perform any of the
other
7 of 9
<PAGE>
covenants, conditions or provisions of this Lease other than the payment of any
installment of Rent or Additional Rent after prior written notice of the
failure.
Upon the occurrence of an event of default by the Tenant under this Lease,
the Landlord at its option, without further notice or demand to the Tenant, may
in addition to all other rights and remedies provided in this Lease, at law or
in equity:
A. Terminate this Lease and the Tenant's right of possession of the
Premises, and recover all damages to which the Landlord is entitled under this
Lease, at law and in equity, specifically including, without limitation, all the
Landlord's expenses of reletting (including repairs, alterations, improvements,
additions, decorations, legal fees and brokerage commissions).
B. Terminate the Tenant's right of possession of the Premises without
terminating this Lease, in which event the Landlord may relet the Premises or
any part thereof for the account of the Tenant, for such rent and such term and
upon such terms and conditions as are acceptable to the Landlord. For purposes
of any reletting of the Premises, the Landlord is authorized to redecorate,
repair, alter and improve the Premises to the extent necessary or desirable in
the Landlord's judgment. For any period during which the Premises have not been
relet, Tenant shall pay Landlord monthly on the first day of each month during
the period that Tenant's right of possession is terminated, a sum equal to the
amount of Rent due under this Lease for such month. If and when the Premises
are relet and a sufficient sum is not realized from such reletting after payment
of all the Landlord's expenses or reletting (including repairs, alterations,
improvements, additions, decorations, legal fees and brokerage commissions) to
satisfy the payment of Rent due under this Lease for any month, the Tenant shall
pay to the Landlord any such deficiency monthly upon demand. The Tenant agrees
that the Landlord may file suit to recover any sums due to the Landlord under
this section and that such suit or recovery of any amount due the Landlord shall
not be any defense to any subsequent action brought for any amount not
previously reduced by judgment in favor of the Landlord. If the Landlord elects
to terminate the Tenant's right to possession only without terminating this
Lease, the Landlord may, at its option, enter into the Premises, removing the
Tenant's signs and other evidences of tenancy, and take and hold possession
thereof; provided, however, that such entry and possession shall not terminate
this Lease or release the Tenant, in whole or in part, from the Tenant's
obligation to pay the Rent reserved hereunder for the full Term or from any
other obligation of the Tenant under this Lease.
22. SUCCESSOR AND ASSIGNS: This Lease shall bind and insure to the benefit of
the successors, assigns, heirs, executors, administrators, and legal
representatives of the parties hereto. In the event of the sale, assignment, or
transfer by the Landlord of its interest in the Building or in this Lease (other
than a collateral assignment to secure a debt of the Landlord prior to
enforcement) to a successor in interest who expressly assumes the obligations of
the Landlord hereunder, the Landlord shall thereupon be released or discharged
from all of its covenants and obligations hereunder, except such obligations as
the Landlord shall have accrued prior to any such sale, assignment or transfer;
and the Tenant agrees to look solely to such successor of the Landlord for
performance of such obligations. Any securities or funds given by the Tenant to
the Landlord to secure performance by the Tenant of its obligations hereunder
may be assigned by the Landlord to such successor of the Landlord and, upon
acknowledgment by such successor or receipt of such security and its assumption
of the obligation to account for such security in accordance with the terms of
the Lease, the Landlord shall be discharged of any further obligation relating
thereto. The Landlord's assignment of the Lease or of any or all of its rights
herein shall in no manner affect the Tenant's obligations hereunder. The
Landlord shall have the right to freely sell, assign or otherwise transfer its
interest in the Building and/or this Lease.
23. NON-WAIVER: No waiver of any covenant or condition of this Lease by either
party shall be deemed to imply or constitute a further waiver of any other
covenant or condition of this Lease.
24. AUTOMATIC RENEWAL: Following the term, Tenant shall have an option to
extend the term of this Lease for one (1) additional term of three (3) years
each "Extended Term". The Extended Term shall be on and subject to all of the
same terms, covenants and conditions as herein contained, except that Monthly
Rent shall be an amount equal to the fair rental value of the Premises. The
option for this Extended Term shall be exercised only by written notice from
tenant to Landlord given no less than 90 days prior to the expiration of the
immediately preceding term.
8 of 9
<PAGE>
25. LIMITATION OF THE LANDLORD'S LIABILITY; As used in this Lease, the term
"Landlord" shall mean the entity herein named as such, and its successors and
assigns. No person holding the Landlord's interest under the Lease (whether or
not such person is named as the "Landlord") shall have any liability hereunder
after such person ceases to hold such interest, except for any liability
accruing hereunder while such person held such interest. No principal, officer,
employee, or partner (general or limited) of the Landlord shall have any
personal liability under any provision of this Lease. If the Landlord defaults
in the performance of any of its obligations under this Lease or otherwise, the
Tenant shall look solely to the Landlord's interest in the Building and not to
the other assets of Landlord or the assets, interest, or rights of any
principal, officer, employee, or partner (general or limited) for satisfaction
of the Tenant's remedies on account thereof.
26. COMMON AREAS: For purposes of this Lease "Common Areas" shall mean all
areas, improvements, space, and equipment (owned or controlled by the Landlord)
in or at the Property, provided by the Landlord for the common or joint use and
benefit of tenants, customers and other invitees.
27. MISCELLANEOUS: This Lease, the Exhibits, the Riders and Addendums
contained herein or attached hereto contain the entire agreement between the
Landlord and the Tenant and there are no other agreements, either oral or
written. This Lease shall not be modified or amended except by a written
document signed by the Landlord and the Tenant which specifically refers to this
Lease. The captions in this Lease are for convenience only and in no way
define, limit, construe or describe the scope or intent of the provisions of
this Lease. This Lease shall be construed in accordance with the Laws of the
state in which the Building is located. If any provision of this Lease or any
amendment hereof is invalid or unenforceable in any instance, such invalidity or
unenforceability shall not affect the validity or enforceability of any other
provision in any circumstance not controlled by such determination.
28. TENANT'S INSURANCE: Tenant shall obtain and keeping force during the terms
of this Lease, including any extension and renewal, comprehensive general
liability insurance, including contractual liability coverage, insuring Landlord
(as an additional insured) and Tenant against any liability arising out of the
ownership, use, occupancy or maintenance of the Premises, and all areas
appurtenant thereto. Such policy shall provide minimum limits of $1,000,000 for
damage to property or for death or injury to any one person in any one accident.
Tenant shall deliver to Landlord, prior to occupancy of the Premises, a
certificate of insurance and evidence of payment of one year's premium, and
shall deliver a new certificate as and when the policy is renewed or replaced.
The policy will not be subject to cancellation, non-renewal, reduction or other
change except after at least thirty (30) days prior written notice to Landlord.
If Tenant fails to comply with such requirements, Landlord may obtain such
insurance and keep the same in effect and tenant shall pay Landlord, as
Additional Rent due hereunder, the premium cost thereof upon demand.
29. NO RECORDING: NEITHER THIS LEASE NOR ANY MEMORANDUM OF THIS LEASE MAY BE
RECORDED OR FILED FOR RECORD IN ANY PUBLIC RECORDS WITHOUT THE SEPARATE EXPRESS
WRITTEN CONSENT, IN RECORDABLE FORM, OF THE LANDLORD.
30. RIDERS & ADDENDUMS: All riders and addendums contained herein or attached
hereto shall be deemed to be a part hereof and hereby incorporated in this Lease
by reference.
9 of 9
<PAGE>
KOGER
=====
LEASE RIDER
This Rider is attached to and made a part of the Lease dated 31 July 96, by and
between Centoff Realty Company, Inc., a Delaware Corporation ("Landlord") with
its principal office at 522 Fifth Avenue, New York, New York 10036, and PMT
Services, Inc., a Corporation organized and existing under the laws of the State
of Tennessee, ("Tenant") with its principal office at Two Maryland Farms, Suite
200, Brentwood, Tennessee 37027.
31. RENT ADJUSTMENT: The monthly rental shall be adjusted as follows:
October 1, 1996 - September 30, 1997: $24,056 per month
October 1, 1997 - September 30, 1998: $25,016 per month
October 1, 1998 - September 30, 1999: $26,016 per month
October 1, 1999 - September 30, 2000: $27,057 per month
October 1, 2000 - December 31, 2000: $28,140 per month
32. FIRST RIGHT OF REFUSAL: The Tenant shall have a first right of refusal on
the remaining square feet (approximately 4754 rentable square feet) on the third
floor of the Kingsport Building. The Tenant must provide written notice prior
to December 31, 1996 of their intent to expand into the entire suite (at their
same rental rate) beginning June 1, 1997 and continuing over the remaining term
of their lease. Tenant shall also have a Right of Refusal on all other space
which becomes available in the Kingsport Building.
<PAGE>
PMT SERVICES, INC.
NON-EMPLOYEE DIRECTOR RESTRICTED STOCK AWARD PLAN
Participation. Each non-employee director electing to participate in
this Plan shall be granted awards of restricted common stock ("Restricted
Stock") of PMT Services, Inc. (the "Company") under this Plan on the terms and
conditions herein described and subject to the satisfaction of the restrictions
contained herein. Each non-employee director electing to receive shares of
Restricted Stock under this Plan in lieu of a cash payment of $1,500 per Board
of Directors or Board committee meeting attended, shall make such election at
the Board meeting immediately following each Annual Meeting of Shareholders.
Such election shall remain in effect until completion of the fiscal year with
respect to which the non-employee director has elected to participate.
Restricted Stock Award Grant Date. Shares of Restricted Stock shall
be issued automatically following the date of each Board of Directors or Board
committee meeting in the name of the non-employee directors who have elected to
participate in this Plan. The date immediately following the date on which a
Board of Directors or Board committee meeting is held shall be referred to
hereinafter as the "Award Date" of such Restricted Stock.
Number of Shares of Restricted Stock. Each non-employee director
electing to participate in this Plan who is serving the Company on the Award
Date shall be issued in his or her name, on such date, that number of shares of
Restricted Stock equal to $1,500 divided by the fair market value of the Common
Stock of the Company, valued at the closing price of the Common Stock on the
trading date preceding the Annual Meeting of Shareholders.
Restriction Period. The Restricted Stock issued in the name of the
non-employee directors pursuant to this Plan shall be held by the Company for
the benefit of each such non-employee director. Except as otherwise provided
for herein, the Restricted Stock shall be delivered by the Company to the non-
employee director only upon such director's completion of service for the fiscal
year with respect to which the non-employee director has elected to participate.
At such time, the Restricted Stock shall be delivered to the non-employee
director free from the restrictions set forth in this Plan.
Voting of Restricted Stock; Dividends; Distributions. During the
period in which the Restricted Stock is held by the Company in the name of the
non-employee director, such shares may be voted by the non-employee director and
the non-employee director may receive dividends payable thereon, if any, and
participate in any distributions declared by the Company during such period as
if
<PAGE>
such shares of Restricted Stock were held by the non-employee director without
the restrictions of this Plan.
Forfeiture of Restricted Stock. Except as provided below, in the
event the non-employee director fails to complete, for any reason, service for
the fiscal year with respect to which such non-employee director has elected to
participate in the Plan, the non-employee director shall forfeit his or her
right to the undelivered Restricted Stock issued in the name of the non-employee
director, and such shares of Restricted Stock shall be returned to the Company
and shall no longer be deemed to be outstanding. Notwithstanding the foregoing,
in the event of the death of a non-employee director prior to the director's
completion of the term such non-employee director has elected to participate in
the Plan, the Restricted Stock otherwise deliverable for such year of service
shall be delivered by the Company to the director's legatee or personal
representative.
Section 83(b) Election. A non-employee director who files an election
with the Internal Revenue Service to include the fair market value of any
Restricted Stock in gross income while such shares are subject to the
restrictions contained in this Plan shall promptly furnish the Company with a
copy of the election together with the amount of any federal, state, local or
other taxes required to be withheld to enable the Company to claim an income tax
deduction with respect to such election.
Unregistered Shares. The shares of Restricted Stock to be issued
under this Plan have not been registered under the Securities Act of 1933, as
amended (the "Act"), or the securities act of any state. No disposition of the
shares may be made in the absence of an effective registration statement under
the Act and compliance with applicable state securities laws or an opinion of
counsel satisfactory to the Company to the effect that such disposition is in
compliance with the Act and applicable state securities laws.
<PAGE>
SUBSIDIARIES OF THE REGISTRANT:
Name State Of Incorporation
------------- -------------------------------
Martin Howe Associates, Inc. Texas
Data Transfer Associates, Inc. Illinois
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (No. 333-00164) and on Form S-8 (Nos. 33-88974, 33-88976
and 33-97000) of PMT Services, Inc. of our report dated September 13, 1996,
appearing on page 29 of this Form 10-K. We also consent to the incorporation by
reference of our report on the Financial Statement Schedule, which appears on
page 55 of this Form 10-K.
PRICE WATERHOUSE LLP
Nashville, Tennessee
October 15, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF PMT SERVICES, INC. FOR THE YEAR ENDED JULY
31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 105,461,031
<SECURITIES> 0
<RECEIVABLES> 6,547,031
<ALLOWANCES> 0
<INVENTORY> 556,251
<CURRENT-ASSETS> 113,590,173
<PP&E> 6,614,141
<DEPRECIATION> 2,258,403
<TOTAL-ASSETS> 113,590,173
<CURRENT-LIABILITIES> 6,862,276
<BONDS> 0
0
0
<COMMON> 323,121
<OTHER-SE> 179,043,715
<TOTAL-LIABILITY-AND-EQUITY> 186,792,112
<SALES> 149,840,026
<TOTAL-REVENUES> 149,840,026
<CGS> 115,651,792
<TOTAL-COSTS> 115,651,792
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 654,705
<INTEREST-EXPENSE> 345,059
<INCOME-PRETAX> 13,806,231
<INCOME-TAX> 5,180,855
<INCOME-CONTINUING> 8,625,376
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,625,376
<EPS-PRIMARY> .30
<EPS-DILUTED> .00
</TABLE>
