-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SVNwT5+OEBQycOb438ziBX1gGGbN0+Yur17M0mEISFrwLO2Y7v8kq/Tom08ZqV+C ruc8k4Vwj3OZEHFPqPzuqA== 0001047469-98-012029.txt : 19980330 0001047469-98-012029.hdr.sgml : 19980330 ACCESSION NUMBER: 0001047469-98-012029 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 29 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CERIDIAN CORP CENTRAL INDEX KEY: 0000109758 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 520278528 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-01969 FILM NUMBER: 98576046 BUSINESS ADDRESS: STREET 1: 8100 34TH AVE S CITY: MINNEAPOLIS STATE: MN ZIP: 55425 BUSINESS PHONE: 6128538100 FORMER COMPANY: FORMER CONFORMED NAME: CONTROL DATA CORP /DE/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: COMMERCIAL CREDIT CO DATE OF NAME CHANGE: 19680910 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 -------------------------------------- FORM 10-K -------------------------------------- Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended DECEMBER 31, 1997 Commission File Number 1-1969 CERIDIAN CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware 52-0278528 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 8100 34th Avenue South Minneapolis, Minnesota 55425 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) Telephone No.: (612) 853-8100 ------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED: Common stock, par value $.50 ---- New York Stock Exchange, Inc.; The Chicago Stock Exchange; and The Pacific Exchange Has the Registrant (1) filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) 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 the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of Ceridian as of February 28, 1998 was $3,357,966,810. The shares of Ceridian common stock outstanding as of February 28, 1998 were 72,375,214. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 1997 Annual Report to Stockholders of Registrant: Parts I & II Portions of the Proxy Statement for Annual Meeting of Stockholders, May 22, 1998: Parts III and IV - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- CERIDIAN CORPORATION PART I THE INFORMATION CONTAINED IN THIS REPORT INCLUDES FORWARD-LOOKING STATEMENTS, BASED ON CURRENT EXPECTATIONS AND ASSUMPTIONS, THAT INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS KNOWN TO CERIDIAN THAT COULD CAUSE SUCH MATERIAL DIFFERENCES ARE IDENTIFIED IN THE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION" UNDER THE CAPTION "CAUTIONARY FACTORS THAT COULD AFFECT FUTURE RESULTS" ON PAGE 11 OF CERIDIAN'S 1997 ANNUAL REPORT TO STOCKHOLDERS, WHICH IS INCORPORATED BY REFERENCE INTO PART II, ITEM 7 OF THIS REPORT. ITEM 1. BUSINESS. Ceridian Corporation ("Ceridian"), known as Control Data Corporation until June 1992, was founded in 1957 and is incorporated in Delaware. The principal executive office of Ceridian is located at 8100 34th Avenue South, Minneapolis, Minnesota 55425, telephone (612) 853-8100. As a result of the December 31, 1997 sale of Computing Devices International, Ceridian's defense electronics business, Ceridian now operates exclusively in the information services industry. Ceridian's information services businesses, which consist of its Human Resource Services businesses ("HRS"), its Comdata subsidiary and its Arbitron division, provide products and services to customers in the human resources, trucking and electronic media markets. These businesses collect, manage and analyze data and process transactions on behalf of customers, report information resulting from such activities to customers, and provide customers with related software applications and services. The technology-based products and services of these businesses are typically provided through long-term customer relationships that result in a high level of recurring revenue. HUMAN RESOURCE SERVICES. The businesses comprising HRS offer a broad range of services and software designed to help employers more effectively manage their work forces and information that is integral to human resource processes. HRS' revenue for the years 1995, 1996 and 1997 was $412.2 million, $490.3 million and $578.6 million, respectively. MARKETS. The market for human resource services covers a comprehensive range of information management and employer/employee assistance services and software. These products and services include transaction-oriented administrative services and software products, in areas such as payroll processing, tax filing and benefits administration, as well as management support software and services, in areas such as skills management, regulatory compliance, employee training and employee assistance. The market for these products and services is expected to continue to grow as organizations seek not only to reduce costs and improve productivity by outsourcing administrative services and further automating internal processes, but also to adapt to the increasing scope and complexity of laws and regulations governing businesses and increasingly complicated work-life issues faced by employers and employees. Continuing growth in multinational companies increasingly makes providing human resource services a global opportunity. Ceridian classifies employers in the human resource services market into three categories: small (fewer than 100 employees), medium (100 to 10,000 employees) and large (over 10,000 2 employees). Smaller employers in the human resource services market tend to be relatively more price sensitive, to require less customization or flexibility in product and service offerings, and to switch more readily from one provider to another. Medium- and large-sized employers' human resource management needs tend to be more complex, and therefore often require more customization and flexibility in products and services, greater integration among data processing systems and a greater variety of products and services. Ceridian believes, however, that with regard to any size employer, a provider of a transaction-based service such as payroll processing is afforded attractive opportunities to complement that core service with additional products and services that are natural adjuncts to that core service and potentially important factors in revenue growth. PRODUCTS AND SERVICES. HRS' human resource management products and services include payroll processing services and software, tax filing services, human resource information software, benefits administration software, time and attendance systems, and applications to give employees and managers direct access to human resources information. These products and services are provided in the United States, the United Kingdom and Canada through Ceridian Employer Services. Payroll processing and tax filing services accounted for about three-fourths of HRS' 1997 revenue, with about 90% of 1997 payroll processing and tax filing revenue derived from the United States. Payroll processing in the United States consists primarily of preparing and furnishing employee payroll checks, direct deposit advices and supporting journals and summaries, but does not involve the handling or transmission of customer payroll funds. Ceridian also supplies quarterly and annual social security, Medicare, and federal, state and local income tax withholding reports required to be filed by employers and employees. Payroll tax filing consists primarily of collecting funds for federal, state and local employment taxes from customers based on payroll information provided, remitting funds collected to the appropriate taxing authorities, filing applicable returns, and handling regulatory correspondence and amendments. Payroll-related services are typically priced on a fee-per-item-processed basis. Revenue from payroll tax filing services in the United States also includes investment income earned by Ceridian from tax filing deposits temporarily held pending remittance on behalf of customers to taxing authorities. Customer deposits are held in a fiduciary capacity in a tax filing trust established by Ceridian. The trust invests primarily in high quality collateralized short-term investments, top tier commercial paper, U.S. Treasury and Agency securities, AAA rated asset-backed securities and corporate securities rated A3/A- or better. The duration of investments is carefully managed to meet the liquidity needs of the trust. About two-thirds of 1997 tax filing revenue and about 14% of HRS' total 1997 revenue was attributable to such investment income. Due to the significance of this investment income, HRS' quarterly revenue and profitability fluctuate as a result of changes in interest rates and in the amount of tax filing deposits held. Because the volume of payroll items processed increases in the first and fourth quarters of each year in connection with employers' year-end reporting requirements, and because the amount of tax filing deposits also tends to be greatest in the first quarter, HRS' revenue and profitability tend to be greater in those quarters. Payroll processing in the United States is conducted using Ceridian's proprietary "Signature" software at 31 district offices located throughout the United States, all of which are linked in a nationwide network. Ceridian's payroll system allows customers to input their own payroll data via personal computers, transmit the data on-line to Ceridian for processing, retrieve reports and data files from Ceridian and print reports and, in certain instances, payroll checks or direct deposit advices on site. Customers can also input payroll data by telephone or batch transmittal, with payroll checks and related reports prepared by Ceridian at one of its district processing centers. Ceridian's payroll processing system also interfaces with both customer and third-party transaction processing systems to facilitate services such as direct deposit of payroll. 3 Ceridian's tax filing services are provided not only to employers who utilize Ceridian's payroll processing service, but also to local and regional payroll processors. Ceridian provides human resource information systems (HRIS) software that runs in either Windows (-) or DOS environments and serves as a "front-end" to Ceridian's Signature payroll processing system, allowing customers to utilize a common database for both payroll and HRIS purposes. This enables the customer to create a single database of employee information for on-line inquiry, updating and reporting in payroll and other areas important to human resource administration and management, such as employee data tracking, government compliance, compensation analysis and benefits administration. As a result of its February 1997 acquisition of FLX Corporation, Ceridian also provides HRIS software for Microsoft operating environments that incorporates open, industry standard technology, is scalable from standalone applications to full client/server configurations, and can be utilized with an existing interface as a front-end for Ceridian's payroll processing and tax filing services. Ceridian expects to introduce during 1998 versions of this software that will enable it to serve as a fully integrated front-end to the Signature payroll processing system, as well as an Internet/intranet version which will enable employees and managers to view and modify various types of human resources information on-line. Through a cooperative relationship with Humanic Design Corporation, Ceridian is authorized to resell Humanic's client/server HRIS software for Oracle operating environments in connection with Ceridian's payroll processing services. Because of the importance of being able to integrate Ceridian's payroll processing and tax-filing systems with other systems and applications utilized by customers and potential customers, particularly third-party HRIS applications, Ceridian has also developed interfaces to exchange employee-related information between Ceridian's payroll system and the HRIS systems of vendors such as Oracle Corporation and PeopleSoft Inc. In August 1997, Ceridian announced it was terminating development of its CII payroll processing software system, which had been intended to be a successor to the Signature system primarily for larger payroll processing customers with more complex processing needs. Beta tests of the CII system had revealed that the costs associated with installing and processing payrolls for large numbers of customers with the system would be higher than previously anticipated, and that significant further investment would be required. As a result, Ceridian determined that the CII system would not provide an adequate return on its investment and decided, in light of continuing customer satisfaction with and enhancements being made to the Signature system and increased functionality included in HRIS software front-ends to the Signature system, to terminate the CII development. In connection with this decision, Ceridian terminated a technology services agreement with IBM Global Services under which IBM was to have provided centralized computer processing services utilizing the CII software. In recent years, Ceridian has expanded its payroll processing and HRIS software businesses outside of the United States through acquisitions. Approximately 8% of HRS' 1997 revenue was obtained from customers outside of the U.S. Ceridian's Centre-file Limited subsidiary, acquired in 1995, provides mainframe-based payroll processing services and HRIS software in the United Kingdom. Centre-file's services do not involve the handling or transmission of customer payroll funds. In January 1998, Ceridian's Canadian subsidiary purchased the payroll processing business of the Toronto-Dominion Bank, which had fiscal 1997 revenue of approximately $22 million. In March 1998, Ceridian purchased the Comcheq payroll processing business of the Canadian Imperial Bank of Commerce, which had 1997 revenue of approximately $55 million. - --------------------------- - - "Windows" is a trademark of Microsoft Corporation. Comcheq processes payrolls on a decentralized basis in its branch offices utilizing a proprietary, PC-based system. Both of these Canadian payroll businesses collect payroll and payroll tax amounts from customers and remit tax amounts to applicable governmental authorities and make direct deposits of payroll amounts to employees' bank accounts. As a result, revenue from payroll processing services in Canada also includes investment income received from temporarily holding these amounts. Ceridian expects that these amounts will be invested in a similar fashion as comparable amounts in the U.S. About 26% of the 1997 revenue of these Canadian businesses was attributable to such investment income. For large employers with complex information management needs that prefer to have all aspects of their human resource management systems in-house, Ceridian's Tesseract subsidiary provides mainframe-based payroll processing, HRIS and benefits administration software, as well as consulting services. For small employers located in the mid-Atlantic states, Ceridian's MiniData subsidiary provides payroll processing, tax filing, unemployment compensation management and related services. Ceridian also provides advanced time and attendance software, including a client/server version which complements a wide variety of HRIS and payroll systems, and a series of inter-related software applications that allow employees and managers direct access to employment-related information through telephones, touch screen kiosks, personal computers and Internet/intranet technologies. HRS also includes businesses that provide a variety of employee assistance, work-life balance, management support and training products and services. Ceridian Performance Partners provides services to help organizations address workplace effectiveness issues and improve employee recruitment, retention and productivity and reduce absenteeism. Staff consultants provide confidential assistance 24 hours a day to customers' employees to help them address issues ranging from everyday matters to crisis situations. Supporting these consultants are research and product specialists who provide specialized expertise in areas such as parenting/child care, elder care, adult disabilities, addiction disorders, mental health and financial, legal, managerial/supervisory and education/schooling issues. Ceridian's Usertech subsidiary provides customized end-user training and support programs to organizations implementing new systems. Services provided by Usertech include classroom and computer-based training, print-based and on-line user guides and reference, and marketing communications programs. Usertech's Information Learning Systems division provides employee benefits knowledge base software that provides answers to employee questions about their benefits and runs on company intranets and in call centers. Ceridian's Resumix subsidiary provides skills management software (and related hardware) that employs image processing and knowledge base and database technologies to enable organizations to manage large volumes of incoming resume data to identify qualified candidates for hire and match them with available staffing needs, and to manage the skills of an existing work force by matching current employees with new jobs or projects. Resumix also provides a software product that enables customers to link their Resumix systems with commercial recruiting sites on the Internet. SALES AND MARKETING. Payroll processing, tax filing and human resource management software and services are marketed in the U.S. through a direct sales force operating through about three dozen offices located throughout the U.S. Marketing relationships have been established with banks, accounting firms and insurance companies pursuant to which these products and services are offered to the business clients of these entities. The most significant source of customer leads for these transaction-based products and services are referrals from existing customers and from the marketing relationships previously noted. The other HRS businesses, including operations in the United Kingdom and Canada, utilize their own direct 5 sales forces. Customer leads for the products and services of these businesses are generally obtained through referrals, trade shows, product demonstration seminars and direct sales efforts. HRS' customer base covers a wide range of industries and markets, and no single customer represented more than 1% of HRS' 1997 revenue. HRS' products and services are provided under written license or service agreements, with contracts for repetitive services generally terminable upon relatively short notice. The HRS businesses have utilized cooperative marketing relationships with other companies offering products or services that complement those of the HRS businesses as well as informal marketing alliances with human resource consulting firms, and are exploring similar cooperative arrangements with other software, insurance and human resource services providers. HRS is also seeking to further integrate and coordinate the sales and marketing efforts of its businesses and to sell a greater variety of its products and services to the customers of its various businesses. COMPETITION. The human resource services industry is highly competitive. Competition comes from national, regional and local third party transaction processors, as well as from software companies, consulting firms and internally developed and operated systems and software. The majority of all payroll processing and tax filing in the U.S., Canada and the United Kingdom is supported in-house, with the remainder supported by third party providers. In the U.S., Automatic Data Processing, Inc. ("ADP") is the largest third party provider, with Ceridian and Paychex, Inc. ("Paychex") comprising the other two large, national providers. ADP serves all sizes of employers, while Paychex focuses on small employers. Other third party payroll and tax filing providers are generally regional and local competitors, although larger, national providers of benefits administration or 401(k) processing services may contemplate expansion into outsourced payroll processing. In both the United Kingdom and Canada, Ceridian's respective subsidiaries are the largest outsourced payroll processing providers in terms of revenue, in each case competing with several other national providers, including a subsidiary of ADP, and local providers. Competition in both the payroll processing and HRIS software areas also comes from a number of large, national software companies that provide both payroll processing software for in-house processing as well as HRIS software, often in conjunction with other enterprise management software applications. Apart from payroll processing and tax filing services, HRS' businesses generally compete with a variety of national and regional application software companies, training companies, consulting firms and human resource services providers. Generally, the market for these products and services is evolving and is not dominated by a small number of competitors. Currently, the principal competitive factors in the human resource services industry are performance, price, functionality, ease and flexibility of use, customer support and industry standard technology architecture. HRS believes that the ability to integrate human resource management software applications with customers' other in-house applications, and the ability to provide client/server-based solutions are becoming increasingly important competitive factors. While HRS believes its businesses are able to compete effectively in the overall human resource services market, their continued ability to compete effectively will depend in large measure on their ability to timely develop and implement new technology, particularly that which incorporates industry standard architecture and client/server-based solutions. 7 COMDATA. Ceridian's Comdata subsidiary provides transaction processing and decision support services to the trucking industry. Comdata's revenue from products and services provided to the trucking industry for the years 1995, 1996 and 1997 was $156.2 million, $173.7 million and $197.8 million, respectively. On January 17, 1998, Comdata sold its gaming services business to First Data Corporation in exchange for First Data's NTS transportation services business and cash. Comdata expects that the operations of NTS, which are being integrated with Comdata, will generate 1998 revenue of approximately $28 million for Comdata. MARKETS. The trucking industry encompasses both long haul fleets and local fleets. Private fleets, which are part of larger companies that have significant shipping needs, predominate in the local fleet segment, but play a lesser role in the long haul fleet segment. Common carriers, which provide trucking services to companies that do not have fleets of their own, predominate in the long haul fleet segment, which is comprised of less-than-truckload and truckload components. The less-than-truckload component, which involves trucks that make multiple stops to load and unload, is characterized by large capital requirements and a relatively high degree of consolidation. The truckload component, which involves the transportation of full loads directly from shipper to final destination without going through any sorting terminals, is highly fragmented and, Comdata believes, is growing at the expense of the less-than-truckload component. The majority of Comdata's trucking company customers are common carriers serving the truckload component of the long haul segment. Many of these carriers do not employ their drivers, but instead contract with individual owner-operators. Such owner-operators usually settle their expenses with the common carrier after the completion of each trip. Drivers for truckload carriers often spend weeks on the road at a time, creating a number of unique conditions and business opportunities. Truckload carriers are challenged to monitor and control fuel purchases, provide driver services to aid in recruitment and improve retention, obtain necessary licenses and permits, and effectively manage the routing and logistics of such long-distance trips. SERVICES. Comdata provides services to trucking companies, truck stops and truck drivers in the long haul segment of the trucking industry, and is seeking to expand its service offerings to the local fleet segment. TRUCKING COMPANY SERVICES. Comdata provides trucking companies and their drivers with a variety of funds transfer services, most commonly initiated through the use of Comdata's proprietary Comchek-Registered Trademark- card, which is used in a manner similar to an ordinary credit card. Comdata's funds transfer system is designed to enable truck drivers to obtain funding for purchases and cash advances at truck stops and other locations en route to their destination. Drivers may use the Comchek card to purchase fuel, lodging and other approved items, obtain cash advances from ATM machines or through the use of Comchek drafts, make long distance phone calls and make direct deposits of pay, settlements (for non-employee owner-operators) or trip advances to personal bank accounts. In 1997, Comdata processed approximately 45 million funds transfer transactions involving approximately $7.2 billion for the trucking industry. Use of the Comchek card allows the trucking company customer greater control over its expenses by allowing it to set limits on the use of the cards, such as by designating locations where the cards may be used, the frequency with which they may be used, phone numbers which may be called and the amount of authorized use. Use of a Comchek card also enables Comdata to capture and provide to trucking company customers (usually within 24 hours after the completion of a given trip) transaction and trip-related information that greatly enhances a customer's ability to track and plan fuel purchases and other trip expenses and settle with 7 drivers. Comdata can also provide trucking companies with a Windows-based software application that provides trucking companies with on-line access to Comdata's computer system for data on fuel purchases and other trip information, and facilitates pre- and post-trip planning functions. Use of a Comchek card typically generates a Comchek draft, which is payable through a Comdata bank account. Comdata funds the underlying transaction when the truck stop (or other payee) negotiates the draft by depositing it in its bank account. Comdata bills the trucking company for the amount of the draft plus a portion of the service fee, and collects from the truck stop the balance of the service fee. The trucking company remits payment to Comdata by wire transfer or check, typically within six days, although trucking companies may be billed by Comdata in advance for all funds transfers authorized for any purpose in connection with a particular trip. Approximately 18% of Comdata's funds transfer revenue is derived from transactions that do not involve the Comchek card. When a truck driver makes a request at a truck stop for a funds transfer, Comdata verifies that the driver's company has established sufficient credit. Upon presentation of valid identification, the truck stop obtains an authorization number from Comdata and issues a Comchek draft, which is handled in the manner described earlier. Comdata also provides the previously described information gathering and processing services in connection with fueling transactions which Comdata does not fund, but instead are billed directly by the truck stop to the trucking company. Fees for these "direct bill" transactions are substantially lower. Comdata also provides fuel price tracking reports and management within a network of truck stops, including cost/plus fuel purchase programs. Comdata's Transceiver-Registered Trademark- division determines the permits needed for a designated trip, truck and load, purchases those permits on behalf of the customer and delivers them by facsimile machine to a truck stop where they can be picked up by the driver. Comdata also provides certain regulatory compliance services, such as processing and auditing of driver trip logs, reporting of fuel taxes, annual licensing and motor vehicle registration verification. Vehicle escort services for oversized loads are also provided. Comdata offers a computerized shipment interchange system to help trucking companies find loads for their return trips, thereby reducing empty backhauls. By making specific shipment information available to customers on a subscription basis, available shipments can be matched with available cargo space on a nationwide basis. Comdata generates and delivers invoices on behalf of trucking companies to their customers, and also purchases trucking company freight bills in addition to providing necessary invoicing. As a result of agreements with two major long-distance telecommunications providers, Comdata offers to its trucking company customers long distance telecommunications services at volume discount rates that might not otherwise be available to such customers. TRUCK STOP SERVICES. Comdata maintains a national network of 24-hour independent truck stop service centers which have point-of-sale devices and other computer equipment to facilitate communication with Comdata's database and operations centers. The service centers act as Comdata's agents pursuant to a service center agreement, and typically also offer the funds transfer services of other companies. Comdata's merchant services division provides fueling centers with PC-based, point of sale systems which automate the various transactions that occur at a fuel purchase desk, systems which enable customers to transact card-based fuel purchases at the fuel pump, UPC scanning devices, and truck stop management software. These Trendar systems accept many types of fuel purchase cards currently used by drivers. Comdata also makes long distance telecommunications services available to truck stops at volume discount rates, and provides an 8 800 number phone service and prepaid long distance phone cards to truck stops for resale to their customers. DRIVER RELATIONS SERVICES. In order to assist trucking company customers in attracting and retaining drivers, Comdata makes available to trucking company employees and independent drivers the employee assistance services of Ceridian Performance Partners, and provides additional driver relations services such as a monthly audio magazine and audio tapes for drivers, and an electronic mail services to drivers through kiosks placed in truck stops. LOCAL FUELING. In August 1997, Comdata acquired the remaining equity interest in International Automated Energy Systems, Inc. ("IAES"), a provider of fuel management and payment systems for local transportation fleets. IAES provides local fleet operators with VISA (+) cards for their drivers' fuel purchases that offer the fleet operators transaction control and trip-related information gathering features similar to those of the Comchek card. IAES has not yet achieved significant revenue, and is seeking to increase the number of fuel purchase cards issued and the number of sales outlets that accept the cards. SALES AND MARKETING. Comdata markets its services to the trucking industry through a direct sales force operating in various cities throughout the U.S., and through a centralized tele-sales operation. Comdata has contracts with approximately 17,000 long haul trucking companies, ranging in size from those with several thousand trucks to those with fewer than five trucks. Comdata also has relationships with approximately 8,000 fueling locations. Contracts with trucking companies generally range up to three years in duration, while contracts with service centers are typically one or two years in duration. No single customer represented more than 2% of Comdata's 1997 revenue from services to the trucking industry. Comdata is seeking to emphasize the selling of a greater variety of its products and services to its existing customers. COMPETITION. The principal competitive factors relevant to funds transfers in the trucking industry are marketing efforts, pricing, reliability of computer and communications systems, and time required to effect transactions. The major credit and debit card companies are significant competitors of Comdata in that they make cash available to, and facilitate purchases of fuel and other products by, holders of their cards on a nationwide basis. Several other companies also offer similar funds transfer services. In addition, truckstops often negotiate directly with trucking companies for a direct billing relationship. Certain of Comdata's competitors also operate or franchise nationwide truckstop chains. In addition, Comdata competes with service centers (such as truckstops) that offer similar products and services. Comdata also faces increasing competition in the funds transfer area from ATMs that participate in national networks. While the majority of permitting and legalization services continue to be performed in-house, at least one other nationwide company and several regional companies provide permit services similar to those provided by Comdata. Competition in this market is influenced by price, the expertise of personnel and the ease with which permits may be ordered and received. Comdata believes that its competitive strengths include (i) its ability to provide services to trucking companies and drivers at a large number of locations in the continental United States and Canada, (ii) its ability to offer a variety of services, frequently tailored to an individual customer's needs, (iii) its proprietary databases regarding funds transfers and fuel purchases, and (iv) its long-term experience and concomitant relationships in the trucking industry. NETWORK AND DATA PROCESSING OPERATIONS. Comdata's principal communications center for its funds transfer business is located near its corporate headquarters with a secondary center - --------------------------- (+) "VISA" is a trademark of Visa International Service Association. 9 located in Dallas, Texas. WorldCom is the primary supplier of telecommunications services to Comdata pursuant to an agreement whose term expires in 2003. Substantially all of Comdata's internal data processing functions, including its payment processing systems, are provided by IBM pursuant to an agreement for systems operations services that expires in April 2005. REGULATION. Many states require persons engaged in the business of selling or issuing payment instruments (such as the Comchek draft) or in the business of transmitting funds to obtain a license from the appropriate state agency. In certain states, Comdata is required to post bonds or other collateral to secure its obligations to its customers in those states. Comdata believes that it is currently in compliance in all material respects with the regulatory requirements applicable to its business. The failure to comply with the requirements of any particular state could have a material adverse effect on Comdata's business in that state. ARBITRON. Arbitron provides media and marketing information to broadcasters (primarily in radio), advertising agencies, advertisers and, through a joint venture, newspapers. Arbitron's revenue for the years 1995, 1996 and 1997 was $137.2 million, $153.1 million and $165.2 million, respectively. MARKETS. Significant consolidation of radio station ownership has occurred in the U.S. in recent years, which has tended to intensify competition within the radio industry and to intensify competition between radio and other forms of media for advertising dollars. At the same time, audiences have become more fragmented as a result of greatly increased programming choices and entertainment/media options. As a result, advertisers increasingly seek to tailor advertising strategies to target specific demographic groups through specific media, and the audience information needs of radio broadcasters, advertising agencies and advertisers have correspondingly become more complex. Increased competition and more complex information requirements have heightened the need of radio broadcasters for improved information management systems and more sophisticated means to analyze such information. In addition, there is a growing demand for quality radio audience information internationally from global advertisers, U.S. broadcasters who have acquired broadcasting interests in other countries, and an increasing number of private commercial broadcasters in other countries. These trends also affect other media. As the importance of reaching niche audiences with targeted marketing strategies increases, broadcasters, publishers, advertising agencies and advertisers increasingly require that information regarding exposure to advertising be provided on a more individualized basis and that such information be coupled with information regarding shopping patterns and purchaser behavior. The need for purchase data information may create opportunities for innovative approaches to satisfy these information needs, particularly as technological advances increase the alternatives available to advertisers for reaching potential customers, including the possibilities of interactive communication. SERVICES. Arbitron is a leading provider of radio audience measurement information in the U.S. Arbitron estimates audience size and demographics in the U.S. for local radio stations, and reports this and related data to its customers. This information is used by radio stations to price and sell advertising time and by advertising agencies and large corporate advertisers in purchasing advertising time. Arbitron's proprietary data regarding radio audience size and demographics is provided to customers through multi-year license agreements. Arbitron uses listener diaries to gather radio listening data from sample households in the 267 local markets for which it currently provides radio ratings. Respondents mail the diaries to Arbitron's processing center where Arbitron compiles periodic audience measurement estimates. During the past three years, Arbitron has increased its survey frequency so that all markets are measured at least twice each year, and major markets are measured four times per year, and has taken actions 10 toward increasing sample size, average response rates and the representation of specific demographic groups. Arbitron also provides software applications that give customers access to Arbitron's database, and enable them to more effectively analyze and understand that information and develop target marketing strategies. Arbitron is also developing applications to enable customers to link information provided by Arbitron's database with information from other databases (such as product purchasing behavior) so as to enable customers to further refine sales strategies and compete more effectively for advertising dollars. The radio audience measurement service and related software sales represented 83% of Arbitron's total 1997 revenue. In November 1997, Arbitron acquired Continental Research, a United Kingdom-based company that provides media, advertising, financial and telecommunications research services in the United Kingdom and Europe. Continental Research had 1997 revenue of $6.9 million. Arbitron expects to utilize Continental Research to submit a bid for the United Kingdom radio industry audience research contract being put out for tender during 1998 by the Radio Joint Audience Research organization, and to explore other audience measurement and market research opportunities in the United Kingdom and Europe. Arbitron also provides measurements of consumer retail behavior and media usage in 243 local markets throughout the U.S. Arbitron's Scarborough Research Partnership joint venture provides information regarding product/service usage and media usage in 60 large U.S. markets, utilizing a sample of consumers in the relevant markets to measure product and service purchases. This information is provided twice each year to newspapers, radio and television broadcasters, cable systems, advertisers and advertising agencies in the form of the Scarborough Report. Arbitron has the exclusive right to market the Scarborough Report to radio broadcasters and cable systems. Arbitron has also developed and introduced in 43 mid-sized U.S. markets its RetailDirect service, which is a locally oriented, purchase data research service. The service, which utilizes diaries and telephone surveys, provides a profile of the broadcast audience in terms of local media, retail and consumer preferences so that local radio and television broadcasters and cable systems will have information that helps them develop targeted sales and programming strategies. Arbitron's Qualitative Diary service collects consumer and media usage information from Arbitron radio diary keepers in 140 smaller U.S. markets. Arbitron is exploring possible cooperative arrangements that would facilitate the expansion of its radio audience measurement service into selected international markets, provide additional software applications to radio broadcasters and advertisers, and develop measurement products for the Internet. Arbitron is also developing a passive, personalized electronic measurement device to record broadcast listening or viewing for purposes of audience measurement and verification that advertisements have been broadcast. SALES AND MARKETING. As of December 31, 1997, Arbitron provided its radio audience measurement and related services to approximately 3,000 radio stations and about 2,200 advertising agencies nationwide under contracts that vary in length from one to seven years. Arbitron markets its products and services through a direct sales force operating through offices in six cities around the U.S. Reflecting the consolidation that has occurred in the radio broadcasting industry, Arbitron's ten largest customers represented about 48% of its 1997 revenue from radio audience measurement services and related software sales. Although the industry consolidation that has led to the increased concentration of Arbitron's customer base could put pressure on the pricing of Arbitron's radio ratings service, it has also contributed to an increase in the number of stations subscribing for the ratings service, as stations have become Arbitron customers upon their acquisition by a larger broadcasting group. It has also been Arbitron's experience that stations which are part of a larger broadcasting 11 group have been somewhat more likely to purchase analytical software applications and other services in addition to the ratings service. COMPETITION. Arbitron competes with other providers of radio audience measurement services, one of which utilizes a different survey methodology than Arbitron and the other of which is a relatively new entrant into the market. Arbitron also competes with other providers of applications software, qualitative data and proprietary qualitative studies used by broadcasters, cable systems, advertising agencies and advertisers. DIVESTITURES Ceridian's defense electronics business, Computing Devices International, was sold to General Dynamics Corporation on December 31, 1997. Computing Devices has facilities in the U.S., Canada and the United Kingdom, and provides mission-critical electronics, software, systems integration and information management for defense and other government agencies and commercial customers in selected markets. Computing Devices' revenue for the years 1995, 1996 and 1997 was $509.5 million, $553.0 million and 589.5 million, respectively. Computing Devices is shown as a discontinued operation in Ceridian's year-end 1997 consolidated financial statements. Comdata's gaming services business, which was sold in January 1998, provided cash advance services to gaming patrons in casinos, racetracks and other gaming locations through the use of credit cards and debit services employing automated teller machines and similar devices. Revenue for this business for the years 1995, 1996 and 1997 was $117.9 million, $125.5 million and $133.2 million, respectively. ADDITIONAL INFORMATION PATENTS AND TRADEMARKS. Ceridian owns or is licensed under a number of patents which relate to its products and are of importance to its business. Certain of Ceridian's products and services are marketed under federally registered trademarks which are helpful in creating recognition in the marketplace. However, Ceridian believes that none of its businesses is materially dependent upon any particular patent, license or trademark, or any particular group of patents, licenses or trademarks. BACKLOG. Although Ceridian's businesses are typically characterized by long-term customer relationships that result in a high level of recurring revenue, a substantial portion of the customer contracts utilized by these businesses are terminable by the customers upon relatively short notice periods, including contracts that have been extended beyond their original terms. In addition, the period between the time a customer agrees to use a Ceridian service and the time the service begins is generally relatively short. For these reasons, Ceridian does not believe that meaningful backlog information can be provided for its businesses. RESEARCH AND DEVELOPMENT. The table below sets forth the amount of research and development expenses for Ceridian's continuing operations for the periods indicated.
YEAR ENDED DECEMBER 31, 1997 1996 1995 ---- ---- ---- (Dollars in millions) Research and development $59.6 $52.5 $38.2 Percent of revenue 5.5% 5.6% 4.6%
12 Ceridian's research and development efforts are generally described earlier in this Item in the description of Ceridian's businesses, and in Part II, Item 7 of this report. EMPLOYEES. As of December 31, 1997, Ceridian and its subsidiaries employed approximately 8,000 people on a full- or part-time basis. None of Ceridian's employees are covered by a collective bargaining agreement. EXECUTIVE OFFICERS OF THE REGISTRANT. The executive officers of Ceridian as of March 1, 1998, are as follows:
Executive Name (Age) Position Officer Since ---------- -------- ------------- Lawrence Perlman (59) Chairman, President and Chief 1980 Executive Officer John R. Eickhoff (57) Executive Vice President and 1989 Chief Financial Officer Loren D. Gross (52) Vice President and Corporate 1993 Controller Tony G. Holcombe (42) Vice President, and President of 1997 Comdata Holdings Corporation Carl O. Keil (56) Vice President, and President of 1997 Ceridian Employer Services Stephen B. Morris (54) Executive Vice President, and 1992 President of Arbitron Gary M. Nelson (46) Vice President and General Counsel 1997 Ronald L. Turner (51) Executive Vice President, Operations 1993
The executive officers of Ceridian are elected by the Board of Directors and serve at the pleasure of the Board of Directors and the Chief Executive Officer. They are customarily elected each year at the meeting of the Board of Directors held in conjunction with the annual meeting of stockholders. Lawrence Perlman has been President and Chief Executive Officer of Ceridian since January 1990, and was appointed Chairman in November 1992. He is a director of Seagate Technology, Inc., The Valspar Corporation and Computer Network Technology Corporation. Mr. Perlman has been a director of Ceridian since 1985. John R. Eickhoff has been Executive Vice President and Chief Financial Officer of Ceridian since May 1995, and was Vice President and Chief Financial Officer of Ceridian from June 1993 to May 1995. Mr. Eickhoff was Vice President and Corporate Controller of Ceridian from July 1989 to June 1993. Loren D. Gross has been Vice President and Corporate Controller of Ceridian since July 1993. Mr. Gross was Assistant Corporate Controller of Ceridian from March 1987 to July 1993. Tony G. Holcombe has been Vice President of Ceridian and President of its Comdata Holdings Corporation subsidiary since May 1997. Mr. Holcombe was President and Chief 13 Executive Officer of National Processing, Inc., which provides transaction processing services and customized processing solutions, from October 1994 to March 1997, and was Executive Vice President, Corporate Services for National Processing from 1991 through 1994. Carl O. Keil has been Vice President of Ceridian and President of Ceridian Employer Services since April 1997. Mr. Keil was President and Chief Executive Officer of EduServ Technologies, Inc., which originates, services, and securitizes student loans, from March 1992 to January 1997; Executive Vice President and Chief Operating Officer of International Telecharge, Inc., which provides telecommunications and operator services, from January 1991 to March 1992; and Senior Vice President of Marketing for the Employer Services Group of Automatic Data Processing, Inc. from August 1987 to January 1991. Stephen B. Morris has been Executive Vice President of Ceridian and President of its Arbitron division since January 1996. Mr. Morris was Vice President of Ceridian and President of Arbitron from December 1992 to January 1996. He was President and Chief Executive Officer of Vidcode, Inc., which electronically monitors, verifies and reports the broadcast of television commercials, from August 1990 to December 1992; and Director and co-founder of Spectra Marketing Systems, a micro-marketing firm, from March 1987 to March 1992. Prior to that time, he spent seventeen years at General Foods Corporation, the last three as General Manager/President of the Maxwell House Division. Gary M. Nelson has been Vice President and General Counsel of Ceridian since August 1997. From 1983 to July 1997, Mr. Nelson was a partner in the Oppenheimer Wolff & Donnelly law firm. Ronald L. Turner has been Executive Vice President, Operations of Ceridian since March 1997. Mr. Turner was an Executive Vice President of Ceridian and President of its Computing Devices International division from January 1996 to March 1997. Mr. Turner was Vice President of Ceridian and President of Computing Devices International from January 1993 to January 1996. Mr. Turner was President and Chief Executive Officer, GEC-Marconi Electronics Systems Corporation, a defense electronics company, from March 1987 to January 1993. Mr. Turner is a director of FLIR Systems, Inc. and BTG, Inc. 14 ITEM 2. PROPERTIES. At February 14, 1998, Ceridian's principal production and office facilities were located in the metropolitan areas of Minneapolis, Minnesota; Atlanta, Georgia; Columbia, Maryland; New York, New York; Fountain Valley and San Francisco, California; Brentwood, Tennessee; St. Louis, Missouri; Toronto and Montreal, Canada; and London, England. The following table summarizes the usage and location of Ceridian's facilities as of February 14, 1998:
FACILITIES (In thousands of square feet) Type of Property Interest U.S. Non-U.S. Worldwide ------------------------- ----- -------- --------- Owned 29 15 44 Leased 2,933 102 3,035 ----- -------- --------- Total Square Feet 2,962 117 3,079 ----- -------- --------- Utilization ----------- Office, Computer Center & 2,111 117 2,228 Other Vacant/Idle 71 -- 71 Leased or Subleased to Others 780 -- 780 ----- -------- --------- Total Square Feet 2,962 117 3,079 ----- -------- ---------
The 3.1 million square feet of aggregate space reflects a decrease of 1.1 million square feet from February 14, 1997 due to the sale of Computing Devices International. Space subject to assigned leases is not included in the table above, and Ceridian remains secondarily liable under all such leases. As of December 31, 1997, these assigned leases involved 1.1 million square feet of space and future rental obligations totaling $15.8 million. The principal elements of these amounts are 0.4 million square feet and $1.8 million related to the spin-off of Control Data Systems, Inc. and 0.6 million square feet and $12.6 million related to the 1989 sale of Imprimis Technology Incorporated to Seagate Technology, Inc. Ceridian does not anticipate any material nonperformance by the assignees of these leases. No facilities owned by Ceridian or its subsidiaries are subject to any major encumbrances. Ceridian believes that the facilities it currently utilizes in its continuing operations are adequate for their intended purposes, are adequately maintained and are reasonably necessary for current and anticipated output levels of those businesses. ITEM 3. LEGAL PROCEEDINGS. Information regarding legal proceedings involving Ceridian and its subsidiaries is incorporated herein by reference from Note N, LEGAL MATTERS, on page 36 of Ceridian's 1997 Annual Report to Stockholders. Note N is part of the consolidated financial statements contained in Ceridian's 1997 Annual Report to Stockholders, which are attached hereto as Exhibit 13.03. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of Ceridian's stockholders during the fourth quarter 1997. 15 PART II All information incorporated by reference into Items 5 through 8 below is contained in the financial portions of Ceridian's 1997 Annual Report to Stockholders (the "Annual Report"), which are filed with this Report as Exhibits 13.01 through 13.04. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Ceridian's common stock, par value $.50 per share, is listed and trades on the New York Stock Exchange as well as on the Chicago Stock Exchange and The Pacific Exchange. The following table sets forth the high and low sales prices for a share of Ceridian's common stock on the New York Stock Exchange.
1997 1996 ---------------------- ------------------------ High Low High Low 1st Quarter $42.50 $32.25 $46.875 $37.00 2nd Quarter 43.625 29.50 54.875 42.50 3rd Quarter 45.625 32.125 51.375 41.625 4th Quarter 47.75 35.25 53.125 39.00
The number of holders of record of Ceridian common stock on February 28, 1998 was 14,125. No dividends have been declared or paid on the Ceridian's common stock since 1985. Although Ceridian is not contractually precluded from paying dividends on its common stock, it has no present intention of paying such dividends. ITEM 6. SELECTED FINANCIAL DATA. See "Selected Five-Year Data" on the inside front cover of the Annual Report, which is attached to the Report as Exhibit 13.01 and incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. See "Management's Discussion and Analysis of Results of Operations and Financial Condition" on pages 6 through 13 of the Annual Report, which is attached to this Report as Exhibit 13.02 and incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Ceridian's consolidated financial statements described in Item 14.(a)1 of this Report are attached to this Report as Exhibit 13.03 and are incorporated herein by reference. As for certain required supplementary financial information, see "Supplementary Quarterly Data (Unaudited)" on page 37 of the Annual Report, which is attached to this Report as Exhibit 13.04 and incorporated herein by reference. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 16 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. See information regarding the directors and nominees for director of Ceridian under the heading "Nominees for Director" on pages 2 and 3 of the Proxy Statement for the Annual Meeting of Stockholders, May 22, 1998 (the "Proxy Statement"), which is incorporated herein by reference. See the information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934 under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" on page 22 of the Proxy Statement, which is incorporated herein by reference. Information regarding the executive officers of Ceridian is on pages 13 and 14 of this Report, and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. See information under the headings "Directors' Compensation" on page 5 of the Proxy Statement and "Executive Compensation" on pages 13 through 19 of the Proxy Statement, all of which is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. See information under the heading "Share Ownership Information" on pages 20 and 21 of the Proxy Statement, which is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None. 17 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (A) 1. FINANCIAL STATEMENTS OF REGISTRANT Ceridian's consolidated financial statements included in its 1997 Annual Report to Stockholders, which are attached to this Report as Exhibit 13.03 and have been incorporated by reference into Part II, Item 8 of this Report, are listed below (with the corresponding page numbers in the 1997 Annual Report to Stockholders):
PAGE ------ Report of Management------------------------------------- 14 Independent Auditors' Report----------------------------- 15 Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995------------------------- 16 Consolidated Balance Sheets as of December 31, 1997 and 1996------------------------------- 17 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995------------------------- 18 Notes to Consolidated Financial Statements for the three years ended December 31, 1996------------------ 19-36
(A) 2. FINANCIAL STATEMENT SCHEDULES OF REGISTRANT Attached to this Report on pages 25 through 27 is Financial Statement Schedule II - "Ceridian Corporation and Subsidiaries Valuation and Qualifying Accounts," together with the Independent Auditors' report thereon. (A) 3. EXHIBITS The following is a complete list of Exhibits filed or incorporated by reference as part of this Report. EXHIBIT DESCRIPTION 2.01 Asset Purchase Agreement dated as of November 3, 1997 by and between Ceridian Corporation and General Dynamics Corporation (exhibits and schedules omitted) (incorporated by reference to Exhibit 2.1 to Ceridian's Current Report on Form 8-K dated December 31, 1997 (File No. 1-1969)). 18 2.02 Closing Agreement dated as of December 31, 1997 between and among Ceridian Corporation, General Dynamics Corporation, General Dynamics Information Systems, Inc. and CDI Acquisition Company (exhibits and schedules omitted) (incorporated by reference to Exhibit 2.2 to Ceridian's Current Report on Form 8-K dated December 31, 1997 (File No. 1-1969)). 2.03 Exchange Agreement, dated as of January 17, 1998, among First Data Corporation, Integrated Payment Systems Inc., NTS, Inc., First Data Financial Services, L.L.C., Ceridian Corporation, Comdata Network, Inc. and Permicom Permits Services, Inc. (exhibits and schedules omitted). 2.04 Share Purchase Agreement, dated as of January 26, 1998, among The Toronto-Dominion Bank, Business Windows Inc., 3454916 Canada Inc., Ceridian Corporation, Ceridian Canada Ltd. and Ceridian Canada Holdings, Inc. (exhibits and schedules omitted). 2.05 Agreement for the Purchase and Sale of Certain of the Assets of Comcheq Services Limited, dated as of March 10, 1998, among the Canadian Imperial Bank of Commerce, Comcheq Services Limited and Ceridian Canada Ltd. (exhibits and schedules omitted) (incorporated by reference to Exhibit 2.1 to Ceridian's Current Report on Form 8-K dated March 10, 1998 (File No. 1-1969)). 3.01 Restated Certificate of Incorporation of Ceridian Corporation (incorporated by reference to Exhibit 4.01 to Ceridian's Registration Statement on Form S-8 (File No. 33-54379)). 3.02 Certificate of Amendment of Restated Certificate of Incorporation of Ceridian Corporation (incorporated by reference to Exhibit 3 to Ceridian's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 (File No. 1-1969)) 3.03 Bylaws of Ceridian Corporation, as amended (incorporated by reference to Exhibit 3.01 to Ceridian's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993 (File No. 1-1969)) 10.01* Amended and Restated Executive Employment Agreement between Ceridian Corporation and Lawrence Perlman, dated as of November 8, 1996 (incorporated by reference to Exhibit 10.01 to Ceridian's Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 1-1969)). 10.02* Executive Employment Agreement between Ceridian Corporation and Ronald L. Turner, dated as of July 1, 1997. 10.03* Executive Employment Agreement between Ceridian Corporation and Stephen B. Morris, dated as of July 1, 1997. 10.04* Executive Employment Agreement between Ceridian Corporation and John R. Eickhoff, dated as of July 1, 1997. 10.05* Executive Employment Agreement between Ceridian Corporation and Carl O. Keil, dated as of October 22, 1997. - --------------------- (*) Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Report. 19 10.06* Executive Employment Agreement between Ceridian Corporation and Ronald James, dated as of January 1, 1996 (incorporated by reference to Exhibit 10.05 to Ceridian's Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 1-1969)). 10.07* Form of Amendment to Executive Employment Agreement (applicable to agreement between Ceridian and Ronald James filed as Exhibit 10.06) (incorporated by reference to Exhibit 10.06 to Ceridian's Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 1-1969)). 10.08* Severance Compensation Agreement, dated as of November 29, 1994, between Comdata Holdings Corporation and George L. McTavish (incorporated by reference to Exhibit 10.05 to Ceridian's Annual Report on Form 10-K for the year ended December 31, 1995 (File No. 1-1969)). 10.09* Amendment No. 1 to Severance Compensation Agreement, dated as of January 31, 1996, among Ceridian Corporation, Comdata Holdings Corporation and George L. McTavish (incorporated by reference to Exhibit 10.06 to Ceridian's Annual Report on Form 10-K for the year ended December 31, 1995 (File No. 1-1969)). 10.10* Revision to Amendment No. 1 to Severance Compensation Agreement, dated as of July 28, 1997, among Ceridian Corporation, Comdata Holdings Corporation and George L. McTavish. 10.11* Ceridian Corporation 1993 Long-Term Incentive Plan (Amended and Restated as of May 14, 1997) (incorporated by reference to Appendix A to Ceridian's Proxy Statement for Annual Meeting of Stockholders, May 14, 1997 (File No. 1-1969)). 10.12* Form of Ceridian Corporation Employee Non-Statutory Stock Option Award Agreement (under 1993 Long-Term Incentive Plan). 10.13* Form of Ceridian Corporation Performance-Based Stock Option Award Agreement (under the 1993 Long-Term Incentive Plan). 10.14* Form of Ceridian Corporation Performance Restricted Stock Award Agreement (under the 1993 Long-Term Incentive Plan) (incorporated by reference to Exhibit 10.17 to Ceridian's Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 1-1969)). 10.15* Ceridian Corporation 1990 Long-Term Incentive Plan (1992 Restatement) (as amended through October 21, 1994) (incorporated by reference to Exhibit 10.12 to Ceridian's Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 1-1969)). 10.16* Description of the Ceridian Corporation Annual Executive Incentive Plan. 10.17* Ceridian Corporation Benefit Equalization Plan, as amended (effective generally as of January 1, 1994) (incorporated by reference to Exhibit 10.14 to Ceridian's Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 1-1969)). - ------------------------ * Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Report. 20 10.18* Ceridian Corporation Employees' Benefit Protection Trust Agreement, dated as of December 1, 1994, between Ceridian Corporation and First Trust National Association (incorporated by reference to Exhibit 10.15 to Ceridian's Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 1-1969)). 10.19* Ceridian Corporation Deferred Compensation Plan (incorporated by reference to Exhibit 10.16 to Ceridian's Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 1-1969)). 10.20* First Declaration of Amendment to Ceridian Corporation Deferred Compensation Plan (incorporated by reference to Exhibit 10.15 to Ceridian's Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 1-1969)). 10.21* Ceridian Corporation 1993 Non-Employee Director Stock Plan (incorporated by reference to Exhibit 2 to Ceridian's Proxy Statement for Annual Meeting of Stockholders, May 12, 1993 (File No. 1-1969)). 10.22* Ceridian Corporation 1996 Director Performance Incentive Plan (As amended through December 15, 1997). 10.23* Form of Indemnification Agreement between Ceridian Corporation and its Directors (incorporated by reference to Exhibit 10.16 to Ceridian's Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 1-1969)). 10.24 Amended and Restated Credit Agreement, dated as of July 31, 1997, among Ceridian Corporation, Bank of America National Trust and Savings Association as Agent, and the Financial Institutions Parties Thereto (exhibits and schedules omitted) (incorporated by reference to Exhibit 10.1 to Ceridian's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 (File No. 1-1969)). 10.25 Waiver and First Amendment to Credit Agreement, dated as of December 2, 1997, among Ceridian Corporation, Bank of America National Trust and Savings Association as Agent, and the Financial Institutions Parties Thereto. 10.26 Credit Agreement, dated as of January 30, 1998, between The Toronto-Dominion Bank and Ceridian Canada Ltd. (exhibits and schedules omitted). 10.27 Guarantee Agreement, dated as of January 30, 1998, between Ceridian Corporation and The Toronto-Dominion Bank. 10.28 Credit Agreement, dated as of March 2, 1998, between the Canadian Imperial Bank of Commerce and Ceridian Canada Ltd. (exhibits and schedules omitted). 10.29 Guarantee Agreement, dated as of March 2, 1998, between Ceridian Corporation and the Canadian Imperial Bank of Commerce. 10.30 Letter Agreement dated as of December 16, 1997, between Comdata Network, Inc. and International Business Machines Corporation pertaining to the Amended and Restated Agreement for Systems Operations Services dated May 1, 1995 between Comdata Network, Inc. and Integrated Systems Solutions Corporation n.k.a. International Business Machines Corporation (exhibits and schedules omitted). - ------------------------ * Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Report. 21 10.31 Amended and Restated Agreement for Systems Operations Services dated May 1, 1995 between Comdata Network, Inc. and Integrated Systems Solutions Corporation n.k.a. International Business Machines Corporation (exhibits and schedules omitted) (incorporated by reference to Exhibit 10.20 to Ceridian's Annual Report on Form 10-K for the year ended December 31, 1995 (File No. 1-1969)). 10.32 Telecommunications Services Agreement, dated as of September 1, 1997, among WorldCom Network Services, Inc. d.b.a. WilTel, Comdata Network, Inc. and Comdata Telecommunications Services, Inc., including Program Enrollment Terms, as amended (exhibits and schedules omitted). 13.01 Selected Five-Year Data (inside front cover of Ceridian's 1997 Annual Report to Stockholders). 13.02 Management's Discussion and Analysis of Results of Operations and Financial Condition (pages 6 through 13 of Ceridian's 1997 Annual Report to Stockholders). 13.03 Consolidated Financial Statements of Ceridian Corporation (pages 14 through 36 of Ceridian's 1997 Annual Report to Stockholders). 13.04 Supplementary Quarterly Data (Unaudited) (page 37 of Ceridian's 1997 Annual Report to Stockholders). 21. Subsidiaries of Ceridian 23.01 Consent of Independent Auditors - KPMG Peat Marwick LLP 23.02 Consent of Independent Auditors - Arthur Andersen LLP 24. Power of Attorney 27. Financial Data Schedule If requested, Ceridian will provide copies of any of the exhibits listed above upon payment of its reasonable expenses in furnishing such exhibits. Ceridian will provide to the Securities and Exchange Commission, upon request, any exhibit or schedule to any of the foregoing exhibits which has not been filed. Neither Ceridian nor its subsidiaries has outstanding as of the date of this Report any securities authorized pursuant to long-term debt instruments. (B) REPORTS ON FORM 8-K Ceridian filed no reports on Form 8-K during the quarter ended December 31, 1997. On January 15, 1998, Ceridian did, however, file a report on Form 8-K dated December 31, 1997, which reported in "Item 2: Acquisition or Disposition of Assets" the closing of the sale by Ceridian of its defense electronics business, Computing Devices International ("CDI"), to General Dynamics Corporation. Included in Item 7 of that Report was a pro forma condensed consolidated balance sheet of Ceridian as of September 30, 1997 (assuming the sale of CDI took place on that date), and pro forma condensed consolidated statements of operations for Ceridian for the nine months ended September 30, 1997 and for the years 1996 and 1995 (assuming in each case the sale of CDI took place on January 1, 1995). On January 20, 1998, Ceridian filed a report on Form 8-K dated January 19, 1997, reporting under Item 5 important factors known to Ceridian that could cause Ceridian's actual 22 results in 1998 to differ materially from any forward-looking statements made by Ceridian. This filing was made for purposes of the safe harbor provided for forward-looking statements by Section 21E of the Securities Exchange Act of 1934, as amended. On January 29, 1998, Ceridian filed a report on Form 8-K dated January 27, 1997, reporting under Item 5 thereof that Ceridian had announced its results of operations for the quarter and year ended December 31, 1997, and attached as an exhibit to that report a copy of the press release by which those results had been announced. 23 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, as of March 27, 1998. CERIDIAN CORPORATION By /S/ Lawrence Perlman ----------------------------------------- Lawrence Perlman Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated as of March 27, 1998. /S/ Lawrence Perlman /S/ J.R. Eickhoff - ------------------------------------- ---------------------------------- Lawrence Perlman J. R. Eickhoff Chairman, President and Chief Executive Vice President and Chief Executive Officer (Principal Financial Officer Executive Officer) and Director (Principal Financial Officer) /S/ Loren D. Gross - -------------------------------------- Loren D. Gross Vice President and Corporate Controller (Principal Accounting Officer) */S/ Ruth M. Davis */S/ George R. Lewis - ------------------------------------- ---------------------------------- Ruth M. Davis, Director George R. Lewis, Director */S/ Charles Marshall - ------------------------------------- ---------------------------------- Robert H. Ewald, Director Charles Marshall, Director */S/ Richard G. Lareau */S/ Carole J. Uhrich - ------------------------------------- ---------------------------------- Richard G. Lareau, Director Carole J. Uhrich, Director */S/ Ronald T. Lemay */S/ Richard W. Vieser - ------------------------------------- ---------------------------------- Ronald T. LeMay, Director Richard W. Vieser, Director */S/ Paul S. Walsh ---------------------------------- Paul S. Walsh, Director /S/ John A. Haveman - ------------------------------------- *By: John A. Haveman, Attorney-in-fact 24 SCHEDULE II CERIDIAN CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (Dollars in millions) Restructure and Discontinued Operations Reserves
Employer Services Arbitron TV Consolidation Other Total Reserve Balance 12/31/94 $ 11.1 $ 12.4 $ 64.8 $ 88.3 Cash Payments (3.9) (0.7) (13.6) (18.2) Other Non-cash Items 0.3 0.3 Reserve Balance 12/31/95 $ 7.5 $ 11.7 $ 51.2 $ 70.4 Cash Payments (1.6) (2.6) (10.7) (14.9) Other Non-cash Items (1) (0.5) 0.2 1.7 1.4 Reserve Balance 12/31/96 $ 5.4 $ 9.3 $ 42.2 $ 56.9 Cash Payments (1.1) (3.2) (16.8) (21.1) Other Non-cash Items (0.5) 0.3 0.2 -- Reserve Balance 12/31/97 $ 3.8 $ 6.4 $ 25.6 $ 35.8
(1) Primarily proceeds from sale of idled assets which have been reclassified as cash inflow from investing activities. 25 SCHEDULE II (CONT.) CERIDIAN CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (Dollars in millions)
Allowance for Doubtful Accounts Receivable Year Ended December 31, 1997 1996(1) 1995(1) ------ ------- ------- Balance at beginning of year $ 11.2 $ 11.7 $ 11.1 Additions charged to costs and expenses 7.9 5.4 6.3 Write-offs and other adjustments (2) (8.6) (5.9) (5.7) Balance at end of year $ 10.5 $ 11.2 $ 11.7
(1) Restated to remove discontinued operations. (2) Other adjustments include balances removed as a result of sales of businesses. 26 INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE THE BOARD OF DIRECTORS AND STOCKHOLDERS CERIDIAN CORPORATION: Under date of January 27, 1998, we reported on the consolidated balance sheets of Ceridian Corporation and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations and cash flows for each of the years in the three-year period ended December 31, 1997, as contained in Ceridian's 1997 Annual Report to Stockholders. Our report refers to a report of other auditors with respect to the 1995 statements of operations and cash flows of Comdata Holdings Corporation. These consolidated financial statements and our report thereon are incorporated by reference in the Annual Report on Form 10-K for the year 1997. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in the accompanying index (see Item 14.(a)2.). This financial statement schedule is the responsibility of Ceridian's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, based on our audits and the report of other auditors, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole presents fairly, in all material respects, the information set forth therein. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP Minneapolis, Minnesota January 27, 1998 27 EX-2.03 2 EXHIBIT 2.03 EXCHANGE AGREEMENT Dated as of January 17, 1998 Among FIRST DATA CORPORATION, INTEGRATED PAYMENT SYSTEMS INC., NTS, INC., FIRST DATA FINANCIAL SERVICES, L.L.C., CERIDIAN CORPORATION, COMDATA NETWORK, INC. and PERMICOM PERMITS SERVICES, INC. TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . 1 1.1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II EXCHANGE . . . . . . . . . . . . . . . . . . 15 2.1. Exchange of Gaming Business for the NTS Business and Cash. . . . . . . . . . 15 2.2. Purchased Gaming Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 15 2.3. Excluded Gaming Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 2.4. Assumed Gaming Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.5. Excluded Gaming Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 19 2.6. Purchased NTS Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 2.7. Excluded NTS Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.8. Assumed NTS Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 22 2.9. Excluded NTS Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 23 ARTICLE III CASH ADJUSTMENT. . . . . . . . . . . . . . . . 24 3.1. Determination of Transferred Cash. . . . . . . . . . . . . . . . . . . . . . 24 3.2. Transferred Cash Adjustment. . . . . . . . . . . . . . . . . . . . . . . . . 25 3.3. Determination of Gaming Receivables Adjustment . . . . . . . . . . . . . . . 25 3.4. Determination of NTS Receivables Adjustment. . . . . . . . . . . . . . . . . 27 3.5. Net Receivables Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . 29 ARTICLE IV CLOSING . . . . . . . . . . . . . . . . . . 30 4.1. Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 4.2. Delivery of Promissory Notes . . . . . . . . . . . . . . . . . . . . . . . . 30 4.3. FDC's, IPS', NTS' and FDFS' Additional Deliveries. . . . . . . . . . . . . . 30 4.4. Ceridian's, Comdata's and Permicom's Additional Deliveries . . . . . . . . . 33 ARTICLE V REPRESENTATIONS AND WARRANTIES OF CERIDIAN AND COMDATA. . . . . . . 35 5.1. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 5.2. Subsidiaries and Investments . . . . . . . . . . . . . . . . . . . . . . . . 36 5.3. Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 5.4. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 5.5. Operations Since the Gaming Balance Sheet Date . . . . . . . . . . . . . . . 38 5.6. No Finder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 5.7. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 5.8. Availability of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 5.9. Governmental Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 -i- 5.10. Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 5.11. Real Property Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 5.12. Condemnation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 5.13. Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 5.14. Personal Property Leases. . . . . . . . . . . . . . . . . . . . . . . . . . 44 5.15. Intellectual Property; Software . . . . . . . . . . . . . . . . . . . . . . 44 5.16. Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 5.17. Title to Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 5.18. Employees and Related Agreements; ERISA . . . . . . . . . . . . . . . . . . 47 5.19. Employee Relations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 5.20. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 5.21. Status of Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 5.22. No Violation, Litigation or Regulatory Action . . . . . . . . . . . . . . . 50 5.23. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 5.24. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 5.25. Customers and Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . 51 5.26. Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 5.27. Estimated Closing Date Gaming Special Report. . . . . . . . . . . . . . . . 51 5.28. Estimated Amount of Transferred Cash. . . . . . . . . . . . . . . . . . . . 51 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF FDC, IPS AND NTS. . . . . . . . 52 6.1. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 6.2. Subsidiaries and Investments . . . . . . . . . . . . . . . . . . . . . . . . 53 6.3. Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 6.4. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 6.5. Operations Since the NTS Balance Sheet Date. . . . . . . . . . . . . . . . . 55 6.6. No Finder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 6.7. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 6.8. Availability of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 6.9. Governmental Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 6.10. Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 6.11. Real Property Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 6.12. Condemnation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 6.13. Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 6.14. Personal Property Leases. . . . . . . . . . . . . . . . . . . . . . . . . . 60 6.15. Intellectual Property; Software . . . . . . . . . . . . . . . . . . . . . . 60 6.16. Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 6.17. Title to Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 6.18. Employees and Related Agreements; ERISA . . . . . . . . . . . . . . . . . . 63 6.19. Employee Relations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 6.20. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 6.21. Status of Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 -ii- 6.22. No Violation, Litigation or Regulatory Action . . . . . . . . . . . . . . . 66 6.23. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 6.24. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 6.25. Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 6.26. Bank Accounts; Powers of Attorney . . . . . . . . . . . . . . . . . . . . . 67 6.27. Estimated Closing Date NTS Special Report . . . . . . . . . . . . . . . . . 67 ARTICLE VII ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . 67 7.1. Covenant Not to Compete or Solicit Business by FDC, IPS, NTS and FDFS. . . . 67 7.2. Solicitation of Employees. . . . . . . . . . . . . . . . . . . . . . . . . . 69 7.3. Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 7.4. Employees and Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . 74 7.5. Collection of Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . 79 7.6. Release of NonCompetition Provisions . . . . . . . . . . . . . . . . . . . . 81 7.7. Waiver of Exclusivity Obligations of Western Union Agents. . . . . . . . . . 81 7.8. NTS Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 7.9. Sublease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 7.10. Proration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 7.11. Certain Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 7.12. Termination of FlashCash License. . . . . . . . . . . . . . . . . . . . . . 83 ARTICLE VIII INDEMNIFICATION. . . . . . . . . . . . . . . . 84 8.1. Indemnification by Ceridian. . . . . . . . . . . . . . . . . . . . . . . . . 84 8.2. Indemnification by FDC . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 8.3. Notice of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 8.4. Third-Person Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 8.5. Indemnification Payments Net of Insurance Recovery . . . . . . . . . . . . . 90 ARTICLE IX GENERAL PROVISIONS . . . . . . . . . . . . . . . 90 9.1. Survival of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . 90 9.2. Confidential Nature of Information . . . . . . . . . . . . . . . . . . . . . 90 9.3. No Public Announcement . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 9.4. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 9.5. Successors and Assigns; Third Party Beneficiaries. . . . . . . . . . . . . . 92 9.6. Access to Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 9.7. Entire Agreement; Amendments . . . . . . . . . . . . . . . . . . . . . . . . 94 9.8. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 9.9. Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 9.10. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 9.11. Partial Invalidity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 -iii- 9.12. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 95 9.13. Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 9.14. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 9.15. Attorney's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
-iv-
Schedules Description - --------- ----------- 1.1 Gaming Agreed Accounting Principles 1.2 Gaming Armored Cars 1.3 Gaming ATM Machines 1.4 Gaming Booths 1.5 Gaming Vaults 1.6 IPS Agreed Accounting Principles 1.7 Gaming Bank Accounts 2.3 Comdata Excluded Assets 2.6 NTS Transferred Bank Accounts 2.7 IPS Excluded Assets 4.2(A) Comdata Bank Account Information 4.2(B) NTS Bank Account Information 5.2(A) Subsidiaries of Comdata 5.2(B) Capital Structure of the Gaming Subsidiary 5.3 Comdata Exceptions to Execution and Delivery 5.4 Gaming Business Financial Statements 5.5(A) Changes since Gaming Balance Sheet Date 5.5(B) Exceptions to Ordinary Course Since Gaming Balance Sheet Date 5.7 Gaming Business Taxes 5.8(A) Availability of Gaming Business Assets 5.8(B) Material Services Provided by Comdata 5.9 Gaming Business Governmental Permits 5.11(A) Gaming Business Leased Real Property 5.11(B) Exceptions to Title of Gaming Business Leased Real Property 5.11(C) Encumbrances on Gaming Business Leased Real Property 5.13(A) Gaming Business Personal Property 5.13(B) Gaming Business Personal Property Title Exceptions 5.14 Gaming Business Personal Property Lease 5.15(A) Gaming Intellectual Property 5.15(B) Gaming Software 5.15(C) Agreements Relating to Gaming Intellectual Property 5.15(D) Ownership of Gaming Intellectual Property 5.15(E) Validity and Enforceability of Gaming Business Intellectual Property 5.15(F) Limitations on Gaming Business Intellectual Property 5.15(G) Limitations on Gaming Business Owned Software 5.15(H) Intellectual Property Agents, Consultants and Contractors 5.17 Gaming Business Exceptions to Title 5.18(A) Gaming Business Employee Agreements 5.18(C) Gaming Business Severance Plans 5.19(A) Gaming Business Compliance with Labor Laws 5.19(B) Gaming Business Conflicts of Interest 5.20 Gaming Business Contracts 5.21 Status of Gaming Agreements -v- 5.22 Gaming Business Litigation 5.23 Gaming Business Environmental Matters 5.24 Gaming Business Insurance 5.25 Gaming Business Customers 5.26 Gaming Bank Accounts 5.27 Estimated Closing Date Gaming Special Report 5.28 Estimated Amount of Transferred Cash 6.2(A) Subsidiaries of NTS; Organization 6.2(B) Capital Structure of the NTS Subsidiary 6.3 FDC Exceptions to Execution and Delivery 6.4 NTS Financial Statements 6.5(A) Changes since NTS Balance Sheet Date 6.5(B) Exceptions to Ordinary Course since NTS Balance Sheet Date 6.7 NTS Taxes 6.8(A) Availability of NTS Assets 6.8(B) Material Services Provided by IPS 6.9 NTS Governmental Permits 6.11(A) NTS Leased Real Property 6.11(B) Exceptions to Title of NTS Leased Real Property 6.11(C) Encumbrances on NTS Leased Real Property 6.13(A) NTS Personal Property 6.13(B) NTS Personal Property Title Exceptions 6.14 NTS Personal Property Lease 6.15(A) NTS Intellectual Property 6.15(B) NTS Software 6.15(C) Agreements Relating to NTS Intellectual Property 6.15(D) Ownership of NTS Intellectual Property 6.15(E) Validity and Enforceability of NTS Intellectual Property 6.15(F) Limitations on NTS Intellectual Property 6.15(G) Limitations on NTS Business Owned Software 6.15(H) Intellectual Property Agents, Consultants and Contractors 6.16 NTS Intellectual Property 6.17 NTS Exceptions to Title 6.18(A) NTS Business Employee Agreements 6.18(C) NTS Business Severance Plans 6.19(A) NTS Compliance with Labor Laws 6.19(B) NTS Conflicts of Interest 6.20 NTS Contracts 6.21 Status of NTS Agreements 6.22 NTS Litigation 6.23 NTS Environmental Matters 6.24 NTS Insurance 6.25 NTS Customers 6.26 NTS Bank Accounts 6.27 Estimated Closing Date NTS Special Report -vi- 7.4(A) NTS Employees 7.4(B) Comdata Employees
-vii- Exhibits Description - -------- ----------- Exhibit A Comdata Instrument of Assignment Exhibit B Comdata Instrument of Assumption Exhibit C NTS Instrument of Assignment Exhibit D FDFS Instrument of Assumption Exhibit E Services and Processing Agreement Exhibit F Gaming Business Transition Services Agreement Exhibit G NTS Business Transition Services Agreement Exhibit H NTS State of Maryland Articles of Transfer Exhibit I Intentionally Omitted Exhibit J NTS Canadian Instrument of Assignment Exhibit K NTS Canadian Instrument of Assumption Exhibit L Comdata Canadian Instrument of Assignment Exhibit M Comdata Canadian Instrument of Assumption -viii- EXCHANGE AGREEMENT EXCHANGE AGREEMENT, dated as of January 17, 1998 (this "AGREEMENT"), among First Data Corporation, a Delaware corporation ("FDC"), Integrated Payment Systems Inc., a Delaware corporation and a wholly owned subsidiary of FDC ("IPS"), NTS, Inc., a Maryland corporation and wholly owned subsidiary of IPS ("NTS"), First Data Financial Services, L.L.C., a Delaware limited liability company and wholly-owned subsidiary of IPS ("FDFS"), Ceridian Corporation, a Delaware corporation ("CERIDIAN"), Comdata Network, Inc., a Maryland corporation and an indirect, wholly owned subsidiary of Ceridian ("COMDATA"), and Permicom Permits Services, Inc., an Ontario corporation and wholly owned subsidiary of Comdata ("PERMICOM"). W I T N E S S E T H: WHEREAS, Comdata, through its Gaming Services Division, is engaged in the Gaming Business, as hereinafter defined; WHEREAS, NTS is engaged in the NTS Business, as hereinafter defined; WHEREAS, pursuant to this Agreement, NTS is conveying the NTS Business (except the NT Canada Shares which NTS is conveying to Permicom) and a specified amount of cash to Comdata in exchange for the Gaming Business; and WHEREAS, NTS' rights to receive the Gaming Business pursuant to this Agreement have been transferred to FDFS (by a distribution from NTS to IPS and IPS' subsequent contribution of such rights to FDFS). NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, it is hereby agreed among FDC, IPS, NTS, FDFS, Ceridian, Comdata and Permicom as follows: ARTICLE I DEFINITIONS 1.1. DEFINITIONS. In this Agreement, the following terms have the meanings specified or referred to in this SECTION 1.1 and shall be equally applicable to both the singular and plural forms. Any agreement referred to below shall mean such agreement as amended, supplemented and modified from time to time to the extent permitted by the applicable provisions thereof and by this Agreement. "ACTIVELY EMPLOYED" shall mean any employee who (i) is actually performing services on the Closing Date; (ii) is on company-approved vacation or other company-approved absence of less than 14 day duration; or (ii) is on Statutorily Protected Leave. "AFFILIATE" means, with respect to any Person, any other Person which directly or indirectly controls, is controlled by or is under common control with such Person. "AGREED ADJUSTMENTS" has the meaning specified in SECTION 3.1(c). "AGREED GAMING ADJUSTMENTS" has the meaning specified in SECTION 3.3(c). "AGREED NTS ADJUSTMENTS" has the meaning specified in SECTION 3.4(c). "AGREED RATE" means the fluctuating prime or corporate base rate of interest published by, and as in effect from time to time of, Citibank, N.A., or if that rate is no longer published, the interest rate designated as the prime rate as published from time to time in the "Money Rates" section of THE WALL STREET JOURNAL. "ALLOCATION SCHEDULE" has the meaning set forth in SECTION 7.3(f). "ARMORED CAR CASH" means the cash in the Gaming Armored Cars. "ASSOCIATE" means, with respect to any Person (i) a corporation or organization of which such Person is an officer or partner or is, directly or indirectly, the beneficial owner of 10 percent or more of any class of equity securities, (ii) any trust or other estate in which such Person has a substantial beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity and (iii) any relative or spouse of such Person, or any relative of such spouse, who has the same home as such Person or who is a director or officer of the person or any of its parents or subsidiaries. "ASSUMED GAMING LIABILITIES" shall mean the liabilities described in SECTION 2.4, but excluding the liabilities described in SECTION 2.5. "ASSUMED NTS LIABILITIES" has the meaning specified in SECTION 2.8, but excluding the liabilities described in SECTION 2.9. "ATM CASH" means the cash in the Gaming ATM Machines. "BANK ACCOUNT CASH" means the cash in the Gaming Bank Accounts. "BOOTH CASH" means the cash in the Gaming Booths designated on SCHEDULE 1.4 as "Booths Funded by Comdata" and as "Comdata Cash Provided for Float". "CASHCALL INC. SHARES" means all of the issued and outstanding shares of capital stock of the Gaming Subsidiary. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Sections 9601 ET SEQ., any amendments thereto, any successor statutes, and any regulations promulgated thereunder. -2- "CERIDIAN GROUP MEMBER" means Ceridian, Comdata and their respective Affiliates and their respective successors and assigns. "CLAIM NOTICE" has the meaning specified in SECTION 8.3(a). "CLOSING" means the following actions effected pursuant to the terms of this Agreement: of (i) the transfer of the NT Canada Shares from NTS to Permicom; (ii) the delivery by Permicom to NTS of the Permicom Note; (iii) the transfer of the Purchased Gaming Assets from Comdata to FDFS; (iv) the transfer of the Purchased NTS Assets (except the NT Canada shares) from NTS to Comdata; and (v) the delivery by NTS of the NTS Note to Comdata. The actions referred to in clauses (i) and (ii) shall be effected simultaneously, following which the actions referred to in clauses (iii), (iv) and (v) shall be effected simultaneously. "CLOSING DATE" means the date hereof. "CLOSING DATE GAMING SPECIAL REPORT" has the meaning specified in SECTION 3.3(e). "CLOSING DATE NTS SPECIAL REPORT" has the meaning specified in SECTION 3.4(e). "COBRA" means Sections 601 through 609 of ERISA. "CODE" means the Internal Revenue Code of 1986, as amended. "COMDATA ANCILLARY AGREEMENTS" means all agreements, instruments and documents being or to be executed and delivered by Ceridian, Comdata or any of their respective Affiliates under this Agreement or in connection herewith. "COMDATA COLLECTION REPORT" has the meaning specified in SECTION 7.5. "COMDATA EFFECTIVE DATE" has the meaning specified in SECTION 7.4(a)(iii). "COMDATA EMPLOYEES" has the meaning specified in SECTION 7.4(a)(ii). "COMDATA INSTRUMENT OF ASSIGNMENT" means the Instrument of Assignment in the form of EXHIBIT A. "COMDATA INSTRUMENT OF ASSUMPTION" means the Instrument of Assumption in the form of EXHIBIT B. "COMDATA PAYMENT INSTRUMENT" means a check or draft (such as a Comchek-Registered Trademark- draft), which is (i) issued by Comdata or an Affiliate thereof; (ii) drawn on a bank account of Comdata or an Affiliate thereof; and (iii) used to effect a Gaming Business transaction at a Gaming Establishment. -3- "COMDATA PENSION PLANS" has the meaning specified in SECTION 7.4(c)(i). "COMDATA WELFARE PLANS" has the meaning specified in SECTION 7.4(b)(ii). "CONTAMINANT" means any waste, pollutant, hazardous or toxic substance or waste, petroleum, petroleum-based substance or waste, special waste, or any constituent of any such substance or waste. "COPYRIGHTS" means United States and foreign copyrights, copyrightable works, and maskworks, whether registered or unregistered, and pending applications to register the same. "COURT ORDER" means any judgment, order, award or decree of any foreign, federal, state, local or other court or tribunal and any award in any arbitration proceeding. "E&Y" means Ernst & Young, LLP, independent public accountants. "ENCUMBRANCE" means any lien (statutory or other), claim, charge, security interest, mortgage, deed of trust, pledge, hypothecation, assignment, easement, conditional sale or other title retention agreement, defect in title, covenant, preference, priority or security agreement or preferential arrangement of any kind or nature, and any easement, encroachment, covenant, restriction, right of way or other restrictions of any kind. "ENVIRONMENTAL ENCUMBRANCE" means an Encumbrance in favor of any Governmental Body for (i) any liability under any Environmental Law, or (ii) damages arising from, or costs incurred by such Governmental Body in response to, a Release or threatened Release of a Contaminant into the environment. "ENVIRONMENTAL LAW" means all Requirements of Laws derived from or relating to all federal, state and local laws or regulations relating to or addressing the environment, health or safety, including but not limited to CERCLA, OSHA and RCRA and any state equivalent thereof. "ENVIRONMENTAL PROPERTY TRANSFER ACTS" means any applicable Requirements of Laws that for environmental reasons conditions, restricts, prohibits or requires any notification or disclosure with respect to the direct or indirect transfer, sale, lease or closure of any property, including any so- called "Environmental Cleanup Responsibility Acts" or "Responsible Property Transfer Acts." "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "ESCHEAT LAWS" means all applicable Requirements of Law relating to unclaimed property, escheat and similar federal and state statutes. -4- "ESTIMATED AMOUNT OF TRANSFERRED CASH" has the meaning specified in SECTION 5.28. "ESTIMATED CLOSING DATE GAMING SPECIAL REPORT" has the meaning specified in SECTION 5.27. "ESTIMATED CLOSING DATE NTS SPECIAL REPORT" has the meaning specified in SECTION 6.27. "EXCLUDED COMDATA SUBSIDIARIES" means Comdata Network, Inc. of California, Comdata Telecommunications Services, Inc. and Permicom. "EXCLUDED GAMING ASSETS" has the meaning specified in SECTION 2.3. "EXCLUDED GAMING LIABILITIES" has the meaning specified in SECTION 2.5. "EXCLUDED NTS ASSETS" has the meaning specified in SECTION 2.7. "EXCLUDED NTS LIABILITIES" has the meaning specified in SECTION 2.9. "FDC" has the meaning specified in the first paragraph of this Agreement. "FDC GROUP" means any "affiliated group" (as defined in SECTION 1504(a) of the Code without regard to the limitations contained in SECTION 1504(b) of the Code) that includes FDC. "FDC GROUP MEMBER" means FDC, NTS, IPS and FDFS and their respective Affiliates and their respective successors and assigns. "FDFS" has the meaning specified in the first paragraph of this Agreement. "FDFS EFFECTIVE DATE" has the meaning specified in SECTION 7.4(a)(iv). "FDFS INSTRUMENT OF ASSUMPTION" means the Instrument of Assumption in the form of EXHIBIT D. "FDT" means First Data Technologies, Inc. a Delaware corporation and wholly owned subsidiary of FDC. "GAMING ACCOUNTING REPORT" has the meaning specified in SECTION 3.3(e). "GAMING AGREED ACCOUNTING PRINCIPLES" means generally accepted accounting principles consistently applied; PROVIDED, HOWEVER, that, with respect to any matter as to which there is more than one generally accepted accounting principle, Gaming Agreed Accounting Principles means the generally accepted accounting principles applied in the preparation of the -5- Gaming Balance Sheet included in SCHEDULE 5.4; PROVIDED FURTHER that, notwithstanding the foregoing, Gaming Agreed Accounting Principles shall include the accounting policies and be subject to the exceptions described in SCHEDULE 1.1; and PROVIDED FURTHER that, for purposes of the Gaming Agreed Accounting Principles, no known adjustments for items or matters, regardless of the amount thereof, shall be deemed to be immaterial. "GAMING AGREEMENTS" has the meaning specified in SECTION 5.21. "GAMING AMOUNTS" means the Gaming Receivables and the Gaming Liabilities. "GAMING ARMORED CARS" means the armored cars holding cash pertaining to the Gaming Business listed on SCHEDULE 1.2. "GAMING ATM MACHINES" means the ATM machines listed on SCHEDULE 1.3. "GAMING BALANCE SHEET" means the unaudited balance sheet of the Gaming Business as of September 30, 1997 included in SCHEDULE 5.4. "GAMING BANK ACCOUNTS" means the Bank Accounts listed on SCHEDULE 1.7. "GAMING BALANCE SHEET DATE" means September 30, 1997. "GAMING BOOTHS" means the on-floor Comdata booth operations listed on SCHEDULE 1.4. "GAMING BUSINESS" means the business of Comdata's Gaming Services Division on the date hereof in providing the following financial and certain information services related thereto to Gaming Establishments: (a) credit card cash advance services, (b) debit services providing for withdrawals, balance inquiries and similar transactions effected through an automated teller machine or point-of-sale device and tied to an account, (c) operations of financial services booths located on the premises of Gaming Establishments, (d) certain development and marketing activities related to a cashless gaming system for use in slot machines and similar gaming devices by gaming patrons at a Gaming Establishment, (e) marketing services to Gaming Establishments for products and services offered by Persons other than Comdata, such as certain services offered by Western Union Financial Services, Inc., (f) a single system financial services authorization platform to be utilized by Gaming Establishments known as C.O.I.N.S.-TM- ("Casino Operations Information System") and (g) certain marketing and information services related to the foregoing, including, without limitation, the Financial Marketing System database and related systems. In addition, the Gaming Business shall include any of the services provided pursuant to the Master Agreement dated as of April 14, 1997 by and between Comdata and ITT Sheraton Corporation. "GAMING BUSINESS GOVERNMENTAL PERMITS" has the meaning specified in SECTION 5.9. -6- "GAMING BUSINESS LEASED REAL PROPERTY" has the meaning specified in SECTION 5.11. "GAMING BUSINESS OWNED SOFTWARE" has the meaning specified in SECTION 5.15. "GAMING BUSINESS PROPERTY" means any real or personal property, plant, building, facility, structure, underground storage tank, equipment or unit, or other asset owned, leased or operated by Comdata and used in the Gaming Business. "GAMING BUSINESS TRANSITION SERVICES AGREEMENT" means the Transition Services Agreement in the form of Exhibit F. "GAMING EQUALIZATION CASH AMOUNT" means the amount of cash, if any, designated as "Gaming Equalization Cash" on SCHEDULE 5.27 "GAMING ESTABLISHMENT" means any locations at which wagering or gaming activities are the primary business conducted. Notwithstanding any other provision in this Agreement to the contrary, the parties acknowledge and agree that a truck stop facility or a gasoline station shall not, under any circumstance, be construed or interpreted to be a Gaming Establishment. "GAMING LIABILITIES" means the liabilities listed on the Closing Date Gaming Special Report. "GAMING RECEIVABLES" means the receivables listed on the Closing Date Gaming Special Report. "GAMING RECEIVABLES ADJUSTMENT" shall equal: (i) if the sum of the Gaming Receivables and the Gaming Equalization Cash Amount is equal to the Gaming Liabilities, zero; (ii) if the sum of the Gaming Receivables and the Gaming Equalization Cash Amount is greater than the Gaming Liabilities, the amount of such excess; and (iii) if the sum of the Gaming Receivables and the Gaming Equalization Cash Amount is less than the Gaming Liabilities, the amount of such shortfall (represented as a negative number). "GAMING SUBSIDIARY" means Cashcall Systems Inc., a Canadian corporation. "Gaming Subsidiary Excluded Assets" has the meaning specified in SECTION 2.3. "GAMING SUBSIDIARY EXCLUDED LIABILITIES" has the meaning specified in SECTION 2.5. -7- "GAMING VAULTS" means the bank vaults holding cash pertaining to the Gaming Business listed on SCHEDULE 1.5. "GOVERNMENTAL BODY" means any foreign, federal, state, local or other governmental authority or regulatory body. "INDEMNIFICATION EXPENSES" means any and all expenses incurred in connection with investigating, defending or asserting any claim, action, suit or proceeding incident to any matter indemnified against hereunder (including, without limitation, court filing fees, court costs, arbitration fees or costs, witness fees, and reasonable fees and disbursements of legal counsel, investigators, expert witnesses, consultants, accountants and other professionals). "INITIAL AMOUNT" means (a) the sum of (i) $65,400,000.00, (ii) the Estimated Amount of Transferred Cash and (iii) the NTS Equalization Cash Amount (which is a negative amount), less (b) the Gaming Equalization Cash Amount (which is a positive amount). "INTELLECTUAL PROPERTY" means Copyrights, Patent Rights, Trademarks and Trade Secrets and all agreements, contracts, licenses, sublicenses, assignments and indemnities which relate or pertain to any of the foregoing. "IPS" has the meaning specified in the first paragraph of this Agreement. "IPS ANCILLARY AGREEMENTS" means all agreements, instruments and documents being or to be executed and delivered by FDC, IPS, NTS or FDFS or their respective Affiliates under this Agreement or in connection herewith. "IPS PENSION PLANS" has the meaning specified in SECTION 7.4(c)(i). "IPS WELFARE PLANS" has the meaning specified in SECTION 7.4(b)(ii). "IRS" means the Internal Revenue Service. "LOSSES" means any and all losses, costs, obligations, liabilities, settlement payments, awards, judgments, fines, penalties, damages, expenses, deficiencies or other charges. "MATERIAL ADVERSE EFFECT" means any condition, circumstance, change or effect (or any development that, insofar as can be reasonably foreseen, would result in any condition, circumstance, change or effect) that is materially adverse to the assets, business, financial condition, results of operations or prospects of the Gaming Business or NTS Business, as the case may be. "NET AMOUNT OF GAMING RECEIVABLES" has the meaning specified in SECTION 7.5. "NET AMOUNT OF NTS RECEIVABLES" has the meaning specified in SECTION 7.5. -8- "NET RECEIVABLES ADJUSTMENT" shall mean the amount, if any, paid by any party pursuant to SECTION 3.5. "NOTICE TO DEFEND" has the meaning specified in SECTION 8.4(b)(i). "NT CANADA SHARES" means all the issued and outstanding shares of capital stock of the NTS Subsidiary. "NTS" has the meaning specified in the first paragraph of this Agreement. "NTS ACCOUNTING REPORT" has the meaning specified in SECTION 3.4(d). "NTS AGREED ACCOUNTING PRINCIPLES" means generally accepted accounting principles consistently applied, PROVIDED that, with respect to any matter as to which there is more than one generally accepted accounting principle, NTS Agreed Accounting Principles means the generally accepted accounting principles applied in the preparation of the NTS Balance Sheet included in SCHEDULE 6.4; PROVIDED FURTHER that, notwithstanding the foregoing, NTS Agreed Accounting Principles shall include the accounting policies and be subject to the exceptions described in SCHEDULE 1.6; and PROVIDED FURTHER that, for purposes of the NTS Agreed Accounting Principles, no known adjustments for items or matters, regardless of the amount thereof, shall be deemed to be immaterial. "NTS AGREEMENTS" has the meaning specified in SECTION 6.21. "NTS AMOUNTS" means the NTS Receivables and the NTS Liabilities. "NTS BALANCE SHEET" means the unaudited balance sheet of NTS as of September 30, 1997 included in SCHEDULE 6.4. "NTS BALANCE SHEET DATE" means September 30, 1997. "NTS BUSINESS" means the business of NTS on the date hereof in providing the following products and services to trucking companies, truck stops, vehicle fleets, service stations and others engaged in the transportation industry wherever located: (i) credit, debit and funds transfer services for the purchase of fuel, equipment and repairs and other services and products generally necessary or appropriate in connection with the operation of a trucking company, truck stop, fleet or service station, (ii) cash advance, driver settlement and payroll services for those engaged in the transportation industry, (iii) load identification and matching services, (iv) long distance telecommunications and telephone card services, (v) factoring and financing services, (vi) legalization services for the transportation industry, including, permits, motor vehicle licensing and renewals, fuel tax reporting and assistance, driver log auditing and driver safety programs, (vii) pilot car services, (viii) in-route communications and (ix) information and data capture services related to the foregoing. Notwithstanding the foregoing, or any other provision in this Agreement to the contrary, the parties acknowledge and agree that the NTS Business shall -9- not include the products and services currently contemplated to be marketed under the name "Transpay." "NTS BUSINESS TRANSITION SERVICES AGREEMENT" means the Transition Services Agreement in the form of EXHIBIT G. "NTS COLLECTION REPORT" has the meaning specified in SECTION 7.5. "NTS COMPUTER FACILITY" means the office space, raised floor area, embossing facility, mailroom and other facilities which accommodate the computer and telecommunications operations and equipment and are located principally on the 1st floor and (G)arden level of the West Tower of the facility at 6000 and 6100 Western Place, Fort Worth, Texas 76107. "NTS EMPLOYEES" has the meaning specified in SECTION 7.4(a)(i). "NTS EQUALIZATION CASH AMOUNT" means the amount of cash, if any, designated as "NTS Equalization Cash" on SCHEDULE 6.27. "NTS GOVERNMENTAL PERMITS" has the meaning specified in SECTION 6.9. "NTS INSTRUMENT OF ASSIGNMENT" means the Instrument of Assignment in the form of Exhibit C. "NTS LEASED REAL PROPERTY" has the meaning specified in SECTION 6.11. "NTS LIABILITIES" means the liabilities listed on the Closing Date NTS Special Report. "NTS NOTE" has the meaning specified in SECTION 2.1. "NTS OWNED SOFTWARE" has the meaning specified in SECTION 6.15. "NTS PAYMENT INSTRUMENT" means any check or draft (such as an NTS draft, and EDS draft or an ULTRANS draft) which is (i) issued by NTS or an Affiliate thereof; (ii) drawn on a bank account of NTS or an Affiliate thereof; and (iii) used to transfer funds for the payment of a purchase, cash advance or settlement transaction with a vendor/merchant, client or client employee. "NTS PROPERTY" means any real or personal property, plant, building, facility, structure, underground storage tank, equipment or unit, or other asset owned, leased or operated by NTS or the NTS Subsidiary. "NTS RECEIVABLES" means the receivables listed on the Closing Date NTS Special Report. -10- "NTS RECEIVABLES ADJUSTMENT" shall equal: (i) if the sum of the NTS Receivables and the NTS Equalization Cash Amount is equal to the NTS Liabilities, zero; (ii) if the sum of the NTS Receivables and the NTS Equalization Cash Amount is greater than the NTS Liabilities, the amount of such excess; and (iii) if the sum of the NTS Receivables and the NTS Equalization Cash Amount is less than the NTS Liabilities, the amount of such shortfall (represented as a negative number). "NTS SUBSIDIARIES" means any corporation, partnership, limited liability company, joint venture or other entity in which NTS (a) owns, or at any relevant time owned, directly or indirectly, 50% or more of the outstanding voting or equity interests or (b) is a general partner. "NTS SUBSIDIARY" means National Truckers Service Canada, Inc., a Canadian corporation. "NTS SUBSIDIARY EXCLUDED ASSETS" has the meaning specified in SECTION 2.7. "NTS SUBSIDIARY EXCLUDED LIABILITIES" has the meaning specified in SECTION 2.9. "OSHA" means the Occupational Safety and Health Act, 29 U.S.C. SECTIONS 651 ET SEQ., any amendment thereto, any successor statute, and any regulations promulgated thereunder as well as any similar state or local laws. "PATENT RIGHTS" means United States and foreign patents, patent applications, continuations, continuations-in-part, divisions, reissues, patent disclosures, inventions (whether or not patentable) or improvements thereto. "PENSION PLAN" means any employee pension benefit plan, as such term is defined in SECTION 3(2) of ERISA. "PERMICOM NOTE" has the meaning specified in SECTION 2.1. "PERMITTED ENCUMBRANCES" means (a) liens for taxes and other governmental charges and assessments arising in the ordinary course of business which are not yet due and payable, (b) liens of landlords and liens of carriers, warehousemen, mechanics and materialmen and other like liens arising in the ordinary course of business for sums not yet due and payable and (c) other liens or imperfections on property which are not material in amount, do not interfere with and are not violated by, the consummation of the transactions contemplated by this -11- Agreement and do not impair the marketability of, or materially detract from the value of or materially impair the existing use of, the property affected by such lien or imperfection. "PERSON" means any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization or Governmental Body. "PRELIMINARY CLOSING DATE GAMING SPECIAL REPORT" has the meaning specified in SECTION 3.3(a)(i). "PRELIMINARY CLOSING DATE NTS SPECIAL REPORT" has the meaning specified in SECTION 3.4(a)(i). "PRELIMINARY GAMING ACCOUNTING REPORT" has the meaning specified in SECTION 3.3(a)(iii). "PRELIMINARY GAMING AMOUNTS" has the meaning specified in SECTION 3.3(a)(i). "PRELIMINARY GAMING LIABILITIES" has the meaning specified in SECTION 3.3(a)(i). "PRELIMINARY GAMING RECEIVABLES" has the meaning specified in SECTION 3.3(a)(i). "PRELIMINARY GAMING RECEIVABLES ADJUSTMENT" has the meaning specified in SECTION 3.3(a)(ii). "PRELIMINARY NTS ACCOUNTING REPORT" has the meaning specified in SECTION 3.4(a)(iii). "PRELIMINARY NTS AMOUNTS" has the meaning specified in SECTION 3.4(a)(i). "PRELIMINARY NTS LIABILITIES" has the meaning specified in SECTION 3.4(a)(i). "PRELIMINARY NTS RECEIVABLES" has the meaning specified in SECTION 3.4(a)(i). "PRELIMINARY NTS RECEIVABLES ADJUSTMENT" has the meaning specified in SECTION 3.4(a)(ii). "PRELIMINARY TRANSFERRED CASH STATEMENT" has the meaning specified in SECTION 3.1(a). "PURCHASED GAMING ASSETS" shall mean the assets and properties described in SECTION 2.2, but excluding the assets and properties described in SECTION 2.3. "PURCHASED NTS ASSETS" has the meaning specified in SECTION 2.6. -12- "RCRA" means the Resource Conservation and Recovery Act, 42 U.S.C. SECTIONS 6901 ET SEQ., and any successor statute, and any regulations promulgated thereunder. "REMEDIAL ACTION" means actions required to (i) clean up, remove, treat or in any other way address Contaminants in the indoor or outdoor environment; (ii) prevent the Release or threatened Release or minimize the further Release of Contaminants or (iii) investigate and determine if a remedial response is needed and to design such a response and post-remedial investigation, monitoring, operation and maintenance and care. "REQUIREMENTS OF LAWS" means any foreign, federal, state and local laws, statutes, regulations, rules, codes or ordinances enacted, adopted, issued or promulgated by any Governmental Body (including, without limitation, those pertaining to employment, wage and hour, electrical, building, zoning, environmental and occupational safety and health requirements, the Bank Secrecy Act and Money Laundering and Control Act and the rules and regulations promulgated thereunder, and all laws governing or regulating gambling or gaming) or common law. "RESTRICTED COMDATA PARTIES" has the meaning specified in SECTION 7.2(a). "RESTRICTED FDC PARTIES" has the meaning specified in SECTION 7.2(b). "RESTRICTED TRUCKING ACTIVITIES" means (i) cash advance, factoring, financing or in-cab communication services or products that are marketed exclusively to the trucking industry or the usefulness of which is limited to the trucking industry, (ii) legalization services for the trucking industry, including permitting and licensing (and renewal thereof), fuel tax reporting and assistance, driver log auditing and driver safety programs, (iii) pilot car services for the trucking industry, and (iv) load matching services for the trucking industry. "SELECTED ACCOUNTING FIRM" means a major independent public accounting firm (other than E&Y or KPMG Peat Marwick) which shall have been selected by the joint decision of FDC and Ceridian. "SERVICES AND PROCESSING AGREEMENT" means the Services and Processing Agreement in the form of EXHIBIT E. "SOFTWARE" means computer software programs and software systems, including, without limitation, all databases, compilations, tool sets, compilers, higher level or "proprietary" languages, related documentation and materials, whether in source code, object code or human readable form. "STATUTORILY PROTECTED LEAVE" shall mean any leave (i) pursuant to the Family and Medical Leave Act; (ii) pursuant to a military leave of absence under circumstances entitling the employee to return to his or her position or (iii) pursuant to taking sick days or in the case of Transferring Comdata Employees, those on short term disability leave. -13- "STRADDLE PERIOD" means any taxable year or period beginning before and ending after the Closing. "TAX" (and, with correlative meaning, "TAXES") means any federal, state, local or foreign income, gross receipts, property, sales, use, license, excise, franchise, employment, payroll, withholding, alternative or add-on minimum, ad valorem, value added, transfer or excise tax, or any other tax, custom, duty, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or penalty, imposed by any governmental authority. "TAX RETURN" means any return, report or similar statement required to be filed with respect to any Tax (including any attached schedules), including, without limitation, any information return, claim for refund, amended return or declaration of estimated Tax. "THIRD-PERSON CLAIM" has the meaning specified in SECTION 8.4. "TRADEMARKS" means United States, state and foreign trademarks, service marks, logos, trade dress and trade names (including all assumed or fictitious names under which the party is conducting business or has within the past five years conducted business), whether registered or unregistered, and pending applications to register the foregoing. "TRADE SECRETS" means confidential ideas, trade secrets, know-how, concepts, methods, processes, formulae, reports, data, customer lists, mailing lists, business plans, or other proprietary information. "TRANSFERRED CASH" means the sum of the ATM Cash, the Armored Car Cash, the Booth Cash, the Bank Account Cash and the Vault Cash. "TRANSFERRED CASH STATEMENT" has the meaning specified in SECTION 3.1(b). "TRANSFERRING COMDATA EMPLOYEES" has the meaning specified in SECTION 7.4(a)(iv). "TRANSFERRING NTS EMPLOYEES" has the meaning specified in SECTION 7.4(a)(iii). "UNRESOLVED GAMING OBJECTIONS" has the meaning specified in SECTION 3.3(d). "UNRESOLVED NTS OBJECTIONS" has the meaning specified in SECTION 3.4(d). "VAULT CASH" means the cash in the Gaming Vaults. "WARN" means the Workers Adjustment and Retraining Notification Act. "WELFARE PLAN" means any employee welfare benefit plan, as such term is defined in SECTION 3(1) of ERISA. -14- ARTICLE II EXCHANGE 2.1. EXCHANGE OF GAMING BUSINESS FOR THE NTS BUSINESS AND CASH. As more specifically provided herein, on the date hereof (immediately following the acquisition provided for in the last sentence of this SECTION 2.1) Comdata is (a) conveying and transferring to FDFS, free and clear of all Encumbrances (except Permitted Encumbrances), the Purchased Gaming Assets and (b) assuming the NTS Liabilities in exchange for (i) the simultaneous conveyance and transfer by NTS to Comdata of the Purchased NTS Assets (excluding the NT Canada Shares which are being conveyed and transferred to, and purchased by, Permicom), free and clear of all Encumbrances (other than Permitted Encumbrances), (ii) the simultaneous assumption by FDFS of the Gaming Liabilities and (iii) NTS' delivery to Comdata of a promissory note of NTS in the principal amount and in a form mutually acceptable to Comdata and NTS (the "NTS NOTE") equal to the Initial Amount. The parties hereto agree to use their respective best efforts to determine the fair market value of the NTS Business within twelve months of Closing, which value shall in no event be less than $55 million or greater than $65 million. The Initial Amount shall be subject to adjustment as provided in Article III hereof. Simultaneously with the execution of this Agreement, Permicom shall acquire the NT Canada Shares from NTS in exchange for Permicom's delivery to NTS of a promissory note of Permicom in the principal amount of $400,000 (US) and in a form mutually acceptable to Permicom and NTS (the "PERMICOM NOTE"). 2.2. PURCHASED GAMING ASSETS. The Purchased Gaming Assets shall consist of all assets and properties of Ceridian or Comdata of every kind and description, wherever located, real, personal or mixed, tangible or intangible, heretofore used in connection with the Gaming Business, including, without limitation, all right, title and interest of Ceridian or Comdata in, to and under: (a) all of the assets reflected on the Gaming Balance Sheet, except those disposed of or converted into cash after the Gaming Balance Sheet Date in the ordinary course of business; (b) all notes and accounts receivable generated by the Gaming Business; (c) all inventory used in the Gaming Business (other than any blank, unissued Comdata Payment Instruments); (d) to the extent assignable, the Gaming Business Governmental Permits listed in SCHEDULE 5.9; (e) the Gaming Business Leased Real Property and leasehold improvements listed or described in SCHEDULE 5.11(A) except to the extent such Gaming Business Leased Real Property is (i) provided to FDFS pursuant to the Gaming Business Transition Services Agreement or (ii) listed on SCHEDULE 2.3; -15- (f) the machinery, equipment, vehicles, furniture and other personal property listed or referred to in SCHEDULES 1.2, 1.3, 1.4, 1.5, 1.7 or SCHEDULE 5.13(A) except to the extent the use of such machinery, equipment, vehicles, furniture and other property is (i) provided to NTS pursuant to the Gaming Business Transition Services Agreement or (ii) listed on SCHEDULE 2.3; (g) the personal property leases listed in SCHEDULE 5.14, except to the extent the use of such personal property leases are (i) provided to FDFS pursuant to the Gaming Business Transition Services Agreement or (ii) listed on SCHEDULE 2.3; (h) the Copyrights, Patent Rights and Trademarks (and all goodwill associated therewith), and the agreements, contracts, licenses, sublicenses, assignments and indemnities, listed in SCHEDULE 5.15(A), together with the licenses and other agreements with third parties related thereto; (i) the Gaming Business Owned Software listed in SCHEDULE 5.15 (B), together with the licenses and other agreements with third parties related thereto; (j) all Trade Secrets and other proprietary or confidential information used in or relating to the Gaming Business except those Trade Secrets or other proprietary or confidential information which are used in or relates to any other business of Ceridian or its Affiliates; (k) the agreements listed in SCHEDULE 5.18(A); (l) the contracts, agreements or understandings listed or described in SCHEDULE 5.20 and all other contracts related to the Gaming Business to which Ceridian, Comdata or the Gaming Subsidiary is a party that are customary for companies engaged in the same line of business as the Gaming Business; (m) all books and records (including all data and other information stored on discs, tapes or other media) of Comdata relating exclusively to the assets, properties, business and operations of the Gaming Business and, if requested, copies of all books and records (including all data and other information stored on discs, tapes or other media) which are used in connection with, (but not exclusively related to) the assets, properties, business and operations of the Gaming Business, PROVIDED, HOWEVER, that only such portions of such books and records relating to the Gaming Business will be provided; (n) Ceridian's and Comdata's interest in and to all telephone, telex and telephone facsimile numbers and other directory listings utilized primarily in connection with the Gaming Business; (o) all of the Cashcall Inc. Shares; (p) the Transferred Cash; -16- (q) all personal property, Intellectual Property and agreements relating to the "COINS" product; (r) all personal property, Intellectual Property and agreements relating to the "QuickPlay" product; (s) all personal property, Intellectual Property and agreements relating to the Financial Marketing System product; and (t) all the Gaming Bank Accounts. 2.3. EXCLUDED GAMING ASSETS. Notwithstanding the provisions of SECTION 2.2, the Purchased Gaming Assets shall not include the following (herein referred to as the "EXCLUDED GAMING ASSETS"): (a) all cash, bank deposits and cash equivalents except the Transferred Cash (it being understood that the Gaming Equalization Cash is reflected in the Initial Amount); (b) the name "Comdata" and "Comchek" or any related or similar trade names, trademarks, service marks or logos to the extent the same incorporate the name "Comdata" and "Comchek" or any variation thereof; (c) Ceridian's and Comdata's rights, claims or causes of action against third parties relating to the assets, properties, business or operations of the Gaming Business which may arise in connection with the discharge by Ceridian or Comdata of the Excluded Gaming Liabilities; (d) all contracts of insurance; (e) all corporate minute books and stock transfer books and the corporate seal of Comdata; (f) Comdata's rights under the lease agreements referred to in point 7 on SCHEDULE 5.11(A); (g) except to the extent provided in SECTION 7.4, Comdata's employee benefit agreements, plans or arrangements listed in SCHEDULE 5.18(A) or otherwise maintained by Comdata or the Gaming Subsidiary on behalf of persons employed by Comdata or the Gaming Subsidiary; (h) all shares of capital stock of each of the Excluded Comdata Subsidiaries; -17- (i) all refunds of any Tax to which Ceridian or Comdata is entitled pursuant to SECTION 7.3; and (j) the assets listed on SCHEDULE 2.3; (k) that certain agreement among Comdata Network, Inc., Service Data Corporation and SDC Enterprises, Inc. dated as of May 15, 1997; (l) that certain agreement among Comdata, Concord Computing Corporation and EFS National Bank dated as of April 30, 1996, as amended and the Marketing Rights Agreement executed in connection therewith; and (m) that certain Acquisition Agreement between Comdata and Western Union Financial Services dated March 23, 1994. With respect to any assets that were owned on the date preceding the date hereof by the Gaming Subsidiary and that would have constituted Excluded Gaming Assets if owned by Comdata (the "GAMING SUBSIDIARY EXCLUDED ASSETS"), Comdata shall, immediately prior to the Closing, cause the Gaming Subsidiary to convey, transfer and deliver, without any representation or warranty (express or implied), to Comdata such assets and the Gaming Subsidiary Excluded Assets shall be deemed to be Excluded Gaming Assets for purposes of this Agreement. 2.4. ASSUMED GAMING LIABILITIES. The Assumed Gaming Liabilities shall consist of: (a) all liabilities of the Gaming Business reflected in the Closing Date Gaming Special Report as a dollar amount; (b) all liabilities and obligations of Ceridian and Comdata to be paid or performed after the date hereof under (i) the Gaming Agreements and (ii) any contracts related to the Gaming Business to which Ceridian, Comdata or the Gaming Subsidiary is a party that are customary for companies engaged in the same line of business as the Gaming Business, except in each case, to the extent such liabilities and obligations, (A) but for a breach or default by Ceridian, Comdata or the Gaming Subsidiary, would have been paid, performed or otherwise discharged on or prior to the date hereof or to the extent the same arise out of any such breach or default and (B) are not reflected on the Closing Date Gaming Special Report and are not taken into account as a deduction in connection with the determination of the Gaming Receivables Adjustment pursuant to SECTION 3.3; and (c) all liabilities in respect of Taxes for which FDC, IPS, NTS or FDFS is liable pursuant to SECTION 7.3. 2.5. EXCLUDED GAMING LIABILITIES. Notwithstanding the provisions of SECTION 2.4, the Assumed Gaming Liabilities shall not include the following (herein referred to as the "EXCLUDED GAMING LIABILITIES"): -18- (a) any liabilities in respect of Taxes for which Comdata or Ceridian is liable pursuant to SECTION 7.3; (b) any intercompany payables and other liabilities or obligations of the Gaming Business to Comdata, Ceridian or any of their respective Affiliates; (c) any costs and expenses incurred by Comdata, Ceridian or the Gaming Subsidiary incident to the negotiation and preparation of this Agreement and their respective performance and compliance with the agreements and conditions contained herein; (d) any liabilities or obligations in respect of any Excluded Gaming Assets; (e) any liabilities in respect of the claims or proceedings described in SCHEDULE 5.22; (f) accrued liabilities of any kind required to be reflected on the Closing Date Gaming Special Report prepared in accordance with the Gaming Agreed Accounting Principles which were not reflected thereon as a dollar amount; (g) any liabilities and obligations related to, associated with or arising out of (i) the occupancy, operation, use or control of any of the Gaming Business Property on or prior to the date hereof or (ii) the operation of the Gaming Business on or prior to the date hereof, in each case incurred or imposed by any Environmental Law (including, without limitation, any Release of any Contaminant on, at or from (1) the Gaming Business Property, including, without limitation, all facilities, improvements, structures and equipment thereon, surface water thereon or adjacent thereto and soil or groundwater thereunder, or any conditions whatsoever on, under or in the vicinity of such real property or (2) any real property or facility owned by a third Person to which Contaminants generated by the Gaming Business were sent prior to the date hereof); (h) any product liability or claims for injury to person or property, regardless of when made or asserted, relating to products manufactured, distributed or sold by the Gaming Business or services performed by the Gaming Business on or prior to the date hereof; (i) any liabilities relating to Escheat Laws or the failure to file reports, or to pay or turn over amounts due, thereunder which pertain to (A) any Gaming Business transaction initiated prior to the Closing Date or (B) any Gaming Business transactions for which a Comdata Payment Instrument is issued during the twelve month period following Closing; and (j) any liabilities arising under that certain Processing and Related Services Agreement among Comdata, Concord Computing Corporation and EFS National Bank -19- dated as of April 30, 1996, as amended and the Marketing Rights Agreement executed in connection therewith. In order that the Gaming Subsidiary shall not be responsible in any respect for any liabilities or obligations that would constitute Excluded Gaming Liabilities in the case of Comdata, Comdata shall assume and agree to pay, perform and discharge such liabilities and obligations of the Gaming Subsidiary (the "GAMING SUBSIDIARY EXCLUDED LIABILITIES") and all Gaming Subsidiary Excluded Liabilities shall be deemed to constitute Excluded Gaming Liabilities for purposes of this Agreement. 2.6. PURCHASED NTS ASSETS. The Purchased NTS Assets shall consist of all assets and properties of NTS of every kind and description, wherever located, real, personal or mixed, tangible or intangible, heretofore used in connection with the NTS Business, including, without limitation, all right, title and interest of NTS in, to and under: (a) all of the assets reflected on the NTS Balance Sheet, except those disposed of or converted into cash after the NTS Balance Sheet Date in the ordinary course of business; (b) all notes and accounts receivable generated by the NTS Business; (c) all inventory used in the NTS Business; (d) to the extent assignable, the NTS Business Governmental Permits listed in SCHEDULE 6.9; (e) the NTS Business Leased Real Property and leasehold improvements listed or described in SCHEDULE 6.11(A) except to the extent such NTS Leased Real Property is (i) provided to Comdata pursuant to the NTS Business Transition Services Agreement or (ii) is listed on SCHEDULE 2.7; (f) the machinery, equipment, vehicles, furniture and other personal property listed or referred to in SCHEDULE 6.13(A) except to the extent the use of such machinery, equipment, vehicles, furniture and other property is (i) provided to Comdata pursuant to the NTS Business Transition Services Agreement or (ii) is listed on SCHEDULE 2.7; (g) the personal property leases listed in SCHEDULE 6.14 except to the extent the use of such personal property leases are (i) provided to Comdata pursuant to the NTS Business Transition Services Agreement or (ii) is listed on SCHEDULE 2.7; (h) the Copyrights, Patent Rights and Trademarks (and all goodwill associated therewith), the name "NTS," and the agreements, contracts, licenses, sublicenses, assignments and indemnities, listed in SCHEDULE 6.15(A) except to the extent such Copyrights, Patent Rights and Trademarks are (i) licensed or sublicensed to Comdata -20- pursuant to the NTS Business Transition Services Agreement or (ii) is listed on SCHEDULE 2.7; (i) the NTS Business Owned Software listed in SCHEDULE 6.15(B) except to the extent such NTS Business Owned Software is (i) licensed or sublicensed to Comdata pursuant to the NTS Business Transition Services Agreement or (ii) is listed on SCHEDULE 2.7; (j) all Trade Secrets and other proprietary or confidential information used in or relating to the NTS Business except those Trade Secrets or other proprietary or confidential information which is used in or relates to any other business of FDC or its Affiliates; (k) the agreements listed in SCHEDULE 6.18(A); (l) the contracts, agreements or understandings listed or described in SCHEDULE 6.20 and all other contracts related to the NTS Business to which FDC, IPS or NTS or the NTS Subsidiary is a party that are customary for companies engaged in the same line of business as the NTS Business; (m) all books and records (including all data and other information stored on discs, tapes or other media) of FDC, IPS or NTS relating exclusively to the assets, properties, business and operations of the NTS Business and, if requested, copies of all books and records (including all data and other information stored on discs, tapes or other media) which are used in connection with, (but not exclusively related to) the assets, properties, business and operations of the NTS Business, PROVIDED, HOWEVER, that only the portions of such books and records relating to the NTS Business will be provided; (n) FDC's, IPS' and NTS' interest in and to all telephone, telex and telephone facsimile numbers and other directory listings utilized primarily in connection with the NTS Business; (o) all of the NT Canada Shares; (p) all of the bank accounts listed on SCHEDULE 2.6; and (q) all of the blank, unissued NTS Payment Instruments. 2.7. EXCLUDED NTS ASSETS. Notwithstanding the provisions of SECTION 2.6, the Purchased NTS Assets shall not include the following (herein referred to as the "EXCLUDED NTS ASSETS"): (a) all cash, bank deposits and cash equivalents (except for that cash listed as a receivable on the Estimated NTS Special Report) (it being understood that the NTS Equalization Cash is reflected in the Initial Amount); -21- (b) the names "IPS," "Western Union," "Greenback," "Transpay" or any related or similar trade names, trademarks, service marks or logos to the extent the same incorporate the name "IPS," "Western Union", "Greenback," "Transpay" or any variation thereof; (c) FDC's and IPS' rights, claims or causes of action against third parties relating to the assets, properties, business or operations of the NTS Business which may arise in connection with the discharge by FDC or IPS of the Excluded NTS Liabilities; (d) all contracts of insurance; (e) all corporate minute books and stock transfer books and the corporate seal of IPS and NTS; (f) FDC's and IPS' rights under the lease agreement described in SCHEDULE 6.11(A); (g) except to the extent provided in SECTION 7.4, NTS' employee benefit agreements, plans or arrangements listed in SCHEDULE 6.18(A) or otherwise maintained by IPS, NTS or the NTS Subsidiary on behalf of persons employed by IPS, NTS or the NTS Subsidiary; (h) all refunds of any Tax to which FDC or IPS is entitled pursuant to SECTION 7.3; (i) the assets listed on SCHEDULE 2.7; (j) that certain agreement between PHH Corporation and IPS dated as of February 12, 1996; (k) that certain agreement between Electronic Data Systems Corporation and IPS dated as of August 13, 1996; and (l) all assets and agreements relating to the NTS Computer Facility. With respect to any assets that were owned on the date preceding the date hereof by the NTS Subsidiary and that would have constituted Excluded NTS Assets if owned by NTS (the "NTS SUBSIDIARY EXCLUDED ASSETS"), NTS shall, immediately prior to the Closing, cause the NTS Subsidiary to convey, transfer and deliver, without any representation or warranty (express or implied), to NTS such assets and the NTS Subsidiary Excluded Assets shall be deemed to be Excluded NTS Assets for purposes of this Agreement. 2.8. ASSUMED NTS LIABILITIES. The Assumed NTS Liabilities shall consist of: (a) all liabilities of the NTS Business reflected in the Closing Date NTS Special Report as a dollar amount; -22- (b) all liabilities and obligations of NTS to be paid or performed after the date hereof under (i) the NTS Agreements and (ii) all other contracts related to the NTS Business to which FDC, IPS, NTS or the NTS Subsidiary is a party that are customary for companies engaged in the same line of business as the NTS Business, except in each case, to the extent such liabilities and obligations, (A) but for a breach or default by FDC, IPS, NTS or the NTS Subsidiary, would have been paid, performed or otherwise discharged on or prior to the date hereof or to the extent the same arise out of any such breach or default and (B) are not reflected on the Closing Date NTS Special Report and are not taken into account as a deduction in connection with the determination of the NTS Receivables Adjustment pursuant to SECTION 3.4; (c) all liabilities in respect of Taxes for which Comdata is liable pursuant to SECTION 7.3. (d) all liabilities pursuant to any NTS Payment Instrument issued on or after the Closing Date. 2.9. EXCLUDED NTS LIABILITIES. Notwithstanding the provisions of SECTION 2.8, the Assumed NTS Liabilities shall not include the following (herein referred to as the "EXCLUDED NTS LIABILITIES"): (a) any liabilities in respect of Taxes for which FDC, IPS, NTS, FDFS or is liable pursuant to SECTION 7.3; (b) any intercompany payables and other liabilities or obligations of the NTS Business to IPS, FDC, FDFS or any of their respective Affiliates; (c) any costs and expenses incurred by IPS, FDC, NTS, the NTS Subsidiary or FDFS incident to the negotiation and preparation of this Agreement and their respective performance and compliance with the agreements and conditions contained herein; (d) any liabilities or obligations in respect of any Excluded NTS Assets; (e) any liabilities in respect of the claims or proceedings described in SCHEDULE 6.22; (f) accrued liabilities of any kind required to be reflected on the Closing Date NTS Special Report prepared in accordance with the NTS Agreed Accounting Principles which were not reflected thereon as a dollar amount; (g) any liabilities and obligations related to, associated with or arising out of (i) the occupancy, operation, use or control of any of the NTS Property on or prior to the date hereof or (ii) the operation of the NTS Business on or prior to the date hereof, in each case incurred or imposed by any Environmental Law (including, without limitation, any Release of any Contaminant on, at or from (1) the NTS Property, including, without -23- limitation, all facilities, improvements, structures and equipment thereon, surface water thereon or adjacent thereto and soil or groundwater thereunder, or any conditions whatsoever on, under or in the vicinity of such real property or (2) any real property or facility owned by a third Person to which Contaminants generated by the NTS Business were sent prior to the date hereof); (h) any product liability or claims for injury to person or property, regardless of when made or asserted, relating to products manufactured, distributed or sold by the NTS Business or services performed by the NTS Business on or prior to the date hereof; and (i) any liabilities relating to Escheat Laws or the failure to file reports, or to pay or turn over amounts due, thereunder which pertain to any NTS Business transaction initiated prior to the Closing Date. In order that the NTS Subsidiary shall not be responsible in any respect for any liabilities or obligations that would constitute Excluded NTS Liabilities in the case of NTS, NTS shall assume and agree to pay, perform and discharge such liabilities and obligations of the NTS Subsidiary (the "NTS SUBSIDIARY EXCLUDED LIABILITIES") and all NTS Subsidiary Excluded Liabilities shall be deemed to constitute Excluded NTS Liabilities for purposes of this Agreement. ARTICLE III CASH ADJUSTMENT 3.1. DETERMINATION OF TRANSFERRED CASH. (a) As promptly as practicable (but not later than 60 business days) after the date hereof, IPS shall prepare and deliver to Comdata a detailed statement (with appropriate work papers attached) setting forth the amount of Transferred Cash as of 11:59 p.m. central time on the date hereof (the "PRELIMINARY TRANSFERRED CASH STATEMENT"). (b) Promptly following receipt of the Preliminary Transferred Cash Statement, Comdata may review the same and, within 60 days after the date of such receipt, may deliver to IPS a certificate (signed by its chief financial officer or its chief accounting officer) setting forth its objections, if any, to the Preliminary Transferred Cash Statement, together with a summary of the reasons therefor and calculations which, in its view, are necessary to eliminate any such objections. In the event Comdata does not so object within such 60-day period, the Preliminary Transferred Cash Statement shall be final and binding as the "TRANSFERRED CASH STATEMENT" for purposes of this Agreement, but shall not limit the representations, warranties, covenants and agreements of the parties set forth elsewhere in this Agreement. (c) In the event Comdata so objects within such 60-day period, IPS and Comdata shall use their reasonable efforts to resolve by written agreement (the "AGREED ADJUSTMENTS") any differences as to the Preliminary Transferred Cash Statement and, in the event Comdata and IPS -24- so resolve any such differences, the Preliminary Transferred Cash Statement as adjusted by the Agreed Adjustments shall be final and binding as the Transferred Cash Statement for purposes of this Agreement, but shall not limit the representations, warranties, covenants and agreements of the parties set forth elsewhere in this Agreement. (d) In the event any objections raised by Comdata are not resolved by Agreed Adjustments within the 60-day period next following such 60-day period, then IPS and Comdata shall submit the objections that are then unresolved to the Selected Accounting Firm and the Selected Accounting Firm shall be directed by Comdata and IPS to resolve the unresolved objections as promptly as reasonably practicable and to deliver written notice to each of Comdata and IPS setting forth its resolution of the disputed matters. The Preliminary Transferred Cash Statement, after giving effect to any Agreed Adjustments and to the resolution of disputed matters by the Selected Accounting Firm, shall be final and binding as the Transferred Cash Statement, for purposes of this Agreement but shall not limit the representations, warranties, covenants and agreements of the parties set forth elsewhere in this Agreement. (e) The parties hereto shall make available to Comdata, IPS and, if applicable, the Selected Accounting Firm, such books, records and other information (including work papers) as any of the foregoing may reasonably request to prepare or review the Preliminary Transferred Cash Statement or any matters submitted to the Selected Accounting Firm. The fees and expenses of the Selected Accounting Firm hereunder shall be paid 50% by Comdata and 50% by IPS. 3.2. TRANSFERRED CASH ADJUSTMENT. As promptly as practicable (but not later than five business days) after the determination of the Transferred Cash Statement pursuant to SECTION 3.1 that is final and binding as set forth therein: (i) if the aggregate amount of cash set forth in the Transferred Cash Statement exceeds the Estimated Amount of Transferred Cash, NTS shall pay to Comdata, by wire transfer of immediately available funds to such bank account of Comdata as Comdata shall designate in writing to NTS, an amount equal to such excess, plus interest on such excess from the date hereof to the date of payment thereof at the Agreed Rate; or (ii) if the Estimated Amount of Transferred Cash exceeds the aggregate amount of cash set forth in the Transferred Cash Statement, Comdata shall pay to NTS, by wire transfer of immediately available funds to such bank account of NTS as NTS shall designate in writing to Comdata, an amount equal to such excess, plus interest on such excess from the date hereof to the date of payment thereof at the Agreed Rate. 3.3. DETERMINATION OF GAMING RECEIVABLES ADJUSTMENT. (a) As promptly as practicable (but not later than sixty days) after the date hereof, IPS shall: -25- (i) prepare, in accordance with the Gaming Agreed Accounting Principles, a written report (the "Preliminary Closing Date Gaming Special Report") which shall fairly present the amounts of the gaming receivables and gaming liabilities, in each case, as of 11:59 p.m. central time on the date hereof and of the type reflected as such in the Preliminary Closing Date Gaming Special Report (the amounts of the gaming receivables and the gaming liabilities as so reflected being referred to respectively herein as the "PRELIMINARY GAMING RECEIVABLES" and the "PRELIMINARY GAMING LIABILITIES" and collectively as the "PRELIMINARY GAMING AMOUNTS".) (ii) calculate the Gaming Receivables Adjustment in accordance with the provisions of this Agreement, based on the Preliminary Closing Date Gaming Special Report and assuming for such purposes that the Preliminary Gaming Amounts constitute the Gaming Amounts (the "PRELIMINARY GAMING RECEIVABLES ADJUSTMENT"); and (iii) deliver to Comdata the Preliminary Closing Date Gaming Special Report and a certificate setting forth the Preliminary Gaming Receivables, the Preliminary Gaming Liabilities and the Preliminary Gaming Receivables Adjustment, together with the supporting calculations in reasonable detail (collectively, the "PRELIMINARY GAMING ACCOUNTING REPORT"). (b) Promptly following such delivery of the Preliminary Gaming Accounting Report, Comdata shall have the opportunity to review the Preliminary Closing Date Gaming Special Report and the Preliminary Gaming Receivables Adjustment. Not later than 60 days after the date of such receipt, Comdata may deliver to IPS a certificate (signed by an officer of Comdata) setting forth its objections to the Preliminary Closing Date Gaming Special Report, the Preliminary Gaming Receivables, the Preliminary Gaming Liabilities or the Preliminary Gaming Receivables Adjustment as set forth in the Preliminary Gaming Accounting Report, together with a summary of the reasons therefor and calculations which, in its view, are necessary to eliminate such objections. If Comdata does not so object within such 60-day period, the Preliminary Closing Date Gaming Special Report, the Preliminary Gaming Receivables, the Preliminary Gaming Liabilities and the Preliminary Gaming Receivables Adjustment set forth in the Preliminary Gaming Accounting Report shall be final and binding as the Closing Date Gaming Special Report, the Gaming Receivables, the Gaming Liabilities and the Gaming Receivables Adjustment, respectively, for purposes of this Agreement but shall not limit the representations, warranties, covenants and agreements of the parties set forth elsewhere in this Agreement. (c) If Comdata so objects within such 60-day period, IPS and Comdata shall use their reasonable efforts to resolve by written agreement (the "AGREED GAMING ADJUSTMENTS") any differences as to the Preliminary Closing Date Gaming Special Report, the Preliminary Gaming Receivables, the Preliminary Gaming Liabilities and the Preliminary Gaming Receivables Adjustment and, if IPS and Comdata so resolve any such differences, the Preliminary Closing Date Gaming Special Report, the Preliminary Gaming Receivables, the Preliminary Gaming Liabilities and the Preliminary Gaming Receivables Adjustment set forth in the Preliminary Gaming Accounting Report as adjusted by the Agreed Gaming Adjustments shall be final and binding as the Closing Date Gaming Special Report, the Gaming Receivables, the Gaming -26- Liabilities, and the Gaming Receivables Adjustment, respectively, for purposes of this Agreement but shall not limit the representations, warranties, covenants and agreements of the parties set forth elsewhere in this Agreement. (d) If any objections raised by Comdata are not resolved by Agreed Gaming Adjustments within the 60-day period next following such 60-day period, then IPS and Comdata shall submit the objections that are then unresolved (the "UNRESOLVED GAMING OBJECTIONS") to the Selected Accounting Firm and such Selected Accounting Firm shall be directed by IPS and Comdata to resolve the Unresolved Gaming Objections (based solely on the presentations by IPS and Comdata as to whether any disputed matter had been determined in a manner consistent with the Agreed Gaming Accounting Principles) as promptly as reasonably practicable and to deliver written notice to each of IPS and Comdata setting forth its resolution of the disputed matters. The Preliminary Closing Date Gaming Special Report, the Preliminary Gaming Receivables, the Preliminary Gaming Liabilities and the Preliminary Gaming Receivables Adjustment, after giving effect to any Agreed Gaming Adjustments and to the resolution of disputed matters by the Selected Accounting Firm, shall be final and binding as the Closing Date Gaming Special Report, the Gaming Receivables, the Gaming Liabilities, and the Gaming Receivables Adjustment, respectively, for purposes of this Agreement but shall not limit the representations, warranties, covenants and agreements of the parties set forth elsewhere in this Agreement. Any determinations by the Selected Accounting Firm shall be final and binding on the parties hereto. Comdata and IPS shall each be responsible for all fees of their respective accountants and all expenses incurred by such respective firms in connection with any settlement proceeding. The fees and expenses of the Selected Accounting Firm incurred in connection with such settlement proceeding shall be paid fifty (50%) percent by IPS and fifty (50%) percent by Comdata. (e) Upon final determination pursuant to this SECTION 3.3 of the Closing Date Gaming Special Report, the Gaming Amounts and the Gaming Receivables Adjustment, IPS shall deliver to Comdata a report setting forth the Closing Date Gaming Special Report, the Gaming Amounts, and the Gaming Receivables Adjustment (the "GAMING ACCOUNTING REPORT"). (f) IPS and Comdata shall make available to one another and the Selected Accounting Firm, as the case may be, such books, records and other information (including work papers) as such Person may reasonably request during the review of the Preliminary Gaming Accounting Report or the preparation of the Gaming Accounting Report. 3.4. DETERMINATION OF NTS RECEIVABLES ADJUSTMENT. (a) As promptly as practicable (but not later than sixty days) after the date hereof, Comdata shall: (i) prepare, in accordance with the NTS Agreed Accounting Principles, a written report (the "Preliminary Closing Date NTS Special Report") which shall fairly present the amounts of the NTS receivables and NTS liabilities, in each case, as of 11:59 p.m. central time on the date hereof and of the type reflected as such in the Preliminary Closing Date NTS Special Report (the amounts of the NTS receivables, and the NTS liabilities so reflected being referred to respectively herein as the "PRELIMINARY NTS RECEIVABLES" and the "PRELIMINARY NTS LIABILITIES" and collectively as the "PRELIMINARY NTS AMOUNTS".) -27- (ii) calculate the NTS Receivables Adjustment in accordance with the provisions of this Agreement, based on the Preliminary Closing Date NTS Special Report and assuming for such purposes that the Preliminary NTS Amounts constitute the NTS Amounts (the "PRELIMINARY NTS RECEIVABLES ADJUSTMENT"); and (iii) deliver to IPS the Preliminary Closing Date NTS Special Report and a certificate setting forth the Preliminary NTS Receivables, the Preliminary NTS Liabilities and the Preliminary NTS Receivables Adjustment, together with the supporting calculations in reasonable detail (collectively, the "PRELIMINARY NTS ACCOUNTING REPORT"). (b) Promptly following such delivery of the Preliminary NTS Accounting Report, IPS shall have the opportunity to review the Preliminary Closing Date NTS Special Report and the Preliminary NTS Receivables Adjustment. Not later than 60 days after the date of such receipt, IPS may deliver to Comdata a certificate (signed by an officer of IPS) setting forth its objections to the Preliminary Closing Date NTS Special Report, the Preliminary NTS Receivables, the Preliminary NTS Liabilities or the Preliminary NTS Receivables Adjustment as set forth in the Preliminary NTS Accounting Report, together with a summary of the reasons therefor and calculations which, in its view, are necessary to eliminate such objections. If IPS does not so object within such 60-day period, the Preliminary Closing Date NTS Special Report, the Preliminary NTS Receivables, the Preliminary NTS Liabilities and the Preliminary NTS Receivables Adjustment set forth in the Preliminary NTS Accounting Report shall be final and binding as the Closing Date NTS Special Report, the NTS Receivables, the NTS Liabilities and the NTS Receivables Adjustment, respectively, for purposes of this Agreement but shall not limit the representations, warranties, covenants and agreements of the parties set forth elsewhere in this Agreement. (c) If IPS so objects within such 60-day period, Comdata and IPS shall use their reasonable efforts to resolve by written agreement (the "AGREED NTS ADJUSTMENTS") any differences as to the Preliminary Closing Date NTS Special Report, the Preliminary NTS Receivables, the Preliminary NTS Liabilities and the Preliminary NTS Receivables Adjustment and, if Comdata and IPS so resolve any such differences, the Preliminary Closing Date NTS Special Report, the Preliminary NTS Receivables, the Preliminary NTS Liabilities and the Preliminary NTS Receivables Adjustment set forth in the Preliminary NTS Accounting Report as adjusted by the Agreed NTS Adjustments shall be final and binding as the Closing Date NTS Special Report, the NTS Receivables, the NTS Liabilities, and the NTS Receivables Adjustment, respectively, for purposes of this Agreement but shall not limit the representations, warranties, covenants and agreements of the parties set forth elsewhere in this Agreement. (d) If any objections raised by IPS are not resolved by Agreed NTS Adjustments within the 60-day period next following such 60-day period, then Comdata and IPS shall submit the objections that are then unresolved (the "UNRESOLVED NTS OBJECTIONS") to the Selected Accounting Firm and such Selected Accounting Firm shall be directed by Comdata and IPS to resolve the Unresolved NTS Objections (based solely on the presentations by Comdata and IPS as to whether any disputed matter had been determined in a manner consistent with the Agreed NTS Accounting Principles) as promptly as reasonably practicable and to deliver written notice to each -28- of Comdata and IPS setting forth its resolution of the disputed matters. The Preliminary Closing Date NTS Special Report, the Preliminary NTS Receivables, the Preliminary NTS Liabilities and the Preliminary NTS Receivables Adjustment, after giving effect to any Agreed NTS Adjustments and to the resolution of disputed matters by the Selected Accounting Firm, shall be final and binding as the Closing Date NTS Special Report, the NTS Receivables, the NTS Liabilities, and the NTS Receivables Adjustment, respectively, for purposes of this Agreement but shall not limit the representations, warranties, covenants and agreements of the parties set forth elsewhere in this Agreement. Any determinations by the Selected Accounting Firm shall be final and binding on the parties hereto. IPS and Comdata shall each be responsible for all fees of their respective accountants and all expenses incurred by such respective firms in connection with any settlement proceeding. The fees and expenses of the Selected Accounting Firm incurred in connection with such settlement proceeding shall be paid fifty (50%) percent by IPS and fifty (50%) percent by Comdata. (e) Upon final determination pursuant to this SECTION 4.4 of the Closing Date NTS Special Report, the NTS Amounts and the NTS Receivables Adjustment, Comdata shall deliver to IPS a report setting forth the Closing Date NTS Special Report, the NTS Amounts and the NTS Receivables Adjustment (the "NTS ACCOUNTING REPORT"). (f) IPS and Comdata shall make available to one another and the Selected Accounting Firm, as the case may be, such books, records and other information (including work papers) as such Person may reasonably request during the review of the Preliminary NTS Accounting Report or the preparation of the NTS Accounting Report. 3.5. NET RECEIVABLES ADJUSTMENT. Promptly (but not later than five business days) after the later of (i) the determination of the Gaming Receivables Adjustment pursuant to SECTION 3.3 that is final and binding as set forth therein or (ii) the determination of the NTS Receivables Adjustment pursuant to SECTION 3.4 that is final and binding as set forth therein: (a) if the Gaming Receivables Adjustment exceeds the NTS Receivables Adjustment, NTS shall pay to Comdata, by wire transfer of immediately available funds to such bank account of Comdata as Comdata shall designate in writing to NTS, an amount equal to such excess, plus interest on such excess from the date hereof to the date of payment thereof at the Agreed Rate; or (b) if the NTS Receivables Adjustment exceeds the Gaming Receivables Adjustment, Comdata shall pay to NTS, by wire transfer of immediately available funds to such bank account of NTS as NTS shall designate in writing to Comdata an amount equal to such excess, plus interest on such excess from the date hereof to the date or payment thereof at the Agreed Rate. -29- ARTICLE IV CLOSING 4.1. CLOSING. The Closing shall be consummated on January 16, 1998 at the offices of Sidley & Austin, One First National Plaza, Chicago, Illinois. At the Closing, the parties shall effect the deliveries contemplated by SECTIONS 4.3 and 4.4. As soon as practicable thereafter, NTS and Comdata shall file with the Department of Assessments and Taxation of the State of Maryland Articles of Transfer in the form of EXHIBIT H. For all purposes of this Agreement, the Closing shall be deemed effective as of 11:59 p.m. central time on the date hereof (it being understood that the transfer of the NT Canada Shares from NTS to Permicom shall be deemed to have occurred immediately prior to the transfer of the Purchased NTS Assets to Comdata). 4.2. DELIVERY OF PROMISSORY NOTES. Simultaneously with the execution hereof, Permicom shall deliver to NTS the Permicom Note, following which NTS shall deliver to Comdata the NTS Note. 4.3. FDC's, IPS', NTS' AND FDFS' ADDITIONAL DELIVERIES. Simultaneously with the execution hereof, FDC, IPS, NTS and FDFS shall deliver to Comdata, Ceridian and Permicom all the following: (a) A copy of the Certificate of Incorporation of FDC certified as of a recent date by the Secretary of State of the State of Delaware; (b) Certificate of Good Standing of FDC issued as of a recent date by the Secretary of State of the State of Delaware; (c) Certificate of the secretary or an assistant secretary of FDC, dated the date hereof, in form and substance reasonably satisfactory to Comdata, as to (i) no amendments to the Certificate of Incorporation of FDC since a specified date; (ii) the by-laws of FDC; (iii) the resolutions of the Board of Directors of FDC authorizing the execution and performance of this Agreement and the transactions contemplated hereby; and (iv) incumbency and signatures of the officers of FDC executing this Agreement and any IPS Ancillary Agreement; (d) A copy of the Certificate of Incorporation of IPS certified as of a recent date by the Secretary of State of the State of Delaware; (e) Certificate of Good Standing of IPS issued as of a recent date by the Secretary of State of the State of Delaware; (f) Certificate of the secretary or an assistant secretary of IPS, dated the date hereof, in form and substance reasonably satisfactory to Comdata, as to (i) no amendments to the Certificate of Incorporation of IPS since a specified date; (ii) the by-laws of IPS; (iii) the resolutions of the Board of Directors of IPS authorizing the execution and -30- performance of this Agreement and the transactions contemplated hereby; and (iv) incumbency and signatures of the officers of IPS executing this Agreement and any IPS Ancillary Agreement; (g) A copy of the Certificate of Incorporation of NTS certified as of a recent date by the Secretary of State of the State of Maryland; (h) Certificate of good standing of NTS issued as of a recent date by the Secretary of State of the State of Maryland; (i) Certificate of the secretary or an assistant secretary of NTS, dated the date hereof, in form and substance reasonably satisfactory to Comdata, as to (i) no amendments to the Certificate of Incorporation of NTS since a specified date; (ii) the by-laws of NTS; (iii) the resolutions of the Board of Directors of NTS and sole stockholder authorizing the execution and performance of this Agreement and the transactions contemplated hereby; and (iv) incumbency and signatures of the officers of NTS executing this Agreement and any IPS Ancillary Agreement; (j) Certificate of Good Standing of NTS Subsidiary issued as of a recent date by Ministry of Consumer and Commercial Relations; (k) Certificate of the secretary or an assistant secretary of NTS Subsidiary dated the date hereof, in form and substance reasonably satisfactory to Comdata, as to (i) no amendments to the Charter of NTS Subsidiary since a specified date and (ii) the by-laws of the NTS Subsidiary; (l) Certificate of the secretary or assistant secretary of FDFS dated the date hereof, in form and substance reasonably satisfactory to Comdata as to (i) no amendments to the certificate of formation of FDFS since a specified date; (m) The FDFS Instrument of Assumption pursuant to which FDFS shall assume and agree to discharge the Assumed Gaming Liabilities in accordance with their respective terms and subject to the respective conditions thereof duly executed by FDFS; (n) The NTS Instrument of Assignment pursuant to which NTS shall transfer and assign (i) the Purchased NTS Assets (except the NT Canada Shares) to Comdata and (ii) the NT Canada Shares to Permicom, duly executed by NTS; (o) a stock certificate representing the NT Canada Shares, accompanied by a duly executed and witnessed stock power, transferring the NT Canada Shares to Permicom; (p) Certificates of title or origin (or like documents) with respect to any vehicles or other equipment included in the Purchased NTS Assets for which a certificate of title or origin is required in order to transfer title; -31- (q) All consents, waivers or approvals obtained by FDC, IPS, FDFS, NTS or the NTS Subsidiary with respect to the Purchased NTS Assets or the consummation of the transactions contemplated by this Agreement; (r) The Gaming Business Transition Services Agreement duly executed by IPS, FDT and FDFS; (s) The NTS Business Transition Services Agreement duly executed by NTS, IPS and FDT; (t) The Services and Processing Agreement duly executed by IPS and FDT; (u) All consents, waivers or approvals obtained by FDC, IPS, NTS, FDFS or the NTS Subsidiary with respect to the consummation of the transactions contemplated by this Agreement; (v) A signed resignation by each of the directors and officers of the NTS Subsidiary; (w) All minute books and stock ledgers of the NTS Subsidiary; (x) An assignment, in recordable form, with respect to each of the leases of real estate described in SCHEDULE 6.11, duly executed by NTS and in form and substance reasonably satisfactory to Comdata; (y) Such other bills of sale, assignments and other instruments of transfer or conveyance as Comdata may reasonably request or as may be otherwise necessary to evidence and effect the sale, transfer, conveyance and delivery of the Purchased NTS Assets (except the NT Canada Shares) to Comdata and the NT Canada Shares to Permicom. (z) A receipt evidencing receipt of the Cashcall Inc. Shares duly executed by FDFS; (aa) The NTS Canadian Instrument of Assignment pursuant to which the NTS Subsidiary shall transfer and assign the NTS Subsidiary Excluded Assets to NTS duly executed by NTS; and (ab) The NTS Canadian Instrument of Assumption pursuant to which NTS shall assume and agree to discharge the NTS Subsidiary Excluded Liabilities of the NTS Subsidiary duly executed by NTS. In addition to the above deliveries, FDC, IPS, NTS and the NTS Subsidiary shall take all steps and actions including the delivery of such other bills of sale, deeds, endorsements, assignments and other good and sufficient instruments of conveyance and transfer, as Ceridian, Comdata or -32- Permicom may reasonably request or as may otherwise be necessary to put Comdata in control and possession of the Purchased NTS Assets (except the NT Canada Shares) and Permicom in control and possession of the NT Canada Shares. 4.4. CERIDIAN'S, COMDATA'S AND PERMICOM'S ADDITIONAL DELIVERIES. Simultaneously with the execution hereof, Ceridian, Comdata or Permicom shall deliver to FDC, IPS, NTS and FDFS all the following: (a) A copy of Ceridian's Certificate of Incorporation certified as of a recent date by the Secretary of State of the State of Delaware; (b) Certificate of Good Standing of Ceridian issued as of a recent date by the Secretary of State of the State of Delaware; (c) Certificate of the secretary or an assistant secretary of Ceridian, dated the date hereof, in form and substance reasonably satisfactory to FDC, as to (i) no amendments to the Certificate of Incorporation of Ceridian since a specified date; (ii) the by-laws of Ceridian; (iii) the resolutions of the Board of Directors of Ceridian authorizing the execution and performance of this Agreement and the transactions contemplated hereby; and (iv) incumbency and signatures of the officers of Ceridian executing this Agreement and any Comdata Ancillary Agreement; (d) A copy of the Certificate of Incorporation of Comdata certified as of a recent date by the Secretary of State of the State of Maryland; (e) Certificate of good standing of Comdata issued as of a recent date by the Secretary of State of the State of Maryland; (f) Certificate of the secretary or an assistant secretary of Comdata, dated the date hereof, in form and substance reasonably satisfactory to FDC, as to (i) no amendments to the Certificate of Incorporation of Comdata since a specified date; (ii) the by-laws of Comdata; (iii) the resolutions of the Board of Directors of Comdata authorizing the execution and performance of this Agreement and the transactions contemplated hereby; and (iv) incumbency and signatures of the officers of Comdata executing this Agreement and any Comdata Ancillary Agreement; (g) Certificate of Good Standing of Gaming Subsidiary issued as of a recent date by the Ministry of Consumer and Commercial Relations. (h) Certificate of the secretary or an assistant secretary of Gaming Subsidiary dated the date hereof, in form and substance reasonably satisfactory to FDC, as to (i) no amendments to the Charter of Gaming Subsidiary since a specified date and (ii) the by-laws of Gaming Subsidiary; -33- (i) Certificate of the secretary or an assistant secretary of Permicom dated the date hereof, in form and substance reasonably satisfactory to FDC, as to (i) no amendments to the Charter of Permicom since a specified date and (ii) the by-laws of Permicom; (j) The Comdata Instrument of Assumption pursuant to which Comdata shall assume and agree to discharge the Assumed NTS Liabilities in accordance with their respective terms and subject to the respective conditions thereof duly executed by Comdata; (k) The Comdata Instrument of Assignment pursuant to which Comdata shall transfer and assign the Purchased Gaming Assets to FDFS duly executed by Comdata; (l) Certificates of title or origin (or like documents) with respect to any vehicles or other equipment included in the Purchased Gaming Assets for which a certificate of title or origin is required in order to transfer title; (m) All consents, waivers or approvals obtained by Ceridian, Comdata or the Gaming Subsidiary with respect to the Purchased Gaming Assets or the consummation of the transactions contemplated by this Agreement; (n) A stock certificate representing the Cashcall Inc. Shares, accompanied by a duly executed and witnessed stock power transferring the Cashcall Inc. Shares to FDFS; (o) The Gaming Business Transition Services Agreement duly executed by Comdata; (p) The NTS Business Transition Services Agreement, duly executed by Comdata; (q) The Services and Processing Agreement duly executed by Comdata; (r) All consents, waivers or approvals obtained by Comdata or the Gaming Subsidiary with respect to the consummation of the transactions contemplated by this Agreement; (s) A signed resignation by each of the directors and officers of the Gaming Subsidiary; (t) All minute books and stock ledgers of the Gaming Subsidiary; (u) An assignment, in recordable form, with respect to each of the leases of real estate described in SCHEDULE 6.11, duly executed by Ceridian or Comdata and in form and substance reasonably satisfactory to FDFS; (v) Such other bills of sale, assignments and other instruments of transfer or conveyance as FDFS may reasonably request or as may be otherwise necessary to -34- evidence and effect the sale, assignment, transfer, conveyance and delivery of the Purchased Gaming Assets to FDFS; (w) A receipt evidencing receipt of the NT Canada Shares, duly executed by Permicom; (x) A receipt evidencing receipt of the Initial Amount duly executed by Comdata. (y) The Comdata Canadian Instrument of Assignment pursuant to which the Gaming Subsidiary shall transfer and assign the Gaming Subsidiary Excluded Assets to Comdata; and (z) The Comdata Canadian Instrument of Assumption pursuant to which Comdata shall assume and agree to discharge the Gaming Subsidiary Excluded Liabilities of the Gaming Subsidiary. In addition to the above deliveries, Ceridian, Comdata and the Gaming Subsidiary shall take all steps and actions, including the delivery of such other bills of sale, deeds, endorsements, assignments, and other good and sufficient instruments of conveyance and transfer, as IPS, FDC, NTS or FDFS may reasonably request or as may otherwise be necessary to put FDFS in actual possession or control of the Purchased Gaming Assets. ARTICLE V REPRESENTATIONS AND WARRANTIES OF CERIDIAN AND COMDATA As an inducement to FDC, IPS, NTS and FDFS to enter into this Agreement and to consummate the transactions contemplated hereby, Ceridian, Comdata and Permicom represent and warrant to FDC, IPS, NTS and FDFS and agree as follows: 5.1. ORGANIZATION. (a) Ceridian is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Ceridian is duly qualified to transact business as a foreign corporation and is in good standing in all jurisdictions except where the absence of such qualification would not have a Material Adverse Effect. No other jurisdiction has demanded, requested or otherwise indicated that Ceridian is required so to qualify on account of the ownership or leasing of the Purchased Gaming Assets or the conduct of the Gaming Business. Ceridian has full power and authority to own or lease and to operate and use the Purchased Gaming Assets and to carry on the Gaming Business as now conducted. True and complete copies of the certificate of incorporation and all amendments thereto and of the By-laws, as amended to date, of Ceridian have been delivered to IPS. (b) Comdata is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland. Comdata is duly qualified to transact business as a -35- foreign corporation and is in good standing in all jurisdictions except where the absence of such qualification would not have a Material Adverse Effect. No other jurisdiction has demanded, requested or otherwise indicated that Comdata is required so to qualify on account of the ownership or leasing of the Purchased Gaming Assets or the conduct of the Gaming Business. Except as set forth on SCHEDULE 5.22, Comdata has full power and authority to own or lease and to operate and use the Purchased Gaming Assets and to carry on the Gaming Business as now conducted. True and complete copies of the certificate of incorporation and all amendments thereto and of the By-laws, as amended to date, of Comdata have been delivered to IPS. (c) The Gaming Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and is duly qualified to transact business as a foreign corporation and is in good standing in all jurisdictions except where the absence of such qualification would not have a Material Adverse Effect and no other jurisdiction has demanded, requested or otherwise indicated that the Gaming Subsidiary is required so to qualify. The Gaming Subsidiary has full power and authority to own or lease and to operate and use its properties and assets and to carry on its business as now conducted. True and complete copies of the certificate or articles of incorporation and all amendments thereto, the By-laws, as amended to date, and the stock ledger of the Gaming Subsidiary have been delivered to IPS. (d) Permicom is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction. 5.2. SUBSIDIARIES AND INVESTMENTS. (a) Except for the Gaming Subsidiary and as set forth in SCHEDULE 5.2(A), neither Ceridian or Comdata directly or indirectly, (i) owns, of record or beneficially, any outstanding voting securities or other equity interests in any corporation, partnership, joint venture or other entity which is involved in or relates to the Gaming Business or (ii) controls any corporation, partnership, limited liability company, joint venture or other entity which is involved in or relates to the Gaming Business. (b) SCHEDULE 5.2(B) sets forth with respect to the Gaming Subsidiary on the date hereof the number of authorized, issued and outstanding shares of capital stock of each class, the number of issued shares of capital stock held as treasury shares and the number of shares of capital stock unissued and reserved for any purpose. Except as set forth in SCHEDULE 5.2(B) and except for this Agreement, there are no agreements, arrangements, options, warrants, calls, rights or commitments of any character relating to the issuance, sale, purchase or redemption of any shares of capital stock of the Gaming Subsidiary. All of the outstanding shares of capital stock of the Gaming Subsidiary are validly issued, fully paid and nonassessable and, except as set forth in SCHEDULE 5.2(B), are owned by Comdata of record and beneficially free from all Encumbrances of any kind. -36- 5.3. AUTHORITY. (a) Ceridian has full power and authority to execute, deliver and perform this Agreement. The execution, delivery and performance of this Agreement by Ceridian has been duly authorized and approved by Ceridian's board of directors and does not require any further authorization or consent of Ceridian or its stockholders. This Agreement has been duly authorized, executed and delivered by Ceridian and is the legal, valid and binding obligation of Ceridian enforceable in accordance with its terms, and upon execution and delivery by Ceridian will be a legal, valid and binding obligation of Ceridian enforceable in accordance with its terms, and each of the Comdata Ancillary Agreements has been duly authorized by Ceridian and upon execution and delivery by Ceridian will be a legal, valid and binding obligation of Ceridian enforceable in accordance with its terms. (b) Comdata has full power and authority to execute, deliver and perform this Agreement and all of the Comdata Ancillary Agreements. The execution, delivery and performance of this Agreement and the Comdata Ancillary Agreements by Comdata have been duly authorized and approved by Comdata's board of directors and sole stockholder and do not require any further authorization or consent. This Agreement has been duly authorized, executed and delivered by Comdata and is the legal, valid and binding obligation of Comdata enforceable in accordance with its terms, and each of the Comdata Ancillary Agreements has been duly authorized by Comdata and upon execution and delivery by Comdata will be a legal, valid and binding obligation of Comdata enforceable in accordance with its terms. (c) Permicom has full power and authority to execute, deliver and perform this Agreement. The execution, delivery and performance of this Agreement by Permicom have been duly authorized and approved by Permicom's board of directors and sole stockholder and do not require any further authorization or consent of Permicom or its stockholder. This Agreement has been duly authorized, executed and delivered by Permicom and is the legal, valid and binding obligation of Permicom enforceable in accordance with its terms. (d) Except as set forth in SCHEDULE 5.3, neither the execution and delivery of this Agreement or any of the Comdata Ancillary Agreements or the consummation of any of the transactions contemplated hereby or thereby nor compliance with or fulfillment of the terms, conditions and provisions hereof or thereof will: (i) conflict with, result in a breach of the terms, conditions or provisions of, or constitute a default, an event of default or an event creating rights of acceleration, termination or cancellation or a loss of rights under, (1) the charter or By-laws of Ceridian, Comdata, the Gaming Subsidiary or Permicom; (2) any Gaming Agreement, (3) any other material note, instrument, agreement, mortgage, lease, license, franchise, permit or other authorization, right, restriction or obligation to which Ceridian, Comdata, the Gaming Subsidiary or Permicom is a party or any of the Purchased Gaming Assets is subject or by which Ceridian, Comdata, the Gaming Subsidiary or Permicom is bound, (4) any Court Order to which Ceridian, Comdata, the Gaming Subsidiary or Permicom is a party or any of the Purchased Gaming Assets is subject or by which Ceridian, Comdata, the Gaming Subsidiary or Permicom is bound, or (5) any Requirements of Laws affecting -37- Ceridian, Comdata, the Gaming Subsidiary, Permicom or the Purchased Gaming Assets; or (ii) require the approval, consent, authorization or act of, or the making by Ceridian, Comdata, the Gaming Subsidiary, Permicom or the Gaming Business of any declaration, filing or registration with, any Person. (e) With respect to the transactions contemplated by this Agreement, Comdata is not required, pursuant to the Maryland General Corporation Law, to file Articles of Transfer with the Department of Assessments and Taxation of the State of Maryland or otherwise take any action pursuant to Sections 3-105, 3-107 or 3-110 of the Maryland General Corporation Law. 5.4. FINANCIAL STATEMENTS. SCHEDULE 5.4 contains (i) the unaudited balance sheet of the Gaming Business as of December 31, 1996 and the related statements of income and cash flows for the year then ended and (ii) the unaudited balance sheet of the Gaming Business as of September 30, 1997 and the related statements of income and cash flows for the nine months then ended. Except as set forth therein, such balance sheets and statements of income and cash flow have been prepared in conformity with generally accepted accounting principles consistently applied, and such balance sheets and related statements of income and cash flow present fairly the financial position and results of operations and cash flow of the Gaming Business as of their respective dates and for the respective periods covered thereby. 5.5. OPERATIONS SINCE THE GAMING BALANCE SHEET DATE. (a) Except as set forth in SCHEDULE 5.5(A) or SCHEDULE 5.22, and except as due to changes in the general economic environment, since the Gaming Balance Sheet Date, there has been: (i) no material adverse change in the Purchased Gaming Assets, the Gaming Business or the operations, liabilities, profits, or condition (financial or otherwise) of the Gaming Business, and no fact or condition exists or is contemplated or, to the knowledge of Comdata or the Gaming Subsidiary, threatened which might reasonably be expected to cause such a change in the future; and (ii) no damage, destruction, loss or claim, whether or not covered by insurance, or condemnation or other taking adversely affecting any of the Purchased Gaming Assets or the Gaming Business. (b) Except as set forth in SCHEDULE 5.5(B), since the Gaming Balance Sheet Date, Comdata and the Gaming Subsidiary conducted the Gaming Business only in the ordinary course and in conformity with past practice. Without limiting the generality of the foregoing, since the Gaming Balance Sheet Date, except as set forth in such Schedule, Comdata has not, in respect of the Gaming Business, and the Gaming Subsidiary has not: (i) sold, leased (as lessor), transferred or otherwise disposed of (including any transfers from the Gaming Business to Ceridian, Comdata or any of their respective Affiliates), or mortgaged or pledged, or imposed or suffered to be imposed any -38- Encumbrance (other than a Permitted Encumbrance) on, any of the assets reflected on the Gaming Balance Sheet or any assets acquired by the Gaming Business after the Gaming Balance Sheet Date, except for inventory and minor amounts of personal property sold or otherwise disposed of for fair value in the ordinary course of the Gaming Business; (ii) canceled any debts owed to or claims held by the Gaming Business (including the settlement of any claims or litigation) or waived any other rights held by the Gaming Business other than in the ordinary course of the Gaming Business consistent with past practice; (iii) paid any claims against the Gaming Business (including the settlement of any claims and litigation against the Gaming Business or the payment or settlement of any obligations or liabilities of the Gaming Business) other than in the ordinary course of business consistent with past practice; (iv) created, incurred or assumed, or agreed to create, incur or assume, any indebtedness for borrowed money in respect of the Gaming Business (other than money borrowed or advances from Ceridian, Comdata or any of their respective Affiliates in the ordinary course of the Gaming Business consistent with past practice) or entered into, as lessee, any capitalized lease obligations (as defined in Statement of Financial Accounting Standards No. 13); (v) accelerated or delayed collection of notes or accounts receivable generated by the Gaming Business in advance of or beyond their regular due dates or the dates when the same would have been collected in the ordinary course of the Gaming Business consistent with past practice; (vi) delayed or accelerated payment of any account payable or other liability of the Gaming Business beyond or in advance of its due date or the date when such liability would have been paid in the ordinary course of the Gaming Business consistent with past practice; (vii) acquired any real property or undertaken or committed to undertake capital expenditures exceeding $10,000 in the aggregate; (viii) made, or agreed to make, any payment of cash or distribution of assets to Ceridian, Comdata or any of their respective Affiliates (other than cash realized upon collection of receivables generated in the ordinary course of the Gaming Business); (ix) instituted any increase in any compensation payable to any officer or employee of Comdata or the Gaming Subsidiary with respect to the Gaming Business (other than changes made in accordance with normal compensation practices and consistent with past compensation practices) or in any profit-sharing, bonus, incentive, deferred compensation, insurance, pension, retirement, medical, hospital, disability, -39- welfare or other benefits made available to officers or employees of Comdata or the Gaming Subsidiary with respect to the Gaming Business; (x) made any change in (A) the accounting principles and practices used by Comdata or the Gaming Subsidiary from those applied in the preparation of the Gaming Balance Sheet and the related statements of income and cash flow for the period then ended or (B) the charge-off policies applicable to accounts receivable; (xi) entered into or become committed to enter into any other material transaction except in the ordinary course of business; (xii) amended the Gaming Subsidiary's certificate of incorporation or by-laws; (xiii) issued, granted, sold or encumbered any shares of the Gaming Subsidiary's capital stock or other securities; issued, granted, sold or encumbered any security, option, warrant, put, call, subscription or other right of any kind, fixed or contingent, that directly or indirectly calls for the acquisition, issuance, sale, pledge or other disposition of any shares of its capital stock or other securities or make any other changes in the equity capital structure of the Gaming Subsidiary; (xiv) made any material change in the operations of the Gaming Business or any expenditure in respect of the Gaming Business which shall exceed $50,000 in the aggregate; (xv) made any capital expenditure with respect to the Gaming Business or entered into any contract or commitment therefor which shall exceed $50,000 in the aggregate; (xvi) entered into any contract, agreement, undertaking or commitment which would have been required to be set forth in SCHEDULE 5.20 if in effect on the date hereof or entered into any contract which requires the consent or approval of any third party to consummate the transactions contemplated by this Agreement; or made any material modification to any existing, material Gaming Agreement or to any Gaming Business Governmental Permits, other than changes made in good faith to cure document deficiencies; or (xvii) entered into any contract for the purchase, lease (as lessee) or other occupancy of real property to be used by the Gaming Business or any option to extend a lease listed in SCHEDULE 5.11(A). 5.6. NO FINDER. Neither Comdata, any Affiliate thereof nor any Person acting on behalf of the foregoing has paid or become obligated to pay any fee or commission to any broker, finder or intermediary for or on account of the transactions contemplated by this Agreement. -40- 5.7. TAXES. Except as set forth in SCHEDULE 5.7, (i) Ceridian and Comdata have, in respect of the Gaming Business and the Purchased Gaming Assets, and the Gaming Subsidiary has filed all Tax Returns which are required to be filed and Ceridian, Comdata and the Gaming Subsidiary have paid all Taxes which have become due pursuant to such Tax Returns or pursuant to any assessment which has become payable; (ii) all such Tax Returns are complete and accurate and disclose all Taxes required to be paid in respect of the Gaming Business, the Purchased Gaming Assets and the Gaming Subsidiary; (iii) all such Tax Returns relating to United States federal income Taxes have been examined by the relevant taxing authority or the period for assessment of the Taxes in respect of which such Tax Returns were required to be filed has expired; (iv) there is no action, suit, investigation, audit, claim or assessment pending or proposed or threatened with respect to Taxes of the Gaming Business, the Purchased Gaming Assets or the Gaming Subsidiary; (v) none of Ceridian, Comdata or the Gaming Subsidiary has waived or been requested to waive any statute of limitations in respect of Taxes associated with the Gaming Business, the Purchased Gaming Assets or the Gaming Subsidiary which waiver is currently in effect; (vi) all monies required to be withheld by Comdata or the Gaming Subsidiary (including from employees of the Gaming Business for income Taxes and social security and other payroll Taxes) have been collected or withheld, and either paid to the respective taxing authorities, set aside in accounts for such purpose, or accrued, reserved against and entered upon the books of the Gaming Business; (vii) Comdata is properly treated as the owner, for all federal, state, local and other income Tax purposes, of all property of which it is the lessor; (viii) no change in Tax accounting method which would affect the Gaming Subsidiary after the Closing has been made, agreed to, requested or required with respect to its assets or operations; (ix) all tax sharing arrangements and tax indemnity arrangements relating to the Gaming Subsidiary (other than this Agreement) will terminate prior to the Closing and the Gaming Subsidiary will have no liability thereunder on or after the Closing; (x) the Gaming Subsidiary is not a party to any agreement relating to a foreign sales corporation within the meaning of Section 922 of the Code; (xi) there are no pending claims for refund of any Tax attributable to the Gaming Subsidiary (including refunds of Taxes allocable to the Gaming Subsidiary with respect to any consolidated, combined, unitary, fiscal unity or similar Tax Returns; (xii) each asset with respect to which the Gaming Subsidiary claims depreciation, amortization or similar expense for Tax purposes is owned for Tax purposes by the Gaming Subsidiary under applicable Tax law; (xiii) the Gaming Subsidiary has always been properly classified as a corporation for United States federal income Tax purposes;(xiv) there are no outstanding rulings of, or requests for rulings with, any Tax authority expressly addressed to the Gaming Subsidiary (or to an Affiliate of any Gaming Subsidiary) that are, or if issued would be, binding upon the Gaming Subsidiary for any taxable year or period beginning after the Closing; (xv) the Gaming Subsidiary (or any Affiliates of the Gaming Subsidiary with respect to the Gaming Subsidiary) has not, in a manner that would be binding on the Gaming Subsidiary for a taxable year or period beginning after the Closing executed, become subject to or entered into any closing agreement pursuant to Section 7121 of the Code or any similar or predecessor provision thereof under the Code or other applicable Tax Law; (xvi) the Gaming Subsidiary has not made and is not subject to any election under Section 341(f) of the Code; (xvii) no "industrial development bonds" within the meaning of Section 103 of the United States Internal Revenue Code of 1954, as amended and in effect prior to the enactment of the United States Tax Reform Act of 1986, "private activity bonds" within the meaning of Section 141 of the Code or other tax exempt financing have been used to finance any of the assets of the -41- Gaming Subsidiary, whether leased or owned; (xviii) the Gaming Subsidiary has not made or is not bound by any election under Section 197 of the Code; (xix) Ceridian has not and will not file for the year in which the Closing occurs a consolidated federal income tax return with the Gaming Subsidiary; (xx) all material elections with respect to Taxes affecting the Gaming Subsidiary as of the date hereof are set forth in SCHEDULE 5.7; (xxi) no amount with respect to any outlay or expense that is deductible for the purpose of computing income under the Canadian Income Tax Act has been owing by the Gaming Subsidiary for longer than two years to any person with whom the Gaming Subsidiary was not dealing at arms' length at the time of the outlay or expense was incurred or for more than 180 days after the end of the taxation year in which the outlay or expense was incurred in the case of a superannuation or pension benefit, a retiring allowance, salary, wages or other remuneration with respect to any office or employment; and (xxii) there are no circumstances which exist and would result, or which have existed and have resulted, in Section 80 of the Canadian Income Tax Act applying to the Gaming Subsidiary. 5.8. AVAILABILITY OF ASSETS. (a) Except as set forth in SCHEDULE 5.8(A) and except for the Excluded Gaming Assets, the Purchased Gaming Assets constitute all the assets, services and properties used in or necessary for the Gaming Business as currently configured (including, but not limited to, all books, records, computers and computer programs and data processing systems) and are in good condition (subject to normal wear and tear) and serviceable condition and are suitable for the uses for which intended. (b) SCHEDULE 5.8(B) sets forth a description of all material services provided by Comdata or any Affiliate of Comdata, other than those services to be provided pursuant to the Gaming Business Transition Services Agreement, to the Gaming Business utilizing either (i) assets not included in the Purchased Gaming Assets or (ii) employees not listed in SCHEDULE 7.4(B) and the manner in which the costs of providing such services have been allocated to the Gaming Business. 5.9. GOVERNMENTAL PERMITS. Except as set forth in SCHEDULE 5.9, Comdata or the Gaming Subsidiary owns, holds or possesses all licenses, franchises, permits, privileges, immunities, approvals and other authorizations from a Governmental Body which are necessary to entitle it to own or lease, operate and use the Purchased Gaming Assets and to carry on and conduct the Gaming Business substantially as currently conducted (herein collectively called "GAMING BUSINESS GOVERNMENTAL PERMITS"), except for such Governmental Permits as to which the failure to so own, hold or possess would not have a material adverse effect on the Purchased Gaming Assets, the Gaming Business or the operations, liabilities, profits, prospects or condition (financial or otherwise) of the Gaming Business. SCHEDULE 5.9 sets forth a list and brief description of each Gaming Business Governmental Permit. Complete and correct copies of all of the Gaming Business Governmental Permits have heretofore been delivered by Comdata to IPS. Except as set forth in SCHEDULE 5.9, (i) Comdata or the Gaming Subsidiary has fulfilled and performed its obligations under each of the Gaming Business Governmental Permits, and, to the knowledge of Comdata or the Gaming Subsidiary, no event has occurred or condition or state of facts exists which constitutes or, after notice or lapse of time or both, would constitute a breach or default under any such Gaming Business Governmental Permit or which permits or, -42- after notice or lapse of time or both, would permit revocation or termination of any such Gaming Business Governmental Permit, or which might adversely affect the rights of Comdata or the Gaming Subsidiary under any such Gaming Business Governmental Permit; (ii) no notice of cancellation, of default or of any dispute concerning any Gaming Business Governmental Permit, or of any event, condition or state of facts described in the preceding clause, has been received by, or is known to, Comdata or the Gaming Subsidiary; and (iii) each of the Gaming Business Governmental Permits is valid, subsisting and in full force and effect. 5.10. REAL PROPERTY. Neither Comdata (in respect of the Gaming Business) or the Gaming Subsidiary (a) owns any real property or (b) holds any options to acquire real property. 5.11. REAL PROPERTY LEASES. SCHEDULE 5.11(A) sets forth a list and brief description of each lease or similar agreement (showing the parties thereto, annual rental, and the location of the real property covered by and the space occupied under, such lease or other agreement) under which (i) Comdata (in respect of the Gaming Business) or the Gaming Subsidiary is lessee of, or holds, uses or operates, any real property owned by any third Person (the "GAMING BUSINESS LEASED REAL PROPERTY") or (ii) Comdata (in respect of the Gaming Business) or the Gaming Subsidiary is lessor of any of the Gaming Business Leased Real Property. Except as set forth in SCHEDULE 5.11(B), Comdata or the Gaming Subsidiary has the right to quiet enjoyment of all the Gaming Business Leased Real Property described in SCHEDULE 5.11(A) for the full term of each such lease or similar agreement (and any renewal option) relating thereto, and the leasehold or other interest of Comdata or the Gaming Subsidiary in such Gaming Business Leased Real Property is not subject or subordinate to any Encumbrance except for Permitted Encumbrances. Except as set forth on SCHEDULE 5.11(C), and except for Permitted Encumbrances, there are no agreements or other documents governing or affecting the occupancy or tenancy of any of the Gaming Business Leased Real Property by Comdata or the Gaming Subsidiary or by any Person other than Comdata or the Gaming Subsidiary. Complete and correct copies of any instruments evidencing Encumbrances, commitments for the issuance of title insurance, title opinions, surveys and appraisals in Comdata's or the Gaming Subsidiary's possession and any policies of title insurance currently in force and in the possession of Comdata or the Gaming Subsidiary with respect to each such parcel of Gaming Business Leased Real Property have heretofore been delivered by Comdata to IPS. 5.12. CONDEMNATION. To the knowledge of Comdata or the Gaming Subsidiary neither the whole nor any part of any real property leased, used or occupied by Comdata or the Gaming Subsidiary in connection with the Gaming Business is subject to any pending suit for condemnation or other taking by any public authority and no such condemnation or other taking is threatened or contemplated. 5.13. Personal Property. SCHEDULE 5.13(A) contains a detailed list of all machinery, equipment, vehicles, furniture and other personal property owned by Comdata having an original cost of $10,000 or more and used in or relating to the Gaming Business. Except as set forth in SCHEDULE 5.13(B), Comdata or the Gaming Subsidiary has good and marketable title to all of the Purchased Gaming Assets free and clear of all Encumbrances, except for Permitted Encumbrances. -43- 5.14. PERSONAL PROPERTY LEASES. SCHEDULE 5.14 contains a brief description of each lease or other agreement or right, whether written or oral (including in each case the annual rental, the expiration date thereof and a brief description of the property covered), under which Comdata or the Gaming Subsidiary is lessee of, or holds or operates, any machinery, equipment, vehicle or other tangible personal property owned by a third Person and used in or relating to the Gaming Business, except for any such lease, agreement or right that is terminable by Comdata or the Gaming Subsidiary without penalty or payment on notice of 30 days or less, or which involves the payment by Comdata or the Gaming Subsidiary of rentals of less than $5,000 per year. 5.15. INTELLECTUAL PROPERTY; SOFTWARE. (a) SCHEDULE 5.15(A) contains a list and description (showing in each case any product, device, process, service, business or publication covered thereby, the registered or other owner, expiration date and number, if any) of all Copyrights, Patent Rights and Trademarks owned by, licensed to or used by Comdata or the Gaming Subsidiary in connection with the conduct of the Gaming Business. (b) SCHEDULE 5.15(B) contains a list and description (showing in each case any owner, licensor or licensee) of all Software owned by, licensed to or used by Comdata or the Gaming Subsidiary in the conduct of the Gaming Business, provided that SCHEDULE 5.15(B) does not list Software licensed to Comdata or the Gaming Subsidiary that is commercially available and subject to "shrink-wrap" or "click on" license agreements. (c) SCHEDULE 5.15(C) contains a list and description (showing in each case the parties thereto) of all agreements, contracts, licenses, sublicenses, assignments and indemnities which relate to (i) any Copyrights, Patent Rights or Trademarks listed in SCHEDULE 5.15(A), (ii) any Trade Secrets owned by, licensed to or used by Comdata or the Gaming Subsidiary in connection with the conduct of the Gaming Business or (iii) any Software listed in SCHEDULE 5.15(B). (d) Except as disclosed in SCHEDULE 5.15(D), Comdata or the Gaming Subsidiary either: (i) owns the entire right, title and interest in and to the Intellectual Property and Software included in the Purchased Gaming Assets, free and clear of any Encumbrance; (ii) has the perpetual, royalty-free right to use the same or (iii) in the case of third party vendor Software, has the ability to transfer such Software without the necessity of obtaining consents or the payment of fees. (e) Except as disclosed in SCHEDULE 5.15(E): (i) all Copyrights, Patent Rights and Trademarks, including registrations therefor, identified in SCHEDULE 5.15(A) as being owned by Comdata or the Gaming Subsidiary are valid and in force, and all patent applications with respect to Patent Rights and all applications to register any unregistered Copyrights and Trademarks so identified are pending and in good standing, all without challenge of any kind; (ii) the Intellectual Property owned by Comdata or the Gaming Subsidiary and included in the Purchased Gaming Assets is valid and enforceable; (iii) Comdata or the Gaming Subsidiary has the sole and exclusive right to bring actions for infringement or unauthorized use of the Intellectual Property and Software owned by Comdata or the Gaming Subsidiary and included in the Purchased Gaming Assets, and to the knowledge of Comdata or the Gaming Subsidiary, there is no basis for any such -44- action; (iv) Comdata or the Gaming Subsidiary has taken all actions reasonably necessary to protect the Copyrights, Trademarks, Software, Patent Rights or Trade Secrets included in the Purchased Gaming Assets, including by pursuing registration where necessary; and (v) neither Comdata or the Gaming Subsidiary is in breach of any agreement affecting any of the Intellectual Property and Software included in the Purchased Gaming Assets, and has not taken any action which would impair or otherwise adversely affect its rights in the Intellectual Property and Software included in the Purchased Gaming Assets. Correct and complete copies of: (x) registrations for all registered Copyrights, Patent Rights and Trademarks identified in SCHEDULE 5.15(A) as being owned by Comdata or the Gaming Subsidiary; and (y) all pending applications to register unregistered Copyrights, Patent Rights and Trademarks identified in SCHEDULE 5.15(A) as being owned by Comdata or the Gaming Subsidiary (together with any subsequent correspondence or filings relating to the foregoing) have heretofore been delivered by Comdata to IPS. (f) Except as set forth in SCHEDULE 5.15(F), (i) to the knowledge of Comdata or the Gaming Subsidiary, no infringement of any Intellectual Property Right of any other Person has occurred or results in any way from the operations of the Gaming Business as previously or currently conducted; (ii) no claim of any infringement of any Intellectual Property Right of any other Person has been made or asserted in respect of the operations of the Gaming Business; (iii) neither Comdata or the Gaming Subsidiary has received notice that any claim of invalidity of any Copyright, Trademark or Patent Right, Software or Trade Secret has been made; (iv) no proceedings are pending or, to the knowledge of Comdata or the Gaming Subsidiary, threatened which challenge the validity, ownership or use of any of the Gaming Business Intellectual Property; and (v) neither Comdata or the Gaming Subsidiary has had notice of, or knowledge of any basis for, a claim against Comdata or the Gaming Subsidiary that the operations, activities, products, software, equipment, machinery or processes of the Gaming Business infringe any Intellectual Property Right of any other Person. (g) Except as disclosed in SCHEDULE 5.15(G): (i) the Software used in the Gaming Business (the "GAMING BUSINESS OWNED SOFTWARE") is not subject to any transfer, assignment, source code escrow agreement, reversion, site, equipment, or other operational limitations; (ii) Comdata or the Gaming Subsidiary has maintained and protected the Gaming Business Owned Software (including, without limitation, all source code and system specifications) with appropriate proprietary notices (including, without limitation, the notice of copyright in accordance with the requirements of 17 U.S.C. Section 401), confidentiality and non-disclosure agreements and such other measures as are reasonably necessary to protect the proprietary, trade secret or confidential information contained therein; (iii) the Gaming Business Owned Software is protectable under applicable copyright law and has not been forfeited to the public domain and has been registered with the U.S. Copyright Office or is eligible for registration; (iv) Comdata or the Gaming Subsidiary has copies of all releases or separate versions of the Gaming Business Owned Software so that the same may be subject to registration in the United States Copyright Office; (v) Comdata or the Gaming Subsidiary has complete and exclusive right, title and interest in and to the Gaming Business Owned Software; (vi) Comdata or the Gaming Subsidiary has developed the Gaming Business Owned Software through its own efforts and for its own account without the aid or use of any consultants, agents, independent contractors or Persons (other than -45- Persons that are employees of Comdata or the Gaming Subsidiary); (vii) to the knowledge of Comdata or the Gaming Subsidiary, the Gaming Business Owned Software does not infringe any Intellectual Property Right of any other Person; (viii) any Gaming Business Owned Software includes the source code, system documentation, statements of principles of operation and schematics, as well as any pertinent commentary and explanation used for the development, maintenance, implementation and use thereof, so that a trained computer programmer could develop, maintain, enhance, modify, support, compile and use all releases or separate versions of the same that are currently subject to maintenance obligations by Comdata or the Gaming Subsidiary; and (ix) there are no agreements or arrangements in effect with respect to the marketing, distribution, licensing or promotion of the Gaming Business Owned Software by any other Person. (h) Except as disclosed in SCHEDULE 5.15(H), all agents, consultants or contractors who have contributed to or participated in the creation or development of any Intellectual Property or Software on behalf of Comdata or the Gaming Subsidiary or any predecessor in interest thereto either: (i) is a party to a "work-for-hire" agreement under which Comdata or the Gaming Subsidiary is deemed to be the original owner/author of all property rights therein; or (ii) has executed an assignment or an agreement to assign in favor of Comdata or the Gaming Subsidiary (or such predecessor in interest, as applicable) of all right, title and interest in such material. (i) Except as expressly provided herein, FDFS acknowledges and agrees that the conveyance of the Purchased Gaming Assets from Comdata to FDFS does not result in any express or implied license or other rights to FDFS or any third person under any patent rights of Comdata or its Affiliates or under any patent rights of any third parties licensed to Comdata or its Affiliates whether by implication, estoppel or otherwise. All such express or implied licenses or other rights are hereby expressly excluded and disclaimed. 5.16. ACCOUNTS RECEIVABLE. All accounts receivable of the Gaming Business have arisen from bona fide transactions by Comdata or the Gaming Subsidiary in the ordinary course of the Gaming Business. All accounts receivable are good and collectible in the ordinary course of business at the aggregate recorded amounts thereof, net of any allowance for doubtful accounts; and all accounts receivable to be reflected in the Closing Date Gaming Special Report will be good and collectible in the ordinary course of business at the aggregate recorded amounts thereof, net of any allowance for doubtful accounts, which allowance will be determined on a basis consistent with the basis used in determining the allowance for doubtful accounts reflected in the Gaming Balance Sheet. 5.17. TITLE TO PROPERTY. Comdata or the Gaming Subsidiary has good and marketable title to all of the Purchased Gaming Assets, free and clear of all Encumbrances, except for Permitted Encumbrances and except as set forth in SCHEDULE 5.17. Upon delivery to FDFS on the date hereof of the instruments of transfer contemplated by Section 4.4, Comdata will thereby transfer to FDFS good and marketable title to the Purchased Gaming Assets, subject to no Encumbrances, except for Permitted Encumbrances. -46- 5.18. EMPLOYEES AND RELATED AGREEMENTS; ERISA. (a) Except as described in SCHEDULE 5.18(A), neither Comdata or the Gaming Subsidiary is, with respect to the Gaming Business, a party to or bound by any oral or written: stock option, stock purchase, bonus or other incentive plan or agreement. (b) Except as described in SCHEDULE 5.18(B), Comdata does not maintain, and is not required to contribute to, any "employee pension benefit plan" (as such term is defined in Section 3(2) of ERISA) or "Welfare Benefit Plan" (as such term is defined in Section 3(1) of ERISA), on behalf of any employees or former employees of the Gaming Business. None of Comdata's ERISA Benefit Plans is a "multiemployer plan" as defined in Section 3(37) of ERISA, or is or has been subject to Sections 4063 or 4064 of ERISA. Comdata has complied with the healthcare continuation requirements of Section 601, ET. SEQ., of ERISA with respect to employees of the Gaming Business and their spouses, former spouses and dependents. (c) SCHEDULE 5.18(C) hereto sets forth a true, correct and complete copy of each severance plan, policy or practice in effect immediately prior to Closing Date with respect to Transferring Comdata Employees. 5.19. EMPLOYEE RELATIONS. (a) Except as set forth in SCHEDULE 5.19(A), Comdata and the Gaming Subsidiary have complied in respect of the Gaming Business with all applicable laws, rules and regulations which relate to prices, wages, hours, discrimination in employment, occupational safety and health, and collective bargaining and are not liable for any arrears of wages or any taxes, penalties or damages for failure to comply with any of the foregoing. Comdata (in respect of the Gaming Business) and the Gaming Subsidiary are in compliance with the requirements of WARN and all similar state and local statutes, laws and regulations and have no liabilities pursuant to any of them. Comdata believes that its relations with the employees of the Gaming Business are satisfactory and are not likely to lead to collective bargaining efforts. Neither Comdata nor the Gaming Subsidiary is a party to, and the Gaming Business is not affected by or, to the knowledge of Comdata or the Gaming Subsidiary, threatened with, any dispute or controversy with a union or with respect to unionization or collective bargaining involving the employees of the Gaming Business. Neither Comdata, the Gaming Subsidiary nor the Gaming Business is materially affected by any dispute or controversy with a union or with respect to unionization or collective bargaining involving any supplier or customer of the Gaming Business. SCHEDULE 5.19(A) sets forth a description of any union organizing or election activities involving any non-union employees of the Gaming Business which have occurred since January 1, 1996 or, to the knowledge of Comdata or the Gaming Subsidiary, are threatened as of the date hereof. -47- (b) Except as set forth in SCHEDULE 5.19(B), since January 1, 1996, the Gaming Business has not, directly or indirectly, purchased, leased from others or otherwise acquired any material property or obtained any material services from, or sold, leased to others or otherwise disposed of any material property or furnished any material services to (except with respect to remuneration for services rendered as a director, officer or employee of the Gaming Business), in the ordinary course of business or otherwise, (i) any Person who is an officer or director of Comdata or the Gaming Subsidiary or (ii) any Associate of any person referred to in clause (i) above. Except as set forth in SCHEDULE 5.19(B), the Gaming Business does not owe any amount in excess of $10,000 to, or have any contract with or commitment to, Comdata or any director, officer or employee of Comdata or the Gaming Subsidiary (other than for compensation for current services not yet due and payable and reimbursement of expenses arising in the ordinary course of business) and none of such Persons owes any amount in excess of $10,000 to the Gaming Business. (c) Neither the Gaming Business nor any officer, employee or agent or other person acting on its behalf has, directly or indirectly, since January 1, 1993, given or agreed to give any gift or similar benefit (other than with respect to bona fide payments for which adequate consideration has been given) to any customer, supplier, governmental employee or other person who is or may be in a position to help or hinder the business of the Gaming Business (or assist the Gaming Business in connection with any actual or proposed transaction) (i) which might subject the Gaming Business to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) which, if not continued in the future, would have an adverse effect on the assets, business, operations or prospects of the Gaming Business or which would subject the Gaming Business to suit or penalty in any private or governmental litigation or proceeding, (iii) for any of the purposes described in Section 162(c) of the Code, or (iv) for establishment or maintenance of any concealed fund or concealed bank account. 5.20. CONTRACTS. Except as set forth in SCHEDULE 5.20 or any other SCHEDULE hereto, Comdata is not, with respect to the Gaming Business, and the Gaming Subsidiary is not a party to or bound by: (i) any contract for the purchase, sale or lease of real property; (ii) any contract for the purchase of goods or services by Comdata or the Gaming Subsidiary which involved the payment of more than $50,000 in 1997; (iii) any contract for the purchase, licensing or development of software to be used by the Gaming Business except for Software that is available in consumer retail stores and subject to "shrink-wrap" license agreements; (iv) any consignment, distributor, dealer, manufacturers representative, sales agency, advertising representative or advertising or public relations contract except to the extent such contract is cancelable without penalty within 30 days; -48- (v) any guarantee of the obligations of customers, suppliers, officers, directors, employees, Affiliates or others except to the extent such contract is cancelable without penalty within 30 days; (vi) any agreement which provides for, or relates to, the incurrence by the Gaming Business of debt for borrowed money (including, without limitation, any interest rate or foreign currency swap, cap, collar, hedge or insurance agreements, or options or forwards on such agreements, or other similar agreements for the purpose of managing the interest rate and/or foreign exchange risk associated with its financing); (vii) any contract not made in the ordinary course except to the extent such contract is cancelable without penalty within 30 days; or (viii) any other contract, agreement, commitment, understanding or instrument which is material to the Gaming Business and which involves the payment of more than $50,000. 5.21. STATUS OF CONTRACTS. Except as set forth in SCHEDULE 5.21 or in any other Schedule hereto, each of the leases, contracts and other agreements listed in SCHEDULES 5.11(A), 5.14, 5.15(A), 5.18(C) and 5.20 (collectively, the "GAMING AGREEMENTS") constitutes a valid and binding obligation of the parties thereto and is in full force and effect and (except as set forth in SCHEDULE 5.3 and except for those Gaming Agreements which by their terms will expire prior to the date hereof or are otherwise terminated prior to the date hereof in accordance with the provisions hereof) to the knowledge of Comdata or the Gaming Subsidiary, may be transferred to FDFS pursuant to this Agreement and will continue in full force and effect thereafter, in each case without breaching the terms thereof or resulting in the forfeiture or impairment of any rights thereunder and without the consent, approval or act of, the payment of any transfer or similar fee, or the making of any filing with, any other party. Comdata and the Gaming Subsidiary have fulfilled and performed their obligations under each of the Gaming Agreements, and neither Comdata or the Gaming Subsidiary is in, or alleged to be in, breach or material default under, nor is there or is there alleged to be any basis for termination of, any of the Gaming Agreements and to the knowledge of Comdata or the Gaming Subsidiary, no other party to any of the Gaming Agreements has breached or committed a material default thereunder, and to the knowledge of Comdata or the Gaming Subsidiary, no event has occurred and no condition or state of facts exists which, with the passage of time or the giving of notice or both, would constitute such a default or breach by Comdata, the Gaming Subsidiary or by any such other party. Comdata is not currently renegotiating any of the Gaming Agreements or paying liquidated damages in lieu of performance thereunder. -49- 5.22. NO VIOLATION, LITIGATION OR REGULATORY ACTION. Except as set forth in SCHEDULE 5.22: (i) the Purchased Gaming Assets and the operation of the Gaming Business complies with all applicable Requirements of Laws and Court Orders; (ii) Comdata and the Gaming Subsidiary have complied with all Requirements of Laws and Court Orders which are applicable to the Purchased Gaming Assets or the Gaming Business; (iii) there are no lawsuits, claims, suits, proceedings or investigations pending or, to the knowledge of Comdata or the Gaming Subsidiary, threatened against or affecting Comdata or the Gaming Subsidiary in respect of the Purchased Gaming Assets or the Gaming Business nor, to the knowledge of Comdata or the Gaming Subsidiary, is there any basis for any of the same, and there are no lawsuits, suits or proceedings pending in which Comdata is the plaintiff or claimant and which relate to the Purchased Gaming Assets or the Gaming Business; (iv) there is no action, suit or proceeding pending or, to the knowledge of Comdata or the Gaming Subsidiary, threatened which questions the legality or propriety of the transactions contemplated by this Agreement; and (v) to the knowledge of Comdata or the Gaming Subsidiary, no legislative or regulatory proposal or other proposal for the change in any Requirements of Law or the interpretation thereof has been adopted or is pending which could adversely affect the Gaming Business. 5.23. ENVIRONMENTAL MATTERS. Except as set forth in SCHEDULE 5.23: (a) the operations of the Gaming Business are, and have been, in compliance with, and the Gaming Business is not the subject of any judicial or administrative proceedings or settlements involving alleged violations of or liability under, Environmental Laws. (b) no property now or previously owned or operated by the Gaming Business is under investigation by any Governmental Body or requires remedial action under any applicable Environmental Laws to address any Contaminant. 5.24. INSURANCE. SCHEDULE 5.24 sets forth a list and brief description (including nature of coverage, limits, deductibles, premiums and the loss experience for the most recent five years with respect to each type of coverage) of all policies of insurance maintained, owned or held by Comdata or the Gaming Subsidiary on the date hereof with respect to the Purchased Gaming Assets or the Gaming Business. Comdata and the Gaming Subsidiary have complied with each such insurance policies and have not failed to give any notice or present any claim thereunder in a due and timely manner. Comdata or the Gaming Subsidiary has delivered to FDFS correct and -50- complete copies of the most recent inspection reports, if any, received from insurance underwriters as to the condition of the Purchased Gaming Assets. 5.25. CUSTOMERS AND SUPPLIERS. Set forth in SCHEDULE 5.25 hereto is a list of names and addresses of the fifteen largest customers for (i) the year ended December 31, 1996 and (ii) the period from January 1, 1997 through November 30, 1997 (measured by dollar volume of net revenue in each case) of Comdata or the Gaming Subsidiary in respect of the Gaming Business and the percentage of the Gaming Business which each such customer represents or represented. Except as set forth in SCHEDULE 5.25, there exists no actual or to the knowledge of Comdata or the Gaming Subsidiary, threatened termination, cancellation or limitation of, or any modification or change in, the business relationship of Comdata or the Gaming Subsidiary with any customer or group of customers listed in SCHEDULE 5.25, or whose purchases individually or in the aggregate are material to the operations of the Gaming Business, and to the knowledge of Comdata or the Gaming Subsidiary, there exists no present or future condition or state of facts or circumstances involving customers, suppliers or sales representatives which Comdata or the Gaming Subsidiary can now reasonably foresee would materially adversely affect the Gaming Business or prevent the conduct of the Gaming Business after the consummation of the transactions contemplated by this Agreement in essentially the same manner in which such business has heretofore been conducted. 5.26. BANK ACCOUNTS. SCHEDULE 5.26 sets forth a complete and correct list of all bank accounts and safe deposit boxes related to the Gaming Business and the individuals authorized to sign or otherwise act with respect thereto as of the date hereof and a complete and correct list of all Persons holding a general or special power of attorney related to the Gaming Business granted by Comdata and a complete and correct copy thereof. 5.27. ESTIMATED CLOSING DATE GAMING SPECIAL REPORT. SCHEDULE 5.27 contains Comdata's bona fide, good faith estimate of the Closing Date Gaming Special Report (the "ESTIMATED CLOSING DATE GAMING SPECIAL REPORT"). 5.28. ESTIMATED AMOUNT OF TRANSFERRED CASH. SCHEDULE 5.28 contains Comdata's bona fide, good faith estimate of the amount of cash in each of the Gaming ATM Machines, the Gaming Vaults, Gaming Armored Cars, the Gaming Bank Accounts and Gaming Booths (identified by geographical location) as of 11:59 p.m. central time on the date hereof and the aggregate amount of such cash in each case, together with supporting calculations in reasonable detail (the "ESTIMATED AMOUNT OF TRANSFERRED CASH"). -51- ARTICLE VI REPRESENTATIONS AND WARRANTIES OF FDC, IPS AND NTS As an inducement to Ceridian, Comdata and Permicom to enter into this Agreement and to consummate the transactions contemplated hereby, FDC, IPS, NTS and FDFS hereby represent and warrant to Ceridian, Comdata and Permicom and agree as follows: 6.1. ORGANIZATION. (a) FDC is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. FDC is duly qualified to transact business as a foreign corporation and is in good standing in all jurisdictions except where the absence of such qualification would not have a Material Adverse Effect. No other jurisdiction has demanded, requested or otherwise indicated that FDC is required so to qualify on account of the ownership or leasing of the Purchased NTS Assets or the conduct of the NTS Business. Except as set forth on SCHEDULE 6.22, FDC has full power and authority to own or lease and to operate and use the Purchased NTS Assets and to carry on the NTS Business as now conducted. True and complete copies of the certificate of incorporation and all amendments thereto and of the By-laws, as amended to date, of FDC have been delivered to Comdata. (b) IPS is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. IPS is duly qualified to transact business as a foreign corporation and is in good standing in all jurisdictions except where the absence of such qualification would not have a Material Adverse Effect. No other jurisdiction has demanded, requested or otherwise indicated that IPS is required so to qualify on account of the ownership or leasing of the Purchased NTS Assets or the conduct of the NTS Business. IPS has full power and authority to own or lease and to operate and use the Purchased NTS Assets and to carry on the NTS Business as now conducted. True and complete copies of the certificate of incorporation and all amendments thereto and of the By-laws, as amended to date, of IPS have been delivered to Comdata. (c) NTS is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland. NTS is duly qualified to transact business as a foreign corporation and is in good standing in all jurisdictions except where the absence of such qualification would not have a Material Adverse Effect. No other jurisdiction has demanded, requested or otherwise indicated that NTS is required so to qualify. NTS has full power and authority to own or lease and to operate and use its properties and assets and to carry on its business as now conducted. True and complete copies of the certificate or articles of incorporation and all amendments thereto, of the By-laws, as amended to date, and of the stock ledger of NTS have been delivered to Comdata. -52- (d) The NTS Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and is duly qualified to transact business as a foreign corporation and is in good standing in all jurisdictions except where the absence of such qualification would not have a Material Adverse Effect. No other jurisdiction has demanded, requested or otherwise indicated that the NTS Subsidiary is required so to qualify. The NTS Subsidiary has full power and authority to own or lease and to operate and use its properties and assets and to carry on its business as now conducted. True and complete copies of the certificate or articles of incorporation and all amendments thereto, the By-laws, as amended to date, and the stock ledger of the NTS Subsidiary have been delivered to Comdata. (e) FDFS is a limited liability company duly organized, validly existing and in good standing under the laws of the state of Delaware. 6.2. SUBSIDIARIES AND INVESTMENTS. (a) Except for the NTS Subsidiary and as set forth in SCHEDULE 6.2(A), neither FDC, IPS, NTS or the NTS Subsidiary directly or indirectly, (i) owns, of record or beneficially, any outstanding voting securities or other equity interests in any corporation, partnership, joint venture or other entity which is involved in or relates to the NTS Business or (ii) controls any corporation, partnership, limited liability company, joint venture or other entity which is involved in or relates to the NTS Business. (b) SCHEDULE 6.2(B) sets forth with respect to the NTS Subsidiary on the date hereof the number of authorized, issued and outstanding shares of capital stock of each class, the number of issued shares of capital stock held as treasury shares and the number of shares of capital stock unissued and reserved for any purpose. Except as set forth in SCHEDULE 6.2(B) and except for this Agreement, there are no agreements, arrangements, options, warrants, calls, rights or commitments of any character relating to the issuance, sale, purchase or redemption of any shares of capital stock of the NTS Subsidiary. All of the outstanding shares of capital stock of the NTS Subsidiary are validly issued, fully paid and nonassessable and, except as set forth in SCHEDULE 6.2(B), are owned by NTS of record and beneficially free from all Encumbrances of any kind. 6.3. AUTHORITY. (a) FDC has full power and authority to execute, deliver and perform this Agreement. The execution, delivery and performance of this Agreement by FDC has been duly authorized and approved by FDC's board of directors and does not require any further authorization or consent of FDC or its stockholders. This Agreement has been duly authorized, executed and delivered by FDC and is the legal, valid and binding obligation of FDC enforceable in accordance with its terms, and upon execution and delivery by FDC will be a legal, valid and binding obligation of FDC enforceable in accordance with its terms, and each of the IPS Ancillary Agreements has been duly authorized by FDC and upon execution and delivery by FDC will be a legal, valid and binding obligation of FDC enforceable in accordance with its terms. (b) IPS has full power and authority to execute, deliver and perform this Agreement and all of the IPS Ancillary Agreements. The execution, delivery and performance of -53- this Agreement and the IPS Ancillary Agreements by IPS have been duly authorized and approved by IPS' board of directors and do not require any further authorization or consent of IPS or its stockholders. This Agreement has been duly authorized, executed and delivered by IPS and is the legal, valid and binding obligation of IPS enforceable in accordance with its terms, and each of the IPS Ancillary Agreements has been duly authorized by IPS and upon execution and delivery by IPS will be a legal, valid and binding obligation of IPS enforceable in accordance with its terms. (c) NTS has full power and authority to execute, deliver and perform this Agreement and all of the IPS Ancillary Agreements. The execution, delivery and performance of this Agreement and the IPS Ancillary Agreements by NTS have been duly authorized and approved by NTS' board of directors and sole stockholder and, except for filing the NTS State of Maryland Articles of Transfer, do not require any further authorization or consent. This Agreement has been duly authorized, executed and delivered by NTS and is the legal, valid and binding obligation of NTS enforceable in accordance with its terms, and each of the IPS Ancillary Agreements has been duly authorized by NTS and upon execution and delivery by NTS will be a legal, valid and binding obligation of NTS enforceable in accordance with its terms. (d) FDFS has full power and authority to execute, deliver and perform this Agreement. The execution, delivery and performance of this Agreement by FDFS have been duly authorized and approved by FDFS' board of directors and sole stockholder and do not require any further authorization or consent. This Agreement has been authorized, executed and delivered by FDFS and is the legal, valid and binding obligation of FDFS enforceable in accordance with its terms. (e) Except as set forth in SCHEDULE 6.3, neither the execution and delivery of this Agreement or any of the IPS Ancillary Agreements or the consummation of any of the transactions contemplated hereby or thereby nor compliance with or fulfillment of the terms, conditions and provisions hereof or thereof will: (i) conflict with, result in a breach of the terms, conditions or provisions of, or constitute a default, an event of default or an event creating rights of acceleration, termination or cancellation or a loss of rights under, (1) the charter or By-laws of FDC, IPS, NTS, the NTS Subsidiary or FDFS; (2) any NTS Agreement, (3) any other material note, instrument, agreement, mortgage, lease, license, franchise, permit or other authorization, right, restriction or obligation to which FDC, IPS, NTS, the NTS Subsidiary or FDFS is a party or any of the Purchased NTS Assets is subject or by which FDC, IPS, NTS, the NTS Subsidiary or FDFS is bound, (4) any Court Order to which FDC, IPS, NTS, the NTS Subsidiary or FDFS is a party or any of the Purchased NTS Assets is subject or by which FDC, IPS, NTS, the NTS Subsidiary or FDFS is bound, or (5) any Requirements of Laws affecting FDC, IPS, NTS, the NTS Subsidiary or FDFS or the Purchased NTS Assets; or (ii) require the approval, consent, authorization or act of, or the making by FDC, IPS, NTS, the NTS Subsidiary, FDFS or the NTS Business of any declaration, filing or registration with, any Person. -54- 6.4. FINANCIAL STATEMENTS. SCHEDULE 6.4 contains (i) the unaudited balance sheet of NTS as of December 31, 1996 and the related statements of income for the year then ended and (ii) the unaudited balance sheet of NTS as of September 30, 1997 and the related statements of income for the nine months then ended. Except as set forth therein, such balance sheets and statements of income have been prepared in conformity with generally accepted accounting principles consistently applied, and such balance sheets and related statements of income and cash flow present fairly the financial position and results of operations of NTS as of their respective dates and for the respective periods covered thereby. 6.5. OPERATIONS SINCE THE NTS BALANCE SHEET DATE. (a) Except as set forth in SCHEDULE 6.5(A) or SCHEDULE 6.22, and except as due to changes in the general economic environment, since the NTS Balance Sheet Date, there has been: (i) no material adverse change in the Purchased NTS Assets, the NTS Business or the operations, liabilities, profits or condition (financial or otherwise) of the NTS Business, and no fact or condition exists or is contemplated or to the knowledge of IPS, NTS or the NTS Subsidiary threatened which might reasonably be expected to cause such a change in the future; and (ii) no damage, destruction, loss or claim, whether or not covered by insurance, or condemnation or other taking adversely affecting any of the Purchased NTS Assets or the NTS Business. (b) Except as set forth in SCHEDULE 6.5(B), since the NTS Balance Sheet Date, NTS and the NTS Subsidiary have conducted the NTS Business only in the ordinary course and in conformity with past practice. Without limiting the generality of the foregoing, since the NTS Balance Sheet Date, except as set forth in such Schedule, neither NTS or the NTS Subsidiary has: (i) sold, leased (as lessor), transferred or otherwise disposed of (including any transfers from NTS or the NTS Subsidiary to IPS, FDC or any of their respective Affiliates), or mortgaged or pledged, or imposed or suffered to be imposed any Encumbrance (other than a Permitted Encumbrance) on, any of the assets reflected on the NTS Balance Sheet or any assets acquired by NTS or the NTS Subsidiary after the NTS Balance Sheet Date, except for inventory and minor amounts of personal property sold or otherwise disposed of for fair value in the ordinary course of business consistent with past practice; (ii) canceled any debts owed to or claims held by NTS or the NTS Subsidiary (including the settlement of any claims or litigation) or waived any other rights held by NTS or the NTS Subsidiary other than in the ordinary course of business consistent with past practice; (iii) paid any claims against NTS or the NTS Subsidiary (including the settlement of any claims and litigation against NTS or the NTS Subsidiary or the payment or -55- settlement of any obligations or liabilities of NTS or the NTS Subsidiary) other than in the ordinary course of business consistent with past practice; (iv) created, incurred or assumed, or agreed to create, incur or assume, any indebtedness for borrowed money (other than money borrowed or advances from IPS, FDC or any of their respective Affiliates in the ordinary course of business consistent with past practice) or entered into, as lessee, any capitalized lease obligations (as defined in Statement of Financial Accounting Standards No. 13); (v) accelerated or delayed collection of notes or accounts receivable in advance of or beyond their regular due dates or the dates when the same would have been collected in the ordinary course of the NTS Business consistent with past practice; (vi) delayed or accelerated payment of any account payable or other liability of NTS or the NTS Subsidiary beyond or in advance of its due date or the date when such liability would have been paid in the ordinary course of the NTS Business consistent with past practice; (vii) acquired any real property or undertaken or committed to undertake capital expenditures exceeding $10,000 in the aggregate; (viii) made, or agreed to make, any payment of cash or distribution of assets to FDC, IPS or any of their respective Affiliates (other than cash realized upon collection of receivables generated in the ordinary course of the NTS Business); (ix) instituted any increase in any compensation payable to any officer or employee of NTS or the NTS Subsidiary with respect to the NTS Business (other than changes made in accordance with normal compensation practices and consistent with past compensation practices) or in any profit-sharing, bonus, incentive, deferred compensation, insurance, pension, retirement, medical, hospital, disability, welfare or other benefits made available to officers or employees of NTS or the NTS Subsidiary with respect to the NTS Business; (x) made any change in (A) the accounting principles and practices used by NTS or the NTS Subsidiary from those applied in the preparation of the NTS Balance Sheet and the related statements of income and cash flow for the period then ended or (B) the charge-off policies applicable to accounts receivable; (xi) entered into or become committed to enter into any other material transaction except in the ordinary course of business; or (xii) amended its certificate of incorporation or by-laws; (xiii) issued, granted, sold or encumbered any shares of its capital stock or other securities; issued, granted, sold or encumbered any security, option, warrant, put, call, -56- subscription or other right of any kind, fixed or contingent, that directly or indirectly calls for the acquisition, issuance, sale, pledge or other disposition of any shares of its capital stock or other securities or make any other changes in the equity capital structure of NTS or the NTS Subsidiary; (xiv) made any material change in the NTS Business or the operations of NTS or the NTS Subsidiary or make any expenditure which shall exceed $50,000 in the aggregate; (xv) made any capital expenditure or entered into any contract or commitment therefor which shall exceed $50,000 in the aggregate; (xvi) entered into any contract, agreement, undertaking or commitment which would have been required to be set forth in SCHEDULE 6.20 if in effect on the date hereof or entered into any contract which requires the consent or approval of any third party to consummate the transactions contemplated by this Agreement; or made any material modification to any existing material NTS Agreement or to any NTS Governmental Permits, other than changes made in good faith to cure document deficiencies; or (xvii) entered into any contract for the purchase, lease (as lessee) or other occupancy of real property to be used by the NTS Business or any option to extend a lease listed in SCHEDULE 6.11(A). 6.6. NO FINDER. Neither NTS, any Affiliate thereof nor any Person acting on behalf of the foregoing has paid or become obligated to pay any fee or commission to any broker, finder or intermediary for or on account of the transactions contemplated by this Agreement. 6.7. TAXES. Except as set forth in SCHEDULE 6.7, (i) FDC, IPS and NTS have, in respect of the NTS Business and the Purchased NTS Assets, and the NTS Subsidiary has filed all Tax Returns which are required to be filed and FDC, IPS, NTS and the NTS Subsidiary have paid all Taxes which have become due pursuant to such Tax Returns or pursuant to any assessment which has become payable; (ii) all such Tax Returns are complete and accurate and disclose all Taxes required to be paid in respect of the NTS Business, the Purchased NTS Assets and the NTS Subsidiary; (iii) all such Tax Returns relating to United States federal income Taxes have been examined by the relevant taxing authority or the period for assessment of the Taxes in respect of which such Tax Returns were required to be filed has expired; (iv) there is no action, suit, investigation, audit, claim or assessment pending or proposed or threatened with respect to Taxes of the NTS Business, the Purchased NTS Assets or the NTS Subsidiary; (v) none of FDC, IPS, NTS or the NTS Subsidiary has waived or been requested to waive any statute of limitations in respect of Taxes associated with the NTS Business, the Purchased NTS Assets or the NTS Subsidiary which waiver is currently in effect; (vi) all monies required to be withheld by NTS or the NTS Subsidiary (including from employees of the NTS Business for income Taxes and social security and other payroll Taxes) have been collected or withheld, and either paid to the respective taxing authorities, set aside in accounts for such purpose, or accrued, reserved against and entered upon the books of the NTS Business; (vii) NTS is properly treated as the owner, for -57- all federal, state, local and other income Tax purposes, of all property of which it is the lessor; (viii) no change in Tax accounting method which would affect the NTS Subsidiary after the Closing has been made, agreed to, requested or required with respect to its assets or operations; (ix) all tax sharing arrangements and tax indemnity arrangements relating to the NTS Subsidiary (other than this Agreement) will terminate prior to the Closing and the NTS Subsidiary will have no liability thereunder on or after the Closing; (x) the NTS Subsidiary is not a party to any agreement relating to a foreign sales corporation within the meaning of Section 922 of the Code; (xi) there are no pending claims for refund of any Tax attributable to the NTS Subsidiary (including refunds of Taxes allocable to the NTS Subsidiary with respect to any consolidated, combined, unitary, fiscal unity or similar Tax Returns; (xii) each asset with respect to which the NTS Subsidiary claims depreciation, amortization or similar expense for Tax purposes is owned for Tax purposes by the NTS Subsidiary under applicable Tax law; (xiii) the NTS Subsidiary has always been properly classified as a corporation for United States federal income Tax purposes; (xiv) there are no outstanding rulings of, or requests for rulings with, any Tax authority expressly addressed to the NTS Subsidiary (or to an Affiliate of any NTS Subsidiary) that are, or if issued would be, binding upon the NTS Subsidiary for any taxable year or period beginning after the Closing; (xv) the NTS Subsidiary (or any Affiliates of the NTS Subsidiary with respect to the NTS Subsidiary) has not, in a manner that would be binding on the NTS Subsidiary for a taxable year or period beginning after the Closing executed, become subject to or entered into any closing agreement pursuant to Section 7121 of the Code or any similar or predecessor provision thereof under the Code or other applicable Tax Law; (xvi) the NTS Subsidiary has not made and is not subject to any election under Section 341(f) of the Code; (xvii) no "industrial development bonds" within the meaning of Section 103 of the United States Internal Revenue Code of 1954, as amended and in effect prior to the enactment of the United States Tax Reform Act of 1986, "private activity bonds" within the meaning of Section 141 of the Code or other tax exempt financing have been used to finance any of the assets of the NTS Subsidiary, whether leased or owned; (xviii) the NTS Subsidiary has not made or is not bound by any election under Section 197 of the Code; (xix) FDC has filed for the taxable year immediately preceding the current taxable year and will file for the year in which the Closing occurs a consolidated federal income tax return with the NTS Subsidiary; (xx) all material elections with respect to Taxes affecting the NTS Subsidiary as of the date hereof are set forth in SCHEDULE 6.7; (xxi) no amount with respect to any outlay or expense that is deductible for the purpose of computing income under the Canadian Income Tax Act has been owing by the NTS Subsidiary for longer than two years to any person with whom the NTS Subsidiary was not dealing at arms' length at the time of the outlay or expense was incurred or for more than 180 days after the end of the taxation year which the outlay or expense was incurred in the case of a superannuation or pension benefit, a retiring allowance, salary, wages or other remuneration with respect to any office or employment; and (xxii) there are no circumstances which exist and would result, or which have existed and have resulted, in Section 80 of the Canadian Income Tax Act applying to the NTS Subsidiary. 6.8. AVAILABILITY OF ASSETS. (a) Except as set forth in SCHEDULE 6.8(A) and except for the Excluded NTS Assets, the Purchased NTS Assets constitute all of the assets, services and properties used in, or necessary for, the NTS Business as currently configured (including, but not limited to, all books, records, computers and computer programs and data processing systems) -58- and are in good condition (subject to normal wear and tear) and serviceable condition and are suitable for the uses for which intended. (b) SCHEDULE 6.8(B) sets forth a description of all material services provided by FDC or IPS or any Affiliate of FDC or IPS, other than those services to be provided pursuant to the NTS Business Transition Services Agreement, to NTS or the NTS Subsidiary utilizing either (i) assets not included in the Purchased NTS Assets or (ii) employees not listed in SCHEDULE 7.4(B) and the manner in which the costs of providing such services have been allocated to NTS or the NTS Subsidiary. 6.9. GOVERNMENTAL PERMITS. Except as set forth in SCHEDULE 6.9, NTS or the NTS Subsidiary owns, holds or possesses all licenses, franchises, permits, privileges, immunities, approvals and other authorizations from a Governmental Body which are necessary to entitle it to own or lease, operate and use the Purchased NTS Assets and to carry on and conduct the NTS Business substantially as currently conducted (herein collectively called "NTS GOVERNMENTAL PERMITS"), except for such Governmental Permits as to which the failure to so own, hold or possess would not have a material adverse effect on the Purchased NTS Assets, the NTS Business or the operations, liabilities, profits, prospects or condition (financial or otherwise) of NTS or the NTS Subsidiary. SCHEDULE 6.9 sets forth a list and brief description of each Governmental Permit. Complete and correct copies of all of the NTS Governmental Permits have heretofore been delivered by IPS to Comdata. Except as set forth in SCHEDULE 6.9, (i) NTS or the NTS Subsidiary has fulfilled and performed its obligations under each of the NTS Governmental Permits and to the knowledge of IPS, NTS or the NTS Subsidiary, no event has occurred or condition or state of facts exists which constitutes or, after notice or lapse of time or both, would constitute a breach or default under any such NTS Governmental Permit or which permits or, after notice or lapse of time or both, would permit revocation or termination of any such NTS Governmental Permit, or which might adversely affect the rights of NTS or the NTS Subsidiary under any such NTS Governmental Permit; (ii) no notice of cancellation, of default or of any dispute concerning any NTS Governmental Permit, or of any event, condition or state of facts described in the preceding clause, has been received by, or is known to, IPS, NTS or the NTS Subsidiary; and (iii) each of the NTS Governmental Permits is valid, subsisting and in full force and effect. 6.10. REAL PROPERTY. Neither NTS nor the NTS Subsidiary (a) owns any real property or (b) holds any options to acquire real property. 6.11. REAL PROPERTY LEASES. SCHEDULE 6.11(A) sets forth a list and brief description of each lease or similar agreement (showing the parties thereto, annual rental and the location of the real property covered by and the space occupied under such lease or other agreement) under which NTS or the NTS Subsidiary is lessee of, or holds, uses or operates, any real property owned by any third Person (the "NTS LEASED REAL PROPERTY") or (ii) NTS or the NTS Subsidiary is lessor of any of the NTS Leased Real Property. Except as set forth in SCHEDULE 6.11(B), NTS or the NTS Subsidiary has the right to quiet enjoyment of all the NTS Leased Real Property described in SCHEDULE 6.11(A) for the full term of each such lease or similar -59- agreement (and any renewal option) relating thereto, and the leasehold or other interest of NTS or the NTS Subsidiary in such NTS Leased Real Property is not subject or subordinate to any Encumbrance except for Permitted Encumbrances. Except as set forth on SCHEDULE 6.11(C), and except for Permitted Encumbrances, there are no agreements or other documents governing or affecting the occupancy or tenancy of any of the NTS Leased Real Property by NTS or the NTS Subsidiary by any Person other than NTS or the NTS Subsidiary. Complete and correct copies of any instruments evidencing Encumbrances, commitments for the issuance of title insurance, title opinions, surveys and appraisals in IPS's, NTS's or the NTS Subsidiary's possession and any policies of title insurance currently in force and in the possession of IPS, NTS or the NTS Subsidiary with respect to each such parcel of NTS Leased Real Property have heretofore been delivered by IPS to Comdata. 6.12. CONDEMNATION. To the knowledge of IPS, NTS or the NTS Subsidiary neither the whole nor any part of any real property leased, used or occupied by NTS or the NTS Subsidiary is subject to any pending suit for condemnation or other taking by any public authority and no such condemnation or other taking is threatened or contemplated. 6.13. PERSONAL PROPERTY. SCHEDULE 6.13(A) contains a detailed list of all machinery, equipment, vehicles, furniture and other personal property owned by NTS or the NTS Subsidiary having an original cost of $10,000 or more. Except as set forth in SCHEDULE 6.13(B), NTS or the NTS Subsidiary has good and marketable title to all the Purchased NTS Assets free and clear of all Encumbrances, except for Permitted Encumbrances. 6.14. PERSONAL PROPERTY LEASES. SCHEDULE 6.14 contains a brief description of each lease or other agreement or right, whether written or oral (including in each case the annual rental, the expiration date thereof and a brief description of the property covered), under which NTS or the NTS Subsidiary is lessee of, or holds or operates, any machinery, equipment, vehicle or other tangible personal property owned by a third Person, except for any such lease, agreement or right that is terminable by NTS or the NTS Subsidiary without penalty or payment on notice of 30 days or less, or which involves the payment by NTS or the NTS Subsidiary of rentals of less than $5,000 per year. 6.15. INTELLECTUAL PROPERTY; SOFTWARE. (a) SCHEDULE 6.15(A) contains a list and description (showing in each case any product, device, process, service, business or publication covered thereby, the registered or other owner, expiration date and number, if any) of all Copyrights, Patent Rights and Trademarks owned by, licensed to or used by NTS or the NTS Subsidiary. (b) SCHEDULE 6.15(B) contains a list and description (showing in each case any owner, licensor or licensee) of all Software owned by, licensed to or used by NTS or the NTS Subsidiary, PROVIDED that SCHEDULE 6.15(B) does not list Software licensed to NTS or the NTS Subsidiary that is commercially available and subject to "shrink-wrap" or "click on" license agreements. -60- (c) SCHEDULE 6.15(C) contains a list and description (showing in each case the parties thereto) of all agreements, contracts, licenses, sublicenses, assignments and indemnities which relate to (i) any Copyrights, Patent Rights or Trademarks listed in SCHEDULE 6.15(A), (ii) any Trade Secrets owned by, licensed to or used by NTS or the NTS Subsidiary or (iii) any Software listed in SCHEDULE 6.15(B). (d) Except as disclosed in SCHEDULE 6.15(D), NTS or the NTS Subsidiary either: (i) owns the entire right, title and interest in and to the Intellectual Property and Software included in the Purchased NTS Assets, free and clear of any Encumbrance; or (ii) has the perpetual, royalty-free right to use the same or (iii) in the case of third party vendor Software, has the ability to transfer such Software without the necessity of obtaining consents or the payment of fees. (e) Except as disclosed in SCHEDULE 6.15(E): (i) all Copyrights, Patent Rights and Trademarks, including registration therefor, identified in SCHEDULE 6.15(A) as being owned by NTS or the NTS Subsidiary are valid and in force, and all patent applications with respect to Patent Rights and all applications to register any unregistered Copyrights and Trademarks so identified are pending and in good standing, all without challenge of any kind; (ii) the Intellectual Property owned by NTS or the NTS Subsidiary is valid and enforceable; (iii) NTS or the NTS Subsidiary has the sole and exclusive right to bring actions for infringement or unauthorized use of the Intellectual Property and Software owned by NTS or the NTS Subsidiary, and to the knowledge of IPS, NTS or the NTS Subsidiary, there is no basis for any such action; (iv) NTS or the NTS Subsidiary has taken all actions reasonably necessary to protect the Copyrights, Trademarks, Software, Patent Rights or Trade Secrets included in the Purchased NTS Assets, including by pursuing registration where necessary; and (v) neither NTS or the NTS Subsidiary is in breach of any agreement affecting any of the Intellectual Property and Software included in the Purchased NTS Assets, and has not taken any action which would impair or otherwise adversely affect its rights in the Intellectual Property and Software included in the Purchased NTS Assets. Correct and complete copies of: (x) registrations for all registered Copyrights, Patent Rights and Trademarks identified in SCHEDULE 6.15(A) as being owned by NTS or the NTS Subsidiary; and (y) all pending applications to register unregistered Copyrights, Patent Rights and Trademarks identified in SCHEDULE 6.15(A) as being owned by NTS or the NTS Subsidiary (together with any subsequent correspondence or filings relating to the foregoing) have heretofore been delivered by IPS to Comdata. (f) Except as set forth in SCHEDULE 6.15(F), (i) to the knowledge of IPS, NTS or the NTS Subsidiary, no infringement of any Intellectual Property Right of any other Person has occurred or results in any way from the operations of NTS or the NTS Subsidiary as previously or currently conducted; (ii) no claim of any infringement of any Intellectual Property Right of any other Person has been made or asserted in respect of the operations of the NTS Business; (iii) neither IPS, NTS or the NTS Subsidiary has received notice that any claim of invalidity of any Copyright, Trademark or Patent Right, Software or Trade Secret has been made; (iv) no proceedings are pending or, to the knowledge of IPS, NTS or the NTS Subsidiary, threatened which challenge the validity, ownership or use of any of the NTS Business Intellectual Property; and (v) neither IPS, NTS or the NTS Subsidiary has had notice of, or knowledge of any basis for, -61- a claim against NTS or the NTS Subsidiary that the operations, activities, products, software, equipment, machinery or processes of NTS or the NTS Subsidiary infringe any Intellectual Property Right of any other Person. (g) Except as disclosed in SCHEDULE 6.15(G): (i) the Software used in the NTS Business (the "NTS OWNED SOFTWARE") is not subject to any transfer, assignment, source code escrow agreement, reversion, site, equipment, or other operational limitations; (ii) NTS or the NTS Subsidiary has maintained and protected the NTS Owned Software (including, without limitation, all source code and system specifications) with appropriate proprietary notices (including, without limitation, the notice of copyright in accordance with the requirements of 17 U.S.C. SECTION 401), confidentiality and non-disclosure agreements and such other measures as are reasonably necessary to protect the proprietary, trade secret or confidential information contained therein; (iii) the NTS Owned Software is protectable under applicable copyright law and has not been forfeited to the public domain and has been registered with the U.S. Copyright office or is eligible for registration; (iv) NTS or the NTS Subsidiary has copies of all releases or separate versions of the NTS Owned Software so that the same may be subject to registration in the United States Copyright Office; (v) NTS or the NTS Subsidiary has complete and exclusive right, title and interest in and to the NTS Owned Software; (vi) NTS or the NTS Subsidiary has developed the NTS Owned Software through its own efforts and for its own account without the aid or use of any consultants, agents, independent contractors or Persons (other than Persons that are employees of NTS or the NTS Subsidiary); (vii) to the knowledge of IPS, NTS or the NTS Subsidiary, the NTS Owned Software does not infringe any Intellectual Property Right of any other Person; (viii) any NTS Owned Software includes the source code, system documentation, statements of principles of operation and schematics, as well as any pertinent commentary and explanation language used for the development, maintenance, implementation and use thereof, so that a trained computer programmer could develop, maintain, enhance, modify, support, compile and use all releases or separate versions of the same that are currently subject to maintenance obligations by NTS or the NTS Subsidiary; and (ix) there are no agreements or arrangements in effect with respect to the marketing, distribution, licensing or promotion of the NTS Owned Software by any other Person. (h) Except as disclosed in SCHEDULE 6.15(H), all agents, consultants or contractors who have contributed to or participated in the creation or development of any Intellectual Property or Software on behalf of NTS or the NTS Subsidiary or any predecessor in interest thereto either: (i) is a party to a "work-for-hire" agreement under which NTS or the NTS Subsidiary is deemed to be the original owner/author of all property rights therein; or (ii) has executed an assignment or an agreement to assign in favor of NTS or the NTS Subsidiary (or such predecessor in interest, as applicable) of all right, title and interest in such material. (i) Except as expressly provided herein, Comdata acknowledges and agrees that the conveyance of the Purchased NTS Assets from NTS to Comdata does not result in any express or implied license or other rights to Comdata or any third person under any patent rights of NTS or its Affiliates or under any patent rights of any third parties licensed to NTS or its Affiliates (including, without limitation, any patent rights licensed to NTS or its Affiliates by -62- Ronald A. Katz Technology Licensing, L.P.) whether by implication, estoppel or otherwise. All such express or implied licenses or other rights are hereby expressly excluded and disclaimed. 6.16. ACCOUNTS RECEIVABLE. All accounts receivable of NTS or the NTS Subsidiary have arisen from bona fide transactions by NTS or the NTS Subsidiary in the ordinary course of the NTS Business. All accounts receivable are good and collectible in the ordinary course of business at the aggregate recorded amounts thereof, net of any allowance for doubtful accounts; and all accounts receivable to be reflected in the Closing Date NTS Special Report will be good and collectible in the ordinary course of business at the aggregate recorded amounts thereof, net of any allowance for doubtful accounts, which allowance will be determined on a basis consistent with the basis used in determining the allowance for doubtful accounts reflected in the NTS Balance Sheet. 6.17. TITLE TO PROPERTY. NTS or the NTS Subsidiary has good and marketable title to all of the Purchased NTS Assets, free and clear of all Encumbrances, except for Permitted Encumbrances and except as set forth in SCHEDULE 6.17. Upon delivery to Comdata on the date hereof of the instruments of transfer contemplated by SECTION 4.3, NTS will thereby transfer to Comdata good and marketable title to the Purchased NTS Assets, subject to no Encumbrances, except for Permitted Encumbrances. 6.18. EMPLOYEES AND RELATED AGREEMENTS; ERISA. (a) Except as described in SCHEDULE 6.18(A), neither NTS or the NTS Subsidiary is, with respect to the NTS Business, a party to or bound by any oral or written stock option, stock purchase, bonus or other incentive plan or agreement; (b) Except as described in SCHEDULE 5.19B), NTS does not maintain, and is not required to contribute to, any "employee pension benefit plan" (as such term is defined in Section 3(2) of ERISA) or "Welfare Benefit Plan" (as such term is defined in Section 3(1) of ERISA), on behalf of any employees or former employees of the NTS Business. None of NTS' ERISA Benefit Plans is a "multiemployer plan" as defined in Section 3(37) of ERISA, or is or has been subject to Sections 4063 or 4064 of ERISA. NTS has complied with the healthcare continuation requirements of Section 601, ET. SEQ., of ERISA with respect to employees of the NTS Business and their spouses, former spouses and dependents. (c) SCHEDULE 6.18(C) hereto set forth a true, correct and complete copy of each NTS severance plan, policy or practice in effect immediately prior to the Closing Date with respect to Transferring NTS Employees. 6.19. EMPLOYEE RELATIONS. (a) Except as set forth in SCHEDULE 6.19(A), NTS and the NTS Subsidiary have complied with all applicable laws, rules and regulations which relate to prices, wages, hours, discrimination in employment, occupational safety and health, and collective bargaining and are not liable for any arrears of wages or any taxes, penalties or damages for failure to comply with any of the foregoing. NTS and the NTS Subsidiary are in compliance with the requirements of WARN and all similar state and local statutes, laws and regulations and have no liabilities pursuant to any of them. NTS believes that its relations with the employees of the -63- NTS Business are satisfactory and are not likely to lead to collective bargaining efforts. Neither NTS or the NTS Subsidiary is a party to or affected by or, to the knowledge of IPS, NTS or the NTS Subsidiary, threatened with, any dispute or controversy with a union or with respect to unionization or collective bargaining involving the employees of NTS or the NTS Subsidiary. Neither NTS nor the NTS Subsidiary is materially affected by any dispute or controversy with a union or with respect to unionization or collective bargaining involving any supplier or customer of NTS or the NTS Subsidiary. SCHEDULE 6.19(A) sets forth a description of any union organizing or election activities involving any non-union employees of NTS or the NTS Subsidiary which have occurred since January 1, 1996 or, to the knowledge of IPS, NTS or the NTS Subsidiary, are threatened as of the date hereof. (b) Except as set forth in SCHEDULE 6.19(B), since January 1, 1996, neither NTS or the NTS Subsidiary has directly or indirectly, purchased, leased from others or otherwise acquired any material property or obtained any material services from, or sold, leased to others or otherwise disposed of any material property or furnished any material services to (except with respect to remuneration for services rendered as a director, officer or employee of NTS or the NTS Subsidiary), in the ordinary course of business or otherwise, (i) any Person who is an officer or director of NTS or the NTS Subsidiary or (ii) any Associate of any person referred to in clause (i) above. Except as set forth in SCHEDULE 6.19(B), neither NTS or the NTS Subsidiary owes any amount in excess of $10,000 to, or has any contract with or commitment to, IPS or any director, officer or employee of NTS or the NTS Subsidiary (other than for compensation for current services not yet due and payable and reimbursement of expenses arising in the ordinary course of business) and none of such Persons owes any amount in excess of $10,000 to NTS or the NTS Subsidiary. (c) Neither NTS, the NTS Subsidiary or any officer, employee or agent or other person acting on either of their behalf has, directly or indirectly, since January 1, 1993, given or agreed to give any gift or similar benefit (other than with respect to bona fide payments for which adequate consideration has been given) to any customer, supplier, governmental employee or other person who is or may be in a position to help or hinder the business of NTS or the NTS Subsidiary (or assist NTS or the NTS Subsidiary in connection with any actual or proposed transaction) (i) which might subject NTS or the NTS Subsidiary to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) which, if not continued in the future, would have an adverse effect on the assets, business, operations or prospects of NTS or the NTS Subsidiary or which would subject NTS or the NTS Subsidiary to suit or penalty in any private or governmental litigation or proceeding, (iii) for any of the purposes described in SECTION 162(c) of the Code, or (iv) for establishment or maintenance of any concealed fund or concealed bank account. 6.20. CONTRACTS. Except as set forth in SCHEDULE 6.20 or any other SCHEDULE hereto, neither NTS or the NTS Subsidiary is a party to or bound by: (i) any contract for the purchase, sale or lease of real property; -64- (ii) any contract for the purchase of goods or services by NTS or the NTS Subsidiary which involved the payment of more than $50,000 in 1997; (iii) any contract for the purchase, licensing or development of software to be used by NTS or the NTS Subsidiary except for Software that is available in consumer retail stores and subject to "shrink-wrap" license agreements; (iv) any consignment, distributor, dealer, manufacturers representative, sales agency, advertising representative or advertising or public relations contract except to the extent such contract is cancelable without penalty within 30 days; (v) any guarantee of the obligations of customers, suppliers, officers, directors, employees, Affiliates or others except to the extent such contract is cancelable without penalty within 30 days; (vi) any agreement which provides for, or relates to, the incurrence by NTS or the NTS Subsidiary of debt for borrowed money (including, without limitation, any interest rate or foreign currency swap, cap, collar, hedge or insurance agreements, or options or forwards on such agreements, or other similar agreements for the purpose of managing the interest rate and/or foreign exchange risk associated with its financing); (vii) any contract not made in the ordinary course except to the extent such contract is cancelable without penalty within 30 days; or (viii) any other contract, agreement, commitment, understanding or instrument which is material to NTS or the NTS Subsidiary and which involves the payment of more than $50,000. 6.21. STATUS OF CONTRACTS. Except as set forth in SCHEDULE 6.21 or in any other Schedule hereto, each of the leases, contracts and other agreements listed in SCHEDULES 6.11(A), 6.14, 6.15(C), 6.18(A) and 6.20 (collectively, the "NTS AGREEMENTS") constitutes a valid and binding obligation of the parties thereto and is in full force and effect and (except as set forth in SCHEDULE 6.3 and except for those NTS Agreements which by their terms will expire prior to the date hereof or are otherwise terminated prior to the date hereof in accordance with the provisions hereof) to the knowledge of IPS, NTS or the NTS Subsidiary, may be transferred to Comdata pursuant to this Agreement and will continue in full force and effect thereafter, in each case without breaching the terms thereof or resulting in the forfeiture or impairment of any rights thereunder and without the consent, approval or act of, the payment of any transfer or similar fee, or the making of any filing with, any other party. NTS and the NTS Subsidiary have fulfilled and performed their obligations under each of the NTS Agreements, and neither NTS or the NTS Subsidiary is in, or alleged to be in, breach or material default under, nor is there or is there alleged to be any basis for termination of, any of the NTS Agreements and to the knowledge of IPS, NTS or the NTS Subsidiary, no other party to any of the NTS Agreements has breached or committed a material default thereunder, and to the knowledge of IPS, NTS or the NTS Subsidiary, no event has occurred and no condition or state of facts exists which, with the passage -65- of time or the giving of notice or both, would constitute such a default or breach by NTS, the NTS Subsidiary or by any such other party. Neither NTS or the NTS Subsidiary is currently renegotiating any of the NTS Agreements or paying liquidated damages in lieu of performance thereunder. 6.22. NO VIOLATION, LITIGATION OR REGULATORY ACTION. Except as set forth in SCHEDULE 6.22: (i) the Purchased NTS Assets and the operation of the NTS Business complies with all applicable Requirements of Laws and Court Orders; (ii) NTS and the NTS Subsidiary have complied with all Requirements of Laws and Court Orders which are applicable to the Purchased NTS Assets or the NTS Business; (iii) there are no lawsuits, claims, suits, proceedings or investigations pending or, to the knowledge of IPS, NTS or the NTS Subsidiary, threatened against or affecting NTS or the NTS Subsidiary nor, to the knowledge of IPS, NTS or the NTS Subsidiary, is there any basis for any of the same, and there are no lawsuits, suits or proceedings pending in which NTS or the NTS Subsidiary is the plaintiff or claimant; (iv) there is no action, suit or proceeding pending or, to the knowledge of IPS, NTS or the NTS Subsidiary, threatened which questions the legality or propriety of the transactions contemplated by this Agreement; and (v) to the knowledge of IPS, NTS or the NTS Subsidiary, no legislative or regulatory proposal or other proposal for the change in any Requirements of Law or the interpretation thereof has been adopted or is pending which could adversely affect NTS or the NTS Subsidiary. 6.23. ENVIRONMENTAL MATTERS. Except as set forth in SCHEDULE 6.23: (a) the operations of NTS and the NTS Subsidiary are, and have been, in compliance with, and neither NTS or the NTS Subsidiary is the subject of any judicial or administrative proceedings or settlements involving alleged violations of or liability under, Environmental Laws. (b) no property now or previously owned or operated by NTS or the NTS Subsidiary is under investigation by any Governmental Body or requires remedial action under any applicable Environmental Laws to address any Contaminant. 6.24. INSURANCE. SCHEDULE 6.24 sets forth a list and brief description (including nature of coverage, limits, deductibles, premiums and the loss experience for the most recent five years with respect to each type of coverage) of all policies of insurance maintained, owned or held by NTS or the NTS Subsidiary on the date hereof. NTS and the NTS Subsidiary have complied with each such insurance policy and have not failed to give any notice or present any claim -66- thereunder in a due and timely manner. NTS or the NTS Subsidiary has delivered to Comdata correct and complete copies of the most recent inspection reports, if any, received from insurance underwriters as to the condition of the Purchased NTS Assets. 6.25. CUSTOMERS. Set forth in SCHEDULE 6.25 hereto is (i) a list of names and addresses of the five largest truck stop customers of the NTS Business as measured by the total transaction volume of the NTS Business which each such truck stop represents the period January 1, 1997 through November 30, 1997 and (ii) a list of names and addresses of the 25 largest trucking customers (measured by dollar volume of net revenues in each case) of the NTS Business and the percentage of the NTS Business which each such customer represents. Except as set forth in SCHEDULE 6.25, there exists no actual or to the knowledge of IPS, NTS or the NTS Subsidiary, threatened termination, cancellation or limitation of, or any modification or change in, the business relationship of NTS and the NTS Subsidiary with any customer or group of customers listed in SCHEDULE 6.25, or whose purchases individually or in the aggregate are material to the operation of the NTS Business, and to the knowledge of IPS, NTS or the NTS Subsidiary, there exists no present or future condition or state of facts or circumstances involving customers, suppliers or sales representatives which IPS or NTS can now reasonably foresee would materially adversely affect NTS or the NTS Subsidiary (taken as a whole) or prevent the conduct of the NTS Business after the consummation of the transactions contemplated by this Agreement in essentially the same manner in which such business has heretofore been conducted. 6.26. BANK ACCOUNTS; POWERS OF ATTORNEY. SCHEDULE 6.26 sets forth a complete and correct list of all bank accounts and safe deposit boxes of NTS and the NTS Subsidiary and the individuals authorized to sign or otherwise act with respect thereto as of the date hereof and a complete and correct list of all Persons holding a general or special power of attorney granted by NTS or the NTS Subsidiary and a complete and correct copy thereof. 6.27. ESTIMATED CLOSING DATE NTS SPECIAL REPORT. SCHEDULE 6.27 contains IPS's bona fide, good faith estimate of the Closing Date NTS Special Report (the "ESTIMATED CLOSING DATE NTS SPECIAL REPORT"). ARTICLE VII ADDITIONAL AGREEMENTS 7.1. COVENANT NOT TO COMPETE OR SOLICIT BUSINESS BY FDC, IPS, NTS AND FDFS. (a) In furtherance of the exchange of the Purchased Gaming Assets for the Purchased NTS Assets and the Initial Amount hereunder, by virtue of the transactions contemplated hereby and more effectively to protect the value and goodwill of the Purchased Gaming Assets and the Purchased NTS Assets so exchanged, FDC, IPS, NTS and FDFS, covenant and agree that, for a period ending on the third anniversary of the date hereof, neither FDC, IPS, NTS, FDFS nor any of their respective controlled Affiliates will: -67- (i) directly or indirectly (whether as principal, agent, independent contractor, partner or otherwise) own, manage, operate, control, participate in, or otherwise carry on, a business engaged in Restricted Trucking Activities anywhere in the U.S. and Canada (it being understood by the parties hereto that the NTS Business is not limited to any particular region and that such business may be engaged in effectively from any location); or (ii) induce or attempt to persuade any customer of NTS or the NTS Subsidiary to terminate such business relationship in order to enter into any such relationship on behalf of any other business organization in competition with the NTS Business; PROVIDED, HOWEVER, that nothing set forth in this SECTION 7.1(a) shall prohibit FDC, IPS, NTS, FDFS or their respective Affiliates from (v) owning not in excess of 5% in the aggregate of any class of capital stock of any corporation if such stock is publicly traded and listed on any national or regional stock exchange or on the NASDAQ national market system (w) purchasing, and following such purchase, actively engaging in, any business that has a subsidiary, division, group, franchise or segment that is engaged in any Restricted Trucking Activity, so long as: (A) on the date of such purchase, not more than 20% of the consolidated revenues of such business are derived from such Restricted Trucking Activity and (B) such business divests itself of such subsidiary, division, group, franchise or segment as soon as practicable after the date of such purchase, PROVIDED, that with respect to any purchase intended to be accounted for as a pooling of interests under GAAP or treated for federal income tax purposes as a tax-free reorganization, no such divestiture shall be required until, in the reasonable opinion of FDC, such divestiture would no longer endanger the accounting of such purchase as a pooling of interests under GAAP or the treatment for federal income tax purposes of such purchase as a tax-free reorganization; (x) performing any services pursuant to the NTS Business Transition Services Agreement; (y) the provision of payroll delivery services or products (whether or not under the name "Transpay") or any products currently contemplated by NTS to be offered under the name "Transpay" unrelated to the Restricted Trucking Activities; and (z) except for the Restricted Trucking Activities (to the extent not otherwise permitted by reason of the foregoing), engaging in any other activity which may now or hereafter be provided by such party. (b) In addition, FDC, IPS, NTS and FDFS covenant and agree that neither they nor any of their respective Affiliates will divulge or make use of any Trade Secrets or other confidential information of the NTS Business in each case relating exclusively to the Purchased NTS Assets other than to disclose such secrets and information to Ceridian, Comdata or their respective Affiliates. (c) Nothing in this Agreement, including without limitation, SECTION 7.1(a), shall prevent any Affiliate of FDC from engaging in Restricted Trucking Activities after such Affiliate ceases to be an Affiliate of FDC. (d) In the event FDC, IPS, NTS, FDFS or any of their respective Affiliates violates any of their respective obligations under this SECTION 7.1, Ceridian or Comdata may -68- proceed against it in law or in equity for such damages or other relief as a court may deem appropriate. FDC, IPS, NTS and FDFS acknowledge that a violation of this SECTION 7.1 may cause Ceridian or Comdata irreparable harm which may not be adequately compensated for by money damages. FDC, IPS, NTS and FDFS therefore agree that in the event of any actual or threatened violation of this SECTION 7.1, Ceridian or Comdata shall be entitled, in addition to other remedies that they may have, to a temporary restraining order and to preliminary and final injunctive relief against FDC, IPS, NTS, FDFS or such Affiliate of FDC, IPS, NTS or FDFS to prevent any violations of this SECTION 7.1, without the necessity of posting a bond. The prevailing party in any action commenced under this SECTION 7.1 shall also be entitled to receive reasonable attorneys' fees and court costs. (e) It is the intent and understanding of each party hereto that if, in any action before any court or agency legally empowered to enforce this SECTION 7.1, any term, restriction, covenant or promise in this SECTION 7.1 is found to be unreasonable and for that reason unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such court or agency. 7.2. SOLICITATION OF EMPLOYEES. (a) Prior to the first anniversary of the date hereof, without the consent of FDC, none of Comdata, Ceridian or any of their controlled Affiliates (the "RESTRICTED COMDATA PARTIES") shall solicit or seek to hire any Transferred Comdata Employee; PROVIDED, HOWEVER, that the foregoing shall not prevent any Restricted Comdata Party from hiring any such person (i) who contacts such Restricted Comdata Party on his or her own initiative without solicitation from any of the Restricted Comdata Parties, (ii) in connection with general employment advertisements published in magazines, journals, newspapers and other publications that are not targeted at the Transferred Comdata Employees or (iii) who has been discharged by the Gaming Business prior to any such solicitation. (b) Prior to the first anniversary of the date hereof, without the consent of Ceridian, none of FDC, IPS, NTS, FDFS or any of their controlled Affiliates (the "RESTRICTED FDC PARTIES") shall solicit or seek to hire any Transferred NTS Employee; PROVIDED, HOWEVER, that the foregoing shall not prevent any Restricted FDC Party from hiring any such person (i) who contacts such Restricted FDC Party on his or her own initiative without solicitation from any of the Restricted FDC Parties, (ii) in connection with general employment advertisements published in magazines, journals, newspapers and other publications that are not targeted at the Transferred NTS Employees or (iii) who has been discharged by the NTS Business prior to any such solicitation. 7.3. TAX MATTERS. (a) Liability for Taxes. (i) FDC TAXES. FDC shall be liable for and pay, and pursuant to ARTICLE VIII (and subject to the limitations thereof) shall indemnify each Ceridian Group Member against, all Taxes (A) applicable to the NTS Business, the Purchased NTS Assets and the Assumed NTS Liabilities, in each case attributable to taxable years or periods ending at the time -69- of or prior to the Closing and, with respect to any Straddle Period, the portion of such Straddle Period ending on and including the Closing, (B) imposed on the NTS Subsidiary or for which the NTS Subsidiary may otherwise be liable for any taxable year or period that ends on or before the Closing and, with respect to any Straddle Period, the portion of such Straddle Period ending on and including the Closing (including, without limitation, any Taxes imposed on the NTS Subsidiary pursuant to Treas. Reg. SECTION 1.1502-6 or similar provision of state, local, or foreign law or any Taxes imposed on the NTS Subsidiary as a result of the termination of its election under Section 1504(d) of the Code), (C) applicable to the Gaming Business, the Purchased Gaming Assets and the Assumed Gaming Liabilities, in each case attributable to taxable years or periods beginning after the Closing and, with respect to any Straddle Period, the portion of such Straddle Period beginning after the Closing, and (D) imposed on the Gaming Subsidiary or for which the Gaming Subsidiary may otherwise be liable for any taxable year or period that begins after the Closing and, with respect to any Straddle Period, the portion of such Straddle Period beginning after the Closing. FDC shall be entitled to any refund of (or credit for) Taxes for which FDC would be liable pursuant to this SECTION 7.3(a)(i). (ii) CERIDIAN TAXES. Ceridian shall be liable for and pay, and pursuant to ARTICLE VIII (and subject to the limitations thereof) shall indemnify each FDC Group Member against, all Taxes (A) applicable to the Gaming Business, the Purchased Gaming Assets and the Assumed Gaming Liabilities, in each case attributable to taxable years or periods ending at the time of or prior to the Closing and, with respect to any Straddle Period, the portion of such Straddle Period ending on and including the Closing, (B) imposed on the Gaming Subsidiary or for which the Gaming Subsidiary may otherwise be liable for any taxable year or period that ends on or before the Closing and, with respect to any Straddle Period, the portion of such Straddle Period ending on and including the Closing (including, without limitation, any Taxes imposed on the Gaming Subsidiary pursuant to Treas. Reg. SECTION 1.1502-6 or similar provision of state, local or foreign law or any Taxes imposed on the Gaming Subsidiary as a result of a termination of an election under Section 1504(d) of the Code), (C) applicable to the NTS Business, the Purchased NTS Assets and the Assumed NTS Liabilities, in each case attributable to taxable years or periods beginning after the Closing and, with respect to any Straddle Period, the portion of such Straddle Period beginning after the Closing, and (D) imposed on the NTS Subsidiary or for which the NTS Subsidiary may otherwise be liable for any taxable year or period that begins after the Closing and, with respect to any Straddle Period, the portion of such Straddle Period beginning after the Closing. Ceridian shall be entitled to any refund of (or credit for) Taxes for which Ceridian would be liable pursuant to this SECTION 7.3(a)(ii). (iii) STRADDLE PERIODS. For purposes of paragraphs (a)(i) and (a)(ii), whenever it is necessary to determine the liability for Taxes for a Straddle Period, the determination of the Taxes for the portion of the Straddle Period ending on and including, and the portion of the Straddle Period beginning after, the Closing shall be determined by assuming that the Straddle Period consisted of two taxable years or periods, one which ended at the Closing and the other which began immediately after the Closing, and items of income, gain, deduction, loss or credit for the Straddle Period shall be allocated between such two taxable years or periods on a "closing of the books basis" by assuming that the books of the NTS Business or the Gaming Business, as the case may be, were closed at the time of the Closing, PROVIDED, HOWEVER, that -70- exemptions, allowances or deductions that are calculated on an annual basis, such as the deduction for depreciation, shall be apportioned between such two taxable years or periods on a daily basis. (iv) OFFSET TO LIABILITY. If, as a result of any action, suit, investigation, audit, claim, assessment or amended Tax Return, there is any change after the date hereof in an item of income, gain, loss, deduction, credit or amount of Tax that results in an increase in a Tax liability for which FDC would otherwise be liable pursuant to paragraph (a)(i) of this SECTION 7.3, and such change results in a decrease in the Tax liability of the NTS Subsidiary, Ceridian or any Affiliate or successor of any thereof for any taxable year or period beginning after the Closing or for the portion of any Straddle Period beginning after the Closing, FDC shall not be liable pursuant to such paragraph (a)(i) with respect to such increase to the extent of such decrease (and, to the extent such increase in Tax liability is paid to a taxing authority by FDC or any Affiliate thereof, Ceridian shall pay FDC an amount equal to such decrease). If, as a result of any action, suit, investigation, audit, claim, assessment or amended Tax Return, there is any change after the date hereof in an item of income, gain, loss, deduction, credit or amount of Tax that results in an increase in a Tax liability for which Ceridian would otherwise be liable pursuant to paragraph (a)(ii) of this SECTION 7.3, and such change results in a decrease in the Tax liability of the Gaming Subsidiary, FDC or any Affiliate or successor thereof for any taxable year or period beginning after the Closing or for the portion of any Straddle Period beginning after the Closing, Ceridian shall not be liable pursuant to such paragraph (a)(ii) with respect to such increase to the extent of such decrease (and, to the extent such increase in Tax liability is paid to a taxing authority by Ceridian or any Affiliate thereof, FDC shall pay Ceridian an amount equal to such decrease). (v) TRANSFER TAXES. Notwithstanding anything herein to the contrary, (A) Ceridian shall pay, and shall indemnify each FDC Group Member against one-half of any real property transfer or gains Tax, sales Tax, use Tax, stamp Tax, stock transfer Tax, or other similar Tax imposed on the transactions contemplated by this Agreement and (B) FDC shall pay, and shall indemnify each Ceridian Group Member against, one-half of any real property transfer or gains Tax, sales Tax, use Tax, stamp Tax, stock Transfer Tax, or other similar Tax imposed on the transactions contemplated by this Agreement. (b) TAX RETURNS. (i) FDC TAX RETURNS. FDC shall timely file or cause to be timely filed when due (taking into account all extensions properly obtained) all Tax Returns (A) attributable to the NTS Business, the Purchased NTS Assets or the NTS Subsidiary for taxable years or periods ending on or before the Closing and (B) attributable to the Gaming Business, the Purchased Gaming Assets or the Gaming Subsidiary for taxable years or periods beginning after the Closing or Straddle Periods. In each case FDC shall remit or cause to be remitted any Taxes due in respect of such Tax Returns. (ii) CERIDIAN TAX RETURNS. Ceridian shall timely file or cause to be timely filed when due (taking into account all extensions properly obtained) all Tax Returns (A) -71- attributable to the Gaming Business, the Purchased Gaming Assets or the Gaming Subsidiary for taxable years or periods ending on or before the Closing and (B) attributable to the NTS Business, the Purchased NTS Assets or the NTS Subsidiary for taxable years or periods beginning after the Closing or Straddle Periods. In each case, Ceridian shall remit or cause to be remitted any Taxes due in respect of such Tax Returns. (iii) REMITTANCE. FDC or Ceridian shall pay the other party for the Taxes for which FDC or Ceridian, respectively, is liable pursuant to paragraph (a) of this SECTION 7.3 but which are payable with any Tax Return to be filed by the other party pursuant to this paragraph (b) upon the written request of the party entitled to payment, setting forth in detail the computation of the amount owed by FDC or Ceridian, as the case may be, but in no event earlier than 10 days prior to the due date for paying such Taxes. (iv) AMENDED RETURNS. None of Ceridian or any Affiliate of Ceridian shall (or shall cause or permit the NTS Subsidiary to) amend, refile or otherwise modify (or grant an extension of any statute of limitation with respect to) any Tax Return relating in whole or in part to the NTS Business, the Purchased NTS Assets or the NTS Subsidiary with respect to any taxable year or period ending on or before the Closing (or with respect to any Straddle Period) without the prior written consent of FDC, which consent may not be unreasonably withheld. None of FDC or any Affiliate of FDC shall (or shall cause the Gaming Subsidiary to) amend, refile or otherwise modify (or grant an extension of any statute of limitation with respect to) any Tax Return relating in whole or in part to the Gaming Business, the Purchased Gaming Assets or the Gaming Subsidiary with respect to any taxable year or period ending on or before the Closing (or with respect to any Straddle Period) without the prior written consent of Ceridian, which consent may not be unreasonably withheld. (c) CONTEST PROVISIONS. (i) CONTESTS INVOLVING PRE-CLOSING TAXES OF THE NTS BUSINESS, THE PURCHASED NTS ASSETS OR THE NTS SUBSIDIARY. Ceridian shall promptly notify FDC, in writing upon receipt by Ceridian, Comdata, any of their Affiliates, or the NTS Subsidiary of written notice of any pending or threatened federal, state, local or foreign Tax audits, examinations or assessments which might affect the Tax liabilities for which FDC may be liable pursuant to paragraph (a)(i) of this SECTION 7.3. FDC shall have the sole right to control any Tax audit or administrative or court proceeding relating to the NTS Business, the Purchased NTS Assets or the NTS Subsidiary for taxable periods ending on or before the Closing, and to employ counsel of its choice at its expense. None of Ceridian, any of its Affiliates, or the NTS Subsidiary may settle any Tax claim for any Taxes for which FDC may be liable pursuant to paragraph (a)(i) of this SECTION 7.3, without the prior written consent of FDC, which consent may not be unreasonably withheld. (ii) CONTESTS INVOLVING PRE-CLOSING TAXES OF THE GAMING BUSINESS OR THE PURCHASED GAMING ASSETS. FDC shall promptly notify Ceridian in writing upon receipt by FDC, FDFS, NTS, any of their Affiliates or the Gaming Subsidiary of written notice of any pending or threatened federal, state, local or foreign Tax audits, examinations or assessments which might -72- affect the Tax liabilities for which Ceridian may be liable pursuant to paragraph (a)(ii) of this SECTION 7.3. Ceridian shall have the sole right to control any Tax audit or administrative or court proceeding relating to the Gaming Business, the Purchased Gaming Assets or the Gaming Subsidiary for taxable periods ending on or before the Closing, and to employ counsel of its choice at its expense. None of FDC or any of its Affiliates may settle any Tax claim for any Taxes for which Ceridian may be liable pursuant to paragraph (a)(ii) of this SECTION 7.3, without the prior written consent of Ceridian, which consent may not be unreasonably withheld. (iii) STRADDLE PERIODS. In the case of a Straddle Period, the party (the "Filing Party" responsible for filing (or causing to be filed) the Tax Returns related to such Straddle Period pursuant to SECTION 7.3(b) shall control any Tax audit or administrative or court proceeding relating to such Straddle Period; PROVIDED, HOWEVER, that the other party (the "Non-Filing Party") shall be entitled to participate at its expense in such proceeding to the extent the Non-Filing Party is liable for Taxes relating to such Straddle Period pursuant to SECTION 7.3(a) and, with the written consent of the Filing Party, and at the Non-Filing Party's sole expense, may assume the entire control of such audit or proceeding. (d) ASSISTANCE AND COOPERATION. After the date hereof, each of FDC and Ceridian shall (and cause their respective Affiliates to): (i) assist the other party in preparing any Tax Returns which such other party is responsible for preparing and filing in accordance with paragraph (b) of this SECTION 7.3; (ii) cooperate fully in preparing for any audits of, or disputes with taxing authorities regarding, any Tax Returns relating to the NTS Business, the Purchased NTS Assets, the NTS Subsidiary, the Gaming Business, the Purchased Gaming Assets or the Gaming Subsidiary; (iii) make available to the other and to any taxing authority as reasonably requested all information, records, and documents relating to Taxes of the NTS Business, the Purchased NTS Assets, the NTS Subsidiary, the NTS Business, the Purchased NTS Assets, the Gaming Business, the Purchased Gaming Assets or the Gaming Subsidiary; (iv) timely sign and deliver such certificates or forms as may be necessary or appropriate to establish an exemption from (or otherwise reduce), or file Tax Returns or other reports with respect to, Taxes described in paragraph (a)(v) of this SECTION 7.3 (relating to sales, transfer and similar Taxes); and (v) timely provide to the other powers of attorney or similar authorizations necessary to carry out the purposes of this SECTION 7.3; (e) The parties hereto agree to file all federal, state, local and foreign Tax Returns in a manner consistent with the fair market values identified in SECTION 2.1. Within 60 days following the date hereof or as soon as is reasonably practicable, FDC and Ceridian shall negotiate -73- and draft a schedule (the "ALLOCATION SCHEDULE") allocating such amounts among the Purchased NTS Assets and the Purchased Gaming Assets. The Allocation Schedule shall be consistent with the values set forth above and shall be prepared in accordance with Section 1060 of the Code and the regulations thereunder. FDC and Comdata each agrees that promptly upon receiving said Allocation Schedule it shall return an executed copy thereof to the other party. FDC and Comdata each agrees to file all federal, state, local and foreign Tax Returns in accordance with the Allocation Schedule. (f) REVENUE CANADA APPROVALS. FDC has filed, with respect to the sale of the stock of the NTS Subsidiary by FDC, and Ceridian has filed, with respect to the sale of the stock of the Gaming Subsidiary by Ceridian, a Notice by a Non-Resident of Canada Concerning the Disposition or Proposed Disposition of Taxable Canadian Property (the "FORM T2062") as required by Section 116 of the Canadian INCOME TAX ACT and, in the case of Ceridian, Notice by a Non- Resident of Quebec concerning the Disposition or Proposed Disposition of Taxable Quebec Property (The "Form TP 1097") as required by Section 1097 of The Quebec Taxation Act. The parties hereby agree that the good faith estimated value of the purchase price allocable to the outstanding shares of capital stock of the NTS Subsidiary is $571,000 (Canadian dollars) and the good faith estimated value of the purchase price allocable to the outstanding shares of capital stock of the Gaming Subsidiary, is $2,857,000 (Canadian dollars), subject to any post- closing adjustments which are agreed to by the parties. Each of Ceridian and FDC shall use commercially reasonable efforts to obtain from Revenue Canada a certificate under Section 116 of the INCOME TAX ACT (Canada) and, in the case of Ceridian, the equivalent certificate under the TAXATION ACT (Quebec) with a "certificate limit" greater than or equal to the purchase price allocable to the shares sold by it (the "Canadian Tax Certificate") within 30 days after the end of the month during which the Closing occurs (the "Certificate Date"), and to provide the purchaser of the shares with its copy of the Canadian Tax Certificate forthwith. If the Canadian Tax Certificate is not obtained by the seller and delivered to the purchaser by the Certificate Date, then the seller will indemnify the purchaser and hold the purchaser harmless with respect to any tax, penalties and interest which may be assessed against the purchaser under the INCOME TAX ACT (Canada) or the TAXATION ACT (Quebec) by virtue of the purchaser's failure to withhold and remit or pay any tax required to be remitted or paid by the purchaser under subsection 116(5) of the INCOME TAX ACT (Canada) or the equivalent provision of the TAXATION ACT (Quebec). 7.4. EMPLOYEES AND EMPLOYEE BENEFIT PLANS. (a) TRANSFERRING EMPLOYEES. (i) NTS has listed on SCHEDULE 7.4(A) those employees of either NTS or the NTS Subsidiary who NTS or the NTS Subsidiary intends to transfer to Comdata and who are Actively Employed on the date hereof and whose duties primarily relate to the NTS Business (collectively, the "NTS EMPLOYEES"). On SCHEDULE 7.4(A), NTS shall designate separately those NTS Employees on a Statutorily Protected Leave. (ii) Comdata has listed on SCHEDULE 7.4(B) those employees of either Comdata or the Gaming Subsidiary who Comdata intends to transfer to FDFS and who are Actively Employed -74- on the date hereof and whose duties primarily relate to the Gaming Business (collectively, the "COMDATA EMPLOYEES"). On SCHEDULE 7.4(B), Comdata shall designate separately those Comdata Employees on a Statutorily Protected Leave. (iii) On the Closing Date, Comdata shall offer employment to each of the NTS Employees. All such employees who do not decline Comdata's offer of employment and actually perform services for Comdata on the Closing Date or who, on the Closing Date, are on NTS approved absences or Statutorily Protected Leaves and do not later decline Comdata's offer of employment and actually perform services for Comdata on the next business day following the expiration of such approved absence or Statutorily Protected Leave, are hereinafter referred to as "TRANSFERRING NTS EMPLOYEES." The employment of the NTS Employees with Comdata shall be considered effective and their employment by NTS shall transfer to Comdata on the Closing Date, or in the case of employees on NTS approved absences or Statutorily Protected Leaves, as of the date they first perform services for Comdata (the "COMDATA EFFECTIVE DATE"). (iv) On the Closing Date, FDFS shall offer employment to each of the Comdata Employees. All such employees who do not decline FDFS' offer of employment and actually perform services for FDFS on the Closing Date or who, on the Closing Date, are on Comdata approved absence or Statutorily Protected Leaves and do not later decline FDFS' offer of employment and actually perform services for FDFS on the next business day following the expiration of such approved absence or Statutorily Protected Leave are hereinafter referred to as "TRANSFERRING COMDATA EMPLOYEES." The employment of the Comdata Employees with FDFS shall be considered effective and their employment by Comdata shall transfer to FDFS on the Closing Date, or, in the case of employees on Comdata approved absences or Statutorily Protected Leaves, as of the date they first perform services for FDFS (the "FDFS EFFECTIVE DATE"). (v) NTS shall be responsible for paying out any earned, unused vacation days of Transferring NTS Employees upon their termination of employment with NTS and in accordance with NTS' vacation policy. In no event will Ceridian or Comdata have any responsibility or liability for payment of any vacation or sick days earned by a Transferring NTS Employee during his employment with NTS. (vi) Comdata shall be responsible for paying out any earned, unused vacation and sick days of Transferring Comdata Employees upon their termination of employment with Comdata and in accordance with Comdata's vacation and sick pay policy. In no event will FDC, IPS or FDFS have any responsibility or liability for payment of any vacation or sick days earned by a Transferring Comdata Employee during his employment with Comdata. (vii) FDC, IPS and FDFS shall be solely liable for, and indemnify and hold Ceridian and Comdata harmless from all claims, demands, costs or other liabilities, including reasonable attorneys' fees, related to the employees listed on SCHEDULE 7.4(A): (A) who do not become Transferring NTS Employees; (B) to the extent such liability arises from any action, event or course of conduct except for any action, event or course of conduct of Ceridian or Comdata -75- that occurs prior to the Comdata Effective Date; or (C) to the extent such liability arises under or relates to any employee benefit plan of FDC or IPS except for any liability related to such plans with respect to any Transferred NTS Employee arising during the transition period described in SECTION 7.4(a)(x) below, which shall be the responsibility of Comdata. (viii) Ceridian and Comdata shall be solely liable for, and indemnify and hold FDC, IPS and FDFS harmless from all claims, demands, costs or other liabilities, including reasonable attorneys' fees, related to the employees listed on SCHEDULE 7.4(B): (A) who do not become Transferring Comdata Employees; (B) to the extent such liability arises from any action, event or course of conduct except for any action, event or course of conduct of FDC, IPS or FDFS that occurs prior to the FDFS Effective Date; or (C) to the extent such liability arises under or relates to any employee benefit plan of Ceridian or Comdata except for any liability related to such plans with respect to any Transferred Comdata Employee arising during the transition period described in SECTION 7.4(b)(ix) below, which shall be the responsibility of FDC. (ix) Comdata will, for administrative convenience only, allow the Transferring Comdata Employees to remain on its payroll and welfare benefit plans for a transition period of up to 30 days following the Closing Date. FDC, IPS and FDFS shall reimburse Comdata for all direct costs associated with the Transferring Comdata Employees remaining on its payroll and welfare benefit plans during this transition period. (x) FDC will, for administrative convenience only, allow the Transferring NTS Employees to remain on its payroll and welfare benefit plans for a transition period of up to 30 days following the Closing Date. Ceridian and Comdata shall reimburse NTS for all direct costs associated with the Transferring NTS Employees remaining on its payroll and welfare benefit plans during this transition period. (b) WELFARE PLANS. (i) Except as otherwise required by the terms of any such plan, all Transferring NTS Employees shall cease participation in any Welfare Plan sponsored or maintained by FDC, IPS or NTS except for any transition period provided for in SUBSECTION 7.4(a)(x) above. Except as otherwise required by the terms of any such plan, all Transferring Comdata Employees shall cease participation in any Welfare Plan sponsored or maintained by Ceridian or Comdata except for any transition period provided for in SUBSECTION 7.4(a)(ix) above. (ii) Commencing on the Comdata Effective Date, Transferring NTS Employees shall be eligible for those Welfare Plans of Ceridian and Comdata in effect for similarly situated existing employees of Comdata (collectively, the "COMDATA WELFARE PLANS"). Transferring NTS Employees shall be credited for their length of service with NTS and its Affiliates for all purposes under the Comdata Welfare Plans, including eligibility. Any pre-existing condition limitation under a Comdata Welfare Plan shall be waived for Transferring NTS Employees and their eligible dependents. Commencing on the FDFS Effective Date, Transferring Comdata Employees shall be eligible for those Welfare Plans of FDC or IPS in effect for similarly situated existing employees of IPS (collectively, the "IPS WELFARE PLANS"). Transferring Comdata Employees shall be credited -76- for their length of service with Comdata and its Affiliates for all purposes under the IPS Welfare Plans, including eligibility. Any pre-existing condition limitation under an IPS Welfare Plan shall be waived for Transferring Comdata Employees and their eligible dependents. (iii) IPS shall be responsible for providing continuation coverage to NTS Employees who do not become Transferred NTS Employees (and their covered dependents) and Transferring NTS Employees (and their covered dependents) under each of its applicable health plans with respect to all qualifying events under COBRA and comparable state law which occur before the Comdata Effective Date. Comdata shall be responsible for providing continuation coverage to Transferring NTS Employees (and their covered dependents) under each of its applicable group health plans with respect to all qualifying events under COBRA and comparable state law which occur on or after the Comdata Effective Date. Comdata shall be responsible for providing continuation coverage to Comdata Employees who do not become Transferring Comdata Employees (and their covered dependents) and Transferring Comdata Employees (and their covered dependents) under each of its applicable group health plans with respect to all qualifying events under COBRA and comparable state law which occur before the IPS Effective Date. IPS shall be responsible for providing continuation coverage to Transferring Comdata Employees (and their covered dependents) under each of its applicable group health plans with respect to all qualifying events under COBRA and comparable state law which occur on or after the IPS Effective Date. (iv) Except as otherwise expressly provided in this SECTION 7.4(b), IPS shall be liable for, and shall indemnify and hold each Ceridian Group Member harmless from, all claims incurred by Transferring NTS Employees and other current or former employees of IPS (and their covered dependents) under the IPS Welfare Plans. Except as otherwise expressly provided in this SECTION 7.4(b), Comdata shall be liable for, and shall indemnify and hold each FDC Group Member harmless from, all claims incurred by Transferring Comdata Employees which occur before the IPS Effective Date and other current or former employees of Comdata (and their covered dependents) under the Comdata Welfare Plans. (c) PENSION PLANS. (i) As of the Comdata Effective Date, all Transferring NTS Employees shall cease accruing benefits under any Pension Plan sponsored or maintained by FDC, IPS or NTS (collectively, the "IPS PENSION PLANS"). As of the FDFS Effective Date, all Transferring Comdata Employees shall cease accruing benefits under any Pension Plan sponsored or maintained by Ceridian or Comdata (collectively, the "COMDATA PENSION PLANS"). (ii) Commencing on the Comdata Effective Date, Transferring NTS Employees shall be eligible for those Comdata Pension Plans in effect for similarly situated existing employees of Comdata PROVIDED, HOWEVER, that Transferring NTS Employees shall not be considered eligible for the Ceridian Corporation Retirement Plan which is closed to new entrants. Transferring NTS Employees shall be credited for their length of service with NTS and its Affiliates for purposes of eligibility and vesting under the Comdata Pension Plans. Commencing on the FDFS Effective Date, Transferring Comdata Employees shall be eligible for those IPS Pension Plans in effect for -77- similarly situated existing employees of IPS; provided, however, that Transferring Comdata Employees shall not be considered eligible for the FDC Retirement Plan, which is frozen. Transferring Comdata Employees shall be credited for their length of service with Comdata and its Affiliates for purposes of eligibility and vesting under the IPS Pension Plans. (iii) Subject to the approval of the FDC Employee Benefits Administration and Investment Committee, IPS shall cause the accounts of the Transferring NTS Employees under IPS's 401(k) plan or plans to be fully vested as of the Closing Date. Subject to the approval of the plan administrator, Comdata shall cause the accounts of the Transferring Comdata Employees under Ceridian's and Comdata's 401(k) plan or plans to be fully vested as of the Closing Date. If IPS determines that it is unable to make distribution from its 401(k) plan or plans in connection with the transactions contemplated by this Agreement pursuant to SECTION 401(k)(10) of the Code, it will provide notices of such determination to Comdata. Thereafter, Comdata will promptly notify IPS whenever a Transferring NTS Employee ceases to be employed with Comdata and its Affiliates, including any such cessation that occurred before Comdata received the notice. If Comdata determines that it is unable to make distributions from its 401(k) plan or plans in connection with the transactions contemplated by this Agreement pursuant to SECTION 401(k)(10) of the Code, it will provide written notice of such determination to IPS. Thereafter, IPS will promptly notify Comdata whenever a Transferring Comdata Employee ceases to be employed with IPS and its Affiliates, including any such cessation that occurred before IPS received the notice. (d) OTHER BENEFITS. (i) As of the Comdata Effective Date, the Transferring NTS Employees shall be eligible for vacation, sick leave and all other compensation and benefit programs not specifically addressed in SECTION 7.4(b) or (c) in effect for similarly situated existing employees of Comdata and shall be credited for their length of service with NTS and its Affiliates for all purposes under such programs. (ii) As of the FDFS Effective Date, the Transferring Comdata Employees shall be eligible for vacation, sick leave and all other compensation and benefit programs not specifically addressed in SECTION 7.4(b) or (c) in effect for similarly situated existing employees of IPS and shall be credited for their length of service with Comdata and its Affiliates for all purposes under such programs. (e) MISCELLANEOUS. (i) During the 12-month period beginning at Closing, Comdata shall follow the terms of a severance plan which covers each Transferring NTS Employee and which is at least as favorable to each such Transferring NTS Employee as the applicable NTS severance plan, policy or practice, to the extent it is described on SCHEDULE 6.18(d) in effect immediately prior to Closing with respect to such Transferring NTS Employee. During the 12-month period beginning at Closing, FDFS shall follow the terms of a severance plan which covers each Transferring Comdata Employee as the applicable Comdata severance plan, policy or practice, to the extent it -78- is described on SCHEDULE 5.18(d) in effect immediately prior to Closing with respect to such transferring Comdata Employee. (ii) IPS shall be responsible for compliance with the federal Worker Adjustment and Retraining Notification Act ("WARN") and any similar applicable state or local laws and assumes any liability for non-compliance with such laws with respect to IPS' termination of any Transferring Comdata Employee. Comdata shall be responsible for compliance with WARN and any similar applicable state or local laws and assume any liability for non-compliance with such laws with respect to Comdata's termination of any Transferring NTS Employee. (f) IPS shall be liable for any workers' compensation or similar workers' protection claims by Transferring NTS Employees originating prior to the Comdata Effective Date and by Transferring Comdata Employees for occurrences originating on or after the FDFS Effective Date. Comdata shall be liable for any workers' compensation or similar workers' protection claims by Transferring Comdata Employees originating prior to the FDFS Effective Date and by Transferring NTS Employees for occurrences originating on or after the Comdata Effective Date. (g) No Transferring NTS Employee, Transferring Comdata Employee or other current or former employee of NTS or Comdata (including any beneficiary or dependent thereof), or any other person not a party to this Agreement, shall be entitled to assert any claim hereunder. 7.5. COLLECTION OF RECEIVABLES. (a) From and after the Closing Date, Comdata shall use reasonable efforts to collect the NTS Receivables reflected in the Closing Date NTS Special Report generally in accordance with the billing and collection practices presently applied by Comdata in the collection of its accounts and notes receivable, except that with respect to any particular NTS Receivable, Comdata shall be under no obligation to commence litigation to effect collection and may make any concession or settlement which in the good faith judgment of Comdata is commercially reasonable. In connection with the collections by Comdata, if a payment is received from an account debtor who has not designated the invoice being paid thereby, such payment shall be applied to the earliest invoice outstanding with respect to indebtedness of such account debtor reflected on the Closing Date NTS Special Report, except for those invoices which are subject to a dispute to the extent of such dispute. (b) Comdata shall, on or before the tenth business day of each calendar month commencing with the second complete calendar month following the Closing Date, deliver to NTS a written report ("NTS COLLECTION REPORT") of the following information with respect to the NTS Receivables: (i) The aggregate amount of the NTS Receivables (and the number of accounts comprising such NTS Receivables); and (ii) The aggregate amount of cash collections of the NTS Receivables during the period from the Closing Date through the date of the NTS Collection Report. -79- (c) If Comdata has not collected, within 180 days after the Closing Date, an amount equal to the excess of the NTS Receivables over the allowance for doubtful accounts shown on the Closing Date NTS Special Report (such excess being referred to herein as the "NET AMOUNT OF NTS RECEIVABLES"), then Comdata shall have the right to require NTS to pay Comdata an amount, if positive, equal to (i) the sum of (A) Net Amount of NTS Receivables and (B) all collection fees incurred by Comdata (in accordance with SECTION 7.5(a)), MINUS (ii) the amount collected in cash by Comdata during such 180 days period in respect of the NTS Receivables; PROVIDED, HOWEVER, that concurrently with the payment by NTS of such amount, Comdata shall reassign to NTS all such NTS Receivables together with all security interests or other rights securing payment thereof; PROVIDED, FURTHER, that, with respect to each NTS Receivable required to be so reassigned, during the two-year period commencing on the 180th day after the date hereof neither Comdata nor any of its Affiliates shall provide to the account debtor relating to such NTS Receivable any services, goods or products relating to the NTS Business. Notwithstanding the foregoing, Comdata will not be entitled to require NTS to make any such payment with respect to the NTS Receivable referred to in item 3 of SCHEDULE 1.6 until after (i) the third anniversary of the Closing Date or (ii) if there is a payment default after the date hereof and prior to such third anniversary, in respect of such NTS Receivable, in which case the date of such default. If Comdata then elects to require such payment with respect to such NTS Receivable, Comdata shall concurrently therewith reassign to NTS such NTS Receivable together with all security interests or other rights securing payment thereof; PROVIDED, HOWEVER, that prior to any such payment and reassignment, Comdata shall have terminated the marketing services agreement entered into with the account debtor relating to such NTS Receivable. In addition, if Comdata so elects to require such payment, during the two-year period commencing on such third anniversary, neither Comdata nor any of its Affiliates shall provide to such account debtor any services, goods or products relating to the NTS Business. (d) If, after the Closing Date, NTS shall receive any remittance from any account debtors with respect to the NTS Receivables (excluding any NTS Receivable reassigned to NTS), NTS shall endorse such remittance to the order of Comdata and forward it to Comdata immediately upon receipt thereof, and any such amounts shall be deemed to have been collected by Comdata for purposes of this SECTION 7.5. (e) In the event Comdata shall receive any remittance from or on behalf of any account debtor with respect to any Receivable after such NTS Receivable has been reassigned to NTS, Comdata shall endorse such remittance to the order of NTS and forward it to NTS immediately upon receipt thereof. (f) From and after the Closing Date, FDFS shall use reasonable efforts to collect the Gaming Receivables reflected in the Closing Date Gaming Special Report generally in accordance with the billing and collection practices presently applied by FDFS in the collection of its accounts and notes receivable, except that with respect to any particular Gaming Receivable, FDFS shall be under no obligation to commence litigation to effect collection and may make any concession or settlement which in the good faith judgment of FDFS is commercially reasonable. In connection with the collections by FDFS, if a payment is received from an account debtor who has not designated the invoice being paid thereby, such payment shall be applied to the earliest -80- invoice outstanding with respect to indebtedness of such account debtor reflected on the Closing Date Gaming Special Report, except for those invoices which are subject to a dispute to the extent of such dispute. (g) FDFS shall, on or before the tenth business day of each calendar month commencing with the second complete calendar month following the Closing Date, deliver to Comdata a written report ("COMDATA COLLECTION REPORT") of the following information with respect to the Gaming Receivables: (i) The aggregate amount of the Gaming Receivables (and the number of accounts comprising such Gaming Receivables); and (ii) The aggregate amount of cash collections of the Gaming Receivables during the period from the Closing Date through the date of the Comdata Collection Report. (h) If FDFS has not collected, within 180 days after the Closing Date, an amount equal to the excess of the Gaming Receivables over the allowance for doubtful accounts shown on the Closing Date Gaming Special Report (such excess being referred to herein as the "NET AMOUNT OF GAMING RECEIVABLES"), then FDFS shall have the right to require Comdata to pay FDFS an amount, if positive, equal to (i) the sum of (A) Net Amount of Gaming Receivables and (B) all collection fees incurred by FDFS (in accordance with SECTION 7.5(f)), MINUS (ii) the amount collected in cash by FDFS during such 180 day period in respect of the Comdata Receivables; PROVIDED, HOWEVER, that concurrently with the payment by Comdata of such amount, FDFS shall reassign to Comdata all such uncollected Gaming Receivables. (i) If, after the Closing Date, Comdata shall receive any remittance from any account debtors with respect to the Gaming Receivables (excluding any Gaming Receivable reassigned to Comdata), Comdata shall endorse such remittance to the order of FDFS and forward it to FDFS immediately upon receipt thereof, and any such amounts shall be deemed to have been collected by FDFS for purposes of this SECTION 7.5. (j) In the event FDFS shall receive any remittance from or on behalf of any account debtor with respect to any Gaming Receivable after such Gaming Receivable has been reassigned to Comdata, FDFS shall endorse such remittance to the order of Comdata and forward it to Comdata immediately upon receipt thereof. 7.6. RELEASE OF NONCOMPETITION PROVISIONS. The parties agree that the non-competition provisions included in this Article VII shall supersede, replace, and be the sole source of any non-competition provisions between them and their respective Affiliates as of the Closing Date to the extent relating to the Gaming Business or the NTS Business. 7.7. WAIVER OF EXCLUSIVITY OBLIGATIONS OF WESTERN UNION AGENTS. Ceridian and Comdata, on behalf of themselves and their Affiliates, hereby waive any currently existing obligations of Western Union agents to utilize exclusively the services of Comdata or any of its Affiliates with respect to the receipt of wire money transfers. -81- 7.8. NTS NAME. On the Closing Date, NTS shall change its name to a name not including "NTS." 7.9. SUBLEASE. With respect to NTS' current lease with respect to the office buildings located at 6000 and 6100 Western Place, Fort Worth, Texas 76107, Comdata hereby subleases from NTS, and NTS hereby subleases to Comdata, those certain portions of the 8th floor in the East Tower and the 2nd floor in the West Tower which are currently leased to NTS and the entire 9th floor in the East Tower (the "SUBLEASED FLOORS") of the office buildings located at 6000 and 6100 Western Place, Fort Worth, Texas 76107 for the period commencing on the date hereof and ending on March 31, 2002 on the same terms and conditions applicable to NTS with respect to the Subleased Floors. Comdata shall be subject to all of the restrictions contained in such lease relating to the Subleased Floors and any tenant thereof. Comdata shall pay to NTS (or such other third party as may be consented to by NTS) all rents and other amounts required to be paid by NTS or any of its Affiliates to any third party and all other costs, charges or expenses incurred by NTS or any of its Affiliates, in each case, in respect of the Subleased Floors. NTS shall provide Comdata with periodic statements of any such amounts required to be paid. Any such payments to NTS shall be made not later than the first business day of each calendar month or, in the case of any other incurred costs, charges or expenses, not later than 15 business days after notice is provided to Comdata of the amount owing. Any such payments made by Comdata to any third party (with the consent of NTS as aforesaid) shall be made not later than the date on which the payment is due to such third party. 7.10. PRORATION. With respect to all third party charges (including, without limitation, telephone and utility charges) other than Taxes incurred in the ordinary course of business by the Gaming Business, the NTS Business or in respect of the Purchased Gaming Assets or the Purchased NTS Assets that are payable after the date hereof and that relate to a period that commenced prior to the date hereof, it is the intent of the parties hereto that the pro-rated portion thereof applicable to the period ending on or prior to the date hereof shall be the responsibility of Comdata or NTS, respectively, except to the extent such amount is recorded as a liability on the Closing Date Gaming Special Report or the Closing Date NTS Special Report. Comdata or FDFS, as the case may be, shall reimburse NTS or Comdata, respectively, for any portion of such charges that is paid by one party that is the responsibility of the other party in accordance with the term of this SECTION 7.10. Any receivables which are incurred in the ordinary course of business by the Gaming Business, the NTS Business or in respect of the Purchased Gaming Assets or the Purchased NTS Assets that are collected after the date hereof and that relate to a period that commenced prior to the date hereof, except to the extent that such amounts are recorded as receivables on the Closing Date Gaming Special Report or the Closing Date NTS Special Report, shall be treated in a similar manner. 7.11. CERTAIN CONSENTS. (a) Following the Closing, at the request of FDFS, Comdata shall use commercially reasonable efforts (but which shall not include the payment of fees by Comdata to any third party) to assist FDFS in obtaining any consent of any third party which may be required in order to assign any rights or other assets constituting Purchased Gaming Assets. If FDFS is unable to obtain any such consent, or believes that an attempt to assign such Purchased Gaming Asset would be ineffective or would adversely affect the ability of FDFS to -82- receive the asset in question, at the request of FDFS Comdata will cooperate with FDFS in any commercially reasonable alternative arrangement designed to provide FDFS the benefits that, with respect to such Purchased Gaming Assets, were contemplated to be conferred on FDFS by this Agreement. If FDFS is unable to obtain such consent, such Purchased Gaming Asset shall, at FDFS's election, be deemed to have been excluded from the Purchased Gaming Assets conveyed to FDFS hereunder and be deemed to have been an Excluded Gaming Asset for the purposes of the Agreement, PROVIDED, HOWEVER, that to the extent any such Purchased Gaming Asset would have been included on the Closing Date Gaming Special Report if such consent had been obtained, it shall be included on the Closing Date Gaming Special Report even in the absence of such consent; and PROVIDED, FURTHER, that, notwithstanding any such election, the liabilities or obligations of FDFS relating to such Purchased Gaming Asset shall, except to the extent provided in SECTION 2.5 (other than SECTION 2.5(d)), be deemed to have been an Assumed Gaming Liability for purposes of this Agreement. Notwithstanding the foregoing, nothing in this Agreement shall be construed as an attempt to assign any Purchased Gaming Asset in respect of which FDFS has made the an election contemplated by the third sentence of this SECTION 7.11(a) without the consent of the other party thereto. (b) Following the Closing, at the request of Comdata, NTS shall use commercially reasonable efforts (but which shall not include the payment of fees by NTS to any third party) to assist Comdata in obtaining any consent of any third party which may be required in order to assign any rights or other assets constituting Purchased NTS Assets. If Comdata is unable to obtain any such consent, or believes that an attempt to assign such Purchased NTS Asset would be ineffective or would adversely affect the ability of Comdata to receive the asset in question, at the request of Comdata NTS will cooperate with Comdata in any commercially reasonable alternative arrangement designed to provide Comdata the benefits that, with respect to such Purchased NTS Assets, were contemplated to be conferred on Comdata by this Agreement. If Comdata is unable to obtain such consent, such Purchased NTS Asset shall, at Comdata's election, be deemed to have been excluded from the Purchased NTS Assets conveyed to Comdata hereunder and be deemed to have been an Excluded NTS Asset for the purposes of the Agreement, PROVIDED, HOWEVER, that to the extent any such Purchased NTS Asset would have been included on the Closing Date NTS Special Report if such consent had been obtained, it shall be included on the Closing Date NTS Special Report even in the absence of such consent; and PROVIDED, FURTHER, that, notwithstanding any such election, the liabilities or obligations of Comdata relating to such Purchased NTS Asset shall, except to the extent provided in SECTION 2.9 (other than SECTION 2.9(d)), be deemed to have been an Assumed NTS Liability for purposes of this Agreement. Notwithstanding the foregoing, nothing in this Agreement shall be construed as an attempt to assign any Purchased NTS Asset in respect of which Comdata has made the an election contemplated by the third sentence of this SECTION 7.11(b) without the consent of the other party thereto. 7.12. TERMINATION OF FLASHCASH LICENSE. Comdata hereby relinquishes and terminates any rights it may have under that certain License Agreement by and between Western Union Financial Services, Inc. and Comdata dated as of April 6, 1994. -83- ARTICLE VIII INDEMNIFICATION 8.1. INDEMNIFICATION BY CERIDIAN. (a) Ceridian agrees to indemnify and hold harmless each FDC Group Member from and against any and all Losses and Indemnification Expenses incurred by such FDC Group Member in connection with or arising from: (i) any breach by Ceridian or any of its Affiliates of any of their respective covenants or agreements in this Agreement; (ii) any failure of Ceridian or any of its Affiliates to perform any of their respective obligations in this Agreement; (iii) any breach of any warranty or the inaccuracy of any representation of Ceridian or any of its Affiliates contained or referred to in this Agreement or any certificate delivered by or on behalf of Ceridian or any of its Affiliates pursuant hereto; (iv) the failure of Comdata to comply with any applicable bulk sales law, except that this clause shall not affect the obligation of FDFS to pay and discharge the Assumed Gaming Liabilities; (v) any Excluded Gaming Liability; (vi) any recalls on or after the date hereof mandated by any Governmental Body of the products manufactured, distributed or sold by the Gaming Business on or prior to the date hereof; or (vii) any obligations to provide parts and service on, or to repair or replace, any products manufactured, distributed or sold by the Gaming Business on or prior to the date hereof. (b) Notwithstanding the foregoing SECTION 8.1(a), Ceridian shall be required to indemnify and hold harmless under clauses (i), (ii) and (iii) of SECTION 8.1(a) with respect to Losses and Indemnification Expenses incurred by FDC Group Members only: (i) to the extent that the aggregate amount of any and all Losses and Indemnification Expenses exceeds $1,950,000; and (ii) to the extent that the aggregate amount required to be paid by Ceridian pursuant to SECTION 8.1(a)(i)-(iii) shall not exceed $22,550,000. (c) Notwithstanding the limitations in SECTION 8.1(b); -84- (i) the limitations in SECTION 8.1(b)(i)-(ii) shall not apply to (A) any Losses or Indemnification Expenses incurred as result of a failure to pay or discharge an Excluded Gaming Liability or any obligation set forth in ARTICLE III, (B) any Losses or Indemnification Expenses incurred as a result of inaccuracies of the representations and warranties contained in SECTIONS 5.1, 5.2, 5.3(a)-(c), 5.6 and 5.7 and (C) any Losses and Indemnification Expenses incurred as a result of a breach by Comdata or Ceridian of their respective covenants and obligations set forth in SECTIONS 7.3, 7.4, 7.5, 7.9, 7.10, 9.2 and 9.10; and (ii) none of (A) any Losses or Indemnification Expenses incurred as a result of a failure to pay or discharge an Excluded Gaming Liability or any obligation set forth in ARTICLE III, (B) any Losses or Indemnification Expenses incurred as a result of inaccuracies of the representations and warranties contained in SECTIONS 5.1, 5.2, 5.3(a)-(c), 5.6 and 5.7, and (C) any Losses and Indemnification Expenses incurred as a result of a breach by Comdata or Ceridian of their respective covenants and obligations set forth in SECTIONS 7.3, 7.4, 7.5, 7.9, 7.10, 9.2 and 9.10, shall be applied toward the amounts specified in SECTION 8.1(b)(i)-(ii). (d) The indemnification provided for in this SECTION 8.1 shall terminate 3 years after the date hereof (and no claims shall be made by any FDC Group Member under this SECTION 8.1 thereafter), except that the indemnification by Ceridian and its Affiliates shall continue as to: (i) the obligations of Comdata under the Comdata Instrument of Assignment, the Comdata Instrument of Assumption, the Comdata Canadian Instrument of Assignment and the Comdata Canadian Instrument of Assumption, as to which no time limitation shall apply; (ii) the obligations of Comdata or Ceridian set forth in ARTICLE III, the representations and warranties set forth in SECTIONS 5.1, 5.2, 5.3(a)-(c), 5.6, 5.7 and the covenants of Ceridian and its Affiliates set forth in SECTIONS 7.3, 7.4, 7.5, 7.10, 9.2, 9.6, 9.10 and 9.13, as to all of which no time limitation shall apply; (iii) the covenants set forth in SECTION 7.2(a) as to which the indemnification provided for in this SECTION 8.1 shall terminate one year after the expiration of the period provided for therein; and (iv) any Losses or Indemnification Expenses of which any FDC Group Member has notified Ceridian or Comdata in accordance with the requirements of SECTION 8.3 on or prior to the date such indemnification would otherwise terminate in accordance with this SECTION 8.1, as to which the obligation of Ceridian shall continue until the liability of Ceridian shall have been determined pursuant to this ARTICLE VIII, and Ceridian shall have -85- reimbursed all FDC Group Members for the full amount of such Losses and Indemnification Expenses in accordance with this ARTICLE VIII. (e) Notwithstanding anything in this SECTION 8.1 to the contrary, Ceridian shall not indemnify or hold any FDC Group Member harmless from or against any Losses or Indemnification Expenses incurred by such FDC Group Member in connection with or arising from any matter on SCHEDULE 8.1; it being understood and agreed that any such Losses or Indemnification Expenses shall constitute Excluded NTS Liabilities nothwithstanding anything to the contrary set forth in SECTION 2.4 of this Agreement. 8.2. INDEMNIFICATION BY FDC. (a) FDC agrees to indemnify and hold harmless each Ceridian Group Member from and against any and all Losses and Indemnification Expenses incurred by such Ceridian Group Member in connection with or arising from: (i) any breach by FDC or any of its Affiliates of any of its covenants or agreements in this Agreement; (ii) any failure by FDC or any of its Affiliates to perform any of their obligations in this Agreement; (iii) any breach of any warranty or the inaccuracy of any representation of FDC or any of its Affiliates contained or referred to in this Agreement or in any certificate delivered by or on behalf of FDC; (iv) the failure of NTS to comply with any applicable bulk sales law, except that this clause shall not effect the obligation of Comdata to pay, perform or discharge the Assumed NTS Liabilities; or (v) any Excluded NTS Liabilities; (vi) any recalls on or after the date hereof mandated by any Governmental Body of the products manufactured, distributed or sold by the NTS Business on or prior to the date hereof; or (vii) any obligations to provide parts and service on, or to repair or replace, any products manufactured, distributed or sold by the NTS Business on or prior to the date hereof. (b) Notwithstanding the foregoing SECTION 8.2(a), FDC shall be required to indemnify and hold harmless under clauses (i), (ii) and (iii) of SECTION 8.2(a) with respect to Losses and Indemnification Expenses incurred by Ceridian Group Members only: (i) to the extent that the aggregate amount of any and all Losses and Indemnification Expenses exceeds $975,000; and -86- (ii) to the extent that the aggregate amount required to be paid by FDC pursuant to SECTION 8.2(a)(i)-(iii) shall not exceed $11,375,000. (c) Notwithstanding the limitations in SECTION 8.2(b); (i) the limitations in SECTION 8.2(b)(i)-(ii) shall not apply to (A) any Losses or Indemnification Expenses incurred as result of a failure to pay or discharge an Excluded NTS Liability or any obligation set forth in ARTICLE III, (B) any Losses or Indemnification Expenses incurred as a result of inaccuracies of the representations and warranties contained in SECTIONS 6.1, 6.2, 6.3(a)-(c), 6.6, 6.7 and (C) any Losses and Indemnification Expenses incurred as a result of a breach by FDC, IPS, NTS or FDFS of their respective covenants and obligations set forth in SECTIONS 7.3, 7.4, 7.5, 7.9, 7.10, 9.2 and 9.10; (ii) the limitations SECTION 8.2(b)(i) shall not apply to Losses and Indemnification Expenses incurred as a result of a breach by FDC, IPS, NTS or FDFS of their respective covenants and obligations set forth in SECTION 7.1; (iii) none of (A) any Losses or Indemnification Expenses incurred as a result of a failure to pay or discharge an Excluded NTS Liability or any obligation set forth in ARTICLE III, (B) any Losses or Indemnification Expenses incurred as a result of inaccuracies of the representations and warranties contained in SECTIONS 6.1, 6.2, 6.3(a)-(c), 6.6, 6.7, and (C) any Losses and Indemnification Expenses incurred as a result of a breach by FDC, IPS, NTS or FDFS of their respective covenants and obligations set forth in SECTION 7.3, 7.4, 7.5, 7.9, 7.10, 9.2 and 9.10; shall be applied toward the amounts specified in SECTION 8.2(b)(i)-(ii); and (iv) the Losses and Indemnification Expenses incurred as a result of a breach by FDC, IPS or NTS of their respective covenants and obligations set forth in SECTION 7.1 shall not be applied toward the amount specified in SECTION 8.2(b)(i). (d) The indemnification provided for in this SECTION 8.2 shall terminate 3 years after the date hereof (and no claims shall be made by any Ceridian Group Member under this SECTION 8.2 thereafter), except that the indemnification by FDC and its Affiliates shall continue as to: (i) the obligations of NTS and FDFS under the NTS Instrument of Assignment, the FDFS Instrument of Assumption, the NTS Canadian Instrument of Assignment or the NTS Canadian Instrument of Assumption, as to which no time limitation shall apply; -87- (ii) the obligations of FDC or IPS set forth in ARTICLE III, the representations and warranties set forth in SECTIONS 6.1, 6.2, 6.3(a)-(c), 6.6, 6.7 and the covenants of FDC and its Affiliates set forth in SECTIONS 7.3, 7.4, 7.5, 7.10, 9.2, 9.6, 9.10 and 9.13, as to all of which no time limitation shall apply; (iii) the covenants set forth in SECTIONS 7.1 and 7.2(b) as to which the indemnification provided for in this SECTION 8.2 shall terminate one year after the expiration of the respective periods provided for therein; and (iv) any Losses or Indemnification Expenses of which any Ceridian Group Member has notified FDC or IPS in accordance with the requirements of SECTION 8.3 on or prior to the date such indemnification would otherwise terminate in accordance with this SECTION 8.2, as to which the obligation of FDC shall continue until the liability of FDC shall have been determined pursuant to this ARTICLE VIII, and FDC shall have reimbursed all Ceridian Group Members for the full amount of such Losses and Indemnification Expenses in accordance with this ARTICLE VIII. (e) Notwithstanding anything in this SECTION 8.2 to the contrary, FDC shall not indemnify or hold any Ceridian Group Member harmless from or against any Losses or Indemnification Expenses incurred by such Ceridian Group Member in connection with or arising from any matter on SCHEDULE 8.2, it being understood and agreed that any such Losses or Indemnification Expenses shall constitute Assumed NTS Liabilities notwithstanding anything to the contrary set forth in SCHEDULE 2.4 of this Agreement. 8.3. NOTICE OF CLAIMS. Any FDC Group Member or Ceridian Group Member (the "INDEMNIFIED PARTY") seeking indemnification hereunder shall give to the party obligated to provide indemnification to such Indemnified Party (the "INDEMNITOR") a notice (a "CLAIM NOTICE") describing in reasonable detail the facts giving rise to any claim for indemnification hereunder and shall include in such Claim Notice (if then known) the amount or the method of computation of the amount of such claim, and a reference to the provision of this Agreement or any other agreement, document or instrument executed hereunder or in connection herewith upon which such claim is based; PROVIDED, HOWEVER, that a Claim Notice in respect of any action at law or suit in equity by or against a third Person as to which indemnification will be sought shall be given promptly after the action or suit is commenced; and PROVIDED FURTHER that failure to give such notice shall not relieve the Indemnitor of its obligations hereunder except to the extent it shall have been prejudiced by such failure. (b) After the giving of any Claim Notice pursuant hereto, the amount of indemnification to which an Indemnified Party shall be entitled under this ARTICLE VIII shall be determined: (i) by the written agreement between the Indemnified Party and the Indemnitor; (ii) by a final judgment or decree of any court of competent jurisdiction; or (iii) by any other means to which the Indemnified Party and the Indemnitor shall agree. The judgment or decree of a court shall be deemed final when the time for appeal, if any, shall have expired and no appeal shall have been taken or when all appeals taken shall have been finally determined. The Indemnified Party -88- shall have the burden of proof in establishing the amount of Loss and Indemnification Expense suffered by it. 8.4. THIRD-PERSON CLAIMS. (a) In order for an Indemnified Party to be entitled to any indemnification provided for under this Agreement in respect of, arising out of or involving a claim or demand made by any third Person against the Indemnified Party (a "THIRD-PERSON CLAIM"), such Indemnified Party shall give to an Indemnitor a Claim Notice relating to the Third-Person Claim within 15 days after receipt by such Indemnified Party of written notice of the Third-Person Claim; PROVIDED, HOWEVER, that failure to give such notice shall not relieve an Indemnitor of its obligations hereunder except to the extent the Indemnitor shall have been prejudiced by such failure (except that the Indemnitor shall not be liable for any Indemnification Expenses incurred during the period in excess of the initial 15 days in which the Indemnified Party failed to give such notice) (it being understood that the Indemnified Party shall use good faith efforts to notify the Indemnitor promptly upon receipt of any oral or written notice of a Third-Person Claim). Thereafter, the Indemnified Party shall deliver to the Indemnitor, within five business days after the Indemnified Party's receipt thereof, copies of all notices and documents (including court papers) received by the Indemnified Party relating to the Third-Person Claim. Notwithstanding the foregoing, should an Indemnified Party be physically served with a complaint with regard to a Third-Person Claim, the Indemnified Party must notify an Indemnitor with a copy of the complaint within five business days after receipt thereof and shall deliver to the Indemnitor within seven business days after the receipt of such complaint copies of notices and documents (including court papers) received by the Indemnified Party relating to the Third-Person Claim; PROVIDED, HOWEVER, that failure to give such notice shall not relieve the Indemnitor of its obligations hereunder except to the extent the Indemnitor shall have been prejudiced by such failure. (b) (i) In the event of a Third-Person Claim an Indemnitor shall have the absolute right after the receipt of notice, at its option and at its own expense, to be represented by counsel of its choice (which shall be satisfactory to the Indemnified Party) and to defend any proceeding, claim, or demand which relates to any Loss or Indemnification Expense indemnified against hereunder if the Indemnitor gives written notice to the Indemnified Party of its intention to defend a ("NOTICE TO DEFEND") within seven business days following receipt of the Claim Notice. The Notice to Defend must also state that the Indemnitor agrees to fully indemnify the Indemnified Party for the Third-Person Claim to the extent provided for in this ARTICLE VIII; PROVIDED, HOWEVER, that the Indemnified Party may participate in any such proceeding with counsel of its choice and at its expense. The parties hereto agree to cooperate fully with each other in connection with the defense, negotiation or settlement of any such legal proceeding, claim or demand. To the extent an Indemnitor elects not to defend such proceeding, claim or demand or fails to give a Notice to Defend within such seven business-day period, and the Indemnified Party defends against or otherwise deals with any such proceeding, claim or demand, the Indemnified Party may retain counsel, at the expense of the Indemnitor to the extent provided for in this ARTICLE VIII, and control the defense of such proceeding. Neither the Indemnitor nor the Indemnified Party may settle any such proceeding which settlement obligates the other party, pursuant to such settlement or this ARTICLE VIII, to pay money, to perform obligations, to refrain -89- from performing acts or to admit liability without the consent of the other party which shall not be unreasonably withheld. (ii) After any final judgment or award shall have been rendered by a court, arbitration board or administrative agency of competent jurisdiction and the time in which to appeal therefrom has expired, or a settlement shall have been consummated, or the Indemnified Party and the Indemnitor shall arrive at a mutually binding agreement with respect to each separate matter alleged to be indemnified by an Indemnitor hereunder, the Indemnified Party shall forward to the Indemnitor notice of any sums due and owing by it with respect to such matter and the Indemnitor shall pay all of the sums so owing to the Indemnified Party by wire transfer, certified or bank cashier's check within 30 days after the date of such notice. (iii) The Indemnified Party shall neither be required to refrain from paying or satisfying any claim which the Indemnitor has not acknowledged in writing its obligations to indemnify the Indemnified Party, provided that the Indemnified Party shall have given notice of such claim to the Indemnitor in accordance with SECTION 8.3 and 8.4, or which has matured by court judgment or decree, unless appeal is taken thereafter and proper appeal bond posted by the Indemnitor, nor shall the Indemnified Party be required to refrain from paying or satisfying any Third-Person Claim after and to the extent that such Third-Person Claim has resulted in an unstayed permanent injunction or other similar equitable relief against the Indemnified Party (unless such claim shall have been discharged or enforcement thereof stayed by the filing of a legally permitted bond by the Indemnitor or otherwise, at its sole expense). (c) If there shall be any conflicts between the provisions of this SECTION 8.4 and SECTION 7.3(c) (relating to Tax Contests), the provisions of SECTION 7.3(c) shall control with respect to Tax Contests. 8.5. INDEMNIFICATION PAYMENTS NET OF INSURANCE RECOVERY. In calculating any Loss or Indemnification Expense there shall be deducted any insurance recovery in respect thereof (and no right of subrogation shall accrue hereunder to any insurer.) FDC and Ceridian agree to report each payment made in respect of a Loss or Indemnification Expense as an adjustment to the Initial Amount for income tax purposes. ARTICLE IX GENERAL PROVISIONS 9.1. SURVIVAL OF OBLIGATIONS. All representations, warranties, covenants, agreements and obligations contained in this Agreement shall survive the consummation of the transactions contemplated by this Agreement; PROVIDED, HOWEVER, that, except as otherwise provided in ARTICLE VIII, the representations and warranties contained in ARTICLES V and VI shall terminate on the third anniversary of the date hereof (other than the representations and warranties contained in SECTIONS 5.1, 5.2, 5.3, 5.6, 5.7, 6.1, 6.2, 6.3, 6.6 and 6.7, each of which shall survive indefinitely). Except as otherwise provided herein, no claim shall be made for the -90- breach of any representation or warranty contained in ARTICLE V or VI or under any certificate delivered with respect thereto under this Agreement after the date on which such representations and warranties terminate as set forth in this SECTION 9.1. 9.2. CONFIDENTIAL NATURE OF INFORMATION. Each party agrees that it will treat in confidence all documents, materials and other information which it shall have obtained regarding the other party during the course of the negotiations leading to the consummation of the transactions contemplated hereby, the investigation provided for herein and the preparation of this Agreement and other related documents. Such documents, materials and information shall not be communicated to any third Person (other than, in the case of FDC or IPS, to its counsel, accountants, financial advisors or lenders, and in the case of Ceridian or Comdata, to its counsel, accountants or financial advisors or lenders). No other party shall use any confidential information in any manner whatsoever except solely for the purpose of evaluating the transactions contemplated herein; PROVIDED, HOWEVER, that (i) IPS, FDFS, and the Gaming Subsidiary may use or disclose any confidential information included in the Purchased Gaming Assets or otherwise reasonably related to the Gaming Business or the Purchased Gaming Assets, and (ii) Comdata, the NTS Subsidiary and Permicom may use or disclose any confidential information included in the Purchased NTS Assets related or otherwise reasonably related to the NTS Business or the Purchased NTS Assets. The obligation of each party to treat such documents, materials and other information in confidence shall not apply to any information which (a) is or becomes available to such party from a source other than such party, (b) is or becomes available to the public other than as a result of disclosure by such party or its agents, (c) is required to be disclosed under applicable law or judicial process, but only to the extent it must be disclosed, or (d) such party reasonably deems necessary to disclose to obtain any of the consents or approvals contemplated hereby. 9.3. NO PUBLIC ANNOUNCEMENT. FDC and IPS and their Affiliates shall not, without the approval of Ceridian, and Ceridian and Comdata and their Affiliates shall not, without the approval of FDC, make any press release or other public announcement concerning the transactions contemplated by this Agreement; PROVIDED, HOWEVER, that any party may make a press release or other public announcement; to the extent such party shall be so obligated by law or by the rules of any stock exchange (in which case the other party shall be advised and the parties shall use their reasonable best efforts to cause a mutually agreeably release or announcement to be issued). 9.4. NOTICES. All notices or other communications required or permitted hereunder shall be in writing and shall be deemed given or delivered (i) when delivered personally, (ii) if transmitted by facsimile when confirmation of transmission is received, or (iii) if sent by registered or certified mail return receipt requested or by private courier when received and shall be addressed as follows: -91- If to FDC, IPS, NTS or FDFS: First Data Corporation 6200 S. Quebec Englewood, Colorado 80111 Attention: General Counsel - Integrated Services Division Facsimile: (303) 488-8631 with a copy to: Sidley & Austin One First National Plaza Chicago, Illinois 60603 Attention: Frederick C. Lowinger Facsimile: (312) 853-7036 If to Ceridian or Comdata, to: Ceridian Corporation 8100 34th Avenue South Minneapolis, MN 55425-1640 Attention: Executive Vice President, Operations Facsimile: (612) 853-7272 with copies to: Ceridian Corporation 8100 34th Avenue South Minneapolis, MN 55425-1640 Attention: General Counsel Facsimile: (612) 853-7272 Comdata Network, Inc. 5301 Maryland Way Brentwood, TN 37027 Attention: President Facsimile: (615) 370-7614 Comdata Network, Inc. 5301 Maryland Way Brentwood, TN 37027 Attention: Chief Counsel Facsimile: (615) 370-7614 -92- Carter R. Todd, Esq. Stokes & Bartholomew, P.A. 424 Church Street, 28th Floor Nashville, TN 37219 Facsimile: (615) 259-1470 or to such other address as such party may indicate by a notice delivered to the other party hereto. 9.5. SUCCESSORS AND ASSIGNS; THIRD PARTY BENEFICIARIES. (a) The rights of any party under this Agreement shall not be assignable by such party hereto without the prior written consent of the other except that (i) any party may assign its rights hereunder to any Affiliate; (ii) FDC may assign its rights hereunder to a subsequent purchaser of substantially all of the assets of FDC, IPS, NTS or FDFS; and (iii) Ceridian may assign its rights hereunder to a subsequent purchaser of substantially all of the assets of Ceridian or Comdata. Notwithstanding anything in this SECTION 9.5, FDFS may assign all of its rights and obligations hereunder to any Affiliate of FDC, IPS, NTS or FDFS without the prior written consent of Ceridian or Comdata, PROVIDED, HOWEVER, that notification of such assignment is provided to Ceridian and Comdata and, PROVIDED, FURTHER, that upon such assignment FDC shall remain liable to Ceridian and Comdata for all its obligations under this Agreement. Notwithstanding anything in this SECTION 9.5, Comdata may assign all of its rights and obligations hereunder to any Affiliate of Comdata without the prior written consent of FDC or its Affiliates, PROVIDED, HOWEVER, that notification of such assignment is provided to FDC, IPS, NTS and FDFS and, PROVIDED, FURTHER, that upon such assignment Ceridian shall remain liable to FDC, IPS, NTS and FDFS for all of its obligations under this Agreement. (b) Nothing contained in this Agreement or in any instrument or document executed by any party in connection with the transactions contemplated hereby shall create any rights in, or be deemed to have been executed for the benefit of, any person or entity that is not a party hereto or a successor or permitted assign of such a party. 9.6. ACCESS TO RECORDS. (a) For a period of six years after the date hereof, Comdata and its representatives shall have reasonable access to all of the books and records of the Gaming Business transferred to FDFS hereunder to the extent that such access may reasonably be required by Comdata in connection with matters relating to or affected by the operations of the Gaming Business prior to the date hereof. Such access shall be afforded by FDFS upon receipt of reasonable advance notice and during normal business hours. Comdata shall be solely responsible for any costs or expenses incurred by it pursuant to this SECTION 9.6(a). If FDFS shall desire to dispose of any of such books and records prior to the expiration of such six-year period, FDFS shall, prior to such disposition, give Comdata a reasonable opportunity, at Comdata's expense, to segregate and remove such books and records as Comdata may select. (b) For a period of six years after the date hereof, FDFS and its representatives shall have reasonable access to all of the books and records relating to the Gaming Business which Comdata or any of its Affiliates may retain after the date hereof. Such access shall be afforded by Comdata and its Affiliates upon receipt of reasonable advance notice and during -93- normal business hours. FDFS shall be solely responsible for any costs and expenses incurred by it pursuant to this SECTION 9.6(b). If Comdata or any of its Affiliates shall desire to dispose of any of such books and records prior to the expiration of such six-year period, Comdata shall, prior to such disposition, give FDFS a reasonable opportunity, at FDFS' expense, to segregate and remove such books and records as FDFS may select. (c) For a period of six years after the date hereof, NTS and its representatives shall have reasonable access to all of the books and records of the NTS Business to the extent that such access may reasonably be required by IPS in connection with matters relating to or affected by the operations of the NTS Business prior to the date hereof. Such access shall be afforded by Comdata upon receipt of reasonable advance notice and during normal business hours. NTS shall be solely responsible for any costs or expenses incurred by it pursuant to this SECTION 9.6(c). If Comdata shall desire to dispose of any of such books and records prior to the expiration of such six-year period, Comdata shall, prior to such disposition, give NTS a reasonable opportunity, at IPS' expense, to segregate and remove such books and records as NTS may select. (d) For a period of six years after the date hereof, Comdata and its representatives shall have reasonable access to all of the books and records relating to the NTS Business which NTS or any of its Affiliates may retain after the date hereof. Such access shall be afforded by NTS and its Affiliates upon receipt of reasonable advance notice and during normal business hours. Comdata shall be solely responsible for any costs and expenses incurred by it pursuant to this SECTION 9.6(d). If NTS or any of its Affiliates shall desire to dispose of any of such books and records prior to the expiration of such six-year period, NTS shall, prior to such disposition, give Comdata a reasonable opportunity, at Comdata's expense, to segregate and remove such books and records as Comdata may select. 9.7. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the Exhibits and Schedules referred to herein and the documents delivered pursuant hereto contain the entire understanding of the parties hereto with regard to the subject matter contained herein or therein, and supersede all prior agreements, understandings or letters of intent between or among any of the parties hereto. This Agreement shall not be amended, modified or supplemented except by a written instrument signed by an authorized representative of each of the parties hereto. 9.8. INTERPRETATION. Article titles and headings to sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. The Schedules and Exhibits referred to herein shall be construed with and as an integral part of this Agreement to the same extent as if they were set forth verbatim herein. 9.9. WAIVERS. Any term or provision of this Agreement may be waived, or the time for its performance may be extended, by the party or parties entitled to the benefit thereof. Any such waiver shall be validly and sufficiently authorized for the purposes of this Agreement if, as to any party, it is authorized in writing by an authorized representative of such party. The failure of any party hereto to enforce at any time any provision of this Agreement shall not be construed to be a waiver of such provision, nor in any way to affect the validity of this Agreement -94- or any part hereof or the right of any party thereafter to enforce each and every such provision. No waiver of any breach of this Agreement shall be held to constitute a waiver of any other or subsequent breach. 9.10. EXPENSES. Each party hereto will pay all costs and expenses incident to its negotiation and preparation of this Agreement and to its performance and compliance with all agreements and conditions contained herein on its part to be performed or complied with, including the fees, expenses and disbursements of its counsel and accountants. 9.11. PARTIAL INVALIDITY. Wherever possible, each provision hereof shall be interpreted in such manner as to be effective and valid under applicable law, but in case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such provision shall be ineffective to the extent, but only to the extent, of such invalidity, illegality or unenforceability without invalidating the remainder of such invalid, illegal or unenforceable provision or provisions or any other provisions hereof, unless such a construction would be unreasonable. 9.12. EXECUTION IN COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be considered an original instrument, but all of which shall be considered one and the same agreement, and shall become binding when one or more counterparts have been signed by each of the parties hereto and delivered to each of FDC and Ceridian. 9.13. FURTHER ASSURANCES. (a) From time to time following the date hereof, Comdata shall, at FDFS' expense, execute and deliver, or cause to be executed and delivered, to FDFS, such other instruments of conveyance and transfer as FDFS may reasonably request or as may be otherwise necessary to more effectively convey and transfer to, and vest in, FDFS and put FDFS in possession of, any part of the Purchased Gaming Assets. (b) From time to time following the date hereof, shall, at Comdata's (or, in the case of the NT Canada Shares, Permicom) expense, execute and deliver, or cause to be executed and delivered, to Comdata (or, in the case of the NT Canada Shares, Permicom) such other instruments of conveyance and transfer as Comdata (or, in the case of the NT Canada Shares, Permicom) may reasonably request or as may be otherwise necessary to more effectively convey and transfer to, and vest in, Comdata (or, in the case of the NT Canada Shares, Permicom) and put Comdata (or, in the case of the NT Canada Shares, Permicom) in possession of, the Purchased NTS Assets. 9.14. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws (as opposed to the conflicts of law provisions) of the State of Delaware. -95- 9.15. ATTORNEY'S FEES. In connection with any legal proceeding, suit or action arising out of a dispute regarding the terms of this Agreement, the party that is determined by the court or tribunal to have substantially prevailed in such proceeding, suit or action shall be entitled to recover from the other party thereto its reasonable costs, fees and expenses incurred in connection with such legal proceeding, suit or action (including the reasonable fees and expenses of its legal counsel and other professional advisors). -96- ACCORDINGLY, the parties hereto have caused this Agreement to be executed the day and year first above written. FIRST DATA CORPORATION /s/ Charles Fote -------------------------------- By Charles Fote ----------------------------- Its Executive Vice President ----------------------------- INTEGRATED PAYMENT SYSTEMS INC. /s/ Charles Fote -------------------------------- By Charles Fote ----------------------------- Its Authorized Representative ----------------------------- NTS, INC. /s/ Charles Fote -------------------------------- By Charles Fote ----------------------------- Its Authorized Representative ----------------------------- FIRST DATA FINANCIAL SERVICES, L.L.C. /s/ Charles Fote -------------------------------- By Charles Fote ----------------------------- Its Authorized Representative ----------------------------- Signature Page 1 to Exchange Agreement dated January 17, 1998 CERIDIAN CORPORATION /s/ Gary M. Nelson -------------------------------- By Gary M. Nelson ----------------------------- Its Vice President ----------------------------- COMDATA NETWORK, INC. /s/ Gary M. Nelson -------------------------------- By Gary M. Nelson ----------------------------- Its Vice President ----------------------------- PERMICOM PERMITS SERVICES, INC. /s/ Gary M. Nelson -------------------------------- By Gary M. Nelson ----------------------------- Its Vice President ----------------------------- Signature Page 2 to Exchange Agreement dated January 17, 1998 EX-2.04 3 EXHIBIT 2.04 Exhibit 2.04 CONFIDENTIAL INFORMATION IN THIS DOCUMENT HAS BEEN OMITTED AND IS BEING FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ANY SUCH OMISSIONS IN THIS DOCUMENT ARE INDICATED BY THE REFERENCE "[CONFIDENTIAL INFORMATION OMITTED]". SHARE PURCHASE AGREEMENT THE TORONTO-DOMINION BANK and BUSINESS WIND0WS INC. and 3454916 CANADA INC. and CERIDIAN CANADA LTD. and CERIDIAN CORPORATION and CERIDIAN CANADA HOLDINGS, INC. JANUARY 26,1998 TABLE OF CONTENTS 1. DEFINED TERMS AND SCHEDULES 2 1.1 Definitions 2 1.2 Additional Definitions 6 1.3 Exhibits and Schedules 7 1.4 Headings and Table of Contents 7 1.5 Gender and Number 7 1.6 Currency 7 1.7 Invalidity of Provisions 8 1.8 Entire Agreement 8 1.9 Waiver and Amendment 8 1.10 Generally Accepted Accounting Principles 8 1.11 Governing Law and Attornment 8 2. PURCHASE AND SALE 9 2.1 Purchase and Sale of Assets 9 2.2 Purchase and Sale of Shares 9 2.3 Excluded Contracts and Software 9 2.4 Ancillary Agreements 9 2.5 Deliveries 9 3. PURCHASE PRICE 10 3.1 Purchase Price 10 3.2 Adjustments 10 4. REPRESENTATIONS AND WARRANTIES OF THE BANK AND BW 11 4.1 Organization, Standing and Authority 11 4.2 Authorization 12 4.3 No Conflicting Agreements 12 4.4 Bank Consents 12 4.5 The Corporation 12 4.6 Authorization 13 4.7 Consents re: the Corporation 13 4.8 Title to Shares 13 4.9 Title to Payroll Assets 13 4.10 Legal Proceedings 13 4.11 No Option 14 4.12 Conduct of Payroll Business 14 4.13 Financial Information 14 4.14 Litigation 14 4.15 Payroll Client Contracts 14 4.16 Proprietary Payroll Software 15 4.17 Labour Relations 15 (a) Employees 15 (b) Written or Oral Contracts 16 (c) Collective Agreements 16 (d) Liabilities to Employees 16 (e) Compliance with Laws 16 (f) No Changes 17 (g) Retiree Benefits 17 4.18 Payroll Trademarks 17 4.19 No Finder's Fee or Broker's Fee 18 4.20 Bank's Residence 18 4.21 Registration for Taxes 18 4.22 Plans 18 4.23 List of Customers 18 4.24 Undisclosed Liabilities 18 4.25 Operation of the Businesses 19 4.26 Product Defects 19 4.27 Organization, Standing and Authority of BW 19 4.28 BW Shares 19 4.29 BW Authorization 19 4.30 No Conflicting BW Agreements 19 4.31 BW Consents 20 4.32 Title to Assets 20 4.33 Legal Proceedings 20 4.34 No Option 20 4.35 Financial Information 20 4.36 Undisclosed Liabilities 21 4.37 Conduct of the HRMS Business 21 4.38 HRMS Litigation 21 4.39 HRMS Client Contracts 21 4.40 Proprietary HRMS Software 21 4.41 HRMS Trademarks 22 4.42 Labour Relations 23 4.43 No Finder's Fee or Broker's Fee 23 4.44 BW's Residence 23 4.45 BW Registration for Taxes 23 5. REPRESENTATIONS AND WARRANTIES OF CERIDIAN, CERIDIAN HOLDINGS AND THE PURCHASER 23 5.1 Organization, Standing and Authorization 23 5.2 Authorization, Execution and Enforceability 23 5.3 No Conflicting Agreements 24 5.4 Consents 24 5.5 Legal Proceedings 24 5.6 Compliance with Laws 24 5.7 No Bankruptcy Proceedings 24 5.8 Organization, Standing and Authorization 25 5.9 Authorization, Execution and Enforceability re: Ceridian and Ceridian Holdings 25 5.10 No Conflicting Agreements 25 5.11 Consents 25 5.12 Legal Proceedings 26 5.13 Authorization, Execution and Enforceability re: the Corporation 26 5.14 No Conflicting Agreements 26 5.15 Consents 26 5.16 Duly Licenced 26 5.17 Brokers' and Finders' Fees 27 5.18 Corporation Plans 27 6. SURVIVAL AND INDEMNIFICATION 27 6.1 Survival 27 6.2 Indemnification by Bank and BW 27 6.3 Software and Trademark Indemnification 28 6.4 Indemnification by the Purchaser 30 6.5 Indemnification for Claims Other Than Third Party Claims 31 6.6 Indemnification against Third Party Claims 31 6.7 Expiry of Liability 33 6.8 Limit 33 7. COVENANTS 33 7.1 Covenants of the Bank and BW 33 (a) Reasonable Efforts to Maintain and Preserve 33 (b) Notice of Cessation in Ordinary Course 34 (c) Covenant Not to Compete 34 (d) Non-Solicitation 35 (e) Documents 36 (o Reasonable Assistance 36 7.2 Covenants of the Purchaser and the Corporation 36 (a) Documents 36 (b) Non-Solicitation 36 (c) Receivables 37 7.3 Other Covenants 37 (a) Employees 37 (b) Bank's Benefit Plans 41 (c) Pension Plan 43 (d) Competition Act/Investment Canada Act 43 (e) Confidentiality 43 (f) Consents Required in Contracts 44 (h) Trust Funds Under Administration 44 (i) Third Party Payments 44 (j) Transfer Agreement Fees 45 (k) Returns 45 8. CONDITIONS OF CLOSING 45 8.1 For the Benefit of the Purchaser 45 (a) Representations and Warranties Remain Correct 46 (b) Compliance with Covenants 46 (c) No Actions or Proceedings 46 (d) Consents, Authorizations and Registrations 46 (e) Agreements 46 (f) Consents 47 8.2 For the Benefit of the Bank and BW 47 (a) Representations and Warranties Remain Correct 47 (b) Compliance with Covenants 48 (c) No Actions or Proceedings 48 (d) Consents, Authorizations and Registrations 48 (e) Documents 48 (o Approval 48 9. CLOSING 49 10. GENERAL PROVISIONS 49 10.1 Independent Contractors 49 10.2 Notices 49 10.3 Exclusion of Consequential Damages 50 10.4 Termination 50 10.5 Time of the Essence 51 10.6 Public Notices and Confidentiality 51 10.7 Year 2000 Estimates 51 10.8 Counterparts 51 10.9 No Assignment 51 10.10 Further Assurances 52 10.11 Language 52 10.12 Successors and Assigns 52 SHARE PURCHASE AGREEMENT THIS AGREEMENT made as of the 26th day of January, 1998, AMONG: THE TORONTO-DOMINION BANK, a Canadian chartered bank, (hereinafter called the "Bank"), OF THE FIRST PART, -and- BUSINESS WINDOWS INC., a corporation existing under the laws of Ontario (hereinafter called "BW'), OF THE SECOND PART, - and - 3454916 CANADA INC., a corporation existing under the laws of Canada, (hereinafter called the "Corporation"), OF THE THIRD PART, -and- CERIDIAN CANADA LTD., a corporation existing under the laws of Canada, (hereinafter called the "Purchaser"), OF THE FOURTH PART, - and - CERIDIAN CORPORATION, a corporation existing under the laws of Delaware, (hereinafter called "Ceridian"), OF THE FIFTH PART, - and - - Page 2 - CERIDIAN CANADA HOLDINGS, INC., a corporation existing under the laws of Delaware, (hereinafter called "Ceridian Holdings"), OF THE SIXTH PART. WHEREAS the Bank and BW own and operate the Payroll Business and the HRMS Business; AND WHEREAS effective as of the Effective Transfer Time, the Bank and BW intend to sell to the Corporation and the Corporation intends to purchase the Purchased HRMS Assets and the Purchased Payroll Assets, for valuable consideration, upon and subject to the terms and conditions of the Transfer Agreement; AND WHEREAS upon the Effective Transfer Time, the Bank and BW shall be the registered and beneficial owners of the Shares; AND WHEREAS effective as of the Effective Time, the Bank and BW intend to sell to the Purchaser and the Purchaser intends to purchase from the Bank and BW all of the Shares, for valuable consideration, upon and subject to the terms and conditions of this Agreement; AND WHEREAS each of Ceridian and Ceridian Holdings is a party to this Agreement for the purposes of guaranteeing the performance by the Corporation (after the Effective Time) and the Purchaser of their obligations hereunder; NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual covenants and agreements herein set out and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows: 1. DEFINED TERMS AND SCHEDULES 1.1 Definitions - Where used herein, except where the context otherwise requires, the following terms shall have the following meanings respectively: (a) "Absent Employees" means those employees of the Payroll Business who are on Short-Term Disability, maternity leave, parental leave, or other approved leave of absence (except Long-Term Disability), as listed on Schedule 1.1(a); (b) "Agreement" means this agreement and all schedules attached to this agreement, in each case as they may be amended or supplemented from time to time, and the Page 3 - expressions "hereof', "herein", "hereto", "hereunder", "hereby" and similar expressions refer to this agreement and, unless otherwise indicated, references to articles and sections are to "Articles" and "Sections" in this agreement; (c) "Ancillary Agreements" means the Trademark Licence Agreement, the Transitional Services Agreement and the Joint Sales and Marketing Agreement; (d) "Bank's Benefit Plans" means the benefit plans, arrangements, agreements, programs, policies, or practices of the Bank set forth in Schedule 1. I (d) hereto, and for greater certainty, includes the Pension Plan; (e) "Business Day" means a day other than a Saturday, Sunday or statutory holiday in the Province of Ontario; (f) "Closing" means the consummation and completion of the purchase and sale by the Purchaser of the Shares and the additional transactions and agreements provided hereunder; (g) "Closing Date" means 10:00 a.m. Toronto time at the Closing Place on January 30, 1998, or such other time and date as the parties may agree upon in writing; (h) "Closing Place" means the offices of Miller Thomson, 20 Queen Street West, Suite 2500, Toronto, Ontario M5H 3 SI; (i) "Designated Employees" means the employees of the Bank listed in Schedule 4.17(a) hereto (which schedule includes Absent Employees but excludes LTD Employees) whose employment will be continued with the Corporation, as required pursuant to this Agreement; (j) "Effective Date" means January 31, 1998 or such other date as the parties may agree upon in writing, provided that in respect of Absent Employees, the "Effective Date" means the date upon which they commence employment with the Corporation; (k) "Effective Time" means 12:02 a.m. (Toronto Time) on the Effective Date, or such other time as the parties may agree upon in writing, provided that in respect of Absent Employees, the "Effective Time" means 12:01 a.m. on the date upon which they commence employment with the Corporation; (l) "Effective Transfer Time" means 12:01 a.m. (Toronto Time) on the Effective Date, or such other time as the parties may agree upon in writing; Page 4 - (m) "HR/Architect" means the human resource management system of BW which is operated under the trademark "HR/Architect"; (n) "HR/Foundation" means the human resource management system of BW which is operated under the trademark "HR/Foundation"; (o) "HRMS Business" means the business of providing HRMS Services to HRMS Clients carried on by BW as of the Closing Date; (p) "HRMS Clients" mean Persons to whom BW provides HRMS Services as of the Closing Date; (q) "HRMS Services" means human resource management services provided through the use of HR/Foundation and HR/Architect; (r) "HRMS Trademarks" means "HR/Architect" and "HR/Foundation"; (s) "Joint Sales and Marketing Agreement" means the agreement dated the .Effective Date between the Bank and the Corporation, substantially in the form of .Exhibit "C" hereto; (t) "Long-Term Disability" means the long-term disability plan of the Bank applicable to employees of the Payroll Business; (u) "LTD Employees" means the employees of the Payroll Business collecting benefits from Long-Term Disability, all of whom are listed on Schedule 1.I (u) hereto; (v) "Mainframe Computer" means the host OS/390 processor owned by the Bank and used in connection with, inter alia, the processing of Payroll Services, and any replacement thereof, (w) "Payflex" means the payroll processing services system of the Bank which is operated under the trademarks "Payflex" and "Paieflex"; (x) "Paymaster" means the payroll processing services system of the Bank which is operated under the trademarks "Paymaster", "Paiemaitre" and "Autopay"; (y) "PaymasterE" means the payroll processing services system of the Bank which is operated under the name "PaymasterE"; - Page 5 - (z) "Payroll Business" means the business of providing Payroll Services to Payroll Clients carried on by the Bank as of the Closing Date; (aa) "Payroll Clients" means Persons to whom the Bank provides Payroll Services as of the Closing Date; (bb) "Payroll Services" means payroll and payroll-related services, including, without limitation, services processed through the use of Payflex, Paymaster, PaymasterE, and Phone'n Pay, but excluding payroll processed for employees of the Bank; (cc) "Payroll Trademarks" means "Autopay", "Payflex", "Paieflex", "Phone'n Pay", "PayLink", "Paymaster" and "Paiemaitre"; (dd) "Pension Plan" means The Pension Fund Society of The Toronto-Dominion Bank established by the Bank, which is a registered pension plan under the Income Tax Act (Canada) and the Pension Benefits Standards Act (Canada) in which the Designated Employees, among others, contribute to and accrue pension benefits; (ee) "Person" means an individual, partnership, joint venture, association, corporation, trust, or a government or any department or agency thereof. or any other entity; (ff) "Phone'n Pay" means the payroll processing services system of the Bank which is operated under the trademark "Phone'n Pay" and the tradename "Paiedirect"; (gg) "Purchase Price" means the price payable by the Purchaser to the Bank and BW for the Shares, as determined in accordance with the provisions of Article 3 hereof; (hh) "Shares" means 49,687,167 common shares of the Corporation, being all of the issued and outstanding common shares of the Corporation; (ii) "Short-Term Disability" means the short-term disability plan of the Bank applicable to employees of the Payroll Business; (jj) "Taxes" means federal, provincial or municipal taxes, including, without limitation, income, sales, goods and services, excise, business, duties and other like charges and all penalties, interest and fines with respect thereto, payable to any federal, provincial, municipal, local or other government or governmental agency, authority, board, bureau or commission, domestic or foreign, and "Tax - Page 6 - Legislation" means legislation pursuant to which Taxes may be exigible or payable; (kk) "Trademark Licence Agreement" means the trademark licence agreement dated the Effective Date between the Bank and the Corporation, substantially in the form of Exhibit "A" hereto, pursuant to which each of the Corporation and the Bank is granted a limited licence and right to use certain trademarks of the other in connection with post-Closing products and promotional materials of the HRMS Business and the Payroll Business; (11) "Transaction Fees" means, with respect to the twelve-month period ended October 31, 1997, the aggregate of. (i) (A) fees invoiced by the Bank during such period with respect to payroll transactions, maintenance, custom programming, implementation, customer training, T4 and other regulatory form preparation, and other similar transactions, and (B) interest income (with imputed interest income calculated at a rate of 3.85% per annum on the average daily cash balances of the Payroll Business), all with respect to the Payroll Business, and (ii) fees invoiced by BW during such period with respect to software sales, maintenance, custom programming, implementation and customer training, and other similar transactions, all with respect to the HRMS Business; (mm) "Transfer Agreement" means the asset transfer agreement to be entered into between the Bank, BW and the Corporation, pursuant to which, effective as of the Effective Transfer Time, the Bank and BW shall transfer the Purchased HRMS Assets and the Purchased Payroll Assets to the Corporation and the Corporation shall issue all but one of the Shares to the Bank and BW and shall assume and become liable for the Assumed HRMS Liabilities and the Assumed Payroll Liabilities, substantially in the form of Exhibit "D" hereto; (nn) "Transferred Employees" means the Designated Employees who do not reject the continued employment with the Corporation pursuant to Article 7; (oo) "Transition Period" has the meaning ascribed to it in the Transitional Services Agreement; and (pp) "Transitional Services Agreement" means the transitional services agreement dated the Effective Date, between the Bank and the Corporation, substantially in the form of Exhibit "B" hereto. 1.2 Additional Definitions - the terms "Assumed HRMS Liabilities", "Assumed Payroll Liabilities", "HRMS Contracts", "Payroll Contracts", "Excluded Contracts", "Excluded Software", "Payroll Clients", "Purchased HRMS Assets", "Purchased Payroll Assets", - Page 7 - "Proprietary Payroll Software" and "Proprietary HRMS Software" shall have the meaning ascribed to them in the Transfer Agreement. 1.3 Exhibits and Schedules - The following are the exhibits and schedules annexed hereto which are incorporated by reference herein and are deemed to be a part hereof: Exhibits "A" - Trademark Licence Agreement "B" - Transitional Services Agreement "C" - Joint Sales and Marketing Agreement "D" - Transfer Agreement Schedules 1. 1 (a) - Absent Employees 1. 1 (d) - Bank Benefit Plans 1. I (u) - LTD Employees 3.1 - Calculation of the Purchase Price 4.13 - Financial Information 4.15 - Material Non-Standard Payroll Contracts 4.16 - Year 2000 4.17(a) - Designated Employees 4.17(b) - Standard Bank Employment Contracts 4.17(f) - Plan Changes 4.17(g) - Retiree Benefits 4.24 - Undisclosed Liabilities 5.18 - Corporation Plans 8. 1 (f) - Material Contracts 10.7 - Year 2000 Estimates 1.4 Headings and Table of Contents - The inclusion of headings and a table of contents in this Agreement is for convenience of reference only and shall not affect the construction or interpretation of this Agreement. 1.5 Gender and Number - In this Agreement, unless the context otherwise requires, words importing the singular include the plural and vice versa and words importing gender include all genders. 1.6 Currency - Except where otherwise expressly provided, all amounts in this Agreement are stated and shall be paid in Canadian currency. - Page 8 - 1.7 Invalidity of Provisions - Each of the provisions contained in this Agreement is distinct and severable and a declaration of invalidity or unenforceability of any such provision or part thereof by a court of competent jurisdiction shall not affect the validity or enforceability of any other provision of this Agreement. Any provision of this Agreement which is illegal, prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such illegality, prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. 1.8 Entire Agreement - This Agreement, the Ancillary Agreements and the Transfer Agreement embody the entire agreement and understanding among the parties hereto and supersede all prior agreements between such parties in connection with the subject matter hereof Other than the foregoing mentioned agreements, there are no representations, warranties or covenants (including any that may be implied by statute) and there are no agreements between the parties in connection with such subject matter except as specifically set forth or referred to in this Agreement. No reliance is placed on any warranty, representation, opinion, advice or assertion of fact made by any party hereto or its employees or agents, except to the extent that the same has been reduced to writing and included as a term of this Agreement or in any of the foregoing mentioned agreements. Accordingly, there shall be no liability, either in tort or in contract, assessed in relation to any such warranty, representation, opinion, advice or assertion of fact, except to the extent aforesaid. Except as provided in this Agreement, neither this Agreement nor any of the terms hereof may be changed, waived, discharged or terminated otherwise than by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or modification is sought. 1.9 Waiver and Amendment - Except as expressly provided in this Agreement, no amendment, waiver or termination of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any provision of this Agreement shall constitute a waiver of any other provision nor shall any waiver of any provision of this Agreement constitute a continuing waiver unless otherwise expressly provided. No failure to enforce any provision hereof shall operate as a waiver of such provision or of any other provision hereof. 1.10 Generally Accepted Accounting Principles - In this Agreement, except to the extent otherwise expressly provided, references to "generally accepted accounting principles" mean, for all principles stated in the Handbook of the Canadian Institute of Chartered Accountants, such principles so stated. 1.11 Governing Law and Attornment - This Agreement shall be governed by and construed in accordance with the law of the Province of Ontario and the federal law of Canada Page 9 - applicable therein. The parties shall attorn to the non-exclusive jurisdiction of the courts of the Province of Ontario. 2. PURCHASE AND SALE 2.1 Purchase and Sale of Assets - Subject to the terms and conditions contained herein, the Bank, BW and the Corporation covenant and agree to enter into the Transfer Agreement on the (,'losing Date, pursuant to which, effective as of the Effective Transfer Time, the Bank and BW shall sell, assign and transfer the Purchased Payroll Assets and the Purchased HRMS Assets to the Corporation and the Corporation shall purchase and acquire the Purchased Payroll Assets and the Purchased HRMS Assets, in consideration for the issuance to the Bank and BW of all of the Shares (less one common share of the Corporation issued to the Bank prior to the Effective Transfer Time), and the Corporation shall assume and become liable for the Assumed Payroll Liabilities and the Assumed HRMS Liabilities on and after the Effective Transfer Time. 2.2 Purchase and Sale of Shares - Subject to the terms and conditions contained herein, the Bank and BW covenant and agree to sell, assign and transfer the Shares to the Purchaser, and the Purchaser covenants and agrees to purchase and acquire the Shares, on the Closing Date but with effect as of the Effective Time, in consideration for payment by the Purchaser to the Bank and BW of the Purchase Price, subject to adjustments, which shall be allocated between the Bank and BW in accordance with Section 3. 1. 2.3 Excluded Contracts and Software - The Purchaser and the Corporation acknowledge and agree that they have been notified of the nature and purpose of the Excluded Contracts and the Excluded Software, the services and functions of which the Bank shall make available to the Corporation during the Transition Period, subject to the terms of the Transitional Services Agreement. If from and after the end of the Transition Period the Corporation requires goods and services of the type provided under the Excluded Contracts, or software with functionality of the type provided by the Excluded Software, the Corporation shall be responsible, at its cost, and with the reasonable cooperation of the Bank and BW, to establish its own contractual relationships with the parties to the Excluded Contracts, or to make alternative arrangements for the provision of the goods and services that were provided to the Bank or BW pursuant to the Excluded Contracts, and to separately licence, purchase or establish equivalent software to the Excluded Software. 2.4 Ancillary Agreements - On Closing, the parties hereto covenant and agree to enter into the Ancillary Agreements applicable to them. 2.5 Deliveries - Delivery of and access to substantially all of the Purchased HRMS Assets and the Purchased Payroll Assets shall be made by the Bank and BW to the Corporation - Page 10 - on the Closing Date and delivery of and access to the remaining Purchased HRMS Assets and Purchased Payroll Assets shall be made by the Bank and BW to the Corporation as soon as reasonably practicable after Closing. 3. PURCHASE PRICE 3.1 Purchase Price - The Purchase Price for the Shares shall be an amount equal to $49,687,167, which is the aggregate of (i) $49,471,494, being the product of 1.5 and the amount of the Transaction Fees, the calculation of which is set forth in Schedule 3. 1; (ii) $1, being the amount paid by the Bank as the subscription price for one common share of the Corporation; and (iii) $215,672, being the agreed Canadian dollar equivalent of US$150,000. The Purchase Price shall be allocated as to $100,000 to BW, and the balance to the Bank. The Purchase Price shall be subject to adjustments determined in accordance with Section 3.2 and shall be payable by the Purchaser to the Bank (on behalf of the Bank and BW) on the Closing Date by certified cheque or bank draft of a Canadian chartered bank or by wire transfer of immediately available funds to the Bank's account designated by the Bank in writing to the Purchaser at least two Business Days prior to the Closing Date. 3.2 Adjustments - The parties agree that the Purchase Price shall be adjusted by those items properly subject to adjustment with respect to the Payroll Business and the HRMS Business transferred pursuant to the Transfer Agreement including, without limitation, (i) work-in-process accrued up to the Effective Transfer Time, (ii) prepaid expenses related to the HRMS Business and the Payroll Business, (iii) contractual obligations of the Bank and BW which have been prepaid to the Bank or BW or for which deposits have been submitted to the Bank or BW and (iv) obligations or remittances with respect to the Designated Employees including, without limitation, statutory vacation pay, premiums for unemployment insurance, provincial health care plans, employer health tax and Quebec and Canada Pension Plan, accrued wages, salaries and bonuses, (collectively the "Adjustable Items"), which shall be calculated and adjusted as of the Effective Date. The principle of the adjustment procedure is that the Bank and BW are entitled to the benefits of and are responsible for and shall pay all applicable amounts relating to the foregoing for the period ending as of the Effective Transfer Time, and the Corporation is entitled to the benefits of and is responsible for and shall pay all applicable amounts relating to the foregoing for the period commencing from and after the Effective Transfer Time. To the extent that the Bank or BW has paid amounts relating to the Adjustable Items, the benefit of which will continue from and after the Effective Date, the Purchase Price shall be adjusted in favour of the Bank or BW, as the case may be, in the amount which is attributable to the HRMS Business or the Payroll Business for the period following the Effective Transfer Time and the benefit of which is receivable by the Corporation following the Effective Transfer Time. To the extent that the Bank or BW has received amounts relating to Adjustable Items which are properly allocable to the HRMS Business - Page 11 - or the Payroll Business from and after the Effective Transfer Time, the Purchase Price shall be adjusted in favour of the Purchaser in the amount which is attributable to the HRMS Business or the Payroll Business for the period following the Effective Date. An adjustment shall also be made between the parties, if necessary, with respect to funds under administration, including funds held on behalf of Payroll Clients pursuant to statutory trusts, to be transferred by the Bank to the Corporation pursuant to Section 7.3(h), in the event that an incorrect amount of such funds is transferred. The parties agree to use reasonable efforts to determine and account for any such adjustments prior to Closing. On or before 120 days after the Closing Date, the parties shall co-operate to prepare a statement of adjustments for Adjustable Items determined after the Closing, and any required payments shall be made forthwith thereafter. Adjustable Items determined after such period shall be itemized on a case by case basis and any required payments shall be made forthwith thereafter. In the event that the parties are unable to agree on the amount of adjustments for all Adjustable Items, adjustments shall be made between the parties with respect to those of the Adjustable Items set forth in the statement of adjustments that are not in dispute. With respect to those of the Adjustable Items that are subject to a dispute, in the event that the parties, acting reasonably, are unable to reach agreement, the dispute shall be presented for determination to a major national accounting firm as agreed by the Bank and the Purchaser as soon as possible after the 120-day period after the Closing Date referred to above. Such accounting firm shall act as an expert and not an arbitrator, and the decision of the accounting firm shall be conclusive and binding on the Bank and the Purchaser, and shall be final and not subject to judicial review. It is the intention of the parties hereto that the decision of the accounting firm shall be enforced to the fullest extent permitted by applicable law. The apportionment of the fees and expenses of the accountant as between the parties shall be the subject of determination by the accountant. 4. REPRESENTATIONS AND WARRANTIES OF THE BANK AND BW The Bank and BW jointly and severally represent and warrant to the Purchaser as follows: 4.1 Organization, Standing and Authority - The Bank is a Canadian chartered bank, validly existing under the laws of Canada. The Bank has all requisite power and authority to execute and deliver this Agreement, the Transfer Agreement and each of the Ancillary Agreements and to perform its obligations hereunder and thereunder, and to complete the transaction of purchase and sale contemplated hereunder and thereunder. - Page 12 - 4.2 Authorization - The execution, delivery and performance by the Bank of this Agreement, the Transfer Agreement and the Ancillary Agreements have been duly authorized by all necessary corporate action of the Bank, and all persons executing this Agreement, the Transfer Agreement and the Ancillary Agreements on behalf of the Bank have been duly authorized to do so by all necessary corporate action on the part of the Bank. This Agreement has been, and each of the Transfer Agreement and the Ancillary Agreements when executed by the Bank will be, duly executed and delivered by the Bank. This Agreement constitutes, and each of the Transfer Agreement and the Ancillary Agreements when executed and delivered by the Bank will constitute, the legal, valid and binding obligation of the Bank, enforceable against it in accordance with their terms, except as enforceability thereof may be limited by bankruptcy, insolvency, reorganization or similar laws of general application, and equitable remedies that may be granted or imposed by a court of competent jurisdiction. 4.3 No Conflicting Agreements - The execution and delivery by the Bank of this Agreement and each of the Transfer Agreement and the Ancillary Agreements and the performance by the Bank of its obligations hereunder and thereunder do not and will not (i) result in or constitute a default under, breach or violation of, or an event that with notice or lapse of time or both would be a breach or violation of, the organizational documents of the Bank, or any existing note, bond, mortgage, indenture, deed of trust, licence, permit, lease, loan agreement, contract or other agreement, instrument or arrangement to which the Bank is a party or by the terms of which the Bank is or may be bound or affected; or (ii) violate or contravene any law to which it is subject. 4.4 Bank Consents - No consent, approval or authorization under any material indenture, contract, instrument or other agreement (excluding Payroll Contracts) to which the Bank is a party is required to be obtained in connection with the execution, delivery and performance by the Bank of this Agreement or any of the Ancillary Agreements. There are no consents, approvals, permits or authorizations, declarations, filings or registrations with, or notices to, any governmental or regulatory authority required to be made or obtained by the Bank in connection with the execution and delivery of this Agreement or any of the Transfer Agreement or the Ancillary Agreements and the performance of the transactions contemplated hereby or thereby, except for the consent of the Office of the Superintendent of Financial Institutions with respect to the temporary substantial investment of the Bank in the Corporation. 4.5 The Corporation - The Corporation is a corporation duly organized, validly existing and in good standing under the laws of Canada. The authorized capital of the Corporation consists solely of an unlimited number of common shares. Effective as of the Effective Transfer Time, the Shares shall be all of the issued and outstanding shares of the Corporation and shall have been issued to the Bank and BW as fully paid and nonassessable shares in the capital of the Corporation. Immediately prior to the Effective - Page 13 - Transfer Time, the Corporation shall have no active business, assets, liabilities or employees. 4.6 Authorization - The execution, delivery and performance by the Corporation of this Agreement and the Transfer Agreement have been or will be duly authorized by all necessary corporate action of the Corporation, and all persons executing this Agreement and the Transfer Agreement on behalf of the Corporation have been or will be duly authorized to do so by all necessary corporate action on the part of the Corporation. This Agreement has been, and the Transfer Agreement when executed by the Corporation will be, duly executed and delivered by the Corporation. This Agreement constitutes, and the Transfer Agreement when executed and delivered by the Corporation will constitute, the legal, valid and binding obligation of the Corporation, enforceable against it in accordance with its terms, except as enforceability thereof may be limited by bankruptcy, insolvency, reorganization or similar laws of general application, and equitable remedies that may be granted or imposed by a court of competent jurisdiction. 4.7 Consents re: the Corporation - No consent, approval or authorization under any material indenture, contract, instrument or other agreement to which the Corporation is a party or by which it is bound is required to be obtained in connection with the execution, delivery and performance by the Corporation of this Agreement or the Transfer Agreement. There are no consents, approvals, permits or authorizations, declarations, filings or registrations with, or notices to, any governmental or regulatory authority required to be made or obtained by the Corporation in connection with the execution and delivery of this Agreement or the Transfer Agreement and the performance of the transactions contemplated hereby or thereby. 4.8 Title to Shares - On Closing, the Bank and BW shall have good and marketable title to the Shares free and clear of all liens, security interests and other encumbrances, and shall have the full legal right, power and authority to sell and transfer the Shares to the Purchaser. 4.9 Title to Payroll Assets - The Bank now is, and immediately prior to the Effective Transfer Time the Bank will be, the sole registered and beneficial owner of all right, title and interest in and to the Purchased Payroll Assets, free and clear of claims, liens, security interests, and other encumbrances. The Bank has the full legal right, power and authority to sell, assign and transfer the Purchased Pay-roll Assets to the Corporation effective as of the Effective Transfer Time and has not assigned, licensed or otherwise conveyed such rights, licenses or privileges to any other Person. 4.10 Legal Proceedings - There are no legal proceedings pending, and the Bank and BW are not aware of any legal proceedings threatened or of any circumstances which may reasonably be expected to give rise to such proceedings, which in any way might interfere Page 14 - with the sale or delivery of the Purchased Payroll Assets or the Shares, or the consummation of any of the transactions contemplated herein or under the Transfer Agreement or the Ancillary Agreements. 4.11 No Option - Except for the Corporation, no Person has any agreement or option or any right or privilege (whether by law or by contract) capable of becoming an agreement or option to acquire any of the Purchased Payroll Assets. Except for the Purchaser, no Person has any agreement or option or any right or privilege (whether by law or by contract) capable of becoming an agreement or option to acquire any of the Shares from the Bank 4.12 Conduct of Payroll Business - The Payroll Business has been conducted since October 31, 1997 (the "Payroll Reference Date") in the ordinary course, consistent with past practice. Since the Payroll Reference Date, there has not been any change in the operation business, assets or financial condition of the Payroll Business other than changes in the ordinary course which have not individually or collectively had any material adverse effect on the condition (financial or other), results of operation, or assets of the Payroll Business and, since the Payroll Reference Date, the Bank has not entered into any transaction in connection with the Payroll Business not in the ordinary course of the Payroll Business, other than this Agreement. 4.13 Financial Information - The financial information relating to the Payroll Business provided by the Bank to the Purchaser and set forth in Schedule 4.13 hereto has been prepared in accordance with generally accepted accounting principles, consistently applied, and presents a true and complete statement of the financial condition of the Payroll Business for the fiscal periods stated therein. 4.14 Litigation - There is no suit, action, litigation, arbitration or proceeding in progress, pending or threatened against or involving the Payroll Business with the exception of the action commenced in Quebec Superior Court by Jerry Radowitz, particulars of which have been provided to the Purchaser, and there is not presently outstanding against the Bank in respect of the Payroll Business any judgment, decree, injunction or order of any court, governmental department, agency or arbitrator. 4.15 Payroll Client Contracts - The Bank has delivered to the Purchaser a true and correct copy of its standard contract terms incorporated in Payroll Contracts entered into with Payroll Clients for the provision of Payroll Services. Each of the Payroll Clients has entered into such form of standard contract with the Bank or has been provided Payroll Services consistent therewith or a variation thereto that is not materially adverse to the Payroll Business. Schedule 4.15 sets forth the material non-standard Payroll Contracts entered into with Payroll Clients, copies of which have been made available to the Purchaser. - Page 15 - 4.16 Proprietary Payroll Software - (a) The Proprietary Payroll Software does not infringe any copyright, patent, trademark, trade secret, or other intellectual property, proprietary or other right of any third party. (b) Schedule 1. 1(11) to the Transfer Agreement sets forth a complete and accurate list of the Proprietary Payroll Software of the Payroll Business. The Proprietary Payroll Software, together with the other software to be made available to the Corporation pursuant to the Transitional Services Agreement, constitutes all of the material software used in the Payroll Business. (c) The Proprietary Payroll Software: (i) is complete in all respects and shall perform in accordance with its data control manuals and user manuals; (ii) is free of all viruses, errors, defects and disabling devices that would cause any component of the Proprietary Payroll Software or of databases created thereby to be erased, modified, deleted, damaged, disabled or made inoperable or otherwise rendered incapable of performing in accordance with its published specifications; and (iii) has been designed, developed, configured and implemented in a good and workmanlike manner. (d) Schedule 4.16 sets forth testing and other procedures conducted with respect to the Paymaster (CPX) for verifying Year 2000 compliance, and also sets forth testing that has not yet been conducted that would verify Year 2000 compliance for such software. All other Proprietary Payroll Software is not Year 2000 compliant. 4.17 Labour Relations - (a) Employees: Schedule 4.17(a) contains a true and complete list of the Designated Employees, their titles and positions held as of the date of this Agreement, their length of service with the Bank, the locations of their employment and the material terms and conditions of their employment or engagement, including their current annual compensation, standard hours of work, commissions and bonuses and their benefits and perquisites, and participation in the Pension Plan and the other Bank's Benefit Plans. - Page 16 - (b) Written or Oral Contracts: Except for standard Bank employment/offer contracts (a copy of all standard versions of which are attached as Schedule 4.17(b)), there are (i) no written contracts of employment entered into with any Designated Employees; (ii) no oral contracts of employment which provide termination notice or pay in lieu of such notice or severance pay to any of the Designated Employees in excess of termination notice or pay in lieu of such notice or severance pay required by applicable labour or employment standards law or at common law; and (iii) no confidentiality, non-competition or nonsolicitation contracts between the Bank and any Designated Employees. There are no variations to any of the standard versions of employment contracts attached as Schedule 4.17(b), entered into by any of the Designated Employees, which are individually or in the aggregate materially adverse to the Payroll Business. (c) Collective Agreements: The Bank has not made any agreements with any labour union or employee association in connection with the Payroll Business or the HRMS Business nor made any commitments to or conducted any negotiations with any labour union or employee association with respect to any future agreements relating to the Payroll Business or the HRMS Business. To the best knowledge of the Bank, there have been no attempts to organize a trade union or employee association for any employees of the Payroll Business or the HRMS Business. There is no labour strike, employee disturbance or work stoppage or slowdown pending or, to the best knowledge of the Bank, threatened against the Bank with respect to the Payroll Business or the HRMS Business. (d) Liabilities to Employees: The Bank has no liability of any kind to any Designated Employee except for compensation, commissions, bonuses, and benefits and pensions payable to such Designated Employee in the ordinary course of the Payroll Business or the HRMS Business. (e) Compliance with Laws: The Bank is in compliance (and shall be in compliance immediately prior to the Effective Time) in all material respects with all applicable laws, statutes, regulations, rules and by-laws relating to the employment of Designated Employees, including, without limiting the generality of the foregoing, those related to wages, pay equity, hours of work, collective bargaining and labour relations, occupational health and safety, workers compensation, human rights, pension benefits standards and labour and employment standards and is not liable for any arrears of wages, assessments, penalties or other sums for failure to comply with any of the foregoing. - Page 17 - (f) No Changes: Except as disclosed in Schedule 4.17(f), with respect to the Designated Employees, no commitment, express or implied, has been made to change compensation or to change any benefit under the Pension Plan or the other Bank's Benefit Plans or to offer additional benefits. (g) Retiree Benefits: Except as disclosed in Schedule 4.17(g), there are no benefits promised to Designated Employees, applicable to them, or their dependents upon the retirement of the Designated Employees, other than in respect of the Pension Plan. (h) No Vacation Accrual: As at January 31, 1998, none of the Designated Employees shall have any accrued and unused vacation for the period ended December 31, 1997. 4.18 Payroll Trademarks - (a) The only trademarks used in connection with the Payroll Business are the Payroll Trademarks and the trademarks of the Bank licenced pursuant to the Trademark Licence Agreement; (b) The Bank has the unrestricted right and has not licenced or otherwise permitted any other Person to use the Payroll Trademarks; (c) The Bank has registered the Payroll Trademarks in the Canadian Trademarks office; (d) The Payroll Trademarks are in full force and effect and have not been used or enforced or failed to be used or enforced in a manner that would result in the abandonment, cancellation or unenforceability of any right in the Payroll Trademarks; (e) The Bank has no knowledge of any claim of adverse ownership or invalidity or other opposition or conflict with any of the Payroll Trademarks nor of any pending or threatened suit, proceeding, claim, demand, action or investigation of any nature or kind against the Bank relating to the Payroll Trademarks; and (f) The Bank has no knowledge that any activity relating to the conduct of the Payroll Business or the Payroll Trademarks breaches, violates, infringes or interferes with any trademarks or other intellectual property rights of any third party or requires payment for the use of any trademarks or other intellectual property rights of a third party. - Page 18 - 4.19 No Finder's Fee or Broker's Fee - No Person has, or as a result of any of the transactions contemplated hereby will have, by reason of any commitment of the Bank towards such Person, any right, interest or valid claim against or upon Ceridian, Ceridian Holdings, the Purchaser or the Corporation or any property of Ceridian, Ceridian Holdings, the Purchaser or the Corporation for any commission, fee or other compensation as broker or finder or for services in any similar capacity. 4.20 Bank's Residence - The Bank is not a non-resident within the meaning of that term as used in the Income Tax Act (Canada). 4.21 Registration for Taxes - The Bank is duly registered under Part IX of the Excise Tax Act (Canada) under registration number 105255145 and under the Quebec Sales Tax Act under registration number 100004293. 4.22 Plans - The Bank Benefit Plans are all of the benefit plans, arrangements, agreements, programs, policies or practices, whether oral or written, formal or informal, funded or unfunded (other than governmental mandated benefits of general application) in which the Designated Employees participate or are eligible to participate, including but not limited to: (i) retirement savings or pensions including, without limitation, any registered retirement savings plan, or supplemental pension or retirement plan; (ii) stock option, hospitalization, health, dental, disability, unemployment insurance, vacation pay, severance pay, sick leave, club membership, company car, company awards, company loans, consulting or other similar compensation arrangements. Summaries of the Bank Benefit Plans, copies of all material employee communications relative to Bank Benefit Plans and copies of all work permits and employment related government authorizations or permits have been provided to the Purchaser. 4.23 List of Customers - The lists of HRMS Clients and Payroll Clients to be delivered on Closing to the Purchaser pursuant to Article 8, shall be complete and accurate lists. 4.24 Undisclosed Liabilities - Except as disclosed in Schedule 4.24 hereto and except as incurred in the ordinary and usual course of the Payroll Business, there is no outstanding indebtedness or liabilities or obligations (whether accrued, absolute, contingent or otherwise) of the Payroll Business of a nature customarily reflected or reserved against in a balance sheet (including the notes thereto) prepared in accordance with generally accepted accounting principles. Page 19 - 4.25 Operation of the Businesses - The Purchased Payroll Assets and the Purchased HRMS Assets, together with the services to be provided by the Bank to the Corporation under the Transitional Services Agreement, are sufficient to operate the Payroll Business and the HRMS Business as was conducted as of the Closing Date. 4.26 Product Defects - There are no defects in the products or services of the Payroll Business heretofore or currently being distributed or sold by the Payroll Business which would materially adversely affect the performance and quality of such products and services, provided, however, that this representation and warranty does not extend to any aspect or component of the products or services of the Payroll Business that are not defective as at the Effective Time but that become defective after the Effective Time as a result of modifications made to such products or services by the Corporation. There are no express or implied warranties outstanding with respect to the products or services of the Payroll Business except as imposed by law or as described in the contracts referred to in Section 4.15. 4.27 Organization, Standing and Authority of BW - BW is a corporation validly existing under the laws of Ontario, and it has all necessary corporate power, authority and capacity to own its property and assets and to carry on the HRMS Business as is presently conducted by it. BW has all requisite power and authority to execute and deliver this Agreement and the Transfer Agreement and to perform its obligations hereunder and thereunder and to complete the transaction of purchase and sale contemplated hereunder and thereunder. 4.28 BW Shares - All of the issued and outstanding shares of BW are owned as of record and beneficially by the Bank. No options, warrants or other rights to purchase shares or other securities of BW have been authorized or agreed to be issued or are outstanding. 4.29 BW Authorization - The execution, delivery and performance by BW of this Agreement and Transfer Agreement have been duly authorized by all necessary corporate action of BW, and all persons executing such agreements on behalf of BW have been duly authorized to do so by all necessary corporate action on the part of BW. This Agreement and the Transfer Agreement have been duly executed and delivered by BW and constitute the legal, valid and binding obligations of BW, enforceable against BW in accordance with their terms, except as enforceability thereof may be limited by bankruptcy, insolvency, reorganization or similar laws of general application, and equitable remedies that may be granted or imposed by a court of compete-.it jurisdiction. 4.30 No Conflicting BW Agreements - The execution and delivery by BW of this Agreement and the Transfer Agreement and the performance by EW of its obligations hereunder and thereunder does not and will not (i) result in or constitute a default under, breach or violation of, or an event that with notice or lapse of time or both would be a breach or - Page 20 - violation of the organizational documents of BW, or any existing note, bond, mortgage, indenture, deed of trust, licence, permit, lease, loan agreement, contract or other agreement, instrument or arrangement to which BW is a party or by the terms of which BW is or may be bound or affected, or (ii) violate or contravene any law to which it is subject. 4.31 BW Consents - No consent, approval or authorization under any material indenture, contract, instrument or other agreement (excluding HRMS Contracts) to which the Bank or BW is a party or by which they are bound is required to be obtained in connection with the execution, delivery and performance by BW of this Agreement and the Transfer Agreement. There are no consents, approvals, permits or authorizations, declarations, filings or registrations with, or notices to, any governmental or regulatory authority required to be made or obtained by BW in connection with the execution and delivery of this Agreement and the Transfer Agreement and the performance of the transactions contemplated hereby or thereby. 4.32 Title to Assets - BW now is and immediately prior to the Effective Transfer Time will be (and the Bank, to the extent that it owns any of the Purchased HRMS Assets now is and immediately prior to the Effective Transfer Time will be) the sole registered and beneficial owner of all right, title and interest in and to the Purchased HRMS Assets, free and clear of claims, liens, security interests, and other encumbrances. BW (and the Bank, to the extent that it owns any of the Purchased HRMS Assets) has the full legal right, power and authority to sell, assign and transfer the Purchased HRMS Assets to the Corporation effective as of the Effective Transfer Time, and has not assigned, licensed or otherwise conveyed such rights, licences or privileges to any other Person. 4.33 Legal Proceedings - There are no legal proceedings pending and BW and the Bank are not aware of any legal proceedings threatened or of any circumstances which may reasonably be expected to give rise to such proceedings which in any way might interfere with the sale or delivery of the Purchased HRMS Assets, or the consummation of any of the transactions contemplated herein. 4.34 No Option - Except for the Corporation, no Person has any agreement or option or any right or privilege (whether by law or by contract) capable of becoming an agreement or option to acquire any of the Purchased HRMS Assets. Except for the Purchaser, no Person has any agreement or option or any right or privilege (whether by law or by contract) capable of becoming an agreement or option to acquire any of the Shares from BW. 4.35 Financial Information - The financial information relating to the HPMS Business provided to the Purchaser and set forth in Schedule 4.13 hereto has been prepared in accordance with generally accepted accounting principles, consistently applied, and - Page 21 - presents a true and complete statement of the financial condition of the HRMS Business for the fiscal periods stated therein. 4.36 Undisclosed Liabilities - Except as disclosed in Schedule 4.24 hereto and except as incurred in the ordinary and usual course of the HRMS Business, there is no outstanding indebtedness or liabilities or obligations (whether current, absolute, contingent or otherwise) of the HRMS Business of a nature customarily reflected or reserved against any balance sheet (including the notes thereto) prepared in accordance with generally accepted accounting principles. 4.37 Conduct of the HRMS Business - The HRMS Business has been conducted since October 31, 1997 (the "HRMS Reference Date") in the ordinary course, consistent with past practice. Since the HRMS Reference Date, there has not been any change in the operation, business, assets or financial condition of the HRMS Business other than changes in the ordinary course which have not individually or collectively had any material adverse effect on the condition (financial or other), results of operation, or assets of the HRMS Business, and since the HRMS Reference Date, neither the Bank nor BW has entered into any transaction in connection with the HRMS Business not in the ordinary course of the HPMS Business, other than this Agreement. 4.38 HRMS Litigation - There is no suit, action, litigation, arbitration or proceeding in progress, pending or threatened against or involving the HRMS Business and there is not presently outstanding against BW or the Bank in respect of the HRMS Business any judgment, decree, injunction or order of any court, governmental department, agency or arbitrator. 4.39 HRMS Client Contracts - BW has delivered to the Purchaser a true and correct copy of the standard contract terms incorporated in contracts entered into between BW (or the Bank) and HRMS Clients for the provision of HRMS Services. Each of the HRMS Clients has entered into such form of standard contract with BW (or the Bank) or has been provided services consistent therewith or with a variation thereto that is not materially adverse to the HRMS Business. 4.40 Proprietary HRMS Software - (a) The Proprietary HRMS Software does not infringe any copyright, patent, trademark, trade secret, or other intellectual property, proprietary or other right of any third party. (b) The Phipps HR Interface software is the only Proprietary HRMS Software of the HRMS Business. - Page 22 - (c) The Proprietary HRMS Software: (i) is complete in all respects and shall perform in accordance with its scope documents and user manuals; (ii) is free of all viruses, errors, defects and disabling devices that would cause any component of the Proprietary HRMS Software or of databases created thereby to be erased, modified, deleted, damaged, disabled or made inoperable or otherwise rendered incapable of performing in accordance with its published specifications; and (iii) has been designed, developed, configured and implemented in a good and workmanlike manner. (d) The Proprietary HRMS Software is not year 2000 compliant. 4.41 HRMS Trademarks - (a) The only trademarks used in connection with the HRMS Business are the HRMS Trademarks and the trademarks of the Bank licenced pursuant to the Trademark Licence Agreement; (b) The Bank and BW have the unrestricted right and has not licenced or otherwise permitted any other Person to use the HRMS Trademarks; (c) The Bank and BW have registered the HRMS Trademarks in the Canadian Trademarks office; (d) The HRMS Trademarks are in full force and effect and have not been used or enforced or failed to be used or enforced in a manner that would result in the abandonment, cancellation or unenforceability of any right in the HRMS Trademarks; (e) The Bank and BW have no knowledge of any claim of adverse ownership or invalidity or other opposition or conflict with any of the BRMS Trademarks nor of any pending or threatened suit, proceeding, claim, demand, action or investigation of any nature or kind against the Bank relating to the HRMS Trademarks; and (f) The Bank and BW have no knowledge that any activity relating to the conduct of the HRMS Business or the HRMS Trademarks breaches, violates, infringes or interferes with any trademarks or other intellectual property rights of any third - Page 23 - party or requires payment for the use of any trademarks or other intellectual property rights of another party. 4.42 Labour Relations - BW does not employ any employees for the HRMS Business. 4.43 No Finder's Fee or Broker's Fee - No Person has, or as a result of any of the transactions contemplated hereby will have, by reason of any commitment of BW towards such Person, any right, interest or valid claim against or upon Ceridian, Ceridian Holdings, the Purchaser or the Corporation or any property of Ceridian, Ceridian Holdings, the Purchaser or the Corporation for any commission, fee or other compensation as broker or finder or for services in any similar capacity. 4.44 BW's Residence - BW is not a non-resident within the meaning of that term as used in the Income Tax Act (Canada). 4.45 BW Registration for Taxes - BW is duly registered under Part IX of the Excise Tax Act (Canada) under registration number 139484307 and under the Quebec Sales Tax Act under registration number 101772976 1. 5. REPRESENTATIONS AND WARRANTIES OF CERIDIAN, CERIDIAN HOLDINGS AND THE PURCHASER The Purchaser, Ceridian Holdings and Ceridian jointly and severally represent and warrant to the Bank and BW as follows: 5.1 Organization, Standing and Authorization - The Purchaser is a corporation, duly organized, validly existing and in good standing under the laws of Canada. The Purchaser has all necessary power and authority to own, lease or licence its property and to conduct its business as now conducted. The Purchaser has the requisite power and authority to execute and deliver this Agreement and to perform its obligations hereunder, and to consummate the transactions contemplated hereby including, without limitation, the purchase of the Shares. 5.2 Authorization, Execution and Enforceability - The execution, delivery and performance by the Purchaser of this Agreement have been duly authorized by all necessary corporate action of the Purchaser, and no further corporate action is required to be taken by the Purchaser in order to execute, deliver and perform this Agreement. All persons executing this Agreement on behalf of the Purchaser have been duly authorized to do so by all necessary corporate action on the part of the Purchaser. This Agreement has been duly executed and delivered by the Purchaser and constitutes the legal, valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms, except as enforceability thereof may be limited by bankruptcy, insolvency, - Page 24 - reorganization or similar laws of general application, and equitable remedies that may be granted or imposed by a court of competent jurisdiction. 5.3 No Conflicting Agreements - The execution and delivery by the Purchaser of this Agreement and the performance by the Purchaser of its obligations hereunder does not and will not (i) result in or constitute a default under, breach or violation of, or an event that with notice or lapse of time or both would be a breach or violation of, the organizational documents of the Purchaser, or any existing note, bond, mortgage, indenture, deed of trust, licence, permit, lease, loan agreement, contract or other agreement, instrument or arrangement to which the Purchaser is a party or by the terms of which the Purchaser is or may be bound or affected; or (ii) violate or contravene any law to which it is subject. 5.4 Consents - No consent, approval or authorization under any material indenture, contract, instrument or other agreement to which Ceridian or the Purchaser is a party or by which either of them is bound is required to be obtained in connection with the execution, delivery and performance by the Purchaser of this Agreement. There are no consents, approvals, permits or authorizations, declarations, filings or registrations with, or notices to, any governmental or regulatory authority required to be made or obtained by the Purchaser in connection with the execution and delivery of this Agreement and the performance of the transactions contemplated hereby or thereby, except that Ceridian or the Purchaser will make appropriate filings under the Investment Canada Act within 30 days following the Closing. 5.5 Legal Proceedings - There are no legal proceedings pending and Ceridian and the Purchaser are not aware of any legal proceedings threatened or of any circumstances which may reasonably be expected to give rise to such proceedings against Ceridian which in any way might interfere with the purchase of the Shares or the consummation of any of the transactions contemplated under this Agreement. 5.6 Compliance with Laws - The Purchaser is not in default under or in violation of any law, except for such defaults or violations that would not, individually or in the aggregate, result in a material adverse effect on the condition (financial or other) or prospects of the Purchaser. 5.7 No Bankruptcy Proceedings - There are no bankruptcy, insolvency or receivership proceedings outstanding against Ceridian, Ceridian Holdings or the Purchaser and neither the Purchaser, Ceridian Holdings nor Ceridian has made any assignment for the benefit of any creditors and no execution or attachment has been levied against the Purchaser on account of any liens or judicial process. - Page 25 - 5.8 Organization, Standing and Authorization - Each of Ceridian and Ceridian Holdings is a corporation, duly organized, validly existing and in good standing under the laws of Delaware. Each of Ceridian and Ceridian Holdings has all necessary power and authority to own, lease or licence its property and to conduct its business as now conducted and has the requisite power and authority to execute and deliver this Agreement and to perform its obligations hereunder. 5.9 Authorization, Execution and Enforceability re: Ceridian and Ceridian Holdings The execution, delivery and performance by Ceridian and Ceridian Holdings of this Agreement have been duly authorized by all necessary corporate action of Ceridian, and no further corporate action is required to be taken by Ceridian or Ceridian Holdings in order to execute, deliver and perform this Agreement. All persons executing this Agreement on behalf of Ceridian and Ceridian Holdings have been duly authorized to do so by all necessary corporate action on the part of Ceridian. This Agreement has been duly executed and delivered by Ceridian and Ceridian Holdings and constitutes the legal, valid and binding obligation of Ceridian and Ceridian Holdings, enforceable against them in accordance with its terms, except as enforceability thereof may be limited by bankruptcy, insolvency, reorganization or similar laws of general application, and equitable remedies that may be granted or imposed by a court of competent Jurisdiction. 5.10 No Conflicting Agreements - The execution and delivery by each of Ceridian and Ceridian Holdings of this Agreement and the performance by each of Ceridian and Ceridian Holdings of their obligations hereunder do not and will not (i) result in or constitute a default under, breach or violation of, or an event that with notice or lapse of time or both would be a breach or violation of, the organizational documents of Ceridian or Ceridian Holdings, or any existing note, bond, mortgage, indenture, deed of trust, licence, permit, lease, loan agreement, contract or other agreement, instrument or arrangement to which Ceridian or Ceridian Holdings is a party or by the terms of which Ceridian or Ceridian Holdings is or may be bound or affected; or (ii) violate or contravene any law to which they are subject. 5.11 Consents - No consent, approval or authorization under any material indenture, contract, instrument or other agreement to which either of Ceridian or Ceridian Holdings is a party or by which either of them is bound is required to be obtained in connection with the execution, delivery and performance by Ceridian or Ceridian Holdings of this Agreement. There are no consents, approvals, permits or authorizations, declarations, filings or registrations with, or notices to, any governmental or regulatory authority required to be made or obtained by Ceridian or Ceridian Holdings in connection with the execution and delivery of this Agreement and the performance of the transactions contemplated hereby or thereby, except that Ceridian or the Purchaser will make appropriate filings under the Investment Canada Act within 30 days following the Closing. - Page 26 - 5.12 Legal Proceedings - There are no legal proceedings pending and neither of Ceridian nor Ceridian Holdings is aware of any legal proceedings threatened or of any circumstances which may reasonably be expected to give rise to such proceedings against the Purchaser which in any way might interfere with the entering into of this Agreement by Ceridian or Ceridian Holdings or the performance of their obligations hereunder. 5.13 Authorization, Execution and Enforceability re: the Corporation - The execution, delivery and performance by the Corporation of the Ancillary Agreements shall as of the Effective Date be duly authorized by all necessary corporate action of the Corporation, and no further corporate action shall be required to be taken by the Corporation in order to execute, deliver and perform the Ancillary Agreement. All persons executing the Ancillary Agreements on behalf of the Corporation shall be duly authorized to do so by all necessary corporate action on the part of the Corporation. The Ancillary Agreements shall be duly executed and delivered by the Corporation and shall constitute, the legal, valid and binding obligation of the Corporation enforceable against the Corporation in accordance with its terms, except as enforceability thereof may be limited by bankruptcy, insolvency, reorganization or similar laws of general application, and equitable remedies that may be granted or imposed by a court of competent jurisdiction. 5.14 No Conflicting Agreements - The execution and delivery by the Corporation of the Ancillary Agreements and the performance by the Corporation of its obligations thereunder will not (i) result in or constitute a default under, breach or violation of, or an event that with notice or lapse of time or both would be a breach or violation of, the organizational documents of the Corporation, or any existing note, bond, mortgage, indenture, deed of trust, licence, permit, lease, loan agreement, contract or other agreement, instrument or arrangement to which Ceridian, Ceridian Holdings or the Purchaser may be a party or by the terms of which Ceridian, Ceridian Holdings, the Purchaser or the Corporation (following the Effective Time) may be bound or affected; or (ii) violate or contravene any law to which it is subject. 5.15 Consents - No consent, approval or authorization under any material indenture, contract, instrument or other agreement to which Ceridian or the Purchaser is a party or by which Ceridian, the Purchaser or the Corporation (following the Effective Time) may be bound is required to be obtained in connection with the execution, delivery and performance by the Corporation of the Ancillary Agreements. There are no consents, approvals, permits or authorizations, declarations, filings or registrations with, or notices to, any governmental or regulatory authority required to be made or obtained by the Corporation in connection with the execution and delivery of the Ancillary Agreements and the performance of the transactions contemplated hereby or thereby. 5.16 Duly Licenced - Following the Closing, the Purchaser shall cause the Corporation to be duly licenced, registered or qualified in each jurisdiction in which it shall conduct the - Page 27 - HRMS Business and the Payroll Business, to perform its obligations under this Agreement and the Ancillary Agreements, and to enable the HRMS Business and Payroll Business to be conducted as it is now conducted, and all such licences, registrations, and qualifications shall be valid, subsisting and in good standing. 5.17 Brokers' and Finders' Fees - No Person has, or as a result of any of the transactions contemplated hereby will have, by reason of any commitment of Ceridian, Ceridian Holdings or the Purchaser towards such Person, any right, interest or valid claim against or upon BW or the Bank or any property of BW or the Bank for any commission, fee or other compensation as broker or finder or for services in any similar capacity. 5.18 Corporation Plans - Schedule 5.18 sets forth a list of benefits that the Corporation will make available to the Transferred Employees on and after the dates set out in Schedule 5.18, subject to regulatory approval. 6. SURVIVAL AND INDEMNIFICATION 6.1 Survival - Except as specifically provided in this Agreement, the representations, warranties and covenants set forth herein or in any certificate or other document delivered pursuant hereto and the obligations of the parties hereto with respect thereto shall survive the Closing and shall continue in full force and effect, provided that such representations, and warranties shall only survive for a period of [confidential information omitted] from the Closing Date, except with respect to (i) tax matters (which shall survive the Closing Date and continue in full force and effect until, but not after, [confidential information omitted] or (ii) the matters represented and warranted in Sections 4.8, 4.9 and 4.32 [confidential information omitted]. If prior to the expiry of the said period no claim shall have been made hereunder with respect to any such matters, the parties shall have no further liability hereunder with respect thereto. No due diligence investigation by a party hereto shall have the effect of waiving any representation or warranty in its favour by another party. 6.2 Indemnification by Bank and BW - Subject to Section 6.3, the Bank and BW shall be jointly and severally liable to Ceridian, Ceridian Holdings, the Purchaser and the Corporation and shall defend, indemnify and hold harmless Ceridian, Ceridian Holdings the Purchaser and the Corporation and their respective officers, directors, shareholders and employees against any and all losses, liabilities, damages, demands, claims, suits, actions, judgments, causes of action, assessments, fines, costs or expenses including, without limitation, interest, penalties and attorneys' and accounting fees, asserted against, resulting to, imposed on or incurred or suffered by Ceridian, Ceridian Holdings, the Purchaser or the Corporation, directly or indirectly, as a result of or arising out of: - Page 28 - (a) the breach of any agreement, covenant, or representation and warranty of the Bank or BW contained in this Agreement, the Transfer Agreement, the Ancillary Agreements, or in any document required to be entered into by the Bank or BW in favour of the Corporation, the Purchaser, Ceridian or Ceridian Holdings hereunder; (b) non-fulfilment of any agreement, covenant or obligation of the Bank or BW contained in this Agreement, the Transfer Agreement, the Ancillary Agreements or in any document required to be entered into by the Bank or BW in favour of the Purchaser, the Corporation, Ceridian or Ceridian Holdings hereunder; (c) all claims brought by or in respect of any of the Designated Employees resulting from matters arising and accruing prior to the Effective Time and all claims brought by or in respect of any of the LTD Employees resulting from matters arising and accruing at any time, in respect of, without limitation, wages, salaries, bonuses, commissions, vacation pay, holiday pay, severance pay, termination notice or pay in lieu of such notice, termination pay, pension and other employee benefits, income tax withholdings, unemployment insurance, employer health tax and any other federal or provincial employment legislation related to employment matters, except for any matters for which the Corporation has expressly assumed responsibility under the terms of this Agreement, the Transfer Agreement or the Ancillary Agreements; and (d) non-compliance with applicable bulk sales legislation in connection with the transactions contemplated by the Transfer Agreement. 6.3 Software and Trademark Indemnification (a) The Bank shall, at its own expense, defend or arrange for the defence of, or settle any action brought or claim made against Ceridian, Ceridian Holdings, the Purchaser or the Corporation based on any allegation that (i) the Proprietary HRMS Software or the Proprietary Payroll Software infringes any patent, copyright, trade secret or any other intellectual property right in any jurisdiction, or (ii) that the Payroll Trademarks or the HRMS Trademarks infringe any trademarks or other intellectual property rights of any other Person. The Bank shall be liable to and shall indemnify and hold harmless Ceridian, Ceridian Holdings, the Purchaser and the Corporation and their respective officers, directors, shareholders and employees against any and all costs, losses, liabilities, demands, claims, suits, actions, judgments, assessments, causes of actions, fees and expenses and damages in any such claim or action including, without limitation, interest, penalties and attorney's and accounting fees asserted against, resulting to, imposed on or incurred or suffered by Ceridian, Ceridian Holdings, Page 29 - the Purchaser or the Corporation directly or indirectly as a result of or arising out of any of the aforementioned claims or actions, provided that: (i) Ceridian, Ceridian Holdings, the Purchaser and the Corporation promptly notify the Bank when it receives any notice of such claim or allegation of infringement; (ii) Ceridian, Ceridian Holdings, the Purchaser and the Corporation fully cooperate with the Bank in the defence or settlement of such action; and (iii) the Bank shall have sole control of the defence or settlement of any such claim or action. (b) The Bank shall not be liable for any infringement or claim thereof based on any modifications to the Proprietary HRMS Software or the Proprietary Payroll Software made by, or improper use thereof by Ceridian, Ceridian Holdings, the Purchaser, the Corporation, or any third party. (c) In the event a successful claim of infringement (save and except for a claim made under Section 6.3(b)) shall restrain Ceridian's, Ceridian Holdings, the Purchaser's or the Corporation's use of all or part of the Proprietary HRMS Software or the .Proprietary Payroll Software, the Bank shall, at its expense, take one of the following actions (the selection of which shall be in the sole discretion of the .Bank): (i) procure for Ceridian, Ceridian Holdings, the Purchaser or the Corporation the right to continue using the alleged infringing or misappropriated Proprietary HRMS Software or the Proprietary Payroll Software at no cost to Ceridian, Ceridian Holdings, the Purchaser or the Corporation; or (ii) replace or modify the Proprietary HRMS Software or the Proprietary Payroll Software so that it becomes non-infringing (with the reasonable assistance of the Purchaser, provided that the services of the Purchaser's SR&D personnel engaged to assist with this process shall be paid by the Bank at reasonable per them rates). The Bank agrees that such replacement or modification will be equivalent to the original Proprietary HRMS Software or the Proprietary Payroll Software in functionality and performance as is reasonably practicable, provided, however, that the functionality and performance shall not be materially changed or degraded. - Page 30 - (d) The foregoing paragraphs of this Section 6.3 state the entire liability of the Bank for any loss or damage whatsoever as a result of the infringement of any intellectual property rights and supersede, in the event of conflict with, any other provision of this Agreement. 6.4 Indemnification by the Purchaser - Ceridian, Ceridian Holdings, the Purchaser and the Corporation shall be jointly and severally liable to the Bank and BW and shall defend, indemnify and hold harmless the Bank and BW and their officers, directors, shareholders and employees against any and all losses, liabilities, damages, demands, claims, suits, actions, judgments, causes of action, assessments, fines, costs or expenses including, without limitation, interest, penalties and attorneys' and accounting fees, asserted against, resulting to, imposed on, or incurred or suffered by the Bank and BW, directly or indirectly, as a result of or arising out of- (a) the breach of any agreement, covenant, representation or warranty by the Purchaser, the Corporation, Ceridian or Ceridian Holdings contained in this Agreement, the Transfer Agreement, the Ancillary Agreements or in any document required to be entered into by the Purchaser, Ceridian, Ceridian Holdings or the Corporation in favour of the Bank or BW hereunder; (b) any matter requiring indemnification by the Corporation in favour of the Bank pursuant to subsection 12. 1 (b)(ii), (iii) and (iv) of the Transitional Services Agreement; (c) the non-fulfilment of any agreement, covenant or obligation of the Purchaser or the Corporation contained in this Agreement, the Transfer Agreement, the Ancillary Agreements or in any document required to be entered into by the Purchaser, the Corporation, Ceridian Holdings or Ceridian in favour of the Bank or BW hereunder or thereunder, including, without limitation, the assumption of the Assumed BRMS Liabilities and the Assumed Payroll Liabilities; (d) all claims brought by or in respect of any of the Transferred Employees, resulting from matters arising and accruing on and after the Effective Time, in respect of wages, salaries, bonuses, commissions, vacation pay, holiday pay, severance pay, termination notice or pay in lieu of such notice, termination pay, pension and other employee benefits, income tax withholdings, unemployment insurance, employer health tax and any other federal or provincial employment legislation related to employment matters, except for any matters for which the Bank has expressly retained responsibility under the terms of this Agreement, the Transfer Agreement or the Ancillary Agreements; and - Page 31 - (e) all liability of the Bank and BW for Taxes that may be assessed upon them in connection with the transfer of the Purchased Payroll Assets and the Purchased HRMS Assets pursuant to the Transfer Agreement, but excluding income taxes payable by BW or the Bank as a result of the disposition of the Purchased HRMS Assets or Purchased Payroll Assets to the Corporation pursuant to the Transfer Agreement. 6.5 Indemnification for Claims Other Than Third Party Claims - Following receipt from a party hereto (the "Indemnified Party") of a written notice of a claim for indemnification which has not arisen in respect of a Third Party Claim (as defined in Section 6.6 below), the party or parties in receipt of such notice (the "Indemnifying Party") shall have thirty (30) Business Days to make such investigation of the claim as the Indemnifying Party considers necessary or desirable. For the purpose of such investigation, the Indemnified Party shall make available to the Indemnifying Party the information relied upon by the Indemnified Party to substantiate the claim. If the Indemnified Party and the Indemnifying Party agree at or prior to the expiration of such thirty (30) Business Days (or any mutually agreed upon extension thereof) to the validity and amount of the claim, the Indemnifying Party shall immediately pay to the Indemnified Party the full agreed upon amount of the claim. If the Indemnified Party and the Indemnifying Party do not reach agreement within such period (or any mutually agreed upon extension thereof), such dispute shall be resolved by any arbitration proceeding as may be agreed between the Indemnified Party and the Indemnifying Party, or shall be subject to resolution by proceedings to be commenced before a court of competent jurisdiction. 6.6 Indemnification against Third Party Claims Except as provided in Section 6.3, (a) Promptly upon receipt by a party hereto (herein referred to as the "Indemnitee") of notice of any claim by a third party (a "Third Party Claim") in respect of which the Indemnitee proposes to demand indemnification from another party or parties to this Agreement (the "Indemnitor"), the lndemnitee shall give notice (the "Notice") to that effect to the Indemnitor. The Notice shall set forth the actual or estimated amount of the loss or losses incurred or to possibly be incurred, and shall specify in reasonable detail the items of loss or potential loss included in the amount so stated, the date such matter occurred, the basis for any anticipated loss or losses, and the nature of the misrepresentation, breach of warranty or breach of covenant or claim to which such items relate. The failure the give the Notice on a timely basis shall not affect the Indemnitee's right to indemnification hereunder except to the extent that the Indemnitor is materially prejudiced thereby, subject to Section 6.7. - Page 32 - (b) 'The Indemnitor shall have the right, by notice to the Indemnitee not later than the earlier of (i) twenty (20) Business Days after receipt of the notice described in Section 6.6(a) and (ii) the date upon which any action must be taken in reply to such Notice, to assume the control of the defence, compromise or settlement of the Third Party Claim, provided that: such assumption shall, by its terms, be without cost to the Indemnitee; and (ii) the Indemnitor shall at the Indemnitee's request furnish the Indemnitee with reasonable security against any costs or other liabilities to which it may be or become exposed by reason of such defence, compromise or settlement. (c) Upon the assumption of control by the Indemnitor as aforesaid, the Indemnitor shall diligently proceed with the defence, compromise or settlement of the Third Party Claim, at the Indemnitor's sole expense, including employment of counsel reasonably satisfactory to the lndemnitee (verification of satisfaction with the choice of counsel not to be unreasonably withheld or delayed) and, in connection therewith, the Indemnitee shall co-operate fully, but at the expense of the Indemnitor, to make available to the Indemnitor all pertinent information and witnesses under the Indemnitee's control, make such assignments and take such other steps as are necessary to enable the Indemnitor to conduct such defence, compromise or settlement, provided always that the Indemnitee shall be entitled to reasonable security from the Indemnitor for any expense, costs or other liabilities to which it may be or may become exposed by reason of such cooperation. Provided that the Indemnitor is reasonably contesting any such Thirty Party Claim in good faith, the Indemnitee shall not pay or settle any such Third Party Claim. Notwithstanding the foregoing, the Indemnitee shall have the right to pay or settle any such claim, provided that in such event the Indemnitee shall waive any right to indemnification therefor by the Indemnitor. (d) If the Indemnitor fails to give notice to the Indemnitee as provided in Section 6.6(b) or if the Indemnitor does not reasonably contest the Third Party Claim in good faith, the Indemnitee shall be entitled to assume the control of the defence, compromise or settlement of the Third Party Claim as in its sole discretion may appear advisable. The Indemnitee shall, however, consult with the Indemnitor prior to agreeing to any compromise or settlement of the Third Party Claim. (e) The final determination of any such Third Party Claim including all related costs and expenses (including all legal fees and disbursements incurred by the Indemnitee) shall be binding and conclusive upon the parties hereto as to the - Page 33 - validity or invalidity, as the case may be, of such Third Party Claim against the Indemnitor hereunder. 6.7 Expiry of Liability - (a) The foregoing obligations of indemnification with respect to representations and warranties shall be subject to the time limitations set forth in Section 6.1 hereof and no party shall be required to indemnify and save harmless any other party with respect to such matters for which indemnification is sought unless such party shall have been provided with notice pursuant to Section 6.5 or Section 6.6, as the case may be, on or prior to the expiration of the time periods set out in Section 6.1. With respect to the obligations of indemnification under Sections 6.2(c) and 6.4(d) and 6.4(e), no party shall be required to indemnify and save harmless any other party with respect to such matters for which indemnification is sought unless such party shall have been provided with notice pursuant to Section 6.5 or 6.6, as the case may be, on or prior to sixty (60) days after the expiration of the applicable limitation periods in which a claim can be made with respect to such matters. (b) The assumption of liabilities by the Corporation relating to the Assumed HRMS Liabilities and the Assumed Payroll Liabilities shall terminate only upon complete performance thereof. 6.8 Limit - Notwithstanding any other provision of this Agreement, except for the indemnification granted under Section 6.4(e), no claim for indemnification, damages or other relief will be valid against a party hereto until such time as the cumulative amount of losses for which claims for indemnification made against the party exceeds $1 00,000, at which time the losses indemnified shall revert to the first dollar of loss. The maximum aggregate liability of a party, under all such claims, shall not exceed the amount of the Purchase Price. 7. COVENANTS 7.1 Covenants of the Bank and BW - The Bank and BW covenant and agree with the Purchaser as follows: (a) Reasonable Efforts to Maintain and Preserve: The Bank and BW will exercise all reasonable efforts to ensure that, from the date hereof until the Closing Date, except as otherwise herein provided or approved in writing by the Purchaser, (i) the Payroll Business and the HRMS Business will each be conducted only in the ordinary course in substantially the same manner as prior to the date - Page 34 - hereof and in such manner that each of the representations and warranties made by the Bank and BW herein as of the date hereof will, as of the Effective Time, be true and correct in all material respects, provided that any price increases or decreases implemented by the Bank for the Payroll Services, or by BW for the HRMS Services prior to the Effective Time, shall be consistent with the Bank's and BW's usual practice of instituting price increases or decreases; and (ii) the organization of the Payroll Business and the HRMS Business will be maintained intact, the services of their competent employees will be retained, and their relationships with and the goodwill of their customers, suppliers and others having business relations with them will be preserved, the whole so as to maintain the goodwill of the Payroll Business and the HRMS Business. (b) Notice of Cessation in Ordinary Course: The Bank and BW will promptly notify the Purchaser of the happening or existence or apprehended happening or existence of any event or circumstance on or prior to the Effective Time by reason of which either of the Payroll Business or the HRMS Business has ceased or may cease to be conducted in the ordinary course as heretofore provided or by reason of which any of the representations and warranties made by the Bank or BW herein may cease to be true and correct. (c) Covenant Not to Compete: For a period of [confidential information omitted] from and after the Closing Date, the Bank and BW shall not, and shall ensure that their respective affiliates do not directly or indirectly [confidential information omitted] provide payroll services or human resource management services similar to the type carried on by the Payroll Business and the HRMS Business, provided that the Bank and its affiliates shall not be precluded from any of the following: (i) providing payroll services and human resource management services to employees of the Bank and its affiliates; (ii) acquiring an interest in the assets or shares of a Person that carries on, as its non-principal business, a payroll services and/or human resource management services business, provided that the Corporation shall be given a right of first opportunity to purchase such Person's Canadian payroll services business and/or human resource management services business, on terms as may be negotiated in good faith. In the event of the waiver or other termination of such right of first opportunity by the Corporation without the Corporation having purchased such business or businesses, the Bank and its affiliates shall not be obligated to cause any - Page 35 - such Person to cease providing payroll services and/or human resource management services, whether or not such services compete with the Payroll Business, provided that the payroll services and/or human resource management services of such Person shall not be branded with the trademarks, tradenames or logos of the Bank; In the event that the payroll services and/or human resource management services business of such Person subsequently becomes the principal business of such Person, the Corporation shall again be given a right of first opportunity to purchase such Person's Canadian payroll services business and/or human resource management services business on terms as may be negotiated in good faith. In the event of the waiver or other termination of such right of first opportunity by the Corporation without the Corporation having purchased such business or businesses, the Bank and its affiliates shall not be obligated to cause any such Person to cease providing payroll services and/or human resource management services, whether or not such services compete with the Payroll Business, provided that the payroll services and/or human resource management services of such Person shall not be branded with the trademarks, tradenames or logos of the Bank; (iii) acquiring an interest in the assets or shares of a Person that carries on the business of providing payroll services or human resource management services, on a passive basis and for investment purposes only, or on a security enforcement, provided that the payroll services and human resource management services of such Person are not branded with the trademarks, tradenames or logos of the Bank; or (iv) providing banking, financial services, and all other non-payroll and non-human resource management services to the Payroll Clients and to HRMS Clients. (d) Non-Solicitation: For a period of [confidential information omitted] from and after the Closing Date, the Bank shall not, and shall ensure that its respective affiliates do not, solicit the Transferred Employees directly or indirectly, for employment with or provision of services to the Bank or its affiliates (provided that general advertisements to the public for employment positions shall be deemed not to be a solicitation for the purposes of this subsection). For a period of [confidential information omitted] from and after the Closing Date, the Bank shall not, and shall ensure that its respective affiliates do not, solicit: - Page 36 - (i) Payroll Clients to purchase payroll services of any type from the Bank or any other Person; and (ii) HRMS Clients to purchase human resource management services of any type from the Bank or any other Person. Notwithstanding the foregoing, the Bank may make solicitations in order to provide the services that it is not precluded from providing pursuant to Section 7. 1 (c)(iv). (e) Documents: On or prior to the Closing Date, the Bank and BW will execute all such agreements or documents contemplated in Section 8.1 and all other documents reasonably required by Ceridian, Ceridian Holdings, the Purchaser or the Corporation to give effect to the transactions contemplated herein. Reasonable Assistance: The Bank shall provide the Purchaser with reasonable assistance, at no expense to the Bank, in order to obtain all necessary governmental and regulatory approvals to be obtained by the Purchaser, if any, in connection with the transactions provided for herein. 7.2 Covenants of the Purchaser and the Corporation - The Purchaser, the Corporation, Ceridian Holdings and Ceridian covenant and agree with the Bank as follows: (a) Documents: On or prior to the Closing Date, the Purchaser, the Corporation, Ceridian Holdings and Ceridian will execute all such agreements or documents contemplated in Section 8.2 and all other documents reasonably required by the Bank to give effect to the transactions contemplated herein. (b) Non-Solicitation: For a period of [confidential information omitted] from and after the Closing Date, the Purchaser, the Corporation, Ceridian Holdings and Ceridian shall not, and shall ensure that their respective affiliates do not solicit employees of the Bank and its affiliates that are not Designated Employees, directly or indirectly, for employment with or provision of services to the Purchaser or its affiliates (provided that general advertisements made to the public for employment positions shall not be deemed to be a solicitation for the purposes of this subsection). For a period of [confidential information omitted] from and after the Closing Date, the Purchaser, the Corporation, Ceridian and Ceridian Holdings shall not, and shall ensure that their respective affiliates do not, directly or indirectly, sell or otherwise make available to a Comparable Financial Institution, the lists of (i) Payroll Clients and HRMS Clients and (ii) those customers of the Bank referred to the Corporation pursuant - Page 37 - to the Joint Sales and Marketing Agreement, nor shall they permit or acquiesce in any other Person doing the same. For the purposes hereof, "Comparable Financial Institution" means a bank or loan and trust corporation or any of their affiliates. Insurance companies shall also be deemed to be a Comparable Financial Institution at a future time if, pursuant to legislative changes, insurance companies shall be permitted to engage in the provision of banking and financial services comparable to those types of services that a bank is permitted to conduct. (c) Receivables: - The Corporation shall receive in trust for the Bank and BW and shall deliver to the Bank and BW all payments made to the Corporation in respect of accounts receivable of the Payroll Business and the HRMS Business which are due in whole or in part to the Bank and BW, both in respect of billings made prior to the Effective Date and billings made on or after the Effective Date, including those in respect of the work-in-process allocated between the parties in accordance with Section 3.2. The Corporation, the Bank and BW shall cooperate in the accounting and delivery to the Bank and BW of such payments. 7.3 Other Covenants (a) Employees: (i) Employee Continuation - A. The Corporation shall offer to continue the employment of all of the Designated Employees consistent with the provisions of this Section 7.3, commencing effective the Effective Time, subject to Section 7.3(a)(vi). The Bank and the Purchaser shall participate in a joint communication strategy, to advise the Designated Employees at least three Business Days prior to the Closing Date of the continuation of their employment by the Corporation. The continuation of employment of the Transferred Employees shall include terms and conditions which are [confidential information omitted]. The terms and conditions of continued employment shall include, - Page 38 - without limitation, (i) job functions [confidential information omitted]; (ii) [confidential information omitted] base salaries [confidential information omitted]; (iii) [confidential information omitted] commissions, gain-sharing and bonuses [confidential information omitted]; (iv) [confidential information omitted] merit increase policy; (v) [confidential information omitted], the benefits set forth in [confidential information omitted], or other benefits or compensation [confidential information omitted]; (vi) vacation, [confidential information omitted]; and (vii) [confidential information omitted] retiree benefits [confidential information omitted]. [confidential information omitted] For the purposes of calculating service dates with respect to eligibility for participation under the Corporation's employee benefit plans and policies, [confidential information omitted] and for any other purposes required by law, the length of service of each Transferred Employee [confidential information omitted]. B. The [confidential information omitted] shall be responsible to pay to the Transferred Employees commissions and gain sharing amounts earned prior to the Effective Time in accordance with the terms of the applicable commission and gain sharing programs. [confidential information omitted] The [confidential information omitted] shall be responsible to pay bonuses to the Transferred Employees based on the fiscal year of the Payroll Business and the HRMS Business ended October 31, 1997, and the [confidential information omitted] shall be responsible for the payment of a pro-rata amount of such bonuses - Page 39 - in respect of the performance of Transferred Employees for the period of November 1, 1997 up to the Effective Date, [confidential information omitted] For the purposes hereof, references to commissions, gain sharing amounts and bonuses shall be references to the commission and bonus programs offered by the Bank to Transferred Employees in effect on the Effective Date as set forth in Schedules 4.17(a) and 4.17(b). To the extent that any of such commissions, gain sharing amounts and bonuses are calculated on a fiscal year basis, adjustments with respect to these matters shall be made as soon as possible after the period ended October 31, 1998. (ii) No Discouragement - Neither Ceridian, Ceridian Holdings, the Purchaser, the Corporation the Bank, or their affiliates shall take any action to discourage any of the Designated Employees from accepting the continued employment on behalf of the Corporation. (iii) Transferred Employees - Subject to subsection 7.3(a)(vi), as at the Effective Time, all Transferred Employees shall become employees of the Corporation for all purposes and except as provided for herein, the Bank shall have no obligations or liability in respect of Transferred Employees only to the extent any such obligation or liability arises from any action, event or course of conduct that occurs on and after the Effective Time. [confidential information omitted] (iv) Consequences Upon Rejection - In the event that the Bank terminates the employment of any Designated Employees who reject continued employment with the Corporation (the "Non-Transferred Employees") on, prior to or after the Closing Date, [confidential information omitted]. - Page 40 - (v) Long-Term Disability - LTD Employees shall [confidential information omitted]. (vi) Absent Employees - Subject to the provisions of this subsection 7.3(a)(vi), the Corporation [confidential information omitted] the employment of Absent Employees [confidential information omitted]. The Corporation shall, at the same time that offers of continued employment are made to all Designated Employees or shortly thereafter, communicate the intention of the Corporation to [confidential information omitted] the employment of an Absent Employee who is collecting benefits under Short-Term Disability shall be conditional upon [confidential information omitted] the employment of those of the Absent Employees who are on maternity or parental leave shall be conditional upon [confidential information omitted] employment to any other Absent Employee shall be conditional upon [confidential information omitted] [confidential information omitted] employment of Absent Employees shall be consistent with all other provisions of this Section 7.3 [confidential information omitted] [confidential information omitted]. Without limiting the preceding sentence, if the status of any Absent Employee changes so that he or she commences collecting benefits under Long-Term Disability [confidential information omitted] such employee is an LTD Employee for the purposes of this Agreement. (vii) Vacation - The Corporation shall grant vacation to the Transferred Employees [confidential information omitted] - Page 41 - Statutory vacation pay accrual prior to the Effective Time[confidential information omitted] (viii) Dismissal - The Corporation shall not provide notice of termination of employment to any of the Transferred Employees, except for cause, until [confidential information omitted]. Without limiting Section 7.3(a)(iii) and for greater certainty, in the event that a Transferred Employee's service is terminated by the Corporation [confidential information omitted] (ix) Timing: The information in Schedule 4.17(a) and the list of Absent Employees and LTD Employees shall be updated on the Closing Date, and all references in this Section 7.3 to the Designated Employees, the Absent Employees and LTD Employees shall be deemed to be reference to those persons and the information set forth in such updated lists. (b) Bank's Benefit Plans: (i) [confidential information omitted] Except as expressly provided in the Transitional Services Agreement, the Transferred Employees shall cease to be covered by the Bank's Benefit Plans from and after the Effective Time [confidential information omitted] and shall thereafter be covered by the Corporation's benefit plans. [confidential information omitted] Transferred Employees [confidential information omitted] - Page 42 - under the Corporation's benefit plans due to a pre-existing condition. (ii) Any claims for benefits incurred by the Transferred Employees up to the Effective Time [confidential information omitted] shall be payable by the Bank's Benefit Plans. The Bank shall be liable to the Corporation and shall defend, indemnify and hold harmless the Corporation against any and all loss, liability or expense arising out of any such claims incurred as of or before the Effective Time. (iii) Any claims for benefits incurred by the Transferred Employees from and after the Effective Time [confidential information omitted] shall be payable by the Corporation's benefit plans according to their terms. The Corporation shall be liable to the Bank and shall defend, indemnify and hold harmless the Bank against any and all loss, liability or expense arising out of any such claims incurred on and after the Effective Time [confidential information omitted]. However, nothing in this Agreement obligates the Corporation to provide any particular benefit or benefit plans so long as the Corporation has complied with subsection 7.3(a)(i). For the purposes of subsections 7.3(b)(ii) and 7.3(b)(iii), a claim shall be deemed to have been incurred: A. with respect to death or dismemberment, on the actual date of death or of dismemberment; B. with respect to short-term disability and long-term disability, on the date the claimant became disabled as determined in accordance with the applicable plan; and C. with respect to all extended health or dental, on the date a service or supply giving rise to a claim under the applicable Plan is purchased or received by the claimant or his/her eligible dependent. Where a claim includes more than one service or supply, each of which occurs at a single point in time (for example, a series of dental appointments related to a treatment plan), each such service or supply shall result in a separate claim - Page 43 - incurred as of the date on which the supply or service is purchased or received as aforesaid. If sufficient information is not available to identify charges associated with each claim (but is sufficient for payment of the claims in the ordinary course of claims adjudication), the total charges shall be prorated over the number of claims. (v) All Transferred Employees who participated in the Bank's employee stock purchase plan immediately prior to the Effective Date [confidential information omitted] (c) Pension Plan: (1) Subject to and without limiting the Corporation's commitment under subsection 7.3(a)(i), as soon as practicable after the Closing Date, but effective as of the Effective Time, the Corporation shall establish and register with the applicable regulatory authorities, or shall otherwise cause to be provided, a defined contribution retirement plan (the "Corporation's Pension Plan") for all Transferred Employees. (ii) The Bank shall retain responsibility for, and satisfy its obligations with respect to, all pension and ancillary benefits accrued to the Transferred Employees who participated in the Pension Plan to the Effective Time in accordance with the terms thereof and applicable federal and provincial laws. (iii) As of the Effective Time, each of the Transferred Employees will cease to actively participate in and accrue benefits under the Pension Plan and will commence participating in the Corporation's Pension Plan for future service only in accordance with the terms thereof and applicable federal and provincial laws. The Corporation's Pension Plan shall recognize the period of employment of each of the Transferred Employees with the Bank and its predecessors as required by applicable federal and provincial laws. (d) Competition Act/Investment Canada Act: The Bank, BW, the Purchaser and the Corporation agree to file either individually, o,- jointly (if required by law) all notices that may be required under either the Competition Act and/or Investment Canada Act. (e) Confidentiality: Ceridian, Ceridian Holdings, the Purchaser and the Corporation shall keep confidential all confidential information (unless readily available from - Page 44 - public or published information or sources or required to be disclosed by law) obtained from the Bank and BW and not relating to the Payroll Business or the HRMS Business. If this Agreement is terminated without completion of the transactions contemplated in this Agreement then, promptly after such termination, all documents, work papers and other written material obtained from the Bank and BW in connection with this Agreement shall be returned to the Bank and BW, and Ceridian, Ceridian Holdings and the Purchaser shall destroy any copies or notes taken summarizing such information. Consents Required in Contracts: The Bank, in co-operation with the Purchaser, shall use reasonable efforts to obtain the consents of third parties as may be necessary for the transfer and assignment of Payroll Contracts and HRMS Contracts to the Corporation and the subsequent change of control of the Corporation. The Bank, acting jointly with the Purchaser, shall use reasonable efforts to obtain the consent of Spectrum, Inc. as may be necessary for the transfer and assignment of the contract entered into between BW and Spectrum, Inc., to the Corporation, and the subsequent change of control of the Corporation. If consents cannot be obtained, any such contracts shall not be assigned and the Bank or BW, as the case may be, shall to the extent legally possible, hold its right, title and interest in, to and under such contracts in trust for the benefit of the Corporation in accordance with the Transfer Agreement. (g) [Intentionally deleted] (h) Trust Funds Under Administration: As of the Effective Time or on the first Business Day thereafter, the Bank shall transfer all funds under administration, including funds held on behalf of Payroll Clients pursuant to statutory trusts (the "Funds") that the Bank then holds in respect of payroll processed for Payroll Clients, to a bank account of the Corporation designated in writing by the Purchaser at least two Business Days prior to the Closing Date. Notwithstanding the foregoing, subject to agreement between the Bank and the Purchaser, the Bank shall make a temporary investment of the Funds, and upon maturity of the investment, the Bank shall transfer the Funds and the income earned thereon to the bank account so designated in writing by the Purchaser. (1) Third Party Payments: On or prior to the Closing, the Bank shall pay [confidential information omitted] to Cyborg Systems of Canada Inc. ("Cyborg") in respect of the agreed upon fee for securing Cyborg's consent to the assignment to the Corporation of the contract between Bank and Cyborg. Unless otherwise agreed by the parties, any fees payable to Spectrum, Inc. in respect of the assignment to the Corporation of the contract between BW and Spectrum, Inc. shall be paid by the Corporation. In addition, the parties shall negotiate any apportionment of - Page 45 - payments required to be made to third parties to secure any consents required to be obtained with respect to this Agreement and the agreements contemplated hereby. Transfer Agreement Fees: At the Closing, the Purchaser shall pay to the Bank an amount equal to the legal fees and disbursements incurred by the Bank as a result of the preparation of documents and implementation of the transactions contemplated by the Transfer Agreement, up to but not exceeding an amount of $17,500. (k) Returns: The Bank will provide the Purchaser with copies of the portions of the Bank's T661 returns filed with Revenue Canada for the Bank's 1994, 1995, 1996 and 1997 taxation years that relate to scientific research and experimental development related to the Purchased Payroll Assets or the Purchased HRMS Assets (the "Payroll/HRMS SR & ED"), together with copies of the portions of all supporting reports and other documents that relate to the Payroll/HRMS SR & ED, except for any such documents which the Bank is not permitted to disclose or copy without the consent of any third party. The foregoing copies shall be delivered by the Bank as soon as reasonably practicable following the Closing Date, provided that the Purchaser acknowledges that the Bank requires a significant period of time to identify all of the relevant documents. All such documents shall be kept in strictest confidence by the Purchaser and the Purchaser shall not disclose any portion of any of such documents to any person except as required by law. (1) Registrations: On or before Closing, the Bank shall register the Corporation under part IX of the Excise Tax Act (Canada) and under the Quebec Sales Tax Act and shall provide registration particulars to the Purchaser. (in) Statement: At Closing, the Bank shall provide the Purchaser with a balance sheet of the Corporation prepared in accordance with generally accepted accounting principles as at the Effective Transfer Time reflecting the acquisition by the Corporation of the Purchased Payroll Assets and the Purchased HRMS Assets, and the issue of Shares by the Corporation pursuant to the Transfer Agreement. 8. CONDITIONS OF CLOSING 8.1 For the Benefit of the Purchaser - The purchase and sale of the Shares is subject to the following terms and conditions for the exclusive benefit of the Ceridian, Ceridian Holdings and the Purchaser to be fulfilled and performed on or prior to the Closing Date, provided that Ceridian, Ceridian Holdings and the Purchaser in their sole discretion may waive any of the said terms and conditions in whole or in part: - Page 46 - (a) Representations and Warranties Remain Correct: The representations and warranties of the Bank and BW contained in this Agreement or in any certificate or other document delivered to the Purchaser pursuant hereto shall be true and correct on and as of the Closing Date with the same force and effect as though such representations and warranties had been made on and as of such date. (b) Compliance with Covenants: Each of the Bank, BW and the Corporation shall have complied with all covenants and agreements herein agreed to be performed or caused to be performed by it, in all material respects, on or prior to the Closing Date, including, without limitation, the sale and transfer of the Purchased HRMS Assets and the Purchased Payroll Assets to the Corporation pursuant to the Transfer Agreement. (c) No Actions or Proceedings: No action or proceeding at law or in equity shall be pending or threatened by any Person, including without limiting the generality thereof, any governmental authority, regulatory body or agency, to enjoin or prohibit: (i) the purchase and sale of the Shares; (ii) the purchase and sale of the Purchased HRMS Assets or the Purchased Payroll Assets contemplated by the Transfer Agreement or the right of the Corporation to own the Purchased HRMS Assets or the Purchased Payroll Assets; and (iii) the right of the Corporation, Ceridian, Ceridian Holdings or the Purchaser to conduct and carry on the Payroll Business and the HRMS Business in the normal course. (d) Consents, Authorizations and Registrations: All necessary consents, approvals, orders and authorizations of any Persons or governmental authorities in Canada or elsewhere or required pre-closing registrations, declarations, filings or recordings with any such authorities in connection with the completion of any of the transactions contemplated by this Agreement, the Transfer Agreement or the Ancillary Agreements, shall have been obtained or made on or before Closing. (e) Agreements: The Bank and BW shall have delivered or caused to be delivered to the Purchaser: (i) the Ancillary Agreements; - Page 47 - (ii) an opinion of counsel of the Bank and BW in form and substance satisfactory to the Purchaser's counsel, acting reasonably; (iii) share certificates representing the Shares duly endorsed in blank for transfer, and the corporate minute book, share certificates, corporate seal and other corporate records of the Corporation; the resignations of all of the directors of the Corporation; (v) a list of work-in-process of the HRMS Business and the Payroll Business as at the Closing Date; (vi) the lists of HMRS Clients and Payroll Clients; (vii) a list, as at the Closing Date, of all Absent Employees and any updates to Schedule 4.17(a); and (viii) all other instruments, agreements and other documents as the Purchaser and its counsel may reasonably require in connection with the Closing; and (f) Consents: Consents to the assignment, sublease or sublicence of the material contracts set forth in Schedule 8. 1 (f) and the change of control of the Corporation following such assignment, sublease or sublicense shall have been received in form and content satisfactory to the Purchaser, acting reasonably. If any of the conditions contained in this Section 8.1 shall not be fulfilled or performed at or prior to Closing to the satisfaction of the Purchaser, acting reasonably, the Purchaser may, by notice to the Bank and BW, terminate this agreement and the obligations of the Bank, BW, Ceridian, Ceridian Holdings, the Corporation and the Purchaser under this Agreement, without prejudice to any rights or remedies of the Ceridian and the Purchaser. For greater certainty, notwithstanding any provision in this Agreement, no right of termination arises as a result of the breach of a representation, warranty, or non-fulfillment of a covenant unless such breach or non-fulfillment was material. 8.2 For the Benefit of the Bank and BW - The purchase and sale of the Shares is subject to the following terms and conditions for the exclusive benefit of the Bank and BW to be fulfilled and performed on or prior to the Closing Date, provided that the Bank and BW in its sole discretion may waive any of the said terms and conditions in whole or in part: (a) Representations and Warranties Remain Correct: The representations and warranties of Ceridian, Ceridian Holdings and the Purchaser contained in this - Page 48 - Agreement or in any certificate or other document delivered to the Bank and BW pursuant hereto shall be true and correct in the aggregate in all material respects on and as of the Closing Date with the same force and effect as though such representations and warranties had been made on and as of such date. (b) Compliance with Covenants: Each of the Purchaser, Ceridian Holdings and Ceridian shall have complied with all covenants and agreements herein agreed to be performed or caused to be performed by it in all material respects on or prior to the Closing Date. (c) No Actions or Proceedings: No action or proceeding at law or in equity shall be pending or threatened by any Person, including without limiting the generality thereof, any governmental authority, regulatory body or agency to enjoin or prohibit the purchase and sale of the Purchased HRMS Assets and the Purchased Payroll Assets pursuant to the Transfer Agreement, and the sale of the Shares to the Purchaser or any other transaction contemplated hereby. (d) Consents, Authorizations and Registrations: All necessary consents, approvals, orders and authorizations of any Persons or governmental authorities in Canada or elsewhere or required pre-closing registrations, declarations, filings or recordings with any such authorities in connection with the completion of any of the transactions contemplated by this Agreement, the Transfer Agreement or the Ancillary Agreements, shall have been obtained or made on or before Closing. (e) Documents: The Purchaser shall have delivered or caused to be delivered to the Bank and BW: (i) the Ancillary Agreements; (ii) an opinion of counsel of Ceridian, Ceridian Holdings, the Purchaser and the Corporation (post-acquisition), in form and substance satisfactory to the Bank's counsel, acting reasonably; (iii) payment of the Purchase Price, subject to adjustments; and (iv) all other instruments, agreements and other documents as the Bank and its counsel may reasonably require in connection with the Closing (f) Approval: The Bank's board of directors (or the authorized committee thereof) shall have approved the entering into by the Bank of this Agreement, the Transfer Agreement, the Ancillary Agreements and the transactions and other agreements contemplated hereunder. Page 49 - If any of the conditions contained in this Section 8.2 shall not be fulfilled or performed at or prior to Closing to the satisfaction of the Bank and BW, acting reasonably, the Bank and BW may, by notice to the Purchaser, terminate this agreement and the obligations of the Bank, BW, Ceridian, Ceridian Holdings, the Corporation and the Purchaser under this Agreement, without prejudice to any rights or remedies of the Bank and BW. For greater certainty, notwithstanding any provision in this Agreement, no right of termination arises as a result of the breach of a representation, warranty, or non-fulfilment of a covenant unless such breach or non-fulfilment was material. 9. CLOSING Subject to Article 8, the sale and purchase of the Shares, the Purchased HRMS Assets, and the Purchased Payroll Assets, and the assumption of the Assumed HRMS Liabilities and the Assumed Payroll Liabilities, and the other transactions herein provided for, shall be consummated and completed on the Closing Date at the Closing Place. 10. GENERAL PROVISIONS 10.1 Independent Contractors - Nothing in this Agreement shall be construed to create a partnership, joint venture, agency relationship or other association between the Bank and BW, on the one hand, and the Purchaser, the Corporation, Ceridian Holdings and Ceridian, on the other, and neither of such parties has express or implied authority to act on behalf of or make any representations whatsoever on behalf of the other. 10.2 Notices - All notices, requests, demands, or other instruments or communications required or permitted to be given hereunder or in connection herewith may be hand delivered or sent by registered mail, postage fully prepaid, or sent by telecopier or other electronic means of written communication and addressed to the addressee as follows: (a) in the case of the Bank and BW: The Toronto-Dominion Bank Corporate and Investment Banking Group 79 Wellington Street West, 10th floor P.O. Box I Toronto-Dominion Center TORONTO ON M5K I A2 Attention: Kenneth L. Dowd Senior Vice-President Treasury Services Telecopier no.: 416-982-5047 Telephone no.: 416-982-5445 - Page 50 - (b) in the case of Ceridian, Ceridian Holdings, the Purchaser and the Corporation: Ceridian Corporation 8100 34th Avenue South MINNEAPOLIS, MINNESOTA 55425-1640 Attention: Gary M. Nelson Vice President and General Counsel Telecopier no.: 612-853-7272 Telephone no.: 612-853-4291 or such other address as any of the said parties shall by notice in writing direct. All notices, requests, demands or other instruments or communications shall be deemed to be received: (i) on the date of delivery, if delivered on a Business Day, or if not a Business Day, on the Business Day next following the day of delivery, and (ii) on the fifth Business Day following the mailing thereof, if mailed. In the event of a mail strike or postal interruption all notices, requests, demands or other instruments or communications shall be delivered or sent by telecopier or other electronic means of written communication. All notices, requests, demands or other instruments or communications sent by telecopier or other electronic means of written communication shall be deemed to be received upon the completion of transmission, if sent during the usual business hours of the jurisdiction where the recipient is situate or if not sent during such business hours, then at the opening of business on the next business day of such jurisdiction. 10.3 Exclusion of Consequential Damages - No party shall be liable to any other party (including any affiliates or subsidiaries) or to any other Person for any special, incidental, consequential, punitive or any other indirect loss or damage (including the loss of business opportunities or the loss of future profits) arising out of this Agreement or any obligation resulting herefrom, whether in an action for or arising out of breach of contract, tort or any other cause of action, even if such party has been advised of the possibility of such damages. 10.4 Termination - This Agreement may be terminated at any time prior to the Closing Date by mutual consent of the Bank and Ceridian. If the transactions contemplated hereunder shall not have been completed on or before February 6, 1998, either the Bank or Ceridian acting individually may terminate this Agreement at any time thereafter upon at least ten - Page 51 - (10) Business Days' prior notice to the other of them. In the event of termination of this Agreement, this Agreement will be of no further force or effect and there will be no liability on the part of any party with respect thereto, except that the provisions of this Section and Section 10.6 will survive any such termination and nothing herein will relieve any party from liability for any wilful breach of this Agreement. 10.5 Time of the Essence - Time shall be of the essence of this Agreement. 10.6 Public Notices and Confidentiality - All notices to third parties, Payroll Clients and HP,MS Clients and all other publicity concerning the transactions contemplated by this Agreement shall be jointly planned and coordinated by the Bank, BW, the Purchaser, Ceridian and the Corporation and no party shall act unilaterally in this regard without the prior approval of the other party (such approval not to be unreasonably withheld), except where required to do so by law or by the applicable regulations or policies of any provincial, federal or other regulatory agency of competent jurisdiction or any stock exchange. None of the Bank, BW, the Purchaser, the Corporation or Ceridian will disclose the basic terms of this Agreement, the Transfer Agreement and the Ancillary Agreements to the public or media or any other Person without the specific prior written consent of the other parties. 10.7 Year 2000 Estimates - Attached as Schedule 10.7 hereto is a list of certain work estimated by the Bank to achieve year 2000 compliance with respect to certain of the Proprietary Payroll Software, and the Bank's estimate of the time and cost of completion of such work. The Bank does not represent and warrant, in any respect, the accuracy of the estimates contained in such schedule. Ceridian, Ceridian Holdings, the Purchaser and the Corporation acknowledge and agree that the Bank shall have no liability for any inaccuracy of the estimates contained in such schedule. 10.8 Counterparts - This Agreement may be executed by the parties hereto in several counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall constitute but one and the same instrument. 10.9 No Assignment - No party shall have the right to assign any interest under this Agreement without the prior written consent of the other parties. Notwithstanding the foregoing, the Bank shall be entitled to assign its rights under this Agreement to a wholly-owned subsidiary of the Bank to whom the Payroll Business or the HRMS Business may be transferred prior to Closing, provided that no such assignment shall relieve the Bank from any of its liabilities and obligations hereunder. Ceridian, Ceridian Holdings and the Purchaser shall be entitled to assign their rights under this Agreement to controlled direct or indirect subsidiaries of Ceridian, provided that no such assignment shall relieve Ceridian, Ceridian Holdings or the Purchaser from any of its liabilities and obligations hereunder. In the event of an assignment as contemplated by this Section, the Page 52 - assigning party or parties shall enter into such assurances as may be reasonably required by the non-assigning party or parties. 10.10 Further Assurances - Each of the parties hereto shall promptly do, make, execute and deliver, or cause to be done, made, executed and delivered, all such further acts, documents and things as the other party hereto may reasonably require from time to time for the purpose of giving effect to this Agreement and shall use reasonable efforts and take all such steps as may be reasonably within its power to implement to the full extent the provisions of this Agreement. 10.11 Language - The parties hereto confirm that it is their wish that this Agreement as well as all other documents relating hereto, including communications, have been and shall be drawn up in English only. Les parties aux presentes confirment leur volonte que cette convention de meme que tous les documents, y compris tous avis, s'y rattachant, soient rediges en anglais seulement. 10.12 Successors and Assigns - This Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the date first written above. THE TORONTO-DOMINION BANK Per: /s/Kenneth L. Dowd Name: Title: I have authority to bind the Bank BUSINESS WINDOWS INC. Per: /s/Kenneth L. Dowd Name: Title: I have authority to bind the corporation [Executions continued on page 53] - Page 53 - [Executions continued from page 52 ... ] 3454916 CANADA INC. Per: /s/Kenneth L. Dowd Name: Title: I have authority to bind the corporation CERIDIAN CANADA LTD. Per: /s/Gary M. Nelson Name: Title: I have authority to bind the corporation CERIDIAN CORPORATION Per: /s/Gary M.Nelson Name: Title: I have authority to bind the corporation CERIDIAN CANADA HOLDINGS, INC. Per: /s/Gary M. Nelson Name: Title: I have authority to bind the corporation EX-10.02 4 EXHIBIT 10.02 EXHIBIT 10.02 CERIDIAN CORPORATION EXECUTIVE EMPLOYMENT AGREEMENT PARTIES CERIDIAN CORPORATION (A DELAWARE CORPORATION) 8100 34TH AVENUE SOUTH MINNEAPOLIS, MINNESOTA 55425-1640 AND RONALD L. TURNER DATE: JULY 1, 1997 RECITALS A. Ceridian wishes to obtain the services of Executive for at least the duration of this Agreement, and the Executive wishes to provide his or her services for such period. B. Ceridian desires reasonable protection of Ceridian's Confidential Information (as defined below). C. Ceridian desires assurance that Executive will not compete with Ceridian or engage in recruitment of Ceridian's employees for a reasonable period of time after termination of employment, and Executive is willing to refrain from competition and recruitment. D. Executive desires to be assured of a minimum Base Salary (as defined below) from Ceridian for Executive's services for the term of this Agreement (unless terminated earlier pursuant to the terms of this Agreement). E. It is expressly recognized by the parties that Executive's acceptance of, and continuance in, Executive's position with Ceridian and agreement to be bound by the terms of this Agreement represents a substantial commitment to Ceridian in terms of Executive's personal and professional career and a foregoing of present and future career options by Executive, for all of which Ceridian receives substantial value. F. The parties recognize that a Change of Control (as defined below) may result in material alteration or diminishment of Executive's position and responsibilities and substantially frustrate the purpose of Executive's commitment to Ceridian and forebearance of options. G. The parties recognize that in light of the above-described commitment and forebearance of options, it is essential that, for the benefit of Ceridian and its stockholders, provision be made for a Change of Control Termination (as defined below) in order to enable Executive to accept and effectively continue in Executive's position in the face of inherently disruptive circumstances arising from the possibility of a Change of Control of the Parent Corporation (as defined below), although no such change is now contemplated or foreseen. H. The parties wish to replace any and all prior agreements and undertakings with respect to the Executive's employment and Change of Control occurrences and compensation. NOW, THEREFORE, in consideration of Executive's acceptance of and continuance in Executive's employment for the term of this Agreement and the parties' agreement to be bound by the terms contained herein, the parties agree as follows: ARTICLE I DEFINITIONS 1.01 "BASE SALARY" shall mean regular cash compensation paid on a periodic basis exclusive of benefits, bonuses or incentive payments. 1.02 "BOARD" shall mean the Board of Directors of Ceridian Corporation (the "Parent Corporation"). 1.03 "CERIDIAN" shall mean Ceridian Corporation and, except as otherwise provided in Article VIII and Section 9.02 of Article IX, (a) any Subsidiary (as that term is defined in Section 1.07); and (b) any successor in interest by way of consolidation, operation of law, merger or otherwise. 1.04 "CONFIDENTIAL INFORMATION" shall mean information or material which is not generally available to or used by others, or the utility or value of which is not generally known or recognized as standard practice, whether or not the underlying details are in the public domain, including: (a) information or material relating to Ceridian and its business as conducted or anticipated to be conducted; business plans; operations; past, current or anticipated software, products or services; customers or prospective customers; or research, engineering, development, manufacturing, purchasing, accounting, or marketing activities; 2 (b) information or material relating to Ceridian's inventions, improvements, discoveries, "know-how," technological developments, or unpublished writings or other works of authorship, or to the materials, apparatus, processes, formulae, plans or methods used in the development, manufacture or marketing of Ceridian's software, products or services; (c) information which when received is marked as "proprietary," "private," or "confidential;" (d) trade secrets; (e) software in various stages of development, including computer programs in source code and binary code form, software designs, specifications, programming aids (including "library subroutines" and productivity tools), programming languages, interfaces, visual displays, technical documentation, user manuals, data files and databases; and (f) any similar information of the type described above which Ceridian obtained from another party and which Ceridian treats as or designates as being proprietary, private or confidential, whether or not owned or developed by Ceridian. Notwithstanding the foregoing, "Confidential Information" does not include any information which is properly published or in the public domain; provided, however, that information which is published by or with the aid of Executive outside the scope of employment or contrary to the requirements of this Agreement will not be considered to have been properly published, and therefore will not be in the public domain for purposes of this Agreement. 1.05 "DISABILITY" shall mean the inability of Executive to perform his or her duties under this Agreement because of illness or incapacity for a continuous period of five months. 1.06 "PARENT CORPORATION" shall mean Ceridian Corporation and, except as otherwise provided in Article VIII and Section 9.02 of Article IX, any successor in interest by way of consolidation, operation of law, merger or otherwise. "Parent Corporation" shall not include any Subsidiary. 1.07 "SUBSIDIARY" shall mean: (a) any corporation at least a majority of whose securities having ordinary voting power for the election of directors (other than securities having such power only by reason of the occurrence of a contingency) is at the time owned by Parent Corporation and/or one or more Subsidiaries; and (b) any division or business unit (or portion thereof) of Parent Corporation or a corporation described in clause (a) of this Section 1.07. 3 ARTICLE II EMPLOYMENT, DUTIES AND TERM 2.01 EMPLOYMENT. Upon the terms and conditions set forth in this Agreement, Ceridian hereby employs Executive, and Executive accepts such employment. Except as expressly provided herein, termination of this Agreement by either party shall also terminate Executive's employment by Ceridian. 2.02 DUTIES. Executive shall devote his or her full-time and best efforts to Ceridian and to fulfilling the duties of his or her position which shall include such duties as may from time to time be assigned him or her by Ceridian, provided that such duties are reasonably consistent with Executive's education, experience and background. Executive shall comply with Ceridian's policies and procedures to the extent they are not inconsistent with this Agreement in which case the provisions of this Agreement prevail. 2.03 TERM. Subject to the provisions of Articles IV, VII, and VIII, Executive's employment shall continue until the later of: (a) June 30, 1999; and (b) two years after a Change of Control which occurs prior to June 30, 1999. In any event, the Agreement shall automatically terminate without notice when Executive reaches 65 years of age. If employment is continued after the age of 65 by mutual agreement, it shall be terminable at will by either party. ARTICLE III COMPENSATION AND EXPENSES 3.01 BASE SALARY. For all services rendered under this Agreement during the term of Executive's employment, Ceridian shall pay Executive a minimum Base Salary at the annual rate currently being paid or, if Executive is not currently in Ceridian's employ, at the annual rate specified in the written offer of employment. If Executive's salary is increased from time to time during the term of this Agreement, the increased amount shall be the Base Salary for the remainder of the term and any extensions. 3.02 BONUS AND INCENTIVE. Bonus or incentive compensation shall be in the sole discretion of Ceridian. Except as otherwise provided in Article VII, Ceridian shall have the right in accordance with their terms to alter, amend or eliminate any bonus or incentive plans, or Executive's participation therein, without compensation to Executive. 3.03 BUSINESS EXPENSES. Ceridian shall, in accordance with, and to the extent of, its policies in effect from time to time, bear all ordinary and necessary business expenses incurred by Executive in performing his or her duties as an employee of Ceridian, provided that Executive accounts promptly for such expenses to Ceridian in the manner prescribed from time to time by Ceridian. 4 ARTICLE IV EARLY TERMINATION 4.01 EARLY TERMINATION. Subject to the respective continuing obligations of the parties pursuant to Articles V, VI, and IX, this Article sets forth the terms for early termination of this Agreement; provided, however, that this Article shall not apply to a Change of Control Termination which is governed solely by the provisions of Article VII. 4.02 TERMINATION FOR CAUSE. Ceridian may terminate this Agreement immediately for cause. For the purpose hereof "cause" means (a) fraud, (b) misrepresentation, (c) theft or embezzlement of Ceridian assets, (d) intentional violations of law involving moral turpitude, (e) the continued failure by Executive to satisfactorily perform his or her duties as reasonably assigned to Executive pursuant to Section 2.02 of Article II of this Agreement for a period of 60 days after a written demand for such satisfactory performance which specifically identifies the manner in which it is alleged Executive has not satisfactorily performed such duties. In the event of termination for cause pursuant to this Section 4.02, Executive shall be paid at the usual rate of Executive's annual Base Salary through the date of termination specified in any notice of termination. 4.03 TERMINATION WITHOUT CAUSE. Either Executive or Ceridian may terminate this Agreement and Executive's employment without cause on at least 75 days' written notice. In the event of termination of this Agreement and of Executive's employment pursuant to this Section 4.03, compensation shall be paid as follows: (a) if the notice of termination is given by Executive at any time Executive shall be paid at the usual rate of his or her annual Base Salary through the date of termination specified in such notice (but not to exceed 75 days); (b) if the notice of termination is given by Ceridian and effective prior to Executive's 65th birthday, (1) Executive shall be paid at the usual rate of his or her annual Base Salary through the date of termination specified in the notice provided, however, Ceridian shall have the option of making termination of the Agreement and Executive's employment effective immediately upon notice in which case Executive shall be paid a lump sum representing the value of 75 days worth of salary; and (2) Executive shall receive, starting within 15 days following termination, a payment equivalent to one years' Base Salary payable, at the sole discretion of Ceridian, in either the form of a lump sum payment or on a regular payroll period basis. In addition, the Executive shall receive the bonus, if any, to which Executive would otherwise have become entitled under all Ceridian bonus plans in effect at the time of termination of this Agreement had Executive remained continuously employed for the full fiscal year in which termination occurred and continued to perform his or her duties in the same manner as they were performed 5 immediately prior to termination, multiplied by a fraction, the numerator of which shall be the number of whole months Executive was employed in the year in which termination occurred and the denominator of which is 12. This bonus amount shall be paid within 15 days after the date such bonus would have been paid had Executive remained employed for the full fiscal year. (c) If the event that termination occurs pursuant to Section 4.03(b), in addition to the payments specified in said Section, Ceridian shall pay to Executive an amount equal to one years' Base Salary payable, at the sole discretion of Ceridian, in either the form of a lump sum payment or on a regular payroll period basis, provided the Executive executes a release, similar to that attached as Exhibit A, of all claims against the Company. (d) If the notice of termination is given by Ceridian to be effective on or after Executive's 65th birthday, Executive shall be paid at the usual rate of his or her annual Base Salary through the date of termination specified in any notice. In addition, Executive will be paid the bonus, if any, to which Executive would otherwise have become entitled under all Ceridian bonus plans in effect at the time of termination of this Agreement had Executive remained continuously employed for the full fiscal year in which termination occurred and continued to perform his or her duties in the same manner as they were performed immediately prior to termination, multiplied by a fraction, the numerator of which shall be the number of whole months Executive was employed in the year in which termination occurred and the denominator of which is 12. The amount payable pursuant to this Section 4.03(d) shall be paid within 15 days after the date such bonus would have been paid had Executive remained employed for the full fiscal year. 4.04 TERMINATION IN THE EVENT OF DEATH OR DISABILITY. This Agreement shall terminate in the event of death or disability of Executive. (a) In the event of Executive's death, Ceridian shall pay an amount equal to 12 months of Base Salary at the rate in effect at the time of Executive's death plus the amount Executive would have received in annual incentive plan bonus for the year in which termination occurs had "target" goals been achieved. Such amount shall be paid (1) to the beneficiary or beneficiaries designated in writing to Ceridian by Executive, (2) in the absence of such designation to the surviving spouse, or (3) if there is no surviving spouse, or such surviving spouse disclaims all or any part, then the full amount, or such disclaimed portion, shall be paid to the executor, administrator or other personal representative of Executive's estate. The amount shall be paid as a lump sum as soon as practicable following Ceridian's receipt of notice of Executive's death. All such payments shall be in addition to any payments due pursuant to Section 4.04(c) below. 6 (b) In the event of disability, Base Salary shall be terminated as of the end of the month in which the last day of the five-month period of Executive's inability to perform his or her duties occurs. (c) In the event of termination by reason of Executive's death or disability, Ceridian shall pay to Executive any amount equal to (1) the amount Executive would have received in annual incentive plan bonus for the year in which termination occurs had "target" goals been achieved, multiplied by (2) a fraction, the numerator of which shall be the number of whole months Executive was employed in the year in which the death or disability occurred and the denominator of which is 12. The amount payable pursuant to this Section 4.04(c) shall be paid within 15 days after the date such bonus would have been paid had Executive remained employed for the full fiscal year. 4.05 ENTIRE TERMINATION PAYMENT. The compensation provided for in this Article IV for early termination of this Agreement and termination pursuant to this Article IV shall constitute Executive's sole remedy for such termination. Executive shall not be entitled to any other termination or severance payment which may be payable to Executive under any other agreement between Executive and Ceridian. ARTICLE V CONFIDENTIALITY, DISCLOSURE AND ASSIGNMENT 5.01 CONFIDENTIALITY. Executive will not, during the term or after the termination or expiration of this Agreement, publish, disclose, or utilize in any manner any Confidential Information obtained while employed by Ceridian. If Executive leaves the employ of Ceridian, Executive will not, without Ceridian's prior written consent, retain or take away any drawing, writing or other record in any form containing any Confidential Information. 5.02 BUSINESS CONDUCT AND ETHICS. During the term of employment with Ceridian, Executive will engage in no activity or employment which may conflict with the interest of Ceridian, and will comply with Ceridian's policies and guidelines pertaining to business conduct and ethics. 5.03 DISCLOSURE. Executive will disclose promptly in writing to Ceridian all inventions, discoveries, software, writings and other works of authorship which are conceived, made, discovered, or written jointly or singly on Ceridian time or on Executive's own time, providing the invention, improvement, discovery, software, writing or other work of authorship is capable of being used by Ceridian in the normal course of business, and all such inventions, improvements, discoveries, software, writings and other works of authorship shall belong solely to Ceridian. 7 5.04 INSTRUMENTS OF ASSIGNMENT. Executive will sign and execute all instruments of assignment and other papers to evidence vestiture of Executive's entire right, title and interest in such inventions, improvements, discoveries, software, writings or other works of authorship in Ceridian, at the request and the expense of Ceridian, and Executive will do all acts and sign all instruments of assignment and other papers Ceridian may reasonably request relating to applications for patents, patents, copyrights, and the enforcement and protection thereof. If Executive is needed, at any time, to give testimony, evidence, or opinions in any litigation or proceeding involving any patents or copyrights or applications for patents or copyrights, both domestic and foreign, relating to inventions, improvements, discoveries, software, writings or other works of authorship conceived, developed or reduced to practice by Executive, Executive agrees to do so, and if Executive leaves the employ of Ceridian, Ceridian shall pay Executive at a rate mutually agreeable to Executive and Ceridian, plus reasonable traveling or other expenses. 5.05 INVENTIONS DEVELOPED ON EXECUTIVE'S OWN TIME. The two immediately preceding sections entitled "Disclosure" and "Instruments of Assignment" do not apply to inventions in which a Ceridian claim of any rights will create a violation of Chapter 47 Minnesota Revised Statutes, Section 1-181.78, reproduced below and constituting the written notification of its Subdivision 3. 181.78 Agreements relating to inventions Subdivision 1. Any provision in an employment agreement which provides that an Executive shall assign or offer to assign any of his rights in an invention to his employer shall not apply to an invention for which no equipment, supplies, facility or trade secret information of the employer was used and which was developed entirely on the employee's own time, and (1) which does not relate (a) directly to the business of the employer or (b) to the employer's actual or demonstrably anticipated research or development, or (2) which does not result from any work performed by the employee for the employer. Any provision which purports to apply to such an invention is to that extent against the public policy of this state and is to that extent void and unenforceable. Subdivision 2. No employer shall require a provision made void and unenforceable by subdivision 1 as a condition of employment or continuing employment. Subdivision 3. IF AN EMPLOYMENT AGREEMENT ENTERED INTO AFTER AUGUST 1, 1977, CONTAINS A PROVISION REQUIRING THE EMPLOYEE TO ASSIGN OR OFFER TO ASSIGN ANY OF HIS RIGHTS IN ANY INVENTION TO HIS EMPLOYER, THE EMPLOYER MUST ALSO, AT THE TIME THE AGREEMENT IS MADE, PROVIDE 8 A WRITTEN NOTIFICATION TO THE EMPLOYEE THAT THE AGREEMENT DOES NOT APPLY TO AN INVENTION FOR WHICH NO EQUIPMENT, SUPPLIES, FACILITY OR TRADE SECRET INFORMATION OF THE EMPLOYER WAS USED AND WHICH WAS DEVELOPED ENTIRELY ON THE EMPLOYEE'S OWN TIME, AND (1) WHICH DOES NOT RELATE (a) DIRECTLY TO THE BUSINESS OF THE EMPLOYER OR (b) TO THE EMPLOYER'S ACTUAL OR DEMONSTRABLY ANTICIPATED RESEARCH OR DEVELOPMENT, OR (2) WHICH DOES NOT RESULT FROM ANY WORK PERFORMED BY THE EMPLOYEE FOR THE EMPLOYER. 5.06 EXECUTIVE'S DECLARATION. Executive has no inventions, improvements, discoveries, software, writings or other works of authorship useful to Ceridian in the normal course of business, which were conceived, made or written prior to the date of this Agreement and which are excluded from this Agreement. 5.07 SURVIVAL. The obligations of this Article V shall survive the expiration or termination of this Agreement. ARTICLE VI NON-COMPETITION, NON-RECRUITMENT 6.01 GENERAL. The parties hereto recognize and agree that (a) Executive is a senior executive of Ceridian and is a key Executive of Ceridian, (b) Executive has received, and will in the future receive, substantial amounts of Confidential Information, (c) Ceridian's business is conducted on a worldwide basis, and (d) provision for non-competition and non-recruitment obligations by Executive is critical to Ceridian's continued economic well-being and protection of Ceridian's Confidential Information. In light of these considerations, this Article VI sets forth the terms and conditions of Executive's obligations of non-competition and non-recruitment subsequent to the termination of this Agreement and/or Executive's employment for any reason. 6.02 NON-COMPETITION. (a) Unless the obligation is waived or limited by Ceridian in accordance with subsection (b) of this Section 6.02, Executive agrees that for a period of two years following termination of employment for any reason, Executive will not directly or indirectly, alone or as a partner, officer, director, shareholder or employee of any other firm or entity, engage in any commercial activity in competition with any part of Ceridian's business as conducted as of the date of such termination of employment or with any part of Ceridian's contemplated business with respect to which Executive has Confidential Information as governed by Article V of this Agreement. For purposes of this subsection (a), "shareholder" shall not include beneficial ownership of less than five percent (5%) of the combined voting power 9 of all issued and outstanding voting securities of a publicly held corporation whose stock is traded on a major stock exchange. Also for purposes of this subsection (a), "Ceridian's business" shall include business conducted by Ceridian or its affiliates and any partnership or joint venture in which Ceridian or its affiliates is a partner or joint venturer; provided that, "affiliate" as used in this sentence shall not include any corporation in which Ceridian has ownership of less than fifteen percent (15%) of the voting stock. (b) At its sole option Ceridian may, by written notice to Executive within 30 days after the effective date of termination of Executive's employment, waive or limit the time and/or geographic area in which Executive cannot engage in competitive activity. (c) During the term of the non-competition obligation, prior to accepting employment with, or agreeing to provide consulting services to, any firm which offers products or services in the fields of electronics or information processing, Executive shall give 30 days prior written notice to Ceridian. Such written notice shall describe the proposed employment or consulting services and the firm to which they will be rendered. Ceridian's failure to respond or object to such notice shall not in any way constitute acquiescence or waiver of Ceridian's rights under this Article VI. (d) During any period of non-competition pursuant to this Article VI Ceridian shall pay Executive an amount equal to the usual rate of Executive's Base Salary in effect at the time of termination. There shall be credited against Ceridian's obligation to make such payments any other payments made by Ceridian to Executive pursuant to Article IV of this Agreement. In the event that Ceridian elects, pursuant to subsection (b) of this Section 6.02, to waive all or any portion of the non-competition obligation, no payment shall be required by Ceridian with respect to the portion of the non-competition period which has been waived. 6.03 NON-RECRUITMENT. For a period of two years following termination of employment for any reason, Executive will not initiate or actively participate in any other employer's recruitment or hiring of Ceridian employees. This provision shall not preclude Executive from responding to a request (other than by Executive's employer) for a reference with respect to an individual's employment qualifications. 6.04 SURVIVAL. The obligations of this Article VI shall survive the expiration or termination of this Agreement. 10 ARTICLE VII CHANGE OF CONTROL 7.01 DEFINITIONS. For purposes of this Article VII, the following definitions shall be applied: (a) "BENEFIT PLAN" means any formal or informal plan, program or other arrangement heretofore or hereafter adopted by Ceridian for the direct or indirect provision of compensation to the Executive (including groups or classes of participants or beneficiaries of which the Executive is a member), whether or not such compensation is deferred, is in the form of cash or other property or rights, or is in the form of a benefit to or for the Executive. (b) "CHANGE OF CONTROL" shall mean any of the following events: (1) a merger or consolidation to which Parent Corporation is a party if the individuals and entities who were stockholders of Parent Corporation immediately prior to the effective date of such merger or consolidation have beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of less than fifty percent (50%) of the total combined voting power for election of directors of the surviving corporation immediately following the effective date of such merger or consolidation; or (2) the direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) in the aggregate of securities of Parent Corporation representing twenty-five percent (25%) or more of the total combined voting power of Parent Corporation's then issued and outstanding securities by any person or entity, or group of associated persons or entities acting in concert; or (3) the sale of the properties and assets of Parent Corporation, substantially as an entirety, to any person or entity which is not a wholly-owned subsidiary of Parent Corporation; or (4) the stockholders of Parent Corporation approve any plan or proposal for the liquidation of Parent Corporation; or (5) a change in the composition of the Board at any time during any consecutive 24 month period such that the "Continuity Directors" cease for any reason to constitute at least a seventy percent (70%) majority of the Board. For purposes of this clause, "Continuity Directors" means those members of the Board who either (A) were directors at the beginning of such consecutive 24 month period, or 11 (B) were elected by, or on the nomination or recommendation of, at least a two-thirds (2/3) majority of the then-existing Board. (c) "CHANGE OF CONTROL COMPENSATION" means any payment or benefit (including any transfer of property) in the nature of compensation, to or for the benefit of a Participant under this Agreement or any Other Agreement or Benefit Plan, which is considered to be contingent on a Change of Control for purposes of Section 280G of the Code. (d) "CHANGE OF CONTROL TERMINATION" means, with respect to Executive, either of the following events occurring within two years after a Change of Control: (1) Termination of Executive's employment by Ceridian for any reason other than (A) fraud, (B) theft or embezzlement of Ceridian assets, (C) intentional violations of law involving moral turpitude, or (D) the substantial and continuing failure by Executive to satisfactorily perform his or her duties as reasonably assigned to Executive pursuant to Section 2.02 of Article II of this Agreement for a period of 60 days after a written demand for such satisfactory performance which specifically identifies the manner in which it is alleged Executive has not satisfactorily performed such duties; or (2) Termination of employment with Ceridian by Executive pursuant to Section 7.02 of this Article VII. A Change of Control Termination by Executive shall not, however, include termination by reason of death or Disability. (e) "CODE" means the Internal Revenue Code of 1986, as amended. Any reference to a section of the Code shall include the corresponding section of such Code as from time to time amended. (f) "EXCISE TAX" means any applicable federal excise tax imposed by Section 4999 of the Code. (g) "GOOD REASON" means a good faith determination by Executive, in Executive's sole and absolute judgment, that any one or more of the following events has occurred, without Executive's express written consent, after a Change of Control: (1) A change in Executive's reporting responsibilities, titles or offices as in effect immediately prior to the Change of Control, or any removal of Executive from, or any failure to re-elect Executive to, any of such positions, which has the effect of materially diminishing Executive's responsibility or authority; 12 (2) A reduction by Ceridian in Executive's Base Salary as in effect immediately prior to the Change of Control or as the same may be increased from time to time thereafter; (3) Ceridian requiring Executive to be based anywhere other than within 25 miles of Executive's job location at the time of the Change of Control; (4) Without replacement by plans, programs, or arrangements which, taken as a whole, provide benefits to Executive at least reasonably comparable to those discontinued or adversely affected, (A) the failure by Ceridian to continue in effect, within its maximum stated term, any pension, bonus, incentive, stock ownership, purchase, option, life insurance, health, accident, disability, or any other employee compensation or benefit plan, program or arrangement, in which Executive is participating immediately prior to a Change of Control; or (B) the taking of any action by Ceridian that would materially adversely affect Executive's participation or materially reduce Executive's benefits under any of such plans, programs or arrangements; (5) The failure by Ceridian to provide office space, furniture, and secretarial support at least comparable to that provided Executive immediately prior to the Change of Control or the taking of any similar action by Ceridian that would materially adversely affect the working conditions in or under which Executive performs his or her employment duties; (6) If Executive's primary employment duties are with a Subsidiary, the sale, merger, contribution, transfer or any other transaction in conjunction with which Parent Corporation's ownership interest in such Subsidiary decreases below the level specified in Section 1.07 of Article I unless (A) this Agreement is assigned to the purchaser/transferee with the provisions of Article VII in full force and effect and operative as if a Change of Control has occurred with respect to the purchaser/transferee as Parent Corporation immediately after the purchase/transfer becomes effective, and (B) such purchaser/transferee has a creditworthiness reasonably equivalent to Parent Corporation's; or (7) Any material breach of this Agreement by Ceridian. (h) "OTHER AGREEMENTS" means any agreement, contract or understanding heretofore or hereafter entered into between Executive and Ceridian for the direct or indirect provision of compensation to Executive. 13 (i) "REDUCED AMOUNT" means the largest amount that could be received by a Participant as Change of Control Compensation such that no portion of such Change of Control Compensation would be subject to the Excise Tax. 7.02 CHANGE OF CONTROL TERMINATION RIGHT. For a period of two years following a Change of Control, Executive shall have the right, at any time and within Executive's sole discretion, to terminate employment with Ceridian for Good Reason. Such termination shall be accomplished by, and effective upon, Executive giving written notice to Ceridian of Executive's decision to terminate. Except as otherwise expressly provided in this Agreement, upon the exercise of said right, all obligations and duties of Executive under this Agreement shall be of no further force and effect. 7.03 CHANGE OF CONTROL TERMINATION PAYMENT. In the event of a Change of Control Termination, and subject to the "Limitation on Change of Control Compensation" contained in Section 7.04, then, and without further action by the Board, Compensation Committee or otherwise, Parent Corporation shall, within five days of such termination, make a lump sum payment to Executive in an amount equal to one dollar ($1.00) less than three times the average annualized compensation, as defined by Section 280G of the Code, received by Executive from Ceridian and includible in Executive's gross income for federal income tax purposes for the five most recent taxable years of the Executive ending before the date upon which the Change in Control occurred (or such portion of such period during which Executive was an employee of Ceridian). 7.04 LIMITATION ON CHANGE OF CONTROL COMPENSATION. Notwithstanding any other provisions of this Agreement or of any Other Agreement or Benefit Plan, if any Change of Control Compensation would be considered a "parachute payment" within the meaning of Section 280G(b)(2) of the Code and if, after reduction for any Excise Tax and federal income tax imposed by the Code, Executive's net proceeds of such Change of Control Compensation would be less than the amount of Executive's net proceeds resulting from the payment of the Reduced Amount after reduction for federal income taxes, then the Change of Control Compensation payable to Executive shall be limited to the Reduced Amount. The determinations required by the preceding sentence shall be made by the firm of independent certified public accountants serving as the outside auditor of Ceridian as of the date of the applicable Change of Control, and such determinations shall be binding upon Ceridian and Executive. If Change of Control Compensation to Executive is limited to the Reduced Amount, then Executive shall have the right, in his or her sole discretion, to designate those payments or benefits under this Agreement, any Other Agreements and/or any Benefit Plans that should be reduced or eliminated so as to avoid having Executive's Change of Control Compensation be subject to the Excise Tax. If Executive fails to make such designation within 30 days of having received notification that such designation is required, Ceridian shall make such designations and shall promptly inform Executive of its actions in such regard. 14 7.05 INTEREST. In the event Parent Corporation does not make timely payment in full of the Change of Control Termination payment described in Section 7.03, Executive shall be entitled to receive interest on any unpaid amount at the lower of: (a) the prime rate of interest (or such comparable index as may be adopted) established from time to time by the First Bank National Association, Minneapolis, Minnesota; or (b) the maximum rate permitted under Section 280G(d)(4) of the Internal Revenue Code." 7.06 ATTORNEYS' FEES. In the event Executive incurs any legal expense to enforce or defend his or her rights under this Article VII of this Agreement, or to recover damages for breach thereof, Executive shall be entitled to recover from Ceridian any expenses for attorneys' fees and disbursements incurred. 7.07 BENEFITS CONTINUATION. In the event of a Change of Control Termination, Executive (and anyone entitled to claim under or through Executive) shall, until age 65, be entitled to receive from Ceridian the same or equivalent health, dental, accidental death and dismemberment, short and long-term disability, life insurance coverages, and all other insurance policies and health and welfare benefits programs, policies or arrangements, at the same levels and coverages as Executive was receiving on the day immediately prior to the Change of Control. To the extent that election of continuation of any of such coverages, programs, policies, or arrangements is made available to employees terminating at age 55 with 15 or more years of service, Executive shall be required to pay no more for continuation than is required of such employees on the day immediately prior to the Change of Control. If no such continuation program is available, Executive shall be required to pay no more than he/she paid as an active employee, or if provided by Ceridian at no cost to employees on the day immediately prior to the Change of Control, they shall continue to be made available to Executive on this basis. ARTICLE VIII CHANGE OF SUBSIDIARY STATUS 8.01 In the event that, prior to a Change of Control: (a) a Subsidiary is sold, merged, contributed, or in any other manner transferred, or if for any reason Parent Corporation's ownership interest in any such Subsidiary falls below the level specified in Section 1.07, (b) Executive's primary employment duties are with the Subsidiary at the time of the occurrence of such event, and (c) Executive does not, in conjunction therewith, transfer employment directly to Parent Corporation or another Subsidiary, then: (a) If Executive gives his or her written consent to the assignment of this Agreement to such Subsidiary, or to the purchaser or new majority interest holder of such Subsidiary, (and such assignment is accepted) this Agreement shall remain in full force and effect between Executive and the assignee, except that the provisions of Article VII of this Agreement shall become null and void; 15 (b) If such assignment is not accepted by the Subsidiary or purchaser, then this Agreement shall be deemed to have been terminated by Ceridian without cause pursuant to Section 4.03 of Article IV; and (c) In all other cases, this Agreement shall be deemed terminated for cause pursuant to Section 4.02 of Article IV. ARTICLE IX GENERAL PROVISIONS 9.01 NO ADEQUATE REMEDY. The parties declare that it is impossible to measure in money the damages which will accrue to either party by reason of a failure to perform any of the obligations under this Agreement. Therefore, if either party shall institute any action or proceeding to enforce the provisions hereof, such party against whom such action or proceeding is brought hereby waives the claim or defense that such party has an adequate remedy at law, and such party shall not urge in any such action or proceeding the claim or defense that such party has an adequate remedy at law. 9.02 SUCCESSORS AND ASSIGNS. Except as otherwise provided in Article VIII, this Agreement shall be binding upon and inure to the benefit of the successors and assigns of Parent Corporation and each Subsidiary, whether by way of merger, consolidation, operation of law, assignment, purchase or other acquisition of substantially all of the assets or business of Ceridian, and any such successor or assign shall absolutely and unconditionally assume all of Ceridian's obligations hereunder. 9.03 NOTICES. All notices, requests and demands given to or made pursuant hereto shall, except as otherwise specified herein, be in writing and be delivered or mailed to any such party at its address: (a) Ceridian Corporation 8100 34th Avenue South Minneapolis, Minnesota 55425-1640 Attention: Office of General Counsel (b) In the case of Executive shall be: At the address listed on the last page of this Agreement. Either party may, by notice hereunder, designate a changed address. Any notice, if mailed properly addressed, postage prepaid, registered or certified mail, shall be deemed dispatched on the registered date or that stamped on the certified mail receipt, and shall be deemed received within the second business day thereafter or when it is actually received, whichever is sooner. 16 9.04 CAPTIONS. The various headings or captions in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement. 9.05 GOVERNING LAW. The validity, construction and performance of this Agreement shall be governed by the laws of the State of Minnesota and any and every legal proceeding arising out of or in connection with this Agreement shall be brought in the appropriate courts of the State of Minnesota, each of the parties hereby consenting to the exclusive jurisdiction of said courts for this purpose. The parties hereto expressly recognize and agree that the implementation of this Governing Law provision is essential in light of the fact that Parent Corporation's corporate headquarters and its principal executive offices are located within the State of Minnesota, and there is a critical need for uniformity in the interpretation and enforcement of the employment agreements between Ceridian and its senior executives. 9.06 CONSTRUCTION. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. 9.07 WAIVERS. No failure on the part of either party to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right or remedy granted hereby or by any related document or by law. 9.08 MODIFICATION. This Agreement may not be and shall not be modified or amended except by written instrument signed by the parties hereto. 9.09 ARBITRATION. Because the parties recognize that resolving any future differences in the courts can require a long time and great expense, Company and Executive agree that their only remedy for disputes either may have with the other and that arise out of Executive's employment, or any aspect of this Agreement, shall be to submit all disputes to final and binding arbitration in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association. The aggrieved party must send a written notice of claim to the other party by certified mail, return receipt requested to the address listed in Section 9.03 of this Agreement. The arbitrator shall apply the law in accordance with this Agreement, or federal law, or both, as applicable to the claim(s) asserted. 9.10 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and understanding between the parties hereto in reference to all the matters herein agreed upon. This Agreement replaces in full all prior employment agreements or understandings of the parties hereto, and any and all such prior agreements or understandings are hereby rescinded by mutual agreement. Any changes or amendments to this Agreement must be in writing and signed by both parties. 17 IN WITNESS WHEREOF, The parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. EXECUTIVE CERIDIAN CORPORATION /s/ Ronald L. Turner By: /s/ Michael E. Kotten - ----------------------------- ------------------------------- Title: Vice President ------------------------------- 18 EX-10.03 5 EXHIBIT 10.03 EXHIBIT 10.03 CERIDIAN CORPORATION EXECUTIVE EMPLOYMENT AGREEMENT PARTIES CERIDIAN CORPORATION (A DELAWARE CORPORATION) 8100 34TH AVENUE SOUTH MINNEAPOLIS, MINNESOTA 55425-1640 AND STEPHEN B. MORRIS DATE: JULY 1, 1997 RECITALS A. Ceridian wishes to obtain the services of Executive for at least the duration of this Agreement, and the Executive wishes to provide his or her services for such period. B. Ceridian desires reasonable protection of Ceridian's Confidential Information (as defined below). C. Ceridian desires assurance that Executive will not compete with Ceridian or engage in recruitment of Ceridian's employees for a reasonable period of time after termination of employment, and Executive is willing to refrain from competition and recruitment. D. Executive desires to be assured of a minimum Base Salary (as defined below) from Ceridian for Executive's services for the term of this Agreement (unless terminated earlier pursuant to the terms of this Agreement). E. It is expressly recognized by the parties that Executive's acceptance of, and continuance in, Executive's position with Ceridian and agreement to be bound by the terms of this Agreement represents a substantial commitment to Ceridian in terms of Executive's personal and professional career and a foregoing of present and future career options by Executive, for all of which Ceridian receives substantial value. F. The parties recognize that a Change of Control (as defined below) may result in material alteration or diminishment of Executive's position and responsibilities and substantially frustrate the purpose of Executive's commitment to Ceridian and forebearance of options. G. The parties recognize that in light of the above-described commitment and forebearance of options, it is essential that, for the benefit of Ceridian and its stockholders, provision be made for a Change of Control Termination (as defined below) in order to enable Executive to accept and effectively continue in Executive's position in the face of inherently disruptive circumstances arising from the possibility of a Change of Control of the Parent Corporation (as defined below), although no such change is now contemplated or foreseen. H. The parties wish to replace any and all prior agreements and undertakings with respect to the Executive's employment and Change of Control occurrences and compensation. NOW, THEREFORE, in consideration of Executive's acceptance of and continuance in Executive's employment for the term of this Agreement and the parties' agreement to be bound by the terms contained herein, the parties agree as follows: ARTICLE I DEFINITIONS 1.01 "BASE SALARY" shall mean regular cash compensation paid on a periodic basis exclusive of benefits, bonuses or incentive payments. 1.02 "BOARD" shall mean the Board of Directors of Ceridian Corporation (the "Parent Corporation"). 1.03 "CERIDIAN" shall mean Ceridian Corporation and, except as otherwise provided in Article VIII and Section 9.02 of Article IX, (a) any Subsidiary (as that term is defined in Section 1.07); and (b) any successor in interest by way of consolidation, operation of law, merger or otherwise. 1.04 "CONFIDENTIAL INFORMATION" shall mean information or material which is not generally available to or used by others, or the utility or value of which is not generally known or recognized as standard practice, whether or not the underlying details are in the public domain, including: 2 (a) information or material relating to Ceridian and its business as conducted or anticipated to be conducted; business plans; operations; past, current or anticipated software, products or services; customers or prospective customers; or research, engineering, development, manufacturing, purchasing, accounting, or marketing activities; (b) information or material relating to Ceridian's inventions, improvements, discoveries, "know-how," technological developments, or unpublished writings or other works of authorship, or to the materials, apparatus, processes, formulae, plans or methods used in the development, manufacture or marketing of Ceridian's software, products or services; (c) information which when received is marked as "proprietary," "private," or "confidential;" (d) trade secrets; (e) software in various stages of development, including computer programs in source code and binary code form, software designs, specifications, programming aids (including "library subroutines" and productivity tools), programming languages, interfaces, visual displays, technical documentation, user manuals, data files and databases; and (f) any similar information of the type described above which Ceridian obtained from another party and which Ceridian treats as or designates as being proprietary, private or confidential, whether or not owned or developed by Ceridian. Notwithstanding the foregoing, "Confidential Information" does not include any information which is properly published or in the public domain; provided, however, that information which is published by or with the aid of Executive outside the scope of employment or contrary to the requirements of this Agreement will not be considered to have been properly published, and therefore will not be in the public domain for purposes of this Agreement. 1.05 "DISABILITY" shall mean the inability of Executive to perform his or her duties under this Agreement because of illness or incapacity for a continuous period of five months. 1.06 "PARENT CORPORATION" shall mean Ceridian Corporation and, except as otherwise provided in Article VIII and Section 9.02 of Article IX, any successor in interest by way of consolidation, operation of law, merger or otherwise. "Parent Corporation" shall not include any Subsidiary. 3 1.07 "SUBSIDIARY" shall mean: (a) any corporation at least a majority of whose securities having ordinary voting power for the election of directors (other than securities having such power only by reason of the occurrence of a contingency) is at the time owned by Parent Corporation and/or one or more Subsidiaries; and (b) any division or business unit (or portion thereof) of Parent Corporation or a corporation described in clause (a) of this Section 1.07. ARTICLE II EMPLOYMENT, DUTIES AND TERM 2.01 EMPLOYMENT. Upon the terms and conditions set forth in this Agreement, Ceridian hereby employs Executive, and Executive accepts such employment. Except as expressly provided herein, termination of this Agreement by either party shall also terminate Executive's employment by Ceridian. 2.02 DUTIES. Executive shall devote his or her full-time and best efforts to Ceridian and to fulfilling the duties of his or her position which shall include such duties as may from time to time be assigned him or her by Ceridian, provided that such duties are reasonably consistent with Executive's education, experience and background. Executive shall comply with Ceridian's policies and procedures to the extent they are not inconsistent with this Agreement in which case the provisions of this Agreement prevail. 2.03 TERM. Subject to the provisions of Articles IV, VII, and VIII, Executive's employment shall continue until the later of: (a) June 30, 1999; and (b) two years after a Change of Control which occurs prior to June 30, 1999. In any event, the Agreement shall automatically terminate without notice when Executive reaches 65 years of age. If employment is continued after the age of 65 by mutual agreement, it shall be terminable at will by either party. ARTICLE III COMPENSATION AND EXPENSES 3.01 BASE SALARY. For all services rendered under this Agreement during the term of Executive's employment, Ceridian shall pay Executive a minimum Base Salary at the annual rate currently being paid or, if Executive is not currently in Ceridian's employ, at the annual rate specified in the written offer of employment. If Executive's salary is increased from time to time during the term of this Agreement, the increased amount shall be the Base Salary for the remainder of the term and any extensions. 4 3.02 BONUS AND INCENTIVE. Bonus or incentive compensation shall be in the sole discretion of Ceridian. Except as otherwise provided in Article VII, Ceridian shall have the right in accordance with their terms to alter, amend or eliminate any bonus or incentive plans, or Executive's participation therein, without compensation to Executive. 3.03 BUSINESS EXPENSES. Ceridian shall, in accordance with, and to the extent of, its policies in effect from time to time, bear all ordinary and necessary business expenses incurred by Executive in performing his or her duties as an employee of Ceridian, provided that Executive accounts promptly for such expenses to Ceridian in the manner prescribed from time to time by Ceridian. ARTICLE IV EARLY TERMINATION 4.01 EARLY TERMINATION. Subject to the respective continuing obligations of the parties pursuant to Articles V, VI, and IX, this Article sets forth the terms for early termination of this Agreement; provided, however, that this Article shall not apply to a Change of Control Termination which is governed solely by the provisions of Article VII. 4.02 TERMINATION FOR CAUSE. Ceridian may terminate this Agreement immediately for cause. For the purpose hereof "cause" means (a) fraud, (b) misrepresentation, (c) theft or embezzlement of Ceridian assets, (d) intentional violations of law involving moral turpitude, (e) the continued failure by Executive to satisfactorily perform his or her duties as reasonably assigned to Executive pursuant to Section 2.02 of Article II of this Agreement for a period of 60 days after a written demand for such satisfactory performance which specifically identifies the manner in which it is alleged Executive has not satisfactorily performed such duties. In the event of termination for cause pursuant to this Section 4.02, Executive shall be paid at the usual rate of Executive's annual Base Salary through the date of termination specified in any notice of termination. 4.03 TERMINATION WITHOUT CAUSE. Either Executive or Ceridian may terminate this Agreement and Executive's employment without cause on at least 75 days' written notice. In the event of termination of this Agreement and of Executive's employment pursuant to this Section 4.03, compensation shall be paid as follows: (a) if the notice of termination is given by Executive at any time Executive shall be paid at the usual rate of his or her annual Base Salary through the date of termination specified in such notice (but not to exceed 75 days); 5 (b) if the notice of termination is given by Ceridian and effective prior to Executive's 65th birthday, (1) Executive shall be paid at the usual rate of his or her annual Base Salary through the date of termination specified in the notice provided, however, Ceridian shall have the option of making termination of the Agreement and Executive's employment effective immediately upon notice in which case Executive shall be paid a lump sum representing the value of 75 days worth of salary; and (2) Executive shall receive, starting within 15 days following termination, a payment equivalent to one years' Base Salary payable, at the sole discretion of Ceridian, in either the form of a lump sum payment or on a regular payroll period basis. In addition, the Executive shall receive the bonus, if any, to which Executive would otherwise have become entitled under all Ceridian bonus plans in effect at the time of termination of this Agreement had Executive remained continuously employed for the full fiscal year in which termination occurred and continued to perform his or her duties in the same manner as they were performed immediately prior to termination, multiplied by a fraction, the numerator of which shall be the number of whole months Executive was employed in the year in which termination occurred and the denominator of which is 12. This bonus amount shall be paid within 15 days after the date such bonus would have been paid had Executive remained employed for the full fiscal year. (c) If the event that termination occurs pursuant to Section 4.03(b), in addition to the payments specified in said Section, Ceridian shall pay to Executive an amount equal to one years' Base Salary payable, at the sole discretion of Ceridian, in either the form of a lump sum payment or on a regular payroll period basis, provided the Executive executes a release, similar to that attached as Exhibit A, of all claims against the Company. (d) If the notice of termination is given by Ceridian to be effective on or after Executive's 65th birthday, Executive shall be paid at the usual rate of his or her annual Base Salary through the date of termination specified in any notice. In addition, Executive will be paid the bonus, if any, to which Executive would otherwise have become entitled under all Ceridian bonus plans in effect at the time of termination of this Agreement had Executive remained continuously employed for the full fiscal year in which termination occurred and continued to perform his or her duties in the same manner as they were performed immediately prior to termination, multiplied by a fraction, the numerator of which shall be the number of whole months Executive was employed in the year in which termination occurred and the denominator of which is 12. The amount payable pursuant to this Section 4.03(d) shall be paid within 15 days after the date such bonus would have been paid had Executive remained employed for the full fiscal year. 6 4.04 TERMINATION IN THE EVENT OF DEATH OR DISABILITY. This Agreement shall terminate in the event of death or disability of Executive. (a) In the event of Executive's death, Ceridian shall pay an amount equal to 12 months of Base Salary at the rate in effect at the time of Executive's death plus the amount Executive would have received in annual incentive plan bonus for the year in which termination occurs had "target" goals been achieved. Such amount shall be paid (1) to the beneficiary or beneficiaries designated in writing to Ceridian by Executive, (2) in the absence of such designation to the surviving spouse, or (3) if there is no surviving spouse, or such surviving spouse disclaims all or any part, then the full amount, or such disclaimed portion, shall be paid to the executor, administrator or other personal representative of Executive's estate. The amount shall be paid as a lump sum as soon as practicable following Ceridian's receipt of notice of Executive's death. All such payments shall be in addition to any payments due pursuant to Section 4.04(c) below. (b) In the event of disability, Base Salary shall be terminated as of the end of the month in which the last day of the five-month period of Executive's inability to perform his or her duties occurs. (c) In the event of termination by reason of Executive's death or disability, Ceridian shall pay to Executive any amount equal to (1) the amount Executive would have received in annual incentive plan bonus for the year in which termination occurs had "target" goals been achieved, multiplied by (2) a fraction, the numerator of which shall be the number of whole months Executive was employed in the year in which the death or disability occurred and the denominator of which is 12. The amount payable pursuant to this Section 4.04(c) shall be paid within 15 days after the date such bonus would have been paid had Executive remained employed for the full fiscal year. 4.05 ENTIRE TERMINATION PAYMENT. The compensation provided for in this Article IV for early termination of this Agreement and termination pursuant to this Article IV shall constitute Executive's sole remedy for such termination. Executive shall not be entitled to any other termination or severance payment which may be payable to Executive under any other agreement between Executive and Ceridian. ARTICLE V CONFIDENTIALITY, DISCLOSURE AND ASSIGNMENT 5.01 CONFIDENTIALITY. Executive will not, during the term or after the termination or expiration of this Agreement, publish, disclose, or utilize in any manner any 7 Confidential Information obtained while employed by Ceridian. If Executive leaves the employ of Ceridian, Executive will not, without Ceridian's prior written consent, retain or take away any drawing, writing or other record in any form containing any Confidential Information. 5.02 BUSINESS CONDUCT AND ETHICS. During the term of employment with Ceridian, Executive will engage in no activity or employment which may conflict with the interest of Ceridian, and will comply with Ceridian's policies and guidelines pertaining to business conduct and ethics. 5.03 DISCLOSURE. Executive will disclose promptly in writing to Ceridian all inventions, discoveries, software, writings and other works of authorship which are conceived, made, discovered, or written jointly or singly on Ceridian time or on Executive's own time, providing the invention, improvement, discovery, software, writing or other work of authorship is capable of being used by Ceridian in the normal course of business, and all such inventions, improvements, discoveries, software, writings and other works of authorship shall belong solely to Ceridian. 5.04 INSTRUMENTS OF ASSIGNMENT. Executive will sign and execute all instruments of assignment and other papers to evidence vestiture of Executive's entire right, title and interest in such inventions, improvements, discoveries, software, writings or other works of authorship in Ceridian, at the request and the expense of Ceridian, and Executive will do all acts and sign all instruments of assignment and other papers Ceridian may reasonably request relating to applications for patents, patents, copyrights, and the enforcement and protection thereof. If Executive is needed, at any time, to give testimony, evidence, or opinions in any litigation or proceeding involving any patents or copyrights or applications for patents or copyrights, both domestic and foreign, relating to inventions, improvements, discoveries, software, writings or other works of authorship conceived, developed or reduced to practice by Executive, Executive agrees to do so, and if Executive leaves the employ of Ceridian, Ceridian shall pay Executive at a rate mutually agreeable to Executive and Ceridian, plus reasonable traveling or other expenses. 5.05 INVENTIONS DEVELOPED ON EXECUTIVE'S OWN TIME. The two immediately preceding sections entitled "Disclosure" and "Instruments of Assignment" do not apply to inventions in which a Ceridian claim of any rights will create a violation of Chapter 47 Minnesota Revised Statutes, Section 1-181.78, reproduced below and constituting the written notification of its Subdivision 3. 181.78 Agreements relating to inventions Subdivision 1. Any provision in an employment agreement which provides that an Executive shall assign or offer to assign any of his rights in an invention to his employer shall not 8 apply to an invention for which no equipment, supplies, facility or trade secret information of the employer was used and which was developed entirely on the employee's own time, and (1) which does not relate (a) directly to the business of the employer or (b) to the employer's actual or demonstrably anticipated research or development, or (2) which does not result from any work performed by the employee for the employer. Any provision which purports to apply to such an invention is to that extent against the public policy of this state and is to that extent void and unenforceable. Subdivision 2. No employer shall require a provision made void and unenforceable by subdivision 1 as a condition of employment or continuing employment. Subdivision 3. IF AN EMPLOYMENT AGREEMENT ENTERED INTO AFTER AUGUST 1, 1977, CONTAINS A PROVISION REQUIRING THE EMPLOYEE TO ASSIGN OR OFFER TO ASSIGN ANY OF HIS RIGHTS IN ANY INVENTION TO HIS EMPLOYER, THE EMPLOYER MUST ALSO, AT THE TIME THE AGREEMENT IS MADE, PROVIDE A WRITTEN NOTIFICATION TO THE EMPLOYEE THAT THE AGREEMENT DOES NOT APPLY TO AN INVENTION FOR WHICH NO EQUIPMENT, SUPPLIES, FACILITY OR TRADE SECRET INFORMATION OF THE EMPLOYER WAS USED AND WHICH WAS DEVELOPED ENTIRELY ON THE EMPLOYEE'S OWN TIME, AND (1) WHICH DOES NOT RELATE (a) DIRECTLY TO THE BUSINESS OF THE EMPLOYER OR (b) TO THE EMPLOYER'S ACTUAL OR DEMONSTRABLY ANTICIPATED RESEARCH OR DEVELOPMENT, OR (2) WHICH DOES NOT RESULT FROM ANY WORK PERFORMED BY THE EMPLOYEE FOR THE EMPLOYER. 5.06 EXECUTIVE'S DECLARATION. Executive has no inventions, improvements, discoveries, software, writings or other works of authorship useful to Ceridian in the normal course of business, which were conceived, made or written prior to the date of this Agreement and which are excluded from this Agreement. 5.07 SURVIVAL. The obligations of this Article V shall survive the expiration or termination of this Agreement. ARTICLE VI NON-COMPETITION, NON-RECRUITMENT 9 6.01 GENERAL. The parties hereto recognize and agree that (a) Executive is a senior executive of Ceridian and is a key Executive of Ceridian, (b) Executive has received, and will in the future receive, substantial amounts of Confidential Information, (c) Ceridian's business is conducted on a worldwide basis, and (d) provision for non-competition and non-recruitment obligations by Executive is critical to Ceridian's continued economic well-being and protection of Ceridian's Confidential Information. In light of these considerations, this Article VI sets forth the terms and conditions of Executive's obligations of non-competition and non-recruitment subsequent to the termination of this Agreement and/or Executive's employment for any reason. 6.02 NON-COMPETITION. (a) Unless the obligation is waived or limited by Ceridian in accordance with subsection (b) of this Section 6.02, Executive agrees that for a period of two years following termination of employment for any reason, Executive will not directly or indirectly, alone or as a partner, officer, director, shareholder or employee of any other firm or entity, engage in any commercial activity in competition with any part of Ceridian's business as conducted as of the date of such termination of employment or with any part of Ceridian's contemplated business with respect to which Executive has Confidential Information as governed by Article V of this Agreement. For purposes of this subsection (a), "shareholder" shall not include beneficial ownership of less than five percent (5%) of the combined voting power of all issued and outstanding voting securities of a publicly held corporation whose stock is traded on a major stock exchange. Also for purposes of this subsection (a), "Ceridian's business" shall include business conducted by Ceridian or its affiliates and any partnership or joint venture in which Ceridian or its affiliates is a partner or joint venturer; provided that, "affiliate" as used in this sentence shall not include any corporation in which Ceridian has ownership of less than fifteen percent (15%) of the voting stock. (b) At its sole option Ceridian may, by written notice to Executive within 30 days after the effective date of termination of Executive's employment, waive or limit the time and/or geographic area in which Executive cannot engage in competitive activity. (c) During the term of the non-competition obligation, prior to accepting employment with, or agreeing to provide consulting services to, any firm which offers products or services in the fields of electronics or information processing, Executive shall give 30 days prior written notice to Ceridian. Such written notice shall describe the proposed employment or consulting services and the firm to which they will be rendered. Ceridian's failure to 10 respond or object to such notice shall not in any way constitute acquiescence or waiver of Ceridian's rights under this Article VI. (d) During any period of non-competition pursuant to this Article VI Ceridian shall pay Executive an amount equal to the usual rate of Executive's Base Salary in effect at the time of termination. There shall be credited against Ceridian's obligation to make such payments any other payments made by Ceridian to Executive pursuant to Article IV of this Agreement. In the event that Ceridian elects, pursuant to subsection (b) of this Section 6.02, to waive all or any portion of the non-competition obligation, no payment shall be required by Ceridian with respect to the portion of the non-competition period which has been waived. 6.03 NON-RECRUITMENT. For a period of two years following termination of employment for any reason, Executive will not initiate or actively participate in any other employer's recruitment or hiring of Ceridian employees. This provision shall not preclude Executive from responding to a request (other than by Executive's employer) for a reference with respect to an individual's employment qualifications. 6.04 SURVIVAL. The obligations of this Article VI shall survive the expiration or termination of this Agreement. ARTICLE VII CHANGE OF CONTROL 7.01 DEFINITIONS. For purposes of this Article VII, the following definitions shall be applied: (a) "BENEFIT PLAN" means any formal or informal plan, program or other arrangement heretofore or hereafter adopted by Ceridian for the direct or indirect provision of compensation to the Executive (including groups or classes of participants or beneficiaries of which the Executive is a member), whether or not such compensation is deferred, is in the form of cash or other property or rights, or is in the form of a benefit to or for the Executive. (b) "CHANGE OF CONTROL" shall mean any of the following events: (1) a merger or consolidation to which Parent Corporation is a party if the individuals and entities who were stockholders of Parent Corporation immediately prior to the effective date of such merger or consolidation have beneficial ownership (as defined in Rule 13d-3 under the Securities 11 Exchange Act of 1934) of less than fifty percent (50%) of the total combined voting power for election of directors of the surviving corporation immediately following the effective date of such merger or consolidation; or (2) the direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) in the aggregate of securities of Parent Corporation representing twenty-five percent (25%) or more of the total combined voting power of Parent Corporation's then issued and outstanding securities by any person or entity, or group of associated persons or entities acting in concert; or (3) the sale of the properties and assets of Parent Corporation, substantially as an entirety, to any person or entity which is not a wholly-owned subsidiary of Parent Corporation; or (4) the stockholders of Parent Corporation approve any plan or proposal for the liquidation of Parent Corporation; or (5) a change in the composition of the Board at any time during any consecutive 24 month period such that the "Continuity Directors" cease for any reason to constitute at least a seventy percent (70%) majority of the Board. For purposes of this clause, "Continuity Directors" means those members of the Board who either (A) were directors at the beginning of such consecutive 24 month period, or (B) were elected by, or on the nomination or recommendation of, at least a two-thirds (2/3) majority of the then-existing Board. (c) "CHANGE OF CONTROL COMPENSATION" means any payment or benefit (including any transfer of property) in the nature of compensation, to or for the benefit of a Participant under this Agreement or any Other Agreement or Benefit Plan, which is considered to be contingent on a Change of Control for purposes of Section 280G of the Code. (d) "CHANGE OF CONTROL TERMINATION" means, with respect to Executive, either of the following events occurring within two years after a Change of Control: (1) Termination of Executive's employment by Ceridian for any reason other than (A) fraud, (B) theft or embezzlement of Ceridian assets, (C) intentional violations of law involving moral turpitude, or (D) the substantial and continuing failure by Executive to satisfactorily perform his or her duties as 12 reasonably assigned to Executive pursuant to Section 2.02 of Article II of this Agreement for a period of 60 days after a written demand for such satisfactory performance which specifically identifies the manner in which it is alleged Executive has not satisfactorily performed such duties; or (2) Termination of employment with Ceridian by Executive pursuant to Section 7.02 of this Article VII. A Change of Control Termination by Executive shall not, however, include termination by reason of death or Disability. (e) "CODE" means the Internal Revenue Code of 1986, as amended. Any reference to a section of the Code shall include the corresponding section of such Code as from time to time amended. (f) "EXCISE TAX" means any applicable federal excise tax imposed by Section 4999 of the Code. (g) "GOOD REASON" means a good faith determination by Executive, in Executive's sole and absolute judgment, that any one or more of the following events has occurred, without Executive's express written consent, after a Change of Control: (1) A change in Executive's reporting responsibilities, titles or offices as in effect immediately prior to the Change of Control, or any removal of Executive from, or any failure to re-elect Executive to, any of such positions, which has the effect of materially diminishing Executive's responsibility or authority; (2) A reduction by Ceridian in Executive's Base Salary as in effect immediately prior to the Change of Control or as the same may be increased from time to time thereafter; (3) Ceridian requiring Executive to be based anywhere other than within 25 miles of Executive's job location at the time of the Change of Control; (4) Without replacement by plans, programs, or arrangements which, taken as a whole, provide benefits to Executive at least reasonably comparable to those discontinued or adversely affected, (A) the failure by Ceridian to continue in effect, within its maximum stated term, any pension, bonus, incentive, stock ownership, purchase, option, life insurance, 13 health, accident, disability, or any other employee compensation or benefit plan, program or arrangement, in which Executive is participating immediately prior to a Change of Control; or (B) the taking of any action by Ceridian that would materially adversely affect Executive's participation or materially reduce Executive's benefits under any of such plans, programs or arrangements; (5) The failure by Ceridian to provide office space, furniture, and secretarial support at least comparable to that provided Executive immediately prior to the Change of Control or the taking of any similar action by Ceridian that would materially adversely affect the working conditions in or under which Executive performs his or her employment duties; (6) If Executive's primary employment duties are with a Subsidiary, the sale, merger, contribution, transfer or any other transaction in conjunction with which Parent Corporation's ownership interest in such Subsidiary decreases below the level specified in Section 1.07 of Article I unless (A) this Agreement is assigned to the purchaser/transferee with the provisions of Article VII in full force and effect and operative as if a Change of Control has occurred with respect to the purchaser/transferee as Parent Corporation immediately after the purchase/transfer becomes effective, and (B) such purchaser/transferee has a creditworthiness reasonably equivalent to Parent Corporation's; or (7) Any material breach of this Agreement by Ceridian. (h) "OTHER AGREEMENTS" means any agreement, contract or understanding heretofore or hereafter entered into between Executive and Ceridian for the direct or indirect provision of compensation to Executive. (i) "REDUCED AMOUNT" means the largest amount that could be received by a Participant as Change of Control Compensation such that no portion of such Change of Control Compensation would be subject to the Excise Tax. 7.02 CHANGE OF CONTROL TERMINATION RIGHT. For a period of two years following a Change of Control, Executive shall have the right, at any time and within Executive's sole discretion, to terminate employment with Ceridian for Good Reason. Such termination shall be accomplished by, and effective upon, Executive giving written notice to Ceridian of Executive's decision to terminate. Except as 14 otherwise expressly provided in this Agreement, upon the exercise of said right, all obligations and duties of Executive under this Agreement shall be of no further force and effect. 7.03 CHANGE OF CONTROL TERMINATION PAYMENT. In the event of a Change of Control Termination, and subject to the "Limitation on Change of Control Compensation" contained in Section 7.04, then, and without further action by the Board, Compensation Committee or otherwise, Parent Corporation shall, within five days of such termination, make a lump sum payment to Executive in an amount equal to one dollar ($1.00) less than three times the average annualized compensation, as defined by Section 280G of the Code, received by Executive from Ceridian and includible in Executive's gross income for federal income tax purposes for the five most recent taxable years of the Executive ending before the date upon which the Change in Control occurred (or such portion of such period during which Executive was an employee of Ceridian). 7.04 LIMITATION ON CHANGE OF CONTROL COMPENSATION. Notwithstanding any other provisions of this Agreement or of any Other Agreement or Benefit Plan, if any Change of Control Compensation would be considered a "parachute payment" within the meaning of Section 280G(b)(2) of the Code and if, after reduction for any Excise Tax and federal income tax imposed by the Code, Executive's net proceeds of such Change of Control Compensation would be less than the amount of Executive's net proceeds resulting from the payment of the Reduced Amount after reduction for federal income taxes, then the Change of Control Compensation payable to Executive shall be limited to the Reduced Amount. The determinations required by the preceding sentence shall be made by the firm of independent certified public accountants serving as the outside auditor of Ceridian as of the date of the applicable Change of Control, and such determinations shall be binding upon Ceridian and Executive. If Change of Control Compensation to Executive is limited to the Reduced Amount, then Executive shall have the right, in his or her sole discretion, to designate those payments or benefits under this Agreement, any Other Agreements and/or any Benefit Plans that should be reduced or eliminated so as to avoid having Executive's Change of Control Compensation be subject to the Excise Tax. If Executive fails to make such designation within 30 days of having received notification that such designation is required, Ceridian shall make such designations and shall promptly inform Executive of its actions in such regard. 7.05 INTEREST. In the event Parent Corporation does not make timely payment in full of the Change of Control Termination payment described in Section 7.03, Executive shall be entitled to receive interest on any unpaid amount at the lower of: (a) the prime rate of interest (or such comparable index as may be adopted) established from time to time by the First Bank National Association, Minneapolis, Minnesota; or (b) the maximum rate permitted under Section 280G(d)(4) of the Internal Revenue Code." 15 7.06 ATTORNEYS' FEES. In the event Executive incurs any legal expense to enforce or defend his or her rights under this Article VII of this Agreement, or to recover damages for breach thereof, Executive shall be entitled to recover from Ceridian any expenses for attorneys' fees and disbursements incurred. 7.07 BENEFITS CONTINUATION. In the event of a Change of Control Termination, Executive (and anyone entitled to claim under or through Executive) shall, until age 65, be entitled to receive from Ceridian the same or equivalent health, dental, accidental death and dismemberment, short and long-term disability, life insurance coverages, and all other insurance policies and health and welfare benefits programs, policies or arrangements, at the same levels and coverages as Executive was receiving on the day immediately prior to the Change of Control. To the extent that election of continuation of any of such coverages, programs, policies, or arrangements is made available to employees terminating at age 55 with 15 or more years of service, Executive shall be required to pay no more for continuation than is required of such employees on the day immediately prior to the Change of Control. If no such continuation program is available, Executive shall be required to pay no more than he/she paid as an active employee, or if provided by Ceridian at no cost to employees on the day immediately prior to the Change of Control, they shall continue to be made available to Executive on this basis. ARTICLE VIII CHANGE OF SUBSIDIARY STATUS 8.01 In the event that, prior to a Change of Control: (a) a Subsidiary is sold, merged, contributed, or in any other manner transferred, or if for any reason Parent Corporation's ownership interest in any such Subsidiary falls below the level specified in Section 1.07, (b) Executive's primary employment duties are with the Subsidiary at the time of the occurrence of such event, and (c) Executive does not, in conjunction therewith, transfer employment directly to Parent Corporation or another Subsidiary, then: (a) If Executive gives his or her written consent to the assignment of this Agreement to such Subsidiary, or to the purchaser or new majority interest holder of such Subsidiary, (and such assignment is accepted) this Agreement shall remain in full force and effect between Executive and the assignee, except that the provisions of Article VII of this Agreement shall become null and void; (b) If such assignment is not accepted by the Subsidiary or purchaser, then this Agreement shall be deemed to have been terminated by Ceridian without cause pursuant to Section 4.03 of Article IV; and 16 (c) In all other cases, this Agreement shall be deemed terminated for cause pursuant to Section 4.02 of Article IV. ARTICLE IX GENERAL PROVISIONS 9.01 NO ADEQUATE REMEDY. The parties declare that it is impossible to measure in money the damages which will accrue to either party by reason of a failure to perform any of the obligations under this Agreement. Therefore, if either party shall institute any action or proceeding to enforce the provisions hereof, such party against whom such action or proceeding is brought hereby waives the claim or defense that such party has an adequate remedy at law, and such party shall not urge in any such action or proceeding the claim or defense that such party has an adequate remedy at law. 9.02 SUCCESSORS AND ASSIGNS. Except as otherwise provided in Article VIII, this Agreement shall be binding upon and inure to the benefit of the successors and assigns of Parent Corporation and each Subsidiary, whether by way of merger, consolidation, operation of law, assignment, purchase or other acquisition of substantially all of the assets or business of Ceridian, and any such successor or assign shall absolutely and unconditionally assume all of Ceridian's obligations hereunder. 9.03 NOTICES. All notices, requests and demands given to or made pursuant hereto shall, except as otherwise specified herein, be in writing and be delivered or mailed to any such party at its address: (a) Ceridian Corporation 8100 34th Avenue South Minneapolis, Minnesota 55425-1640 Attention: Office of General Counsel (b) In the case of Executive shall be: At the address listed on the last page of this Agreement. Either party may, by notice hereunder, designate a changed address. Any notice, if mailed properly addressed, postage prepaid, registered or certified mail, shall be deemed dispatched on the registered date or that stamped on the certified mail receipt, and shall be deemed received within the second business day thereafter or when it is actually received, whichever is sooner. 17 9.04 CAPTIONS. The various headings or captions in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement. 9.05 GOVERNING LAW. The validity, construction and performance of this Agreement shall be governed by the laws of the State of Minnesota and any and every legal proceeding arising out of or in connection with this Agreement shall be brought in the appropriate courts of the State of Minnesota, each of the parties hereby consenting to the exclusive jurisdiction of said courts for this purpose. The parties hereto expressly recognize and agree that the implementation of this Governing Law provision is essential in light of the fact that Parent Corporation's corporate headquarters and its principal executive offices are located within the State of Minnesota, and there is a critical need for uniformity in the interpretation and enforcement of the employment agreements between Ceridian and its senior executives. 9.06 CONSTRUCTION. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. 9.07 WAIVERS. No failure on the part of either party to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right or remedy granted hereby or by any related document or by law. 9.08 MODIFICATION. This Agreement may not be and shall not be modified or amended except by written instrument signed by the parties hereto. 9.09 ARBITRATION. Because the parties recognize that resolving any future differences in the courts can require a long time and great expense, Company and Executive agree that their only remedy for disputes either may have with the other and that arise out of Executive's employment, or any aspect of this Agreement, shall be to submit all disputes to final and binding arbitration in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association. The aggrieved party must send a written notice of claim to the other party by certified mail, return receipt requested to the address listed in Section 9.03 of this Agreement. The arbitrator shall apply the law in accordance with this Agreement, or federal law, or both, as applicable to the claim(s) asserted. 9.10 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and understanding between the parties hereto in reference to all the matters herein 18 agreed upon. This Agreement replaces in full all prior employment agreements or understandings of the parties hereto, and any and all such prior agreements or understandings are hereby rescinded by mutual agreement. Any changes or amendments to this Agreement must be in writing and signed by both parties. IN WITNESS WHEREOF, The parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. EXECUTIVE CERIDIAN CORPORATION /s/ Stephen B. Morris By: /s/ Michael E. Kotten - --------------------- --------------------- Title: Vice President ---------------- 19 EX-10.04 6 EXHIBIT 10.04 EXHIBIT 10.04 CERIDIAN CORPORATION EXECUTIVE EMPLOYMENT AGREEMENT PARTIES CERIDIAN CORPORATION (A DELAWARE CORPORATION) 8100 34TH AVENUE SOUTH MINNEAPOLIS, MINNESOTA 55425-1640 AND JOHN R. EICKHOFF ("EXECUTIVE") DATE: JULY 1, 1997 RECITALS A. Ceridian wishes to obtain the services of Executive for at least the duration of this Agreement, and the Executive wishes to provide his or her services for such period. B. Ceridian desires reasonable protection of Ceridian's Confidential Information (as defined below). C. Ceridian desires assurance that Executive will not compete with Ceridian or engage in recruitment of Ceridian's employees for a reasonable period of time after termination of employment, and Executive is willing to refrain from competition and recruitment. D. Executive desires to be assured of a minimum Base Salary (as defined below) from Ceridian for Executive's services for the term of this Agreement (unless terminated earlier pursuant to the terms of this Agreement). E. It is expressly recognized by the parties that Executive's acceptance of, and continuance in, Executive's position with Ceridian and agreement to be bound by the terms of this Agreement represents a substantial commitment to Ceridian in terms of Executive's personal and professional career and a foregoing of present and future career options by Executive, for all of which Ceridian receives substantial value. F. The parties recognize that a Change of Control (as defined below) may result in material alteration or diminishment of Executive's position and responsibilities and substantially frustrate the purpose of Executive's commitment to Ceridian and forebearance of options. G. The parties recognize that in light of the above-described commitment and forebearance of options, it is essential that, for the benefit of Ceridian and its stockholders, provision be made for a Change of Control Termination (as defined below) in order to enable Executive to accept and effectively continue in Executive's position in the face of inherently disruptive circumstances arising from the possibility of a Change of Control of the Parent Corporation (as defined below), although no such change is now contemplated or foreseen. H. The parties wish to replace any and all prior agreements and undertakings with respect to the Executive's employment and Change of Control occurrences and compensation. NOW, THEREFORE, in consideration of Executive's acceptance of and continuance in Executive's employment for the term of this Agreement and the parties' agreement to be bound by the terms contained herein, the parties agree as follows: ARTICLE I DEFINITIONS 1.01 "BASE SALARY" shall mean regular cash compensation paid on a periodic basis exclusive of benefits, bonuses or incentive payments. 1.02 "BOARD" shall mean the Board of Directors of Ceridian Corporation (the "Parent Corporation"). 1.03 "CERIDIAN" shall mean Ceridian Corporation and, except as otherwise provided in Article VIII and Section 9.02 of Article IX, (a) any Subsidiary (as that term is defined in Section 1.07); and (b) any successor in interest by way of consolidation, operation of law, merger or otherwise. 1.04 "CONFIDENTIAL INFORMATION" shall mean information or material which is not generally available to or used by others, or the utility or value of which is not generally known or recognized as standard practice, whether or not the underlying details are in the public domain, including: (a) information or material relating to Ceridian and its business as conducted or anticipated to be conducted; business plans; operations; past, current or anticipated software, products or services; customers or prospective customers; or research, engineering, development, manufacturing, purchasing, accounting, or marketing activities; 2 (b) information or material relating to Ceridian's inventions, improvements, discoveries, "know-how," technological developments, or unpublished writings or other works of authorship, or to the materials, apparatus, processes, formulae, plans or methods used in the development, manufacture or marketing of Ceridian's software, products or services; (c) information which when received is marked as "proprietary," "private," or "confidential;" (d) trade secrets; (e) software in various stages of development, including computer programs in source code and binary code form, software designs, specifications, programming aids (including "library subroutines" and productivity tools), programming languages, interfaces, visual displays, technical documentation, user manuals, data files and databases; and (f) any similar information of the type described above which Ceridian obtained from another party and which Ceridian treats as or designates as being proprietary, private or confidential, whether or not owned or developed by Ceridian. Notwithstanding the foregoing, "Confidential Information" does not include any information which is properly published or in the public domain; provided, however, that information which is published by or with the aid of Executive outside the scope of employment or contrary to the requirements of this Agreement will not be considered to have been properly published, and therefore will not be in the public domain for purposes of this Agreement. 1.05 "DISABILITY" shall mean the inability of Executive to perform his or her duties under this Agreement because of illness or incapacity for a continuous period of five months. 1.06 "PARENT CORPORATION" shall mean Ceridian Corporation and, except as otherwise provided in Article VIII and Section 9.02 of Article IX, any successor in interest by way of consolidation, operation of law, merger or otherwise. "Parent Corporation" shall not include any Subsidiary. 1.07 "SUBSIDIARY" shall mean: (a) any corporation at least a majority of whose securities having ordinary voting power for the election of directors (other than securities having such power only by reason of the occurrence of a contingency) is at the time owned by Parent Corporation and/or one or more Subsidiaries; and (b) any division or business unit (or portion thereof) of Parent Corporation or a corporation described in clause (a) of this Section 1.07. 3 ARTICLE II EMPLOYMENT, DUTIES AND TERM 2.01 EMPLOYMENT. Upon the terms and conditions set forth in this Agreement, Ceridian hereby employs Executive, and Executive accepts such employment. Except as expressly provided herein, termination of this Agreement by either party shall also terminate Executive's employment by Ceridian. 2.02 DUTIES. Executive shall devote his or her full-time and best efforts to Ceridian and to fulfilling the duties of his or her position which shall include such duties as may from time to time be assigned him or her by Ceridian, provided that such duties are reasonably consistent with Executive's education, experience and background. Executive shall comply with Ceridian's policies and procedures to the extent they are not inconsistent with this Agreement in which case the provisions of this Agreement prevail. 2.03 TERM. Subject to the provisions of Articles IV, VII, and VIII, Executive's employment shall continue until the later of: (a) June 30, 1999; and (b) two years after a Change of Control which occurs prior to June 30, 1999. In any event, the Agreement shall automatically terminate without notice when Executive reaches 65 years of age. If employment is continued after the age of 65 by mutual agreement, it shall be terminable at will by either party. ARTICLE III COMPENSATION AND EXPENSES 3.01 BASE SALARY. For all services rendered under this Agreement during the term of Executive's employment, Ceridian shall pay Executive a minimum Base Salary at the annual rate currently being paid or, if Executive is not currently in Ceridian's employ, at the annual rate specified in the written offer of employment. If Executive's salary is increased from time to time during the term of this Agreement, the increased amount shall be the Base Salary for the remainder of the term and any extensions. 3.02 BONUS AND INCENTIVE. Bonus or incentive compensation shall be in the sole discretion of Ceridian. Except as otherwise provided in Article VII, Ceridian shall have the right in accordance with their terms to alter, amend or eliminate any bonus or incentive plans, or Executive's participation therein, without compensation to Executive. 3.03 BUSINESS EXPENSES. Ceridian shall, in accordance with, and to the extent of, its policies in effect from time to time, bear all ordinary and necessary business expenses incurred by Executive in performing his or her duties as an employee of Ceridian, provided that Executive accounts promptly for such expenses to Ceridian in the manner prescribed from time to time by Ceridian. 4 ARTICLE IV EARLY TERMINATION 4.01 EARLY TERMINATION. Subject to the respective continuing obligations of the parties pursuant to Articles V, VI, and IX, this Article sets forth the terms for early termination of this Agreement; provided, however, that this Article shall not apply to a Change of Control Termination which is governed solely by the provisions of Article VII. 4.02 TERMINATION FOR CAUSE. Ceridian may terminate this Agreement immediately for cause. For the purpose hereof "cause" means (a) fraud, (b) misrepresentation, (c) theft or embezzlement of Ceridian assets, (d) intentional violations of law involving moral turpitude, (e) the continued failure by Executive to satisfactorily perform his or her duties as reasonably assigned to Executive pursuant to Section 2.02 of Article II of this Agreement for a period of 60 days after a written demand for such satisfactory performance which specifically identifies the manner in which it is alleged Executive has not satisfactorily performed such duties. In the event of termination for cause pursuant to this Section 4.02, Executive shall be paid at the usual rate of Executive's annual Base Salary through the date of termination specified in any notice of termination. 4.03 TERMINATION WITHOUT CAUSE. Either Executive or Ceridian may terminate this Agreement and Executive's employment without cause on at least 75 days' written notice. In the event of termination of this Agreement and of Executive's employment pursuant to this Section 4.03, compensation shall be paid as follows: (a) if the notice of termination is given by Executive at any time Executive shall be paid at the usual rate of his or her annual Base Salary through the date of termination specified in such notice (but not to exceed 75 days); (b) if the notice of termination is given by Ceridian and effective prior to Executive's 65th birthday, (1) Executive shall be paid at the usual rate of his or her annual Base Salary through the date of termination specified in the notice provided, however, that Ceridian shall have the option of making termination of the Agreement and Executive's employment effective immediately upon notice in which case Executive shall be paid a lump sum representing the value through a notice period of 75 days worth of salary; and (2) Executive shall receive, starting within 15 days following termination, a payment equivalent to one years' Base Salary payable, at the sole discretion of Ceridian, in either the form of a lump sum payment or on a regular payroll period basis. In addition, the Executive shall receive the bonus, if any, to which Executive would otherwise have become entitled under all Ceridian bonus plans in effect at the time of termination of this Agreement had Executive remained continuously employed for the full fiscal year in which termination occurred and continued to perform his or her duties in the 5 same manner as they were performed immediately prior to termination, multiplied by a fraction, the numerator of which shall be the number of whole months Executive was employed in the year in which termination occurred and the denominator of which is 12. This bonus amount shall be paid within 15 days after the date such bonus would have been paid had Executive remained employed for the full fiscal year. (c) If the event that notice of termination occurs pursuant to Section 4.03(b), in addition to the payments specified in said Section, Ceridian shall pay to Executive an amount equal to one years' Base Salary payable, at the sole discretion of Ceridian, in either the form of a lump sum payment or on a regular payroll period basis, provided the Executive executes a release, similar to that attached as Exhibit A, of all claims against the Company. (d) If the notice of termination is given by Ceridian to be effective on or after Executive's 65th birthday, Executive shall be paid at the usual rate of his or her annual Base Salary through the date of termination specified in any notice. In addition, Executive will be paid the bonus, if any, to which Executive would otherwise have become entitled under all Ceridian bonus plans in effect at the time of termination of this Agreement had Executive remained continuously employed for the full fiscal year in which termination occurred and continued to perform his or her duties in the same manner as they were performed immediately prior to termination, multiplied by a fraction, the numerator of which shall be the number of whole months Executive was employed in the year in which termination occurred and the denominator of which is 12. The amount payable pursuant to this Section 4.03(d) shall be paid within 15 days after the date such bonus would have been paid had Executive remained employed for the full fiscal year. 4.04 TERMINATION IN THE EVENT OF DEATH OR DISABILITY. This Agreement shall terminate in the event of death or disability of Executive. (a) In the event of Executive's death, Ceridian shall pay an amount equal to 12 months of Base Salary at the rate in effect at the time of Executive's death plus the amount Executive would have received in annual incentive plan bonus for the year in which termination occurs had "target" goals been achieved. Such amount shall be paid (1) to the beneficiary or beneficiaries designated in writing to Ceridian by Executive, (2) in the absence of such designation to the surviving spouse, or (3) if there is no surviving spouse, or such surviving spouse disclaims all or any part, then the full amount, or such disclaimed portion, shall be paid to the executor, administrator or other personal representative of Executive's estate. The amount shall be paid as a lump sum as soon as practicable following Ceridian's receipt of notice of Executive's death. All such payments shall be in addition to any payments due pursuant to Section 4.04(c) below. 6 (b) In the event of disability, Base Salary shall be terminated as of the end of the month in which the last day of the five-month period of Executive's inability to perform his or her duties occurs. (c) In the event of termination by reason of Executive's death or disability, Ceridian shall pay to Executive any amount equal to (1) the amount Executive would have received in annual incentive plan bonus for the year in which termination occurs had "target" goals been achieved, multiplied by (2) a fraction, the numerator of which shall be the number of whole months Executive was employed in the year in which the death or disability occurred and the denominator of which is 12. The amount payable pursuant to this Section 4.04(c) shall be paid within 15 days after the date such bonus would have been paid had Executive remained employed for the full fiscal year. 4.05 PENSION SUPPLEMENT. If Ceridian terminates Executive's employment without cause prior to Executive's 65th birthday, Ceridian shall provide to Executive, out of its general assets, a monthly supplemental retirement benefit in an amount equal to the actuarial equivalent of the difference, if any, between: (a) the monthly benefit to which Executive would have been entitled under the defined benefit pension plan or plans in which he or she participated immediately prior to his or her termination of employment if the amount of payment to which Executive is entitled under Section 4.03(b)(2) were taken into account for purposes of determining his or her "final average pay" or similar term (as then defined under the terms of such plan or plans) for either (1) the year in which Executive's termination of employment occurred; or (2) the prior full year, whichever provides the highest total final average pay; and (b) the amount to which Executive is, in fact, entitled under such plan or plans. The benefit calculated under this Section 4.05 shall be paid at the same time and in the same form as the benefit under the plan with respect to which such calculation is made. 4.06 ENTIRE TERMINATION PAYMENT. The compensation provided for in this Article IV for early termination of this Agreement and termination pursuant to this Article IV shall constitute Executive's sole remedy for such termination. Executive shall not be entitled to any other termination or severance payment which may be payable to Executive under any other agreement between Executive and Ceridian. 7 ARTICLE V CONFIDENTIALITY, DISCLOSURE AND ASSIGNMENT 5.01 CONFIDENTIALITY. Executive will not, during the term or after the termination or expiration of this Agreement, publish, disclose, or utilize in any manner any Confidential Information obtained while employed by Ceridian. If Executive leaves the employ of Ceridian, Executive will not, without Ceridian's prior written consent, retain or take away any drawing, writing or other record in any form containing any Confidential Information. 5.02 BUSINESS CONDUCT AND ETHICS. During the term of employment with Ceridian, Executive will engage in no activity or employment which may conflict with the interest of Ceridian, and will comply with Ceridian's policies and guidelines pertaining to business conduct and ethics. 5.03 DISCLOSURE. Executive will disclose promptly in writing to Ceridian all inventions, discoveries, software, writings and other works of authorship which are conceived, made, discovered, or written jointly or singly on Ceridian time or on Executive's own time, providing the invention, improvement, discovery, software, writing or other work of authorship is capable of being used by Ceridian in the normal course of business, and all such inventions, improvements, discoveries, software, writings and other works of authorship shall belong solely to Ceridian. 5.04 INSTRUMENTS OF ASSIGNMENT. Executive will sign and execute all instruments of assignment and other papers to evidence vestiture of Executive's entire right, title and interest in such inventions, improvements, discoveries, software, writings or other works of authorship in Ceridian, at the request and the expense of Ceridian, and Executive will do all acts and sign all instruments of assignment and other papers Ceridian may reasonably request relating to applications for patents, patents, copyrights, and the enforcement and protection thereof. If Executive is needed, at any time, to give testimony, evidence, or opinions in any litigation or proceeding involving any patents or copyrights or applications for patents or copyrights, both domestic and foreign, relating to inventions, improvements, discoveries, software, writings or other works of authorship conceived, developed or reduced to practice by Executive, Executive agrees to do so, and if Executive leaves the employ of Ceridian, Ceridian shall pay Executive at a rate mutually agreeable to Executive and Ceridian, plus reasonable traveling or other expenses. 5.05 INVENTIONS DEVELOPED ON EXECUTIVE'S OWN TIME. The two immediately preceding sections entitled "Disclosure" and "Instruments of Assignment" do not apply to inventions in which a Ceridian claim of any rights will create a violation of Chapter 47 Minnesota Revised Statutes, Section 1-181.78, reproduced below and constituting the written notification of its Subdivision 3. 181.78 Agreements relating to inventions 8 Subdivision 1. Any provision in an employment agreement which provides that an Executive shall assign or offer to assign any of his rights in an invention to his employer shall not apply to an invention for which no equipment, supplies, facility or trade secret information of the employer was used and which was developed entirely on the employee's own time, and (1) which does not relate (a) directly to the business of the employer or (b) to the employer's actual or demonstrably anticipated research or development, or (2) which does not result from any work performed by the employee for the employer. Any provision which purports to apply to such an invention is to that extent against the public policy of this state and is to that extent void and unenforceable. Subdivision 2. No employer shall require a provision made void and unenforceable by subdivision 1 as a condition of employment or continuing employment. Subdivision 3. IF AN EMPLOYMENT AGREEMENT ENTERED INTO AFTER AUGUST 1, 1977, CONTAINS A PROVISION REQUIRING THE EMPLOYEE TO ASSIGN OR OFFER TO ASSIGN ANY OF HIS RIGHTS IN ANY INVENTION TO HIS EMPLOYER, THE EMPLOYER MUST ALSO, AT THE TIME THE AGREEMENT IS MADE, PROVIDE A WRITTEN NOTIFICATION TO THE EMPLOYEE THAT THE AGREEMENT DOES NOT APPLY TO AN INVENTION FOR WHICH NO EQUIPMENT, SUPPLIES, FACILITY OR TRADE SECRET INFORMATION OF THE EMPLOYER WAS USED AND WHICH WAS DEVELOPED ENTIRELY ON THE EMPLOYEE'S OWN TIME, AND (1) WHICH DOES NOT RELATE (a) DIRECTLY TO THE BUSINESS OF THE EMPLOYER OR (b) TO THE EMPLOYER'S ACTUAL OR DEMONSTRABLY ANTICIPATED RESEARCH OR DEVELOPMENT, OR (2) WHICH DOES NOT RESULT FROM ANY WORK PERFORMED BY THE EMPLOYEE FOR THE EMPLOYER. 5.06 EXECUTIVE'S DECLARATION. Executive has no inventions, improvements, discoveries, software, writings or other works of authorship useful to Ceridian in the normal course of business, which were conceived, made or written prior to the date of this Agreement and which are excluded from this Agreement. 5.07 SURVIVAL. The obligations of this Article V shall survive the expiration or termination of this Agreement. ARTICLE VI 9 NON-COMPETITION, NON-RECRUITMENT 6.01 GENERAL. The parties hereto recognize and agree that (a) Executive is a senior executive of Ceridian and is a key Executive of Ceridian, (b) Executive has received, and will in the future receive, substantial amounts of Confidential Information, (c) Ceridian's business is conducted on a worldwide basis, and (d) provision for non-competition and non-recruitment obligations by Executive is critical to Ceridian's continued economic well-being and protection of Ceridian's Confidential Information. In light of these considerations, this Article VI sets forth the terms and conditions of Executive's obligations of non-competition and non-recruitment subsequent to the termination of this Agreement and/or Executive's employment for any reason. 6.02 NON-COMPETITION. (a) Unless the obligation is waived or limited by Ceridian in accordance with subsection (b) of this Section 6.02, Executive agrees that for a period of two years following termination of employment for any reason, Executive will not directly or indirectly, alone or as a partner, officer, director, shareholder or employee of any other firm or entity, engage in any commercial activity in competition with any part of Ceridian's business as conducted as of the date of such termination of employment or with any part of Ceridian's contemplated business with respect to which Executive has Confidential Information as governed by Article V of this Agreement. For purposes of this subsection (a), "shareholder" shall not include beneficial ownership of less than five percent (5%) of the combined voting power of all issued and outstanding voting securities of a publicly held corporation whose stock is traded on a major stock exchange. Also for purposes of this subsection (a), "Ceridian's business" shall include business conducted by Ceridian or its affiliates and any partnership or joint venture in which Ceridian or its affiliates is a partner or joint venturer; provided that, "affiliate" as used in this sentence shall not include any corporation in which Ceridian has ownership of less than fifteen percent (15%) of the voting stock. (b) At its sole option Ceridian may, by written notice to Executive within 30 days after the effective date of termination of Executive's employment, waive or limit the time and/or geographic area in which Executive cannot engage in competitive activity. (c) During the term of the non-competition obligation, prior to accepting employment with, or agreeing to provide consulting services to, any firm which offers products or services in the fields of electronics or information processing, Executive shall give 30 days prior written notice to Ceridian. Such written notice shall describe the proposed employment or consulting services and the firm to which they will be rendered. Ceridian's failure to respond or object to such notice shall not in any way constitute acquiescence or waiver of Ceridian's rights under this Article VI. 10 (d) During any period of non-competition pursuant to this Article VI Ceridian shall pay Executive an amount equal to the usual rate of Executive's Base Salary in effect at the time of termination. There shall be credited against Ceridian's obligation to make such payments any other payments made by Ceridian to Executive pursuant to Article IV of this Agreement. In the event that Ceridian elects, pursuant to subsection (b) of this Section 6.02, to waive all or any portion of the non-competition obligation, no payment shall be required by Ceridian with respect to the portion of the non-competition period which has been waived. 6.03 NON-RECRUITMENT. For a period of two years following termination of employment for any reason, Executive will not initiate or actively participate in any other employer's recruitment or hiring of Ceridian employees. This provision shall not preclude Executive from responding to a request (other than by Executive's employer) for a reference with respect to an individual's employment qualifications. 6.04 SURVIVAL. The obligations of this Article VI shall survive the expiration or termination of this Agreement. ARTICLE VII CHANGE OF CONTROL 7.01 DEFINITIONS. For purposes of this Article VII, the following definitions shall be applied: (a) "BENEFIT PLAN" means any formal or informal plan, program or other arrangement heretofore or hereafter adopted by Ceridian for the direct or indirect provision of compensation to the Executive (including groups or classes of participants or beneficiaries of which the Executive is a member), whether or not such compensation is deferred, is in the form of cash or other property or rights, or is in the form of a benefit to or for the Executive. (b) "CHANGE OF CONTROL" shall mean any of the following events: (1) a merger or consolidation to which Parent Corporation is a party if the individuals and entities who were stockholders of Parent Corporation immediately prior to the effective date of such merger or consolidation have beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of less than fifty percent (50%) of the total combined voting power for election of directors of the surviving corporation immediately following the effective date of such merger or consolidation; or 11 (2) the direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) in the aggregate of securities of Parent Corporation representing twenty-five percent (25%) or more of the total combined voting power of Parent Corporation's then issued and outstanding securities by any person or entity, or group of associated persons or entities acting in concert; or (3) the sale of the properties and assets of Parent Corporation, substantially as an entirety, to any person or entity which is not a wholly-owned subsidiary of Parent Corporation; or (4) the stockholders of Parent Corporation approve any plan or proposal for the liquidation of Parent Corporation; or (5) a change in the composition of the Board at any time during any consecutive 24 month period such that the "Continuity Directors" cease for any reason to constitute at least a seventy percent (70%) majority of the Board. For purposes of this clause, "Continuity Directors" means those members of the Board who either (A) were directors at the beginning of such consecutive 24 month period, or (B) were elected by, or on the nomination or recommendation of, at least a two-thirds (2/3) majority of the then-existing Board. (c) "CHANGE OF CONTROL COMPENSATION" means any payment or benefit (including any transfer of property) in the nature of compensation, to or for the benefit of a Participant under this Agreement or any Other Agreement or Benefit Plan, which is considered to be contingent on a Change of Control for purposes of Section 280G of the Code. (d) "CHANGE OF CONTROL TERMINATION" means, with respect to Executive, either of the following events occurring within two years after a Change of Control: (1) Termination of Executive's employment by Ceridian for any reason other than (A) fraud, (B) theft or embezzlement of Ceridian assets, (C) intentional violations of law involving moral turpitude, or (D) the substantial and continuing failure by Executive to satisfactorily perform his or her duties as reasonably assigned to Executive pursuant to Section 2.02 of Article II of this Agreement for a period of 60 days after a written demand for such satisfactory performance which specifically identifies the manner in which it is alleged Executive has not satisfactorily performed such duties; or (2) Termination of employment with Ceridian by Executive pursuant to Section 7.02 of this Article VII. 12 A Change of Control Termination by Executive shall not, however, include termination by reason of death or Disability. (e) "CODE" means the Internal Revenue Code of 1986, as amended. Any reference to a section of the Code shall include the corresponding section of such Code as from time to time amended. (f) "EXCISE TAX" means any applicable federal excise tax imposed by Section 4999 of the Code. (g) "GOOD REASON" means a good faith determination by Executive, in Executive's sole and absolute judgment, that any one or more of the following events has occurred, without Executive's express written consent, after a Change of Control: (1) A change in Executive's reporting responsibilities, titles or offices as in effect immediately prior to the Change of Control, or any removal of Executive from, or any failure to re-elect Executive to, any of such positions, which has the effect of materially diminishing Executive's responsibility or authority; (2) A reduction by Ceridian in Executive's Base Salary as in effect immediately prior to the Change of Control or as the same may be increased from time to time thereafter; (3) Ceridian requiring Executive to be based anywhere other than within 25 miles of Executive's job location at the time of the Change of Control; (4) Without replacement by plans, programs, or arrangements which, taken as a whole, provide benefits to Executive at least reasonably comparable to those discontinued or adversely affected, (A) the failure by Ceridian to continue in effect, within its maximum stated term, any pension, bonus, incentive, stock ownership, purchase, option, life insurance, health, accident, disability, or any other employee compensation or benefit plan, program or arrangement, in which Executive is participating immediately prior to a Change of Control; or (B) the taking of any action by Ceridian that would materially adversely affect Executive's participation or materially reduce Executive's benefits under any of such plans, programs or arrangements; (5) The failure by Ceridian to provide office space, furniture, and secretarial support at least comparable to that provided Executive immediately prior to the Change of Control or the taking of any 13 similar action by Ceridian that would materially adversely affect the working conditions in or under which Executive performs his or her employment duties; (6) If Executive's primary employment duties are with a Subsidiary, the sale, merger, contribution, transfer or any other transaction in conjunction with which Parent Corporation's ownership interest in such Subsidiary decreases below the level specified in Section 1.07 of Article I unless (A) this Agreement is assigned to the purchaser/transferee with the provisions of Article VII in full force and effect and operative as if a Change of Control has occurred with respect to the purchaser/transferee as Parent Corporation immediately after the purchase/transfer becomes effective, and (B) such purchaser/transferee has a creditworthiness reasonably equivalent to Parent Corporation's; or (7) Any material breach of this Agreement by Ceridian. (h) "OTHER AGREEMENTS" means any agreement, contract or understanding heretofore or hereafter entered into between Executive and Ceridian for the direct or indirect provision of compensation to Executive. (i) "REDUCED AMOUNT" means the largest amount that could be received by a Participant as Change of Control Compensation such that no portion of such Change of Control Compensation would be subject to the Excise Tax. 7.02 CHANGE OF CONTROL TERMINATION RIGHT. For a period of two years following a Change of Control, Executive shall have the right, at any time and within Executive's sole discretion, to terminate employment with Ceridian for Good Reason. Such termination shall be accomplished by, and effective upon, Executive giving written notice to Ceridian of Executive's decision to terminate. Except as otherwise expressly provided in this Agreement, upon the exercise of said right, all obligations and duties of Executive under this Agreement shall be of no further force and effect. 7.03 CHANGE OF CONTROL TERMINATION PAYMENT. In the event of a Change of Control Termination, and subject to the "Limitation on Change of Control Compensation" contained in Section 7.04, then, and without further action by the Board, Compensation Committee or otherwise, Parent Corporation shall, within five days of such termination, make a lump sum payment to Executive in an amount equal to one dollar ($1.00) less than three times the average annualized compensation, as defined by Section 280G of the Code, received by Executive from Ceridian and includible in Executive's gross income for federal income tax purposes for the five most recent taxable years of the Executive ending before the date upon which the Change in Control occurred (or such portion of such period during which Executive was an employee of Ceridian). 14 7.04 LIMITATION ON CHANGE OF CONTROL COMPENSATION. Notwithstanding any other provisions of this Agreement or of any Other Agreement or Benefit Plan, if any Change of Control Compensation would be considered a "parachute payment" within the meaning of Section 280G(b)(2) of the Code and if, after reduction for any Excise Tax and federal income tax imposed by the Code, Executive's net proceeds of such Change of Control Compensation would be less than the amount of Executive's net proceeds resulting from the payment of the Reduced Amount after reduction for federal income taxes, then the Change of Control Compensation payable to Executive shall be limited to the Reduced Amount. The determinations required by the preceding sentence shall be made by the firm of independent certified public accountants serving as the outside auditor of Ceridian as of the date of the applicable Change of Control, and such determinations shall be binding upon Ceridian and Executive. If Change of Control Compensation to Executive is limited to the Reduced Amount, then Executive shall have the right, in his or her sole discretion, to designate those payments or benefits under this Agreement, any Other Agreements and/or any Benefit Plans that should be reduced or eliminated so as to avoid having Executive's Change of Control Compensation be subject to the Excise Tax. If Executive fails to make such designation within 30 days of having received notification that such designation is required, Ceridian shall make such designations and shall promptly inform Executive of its actions in such regard. 7.05 INTEREST. In the event Parent Corporation does not make timely payment in full of the Change of Control Termination payment described in Section 7.03, Executive shall be entitled to receive interest on any unpaid amount at the lower of: (a) the prime rate of interest (or such comparable index as may be adopted) established from time to time by the First Bank National Association, Minneapolis, Minnesota; or (b) the maximum rate permitted under Section 280G(d)(4) of the Internal Revenue Code." 7.06 ATTORNEYS' FEES. In the event Executive incurs any legal expense to enforce or defend his or her rights under this Article VII of this Agreement, or to recover damages for breach thereof, Executive shall be entitled to recover from Ceridian any expenses for attorneys' fees and disbursements incurred. 7.07 BENEFITS CONTINUATION. In the event of a Change of Control Termination, Executive (and anyone entitled to claim under or through Executive) shall, until age 65, be entitled to receive from Ceridian the same or equivalent health, dental, accidental death and dismemberment, short and long-term disability, life insurance coverages, and all other insurance policies and health and welfare benefits programs, policies or arrangements, at the same levels and coverages as Executive was receiving on the day immediately prior to the Change of Control. To the extent that election of continuation of any of such coverages, programs, policies, or arrangements is made available to employees terminating at age 55 with 15 or more years of service, Executive shall be required to pay no more for continuation than is required of such employees on the day immediately prior to the Change of Control. If no such continuation program is available, Executive shall be required to pay no more than he/she paid as an active employee, or if provided by Ceridian 15 at no cost to employees on the day immediately prior to the Change of Control, they shall continue to be made available to Executive on this basis. 7.08 PENSION SUPPLEMENT. In the event of a Change of Control Termination, Parent Corporation shall, within five days, make a lump sum payment to Executive in an amount equal to the actuarial equivalent of the difference, if any, between: (a) the monthly benefit to which Executive would have been entitled under the defined benefit pension plan or plans in which he or she participated immediately prior to his or her Change of Control Termination if the amount of payment to which Executive is entitled under Section 7.03 were taken into account for purposes of determining his or her "final average pay" or similar term (as then defined under the terms of such plan or plans) for either (1) the year in which the Change of Control Termination occurred; or (2) the prior full year, whichever provides the highest total final average pay; and (b) the amount to which Executive is, in fact, entitled under such plan or plans. For purposes of determining actuarial equivalencies for this Section 7.08, the actuarial factors specified in the particular plan or plans with respect to which the determination is being made shall be applied. ARTICLE VIII CHANGE OF SUBSIDIARY STATUS 8.01 In the event that, prior to a Change of Control: (a) a Subsidiary is sold, merged, contributed, or in any other manner transferred, or if for any reason Parent Corporation's ownership interest in any such Subsidiary falls below the level specified in Section 1.07, (b) Executive's primary employment duties are with the Subsidiary at the time of the occurrence of such event, and (c) Executive does not, in conjunction therewith, transfer employment directly to Parent Corporation or another Subsidiary, then: (a) If Executive gives his or her written consent to the assignment of this Agreement to such Subsidiary, or to the purchaser or new majority interest holder of such Subsidiary, (and such assignment is accepted) this Agreement shall remain in full force and effect between Executive and the assignee, except that the provisions of Article VII of this Agreement shall become null and void; (b) If such assignment is not accepted by the Subsidiary or purchaser, then this Agreement shall be deemed to have been terminated by Ceridian without cause pursuant to Section 4.03 of Article IV; and 16 (c) In all other cases, this Agreement shall be deemed terminated for cause pursuant to Section 4.02 of Article IV. ARTICLE IX GENERAL PROVISIONS 9.01 NO ADEQUATE REMEDY. The parties declare that it is impossible to measure in money the damages which will accrue to either party by reason of a failure to perform any of the obligations under this Agreement. Therefore, if either party shall institute any action or proceeding to enforce the provisions hereof, such party against whom such action or proceeding is brought hereby waives the claim or defense that such party has an adequate remedy at law, and such party shall not urge in any such action or proceeding the claim or defense that such party has an adequate remedy at law. 9.02 SUCCESSORS AND ASSIGNS. Except as otherwise provided in Article VIII, this Agreement shall be binding upon and inure to the benefit of the successors and assigns of Parent Corporation and each Subsidiary, whether by way of merger, consolidation, operation of law, assignment, purchase or other acquisition of substantially all of the assets or business of Ceridian, and any such successor or assign shall absolutely and unconditionally assume all of Ceridian's obligations hereunder. 9.03 NOTICES. All notices, requests and demands given to or made pursuant hereto shall, except as otherwise specified herein, be in writing and be delivered or mailed to any such party at its address: (a) Ceridian Corporation 8100 34th Avenue South Minneapolis, Minnesota 55425-1640 Attention: Office of General Counsel (b) In the case of Executive shall be: At the address listed on the last page of this Agreement. Either party may, by notice hereunder, designate a changed address. Any notice, if mailed properly addressed, postage prepaid, registered or certified mail, shall be deemed dispatched on the registered date or that stamped on the certified mail receipt, and shall be deemed received within the second business day thereafter or when it is actually received, whichever is sooner. 9.04 CAPTIONS. The various headings or captions in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement. 17 9.05 GOVERNING LAW. The validity, construction and performance of this Agreement shall be governed by the laws of the State of Minnesota and any and every legal proceeding arising out of or in connection with this Agreement shall be brought in the appropriate courts of the State of Minnesota, each of the parties hereby consenting to the exclusive jurisdiction of said courts for this purpose. The parties hereto expressly recognize and agree that the implementation of this Governing Law provision is essential in light of the fact that Parent Corporation's corporate headquarters and its principal executive offices are located within the State of Minnesota, and there is a critical need for uniformity in the interpretation and enforcement of the employment agreements between Ceridian and its senior executives. 9.06 CONSTRUCTION. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. 9.07 WAIVERS. No failure on the part of either party to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right or remedy granted hereby or by any related document or by law. 9.08 MODIFICATION. This Agreement may not be and shall not be modified or amended except by written instrument signed by the parties hereto. 9.09 ARBITRATION. Because the parties recognize that resolving any future differences in the courts can require a long time and great expense, Company and Executive agree that their only remedy for disputes either may have with the other and that arise out of Executive's employment, or any aspect of this Agreement, shall be to submit all disputes to final and binding arbitration in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association. The aggrieved party must send a written notice of claim to the other party by certified mail, return receipt requested to the address listed in Section 9.03 of this Agreement. The arbitrator shall apply the law in accordance with this Agreement, or federal law, or both, as applicable to the claim(s) asserted. 9.10 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and understanding between the parties hereto in reference to all the matters herein agreed upon. This Agreement replaces in full all prior employment agreements or understandings of the parties hereto, and any and all such prior agreements or understandings are hereby rescinded by mutual agreement. IN WITNESS WHEREOF, The parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. EXECUTIVE CERIDIAN CORPORATION 18 /s/ J.R. Eickhoff By: /s/ Michael E. Kotten - --------------------------------- ------------------------------ Title: Vice President ------------------------------ 19 EX-10.05 7 EXHIBIT 10.05 EXHIBIT 10.05 CERIDIAN CORPORATION EXECUTIVE EMPLOYMENT AGREEMENT PARTIES CERIDIAN CORPORATION (A DELAWARE CORPORATION) 8100 34TH AVENUE SOUTH MINNEAPOLIS, MINNESOTA 55425-1640 AND CARL KEIL DATE: OCTOBER 22, 1997 RECITALS A. Ceridian wishes to obtain the services of Executive for at least the duration of this Agreement, and the Executive wishes to provide his or her services for such period. B. Ceridian desires reasonable protection of Ceridian's Confidential Information (as defined below). C. Ceridian desires assurance that Executive will not compete with Ceridian or engage in recruitment of Ceridian's employees for a reasonable period of time after termination of employment, and Executive is willing to refrain from competition and recruitment. D. Executive desires to be assured of a minimum Base Salary (as defined below) from Ceridian for Executive's services for the term of this Agreement (unless terminated earlier pursuant to the terms of this Agreement). E. It is expressly recognized by the parties that Executive's acceptance of, and continuance in, Executive's position with Ceridian and agreement to be bound by the terms of this Agreement represents a substantial commitment to Ceridian in terms of Executive's personal and professional career and a foregoing of present and future career options by Executive, for all of which Ceridian receives substantial value. F. The parties recognize that a Change of Control (as defined below) may result in material alteration or diminishment of Executive's position and responsibilities and substantially frustrate the purpose of Executive's commitment to Ceridian and forebearance of options. G. The parties recognize that in light of the above-described commitment and forebearance of options, it is essential that, for the benefit of Ceridian and its stockholders, provision be made for a Change of Control Termination (as defined below) in order to enable Executive to accept and effectively continue in Executive's position in the face of inherently disruptive circumstances arising from the possibility of a Change of Control of the Parent Corporation (as defined below), although no such change is now contemplated or foreseen. H. The parties wish to replace any and all prior agreements and undertakings with respect to the Executive's employment and Change of Control occurrences and compensation. NOW, THEREFORE, in consideration of Executive's acceptance of and continuance in Executive's employment for the term of this Agreement and the parties' agreement to be bound by the terms contained herein, the parties agree as follows: ARTICLE I DEFINITIONS 1.01 "BASE SALARY" shall mean regular cash compensation paid on a periodic basis exclusive of benefits, bonuses or incentive payments. 1.02 "BOARD" shall mean the Board of Directors of Ceridian Corporation (the "Parent Corporation"). 1.03 "CERIDIAN" shall mean Ceridian Corporation and, except as otherwise provided in Article VIII and Section 9.02 of Article IX, (a) any Subsidiary (as that term is defined in Section 1.07); and (b) any successor in interest by way of consolidation, operation of law, merger or otherwise. 1.04 "CONFIDENTIAL INFORMATION" shall mean information or material which is not generally available to or used by others, or the utility or value of which is not generally known or recognized as standard practice, whether or not the underlying details are in the public domain, including: (a) information or material relating to Ceridian and its business as conducted or anticipated to be conducted; business plans; operations; past, current or anticipated software, products or services; customers or prospective customers; or research, engineering, development, manufacturing, purchasing, accounting, or marketing activities; 2 (b) information or material relating to Ceridian's inventions, improvements, discoveries, "know-how," technological developments, or unpublished writings or other works of authorship, or to the materials, apparatus, processes, formulae, plans or methods used in the development, manufacture or marketing of Ceridian's software, products or services; (c) information which when received is marked as "proprietary," "private," or "confidential;" (d) trade secrets; (e) software in various stages of development, including computer programs in source code and binary code form, software designs, specifications, programming aids (including "library subroutines" and productivity tools), programming languages, interfaces, visual displays, technical documentation, user manuals, data files and databases; and (f) any similar information of the type described above which Ceridian obtained from another party and which Ceridian treats as or designates as being proprietary, private or confidential, whether or not owned or developed by Ceridian. Notwithstanding the foregoing, "Confidential Information" does not include any information which is properly published or in the public domain; provided, however, that information which is published by or with the aid of Executive outside the scope of employment or contrary to the requirements of this Agreement will not be considered to have been properly published, and therefore will not be in the public domain for purposes of this Agreement. 1.05 "DISABILITY" shall mean the inability of Executive to perform his or her duties under this Agreement because of illness or incapacity for a continuous period of five months. 1.06 "PARENT CORPORATION" shall mean Ceridian Corporation and, except as otherwise provided in Article VIII and Section 9.02 of Article IX, any successor in interest by way of consolidation, operation of law, merger or otherwise. "Parent Corporation" shall not include any Subsidiary. 1.07 "SUBSIDIARY" shall mean: (a) any corporation at least a majority of whose securities having ordinary voting power for the election of directors (other than securities having such power only by reason of the occurrence of a contingency) is at the time owned by Parent Corporation and/or one or more Subsidiaries; and (b) any division or business unit (or portion thereof) of Parent Corporation or a corporation described in clause (a) of this Section 1.07. 3 ARTICLE II EMPLOYMENT, DUTIES AND TERM 2.01 EMPLOYMENT. Upon the terms and conditions set forth in this Agreement, Ceridian hereby employs Executive, and Executive accepts such employment. Except as expressly provided herein, termination of this Agreement by either party shall also terminate Executive's employment by Ceridian. 2.02 DUTIES. Executive shall devote his or her full-time and best efforts to Ceridian and to fulfilling the duties of his or her position which shall include such duties as may from time to time be assigned him or her by Ceridian, provided that such duties are reasonably consistent with Executive's education, experience and background. Executive shall comply with Ceridian's policies and procedures to the extent they are not inconsistent with this Agreement in which case the provisions of this Agreement prevail. 2.03 TERM. Subject to the provisions of Articles IV, VII, and VIII, Executive's employment shall continue until the later of: (a) June 30, 1999; and (b) two years after a Change of Control which occurs prior to June 30, 1999. In any event, the Agreement shall automatically terminate without notice when Executive reaches 65 years of age. If employment is continued after the age of 65 by mutual agreement, it shall be terminable at will by either party. ARTICLE III COMPENSATION AND EXPENSES 3.01 BASE SALARY. For all services rendered under this Agreement during the term of Executive's employment, Ceridian shall pay Executive a minimum Base Salary at the annual rate currently being paid or, if Executive is not currently in Ceridian's employ, at the annual rate specified in the written offer of employment. If Executive's salary is increased from time to time during the term of this Agreement, the increased amount shall be the Base Salary for the remainder of the term and any extensions. 3.02 BONUS AND INCENTIVE. Bonus or incentive compensation shall be in the sole discretion of Ceridian. Except as otherwise provided in Article VII, Ceridian shall have the right in accordance with their terms to alter, amend or eliminate any bonus or incentive plans, or Executive's participation therein, without compensation to Executive. 4 3.03 BUSINESS EXPENSES. Ceridian shall, in accordance with, and to the extent of, its policies in effect from time to time, bear all ordinary and necessary business expenses incurred by Executive in performing his or her duties as an employee of Ceridian, provided that Executive accounts promptly for such expenses to Ceridian in the manner prescribed from time to time by Ceridian. ARTICLE IV EARLY TERMINATION 4.01 EARLY TERMINATION. Subject to the respective continuing obligations of the parties pursuant to Articles V, VI, and IX, this Article sets forth the terms for early termination of this Agreement; provided, however, that this Article shall not apply to a Change of Control Termination which is governed solely by the provisions of Article VII. 4.02 TERMINATION FOR CAUSE. Ceridian may terminate this Agreement immediately for cause. For the purpose hereof "cause" means (a) fraud, (b) misrepresentation, (c) theft or embezzlement of Ceridian assets, (d) intentional violations of law involving moral turpitude, (e) the continued failure by Executive to satisfactorily perform his or her duties as reasonably assigned to Executive pursuant to Section 2.02 of Article II of this Agreement for a period of 60 days after a written demand for such satisfactory performance which specifically identifies the manner in which it is alleged Executive has not satisfactorily performed such duties. In the event of termination for cause pursuant to this Section 4.02, Executive shall be paid at the usual rate of Executive's annual Base Salary through the date of termination specified in any notice of termination. 4.03 TERMINATION WITHOUT CAUSE. Either Executive or Ceridian may terminate this Agreement and Executive's employment without cause on at least 75 days' written notice. In the event of termination of this Agreement and of Executive's employment pursuant to this Section 4.03, compensation shall be paid as follows: (a) if the notice of termination is given by Executive at any time Executive shall be paid at the usual rate of his or her annual Base Salary through the date of termination specified in such notice (but not to exceed 75 days); (b) if the notice of termination is given by Ceridian and effective prior to Executive's 65th birthday, (1) Executive shall be paid at the usual rate of his or her annual Base Salary through the date of termination specified in the notice provided, however, Ceridian shall have the option of making termination of the Agreement and Executive's employment effective immediately upon notice in which case Executive shall be paid a lump sum representing the value of 75 days worth of salary; and (2) Executive shall receive, starting within 15 days following termination, a payment equivalent to one years' Base Salary payable, at the sole 5 discretion of Ceridian, in either the form of a lump sum payment or on a regular payroll period basis. In addition, the Executive shall receive the bonus, if any, to which Executive would otherwise have become entitled under all Ceridian bonus plans in effect at the time of termination of this Agreement had Executive remained continuously employed for the full fiscal year in which termination occurred and continued to perform his or her duties in the same manner as they were performed immediately prior to termination, multiplied by a fraction, the numerator of which shall be the number of whole months Executive was employed in the year in which termination occurred and the denominator of which is 12. This bonus amount shall be paid within 15 days after the date such bonus would have been paid had Executive remained employed for the full fiscal year. (c) If the event that termination occurs pursuant to Section 4.03(b), in addition to the payments specified in said Section, Ceridian shall pay to Executive an amount equal to one years' Base Salary payable, at the sole discretion of Ceridian, in either the form of a lump sum payment or on a regular payroll period basis, provided the Executive executes a release, similar to that attached as Exhibit A, of all claims against the Company. (d) If the notice of termination is given by Ceridian to be effective on or after Executive's 65th birthday, Executive shall be paid at the usual rate of his or her annual Base Salary through the date of termination specified in any notice. In addition, Executive will be paid the bonus, if any, to which Executive would otherwise have become entitled under all Ceridian bonus plans in effect at the time of termination of this Agreement had Executive remained continuously employed for the full fiscal year in which termination occurred and continued to perform his or her duties in the same manner as they were performed immediately prior to termination, multiplied by a fraction, the numerator of which shall be the number of whole months Executive was employed in the year in which termination occurred and the denominator of which is 12. The amount payable pursuant to this Section 4.03(d) shall be paid within 15 days after the date such bonus would have been paid had Executive remained employed for the full fiscal year. 4.04 TERMINATION IN THE EVENT OF DEATH OR DISABILITY. This Agreement shall terminate in the event of death or disability of Executive. (a) In the event of Executive's death, Ceridian shall pay an amount equal to 12 months of Base Salary at the rate in effect at the time of Executive's death plus the amount Executive would have received in annual incentive plan bonus for the year in which termination occurs had "target" goals been achieved. Such amount shall be paid (1) to the beneficiary or beneficiaries designated in writing to Ceridian by Executive, (2) in the absence of such designation to the surviving spouse, or (3) if there is no surviving spouse, or such surviving spouse disclaims all or any part, then the full amount, or such disclaimed portion, shall be paid to the executor, administrator or other personal representative of Executive's estate. The amount 6 shall be paid as a lump sum as soon as practicable following Ceridian's receipt of notice of Executive's death. All such payments shall be in addition to any payments due pursuant to Section 4.04(c) below. (b) In the event of disability, Base Salary shall be terminated as of the end of the month in which the last day of the five-month period of Executive's inability to perform his or her duties occurs. (c) In the event of termination by reason of Executive's death or disability, Ceridian shall pay to Executive any amount equal to (1) the amount Executive would have received in annual incentive plan bonus for the year in which termination occurs had "target" goals been achieved, multiplied by (2) a fraction, the numerator of which shall be the number of whole months Executive was employed in the year in which the death or disability occurred and the denominator of which is 12. The amount payable pursuant to this Section 4.04(c) shall be paid within 15 days after the date such bonus would have been paid had Executive remained employed for the full fiscal year. 4.05 ENTIRE TERMINATION PAYMENT. The compensation provided for in this Article IV for early termination of this Agreement and termination pursuant to this Article IV shall constitute Executive's sole remedy for such termination. Executive shall not be entitled to any other termination or severance payment which may be payable to Executive under any other agreement between Executive and Ceridian. ARTICLE V CONFIDENTIALITY, DISCLOSURE AND ASSIGNMENT 5.01 CONFIDENTIALITY. Executive will not, during the term or after the termination or expiration of this Agreement, publish, disclose, or utilize in any manner any Confidential Information obtained while employed by Ceridian. If Executive leaves the employ of Ceridian, Executive will not, without Ceridian's prior written consent, retain or take away any drawing, writing or other record in any form containing any Confidential Information. 5.02 BUSINESS CONDUCT AND ETHICS. During the term of employment with Ceridian, Executive will engage in no activity or employment which may conflict with the interest of Ceridian, and will comply with Ceridian's policies and guidelines pertaining to business conduct and ethics. 5.03 DISCLOSURE. Executive will disclose promptly in writing to Ceridian all inventions, discoveries, software, writings and other works of authorship which are conceived, made, discovered, or written jointly or singly on Ceridian time or on Executive's own time, providing the invention, improvement, discovery, software, writing or other work of 7 authorship is capable of being used by Ceridian in the normal course of business, and all such inventions, improvements, discoveries, software, writings and other works of authorship shall belong solely to Ceridian. 5.04 INSTRUMENTS OF ASSIGNMENT. Executive will sign and execute all instruments of assignment and other papers to evidence vestiture of Executive's entire right, title and interest in such inventions, improvements, discoveries, software, writings or other works of authorship in Ceridian, at the request and the expense of Ceridian, and Executive will do all acts and sign all instruments of assignment and other papers Ceridian may reasonably request relating to applications for patents, patents, copyrights, and the enforcement and protection thereof. If Executive is needed, at any time, to give testimony, evidence, or opinions in any litigation or proceeding involving any patents or copyrights or applications for patents or copyrights, both domestic and foreign, relating to inventions, improvements, discoveries, software, writings or other works of authorship conceived, developed or reduced to practice by Executive, Executive agrees to do so, and if Executive leaves the employ of Ceridian, Ceridian shall pay Executive at a rate mutually agreeable to Executive and Ceridian, plus reasonable traveling or other expenses. 5.05 INVENTIONS DEVELOPED ON EXECUTIVE'S OWN TIME. The two immediately preceding sections entitled "Disclosure" and "Instruments of Assignment" do not apply to inventions in which a Ceridian claim of any rights will create a violation of Chapter 47 Minnesota Revised Statutes, Section 1-181.78, reproduced below and constituting the written notification of its Subdivision 3. 181.78 Agreements relating to inventions Subdivision 1. Any provision in an employment agreement which provides that an Executive shall assign or offer to assign any of his rights in an invention to his employer shall not apply to an invention for which no equipment, supplies, facility or trade secret information of the employer was used and which was developed entirely on the employee's own time, and (1) which does not relate (a) directly to the business of the employer or (b) to the employer's actual or demonstrably anticipated research or development, or (2) which does not result from any work performed by the employee for the employer. Any provision which purports to apply to such an invention is to that extent against the public policy of this state and is to that extent void and unenforceable. Subdivision 2. No employer shall require a provision made void and unenforceable by subdivision 1 as a condition of employment or continuing employment. Subdivision 3. 8 IF AN EMPLOYMENT AGREEMENT ENTERED INTO AFTER AUGUST 1, 1977, CONTAINS A PROVISION REQUIRING THE EMPLOYEE TO ASSIGN OR OFFER TO ASSIGN ANY OF HIS RIGHTS IN ANY INVENTION TO HIS EMPLOYER, THE EMPLOYER MUST ALSO, AT THE TIME THE AGREEMENT IS MADE, PROVIDE A WRITTEN NOTIFICATION TO THE EMPLOYEE THAT THE AGREEMENT DOES NOT APPLY TO AN INVENTION FOR WHICH NO EQUIPMENT, SUPPLIES, FACILITY OR TRADE SECRET INFORMATION OF THE EMPLOYER WAS USED AND WHICH WAS DEVELOPED ENTIRELY ON THE EMPLOYEE'S OWN TIME, AND (1) WHICH DOES NOT RELATE (a) DIRECTLY TO THE BUSINESS OF THE EMPLOYER OR (b) TO THE EMPLOYER'S ACTUAL OR DEMONSTRABLY ANTICIPATED RESEARCH OR DEVELOPMENT, OR (2) WHICH DOES NOT RESULT FROM ANY WORK PERFORMED BY THE EMPLOYEE FOR THE EMPLOYER. 5.06 EXECUTIVE'S DECLARATION. Executive has no inventions, improvements, discoveries, software, writings or other works of authorship useful to Ceridian in the normal course of business, which were conceived, made or written prior to the date of this Agreement and which are excluded from this Agreement. 5.07 SURVIVAL. The obligations of this Article V shall survive the expiration or termination of this Agreement. ARTICLE VI NON-COMPETITION, NON-RECRUITMENT 6.01 GENERAL. The parties hereto recognize and agree that (a) Executive is a senior executive of Ceridian and is a key Executive of Ceridian, (b) Executive has received, and will in the future receive, substantial amounts of Confidential Information, (c) Ceridian's business is conducted on a worldwide basis, and (d) provision for non-competition and non-recruitment obligations by Executive is critical to Ceridian's continued economic well-being and protection of Ceridian's Confidential Information. In light of these considerations, this Article VI sets forth the terms and conditions of Executive's obligations of non-competition and non-recruitment subsequent to the termination of this Agreement and/or Executive's employment for any reason. 6.02 NON-COMPETITION. (a) Unless the obligation is waived or limited by Ceridian in accordance with subsection (b) of this Section 6.02, Executive agrees that for a period of two years following termination of employment for any reason, Executive will not directly or indirectly, alone or as a partner, officer, director, shareholder or employee of any other firm or entity, engage in any commercial activity in competition with any part of Ceridian's business as conducted as of the date of such termination of 9 employment or with any part of Ceridian's contemplated business with respect to which Executive has Confidential Information as governed by Article V of this Agreement. For purposes of this subsection (a), "shareholder" shall not include beneficial ownership of less than five percent (5%) of the combined voting power of all issued and outstanding voting securities of a publicly held corporation whose stock is traded on a major stock exchange. Also for purposes of this subsection (a), "Ceridian's business" shall include business conducted by Ceridian or its affiliates and any partnership or joint venture in which Ceridian or its affiliates is a partner or joint venturer; provided that, "affiliate" as used in this sentence shall not include any corporation in which Ceridian has ownership of less than fifteen percent (15%) of the voting stock. (b) At its sole option Ceridian may, by written notice to Executive within 30 days after the effective date of termination of Executive's employment, waive or limit the time and/or geographic area in which Executive cannot engage in competitive activity. (c) During the term of the non-competition obligation, prior to accepting employment with, or agreeing to provide consulting services to, any firm which offers products or services in the fields of electronics or information processing, Executive shall give 30 days prior written notice to Ceridian. Such written notice shall describe the proposed employment or consulting services and the firm to which they will be rendered. Ceridian's failure to respond or object to such notice shall not in any way constitute acquiescence or waiver of Ceridian's rights under this Article VI. (d) During any period of non-competition pursuant to this Article VI Ceridian shall pay Executive an amount equal to the usual rate of Executive's Base Salary in effect at the time of termination. There shall be credited against Ceridian's obligation to make such payments any other payments made by Ceridian to Executive pursuant to Article IV of this Agreement. In the event that Ceridian elects, pursuant to subsection (b) of this Section 6.02, to waive all or any portion of the non-competition obligation, no payment shall be required by Ceridian with respect to the portion of the non-competition period which has been waived. 6.03 NON-RECRUITMENT. For a period of two years following termination of employment for any reason, Executive will not initiate or actively participate in any other employer's recruitment or hiring of Ceridian employees. This provision shall not preclude Executive from responding to a request (other than by Executive's employer) for a reference with respect to an individual's employment qualifications. 6.04 SURVIVAL. The obligations of this Article VI shall survive the expiration or termination of this Agreement. ARTICLE VII 10 CHANGE OF CONTROL 7.01 DEFINITIONS. For purposes of this Article VII, the following definitions shall be applied: (a) "BENEFIT PLAN" means any formal or informal plan, program or other arrangement heretofore or hereafter adopted by Ceridian for the direct or indirect provision of compensation to the Executive (including groups or classes of participants or beneficiaries of which the Executive is a member), whether or not such compensation is deferred, is in the form of cash or other property or rights, or is in the form of a benefit to or for the Executive. (b) "CHANGE OF CONTROL" shall mean any of the following events: (1) a merger or consolidation to which Parent Corporation is a party if the individuals and entities who were stockholders of Parent Corporation immediately prior to the effective date of such merger or consolidation have beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of less than fifty percent (50%) of the total combined voting power for election of directors of the surviving corporation immediately following the effective date of such merger or consolidation; or (2) the direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) in the aggregate of securities of Parent Corporation representing twenty-five percent (25%) or more of the total combined voting power of Parent Corporation's then issued and outstanding securities by any person or entity, or group of associated persons or entities acting in concert; or (3) the sale of the properties and assets of Parent Corporation, substantially as an entirety, to any person or entity which is not a wholly-owned subsidiary of Parent Corporation; or (4) the stockholders of Parent Corporation approve any plan or proposal for the liquidation of Parent Corporation; or (5) a change in the composition of the Board at any time during any consecutive 24 month period such that the "Continuity Directors" cease for any reason to constitute at least a seventy percent (70%) majority of the Board. For purposes of this clause, "Continuity Directors" means those members of the Board who either (A) were directors at the beginning of such consecutive 24 month period, or 11 (B) were elected by, or on the nomination or recommendation of, at least a two-thirds (2/3) majority of the then-existing Board. (c) "CHANGE OF CONTROL COMPENSATION" means any payment or benefit (including any transfer of property) in the nature of compensation, to or for the benefit of a Participant under this Agreement or any Other Agreement or Benefit Plan, which is considered to be contingent on a Change of Control for purposes of Section 280G of the Code. (d) "CHANGE OF CONTROL TERMINATION" means, with respect to Executive, either of the following events occurring within two years after a Change of Control: (1) Termination of Executive's employment by Ceridian for any reason other than (A) fraud, (B) theft or embezzlement of Ceridian assets, (C) intentional violations of law involving moral turpitude, or (D) the substantial and continuing failure by Executive to satisfactorily perform his or her duties as reasonably assigned to Executive pursuant to Section 2.02 of Article II of this Agreement for a period of 60 days after a written demand for such satisfactory performance which specifically identifies the manner in which it is alleged Executive has not satisfactorily performed such duties; or (2) Termination of employment with Ceridian by Executive pursuant to Section 7.02 of this Article VII. A Change of Control Termination by Executive shall not, however, include termination by reason of death or Disability. (e) "CODE" means the Internal Revenue Code of 1986, as amended. Any reference to a section of the Code shall include the corresponding section of such Code as from time to time amended. (f) "EXCISE TAX" means any applicable federal excise tax imposed by Section 4999 of the Code. (g) "GOOD REASON" means a good faith determination by Executive, in Executive's sole and absolute judgment, that any one or more of the following events has occurred, without Executive's express written consent, after a Change of Control: (1) A change in Executive's reporting responsibilities, titles or offices as in effect immediately prior to the Change of Control, or any removal of Executive from, or any failure to re-elect Executive to, any of such positions, which has the effect of materially diminishing Executive's responsibility or authority; 12 (2) A reduction by Ceridian in Executive's Base Salary as in effect immediately prior to the Change of Control or as the same may be increased from time to time thereafter; (3) Ceridian requiring Executive to be based anywhere other than within 25 miles of Executive's job location at the time of the Change of Control; (4) Without replacement by plans, programs, or arrangements which, taken as a whole, provide benefits to Executive at least reasonably comparable to those discontinued or adversely affected, (A) the failure by Ceridian to continue in effect, within its maximum stated term, any pension, bonus, incentive, stock ownership, purchase, option, life insurance, health, accident, disability, or any other employee compensation or benefit plan, program or arrangement, in which Executive is participating immediately prior to a Change of Control; or (B) the taking of any action by Ceridian that would materially adversely affect Executive's participation or materially reduce Executive's benefits under any of such plans, programs or arrangements; (5) The failure by Ceridian to provide office space, furniture, and secretarial support at least comparable to that provided Executive immediately prior to the Change of Control or the taking of any similar action by Ceridian that would materially adversely affect the working conditions in or under which Executive performs his or her employment duties; (6) If Executive's primary employment duties are with a Subsidiary, the sale, merger, contribution, transfer or any other transaction in conjunction with which Parent Corporation's ownership interest in such Subsidiary decreases below the level specified in Section 1.07 of Article I unless (A) this Agreement is assigned to the purchaser/transferee with the provisions of Article VII in full force and effect and operative as if a Change of Control has occurred with respect to the purchaser/transferee as Parent Corporation immediately after the purchase/transfer becomes effective, and (B) such purchaser/transferee has a creditworthiness reasonably equivalent to Parent Corporation's; or (7) Any material breach of this Agreement by Ceridian. (h) "OTHER AGREEMENTS" means any agreement, contract or understanding heretofore or hereafter entered into between Executive and Ceridian for the direct or indirect provision of compensation to Executive. 13 (i) "REDUCED AMOUNT" means the largest amount that could be received by a Participant as Change of Control Compensation such that no portion of such Change of Control Compensation would be subject to the Excise Tax. 7.02 CHANGE OF CONTROL TERMINATION RIGHT. For a period of two years following a Change of Control, Executive shall have the right, at any time and within Executive's sole discretion, to terminate employment with Ceridian for Good Reason. Such termination shall be accomplished by, and effective upon, Executive giving written notice to Ceridian of Executive's decision to terminate. Except as otherwise expressly provided in this Agreement, upon the exercise of said right, all obligations and duties of Executive under this Agreement shall be of no further force and effect. 7.03 CHANGE OF CONTROL TERMINATION PAYMENT. In the event of a Change of Control Termination, and subject to the "Limitation on Change of Control Compensation" contained in Section 7.04, then, and without further action by the Board, Compensation Committee or otherwise, Parent Corporation shall, within five days of such termination, make a lump sum payment to Executive in an amount equal to one dollar ($1.00) less than three times the average annualized compensation, as defined by Section 280G of the Code, received by Executive from Ceridian and includible in Executive's gross income for federal income tax purposes for the five most recent taxable years of the Executive ending before the date upon which the Change in Control occurred (or such portion of such period during which Executive was an employee of Ceridian). 7.04 LIMITATION ON CHANGE OF CONTROL COMPENSATION. Notwithstanding any other provisions of this Agreement or of any Other Agreement or Benefit Plan, if any Change of Control Compensation would be considered a "parachute payment" within the meaning of Section 280G(b)(2) of the Code and if, after reduction for any Excise Tax and federal income tax imposed by the Code, Executive's net proceeds of such Change of Control Compensation would be less than the amount of Executive's net proceeds resulting from the payment of the Reduced Amount after reduction for federal income taxes, then the Change of Control Compensation payable to Executive shall be limited to the Reduced Amount. The determinations required by the preceding sentence shall be made by the firm of independent certified public accountants serving as the outside auditor of Ceridian as of the date of the applicable Change of Control, and such determinations shall be binding upon Ceridian and Executive. If Change of Control Compensation to Executive is limited to the Reduced Amount, then Executive shall have the right, in his or her sole discretion, to designate those payments or benefits under this Agreement, any Other Agreements and/or any Benefit Plans that should be reduced or eliminated so as to avoid having Executive's Change of Control Compensation be subject to the Excise Tax. If Executive fails to make such designation within 30 days of having received notification that such designation is required, Ceridian shall make such designations and shall promptly inform Executive of its actions in such regard. 14 7.05 INTEREST. In the event Parent Corporation does not make timely payment in full of the Change of Control Termination payment described in Section 7.03, Executive shall be entitled to receive interest on any unpaid amount at the lower of: (a) the prime rate of interest (or such comparable index as may be adopted) established from time to time by the First Bank National Association, Minneapolis, Minnesota; or (b) the maximum rate permitted under Section 280G(d)(4) of the Internal Revenue Code." 7.06 ATTORNEYS' FEES. In the event Executive incurs any legal expense to enforce or defend his or her rights under this Article VII of this Agreement, or to recover damages for breach thereof, Executive shall be entitled to recover from Ceridian any expenses for attorneys' fees and disbursements incurred. 7.07 BENEFITS CONTINUATION. In the event of a Change of Control Termination, Executive (and anyone entitled to claim under or through Executive) shall, until age 65, be entitled to receive from Ceridian the same or equivalent health, dental, accidental death and dismemberment, short and long-term disability, life insurance coverages, and all other insurance policies and health and welfare benefits programs, policies or arrangements, at the same levels and coverages as Executive was receiving on the day immediately prior to the Change of Control. To the extent that election of continuation of any of such coverages, programs, policies, or arrangements is made available to employees terminating at age 55 with 15 or more years of service, Executive shall be required to pay no more for continuation than is required of such employees on the day immediately prior to the Change of Control. If no such continuation program is available, Executive shall be required to pay no more than he/she paid as an active employee, or if provided by Ceridian at no cost to employees on the day immediately prior to the Change of Control, they shall continue to be made available to Executive on this basis. ARTICLE VIII CHANGE OF SUBSIDIARY STATUS In the event that, prior to a Change of Control: (a) a Subsidiary is sold, merged, contributed, or in any other manner transferred, or if for any reason Parent Corporation's ownership interest in any such Subsidiary falls below the level specified in Section 1.07, (b) Executive's primary employment duties are with the Subsidiary at the time of the occurrence of such event, and (c) Executive does not, in conjunction therewith, transfer employment directly to Parent Corporation or another Subsidiary, then: (1) If Executive gives his or her written consent to the assignment of this Agreement to such Subsidiary, or to the purchaser or new majority interest holder of such Subsidiary, (and such assignment is accepted) this Agreement shall remain in full force and effect between Executive and the assignee, except that the provisions of Article VII of this Agreement shall become null and void; 15 (2) If such assignment is not accepted by the Subsidiary or purchaser, then this Agreement shall be deemed to have been terminated by Ceridian without cause pursuant to Section 4.03 of Article IV; and (3) In all other cases, this Agreement shall be deemed terminated for cause pursuant to Section 4.02 of Article IV. ARTICLE IX GENERAL PROVISIONS 9.01 NO ADEQUATE REMEDY. The parties declare that it is impossible to measure in money the damages which will accrue to either party by reason of a failure to perform any of the obligations under this Agreement. Therefore, if either party shall institute any action or proceeding to enforce the provisions hereof, such party against whom such action or proceeding is brought hereby waives the claim or defense that such party has an adequate remedy at law, and such party shall not urge in any such action or proceeding the claim or defense that such party has an adequate remedy at law. 9.02 SUCCESSORS AND ASSIGNS. Except as otherwise provided in Article VIII, this Agreement shall be binding upon and inure to the benefit of the successors and assigns of Parent Corporation and each Subsidiary, whether by way of merger, consolidation, operation of law, assignment, purchase or other acquisition of substantially all of the assets or business of Ceridian, and any such successor or assign shall absolutely and unconditionally assume all of Ceridian's obligations hereunder. 9.03 NOTICES. All notices, requests and demands given to or made pursuant hereto shall, except as otherwise specified herein, be in writing and be delivered or mailed to any such party at its address: (a) Ceridian Corporation 8100 34th Avenue South Minneapolis, Minnesota 55425-1640 Attention: Office of General Counsel (b) In the case of Executive shall be: At the address listed on the last page of this Agreement. Either party may, by notice hereunder, designate a changed address. Any notice, if mailed properly addressed, postage prepaid, registered or certified mail, shall be deemed dispatched on the registered date or that stamped on the certified mail receipt, and shall be deemed received within the second business day thereafter or when it is actually received, whichever is sooner. 16 9.04 CAPTIONS. The various headings or captions in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement. 9.05 GOVERNING LAW. The validity, construction and performance of this Agreement shall be governed by the laws of the State of Minnesota and any and every legal proceeding arising out of or in connection with this Agreement shall be brought in the appropriate courts of the State of Minnesota, each of the parties hereby consenting to the exclusive jurisdiction of said courts for this purpose. The parties hereto expressly recognize and agree that the implementation of this Governing Law provision is essential in light of the fact that Parent Corporation's corporate headquarters and its principal executive offices are located within the State of Minnesota, and there is a critical need for uniformity in the interpretation and enforcement of the employment agreements between Ceridian and its senior executives. 9.06 CONSTRUCTION. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. 9.07 WAIVERS. No failure on the part of either party to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right or remedy granted hereby or by any related document or by law. 9.08 MODIFICATION. This Agreement may not be and shall not be modified or amended except by written instrument signed by the parties hereto. 9.09 ARBITRATION. Because the parties recognize that resolving any future differences in the courts can require a long time and great expense, Company and Executive agree that their only remedy for disputes either may have with the other and that arise out of Executive's employment, or any aspect of this Agreement, shall be to submit all disputes to final and binding arbitration in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association. The aggrieved party must send a written notice of claim to the other party by certified mail, return receipt requested to the address listed in Section 7.03 of this Agreement. The arbitrator shall apply the law in accordance with this Agreement, or federal law, or both, as applicable to the claim(s) asserted. 9.10 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and understanding between the parties hereto in reference to all the matters herein agreed upon. This Agreement replaces in full all prior employment agreements or understandings of the parties hereto, and any and all such prior agreements or understandings are hereby rescinded by mutual agreement. Any changes or amendments to this Agreement must be in writing and signed by both parties. 17 IN WITNESS WHEREOF, The parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. EXECUTIVE CERIDIAN CORPORATION /s/ Carl O. Keil By: /s/ John A. Haveman - ----------------------------------- -------------------------------- Title: Vice President & Secretary -------------------------------- 18 EX-10.10 8 EXHIBIT 10.10 EXHIBIT 10.10 REVISION TO AMENDMENT NO. 1 TO SEVERANCE COMPENSATION AGREEMENT This Revision to the Amendment No. 1 to Severance Compensation Agreement, dated as of July 28, 1997 (the "Revision"), is entered into by and among George L. McTavish (the "Executive"), Comdata Holdings Corporation (the "Company"), and Ceridian Corporation ("Ceridian"). RECITALS: WHEREAS, the Company and the Executive are parties to a Severance Compensation Agreement, dated as of November 29, 1994 ("Agreement") and the Company, Executive, and Ceridian are parties to Amendment No. 1 to that Severance Compensation Agreement dated as of January 31, 1996 ("Amendment"); and WHEREAS, "Good Reason" as defined in Section 3(e)(i) of the Amendment has taken place as of May 12, 1997 insofar as Executive's assignment and title changed; and WHEREAS, the Executive has agreed to remain employed pursuant to the terms as revised herein through December 31, 1997 notwithstanding the occurrence of "Good Reason"; NOW, THEREFORE, for and in consideration of the mutual promises, covenants and conditions set forth in this Revision and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company, the Executive and Ceridian hereby agree as follows: (1) Section 1 of the Amendment is hereby amended by deleting such section from the Amendment in its entirety, and by substituting in lieu thereof the following new section: "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 the Executive's employment with the Company based on death, Disability (as defined in Section 3(b)), Retirement (as defined in Section 3(c)), or by the Executive other than for Good Reason (as defined in Section 3(e)); and (ii) December 31, 1997 if the Executive has not terminated his employment for Good Reason (other than for the Good Reasons described above in the Recitals to this Revision)," (2) Section 4(a) of the Amendment is hereby amended by deleting such section in its entirety, and by substituting in lieu thereof the following new Section 4(a): "(a) If the Company shall terminate the Executive's employment other than pursuant to Section 3(b), 3(c) or 3(d) or if the Executive shall terminate his employment for Good Reason (other than for the Good Reasons described above in the Recitals to this Revision) by December 31, 1997, then the Executive shall be entitle to the benefits provided in Sections 4(a) (as amended), (b) and (c) of the Agreement. Severance pay, as defined in Section 4(a) (as amended) will be as shown in Attachment A to this Revision and will be paid in a lump sum, in cash, on the fifth day following the Termination Date. (3) Paragraph 3 "Salary and Benefits" of Schedule 1 of the Amendment is hereby amended by deleting such paragraph section in its entirety, and by substituting in lieu thereof the following new paragraph: "Annual salary of $348,140. The Executive is eligible to participate in the 1997 Ceridian Executive Incentive Plan with a target annual payment, based on performance, for the first five months of 1997, calculated using 40% of the Executive's year-end annualized salary, with a maximum payout under the plan calculated at 60% (prorated by the number of months of participation), and for the last seven months of 1997, calculated using 55% of the Executive's year-end annualized salary, with a maximum payout under the plan calculated at 82.5% (prorated by the number of months participation). CERIDIAN: EXECUTIVE: CERIDIAN CORPORATION /s/ G.L. McTavish ---------------------------------- George L. McTavish By:/s/ Michael E. Kotten ------------------------------- Its: Vice President COMPANY: ------------------------------ By: /s/ Michael E. Kotten ------------------------------- Its: ------------------- EX-10.12 9 EXHIBIT 10.12 EXHIBIT 10.12 CERIDIAN CORPORATION EMPLOYEE NON-STATUTORY STOCK OPTION AWARD AGREEMENT 1993 LONG-TERM INCENTIVE PLAN This Agreement between you, (NAME), and Ceridian Corporation (the "Company") is dated as of (DATE OF GRANT) (the "Date of Grant") and evidences the grant of a Non-Statutory Stock Option (the "Stock Option") to you pursuant to the 1993 Long-Term Incentive Plan of the Company (the "Plan"). Any capitalized term used in this Agreement which is defined in the Plan shall have the same meaning as set forth in the Plan. 1. Effective as of the Date of Grant, the Company has granted to you the option to purchase from the Company, and the Company has agreed to sell to you, (SHARES) shares of Common Stock at a price of $00.00 per share (the "Option Shares"). 2. This Option shall become void and expire at midnight (Minneapolis time) on the tenth anniversary of the Date of Grant and may not be exercised after that time. 3. Except as otherwise expressly provided in paragraphs 4 through 9 of this Agreement, and provided you have been continuously employed by the Company or a Subsidiary since the Date of Grant, upon (DATE OF 1ST VESTING), this Option shall become exercisable with respect to one-third of the Option Shares, and upon each succeeding (VESTING DATE), the Option shall become exercisable with respect to an additional one-third of the Option Shares. 4. If your employment should be terminated by the Company or any Subsidiary for Cause (as defined in Section 10.3(b) of the Plan), this Option may not be exercised after such termination of employment, and all your rights under the Plan and this Agreement will immediately terminate. 5. If your employment with the Company and all Subsidiaries should terminate by reason of death or Disability, the Option shall become immediately exercisable in full and will remain exercisable for the period specified in paragraph 2 of this Agreement. 6. If your employment with the Company and all Subsidiaries should terminate by reason of Retirement, the Option shall continue to become exercisable in accordance with the terms of this Agreement and the Plan, and may be exercised at any time after it becomes exercisable and before it becomes void and expires as set forth in paragraph 2 of this Agreement. 7. If your employment with the Company and all Subsidiaries of the Company should terminate other than by reason of death, Disability, Retirement or termination by the Company or any Subsidiary for Cause, you shall have three months following the date of such termination to exercise this Option (but in no event after the time it becomes void and expires as set forth in paragraph 2) to the extent that you were entitled to exercise it as of the date of such termination. 8. If a Change of Control occurs, and if this Option has been outstanding for at least six months from the Date of Grant, then you shall have the rights, if any, to accelerated exercisability of this Option as are specified in Section 12 of the Plan as in effect on the date of the Change of Control. 9. If, at any time during the period that this Stock Option is or may yet become exercisable in whole or in part, or at any time prior to one year after the termination of your employment with the Company and all Subsidiaries, whichever is later, you (i) engage in any commercial activity in competition with any part of the business of the Company or its Subsidiaries, (ii) divert or attempt to divert from Ceridian or its Subsidiaries any business of any kind, including, without limitation, interference with any business relationships with suppliers, customers, licensees, licensors, clients or contractors, (iii) make, or cause or attempt to cause any other person to make, any statement, either written or oral, or convey any information about the Company which is disparaging or which in any way reflects negatively upon the Company, or (iv) engage in any other activity that is inimical, contrary or harmful to the interests of the Company or its Subsidiaries, including influencing or advising any person who is employed by or in the service of the Company or its Subsidiaries to leave such employment or service to compete with the Company or its Subsidiaries or to enter into the employment or service of any actual or prospective competitor of the Company or its Subsidiaries, or influencing or advising any competitor of the Company or its Subsidiaries to employ or to otherwise engage the services of any person who is employed by or in the service of the Company or its Subsidiaries, or improperly disclosing or otherwise misusing any confidential information regarding the Company or its Subsidiaries, then (1) this Stock Option shall terminate effective the date on which you enter into such activity, unless terminated sooner by operation of another term of this Agreement or the Plan, and (2) any gain realized by you from exercising all or any portion of this Stock Option during a period beginning six months prior to the date on which you enter into such activity shall be paid by you to the Company. 10. By accepting this Agreement, you consent to a reduction from any amounts the Company owes you from time to time (including wages or other compensation) of any amount you owe the Company under Section 9 of this Agreement. If the Company does not recover by means of set-off the full amount you owe it, you agree to immediately repay the unpaid balance to the Company. 11. Notwithstanding any other provision of this Agreement, the Option shall not be exercisable prior to the expiration of six months after the Date of Grant, except in the case of death or Disability. 2 12. Nothing in the Plan or this Agreement shall confer upon you any right with respect to continuance of employment by the Company or any Subsidiary, nor interfere in any way with the right of the Company or a Subsidiary to terminate your employment at any time. 13. This Option grant, the Option forming a part thereof, and your rights under this Agreement shall be nontransferable (i.e., may not be sold, pledged, donated or otherwise assigned or transferred) by you, either voluntarily or involuntarily, except by will or by applicable law, and any attempt to do so shall void this Option grant and Agreement. This Option shall be exercisable during your lifetime only by you or by your guardian or other legal representative. 14. Neither you nor any other person shall have any rights as a stockholder with respect to any Option Shares until you or such other person shall have become a holder of record of such shares and, except as otherwise provided in Section 4.4 of the Plan, no adjustments shall be made for dividends or other distributions or rights as to which there is a record date preceding the date you become the holder of record of such shares. 15. This Agreement is subject to all of the terms and conditions of the Plan and, where any questions or interpretations arise, the terms and conditions of the Plan and the rules of the Committee administering the Plan shall control. 16. Any notice to be given with respect to this Option, including without limitation a notice of exercise, shall be addressed to the Company, Attention: Corporate Treasury at its principal executive office at 8100 34th Avenue South, Minneapolis, Minnesota 55425, Facsimile No. 612-853-3932, and any notice to be given to you shall be addressed to you at the address given beneath your signature hereto, or at such other address as either party may hereafter designate in writing to the other. 17. Any notice of stock option exercise must specify the number of shares with respect to which the Option is being exercised and be accompanied by either (i) payment in full of the purchase price for the shares exercised or (ii) a Broker Exercise Notice in form and substance satisfactory to the Company. The exercise of the Option shall be deemed effective upon receipt by Corporate Treasury of such notice and payment of the exercise price from you or the broker or dealer named in the Broker Exercise Notice. Any such notice will not be deemed given until actual receipt by Corporate Treasury. In Witness Whereof, Ceridian Corporation and you have executed this Agreement as of the Date of Grant. CERIDIAN CORPORATION OPTIONEE By ------------------------ ----------------------------- 3 EX-10.13 10 EXHIBIT 10.13 EXHIBIT 10.13 FORM OF CERIDIAN CORPORATION PERFORMANCE-BASED STOCK OPTION AWARD AGREEMENT 1993 LONG-TERM INCENTIVE PLAN This Agreement between you, NAME, and Ceridian Corporation (the "Company") is dated as of DATE (the "Date of Grant") and evidences the grant of a Non-Statutory Stock Option (the "Stock Option") to you pursuant to the 1993 Long-Term Incentive Plan of the Company (the "Plan"). 1. Any capitalized term used in this Agreement which is defined in the Plan shall have the same meaning as set forth in the Plan. When used in this Agreement, the following additional terms shall have the meanings indicated: (a) "TOTAL RETURN TO SHAREHOLDERS" means, with respect to the Company or any other S&P 500 Company, the total return to a holder of the common stock of such company as a result of his or her ownership of such common stock during the Measurement Period, such total return (i) to be expressed as a percentage of an assumed initial investment in such common stock on July 31, 1997 and (ii) to include both the appreciation in the per share price of such common stock during the Measurement Period and the per share fair market value of all dividends and distributions paid or distributed by such company with respect to such common stock during the Measurement Period, assuming that all such dividends and distributions are reinvested in shares of such common stock at their Fair Market Value on the last trading day of the month in which the dividend or distribution is paid or distributed. For purposes of calculating TRS for the Company or any other S&P 500 Company, the assumed initial investment in such company's common stock on July 31, 1997 shall be at the applicable Starting Price, and the value of a share of such company's common stock at the end of the Measurement Period shall be the applicable Ending Price. (b) "ENDING PRICE" means, with respect to any S&P 500 Company (including the Company), the average daily last reported sales price of a share of such company's common stock as reported in the WALL STREET JOURNAL during the period September 1, 2001 through September 30, 2001. (c) "FAIR MARKET VALUE" (i) with respect to the Company has the same meaning as specified in Section 2.10 of the Plan, and (ii) with respect to any other S&P 500 Company means the last reported sales price of a share of such company's common stock on the date in question as reported in the WALL STREET JOURNAL. (d) "MEASUREMENT PERIOD" means the period July 31, 1997 through September 30, 2001. (e) "S&P 500 COMPANIES" means the companies that comprise the Standard & Poors' 500 Stock Index as it existed on July 31, 1997, and which are still publicly traded on September 30, 2001. (f) "STARTING PRICE" means, with respect to any S&P 500 Company (including the Company), the average daily last reported sales price of a share of such company's common stock as reported in the WALL STREET JOURNAL during the period July 1, 1997 through July 30, 1997. 2. Effective as of the Date of Grant, the Company has granted to you the option to purchase from the Company, and the Company has agreed to sell to you, NUMBER shares of Common Stock at a price of $00.00 per share (the "Option Shares"). 3. This Stock Option will become void and expire at midnight (Minneapolis time) on the tenth anniversary of the Date of Grant and may not be exercised after that time. 4. Except as otherwise expressly provided in Sections 5 through 8 of this Agreement, this Stock Option will become exercisable at the times and to the extent specified in this Section 4, but only if, at the time specified, you have been continuously employed by the Company or a Subsidiary since the Date of Grant. (a) This Stock Option will become exercisable with regard to one-third of the Option Shares on July 31, 1999 if the average closing price of a share of the Company's Common Stock on the New York Stock Exchange for any 20 consecutive trading days during the period beginning on the Grant Date and ending on July 30, 1999 is greater than $54.00. (b) This Stock Option will become exercisable with regard to two-thirds of the Option Shares in the aggregate (inclusive of any Option Shares that became exercisable pursuant to paragraph 4(a)) on July 31, 2000 if the average closing price of a share of the Company's Common Stock on the New York Stock Exchange for any 20 consecutive trading days during the period beginning on the Grant Date and ending on July 30, 2000 is greater than $62.00. (c) This Stock Option will become exercisable with regard to all of the Option Shares on October 1, 2001 if the average closing price of a share of the Company's Common Stock on the New York Stock Exchange for any 20 consecutive trading days during the period beginning on the Grant Date and ending on September 30, 2001 is greater than $72.00. (d) If the condition specified in paragraph (c) of this Section 4 is not satisfied, this Stock Option will, nevertheless, become exercisable with regard to three-fourths of the Option Shares in the aggregate (inclusive of any Option Shares that became exercisable pursuant to paragraphs 4(a) or (b)) as of October 1, 2001 if the Company's rank for Total Return to Shareholders among S&P 500 Companies during the Measurement Period is at least at the 75th percentile. (e) Notwithstanding paragraphs (a) through (d) of this Section 4, this Stock Option shall become exercisable with respect to all of the Option Shares on July 30, 2006. 2 (f) If there is any change in the corporate structure or shares of the Company of the types described in Sections 3.2(c) or 4.4 of the Plan, then the number of Option Shares, the Starting Price and Ending Price specified in Section 1 and the per share prices specified in paragraphs 4(a), (b) and (c) shall be appropriately adjusted as contemplated by Sections 3.2(c) and 4.4 of the Plan so as to prevent diminution or enlargement of your rights under this Agreement. 5. If your employment is terminated by the Company or any Subsidiary for Cause (as defined in Section 10.3(b) of the Plan), this Stock Option may not be exercised after such termination of employment, and all of your rights under the Plan and this Agreement will immediately terminate. 6. If your employment with the Company and all Subsidiaries terminates because of death, Disability or a Change of Control Termination, the Stock Option shall immediately become exercisable with respect to that portion of the Option Shares as corresponds to the greatest stock price performance standard specified in paragraphs 4(a), (b) and (c) that was satisfied prior to the date of such termination. In addition, if termination as a result of death or Disability occurs prior to September 30, 2001, the Stock Option shall immediately become exercisable as to the remainder (if any) of the Option Shares if, during the period beginning on the date of such termination and ending on the earlier of the first anniversary of such termination or September 30, 2001, the stock price performance standard specified in paragraph 4(c) is satisfied. If your employment with the Company and all Subsidiaries terminates because of Retirement, then if one or more of the stock price performance standards specified in paragraphs 4(a), (b) and (c) was satisfied prior to the date of such termination, the Stock Option shall become exercisable after such termination on the date(s) and to the extent specified in the applicable paragraph(s) of Section 4. In addition, if termination as a result of Retirement occurs prior to September 30, 2001, the Stock Option shall become exercisable as to the remainder (if any) of the Option Shares on October 1, 2001 if, during the period beginning on the date of such termination and ending on the earlier of the first anniversary of such termination or September 30, 2001, the stock price performance standard specified in paragraph 4(c) is satisfied. To the extent the Stock Option becomes exercisable as a result of this Section 6 or is already exercisable at the time of any termination of employment contemplated by this Section 6, it shall remain so exercisable until the date specified in Section 3 of this Agreement. 7. If your employment with the Company and all Subsidiaries terminates for any reason other than as provided in Sections 5 and 6 of this Agreement, you will forfeit any portion of the Stock Option that has not yet become exercisable as of the employment termination date. To the extent that you were entitled to exercise the Stock Option as of the date of such termination, the Stock Option will remain exercisable for a period of three months after the date of such termination (but in no event after the time it expires as set forth in Section 3 of this Agreement). YOU EXPRESSLY AGREE THAT EXCEPT AS SPECIFICALLY PROVIDED IN SECTION 6 OF THIS AGREEMENT, YOU WILL HAVE NO RIGHT TO ACCELERATED EXERCISABILITY OF THIS STOCK OPTION UNDER SECTION 12 OF THE PLAN IN THE EVENT OF A CHANGE OF CONTROL OR A CHANGE OF CONTROL TERMINATION, AND AGREE THAT FOR 3 PURPOSES OF THIS STOCK OPTION, SECTION 12 OF THE PLAN SHALL OTHERWISE BE DEEMED TO HAVE BEEN RESCINDED BY THE BOARD. 8. If, at any time during the period that this Stock Option is or may yet become exercisable in whole or in part, or at any time prior to one year after the termination of your employment with the Company and all Subsidiaries, whichever is later, you (i) engage in any commercial activity in competition with any part of the business of the Company or its Subsidiaries, (ii) divert or attempt to divert from Ceridian or its Subsidiaries any business of any kind, including, without limitation, interference with any business relationships with suppliers, customers, licensees, licensors, clients or contractors, (iii) make, or cause or attempt to cause any other person to make, any statement, either written or oral, or convey any information about the Company which is disparaging or which in any way reflects negatively upon the Company, or (iv) engage in any other activity that is inimical, contrary or harmful to the interests of the Company or its Subsidiaries, including influencing or advising any person who is employed by or in the service of the Company or its Subsidiaries to leave such employment or service to compete with the Company or its Subsidiaries or to enter into the employment or service of any actual or prospective competitor of the Company or its Subsidiaries, or influencing or advising any competitor of the Company or its Subsidiaries to employ or to otherwise engage the services of any person who is employed by or in the service of the Company or its Subsidiaries, or improperly disclosing or otherwise misusing any confidential information regarding the Company or its Subsidiaries, then (1) this Stock Option shall terminate effective the date on which you enter into such activity, unless terminated sooner by operation of another term of this Agreement or the Plan, and (2) any gain realized by you from exercising all or any portion of this Stock Option during a period beginning three months prior to the date on which you enter into such activity shall be paid by you to the Company. 9. By accepting this Agreement, you consent to a reduction from any amounts the Company owes you from time to time (including wages or other compensation) of any amount you owe the Company under Section 8 of this Agreement. If the Company does not recover by means of set-off the full amount you owe it, you agree to immediately repay the unpaid balance to the Company. 10. Nothing in the Plan or this Agreement shall confer upon you any right with respect to continued employment by the Company or any Subsidiary, nor interfere in any way with the right of the Company or a Subsidiary to terminate your employment at any time. 11. Except as provided in Sections 7 and 8 of this Agreement, this Agreement is subject to all of the terms and conditions of the Plan and, where any questions or matters of interpretation arise, the terms and conditions of the Plan and the rules of the Committee administering the Plan shall control. 12. Neither you nor any other person shall have any rights as a stockholder with respect to any Option Shares until you or such other person shall have become a holder of record of such shares and, except as otherwise provided in Section 4.4 of the Plan, no adjustments shall be made 4 for dividends or other distributions or rights as to which there is a record date preceding the date you become the holder of record of such shares. 13. Any notice to be given with respect to this Stock Option, including without limitation a notice of exercise, shall be addressed to the Company, Attention: Corporate Treasury, at its principal executive office at 8100 34th Avenue South, Minneapolis, Minnesota 55425, Facsimile No. 612-853-3932, and any notice to be given to you shall be addressed to you at the address given beneath your signature below, or at such other address as either party may hereafter designate in writing to the other. 14. Any notice of stock option exercise must specify the number of shares with respect to which the Stock Option is being exercised and be accompanied by either (i) payment in full of the purchase price for the shares exercised or (ii) a Broker Exercise Notice in form and substance satisfactory to the Company. The exercise of the Stock Option shall be deemed effective upon receipt by Corporate Treasury of such notice and payment of the exercise price from the Participant or the broker or dealer named in the Broker Exercise Notice. Any such notice will not be deemed given until actual receipt by Corporate Treasury. In Witness Whereof, Ceridian Corporation and you have executed this Agreement as of the Date of Grant. CERIDIAN CORPORATION OPTIONEE By ----------------------------- ------------------------------- Assistant Secretary Name 5 EX-10.16 11 EXHIBIT 10.16 EXHIBIT 10.16 DESCRIPTION OF THE CERIDIAN CORPORATION ANNUAL EXECUTIVE INCENTIVE PLAN Ceridian's Annual Executive Incentive Plan provides yearly cash bonuses to Ceridian executives. The annual determination of an individual executive's target bonus, expressed as a percentage of base salary, is based on a subjective assessment by the Board's Compensation and Human Resources Committee (the "Committee") of the responsibilities of the position, competitive practice and the Committee's desire to give greater weight to performance-based compensation at higher levels of responsibility within Ceridian. For 1997, target bonus percentages for executive officers ranged from 35% to 65% of base salary, with the maximum possible bonus one and one-half times the target amount and the threshold bonus one-half of the target amount. For staff officers, generally 100% of the total potential annual bonus was dependent upon Ceridian achieving specified levels of earnings per share ("EPS") for 1997. For an executive officer assigned to an operating unit, 20% of the total potential bonus consisted of the same Ceridian EPS requirement, 50% consisted of a requirement that the operating unit achieve specified levels of pre-tax earnings, 20% consisted of a requirement that the operating unit achieve specified levels of revenue growth, and 10% was based on the Committee's subjective assessment of the executive officer's individual performance in the area of fostering work force diversity. Payment of the financial components of the annual bonus could be made at, above or below the target percentages depending on whether the financial performance of Ceridian (and, if applicable, the business unit to which the executive was assigned) met, exceeded or fell short of the applicable budgeted amounts, but no bonus would be payable if the applicable threshold amounts were not achieved. The Committee retains discretion to exclude the financial impact of unusual or extraordinary events from the calculation of the financial components of annual bonuses, and to adjust a bonus payment if warranted in individual circumstances. For purposes of determining 1997 bonuses, the Committee exercised its discretion in evaluating the impact on the financial performance of Ceridian and its business units of unusual events such as the gain from the sale of Ceridian's defense electronics division, the recognition of the future tax benefits of Ceridian's net operating loss carryforwards, and the asset impairment and other unusual charges that were recorded during 1997. As a result, 1997 bonus payments for executive officers ranged between 35% and 74.3% of base salary. For 1997 only, the employment agreements for two executive officers hired in 1997 guaranteed payment of a bonus at target bonus percentage. EX-10.22 12 EXHIBIT 10.22 CERIDIAN CORPORATION 1996 DIRECTOR PERFORMANCE INCENTIVE PLAN (As amended through December 15, 1997) 1. PURPOSE OF PLAN. The purpose of the Ceridian Corporation 1996 Director Performance Incentive Plan (the "Plan") is to advance the interests of Ceridian Corporation (the "Company") and its stockholders by enabling the Company to attract and retain the services of experienced and knowledgeable non-employee directors, to increase the proprietary interests of such non-employee directors in the Company's long-term success and their identification with the interests of the Company's stockholders, and to serve as the source of transitional awards of Common Stock (as defined below) in connection with the termination of the Company's Directors Deferred Compensation Plan (the "Directors' Retirement Plan"), a retirement plan for non-employee directors. 2. DEFINITIONS. The following terms will have the meanings set forth below, unless the context clearly otherwise requires: 2.1 "AWARD" means an Option, Restricted Stock Award or Share Award granted to an Eligible Director pursuant to the Plan. 2.2 "BOARD" means the Board of Directors of the Company. 2.3 "BROKER EXERCISE NOTICE" means a written notice pursuant to which an Eligible Director, upon exercise of an Option, irrevocably instructs a broker or dealer to sell a sufficient number of shares or loan a sufficient amount of money to pay all or a portion of the exercise price of the Option and/or any related withholding tax obligations and remit such sums to the Company and directs the Company to deliver stock certificates to be issued upon such exercise directly to such broker or dealer. 2.4 "CODE" means the Internal Revenue Code of 1986, as amended. 2.5 "COMMITTEE" means the group of individuals administering the Plan, as provided in Section 3 of the Plan. 2.6 "COMMON STOCK" means the common stock of the Company, par value $0.50 per share, or the number and kind of shares of stock or other securities into which such Common Stock may be changed in accordance with Section 4.3 of the Plan. 2.7 "DISABILITY" means the disability of an Eligible Director such as would entitle the Eligible Director to receive disability income benefits pursuant to the long-term disability plan of the Company then covering the Eligible Director or, if no such plan exists or is applicable to the Eligible Director, the permanent and total disability of the Eligible Director within the meaning of Section 22(e)(3) of the Code. 2.8 "ELIGIBLE DIRECTORS" means all directors of the Company who are not employees of the Company or any subsidiary of the Company. 2.9 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. 2.10 "FAIR MARKET VALUE" means, with respect to the Common Stock, as of any date (or, if no shares were traded or quoted on such date, as of the next preceding date on which there was such a trade or quote), the closing market price per share of the Common Stock as reported on the New York Stock Exchange Composite Tape on that date. 2.11 "OPTION" means a right to purchase 2,000 shares of Common Stock (subject to adjustment as provided in Section 4.3 of the Plan) granted to an Eligible Director pursuant to Section 6 of the Plan that does not qualify as an "incentive stock option" within the meaning of Section 422 of the Code. [Section 2.11 as amended effective October 23, 1997.] 2.12 "RESTRICTED SHARES" means shares of Common Stock that are the subject of a Restricted Stock Award, and therefore subject to the restrictions on transferability and the risk of forfeiture imposed by the provisions of Sections 5 and 8 of the Plan. 2.13 "RESTRICTED STOCK AWARD" means an award of Restricted Shares to an Eligible Director pursuant to Section 5 of the Plan. 2.14 "SECURITIES ACT" means the Securities Act of 1933, as amended. 2.15 "SHARE AWARD" means an award of shares of Common Stock granted to an Eligible Director pursuant to Section 7 of the Plan. 3. PLAN ADMINISTRATION. The Plan will be administered by the Nominating and Board Governance Committee of the Board, or any successor committee thereto (the "Committee"). All questions of interpretation of the Plan will be determined by the Committee, each determination, interpretation or other action made or taken by the Committee pursuant to the provisions of the Plan will be conclusive and binding for all purposes and on all persons, and no member of the Committee will be liable for any action or determination made in good faith with respect to the Plan or any Award granted under the Plan. The Committee, however, will have no power to determine the eligibility for participation in the Plan, the number of shares of Common Stock to be subject to Awards, or the timing, pricing or other terms and conditions of the Awards. 4. SHARES AVAILABLE FOR ISSUANCE. 4.1 MAXIMUM NUMBER OF SHARES AVAILABLE. Subject to adjustment as provided in Section 4.3 of the Plan, the maximum number of shares of Common Stock that will be available for issuance under the Plan will be 125,000 shares. The shares available for issuance under the Plan may, at the election of the Committee, be either treasury shares or shares authorized but unissued, and, if treasury shares are used, all references in the Plan to the issuance of shares will, for corporate law purposes, be deemed to mean the transfer of shares from treasury. 4.2 ACCOUNTING FOR AWARDS. Shares of Common Stock that are issued under the Plan or that are subject to outstanding Awards will be applied to reduce the maximum number of shares of Common Stock remaining available for issuance under the Plan. Any shares of Common Stock that are subject to an Award that lapses, expires, or for any reason is terminated unexercised will automatically again become available for issuance under the Plan. 4.3 ADJUSTMENTS TO SHARES AND AWARDS. In the event of any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, divestiture or extraordinary dividend (including a spin-off) or any other change in the corporate structure or shares of the Company, the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation) will make appropriate adjustment (which determination will be conclusive) as to the number and kind of securities available for issuance under the Plan and, in order to prevent dilution or enlargement of the rights of Eligible Directors, the number, kind and, where applicable, exercise price of securities subject to outstanding Incentive Awards. 2 5. RESTRICTED STOCK AWARDS. 5.1 GRANTS TO NEW DIRECTORS. At such time on or after the effective date of this Plan as additional Eligible Directors are first elected or appointed to the Board to fill new directorships or to fill vacancies, each such Eligible Director will receive, on a one-time basis on the date of his or her first election or appointment to the Board, a Restricted Stock Award. The number of Restricted Shares to be awarded to each such Eligible Director pursuant to such Restricted Stock Award shall be determined by first multiplying the dollar value of the then current annual retainer paid to Eligible Directors by 2.5, then dividing that result by the average closing price of a share of Common Stock on the New York Stock Exchange for the ten trading days immediately prior to the date of such Eligible Director's first election or appointment to the Board, and then rounding the result to the nearest 100 shares. [Section 5.1 as amended effective December 15, 1997.] 5.2 TRANSITIONAL GRANTS TO EXISTING DIRECTORS. A Restricted Stock Award will be granted, on a one-time basis as of the date the Plan is approved by the Company's stockholders, to each Eligible Director as of such date who has not yet completed 48 calendar quarters of service on the Board and who has consented to the termination of the Directors' Retirement Plan. The number of Restricted Shares to be awarded to each such Eligible Director pursuant to such Restricted Stock Award shall be determined by multiplying the number of Restricted Shares that would be awarded pursuant to Section 5.1 to a new director who was first elected to the Board on May 8, 1996 by a fraction, the denominator of which is 48 and the numerator of which is the number of whole and partial calendar quarters from July 1, 1996 through the earlier of (i) the twelfth anniversary of such director's initial election or appointment to the Board, or (ii) the date of the first annual meeting of the Company's stockholders occurring after the director reaches the age of 70. 5.3 RESTRICTIONS. Restricted Shares issued to an Eligible Director may not be sold, assigned or otherwise transferred, or subjected to any lien, either voluntarily or involuntarily, by operation of law or otherwise, until such time and only to the extent that such restrictions on transferability have lapsed as provided in this Section 5.3 or in Section 8. For purposes of this Plan, the lapsing of such transferability restrictions is referred to as "vesting," and Restricted Shares that are no longer subject to such transferability restrictions are referred to as "vested." Except as provided in Section 8, Restricted Shares will vest during the period of an Eligible Director's service on the Board as follows: (a) With respect to a Restricted Stock Award made pursuant to Section 5.1, 20% of the total number of Restricted Shares subject to such Award will vest on each of the first five anniversary dates of the date such Restricted Stock Award was first granted. (b) With respect to a Restricted Stock Award made pursuant to Section 5.2, a fraction of the total number of Restricted Shares subject to such Award will vest on each anniversary date of the date such Restricted Stock Award was first granted, the numerator of such fraction being 4 and the denominator being the number of whole and partial calendar quarters from July 1, 1996 through the earliest of (i) the twelfth anniversary of such director's initial election or appointment to the Board, (ii) the date of the first annual meeting of the Company's stockholders occurring after the director reaches the age of 70, or (iii) June 30, 2001. 5.4 DIVIDENDS AND DISTRIBUTIONS. Unless the Committee determines otherwise in its sole discretion (either in the agreement evidencing the Restricted Stock Award at the time of grant or at any time after the grant of the Restricted Stock Award), any dividends or distributions (including regular quarterly cash dividends) paid with respect to Restricted Shares will be currently paid to the Eligible Director and will not be subject to the same restrictions as the Restricted Shares to which such dividends or distributions relate. In the event the Committee determines not to pay such dividends or distributions currently, the Committee will determine in its sole discretion whether any interest will be paid on such dividends or distributions. 3 5.5 RIGHTS AS A STOCKHOLDER. Except as provided in this Section 5 and in Section 8, an Eligible Director will have all voting, dividend and other rights with respect to Restricted Shares issued to the Eligible Director upon the Eligible Director becoming the holder of record of such Restricted Shares as if such Eligible Director were a holder of record of shares of unrestricted Common Stock. 5.6 ENFORCEMENT OF RESTRICTIONS. To enforce the restrictions referred to in this Section 5, the Committee will place a legend on the stock certificates referring to such restrictions and will require Eligible Directors, until the Restricted Shares vest, to keep the stock certificates, together with duly endorsed stock powers, in the custody of the Company or its transfer agent or to maintain evidence of stock ownership, together with duly endorsed stock powers if required, in a certificateless book-entry stock account with the Company's transfer agent for its Common Stock. 6. OPTIONS. 6.1 GRANT. Each Eligible Director will be granted on an annual basis, at such time as the Eligible Director is elected or re-elected to the Board by the stockholders of the Company, an Option. Such Option will be granted only upon such election or re-election of the Eligible Director, and no Option will be granted if the Eligible Director is not so elected or re-elected. 6.2 EXERCISE PRICE. The per share price to be paid by an Eligible Director upon exercise of an Option will be 100% of the Fair Market Value of one share of Common Stock on the date of grant. The total purchase price of the shares to be purchased upon exercise of an Option will be paid entirely in cash (including check, bank draft or money order), or such payment may be made, in whole or in part, by tender of a Broker Exercise Notice. 6.3 EXERCISABILITY AND DURATION. Other than as provided in Section 8 of the Plan, each Option will become exercisable in full six months following its date of grant and will expire and will no longer be exercisable 10 years from its date of grant. 6.4 MANNER OF EXERCISE. An Option may be exercised by an Eligible Director in whole or in part from time to time, subject to the conditions contained in the Plan and in the agreement evidencing such Option, by delivery in person, by facsimile or electronic transmission or through the mail of written notice of exercise to the Company, Attention: Corporate Treasury, at its principal executive office in Bloomington, Minnesota and by paying in full the total exercise price for the shares of Common Stock to be purchased in accordance with Section 6.2 of the Plan. 6.5 RIGHTS AS A STOCKHOLDER. As a holder of Options, an Eligible Director will have no rights as a stockholder unless and until such Options are exercised for shares of Common Stock and the Eligible Director becomes the holder of record of such shares. No adjustment will be made for dividends or distributions with respect to Options as to which there is a record date preceding the date the Eligible Director becomes the holder of record of such shares. 7. SHARE AWARDS. Share Awards pursuant to the Plan will take the form of either Retirement Plan Share Awards pursuant to Section 7.1 hereof, or Retainer Share Awards pursuant to Section 7.2 hereof. 7.1 IN LIEU OF DIRECTORS' RETIREMENT PLAN BENEFITS. A Retirement Plan Share Award will be granted, on a one-time basis as of the date the Plan is approved by the Company's stockholders, to each Eligible Director as of such date who has consented to the termination of the Directors' Retirement Plan and agreed to relinquish his or her accrued benefits thereunder. The number of shares of Common Stock to be awarded to each such Eligible Director pursuant to such a Retirement Plan Share Award shall be determined by dividing the present value, using an 8% discount rate, of such Eligible Director's accrued benefits (without regard to the satisfaction of the length of service eligibility requirement in Article III of the Directors' Retirement Plan) under the Directors' Retirement Plan 4 (assuming commencement of such benefits immediately upon termination of the Directors' Retirement Plan) by the average closing price of a share of Common Stock on the New York Stock Exchange for the ten trading days immediately prior to May 8, 1996, rounded to the nearest whole share. Shares subject to a Retirement Plan Share Award made pursuant to this Section 7.1 will not be subject to any contractual restrictions on transferability or to any contractual risk of forfeiture. 7.2 AS PAYMENT OF A PORTION OF ANNUAL RETAINER. (a) A Retainer Share Award will be granted annually as of the first trading day of each calendar year, commencing January 2, 1997, to each Eligible Director as of such date. The number of shares of Common Stock to be awarded to each Eligible Director pursuant to a Retainer Share Award shall be determined by dividing one-half of the dollar amount of the annual retainer (not to include any supplemental annual retainer payments payable to chairpersons of Board committees or for other purposes) to be paid to each Eligible Director for service as a member of the Board for the calendar year during which such award occurs (the "Issuance Year") by the average closing price of a share of Common Stock on the New York Stock Exchange for the last ten trading days of the immediately preceding calendar year, rounded to the nearest whole share. The issuance of such a Retainer Share Award shall be in lieu of payment of that half of the annual retainer in cash. (b) Shares subject to a Retainer Share Award may not be sold, assigned or otherwise transferred, or subjected to any lien, either voluntarily or involuntarily, by operation of law or otherwise, until such time as the Eligible Director's service as a director of the Company ceases. In addition, a portion of the shares subject to an Eligible Director's most recent Retainer Share Award shall be forfeited if the Eligible Director's service as a director of the Company ceases for any reason prior to December 31 of the Issuance Year. The portion of the shares subject to a Retainer Share Award that shall be forfeited pursuant to this paragraph 7.2(b) shall be determined by multiplying the number of shares subject to such Retainer Share Award by a fraction, the numerator of which is the number of days remaining in the Issuance Year after the date of such Eligible Director's cessation of service as a director and the denominator of which is 365, rounded down to the nearest whole share. (c) Except as otherwise provided in this Section 7.2, an Eligible Director will have all voting, dividend, distribution and other rights with respect to shares subject to a Retainer Share Award upon the Eligible Director becoming the holder of record of such shares as if such Eligible Director were a holder of record of shares of unrestricted Common Stock. (d) To enforce the restrictions referred to in this Section 7.2, ownership of shares subject to a Retainer Share Award will be evidenced in a certificateless book-entry stock account in the name of each Eligible Director with the Company's transfer agent for its Common Stock. A certificate for the number of shares in such a book-entry account that are not subject to forfeiture pursuant to paragraph 7.2(b) hereof will be issued to the applicable Eligible Director when such director's term of service on the Company's Board ceases. [Section 7 as amended effective December 31, 1996.] 8. EFFECT OF TERMINATION OF SERVICE AS DIRECTOR. 8.1 TERMINATION DUE TO DEATH OR DISABILITY. If an Eligible Director's service as a director of the Company is terminated by reason of death or Disability, all outstanding Options then held by the Eligible Director will become immediately exercisable in full and will remain exercisable for the remainder of their terms, and all Restricted Shares then held by such Eligible Director shall immediately and fully vest. 8.2 VOLUNTARY TERMINATION. If an Eligible Director voluntarily resigns from the Board (which does not include the submission of an offer not to stand for re-election as a director in accordance with Company policies), the Eligible Director shall forfeit all Restricted Shares not yet vested, and outstanding Options then held by the Eligible Director will remain exercisable for a 5 period of three months after such termination (but in no event after the expiration date of any such Option) only to the extent they were exercisable as of such termination. 8.3 TERMINATION FOR OTHER REASONS. If an Eligible Director's service as a director of the Company terminates for any reason other than those specified in Sections 8.1 and 8.2, the portion of such Eligible Director's Restricted Shares that were scheduled to vest on the next vesting date following the date of such termination shall immediately vest, but all remaining unvested Restricted Shares shall be forfeited, and outstanding Options then held by the Eligible Director will remain exercisable until the expiration date of each such Option only to the extent such Options were exercisable as of such termination. 8.4 DATE OF TERMINATION OF SERVICE AS A DIRECTOR. An Eligible Director's service as a director of the Company will, for purposes of the Plan, be deemed to have terminated on the date recorded on the personnel or other records of the Company, as determined by the Committee based upon such records. 9. RIGHTS OF ELIGIBLE DIRECTORS; TRANSFERABILITY OF INTERESTS. 9.1 SERVICE AS A DIRECTOR. Nothing in the Plan will interfere with or limit in any way the right of the Board or the stockholders of the Company to terminate an Eligible Director, and neither the Plan, nor the granting of an Award nor any other action taken pursuant to the Plan, will constitute or be evidence of any agreement or understanding, express or implied, that the Board or the stockholders of the Company will retain an Eligible Director for any period of time or at any particular rate of compensation. 9.2 RESTRICTIONS ON TRANSFER OF INTERESTS. Except pursuant to testamentary will or the laws of descent and distribution or as otherwise expressly permitted by the Plan, no right or interest of any Eligible Director in an Award prior to the exercise of Options or the vesting of Restricted Shares will be assignable or transferable, or subjected to any lien, during the lifetime of the Eligible Director, either voluntarily or involuntarily, by operation of law or otherwise. An Eligible Director will, however, be entitled to designate a beneficiary to receive an Award upon such Eligible Director's death, and in the event of an Eligible Director's death, payment of any amounts due under the Plan will be made to, and exercise of any Options (to the extent permitted pursuant to Section 6 of the Plan) may be made by, the Eligible Director's legal representatives, heirs and legatees. 9.3 NON-EXCLUSIVITY OF THE PLAN. Nothing contained in the Plan is intended to create any limitations on the power or authority of the Board to adopt such additional or other compensation arrangements for non-employee directors as the Board may deem necessary or desirable. 10. SECURITIES LAW AND OTHER RESTRICTIONS. Notwithstanding any other provision of the Plan or any agreements entered into pursuant to the Plan, the Company will not be required to issue any shares of Common Stock under this Plan, and an Eligible Director may not sell, assign, transfer or otherwise dispose of shares of Common Stock issued pursuant to Awards granted under the Plan, unless (a) there is in effect with respect to such shares a registration statement under the Securities Act and any applicable state securities laws or an exemption from such registration under the Securities Act and applicable state securities laws, and (b) there has been obtained any other consent, approval or permit from any other regulatory body which the Committee, in its sole discretion, deems necessary or advisable. The Company may condition such issuance, sale or transfer upon the receipt of any representations or agreements from the parties involved, and the placement of any legends on certificates representing shares of Common Stock, as may be deemed necessary or advisable by the Company in order to comply with such securities law or other restrictions. 11. PLAN AMENDMENT, MODIFICATION AND TERMINATION. 6 The Board may suspend or terminate the Plan or any portion thereof at any time, and may amend the Plan from time to time in such respects as the Board may deem advisable in order that Awards under the Plan will conform to any change in applicable laws or regulations or in any other respect the Board may deem to be in the best interests of the Company; provided, however, that (a) no amendments to the Plan will be effective without approval of the stockholders of the Company if stockholder approval of the amendment is then required pursuant to Rule 16b-3 under the Exchange Act or the rules of the New York Stock Exchange, and (b) to the extent prohibited by Rule 16b-3 of the Exchange Act, the Plan may not be amended more than once every six months. No termination, suspension or amendment of the Plan may adversely affect any outstanding Award without the consent of the affected Eligible Director; provided, however, that this sentence will not impair the right of the Committee to take whatever action it deems appropriate under Section 4.3 of the Plan. 12. EFFECTIVE DATE AND DURATION OF THE PLAN. The Plan will be effective as of May 8, 1996, the date it is to be approved by the Company's stockholders. The Plan will terminate at midnight on May 31, 2001, and may be terminated prior thereto by Board action, and no Award will be granted after such termination. Awards outstanding upon termination of the Plan may continue to be exercised or to vest in accordance with their terms. 13. MISCELLANEOUS. 13.1 GOVERNING LAW. The validity, construction, interpretation, administration and effect of the Plan and any rules, regulations and actions relating to the Plan will be governed by and construed exclusively in accordance with the laws of the State of Minnesota. 13.2 SUCCESSORS AND ASSIGNS. The Plan will be binding upon and inure to the benefit of the successors and permitted assigns of the Company and the Eligible Directors. 7 EX-10.25 13 EXHIBIT 10.25 Exhibit 10.25 WAIVER AND FIRST AMENDMENT TO CREDIT AGREEMENT THIS WAIVER AND FIRST AMENDMENT TO CREDIT AGREEMENT ("Waiver and Amendment"), dated as of December 2, 1997, is entered into by and among CERIDIAN CORPORATION (the "Company"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as agent for itself and the Banks (the "Agent"), the several financial institutions party to the Credit Agreement (collectively, the "Banks") and BancAmerica SECURITIES, INC. with THE BANK OF NEW YORK AND FIRST BANK NATIONAL ASSOCIATION (collectively, the "Co-Agents"). RECITALS A. The Company, Banks, and Agent are parties to an Amended and Restated Credit Agreement (the "Credit Agreement") dated as of December 12, 1995 and amended and restated as of July 31, 1997, pursuant to which the Agent and the Banks have extended certain credit facilities to the Company. B. The Company has reported to the Agent and the Banks the existence of a circumstance which could potentially result in a future Event of Default under the Credit Agreement. The Company has requested that the Banks waive any such potential Event of Default and agree to certain amendments of the Credit Agreement. C. The Banks are willing to waive the potential default under the Credit Agreement, and to amend the Credit Agreement, subject to the terms and conditions of this Waiver and Amendment. NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Defined Terms. Unless otherwise defined herein, capitalized terms used herein shall have the meanings, if any, assigned to them in the Credit Agreement. 2. Defaults and Waiver. (a) For purposes of this Waiver and Amendment, "Potential Default" shall mean the Event of Default which would exist on January 1, 1998 under Section 7.10 of the Credit Agreement in the event the sale of Computing Devices International ("CDI") has not closed on or before December 31, 1997. (b) Subject to the effectiveness of this Waiver and Amendment, and provided the sale of CDI has not closed on or before December 31, 1997, the Banks hereby waive compliance by the Company with Section 7.10 of the Credit Agreement for the period January 1, 1998 through March 31, 1998. (c) Nothing contained herein shall be deemed a waiver of (or otherwise affect the Agent's or the Banks' ability to enforce) any other default or Event of Default. 3. Amendments to Credit Agreement. (a) The Credit Agreement is hereby amended by deleting Schedule 7.02 attached to the Agreement and substituting the Schedule 7.02 attached to this Waiver and Amendment. (b) The Credit Agreement is hereby amended by deleting Section 7.04 in its entirety and substituting the following Section 7.04: "7.04 Indebtedness. The Company shall not, and shall not permit any of its Subsidiaries to, incur, assume or suffer to exist any Indebtedness (a) if a Default or Event of Default has occurred and is continuing or would result from the incurrence or assumption of such indebtedness, or (b) if the aggregate principal amount of all such Indebtedness of such Subsidiaries would exceed 10% of Consolidated Net Worth; provided, however, that up to U.S. $150,000,000 (or the Canadian Dollar equivalent) of purchase money debt incurred by Subsidiaries of the Company to acquire certain payroll businesses in Canada shall not be included as Indebtedness for purposes of computing (b) above. (c) The Credit Agreement is hereby amended by deleting Section 7.09 in its entirety and substituting the following Section 7.09: "7.09 Interest Coverage Ratio. On and after the Closing Date, the Company shall not permit its ratio of (a) EBIT to (b) Consolidated Interest Expense, all calculated on a consolidated basis for the immediately preceding four fiscal quarters of the Company, to be less than 2.75 to 1.00; provided, however, that for the purposes of computing compliance with this covenant, the following shall be excluded: (a) charges of $150,000,000 related to the termination of the development of the CII payroll processing software recorded in the third quarter of fiscal 1997 plus (b) fiscal fourth quarter 1997 charges of up to $150,000,000 for write-offs of prepaid pension costs, goodwill and other assets, and for costs of consolidating certain operations. (d) The Credit Agreement is hereby amended by deleting Section 7.13 and substituting the following Section 7.13: "7.13 Contracts of Subsidiaries. The Company shall not permit any of its Subsidiaries (other than Computing Devices Canada Ltd., Computing Devices Company Ltd. and its subsidiaries, or any Canadian payroll processing subsidiary purchased or established after the Effective Date) to enter into any contract restricting the ability of such Subsidiary to pay dividends or make loans to the Company or Subsidiaries of the Company." 4. Representations and Warranties. The Company hereby represents and warrants to the Agent and the Banks as follows: (a) Other than the Potential Default, no Event of Default has occurred and is continuing. (b) The execution, delivery, and performance by the Company of this Waiver and Amendment have been duly authorized by all necessary corporate and other action and do not and will not require any other registration with, consent or approval of, notice to or action by, any Person (including any Governmental Authority) in order to be effective and enforceable. The Credit Agreement as amended by this Waiver and Amendment constitutes the legal, valid, and binding obligations of the Company, enforceable against it in accordance with its respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability. (c) Subject to the Potential Default, all representations and warranties of the Company contained in the Credit Agreement are true and correct on and as of the date of this Waiver and Amendment with the same effect as if made on and as of such date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct as of such earlier date). (d) The Company is entering into this Waiver and Amendment on the basis of its own investigation and for its own reasons, without reliance upon the Agent and the Banks or any other Person. 5. Effective Date. This Waiver and Amendment will become effective as of December 2, 1997 (the "Effective Date"), provided that each of the following condition precedents are satisfied: (a) The Agent has received from the Company and the Majority Banks a duly executed original (or, if elected by the Agent, an executed facsimile copy) of this Waiver and Amendment. (b) The Agent has received from the Company a copy of a resolution passed by the board of directors of such corporation, certified by the Secretary or an Assistant Secretary of the Company as being in full force and effect on the date hereof, authorizing the execution, delivery, and performance of this Waiver and Amendment. (c) All representations and warranties contained herein are true and correct as of the Effective Date. 6. Reservation of Rights. The Company acknowledges and agrees that neither the Agent's nor the Banks' forbearance in exercising their rights and remedies in connection with the Potential Default, nor the execution and delivery by the Agent and the Banks of this Waiver and Amendment, shall be deemed (i) to create a course of dealing or otherwise obligate the Agent or the Banks to forbear or execute similar waivers under the same or similar circumstances in the future, or (ii) to waive, relinquish, or impair any right of the Agent or the Banks to receive any indemnity or similar payment from any Person or entity as a result of any matter arising from or relating to the Potential Default. 7. Miscellaneous. (a) Except as herein expressly amended, all terms, covenants, and provisions of the Credit Agreement are and shall remain in full force and effect and all references therein to such Credit Agreement shall henceforth refer to the Credit Agreement as amended by this Waiver and Amendment. This Waiver and Amendment shall be deemed incorporated into, and a part of, the Credit Agreement. (b) This Waiver and Amendment shall be binding upon and inure to the benefit of the parties hereto and thereto and their respective successors and assigns. No third party beneficiaries are intended in connection with this Waiver and Amendment. (c) This Waiver and Amendment shall be governed by and construed in accordance with the law of the State of Illinois. (d) This Waiver and Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each of the parties hereto understands and agrees that this document (and any other document required herein) may be delivered by any party thereto either in the form of an executed original or an executed original sent by facsimile transmission to be followed promptly by mailing of a hard copy original, and that receipt by the Agent of a facsimile transmitted document purportedly bearing the signature of a Bank or the Company shall bind such Bank or the Company, respectively, with the same force and effect as the delivery of a hard copy original. Any failure by the Agent to receive the hard copy executed original of such document shall not diminish the binding effect of receipt of the facsimile transmitted executed original of such document of the party whose hard copy page was not received by the Agent. (e) This Waiver and Amendment, together with the Credit Agreement, contains the entire and exclusive agreement of the parties hereto with reference to the matters discussed herein and therein. This Waiver and Amendment supersedes all prior drafts and communications with respect thereto. This Waiver and Amendment may not be amended except in accordance with the provisions of Section 10.01 of the Credit Agreement. (f) If any term or provision of this Waiver and Amendment shall be deemed prohibited by or invalid under any applicable law, such provision shall be invalidated without affecting the remaining provisions of this Waiver and Amendment or the Credit Agreement, respectively. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. CERIDIAN CORPORATION By: /s/John H. Grierson Name: John H. Grierson Title: Vice President & Treasurer Address for notices: 8100 34th Avenue South Minneapolis, Minnesota 55425 Attention: Treasury Department Facsimile: (612) 853-3932 Telephone: (612) 853-5265 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: /s/R. Guy Stapleton Name: R. Guy Stapleton Title: Managing Director Address for notices: Bank of America National Trust and Savings Association 1455 Market Street, 13th Floor San Francisco, California 94103 Attn: Agency Administrative Services #5596 Re: Ceridian Facsimile: (415) 436-2700 Telephone: (415) 436-2749 Attention: Al Johnson THE BANK OF NEW YORK By: /s/Richard A. Raffetto Name: Richard A. Raffetto Title: Vice President Lending Office: The Bank of New York 101 Barclay Street New York, NY 10007 Attention: Commercial Lending Office Facsimile: (212) 635-7923 or 7924 Telephone: (212) 635-6991 Address for notices: The Bank of New York One Wall Street, 19th Floor New York, NY 10286 Attention: Richard A. Raffetto Facsimile: (212) 635-1208 Telephone: (212) 635-8044 THE CHASE MANHATTAN BANK By: /s/John Huber III Name: John Huber III Title: Lending Office: The Chase Manhattan Bank 270 Park Avenue New York, NY 10017 Attention: Donna Montgomery Facsimile: (212) 552-5700 Telephone:(212) 552-7477 Address for notices: The Chase Manhattan Bank 270 Park Avenue New York, NY 10017 Attention: John Huber Facsimile:(212) 270-4584 Telephone: (212) 270-1402 FIRST AMERICAN NATIONAL BANK By: /s/Russell S. Rogers Name: Russell S. Rogers Title: Sr. Vice President Lending Office: First American National Bank 315 Union Street Nashville, TN 37237-0075 Attention: Frenisa Joy Facsimile: (615) 748-6098 Telephone: (615) 736-6747 Address for notices: First American National Bank 315 Deaderick Street Nashville, TN 37237-0075 Attention: Russell S. Rogers Facsimile: (615) 748-6072 Telephone: (615) 748-2548 FIRST BANK NATIONAL ASSOCIATION By: /s/Elliot Jaffee Name: Elliott Jaffee Title: Vice President Lending Office: First Bank National Association 601 Second Avenue South Minneapolis, MN 55402-4302 Attention: Karen Johnson Facsimile: (612) 973-0825 Telephone: (612) 973-0546 Address for notices: First Bank National Association 601 Second Avenue South Minneapolis, MN 55402-4302 Attention: Elliot Jaffee Facsimile: (612) 973-0825 Telephone: (612) 973-0543 PNC BANK, NATIONAL ASSOCIATION By: /s/James A. Wiehe Name: James A. Wiehe Title: Assistant Vice President Lending Office: PNC Bank, National Association One PNC Plaza Pittsburgh, PA 15265 Attention: Facsimile: (412) 762-6484 Telephone: (412) 762-2000 Address for notices: PNC Bank, National Association 500 W. Madison Street, Suite 3140 Chicago, IL 60661 Attention: James Wiehe Facsimile: (312) 906-3420 Telephone: (312) 906-3428 WELLS FARGO BANK, N.A. By: /s/Frieda Youlios Name: Frieda Youlios Title: Vice President Lending Office: Wells Fargo Bank, N.A. 420 Montgomery Street, 9th Floor San Francisco, CA 94104 Attention: Judi Steele Facsimile: (415) 989-4319 Telephone: (415) 396-3807 Address for notices: Wells Fargo Bank, N.A. 420 Montgomery Street, 9th Floor San Francisco, CA 94104 Attention: Laila Partridge Facsimile: (415) 421-1352 Telephone: (415) 396-2494 TORONTO DOMINION BANK (TEXAS), INC. By: /s/Darlene Riedel Name: Darlene Riedel Title: Vice President Lending Office: Toronto Dominion Bank (Texas), Inc. 909 Fannin Street, Suite 1700 Houston, TX 77010 Attention:Darlene Riedel Facsimile: (713) 951-9921 Telephone: (713) 653-8250 Address for notices: Toronto Dominion Bank (Texas), Inc. 909 Fannin Street, Suite 1700 Houston, TX 77010 Attention: Darlene Riedel Facsimile: (713) 951-9921 Telephone: (713) 653-8250 THE LONG TERM CREDIT BANK OF JAPAN, LTD. By: /s/Armund J. Schoen, Jr. Name: Armund J. Schoen, Jr. Title: Sr. Vice President Lending Office: The Long Term Credit Bank of Japan, Ltd. New York Branch 165 Broadway - 48th Floor New York, NY 10006 Attention:Robert Pacifici Facsimile: (212) 608-3452 Telephone: (212) 335-4801 Address for notices: The Long Term Credit Bank of Japan, Ltd. New York Branch 165 Broadway - 48th Floor New York, NY 10006 Attention: Robert Pacifici Facsimile: (212) 608-3452 Telephone: (212) 335-4801 NATIONSBANK By: /s/Valerie C. Mills Name: Valerie C. Mills Title: Sr. Vice President LENDING OFFICE: NationsBank 101 N. Tryon Charlotte, NC 28255 Attention: Tia Bailey Facsimile: (704) 386-8694 Telephone: (704) 386-5181 ADDRESS FOR NOTICES: NationsBank 233 S. Wacker Drive, Suite 2800 Chicago, IL 60606 Attention: Valerie Mills Facsimile: (312) 234-5601 Telephone: (312) 234-5649 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION as a Bank By: /s/R. Guy Stapleton Name: Title: Managing Director Lending Office: Bank of America-Account Administration 1850 Gateway Blvd., Third Floor Concord, CA 94520 Attention: Lenora Minkin Facsimile: (510)603-8217 Telephone: (510)675-7761 Address for notices: Bank of America-Account Administration 1850 Gateway Boulevard, Third Floor Concord, CA 94520 Attention: Lenora Minkin Facsimile: (510)603-8217 Telephone: (510)675-7761 With a copy to: Bank of America NT&SA 231 South LaSalle Street (9J) Chicago, IL 60697 Attention: Casey Cosgrove Facsimile: (312)987-1276 Telephone: (312)828-3092 Address for payment: Bank of America NT&SA ABA No. 121-000-358 Attn: Agency Administrative Services No. 5596 Credit to Account No. 12339-15086 EX-10.26 14 EXHIBIT 10.26 CREDIT AGREEMENT THIS AGREEMENT made as of the 30th day of January, 1998. B E T W E E N: THE TORONTO-DOMINION BANK, a Canadian chartered bank (herein called the "Bank"), - and - CERIDIAN CANADA LTD., a corporation incorporated under the laws of Canada (herein called the "Borrower"). WHEREAS the Borrower has requested the Bank to establish a reducing, revolving credit facility to be used to finance the acquisition by the Borrower of all of the issued and outstanding shares in the capital stock of 3454916 Canada Inc. ("Newco") a corporation established by the Bank to acquire the the Bank's Payroll Business, and for other general corporate purposes; AND WHEREAS the Bank is willing to provide such a reducing, revolving credit facility to the Borrower for the aforesaid purposes upon the terms and conditions contained herein; NOW THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the mutual covenants and agreements herein contained and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties hereto covenant and agree as follows: ARTICLE 1 INTERPRETATION 1.01 Defined Terms. The defined terms set forth in Appendix A shall for all purposes of this agreement, or any amendment hereto, have the respective meanings set forth therein unless the context otherwise specifies or requires or unless otherwise defined herein. 1.02 Applicable Law. This agreement and all documents delivered pursuant hereto shall be governed by and construed and interpreted in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein and the parties hereto do hereby attorn to the non-exclusive jurisdiction of the courts of the Province of Ontario. 1.03 Amount of Credit. Any reference herein to the amount of credit outstanding shall mean, at any particular time: (a) in the case of a Prime Rate Loan, the principal amount thereof; (b) in the case of a LIBO Loan or Base Rate Canada Loan, the Canadian Dollar Equivalent of the principal amount of such Loan; (c) in the case of a Bankers' Acceptance, the face amount of the Bankers' Acceptance. 1.04 Canadian Dollars. All amounts referred to herein shall refer to lawful currency of Canada, unless otherwise stated. ARTICLE 2 CREDIT FACILITY 2.01 Establishment of Credit Facility. Subject to the terms and conditions hereof, the Bank hereby establishes in favour of the Borrower a reducing, revolving term credit facility (the "Credit Facility") in the amount of the Facility Limit. ARTICLE 3 GENERAL PROVISIONS RELATING TO CREDITS 3.01 Types of Credit Availments. The Borrower may obtain credit under the Credit Facility by way of one or more Prime Rate Loans, Base Rate Canada Loans, LIBO Loans (subject in all cases to availability), and Bankers' Acceptances. 3.02 Loan Advances and Payments. Each Loan advance and each payment by the Borrower hereunder shall be made prior to 12:00 noon (Toronto time) on the relevant date by deposit to the Designated Account. The Bank shall be entitled to withdraw the amount of any payment due to it hereunder from such account on the day specified for payment. 3.03 (a) Bankers' Acceptances. To facilitate the drawing of Bankers Acceptances hereunder, the Borrower shall execute and deliver to the Bank a supply of drafts executed by the Borrower, which the Bank shall hold in safekeeping. The Bank shall not be responsible for its failure to accept a draft as required hereunder if the cause of the failure is, in whole or in part, due to the failure of the Borrower to provide such drafts to the Bank on a timely basis. The Bank agrees to use its best efforts to advise the Borrower in a timely manner when it requires additional executed drafts. If executed but 2 incomplete drafts are delivered to the Bank, the Bank may complete the same on behalf of the Borrower following receipt of a drawdown notice from the Borrower to accept drafts pursuant to Sec. 3.06 herein. (b) No Obligation to Purchase. The Bank shall not be obligated to purchase or discount any Bankers' Acceptances. The Borrower shall be responsible for arranging the purchase or discounting of any such Bankers' Acceptances by a money market dealer or the Bank, and if a money market dealer is used to facilitate settlement, the details of such purchase or discounting shall be advised promptly by the Borrower to the Bank, by telephone or facsimile transmission. 3.04 Timing of Credit Availments. No Bankers' Acceptance or LIBO Loan may have an Interest Period which would exceed the Maturity Date. 3.05 Evidence of Indebtedness. The Bank shall open and maintain accounts wherein the Bank shall record the amount of outstanding credit, each payment of principal and interest on account of each Loan, each Bankers' Acceptance accepted and cancelled and all other amounts becoming due to and being paid to the Bank hereunder, including Stamping Fees. The Bank's accounts constitute, in the absence of manifest error, prima facie evidence of the indebtedness of the Borrower to the Bank pursuant to this agreement. 3.06 Notice Periods. Each notice of a drawdown, rollover, prepayment, repayment or conversion from one type of credit availment to another hereunder shall be irrevocable and shall be given to the Bank in the forms attached hereto as Appendix "B" : (a) prior to 10:30 a.m. (Toronto time) on the third Banking Day prior to the date of a drawdown of, rollover of, conversion into, conversion of, prepayment of or repayment of a LIBO Loan; (b) prior to 10:30 am (Toronto time) on the second Banking Day prior to the date of drawdown or conversion into a Bankers' Acceptance; (c) prior to 10:30 a.m. (Toronto time) on the first Banking Day prior to the date of a drawdown of, conversion into, conversion of, prepayment of or repayment of a Prime Rate Loan in a principal amount exceeding Cdn. $10,000,000 or a Base Rate Canada Loan in a principal amount exceeding U.S. $10,000,000; and (d) prior to 10:30 a.m. (Toronto time) on the Banking Day of any other drawdown, rollover, conversion, prepayment or repayment. 3.07 Absence of Instructions. In the absence of written notice from the Borrower within the appropriate time periods referred to herein, a maturing LIBO Loan shall be automatically converted 3 into a Base Rate Canada Loan and a maturing Bankers' Acceptance shall be automatically converted into a Prime Rate Loan. 3.08 Reimbursement Obligation. The Bank shall, on the maturity date of a Bankers' Acceptance, pay to the holder thereof the face amount of such Bankers' Acceptance and the Borrower shall fully reimburse the Bank on such date for the amount of any such payment. ARTICLE 4 INTEREST AND FEES 4.01 Interest Rates. The Borrower shall pay to the Bank interest and fees on the outstanding principal amount from time to time of each Loan from time to time, at the rate per annum equal to the following rates or equal to the following fees, as the case may be: (a) in the case of each Prime Rate Loan, the Prime Rate; (b) in the case of each Base Rate Canada Loan, the Alternate Base Rate Canada; (c) in the case of each LIBO Loan, the LIBO Rate plus 47.5 basis points; and (d) in the case of Banker's Acceptances, the Stamping Fee at 47.5 basis points per annum. 4.02 Calculation and Payment of Interest. (a) Interest on the outstanding principal amount from time to time of each Loan and on the amount of overdue interest thereon from time to time shall accrue from day to day (both before and after maturity and as well after as before judgment) and shall be calculated on the basis of the actual number of days elapsed divided by the actual number of days in the year in the case of a Prime Rate Loan or Base Rate Canada Loan or divided by 360 in the case of a LIBO Loan. (b) Accrued interest shall be paid, (i) in the case of interest on Prime Rate Loans and Base Rate Canada Loans, monthly in arrears on the last Banking Day of each calendar month; and (ii) in the case of interest on LIBO Loans, on the last day of the applicable Interest Period. 4 4.03 General Interest Rules. (a) For the purposes hereof, whenever interest is calculated on the basis of a year of 360 days, each rate of interest determined pursuant to such calculation expressed as an annual rate for the purposes of the Interest Act (Canada) is equivalent to such rate as so determined multiplied by the actual number of days in the calendar year in which the same is to be ascertained and divided by 360. (b) Following the occurrence of an Event of Default, the Borrower shall pay interest on amounts outstanding (as well after as before judgment) at the rate per annum, calculated and compounded monthly, which is equal to the Prime Rate plus 2%. Such interest on overdue amounts shall become due and be paid on demand made by the Bank. 4.04 Stamping Fees. Upon the acceptance of any draft of the Borrower pursuant hereto, the Borrower shall pay to the Bank, in advance, the Stamping Fee calculated at the rate per annum, on the basis of the actual number of days in the year, equal to 47.5 basis points per annum on the face amount of such Bankers' Acceptance for its term, being the actual number of days in the period commencing on the date of acceptance of the Borrower's draft and ending on but excluding the maturity date of the Bankers' Acceptance. 4.05 Stand-by Fee. On the first Banking Day of each calendar quarter commencing April 1, 1998, and on the Maturity Date, the Borrower shall pay to the Bank, in arrears, a Stand-by Fee calculated on the basis of a year of 365 days or 366 days in the case of a leap year at 12.5 basis points per annum, on the daily average of the unused portion of the Credit Facility, such fee to accrue daily from, and including the first day of the previous calendar quarter (or the date hereof, if later) to and including the last day of the previous calendar quarter, and in the case of the final payment, up to the Maturity Date. 4.06 Arrangement Fee. On or prior to the date of execution of this Agreement, the Borrower shall pay to the Bank an arrangement fee in an amount equal to $40,000. ARTICLE 5 REPAYMENTS AND PREPAYMENTS 5.01 Repayments under Credit Facility. The Borrower will repay all amounts outstanding hereunder to ensure that the amount outstanding does not exceed the Facility Limit, and to ensure that all amounts outstanding are repaid in full on or before the Maturity Date, or earlier, if the Bank demands repayment following the occurrence of an Event of Default. 5 5.02 Facility Limit. The Facility Limit shall reduce in accordance with the following repayment schedule: Date Facility Limit* July 31, 1998 $40,000,000 Cdn July 31, 1999 $40,000,000 Cdn July 31, 2000 $40,000,000 Cdn July 31, 2001 $35,000,000 Cdn July 31, 2002 $0 (* Canadian dollars or the U.S. Dollar Equivalent thereof) 5.03 Repayments of Credit Excess. The Borrower shall also repay to the Bank automatically, and without the necessity of demand, the Credit Excess from time to time, whether such Credit Excess results from the calculation by the Bank each day of the Canadian Dollar Equivalent of amounts outstanding in U.S. dollars, or otherwise. 5.04 Prepayments. The Borrower shall be entitled to prepay all or any portion of the amount outstanding under the Credit Facility at any time upon notice given to the Bank in accordance with Section 3.06, provided that: (i) if the Borrower pays a LIBO Loan prior to expiry of the Interest Period applicable to that LIBO Loan the Borrower will pay to the Bank all costs and expenses of re-employing the amounts so repaid and the Borrower will comply with paragraph 7.01(i) in connection with such prepayment, and (ii) Bankers' Acceptances may not be repaid prior to the expiry of the Interest Period of such Bankers' Acceptance. Prior to the Maturity Date, all amounts which are prepaid as aforesaid may be reborrowed up to the Facility Limit. 5.05 Cancellation. The Borrower may permanently cancel all or any portion of the Credit Facility upon 30 days prior written notice to the Bank. 5.06 Withholding Tax. All payments made by the Borrower to the Bank will be made free and clear of all present and future taxes (excluding the Bank's income or capital taxes), withholdings or deductions of whatever nature. If these taxes, withholdings or deductions are required by applicable law and are made, the Borrower, shall, as a separate and independent obligation, pay to the Bank all additional amounts as shall fully indemnify the Bank from any such taxes, withholding or deduction. 6 5.07 Waiver of Set-Off. The Borrower agrees to make all payments due hereunder without set-off or counterclaim. In addition, the Borrower shall make all payments hereunder free and clear of, and without deduction for, any amount owed to the Borrower and the Guarantor by the Bank, pursuant to or in connection with, the Share Purchase Agreement, or otherwise in connection with the purchase by the Borrower of the Shares. The Borrower hereby waives any right to set-off any and all amounts owing to the Borrower or the Guarantor by the Bank against any and all amounts owing by the Borrower to the Bank. ARTICLE 6 REPRESENTATIONS AND WARRANTIES 6.01 Representations and Warranties. To induce the Bank to enter into this agreement, the Borrower hereby represents and warrants to the Bank as follows and acknowledges and confirms that the Bank is relying upon such representations and warranties in extending credit hereunder: (a) Status and Power. The Borrower is a corporation duly incorporated and organized and validly subsisting under the laws of the jurisdiction of its incorporation and is duly qualified, registered or licensed in all jurisdictions where such qualification, registration or licensing is required to the extent that it is material. The Borrower has all requisite corporate capacity, power and authority to own, hold under licence or lease its properties, to carry on its business as now conducted and to otherwise enter into, and carry out the transactions contemplated by, this agreement. (b) Authorization and Enforcement of Documents. All necessary action, corporate or otherwise, has been taken to authorize the execution, delivery and performance of this agreement by the Borrower and the Borrower has duly executed and delivered this agreement. This agreement is a legal, valid and binding obligation of the Borrower, enforceable against the Borrower by the Bank in accordance with its terms. (c) Compliance with Other Instruments. The execution, delivery and performance of this agreement and the consummation of the transactions contemplated herein do not and will not conflict with, result in any breach or violation of, or constitute a default under, the terms, conditions or provisions of the constating documents or by-laws of the Borrower or of any law, regulation, judgment, decree or order binding on or applicable to the Borrower or by which the Borrower benefits or to which any of its property is subject or of any material agreement, lease, licence, permit or other instrument to which the Borrower is a party or is otherwise bound or by which the Borrower benefits or to which any of its property is subject and do not require the consent or approval of any other party or any governmental body, agency or authority. 7 (d) Litigation. There are no actions, suits, inquiries, claims or proceedings pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower before any government, parliament, legislature, regulatory authority, agency, commission, board or court or before any private arbitrator, mediator or referee which in any case or in the aggregate may result in any material adverse change in the ability of the Borrower to perform its obligations under this agreement. (e) Compliance with Laws. The Borrower is not in violation of any mortgage, franchise, licence, judgment, decree, order, statute, rule or regulation relating in any way to the Borrower, to the operation of its business or to its property or assets where such violation might reasonably be expected to result in a material adverse change in the business, financial condition or operations of the Borrower. (f) Taxes. All of the remittances required to be made by the Borrower to the federal, provincial and municipal governments have been made and are currently up to date. Without limiting the foregoing, all employee source deductions (including income taxes, unemployment insurance and Canada pension plan), sales taxes (both provincial and federal), corporate income taxes, payroll taxes and workmen's compensation dues are currently paid and up to date, except for such taxes which are being contested in good faith by proper proceedings with appropriate reserves having been set aside. (g) Environmental. (i) The condition and use of any of the Borrower's properties and any prior use by the Borrower of such properties is in material compliance with all applicable environmental, health and safety laws and standards. (ii) None of the Borrower's properties, or any part thereof, is subject to any remedial control, action, direction, order, or investigation (which is material) by the Ministry of the Environment or any authority having jurisdiction over matters involving the environment. (h) Financial Statements The audited financial statements for the Guarantor last delivered to the Bank present fairly its financial position in all material respects, as of the date shown on such financial statements, and have been prepared in accordance with generally accepting accounting principles, consistently applied. Since such date no material adverse change in the business or financial position, operation, property or assets of the Borrower or the Guarantor has occurred, other than has 8 been disclosed in writing to the Bank and in filings with the United States Securities and Exchange Commission prior to the date hereof relating to (i) charges incurred by the Guarantor in the third and fourth quarters of 1997; (ii) the sale of Guarantor's detense electronics business and (iii) the repurchase by the Guarantor of its stock. (i) Guarantor. The address of the Guarantor's corporate head office and chief executive office and the office at which the Guarantor's primary corporate and business records are maintained is 8100 34th Avenue South, Minncapolis, MN, USA 55438. 6.02 Survival of Representations and Warranties. All of the representations and warranties of the Borrower contained in Section 6.01 shall survive the execution and delivery of this agreement notwithstanding any investigation made at any time by or on behalf of the Bank and shall be deemed to be repeated on the date of each Advance hereunder. ARTICLE 7 COVENANTS 7.01 Covenants. The Borrower hereby covenants and agrees with the Bank that, so long as any amount is outstanding hereunder or so long as the Bank shall have any commitment hereunder, unless the Bank otherwise expressly consents in writing: (a) Punctual Payment. The Borrower will pay all amounts outstanding hereunder and all interest thereon and all fees and other amounts required to be paid by it hereunder in the manner and at the times specified hereunder. (b) Financial Reporting. The Borrower shall furnish the Bank with the following statements, reports and certificates: (i) within 120 days after the end of each fiscal year of the Borrower, copies of the Borrower's annual financial statements with respect thereto; (ii) upon delivery of the financial statements, a certificate of a senior officer of the Borrower certifying that no Default related to the Borrower has occurred and is continuing; and (iii) such other statements, reports and information as the Bank may reasonably request from time to time. 9 (c) Corporate Existence. Subject to section 7.01(s), the Borrower shall maintain its corporate existence in good standing and shall not take part in any dissolution, reorganization, amalgamation, merger or any similar proceeding or arrangement without the Bank's prior written consent, not to be unreasonably withheld. (d) Material Adverse Change. The Borrower shall promptly notify the Bank of any material adverse change in the financial condition of the Borrower or in the ability of the Borrower to satisfy its obligations hereunder. (e) Costs and Expenses. The Borrower shall pay all reasonable costs, fees, and expenses, (including outside legal fees) incurred by the Bank (i) for services rendered by outside counsel in connection with the preparation of this Agreement and the Guarantee and with the establishment of the Credit Facility, but in no event shall such costs, fees and expenses to be paid by the Borrower and Guarantor pursuant to section 6.11 of the Guarantee exceed $20,000 Cdn.; and (ii) in connection with the enforcement of this Agreement and the collection of amounts outstanding hereunder and outstanding under the Guarantee. (f) Notice of Default. The Borrower shall promptly notify the Bank of the occurrence of any Default or Event of Default and shall concurrently deliver to the Bank a detailed statement of a senior officer of the Borrower of the steps, if any, being taken to cure or remedy such Default or Event of Default. (g) Negative Pledge. Other than Permitted Liens, the Borrower will not create, issue, incur, assume or permit to exist any security interest, lien, charge or other encumbrance of any kind on or in respect of any of its assets or undertakings. (h) Change of Circumstances. If the introduction or adoption of any law, regulation, guideline, request or directive (whether or not having the force of law) of any governmental authority, central bank or comparable agency ("Restraint") or any change therein or in the application thereof to the Borrower or to the Bank or in the interpretation or administration thereof or any compliance by the Bank therewith shall impose or require any reserve, special deposit requirements or tax (excluding taxes measured with reference to the net income or capital of the Bank), shall establish an appropriate amount of capital to be maintained by the Bank or shall impose any other requirement or condition which results in an increased cost to the Bank of extending or maintaining a credit or obligation hereunder or reduces the amount received or receivable by the Bank with respect to the Credit Facility under this agreement or reduces the Bank's effective return hereunder or on its capital or causes the Bank to make any payment or to forego any return based on any amount received or receivable hereunder, then, provided that 10 there has been notification to the Borrower by the Bank, the Borrower shall pay to the Bank such amounts as shall fully compensate the Bank for all such increased costs, reductions, payments or foregone returns which accrue after the 100th day following such notification. The Bank shall notify the Borrower of any actual increased or imposed costs, reductions, payments or foregone returns forthwith on becoming aware of same and shall concurrently provide to the Borrower a certificate of an officer of the Bank setting forth the amount of compensation to be paid to the Bank and the basis for the calculation of such amount. (i) Indemnity. Upon notice from the Bank (which notice shall be accompanied by a detailed calculation of the amount to be paid by the Borrower), the Borrower shall pay to the Bank such amount or amounts as will compensate the Bank for any loss, cost or expense incurred by it in the liquidation or re-deposit of any funds acquired by the Bank to fund or maintain any portion of a LIBO Loan as a result of: (i) the failure of the Borrower to borrow or make repayments on the dates specified under this agreement or in any notice from the Borrower to the Bank; or (ii) the repayment or prepayment of any amounts on a day other than the payment dates prescribed herein. (j) Existence and Conduct of Business. The Borrower shall maintain its existence in good standing (subject to section 7.01(s)) and do or cause to be done all things necessary to keep in full force and effect all rights, franchises, licenses, contracts and agreements which are necessary to own its assets and carry on its business. The Borrower will maintain its assets in good repair and working condition and will carry on only the type of businesses carried on by the Guarantor at the date hereof . The Borrower shall conduct its business in such a manner so as to comply in all material respects with all applicable laws and regulations. (k) Further Assurances. The Borrower shall, at the Bank's request, and at the Borrower's expense, perform such acts as may be necessary or advisable to carry out the intent of this Agreement. (l) Litigation, etc. The Borrower shall give the Bank prompt written notice of any material litigation involving the Borrower or proceeding which might reasonably be considered to materially adversely affect the Borrower's financial status or the operation of its business. (m) Insurance. The Borrower shall maintain in force with reputable insurers insurance with respect to losses of or damage to its assets from such risks, casualties and contingencies and of such 11 types and in such amounts and subject to such deductible amounts as are customary in the case of persons engaged in the same or similar business with similar assets. (n) Rights of Inspection. At any reasonable time and from time to time upon reasonable prior notice, which in any event shall not be less than 3 Banking Days, the Borrower will, within the limits of its powers and the law, permit the Bank or any authorized representative thereof, at the expense of the Bank, to inspect its assets and properties and to examine and make copies of any financial information in its possession relating to its records and books of account. In exercising the Bank's rights under this section, the Bank will take all reasonable steps to minimize the disruption to the ordinary course of operation of the Borrower's business. (o) No Sale. The Borrower will not, sell, assign, transfer, convey, or otherwise dispose of or permit or acquiesce in the sale, assignment, transfer, conveyance or other disposition of its assets other than in the ordinary course of business and other than the sale of obsolete assets or assets no longer used in the business of the Borrower, sold in a commercially reasonable manner, for value. (p) Pari Passu Ranking. The Borrower will not take, or permit any action to be taken, or suffer to exist any event, which results or would result in the amounts due or to become due hereunder ceasing to rank pari passu, equally, and rateably with all other unsubordinated obligations of the Borrower. (q) Payment of Taxes and Claims. The Borrower will pay and discharge before the same become delinquent: (i) all material taxes, assessments and governmental charges or levies imposed upon it or upon its assets; and (ii) all lawful claims which, if unpaid, might become a lien upon its assets, except for any such tax or claim which is being contested in good faith by proper proceedings with appropriate reserves having been set aside. (r) No Dividends. The Borrower shall not declare or pay any dividends, purchase, redeem or retire or otherwise acquire for value any of the Borrower's capital stock now or hereafter outstanding or, except in the ordinary course of its business, make any loans or advances to any entity, including without limitation, the Guarantor or any affiliate of the Borrower or the Guarantor. (s) Amalgamation. The Borrower shall, as soon as possible after completion of the transactions and agreements under the Share Purchase Agreement, amalgamate with Newco pursuant to the laws of Canada and shall cause Amalco to (i) execute such acknowledgements, assumptions, or other 12 agreements as shall be reasonably required by the Bank to ensure that Amalco shall be bound by this Agreement, (ii) provide a certificate of a senior officer of Amalco setting forth the specimen signatures of the individuals authorized to sign documents referred to in (i) above, and (iii) provide an opinion of counsel to Amalco addressed to the Bank, in a format acceptable to the Bank. ARTICLE 8 CONDITIONS PRECEDENT 8.01 Conditions Precedent to Effectiveness of Agreement. This agreement shall become effective upon the fulfillment of the following conditions precedent: (a) the conditions precedent set forth in Section 8.02 have been fulfilled or have been waived by the Bank; (b) the parties shall have entered into, and all conditions precedent to the transaction contemplated by, the Share Purchase Agreement shall have been satisfied or waived; (c) the Borrower has filed the Articles of Amalgamation to form Amalco, which Articles of Amalgamation will not become effective until after the purchase by the Borrower of the Shares; (d) the Bank and its counsel shall be satisfied that all necessary approvals, acknowledgments and consents have been given and all relevant laws have been complied with as concerns all agreements and transactions referred to herein; and (e) the Bank has received, in form and substance satisfactory to the Bank, (i) certificates of a senior officer of each of the Obligors setting forth specimen signatures of the individuals authorized to sign this agreement, and the documents referred to in Section 7.01(s), certified copies of the resolutions or other corporate proceedings of the Obligors authorizing the transactions under this Agreement and other corporate and factual matters relevant to the transactions under this Agreement; (ii) an opinion of counsel to the Borrower, addressed to the Bank, in the form annexed hereto as Appendix "C" (iii) the Guarantee and an opinion of counsel to the Guarantor, addressed to the Bank, in the form annected hereto as Appendix "D". 13 (iv) an opinion of United States counsel to the Bank, addressed to the Bank, in the form annexed hereto as Appendix "E". 8.02 Conditions Precedent to All Credit. The obligation of the Bank to extend credit hereunder by means of drawdown, rollover or conversion from one type of credit availment to another is subject to fulfillment of the following conditions precedent on the date such credit is extended: (a) no Default has occurred and is continuing or would arise as a result of such extension of credit; and (b) the representations and warranties of the Borrower contained in Section 6.01, the representations and warranties of the Guarantor contained in Article V of the Guarantor Credit Agreement, and the representations of the Guarantor contained in the Guarantee shall be true and correct in all material respects on and as of the date such credit is obtained as if such representations and warranties were made on such date, except to the extent they refer to filings made by the Guarantor with the United States Securities and Exchange Commission ("SEC"), in which case they shall be deemed amended to include all filings made by the Guarantor with the SEC to the date hereof. 8.03 Waiver. The terms and conditions of Section 8.02 are inserted for the sole benefit of the Bank and the Bank may waive them in whole or in part, with or without terms or conditions, in respect of any extension of credit, without prejudicing the Bank's right to assert them in whole or in part in respect of any other extension of credit. ARTICLE 9 DEFAULT AND REMEDIES 9.01 Events of Default. Upon the occurrence of any one or more of the following events: (a) the non-payment of any amount due hereunder within three Banking Days after notice of non-payment has been given to the Borrower by the Bank; (b) the permanent suspension of substantially all of the operations of the Borrower; (c) the Borrower shall (i) become insolvent or generally not pay its debts as such debts become due, (ii) admit, in writing, its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; (iii) file a notice of intention to file a 14 proposal under any law relating to bankruptcy, insolvency or reorganization or relief of debtors; (iv) institute or have instituted against it any proceeding seeking: (i) to adjudicate it a bankrupt or insolvent, (ii) a liquidation, winding-up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or (iii) the entry of any order for relief or the appointment of a receiver, trustee or custodian for it or for any substantial part of its assets, and, in the case of any such proceeding instituted against it (but not instituted by it) the proceedings have not been discharged within 30 days from the commencement of such proceedings; (d) any representation or warranty made by the Borrower in this agreement or any representation and warranty made by the Guarantor in the Guarantor Credit Agreement or any information furnished in writing to the Bank by the Borrower or by the Guarantor proves to have been incorrect in any material respect when made or furnished; (e) the breach or failure of due observance or performance by the Borrower of any covenant or provision of this agreement, other than those heretofore dealt with in this Section 9.01, or of any other document, agreement or instrument delivered pursuant hereto or referred to herein which is not remedied by the Borrower within ten Banking Days after the earlier of (i) the time that the Borrower becomes aware of the default or (ii) the time of the giving of notice from the Bank to the Borrower of the occurrence of such breach; (f) if there shall be an action, suit, inquiry, claim or proceeding against or affecting the Borrower before any governmental, parliament, legislature, regulatory authority, agency, commission, board or court or before any private arbitrator, mediator or referee which in any case or in the aggregate would reasonably be expected to result in the inability of the Borrower to perform its obligations hereunder; (g) if a receiver, receiver manager, liquidator or other person with like powers is appointed with respect to, or if an encumbrancer takes possession of any substantial part of the properties or assets of the Borrower and such encumbrancer continues to be in possession thereof for a period of thirty (30) days; 15 (h) if one or more final judgments or orders for the payment of money in excess of $1,000,000 be rendered against the Borrower which is not appealed or discharged within 30 days from the imposition of such judgment; (i) if an event or condition shall occur which constitutes an event of default under any other agreement or instrument relating to indebtedness of the Borrower exceeding $1,000,000 or which would permit the acceleration of such indebtedness; (j) if an Event of Default (as defined in the Guarantor Credit Agreement) shall occur under the Guarantor Credit Agreement, it being agreed that if the Guarantor Credit Agreement provides that a specified event of default may not occur until a period of time has elapsed following the giving of notice by the Agent (under and as defined in the Guarantor Credit Agreement) then such notice may be provided by the Bank, for the purpose of this Agreement; (k) if the Guarantor shall breach any of the Financial Covenants and such breach shall continue unremedied for a period of 20 days, whether or not the lenders under the Guarantor Credit Agreement shall have waived compliance with such Financial Covenants and whether or not such lenders shall have agreed that such default shall not be an Event of Default; (l) if the Guarantor shall breach any of the representations, warranties or, covenants set out in the Guarantee (and in the case of a breach of the representations, warranties or covenants set out in the Guarantor Credit Agreement which are incorporated by reference in the Guarantee, such breach constitutes an Event of Default under the Guarantor Credit Agreement) including without limitation, if the indebtedness and liability of the Guarantor under the Guarantee shall no longer rank pari passu, equally, and rateably with all of the present and future indebtedness and liability of the Guarantor; (m) if the Guarantor shall no longer directly or indirectly, own a majority of the issued and outstanding voting shares of the Borrower; (n) if all or any part of the Guarantee is invalid, unenforceable or terminated in any respect, or if the Guarantor denies all or any of its obligations under the Guarantee, then, without limitation to the Bank's rights and remedies at law or in equity, the right of the Borrower to obtain any further credit hereunder and all of the obligations of the Bank hereunder to extend such further credit shall automatically terminate and the Bank may, by notice to the Borrower, declare all indebtedness of the Borrower to the Bank pursuant to this agreement (including the present value of 16 the face amount of all Bankers' Acceptances issued and outstanding hereunder based on their respective maturity dates, the present value to be calculated using a discount rate equal to the yield of bills of exchange accepted by the Bank and having a similar maturity date) to be immediately due and payable whereupon all such indebtedness shall immediately become and be due and payable without further demand or other notice of any kind, all of which are expressly waived by the Borrower. Upon the payment by the Borrower to the Bank of the present value of the face amount of all Bankers' Acceptances issued and outstanding hereunder, the Borrower shall have no further liability to the Bank with respect to such Bankers' Acceptances. 9.02 Automatic Acceleration. If the Borrower is adjudged or declared bankrupt or insolvent or any of the proceedings referred in the event of default set out at Section 9.01(c) above shall be voluntarily instituted by the Borrower, or the Borrower indicates its consent to, approval of, or acquiescence in, any such proceeding for it or for any substantial part of its property, or consents to the appointment of any receiver or trustee (which events shall be included in the list of events of default set out above), then, without limiting the Bank's rights and remedies at law, equity, or otherwise under this Agreement, all indebtedness of the Borrower to the Bank in connection with the agreement will be automatically accelerated and will be required to be paid by the Borrower, without the necessity of notice or otherwise and, any right of the Borrower to any further utilization the Credit Facility shall automatically terminate. 9.03 Remedies Cumlative. The rights and remedies of the Bank under this Agreement are cumlative and are in addition to and not in substitution for any other rights or remedies provided by law. ARTICLE 10 MISCELLANEOUS 10.01 Waivers and Amendments. No failure or delay by the Bank in exercising any right hereunder shall operate as a waiver of such right nor shall any single or partial exercise of any power or right hereunder preclude its further exercise or the exercise of any other power or right. Any waiver by the Bank of the strict observance, performance or compliance with any term, covenant or condition of this agreement is not a waiver of any subsequent default and any indulgence by the Bank with respect to any failure to strictly observe, perform or comply with any term, covenant or condition of this agreement is not a waiver of the entire term, covenant or condition or any subsequent default. Any term, covenant, agreement or condition of this agreement may only be amended with the consent of the Borrower and the Bank or compliance therewith may only be waived (either generally or in a particular instance and either retroactively or prospectively) by the Bank. 17 10.02 Notices. All notices and other communications provided for herein shall be in writing and shall be personally delivered to an officer or other responsible employee of the addressee or sent by telefacsimile or other direct written electronic means, charges prepaid, at or to the applicable addresses or telefacsimile numbers, as the case may be, set opposite the party's name on a signature page hereof or at or to such other address or addresses or telefacsimile number or numbers as either party hereto may from time to time designate to the other party in such manner. Any communication which is personally delivered as aforesaid shall be deemed to have been validly and effectively given on the date of such delivery if such date is a Banking Day and such delivery was made during normal business hours of the recipient; otherwise, it shall be deemed to have been validly and effectively given on the Banking Day next following such date of delivery. Any communication which is transmitted by telefacsimile or other direct written electronic means as aforesaid shall be deemed to have been validly and effectively given on the date of transmission if such date is a Banking Day and such transmission was made during normal business hours of the recipient; otherwise, it shall be deemed to have been validly and effectively given on the Banking Day next following such date of transmission. 10.04 Successors and Assigns. This agreement shall enure to the benefit of and shall be binding upon the parties hereto and their respective successors and permitted assigns. 10.05 Assignment. Neither this agreement nor the benefit thereof may be assigned by the Borrower. The rights and obligations of the Bank hereunder may be assigned or participated by the Bank in whole or in part without the prior written consent of the Borrower provided that, prior to the occurence of an Event of Default: (a) in the case of any such assignment, the assignee must be a resident of Canada for the purposes of the Income Tax Act (Canada); and (b) no such assignment or participation shall impose any liabilities or obligations on the Borrower or the Guarantor other than those owed to the Bank by the Borrower and the Guarantor under this agreement and the Guarantee. 10.06 Entire Agreement. This agreement and the agreements referred to herein and delivered pursuant hereto constitute the entire agreement between the parties hereto relating to the Credit Facility and supersede any prior agreements, undertakings, declarations, representations and understandings, both written and verbal, in respect of the subject matter hereof. 10.07 Foreign Currency Obligations. The Borrower shall make payment of all amounts owing hereunder in the currency (the "Original Currency") in which the Borrower is required to pay such obligation. If the Borrower makes payment relative to any obligation to the Bank in a currency (the 18 Other Currency") other than the Original Currency (whether voluntarily or pursuant to an order or judgment of a court or tribunal of any jurisdiction) such payment shall constitute a discharge of the Borrower's liability hereunder in respect of such obligation only to the extent of the amount of the Original Currency which the Bank is able to purchase at its main branch in the jurisdiction where the loans to the Borrower are recorded, with the amount it receives on the date of receipt in accordance with its normal practice. If the amount of the Original Currency which the Bank is able to purchase is less than the amount of such currency originally due to the Bank in respect to the relevant obligation, the Borrower shall indemnify and save the Bank harmless from and against any loss or damage arising as a result of such deficiency. This indemnity shall constitute an obligation contained in this Agreement, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by the Bank and shall continue in full force and effect notwithstanding any judgment or order in respect of any amount due hereunder or under any judgment or order. IN WITNESS WHEREOF the parties hereto have executed this Agreement. THE TORONTO-DOMINION BANK P.O. Box 1 Toronto Dominion Centre 55 King St. West & Bay St. 9th Floor, TD Tower Toronto, Ontario M5K 1A2 Attention: Manager Credit Administration Telefax: (416) 982-6630 Telephone: (416) 982-7671 c.c. TD New York By: --------------------------------------- Title: ------------------------------------ By: --------------------------------------- Title: ------------------------------------ 19 EX-10.27 15 EXHIBIT 10.27 GUARANTEE AGREEMENT TO: THE TORONTO-DOMINION BANK WHEREAS CERIDIAN CANADA LTD. (hereinafter called the "BORROWER") is a wholly owned subsidiary of CERIDIAN CORPORATION (hereinafter called the "GUARANTOR"); AND WHEREAS THE TORONTO-DOMINION BANK (hereinafter called the "BANK") has established and may in the future establish one or more credit facilities in favour of the Borrower; AND WHEREAS, as security for the payment of the full amount of all of the present and future indebtedness and liability of the Borrower to the Bank, the Guarantor has agreed to guarantee payment of the Borrower's indebtedness and liability to the Bank on the terms and subject to the conditions hereinafter set forth; NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the Guarantor hereby covenants to and for the benefit of the Bank as follows: GUARANTEE Guarantee 1.01 The Guarantor hereby unconditionally, absolutely and irrevocably guarantees the due and punctual and complete payment and satisfaction when due (whether at stated maturity, by acceleration or otherwise), and at all times thereafter, of all the Guaranteed Liabilities which are or may become at any time and from time to time owing or payable by the Borrower to the Bank or which remain owing and unpaid to the Bank. "Guaranteed Liabilities" means the indebtedness, liabilities and obligations of the Borrower to the Bank, howsoever incurred, present and future, direct and indirect, whether as principal or as surety, absolute and contingent, matured and unmatured, at any time and from time to time existing or arising under or by virtue of or otherwise in connection with any credit facility made available by the Bank to the Borrower, including without limitation, indebtedness and liability for or in connection with any swap transaction, foreign exchange transaction, bankers acceptance, direct and indirect loans and advances, and in each case, including all interest, commissions, costs, charges, legal fees and expenses which may be incurred in respect of such indebtedness and liability, and in each case, whether or not any such indebtedness, liabilities or obligations are discharged, stayed or otherwise affected, except to the extent such indebtedness, liabilities or obligations are fully discharged by full, irrevocable and final payment. - 2 - PAYMENT Payment 2.01 The Guarantor agrees to make immediate payment to the Bank of all Guaranteed Liabilities then payable to the Bank upon receipt of a demand for payment therefor by the Bank to the Guarantor in writing. Taxes and Set Off by Guarantor 2.02. All payments to be made by the Guarantor hereunder shall be made without set-off or counterclaim. In addition, the Guarantor shall make all payments to the Bank hereunder, free and clear of, and without deduction, or withholding for, or on account of, any tax levied by any country or subdivision thereof, including any taxing authority of Canada or the United States of America (whether Federal, State, Provincial or municipal; other than on account of any tax on the Bank's general income, and other than on account of any capital or franchise taxes, whether imposed under the laws of the jurisdiction of the Bank, the Guarantor, or otherwise). If the Guarantor is required by any applicable law, rule or regulation to make any deduction or withholdings for or on account of any such tax, then the Guarantor will: (a) promptly notify the Bank of such requirement; (b) pay to the relevant authorities the full amount required to be deducted or withheld (including the full amount paid by the Guarantor to the Bank hereunder), promptly upon the earlier of determining that such deduction is required or receiving notice that such amount has been assessed against the Bank; (c) promptly forward to the Bank an official receipt (or a certified copy), or other documentation acceptable to the Bank, evidencing such payment to such authorities; and (d) pay to the Bank, in addition to the payment to which the Bank is otherwise entitled, such additional amount as is necessary to ensure that the net amount actually received and retained by the Bank (free and clear of such tax, whether assessed against the Guarantor or the Bank) will equal the full amount the Bank would have received had no such deduction or withholding been required or taxed and assessed. The Guarantor will promptly pay to the Bank the amount of any liability (including, without limitation, any related liability for penalties and interest) assessed directly against the Bank by reason of the failure or delay of the Guarantor to deduct or withhold or pay any tax as foresaid. - 3 - OBLIGATIONS ABSOLUTE Obligations Absolute 3.01 The Guarantor unconditionally and irrevocably waives each and every defense which, under principles of guarantee or suretyship law, would otherwise operate to impair or diminish such liability; and nothing whatever except actual full payment and performance to the Bank of the Guaranteed Liabilities (and all other debts, obligations and liabilities of Guarantor under this Agreement) shall operate to discharge the Guarantor's liability hereunder. The obligations of the Guarantor hereunder are and shall be absolute and unconditional and any monies or amounts expressed to be owing or payable by the Guarantor hereunder which may not be recoverable from the Guarantor on the footing of a guarantee shall be recoverable from the Guarantor as a primary obligor and principal debtor in respect thereof. Obligations Continuing 3.02 The obligations of the Guarantor hereunder shall be continuing and shall remain in full force and effect so long as the Bank continues to deal with the Borrower or until all the Guaranteed Liabilities have been paid and satisfied in full. The obligations of the Guarantor hereunder shall not be satisfied, reduced or discharged by any intermediate payment or satisfaction of the whole or any part of the principal, interest, fees and other monies or amounts which may at any time be or become owing or payable to the Bank by the Borrower. 3.03 The obligations of the Guarantor hereunder shall continue to be effective or shall be reinstated, as the case may be, if at any time any payment which would otherwise have reduced the obligations of the Guarantor hereunder (whether such payment shall have been by or on behalf of the Borrower or by or on behalf of the Guarantor) is rescinded or reclaimed from the Bank upon the insolvency, bankruptcy, liquidation or reorganization of the Borrower or the Guarantor or otherwise, all as though such payment had not been made. Obligations Not Affected 3.04 The obligations of the Guarantor hereunder shall not be affected or impaired by any act, omission, matter or thing whatsoever, occurring before, upon or after any demand for payment hereunder (and whether or not known to the Guarantor or the Bank) which, but for this provision, might constitute a whole or partial defense to a claim against the Guarantor hereunder or might operate to release or otherwise exonerate the Guarantor from any of its obligations hereunder or otherwise affect such obligations, whether occasioned by default of the Bank or otherwise, including: (a) any limitation of status or power, disability, incapacity or other circumstance relating to the Borrower or any other person, including any insolvency, bankruptcy, liquidation, - 4 - reorganization, readjustment, composition, dissolution, winding-up or other proceeding involving or affecting the Borrower or any other person; (b) any irregularity, defect, unenforceability or invalidity in respect of any indebtedness or other obligation of the Borrower or any other person under any credit agreement or any other document or instrument; (c) any failure of the Borrower, whether or not without fault on its part, to perform or comply with any of the provisions of any credit agreement or to give notice thereof to the Guarantor; (d) the taking or enforcing or exercising or the refusal or neglect to take or enforce or exercise any right or remedy from or against the Borrower or any other person or their respective assets or the release or discharge of any such right or remedies; (e) the granting of time, renewals, extensions, compromises, concessions, waivers, releases, discharges and other indulgences to the Borrower or any other person; (f) any amendment, variation, modification, supplement or replacement of any credit agreement or any other document or instrument; (g) any change in the ownership, control, name, objects, businesses, assets, capital structure or constitution of the Borrower or the Guarantor; (h) any merger or amalgamation of the Borrower or the Guarantor with any person or persons; (i) the occurrence of any change in the laws, rules, regulations or ordinances of any jurisdiction or by any present or future action of any governmental authority or court amending, varying, reducing or otherwise affecting, or purporting to amend, vary, reduce or otherwise affect, any of the Guaranteed Liabilities or the obligations of the Guarantor under this Guarantee; and (j) any other circumstance that might otherwise constitute a legal or equitable discharge or defense of the Borrower under any credit agreement or of the Guarantor in respect of its guarantee hereunder. Indemnity. As a separate and alternative stipulation, the Guarantor unconditionally and irrevocably agrees that any sum expressed to be payable by the Borrower under any credit facility established by the Bank in favour of the Borrower but which is for any reason not recoverable from the Guarantor on the basis of a guarantee shall nevertheless be recoverable from it on the basis of an indemnity and shall be paid by it to the Bank on demand. - 5 - Waiver 3.05 Without in any way limiting the provisions of Section 3.04 hereof, the Guarantor hereby waives notice of acceptance hereof, notice of any liability of the Guarantor hereunder, notice or proof of reliance by the Bank upon the obligations of the Guarantor hereunder, and the diligence, presentment, demand for payment on the Borrower, protest, notice of dishonour or non-payment of any of the Guaranteed Liabilities, or other notice or formalities to the Borrower of any kind whatsoever. The Guarantor further hereby waives any requirement that the Bank take, protect, secure, perfect or insure any security interest or lien or any property subject thereto or exhaust any right or take any action against the Borrower or any other person or entity or any collateral. No Obligation to Take Action Against Borrower 3.06 This is a guarantee of payment, and not of collection. The Bank shall not have any obligation to enforce any rights or remedies or to take any other steps against the Borrower or any other person or any property of the Borrower or any other person before the Bank is entitled to demand payment and performance by the Guarantor of its liabilities and obligations under this Guarantee, and the Guarantor hereby waives all benefit of discussion. The obligations of the Guarantor hereunder are independent of the Guaranteed Liabilities and a separate action or actions may be brought and prosecuted against the Guarantor to enforce this Guarantee, irrespective of whether any action is brought against the Borrower or whether the Borrower is joined in any such action or actions. Dealing with the Borrower and Others 3.07 The Bank, without releasing, discharging, limiting or otherwise affecting in whole or in part the Guarantor's obligations and liabilities hereunder and without the consent of or notice to the Guarantor may, (a) grant time, renewals, extensions, compromises, concessions, waivers, releases, discharges and other indulgences to the Borrower or any other person; (b) take or abstain from taking securities or collateral from the Borrower or from perfecting securities or collateral of the Borrower; (c) release, discharge, compromise, realize, enforce or otherwise deal with or do any act or thing in respect of (with or without consideration) any and all collateral, mortgages or other security given by the Borrower or any third party with respect to the obligations or matters contemplated by any credit agreement; - 6 - (d) accept compromises or arrangements from the Borrower; (e) apply all monies at any time received from the Borrower or from securities upon such part of the Guaranteed Liabilities as the Bank may see fit or change any such application in whole or in part from time to time as the Bank may see fit; and (f) otherwise deal with, or waive or modify their right to deal with, the Borrower and all other persons and securities as the Bank may see fit. GUARANTOR COVENANTS 4.01 (a) The Guarantor hereby covenants and agrees that all of the Guarantor Terms and Conditions are hereby incorporated in this Guarantee by reference, mutatis mutandis, and made an integral part of this Guarantee. The Guarantor Terms and Conditions shall be construed in such manner so that it is as if they had originally been made in the Bank's favour and made in connection with, and to induce the extension of, the credit facilities extended by the Bank to the Borrower. 4.01 (b) Subject to section 4.01(c) hereof, the Bank agrees that the Guarantor shall not be in default of its obligations hereunder to comply with the Guarantor Terms and Conditions, until the occurrence of an Event of Default (as defined in the Guarantor Credit Agreement); it being agreed that if the Guarantor Credit Agreement provides that a specified event of default may not occur until a period of time has elapsed following the giving of notice by the Agent (under and as defined in the Guarantor Credit Agreement) then such notice may be provided by the Bank, for the purpose of this Guarantee. 4.01 (c) Notwithstanding section 4.01(b), the Guarantor shall be in default of its obligations to comply with the Guarantor Terms and Conditions if the Guarantor shall breach any of the Financial Covenants and such breach shall continue unremedied for a period of 20 days, whether or not the lenders under the Guarantor Credit Agreement shall have waived compliance with such Financial Covenants and whether or not such lenders shall have agreed that such default shall not be an Event of Default. "Guarantor Terms and Conditions" means the terms and conditions, (including without limitation, the representations, warranties, affirmative covenants, negative covenants, financial covenants and Events of Default) included in the Guarantor Credit Agreement. "Guarantor Credit Agreement" means, at any particular time : (i) initially the Amended and Restated Credit Agreement dated as of December 12, 1995, Amended and Restated as of July 31, 1997, among the Guarantor, Bank of America National Trust and Savings - 7 - Association, as Agent, and The Financial Institutions parties thereto, as such Credit Agreement has been amended and compliance with a certain financial covenant therein has been waived pursuant to a Waiver and First Amendment to Credit Agreement dated December 2, 1997, among the parties thereto; (ii) if the Guarantor Credit Agreement as defined in clause (i) above is amended, restated, supplemented, replaced or reduced when the Bank is a lender thereunder then, subject to (iv) below in this definition, the "Guarantor Credit Agreement" shall mean the Guarantor Credit Agreement as defined in clause (i) hereof, as so amended, restated, supplemented, replaced or reduced; (iii) if the Bank shall no longer be a lender under the Guarantor Credit Agreement, or if the Guarantor Credit Agreement shall be cancelled, terminated, or otherwise extinguished, then the "Guarantor Credit Agreement" shall be the Guarantor Credit Agreement as defined in clause (i) or (ii) hereof, subject to (iv) below in this defintion, that existed immediately prior to the time that the Bank ceased to be a lender thereunder, or that existed immediately prior to the time that the Guarantor Credit Agreement was cancelled, terminated or otherwise extinguished, as the case may be; and (iv) notwithstanding the foregoing, at all times the Financial Covenants shall be the Financial Covenants which exist at the date of this Agreement, unless the Bank has specifically consented in writing to a waiver, amendment, modification, restatement, replacement, or elimination of the Financial Covenants (including the defined terms as utilized therein). "Financial Covenants" means the financial covenants (including the defined terms as utilized therein) contained in sections 7.01, 7.09 and 7.10 of the Guarantor Credit Agreement, as "Guarantor Credit Agreement" is defined in clause (i) of the definition of Guarantor Credit Agreement, and subject to modification, waiver, replacement or elimination solely as provided in clause (iv) of the definition of Guarantor Credit Agreement. 4.01 (d) For greater certainty, the parties agree that any amendments, supplements, modifications, restatements, or replacements, or the elimination of the Financial Covenants (including the defined terms as utilized therein) shall not be incorporated in this Guarantee by reference unless the Bank has specifically consented to such amendments, supplements, modifications, restatements, replacements, or elimination, in writing. - 8 - Reporting 4.02 The Guarantor will provide to the Bank such notices, financial statements and other information which is required to be provided under the Guarantor Credit Agreement, in the same manner and within the same time periods, as set out in the Guarantor Credit Agreement. To the extent that the Guarantor shall have provided such notices, financial statements and other information to the Bank in the Bank's capacity as a lender under the Guarantor Credit Agreement, the Guarantor shall be deemed to have satisfied its obligations to provide information under this section of the Guarantee. For greater certainty, it is agreed that the Guarantor's obligation to provide such information shall continue even if clause (ii) or (iii) of the definition of Guarantor Credit Agreement is applicable. Ownership 4.03 The Guarantor will, at all times, continue to own, directely or indirectly, the majority of the issued and outstanding voting shares in the capital stock of the Borrower. Pari Passu 4.04 The Guarantor hereby covenants that: (i) its obligations under this Guarantee shall, at all times hereafter, rank pari passu, equally, and ratably with all of the indebtedness and liability of the Guarantor under the Guarantor Credit Agreement, and (ii) its obligations under this Guarantee shall, at all times hereafter, rank pari passu, equally and ratably with all of the other present and future unsubordinated indebtedness and liability of the Guarantor, except that this clause 4.04(ii) shall not restrict the creation of Permitted Liens as "Permitted Liens" is defined in the Guarantor Credit Agreement and as "Guarantor Credit Agreement" is defined in clause (i) of the definition of Guarantor Credit Agreement hereunder. GUARANTOR REPRESENTATIONS 5.01 The Guarantor hereby represents and warrants that: (a) its obligations under this Guarantee rank pari passu, equally and ratably with all of its other unsubordinated indebtedness and liability outstanding at the date hereof; (b) the execution, delivery and performance of this Guarantee by the Guarantor are within the corporate powers of the Guarantor, have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the stockholders of the Guarantor which has not - 9 - been obtained, (ii) violate any provision of the articles of incorporation or by-laws of the Guarantor or of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to the Guarantor or any subsidiary of the Guarantor; (iii) require the consent or approval of, or filing or registration with, any governmental body, agency or authority, or (iv) result in a breach of or constitute a default under, or result in the imposition of any lien, charge or encumbrance upon any property of the Guarantor or any subsidiary of the Guarantor pursuant to, any indenture or other agreement or instrument under which the Guarantor or any subsidiary of the Guarantor is a party or by which it or any of its properties may be bound or affected, and (c) this Guarantee, when executed and delivered, will constitute the legal, valid and binding obligation of the Guarantor enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforceability of creditors' rights generally or by equitable principles relating to enforceability. MISCELLANEOUS Amendment, Etc. 6.01 No amendment, modification or waiver of any provision of this Guarantee or consent to any departure by the Guarantor or any other person from any provision of this Guarantee will in any event be effective unless it is signed by the Guarantor and the Bank. Assignment, Transfer and Participation 6.02 The Guarantor hereby consents to any assignment or transfer of, or any grant of the participation in, any rights, benefits or obligations of, the Bank in respect of this Guarantee. 6.03 Notwithstanding the provisions of Section 6.02, the Guarantor, shall upon request made by an assignee of the Bank, execute and deliver such assurances as may be reasonably requested by such assignee to confirm its entitlement to the rights and benefits hereunder so assigned and transferred to it and the liability of the Guarantor to the assignee hereunder. Foreign Currency Obligations 6.04 The Guarantor shall make payment of all amounts guaranteed hereunder in the currency (the "Original Currency") in which the Borrower is required to pay such obligation. If the Guarantor makes payment relative to any obligation to the Bank in a currency (the "Other Currency") other than the Original Currency (whether voluntarily or pursuant to an order or judgment of a court or tribunal of - 10 - any jurisdiction) such payment shall only constitute a discharge of the Guarantor's liability hereunder in respect of such obligation only to the extent of the amount of the Original Currency which the Bank is able to purchase at its main branch in the jurisdiction where the loans to the Borrower are recorded, with the amount it receives on the date of receipt in accordance with its normal practice. If the amount of the Original Currency which the Bank is able to purchase is less than the amount of such currency originally due to the Bank in respect to the relevant obligation, the Guarantor shall indemnify and save the Bank harmless from and against any loss or damage arising as a result of such deficiency. This indemnity shall constitute an obligation contained in this Guarantee, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by the Bank and shall continue in full force and effect notwithstanding any judgment or order in respect of any amount due hereunder or under any judgment or order. Applicable Law 6.05 This Guarantee shall be conclusively deemed to be a contract made under, and shall for all purposes be governed by, and construed and interpreted in accordance with, the laws of Ontario, in effect from time to time, excluding any choice of law rules that may direct the application of the laws of another jurisdiction, without prejudice to or limitation of any other rights or remedies available under the laws of any jurisdiction, where property or assets of the Guarantor may be found. Jurisdiction 6.06 The Guarantor and the Bank hereby irrevocably agree that any suits, actions or proceedings arising out of or in connection with this Guarantee (collectively "Proceedings") may be brought in any court in the Province of Ontario and each submits and attorns to the non-exclusive jurisdiction of each such court. 6.07 The Guarantor and the Bank hereby irrevocably waive any objections which they may have now or hereafter to the laying of the venue of any Proceedings in any court referred to in paragraph (a) and any claim that any such Proceedings have been brought in any inconvenient forum and further irrevocably agree that a judgment in any Proceedings brought in any such court shall be conclusive and binding upon the Guarantor or the Bank, as the case may be, and may be enforced in any courts to the jurisdiction of which such parties may be subject by Proceedings upon such judgment. 6.08 Nothing contained in this Section 6 shall limit the right of the Bank to take Proceedings against the Guarantor in any other court of competent jurisdiction nor shall the taking of Proceedings in one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction, whether concurrently or not. - 11 - 6.09 The Guarantor hereby irrevocably: (i) appoints the Borrower as its agent for service of process in the Province of Ontario in connection with any Proceedings in the Province of Ontario and consents to process being served in any Proceedings in the Province of Ontario by delivering or transmitting a true copy thereof to the Borrower at its address; (ii) agrees that service in accordance with the provisions of clause 6.09 (i) shall be deemed in every respect effective service of process upon the Guarantor in any such Proceedings and shall, to the fullest extent permitted by law, be taken and be held to be valid personal service upon the personal delivery to the Guarantor; and (iii) consents generally to the fullest extent permitted by law in respect of any Proceedings to the giving of any relief and the issue of any process in connection with such Proceedings including the making, enforcement or execution against any property whatsoever (irrespective of its use or intended use) of any order or judgment which may be made or given in such Proceedings. 6.10 THE GUARANTOR HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS GUARANTEE, THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF THE GUARANTOR OR THE BANK IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF OR THEREOF. Costs and Expenses 6.11 The Guarantor shall pay on demand by the Bank any and all costs, fees and expenses, including outside legal costs and expenses, incurred by the Bank: (i) in having its outside counsel review and provide legal opinions in connection with the Guarantee, (but in no event shall such costs, fees and expenses to be paid by Guarantor pursuant to this section and the costs, fees and expenses to be paid by the Borrower pursuant to section 7.01 (e) of the credit agreement entered into by the Bank and the Borrower on the date hereof exceed $20,000 Cdn.), and (ii) in connection with enforcing any of its rights and remedies under this Guarantee. - 12 - No Waiver, Cumulative Remedies 6.12 No failure to exercise and no delay in exercising, on the part of the Bank, any right, remedy, power or privilege hereunder or under any credit agreement, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder or under any credit agreement preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein and under any credit agreement are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. Waiver of Rights of Subrogation, Reimbursement, Etc. 6.13 Until full, final, and irrevocable payment in full of the Guaranteed Liabilities and until any commitment of the Bank to extend financial accommodation to the Borrower is permenently cancelled, the Guarantor hereby irrevocably waives any claim or other rights that it may now or hereafter acquire against the Borrower that arise from the existence, payment, performance or enforcement of the Guaranteed Liabilities under this Guarantee or any credit agreement, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of the Bank against the Borrower or any collateral, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including the right to take or receive from the Borrower, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim, remedy or right. If any amount shall be paid to the Guarantor in violation of the preceding sentence at any time prior to the later of the payment in full of the Guaranteed Liabilities and all other amounts payable under this Guarantee and the termination of any commitment, such amount shall be held in trust for the benefit of the Bank and shall forthwith be paid to the Bank to be credited and applied to the Guaranteed Liabilities and all other amounts payable under this Guarantee, whether matured or unmatured, in accordance with the terms of any credit agreement, or to be held as collateral for any Guaranteed Liabilities or other amounts payable under this Guarantee thereafter arising. The Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements provided by the Bank to the Borrower, and that the waiver, set forth in this Section 6.13, is knowingly made in contemplation of such benefits. Guarantee in Addition to Other Obligations 6.14 The obligations of the Guarantor under this Agreement are in addition to and not in substitution for any other obligations of the Guarantor to the Bank in relation to any credit agreement and any guarantees or security at any time held by or for the benefit of the Bank. - 13 - Stay of Acceleration 6.15 If acceleration of the time for payment of any amount payable by the Borrower in respect of the obligations guaranteed is stayed upon the insolvency, bankruptcy or reorganization of the Borrower or any moratorium affecting the payment of the obligations of the Borrower guaranteed hereby, all such amounts otherwise subject to acceleration shall nonetheless be payable by the Guarantor hereunder automatically and without any requirement for any demand by the Bank. Entire Agreement 6.16 This Guarantee, including all documents contemplated hereby, constitutes the entire agreement between the parties with respect to the subject matter and supersedes all prior negotiations, undertakings, representations and understandings. Severability 6.17 Any provision of this Guarantee which is prohibited or unenforceable in any jurisdiction shall not invalidate the remaining provisions and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Successors and Assignees 6.18 This Agreement shall be binding upon and enure to the benefit of the Guarantor and the Bank and its respective successor and permitted assignees, except that the Guarantor may not assign any of its obligations hereunder without the express prior written consent of the Bank. Notice 6.19 Any notice or demand to or upon the Guarantor and any notice to be provided to the Bank, to be effective, shall be in writing or by telecopy, telegraph or telex, and shall not be effective until received and shall be addressed as follows: CERIDIAN CORPORATION Attention: John H. Grierson Vice President & Treasurer 8100 - 34th Avenue South Minneapolis, Minn. 55425-1640 U.S.A. Telephone: (612) 853-5265 Fax: (612) 853-3932 - 14 - THE TORONTO-DOMINION BANK Attention: Corporate and Investment Banking Group Vice President P.O. Box 1 Toronto-Dominion Centre M5K 1A2 Telephone: (416) 944- Fax: (416) 944-5630 Counterparts 6.20 This Guarantee and the acceptance thereof may be executed in any number of separate counterparts and all said counterparts taken together shall be deemed to constitute one and the same instrument. Consequential Damages 6.21 THE GUARANTOR HEREBY WAIVES ANY RIGHT IT MAY NOW OR HEREAFTER HAVE TO CLAIM OR RECOVER FROM THE BANK ANY CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES. IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to be duly executed and delivered by its proper and duly authorized officers as of January 30, 1998. CERIDIAN CORPORATION By: /s/John H. Grierson Title: Vice President & Treasurer By: /s/John A. Haveman Title: Vice President & Secretary THE TORONTO-DOMINION BANK By: Title: EX-10.28 16 EXHIBIT 10.28 CREDIT AGREEMENT THIS AGREEMENT made as of the 2nd day of March, 1998. BETWEEN: CANADIAN IMPERIAL BANK OF COMMERCE, a Canadian chartered bank (herein called the "Bank"), - and - CERIDIAN CANADA LTD., a corporation incorporated under the laws of Canada (herein called the "Borrower"). WHEREAS the Borrower has requested the Bank to establish (i) a revolving credit facility to be used to finance the acquisition by the Borrower of the Bank's Payroll Business, (ii) an operating facility due 364 days after the date hereof for general corporate purposes, and (iii) a demand VISA corporate expense account for the Borrower's corporate expense account purposes; AND WHEREAS the Bank is willing to provide such credit facilities to the Borrower for the aforementioned purposes and upon the terms and conditions contained herein; NOW THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the mutual covenants and agreements herein contained and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties hereto covenant and agree as follows: ARTICLE 1 INTERPRETATION 1.1 DEFINED TERMS. The defined terms set forth in Appendix "A" shall for all purposes of this agreement, or any amendment hereto, have the respective meanings set forth therein unless the context otherwise specifies or requires or unless otherwise defined herein. 1.2 APPLICABLE LAW. This agreement and all documents delivered pursuant hereto shall be governed by and construed and interpreted in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein and the parties hereto do hereby attorn to the non-exclusive jurisdiction of the courts of the Province of Ontario. -2- 1.3 AMOUNT OF CREDIT. Any reference herein to the amount of credit outstanding shall mean, at any particular time: (a) in the case of a Prime Rate Loan, the principal amount thereof; (b) in the case of a LIBO Loan or Base Rate Canada Loan, the Canadian Dollar Equivalent of the principal amount of such Loan; (c) in the case of a Bankers' Acceptance, the face amount of the Bankers' Acceptance; (d) in the case of a Letter of Credit, the principal amount of the Letter of Credit; (e) in the case of all outstanding Forward Exchange Contracts, the "at risk" amount (determined in accordance with Section 2(d) of Appendix "F"); and (f) in the case of a VISA Credit, the principal amount thereof, whether utilized or not. 1.4 CANADIAN DOLLARS. All amounts referred to herein shall refer to lawful currency of Canada, unless otherwise stated. 1.5 APPENDICES. The following are the Appendices annexed hereto, incorporated by reference and deemed to be part hereof: Appendix "A" - Defined Terms Appendix "B" - Drawdown/Conversion/Prepayment/Rollover Notice Appendix "C" - Opinion of Canadian Counsel to the Borrower and Guarantor Appendix "D" - Opinion of In-house Counsel to the Guarantor Appendix "E" - Opinion of United States Counsel to the Bank Appendix "F" - Letter of Credit, Forward Exchange Contracts and Swap Contracts ARTICLE 2 CREDIT FACILITIES 2.1 ESTABLISHMENT OF CREDIT FACILITIES. Subject to the terms and conditions hereof, the Bank hereby establishes in favour of the Borrower the following credits: (a) a revolving term credit facility ("Facility A") in the amount of the Facility A Limit; (b) a 364 day committed operating facility ("Facility B") in the amount of the Facility B Limit; and -3- (c) a demand VISA corporate expense account ("Facility C") in the amount of the Facility C Limit. ARTICLE 3 GENERAL PROVISIONS RELATING TO CREDITS 3.1 TYPES OF CREDIT AVAILMENTS. The Borrower may obtain credit under the Credits as follows: (a) Facility A is available by way of one or more Prime Rate Loans, Base Rate Canada Loans, LIBO Loans (subject in all cases to availability) and Bankers' Acceptances; (b) Facility B is available by way of one or more Prime Rate Loans by way of overdraft in the Designated Account, Base Rate Canada Loans by way of overdraft in the Designated Account, LIBO Loans (subject in all cases to availability), Bankers' Acceptances, Letters of Credit and Forward Exchange Contracts; and (c) Facility C is available by way of VISA Credit. 3.2 SWAP AVAILABILITY. Upon request of the Borrower, the Bank will, on a best efforts basis, arrange Swap Contracts to fix interest rates. 3.3 LOAN ADVANCES AND PAYMENTS. Each Loan advance hereunder shall be made prior to 12:00 noon (Toronto time) on the relevant date by deposit to the Designated Account. Each bill of exchange which is to become a Bankers' Acceptance shall be presented and stamped in accordance with Section 4.4. Letters of Credit shall be issued on the terms of, and in accordance with, Section 1 of Appendix "F" and Forward Exchange Contracts and Swap Contracts shall be entered into on the terms of, and in accordance with, Section 2 of Appendix "F". The Bank shall be entitled to withdraw the amount of any payment due to it hereunder from the Designated Account on the day specified for payment. 3.4 (a) BANKERS' ACCEPTANCES. To facilitate the drawing of Bankers' Acceptances hereunder, the Borrower shall execute and deliver to the Bank a supply of bills of exchange executed by the Borrower, which the Bank shall hold in safekeeping. The Bank shall not be responsible for its failure to accept a bill of exchange as required hereunder if the cause of the failure is, in whole or in part, due to the failure of the Borrower to provide such bills of exchange to the Bank on a timely basis. The Bank agrees to use its best efforts to advise the Borrower in a timely manner when it requires additional executed bills of exchange. If executed but incomplete bills of exchange are delivered to the Bank, the Bank may complete the same on behalf of the Borrower following receipt of a drawdown notice from the Borrower pursuant to Section 3.7 herein requesting the Bank to accept bills of exchange. -4- (b) EXECUTION OF ACCEPTANCES. Bills of exchange of the Borrower to be accepted as Bankers' Acceptances hereunder shall be signed by a duly authorized officer or duly authorized officers of the Borrower. Notwithstanding that any person whose signature appears on any pre-signed Acceptance as one of such officers may no longer be an authorized signatory for the Borrower at the date of issuance of a Bankers' Acceptance, such signature shall nevertheless be valid and sufficient for all purposes as if such authority had remained in force at the time of such issuance and any such Bankers' Acceptance so signed shall be binding on the Borrower. (c) NO OBLIGATION TO PURCHASE. The Bank shall not be obligated to purchase or discount any Bankers' Acceptances. The Borrower shall be responsible for arranging the purchase or discounting of any such Bankers' Acceptances by a money market dealer or the Bank, and if a money market dealer is used to facilitate settlement, the details of such purchase or discounting shall be advised promptly by the Borrower to the Bank, by telephone or facsimile transmission. 3.5 TIMING OF CREDIT AVAILMENTS. No Bankers' Acceptance or LIBO Loan may mature on a day which is not a Banking Day or have an Interest Period which would exceed the Facility A or Facility B Maturity Date, as applicable. Letters of Credit and Forward Exchange Contracts may not have a term extending beyond the Facility B Maturity Date. 3.6 EVIDENCE OF INDEBTEDNESS. The Bank shall open and maintain accounts wherein the Bank shall record the amount of outstanding credit and each payment on account of such credit by appropriate entries, including each payment of principal and interest on account of each Loan, each Bankers' Acceptance accepted and cancelled and all other amounts becoming due to and being paid to the Bank hereunder, including Stamping Fees. The Bank's accounts constitute, in the absence of manifest error, prima facie evidence of the indebtedness of the Borrower to the Bank pursuant to this agreement. 3.7 NOTICE PERIODS. Each notice of a drawdown, rollover or conversion from one type of credit availment to another hereunder shall be irrevocable and shall be given to the Bank in the forms attached hereto as Appendix "B": (a) prior to 10:30 a.m. (Toronto time) on the third Banking Day prior to the date of a drawdown of, rollover of, conversion into, conversion of, prepayment of or repayment of a LIBO Loan; (b) prior to 10:30 a.m. (Toronto time) on the second Banking Day prior to the date of drawdown or conversion into a Bankers' Acceptance, Letter of Credit or Forward Exchange Contract; (c) prior to 10:30 a.m. (Toronto time) on the first Banking Day prior to the date of a drawdown of, conversion into, conversion of, prepayment of or repayment of a Prime Rate Loan in a principal amount exceeding Cdn. $10,000,000 or a Base Rate Canada Loan in a principal amount exceeding U.S. $10,000,000, provided that no drawdown notice is required for a Prime Rate Loan or a Base Rate Canada Loan by way of overdraft under Facility B; and -5- (d) prior to 10:30 a.m. (Toronto time) on the Banking Day of any other drawdown, rollover, conversion, prepayment or repayment. 3.8 ABSENCE OF INSTRUCTIONS. In the absence of written notice from the Borrower within the appropriate time periods referred to herein, a maturing LIBO Loan shall be automatically converted into a Base Rate Canada Loan and a maturing Bankers' Acceptance shall be automatically converted into a Prime Rate Loan. 3.9 REIMBURSEMENT OBLIGATION. The Bank shall, on the maturity date of a Bankers' Acceptance, pay to the holder thereof the face amount of such Bankers' Acceptance and the Borrower shall fully reimburse the Bank on such date for the amount of any such payment. In the event that the Bank is the holder of any Bankers' Acceptance on the maturity date applicable thereto, the Borrower shall pay to the Bank the face amount of such Bankers' Acceptance. ARTICLE 4 INTEREST AND FEES 4.1 INTEREST RATES. The Borrower shall pay to the Bank interest and fees on the outstanding principal amount of each Advance from time to time, at the rate per annum equal to the following rates or equal to the following fees, as the case may be: (a) in the case of each Prime Rate Loan, the Prime Rate; (b) in the case of each Base Rate Canada Loan, the Alternate Base Rate Canada; (c) in the case of each LIBO Loan, the LIBO Rate plus 47.5 basis points; (d) in the case of Banker's Acceptances, the Stamping Fee at 47.5 basis points per annum; and (e) in the case of each Letter of Credit, 47.5 basis points per annum of the amount of the Letter of Credit, payable in advance. 4.2 CALCULATION AND PAYMENT OF INTEREST. (a) Interest on the outstanding principal amount from time to time of each Loan and on the amount of overdue interest thereon from time to time shall accrue from day to day (both before and after maturity and as well after as before judgment) and shall be calculated on the basis of the actual number of days elapsed divided by the actual number of days in the year in the case of a Prime Rate Loan and Base Rate Canada Loan or divided by 360 in the case of a LIBO Loan. -6- (b) Accrued interest shall be paid, (i) in the case of interest on Prime Rate Loans and Base Rate Canada Loans, monthly in arrears on the last Banking Day of each calendar month; and (ii) in the case of interest on LIBO Loans, on the last day of the applicable Interest Period. (c) The Borrower shall pay to the Bank, upon demand by the Bank, the administrative fees and charges quoted by the Bank from time to time in respect of any amendments to Letters of Credit requested by the Borrower. 4.3 GENERAL INTEREST RULES. (a) For the purposes hereof, whenever interest is calculated on the basis of a year of 360 days, each rate of interest determined pursuant to such calculation expressed as an annual rate for the purposes of the Interest Act (Canada) is equivalent to such rate as so determined multiplied by the actual number of days in the calendar year in which the same is to be ascertained and divided by 360. (b) Following the occurrence of an Event of Default, the Borrower shall pay interest on amounts outstanding (as well after as before judgment) at the rate per annum, calculated and compounded monthly, which is equal to the Prime Rate plus 2%. Such interest on overdue amounts shall become due and be paid on demand made by the Bank. 4.4 STAMPING FEES. Upon the acceptance of any draft of the Borrower pursuant hereto, the Borrower shall pay to the Bank, in advance, the Stamping Fee calculated at the rate per annum, on the basis of the actual number of days in the year, equal to 47.5 basis points per annum on the face amount of such Bankers' Acceptance for its term, being the actual number of days in the period commencing on the date of acceptance of the Borrower's draft and ending on but excluding the maturity date of the Bankers' Acceptance. 4.5 STAND-BY FEE. On the first Banking Day of each month commencing April 1, 1998, and on the Facility A and Facility B Maturity Date, as applicable, the Borrower shall pay to the Bank, in arrears, a Stand-by Fee calculated on the basis of a year of 365 days or 366 days in the case of a leap year at 12.5 basis points per annum, on the daily average of the unused portion of Facilities A and B, such fee to accrue daily from, and including the first day of the previous month (or the date hereof, if later) to and including the last day of the previous month, and in the case of the final payment, up to the Facility A and Facility B Maturity Date, as applicable. -7- 4.6 ARRANGEMENT FEE. The Bank acknowledges receipt of $25,000 representing a non-refundable arrangement fee in consideration of the Bank issuing the committed offer to finance dated February 12, 1998. On the date of execution and delivery of this agreement, the Borrower shall pay to the Bank a further $75,000 non-refundable arrangement fee in consideration of the Bank establishing the Credits. ARTICLE 5 REPAYMENTS AND PREPAYMENTS 5.1 FACILITY A. The Borrower will repay all amounts outstanding under Facility A on or before the Facility A Maturity Date, or earlier if the Bank demands repayment following the occurrence of an Event of Default. 5.2 FACILITY B. (a) REPAYMENT. The Borrower will repay all amounts outstanding under Facility B on or before the Facility B Maturity Date, or earlier if the Bank demands repayment following the occurrence of an Event of Default. (b) ANNUAL REVIEW. Facility B is subject to annual review by the Bank, with the first review being done on the anniversary of the date hereof. The Bank may terminate Facility B on any such annual review notwithstanding compliance by the Borrower with any or all of the provisions of this agreement or the Bank may, in its sole discretion, agree to extend Facility B for an additional 364 days. 5.3 FACILITY C. The Borrower acknowledges and agrees that Facility C is established at the pleasure of the Bank and that the Bank reserves the right to cancel Facility C in whole or in part at any time (whether or not demand is made at such time) and to demand immediate repayment of any and all amounts outstanding under Facility C at any time, at the sole discretion of the Bank and notwithstanding compliance by the Borrower with any or all of the provisions of this agreement. 5.4 REPAYMENTS OF CREDIT EXCESS. The Borrower shall also repay to the Bank automatically, and without the necessity of demand, the Credit Excess under any of the Credits from time to time, whether such Credit Excess results from the calculation by the Bank each day of the Canadian Dollar Equivalent of amounts outstanding in U.S. dollars or otherwise. 5.5 PREPAYMENTS. The Borrower shall be entitled to prepay all or any portion of the amount outstanding under the Credits, provided that: (i) any partial prepayment in respect of LIBO Loans or Bankers' Acceptances is in an amount equal to U.S.$100,000 or Cdn.$100,000, as applicable, or any whole multiple thereof; -8- (ii) in the case of a LIBO Loan or Bankers' Acceptance, the Bank receives two Banking Days prior written notice of such prepayment in the form attached hereto as Appendix "B" which notice shall be irrevocable and the Borrower shall be bound to prepay in accordance with such notice; (iii) if the Borrower pays a LIBO Loan prior to expiry of the Interest Period applicable to that LIBO Loan the Borrower will pay to the Bank all interest accrued on the amount thereof, together with all costs and expenses of reemploying the amounts so repaid and the Borrower will comply with paragraph 7.1(i) in connection with such prepayment; (iv) Bankers' Acceptances may not be repaid prior to the expiry of the Interest Period of such Bankers' Acceptance; (v) a Letter of Credit may not be cancelled prior to its expiry date unless the original thereof is delivered by the beneficiary to the Bank with a request for cancellation thereof (at which time a pro rata portion of the applicable Letter of Credit fee shall be refunded to Borrower); and (vi) in the case of a Forward Exchange Contract or a Swap Contract, the Borrower shall pay concurrently with any early termination any breakage costs (as determined by the Bank in accordance with its usual practice) incurred by the Bank as a result of such early termination. 5.6 REVOLVING. Amounts borrowed under the Credits may be repaid at any time in accordance with Sections 5.4 and 5.5 hereof and amounts repaid may be reborrowed from time to time in accordance with the provisions hereof. 5.7 CANCELLATION. The Borrower may permanently cancel all or any portion of Facilities A, B or C upon 30 days prior written notice to the Bank. 5.8 WITHHOLDING TAX. All payments made by the Borrower to the Bank will be made free and clear of all present and future taxes (excluding the Bank's income or capital taxes), withholdings or deductions of whatever nature. If these taxes, withholdings or deductions are required by applicable law and are made, the Borrower, shall, as a separate and independent obligation, pay to the Bank all additional amounts as shall fully indemnify the Bank from any such taxes, withholding or deduction. 5.9 WAIVER OF SET-OFF. The Borrower agrees to make all payments due hereunder without set-off or counterclaim. In addition, the Borrower shall make all payments hereunder free and clear of, and without deduction for, any amount owed to the Borrower or the Guarantor by the Bank, pursuant to or in connection with, the Asset Purchase Agreement, or otherwise in connection with the purchase by the Borrower of the Assets. The Borrower hereby waives any right to set-off any and all amounts owing to the Borrower or the Guarantor by the Bank against any and all amounts owing by the Borrower to the Bank. -9- ARTICLE 6 REPRESENTATIONS AND WARRANTIES 6.1 REPRESENTATIONS AND WARRANTIES. To induce the Bank to enter into this agreement, the Borrower hereby represents and warrants to the Bank as follows and acknowledges and confirms that the Bank is relying upon such representations and warranties in extending credit hereunder: (a) STATUS AND POWER. The Borrower is a corporation duly incorporated and organized and validly subsisting under the laws of Canada and is duly qualified, registered or licensed in all jurisdictions where such qualification, registration or licensing is required to the extent that it is material. The Borrower has all requisite corporate capacity, power and authority to own, hold under licence or lease its properties, to carry on its business as now conducted and to otherwise enter into, and carry out the transactions contemplated by, this agreement. (b) AUTHORIZATION AND ENFORCEMENT OF DOCUMENTS. All necessary action, corporate or otherwise, has been taken to authorize the execution, delivery and performance of this agreement by the Borrower and the Borrower has duly executed and delivered this agreement. This agreement is a legal, valid and binding obligation of the Borrower, enforceable against the Borrower by the Bank in accordance with its terms. (c) COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery and performance of this agreement and the consummation of the transactions contemplated herein do not and will not conflict with, result in any breach or violation of, or constitute a default under, the terms, conditions or provisions of the constating documents or by-laws of the Borrower or of any law, regulation, judgment, decree or order binding on or applicable to the Borrower or by which the Borrower benefits or to which any of its property is subject or of any material agreement, lease, licence, permit or other instrument to which the Borrower is a party or is otherwise bound or by which the Borrower benefits or to which any of its property is subject and do not require the consent or approval of any other party or any governmental body, agency or authority. (d) LITIGATION. There are no actions, suits, inquiries, claims or proceedings pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower before any government, parliament, legislature, regulatory authority, agency, commission, board or court or before any private arbitrator, mediator or referee which in any case or in the aggregate may result in any material adverse change in the ability of the Borrower to perform its obligations under this agreement. -10- (e) COMPLIANCE WITH LAWS. The Borrower is not in violation of any mortgage, franchise, licence, judgment, decree, order, statute, rule or regulation relating in any way to the Borrower, to the operation of its business or to its property or assets where such violation might reasonably be expected to result in a material adverse change in the business, financial condition or operations of the Borrower. (f) TAXES. All of the remittances required to be made by the Borrower to the federal, provincial and municipal governments have been made and are currently up to date. Without limiting the foregoing, all employee source deductions (including income taxes, unemployment insurance and Canada pension plan), sales taxes (both provincial and federal), corporate income taxes, payroll taxes and workmen's compensation dues are currently paid and up to date, except for such taxes which are being contested in good faith by proper proceedings with appropriate reserves having been set aside. (g) ENVIRONMENTAL. (i) The condition and use of all of the Borrower's properties and any prior use by the Borrower of such properties is in material compliance with all applicable environmental, health and safety laws and standards. (ii) None of the Borrower's properties, or any part thereof, is subject to any remedial control, action, direction, order, or investigation (which is material) by the Ministry of the Environment or any authority having jurisdiction over matters involving the environment. (h) AUTHORIZED AND ISSUED CAPITAL. A majority of the issued and outstanding voting shares in the capital of the Borrower are registered in the name of the Guarantor or one of its wholly-owned subsidiaries. (i) TITLE TO ASSETS. The Borrower owns its assets free from all Liens except Permitted Liens. (j) FINANCIAL STATEMENTS. The audited financial statements for the Guarantor last delivered to the Bank present fairly its financial position in all material respects, as of the date shown on such financial statements, and have been prepared in accordance with generally accepted accounting principles, consistently applied. Since such date no material adverse change in the business or financial position, operation, property or assets of the Borrower or the Guarantor has occurred, other than has been disclosed in writing to the Bank and in filings with the United States Securities and Exchange Commission prior to the date hereof relating to (i) charges incurred by the Guarantor in the third and fourth quarters of 1997; (ii) the sale of Guarantor's defense electronics business and (iii) the repurchase by the Guarantor of its stock. -11- (k) GUARANTOR. The address of the Guarantor's corporate head office and chief executive office and the office at which the Guarantor's primary corporate and business records are maintained is 8100 34th Avenue South, Minneapolis, MN, USA 55438. 6.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of the Borrower contained in Section 6.1 shall survive the execution and delivery of this agreement notwithstanding any investigation made at any time by or on behalf of the Bank and shall be deemed to be repeated on the date of each Advance hereunder. ARTICLE 7 COVENANTS 7.1 COVENANTS. The Borrower hereby covenants and agrees with the Bank that, so long as any amount is outstanding hereunder or so long as the Bank shall have any commitment hereunder, unless the Bank otherwise expressly consents in writing: (a) PUNCTUAL PAYMENT. The Borrower will pay all amounts outstanding hereunder and all interest thereon and all fees and other amounts required to be paid by it hereunder in the manner and at the times specified hereunder. (b) FINANCIAL REPORTING. The Borrower shall furnish the Bank with the following statements, reports and certificates: (i) within 120 days after the end of each fiscal year of the Borrower, copies of the Borrower's annual financial statements with respect thereto; (ii) upon delivery of the financial statements, a certificate of a senior officer of the Borrower certifying that no Default related to the Borrower has occurred and is continuing; and (iii) such other statements, reports and information as the Bank may reasonably request from time to time. -12- (c) CORPORATE EXISTENCE. The Borrower shall maintain its corporate existence in good standing and shall not take part in any dissolution, reorganization, amalgamation, merger or any similar proceeding or arrangement without the Bank's prior written consent, not to be unreasonably withheld. (d) MATERIAL ADVERSE CHANGE. The Borrower shall promptly notify the Bank of any material adverse change in the financial condition of the Borrower or in the ability of the Borrower to satisfy its obligations hereunder. (e) COSTS AND EXPENSES. The Borrower shall pay all reasonable costs, fees, and expenses, (including travel expenses and those of legal counsel) incurred by the Bank (i) for services rendered by outside counsel in connection with the preparation of this agreement and the Guarantee and with the establishment of the Credits (but in no event shall such costs, fees and expenses to be paid by Borrower pursuant to this clause (i) and the costs, fees and expenses to be paid by Guarantor pursuant to Section 6.11(i) of the Guarantee exceed Cdn.$25,000); and (ii) in connection with the enforcement of this agreement and the collection of amounts outstanding hereunder and outstanding under the Guarantee. (f) NOTICE OF DEFAULT. The Borrower shall promptly notify the Bank of the occurrence of any Default or Event of Default and shall concurrently deliver to the Bank a detailed statement of a senior officer of the Borrower of the steps, if any, being taken to cure or remedy such Default or Event of Default. (g) NEGATIVE PLEDGE. Other than Permitted Liens, the Borrower will not create, issue, incur, assume or permit to exist any security interest, lien, charge or other encumbrance of any kind on or in respect of any of its assets or undertakings. (h) CHANGE OF CIRCUMSTANCES. If the introduction or adoption of any law, regulation, guideline, request or directive (whether or not having the force of law) of any governmental authority, central bank or comparable agency or any change therein or in the application thereof to the Borrower or to the Bank or in the interpretation or administration thereof or any compliance by the Bank therewith shall impose or require any reserve, special deposit requirements or tax (excluding taxes measured with reference to the net income or capital of the Bank), shall establish an appropriate amount of capital to be maintained by the Bank or shall impose any other requirement or condition which results in an increased cost to the Bank of extending or maintaining a credit or obligation hereunder or reduces the amount received or receivable by the Bank with respect to the Credits under this agreement or reduces the Bank's effective return hereunder or on its capital or causes the Bank to make any payment or to forego any return based on any amount received or receivable hereunder, then, provided that there has been notification to the Borrower by the Bank, the Borrower shall pay to the Bank such amounts as shall fully compensate the Bank for all such increased costs, reductions, payments or foregone returns which accrue after the 100th day following such notification. The Bank shall notify the Borrower of any actual -13- increased or imposed costs, reductions, payments or foregone returns forthwith on becoming aware of same and shall concurrently provide to the Borrower a certificate of an officer of the Bank setting forth the amount of compensation to be paid to the Bank and the basis for the calculation of such amount. (i) INDEMNITY. Upon notice from the Bank (which notice shall be accompanied by a detailed calculation of the amount to be paid by the Borrower), the Borrower shall pay to the Bank such amount or amounts as will compensate the Bank for any loss, cost or expense incurred by it in the liquidation or redeposit of any funds acquired by the Bank to fund or maintain any portion of a LIBO Loan as a result of: (i) the failure of the Borrower to borrow or make repayments on the dates specified under this agreement or in any notice from the Borrower to the Bank; or (ii) the repayment or prepayment of any amounts on a day other than the payment dates prescribed herein. (j) EXISTENCE AND CONDUCT OF BUSINESS. The Borrower shall maintain its existence in good standing and do or cause to be done all things necessary to keep in full force and effect all rights, franchises, licenses, contracts and agreements which are necessary to own its assets and carry on its business. The Borrower will maintain its assets in good repair and working condition and will carry on only the type of businesses carried on by the Guarantor at the date hereof. The Borrower shall conduct its business in such a manner so as to comply in all material respects with all applicable laws and regulations. (k) FURTHER ASSURANCES. The Borrower shall, at the Bank's request, and at the Borrower's expense, perform such acts as may be necessary or advisable to carry out the intent of this agreement. (l) LITIGATION, ETC. The Borrower shall give the Bank prompt written notice of any material litigation involving the Borrower or proceeding which might reasonably be considered to materially adversely affect the Borrower's financial status or the operation of its business. (m) INSURANCE. The Borrower shall maintain in force with reputable insurers insurance with respect to losses of or damage to its assets from such risks, casualties and contingencies and of such types and in such amounts and subject to such deductible amounts as are customary in the case of persons engaged in the same or similar business with similar assets. -14- (n) RIGHTS OF INSPECTION. At any reasonable time and from time to time upon reasonable prior notice, which in any event shall not be less than three Banking Days, the Borrower will, within the limits of its powers and the law, permit the Bank or any authorized representative thereof, at the expense of the Bank, to inspect its assets and properties and to examine and make copies of any financial information in its possession relating to its records and books of account. In exercising the Bank's rights under this Section, the Bank will take all reasonable steps to minimize the disruption to the ordinary course of operation of the Borrower's business. (o) NO SALE. The Borrower will not, sell, assign, transfer, convey, or otherwise dispose of or permit or acquiesce in the sale, assignment, transfer, conveyance or other disposition of its assets other than in the ordinary course of business and other than the sale of obsolete assets or assets no longer used in the business of the Borrower, sold in a commercially reasonable manner, for value. (p) PARI PASSU RANKING. The Borrower will not take, or permit any action to be taken, or suffer to exist any event, which results or would result in the amounts due or to become due hereunder ceasing to rank pari passu, equally, and rateably with all other unsubordinated obligations of the Borrower. (q) PAYMENT OF TAXES AND CLAIMS. The Borrower will pay and discharge before the same become delinquent: (i) all material taxes, assessments and governmental charges or levies imposed upon it or upon its assets; and (ii) all lawful claims which, if unpaid, might become a lien upon its assets, except for any such tax or claim which is being contested in good faith by proper proceedings with appropriate reserves having been set aside. (r) NO DIVIDENDS. The Borrower shall not declare or pay any dividends, purchase, redeem or retire or otherwise acquire for value any of the Borrower's capital stock now or hereafter outstanding or, except in the ordinary course of its business, make any loans or advances to any entity, including without limitation, the Guarantor or any affiliate of the Borrower or the Guarantor. -15- ARTICLE 8 CONDITIONS PRECEDENT 8.1 CONDITIONS PRECEDENT TO EFFECTIVENESS OF AGREEMENT. This agreement shall become effective upon the fulfillment of the following conditions precedent: (a) the conditions precedent set forth in Section 8.2 shall have been fulfilled or have been waived by the Bank; (b) the Borrower shall have delivered to the Bank an executed copy of the Asset Purchase Agreement and such documents referred to therein as the Bank shall have requested, each of which shall be in a form approved by the Bank and all conditions precedent to the transaction contemplated by the Asset Purchase Agreement shall have been satisfied or waived; (c) the Bank and its counsel shall be satisfied that all necessary approvals, acknowledgments and consents have been given and all relevant laws have been complied with as concerns all agreements and transactions referred to herein; (d) the Bank shall have received, in form and substance satisfactory to the Bank, (i) the Guarantee; (ii) certificates of a senior officer of each of the Obligors setting forth specimen signatures of the individuals authorized to sign this agreement, certified copies of the resolutions or other corporate proceedings of the Obligors authorizing the transactions under this agreement and other corporate and factual matters relevant to the transactions under this agreement; (iii) an opinion of Canadian counsel to the Borrower and the Guarantor, addressed to the Bank, in the form annexed hereto as Appendix "C"; (iv) an opinion of in-house counsel to the Guarantor, addressed to the Bank, in the form annexed hereto as Appendix "D"; and (v) an opinion of United States counsel to the Bank, addressed to the Bank, in the form annexed hereto as Appendix "E"; (e) the Borrower shall have delivered to the Bank an executed copy of the share purchase agreement dated as of January 26, 1998 among The Toronto-Dominion Bank, the Borrower, the Guarantor, Business Windows Inc., 3454916 Canada Inc. and Ceridian Canada Holdings, Inc.; and -16- (f) the Guarantor shall have injected cash equity of at least Cdn.$95,000,000 into the Borrower for the purpose of acquiring the payroll business of the Bank and The Toronto-Dominion Bank. 8.2 CONDITIONS PRECEDENT TO ALL CREDIT. The obligation of the Bank to extend credit hereunder by means of drawdown, rollover or conversion from one type of credit availment to another is subject to fulfillment of the following conditions precedent on the date such credit is extended: (a) no Default has occurred and is continuing or would arise as a result of such extension of credit; and (b) the representations and warranties of the Borrower contained in Section 6.1, the representations and warranties of the Guarantor contained in Article V of the Guarantor Credit Agreement, and the representations of the Guarantor contained in the Guarantee shall be true and correct in all material respects on and as of the date such credit is obtained as if such representations and warranties were made on such date, except to the extent they refer to filings made by the Guarantor with the United States Securities and Exchange Commission ("SEC"), in which case they shall be deemed amended to include all filings made by the Guarantor with the SEC to the date hereof. 8.3 WAIVER. The terms and conditions of Section 8.2 are inserted for the sole benefit of the Bank and the Bank may waive them in whole or in part, with or without terms or conditions, in respect of any extension of credit, without prejudicing the Bank's right to assert them in whole or in part in respect of any other extension of credit. ARTICLE 9 DEFAULT AND REMEDIES 9.1 EVENTS OF DEFAULT. Upon the occurrence of any one or more of the following events: (a) the non-payment of any amount due hereunder within three Banking Days after notice of non-payment has been given to the Borrower by the Bank; (b) the permanent suspension of substantially all of the operations of the Borrower; (c) the Borrower shall (i) become insolvent or generally not pay its debts as such debts become due, (ii) admit, in writing, its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; (iii) file a notice of intention to file a proposal under any law relating to bankruptcy, insolvency or reorganization or relief of debtors; (iv) institute or have instituted against it any proceeding seeking: -17- (i) to adjudicate it a bankrupt or insolvent, (ii) a liquidation, winding-up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or (iii) the entry of any order for relief or the appointment of a receiver, trustee or custodian for it or for any substantial part of its assets, and, in the case of any such proceeding instituted against it (but not instituted by it) the proceedings have not been discharged within 30 days from the commencement of such proceedings; (d) any representation or warranty made by the Borrower in this agreement or any representation and warranty made by the Guarantor in the Guarantor Credit Agreement or any information furnished in writing to the Bank by the Borrower or by the Guarantor proves to have been incorrect in any material respect when made or furnished; (e) the breach or failure of due observance or performance by the Borrower of any covenant or provision of this agreement, other than those heretofore dealt with in this Section 9.1, or of any other document, agreement or instrument delivered pursuant hereto or referred to herein which is not remedied by the Borrower within ten Banking Days after the earlier of (i) the time that the Borrower becomes aware of the default or (ii) the time of the giving of notice from the Bank to the Borrower of the occurrence of such breach; (f) if there shall be an action, suit, inquiry, claim or proceeding against or affecting the Borrower before any governmental, parliament, legislature, regulatory authority, agency, commission, board or court or before any private arbitrator, mediator or referee which in any case or in the aggregate would reasonably be expected to result in the inability of the Borrower to perform its obligations hereunder; (g) if a receiver, receiver manager, liquidator or other person with like powers is appointed with respect to, or if an encumbrancer takes possession of any substantial part of the properties or assets of the Borrower and such encumbrancer continues to be in possession thereof for a period of thirty (30) days; -18- (h) if one or more final judgments or orders for the payment of money in excess of $1,000,000 be rendered against the Borrower which is not appealed or discharged within 30 days from the imposition of such judgment; (i) if an event or condition shall occur which constitutes an event of default under any other agreement or instrument relating to indebtedness of the Borrower exceeding $1,000,000 or which would permit the acceleration of such indebtedness; (j) if an Event of Default (as defined in the Guarantor Credit Agreement) shall occur under the Guarantor Credit Agreement, it being agreed that if the Guarantor Credit Agreement provides that a specified event of default may not occur until a period of time has elapsed following the giving of notice by the Agent (under and as defined in the Guarantor Credit Agreement) then such notice may be provided by the Bank, for the purpose of this agreement; (k) if the Guarantor shall breach any of the Financial Covenants and such breach shall continue unremedied for a period of 20 days, whether or not the lenders under the Guarantor Credit Agreement shall have waived compliance with such Financial Covenants and whether or not such lenders shall have agreed that such default shall not be an Event of Default under the Guarantor Credit Agreement; (l) if the Guarantor shall breach any of the representations, warranties or, covenants set out in the Guarantee (and in the case of a breach of the representations, warranties or covenants set out in the Guarantor Credit Agreement which are incorporated by reference in the Guarantee, such breach constitutes an Event of Default under the Guarantor Credit Agreement) including without limitation, if the indebtedness and liability of the Guarantor under the Guarantee shall no longer rank pari passu, equally, and rateably with all of the present and future indebtedness and liability of the Guarantor; (m) if the Guarantor shall no longer directly or indirectly own a majority of the issued and outstanding voting shares of the Borrower; or (n) if all or any part of the Guarantee is invalid, unenforceable or terminated in any respect, or if the Guarantor denies all or any of its obligations under the Guarantee, then, without limitation to the Bank's rights and remedies at law or in equity, the right of the Borrower to obtain any further credit hereunder and all of the obligations of the Bank hereunder to extend such further credit shall automatically terminate and the Bank may, by notice to the Borrower, declare all indebtedness of the Borrower to the Bank pursuant to this agreement (including the present value of the face amount of all Bankers' Acceptances issued and outstanding hereunder based on their respective maturity dates, the present value to be calculated using a discount rate equal to the yield of bills of exchange accepted by the Bank and having a similar maturity date and the principal amount of all Letters of Credit) to be immediately due and payable whereupon all such indebtedness shall immediately become and be due and payable without further demand or other notice of any kind, all of which are expressly waived by the -19- Borrower. Upon the payment by the Borrower to the Bank of the present value of the face amount of all Bankers' Acceptances issued and outstanding hereunder, the Borrower shall have no further liability to the Bank with respect to such Bankers' Acceptances. 9.2 AUTOMATIC ACCELERATION. If the Borrower is adjudged or declared bankrupt or insolvent or any of the proceedings referred in the event of default set out at Section 9.1(c) above shall be voluntarily instituted by the Borrower, or the Borrower indicates its consent to, approval of, or acquiescence in, any such proceeding for it or for any substantial part of its property, or consents to the appointment of any receiver or trustee (which events shall be included in the list of events of default set out above), then, without limiting the Bank's rights and remedies at law, equity, or otherwise under this agreement, all indebtedness of the Borrower to the Bank in connection with the agreement will be automatically accelerated and will be required to be paid by the Borrower, without the necessity of notice or otherwise and, any right of the Borrower to any further utilization of the Credits shall automatically terminate. 9.3 REMEDIES CUMULATIVE. The rights and remedies of the Bank under this agreement are cumulative and are in addition to and not in substitution for any other rights or remedies provided by law. ARTICLE 10 MISCELLANEOUS 10.1 WAIVERS AND AMENDMENTS. No failure or delay by the Bank in exercising any right hereunder shall operate as a waiver of such right nor shall any single or partial exercise of any power or right hereunder preclude its further exercise or the exercise of any other power or right. Any waiver by the Bank of the strict observance, performance or compliance with any term, covenant or condition of this agreement is not a waiver of any subsequent default and any indulgence by the Bank with respect to any failure to strictly observe, perform or comply with any term, covenant or condition of this agreement is not a waiver of the entire term, covenant or condition or any subsequent default. Any term, covenant, agreement or condition of this agreement may only be amended with the consent of the Borrower and the Bank and compliance therewith may only be waived (either generally or in a particular instance and either retroactively or prospectively) by the Bank. 10.2 NOTICES. All notices and other communications provided for herein shall be in writing and shall be personally delivered to an officer or other responsible employee of the addressee or sent by telefacsimile or other direct written electronic means, charges prepaid, at or to the applicable addresses or telefacsimile numbers, as the case may be, set opposite the party's name on a signature page hereof or at or to such other address or addresses or telefacsimile number or numbers as either party hereto may from time to time designate to the other party in such manner. Any communication which is personally delivered as aforesaid shall be deemed to have been validly and effectively given on the date of such delivery if such date is a Banking Day and such delivery was made during normal business hours of the recipient; otherwise, it shall be deemed to have been validly and effectively given on the Banking Day next following such date of delivery. Any communication which is transmitted by telefacsimile or other direct written electronic means as aforesaid shall be deemed to have been validly and effectively given on the -20- date of transmission if such date is a Banking Day and such transmission was made during normal business hours of the recipient; otherwise, it shall be deemed to have been validly and effectively given on the Banking Day next following such date of transmission. 10.3 INDEMNITY. (a) GENERAL INDEMNITY. The Borrower shall pay, defend, indemnify, and hold the Bank and its officers, directors, employees, counsel and agents (each an "Indemnified Person") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses or disbursements (including cleanup costs and engineering consulting costs in respect of environmental claims and legal fees on a solicitor and client basis) of any kind or nature whatsoever (collectively, "Costs") with respect to the execution, delivery, enforcement, performance and administration of this agreement or the Guarantee, or the transactions contemplated hereby and thereby and with respect to any investigation, litigation or proceeding (including any insolvency proceeding, environmental claim or appellate proceeding) related to this agreement or the Loans or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all of the foregoing, collectively, the "Indemnified Liabilities"); provided, however, that the Borrower shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities arising from the gross negligence or wilful misconduct of, or breach of this agreement by, such Indemnified Person. For certainty, the Borrower shall have no obligation hereunder with respect to Costs arising in respect of the Asset Purchase Agreement or the transactions contemplated thereby, and the provisions of this Agreement shall not in any way lessen the Bank's obligations of indemnification under the Asset Purchase Agreement. (b) SURVIVAL. The obligations in this Section 10.3 shall survive payment of all other indebtedness hereunder and cancellation of the Credits. 10.4 SUCCESSORS AND ASSIGNS. This agreement shall enure to the benefit of and shall be binding upon the parties hereto and their respective successors and permitted assigns. 10.5 ASSIGNMENT. Neither this agreement nor the benefit thereof may be assigned by the Borrower. Prior to the occurrence of a Default, the rights and obligations of the Bank hereunder may be assigned or participated by the Bank in whole or in part with the prior written consent of the Borrower (which consent not to be unreasonably withheld). At any time following the occurrence of a Default, the rights and obligations of the Bank hereunder may be assigned or participated by the Bank in whole or in part without the consent of or notice to the Borrower. For the purposes of any such assignment or participation, the Bank may disclose, on a confidential basis, to a potential participant, transferee or assignee such information about the Borrower and the Guarantor as the Bank may see fit. -21- 10.6 ENTIRE AGREEMENT. This agreement and the agreements referred to herein and delivered pursuant hereto constitute the entire agreement between the parties hereto relating to the Credits and supersede any prior agreements, undertakings, declarations, representations and understandings, both written and verbal, in respect of the subject matter hereof. 10.7 FOREIGN CURRENCY OBLIGATIONS. The Borrower shall make payment of all amounts owing hereunder in the currency (the "Original Currency") in which the Borrower is required to pay such obligation. If the Borrower makes payment relative to any obligation to the Bank in a currency (the "Other Currency") other than the Original Currency (whether voluntarily or pursuant to an order or judgment of a court or tribunal of any jurisdiction) such payment shall constitute a discharge of the Borrower's liability hereunder in respect of such obligation only to the extent of the amount of the Original Currency which the Bank is able to purchase at its main branch in the jurisdiction where the loans to the Borrower are recorded, with the amount it receives on the date of receipt in accordance with its normal practice. If the amount of the Original Currency which the Bank is able to purchase is less than the amount of such currency originally due to the Bank in respect to the relevant obligation, the Borrower shall indemnify and save the Bank harmless from and against any loss or damage arising as a result of such deficiency. This indemnity shall constitute an obligation contained in this agreement, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by the Bank and shall continue in full force and effect notwithstanding any judgment or order in respect of any amount due hereunder or under any judgment or order. IN WITNESS WHEREOF the parties hereto have executed this agreement. CANADIAN IMPERIAL BANK OF COMMERCE Commerce Court West, 3rd Floor Toronto, Ontario, M5L 1A2 Attention: Managing Director Corporate Finance Telefax: (416) 980-7377 By: ------------------------------- Title: ----------------------------- By: ------------------------------- Title: ---------------------------- -1- CERIDIAN CANADA LTD. 3500 Steeles Avenue East Tower 2-Level Markham, Ontario L3R 2Z1 Attention: President Telefax: 905-982-6853 cc: Ceridian Corporation 8100 - 34th Avenue South Minneapolis, Minnesota 53425 Attention: Treasurer By: ------------------------------- Title: ---------------------------- By: ------------------------------- Title: ---------------------------- EX-10.29 17 EXHIBIT 10.29 GUARANTEE AGREEMENT TO: CANADIAN IMPERIAL BANK OF COMMERCE WHEREAS Ceridian Canada Ltd. (hereinafter called the "Borrower") is a wholly owned indirect subsidiary of Ceridian Corporation (hereinafter called the "Guarantor"); AND WHEREAS Canadian Imperial Bank of Commerce (hereinafter called the "Bank") has established and may in the future establish one or more credit facilities in favour of the Borrower; AND WHEREAS, as security for the payment of the full amount of all of the present and future indebtedness and liability of the Borrower to the Bank, the Guarantor has agreed to guarantee payment of the Borrower's indebtedness and liability to the Bank on the terms and subject to the conditions hereinafter set forth; NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the Guarantor hereby covenants to and for the benefit of the Bank as follows: GUARANTEE Guarantee 1.01 The Guarantor hereby unconditionally, absolutely and irrevocably guarantees the due and punctual and complete payment and satisfaction when due (whether at stated maturity, by acceleration or otherwise), and at all times thereafter, of all the Guaranteed Liabilities which are or may become at any time and from time to time owing or payable by the Borrower to the Bank or which remain owing and unpaid to the Bank. "Guaranteed Liabilities" means the indebtedness, liabilities and obligations of the Borrower to the Bank, howsoever incurred, present and future, direct and indirect, whether as principal or as surety, absolute and contingent, matured and unmatured, at any time and from time to time existing or arising under or by virtue of or otherwise in connection with any credit facility made available by the Bank to the Borrower, including without limitation, indebtedness and liability for or in connection with any swap transaction, foreign exchange transaction, bankers acceptance, LIBO loans, direct and indirect loans and advances, and in each case, including all interest, commissions, costs, charges, legal fees and expenses which may be incurred in respect of such indebtedness and liability, and in each case, whether or not any such indebtedness, liabilities or obligations are discharged, stayed or otherwise affected, except to the extent such indebtedness, liabilities or obligations are fully discharged by full, irrevocable and final payment. -2- PAYMENT Payment 2.01 The Guarantor agrees to make immediate payment to the Bank of all Guaranteed Liabilities then payable to the Bank upon receipt of a demand for payment therefor by the Bank to the Guarantor in writing. Taxes and Set Off by Guarantor 2.02 All payments to be made by the Guarantor hereunder shall be made without set-off or counterclaim. In addition, the Guarantor shall make all payments to the Bank hereunder, free and clear of, and without deduction, or withholding for, or on account of, any tax levied by any country or subdivision thereof, including any taxing authority of Canada or the United States of America (whether Federal, State, Provincial or municipal; other than on account of any tax on the Bank's general income, and other than on account of any capital or franchise taxes, whether imposed under the laws of the jurisdiction of the Bank, the Guarantor, or otherwise). If the Guarantor is required by any applicable law, rule or regulation to make any deduction or withholdings for or on account of any such tax, then the Guarantor will: (a) promptly notify the Bank of such requirement; (b) pay to the relevant authorities the full amount required to be deducted or withheld (including the full amount paid by the Guarantor to the Bank hereunder) promptly upon the earlier of determining that such deduction is required or receiving notice that such amount has been assessed against the Bank; (c) promptly forward to the Bank an official receipt (or a certified copy), or other documentation acceptable to the Bank, evidencing such payment to such authorities; and (d) pay to the Bank, in addition to the payment to which the Bank is otherwise entitled, such additional amount as is necessary to ensure that the net amount actually received and retained by the Bank (free and clear of such tax, whether assessed against the Guarantor or the Bank) will equal the full amount the Bank would have received had no such deduction or withholding been required or taxed and assessed. The Guarantor will promptly pay to the Bank the amount of any liability (including, without limitation, any related liability for penalties and interest) assessed directly against the Bank by reason of the failure or delay of the Guarantor to deduct or withhold or pay any tax as foresaid. -3- OBLIGATIONS ABSOLUTE Obligations Absolute 3.01 The Guarantor unconditionally and irrevocably waives each and every defense which, under principles of guarantee or suretyship law, would otherwise operate to impair or diminish such liability; and nothing whatever except actual full payment and performance to the Bank of the Guaranteed Liabilities (and all other debts, obligations and liabilities of Guarantor under this Agreement) shall operate to discharge the Guarantor's liability hereunder. The obligations of the Guarantor hereunder are and shall be absolute and unconditional and any monies or amounts expressed to be owing or payable by the Guarantor hereunder which may not be recoverable from the Guarantor on the footing of a guarantee shall be recoverable from the Guarantor as a primary obligor and principal debtor in respect thereof. Obligations Continuing 3.02 The obligations of the Guarantor hereunder shall be continuing and shall remain in full force and effect so long as the Bank continues to deal with the Borrower or until all the Guaranteed Liabilities have been paid and satisfied in full. The obligations of the Guarantor hereunder shall not be satisfied, reduced or discharged by any intermediate payment or satisfaction of the whole or any part of the principal, interest, fees and other monies or amounts which may at any time be or become owing or payable to the Bank by the Borrower. 3.03 The obligations of the Guarantor hereunder shall continue to be effective or shall be reinstated, as the case may be, if at any time any payment which would otherwise have reduced the obligations of the Guarantor hereunder (whether such payment shall have been by or on behalf of the Borrower or by or on behalf of the Guarantor) is rescinded or reclaimed from the Bank upon the insolvency, bankruptcy, liquidation or reorganization of the Borrower or the Guarantor or otherwise, all as though such payment had not been made. Obligations Not Affected 3.04 The obligations of the Guarantor hereunder shall not be affected or impaired by any act, omission, matter or thing whatsoever, occurring before, upon or after any demand for payment hereunder (and whether or not known to the Guarantor or the Bank) which, but for this provision, might constitute a whole or partial defense to a claim against the Guarantor hereunder or might operate to release or otherwise exonerate the Guarantor from any of its obligations hereunder or otherwise affect such obligations, whether occasioned by default of the Bank or otherwise, including: (a) any limitation of status or power, disability, incapacity or other circumstance relating to the Borrower or any other person, including any insolvency, bankruptcy, liquidation, reorganization, readjustment, composition, dissolution, winding-up or other proceeding involving or affecting the Borrower or any other person; -4- (b) any irregularity, defect, unenforceability or invalidity in respect of any indebtedness or other obligation of the Borrower or any other person under any credit agreement or any other document or instrument; (c) any failure of the Borrower, whether or not without fault on its part, to perform or comply with any of the provisions of any credit agreement or to give notice thereof to the Guarantor; (d) the taking or enforcing or exercising or the refusal or neglect to take or enforce or exercise any right or remedy from or against the Borrower or any other person or their respective assets or the release or discharge of any such right or remedies; (e) the granting of time, renewals, extensions, compromises, concessions, waivers, releases, discharges and other indulgences to the Borrower or any other person; (f) any amendment, variation, modification, supplement or replacement of any credit agreement or any other document or instrument; (g) any change in the ownership, control, name, objects, businesses, assets, capital structure or constitution of the Borrower or the Guarantor; (h) any merger or amalgamation of the Borrower or the Guarantor with any person or persons; (i) the occurrence of any change in the laws, rules, regulations or ordinances of any jurisdiction or by any present or future action of any governmental authority or court amending, varying, reducing or otherwise affecting, or purporting to amend, vary, reduce or otherwise affect, any of the Guaranteed Liabilities or the obligations of the Guarantor under this Guarantee; and (j) any other circumstance that might otherwise constitute a legal or equitable discharge or defense of the Borrower under any credit agreement or of the Guarantor in respect of its guarantee hereunder. Indemnity. As a separate and alternative stipulation, the Guarantor unconditionally and irrevocably agrees that any sum expressed to be payable by the Borrower under any credit facility established by the Bank in favour of the Borrower but which is for any reason not recoverable from the Guarantor on the basis of a guarantee shall nevertheless be recoverable from it on the basis of an indemnity and shall be paid by it to the Bank on demand. -5- Waiver 3.05 Without in any way limiting the provisions of Section 3.04 hereof, the Guarantor hereby waives notice of acceptance hereof, notice of any liability of the Guarantor hereunder, notice or proof of reliance by the Bank upon the obligations of the Guarantor hereunder, and the diligence, presentment, demand for payment on the Borrower, protest, notice of dishonour or non-payment of any of the Guaranteed Liabilities, or other notice or formalities to the Borrower of any kind whatsoever. The Guarantor further hereby waives any requirement that the Bank take, protect, secure, perfect or insure any security interest or lien or any property subject thereto or exhaust any right or take any action against the Borrower or any other person or entity or any collateral. No Obligation to Take Action Against Borrower 3.06 This is a guarantee of payment, and not of collection. The Bank shall not have any obligation to enforce any rights or remedies or to take any other steps against the Borrower or any other person or any property of the Borrower or any other person before the Bank is entitled to demand payment and performance by the Guarantor of its liabilities and obligations under this Guarantee, and the Guarantor hereby waives all benefit of discussion. The obligations of the Guarantor hereunder are independent of the Guaranteed Liabilities and a separate action or actions may be brought and prosecuted against the Guarantor to enforce this Guarantee, irrespective of whether any action is brought against the Borrower or whether the Borrower is joined in any such action or actions. Dealing with the Borrower and Others 3.07 The Bank, without releasing, discharging, limiting or otherwise affecting in whole or in part the Guarantor's obligations and liabilities hereunder and without the consent of or notice to the Guarantor may, (a) grant time, renewals, extensions, compromises, concessions, waivers, releases, discharges and other indulgences to the Borrower or any other person; (b) take or abstain from taking securities or collateral from the Borrower or from perfecting securities or collateral of the Borrower; (c) release, discharge, compromise, realize, enforce or otherwise deal with or do any act or thing in respect of (with or without consideration) any and all collateral, mortgages or other security given by the Borrower or any third party with respect to the obligations or matters contemplated by any credit agreement; (d) accept compromises or arrangements from the Borrower; -6- (e) apply all monies at any time received from the Borrower or from securities upon such part of the Guaranteed Liabilities as the Bank may see fit or change any such application in whole or in part from time to time as the Bank may see fit; and (f) otherwise deal with, or waive or modify their right to deal with, the Borrower and all other persons and securities as the Bank may see fit. GUARANTOR COVENANTS 4.01 (a) The Guarantor hereby covenants and agrees that all of the Guarantor Terms and Conditions are hereby incorporated in this Guarantee by reference, mutatis mutandis, and made an integral part of this Guarantee. The Guarantor Terms and Conditions shall be construed in such manner so that it is as if they had originally been made in the Bank's favour and made in connection with, and to induce the extension of, the credit facilities extended by the Bank to the Borrower. (b) Subject to section 4.01(c) hereof, the Bank agrees that the Guarantor shall not be in default of its obligations hereunder to comply with the Guarantor Terms and Conditions, until the occurrence of an Event of Default (as defined in the Guarantor Credit Agreement); it being agreed that if the Guarantor Credit Agreement provides that a specified event of default may not occur until a period of time has elapsed following the giving of notice by the Agent (under and as defined in the Guarantor Credit Agreement) then such notice may be provided by the Bank for the purpose of this Guarantee. (c) Notwithstanding section 4.01(b), the Guarantor shall be in default of its obligations to comply with the Guarantor Terms and Conditions if the Guarantor shall breach any of the Financial Covenants and such breach shall continue unremedied for a period of 20 days, whether or not the lenders under the Guarantor Credit Agreement shall have waived compliance with such Financial Covenants and whether or not such lenders shall have agreed that such default shall not be an Event of Default. "Guarantor Terms and Conditions" means the terms and conditions, (including without limitation, the representations, warranties, affirmative covenants, negative covenants, financial covenants and Events of Default) included in the Guarantor Credit Agreement. "Guarantor Credit Agreement" means, at any particular time: (i) the Amended and Restated Credit Agreement dated as of December 12, 1995, Amended and Restated as of July 31, 1997, among the Guarantor, Bank of America National Trust and Savings Association, as Agent, and The Financial Institutions parties thereto, as such Credit Agreement has been amended and compliance with a certain financial covenant therein has been waived pursuant to a Waiver and First Amendment to Credit Agreement dated December 2, 1997, among the parties thereto; -7- (ii) if the Guarantor Credit Agreement as defined in clause (i) above is amended, restated, supplemented, replaced or reduced, or any waiver is given thereunder or any requirement thereunder is eliminated and either the Bank consents in writing or all of the financial institutions that are parties to the Guarantor Credit Agreement consent in writing to such amendment, restatement, supplement, replacement, reduction, waiver or elimination then, the "Guarantor Credit Agreement" shall mean the Guarantor Credit Agreement as defined in clause (i) hereof, as so amended, restated, supplemented, replaced, reduced, waived or eliminated; (iii) if the Guarantor Credit Agreement shall be cancelled, terminated, or otherwise extinguished, then the "Guarantor Credit Agreement" shall be the Guarantor Credit Agreement, as defined in clause (i) or (ii) hereof, that existed immediately prior to the time that the Guarantor Credit Agreement was cancelled, terminated or otherwise extinguished, as the case may be. "Financial Covenants" means the financial covenants (including the defined terms as utilized therein) contained in sections 7.01, 7.09 and 7.10 of the Guarantor Credit Agreement. (d) For greater certainty, the parties agree that any amendments, supplements, modifications, restatements, or replacements, or the elimination of any of the Guarantor Terms and Conditions (including any defined terms as utilized therein) shall not be incorporated in this Guarantee by reference unless the Bank has specifically consented to such amendments, supplements, modifications, restatements, replacements, or elimination, in writing. Reporting 4.02 The Guarantor will provide to the Bank such notices, financial statements and other information which is required to be provided under the Guarantor Credit Agreement, in the same manner and within the same time periods, as set out in the Guarantor Credit Agreement. Ownership 4.03 The Guarantor will, at all times, continue to own, directly or indirectly, the majority of the issued and outstanding voting shares in the capital stock of the Borrower. -8- Pari Passu 4.04 The Guarantor hereby covenants that: (i) its obligations under this Guarantee shall, at all times hereafter, rank pari passu, equally, and ratably with all of the indebtedness and liability of the Guarantor under the Guarantor Credit Agreement and the Guarantor agrees that, in the event that it grants any security to the financial institutions which are party to the Guarantor Credit Agreement (the "Financial Institutions") or any agent acting on behalf of the Financial Institutions, the Guarantor will grant security to the Bank which shall correspond in scope and nature and rank pari passu, equally and ratably with such security; and (ii) its obligations under this Guarantee shall, at all times hereafter, rank pari passu, equally and ratably with all of the other present and future unsubordinated indebtedness and liability of the Guarantor and the Guarantor agrees that, in the event that it grants any security to any other present or future unsubordinated creditor, the Guarantor will grant security to the Bank which shall correspond in scope and nature and rank pari passu, equally and ratably with such security, except that this clause 4.04(ii) shall not restrict the creation of Permitted Liens as "Permitted Liens" is defined in the Guarantor Credit Agreement and as "Guarantor Credit Agreement" is defined in clause (i) of the definition of Guarantor Credit Agreement hereunder. Negative Pledge 4.05 The Guarantor will not create, issue, incur, assume or permit to exist any security interest, lien, charge or other encumbrance of any kind in respect of the capital stock of the Borrower. GUARANTOR REPRESENTATIONS 5.01 The Guarantor hereby represents and warrants that: (a) its obligations under this Guarantee rank pari passu, equally and ratably with all of its other unsubordinated indebtedness and liability outstanding at the date hereof; (b) the execution, delivery and performance of this Guarantee by the Guarantor are within the corporate powers of the Guarantor, have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the stockholders of the Guarantor which has not been obtained, (ii) violate any provision of the articles of incorporation or by-laws of the Guarantor or of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to the Guarantor or any subsidiary of the Guarantor; (iii) require the consent or approval of, or filing or registration with, any governmental body, agency or authority, or (iv) result in a -9- breach of or constitute a default under, or result in the imposition of any lien, charge or encumbrance upon any property of the Guarantor or any subsidiary of the Guarantor pursuant to, any indenture or other agreement or instrument under which the Guarantor or any subsidiary of the Guarantor is a party or by which it or any of its properties may be bound or affected, and (c) this Guarantee, when executed and delivered, will constitute the legal, valid and binding obligation of the Guarantor enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforceability of creditors' rights generally or by equitable principles relating to enforceability. MISCELLANEOUS Amendment, Etc. 6.01 No amendment, modification or waiver of any provision of this Guarantee or consent to any departure by the Guarantor or any other person from any provision of this Guarantee will in any event be effective unless it is signed by the Guarantor and the Bank. Assignment, Transfer and Participation 6.02 The Guarantor hereby consents to any assignment or transfer of, or any grant of the participation in, any rights, benefits or obligations of, the Bank in respect of this Guarantee. 6.03 Notwithstanding the provisions of Section 6.02, the Guarantor, shall upon request made by an assignee of the Bank, execute and deliver such assurances as may be reasonably requested by such assignee to confirm its entitlement to the rights and benefits hereunder so assigned and transferred to it and the liability of the Guarantor to the assignee hereunder. Foreign Currency Obligations 6.04 The Guarantor shall make payment of all amounts guaranteed hereunder in the currency (the "Original Currency") in which the Borrower is required to pay such obligation. If the Guarantor makes payment relative to any obligation to the Bank in a currency (the "Other Currency") other than the Original Currency (whether voluntarily or pursuant to an order or judgment of a court or tribunal of any jurisdiction) such payment shall only constitute a discharge of the Guarantor's liability hereunder in respect of such obligation only to the extent of the amount of the Original Currency which the Bank is able to purchase at its main branch in the jurisdiction where the loans to the Borrower are recorded, with the amount it receives on the date of receipt in accordance with its normal practice. If the amount of the Original Currency which the Bank is able to purchase is less than the amount of such currency originally due to the Bank in respect to the relevant obligation, the Guarantor shall indemnify and save the Bank harmless from and against any loss or damage arising as a result of such deficiency. This indemnity shall constitute an obligation contained in this Guarantee, shall give rise to a separate and independent cause of -10- action, shall apply irrespective of any indulgence granted by the Bank and shall continue in full force and effect notwithstanding any judgment or order in respect of any amount due hereunder or under any judgment or order. Applicable Law 6.05 This Guarantee shall be conclusively deemed to be a contract made under, and shall for all purposes be governed by, and construed and interpreted in accordance with, the laws of Ontario, in effect from time to time, excluding any choice of law rules that may direct the application of the laws of another jurisdiction, without prejudice to or limitation of any other rights or remedies available under the laws of any jurisdiction, where property or assets of the Guarantor may be found. Jurisdiction 6.06 The Guarantor and the Bank hereby irrevocably agree that any suits, actions or proceedings arising out of or in connection with this Guarantee (collectively "Proceedings") may be brought in any court in the Province of Ontario and each submits and attorns to the non-exclusive jurisdiction of each such court. 6.07 The Guarantor and the Bank hereby irrevocably waive any objections which they may have now or hereafter to the laying of the venue of any Proceedings in any court referred to in Section 6.06 and any claim that any such Proceedings have been brought in any inconvenient forum and further irrevocably agree that a judgment in any Proceedings brought in any such court shall be conclusive and binding upon the Guarantor or the Bank, as the case may be, and may be enforced in any courts to the jurisdiction of which such parties may be subject by Proceedings upon such judgment. 6.08 Nothing contained in this Section 6 shall limit the right of the Bank to take Proceedings against the Guarantor in any other court of competent jurisdiction nor shall the taking of Proceedings in one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction, whether concurrently or not. 6.09 The Guarantor hereby irrevocably: (i) appoints the Borrower as its agent for service of process in the Province of Ontario in connection with any Proceedings in the Province of Ontario and consents to process being served in any Proceedings in the Province of Ontario by delivering or transmitting a true copy thereof to the Borrower at its address; (ii) agrees that service in accordance with the provisions of clause 6.09 (i) shall be deemed in every respect effective service of process upon the Guarantor in any such Proceedings and shall, to the fullest extent permitted by law, be taken and be held to be valid personal service upon the personal delivery to the Guarantor; and (iii) consents generally to the fullest extent permitted by law in respect of any -11- Proceedings to the giving of any relief and the issue of any process in connection with such Proceedings including the making, enforcement or execution against any property whatsoever (irrespective of its use or intended use) of any order or judgment which may be made or given in such Proceedings. 6.10 THE GUARANTOR HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS GUARANTEE, THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF THE GUARANTOR OR THE BANK IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF OR THEREOF. Costs and Expenses 6.11 The Guarantor shall pay on demand by the Bank any and all costs, fees and expenses, including outside legal costs and expenses, incurred by the Bank: (i) in having its outside counsel review and provide legal opinions in connection with the preparation of the Guarantee, (but in no event shall such costs, fees and expenses to be paid by Guarantor pursuant to this section and the costs, fees and expenses to be paid by the Borrower pursuant to section 7.1(e) of the credit agreement entered into by the Bank and the Borrower on the date hereof exceed $25,000 Cdn.), and (ii) in connection with enforcing any of its rights and remedies under this Guarantee. No Waiver, Cumulative Remedies 6.12 No failure to exercise and no delay in exercising, on the part of the Bank, any right, remedy, power or privilege hereunder or under any credit agreement, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder or under any credit agreement preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein and under any credit agreement are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. Waiver of Rights of Subrogation, Reimbursement, Etc. 6.13 Until full, final, and irrevocable payment in full of the Guaranteed Liabilities and until any commitment of the Bank to extend financial accommodation to the Borrower is permanently cancelled, the Guarantor hereby irrevocably waives any claim or other rights that it may now or hereafter acquire against the Borrower that arise from the existence, payment, performance or enforcement of the Guaranteed Liabilities under this Guarantee or any credit agreement, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of the Bank against the Borrower or any collateral, whether or not such claim, remedy or right arises in equity -12- or under contract, statute or common law, including the right to take or receive from the Borrower, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim, remedy or right. If any amount shall be paid to the Guarantor in violation of the preceding sentence at any time prior to the later of the payment in full of the Guaranteed Liabilities and all other amounts payable under this Guarantee and the termination of any commitment, such amount shall be held in trust for the benefit of the Bank and shall forthwith be paid to the Bank to be credited and applied to the Guaranteed Liabilities and all other amounts payable under this Guarantee, whether matured or unmatured, in accordance with the terms of any credit agreement, or to be held as collateral for any Guaranteed Liabilities or other amounts payable under this Guarantee thereafter arising. The Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements provided by the Bank to the Borrower, and that the waiver, set forth in this Section 6.13, is knowingly made in contemplation of such benefits. Guarantee in Addition to Other Obligations 6.14 The obligations of the Guarantor under this Agreement are in addition to and not in substitution for any other obligations of the Guarantor to the Bank in relation to any credit agreement and any guarantees or security at any time held by or for the benefit of the Bank. Stay of Acceleration 6.15 If acceleration of the time for payment of any amount payable by the Borrower in respect of the obligations guaranteed is stayed upon the insolvency, bankruptcy or reorganization of the Borrower or any moratorium affecting the payment of the obligations of the Borrower guaranteed hereby, all such amounts otherwise subject to acceleration shall nonetheless be payable by the Guarantor hereunder automatically and without any requirement for any demand by the Bank. Entire Agreement 6.16 This Guarantee, including all documents contemplated hereby, constitutes the entire agreement between the parties with respect to the subject matter and supersedes all prior negotiations, undertakings, representations and understandings. Severability 6.17 Any provision of this Guarantee which is prohibited or unenforceable in any jurisdiction shall not invalidate the remaining provisions and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Successors and Assignees 6.18 This Agreement shall be binding upon and enure to the benefit of the Guarantor and the Bank and its respective successor and permitted assignees, except that the Guarantor may not assign any of its obligations hereunder without the express prior written consent of the Bank. -13- Notice 6.19 Any notice or demand to or upon the Guarantor and any notice to be provided to the Bank, to be effective, shall be in writing or by telecopy, telegraph or telex, and shall not be effective until received and shall be addressed as follows: Ceridian Corporation 8100 - 34th Avenue South Minneapolis, Minn. 55425-1640 U.S.A. Telephone: (612) 853-5265 Fax: (612) 853-3932 Attention: John H. Grierson, Vice President & Treasurer Canadian Imperial Bank of Commerce Commerce Court West, 3rd Floor Toronto, Ontario M5L 1A2 Telephone: (416) 980-3394 Fax: (416) 980-7377 Attention: Managing Director, Corporate Finance -14- Counterparts 6.20 This Guarantee and the acceptance thereof may be executed in any number of separate counterparts and all said counterparts taken together shall be deemed to constitute one and the same instrument. Consequential Damages 6.21 THE GUARANTOR HEREBY WAIVES ANY RIGHT IT MAY NOW OR HEREAFTER HAVE TO CLAIM OR RECOVER FROM THE BANK ANY CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES. IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to be duly executed and delivered by its proper and duly authorized officers as of March 2, 1998. CERIDIAN CORPORATION By: /s/J. R. Eickhoff Name J. R. Eickhoff Title: Executive V.P. & Chief Financial Officer By: /s/John A. Haveman Name John A. Haveman Title: Vice President & Secretary CANADIAN IMPERIAL BANK OF COMMERCE By: Name Title: By: Name Title: EX-10.30 18 EXHIBIT 10.30 Exhibit 10.30 December 16,1997 Mr. Bil Lien, Project Executive IBM Global Services 5301 Maryland Way Brentwood TN 37027 Dear Bil: In connection with that certain Letter dated November 27, 1996 (the "Termination Letter") from Crispin D. Crosswy of Comdata Network, Inc. ("Comdata") to Mr. Bil Lien of Integrated Systems Solutions Corporation ("ISSC"), n.k.a. International Business Machines Corporation ("IBM"), pursuant to which Comdata provided formal notification to ISSC that it intended to terminate for convenience on or before June 30, 1999, that certain Amended and Restated Agreement for Systems Operations Services dated August 29, 1995 (the "Agreement"), by and between ISSC and Comdata, pursuant to Section 10.1 of the Agreement, I am writing this letter (this "Letter") to request IBM's approval of Comdata's revocation of the Termination letter. Therefore, notwithstanding anything in the Termination Letter or any other correspondence or communication prior to the date hereof to the contrary, by executing below EBM and Comdata agree that Comdata shall be deemed to have not provided any notification to IBM of its intention to terminate the Agreement. If IBM is in agreement with the terms of this Letter, please evidence such approval by causing the enclosed copy of this letter to be executed and returned to me. If you have any questions or concerns regarding this Letter, please do not hesitate to contact me at any time. Very truly ,yours, /s/Tony Holcombe Tony Holcombe President and Chief Executive Officer AGREED TO AND ACCEPTED AS OF THE DATE SET FORTH ABOVE INTERNATIONAL BUSINESS MACHINES CORPORATION By: /s/William S. Lien William S. Lien Title: Project Executive December 16, 1997 Mr. Tony Holcombe, President and CEO Comdata Network, Inc. 5301 Maryland Way Brentwood TN 37027 Dear Tony: We are very pleased to have the opportunity to continue the Comdata/IBM Global Services relationship, and to further expand our involvement by providing new services across several additional areas. Our mutual intent is to incorporate any necessary modifications and additions into our existing agreement. The key elements of our proposal are detailed in the attachment to this letter. They represent the products and services that have been discussed with you and Mr. David Wolverton, Senior Vice President of Operations, and are intended to guide our future discussions. Our proposal is based upon our current understanding of Comdata's requirements, and may be subject to modifications upon completion of our due diligence process, which will begin when confidentiality restrictions regarding this proposal end. By signing below, we mutually confirm our intent to enter into an expanded agreement based upon the terms and conditions set forth in that certain Amended and Restated Agreement for Systems Operations Services dated as of August 29, 1995 ("Agreement"), along with the elements of our proposal set forth in the attachment and such other terms and conditions as shall be mutually agreed upon during or following the due diligence period. It is our mutual understanding that this new arrangement between Comdata and IBM Global Services shall be evidenced by a written amendment to the Agreement. Each of us hereby agree to work in good faith to finalize, execute, and deliver the amendment contemplated hereby no later than Friday, February 27, 1998. Please indicate your concurrence with the above by signing in the space provided below. Sincerely, /s/Bill William S. Lien Attachment /s/Tony Holcombe Tony Holcombe President, Comdata Provisions for Contract Supplement Additional Services IBM Global Services will assume responsibility for the following functions, currently performed by Comdata: Application Development and Maintenance (ADM). IBM Global Services will consolidate TIC, Trendar, and Payload development and maintenance functions into the IBM Global Services function. In addition, IBM will be responsible for the authoring of Functional Specification Documents (FSDs) for all application development work to be performed by IBM Global Services. Quality Assurance. IBM Global Services will perform the quality assurance and security administration functions of Comdata's current Quality Programs department. Network Services. IBM Global Services will manage and perform the in-scope functions of Comdata's current Network Services department. Operations. IBM Global Services will acquire and install a CMOS R44 4-engine processor, and will relocate the Sun, AS/400, RS/6000, TIC, and Tendar systems (as appropriate) to IBM's LaVergne facility, where IBM Global Services will operate these systems on behalf of Comdata. Project Management. Most development projects will be managed by the Application Development organization, working with the designated focal point for the Comdata line of business organization. The processes established for increasing or decreasing the ADM resource pool will apply to project management services. The specific responsibilities of Comdata and IBM Global Services are detailed on the following pages, and are subject to a due diligence verification and potential adjustment. Archco - a recent Comdata acquisition - is specifically excluded from this letter of intent; however, it is the intention of the parties to work toward the inclusion of Archco ADM and Operations in the amendment contemplated hereby. [Schedules entitled "Application Development," "Quality Programs" and "Network Services" not included] December 16, 1997 Application Development The table below shows the Comdata and IEBM Global Services responsibilities for Phases 3, 4 and 5 of Comdata's Product Management Process. IBM Global Services proposes to add application development and maintenance (ADM) responsibilities for the TIC, Trendar, and PayLoad applications. SCHEDULES PERTAINING TO APPLICATION DEVELOPMENT, QUALITY PROGRAMS AND NETWORK SERVICES OMITTED. Operations IBM Global Services will add systems administration and systems operations responsibilities for the TIC and Trendar platforms. In addition, IBM Global Services proposes to relocate - as appropriate - the AS/400, RS/6000, Sun, TIC, and Trendar platforms to IBM's Data Center in LaVergne. Comdata is responsible for all costs related to the relocation - -including any fit-up and environmentals at IBM facilities - as well as any telecommunication facilities and equipment required to facilitate the remote operation. Comdata maintains financial responsibility for hardware, software, maintenance, and consumables for the Comdata-owned platforms (Sun, TIC, and Trendar). Comdata will provide all required documentation and operations training for Comdata platforms to enable IBM Global Services to assume operational responsibilities. Project Management IBM Global Services will provide project management for all development projects, using resources from the ADM resource baseline. The processes established for increasing or decreasing the ADM resource pool will apply to project management services. December 16, 1997 Service Baselines
Current Baseline Baseline ARC RRC Baseline Hours Hours cost/hour cost/hour Hours 1998 1999-2005* ADM & Quality 81,400 109,150 136,900 TBD TBD Assurance Network 0 27,000 27,000 TBD TBD Services
*Baseline hours for year 2005 will be determined on a pro rata basis. Pricing In recognition of IBM Global Services' investments in the Comdata technical environment, Comdata will make a one-time payment of $8,208,000 to IBM Global Services by the end of December, 1997 to restructure the Agreement. IBM Global Services will modify the Annual Services Base Charge in the existing contract to account for: the additional services; a change in the COLA factor from 90% to 70%; and a restructuring to reflect capital investments made since 1991.
($ in millions) Contract Year '98 '99 '00 '01 '02 '03 '04 '05 Annual Services 19.847 21.347 21.347 21.347 21.347 21.347 21.347 7.116 Base Charge Termination Charge 10.2 8.6 7.5 6.7 6.1 5.3 4.2 0
The use of the November 1997 CMOS R44 processor upgrade as described herein, the ongoing license fees set forth in Schedule F-3 of the Agreement, and the use of base DB2 licenses for that platform are included in the Annual Services Base Charge. COLA will be applied to all charges, including- ARCs and RRCs. In addition to the restructuring fee and the Annual Services Base Charge, Comdata will be responsible for the one-time charges (e.g., license upgrade fees, cabling, etc.) associated with the CMOS R44 implementation (estimated at $450,000) as well as one-time and ongoing costs associated with the relocation of the specified platforms to IBM's LaVergne facility. The Annual Services Base Charge is subject to change as we define the new service baselines and ARC/RRC structure. December 16, 1997 Flexibility - Mainframe IBM Global Services will work with Comdata to identify a modified baseline structure which allows for adjustments based on changes in variable costs due to changes in workload. This structure will be applied to mainframe CPU, DASD, and Tape resources beginning on January 1, 1999. The following terms will apply to calendar year 1998 processing: 1. Additional Resource Charges (ARCS) will not be applied unless actual usage exceeds the capacity of the CMOS R44 (4 engine, 171 MIPS) processor or the existing DASD and tape resources. 2. Reduced Resource Charges (RRCS) will not be applied until a service baseline is established. 3. RRCs will not apply to the first 20% of reduced usage below the baseline (the "deadband"). 4. For reduced usage between 20% below the service baseline and 50% below the service baseline, IIBM Global Services will share any net actual savings with Comdata on a 50/50 basis. With respect to establishing a modified baseline structure, the following schedule will guide our activities: 1/15/98 IBM Global Services installs the tools required to gather performance data. 2/15/98 IBM Global Services proposes a schedule of performance metrics to Comdata. 03/l/98 Comdata and IBM Global Services agree on the definition of performance metrics as part of the contract supplement. 03/l/98 05/l/98 IBM Global Services gathers performance data. 05/15/98 IBM Global Services proposes a methodology and fee schedule for reduced resource charges and additional resource charges based on baseline resource usage. The following table is a sample ARC/RRC structure which will serve as a framework for establishing specific Comdata terms. Each of the metrics will have an established baseline which will be used to calculate the ARC/RRC adjustments.
SAMPLE Additional Resource Contract Year Charges (ARCS) & Reduced Resource 1998 1999 2000 2001 2002 2004 2005 Charges (RRCS) CPU MIPS ($ per CPU MIPS) - DASD ($ per gigabyte) Tape (per tape mount) (per tape stored)
December 16, 1997 The following discussion is a representative sample of usage-based charges: Resource Categories and Measurement Methodology When "Customer" and IBM mutually agree upon the methodology and fee schedule for RRC and ARC charges, and monthly thereafter, using the processes and procedures described in the Procedures Manual, IBM Global Services will measure, track and report usage of Resource Units in the categories: Host CPU, DASD, and Tape. Additional Resource Charges and Reduced Resource Credits "Customer's" increased or decreased usage of the resource categories may result in either an ARC or RRC; provided, however, that the usage is not within the defined "deadbands". After the completion of each month during the Term, starting with the first full month after the Commencement Date or as otherwise specified in this Schedule, IBM Global Services will calculate ARCs and RRCs as follows. Calculation of ARCS: IBM Global Services will compare the measurement of RUs actually used during the applicable period, (the "Measurement RUs"), with the Baseline for that category. There will be no increase of the charges otherwise payable to IBM Global Services for such period unless the actual measurement of RUs used for that period exceeds the Baseline for that category for such period, in which case the "customer" will pay IBM Global Services an ARC equal to the product of the ARC Rate for the applicable category (as set forth in the Supplement) multiplied by the difference between the measurement of RUs for that category actually used and the Baseline. ARC = (Measurement RUs - Baseline) x ARC Rate RRCs In addition, there will be no reduction of the charges otherwise payable to IBM Global Services for such period unless the actual measurement of RUs used during that period falls below xx percent of the Baseline, for that category for such period, in which case IBM Global Services will give "customer" an RRC against current or future charges (or, if no future charges will be due, make payment to "customer") equal to the product of the RRC Rate for the applicable category (as set forth in the Supplement) multiplied by the difference between the measurement of RUs for the category actually used and xx percent of the Baseline for that category. RRCs will only apply to the first xx% of decreased RUs. RRC = [{(Baseline x xx%) - Measurement RUs} x RRC Rate] December 16, 1997 Flexibility - Skills ARC rates and RRC rates will be determined for each applicable level of skill for Application Development, Quality Assurance, Project Management, and Network Services. ARCs and RRCs will be administered within a mutually agreeable process which is consistent with Attachment I entitled "ARC/RRC Philosophy". Resource Reductions will be subject to a ninety day notice provision, unless modified by mutual agreement. Upon notification by Comdata of a Resource Reduction, IBM will apply its best efforts to reduce costs as soon as practical within the notice period. Separate ARC and RRC rate schedules will be developed for IBM Global Services employees and subcontractors. The subcontractor ARC rate will be cost plus twenty (20) percent. The following schedule will guide our activities: 1/31/98 IBM Global Services and Comdata agree upon the process used to administer ARC and RRC activities. 2/28/98 IBM Global Services establishes ARC rates, RRC rates, and a recommended steady state floor for Application Development, Network Services and Quality Assurance. December 16, 1997 Assumptions - - The expanded agreement will be structured as an amendment to the 1995 contract. Except as may be provided herein, all terms and conditions of the 1995 agreement apply. - - Comdata withdraws its November 26, 1996 notice of intention to terminate with concurrence from IBM Global Services. - - Comdata has canceled the ISP project, and will not require support for the Pyramid platform and the Seer migration project. - - Comdata will provide all hardware, software, and other equipment, and maintenance required to perform the New Scope functions contained herein. Comdata will provide such hardware, software, etc. for transitioned functions and any incremental resources. The Comdata user organizations will perform User Acceptance Testing, and will authorize promotion of new programs to the production environment. - - IBM Global Services will manage Comdata's current Network Services subcontractors and other I.T. subcontractors. Comdata retains financial responsibility for those subcontractors. - - All Comdata application development, network services, quality assurance, systems operations, and project management will be offered to IBM Global Services at ARC rates. Specialized skills not available in the permanent resource pool may be provided at higher rates, subject to the mutual agreement of the parties. - - Resources within the Agreement may be utilized for Year 2000 readiness activities, pursuant to specific Year 2000 terms. Any incremental resources or funding requirements for Year 2000 readiness remain Comdata responsibilities. - - The security administration function currently in Comdata's Quality Programs area is assumed to be in scope. - - The Process Quality function currently in Comdata's Quality Programs area is assumed to be out of scope. - - The telephone bill accounts payable function in Comdata's Network Services area is assumed to be out of scope. - - There is no change to the current Dallas scope. All new responsibilities are limited to Brentwood and LaVergne. We assume that there are no remote resource requirements. Comdata will reimburse IBM Global Services for actual travel expenses for travel to other Comdata locations. - - Items not specifically included in scope are assumed to be out of scope. December 16, 1997 EX-10.32 19 EXHIBIT 10.32 Exhibit 10.32 CONFIDENTIAL INFORMATION IN THIS DOCUMENT HAS BEEN OMITTED AND IS BEING FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ANY SUCH OMISSIONS IN THIS DOCUMENT ARE INDICATED BY THE REFERENCE "[CONFIDENTIAL INFORMATION OMITTED]". WILMAX UNIVERSAL-TM- TSA#CTS-970801 TELECOMMUNICATIONS SERVICES AGREEMENT This TELECOMMUNICATIONS SERVICES AGREEMENT (hereinafter referred to as the "Agreement" or the "TSAI) is entered into as of the 1st day of September 1997 , by and between WORLDCOM NETWORK SERVICES, INC. d/b/a WilTel, a Delaware corporation, with its principal office at One Williams Center, Tulsa, Oklahoma, 74172 ("WilTel") and COMDATA NETWORK, INC., a Maryland corporation, with its principal office at 5301 Maryland Way, Brentwood, TN 37027("CNI") and COMDATA TELECOMMUNICATIONS SERVICES, INC., a Delaware corporation and a wholly owned subsidiary of CNI, with its principal office at 5301 Maryland Way, Brentwood, TN 37027 ("CTSI"). CNI and CTSI are hereinafter collectively referred to as Customer". WITNESSETH: WilTel agrees to provide and Customer agrees to accept switched telecommunications services ("Switched Services") and other associated services (collectively the "Services"), (i) as described in the Sevice Schedules identified herewith, (ii) subject to the terms and conditions contained in this Agreement, including without limitation those terms and conditions contained in the Program Enrollment Terms ("PET") which are attached hereto and incorporated herein by reference, and (iii) in conformity with each Service Request (described below) which is accepted hereunder. In the event of a conflict between the terms of this Agreement, the PET, the Service Schedule and the Service Request(s), the following order of precedence will prevail: (1) PET, (2) Service Schedule, (3) the Agreement, and (4) Service Request(s). NOW, THEREFORE, in consideration of the above premises and other good aria valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Applicable Terms. (A) Service Term. This Agreement shall commence as of the Effective Date set forth in the PET and shall be subject to the "Service Term" as described therein (which Service Term shall include any automatic extensions). Customer shall be liable for all charges associated with actual usage of the Service in question during the Service Term and any extension thereof. (B) PET. The PET, as subscribed to by the parties, shall set forth the Discount Schedule applicable to Switched Service charges due under this Agreement, Customer's Minimum Monthly Commitment, if Page 1 of 14 any, and other information necessary to provide the Service under this Agreement. (C) Start of Service. WilTel's obligation to provide and customer's obligation to accept and pay for non-usage sensitive charges for Service shall be binding to the extent provided for in this Agreement upon the submission of an acceptable Service Request to WilTel by Customer. Customer's obligation to pay for usage sensitive charges for Switched Services shall commence with respect to any Service as of the earlier of (i) the "Requested Service Date" set forth in each Service Request, or (ii) the date the Service in question is made available to Customer and used ("Start of Service"). Start of Service for particular Services shall be further described in the Service Schedule relevant to the Switched Service in question. (D) Service Schedules Services to be provided under this Agreement shall be described in the WilTel Service Schedule which is subscribed to by authorized representatives of WilTel and Customer (collectively referred to as the "Service Schedules") . Each Service Schedule shall become a part of this Agreement to the extent that it describes the particular services therefor, specific terms and other information necessary or appropriate for WilTel to provide such Service(s) to Customer. (E) Service Requests. Customer's requests to initiate or cancel Services shall be described in an appropriate WilTel Service Request ("Service Requests"). Service Requests may consist of machine readable tapes, facsimiles or other means approved by WilTel. Further, Service Requests shall specify all reasonable information, as determined by WilTel, necessary or appropriate for WilTel to provide the Service(s) in question, which shall include without limitation, the type, quantity and end point(s) (when necessary) of circuits comprising a Service Interconnection as described in the applicable Service Schedules, or automatic number identification ("ANI") information relevant to the Service(s), the Requested Service Date, and charges, if any, relevant to the Services described in the Service Request. After WilTel's receipt and verification of a valid Service Request for SWITCHED Service (as defined in the Service Schedule) requiring a change in the primary interexchange carrier ("PIC") , WilTel agrees to (i) submit the ANI(s) relevant to such Service Requests to the following local exchange carriers ("LECs") (with which WilTel currently has electronic interface capabilities) within ten (10) days: Ameritech, Bell Atlantic, BellSouth, Nynex, Pacific Bell, Southwestern Bell, US West, GTE and United, and (ii) submit the ANI(s) relevant to such Service Requests to those LECs with which WilTel does not have electronic interface capabilities within a reasonable time. 2. Cancellation. (A) Cancellation Charge. At any time after the Effective Date, Customer may cancel this Agreement if Customer provides written Page 2 of 14 notification thereof to WilTel not less than thirty (30) days prior to the effective date of cancellation. In such case (or in the event WilTel terminates this Agreement as provided in Section 8), Customer shall pay to WilTel all charges for Service provided through the effective date of such cancellation plus a cancellation charge (the "Cancellation Charge") equal to one hundred percent (100%) of the Minimum Monthly Commitment, if any, (as described in the PET) that would have become due for the unexpired portion of the Term. (B) Liquidated Damages. It is agreed that WilTel's damages in the event Customer cancels Service shall be difficult or impossible to ascertain. The provision for a cancellation charge in Subsection 2(A) above is intended, therefore, to establish liquidated damages in the event of a cancellation and is not intended as a penalty. (C) Cancellation Without Charge Notwithstanding anything to the contrary contained in Subsection 2(A) above, Customer may cancel this Agreement without incurring any cancellation charge if (i) WilTel fails to provide a network as warranted in Section 9 below; (ii) WilTel fails to deliver call detail records promptly based on the frequency selected by Customer (i.e., monthly, weekly or daily); or (iii) WilTel fails to submit ANI(s) relevant to such Service Requests to the LECs within the time period described in Subsection 1(E) above. Provided, however, Customer must give WilTel written notice of any such default and an opportunity to cure such default within five (5) days of the notice. In the event WilTel fails to cure any such default within the five-day period on m ore than three (3) occasions within any six (6) month period, Customer may cancel this Agreement without incurring any cancellation charge. 3. Customer's End Users. End User Customer will obtain and upon WilTel's request provide WilTel (within two (2) business days of the date of the request) a written Letter of Agency ("LOA") acceptable to WilTel (or with any other means approved by the Federal Communications Commission ("FCC")], for each ANI indicating the consent of the end users of Customer ("End Users") to be served by Customer and transferred (by way of change of such End User's designated PIC) to the WilTel network prior to order processing. Each LOA will provide, among other things, that the End Users have consented to the transfer being performed by Customer or Customer's designee. when applicable, Customer will be responsible for notifying End Users, in writing (or by any other means approved by the FCC) that (i) a transfer charge will be reflected on their LEC bill for effecting a change in their primary interexchange carrier, (ii) the entity name under which their interstate, intrastate and/or operator services will be billed (if different from Customer), and (iii) the "primary" telephone number(s) to be used for maintenance and questions concerning their long distance service and/or billing. Customer agrees to send WilTel a copy of the documentation Customer uses to satisfy the above requirements promptly upon request of WilTel. WilTel may change the Page 3 of 14 foregoing requirements for Customer's confirming orders and/or for notifying End Users regarding the transfer charge at any time in order to conform with applicable FCC and state regulations. Provided, however, Customer will be solely responsible for ensuring that the transfer of End Users to the WilTel network conforms with applicable FCC and state regulations, including without limitation the regulations established by the FCC with respect to verification of orders for long distance service generated by telemarketing as promulgated in 47 C.F.R., Part 64, Subpart K, Section 64.1100 or any successor regulations). (B) Transfer Charges/Disputed Transfers. Customer agrees that it is responsible for (i) all charges incurred by WilTel to change the PIC of End Users to the WilTel network, (ii) all charges incurred by WilTel to change End Users back to their previous PIC arising from disputed transfers to the WilTel network plus an administrative charge equal to twenty percent (20%) of such charges, and (iii) any other damages suffered by or awards against WilTel resulting from disputed transfers. (C) Excluded ANIs. WilTel has the right to reject any ANI supplied by Customer for any of the following reasons: (i) WilTel is not authorized to provide or does not provide long distance services in the particular jurisdiction in which the ANI is located, (ii) a particular ANI submitted by Customer is not in proper form, (iii) Customer is not certified to provide long distance services in the jurisdiction in which the ANI is located, (iv) Customer is in default of this Agreement, (v) Customer fails to cooperate with WilTel in implementing reasonable verification processes determined by WilTel to be necessary or appropriate in the conduct of business, or (vi) any other circumstance reasonably determined by WilTel which could adversely affect WilTel's performance under this Agreement or WilTel's general ability to transfer its other customers or other end users to the WilTel network, including without limitation, WilTel's ability to electronically effect PIC changes with the LECS. In the event WilTel rejects an ANI, WilTel will notify Customer as soon as possible of its decision specifically describing the rejected ANI and the reason(s) for rejecting that ANI, and will not incur any further liability under this Agreement with regard to that ANI. Further, any ANI requested by Customer for Switched Service may be deactivated by WilTel if no Switched Service billings relevant thereto are generated in any three (3) consecutive calendar month/billing periods. WilTel will be under no obligation to accept ANIs within the three (3) full calendar month period preceding the scheduled expiration of the Term. D. Records. Customer will maintain documents and records ("Records") supporting Customer's re-sale of Switched Service, including, but not limited to, appropriate and valid LOAs from End Users for a period of not less than 12 months or such other longer period as may be required by applicable law, rule or regulation. Customer shall indemnify WilTel for any costs, charges or expenses incurred by WilTel arising from disputed PIC selections involving Page 4 of 14 Switched Service to be provided to Customer for which customer cannot produce an appropriate LOA relevant to the ANI and PIC charge in question, or when WilTel is- not reasonably satisfied that the validity of a disputed LOA has been resolved. Customer Service. Customer will be solely responsible for billing the End Users and providing the End Users with customer service. Customer agrees to immediately notify WilTel in the event an End User notifies Customer of problems associated with the Service, including without limitation, excess noise, echo, or loss of Service. 4. Customer's Responsibilities. (A) Expedite Charges. In the event Customer requests expeditious Service and/or changes to Service Orders and Wilel agrees to such request, WilTel will pass through the charges assessed by any supplying parties (e.g., local access providers) involved at the same rate to Customer. WilTel may further condition its performance of such request upon Customer's payment of additional charges to WilTel. (B) Fraudulent Calls. Customer shall indemnify and hold WilTel harmless from all costs, expenses, claims or actions arising from fraudulent calls of any nature which may comprise a portion of the Service to the extent that the party claiming the call(s) in question to be fraudulent is (or had been at the time of the call) an End User of the Service through Customer or an end user of the Service through Customer's distribution channels. Customer shall not be excused from paying WilTel for Service provided to Customer or any portion thereof on the basis that fraudulent calls comprised a corresponding portion of the Service. In the event WilTel discovers fraudulent calls being made (or reasonably believes fraudulent calls are being made), nothing contained herein shall prohibit WilTel from taking immediate action (without notice to Customer) that is reasonably necessary to prevent such fraudulent calls from taking place, including without limitation, denying Service to particular ANIs or terminating service to or from specific locations. 5. Charges and Payment Terms. (A) Payment. WilTel billings for Service are made on a monthly basis (or such other basis as may be mutually agreed to by the parties) following Start of Service. Subject to Subsection 5(D) below, Service shall be billed at the rates as described in the PET, and Service Requests, as the case may be. Discounts, if any, applicable -to the rates for certain Switched Services are also set forth in the PET. Customer will pay each WilTel invoice in full for Switched Service within thirty (30) days of the invoice date set forth on each WilTel invoice to Customer ("Due Date"). -If payment is not received by WilTel on or before the Due Date, Customer shall also pay a late fee in the amount of the lesser of one and one-half Page 5 of 14 percent (1 1/2%) of the unpaid balance of the Service charges per month or the maximum lawful rate under applicable state law. (B) Definitions Time of day rate periods (including WilTel Recognized National Holidays) will be as described in WilTel's F.C.C. Tariff No. 5. (C) Taxes. Customer acknowledges and understands that WilTel computes all charges herein exclusive of any applicable federal, state or local use, excise, gross receipts, sales and privilege taxes, duties, fees or similar liabilities (other than general income or property taxes) , whether charged to or against WilTel or Customer because of the Service furnished to Customer ("Additional Charges") . Customer shall pay such Additional Charges in addition to all other charges provided for herein. (D) Modification of Charges. WilTel reserves the right to eliminate Service offerings, modify charges and/or add charges for Service offerings (which charge modifications shall not exceed then-current generally available WilTel charges for comparable services), upon not less than sixty (60) days prior notice to Customer, which notice will state the effective date for the charge modification. In the event WilTel notifies Customer of the elimination of a Service offering and/or an increase in the charges, Customer may terminate this Agreement, without incurring a cancellation charge only with respect to the Service offering affected by the increase in charges. In order to cancel that offering, Customer must notify WilTel, in writing, at least thirty (30) days prior to the effective date of the increase in charges. Further, in the event Customer cancels its subscription to a Switched Service offering as described in this Subsection 5(D), WilTel and Customer agree to negotiate in good faith concerning Customer's Minimum Monthly Commitment, if any, described in the PET. (E) Billing Disputes. Notwithstanding the foregoing, late fees shall apply (but shall not be due and payable for a period of sixty (60) days following the Due Date therefor) for amounts reasonably disputed by Customer, provided Customer: (i) pays all undisputed charges on or before the Due Date, (ii) presents a written statement of any billing discrepancies to WilTel in reasonable detail on or before the Due Date of the invoice in question, and (iii) negotiates in good faith with WilTel for the purpose of resolving such dispute within said sixty (60) day period. In the event such dispute is resolved in favor of WilTel, Customer agrees to pay WilTel the disputed amounts together with any applicable late fees within ten (10) days of the resolution. In the event such dispute is resolved in favor of Customer, customer will receive a credit for the disputed charges in question and the applicable late fees. In the event the dispute can not be resolved within such sixty (60) day period (unless WilTel has agreed in writing to extend such period) all disputed amounts together with late fees shall become due and payable, and this provision shall not be construed to prevent Customer from Page 6 of 14 pursuing any available legal remedies. WilTel shall not be obligated. to consider any Customer notice of billing discrepancies which are received by WilTel more than sixty (60) days following the Due Date of the invoice in question. (F) Suspense of Service. In the event charges due pursuant to WilTel's invoice are not paid in full by the Due Date, WilTel shall have the right, after giving Customer ten (10) days prior notice, to suspend all or any portion of the Service to Customer ("Suspension Notice") until such time (designated by WilTel in its Suspension Notice) as Customer has paid in full all charges then due to WilTel, including any late fees. Following such payment, WilTel shall reinstitute Service to Customer only when Customer provides WilTel with satisfactory assurance of Customer's ability to pay for Service (i.e., a deposit, letter of credit or other means acceptable to WilTel) and customer's advance payment of the cost of reinstituting Service If Customer fails to make the required payment by the date set forth in the Suspension Notice, Customer will be deemed to have canceled the Service suspended effective as of the date of suspension. Such cancellation shall not relieve Customer for payment of applicable cancellation charges as described in Section 2. 6. Credit. Customer's execution of this Agreement signifies Customer's acceptance of WilTel's initial and continuing credit approval procedures and policies. WilTel reserves the right to withhold initiation or full implementation of Service under this Agreement pending WilTel's initial satisfactory credit review and approval thereof which may be conditioned upon terms specified by WilTel, including, but not limited to, security for payments due hereunder in the form of a cash deposit or other means. WilTel reserves the right to modify its requirements, if any, with respect to any security or other assurance provided by Customer for payments due hereunder in light of Customer's actual usage when compared to projected usage levels upon which any security or assurance requirement was based. 7. Creditworthiness. If at any time there is a material adverse change in Customer's creditworthiness, then in addition to any other remedies available to WilTel, WilTel may elect, in its sole discretion, to exercise one or more of the following remedies: (i) cause Start of Service for Service described in a previously executed Service Request to be .withheld; (ii) cease providing Service pursuant to a Suspension Notice; (iii) decline to accept a Service Request or other requests from Customer to provide Service which WilTel may otherwise be obligated to accept and/or (iv) condition its provision of Service or acceptance of a Service Request on Customer's assurance of payment which shall be a deposit or such other means to establish reasonable assurance of payment. An adverse material change in Customer's creditworthiness shall include, but not be limited to: (i) Customer's default of its obligations to WilTel under this or any other agreement with WilTel; (ii) failure of Customer to make full payment of charges due hereunder on or before the Due Date on three (3) or more occasions during any period of twelve (12) or fewer months or Customer's failure to make such payment on or before the Due Date in any two (2) consecutive months; (iii) acquisition of Customer (whether in whole or by Page 7 of 14 majority or controlling interest) by an entity which is insolvent, which is subject to bankruptcy or insolvency proceedings, which owes past due amounts to WilTel or any entity affiliated with WilTel or which is a materially greater credit risk than Customer; or, (iv) customer's being subject to or having filed for bankruptcy or insolvency proceedings or the legal insolvency of Customer. 8. Remedies for Breach. for In the event Customer is in breach of this Agreement, including without limitation, failure to pay charges due hereunder by the date stated in the Suspension Notice described in Subsection 5 (F) , WilTel shall have the right, after giving Customer five (5) days prior notice, and in addition to foreclosing any security interest WilTel may have, to (i) terminate this Agreement; (ii) withhold billing information from Customer; and/or (iii) contact the End Users (for whom calls are originated and terminated solely over facilities comprising the WilTel network) directly and bill such End Users directly until such time as WilTel has been paid in full for the amount owed by Customer. If Customer fails to make payment by the date stated in the Suspension Notice and WilTel, after giving Customer five (5) days prior notice, terminates this Agreement as provided in this Section 8, such termination shall not relieve Customer for payment of applicable cancellation charges as described in Section 2 above. 9. Warranty. WilTel will use reasonable efforts under the circumstances to maintain its overall network quality. The quality of Service provided hereunder shall be consistent with telecommunications common carrier industry standards, government regulations and sound business practices. WILTEL MAKES NO OTHER WARRANTIES ABOUT THE SERVICE PROVIDED HEREUNDER, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. 10. Liability; General Indemnity; Reimbursement. (A) Limited Liability. IN NO EVENT WILL EITHER PARTY HERETO BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL, LOSSES OR DAMAGES, INCLUDING WITHOUT LIMITATION, LOSS OF REVENUE, LOSS OF CUSTOMERS OR CLIENTS, LOSS OF GOODWILL OR LOSS OF PROFITS ARISING IN ANY MANNER FROM THIS AGREEMENT AND THE PERFORMANCE OR NONPERFORMANCE OF OBLIGATIONS HEREUNDER. (B) General Indemnity. In the event parties other than Customer (e.g., Customer's End Users) shall have use of the Service through Customer, then Customer agrees to forever indemnify and hold WilTel, its affiliated companies and any third-party provider or operator of facilities employed in provision of the Service harmless from and against any and all claims, demands, suits, actions, losses, damages, assessments or payments which those parties may assert arising out of or relating to any defect in the service. C. Reimbursement. Customer agrees to reimburse WilTel for all reasonable costs and expenses incurred by WilTel due to WilTel's direct participation (either as a party or witness) in any Page 8 of 14 administrative, regulatory or criminal proceeding concerning Customer if WilTel's involvement in said proceeding is based solely on WilTel's provision of Services to Customer. 11. Force Majeure. If WilTel's performance of this Agreement or any obligation hereunder is prevented, restricted or interfered with-by causes beyond its reasonable control including, but not limited to, acts of God, fire, explosion, vandalism, cable cut, storm or other similar occurrence, any law, order, regulation, direction, action or request of the United States government, or state or local governments, or of any department, agency, commission, court, bureau, corporation or other instrumentality of any one or more such governments, or of any civil or military authority, or by national emergency, insurrection, riot, war, strike, lockout or work stoppage or other labor difficulties, or supplier failure, shortage, breach or delay, then WilTel shall be excused from such performance on a day-to-day basis to the extent of such restriction or interference. WilTel shall use reasonable efforts under the circumstances to avoid or remove such causes or nonperformance and shall proceed to perform with reasonable dispatch whenever such causes are removed or cease. 12. State Certification. Customer warrants that in all jurisdictions in which it provides long distance services that require certification, it has obtained the necessary certification from the appropriate governmental authority. Further, if required by WilTel, Customer agrees to provide proof of such certification acceptable to WilTel. In the event Customer is prohibited, either on a temporary or permanent basis, from conducting its telecommunications operations in a given state, Customer shall immediately notify WilTel by facsimile, and (ii) send written notice to WilTel within twenty-four (24) hours of such prohibition. 13. Interstate/Intrastate Service. Except with respect to Switched Service specifically designated as intrastate Service or international service, the rates provided to Customer in a Service Schedule are applicable only to Switched Service if such Service is used for carrying interstate telecommunications (i.e., Service subject to FCC jurisdiction). WilTel shall not be obligated to provide Switched Service with end points within a single state or Switched Service which originates/terminates at points both of which are situated within a single state. In those states where WilTel is authorized to provide intrastate service (i.e., telecommunications transmission services subject to the jurisdiction of state regulatory authorities), WilTel will, at its option, provide intrastate Service pursuant to applicable state laws, regulations and applicable tariff, if any, filed by WilTel with state regulatory authorities as required by applicable law. 14. Authorized Use of WilTel Name. Without WilTel's prior written consent, Customer shall not (i) refer to itself as an authorized representative of WilTel whenever it refers to the Services in promotional, advertising or other materials, or (ii) use WilTel's logos, trade marks, service marks, or any variations thereof in any of its promotional, advertising or other materials. Additionally, Customer shall provide to WilTel for its prior review and written approval, all promotions, Page 9 of 14 advertising or other materials or activity using or displaying WilTel' s name or the. Services to be provided by WilTel. Customer agrees to change or correct, at Customer's expense, any such material or activity which WilTel, in its sole judgment, determines to be inaccurate, misleading or otherwise objectionable. Customer is explicitly authorized to only use the following statements in its sales literature: (i) "Customer utilizes the WilTel network", (ii) "Customer utilizes WilTel's facilities", "WilTel provides only the network facilities", and (iv) "WilTel is our network services provider". 15. Notices. Notices under this Agreement shall be in writing and delivered to the person identified below at the offices of the parties as they appear below or as otherwise provided for by proper notice hereunder. Customer shall notify WilTel in writing if Customer's billing address is different than the address shown below. The effective date for any notice under this Agreement shall be the date of actual receipt of such notice by the appropriate party, notwithstanding the date of mailing. If to WilTel: WorldCom Network Services, Inc. One Williams Center, 28th Flr Tulsa, OK 74172 Attn: Carrier Sales Dept. If to Customer: Comdata Network, Inc. 5301 Maryland Way Brentwood, TN 37207 Attn: Charles Isdell Telephone No. (615) 370-7215 Fax No.: (615) 370-7485 Comdata Telecommunications Services, Inc. 5301 Maryland Way Brentwood, TN 37207 Attn: Charles Isdell Telephone No.: (615) 370-7215 Fax No.: (615) 370-7485 16. No-Waiver. No term or provision of this Agreement shall be deemed waived and no breach or default shall be deemed excused unless such waiver or consent shall be in writing and signed by the party claimed to have waived or consented. A consent to waiver of or excuse f or a breach or default by either party, whether express or implied, shall not constitute a consent to, waiver of, or excuse for any different or subsequent breach or default. 17. Partial Invalidity; Government Action. (A) Partial Invalidity. If any part of any provision of this Agreement or any other agreement, document or writing given pursuant to or in connection with this Agreement shall be invalid or unenforceable under applicable law, rule or regulation, that part shall be ineffective to the extent of such invalidity only, without Page 10 of 14 in any way affecting the remaining parts of that provision or the remaining provisions of this Agreement. In such event, Customer and WilTel will negotiate in good -faith with respect to any such invalid or unenforceable part to the extent necessary to render such part valid and enforceable. (B) Government Action. Upon thirty (30) days prior notice, either party shall have the right, without liability to the other, to cancel an affected portion of the Service if any material rate or term contained herein and relevant to the affected Service is substantially changed (to the detriment of the terminating party) or found to be unlawful or the relationship between the parties hereunder is found to be unlawful by order of the highest court of competent jurisdiction to which the matter is appealed, the FCC, or other local, state or federal government authority of competent jurisdiction. 18. Exclusive Remedies. Except as otherwise specifically provided for herein, the remedies set forth in this Agreement comprise the exclusive remedies available to either party at law or in equity. 19. Use of Service. Upon WilTel's acceptance of a Service Request hereunder, WilTel will provide the Service specified therein to Customer upon condition that the Service shall not be used for any unlawful purpose. The provision of Service will not create a partnership or joint venture between the parties or result in a joint communications service offering to any third parties, and WilTel and Customer agree that this Agreement, to the extent it is subject to FCC regulation, is an inter-carrier agreement which is not subject to the filing requirements of Section 211(a) of the Communications Act of 1934 (47 U.S.C. Section 211(a)) as implemented in 47 C.F.R. Section 43.51. 20. Choice of Law; Forum. (A) Law. This Agreement shall be construed under the laws of the State of Oklahoma without regard to choice of law principles. (B) Forum. Any legal action or proceeding with respect to this Agreement may be brought in the Courts of the State of Oklahoma in and for the County of Tulsa or the United States of America for the Northern District of Oklahoma. By execution of this Agreement, both Customer and WilTel hereby submit to such jurisdiction, hereby expressly waiving whatever rights may correspond to either of them by reason of their present or future domicile. In furtherance of the foregoing, Customer and WilTel hereby agree to service by U.S. Mail at the notice addresses referenced in Section 15. Such service shall be deemed effective upon the earlier of actual receipt or seven (7) days following the date of posting. Page 11 of 14 21. Proprietary Information (A) Confidential Information. The parties understand and agree that the terms and conditions of this Agreement, all documents referenced (including invoices to Customer for Service provided hereunder)- herein, communications between the parties regarding this Agreement or the Service to be provided hereunder (including price quotes to Customer for any Service proposed to be provided or actually provided hereunder) , as well as such information relevant to any other agreement between the parties (collectively, "Confidential Information"), are confidential as between Customer and WilTel. (B) Limited Disclosure. A party shall not disclose Confidential Information unless subject to discovery or disclosure pursuant to legal process, or to any other party other than the directors, officers, and employees of a party or a party's agents including their respective brokers, lenders, insurance carriers or bona fide prospective purchasers who have specifically agreed in writing to nondisclosure of the terms and conditions hereof. Any disclosure hereof required by legal process shall only be made after providing the non-disclosing party with notice thereof in order to permit the non-disclosing party to seek an appropriate protective order or exemption. Violation by a party or its agents of the foregoing provisions shall entitle the non-disclosing party, at its option, to obtain injunctive relief without a showing of irreparable harm or injury and without bond. (C) Press Releases. The parties further agree that any press release, advertisement or publication generated by a party regarding this Agreement, the Service provided hereunder or in which a party desires to mention the name of the other party or the other party's parent or affiliated company(ies) , will be submitted to the non-publishing party for its written approval prior to publication. (D) Survival of Confidentiality. The provisions of this Section 21 will be effective as of the date of this Agreement and remain in full force and effect for a period which will be the longer of (i) one (1) year following the date of this Agreement, or (ii) one (1) year from the termination of all Service hereunder. 22. Successors and Assigment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors or assigns, provided, however, that Customer shall not assign or transfer its rights or obligations under this Agreement without the prior written consent of WilTel, which consent shall not be unreasonably withheld, and further provided that any assignment or transfer without such consent shall be void. Page 12 of 14 23 General. (A) Survival of Terms. The terms and provisions contained in this Agreement that by their sense and context are intended to survive the performance thereof by the parties hereto shall so survive the completion of performance and termination of this Agreement, including, without limitation, provisions for indemnification and the making of any and all payments due hereunder. (B) Headings. Descriptive headings in this Agreement are for convenience only and shall not affect the construction of this Agreement. (C) Industry Terms. Words having well-known technical or trade meanings shall be so construed, and all listings of items shall not be taken to be exclusive, but shall include other items, whether. similar or dissimilar to those listed, as the context reasonably requires. (D) Rule of Construction. No rule of construction requiring interpretation against the drafting party hereof shall apply in the interpretation of this Agreement. 24. Entire Agreement. This Agreement consists of (i) all the terms and conditions contained herein, and, (ii) all documents incorporated herein specifically by reference. This Agreement constitutes the complete and exclusive statement of the understandings between the parties and supersedes all proposals and prior agreements (oral or written) between the parties relating to Service provided hereunder. No subsequent agreement between the parties concerning the Service shall be effective or binding unless it is made in writing and subscribed to by authorized representatives of Customer and WilTel. Page 13 of 14 IN WITNESS WHEREOF, the parties have executed this WilMAX UNIVERSAL-TM-" Telecommunications Services Agreement on the date first written above. WORLDCOM NETWORK SERVICES, INC. COMDATA NETWORK, INC. d/b/a WilTel By: By: /s/Tony Holcombe (Signature) (Signature) Tony Holcombe (Print Name) (Print Name) President & CEO (Title) (Title) COMDATA TELECOMMUNICATIONS SERVICES, INC. By: /s/Charles S. Isdell (Signature) Sr. V.P. - G.M. (Title) Page 14 of 14 AMENDMENT NO. 1 This Amendment No. 1 (the "Amendment") is made as of the lst day of September, 1997 (the "Effective Date") by and between Comdata Network, Inc. and its wholly-owned subsidiary, Comdata Telecommunications Services, Inc. (collectively referred to as the "Customer") and WorldCom Network Services, Inc. d[b/a WilTel ("WilTel"), to those certain Program Enrollment Terms (the "PET") to that certain WilMAX UNIVERSAL Telecommunications Services Agreement (TSA#CTS-970801) made by and between Customer and WilTel dated as of September 1, 1997 (the "TSA"). In the event of any conflict between the terms of the TSA, the PET or the Service Schedule and the terms of this Amendment No. 1, the terms of this Amendment No. 1 shall control. The TSA (along with the PET and the Service Schedule) and this Amendment No. 1 shall collectively be referred to as the "Agreement". The parties agree for good and valuable consideration, intending legally to be bound, as follows: A. CUSTOMER'S COMMITMENT. The parties agree to substitute Subsection 4(A) of the PET to read in its entirety as follows: (A) Commencing as of September 1, 1997, and continuing through the end of the Service Term (including any extensions thereto) (the "Commitment Period"), Customer agrees to maintain, on a take-or-pay basis, Monthly Revenue of at least $1,083,333 ("Customer's Minimum Revenue Commitment"). B. OTHER PROVISIONS. Except as specifically amended or modified herein, the terms and conditions of the Agreement will remain in full force and effect throughout the Service Term and any extensions thereof. IN WITNESS WHEREOF the parties have entered into this Amendment No. 1 on the date first written above. WORLDCOM NETWORK SERVICES, INC. COMDATA NETWORK, INC. d/b/a WilTel By: By: /s/Michael W. Sheridan Print Name: Print Name: Michael W. Sheridan Tide: Title: Senior Vice President COMDATA TELECOMMUNICATIONS SERVICES, INC. By: /s/Charles S. Isdell Title: Sr. V.P. - G.M. CONFIDENTIAL Page 1 of 1 WILMAX UNIVERSAL-TM- PROGRAM ENROLLMENT TERMS These Program Enrollment Terms (the "PET") are made as of the 1st day of September, 1997 (the "Effective Date"), by and between WorldCom Network Services, Inc. d/b/a WilTel ("WilTel") and Comdata Network, Inc., and it wholly- owned subsidiary, Comdata Telecommunications Services, Inc. (collectively referred to as "Customer") and are a part of their agreement for switched services, more particularly identified as TSA#CTS-970801 (the "Agreement"). In accordance with the Agreement, charges to Customer for Service obtained thereunder shall be subject to the Discount Schedule set forth below and the Agreement shall also be subject to the terms and conditions set forth herein. 1. PRIOR AGREEMENT: The parties acknowledge that there currently exists that certain WorldCom Communications Agreement dated as of December 1, 1994, including that certain amendment thereto dated July 31, 1996 (collectively, the "Prior Agreement") between WorldCom, Inc. d/b/a LDDS WorldCom (WilTells parent company) and Comdata Telecommunications Services, Inc. and Comdata Network, Inc. As of the Effective Date, the parties agree that (i) the Prior Agreement shall be canceled in its entirety and of no further force or effect and the parties shall be released from all liability thereunder with the exception of certain accrued obligations arising under the Prior Agreement such as the payment of money or the application of credits accruing prior to the Effective Date and provisions intended to survive termination, such as limitation of liability, indemnification and confidentiality, (ii) all Service currently being provided Customer under the Prior Agreement will be provisioned and maintained by WilTel taking into account the terms and conditions of this PET. 2. SERVICE TERM: The Service Term shall commence as of the Effective Date stated above and shall continue through and include January 22, 2003. Upon the expiration of the Service Term, the service in question will continue to be provided pursuant to the same terms and conditions as are then in effect (including without limitation, the applicable rates and discounts then in effect), subject to termination by either party upon one hundred and twenty (20) days prior written notice to the other party. 3. DISCOUNT: (A) Commencing with the Effective Date and continuing through the end of the Service Term (including any extensions thereto), Customer's discount (the "Discount") will be as determined under this Subsection 3(A) taking into account any increase, as described in Subsection 3(B) below. The Discount is based on the number of months contained in the Service Term divided by 12. If the number of months is less than 12, the month-to-month (MTM) discounts shall apply; if the product of the division is equal to or greater than 1 but less than 2, the 1-Year discounts shall apply; if the Page 1 of 16 CONFIDENTIAL product of the division is equal to or greater than 2 but less than 3, the 2-Year discounts shall apply; and, if the product of the division is equal to or greater than 3, the 3-Year discounts apply. Throughout the Service Term including any applicable extensions thereto, Customer will automatically receive the next higher discount when Customer's eligible Monthly Revenue reaches the next level. SERVICE TERM Monthly Revenue(a) MTM 1-YR 2-YR 3-YR [confidential information omitted] (a) For purposes of this Agreement, "Monthly Revenue" will include all of Customer' s gross measured and per call Switched Service charges (i.e., Directory Assistance and both Domestic and International) plus (i) three (3) times Customer's first $300,000 recurring monthly Private Line Interexchange Service charges (i.e., both Domestic and International) from WilTel, (ii) two (2) times Customer's second $300,000 recurring monthly Private Line Interexchange Service charges (i.e., both Domestic and International) from WilTel, and (iii) Customer's recurring monthly Private Line Interexchange Service charges (i.e., both Domestic and International) from WilTel in excess of $600,000. Monthly Revenue shall exclude any pro rata charges, access charges, ancillary or special feature charges, such as, authorization codes or CDR Tapes, or any other charges other than those identified by the relevant WilTel invoice as Monthly Recurring Interexchange service charges or Switched Service charges. (b) If Customer's Monthly Revenue is less than $10,000, Customer must maintain at least one (1) DS-1 circuit comprising a Service Interconnection as defined in the Service Schedule with respect to TERMINATION Service and/or 800 ORIGINATION Service. B. If Customer's Minimum Commitment (as described in Section 4 below) is equal to or greater than $50,000, all of the percentages shown in the Discount Schedule above will be increased by the following amounts based on Customer's Minimum Commitment. If Customer's Minimum The applicable percentages Commitment is at least will be increased by [confidential information omitted] Page 2 of 16 CONFIDENTIAL Example: Assume Customer's Minimum commitment is $250,000 and the Service Term is twenty-four (24) months. Commencing with the Effective Date and continuing through the end of the Service Term (including any applicable extensions thereto), Customer's applicable discount percentage will be [confidential information omitted]. 4. CUSTOMER'S MINIMUM REVENUE COMMITMENT: (A) Commencing as of September 1, 1997, and continuing through the end of the' Service Term Including any extensions thereto) (the "Commitment Period"), Customer agrees to maintain, on a take-or-pay basis, Monthly Revenue of at least $1,300,000 ("Customer's Minimum Revenue Commitment"). In the event Customer is not maintaining TERMINATION Service or 800 ORIGINATION Service but is maintaining other Services from WilTel hereunder (e.g., SWITCHED ACCESS Service, DEDICATED ACCESS Service or TRAVEL CARD Service), Customer's Minimum Revenue Commitment will be the greater of (i) $10,000, or (ii) the amount stated above. (B) Provided Customer's cumulative Monthly Revenue (as that term is defined in Subsection 3(A) above) from WilTel under this Agreement commencing with the Effective Date is at least $45,000,000 (i.e., in the aggregate), Customer may elect to terminate Customer's Minimum Revenue Commitment described in Subsection 4(A) above by providing WilTel written notice ("'Customer Notice"). In such event, commencing with the first day of the first full month following at least thirty (30) days after WilTel receives the Customer Notice (the "Commitment Termination Date"), (i) Customer's Minimum Revenue Commitment shall terminate and will no longer be in force or effect, and (ii) for the remainder of the Service Term Customer's Discount will determined under the Discount Schedule described in Subsection 3(A) above based on a 3-YR Service Term without taking into account any increase under Subsection 3(B) above. (C) In the event there is a substantial change in the regulatory environment of Customer's business, including without limitation the banking, gaming and telecommunications environments, which substantially prohibits Customer's performance under this Agreement, WorldCom agrees to negotiate with Customer in good faith concerning the reduction of Customer's Minimum Revenue Commitment as described in Subsection 4(A) above. Further, in the event there is a substantial technological change in the telecommunications industry and based on the purchase of a new product or offering Customer's rates for Services hereunder would be significantly reduced, WilTel agrees to negotiate with Customer concerning the purchase of such product or offering and the Page 3 of 16 CONFIDENTIAL reduction of Customer's Minimum Revenue Commitment, provided WilTel continues to receive the same percentage of Customer' s traffic after such reduction as it did prior to such technological change. Finally, in the event Customer completely ceases providing telecommunications services, WilTel agrees to reduce Customer's Minimum Revenue Commitment by an amount equal to the product obtained by multiplying (i) the previous three (3) months' average Monthly Revenue for services purchased by Customer under this Agreement which are attributable to Customer by (ii) twelve (12). 5. DEFICIENCY CHARGE: In the event Customer does not maintain Customer's Minimum Revenue Commitment in any month during the Commitment Period, then for those month(s) only, Customer will pay WilTel the difference between Customer's Minimum Revenue Commitment and Customer's actual Monthly Revenue as described in Section 3 (the "Deficiency Charge"). The Deficiency Charge will be due at the same time payment is due for Service provided to Customer, or immediately in an amount equal to Customer's Minimum Revenue Commitment for the unexpired portion of the Service Term if WilTel terminates the Agreement based on Customer's default. 6. APPLICATION OF DISCOUNTS: (A) After determining Customer's applicable discount percentage under Section 3 above, the applicable percentage will be applied to Monthly Revenues comprised of Customer's Interstate (including Alaska, Hawaii, the United States Virgin Islands and Puerto Rico unless otherwise noted herein) measured usage charges (which includes 1+ and 800 usage, whether switched access or dedicated access or travel card usage). (B) During the Service Term of the Agreement, accumulated credits derived from the applicable Discounts will be applied in arrears commencing with the first day of the month following the Effective Date, that is, will be applied to Customer's measured usage charges for the preceding month (the "Discount Period"). The initial Discount Period shall include any partial calendar month following Start of Service, or such other time basis as may be mutually determined by the parties. (C) Each Discount will result in the application of a credit obtained during the Discount Period to the WilTel invoice to Customer relevant to the billed measured Switched Service for the calendar month next following the completion of each Discount Period, provided Customer has paid undisputed charges (including any late fees, if applicable) for that month and has not otherwise been subject to a Suspension Notice in accordance with the Agreement. Failure of Customer to comply with the foregoing provision shall entitle WilTel to withhold any credit due Customer for the Discount Period in question until such charges (including late fees) have been paid in full. Page 4 of 16 CONFIDENTIAL 7 RATES: (A) TERMINATION Service (i) Interstate Rates Per Minute [confidential information omitted] without regard to time of day, within the 48 contiguous United States except with respect to termination in the SUPERSAVER LATAs described below. (ii) Interstate Extended Rates Per Minute SEE the DEDICATED ACCESS Service Extended Rates described in Subsection 6(D) below. (iii) Interstate SUPERSAVER Rates Per Minute [confidential information omitted] without regard to time of day. These rates are only available and only apply to Interstate TERMINATION Service calls to the SUPERSAVER LATAs set forth on Schedule 1 attached hereto (i.e., Intrastate TERMINATION Service calls will not be subject to SUPERSAVER Rates). (iv) Intrastate Rates Per Minute [confidential information omitted] SEE the DEDICATED ACCESS Service Intrastate rates shown on Schedule 2 attached hereto. (v) International (excluding Canada and Mexico) Rates Per Minute [confidential information omitted] SEE the DEDICATED ACCESS Service International rates shown on Schedule 5 attached hereto. (Note: The applicable "Rate Plan" will be as determined under Section 7 below.) (vi) Canada and Mexico Rate Per Minute [confidential information omitted]. SEE the DEDICATED ACCESS Service Canada and Mexico rates shown on Schedule 3 attached hereto. (B) 800 ORIGINATION Service (i) Interstate Rates Per Minute [confidential information omitted] without regard to time of day, within the 48 contiguous United States except with respect to origination in the SUPERSAVER LATAs described below. (ii) Interstate Extended Rates Per Minute SEE the DEDICATED ACCESS Service rates described in Subsection 6(d) below. Page 5 of 16 CONFIDENTIAL (iii) Interstate SUPERSAVER Rates Per Minute [confidential information omitted] without regard to time of day These rates are only available and only apply to Interstate 800 ORIGINATION Service calls from the SUPERSAVER LATAs set forth on Schedule 1 attached hereto (i.e., Intrastate 800 ORIGINATION Service calls will not be subject to SUPERSAVER Rates). (iv) Intrastate Rates Per Minute [confidential information omitted] SEE DEDICATED ACCESS Service Intrastate Rates shown on Schedule 2 attached hereto. (v) Canada Rates Per Minute [confidential information omitted] SEE the DEDICATED ACCESS Service Mexico and Canada rates shown on Schedule 3 attached hereto. (C) SWITCHED ACCESS Service (i) Interstate Rates Per Minute [confidential information omitted] Day/Nonday within the 48 contiguous United States. (ii) Interstate (1+) Extended Rates Per Minute [confidential information omitted] Day, [confidential information omitted] Nonday from the 48 contiguous United States to Hawaii. [confidential information omitted] Day, [confidential information omitted] Nonday from the 48 contiguous United States to Alaska, Puerto Rico and the United States Virgin Islands. [confidential information omitted] Day, [confidential information omitted] Nonday from Hawaii to the 48 contiguous United States. See the SWITCHED ACCESS Service (1+) Rates shown on Schedule 3 for calls from Hawaii to Canada and Mexico and Schedule 8 for Calls from Hawaii to certain International locations. (iii) Interstate (800) Extended Rates Per Minute confidential information omitted].] [confidential information omitted] Day, [confidential information omitted] Nonday from Hawaii to the 48 contiguous United States. [confidential information omitted] Day, [confidential information omitted] Nonday from Alaska to the 48 contiguous United States. [confidential information omitted] Day, [confidential information omitted] Nonday from Puerto Rico to the 48 contiguous United States. [confidential information omitted].Day, [confidential information omitted] Nonday from the United States Virgin Islands to the 48 contiguous United States. Page 6 of 16 CONFIDENTIAL (iv) Intrastate Rates Per Minute [confidential information omitted] SEE the SWITCHED ACCESS Service Intrastate rates shown on Schedule 2 attached hereto. (v) International (excluding Canada and Mexico) Rates Per Minute [confidential information omitted] SEE the SWITCHED ACCESS Service International rate shown on Schedule 4 attached hereto. [Note: The applicable "Rate Plan" will be as determined under Section 7 below.] (vi) Canada and Mexico Rates Per Minute [confidential information omitted] SEE the SWITCHED ACCESS Service Canada and Mexico rates shown on Schedule 3 attached hereto. (C) DEDICATED ACCESS Service (i) Interstate Rates Per Minute [confidential information omitted] Day/Nonday within the 48 contiguous United States. (ii) Interstate (1+) Extended Rates Per Minute [confidential information omitted] Day, [confidential information omitted] Nonday from the 48 contiguous United States to Hawaii. [confidential information omitted] Day, [confidential information omitted] Nonday from the 48 contiguous United States to Alaska, Puerto Rico and the United States Virgin Islands. (iii) Interstate (800) Extended Rates Per Minute [confidential information omitted] [confidential information omitted] Day, [confidential information omitted] Nonday from Hawaii to the 48 contiguous United States. [confidential information omitted] Day, [confidential information omitted] Nonday from Alaska to the 48 contiguous United States. [confidential information omitted] Day, [confidential information omitted] Nonday from Puerto Rico to the 48 contiguous United States. [confidential information omitted] Day, [confidential information omitted] Nonday from the United States Virgin Islands to the 48 contiguous United States. (iv) Intrastate Rates Per Minute [confidential information omitted] SEE the DEDICATED ACCESS Service Intrastate rates shown on Schedule 2 attached hereto. Page 7 of 16 CONFIDENTIAL International (excluding Canada and Mexico) Rates Per Minute [confidential information omitted] SEE the DEDICATED ACCESS Service International rates shown on Schedule 5 attached hereto. (Note: The applicable "Rate Plan" will be as determined under Section 7 below.] (vi) Canada and Mexico Rates Per Minute [confidential information omitted] SEE the DEDICATED ACCESS Service Canada and Mexico rates shown on Schedule 3 attached hereto. (D) TRAVEL CARD Service: (i) Basic Interstate TRAVEL CARD Service Rates Per Minute [confidential information omitted] Day/Nonday within the 48 contiguous United States. (ii) Basic Intrastate TRAVEL CARD Service Rates per Minute [confidential information omitted] SEE the SWITCHED ACCESS Service Intrastate rates shown on Schedule 2 attached hereto. (iii) Basic International (excluding Canada and Mexico) TRAVEL CARD Service Rates Per Minute [confidential information omitted] SEE the SWITCHED ACCESS Service International rates shown on Schedule 4 attached hereto. [Note: The applicable "Rate Plan" will be as determined under Section 7 below.] International TRAVEL CARD Service calls from the 48 contiguous United States to International locations (excluding only Canada) are subject to a surcharge of [confidential information omitted] per call. (iv) Basic Canada TRAVEL CARD Service Rates Per Minute [confidential information omitted] [confidential information omitted] Day, [confidential information omitted] Nonday from the 48 contiguous United States to Canada. TRAVEL CARD Service calls from the 48 contiguous United States to Canada are subject to a surcharge of [confidential information omitted] per call. [confidential information omitted] Day, [confidential information omitted] Nonday from Canada to the 48 contiguous United States. TRAVEL CARD Service calls from Canada to the domestic United States are subject to a surcharge of [confidential information omitted] per call. Page 8 of 16 CONFIDENTIAL (v) Basic Mexico TRAVEL CARD Service Rates Per Minute [confidential information omitted] SEE the SWITCHED ACCESS Service Mexico rates shown on Schedule 3 attached hereto. TRAVEL CARD Service calls from the 48 contiguous United States to Mexico are subject to a surcharge of [confidential information omitted] per call. (vi) Enhanced TRAVEL CARD Service Pricing (Note: Enhanced features to TRAVEL CARD Service are available at the rates shown on Schedule 6 attached hereto.) [confidential information omitted] (F) Directory Assistance (i) Interstate Rate Per Call [confidential information omitted] (ii) Intrastate Rate Per Call [confidential information omitted] 8. INTERNATIONAL SERVICE: (A) Commencing with the Effective Date, with respect to calls originating in the continental United States and terminating to an International location (excluding Puerto Rico, the United States Virgin Islands, Canada and Mexico), unless Customer has elected an International Sub-Commitment as described in Subsection (B) below, Customer's International rates will be deemed to correspond with the level of applicable charges shown on Schedule 4 and Schedule 5, both of which are attached hereto and incorporated herein by reference based on twenty-five percent (25%) of Customer's Minimum Revenue Commitment described in Section 3 above (rounded down to the nearest International Revenue Level) taking into account the International Rate periods shown on Schedule 7, which is also attached hereto and made a part hereof. In the event (i) Customer's Service Term is Month-to-Month, or (ii) Customer's Minimum Revenue Commitment is less than $200,000, Customer's International rates willcorrespond with the applicable level of "Base International Rates" shown on Schedule 4 and Schedule 5. With respect to TERMINATION Service and 800 ORIGINATION Service calls, Customer's International rates will be the applicable DEDICATED ACCESS Service rates. Example: Assume Customer's Commitment is $750,000. Customer's applicable International rates would be deemed to correspond with the $100,000 level [25% x 750,000 = 187,500, rounded down to the nearest level]. (B) Commencing with the Effective Date and continuing through the end of the Service Term including any applicable extensions thereto ("International Commitment Period"), Customer agrees to maintain, on a take-or-pay basis, International Monthly Revenue (as described herein) of at least (check one of the following) ("Customer's International Sub- Commitment") [NOTE: If none of the boxes below are checked, Customer will be deemed to have elected an International Sub-Commitment of $0]: Page 9 of 16 CONFIDENTIAL [confidential information omitted] For purposes of this Agreement, Customer's "International Monthly Revenue,, will be comprised of all of Customer's gross (ie., prior to the application of discounts) measured and per call Switched Service charges (i.e., Directory Assistance and both Domestic and International) associated with a call to an International location (excluding Puerto Rico, the United States Virgin Islands, Canada and Mexico). (C) At any time during the Service Term of this Agreement, Customer may modify Customer's International Sub-Commitment ("Customer's Modified International Sub-Commitment) for the remainder of the International Commitment Period by notifying WilTel in writing. Commencing with the first day of the month following at least thirty (30) days after WilTel receives the notice described herein, (i) Customer's Modified International Sub-Commitment will be effective, and (ii) customer's International rates will correspond with the applicable rates shown on Schedule 4 and Schedule 5 based on Customer's Modified International Sub-Commitment. (D) In the event Customer does not maintain Customer's International Sub- Commitment (or Customer's Modified International Sub-Commitment, if applicable) in any month during the International Commitment Period, then for those month(s) only, Customer will pay WilTel the difference between the greater of (i) Customer's International Sub-Commitment (or Customer's Modified International Sub-Commitment) and Customer's actual International Monthly Revenue as defined above (the "International Deficiency Charge"), or (ii) the Deficiency Charge calculated under Section 4 above. If applicable, the International Deficiency Charge will be due at the same time payment is due for Service provided to Customer, or immediately in an amount equal to Customer's International Sub-Commitment for the unexpired portion of the International Commitment Period if WilTel terminates this Agreement based on Customer's default. 9. SERVICE REQUESTS: The parties agree to substitute Subsection l(E) of the TSA to read in its entirety as follows: (E) Service Requests. Customer's requests to initiate or cancel Services shall be described in an appropriate WilTel Service Request ("Service Requests"). Service Requests may consist of machine readable tapes, facsimiles or other means approved by WilTel. Further, Service Requests shall specify all reasonable information, as determined by WilTel, necessary or appropriate for WilTel to provide the Service(s) in question, which shall include without limitation, the type, quantity and end point(s) (when necessary) of circuits comprising a Service Interconnection as described in the applicable Service Schedules, or automatic number identification ("ANI") information relevant to the Service(s), the Requested Service Date, and charges, if any, relevant to the Services described in the Service Request. After WilTel's receipt and verification Page 10 of 16 CONFIDENTIAL of a valid Service Request for SWITCHED Service (as defined in the Service Schedule) requiring a change in the primary interexchange carrier ("PIC"), WilTel agrees to (i) submit the ANI(S) relevant to such Service Requests to the following local exchange carriers ("LECs") (with which WilTel currently has electronic interface capabilities) within two (2) business days: Ameritech, Bell Atlantic, BellSouth, Nynex, Pacific Bell, Southwestern Bell, US West, GTE and United, and (ii) submit the ANIs relevant to such Service Requests to those LECs (which shall include any independent local exchange companies (ILECS) with which WilTel does not have electronic interface capabilities within five (5) business days. 10. CANCELLATION: The parties agree to substitute Section 2 of the TSA to read in its entirety as follows: 2. Cancellation. (A) Cancellation Charge. Subject to Customer's right to terminate this Agreement as described in Subsection 2(C) and 2(D) below, at any time after the Effective Date, Customer may cancel this Agreement (i.e., for convenience) if Customer provides written notification thereof to WilTel not less than thirty (30) days prior to the effective date of cancellation. In such case (or in the event WilTel terminates this Agreement as provided in section 8), Customer shall pay to WilTel all charges for Service provided through the effective date of cancellation plus a cancellation charge (the "Cancellation Charge") equal to twelve and one-half percent (12 1/2%) of the average of the last twelve (12) months Monthly Revenue times the number of full months remaining in the Service Term. (B) Liquidated Damages. It is agreed that WilTel's damages in the event Customer cancels Service shall be difficult or impossible to ascertain. The provision for a cancellation charge in Subsection 2(A) above or Subsection 2(D) below is intended, therefore, to establish liquidated damages in the event of a cancellation charge and are not intended as a penalty. (C) Cancellation Without Charge. Notwithstanding anything to the contrary contained in Subsection 2(A) above and subject to Subsections 2(D) and 2(E) below, Customer may cancel this Agreement without incurring any cancellation charge if (i) WilTel fails to provide a network as warranted in Section 9 below; (ii) WilTel fails to deliver call detail records promptly based on the frequency selected by Customer (i.e., monthly, weekly or daily); or (iii) WilTel fails to submit ANI(S) relevant to such Service Requests to the LECs within the time period described in Subsection l(E) above. Provided, however, Customer must give WilTel written notice of any such default and an opportunity to cure such default within five (5) days of the notice. In the event WilTel fails to cure any such default within the five-day period on Page 11 of 16 CONFIDENTIAL more than three (3) occasions within any six (6) month period, Customer may cancel this Agreement without incurring any cancellation charge. (D) Termination Due to Change in Control. In the event that (i) there is a change in control of Customer such that Customer is acquired or purchased, whether by stock purchase, asset purchase, merger or otherwise, and such acquisition or purchase is approved by the appropriate regulatory authorities ("Customer Acquisition Purchase") and (ii) pursuant to such Customer Acquisition/Purchase, Customer obtains access to an alternate rate plan which results in an overall savings over current charges paid to WilTel pursuant to this Agreement, WilTel may make such adjustments to the rates contained herein to provide an equivalent overall savings. In the event that WilTel does not make such adjustment, then Customer may, at its election, within sixty (60) days after such Customer Acquisition/Purchase, terminate this Agreement upon ten (10) days prior written notice to WilTel without incurring further liability to WilTel. 11. TRANSFER CHARGES: The parties agree to substitute Subsection 3(B) of the TSA to read in its entirety as follows: (E) Transfer Charges/Disputed Transfers. Customer agrees that it is responsible for (i) all charges incurred by WilTel to change the PIC of End Users to the WilTel network, (ii) all charges incurred by WilTel to change End Users back to their previous PIC arising from disputed transfers to the WilTel network plus an administrative charge equal to [confidential information omitted] of such charges, and (iii) any other damages suffered by or awards against WilTel resulting from disputed transfers unless such charges or damages are due solely to the actions or omissions of WilTel. 12. EXCLUDED ANIS: The parties agree to substitute the second sentence of Subsection 3 (C) of the TSA to read in its entirety as follows: In the event WilTel rejects an ANI, WilTel will notify Customer as soon as possible (but in no event later than three (3) days) of its decision specifically describing the rejected ANI and the reason(s) for rejecting that ANI, and will not incur any further liability under this Agreement with regard to that ANI. 13. RECORDS: The parties agree to substitute the first sentence of Subsection 3(D) of the TSA to read in its entirety as follows: Customer will maintain documents and records ("Records") supporting Customer's re-sale of Switched Service, including, but not limited to, appropriate and valid LOAS, if applicable, from End Users for a period of not less than twelve (12) months or such other longer period as may be required by applicable law, rule or regulation. Page 12 of 16 CONFIDENTIAL 14. CUSTOMER SERVICE: The parties agree to substitute the last sentence of Subsection 3 (E) of the TSA to read in its entirety as follows: Customer agrees to immediately notify WilTel in the event an End User notifies Customer of problems associated with the Service, including without limitation, excess noise, echo, or loss of Service, and WilTel agrees to respond to such problem(s) as it would in the normal course of its business. 15. CUSTOMER RESPONSIBILITIES: The parties agree to substitute Subsection 4(B) of the TSA to read in its entirety as follows: (B) Fraudulent Calls. Customer shall indemnify and hold WilTel harmless from all costs, expenses, claims or actions arising from fraudulent calls of any nature which may comprise a portion of the Service to the extent that the party claiming the call(s) in question to be fraudulent is (or had been at the time of the call) an End User of the Service through Customer or an end user of the Service through Customer's distribution channels, except to the extent fraud was caused solely by WilTel's gross negligence or willful misconduct. Customer shall not be excused from paying WilTel for Service provided to Customer or any portion thereof on the basis that fraudulent calls comprised a corresponding portion of the Service. In the event WilTel discovers fraudulent calls being made (or reasonably believes fraudulent calls are being made), nothing contained herein shall prohibit WilTel from taking immediate action (without notice to Customer) that is reasonably necessary to prevent such fraudulent calls from taking place, including without limitation, denying Service to particular ANIs or terminating Service to or from specific locations. 16. CHARGES AND PAYMENT TERMS: The parties agree to substitute Subsections 5 (A) and 5 (D) of the TSA to read in their entirety as follows: (A) Payment. WilTel billings for Service are made on a monthly basis (or such other basis as may be mutually agreed to by the parties) following Start of Service. Subject to Subsection S(D) below, Service shall be billed at the rates as described in the PET, and Service Requests, as the case may be. Discounts, if any, applicable to the rates for certain Switched Services are also set forth in the PET. Customer will pay each WilTel invoice in full for Switched Service within forty-five (45) days of the invoice date set forth on each WilTel invoice to Customer ("Due Date") of payment is not received by WilTel on or before the Due Date, Customer shall also pay a late fee in the amount of the lesser of one and one-half percent (1 1/2%) of the unpaid balance of the Service charges per month or the maximum lawful rate under applicable state law. (D) Modification of Charges. WilTel reserves the right to eliminate Service offerings, modify charges and/or add charges for Service offerings (which charge modifications shall not exceed then-current generally available WilTel charges for comparable services), upon not less than sixty (60) days prior notice to Customer, which notice will state the effective date for the Page 13 of 16 CONFIDENTIAL charge modification or service modification. In the event WilTel notifies Customer of the elimination of a Service offering and/or an increase in the charges, Customer may terminate this Agreement, without incurring a cancellation charge only with respect to the Service offering affected by the increase in charges. In order to cancel that offering, Customer must notify WilTel, in writing, at least fifteen (15) days prior to the effective date of the increase in charges. Further, in the event Customer cancels its subscription to a Switched Service offering as described in this Subsection 5(D), WilTel and Customer agree to negotiate in good faith concerning the decrease of Customer's Minimum Monthly Commitment, if any, described in the PET. 17. REMEDIES FOR BREACH: The parties agree to substitute the first sentence of Section 8 of the TSA to read in its entirety as follows: In the event Customer fails to pay any amount due hereunder for Services rendered by WilTel or is in material breach of this Agreement, including without limitation, failure to pay charges due hereunder by the date stated in the Suspension Notice described in Subsection 5(F), WilTel shall have the right, after giving Customer five (5) days prior notice, and in addition to foreclosing any security interest WilTel may have, to (i) terminate this Agreement, (ii) withhold billing information from Customer; and/or (iii) contact the End Users (for whom calls are originated and terminated solely over facilities comprising the WilTel network) directly and bill such End Users directly until such time as WilTel has been paid in full for the amount owed by Customer. 18. STATE CERTIFICATION: The parties agree to substitute Section 12 of the TSA to read in its entirety as follows: 12. State Certification. Customer warrants that in all jurisdictions in which it provides long distance services that require certification and in which it uses the WilTel network, it has obtained the necessary certification from the appropriate governmental authority. urther, if required by WilTel, Customer agrees to provide proof of such certification reasonably acceptable to WilTel. In the event Customer is prohibited, either on a temporary or permanent basis, from conducting its telecommunications operations in a given state, Customer shall (i) immediately notify WilTel by facsimile, and (ii) send written notice to WilTel within twenty-four (24) hours of such prohibition. 19. AUHTORIZED USE OF WILTEL NAME: The parties agree to substitute the second sentence of Section 14 of the TSA to read in its entirety as follows: Additionally, Customer shall provide to WilTel for its prior review and written approval, all promotions, advertising or other materials or activity using or displaying WilTel's name. Page 14 of 16 CONFIDENTIAL 20. CHOICE OF LAW; FORUM: The parties agree to substitute Section 20 of the TSA to read in its entirety as follows: 20. Choice of Law; Forum. (A) Law. This Agreement shall be construed under (i) the laws of the State of Oklahoma without regard to choice of law principals; (ii) if applicable, the Communications Act 1934, as amended; and (iii) if applicable, relevant decisions of the Federal Communications Commission. (B) Forum. Any legal action or proceeding with respect to this Agreement may be brought in (i) the Courts of the State of Oklahoma in and for the County of Tulsa or the United States of America for the Northern District of Oklahoma, or (ii) the Courts of the State of Tennessee in and for the County of Davidson or the United States of America for the Middle District of Tennessee. By execution of this Agreement, both Customer and WilTel hereby submit to such jurisdiction, hereby expressly waiving whatever rights may correspond to either of them by reason of their present or future domicile. In furtherance of the foregoing, Customer and WilTel hereby agree to service by U.S. Mail at the notice addresses referenced in Section 15. Such service shall be deemed effective upon the earlier of actual receipt or seven (7) days following the date of posting. 21. PRESS RELEASES: The parties agree to substitute Subsection 21(C) of the TSA to read in its entirety as follows: (C) Press Release. Except to the extent specifically allowed under Section 14, the parties further agree that any press release, advertisement or publication generated by a party regarding this Agreement or in which a party desires to mention the name of the other party or the other party' s parent or affiliated companies), will be submitted to the non-publishing party for its written approval prior to publication. 22. RULE OF CONSTRUCTION: The parties agree to delete Subsection 23(D) in its entirety. 23. MISCELLANEOUS: (A) WilTel agrees to waive the [confidential information omitted] charge for Daily CDRs described in Subsection 9(D) of the Service Schedule. (B) WilTel agrees to waive the [confidential information omitted] charge for every Customer requested billed telephone number (whether verified or non-verified) described in Section 15 of the Service Schedule. (C) In the event WilTel withdraws or otherwise cancels any tariff referenced in this Agreement, whether in whole or in part and whether voluntarily or by reason of any statute, rule or order of any governmental unit or regulatory body, the referenced terms or provision then in effect as of the date of withdrawal or Page 15 of 16 CONFIDENTIAL cancellation shall remain in full force or effect subject to modification as may be mutually agreed to by the parties. 24. REQUIREMENTS: During the Service Term, Customer agrees to purchase from WilTel under this Agreement at least seventy percent (70%) of Customer's internal corporate traffic, and Customer's resale traffic. For purposes of this Section 23, WilTel agrees to exclude (i) that volume of traffic provided through services to Customer as of December 1, 1994, by ETS, an AT&T aggregator, and (ii) that volume of traffic attributable to any subsidiary or other business unit of Customer acquired on or after October 16, 1995. IN WITNESS WHEREOF, the parties have executed these WilMAX UNIVERSAL-TM- Program Enrollment Terms on the date first written above. WORLDCOM NETWORK SERVICES, INC. COMDATA NETWORK, INC. d/b/a WilTel By: By: /s/Tony Holcombe (Signature) (Signature) Tony Holcombe (Print Name) (Print Name) President & CEO (Title) (Title) COMDATA TELECOMMUNICATIONS SERVICES, INC. By: /s/Charles S. Isdell (Signature) (Print Name) Sr. V.P. - G.M. (Title) ATTACHMENTS: Schedule 1 SUPERSAVER LATAs Schedule 2 Intrastate Rates Schedule 3 Canada and Mexico Rates; Canada and Mexico Rates from Hawaii Schedule 4 SWITCHED ACCESS Service International Rates Schedule 5 DEDICATED ACCESS Service International Rates Schedule 6 ENHANCED TRAVEL CARD Service Rates Schedule 7 International Rate Periods Schedule 8 Switched International Rates 1+ from Hawaii Page 16 of 16 CONFIDENTIAL EX-13.01 20 EXHIBIT 13.01 INSIDE FRONT COVER OF ANNUAL REPORT EXHIBIT 13.01: SELECTED FIVE-YEAR DATA
- ------------------------------------------------------------------------------------------------------------------ (Dollars in millions, except per share data) - ------------------------------------------------------------------------------------------------------------------ 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------ REVENUE $ 1,074.8 $ 942.6 $ 823.5 $ 691.5 $ 648.5 - ------------------------------------------------------------------------------------------------------------------ Earnings (Loss) from continuing operations (1) $ 35.4 $ 135.5 $ 59.2 $ 64.6 $ (269.8) Gain and earnings from discontinued operations (2) 437.0 46.4 38.3 33.1 26.1 Extraordinary loss (3) -- -- (38.9) -- (8.4) NET EARNINGS (Loss) $ 472.4 $ 181.9 $ 58.6 $ 97.7 $ (252.1) - ------------------------------------------------------------------------------------------------------------------ EARNINGS (Loss) PER COMMON SHARE (4) BASIC Continuing operations $ 0.45 $ 1.80 $ 0.70 $ 0.78 $ (4.19) Net earnings (loss) $ 6.02 $ 2.49 $ 0.69 $ 1.29 $ (3.92) DILUTED Continuing operations $ 0.45 $ 1.67 $ 0.74 $ 0.83 $ (4.19) Net earnings (loss) $ 5.92 $ 2.25 $ 0.73 $ 1.25 $ (3.92) Shares used in calculations (in thousands) Basic 78,418 67,920 66,135 65,825 64,452 Diluted 79,741 80,969 79,736 78,010 64,452 - ------------------------------------------------------------------------------------------------------------------ BALANCE SHEET DATA Total assets $ 1,243.3 $ 1,016.6 $ 905.6 $ 816.0 $ 695.9 Debt obligations $ 3.0 $ 138.2 $ 201.5 $ 222.3 $ 231.5 Stockholders' equity (deficit) (5) $ 588.3 $ 346.3 $ 150.0 $ 86.9 $ (8.9) - ------------------------------------------------------------------------------------------------------------------ EQUITY (DEFICIT) PER COMMON SHARE (6) $ 7.96 $ 4.34 $ (1.28) $ (2.23) $ (3.74) Common shares outstanding at end of year (in thousands) 73,942 79,768 67,277 66,723 65,503 - ------------------------------------------------------------------------------------------------------------------ NUMBER OF EMPLOYEES AT END OF YEAR 8,000 7,700 7,100 6,400 6,600 - ------------------------------------------------------------------------------------------------------------------
Certain prior year amounts have been restated to separately present amounts related to discontinued operations. (1) Includes 1997 FAS 109 income tax benefit of $175.0, as described in Note E, 1997 unusual losses of $307.6, as described in Note C, 1995 pooling expenses of $29.7, and in 1993 a restructuring loss of $67.0 and the write-off of $230.3 of Comdata goodwill and other intangibles. (2) Includes 1997 gain on sale of $386.3 and earnings from operations of Computing Devices International as described in Note B. (3) Relates to the early retirement of debt. (4) For further information on the calculation of earnings per share, see Note D. (5) The Company does not pay cash dividends on its common stock. For information regarding the 1996 conversion of preferred stock, see Note G. (6) Computed by reducing stockholders' equity by the liquidation value of outstanding preferred stock ($236.0 at December 31, 1995, 1994 and 1993) and dividing by the number of outstanding common shares at the end of the year. Assuming that any outstanding convertible preferred stock was converted to common stock, the equity per common share would have been $1.93 and $1.13 at December 31, 1995 and 1994, respectively. STATEMENTS REGARDING CERIDIAN CORPORATION CONTAINED IN THIS ANNUAL REPORT, IN OTHER CERIDIAN FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, IN PRESS RELEASES AND OTHER CERIDIAN PUBLICATIONS, AND MADE BY CERIDIAN MANAGEMENT THAT ARE NOT HISTORICAL IN NATURE, PARTICULARLY THOSE THAT UTILIZE TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECTS," "ANTICIPATES," "BELIEVES" OR "PLANS," ARE FORWARD-LOOKING STATEMENTS BASED ON CURRENT EXPECTATIONS AND ASSUMPTIONS AND ENTAIL VARIOUS RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN SUCH FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS KNOWN TO CERIDIAN THAT COULD CAUSE SUCH MATERIAL DIFFERENCES ARE DISCUSSED UNDER THE CAPTION "CAUTIONARY FACTORS THAT COULD AFFECT FUTURE RESULTS" ON PAGE 11 OF THIS ANNUAL REPORT. EX-13.02 21 EXHIBIT 13.02 PAGE 6 OF ANNUAL REPORT EXHIBIT 13.02: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION INTRODUCTION On December 31, 1997, Ceridian Corporation completed the sale of its defense electronics business, Computing Devices International ("CDI"), to General Dynamics Corporation. As a result, CDI is shown as a discontinued operation in Ceridian's consolidated statements of operations, meaning that CDI's revenue, costs and expenses are not shown and its net earnings for all periods are included under the "Discontinued operations" caption. For additional information regarding CDI's results of operations, see Note B, DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS, to the consolidated financial statements. Certain continuing corporate overhead costs previously allocated to and reported as general and administrative expenses of CDI have been reclassified to Ceridian's continuing operations in the consolidated financial statements. In the discussion that follows, the term "Ceridian" refers only to Ceridian's continuing operations unless the context clearly indicates otherwise. RESULTS OF OPERATIONS For 1997, Ceridian reported net earnings of $472.4 million, or $5.92 per diluted share of common stock, on revenue of $1,074.8 million, compared to net earnings in 1996 of $181.9 million, or $2.25 per diluted share, on revenue of $942.6 million. Earnings from continuing operations in 1997 were $35.4 million, compared to 1996 earnings from continuing operations of $135.5 million. For 1995, Ceridian reported net earnings of $58.6 million, or $0.73 per diluted share, on revenue of $823.5 million, and earnings from continuing operations of $59.2 million. Included in the 1997 net earnings are earnings and a gain totaling $437.0 million from discontinued operations, representing an after tax gain of $386.3 million from the sale of CDI and CDI's 1997 net earnings of $50.7 million. Included in 1997 earnings from continuing operations are a $175.0 million income tax benefit under FAS 109 (see "Taxes and Net Operating Loss Carryforwards" below), fourth quarter unusual charges of $144.6 million, third quarter charges of $150.0 million related to the termination of the CII software development project, and a first quarter charge of $13.0 million related to the settlement of age discrimination litigation. Included in the 1995 results is a $38.9 million extraordinary loss, or $0.49 per diluted share, resulting from the refinancing of certain debt of Comdata following its acquisition by Ceridian in December 1995, $29.4 million of expenses associated with the acquisition of Comdata and $9.5 million of Comdata balance sheet adjustments recorded at the time of its acquisition. The fourth quarter 1997 charges of $144.6 million consist of $87.5 million of asset write-offs and $57.1 million in accrued liabilities, and are discussed in greater detail in Note C, SUPPLEMENTARY DATA TO STATEMENTS OF OPERATIONS, to the consolidated financial statements. These fourth quarter 1997 charges are expected to reduce future operating costs by approximately $12 million in 1998 (including $5 million in the payroll processing business) and lesser amounts thereafter, primarily due to reduced amortization and depreciation, facilities expense and compensation expense. As a result of Ceridian's 1997 recognition under FAS 109 of the future tax benefits of its net operating loss carryforwards, its operating results beginning in 1998 will be reported on a fully taxed basis, which Ceridian expects will involve an effective tax rate of approximately 37%. The impact of this change together with the unusual 1995 and 1997 items discussed above will make comparisons between Ceridian's results in 1998 with its results from continuing operations during 1995-1997 difficult. In an effort to facilitate such comparisons, Ceridian has utilized certain pro forma adjustments to calculate revised earnings figures for its continuing operations for the years 1995-1997 that it believes will offer more meaningful comparability to its future results. The most significant of these pro forma adjustments include removal of the FAS 109 tax benefit from 1997, tax effecting earnings in all periods at an assumed rate of 37%, removing all 1997 charges discussed above, removing from 1995 the extraordinary loss and the Comdata acquisition expenses and balance sheet adjustments, and assuming that CDI was sold at the beginning of each of the years for net proceeds approximately equal to the difference between CDI's revenue for that year and the approximately $100 million of CDI cash in Canada, and that those net proceeds were invested at 5.5% per annum. On this basis, Ceridian estimates that its net earnings and earnings per share would have been as follows:
1997 1996 1995 - ------------------------------------------------------------------------ Net Earnings ($ in millions) $ 123.8 $ 104.6 $ 82.9 EPS (diluted) $ 1.55 $ 1.29 $ 1.04 - ------------------------------------------------------------------------
The following table sets forth revenue for the last three years for Ceridian's principal businesses.
- --------------------------------------------------------------------------------------------------- Years ended December 31, - --------------------------------------------------------------------------------------------------- (Dollars in millions) 1997 1996 1995 change change - --------------------------------------------------------------------------------------------------- ARBITRON $ 165.2 7.9% $ 153.1 11.6% $ 137.2 Human Resource Services 578.6 18.0% 490.3 19.0% 412.2
- --------------------------------------------------------------------------------------------------- Years ended December 31, - --------------------------------------------------------------------------------------------------- (Dollars in millions) 1997 1996 1995 change change - --------------------------------------------------------------------------------------------------- Comdata Transportation Services 197.8 13.9% 173.7 11.1% 156.2 Comdata Gaming Services (1) 133.2 6.1% 125.5 6.5% 117.9 Total Revenue $ 1,074.8 14.0% $ 942.6 14.5% $ 823.5 - ---------------------------------------------------------------------------------------------------
(1) Sold to First Data Corporation in exchange for its NTS Transportation Services division and cash in January 1998. PAGE 7 OF ANNUAL REPORT The following table sets forth Ceridian's gross profit, expenses and certain other items in the consolidated statements of operations as a percentage Ceridian's total revenue for the periods indicated.
- --------------------------------------------------------------------------------------------- Years ended December 31, - --------------------------------------------------------------------------------------------- 1997 1996 1995 - --------------------------------------------------------------------------------------------- Revenue 100.0% 100.0% 100.0% Gross profit 50.9% 51.5% 51.4% Operating expenses: Selling, general & administrative 28.7% 30.2% 31.6% Research & development 5.5% 5.6% 4.6% Other expense (income) 28.8% -- 4.0% Total operating expenses 63.0% 35.8% 40.2% Earnings (loss) before interest and taxes (12.1%) 15.7% 11.2% Interest income (expense) (0.8%) (0.7%) (2.6%) Earnings (loss) before income taxes (12.9%) 15.0% 8.6% Income tax provision (benefit) (16.2%) 0.6% 1.4% Earnings from continuing operations 3.3% 14.4% 7.2% Earnings and gain from discontinued operations 40.7% 4.9% 4.6% Extraordinary loss -- -- 4.7% Net earnings 44.0% 19.3% 7.1% - ---------------------------------------------------------------------------------------------
1997 COMPARED WITH 1996 REVENUE. Revenue growth in HRS was 18.0%, but after adjusting for acquisitions made during 1996 and 1997 (see Note K, INVESTING ACTIVITY, to the consolidated financial statements), HRS' revenue growth was 13.6%. The greatest rates of internal growth in HRS involved U.S. payroll tax filing services, software sales, particularly skills management and time and attendance software, and employee assistance services. Revenue in 1997 also benefited from a 1.1 percentage point increase in the retention rate for payroll and tax filing customers. Interest income from tax filing deposits, which represents about two-thirds of tax filing revenue, increased 21.5%, about three-fourths due to increased business volume, and about one-fourth due to the earlier collection by Ceridian of such deposits in anticipation of the implementation of IRS electronic funds transfer regulations that reduce by one day the period of time certain tax filing deposits may be held. Because the general implementation of these regulations was delayed until the end of 1997, Ceridian's 1997 revenue benefited accordingly, but the benefit will not continue into 1998. Revenue from Comdata's transportation services business increased 13.9%, but after adjusting for acquisitions during 1996 and 1997, transportation services revenue grew 7.0%. The internal revenue growth in transportation, particularly during the second half of 1997, was primarily due to a 5.5% increase in the level of funds transfer transactions and increased sales of prepaid phone cards and Trendar fuel desk automation systems, reflecting favorable conditions in the trucking industry generally and increased success on Comdata's part in winning new accounts. Partially offsetting this revenue growth was a 26.4% decrease in revenue from unmatched transportation transactions, from $8.2 million to $6.0 million. Comdata's revenue from gaming services increased 6.1% overall, but decreased 1.9% after adjusting for a 1997 acquisition. The revenue performance in gaming was primarily due to an accelerating decline during the year in the number of credit card cash advance transactions over year earlier levels, largely reflecting increased use of lower fee sources of cash such as ATM machines and increasing competitive pressures that have resulted in reduced pricing and the loss of certain customers. Also contributing to the revenue decrease from credit card cash advance transactions was an increase in the average merchant discount fee on such transactions (which is netted against revenue). Partially offsetting these factors was increased revenue from ATM transactions, reflecting both transaction growth and price increases. Revenue from unmatched transactions in gaming services decreased 16.4%, from $8.6 million to $7.2 million. Comdata remains subject to an examination as to whether its treatment of unmatched transactions complies with state unclaimed property laws (see Note N, LEGAL MATTERS, to the consolidated financial statements). Arbitron's revenue in 1997 was 7.9% greater than in 1996. After adjusting for a $3.4 million revenue increase in 1996 due to a change in the revenue recognition policy of the Scarborough Research Partnership and for the acquisition of Continental Research in the fourth quarter 1997, Arbitron's revenue increased 10.0% from 1996 to 1997. Revenue from sales of radio ratings and analytical software, which comprises about 83% of Arbitron's revenue, increased 8.4%, reflecting an increased number of subscribers for ratings services and analytical software applications, price escalators in multi-year customer contracts, and generally favorable pricing in connection with renewal contracts. The increase in the number of stations that are Arbitron customers reflects a high level of both contract renewals and new business during 1997, due in large measure to consolidation in the radio broadcasting industry, as larger broadcasting groups tend to utilize Arbitron's services to a greater degree. Since consolidation within the radio broadcasting industry in the U.S. is unlikely to continue at the rate experienced in 1996 and 1997, Arbitron's rate of revenue growth from radio ratings in the U.S. is expected to moderate. Also contributing to the revenue increase was increased sales of the Scarborough Report, particularly to radio and cable broadcasters. PAGE 8 OF ANNUAL REPORT COSTS AND EXPENSES. Ceridian's gross profit margin decrease from 1996 to 1997 reflected a decrease in Comdata that was largely offset by increases in Arbitron and HRS. The decrease in Comdata was primarily due to increased agent commissions paid to gaming locations, reflecting competitive pressures; to revenue mix, as much of Comdata's revenue growth was attributable to product and service offerings and acquisitions that tend to have lower gross margins than Comdata's core funds transfer business; and to higher data processing costs. The gross margin increase in Arbitron primarily reflected revenue growth as well as additional costs in 1996 resulting from the change in SRP's revenue recognition policy. This increase in Arbitron was offset in part by 1997 increases in costs associated with data collection, reflecting an expanded number of markets measured and actions to maintain the level of survey responses. The gross margin improvement in HRS primarily reflects revenue growth overall, efforts to reduce production costs in payroll processing, and revenue mix, with higher rates of revenue growth in higher gross margin software businesses such as Resumix. The decrease in Ceridian's selling, general and administrative ("SG&A") expenses expressed as a percentage of revenue from 1996 to 1997 was due in large measure to a decrease in compensation expense associated with Ceridian's performance restricted stock plan. Also contributing to the reduction in SG&A expenses as a percentage of revenue was a sizeable decrease in selling expense as a percentage of revenue in HRS, reflecting revenue growth, lower marketing expense and efforts to better focus and coordinate sales efforts. Partially offsetting these improvements was an increase in Comdata's SG&A expenses as a percentage of revenue, primarily reflecting increased amortization of goodwill and other intangibles and increased administrative expenses related to recent acquisitions. Although Ceridian's research and development ("R&D") expenses increased proportionately with its revenue increase from 1996 to 1997, virtually all of the increase in such expenses occurred in the fourth quarter 1997. During the first nine months of 1997, R&D expenses had decreased as a percentage of revenue, primarily reflecting the consolidation of Tesseract with the U.S. payroll processing business and the resulting discontinuance of certain R&D efforts. In the fourth quarter of 1997, R&D expenses increased substantially in HRS, reflecting the development of upgrades and enhancements to existing payroll processing software, the development of a new data processing system for the tax-filing business, and efforts to make data processing systems year-2000 compliant. R&D expenses also increased modestly during 1997 as a percentage of revenue in Arbitron and Comdata, largely reflecting Arbitron's development software upgrades and increased applications development in Comdata. Because many computer programs and embedded logic devices utilize two digits rather than four to define the applicable year, they may fail to properly recognize date sensitive information when the year changes to 2000. This could result in major system failures or miscalculations. Ceridian has been conducting a comprehensive review of its products and systems to identify those that could be affected by this "year 2000" issue, and is assessing the amount and expense of programming and other efforts required to remediate or replace the affected products and systems and to upgrade or migrate customers to compliant versions of products. Ceridian's goal is to complete substantially all required remediation and replacement efforts by the end of 1998, thereby making 1999 available for fully testing the systems in normal operating environments, implementing changes across the customer base, and making any further refinements that may be needed. In addition, Ceridian is communicating with customers, suppliers, governmental agencies and others who have systems with which Ceridian's systems communicate to identify any potential year 2000 problems and Ceridian's exposure to such problems. While certain Ceridian systems are currently year 2000 compliant, future modifications to or replacements of software and hardware in the majority of Ceridian's systems will be required. A portion of these remediation and replacement efforts are expected to occur incidentally to system upgrades and replacements that were otherwise planned, such as ongoing projects involving the payroll tax filing system, aspects of Arbitron's radio ratings processing system and certain internal MIS systems with the majority of the associated costs to be capitalized and amortized (see "Financial Condition" on page 10) and the balance included in Ceridian's R&D expense budget. For the remainder of Ceridian's non-compliant systems and product offerings, Ceridian will incur year 2000 remediation and testing costs during 1998 that are currently estimated to be approximately $20 million, and which are being expensed as incurred. Additional and potentially significant year 2000 costs will be incurred during 1999 for the previously described testing and implementation efforts. These 1998 and 1999 costs are not expected to have a material effect on Ceridian's financial position or results of operations in any one period, in part because they represent the re-deployment of existing technology resources. These cost estimates are, however, subject to potentially significant estimation uncertainties that could cause actual results to differ materially from what has been discussed (see "Cautionary Factors That Could Affect Future Results - Required Year 2000 Conversion Efforts" on page 12). Ceridian's other expense in 1997 includes the previously described fourth quarter charges of $144.6 million, the $150.0 million of charges related to termination of the CII project, PAGE 9 OF ANNUAL REPORT and the $13.0 million charge to settle age discrimination litigation. Of these charges, $223.4 million were attributable to HRS, $41.0 million to Comdata, $5.0 million to Arbitron and $38.2 million were not attributed to any business unit. Also included in other expense in 1997 is the minority partner's share of the earnings of the Scarborough partnership. EARNINGS (LOSS) BEFORE INTEREST AND TAXES. As a result of the $307.6 million of charges discussed in the previous paragraph, Ceridian reported a loss before interest and taxes for 1997 of $129.7 million. Excluding these charges, Ceridian would have reported 1997 earnings before interest and taxes ("EBIT") of $178.0 million, or 16.6% of revenue, representing an increase of 20.4% over 1996 EBIT of $147.9 million, or 15.7% of revenue. Computed on that basis, EBIT as a percentage of revenue increased for HRS and Arbitron, but decreased for Comdata. INTEREST INCOME AND EXPENSE. The increase in interest expense from 1996 to 1997 reflected significant borrowings by Ceridian during the fourth quarter 1997 to repurchase shares of its common stock, while the decrease in interest income reflected lower levels of cash during 1997. TAXES AND NET OPERATING LOSS CARRYFORWARDS. Ceridian utilized $512.2 million of its net operating loss carryforwards for U.S. federal income tax purposes ("NOLs") to offset the taxable gain from the sale of CDI (except for $14.6 million in alternative minimum tax) and other taxable income during 1997. As a result, Ceridian had $437.9 million of NOLs remaining as of December 31, 1997, which will be available to offset regular taxable U.S. income during the carryforward period (through 2008). At December 31, 1997, Ceridian also had $187.9 million of expenses for financial statement reporting purposes which are expected to be deductible for federal income tax purposes in future taxable years. If unused, Ceridian's NOLs would begin to expire in 2004. In the fourth quarter 1997, Ceridian recognized the future tax benefits of its remaining NOLs and future tax deductions as income of $175.0 million for accounting purposes in accordance with FAS 109, having determined that it was more likely than not that it would generate future U.S. taxable income over a reasonable period of time in an amount sufficient to utilize those NOLs and future tax deductions. The application of FAS 109 also resulted in the balance sheet presence at December 31, 1997 of Ceridian's net deferred tax asset of $199.5 million (generally representing the application of a federal tax rate of 35% to Ceridian's remaining NOLs and future tax deductions), after elimination of a valuation allowance previously applied to fully reserve this asset. Although Ceridian's operating results will hereafter be reported on a fully taxed basis, its cash actually utilized for tax payments is expected to be approximately 3-4% of pre-tax earnings as the deferred tax asset is utilized. Although Section 382 of the Internal Revenue Code contains complex rules that place an annual limit on the amount of NOLs that a company may utilize after an "ownership change," Ceridian does not expect, given the reduction in the amount of its NOLs, the time when they would begin to expire and the level of its market capitalization, that the imposition of any such annual limit, if it were to occur, would have a material adverse effect on its ability to utilize the NOLs. 1996 COMPARED WITH 1995 REVENUE. About half of the 19.0% revenue growth in HRS was due to acquisitions made during 1996 and to a full year's revenue from the Centrefile business, purchased in October 1995. Adjusting for these acquisitions, HRS' revenue increased 9.2% from 1995 to 1996. Revenue growth computed on this basis from U.S. payroll processing and tax filing services was 8.5%, largely reflecting expansion of the payroll customer base, price increases and a higher percentage of payroll customers also purchasing tax filing services. Revenue growth from tax filing services was restrained somewhat by a decrease in the average annual yield on tax filing deposits from 5.95% in 1995 to 5.74% in 1996, although average invested tax filing balances increased 12.7%. Revenue growth adjusted for acquisitions in the other HRS businesses in the U.S. was 14.8% from 1995 to 1996, primarily reflecting revenue growth in the User Technology, Performance Partners and Resumix businesses that was partially offset by decreased revenue in Tesseract. Revenue growth from Comdata's transportation services business was 11.1%, but after adjusting for 1996 acquisitions and the net effect of the 1995 acquisition of Trendar, transportation services revenue increased 6.6%. The internal revenue growth from transportation services included substantially increased sales of Trendar systems, a 7.5% increase in funds transfer transactions with little change in the average revenue per transaction, and increased sales of telecommunications services. Partially offsetting these factors was reduced revenue from permit services, primarily due to consolidation of permit requirements among states, resulting in fewer permits to be processed. Comdata's 6.5% revenue growth in gaming services was primarily attributable to the expansion of Comdata's ATM network and resulting growth in the number of ATM cash advance transactions, the introduction of surcharges on ATM transactions, a price increase on credit card cash advance transactions during 1996, and an increase in the average size of such transactions. Revenue growth from gaming services slowed during 1996, reflecting slower growth in the gaming industry generally, increased use of lower fee sources of cash such as ATM machines, and an increase in the merchant discount rate on PAGE 10 OF ANNUAL REPORT credit card cash advances, which is netted against revenue. Comdata's revenue from unmatched transactions increased from $14.2 million in 1995 to $16.8 million in 1996, primarily due to an increase in transaction volume. Arbitron's revenue increased 11.6% from 1995 to 1996, but after adjusting for the impact of the previously discussed Scarborough revenue recognition change, Arbitron's revenue increased 8.9%. Revenue from sales of radio audience measurement services and analytical software increased 7.6%, reflecting an increased number of subscribers for ratings services and analytical software applications, due in part to consolidation in the radio broadcasting industry, and price escalators in multi-year customer contracts. Increased sales of the Scarborough Report also contributed to Arbitron's revenue increase. COSTS AND EXPENSES. Ceridian's gross margin was little changed from 1995 to 1996, as an increase in HRS was essentially offset by decreases in Comdata and Arbitron. The gross margin increase in HRS was due principally to process improvements that led to a decrease in regulatory charges for certain penalties and interest absorbed by Ceridian's tax filing operation. Comdata's increase in costs as a percentage of revenue was due largely to higher data processing costs, the increase in the merchant discount rate on credit card cash advances, an increase in agent commissions paid to gaming locations, and revenue mix. The gross margin decrease in Arbitron reflected additional costs resulting from the change in SRP's revenue recognition policy, increased costs resulting from utilizing a larger sample size in providing radio audience measurements, and efforts required to transition SRP from annual to semiannual reporting. The decrease from 1995 to 1996 in Ceridian's SG&A expenses as a percentage of revenue reflected a decrease in selling expense as a percentage of revenue that was partly offset by a percentage increase in general and administrative expenses. The decrease in selling expense as a percentage of revenue was primarily attributable to HRS, due largely to a 1996 change in the timing of sales commission recognition. The increase in general and administrative expense as a percentage of revenue was primarily attributable to acquisitions in HRS and Comdata made during late 1995 and 1996, the amortization of goodwill and intangibles associated with those acquisitions, and HRS's increased amortization of capitalized software. The increase in general and administrative expenses was, however, restrained by lower compensation expense during 1996 associated with the Company's performance restricted stock plan and lower than anticipated health and casualty insurance costs. The increase from 1995 to 1996 in Ceridian's research and development expenses as a percentage of revenue was primarily attributable to HRS, reflecting development of upgrades and enhancements to existing payroll processing, tax filing and resume tracking software as well as expenditures related to a since discontinued effort by Tesseract to develop a client/server version of its proprietary human resource information management software. The most significant factor in the decrease in Ceridian's other expenses from 1995 to 1996 was the $29.4 million of expenses associated with the 1995 acquisition of Comdata. Apart from those expenses, other expense in 1995 and 1996 primarily consisted of Arbitron's partner's share of SRP's earnings. EARNINGS BEFORE INTEREST AND TAXES. Ceridian's EBIT increased $55.7 million, or 60.3%, from 1995 to 1996, from 11.2% of revenue to 15.7% of revenue. Apart from the $29.4 million of Comdata acquisition expenses and $9.5 million of Comdata balance sheet adjustments, Ceridian's EBIT would have been 15.9% of revenue in 1995 and would have increased $16.7 million, or 12.7%, from 1995 to 1996. Computed on that basis, EBIT as a percentage of revenue increased for Arbitron, but decreased for Comdata and HRS. INTEREST INCOME AND EXPENSE. The $19.8 million decrease in interest expense from 1995 to 1996 reflected lower levels of debt and lower interest rates, primarily as a result of the December 1995 refinancing of Comdata's debt. The $5.0 million decrease in interest income primarily reflected lower levels of cash and short-term investments in 1996. TAX PROVISION. The decrease in Ceridian's income tax provision from $11.5 million in 1995 to $5.7 million in 1996 represented a reduction in the Company's effective tax rate from 16.3% to 4.0%. This reduction reflected Ceridian's ability to utilize its NOLs to offset Comdata's income after its acquisition in December 1995. FINANCIAL CONDITION During 1997, operating cash flows provided $114.6 million of cash, compared to $171.4 million in 1996 and $120.5 million in 1995. The most significant factors influencing the amount of cash utilized during 1997 in connection with working capital items were a $54.4 million increase in trade and other receivables, principally in Comdata and HRS, a $26.5 million decrease in drafts and settlements payable, and a $70.6 million increase in other current assets and liabilities. The receivables increase in HRS reflected increased business volume as well as delayed billings in the tax filing business following a billing system conversion. The receivables increase in Comdata primarily reflected business growth and the introduction of a factoring service to complement its invoicing service for trucking companies. The decrease in drafts payable was attributable to Comdata's gaming business, with drafts payable relating to the large volume of weekend transactions in that business typically clearing on Wednesday (1996 ended on a Tuesday, 1997 on a Wednesday). The largest 1997 cash PAGE 11 OF ANNUAL REPORT outlay associated with restructuring reserves was $11 million associated with the age discrimination litigation settlement. The increase in other current assets and liabilities is due principally to 1997 unusual charges remaining unpaid at year end. Investing activities provided $484.7 million of cash during 1997, reflecting the proceeds from the sale of CDI. Uses of cash for investing activities during 1997 included $82.0 million in expenditures for capital equipment, software and development costs, including $37.1 million for the CII project and for Comdata's in-house transaction processing system prior to the decisions to terminate those projects. The $30.0 million of cash utilized for acquisitions primarily involved Comdata's purchase of a provider of cash advance services to gaming patrons (see Note K, INVESTING ACTIVITY, to the consolidated financial statements). In January 1998, Ceridian's Canadian subsidiary purchased the payroll processing business of the Toronto-Dominion Bank for $35.0 million cash, of which $28.2 million was borrowed from the seller. This borrowing is guaranteed by Ceridian and effectively incorporates the terms and conditions of Ceridian's U.S. revolving credit facility. Ceridian also announced in January 1998 the signing of a letter of intent to purchase the payroll processing business of the Canadian Imperial Bank of Commerce. Ceridian expects its Canadian subsidiary to obtain seller financing of a portion of this transaction on comparable terms and conditions. Ceridian's expenditures for capital assets and software presently planned for 1998 total approximately $58 million, with about three-fourths of that amount involving HRS. Planned expenditures for 1998 include replacement of the data processing system for the tax-filing business, equipment to expand and improve service delivery capabilities in HRS, upgrades to portions of Arbitron's radio ratings processing system, and routine replacements and upgrades for existing equipment. Financing activities utilized $402.4 million of cash during 1997, primarily reflecting the payment of $279.8 million to repurchase shares of Ceridian's common stock. In addition, at December 31, 1997, Ceridian was obligated to pay an additional $17.2 million in connection with stock repurchases for which the settlement date had not yet occurred (see Note G, STOCKHOLDERS' EQUITY, to the consolidated financial statements). During 1997, Ceridian repurchased 7.6 million shares of its stock at an average price of $39.16 per share. During January and February 1998, Ceridian purchased an additional 1.8 million shares of its stock for $83.3 million, and had authorizations remaining to purchase an additional 3.9 million shares. During the course of 1997, Ceridian made payments of $144.3 million on its outstanding debt, including repaying all amounts outstanding under its domestic revolving credit facility, under three supplemental six month promissory notes given to three of the banks that are parties to the revolving credit facility, and under certain debt obligations assumed as a result of acquisitions. Borrowings under that facility and the supplemental notes had reached $390.0 million during the fourth quarter 1997 as Ceridian used loan proceeds in anticipation of proceeds from the sale of CDI to repurchase its stock. In July 1997, Ceridian concluded a $250 million revolving credit facility with a commercial bank syndicate. The credit facility is unsecured and has a final maturity of July 31, 2002. The full amount of the credit facility may be utilized for revolving loans and up to $75 million of the credit facility may be used to obtain standby letters of credit. The pricing of the credit facility for both loans and letters of credit is determined based on Ceridian's senior unsecured debt ratings. At December 31, 1997, there were no revolving loans and $2.9 million in letters of credit outstanding under the facility. The credit facility was amended effective December 2, 1997 to accommodate the fourth quarter charges recorded by Ceridian, the sale of Comdata's gaming business and the borrowings in connection with the acquisition of the Canadian payroll businesses. Terms of the credit facility as amended are summarized in Note J, FINANCING ARRANGEMENTS, to the consolidated financial statements. At December 31, 1997, Ceridian was in compliance with all covenants contained in the credit facility as amended. Ceridian's liquidity needs are expected to be met from existing cash balances, cash flow from operations, borrowings under the credit facility and borrowings by foreign subsidiaries. Ceridian expects to utilize cash from these sources to make additional purchases of its stock from time to time when such purchases are accretive to earnings, and to make acquisitions. As a result of the sale of CDI and recent stock repurchases, pooling-of-interests accounting treatment for future acquisitions will not be available to Ceridian for a period of time. CAUTIONARY FACTORS THAT COULD AFFECT FUTURE RESULTS Ceridian's future results of operations and the forward-looking statements contained in this Annual Report, in other Ceridian filings with the Securities and Exchange Commission, in press releases and other Ceridian publications, and made by Ceridian management involve a number of risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Important factors known to Ceridian that could cause such material differences are discussed in the following paragraphs. INTEREST RATE CHANGES AND INVESTMENT INCOME FROM TAX FILING DEPOSITS. Ceridian's payroll tax-filing business derives the majority of its revenue and earnings from the investment of tax filing deposits temporarily held pending remittance on PAGE 12 OF ANNUAL REPORT behalf of customers to tax filing authorities. Ceridian receives this investment income in lieu of additional fees that would otherwise be payable by tax filing customers. During 1997, the average balance of these deposits was $1,376 million, the average yield was 5.84%, and the resulting revenue to Ceridian was $80.4 million. Changes in interest rates will affect Ceridian's revenue and earnings from this source, are difficult to predict and could be significant. Ceridian has sought to lessen the impact of interest rate decreases by entering into a series of interest rate collar transactions, currently with an average floor rate of 5.4% and average cap rate of 7.4% (see Note M, COMMITMENTS AND CONTINGENCIES, to the consolidated financial statements). While Ceridian has contracted to replace two of these collar transactions, each in the notional amount of $100 million, that will expire during 1998, the floor and cap rates applicable to the replacement collars will be lower than those of the expiring collars, and the replacement collars will be subject to an early maturity date if the reference rate falls below a specified level. There can be no assurance as to the terms on which Ceridian would be able to replace future collars, or add additional collars if tax filing deposit balances increase. EFFORTS TO ENTER LOCAL FUELING MARKET. During 1997, Ceridian's Comdata subsidiary acquired the remaining equity interest in International Automated Energy Systems ("IAES"), a provider of fuel management and payment systems for local transportation fleets, to complement the products and services Comdata currently provides to the long-haul trucking industry. IAES has had a history of operating losses, and to date has not achieved widespread market acceptance of its fuel purchase card. In addition, it must transition to a replacement issuing bank for IAES fuel purchase cards during 1998, and it faces competition from its former issuing bank and others. There can be no assurance that the IAES products and services will achieve the desired level of market acceptance, that IAES will be able to transition to a replacement card issuing bank without significant disruption to its business and thereafter compete effectively, or that Comdata will achieve the projected levels of revenue and earnings from these products in 1998 and beyond. ABILITY TO INCREASE REVENUE FROM CROSS-SELLING EFFORTS AND NEW PRODUCTS. A portion of Ceridian's expected revenue growth in 1998, particularly in the transportation services and human resources businesses, is attributable to the selling of additional products and services to the existing customer base and the planned introduction of new or enhanced product and service offerings. The degree to which Ceridian is successful in these efforts depends on a variety of factors, including product and service selection, effective sales and marketing efforts, the level of market acceptance and the avoidance of difficulties or delays in development or introduction. There can be no assurance that Ceridian will achieve its revenue growth objectives from cross-selling efforts and new products. ABILITY TO IMPROVE OPERATING MARGINS IN HUMAN RESOURCE SERVICES. In addition to anticipated revenue growth, Ceridian's ability to improve profit margins in its HRS businesses depends on factors such as the degree to which and the speed with which Ceridian is able to increase operational efficiencies and reduce operating costs in those businesses, and the level of customer retention in those businesses (see "Customer Retention" below). Delays or difficulties in implementing process improvements, such as those designed to reduce printing, telecommunication and customer service costs, and in consolidating various functions could adversely affect the timing or effectiveness of cost reduction and margin improvement efforts. In addition, difficulties in effectively assimilating recent and future acquisitions could also adversely impact operating costs in HRS. CUSTOMER RETENTION. In providing human resource services, and particularly payroll processing and tax filing services, Ceridian incurs installation and conversion costs in connection with new customers that must be recovered before the contractual relationship provides incremental profit. The longer Ceridian is able to retain a customer, the more profitable that contract is likely to be to Ceridian. As Ceridian provides human resource services to larger customers, the per customer cost of installation and conversion increases on a relative basis, and the time period such customers must be retained to enable Ceridian to achieve an acceptable return from the contracts lengthens. If Ceridian were unable to achieve, on average, an acceptable retention period for these larger customers, it could have an adverse impact on Ceridian's earnings. EFFECTING SYSTEM UPGRADES AND CONVERSIONS. Ceridian is currently in or is about to begin the process of transitioning to new data processing systems and/or software in several of its business units, including systems that process customer data, such as in the payroll tax-filing business, and internal management information systems. The successful implementation of these new systems is critical to the effective delivery of products and services and the efficient operation of Ceridian's businesses. Problems or delays with the installation or initial operation of the new systems could disrupt or increase costs in connection with the delivery of services and with operations planning, financial reporting and management, and thus could have a material adverse effect on Ceridian's business and results of operations. REQUIRED YEAR 2000 CONVERSION EFFORTS. As described on page 8, Ceridian has undertaken a comprehensive program designed to ensure that necessary replacement, remediation, testing and implementation efforts are completed in a timely fashion to make its computer and other electronic systems year 2000 compliant. The cost of such efforts during the next two years could increase significantly beyond that currently PAGE 13 OF ANNUAL REPORT estimated by Ceridian due to factors such as the availability of consultants, the rate and magnitude of related labor and consulting costs, the successful identification of all aspects of systems that require remediation or replacement, the extent of testing required, and the success of third parties with whom Ceridian regularly deals in addressing their year 2000 issues. Moreover, if necessary remediation, replacement, testing and implementation efforts cannot be completed before the year 2000, resulting system failures could have a material adverse impact on Ceridian's ability to conduct its business, and consequently on its financial position and results of operations. In addition, there can be no assurance that a failure to timely effect year 2000 compliance by a third party with whom Ceridian regularly deals would not have an adverse effect on Ceridian's systems and operations. CONSOLIDATION IN RADIO BROADCASTING INDUSTRY. Consolidation in the radio broadcasting industry could put pressure on the pricing of Arbitron's radio ratings service, from which Arbitron derives a substantial majority of its total revenue. While Ceridian has sought to avoid or minimize price concessions in contract negotiations, and has experienced some success in offsetting the revenue impact of any concessions by providing ratings to additional stations within a radio group and by providing additional software and other services, there can be no assurance as to the degree to which it will be able to continue to do so. ABILITY TO ADAPT TO CHANGING TECHNOLOGY. A provider of information management and data processing services such as Ceridian must adapt and respond to technological advances offered by competitors and technological requirements of customers in order to maintain and improve upon its competitive position. For example, Ceridian believes that enhancements to its Signature payroll processing system that are planned and under development, such as improving the interface between Signature and certain widely-utilized human resource information management systems, and increasing the features and functionality of Ceridian's human resource information management offerings will be important factors in achieving continuing market acceptance for Ceridian's payroll processing and related products and services. However, there can be no assurance that new products and product enhancements can be developed and released within the time frames and at costs envisioned by Ceridian, particularly if Ceridian must divert technological resources to year 2000 remediation efforts. Significant delays, difficulties or added costs in introducing new products or enhancements, either through internal development, acquisitions or cooperative relationships with other companies, could have a material adverse effect on the market acceptance of Ceridian's products and services and the results of operations of Ceridian's businesses generally. ACQUISITION RISKS. Ceridian expects that it will continue to make acquisitions of, investments in and strategic alliances with complementary businesses, products and technologies to enable it to add products and services for its core customer base and for adjacent markets, and to expand each of its businesses geographically. However, implementation of this strategy entails a number of risks, including entry into markets in which Ceridian may have limited or no experience, diversion of management's attention from Ceridian's core businesses, potential loss of key employees or customers of the acquired businesses, additional year 2000 conversion efforts, and difficulties in assimilating the operations and products of an acquired business or in realizing projected efficiencies and cost savings. For example, while Ceridian expects to realize significant cost savings in connection with the acquisition of the NTS transportation services business, there can be no assurance that those savings will be realized in the amounts or within the time frame contemplated by Ceridian. In addition, as a result of the CDI sale and recent stock repurchases, pooling-of-interests accounting treatment for future acquisitions will likely not be available to Ceridian for a period of time. To the extent Ceridian must utilize purchase accounting for acquisitions, and given the financial characteristics of information services businesses, it may be difficult for Ceridian to avoid having acquisitions of such businesses be dilutive of earnings per share, and Ceridian may possibly incur charges, such as for the write-off of in-process research and development, as it acquires such businesses. COMPETITIVE CONDITIONS. Because the markets Ceridian serves, such as human resources and transportation, are large and attractive, new competitors could decide to enter these markets, and thereby intensify the highly competitive conditions that already exist. These new entrants could offer new technologies (see "Ability to Adapt to Changing Technology" above) or a different service model, or could treat transportation or human resource services as one component of a larger product/service offering, thereby enabling them to reduce prices on the transportation or human resources component. Any of these or similar developments could have a material adverse impact on Ceridian's business and results of operations. OTHER FACTORS. Trade, monetary and fiscal policies, and political and economic conditions may substantially change, with corresponding impacts on the industries which Ceridian serves, particularly more economically sensitive industries such as trucking. Such changes could also affect employment levels, with a corresponding impact on Ceridian's payroll processing and tax filing businesses. Ceridian's future operating results may also be adversely affected by adverse judgments, settlements, unanticipated costs or other effects of legal and administrative proceedings now pending or that may be instituted in the future. EX-13.03 22 EXHIBIT 13.03 EXHIBIT 13.03: CONSOLIDATED FINANCIAL STATEMENTS PAGE 14 OF ANNUAL REPORT REPORT OF MANAGEMENT AND INDEPENDENT AUDITORS' REPORT REPORT OF MANAGEMENT The consolidated financial statements and other related financial information of Ceridian published in this Annual Report were prepared by Company management, which acknowledges its responsibility therefor. Such statements and information were prepared in accordance with generally accepted accounting principles and were necessarily based in part on reasonable estimates, giving due consideration to materiality. Ceridian maintains a system of internal controls which, in the opinion of management, provides reasonable assurance that assets are adequately safeguarded, that financial records accurately reflect all transactions and can be relied upon in all material respects in the preparation of financial statements, and that Ceridian's business is conducted in compliance with its policy on business ethics. The control system is supported by written policies and procedures, and its effectiveness is monitored by a regular program of internal auditing. Our independent auditors, KPMG Peat Marwick LLP, in their audit of Ceridian's consolidated financial statements, considered the internal control structure of the Company to gain a basic understanding of the accounting system in order to design an effective and efficient audit approach, not for the purpose of providing assurance on the system of internal control. The Audit Committee, consisting of outside directors, is responsible to the Board of Directors for reviewing the financial controls and reporting practices and for recommending appointment of the independent auditors. The committee meets periodically with representatives of the internal audit department and the independent auditors, both with and without Ceridian management being present. Lawrence Perlman Chairman, President and Chief Executive Officer John R. Eickhoff Executive Vice President and Chief Financial Officer PAGE 15 OF ANNUAL REPORT INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders of Ceridian Corporation: We have audited the accompanying consolidated balance sheets of Ceridian Corporation and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations and cash flows for each of the years in the three-year period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the statements of operations and cash flows for the year ended December 31, 1995 of Comdata Holdings Corporation, a wholly-owned subsidiary, which statements reflect total revenues constituting 33 percent in 1995 of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the statements of operations and cash flows for the year ended December 31, 1995 for Comdata Holdings Corporation, is based solely on the report of the other auditors. 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 and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ceridian Corporation and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP Minneapolis, Minnesota January 27, 1998 PAGE 16 OF ANNUAL REPORT CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share data) -------------------------------------------- Years Ended December 31, -------------------------------------------- 1997 1996 1995 -------- -------- -------- Revenue $1,074.8 $ 942.6 $ 823.5 Cost of revenue 527.6 456.9 400.2 Gross profit 547.2 485.7 423.3 -------- -------- -------- OPERATING EXPENSES Selling, general and administrative 308.0 285.1 260.4 Research and development 59.6 52.5 38.2 Other expense (income) 309.3 0.2 32.5 EARNINGS (LOSS) BEFORE INTEREST AND TAXES (129.7) 147.9 92.2 -------- -------- -------- Interest income 2.3 3.0 8.0 Interest expense (11.2) (9.7) (29.5) EARNINGS (LOSS) BEFORE INCOME TAXES (138.6) 141.2 70.7 Income tax provision (benefit) (174.0) 5.7 11.5 EARNINGS FROM CONTINUING OPERATIONS 35.4 135.5 59.2 -------- -------- -------- Discontinued operations: Gain on sale 386.3 -- -- Earnings from operations 50.7 46.4 38.3 Extraordinary loss -- -- (38.9) NET EARNINGS $ 472.4 $ 181.9 $ 58.6 -------- -------- -------- BASIC EARNINGS PER SHARE Continuing operations $ 0.45 $ 1.80 $ 0.70 Net earnings $ 6.02 $ 2.49 $ 0.69 DILUTED EARNINGS PER SHARE Continuing operations $ 0.45 $ 1.67 $ 0.74 Net earnings $ 5.92 $ 2.25 $ 0.73 SHARES USED IN CALCULATIONS (IN THOUSANDS) Basic 78,418 67,920 66,135 Diluted 79,741 80,969 79,736 -------- -------- --------
See notes to consolidated financial statements. PAGE 17 OF ANNUAL REPORT CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except per share data) -------------------------------------------- December 31, -------------------------------------------- 1997 1996 -------- ------- ASSETS CURRENT ASSETS Cash and equivalents $ 268.0 $ 71.1 Trade and other receivables Trade, less allowance of $10.5 and $11.2 277.1 222.2 Other 40.4 26.9 Total 317.5 249.1 Current portion of deferred income taxes 117.6 -- Net assets of discontinued operations -- 124.4 Other current assets 17.0 14.4 Total current assets 720.1 459.0 -------- -------- Investments and advances 8.7 9.7 Property, plant and equipment, net 79.6 77.3 Goodwill and other intangibles, net 244.3 272.0 Software and development costs, net 9.7 106.2 Prepaid pension cost 96.7 90.2 Deferred income taxes, less current portion 81.9 -- Other noncurrent assets 2.3 2.2 -------- -------- Total assets $1,243.3 $1,016.6 -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Short-term debt and current portion of long-term obligations $ 2.2 $ 1.9 Accounts payable 57.8 28.9 Drafts and settlements payable 111.9 138.4 Customer advances 9.9 7.8 Deferred income 35.9 32.6 Accrued taxes 79.8 54.5 Employee compensation and benefits 66.1 58.0 Other accrued expenses 115.2 84.0 Total current liabilities 478.8 406.1 -------- -------- Long-term obligations, less current portion 0.8 136.3 Deferred income taxes -- 3.8 Restructure reserves, less current portion 30.8 42.0 Employee benefit plans 69.1 68.8 Deferred income and other noncurrent liabilities 75.5 13.3 -------- -------- STOCKHOLDERS' EQUITY Common Stock, $.50 par, authorized 200,000,000 shares, issued 80,842,798 and 79,789,627 40.4 39.9 Additional paid-in capital 1,156.8 1,123.4 Accumulated deficit (326.6) (798.7) Treasury common stock, 6,900,926 and 21,196 shares (271.0) (0.4) Other stockholders' equity items (11.3) (17.9) Total stockholders' equity 588.3 346.3 -------- -------- Total liabilities and stockholders' equity $1,243.3 $1,016.6 -------- --------
See notes to consolidated financial statements. PAGE 18 OF ANNUAL REPORT CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions, except per share data) -------------------------------------------- Years Ended December 31, -------------------------------------------- 1997 1996 1995 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 472.4 $ 181.9 $ 58.6 Adjustments to reconcile net earnings to net cash provided by (used for) operating activities:
Earnings from discontinued operations (50.7) (46.4) (38.3) Gain on sale of discontinued operations (386.3) -- -- Deferred income tax benefit (175.0) -- -- Extraordinary loss -- -- 38.9 Impairment loss from asset write-offs 204.4 -- -- Depreciation and amortization 60.9 57.4 49.3 Restructure reserves utilized (21.1) (14.9) (18.2) Other (5.1) (7.7) 24.4 Decrease (Increase) in trade and other receivables (54.4) 19.7 (47.0) Increase (Decrease) in accounts payable 7.0 (15.2) 4.2 Increase (Decrease) in drafts and settlements payable (26.5) (7.9) 34.2 Increase (Decrease) in employee compensation and benefits 8.0 7.7 5.4 Increase (Decrease) in accrued taxes 10.4 3.5 (2.4) Increase (Decrease) in other current assets and liabilities 70.6 (6.7) 11.4 Net cash provided by (used for) operating activities 114.6 171.4 120.5 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Expended for property, plant and equipment (44.2) (34.5) (41.0) Expended for software and development costs (37.8) (46.3) (47.1) Short-term investments -- -- 54.6 Proceeds from sales of businesses and assets 596.5 9.0 3.1 Expended for business acquisitions, less cash acquired (30.0) (30.9) (68.7) Collection of notes from asset sales 0.2 -- 10.0 Net cash provided by (used for) investing activities 484.7 (102.7) (89.1) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Revolving credit and overdrafts, net (133.1) (60.0) 193.9 Retirement of public debt -- -- (244.4) Borrowings of other debt -- -- 2.6 Repayment of other debt (11.2) (4.5) (7.3) Preferred dividends -- (13.0) (13.0) Repurchase of stock (279.8) (18.2) (6.8) Proceeds from exercise of stock options and other 21.7 30.2 13.7 Net cash provided by (used for) financing activities (402.4) (65.5) (61.3) -------- -------- -------- NET CASH FLOWS PROVIDED (USED) 196.9 3.2 (29.9) Cash and equivalents at beginning of year 71.1 67.9 97.8 Cash and equivalents at end of year $ 268.0 $ 71.1 $ 67.9 -------- -------- --------
See notes to consolidated financial statements.
Years Ended December 31, -------------------------------------------- INTEREST AND INCOME TAXES PAID (REFUNDED) 1997 1996 1995 -------- -------- -------- Interest paid $ 11.5 $ 10.0 $ 27.3 Income taxes paid $ 2.9 $ 2.1 $ 12.1 Income taxes refunded $ (0.1) $ (11.6) $ (1.8) -------- -------- --------
PAGE 19 OF ANNUAL REPORT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the three years ended December 31, 1997 INDEX TO NOTES 19 A. Accounting Policies 22 B. Discontinued Operations and Extraordinary Loss 23 C. Supplementary Data to Statements of Operations 24 D. Earnings Per Share 25 E. Income Taxes 26 F. Capital Assets 27 G. Stockholders' Equity 28 H. Retirement Plans 30 I. Stock Plans 32 J. Financing Arrangements 33 K. Investing Activity 34 L. Leasing Arrangements as Lessee 35 M. Commitments and Contingencies 36 N. Legal Matters ACCOUNTING POLICIES BASIS OF CONSOLIDATION The consolidated financial statements of Ceridian Corporation ("Ceridian") include the accounts of all majority owned subsidiaries. As further discussed in Note B, Computing Devices International ("CDI"), a division of Ceridian which formerly represented Ceridian's defense electronics segment and substantially all of its non-U.S. operations, is presented as discontinued operations. Investments in other affiliated companies where Ceridian has significant influence are accounted for by the equity method. Other investments are accounted for by the cost method. All material intercompany transactions have been eliminated from the consolidated financial statements. NEW ACCOUNTING PRONOUNCEMENTS Effective for 1997, Ceridian implemented FAS 128, "Earnings Per Share" and FAS 129, "Disclosure of Information about Capital Structure." The effect of FAS 128 is described in Note D, "Earnings Per Share." FAS 129 incorporated several existing disclosure requirements on capital structure into a single accounting standard and had no effect on Ceridian's reporting. FAS 130, "Reporting Comprehensive Income" is effective for Ceridian for all periods reported after December 31, 1997. This standard prescribes a new way of reporting and displaying the balances of and changes in certain equity accounts. FAS 130 does not affect the measurement or accounting for these accounts. Effective for the year ending December 31, 1998 and quarterly reporting thereafter, FAS 131, "Disclosures about Segments of an Enterprise and Related Information" replaces existing disclosure requirements for industry and geographic segments with requirements for annual and quarterly disclosure of information about reportable operating segments and certain geographic data. By their nature, FAS 130 and 131 will, when implemented, have no effect on Ceridian's reported operations or financial position, and Ceridian is considering alternative presentations to meet the new requirements. SEGMENT DATA AND RELATED INFORMATION Ceridian operates predominately in the information services industry and in the U.S. Ceridian's Information Services businesses collect, manage and analyze data and process transactions on behalf of customers in the human resources, transportation, gaming, and electronic media markets and report information resulting from such activities to customers. The products and services provided by these businesses address specific information management and transaction processing needs of other businesses to enable them to operate more efficiently. These products and services are typically provided through long-term customer relationships that result in a high level of recurring revenue. STOCK-BASED COMPENSATION Ceridian adopted the disclosure-only provisions of FAS 123, "Accounting for Stock-Based Compensation," effective for 1996, and these disclosures are presented in Note I, "Stock Plans." Accordingly, Ceridian continues to account for stock-based compensation under APB Opinion No. 25 and related interpretations. Therefore, compensation expense is not recorded with respect to Ceridian's fixed stock option and employee stock purchase plans, and compensation expense for performance restricted awards is recorded based on the stock price at time of vesting and for estimated future vesting. PAGE 20 OF ANNUAL REPORT USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CHANGES IN PRESENTATION Prior year amounts have been restated to present continuing operations and discontinued operations amounts separately. Additionally, certain prior year amounts have been reclassified to conform to the current year's presentation. CASH AND SHORT-TERM INVESTMENTS Investments which are readily convertible to cash within three months of purchase are classified in the balance sheet as cash equivalents. Investments, if any, with longer maturities are considered available-for-sale under FAS 115 and reported in the balance sheet as short-term investments. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are carried at cost and depreciated for financial statement purposes using straight-line and accelerated methods at rates based on the estimated lives of the assets, which are generally as follows: - ------------------------------------------------------------------------------ Buildings 40 years Building improvements 5-15 years Machinery and equipment 3-8 years Computer equipment 3-6 years - ------------------------------------------------------------------------------ Repairs and maintenance are expensed as incurred. Gains or losses on dispositions are included in results of operations. EARNINGS (LOSS) PER SHARE FAS 128, "Earnings Per Share," became effective to Ceridian for the year ended December 31, 1997 and requires restatement of all earnings per share amounts presented for prior periods. Further information is presented in Note D. GOODWILL AND OTHER INTANGIBLES Goodwill, which represents the excess purchase price over the fair value of net assets of businesses acquired, is assigned to operating units based on the benefits derived from the acquisition and amortized on a straight-line basis over the expected periods to be benefited, ranging up to 40 years. Other intangible assets represent amounts assigned to intangible assets at the time of a purchase acquisition and includes such items as customer lists and bases, technology, covenants not to compete, trademarks and other rights. Such costs are generally amortized on a straight-line basis over periods ranging up to 7 years. Recorded amounts are regularly reviewed and recoverability assessed. The review considers factors such as whether the amortization of the goodwill and other intangibles balance for each operating unit over its remaining life can be recovered through forecasted undiscounted cash flows. SOFTWARE AND DEVELOPMENT COSTS Ceridian capitalizes purchased software which is ready for service and software development costs incurred from the time technological feasibility of the software is established until the software is ready for use to provide processing services to customers. Research and development costs and other computer software maintenance costs related to software development are expensed as incurred. Software development costs are amortized using the straight-line method over a maximum of three to five years or the expected life of the product, whichever is less. The carrying value of a software and development asset is regularly reviewed by Ceridian, and a loss is recognized when the net realizable value falls below the unamortized cost. INCOME TAXES The provision for income taxes is based on income recognized for financial statement purposes and includes the effects of temporary differences between such income and that recognized for tax return purposes. Ceridian and its eligible subsidiaries file a consolidated U.S. federal income tax return. Certain subsidiaries which are consolidated for financial reporting are not eligible to be included in the consolidated U.S. federal income tax return and separate provisions for income taxes have been determined for these entities. Except for selective dividends, Ceridian intends to reinvest the unremitted earnings of its non-U.S. subsidiaries and postpone their remittance indefinitely. Accordingly, no provision for U.S. income taxes was required on such earnings during the three years ended December 31, 1997. PAGE 21 OF ANNUAL REPORT REVENUE RECOGNITION Services revenue is recognized when the services are performed and billable, except for certain services provided by Comdata and the portion of tax filing services revenue which is recognized as earned from the investment of customer funds collected for payment of taxes due. Revenue from Comdata funds transfer and regulatory permit services consists of the transaction fees charged to customers. Such revenue does not include the costs of goods and services for which funds are advanced by Comdata (e.g., fuel purchased, permit provided or face amount of the Comchek purchased and cashed). However, Comdata pays the issuing agent (e.g., truck stop or state agency) for the full cost of the goods and services provided and, accordingly, bills the customer for such cost as well as the transaction fee. As a result, Ceridian's accounts receivable includes both the cost of the goods and services purchased and the transaction fees. Ceridian's drafts and settlements payable includes the amount due to the issuing agent for the cost of the goods and services. Revenue is recognized for the amount of the transaction fee at the time the goods and services are purchased. Comdata is unable, in a very small percentage of its funds transfer transactions, to match customer remittances with specific transactions or to otherwise reconcile drafts, creating entries in its accounting system carried as credits to accounts receivable or as drafts payable. This occurs primarily because of large transaction volume, inaccurate data supplied by customers, the failure of third parties involved to utilize proper data entry procedures, and Comdata's multiple processing and accounting systems. It is Comdata's policy to take the amount of such unmatched transactions into revenue as earned for goods and services rendered if the transactions are not definitively settled within a period of twelve months through the assertion of valid claims or otherwise reconciled. PAYROLL TAX FILING SERVICES In connection with its payroll tax filing services, Ceridian collects funds for payment of taxes due, holds such funds in trust until payment is due, remits the funds to the appropriate taxing authority, files federal, state and local tax returns, handles related regulatory correspondence and amendments, and selectively absorbs regulatory charges for certain penalties and interest. For such services, Ceridian derives its payroll tax filing revenue from fees charged and from investment income it receives on tax filing deposits temporarily held pending remittance on behalf of customers to taxing authorities. The trust invests primarily in high quality collateralized short-term investments or top tier commercial paper. The trust also invests in U.S. Treasury and Agency securities, AAA rated asset-backed securities and corporate securities rated A3/A- or better. The amount of collected but unremitted funds varies significantly during the year and averaged $1,376.1 in 1997, $1,151.1 in 1996 and $1,021.6 in 1995. The amount of such funds at December 31, 1997 and 1996, was $1,697.0 and $1,523.9, respectively. TRANSLATION OF FOREIGN CURRENCIES Local currencies have been determined to be functional currencies for Ceridian's international operations. Foreign currency balance sheets are translated at the end-of-period exchange rates and earnings statements at the average exchange rates for each period. The resulting translation gains or losses are recorded as "foreign currency translation adjustment" in the stockholders' equity section of the balance sheet. Gains and losses from translation of assets and liabilities denominated in other than the functional currency of the operation are recorded in results of operations as "other expense (income)." PAGE 22 OF ANNUAL REPORT B. DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS DISCONTINUED OPERATIONS On December 31, 1997, Ceridian sold substantially all of the net assets of its Computing Devices International division ("CDI"), which comprised its defense electronics industry segment and included operations in the U.S., Canada and the United Kingdom, to General Dynamics Corporation. As a result, the gain from this sale of a segment of the business and the financial position, results of operations and cash flows of CDI are separately presented as discontinued operations, and eliminated from continuing operations amounts, in the accompanying consolidated financial statements and notes. In determining the gain from this sale of $386.3, cash proceeds of $600.0 were reduced by net assets sold of $175.3, related income taxes of $14.6 and other costs and adjustments of $23.8. In preparing the CDI summary financial information in the accompanying tables, certain general and administrative expenses for continuing Ceridian corporate overhead costs that had previously been allocated to and reported in the operating results of the defense electronics segment have been reallocated to and reported in the results for continuing operations. EXTRAORDINARY LOSS In December 1995, Ceridian recorded an extraordinary loss of $38.9, or $0.49 per diluted share, due to early retirement of debt acquired in the Comdata acquisition. The loss, which is net of an income tax benefit of $1.6, includes $6.9 to write-off unamortized debt issue costs and $33.6 for the direct costs of the tender offers and defeasance arrangements, premiums paid, and interest expense related to the defeased amount.
- ------------------------------------------------------------------------------ Years Ended December 31, - ------------------------------------------------------------------------------ CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS OF DISCONTINUED OPERATIONS 1997 1996 1995 - ------------------------------------------------------------------------------ Revenue $ 589.5 $ 553.0 $ 509.5 Cost of revenue 455.3 428.0 400.1 Gross profit 134.2 125.0 109.4 Operating expenses 75.1 73.3 67.0 Interest income (net) 2.4 3.3 3.0 Earnings before income taxes 61.5 55.0 45.4 Income tax provision 10.8 8.6 7.1 Net earnings $ 50.7 $ 46.4 $ 38.3 Basic earnings per share $ 0.65 $ 0.69 $ 0.58 Diluted earnings per share $ 0.64 $ 0.58 $ 0.48 - ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF NET ASSETS OF DISCONTINUED OPERATIONS AT DECEMBER 31, 1996 - ------------------------------------------------------------------------------ Cash and equivalents $ 98.0 Trade and other receivables, net 132.9
Inventories 43.2 Property, plant and equipment, net 51.7 Other assets 33.1 Total assets 358.9 Debt 5.9 All other liabilities 228.6 Net assets of discontinued operations $ 124.4 - ------------------------------------------------------------------------------
PAGE 23 OF ANNUAL REPORT C. SUPPLEMENTARY DATA TO STATEMENTS OF OPERATIONS The 1997 unusual charges include $13.0 in first quarter in connection with the settlement of age discrimination litigation, $150.0 in third quarter in connection with the termination of the CII payroll processing software development project, and $144.6 in fourth quarter, due principally to asset write-offs. As a result of the age discrimination litigation settlement, Ceridian paid $24.0, of which $11.0 had been charged to operations in prior years. The largest portion of these charges relates to an aggregate impairment loss from asset write-offs of $204.4 for those long-lived assets or groups of assets where the sum of such estimated future cash flows (undiscounted and without interest) is less than the carrying amount of such assets or groups of assets, including attributed portions of unallocated excess cost over net assets acquired. The amount of the impairment loss is the excess of the carrying amount of the impaired asset over the fair value of the asset. Generally, fair value represents the expected future cash flows from the use of the asset or group of assets, discounted at a rate commensurate with the risks involved. In August 1997, Ceridian announced it was terminating the development of the CII payroll processing software system because beta tests of the CII system had revealed that the costs associated with installing and processing payrolls for large numbers of customers with the system would be higher than previously anticipated, and that significant further investment would be required. As a result, Ceridian determined that the CII system would not provide an adequate return on its investment and, in light of continuing customer satisfaction with Ceridian's existing payroll processing system, elected to terminate the CII development. As a result of this action, Ceridian recorded non-recurring charges to other expense (income) of $150.0 in third quarter 1997. These charges include an impairment loss of $116.9 for the write-off of assets and related costs of $33.1, of which $13.5 remained unpaid at December 31, 1997. The costs largely relate to severance, contract termination penalties, unused facilities and incremental costs to convert beta customers from the CII system. The impairment loss consists of $104.6 of CII development costs and $12.3 for the carrying value of an intangible asset related to the CII development project and acquired as part of the acquisition of Tesseract. The fourth quarter 1997 charges of $144.6 consist of $87.5 of asset write-offs and $57.1 in accrued liabilities, of which $48.9 remained unpaid at December 31, 1997. The asset write-offs include $48.3 of the remaining goodwill and other intangible assets related to Ceridian's 1994 acquisition of Tesseract Corporation, $16.5 generally involving goodwill and other intangible assets related to several minor acquisitions and investments, $11.7 of hardware and software in Comdata, primarily reflecting a decision to discontinue efforts to bring Comdata's transaction processing systems in-house, and a $11.0 loss on the sale of Comdata's gaming services business, which closed in January 1998. The decision with regard to the Tesseract goodwill and intangible assets primarily reflected significantly diminished demand for mainframe-based payroll processing software provided by Tesseract and decisions made during 1997 to discontinue certain development efforts, such as a client/server front-end, related to the Tesseract software. The accrued liabilities include $20.6 in excess facilities and severance costs, primarily related to decisions to reduce employment levels and consolidate various functions within Human Resource Services ("HRS"), and to close two of Comdata's four call centers. They also include $36.5 in estimated costs and provisions related to legal and administrative proceedings involving Ceridian and to contract renegotiations, including the renegotiation of Comdata's contract with an external data processing provider.
- ------------------------------------------------------------------------------------------ Years Ended December 31, - ------------------------------------------------------------------------------------------ OTHER EXPENSE (INCOME) 1997 1996 1995 - ------------------------------------------------------------------------------------------ Foreign currency translation expense (income) $ 0.1 $ (1.4) $ -- Loss (Gain) on sale of assets 0.3 (0.4) 1.0 Unusual charges 307.6 -- -- Minority interest and equity in operations of affiliates 3.9 2.5 2.6 Pooling expense -- 0.1 29.7 Other expense (income) (2.6) (0.6) (0.8) Total $ 309.3 $ 0.2 $ 32.5 - ------------------------------------------------------------------------------------------
PAGE 24 OF ANNUAL REPORT D. EARNINGS PER SHARE FAS 128, "Earnings Per Share," became effective to Ceridian for the year ended December 31, 1997 and requires restatement of all earnings per share amounts presented for prior periods. Under the new standard, primary earnings per share will no longer be presented. Basic earnings per share will represent earnings, reduced by any dividends on preferred stock, divided by the weighted average number of common shares outstanding for the reporting period. Diluted earnings per share (formerly called "fully diluted") will represent earnings divided by the sum of the weighted average number of common shares outstanding plus shares derived from other potentially dilutive securities. For Ceridian, potentially dilutive securities include "in the money" fixed stock options and shares of restricted stock outstanding and, prior to 1997, the amount of common shares which would be added by conversion of the then-outstanding convertible preferred stock. The number of shares added for stock options and restricted stock is determined by the treasury stock method, which assumes exercise or vesting of these securities and the use of any proceeds from these actions to repurchase a portion of these shares at the average market price for the period. When the results of continuing operations are a loss, other potentially dilutive securities will not be included in the calculation of loss per share.
- ------------------------------------------------------------------------------------------ Years Ended December 31, - ------------------------------------------------------------------------------------------ (Shares in thousands) 1997 1996 1995 - ------------------------------------------------------------------------------------------ BASIC EARNINGS PER SHARE Earnings from continuing operations $ 35.4 $ 135.5 $ 59.2 Preferred dividends -- (13.0) (13.0) Applicable to common stock $ 35.4 $ 122.5 $ 46.2 Weighted average shares 78,418 67,920 66,135 - ------------------------------------------------------------------------------------------ EARNINGS PER SHARE FROM CONTINUING OPERATIONS $ 0.45 $ 1.80 $ 0.70 - ------------------------------------------------------------------------------------------ Net earnings $ 472.4 $ 181.9 $ 58.6 Preferred dividends -- (13.0) (13.0) Applicable to common stock $ 472.4 $ 168.9 $ 45.6 Weighted average shares 78,418 67,920 66,135 - ------------------------------------------------------------------------------------------ NET EARNINGS PER SHARE $ 6.02 $ 2.49 $ 0.69 - ------------------------------------------------------------------------------------------ DILUTED EARNINGS PER SHARE Earnings from continuing operations $ 35.4 $ 135.5 $ 59.2 Weighted average shares 78,418 67,920 66,135 Stock options 1,323 2,665 3,217 Conversion of preferred stock -- 10,384 10,384 Total dilutive shares 79,741 80,969 79,736 - ------------------------------------------------------------------------------------------ EARNINGS PER SHARE FROM CONTINUING OPERATIONS $ 0.45 $ 1.67 $ 0.74 - ------------------------------------------------------------------------------------------ Net earnings $ 472.4 $ 181.9 $ 58.6 Weighted average shares 78,418 67,920 66,135 Stock options 1,323 2,665 3,217 Conversion of preferred stock -- 10,384 10,384 Total dilutive shares 79,741 80,969 79,736 - ------------------------------------------------------------------------------------------ NET EARNINGS PER SHARE $ 5.92 $ 2.25 $ 0.73 - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ Antidilutive stock options excluded 2,746 293 171 - ------------------------------------------------------------------------------------------
PAGE 25 OF ANNUAL REPORT E. INCOME TAXES Ceridian has U.S. net operating loss carryforwards and future tax deductions of $437.9 and $187.9, respectively, which will be available to offset regular taxable U.S. income during the carryforward period (through 2008). The tax benefits of these items are reflected in the accompanying table of deferred tax assets and liabilities. If not used, these carryforwards will begin to expire in 2004. Ceridian has periodically evaluated the need for a valuation allowance against its deferred tax asset. As a result of the sale of CDI and other positive business factors which occurred during the year, Ceridian believes it is more likely than not that the deferred tax asset will be realized, primarily from future earnings. Therefore, the valuation allowance against the deferred tax asset of $427.6 as of December 31, 1996 was reduced to zero. The resulting tax benefit was allocated $207.8 to continuing operations, $191.2 to discontinued operations to offset taxes related to the sale and earnings of CDI, and the remaining $28.6 related to stock option exercises was included in paid-in capital. Under tax sharing agreements existing at the time of the disposition of certain former operations of Ceridian, Ceridian remains subject to income tax audits in various jurisdictions for the years 1985-1992. Ceridian considers its tax accruals adequate to cover any U.S. and international tax deficiencies not recoverable through deductions in future years.
- ------------------------------------------------------------------------------- COMPONENTS OF EARNINGS AND TAXES FROM CONTINUING OPERATIONS 1997 1996 1995 - ------------------------------------------------------------------------------- EARNINGS BEFORE INCOME TAXES U.S. $(134.1) $ 145.4 $ 71.0 International (4.5) (4.2) (0.3) Total $(138.6) $ 141.2 $ 70.7 INCOME TAX PROVISION (BENEFIT) Current U.S. $ -- $ 2.7 $ 11.3 State and other 1.0 1.8 0.2 1.0 4.5 11.5 Deferred U.S. 32.8 0.8 -- U.S. valuation reserve benefit (207.8) -- -- State and other -- 0.4 -- (175.0) 1.2 -- Total $(174.0) $ 5.7 $ 11.5 - -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- EFFECTIVE RATE RECONCILIATION 1997 1996 1995 - ------------------------------------------------------------------------------- U.S. statutory rate 35% 35% 35% Income tax provision at U.S. statutory rate $ (48.5) $ 49.4 $ 24.7 Alternative minimum tax -- 3.5 1.3 State income taxes, net 1.0 2.2 0.2 Goodwill 44.7 3.3 2.1 Benefit of net operating loss carryforwards (175.0) (48.7) (20.2) Other 3.8 (4.0) 3.4 - ------------------------------------------------------------------------------- Income tax provision (benefit) $(174.0) $ 5.7 $ 11.5 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
TAX EFFECT OF ITEMS THAT COMPRISE A SIGNIFICANT PORTION OF THE NET DEFERRED TAX ASSET AT DECEMBER 31, 1997 - ------------------------------------------------------------------------------- DEFERRED TAX ASSET Net operating loss carryforwards $ 153.3 Restructuring and other accruals 62.2 Other 2.5 Total 218.0 DEFERRED TAX LIABILITY Employment related accruals (14.0) Other (4.5) Total (18.5) Net deferred tax asset $ 199.5 Current portion $ 117.6 Noncurrent portion 81.9 Net deferred tax asset $ 199.5 - -------------------------------------------------------------------------------
PAGE 26 OF ANNUAL REPORT F. CAPITAL ASSETS
- ------------------------------------------------------------------------------- December 31, - ------------------------------------------------------------------------------- 1997 1996 - ------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT Land $ 1.5 $ 1.3 Machinery and equipment 185.7 166.7 Buildings and improvements 42.9 41.2 Construction in progress 4.3 1.6 234.4 210.8
- ------------------------------------------------------------------------------- December 31, - ------------------------------------------------------------------------------- 1997 1996 - ------------------------------------------------------------------------------- Accumulated depreciation (154.8) (133.5) Property, plant and equipment, net $ 79.6 $ 77.3 - ------------------------------------------------------------------------------- GOODWILL AND OTHER INTANGIBLES Goodwill $ 228.7 $ 238.2 Accumulated amortization (38.7) (37.1) Goodwill, net 190.0 201.1 Other intangible assets 64.5 83.1 Accumulated amortization (10.2) (12.2) Other intangibles, net 54.3 70.9 Goodwill and other intangibles, net $ 244.3 $ 272.0 - ------------------------------------------------------------------------------- SOFTWARE AND DEVELOPMENT COSTS Purchased software $ 31.1 $ 23.4 CII development cost -- 83.6 Other software development cost 15.5 19.5 46.6 126.5 Accumulated amortization (36.9) (20.3) Software and development costs, net $ 9.7 $ 106.2 - -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- Years Ended December 31, - ------------------------------------------------------------------------------- DEPRECIATION AND AMORTIZATION 1997 1996 1995 - ------------------------------------------------------------------------------- Depreciation and amortization of property, plant and equipment $ 33.3 $ 31.5 $ 27.5 Amortization of goodwill 13.5 11.1 8.8 Amortization of other intangibles 7.6 6.3 3.4 Amortization of software and development costs 10.6 11.0 9.1 Other amortization (4.1) (2.5) 0.5 Total $ 60.9 $ 57.4 $ 49.3 - -------------------------------------------------------------------------------
PAGE 27 OF ANNUAL REPORT G. STOCKHOLDERS' EQUITY PREFERRED STOCK Ceridian called for redemption, effective December 31, 1996, its outstanding 51/2% Cumulative Convertible Exchangeable Preferred Stock, par value $100 per share (the "51/2% Preferred Stock") and the related 4,720,000 Depositary Shares, each representing a one one-hundredth interest in a share of the 51/2% Preferred Stock. The redemption price for each Depositary Share was $51.10 plus accrued and unpaid dividends. As a result of the call, holders converted their Depositary Shares into shares of Ceridian common stock in late December 1996 at a rate of 2.2 common shares for each Depositary Share. Dividends on the 51/2% Preferred Stock for fourth quarter 1996 were paid to holders of record notwithstanding the conversion. The calculation of 1996 diluted earnings per share is not affected by the conversion. COMMON STOCK During 1997, the amount of Ceridian common stock authorized by Ceridian's board of directors to be repurchased was increased from 2 million to 14 million shares, and Ceridian greatly increased its repurchases in response. As a result, 7,586,151 shares were repurchased during 1997 at an average cost of $39.16 per share for a total cost of $297.0, of which $279.8 was paid in 1997. This expenditure was financed primarily through borrowing under Ceridian's revolving credit facilities, which were repaid on December 31, 1997 from the proceeds of the sale of CDI, as discussed in Note J.
- ----------------------------------------------------------------------------------------------------------------------------------- COMMON STOCK, Shares Additional - ----------------------------------------------------------------------------------------------------------------------------------- ADDITIONAL PAID-IN CAPITAL Treasury Common Paid-In Accumulated Treasury AND ACCUMULATED DEFICIT Outstanding Stock Issued Stock Capital Deficit Stock - ----------------------------------------------------------------------------------------------------------------------------------- Balance December 31, 1994 66,722,779 113,530 66,836,309 $33.4 $1,073.9 $(998.7) $ (2.4) - ----------------------------------------------------------------------------------------------------------------------------------- Repurchase of common shares (192,000) 192,000 (4.7) Exercises of stock options 613,376 (168,267) 445,109 0.3 3.2 5.3 Restricted stock awards, net 94,327 (89,327) 5,000 13.8 0.2 Employee Stock Purchase Plan 38,954 38,954 1.4 Net earnings 58.6 Preferred stock dividends (13.0) Comdata stock transactions 14.3 Dividends on Comdata stock (10.8) - ----------------------------------------------------------------------------------------------------------------------------------- Balance December 31, 1995 67,277,436 47,936 67,325,372 33.7 1,106.6 (963.9) (1.6) - ----------------------------------------------------------------------------------------------------------------------------------- Repurchase of common shares (391,514) 391,514 (18.2)
- ----------------------------------------------------------------------------------------------------------------------------------- COMMON STOCK, Shares Additional - ----------------------------------------------------------------------------------------------------------------------------------- ADDITIONAL PAID-IN CAPITAL Treasury Common Paid-In Accumulated Treasury AND ACCUMULATED DEFICIT Outstanding Stock Issued Stock Capital Deficit Stock - ----------------------------------------------------------------------------------------------------------------------------------- Exercises of stock options 1,680,655 (428,183) 1,252,472 0.6 6.3 19.1 Restricted stock awards, net (60,946) 66,250 5,304 1.1 (3.0) Employee Stock Purchase Plan 174,139 (68,965) 105,174 3.1 3.3 Net earnings 181.9 Preferred stock dividends (13.0) Preferred stock conversion 10,383,995 10,383,995 5.2 (0.5) Acquisitions 685,524 12,644 698,168 0.4 5.9 (3.7) Settlement of directors' retirement benefits 19,142 19,142 0.9 - ----------------------------------------------------------------------------------------------------------------------------------- Balance December 31, 1996 79,768,431 21,196 79,789,627 39.9 1,123.4 (798.7) (0.4) - ----------------------------------------------------------------------------------------------------------------------------------- REPURCHASE OF COMMON SHARES (7,586,151) 7,586,151 (297.0) EXERCISES OF STOCK OPTIONS 747,178 (574,226) 172,952 0.1 (7.9) 21.7 TAX BENEFIT FROM STOCK OPTIONS 28.6 RESTRICTED STOCK AWARDS, NET (169,425) 172,625 3,200 0.7 (6.3) EMPLOYEE STOCK PURCHASE PLAN 239,169 (177,612) 61,557 0.9 6.6 NET EARNINGS 472.4 Acquisitions 942,670 (127,208) 815,462 0.4 11.1 (0.3) 4.4 - ----------------------------------------------------------------------------------------------------------------------------------- Balance December 31, 1997 73,941,872 6,900,926 80,842,798 $40.4 $1,156.8 $(326.6) $(271.0) - -----------------------------------------------------------------------------------------------------------------------------------
Authorized but unissued or treasury common shares reserved for future issuance as of December 31, 1997, included 9,058,077 shares for exercise of stock options and future awards of stock-based compensation and 47,738 shares for the Employee Stock Purchase Plan, as discussed in Note I.
- ------------------------------------------------------------------------------- December 31, - ------------------------------------------------------------------------------- OTHER STOCKHOLDERS' EQUITY ITEMS 1997 1996 1995 - ------------------------------------------------------------------------------- Foreign currency translation adjustment $ 2.0 $ 0.4 $ (2.4) Restricted stock awards (3.8) (12.0) (21.9) Pension liability adjustment (9.5) (6.3) (5.2) - ------------------------------------------------------------------------------- Total $(11.3) $(17.9) $(29.5) - -------------------------------------------------------------------------------
PAGE 28 OF ANNUAL REPORT H. RETIREMENT PLANS PENSION BENEFITS Ceridian maintains a defined benefit pension plan for U.S. employees which closed to new participants effective January 1, 1995. A virtually identical plan for U.S. employees of Computing Devices International was assumed by the purchaser of that division, and amounts in the accompanying tables do not include that plan or any other retirement plan related to discontinued operations. Assets of the Ceridian defined benefit plan consist principally of equity securities, U.S. government securities, and other fixed income obligations and do not include securities issued by Ceridian. Benefits under the plan are calculated on maximum or career average earnings and years of participation in the plan. Employees participate in this plan by means of salary reduction contributions. Certain former employees are inactive participants in the plan. There were no employer cash contributions to this plan in 1997, but such contributions totaled $5.0 in each of 1996 and 1995. Retirement plan funding amounts are based on independent consulting actuaries' determination of the Employee Retirement Income Security Act of 1974 ("ERISA") funding requirements. Ceridian and the plan were defendants in class action litigation in which the plaintiffs alleged that the lump sum benefits they had received from the plan had not been calculated correctly. In October 1997, settlement of this litigation was approved by the U.S. District Court in Minnesota, and payment by the plan of its share of the $51.8 settlement amount was made. The funded status of the plan as shown in the accompanying table reflects the payment by the plan of its share of this settlement amount. Ceridian also sponsors a nonqualified supplemental retirement plan. The projected benefit obligations at September 30, 1997 and 1996 for this plan were $23.4 and $20.7, respectively, and the net periodic pension cost was $2.3 for 1997, $2.2 for 1996, and $2.3 for 1995. The related intangible asset included in prepaid pension cost was $3.3 at December 31, 1997 and 1996. The cost recognized by Ceridian with respect to its defined contribution retirement plans was $6.7 in 1997, $5.4 in 1996, and $3.6 in 1995.
- ------------------------------------------------------------------------------- FUNDED STATUS OF DEFINED BENEFIT September 30, - ------------------------------------------------------------------------------- RETIREMENT PLANS AT MEASUREMENT DATE 1997 1996 - ------------------------------------------------------------------------------- Actuarial present value of obligation: Vested benefit obligation $ 524.2 $ 529.1 Accumulated benefit obligation $ 524.3 $ 529.2 Projected benefit obligation $ 542.7 $ 549.1 Plan assets at fair value 620.3 573.6 Plan assets in excess of projected benefit obligation 77.6 24.5 Unrecognized net (gain) loss (3.5) 48.7 Prior service cost 16.0 19.5
- ------------------------------------------------------------------------------- FUNDED STATUS OF DEFINED BENEFIT September 30, - ------------------------------------------------------------------------------- RETIREMENT PLANS AT MEASUREMENT DATE 1997 1996 - ------------------------------------------------------------------------------- Unrecognized net (asset) liability 3.3 (5.8) Net pension asset recognized in the consolidated balance sheet $ 93.4 $ 86.9 - -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- ASSUMPTIONS USED IN CALCULATIONS: 1997 1996 1995 - ------------------------------------------------------------------------------- Discount rate 7.75% 7.75% 7.50% Rate of salary progression 4.50% 4.50% 4.50% Long-term rate of return on assets 9.50% 9.50% 9.00% - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NET PERIODIC PENSION COST (CREDIT) 1997 1996 1995 - ------------------------------------------------------------------------------- Service cost $ 1.7 $ 1.6 $ 1.3 Interest cost on projected benefit obligation 42.6 40.0 40.0 Actual return on plan assets (132.8) (54.0) (82.7) Net amortization and deferral 81.9 6.3 37.9 Total $ (6.6) $ (6.1) $ (3.5) - -------------------------------------------------------------------------------
PAGE 29 OF ANNUAL REPORT POSTRETIREMENT BENEFITS Ceridian provides health care and life insurance benefits for eligible retired employees, including individuals who retired from operations of Ceridian that were subsequently sold or discontinued. Ceridian sponsors several health care plans in the U.S. for both pre- and post-age 65 retirees. Company contributions to these plans differ for various groups of retirees and future retirees. Most retirees outside the United States are covered by governmental health care programs, and Ceridian's cost is not significant. The following tables present the funded status and the components of the net periodic postretirement benefit cost for the plans. Ceridian does not prefund these costs. In 1997, funded status was affected by a reduction in plan participants as a result of the sale of CDI. The resulting curtailment gain of $3.4 was recognized in the gain on sale. The assumed health care cost trend rate used in measuring the benefit obligation is 11% pre-age 65 and 7% post-age 65 in 1997, declining at a rate of 1% per year to an ultimate rate of 5.75% in 2003 pre-age 65 and 1999 post-age 65. A one percent increase in this rate in each year would increase the benefit obligation at December 31, 1997 by $3.5 and the aggregate service and interest cost for 1997 by $0.3. The weighted average discount rates used in determining the benefit obligation at December 31, 1997 and 1996 are 7.0% and 7.5%, respectively.
- ------------------------------------------------------------------------------- FUNDED STATUS OF POSTRETIREMENT HEALTH CARE AND LIFE PLANS - ------------------------------------------------------------------------------- December 31, - ------------------------------------------------------------------------------- 1997 1996 - ------------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $38.4 $42.0 Fully eligible active participants 4.5 3.6 Other active participants 5.6 7.3 48.5 52.9 Unrecognized net gain 3.1 3.1 Accrued benefits cost $51.6 $56.0 - ------------------------------------------------------------------------------- Current portion $ 6.0 $ 6.0 Noncurrent portion 45.6 50.0 Total $51.6 $56.0 - -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- NET PERIODIC POSTRETIREMENT BENEFIT COST - ------------------------------------------------------------------------------- 1997 1996 1995 - ------------------------------------------------------------------------------- Service cost $ 0.2 $0.2 $ 0.2 Interest cost 3.6 3.4 3.8 Other (0.7) 0.3 (1.0) Net periodic benefit cost $ 3.1 $3.9 $ 3.0 - -------------------------------------------------------------------------------
PAGE 30 OF ANNUAL REPORT I. STOCK PLANS Amounts presented in this note to the consolidated financial statements include amounts related to discontinued operations, unless otherwise stated. During the three-year period ended December 31, 1997, Ceridian provided stock-based compensation plans for directors, officers and other employees. The 1996 Director Performance Incentive Plan authorizes the issuance of up to 125,000 shares in connection with awards of stock options and non-performance restricted stock to non-employee directors of Ceridian. An annual grant of an option to purchase 1,500 shares (2,000 shares beginning in 1998) is made to each eligible director with such grants becoming fully exercisable six months after the date of grant. The exercise price of the options is the fair market value of the underlying stock at the date of grant, and the options expire in ten years. A one-time award of non-performance restricted shares is made to each outside director when the director first joins the Board. The number of shares awarded will have a fair market value equal to four times (2.5 times beginning in 1998) the then current annual retainer paid to non-employee directors. The restrictions on transfer will ordinarily lapse ratably over a five-year period. The 1993 Long-Term Incentive Plan as amended ("1993 LTIP") authorizes the issuance until December 31, 1999 of up to 9,000,000 common shares in connection with awards of stock options and restricted stock to executives and other key employees. Options remain outstanding under a predecessor plan subject to similar terms. The 1994 Stock Option Plan authorizes the issuance of up to 500,000 common shares in connection with awards of stock options to key employees of businesses acquired by Ceridian. Stock options awarded under these plans generally vest annually over a three-year period, have 10-year terms and have an exercise price that may not be less than the fair market value of the underlying stock at the date of grant. Under the terms of the 1993 LTIP, senior executives were awarded performance restricted shares, which have generally been eligible to vest in installments during 1996, 1997 and 1998, provided the executive is still employed by Ceridian on the vesting dates. Of these shares, 251,620 vested during 1996 and 4,665 vested during 1997. Vesting occurs only to the extent that the total return to holders of Ceridian common stock over two, three and four year performance periods ending on April 30 in those years meets certain prescribed levels as compared to other companies in the S&P 500. Of the shares eligible to vest on any given date, generally 25% of the shares would vest if Ceridian's total return to stockholders over the performance period is at least at the 60th percentile of companies in the S&P 500, 50% would vest at the 75th percentile, and 100% would vest at the 90th percentile. If the 60th percentile is not achieved, no shares would vest. Shares which have not yet vested as of the end of the final performance period in 1998 will be forfeited. The number of performance restricted shares outstanding as of December 31, 1997 was 422,314.
- ----------------------------------------------------------------------------------------------------------------------------- STOCK PLANS - ----------------------------------------------------------------------------------------------------------------------------- Weighted- Average Option Price Available Exercise Price Per Share Outstanding Exercisable for Grant of Outstanding At December 31, 1994 $ 7.09 - $31.74 4,213,554 1,352,783 557,065 - ----------------------------------------------------------------------------------------------------------------------------- Authorized 3,000,000 Resumix conversion 1.77 - 35.40 104,642 32,448 Comdata conversion 10.52 - 30.04 1,083,136 584,248 Granted 24.13 - 45.50 1,049,282 (1,049,282) Became exercisable 2.65 - 34.88 1,012,481 Exercised 1.77 - 26.38 (613,376) (613,376) Canceled 2.65 - 41.25 (141,906) (1,481) 129,824 Expired 16.27 (3,574) (3,574) Restricted stock, net (97,500) - ----------------------------------------------------------------------------------------------------------------------------- At December 31, 1995 $ 1.77 - $45.50 5,691,758 2,363,529 2,540,107 $21.29 - ----------------------------------------------------------------------------------------------------------------------------- Authorized 125,000 EAS conversion 6.17 50,327 49,233 Granted 37.25 - 52.25 1,560,925 (1,560,925) 47.52 Became exercisable 2.65 - 47.25 1,119,502 Exercised 1.77 - 41.25 (1,680,655) (1,680,655) 14.11 Canceled 2.65 - 50.75 (317,242) (3,608) 269,628 31.38 Expired 21.05 - 21.06 (3,551) (3,551) (18,000) 21.05 Restricted stock, net 63,946 Directors' retirement (19,142) Performance units (20,000) - ----------------------------------------------------------------------------------------------------------------------------- At December 31, 1996 $ 1.77 - $52.25 5,301,562 1,844,450 1,380,614 $30.55 - ----------------------------------------------------------------------------------------------------------------------------- AUTHORIZED 3,000,000 GRANTED 30.63 - 44.75 2,252,750 (2,252,750) 40.25 BECAME EXERCISABLE 2.65 - 52.25 1,469,328 EXERCISED 2.65 - 44.75 (747,178) (747,178) 18.16 CANCELED 2.65 - 50.75 (676,790) (35,210) 631,191 42.25 EXPIRED 16.16 (6,747) (6,747) 16.16 RESTRICTED STOCK, NET 169,425 Performance units forfeited 6,000 - ----------------------------------------------------------------------------------------------------------------------------- At December 31, 1997 $ 1.77 - $52.25 6,123,597 2,524,643 2,934,480 $34.35 - -----------------------------------------------------------------------------------------------------------------------------
PAGE 31 OF ANNUAL REPORT The employee plans also provide for the accelerated exercisability of options and the accelerated lapse of transfer restrictions on restricted stock if a participant's employment terminates for specified reasons within two years of a change of control of Ceridian. In June 1995, Ceridian adopted the Employee Stock Purchase Plan ("ESPP") which provides for the issuance of up to 500,000 shares of newly issued or treasury common stock of Ceridian to eligible employees. The purchase price of the stock to plan participants is 85% of the lesser of the fair market value on either the first day or the last day of the applicable three-month offering period. The acquisitions of EAS Technologies in 1996 and Comdata and Resumix in 1995 resulted in the assumption by Ceridian of the stock option plans of those companies and the conversion of stock options under those plans into Ceridian stock options as indicated in the table on the previous page. As reported in Note A, Ceridian adopted the disclosure-only provisions of FAS 123 and continues to account for stock-based compensation as in prior years. Therefore, no expense is recorded with respect to Ceridian's stock option or employee stock purchase plans, and compensation expense of $(2.4) in 1997, $7.2 in 1996, and $9.6 in 1995 was charged to continuing operations in connection with restricted stock awards. Including discontinued operations, the amounts would be $(0.8), $8.7 and $11.3 in the respective years. The following disclosure is provided with respect to the provisions of FAS 123. Ceridian employs the Black-Scholes option pricing model for determining the fair value of stock option grants, restricted stock awards and ESPP purchases, as presented in an accompanying table. Weighted-average exercise prices for 1997 and 1996 stock option activity and options outstanding at December 31, 1997, 1996 and 1995 are included in the Stock Plans table on the previous page. Further information on outstanding and exercisable stock options by exercise price range as of December 31, 1997 is disclosed in an accompanying table. Ceridian is required to report the pro forma effect on net earnings and earnings per share which would have resulted if the fair-value method of accounting for stock-based compensation issued in those years had been adopted. The application of the fair-value method would have resulted in the determination of compensation cost for grants of stock options and purchases under the ESPP and would have eliminated the repricing of unvested awards of other equity instruments from the related compensation cost. Such compensation cost would then be allocated to the related period of service. The results of this calculation and the assumptions used appear in the table above. Since 1995 stock option grants largely occurred in November and are amortized forward over the expected lives, the pro forma effect on 1995 earnings will not be comparable with those in subsequent years.
- --------------------------------------------------------------------------------------------- STOCK OPTION INFORMATION AS OF DECEMBER 31, 1997 - --------------------------------------------------------------------------------------------- Options Outstanding Options Exercisable Weighted- Average Weighted- Weighted- Remaining Average Average Range of Number Contractual Exercise Number Exercise Exercise Prices Outstanding Life Price Exercisable Price - --------------------------------------------------------------------------------------------- $ 1.77 - $14.75 847,334 4.41 $12.69 821,640 $12.67 $14.19 - $33.38 1,385,453 6.65 $23.21 1,004,630 $21.93 $33.63 - $40.00 1,343,972 9.60 $39.32 47,975 $36.23 $40.63 - $42.88 1,340,943 8.76 $42.18 267,852 $41.89 $43.00 - $52.25 1,205,895 8.77 $48.10 382,546 $48.46 - --------------------------------------------------------------------------------------------- $ 1.77 - $52.25 6,123,597 7.80 $34.35 2,524,643 $25.33 - ---------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------- WEIGHTED-AVERAGE FAIR VALUES OF GRANTS, AWARDS AND PURCHASES - --------------------------------------------------------------------------------------------- 1997 1996 SHARES FAIR VALUE Shares Fair Value - --------------------------------------------------------------------------------------------- Stock options 2,252,750 $13.80 1,560,925 $13.46 Other equity instruments -- -- 86,000 $31.29 ESPP 239,169 $ 4.79 174,139 $ 4.41 - ---------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------- PRO FORMA EFFECT OF FAIR VALUE ACCOUNTING 1997 1996 1995 - --------------------------------------------------------------------------------------------- Pro forma compensation cost $ 9.9 $ 11.4 $ 1.2 Pro forma effect on earnings per share $ 0.12 $ 0.14 $ 0.02 WEIGHTED-AVERAGE ASSUMPTIONS Expected lives in years 4-8 4-8 4-8 Expected volatility 32.7% 26.0% 26.0% Expected dividend rate -- -- -- Risk-free interest rate 5.3% 6.0% 6.0% - ---------------------------------------------------------------------------------------------
PAGE 32 OF ANNUAL REPORT J. FINANCING ARRANGEMENTS In July 1997, Ceridian concluded a $250.0 revolving credit facility with a commercial bank syndicate. The credit facility is unsecured and has a final maturity of July 31, 2002. The full amount of the credit facility may be utilized for revolving loans and up to $75.0 of the credit facility may be used to obtain standby letters of credit. The pricing of the credit facility for both loans and letters of credit is determined based on Ceridian's senior unsecured debt ratings. At December 31, 1997, there were no revolving loans and $2.9 in letters of credit outstanding under the facility. The credit facility was amended effective December 2, 1997 to accommodate certain third and fourth quarter 1997 unusual charges recorded by Ceridian, the expected sale of Comdata's gaming business and borrowings in connection with planned acquisitions. Under the terms of the credit facility as amended, Ceridian's consolidated debt must not exceed its stockholders' equity as of the end of any fiscal quarter, and the ratio of Ceridian's EBIT (the calculation of which does not include most of Ceridian's fourth quarter 1997 charges or the CII-related charges) to interest expense on a rolling four quarter basis must be at least 2.75 to 1. At December 31, 1997, the ratio of consolidated debt to stockholders' equity was .005 to 1, and the EBIT to interest expense ratio was 15 to 1. The credit facility also limits liens, subsidiary debt, contingent obligations, operating leases, minority equity investments and divestitures. At December 31, 1997, Ceridian was in compliance with all covenants contained in the credit facility as amended. During the course of 1997, Ceridian made payments of $144.3 on its outstanding debt, including repaying all amounts outstanding under its domestic revolving credit facility, under three supplemental six month promissory notes given to three of the banks that are parties to the revolving credit facility, and certain debt obligations assumed as a result of acquisitions.
- ------------------------------------------------------------------------------ December 31, - ------------------------------------------------------------------------------ DEBT OBLIGATIONS 1997 1996 - ------------------------------------------------------------------------------ Revolving credit agreements and overdrafts $ 1.9 $ 135.0 Other long-term debt obligations 1.1 3.2 Total debt obligations 3.0 138.2 Less short-term debt and current portions of long-term debt 2.2 1.9 Long-term obligations, less current portions $ 0.8 $ 136.3 - ------------------------------------------------------------------------------
PAGE 33 OF ANNUAL REPORT K. INVESTING ACTIVITY On December 31, 1997, Ceridian sold its Computing Devices International division. Further information on this transaction is provided in Note B. On January 19, 1998, Ceridian sold its Comdata gaming services business to First Data Corporation in exchange for First Data's NTS transportation services business and $50.0 in cash. During 1997, Ceridian acquired or invested in seven small businesses. The three acquisitions associated with Comdata included a provider of cash advance services to the gaming industry, a fuel management services provider and the step acquisition of the remaining interest in International Automated Energy Systems ("IAES"), a provider of fuel management and payment systems for local trucking fleets. The two acquisitions associated with HRS included a provider of human resources management and benefits software and a provider of interactive, self-service applications to facilitate human resources administration. Arbitron acquired a market research firm in the United Kingdom and invested in a company that seeks to gather data regarding credit card usage. With one exception, all the acquisitions were accounted for by the purchase method. The aggregate consideration for these acquisitions and investments consisted of $30.0 in cash, assumption of $8.6 of debt, and 942,670 shares of Ceridian's common stock. Goodwill recorded for these transactions was $40.2. The 1996 revenue of the acquired operations was approximately $30.6. During 1996, Ceridian acquired or invested in nine small businesses, using both the pooling and purchase methods of accounting. The six acquisitions associated with HRS included providers of employee assistance and work-life services, a payroll processor in the United Kingdom, a provider of time and attendance software and providers of human resource management software and expert systems. The two acquisitions associated with Comdata included a provider of funds transfer and fuel purchase services and a provider of permit and vehicle escort services to trucking companies. Comdata also made a minority investment in IAES. The aggregate consideration for these acquisitions and investments and related advances consisted of $30.9 in cash and 698,168 shares of Ceridian's common stock. Ceridian's financial statements prior to the date of these pooling acquisitions were not restated because the aggregate effect for any period would not be material. In 1995, Ceridian acquired Comdata and Resumix in subsidiary merger transactions that resulted in the issuance of 20,472,176 and 849,010 shares of Ceridian common stock, respectively. The mergers qualified as tax-free reorganizations and were accounted for by the pooling-of-interests method. Accordingly, Ceridian's financial statements were restated to include the results of Comdata and Resumix as if the mergers had taken place on the first day of the earliest reported period. In connection with the mergers, Ceridian incurred $29.7 in pooling expenses, including fees for investment bankers and legal firms in addition to other acquisition costs. In purchase transactions during 1995, Ceridian acquired the assets of the Centrefile personnel and payroll services business in the United Kingdom for $52.1 in cash, and Comdata acquired the stock of Trendar Corporation, which provides fuel desk automation systems, for $12.7 in cash and a $1.5 note which was paid in March 1996. Comdata also sold the net assets of its retail services division, which provided check authorization and collection services, for $3.5 in cash. PAGE 34 OF ANNUAL REPORT L. LEASING ARRANGEMENTS AS LESSEE Ceridian conducts a substantial portion of its operations in leased facilities. Most such leases contain renewal options and require payments for taxes, insurance, and maintenance. Ceridian remains secondarily liable for future rental obligations related to assigned leases totaling $15.8 at December 31, 1997. Ceridian does not anticipate any material non-performance by the assignees of these leases, which principally involve Control Data Systems, Inc. and Seagate Technology, Inc. Virtually all leasing arrangements for equipment and facilities are operating leases and the rental payments under these leases are charged to operations as incurred. The amounts in the accompanying tables do not include assigned leases or obligations recorded as liabilities. The amounts of rental expense and sublease income for each of the three years ended December 31, 1997 appear in the following table. Future minimum noncancelable lease payments and related sublease income, on operating leases existing at December 31, 1997 which have an initial term of more than one year, are described in the following table.
- ------------------------------------------------------------------------------ RENTAL EXPENSE 1997 1996 1995 - ------------------------------------------------------------------------------ Rental expense $ 38.8 $ 39.2 $ 40.4 Sublease rental income (1.7) (1.6) (2.5) Net rental expense $ 37.1 $ 37.6 $ 37.9 - ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------ FUTURE MINIMUM LEASE PAYMENTS - ------------------------------------------------------------------------------ Sublease Lease Rental Payments Income Net - ------------------------------------------------------------------------------ 1998 $35.1 ($1.1) $34.0 1999 31.8 (1.1) 30.7 2000 27.5 (1.0) 26.5 2001 23.2 (1.0) 22.2 2002 14.8 (0.4) 14.4 Thereafter 40.0 -- 40.0 - ------------------------------------------------------------------------------
PAGE 35 OF ANNUAL REPORT M. COMMITMENTS AND CONTINGENCIES COMMITMENTS In connection with the 1997 termination of its CII software development project, Ceridian terminated a technology services agreement with IBM Global Services ("IBM"), the successor to Integrated Systems Solutions Corporation ("ISSC"), under which IBM was to have provided centralized computer processing services utilizing the CII software as required by Ceridian's payroll processing business and recorded a charge of $6.1. Comdata contracted with ISSC in 1991 for substantially all data processing functions for a term of ten years. In 1995, the agreement was amended (and extended to 2005) to change the minimum monthly payment to $1.6 in 1996 and $1.4 thereafter. The amount of expense incurred under this contract was $17.6 in 1997, $16.0 in 1996, and $13.9 in 1995. In late 1997 the parties executed a letter of intent under which IBM will assume and perform certain additional responsibilities and duties for and on behalf of Comdata. In consideration of the revised terms, Comdata paid a fee of $8.2, which is included in the fourth quarter 1997 unusual charges. The parties are in the process of finalizing an agreement incorporating the terms of the letter of intent discussed above. Under the terms of the new agreement it is expected that the minimum monthly fee in 1998 will rise to $1.65. Cancellation of the agreement for convenience in 1998 would require payment of a termination fee of $10.2. Under a Telecommunications Services Agreement with WorldCom, renewed in 1995 and amended in 1996, Comdata agreed to purchase a minimum of $13.0 of long distance services and 80% of such services (as defined) up to $24.0 each year until 2003. In September 1997, Comdata entered into a new Telecommunications Services Agreement with WilTel (WorldCom's wholesale services subsidiary) which replaced the WorldCom agreement. Under this new Agreement, Comdata agreed to purchase a minimum of $1.1 of telecommunications services each month until 2003; provided however, Comdata is able to terminate its minimum commitment at such time as it has purchased an aggregate of $45.0 in telecommunications services under this Agreement. Cancellation of this Agreement for convenience would result in a cancellation charge equal to 12.5% of the average monthly revenue during the last 12 months times the number of full months remaining in the term of such Agreement. In 1997 purchases charged to expense under the old WorldCom Agreement and the new WilTel Agreement amounted to $20.3. Purchases charged to expense under the old WorldCom Agreement amounted to $22.5 in 1996 and $18.5 in 1995. INTEREST RATE COLLARS During 1997, Ceridian maintained in effect an average notional amount of collars of $733.4 for the purpose of hedging interest rate risk on invested customer deposits held in its tax filing trust. The counterparties to these arrangements are commercial banks with debt ratings of A or better. Under current accounting standards, neither the collar arrangements nor the related trust investments and offsetting liability to customers are reflected in Ceridian's balance sheets. These arrangements, which do not require collateral, provide for the banks to pay Ceridian the amount by which a certain index of short-term interest rates falls below a specified floor strike level. Alternatively, when that index exceeds a specified cap strike level, Ceridian pays out the excess above the cap strike level. At December 31, 1997, Ceridian had nine collar transactions in effect with an aggregate notional amount of $800.0, remaining terms of 5 to 41 months, floor strike levels ranging from 5% to 6% (averaging 5.44%) and cap strike levels ranging from 5.97% to 8.18% (averaging 7.41%). The risk of accounting loss through non-performance by the counterparties under any of these arrangements is considered negligible. OTHER MATTERS In connection with the spin-off of Control Data Systems, Ceridian agreed to indemnify the U.S. Pension Benefit Guaranty Corporation ("PBGC") if the Control Data Systems defined benefit pension plan is terminated in a distress termination and the PBGC is unable to recover the full amount of any unfunded benefit liabilities. The amount of this contingent liability decreased from $12.0 to $8.0 on July 31, 1997 and will continue to decrease by $4.0 on each of July 31, 1998 and 1999. Ceridian monitors all such contingent liabilities and has established reserves for those which it believes are probable of payment. With respect to these contingent obligations, Ceridian believes that there is not a material exposure to an accounting loss as of December 31, 1997. PAGE 36 OF ANNUAL REPORT N. LEGAL MATTERS SECURITIES LITIGATION Ceridian and ten of its current and former executive officers have been named as defendants in a consolidated class action complaint filed by five Ceridian shareholders in U.S. District Court in Minnesota. The lawsuit arises out of Ceridian's announcement, on August 26, 1997, that it had decided to terminate further development of its CII payroll processing software system. The plaintiffs, who purport to act on behalf of a class of purchasers of Ceridian common stock during the period from January 23, 1996 to August 26, 1997, allege that the defendants violated federal and state securities laws and state consumer fraud laws by publicly disseminating false and misleading statements regarding Ceridian and concealing adverse information about Ceridian, with the effect of artificially inflating the market price of Ceridian's common stock, and by selling Ceridian common stock while in possession of material non-public information about Ceridian. The consolidated complaint specifically alleges that the defendants provided false and misleading information regarding the development of the CII system and the positive impact that system would have on Ceridian's future operations, concealed problems with the development of the CII system, and improperly capitalized the costs of the CII development effort, thereby overstating Ceridian's financial results during the development period. The complaint does not specify an amount of damages claimed. Ceridian believes that the complaints filed against it and the individual defendants are without merit and will vigorously defend this action. UNCLAIMED PROPERTY EXAMINATION Comdata's services for the trucking and gaming industries have required it to process millions of transactions annually over its network. In processing these transactions, Comdata's management control and monitoring systems seek to match customer remittances with individual transactions and to reconcile individual drafts received for payment so as to prevent the unauthorized payment of funds on behalf of a customer. Primarily because of the large transaction volume, inaccurate data supplied by customers, the failure of third parties involved in the transactions to utilize proper data entry procedures, and Comdata's multiple processing and accounting systems, Comdata is unable, in a very small percentage of these transactions, to match customer remittances with specific transactions or to otherwise reconcile drafts. This inability to match certain transactions or reconcile specific drafts creates entries in Comdata's accounting system that may appear to reflect amounts owed to third parties, but which may, in fact, simply reflect items that do have offsetting (but unmatched) entries in Comdata's accounting system, such as in bad debt write-off or charge-back accounts. It is Comdata's policy to take the amount of such unmatched transactions into revenue as earned for goods and services rendered if the transactions are not definitively settled within a period of twelve months through the assertion of valid claims or otherwise reconciled. It has been Comdata's experience that an insignificant number of claims for unmatched transactions are asserted after such twelve month period. The amount of unmatched transactions included in Comdata's 1997, 1996 and 1995 revenue was $13.2 million, $16.8 million and $14.2 million, respectively. In late 1996, Comdata was advised that the Unclaimed Property Division of the State Street Bank and Trust Company of Boston has been retained by 48 states and the District of Columbia to examine Comdata's records and to collect any applicable abandoned property on behalf of the governmental entities. During 1997, State Street conducted several on-site examinations at Comdata, and Comdata retained Ceridian's independent outside auditors to assess its accounting, management control and monitoring systems as they relate to unmatched transactions. The auditor's preliminary report to Comdata, which was provided to State Street, concluded that the accounting records which set forth the amounts of unmatched transactions taken into revenue by Comdata do not supply reliable evidence that such amounts are owed to third parties. The extent of Comdata's potential liability, if any, to states under unclaimed property laws or to customers with respect to such unmatched transactions, or the impact of any future changes in Comdata's accounting policies with respect to such transactions, is not presently determinable. OTHER MATTERS Ceridian is also involved in a number of other judicial and administrative proceedings considered normal in the nature of its current and past operations, including employment-related disputes, contract disputes and tort claims. It is anticipated that final disposition of some of these proceedings may not occur for several years. In the opinion of management, the final disposition of these proceedings will not, considering the merits of the claims and available reserves, have a material adverse effect on Ceridian's financial position or results of operations. EX-13.04 23 EXHIBIT 13.04 PAGE 37 OF ANNUAL REPORT EXHIBIT 13.04: SUPPLEMENTARY QUARTERLY DATA (UNAUDITED)
(Dollars in millions, except per share data) - ---------------------------------------------------------------------------------------------------------------------------------- 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------------- 4TH 3RD 2ND 1ST 4th 3rd 2nd 1st QUARTER QUARTER QUARTER QUARTER Quarter Quarter Quarter Quarter - ---------------------------------------------------------------------------------------------------------------------------------- Revenue $282.5 $266.6 $261.8 $263.9 $251.3 $230.9 $226.2 $234.2 Cost of revenue 138.9 132.4 130.2 126.1 119.6 114.4 111.0 111.9 - ---------------------------------------------------------------------------------------------------------------------------------- GROSS PROFIT 143.6 134.2 131.6 137.8 131.7 116.5 115.2 122.3 Selling, general and administrative 73.5 79.8 79.2 75.5 78.5 69.0 68.5 69.1 Research and development 20.2 13.3 11.9 14.2 13.3 14.4 12.5 12.3 Other expense (income) (1) 144.4 150.4 1.0 13.5 (0.7) (0.7) 0.9 0.7 - ---------------------------------------------------------------------------------------------------------------------------------- EARNINGS (LOSS) BEFORE INTEREST AND TAXES (94.5) (109.3) 39.5 34.6 40.6 33.8 33.3 40.2 Interest income 0.9 0.4 0.5 0.5 0.8 0.5 0.8 0.9 Interest expense (5.1) (2.0) (2.0) (2.1) (2.2) (2.3) (2.3) (2.9) - ---------------------------------------------------------------------------------------------------------------------------------- EARNINGS (LOSS) BEFORE INCOME TAXES (98.7) (110.9) 38.0 33.0 39.2 32.0 31.8 38.2 Income tax provision (benefit) (2) (174.8) (0.8) 1.0 0.6 2.5 0.5 1.4 1.3 - ---------------------------------------------------------------------------------------------------------------------------------- EARNINGS (LOSS) FROM CONTINUING OPERATIONS 76.1 (110.1) 37.0 32.4 36.7 31.5 30.4 36.9 Discontinued operations (3) Gain on sale 386.3 -- -- -- -- -- -- -- Earnings from operations 11.4 16.4 11.5 11.4 12.6 12.9 10.4 10.5 - ---------------------------------------------------------------------------------------------------------------------------------- NET EARNINGS (LOSS) $473.8 $ (93.7) $ 48.5 $ 43.8 $49.3 $ 44.4 $ 40.8 $ 47.4 - ---------------------------------------------------------------------------------------------------------------------------------- EARNINGS (LOSS) PER SHARE (4) BASIC Continuing operations $ 1.02 $ (1.39) $ 0.46 $ 0.41 $0.49 $ 0.42 $ 0.40 $ 0.50 Net earnings $ 6.34 $ (1.18) $ 0.60 $ 0.55 $0.67 $ 0.61 $ 0.55 $ 0.66 DILUTED Continuing operations $ 1.00 $ (1.39) $ 0.45 $ 0.40 $0.45 $ 0.39 $ 0.38 $ 0.46 Net earnings $ 6.23 $ (1.18) $ 0.60 $ 0.54 $0.61 $ 0.55 $ 0.50 $ 0.59 SHARES USED IN CALCULATIONS (IN THOUSANDS) Basic 74,691 79,189 80,192 79,599 68,619 68,034 67,878 66,941 Diluted 76,052 79,189 81,450 81,015 81,312 80,777 81,018 80,506 - ---------------------------------------------------------------------------------------------------------------------------------- COMMON STOCK - PER SHARE Market price ranges (5) High 473/4 455/8 435/8 421/2 531/8 513/8 547/8 467/8 Low 351/4 321/8 291/2 321/4 39 5/84 15/8 421/2 37 1/8 No cash dividends have been declared on common stock during the periods presented. - ----------------------------------------------------------------------------------------------------------------------------------
(1) Includes 1997 unusual charges of $144.6 in fourth quarter, $150.0 in third quarter and $13.0 in first quarter. (2) For information on the FAS 109 tax benefit from the reduction of the deferred tax asset valuation reserve, see Note E. (3) For information on discontinued operations, see Note B. (4) For information on the calculation of basic and diluted earnings (loss) per share, see Note D. (5) From the New York Stock Exchange - Composite Transactions Listing. EX-21 24 EXHIBIT 21 EXHIBIT 21 CERIDIAN CORPORATION SUBSIDIARIES MARCH 15, 1998 STATE OR OTHER JURISDICTION SUBSIDIARIES AND THEIR AFFILIATES: OF INCORPORATION - ---------------------------------- ----------------- Archco, Inc. Minnesota Atrium Empowerment, Inc. Ohio (f/k/a Innovative Business & Training Solutions, Inc.) Ceridian Canada Holdings, Inc. Delaware Ceridian Canada Ltd. Canada Ceridian Holdings U.K. Limited United Kingdom Centre-file Limited (f/k/a Datacarrer Limited) United Kingdom CSW Research Limited United Kingdom Comdata Holdings Corporation Delaware Comdata Network, Inc. Maryland Cashcall Systems, Inc. Canada Comdata Network Inc. of California California Comdata Telecommunications Services, Inc. Delaware Permicom Permits Services, Inc. Canada EAS Technologies Inc. Delaware FLX Corporation Pennsylvania International Automated Energy Systems, Inc. Florida Minidata Services, Inc. New Jersey Partnership Group, Inc., The Pennsylvania Resumix, Inc. California Scarborough Research (General Partnership) Delaware Tesseract Corporation California User Technology Services Inc. New York Certain subsidiaries, which in the aggregate would not constitute a significant subsidiary, are omitted from this listing. EX-23.01 25 EXHIBIT 23.01 EXHIBIT 23.01 CONSENT OF INDEPENDENT AUDITORS The Board of Directors of Ceridian Corporation: We consent to incorporation by reference in Registration Statements Nos. 33-49601, 33-61551, 33-34035, 2-97570, 2-67753, 33-56833, 33-15920, 2-81865, 2-93345, 33-26839, 33-54379, 33-56325, 33-61001, 33-62319, 33-64913, 333-01793, 333-01887, 333-03661 and 333-28069 on Form S-8 of Ceridian Corporation and in Registration Statement No. 33-56351 on Form S-4 of Ceridian Corporation of our reports dated January 27, 1998. Such reports relate to the consolidated financial statements and related financial statement schedule of Ceridian Corporation and subsidiaries as of December 31, 1997 and 1996 and for each of the years in the three-year period ended December 31, 1997 and are included or incorporated by reference in the 1997 Annual Report on Form 10-K of Ceridian Corporation. /s/ KPMG Peat Marwick LLP ------------------------- KPMG Peat Marwick LLP Minneapolis, Minnesota March 20, 1998 EX-23.02 26 EXHIBIT 23.02 EXHIBIT 23.02 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated January 20, 1996 on the consolidated financial statements of Comdata Holdings Corporation incorporated by reference into Ceridian Corporation's Form 10-K for the year ended December 31, 1997, and into Ceridian Corporation's previously filed Registration File Nos. 33-49601, 33-61551, 33-34035, 2-97570, 2-67753, 33-56833, 33-15920, 2-81865, 2-93345, 33-26839, 33-54379, 33-56325, 33-61001, 33-62319, 33-64913, 333-01793, 333-01887, 333-03661, 333-28069 and 33-56351. It should be noted that we have not audited any financial statements of Comdata Holdings Corporation subsequent to December 31, 1995 or performed any audit procedures subsequent to the date of our report. /s/ Arthur Andersen LLP ----------------------- ARTHUR ANDERSEN LLP Nashville, Tennessee March 20, 1998 EX-24 27 EXHIBIT 24 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, a Director of Ceridian Corporation (the "Company"), a Delaware corporation, do hereby make, nominate and appoint JOHN R. EICKHOFF, GARY M. NELSON and JOHN A. HAVEMAN, and each of them, to be my attorney in fact for three months from the date hereof, with full power and authority to sign his name on Ceridian's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, to be filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended; provided that such Form 10-K is first reviewed by the Audit Committee of the Board of Directors of Ceridian and by my attorney in fact; and his name, when thus signed, shall have the same force and effect as though I had manually signed such Form 10-K. IN WITNESS WHEREOF, I have signed this Power of Attorney as of February 5, 1998. /s Lawrence Perlman /s/ Charles Marshall - ----------------------------------- ---------------------------------------- Lawrence Perlman Charles Marshall /s/ Ruth M. Davis /s/ Carole J. Uhrich - ----------------------------------- ---------------------------------------- Ruth M. Davis Carole J. Uhrich /s/ Richard G. Lareau /s/ Richard W. Vieser - ----------------------------------- ---------------------------------------- Richard G. Lareau Richard W. Vieser /s/ George R. Lewis /s/ Paul S. Walsh - ----------------------------------- ---------------------------------------- George R. Lewis Paul S. Walsh /s/ Ronald T. Lemay - ----------------------------------- Ronald T. Lemay 9 EX-27.1 28 EXHIBIT 27.1
5 1,000 YEAR DEC-31-1997 DEC-31-1997 268,000 0 328,000 10,500 0 720,100 234,400 154,800 1,243,300 478,800 800 40,400 0 0 547,900 1,243,300 0 527,600 309,300 0 309,300 0 11,200 (138,600) (174,000) 35,400 437,000 0 0 472,400 6.02 5.92
EX-27.2 29 EXHIBIT 27.2
5 1,000 YEAR YEAR DEC-31-1996 DEC-31-1995 DEC-31-1996 DEC-31-1995 71,100 0 0 0 260,300 0 11,200 0 0 0 459,000 0 210,800 0 133,500 0 1,016,600 0 406,100 0 136,300 0 39,900 0 0 0 0 0 306,400 0 1,016,600 0 0 0 942,600 823,500 0 0 456,900 400,200 200 32,500 0 0 9,700 29,500 141,200 70,700 5,700 11,500 135,500 59,200 46,400 38,300 0 (38,900) 0 0 181,900 58,600 2.49 0.69 2.25 0.73
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