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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
<TABLE>
<C> <S>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-25346
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TRANSACTION SYSTEMS ARCHITECTS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 47-0772104
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
224 SOUTH 108TH AVENUE
SUITE 7
OMAHA, NEBRASKA 68154
(Address of principal executive offices, including zip code)
(402) 334-5101
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
CLASS A COMMON STOCK, $.005 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. [ ]
As of December 17, 1999, there were outstanding 32,623,131 shares of the
Company's Class A Common Stock, par value $.005. As of that date, the aggregate
market value of the shares of common stock held by nonaffiliates of the
registrant (based on the last sale price of $26.75 per share for the
registrant's common stock as of such date) was $872,668,754.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III is incorporated by reference to the
definitive Proxy Statement for the Annual Meeting of Stockholders of the Company
to be held February 22, 2000, which will be filed with the Securities and
Exchange Commission not later than 120 days after the end of the Registrant's
fiscal year.
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TRANSACTION SYSTEMS ARCHITECTS, INC.
1999 FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 14
Item 3. Legal Proceedings........................................... 14
Item 4. Submission of Matters to a Vote of Security Holders......... 14
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters....................................... 15
Item 6. Selected Financial Data..................................... 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 17
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 28
Item 8. Financial Statements and Supplementary Data................. 29
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 53
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 53
Item 11. Executive Compensation...................................... 53
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 53
Item 13. Certain Relationships and Related Transactions.............. 53
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 53
Signatures............................................................... 56
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Transaction Systems Architects, Inc. ("TSA" or the "Company") develops,
markets, installs and supports a broad line of software products and services
primarily focused on facilitating electronic payments and electronic commerce.
The Company's products are organized into four lines-of-business
groups--Consumer Banking, Corporate Banking, Retail Solutions and System
Solutions.
- CONSUMER BANKING -- Products in this group represent the Company's largest
product line and include it's most mature and well-established
applications. These applications include the Company's BASE24, TRANS24,
OCM24, Integrated Voice Response (IVR), Smart Card and Internet Banking
(I24) product lines. Financial institutions and third-party processors use
these products to route and process transactions for Automated Teller
Machine (ATM) networks; process transactions from retailers using
traditional Point of Sale (POS) devices and the Internet; handle Internet
and phone banking transactions; control fraud and money laundering and
issue and manage multi-functional applications on smart cards. Products in
the Consumer Banking group represent approximately 73% of the Company's
fiscal 1999 revenue.
- CORPORATE BANKING -- The Company's Corporate Banking products include it's
CO-ach, Money Transfer System (MTS) and MoneyNet products. The CO-ach
product is used by financial institutions to automatically deposit
paychecks and process other automated clearing house (ACH) transactions.
Financial institutions use the MTS and MoneyNet products to automate the
process by which institutions transfer high-value payments. Products in
the Corporate Banking group represent approximately 8% of the Company's
fiscal 1999 revenue.
- RETAIL SOLUTIONS -- Retail Solutions products include BASE24-POS and
WINPAY24 which are used by some of the world's largest retailers to route
transactions from their ATM and POS networks; process Electronic Benefit
Transfer (EBT) transactions, authorize checks, establish frequent shopper
programs and control fraud. In addition, Retail Solutions products include
E24 which allows retailers to process e-commerce payment transactions.
Products in the Retail Solutions group represent approximately 6% of the
Company's fiscal 1999 revenue.
- SYSTEM SOLUTIONS -- Products in this group are used by a cross-section of
customers in many industries to monitor mission critical systems,
establish communication links between high-volume systems and handle
intersystem messaging primarily through the use of the Company's ICE,
NET24, Enguard and Extractor/Replicator products. Products in the System
Solutions group represent approximately 13% of the Company's fiscal 1999
revenue.
Products developed by the four lines-of-business groups are marketed and
supported through the Company's wholly-owned subsidiary, ACI Worldwide Inc
(ACI). ACI sells and supports the products and services through three
distribution networks: the Americas, Europe/Middle East/Africa (EMEA) and Asia/
Pacific. Each distribution network primarily uses its own sales force and
supplements this with reseller and/or distributor networks.
At September 30, 1999, the Company's customers include 111 of the
500 largest banks in the world, as measured by asset size, and 22 of the top
100 retailers in the United States as measured by revenue. As of September 30,
1999, the Company had 2,314 customers in 79 countries on six continents. During
fiscal years 1999, 1998 and 1997, approximately 53%, 55% and 54%, respectively,
of the Company's total revenues resulted from international operations and
approximately 66%, 63% and 64% respectively, of its revenues were derived from
licensing the BASE24 family of products and providing related services and
maintenance.
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ACQUISITIONS
The Company completed several acquisitions during fiscal 1999, 1998 and
1997. The Company's acquisition strategy is focused primarily on two areas: (i)
additional products and platforms to complement and enhance the Company's
strategy of being the leading provider of electronic payments software for
banks, retailers and other enterprises needing high-volume, reliable processing
engines and (ii) geographic expansion into markets which have proven or have a
high level of opportunity to embrace electronic payments.
Acquisitions in fiscal 1999, 1998 and 1997 include the following:
<TABLE>
<S> <C>
Open System Solutions, Inc............................... October 1996
Regency Voice Systems, Inc............................... May 1997
IntraNet, Inc............................................ August 1998
Professional Resources, Inc. (PRI)....................... August 1998
Smart Card Integrators Ltd. (SCIL)....................... August 1998
Media Integration BV (MINT).............................. November 1998
U.S. Processing, Inc. (USPI)............................. December 1998
Insession, Inc. (Insession).............................. March 1999
SDM International, Inc. (SDM)............................ July 1999
</TABLE>
The acquisition of MINT reflects the Company's strategic decision to expand
its smart card product expertise and product offerings. MINT's products are used
to issue and manage multi-functional applications on smart cards. The
acquisition of USPI provided the Company with service bureau processing
capabilities. Due to on-going capital cost requirements, USPI was subsequently
sold to First Data Resources in September of 1999. The acquisition of Insession
provided the Company with complete control over the development and distribution
of the ICE product. The Company was previously the exclusive distributor of the
ICE product under an agreement with Insession that was due to expire in
March 2001. Through the acquisition of SDM, the Company added the OCM24
electronic payments software solution that runs on IBM's Parallel Sysplex
platform.
THE ELECTRONIC PAYMENTS MARKET
The electronic payments market is comprised of debit and credit card
issuers, switch interchanges, transaction acquirers and transaction generators,
including ATM networks, retail merchant locations and, increasingly, the
Internet. The routing, control and settlement of electronic payments is a
complex activity due to the large number of locations and variety of sources
from which transactions can be generated, the large number of issuers in the
market, high transaction volumes, geographically dispersed networks, differing
types of authorization and varied reporting requirements. These activities are
typically performed online and must be conducted 24 hours a day, 7 days a week.
Electronic payments software carries transactions from the transaction
generators to the acquiring institutions. The software then uses regional or
national switches to access the card issuers for approval or denial of the
transactions. The software returns messages to the sources, thereby completing
the transactions. Electronic payments software may be required to interact with
dozens of devices, switch interchanges and communication protocols around the
world. The electronic payments market has expanded both domestically and
internationally.
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PRODUCTS AND RELATED SERVICES
The following table summarizes revenues by product (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Consumer Banking:
BASE24.................................... $217,575 $173,507 $148,172
Smart Card................................ 11,620 10,079 5,616
IVR Products.............................. 10,144 11,535 9,851
TRANS24................................... 8,377 14,573 9,699
PRISM..................................... 3,773 1,255 --
I24....................................... 1,685 11 --
Other..................................... 3,256 4,987 1,676
-------- -------- --------
256,430 215,947 175,014
-------- -------- --------
Corporate Banking:
MTS....................................... 20,946 20,958 22,667
MoneyNet.................................. 4,027 3,478 4,201
CO-ach.................................... 3,402 5,494 3,795
Other..................................... 1,686 895 400
-------- -------- --------
30,061 30,825 31,063
-------- -------- --------
Retail Solutions:
BASE24.................................... 11,559 13,853 8,521
WINPAY24.................................. 4,217 3,617 --
E24....................................... 225 -- --
Other..................................... 6,578 5,553 7,955
-------- -------- --------
22,579 23,023 16,476
-------- -------- --------
System Solutions:
ICE....................................... 28,976 18,539 12,061
Other (primarily services)................ 16,748 10,915 9,535
-------- -------- --------
45,724 29,454 21,596
-------- -------- --------
$354,794 $299,249 $244,149
======== ======== ========
</TABLE>
The amounts in the above table include products and related services,
including maintenance fees.
CONSUMER BANKING AND RETAIL SOLUTIONS SOFTWARE PRODUCTS
The Company's consumer banking and retail solutions software products
include the following:
BASE24. BASE24 is an integrated family of products marketed to customers
operating electronic payment networks in the consumer banking and retail
industries. The modular architecture of the products enables customers to select
the application and system components that are required to operate their
networks.
The Company believes that BASE24 has a more complete range of features and
functions for electronic payments processing than products offered by its
competitors. BASE24 allows customers to adapt to changing network needs by
supporting over 40 different types of ATM and POS terminals, over 100
interchange interfaces and various authorization and reporting options.
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The BASE24 product line runs exclusively on Compaq's NonStop Himalaya
servers. The NonStop Himalaya parallel-processing environment offers
fault-tolerance, linear expandability and distributed processing. The
combination of features offered by BASE24 and NonStop Himalaya are important
characteristics in high volume, 24-hour per day electronic payment systems. The
Company believes that the NonStop Himalaya platform will continue to be a widely
accepted platform for transaction processing in the electronic payments market.
There can be no assurance that the NonStop Himalaya servers will continue to be
a widely accepted platform for this market.
TRANS24. TRANS24 is a family of products, marketed principally in the
banking industry, that runs on a variety of hardware platforms, including IBM
mainframes, and RISC/UNIX servers. The TRANS24 electronic payment products
support online processing of transactions in ATM or POS environments. These
products have traditionally been marketed to smaller institutions, and in
certain international markets where Compaq has limited market share. The
TRANS24-Card Manager and Settlement Manager products are also marketed to
customers with BASE24, as they can be interfaced to BASE24 and represent
value-added services necessary to operate an electronic payments solution
effectively.
WINPAY24. WINPAY24 is an electronic payment and authorization system that
facilitates a broad range of applications for retailers. These applications
include debit and credit card processing, ACH processing, electronic benefits
transfer, card issuance and management, check authorization, customer loyalty
programs and returned check collection. The WINPAY24 products operate on the
Windows NT platform.
OCM24. OCM24 is a comprehensive electronic payments solution that runs on
the IBM S/390 Parallel Enterprise Server. OCM24 consists of integrated modules
that delivers all of the ATM, POS, switching, cardholder management and
encryption services needed to operate proprietary or inter-bank electronic
payment networks.
PRISM. PRISM is a software product which utilizes neural network technology
to combat credit/ debit card fraud, application fraud, merchant fraud and
bankruptcy detection. The neural network technology learns to recognize
transaction patterns through modeling techniques.
E24. E24 is the Company's e-commerce Internet payment processing solution
for retailers, merchant processors and card issuers. E24 provides a secure,
scalable, reliable Internet payment processing engine that complements existing
mission critical systems. E24 includes a browser-based interface which makes
managing Internet oriented transactions easier by integrating with BASE24 and
WINPAY24 payment processing systems. E24 uses both Secure Socket Layer (SSL) and
Secure Electronic Transaction (SET) security standards.
I24. I24 is a set of on-line banking solutions for financial solutions
providers. The I24 family of products provide financial institutions the ability
to offer Internet banking solutions to its consumer banking and business banking
customers. The I24 products provide financial institutions' consumer banking
customers the ability to access account information, view and pay bills,
initiate transactions and communicate with the financial institution. In
addition, for a financial institutions business banking customers, I24 has
Web-based cash management and customer relationship management capabilities.
SMART CARD PRODUCTS. The Company's smart card solutions allow the use of
stored-value and chip card authorization applications at smart card-enabled
devices. The solutions facilitate authorization of funds transfers from existing
accounts to cards. They also leverage chip technology to enhance debit/ credit
card authentication and security. The smart card solutions preserve legacy
investment by allowing the integration of these emerging technologies into
existing electronic delivery environments.
INTERACTIVE VOICE RESPONSE SOFTWARE. The Company markets an interactive
voice response (IVR) software product which allows banks to offer their
customers answers to routine questions such as balance inquiry, last deposit,
maturity dates, transaction history, interest information, payment dates and
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amounts via telephone or personal computer inquiry. The IVR software product is
targeted at small to mid-sized community banks and runs on personal computers.
CORPORATE BANKING SOFTWARE PRODUCTS
The Company has three primary corporate banking software products: (i) Money
Transfer System (MTS), (ii) CO-ach and (iii) MoneyNet. MTS and MoneyNet are
systems for generating, authorizing, routing, settling and controlling
high-value wire transfer transactions in a secure, fault-tolerant environment.
MTS communicates over proprietary networks using a variety of messaging formats,
including CHIPS, S.W.I.F.T., Telex, FedWire and Fed Book Entry Securities.
MoneyNet is primarily used domestically and is focused on the FedWire market.
MTS operates on Digital's VAX VMS operating system and the IBM RS/6000 platform.
MoneyNet operates exclusively on Compaq's NonStop Himalaya servers. CO-ach is a
system for initiating, controlling, settling and reporting ACH transactions. ACH
transactions are electronic payments that replace traditional paper checks.
CO-ach is targeted at large ACH originators with high transaction volumes. In
addition to large domestic ACH originators, the Company is marketing CO-ach to
international markets, where standards similar to those in the U.S. for
automated check clearing are emerging. CO-ach operates exclusively on Compaq's
NonStop Himalaya servers.
SYSTEM SOLUTIONS PRODUCTS
The Company markets system software which involves a set of software tools
that facilitate network monitoring, connectivity, management and integration.
The Company distributes and supports its System Network Architecture (SNA)
connectivity tool, known as ICE, which facilitates connectivity between Compaq
and IBM computers. The Company has also developed NET24, a message-oriented
middleware product that acts as the layer of software which manages the
interface between application software and computer operating systems and helps
customers perform network and legacy systems integration projects and Enguard,
which is a proactive monitoring, alarm and dispatching software tool. In
addition, the System Solutions products include Extractor/Replicator which is a
data center management enhancement software product.
SERVICES
The following table summarizes services revenue (in thousands):
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Technical Services............................. $42,832 $40,423 $32,981
Project Management............................. 26,940 24,359 19,788
Facilities Management.......................... 7,085 5,906 5,465
------- ------- -------
$76,857 $70,688 $58,234
======= ======= =======
Percentage of Total Revenues................... 21.7% 23.6% 23.9%
======= ======= =======
</TABLE>
TECHNICAL SERVICES. The majority of the Company's technical services are
provided to customers who have licensed one or more of the Company's software
products. Services offered by the Company include programming and programming
support, day-to-day systems operations, network operations, help desk staffing,
quality assurance testing, problem resolution, system design, and performance
planning and review. Technical services are priced on a weekly basis according
to the level of technical expertise required and the duration of the project.
PROJECT MANAGEMENT. The Company offers a Project Management and
Implementation Plan ("PMIP") which provides customers using the Company's
software products with a variety of support
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services, including on-site product integration reviews, project planning,
training, site preparation, installation, testing and go-live support, and
project management throughout the project life cycle. The Company offers
additional services, if required, on a fee basis. PMIPs are offered for a fee
which varies based on the level and quantity of included support services.
FACILITIES MANAGEMENT. The Company offers facilities management services
whereby the Company operates a customer's electronic payments system for
multi-year periods. Pricing and payment terms for facilities management services
vary on a case-by-case basis giving consideration to the complexity of the
facility or system to be managed, the level and quantity of technical services
required, and other factors relevant to the facilities management agreement.
CUSTOMER SUPPORT
The Company offers its customers both a general maintenance plan and an
extended service option, called the Enhanced Support Program ("ESP").
Maintenance fees, including ESP, were $63.9 million, $57.1 million and $48.7
million, or 18.0%, 19.1% and 20.0% of total revenues, during fiscal years 1999,
1998 and 1997, respectively.
MAINTENANCE. After software installation and project completion, the Company
provides maintenance services to customers for a monthly fee ranging from 1.0%
to 1.5% of the related software price. Virtually all new customer contracts
include a provision for maintenance services. Maintenance services include:
- Twenty-four hour hotline for problem resolution
- Customer account management support
- Vendor-required mandates and updates
- Product documentation
- Hardware operating system compatibility
- User group membership
The Company provides new releases of its products on a periodic basis. New
releases of the product which often contain product enhancements, are typically
included at no additional fee. The Company's agreements with its customers
permit the Company to charge for substantial product enhancements which are not
provided as part of the maintenance agreement. The Company determines on a
case-by-case basis for which of these enhancements it will charge an additional
fee.
The Company organizes user groups, generally around geographic regions and
product lines. The groups help the Company determine its product strategy,
development plans and aspects of customer support.
ENHANCED SUPPORT PROGRAM. Each ESP customer is assigned an experienced
technician to work with its system. The technicians perform functions such as:
- Install and test software fixes
- Retrofit customer specific software modifications ("RPQs") into new
software releases
- Answer questions and resolve problems related to RPQ code
- Maintain a detailed RPQ history
- Monitor customer problems on HELP24 hotline database on a priority basis
- Supply on-site support, available upon demand
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- Perform an annual system review
STRATEGIC RELATIONSHIPS
From time to time, the Company enters into sales, distribution, marketing or
strategic alliances with other software and hardware providers. These
relationships are typically formed with the objective of providing the Company
with additional products to complement and enhance the Company's suite of
product offerings. Such relationships include the following:
DIGITAL COURIER TECHNOLOGIES, INC. (DCTI). The Company has a distribution
arrangement with DCTI whereby the Company distributes DCTI's e-commerce products
in combination with the Company's E24 products to provide a full-range of
e-commerce payment processing solutions for retailers.
EDIFY CORPORATION. The Company has an agreement with Edify, a wholly-owned
subsidiary of SI Corporation, whereby it is licensed to incorporate Edify's
Electronic Banking System (EBS) set of software products into the Company's I24
family of Internet banking solutions. The EBS products extend the I24 product
line to include browser-based consumer and business banking, electronic bill
payment and bill presentment capabilities.
NESTOR. The Company has a distribution agreement with Nestor which allows
the Company to distribute Nestor's PRISM products. The PRISM software products
are real time bank-card and credit-card fraud detection products.
GLOBESET. The Company has entered into a distribution agreement with
GlobeSet whereby the Company distributes, installs and supports GlobeSet's
Internet payment security software products. GlobeSet's products, which support
SSL and SET, are combined with the Company's electronic funds transfer systems
to provide secure, end-to-end payment processing from consumer to merchant to
financial institution.
GOLDENGATE. The Company has a sales agency agreement with GoldenGate, Inc.
which allows it to offer Golden Gate's Extractor/Replicator (E/R) product to its
customers. The E/R product is a data center management enhancement software
product. E/R provides features for data to be extracted and replicated flexibly,
efficiently and reliably. A primary use of E/R is to create effective data mart
feeds.
CUSTOMERS
The Company's typical electronic payments software, systems solutions,
corporate payments and smart card customers are large financial institutions,
retailers or third-party processors operating large, geographically-distributed
electronic payment networks capable of capturing large volumes of transactions
through many types of devices and accessing a variety of switches. At
September 30, 1999, the Company's customer base includes 111 of the 500 largest
banks in the world as measured by asset size, and 22 of the top 100 retailers in
the United States as measured by revenue. The Company's IVR product customers
are typically small to midsize banks located primarily in the Americas region
and totaled approximately 1,400 at September 30, 1999.
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The following table illustrates the distribution of the Company's customers
by geographic region and industry segment as of September 30, 1999:
<TABLE>
<CAPTION>
FINANCIAL PROCESSORS/
GEOGRAPHIC REGION INSTITUTIONS NETWORKS RETAILERS OTHER TOTAL
- ----------------- ------------ ----------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Americas...................................... 1,765 74 59 96 1,994
Europe, Middle East and Africa (EMEA)......... 106 34 3 52 195
Asia/Pacific.................................. 93 15 2 15 125
----- --- -- --- -----
Total..................................... 1,964 123 64 163 2,314
===== === == === =====
</TABLE>
SALES AND MARKETING
The Company's primary method of distribution is direct sales by employees
assigned to specific regions or specific products. In addition, the Company uses
distributors and sales agents to supplement its direct sales force in countries
where business practices or customs make it appropriate, or where it is
uneconomical to have a direct sales staff. As of September 30, 1999 the Company
employed 172 people in direct sales, and had arrangements with 26 distributors
and sales agents. The Company generates a majority of its sales leads through
existing relationships with vendors, customers and prospects, or through
referrals.
The Company's primary sales offices are located in Amsterdam, Bahrain,
Boston, Dallas, Johannesburg, London, Melbourne, Mexico City, Naples, Omaha,
Oslo, Sao Paulo, Singapore, Wiesbaden, Tokyo and Toronto. The offices are
responsible for direct and distributor or sales agent-facilitated sales for
designated regions.
The Company distributes the products of other vendors as complements to its
existing product lines. The Company is typically responsible for sales and
marketing as well as first line support. These agreements are generally for a
period of two to three years and involve revenue sharing based on relative
responsibilities.
RESEARCH AND DEVELOPMENT
The Company's product development efforts focus on new products and improved
versions of existing products. The Company believes that the timely development
of new applications and enhancements is essential to maintain its competitive
position in the market.
In developing new products, the Company works closely with industry leaders
to determine requirements. The Company works with device manufacturers, such as
NCR and Diebold, to ensure compatibility with the latest ATM technology. The
Company works with interchange vendors, such as VISA and MasterCard, to ensure
compliance with new regulations or processing mandates. The Company works with
platform vendors, such as Compaq and IBM, to ensure compatibility with new
operating system releases and generations of hardware. Customers often provide
additional information on requirements and serve as beta-test partners.
The Company's research and development staff consisted of 459 employees as
of September 30, 1999. The Company's total research and development expenses,
excluding capitalized software development costs were $34.6 million,
$26.2 million and $20.1 million during fiscal years 1999, 1998 and 1997, or
9.8%, 8.8% and 8.2% of total revenues, respectively.
BACKLOG
As of September 30, 1999, the Company had non-recurring revenue backlog of
$30.9 million in software license fees and $34.2 million in services. The
Company includes in its non-recurring revenue
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backlog all fees specified in executed contracts to the extent that the Company
contemplates recognition of the related revenue within one year. There can be no
assurance that the contracts included in non-recurring revenue backlog will
actually generate the specified revenues or that the actual revenues will be
generated within the one year period. As of September 30, 1998 and 1997, the
Company had non-recurring revenue backlog of $30.2 million and $27.7 million,
respectively, in software license fees and $35.6 million and $19.2 million,
respectively, in services.
As of September 30, 1999, the Company had recurring revenue backlog of
$138.7 million. The Company defines recurring revenue backlog to be all monthly
license fees, maintenance fees and facilities management fees specified in
executed contracts to the extent that the Company contemplates recognition of
the related revenue within one year. There can be no assurance that contracts
included in recurring revenue backlog will actually generate the specified
revenues or that the revenues will be generated within the one year period. As
of September 30, 1998 and 1997, the Company had $119.4 million and $94.5
million, respectively, of recurring revenue backlog.
COMPETITION
The electronic payments market is highly competitive. Competitive factors in
the market include breadth of product features, product quality and
functionality, marketing and sales resources, customer service and support and
price.
The Company's most significant competitors in the Consumer Banking business
group are e-funds, S2 Systems, Inc., IFS International and Oasis Technology. In
addition, the Company encounters competition from third-party processors and
from other vendors offering software on a wide range of product platforms. There
is no single significant competitor in the international market. As electronic
payments transaction volumes increase and banks face higher processing costs,
third-party processors will constitute stronger competition to the Company's
efforts to market its solutions to smaller institutions. In the larger
institution market, the Company believes that third-party processors will be
less competitive since large institutions attempt to differentiate their
electronic payments product offerings from their competition.
In the Corporate Banking business group, the company's most significant
competitors are Logica and Fundtech. In addition, the Company also experiences
competition from software developed internally from potential customers.
The retail solutions business group faces a very fragmented competitive
environment. Competitors range from large transaction processors handling retail
credit card transactions to smaller, regional software developers.
The most significant competition for the Systems Solutions business group is
Compaq Computers, Inc.
PROPRIETARY RIGHTS AND LICENSES
The Company relies on a combination of trade secret and copyright laws,
license agreements, nondisclosure and other contractual provisions and technical
measures to protect its proprietary rights. The Company distributes its software
products under software license agreements that typically grant customers
nonexclusive licenses to use the products. Use of the software products is
usually restricted to designated computers at specified locations and is subject
to terms and conditions prohibiting unauthorized reproduction or transfer of the
software products. The Company also seeks to protect the source code of its
software as a trade secret and as a copyrighted work.
Despite these precautions, there can be no assurance that misappropriation
of the Company's software products and technology will not occur. Although the
Company believes that its intellectual property rights do not infringe upon the
proprietary rights of third parties, there can be no assurance that
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<PAGE>
third parties will not assert infringement claims against the Company. Further,
there can be no assurance that intellectual property protection will be
available for the Company's products in certain foreign countries.
EMPLOYEES
As of September 30, 1999, the Company had a total of 2,194 employees of whom
293 were engaged in administration, 395 in sales and marketing, 817 in software
development and 689 in customer support. The Company's success is dependent upon
its ability to attract and retain qualified employees. None of the Company's
employees are subject to a collective bargaining agreement. The Company believes
that its relations with its employees are good.
SEGMENT AND GEOGRAPHIC INFORMATION
The Company has a single operating segment, encompassing the development,
marketing, installation and technical support of software products and services
primarily focused on facilitating electronic payments and electronic commerce.
See Note 13 to the Company's Consolidated Financial Statements for information
relating to the Company's geographic areas and four lines-of-business groups.
EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------------------------------------------------
<S> <C> <C>
William E. Fisher......................... 53 Chairman of the Board and Director
David C. Russell.......................... 51 Chief Executive Officer, President and Director
Gregory J. Duman.......................... 44 Chief Financial Officer and Treasurer
David P. Stokes........................... 43 General Counsel and Secretary
Dwight G. Hanson.......................... 41 Chief Accounting Officer
Edward H. Mangold......................... 54 Senior Vice President -- Americas Region
Mark R. Vipond............................ 40 Senior Vice President -- Consumer Banking
Jeffrey S. Hale........................... 41 Senior Vice President -- Business Development
Don McLarty............................... 52 Vice President -- Asia/Pacific Region
Stephen J. Royer.......................... 41 Vice President -- System Solutions
Jon D. Parr............................... 42 Vice President -- EMEA Region
Stephen M. Bailey......................... 43 Vice President -- Corporate Banking
Marlin R. Howley.......................... 43 Vice President -- Retail Solutions
Anthony J. Parkinson...................... 47 Vice President -- Enterprise Solutions Group
</TABLE>
Mr. Fisher is Chairman of the Board of TSA. Since joining ACI in 1987, he
has served in various capacities, including Vice President of Financial Systems,
Senior Vice President of Software and Services, Executive Vice President, Chief
Operating Officer, President and Chief Executive Officer. Prior to joining ACI,
he held the position of President for the Government Services Division of First
Data Resources ("FDR"), an information processing company.
Mr. Russell was appointed President and Chief Executive Officer of TSA in
November 1999. He joined ACI in 1989 serving as Vice President of Strategic
Planning, later serving as Vice President of Customer Support, Senior Vice
President of Software and Services, Senior Vice President of the EFT Product
Company, President of ACI and Chief Operating Officer of TSA. From 1984 to 1989,
he held various operations and planning positions at FDR.
12
<PAGE>
Mr. Duman joined ACI in 1983 as Director of Administration. He became
Controller in 1985 and Vice President of Finance and Chief Financial Officer in
1991. From 1979 to 1983, he worked for Arthur Andersen & Co. as a certified
public accountant.
Mr. Stokes was appointed General Counsel in 1991 after joining ACI as
Assistant Counsel in 1988. Prior to joining ACI, he was a partner in a private
law firm in Omaha.
Mr. Hanson joined ACI in 1991 as Corporate Controller. He was appointed Vice
President of Finance in 1997. From 1981 to 1991, Mr. Hanson worked for
Coopers & Lybrand as a Certified Public Accountant.
Mr. Mangold joined ACI in 1987 and served in sales management positions
prior to his appointment in 1990 as Senior Vice President of the Americas
Region. From 1968 to 1987, he held various sales and management positions at
Unisys, Inc.
Mr. Vipond joined ACI in 1985, and served in various capacities, including
National Sales Manager of ACI Canada and Vice President of the Emerging
Technologies and Network Systems Divisions prior to his appointment in 1996 as
President of USSI. In 1998, he was named Senior Vice President of Consumer
Banking. Prior to joining ACI, he was a Systems Engineer at IBM.
Mr. Hale was appointed Senior Vice President of Business Development in
1998. He joined ACI in 1987 and served in various sales, marketing and strategic
planning positions and as Vice President in charge of the ACI Product Company.
From 1981 to 1986, Mr. Hale was a manager in the management information
consulting division of Arthur Andersen LLP.
Mr. McLarty was named Managing Director of the Asia/Pacific region in 1997.
He joined ACI in 1987 serving in various sales and marketing capacities in
Canada. From 1990 through 1997 he was an independent development consultant in
Canada. Prior to joining ACI, Mr. McLarty held various sales and marketing
positions with Tandem Computers, Air Canada, Bank of Montreal and The Bank of
Nova Scotia. Mr. McLarty is based in Singapore.
Mr. Royer joined Grapevine in 1988 as Director of Sales and was named
President in 1991. He became Vice President of TSA in 1996 and Vice President of
System Solutions in 1998. Prior to joining Grapevine, he held sales management
positions at Software Alliance, ACI and IBM.
Mr. Parr joined ACI in 1987 and served in various Sales and Sales Management
positions including Vice President of U.S. EFT sales. He was appointed to
Managing Director ACIL and Vice President EMEA region in August 1998. Prior to
joining ACI, Mr. Parr held various Sales and Marketing positions at Borroughs,
Docutel and REI. Mr. Parr is based in London.
Mr. Bailey is Vice President of Corporate Banking of TSA and President and
Chief Executive Officer of IntraNet, Inc. Since joining ACI in 1994, he served
as Managing Director of ACI's Pacific operations in Melbourne, Australia. From
1986 to 1993, he held various sales and management positions at Tandem
Computers.
Mr. Howley joined ACI in 1981 and held various positions in software
development. From 1984 through 1995 he served in various sales and marketing
capacities. In 1995 Mr. Howley became Vice President of Marketing in the
Americas Region which he held until he was named Vice President of Retail
Solutions in 1998.
Mr. Parkinson was appointed Vice President of the Enterprise Solutions Group
in December 1999. He joined ACI in 1984 and has held several positions including
Director of Sales and Marketing, Europe and Middle East, and as Vice President
of Emerging Technologies and Network Systems. In 1998, he was named Vice
President of System Solutions Sales. Prior to Mr. Parkinson joining ACI, he held
the position of Vice President, Electronic Commerce Division with Bank of
America, in Chicago and San Francisco.
13
<PAGE>
ITEM 2. PROPERTIES
The Company leases office space in Omaha, Nebraska, for its corporate
headquarters, principal product development group, and sales and support groups
for the Americas. The leases for these facilities expire in fiscal 2002 through
2008, with the principal lease terminating in fiscal 2008.
The Company's EMEA headquarters are located in Watford, England. The leases
for these facilities expire in fiscal 2009 and 2011, with the principal lease
terminating in fiscal 2009. The Company's Asia/ Pacific headquarters are located
in Singapore with other principal offices in Japan and Australia. The Singapore
lease terminates in fiscal 2001, the Australia and Japan leases terminate in
fiscal 2000. The Company also leases office space in numerous locations in the
United States and in many other countries.
The Company believes that its current facilities are adequate for its
present and short-term foreseeable needs and that additional suitable space will
be available as required. The Company also believes that it will be able to
extend leases as they terminate. See Note 9 to the Company's Consolidated
Financial Statements for additional information regarding the Company's
obligations under its facilities leases.
ITEM 3. LEGAL PROCEEDINGS
On June 14, 1999, HNC Software Inc. filed a complaint against the Company
and its wholly-owned subsidiary, ACI Worldwide Inc in the United States District
Court for the Southern District of California, San Diego Division. The complaint
alleges, among other things, patent infringement, unfair competition, false
advertising, and trade libel relating to ACI Worldwide's distribution of PRISM,
a fraud detection software product. ACI distributes PRISM pursuant to a license
agreement with Nestor, Inc., a company in which TSA is a minority stockholder.
The complaint seeks injunctive relief and unspecified damages including treble
damages, costs, attorneys' fees and various other forms of relief. On
November 25, 1998, Nestor had itself filed a complaint in the United States
District Court for the District of Rhode Island against HNC Software alleging,
among other things, infringement of a patent relating to PRISM and antitrust
violations. HNC Software has filed a counterclaim in the Rhode Island lawsuit
alleging infringement by Nestor of HNC Software's patents which claims are
essentially the same as those filed by HNC Software against the Company and ACI
Worldwide in the San Diego lawsuit. Neither the Company nor ACI Worldwide was a
party to the Rhode Island lawsuit. However, because the same patents and the
same products are at issue in both lawsuits, the Company and ACI Worldwide are
seeking to have the San Diego lawsuit transferred to Rhode Island and
consolidated with the proceedings there. Whatever the final procedural posture
of the lawsuit, the Company intends to vigorously defend against HNC Software's
allegations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1999.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded over-the-counter on the Nasdaq National
Market ("NASDAQ/NMS") under the symbol "TSAI". The following table sets forth,
for the fiscal quarters indicated, the high and low sale prices of the Class A
Common Stock as reported by NASDAQ/NMS.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
1999
- ------------------------------------------------------------
First quarter............................................... $50 $27 1/2
Second quarter.............................................. 50 1/2 35 3/4
Third quarter............................................... 39 3/4 30 7/8
Fourth quarter.............................................. 40 1/8 25 9/16
1998
- ------------------------------------------------------------
First quarter............................................... $44 1/2 $36 5/8
Second quarter.............................................. 43 1/2 34 5/8
Third quarter............................................... 43 37 1/8
Fourth quarter.............................................. 39 7/8 32 3/4
</TABLE>
On December 17, 1999, the last sale price of the Company's Class A Common
Stock as reported by NASDAQ/NMS was $26.75 per share. There were 355 holders of
record of the Company's Common Stock as of December 17, 1999.
DIVIDENDS
The Company has not declared or paid cash dividends on its Common Stock
since its incorporation. The Company currently intends to retain earnings to
finance the growth and development of its business and does not anticipate
paying cash dividends in the foreseeable future. Any payment of cash dividends
in the future will depend upon the financial condition, capital requirements and
earnings of the Company, as well as other factors the Board of Directors may
deem relevant.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data have been derived from the audited
financial statements of the Company.
The selected financial data presented below should be read in conjunction
with, and are qualified by reference to, "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
of the Company and its Predecessors. The information below is not necessarily
indicative of the results of future operations.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------
(IN THOUSANDS) 1999 1998 1997 1996 1995
- -------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Software license fees................................... $210,002 $166,875 $131,138 $ 89,075 $ 59,699
Maintenance fees........................................ 63,933 57,077 48,714 41,500 29,592
Services................................................ 76,857 70,688 58,234 46,922 27,558
Hardware, net........................................... 4,002 4,609 6,063 5,739 4,554
-------- -------- -------- -------- --------
Total revenues........................................ 354,794 299,249 244,149 183,236 121,403
-------- -------- -------- -------- --------
Expenses:
Cost of software license fees........................... 44,079 36,294 29,538 25,637 19,403
Cost of maintenance and services........................ 72,096 69,886 57,821 46,179 28,918
Research and development................................ 34,612 26,260 20,070 15,883 12,680
Selling and marketing................................... 70,121 62,013 50,168 36,749 30,608
General and administrative:
General and administrative costs...................... 58,725 51,873 45,517 34,864 19,597
Amortization of goodwill and purchased intangibles.... 4,901 1,435 1,008 656 344
-------- -------- -------- -------- --------
Total expenses........................................ 284,534 247,761 204,122 159,968 111,550
-------- -------- -------- -------- --------
Operating income.......................................... 70,260 51,488 40,027 23,268 9,853
-------- -------- -------- -------- --------
Other income (expense):
Interest income......................................... 2,947 3,204 2,291 2,024 1,084
Interest expense........................................ (401) (242) (178) (233) (1,751)
Transaction related expenses............................ (653) (2,512) -- -- --
Other................................................... (283) (203) (652) (561) 12
-------- -------- -------- -------- --------
Total other........................................... 1,610 247 1,461 1,230 (655)
-------- -------- -------- -------- --------
Income before income taxes................................ 71,870 51,735 41,488 24,498 9,198
Provision for income taxes................................ (27,170) (19,476) (14,325) (9,296) (2,145)
-------- -------- -------- -------- --------
Net income before extraordinary loss...................... 44,700 32,259 27,163 15,202 7,053
Extraordinary loss related to early retirement of debt.... -- -- -- -- (2,750)
-------- -------- -------- -------- --------
Net income................................................ $ 44,700 $ 32,259 $ 27,163 $ 15,202 $ 4,303
======== ======== ======== ======== ========
Unaudited pro forma net income(1)......................... $ 44,613 $ 31,432 $ 25,278 $ 14,286 $ 4,060
======== ======== ======== ======== ========
Pro Forma Earnings Per Share Data:
Basic:
Before extraordinary loss............................. $ 1.41 $ 1.04 $ 0.85 $ 0.50 $ 0.27
Extraordinary loss.................................... -- -- -- -- (0.11)
-------- -------- -------- -------- --------
Net income............................................ $ 1.41 $ 1.04 $ 0.85 $ 0.50 $ 0.16
======== ======== ======== ======== ========
Average shares outstanding............................ 31,667 30,298 29,829 28,526 24,866
======== ======== ======== ======== ========
Diluted:
Before extraordinary loss............................. $ 1.38 $ 1.01 $ 0.82 $ 0.48 $ 0.27
Extraordinary loss.................................... -- -- -- -- (0.11)
======== ======== ======== ======== ========
Net income............................................ $ 1.38 $ 1.01 $ 0.82 $ 0.48 $ 0.16
======== ======== ======== ======== ========
Average shares outstanding............................ 32,363 31,193 30,707 29,852 24,866
======== ======== ======== ======== ========
Balance Sheet Data:
Working capital......................................... $ 88,962 $ 86,994 $ 62,914 $ 43,268 $ 38,153
Total assets............................................ $329,525 $226,307 $176,891 $134,988 $103,586
Long-term obligations................................... $ 991 $ 2,002 $ 2,379 $ 1,687 $ 357
Stockholders' equity.................................... $225,169 $145,877 $109,346 $ 80,298 $ 60,402
</TABLE>
- ------------------------------
(1) Prior to their acquisitions, RVS and IntraNet were taxed primarily as a
partnership and a Subchapter S corporation, respectively. In addition, prior
to its acquisition, MINT's earnings were not subject to income taxes. The
unaudited pro forma net income and earnings per share reflects a pro forma
tax provision for income taxes on the results of operations of RVS, IntraNet
and MINT for the periods prior to their acquisition.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company develops, markets, installs and supports a broad line of
software products and services primarily focused on facilitating electronic
payments and electronic commerce. The Company's products are organized into four
lines of business groups -- Consumer Banking, Corporate Banking, Retail
Solutions and System Solutions. Products developed by the four lines-of-business
groups are marketed and supported through the Company's wholly-owned subsidiary,
ACI Worldwide Inc (ACI). ACI sells and supports the products and services
through three distribution networks: the Americas, Europe/Middle East/Africa
(EMEA) and Asia/Pacific. Each distribution network primarily uses its own sales
force and supplements this with reseller and/or distributor networks. During
fiscal 1999, 1998 and 1997, approximately 53%, 55% and 54%, respectively, of
total revenues resulted from international operations. The Company derived
approximately 66%, 63% and 64%, respectively, of its revenues for those same
periods from licensing its BASE24 family of software products and providing
related services and maintenance. Although the Company believes that the
majority of its revenues will continue to come from its existing BASE24 products
over the next several years, the Company has acquired and developed and is
currently developing other software products and related services. These
products are in the areas of network connectivity, middleware, internet and
remote banking, e-commerce, wire transfer, ACH and IVR.
ACQUISITIONS. The Company has completed several acquisitions during fiscal
1999, 1998 and 1997. The Company's acquisition strategy is focused primarily on
two areas: (i) additional products to complement and enhance the Company's
strategy of being the leading provider of electronic payments software for
banks, retailers and other enterprises needing high-volume, reliable processing
engines and (ii) geographic expansion into markets which have proven or have a
high level of opportunity to embrace electronic payments. Significant
acquisitions in fiscal 1999, 1998 and 1997 include the following:
<TABLE>
<CAPTION>
ACQUIREE DATE ACQUIRED
- -------- ---------------
<S> <C>
Open Systems Solutions, Inc................................ October 1996
Regency Voice Systems, Inc. (RVS).......................... May 1997
IntraNet, Inc. (IntraNet).................................. August 1998
Professional Resources, Inc. (PRI)......................... August 1998
Smart Card Integrators Ltd (SCIL).......................... August 1998
Media Integration BV (MINT)................................ November 1998
U S Processing, Inc.(USPI)................................. December 1998
Insession, Inc. (Insession)................................ March 1999
SDM International, Inc. (SDM).............................. July 1999
</TABLE>
All of the acquisitions were acquired using the pooling of interests method
of accounting except for USPI., Insession, and SDM which were accounted for
under the purchase method of accounting. USPI was subsequently sold in September
1999. The Company's financial statements have been restated for all periods
presented to include the results of the material entities acquired using the
pooling of interests method of accounting. The acquisitions of USPI and SDM did
not contribute significant revenues during fiscal 1999. The Company was
previously the exclusive distributor of Insession's primary product (ICE) and,
as a result, that acquisition did not contribute significant additional revenues
in fiscal 1999.
17
<PAGE>
PRODUCT PRICING AND REVENUE RECOGNITION. The Company's primary software
license fees pricing method is transaction sensitive, whereby products are
priced based upon the number of transactions processed by the customer
("transaction-based pricing"). Under this method, customers license the products
by paying an Initial License Fee (ILF), where the customer pays a significant
portion of the total software license fees at the beginning of the software
license term, and a Monthly License Fee (MLF), where the customer pays a portion
of the software license fees over the software license term. The payment of the
ILF and MLF allows the customer to process a contractually predetermined maximum
volume of transactions per month for a specified period of time. Once the
transaction volume exceeds this maximum volume level, the customer is required
to pay an additional license fee which is in the form of a Capacity License Fee
(CLF), collected at the beginning of the period the customer contracts for an
incremental volume level, and a Capacity Monthly License Fee (CMLF), collected
over the software license term. There is a separate license fee for each
incremental volume level. In addition to transaction-based pricing, the Company
offers a hardware specific pricing method whereby the product is priced on a per
copy basis and tiered to recognize different performance levels of the
processing hardware ("designated equipment group pricing"). Under designated
equipment group pricing, the customers pay a license fee (in the form of an ILF
and MLF) for each copy of the software the customers have licensed for a
specified period of time. Under both the transaction-based pricing method and
the designated equipment group pricing method, the Company offers a paid up
front (PUF) payment option, whereby the present value of the MLF or CMLF is due
at the beginning of the software license term. The standard software license
term under either pricing method is typically 60 months, but may extend over a
shorter or longer period. Other elements of the software licensing arrangement
typically include postcontract customer support (maintenance) and, occasionally,
services.
Beginning in fiscal 1999, the Company adopted American Institute of
Certified Public Accountants Statement of Position 97-2, "Software Revenue
Recognition" (SOP 97-2). SOP 97-2 provides guidance on applying generally
accepted accounting principles for software revenue recognition transactions.
The primary software revenue recognition criteria outlined in SOP 97-2 include:
evidence of an arrangement; delivery; fixed or determinable fees; and
collectibility.
SOP 97-2 specifies that extended payment terms in a software licensing
arrangement may indicate that the software license fees are not deemed to be
fixed or determinable. In addition, if payment of a significant portion of the
software license fees is not due until more than twelve months after delivery,
the software license fees should be PRESUMED not to be fixed or determinable,
and thus should be recognized as the payments become due. However, SOP 97-2
specifies that if the Company has a standard business practice of using extended
payment terms in software licensing arrangements and has a history of
successfully collecting the software license fees under the original terms of
the software licensing arrangement without making concessions, the Company can
overcome the presumption that the software license fees are not fixed or
determinable. If the presumption is overcome, the Company should recognize the
software license fees when all other SOP 97-2 revenue recognition criteria are
met.
The Company has concluded that for certain software arrangements entered
into after October 1, 1998 with extended guaranteed payment terms, the "fixed or
determinable" presumption has been overcome and software license fees should be
recognized upon meeting the SOP 97-2 revenue recognition criteria ("guaranteed
software license fees"). The present value of the guaranteed software license
fees, net of third party royalties, recognized in fiscal 1999 totaled
approximately $60.5 million. The discount rates used to determine the present
value of the guaranteed software license fees, representing the Company's
incremental borrowing rates, ranged from 9.5% to 10.25%. The portion of the
guaranteed software license fees that has been recognized by the Company, but
not yet billed, is reflected in accrued receivables in the accompanying
consolidated balance sheets.
Failing to overcome the "fixed or determinable" presumption would have
resulted in the Company recognizing the ILF and CLF components of the software
license fees related to these certain software arrangements when the software
was delivered (or in the reporting period that the incremental volume
18
<PAGE>
level was effective), and the MLF and CMLF components of the software license
fees would have been recognized ratably over the software license term as they
were billed. Software license fees related to those software arrangements that
would have been recognized in fiscal 1999 had the Company not been able to
overcome the presumption that the software license fees were not fixed or
determinable fees would have been approximately $5.1 million.
Software license fees for fiscal 1999, 1998 and 1997 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Initial license fees (ILF, CLF, PUF)........................ $ 95,002 $123,175 $ 98,738
Monthly license fees (MLF, CMLF)............................ 54,500 43,700 32,400
Guaranteed software license fees............................ 60,500 -- --
-------- -------- --------
$210,002 $166,875 $131,138
======== ======== ========
</TABLE>
The Company prefers to collect software license fees using the MLF/CMLF
payment option rather than the PUF payment option, as the MLF/CMLF payment
option generally provides more favorable economic results to the Company.
Software license arrangements with the MLF/CMLF payment option typically include
guaranteed monthly payments, which enhances the long-term relationship with the
customer. As a result, in fiscal 1999 the Company emphasized MLF/CMLF payment
options rather than PUF payment options.
19
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain financial data and the percentage of
total revenues of the Company for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- --------------------
% OF % OF % OF
AMOUNT REVENUE AMOUNT REVENUE AMOUNT REVENUE
(IN THOUSANDS) --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Software license fees........... $210,002 59.2% $166,875 55.8% $131,138 53.7%
Maintenance fees................ 63,933 18.0 57,077 19.1 48,714 20.0
Services........................ 76,857 21.7 70,688 23.6 58,234 23.9
Hardware, net................... 4,002 1.1 4,609 1.5 6,063 2.5
-------- ----- -------- ----- -------- -----
Total revenues................ 354,794 100.0 299,249 100.0 244,149 100.0
-------- ----- -------- ----- -------- -----
Expenses:
Cost of software license fees... 44,079 12.4 36,294 12.1 29,538 12.1
Cost of maintenance and
services...................... 72,096 20.3 69,886 23.4 57,821 23.7
Research and development........ 34,612 9.8 26,260 8.8 20,070 8.2
Selling and marketing........... 70,121 19.8 62,013 20.7 50,168 20.5
General and administrative:
General and administrative
costs....................... 58,725 16.6 51,873 17.3 45,517 18.6
Amortization of goodwill and
purchased intangibles....... 4,901 1.4 1,435 0.5 1,008 0.4
-------- ----- -------- ----- -------- -----
Total expenses................ 284,534 80.2 247,761 82.8 204,122 83.6
-------- ----- -------- ----- -------- -----
Operating income.................. 70,260 19.8 51,488 17.2 40,027 16.4
-------- ----- -------- ----- -------- -----
Other income (expense):
Interest income................. $ 2,947 0.8% $ 3,204 1.1% $ 2,291 0.9%
Interest expense................ (401) (0.1) (242) (0.1) (178) (0.1)
Transaction related expenses.... (653) (0.2) (2,512) (0.8) -- 0.0
Other........................... (283) (0.1) (203) (0.1) (652) (0.3)
-------- ----- -------- ----- -------- -----
Total other................... 1,610 0.5 247 0.1 1,461 0.6
-------- ----- -------- ----- -------- -----
Income before income taxes........ 71,870 20.3 51,735 17.3 41,488 17.0
Provision for income taxes........ (27,170) (7.7) (19,476) (6.5) (14,325) (5.9)
-------- ----- -------- ----- -------- -----
Net income........................ $ 44,700 12.6% $ 32,259 10.8% $ 27,163 11.1%
======== ===== ======== ===== ======== =====
Unaudited pro forma net
income(1)....................... $ 44,613 12.6% $ 31,432 10.5% $ 25,278 10.4%
======== ===== ======== ===== ======== =====
</TABLE>
- ------------------------
(1) Prior to their acquisitions, RVS and IntraNet were taxed primarily as a
partnership and a Subchapter S corporation, respectively. In addition,
prior to its acquisition, MINT's earnings were not subject to income taxes.
The unaudited pro forma net income reflects a pro forma tax provision for
income taxes on the results of operations of RVS, IntraNet and MINT for the
periods prior to their acquisition.
REVENUES. Total revenues for fiscal 1999 increased 18.6% or $55.5 million
over fiscal 1998. Of this increase, $43.1 million of the growth resulted from a
25.8% increase in software license fees revenue, $6.2 million from an 8.7%
increase in services revenue and $6.9 million from a 12.0% increase in
maintenance fee revenue.
Total revenues for fiscal 1998 increased 22.6% or $55.1 million over fiscal
1997. Of this increase, $35.7 million of the growth resulted from a 27.3%
increase in software license fees revenue, $12.5 million from a 21.4% increase
in services revenue and $8.4 million from a 17.2% from increase in maintenance
fee revenue.
20
<PAGE>
The growth in software license fees revenue in both fiscal 1999 and 1998 is
primarily the result of increased demand, from both existing and new customers,
for the Company's BASE24 ATM and POS products and System Solutions products and
services accompanied by the continued growth of the installed base of customers
paying monthly license fee (MLF) revenue. Contributing to the strong demand for
the Company's products is the continued world-wide growth of electronic payment
transaction volume and the growing complexity of electronic payment systems. MLF
revenue was $54.5 million, $43.7 million and $32.4 million in fiscal 1999, 1998
and 1997, respectively.
The growth in services revenue in both fiscal 1999 and 1998 is the result of
increased demand for technical and project management services which is a direct
result of the increased installed base of the Company's BASE24 products.
The increase in maintenance fee revenue in both fiscal 1999 and 1998 is a
result of the continued growth of the installed base of the Company's software
products.
EXPENSES. Total operating expenses for fiscal 1999 increased 14.8% or $36.8
million over fiscal 1998. Total operating expenses for fiscal 1998 increased
21.4% or $43.6 million over fiscal 1997. The primary reason for the overall
increase in operating expenses during fiscal 1999 and 1998 is the increase in
staff required to support the increased demand for the Company's products and
services. The slowing of expense growth in fiscal 1999 is primarily due to the
Company implementing controls over headcount growth. Prior to the implementation
of the headcount controls, the Company was experiencing significant headcount
growth as it moved to the line-of-business organization structure and added
acquired companies. Total staff (including both employees and independent
contractors) was 2,194, 2,054 and 1,684 at September 30, 1999, 1998 and 1997,
respectively.
The Company's operating margin was 19.8%, 17.2% and 16.4% in fiscal 1999,
1998 and 1997, respectively. These improvements are primarily due to increased
demand for the Company's products and the impact of the growth in the Company's
MLF revenues.
The Company's gross margin (total revenues minus cost of software and cost
of maintenance and services) was 67.3%, 64.5% and 64.2% in fiscal 1999, 1998 and
1997, respectively. The increase in gross margin is primarily due to the impact
of additional MLF revenue.
Research and development (R&D) costs as a percentage of total revenues were
9.8%, 8.8% and 8.2% in fiscal 1999, 1998 and 1997, respectively. The majority of
R&D costs have been charged to expense as incurred with the capitalization of
software costs amounting to approximately $3.6 million in fiscal 1999 and
$1.0 million in fiscal 1998 and 1997.
Selling and marketing costs as a percentage of total revenues were 19.8%,
20.7% and 20.5% in fiscal 1999, 1998 and 1997, respectively. The slight decrease
in fiscal 1999 as compared to fiscal 1998 and 1997 is due to the impact of
additional MLF revenue and increased leverage from a larger revenue base in
relation to the level of selling and marketing costs being incurred.
General and administrative (G & A) costs as a percentage of total revenues
were 16.6%, 17.3% and 18.5% in fiscal 1999, 1998 and 1997. The decreases are due
primarily to increased leverage from the larger revenue base in relation to the
level of G & A expenses being incurred.
EBITDA. The Company's earnings before interest, income taxes, depreciation
and amortization (EBITDA) was $91.8 million, $62.7 million and $49.6 million for
fiscal 1999, 1998 and 1997, respectively. These increases are attributable to
the continued growth in both recurring and non-recurring revenues more than
offsetting the growth in operating expenses. EBITDA is not intended to represent
cash flows for the periods in accordance with generally accepted accounting
principles.
OTHER INCOME AND EXPENSE. Other income and expense consists primarily of
interest income derived from short-term investments and interest expense on
indebtedness. Interest income was higher in fiscal 1998 than in fiscal 1999.
This is due primarily to interest earned in fiscal 1998 and early fiscal
21
<PAGE>
1999 on promissory notes and line-of-credit advances provided to Insession and
USPI prior to the Company's acquisition of these companies.
TRANSACTION RELATED EXPENSES. Transaction related expenses include legal,
accounting, investment banking fees and other non-recurring expenses associated
with the acquisitions accounted for as poolings of interest. In fiscal 1999, the
Company incurred $653,000 of these expenses to complete the acquisition of MINT
and in fiscal 1998, the Company incurred $2.5 million to complete the
acquisition of IntraNet, SCIL and PRI.
INCOME TAXES. The Company had a pro forma effective tax rate of 38% for
fiscal 1999 and 39% for fiscal 1998. As of September 30, 1999, the Company has
deferred tax assets of approximately $18.7 million and deferred tax liabilities
of $6.2 million. Each year, the Company evaluates its historical operating
results as well as its projections to determine the realizability of the
deferred tax assets. This analysis indicated that $7.5 million of the deferred
tax assets were more likely than not to be realized. Accordingly, the Company
has recorded a valuation allowance of $11.2 million as of September 30, 1999.
The Company intends to analyze the realizability of the net deferred tax
assets at each future reporting period. Such analysis may indicate that the
realization of various deferred tax benefits is more likely than not and,
therefore, the valuation reserve may be reduced.
BACKLOG
As of September 30, 1999 and 1998, the Company had non-recurring revenue
backlog of $30.9 million and $30.2 million in software license fees and $34.2
million and $35.6 million in services, respectively. The Company includes in its
non-recurring revenue backlog all fees specified in contracts which have been
executed by the Company to the extent that the Company contemplates recognition
of the related revenue within one year. There can be no assurance that the
contracts included in non-recurring revenue backlog will actually generate the
specified revenues or that the actual revenues will be generated within the one
year period.
As of September 30, 1999 and 1998, the Company had recurring revenue backlog
of $138.7 million and $119.4 million, respectively. The Company defines
recurring revenue backlog to be all monthly license fees, maintenance fees and
facilities management fees specified in contracts which have been executed by
the Company and its customers to the extent that the Company contemplates
recognition of the related revenue within one year. There can be no assurance
that the contracts included in recurring revenue backlog will actually generate
the specified revenues, or that the actual revenues will be generated within the
one year period.
YEAR 2000
Year 2000 problems may arise in computer equipment and software, as well as
embedded electronic systems, because of the way these systems are programmed to
interpret certain dates that will occur around the change in century. In the
computer industry this is primarily the result of computer programs being
designed and developed using or reserving only two digits in date fields (rather
than four digits) to identify the year, without considering the ability of the
program to properly distinguish the upcoming century change in the Year 2000. In
addition, the Year 2000 is a special-case leap year and some programs may drop
February 29th from their internal calendars. Certain other dates may present
problems because of the way the digits are interpreted. Because the Company's
business is based on the licensing of applications software, the Company's
business would be adversely impacted if its products or its internal systems
experience problems associated with the century change. This issue also
potentially affects the software programs and systems used by the Company in its
operations.
PROJECT DEFINITION. In 1996 the Company initiated a company wide program to
analyze three specific categories of systems: (1) software developed by the
Company which is licensed to customers;
22
<PAGE>
(2) information technology or "IT" systems utilized by the Company consisting of
applications developed in-house and purchased from third party suppliers; and
(3) non-IT systems and embedded technology which are integral components of the
infrastructure of the Company.
The Company adopted a methodology for reviewing its licensed software
consisting of four categories. The categories are (1) preparation, (2) analysis
and remediation, (3) testing, and (4) delivery. The Company developed tools
during the preparation phase of the project which were utilized during the
analysis and testing phases. The tools were subsequently made available to the
Company's customers at no charge. The Company believes that its remediation
efforts with respect to its software products will prove to be successful. The
Company's belief is based on testing by the Company of its software products by
using testing tools simulating dates and testing by many of its customers who
have in turn completed their own Year 2000 testing. Year 2000 compliant versions
of its software products ("Compliant Software") have been made available by the
Company to customers in a timely manner and its communication efforts have been
proactive and ongoing. The Company continues to actively monitor the status and
progress of customers and distributors and assess the risk associated in those
cases where the customer has not taken delivery of the Compliant Software or may
have not made satisfactory progress in their own Year 2000 testing.
With respect to IT and non-IT systems, the Company is utilizing a
methodology similar to that adopted for its software products. Specifically, the
Company is utilizing the following steps: (1) preparation, in which the Company
conducts systematic inventory, analysis, and prioritization of the systems in
accordance with mission critical impact (2) analysis, replacement and
remediation (3) testing and (4) implementation.
Recognizing the importance of communications regarding and organization of
Year 2000 tasks and responsibilities, the Company has embraced a management
approach utilizing central coordination with distributed administration over
geographic and business units. This approach mirrors the Company's organization
and ensures that Year 2000 Communications Managers are deployed and managing
tasks in close proximity to actual efforts. Those efforts are then reported
centrally to upper management. The approach also ensures that customers are kept
informed of product and Company activities relating to the Year 2000 and that
the Company is able to measure progress and plan support for customers' Year
2000 projects.
CURRENT STATUS. Following analysis, remediation and testing efforts, the
Company began shipping Year 2000 compliant versions of its major licensed
software applications in March of 1997. As efforts were completed on other
applications, they too were shipped to customers so that they could be upgraded
as part of the customers' own Year 2000 projects. As of November 1999, all of
the Company's licensed software applications are compliant and available to
customers. The Company continues to conduct analysis of newly acquired software
products with appropriate measurement and documentation in accordance with the
Year 2000 methodology in place.
With respect to the IT and non-IT systems, remediation and replacement has
been substantially completed in the most critical areas. The internal accounting
systems utilized by the Company and its subsidiaries have been replaced where
necessary. As new IT and non-IT purchases are made, each is scrutinized and
inventoried for Year 2000 compliance.
The majority of the embedded systems on which the Company relies in its day
to day operations around the world are owned and managed by the lessors of the
buildings in which the Company's offices are located, or by agents of such
lessors. The Company has sent letters to its lessors and, as applicable, their
agents requesting certifications of the Year 2000 compliance of the embedded
systems. The Company has received responses from more than 90% of its lessors
indicating that the systems in the buildings either already are, or are expected
to be before the end of 1999, Year 2000 compliant. Those systems not owned by
and managed by lessors have undergone a similar inventory and certification
gathering. The Company will prioritize systems and develop necessary test plans
based on the further responses it continues to receive, or not to receive, to
its letters.
23
<PAGE>
The Company has developed contingency plans for support of its customers
prior to, during, and following the "Year 2000 weekend". Such plans incorporate,
but are not limited to, distribution of support personnel in locations around
the world, backup plans for telecommunications, decision and notification
hierarchy, and other infrastructure support. Contingency plans were completed in
September of 1999.
COSTS. The Company expects to incur project costs of approximately $10
million over the life of the Year 2000 project. These costs consist of: (i)
internal staff costs related to licensed product remediation and testing;
(ii) internal staff costs related to IT and non-IT compliance; (iii) hardware
and software cost for replacement of IT systems; and (iv) costs related to
non-IT compliance involving embedded systems and consulting services. Costs
incurred from the beginning of the project in 1996 through September 1999 have
totaled approximately $9.4 million. The Company expects to incur an additional
$600,000 over the remaining life of the Year 2000 project. All costs related to
the Year 2000 project are being expensed as incurred. The estimated remaining
costs are based on currently known circumstances and various assumptions
regarding future events. There can be no assurance that this estimate will be
achieved and actual results could differ materially from those anticipated.
RISKS. The Company believes that the most likely Year 2000 risks relate to
third parties with which it has material relationships. Those parties include
computer hardware system providers on which the Company and its customers rely
as well as service providers such as those providing telecommunications and
electricity. Failure or disruption of such services or systems could adversely
affect operations and the Company's ability to support its customers. The second
most likely Year 2000 risk relates to the Company's products that are used in
conjunction with software products developed by other vendors or by customers
who have developed their own applications for use with the Company's products,
which may not be Year 2000 compliant. Since the majority of the Company's
customers utilize the Company's software products for authorization, routing, or
processing of financial transactions, the failure of such customers' systems,
which may be particularly susceptible to Year 2000 compliance issues, could
impact the transaction volume processed by the customers thereby reducing
transaction fees paid by customers with usage based fee contracts. Failures of
such systems could also increase the efforts required by the Company to assist
customers with resolving problems unrelated to the Company's licensed products.
The third most likely Year 2000 risk relates to certain foreign countries in
which the Company operates and the Company's customers in such countries that
are not acting to sufficiently remediate Year 2000 issues. Some customers
outside of the United States have chosen to concentrate on issues other than the
Year 2000. Without concentrating on the Year 2000 upgrade and testing efforts,
such customers will not be prepared and may require additional support to assist
them. Commercial risks are associated with operating in countries that are not
prepared for the Year 2000.
In each case cited previously, the Company has developed contingency plans
to address each identified risk. In addition, the Company continues to use its
methodology of centralized and distributed management to keep in contact and
monitor progress with customer projects and to communicate at an upper
management level to those customers categorized as "at risk" due to their lack
of progress. The contingency plan acknowledges the risk associated with
suppliers of material services, hardware vendors closely related to the
operation of the Company's licensed products, the Company's own licensed
products and the ability of the Company to support its customers. In addition to
distributed support methods, the Company's contingency plans address alternative
services, such as telecommunications. The (i) inability to timely implement
contingency plans, if deemed necessary and (ii) the cost to implement such
plans, may have a material adverse effect on the Company's results of
operations.
Except for statements of existing or historical facts, the foregoing
discussion consists of forward-looking statements and assumptions relating to
forward-looking statements, including without limitation the statements relating
to future costs, potential problems relating to Year 2000, the Company's state
of readiness, third party representations, and the Company's plans and
objectives for addressing Year 2000 problems. Certain factors could cause actual
results to differ materially from the Company's
24
<PAGE>
expectations, including without limitation (i) the failure of existing or future
customers to achieve Year 2000 compliance, (ii) the failure of computer hardware
system providers on which the Company and its customers rely or other vendors or
service providers of the Company or its customers to timely achieve Year 2000
compliance, (iii) the Company's products and systems not containing all
necessary date code changes, (iv) the failure of the Company's analysis and
testing to detect operational problems in IT and non-IT systems utilized by the
Company or in the Company's products or services, whether such failure results
from the technical inadequacy of the Company's validation and testing efforts,
the technological unfeasibility of testing certain non-IT systems, and the
unavailability of customers or other third parties to participate in testing,
(v) potential litigation arising out of Year 2000 issues, with respect to
providers of software and related technical and consulting services such as the
Company generally, and particularly in light of the numerous interfaces between
the Company's products and products and systems of third parties which are
required to successfully utilize the Company's products which could involve the
Company in expensive, multiple party litigation even though the Company may have
no responsibility for the alleged problem, and (vi) the failure to successfully
implement the contingency plan or any inadequacy of the contingency plan to the
extent Year 2000 compliance is not achieved.
During the first quarter of fiscal 2000, the Company's large bank and
merchant customers have, in effect, locked down their systems prior to the Year
2000. This Year 2000 lock-down has had a negative impact on the Company's
revenue and net income for the first quarter of fiscal 2000 due to the less than
expected demand by the Company's customers to upgrade and enhance their current
systems.
Although it is uncertain whether the Year 2000 lock-down will have a
negative impact on the Company's revenue and net income beyond the first quarter
of fiscal 2000, the Company believes demand for system upgrades and enhancements
could be slow to return to normal levels if one or more segments of the global
marketplace experience Year 2000-related failures. It is clear that as a result
of the negative impact on the first quarter of fiscal 2000, the Year 2000
lock-down will have a negative impact on the Company's revenue and net income
for fiscal 2000.
The statements in this report regarding future results are preliminary and
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. In addition, this report contains other
forward-looking statements including statements regarding the Company's
expectations, plans and beliefs. The forwarding-looking statements in this
report are subject to a variety of risks and uncertainties. Actual results could
differ materially. Factors that could cause actual results to differ include but
are not limited to those described above and the following:
- That the Company will continue to derive a substantial majority of its
total revenue from licensing its BASE24 family of software products and
providing services and maintenance related to those products. Any
reduction in demand for, or increase in competition with respect to,
BASE24 products would have a material adverse effect on TSA's financial
condition and results of operations.
- That the Company's business is concentrated in the banking industry,
making it susceptible to a downturn in that industry.
- Fluctuations in quarterly operating results may result in volatility in
TSA's stock price. No assurance can be given that operating results will
not vary.
- TSA's stock price may be volatile, in part due to external factors such as
announcements by 3rd parties or competitors, inherent volatility in the
high-technology sector and changing market conditions in the industry.
For a detailed discussion of these and other risk factors, interested
parties should review the Company's filings with the Securities and Exchange
Commission, including Exhibit 99.01 to this report.
25
<PAGE>
SELECTED QUARTERLY INFORMATION
The following table sets forth certain unaudited financial data for each of
the quarters within fiscal 1999, 1998 and 1997. This information has been
derived from the Company's Consolidated Financial Statements and in management's
opinion, reflects all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the information for the
quarters presented. The operating results for any quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------------
SEP. 30, JUNE 30, MARCH 31, DEC. 31, SEP. 30, JUNE 30, MARCH 31, DEC. 31,
1999 1999 1999 1998 1998 1998 1998 1997
(IN THOUSANDS) --------- --------- ---------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license
fees................. $60,114 $53,259 $50,552 $46,077 $45,305 $42,923 $40,082 $38,565
Maintenance fees....... 16,328 16,042 15,996 15,567 15,078 14,664 14,162 13,173
Services............... 15,395 18,858 19,309 23,295 20,154 18,188 16,405 15,941
Hardware, net.......... 810 967 1,094 1,131 883 1,232 1,105 1,389
------- ------- ------- ------- ------- ------- ------- -------
Total revenues....... 92,647 89,126 86,951 86,070 81,420 77,007 71,754 69,068
------- ------- ------- ------- ------- ------- ------- -------
Expenses:
Cost of software
license fees......... 11,926 10,381 9,950 11,822 9,776 9,220 8,535 8,763
Cost of maintenance and
services............. 16,025 17,740 18,038 20,293 19,304 18,126 16,722 15,734
Research and
development.......... 9,165 8,711 8,538 8,198 7,050 6,797 6,304 6,109
Selling and
marketing............ 19,300 17,495 17,348 15,978 16,917 15,682 15,010 14,404
General and
administrative:
General and
administrative
costs.............. 14,742 14,639 14,976 14,368 14,045 13,717 12,279 11,832
Amortization of
goodwill and
purchased
intangibles........ 1,780 1,572 1,104 445 359 347 414 315
------- ------- ------- ------- ------- ------- ------- -------
Total expenses....... 72,938 70,538 69,954 71,104 67,451 63,889 59,264 57,157
------- ------- ------- ------- ------- ------- ------- -------
Operating income......... 19,709 18,588 16,997 14,966 13,969 13,118 12,490 11,911
------- ------- ------- ------- ------- ------- ------- -------
Other income (expense):
Interest income........ 817 706 721 703 894 863 800 647
Interest expense....... (165) (77) (48) (111) (98) (46) (78) (20)
Transaction related
expenses............. -- -- -- (653) (2,512) -- -- --
Other income
(expense)............ (320) (131) (29) 197 63 (226) 40 (80)
------- ------- ------- ------- ------- ------- ------- -------
Total other.......... 332 498 644 136 (1,653) 591 762 547
------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes.................. 20,041 19,086 17,641 15,102 12,316 13,709 13,252 12,458
Provision for income
taxes.................. (7,531) (7,237) (6,757) (5,645) (5,289) (5,040) (4,700) (4,447)
------- ------- ------- ------- ------- ------- ------- -------
Net income............... $12,510 $11,849 $10,884 $ 9,457 $ 7,027 $ 8,669 $ 8,552 $ 8,011
======= ======= ======= ======= ======= ======= ======= =======
Unaudited pro forma net
income(1).............. $12,510 $11,849 $10,884 $ 9,370 $ 6,849 $ 8,575 $ 8,290 $ 7,718
======= ======= ======= ======= ======= ======= ======= =======
Pro forma basic earnings
per share.............. $ 0.39 $ 0.37 $ 0.35 $ 0.30 $ 0.22 $ 0.28 $ 0.28 $ 0.26
======= ======= ======= ======= ======= ======= ======= =======
Pro forma diluted
earnings per share..... $ 0.38 $ 0.36 $ 0.34 $ 0.30 $ 0.22 $ 0.27 $ 0.27 $ 0.25
======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
QUARTER ENDED
----------------------------------------------
SEP. 30, JUNE 30, MARCH 31, DEC. 31,
1997 1997 1997 1996
(IN THOUSANDS) --------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues:
Software license
fees................. $34,796 $34,340 $33,152 $28,850
Maintenance fees....... 12,628 12,470 11,861 11,755
Services............... 15,455 15,211 13,535 14,033
Hardware, net.......... 1,175 1,083 3,213 592
------- ------- ------- -------
Total revenues....... 64,054 63,104 61,761 55,230
------- ------- ------- -------
Expenses:
Cost of software
license fees......... 7,592 7,428 7,284 7,234
Cost of maintenance and
services............. 14,941 14,832 13,929 14,119
Research and
development.......... 5,269 5,155 5,102 4,544
Selling and
marketing............ 13,713 13,062 12,441 10,952
General and
administrative:
General and
administrative
costs.............. 11,035 11,422 12,930 10,130
Amortization of
goodwill and
purchased
intangibles........ 344 210 237 217
------- ------- ------- -------
Total expenses....... 52,894 52,109 51,923 47,196
------- ------- ------- -------
Operating income......... 11,160 10,995 9,838 8,034
------- ------- ------- -------
Other income (expense):
Interest income........ 642 621 547 481
Interest expense....... (42) (55) (24) (57)
Transaction related
expenses............. -- -- -- --
Other income
(expense)............ (76) (40) (223) (313)
------- ------- ------- -------
Total other.......... 524 526 300 111
------- ------- ------- -------
Income before income
taxes.................. 11,684 11,521 10,138 8,145
Provision for income
taxes.................. (3,786) (3,793) (3,667) (3,079)
------- ------- ------- -------
Net income............... $ 7,898 $ 7,728 $ 6,471 $ 5,066
======= ======= ======= =======
Unaudited pro forma net
income(1).............. $ 7,537 $ 7,206 $ 5,990 $ 4,545
======= ======= ======= =======
Pro forma basic earnings
per share.............. $ 0.25 $ 0.24 $ 0.20 $ 0.16
======= ======= ======= =======
Pro forma diluted
earnings per share..... $ 0.24 $ 0.23 $ 0.20 $ 0.15
======= ======= ======= =======
</TABLE>
- ----------------------------------
(1) Prior to their acquisitions, RVS and IntraNet were taxed primarily as a
partnership and a Subchapter S corporation, respectively. In addition, prior
to its acquisition, MINT's earnings were not subject to income taxes. The
unaudited pro forma net income and earnings per share reflects a pro forma
tax provision for income taxes on the results of operations of RVS, IntraNet
and MINT.
26
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company's principal sources of liquidity
consisted of $70.5 million of cash and cash equivalents, as compared to $63.6
million at September 30, 1998.
The Company's net cash flows provided by operating activities for fiscal
1999, 1998 and 1997 were $40.3 million, $35.8 million and $34.2 million,
respectively. The increase of $4.5 million in fiscal 1999 is principally due to
higher net income and an increase in deferred revenue, partly offset by an
increase in accrued receivables and a decrease in accrued liabilities. The
increase of $1.6 million in fiscal 1998 is principally due to higher net income
and increases in accrued liabilities and deferred revenue partly offset by
increases in billed receivables. An important contributor to the cash management
program is the Company's factoring of accrued receivables begun in fiscal 1998,
whereby interest in its receivables are transferred (on a non-recourse basis) to
third party financial institutions in exchange for cash. During fiscal 1999 and
1998, the Company generated operating cash flows from the factoring of accrued
receivables of $30.9 million and $9.2 million, respectively.
The Company's net cash flows used in investing activities totaled $20.2
million, $24.9 million and $18.5 million in fiscal 1999, 1998 and 1997,
respectively. The decrease in cash used in investing activities in fiscal 1999
as compared to 1998 is due to proceeds of $10.1 million received in the sale of
US Processing, Inc. more than offsetting the increase in the amount of cash used
for purchases of software, marketable securities and acquisitions. The increase
in fiscal 1998 as compared to 1997 is due to an increase in the level of cash
used to purchase property and equipment, marketable securities and additions to
other investments and notes receivable. In each period, the Company made
significant investments in computer equipment and software. The Company expects
to continue to invest in these items to support its growth.
In fiscal 1999, the Company purchased 1.25 million shares of Digital Courier
Technologies, Inc. (DCTI) Common Stock for $6.5 million. The Company also
received warrants to purchase 1.0 million shares of DCTI Common Stock for an
exercise price of $5.20 per share. In fiscal 1998, the Company purchased
2.5 million shares of Nestor, Inc. (Nestor) Common Stock for $5.0 million. The
Company also received warrants to purchase 2.5 million shares of Nestor Common
Stock for an exercise price of $3 per share.
In fiscal 1999, the Company's Board of Directors approved the repurchase of
up to 2,000,000 shares of Common Stock through February 2000. The purpose of the
stock repurchase program is to replace the shares issued in the SDM acquisition
completed in July 1999, and to fund a reserve for shares for future employee
stock option grants, acquisitions or other corporate purposes. Under this
repurchase program, the Company purchased 475,000 shares at an average cost of
$29.98 per share for approximately $14.2 million in fiscal 1999 and
500,300 shares at an average cost of $26.67 for approximately $13.3 million
during the first quarter of fiscal 2000. The Company used cash flow from
operations to fund the Common Stock repurchases.
Management believes that the Company's working capital and cash flow
generated from operations are sufficient to meet the Company's working capital
requirements for the foreseeable future.
27
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks associated primarily to changes in
foreign currency exchange rates. The Company conducts business in all parts of
the world. As a general rule, the Company's revenue contracts are denominated in
U.S. dollars. Thus, any decline in the value of local foreign currencies against
the U.S. dollar will result in the Company's products and services being more
expensive to a potential foreign buyer, and in those instances where the
Company's goods and services have already been sold, will result in the
receivables being more difficult to collect. The Company does at times enter
into revenue contracts that are denominated in the currency of the country in
which it has substantive operations, principally the United Kingdom, Australia,
Canada and Singapore. This practice serves as a natural hedge to finance the
expenses incurred in those locations. The Company has not entered into, nor does
it currently anticipate entering into, any foreign currency hedging
transactions.
The Company does not purchase or hold any derivative financial instruments
for the purpose of speculation or arbitrage.
28
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................... 30
Consolidated Balance Sheets as of September 30, 1999 and
1998...................................................... 31
Consolidated Statements of Income and Comprehensive Income
for each of the three years
in the period ended September 30, 1999.................... 32
Consolidated Statements of Stockholders' Equity for each of
the three years in the period ended September 30, 1999.... 33
Consolidated Statements of Cash Flows for each of the three
years in the period ended September 30, 1999.............. 34
Notes to Consolidated Financial Statements.................. 35
</TABLE>
29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Transaction Systems Architects, Inc.:
We have audited the accompanying consolidated balance sheets of Transaction
Systems Architects, Inc. (a Delaware corporation) and Subsidiaries as of
September 30, 1999 and 1998, and the related consolidated statements of income
and comprehensive income, stockholders' equity and cash flows for each of the
three years in the period ended September 30, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Transaction Systems
Architects, Inc. and Subsidiaries as of September 30, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1999, in conformity with generally accepted
accounting principles.
As explained in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for software license fees revenue upon the
adoption of American Institute of Certified Public Accountants Statement of
Position 97-2, "Software Revenue Recognition," effective October 1, 1998.
ARTHUR ANDERSEN LLP
Omaha, Nebraska,
October 28, 1999
30
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 70,482 $ 63,648
Marketable securities..................................... 8,456 2,188
Billed receivables, net of allowances of $7,251 and
$5,148, respectively.................................... 50,619 58,080
Accrued receivables....................................... 41,880 33,000
Deferred income taxes..................................... 7,468 4,921
Other..................................................... 7,215 3,585
-------- --------
Total current assets.................................... 186,120 165,422
Property and equipment, net................................. 20,754 21,001
Software, net............................................... 25,835 7,172
Intangible assets, net...................................... 61,612 9,385
Long-term accrued receivables............................... 26,850 2,056
Investments and notes receivable............................ 3,569 16,754
Other....................................................... 4,785 4,517
-------- --------
Total assets............................................ $329,525 $226,307
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 501 $ 1,078
Accounts payable.......................................... 8,030 13,720
Accrued employee compensation............................. 7,192 8,426
Accrued liabilities....................................... 18,287 14,826
Income taxes.............................................. 8,521 4,784
Deferred revenue.......................................... 54,627 35,594
-------- --------
Total current liabilities............................... 97,158 78,428
Long-term debt.............................................. 991 2,002
Deferred income taxes....................................... 6,207 --
-------- --------
Total liabilities....................................... 104,356 80,430
-------- --------
Commitments and contingencies
Stockholders' equity:
Redeemable Convertible Preferred Stock, $.01 par value;
5,450,000 shares authorized; no shares issued and
outstanding at September 30, 1999 and 1998
Redeemable Convertible Class B Common Stock and Warrants,
$.05 par value; 5,000,000 shares authorized; no shares
issued and outstanding at September 30, 1999 and 1998
Class A Common Stock, $.005 par value; 50,000,000 shares
authorized;
32,580,637 and 29,873,947 shares issued at
September 30, 1999 and 1998,
respectively............................................ 163 150
Class B Common Stock, $.005 par value; 5,000,000 shares
authorized; none
and 1,171,252 shares issued and outstanding at
September 30, 1999 and 1998,
respectively............................................ -- 6
Additional paid-in capital................................ 161,630 112,398
Retained earnings......................................... 82,922 38,222
Treasury stock, at cost, 475,845 shares and 845 shares at
September 30, 1999 and 1998, respectively............... (14,250) (12)
Accumulated other comprehensive income.................... (5,296) (4,887)
-------- --------
Total stockholders' equity.............................. 225,169 145,877
-------- --------
Total liabilities and stockholders' equity.............. $329,525 $226,307
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
31
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Software license fees..................................... $210,002 $166,875 $131,138
Maintenance fees.......................................... 63,933 57,077 48,714
Services.................................................. 76,857 70,688 58,234
Hardware, net............................................. 4,002 4,609 6,063
-------- -------- --------
Total revenues.......................................... 354,794 299,249 244,149
-------- -------- --------
Expenses:
Cost of software license fees............................. 44,079 36,294 29,538
Cost of maintenance and services.......................... 72,096 69,886 57,821
Research and development.................................. 34,612 26,260 20,070
Selling and marketing..................................... 70,121 62,013 50,168
General and administrative:
General and administrative costs........................ 58,725 51,873 45,517
Amortization of goodwill and purchased intangibles...... 4,901 1,435 1,008
-------- -------- --------
Total expenses.......................................... 284,534 247,761 204,122
-------- -------- --------
Operating income............................................ 70,260 51,488 40,027
-------- -------- --------
Other income (expense):
Interest income........................................... 2,947 3,204 2,291
Interest expense.......................................... (401) (242) (178)
Transaction related expenses.............................. (653) (2,512) --
Other..................................................... (283) (203) (652)
-------- -------- --------
Total other............................................. 1,610 247 1,461
-------- -------- --------
Income before income taxes.................................. 71,870 51,735 41,488
Provision for income taxes.................................. (27,170) (19,476) (14,325)
-------- -------- --------
Net income.................................................. $ 44,700 $ 32,259 $ 27,163
======== ======== ========
Average shares outstanding
Basic..................................................... 31,667 30,298 29,829
======== ======== ========
Diluted................................................... 32,363 31,193 30,707
======== ======== ========
Unaudited pro forma information (Note 3)
Pro forma net income...................................... $ 44,613 $ 31,432 $ 25,278
======== ======== ========
Pro forma earnings per share data:
Basic................................................... $ 1.41 $ 1.04 $ 0.85
======== ======== ========
Diluted................................................. $ 1.38 $ 1.01 $ 0.82
======== ======== ========
Net income.................................................. $ 44,700 $ 32,259 $ 27,139
Other comprehensive income:
Foreign currency translation adjustments.................. (178) (1,815) (24)
Unrealized investment holding loss........................ (231) (2,812) --
-------- -------- --------
Comprehensive income........................................ $ 44,291 $ 27,632 $ 27,139
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
32
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED
CLASS A CLASS B ADDITIONAL OTHER
COMMON COMMON PAID-IN RETAINED TREASURY COMPREHENSIVE
STOCK STOCK CAPITAL EARNINGS STOCK INCOME TOTAL
-------- -------- ---------- -------- -------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1996, as previously
reported.................................. $133 $11 $ 96,984 $(16,540) $(12) $(236) $80,340
Adjustment for Media Integration BV pooling
of interests.............................. 4 -- 346 73 -- -- 423
---- --- -------- -------- -------- ------- --------
Balance, September 30, 1996, as restated.... 137 11 97,330 (16,467) (12) (236) 80,763
Adjustment for Open Systems Solutions, Inc.
pooling of interests...................... 1 -- 5 (176) -- -- (170)
Sale of Class A Common Stock pursuant to
Employee Stock Purchase Plan.............. -- -- 778 -- -- -- 778
Conversion of Class B Common Stock to
Class A Common Stock...................... 5 (5) -- -- -- -- --
Exercise of stock options................... 1 -- 1,268 -- -- -- 1,269
Distribution to RVS and Intranet, Inc.
owners.................................... -- -- -- (4,320) -- -- (4,320)
Tax benefit of stock options exercised...... -- -- 2,586 -- -- -- 2,586
Sale of stock options....................... -- -- 3,132 -- -- -- 3,132
Net income.................................. -- -- -- 27,163 -- -- 27,163
Foreign currency translation adjustments.... -- -- -- -- -- (24) (24)
---- --- -------- -------- -------- ------- --------
Balance, September 30, 1997................. 144 6 105,099 6,200 (12) (260) 111,177
Adjustment for immaterial pooled
businesses................................ 4 -- 17 663 -- -- 684
Issuance of Class A Common Stock for
purchase of Coyote Systems, Inc........... 1 -- 1,086 -- -- -- 1,087
Sale of Class A Common Stock pursuant to
Employee Stock Purchase Plan.............. -- -- 971 -- -- -- 971
Exercise of stock options................... 1 -- 2,099 -- -- -- 2,100
Distribution to Intranet, Inc. owners....... -- -- -- (900) -- -- (900)
Tax benefit of stock options exercised...... -- -- 3,126 -- -- -- 3,126
Unrealized investment holding loss.......... -- -- -- -- (2,812) (2,812)
Net income.................................. -- -- -- 32,259 -- -- 32,259
Foreign currency translation adjustments.... -- -- -- -- -- (1,815) (1,815)
---- --- -------- -------- -------- ------- --------
Balance, September 30, 1998................. 150 6 112,398 38,222 (12) (4,887) 145,877
Issuance of Class A Common Stock for
purchase of Insession, Inc................ 4 -- 28,421 -- -- -- 28,425
Issuance of Class A Common Stock for
purchase of SDM International, Inc........ 2 -- 14,485 -- -- -- 14,487
Sale of Class A Common Stock pursuant to
Employee Stock Purchase Plan.............. -- -- 1,339 -- -- -- 1,339
Conversion of Class B Common Stock to
Class A Common Stock...................... 6 (6) -- -- -- -- --
Purchase of 475,000 shares of Class A
Common Stock.............................. -- -- -- -- (14,238) -- (14,238)
Exercise of stock options................... 1 -- 2,216 -- -- -- 2,217
Tax benefit of stock options exercised...... -- -- 2,771 -- -- -- 2,771
Unrealized investment holding loss.......... -- -- -- -- -- (231) (231)
Net income.................................. -- -- -- 44,700 -- -- 44,700
Foreign currency translation adjustments.... -- -- -- -- -- (178) (178)
---- --- -------- -------- -------- ------- --------
Balance, September 30, 1999................. $163 $-- $161,630 $ 82,922 $(14,250) $(5,296) $225,169
==== === ======== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
33
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 44,700 $ 32,259 $ 27,163
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation............................................ 8,270 6,449 5,475
Amortization............................................ 13,206 5,022 4,404
(Increase) decrease in receivables, net................. 892 (17,949) (17,238)
(Increase) decrease in other current assets............. (2,550) (345) 1,068
(Increase) decrease in long-term accrued receivables.... (24,794) 338 (801)
Increase in other assets................................ (1,261) (1,696) (736)
Increase (decrease) in accounts payable................. (2,424) 2,340 (947)
Increase (decrease) in accrued employee compensation.... (1,332) (390) 325
Increase (decrease) in accrued liabilities.............. (9,616) 6,289 3,561
Increase in income tax liabilities...................... 3,239 839 3,432
Increase in deferred revenue............................ 11,932 2,644 8,459
-------- -------- --------
Net cash provided by operating activities............. 40,262 35,800 34,165
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment....................... (7,322) (8,936) (7,702)
Purchases of software and distribution rights............. (6,891) (3,702) (7,368)
Purchase of marketable securities......................... (6,500) (5,000) --
Acquisition of businesses, net of cash acquired........... (8,949) 417 (2,612)
Proceeds from sale of business............................ 10,093 -- --
Additions to investments and notes receivable............. (602) (7,840) (5,036)
Proceeds from notes receivable repayments................. -- 149 4,180
-------- -------- --------
Net cash used in investing activities................. (20,171) (24,912) (18,538)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of Class A Common Stock............ 1,339 971 779
Proceeds from sale and exercise of stock options.......... 2,216 2,062 5,233
Purchase of Class A Common Stock.......................... (14,238) -- --
Distribution to RVS and Intranet owners................... -- (900) (4,320)
Payments of long-term debt................................ (2,792) (1,585) (1,549)
-------- -------- --------
Net cash provided by (used in) financing activities... (13,475) 548 143
-------- -------- --------
Effect of exchange rate fluctuations on cash................ 218 (643) (442)
-------- -------- --------
Net increase in cash and cash equivalents................... 6,834 10,793 15,328
Cash and cash equivalents, beginning of period.............. 63,648 52,855 37,527
-------- -------- --------
Cash and cash equivalents, end of period.................... $ 70,482 $ 63,648 $ 52,855
======== ======== ========
Supplemental cash flow information:
Income taxes paid......................................... $ 24,039 $ 19,653 $ 8,848
Interest paid............................................. $ 397 $ 304 $ 175
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
34
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
Transaction Systems Architects, Inc. (the Company or TSA) was formed on
November 2, 1993, for the purpose of acquiring all of the outstanding capital
stock of Applied Communications, Inc. (ACI) and Applied Communications Inc
Limited (ACIL). The Company did not have substantive operations prior to the
acquisition of ACI and ACIL.
The Company develops, markets and supports a broad line of software products
and services primarily focused on facilitating electronic payments and
electronic commerce. In addition to its own products, the Company distributes
software developed by third parties. The products are used principally by
financial institutions, retailers and third-party processors, both in domestic
and international markets.
The Company derives a substantial portion of its revenue from licensing its
BASE24 family of software products and providing services and maintenance
related to those products. BASE24 products operate on Compaq Inc.'s NonStop
Himalaya servers. The Company's future results depend, in part, on market
acceptance of Compaq's NonStop Himalaya servers and the financial success of
Compaq, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All material intercompany accounts and
transactions have been eliminated.
USE OF ESTIMATES IN PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
The preparation of the consolidated 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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company's software license fees pricing method is transaction sensitive,
whereby products are priced based upon the number of transactions processed by
the customer ("transaction-based pricing"). Under this method, customers license
the products by paying an Initial License Fee (ILF), where the customer pays a
significant portion of the total software license fees at the beginning of the
software license term, and a Monthly License Fee (MLF), where the customer pays
a portion of the software license fees over the software license term. The
payment of the ILF and MLF allows the customer to process a contractually
predetermined maximum volume of transactions per month for a specified period of
time. Once the transaction volume exceeds this maximum volume level, the
customer is required to pay an additional license fee which is in the form of a
Capacity License Fee (CLF), collected at the beginning of the period the
customer contracts for an incremental volume level, and a Capacity Monthly
License Fee (CMLF), collected over the software license term. There is a
separate license fee for each incremental volume level. In addition to
transaction-based pricing, the Company offers a hardware specific pricing method
whereby the product is priced on a per copy basis and tiered to recognize
different performance levels of the processing hardware ("designated equipment
group pricing"). Under designated equipment group pricing, the customers pay a
license fee (in the form of an ILF and
35
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MLF) for each copy of the software the customers have licensed for a specified
period of time. Under both the transaction-based pricing method and the
designated equipment group pricing method, the Company offers a paid up front
(PUF) payment option, whereby the present value of the MLF or CMLF is due at the
beginning of the software license term. The standard software license term under
either pricing method is typically 60 months, but may extend over a shorter or
longer period. Other elements of the software licensing arrangement typically
include postcontract customer support (maintenance) and, occasionally, services.
Beginning in fiscal 1999, the Company adopted American Institute of
Certified Public Accountants Statement of Position 97-2, "Software Revenue
Recognition" (SOP 97-2). SOP 97-2 provides guidance on applying generally
accepted accounting principles for software revenue recognition transactions.
The primary software revenue recognition criteria outlined in SOP 97-2 include:
evidence of an arrangement; delivery; fixed or determinable fees; and
collectibility.
SOP 97-2 specifies that extended payment terms in a software licensing
arrangement may indicate that the software license fees are not deemed to be
fixed or determinable. In addition, if payment of a significant portion of the
software license fees is not due until more than twelve months after delivery,
the software license fees should be PRESUMED not to be fixed or determinable,
and thus should be recognized as the payments become due. However, SOP 97-2
specifies that if the Company has a standard business practice of using extended
payment terms in software licensing arrangements and has a history of
successfully collecting the software license fees under the original terms of
the software licensing arrangement without making concessions, the Company can
overcome the presumption that the software license fees are not fixed or
determinable. If the presumption is overcome, the Company should recognize the
software license fees when all other SOP 97-2 revenue recognition criteria are
met.
The Company has concluded that for certain software arrangements entered
into after October 1, 1998 with extended guaranteed payment terms, the "fixed or
determinable" presumption has been overcome and software license fees should be
recognized upon meeting the SOP 97-2 revenue recognition criteria ("guaranteed
software license fees"). The present value of the guaranteed software license
fees, net of third party royalties, recognized in fiscal 1999 totaled
approximately $60.5 million. The discount rates used to determine the present
value of the guaranteed software license fees, representing the Company's
incremental borrowing rates, ranged from 9.5% to 10.25%. The portion of the
guaranteed software license fees that has been recognized by the Company, but
not yet billed, is reflected in accrued receivables in the accompanying
consolidated balance sheets.
Failing to overcome the "fixed or determinable" presumption would have
resulted in the Company recognizing the ILF and CLF components of the software
license fees related to these certain software arrangements when the software
was delivered (or in the reporting period that the incremental volume level was
effective), and the MLF and CMLF components of the software license fees would
have been recognized ratably over the software license term as they were billed.
Software license fees revenue related to those software arrangements that would
have been recognized in fiscal 1999 had the Company not been able to overcome
the presumption that the software license fees were not fixed or determinable
fees would have been approximately $5.1 million.
The maintenance element of the software arrangements with extended
guaranteed payment terms where the Company has determined that the software
license fees are fixed or determinable have been segregated from the software
license fees and are being recognized over the term of the maintenance
36
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
agreement. Maintenance fees are recognized ratably over the period maintenance
is provided. Services revenues are recognized as the services are performed.
Software license fees for fiscal 1999, 1998 and 1997 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Initial license fees (ILF, CLF, PUF)........................ $ 95,002 $123,175 $ 98,738
Monthly license fees (MLF, CMLF)............................ 54,500 43,700 32,400
Guaranteed software license fees............................ 60,500 -- --
-------- -------- --------
$210,002 $166,875 $131,138
======== ======== ========
</TABLE>
FACTORING OF ACCRUED RECEIVABLES
In fiscal 1998, the Company initiated a program to sell the rights to future
payment streams under selected software arrangements with extended guaranteed
payment terms to financing institutions on a non-recourse basis. Upon
determination that 1) the Company had satisfied all of the software revenue
recognition criteria and 2) the Company had surrendered control over the future
payment stream to the financing institutions in accordance with Statement of
Financial Accounting Standard (SFAS) No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities", the Company
recognized software license fees equal to the net proceeds from these
arrangements. The software license fees recognized as the result of this program
in fiscal 1998 totaled approximately $9.2 million. During fiscal 1999, the
Company sold the rights to future payment streams under selected software
arrangements with extended guaranteed payment terms and received cash of
approximately $30.9 million, resulting in an equivalent reduction in accrued
receivables.
DEFERRED REVENUE
In certain instances, the Company collects cash from customers, or financing
institutions under receivable factoring arrangements, prior to the delivery of
the software product or performance of contracted maintenance or services.
SOFTWARE
The Company capitalizes certain software development costs when the
resulting products reach technological feasibility and begins amortization of
such costs upon the general availability of the products for licensing.
Amortization of capitalized software development costs begins when the products
are available for general release to customers and is computed separately for
each product as the greater of (a) the ratio of current gross revenue for a
product to the total of current and anticipated gross revenue for the product or
(b) the straight-line method over the remaining estimated economic life of the
product. Currently, estimated economic lives of three years are used on the
calculation of amortization of these capitalized costs. Due to competitive
pressures, it may be possible the anticipated gross revenue or remaining
estimated economic life of the software products will be reduced significantly.
As a result, the carrying amount of the software product may be reduced
accordingly. Software development costs capitalized in fiscal 1999, 1998 and
1997 totaled $3.6 million, $900,000 and $1.6 million, respectively. Amortization
of internally developed software in fiscal 1999, 1998 and 1997 totaled
$1.6 million, $1.5 million and $900,000, respectively.
37
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Purchased software is stated at cost and amortized using the straight-line
method over three years.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives ranging
from three to seven years. Assets under capital leases are amortized over the
shorter of the asset life or the lease term.
INTANGIBLE ASSETS
Intangible assets consist of goodwill arising from acquisitions and are
being amortized using the straight-line method over ten years. As of
September 30, 1999 and 1998, accumulated amortization of the intangible assets
was $10.8 million and $3.6 million, respectively.
TRANSLATION OF FOREIGN CURRENCIES
The Company's non-U.S. subsidiaries use as their functional currency the
local currency of the countries in which they operate. Their assets and
liabilities are translated into U.S. dollars at the exchange rates in effect at
the balance sheet date. Revenues and expenses are translated at the average
rates of exchange prevailing during the period. Translation gains and losses,
net of tax if any, are reflected in the consolidated financial statements as a
component of accumulated other comprehensive income. Transaction gains and
losses related to intercompany accounts are not material and are included in the
determination of net income.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of less than 90 days to be cash equivalents.
FINANCIAL INSTRUMENTS WITH MARKET RISK AND CONCENTRATIONS OF CREDIT RISK
The concentration of credit risk in the Company's receivables with respect
to financial services, retailers, processors and networks is mitigated by the
Company's credit evaluation policy, reasonably short collection terms and
geographical dispersion of sales transactions. The Company generally does not
require collateral or other security to support accounts receivable.
LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recovered.
STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations, and follows the disclosure provisions of SFAS No. 123
"Accounting for Stock-Based Compensation." See Note 10 for the required
disclosures under SFAS No. 123.
38
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS
In October 1996, the Company and Open Systems Solutions, Inc. (OSSI)
completed a share exchange transaction which resulted in OSSI becoming a
wholly-owned subsidiary of the Company. Stockholders of OSSI received 210,000
shares of TSA Class A Common Stock in exchange for 100% of OSSI's common stock.
The stock exchange was accounted for as a pooling of interests. OSSI's results
of operations prior to the acquisition were not material.
In May 1997, the Company and Regency Voice Systems, Inc. and related
entities (RVS) completed a stock exchange transaction which resulted in RVS
becoming a wholly-owned subsidiary of the Company. Shareholders of RVS received
1,615,383 shares of Class A Common Stock in exchange for 100% of RVS's shares.
The stock exchange was accounted for as a pooling of interests. Accordingly, the
Company's financial statements were restated in fiscal 1997 to include the
results of RVS for all periods presented.
During fiscal 1998, the Company acquired all of the outstanding securities
of IntraNet, Inc., Edgeware, Inc., Coyote Systems, Inc., Professional
Resources, Inc. and Smart Card Integrators Ltd. in separate transactions. These
companies were principally engaged in the development and sale of electronic
payments software products and services. The aggregate number of shares issued
for all transactions was 1,950,136 shares of Class A Common Stock. All
transactions, except for Coyote Systems, Inc. which was accounted for under the
purchase method of accounting, were accounted for as pooling of interests. The
excess purchase price over the estimated fair value of the net tangible assets
acquired from Coyote Systems, Inc. amounted to $1.1 million and was allocated to
goodwill which is being amortized over ten years. In fiscal 1998, the Company's
financial statements were restated for IntraNet, Inc. (IntraNet) for all periods
presented. The results of operations prior to the acquisitions of the remaining
companies were not material.
During fiscal 1999, the Company acquired all of the outstanding securities
of Media Integration BV (MINT), which is located in the Netherlands. MINT's
products are used to issue and manage multi-funtional applications on smart
cards. Shareholders of MINT received 740,000 shares of Class A Common Stock. The
stock exchange was accounted for as a pooling of interests. The Company's
financial statements have been restated for MINT for all periods presented.
Also during fiscal 1999, the Company acquired all of the outstanding
securities of Insession, Inc., SDM International, Inc. (SDM), US
Processing, Inc. (USPI) and the remaining 49% of its South African distributor
(Applied Communications (Propriety) Limited) in separate transactions. These
companies are principally engaged in the development and sale of electronic
payments software products, services or transaction processing. All transactions
were accounted for under the purchase method of accounting. The aggregate
purchase price for all these transactions was 1,205,000 shares of Class A Common
Stock, with a fair market value at the time of the purchases of approximately
$43 million, $19.6 million in cash and the forgiveness of $5.6 million of debt
owed to TSA. The excess purchase price over the estimated fair value of the net
tangible assets acquired amounted to $84.5 million, of which $66.3 million was
allocated to goodwill which is being amortized over ten years and $18.2 was
allocated to software which is being amortized over three years. On
September 30, 1999, the Company sold USPI for $10.1 million in cash which
approximated its carrying value.
No pro forma financial statements for the periods prior to the acquisitions
have been provided due to the amounts being immaterial.
39
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS (CONTINUED)
Combined and separate results of the Company and MINT during the periods
preceding the merger are listed below (in thousands).
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED SEPTEMBER 30,
DECEMBER 31, ---------------------
1998 1998 1997
------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Total revenues:
Company................................ $84,844 $289,761 $238,533
MINT................................... 1,226 9,488 5,616
------- -------- --------
$86,070 $299,249 $244,149
======= ======== ========
Net income:
Company................................ $ 9,227 $ 31,759 $ 25,755
MINT................................... 230 500 1,408
------- -------- --------
$ 9,457 $ 32,259 $ 27,163
======= ======== ========
</TABLE>
Prior to their acquisitions, RVS and IntraNet were taxed primarily as a
partnership and a Subchapter S corporation, respectively. In addition, prior to
its acquisition, MINT's earnings were not subject to income taxes. The unaudited
pro forma net income and earnings per share in the accompaning consolidated
statements of income reflects a pro forma tax provision for income taxes on the
results of operations of RVS, IntraNet and MINT for the periods prior to their
acquisition, as listed below (in thousands):
<TABLE>
<S> <C> <C> <C>
Unaudited pro forma information:
Net income -- historical............... $ 9,457 $ 32,259 $ 27,163
RVS tax adjustment -- pro forma........ -- -- (507)
IntraNet tax adjustment -- pro forma... -- (633) (843)
MINT tax adjustment -- pro forma....... (87) (194) (535)
------- -------- --------
Net income -- pro forma................ $ 9,370 $ 31,432 $ 25,278
======= ======== ========
</TABLE>
4. MARKETABLE SECURITIES
In April 1998, the Company entered into a transaction with Nestor, Inc.
(Nestor), whereby the Company acquired 2.5 million shares of Nestor's Common
Stock for $5.0 million. In addition, the Company received warrants to purchase
an additional 2.5 million shares at an exercise price of $3 per share. Nestor is
a provider of neural-network solutions for financial, internet and
transportation industries. The Company distributes Nestor's PRISM intelligent
fraud detection product.
In June 1999, the Company entered into a transaction with Digital Courier
Technologies, Inc. (DCTI), whereby the Company acquired 1.25 million shares of
DCTI's Common Stock for $6.5 million. In addition, the Company received warrants
to purchase an additional 1.0 million shares at an exercise price of $5.20 per
share. DCTI supplies financial institutions, businesses and major web portals
with e-commerce, payments processing and content delivery software.
The Company has accounted for the investment in Nestor and DCTI Common Stock
in accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt
40
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. MARKETABLE SECURITIES (CONTINUED)
and Equity Securities". The investments in marketable securities have been
classified as available-for-sale and recorded at fair market value, which is
estimated based on quoted market prices. Net unrealized holding gains and
losses, net of the related tax effect, are reflected in the consolidated
financial statements as a component of accumulated other comprehensive income.
Gains and losses are determined by specific identification.
5. COMPREHENSIVE INCOME
In fiscal 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of comprehensive
income and its components in a financial statement for the period in which they
are recognized. The Company's components of accumulated other comprehensive
income were as follows (in thousands):
<TABLE>
<CAPTION>
FOREIGN UNREALIZED ACCUMULATED
CURRENCY INVESTMENT OTHER
TRANSLATION HOLDING COMPREHENSIVE
ADJUSTMENTS LOSS INCOME
----------- ---------- -------------
<S> <C> <C> <C>
Balance, September 30, 1996........... $ (236) $ -- $ (236)
Fiscal 1997 activity.................. (24) -- (24)
------- ------- -------
Balance, September 30, 1997........... (260) -- (260)
Fiscal 1998 activity.................. (1,815) (2,812) (4,627)
------- ------- -------
Balance, September 30, 1998........... (2,075) (2,812) (4,887)
Fiscal 1999 activity.................. (178) (231) (409)
------- ------- -------
Balance, September 30, 1999........... $(2,253) $(3,043) $(5,296)
======= ======= =======
</TABLE>
Since the Company has established an asset valuation allowance against its
net deferred tax assets, the components of accumulated other comprehensive
income have not been tax affected.
6. EARNINGS PER SHARE
Basic earnings per share is calculated using the weighted average number of
shares outstanding during the period. Diluted earnings per share is computed on
the basis of the weighted average number of common shares outstanding plus the
dilutive effect of outstanding stock options using the "treasury stock" method.
41
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. EARNINGS PER SHARE (CONTINUED)
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1997
- ------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Net income..................................... $44,700 $32,259 $27,163
======= ======= =======
Unaudited net income -- pro forma.............. $44,613 $31,432 $25,278
======= ======= =======
Weighted average shares outstanding............ 31,667 30,298 29,829
Dilutive effect of stock options............... 696 895 878
------- ------- -------
Diluted shares outstanding..................... 32,363 31,193 30,707
======= ======= =======
Basic earnings per share -- pro forma.......... $ 1.41 $ 1.04 $ 0.85
======= ======= =======
Diluted earnings per share -- pro forma........ $ 1.38 $ 1.01 $ 0.82
======= ======= =======
</TABLE>
For fiscal years 1999, 1998 and 1997, weighted average shares from stock
options of 96,025, 25,833 and 17,872, respectively have been excluded from the
computation of diluted earnings per share because the exercise price of the
stock options were greater than the average market price of the common shares.
7. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Computer equipment..................................... $ 38,321 $ 32,496
Office furniture and fixtures.......................... 8,439 7,196
Leasehold improvements................................. 6,058 4,050
Vehicles............................................... 639 779
-------- --------
53,457 44,521
Less accumulated depreciation and amortization......... (32,703) (23,520)
-------- --------
Property and equipment, net............................ $ 20,754 $ 21,001
======== ========
</TABLE>
8. SOFTWARE
Software consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Internally developed software.......................... $ 10,905 $ 7,328
Purchased software..................................... 39,663 16,960
-------- --------
50,568 24,288
Less accumulated amortization.......................... (24,733) (17,116)
-------- --------
Software, net.......................................... $ 25,835 $ 7,172
======== ========
</TABLE>
42
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office space and equipment under operating leases which
run through February 2011. Aggregate minimum lease payments under these
agreements for the years ending September 30 are as follows (in thousands):
<TABLE>
<S> <C>
2000........................................................ $ 9,029
2001........................................................ 7,977
2002........................................................ 6,336
2003........................................................ 5,604
2004........................................................ 4,641
Thereafter.................................................. 13,638
-------
Total....................................................... $47,225
=======
</TABLE>
Total rent expense for the fiscal years ended September 30, 1999, 1998 and
1997 was, $12,556,000, $9,738,000 and $8,739,000, respectively.
LEGAL PROCEEDINGS
On June 14, 1999, HNC Software Inc. filed a complaint against the Company
and its wholly-owned subsidiary, ACI Worldwide, Inc. in the United States
District Court for the Southern District of California, San Diego Division. The
complaint alleges, among other things, patent infringement, unfair competition,
false advertising, and trade libel relating to ACI Worldwide's distribution of
PRISM, a fraud detection software product. ACI distributes PRISM pursuant to a
license agreement with Nestor, Inc., a company in which TSA is a minority
stockholder. The complaint seeks injunctive relief and unspecified damages
including treble damages, costs, attorneys' fees and various other forms of
relief. On November 25, 1998, Nestor had itself filed a complaint in the United
States District Court for the District of Rhode Island against HNC Software
alleging, among other things, infringement of a patent relating to PRISM and
antitrust violations. HNC Software has filed a counterclaim in the Rhode Island
lawsuit alleging infringement by Nestor of HNC Software's patents which claims
are essentially the same as those filed by HNC Software against the Company and
ACI Worldwide in the San Diego lawsuit. Neither the Company nor ACI Worldwide
was a party to the Rhode Island lawsuit. However, because the same patents and
the same products are at issue in both lawsuits, the Company and ACI Worldwide
are seeking to have the San Diego lawsuit transferred to Rhode Island and
consolidated with the proceedings there. Whatever the final procedural posture
of the lawsuit, the Company intends to vigorously defend against HNC Software's
allegations.
In addition, from time to time, the Company is involved in litigation
relating to claims arising out of its operations in the normal course of
business. The Company is not currently a party to any legal proceedings the
adverse outcome of which, individually or in the aggregate, would have a
material adverse effect on the Company's financial condition or results of
operations.
43
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK-BASED COMPENSATION PLANS
STOCK INCENTIVE PLANS
The Company has a 1994 Stock Option Plan whereby 1,910,976 shares of the
Company's Class B Common Stock have been reserved for issuance to eligible
employees of the Company and its subsidiaries. Shares issuable upon exercise of
these options will be Class A Common Stock. The stock options are granted at a
price set by the Board of Directors provided that the minimum price shall be
$2.50 per share for 955,488 shares and $5 per share for 955,488 shares. The term
of the outstanding options is ten years. The stock options vest ratably over a
period of four years.
The Company has a 1996 and 1999 Stock Option Plan whereby a total of
2,008,000 shares of the Company's Class A Common Stock have been reserved for
issuance to eligible employees of the Company and its subsidiaries and
non-employee members of the Board of Directors. The stock options are granted at
a price not less than fair market value of the Company's Class A Common Stock at
the time of the grant. The term of the outstanding options is ten years. The
options vest annually over a period of four years.
The Company has a 1997 Management Stock Option Plan whereby 1,050,000 shares
of the Company's Class A Common Stock have been reserved for issuance to
eligible management employees of the Company and its subsidiaries. The stock
options are granted at a price not less than fair market value of the Company's
Class A Common Stock at the time of the grant and require the participant to pay
$3 for each share granted. The term of the outstanding options is ten years. The
options vest annually over a period of four years.
A summary of the stock options issued under the Stock Incentive Plans
previously described and changes during the years ending September 30 are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------- -------------------------- --------------------------
SHARES WEIGHTED SHARES WEIGHTED SHARES WEIGHTED
UNDER AVERAGE UNDER AVERAGE UNDER AVERAGE
OPTION EXERCISE PRICE OPTION EXERCISE PRICE OPTION EXERCISE PRICE
--------- -------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding on
October 1,................ 2,811,507 2,794,437 $16.82 1,731,439 $ 7.18
Granted..................... 894,890 $30.57 387,650 $34.30 1,387,567 $26.27
Exercised................... 285,445 $ 7.53 325,371 $ 6.35 283,862 $ 4.57
Cancellations............... 67,978 $31.76 45,209 $25.20 40,707 $13.83
--------- --------- ---------
Outstanding on
September 30.............. 3,352,974 $23.91 2,811,507 $20.30 2,794,437 $16.82
========= ========= =========
Options exercisable at end
of year................... 1,497,100 $17.09 1,275,778 $11.19 909,429 $ 5.04
Shares available on
September 30 for options
that may be granted....... 347,375 174,287 516,728
Weighted-average grant date
fair value of options
granted during the year --
exercise price equals
stock market price at
grant..................... $14.10 $17.74 $13.01
</TABLE>
44
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK-BASED COMPENSATION PLANS (CONTINUED)
The following table summarizes information about stock options outstanding
at September 30, 1999.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------- ------------------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
NUMBER CONTRACTUAL AVERAGE EXERCISE NUMBER AVERAGE EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ------------------------ ----------- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$2.50..................... 244,273 4.36 $ 2.50 244,273 $ 2.50
$5.00..................... 383,455 5.09 5.00 383,330 5.00
$7.50 to $9.75............ 10,397 5.43 7.93 10,397 7.93
$12.00 to $16.50.......... 16,917 6.18 14.19 15,833 14.11
$20.25 to $25.875......... 1,157,434 7.33 24.40 594,725 24.43
$26.4375 to $31.625....... 901,228 9.39 30.23 41,546 29.70
$32.0625 to $35.75........ 529,595 8.31 33.27 186,743 33.28
$36.00 to $45.00.......... 109,675 8.58 38.28 20,253 38.24
--------- ---- ------ --------- ------
3,352,974 7.60 $23.91 1,497,100 $17.09
========= ==== ====== ========= ======
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
The Company has a 1996 and 1999 Employee Stock Purchase Plan whereby a total
of 1,150,000 shares of the Company's Class A Common Stock have been reserved for
sale to eligible employees of the Company and its subsidiaries. Employees may
designate up to the lesser of $5,000 or 10% of their annual compensation for the
purchase of stock under these plans. The price for shares purchased under the
plan is 85% of market value the lower of the first or last day of the purchase
period. Purchases are made at the end of each fiscal quarter. Shares issued
under these plans for the years ended September 30, 1999, 1998 and 1997 totaled
48,148, 30,881 and 27,748, respectively.
STOCK-BASED COMPENSATION PLANS
The Company adopted the disclosure provisions of SFAS No. 123. No
compensation cost has been recognized for the stock incentive plans.
Had compensation expense for the Company's stock-based compensation plans
been based on the fair value of the stock options at the grant dates for awards
under those plans consistent with the fair value based method of SFAS No. 123,
the Company's net income and net income per common and
45
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK-BASED COMPENSATION PLANS (CONTINUED)
equivalent share for fiscal 1999, 1998 and 1997 would approximate the pro forma
amounts as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net income--historical:
As reported.................................. $44,700 $32,259 $27,163
Pro forma.................................... 42,820 30,233 25,850
Unaudited net income--pro forma:
As reported.................................. 44,613 31,432 25,278
Pro forma.................................... 42,733 29,406 23,965
Pro forma net income per share--basic.......... $ 1.35 $ 0.97 $ 0.80
Pro forma net income per share--diluted........ $ 1.32 $ 0.94 $ 0.78
</TABLE>
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Expected life......................................... 5.8 5.8 5.8
Interest rate......................................... 5.7% 5.5% 6.3%
Volatility............................................ 38% 39% 38%
Dividend yield........................................ -- -- --
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 applies only to options granted since
fiscal year 1996, and additional awards in future years are anticipated.
11. EMPLOYEE BENEFIT PLANS
TSA 401(k) RETIREMENT PLAN
The 401(k) Retirement Plan is a defined contribution plan covering all
domestic employees of TSA. Participants may contribute up to 15% of their annual
wages. Beginning January 1, 1998, TSA began matching 160% of participant
contributions up to a maximum of 2.5% of compensation, not to exceed $2,500.
Prior to January 1, 1998, TSA matched 100% of participants contributions up to a
maximum of 2.5%. TSA's contributions charged to expense during the years ended
September 30, 1999, 1998 and 1997 were $2,318,000, $1,197,000 and $489,000,
respectively.
ACI PROFIT SHARING PLAN AND TRUST
The Company had a Profit Sharing Plan and Trust which was a non-contributory
profit sharing plan covering all employees of ACI provided they were at least 21
years of age and had completed one year of service. Effective October 1, 1997
the ACI Profit Sharing Plan and Trust was merged into the 401(k) Retirement
Plan. The plan provided for ACI to contribute a discretionary amount as
determined annually by the Company's President and Chief Financial Officer.
ACI's contributions charged to expense during the fiscal year ended
September 30, 1997 was $480,000.
46
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
TSA DEFERRED COMPENSATION PLAN
Effective January 1, 1999, the Company adopted a Deferred Compensation Plan
for a select group of management or highly compensated employees who elect to
participate in the plan. No company contributions are made to the plan and
participants are 100% vested in their contributions.
ACIL PENSION PLAN
ACIL has a defined benefit pension plan covering substantially all of its
employees. The benefits are based on years of service and the employees'
compensation during employment. Contributions to the plan are determined by an
independent actuary on the basis of periodic valuations using the projected unit
cost method. Participants contribute 5% of their pensionable salaries and ACIL
contributes at the rate of 10% of pensionable salaries. Net periodic pension
expense includes the following components (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
1999 1998 1997
-------- ---------- --------
<S> <C> <C> <C>
Service cost.................................. $2,301 $ 1,666 $ 1,307
Interest cost on projected benefit
obligation.................................. 1,156 1,192 830
Return on plan assets:
Actual and gain deferred.................... (1,657) (1,501) (1,055)
Amortization of unrecognized gain........... 136 (85) 3
------ ---------- -------
Total periodic pension expense................ $1,936 $ 1,272 $ 1,085
====== ========== =======
</TABLE>
The following table summarizes the funded status of the plan and the related
amounts recognized in the Company's consolidated balance sheet (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Projected benefit obligation............................. $23,339 $18,439
Plan assets at fair value, primarily investments in
marketable equity securities of United Kingdom
companies.............................................. 22,776 17,467
------- -------
Plan assets less than projected benefit obligation....... (563) (972)
Unrecognized gain........................................ (1,682) (826)
------- -------
Accrued pension cost..................................... $(2,245) $(1,798)
======= =======
</TABLE>
The most significant actuarial assumptions used in determining the pension
expense and funded status of the plan are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Discount rate for valuing liabilities.................. 6.25% 6.0% 8.0%
Expected long-term rate of return on assets............ 9.25% 7.0% 9.0%
Rate of increase in future compensation levels......... 3.75% 3.5% 6.0%
</TABLE>
47
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. TREASURY STOCK
In fiscal 1999, the Company acquired 475,000 shares of its Class A Common
Stock at an average cost of $29.98 per share in connection with a stock
repurchase program announced in May 1999. The program authorized the Company to
purchase up to 2,000,000 common shares from time to time through February 2000
for cash at market prices in open market, negotiated or block transactions. The
purpose of the stock repurchase program is to replace the shares issued in the
SDM acquisition completed in July 1999, and to fund a reserve of shares for
future employee stock options grants, acquisitions or other corporate purposes.
13. SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" in fiscal 1999. The Company has a single
operating segment encompassing the development, marketing, installation and
technical support of a broad line of software products and services primarily
focused on facilitating electronic payments and electronic commerce. The
Company's chief operating decision makers review financial information,
presented on a consolidated basis, accompanied by disaggregated information
about revenue and contribution margin by product, as organized into four
line-of-business groups, and revenue and contribution margin by geographic area.
The Company's four line-of-business groups are Consumer Banking, Corporate
Banking, Retail Solutions and System Solutions. Products are developed by the
line-of-business groups and are sold and supported through three distribution
networks covering the geographic areas of the Americas, Europe/Middle
East/Africa (EMEA) and Asia/Pacific. The Company allocates resources to and
evaluates performance of its lines-of-business groups and geographic areas based
upon revenue and contribution margin.
48
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. SEGMENT INFORMATION (CONTINUED)
The following is revenues and contribution margin for the Company's four
lines-of-business groups for fiscal years 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Consumer Banking.......................................... $256,430 $215,947 $175,014
Corporate Banking......................................... 30,061 30,825 31,063
Retail Solutions.......................................... 22,579 23,023 16,476
Systems Solutions......................................... 45,724 29,454 21,596
-------- -------- --------
$354,794 $299,249 $244,149
======== ======== ========
Contribution margin from lines-of-business groups:
Consumer Banking.......................................... $219,803 $186,364
Corporate Banking......................................... 7,807 7,595
Retail Solutions.......................................... 5,763 10,108
Systems Solutions......................................... 40,552 25,966
-------- --------
$273,925 $230,033
======== ========
Profit reconcilliation:
Contribution margin from lines-of-business groups......... $273,925 $230,033
Direct costs for geographic areas:
Americas................................................ (86,725) (64,860)
EMEA.................................................... (64,729) (59,474)
Asia/Pacific............................................ (19,257) (20,724)
Corporate expenses........................................ (32,944) (33,487)
-------- --------
Operating Income.......................................... $ 70,260 $ 51,488
======== ========
</TABLE>
The Company does not track assets by line-of-business group. Direct costs
for lines-of-business groups for fiscal 1997 are not available.
49
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. SEGMENT INFORMATION (CONTINUED)
The following is revenue, contribution margin and long-lived assets for the
Company's three geographic areas for fiscal years 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
United States............................................. $167,236 $134,506 $112,455
Americas -- other......................................... 43,070 39,564 33,370
-------- -------- --------
Total Americas.......................................... 210,306 174,070 145,825
EMEA...................................................... 113,096 96,979 70,408
Asia/Pacific.............................................. 31,392 28,200 27,916
-------- -------- --------
$354,794 $299,249 $244,149
======== ======== ========
Contribution margin from geographic areas:
Total Americas............................................ $123,581 $109,210 $ 91,061
EMEA...................................................... 48,367 37,505 6,722
Asia/Pacific.............................................. 12,125 7,476 5,448
-------- -------- --------
$184,073 $154,191 $103,231
======== ======== ========
Profit Reconcilliation:
Contribution margin for geographic areas.................. $184,073 $154,191
Direct Costs for lines-of-business groups:
Consumer Banking........................................ (36,627) (29,583)
Corporate Banking....................................... (22,254) (23,230)
Systems Solutions....................................... (16,816) (12,915)
Retail Solutions........................................ (5,172) (3,488)
Corporate expenses........................................ (32,944) (33,487)
-------- --------
Operating Income.......................................... $ 70,260 $ 51,488
======== ========
Long-lived assets:
Americas (primarily United States)........................ $103,425 $ 47,044 $ 35,072
EMEA...................................................... 11,520 10,530 9,937
Asia/Pacific.............................................. 1,620 1,255 1,408
-------- -------- --------
$116,555 $ 58,829 $ 46,417
======== ======== ========
</TABLE>
No single customer accounted for more than 10% of the Company's consolidated
revenue during fiscal years 1999, 1998 and 1997.
14. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". SFAS No. 109 is an asset and liability approach
which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events which have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, SFAS No. 109 generally considers all expected future events other
than enactments or changes in the tax law or rates.
50
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. INCOME TAXES (CONTINUED)
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------ ------------------------------ ------------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal.............. $18,360 $(2,413) $15,947 $13,433 $(1,212) $12,221 $ 7,022 $1,355 $ 8,377
State................ 3,171 (341) 2,830 2,252 (257) 1,995 1,905 240 2,145
Foreign.............. 8,393 -- 8,393 5,260 -- 5,260 3,803 -- 3,803
------- ------- ------- ------- ------- ------- ------- ------ -------
Total................ $29,924 $(2,754) $27,170 $20,945 $(1,469) $19,476 $12,730 $1,595 $14,325
======= ======= ======= ======= ======= ======= ======= ====== =======
</TABLE>
The difference between the income tax provision computed at the statutory
federal income tax rate and the financial statement provision for income taxes
is summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Tax expense at federal rate of 35%............. $25,155 $17,932 $14,028
Losses with no current tax benefit............. 240 22 1,503
Effective state income tax..................... 2,112 1,508 1,394
Foreign tax rate differential.................. 1,097 385 1,160
RVS nontaxable income.......................... -- -- (663)
IntraNet nontaxable income..................... -- (564) (766)
Recognition of deferred income tax assets
previously reserved against.................. (3,235) (830) (2,979)
Amortization of intangibles.................... 1,269 -- --
Transaction related expenses................... 239 461 --
Other.......................................... 293 562 648
------- ------- -------
$27,170 $19,476 $14,325
======= ======= =======
</TABLE>
51
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. INCOME TAXES (CONTINUED)
The deferred tax assets and liabilities result from differences in the
timing of the recognition of certain income and expense items for tax and
financial accounting purposes. The sources of these differences are as follows
(in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Deferred assets:
Depreciation......................................... $ 138 $ 167
Amortization......................................... 3,807 4,822
Foreign taxes........................................ 2,082 1,122
Acquired net operating loss carryforward of USSI..... 1,575 1,167
Net operating loss carryforward...................... 3,004 1,058
Acquired basis in partnership assets................. 5,518 6,016
Unrealized investment holding loss................... 1,184 1,094
Other................................................ 1,376 1,140
-------- --------
$ 18,684 16,586
-------- --------
Deferred tax asset valuation allowance................. (11,216) (11,665)
-------- --------
Deferred liabilities:
Acquired Software.................................... (5,953) --
Other................................................ (254) (288)
-------- --------
(6,207) (288)
-------- --------
$ 1,261 $ 4,633
======== ========
</TABLE>
At September 30, 1999 management evaluated its 1999 and 1998 operating
results as well as its future tax projections and concluded that it was more
likely than not that certain of the deferred tax assets would be realized.
Accordingly, the Company has recognized a deferred tax asset of $7.5 million as
of September 30, 1999.
52
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See the Proxy Statement for the Company's 2000 Annual Meeting of
Stockholders, which information is incorporated herein by reference. Certain
information with respect to persons who are or may be deemed to be executive
officers of the registrant is set forth under the caption "Executive Officers of
the Registrant" in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
See the Proxy Statement for the Company's 2000 Annual Meeting of
Stockholders, which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the Proxy Statement for the Company's 2000 Annual Meeting of
Stockholders, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the Proxy Statement for the Company's 2000 Annual Meeting of
Stockholders, which information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS ON FORM 8-K
(1) FINANCIAL STATEMENTS
The financial statements filed as part of this report are listed on the
Index to Financial Statements on page 24.
(2) FINANCIAL STATEMENT SCHEDULES:
Index to Consolidated Financial Statement Schedules
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Public Accountants.................... 57
Schedule II -- Valuation and Qualifying Accounts............ 58
</TABLE>
All other Schedules have been omitted because the required information is
shown in the consolidated financial statements or notes thereto or they are not
applicable.
(3) REPORTS ON FORM 8-K
None.
53
<PAGE>
(4) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
2.01(2) Senior Convertible Preferred Stock and Warrant Purchase
Agreement among ACI Holding, Inc. and the Several Named
Purchasers Named therein, dated as of December 31, 1993
2.02(2) Stock Purchase Agreement between and among Tandem Computers
Incorporated, Tandem Computers Limited, Applied
Communications, Inc., Applied Communications Inc Limited
and ACI Holding, Inc., dated November 8, 1993, and
amendments thereto
2.03(2) Stock Purchase Agreement between and among U S Software
Holding, Inc., Michael J. Scheier, Trustee, Michael J.
Scheier and ACI Holding, Inc., dated December 13, 1993,
and amendments thereto
2.04(2) Stock and Warrant Holders Agreement, dated as of
December 30, 1993
2.05(2) Credit Agreement among ACI Transub, Inc., ACI
Holding, Inc., certain lenders and Continental Bank N.A.,
as Agent, dated December 31, 1993, including Amendment No.
1 to Credit Agreement and Amendment No. 2 to Credit
Agreement and Consent
2.06(2) Letter Agreement among ACI Holding, Inc., Alex. Brown and
Sons, Incorporated and Kirkpatrick Pettis Smith
Polian, Inc., and amendment thereto
2.07(2) ACI Management Group Investor Subscription Agreement, dated
as of December 30, 1993
2.08(3) Asset Purchase Agreement Between 1176484 Ontario Inc. and
TXN Solution Integrations dated June 3, 1996
2.09(4) Stock Exchange Agreement by and among the Company, Grapevine
Systems, Inc. and certain principal shareholders of
Grapevine Systems, Inc., dated as of July 15, 1996
2.10(9) Stock Exchange Agreement dated April 17, 1997 by and among
the Company and Regency Voice Systems, Inc. and related
entities.
2.11(10) Agreement and Plan of Merger dated April 27, 1998 among the
Company, I.N. Acquisition Corp. and IntraNet
3.01(2) Amended and Restated Certificate of Incorporation of the
Company, and amendments thereto
3.02 Amended and Restated Bylaws of the Company, and First
Amendment thereto
4.01(2) Form of Common Stock Certificate
10.01(2) ACI Holding, Inc. 1994 Stock Option Plan and UK Sub-Plan
10.02(2) ACI Holding, Inc. Employees Stock Purchase Plan
10.03(2) Applied Communications, Inc. First Restated Profit Sharing
Plan and Trust
10.04(2) Applied Communications, Inc. Profit Sharing/401(k) Plan and
Amendment No. 1 thereto
10.05(2) U.S. Software, Inc. Profit Sharing Plan and Trust
10.06(7) Consulting Agreement between Transaction Systems
Architects, Inc. and Michael J. Scheier and U.S. Software
Holding dated December 31, 1995
10.07(12) Transaction Systems Architects, Inc. 1996 Stock Option Plan
(10.08-10.12 intentionally omitted.)
10.13(2) Voting Agreement among ACI Holding, Inc. and certain
investors, dated as of December 30, 1993
10.14(2) Registration Rights Agreement between ACI Holding, Inc. and
certain stockholders, dated December 30, 1993
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
(10.15-10.16 intentionally omitted.)
10.17(2) Lease respecting facility at 330 South 108th Avenue, Omaha,
Nebraska
10.18(2) Lease respecting facility at 218 South 108th Avenue,
Suite 3, Omaha, Nebraska
10.19(2) Lease respecting facility at 230 South 108th Avenue,
Suite 3, Omaha, Nebraska
10.20(2) Lease respecting facility at 230 South 108th Avenue (North
half), Omaha, Nebraska
10.21(5) Lease respecting facility at 206 South 108th Avenue, Omaha,
Nebraska
10.22(2) Lease respecting facility at 2200 Abbott Drive, Carter Lake,
Iowa
10.23(5) Lease respecting facility at 182 Clemenceau Avenue,
Singapore
10.24(8) Transaction Systems Architects, Inc. 1997 Management Stock
Option Plan
10.25(1) Leases respecting facility at 55 and 59 Clarendon Road,
Watford, United Kingdom
10.26(6) Revolving Conditional Line of Credit Agreement with Norwest
Bank Nebraska, N.A.
10.27(2) Software House Agreement, as amended, between Tandem
Computers Incorporated and Applied Communications, Inc.
10.28(1) Lease respecting facility at 236 South 108th Avenue,
Suite 2, Omaha, Nebraska
10.29(3) Second Amendment to Software House Agreement between Tandem
Computers Incorporated and Applied Communications, Inc.
10.30(11) Transaction Systems Architects, Inc. Deferred Compensation
Plan
10.31(11) Transaction Systems Architects, Inc. Deferred Compensation
Plan Trust Agreement
10.32 Severance Compensation Agreements between Transaction
Systems Architects, Inc. and certain employees
21.01(4) Subsidiaries of the Company
23.01 Consent of Independent Public Accountants
27.00 Financial Data Schedule
99.01 Safe Harbor for Forward-Looking Statements under the Private
Securities Litigation Reform Act of 1995
</TABLE>
- ------------------------
(1) Incorporated by reference to the exhibit of the same number to the
Registration Statement No. 33-94338 on Form S-1.
(2) Incorporated by reference to the exhibit of the same number to the
Registrant's Registration Statement No. 33-88292 on Form S-1.
(3) Incorporated by reference to the exhibit of the same number to the
Registrant's Current Report on Form 8-K dated June 3, 1996.
(4) Incorporated by reference to the exhibit of the same number to the
Registrant's Registration Statement No. 333-09811 on Form S-4.
(5) Incorporated by reference to the exhibit of the same number to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1995.
(6) Incorporated by reference to the exhibit of the same number to the
Registrant's Quarterly Report on Form 10-Q for the period ended June 30,
1996.
(7) Incorporated by reference to the exhibit of the same number to the
Registrant's Quarterly Report on Form 10-Q for the period ended
December 31, 1995.
(8) Incorporated by reference to the exhibit of the same number to the
Registrant's Quarterly Report on Form 10-Q for the period ended March 31,
1997.
(9) Incorporated by reference to the exhibit of the same number to the
Registrants Current Report on Form 8 K dated May 13, 1997.
(10) Incorporated by reference to the exhibit of the same number to the
Registrant's Current Report on Form 8-K dated August 7, 1998.
(11) Incorporated by reference to exhibits 4.1 and 4.2 to the Registration
Statement No. 333-67987 on Form S-8.
(12) Incorporated by reference to the exhibit with the same number to the
Registrant's Annual Report on Form 10-K for the fiscal year ended September
30, 1996.
55
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on December 23, 1999.
<TABLE>
<S> <C> <C>
TRANSACTION SYSTEMS ARCHITECTS, INC.
By /s/ WILLIAM E. FISHER
-----------------------------------------
William E. Fisher
DIRECTOR AND CHAIRMAN OF THE BOARD
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on December 23, 1999:
<TABLE>
<C> <S>
/s/ DAVID C. RUSSELL
------------------------------------------- Director and President
David C. Russell (Principal Executive Officer)
/s/ WILLIAM E. FISHER
------------------------------------------- Director and Chairman of the Board
William E. Fisher
/s/ GREGORY J. DUMAN
------------------------------------------- Chief Financial Officer (Principal Financial
Gregory J. Duman Officer)
/s/ DWIGHT HANSON
------------------------------------------- Vice President (Principal Accounting Officer)
Dwight Hanson
/s/ PROMOD HAQUE
------------------------------------------- Director
Promod Haque
/s/ CHARLES E. NOELL, III
------------------------------------------- Director
Charles E. Noell, III
/s/ JIM D. KEVER
------------------------------------------- Director
Jim D. Kever
/s/ LARRY G. FENDLEY
------------------------------------------- Director
Larry G. Fendley
</TABLE>
56
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE OF
TRANSACTION SYSTEMS ARCHITECTS, INC.
To the Board of Directors of
Transaction Systems Architects, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Transaction Systems Architects, Inc.
and Subsidiaries included in this Form 10-K and have issued our report thereon
dated October 28, 1999. Our audit was made for the purpose of forming an opinion
on the basic financial statements taken as a whole. The schedule of Transaction
Systems Architects, Inc. listed in Item 14 of Part IV of this Form 10-K is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Omaha, Nebraska,
October 28, 1999
57
<PAGE>
SCHEDULE II
TRANSACTION SYSTEMS ARCHITECTS, INC.
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of period................................ $5,148 $ 2,298 $1,168
Additions charged to expense................................ 3,758 4,746 1,512
Reductions.................................................. (1,655) (1,896) (382)
------ ------- ------
Balance, end of period...................................... $7,251 $ 5,148 $2,298
====== ======= ======
</TABLE>
58
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
2.01(2) Senior Convertible Preferred Stock and Warrant Purchase
Agreement among ACI Holding, Inc. and the Several Named
Purchasers Named therein, dated as of December 31, 1993
2.02(2) Stock Purchase Agreement between and among Tandem Computers
Incorporated, Tandem Computers Limited, Applied
Communications, Inc., Applied Communications Inc Limited
and ACI Holding, Inc., dated November 8, 1993, and
amendments thereto
2.03(2) Stock Purchase Agreement between and among U S Software
Holding, Inc., Michael J. Scheier, Trustee, Michael J.
Scheier and ACI Holding, Inc., dated December 13, 1993,
and amendments thereto
2.04(2) Stock and Warrant Holders Agreement, dated as of
December 30, 1993
2.05(2) Credit Agreement among ACI Transub, Inc., ACI
Holding, Inc., certain lenders and Continental Bank N.A.,
as Agent, dated December 31, 1993, including Amendment No.
1 to Credit Agreement and Amendment No. 2 to Credit
Agreement and Consent
2.06(2) Letter Agreement among ACI Holding, Inc., Alex. Brown and
Sons, Incorporated and Kirkpatrick Pettis Smith
Polian, Inc., and amendment thereto
2.07(2) ACI Management Group Investor Subscription Agreement, dated
as of December 30, 1993
2.08(3) Asset Purchase Agreement Between 1176484 Ontario Inc. and
TXN Solution Integrations dated June 3, 1996
2.09(4) Stock Exchange Agreement by and among the Company, Grapevine
Systems, Inc. and certain principal shareholders of
Grapevine Systems, Inc., dated as of July 15, 1996
2.10(9) Stock Exchange Agreement dated April 17, 1997 by and among
the Company and Regency Voice Systems, Inc. and related
entities.
2.11(10) Agreement and Plan of Merger dated April 27, 1998 among the
Company, I.N. Acquisition Corp. and IntraNet
3.01(2) Amended and Restated Certificate of Incorporation of the
Company, and amendments thereto
3.02 Amended and Restated Bylaws of the Company, and First
Amendment thereto
4.01(2) Form of Common Stock Certificate
10.01(2) ACI Holding, Inc. 1994 Stock Option Plan and UK Sub-Plan
10.02(2) ACI Holding, Inc. Employees Stock Purchase Plan
10.03(2) Applied Communications, Inc. First Restated Profit Sharing
Plan and Trust
10.04(2) Applied Communications, Inc. Profit Sharing/401(k) Plan and
Amendment No. 1 thereto
10.05(2) U.S. Software, Inc. Profit Sharing Plan and Trust
10.06(7) Consulting Agreement between Transaction Systems
Architects, Inc. and Michael J. Scheier and U.S. Software
Holding dated December 31, 1995
10.07(12) Transaction Systems Architects, Inc. 1996 Stock Option Plan
(10.08-10.12 intentionally omitted.)
10.13(2) Voting Agreement among ACI Holding, Inc. and certain
investors, dated as of December 30, 1993
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
10.14(2) Registration Rights Agreement between ACI Holding, Inc. and
certain stockholders, dated December 30, 1993
(10.15-10.16 intentionally omitted.)
10.17(2) Lease respecting facility at 330 South 108th Avenue, Omaha,
Nebraska
10.18(2) Lease respecting facility at 218 South 108th Avenue,
Suite 3, Omaha, Nebraska
10.19(2) Lease respecting facility at 230 South 108th Avenue,
Suite 3, Omaha, Nebraska
10.20(2) Lease respecting facility at 230 South 108th Avenue (North
half), Omaha, Nebraska
10.21(5) Lease respecting facility at 206 South 108th Avenue, Omaha,
Nebraska
10.22(2) Lease respecting facility at 2200 Abbott Drive, Carter Lake,
Iowa
10.23(5) Lease respecting facility at 182 Clemenceau Avenue,
Singapore
10.24(8) Transaction Systems Architects, Inc. 1997 Management Stock
Option Plan
10.25(1) Leases respecting facility at 55 and 59 Clarendon Road,
Watford, United Kingdom
10.26(6) Revolving Conditional Line of Credit Agreement with Norwest
Bank Nebraska, N.A.
10.27(2) Software House Agreement, as amended, between Tandem
Computers Incorporated and Applied Communications, Inc.
10.28(1) Lease respecting facility at 236 South 108th Avenue,
Suite 2, Omaha, Nebraska
10.29(3) Second Amendment to Software House Agreement between Tandem
Computers Incorporated and Applied Communications, Inc.
10.30(11) Transaction Systems Architects, Inc. Deferred Compensation
Plan
10.31(11) Transaction Systems Architects, Inc. Deferred Compensation
Plan Trust Agreement
10.32 Severance Compensation Agreements between Transaction
Systems Architects, Inc. and certain employees
21.01(4) Subsidiaries of the Company
23.01 Consent of Independent Public Accountants
27.00 Financial Data Schedule
99.01 Safe Harbor for Forward-Looking Statements under the Private
Securities Litigation Reform Act of 1995
</TABLE>
- ------------------------
(1) Incorporated by reference to the exhibit of the same number to the
Registration Statement No. 33-94338 on Form S-1.
(2) Incorporated by reference to the exhibit of the same number to the
Registrant's Registration Statement No. 33-88292 on Form S-1.
(3) Incorporated by reference to the exhibit of the same number to the
Registrant's Current Report on Form 8-K dated June 3, 1996.
(4) Incorporated by reference to the exhibit of the same number to the
Registrant's Registration Statement No. 333-09811 on Form S-4.
(5) Incorporated by reference to the exhibit of the same number to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1995.
(6) Incorporated by reference to the exhibit of the same number to the
Registrant's Quarterly Report on Form 10-Q for the period ended June 30,
1996.
(7) Incorporated by reference to the exhibit of the same number to the
Registrant's Quarterly Report on Form 10-Q for the period ended
December 31, 1995.
(8) Incorporated by reference to the exhibit of the same number to the
Registrant's Quarterly Report on Form 10-Q for the period ended March 31,
1997.
(9) Incorporated by reference to the exhibit of the same number to the
Registrants Current Report on Form 8 K dated May 13, 1997.
(10) Incorporated by reference to the exhibit of the same number to the
Registrant's Current Report on Form 8-K dated August 7, 1998.
(11) Incorporated by reference to exhibits 4.1 and 4.2 to the Registration
Statement No. 333-67987 on Form S-8.
(12) Incorporated by reference to the exhibit of the same number to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996.
60
<PAGE>
ACI HOLDING, INC.
BY-LAWS
Dated as of
November 5, 1993
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
OFFICES ................................................................ 1
1. Delaware. .................................................. 1
2. Other Offices. ............................................. 1
STOCKHOLDERS' MEETINGS ................................................. 1
3. Place. ..................................................... 1
4. Annual Meeting.............................................. 1
5. Special Meetings. .......................................... 1
6. Notice of Stockholder Business. ............................ 1
7. Inspectors. ................................................ 2
8. Quorum. .................................................... 2
9. Voting. .................................................... 2
10. List of Stockholders. ...................................... 3
11. Order of Business. ......................................... 3
NOMINATION OF DIRECTOR CANDIDATES ...................................... 3
12. Notification of Nominees. .................................. 3
13. Substitution of Nominees. .................................. 4
14. Compliance with Procedures.................................. 4
DIRECTORS .............................................................. 4
15. Board of Directors. ........................................ 4
(a) Number, election and terms. ......................... 4
(b) Newly created directorships and vacancies. .......... 5
(c) Removal. ............................................ 5
16. Responsibilities. .......................................... 5
17. Powers. .................................................... 5
18. Compensation................................................ 5
19. Resignation. ............................................... 5
20. Meetings. .................................................. 5
(a) Generally. .......................................... 5
(b) Meetings by telephone or similar communications
equipment............................................ 6
(c) Action by consent. .................................. 6
21. Notices..................................................... 6
22. Quorum. .................................................... 6
23. Committees of the Board of Directors. ...................... 6
(a) Executive Committee. ................................ 6
(b) Other Committees. ................................... 8
ii
<PAGE>
OFFICERS ............................................................... 8
24. Number of Officers. .................................... 8
25. Appointment and Term of Office ............................. 8
26. Removal of Officers ........................................ 8
27. President .................................................. 8
28. The Vice-Presidents......................................... 9
29. The Secretary .............................................. 9
30. The Treasurer .............................................. 9
31. Assistant Secretaries and Assistant Treasurers ............. 10
32. Salaries ................................................... 10
INDEMNIFICATION ........................................................ 10
33. Damages and Expenses. ...................................... 10
(a) Actions, Suits or Proceedings Other Than by or
in the Right of the Corporation...................... 10
(b) Actions or Suits by or in the Right of the
Corporation. ........................................ 10
(c) Indemnification for Costs, Charges and Expenses of
Successful Party..................................... 11
(d) Determination of Right to Indemnification. .......... 11
(e) Advance of Costs, Charges and Expenses. ............. 11
(f) Procedure for Indemnification. ...................... 12
(g) Other Rights; Continuation of Right to
Indemnification...................................... 12
(h) Definitions. ........................................ 13
(i) Savings Clause. ..................................... 14
34. Insurance. ................................................. 14
STOCK RECORDS .......................................................... 14
35. Form of Certificates. ...................................... 14
36. Classes of Stock: Rights ................................... 14
37. Transfers................................................... 15
38. Lost Certificates. ......................................... 15
39. Record Dates. .............................................. 15
GENERAL ................................................................ 15
40. Contracts, Checks, Etc. .................................... 15
41. Fiscal Year. ............................................... 15
42. Annual Statement. .......................................... 15
43. Form of Notices. ........................................... 16
44. Seal. ...................................................... 16
45. By-Law Amendment. .......................................... 16
46. Section 203. ............................................... 16
47. Certificate of Incorporation and Applicable Law. ........... 16
</TABLE>
iii
<PAGE>
BY-LAWS
OFFICES
1. DELAWARE. The Corporation's registered office in the State of
Delaware shall be in the City of Wilmington, County of New Castle, State of
Delaware, and the name of the registered agent in charge thereof is The
Corporation Trust Company.
2. OTHER OFFICES. The Corporation may also have offices at such
other places as the Board of Directors may from time to time appoint or the
business of the Corporation may require.
STOCKHOLDERS' MEETINGS
3. PLACE. Meetings of the stockholders shall be held at such place as
the Board of Directors shall determine.
4. ANNUAL MEETING. The annual meeting of the stockholders for the
election of Directors, the receiving of reports and the transaction of such
other business as may properly be brought before the meeting shall be held on
such date and at such time as the Board of Directors determines.
5. SPECIAL MEETINGS. Special meetings of the stockholders for any
purpose may be called by the Chairman of the Board of Directors (the
"Chairman") and shall be promptly called by the Chairman or by the Secretary
at the written request of a majority of the Board of Directors upon not fewer
than 10 nor more than 60 days' written notice. The request shall be sent to
the Chairman and the Secretary and shall state the purposes of the proposed
meeting. Special meetings of holders of the outstanding Preferred Stock may
be called in the manner and for the purposes provided in the resolutions of
the Board of Directors providing for the issue of such stock (a "Preferred
Stock Designation"). Business transacted at special meetings shall be
confined to the purposes stated in the notice.
6. NOTICE OF STOCKHOLDER BUSINESS. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors,
(b) otherwise properly brought before the meeting by or at the direction of
the Board of Directors, or (c) otherwise properly be requested to be brought
before the meeting by a stockholder. For business to be properly requested to
be brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation,
not less than 80 days prior to the meeting; provided, however, that in the
event that the date of the meeting is not publicly announced by the
Corporation by mail, press release or
<PAGE>
otherwise more than 90 days prior to the meeting, notice by the stockholder
to be timely must be delivered to the Secretary of the Corporation not later
than the close of business on the tenth day following the day on which such
announcement of the date of the meeting was communicated to stockholders. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting
and the reasons for conducting such business at the annual meeting, (b) the
name and address, as they appear on the Corporation's books, of the
stockholder proposing such business, (c) the class and number of shares of
the Corporation which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business. Notwithstanding
anything in the By-Laws to the contrary, no business shall be conducted at an
annual meeting except in accordance with the procedures set forth in this
Section 6. The chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this Section 6,
and if he should so determine, he shall so declare to the meeting and any
such business not properly brought before the meeting shall not be transacted.
7. INSPECTORS. The Board of Directors shall appoint inspectors of
election to act as judges of the voting and to determine those entitled to
vote at any stockholders' meeting, or any adjournment thereof, in advance of
such meeting, but if the Board of Directors fails to make such appointments
or if an appointee fails to serve, the chairman of the stockholders' meeting
may appoint substitute inspectors.
8. QUORUM. Except as otherwise provided in a Preferred Stock
Designation, the holders of stock having a majority of voting power entitled
to vote at any stockholders' meeting, present in person or represented by
proxy, shall constitute a quorum for the transaction of business thereat. If,
however, such majority shall not be present or represented at any meeting of
the stockholders, the stockholders entitled to vote thereat, present in
person or represented by proxy, shall have power to adjourn the meeting from
time to time without notice, other than announcement at the meeting of the
time and place of the adjourned meeting, until the requisite amount of voting
stock shall be present or represented or the meeting has been adjourned
permanently. At such adjourned meeting, at which the requisite amount of
voting stock shall be present or represented, any business may be transacted
which might have been transacted at the meeting as originally called.
9. VOTING. At each meeting of the stockholders, every stockholder
having the right to vote shall be entitled to vote in person or by proxy
appointed by a legally sufficient instrument. The vote for Directors, the
vote upon any questions set forth in the Proxy Statement for the meeting and
the vote upon any other action of business at the discretion of the chairman
of the stockholders' meeting shall be by written ballot. The vote upon any
other question before the meeting shall be by written ballot upon the demand
of stockholders voting at least 15% of the shares represented at the meeting.
All questions, except election or removal of Directors or as otherwise
provided in these By-Laws, the Certificate of Incorporation of the
Corporation (the "Certificate of Incorporation") or the
2
<PAGE>
Preferred Stock Designation for any series of Preferred Stock, shall be
decided by a majority vote of those shares present or represented and voting,
and, with respect to any election or question to be decided by any class of
stock voting as a class, by a majority vote of those shares present or
represented and voting of that class.
10. LIST OF STOCKHOLDERS. A complete list of the stockholders
entitled to vote at any meeting shall be available for examination by such
persons for any proper purpose, for such period of time and at such place as
is required by law.
11. ORDER OF BUSINESS. Unless otherwise determined by the Board of
Directors prior to the meeting, the chairman of the stockholders' meeting
shall determine the order of business and shall have the authority in his
discretion to regulate the conduct of any such meeting, including, without
limitation, by imposing restrictions on the persons (other than stockholders
of the Corporation or their duly appointed proxies) who may attend any such
stockholders' meeting, whether any stockholder or his proxy may be excluded
from any stockholders' meeting based upon any determination by the chairman,
in his sole discretion, that any such person has unduly disrupted or is
likely to disrupt the proceedings thereat, and the circumstances in which any
person may make a statement or ask questions at any stockholders' meeting.
NOMINATION OF DIRECTOR CANDIDATES
12. NOTIFICATION OF NOMINEES. Subject to the rights of holders of any
class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, nominations for the election of Directors may
be made by the Board of Directors or a committee appointed by the Board of
Directors or by any stockholder entitled to vote in the election of Directors
generally. However, any stockholder entitled to vote in the election of
Directors generally may nominate one or more persons for election as
Directors at a meeting only if written notice of such stockholder's intent to
make such nomination or nominations has been received by the Secretary of the
Corporation not less than 80 days in advance of such meeting; provided,
however, that in the event that the date of the meeting was not publicly
announced by the Corporation by mail, press release or otherwise more than 90
days prior to the meeting, notice by the stockholder to be timely must be
delivered to the Secretary of the Corporation not later than the close of
business on the tenth day following the day on which such announcement of the
date of the meeting was communicated to stockholders. Each such notice shall
set forth: (a) the name and address of the stockholder who intends to make
the nomination and of the person or persons to be nominated; (b) a
representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote for the election of Directors on the date of
such notice and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of
all arrangements or understandings between the stockholder and each nominee
and any other person or persons (naming such person or persons) pursuant to
which the nomination or nominations are to be made by the
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stockholder; (d) such other information regarding each nominee proposed by
such stockholder as would be required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission,
had the nominee been nominated, or intended to be nominated, by the Board of
Directors; and (e) the consent of each nominee to serve as a director of the
Corporation if so elected.
13. SUBSTITUTION OF NOMINEES. In the event that a person is validly
designated as a nominee in accordance with Section 12 and shall thereafter
become unable or unwilling to stand for election to the Board of Directors,
the Board of Directors or the stockholder who proposed such nominee, as the
case may be, may designate a substitute nominee upon delivery, not fewer than
five days prior to the date of the meeting for the election of such nominee
of a written notice to the Secretary setting forth such information regarding
such substitute nominee as would have been required to be delivered to the
Secretary pursuant to Section 12 had such substitute nominee been initially
proposed as a nominee. Such notice shall include a signed consent to serve as
a Director of the Corporation, if elected, of each such substitute
nominee.
14. COMPLIANCE WITH PROCEDURES. If the chairman of the meeting for
the election of Directors determines that a nomination of any candidate for
election as a Director at such meeting was not made in accordance with the
applicable provisions of Sections 12 and 13, such nomination shall be void;
provided, however, that nothing in Sections 12 or 13 shall be deemed to limit
any voting rights upon the occurrence of dividend arrearages provided to
holders of Preferred Stock pursuant to the Preferred Stock Designation for
any series of Preferred Stock.
DIRECTORS
15. BOARD OF DIRECTORS.
(a) Number, election and terms. Except as otherwise fixed by,
or pursuant to the provisions of, Article Fourth of the Certificate of
Incorporation relating to the rights of the holders of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation to elect additional Directors under specified circumstances, the
number of the Directors of the Corporation shall be fixed from time to time
by the Board of Directors but shall be no fewer than three (3) nor more than
nine (9); provided, however, that the initial Board of Directors shall
consist of four (4) Directors. Except as provided in paragraph (b) of this
Section 15, the Directors shall be elected at the annual meeting of the
stockholders and each Director elected shall hold office until his successor
is elected and shall qualify. Directors need not be stockholders.
(b) Newly created directorships and vacancies. Except as
otherwise provided for or fixed by or pursuant to the provisions of Article
Fourth of the Certificate of Incorporation relating to the rights of the
holders of any class or series of stock having a
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preference over the Common Stock as to dividends or upon liquidation to elect
directors under specified circumstances, newly created directorships
resulting from any increase in the number of Directors and any vacancies on
the Board of Directors resulting from death, resignation, disqualification,
removal or other cause shall be filled only by the affirmative vote of a
majority of the remaining Directors then in office, even though less than a
quorum of the Board of Directors. Any Director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of
the class of Directors in which the new directorship was created or the
vacancy occurred and until such Director's successor shall have been elected
and qualified. No decrease in the number of Directors constituting the Board
of Directors shall shorten the term of any incumbent Director.
(c) Removal. Subject to the rights of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation to elect Directors under specified circumstances, any Director
may be removed from office only by the affirmative vote of the holders of at
least a majority of the combined voting power of the outstanding shares of
stock entitled to vote generally in the election of Directors, voting
together as a single class.
16. RESPONSIBILITIES. The business and affairs of the Corporation
shall be managed under the direction of the Board of Directors.
17. POWERS. In addition to the powers and authorities expressly
conferred by these By-laws, the Board of Directors may exercise all such
powers of the Corporation and do all such lawful acts and things as are not
by statute or by the Certificate of Incorporation or by these By-Laws
directed or required to be exercised or done by the stockholders.
18. COMPENSATION. The Board of Directors may establish such
compensation for, and reimbursement of the expenses of, Directors for
attendance at meetings of the Board of Directors or committees, or for other
services by Directors to the Corporation, as the Board of Directors may
determine.
19. RESIGNATION. Any Director may resign at any time by giving
written notice of his resignation to the Chairman or the Secretary.
20. MEETINGS.
(a) Generally. Immediately after the adjournment of the annual
meeting of the stockholders each year, the Directors elected thereat shall,
without notice, convene the annual meeting of Directors for the organization
of the Board of Directors, the election of officers and members of committees
and the transaction of any other business which may properly come before the
meeting. If a quorum of the Board of Directors shall not be present, the
Chairman shall call a meeting for such purposes as promptly as is
practicable. Except as otherwise provided in this Section 20, Directors may
hold their regular and special
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meetings at such times and places and have one or more offices and keep the
books of the Corporation at such places as the Board of Directors determines.
(b) Meetings by telephone or similar communications equipment. The
Board of Directors may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all Directors
participating in the meeting can hear each other, and participation in such a
meeting shall constitute presence in person by any such Director at such
meeting.
(c) Action by consent. Any action required or permitted to be taken
at any meeting of the Board of Directors may be taken without a meeting if a
written consent to such action is signed by all members of the Board of
Directors and such written consent is filed with the minutes of its
proceedings.
21. NOTICES. No notice of regular meetings of the Board of Directors
need by given. Special meetings of the Board of Directors may be called by the
Chairman or the President upon notice to each Director, given either in
person or by mail, telephone, telegram, telex or similar medium of
communication; special meetings shall be called by the Chairman, the
President or the Secretary on like notice, on the written request of three
Directors. At least 72 hours' notice of special meetings shall be given to
each Director.
22. QUORUM. Subject to the provisions of paragraph (b) of Section 15,
at all meetings of the Board of Directors, a majority of the total number of
Directors shall constitute a quorum for the transaction of business and,
except for the designation of committees (as provided in Section 23) and the
removal of officers (as provided in Section 26), the act of a majority of the
Directors present at any meeting at which there is a quorum shall be the act
of the Board of Directors. If a quorum is not present, a majority of the
Directors present may adjourn the meeting without notice other than
announcement until a quorum is present.
23. COMMITTEES OF THE BOARD OF DIRECTORS.
(a) Executive Committee. During the intervals between meetings
of the Board of Directors of the Corporation, all powers and authority of the
Board of Directors regarding the management of the business and affairs of
the Corporation shall be exercised by the Executive Committee of the Board;
except that the Executive Committee shall have no power:
(1) To act to amend the Certificate of Incorporation
(except that the Executive Committee may, to the extent authorized in a
resolution adopted by the Board of Directors of the Corporation providing for
the issuance of shares of stock, fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the conversion
into, or the exchange of such shares for, shares of any other class or
classes of stock of the
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Corporation or fix the number of shares of any series of stock or authorize
the increase or decrease of the shares of any series) or the By-Laws of the
Corporation.
(2) To recommend to the shareholders of the Corporation
the sale, lease or exchange of all or substantially all of the Corporation's
property and assets.
(3) To adopt an agreement of merger or consolidation of
the Corporation (but not any of the Corporation's subsidiaries).
(4) To recommend to the shareholders of the Corporation
the dissolution of the Corporation or a revocation of a dissolution.
(5) To declare a dividend.
(6) To authorize the issuance of stock, except, to the
extent such delegation of authority is authorized by the Delaware General
Corporation Law, pursuant to authority specifically delegated to the
Executive Committee by resolution of the Board of Directors.
(7) To appoint or remove officers of the Corporation.
Such Executive Committee shall consist of four Directors as the Board of
Directors may from time to time appoint by resolution passed by a majority of
the whole Board and the Board of Directors shall designate one member so
appointed to serve as Chairman of the Executive Committee. The Executive
Committee shall hold regular and special meetings at such time and place as
the Committee may determine. Meetings of the Executive Committee may be held
in the same manner as provided in Section 20(b) or by written consent in lieu
of a meeting. Special meetings may be called by the Chairman and must be
called by the Chairman or the Secretary when so requested by any two members
of the Committee.
Three members of the Executive Committee shall constitute a quorum for
the transaction of business. No action may be taken by the Executive
Committee except upon the affirmative vote of not less than three members;
provided, however, that any written consent to such action in lieu of a
meeting must be signed by all members of the Executive Committee.
The Executive Committee shall keep regular minutes of all its meetings
and shall report all actions taken by it to the Board of Directors. The
action of the Board of Directors taken with respect to such report shall be
recorded in the minutes of the meeting of the Board of Directors as well as
in the minute book of the Executive Committee.
(b) Other Committees. The Board of Directors, by resolution passed by
a majority of the whole Board of Directors, may designate one or more
committees, each committee
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to consist of two or more Directors. A committee shall have and exercise the
powers of the Board of Directors in the direction of the management of the
business and affairs of the Corporation to the extent provided in the
resolution. Each committee shall have such name as may be determined by the
Board of Directors. Except as may be otherwise provided in a resolution or
resolutions duly adopted by the Board of Directors, a majority of the members
of a committee shall constitute a quorum and a majority vote of the members
at a meeting at which a quorum is present shall be the act of the committee.
A committee shall keep minutes of its proceedings, and shall report its
proceedings to the Board of Directors when required or when requested by a
Director to do so.
OFFICERS
24. NUMBER OF OFFICERS. The officers of the Corporation shall be a
President, a Secretary, and a Treasurer, each of whom shall be appointed by
the Board of Directors. Such other officers and assistant officers as may be
deemed necessary, including any Vice-Presidents, may be appointed by the
Board of Directors. If specifically authorized by the Board of Directors, an
officer may appoint one or more officers or assistant officers. The same
individual may simultaneously hold more than one office in the Corporation.
25. APPOINTMENT AND TERM OF OFFICE. The officers of the Corporation
shall be appointed by the Board of Directors for a term as determined by the
Board of Directors. (The designation of a specified term grants to the
officer no contract rights, and the board can remove the officer at any time
prior to the termination of such term.) If no term is specified, they shall
hold office until they resign, die, or until they are removed in the manner
provided in Section 26 hereof.
26. REMOVAL OF OFFICERS. Any officer or agent may be removed by the
Board of Directors at any time, with or without cause. Such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Appointment of an officer or agent shall not of itself create contract rights.
27. PRESIDENT. The President shall be the principal executive officer
of the Corporation and, subject to the control of the Board of Directors,
shall in general supervise and control all of the business and affairs of the
Corporation. He shall, when present, preside at all meetings of the
shareholders and of the Board of Directors. He may sign, with the Secretary
or any other proper officer of the Corporation thereunto authorized by the
Board of Directors, certificates for shares of the Corporation and deeds,
mortgages, bonds, contracts, or other instruments which the Board of
Directors has authorized to be executed, except in cases where the signing
and execution thereof shall be expressly delegated by the Board of Directors
or by these bylaws to some other officer or agent of the Corporation, or
shall be required by law to be otherwise signed or executed; and in general
shall perform all duties incident to the office of President and such other
duties as may be prescribed by the Board of Directors from time to time.
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28. THE VICE-PRESIDENTS. If appointed, in the absence of the
President or in the event of his death, inability or refusal to act, the
Vice-President (or in the event there be more than one Vice-President, the
Vice-Presidents in the order designated at the time of their election, or in
the absence of any designation, then in the order of their appointment) shall
perform the duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. (If
there is no Vice-President, then the Treasurer shall perform such duties of
the President.) Any Vice-President may sign, with the Secretary or an
Assistant Secretary, certificates for shares of the Corporation the issuance
of which have been authorized by resolution of the Board of Directors; and
shall perform such other duties as from time to time may be assigned to him
by the President or by the Board of Directors.
29. THE SECRETARY. The Secretary shall: (a) keep the minutes of the
proceedings of the shareholders and of the Board of Directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these bylaws or as required by law; (c) be
custodian of the corporate records and of any seal of the Corporation and if
there is a seal of the Corporation, see that it is affixed to all documents
the execution of which on behalf of the Corporation under its seal is duly
authorized; (d) when requested or required, authenticate any records of the
Corporation; (e) keep a register of the post office address of each
shareholder which shall be furnished to the Secretary by such shareholder;
(f) sign with the President, or a Vice-President, certificates for shares of
the Corporation, the issuance of which shall have been authorized by
resolution of the Board of Directors; (g) have general charge of the stock
transfer books of the Corporation; and (h) in general perform all duties
incident to the office of Secretary and such other duties as from time to
time may be assigned to him by the President or by the Board of Directors.
30. THE TREASURER. The Treasurer shall: (a) have charge and custody
of and be responsible for all funds and securities of the Corporation; (b)
receive and give receipts for moneys due and payable to the Corporation from
any source whatsoever, and deposit all such moneys in the name of the
Corporation in such banks, trust companies, or other depositaries as shall be
selected by the Board of Directors; and (c) in general perform all of the
duties incident to the office of Treasurer and such other duties as from
time to time may be assigned to him by the President or by the Board of
Directors. If required by the Board of Directors, the Treasurer shall give a
bond for the faithful discharge of his duties in such sum and with such
surety or sureties as the Board of Directors shall determine.
31. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Assistant
Secretaries, when authorized by the Board of Directors, may sign with the
President or a Vice-President certificates for shares of the Corporation the
issuance of which shall have been authorized by a resolution of the Board of
Directors. The Assistant Treasurers shall respectively, if required by the
Board of Directors, give bonds for the faithful discharge of their duties in
such sums and with such sureties as the Board of Directors shall determine.
The Assistant Secretaries and Assistant Treasurers, in general, shall perform
such duties as shall be
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assigned to them by the Secretary or the Treasurer, respectively, or by the
President or the Board of Directors.
32. SALARIES. The salaries of the officers shall be fixed from time
to time by the Board of Directors.
INDEMNIFICATION
33. DAMAGES AND EXPENSES.
(a) Actions, Suits or Proceedings Other Than by or in the
Right of the Corporation. The Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the Corporation) by reason of the fact that he is or was or has agreed to
become a Director, officer, employee or agent of the Corporation, or is or
was serving or has agreed to serve at the request of the Corporation as a
Director, officer, employee or agent of another Corporation, partnership,
joint venture, trust or other enterprise, or by reason of any action alleged
to have been taken or omitted in such capacity, against costs, charges,
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or on his behalf in
connection with such action, suit or proceeding and any appeal therefrom, if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that the person did not
meet the standards of conduct set forth in this paragraph (a).
(b) Actions or Suits by or in the Right of the Corporation.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its
favor by reason of the fact that he is or was or has agreed to become a
Director, officer, employee or agent of the Corporation, or is or was serving
or has agreed to serve at the request of the Corporation as a Director,
officer, employee or agent of another Corporation, partnership, joint
venture, trust or other enterprise, or by reason of any action alleged to
have been taken or omitted in such capacity, against costs, charges and
expenses (including attorneys' fees) actually and reasonably incurred by him
or on his behalf in connection with the defense or settlement of such action
or suit and any appeal therefrom, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have
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been adjudged to be liable for gross negligence or wanton misconduct in the
performance of his duty to the Corporation unless and only to the extent that
the Court of Chancery of Delaware or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication
of such liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such costs, charges
and expenses which the Court of Chancery or such other court shall deem
proper.
(c) Indemnification for Costs, Charges and Expenses of
Successful Party. Notwithstanding the other provisions of this Section 33, to
the extent that a Director, officer, employee or agent of the Corporation has
been successful on the merits or otherwise, including, without limitation,
the dismissal of an action without prejudice, in defense of any action, suit
or proceeding referred to in paragraphs (a) and (b) of this Section 33, or in
the defense of any claim, issue or matter therein, he shall be indemnified
against all costs, charges and expenses (including attorneys' fees) actually
and reasonably incurred by him or on his behalf in connection therewith.
(d) Determination of Right to Indemnification. Any
indemnification under paragraphs (a) and (b) of this Section 33 (unless
ordered by a court) shall be paid by the Corporation unless a determination
is made (1) by the Board of Directors by a majority vote of a quorum
consisting of Directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or even if obtainable
a quorum of disinterested Directors so directs, by independent legal counsel
in a written opinion, or (3) by the stockholders, that indemnification of the
Director, officer, employee or agent is not proper in the circumstances
because he has not met the applicable standards of conduct set forth in
paragraphs (a) and (b) of this Section 33.
(e) Advance of Costs, Charges and Expenses. Costs, charges and
expenses (including attorneys' fees) incurred by a person referred to in
paragraphs (a) and (b) of this Section 33 in defending a civil or criminal
action, suit or proceeding (including investigations by any government agency
and all costs, charges and expenses incurred in preparing for any threatened
action, suit or proceeding) shall be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding; provided, however,
that the payment of such costs, charges and expenses incurred by a Director
or officer in his capacity as a Director or officer (and not in any other
capacity in which service was or is rendered by such person while a Director
or officer) in advance of the final disposition of such action, suit or
proceeding shall be made only upon receipt of an undertaking by or on behalf
of the Director or officer to repay all amounts so advanced in the event that
it shall ultimately be determined that such Director or officer is not
entitled to be indemnified by the Corporation as authorized in this Section
33. No security shall be required for such undertaking and such undertaking
shall be accepted without reference to the recipient's financial ability to
make repayment. The repayment of such charges and expenses incurred by other
employees and agents of the Corporation which are paid by the Corporation in
advance of the final disposition of such action, suit or proceeding as
permitted by this
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paragraph (e) may be required upon such terms and conditions, if any, as the
Board of Directors deems appropriate. The Board of Directors may, in the
manner set forth above, and subject to the approval of such Director,
officer, employee or agent of the Corporation, authorize the Corporation's
counsel to represent such person, in any action, suit or proceeding, whether
or not the Corporation is a party to such action, suit or proceeding.
(f) Procedure for Indemnification. Any indemnification under
paragraphs (a), (b) or (c) or advance of costs, charges and expenses under
paragraph (e) of this Section 33 shall be made promptly, and in any event
within 60 days, upon the written request of the Director, officer, employee
or agent directed to the Secretary of the Corporation. The right to
indemnification or advances as granted by this Section 33 shall be
enforceable by the Director, officer, employee or agent in any court of
competent jurisdiction if the Corporation denies such request, in whole or in
part, or if no disposition thereof is made within 60 days. Such person's
costs and expenses incurred in connection with successfully establishing his
right to indemnification or advances, in whole or in part, in any such action
shall also be indemnified by the Corporation. It shall be a defense to any
such action (other than an action brought to enforce a claim for the advance
of costs, charges and expenses under paragraph (e) of this Section 33 where
the required undertaking, if any, has been received by the Corporation) that
the claimant has not met the standard of conduct set forth in paragraphs (a)
or (b) of this Section 33, but the burden of proving that such standard of
conduct has not been met shall be on the Corporation. Neither the failure of
the Corporation (including its Board of Directors, its independent legal
counsel, and its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he has met the applicable standard of conduct set
forth in paragraphs (a) and (b) of this Section 33, nor the fact that there
has been an actual determination by the Corporation (including its Board of
Directors, its independent legal counsel, and its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense
to the action or create a presumption that the claimant has not met the
applicable standard of conduct.
(g) Other Rights; Continuation of Right to Indemnification.
The indemnification provided by this Section 33 shall not be deemed exclusive
of any other rights to which a person seeking indemnification may be entitled
under any law (common or statutory), agreement, vote of stockholders or
disinterested Directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding office or while
employed by or acting as agent for the Corporation, and shall continue as to
a person who has ceased to be a Director, officer, employee or agent and
shall inure to the benefit of the estate, heirs, executors and administrators
of such person. All rights to indemnification under this Section 33 shall be
deemed to be a contract between the Corporation and each Director, officer,
employee or agent of the Corporation who serves or served in such capacity at
any time while this Section 33 is in effect. No amendment or repeal of this
Section 33 or of any relevant provisions of the Delaware General Corporation
Law or any other applicable laws shall adversely affect or deny to any
Director, officer, employee or agent any rights to indemnification which such
person may have, or change or release any
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obligations of the Corporation, under this Section 33 with respect to any
costs, charges, expenses (including attorneys' fees), judgments, fines, and
amounts paid in settlement which arise out of an action, suit or proceeding
based in whole or substantial part on any act or failure to act, actual or
alleged, which takes place before or while this Section 33 is in effect. The
provisions of this paragraph (g) shall apply to any such action, suit or
proceeding whenever commenced, including any such action, suit or proceeding
commenced after any amendment or repeal of this Section 33.
(h) Definitions. For purposes of this Section:
(1) "the Corporation" shall include any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its Directors, officers, and
employees or agents, so that any person who is or was a Director, officer,
employee or agent of such constituent corporation, or is or was serving at
the request of such constituent corporation as a Director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Section 33 with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence
had continued;
(2) "other enterprises" shall include employee benefit
plans, including but not limited to any employee benefit plan of the
Corporation;
(3) "serving at the request of the Corporation" shall
include any service which imposes duties on, or involves services by, a
Director, officer, employee, or agent of the Corporation with respect to an
employee benefit plan, its participants, or beneficiaries, including acting
as a fiduciary thereof;
(4) "fines" shall include any penalties and any excise
or similar taxes assessed on a person with respect to an employee benefit
plan;
(5) A person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to
in paragraphs (a) and (b) of this Section 33;
(6) Service as a partner, trustee or member of
management or similar committee of a partnership or joint venture, or as a
Director, officer, employee or agent of a corporation which is a partner,
trustee or joint venturer, shall be considered service as a Director,
officer, employee or agent of the partnership, joint venture, trust or other
enterprise.
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(i) Savings Clause. If this Section 33 or any portion hereof
shall be invalidated on any ground by a court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each Director, officer, employee
and agent of the Corporation as to costs, charges and expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement with
respect to any action, suit or proceeding, whether civil, criminal,
administrative or investigative, including an action by or in the right of
the Corporation, to the full extent permitted by any applicable portion of
this Section 33 that shall not have been invalidated and to the full extent
permitted by applicable law.
34. INSURANCE. The Corporation shall purchase and maintain insurance
on behalf of any person who is or was or has agreed to become a Director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a Director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him or on his
behalf in any such capacity, or arising out of his status as such, whether or
not the Corporation would have the power to indemnify him against such
liability under the provisions of Section 33, provided that such insurance is
available on acceptable terms as determined by a vote of a majority of the
entire Board of Directors.
STOCK RECORDS
35. FORM OF CERTIFICATES. The certificates representing stock of the
Corporation shall be numbered and shall be entered in the books of the
Corporation as they are issued. They shall exhibit the holder's name and
number of shares and shall be mechanically signed with a facsimile of the
signature of the President or a Vice President, and a facsimile of the
signature of the Secretary or an Assistant Secretary, and shall also be
signed by, or bear the facsimile signature of, a duly authorized officer or
agent of any properly designated transfer agent of the Corporation. Such
certificates may be issued and delivered notwithstanding that the person
whole facsimile signature appears thereon shall have ceased to be such
officer at the time the certificates are issued and delivered.
36. CLASSES OF STOCK: RIGHTS. The designations, preferences and
relative participating, option or other special rights of the various classes
of stock or series thereof, and the qualifications, limitations or
restrictions thereof, shall be set forth in full or summarized on the fact or
back of the certificates which the Corporation issues to represent its stock,
or in lieu thereof, such certificates shall set forth the office of the
Corporation from which the holders of certificates may obtain a copy of such
information.
37. TRANSFERS. Subject to restrictions on the transfer of stock, the
Corporation shall make transfers of stock on its books upon surrender of the
certificate for the shares to the Corporation or its duly appointed transfer
agent duly endorsed by the stockholder named in the certificate or his duly
authorized attorney.
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38. LOST CERTIFICATES. An executive officer may direct a new
certificate to be issued in place of certificates theretofore issued by the
Corporation and alleged to have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate of
stock to be lost, stolen or destroyed. As a condition precedent to the
issuance thereof, the officer may require the claimant to advertise the
alleged loss, theft or destruction in such manner as the officer may require
and to give the Corporation a bond in such sum as he may direct as indemnity
against any claim that may be made against the Corporation with respect to
the certificate alleged to have been lost, stolen or destroyed or the
issuance of the new certificate.
39. RECORD DATES. The Board of Directors may fix in advance a date,
not more than 60 days nor fewer than 10 days prior to the date of any meeting
of stockholders, nor more than 60 prior to the date for the payment of any
dividend, or the date for the allotment of rights, or the date when any
change or conversion or exchange of capital stock shall go into effect, as a
record date for the determination of the stockholders entitled to notice of,
and to vote at, any such meeting and any adjournment thereof, or entitled to
receive payment of any such dividend, or to any such allotment of rights, or
to exercise the rights in respect of any such change, conversion or exchange
of capital stock and in such case such stockholders and only such
stockholders as shall be stockholders of record on the date so fixed shall be
entitled to such notice of, and to vote at, such meeting and any adjournment
thereof, or to receive payment of such dividend, or to receive such allotment
of rights, or to exercise such rights, as the case may be, notwithstanding
any transfer of any stock on the books of the Corporation after any such
record date fixed as aforesaid.
GENERAL
40. CONTRACTS, CHECKS, ETC. All contracts, agreements, checks,
drafts, notes, bonds, bills of exchange and orders for the payment of money
shall be signed or endorsed by the persons whom the Board of Directors
prescribes therefor.
41. FISCAL YEAR. The fiscal year of the Corporation shall commence
on October 1 of each year and shall end the following September 30.
42. ANNUAL STATEMENT. The Board of Directors shall cause an
independent public accountant, selected from time to time by the Board of
Directors, to examine in accordance with generally accepted auditing
standards, prior to the annual meeting of the stockholders in each year, the
books and records of the Corporation and the financial statements for the
preceding fiscal year, which statements shall set forth the financial
position as of the close of, and the results of operations of the Corporation
for, the preceding fiscal year, and the Board of Directors shall cause such
accountant or firm of accountants to render to the Board of Directors its
opinion with respect thereto. The Board of Directors shall cause copies of
the financial statements together with the opinion to be sent to all
stockholders entitled to
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vote at the annual meeting in the year succeeding the year to which the
financial statements apply and to be available to stockholders attending the
annual meeting.
43. FORM OF NOTICES. Whenever notice is required to be given to any
Director or officer or stockholder, such notice may be given either in person
or by mail, telephone or telegram, telex or similar medium of communication,
except as provided in Sections 6, 12 or 21. Except as provided in Section 6,
12 or 21, if mailed, the notice will be deemed given when deposited in the
United States mail, postage prepaid, addressed to the stockholder, officer or
Director at such address as appears on the books of the Corporation, or, in
default of other address, to such Director, officer or stockholder at the
General Post Office in the City of Omaha, Nebraska. If given in person or by
telephone, notice will be deemed given when communicated, and if given by
telegram, telex or similar medium of communication, notice will be deemed
given when properly dispatched. Any stockholder, Director or officer may
waive any notice required to be given under these By-Laws.
44. SEAL. The corporate seal shall have inscribed thereon the name of
the Corporation, the year of its organization and the words "Corporate Seal,
Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
45. BY-LAW AMENDMENT. Subject to the provisions of the Certificate of
Incorporation, these By-Laws may be altered, changed, amended or repealed at
any regular meeting of the stockholders (or at any special meeting thereof
duly called for that purpose) by a majority vote of the shares represented
and entitled to vote at such meeting; provided that in the notice of such
special meeting notice of such purpose shall be given. Subject to the laws of
the State of Delaware, the Certificate of Incorporation and these By-Laws,
the Board of Directors may by majority vote of those present at any meeting
at which a quorum is present amend these By-Laws, or enact such other By-Laws
as in their judgment may be advisable for the regulation of the conduct of
the affairs of the Corporation.
46. SECTION 203. The Corporation shall not be subject to the
provisions of Section 203 of the General Corporation Law of the State of
Delaware.
47. CERTIFICATE OF INCORPORATION AND APPLICABLE LAW. These By-Laws
are subject to the provisions of the Certificate of Incorporation and
applicable law.
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EXHIBIT A
First Amendment
to the
Transaction Systems Architects, Inc.
Amended and Restated By-Laws
The Amended and Restated By-Laws of Transaction Systems Architects,
Inc., a Delaware corporation (the "Corporation"), are hereby amended
effective December 21, 1999 as follows:
1. Section 24 is amended to read in its entirety as follows:
24. NUMBER OF OFFICERS. The officers of the Corporation shall be a
Chairman of the Board, a President, a Secretary, and a Treasurer, each of
whom shall be appointed by the Board of Directors. Such other officers and
assistant officers as may be deemed necessary, including any Vice-Presidents,
may be appointed by the Board of Directors. If specifically authorized by the
Board of Directors, an officer may appoint one or more officers or assistant
officers. The same individual may simultaneously hold more than one office in
the Corporation.
2. Section 27 is amended to read in its entirety as follows:
27. PRESIDENT. The President shall be the chief executive officer and
the chief operating officer of the Corporation and, subject to the control of
the Board of Directors and the Chairman of the Board, shall in general
supervise and control all of the business and affairs of the Corporation. In
the absence of the Chairman of the Board, the President shall, when present,
preside at all meetings of the shareholders and of the Board of Directors. He
may sign, with the Secretary or any other proper officer of the Corporation
thereunto authorized by the Board of Directors, certificates for shares of
the Corporation and deeds, mortgages, bonds, contracts, or other instruments
which the Board of Directors has authorized to be executed, except in cases
where the signing and execution thereof shall be expressly delegated by the
Board of Directors or by these bylaws to some other officer or agent of the
Corporation, or shall be required by law to be otherwise signed or executed;
and in general shall perform all duties incident to the office of President
and such other duties as may be prescribed by the Board of Directors from
time to time.
3. The following Section 27A is added:
27A. CHAIRMAN OF THE BOARD. The Chairman of the Board shall
participate in and supervise the formulation of matters of general policy and
overall strategy of the Corporation. The Chairman of the Board in general
shall perform all duties incident to the office of Chairman of the Board and
such other duties as may be prescribed by the Board of Directors from time to
time. The Chairman of the Board shall, when present, preside at all meetings
of the shareholders and of the Board of Directors. The Chairman of the Board
shall be a Director of the Corporation.
4. Except as specifically amended hereby, the Amended and Restated By-Laws
of the Corporation shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the undersigned Secretary of the Corporation
hereby certifies that the foregoing amendments to the Amended and Restated
By-Laws of the Corporation were duly adopted by the Board of Directors of the
Corporation effective December 21, 1999.
---------------------------------
David P. Stokes, Secretary
-2-
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Exhibit 10.32
SEVERANCE COMPENSATION AGREEMENT
SEVERANCE COMPENSATION AGREEMENT dated as of July 31, 1999 between
Transaction Systems Architects, Inc., a Delaware corporation (the "Company"),
and Steve Bailey (the "Executive").
WHEREAS, the Company's Board of Directors has determined that it is
appropriate to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in potentially disturbing circumstances arising from
the possibility of a change in control of the Company;
NOW, THEREFORE, this Agreement sets forth the severance compensation
which the Company agrees it will pay to the Executive if the Executive's
employment with the Company terminates under certain circumstances described
herein following a Change in Control (as defined herein) and the other benefits
the Company will provide the Executive following a Change in Control.
1. TERM.
This Agreement shall terminate, except to the extent that any
obligation of the Company hereunder remains unpaid as of such time, upon the
earlier of (i) the termination of Executive's employment for any reason prior to
a Change in Control; and (ii) three years after the date of a Change in Control.
2. CHANGE IN CONTROL.
For purposes of this Agreement, Change in Control shall mean:
(a) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person"), of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a Change
in Control: (A) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege), (B) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (C)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in subclauses (i), (ii) and (iii) of clause (c) of this
Section 2 are satisfied; or
<PAGE>
(b) if individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least
two-thirds of the directors then constituting the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest
subject to Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(c) approval by the stockholders of the Company of a reorganization,
merger or consolidation, unless following such reorganization, merger or
consolidation (i) more than 60% of, respectively, the then-outstanding shares of
common stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger, or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the resulting corporation owned by the Company's stockholders, but
not from the total number of outstanding shares and voting securities of the
resulting corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (ii) no Person (excluding the Company, any employee
benefit plan (or related trust) of the Company, any qualified employee benefit
plan of such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then-outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(d) (i) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company or (ii) the first to occur of (A) the
sale or other disposition (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company, or (B)
the approval by the stockholders of the Company of any such sale or disposition,
other than, in each case, any such sale or disposition to a corporation, with
respect to
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which immediately thereafter, (1) more than 60% of, respectively, the
then-outstanding shares of common stock of such corporation and the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such sale or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the transferee corporation owned by the Company's stockholders,
but not from the total number of outstanding shares and voting securities of the
transferee corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (2) no Person (excluding the Company and any
employee benefit plan (or related trust) of the Company, any qualified employee
benefit plan of such transferee corporation and any Person beneficially owning,
immediately prior to such sale or other disposition, directly or indirectly, 20%
or more of the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 20%
or more of, respectively, the then-outstanding shares of common stock of such
transferee corporation and the combined voting power of the then-outstanding
voting securities of such transferee corporation entitled to vote generally in
the election of directors and (3) at least a majority of the members of the
board of directors of such transferee corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or action of the
board providing for such sale or other disposition of assets of the Company.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL.
(a) The Executive shall be entitled to the compensation provided in
Section 4 of this Agreement if all of the following conditions are satisfied:
(i) there is a Change in Control of the Company while the
Executive is still an employee of the Company;
(ii) the Executive's employment with the Company is terminated
within two years after the Change in Control; and
(iii) the Executive's termination of employment is not a result
of (A) the Executive's death; (B) the Executive's Disability (as
defined in Section 3(b) below; (C) the Executive's Retirement (as
defined in Section 3(c) below); (D) the Executive's termination by the
Company for Cause (as defined in Section 3(d) below); or (E) the
Executive's decision to terminate employment other than for Good Reason
(as defined in Section 3(e) below).
(b) If, as a result of the Executive's incapacity due to physical or
mental illness, the Executive shall have been unable, with or without a
reasonable accommodation, to perform his duties with the Company on a full-time
basis for six months and within 30 days after a Notice of
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Termination (as defined in Section 3(f) below) is thereafter given by the
Company, the Executive shall not have returned to the full-time performance of
the Executive's duties, the Company may terminate the Executive's employment for
"Disability". If there is a Change in Control of the Company while the Executive
is still an employee and if the Executive's employment with the Company is
terminated for Disability within two years after the Change in Control, the
Executive shall be entitled to receive in a lump sum cash payment within five
days after his Date of Termination (as defined in Section 3(g) below) the
following:
(i) one times the Base Amount (as defined in Section 4(b)(i))
determined with respect to the Base Period (as defined in Section
4(b)(ii)); plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points.
(c) For purposes of this Agreement only, "Retirement" shall mean
termination by the Company or the Executive of the Executive's employment based
on the Executive's having reached age 65 or such other age as shall have been
fixed in any arrangement established pursuant to this Agreement with the
Executive's consent with respect to the Executive.
(d) For purposes of this Agreement only, "Cause" shall mean: (i) the
Executive's conviction of a felony involving moral turpitude; or (ii) the
Executive's serious, willful gross misconduct or willful gross neglect of duties
(other than any such neglect resulting from the Executive's incapacity due to
physical or mental illness or any such neglect after the issuance of a Notice of
Termination by the Executive for Good Reason, as such terms are defined in
subsections (e) and (f) below), which, in either case, has resulted, or in all
probability is likely to result, in material economic damage to the Company;
provided no act or failure to act by the Executive will constitute "Cause" under
clause (ii) if the Executive believed in good faith that such act or failure to
act was in the best interest of the Company.
For purposes of this Agreement only, any termination of the Executive's
employment by the Company for Cause shall be authorized by a vote of at least a
majority of the non-employee members of the Board of Directors of the Company
(the "Board") within 12 months of a majority of such non-employee members of the
Board having actual knowledge of the event or circumstances providing a basis
for such termination. In the case of clause (ii) of the second
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<PAGE>
sentence of this subsection (d), the Executive shall be given notice by the
Board specifying in detail the particular act or failure to act on which the
Board is relying in proposing to terminate him for Cause and offering the
Executive an opportunity, on a date at least 14 days after receipt of such
notice, to have a hearing, with counsel, before a majority of the non-employee
members of the Board, including each of the members of the Board who authorized
the termination for Cause. The Executive shall not be terminated for Cause if,
within 30 days after the date of the Executive's hearing before the Board (or if
the Executive waives a hearing, within 30 days after receiving notice of the
proposed termination), he has corrected the particular act or failure to act
specified in the notice and by so correcting such act or failure to act he has
reduced the economic damage his act or failure to act has allegedly caused the
Company to a level which is no longer material or has eliminated the probability
that such act or failure to act is likely to result in material economic damage
to the Company. No termination for Cause shall take effect until the expiration
of the correction period described in the preceding sentence and the
determination by a majority of the non-employee members of the Board that the
Executive has failed to correct the act or failure to act in accordance with the
terms of the preceding sentence.
Anything herein to the contrary notwithstanding, if, following a
termination of the Executive's employment by the Company for Cause based upon
the conviction of the Executive for a felony involving moral turpitude such
conviction is finally overturned on appeal, the Executive shall be entitled to
the compensation provided in Sections 4(a) and 4(c). In lieu of the interest
provided in clause (iv) of the first sentence of Section 4(a) and the interest
provided in the second sentence of Section 4(c), however, the compensation
provided in Sections 4(a) and 4(c) shall be increased by a ten percent rate of
interest, compounded annually, calculated from the date such compensation would
have been paid if the Executive's employment had been terminated without Cause.
(e) For purposes of this Agreement, "Good Reason" shall mean, after any
Change in Control and without the Executive's express written consent, any of
the following:
(i) a significant diminution in the Executive's duties and
responsibilities, or the assignment to the Executive by the Company of
duties inconsistent with the Executive's position, duties,
responsibilities or status with the Company immediately prior to a
Change in Control of the Company, or a change in the Executive's titles
or offices as in effect immediately prior to a Change in Control of the
Company, or any removal of the Executive from or any failure to
re-elect the Executive to any of such positions, except in connection
with the termination of his employment for Disability, Retirement or
Cause or as a result of the Executive's death or by the Executive other
than for Good Reason;
(ii) a reduction by the Company in the Executive's annual rate
of base salary as in effect on the date hereof or as the same may be
increased from time to time during the term of this Agreement or the
Company's failure to increase (within 12 months of the Executive's last
increase in his annual rate of base salary) the Executive's annual rate
of base salary after a Change in Control of the Company in an amount
which at least equals, on a percentage basis, the greater of (A) the
average percentage increase in the annual rate
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<PAGE>
of base salary for all officers of the Company effected in the
preceding 12 months; or (B) the Consumer Price Index as published by
the United States Government (or, in the event such index is
discontinued, any similar index published by the United States
Government as designated in good faith by the Executive); provided,
however, that nothing contained in this clause (ii) shall be construed
under any circumstances as permitting the Company to decrease the
Executive's annual rate of base salary;
(iii) (A) any failure by the Company to continue in effect any
benefit plan or arrangement (including, without limitation, the life
insurance, medical, dental, accident and disability plans) in which the
Executive is participating at the time of a Change in Control of the
Company, or any other plan or arrangement providing the Executive with
benefits that are no less favorable (hereinafter referred to as
"Benefit Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such Benefit Plan or deprive
the Executive of any material fringe benefit or perquisite of office
enjoyed by the Executive at the time of a Change in Control of the
Company, unless in the case of either subclause (A) or (B) above, there
is substituted a comparable plan or program that is economically
equivalent or superior, in terms of the benefit offered to the
Executive, to the Benefit Plan being altered, reduced, affected or
ended;
(iv) (A) any failure by the Company to continue in effect any
incentive plan or arrangement (including, without limitation, the
Company's bonus arrangements, the Transaction Systems Architects, Inc.
Deferred Compensation Plan, the Transaction Systems Architects, Inc.
401(k) Plan, the sales incentive plans, and the management incentive
plans) in which the Executive is participating at the time of a Change
in Control of the Company, or any other plans or arrangements providing
him with substantially similar benefits, (hereinafter referred to as
"Incentive Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in any such
Incentive Plan or reduce the Executive's benefits under any such
Incentive Plan, unless in the case of either subclause (A) or (B)
above, there is substituted a comparable plan or program that is
economically equivalent or superior, in terms of the benefit offered to
the Executive, to the Incentive Plan being altered, reduced, affected
or ended, or (C) any failure by the Company with respect to any fiscal
year to make an award to the Executive pursuant to each such Incentive
Plan or such substituted comparable plan or program equal to or greater
than the greater of (1) the award (whether paid or payable in cash or
in securities of the Company) made to the Executive pursuant to such
Incentive Plan or such substituted comparable plan or program with
respect to the immediately preceding fiscal year or (2) the average
annual award (whether paid or payable in cash or in securities of the
Company) made to the Executive pursuant to such Incentive Plan or such
substituted comparable plan with respect to the prior three fiscal
years (or such lesser number of prior fiscal years that the Executive
was employed by the Company or that the Incentive Plan (together with
any substituted comparable plan) was maintained);
(v) (A) any failure by the Company to continue in effect any
plan or arrangement to receive securities of the Company (including,
without limitation, the
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Transaction Systems Architects, Inc. 1999 Employee Stock Purchase Plan
and the Transaction Systems Architects Inc. 1999 Stock Option Plan) in
which the Executive is participating at the time of a Change in Control
of the Company, or any other plan or arrangement providing him with
substantially similar benefits, (hereinafter referred to as "Securities
Plans"), (B) the taking of any action by the Company which would
adversely affect the Executive's participation in or materially reduce
the Executive's benefits under any such Securities Plan, unless in the
case of either subclause (A) or (B) above, there is substituted a
comparable plan or program that is economically equivalent or superior,
in terms of the benefit offered to the Executive, to the Securities
Plan being altered, reduced, affected or ended, or (C) any failure by
the Company in any fiscal year to grant stock options, stock
appreciation rights or securities awards to the Executive pursuant to
such Securities Plans with respect to an aggregate number of securities
of the Company of each kind that is equal to or greater than the
greater of (1) the aggregate number of securities of the Company of
that kind covered by stock options, stock appreciation rights or
securities awards granted to the Executive pursuant to such Securities
Plans in the immediately preceding fiscal year or (2) the average
annual aggregate number of securities of the Company of that kind
covered by stock options, stock appreciation rights, or securities
awards granted to the Executive pursuant to such Securities Plans in
the prior three fiscal years; and provided further the material terms
and conditions of such stock options, stock appreciation rights, and
securities awards granted to the Executive after the Change in Control
(including, but not limited to, the exercise price, vesting schedule,
period and methods of exercise, expiration date, forfeiture provisions
and other restrictions) are substantially similar to the material terms
and conditions of the stock options, stock appreciation rights, and
securities awards granted to the Executive under the Securities Plans
immediately prior to the Change in Control of the Company;
(vi) the Executive's relocation more than 50 miles from the
location at which the Executive performed the Executive's duties prior
to a Change in Control of the Company, except for required travel by
the Executive on the Company's business to an extent substantially
consistent with the Executive's business travel obligations at the time
of a Change in Control of the Company;
(vii) any failure by the Company to provide the Executive with
the number of annual paid vacation days to which the Executive is
entitled for the year in which a Change in Control of the Company
occurs;
(viii) any material breach by the Company of any provision of
this Agreement;
(ix) any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company prior to such
succession or assignment;
(x) any failure by the Company or its successor to enter into
an agreement with the Executive that is substantially similar to this
Agreement with respect to a Change in Control of the Company or its
successor occurring thereafter; or
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(xi) any purported termination of the Executive's employment
by the Company pursuant to Section 3(b), 3(c) or 3(d) above which is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 3(f) below (and, if applicable, Section 3(d)
above), and for purposes of this Agreement, no such purported
termination shall be effective.
For purposes of this subsection (e), an isolated, immaterial, and inadvertent
action not taken in bad faith by the Company in violation of clause (ii), (iii),
(iv), (v) or (vii) of this subsection that is remedied by the Company promptly
after receipt of notice thereof given by the Executive shall not be considered
Good Reason for the Executive's termination of employment with the Company. In
the event the Executive terminates his employment for Good Reason hereunder,
then notwithstanding that the Executive may also retire for purposes of the
Benefit Plans, Incentive Plans or Securities Plans, the Executive shall be
deemed to have terminated his employment for Good Reason for purposes of this
Agreement.
(f) Any termination of the Executive by the Company pursuant to Section
3(b), 3(c) or 3(d) above, or by the Executive pursuant to Section 3(e) above,
shall be communicated by a Notice of Termination to the other party hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate those specific termination provisions in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. For purposes of this Agreement, no
such purported termination by the Company shall be effective without such Notice
of Termination.
(g) "Date of Termination" shall mean (i) if the Executive's employment
is terminated by the Company for Disability, 30 days after Notice of Termination
is given to the Executive (provided that the Executive shall not have returned
to the performance of the Executive's duties on a full-time basis during such
30-day period), (ii) if the Executive's employment is terminated by the
Executive for Good Reason, the date specified in the Notice of Termination, and
(iii) if the Executive's employment is terminated by the Company for any other
reason, the date on which a Notice of Termination is given; provided, however,
that if within 30 days after any Notice of Termination is given to the Executive
by the Company, the Executive notifies the Company that a dispute exists
concerning the termination, the Date of Termination shall be the date the
dispute is finally determined, whether by mutual written agreement of the
parties or upon final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected).
4. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT.
(a) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Company shall pay to the
Executive in a lump sum cash payment within five days after the Date of
Termination the following:
(i) the Severance Amount as defined in Section 4(b) below;
plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
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(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points,
compounded annually.
(b) "Severance Amount" shall mean an amount equal to one times the Base
Amount (as defined below) determined with respect to the Base Period (as defined
below); provided, however, in no event shall the Severance Amount be less than
two times the Executive's annual rate of base salary at the higher of the annual
rate in effect (i) immediately prior to the Date of Termination or (ii) on the
date six months prior to the Date of Termination. For purposes of this
subsection (b):
(i) "Base Amount" means the Executive's average fiscal-year
Compensation (as defined below) for fiscal years of the Company in the
Base Period. Such average shall be computed by dividing the total of
the Executive's Compensation for the Base Period by the number of
fiscal years in the Base Period. If the Executive's Base Period
includes a portion of a fiscal year during which he was not an employee
of the Company (or a predecessor entity or a related entity, as such
terms are defined in clause (iii) below), the Executive's Compensation
for such fiscal year shall be annualized before determining the average
fiscal-year Compensation for the Base Period. In annualizing
Compensation, the frequency with which payments are expected to be made
over a fiscal year shall be taken into account; thus, any amount of
Compensation that represents a payment that will not be made more often
than once per fiscal year is not annualized. Set forth on Appendix A,
which is attached hereto and made a part hereof, are three examples
illustrating the calculation of the Base Amount.
(ii) "Base Period" means the most recent two consecutive
fiscal years of the Company ending prior to the Date of Termination.
However, if the Executive was not an employee of the Company (or a
predecessor entity or a related entity, as such terms are defined in
clause (iii) below) at any time during one of such two fiscal years,
the Executive's Base Period is the one fiscal year of such
two-fiscal-year period during which the Executive performed personal
services for the Company or a predecessor entity or a related entity.
(iii) "Compensation" means the compensation which was payable
by the Company, by a predecessor entity, or by a related entity and
which was includible in the gross income of the Executive (or either
was excludible from such gross income as
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"foreign earned income" within the meaning of Section 911 of the
Internal Revenue Code of 1986, as amended (the "Code"), or would have
been includible in such gross income if the Executive had been a United
States citizen or resident), but excluding the following: (A) amounts
realized from the exercise of a non-qualified stock option; and (B)
amounts realized from the sale, exchange or other disposition of stock
acquired under an incentive stock option described in Code Section
422(b) or under an employee stock purchase plan described in Code
Section 423(b). Notwithstanding the preceding sentence, Compensation
shall be determined without regard to any compensation deferral
election under any plan, program or arrangement, qualified or
nonqualified, maintained or contributed to by the Company, a
predecessor entity or a related entity, including but not limited to a
cash-or-deferred arrangement described in Code Section 401(k), a
cafeteria plan described in Code Section 125 or a nonqualified deferred
compensation plan. A "predecessor entity" is any entity which, as a
result of a merger, consolidation, purchase or acquisition of property
or stock, corporate separation, or other similar business transaction
transfers some or all of its employees to the Company or to a related
entity or to a predecessor entity of the Company. The term "related
entity" includes any entity treated as a single employer with the
Company in accordance with subsections (b), (c), (m) and (o) of Code
Section 414.
(c) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Executive will be entitled to
continued participation in all employee benefit plans or programs available to
Company employees generally in which the Executive was participating on the Date
of Termination, such continued participation to be at Company cost and otherwise
on the same basis as Company employees generally, until the earlier of (i) the
date, or dates, he receives equivalent coverage and benefits under the plans and
programs of a subsequent employer (such coverages and benefits to be determined
on a coverage-by-coverage or benefit-by-benefit basis) or (ii) two years from
the Date of Termination; provided (A) if the Executive is precluded from
continuing his participation in any employee benefit plan or program as provided
in this sentence, he shall be paid, in a lump sum cash payment, within 30 days
following the date it is determined he is unable to participate in any employee
benefit plan or program, the after-tax economic equivalent of the benefits
provided under the plan or program in which he is unable to participate for the
period specified in this sentence, and (B) the economic equivalent of any
benefit foregone shall be deemed to be the lowest cost that would be incurred by
the Executive in obtaining such benefit for himself (including family or
dependent coverage, if applicable) on an individual basis. The Executive shall
be eligible for group health plan continuation coverage under and in accordance
with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended,
when he ceases to be eligible for continued participation in the Company's group
health plan under this subsection (e).
5. NO OBLIGATION TO MITIGATE DAMAGES; NO EFFECT ON OTHER CONTRACTUAL
RIGHTS.
(a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation
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earned by the Executive as the result of employment by another employer after
the Date of Termination or otherwise.
(b) The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any Benefit Plan, Incentive Plan or
Securities Plan, employment agreement or other contract, plan or agreement with
or of the Company.
6. INCENTIVE AWARDS.
In the event of a Change in Control of the Company, then
notwithstanding the terms and conditions of any Incentive Plan, the Company
agrees (i) to immediately and fully vest all unvested awards, units, and
benefits (other than options to acquire securities of the Company or awards of
securities of the Company) which have been awarded or allocated to the Executive
under the Incentive Plans; and (ii) upon the exercise of such awards or units or
the distribution of such benefits, to pay all amounts due under the Incentive
Plans solely in cash.
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) All determinations required to be made under this Section 7,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by the Accounting Firm which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days after the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. The determination
of tax liability made by the Accounting Firm shall be subject to review by the
Executive's tax advisor, and, if the Executive's tax advisor does not agree with
the determination reached by the Accounting Firm, then the Accounting Firm and
the Executive's tax advisor shall jointly designate a nationally recognized
public accounting firm which shall make the determination. All fees and expenses
of the accountants and tax advisors retained by both the Executive and the
Company shall be borne solely by the Company. Any Gross-Up Payment, as
determined
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pursuant to this Section 7, shall be paid by the Company to the Executive within
five days after the receipt of the determination. Any determination by such
jointly designated public accounting firm shall be binding upon the Company and
the Executive. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination hereunder, it is possible
that Gross-Up Payments will not have been made by the Company that should have
been made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Executive hereafter is required to make a
payment of any Excise Tax, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive. Upon notice by the Executive of
any audit or other proceeding that may result in a liability to the Company
hereunder, the Executive shall promptly notify the Company of such audit or
other proceeding; and the Company may, at its option, but solely with respect to
the item or items that relate to such potential liability, choose to assume the
defense of such audit or other proceeding at its own cost, provided that (i) the
Executive shall cooperate with the Company in such defense and (ii) the Company
will not settle such audit or other proceeding without the consent of the
Executive (such consent not to be unreasonably withheld). The highest effective
marginal tax rate (determined by taking into account any reduction in itemized
deductions and/or exemptions attributable to the inclusion of the additional
amounts payable under this Section 7 in the Executive's adjusted gross or
taxable income) based upon the state and locality where the Executive is
resident at the time of payment of such amounts will be used for purposes of
determining the federal and state income and other taxes with respect thereto.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify the Executive to the fullest extent
permitted by law if the Executive is a party or threatened to be made a party to
any Proceeding (as defined below).
(b) If requested by the Executive, the Company shall advance (within
two business days of such request) any and all Expenses, as defined below,
relating to a Proceeding to the Executive (an "Expense Advance"), upon the
receipt of a written undertaking by or on behalf of the Executive to repay such
Expense Advance if a judgment or other final adjudication adverse to the
Executive (as to which all rights of appeal therefrom have been exhausted or
lapsed) establishes that the Executive is not entitled to indemnification by the
Company. Expenses shall include attorney's fees and all other costs, charges and
expenses paid or incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in any Proceeding.
(c) The Company agrees to obtain a directors' and officers' liability
insurance policy covering the Executive and to continue and maintain such
policy. The amount of coverage shall be reasonable in relation to the
Executive's position and responsibilities during his employment by the Company.
(d) This Section 8 is a supplement to and in furtherance of the
Certificate of Incorporation and Bylaws of the Company and shall not be deemed a
substitute therefor, or diminish or abrogate any rights of the Executive
thereunder.
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(e) For purposes of Section 8(a), the meaning of the phrase "to the
fullest extent permitted by law" shall include but not be limited to:
(i) to the fullest extent permitted by the provision of the
Delaware General Corporation Law ("DGCL") that authorizes or
contemplates additional indemnification by agreement, or the
corresponding provision of any amendment to or replacement of the DGCL,
and
(ii) to the fullest extent authorized or permitted by any
amendments to or replacements of the DGCL adopted after the date of
this Agreement that increase the extent to which a corporation may
indemnify its officers and directors.
(f) For purposes of Sections 8(a) and 8(b), "Proceeding" shall mean any
threatened, pending or completed action, suit, arbitration, alternate dispute
resolution mechanism, investigation, inquiry, administrative hearing or any
other actual, threatened or completed proceeding, whether brought in the right
of the Company or otherwise and whether of a civil, criminal, administrative or
investigative nature, in which the Executive was, is or will be involved as a
party or otherwise by reason of the fact that the Executive is or was a director
or officer of the Company, by reason of any action taken by him or of any action
on his part while acting as director or officer of the Company, or by reason of
the fact that he is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, in each case whether or not serving in such capacity
at the time any liability or expense is incurred for which indemnification,
reimbursement, or advancement of expenses can be provided under this Agreement.
9. SUCCESSORS.
(a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. Any failure of the Company to
obtain such agreement prior to the effectiveness of any such succession or
assignment shall be a material breach of this Agreement and shall entitle the
Executive to terminate the Executive's employment for Good Reason and receive
the compensation provided for in Section 4 hereof. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor or
assign to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Section 9 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts are still payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with
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the terms of this Agreement to the Executive's devisee, legatee or other
designee or, if there be no such designee, to the Executive's estate.
10. NOTICE.
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, as follows:
If to the Company:
Transaction Systems Architects, Inc.
224 South 108 Avenue
Omaha, NE 68154
Attn: President
If to the Executive:
------------------------------------------
------------------------------------------
------------------------------------------
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. MISCELLANEOUS.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same time or
at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Nebraska, without giving effect to any principles of conflicts of
law.
12. CONFLICT IN BENEFITS.
Except as otherwise provided in the preceding sentences, this Agreement
is not intended to and shall not limit or terminate any other agreement or
arrangement between the Executive and the Company presently in effect or
hereafter entered into.
13. VALIDITY.
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The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. SURVIVORSHIP.
The respective rights and obligations of the parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations and to the extent that any
performance is required following termination of this Agreement. Without
limiting the foregoing, Sections 7, 8 and 15 shall expressly survive the
termination of this Agreement.
15. LEGAL FEES AND EXPENSES.
If a claim or dispute arises concerning the rights of the Executive
under this Agreement, regardless of the party by whom such claim or dispute is
initiated, the Company shall, upon presentation of appropriate vouchers, pay all
legal expenses, including reasonable attorneys' fees, court costs, and ordinary
and necessary out-of-pocket costs of attorneys, billed to and payable by the
Executive or by anyone claiming under or through the Executive, in connection
with the bringing, prosecuting, arbitrating, defending, litigating, negotiating,
or settling such claim or dispute. In no event shall the Executive be required
to reimburse the Company for any of the costs or expenses incurred by the
Company relating to arbitration or litigation. Pending the outcome or resolution
of any claim or dispute, the Company shall continue payment of all amounts due
the Executive without regard to any dispute.
16. EFFECTIVE DATE.
This Agreement shall become effective upon execution.
17. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
18. NO GUARANTEE OF EMPLOYMENT.
Neither this Agreement nor any action taken hereunder shall be construed
as giving the Executive the right to be retained in employment with the Company,
nor shall it interfere with either the Company's right to terminate the
employment of the Executive at any time or the Executive's right to terminate
his employment at any time.
19. NO ASSIGNMENT BY EXECUTIVE.
Except as otherwise provided in Section 9(b), the Executive's rights and
interest under this Agreement shall not be assignable (in law or in equity) or
subject to any manner of alienation, sale, transfer, claims of creditors,
pledge, attachment, garnishment, levy, execution or encumbrances of any kind.
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20. WAIVER.
The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement shall not be deemed a waiver of
such provision or any other provision of this Agreement. Any waiver of any
provision of this Agreement shall not be deemed to be a waiver of any other
provision, and any waiver of default in any provision of this Agreement shall
not be deemed to be a waiver of any later default thereof or of any other
provision.
21. WITHHOLDING.
All amounts paid pursuant to this Agreement shall be subject to
withholding for taxes (federal, state, local or otherwise) to the extent
required by applicable law.
22. HEADINGS.
The headings of this Agreement have been inserted for convenience of
reference only and are to be ignored in the construction of the provisions
hereof.
23. NUMBER AND GENDER.
The use of the singular shall be interpreted to include the plural and
the plural the singular, as the context requires. The use of the masculine,
feminine or neuter shall be interpreted to include the masculine, feminine or
neuter as the context shall require.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
TRANSACTION SYSTEMS ARCHITECTS, INC.
Date: By:
---------------------- ---------------------------------
EXECUTIVE:
Date:
---------------------- ---------------------------------
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APPENDIX A
EXAMPLE 1 - Executive was employed by the Company for 1-1/3 fiscal
years preceding the fiscal year in which a Change in Control of the
Company occurs. The Executive's Compensation from the Company was
$30,000 for the 4-month period and $120,000 for the full fiscal year.
The Executive's Base Amount is $105,000.
Year 1: 3 x $30,000 = $90,000
Year 2: $120,000
[90,000 + 120,000] DIVIDED BY 2 = $105,000
$105,000 is the average fiscal-year Compensation for the
Base Period.
EXAMPLE 2 - Assume the same facts as in Example 1, except that the
Executive also received a $70,000 sign-on bonus when his employment
with the Company commenced at the beginning of the 4-month period.
The Executive's Base Amount is $140,000
Year 1: [3 x $30,000] + $70,000 = $160,000
Year 2: $120,000
[160,000 + 120,000] DIVIDED BY 2 = $140,000
Since the sign-on bonus will not be paid more often than once per
fiscal year, the amount of the bonus is not increased in annualizing
the Executive's Compensation for the 4-month period.
EXAMPLE 3 - Executive was employed by the Company for the last 4 months
of the fiscal year preceding the fiscal year in which a Change in
Control of the Company occurs. The Executive's Compensation from the
Company was $30,000 for the 4-month period. The Executive's Base Amount
is $90,000.
Year 1: 3 x $30,000 = $90,000
$90,000 DIVIDED BY 1 = $90,000
$90,000 is the average fiscal-year Compensation for the
Base Period.
<PAGE>
SEVERANCE COMPENSATION AGREEMENT
SEVERANCE COMPENSATION AGREEMENT dated as of July 31, 1999 between
Transaction Systems Architects, Inc., a Delaware corporation (the "Company"),
and Thomas Boje (the "Executive").
WHEREAS, the Company's Board of Directors has determined that it is
appropriate to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in potentially disturbing circumstances arising from
the possibility of a change in control of the Company;
NOW, THEREFORE, this Agreement sets forth the severance compensation
which the Company agrees it will pay to the Executive if the Executive's
employment with the Company terminates under certain circumstances described
herein following a Change in Control (as defined herein) and the other benefits
the Company will provide the Executive following a Change in Control.
1. TERM.
This Agreement shall terminate, except to the extent that any
obligation of the Company hereunder remains unpaid as of such time, upon the
earlier of (i) the termination of Executive's employment for any reason prior to
a Change in Control; and (ii) three years after the date of a Change in Control.
2. CHANGE IN CONTROL.
For purposes of this Agreement, Change in Control shall mean:
(a) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person"), of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a Change
in Control: (A) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege), (B) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (C)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in subclauses (i), (ii) and (iii) of clause (c) of this
Section 2 are satisfied; or
<PAGE>
(b) if individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least
two-thirds of the directors then constituting the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest
subject to Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(c) approval by the stockholders of the Company of a reorganization,
merger or consolidation, unless following such reorganization, merger or
consolidation (i) more than 60% of, respectively, the then-outstanding shares of
common stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger, or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the resulting corporation owned by the Company's stockholders, but
not from the total number of outstanding shares and voting securities of the
resulting corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (ii) no Person (excluding the Company, any employee
benefit plan (or related trust) of the Company, any qualified employee benefit
plan of such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then-outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(d) (i) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company or (ii) the first to occur of (A) the
sale or other disposition (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company, or (B)
the approval by the stockholders of the Company of any such sale or disposition,
other than, in each case, any such sale or disposition to a corporation,
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with respect to which immediately thereafter, (1) more than 60% of,
respectively, the then-outstanding shares of common stock of such corporation
and the combined voting power of the then-outstanding voting securities of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such sale or other disposition in substantially the same
proportion as their ownership, immediately prior to such sale or other
disposition, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be (for purposes of determining whether such
percentage test is satisfied, there shall be excluded from the number of shares
and voting securities of the transferee corporation owned by the Company's
stockholders, but not from the total number of outstanding shares and voting
securities of the transferee corporation, any shares or voting securities
received by any such stockholder in respect of any consideration other than
shares or voting securities of the Company), (2) no Person (excluding the
Company and any employee benefit plan (or related trust) of the Company, any
qualified employee benefit plan of such transferee corporation and any Person
beneficially owning, immediately prior to such sale or other disposition,
directly or indirectly, 20% or more of the Outstanding Company Common Stock or
Outstanding Company Voting Securities, as the case may be) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then-outstanding
shares of common stock of such transferee corporation and the combined voting
power of the then-outstanding voting securities of such transferee corporation
entitled to vote generally in the election of directors and (3) at least a
majority of the members of the board of directors of such transferee corporation
were members of the Incumbent Board at the time of the execution of the initial
agreement or action of the board providing for such sale or other disposition of
assets of the Company.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL.
(a) The Executive shall be entitled to the compensation provided in
Section 4 of this Agreement if all of the following conditions are satisfied:
(i) there is a Change in Control of the Company while the
Executive is still an employee of the Company;
(ii) the Executive's employment with the Company is terminated
within two years after the Change in Control; and
(iii) the Executive's termination of employment is not a result
of (A) the Executive's death; (B) the Executive's Disability (as
defined in Section 3(b) below; (C) the Executive's Retirement (as
defined in Section 3(c) below); (D) the Executive's termination by the
Company for Cause (as defined in Section 3(d) below); or (E) the
Executive's decision to terminate employment other than for Good Reason
(as defined in Section 3(e) below).
(b) If, as a result of the Executive's incapacity due to physical or
mental illness, the Executive shall have been unable, with or without a
reasonable accommodation, to perform his duties with the Company on a full-time
basis for six months and within 30 days after a Notice of
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Termination (as defined in Section 3(f) below) is thereafter given by the
Company, the Executive shall not have returned to the full-time performance of
the Executive's duties, the Company may terminate the Executive's employment for
"Disability". If there is a Change in Control of the Company while the Executive
is still an employee and if the Executive's employment with the Company is
terminated for Disability within two years after the Change in Control, the
Executive shall be entitled to receive in a lump sum cash payment within five
days after his Date of Termination (as defined in Section 3(g) below) the
following:
(i) one times the Base Amount (as defined in Section 4(b)(i))
determined with respect to the Base Period (as defined in Section
4(b)(ii)); plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points.
(c) For purposes of this Agreement only, "Retirement" shall mean
termination by the Company or the Executive of the Executive's employment based
on the Executive's having reached age 65 or such other age as shall have been
fixed in any arrangement established pursuant to this Agreement with the
Executive's consent with respect to the Executive.
(d) For purposes of this Agreement only, "Cause" shall mean: (i) the
Executive's conviction of a felony involving moral turpitude; or (ii) the
Executive's serious, willful gross misconduct or willful gross neglect of duties
(other than any such neglect resulting from the Executive's incapacity due to
physical or mental illness or any such neglect after the issuance of a Notice of
Termination by the Executive for Good Reason, as such terms are defined in
subsections (e) and (f) below), which, in either case, has resulted, or in all
probability is likely to result, in material economic damage to the Company;
provided no act or failure to act by the Executive will constitute "Cause" under
clause (ii) if the Executive believed in good faith that such act or failure to
act was in the best interest of the Company.
For purposes of this Agreement only, any termination of the Executive's
employment by the Company for Cause shall be authorized by a vote of at least a
majority of the non-employee members of the Board of Directors of the Company
(the "Board") within 12 months of a majority of such non-employee members of the
Board having actual knowledge of the event or circumstances providing a basis
for such termination. In the case of clause (ii) of the second
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sentence of this subsection (d), the Executive shall be given notice by the
Board specifying in detail the particular act or failure to act on which the
Board is relying in proposing to terminate him for Cause and offering the
Executive an opportunity, on a date at least 14 days after receipt of such
notice, to have a hearing, with counsel, before a majority of the non-employee
members of the Board, including each of the members of the Board who authorized
the termination for Cause. The Executive shall not be terminated for Cause if,
within 30 days after the date of the Executive's hearing before the Board (or if
the Executive waives a hearing, within 30 days after receiving notice of the
proposed termination), he has corrected the particular act or failure to act
specified in the notice and by so correcting such act or failure to act he has
reduced the economic damage his act or failure to act has allegedly caused the
Company to a level which is no longer material or has eliminated the probability
that such act or failure to act is likely to result in material economic damage
to the Company. No termination for Cause shall take effect until the expiration
of the correction period described in the preceding sentence and the
determination by a majority of the non-employee members of the Board that the
Executive has failed to correct the act or failure to act in accordance with the
terms of the preceding sentence.
Anything herein to the contrary notwithstanding, if, following a
termination of the Executive's employment by the Company for Cause based upon
the conviction of the Executive for a felony involving moral turpitude such
conviction is finally overturned on appeal, the Executive shall be entitled to
the compensation provided in Sections 4(a) and 4(c). In lieu of the interest
provided in clause (iv) of the first sentence of Section 4(a) and the interest
provided in the second sentence of Section 4(c), however, the compensation
provided in Sections 4(a) and 4(c) shall be increased by a ten percent rate of
interest, compounded annually, calculated from the date such compensation would
have been paid if the Executive's employment had been terminated without Cause.
(e) For purposes of this Agreement, "Good Reason" shall mean, after any
Change in Control and without the Executive's express written consent, any of
the following:
(i) a significant diminution in the Executive's duties and
responsibilities, or the assignment to the Executive by the Company of
duties inconsistent with the Executive's position, duties,
responsibilities or status with the Company immediately prior to a
Change in Control of the Company, or a change in the Executive's titles
or offices as in effect immediately prior to a Change in Control of the
Company, or any removal of the Executive from or any failure to
re-elect the Executive to any of such positions, except in connection
with the termination of his employment for Disability, Retirement or
Cause or as a result of the Executive's death or by the Executive other
than for Good Reason;
(ii) a reduction by the Company in the Executive's annual rate
of base salary as in effect on the date hereof or as the same may be
increased from time to time during the term of this Agreement or the
Company's failure to increase (within 12 months of the Executive's last
increase in his annual rate of base salary) the Executive's annual rate
of base salary after a Change in Control of the Company in an amount
which at least equals, on a percentage basis, the greater of (A) the
average percentage increase in the annual rate
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of base salary for all officers of the Company effected in the
preceding 12 months; or (B) the Consumer Price Index as published by
the United States Government (or, in the event such index is
discontinued, any similar index published by the United States
Government as designated in good faith by the Executive); provided,
however, that nothing contained in this clause (ii) shall be construed
under any circumstances as permitting the Company to decrease the
Executive's annual rate of base salary;
(iii) (A) any failure by the Company to continue in effect any
benefit plan or arrangement (including, without limitation, the life
insurance, medical, dental, accident and disability plans) in which the
Executive is participating at the time of a Change in Control of the
Company, or any other plan or arrangement providing the Executive with
benefits that are no less favorable (hereinafter referred to as
"Benefit Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such Benefit Plan or deprive
the Executive of any material fringe benefit or perquisite of office
enjoyed by the Executive at the time of a Change in Control of the
Company, unless in the case of either subclause (A) or (B) above, there
is substituted a comparable plan or program that is economically
equivalent or superior, in terms of the benefit offered to the
Executive, to the Benefit Plan being altered, reduced, affected or
ended;
(iv) (A) any failure by the Company to continue in effect any
incentive plan or arrangement (including, without limitation, the
Company's bonus arrangements, the Transaction Systems Architects, Inc.
Deferred Compensation Plan, the Transaction Systems Architects, Inc.
401(k) Plan, the sales incentive plans, and the management incentive
plans) in which the Executive is participating at the time of a Change
in Control of the Company, or any other plans or arrangements providing
him with substantially similar benefits, (hereinafter referred to as
"Incentive Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in any such
Incentive Plan or reduce the Executive's benefits under any such
Incentive Plan, unless in the case of either subclause (A) or (B)
above, there is substituted a comparable plan or program that is
economically equivalent or superior, in terms of the benefit offered to
the Executive, to the Incentive Plan being altered, reduced, affected
or ended, or (C) any failure by the Company with respect to any fiscal
year to make an award to the Executive pursuant to each such Incentive
Plan or such substituted comparable plan or program equal to or greater
than the greater of (1) the award (whether paid or payable in cash or
in securities of the Company) made to the Executive pursuant to such
Incentive Plan or such substituted comparable plan or program with
respect to the immediately preceding fiscal year or (2) the average
annual award (whether paid or payable in cash or in securities of the
Company) made to the Executive pursuant to such Incentive Plan or such
substituted comparable plan with respect to the prior three fiscal
years (or such lesser number of prior fiscal years that the Executive
was employed by the Company or that the Incentive Plan (together with
any substituted comparable plan) was maintained);
(v) (A) any failure by the Company to continue in effect any
plan or arrangement to receive securities of the Company (including,
without limitation, the
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Transaction Systems Architects, Inc. 1999 Employee Stock Purchase Plan
and the Transaction Systems Architects Inc. 1999 Stock Option Plan) in
which the Executive is participating at the time of a Change in Control
of the Company, or any other plan or arrangement providing him with
substantially similar benefits, (hereinafter referred to as "Securities
Plans"), (B) the taking of any action by the Company which would
adversely affect the Executive's participation in or materially reduce
the Executive's benefits under any such Securities Plan, unless in the
case of either subclause (A) or (B) above, there is substituted a
comparable plan or program that is economically equivalent or superior,
in terms of the benefit offered to the Executive, to the Securities
Plan being altered, reduced, affected or ended, or (C) any failure by
the Company in any fiscal year to grant stock options, stock
appreciation rights or securities awards to the Executive pursuant to
such Securities Plans with respect to an aggregate number of securities
of the Company of each kind that is equal to or greater than the
greater of (1) the aggregate number of securities of the Company of
that kind covered by stock options, stock appreciation rights or
securities awards granted to the Executive pursuant to such Securities
Plans in the immediately preceding fiscal year or (2) the average
annual aggregate number of securities of the Company of that kind
covered by stock options, stock appreciation rights, or securities
awards granted to the Executive pursuant to such Securities Plans in
the prior three fiscal years; and provided further the material terms
and conditions of such stock options, stock appreciation rights, and
securities awards granted to the Executive after the Change in Control
(including, but not limited to, the exercise price, vesting schedule,
period and methods of exercise, expiration date, forfeiture provisions
and other restrictions) are substantially similar to the material terms
and conditions of the stock options, stock appreciation rights, and
securities awards granted to the Executive under the Securities Plans
immediately prior to the Change in Control of the Company;
(vi) the Executive's relocation more than 50 miles from the
location at which the Executive performed the Executive's duties prior
to a Change in Control of the Company, except for required travel by
the Executive on the Company's business to an extent substantially
consistent with the Executive's business travel obligations at the time
of a Change in Control of the Company;
(vii) any failure by the Company to provide the Executive with
the number of annual paid vacation days to which the Executive is
entitled for the year in which a Change in Control of the Company
occurs;
(viii) any material breach by the Company of any provision of
this Agreement;
(ix) any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company prior to such
succession or assignment;
(x) any failure by the Company or its successor to enter into
an agreement with the Executive that is substantially similar to this
Agreement with respect to a Change in Control of the Company or its
successor occurring thereafter; or
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(xi) any purported termination of the Executive's employment
by the Company pursuant to Section 3(b), 3(c) or 3(d) above which is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 3(f) below (and, if applicable, Section 3(d)
above), and for purposes of this Agreement, no such purported
termination shall be effective.
For purposes of this subsection (e), an isolated, immaterial, and inadvertent
action not taken in bad faith by the Company in violation of clause (ii), (iii),
(iv), (v) or (vii) of this subsection that is remedied by the Company promptly
after receipt of notice thereof given by the Executive shall not be considered
Good Reason for the Executive's termination of employment with the Company. In
the event the Executive terminates his employment for Good Reason hereunder,
then notwithstanding that the Executive may also retire for purposes of the
Benefit Plans, Incentive Plans or Securities Plans, the Executive shall be
deemed to have terminated his employment for Good Reason for purposes of this
Agreement.
(f) Any termination of the Executive by the Company pursuant to Section
3(b), 3(c) or 3(d) above, or by the Executive pursuant to Section 3(e) above,
shall be communicated by a Notice of Termination to the other party hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate those specific termination provisions in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. For purposes of this Agreement, no
such purported termination by the Company shall be effective without such Notice
of Termination.
(g) "Date of Termination" shall mean (i) if the Executive's employment
is terminated by the Company for Disability, 30 days after Notice of Termination
is given to the Executive (provided that the Executive shall not have returned
to the performance of the Executive's duties on a full-time basis during such
30-day period), (ii) if the Executive's employment is terminated by the
Executive for Good Reason, the date specified in the Notice of Termination, and
(iii) if the Executive's employment is terminated by the Company for any other
reason, the date on which a Notice of Termination is given; provided, however,
that if within 30 days after any Notice of Termination is given to the Executive
by the Company, the Executive notifies the Company that a dispute exists
concerning the termination, the Date of Termination shall be the date the
dispute is finally determined, whether by mutual written agreement of the
parties or upon final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected).
4. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT.
(a) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Company shall pay to the
Executive in a lump sum cash payment within five days after the Date of
Termination the following:
(i) the Severance Amount as defined in Section 4(b)
below; plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
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(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points,
compounded annually.
(b) "Severance Amount" shall mean an amount equal to one times the Base
Amount (as defined below) determined with respect to the Base Period (as defined
below); provided, however, in no event shall the Severance Amount be less than
two times the Executive's annual rate of base salary at the higher of the annual
rate in effect (i) immediately prior to the Date of Termination or (ii) on the
date six months prior to the Date of Termination. For purposes of this
subsection (b):
(i) "Base Amount" means the Executive's average fiscal-year
Compensation (as defined below) for fiscal years of the Company in the
Base Period. Such average shall be computed by dividing the total of
the Executive's Compensation for the Base Period by the number of
fiscal years in the Base Period. If the Executive's Base Period
includes a portion of a fiscal year during which he was not an employee
of the Company (or a predecessor entity or a related entity, as such
terms are defined in clause (iii) below), the Executive's Compensation
for such fiscal year shall be annualized before determining the average
fiscal-year Compensation for the Base Period. In annualizing
Compensation, the frequency with which payments are expected to be made
over a fiscal year shall be taken into account; thus, any amount of
Compensation that represents a payment that will not be made more often
than once per fiscal year is not annualized. Set forth on Appendix A,
which is attached hereto and made a part hereof, are three examples
illustrating the calculation of the Base Amount.
(ii) "Base Period" means the most recent two consecutive
fiscal years of the Company ending prior to the Date of Termination.
However, if the Executive was not an employee of the Company (or a
predecessor entity or a related entity, as such terms are defined in
clause (iii) below) at any time during one of such two fiscal years,
the Executive's Base Period is the one fiscal year of such
two-fiscal-year period during which the Executive performed personal
services for the Company or a predecessor entity or a related entity.
(iii) "Compensation" means the compensation which was payable
by the Company, by a predecessor entity, or by a related entity and
which was includible in the gross income of the Executive (or either
was excludible from such gross income as
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"foreign earned income" within the meaning of Section 911 of the
Internal Revenue Code of 1986, as amended (the "Code"), or would have
been includible in such gross income if the Executive had been a United
States citizen or resident), but excluding the following: (A) amounts
realized from the exercise of a non-qualified stock option; and (B)
amounts realized from the sale, exchange or other disposition of stock
acquired under an incentive stock option described in Code Section
422(b) or under an employee stock purchase plan described in Code
Section 423(b). Notwithstanding the preceding sentence, Compensation
shall be determined without regard to any compensation deferral
election under any plan, program or arrangement, qualified or
nonqualified, maintained or contributed to by the Company, a
predecessor entity or a related entity, including but not limited to a
cash-or-deferred arrangement described in Code Section 401(k), a
cafeteria plan described in Code Section 125 or a nonqualified deferred
compensation plan. A "predecessor entity" is any entity which, as a
result of a merger, consolidation, purchase or acquisition of property
or stock, corporate separation, or other similar business transaction
transfers some or all of its employees to the Company or to a related
entity or to a predecessor entity of the Company. The term "related
entity" includes any entity treated as a single employer with the
Company in accordance with subsections (b), (c), (m) and (o) of Code
Section 414.
(c) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Executive will be entitled to
continued participation in all employee benefit plans or programs available to
Company employees generally in which the Executive was participating on the Date
of Termination, such continued participation to be at Company cost and otherwise
on the same basis as Company employees generally, until the earlier of (i) the
date, or dates, he receives equivalent coverage and benefits under the plans and
programs of a subsequent employer (such coverages and benefits to be determined
on a coverage-by-coverage or benefit-by-benefit basis) or (ii) two years from
the Date of Termination; provided (A) if the Executive is precluded from
continuing his participation in any employee benefit plan or program as provided
in this sentence, he shall be paid, in a lump sum cash payment, within 30 days
following the date it is determined he is unable to participate in any employee
benefit plan or program, the after-tax economic equivalent of the benefits
provided under the plan or program in which he is unable to participate for the
period specified in this sentence, and (B) the economic equivalent of any
benefit foregone shall be deemed to be the lowest cost that would be incurred by
the Executive in obtaining such benefit for himself (including family or
dependent coverage, if applicable) on an individual basis. The Executive shall
be eligible for group health plan continuation coverage under and in accordance
with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended,
when he ceases to be eligible for continued participation in the Company's group
health plan under this subsection (e).
5. NO OBLIGATION TO MITIGATE DAMAGES; NO EFFECT ON OTHER CONTRACTUAL
RIGHTS.
(a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation
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earned by the Executive as the result of employment by another employer after
the Date of Termination or otherwise.
(b) The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any Benefit Plan, Incentive Plan or
Securities Plan, employment agreement or other contract, plan or agreement with
or of the Company.
6. INCENTIVE AWARDS.
In the event of a Change in Control of the Company, then
notwithstanding the terms and conditions of any Incentive Plan, the Company
agrees (i) to immediately and fully vest all unvested awards, units, and
benefits (other than options to acquire securities of the Company or awards of
securities of the Company) which have been awarded or allocated to the Executive
under the Incentive Plans; and (ii) upon the exercise of such awards or units or
the distribution of such benefits, to pay all amounts due under the Incentive
Plans solely in cash.
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) All determinations required to be made under this Section 7,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by the Accounting Firm which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days after the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. The determination
of tax liability made by the Accounting Firm shall be subject to review by the
Executive's tax advisor, and, if the Executive's tax advisor does not agree with
the determination reached by the Accounting Firm, then the Accounting Firm and
the Executive's tax advisor shall jointly designate a nationally recognized
public accounting firm which shall make the determination. All fees and expenses
of the accountants and tax advisors retained by both the Executive and the
Company shall be borne solely by the Company. Any Gross-Up Payment, as
determined
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pursuant to this Section 7, shall be paid by the Company to the Executive within
five days after the receipt of the determination. Any determination by such
jointly designated public accounting firm shall be binding upon the Company and
the Executive. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination hereunder, it is possible
that Gross-Up Payments will not have been made by the Company that should have
been made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Executive hereafter is required to make a
payment of any Excise Tax, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive. Upon notice by the Executive of
any audit or other proceeding that may result in a liability to the Company
hereunder, the Executive shall promptly notify the Company of such audit or
other proceeding; and the Company may, at its option, but solely with respect to
the item or items that relate to such potential liability, choose to assume the
defense of such audit or other proceeding at its own cost, provided that (i) the
Executive shall cooperate with the Company in such defense and (ii) the Company
will not settle such audit or other proceeding without the consent of the
Executive (such consent not to be unreasonably withheld). The highest effective
marginal tax rate (determined by taking into account any reduction in itemized
deductions and/or exemptions attributable to the inclusion of the additional
amounts payable under this Section 7 in the Executive's adjusted gross or
taxable income) based upon the state and locality where the Executive is
resident at the time of payment of such amounts will be used for purposes of
determining the federal and state income and other taxes with respect thereto.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify the Executive to the fullest extent
permitted by law if the Executive is a party or threatened to be made a party to
any Proceeding (as defined below).
(b) If requested by the Executive, the Company shall advance (within
two business days of such request) any and all Expenses, as defined below,
relating to a Proceeding to the Executive (an "Expense Advance"), upon the
receipt of a written undertaking by or on behalf of the Executive to repay such
Expense Advance if a judgment or other final adjudication adverse to the
Executive (as to which all rights of appeal therefrom have been exhausted or
lapsed) establishes that the Executive is not entitled to indemnification by the
Company. Expenses shall include attorney's fees and all other costs, charges and
expenses paid or incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in any Proceeding.
(c) The Company agrees to obtain a directors' and officers' liability
insurance policy covering the Executive and to continue and maintain such
policy. The amount of coverage shall be reasonable in relation to the
Executive's position and responsibilities during his employment by the Company.
(d) This Section 8 is a supplement to and in furtherance of the
Certificate of Incorporation and Bylaws of the Company and shall not be deemed a
substitute therefor, or diminish or abrogate any rights of the Executive
thereunder.
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(e) For purposes of Section 8(a), the meaning of the phrase "to the
fullest extent permitted by law" shall include but not be limited to:
(i) to the fullest extent permitted by the provision of the
Delaware General Corporation Law ("DGCL") that authorizes or
contemplates additional indemnification by agreement, or the
corresponding provision of any amendment to or replacement of the DGCL,
and
(ii) to the fullest extent authorized or permitted by any
amendments to or replacements of the DGCL adopted after the date of
this Agreement that increase the extent to which a corporation may
indemnify its officers and directors.
(f) For purposes of Sections 8(a) and 8(b), "Proceeding" shall mean any
threatened, pending or completed action, suit, arbitration, alternate dispute
resolution mechanism, investigation, inquiry, administrative hearing or any
other actual, threatened or completed proceeding, whether brought in the right
of the Company or otherwise and whether of a civil, criminal, administrative or
investigative nature, in which the Executive was, is or will be involved as a
party or otherwise by reason of the fact that the Executive is or was a director
or officer of the Company, by reason of any action taken by him or of any action
on his part while acting as director or officer of the Company, or by reason of
the fact that he is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, in each case whether or not serving in such capacity
at the time any liability or expense is incurred for which indemnification,
reimbursement, or advancement of expenses can be provided under this Agreement.
9. SUCCESSORS.
(a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. Any failure of the Company to
obtain such agreement prior to the effectiveness of any such succession or
assignment shall be a material breach of this Agreement and shall entitle the
Executive to terminate the Executive's employment for Good Reason and receive
the compensation provided for in Section 4 hereof. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor or
assign to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Section 9 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts are still payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with
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the terms of this Agreement to the Executive's devisee, legatee or other
designee or, if there be no such designee, to the Executive's estate.
10. NOTICE.
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, as follows:
If to the Company:
Transaction Systems Architects, Inc.
224 South 108 Avenue
Omaha, NE 68154
Attn: President
If to the Executive:
----------------------------------
----------------------------------
----------------------------------
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. MISCELLANEOUS.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same time or
at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Nebraska, without giving effect to any principles of conflicts of
law.
12. CONFLICT IN BENEFITS.
Except as otherwise provided in the preceding sentences, this Agreement
is not intended to and shall not limit or terminate any other agreement or
arrangement between the Executive and the Company presently in effect or
hereafter entered into.
13. VALIDITY.
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The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. SURVIVORSHIP.
The respective rights and obligations of the parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations and to the extent that any
performance is required following termination of this Agreement. Without
limiting the foregoing, Sections 7, 8 and 15 shall expressly survive the
termination of this Agreement.
15. LEGAL FEES AND EXPENSES.
If a claim or dispute arises concerning the rights of the Executive
under this Agreement, regardless of the party by whom such claim or dispute is
initiated, the Company shall, upon presentation of appropriate vouchers, pay all
legal expenses, including reasonable attorneys' fees, court costs, and ordinary
and necessary out-of-pocket costs of attorneys, billed to and payable by the
Executive or by anyone claiming under or through the Executive, in connection
with the bringing, prosecuting, arbitrating, defending, litigating, negotiating,
or settling such claim or dispute. In no event shall the Executive be required
to reimburse the Company for any of the costs or expenses incurred by the
Company relating to arbitration or litigation. Pending the outcome or resolution
of any claim or dispute, the Company shall continue payment of all amounts due
the Executive without regard to any dispute.
16. EFFECTIVE DATE.
This Agreement shall become effective upon execution.
17. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
18. NO GUARANTEE OF EMPLOYMENT.
Neither this Agreement nor any action taken hereunder shall be construed
as giving the Executive the right to be retained in employment with the Company,
nor shall it interfere with either the Company's right to terminate the
employment of the Executive at any time or the Executive's right to terminate
his employment at any time.
19. NO ASSIGNMENT BY EXECUTIVE.
Except as otherwise provided in Section 9(b), the Executive's rights and
interest under this Agreement shall not be assignable (in law or in equity) or
subject to any manner of alienation, sale, transfer, claims of creditors,
pledge, attachment, garnishment, levy, execution or encumbrances of any kind.
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20. WAIVER.
The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement shall not be deemed a waiver of
such provision or any other provision of this Agreement. Any waiver of any
provision of this Agreement shall not be deemed to be a waiver of any other
provision, and any waiver of default in any provision of this Agreement shall
not be deemed to be a waiver of any later default thereof or of any other
provision.
21. WITHHOLDING.
All amounts paid pursuant to this Agreement shall be subject to
withholding for taxes (federal, state, local or otherwise) to the extent
required by applicable law.
22. HEADINGS.
The headings of this Agreement have been inserted for convenience of
reference only and are to be ignored in the construction of the provisions
hereof.
23. NUMBER AND GENDER.
The use of the singular shall be interpreted to include the plural and
the plural the singular, as the context requires. The use of the masculine,
feminine or neuter shall be interpreted to include the masculine, feminine or
neuter as the context shall require.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
TRANSACTION SYSTEMS ARCHITECTS, INC.
Date: By:
--------------------- --------------------------------
EXECUTIVE:
Date:
--------------------- ------------------------------------
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APPENDIX A
EXAMPLE 1 - Executive was employed by the Company for 1-1/3 fiscal
years preceding the fiscal year in which a Change in Control of the
Company occurs. The Executive's Compensation from the Company was
$30,000 for the 4-month period and $120,000 for the full fiscal year.
The Executive's Base Amount is $105,000.
Year 1: 3 x $30,000 = $90,000
Year 2: $120,000
[90,000 + 120,000] / 2 = $105,000
$105,000 is the average fiscal-year Compensation for the
Base Period.
EXAMPLE 2 - Assume the same facts as in Example 1, except that the
Executive also received a $70,000 sign-on bonus when his employment
with the Company commenced at the beginning of the 4-month period.
The Executive's Base Amount is $140,000
Year 1: [3 x $30,000] + $70,000 = $160,000
Year 2: $120,000
[160,000 + 120,000] / 2 = $140,000
Since the sign-on bonus will not be paid more often than once per
fiscal year, the amount of the bonus is not increased in annualizing
the Executive's Compensation for the 4-month period.
EXAMPLE 3 - Executive was employed by the Company for the last 4 months
of the fiscal year preceding the fiscal year in which a Change in
Control of the Company occurs. The Executive's Compensation from the
Company was $30,000 for the 4-month period. The Executive's Base Amount
is $90,000.
Year 1: 3 x $30,000 = $90,000
$90,000 / 1 = $90,000
$90,000 is the average fiscal-year Compensation for the
Base Period.
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SEVERANCE COMPENSATION AGREEMENT
SEVERANCE COMPENSATION AGREEMENT dated as of July 31, 1999 between
Transaction Systems Architects, Inc., a Delaware corporation (the "Company"),
and Gregory J. Duman (the "Executive").
WHEREAS, the Company's Board of Directors has determined that it is
appropriate to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in potentially disturbing circumstances arising from
the possibility of a change in control of the Company;
NOW, THEREFORE, this Agreement sets forth the severance compensation
which the Company agrees it will pay to the Executive if the Executive's
employment with the Company terminates under certain circumstances described
herein following a Change in Control (as defined herein) and the other benefits
the Company will provide the Executive following a Change in Control.
1. TERM.
This Agreement shall terminate, except to the extent that any
obligation of the Company hereunder remains unpaid as of such time, upon the
earlier of (i) the termination of Executive's employment for any reason prior to
a Change in Control; and (ii) three years after the date of a Change in Control.
2. CHANGE IN CONTROL.
For purposes of this Agreement, Change in Control shall mean:
(a) the acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person"), of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i)
the then-outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then-outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
the following acquisitions shall not constitute a Change in Control: (A) any
acquisition directly from the Company (excluding an acquisition by virtue of the
exercise of a conversion privilege), (B) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (C) any acquisition by any corporation
pursuant to a reorganization, merger or consolidation, if, following such
reorganization, merger or consolidation, the conditions described in subclauses
(i), (ii) and (iii) of clause (c) of this Section 2 are satisfied; or
(b) if individuals who, as of the date hereof, constitute the Board of Directors
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election,
<PAGE>
or nomination for election by the Company's stockholders, was approved by a vote
of at least two-thirds of the directors then constituting the Incumbent Board
shall be considered as though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of either an actual or threatened
election contest subject to Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board; or
(c) approval by the stockholders of the Company of a reorganization,
merger or consolidation, unless following such reorganization, merger or
consolidation (i) more than 60% of, respectively, the then-outstanding shares of
common stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger, or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the resulting corporation owned by the Company's stockholders, but
not from the total number of outstanding shares and voting securities of the
resulting corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (ii) no Person (excluding the Company, any employee
benefit plan (or related trust) of the Company, any qualified employee benefit
plan of such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then-outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(d) (i) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company or (ii) the first to occur of (A) the
sale or other disposition (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company, or (B)
the approval by the stockholders of the Company of any such sale or disposition,
other than, in each case, any such sale or disposition to a corporation, with
respect to which immediately thereafter, (1) more than 60% of, respectively, the
then-outstanding shares of common stock of such corporation and the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and
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Outstanding Company Voting Securities immediately prior to such sale or other
disposition in substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the case may be (for purposes of
determining whether such percentage test is satisfied, there shall be excluded
from the number of shares and voting securities of the transferee corporation
owned by the Company's stockholders, but not from the total number of
outstanding shares and voting securities of the transferee corporation, any
shares or voting securities received by any such stockholder in respect of any
consideration other than shares or voting securities of the Company), (2) no
Person (excluding the Company and any employee benefit plan (or related trust)
of the Company, any qualified employee benefit plan of such transferee
corporation and any Person beneficially owning, immediately prior to such sale
or other disposition, directly or indirectly, 20% or more of the Outstanding
Company Common Stock or Outstanding Company Voting Securities, as the case may
be) beneficially owns, directly or indirectly, 20% or more of, respectively, the
then-outstanding shares of common stock of such transferee corporation and the
combined voting power of the then-outstanding voting securities of such
transferee corporation entitled to vote generally in the election of directors
and (3) at least a majority of the members of the board of directors of such
transferee corporation were members of the Incumbent Board at the time of the
execution of the initial agreement or action of the board providing for such
sale or other disposition of assets of the Company.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL.
(a) The Executive shall be entitled to the compensation provided in
Section 4 of this Agreement if all of the following conditions are satisfied:
(i) there is a Change in Control of the Company while the
Executive is still an employee of the Company;
(ii) the Executive's employment with the Company is terminated
within two years after the Change in Control; and
(iii) the Executive's termination of employment is not a
result of (A) the Executive's death; (B) the Executive's Disability (as
defined in Section 3(b) below; (C) the Executive's Retirement (as
defined in Section 3(c) below); (D) the Executive's termination by the
Company for Cause (as defined in Section 3(d) below); or (E) the
Executive's decision to terminate employment other than for Good Reason
(as defined in Section 3(e) below).
(b) If, as a result of the Executive's incapacity due to physical or
mental illness, the Executive shall have been unable, with or without a
reasonable accommodation, to perform his duties with the Company on a full-time
basis for six months and within 30 days after a Notice of Termination (as
defined in Section 3(f) below) is thereafter given by the Company, the Executive
shall not have returned to the full-time performance of the Executive's duties,
the Company may terminate the Executive's employment for "Disability". If there
is a Change in Control of the Company while the Executive is still an employee
and if the Executive's employment with the Company is terminated for Disability
within two years after the Change in Control, the
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Executive shall be entitled to receive in a lump sum cash payment within five
days after his Date of Termination (as defined in Section 3(g) below) the
following:
(i) two times the Base Amount (as defined in Section 4(b)(i))
determined with respect to the Base Period (as defined in Section
4(b)(ii)); plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points.
(c) For purposes of this Agreement only, "Retirement" shall mean
termination by the Company or the Executive of the Executive's employment based
on the Executive's having reached age 65 or such other age as shall have been
fixed in any arrangement established pursuant to this Agreement with the
Executive's consent with respect to the Executive.
(d) For purposes of this Agreement only, "Cause" shall mean: (i) the
Executive's conviction of a felony involving moral turpitude; or (ii) the
Executive's serious, willful gross misconduct or willful gross neglect of duties
(other than any such neglect resulting from the Executive's incapacity due to
physical or mental illness or any such neglect after the issuance of a Notice of
Termination by the Executive for Good Reason, as such terms are defined in
subsections (e) and (f) below), which, in either case, has resulted, or in all
probability is likely to result, in material economic damage to the Company;
provided no act or failure to act by the Executive will constitute "Cause" under
clause (ii) if the Executive believed in good faith that such act or failure to
act was in the best interest of the Company.
For purposes of this Agreement only, any termination of the Executive's
employment by the Company for Cause shall be authorized by a vote of at least a
majority of the non-employee members of the Board of Directors of the Company
(the "Board") within 12 months of a majority of such non-employee members of the
Board having actual knowledge of the event or circumstances providing a basis
for such termination. In the case of clause (ii) of the second sentence of this
subsection (d), the Executive shall be given notice by the Board specifying in
detail the particular act or failure to act on which the Board is relying in
proposing to terminate him for Cause and offering the Executive an opportunity,
on a date at least 14 days after receipt of such notice, to have a hearing, with
counsel, before a majority of the non-employee members of the Board, including
each of the members of the Board who authorized the termination for
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Cause. The Executive shall not be terminated for Cause if, within 30 days after
the date of the Executive's hearing before the Board (or if the Executive waives
a hearing, within 30 days after receiving notice of the proposed termination),
he has corrected the particular act or failure to act specified in the notice
and by so correcting such act or failure to act he has reduced the economic
damage his act or failure to act has allegedly caused the Company to a level
which is no longer material or has eliminated the probability that such act or
failure to act is likely to result in material economic damage to the Company.
No termination for Cause shall take effect until the expiration of the
correction period described in the preceding sentence and the determination by a
majority of the non-employee members of the Board that the Executive has failed
to correct the act or failure to act in accordance with the terms of the
preceding sentence.
Anything herein to the contrary notwithstanding, if, following a
termination of the Executive's employment by the Company for Cause based upon
the conviction of the Executive for a felony involving moral turpitude such
conviction is finally overturned on appeal, the Executive shall be entitled to
the compensation provided in Sections 4(a) and 4(c). In lieu of the interest
provided in clause (iv) of the first sentence of Section 4(a) and the interest
provided in the second sentence of Section 4(c), however, the compensation
provided in Sections 4(a) and 4(c) shall be increased by a ten percent rate of
interest, compounded annually, calculated from the date such compensation would
have been paid if the Executive's employment had been terminated without Cause.
(e) For purposes of this Agreement, "Good Reason" shall mean, after any
Change in Control and without the Executive's express written consent, any of
the following:
(i) a significant diminution in the Executive's duties and
responsibilities, or the assignment to the Executive by the Company of
duties inconsistent with the Executive's position, duties,
responsibilities or status with the Company immediately prior to a
Change in Control of the Company, or a change in the Executive's titles
or offices as in effect immediately prior to a Change in Control of the
Company, or any removal of the Executive from or any failure to
re-elect the Executive to any of such positions, except in connection
with the termination of his employment for Disability, Retirement or
Cause or as a result of the Executive's death or by the Executive other
than for Good Reason;
(ii) a reduction by the Company in the Executive's annual rate
of base salary as in effect on the date hereof or as the same may be
increased from time to time during the term of this Agreement or the
Company's failure to increase (within 12 months of the Executive's last
increase in his annual rate of base salary) the Executive's annual rate
of base salary after a Change in Control of the Company in an amount
which at least equals, on a percentage basis, the greater of (A) the
average percentage increase in the annual rate of base salary for all
officers of the Company effected in the preceding 12 months; or (B) the
Consumer Price Index as published by the United States Government (or,
in the event such index is discontinued, any similar index published by
the United States Government as designated in good faith by the
Executive); provided, however, that nothing contained in this clause
(ii) shall be construed under any circumstances as permitting the
Company to decrease the Executive's annual rate of base salary;
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(iii) (A) any failure by the Company to continue in effect any
benefit plan or arrangement (including, without limitation, the life
insurance, medical, dental, accident and disability plans) in which the
Executive is participating at the time of a Change in Control of the
Company, or any other plan or arrangement providing the Executive with
benefits that are no less favorable (hereinafter referred to as
"Benefit Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such Benefit Plan or deprive
the Executive of any material fringe benefit or perquisite of office
enjoyed by the Executive at the time of a Change in Control of the
Company, unless in the case of either subclause (A) or (B) above, there
is substituted a comparable plan or program that is economically
equivalent or superior, in terms of the benefit offered to the
Executive, to the Benefit Plan being altered, reduced, affected or
ended;
(iv) (A) any failure by the Company to continue in effect any
incentive plan or arrangement (including, without limitation, the
Company's bonus arrangements, the Transaction Systems Architects, Inc.
Deferred Compensation Plan, the Transaction Systems Architects, Inc.
401(k) Plan, the sales incentive plans, and the management incentive
plans) in which the Executive is participating at the time of a Change
in Control of the Company, or any other plans or arrangements providing
him with substantially similar benefits, (hereinafter referred to as
"Incentive Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in any such
Incentive Plan or reduce the Executive's benefits under any such
Incentive Plan, unless in the case of either subclause (A) or (B)
above, there is substituted a comparable plan or program that is
economically equivalent or superior, in terms of the benefit offered to
the Executive, to the Incentive Plan being altered, reduced, affected
or ended, or (C) any failure by the Company with respect to any fiscal
year to make an award to the Executive pursuant to each such Incentive
Plan or such substituted comparable plan or program equal to or greater
than the greater of (1) the award (whether paid or payable in cash or
in securities of the Company) made to the Executive pursuant to such
Incentive Plan or such substituted comparable plan or program with
respect to the immediately preceding fiscal year or (2) the average
annual award (whether paid or payable in cash or in securities of the
Company) made to the Executive pursuant to such Incentive Plan or such
substituted comparable plan with respect to the prior three fiscal
years (or such lesser number of prior fiscal years that the Executive
was employed by the Company or that the Incentive Plan (together with
any substituted comparable plan) was maintained);
(v) (A) any failure by the Company to continue in effect any
plan or arrangement to receive securities of the Company (including,
without limitation, the Transaction Systems Architects, Inc. 1999
Employee Stock Purchase Plan and the Transaction Systems Architects
Inc. 1999 Stock Option Plan) in which the Executive is participating at
the time of a Change in Control of the Company, or any other plan or
arrangement providing him with substantially similar benefits,
(hereinafter referred to as "Securities Plans"), (B) the taking of any
action by the Company which would adversely affect the Executive's
participation in or materially reduce the Executive's benefits under
any such Securities Plan, unless in the case of either subclause (A) or
(B) above, there is substituted a comparable plan or program that is
economically equivalent or superior, in terms of the benefit offered to
the Executive, to the Securities Plan being altered,
6
<PAGE>
reduced, affected or ended, or (C) any failure by the Company in any
fiscal year to grant stock options, stock appreciation rights or
securities awards to the Executive pursuant to such Securities Plans
with respect to an aggregate number of securities of the Company of
each kind that is equal to or greater than the greater of (1) the
aggregate number of securities of the Company of that kind covered by
stock options, stock appreciation rights or securities awards granted
to the Executive pursuant to such Securities Plans in the immediately
preceding fiscal year or (2) the average annual aggregate number of
securities of the Company of that kind covered by stock options, stock
appreciation rights, or securities awards granted to the Executive
pursuant to such Securities Plans in the prior three fiscal years; and
provided further the material terms and conditions of such stock
options, stock appreciation rights, and securities awards granted to
the Executive after the Change in Control (including, but not limited
to, the exercise price, vesting schedule, period and methods of
exercise, expiration date, forfeiture provisions and other
restrictions) are substantially similar to the material terms and
conditions of the stock options, stock appreciation rights, and
securities awards granted to the Executive under the Securities Plans
immediately prior to the Change in Control of the Company;
(vi) the Executive's relocation more than 50 miles from the
location at which the Executive performed the Executive's duties prior
to a Change in Control of the Company, except for required travel by
the Executive on the Company's business to an extent substantially
consistent with the Executive's business travel obligations at the time
of a Change in Control of the Company;
(vii) any failure by the Company to provide the Executive with
the number of annual paid vacation days to which the Executive is
entitled for the year in which a Change in Control of the Company
occurs;
(viii) any material breach by the Company of any provision of
this Agreement;
(ix) any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company prior to such
succession or assignment;
(x) any failure by the Company or its successor to enter into an agreement
with the Executive that is substantially similar to this Agreement with
respect to a Change in Control of the Company or its successor
occurring thereafter; or
(xi) any purported termination of the Executive's employment
by the Company pursuant to Section 3(b), 3(c) or 3(d) above which is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 3(f) below (and, if applicable, Section 3(d)
above), and for purposes of this Agreement, no such purported
termination shall be effective.
For purposes of this subsection (e), an isolated, immaterial, and inadvertent
action not taken in bad faith by the Company in violation of clause (ii), (iii),
(iv), (v) or (vii) of this subsection that is remedied by the Company promptly
after receipt of notice thereof given by the Executive shall not be considered
Good Reason for the Executive's termination of employment with the Company. In
the event the Executive terminates his employment for Good Reason hereunder,
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then notwithstanding that the Executive may also retire for purposes of the
Benefit Plans, Incentive Plans or Securities Plans, the Executive shall be
deemed to have terminated his employment for Good Reason for purposes of this
Agreement.
(f) Any termination of the Executive by the Company pursuant to Section
3(b), 3(c) or 3(d) above, or by the Executive pursuant to Section 3(e) above,
shall be communicated by a Notice of Termination to the other party hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate those specific termination provisions in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. For purposes of this Agreement, no
such purported termination by the Company shall be effective without such Notice
of Termination.
(g) "Date of Termination" shall mean (i) if the Executive's employment
is terminated by the Company for Disability, 30 days after Notice of Termination
is given to the Executive (provided that the Executive shall not have returned
to the performance of the Executive's duties on a full-time basis during such
30-day period), (ii) if the Executive's employment is terminated by the
Executive for Good Reason, the date specified in the Notice of Termination, and
(iii) if the Executive's employment is terminated by the Company for any other
reason, the date on which a Notice of Termination is given; provided, however,
that if within 30 days after any Notice of Termination is given to the Executive
by the Company, the Executive notifies the Company that a dispute exists
concerning the termination, the Date of Termination shall be the date the
dispute is finally determined, whether by mutual written agreement of the
parties or upon final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected).
4. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT.
(a) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Company shall pay to the
Executive in a lump sum cash payment within five days after the Date of
Termination the following:
(i) the Severance Amount as defined in Section 4(b) below;
plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as
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published in The Wall Street Journal on the Date of Termination plus
three percentage points, compounded annually.
(b) "Severance Amount" shall mean an amount equal to two times the Base
Amount (as defined below) determined with respect to the Base Period (as defined
below); provided, however, in no event shall the Severance Amount be less than
two times the Executive's annual rate of base salary at the higher of the annual
rate in effect (i) immediately prior to the Date of Termination or (ii) on the
date six months prior to the Date of Termination. For purposes of this
subsection (b):
(i) "Base Amount" means the Executive's average fiscal-year
Compensation (as defined below) for fiscal years of the Company in the
Base Period. Such average shall be computed by dividing the total of
the Executive's Compensation for the Base Period by the number of
fiscal years in the Base Period. If the Executive's Base Period
includes a portion of a fiscal year during which he was not an employee
of the Company (or a predecessor entity or a related entity, as such
terms are defined in clause (iii) below), the Executive's Compensation
for such fiscal year shall be annualized before determining the average
fiscal-year Compensation for the Base Period. In annualizing
Compensation, the frequency with which payments are expected to be made
over a fiscal year shall be taken into account; thus, any amount of
Compensation that represents a payment that will not be made more often
than once per fiscal year is not annualized. Set forth on Appendix A,
which is attached hereto and made a part hereof, are three examples
illustrating the calculation of the Base Amount.
(ii) "Base Period" means the most recent two consecutive
fiscal years of the Company ending prior to the Date of Termination.
However, if the Executive was not an employee of the Company (or a
predecessor entity or a related entity, as such terms are defined in
clause (iii) below) at any time during one of such two fiscal years,
the Executive's Base Period is the one fiscal year of such
two-fiscal-year period during which the Executive performed personal
services for the Company or a predecessor entity or a related entity.
(iii) "Compensation" means the compensation which was payable
by the Company, by a predecessor entity, or by a related entity and
which was includible in the gross income of the Executive (or either
was excludible from such gross income as "foreign earned income" within
the meaning of Section 911 of the Internal Revenue Code of 1986, as
amended (the "Code"), or would have been includible in such gross
income if the Executive had been a United States citizen or resident),
but excluding the following: (A) amounts realized from the exercise of
a non-qualified stock option; and (B) amounts realized from the sale,
exchange or other disposition of stock acquired under an incentive
stock option described in Code Section 422(b) or under an employee
stock purchase plan described in Code Section 423(b). Notwithstanding
the preceding sentence, Compensation shall be determined without regard
to any compensation deferral election under any plan, program or
arrangement, qualified or nonqualified, maintained or contributed to by
the Company, a predecessor entity or a related entity, including but
not limited to a cash-or-deferred arrangement described in Code Section
401(k), a cafeteria plan described in Code Section 125 or a
nonqualified deferred compensation plan. A
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"predecessor entity" is any entity which, as a result of a merger,
consolidation, purchase or acquisition of property or stock, corporate
separation, or other similar business transaction transfers some or all
of its employees to the Company or to a related entity or to a
predecessor entity of the Company. The term "related entity" includes
any entity treated as a single employer with the Company in accordance
with subsections (b), (c), (m) and (o) of Code Section 414.
(c) If pursuant to Section 3(a) above the Executive is
entitled to the compensation provided in this Section 4, then the
Executive will be entitled to continued participation in all employee
benefit plans or programs available to Company employees generally in
which the Executive was participating on the Date of Termination, such
continued participation to be at Company cost and otherwise on the same
basis as Company employees generally, until the earlier of (i) the
date, or dates, he receives equivalent coverage and benefits under the
plans and programs of a subsequent employer (such coverages and
benefits to be determined on a coverage-by-coverage or
benefit-by-benefit basis) or (ii) two years from the Date of
Termination; provided (A) if the Executive is precluded from continuing
his participation in any employee benefit plan or program as provided
in this sentence, he shall be paid, in a lump sum cash payment, within
30 days following the date it is determined he is unable to participate
in any employee benefit plan or program, the after-tax economic
equivalent of the benefits provided under the plan or program in which
he is unable to participate for the period specified in this sentence,
and (B) the economic equivalent of any benefit foregone shall be deemed
to be the lowest cost that would be incurred by the Executive in
obtaining such benefit for himself (including family or dependent
coverage, if applicable) on an individual basis. The Executive shall be
eligible for group health plan continuation coverage under and in
accordance with the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended, when he ceases to be eligible for continued
participation in the Company's group health plan under this subsection
(e).
5. NO OBLIGATION TO MITIGATE DAMAGES; NO EFFECT ON OTHER CONTRACTUAL
RIGHTS.
(a) The Executive shall not be required to mitigate damages or
the amount of any payment provided for under this Agreement by seeking
other employment or otherwise, nor shall the amount of any payment
provided for under this Agreement be reduced by any compensation earned
by the Executive as the result of employment by another employer after
the Date of Termination or otherwise.
(b) The provisions of this Agreement, and any payment provided
for hereunder, shall not reduce any amounts otherwise payable, or in
any way diminish the Executive's existing rights, or rights which would
accrue solely as a result of the passage of time, under any Benefit
Plan, Incentive Plan or Securities Plan, employment agreement or other
contract, plan or agreement with or of the Company.
6. INCENTIVE AWARDS.
In the event of a Change in Control of the Company, then
notwithstanding the terms and conditions of any Incentive Plan, the Company
agrees (i) to immediately and fully vest all unvested awards, units, and
benefits (other than options to acquire securities of the Company or
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awards of securities of the Company) which have been awarded or allocated to the
Executive under the Incentive Plans; and (ii) upon the exercise of such awards
or units or the distribution of such benefits, to pay all amounts due under the
Incentive Plans solely in cash.
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) All determinations required to be made under this Section 7,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by the Accounting Firm which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days after the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. The determination
of tax liability made by the Accounting Firm shall be subject to review by the
Executive's tax advisor, and, if the Executive's tax advisor does not agree with
the determination reached by the Accounting Firm, then the Accounting Firm and
the Executive's tax advisor shall jointly designate a nationally recognized
public accounting firm which shall make the determination. All fees and expenses
of the accountants and tax advisors retained by both the Executive and the
Company shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 7, shall be paid by the Company to the
Executive within five days after the receipt of the determination. Any
determination by such jointly designated public accounting firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
hereunder, it is possible that Gross-Up Payments will not have been made by the
Company that should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Executive
hereafter is required to make a payment of any Excise Tax, any such Underpayment
shall be promptly paid by the Company to or for the benefit of the Executive.
Upon notice by the Executive of any audit or other proceeding that may result in
a liability to the Company hereunder, the Executive shall promptly notify the
Company of such audit or other proceeding; and the Company may, at its option,
but solely with respect to the item or items that relate to such potential
liability, choose to assume the defense of such audit or other proceeding at its
own cost, provided that (i) the Executive shall cooperate with the Company in
such defense and (ii) the Company will not settle such audit or other proceeding
without the consent of the Executive (such consent not to be unreasonably
withheld). The highest effective
11
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marginal tax rate (determined by taking into account any reduction in itemized
deductions and/or exemptions attributable to the inclusion of the additional
amounts payable under this Section 7 in the Executive's adjusted gross or
taxable income) based upon the state and locality where the Executive is
resident at the time of payment of such amounts will be used for purposes of
determining the federal and state income and other taxes with respect thereto.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify the Executive to the fullest extent
permitted by law if the Executive is a party or threatened to be made a party to
any Proceeding (as defined below).
(b) If requested by the Executive, the Company shall advance (within
two business days of such request) any and all Expenses, as defined below,
relating to a Proceeding to the Executive (an "Expense Advance"), upon the
receipt of a written undertaking by or on behalf of the Executive to repay such
Expense Advance if a judgment or other final adjudication adverse to the
Executive (as to which all rights of appeal therefrom have been exhausted or
lapsed) establishes that the Executive is not entitled to indemnification by the
Company. Expenses shall include attorney's fees and all other costs, charges and
expenses paid or incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in any Proceeding.
(c) The Company agrees to obtain a directors' and officers' liability
insurance policy covering the Executive and to continue and maintain such
policy. The amount of coverage shall be reasonable in relation to the
Executive's position and responsibilities during his employment by the Company.
(d) This Section 8 is a supplement to and in furtherance of the
Certificate of Incorporation and Bylaws of the Company and shall not be deemed a
substitute therefor, or diminish or abrogate any rights of the Executive
thereunder.
(e) For purposes of Section 8(a), the meaning of the phrase "to the
fullest extent permitted by law" shall include but not be limited to:
(i) to the fullest extent permitted by the provision of the
Delaware General Corporation Law ("DGCL") that authorizes or
contemplates additional indemnification by agreement, or the
corresponding provision of any amendment to or replacement of the DGCL,
and
(ii) to the fullest extent authorized or permitted by any
amendments to or replacements of the DGCL adopted after the date of
this Agreement that increase the extent to which a corporation may
indemnify its officers and directors.
(f) For purposes of Sections 8(a) and 8(b), "Proceeding" shall mean any
threatened, pending or completed action, suit, arbitration, alternate dispute
resolution mechanism, investigation, inquiry, administrative hearing or any
other actual, threatened or completed proceeding, whether brought in the right
of the Company or otherwise and whether of a civil, criminal, administrative or
investigative nature, in which the Executive was, is or will be
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involved as a party or otherwise by reason of the fact that the Executive is or
was a director or officer of the Company, by reason of any action taken by him
or of any action on his part while acting as director or officer of the Company,
or by reason of the fact that he is or was serving at the request of the Company
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, in each case whether or not serving in
such capacity at the time any liability or expense is incurred for which
indemnification, reimbursement, or advancement of expenses can be provided under
this Agreement.
9. SUCCESSORS.
(a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. Any failure of the Company to
obtain such agreement prior to the effectiveness of any such succession or
assignment shall be a material breach of this Agreement and shall entitle the
Executive to terminate the Executive's employment for Good Reason and receive
the compensation provided for in Section 4 hereof. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor or
assign to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Section 9 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts are still payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Executive's devisee, legatee or other designee or, if
there be no such designee, to the Executive's estate.
10. NOTICE.
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, as follows:
If to the Company:
Transaction Systems Architects, Inc.
224 South 108 Avenue
Omaha, NE 68154
Attn: President
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If to the Executive:
-----------------------------------
-----------------------------------
-----------------------------------
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. MISCELLANEOUS.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same time or
at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Nebraska, without giving effect to any principles of conflicts of
law.
12. CONFLICT IN BENEFITS.
Except as otherwise provided in the preceding sentences, this Agreement
is not intended to and shall not limit or terminate any other agreement or
arrangement between the Executive and the Company presently in effect or
hereafter entered into.
13. VALIDITY.
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. SURVIVORSHIP.
The respective rights and obligations of the parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations and to the extent that any
performance is required following termination of this Agreement. Without
limiting the foregoing, Sections 7, 8 and 15 shall expressly survive the
termination of this Agreement.
15. LEGAL FEES AND EXPENSES.
If a claim or dispute arises concerning the rights of the Executive
under this Agreement, regardless of the party by whom such claim or dispute is
initiated, the Company shall, upon presentation of appropriate vouchers, pay all
legal expenses, including reasonable attorneys'
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fees, court costs, and ordinary and necessary out-of-pocket costs of attorneys,
billed to and payable by the Executive or by anyone claiming under or through
the Executive, in connection with the bringing, prosecuting, arbitrating,
defending, litigating, negotiating, or settling such claim or dispute. In no
event shall the Executive be required to reimburse the Company for any of the
costs or expenses incurred by the Company relating to arbitration or litigation.
Pending the outcome or resolution of any claim or dispute, the Company shall
continue payment of all amounts due the Executive without regard to any dispute.
16. EFFECTIVE DATE.
This Agreement shall become effective upon execution.
17. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
18. NO GUARANTEE OF EMPLOYMENT.
Neither this Agreement nor any action taken hereunder shall be construed
as giving the Executive the right to be retained in employment with the Company,
nor shall it interfere with either the Company's right to terminate the
employment of the Executive at any time or the Executive's right to terminate
his employment at any time.
19. NO ASSIGNMENT BY EXECUTIVE.
Except as otherwise provided in Section 9(b), the Executive's rights and
interest under this Agreement shall not be assignable (in law or in equity) or
subject to any manner of alienation, sale, transfer, claims of creditors,
pledge, attachment, garnishment, levy, execution or encumbrances of any kind.
20. WAIVER.
The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement shall not be deemed a waiver of
such provision or any other provision of this Agreement. Any waiver of any
provision of this Agreement shall not be deemed to be a waiver of any other
provision, and any waiver of default in any provision of this Agreement shall
not be deemed to be a waiver of any later default thereof or of any other
provision.
21. WITHHOLDING.
All amounts paid pursuant to this Agreement shall be subject to
withholding for taxes (federal, state, local or otherwise) to the extent
required by applicable law.
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22. HEADINGS.
The headings of this Agreement have been inserted for convenience of
reference only and are to be ignored in the construction of the provisions
hereof.
23. NUMBER AND GENDER.
The use of the singular shall be interpreted to include the plural and
the plural the singular, as the context requires. The use of the masculine,
feminine or neuter shall be interpreted to include the masculine, feminine or
neuter as the context shall require.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
TRANSACTION SYSTEMS ARCHITECTS, INC.
Date: By:
------------------- ---------------------------------
EXECUTIVE:
Date:
------------------- ------------------------------------
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APPENDIX A
EXAMPLE 1 - Executive was employed by the Company for 1-1/3 fiscal
years preceding the fiscal year in which a Change in Control of the
Company occurs. The Executive's Compensation from the Company was
$30,000 for the 4-month period and $120,000 for the full fiscal year.
The Executive's Base Amount is $105,000.
Year 1: 3 x $30,000 = $90,000
Year 2: $120,000
[90,000 + 120,000] / 2 = $105,000
$105,000 is the average fiscal-year Compensation for the
Base Period.
EXAMPLE 2 - Assume the same facts as in Example 1, except that the
Executive also received a $70,000 sign-on bonus when his employment
with the Company commenced at the beginning of the 4-month period. The
Executive's Base Amount is $140,000
Year 1: [3 x $30,000] + $70,000 = $160,000
Year 2: $120,000
[160,000 + 120,000] / 2 = $140,000
Since the sign-on bonus will not be paid more often than once per
fiscal year, the amount of the bonus is not increased in annualizing
the Executive's Compensation for the 4-month period.
EXAMPLE 3 - Executive was employed by the Company for the last 4 months
of the fiscal year preceding the fiscal year in which a Change in
Control of the Company occurs. The Executive's Compensation from the
Company was $30,000 for the 4-month period. The Executive's Base Amount
is $90,000.
Year 1: 3 x $30,000 = $90,000
$90,000 / 1 = $90,000
$90,000 is the average fiscal-year Compensation for the
Base Period.
<PAGE>
SEVERANCE COMPENSATION AGREEMENT
SEVERANCE COMPENSATION AGREEMENT dated as of July 31, 1999 between
Transaction Systems Architects, Inc., a Delaware corporation (the "Company"),
and William E. Fisher (the "Executive").
WHEREAS, the Company's Board of Directors has determined that it is
appropriate to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in potentially disturbing circumstances arising from
the possibility of a change in control of the Company;
NOW, THEREFORE, this Agreement sets forth the severance compensation
which the Company agrees it will pay to the Executive if the Executive's
employment with the Company terminates under certain circumstances described
herein following a Change in Control (as defined herein) and the other benefits
the Company will provide the Executive following a Change in Control.
1. TERM.
This Agreement shall terminate, except to the extent that any
obligation of the Company hereunder remains unpaid as of such time, upon the
earlier of (i) the termination of Executive's employment for any reason prior to
a Change in Control; and (ii) three years after the date of a Change in Control.
2. CHANGE IN CONTROL.
For purposes of this Agreement, Change in Control shall mean:
(a) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person"), of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a Change
in Control: (A) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege), (B) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (C)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in subclauses (i), (ii) and (iii) of clause (c) of this
Section 2 are satisfied; or
(b) if individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election,
<PAGE>
or nomination for election by the Company's stockholders, was approved by a vote
of at least two-thirds of the directors then constituting the Incumbent Board
shall be considered as though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of either an actual or threatened
election contest subject to Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board; or
(c) approval by the stockholders of the Company of a reorganization,
merger or consolidation, unless following such reorganization, merger or
consolidation (i) more than 60% of, respectively, the then-outstanding shares of
common stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger, or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the resulting corporation owned by the Company's stockholders, but
not from the total number of outstanding shares and voting securities of the
resulting corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (ii) no Person (excluding the Company, any employee
benefit plan (or related trust) of the Company, any qualified employee benefit
plan of such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then-outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(d) (i) approval by the stockholders of the Company of a complete liquidation or
dissolution of the Company or (ii) the first to occur of (A) the sale or other
disposition (in one transaction or a series of related transactions) of all or
substantially all of the assets of the Company, or (B) the approval by the
stockholders of the Company of any such sale or disposition, other than, in each
case, any such sale or disposition to a corporation, with respect to which
immediately thereafter, (1) more than 60% of, respectively, the then-outstanding
shares of common stock of such corporation and the combined voting power of the
then-outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Company Common Stock and
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Outstanding Company Voting Securities immediately prior to such sale or other
disposition in substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the case may be (for purposes of
determining whether such percentage test is satisfied, there shall be excluded
from the number of shares and voting securities of the transferee corporation
owned by the Company's stockholders, but not from the total number of
outstanding shares and voting securities of the transferee corporation, any
shares or voting securities received by any such stockholder in respect of any
consideration other than shares or voting securities of the Company), (2) no
Person (excluding the Company and any employee benefit plan (or related trust)
of the Company, any qualified employee benefit plan of such transferee
corporation and any Person beneficially owning, immediately prior to such sale
or other disposition, directly or indirectly, 20% or more of the Outstanding
Company Common Stock or Outstanding Company Voting Securities, as the case may
be) beneficially owns, directly or indirectly, 20% or more of, respectively, the
then-outstanding shares of common stock of such transferee corporation and the
combined voting power of the then-outstanding voting securities of such
transferee corporation entitled to vote generally in the election of directors
and (3) at least a majority of the members of the board of directors of such
transferee corporation were members of the Incumbent Board at the time of the
execution of the initial agreement or action of the board providing for such
sale or other disposition of assets of the Company.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL.
(a) The Executive shall be entitled to the compensation provided in
Section 4 of this Agreement if all of the following conditions are satisfied:
(i) there is a Change in Control of the Company while the
Executive is still an employee of the Company;
(ii) the Executive's employment with the Company is terminated
within two years after the Change in Control; and
(iii) the Executive's termination of employment is not a
result of (A) the Executive's death; (B) the Executive's Disability (as
defined in Section 3(b) below; (C) the Executive's Retirement (as
defined in Section 3(c) below); (D) the Executive's termination by the
Company for Cause (as defined in Section 3(d) below); or (E) the
Executive's decision to terminate employment other than for Good Reason
(as defined in Section 3(e) below).
(b) If, as a result of the Executive's incapacity due to physical or
mental illness, the Executive shall have been unable, with or without a
reasonable accommodation, to perform his duties with the Company on a full-time
basis for six months and within 30 days after a Notice of Termination (as
defined in Section 3(f) below) is thereafter given by the Company, the Executive
shall not have returned to the full-time performance of the Executive's duties,
the Company may terminate the Executive's employment for "Disability". If there
is a Change in Control of the Company while the Executive is still an employee
and if the Executive's employment with the Company is terminated for Disability
within two years after the Change in Control, the
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Executive shall be entitled to receive in a lump sum cash payment within five
days after his Date of Termination (as defined in Section 3(g) below) the
following:
(i) two times the Base Amount (as defined in Section 4(b)(i))
determined with respect to the Base Period (as defined in Section
4(b)(ii)); plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points.
(c) For purposes of this Agreement only, "Retirement" shall mean
termination by the Company or the Executive of the Executive's employment based
on the Executive's having reached age 65 or such other age as shall have been
fixed in any arrangement established pursuant to this Agreement with the
Executive's consent with respect to the Executive.
(d) For purposes of this Agreement only, "Cause" shall mean: (i) the
Executive's conviction of a felony involving moral turpitude; or (ii) the
Executive's serious, willful gross misconduct or willful gross neglect of duties
(other than any such neglect resulting from the Executive's incapacity due to
physical or mental illness or any such neglect after the issuance of a Notice of
Termination by the Executive for Good Reason, as such terms are defined in
subsections (e) and (f) below), which, in either case, has resulted, or in all
probability is likely to result, in material economic damage to the Company;
provided no act or failure to act by the Executive will constitute "Cause" under
clause (ii) if the Executive believed in good faith that such act or failure to
act was in the best interest of the Company.
For purposes of this Agreement only, any termination of the Executive's
employment by the Company for Cause shall be authorized by a vote of at least a
majority of the non-employee members of the Board of Directors of the Company
(the "Board") within 12 months of a majority of such non-employee members of the
Board having actual knowledge of the event or circumstances providing a basis
for such termination. In the case of clause (ii) of the second sentence of this
subsection (d), the Executive shall be given notice by the Board specifying in
detail the particular act or failure to act on which the Board is relying in
proposing to terminate him for Cause and offering the Executive an opportunity,
on a date at least 14 days after receipt of such notice, to have a hearing, with
counsel, before a majority of the non-employee members of the Board, including
each of the members of the Board who authorized the termination for
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Cause. The Executive shall not be terminated for Cause if, within 30 days after
the date of the Executive's hearing before the Board (or if the Executive waives
a hearing, within 30 days after receiving notice of the proposed termination),
he has corrected the particular act or failure to act specified in the notice
and by so correcting such act or failure to act he has reduced the economic
damage his act or failure to act has allegedly caused the Company to a level
which is no longer material or has eliminated the probability that such act or
failure to act is likely to result in material economic damage to the Company.
No termination for Cause shall take effect until the expiration of the
correction period described in the preceding sentence and the determination by a
majority of the non-employee members of the Board that the Executive has failed
to correct the act or failure to act in accordance with the terms of the
preceding sentence.
Anything herein to the contrary notwithstanding, if, following a
termination of the Executive's employment by the Company for Cause based upon
the conviction of the Executive for a felony involving moral turpitude such
conviction is finally overturned on appeal, the Executive shall be entitled to
the compensation provided in Sections 4(a) and 4(c). In lieu of the interest
provided in clause (iv) of the first sentence of Section 4(a) and the interest
provided in the second sentence of Section 4(c), however, the compensation
provided in Sections 4(a) and 4(c) shall be increased by a ten percent rate of
interest, compounded annually, calculated from the date such compensation would
have been paid if the Executive's employment had been terminated without Cause.
(e) For purposes of this Agreement, "Good Reason" shall mean, after any
Change in Control and without the Executive's express written consent, any of
the following:
(i) a significant diminution in the Executive's duties and
responsibilities, or the assignment to the Executive by the Company of
duties inconsistent with the Executive's position, duties,
responsibilities or status with the Company immediately prior to a
Change in Control of the Company, or a change in the Executive's titles
or offices as in effect immediately prior to a Change in Control of the
Company, or any removal of the Executive from or any failure to
re-elect the Executive to any of such positions, except in connection
with the termination of his employment for Disability, Retirement or
Cause or as a result of the Executive's death or by the Executive other
than for Good Reason;
(ii) a reduction by the Company in the Executive's annual rate
of base salary as in effect on the date hereof or as the same may be
increased from time to time during the term of this Agreement or the
Company's failure to increase (within 12 months of the Executive's last
increase in his annual rate of base salary) the Executive's annual rate
of base salary after a Change in Control of the Company in an amount
which at least equals, on a percentage basis, the greater of (A) the
average percentage increase in the annual rate of base salary for all
officers of the Company effected in the preceding 12 months; or (B) the
Consumer Price Index as published by the United States Government (or,
in the event such index is discontinued, any similar index published by
the United States Government as designated in good faith by the
Executive); provided, however, that nothing contained in this clause
(ii) shall be construed under any circumstances as permitting the
Company to decrease the Executive's annual rate of base salary;
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(iii) (A) any failure by the Company to continue in effect any
benefit plan or arrangement (including, without limitation, the life
insurance, medical, dental, accident and disability plans) in which the
Executive is participating at the time of a Change in Control of the
Company, or any other plan or arrangement providing the Executive with
benefits that are no less favorable (hereinafter referred to as
"Benefit Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such Benefit Plan or deprive
the Executive of any material fringe benefit or perquisite of office
enjoyed by the Executive at the time of a Change in Control of the
Company, unless in the case of either subclause (A) or (B) above, there
is substituted a comparable plan or program that is economically
equivalent or superior, in terms of the benefit offered to the
Executive, to the Benefit Plan being altered, reduced, affected or
ended;
(iv) (A) any failure by the Company to continue in effect any
incentive plan or arrangement (including, without limitation, the
Company's bonus arrangements, the Transaction Systems Architects, Inc.
Deferred Compensation Plan, the Transaction Systems Architects, Inc.
401(k) Plan, the sales incentive plans, and the management incentive
plans) in which the Executive is participating at the time of a Change
in Control of the Company, or any other plans or arrangements providing
him with substantially similar benefits, (hereinafter referred to as
"Incentive Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in any such
Incentive Plan or reduce the Executive's benefits under any such
Incentive Plan, unless in the case of either subclause (A) or (B)
above, there is substituted a comparable plan or program that is
economically equivalent or superior, in terms of the benefit offered to
the Executive, to the Incentive Plan being altered, reduced, affected
or ended, or (C) any failure by the Company with respect to any fiscal
year to make an award to the Executive pursuant to each such Incentive
Plan or such substituted comparable plan or program equal to or greater
than the greater of (1) the award (whether paid or payable in cash or
in securities of the Company) made to the Executive pursuant to such
Incentive Plan or such substituted comparable plan or program with
respect to the immediately preceding fiscal year or (2) the average
annual award (whether paid or payable in cash or in securities of the
Company) made to the Executive pursuant to such Incentive Plan or such
substituted comparable plan with respect to the prior three fiscal
years (or such lesser number of prior fiscal years that the Executive
was employed by the Company or that the Incentive Plan (together with
any substituted comparable plan) was maintained);
(v) (A) any failure by the Company to continue in effect any
plan or arrangement to receive securities of the Company (including,
without limitation, the Transaction Systems Architects, Inc. 1999
Employee Stock Purchase Plan and the Transaction Systems Architects
Inc. 1999 Stock Option Plan) in which the Executive is participating at
the time of a Change in Control of the Company, or any other plan or
arrangement providing him with substantially similar benefits,
(hereinafter referred to as "Securities Plans"), (B) the taking of any
action by the Company which would adversely affect the Executive's
participation in or materially reduce the Executive's benefits under
any such Securities Plan, unless in the case of either subclause (A) or
(B) above, there is substituted a comparable plan or program that is
economically equivalent or superior, in terms of the benefit offered to
the Executive, to the Securities Plan being altered,
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reduced, affected or ended, or (C) any failure by the Company in any
fiscal year to grant stock options, stock appreciation rights or
securities awards to the Executive pursuant to such Securities Plans
with respect to an aggregate number of securities of the Company of
each kind that is equal to or greater than the greater of (1) the
aggregate number of securities of the Company of that kind covered by
stock options, stock appreciation rights or securities awards granted
to the Executive pursuant to such Securities Plans in the immediately
preceding fiscal year or (2) the average annual aggregate number of
securities of the Company of that kind covered by stock options, stock
appreciation rights, or securities awards granted to the Executive
pursuant to such Securities Plans in the prior three fiscal years; and
provided further the material terms and conditions of such stock
options, stock appreciation rights, and securities awards granted to
the Executive after the Change in Control (including, but not limited
to, the exercise price, vesting schedule, period and methods of
exercise, expiration date, forfeiture provisions and other
restrictions) are substantially similar to the material terms and
conditions of the stock options, stock appreciation rights, and
securities awards granted to the Executive under the Securities Plans
immediately prior to the Change in Control of the Company;
(vi) the Executive's relocation more than 50 miles from the
location at which the Executive performed the Executive's duties prior
to a Change in Control of the Company, except for required travel by
the Executive on the Company's business to an extent substantially
consistent with the Executive's business travel obligations at the time
of a Change in Control of the Company;
(vii) any failure by the Company to provide the Executive with
the number of annual paid vacation days to which the Executive is
entitled for the year in which a Change in Control of the Company
occurs;
(viii) any material breach by the Company of any provision of
this Agreement;
(ix) any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company prior to such
succession or assignment;
(x) any failure by the Company or its successor to enter into
an agreement with the Executive that is substantially similar to this
Agreement with respect to a Change in Control of the Company or its
successor occurring thereafter; or
(xi) any purported termination of the Executive's employment
by the Company pursuant to Section 3(b), 3(c) or 3(d) above which is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 3(f) below (and, if applicable, Section 3(d)
above), and for purposes of this Agreement, no such purported
termination shall be effective.
For purposes of this subsection (e), an isolated, immaterial, and inadvertent
action not taken in bad faith by the Company in violation of clause (ii), (iii),
(iv), (v) or (vii) of this subsection that is remedied by the Company promptly
after receipt of notice thereof given by the Executive shall not be considered
Good Reason for the Executive's termination of employment with the Company. In
the event the Executive terminates his employment for Good Reason hereunder,
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then notwithstanding that the Executive may also retire for purposes of the
Benefit Plans, Incentive Plans or Securities Plans, the Executive shall be
deemed to have terminated his employment for Good Reason for purposes of this
Agreement.
(f) Any termination of the Executive by the Company pursuant to Section 3(b),
3(c) or 3(d) above, or by the Executive pursuant to Section 3(e) above, shall be
communicated by a Notice of Termination to the other party hereof. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate those specific termination provisions in this Agreement relied
upon and which sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated. For purposes of this Agreement, no such purported
termination by the Company shall be effective without such Notice of
Termination.
(g) "Date of Termination" shall mean (i) if the Executive's employment is
terminated by the Company for Disability, 30 days after Notice of Termination is
given to the Executive (provided that the Executive shall not have returned to
the performance of the Executive's duties on a full-time basis during such
30-day period), (ii) if the Executive's employment is terminated by the
Executive for Good Reason, the date specified in the Notice of Termination, and
(iii) if the Executive's employment is terminated by the Company for any other
reason, the date on which a Notice of Termination is given; provided, however,
that if within 30 days after any Notice of Termination is given to the Executive
by the Company, the Executive notifies the Company that a dispute exists
concerning the termination, the Date of Termination shall be the date the
dispute is finally determined, whether by mutual written agreement of the
parties or upon final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected).
4. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT.
(a) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Company shall pay to the
Executive in a lump sum cash payment within five days after the Date of
Termination the following:
(i) the Severance Amount as defined in Section 4(b) below;
plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as
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published in The Wall Street Journal on the Date of Termination plus
three percentage points, compounded annually.
(b) "Severance Amount" shall mean an amount equal to two times the Base
Amount (as defined below) determined with respect to the Base Period (as defined
below); provided, however, in no event shall the Severance Amount be less than
two times the Executive's annual rate of base salary at the higher of the annual
rate in effect (i) immediately prior to the Date of Termination or (ii) on the
date six months prior to the Date of Termination.
For purposes of this subsection (b):
(i) "Base Amount" means the Executive's average fiscal-year
Compensation (as defined below) for fiscal years of the Company in the
Base Period. Such average shall be computed by dividing the total of
the Executive's Compensation for the Base Period by the number of
fiscal years in the Base Period. If the Executive's Base Period
includes a portion of a fiscal year during which he was not an employee
of the Company (or a predecessor entity or a related entity, as such
terms are defined in clause (iii) below), the Executive's Compensation
for such fiscal year shall be annualized before determining the average
fiscal-year Compensation for the Base Period. In annualizing
Compensation, the frequency with which payments are expected to be made
over a fiscal year shall be taken into account; thus, any amount of
Compensation that represents a payment that will not be made more often
than once per fiscal year is not annualized. Set forth on Appendix A,
which is attached hereto and made a part hereof, are three examples
illustrating the calculation of the Base Amount.
(ii) "Base Period" means the most recent two consecutive
fiscal years of the Company ending prior to the Date of Termination.
However, if the Executive was not an employee of the Company (or a
predecessor entity or a related entity, as such terms are defined in
clause (iii) below) at any time during one of such two fiscal years,
the Executive's Base Period is the one fiscal year of such
two-fiscal-year period during which the Executive performed personal
services for the Company or a predecessor entity or a related entity.
(iii) "Compensation" means the compensation which was payable
by the Company, by a predecessor entity, or by a related entity and
which was includible in the gross income of the Executive (or either
was excludible from such gross income as "foreign earned income" within
the meaning of Section 911 of the Internal Revenue Code of 1986, as
amended (the "Code"), or would have been includible in such gross
income if the Executive had been a United States citizen or resident),
but excluding the following: (A) amounts realized from the exercise of
a non-qualified stock option; and (B) amounts realized from the sale,
exchange or other disposition of stock acquired under an incentive
stock option described in Code Section 422(b) or under an employee
stock purchase plan described in Code Section 423(b). Notwithstanding
the preceding sentence, Compensation shall be determined without regard
to any compensation deferral election under any plan, program or
arrangement, qualified or nonqualified, maintained or contributed to by
the Company, a predecessor entity or a related entity, including but
not limited to a cash-or-deferred arrangement described in Code Section
401(k), a cafeteria plan described in Code Section 125 or a
nonqualified deferred compensation plan. A
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"predecessor entity" is any entity which, as a result of a merger,
consolidation, purchase or acquisition of property or stock, corporate
separation, or other similar business transaction transfers some or all
of its employees to the Company or to a related entity or to a
predecessor entity of the Company. The term "related entity" includes
any entity treated as a single employer with the Company in accordance
with subsections (b), (c), (m) and (o) of Code Section 414.
(c) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Executive will be entitled to
continued participation in all employee benefit plans or programs available to
Company employees generally in which the Executive was participating on the Date
of Termination, such continued participation to be at Company cost and otherwise
on the same basis as Company employees generally, until the earlier of (i) the
date, or dates, he receives equivalent coverage and benefits under the plans and
programs of a subsequent employer (such coverages and benefits to be determined
on a coverage-by-coverage or benefit-by-benefit basis) or (ii) two years from
the Date of Termination; provided (A) if the Executive is precluded from
continuing his participation in any employee benefit plan or program as provided
in this sentence, he shall be paid, in a lump sum cash payment, within 30 days
following the date it is determined he is unable to participate in any employee
benefit plan or program, the after-tax economic equivalent of the benefits
provided under the plan or program in which he is unable to participate for the
period specified in this sentence, and (B) the economic equivalent of any
benefit foregone shall be deemed to be the lowest cost that would be incurred by
the Executive in obtaining such benefit for himself (including family or
dependent coverage, if applicable) on an individual basis. The Executive shall
be eligible for group health plan continuation coverage under and in accordance
with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended,
when he ceases to be eligible for continued participation in the Company's group
health plan under this subsection (e).
5. NO OBLIGATION TO MITIGATE DAMAGES; NO EFFECT ON OTHER CONTRACTUAL
RIGHTS.
(a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation earned by the Executive as the
result of employment by another employer after the Date of Termination or
otherwise.
(b) The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any Benefit Plan, Incentive Plan or
Securities Plan, employment agreement or other contract, plan or agreement with
or of the Company.
6. INCENTIVE AWARDS.
In the event of a Change in Control of the Company, then
notwithstanding the terms and conditions of any Incentive Plan, the Company
agrees (i) to immediately and fully vest all unvested awards, units, and
benefits (other than options to acquire securities of the Company or
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awards of securities of the Company) which have been awarded or allocated to the
Executive under the Incentive Plans; and (ii) upon the exercise of such awards
or units or the distribution of such benefits, to pay all amounts due under the
Incentive Plans solely in cash.
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) All determinations required to be made under this Section 7,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by the Accounting Firm which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days after the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. The determination
of tax liability made by the Accounting Firm shall be subject to review by the
Executive's tax advisor, and, if the Executive's tax advisor does not agree with
the determination reached by the Accounting Firm, then the Accounting Firm and
the Executive's tax advisor shall jointly designate a nationally recognized
public accounting firm which shall make the determination. All fees and expenses
of the accountants and tax advisors retained by both the Executive and the
Company shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 7, shall be paid by the Company to the
Executive within five days after the receipt of the determination. Any
determination by such jointly designated public accounting firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
hereunder, it is possible that Gross-Up Payments will not have been made by the
Company that should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Executive
hereafter is required to make a payment of any Excise Tax, any such Underpayment
shall be promptly paid by the Company to or for the benefit of the Executive.
Upon notice by the Executive of any audit or other proceeding that may result in
a liability to the Company hereunder, the Executive shall promptly notify the
Company of such audit or other proceeding; and the Company may, at its option,
but solely with respect to the item or items that relate to such potential
liability, choose to assume the defense of such audit or other proceeding at its
own cost, provided that (i) the Executive shall cooperate with the Company in
such defense and (ii) the Company will not settle such audit or other proceeding
without the consent of the Executive (such consent not to be unreasonably
withheld). The highest effective
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marginal tax rate (determined by taking into account any reduction in itemized
deductions and/or exemptions attributable to the inclusion of the additional
amounts payable under this Section 7 in the Executive's adjusted gross or
taxable income) based upon the state and locality where the Executive is
resident at the time of payment of such amounts will be used for purposes of
determining the federal and state income and other taxes with respect thereto.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify the Executive to the fullest extent
permitted by law if the Executive is a party or threatened to be made a party to
any Proceeding (as defined below).
(b) If requested by the Executive, the Company shall advance (within
two business days of such request) any and all Expenses, as defined below,
relating to a Proceeding to the Executive (an "Expense Advance"), upon the
receipt of a written undertaking by or on behalf of the Executive to repay such
Expense Advance if a judgment or other final adjudication adverse to the
Executive (as to which all rights of appeal therefrom have been exhausted or
lapsed) establishes that the Executive is not entitled to indemnification by the
Company. Expenses shall include attorney's fees and all other costs, charges and
expenses paid or incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in any Proceeding.
(c) The Company agrees to obtain a directors' and officers' liability
insurance policy covering the Executive and to continue and maintain such
policy. The amount of coverage shall be reasonable in relation to the
Executive's position and responsibilities during his employment by the Company.
(d) This Section 8 is a supplement to and in furtherance of the
Certificate of Incorporation and Bylaws of the Company and shall not be deemed a
substitute therefor, or diminish or abrogate any rights of the Executive
thereunder.
(e) For purposes of Section 8(a), the meaning of the phrase "to the
fullest extent permitted by law" shall include but not be limited to:
(i) to the fullest extent permitted by the provision of the
Delaware General Corporation Law ("DGCL") that authorizes or
contemplates additional indemnification by agreement, or the
corresponding provision of any amendment to or replacement of the DGCL,
and
(ii) to the fullest extent authorized or permitted by any
amendments to or replacements of the DGCL adopted after the date of
this Agreement that increase the extent to which a corporation may
indemnify its officers and directors.
(f) For purposes of Sections 8(a) and 8(b), "Proceeding" shall mean any
threatened, pending or completed action, suit, arbitration, alternate dispute
resolution mechanism, investigation, inquiry, administrative hearing or any
other actual, threatened or completed proceeding, whether brought in the right
of the Company or otherwise and whether of a civil, criminal, administrative or
investigative nature, in which the Executive was, is or will be involved
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as a party or otherwise by reason of the fact that the Executive is or was a
director or officer of the Company, by reason of any action taken by him or of
any action on his part while acting as director or officer of the Company, or by
reason of the fact that he is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, in each case whether or not serving in such
capacity at the time any liability or expense is incurred for which
indemnification, reimbursement, or advancement of expenses can be provided under
this Agreement.
9. SUCCESSORS.
(a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. Any failure of the Company to
obtain such agreement prior to the effectiveness of any such succession or
assignment shall be a material breach of this Agreement and shall entitle the
Executive to terminate the Executive's employment for Good Reason and receive
the compensation provided for in Section 4 hereof. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor or
assign to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Section 9 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts are still payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Executive's devisee, legatee or other designee or, if
there be no such designee, to the Executive's estate.
10. NOTICE.
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, as follows:
If to the Company:
Transaction Systems Architects, Inc.
224 South 108 Avenue
Omaha, NE 68154
Attn: President
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If to the Executive:
-------------------------------------
-------------------------------------
-------------------------------------
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. MISCELLANEOUS.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same time or
at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Nebraska, without giving effect to any principles of conflicts of
law.
12. CONFLICT IN BENEFITS.
Except as otherwise provided in the preceding sentences, this Agreement
is not intended to and shall not limit or terminate any other agreement or
arrangement between the Executive and the Company presently in effect or
hereafter entered into.
13. VALIDITY.
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. SURVIVORSHIP.
The respective rights and obligations of the parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations and to the extent that any
performance is required following termination of this Agreement. Without
limiting the foregoing, Sections 7, 8 and 15 shall expressly survive the
termination of this Agreement.
15. LEGAL FEES AND EXPENSES.
If a claim or dispute arises concerning the rights of the Executive
under this Agreement, regardless of the party by whom such claim or dispute is
initiated, the Company shall, upon presentation of appropriate vouchers, pay all
legal expenses, including reasonable attorneys'
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fees, court costs, and ordinary and necessary out-of-pocket costs of attorneys,
billed to and payable by the Executive or by anyone claiming under or through
the Executive, in connection with the bringing, prosecuting, arbitrating,
defending, litigating, negotiating, or settling such claim or dispute. In no
event shall the Executive be required to reimburse the Company for any of the
costs or expenses incurred by the Company relating to arbitration or litigation.
Pending the outcome or resolution of any claim or dispute, the Company shall
continue payment of all amounts due the Executive without regard to any dispute.
16. EFFECTIVE DATE.
This Agreement shall become effective upon execution.
17. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
18. NO GUARANTEE OF EMPLOYMENT.
Neither this Agreement nor any action taken hereunder shall be construed
as giving the Executive the right to be retained in employment with the Company,
nor shall it interfere with either the Company's right to terminate the
employment of the Executive at any time or the Executive's right to terminate
his employment at any time.
19. NO ASSIGNMENT BY EXECUTIVE.
Except as otherwise provided in Section 9(b), the Executive's rights and
interest under this Agreement shall not be assignable (in law or in equity) or
subject to any manner of alienation, sale, transfer, claims of creditors,
pledge, attachment, garnishment, levy, execution or encumbrances of any kind.
20. WAIVER.
The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement shall not be deemed a waiver of
such provision or any other provision of this Agreement. Any waiver of any
provision of this Agreement shall not be deemed to be a waiver of any other
provision, and any waiver of default in any provision of this Agreement shall
not be deemed to be a waiver of any later default thereof or of any other
provision.
21. WITHHOLDING.
All amounts paid pursuant to this Agreement shall be subject to
withholding for taxes (federal, state, local or otherwise) to the extent
required by applicable law.
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22. HEADINGS.
The headings of this Agreement have been inserted for convenience of
reference only and are to be ignored in the construction of the provisions
hereof.
23. NUMBER AND GENDER.
The use of the singular shall be interpreted to include the plural and
the plural the singular, as the context requires. The use of the masculine,
feminine or neuter shall be interpreted to include the masculine, feminine or
neuter as the context shall require.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
TRANSACTION SYSTEMS ARCHITECTS, INC.
Date: By:
--------------- --------------------------------
EXECUTIVE:
Date:
--------------- ------------------------------------
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APPENDIX A
EXAMPLE 1 - Executive was employed by the Company for 1-1/3 fiscal
years preceding the fiscal year in which a Change in Control of the
Company occurs. The Executive's Compensation from the Company was
$30,000 for the 4-month period and $120,000 for the full fiscal year.
The Executive's Base Amount is $105,000.
Year 1: 3 x $30,000 = $90,000
Year 2: $120,000
[90,000 + 120,000] / 2 = $105,000
$105,000 is the average fiscal-year Compensation for the
Base Period.
EXAMPLE 2 - Assume the same facts as in Example 1, except that the
Executive also received a $70,000 sign-on bonus when his employment
with the Company commenced at the beginning of the 4-month period.
The Executive's Base Amount is $140,000
Year 1: [3 x $30,000] + $70,000 = $160,000
Year 2: $120,000
[160,000 + 120,000] / 2 = $140,000
Since the sign-on bonus will not be paid more often than once per
fiscal year, the amount of the bonus is not increased in annualizing
the Executive's Compensation for the 4-month period.
EXAMPLE 3 - Executive was employed by the Company for the last 4 months
of the fiscal year preceding the fiscal year in which a Change in
Control of the Company occurs. The Executive's Compensation from the
Company was $30,000 for the 4-month period. The Executive's Base Amount
is $90,000.
Year 1: 3 x $30,000 = $90,000
$90,000 / 1 = $90,000
$90,000 is the average fiscal-year Compensation for the
Base Period.
<PAGE>
SEVERANCE COMPENSATION AGREEMENT
SEVERANCE COMPENSATION AGREEMENT dated as of July 31, 1999 between
Transaction Systems Architects, Inc., a Delaware corporation (the "Company"),
and Jeff Hale (the "Executive").
WHEREAS, the Company's Board of Directors has determined that it is
appropriate to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in potentially disturbing circumstances arising from
the possibility of a change in control of the Company;
NOW, THEREFORE, this Agreement sets forth the severance compensation
which the Company agrees it will pay to the Executive if the Executive's
employment with the Company terminates under certain circumstances described
herein following a Change in Control (as defined herein) and the other benefits
the Company will provide the Executive following a Change in Control.
1. TERM.
This Agreement shall terminate, except to the extent that any
obligation of the Company hereunder remains unpaid as of such time, upon the
earlier of (i) the termination of Executive's employment for any reason prior to
a Change in Control; and (ii) three years after the date of a Change in Control.
2. CHANGE IN CONTROL.
For purposes of this Agreement, Change in Control shall mean:
(a) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person"), of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a Change
in Control: (A) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege), (B) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (C)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in subclauses (i), (ii) and (iii) of clause (c) of this
Section 2 are satisfied; or
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(b) if individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least
two-thirds of the directors then constituting the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest
subject to Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(c) approval by the stockholders of the Company of a reorganization,
merger or consolidation, unless following such reorganization, merger or
consolidation (i) more than 60% of, respectively, the then-outstanding shares of
common stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger, or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the resulting corporation owned by the Company's stockholders, but
not from the total number of outstanding shares and voting securities of the
resulting corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (ii) no Person (excluding the Company, any employee
benefit plan (or related trust) of the Company, any qualified employee benefit
plan of such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then-outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(d) (i) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company or (ii) the first to occur of (A) the
sale or other disposition (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company, or (B)
the approval by the stockholders of the Company of any such sale or disposition,
other than, in each case, any such sale or disposition to a corporation, with
respect to
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which immediately thereafter, (1) more than 60% of, respectively, the
then-outstanding shares of common stock of such corporation and the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such sale or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the transferee corporation owned by the Company's stockholders,
but not from the total number of outstanding shares and voting securities of the
transferee corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (2) no Person (excluding the Company and any
employee benefit plan (or related trust) of the Company, any qualified employee
benefit plan of such transferee corporation and any Person beneficially owning,
immediately prior to such sale or other disposition, directly or indirectly, 20%
or more of the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 20%
or more of, respectively, the then-outstanding shares of common stock of such
transferee corporation and the combined voting power of the then-outstanding
voting securities of such transferee corporation entitled to vote generally in
the election of directors and (3) at least a majority of the members of the
board of directors of such transferee corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or action of the
board providing for such sale or other disposition of assets of the Company.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL.
(a) The Executive shall be entitled to the compensation provided in
Section 4 of this Agreement if all of the following conditions are satisfied:
(i) there is a Change in Control of the Company while the
Executive is still an employee of the Company;
(ii) the Executive's employment with the Company is terminated
within two years after the Change in Control; and
(iii) the Executive's termination of employment is not a result
of (A) the Executive's death; (B) the Executive's Disability (as
defined in Section 3(b) below; (C) the Executive's Retirement (as
defined in Section 3(c) below); (D) the Executive's termination by the
Company for Cause (as defined in Section 3(d) below); or (E) the
Executive's decision to terminate employment other than for Good Reason
(as defined in Section 3(e) below).
(b) If, as a result of the Executive's incapacity due to physical or
mental illness, the Executive shall have been unable, with or without a
reasonable accommodation, to perform his duties with the Company on a full-time
basis for six months and within 30 days after a Notice of
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Termination (as defined in Section 3(f) below) is thereafter given by the
Company, the Executive shall not have returned to the full-time performance of
the Executive's duties, the Company may terminate the Executive's employment for
"Disability". If there is a Change in Control of the Company while the Executive
is still an employee and if the Executive's employment with the Company is
terminated for Disability within two years after the Change in Control, the
Executive shall be entitled to receive in a lump sum cash payment within five
days after his Date of Termination (as defined in Section 3(g) below) the
following:
(i) one times the Base Amount (as defined in Section 4(b)(i))
determined with respect to the Base Period (as defined in Section
4(b)(ii)); plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points.
(c) For purposes of this Agreement only, "Retirement" shall mean
termination by the Company or the Executive of the Executive's employment based
on the Executive's having reached age 65 or such other age as shall have been
fixed in any arrangement established pursuant to this Agreement with the
Executive's consent with respect to the Executive.
(d) For purposes of this Agreement only, "Cause" shall mean: (i) the
Executive's conviction of a felony involving moral turpitude; or (ii) the
Executive's serious, willful gross misconduct or willful gross neglect of duties
(other than any such neglect resulting from the Executive's incapacity due to
physical or mental illness or any such neglect after the issuance of a Notice of
Termination by the Executive for Good Reason, as such terms are defined in
subsections (e) and (f) below), which, in either case, has resulted, or in all
probability is likely to result, in material economic damage to the Company;
provided no act or failure to act by the Executive will constitute "Cause" under
clause (ii) if the Executive believed in good faith that such act or failure to
act was in the best interest of the Company.
For purposes of this Agreement only, any termination of the Executive's
employment by the Company for Cause shall be authorized by a vote of at least a
majority of the non-employee members of the Board of Directors of the Company
(the "Board") within 12 months of a majority of such non-employee members of the
Board having actual knowledge of the event or circumstances providing a basis
for such termination. In the case of clause (ii) of the second
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sentence of this subsection (d), the Executive shall be given notice by the
Board specifying in detail the particular act or failure to act on which the
Board is relying in proposing to terminate him for Cause and offering the
Executive an opportunity, on a date at least 14 days after receipt of such
notice, to have a hearing, with counsel, before a majority of the non-employee
members of the Board, including each of the members of the Board who authorized
the termination for Cause. The Executive shall not be terminated for Cause if,
within 30 days after the date of the Executive's hearing before the Board (or if
the Executive waives a hearing, within 30 days after receiving notice of the
proposed termination), he has corrected the particular act or failure to act
specified in the notice and by so correcting such act or failure to act he has
reduced the economic damage his act or failure to act has allegedly caused the
Company to a level which is no longer material or has eliminated the probability
that such act or failure to act is likely to result in material economic damage
to the Company. No termination for Cause shall take effect until the expiration
of the correction period described in the preceding sentence and the
determination by a majority of the non-employee members of the Board that the
Executive has failed to correct the act or failure to act in accordance with the
terms of the preceding sentence.
Anything herein to the contrary notwithstanding, if, following a
termination of the Executive's employment by the Company for Cause based upon
the conviction of the Executive for a felony involving moral turpitude such
conviction is finally overturned on appeal, the Executive shall be entitled to
the compensation provided in Sections 4(a) and 4(c). In lieu of the interest
provided in clause (iv) of the first sentence of Section 4(a) and the interest
provided in the second sentence of Section 4(c), however, the compensation
provided in Sections 4(a) and 4(c) shall be increased by a ten percent rate of
interest, compounded annually, calculated from the date such compensation would
have been paid if the Executive's employment had been terminated without Cause.
(e) For purposes of this Agreement, "Good Reason" shall mean, after any
Change in Control and without the Executive's express written consent, any of
the following:
(i) a significant diminution in the Executive's duties and
responsibilities, or the assignment to the Executive by the Company of
duties inconsistent with the Executive's position, duties,
responsibilities or status with the Company immediately prior to a
Change in Control of the Company, or a change in the Executive's titles
or offices as in effect immediately prior to a Change in Control of the
Company, or any removal of the Executive from or any failure to
re-elect the Executive to any of such positions, except in connection
with the termination of his employment for Disability, Retirement or
Cause or as a result of the Executive's death or by the Executive other
than for Good Reason;
(ii) a reduction by the Company in the Executive's annual rate
of base salary as in effect on the date hereof or as the same may be
increased from time to time during the term of this Agreement or the
Company's failure to increase (within 12 months of the Executive's last
increase in his annual rate of base salary) the Executive's annual rate
of base salary after a Change in Control of the Company in an amount
which at least equals, on a percentage basis, the greater of (A) the
average percentage increase in the annual rate
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of base salary for all officers of the Company effected in the
preceding 12 months; or (B) the Consumer Price Index as published by
the United States Government (or, in the event such index is
discontinued, any similar index published by the United States
Government as designated in good faith by the Executive); provided,
however, that nothing contained in this clause (ii) shall be construed
under any circumstances as permitting the Company to decrease the
Executive's annual rate of base salary;
(iii) (A) any failure by the Company to continue in effect any
benefit plan or arrangement (including, without limitation, the life
insurance, medical, dental, accident and disability plans) in which the
Executive is participating at the time of a Change in Control of the
Company, or any other plan or arrangement providing the Executive with
benefits that are no less favorable (hereinafter referred to as
"Benefit Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such Benefit Plan or deprive
the Executive of any material fringe benefit or perquisite of office
enjoyed by the Executive at the time of a Change in Control of the
Company, unless in the case of either subclause (A) or (B) above, there
is substituted a comparable plan or program that is economically
equivalent or superior, in terms of the benefit offered to the
Executive, to the Benefit Plan being altered, reduced, affected or
ended;
(iv) (A) any failure by the Company to continue in effect any
incentive plan or arrangement (including, without limitation, the
Company's bonus arrangements, the Transaction Systems Architects, Inc.
Deferred Compensation Plan, the Transaction Systems Architects, Inc.
401(k) Plan, the sales incentive plans, and the management incentive
plans) in which the Executive is participating at the time of a Change
in Control of the Company, or any other plans or arrangements providing
him with substantially similar benefits, (hereinafter referred to as
"Incentive Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in any such
Incentive Plan or reduce the Executive's benefits under any such
Incentive Plan, unless in the case of either subclause (A) or (B)
above, there is substituted a comparable plan or program that is
economically equivalent or superior, in terms of the benefit offered to
the Executive, to the Incentive Plan being altered, reduced, affected
or ended, or (C) any failure by the Company with respect to any fiscal
year to make an award to the Executive pursuant to each such Incentive
Plan or such substituted comparable plan or program equal to or greater
than the greater of (1) the award (whether paid or payable in cash or
in securities of the Company) made to the Executive pursuant to such
Incentive Plan or such substituted comparable plan or program with
respect to the immediately preceding fiscal year or (2) the average
annual award (whether paid or payable in cash or in securities of the
Company) made to the Executive pursuant to such Incentive Plan or such
substituted comparable plan with respect to the prior three fiscal
years (or such lesser number of prior fiscal years that the Executive
was employed by the Company or that the Incentive Plan (together with
any substituted comparable plan) was maintained);
(v) (A) any failure by the Company to continue in effect any
plan or arrangement to receive securities of the Company (including,
without limitation, the
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Transaction Systems Architects, Inc. 1999 Employee Stock Purchase Plan
and the Transaction Systems Architects Inc. 1999 Stock Option Plan) in
which the Executive is participating at the time of a Change in Control
of the Company, or any other plan or arrangement providing him with
substantially similar benefits, (hereinafter referred to as "Securities
Plans"), (B) the taking of any action by the Company which would
adversely affect the Executive's participation in or materially reduce
the Executive's benefits under any such Securities Plan, unless in the
case of either subclause (A) or (B) above, there is substituted a
comparable plan or program that is economically equivalent or superior,
in terms of the benefit offered to the Executive, to the Securities
Plan being altered, reduced, affected or ended, or (C) any failure by
the Company in any fiscal year to grant stock options, stock
appreciation rights or securities awards to the Executive pursuant to
such Securities Plans with respect to an aggregate number of securities
of the Company of each kind that is equal to or greater than the
greater of (1) the aggregate number of securities of the Company of
that kind covered by stock options, stock appreciation rights or
securities awards granted to the Executive pursuant to such Securities
Plans in the immediately preceding fiscal year or (2) the average
annual aggregate number of securities of the Company of that kind
covered by stock options, stock appreciation rights, or securities
awards granted to the Executive pursuant to such Securities Plans in
the prior three fiscal years; and provided further the material terms
and conditions of such stock options, stock appreciation rights, and
securities awards granted to the Executive after the Change in Control
(including, but not limited to, the exercise price, vesting schedule,
period and methods of exercise, expiration date, forfeiture provisions
and other restrictions) are substantially similar to the material terms
and conditions of the stock options, stock appreciation rights, and
securities awards granted to the Executive under the Securities Plans
immediately prior to the Change in Control of the Company;
(vi) the Executive's relocation more than 50 miles from the
location at which the Executive performed the Executive's duties prior
to a Change in Control of the Company, except for required travel by
the Executive on the Company's business to an extent substantially
consistent with the Executive's business travel obligations at the time
of a Change in Control of the Company;
(vii) any failure by the Company to provide the Executive with
the number of annual paid vacation days to which the Executive is
entitled for the year in which a Change in Control of the Company
occurs;
(viii) any material breach by the Company of any provision of
this Agreement;
(ix) any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company prior to such
succession or assignment;
(x) any failure by the Company or its successor to enter into
an agreement with the Executive that is substantially similar to this
Agreement with respect to a Change in Control of the Company or its
successor occurring thereafter; or
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(xi) any purported termination of the Executive's employment
by the Company pursuant to Section 3(b), 3(c) or 3(d) above which is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 3(f) below (and, if applicable, Section 3(d)
above), and for purposes of this Agreement, no such purported
termination shall be effective.
For purposes of this subsection (e), an isolated, immaterial, and inadvertent
action not taken in bad faith by the Company in violation of clause (ii), (iii),
(iv), (v) or (vii) of this subsection that is remedied by the Company promptly
after receipt of notice thereof given by the Executive shall not be considered
Good Reason for the Executive's termination of employment with the Company. In
the event the Executive terminates his employment for Good Reason hereunder,
then notwithstanding that the Executive may also retire for purposes of the
Benefit Plans, Incentive Plans or Securities Plans, the Executive shall be
deemed to have terminated his employment for Good Reason for purposes of this
Agreement.
(f) Any termination of the Executive by the Company pursuant to Section
3(b), 3(c) or 3(d) above, or by the Executive pursuant to Section 3(e) above,
shall be communicated by a Notice of Termination to the other party hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate those specific termination provisions in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. For purposes of this Agreement, no
such purported termination by the Company shall be effective without such Notice
of Termination.
(g) "Date of Termination" shall mean (i) if the Executive's employment
is terminated by the Company for Disability, 30 days after Notice of Termination
is given to the Executive (provided that the Executive shall not have returned
to the performance of the Executive's duties on a full-time basis during such
30-day period), (ii) if the Executive's employment is terminated by the
Executive for Good Reason, the date specified in the Notice of Termination, and
(iii) if the Executive's employment is terminated by the Company for any other
reason, the date on which a Notice of Termination is given; provided, however,
that if within 30 days after any Notice of Termination is given to the Executive
by the Company, the Executive notifies the Company that a dispute exists
concerning the termination, the Date of Termination shall be the date the
dispute is finally determined, whether by mutual written agreement of the
parties or upon final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected).
4. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT.
(a) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Company shall pay to the
Executive in a lump sum cash payment within five days after the Date of
Termination the following:
(i) the Severance Amount as defined in Section 4(b) below;
plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
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(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points,
compounded annually.
(b) "Severance Amount" shall mean an amount equal to one times the Base
Amount (as defined below) determined with respect to the Base Period (as defined
below); provided, however, in no event shall the Severance Amount be less than
two times the Executive's annual rate of base salary at the higher of the annual
rate in effect (i) immediately prior to the Date of Termination or (ii) on the
date six months prior to the Date of Termination. For purposes of this
subsection (b):
(i) "Base Amount" means the Executive's average fiscal-year
Compensation (as defined below) for fiscal years of the Company in the
Base Period. Such average shall be computed by dividing the total of
the Executive's Compensation for the Base Period by the number of
fiscal years in the Base Period. If the Executive's Base Period
includes a portion of a fiscal year during which he was not an employee
of the Company (or a predecessor entity or a related entity, as such
terms are defined in clause (iii) below), the Executive's Compensation
for such fiscal year shall be annualized before determining the average
fiscal-year Compensation for the Base Period. In annualizing
Compensation, the frequency with which payments are expected to be made
over a fiscal year shall be taken into account; thus, any amount of
Compensation that represents a payment that will not be made more often
than once per fiscal year is not annualized. Set forth on Appendix A,
which is attached hereto and made a part hereof, are three examples
illustrating the calculation of the Base Amount.
(ii) "Base Period" means the most recent two consecutive
fiscal years of the Company ending prior to the Date of Termination.
However, if the Executive was not an employee of the Company (or a
predecessor entity or a related entity, as such terms are defined in
clause (iii) below) at any time during one of such two fiscal years,
the Executive's Base Period is the one fiscal year of such
two-fiscal-year period during which the Executive performed personal
services for the Company or a predecessor entity or a related entity.
(iii) "Compensation" means the compensation which was payable
by the Company, by a predecessor entity, or by a related entity and
which was includible in the gross income of the Executive (or either
was excludible from such gross income as
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"foreign earned income" within the meaning of Section 911 of the
Internal Revenue Code of 1986, as amended (the "Code"), or would have
been includible in such gross income if the Executive had been a United
States citizen or resident), but excluding the following: (A) amounts
realized from the exercise of a non-qualified stock option; and (B)
amounts realized from the sale, exchange or other disposition of stock
acquired under an incentive stock option described in Code Section
422(b) or under an employee stock purchase plan described in Code
Section 423(b). Notwithstanding the preceding sentence, Compensation
shall be determined without regard to any compensation deferral
election under any plan, program or arrangement, qualified or
nonqualified, maintained or contributed to by the Company, a
predecessor entity or a related entity, including but not limited to a
cash-or-deferred arrangement described in Code Section 401(k), a
cafeteria plan described in Code Section 125 or a nonqualified deferred
compensation plan. A "predecessor entity" is any entity which, as a
result of a merger, consolidation, purchase or acquisition of property
or stock, corporate separation, or other similar business transaction
transfers some or all of its employees to the Company or to a related
entity or to a predecessor entity of the Company. The term "related
entity" includes any entity treated as a single employer with the
Company in accordance with subsections (b), (c), (m) and (o) of Code
Section 414.
(c) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Executive will be entitled to
continued participation in all employee benefit plans or programs available to
Company employees generally in which the Executive was participating on the Date
of Termination, such continued participation to be at Company cost and otherwise
on the same basis as Company employees generally, until the earlier of (i) the
date, or dates, he receives equivalent coverage and benefits under the plans and
programs of a subsequent employer (such coverages and benefits to be determined
on a coverage-by-coverage or benefit-by-benefit basis) or (ii) two years from
the Date of Termination; provided (A) if the Executive is precluded from
continuing his participation in any employee benefit plan or program as provided
in this sentence, he shall be paid, in a lump sum cash payment, within 30 days
following the date it is determined he is unable to participate in any employee
benefit plan or program, the after-tax economic equivalent of the benefits
provided under the plan or program in which he is unable to participate for the
period specified in this sentence, and (B) the economic equivalent of any
benefit foregone shall be deemed to be the lowest cost that would be incurred by
the Executive in obtaining such benefit for himself (including family or
dependent coverage, if applicable) on an individual basis. The Executive shall
be eligible for group health plan continuation coverage under and in accordance
with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended,
when he ceases to be eligible for continued participation in the Company's group
health plan under this subsection (e).
5. NO OBLIGATION TO MITIGATE DAMAGES; NO EFFECT ON OTHER CONTRACTUAL
RIGHTS.
(a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation
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earned by the Executive as the result of employment by another employer after
the Date of Termination or otherwise.
(b) The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any Benefit Plan, Incentive Plan or
Securities Plan, employment agreement or other contract, plan or agreement with
or of the Company.
6. INCENTIVE AWARDS.
In the event of a Change in Control of the Company, then
notwithstanding the terms and conditions of any Incentive Plan, the Company
agrees (i) to immediately and fully vest all unvested awards, units, and
benefits (other than options to acquire securities of the Company or awards of
securities of the Company) which have been awarded or allocated to the Executive
under the Incentive Plans; and (ii) upon the exercise of such awards or units or
the distribution of such benefits, to pay all amounts due under the Incentive
Plans solely in cash.
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) All determinations required to be made under this Section 7,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by the Accounting Firm which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days after the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. The determination
of tax liability made by the Accounting Firm shall be subject to review by the
Executive's tax advisor, and, if the Executive's tax advisor does not agree with
the determination reached by the Accounting Firm, then the Accounting Firm and
the Executive's tax advisor shall jointly designate a nationally recognized
public accounting firm which shall make the determination. All fees and expenses
of the accountants and tax advisors retained by both the Executive and the
Company shall be borne solely by the Company. Any Gross-Up Payment, as
determined
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pursuant to this Section 7, shall be paid by the Company to the Executive within
five days after the receipt of the determination. Any determination by such
jointly designated public accounting firm shall be binding upon the Company and
the Executive. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination hereunder, it is possible
that Gross-Up Payments will not have been made by the Company that should have
been made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Executive hereafter is required to make a
payment of any Excise Tax, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive. Upon notice by the Executive of
any audit or other proceeding that may result in a liability to the Company
hereunder, the Executive shall promptly notify the Company of such audit or
other proceeding; and the Company may, at its option, but solely with respect to
the item or items that relate to such potential liability, choose to assume the
defense of such audit or other proceeding at its own cost, provided that (i) the
Executive shall cooperate with the Company in such defense and (ii) the Company
will not settle such audit or other proceeding without the consent of the
Executive (such consent not to be unreasonably withheld). The highest effective
marginal tax rate (determined by taking into account any reduction in itemized
deductions and/or exemptions attributable to the inclusion of the additional
amounts payable under this Section 7 in the Executive's adjusted gross or
taxable income) based upon the state and locality where the Executive is
resident at the time of payment of such amounts will be used for purposes of
determining the federal and state income and other taxes with respect thereto.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify the Executive to the fullest extent
permitted by law if the Executive is a party or threatened to be made a party to
any Proceeding (as defined below).
(b) If requested by the Executive, the Company shall advance (within
two business days of such request) any and all Expenses, as defined below,
relating to a Proceeding to the Executive (an "Expense Advance"), upon the
receipt of a written undertaking by or on behalf of the Executive to repay such
Expense Advance if a judgment or other final adjudication adverse to the
Executive (as to which all rights of appeal therefrom have been exhausted or
lapsed) establishes that the Executive is not entitled to indemnification by the
Company. Expenses shall include attorney's fees and all other costs, charges and
expenses paid or incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in any Proceeding.
(c) The Company agrees to obtain a directors' and officers' liability
insurance policy covering the Executive and to continue and maintain such
policy. The amount of coverage shall be reasonable in relation to the
Executive's position and responsibilities during his employment by the Company.
(d) This Section 8 is a supplement to and in furtherance of the
Certificate of Incorporation and Bylaws of the Company and shall not be deemed a
substitute therefor, or diminish or abrogate any rights of the Executive
thereunder.
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(e) For purposes of Section 8(a), the meaning of the phrase "to the
fullest extent permitted by law" shall include but not be limited to:
(i) to the fullest extent permitted by the provision of the
Delaware General Corporation Law ("DGCL") that authorizes or
contemplates additional indemnification by agreement, or the
corresponding provision of any amendment to or replacement of the DGCL,
and
(ii) to the fullest extent authorized or permitted by any
amendments to or replacements of the DGCL adopted after the date of
this Agreement that increase the extent to which a corporation may
indemnify its officers and directors.
(f) For purposes of Sections 8(a) and 8(b), "Proceeding" shall mean any
threatened, pending or completed action, suit, arbitration, alternate dispute
resolution mechanism, investigation, inquiry, administrative hearing or any
other actual, threatened or completed proceeding, whether brought in the right
of the Company or otherwise and whether of a civil, criminal, administrative or
investigative nature, in which the Executive was, is or will be involved as a
party or otherwise by reason of the fact that the Executive is or was a director
or officer of the Company, by reason of any action taken by him or of any action
on his part while acting as director or officer of the Company, or by reason of
the fact that he is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, in each case whether or not serving in such capacity
at the time any liability or expense is incurred for which indemnification,
reimbursement, or advancement of expenses can be provided under this Agreement.
9. SUCCESSORS.
(a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. Any failure of the Company to
obtain such agreement prior to the effectiveness of any such succession or
assignment shall be a material breach of this Agreement and shall entitle the
Executive to terminate the Executive's employment for Good Reason and receive
the compensation provided for in Section 4 hereof. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor or
assign to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Section 9 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts are still payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with
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the terms of this Agreement to the Executive's devisee, legatee or other
designee or, if there be no such designee, to the Executive's estate.
10. NOTICE.
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, as follows:
If to the Company:
Transaction Systems Architects, Inc.
224 South 108 Avenue
Omaha, NE 68154
Attn: President
If to the Executive:
----------------------------------------
----------------------------------------
----------------------------------------
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. MISCELLANEOUS.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same time or
at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Nebraska, without giving effect to any principles of conflicts of
law.
12. CONFLICT IN BENEFITS.
Except as otherwise provided in the preceding sentences, this Agreement
is not intended to and shall not limit or terminate any other agreement or
arrangement between the Executive and the Company presently in effect or
hereafter entered into.
13. VALIDITY.
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The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. SURVIVORSHIP.
The respective rights and obligations of the parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations and to the extent that any
performance is required following termination of this Agreement. Without
limiting the foregoing, Sections 7, 8 and 15 shall expressly survive the
termination of this Agreement.
15. LEGAL FEES AND EXPENSES.
If a claim or dispute arises concerning the rights of the Executive
under this Agreement, regardless of the party by whom such claim or dispute is
initiated, the Company shall, upon presentation of appropriate vouchers, pay all
legal expenses, including reasonable attorneys' fees, court costs, and ordinary
and necessary out-of-pocket costs of attorneys, billed to and payable by the
Executive or by anyone claiming under or through the Executive, in connection
with the bringing, prosecuting, arbitrating, defending, litigating, negotiating,
or settling such claim or dispute. In no event shall the Executive be required
to reimburse the Company for any of the costs or expenses incurred by the
Company relating to arbitration or litigation. Pending the outcome or resolution
of any claim or dispute, the Company shall continue payment of all amounts due
the Executive without regard to any dispute.
16. EFFECTIVE DATE.
This Agreement shall become effective upon execution.
17. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
18. NO GUARANTEE OF EMPLOYMENT.
Neither this Agreement nor any action taken hereunder shall be construed
as giving the Executive the right to be retained in employment with the Company,
nor shall it interfere with either the Company's right to terminate the
employment of the Executive at any time or the Executive's right to terminate
his employment at any time.
19. NO ASSIGNMENT BY EXECUTIVE.
Except as otherwise provided in Section 9(b), the Executive's rights and
interest under this Agreement shall not be assignable (in law or in equity) or
subject to any manner of alienation, sale, transfer, claims of creditors,
pledge, attachment, garnishment, levy, execution or encumbrances of any kind.
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20. WAIVER.
The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement shall not be deemed a waiver of
such provision or any other provision of this Agreement. Any waiver of any
provision of this Agreement shall not be deemed to be a waiver of any other
provision, and any waiver of default in any provision of this Agreement shall
not be deemed to be a waiver of any later default thereof or of any other
provision.
21. WITHHOLDING.
All amounts paid pursuant to this Agreement shall be subject to
withholding for taxes (federal, state, local or otherwise) to the extent
required by applicable law.
22. HEADINGS.
The headings of this Agreement have been inserted for convenience of
reference only and are to be ignored in the construction of the provisions
hereof.
23. NUMBER AND GENDER.
The use of the singular shall be interpreted to include the plural and
the plural the singular, as the context requires. The use of the masculine,
feminine or neuter shall be interpreted to include the masculine, feminine or
neuter as the context shall require.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
TRANSACTION SYSTEMS ARCHITECTS, INC.
Date: By:
-------------------- ---------------------------------
EXECUTIVE:
Date:
-------------------- ------------------------------------
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APPENDIX A
EXAMPLE 1 - Executive was employed by the Company for 1-1/3 fiscal
years preceding the fiscal year in which a Change in Control of the
Company occurs. The Executive's Compensation from the Company was
$30,000 for the 4-month period and $120,000 for the full fiscal year.
The Executive's Base Amount is $105,000.
Year 1: 3 x $30,000 = $90,000
Year 2: $120,000
[90,000 + 120,000] DIVIDED BY 2 = $105,000
$105,000 is the average fiscal-year Compensation for the
Base Period.
EXAMPLE 2 - Assume the same facts as in Example 1, except that the
Executive also received a $70,000 sign-on bonus when his employment
with the Company commenced at the beginning of the 4-month period.
The Executive's Base Amount is $140,000
Year 1: [3 x $30,000] + $70,000 = $160,000
Year 2: $120,000
[160,000 + 120,000] DIVIDED BY 2 = $140,000
Since the sign-on bonus will not be paid more often than once per
fiscal year, the amount of the bonus is not increased in annualizing
the Executive's Compensation for the 4-month period.
EXAMPLE 3 - Executive was employed by the Company for the last 4 months
of the fiscal year preceding the fiscal year in which a Change in
Control of the Company occurs. The Executive's Compensation from the
Company was $30,000 for the 4-month period. The Executive's Base Amount
is $90,000.
Year 1: 3 x $30,000 = $90,000
$90,000 DIVIDED BY 1 = $90,000
$90,000 is the average fiscal-year Compensation for the
Base Period.
<PAGE>
SEVERANCE COMPENSATION AGREEMENT
SEVERANCE COMPENSATION AGREEMENT dated as of July 31, 1999 between
Transaction Systems Architects, Inc., a Delaware corporation (the "Company"),
and Dwight Hanson (the "Executive").
WHEREAS, the Company's Board of Directors has determined that it is
appropriate to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in potentially disturbing circumstances arising from
the possibility of a change in control of the Company;
NOW, THEREFORE, this Agreement sets forth the severance compensation
which the Company agrees it will pay to the Executive if the Executive's
employment with the Company terminates under certain circumstances described
herein following a Change in Control (as defined herein) and the other benefits
the Company will provide the Executive following a Change in Control.
1. TERM.
This Agreement shall terminate, except to the extent that any
obligation of the Company hereunder remains unpaid as of such time, upon the
earlier of (i) the termination of Executive's employment for any reason prior to
a Change in Control; and (ii) three years after the date of a Change in Control.
2. CHANGE IN CONTROL.
For purposes of this Agreement, Change in Control shall mean:
(a) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person"), of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a Change
in Control: (A) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege), (B) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (C)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in subclauses (i), (ii) and (iii) of clause (c) of this
Section 2 are satisfied; or
<PAGE>
(b) if individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least
two-thirds of the directors then constituting the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest
subject to Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(c) approval by the stockholders of the Company of a reorganization,
merger or consolidation, unless following such reorganization, merger or
consolidation (i) more than 60% of, respectively, the then-outstanding shares of
common stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger, or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the resulting corporation owned by the Company's stockholders, but
not from the total number of outstanding shares and voting securities of the
resulting corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (ii) no Person (excluding the Company, any employee
benefit plan (or related trust) of the Company, any qualified employee benefit
plan of such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then-outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(d) (i) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company or (ii) the first to occur of (A) the
sale or other disposition (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company, or (B)
the approval by the stockholders of the Company of any such sale or disposition,
other than, in each case, any such sale or disposition to a corporation, with
respect to
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which immediately thereafter, (1) more than 60% of, respectively, the
then-outstanding shares of common stock of such corporation and the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such sale or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the transferee corporation owned by the Company's stockholders,
but not from the total number of outstanding shares and voting securities of the
transferee corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (2) no Person (excluding the Company and any
employee benefit plan (or related trust) of the Company, any qualified employee
benefit plan of such transferee corporation and any Person beneficially owning,
immediately prior to such sale or other disposition, directly or indirectly, 20%
or more of the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 20%
or more of, respectively, the then-outstanding shares of common stock of such
transferee corporation and the combined voting power of the then-outstanding
voting securities of such transferee corporation entitled to vote generally in
the election of directors and (3) at least a majority of the members of the
board of directors of such transferee corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or action of the
board providing for such sale or other disposition of assets of the Company.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL.
(a) The Executive shall be entitled to the compensation provided in
Section 4 of this Agreement if all of the following conditions are satisfied:
(i) there is a Change in Control of the Company while the
Executive is still an employee of the Company;
(ii) the Executive's employment with the Company is terminated
within two years after the Change in Control; and
(iii) the Executive's termination of employment is not a result
of (A) the Executive's death; (B) the Executive's Disability (as
defined in Section 3(b) below; (C) the Executive's Retirement (as
defined in Section 3(c) below); (D) the Executive's termination by the
Company for Cause (as defined in Section 3(d) below); or (E) the
Executive's decision to terminate employment other than for Good Reason
(as defined in Section 3(e) below).
(b) If, as a result of the Executive's incapacity due to physical or
mental illness, the Executive shall have been unable, with or without a
reasonable accommodation, to perform his duties with the Company on a full-time
basis for six months and within 30 days after a Notice of
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Termination (as defined in Section 3(f) below) is thereafter given by the
Company, the Executive shall not have returned to the full-time performance of
the Executive's duties, the Company may terminate the Executive's employment for
"Disability". If there is a Change in Control of the Company while the Executive
is still an employee and if the Executive's employment with the Company is
terminated for Disability within two years after the Change in Control, the
Executive shall be entitled to receive in a lump sum cash payment within five
days after his Date of Termination (as defined in Section 3(g) below) the
following:
(i) one times the Base Amount (as defined in Section 4(b)(i))
determined with respect to the Base Period (as defined in Section
4(b)(ii)); plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points.
(c) For purposes of this Agreement only, "Retirement" shall mean
termination by the Company or the Executive of the Executive's employment based
on the Executive's having reached age 65 or such other age as shall have been
fixed in any arrangement established pursuant to this Agreement with the
Executive's consent with respect to the Executive.
(d) For purposes of this Agreement only, "Cause" shall mean: (i) the
Executive's conviction of a felony involving moral turpitude; or (ii) the
Executive's serious, willful gross misconduct or willful gross neglect of duties
(other than any such neglect resulting from the Executive's incapacity due to
physical or mental illness or any such neglect after the issuance of a Notice of
Termination by the Executive for Good Reason, as such terms are defined in
subsections (e) and (f) below), which, in either case, has resulted, or in all
probability is likely to result, in material economic damage to the Company;
provided no act or failure to act by the Executive will constitute "Cause" under
clause (ii) if the Executive believed in good faith that such act or failure to
act was in the best interest of the Company.
For purposes of this Agreement only, any termination of the Executive's
employment by the Company for Cause shall be authorized by a vote of at least a
majority of the non-employee members of the Board of Directors of the Company
(the "Board") within 12 months of a majority of such non-employee members of the
Board having actual knowledge of the event or circumstances providing a basis
for such termination. In the case of clause (ii) of the second
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sentence of this subsection (d), the Executive shall be given notice by the
Board specifying in detail the particular act or failure to act on which the
Board is relying in proposing to terminate him for Cause and offering the
Executive an opportunity, on a date at least 14 days after receipt of such
notice, to have a hearing, with counsel, before a majority of the non-employee
members of the Board, including each of the members of the Board who authorized
the termination for Cause. The Executive shall not be terminated for Cause if,
within 30 days after the date of the Executive's hearing before the Board (or if
the Executive waives a hearing, within 30 days after receiving notice of the
proposed termination), he has corrected the particular act or failure to act
specified in the notice and by so correcting such act or failure to act he has
reduced the economic damage his act or failure to act has allegedly caused the
Company to a level which is no longer material or has eliminated the probability
that such act or failure to act is likely to result in material economic damage
to the Company. No termination for Cause shall take effect until the expiration
of the correction period described in the preceding sentence and the
determination by a majority of the non-employee members of the Board that the
Executive has failed to correct the act or failure to act in accordance with the
terms of the preceding sentence.
Anything herein to the contrary notwithstanding, if, following a
termination of the Executive's employment by the Company for Cause based upon
the conviction of the Executive for a felony involving moral turpitude such
conviction is finally overturned on appeal, the Executive shall be entitled to
the compensation provided in Sections 4(a) and 4(c). In lieu of the interest
provided in clause (iv) of the first sentence of Section 4(a) and the interest
provided in the second sentence of Section 4(c), however, the compensation
provided in Sections 4(a) and 4(c) shall be increased by a ten percent rate of
interest, compounded annually, calculated from the date such compensation would
have been paid if the Executive's employment had been terminated without Cause.
(e) For purposes of this Agreement, "Good Reason" shall mean, after any
Change in Control and without the Executive's express written consent, any of
the following:
(i) a significant diminution in the Executive's duties and
responsibilities, or the assignment to the Executive by the Company of
duties inconsistent with the Executive's position, duties,
responsibilities or status with the Company immediately prior to a
Change in Control of the Company, or a change in the Executive's titles
or offices as in effect immediately prior to a Change in Control of the
Company, or any removal of the Executive from or any failure to
re-elect the Executive to any of such positions, except in connection
with the termination of his employment for Disability, Retirement or
Cause or as a result of the Executive's death or by the Executive other
than for Good Reason;
(ii) a reduction by the Company in the Executive's annual rate
of base salary as in effect on the date hereof or as the same may be
increased from time to time during the term of this Agreement or the
Company's failure to increase (within 12 months of the Executive's last
increase in his annual rate of base salary) the Executive's annual rate
of base salary after a Change in Control of the Company in an amount
which at least equals, on a percentage basis, the greater of (A) the
average percentage increase in the annual rate
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of base salary for all officers of the Company effected in the
preceding 12 months; or (B) the Consumer Price Index as published by
the United States Government (or, in the event such index is
discontinued, any similar index published by the United States
Government as designated in good faith by the Executive); provided,
however, that nothing contained in this clause (ii) shall be construed
under any circumstances as permitting the Company to decrease the
Executive's annual rate of base salary;
(iii) (A) any failure by the Company to continue in effect any
benefit plan or arrangement (including, without limitation, the life
insurance, medical, dental, accident and disability plans) in which the
Executive is participating at the time of a Change in Control of the
Company, or any other plan or arrangement providing the Executive with
benefits that are no less favorable (hereinafter referred to as
"Benefit Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such Benefit Plan or deprive
the Executive of any material fringe benefit or perquisite of office
enjoyed by the Executive at the time of a Change in Control of the
Company, unless in the case of either subclause (A) or (B) above, there
is substituted a comparable plan or program that is economically
equivalent or superior, in terms of the benefit offered to the
Executive, to the Benefit Plan being altered, reduced, affected or
ended;
(iv) (A) any failure by the Company to continue in effect any
incentive plan or arrangement (including, without limitation, the
Company's bonus arrangements, the Transaction Systems Architects, Inc.
Deferred Compensation Plan, the Transaction Systems Architects, Inc.
401(k) Plan, the sales incentive plans, and the management incentive
plans) in which the Executive is participating at the time of a Change
in Control of the Company, or any other plans or arrangements providing
him with substantially similar benefits, (hereinafter referred to as
"Incentive Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in any such
Incentive Plan or reduce the Executive's benefits under any such
Incentive Plan, unless in the case of either subclause (A) or (B)
above, there is substituted a comparable plan or program that is
economically equivalent or superior, in terms of the benefit offered to
the Executive, to the Incentive Plan being altered, reduced, affected
or ended, or (C) any failure by the Company with respect to any fiscal
year to make an award to the Executive pursuant to each such Incentive
Plan or such substituted comparable plan or program equal to or greater
than the greater of (1) the award (whether paid or payable in cash or
in securities of the Company) made to the Executive pursuant to such
Incentive Plan or such substituted comparable plan or program with
respect to the immediately preceding fiscal year or (2) the average
annual award (whether paid or payable in cash or in securities of the
Company) made to the Executive pursuant to such Incentive Plan or such
substituted comparable plan with respect to the prior three fiscal
years (or such lesser number of prior fiscal years that the Executive
was employed by the Company or that the Incentive Plan (together with
any substituted comparable plan) was maintained);
(v) (A) any failure by the Company to continue in effect any
plan or arrangement to receive securities of the Company (including,
without limitation, the
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Transaction Systems Architects, Inc. 1999 Employee Stock Purchase Plan
and the Transaction Systems Architects Inc. 1999 Stock Option Plan) in
which the Executive is participating at the time of a Change in Control
of the Company, or any other plan or arrangement providing him with
substantially similar benefits, (hereinafter referred to as "Securities
Plans"), (B) the taking of any action by the Company which would
adversely affect the Executive's participation in or materially reduce
the Executive's benefits under any such Securities Plan, unless in the
case of either subclause (A) or (B) above, there is substituted a
comparable plan or program that is economically equivalent or superior,
in terms of the benefit offered to the Executive, to the Securities
Plan being altered, reduced, affected or ended, or (C) any failure by
the Company in any fiscal year to grant stock options, stock
appreciation rights or securities awards to the Executive pursuant to
such Securities Plans with respect to an aggregate number of securities
of the Company of each kind that is equal to or greater than the
greater of (1) the aggregate number of securities of the Company of
that kind covered by stock options, stock appreciation rights or
securities awards granted to the Executive pursuant to such Securities
Plans in the immediately preceding fiscal year or (2) the average
annual aggregate number of securities of the Company of that kind
covered by stock options, stock appreciation rights, or securities
awards granted to the Executive pursuant to such Securities Plans in
the prior three fiscal years; and provided further the material terms
and conditions of such stock options, stock appreciation rights, and
securities awards granted to the Executive after the Change in Control
(including, but not limited to, the exercise price, vesting schedule,
period and methods of exercise, expiration date, forfeiture provisions
and other restrictions) are substantially similar to the material terms
and conditions of the stock options, stock appreciation rights, and
securities awards granted to the Executive under the Securities Plans
immediately prior to the Change in Control of the Company;
(vi) the Executive's relocation more than 50 miles from the
location at which the Executive performed the Executive's duties prior
to a Change in Control of the Company, except for required travel by
the Executive on the Company's business to an extent substantially
consistent with the Executive's business travel obligations at the time
of a Change in Control of the Company;
(vii) any failure by the Company to provide the Executive with
the number of annual paid vacation days to which the Executive is
entitled for the year in which a Change in Control of the Company
occurs;
(viii) any material breach by the Company of any provision of
this Agreement;
(ix) any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company prior to such
succession or assignment;
(x) any failure by the Company or its successor to enter into
an agreement with the Executive that is substantially similar to this
Agreement with respect to a Change in Control of the Company or its
successor occurring thereafter; or
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(xi) any purported termination of the Executive's employment
by the Company pursuant to Section 3(b), 3(c) or 3(d) above which is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 3(f) below (and, if applicable, Section 3(d)
above), and for purposes of this Agreement, no such purported
termination shall be effective.
For purposes of this subsection (e), an isolated, immaterial, and inadvertent
action not taken in bad faith by the Company in violation of clause (ii), (iii),
(iv), (v) or (vii) of this subsection that is remedied by the Company promptly
after receipt of notice thereof given by the Executive shall not be considered
Good Reason for the Executive's termination of employment with the Company. In
the event the Executive terminates his employment for Good Reason hereunder,
then notwithstanding that the Executive may also retire for purposes of the
Benefit Plans, Incentive Plans or Securities Plans, the Executive shall be
deemed to have terminated his employment for Good Reason for purposes of this
Agreement.
(f) Any termination of the Executive by the Company pursuant to Section
3(b), 3(c) or 3(d) above, or by the Executive pursuant to Section 3(e) above,
shall be communicated by a Notice of Termination to the other party hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate those specific termination provisions in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. For purposes of this Agreement, no
such purported termination by the Company shall be effective without such Notice
of Termination.
(g) "Date of Termination" shall mean (i) if the Executive's employment
is terminated by the Company for Disability, 30 days after Notice of Termination
is given to the Executive (provided that the Executive shall not have returned
to the performance of the Executive's duties on a full-time basis during such
30-day period), (ii) if the Executive's employment is terminated by the
Executive for Good Reason, the date specified in the Notice of Termination, and
(iii) if the Executive's employment is terminated by the Company for any other
reason, the date on which a Notice of Termination is given; provided, however,
that if within 30 days after any Notice of Termination is given to the Executive
by the Company, the Executive notifies the Company that a dispute exists
concerning the termination, the Date of Termination shall be the date the
dispute is finally determined, whether by mutual written agreement of the
parties or upon final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected).
4. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT.
(a) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Company shall pay to the
Executive in a lump sum cash payment within five days after the Date of
Termination the following:
(i) the Severance Amount as defined in Section 4(b) below;
plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
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(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points,
compounded annually.
(b) "Severance Amount" shall mean an amount equal to one times the Base
Amount (as defined below) determined with respect to the Base Period (as defined
below); provided, however, in no event shall the Severance Amount be less than
two times the Executive's annual rate of base salary at the higher of the annual
rate in effect (i) immediately prior to the Date of Termination or (ii) on the
date six months prior to the Date of Termination. For purposes of this
subsection (b):
(i) "Base Amount" means the Executive's average fiscal-year
Compensation (as defined below) for fiscal years of the Company in the
Base Period. Such average shall be computed by dividing the total of
the Executive's Compensation for the Base Period by the number of
fiscal years in the Base Period. If the Executive's Base Period
includes a portion of a fiscal year during which he was not an employee
of the Company (or a predecessor entity or a related entity, as such
terms are defined in clause (iii) below), the Executive's Compensation
for such fiscal year shall be annualized before determining the average
fiscal-year Compensation for the Base Period. In annualizing
Compensation, the frequency with which payments are expected to be made
over a fiscal year shall be taken into account; thus, any amount of
Compensation that represents a payment that will not be made more often
than once per fiscal year is not annualized. Set forth on Appendix A,
which is attached hereto and made a part hereof, are three examples
illustrating the calculation of the Base Amount.
(ii) "Base Period" means the most recent two consecutive
fiscal years of the Company ending prior to the Date of Termination.
However, if the Executive was not an employee of the Company (or a
predecessor entity or a related entity, as such terms are defined in
clause (iii) below) at any time during one of such two fiscal years,
the Executive's Base Period is the one fiscal year of such
two-fiscal-year period during which the Executive performed personal
services for the Company or a predecessor entity or a related entity.
(iii) "Compensation" means the compensation which was payable
by the Company, by a predecessor entity, or by a related entity and
which was includible in the gross income of the Executive (or either
was excludible from such gross income as
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"foreign earned income" within the meaning of Section 911 of the
Internal Revenue Code of 1986, as amended (the "Code"), or would have
been includible in such gross income if the Executive had been a United
States citizen or resident), but excluding the following: (A) amounts
realized from the exercise of a non-qualified stock option; and (B)
amounts realized from the sale, exchange or other disposition of stock
acquired under an incentive stock option described in Code Section
422(b) or under an employee stock purchase plan described in Code
Section 423(b). Notwithstanding the preceding sentence, Compensation
shall be determined without regard to any compensation deferral
election under any plan, program or arrangement, qualified or
nonqualified, maintained or contributed to by the Company, a
predecessor entity or a related entity, including but not limited to a
cash-or-deferred arrangement described in Code Section 401(k), a
cafeteria plan described in Code Section 125 or a nonqualified deferred
compensation plan. A "predecessor entity" is any entity which, as a
result of a merger, consolidation, purchase or acquisition of property
or stock, corporate separation, or other similar business transaction
transfers some or all of its employees to the Company or to a related
entity or to a predecessor entity of the Company. The term "related
entity" includes any entity treated as a single employer with the
Company in accordance with subsections (b), (c), (m) and (o) of Code
Section 414.
(c) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Executive will be entitled to
continued participation in all employee benefit plans or programs available to
Company employees generally in which the Executive was participating on the Date
of Termination, such continued participation to be at Company cost and otherwise
on the same basis as Company employees generally, until the earlier of (i) the
date, or dates, he receives equivalent coverage and benefits under the plans and
programs of a subsequent employer (such coverages and benefits to be determined
on a coverage-by-coverage or benefit-by-benefit basis) or (ii) two years from
the Date of Termination; provided (A) if the Executive is precluded from
continuing his participation in any employee benefit plan or program as provided
in this sentence, he shall be paid, in a lump sum cash payment, within 30 days
following the date it is determined he is unable to participate in any employee
benefit plan or program, the after-tax economic equivalent of the benefits
provided under the plan or program in which he is unable to participate for the
period specified in this sentence, and (B) the economic equivalent of any
benefit foregone shall be deemed to be the lowest cost that would be incurred by
the Executive in obtaining such benefit for himself (including family or
dependent coverage, if applicable) on an individual basis. The Executive shall
be eligible for group health plan continuation coverage under and in accordance
with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended,
when he ceases to be eligible for continued participation in the Company's group
health plan under this subsection (e).
5. NO OBLIGATION TO MITIGATE DAMAGES; NO EFFECT ON OTHER CONTRACTUAL
RIGHTS.
(a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation
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earned by the Executive as the result of employment by another employer after
the Date of Termination or otherwise.
(b) The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any Benefit Plan, Incentive Plan or
Securities Plan, employment agreement or other contract, plan or agreement with
or of the Company.
6. INCENTIVE AWARDS.
In the event of a Change in Control of the Company, then
notwithstanding the terms and conditions of any Incentive Plan, the Company
agrees (i) to immediately and fully vest all unvested awards, units, and
benefits (other than options to acquire securities of the Company or awards of
securities of the Company) which have been awarded or allocated to the Executive
under the Incentive Plans; and (ii) upon the exercise of such awards or units or
the distribution of such benefits, to pay all amounts due under the Incentive
Plans solely in cash.
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) All determinations required to be made under this Section 7,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by the Accounting Firm which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days after the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. The determination
of tax liability made by the Accounting Firm shall be subject to review by the
Executive's tax advisor, and, if the Executive's tax advisor does not agree with
the determination reached by the Accounting Firm, then the Accounting Firm and
the Executive's tax advisor shall jointly designate a nationally recognized
public accounting firm which shall make the determination. All fees and expenses
of the accountants and tax advisors retained by both the Executive and the
Company shall be borne solely by the Company. Any Gross-Up Payment, as
determined
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pursuant to this Section 7, shall be paid by the Company to the Executive within
five days after the receipt of the determination. Any determination by such
jointly designated public accounting firm shall be binding upon the Company and
the Executive. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination hereunder, it is possible
that Gross-Up Payments will not have been made by the Company that should have
been made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Executive hereafter is required to make a
payment of any Excise Tax, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive. Upon notice by the Executive of
any audit or other proceeding that may result in a liability to the Company
hereunder, the Executive shall promptly notify the Company of such audit or
other proceeding; and the Company may, at its option, but solely with respect to
the item or items that relate to such potential liability, choose to assume the
defense of such audit or other proceeding at its own cost, provided that (i) the
Executive shall cooperate with the Company in such defense and (ii) the Company
will not settle such audit or other proceeding without the consent of the
Executive (such consent not to be unreasonably withheld). The highest effective
marginal tax rate (determined by taking into account any reduction in itemized
deductions and/or exemptions attributable to the inclusion of the additional
amounts payable under this Section 7 in the Executive's adjusted gross or
taxable income) based upon the state and locality where the Executive is
resident at the time of payment of such amounts will be used for purposes of
determining the federal and state income and other taxes with respect thereto.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify the Executive to the fullest extent
permitted by law if the Executive is a party or threatened to be made a party to
any Proceeding (as defined below).
(b) If requested by the Executive, the Company shall advance (within
two business days of such request) any and all Expenses, as defined below,
relating to a Proceeding to the Executive (an "Expense Advance"), upon the
receipt of a written undertaking by or on behalf of the Executive to repay such
Expense Advance if a judgment or other final adjudication adverse to the
Executive (as to which all rights of appeal therefrom have been exhausted or
lapsed) establishes that the Executive is not entitled to indemnification by the
Company. Expenses shall include attorney's fees and all other costs, charges and
expenses paid or incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in any Proceeding.
(c) The Company agrees to obtain a directors' and officers' liability
insurance policy covering the Executive and to continue and maintain such
policy. The amount of coverage shall be reasonable in relation to the
Executive's position and responsibilities during his employment by the Company.
(d) This Section 8 is a supplement to and in furtherance of the
Certificate of Incorporation and Bylaws of the Company and shall not be deemed a
substitute therefor, or diminish or abrogate any rights of the Executive
thereunder.
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(e) For purposes of Section 8(a), the meaning of the phrase "to the
fullest extent permitted by law" shall include but not be limited to:
(i) to the fullest extent permitted by the provision of the
Delaware General Corporation Law ("DGCL") that authorizes or
contemplates additional indemnification by agreement, or the
corresponding provision of any amendment to or replacement of the DGCL,
and
(ii) to the fullest extent authorized or permitted by any
amendments to or replacements of the DGCL adopted after the date of
this Agreement that increase the extent to which a corporation may
indemnify its officers and directors.
(f) For purposes of Sections 8(a) and 8(b), "Proceeding" shall mean any
threatened, pending or completed action, suit, arbitration, alternate dispute
resolution mechanism, investigation, inquiry, administrative hearing or any
other actual, threatened or completed proceeding, whether brought in the right
of the Company or otherwise and whether of a civil, criminal, administrative or
investigative nature, in which the Executive was, is or will be involved as a
party or otherwise by reason of the fact that the Executive is or was a director
or officer of the Company, by reason of any action taken by him or of any action
on his part while acting as director or officer of the Company, or by reason of
the fact that he is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, in each case whether or not serving in such capacity
at the time any liability or expense is incurred for which indemnification,
reimbursement, or advancement of expenses can be provided under this Agreement.
9. SUCCESSORS.
(a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. Any failure of the Company to
obtain such agreement prior to the effectiveness of any such succession or
assignment shall be a material breach of this Agreement and shall entitle the
Executive to terminate the Executive's employment for Good Reason and receive
the compensation provided for in Section 4 hereof. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor or
assign to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Section 9 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts are still payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with
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the terms of this Agreement to the Executive's devisee, legatee or other
designee or, if there be no such designee, to the Executive's estate.
10. NOTICE.
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, as follows:
If to the Company:
Transaction Systems Architects, Inc.
224 South 108 Avenue
Omaha, NE 68154
Attn: President
If to the Executive:
--------------------------------
--------------------------------
--------------------------------
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. MISCELLANEOUS.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same time or
at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Nebraska, without giving effect to any principles of conflicts of
law.
12. CONFLICT IN BENEFITS.
Except as otherwise provided in the preceding sentences, this Agreement
is not intended to and shall not limit or terminate any other agreement or
arrangement between the Executive and the Company presently in effect or
hereafter entered into.
13. VALIDITY.
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The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. SURVIVORSHIP.
The respective rights and obligations of the parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations and to the extent that any
performance is required following termination of this Agreement. Without
limiting the foregoing, Sections 7, 8 and 15 shall expressly survive the
termination of this Agreement.
15. LEGAL FEES AND EXPENSES.
If a claim or dispute arises concerning the rights of the Executive
under this Agreement, regardless of the party by whom such claim or dispute is
initiated, the Company shall, upon presentation of appropriate vouchers, pay all
legal expenses, including reasonable attorneys' fees, court costs, and ordinary
and necessary out-of-pocket costs of attorneys, billed to and payable by the
Executive or by anyone claiming under or through the Executive, in connection
with the bringing, prosecuting, arbitrating, defending, litigating, negotiating,
or settling such claim or dispute. In no event shall the Executive be required
to reimburse the Company for any of the costs or expenses incurred by the
Company relating to arbitration or litigation. Pending the outcome or resolution
of any claim or dispute, the Company shall continue payment of all amounts due
the Executive without regard to any dispute.
16. EFFECTIVE DATE.
This Agreement shall become effective upon execution.
17. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
18. NO GUARANTEE OF EMPLOYMENT.
Neither this Agreement nor any action taken hereunder shall be construed
as giving the Executive the right to be retained in employment with the Company,
nor shall it interfere with either the Company's right to terminate the
employment of the Executive at any time or the Executive's right to terminate
his employment at any time.
19. NO ASSIGNMENT BY EXECUTIVE.
Except as otherwise provided in Section 9(b), the Executive's rights and
interest under this Agreement shall not be assignable (in law or in equity) or
subject to any manner of alienation, sale, transfer, claims of creditors,
pledge, attachment, garnishment, levy, execution or encumbrances of any kind.
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20. WAIVER.
The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement shall not be deemed a waiver of
such provision or any other provision of this Agreement. Any waiver of any
provision of this Agreement shall not be deemed to be a waiver of any other
provision, and any waiver of default in any provision of this Agreement shall
not be deemed to be a waiver of any later default thereof or of any other
provision.
21. WITHHOLDING.
All amounts paid pursuant to this Agreement shall be subject to
withholding for taxes (federal, state, local or otherwise) to the extent
required by applicable law.
22. HEADINGS.
The headings of this Agreement have been inserted for convenience of
reference only and are to be ignored in the construction of the provisions
hereof.
23. NUMBER AND GENDER.
The use of the singular shall be interpreted to include the plural and
the plural the singular, as the context requires. The use of the masculine,
feminine or neuter shall be interpreted to include the masculine, feminine or
neuter as the context shall require.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
TRANSACTION SYSTEMS ARCHITECTS, INC.
Date: By:
- ------------------------- ---------------------------------
EXECUTIVE:
Date:
- ------------------------- ------------------------------------
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APPENDIX A
EXAMPLE 1 - Executive was employed by the Company for 1-1/3 fiscal
years preceding the fiscal year in which a Change in Control of the
Company occurs. The Executive's Compensation from the Company was
$30,000 for the 4-month period and $120,000 for the full fiscal year.
The Executive's Base Amount is $105,000.
Year 1: 3 x $30,000 = $90,000
Year 2: $120,000
[90,000 + 120,000] / 2 = $105,000
$105,000 is the average fiscal-year Compensation for the
Base Period.
EXAMPLE 2 - Assume the same facts as in Example 1, except that the
Executive also received a $70,000 sign-on bonus when his employment
with the Company commenced at the beginning of the 4-month period.
The Executive's Base Amount is $140,000
Year 1: [3 x $30,000] + $70,000 = $160,000
Year 2: $120,000
[160,000 + 120,000] / 2 = $140,000
Since the sign-on bonus will not be paid more often than once per
fiscal year, the amount of the bonus is not increased in annualizing
the Executive's Compensation for the 4-month period.
EXAMPLE 3 - Executive was employed by the Company for the last 4 months
of the fiscal year preceding the fiscal year in which a Change in
Control of the Company occurs. The Executive's Compensation from the
Company was $30,000 for the 4-month period. The Executive's Base Amount
is $90,000.
Year 1: 3 x $30,000 = $90,000
$90,000 / 1 = $90,000
$90,000 is the average fiscal-year Compensation for the
Base Period.
<PAGE>
SEVERANCE COMPENSATION AGREEMENT
SEVERANCE COMPENSATION AGREEMENT dated as of July 31, 1999 between
Transaction Systems Architects, Inc., a Delaware corporation (the "Company"),
and Marlin Howley (the "Executive").
WHEREAS, the Company's Board of Directors has determined that it is
appropriate to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in potentially disturbing circumstances arising from
the possibility of a change in control of the Company;
NOW, THEREFORE, this Agreement sets forth the severance compensation
which the Company agrees it will pay to the Executive if the Executive's
employment with the Company terminates under certain circumstances described
herein following a Change in Control (as defined herein) and the other benefits
the Company will provide the Executive following a Change in Control.
1. TERM.
This Agreement shall terminate, except to the extent that any
obligation of the Company hereunder remains unpaid as of such time, upon the
earlier of (i) the termination of Executive's employment for any reason prior to
a Change in Control; and (ii) three years after the date of a Change in Control.
2. CHANGE IN CONTROL.
For purposes of this Agreement, Change in Control shall mean:
(a) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person"), of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a Change
in Control: (A) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege), (B) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (C)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in subclauses (i), (ii) and (iii) of clause (c) of this
Section 2 are satisfied; or
<PAGE>
(b) if individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least
two-thirds of the directors then constituting the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest
subject to Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(c) approval by the stockholders of the Company of a reorganization,
merger or consolidation, unless following such reorganization, merger or
consolidation (i) more than 60% of, respectively, the then-outstanding shares of
common stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger, or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the resulting corporation owned by the Company's stockholders, but
not from the total number of outstanding shares and voting securities of the
resulting corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (ii) no Person (excluding the Company, any employee
benefit plan (or related trust) of the Company, any qualified employee benefit
plan of such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then-outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(d) (i) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company or (ii) the first to occur of (A) the
sale or other disposition (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company, or (B)
the approval by the stockholders of the Company of any such sale or disposition,
other than, in each case, any such sale or disposition to a corporation, with
respect to
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which immediately thereafter, (1) more than 60% of, respectively, the
then-outstanding shares of common stock of such corporation and the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such sale or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the transferee corporation owned by the Company's stockholders,
but not from the total number of outstanding shares and voting securities of the
transferee corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (2) no Person (excluding the Company and any
employee benefit plan (or related trust) of the Company, any qualified employee
benefit plan of such transferee corporation and any Person beneficially owning,
immediately prior to such sale or other disposition, directly or indirectly, 20%
or more of the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 20%
or more of, respectively, the then-outstanding shares of common stock of such
transferee corporation and the combined voting power of the then-outstanding
voting securities of such transferee corporation entitled to vote generally in
the election of directors and (3) at least a majority of the members of the
board of directors of such transferee corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or action of the
board providing for such sale or other disposition of assets of the Company.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL.
(a) The Executive shall be entitled to the compensation provided in
Section 4 of this Agreement if all of the following conditions are satisfied:
(i) there is a Change in Control of the Company while the
Executive is still an employee of the Company;
(ii) the Executive's employment with the Company is terminated
within two years after the Change in Control; and
(iii) the Executive's termination of employment is not a result
of (A) the Executive's death; (B) the Executive's Disability (as
defined in Section 3(b) below; (C) the Executive's Retirement (as
defined in Section 3(c) below); (D) the Executive's termination by the
Company for Cause (as defined in Section 3(d) below); or (E) the
Executive's decision to terminate employment other than for Good Reason
(as defined in Section 3(e) below).
(b) If, as a result of the Executive's incapacity due to physical or
mental illness, the Executive shall have been unable, with or without a
reasonable accommodation, to perform his duties with the Company on a full-time
basis for six months and within 30 days after a Notice of
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Termination (as defined in Section 3(f) below) is thereafter given by the
Company, the Executive shall not have returned to the full-time performance of
the Executive's duties, the Company may terminate the Executive's employment for
"Disability". If there is a Change in Control of the Company while the Executive
is still an employee and if the Executive's employment with the Company is
terminated for Disability within two years after the Change in Control, the
Executive shall be entitled to receive in a lump sum cash payment within five
days after his Date of Termination (as defined in Section 3(g) below) the
following:
(i) one times the Base Amount (as defined in Section 4(b)(i))
determined with respect to the Base Period (as defined in Section
4(b)(ii)); plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points.
(c) For purposes of this Agreement only, "Retirement" shall mean
termination by the Company or the Executive of the Executive's employment based
on the Executive's having reached age 65 or such other age as shall have been
fixed in any arrangement established pursuant to this Agreement with the
Executive's consent with respect to the Executive.
(d) For purposes of this Agreement only, "Cause" shall mean: (i) the
Executive's conviction of a felony involving moral turpitude; or (ii) the
Executive's serious, willful gross misconduct or willful gross neglect of duties
(other than any such neglect resulting from the Executive's incapacity due to
physical or mental illness or any such neglect after the issuance of a Notice of
Termination by the Executive for Good Reason, as such terms are defined in
subsections (e) and (f) below), which, in either case, has resulted, or in all
probability is likely to result, in material economic damage to the Company;
provided no act or failure to act by the Executive will constitute "Cause" under
clause (ii) if the Executive believed in good faith that such act or failure to
act was in the best interest of the Company.
For purposes of this Agreement only, any termination of the Executive's
employment by the Company for Cause shall be authorized by a vote of at least a
majority of the non-employee members of the Board of Directors of the Company
(the "Board") within 12 months of a majority of such non-employee members of the
Board having actual knowledge of the event or circumstances providing a basis
for such termination. In the case of clause (ii) of the second
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<PAGE>
sentence of this subsection (d), the Executive shall be given notice by the
Board specifying in detail the particular act or failure to act on which the
Board is relying in proposing to terminate him for Cause and offering the
Executive an opportunity, on a date at least 14 days after receipt of such
notice, to have a hearing, with counsel, before a majority of the non-employee
members of the Board, including each of the members of the Board who authorized
the termination for Cause. The Executive shall not be terminated for Cause if,
within 30 days after the date of the Executive's hearing before the Board (or if
the Executive waives a hearing, within 30 days after receiving notice of the
proposed termination), he has corrected the particular act or failure to act
specified in the notice and by so correcting such act or failure to act he has
reduced the economic damage his act or failure to act has allegedly caused the
Company to a level which is no longer material or has eliminated the probability
that such act or failure to act is likely to result in material economic damage
to the Company. No termination for Cause shall take effect until the expiration
of the correction period described in the preceding sentence and the
determination by a majority of the non-employee members of the Board that the
Executive has failed to correct the act or failure to act in accordance with the
terms of the preceding sentence.
Anything herein to the contrary notwithstanding, if, following a
termination of the Executive's employment by the Company for Cause based upon
the conviction of the Executive for a felony involving moral turpitude such
conviction is finally overturned on appeal, the Executive shall be entitled to
the compensation provided in Sections 4(a) and 4(c). In lieu of the interest
provided in clause (iv) of the first sentence of Section 4(a) and the interest
provided in the second sentence of Section 4(c), however, the compensation
provided in Sections 4(a) and 4(c) shall be increased by a ten percent rate of
interest, compounded annually, calculated from the date such compensation would
have been paid if the Executive's employment had been terminated without Cause.
(e) For purposes of this Agreement, "Good Reason" shall mean, after any
Change in Control and without the Executive's express written consent, any of
the following:
(i) a significant diminution in the Executive's duties and
responsibilities, or the assignment to the Executive by the Company of
duties inconsistent with the Executive's position, duties,
responsibilities or status with the Company immediately prior to a
Change in Control of the Company, or a change in the Executive's titles
or offices as in effect immediately prior to a Change in Control of the
Company, or any removal of the Executive from or any failure to
re-elect the Executive to any of such positions, except in connection
with the termination of his employment for Disability, Retirement or
Cause or as a result of the Executive's death or by the Executive other
than for Good Reason;
(ii) a reduction by the Company in the Executive's annual rate
of base salary as in effect on the date hereof or as the same may be
increased from time to time during the term of this Agreement or the
Company's failure to increase (within 12 months of the Executive's last
increase in his annual rate of base salary) the Executive's annual rate
of base salary after a Change in Control of the Company in an amount
which at least equals, on a percentage basis, the greater of (A) the
average percentage increase in the annual rate
5
<PAGE>
of base salary for all officers of the Company effected in the
preceding 12 months; or (B) the Consumer Price Index as published by
the United States Government (or, in the event such index is
discontinued, any similar index published by the United States
Government as designated in good faith by the Executive); provided,
however, that nothing contained in this clause (ii) shall be construed
under any circumstances as permitting the Company to decrease the
Executive's annual rate of base salary;
(iii) (A) any failure by the Company to continue in effect any
benefit plan or arrangement (including, without limitation, the life
insurance, medical, dental, accident and disability plans) in which the
Executive is participating at the time of a Change in Control of the
Company, or any other plan or arrangement providing the Executive with
benefits that are no less favorable (hereinafter referred to as
"Benefit Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such Benefit Plan or deprive
the Executive of any material fringe benefit or perquisite of office
enjoyed by the Executive at the time of a Change in Control of the
Company, unless in the case of either subclause (A) or (B) above, there
is substituted a comparable plan or program that is economically
equivalent or superior, in terms of the benefit offered to the
Executive, to the Benefit Plan being altered, reduced, affected or
ended;
(iv) (A) any failure by the Company to continue in effect any
incentive plan or arrangement (including, without limitation, the
Company's bonus arrangements, the Transaction Systems Architects, Inc.
Deferred Compensation Plan, the Transaction Systems Architects, Inc.
401(k) Plan, the sales incentive plans, and the management incentive
plans) in which the Executive is participating at the time of a Change
in Control of the Company, or any other plans or arrangements providing
him with substantially similar benefits, (hereinafter referred to as
"Incentive Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in any such
Incentive Plan or reduce the Executive's benefits under any such
Incentive Plan, unless in the case of either subclause (A) or (B)
above, there is substituted a comparable plan or program that is
economically equivalent or superior, in terms of the benefit offered to
the Executive, to the Incentive Plan being altered, reduced, affected
or ended, or (C) any failure by the Company with respect to any fiscal
year to make an award to the Executive pursuant to each such Incentive
Plan or such substituted comparable plan or program equal to or greater
than the greater of (1) the award (whether paid or payable in cash or
in securities of the Company) made to the Executive pursuant to such
Incentive Plan or such substituted comparable plan or program with
respect to the immediately preceding fiscal year or (2) the average
annual award (whether paid or payable in cash or in securities of the
Company) made to the Executive pursuant to such Incentive Plan or such
substituted comparable plan with respect to the prior three fiscal
years (or such lesser number of prior fiscal years that the Executive
was employed by the Company or that the Incentive Plan (together with
any substituted comparable plan) was maintained);
(v) (A) any failure by the Company to continue in effect any
plan or arrangement to receive securities of the Company (including,
without limitation, the
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Transaction Systems Architects, Inc. 1999 Employee Stock Purchase Plan
and the Transaction Systems Architects Inc. 1999 Stock Option Plan) in
which the Executive is participating at the time of a Change in Control
of the Company, or any other plan or arrangement providing him with
substantially similar benefits, (hereinafter referred to as "Securities
Plans"), (B) the taking of any action by the Company which would
adversely affect the Executive's participation in or materially reduce
the Executive's benefits under any such Securities Plan, unless in the
case of either subclause (A) or (B) above, there is substituted a
comparable plan or program that is economically equivalent or superior,
in terms of the benefit offered to the Executive, to the Securities
Plan being altered, reduced, affected or ended, or (C) any failure by
the Company in any fiscal year to grant stock options, stock
appreciation rights or securities awards to the Executive pursuant to
such Securities Plans with respect to an aggregate number of securities
of the Company of each kind that is equal to or greater than the
greater of (1) the aggregate number of securities of the Company of
that kind covered by stock options, stock appreciation rights or
securities awards granted to the Executive pursuant to such Securities
Plans in the immediately preceding fiscal year or (2) the average
annual aggregate number of securities of the Company of that kind
covered by stock options, stock appreciation rights, or securities
awards granted to the Executive pursuant to such Securities Plans in
the prior three fiscal years; and provided further the material terms
and conditions of such stock options, stock appreciation rights, and
securities awards granted to the Executive after the Change in Control
(including, but not limited to, the exercise price, vesting schedule,
period and methods of exercise, expiration date, forfeiture provisions
and other restrictions) are substantially similar to the material terms
and conditions of the stock options, stock appreciation rights, and
securities awards granted to the Executive under the Securities Plans
immediately prior to the Change in Control of the Company;
(vi) the Executive's relocation more than 50 miles from the
location at which the Executive performed the Executive's duties prior
to a Change in Control of the Company, except for required travel by
the Executive on the Company's business to an extent substantially
consistent with the Executive's business travel obligations at the time
of a Change in Control of the Company;
(vii) any failure by the Company to provide the Executive with
the number of annual paid vacation days to which the Executive is
entitled for the year in which a Change in Control of the Company
occurs;
(viii) any material breach by the Company of any provision of
this Agreement;
(ix) any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company prior to such
succession or assignment;
(x) any failure by the Company or its successor to enter into
an agreement with the Executive that is substantially similar to this
Agreement with respect to a Change in Control of the Company or its
successor occurring thereafter; or
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(xi) any purported termination of the Executive's employment
by the Company pursuant to Section 3(b), 3(c) or 3(d) above which is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 3(f) below (and, if applicable, Section 3(d)
above), and for purposes of this Agreement, no such purported
termination shall be effective.
For purposes of this subsection (e), an isolated, immaterial, and inadvertent
action not taken in bad faith by the Company in violation of clause (ii), (iii),
(iv), (v) or (vii) of this subsection that is remedied by the Company promptly
after receipt of notice thereof given by the Executive shall not be considered
Good Reason for the Executive's termination of employment with the Company. In
the event the Executive terminates his employment for Good Reason hereunder,
then notwithstanding that the Executive may also retire for purposes of the
Benefit Plans, Incentive Plans or Securities Plans, the Executive shall be
deemed to have terminated his employment for Good Reason for purposes of this
Agreement.
(f) Any termination of the Executive by the Company pursuant to Section
3(b), 3(c) or 3(d) above, or by the Executive pursuant to Section 3(e) above,
shall be communicated by a Notice of Termination to the other party hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate those specific termination provisions in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. For purposes of this Agreement, no
such purported termination by the Company shall be effective without such Notice
of Termination.
(g) "Date of Termination" shall mean (i) if the Executive's employment
is terminated by the Company for Disability, 30 days after Notice of Termination
is given to the Executive (provided that the Executive shall not have returned
to the performance of the Executive's duties on a full-time basis during such
30-day period), (ii) if the Executive's employment is terminated by the
Executive for Good Reason, the date specified in the Notice of Termination, and
(iii) if the Executive's employment is terminated by the Company for any other
reason, the date on which a Notice of Termination is given; provided, however,
that if within 30 days after any Notice of Termination is given to the Executive
by the Company, the Executive notifies the Company that a dispute exists
concerning the termination, the Date of Termination shall be the date the
dispute is finally determined, whether by mutual written agreement of the
parties or upon final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected).
4. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT.
(a) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Company shall pay to the
Executive in a lump sum cash payment within five days after the Date of
Termination the following:
(i) the Severance Amount as defined in Section 4(b) below;
plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
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(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points,
compounded annually.
(b) "Severance Amount" shall mean an amount equal to one times the Base
Amount (as defined below) determined with respect to the Base Period (as defined
below); provided, however, in no event shall the Severance Amount be less than
two times the Executive's annual rate of base salary at the higher of the annual
rate in effect (i) immediately prior to the Date of Termination or (ii) on the
date six months prior to the Date of Termination. For purposes of this
subsection (b):
(i) "Base Amount" means the Executive's average fiscal-year
Compensation (as defined below) for fiscal years of the Company in the
Base Period. Such average shall be computed by dividing the total of
the Executive's Compensation for the Base Period by the number of
fiscal years in the Base Period. If the Executive's Base Period
includes a portion of a fiscal year during which he was not an employee
of the Company (or a predecessor entity or a related entity, as such
terms are defined in clause (iii) below), the Executive's Compensation
for such fiscal year shall be annualized before determining the average
fiscal-year Compensation for the Base Period. In annualizing
Compensation, the frequency with which payments are expected to be made
over a fiscal year shall be taken into account; thus, any amount of
Compensation that represents a payment that will not be made more often
than once per fiscal year is not annualized. Set forth on Appendix A,
which is attached hereto and made a part hereof, are three examples
illustrating the calculation of the Base Amount.
(ii) "Base Period" means the most recent two consecutive
fiscal years of the Company ending prior to the Date of Termination.
However, if the Executive was not an employee of the Company (or a
predecessor entity or a related entity, as such terms are defined in
clause (iii) below) at any time during one of such two fiscal years,
the Executive's Base Period is the one fiscal year of such
two-fiscal-year period during which the Executive performed personal
services for the Company or a predecessor entity or a related entity.
(iii) "Compensation" means the compensation which was payable
by the Company, by a predecessor entity, or by a related entity and
which was includible in the gross income of the Executive (or either
was excludible from such gross income as
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"foreign earned income" within the meaning of Section 911 of the
Internal Revenue Code of 1986, as amended (the "Code"), or would have
been includible in such gross income if the Executive had been a United
States citizen or resident), but excluding the following: (A) amounts
realized from the exercise of a non-qualified stock option; and (B)
amounts realized from the sale, exchange or other disposition of stock
acquired under an incentive stock option described in Code Section
422(b) or under an employee stock purchase plan described in Code
Section 423(b). Notwithstanding the preceding sentence, Compensation
shall be determined without regard to any compensation deferral
election under any plan, program or arrangement, qualified or
nonqualified, maintained or contributed to by the Company, a
predecessor entity or a related entity, including but not limited to a
cash-or-deferred arrangement described in Code Section 401(k), a
cafeteria plan described in Code Section 125 or a nonqualified deferred
compensation plan. A "predecessor entity" is any entity which, as a
result of a merger, consolidation, purchase or acquisition of property
or stock, corporate separation, or other similar business transaction
transfers some or all of its employees to the Company or to a related
entity or to a predecessor entity of the Company. The term "related
entity" includes any entity treated as a single employer with the
Company in accordance with subsections (b), (c), (m) and (o) of Code
Section 414.
(c) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Executive will be entitled to
continued participation in all employee benefit plans or programs available to
Company employees generally in which the Executive was participating on the Date
of Termination, such continued participation to be at Company cost and otherwise
on the same basis as Company employees generally, until the earlier of (i) the
date, or dates, he receives equivalent coverage and benefits under the plans and
programs of a subsequent employer (such coverages and benefits to be determined
on a coverage-by-coverage or benefit-by-benefit basis) or (ii) two years from
the Date of Termination; provided (A) if the Executive is precluded from
continuing his participation in any employee benefit plan or program as provided
in this sentence, he shall be paid, in a lump sum cash payment, within 30 days
following the date it is determined he is unable to participate in any employee
benefit plan or program, the after-tax economic equivalent of the benefits
provided under the plan or program in which he is unable to participate for the
period specified in this sentence, and (B) the economic equivalent of any
benefit foregone shall be deemed to be the lowest cost that would be incurred by
the Executive in obtaining such benefit for himself (including family or
dependent coverage, if applicable) on an individual basis. The Executive shall
be eligible for group health plan continuation coverage under and in accordance
with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended,
when he ceases to be eligible for continued participation in the Company's group
health plan under this subsection (e).
5. NO OBLIGATION TO MITIGATE DAMAGES; NO EFFECT ON OTHER CONTRACTUAL
RIGHTS.
(a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation
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earned by the Executive as the result of employment by another employer after
the Date of Termination or otherwise.
(b) The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any Benefit Plan, Incentive Plan or
Securities Plan, employment agreement or other contract, plan or agreement with
or of the Company.
6. INCENTIVE AWARDS.
In the event of a Change in Control of the Company, then
notwithstanding the terms and conditions of any Incentive Plan, the Company
agrees (i) to immediately and fully vest all unvested awards, units, and
benefits (other than options to acquire securities of the Company or awards of
securities of the Company) which have been awarded or allocated to the Executive
under the Incentive Plans; and (ii) upon the exercise of such awards or units or
the distribution of such benefits, to pay all amounts due under the Incentive
Plans solely in cash.
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) All determinations required to be made under this Section 7,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by the Accounting Firm which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days after the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. The determination
of tax liability made by the Accounting Firm shall be subject to review by the
Executive's tax advisor, and, if the Executive's tax advisor does not agree with
the determination reached by the Accounting Firm, then the Accounting Firm and
the Executive's tax advisor shall jointly designate a nationally recognized
public accounting firm which shall make the determination. All fees and expenses
of the accountants and tax advisors retained by both the Executive and the
Company shall be borne solely by the Company. Any Gross-Up Payment, as
determined
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pursuant to this Section 7, shall be paid by the Company to the Executive within
five days after the receipt of the determination. Any determination by such
jointly designated public accounting firm shall be binding upon the Company and
the Executive. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination hereunder, it is possible
that Gross-Up Payments will not have been made by the Company that should have
been made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Executive hereafter is required to make a
payment of any Excise Tax, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive. Upon notice by the Executive of
any audit or other proceeding that may result in a liability to the Company
hereunder, the Executive shall promptly notify the Company of such audit or
other proceeding; and the Company may, at its option, but solely with respect to
the item or items that relate to such potential liability, choose to assume the
defense of such audit or other proceeding at its own cost, provided that (i) the
Executive shall cooperate with the Company in such defense and (ii) the Company
will not settle such audit or other proceeding without the consent of the
Executive (such consent not to be unreasonably withheld). The highest effective
marginal tax rate (determined by taking into account any reduction in itemized
deductions and/or exemptions attributable to the inclusion of the additional
amounts payable under this Section 7 in the Executive's adjusted gross or
taxable income) based upon the state and locality where the Executive is
resident at the time of payment of such amounts will be used for purposes of
determining the federal and state income and other taxes with respect thereto.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify the Executive to the fullest extent
permitted by law if the Executive is a party or threatened to be made a party to
any Proceeding (as defined below).
(b) If requested by the Executive, the Company shall advance (within
two business days of such request) any and all Expenses, as defined below,
relating to a Proceeding to the Executive (an "Expense Advance"), upon the
receipt of a written undertaking by or on behalf of the Executive to repay such
Expense Advance if a judgment or other final adjudication adverse to the
Executive (as to which all rights of appeal therefrom have been exhausted or
lapsed) establishes that the Executive is not entitled to indemnification by the
Company. Expenses shall include attorney's fees and all other costs, charges and
expenses paid or incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in any Proceeding.
(c) The Company agrees to obtain a directors' and officers' liability
insurance policy covering the Executive and to continue and maintain such
policy. The amount of coverage shall be reasonable in relation to the
Executive's position and responsibilities during his employment by the Company.
(d) This Section 8 is a supplement to and in furtherance of the
Certificate of Incorporation and Bylaws of the Company and shall not be deemed a
substitute therefor, or diminish or abrogate any rights of the Executive
thereunder.
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(e) For purposes of Section 8(a), the meaning of the phrase "to the
fullest extent permitted by law" shall include but not be limited to:
(i) to the fullest extent permitted by the provision of the
Delaware General Corporation Law ("DGCL") that authorizes or
contemplates additional indemnification by agreement, or the
corresponding provision of any amendment to or replacement of the DGCL,
and
(ii) to the fullest extent authorized or permitted by any
amendments to or replacements of the DGCL adopted after the date of
this Agreement that increase the extent to which a corporation may
indemnify its officers and directors.
(f) For purposes of Sections 8(a) and 8(b), "Proceeding" shall mean any
threatened, pending or completed action, suit, arbitration, alternate dispute
resolution mechanism, investigation, inquiry, administrative hearing or any
other actual, threatened or completed proceeding, whether brought in the right
of the Company or otherwise and whether of a civil, criminal, administrative or
investigative nature, in which the Executive was, is or will be involved as a
party or otherwise by reason of the fact that the Executive is or was a director
or officer of the Company, by reason of any action taken by him or of any action
on his part while acting as director or officer of the Company, or by reason of
the fact that he is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, in each case whether or not serving in such capacity
at the time any liability or expense is incurred for which indemnification,
reimbursement, or advancement of expenses can be provided under this Agreement.
9. SUCCESSORS.
(a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. Any failure of the Company to
obtain such agreement prior to the effectiveness of any such succession or
assignment shall be a material breach of this Agreement and shall entitle the
Executive to terminate the Executive's employment for Good Reason and receive
the compensation provided for in Section 4 hereof. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor or
assign to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Section 9 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts are still payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with
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the terms of this Agreement to the Executive's devisee, legatee or other
designee or, if there be no such designee, to the Executive's estate.
10. NOTICE.
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, as follows:
If to the Company:
Transaction Systems Architects, Inc.
224 South 108 Avenue
Omaha, NE 68154
Attn: President
If to the Executive:
--------------------------------------------
--------------------------------------------
--------------------------------------------
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. MISCELLANEOUS.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same time or
at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Nebraska, without giving effect to any principles of conflicts of
law.
12. CONFLICT IN BENEFITS.
Except as otherwise provided in the preceding sentences, this Agreement
is not intended to and shall not limit or terminate any other agreement or
arrangement between the Executive and the Company presently in effect or
hereafter entered into.
13. VALIDITY.
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The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. SURVIVORSHIP.
The respective rights and obligations of the parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations and to the extent that any
performance is required following termination of this Agreement. Without
limiting the foregoing, Sections 7, 8 and 15 shall expressly survive the
termination of this Agreement.
15. LEGAL FEES AND EXPENSES.
If a claim or dispute arises concerning the rights of the Executive
under this Agreement, regardless of the party by whom such claim or dispute is
initiated, the Company shall, upon presentation of appropriate vouchers, pay all
legal expenses, including reasonable attorneys' fees, court costs, and ordinary
and necessary out-of-pocket costs of attorneys, billed to and payable by the
Executive or by anyone claiming under or through the Executive, in connection
with the bringing, prosecuting, arbitrating, defending, litigating, negotiating,
or settling such claim or dispute. In no event shall the Executive be required
to reimburse the Company for any of the costs or expenses incurred by the
Company relating to arbitration or litigation. Pending the outcome or resolution
of any claim or dispute, the Company shall continue payment of all amounts due
the Executive without regard to any dispute.
16. EFFECTIVE DATE.
This Agreement shall become effective upon execution.
17. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
18. NO GUARANTEE OF EMPLOYMENT.
Neither this Agreement nor any action taken hereunder shall be construed
as giving the Executive the right to be retained in employment with the Company,
nor shall it interfere with either the Company's right to terminate the
employment of the Executive at any time or the Executive's right to terminate
his employment at any time.
19. NO ASSIGNMENT BY EXECUTIVE.
Except as otherwise provided in Section 9(b), the Executive's rights and
interest under this Agreement shall not be assignable (in law or in equity) or
subject to any manner of alienation, sale, transfer, claims of creditors,
pledge, attachment, garnishment, levy, execution or encumbrances of any kind.
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20. WAIVER.
The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement shall not be deemed a waiver of
such provision or any other provision of this Agreement. Any waiver of any
provision of this Agreement shall not be deemed to be a waiver of any other
provision, and any waiver of default in any provision of this Agreement shall
not be deemed to be a waiver of any later default thereof or of any other
provision.
21. WITHHOLDING.
All amounts paid pursuant to this Agreement shall be subject to
withholding for taxes (federal, state, local or otherwise) to the extent
required by applicable law.
22. HEADINGS.
The headings of this Agreement have been inserted for convenience of
reference only and are to be ignored in the construction of the provisions
hereof.
23. NUMBER AND GENDER.
The use of the singular shall be interpreted to include the plural and
the plural the singular, as the context requires. The use of the masculine,
feminine or neuter shall be interpreted to include the masculine, feminine or
neuter as the context shall require.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
TRANSACTION SYSTEMS ARCHITECTS, INC.
Date: By:
-------------------------- --------------------------------
EXECUTIVE:
Date:
-------------------------- ------------------------------------
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APPENDIX A
EXAMPLE 1 - Executive was employed by the Company for 1-1/3 fiscal
years preceding the fiscal year in which a Change in Control of the
Company occurs. The Executive's Compensation from the Company was
$30,000 for the 4-month period and $120,000 for the full fiscal year.
The Executive's Base Amount is $105,000.
Year 1: 3 x $30,000 = $90,000
Year 2: $120,000
[90,000 + 120,000] / 2 = $105,000
$105,000 is the average fiscal-year Compensation
for the Base Period.
EXAMPLE 2 - Assume the same facts as in Example 1, except that the
Executive also received a $70,000 sign-on bonus when his employment
with the Company commenced at the beginning of the 4-month period.
The Executive's Base Amount is $140,000
Year 1: [3 x $30,000] + $70,000 = $160,000
Year 2: $120,000
[160,000 + 120,000] / 2 = $140,000
Since the sign-on bonus will not be paid more often than once per
fiscal year, the amount of the bonus is not increased in annualizing
the Executive's Compensation for the 4-month period.
EXAMPLE 3 - Executive was employed by the Company for the last 4 months
of the fiscal year preceding the fiscal year in which a Change in
Control of the Company occurs. The Executive's Compensation from the
Company was $30,000 for the 4-month period. The Executive's Base Amount
is $90,000.
Year 1: 3 x $30,000 = $90,000
$90,000 / 1 = $90,000
$90,000 is the average fiscal-year Compensation for
the Base Period.
<PAGE>
SEVERANCE COMPENSATION AGREEMENT
SEVERANCE COMPENSATION AGREEMENT dated as of July 31, 1999 between
Transaction Systems Architects, Inc., a Delaware corporation (the "Company"),
and Dennis Jorgensen (the "Executive").
WHEREAS, the Company's Board of Directors has determined that it is
appropriate to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in potentially disturbing circumstances arising from
the possibility of a change in control of the Company;
NOW, THEREFORE, this Agreement sets forth the severance compensation
which the Company agrees it will pay to the Executive if the Executive's
employment with the Company terminates under certain circumstances described
herein following a Change in Control (as defined herein) and the other benefits
the Company will provide the Executive following a Change in Control.
1. TERM.
This Agreement shall terminate, except to the extent that any
obligation of the Company hereunder remains unpaid as of such time, upon the
earlier of (i) the termination of Executive's employment for any reason prior to
a Change in Control; and (ii) three years after the date of a Change in Control.
2. CHANGE IN CONTROL.
For purposes of this Agreement, Change in Control shall mean:
(a) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person"), of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a Change
in Control: (A) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege), (B) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (C)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in subclauses (i), (ii) and (iii) of clause (c) of this
Section 2 are satisfied; or
<PAGE>
(b) if individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least
two-thirds of the directors then constituting the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest
subject to Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(c) approval by the stockholders of the Company of a reorganization,
merger or consolidation, unless following such reorganization, merger or
consolidation (i) more than 60% of, respectively, the then-outstanding shares of
common stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger, or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the resulting corporation owned by the Company's stockholders, but
not from the total number of outstanding shares and voting securities of the
resulting corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (ii) no Person (excluding the Company, any employee
benefit plan (or related trust) of the Company, any qualified employee benefit
plan of such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then-outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(d) (i) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company or (ii) the first to occur of (A) the
sale or other disposition (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company, or (B)
the approval by the stockholders of the Company of any such sale or disposition,
other than, in each case, any such sale or disposition to a corporation, with
respect to
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which immediately thereafter, (1) more than 60% of, respectively, the
then-outstanding shares of common stock of such corporation and the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such sale or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the transferee corporation owned by the Company's stockholders,
but not from the total number of outstanding shares and voting securities of the
transferee corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (2) no Person (excluding the Company and any
employee benefit plan (or related trust) of the Company, any qualified employee
benefit plan of such transferee corporation and any Person beneficially owning,
immediately prior to such sale or other disposition, directly or indirectly, 20%
or more of the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 20%
or more of, respectively, the then-outstanding shares of common stock of such
transferee corporation and the combined voting power of the then-outstanding
voting securities of such transferee corporation entitled to vote generally in
the election of directors and (3) at least a majority of the members of the
board of directors of such transferee corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or action of the
board providing for such sale or other disposition of assets of the Company.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL.
(a) The Executive shall be entitled to the compensation provided in
Section 4 of this Agreement if all of the following conditions are satisfied:
(i) there is a Change in Control of the Company while the
Executive is still an employee of the Company;
(ii) the Executive's employment with the Company is terminated
within two years after the Change in Control; and
(iii) the Executive's termination of employment is not a result
of (A) the Executive's death; (B) the Executive's Disability (as
defined in Section 3(b) below; (C) the Executive's Retirement (as
defined in Section 3(c) below); (D) the Executive's termination by the
Company for Cause (as defined in Section 3(d) below); or (E) the
Executive's decision to terminate employment other than for Good Reason
(as defined in Section 3(e) below).
(b) If, as a result of the Executive's incapacity due to physical or
mental illness, the Executive shall have been unable, with or without a
reasonable accommodation, to perform his duties with the Company on a full-time
basis for six months and within 30 days after a Notice of
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Termination (as defined in Section 3(f) below) is thereafter given by the
Company, the Executive shall not have returned to the full-time performance of
the Executive's duties, the Company may terminate the Executive's employment for
"Disability". If there is a Change in Control of the Company while the Executive
is still an employee and if the Executive's employment with the Company is
terminated for Disability within two years after the Change in Control, the
Executive shall be entitled to receive in a lump sum cash payment within five
days after his Date of Termination (as defined in Section 3(g) below) the
following:
(i) one times the Base Amount (as defined in Section 4(b)(i))
determined with respect to the Base Period (as defined in Section
4(b)(ii)); plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points.
(c) For purposes of this Agreement only, "Retirement" shall mean
termination by the Company or the Executive of the Executive's employment based
on the Executive's having reached age 65 or such other age as shall have been
fixed in any arrangement established pursuant to this Agreement with the
Executive's consent with respect to the Executive.
(d) For purposes of this Agreement only, "Cause" shall mean: (i) the
Executive's conviction of a felony involving moral turpitude; or (ii) the
Executive's serious, willful gross misconduct or willful gross neglect of duties
(other than any such neglect resulting from the Executive's incapacity due to
physical or mental illness or any such neglect after the issuance of a Notice of
Termination by the Executive for Good Reason, as such terms are defined in
subsections (e) and (f) below), which, in either case, has resulted, or in all
probability is likely to result, in material economic damage to the Company;
provided no act or failure to act by the Executive will constitute "Cause" under
clause (ii) if the Executive believed in good faith that such act or failure to
act was in the best interest of the Company.
For purposes of this Agreement only, any termination of the Executive's
employment by the Company for Cause shall be authorized by a vote of at least a
majority of the non-employee members of the Board of Directors of the Company
(the "Board") within 12 months of a majority of such non-employee members of the
Board having actual knowledge of the event or circumstances providing a basis
for such termination. In the case of clause (ii) of the second
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sentence of this subsection (d), the Executive shall be given notice by the
Board specifying in detail the particular act or failure to act on which the
Board is relying in proposing to terminate him for Cause and offering the
Executive an opportunity, on a date at least 14 days after receipt of such
notice, to have a hearing, with counsel, before a majority of the non-employee
members of the Board, including each of the members of the Board who authorized
the termination for Cause. The Executive shall not be terminated for Cause if,
within 30 days after the date of the Executive's hearing before the Board (or if
the Executive waives a hearing, within 30 days after receiving notice of the
proposed termination), he has corrected the particular act or failure to act
specified in the notice and by so correcting such act or failure to act he has
reduced the economic damage his act or failure to act has allegedly caused the
Company to a level which is no longer material or has eliminated the probability
that such act or failure to act is likely to result in material economic damage
to the Company. No termination for Cause shall take effect until the expiration
of the correction period described in the preceding sentence and the
determination by a majority of the non-employee members of the Board that the
Executive has failed to correct the act or failure to act in accordance with the
terms of the preceding sentence.
Anything herein to the contrary notwithstanding, if, following a
termination of the Executive's employment by the Company for Cause based upon
the conviction of the Executive for a felony involving moral turpitude such
conviction is finally overturned on appeal, the Executive shall be entitled to
the compensation provided in Sections 4(a) and 4(c). In lieu of the interest
provided in clause (iv) of the first sentence of Section 4(a) and the interest
provided in the second sentence of Section 4(c), however, the compensation
provided in Sections 4(a) and 4(c) shall be increased by a ten percent rate of
interest, compounded annually, calculated from the date such compensation would
have been paid if the Executive's employment had been terminated without Cause.
(e) For purposes of this Agreement, "Good Reason" shall mean, after any
Change in Control and without the Executive's express written consent, any of
the following:
(i) a significant diminution in the Executive's duties and
responsibilities, or the assignment to the Executive by the Company of
duties inconsistent with the Executive's position, duties,
responsibilities or status with the Company immediately prior to a
Change in Control of the Company, or a change in the Executive's titles
or offices as in effect immediately prior to a Change in Control of the
Company, or any removal of the Executive from or any failure to
re-elect the Executive to any of such positions, except in connection
with the termination of his employment for Disability, Retirement or
Cause or as a result of the Executive's death or by the Executive other
than for Good Reason;
(ii) a reduction by the Company in the Executive's annual rate
of base salary as in effect on the date hereof or as the same may be
increased from time to time during the term of this Agreement or the
Company's failure to increase (within 12 months of the Executive's last
increase in his annual rate of base salary) the Executive's annual rate
of base salary after a Change in Control of the Company in an amount
which at least equals, on a percentage basis, the greater of (A) the
average percentage increase in the annual rate
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of base salary for all officers of the Company effected in the
preceding 12 months; or (B) the Consumer Price Index as published by
the United States Government (or, in the event such index is
discontinued, any similar index published by the United States
Government as designated in good faith by the Executive); provided,
however, that nothing contained in this clause (ii) shall be construed
under any circumstances as permitting the Company to decrease the
Executive's annual rate of base salary;
(iii) (A) any failure by the Company to continue in effect any
benefit plan or arrangement (including, without limitation, the life
insurance, medical, dental, accident and disability plans) in which the
Executive is participating at the time of a Change in Control of the
Company, or any other plan or arrangement providing the Executive with
benefits that are no less favorable (hereinafter referred to as
"Benefit Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such Benefit Plan or deprive
the Executive of any material fringe benefit or perquisite of office
enjoyed by the Executive at the time of a Change in Control of the
Company, unless in the case of either subclause (A) or (B) above, there
is substituted a comparable plan or program that is economically
equivalent or superior, in terms of the benefit offered to the
Executive, to the Benefit Plan being altered, reduced, affected or
ended;
(iv) (A) any failure by the Company to continue in effect any
incentive plan or arrangement (including, without limitation, the
Company's bonus arrangements, the Transaction Systems Architects, Inc.
Deferred Compensation Plan, the Transaction Systems Architects, Inc.
401(k) Plan, the sales incentive plans, and the management incentive
plans) in which the Executive is participating at the time of a Change
in Control of the Company, or any other plans or arrangements providing
him with substantially similar benefits, (hereinafter referred to as
"Incentive Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in any such
Incentive Plan or reduce the Executive's benefits under any such
Incentive Plan, unless in the case of either subclause (A) or (B)
above, there is substituted a comparable plan or program that is
economically equivalent or superior, in terms of the benefit offered to
the Executive, to the Incentive Plan being altered, reduced, affected
or ended, or (C) any failure by the Company with respect to any fiscal
year to make an award to the Executive pursuant to each such Incentive
Plan or such substituted comparable plan or program equal to or greater
than the greater of (1) the award (whether paid or payable in cash or
in securities of the Company) made to the Executive pursuant to such
Incentive Plan or such substituted comparable plan or program with
respect to the immediately preceding fiscal year or (2) the average
annual award (whether paid or payable in cash or in securities of the
Company) made to the Executive pursuant to such Incentive Plan or such
substituted comparable plan with respect to the prior three fiscal
years (or such lesser number of prior fiscal years that the Executive
was employed by the Company or that the Incentive Plan (together with
any substituted comparable plan) was maintained);
(v) (A) any failure by the Company to continue in effect any
plan or arrangement to receive securities of the Company (including,
without limitation, the
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Transaction Systems Architects, Inc. 1999 Employee Stock Purchase Plan
and the Transaction Systems Architects Inc. 1999 Stock Option Plan) in
which the Executive is participating at the time of a Change in
Control of the Company, or any other plan or arrangement providing him
with substantially similar benefits, (hereinafter referred to as
"Securities Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such Securities Plan, unless
in the case of either subclause (A) or (B) above, there is substituted
a comparable plan or program that is economically equivalent or
superior, in terms of the benefit offered to the Executive, to the
Securities Plan being altered, reduced, affected or ended, or (C) any
failure by the Company in any fiscal year to grant stock options,
stock appreciation rights or securities awards to the Executive
pursuant to such Securities Plans with respect to an aggregate number
of securities of the Company of each kind that is equal to or greater
than the greater of (1) the aggregate number of securities of the
Company of that kind covered by stock options, stock appreciation
rights or securities awards granted to the Executive pursuant to such
Securities Plans in the immediately preceding fiscal year or (2) the
average annual aggregate number of securities of the Company of that
kind covered by stock options, stock appreciation rights, or
securities awards granted to the Executive pursuant to such Securities
Plans in the prior three fiscal years; and provided further the
material terms and conditions of such stock options, stock
appreciation rights, and securities awards granted to the Executive
after the Change in Control (including, but not limited to, the
exercise price, vesting schedule, period and methods of exercise,
expiration date, forfeiture provisions and other restrictions) are
substantially similar to the material terms and conditions of the
stock options, stock appreciation rights, and securities awards
granted to the Executive under the Securities Plans immediately prior
to the Change in Control of the Company;
(vi) the Executive's relocation more than 50 miles from the
location at which the Executive performed the Executive's duties prior
to a Change in Control of the Company, except for required travel by
the Executive on the Company's business to an extent substantially
consistent with the Executive's business travel obligations at the time
of a Change in Control of the Company;
(vii) any failure by the Company to provide the Executive with
the number of annual paid vacation days to which the Executive is
entitled for the year in which a Change in Control of the Company
occurs;
(viii) any material breach by the Company of any provision of
this Agreement;
(ix) any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company prior to such
succession or assignment;
(x) any failure by the Company or its successor to enter into
an agreement with the Executive that is substantially similar to this
Agreement with respect to a Change in Control of the Company or its
successor occurring thereafter; or
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(xi) any purported termination of the Executive's employment
by the Company pursuant to Section 3(b), 3(c) or 3(d) above which is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 3(f) below (and, if applicable, Section 3(d)
above), and for purposes of this Agreement, no such purported
termination shall be effective.
For purposes of this subsection (e), an isolated, immaterial, and inadvertent
action not taken in bad faith by the Company in violation of clause (ii), (iii),
(iv), (v) or (vii) of this subsection that is remedied by the Company promptly
after receipt of notice thereof given by the Executive shall not be considered
Good Reason for the Executive's termination of employment with the Company. In
the event the Executive terminates his employment for Good Reason hereunder,
then notwithstanding that the Executive may also retire for purposes of the
Benefit Plans, Incentive Plans or Securities Plans, the Executive shall be
deemed to have terminated his employment for Good Reason for purposes of this
Agreement.
(f) Any termination of the Executive by the Company pursuant to Section
3(b), 3(c) or 3(d) above, or by the Executive pursuant to Section 3(e) above,
shall be communicated by a Notice of Termination to the other party hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate those specific termination provisions in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. For purposes of this Agreement, no
such purported termination by the Company shall be effective without such Notice
of Termination.
(g) "Date of Termination" shall mean (i) if the Executive's employment
is terminated by the Company for Disability, 30 days after Notice of Termination
is given to the Executive (provided that the Executive shall not have returned
to the performance of the Executive's duties on a full-time basis during such
30-day period), (ii) if the Executive's employment is terminated by the
Executive for Good Reason, the date specified in the Notice of Termination, and
(iii) if the Executive's employment is terminated by the Company for any other
reason, the date on which a Notice of Termination is given; provided, however,
that if within 30 days after any Notice of Termination is given to the Executive
by the Company, the Executive notifies the Company that a dispute exists
concerning the termination, the Date of Termination shall be the date the
dispute is finally determined, whether by mutual written agreement of the
parties or upon final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected).
4. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT.
(a) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Company shall pay to the
Executive in a lump sum cash payment within five days after the Date of
Termination the following:
(i) the Severance Amount as defined in Section 4(b) below;
plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
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(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points,
compounded annually.
(b) "Severance Amount" shall mean an amount equal to one times the Base
Amount (as defined below) determined with respect to the Base Period (as defined
below); provided, however, in no event shall the Severance Amount be less than
two times the Executive's annual rate of base salary at the higher of the annual
rate in effect (i) immediately prior to the Date of Termination or (ii) on the
date six months prior to the Date of Termination. For purposes of this
subsection (b):
(i) "Base Amount" means the Executive's average fiscal-year
Compensation (as defined below) for fiscal years of the Company in the
Base Period. Such average shall be computed by dividing the total of
the Executive's Compensation for the Base Period by the number of
fiscal years in the Base Period. If the Executive's Base Period
includes a portion of a fiscal year during which he was not an employee
of the Company (or a predecessor entity or a related entity, as such
terms are defined in clause (iii) below), the Executive's Compensation
for such fiscal year shall be annualized before determining the average
fiscal-year Compensation for the Base Period. In annualizing
Compensation, the frequency with which payments are expected to be made
over a fiscal year shall be taken into account; thus, any amount of
Compensation that represents a payment that will not be made more often
than once per fiscal year is not annualized. Set forth on Appendix A,
which is attached hereto and made a part hereof, are three examples
illustrating the calculation of the Base Amount.
(ii) "Base Period" means the most recent two consecutive
fiscal years of the Company ending prior to the Date of Termination.
However, if the Executive was not an employee of the Company (or a
predecessor entity or a related entity, as such terms are defined in
clause (iii) below) at any time during one of such two fiscal years,
the Executive's Base Period is the one fiscal year of such
two-fiscal-year period during which the Executive performed personal
services for the Company or a predecessor entity or a related entity.
(iii) "Compensation" means the compensation which was payable
by the Company, by a predecessor entity, or by a related entity and
which was includible in the gross income of the Executive (or either
was excludible from such gross income as
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"foreign earned income" within the meaning of Section 911 of the
Internal Revenue Code of 1986, as amended (the "Code"), or would have
been includible in such gross income if the Executive had been a
United States citizen or resident), but excluding the following: (A)
amounts realized from the exercise of a non-qualified stock option;
and (B) amounts realized from the sale, exchange or other disposition
of stock acquired under an incentive stock option described in Code
Section 422(b) or under an employee stock purchase plan described in
Code Section 423(b). Notwithstanding the preceding sentence,
Compensation shall be determined without regard to any compensation
deferral election under any plan, program or arrangement, qualified or
nonqualified, maintained or contributed to by the Company, a
predecessor entity or a related entity, including but not limited to a
cash-or-deferred arrangement described in Code Section 401(k), a
cafeteria plan described in Code Section 125 or a nonqualified
deferred compensation plan. A "predecessor entity" is any entity
which, as a result of a merger, consolidation, purchase or acquisition
of property or stock, corporate separation, or other similar business
transaction transfers some or all of its employees to the Company or
to a related entity or to a predecessor entity of the Company. The
term "related entity" includes any entity treated as a single employer
with the Company in accordance with subsections (b), (c), (m) and (o)
of Code Section 414.
(c) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Executive will be entitled to
continued participation in all employee benefit plans or programs available to
Company employees generally in which the Executive was participating on the Date
of Termination, such continued participation to be at Company cost and otherwise
on the same basis as Company employees generally, until the earlier of (i) the
date, or dates, he receives equivalent coverage and benefits under the plans and
programs of a subsequent employer (such coverages and benefits to be determined
on a coverage-by-coverage or benefit-by-benefit basis) or (ii) two years from
the Date of Termination; provided (A) if the Executive is precluded from
continuing his participation in any employee benefit plan or program as provided
in this sentence, he shall be paid, in a lump sum cash payment, within 30 days
following the date it is determined he is unable to participate in any employee
benefit plan or program, the after-tax economic equivalent of the benefits
provided under the plan or program in which he is unable to participate for the
period specified in this sentence, and (B) the economic equivalent of any
benefit foregone shall be deemed to be the lowest cost that would be incurred by
the Executive in obtaining such benefit for himself (including family or
dependent coverage, if applicable) on an individual basis. The Executive shall
be eligible for group health plan continuation coverage under and in accordance
with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended,
when he ceases to be eligible for continued participation in the Company's group
health plan under this subsection (e).
5. NO OBLIGATION TO MITIGATE DAMAGES; NO EFFECT ON OTHER CONTRACTUAL
RIGHTS.
(a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation
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earned by the Executive as the result of employment by another employer after
the Date of Termination or otherwise.
(b) The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any Benefit Plan, Incentive Plan or
Securities Plan, employment agreement or other contract, plan or agreement with
or of the Company.
6. INCENTIVE AWARDS.
In the event of a Change in Control of the Company, then
notwithstanding the terms and conditions of any Incentive Plan, the Company
agrees (i) to immediately and fully vest all unvested awards, units, and
benefits (other than options to acquire securities of the Company or awards of
securities of the Company) which have been awarded or allocated to the Executive
under the Incentive Plans; and (ii) upon the exercise of such awards or units or
the distribution of such benefits, to pay all amounts due under the Incentive
Plans solely in cash.
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) All determinations required to be made under this Section 7,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by the Accounting Firm which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days after the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. The determination
of tax liability made by the Accounting Firm shall be subject to review by the
Executive's tax advisor, and, if the Executive's tax advisor does not agree with
the determination reached by the Accounting Firm, then the Accounting Firm and
the Executive's tax advisor shall jointly designate a nationally recognized
public accounting firm which shall make the determination. All fees and expenses
of the accountants and tax advisors retained by both the Executive and the
Company shall be borne solely by the Company. Any Gross-Up Payment, as
determined
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pursuant to this Section 7, shall be paid by the Company to the Executive within
five days after the receipt of the determination. Any determination by such
jointly designated public accounting firm shall be binding upon the Company and
the Executive. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination hereunder, it is possible
that Gross-Up Payments will not have been made by the Company that should have
been made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Executive hereafter is required to make a
payment of any Excise Tax, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive. Upon notice by the Executive of
any audit or other proceeding that may result in a liability to the Company
hereunder, the Executive shall promptly notify the Company of such audit or
other proceeding; and the Company may, at its option, but solely with respect to
the item or items that relate to such potential liability, choose to assume the
defense of such audit or other proceeding at its own cost, provided that (i) the
Executive shall cooperate with the Company in such defense and (ii) the Company
will not settle such audit or other proceeding without the consent of the
Executive (such consent not to be unreasonably withheld). The highest effective
marginal tax rate (determined by taking into account any reduction in itemized
deductions and/or exemptions attributable to the inclusion of the additional
amounts payable under this Section 7 in the Executive's adjusted gross or
taxable income) based upon the state and locality where the Executive is
resident at the time of payment of such amounts will be used for purposes of
determining the federal and state income and other taxes with respect thereto.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify the Executive to the fullest extent
permitted by law if the Executive is a party or threatened to be made a party to
any Proceeding (as defined below).
(b) If requested by the Executive, the Company shall advance (within
two business days of such request) any and all Expenses, as defined below,
relating to a Proceeding to the Executive (an "Expense Advance"), upon the
receipt of a written undertaking by or on behalf of the Executive to repay such
Expense Advance if a judgment or other final adjudication adverse to the
Executive (as to which all rights of appeal therefrom have been exhausted or
lapsed) establishes that the Executive is not entitled to indemnification by the
Company. Expenses shall include attorney's fees and all other costs, charges and
expenses paid or incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in any Proceeding.
(c) The Company agrees to obtain a directors' and officers' liability
insurance policy covering the Executive and to continue and maintain such
policy. The amount of coverage shall be reasonable in relation to the
Executive's position and responsibilities during his employment by the Company.
(d) This Section 8 is a supplement to and in furtherance of the
Certificate of Incorporation and Bylaws of the Company and shall not be deemed a
substitute therefor, or diminish or abrogate any rights of the Executive
thereunder.
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(e) For purposes of Section 8(a), the meaning of the phrase "to the
fullest extent permitted by law" shall include but not be limited to:
(i) to the fullest extent permitted by the provision of the
Delaware General Corporation Law ("DGCL") that authorizes or
contemplates additional indemnification by agreement, or the
corresponding provision of any amendment to or replacement of the DGCL,
and
(ii) to the fullest extent authorized or permitted by any
amendments to or replacements of the DGCL adopted after the date of
this Agreement that increase the extent to which a corporation may
indemnify its officers and directors.
(f) For purposes of Sections 8(a) and 8(b), "Proceeding" shall mean any
threatened, pending or completed action, suit, arbitration, alternate dispute
resolution mechanism, investigation, inquiry, administrative hearing or any
other actual, threatened or completed proceeding, whether brought in the right
of the Company or otherwise and whether of a civil, criminal, administrative or
investigative nature, in which the Executive was, is or will be involved as a
party or otherwise by reason of the fact that the Executive is or was a director
or officer of the Company, by reason of any action taken by him or of any action
on his part while acting as director or officer of the Company, or by reason of
the fact that he is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, in each case whether or not serving in such capacity
at the time any liability or expense is incurred for which indemnification,
reimbursement, or advancement of expenses can be provided under this Agreement.
9. SUCCESSORS.
(a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. Any failure of the Company to
obtain such agreement prior to the effectiveness of any such succession or
assignment shall be a material breach of this Agreement and shall entitle the
Executive to terminate the Executive's employment for Good Reason and receive
the compensation provided for in Section 4 hereof. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor or
assign to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Section 9 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts are still payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with
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the terms of this Agreement to the Executive's devisee, legatee or other
designee or, if there be no such designee, to the Executive's estate.
10. NOTICE.
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, as follows:
If to the Company:
Transaction Systems Architects, Inc.
224 South 108 Avenue
Omaha, NE 68154
Attn: President
If to the Executive:
----------------------------------------
----------------------------------------
----------------------------------------
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. MISCELLANEOUS.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same time or
at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Nebraska, without giving effect to any principles of conflicts of
law.
12. CONFLICT IN BENEFITS.
Except as otherwise provided in the preceding sentences, this Agreement
is not intended to and shall not limit or terminate any other agreement or
arrangement between the Executive and the Company presently in effect or
hereafter entered into.
13. VALIDITY.
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The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. SURVIVORSHIP.
The respective rights and obligations of the parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations and to the extent that any
performance is required following termination of this Agreement. Without
limiting the foregoing, Sections 7, 8 and 15 shall expressly survive the
termination of this Agreement.
15. LEGAL FEES AND EXPENSES.
If a claim or dispute arises concerning the rights of the Executive
under this Agreement, regardless of the party by whom such claim or dispute is
initiated, the Company shall, upon presentation of appropriate vouchers, pay all
legal expenses, including reasonable attorneys' fees, court costs, and ordinary
and necessary out-of-pocket costs of attorneys, billed to and payable by the
Executive or by anyone claiming under or through the Executive, in connection
with the bringing, prosecuting, arbitrating, defending, litigating, negotiating,
or settling such claim or dispute. In no event shall the Executive be required
to reimburse the Company for any of the costs or expenses incurred by the
Company relating to arbitration or litigation. Pending the outcome or resolution
of any claim or dispute, the Company shall continue payment of all amounts due
the Executive without regard to any dispute.
16. EFFECTIVE DATE.
This Agreement shall become effective upon execution.
17. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
18. NO GUARANTEE OF EMPLOYMENT.
Neither this Agreement nor any action taken hereunder shall be construed
as giving the Executive the right to be retained in employment with the Company,
nor shall it interfere with either the Company's right to terminate the
employment of the Executive at any time or the Executive's right to terminate
his employment at any time.
19. NO ASSIGNMENT BY EXECUTIVE.
Except as otherwise provided in Section 9(b), the Executive's rights and
interest under this Agreement shall not be assignable (in law or in equity) or
subject to any manner of alienation, sale, transfer, claims of creditors,
pledge, attachment, garnishment, levy, execution or encumbrances of any kind.
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20. WAIVER.
The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement shall not be deemed a waiver of
such provision or any other provision of this Agreement. Any waiver of any
provision of this Agreement shall not be deemed to be a waiver of any other
provision, and any waiver of default in any provision of this Agreement shall
not be deemed to be a waiver of any later default thereof or of any other
provision.
21. WITHHOLDING.
All amounts paid pursuant to this Agreement shall be subject to
withholding for taxes (federal, state, local or otherwise) to the extent
required by applicable law.
22. HEADINGS.
The headings of this Agreement have been inserted for convenience of
reference only and are to be ignored in the construction of the provisions
hereof.
23. NUMBER AND GENDER.
The use of the singular shall be interpreted to include the plural and
the plural the singular, as the context requires. The use of the masculine,
feminine or neuter shall be interpreted to include the masculine, feminine or
neuter as the context shall require.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
TRANSACTION SYSTEMS ARCHITECTS, INC.
Date: By:
------------------- ---------------------------
EXECUTIVE:
Date:
------------------- ------------------------------
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APPENDIX A
EXAMPLE 1 - Executive was employed by the Company for 1-1/3 fiscal
years preceding the fiscal year in which a Change in Control of the
Company occurs. The Executive's Compensation from the Company was
$30,000 for the 4-month period and $120,000 for the full fiscal year.
The Executive's Base Amount is $105,000.
Year 1: 3 x $30,000 = $90,000
Year 2: $120,000
[90,000 + 120,000] / 2 = $105,000
$105,000 is the average fiscal-year
Compensation for the Base Period.
EXAMPLE 2 - Assume the same facts as in Example 1, except that the
Executive also received a $70,000 sign-on bonus when his employment
with the Company commenced at the beginning of the 4-month period.
The Executive's Base Amount is $140,000
Year 1: [3 x $30,000] + $70,000 = $160,000
Year 2: $120,000
[160,000 + 120,000] / 2 = $140,000
Since the sign-on bonus will not be paid more often than once per
fiscal year, the amount of the bonus is not increased in annualizing
the Executive's Compensation for the 4-month period.
EXAMPLE 3 - Executive was employed by the Company for the last 4 months
of the fiscal year preceding the fiscal year in which a Change in
Control of the Company occurs. The Executive's Compensation from the
Company was $30,000 for the 4-month period. The Executive's Base Amount
is $90,000.
Year 1: 3 x $30,000 = $90,000
$90,000 / 1 = $90,000
$90,000 is the average fiscal-year
Compensation for the Base Period.
<PAGE>
SEVERANCE COMPENSATION AGREEMENT
SEVERANCE COMPENSATION AGREEMENT dated as of July 31, 1999 between
Transaction Systems Architects, Inc., a Delaware corporation (the "Company"),
and Edward H. Mangold (the "Executive").
WHEREAS, the Company's Board of Directors has determined that it is
appropriate to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in potentially disturbing circumstances arising from
the possibility of a change in control of the Company;
NOW, THEREFORE, this Agreement sets forth the severance compensation
which the Company agrees it will pay to the Executive if the Executive's
employment with the Company terminates under certain circumstances described
herein following a Change in Control (as defined herein) and the other benefits
the Company will provide the Executive following a Change in Control.
1. TERM.
This Agreement shall terminate, except to the extent that any
obligation of the Company hereunder remains unpaid as of such time, upon the
earlier of (i) the termination of Executive's employment for any reason prior to
a Change in Control; and (ii) three years after the date of a Change in Control.
2. CHANGE IN CONTROL.
For purposes of this Agreement, Change in Control shall mean:
(a) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person"), of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a Change
in Control: (A) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege), (B) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (C)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in subclauses (i), (ii) and (iii) of clause (c) of this
Section 2 are satisfied; or
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(b) if individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least
two-thirds of the directors then constituting the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest
subject to Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(c) approval by the stockholders of the Company of a reorganization,
merger or consolidation, unless following such reorganization, merger or
consolidation (i) more than 60% of, respectively, the then-outstanding shares of
common stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger, or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the resulting corporation owned by the Company's stockholders, but
not from the total number of outstanding shares and voting securities of the
resulting corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (ii) no Person (excluding the Company, any employee
benefit plan (or related trust) of the Company, any qualified employee benefit
plan of such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then-outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(d) (i) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company or (ii) the first to occur of (A) the
sale or other disposition (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company, or (B)
the approval by the stockholders of the Company of any such sale or disposition,
other than, in each case, any such sale or disposition to a corporation, with
respect to
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which immediately thereafter, (1) more than 60% of, respectively, the
then-outstanding shares of common stock of such corporation and the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such sale or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the transferee corporation owned by the Company's stockholders,
but not from the total number of outstanding shares and voting securities of the
transferee corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (2) no Person (excluding the Company and any
employee benefit plan (or related trust) of the Company, any qualified employee
benefit plan of such transferee corporation and any Person beneficially owning,
immediately prior to such sale or other disposition, directly or indirectly, 20%
or more of the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 20%
or more of, respectively, the then-outstanding shares of common stock of such
transferee corporation and the combined voting power of the then-outstanding
voting securities of such transferee corporation entitled to vote generally in
the election of directors and (3) at least a majority of the members of the
board of directors of such transferee corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or action of the
board providing for such sale or other disposition of assets of the Company.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL.
(a) The Executive shall be entitled to the compensation provided in
Section 4 of this Agreement if all of the following conditions are satisfied:
(i) there is a Change in Control of the Company while the
Executive is still an employee of the Company;
(ii) the Executive's employment with the Company is terminated
within two years after the Change in Control; and
(iii) the Executive's termination of employment is not a result
of (A) the Executive's death; (B) the Executive's Disability (as
defined in Section 3(b) below; (C) the Executive's Retirement (as
defined in Section 3(c) below); (D) the Executive's termination by the
Company for Cause (as defined in Section 3(d) below); or (E) the
Executive's decision to terminate employment other than for Good Reason
(as defined in Section 3(e) below).
(b) If, as a result of the Executive's incapacity due to physical or
mental illness, the Executive shall have been unable, with or without a
reasonable accommodation, to perform his duties with the Company on a full-time
basis for six months and within 30 days after a Notice of
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Termination (as defined in Section 3(f) below) is thereafter given by the
Company, the Executive shall not have returned to the full-time performance of
the Executive's duties, the Company may terminate the Executive's employment for
"Disability". If there is a Change in Control of the Company while the Executive
is still an employee and if the Executive's employment with the Company is
terminated for Disability within two years after the Change in Control, the
Executive shall be entitled to receive in a lump sum cash payment within five
days after his Date of Termination (as defined in Section 3(g) below) the
following:
(i) one times the Base Amount (as defined in Section 4(b)(i))
determined with respect to the Base Period (as defined in Section
4(b)(ii)); plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points.
(c) For purposes of this Agreement only, "Retirement" shall mean
termination by the Company or the Executive of the Executive's employment based
on the Executive's having reached age 65 or such other age as shall have been
fixed in any arrangement established pursuant to this Agreement with the
Executive's consent with respect to the Executive.
(d) For purposes of this Agreement only, "Cause" shall mean: (i) the
Executive's conviction of a felony involving moral turpitude; or (ii) the
Executive's serious, willful gross misconduct or willful gross neglect of duties
(other than any such neglect resulting from the Executive's incapacity due to
physical or mental illness or any such neglect after the issuance of a Notice of
Termination by the Executive for Good Reason, as such terms are defined in
subsections (e) and (f) below), which, in either case, has resulted, or in all
probability is likely to result, in material economic damage to the Company;
provided no act or failure to act by the Executive will constitute "Cause" under
clause (ii) if the Executive believed in good faith that such act or failure to
act was in the best interest of the Company.
For purposes of this Agreement only, any termination of the Executive's
employment by the Company for Cause shall be authorized by a vote of at least a
majority of the non-employee members of the Board of Directors of the Company
(the "Board") within 12 months of a majority of such non-employee members of the
Board having actual knowledge of the event or circumstances providing a basis
for such termination. In the case of clause (ii) of the second
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sentence of this subsection (d), the Executive shall be given notice by the
Board specifying in detail the particular act or failure to act on which the
Board is relying in proposing to terminate him for Cause and offering the
Executive an opportunity, on a date at least 14 days after receipt of such
notice, to have a hearing, with counsel, before a majority of the non-employee
members of the Board, including each of the members of the Board who authorized
the termination for Cause. The Executive shall not be terminated for Cause if,
within 30 days after the date of the Executive's hearing before the Board (or if
the Executive waives a hearing, within 30 days after receiving notice of the
proposed termination), he has corrected the particular act or failure to act
specified in the notice and by so correcting such act or failure to act he has
reduced the economic damage his act or failure to act has allegedly caused the
Company to a level which is no longer material or has eliminated the probability
that such act or failure to act is likely to result in material economic damage
to the Company. No termination for Cause shall take effect until the expiration
of the correction period described in the preceding sentence and the
determination by a majority of the non-employee members of the Board that the
Executive has failed to correct the act or failure to act in accordance with the
terms of the preceding sentence.
Anything herein to the contrary notwithstanding, if, following a
termination of the Executive's employment by the Company for Cause based upon
the conviction of the Executive for a felony involving moral turpitude such
conviction is finally overturned on appeal, the Executive shall be entitled to
the compensation provided in Sections 4(a) and 4(c). In lieu of the interest
provided in clause (iv) of the first sentence of Section 4(a) and the interest
provided in the second sentence of Section 4(c), however, the compensation
provided in Sections 4(a) and 4(c) shall be increased by a ten percent rate of
interest, compounded annually, calculated from the date such compensation would
have been paid if the Executive's employment had been terminated without Cause.
(e) For purposes of this Agreement, "Good Reason" shall mean, after any
Change in Control and without the Executive's express written consent, any of
the following:
(i) a significant diminution in the Executive's duties and
responsibilities, or the assignment to the Executive by the Company of
duties inconsistent with the Executive's position, duties,
responsibilities or status with the Company immediately prior to a
Change in Control of the Company, or a change in the Executive's titles
or offices as in effect immediately prior to a Change in Control of the
Company, or any removal of the Executive from or any failure to
re-elect the Executive to any of such positions, except in connection
with the termination of his employment for Disability, Retirement or
Cause or as a result of the Executive's death or by the Executive other
than for Good Reason;
(ii) a reduction by the Company in the Executive's annual rate
of base salary as in effect on the date hereof or as the same may be
increased from time to time during the term of this Agreement or the
Company's failure to increase (within 12 months of the Executive's last
increase in his annual rate of base salary) the Executive's annual rate
of base salary after a Change in Control of the Company in an amount
which at least equals, on a percentage basis, the greater of (A) the
average percentage increase in the annual rate
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<PAGE>
of base salary for all officers of the Company effected in the
preceding 12 months; or (B) the Consumer Price Index as published by
the United States Government (or, in the event such index is
discontinued, any similar index published by the United States
Government as designated in good faith by the Executive); provided,
however, that nothing contained in this clause (ii) shall be construed
under any circumstances as permitting the Company to decrease the
Executive's annual rate of base salary;
(iii) (A) any failure by the Company to continue in effect any
benefit plan or arrangement (including, without limitation, the life
insurance, medical, dental, accident and disability plans) in which the
Executive is participating at the time of a Change in Control of the
Company, or any other plan or arrangement providing the Executive with
benefits that are no less favorable (hereinafter referred to as
"Benefit Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such Benefit Plan or deprive
the Executive of any material fringe benefit or perquisite of office
enjoyed by the Executive at the time of a Change in Control of the
Company, unless in the case of either subclause (A) or (B) above, there
is substituted a comparable plan or program that is economically
equivalent or superior, in terms of the benefit offered to the
Executive, to the Benefit Plan being altered, reduced, affected or
ended;
(iv) (A) any failure by the Company to continue in effect any
incentive plan or arrangement (including, without limitation, the
Company's bonus arrangements, the Transaction Systems Architects, Inc.
Deferred Compensation Plan, the Transaction Systems Architects, Inc.
401(k) Plan, the sales incentive plans, and the management incentive
plans) in which the Executive is participating at the time of a Change
in Control of the Company, or any other plans or arrangements providing
him with substantially similar benefits, (hereinafter referred to as
"Incentive Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in any such
Incentive Plan or reduce the Executive's benefits under any such
Incentive Plan, unless in the case of either subclause (A) or (B)
above, there is substituted a comparable plan or program that is
economically equivalent or superior, in terms of the benefit offered to
the Executive, to the Incentive Plan being altered, reduced, affected
or ended, or (C) any failure by the Company with respect to any fiscal
year to make an award to the Executive pursuant to each such Incentive
Plan or such substituted comparable plan or program equal to or greater
than the greater of (1) the award (whether paid or payable in cash or
in securities of the Company) made to the Executive pursuant to such
Incentive Plan or such substituted comparable plan or program with
respect to the immediately preceding fiscal year or (2) the average
annual award (whether paid or payable in cash or in securities of the
Company) made to the Executive pursuant to such Incentive Plan or such
substituted comparable plan with respect to the prior three fiscal
years (or such lesser number of prior fiscal years that the Executive
was employed by the Company or that the Incentive Plan (together with
any substituted comparable plan) was maintained);
(v) (A) any failure by the Company to continue in effect any
plan or arrangement to receive securities of the Company (including,
without limitation, the
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Transaction Systems Architects, Inc. 1999 Employee Stock Purchase Plan
and the Transaction Systems Architects Inc. 1999 Stock Option Plan) in
which the Executive is participating at the time of a Change in Control
of the Company, or any other plan or arrangement providing him with
substantially similar benefits, (hereinafter referred to as "Securities
Plans"), (B) the taking of any action by the Company which would
adversely affect the Executive's participation in or materially reduce
the Executive's benefits under any such Securities Plan, unless in the
case of either subclause (A) or (B) above, there is substituted a
comparable plan or program that is economically equivalent or superior,
in terms of the benefit offered to the Executive, to the Securities
Plan being altered, reduced, affected or ended, or (C) any failure by
the Company in any fiscal year to grant stock options, stock
appreciation rights or securities awards to the Executive pursuant to
such Securities Plans with respect to an aggregate number of securities
of the Company of each kind that is equal to or greater than the
greater of (1) the aggregate number of securities of the Company of
that kind covered by stock options, stock appreciation rights or
securities awards granted to the Executive pursuant to such Securities
Plans in the immediately preceding fiscal year or (2) the average
annual aggregate number of securities of the Company of that kind
covered by stock options, stock appreciation rights, or securities
awards granted to the Executive pursuant to such Securities Plans in
the prior three fiscal years; and provided further the material terms
and conditions of such stock options, stock appreciation rights, and
securities awards granted to the Executive after the Change in Control
(including, but not limited to, the exercise price, vesting schedule,
period and methods of exercise, expiration date, forfeiture provisions
and other restrictions) are substantially similar to the material terms
and conditions of the stock options, stock appreciation rights, and
securities awards granted to the Executive under the Securities Plans
immediately prior to the Change in Control of the Company;
(vi) the Executive's relocation more than 50 miles from the
location at which the Executive performed the Executive's duties prior
to a Change in Control of the Company, except for required travel by
the Executive on the Company's business to an extent substantially
consistent with the Executive's business travel obligations at the time
of a Change in Control of the Company;
(vii) any failure by the Company to provide the Executive with
the number of annual paid vacation days to which the Executive is
entitled for the year in which a Change in Control of the Company
occurs;
(viii) any material breach by the Company of any provision of
this Agreement;
(ix) any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company prior to such
succession or assignment;
(x) any failure by the Company or its successor to enter into
an agreement with the Executive that is substantially similar to this
Agreement with respect to a Change in Control of the Company or its
successor occurring thereafter; or
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(xi) any purported termination of the Executive's employment
by the Company pursuant to Section 3(b), 3(c) or 3(d) above which is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 3(f) below (and, if applicable, Section 3(d)
above), and for purposes of this Agreement, no such purported
termination shall be effective.
For purposes of this subsection (e), an isolated, immaterial, and inadvertent
action not taken in bad faith by the Company in violation of clause (ii), (iii),
(iv), (v) or (vii) of this subsection that is remedied by the Company promptly
after receipt of notice thereof given by the Executive shall not be considered
Good Reason for the Executive's termination of employment with the Company. In
the event the Executive terminates his employment for Good Reason hereunder,
then notwithstanding that the Executive may also retire for purposes of the
Benefit Plans, Incentive Plans or Securities Plans, the Executive shall be
deemed to have terminated his employment for Good Reason for purposes of this
Agreement.
(f) Any termination of the Executive by the Company pursuant to Section
3(b), 3(c) or 3(d) above, or by the Executive pursuant to Section 3(e) above,
shall be communicated by a Notice of Termination to the other party hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate those specific termination provisions in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. For purposes of this Agreement, no
such purported termination by the Company shall be effective without such Notice
of Termination.
(g) "Date of Termination" shall mean (i) if the Executive's employment
is terminated by the Company for Disability, 30 days after Notice of Termination
is given to the Executive (provided that the Executive shall not have returned
to the performance of the Executive's duties on a full-time basis during such
30-day period), (ii) if the Executive's employment is terminated by the
Executive for Good Reason, the date specified in the Notice of Termination, and
(iii) if the Executive's employment is terminated by the Company for any other
reason, the date on which a Notice of Termination is given; provided, however,
that if within 30 days after any Notice of Termination is given to the Executive
by the Company, the Executive notifies the Company that a dispute exists
concerning the termination, the Date of Termination shall be the date the
dispute is finally determined, whether by mutual written agreement of the
parties or upon final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected).
4. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT.
(a) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Company shall pay to the
Executive in a lump sum cash payment within five days after the Date of
Termination the following:
(i) the Severance Amount as defined in Section 4(b) below;
plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
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(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points,
compounded annually.
(b) "Severance Amount" shall mean an amount equal to one times the Base
Amount (as defined below) determined with respect to the Base Period (as defined
below); provided, however, in no event shall the Severance Amount be less than
two times the Executive's annual rate of base salary at the higher of the annual
rate in effect (i) immediately prior to the Date of Termination or (ii) on the
date six months prior to the Date of Termination. For purposes of this
subsection (b):
(i) "Base Amount" means the Executive's average fiscal-year
Compensation (as defined below) for fiscal years of the Company in the
Base Period. Such average shall be computed by dividing the total of
the Executive's Compensation for the Base Period by the number of
fiscal years in the Base Period. If the Executive's Base Period
includes a portion of a fiscal year during which he was not an employee
of the Company (or a predecessor entity or a related entity, as such
terms are defined in clause (iii) below), the Executive's Compensation
for such fiscal year shall be annualized before determining the average
fiscal-year Compensation for the Base Period. In annualizing
Compensation, the frequency with which payments are expected to be made
over a fiscal year shall be taken into account; thus, any amount of
Compensation that represents a payment that will not be made more often
than once per fiscal year is not annualized. Set forth on Appendix A,
which is attached hereto and made a part hereof, are three examples
illustrating the calculation of the Base Amount.
(ii) "Base Period" means the most recent two consecutive
fiscal years of the Company ending prior to the Date of Termination.
However, if the Executive was not an employee of the Company (or a
predecessor entity or a related entity, as such terms are defined in
clause (iii) below) at any time during one of such two fiscal years,
the Executive's Base Period is the one fiscal year of such
two-fiscal-year period during which the Executive performed personal
services for the Company or a predecessor entity or a related entity.
(iii) "Compensation" means the compensation which was payable
by the Company, by a predecessor entity, or by a related entity and
which was includible in the gross income of the Executive (or either
was excludible from such gross income as
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"foreign earned income" within the meaning of Section 911 of the
Internal Revenue Code of 1986, as amended (the "Code"), or would have
been includible in such gross income if the Executive had been a United
States citizen or resident), but excluding the following: (A) amounts
realized from the exercise of a non-qualified stock option; and (B)
amounts realized from the sale, exchange or other disposition of stock
acquired under an incentive stock option described in Code Section
422(b) or under an employee stock purchase plan described in Code
Section 423(b). Notwithstanding the preceding sentence, Compensation
shall be determined without regard to any compensation deferral
election under any plan, program or arrangement, qualified or
nonqualified, maintained or contributed to by the Company, a
predecessor entity or a related entity, including but not limited to a
cash-or-deferred arrangement described in Code Section 401(k), a
cafeteria plan described in Code Section 125 or a nonqualified deferred
compensation plan. A "predecessor entity" is any entity which, as a
result of a merger, consolidation, purchase or acquisition of property
or stock, corporate separation, or other similar business transaction
transfers some or all of its employees to the Company or to a related
entity or to a predecessor entity of the Company. The term "related
entity" includes any entity treated as a single employer with the
Company in accordance with subsections (b), (c), (m) and (o) of Code
Section 414.
(c) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Executive will be entitled to
continued participation in all employee benefit plans or programs available to
Company employees generally in which the Executive was participating on the Date
of Termination, such continued participation to be at Company cost and otherwise
on the same basis as Company employees generally, until the earlier of (i) the
date, or dates, he receives equivalent coverage and benefits under the plans and
programs of a subsequent employer (such coverages and benefits to be determined
on a coverage-by-coverage or benefit-by-benefit basis) or (ii) two years from
the Date of Termination; provided (A) if the Executive is precluded from
continuing his participation in any employee benefit plan or program as provided
in this sentence, he shall be paid, in a lump sum cash payment, within 30 days
following the date it is determined he is unable to participate in any employee
benefit plan or program, the after-tax economic equivalent of the benefits
provided under the plan or program in which he is unable to participate for the
period specified in this sentence, and (B) the economic equivalent of any
benefit foregone shall be deemed to be the lowest cost that would be incurred by
the Executive in obtaining such benefit for himself (including family or
dependent coverage, if applicable) on an individual basis. The Executive shall
be eligible for group health plan continuation coverage under and in accordance
with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended,
when he ceases to be eligible for continued participation in the Company's group
health plan under this subsection (e).
5. NO OBLIGATION TO MITIGATE DAMAGES; NO EFFECT ON OTHER CONTRACTUAL
RIGHTS.
(a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation
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earned by the Executive as the result of employment by another employer after
the Date of Termination or otherwise.
(b) The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any Benefit Plan, Incentive Plan or
Securities Plan, employment agreement or other contract, plan or agreement with
or of the Company.
6. INCENTIVE AWARDS.
In the event of a Change in Control of the Company, then
notwithstanding the terms and conditions of any Incentive Plan, the Company
agrees (i) to immediately and fully vest all unvested awards, units, and
benefits (other than options to acquire securities of the Company or awards of
securities of the Company) which have been awarded or allocated to the Executive
under the Incentive Plans; and (ii) upon the exercise of such awards or units or
the distribution of such benefits, to pay all amounts due under the Incentive
Plans solely in cash.
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) All determinations required to be made under this Section 7,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by the Accounting Firm which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days after the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. The determination
of tax liability made by the Accounting Firm shall be subject to review by the
Executive's tax advisor, and, if the Executive's tax advisor does not agree with
the determination reached by the Accounting Firm, then the Accounting Firm and
the Executive's tax advisor shall jointly designate a nationally recognized
public accounting firm which shall make the determination. All fees and expenses
of the accountants and tax advisors retained by both the Executive and the
Company shall be borne solely by the Company. Any Gross-Up Payment, as
determined
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pursuant to this Section 7, shall be paid by the Company to the Executive within
five days after the receipt of the determination. Any determination by such
jointly designated public accounting firm shall be binding upon the Company and
the Executive. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination hereunder, it is possible
that Gross-Up Payments will not have been made by the Company that should have
been made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Executive hereafter is required to make a
payment of any Excise Tax, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive. Upon notice by the Executive of
any audit or other proceeding that may result in a liability to the Company
hereunder, the Executive shall promptly notify the Company of such audit or
other proceeding; and the Company may, at its option, but solely with respect to
the item or items that relate to such potential liability, choose to assume the
defense of such audit or other proceeding at its own cost, provided that (i) the
Executive shall cooperate with the Company in such defense and (ii) the Company
will not settle such audit or other proceeding without the consent of the
Executive (such consent not to be unreasonably withheld). The highest effective
marginal tax rate (determined by taking into account any reduction in itemized
deductions and/or exemptions attributable to the inclusion of the additional
amounts payable under this Section 7 in the Executive's adjusted gross or
taxable income) based upon the state and locality where the Executive is
resident at the time of payment of such amounts will be used for purposes of
determining the federal and state income and other taxes with respect thereto.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify the Executive to the fullest extent
permitted by law if the Executive is a party or threatened to be made a party to
any Proceeding (as defined below).
(b) If requested by the Executive, the Company shall advance (within
two business days of such request) any and all Expenses, as defined below,
relating to a Proceeding to the Executive (an "Expense Advance"), upon the
receipt of a written undertaking by or on behalf of the Executive to repay such
Expense Advance if a judgment or other final adjudication adverse to the
Executive (as to which all rights of appeal therefrom have been exhausted or
lapsed) establishes that the Executive is not entitled to indemnification by the
Company. Expenses shall include attorney's fees and all other costs, charges and
expenses paid or incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in any Proceeding.
(c) The Company agrees to obtain a directors' and officers' liability
insurance policy covering the Executive and to continue and maintain such
policy. The amount of coverage shall be reasonable in relation to the
Executive's position and responsibilities during his employment by the Company.
(d) This Section 8 is a supplement to and in furtherance of the
Certificate of Incorporation and Bylaws of the Company and shall not be deemed a
substitute therefor, or diminish or abrogate any rights of the Executive
thereunder.
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(e) For purposes of Section 8(a), the meaning of the phrase "to the
fullest extent permitted by law" shall include but not be limited to:
(i) to the fullest extent permitted by the provision of the
Delaware General Corporation Law ("DGCL") that authorizes or
contemplates additional indemnification by agreement, or the
corresponding provision of any amendment to or replacement of the DGCL,
and
(ii) to the fullest extent authorized or permitted by any
amendments to or replacements of the DGCL adopted after the date of
this Agreement that increase the extent to which a corporation may
indemnify its officers and directors.
(f) For purposes of Sections 8(a) and 8(b), "Proceeding" shall mean any
threatened, pending or completed action, suit, arbitration, alternate dispute
resolution mechanism, investigation, inquiry, administrative hearing or any
other actual, threatened or completed proceeding, whether brought in the right
of the Company or otherwise and whether of a civil, criminal, administrative or
investigative nature, in which the Executive was, is or will be involved as a
party or otherwise by reason of the fact that the Executive is or was a director
or officer of the Company, by reason of any action taken by him or of any action
on his part while acting as director or officer of the Company, or by reason of
the fact that he is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, in each case whether or not serving in such capacity
at the time any liability or expense is incurred for which indemnification,
reimbursement, or advancement of expenses can be provided under this Agreement.
9. SUCCESSORS.
(a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. Any failure of the Company to
obtain such agreement prior to the effectiveness of any such succession or
assignment shall be a material breach of this Agreement and shall entitle the
Executive to terminate the Executive's employment for Good Reason and receive
the compensation provided for in Section 4 hereof. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor or
assign to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Section 9 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts are still payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with
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the terms of this Agreement to the Executive's devisee, legatee or other
designee or, if there be no such designee, to the Executive's estate.
10. NOTICE.
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, as follows:
If to the Company:
Transaction Systems Architects, Inc.
224 South 108 Avenue
Omaha, NE 68154
Attn: President
If to the Executive:
_______________________________
_______________________________
_______________________________
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. MISCELLANEOUS.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same time or
at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Nebraska, without giving effect to any principles of conflicts of
law.
12. CONFLICT IN BENEFITS.
Except as otherwise provided in the preceding sentences, this Agreement
is not intended to and shall not limit or terminate any other agreement or
arrangement between the Executive and the Company presently in effect or
hereafter entered into.
13. VALIDITY.
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The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. SURVIVORSHIP.
The respective rights and obligations of the parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations and to the extent that any
performance is required following termination of this Agreement. Without
limiting the foregoing, Sections 7, 8 and 15 shall expressly survive the
termination of this Agreement.
15. LEGAL FEES AND EXPENSES.
If a claim or dispute arises concerning the rights of the Executive
under this Agreement, regardless of the party by whom such claim or dispute is
initiated, the Company shall, upon presentation of appropriate vouchers, pay all
legal expenses, including reasonable attorneys' fees, court costs, and ordinary
and necessary out-of-pocket costs of attorneys, billed to and payable by the
Executive or by anyone claiming under or through the Executive, in connection
with the bringing, prosecuting, arbitrating, defending, litigating, negotiating,
or settling such claim or dispute. In no event shall the Executive be required
to reimburse the Company for any of the costs or expenses incurred by the
Company relating to arbitration or litigation. Pending the outcome or resolution
of any claim or dispute, the Company shall continue payment of all amounts due
the Executive without regard to any dispute.
16. EFFECTIVE DATE.
This Agreement shall become effective upon execution.
17. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
18. NO GUARANTEE OF EMPLOYMENT.
Neither this Agreement nor any action taken hereunder shall be construed
as giving the Executive the right to be retained in employment with the Company,
nor shall it interfere with either the Company's right to terminate the
employment of the Executive at any time or the Executive's right to terminate
his employment at any time.
19. NO ASSIGNMENT BY EXECUTIVE.
Except as otherwise provided in Section 9(b), the Executive's rights and
interest under this Agreement shall not be assignable (in law or in equity) or
subject to any manner of alienation, sale, transfer, claims of creditors,
pledge, attachment, garnishment, levy, execution or encumbrances of any kind.
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20. WAIVER.
The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement shall not be deemed a waiver of
such provision or any other provision of this Agreement. Any waiver of any
provision of this Agreement shall not be deemed to be a waiver of any other
provision, and any waiver of default in any provision of this Agreement shall
not be deemed to be a waiver of any later default thereof or of any other
provision.
21. WITHHOLDING.
All amounts paid pursuant to this Agreement shall be subject to
withholding for taxes (federal, state, local or otherwise) to the extent
required by applicable law.
22. HEADINGS.
The headings of this Agreement have been inserted for convenience of
reference only and are to be ignored in the construction of the provisions
hereof.
23. NUMBER AND GENDER.
The use of the singular shall be interpreted to include the plural and
the plural the singular, as the context requires. The use of the masculine,
feminine or neuter shall be interpreted to include the masculine, feminine or
neuter as the context shall require.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
TRANSACTION SYSTEMS ARCHITECTS, INC.
Date: __________ By:___________________________
---------- ---------------------------
EXECUTIVE:
Date: __________ ______________________________
---------- ------------------------------
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APPENDIX A
EXAMPLE 1 - Executive was employed by the Company for 1-1/3 fiscal
years preceding the fiscal year in which a Change in Control of the
Company occurs. The Executive's Compensation from the Company was
$30,000 for the 4-month period and $120,000 for the full fiscal year.
The Executive's Base Amount is $105,000.
Year 1: 3 x $30,000 = $90,000
Year 2: $120,000
[90,000 + 120,000] / 2 = $105,000
$105,000 is the average fiscal-year
Compensation for the Base Period.
EXAMPLE 2 - Assume the same facts as in Example 1, except that the
Executive also received a $70,000 sign-on bonus when his employment
with the Company commenced at the beginning of the 4-month period.
The Executive's Base Amount is $140,000
Year 1: [3 x $30,000] + $70,000 = $160,000
Year 2: $120,000 [160,000 + 120,000] / 2 =
$140,000
Since the sign-on bonus will not be paid more often than once per
fiscal year, the amount of the bonus is not increased in annualizing
the Executive's Compensation for the 4-month period.
EXAMPLE 3 - Executive was employed by the Company for the last 4 months
of the fiscal year preceding the fiscal year in which a Change in
Control of the Company occurs. The Executive's Compensation from the
Company was $30,000 for the 4-month period. The Executive's Base Amount
is $90,000.
Year 1: 3 x $30,000 = $90,000
$90,000 / 1 = $90,000
$90,000 is the average fiscal-year
Compensation for the Base Period.
<PAGE>
SEVERANCE COMPENSATION AGREEMENT
SEVERANCE COMPENSATION AGREEMENT dated as of July 31, 1999 between
Transaction Systems Architects, Inc., a Delaware corporation (the "Company"),
and Matt McKain (the "Executive").
WHEREAS, the Company's Board of Directors has determined that it is
appropriate to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in potentially disturbing circumstances arising from
the possibility of a change in control of the Company;
NOW, THEREFORE, this Agreement sets forth the severance compensation
which the Company agrees it will pay to the Executive if the Executive's
employment with the Company terminates under certain circumstances described
herein following a Change in Control (as defined herein) and the other benefits
the Company will provide the Executive following a Change in Control.
1. TERM.
This Agreement shall terminate, except to the extent that any
obligation of the Company hereunder remains unpaid as of such time, upon the
earlier of (i) the termination of Executive's employment for any reason prior to
a Change in Control; and (ii) three years after the date of a Change in Control.
2. CHANGE IN CONTROL.
For purposes of this Agreement, Change in Control shall mean:
(a) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person"), of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a Change
in Control: (A) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege), (B) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (C)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in subclauses (i), (ii) and (iii) of clause (c) of this
Section 2 are satisfied; or
<PAGE>
(b) if individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least
two-thirds of the directors then constituting the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest
subject to Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(c) approval by the stockholders of the Company of a reorganization,
merger or consolidation, unless following such reorganization, merger or
consolidation (i) more than 60% of, respectively, the then-outstanding shares of
common stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger, or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the resulting corporation owned by the Company's stockholders, but
not from the total number of outstanding shares and voting securities of the
resulting corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (ii) no Person (excluding the Company, any employee
benefit plan (or related trust) of the Company, any qualified employee benefit
plan of such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then-outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(d) (i) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company or (ii) the first to occur of (A) the
sale or other disposition (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company, or (B)
the approval by the stockholders of the Company of any such sale or disposition,
other than, in each case, any such sale or disposition to a corporation, with
respect to
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which immediately thereafter, (1) more than 60% of, respectively, the
then-outstanding shares of common stock of such corporation and the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such sale or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the transferee corporation owned by the Company's stockholders,
but not from the total number of outstanding shares and voting securities of the
transferee corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (2) no Person (excluding the Company and any
employee benefit plan (or related trust) of the Company, any qualified employee
benefit plan of such transferee corporation and any Person beneficially owning,
immediately prior to such sale or other disposition, directly or indirectly, 20%
or more of the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 20%
or more of, respectively, the then-outstanding shares of common stock of such
transferee corporation and the combined voting power of the then-outstanding
voting securities of such transferee corporation entitled to vote generally in
the election of directors and (3) at least a majority of the members of the
board of directors of such transferee corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or action of the
board providing for such sale or other disposition of assets of the Company.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL.
(a) The Executive shall be entitled to the compensation provided in
Section 4 of this Agreement if all of the following conditions are satisfied:
(i) there is a Change in Control of the Company while the
Executive is still an employee of the Company;
(ii) the Executive's employment with the Company is terminated
within two years after the Change in Control; and
(iii) the Executive's termination of employment is not a result
of (A) the Executive's death; (B) the Executive's Disability (as
defined in Section 3(b) below; (C) the Executive's Retirement (as
defined in Section 3(c) below); (D) the Executive's termination by the
Company for Cause (as defined in Section 3(d) below); or (E) the
Executive's decision to terminate employment other than for Good Reason
(as defined in Section 3(e) below).
(b) If, as a result of the Executive's incapacity due to physical or
mental illness, the Executive shall have been unable, with or without a
reasonable accommodation, to perform his duties with the Company on a full-time
basis for six months and within 30 days after a Notice of
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Termination (as defined in Section 3(f) below) is thereafter given by the
Company, the Executive shall not have returned to the full-time performance of
the Executive's duties, the Company may terminate the Executive's employment for
"Disability". If there is a Change in Control of the Company while the Executive
is still an employee and if the Executive's employment with the Company is
terminated for Disability within two years after the Change in Control, the
Executive shall be entitled to receive in a lump sum cash payment within five
days after his Date of Termination (as defined in Section 3(g) below) the
following:
(i) one times the Base Amount (as defined in Section 4(b)(i))
determined with respect to the Base Period (as defined in Section
4(b)(ii)); plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points.
(c) For purposes of this Agreement only, "Retirement" shall mean
termination by the Company or the Executive of the Executive's employment based
on the Executive's having reached age 65 or such other age as shall have been
fixed in any arrangement established pursuant to this Agreement with the
Executive's consent with respect to the Executive.
(d) For purposes of this Agreement only, "Cause" shall mean: (i) the
Executive's conviction of a felony involving moral turpitude; or (ii) the
Executive's serious, willful gross misconduct or willful gross neglect of duties
(other than any such neglect resulting from the Executive's incapacity due to
physical or mental illness or any such neglect after the issuance of a Notice of
Termination by the Executive for Good Reason, as such terms are defined in
subsections (e) and (f) below), which, in either case, has resulted, or in all
probability is likely to result, in material economic damage to the Company;
provided no act or failure to act by the Executive will constitute "Cause" under
clause (ii) if the Executive believed in good faith that such act or failure to
act was in the best interest of the Company.
For purposes of this Agreement only, any termination of the Executive's
employment by the Company for Cause shall be authorized by a vote of at least a
majority of the non-employee members of the Board of Directors of the Company
(the "Board") within 12 months of a majority of such non-employee members of the
Board having actual knowledge of the event or circumstances providing a basis
for such termination. In the case of clause (ii) of the second
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sentence of this subsection (d), the Executive shall be given notice by the
Board specifying in detail the particular act or failure to act on which the
Board is relying in proposing to terminate him for Cause and offering the
Executive an opportunity, on a date at least 14 days after receipt of such
notice, to have a hearing, with counsel, before a majority of the non-employee
members of the Board, including each of the members of the Board who authorized
the termination for Cause. The Executive shall not be terminated for Cause if,
within 30 days after the date of the Executive's hearing before the Board (or if
the Executive waives a hearing, within 30 days after receiving notice of the
proposed termination), he has corrected the particular act or failure to act
specified in the notice and by so correcting such act or failure to act he has
reduced the economic damage his act or failure to act has allegedly caused the
Company to a level which is no longer material or has eliminated the probability
that such act or failure to act is likely to result in material economic damage
to the Company. No termination for Cause shall take effect until the expiration
of the correction period described in the preceding sentence and the
determination by a majority of the non-employee members of the Board that the
Executive has failed to correct the act or failure to act in accordance with the
terms of the preceding sentence.
Anything herein to the contrary notwithstanding, if, following a
termination of the Executive's employment by the Company for Cause based upon
the conviction of the Executive for a felony involving moral turpitude such
conviction is finally overturned on appeal, the Executive shall be entitled to
the compensation provided in Sections 4(a) and 4(c). In lieu of the interest
provided in clause (iv) of the first sentence of Section 4(a) and the interest
provided in the second sentence of Section 4(c), however, the compensation
provided in Sections 4(a) and 4(c) shall be increased by a ten percent rate of
interest, compounded annually, calculated from the date such compensation would
have been paid if the Executive's employment had been terminated without Cause.
(e) For purposes of this Agreement, "Good Reason" shall mean, after any
Change in Control and without the Executive's express written consent, any of
the following:
(i) a significant diminution in the Executive's duties and
responsibilities, or the assignment to the Executive by the Company of
duties inconsistent with the Executive's position, duties,
responsibilities or status with the Company immediately prior to a
Change in Control of the Company, or a change in the Executive's titles
or offices as in effect immediately prior to a Change in Control of the
Company, or any removal of the Executive from or any failure to
re-elect the Executive to any of such positions, except in connection
with the termination of his employment for Disability, Retirement or
Cause or as a result of the Executive's death or by the Executive other
than for Good Reason;
(ii) a reduction by the Company in the Executive's annual rate
of base salary as in effect on the date hereof or as the same may be
increased from time to time during the term of this Agreement or the
Company's failure to increase (within 12 months of the Executive's last
increase in his annual rate of base salary) the Executive's annual rate
of base salary after a Change in Control of the Company in an amount
which at least equals, on a percentage basis, the greater of (A) the
average percentage increase in the annual rate
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of base salary for all officers of the Company effected in the
preceding 12 months; or (B) the Consumer Price Index as published by
the United States Government (or, in the event such index is
discontinued, any similar index published by the United States
Government as designated in good faith by the Executive); provided,
however, that nothing contained in this clause (ii) shall be construed
under any circumstances as permitting the Company to decrease the
Executive's annual rate of base salary;
(iii) (A) any failure by the Company to continue in effect any
benefit plan or arrangement (including, without limitation, the life
insurance, medical, dental, accident and disability plans) in which the
Executive is participating at the time of a Change in Control of the
Company, or any other plan or arrangement providing the Executive with
benefits that are no less favorable (hereinafter referred to as
"Benefit Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such Benefit Plan or deprive
the Executive of any material fringe benefit or perquisite of office
enjoyed by the Executive at the time of a Change in Control of the
Company, unless in the case of either subclause (A) or (B) above, there
is substituted a comparable plan or program that is economically
equivalent or superior, in terms of the benefit offered to the
Executive, to the Benefit Plan being altered, reduced, affected or
ended;
(iv) (A) any failure by the Company to continue in effect any
incentive plan or arrangement (including, without limitation, the
Company's bonus arrangements, the Transaction Systems Architects, Inc.
Deferred Compensation Plan, the Transaction Systems Architects, Inc.
401(k) Plan, the sales incentive plans, and the management incentive
plans) in which the Executive is participating at the time of a Change
in Control of the Company, or any other plans or arrangements providing
him with substantially similar benefits, (hereinafter referred to as
"Incentive Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in any such
Incentive Plan or reduce the Executive's benefits under any such
Incentive Plan, unless in the case of either subclause (A) or (B)
above, there is substituted a comparable plan or program that is
economically equivalent or superior, in terms of the benefit offered to
the Executive, to the Incentive Plan being altered, reduced, affected
or ended, or (C) any failure by the Company with respect to any fiscal
year to make an award to the Executive pursuant to each such Incentive
Plan or such substituted comparable plan or program equal to or greater
than the greater of (1) the award (whether paid or payable in cash or
in securities of the Company) made to the Executive pursuant to such
Incentive Plan or such substituted comparable plan or program with
respect to the immediately preceding fiscal year or (2) the average
annual award (whether paid or payable in cash or in securities of the
Company) made to the Executive pursuant to such Incentive Plan or such
substituted comparable plan with respect to the prior three fiscal
years (or such lesser number of prior fiscal years that the Executive
was employed by the Company or that the Incentive Plan (together with
any substituted comparable plan) was maintained);
(v) (A) any failure by the Company to continue in effect any
plan or arrangement to receive securities of the Company (including,
without limitation, the
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Transaction Systems Architects, Inc. 1999 Employee Stock Purchase Plan
and the Transaction Systems Architects Inc. 1999 Stock Option Plan) in
which the Executive is participating at the time of a Change in Control
of the Company, or any other plan or arrangement providing him with
substantially similar benefits, (hereinafter referred to as "Securities
Plans"), (B) the taking of any action by the Company which would
adversely affect the Executive's participation in or materially reduce
the Executive's benefits under any such Securities Plan, unless in the
case of either subclause (A) or (B) above, there is substituted a
comparable plan or program that is economically equivalent or superior,
in terms of the benefit offered to the Executive, to the Securities
Plan being altered, reduced, affected or ended, or (C) any failure by
the Company in any fiscal year to grant stock options, stock
appreciation rights or securities awards to the Executive pursuant to
such Securities Plans with respect to an aggregate number of securities
of the Company of each kind that is equal to or greater than the
greater of (1) the aggregate number of securities of the Company of
that kind covered by stock options, stock appreciation rights or
securities awards granted to the Executive pursuant to such Securities
Plans in the immediately preceding fiscal year or (2) the average
annual aggregate number of securities of the Company of that kind
covered by stock options, stock appreciation rights, or securities
awards granted to the Executive pursuant to such Securities Plans in
the prior three fiscal years; and provided further the material terms
and conditions of such stock options, stock appreciation rights, and
securities awards granted to the Executive after the Change in Control
(including, but not limited to, the exercise price, vesting schedule,
period and methods of exercise, expiration date, forfeiture provisions
and other restrictions) are substantially similar to the material terms
and conditions of the stock options, stock appreciation rights, and
securities awards granted to the Executive under the Securities Plans
immediately prior to the Change in Control of the Company;
(vi) the Executive's relocation more than 50 miles from the
location at which the Executive performed the Executive's duties prior
to a Change in Control of the Company, except for required travel by
the Executive on the Company's business to an extent substantially
consistent with the Executive's business travel obligations at the time
of a Change in Control of the Company;
(vii) any failure by the Company to provide the Executive with
the number of annual paid vacation days to which the Executive is
entitled for the year in which a Change in Control of the Company
occurs;
(viii) any material breach by the Company of any provision of
this Agreement;
(ix) any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company prior to such
succession or assignment;
(x) any failure by the Company or its successor to enter into
an agreement with the Executive that is substantially similar to this
Agreement with respect to a Change in Control of the Company or its
successor occurring thereafter; or
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(xi) any purported termination of the Executive's employment
by the Company pursuant to Section 3(b), 3(c) or 3(d) above which is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 3(f) below (and, if applicable, Section 3(d)
above), and for purposes of this Agreement, no such purported
termination shall be effective.
For purposes of this subsection (e), an isolated, immaterial, and inadvertent
action not taken in bad faith by the Company in violation of clause (ii), (iii),
(iv), (v) or (vii) of this subsection that is remedied by the Company promptly
after receipt of notice thereof given by the Executive shall not be considered
Good Reason for the Executive's termination of employment with the Company. In
the event the Executive terminates his employment for Good Reason hereunder,
then notwithstanding that the Executive may also retire for purposes of the
Benefit Plans, Incentive Plans or Securities Plans, the Executive shall be
deemed to have terminated his employment for Good Reason for purposes of this
Agreement.
(f) Any termination of the Executive by the Company pursuant to Section
3(b), 3(c) or 3(d) above, or by the Executive pursuant to Section 3(e) above,
shall be communicated by a Notice of Termination to the other party hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate those specific termination provisions in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. For purposes of this Agreement, no
such purported termination by the Company shall be effective without such Notice
of Termination.
(g) "Date of Termination" shall mean (i) if the Executive's employment
is terminated by the Company for Disability, 30 days after Notice of Termination
is given to the Executive (provided that the Executive shall not have returned
to the performance of the Executive's duties on a full-time basis during such
30-day period), (ii) if the Executive's employment is terminated by the
Executive for Good Reason, the date specified in the Notice of Termination, and
(iii) if the Executive's employment is terminated by the Company for any other
reason, the date on which a Notice of Termination is given; provided, however,
that if within 30 days after any Notice of Termination is given to the Executive
by the Company, the Executive notifies the Company that a dispute exists
concerning the termination, the Date of Termination shall be the date the
dispute is finally determined, whether by mutual written agreement of the
parties or upon final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected).
4. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT.
(a) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Company shall pay to the
Executive in a lump sum cash payment within five days after the Date of
Termination the following:
(i) the Severance Amount as defined in Section 4(b) below;
plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
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(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points,
compounded annually.
(b) "Severance Amount" shall mean an amount equal to one times the Base
Amount (as defined below) determined with respect to the Base Period (as defined
below); provided, however, in no event shall the Severance Amount be less than
two times the Executive's annual rate of base salary at the higher of the annual
rate in effect (i) immediately prior to the Date of Termination or (ii) on the
date six months prior to the Date of Termination. For purposes of this
subsection (b):
(i) "Base Amount" means the Executive's average fiscal-year
Compensation (as defined below) for fiscal years of the Company in the
Base Period. Such average shall be computed by dividing the total of
the Executive's Compensation for the Base Period by the number of
fiscal years in the Base Period. If the Executive's Base Period
includes a portion of a fiscal year during which he was not an employee
of the Company (or a predecessor entity or a related entity, as such
terms are defined in clause (iii) below), the Executive's Compensation
for such fiscal year shall be annualized before determining the average
fiscal-year Compensation for the Base Period. In annualizing
Compensation, the frequency with which payments are expected to be made
over a fiscal year shall be taken into account; thus, any amount of
Compensation that represents a payment that will not be made more often
than once per fiscal year is not annualized. Set forth on Appendix A,
which is attached hereto and made a part hereof, are three examples
illustrating the calculation of the Base Amount.
(ii) "Base Period" means the most recent two consecutive
fiscal years of the Company ending prior to the Date of Termination.
However, if the Executive was not an employee of the Company (or a
predecessor entity or a related entity, as such terms are defined in
clause (iii) below) at any time during one of such two fiscal years,
the Executive's Base Period is the one fiscal year of such
two-fiscal-year period during which the Executive performed personal
services for the Company or a predecessor entity or a related entity.
(iii) "Compensation" means the compensation which was payable
by the Company, by a predecessor entity, or by a related entity and
which was includible in the gross income of the Executive (or either
was excludible from such gross income as
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"foreign earned income" within the meaning of Section 911 of the
Internal Revenue Code of 1986, as amended (the "Code"), or would have
been includible in such gross income if the Executive had been a United
States citizen or resident), but excluding the following: (A) amounts
realized from the exercise of a non-qualified stock option; and (B)
amounts realized from the sale, exchange or other disposition of stock
acquired under an incentive stock option described in Code Section
422(b) or under an employee stock purchase plan described in Code
Section 423(b). Notwithstanding the preceding sentence, Compensation
shall be determined without regard to any compensation deferral
election under any plan, program or arrangement, qualified or
nonqualified, maintained or contributed to by the Company, a
predecessor entity or a related entity, including but not limited to a
cash-or-deferred arrangement described in Code Section 401(k), a
cafeteria plan described in Code Section 125 or a nonqualified deferred
compensation plan. A "predecessor entity" is any entity which, as a
result of a merger, consolidation, purchase or acquisition of property
or stock, corporate separation, or other similar business transaction
transfers some or all of its employees to the Company or to a related
entity or to a predecessor entity of the Company. The term "related
entity" includes any entity treated as a single employer with the
Company in accordance with subsections (b), (c), (m) and (o) of Code
Section 414.
(c) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Executive will be entitled to
continued participation in all employee benefit plans or programs available to
Company employees generally in which the Executive was participating on the Date
of Termination, such continued participation to be at Company cost and otherwise
on the same basis as Company employees generally, until the earlier of (i) the
date, or dates, he receives equivalent coverage and benefits under the plans and
programs of a subsequent employer (such coverages and benefits to be determined
on a coverage-by-coverage or benefit-by-benefit basis) or (ii) two years from
the Date of Termination; provided (A) if the Executive is precluded from
continuing his participation in any employee benefit plan or program as provided
in this sentence, he shall be paid, in a lump sum cash payment, within 30 days
following the date it is determined he is unable to participate in any employee
benefit plan or program, the after-tax economic equivalent of the benefits
provided under the plan or program in which he is unable to participate for the
period specified in this sentence, and (B) the economic equivalent of any
benefit foregone shall be deemed to be the lowest cost that would be incurred by
the Executive in obtaining such benefit for himself (including family or
dependent coverage, if applicable) on an individual basis. The Executive shall
be eligible for group health plan continuation coverage under and in accordance
with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended,
when he ceases to be eligible for continued participation in the Company's group
health plan under this subsection (e).
5. NO OBLIGATION TO MITIGATE DAMAGES;
NO EFFECT ON OTHER CONTRACTUAL RIGHTS.
(a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation
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earned by the Executive as the result of employment by another employer after
the Date of Termination or otherwise.
(b) The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any Benefit Plan, Incentive Plan or
Securities Plan, employment agreement or other contract, plan or agreement with
or of the Company.
6. INCENTIVE AWARDS.
In the event of a Change in Control of the Company, then
notwithstanding the terms and conditions of any Incentive Plan, the Company
agrees (i) to immediately and fully vest all unvested awards, units, and
benefits (other than options to acquire securities of the Company or awards of
securities of the Company) which have been awarded or allocated to the Executive
under the Incentive Plans; and (ii) upon the exercise of such awards or units or
the distribution of such benefits, to pay all amounts due under the Incentive
Plans solely in cash.
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) All determinations required to be made under this Section 7,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by the Accounting Firm which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days after the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. The determination
of tax liability made by the Accounting Firm shall be subject to review by the
Executive's tax advisor, and, if the Executive's tax advisor does not agree with
the determination reached by the Accounting Firm, then the Accounting Firm and
the Executive's tax advisor shall jointly designate a nationally recognized
public accounting firm which shall make the determination. All fees and expenses
of the accountants and tax advisors retained by both the Executive and the
Company shall be borne solely by the Company. Any Gross-Up Payment, as
determined
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pursuant to this Section 7, shall be paid by the Company to the Executive within
five days after the receipt of the determination. Any determination by such
jointly designated public accounting firm shall be binding upon the Company and
the Executive. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination hereunder, it is possible
that Gross-Up Payments will not have been made by the Company that should have
been made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Executive hereafter is required to make a
payment of any Excise Tax, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive. Upon notice by the Executive of
any audit or other proceeding that may result in a liability to the Company
hereunder, the Executive shall promptly notify the Company of such audit or
other proceeding; and the Company may, at its option, but solely with respect to
the item or items that relate to such potential liability, choose to assume the
defense of such audit or other proceeding at its own cost, provided that (i) the
Executive shall cooperate with the Company in such defense and (ii) the Company
will not settle such audit or other proceeding without the consent of the
Executive (such consent not to be unreasonably withheld). The highest effective
marginal tax rate (determined by taking into account any reduction in itemized
deductions and/or exemptions attributable to the inclusion of the additional
amounts payable under this Section 7 in the Executive's adjusted gross or
taxable income) based upon the state and locality where the Executive is
resident at the time of payment of such amounts will be used for purposes of
determining the federal and state income and other taxes with respect thereto.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify the Executive to the fullest extent
permitted by law if the Executive is a party or threatened to be made a party to
any Proceeding (as defined below).
(b) If requested by the Executive, the Company shall advance (within
two business days of such request) any and all Expenses, as defined below,
relating to a Proceeding to the Executive (an "Expense Advance"), upon the
receipt of a written undertaking by or on behalf of the Executive to repay such
Expense Advance if a judgment or other final adjudication adverse to the
Executive (as to which all rights of appeal therefrom have been exhausted or
lapsed) establishes that the Executive is not entitled to indemnification by the
Company. Expenses shall include attorney's fees and all other costs, charges and
expenses paid or incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in any Proceeding.
(c) The Company agrees to obtain a directors' and officers' liability
insurance policy covering the Executive and to continue and maintain such
policy. The amount of coverage shall be reasonable in relation to the
Executive's position and responsibilities during his employment by the Company.
(d) This Section 8 is a supplement to and in furtherance of the
Certificate of Incorporation and Bylaws of the Company and shall not be deemed a
substitute therefor, or diminish or abrogate any rights of the Executive
thereunder.
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(e) For purposes of Section 8(a), the meaning of the phrase "to the
fullest extent permitted by law" shall include but not be limited to:
(i) to the fullest extent permitted by the provision of the
Delaware General Corporation Law ("DGCL") that authorizes or
contemplates additional indemnification by agreement, or the
corresponding provision of any amendment to or replacement of the DGCL,
and
(ii) to the fullest extent authorized or permitted by any
amendments to or replacements of the DGCL adopted after the date of
this Agreement that increase the extent to which a corporation may
indemnify its officers and directors.
(f) For purposes of Sections 8(a) and 8(b), "Proceeding" shall mean any
threatened, pending or completed action, suit, arbitration, alternate dispute
resolution mechanism, investigation, inquiry, administrative hearing or any
other actual, threatened or completed proceeding, whether brought in the right
of the Company or otherwise and whether of a civil, criminal, administrative or
investigative nature, in which the Executive was, is or will be involved as a
party or otherwise by reason of the fact that the Executive is or was a director
or officer of the Company, by reason of any action taken by him or of any action
on his part while acting as director or officer of the Company, or by reason of
the fact that he is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, in each case whether or not serving in such capacity
at the time any liability or expense is incurred for which indemnification,
reimbursement, or advancement of expenses can be provided under this Agreement.
9. SUCCESSORS.
(a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. Any failure of the Company to
obtain such agreement prior to the effectiveness of any such succession or
assignment shall be a material breach of this Agreement and shall entitle the
Executive to terminate the Executive's employment for Good Reason and receive
the compensation provided for in Section 4 hereof. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor or
assign to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Section 9 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts are still payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with
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the terms of this Agreement to the Executive's devisee, legatee or other
designee or, if there be no such designee, to the Executive's estate.
10. NOTICE.
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, as follows:
If to the Company:
Transaction Systems Architects, Inc.
224 South 108 Avenue
Omaha, NE 68154
Attn: President
If to the Executive:
---------------------------------------
---------------------------------------
---------------------------------------
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. MISCELLANEOUS.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same time or
at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Nebraska, without giving effect to any principles of conflicts of
law.
12. CONFLICT IN BENEFITS.
Except as otherwise provided in the preceding sentences, this Agreement
is not intended to and shall not limit or terminate any other agreement or
arrangement between the Executive and the Company presently in effect or
hereafter entered into.
13. VALIDITY.
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The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. SURVIVORSHIP.
The respective rights and obligations of the parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations and to the extent that any
performance is required following termination of this Agreement. Without
limiting the foregoing, Sections 7, 8 and 15 shall expressly survive the
termination of this Agreement.
15. LEGAL FEES AND EXPENSES.
If a claim or dispute arises concerning the rights of the Executive
under this Agreement, regardless of the party by whom such claim or dispute is
initiated, the Company shall, upon presentation of appropriate vouchers, pay all
legal expenses, including reasonable attorneys' fees, court costs, and ordinary
and necessary out-of-pocket costs of attorneys, billed to and payable by the
Executive or by anyone claiming under or through the Executive, in connection
with the bringing, prosecuting, arbitrating, defending, litigating, negotiating,
or settling such claim or dispute. In no event shall the Executive be required
to reimburse the Company for any of the costs or expenses incurred by the
Company relating to arbitration or litigation. Pending the outcome or resolution
of any claim or dispute, the Company shall continue payment of all amounts due
the Executive without regard to any dispute.
16. EFFECTIVE DATE.
This Agreement shall become effective upon execution.
17. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
18. NO GUARANTEE OF EMPLOYMENT.
Neither this Agreement nor any action taken hereunder shall be construed
as giving the Executive the right to be retained in employment with the Company,
nor shall it interfere with either the Company's right to terminate the
employment of the Executive at any time or the Executive's right to terminate
his employment at any time.
19. NO ASSIGNMENT BY EXECUTIVE.
Except as otherwise provided in Section 9(b), the Executive's rights and
interest under this Agreement shall not be assignable (in law or in equity) or
subject to any manner of alienation, sale, transfer, claims of creditors,
pledge, attachment, garnishment, levy, execution or encumbrances of any kind.
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20. WAIVER.
The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement shall not be deemed a waiver of
such provision or any other provision of this Agreement. Any waiver of any
provision of this Agreement shall not be deemed to be a waiver of any other
provision, and any waiver of default in any provision of this Agreement shall
not be deemed to be a waiver of any later default thereof or of any other
provision.
21. WITHHOLDING.
All amounts paid pursuant to this Agreement shall be subject to
withholding for taxes (federal, state, local or otherwise) to the extent
required by applicable law.
22. HEADINGS.
The headings of this Agreement have been inserted for convenience of
reference only and are to be ignored in the construction of the provisions
hereof.
23. NUMBER AND GENDER.
The use of the singular shall be interpreted to include the plural and
the plural the singular, as the context requires. The use of the masculine,
feminine or neuter shall be interpreted to include the masculine, feminine or
neuter as the context shall require.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
TRANSACTION SYSTEMS ARCHITECTS, INC.
Date: By:
------------------------------- --------------------------------
EXECUTIVE:
Date:
------------------------------- --------------------------------
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APPENDIX A
EXAMPLE 1 - Executive was employed by the Company for 1-1/3 fiscal
years preceding the fiscal year in which a Change in Control of the
Company occurs. The Executive's Compensation from the Company was
$30,000 for the 4-month period and $120,000 for the full fiscal year.
The Executive's Base Amount is $105,000.
Year 1: 3 x $30,000 = $90,000
Year 2: $120,000
[90,000 + 120,000] / 2 = $105,000
$105,000 is the average fiscal-year Compensation for the
Base Period.
EXAMPLE 2 - Assume the same facts as in Example 1, except that the
Executive also received a $70,000 sign-on bonus when his employment
with the Company commenced at the beginning of the 4-month period.
The Executive's Base Amount is $140,000
Year 1: [3 x $30,000] + $70,000 = $160,000
Year 2: $120,000
[160,000 + 120,000] / 2 = $140,000
Since the sign-on bonus will not be paid more often than once per
fiscal year, the amount of the bonus is not increased in annualizing
the Executive's Compensation for the 4-month period.
EXAMPLE 3 - Executive was employed by the Company for the last 4 months
of the fiscal year preceding the fiscal year in which a Change in
Control of the Company occurs. The Executive's Compensation from the
Company was $30,000 for the 4-month period. The Executive's Base Amount
is $90,000.
Year 1: 3 x $30,000 = $90,000
$90,000 / 1 = $90,000
$90,000 is the average fiscal-year Compensation for the
Base Period.
<PAGE>
SEVERANCE COMPENSATION AGREEMENT
SEVERANCE COMPENSATION AGREEMENT dated as of July 31, 1999 between
Transaction Systems Architects, Inc., a Delaware corporation (the "Company"),
and Don McLarty (the "Executive").
WHEREAS, the Company's Board of Directors has determined that it is
appropriate to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in potentially disturbing circumstances arising from
the possibility of a change in control of the Company;
NOW, THEREFORE, this Agreement sets forth the severance compensation
which the Company agrees it will pay to the Executive if the Executive's
employment with the Company terminates under certain circumstances described
herein following a Change in Control (as defined herein) and the other benefits
the Company will provide the Executive following a Change in Control.
1. TERM.
This Agreement shall terminate, except to the extent that any
obligation of the Company hereunder remains unpaid as of such time, upon the
earlier of (i) the termination of Executive's employment for any reason prior to
a Change in Control; and (ii) three years after the date of a Change in Control.
2. CHANGE IN CONTROL.
For purposes of this Agreement, Change in Control shall mean:
(a) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person"), of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a Change
in Control: (A) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege), (B) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (C)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in subclauses (i), (ii) and (iii) of clause (c) of this
Section 2 are satisfied; or
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(b) if individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least
two-thirds of the directors then constituting the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest
subject to Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(c) approval by the stockholders of the Company of a reorganization,
merger or consolidation, unless following such reorganization, merger or
consolidation (i) more than 60% of, respectively, the then-outstanding shares of
common stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger, or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the resulting corporation owned by the Company's stockholders, but
not from the total number of outstanding shares and voting securities of the
resulting corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (ii) no Person (excluding the Company, any employee
benefit plan (or related trust) of the Company, any qualified employee benefit
plan of such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then-outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(d) (i) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company or (ii) the first to occur of (A) the
sale or other disposition (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company, or (B)
the approval by the stockholders of the Company of any such sale or disposition,
other than, in each case, any such sale or disposition to a corporation, with
respect to
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which immediately thereafter, (1) more than 60% of, respectively, the
then-outstanding shares of common stock of such corporation and the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such sale or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the transferee corporation owned by the Company's stockholders,
but not from the total number of outstanding shares and voting securities of the
transferee corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (2) no Person (excluding the Company and any
employee benefit plan (or related trust) of the Company, any qualified employee
benefit plan of such transferee corporation and any Person beneficially owning,
immediately prior to such sale or other disposition, directly or indirectly, 20%
or more of the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 20%
or more of, respectively, the then-outstanding shares of common stock of such
transferee corporation and the combined voting power of the then-outstanding
voting securities of such transferee corporation entitled to vote generally in
the election of directors and (3) at least a majority of the members of the
board of directors of such transferee corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or action of the
board providing for such sale or other disposition of assets of the Company.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL.
(a) The Executive shall be entitled to the compensation provided in
Section 4 of this Agreement if all of the following conditions are satisfied:
(i) there is a Change in Control of the Company while the
Executive is still an employee of the Company;
(ii) the Executive's employment with the Company is terminated
within two years after the Change in Control; and
(iii) the Executive's termination of employment is not a
result of (A) the Executive's death; (B) the Executive's Disability (as
defined in Section 3(b) below; (C) the Executive's Retirement (as
defined in Section 3(c) below); (D) the Executive's termination by the
Company for Cause (as defined in Section 3(d) below); or (E) the
Executive's decision to terminate employment other than for Good Reason
(as defined in Section 3(e) below).
(b) If, as a result of the Executive's incapacity due to physical or
mental illness, the Executive shall have been unable, with or without a
reasonable accommodation, to perform his duties with the Company on a full-time
basis for six months and within 30 days after a Notice of
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Termination (as defined in Section 3(f) below) is thereafter given by the
Company, the Executive shall not have returned to the full-time performance of
the Executive's duties, the Company may terminate the Executive's employment for
"Disability". If there is a Change in Control of the Company while the Executive
is still an employee and if the Executive's employment with the Company is
terminated for Disability within two years after the Change in Control, the
Executive shall be entitled to receive in a lump sum cash payment within five
days after his Date of Termination (as defined in Section 3(g) below) the
following:
(i) one times the Base Amount (as defined in Section 4(b)(i))
determined with respect to the Base Period (as defined in Section
4(b)(ii)); plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points.
(c) For purposes of this Agreement only, "Retirement" shall mean
termination by the Company or the Executive of the Executive's employment based
on the Executive's having reached age 65 or such other age as shall have been
fixed in any arrangement established pursuant to this Agreement with the
Executive's consent with respect to the Executive.
(d) For purposes of this Agreement only, "Cause" shall mean: (i) the
Executive's conviction of a felony involving moral turpitude; or (ii) the
Executive's serious, willful gross misconduct or willful gross neglect of duties
(other than any such neglect resulting from the Executive's incapacity due to
physical or mental illness or any such neglect after the issuance of a Notice of
Termination by the Executive for Good Reason, as such terms are defined in
subsections (e) and (f) below), which, in either case, has resulted, or in all
probability is likely to result, in material economic damage to the Company;
provided no act or failure to act by the Executive will constitute "Cause" under
clause (ii) if the Executive believed in good faith that such act or failure to
act was in the best interest of the Company.
For purposes of this Agreement only, any termination of the Executive's
employment by the Company for Cause shall be authorized by a vote of at least a
majority of the non-employee members of the Board of Directors of the Company
(the "Board") within 12 months of a majority of such non-employee members of the
Board having actual knowledge of the event or circumstances providing a basis
for such termination. In the case of clause (ii) of the second
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sentence of this subsection (d), the Executive shall be given notice by the
Board specifying in detail the particular act or failure to act on which the
Board is relying in proposing to terminate him for Cause and offering the
Executive an opportunity, on a date at least 14 days after receipt of such
notice, to have a hearing, with counsel, before a majority of the non-employee
members of the Board, including each of the members of the Board who authorized
the termination for Cause. The Executive shall not be terminated for Cause if,
within 30 days after the date of the Executive's hearing before the Board (or if
the Executive waives a hearing, within 30 days after receiving notice of the
proposed termination), he has corrected the particular act or failure to act
specified in the notice and by so correcting such act or failure to act he has
reduced the economic damage his act or failure to act has allegedly caused the
Company to a level which is no longer material or has eliminated the probability
that such act or failure to act is likely to result in material economic damage
to the Company. No termination for Cause shall take effect until the expiration
of the correction period described in the preceding sentence and the
determination by a majority of the non-employee members of the Board that the
Executive has failed to correct the act or failure to act in accordance with the
terms of the preceding sentence.
Anything herein to the contrary notwithstanding, if, following a
termination of the Executive's employment by the Company for Cause based upon
the conviction of the Executive for a felony involving moral turpitude such
conviction is finally overturned on appeal, the Executive shall be entitled to
the compensation provided in Sections 4(a) and 4(c). In lieu of the interest
provided in clause (iv) of the first sentence of Section 4(a) and the interest
provided in the second sentence of Section 4(c), however, the compensation
provided in Sections 4(a) and 4(c) shall be increased by a ten percent rate of
interest, compounded annually, calculated from the date such compensation would
have been paid if the Executive's employment had been terminated without Cause.
(e) For purposes of this Agreement, "Good Reason" shall mean, after any
Change in Control and without the Executive's express written consent, any of
the following:
(i) a significant diminution in the Executive's duties and
responsibilities, or the assignment to the Executive by the Company of
duties inconsistent with the Executive's position, duties,
responsibilities or status with the Company immediately prior to a
Change in Control of the Company, or a change in the Executive's titles
or offices as in effect immediately prior to a Change in Control of the
Company, or any removal of the Executive from or any failure to
re-elect the Executive to any of such positions, except in connection
with the termination of his employment for Disability, Retirement or
Cause or as a result of the Executive's death or by the Executive other
than for Good Reason;
(ii) a reduction by the Company in the Executive's annual rate
of base salary as in effect on the date hereof or as the same may be
increased from time to time during the term of this Agreement or the
Company's failure to increase (within 12 months of the Executive's last
increase in his annual rate of base salary) the Executive's annual rate
of base salary after a Change in Control of the Company in an amount
which at least equals, on a percentage basis, the greater of (A) the
average percentage increase in the annual rate
5
<PAGE>
of base salary for all officers of the Company effected in the
preceding 12 months; or (B) the Consumer Price Index as published by
the United States Government (or, in the event such index is
discontinued, any similar index published by the United States
Government as designated in good faith by the Executive); provided,
however, that nothing contained in this clause (ii) shall be construed
under any circumstances as permitting the Company to decrease the
Executive's annual rate of base salary;
(iii) (A) any failure by the Company to continue in effect any
benefit plan or arrangement (including, without limitation, the life
insurance, medical, dental, accident and disability plans) in which the
Executive is participating at the time of a Change in Control of the
Company, or any other plan or arrangement providing the Executive with
benefits that are no less favorable (hereinafter referred to as
"Benefit Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such Benefit Plan or deprive
the Executive of any material fringe benefit or perquisite of office
enjoyed by the Executive at the time of a Change in Control of the
Company, unless in the case of either subclause (A) or (B) above, there
is substituted a comparable plan or program that is economically
equivalent or superior, in terms of the benefit offered to the
Executive, to the Benefit Plan being altered, reduced, affected or
ended;
(iv) (A) any failure by the Company to continue in effect any
incentive plan or arrangement (including, without limitation, the
Company's bonus arrangements, the Transaction Systems Architects, Inc.
Deferred Compensation Plan, the Transaction Systems Architects, Inc.
401(k) Plan, the sales incentive plans, and the management incentive
plans) in which the Executive is participating at the time of a Change
in Control of the Company, or any other plans or arrangements providing
him with substantially similar benefits, (hereinafter referred to as
"Incentive Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in any such
Incentive Plan or reduce the Executive's benefits under any such
Incentive Plan, unless in the case of either subclause (A) or (B)
above, there is substituted a comparable plan or program that is
economically equivalent or superior, in terms of the benefit offered to
the Executive, to the Incentive Plan being altered, reduced, affected
or ended, or (C) any failure by the Company with respect to any fiscal
year to make an award to the Executive pursuant to each such Incentive
Plan or such substituted comparable plan or program equal to or greater
than the greater of (1) the award (whether paid or payable in cash or
in securities of the Company) made to the Executive pursuant to such
Incentive Plan or such substituted comparable plan or program with
respect to the immediately preceding fiscal year or (2) the average
annual award (whether paid or payable in cash or in securities of the
Company) made to the Executive pursuant to such Incentive Plan or such
substituted comparable plan with respect to the prior three fiscal
years (or such lesser number of prior fiscal years that the Executive
was employed by the Company or that the Incentive Plan (together with
any substituted comparable plan) was maintained);
(v) (A) any failure by the Company to continue in effect any
plan or arrangement to receive securities of the Company (including,
without limitation, the
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Transaction Systems Architects, Inc. 1999 Employee Stock Purchase Plan
and the Transaction Systems Architects Inc. 1999 Stock Option Plan) in
which the Executive is participating at the time of a Change in Control
of the Company, or any other plan or arrangement providing him with
substantially similar benefits, (hereinafter referred to as "Securities
Plans"), (B) the taking of any action by the Company which would
adversely affect the Executive's participation in or materially reduce
the Executive's benefits under any such Securities Plan, unless in the
case of either subclause (A) or (B) above, there is substituted a
comparable plan or program that is economically equivalent or superior,
in terms of the benefit offered to the Executive, to the Securities
Plan being altered, reduced, affected or ended, or (C) any failure by
the Company in any fiscal year to grant stock options, stock
appreciation rights or securities awards to the Executive pursuant to
such Securities Plans with respect to an aggregate number of securities
of the Company of each kind that is equal to or greater than the
greater of (1) the aggregate number of securities of the Company of
that kind covered by stock options, stock appreciation rights or
securities awards granted to the Executive pursuant to such Securities
Plans in the immediately preceding fiscal year or (2) the average
annual aggregate number of securities of the Company of that kind
covered by stock options, stock appreciation rights, or securities
awards granted to the Executive pursuant to such Securities Plans in
the prior three fiscal years; and provided further the material terms
and conditions of such stock options, stock appreciation rights, and
securities awards granted to the Executive after the Change in Control
(including, but not limited to, the exercise price, vesting schedule,
period and methods of exercise, expiration date, forfeiture provisions
and other restrictions) are substantially similar to the material terms
and conditions of the stock options, stock appreciation rights, and
securities awards granted to the Executive under the Securities Plans
immediately prior to the Change in Control of the Company;
(vi) the Executive's relocation more than 50 miles from the
location at which the Executive performed the Executive's duties prior
to a Change in Control of the Company, except for required travel by
the Executive on the Company's business to an extent substantially
consistent with the Executive's business travel obligations at the time
of a Change in Control of the Company;
(vii) any failure by the Company to provide the Executive with
the number of annual paid vacation days to which the Executive is
entitled for the year in which a Change in Control of the Company
occurs;
(viii) any material breach by the Company of any provision of
this Agreement;
(ix) any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company prior to such
succession or assignment;
(x) any failure by the Company or its successor to enter into
an agreement with the Executive that is substantially similar to this
Agreement with respect to a Change in Control of the Company or its
successor occurring thereafter; or
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(xi) any purported termination of the Executive's employment
by the Company pursuant to Section 3(b), 3(c) or 3(d) above which is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 3(f) below (and, if applicable, Section 3(d)
above), and for purposes of this Agreement, no such purported
termination shall be effective.
For purposes of this subsection (e), an isolated, immaterial, and inadvertent
action not taken in bad faith by the Company in violation of clause (ii), (iii),
(iv), (v) or (vii) of this subsection that is remedied by the Company promptly
after receipt of notice thereof given by the Executive shall not be considered
Good Reason for the Executive's termination of employment with the Company. In
the event the Executive terminates his employment for Good Reason hereunder,
then notwithstanding that the Executive may also retire for purposes of the
Benefit Plans, Incentive Plans or Securities Plans, the Executive shall be
deemed to have terminated his employment for Good Reason for purposes of this
Agreement.
(f) Any termination of the Executive by the Company pursuant to Section
3(b), 3(c) or 3(d) above, or by the Executive pursuant to Section 3(e) above,
shall be communicated by a Notice of Termination to the other party hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate those specific termination provisions in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. For purposes of this Agreement, no
such purported termination by the Company shall be effective without such Notice
of Termination.
(g) "Date of Termination" shall mean (i) if the Executive's employment
is terminated by the Company for Disability, 30 days after Notice of Termination
is given to the Executive (provided that the Executive shall not have returned
to the performance of the Executive's duties on a full-time basis during such
30-day period), (ii) if the Executive's employment is terminated by the
Executive for Good Reason, the date specified in the Notice of Termination, and
(iii) if the Executive's employment is terminated by the Company for any other
reason, the date on which a Notice of Termination is given; provided, however,
that if within 30 days after any Notice of Termination is given to the Executive
by the Company, the Executive notifies the Company that a dispute exists
concerning the termination, the Date of Termination shall be the date the
dispute is finally determined, whether by mutual written agreement of the
parties or upon final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected).
4. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT.
(a) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Company shall pay to the
Executive in a lump sum cash payment within five days after the Date of
Termination the following:
(i) the Severance Amount as defined in Section 4(b) below;
plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
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(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points,
compounded annually.
(b) "Severance Amount" shall mean an amount equal to one times the Base
Amount (as defined below) determined with respect to the Base Period (as defined
below); provided, however, in no event shall the Severance Amount be less than
two times the Executive's annual rate of base salary at the higher of the annual
rate in effect (i) immediately prior to the Date of Termination or (ii) on the
date six months prior to the Date of Termination. For purposes of this
subsection (b):
(i) "Base Amount" means the Executive's average fiscal-year
Compensation (as defined below) for fiscal years of the Company in the
Base Period. Such average shall be computed by dividing the total of
the Executive's Compensation for the Base Period by the number of
fiscal years in the Base Period. If the Executive's Base Period
includes a portion of a fiscal year during which he was not an employee
of the Company (or a predecessor entity or a related entity, as such
terms are defined in clause (iii) below), the Executive's Compensation
for such fiscal year shall be annualized before determining the average
fiscal-year Compensation for the Base Period. In annualizing
Compensation, the frequency with which payments are expected to be made
over a fiscal year shall be taken into account; thus, any amount of
Compensation that represents a payment that will not be made more often
than once per fiscal year is not annualized. Set forth on Appendix A,
which is attached hereto and made a part hereof, are three examples
illustrating the calculation of the Base Amount.
(ii) "Base Period" means the most recent two consecutive
fiscal years of the Company ending prior to the Date of Termination.
However, if the Executive was not an employee of the Company (or a
predecessor entity or a related entity, as such terms are defined in
clause (iii) below) at any time during one of such two fiscal years,
the Executive's Base Period is the one fiscal year of such
two-fiscal-year period during which the Executive performed personal
services for the Company or a predecessor entity or a related entity.
(iii) "Compensation" means the compensation which was payable
by the Company, by a predecessor entity, or by a related entity and
which was includible in the gross income of the Executive (or either
was excludible from such gross income as
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"foreign earned income" within the meaning of Section 911 of the
Internal Revenue Code of 1986, as amended (the "Code"), or would have
been includible in such gross income if the Executive had been a United
States citizen or resident), but excluding the following: (A) amounts
realized from the exercise of a non-qualified stock option; and (B)
amounts realized from the sale, exchange or other disposition of stock
acquired under an incentive stock option described in Code Section
422(b) or under an employee stock purchase plan described in Code
Section 423(b). Notwithstanding the preceding sentence, Compensation
shall be determined without regard to any compensation deferral
election under any plan, program or arrangement, qualified or
nonqualified, maintained or contributed to by the Company, a
predecessor entity or a related entity, including but not limited to a
cash-or-deferred arrangement described in Code Section 401(k), a
cafeteria plan described in Code Section 125 or a nonqualified deferred
compensation plan. A "predecessor entity" is any entity which, as a
result of a merger, consolidation, purchase or acquisition of property
or stock, corporate separation, or other similar business transaction
transfers some or all of its employees to the Company or to a related
entity or to a predecessor entity of the Company. The term "related
entity" includes any entity treated as a single employer with the
Company in accordance with subsections (b), (c), (m) and (o) of Code
Section 414.
(c) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Executive will be entitled to
continued participation in all employee benefit plans or programs available to
Company employees generally in which the Executive was participating on the Date
of Termination, such continued participation to be at Company cost and otherwise
on the same basis as Company employees generally, until the earlier of (i) the
date, or dates, he receives equivalent coverage and benefits under the plans and
programs of a subsequent employer (such coverages and benefits to be determined
on a coverage-by-coverage or benefit-by-benefit basis) or (ii) two years from
the Date of Termination; provided (A) if the Executive is precluded from
continuing his participation in any employee benefit plan or program as provided
in this sentence, he shall be paid, in a lump sum cash payment, within 30 days
following the date it is determined he is unable to participate in any employee
benefit plan or program, the after-tax economic equivalent of the benefits
provided under the plan or program in which he is unable to participate for the
period specified in this sentence, and (B) the economic equivalent of any
benefit foregone shall be deemed to be the lowest cost that would be incurred by
the Executive in obtaining such benefit for himself (including family or
dependent coverage, if applicable) on an individual basis. The Executive shall
be eligible for group health plan continuation coverage under and in accordance
with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended,
when he ceases to be eligible for continued participation in the Company's group
health plan under this subsection (e).
5. NO OBLIGATION TO MITIGATE DAMAGES;
NO EFFECT ON OTHER CONTRACTUAL RIGHTS.
(a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation
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earned by the Executive as the result of employment by another employer after
the Date of Termination or otherwise.
(b) The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any Benefit Plan, Incentive Plan or
Securities Plan, employment agreement or other contract, plan or agreement with
or of the Company.
6. INCENTIVE AWARDS.
In the event of a Change in Control of the Company, then
notwithstanding the terms and conditions of any Incentive Plan, the Company
agrees (i) to immediately and fully vest all unvested awards, units, and
benefits (other than options to acquire securities of the Company or awards of
securities of the Company) which have been awarded or allocated to the Executive
under the Incentive Plans; and (ii) upon the exercise of such awards or units or
the distribution of such benefits, to pay all amounts due under the Incentive
Plans solely in cash.
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) All determinations required to be made under this Section 7,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by the Accounting Firm which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days after the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. The determination
of tax liability made by the Accounting Firm shall be subject to review by the
Executive's tax advisor, and, if the Executive's tax advisor does not agree with
the determination reached by the Accounting Firm, then the Accounting Firm and
the Executive's tax advisor shall jointly designate a nationally recognized
public accounting firm which shall make the determination. All fees and expenses
of the accountants and tax advisors retained by both the Executive and the
Company shall be borne solely by the Company. Any Gross-Up Payment, as
determined
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pursuant to this Section 7, shall be paid by the Company to the Executive within
five days after the receipt of the determination. Any determination by such
jointly designated public accounting firm shall be binding upon the Company and
the Executive. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination hereunder, it is possible
that Gross-Up Payments will not have been made by the Company that should have
been made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Executive hereafter is required to make a
payment of any Excise Tax, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive. Upon notice by the Executive of
any audit or other proceeding that may result in a liability to the Company
hereunder, the Executive shall promptly notify the Company of such audit or
other proceeding; and the Company may, at its option, but solely with respect to
the item or items that relate to such potential liability, choose to assume the
defense of such audit or other proceeding at its own cost, provided that (i) the
Executive shall cooperate with the Company in such defense and (ii) the Company
will not settle such audit or other proceeding without the consent of the
Executive (such consent not to be unreasonably withheld). The highest effective
marginal tax rate (determined by taking into account any reduction in itemized
deductions and/or exemptions attributable to the inclusion of the additional
amounts payable under this Section 7 in the Executive's adjusted gross or
taxable income) based upon the state and locality where the Executive is
resident at the time of payment of such amounts will be used for purposes of
determining the federal and state income and other taxes with respect thereto.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify the Executive to the fullest extent
permitted by law if the Executive is a party or threatened to be made a party to
any Proceeding (as defined below).
(b) If requested by the Executive, the Company shall advance (within
two business days of such request) any and all Expenses, as defined below,
relating to a Proceeding to the Executive (an "Expense Advance"), upon the
receipt of a written undertaking by or on behalf of the Executive to repay such
Expense Advance if a judgment or other final adjudication adverse to the
Executive (as to which all rights of appeal therefrom have been exhausted or
lapsed) establishes that the Executive is not entitled to indemnification by the
Company. Expenses shall include attorney's fees and all other costs, charges and
expenses paid or incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in any Proceeding.
(c) The Company agrees to obtain a directors' and officers' liability
insurance policy covering the Executive and to continue and maintain such
policy. The amount of coverage shall be reasonable in relation to the
Executive's position and responsibilities during his employment by the Company.
(d) This Section 8 is a supplement to and in furtherance of the
Certificate of Incorporation and Bylaws of the Company and shall not be deemed a
substitute therefor, or diminish or abrogate any rights of the Executive
thereunder.
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(e) For purposes of Section 8(a), the meaning of the phrase "to the
fullest extent permitted by law" shall include but not be limited to:
(i) to the fullest extent permitted by the provision of the
Delaware General Corporation Law ("DGCL") that authorizes or
contemplates additional indemnification by agreement, or the
corresponding provision of any amendment to or replacement of the DGCL,
and
(ii) to the fullest extent authorized or permitted by any
amendments to or replacements of the DGCL adopted after the date of
this Agreement that increase the extent to which a corporation may
indemnify its officers and directors.
(f) For purposes of Sections 8(a) and 8(b), "Proceeding" shall mean any
threatened, pending or completed action, suit, arbitration, alternate dispute
resolution mechanism, investigation, inquiry, administrative hearing or any
other actual, threatened or completed proceeding, whether brought in the right
of the Company or otherwise and whether of a civil, criminal, administrative or
investigative nature, in which the Executive was, is or will be involved as a
party or otherwise by reason of the fact that the Executive is or was a director
or officer of the Company, by reason of any action taken by him or of any action
on his part while acting as director or officer of the Company, or by reason of
the fact that he is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, in each case whether or not serving in such capacity
at the time any liability or expense is incurred for which indemnification,
reimbursement, or advancement of expenses can be provided under this Agreement.
9. SUCCESSORS.
(a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. Any failure of the Company to
obtain such agreement prior to the effectiveness of any such succession or
assignment shall be a material breach of this Agreement and shall entitle the
Executive to terminate the Executive's employment for Good Reason and receive
the compensation provided for in Section 4 hereof. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor or
assign to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Section 9 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts are still payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with
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the terms of this Agreement to the Executive's devisee, legatee or other
designee or, if there be no such designee, to the Executive's estate.
10. NOTICE.
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, as follows:
If to the Company:
Transaction Systems Architects, Inc.
224 South 108 Avenue
Omaha, NE 68154
Attn: President
If to the Executive:
---------------------------------------------
---------------------------------------------
---------------------------------------------
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. MISCELLANEOUS.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same time or
at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Nebraska, without giving effect to any principles of conflicts of
law.
12. CONFLICT IN BENEFITS.
Except as otherwise provided in the preceding sentences, this Agreement
is not intended to and shall not limit or terminate any other agreement or
arrangement between the Executive and the Company presently in effect or
hereafter entered into.
13. VALIDITY.
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The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. SURVIVORSHIP.
The respective rights and obligations of the parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations and to the extent that any
performance is required following termination of this Agreement. Without
limiting the foregoing, Sections 7, 8 and 15 shall expressly survive the
termination of this Agreement.
15. LEGAL FEES AND EXPENSES.
If a claim or dispute arises concerning the rights of the Executive
under this Agreement, regardless of the party by whom such claim or dispute is
initiated, the Company shall, upon presentation of appropriate vouchers, pay all
legal expenses, including reasonable attorneys' fees, court costs, and ordinary
and necessary out-of-pocket costs of attorneys, billed to and payable by the
Executive or by anyone claiming under or through the Executive, in connection
with the bringing, prosecuting, arbitrating, defending, litigating, negotiating,
or settling such claim or dispute. In no event shall the Executive be required
to reimburse the Company for any of the costs or expenses incurred by the
Company relating to arbitration or litigation. Pending the outcome or resolution
of any claim or dispute, the Company shall continue payment of all amounts due
the Executive without regard to any dispute.
16. EFFECTIVE DATE.
This Agreement shall become effective upon execution.
17. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
18. NO GUARANTEE OF EMPLOYMENT.
Neither this Agreement nor any action taken hereunder shall be construed
as giving the Executive the right to be retained in employment with the Company,
nor shall it interfere with either the Company's right to terminate the
employment of the Executive at any time or the Executive's right to terminate
his employment at any time.
19. NO ASSIGNMENT BY EXECUTIVE.
Except as otherwise provided in Section 9(b), the Executive's rights and
interest under this Agreement shall not be assignable (in law or in equity) or
subject to any manner of alienation, sale, transfer, claims of creditors,
pledge, attachment, garnishment, levy, execution or encumbrances of any kind.
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20. WAIVER.
The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement shall not be deemed a waiver of
such provision or any other provision of this Agreement. Any waiver of any
provision of this Agreement shall not be deemed to be a waiver of any other
provision, and any waiver of default in any provision of this Agreement shall
not be deemed to be a waiver of any later default thereof or of any other
provision.
21. WITHHOLDING.
All amounts paid pursuant to this Agreement shall be subject to
withholding for taxes (federal, state, local or otherwise) to the extent
required by applicable law.
22. HEADINGS.
The headings of this Agreement have been inserted for convenience of
reference only and are to be ignored in the construction of the provisions
hereof.
23. NUMBER AND GENDER.
The use of the singular shall be interpreted to include the plural and
the plural the singular, as the context requires. The use of the masculine,
feminine or neuter shall be interpreted to include the masculine, feminine or
neuter as the context shall require.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
TRANSACTION SYSTEMS ARCHITECTS, INC.
Date: By:
-------------------------- ---------------------------------
EXECUTIVE:
Date:
-------------------------- ------------------------------------
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APPENDIX A
EXAMPLE 1 - Executive was employed by the Company for 1-1/3 fiscal
years preceding the fiscal year in which a Change in Control of the
Company occurs. The Executive's Compensation from the Company was
$30,000 for the 4-month period and $120,000 for the full fiscal year.
The Executive's Base Amount is $105,000.
Year 1: 3 x $30,000 = $90,000
Year 2: $120,000
[90,000 + 120,000] / 2 = $105,000
$105,000 is the average fiscal-year Compensation for the
Base Period.
EXAMPLE 2 - Assume the same facts as in Example 1, except that the
Executive also received a $70,000 sign-on bonus when his employment
with the Company commenced at the beginning of the 4-month period.
The Executive's Base Amount is $140,000
Year 1: [3 x $30,000] + $70,000 = $160,000
Year 2: $120,000
[160,000 + 120,000] / 2 = $140,000
Since the sign-on bonus will not be paid more often than once per
fiscal year, the amount of the bonus is not increased in annualizing
the Executive's Compensation for the 4-month period.
EXAMPLE 3 - Executive was employed by the Company for the last 4 months
of the fiscal year preceding the fiscal year in which a Change in
Control of the Company occurs. The Executive's Compensation from the
Company was $30,000 for the 4-month period. The Executive's Base Amount
is $90,000.
Year 1: 3 x $30,000 = $90,000
$90,000 / 1 = $90,000
$90,000 is the average fiscal-year Compensation for the
Base Period.
<PAGE>
SEVERANCE COMPENSATION AGREEMENT
SEVERANCE COMPENSATION AGREEMENT dated as of July 31, 1999 between
Transaction Systems Architects, Inc., a Delaware corporation (the "Company"),
and Tony Parkinson (the "Executive").
WHEREAS, the Company's Board of Directors has determined that it is
appropriate to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in potentially disturbing circumstances arising from
the possibility of a change in control of the Company;
NOW, THEREFORE, this Agreement sets forth the severance compensation
which the Company agrees it will pay to the Executive if the Executive's
employment with the Company terminates under certain circumstances described
herein following a Change in Control (as defined herein) and the other benefits
the Company will provide the Executive following a Change in Control.
1. TERM.
This Agreement shall terminate, except to the extent that any
obligation of the Company hereunder remains unpaid as of such time, upon the
earlier of (i) the termination of Executive's employment for any reason prior to
a Change in Control; and (ii) three years after the date of a Change in Control.
2. CHANGE IN CONTROL.
For purposes of this Agreement, Change in Control shall mean:
(a) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person"), of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a Change
in Control: (A) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege), (B) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (C)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in subclauses (i), (ii) and (iii) of clause (c) of this
Section 2 are satisfied; or
<PAGE>
(b) if individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least
two-thirds of the directors then constituting the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest
subject to Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(c) approval by the stockholders of the Company of a reorganization,
merger or consolidation, unless following such reorganization, merger or
consolidation (i) more than 60% of, respectively, the then-outstanding shares of
common stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger, or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the resulting corporation owned by the Company's stockholders, but
not from the total number of outstanding shares and voting securities of the
resulting corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (ii) no Person (excluding the Company, any employee
benefit plan (or related trust) of the Company, any qualified employee benefit
plan of such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then-outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(d) (i) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company or (ii) the first to occur of (A) the
sale or other disposition (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company, or (B)
the approval by the stockholders of the Company of any such sale or disposition,
other than, in each case, any such sale or disposition to a corporation, with
respect to
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which immediately thereafter, (1) more than 60% of, respectively, the
then-outstanding shares of common stock of such corporation and the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such sale or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the transferee corporation owned by the Company's stockholders,
but not from the total number of outstanding shares and voting securities of the
transferee corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (2) no Person (excluding the Company and any
employee benefit plan (or related trust) of the Company, any qualified employee
benefit plan of such transferee corporation and any Person beneficially owning,
immediately prior to such sale or other disposition, directly or indirectly, 20%
or more of the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 20%
or more of, respectively, the then-outstanding shares of common stock of such
transferee corporation and the combined voting power of the then-outstanding
voting securities of such transferee corporation entitled to vote generally in
the election of directors and (3) at least a majority of the members of the
board of directors of such transferee corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or action of the
board providing for such sale or other disposition of assets of the Company.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL.
(a) The Executive shall be entitled to the compensation provided in
Section 4 of this Agreement if all of the following conditions are satisfied:
(i) there is a Change in Control of the Company while the
Executive is still an employee of the Company;
(ii) the Executive's employment with the Company is terminated
within two years after the Change in Control; and
(iii) the Executive's termination of employment is not a result
of (A) the Executive's death; (B) the Executive's Disability (as
defined in Section 3(b) below; (C) the Executive's Retirement (as
defined in Section 3(c) below); (D) the Executive's termination by the
Company for Cause (as defined in Section 3(d) below); or (E) the
Executive's decision to terminate employment other than for Good Reason
(as defined in Section 3(e) below).
(b) If, as a result of the Executive's incapacity due to physical or
mental illness, the Executive shall have been unable, with or without a
reasonable accommodation, to perform his duties with the Company on a full-time
basis for six months and within 30 days after a Notice of
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Termination (as defined in Section 3(f) below) is thereafter given by the
Company, the Executive shall not have returned to the full-time performance of
the Executive's duties, the Company may terminate the Executive's employment for
"Disability". If there is a Change in Control of the Company while the Executive
is still an employee and if the Executive's employment with the Company is
terminated for Disability within two years after the Change in Control, the
Executive shall be entitled to receive in a lump sum cash payment within five
days after his Date of Termination (as defined in Section 3(g) below) the
following:
(i) one times the Base Amount (as defined in Section 4(b)(i))
determined with respect to the Base Period (as defined in Section
4(b)(ii)); plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points.
(c) For purposes of this Agreement only, "Retirement" shall mean
termination by the Company or the Executive of the Executive's employment based
on the Executive's having reached age 65 or such other age as shall have been
fixed in any arrangement established pursuant to this Agreement with the
Executive's consent with respect to the Executive.
(d) For purposes of this Agreement only, "Cause" shall mean: (i) the
Executive's conviction of a felony involving moral turpitude; or (ii) the
Executive's serious, willful gross misconduct or willful gross neglect of duties
(other than any such neglect resulting from the Executive's incapacity due to
physical or mental illness or any such neglect after the issuance of a Notice of
Termination by the Executive for Good Reason, as such terms are defined in
subsections (e) and (f) below), which, in either case, has resulted, or in all
probability is likely to result, in material economic damage to the Company;
provided no act or failure to act by the Executive will constitute "Cause" under
clause (ii) if the Executive believed in good faith that such act or failure to
act was in the best interest of the Company.
For purposes of this Agreement only, any termination of the Executive's
employment by the Company for Cause shall be authorized by a vote of at least a
majority of the non-employee members of the Board of Directors of the Company
(the "Board") within 12 months of a majority of such non-employee members of the
Board having actual knowledge of the event or circumstances providing a basis
for such termination. In the case of clause (ii) of the second
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sentence of this subsection (d), the Executive shall be given notice by the
Board specifying in detail the particular act or failure to act on which the
Board is relying in proposing to terminate him for Cause and offering the
Executive an opportunity, on a date at least 14 days after receipt of such
notice, to have a hearing, with counsel, before a majority of the non-employee
members of the Board, including each of the members of the Board who authorized
the termination for Cause. The Executive shall not be terminated for Cause if,
within 30 days after the date of the Executive's hearing before the Board (or if
the Executive waives a hearing, within 30 days after receiving notice of the
proposed termination), he has corrected the particular act or failure to act
specified in the notice and by so correcting such act or failure to act he has
reduced the economic damage his act or failure to act has allegedly caused the
Company to a level which is no longer material or has eliminated the probability
that such act or failure to act is likely to result in material economic damage
to the Company. No termination for Cause shall take effect until the expiration
of the correction period described in the preceding sentence and the
determination by a majority of the non-employee members of the Board that the
Executive has failed to correct the act or failure to act in accordance with the
terms of the preceding sentence.
Anything herein to the contrary notwithstanding, if, following a
termination of the Executive's employment by the Company for Cause based upon
the conviction of the Executive for a felony involving moral turpitude such
conviction is finally overturned on appeal, the Executive shall be entitled to
the compensation provided in Sections 4(a) and 4(c). In lieu of the interest
provided in clause (iv) of the first sentence of Section 4(a) and the interest
provided in the second sentence of Section 4(c), however, the compensation
provided in Sections 4(a) and 4(c) shall be increased by a ten percent rate of
interest, compounded annually, calculated from the date such compensation would
have been paid if the Executive's employment had been terminated without Cause.
(e) For purposes of this Agreement, "Good Reason" shall mean, after any
Change in Control and without the Executive's express written consent, any of
the following:
(i) a significant diminution in the Executive's duties and
responsibilities, or the assignment to the Executive by the Company of
duties inconsistent with the Executive's position, duties,
responsibilities or status with the Company immediately prior to a
Change in Control of the Company, or a change in the Executive's titles
or offices as in effect immediately prior to a Change in Control of the
Company, or any removal of the Executive from or any failure to
re-elect the Executive to any of such positions, except in connection
with the termination of his employment for Disability, Retirement or
Cause or as a result of the Executive's death or by the Executive other
than for Good Reason;
(ii) a reduction by the Company in the Executive's annual rate
of base salary as in effect on the date hereof or as the same may be
increased from time to time during the term of this Agreement or the
Company's failure to increase (within 12 months of the Executive's last
increase in his annual rate of base salary) the Executive's annual rate
of base salary after a Change in Control of the Company in an amount
which at least equals, on a percentage basis, the greater of (A) the
average percentage increase in the annual rate
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of base salary for all officers of the Company effected in the
preceding 12 months; or (B) the Consumer Price Index as published by
the United States Government (or, in the event such index is
discontinued, any similar index published by the United States
Government as designated in good faith by the Executive); provided,
however, that nothing contained in this clause (ii) shall be construed
under any circumstances as permitting the Company to decrease the
Executive's annual rate of base salary;
(iii) (A) any failure by the Company to continue in effect any
benefit plan or arrangement (including, without limitation, the life
insurance, medical, dental, accident and disability plans) in which the
Executive is participating at the time of a Change in Control of the
Company, or any other plan or arrangement providing the Executive with
benefits that are no less favorable (hereinafter referred to as
"Benefit Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such Benefit Plan or deprive
the Executive of any material fringe benefit or perquisite of office
enjoyed by the Executive at the time of a Change in Control of the
Company, unless in the case of either subclause (A) or (B) above, there
is substituted a comparable plan or program that is economically
equivalent or superior, in terms of the benefit offered to the
Executive, to the Benefit Plan being altered, reduced, affected or
ended;
(iv) (A) any failure by the Company to continue in effect any
incentive plan or arrangement (including, without limitation, the
Company's bonus arrangements, the Transaction Systems Architects, Inc.
Deferred Compensation Plan, the Transaction Systems Architects, Inc.
401(k) Plan, the sales incentive plans, and the management incentive
plans) in which the Executive is participating at the time of a Change
in Control of the Company, or any other plans or arrangements providing
him with substantially similar benefits, (hereinafter referred to as
"Incentive Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in any such
Incentive Plan or reduce the Executive's benefits under any such
Incentive Plan, unless in the case of either subclause (A) or (B)
above, there is substituted a comparable plan or program that is
economically equivalent or superior, in terms of the benefit offered to
the Executive, to the Incentive Plan being altered, reduced, affected
or ended, or (C) any failure by the Company with respect to any fiscal
year to make an award to the Executive pursuant to each such Incentive
Plan or such substituted comparable plan or program equal to or greater
than the greater of (1) the award (whether paid or payable in cash or
in securities of the Company) made to the Executive pursuant to such
Incentive Plan or such substituted comparable plan or program with
respect to the immediately preceding fiscal year or (2) the average
annual award (whether paid or payable in cash or in securities of the
Company) made to the Executive pursuant to such Incentive Plan or such
substituted comparable plan with respect to the prior three fiscal
years (or such lesser number of prior fiscal years that the Executive
was employed by the Company or that the Incentive Plan (together with
any substituted comparable plan) was maintained);
(v) (A) any failure by the Company to continue in effect any
plan or arrangement to receive securities of the Company (including,
without limitation, the
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Transaction Systems Architects, Inc. 1999 Employee Stock Purchase Plan
and the Transaction Systems Architects Inc. 1999 Stock Option Plan) in
which the Executive is participating at the time of a Change in Control
of the Company, or any other plan or arrangement providing him with
substantially similar benefits, (hereinafter referred to as "Securities
Plans"), (B) the taking of any action by the Company which would
adversely affect the Executive's participation in or materially reduce
the Executive's benefits under any such Securities Plan, unless in the
case of either subclause (A) or (B) above, there is substituted a
comparable plan or program that is economically equivalent or superior,
in terms of the benefit offered to the Executive, to the Securities
Plan being altered, reduced, affected or ended, or (C) any failure by
the Company in any fiscal year to grant stock options, stock
appreciation rights or securities awards to the Executive pursuant to
such Securities Plans with respect to an aggregate number of securities
of the Company of each kind that is equal to or greater than the
greater of (1) the aggregate number of securities of the Company of
that kind covered by stock options, stock appreciation rights or
securities awards granted to the Executive pursuant to such Securities
Plans in the immediately preceding fiscal year or (2) the average
annual aggregate number of securities of the Company of that kind
covered by stock options, stock appreciation rights, or securities
awards granted to the Executive pursuant to such Securities Plans in
the prior three fiscal years; and provided further the material terms
and conditions of such stock options, stock appreciation rights, and
securities awards granted to the Executive after the Change in Control
(including, but not limited to, the exercise price, vesting schedule,
period and methods of exercise, expiration date, forfeiture provisions
and other restrictions) are substantially similar to the material terms
and conditions of the stock options, stock appreciation rights, and
securities awards granted to the Executive under the Securities Plans
immediately prior to the Change in Control of the Company;
(vi) the Executive's relocation more than 50 miles from the
location at which the Executive performed the Executive's duties prior
to a Change in Control of the Company, except for required travel by
the Executive on the Company's business to an extent substantially
consistent with the Executive's business travel obligations at the time
of a Change in Control of the Company;
(vii) any failure by the Company to provide the Executive with
the number of annual paid vacation days to which the Executive is
entitled for the year in which a Change in Control of the Company
occurs;
(viii) any material breach by the Company of any provision of
this Agreement;
(ix) any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company prior to such
succession or assignment;
(x) any failure by the Company or its successor to enter into
an agreement with the Executive that is substantially similar to this
Agreement with respect to a Change in Control of the Company or its
successor occurring thereafter; or
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(xi) any purported termination of the Executive's employment
by the Company pursuant to Section 3(b), 3(c) or 3(d) above which is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 3(f) below (and, if applicable, Section 3(d)
above), and for purposes of this Agreement, no such purported
termination shall be effective.
For purposes of this subsection (e), an isolated, immaterial, and inadvertent
action not taken in bad faith by the Company in violation of clause (ii), (iii),
(iv), (v) or (vii) of this subsection that is remedied by the Company promptly
after receipt of notice thereof given by the Executive shall not be considered
Good Reason for the Executive's termination of employment with the Company. In
the event the Executive terminates his employment for Good Reason hereunder,
then notwithstanding that the Executive may also retire for purposes of the
Benefit Plans, Incentive Plans or Securities Plans, the Executive shall be
deemed to have terminated his employment for Good Reason for purposes of this
Agreement.
(f) Any termination of the Executive by the Company pursuant to Section
3(b), 3(c) or 3(d) above, or by the Executive pursuant to Section 3(e) above,
shall be communicated by a Notice of Termination to the other party hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate those specific termination provisions in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. For purposes of this Agreement, no
such purported termination by the Company shall be effective without such Notice
of Termination.
(g) "Date of Termination" shall mean (i) if the Executive's employment
is terminated by the Company for Disability, 30 days after Notice of Termination
is given to the Executive (provided that the Executive shall not have returned
to the performance of the Executive's duties on a full-time basis during such
30-day period), (ii) if the Executive's employment is terminated by the
Executive for Good Reason, the date specified in the Notice of Termination, and
(iii) if the Executive's employment is terminated by the Company for any other
reason, the date on which a Notice of Termination is given; provided, however,
that if within 30 days after any Notice of Termination is given to the Executive
by the Company, the Executive notifies the Company that a dispute exists
concerning the termination, the Date of Termination shall be the date the
dispute is finally determined, whether by mutual written agreement of the
parties or upon final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected).
4. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT.
(a) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Company shall pay to the
Executive in a lump sum cash payment within five days after the Date of
Termination the following:
(i) the Severance Amount as defined in Section 4(b) below;
plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
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(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points,
compounded annually.
(b) "Severance Amount" shall mean an amount equal to one times the Base
Amount (as defined below) determined with respect to the Base Period (as defined
below); provided, however, in no event shall the Severance Amount be less than
two times the Executive's annual rate of base salary at the higher of the annual
rate in effect (i) immediately prior to the Date of Termination or (ii) on the
date six months prior to the Date of Termination. For purposes of this
subsection (b):
(i) "Base Amount" means the Executive's average fiscal-year
Compensation (as defined below) for fiscal years of the Company in the
Base Period. Such average shall be computed by dividing the total of
the Executive's Compensation for the Base Period by the number of
fiscal years in the Base Period. If the Executive's Base Period
includes a portion of a fiscal year during which he was not an employee
of the Company (or a predecessor entity or a related entity, as such
terms are defined in clause (iii) below), the Executive's Compensation
for such fiscal year shall be annualized before determining the average
fiscal-year Compensation for the Base Period. In annualizing
Compensation, the frequency with which payments are expected to be made
over a fiscal year shall be taken into account; thus, any amount of
Compensation that represents a payment that will not be made more often
than once per fiscal year is not annualized. Set forth on Appendix A,
which is attached hereto and made a part hereof, are three examples
illustrating the calculation of the Base Amount.
(ii) "Base Period" means the most recent two consecutive
fiscal years of the Company ending prior to the Date of Termination.
However, if the Executive was not an employee of the Company (or a
predecessor entity or a related entity, as such terms are defined in
clause (iii) below) at any time during one of such two fiscal years,
the Executive's Base Period is the one fiscal year of such
two-fiscal-year period during which the Executive performed personal
services for the Company or a predecessor entity or a related entity.
(iii) "Compensation" means the compensation which was payable
by the Company, by a predecessor entity, or by a related entity and
which was includible in the gross income of the Executive (or either
was excludible from such gross income as
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"foreign earned income" within the meaning of Section 911 of the
Internal Revenue Code of 1986, as amended (the "Code"), or would have
been includible in such gross income if the Executive had been a United
States citizen or resident), but excluding the following: (A) amounts
realized from the exercise of a non-qualified stock option; and (B)
amounts realized from the sale, exchange or other disposition of stock
acquired under an incentive stock option described in Code Section
422(b) or under an employee stock purchase plan described in Code
Section 423(b). Notwithstanding the preceding sentence, Compensation
shall be determined without regard to any compensation deferral
election under any plan, program or arrangement, qualified or
nonqualified, maintained or contributed to by the Company, a
predecessor entity or a related entity, including but not limited to a
cash-or-deferred arrangement described in Code Section 401(k), a
cafeteria plan described in Code Section 125 or a nonqualified deferred
compensation plan. A "predecessor entity" is any entity which, as a
result of a merger, consolidation, purchase or acquisition of property
or stock, corporate separation, or other similar business transaction
transfers some or all of its employees to the Company or to a related
entity or to a predecessor entity of the Company. The term "related
entity" includes any entity treated as a single employer with the
Company in accordance with subsections (b), (c), (m) and (o) of Code
Section 414.
(c) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Executive will be entitled to
continued participation in all employee benefit plans or programs available to
Company employees generally in which the Executive was participating on the Date
of Termination, such continued participation to be at Company cost and otherwise
on the same basis as Company employees generally, until the earlier of (i) the
date, or dates, he receives equivalent coverage and benefits under the plans and
programs of a subsequent employer (such coverages and benefits to be determined
on a coverage-by-coverage or benefit-by-benefit basis) or (ii) two years from
the Date of Termination; provided (A) if the Executive is precluded from
continuing his participation in any employee benefit plan or program as provided
in this sentence, he shall be paid, in a lump sum cash payment, within 30 days
following the date it is determined he is unable to participate in any employee
benefit plan or program, the after-tax economic equivalent of the benefits
provided under the plan or program in which he is unable to participate for the
period specified in this sentence, and (B) the economic equivalent of any
benefit foregone shall be deemed to be the lowest cost that would be incurred by
the Executive in obtaining such benefit for himself (including family or
dependent coverage, if applicable) on an individual basis. The Executive shall
be eligible for group health plan continuation coverage under and in accordance
with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended,
when he ceases to be eligible for continued participation in the Company's group
health plan under this subsection (e).
5. NO OBLIGATION TO MITIGATE DAMAGES; NO EFFECT
ON OTHER CONTRACTUAL RIGHTS.
(a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation
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earned by the Executive as the result of employment by another employer after
the Date of Termination or otherwise.
(b) The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any Benefit Plan, Incentive Plan or
Securities Plan, employment agreement or other contract, plan or agreement with
or of the Company.
6. INCENTIVE AWARDS.
In the event of a Change in Control of the Company, then
notwithstanding the terms and conditions of any Incentive Plan, the Company
agrees (i) to immediately and fully vest all unvested awards, units, and
benefits (other than options to acquire securities of the Company or awards of
securities of the Company) which have been awarded or allocated to the Executive
under the Incentive Plans; and (ii) upon the exercise of such awards or units or
the distribution of such benefits, to pay all amounts due under the Incentive
Plans solely in cash.
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) All determinations required to be made under this Section 7,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by the Accounting Firm which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days after the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. The determination
of tax liability made by the Accounting Firm shall be subject to review by the
Executive's tax advisor, and, if the Executive's tax advisor does not agree with
the determination reached by the Accounting Firm, then the Accounting Firm and
the Executive's tax advisor shall jointly designate a nationally recognized
public accounting firm which shall make the determination. All fees and expenses
of the accountants and tax advisors retained by both the Executive and the
Company shall be borne solely by the Company. Any Gross-Up Payment, as
determined
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pursuant to this Section 7, shall be paid by the Company to the
Executive within five days after the receipt of the determination. Any
determination by such jointly designated public accounting firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
hereunder, it is possible that Gross-Up Payments will not have been made by the
Company that should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Executive
hereafter is required to make a payment of any Excise Tax, any such Underpayment
shall be promptly paid by the Company to or for the benefit of the Executive.
Upon notice by the Executive of any audit or other proceeding that may result in
a liability to the Company hereunder, the Executive shall promptly notify the
Company of such audit or other proceeding; and the Company may, at its option,
but solely with respect to the item or items that relate to such potential
liability, choose to assume the defense of such audit or other proceeding at its
own cost, provided that (i) the Executive shall cooperate with the Company in
such defense and (ii) the Company will not settle such audit or other proceeding
without the consent of the Executive (such consent not to be unreasonably
withheld). The highest effective marginal tax rate (determined by taking into
account any reduction in itemized deductions and/or exemptions attributable to
the inclusion of the additional amounts payable under this Section 7 in the
Executive's adjusted gross or taxable income) based upon the state and locality
where the Executive is resident at the time of payment of such amounts will be
used for purposes of determining the federal and state income and other taxes
with respect thereto.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify the Executive to the fullest extent
permitted by law if the Executive is a party or threatened to be made a party to
any Proceeding (as defined below).
(b) If requested by the Executive, the Company shall advance (within
two business days of such request) any and all Expenses, as defined below,
relating to a Proceeding to the Executive (an "Expense Advance"), upon the
receipt of a written undertaking by or on behalf of the Executive to repay such
Expense Advance if a judgment or other final adjudication adverse to the
Executive (as to which all rights of appeal therefrom have been exhausted or
lapsed) establishes that the Executive is not entitled to indemnification by the
Company. Expenses shall include attorney's fees and all other costs, charges and
expenses paid or incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in any Proceeding.
(c) The Company agrees to obtain a directors' and officers' liability
insurance policy covering the Executive and to continue and maintain such
policy. The amount of coverage shall be reasonable in relation to the
Executive's position and responsibilities during his employment by the Company.
(d) This Section 8 is a supplement to and in furtherance of the
Certificate of Incorporation and Bylaws of the Company and shall not be deemed a
substitute therefor, or diminish or abrogate any rights of the Executive
thereunder.
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(e) For purposes of Section 8(a), the meaning of the phrase "to the
fullest extent permitted by law" shall include but not be limited to:
(i) to the fullest extent permitted by the provision of the
Delaware General Corporation Law ("DGCL") that authorizes or
contemplates additional indemnification by agreement, or the
corresponding provision of any amendment to or replacement of the DGCL,
and
(ii) to the fullest extent authorized or permitted by any
amendments to or replacements of the DGCL adopted after the date of
this Agreement that increase the extent to which a corporation may
indemnify its officers and directors.
(f) For purposes of Sections 8(a) and 8(b), "Proceeding" shall mean any
threatened, pending or completed action, suit, arbitration, alternate dispute
resolution mechanism, investigation, inquiry, administrative hearing or any
other actual, threatened or completed proceeding, whether brought in the right
of the Company or otherwise and whether of a civil, criminal, administrative or
investigative nature, in which the Executive was, is or will be involved as a
party or otherwise by reason of the fact that the Executive is or was a director
or officer of the Company, by reason of any action taken by him or of any action
on his part while acting as director or officer of the Company, or by reason of
the fact that he is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, in each case whether or not serving in such capacity
at the time any liability or expense is incurred for which indemnification,
reimbursement, or advancement of expenses can be provided under this Agreement.
9. SUCCESSORS.
(a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. Any failure of the Company to
obtain such agreement prior to the effectiveness of any such succession or
assignment shall be a material breach of this Agreement and shall entitle the
Executive to terminate the Executive's employment for Good Reason and receive
the compensation provided for in Section 4 hereof. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor or
assign to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Section 9 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts are still payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with
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the terms of this Agreement to the Executive's devisee, legatee or other
designee or, if there be no such designee, to the Executive's estate.
10. NOTICE.
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, as follows:
If to the Company:
Transaction Systems Architects, Inc.
224 South 108 Avenue
Omaha, NE 68154
Attn: President
If to the Executive:
--------------------------------------------
--------------------------------------------
--------------------------------------------
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. MISCELLANEOUS.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same time or
at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Nebraska, without giving effect to any principles of conflicts of
law.
12. CONFLICT IN BENEFITS.
Except as otherwise provided in the preceding sentences, this Agreement
is not intended to and shall not limit or terminate any other agreement or
arrangement between the Executive and the Company presently in effect or
hereafter entered into.
13. VALIDITY.
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The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. SURVIVORSHIP.
The respective rights and obligations of the parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations and to the extent that any
performance is required following termination of this Agreement. Without
limiting the foregoing, Sections 7, 8 and 15 shall expressly survive the
termination of this Agreement.
15. LEGAL FEES AND EXPENSES.
If a claim or dispute arises concerning the rights of the Executive
under this Agreement, regardless of the party by whom such claim or dispute is
initiated, the Company shall, upon presentation of appropriate vouchers, pay all
legal expenses, including reasonable attorneys' fees, court costs, and ordinary
and necessary out-of-pocket costs of attorneys, billed to and payable by the
Executive or by anyone claiming under or through the Executive, in connection
with the bringing, prosecuting, arbitrating, defending, litigating, negotiating,
or settling such claim or dispute. In no event shall the Executive be required
to reimburse the Company for any of the costs or expenses incurred by the
Company relating to arbitration or litigation. Pending the outcome or resolution
of any claim or dispute, the Company shall continue payment of all amounts due
the Executive without regard to any dispute.
16. EFFECTIVE DATE.
This Agreement shall become effective upon execution.
17. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
18. NO GUARANTEE OF EMPLOYMENT.
Neither this Agreement nor any action taken hereunder shall be construed
as giving the Executive the right to be retained in employment with the Company,
nor shall it interfere with either the Company's right to terminate the
employment of the Executive at any time or the Executive's right to terminate
his employment at any time.
19. NO ASSIGNMENT BY EXECUTIVE.
Except as otherwise provided in Section 9(b), the Executive's rights and
interest under this Agreement shall not be assignable (in law or in equity) or
subject to any manner of alienation, sale, transfer, claims of creditors,
pledge, attachment, garnishment, levy, execution or encumbrances of any kind.
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20. WAIVER.
The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement shall not be deemed a waiver of
such provision or any other provision of this Agreement. Any waiver of any
provision of this Agreement shall not be deemed to be a waiver of any other
provision, and any waiver of default in any provision of this Agreement shall
not be deemed to be a waiver of any later default thereof or of any other
provision.
21. WITHHOLDING.
All amounts paid pursuant to this Agreement shall be subject to
withholding for taxes (federal, state, local or otherwise) to the extent
required by applicable law.
22. HEADINGS.
The headings of this Agreement have been inserted for convenience of
reference only and are to be ignored in the construction of the provisions
hereof.
23. NUMBER AND GENDER.
The use of the singular shall be interpreted to include the plural and
the plural the singular, as the context requires. The use of the masculine,
feminine or neuter shall be interpreted to include the masculine, feminine or
neuter as the context shall require.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
TRANSACTION SYSTEMS ARCHITECTS, INC.
Date: By:
- ------------------------------ --------------------------------
EXECUTIVE:
Date:
- ------------------------------ ------------------------------------
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APPENDIX A
EXAMPLE 1 - Executive was employed by the Company for 1-1/3 fiscal
years preceding the fiscal year in which a Change in Control of the
Company occurs. The Executive's Compensation from the Company was
$30,000 for the 4-month period and $120,000 for the full fiscal year.
The Executive's Base Amount is $105,000.
Year 1: 3 x $30,000 = $90,000
Year 2: $120,000
[90,000 + 120,000] / 2 = $105,000
$105,000 is the average fiscal-year Compensation for the
Base Period.
EXAMPLE 2 - Assume the same facts as in Example 1, except that the
Executive also received a $70,000 sign-on bonus when his employment
with the Company commenced at the beginning of the 4-month period.
The Executive's Base Amount is $140,000
Year 1: [3 x $30,000] + $70,000 = $160,000
Year 2: $120,000
[160,000 + 120,000] / 2 = $140,000
Since the sign-on bonus will not be paid more often than once per
fiscal year, the amount of the bonus is not increased in annualizing
the Executive's Compensation for the 4-month period.
EXAMPLE 3 - Executive was employed by the Company for the last 4 months
of the fiscal year preceding the fiscal year in which a Change in
Control of the Company occurs. The Executive's Compensation from the
Company was $30,000 for the 4-month period. The Executive's Base Amount
is $90,000.
Year 1: 3 x $30,000 = $90,000
$90,000 / 1 = $90,000
$90,000 is the average fiscal-year Compensation for the
Base Period.
<PAGE>
SEVERANCE COMPENSATION AGREEMENT
SEVERANCE COMPENSATION AGREEMENT dated as of July 31, 1999 between
Transaction Systems Architects, Inc., a Delaware corporation (the "Company"),
and Doug Parr (the "Executive").
WHEREAS, the Company's Board of Directors has determined that it is
appropriate to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in potentially disturbing circumstances arising from
the possibility of a change in control of the Company;
NOW, THEREFORE, this Agreement sets forth the severance compensation
which the Company agrees it will pay to the Executive if the Executive's
employment with the Company terminates under certain circumstances described
herein following a Change in Control (as defined herein) and the other benefits
the Company will provide the Executive following a Change in Control.
1. TERM.
This Agreement shall terminate, except to the extent that any
obligation of the Company hereunder remains unpaid as of such time, upon the
earlier of (i) the termination of Executive's employment for any reason prior to
a Change in Control; and (ii) three years after the date of a Change in Control.
2. CHANGE IN CONTROL.
For purposes of this Agreement, Change in Control shall mean:
(a) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person"), of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a Change
in Control: (A) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege), (B) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (C)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in subclauses (i), (ii) and (iii) of clause (c) of this
Section 2 are satisfied; or
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(b) if individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least
two-thirds of the directors then constituting the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest
subject to Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(c) approval by the stockholders of the Company of a reorganization,
merger or consolidation, unless following such reorganization, merger or
consolidation (i) more than 60% of, respectively, the then-outstanding shares of
common stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger, or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the resulting corporation owned by the Company's stockholders, but
not from the total number of outstanding shares and voting securities of the
resulting corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (ii) no Person (excluding the Company, any employee
benefit plan (or related trust) of the Company, any qualified employee benefit
plan of such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then-outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(d) (i) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company or (ii) the first to occur of (A) the
sale or other disposition (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company, or (B)
the approval by the stockholders of the Company of any such sale or disposition,
other than, in each case, any such sale or disposition to a corporation, with
respect to
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which immediately thereafter, (1) more than 60% of, respectively, the
then-outstanding shares of common stock of such corporation and the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such sale or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the transferee corporation owned by the Company's stockholders,
but not from the total number of outstanding shares and voting securities of the
transferee corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (2) no Person (excluding the Company and any
employee benefit plan (or related trust) of the Company, any qualified employee
benefit plan of such transferee corporation and any Person beneficially owning,
immediately prior to such sale or other disposition, directly or indirectly, 20%
or more of the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 20%
or more of, respectively, the then-outstanding shares of common stock of such
transferee corporation and the combined voting power of the then-outstanding
voting securities of such transferee corporation entitled to vote generally in
the election of directors and (3) at least a majority of the members of the
board of directors of such transferee corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or action of the
board providing for such sale or other disposition of assets of the Company.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL.
(a) The Executive shall be entitled to the compensation provided in
Section 4 of this Agreement if all of the following conditions are satisfied:
(i) there is a Change in Control of the Company while the
Executive is still an employee of the Company;
(ii) the Executive's employment with the Company is terminated
within two years after the Change in Control; and
(iii) the Executive's termination of employment is not a result
of (A) the Executive's death; (B) the Executive's Disability (as
defined in Section 3(b) below; (C) the Executive's Retirement (as
defined in Section 3(c) below); (D) the Executive's termination by the
Company for Cause (as defined in Section 3(d) below); or (E) the
Executive's decision to terminate employment other than for Good Reason
(as defined in Section 3(e) below).
(b) If, as a result of the Executive's incapacity due to physical or
mental illness, the Executive shall have been unable, with or without a
reasonable accommodation, to perform his duties with the Company on a full-time
basis for six months and within 30 days after a Notice of
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Termination (as defined in Section 3(f) below) is thereafter given by the
Company, the Executive shall not have returned to the full-time performance of
the Executive's duties, the Company may terminate the Executive's employment for
"Disability". If there is a Change in Control of the Company while the Executive
is still an employee and if the Executive's employment with the Company is
terminated for Disability within two years after the Change in Control, the
Executive shall be entitled to receive in a lump sum cash payment within five
days after his Date of Termination (as defined in Section 3(g) below) the
following:
(i) one times the Base Amount (as defined in Section 4(b)(i))
determined with respect to the Base Period (as defined in Section
4(b)(ii)); plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points.
(c) For purposes of this Agreement only, "Retirement" shall mean
termination by the Company or the Executive of the Executive's employment based
on the Executive's having reached age 65 or such other age as shall have been
fixed in any arrangement established pursuant to this Agreement with the
Executive's consent with respect to the Executive.
(d) For purposes of this Agreement only, "Cause" shall mean: (i) the
Executive's conviction of a felony involving moral turpitude; or (ii) the
Executive's serious, willful gross misconduct or willful gross neglect of duties
(other than any such neglect resulting from the Executive's incapacity due to
physical or mental illness or any such neglect after the issuance of a Notice of
Termination by the Executive for Good Reason, as such terms are defined in
subsections (e) and (f) below), which, in either case, has resulted, or in all
probability is likely to result, in material economic damage to the Company;
provided no act or failure to act by the Executive will constitute "Cause" under
clause (ii) if the Executive believed in good faith that such act or failure to
act was in the best interest of the Company.
For purposes of this Agreement only, any termination of the Executive's
employment by the Company for Cause shall be authorized by a vote of at least a
majority of the non-employee members of the Board of Directors of the Company
(the "Board") within 12 months of a majority of such non-employee members of the
Board having actual knowledge of the event or circumstances providing a basis
for such termination. In the case of clause (ii) of the second
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sentence of this subsection (d), the Executive shall be given notice by the
Board specifying in detail the particular act or failure to act on which the
Board is relying in proposing to terminate him for Cause and offering the
Executive an opportunity, on a date at least 14 days after receipt of such
notice, to have a hearing, with counsel, before a majority of the non-employee
members of the Board, including each of the members of the Board who authorized
the termination for Cause. The Executive shall not be terminated for Cause if,
within 30 days after the date of the Executive's hearing before the Board (or if
the Executive waives a hearing, within 30 days after receiving notice of the
proposed termination), he has corrected the particular act or failure to act
specified in the notice and by so correcting such act or failure to act he has
reduced the economic damage his act or failure to act has allegedly caused the
Company to a level which is no longer material or has eliminated the probability
that such act or failure to act is likely to result in material economic damage
to the Company. No termination for Cause shall take effect until the expiration
of the correction period described in the preceding sentence and the
determination by a majority of the non-employee members of the Board that the
Executive has failed to correct the act or failure to act in accordance with the
terms of the preceding sentence.
Anything herein to the contrary notwithstanding, if, following a
termination of the Executive's employment by the Company for Cause based upon
the conviction of the Executive for a felony involving moral turpitude such
conviction is finally overturned on appeal, the Executive shall be entitled to
the compensation provided in Sections 4(a) and 4(c). In lieu of the interest
provided in clause (iv) of the first sentence of Section 4(a) and the interest
provided in the second sentence of Section 4(c), however, the compensation
provided in Sections 4(a) and 4(c) shall be increased by a ten percent rate of
interest, compounded annually, calculated from the date such compensation would
have been paid if the Executive's employment had been terminated without Cause.
(e) For purposes of this Agreement, "Good Reason" shall mean, after any
Change in Control and without the Executive's express written consent, any of
the following:
(i) a significant diminution in the Executive's duties and
responsibilities, or the assignment to the Executive by the Company of
duties inconsistent with the Executive's position, duties,
responsibilities or status with the Company immediately prior to a
Change in Control of the Company, or a change in the Executive's titles
or offices as in effect immediately prior to a Change in Control of the
Company, or any removal of the Executive from or any failure to
re-elect the Executive to any of such positions, except in connection
with the termination of his employment for Disability, Retirement or
Cause or as a result of the Executive's death or by the Executive other
than for Good Reason;
(ii) a reduction by the Company in the Executive's annual rate
of base salary as in effect on the date hereof or as the same may be
increased from time to time during the term of this Agreement or the
Company's failure to increase (within 12 months of the Executive's last
increase in his annual rate of base salary) the Executive's annual rate
of base salary after a Change in Control of the Company in an amount
which at least equals, on a percentage basis, the greater of (A) the
average percentage increase in the annual rate
5
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of base salary for all officers of the Company effected in the
preceding 12 months; or (B) the Consumer Price Index as published by
the United States Government (or, in the event such index is
discontinued, any similar index published by the United States
Government as designated in good faith by the Executive); provided,
however, that nothing contained in this clause (ii) shall be construed
under any circumstances as permitting the Company to decrease the
Executive's annual rate of base salary;
(iii) (A) any failure by the Company to continue in effect any
benefit plan or arrangement (including, without limitation, the life
insurance, medical, dental, accident and disability plans) in which the
Executive is participating at the time of a Change in Control of the
Company, or any other plan or arrangement providing the Executive with
benefits that are no less favorable (hereinafter referred to as
"Benefit Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such Benefit Plan or deprive
the Executive of any material fringe benefit or perquisite of office
enjoyed by the Executive at the time of a Change in Control of the
Company, unless in the case of either subclause (A) or (B) above, there
is substituted a comparable plan or program that is economically
equivalent or superior, in terms of the benefit offered to the
Executive, to the Benefit Plan being altered, reduced, affected or
ended;
(iv) (A) any failure by the Company to continue in effect any
incentive plan or arrangement (including, without limitation, the
Company's bonus arrangements, the Transaction Systems Architects, Inc.
Deferred Compensation Plan, the Transaction Systems Architects, Inc.
401(k) Plan, the sales incentive plans, and the management incentive
plans) in which the Executive is participating at the time of a Change
in Control of the Company, or any other plans or arrangements providing
him with substantially similar benefits, (hereinafter referred to as
"Incentive Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in any such
Incentive Plan or reduce the Executive's benefits under any such
Incentive Plan, unless in the case of either subclause (A) or (B)
above, there is substituted a comparable plan or program that is
economically equivalent or superior, in terms of the benefit offered to
the Executive, to the Incentive Plan being altered, reduced, affected
or ended, or (C) any failure by the Company with respect to any fiscal
year to make an award to the Executive pursuant to each such Incentive
Plan or such substituted comparable plan or program equal to or greater
than the greater of (1) the award (whether paid or payable in cash or
in securities of the Company) made to the Executive pursuant to such
Incentive Plan or such substituted comparable plan or program with
respect to the immediately preceding fiscal year or (2) the average
annual award (whether paid or payable in cash or in securities of the
Company) made to the Executive pursuant to such Incentive Plan or such
substituted comparable plan with respect to the prior three fiscal
years (or such lesser number of prior fiscal years that the Executive
was employed by the Company or that the Incentive Plan (together with
any substituted comparable plan) was maintained);
(v) (A) any failure by the Company to continue in effect any
plan or arrangement to receive securities of the Company (including,
without limitation, the
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Transaction Systems Architects, Inc. 1999 Employee Stock Purchase Plan
and the Transaction Systems Architects Inc. 1999 Stock Option Plan) in
which the Executive is participating at the time of a Change in Control
of the Company, or any other plan or arrangement providing him with
substantially similar benefits, (hereinafter referred to as "Securities
Plans"), (B) the taking of any action by the Company which would
adversely affect the Executive's participation in or materially reduce
the Executive's benefits under any such Securities Plan, unless in the
case of either subclause (A) or (B) above, there is substituted a
comparable plan or program that is economically equivalent or superior,
in terms of the benefit offered to the Executive, to the Securities
Plan being altered, reduced, affected or ended, or (C) any failure by
the Company in any fiscal year to grant stock options, stock
appreciation rights or securities awards to the Executive pursuant to
such Securities Plans with respect to an aggregate number of securities
of the Company of each kind that is equal to or greater than the
greater of (1) the aggregate number of securities of the Company of
that kind covered by stock options, stock appreciation rights or
securities awards granted to the Executive pursuant to such Securities
Plans in the immediately preceding fiscal year or (2) the average
annual aggregate number of securities of the Company of that kind
covered by stock options, stock appreciation rights, or securities
awards granted to the Executive pursuant to such Securities Plans in
the prior three fiscal years; and provided further the material terms
and conditions of such stock options, stock appreciation rights, and
securities awards granted to the Executive after the Change in Control
(including, but not limited to, the exercise price, vesting schedule,
period and methods of exercise, expiration date, forfeiture provisions
and other restrictions) are substantially similar to the material terms
and conditions of the stock options, stock appreciation rights, and
securities awards granted to the Executive under the Securities Plans
immediately prior to the Change in Control of the Company;
(vi) the Executive's relocation more than 50 miles from the
location at which the Executive performed the Executive's duties prior
to a Change in Control of the Company, except for required travel by
the Executive on the Company's business to an extent substantially
consistent with the Executive's business travel obligations at the time
of a Change in Control of the Company;
(vii) any failure by the Company to provide the Executive with
the number of annual paid vacation days to which the Executive is
entitled for the year in which a Change in Control of the Company
occurs;
(viii) any material breach by the Company of any provision of
this Agreement;
(ix) any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company prior to such
succession or assignment;
(x) any failure by the Company or its successor to enter into
an agreement with the Executive that is substantially similar to this
Agreement with respect to a Change in Control of the Company or its
successor occurring thereafter; or
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(xi) any purported termination of the Executive's employment
by the Company pursuant to Section 3(b), 3(c) or 3(d) above which is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 3(f) below (and, if applicable, Section 3(d)
above), and for purposes of this Agreement, no such purported
termination shall be effective.
For purposes of this subsection (e), an isolated, immaterial, and inadvertent
action not taken in bad faith by the Company in violation of clause (ii), (iii),
(iv), (v) or (vii) of this subsection that is remedied by the Company promptly
after receipt of notice thereof given by the Executive shall not be considered
Good Reason for the Executive's termination of employment with the Company. In
the event the Executive terminates his employment for Good Reason hereunder,
then notwithstanding that the Executive may also retire for purposes of the
Benefit Plans, Incentive Plans or Securities Plans, the Executive shall be
deemed to have terminated his employment for Good Reason for purposes of this
Agreement.
(f) Any termination of the Executive by the Company pursuant to Section
3(b), 3(c) or 3(d) above, or by the Executive pursuant to Section 3(e) above,
shall be communicated by a Notice of Termination to the other party hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate those specific termination provisions in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. For purposes of this Agreement, no
such purported termination by the Company shall be effective without such Notice
of Termination.
(g) "Date of Termination" shall mean (i) if the Executive's employment
is terminated by the Company for Disability, 30 days after Notice of Termination
is given to the Executive (provided that the Executive shall not have returned
to the performance of the Executive's duties on a full-time basis during such
30-day period), (ii) if the Executive's employment is terminated by the
Executive for Good Reason, the date specified in the Notice of Termination, and
(iii) if the Executive's employment is terminated by the Company for any other
reason, the date on which a Notice of Termination is given; provided, however,
that if within 30 days after any Notice of Termination is given to the Executive
by the Company, the Executive notifies the Company that a dispute exists
concerning the termination, the Date of Termination shall be the date the
dispute is finally determined, whether by mutual written agreement of the
parties or upon final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected).
4. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT.
(a) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Company shall pay to the
Executive in a lump sum cash payment within five days after the Date of
Termination the following:
(i) the Severance Amount as defined in Section 4(b) below;
plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
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(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points,
compounded annually.
(b) "Severance Amount" shall mean an amount equal to one times the Base
Amount (as defined below) determined with respect to the Base Period (as defined
below); provided, however, in no event shall the Severance Amount be less than
two times the Executive's annual rate of base salary at the higher of the annual
rate in effect (i) immediately prior to the Date of Termination or (ii) on the
date six months prior to the Date of Termination. For purposes of this
subsection (b):
(i) "Base Amount" means the Executive's average fiscal-year
Compensation (as defined below) for fiscal years of the Company in the
Base Period. Such average shall be computed by dividing the total of
the Executive's Compensation for the Base Period by the number of
fiscal years in the Base Period. If the Executive's Base Period
includes a portion of a fiscal year during which he was not an employee
of the Company (or a predecessor entity or a related entity, as such
terms are defined in clause (iii) below), the Executive's Compensation
for such fiscal year shall be annualized before determining the average
fiscal-year Compensation for the Base Period. In annualizing
Compensation, the frequency with which payments are expected to be made
over a fiscal year shall be taken into account; thus, any amount of
Compensation that represents a payment that will not be made more often
than once per fiscal year is not annualized. Set forth on Appendix A,
which is attached hereto and made a part hereof, are three examples
illustrating the calculation of the Base Amount.
(ii) "Base Period" means the most recent two consecutive
fiscal years of the Company ending prior to the Date of Termination.
However, if the Executive was not an employee of the Company (or a
predecessor entity or a related entity, as such terms are defined in
clause (iii) below) at any time during one of such two fiscal years,
the Executive's Base Period is the one fiscal year of such
two-fiscal-year period during which the Executive performed personal
services for the Company or a predecessor entity or a related entity.
(iii) "Compensation" means the compensation which was payable
by the Company, by a predecessor entity, or by a related entity and
which was includible in the gross income of the Executive (or either
was excludible from such gross income as
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"foreign earned income" within the meaning of Section 911 of the
Internal Revenue Code of 1986, as amended (the "Code"), or would have
been includible in such gross income if the Executive had been a United
States citizen or resident), but excluding the following: (A) amounts
realized from the exercise of a non-qualified stock option; and (B)
amounts realized from the sale, exchange or other disposition of stock
acquired under an incentive stock option described in Code Section
422(b) or under an employee stock purchase plan described in Code
Section 423(b). Notwithstanding the preceding sentence, Compensation
shall be determined without regard to any compensation deferral
election under any plan, program or arrangement, qualified or
nonqualified, maintained or contributed to by the Company, a
predecessor entity or a related entity, including but not limited to a
cash-or-deferred arrangement described in Code Section 401(k), a
cafeteria plan described in Code Section 125 or a nonqualified deferred
compensation plan. A "predecessor entity" is any entity which, as a
result of a merger, consolidation, purchase or acquisition of property
or stock, corporate separation, or other similar business transaction
transfers some or all of its employees to the Company or to a related
entity or to a predecessor entity of the Company. The term "related
entity" includes any entity treated as a single employer with the
Company in accordance with subsections (b), (c), (m) and (o) of Code
Section 414.
(c) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Executive will be entitled to
continued participation in all employee benefit plans or programs available to
Company employees generally in which the Executive was participating on the Date
of Termination, such continued participation to be at Company cost and otherwise
on the same basis as Company employees generally, until the earlier of (i) the
date, or dates, he receives equivalent coverage and benefits under the plans and
programs of a subsequent employer (such coverages and benefits to be determined
on a coverage-by-coverage or benefit-by-benefit basis) or (ii) two years from
the Date of Termination; provided (A) if the Executive is precluded from
continuing his participation in any employee benefit plan or program as provided
in this sentence, he shall be paid, in a lump sum cash payment, within 30 days
following the date it is determined he is unable to participate in any employee
benefit plan or program, the after-tax economic equivalent of the benefits
provided under the plan or program in which he is unable to participate for the
period specified in this sentence, and (B) the economic equivalent of any
benefit foregone shall be deemed to be the lowest cost that would be incurred by
the Executive in obtaining such benefit for himself (including family or
dependent coverage, if applicable) on an individual basis. The Executive shall
be eligible for group health plan continuation coverage under and in accordance
with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended,
when he ceases to be eligible for continued participation in the Company's group
health plan under this subsection (e).
5. NO OBLIGATION TO MITIGATE DAMAGES; NO EFFECT ON OTHER CONTRACTUAL
RIGHTS.
(a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation
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earned by the Executive as the result of employment by another employer after
the Date of Termination or otherwise.
(b) The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any Benefit Plan, Incentive Plan or
Securities Plan, employment agreement or other contract, plan or agreement with
or of the Company.
6. INCENTIVE AWARDS.
In the event of a Change in Control of the Company, then
notwithstanding the terms and conditions of any Incentive Plan, the Company
agrees (i) to immediately and fully vest all unvested awards, units, and
benefits (other than options to acquire securities of the Company or awards of
securities of the Company) which have been awarded or allocated to the Executive
under the Incentive Plans; and (ii) upon the exercise of such awards or units or
the distribution of such benefits, to pay all amounts due under the Incentive
Plans solely in cash.
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) All determinations required to be made under this Section 7,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by the Accounting Firm which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days after the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. The determination
of tax liability made by the Accounting Firm shall be subject to review by the
Executive's tax advisor, and, if the Executive's tax advisor does not agree with
the determination reached by the Accounting Firm, then the Accounting Firm and
the Executive's tax advisor shall jointly designate a nationally recognized
public accounting firm which shall make the determination. All fees and expenses
of the accountants and tax advisors retained by both the Executive and the
Company shall be borne solely by the Company. Any Gross-Up Payment, as
determined
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pursuant to this Section 7, shall be paid by the Company to the Executive within
five days after the receipt of the determination. Any determination by such
jointly designated public accounting firm shall be binding upon the Company and
the Executive. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination hereunder, it is possible
that Gross-Up Payments will not have been made by the Company that should have
been made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Executive hereafter is required to make a
payment of any Excise Tax, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive. Upon notice by the Executive of
any audit or other proceeding that may result in a liability to the Company
hereunder, the Executive shall promptly notify the Company of such audit or
other proceeding; and the Company may, at its option, but solely with respect to
the item or items that relate to such potential liability, choose to assume the
defense of such audit or other proceeding at its own cost, provided that (i) the
Executive shall cooperate with the Company in such defense and (ii) the Company
will not settle such audit or other proceeding without the consent of the
Executive (such consent not to be unreasonably withheld). The highest effective
marginal tax rate (determined by taking into account any reduction in itemized
deductions and/or exemptions attributable to the inclusion of the additional
amounts payable under this Section 7 in the Executive's adjusted gross or
taxable income) based upon the state and locality where the Executive is
resident at the time of payment of such amounts will be used for purposes of
determining the federal and state income and other taxes with respect thereto.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify the Executive to the fullest extent
permitted by law if the Executive is a party or threatened to be made a party to
any Proceeding (as defined below).
(b) If requested by the Executive, the Company shall advance (within
two business days of such request) any and all Expenses, as defined below,
relating to a Proceeding to the Executive (an "Expense Advance"), upon the
receipt of a written undertaking by or on behalf of the Executive to repay such
Expense Advance if a judgment or other final adjudication adverse to the
Executive (as to which all rights of appeal therefrom have been exhausted or
lapsed) establishes that the Executive is not entitled to indemnification by the
Company. Expenses shall include attorney's fees and all other costs, charges and
expenses paid or incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in any Proceeding.
(c) The Company agrees to obtain a directors' and officers' liability
insurance policy covering the Executive and to continue and maintain such
policy. The amount of coverage shall be reasonable in relation to the
Executive's position and responsibilities during his employment by the Company.
(d) This Section 8 is a supplement to and in furtherance of the
Certificate of Incorporation and Bylaws of the Company and shall not be deemed a
substitute therefor, or diminish or abrogate any rights of the Executive
thereunder.
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(e) For purposes of Section 8(a), the meaning of the phrase "to the
fullest extent permitted by law" shall include but not be limited to:
(i) to the fullest extent permitted by the provision of the
Delaware General Corporation Law ("DGCL") that authorizes or
contemplates additional indemnification by agreement, or the
corresponding provision of any amendment to or replacement of the DGCL,
and
(ii) to the fullest extent authorized or permitted by any
amendments to or replacements of the DGCL adopted after the date of
this Agreement that increase the extent to which a corporation may
indemnify its officers and directors.
(f) For purposes of Sections 8(a) and 8(b), "Proceeding" shall mean any
threatened, pending or completed action, suit, arbitration, alternate dispute
resolution mechanism, investigation, inquiry, administrative hearing or any
other actual, threatened or completed proceeding, whether brought in the right
of the Company or otherwise and whether of a civil, criminal, administrative or
investigative nature, in which the Executive was, is or will be involved as a
party or otherwise by reason of the fact that the Executive is or was a director
or officer of the Company, by reason of any action taken by him or of any action
on his part while acting as director or officer of the Company, or by reason of
the fact that he is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, in each case whether or not serving in such capacity
at the time any liability or expense is incurred for which indemnification,
reimbursement, or advancement of expenses can be provided under this Agreement.
9. SUCCESSORS.
(a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. Any failure of the Company to
obtain such agreement prior to the effectiveness of any such succession or
assignment shall be a material breach of this Agreement and shall entitle the
Executive to terminate the Executive's employment for Good Reason and receive
the compensation provided for in Section 4 hereof. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor or
assign to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Section 9 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts are still payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with
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the terms of this Agreement to the Executive's devisee, legatee or other
designee or, if there be no such designee, to the Executive's estate.
10. NOTICE.
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, as follows:
If to the Company:
Transaction Systems Architects, Inc.
224 South 108 Avenue
Omaha, NE 68154
Attn: President
If to the Executive:
----------------------------
----------------------------
----------------------------
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. MISCELLANEOUS.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same time or
at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Nebraska, without giving effect to any principles of conflicts of
law.
12. CONFLICT IN BENEFITS.
Except as otherwise provided in the preceding sentences, this Agreement
is not intended to and shall not limit or terminate any other agreement or
arrangement between the Executive and the Company presently in effect or
hereafter entered into.
13. VALIDITY.
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The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. SURVIVORSHIP.
The respective rights and obligations of the parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations and to the extent that any
performance is required following termination of this Agreement. Without
limiting the foregoing, Sections 7, 8 and 15 shall expressly survive the
termination of this Agreement.
15. LEGAL FEES AND EXPENSES.
If a claim or dispute arises concerning the rights of the Executive
under this Agreement, regardless of the party by whom such claim or dispute is
initiated, the Company shall, upon presentation of appropriate vouchers, pay all
legal expenses, including reasonable attorneys' fees, court costs, and ordinary
and necessary out-of-pocket costs of attorneys, billed to and payable by the
Executive or by anyone claiming under or through the Executive, in connection
with the bringing, prosecuting, arbitrating, defending, litigating, negotiating,
or settling such claim or dispute. In no event shall the Executive be required
to reimburse the Company for any of the costs or expenses incurred by the
Company relating to arbitration or litigation. Pending the outcome or resolution
of any claim or dispute, the Company shall continue payment of all amounts due
the Executive without regard to any dispute.
16. EFFECTIVE DATE.
This Agreement shall become effective upon execution.
17. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
18. NO GUARANTEE OF EMPLOYMENT.
Neither this Agreement nor any action taken hereunder shall be construed
as giving the Executive the right to be retained in employment with the Company,
nor shall it interfere with either the Company's right to terminate the
employment of the Executive at any time or the Executive's right to terminate
his employment at any time.
19. NO ASSIGNMENT BY EXECUTIVE.
Except as otherwise provided in Section 9(b), the Executive's rights and
interest under this Agreement shall not be assignable (in law or in equity) or
subject to any manner of alienation, sale, transfer, claims of creditors,
pledge, attachment, garnishment, levy, execution or encumbrances of any kind.
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20. WAIVER.
The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement shall not be deemed a waiver of
such provision or any other provision of this Agreement. Any waiver of any
provision of this Agreement shall not be deemed to be a waiver of any other
provision, and any waiver of default in any provision of this Agreement shall
not be deemed to be a waiver of any later default thereof or of any other
provision.
21. WITHHOLDING.
All amounts paid pursuant to this Agreement shall be subject to
withholding for taxes (federal, state, local or otherwise) to the extent
required by applicable law.
22. HEADINGS.
The headings of this Agreement have been inserted for convenience of
reference only and are to be ignored in the construction of the provisions
hereof.
23. NUMBER AND GENDER.
The use of the singular shall be interpreted to include the plural and
the plural the singular, as the context requires. The use of the masculine,
feminine or neuter shall be interpreted to include the masculine, feminine or
neuter as the context shall require.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
TRANSACTION SYSTEMS ARCHITECTS, INC.
Date: By:
------------ -------------------------------------
EXECUTIVE:
Date:
----------- -------------------------------------
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APPENDIX A
EXAMPLE 1 - Executive was employed by the Company for 1-1/3 fiscal
years preceding the fiscal year in which a Change in Control of the
Company occurs. The Executive's Compensation from the Company was
$30,000 for the 4-month period and $120,000 for the full fiscal year.
The Executive's Base Amount is $105,000.
Year 1: 3 x $30,000 = $90,000
Year 2: $120,000
[90,000 + 120,000] / 2 = $105,000
$105,000 is the average fiscal-year
Compensation for the Base Period.
EXAMPLE 2 - Assume the same facts as in Example 1, except that the
Executive also received a $70,000 sign-on bonus when his employment
with the Company commenced at the beginning of the 4-month period.
The Executive's Base Amount is $140,000
Year 1: [3 x $30,000] + $70,000 = $160,000
Year 2: $120,000 [160,000 + 120,000] / 2 =
$140,000
Since the sign-on bonus will not be paid more often than once per
fiscal year, the amount of the bonus is not increased in annualizing
the Executive's Compensation for the 4-month period.
EXAMPLE 3 - Executive was employed by the Company for the last 4 months
of the fiscal year preceding the fiscal year in which a Change in
Control of the Company occurs. The Executive's Compensation from the
Company was $30,000 for the 4-month period. The Executive's Base Amount
is $90,000.
Year 1: 3 x $30,000 = $90,000
$90,000 / 1 = $90,000
$90,000 is the average fiscal-year
Compensation for the Base Period.
<PAGE>
SEVERANCE COMPENSATION AGREEMENT
SEVERANCE COMPENSATION AGREEMENT dated as of July 31, 1999 between
Transaction Systems Architects, Inc., a Delaware corporation (the "Company"),
and Steve Royer (the "Executive").
WHEREAS, the Company's Board of Directors has determined that it is
appropriate to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in potentially disturbing circumstances arising from
the possibility of a change in control of the Company;
NOW, THEREFORE, this Agreement sets forth the severance compensation
which the Company agrees it will pay to the Executive if the Executive's
employment with the Company terminates under certain circumstances described
herein following a Change in Control (as defined herein) and the other benefits
the Company will provide the Executive following a Change in Control.
1. TERM.
This Agreement shall terminate, except to the extent that any
obligation of the Company hereunder remains unpaid as of such time, upon the
earlier of (i) the termination of Executive's employment for any reason prior to
a Change in Control; and (ii) three years after the date of a Change in Control.
2. CHANGE IN CONTROL.
For purposes of this Agreement, Change in Control shall mean:
(a) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person"), of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a Change
in Control: (A) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege), (B) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (C)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in subclauses (i), (ii) and (iii) of clause (c) of this
Section 2 are satisfied; or
<PAGE>
(b) if individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least
two-thirds of the directors then constituting the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest
subject to Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(c) approval by the stockholders of the Company of a reorganization,
merger or consolidation, unless following such reorganization, merger or
consolidation (i) more than 60% of, respectively, the then-outstanding shares of
common stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger, or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the resulting corporation owned by the Company's stockholders, but
not from the total number of outstanding shares and voting securities of the
resulting corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (ii) no Person (excluding the Company, any employee
benefit plan (or related trust) of the Company, any qualified employee benefit
plan of such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then-outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(d) (i) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company or (ii) the first to occur of (A) the
sale or other disposition (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company, or (B)
the approval by the stockholders of the Company of any such sale or disposition,
other than, in each case, any such sale or disposition to a corporation, with
respect to
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which immediately thereafter, (1) more than 60% of, respectively, the
then-outstanding shares of common stock of such corporation and the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such sale or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the transferee corporation owned by the Company's stockholders,
but not from the total number of outstanding shares and voting securities of the
transferee corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (2) no Person (excluding the Company and any
employee benefit plan (or related trust) of the Company, any qualified employee
benefit plan of such transferee corporation and any Person beneficially owning,
immediately prior to such sale or other disposition, directly or indirectly, 20%
or more of the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 20%
or more of, respectively, the then-outstanding shares of common stock of such
transferee corporation and the combined voting power of the then-outstanding
voting securities of such transferee corporation entitled to vote generally in
the election of directors and (3) at least a majority of the members of the
board of directors of such transferee corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or action of the
board providing for such sale or other disposition of assets of the Company.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL.
(a) The Executive shall be entitled to the compensation provided in
Section 4 of this Agreement if all of the following conditions are satisfied:
(i) there is a Change in Control of the Company while the
Executive is still an employee of the Company;
(ii) the Executive's employment with the Company is terminated
within two years after the Change in Control; and
(iii) the Executive's termination of employment is not a result
of (A) the Executive's death; (B) the Executive's Disability (as
defined in Section 3(b) below; (C) the Executive's Retirement (as
defined in Section 3(c) below); (D) the Executive's termination by the
Company for Cause (as defined in Section 3(d) below); or (E) the
Executive's decision to terminate employment other than for Good Reason
(as defined in Section 3(e) below).
(b) If, as a result of the Executive's incapacity due to physical or
mental illness, the Executive shall have been unable, with or without a
reasonable accommodation, to perform his duties with the Company on a full-time
basis for six months and within 30 days after a Notice of
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Termination (as defined in Section 3(f) below) is thereafter given by the
Company, the Executive shall not have returned to the full-time performance of
the Executive's duties, the Company may terminate the Executive's employment for
"Disability". If there is a Change in Control of the Company while the Executive
is still an employee and if the Executive's employment with the Company is
terminated for Disability within two years after the Change in Control, the
Executive shall be entitled to receive in a lump sum cash payment within five
days after his Date of Termination (as defined in Section 3(g) below) the
following:
(i) one times the Base Amount (as defined in Section 4(b)(i))
determined with respect to the Base Period (as defined in Section
4(b)(ii)); plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points.
(c) For purposes of this Agreement only, "Retirement" shall mean
termination by the Company or the Executive of the Executive's employment based
on the Executive's having reached age 65 or such other age as shall have been
fixed in any arrangement established pursuant to this Agreement with the
Executive's consent with respect to the Executive.
(d) For purposes of this Agreement only, "Cause" shall mean: (i) the
Executive's conviction of a felony involving moral turpitude; or (ii) the
Executive's serious, willful gross misconduct or willful gross neglect of duties
(other than any such neglect resulting from the Executive's incapacity due to
physical or mental illness or any such neglect after the issuance of a Notice of
Termination by the Executive for Good Reason, as such terms are defined in
subsections (e) and (f) below), which, in either case, has resulted, or in all
probability is likely to result, in material economic damage to the Company;
provided no act or failure to act by the Executive will constitute "Cause" under
clause (ii) if the Executive believed in good faith that such act or failure to
act was in the best interest of the Company.
For purposes of this Agreement only, any termination of the Executive's
employment by the Company for Cause shall be authorized by a vote of at least a
majority of the non-employee members of the Board of Directors of the Company
(the "Board") within 12 months of a majority of such non-employee members of the
Board having actual knowledge of the event or circumstances providing a basis
for such termination. In the case of clause (ii) of the second
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sentence of this subsection (d), the Executive shall be given notice by the
Board specifying in detail the particular act or failure to act on which the
Board is relying in proposing to terminate him for Cause and offering the
Executive an opportunity, on a date at least 14 days after receipt of such
notice, to have a hearing, with counsel, before a majority of the non-employee
members of the Board, including each of the members of the Board who authorized
the termination for Cause. The Executive shall not be terminated for Cause if,
within 30 days after the date of the Executive's hearing before the Board (or if
the Executive waives a hearing, within 30 days after receiving notice of the
proposed termination), he has corrected the particular act or failure to act
specified in the notice and by so correcting such act or failure to act he has
reduced the economic damage his act or failure to act has allegedly caused the
Company to a level which is no longer material or has eliminated the probability
that such act or failure to act is likely to result in material economic damage
to the Company. No termination for Cause shall take effect until the expiration
of the correction period described in the preceding sentence and the
determination by a majority of the non-employee members of the Board that the
Executive has failed to correct the act or failure to act in accordance with the
terms of the preceding sentence.
Anything herein to the contrary notwithstanding, if, following a
termination of the Executive's employment by the Company for Cause based upon
the conviction of the Executive for a felony involving moral turpitude such
conviction is finally overturned on appeal, the Executive shall be entitled to
the compensation provided in Sections 4(a) and 4(c). In lieu of the interest
provided in clause (iv) of the first sentence of Section 4(a) and the interest
provided in the second sentence of Section 4(c), however, the compensation
provided in Sections 4(a) and 4(c) shall be increased by a ten percent rate of
interest, compounded annually, calculated from the date such compensation would
have been paid if the Executive's employment had been terminated without Cause.
(e) For purposes of this Agreement, "Good Reason" shall mean, after any
Change in Control and without the Executive's express written consent, any of
the following:
(i) a significant diminution in the Executive's duties and
responsibilities, or the assignment to the Executive by the Company of
duties inconsistent with the Executive's position, duties,
responsibilities or status with the Company immediately prior to a
Change in Control of the Company, or a change in the Executive's titles
or offices as in effect immediately prior to a Change in Control of the
Company, or any removal of the Executive from or any failure to
re-elect the Executive to any of such positions, except in connection
with the termination of his employment for Disability, Retirement or
Cause or as a result of the Executive's death or by the Executive other
than for Good Reason;
(ii) a reduction by the Company in the Executive's annual rate
of base salary as in effect on the date hereof or as the same may be
increased from time to time during the term of this Agreement or the
Company's failure to increase (within 12 months of the Executive's last
increase in his annual rate of base salary) the Executive's annual rate
of base salary after a Change in Control of the Company in an amount
which at least equals, on a percentage basis, the greater of (A) the
average percentage increase in the annual rate
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of base salary for all officers of the Company effected in the preceding 12
months; or (B) the Consumer Price Index as published by the United States
Government (or, in the event such index is discontinued, any similar index
published by the United States Government as designated in good faith by the
Executive); provided, however, that nothing contained in this clause (ii) shall
be construed under any circumstances as permitting the Company to decrease the
Executive's annual rate of base salary;
(iii) (A) any failure by the Company to continue in effect any
benefit plan or arrangement (including, without limitation, the life
insurance, medical, dental, accident and disability plans) in which the
Executive is participating at the time of a Change in Control of the
Company, or any other plan or arrangement providing the Executive with
benefits that are no less favorable (hereinafter referred to as
"Benefit Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such Benefit Plan or deprive
the Executive of any material fringe benefit or perquisite of office
enjoyed by the Executive at the time of a Change in Control of the
Company, unless in the case of either subclause (A) or (B) above, there
is substituted a comparable plan or program that is economically
equivalent or superior, in terms of the benefit offered to the
Executive, to the Benefit Plan being altered, reduced, affected or
ended;
(iv) (A) any failure by the Company to continue in effect any
incentive plan or arrangement (including, without limitation, the
Company's bonus arrangements, the Transaction Systems Architects, Inc.
Deferred Compensation Plan, the Transaction Systems Architects, Inc.
401(k) Plan, the sales incentive plans, and the management incentive
plans) in which the Executive is participating at the time of a Change
in Control of the Company, or any other plans or arrangements providing
him with substantially similar benefits, (hereinafter referred to as
"Incentive Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in any such
Incentive Plan or reduce the Executive's benefits under any such
Incentive Plan, unless in the case of either subclause (A) or (B)
above, there is substituted a comparable plan or program that is
economically equivalent or superior, in terms of the benefit offered to
the Executive, to the Incentive Plan being altered, reduced, affected
or ended, or (C) any failure by the Company with respect to any fiscal
year to make an award to the Executive pursuant to each such Incentive
Plan or such substituted comparable plan or program equal to or greater
than the greater of (1) the award (whether paid or payable in cash or
in securities of the Company) made to the Executive pursuant to such
Incentive Plan or such substituted comparable plan or program with
respect to the immediately preceding fiscal year or (2) the average
annual award (whether paid or payable in cash or in securities of the
Company) made to the Executive pursuant to such Incentive Plan or such
substituted comparable plan with respect to the prior three fiscal
years (or such lesser number of prior fiscal years that the Executive
was employed by the Company or that the Incentive Plan (together with
any substituted comparable plan) was maintained);
(v) (A) any failure by the Company to continue in effect any
plan or arrangement to receive securities of the Company (including,
without limitation, the
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Transaction Systems Architects, Inc. 1999 Employee Stock Purchase Plan
and the Transaction Systems Architects Inc. 1999 Stock Option Plan) in
which the Executive is participating at the time of a Change in Control
of the Company, or any other plan or arrangement providing him with
substantially similar benefits, (hereinafter referred to as "Securities
Plans"), (B) the taking of any action by the Company which would
adversely affect the Executive's participation in or materially reduce
the Executive's benefits under any such Securities Plan, unless in the
case of either subclause (A) or (B) above, there is substituted a
comparable plan or program that is economically equivalent or superior,
in terms of the benefit offered to the Executive, to the Securities
Plan being altered, reduced, affected or ended, or (C) any failure by
the Company in any fiscal year to grant stock options, stock
appreciation rights or securities awards to the Executive pursuant to
such Securities Plans with respect to an aggregate number of securities
of the Company of each kind that is equal to or greater than the
greater of (1) the aggregate number of securities of the Company of
that kind covered by stock options, stock appreciation rights or
securities awards granted to the Executive pursuant to such Securities
Plans in the immediately preceding fiscal year or (2) the average
annual aggregate number of securities of the Company of that kind
covered by stock options, stock appreciation rights, or securities
awards granted to the Executive pursuant to such Securities Plans in
the prior three fiscal years; and provided further the material terms
and conditions of such stock options, stock appreciation rights, and
securities awards granted to the Executive after the Change in Control
(including, but not limited to, the exercise price, vesting schedule,
period and methods of exercise, expiration date, forfeiture provisions
and other restrictions) are substantially similar to the material terms
and conditions of the stock options, stock appreciation rights, and
securities awards granted to the Executive under the Securities Plans
immediately prior to the Change in Control of the Company;
(vi) the Executive's relocation more than 50 miles from the
location at which the Executive performed the Executive's duties prior
to a Change in Control of the Company, except for required travel by
the Executive on the Company's business to an extent substantially
consistent with the Executive's business travel obligations at the time
of a Change in Control of the Company;
(vii) any failure by the Company to provide the Executive with
the number of annual paid vacation days to which the Executive is
entitled for the year in which a Change in Control of the Company
occurs;
(viii) any material breach by the Company of any provision of
this Agreement;
(ix) any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company prior to such
succession or assignment;
(x) any failure by the Company or its successor to enter into
an agreement with the Executive that is substantially similar to this
Agreement with respect to a Change in Control of the Company or its
successor occurring thereafter; or
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(xi) any purported termination of the Executive's employment
by the Company pursuant to Section 3(b), 3(c) or 3(d) above which is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 3(f) below (and, if applicable, Section 3(d)
above), and for purposes of this Agreement, no such purported
termination shall be effective.
For purposes of this subsection (e), an isolated, immaterial, and inadvertent
action not taken in bad faith by the Company in violation of clause (ii), (iii),
(iv), (v) or (vii) of this subsection that is remedied by the Company promptly
after receipt of notice thereof given by the Executive shall not be considered
Good Reason for the Executive's termination of employment with the Company. In
the event the Executive terminates his employment for Good Reason hereunder,
then notwithstanding that the Executive may also retire for purposes of the
Benefit Plans, Incentive Plans or Securities Plans, the Executive shall be
deemed to have terminated his employment for Good Reason for purposes of this
Agreement.
(f) Any termination of the Executive by the Company pursuant to Section
3(b), 3(c) or 3(d) above, or by the Executive pursuant to Section 3(e) above,
shall be communicated by a Notice of Termination to the other party hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate those specific termination provisions in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. For purposes of this Agreement, no
such purported termination by the Company shall be effective without such Notice
of Termination.
(g) "Date of Termination" shall mean (i) if the Executive's employment
is terminated by the Company for Disability, 30 days after Notice of Termination
is given to the Executive (provided that the Executive shall not have returned
to the performance of the Executive's duties on a full-time basis during such
30-day period), (ii) if the Executive's employment is terminated by the
Executive for Good Reason, the date specified in the Notice of Termination, and
(iii) if the Executive's employment is terminated by the Company for any other
reason, the date on which a Notice of Termination is given; provided, however,
that if within 30 days after any Notice of Termination is given to the Executive
by the Company, the Executive notifies the Company that a dispute exists
concerning the termination, the Date of Termination shall be the date the
dispute is finally determined, whether by mutual written agreement of the
parties or upon final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected).
4. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT.
(a) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Company shall pay to the
Executive in a lump sum cash payment within five days after the Date of
Termination the following:
(i) the Severance Amount as defined in Section 4(b) below;
plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
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(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points,
compounded annually.
(b) "Severance Amount" shall mean an amount equal to one times the Base
Amount (as defined below) determined with respect to the Base Period (as defined
below); provided, however, in no event shall the Severance Amount be less than
two times the Executive's annual rate of base salary at the higher of the annual
rate in effect (i) immediately prior to the Date of Termination or (ii) on the
date six months prior to the Date of Termination. For purposes of this
subsection (b):
(i) "Base Amount" means the Executive's average fiscal-year
Compensation (as defined below) for fiscal years of the Company in the
Base Period. Such average shall be computed by dividing the total of
the Executive's Compensation for the Base Period by the number of
fiscal years in the Base Period. If the Executive's Base Period
includes a portion of a fiscal year during which he was not an employee
of the Company (or a predecessor entity or a related entity, as such
terms are defined in clause (iii) below), the Executive's Compensation
for such fiscal year shall be annualized before determining the average
fiscal-year Compensation for the Base Period. In annualizing
Compensation, the frequency with which payments are expected to be made
over a fiscal year shall be taken into account; thus, any amount of
Compensation that represents a payment that will not be made more often
than once per fiscal year is not annualized. Set forth on Appendix A,
which is attached hereto and made a part hereof, are three examples
illustrating the calculation of the Base Amount.
(ii) "Base Period" means the most recent two consecutive
fiscal years of the Company ending prior to the Date of Termination.
However, if the Executive was not an employee of the Company (or a
predecessor entity or a related entity, as such terms are defined in
clause (iii) below) at any time during one of such two fiscal years,
the Executive's Base Period is the one fiscal year of such
two-fiscal-year period during which the Executive performed personal
services for the Company or a predecessor entity or a related entity.
(iii) "Compensation" means the compensation which was payable
by the Company, by a predecessor entity, or by a related entity and
which was includible in the gross income of the Executive (or either
was excludible from such gross income as
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"foreign earned income" within the meaning of Section 911 of the
Internal Revenue Code of 1986, as amended (the "Code"), or would have
been includible in such gross income if the Executive had been a United
States citizen or resident), but excluding the following: (A) amounts
realized from the exercise of a non-qualified stock option; and (B)
amounts realized from the sale, exchange or other disposition of stock
acquired under an incentive stock option described in Code Section
422(b) or under an employee stock purchase plan described in Code
Section 423(b). Notwithstanding the preceding sentence, Compensation
shall be determined without regard to any compensation deferral
election under any plan, program or arrangement, qualified or
nonqualified, maintained or contributed to by the Company, a
predecessor entity or a related entity, including but not limited to a
cash-or-deferred arrangement described in Code Section 401(k), a
cafeteria plan described in Code Section 125 or a nonqualified deferred
compensation plan. A "predecessor entity" is any entity which, as a
result of a merger, consolidation, purchase or acquisition of property
or stock, corporate separation, or other similar business transaction
transfers some or all of its employees to the Company or to a related
entity or to a predecessor entity of the Company. The term "related
entity" includes any entity treated as a single employer with the
Company in accordance with subsections (b), (c), (m) and (o) of Code
Section 414.
(c) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Executive will be entitled to
continued participation in all employee benefit plans or programs available to
Company employees generally in which the Executive was participating on the Date
of Termination, such continued participation to be at Company cost and otherwise
on the same basis as Company employees generally, until the earlier of (i) the
date, or dates, he receives equivalent coverage and benefits under the plans and
programs of a subsequent employer (such coverages and benefits to be determined
on a coverage-by-coverage or benefit-by-benefit basis) or (ii) two years from
the Date of Termination; provided (A) if the Executive is precluded from
continuing his participation in any employee benefit plan or program as provided
in this sentence, he shall be paid, in a lump sum cash payment, within 30 days
following the date it is determined he is unable to participate in any employee
benefit plan or program, the after-tax economic equivalent of the benefits
provided under the plan or program in which he is unable to participate for the
period specified in this sentence, and (B) the economic equivalent of any
benefit foregone shall be deemed to be the lowest cost that would be incurred by
the Executive in obtaining such benefit for himself (including family or
dependent coverage, if applicable) on an individual basis. The Executive shall
be eligible for group health plan continuation coverage under and in accordance
with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended,
when he ceases to be eligible for continued participation in the Company's group
health plan under this subsection (e).
5. NO OBLIGATION TO MITIGATE DAMAGES;
NO EFFECT ON OTHER CONTRACTUAL RIGHTS.
(a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation
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earned by the Executive as the result of employment by another employer after
the Date of Termination or otherwise.
(b) The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any Benefit Plan, Incentive Plan or
Securities Plan, employment agreement or other contract, plan or agreement with
or of the Company.
6. INCENTIVE AWARDS.
In the event of a Change in Control of the Company, then
notwithstanding the terms and conditions of any Incentive Plan, the Company
agrees (i) to immediately and fully vest all unvested awards, units, and
benefits (other than options to acquire securities of the Company or awards of
securities of the Company) which have been awarded or allocated to the Executive
under the Incentive Plans; and (ii) upon the exercise of such awards or units or
the distribution of such benefits, to pay all amounts due under the Incentive
Plans solely in cash.
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) All determinations required to be made under this Section 7,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by the Accounting Firm which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days after the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. The determination
of tax liability made by the Accounting Firm shall be subject to review by the
Executive's tax advisor, and, if the Executive's tax advisor does not agree with
the determination reached by the Accounting Firm, then the Accounting Firm and
the Executive's tax advisor shall jointly designate a nationally recognized
public accounting firm which shall make the determination. All fees and expenses
of the accountants and tax advisors retained by both the Executive and the
Company shall be borne solely by the Company. Any Gross-Up Payment, as
determined
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pursuant to this Section 7, shall be paid by the Company to the Executive within
five days after the receipt of the determination. Any determination by such
jointly designated public accounting firm shall be binding upon the Company and
the Executive. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination hereunder, it is possible
that Gross-Up Payments will not have been made by the Company that should have
been made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Executive hereafter is required to make a
payment of any Excise Tax, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive. Upon notice by the Executive of
any audit or other proceeding that may result in a liability to the Company
hereunder, the Executive shall promptly notify the Company of such audit or
other proceeding; and the Company may, at its option, but solely with respect to
the item or items that relate to such potential liability, choose to assume the
defense of such audit or other proceeding at its own cost, provided that (i) the
Executive shall cooperate with the Company in such defense and (ii) the Company
will not settle such audit or other proceeding without the consent of the
Executive (such consent not to be unreasonably withheld). The highest effective
marginal tax rate (determined by taking into account any reduction in itemized
deductions and/or exemptions attributable to the inclusion of the additional
amounts payable under this Section 7 in the Executive's adjusted gross or
taxable income) based upon the state and locality where the Executive is
resident at the time of payment of such amounts will be used for purposes of
determining the federal and state income and other taxes with respect thereto.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify the Executive to the fullest extent
permitted by law if the Executive is a party or threatened to be made a party to
any Proceeding (as defined below).
(b) If requested by the Executive, the Company shall advance (within
two business days of such request) any and all Expenses, as defined below,
relating to a Proceeding to the Executive (an "Expense Advance"), upon the
receipt of a written undertaking by or on behalf of the Executive to repay such
Expense Advance if a judgment or other final adjudication adverse to the
Executive (as to which all rights of appeal therefrom have been exhausted or
lapsed) establishes that the Executive is not entitled to indemnification by the
Company. Expenses shall include attorney's fees and all other costs, charges and
expenses paid or incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in any Proceeding.
(c) The Company agrees to obtain a directors' and officers' liability
insurance policy covering the Executive and to continue and maintain such
policy. The amount of coverage shall be reasonable in relation to the
Executive's position and responsibilities during his employment by the Company.
(d) This Section 8 is a supplement to and in furtherance of the
Certificate of Incorporation and Bylaws of the Company and shall not be deemed a
substitute therefor, or diminish or abrogate any rights of the Executive
thereunder.
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(e) For purposes of Section 8(a), the meaning of the phrase "to the
fullest extent permitted by law" shall include but not be limited to:
(i) to the fullest extent permitted by the provision of the
Delaware General Corporation Law ("DGCL") that authorizes or
contemplates additional indemnification by agreement, or the
corresponding provision of any amendment to or replacement of the DGCL,
and
(ii) to the fullest extent authorized or permitted by any
amendments to or replacements of the DGCL adopted after the date of
this Agreement that increase the extent to which a corporation may
indemnify its officers and directors.
(f) For purposes of Sections 8(a) and 8(b), "Proceeding" shall mean any
threatened, pending or completed action, suit, arbitration, alternate dispute
resolution mechanism, investigation, inquiry, administrative hearing or any
other actual, threatened or completed proceeding, whether brought in the right
of the Company or otherwise and whether of a civil, criminal, administrative or
investigative nature, in which the Executive was, is or will be involved as a
party or otherwise by reason of the fact that the Executive is or was a director
or officer of the Company, by reason of any action taken by him or of any action
on his part while acting as director or officer of the Company, or by reason of
the fact that he is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, in each case whether or not serving in such capacity
at the time any liability or expense is incurred for which indemnification,
reimbursement, or advancement of expenses can be provided under this Agreement.
9. SUCCESSORS.
(a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. Any failure of the Company to
obtain such agreement prior to the effectiveness of any such succession or
assignment shall be a material breach of this Agreement and shall entitle the
Executive to terminate the Executive's employment for Good Reason and receive
the compensation provided for in Section 4 hereof. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor or
assign to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Section 9 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts are still payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with
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the terms of this Agreement to the Executive's devisee, legatee or other
designee or, if there be no such designee, to the Executive's estate.
10. NOTICE.
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, as follows:
If to the Company:
Transaction Systems Architects, Inc.
224 South 108 Avenue
Omaha, NE 68154
Attn: President
If to the Executive:
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. MISCELLANEOUS.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same time or
at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Nebraska, without giving effect to any principles of conflicts of
law.
12. CONFLICT IN BENEFITS.
Except as otherwise provided in the preceding sentences, this Agreement
is not intended to and shall not limit or terminate any other agreement or
arrangement between the Executive and the Company presently in effect or
hereafter entered into.
13. VALIDITY.
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The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. SURVIVORSHIP.
The respective rights and obligations of the parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations and to the extent that any
performance is required following termination of this Agreement. Without
limiting the foregoing, Sections 7, 8 and 15 shall expressly survive the
termination of this Agreement.
15. LEGAL FEES AND EXPENSES.
If a claim or dispute arises concerning the rights of the Executive
under this Agreement, regardless of the party by whom such claim or dispute is
initiated, the Company shall, upon presentation of appropriate vouchers, pay all
legal expenses, including reasonable attorneys' fees, court costs, and ordinary
and necessary out-of-pocket costs of attorneys, billed to and payable by the
Executive or by anyone claiming under or through the Executive, in connection
with the bringing, prosecuting, arbitrating, defending, litigating, negotiating,
or settling such claim or dispute. In no event shall the Executive be required
to reimburse the Company for any of the costs or expenses incurred by the
Company relating to arbitration or litigation. Pending the outcome or resolution
of any claim or dispute, the Company shall continue payment of all amounts due
the Executive without regard to any dispute.
16. EFFECTIVE DATE.
This Agreement shall become effective upon execution.
17. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
18. NO GUARANTEE OF EMPLOYMENT.
Neither this Agreement nor any action taken hereunder shall be construed
as giving the Executive the right to be retained in employment with the Company,
nor shall it interfere with either the Company's right to terminate the
employment of the Executive at any time or the Executive's right to terminate
his employment at any time.
19. NO ASSIGNMENT BY EXECUTIVE.
Except as otherwise provided in Section 9(b), the Executive's rights and
interest under this Agreement shall not be assignable (in law or in equity) or
subject to any manner of alienation, sale, transfer, claims of creditors,
pledge, attachment, garnishment, levy, execution or encumbrances of any kind.
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20. WAIVER.
The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement shall not be deemed a waiver of
such provision or any other provision of this Agreement. Any waiver of any
provision of this Agreement shall not be deemed to be a waiver of any other
provision, and any waiver of default in any provision of this Agreement shall
not be deemed to be a waiver of any later default thereof or of any other
provision.
21. WITHHOLDING.
All amounts paid pursuant to this Agreement shall be subject to
withholding for taxes (federal, state, local or otherwise) to the extent
required by applicable law.
22. HEADINGS.
The headings of this Agreement have been inserted for convenience of
reference only and are to be ignored in the construction of the provisions
hereof.
23. NUMBER AND GENDER.
The use of the singular shall be interpreted to include the plural and
the plural the singular, as the context requires. The use of the masculine,
feminine or neuter shall be interpreted to include the masculine, feminine or
neuter as the context shall require.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
TRANSACTION SYSTEMS ARCHITECTS, INC.
Date: By:
-------------------------- --------------------------------
EXECUTIVE:
Date:
-------------------------- ------------------------------------
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APPENDIX A
EXAMPLE 1 - Executive was employed by the Company for 1-1/3 fiscal
years preceding the fiscal year in which a Change in Control of the
Company occurs. The Executive's Compensation from the Company was
$30,000 for the 4-month period and $120,000 for the full fiscal year.
The Executive's Base Amount is $105,000.
Year 1: 3 x $30,000 = $90,000
Year 2: $120,000
[90,000 + 120,000] / 2 = $105,000
$105,000 is the average fiscal-year Compensation for the
Base Period.
EXAMPLE 2 - Assume the same facts as in Example 1, except that the
Executive also received a $70,000 sign-on bonus when his employment
with the Company commenced at the beginning of the 4-month period.
The Executive's Base Amount is $140,000
Year 1: [3 x $30,000] + $70,000 = $160,000
Year 2: $120,000
[160,000 + 120,000] / 2 = $140,000
Since the sign-on bonus will not be paid more often than once per
fiscal year, the amount of the bonus is not increased in annualizing
the Executive's Compensation for the 4-month period.
EXAMPLE 3 - Executive was employed by the Company for the last 4 months
of the fiscal year preceding the fiscal year in which a Change in
Control of the Company occurs. The Executive's Compensation from the
Company was $30,000 for the 4-month period. The Executive's Base Amount
is $90,000.
Year 1: 3 x $30,000 = $90,000
$90,000 / 1 = $90,000
$90,000 is the average fiscal-year Compensation for the
Base Period.
<PAGE>
SEVERANCE COMPENSATION AGREEMENT
SEVERANCE COMPENSATION AGREEMENT dated as of July 31, 1999 between
Transaction Systems Architects, Inc., a Delaware corporation (the "Company"),
and Steve Schiller (the "Executive").
WHEREAS, the Company's Board of Directors has determined that it is
appropriate to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in potentially disturbing circumstances arising from
the possibility of a change in control of the Company;
NOW, THEREFORE, this Agreement sets forth the severance compensation
which the Company agrees it will pay to the Executive if the Executive's
employment with the Company terminates under certain circumstances described
herein following a Change in Control (as defined herein) and the other benefits
the Company will provide the Executive following a Change in Control.
1. TERM.
This Agreement shall terminate, except to the extent that any
obligation of the Company hereunder remains unpaid as of such time, upon the
earlier of (i) the termination of Executive's employment for any reason prior to
a Change in Control; and (ii) three years after the date of a Change in Control.
2. CHANGE IN CONTROL.
For purposes of this Agreement, Change in Control shall mean:
(a) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person"), of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a Change
in Control: (A) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege), (B) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (C)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in subclauses (i), (ii) and (iii) of clause (c) of this
Section 2 are satisfied; or
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(b) if individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least
two-thirds of the directors then constituting the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest
subject to Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(c) approval by the stockholders of the Company of a reorganization,
merger or consolidation, unless following such reorganization, merger or
consolidation (i) more than 60% of, respectively, the then-outstanding shares of
common stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger, or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the resulting corporation owned by the Company's stockholders, but
not from the total number of outstanding shares and voting securities of the
resulting corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (ii) no Person (excluding the Company, any employee
benefit plan (or related trust) of the Company, any qualified employee benefit
plan of such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then-outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(d) (i) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company or (ii) the first to occur of (A) the
sale or other disposition (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company, or (B)
the approval by the stockholders of the Company of any such sale or disposition,
other than, in each case, any such sale or disposition to a corporation, with
respect to
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which immediately thereafter, (1) more than 60% of, respectively, the
then-outstanding shares of common stock of such corporation and the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such sale or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the transferee corporation owned by the Company's stockholders,
but not from the total number of outstanding shares and voting securities of the
transferee corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (2) no Person (excluding the Company and any
employee benefit plan (or related trust) of the Company, any qualified employee
benefit plan of such transferee corporation and any Person beneficially owning,
immediately prior to such sale or other disposition, directly or indirectly, 20%
or more of the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 20%
or more of, respectively, the then-outstanding shares of common stock of such
transferee corporation and the combined voting power of the then-outstanding
voting securities of such transferee corporation entitled to vote generally in
the election of directors and (3) at least a majority of the members of the
board of directors of such transferee corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or action of the
board providing for such sale or other disposition of assets of the Company.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL.
(a) The Executive shall be entitled to the compensation provided in
Section 4 of this Agreement if all of the following conditions are satisfied:
(i) there is a Change in Control of the Company while the
Executive is still an employee of the Company;
(ii) the Executive's employment with the Company is
terminated within two years after the Change in Control; and
(iii) the Executive's termination of employment is not a
result of (A) the Executive's death; (B) the Executive's Disability
(as defined in Section 3(b) below; (C) the Executive's Retirement (as
defined in Section 3(c) below); (D) the Executive's termination by the
Company for Cause (as defined in Section 3(d) below); or (E) the
Executive's decision to terminate employment other than for Good
Reason (as defined in Section 3(e) below).
(b) If, as a result of the Executive's incapacity due to physical or
mental illness, the Executive shall have been unable, with or without a
reasonable accommodation, to perform his duties with the Company on a full-time
basis for six months and within 30 days after a Notice of
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Termination (as defined in Section 3(f) below) is thereafter given by the
Company, the Executive shall not have returned to the full-time performance of
the Executive's duties, the Company may terminate the Executive's employment for
"Disability". If there is a Change in Control of the Company while the Executive
is still an employee and if the Executive's employment with the Company is
terminated for Disability within two years after the Change in Control, the
Executive shall be entitled to receive in a lump sum cash payment within five
days after his Date of Termination (as defined in Section 3(g) below) the
following:
(i) one times the Base Amount (as defined in Section 4(b)(i))
determined with respect to the Base Period (as defined in Section
4(b)(ii)); plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points.
(c) For purposes of this Agreement only, "Retirement" shall mean
termination by the Company or the Executive of the Executive's employment based
on the Executive's having reached age 65 or such other age as shall have been
fixed in any arrangement established pursuant to this Agreement with the
Executive's consent with respect to the Executive.
(d) For purposes of this Agreement only, "Cause" shall mean: (i) the
Executive's conviction of a felony involving moral turpitude; or (ii) the
Executive's serious, willful gross misconduct or willful gross neglect of duties
(other than any such neglect resulting from the Executive's incapacity due to
physical or mental illness or any such neglect after the issuance of a Notice of
Termination by the Executive for Good Reason, as such terms are defined in
subsections (e) and (f) below), which, in either case, has resulted, or in all
probability is likely to result, in material economic damage to the Company;
provided no act or failure to act by the Executive will constitute "Cause" under
clause (ii) if the Executive believed in good faith that such act or failure to
act was in the best interest of the Company.
For purposes of this Agreement only, any termination of the Executive's
employment by the Company for Cause shall be authorized by a vote of at least a
majority of the non-employee members of the Board of Directors of the Company
(the "Board") within 12 months of a majority of such non-employee members of the
Board having actual knowledge of the event or circumstances providing a basis
for such termination. In the case of clause (ii) of the second
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sentence of this subsection (d), the Executive shall be given notice by the
Board specifying in detail the particular act or failure to act on which the
Board is relying in proposing to terminate him for Cause and offering the
Executive an opportunity, on a date at least 14 days after receipt of such
notice, to have a hearing, with counsel, before a majority of the non-employee
members of the Board, including each of the members of the Board who authorized
the termination for Cause. The Executive shall not be terminated for Cause if,
within 30 days after the date of the Executive's hearing before the Board (or if
the Executive waives a hearing, within 30 days after receiving notice of the
proposed termination), he has corrected the particular act or failure to act
specified in the notice and by so correcting such act or failure to act he has
reduced the economic damage his act or failure to act has allegedly caused the
Company to a level which is no longer material or has eliminated the probability
that such act or failure to act is likely to result in material economic damage
to the Company. No termination for Cause shall take effect until the expiration
of the correction period described in the preceding sentence and the
determination by a majority of the non-employee members of the Board that the
Executive has failed to correct the act or failure to act in accordance with the
terms of the preceding sentence.
Anything herein to the contrary notwithstanding, if, following a
termination of the Executive's employment by the Company for Cause based upon
the conviction of the Executive for a felony involving moral turpitude such
conviction is finally overturned on appeal, the Executive shall be entitled to
the compensation provided in Sections 4(a) and 4(c). In lieu of the interest
provided in clause (iv) of the first sentence of Section 4(a) and the interest
provided in the second sentence of Section 4(c), however, the compensation
provided in Sections 4(a) and 4(c) shall be increased by a ten percent rate of
interest, compounded annually, calculated from the date such compensation would
have been paid if the Executive's employment had been terminated without Cause.
(e) For purposes of this Agreement, "Good Reason" shall mean, after any
Change in Control and without the Executive's express written consent, any of
the following:
(i) a significant diminution in the Executive's duties and
responsibilities, or the assignment to the Executive by the Company of
duties inconsistent with the Executive's position, duties,
responsibilities or status with the Company immediately prior to a
Change in Control of the Company, or a change in the Executive's titles
or offices as in effect immediately prior to a Change in Control of the
Company, or any removal of the Executive from or any failure to
re-elect the Executive to any of such positions, except in connection
with the termination of his employment for Disability, Retirement or
Cause or as a result of the Executive's death or by the Executive other
than for Good Reason;
(ii) a reduction by the Company in the Executive's annual rate
of base salary as in effect on the date hereof or as the same may be
increased from time to time during the term of this Agreement or the
Company's failure to increase (within 12 months of the Executive's last
increase in his annual rate of base salary) the Executive's annual rate
of base salary after a Change in Control of the Company in an amount
which at least equals, on a percentage basis, the greater of (A) the
average percentage increase in the annual rate
5
<PAGE>
of base salary for all officers of the Company effected in the
preceding 12 months; or (B) the Consumer Price Index as published by
the United States Government (or, in the event such index is
discontinued, any similar index published by the United States
Government as designated in good faith by the Executive); provided,
however, that nothing contained in this clause (ii) shall be construed
under any circumstances as permitting the Company to decrease the
Executive's annual rate of base salary;
(iii) (A) any failure by the Company to continue in effect any
benefit plan or arrangement (including, without limitation, the life
insurance, medical, dental, accident and disability plans) in which the
Executive is participating at the time of a Change in Control of the
Company, or any other plan or arrangement providing the Executive with
benefits that are no less favorable (hereinafter referred to as
"Benefit Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such Benefit Plan or deprive
the Executive of any material fringe benefit or perquisite of office
enjoyed by the Executive at the time of a Change in Control of the
Company, unless in the case of either subclause (A) or (B) above, there
is substituted a comparable plan or program that is economically
equivalent or superior, in terms of the benefit offered to the
Executive, to the Benefit Plan being altered, reduced, affected or
ended;
(iv) (A) any failure by the Company to continue in effect any
incentive plan or arrangement (including, without limitation, the
Company's bonus arrangements, the Transaction Systems Architects, Inc.
Deferred Compensation Plan, the Transaction Systems Architects, Inc.
401(k) Plan, the sales incentive plans, and the management incentive
plans) in which the Executive is participating at the time of a Change
in Control of the Company, or any other plans or arrangements providing
him with substantially similar benefits, (hereinafter referred to as
"Incentive Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in any such
Incentive Plan or reduce the Executive's benefits under any such
Incentive Plan, unless in the case of either subclause (A) or (B)
above, there is substituted a comparable plan or program that is
economically equivalent or superior, in terms of the benefit offered to
the Executive, to the Incentive Plan being altered, reduced, affected
or ended, or (C) any failure by the Company with respect to any fiscal
year to make an award to the Executive pursuant to each such Incentive
Plan or such substituted comparable plan or program equal to or greater
than the greater of (1) the award (whether paid or payable in cash or
in securities of the Company) made to the Executive pursuant to such
Incentive Plan or such substituted comparable plan or program with
respect to the immediately preceding fiscal year or (2) the average
annual award (whether paid or payable in cash or in securities of the
Company) made to the Executive pursuant to such Incentive Plan or such
substituted comparable plan with respect to the prior three fiscal
years (or such lesser number of prior fiscal years that the Executive
was employed by the Company or that the Incentive Plan (together with
any substituted comparable plan) was maintained);
(v) (A) any failure by the Company to continue in effect any
plan or arrangement to receive securities of the Company (including,
without limitation,
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<PAGE>
the Transaction Systems Architects, Inc. 1999 Employee Stock Purchase
Plan and the Transaction Systems Architects Inc. 1999 Stock Option
Plan) in which the Executive is participating at the time of a Change
in Control of the Company, or any other plan or arrangement providing
him with substantially similar benefits, (hereinafter referred to as
"Securities Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such Securities Plan, unless
in the case of either subclause (A) or (B) above, there is substituted
a comparable plan or program that is economically equivalent or
superior, in terms of the benefit offered to the Executive, to the
Securities Plan being altered, reduced, affected or ended, or (C) any
failure by the Company in any fiscal year to grant stock options,
stock appreciation rights or securities awards to the Executive
pursuant to such Securities Plans with respect to an aggregate number
of securities of the Company of each kind that is equal to or greater
than the greater of (1) the aggregate number of securities of the
Company of that kind covered by stock options, stock appreciation
rights or securities awards granted to the Executive pursuant to such
Securities Plans in the immediately preceding fiscal year or (2) the
average annual aggregate number of securities of the Company of that
kind covered by stock options, stock appreciation rights, or
securities awards granted to the Executive pursuant to such Securities
Plans in the prior three fiscal years; and provided further the
material terms and conditions of such stock options, stock
appreciation rights, and securities awards granted to the Executive
after the Change in Control (including, but not limited to, the
exercise price, vesting schedule, period and methods of exercise,
expiration date, forfeiture provisions and other restrictions) are
substantially similar to the material terms and conditions of the
stock options, stock appreciation rights, and securities awards
granted to the Executive under the Securities Plans immediately prior
to the Change in Control of the Company;
(vi) the Executive's relocation more than 50 miles from the
location at which the Executive performed the Executive's duties prior
to a Change in Control of the Company, except for required travel by
the Executive on the Company's business to an extent substantially
consistent with the Executive's business travel obligations at the time
of a Change in Control of the Company;
(vii) any failure by the Company to provide the Executive with
the number of annual paid vacation days to which the Executive is
entitled for the year in which a Change in Control of the Company
occurs;
(viii) any material breach by the Company of any provision of
this Agreement;
(ix) any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company prior to such
succession or assignment;
(x) any failure by the Company or its successor to enter into
an agreement with the Executive that is substantially similar to this
Agreement with respect to a Change in Control of the Company or its
successor occurring thereafter; or
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(xi) any purported termination of the Executive's employment
by the Company pursuant to Section 3(b), 3(c) or 3(d) above which is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 3(f) below (and, if applicable, Section 3(d)
above), and for purposes of this Agreement, no such purported
termination shall be effective.
For purposes of this subsection (e), an isolated, immaterial, and inadvertent
action not taken in bad faith by the Company in violation of clause (ii), (iii),
(iv), (v) or (vii) of this subsection that is remedied by the Company promptly
after receipt of notice thereof given by the Executive shall not be considered
Good Reason for the Executive's termination of employment with the Company. In
the event the Executive terminates his employment for Good Reason hereunder,
then notwithstanding that the Executive may also retire for purposes of the
Benefit Plans, Incentive Plans or Securities Plans, the Executive shall be
deemed to have terminated his employment for Good Reason for purposes of this
Agreement.
(f) Any termination of the Executive by the Company pursuant to Section
3(b), 3(c) or 3(d) above, or by the Executive pursuant to Section 3(e) above,
shall be communicated by a Notice of Termination to the other party hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate those specific termination provisions in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. For purposes of this Agreement, no
such purported termination by the Company shall be effective without such Notice
of Termination.
(g) "Date of Termination" shall mean (i) if the Executive's employment
is terminated by the Company for Disability, 30 days after Notice of Termination
is given to the Executive (provided that the Executive shall not have returned
to the performance of the Executive's duties on a full-time basis during such
30-day period), (ii) if the Executive's employment is terminated by the
Executive for Good Reason, the date specified in the Notice of Termination, and
(iii) if the Executive's employment is terminated by the Company for any other
reason, the date on which a Notice of Termination is given; provided, however,
that if within 30 days after any Notice of Termination is given to the Executive
by the Company, the Executive notifies the Company that a dispute exists
concerning the termination, the Date of Termination shall be the date the
dispute is finally determined, whether by mutual written agreement of the
parties or upon final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected).
4. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT.
(a) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Company shall pay to the
Executive in a lump sum cash payment within five days after the Date of
Termination the following:
(i) the Severance Amount as defined in Section 4(b) below;
plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
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(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points,
compounded annually.
(b) "Severance Amount" shall mean an amount equal to one times the Base
Amount (as defined below) determined with respect to the Base Period (as defined
below); provided, however, in no event shall the Severance Amount be less than
two times the Executive's annual rate of base salary at the higher of the annual
rate in effect (i) immediately prior to the Date of Termination or (ii) on the
date six months prior to the Date of Termination. For purposes of this
subsection (b):
(i) "Base Amount" means the Executive's average fiscal-year
Compensation (as defined below) for fiscal years of the Company in the
Base Period. Such average shall be computed by dividing the total of
the Executive's Compensation for the Base Period by the number of
fiscal years in the Base Period. If the Executive's Base Period
includes a portion of a fiscal year during which he was not an employee
of the Company (or a predecessor entity or a related entity, as such
terms are defined in clause (iii) below), the Executive's Compensation
for such fiscal year shall be annualized before determining the average
fiscal-year Compensation for the Base Period. In annualizing
Compensation, the frequency with which payments are expected to be made
over a fiscal year shall be taken into account; thus, any amount of
Compensation that represents a payment that will not be made more often
than once per fiscal year is not annualized. Set forth on Appendix A,
which is attached hereto and made a part hereof, are three examples
illustrating the calculation of the Base Amount.
(ii) "Base Period" means the most recent two consecutive
fiscal years of the Company ending prior to the Date of Termination.
However, if the Executive was not an employee of the Company (or a
predecessor entity or a related entity, as such terms are defined in
clause (iii) below) at any time during one of such two fiscal years,
the Executive's Base Period is the one fiscal year of such
two-fiscal-year period during which the Executive performed personal
services for the Company or a predecessor entity or a related entity.
(iii) "Compensation" means the compensation which was payable
by the Company, by a predecessor entity, or by a related entity and
which was includible in the gross income of the Executive (or either
was excludible from such gross income as
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"foreign earned income" within the meaning of Section 911 of the
Internal Revenue Code of 1986, as amended (the "Code"), or would have
been includible in such gross income if the Executive had been a
United States citizen or resident), but excluding the following: (A)
amounts realized from the exercise of a non-qualified stock option;
and (B) amounts realized from the sale, exchange or other disposition
of stock acquired under an incentive stock option described in Code
Section 422(b) or under an employee stock purchase plan described in
Code Section 423(b). Notwithstanding the preceding sentence,
Compensation shall be determined without regard to any compensation
deferral election under any plan, program or arrangement, qualified or
nonqualified, maintained or contributed to by the Company, a
predecessor entity or a related entity, including but not limited to a
cash-or-deferred arrangement described in Code Section 401(k), a
cafeteria plan described in Code Section 125 or a nonqualified
deferred compensation plan. A "predecessor entity" is any entity
which, as a result of a merger, consolidation, purchase or acquisition
of property or stock, corporate separation, or other similar business
transaction transfers some or all of its employees to the Company or
to a related entity or to a predecessor entity of the Company. The
term "related entity" includes any entity treated as a single employer
with the Company in accordance with subsections (b), (c), (m) and (o)
of Code Section 414.
(c) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Executive will be entitled to
continued participation in all employee benefit plans or programs available to
Company employees generally in which the Executive was participating on the Date
of Termination, such continued participation to be at Company cost and otherwise
on the same basis as Company employees generally, until the earlier of (i) the
date, or dates, he receives equivalent coverage and benefits under the plans and
programs of a subsequent employer (such coverages and benefits to be determined
on a coverage-by-coverage or benefit-by-benefit basis) or (ii) two years from
the Date of Termination; provided (A) if the Executive is precluded from
continuing his participation in any employee benefit plan or program as provided
in this sentence, he shall be paid, in a lump sum cash payment, within 30 days
following the date it is determined he is unable to participate in any employee
benefit plan or program, the after-tax economic equivalent of the benefits
provided under the plan or program in which he is unable to participate for the
period specified in this sentence, and (B) the economic equivalent of any
benefit foregone shall be deemed to be the lowest cost that would be incurred by
the Executive in obtaining such benefit for himself (including family or
dependent coverage, if applicable) on an individual basis. The Executive shall
be eligible for group health plan continuation coverage under and in accordance
with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended,
when he ceases to be eligible for continued participation in the Company's group
health plan under this subsection (e).
5. NO OBLIGATION TO MITIGATE DAMAGES; NO EFFECT ON OTHER CONTRACTUAL
RIGHTS.
(a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation
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earned by the Executive as the result of employment by another employer after
the Date of Termination or otherwise.
(b) The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any Benefit Plan, Incentive Plan or
Securities Plan, employment agreement or other contract, plan or agreement with
or of the Company.
6. INCENTIVE AWARDS.
In the event of a Change in Control of the Company, then
notwithstanding the terms and conditions of any Incentive Plan, the Company
agrees (i) to immediately and fully vest all unvested awards, units, and
benefits (other than options to acquire securities of the Company or awards of
securities of the Company) which have been awarded or allocated to the Executive
under the Incentive Plans; and (ii) upon the exercise of such awards or units or
the distribution of such benefits, to pay all amounts due under the Incentive
Plans solely in cash.
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) All determinations required to be made under this Section 7,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by the Accounting Firm which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days after the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. The determination
of tax liability made by the Accounting Firm shall be subject to review by the
Executive's tax advisor, and, if the Executive's tax advisor does not agree with
the determination reached by the Accounting Firm, then the Accounting Firm and
the Executive's tax advisor shall jointly designate a nationally recognized
public accounting firm which shall make the determination. All fees and expenses
of the accountants and tax advisors retained by both the Executive and the
Company shall be borne solely by the Company. Any Gross-Up Payment, as
determined
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pursuant to this Section 7, shall be paid by the Company to the Executive within
five days after the receipt of the determination. Any determination by such
jointly designated public accounting firm shall be binding upon the Company and
the Executive. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination hereunder, it is possible
that Gross-Up Payments will not have been made by the Company that should have
been made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Executive hereafter is required to make a
payment of any Excise Tax, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive. Upon notice by the Executive of
any audit or other proceeding that may result in a liability to the Company
hereunder, the Executive shall promptly notify the Company of such audit or
other proceeding; and the Company may, at its option, but solely with respect to
the item or items that relate to such potential liability, choose to assume the
defense of such audit or other proceeding at its own cost, provided that (i) the
Executive shall cooperate with the Company in such defense and (ii) the Company
will not settle such audit or other proceeding without the consent of the
Executive (such consent not to be unreasonably withheld). The highest effective
marginal tax rate (determined by taking into account any reduction in itemized
deductions and/or exemptions attributable to the inclusion of the additional
amounts payable under this Section 7 in the Executive's adjusted gross or
taxable income) based upon the state and locality where the Executive is
resident at the time of payment of such amounts will be used for purposes of
determining the federal and state income and other taxes with respect thereto.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify the Executive to the fullest extent
permitted by law if the Executive is a party or threatened to be made a party to
any Proceeding (as defined below).
(b) If requested by the Executive, the Company shall advance (within
two business days of such request) any and all Expenses, as defined below,
relating to a Proceeding to the Executive (an "Expense Advance"), upon the
receipt of a written undertaking by or on behalf of the Executive to repay such
Expense Advance if a judgment or other final adjudication adverse to the
Executive (as to which all rights of appeal therefrom have been exhausted or
lapsed) establishes that the Executive is not entitled to indemnification by the
Company. Expenses shall include attorney's fees and all other costs, charges and
expenses paid or incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in any Proceeding.
(c) The Company agrees to obtain a directors' and officers' liability
insurance policy covering the Executive and to continue and maintain such
policy. The amount of coverage shall be reasonable in relation to the
Executive's position and responsibilities during his employment by the Company.
(d) This Section 8 is a supplement to and in furtherance of the
Certificate of Incorporation and Bylaws of the Company and shall not be deemed a
substitute therefor, or diminish or abrogate any rights of the Executive
thereunder.
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(e) For purposes of Section 8(a), the meaning of the phrase "to the
fullest extent permitted by law" shall include but not be limited to:
(i) to the fullest extent permitted by the provision of the
Delaware General Corporation Law ("DGCL") that authorizes or
contemplates additional indemnification by agreement, or the
corresponding provision of any amendment to or replacement of the DGCL,
and
(ii) to the fullest extent authorized or permitted by any
amendments to or replacements of the DGCL adopted after the date of
this Agreement that increase the extent to which a corporation may
indemnify its officers and directors.
(f) For purposes of Sections 8(a) and 8(b), "Proceeding" shall mean any
threatened, pending or completed action, suit, arbitration, alternate dispute
resolution mechanism, investigation, inquiry, administrative hearing or any
other actual, threatened or completed proceeding, whether brought in the right
of the Company or otherwise and whether of a civil, criminal, administrative or
investigative nature, in which the Executive was, is or will be involved as a
party or otherwise by reason of the fact that the Executive is or was a director
or officer of the Company, by reason of any action taken by him or of any action
on his part while acting as director or officer of the Company, or by reason of
the fact that he is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, in each case whether or not serving in such capacity
at the time any liability or expense is incurred for which indemnification,
reimbursement, or advancement of expenses can be provided under this Agreement.
9. SUCCESSORS.
(a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. Any failure of the Company to
obtain such agreement prior to the effectiveness of any such succession or
assignment shall be a material breach of this Agreement and shall entitle the
Executive to terminate the Executive's employment for Good Reason and receive
the compensation provided for in Section 4 hereof. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor or
assign to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Section 9 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts are still payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with
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the terms of this Agreement to the Executive's devisee, legatee or other
designee or, if there be no such designee, to the Executive's estate.
10. NOTICE.
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, as follows:
If to the Company:
Transaction Systems Architects, Inc.
224 South 108 Avenue
Omaha, NE 68154
Attn: President
If to the Executive:
----------------------------------------
----------------------------------------
----------------------------------------
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. MISCELLANEOUS.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same time or
at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Nebraska, without giving effect to any principles of conflicts of
law.
12. CONFLICT IN BENEFITS.
Except as otherwise provided in the preceding sentences, this Agreement
is not intended to and shall not limit or terminate any other agreement or
arrangement between the Executive and the Company presently in effect or
hereafter entered into.
13. VALIDITY.
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The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. SURVIVORSHIP.
The respective rights and obligations of the parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations and to the extent that any
performance is required following termination of this Agreement. Without
limiting the foregoing, Sections 7, 8 and 15 shall expressly survive the
termination of this Agreement.
15. LEGAL FEES AND EXPENSES.
If a claim or dispute arises concerning the rights of the Executive
under this Agreement, regardless of the party by whom such claim or dispute is
initiated, the Company shall, upon presentation of appropriate vouchers, pay all
legal expenses, including reasonable attorneys' fees, court costs, and ordinary
and necessary out-of-pocket costs of attorneys, billed to and payable by the
Executive or by anyone claiming under or through the Executive, in connection
with the bringing, prosecuting, arbitrating, defending, litigating, negotiating,
or settling such claim or dispute. In no event shall the Executive be required
to reimburse the Company for any of the costs or expenses incurred by the
Company relating to arbitration or litigation. Pending the outcome or resolution
of any claim or dispute, the Company shall continue payment of all amounts due
the Executive without regard to any dispute.
16. EFFECTIVE DATE.
This Agreement shall become effective upon execution.
17. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
18. NO GUARANTEE OF EMPLOYMENT.
Neither this Agreement nor any action taken hereunder shall be construed
as giving the Executive the right to be retained in employment with the Company,
nor shall it interfere with either the Company's right to terminate the
employment of the Executive at any time or the Executive's right to terminate
his employment at any time.
19. NO ASSIGNMENT BY EXECUTIVE.
Except as otherwise provided in Section 9(b), the Executive's rights and
interest under this Agreement shall not be assignable (in law or in equity) or
subject to any manner of alienation, sale, transfer, claims of creditors,
pledge, attachment, garnishment, levy, execution or encumbrances of any kind.
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20. WAIVER.
The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement shall not be deemed a waiver of
such provision or any other provision of this Agreement. Any waiver of any
provision of this Agreement shall not be deemed to be a waiver of any other
provision, and any waiver of default in any provision of this Agreement shall
not be deemed to be a waiver of any later default thereof or of any other
provision.
21. WITHHOLDING.
All amounts paid pursuant to this Agreement shall be subject to
withholding for taxes (federal, state, local or otherwise) to the extent
required by applicable law.
22. HEADINGS.
The headings of this Agreement have been inserted for convenience of
reference only and are to be ignored in the construction of the provisions
hereof.
23. NUMBER AND GENDER.
The use of the singular shall be interpreted to include the plural and
the plural the singular, as the context requires. The use of the masculine,
feminine or neuter shall be interpreted to include the masculine, feminine or
neuter as the context shall require.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
TRANSACTION SYSTEMS ARCHITECTS, INC.
Date: By:
------------------- ---------------------------
EXECUTIVE:
Date:
------------------- ------------------------------
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APPENDIX A
EXAMPLE 1 - Executive was employed by the Company for 1-1/3 fiscal
years preceding the fiscal year in which a Change in Control of the
Company occurs. The Executive's Compensation from the Company was
$30,000 for the 4-month period and $120,000 for the full fiscal year.
The Executive's Base Amount is $105,000.
Year 1: 3 x $30,000 = $90,000
Year 2: $120,000
[90,000 + 120,000] / 2 = $105,000
$105,000 is the average fiscal-year
Compensation for the Base Period.
EXAMPLE 2 - Assume the same facts as in Example 1, except that the
Executive also received a $70,000 sign-on bonus when his employment
with the Company commenced at the beginning of the 4-month period.
The Executive's Base Amount is $140,000
Year 1: [3 x $30,000] + $70,000 = $160,000
Year 2: $120,000
[160,000 + 120,000] / 2 = $140,000
Since the sign-on bonus will not be paid more often than once per
fiscal year, the amount of the bonus is not increased in annualizing
the Executive's Compensation for the 4-month period.
EXAMPLE 3 - Executive was employed by the Company for the last 4 months
of the fiscal year preceding the fiscal year in which a Change in
Control of the Company occurs. The Executive's Compensation from the
Company was $30,000 for the 4-month period. The Executive's Base Amount
is $90,000.
Year 1: 3 x $30,000 = $90,000
$90,000 / 1 = $90,000
$90,000 is the average fiscal-year
Compensation for the Base Period.
<PAGE>
SEVERANCE COMPENSATION AGREEMENT
SEVERANCE COMPENSATION AGREEMENT dated as of July 31, 1999 between
Transaction Systems Architects, Inc., a Delaware corporation (the "Company"),
and Steve Schiller (the "Executive").
WHEREAS, the Company's Board of Directors has determined that it is
appropriate to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in potentially disturbing circumstances arising from
the possibility of a change in control of the Company;
NOW, THEREFORE, this Agreement sets forth the severance compensation
which the Company agrees it will pay to the Executive if the Executive's
employment with the Company terminates under certain circumstances described
herein following a Change in Control (as defined herein) and the other benefits
the Company will provide the Executive following a Change in Control.
1. TERM.
This Agreement shall terminate, except to the extent that any
obligation of the Company hereunder remains unpaid as of such time, upon the
earlier of (i) the termination of Executive's employment for any reason prior to
a Change in Control; and (ii) three years after the date of a Change in Control.
2. CHANGE IN CONTROL.
For purposes of this Agreement, Change in Control shall mean:
(a) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person"), of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a Change
in Control: (A) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege), (B) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (C)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in subclauses (i), (ii) and (iii) of clause (c) of this
Section 2 are satisfied; or
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(b) if individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least
two-thirds of the directors then constituting the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest
subject to Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(c) approval by the stockholders of the Company of a reorganization,
merger or consolidation, unless following such reorganization, merger or
consolidation (i) more than 60% of, respectively, the then-outstanding shares of
common stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger, or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the resulting corporation owned by the Company's stockholders, but
not from the total number of outstanding shares and voting securities of the
resulting corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (ii) no Person (excluding the Company, any employee
benefit plan (or related trust) of the Company, any qualified employee benefit
plan of such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then-outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(d) (i) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company or (ii) the first to occur of (A) the
sale or other disposition (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company, or (B)
the approval by the stockholders of the Company of any such sale or disposition,
other than, in each case, any such sale or disposition to a corporation, with
respect to
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which immediately thereafter, (1) more than 60% of, respectively, the
then-outstanding shares of common stock of such corporation and the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such sale or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the transferee corporation owned by the Company's stockholders,
but not from the total number of outstanding shares and voting securities of the
transferee corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (2) no Person (excluding the Company and any
employee benefit plan (or related trust) of the Company, any qualified employee
benefit plan of such transferee corporation and any Person beneficially owning,
immediately prior to such sale or other disposition, directly or indirectly, 20%
or more of the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 20%
or more of, respectively, the then-outstanding shares of common stock of such
transferee corporation and the combined voting power of the then-outstanding
voting securities of such transferee corporation entitled to vote generally in
the election of directors and (3) at least a majority of the members of the
board of directors of such transferee corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or action of the
board providing for such sale or other disposition of assets of the Company.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL.
(a) The Executive shall be entitled to the compensation provided in
Section 4 of this Agreement if all of the following conditions are satisfied:
(i) there is a Change in Control of the Company while the
Executive is still an employee of the Company;
(ii) the Executive's employment with the Company is
terminated within two years after the Change in Control; and
(iii) the Executive's termination of employment is not a
result of (A) the Executive's death; (B) the Executive's Disability
(as defined in Section 3(b) below; (C) the Executive's Retirement (as
defined in Section 3(c) below); (D) the Executive's termination by the
Company for Cause (as defined in Section 3(d) below); or (E) the
Executive's decision to terminate employment other than for Good
Reason (as defined in Section 3(e) below).
(b) If, as a result of the Executive's incapacity due to physical or
mental illness, the Executive shall have been unable, with or without a
reasonable accommodation, to perform his duties with the Company on a full-time
basis for six months and within 30 days after a Notice of
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Termination (as defined in Section 3(f) below) is thereafter given by the
Company, the Executive shall not have returned to the full-time performance of
the Executive's duties, the Company may terminate the Executive's employment for
"Disability". If there is a Change in Control of the Company while the Executive
is still an employee and if the Executive's employment with the Company is
terminated for Disability within two years after the Change in Control, the
Executive shall be entitled to receive in a lump sum cash payment within five
days after his Date of Termination (as defined in Section 3(g) below) the
following:
(i) one times the Base Amount (as defined in Section 4(b)(i))
determined with respect to the Base Period (as defined in Section
4(b)(ii)); plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points.
(c) For purposes of this Agreement only, "Retirement" shall mean
termination by the Company or the Executive of the Executive's employment based
on the Executive's having reached age 65 or such other age as shall have been
fixed in any arrangement established pursuant to this Agreement with the
Executive's consent with respect to the Executive.
(d) For purposes of this Agreement only, "Cause" shall mean: (i) the
Executive's conviction of a felony involving moral turpitude; or (ii) the
Executive's serious, willful gross misconduct or willful gross neglect of duties
(other than any such neglect resulting from the Executive's incapacity due to
physical or mental illness or any such neglect after the issuance of a Notice of
Termination by the Executive for Good Reason, as such terms are defined in
subsections (e) and (f) below), which, in either case, has resulted, or in all
probability is likely to result, in material economic damage to the Company;
provided no act or failure to act by the Executive will constitute "Cause" under
clause (ii) if the Executive believed in good faith that such act or failure to
act was in the best interest of the Company.
For purposes of this Agreement only, any termination of the Executive's
employment by the Company for Cause shall be authorized by a vote of at least a
majority of the non-employee members of the Board of Directors of the Company
(the "Board") within 12 months of a majority of such non-employee members of the
Board having actual knowledge of the event or circumstances providing a basis
for such termination. In the case of clause (ii) of the second
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sentence of this subsection (d), the Executive shall be given notice by the
Board specifying in detail the particular act or failure to act on which the
Board is relying in proposing to terminate him for Cause and offering the
Executive an opportunity, on a date at least 14 days after receipt of such
notice, to have a hearing, with counsel, before a majority of the non-employee
members of the Board, including each of the members of the Board who authorized
the termination for Cause. The Executive shall not be terminated for Cause if,
within 30 days after the date of the Executive's hearing before the Board (or if
the Executive waives a hearing, within 30 days after receiving notice of the
proposed termination), he has corrected the particular act or failure to act
specified in the notice and by so correcting such act or failure to act he has
reduced the economic damage his act or failure to act has allegedly caused the
Company to a level which is no longer material or has eliminated the probability
that such act or failure to act is likely to result in material economic damage
to the Company. No termination for Cause shall take effect until the expiration
of the correction period described in the preceding sentence and the
determination by a majority of the non-employee members of the Board that the
Executive has failed to correct the act or failure to act in accordance with the
terms of the preceding sentence.
Anything herein to the contrary notwithstanding, if, following a
termination of the Executive's employment by the Company for Cause based upon
the conviction of the Executive for a felony involving moral turpitude such
conviction is finally overturned on appeal, the Executive shall be entitled to
the compensation provided in Sections 4(a) and 4(c). In lieu of the interest
provided in clause (iv) of the first sentence of Section 4(a) and the interest
provided in the second sentence of Section 4(c), however, the compensation
provided in Sections 4(a) and 4(c) shall be increased by a ten percent rate of
interest, compounded annually, calculated from the date such compensation would
have been paid if the Executive's employment had been terminated without Cause.
(e) For purposes of this Agreement, "Good Reason" shall mean, after any
Change in Control and without the Executive's express written consent, any of
the following:
(i) a significant diminution in the Executive's duties and
responsibilities, or the assignment to the Executive by the Company of
duties inconsistent with the Executive's position, duties,
responsibilities or status with the Company immediately prior to a
Change in Control of the Company, or a change in the Executive's titles
or offices as in effect immediately prior to a Change in Control of the
Company, or any removal of the Executive from or any failure to
re-elect the Executive to any of such positions, except in connection
with the termination of his employment for Disability, Retirement or
Cause or as a result of the Executive's death or by the Executive other
than for Good Reason;
(ii) a reduction by the Company in the Executive's annual rate
of base salary as in effect on the date hereof or as the same may be
increased from time to time during the term of this Agreement or the
Company's failure to increase (within 12 months of the Executive's last
increase in his annual rate of base salary) the Executive's annual rate
of base salary after a Change in Control of the Company in an amount
which at least equals, on a percentage basis, the greater of (A) the
average percentage increase in the annual rate
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of base salary for all officers of the Company effected in the
preceding 12 months; or (B) the Consumer Price Index as published by
the United States Government (or, in the event such index is
discontinued, any similar index published by the United States
Government as designated in good faith by the Executive); provided,
however, that nothing contained in this clause (ii) shall be construed
under any circumstances as permitting the Company to decrease the
Executive's annual rate of base salary;
(iii) (A) any failure by the Company to continue in effect any
benefit plan or arrangement (including, without limitation, the life
insurance, medical, dental, accident and disability plans) in which the
Executive is participating at the time of a Change in Control of the
Company, or any other plan or arrangement providing the Executive with
benefits that are no less favorable (hereinafter referred to as
"Benefit Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such Benefit Plan or deprive
the Executive of any material fringe benefit or perquisite of office
enjoyed by the Executive at the time of a Change in Control of the
Company, unless in the case of either subclause (A) or (B) above, there
is substituted a comparable plan or program that is economically
equivalent or superior, in terms of the benefit offered to the
Executive, to the Benefit Plan being altered, reduced, affected or
ended;
(iv) (A) any failure by the Company to continue in effect any
incentive plan or arrangement (including, without limitation, the
Company's bonus arrangements, the Transaction Systems Architects, Inc.
Deferred Compensation Plan, the Transaction Systems Architects, Inc.
401(k) Plan, the sales incentive plans, and the management incentive
plans) in which the Executive is participating at the time of a Change
in Control of the Company, or any other plans or arrangements providing
him with substantially similar benefits, (hereinafter referred to as
"Incentive Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in any such
Incentive Plan or reduce the Executive's benefits under any such
Incentive Plan, unless in the case of either subclause (A) or (B)
above, there is substituted a comparable plan or program that is
economically equivalent or superior, in terms of the benefit offered to
the Executive, to the Incentive Plan being altered, reduced, affected
or ended, or (C) any failure by the Company with respect to any fiscal
year to make an award to the Executive pursuant to each such Incentive
Plan or such substituted comparable plan or program equal to or greater
than the greater of (1) the award (whether paid or payable in cash or
in securities of the Company) made to the Executive pursuant to such
Incentive Plan or such substituted comparable plan or program with
respect to the immediately preceding fiscal year or (2) the average
annual award (whether paid or payable in cash or in securities of the
Company) made to the Executive pursuant to such Incentive Plan or such
substituted comparable plan with respect to the prior three fiscal
years (or such lesser number of prior fiscal years that the Executive
was employed by the Company or that the Incentive Plan (together with
any substituted comparable plan) was maintained);
(v) (A) any failure by the Company to continue in effect any
plan or arrangement to receive securities of the Company (including,
without limitation,
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the Transaction Systems Architects, Inc. 1999 Employee Stock Purchase
Plan and the Transaction Systems Architects Inc. 1999 Stock Option
Plan) in which the Executive is participating at the time of a Change
in Control of the Company, or any other plan or arrangement providing
him with substantially similar benefits, (hereinafter referred to as
"Securities Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such Securities Plan, unless
in the case of either subclause (A) or (B) above, there is substituted
a comparable plan or program that is economically equivalent or
superior, in terms of the benefit offered to the Executive, to the
Securities Plan being altered, reduced, affected or ended, or (C) any
failure by the Company in any fiscal year to grant stock options,
stock appreciation rights or securities awards to the Executive
pursuant to such Securities Plans with respect to an aggregate number
of securities of the Company of each kind that is equal to or greater
than the greater of (1) the aggregate number of securities of the
Company of that kind covered by stock options, stock appreciation
rights or securities awards granted to the Executive pursuant to such
Securities Plans in the immediately preceding fiscal year or (2) the
average annual aggregate number of securities of the Company of that
kind covered by stock options, stock appreciation rights, or
securities awards granted to the Executive pursuant to such Securities
Plans in the prior three fiscal years; and provided further the
material terms and conditions of such stock options, stock
appreciation rights, and securities awards granted to the Executive
after the Change in Control (including, but not limited to, the
exercise price, vesting schedule, period and methods of exercise,
expiration date, forfeiture provisions and other restrictions) are
substantially similar to the material terms and conditions of the
stock options, stock appreciation rights, and securities awards
granted to the Executive under the Securities Plans immediately prior
to the Change in Control of the Company;
(vi) the Executive's relocation more than 50 miles from the
location at which the Executive performed the Executive's duties prior
to a Change in Control of the Company, except for required travel by
the Executive on the Company's business to an extent substantially
consistent with the Executive's business travel obligations at the time
of a Change in Control of the Company;
(vii) any failure by the Company to provide the Executive with
the number of annual paid vacation days to which the Executive is
entitled for the year in which a Change in Control of the Company
occurs;
(viii) any material breach by the Company of any provision of
this Agreement;
(ix) any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company prior to such
succession or assignment;
(x) any failure by the Company or its successor to enter into
an agreement with the Executive that is substantially similar to this
Agreement with respect to a Change in Control of the Company or its
successor occurring thereafter; or
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(xi) any purported termination of the Executive's employment
by the Company pursuant to Section 3(b), 3(c) or 3(d) above which is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 3(f) below (and, if applicable, Section 3(d)
above), and for purposes of this Agreement, no such purported
termination shall be effective.
For purposes of this subsection (e), an isolated, immaterial, and inadvertent
action not taken in bad faith by the Company in violation of clause (ii), (iii),
(iv), (v) or (vii) of this subsection that is remedied by the Company promptly
after receipt of notice thereof given by the Executive shall not be considered
Good Reason for the Executive's termination of employment with the Company. In
the event the Executive terminates his employment for Good Reason hereunder,
then notwithstanding that the Executive may also retire for purposes of the
Benefit Plans, Incentive Plans or Securities Plans, the Executive shall be
deemed to have terminated his employment for Good Reason for purposes of this
Agreement.
(f) Any termination of the Executive by the Company pursuant to Section
3(b), 3(c) or 3(d) above, or by the Executive pursuant to Section 3(e) above,
shall be communicated by a Notice of Termination to the other party hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate those specific termination provisions in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. For purposes of this Agreement, no
such purported termination by the Company shall be effective without such Notice
of Termination.
(g) "Date of Termination" shall mean (i) if the Executive's employment
is terminated by the Company for Disability, 30 days after Notice of Termination
is given to the Executive (provided that the Executive shall not have returned
to the performance of the Executive's duties on a full-time basis during such
30-day period), (ii) if the Executive's employment is terminated by the
Executive for Good Reason, the date specified in the Notice of Termination, and
(iii) if the Executive's employment is terminated by the Company for any other
reason, the date on which a Notice of Termination is given; provided, however,
that if within 30 days after any Notice of Termination is given to the Executive
by the Company, the Executive notifies the Company that a dispute exists
concerning the termination, the Date of Termination shall be the date the
dispute is finally determined, whether by mutual written agreement of the
parties or upon final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected).
4. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT.
(a) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Company shall pay to the
Executive in a lump sum cash payment within five days after the Date of
Termination the following:
(i) the Severance Amount as defined in Section 4(b) below;
plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
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(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points,
compounded annually.
(b) "Severance Amount" shall mean an amount equal to one times the Base
Amount (as defined below) determined with respect to the Base Period (as defined
below); provided, however, in no event shall the Severance Amount be less than
two times the Executive's annual rate of base salary at the higher of the annual
rate in effect (i) immediately prior to the Date of Termination or (ii) on the
date six months prior to the Date of Termination. For purposes of this
subsection (b):
(i) "Base Amount" means the Executive's average fiscal-year
Compensation (as defined below) for fiscal years of the Company in the
Base Period. Such average shall be computed by dividing the total of
the Executive's Compensation for the Base Period by the number of
fiscal years in the Base Period. If the Executive's Base Period
includes a portion of a fiscal year during which he was not an employee
of the Company (or a predecessor entity or a related entity, as such
terms are defined in clause (iii) below), the Executive's Compensation
for such fiscal year shall be annualized before determining the average
fiscal-year Compensation for the Base Period. In annualizing
Compensation, the frequency with which payments are expected to be made
over a fiscal year shall be taken into account; thus, any amount of
Compensation that represents a payment that will not be made more often
than once per fiscal year is not annualized. Set forth on Appendix A,
which is attached hereto and made a part hereof, are three examples
illustrating the calculation of the Base Amount.
(ii) "Base Period" means the most recent two consecutive
fiscal years of the Company ending prior to the Date of Termination.
However, if the Executive was not an employee of the Company (or a
predecessor entity or a related entity, as such terms are defined in
clause (iii) below) at any time during one of such two fiscal years,
the Executive's Base Period is the one fiscal year of such
two-fiscal-year period during which the Executive performed personal
services for the Company or a predecessor entity or a related entity.
(iii) "Compensation" means the compensation which was payable
by the Company, by a predecessor entity, or by a related entity and
which was includible in the gross income of the Executive (or either
was excludible from such gross income as
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"foreign earned income" within the meaning of Section 911 of the
Internal Revenue Code of 1986, as amended (the "Code"), or would have
been includible in such gross income if the Executive had been a
United States citizen or resident), but excluding the following: (A)
amounts realized from the exercise of a non-qualified stock option;
and (B) amounts realized from the sale, exchange or other disposition
of stock acquired under an incentive stock option described in Code
Section 422(b) or under an employee stock purchase plan described in
Code Section 423(b). Notwithstanding the preceding sentence,
Compensation shall be determined without regard to any compensation
deferral election under any plan, program or arrangement, qualified or
nonqualified, maintained or contributed to by the Company, a
predecessor entity or a related entity, including but not limited to a
cash-or-deferred arrangement described in Code Section 401(k), a
cafeteria plan described in Code Section 125 or a nonqualified
deferred compensation plan. A "predecessor entity" is any entity
which, as a result of a merger, consolidation, purchase or acquisition
of property or stock, corporate separation, or other similar business
transaction transfers some or all of its employees to the Company or
to a related entity or to a predecessor entity of the Company. The
term "related entity" includes any entity treated as a single employer
with the Company in accordance with subsections (b), (c), (m) and (o)
of Code Section 414.
(c) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Executive will be entitled to
continued participation in all employee benefit plans or programs available to
Company employees generally in which the Executive was participating on the Date
of Termination, such continued participation to be at Company cost and otherwise
on the same basis as Company employees generally, until the earlier of (i) the
date, or dates, he receives equivalent coverage and benefits under the plans and
programs of a subsequent employer (such coverages and benefits to be determined
on a coverage-by-coverage or benefit-by-benefit basis) or (ii) two years from
the Date of Termination; provided (A) if the Executive is precluded from
continuing his participation in any employee benefit plan or program as provided
in this sentence, he shall be paid, in a lump sum cash payment, within 30 days
following the date it is determined he is unable to participate in any employee
benefit plan or program, the after-tax economic equivalent of the benefits
provided under the plan or program in which he is unable to participate for the
period specified in this sentence, and (B) the economic equivalent of any
benefit foregone shall be deemed to be the lowest cost that would be incurred by
the Executive in obtaining such benefit for himself (including family or
dependent coverage, if applicable) on an individual basis. The Executive shall
be eligible for group health plan continuation coverage under and in accordance
with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended,
when he ceases to be eligible for continued participation in the Company's group
health plan under this subsection (e).
5. NO OBLIGATION TO MITIGATE DAMAGES; NO EFFECT ON OTHER CONTRACTUAL
RIGHTS.
(a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation
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earned by the Executive as the result of employment by another employer after
the Date of Termination or otherwise.
(b) The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any Benefit Plan, Incentive Plan or
Securities Plan, employment agreement or other contract, plan or agreement with
or of the Company.
6. INCENTIVE AWARDS.
In the event of a Change in Control of the Company, then
notwithstanding the terms and conditions of any Incentive Plan, the Company
agrees (i) to immediately and fully vest all unvested awards, units, and
benefits (other than options to acquire securities of the Company or awards of
securities of the Company) which have been awarded or allocated to the Executive
under the Incentive Plans; and (ii) upon the exercise of such awards or units or
the distribution of such benefits, to pay all amounts due under the Incentive
Plans solely in cash.
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) All determinations required to be made under this Section 7,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by the Accounting Firm which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days after the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. The determination
of tax liability made by the Accounting Firm shall be subject to review by the
Executive's tax advisor, and, if the Executive's tax advisor does not agree with
the determination reached by the Accounting Firm, then the Accounting Firm and
the Executive's tax advisor shall jointly designate a nationally recognized
public accounting firm which shall make the determination. All fees and expenses
of the accountants and tax advisors retained by both the Executive and the
Company shall be borne solely by the Company. Any Gross-Up Payment, as
determined
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pursuant to this Section 7, shall be paid by the Company to the Executive within
five days after the receipt of the determination. Any determination by such
jointly designated public accounting firm shall be binding upon the Company and
the Executive. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination hereunder, it is possible
that Gross-Up Payments will not have been made by the Company that should have
been made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Executive hereafter is required to make a
payment of any Excise Tax, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive. Upon notice by the Executive of
any audit or other proceeding that may result in a liability to the Company
hereunder, the Executive shall promptly notify the Company of such audit or
other proceeding; and the Company may, at its option, but solely with respect to
the item or items that relate to such potential liability, choose to assume the
defense of such audit or other proceeding at its own cost, provided that (i) the
Executive shall cooperate with the Company in such defense and (ii) the Company
will not settle such audit or other proceeding without the consent of the
Executive (such consent not to be unreasonably withheld). The highest effective
marginal tax rate (determined by taking into account any reduction in itemized
deductions and/or exemptions attributable to the inclusion of the additional
amounts payable under this Section 7 in the Executive's adjusted gross or
taxable income) based upon the state and locality where the Executive is
resident at the time of payment of such amounts will be used for purposes of
determining the federal and state income and other taxes with respect thereto.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify the Executive to the fullest extent
permitted by law if the Executive is a party or threatened to be made a party to
any Proceeding (as defined below).
(b) If requested by the Executive, the Company shall advance (within
two business days of such request) any and all Expenses, as defined below,
relating to a Proceeding to the Executive (an "Expense Advance"), upon the
receipt of a written undertaking by or on behalf of the Executive to repay such
Expense Advance if a judgment or other final adjudication adverse to the
Executive (as to which all rights of appeal therefrom have been exhausted or
lapsed) establishes that the Executive is not entitled to indemnification by the
Company. Expenses shall include attorney's fees and all other costs, charges and
expenses paid or incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in any Proceeding.
(c) The Company agrees to obtain a directors' and officers' liability
insurance policy covering the Executive and to continue and maintain such
policy. The amount of coverage shall be reasonable in relation to the
Executive's position and responsibilities during his employment by the Company.
(d) This Section 8 is a supplement to and in furtherance of the
Certificate of Incorporation and Bylaws of the Company and shall not be deemed a
substitute therefor, or diminish or abrogate any rights of the Executive
thereunder.
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(e) For purposes of Section 8(a), the meaning of the phrase "to the
fullest extent permitted by law" shall include but not be limited to:
(i) to the fullest extent permitted by the provision of the
Delaware General Corporation Law ("DGCL") that authorizes or
contemplates additional indemnification by agreement, or the
corresponding provision of any amendment to or replacement of the DGCL,
and
(ii) to the fullest extent authorized or permitted by any
amendments to or replacements of the DGCL adopted after the date of
this Agreement that increase the extent to which a corporation may
indemnify its officers and directors.
(f) For purposes of Sections 8(a) and 8(b), "Proceeding" shall mean any
threatened, pending or completed action, suit, arbitration, alternate dispute
resolution mechanism, investigation, inquiry, administrative hearing or any
other actual, threatened or completed proceeding, whether brought in the right
of the Company or otherwise and whether of a civil, criminal, administrative or
investigative nature, in which the Executive was, is or will be involved as a
party or otherwise by reason of the fact that the Executive is or was a director
or officer of the Company, by reason of any action taken by him or of any action
on his part while acting as director or officer of the Company, or by reason of
the fact that he is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, in each case whether or not serving in such capacity
at the time any liability or expense is incurred for which indemnification,
reimbursement, or advancement of expenses can be provided under this Agreement.
9. SUCCESSORS.
(a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. Any failure of the Company to
obtain such agreement prior to the effectiveness of any such succession or
assignment shall be a material breach of this Agreement and shall entitle the
Executive to terminate the Executive's employment for Good Reason and receive
the compensation provided for in Section 4 hereof. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor or
assign to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Section 9 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts are still payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with
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the terms of this Agreement to the Executive's devisee, legatee or other
designee or, if there be no such designee, to the Executive's estate.
10. NOTICE.
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, as follows:
If to the Company:
Transaction Systems Architects, Inc.
224 South 108 Avenue
Omaha, NE 68154
Attn: President
If to the Executive:
----------------------------------------
----------------------------------------
----------------------------------------
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. MISCELLANEOUS.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same time or
at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Nebraska, without giving effect to any principles of conflicts of
law.
12. CONFLICT IN BENEFITS.
Except as otherwise provided in the preceding sentences, this Agreement
is not intended to and shall not limit or terminate any other agreement or
arrangement between the Executive and the Company presently in effect or
hereafter entered into.
13. VALIDITY.
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The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. SURVIVORSHIP.
The respective rights and obligations of the parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations and to the extent that any
performance is required following termination of this Agreement. Without
limiting the foregoing, Sections 7, 8 and 15 shall expressly survive the
termination of this Agreement.
15. LEGAL FEES AND EXPENSES.
If a claim or dispute arises concerning the rights of the Executive
under this Agreement, regardless of the party by whom such claim or dispute is
initiated, the Company shall, upon presentation of appropriate vouchers, pay all
legal expenses, including reasonable attorneys' fees, court costs, and ordinary
and necessary out-of-pocket costs of attorneys, billed to and payable by the
Executive or by anyone claiming under or through the Executive, in connection
with the bringing, prosecuting, arbitrating, defending, litigating, negotiating,
or settling such claim or dispute. In no event shall the Executive be required
to reimburse the Company for any of the costs or expenses incurred by the
Company relating to arbitration or litigation. Pending the outcome or resolution
of any claim or dispute, the Company shall continue payment of all amounts due
the Executive without regard to any dispute.
16. EFFECTIVE DATE.
This Agreement shall become effective upon execution.
17. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
18. NO GUARANTEE OF EMPLOYMENT.
Neither this Agreement nor any action taken hereunder shall be construed
as giving the Executive the right to be retained in employment with the Company,
nor shall it interfere with either the Company's right to terminate the
employment of the Executive at any time or the Executive's right to terminate
his employment at any time.
19. NO ASSIGNMENT BY EXECUTIVE.
Except as otherwise provided in Section 9(b), the Executive's rights and
interest under this Agreement shall not be assignable (in law or in equity) or
subject to any manner of alienation, sale, transfer, claims of creditors,
pledge, attachment, garnishment, levy, execution or encumbrances of any kind.
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20. WAIVER.
The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement shall not be deemed a waiver of
such provision or any other provision of this Agreement. Any waiver of any
provision of this Agreement shall not be deemed to be a waiver of any other
provision, and any waiver of default in any provision of this Agreement shall
not be deemed to be a waiver of any later default thereof or of any other
provision.
21. WITHHOLDING.
All amounts paid pursuant to this Agreement shall be subject to
withholding for taxes (federal, state, local or otherwise) to the extent
required by applicable law.
22. HEADINGS.
The headings of this Agreement have been inserted for convenience of
reference only and are to be ignored in the construction of the provisions
hereof.
23. NUMBER AND GENDER.
The use of the singular shall be interpreted to include the plural and
the plural the singular, as the context requires. The use of the masculine,
feminine or neuter shall be interpreted to include the masculine, feminine or
neuter as the context shall require.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
TRANSACTION SYSTEMS ARCHITECTS, INC.
Date: By:
------------------- ---------------------------
EXECUTIVE:
Date:
------------------- ------------------------------
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APPENDIX A
EXAMPLE 1 - Executive was employed by the Company for 1-1/3 fiscal
years preceding the fiscal year in which a Change in Control of the
Company occurs. The Executive's Compensation from the Company was
$30,000 for the 4-month period and $120,000 for the full fiscal year.
The Executive's Base Amount is $105,000.
Year 1: 3 x $30,000 = $90,000
Year 2: $120,000
[90,000 + 120,000] / 2 = $105,000
$105,000 is the average fiscal-year
Compensation for the Base Period.
EXAMPLE 2 - Assume the same facts as in Example 1, except that the
Executive also received a $70,000 sign-on bonus when his employment
with the Company commenced at the beginning of the 4-month period.
The Executive's Base Amount is $140,000
Year 1: [3 x $30,000] + $70,000 = $160,000
Year 2: $120,000
[160,000 + 120,000] / 2 = $140,000
Since the sign-on bonus will not be paid more often than once per
fiscal year, the amount of the bonus is not increased in annualizing
the Executive's Compensation for the 4-month period.
EXAMPLE 3 - Executive was employed by the Company for the last 4 months
of the fiscal year preceding the fiscal year in which a Change in
Control of the Company occurs. The Executive's Compensation from the
Company was $30,000 for the 4-month period. The Executive's Base Amount
is $90,000.
Year 1: 3 x $30,000 = $90,000
$90,000 / 1 = $90,000
$90,000 is the average fiscal-year
Compensation for the Base Period.
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SEVERANCE COMPENSATION AGREEMENT
SEVERANCE COMPENSATION AGREEMENT dated as of July 31, 1999 between
Transaction Systems Architects, Inc., a Delaware corporation (the "Company"),
and David P. Stokes (the "Executive").
WHEREAS, the Company's Board of Directors has determined that it is
appropriate to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in potentially disturbing circumstances arising from
the possibility of a change in control of the Company;
NOW, THEREFORE, this Agreement sets forth the severance compensation
which the Company agrees it will pay to the Executive if the Executive's
employment with the Company terminates under certain circumstances described
herein following a Change in Control (as defined herein) and the other benefits
the Company will provide the Executive following a Change in Control.
1. TERM.
This Agreement shall terminate, except to the extent that any
obligation of the Company hereunder remains unpaid as of such time, upon the
earlier of (i) the termination of Executive's employment for any reason prior to
a Change in Control; and (ii) three years after the date of a Change in Control.
2. CHANGE IN CONTROL.
For purposes of this Agreement, Change in Control shall mean:
(a) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person"), of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a Change
in Control: (A) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege), (B) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (C)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in subclauses (i), (ii) and (iii) of clause (c) of this
Section 2 are satisfied; or
(b) if individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election,
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or nomination for election by the Company's stockholders, was approved by a vote
of at least two-thirds of the directors then constituting the Incumbent Board
shall be considered as though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of either an actual or threatened
election contest subject to Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board; or
(c) approval by the stockholders of the Company of a reorganization,
merger or consolidation, unless following such reorganization, merger or
consolidation (i) more than 60% of, respectively, the then-outstanding shares of
common stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger, or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the resulting corporation owned by the Company's stockholders, but
not from the total number of outstanding shares and voting securities of the
resulting corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (ii) no Person (excluding the Company, any employee
benefit plan (or related trust) of the Company, any qualified employee benefit
plan of such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then-outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(d) (i) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company or (ii) the first to occur of (A) the
sale or other disposition (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company, or (B)
the approval by the stockholders of the Company of any such sale or disposition,
other than, in each case, any such sale or disposition to a corporation, with
respect to which immediately thereafter, (1) more than 60% of, respectively, the
then-outstanding shares of common stock of such corporation and the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and
2
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Outstanding Company Voting Securities immediately prior to such sale or other
disposition in substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the case may be (for purposes of
determining whether such percentage test is satisfied, there shall be excluded
from the number of shares and voting securities of the transferee corporation
owned by the Company's stockholders, but not from the total number of
outstanding shares and voting securities of the transferee corporation, any
shares or voting securities received by any such stockholder in respect of any
consideration other than shares or voting securities of the Company), (2) no
Person (excluding the Company and any employee benefit plan (or related trust)
of the Company, any qualified employee benefit plan of such transferee
corporation and any Person beneficially owning, immediately prior to such sale
or other disposition, directly or indirectly, 20% or more of the Outstanding
Company Common Stock or Outstanding Company Voting Securities, as the case may
be) beneficially owns, directly or indirectly, 20% or more of, respectively, the
then-outstanding shares of common stock of such transferee corporation and the
combined voting power of the then-outstanding voting securities of such
transferee corporation entitled to vote generally in the election of directors
and (3) at least a majority of the members of the board of directors of such
transferee corporation were members of the Incumbent Board at the time of the
execution of the initial agreement or action of the board providing for such
sale or other disposition of assets of the Company.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL.
(a) The Executive shall be entitled to the compensation provided in
Section 4 of this Agreement if all of the following conditions are satisfied:
(i) there is a Change in Control of the Company while the
Executive is still an employee of the Company;
(ii) the Executive's employment with the Company is terminated
within two years after the Change in Control; and
(iii) the Executive's termination of employment is not a result of
(A) the Executive's death; (B) the Executive's Disability (as defined
in Section 3(b) below; (C) the Executive's Retirement (as defined in
Section 3(c) below); (D) the Executive's termination by the Company
for Cause (as defined in Section 3(d) below); or (E) the Executive's
decision to terminate employment other than for Good Reason (as
defined in Section 3(e) below).
(b) If, as a result of the Executive's incapacity due to physical or
mental illness, the Executive shall have been unable, with or without a
reasonable accommodation, to perform his duties with the Company on a full-time
basis for six months and within 30 days after a Notice of Termination (as
defined in Section 3(f) below) is thereafter given by the Company, the Executive
shall not have returned to the full-time performance of the Executive's duties,
the Company may terminate the Executive's employment for "Disability". If there
is a Change in Control of the Company while the Executive is still an employee
and if the Executive's employment with the Company is terminated for Disability
within two years after the Change in Control, the
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Executive shall be entitled to receive in a lump sum cash payment within five
days after his Date of Termination (as defined in Section 3(g) below) the
following:
(i) two times the Base Amount (as defined in Section 4(b)(i))
determined with respect to the Base Period (as defined in Section
4(b)(ii)); plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
(iii) a quarterly incentive award for the current fiscal quarter
prorated through the Date of Termination equal to the greater of (A)
the quarterly incentive award (whether paid or payable in cash or in
securities of the Company) awarded to the Executive with respect to
the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i), (ii)
and (iii) above calculated from the Date of Termination until paid at
a rate equal to the prime rate as published in The Wall Street Journal
on the Date of Termination plus three percentage points.
(c) For purposes of this Agreement only, "Retirement" shall mean
termination by the Company or the Executive of the Executive's employment based
on the Executive's having reached age 65 or such other age as shall have been
fixed in any arrangement established pursuant to this Agreement with the
Executive's consent with respect to the Executive.
(d) For purposes of this Agreement only, "Cause" shall mean: (i) the
Executive's conviction of a felony involving moral turpitude; or (ii) the
Executive's serious, willful gross misconduct or willful gross neglect of duties
(other than any such neglect resulting from the Executive's incapacity due to
physical or mental illness or any such neglect after the issuance of a Notice of
Termination by the Executive for Good Reason, as such terms are defined in
subsections (e) and (f) below), which, in either case, has resulted, or in all
probability is likely to result, in material economic damage to the Company;
provided no act or failure to act by the Executive will constitute "Cause" under
clause (ii) if the Executive believed in good faith that such act or failure to
act was in the best interest of the Company.
For purposes of this Agreement only, any termination of the Executive's
employment by the Company for Cause shall be authorized by a vote of at least a
majority of the non-employee members of the Board of Directors of the Company
(the "Board") within 12 months of a majority of such non-employee members of the
Board having actual knowledge of the event or circumstances providing a basis
for such termination. In the case of clause (ii) of the second sentence of this
subsection (d), the Executive shall be given notice by the Board specifying in
detail the particular act or failure to act on which the Board is relying in
proposing to terminate him for Cause and offering the Executive an opportunity,
on a date at least 14 days after receipt of such notice, to have a hearing, with
counsel, before a majority of the non-employee members of the Board, including
each of the members of the Board who authorized the termination for
4
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Cause. The Executive shall not be terminated for Cause if, within 30 days after
the date of the Executive's hearing before the Board (or if the Executive waives
a hearing, within 30 days after receiving notice of the proposed termination),
he has corrected the particular act or failure to act specified in the notice
and by so correcting such act or failure to act he has reduced the economic
damage his act or failure to act has allegedly caused the Company to a level
which is no longer material or has eliminated the probability that such act or
failure to act is likely to result in material economic damage to the Company.
No termination for Cause shall take effect until the expiration of the
correction period described in the preceding sentence and the determination by a
majority of the non-employee members of the Board that the Executive has failed
to correct the act or failure to act in accordance with the terms of the
preceding sentence.
Anything herein to the contrary notwithstanding, if, following a
termination of the Executive's employment by the Company for Cause based upon
the conviction of the Executive for a felony involving moral turpitude such
conviction is finally overturned on appeal, the Executive shall be entitled to
the compensation provided in Sections 4(a) and 4(c). In lieu of the interest
provided in clause (iv) of the first sentence of Section 4(a) and the interest
provided in the second sentence of Section 4(c), however, the compensation
provided in Sections 4(a) and 4(c) shall be increased by a ten percent rate of
interest, compounded annually, calculated from the date such compensation would
have been paid if the Executive's employment had been terminated without Cause.
(e) For purposes of this Agreement, "Good Reason" shall mean, after
any Change in Control and without the Executive's express written consent, any
of the following:
(i) a significant diminution in the Executive's duties and
responsibilities, or the assignment to the Executive by the Company of
duties inconsistent with the Executive's position, duties,
responsibilities or status with the Company immediately prior to a
Change in Control of the Company, or a change in the Executive's
titles or offices as in effect immediately prior to a Change in
Control of the Company, or any removal of the Executive from or any
failure to re-elect the Executive to any of such positions, except in
connection with the termination of his employment for Disability,
Retirement or Cause or as a result of the Executive's death or by the
Executive other than for Good Reason;
(ii) a reduction by the Company in the Executive's annual rate of
base salary as in effect on the date hereof or as the same may be
increased from time to time during the term of this Agreement or the
Company's failure to increase (within 12 months of the Executive's
last increase in his annual rate of base salary) the Executive's
annual rate of base salary after a Change in Control of the Company in
an amount which at least equals, on a percentage basis, the greater of
(A) the average percentage increase in the annual rate of base salary
for all officers of the Company effected in the preceding 12 months;
or (B) the Consumer Price Index as published by the United States
Government (or, in the event such index is discontinued, any similar
index published by the United States Government as designated in good
faith by the Executive); provided, however, that nothing contained in
this clause (ii) shall be construed under any circumstances as
permitting the Company to decrease the Executive's annual rate of base
salary;
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(iii) (A) any failure by the Company to continue in effect any
benefit plan or arrangement (including, without limitation, the life
insurance, medical, dental, accident and disability plans) in which
the Executive is participating at the time of a Change in Control of
the Company, or any other plan or arrangement providing the Executive
with benefits that are no less favorable (hereinafter referred to as
"Benefit Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such Benefit Plan or deprive
the Executive of any material fringe benefit or perquisite of office
enjoyed by the Executive at the time of a Change in Control of the
Company, unless in the case of either subclause (A) or (B) above,
there is substituted a comparable plan or program that is economically
equivalent or superior, in terms of the benefit offered to the
Executive, to the Benefit Plan being altered, reduced, affected or
ended;
(iv) (A) any failure by the Company to continue in effect any
incentive plan or arrangement (including, without limitation, the
Company's bonus arrangements, the Transaction Systems Architects, Inc.
Deferred Compensation Plan, the Transaction Systems Architects, Inc.
401(k) Plan, the sales incentive plans, and the management incentive
plans) in which the Executive is participating at the time of a Change
in Control of the Company, or any other plans or arrangements
providing him with substantially similar benefits, (hereinafter
referred to as "Incentive Plans"), (B) the taking of any action by the
Company which would adversely affect the Executive's participation in
any such Incentive Plan or reduce the Executive's benefits under any
such Incentive Plan, unless in the case of either subclause (A) or (B)
above, there is substituted a comparable plan or program that is
economically equivalent or superior, in terms of the benefit offered
to the Executive, to the Incentive Plan being altered, reduced,
affected or ended, or (C) any failure by the Company with respect to
any fiscal year to make an award to the Executive pursuant to each
such Incentive Plan or such substituted comparable plan or program
equal to or greater than the greater of (1) the award (whether paid or
payable in cash or in securities of the Company) made to the Executive
pursuant to such Incentive Plan or such substituted comparable plan or
program with respect to the immediately preceding fiscal year or (2)
the average annual award (whether paid or payable in cash or in
securities of the Company) made to the Executive pursuant to such
Incentive Plan or such substituted comparable plan with respect to the
prior three fiscal years (or such lesser number of prior fiscal years
that the Executive was employed by the Company or that the Incentive
Plan (together with any substituted comparable plan) was maintained);
(v) (A) any failure by the Company to continue in effect any
plan or arrangement to receive securities of the Company (including,
without limitation, the Transaction Systems Architects, Inc. 1999
Employee Stock Purchase Plan and the Transaction Systems Architects
Inc. 1999 Stock Option Plan) in which the Executive is participating
at the time of a Change in Control of the Company, or any other plan
or arrangement providing him with substantially similar benefits,
(hereinafter referred to as "Securities Plans"), (B) the taking of any
action by the Company which would adversely affect the Executive's
participation in or materially reduce the Executive's benefits under
any such Securities Plan, unless in the case of either subclause (A)
or (B) above, there is substituted a comparable plan or program that
is economically equivalent or superior, in terms of the benefit
offered to the Executive, to the Securities Plan being altered,
6
<PAGE>
reduced, affected or ended, or (C) any failure by the Company in any
fiscal year to grant stock options, stock appreciation rights or
securities awards to the Executive pursuant to such Securities Plans
with respect to an aggregate number of securities of the Company of
each kind that is equal to or greater than the greater of (1) the
aggregate number of securities of the Company of that kind covered by
stock options, stock appreciation rights or securities awards granted
to the Executive pursuant to such Securities Plans in the immediately
preceding fiscal year or (2) the average annual aggregate number of
securities of the Company of that kind covered by stock options, stock
appreciation rights, or securities awards granted to the Executive
pursuant to such Securities Plans in the prior three fiscal years; and
provided further the material terms and conditions of such stock
options, stock appreciation rights, and securities awards granted to
the Executive after the Change in Control (including, but not limited
to, the exercise price, vesting schedule, period and methods of
exercise, expiration date, forfeiture provisions and other
restrictions) are substantially similar to the material terms and
conditions of the stock options, stock appreciation rights, and
securities awards granted to the Executive under the Securities Plans
immediately prior to the Change in Control of the Company;
(vi) the Executive's relocation more than 50 miles from the
location at which the Executive performed the Executive's duties prior
to a Change in Control of the Company, except for required travel by
the Executive on the Company's business to an extent substantially
consistent with the Executive's business travel obligations at the
time of a Change in Control of the Company;
(vii) any failure by the Company to provide the Executive with the
number of annual paid vacation days to which the Executive is entitled
for the year in which a Change in Control of the Company occurs;
(viii) any material breach by the Company of any provision of this
Agreement;
(ix) any failure by the Company to obtain the assumption of this
Agreement by any successor or assign of the Company prior to such
succession or assignment;
(x) any failure by the Company or its successor to enter into an
agreement with the Executive that is substantially similar to this
Agreement with respect to a Change in Control of the Company or its
successor occurring thereafter; or
(xi) any purported termination of the Executive's employment by
the Company pursuant to Section 3(b), 3(c) or 3(d) above which is not
effected pursuant to a Notice of Termination satisfying the
requirements of Section 3(f) below (and, if applicable, Section 3(d)
above), and for purposes of this Agreement, no such purported
termination shall be effective.
For purposes of this subsection (e), an isolated, immaterial, and inadvertent
action not taken in bad faith by the Company in violation of clause (ii), (iii),
(iv), (v) or (vii) of this subsection that is remedied by the Company promptly
after receipt of notice thereof given by the Executive shall not be considered
Good Reason for the Executive's termination of employment with the Company. In
the event the Executive terminates his employment for Good Reason hereunder,
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then notwithstanding that the Executive may also retire for purposes of the
Benefit Plans, Incentive Plans or Securities Plans, the Executive shall be
deemed to have terminated his employment for Good Reason for purposes of this
Agreement.
(f) Any termination of the Executive by the Company pursuant to Section
3(b), 3(c) or 3(d) above, or by the Executive pursuant to Section 3(e) above,
shall be communicated by a Notice of Termination to the other party hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate those specific termination provisions in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. For purposes of this Agreement, no
such purported termination by the Company shall be effective without such Notice
of Termination.
(g) "Date of Termination" shall mean (i) if the Executive's employment
is terminated by the Company for Disability, 30 days after Notice of Termination
is given to the Executive (provided that the Executive shall not have returned
to the performance of the Executive's duties on a full-time basis during such
30-day period), (ii) if the Executive's employment is terminated by the
Executive for Good Reason, the date specified in the Notice of Termination, and
(iii) if the Executive's employment is terminated by the Company for any other
reason, the date on which a Notice of Termination is given; provided, however,
that if within 30 days after any Notice of Termination is given to the Executive
by the Company, the Executive notifies the Company that a dispute exists
concerning the termination, the Date of Termination shall be the date the
dispute is finally determined, whether by mutual written agreement of the
parties or upon final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected).
4. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT.
(a) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Company shall pay to the
Executive in a lump sum cash payment within five days after the Date of
Termination the following:
(i) the Severance Amount as defined in Section 4(b) below; plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
(iii) a quarterly incentive award for the current fiscal quarter
prorated through the Date of Termination equal to the greater of (A)
the quarterly incentive award (whether paid or payable in cash or in
securities of the Company) awarded to the Executive with respect to
the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i), (ii)
and (iii) above calculated from the Date of Termination until paid at
a rate equal to the prime rate as
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published in The Wall Street Journal on the Date of Termination plus
three percentage points, compounded annually.
(b) "Severance Amount" shall mean an amount equal to two times the Base
Amount (as defined below) determined with respect to the Base Period (as defined
below); provided, however, in no event shall the Severance Amount be less than
two times the Executive's annual rate of base salary at the higher of the annual
rate in effect (i) immediately prior to the Date of Termination or (ii) on the
date six months prior to the Date of Termination. For purposes of this
subsection (b):
(i) "Base Amount" means the Executive's average fiscal-year
Compensation (as defined below) for fiscal years of the Company in the
Base Period. Such average shall be computed by dividing the total of
the Executive's Compensation for the Base Period by the number of
fiscal years in the Base Period. If the Executive's Base Period
includes a portion of a fiscal year during which he was not an
employee of the Company (or a predecessor entity or a related entity,
as such terms are defined in clause (iii) below), the Executive's
Compensation for such fiscal year shall be annualized before
determining the average fiscal-year Compensation for the Base Period.
In annualizing Compensation, the frequency with which payments are
expected to be made over a fiscal year shall be taken into account;
thus, any amount of Compensation that represents a payment that will
not be made more often than once per fiscal year is not annualized.
Set forth on Appendix A, which is attached hereto and made a part
hereof, are three examples illustrating the calculation of the Base
Amount.
(ii) "Base Period" means the most recent two consecutive fiscal
years of the Company ending prior to the Date of Termination. However,
if the Executive was not an employee of the Company (or a predecessor
entity or a related entity, as such terms are defined in clause (iii)
below) at any time during one of such two fiscal years, the
Executive's Base Period is the one fiscal year of such two-fiscal-year
period during which the Executive performed personal services for the
Company or a predecessor entity or a related entity.
(iii) "Compensation" means the compensation which was payable by
the Company, by a predecessor entity, or by a related entity and which
was includible in the gross income of the Executive (or either was
excludible from such gross income as "foreign earned income" within
the meaning of Section 911 of the Internal Revenue Code of 1986, as
amended (the "Code"), or would have been includible in such gross
income if the Executive had been a United States citizen or resident),
but excluding the following: (A) amounts realized from the exercise of
a non-qualified stock option; and (B) amounts realized from the sale,
exchange or other disposition of stock acquired under an incentive
stock option described in Code Section 422(b) or under an employee
stock purchase plan described in Code Section 423(b). Notwithstanding
the preceding sentence, Compensation shall be determined without
regard to any compensation deferral election under any plan, program
or arrangement, qualified or nonqualified, maintained or contributed
to by the Company, a predecessor entity or a related entity, including
but not limited to a cash-or-deferred arrangement described in Code
Section 401(k), a cafeteria plan described in Code Section 125 or a
nonqualified deferred compensation plan. A
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"predecessor entity" is any entity which, as a result of a merger,
consolidation, purchase or acquisition of property or stock, corporate
separation, or other similar business transaction transfers some or
all of its employees to the Company or to a related entity or to a
predecessor entity of the Company. The term "related entity" includes
any entity treated as a single employer with the Company in accordance
with subsections (b), (c), (m) and (o) of Code Section 414.
(c) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Executive will be entitled to
continued participation in all employee benefit plans or programs available to
Company employees generally in which the Executive was participating on the Date
of Termination, such continued participation to be at Company cost and otherwise
on the same basis as Company employees generally, until the earlier of (i) the
date, or dates, he receives equivalent coverage and benefits under the plans and
programs of a subsequent employer (such coverages and benefits to be determined
on a coverage-by-coverage or benefit-by-benefit basis) or (ii) two years from
the Date of Termination; provided (A) if the Executive is precluded from
continuing his participation in any employee benefit plan or program as provided
in this sentence, he shall be paid, in a lump sum cash payment, within 30 days
following the date it is determined he is unable to participate in any employee
benefit plan or program, the after-tax economic equivalent of the benefits
provided under the plan or program in which he is unable to participate for the
period specified in this sentence, and (B) the economic equivalent of any
benefit foregone shall be deemed to be the lowest cost that would be incurred by
the Executive in obtaining such benefit for himself (including family or
dependent coverage, if applicable) on an individual basis. The Executive shall
be eligible for group health plan continuation coverage under and in accordance
with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended,
when he ceases to be eligible for continued participation in the Company's group
health plan under this subsection (e).
5. NO OBLIGATION TO MITIGATE DAMAGES; NO EFFECT ON OTHER CONTRACTUAL
RIGHTS.
(a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation earned by the Executive as the
result of employment by another employer after the Date of Termination or
otherwise.
(b) The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any Benefit Plan, Incentive Plan or
Securities Plan, employment agreement or other contract, plan or agreement with
or of the Company.
6. INCENTIVE AWARDS.
In the event of a Change in Control of the Company, then
notwithstanding the terms and conditions of any Incentive Plan, the Company
agrees (i) to immediately and fully vest all unvested awards, units, and
benefits (other than options to acquire securities of the Company or
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awards of securities of the Company) which have been awarded or allocated to the
Executive under the Incentive Plans; and (ii) upon the exercise of such awards
or units or the distribution of such benefits, to pay all amounts due under the
Incentive Plans solely in cash.
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) All determinations required to be made under this Section 7,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by the Accounting Firm which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days after the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. The determination
of tax liability made by the Accounting Firm shall be subject to review by the
Executive's tax advisor, and, if the Executive's tax advisor does not agree with
the determination reached by the Accounting Firm, then the Accounting Firm and
the Executive's tax advisor shall jointly designate a nationally recognized
public accounting firm which shall make the determination. All fees and expenses
of the accountants and tax advisors retained by both the Executive and the
Company shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 7, shall be paid by the Company to the
Executive within five days after the receipt of the determination. Any
determination by such jointly designated public accounting firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
hereunder, it is possible that Gross-Up Payments will not have been made by the
Company that should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Executive
hereafter is required to make a payment of any Excise Tax, any such Underpayment
shall be promptly paid by the Company to or for the benefit of the Executive.
Upon notice by the Executive of any audit or other proceeding that may result in
a liability to the Company hereunder, the Executive shall promptly notify the
Company of such audit or other proceeding; and the Company may, at its option,
but solely with respect to the item or items that relate to such potential
liability, choose to assume the defense of such audit or other proceeding at its
own cost, provided that (i) the Executive shall cooperate with the Company in
such defense and (ii) the Company will not settle such audit or other proceeding
without the consent of the Executive (such consent not to be unreasonably
withheld). The highest effective
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marginal tax rate (determined by taking into account any reduction in itemized
deductions and/or exemptions attributable to the inclusion of the additional
amounts payable under this Section 7 in the Executive's adjusted gross or
taxable income) based upon the state and locality where the Executive is
resident at the time of payment of such amounts will be used for purposes of
determining the federal and state income and other taxes with respect thereto.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify the Executive to the fullest extent
permitted by law if the Executive is a party or threatened to be made a party to
any Proceeding (as defined below).
(b) If requested by the Executive, the Company shall advance (within
two business days of such request) any and all Expenses, as defined below,
relating to a Proceeding to the Executive (an "Expense Advance"), upon the
receipt of a written undertaking by or on behalf of the Executive to repay such
Expense Advance if a judgment or other final adjudication adverse to the
Executive (as to which all rights of appeal therefrom have been exhausted or
lapsed) establishes that the Executive is not entitled to indemnification by the
Company. Expenses shall include attorney's fees and all other costs, charges and
expenses paid or incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in any Proceeding.
(c) The Company agrees to obtain a directors' and officers' liability
insurance policy covering the Executive and to continue and maintain such
policy. The amount of coverage shall be reasonable in relation to the
Executive's position and responsibilities during his employment by the Company.
(d) This Section 8 is a supplement to and in furtherance of the
Certificate of Incorporation and Bylaws of the Company and shall not be deemed a
substitute therefor, or diminish or abrogate any rights of the Executive
thereunder.
(e) For purposes of Section 8(a), the meaning of the phrase "to the
fullest extent permitted by law" shall include but not be limited to:
(i) to the fullest extent permitted by the provision of the
Delaware General Corporation Law ("DGCL") that authorizes or
contemplates additional indemnification by agreement, or the
corresponding provision of any amendment to or replacement of the
DGCL, and
(ii) to the fullest extent authorized or permitted by any
amendments to or replacements of the DGCL adopted after the date of
this Agreement that increase the extent to which a corporation may
indemnify its officers and directors.
(f) For purposes of Sections 8(a) and 8(b), "Proceeding" shall mean
any threatened, pending or completed action, suit, arbitration, alternate
dispute resolution mechanism, investigation, inquiry, administrative hearing or
any other actual, threatened or completed proceeding, whether brought in the
right of the Company or otherwise and whether of a civil, criminal,
administrative or investigative nature, in which the Executive was, is or will
be
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involved as a party or otherwise by reason of the fact that the Executive is or
was a director or officer of the Company, by reason of any action taken by him
or of any action on his part while acting as director or officer of the Company,
or by reason of the fact that he is or was serving at the request of the Company
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, in each case whether or not serving in
such capacity at the time any liability or expense is incurred for which
indemnification, reimbursement, or advancement of expenses can be provided under
this Agreement.
9. SUCCESSORS.
(a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. Any failure of the Company to
obtain such agreement prior to the effectiveness of any such succession or
assignment shall be a material breach of this Agreement and shall entitle the
Executive to terminate the Executive's employment for Good Reason and receive
the compensation provided for in Section 4 hereof. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor or
assign to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Section 9 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts are still payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Executive's devisee, legatee or other designee or, if
there be no such designee, to the Executive's estate.
10. NOTICE.
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, as follows:
If to the Company:
Transaction Systems Architects, Inc.
224 South 108 Avenue
Omaha, NE 68154
Attn: President
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If to the Executive:
----------------------------------------
----------------------------------------
----------------------------------------
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. MISCELLANEOUS.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same time or
at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Nebraska, without giving effect to any principles of conflicts of
law.
12. CONFLICT IN BENEFITS.
Except as otherwise provided in the preceding sentences, this Agreement
is not intended to and shall not limit or terminate any other agreement or
arrangement between the Executive and the Company presently in effect or
hereafter entered into.
13. VALIDITY.
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. SURVIVORSHIP.
The respective rights and obligations of the parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations and to the extent that any
performance is required following termination of this Agreement. Without
limiting the foregoing, Sections 7, 8 and 15 shall expressly survive the
termination of this Agreement.
15. LEGAL FEES AND EXPENSES.
If a claim or dispute arises concerning the rights of the Executive
under this Agreement, regardless of the party by whom such claim or dispute is
initiated, the Company shall, upon presentation of appropriate vouchers, pay all
legal expenses, including reasonable attorneys'
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fees, court costs, and ordinary and necessary out-of-pocket costs of attorneys,
billed to and payable by the Executive or by anyone claiming under or through
the Executive, in connection with the bringing, prosecuting, arbitrating,
defending, litigating, negotiating, or settling such claim or dispute. In no
event shall the Executive be required to reimburse the Company for any of the
costs or expenses incurred by the Company relating to arbitration or litigation.
Pending the outcome or resolution of any claim or dispute, the Company shall
continue payment of all amounts due the Executive without regard to any dispute.
16. EFFECTIVE DATE.
This Agreement shall become effective upon execution.
17. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
18. NO GUARANTEE OF EMPLOYMENT.
Neither this Agreement nor any action taken hereunder shall be construed
as giving the Executive the right to be retained in employment with the Company,
nor shall it interfere with either the Company's right to terminate the
employment of the Executive at any time or the Executive's right to terminate
his employment at any time.
19. NO ASSIGNMENT BY EXECUTIVE.
Except as otherwise provided in Section 9(b), the Executive's rights and
interest under this Agreement shall not be assignable (in law or in equity) or
subject to any manner of alienation, sale, transfer, claims of creditors,
pledge, attachment, garnishment, levy, execution or encumbrances of any kind.
20. WAIVER.
The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement shall not be deemed a waiver of
such provision or any other provision of this Agreement. Any waiver of any
provision of this Agreement shall not be deemed to be a waiver of any other
provision, and any waiver of default in any provision of this Agreement shall
not be deemed to be a waiver of any later default thereof or of any other
provision.
21. WITHHOLDING.
All amounts paid pursuant to this Agreement shall be subject to
withholding for taxes (federal, state, local or otherwise) to the extent
required by applicable law.
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22. HEADINGS.
The headings of this Agreement have been inserted for convenience of
reference only and are to be ignored in the construction of the provisions
hereof.
23. NUMBER AND GENDER.
The use of the singular shall be interpreted to include the plural and
the plural the singular, as the context requires. The use of the masculine,
feminine or neuter shall be interpreted to include the masculine, feminine or
neuter as the context shall require.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
TRANSACTION SYSTEMS ARCHITECTS, INC.
Date: By:
------------------- ---------------------------
EXECUTIVE:
Date:
------------------- ------------------------------
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APPENDIX A
EXAMPLE 1 - Executive was employed by the Company for 1-1/3 fiscal
years preceding the fiscal year in which a Change in Control of the
Company occurs. The Executive's Compensation from the Company was
$30,000 for the 4-month period and $120,000 for the full fiscal year.
The Executive's Base Amount is $105,000.
Year 1: 3 x $30,000 = $90,000
Year 2: $120,000
[90,000 + 120,000] / 2 = $105,000
$105,000 is the average fiscal-year
Compensation for the Base Period.
EXAMPLE 2 - Assume the same facts as in Example 1, except that the
Executive also received a $70,000 sign-on bonus when his employment
with the Company commenced at the beginning of the 4-month period.
The Executive's Base Amount is $140,000
Year 1: [3 x $30,000] + $70,000 = $160,000
Year 2: $120,000
[160,000 + 120,000] / 2 = $140,000
Since the sign-on bonus will not be paid more often than once per
fiscal year, the amount of the bonus is not increased in annualizing
the Executive's Compensation for the 4-month period.
EXAMPLE 3 - Executive was employed by the Company for the last 4 months
of the fiscal year preceding the fiscal year in which a Change in
Control of the Company occurs. The Executive's Compensation from the
Company was $30,000 for the 4-month period. The Executive's Base Amount
is $90,000.
Year 1: 3 x $30,000 = $90,000
$90,000 / 1 = $90,000
$90,000 is the average fiscal-year
Compensation for the Base Period.
<PAGE>
SEVERANCE COMPENSATION AGREEMENT
SEVERANCE COMPENSATION AGREEMENT dated as of July 31, 1999 between
Transaction Systems Architects, Inc., a Delaware corporation (the "Company"),
and Mark Vipond (the "Executive").
WHEREAS, the Company's Board of Directors has determined that it is
appropriate to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in potentially disturbing circumstances arising from
the possibility of a change in control of the Company;
NOW, THEREFORE, this Agreement sets forth the severance compensation
which the Company agrees it will pay to the Executive if the Executive's
employment with the Company terminates under certain circumstances described
herein following a Change in Control (as defined herein) and the other benefits
the Company will provide the Executive following a Change in Control.
1. TERM.
This Agreement shall terminate, except to the extent that any
obligation of the Company hereunder remains unpaid as of such time, upon the
earlier of (i) the termination of Executive's employment for any reason prior to
a Change in Control; and (ii) three years after the date of a Change in Control.
2. CHANGE IN CONTROL.
For purposes of this Agreement, Change in Control shall mean:
(a) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person"), of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then-outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a Change
in Control: (A) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege), (B) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (C)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in subclauses (i), (ii) and (iii) of clause (c) of this
Section 2 are satisfied; or
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(b) if individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least
two-thirds of the directors then constituting the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest
subject to Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(c) approval by the stockholders of the Company of a reorganization,
merger or consolidation, unless following such reorganization, merger or
consolidation (i) more than 60% of, respectively, the then-outstanding shares of
common stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger, or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the resulting corporation owned by the Company's stockholders, but
not from the total number of outstanding shares and voting securities of the
resulting corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (ii) no Person (excluding the Company, any employee
benefit plan (or related trust) of the Company, any qualified employee benefit
plan of such corporation resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or more of
the Outstanding Company Common Stock or Outstanding Company Voting Securities,
as the case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then-outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(d) (i) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company or (ii) the first to occur of (A) the
sale or other disposition (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company, or (B)
the approval by the stockholders of the Company of any such sale or disposition,
other than, in each case, any such sale or disposition to a corporation, with
respect to
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which immediately thereafter, (1) more than 60% of, respectively, the
then-outstanding shares of common stock of such corporation and the combined
voting power of the then-outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such sale or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be (for purposes of determining whether such percentage test is
satisfied, there shall be excluded from the number of shares and voting
securities of the transferee corporation owned by the Company's stockholders,
but not from the total number of outstanding shares and voting securities of the
transferee corporation, any shares or voting securities received by any such
stockholder in respect of any consideration other than shares or voting
securities of the Company), (2) no Person (excluding the Company and any
employee benefit plan (or related trust) of the Company, any qualified employee
benefit plan of such transferee corporation and any Person beneficially owning,
immediately prior to such sale or other disposition, directly or indirectly, 20%
or more of the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 20%
or more of, respectively, the then-outstanding shares of common stock of such
transferee corporation and the combined voting power of the then-outstanding
voting securities of such transferee corporation entitled to vote generally in
the election of directors and (3) at least a majority of the members of the
board of directors of such transferee corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or action of the
board providing for such sale or other disposition of assets of the Company.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL.
(a) The Executive shall be entitled to the compensation provided in
Section 4 of this Agreement if all of the following conditions are satisfied:
(i) there is a Change in Control of the Company while the
Executive is still an employee of the Company;
(ii) the Executive's employment with the Company is terminated
within two years after the Change in Control; and
(iii) the Executive's termination of employment is not a result
of (A) the Executive's death; (B) the Executive's Disability (as
defined in Section 3(b) below; (C) the Executive's Retirement (as
defined in Section 3(c) below); (D) the Executive's termination by the
Company for Cause (as defined in Section 3(d) below); or (E) the
Executive's decision to terminate employment other than for Good Reason
(as defined in Section 3(e) below).
(b) If, as a result of the Executive's incapacity due to physical or
mental illness, the Executive shall have been unable, with or without a
reasonable accommodation, to perform his duties with the Company on a full-time
basis for six months and within 30 days after a Notice of
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Termination (as defined in Section 3(f) below) is thereafter given by the
Company, the Executive shall not have returned to the full-time performance of
the Executive's duties, the Company may terminate the Executive's employment for
"Disability". If there is a Change in Control of the Company while the Executive
is still an employee and if the Executive's employment with the Company is
terminated for Disability within two years after the Change in Control, the
Executive shall be entitled to receive in a lump sum cash payment within five
days after his Date of Termination (as defined in Section 3(g) below) the
following:
(i) one times the Base Amount (as defined in Section 4(b)(i))
determined with respect to the Base Period (as defined in Section
4(b)(ii)); plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points.
(c) For purposes of this Agreement only, "Retirement" shall mean
termination by the Company or the Executive of the Executive's employment based
on the Executive's having reached age 65 or such other age as shall have been
fixed in any arrangement established pursuant to this Agreement with the
Executive's consent with respect to the Executive.
(d) For purposes of this Agreement only, "Cause" shall mean: (i) the
Executive's conviction of a felony involving moral turpitude; or (ii) the
Executive's serious, willful gross misconduct or willful gross neglect of duties
(other than any such neglect resulting from the Executive's incapacity due to
physical or mental illness or any such neglect after the issuance of a Notice of
Termination by the Executive for Good Reason, as such terms are defined in
subsections (e) and (f) below), which, in either case, has resulted, or in all
probability is likely to result, in material economic damage to the Company;
provided no act or failure to act by the Executive will constitute "Cause" under
clause (ii) if the Executive believed in good faith that such act or failure to
act was in the best interest of the Company.
For purposes of this Agreement only, any termination of the Executive's
employment by the Company for Cause shall be authorized by a vote of at least a
majority of the non-employee members of the Board of Directors of the Company
(the "Board") within 12 months of a majority of such non-employee members of the
Board having actual knowledge of the event or circumstances providing a basis
for such termination. In the case of clause (ii) of the second
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sentence of this subsection (d), the Executive shall be given notice by the
Board specifying in detail the particular act or failure to act on which the
Board is relying in proposing to terminate him for Cause and offering the
Executive an opportunity, on a date at least 14 days after receipt of such
notice, to have a hearing, with counsel, before a majority of the non-employee
members of the Board, including each of the members of the Board who authorized
the termination for Cause. The Executive shall not be terminated for Cause if,
within 30 days after the date of the Executive's hearing before the Board (or if
the Executive waives a hearing, within 30 days after receiving notice of the
proposed termination), he has corrected the particular act or failure to act
specified in the notice and by so correcting such act or failure to act he has
reduced the economic damage his act or failure to act has allegedly caused the
Company to a level which is no longer material or has eliminated the probability
that such act or failure to act is likely to result in material economic damage
to the Company. No termination for Cause shall take effect until the expiration
of the correction period described in the preceding sentence and the
determination by a majority of the non-employee members of the Board that the
Executive has failed to correct the act or failure to act in accordance with the
terms of the preceding sentence.
Anything herein to the contrary notwithstanding, if, following a
termination of the Executive's employment by the Company for Cause based upon
the conviction of the Executive for a felony involving moral turpitude such
conviction is finally overturned on appeal, the Executive shall be entitled to
the compensation provided in Sections 4(a) and 4(c). In lieu of the interest
provided in clause (iv) of the first sentence of Section 4(a) and the interest
provided in the second sentence of Section 4(c), however, the compensation
provided in Sections 4(a) and 4(c) shall be increased by a ten percent rate of
interest, compounded annually, calculated from the date such compensation would
have been paid if the Executive's employment had been terminated without Cause.
(e) For purposes of this Agreement, "Good Reason" shall mean, after any
Change in Control and without the Executive's express written consent, any of
the following:
(i) a significant diminution in the Executive's duties and
responsibilities, or the assignment to the Executive by the Company of
duties inconsistent with the Executive's position, duties,
responsibilities or status with the Company immediately prior to a
Change in Control of the Company, or a change in the Executive's titles
or offices as in effect immediately prior to a Change in Control of the
Company, or any removal of the Executive from or any failure to
re-elect the Executive to any of such positions, except in connection
with the termination of his employment for Disability, Retirement or
Cause or as a result of the Executive's death or by the Executive other
than for Good Reason;
(ii) a reduction by the Company in the Executive's annual rate
of base salary as in effect on the date hereof or as the same may be
increased from time to time during the term of this Agreement or the
Company's failure to increase (within 12 months of the Executive's last
increase in his annual rate of base salary) the Executive's annual rate
of base salary after a Change in Control of the Company in an amount
which at least equals, on a percentage basis, the greater of (A) the
average percentage increase in the annual rate
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of base salary for all officers of the Company effected in the
preceding 12 months; or (B) the Consumer Price Index as published by
the United States Government (or, in the event such index is
discontinued, any similar index published by the United States
Government as designated in good faith by the Executive); provided,
however, that nothing contained in this clause (ii) shall be construed
under any circumstances as permitting the Company to decrease the
Executive's annual rate of base salary;
(iii) (A) any failure by the Company to continue in effect any
benefit plan or arrangement (including, without limitation, the life
insurance, medical, dental, accident and disability plans) in which the
Executive is participating at the time of a Change in Control of the
Company, or any other plan or arrangement providing the Executive with
benefits that are no less favorable (hereinafter referred to as
"Benefit Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such Benefit Plan or deprive
the Executive of any material fringe benefit or perquisite of office
enjoyed by the Executive at the time of a Change in Control of the
Company, unless in the case of either subclause (A) or (B) above, there
is substituted a comparable plan or program that is economically
equivalent or superior, in terms of the benefit offered to the
Executive, to the Benefit Plan being altered, reduced, affected or
ended;
(iv) (A) any failure by the Company to continue in effect any
incentive plan or arrangement (including, without limitation, the
Company's bonus arrangements, the Transaction Systems Architects, Inc.
Deferred Compensation Plan, the Transaction Systems Architects, Inc.
401(k) Plan, the sales incentive plans, and the management incentive
plans) in which the Executive is participating at the time of a Change
in Control of the Company, or any other plans or arrangements providing
him with substantially similar benefits, (hereinafter referred to as
"Incentive Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in any such
Incentive Plan or reduce the Executive's benefits under any such
Incentive Plan, unless in the case of either subclause (A) or (B)
above, there is substituted a comparable plan or program that is
economically equivalent or superior, in terms of the benefit offered to
the Executive, to the Incentive Plan being altered, reduced, affected
or ended, or (C) any failure by the Company with respect to any fiscal
year to make an award to the Executive pursuant to each such Incentive
Plan or such substituted comparable plan or program equal to or greater
than the greater of (1) the award (whether paid or payable in cash or
in securities of the Company) made to the Executive pursuant to such
Incentive Plan or such substituted comparable plan or program with
respect to the immediately preceding fiscal year or (2) the average
annual award (whether paid or payable in cash or in securities of the
Company) made to the Executive pursuant to such Incentive Plan or such
substituted comparable plan with respect to the prior three fiscal
years (or such lesser number of prior fiscal years that the Executive
was employed by the Company or that the Incentive Plan (together with
any substituted comparable plan) was maintained);
(v) (A) any failure by the Company to continue in effect any
plan or arrangement to receive securities of the Company (including,
without limitation, the
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Transaction Systems Architects, Inc. 1999 Employee Stock Purchase Plan
and the Transaction Systems Architects Inc. 1999 Stock Option Plan) in
which the Executive is participating at the time of a Change in
Control of the Company, or any other plan or arrangement providing him
with substantially similar benefits, (hereinafter referred to as
"Securities Plans"), (B) the taking of any action by the Company which
would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such Securities Plan, unless
in the case of either subclause (A) or (B) above, there is substituted
a comparable plan or program that is economically equivalent or
superior, in terms of the benefit offered to the Executive, to the
Securities Plan being altered, reduced, affected or ended, or (C) any
failure by the Company in any fiscal year to grant stock options,
stock appreciation rights or securities awards to the Executive
pursuant to such Securities Plans with respect to an aggregate number
of securities of the Company of each kind that is equal to or greater
than the greater of (1) the aggregate number of securities of the
Company of that kind covered by stock options, stock appreciation
rights or securities awards granted to the Executive pursuant to such
Securities Plans in the immediately preceding fiscal year or (2) the
average annual aggregate number of securities of the Company of that
kind covered by stock options, stock appreciation rights, or
securities awards granted to the Executive pursuant to such Securities
Plans in the prior three fiscal years; and provided further the
material terms and conditions of such stock options, stock
appreciation rights, and securities awards granted to the Executive
after the Change in Control (including, but not limited to, the
exercise price, vesting schedule, period and methods of exercise,
expiration date, forfeiture provisions and other restrictions) are
substantially similar to the material terms and conditions of the
stock options, stock appreciation rights, and securities awards
granted to the Executive under the Securities Plans immediately prior
to the Change in Control of the Company;
(vi) the Executive's relocation more than 50 miles from the
location at which the Executive performed the Executive's duties prior
to a Change in Control of the Company, except for required travel by
the Executive on the Company's business to an extent substantially
consistent with the Executive's business travel obligations at the time
of a Change in Control of the Company;
(vii) any failure by the Company to provide the Executive with
the number of annual paid vacation days to which the Executive is
entitled for the year in which a Change in Control of the Company
occurs;
(viii) any material breach by the Company of any provision of
this Agreement;
(ix) any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company prior to such
succession or assignment;
(x) any failure by the Company or its successor to enter into
an agreement with the Executive that is substantially similar to this
Agreement with respect to a Change in Control of the Company or its
successor occurring thereafter; or
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(xi) any purported termination of the Executive's employment
by the Company pursuant to Section 3(b), 3(c) or 3(d) above which is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 3(f) below (and, if applicable, Section 3(d)
above), and for purposes of this Agreement, no such purported
termination shall be effective.
For purposes of this subsection (e), an isolated, immaterial, and inadvertent
action not taken in bad faith by the Company in violation of clause (ii), (iii),
(iv), (v) or (vii) of this subsection that is remedied by the Company promptly
after receipt of notice thereof given by the Executive shall not be considered
Good Reason for the Executive's termination of employment with the Company. In
the event the Executive terminates his employment for Good Reason hereunder,
then notwithstanding that the Executive may also retire for purposes of the
Benefit Plans, Incentive Plans or Securities Plans, the Executive shall be
deemed to have terminated his employment for Good Reason for purposes of this
Agreement.
(f) Any termination of the Executive by the Company pursuant to Section
3(b), 3(c) or 3(d) above, or by the Executive pursuant to Section 3(e) above,
shall be communicated by a Notice of Termination to the other party hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate those specific termination provisions in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. For purposes of this Agreement, no
such purported termination by the Company shall be effective without such Notice
of Termination.
(g) "Date of Termination" shall mean (i) if the Executive's employment
is terminated by the Company for Disability, 30 days after Notice of Termination
is given to the Executive (provided that the Executive shall not have returned
to the performance of the Executive's duties on a full-time basis during such
30-day period), (ii) if the Executive's employment is terminated by the
Executive for Good Reason, the date specified in the Notice of Termination, and
(iii) if the Executive's employment is terminated by the Company for any other
reason, the date on which a Notice of Termination is given; provided, however,
that if within 30 days after any Notice of Termination is given to the Executive
by the Company, the Executive notifies the Company that a dispute exists
concerning the termination, the Date of Termination shall be the date the
dispute is finally determined, whether by mutual written agreement of the
parties or upon final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected).
4. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT.
(a) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Company shall pay to the
Executive in a lump sum cash payment within five days after the Date of
Termination the following:
(i) the Severance Amount as defined in Section 4(b) below;
plus
(ii) his earned but unpaid base salary through his Date of
Termination; plus
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(iii) a quarterly incentive award for the current fiscal
quarter prorated through the Date of Termination equal to the greater
of (A) the quarterly incentive award (whether paid or payable in cash
or in securities of the Company) awarded to the Executive with respect
to the Company's most recent fiscal quarter ending prior to the Date of
Termination or (B) the average quarterly incentive award (whether paid
or payable in cash or in securities of the Company) made to the
Executive with respect to the Company's most recent three fiscal years
ending prior to the Date of Termination; plus
(iv) interest on the amounts payable pursuant to clauses (i),
(ii) and (iii) above calculated from the Date of Termination until paid
at a rate equal to the prime rate as published in The Wall Street
Journal on the Date of Termination plus three percentage points,
compounded annually.
(b) "Severance Amount" shall mean an amount equal to one times the Base
Amount (as defined below) determined with respect to the Base Period (as defined
below); provided, however, in no event shall the Severance Amount be less than
two times the Executive's annual rate of base salary at the higher of the annual
rate in effect (i) immediately prior to the Date of Termination or (ii) on the
date six months prior to the Date of Termination. For purposes of this
subsection (b):
(i) "Base Amount" means the Executive's average fiscal-year
Compensation (as defined below) for fiscal years of the Company in the
Base Period. Such average shall be computed by dividing the total of
the Executive's Compensation for the Base Period by the number of
fiscal years in the Base Period. If the Executive's Base Period
includes a portion of a fiscal year during which he was not an employee
of the Company (or a predecessor entity or a related entity, as such
terms are defined in clause (iii) below), the Executive's Compensation
for such fiscal year shall be annualized before determining the average
fiscal-year Compensation for the Base Period. In annualizing
Compensation, the frequency with which payments are expected to be made
over a fiscal year shall be taken into account; thus, any amount of
Compensation that represents a payment that will not be made more often
than once per fiscal year is not annualized. Set forth on Appendix A,
which is attached hereto and made a part hereof, are three examples
illustrating the calculation of the Base Amount.
(ii) "Base Period" means the most recent two consecutive
fiscal years of the Company ending prior to the Date of Termination.
However, if the Executive was not an employee of the Company (or a
predecessor entity or a related entity, as such terms are defined in
clause (iii) below) at any time during one of such two fiscal years,
the Executive's Base Period is the one fiscal year of such
two-fiscal-year period during which the Executive performed personal
services for the Company or a predecessor entity or a related entity.
(iii) "Compensation" means the compensation which was payable
by the Company, by a predecessor entity, or by a related entity and
which was includible in the gross income of the Executive (or either
was excludible from such gross income as
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"foreign earned income" within the meaning of Section 911 of the
Internal Revenue Code of 1986, as amended (the "Code"), or would have
been includible in such gross income if the Executive had been a
United States citizen or resident), but excluding the following: (A)
amounts realized from the exercise of a non-qualified stock option;
and (B) amounts realized from the sale, exchange or other disposition
of stock acquired under an incentive stock option described in Code
Section 422(b) or under an employee stock purchase plan described in
Code Section 423(b). Notwithstanding the preceding sentence,
Compensation shall be determined without regard to any compensation
deferral election under any plan, program or arrangement, qualified or
nonqualified, maintained or contributed to by the Company, a
predecessor entity or a related entity, including but not limited to a
cash-or-deferred arrangement described in Code Section 401(k), a
cafeteria plan described in Code Section 125 or a nonqualified
deferred compensation plan. A "predecessor entity" is any entity
which, as a result of a merger, consolidation, purchase or acquisition
of property or stock, corporate separation, or other similar business
transaction transfers some or all of its employees to the Company or
to a related entity or to a predecessor entity of the Company. The
term "related entity" includes any entity treated as a single employer
with the Company in accordance with subsections (b), (c), (m) and (o)
of Code Section 414.
(c) If pursuant to Section 3(a) above the Executive is entitled to the
compensation provided in this Section 4, then the Executive will be entitled to
continued participation in all employee benefit plans or programs available to
Company employees generally in which the Executive was participating on the Date
of Termination, such continued participation to be at Company cost and otherwise
on the same basis as Company employees generally, until the earlier of (i) the
date, or dates, he receives equivalent coverage and benefits under the plans and
programs of a subsequent employer (such coverages and benefits to be determined
on a coverage-by-coverage or benefit-by-benefit basis) or (ii) two years from
the Date of Termination; provided (A) if the Executive is precluded from
continuing his participation in any employee benefit plan or program as provided
in this sentence, he shall be paid, in a lump sum cash payment, within 30 days
following the date it is determined he is unable to participate in any employee
benefit plan or program, the after-tax economic equivalent of the benefits
provided under the plan or program in which he is unable to participate for the
period specified in this sentence, and (B) the economic equivalent of any
benefit foregone shall be deemed to be the lowest cost that would be incurred by
the Executive in obtaining such benefit for himself (including family or
dependent coverage, if applicable) on an individual basis. The Executive shall
be eligible for group health plan continuation coverage under and in accordance
with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended,
when he ceases to be eligible for continued participation in the Company's group
health plan under this subsection (e).
5. NO OBLIGATION TO MITIGATE DAMAGES; NO EFFECT ON OTHER CONTRACTUAL
RIGHTS.
(a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation
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earned by the Executive as the result of employment by another employer after
the Date of Termination or otherwise.
(b) The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue solely as
a result of the passage of time, under any Benefit Plan, Incentive Plan or
Securities Plan, employment agreement or other contract, plan or agreement with
or of the Company.
6. INCENTIVE AWARDS.
In the event of a Change in Control of the Company, then
notwithstanding the terms and conditions of any Incentive Plan, the Company
agrees (i) to immediately and fully vest all unvested awards, units, and
benefits (other than options to acquire securities of the Company or awards of
securities of the Company) which have been awarded or allocated to the Executive
under the Incentive Plans; and (ii) upon the exercise of such awards or units or
the distribution of such benefits, to pay all amounts due under the Incentive
Plans solely in cash.
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) All determinations required to be made under this Section 7,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by the Accounting Firm which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days after the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. The determination
of tax liability made by the Accounting Firm shall be subject to review by the
Executive's tax advisor, and, if the Executive's tax advisor does not agree with
the determination reached by the Accounting Firm, then the Accounting Firm and
the Executive's tax advisor shall jointly designate a nationally recognized
public accounting firm which shall make the determination. All fees and expenses
of the accountants and tax advisors retained by both the Executive and the
Company shall be borne solely by the Company. Any Gross-Up Payment, as
determined
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pursuant to this Section 7, shall be paid by the Company to the Executive within
five days after the receipt of the determination. Any determination by such
jointly designated public accounting firm shall be binding upon the Company and
the Executive. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination hereunder, it is possible
that Gross-Up Payments will not have been made by the Company that should have
been made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Executive hereafter is required to make a
payment of any Excise Tax, any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive. Upon notice by the Executive of
any audit or other proceeding that may result in a liability to the Company
hereunder, the Executive shall promptly notify the Company of such audit or
other proceeding; and the Company may, at its option, but solely with respect to
the item or items that relate to such potential liability, choose to assume the
defense of such audit or other proceeding at its own cost, provided that (i) the
Executive shall cooperate with the Company in such defense and (ii) the Company
will not settle such audit or other proceeding without the consent of the
Executive (such consent not to be unreasonably withheld). The highest effective
marginal tax rate (determined by taking into account any reduction in itemized
deductions and/or exemptions attributable to the inclusion of the additional
amounts payable under this Section 7 in the Executive's adjusted gross or
taxable income) based upon the state and locality where the Executive is
resident at the time of payment of such amounts will be used for purposes of
determining the federal and state income and other taxes with respect thereto.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify the Executive to the fullest extent
permitted by law if the Executive is a party or threatened to be made a party to
any Proceeding (as defined below).
(b) If requested by the Executive, the Company shall advance (within
two business days of such request) any and all Expenses, as defined below,
relating to a Proceeding to the Executive (an "Expense Advance"), upon the
receipt of a written undertaking by or on behalf of the Executive to repay such
Expense Advance if a judgment or other final adjudication adverse to the
Executive (as to which all rights of appeal therefrom have been exhausted or
lapsed) establishes that the Executive is not entitled to indemnification by the
Company. Expenses shall include attorney's fees and all other costs, charges and
expenses paid or incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in any Proceeding.
(c) The Company agrees to obtain a directors' and officers' liability
insurance policy covering the Executive and to continue and maintain such
policy. The amount of coverage shall be reasonable in relation to the
Executive's position and responsibilities during his employment by the Company.
(d) This Section 8 is a supplement to and in furtherance of the
Certificate of Incorporation and Bylaws of the Company and shall not be deemed a
substitute therefor, or diminish or abrogate any rights of the Executive
thereunder.
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(e) For purposes of Section 8(a), the meaning of the phrase "to the
fullest extent permitted by law" shall include but not be limited to:
(i) to the fullest extent permitted by the provision of the
Delaware General Corporation Law ("DGCL") that authorizes or
contemplates additional indemnification by agreement, or the
corresponding provision of any amendment to or replacement of the DGCL,
and
(ii) to the fullest extent authorized or permitted by any
amendments to or replacements of the DGCL adopted after the date of
this Agreement that increase the extent to which a corporation may
indemnify its officers and directors.
(f) For purposes of Sections 8(a) and 8(b), "Proceeding" shall mean any
threatened, pending or completed action, suit, arbitration, alternate dispute
resolution mechanism, investigation, inquiry, administrative hearing or any
other actual, threatened or completed proceeding, whether brought in the right
of the Company or otherwise and whether of a civil, criminal, administrative or
investigative nature, in which the Executive was, is or will be involved as a
party or otherwise by reason of the fact that the Executive is or was a director
or officer of the Company, by reason of any action taken by him or of any action
on his part while acting as director or officer of the Company, or by reason of
the fact that he is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, in each case whether or not serving in such capacity
at the time any liability or expense is incurred for which indemnification,
reimbursement, or advancement of expenses can be provided under this Agreement.
9. SUCCESSORS.
(a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. Any failure of the Company to
obtain such agreement prior to the effectiveness of any such succession or
assignment shall be a material breach of this Agreement and shall entitle the
Executive to terminate the Executive's employment for Good Reason and receive
the compensation provided for in Section 4 hereof. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor or
assign to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Section 9 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts are still payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with
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the terms of this Agreement to the Executive's devisee, legatee or other
designee or, if there be no such designee, to the Executive's estate.
10. NOTICE.
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, as follows:
If to the Company:
Transaction Systems Architects, Inc.
224 South 108 Avenue
Omaha, NE 68154
Attn: President
If to the Executive:
----------------------------------------
----------------------------------------
----------------------------------------
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. MISCELLANEOUS.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same time or
at any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Nebraska, without giving effect to any principles of conflicts of
law.
12. CONFLICT IN BENEFITS.
Except as otherwise provided in the preceding sentences, this Agreement
is not intended to and shall not limit or terminate any other agreement or
arrangement between the Executive and the Company presently in effect or
hereafter entered into.
13. VALIDITY.
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The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. SURVIVORSHIP.
The respective rights and obligations of the parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations and to the extent that any
performance is required following termination of this Agreement. Without
limiting the foregoing, Sections 7, 8 and 15 shall expressly survive the
termination of this Agreement.
15. LEGAL FEES AND EXPENSES.
If a claim or dispute arises concerning the rights of the Executive
under this Agreement, regardless of the party by whom such claim or dispute is
initiated, the Company shall, upon presentation of appropriate vouchers, pay all
legal expenses, including reasonable attorneys' fees, court costs, and ordinary
and necessary out-of-pocket costs of attorneys, billed to and payable by the
Executive or by anyone claiming under or through the Executive, in connection
with the bringing, prosecuting, arbitrating, defending, litigating, negotiating,
or settling such claim or dispute. In no event shall the Executive be required
to reimburse the Company for any of the costs or expenses incurred by the
Company relating to arbitration or litigation. Pending the outcome or resolution
of any claim or dispute, the Company shall continue payment of all amounts due
the Executive without regard to any dispute.
16. EFFECTIVE DATE.
This Agreement shall become effective upon execution.
17. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
18. NO GUARANTEE OF EMPLOYMENT.
Neither this Agreement nor any action taken hereunder shall be construed
as giving the Executive the right to be retained in employment with the Company,
nor shall it interfere with either the Company's right to terminate the
employment of the Executive at any time or the Executive's right to terminate
his employment at any time.
19. NO ASSIGNMENT BY EXECUTIVE.
Except as otherwise provided in Section 9(b), the Executive's rights and
interest under this Agreement shall not be assignable (in law or in equity) or
subject to any manner of alienation, sale, transfer, claims of creditors,
pledge, attachment, garnishment, levy, execution or encumbrances of any kind.
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20. WAIVER.
The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement shall not be deemed a waiver of
such provision or any other provision of this Agreement. Any waiver of any
provision of this Agreement shall not be deemed to be a waiver of any other
provision, and any waiver of default in any provision of this Agreement shall
not be deemed to be a waiver of any later default thereof or of any other
provision.
21. WITHHOLDING.
All amounts paid pursuant to this Agreement shall be subject to
withholding for taxes (federal, state, local or otherwise) to the extent
required by applicable law.
22. HEADINGS.
The headings of this Agreement have been inserted for convenience of
reference only and are to be ignored in the construction of the provisions
hereof.
23. NUMBER AND GENDER.
The use of the singular shall be interpreted to include the plural and
the plural the singular, as the context requires. The use of the masculine,
feminine or neuter shall be interpreted to include the masculine, feminine or
neuter as the context shall require.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
TRANSACTION SYSTEMS ARCHITECTS, INC.
Date: By:
------------------- ---------------------------
EXECUTIVE:
Date:
------------------- ------------------------------
16
<PAGE>
APPENDIX A
EXAMPLE 1 - Executive was employed by the Company for 1-1/3 fiscal
years preceding the fiscal year in which a Change in Control of the
Company occurs. The Executive's Compensation from the Company was
$30,000 for the 4-month period and $120,000 for the full fiscal year.
The Executive's Base Amount is $105,000.
Year 1: 3 x $30,000 = $90,000
Year 2: $120,000
[90,000 + 120,000] / 2 = $105,000
$105,000 is the average fiscal-year
Compensation for the Base Period.
EXAMPLE 2 - Assume the same facts as in Example 1, except that the
Executive also received a $70,000 sign-on bonus when his employment
with the Company commenced at the beginning of the 4-month period.
The Executive's Base Amount is $140,000
Year 1: [3 x $30,000] + $70,000 = $160,000
Year 2: $120,000
[160,000 + 120,000] / 2 = $140,000
Since the sign-on bonus will not be paid more often than once per
fiscal year, the amount of the bonus is not increased in annualizing
the Executive's Compensation for the 4-month period.
EXAMPLE 3 - Executive was employed by the Company for the last 4 months
of the fiscal year preceding the fiscal year in which a Change in
Control of the Company occurs. The Executive's Compensation from the
Company was $30,000 for the 4-month period. The Executive's Base Amount
is $90,000.
Year 1: 3 x $30,000 = $90,000
$90,000 / 1 = $90,000
$90,000 is the average fiscal-year
Compensation for the Base Period.
<PAGE>
EXHIBIT 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 33-93900, Registration Statement File No.
333-2592, Registration Statement File No. 333-2594, Registration Statement
File No. 333-22473, Registration Statement File No. 333-56309, Registration
Statement File No. 333-67987, Registration Statement File No. 333-73027 and
Registration Statement File No. 333-82097.
ARTHUR ANDERSEN LLP
Omaha, Nebraska,
December 28, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000935036
<NAME> TRANSACTION SYSTEMS ARCHITECTS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 70,482
<SECURITIES> 8,456
<RECEIVABLES> 99,750
<ALLOWANCES> (7,251)
<INVENTORY> 0
<CURRENT-ASSETS> 186,120
<PP&E> 53,457
<DEPRECIATION> (32,703)
<TOTAL-ASSETS> 329,525
<CURRENT-LIABILITIES> 97,158
<BONDS> 0
0
0
<COMMON> 163
<OTHER-SE> 225,006
<TOTAL-LIABILITY-AND-EQUITY> 329,525
<SALES> 354,794
<TOTAL-REVENUES> 354,794
<CGS> 116,175
<TOTAL-COSTS> 284,534
<OTHER-EXPENSES> (2,011)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 401
<INCOME-PRETAX> 71,870
<INCOME-TAX> 27,170
<INCOME-CONTINUING> 44,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,700
<EPS-BASIC> 1.41
<EPS-DILUTED> 1.38
</TABLE>
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
CERTAIN CAUTIONARY STATEMENTS AND
RISK FACTORS
Transaction Systems Architects, Inc. and its subsidiaries (collectively,
the Company) or their representatives from time to time may make or may have
made certain forward-looking statements, whether orally or in writing,
including without limitation, any such statements made or to be made in the
Management's Discussion and Analysis contained in its various SEC filings or
orally in conferences or teleconferences. The Company wishes to ensure that
such statements are accompanied by meaningful cautionary statements, so as to
ensure to the fullest extent possible the protections of the safe harbor
established in the Private Securities Litigation Reform Act of 1995.
ACCORDINGLY, THE FORWARD-LOOKING STATEMENTS ARE QUALIFIED IN THEIR ENTIRETY
BY REFERENCE TO AND ARE ACCOMPANIED BY THE FOLLOWING MEANINGFUL CAUTIONARY
STATEMENTS IDENTIFYING CERTAIN IMPORTANT FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENTS.
This list of factors is likely not exhaustive. The Company operates in a
rapidly changing and evolving business involving electronic commerce and
payments, and new risk factors will likely emerge. Management cannot predict
all of the important risk factors, nor can it assess the impact, if any, of
such risk factors on the Company's business or the extent to which any
factor, or combination of factors, may cause actual results to differ
materially from those in any forward-looking statements.
ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT FORWARD-LOOKING STATEMENTS
WILL BE ACCURATE INDICATORS OF FUTURE ACTUAL RESULTS AND IT IS LIKELY THAT
ACTUAL RESULTS WILL DIFFER FROM RESULTS PROJECTED IN FORWARD-LOOKING
STATEMENTS. SUCH DIFFERENCES MAY BE MATERIAL.
TSA is dependent on its BASE24 products
TSA has derived a substantial majority of its total revenues from
licensing its BASE24 family of software products and providing services and
maintenance related to those products. The BASE24 products and related
services and maintenance are expected to provide the majority of TSA's
revenues in the foreseeable future. TSA's results will depend upon continued
market acceptance of its BASE24 products and related services as well as
TSA's ability to continue to adapt and modify them to meet the changing needs
of its customers. Any reduction in demand for, or increase in competition
with respect to, BASE24 products would have a material adverse effect on
TSA's financial condition and results of operations.
TSA is subject to risks of conducting international operations
TSA has derived a majority of its total revenues from sales to
customers outside the United States. International operations generally are
subject to certain risks, including:
- difficulties in staffing and management,
- reliance on independent distributors,
- fluctuations in foreign currency exchange rates,
- compliance with foreign regulatory requirements,
- variability of foreign economic conditions, and
- changing restrictions imposed by U.S. export laws.
There can be no assurance that TSA will be able to manage the risks related
to selling its products and services in international markets.
TSA is dependent on the banking industry
TSA's business is concentrated in the banking industry, making TSA
susceptible to a downturn in that industry. For example, a decrease in bank
spending for software and related services could result in a smaller overall
market for electronic payment software. Furthermore, banks are continuing to
consolidate, decreasing the overall potential number of buyers for TSA's
products and services. These factors as well as others negatively affecting
the banking industry could have a material adverse effect on TSA's financial
condition and results of operations.
<PAGE>
TSA's future results depend on the success of Compaq and TSA's
relationship with Compaq
Historically, TSA has derived a substantial portion of its total
revenues from the licensing of software products that operate on Compaq
computers. TSA's BASE24 product line as well as TSA's CoACH and MoneyNet
products run exclusively on Compaq computers. The BASE24 product line is
expected to provide a majority of TSA's revenues in the foreseeable future.
TSA's future results depend on market acceptance of Compaq computers and the
financial success of Compaq. Any reduction in demand for these computers or
in Compaq's ability to deliver products on a timely basis could have a
material adverse effect on TSA's financial condition and results of
operations.
Although TSA has several written agreements with Compaq, none of
those agreements governs the primary relationship between TSA and Compaq,
which is that TSA's major product line, BASE24, runs exclusively on Compaq
computers. The cooperation and past affiliation between TSA and Compaq have
facilitated TSA's ability to develop and market Compaq-compatible products.
However, this cooperation is not mandated by contract. The cessation of such
cooperation would adversely affect TSA's business. None of TSA's agreements
with Compaq would protect TSA if Compaq's cooperation ceased or if Compaq
were unable to deliver products on a timely basis. The written agreements
cover such discrete matters as funding of market development efforts.
TSA must manage its growth effectively
TSA is experiencing a period of growth which is placing demands on
its managerial and operations resources. TSA's inability to manage its growth
effectively or to maintain its current level of growth could have a material
adverse effect on its financial condition and results of operations.
TSA may not be able to attract and retain key personnel
TSA's success depends on certain of its executive officers, the loss
of one or more of whom could have a material adverse effect on TSA's
financial condition and results of operations. None of TSA's U.S.-based
executive officers is a party to an employment agreement. TSA believes that
its future success also depends on its ability to attract and retain
highly-skilled technical, managerial and marketing personnel, including, in
particular, additional personnel in the areas of research and development and
technical support. Competition for personnel is intense. There can be no
assurance that TSA will be successful in attracting and retaining the
personnel it requires.
The market for electronic payment software and services is highly competitive
Many applications software vendors offer products that are directly
competitive with BASE24 and other products of TSA. TSA also experiences
competition from software developed internally by potential customers and
experiences competition for its consulting services from professional
services organizations. In addition, processing companies provide services
similar to those made possible by TSA's products. Many of TSA's current and
potential competitors have significantly greater financial, marketing,
technical and
<PAGE>
other competitive resources than TSA. Current and potential competitors,
including providers of transaction-based software, processing, or
professional services, may establish cooperative relationships with one
another or with third parties to compete more effectively against TSA. It is
also possible that new competitors may emerge and acquire market share. In
either case, TSA's financial condition and results of operations could be
adversely affected.
TSA's future success depends on its ability to timely develop and
market product enhancements and new products
The market for software in general is characterized by rapid change
in computer hardware and software technology and is highly competitive with
respect to the need for timely product innovation and new product
introductions. TSA believes that its future success depends upon its ability
to enhance its current applications and develop new products that address the
increasingly complex needs of customers. In particular, TSA believes that it
must continue to respond quickly to users' needs for additional functionality
and multi-platform support. The introduction and marketing of new or enhanced
products requires TSA to manage the transition from current products in order
to minimize disruption in customer purchasing patterns. There can be no
assurance that TSA will continue to be successful in the timely development
and marketing of product enhancements or new products that respond to
technological advances, that its new products will adequately address the
changing needs of the domestic and international markets or that it will
successfully manage the transition from current products.
TSA is continually developing new products, product versions and
individual features within a large, complex software system. Development
projects can be lengthy and are subject to changing requirements, programming
difficulties and unforeseen factors which can result in delays in the
introduction of new products and features. Delays could have a material
adverse effect on TSA's financial condition and results of operations.
In addition, new products, versions or features, when first released
by TSA, may contain undetected errors that, despite testing by TSA, are
discovered only after a product has been installed and used by customers. To
date, undetected errors have not caused significant delays in product
introduction and installation or required substantial design modifications.
However, there can be no assurance that TSA will avoid problems of this type
in the future.
A majority of TSA's license fee revenue is generated by licenses for
software products designed to run on Compaq's fault-tolerant mainframe
computers. TSA has developed, and continues to develop, certain products for
other platforms. However, revenues from these products have not been
significant to date. There can be no assurance that TSA will be successful in
selling these software products or other products under development. TSA's
failure in this regard could have a material adverse effect on its financial
condition and results of operations.
TSA is dependent on proprietary technology
TSA relies on a combination of trade secret and copyright laws,
nondisclosure and other contractual and technical measures to protect its
<PAGE>
proprietary rights in its products. There can be no assurance that these
provisions will be adequate to protect its proprietary rights. In addition,
the laws of certain foreign countries do not protect intellectual property
rights to the same extent as the laws of the United States. Although TSA
believes that its intellectual property rights do not infringe upon the
proprietary rights of third parties, there can be no assurance that third
parties will not assert infringement claims against TSA.
Fluctuations in quarterly operating results may result in volatility in
TSA's stock price
TSA's quarterly revenues and operating results may fluctuate
depending on the timing of executed contracts, license upgrades and the
delivery of contracted business during the quarter. In addition, quarterly
operating results may fluctuate due to the extent of commissions associated
with third party product sales, timing of TSA's hiring of additional staff,
new product development and other expenses. No assurance can be given that
operating results will not vary due to these factors.
Customers may cancel contracts
TSA derives a substantial portion of its total revenues from
maintenance fees and monthly software license fees pursuant to contracts
which the customer has the right to cancel. A substantial number of
cancellations of these maintenance or monthly license fee contracts would
have a material adverse effect on TSA's financial condition and results of
operations.
TSA's stock price may be volatile
The stock market has from time to time experienced extreme price and
volume fluctuations, particularly in the high technology sector, which have
often been unrelated to the operating performance of particular companies.
Any announcement with respect to any variance in revenue or earnings from
levels generally expected by securities analysts for a given period could
have an immediate and significant effect on the trading price of the Class A
Common Stock. In addition, factors such as announcements of technological
innovations or new products by TSA, its competitors or other third parties,
as well as changing market conditions in the computer software or hardware
industries, may have a significant impact on the market price of the Class A
Common Stock.
TSA's charter contains provisions that may affect changes in control
TSA's Certificate of Incorporation contains provisions that may
discourage acquisition bids for TSA. The effect of such provisions may be to
limit the price that investors might be willing to pay in the future for
shares of the Class A Common Stock.
TSA's acquisition strategy involves numerous risks and challenges
TSA has expanded and will seek to continue to expand its operations
through the acquisition of additional businesses that complement it's core
skills and have the potential to increase it's overall value. TSA's future
growth may depend, in part, upon the continued success of its acquisition
<PAGE>
strategy. TSA may not be able to successfully identify and acquire, on
favorable terms, compatible businesses. Acquisitions involve many risks,
which could have a material adverse effect on TSA's business, financial
condition and results of operations, including:
- Acquired businesses may not achieve anticipated revenues,
earnings or cash flow;
- Integration of acquired businesses and technologies may not be
successful and TSA may not realize anticipated economic,
operational and other benefits in a timely manner, particularly if
TSA acquires a business in a market in which TSA has limited or no
current expertise or with a corporate culture different from
TSA's;
- Potential dilutive effect on TSA's stockholders from continued
issuance of Common Stock as consideration for acquisitions;
- Adverse effect on net income of amortization expense related to
goodwill and other intangible assets and other acquisition-related
charges, costs and expenses on net income;
- Competing with other companies, many of which have greater
financial and other resources to acquire attractive companies
makes it more difficult to acquire suitable companies on
acceptable terms; and
- Disruption of TSA's existing business, distraction of management
and other resources and difficulty in maintaining TSA's current
business standards, controls and procedures.
TSA's Year 2000 program may not be successful
TSA's business could be adversely affected by Year 2000 related
problems. Year 2000 problems may arise in computer equipment and software, as
well as embedded electronic systems, because of the way these systems are
programmed to interpret certain dates that will occur around the change in
century. Many existing computer programs were designed and developed using or
reserving only two digits in date fields to identify the century, without
considering the ability of the program to properly distinguish the upcoming
century change in the Year 2000.
Management has initiated a Company-wide Year 2000 program to analyze:
- software developed by TSA which is licensed to customers;
- information technology systems utilized by TSA consisting of
applications developed in-house and purchased from third party
suppliers; and
- non-information technology systems and embedded technology which are
integral components of the infrastructure of TSA.
There could be a material adverse effect on the financial condition
<PAGE>
and results of operations of TSA if the actions taken by TSA to mitigate its
risk associated with the Year 2000 prove to be inadequate. Risk factors
include, without limitation:
- the failure of existing or future customers to achieve Year 2000
compliance;
- the failure of computer hardware system providers on which TSA and
its customers rely or other vendors or service providers of TSA or its
customers to timely achieve Year 2000 compliance;
- TSA's products and systems not containing all necessary date code
changes;
- the failure of TSA's analysis and testing to detect operational
problems in information technology and non-information technology
systems utilized by TSA or in TSA's products or services, whether such
failure results from the technical inadequacy of TSA's validation and
testing efforts, the technological unfeasibility of testing certain
non-information technology systems, and the unavailability of customers
or other third parties to participate in testing;
- potential litigation arising out of Year 2000 issues, with respect to
providers of software and related technical and consulting services
such as TSA generally, and particularly in light of the numerous
interfaces between TSA's products and products and systems of third
parties which are required to successfully utilize TSA's products which
could involve TSA in expensive, multiple party litigation even though
TSA may have no responsibility for the alleged problem; and
- the failure to timely implement a contingency plan to the extent Year
2000 compliance is not achieved.
