-----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, QI/d3ZMPEplKVOeKikNP1QdIJRZY0eFXBPUzMpd2q+oPRJrFFRmqsod16+jerarB 9KNMuRxP1yUaMkpY+LWSIg== 0000931763-98-002357.txt : 19980904 0000931763-98-002357.hdr.sgml : 19980904 ACCESSION NUMBER: 0000931763-98-002357 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19980531 FILED AS OF DATE: 19980903 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL DATA CORP CENTRAL INDEX KEY: 0000070033 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 580977458 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 001-12392 FILM NUMBER: 98703909 BUSINESS ADDRESS: STREET 1: NATIONAL DATA COPRORATION STREET 2: NATIONAL DATA PLAZA CITY: ATLANTA STATE: GA ZIP: 30329 BUSINESS PHONE: 4047282000 MAIL ADDRESS: STREET 1: NATIONAL DATA PLZ CITY: ATLANTA STATE: GA ZIP: 30329-2010 10-K405/A 1 FORM 10-K405/A - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A AMENDMENT NO. 1 --------------- (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MAY 31, 1998 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO . COMMISSION FILE NO. 001-12392 NATIONAL DATA CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) --------------- DELAWARE 58-0977458 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) NATIONAL DATA PLAZA ATLANTA, GEORGIA 30329-2010 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (404) 728-2000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ------------------- ------------------------ Common Stock, Par Value $.125 Per Share New York Stock Exchange, Inc. Junior Preferred Stock Purchase Rights New York Stock Exchange, Inc. 5% Convertible Subordinated Notes due 2003 New York Stock Exchange, Inc.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None (TITLE OF CLASS) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Indicate by check mark if disclosure of delinquent filer pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant was $1,133,157,032 based upon the last reported sale price on The New York Stock Exchange on September 1, 1998 using beneficial ownership of stock rules adopted pursuant to Section 13 of the Securities Exchange Act of 1934 to exclude voting stock owned by all directors and officers of the registrant, some of whom may not be held to be affiliates upon judicial determination. The number of shares of the registrant's common stock, par value $.125, outstanding as of September 1, 1998 was 33,756,622 shares. DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT FORM 10-K -------- --------- Portions of the Company's Definitive Proxy Part III Statement relating to the 1998 Annual Meeting of Stockholders to be held on October 22, 1998
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NATIONAL DATA CORPORATION 1998 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS ----------------- PART I - ------ Item 1. BUSINESS............................................. 3 Item 2. PROPERTIES........................................... 15 Item 3. LEGAL PROCEEDINGS.................................... 16 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................... 16 EXECUTIVE OFFICERS OF THE REGISTRANT.......................... 17 PART II - ------- Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...................... 19 Item 6. SELECTED FINANCIAL DATA.............................. 19 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.... 19 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................ 19 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......... 19 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE........... 19 Part III - -------- Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT....................................... 20 Item 11. EXECUTIVE COMPENSATION.............................. 20 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................... 20 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...... 20 PART IV - ------- Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.............................. 21 SIGNATURES.................................................... 27 APPENDIX A.................................................... 28 SPECIAL CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS When used in this Annual Report on Form 10-K, in documents incorporated herein and elsewhere by management or National Data Corporation ("NDC" or the "Company") from time to time, the words "believes," "anticipates," "expects" and similar expressions are intended to identify forward-looking statements concerning the Company's business operations, economic performance and financial condition, including in particular, the Company's business strategy and means to implement the strategy, the Company's objectives, the amount of future capital expenditures, the likelihood of the Company's success in developing and introducing new products and expanding its business, and the timing of the introduction of new and modified products or services. For those statements, the Company claims the protection of the safe harbor for forward looking statements contained in the Private Securities Litigation Reform Act of 1995. These statements are based on a number of assumptions and estimates which are inherently subject to significant risks and uncertainties, many of which are beyond the control of the Company and reflect future business decisions which are subject to change. A variety of factors could cause actual results to differ materially from those anticipated in the Company's forward-looking statements, including the following factors: (a) those set forth in Exhibit 99.1 to this Annual Report on Form 10-K and elsewhere herein; and (b) those set forth from time to time in the Company's press releases and reports and other filings made with the Securities and Exchange Commission. The Company cautions that such factors are not exclusive. Consequently, all of the forward-looking statements made herein are qualified by these cautionary statements and readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release the results of any revisions of such forward-looking statements that may be made to reflect events or circumstances after the date hereof, or thereof, as the case may be, or to reflect the occurrence of unanticipated events. 2 PART I ------ Item 1. BUSINESS - ----------------- GENERAL National Data Corporation (together with its subsidiaries, herein referred to as the "Company" or "NDC") is a Delaware corporation that was incorporated in 1967. The Company is a leading provider of high volume information services and systems to the health care and electronic commerce markets. The Company serves a diverse customer base comprised of almost 120,000 health care providers, 1,000 health care payers, 3,600 payer plans, 1,250,000 merchant terminals, 13,000 corporations and more than 700 financial institutions, as well as numerous federal and state government agencies. The Company markets its services directly to retailers and health care providers, payers, pharmaceutical manufacturers and others, and indirectly through business alliances with a wide range of banks, insurance companies and distributors. The Company is one of the largest independent providers of health care information and electronic commerce services in the world. NDC's Health Information Services offers a broad scope of products and services that serve a diverse range of health care markets. The primary products and services include electronic claims processing and adjudication services, practice management systems, electronic data interchange ("EDI") services, billing services, business office management services and data warehousing/analysis. The primary markets include pharmacists, dentists, physicians, hospitals, health maintenance organizations, managed care companies, pharmaceutical manufacturers and distributors, as well as other health care providers. Management believes that NDC's Health Information Services business unit is the broadest collector, processor and distributor of information to more segments of the health care industry than any other single health information services provider. For fiscal 1998, approximately 55% of the Company's total revenue was derived from the Company's health care information systems and services, which represent the fastest growing portion of the Company's business. The Company's Electronic Commerce business unit offers a complete range of services to assist customers with the movement of electronic payment and financial information. These services primarily include merchant and cardholder processing, credit and debit transaction processing, check guarantee and verification, electronic authorization and capture, terminal management services, portfolio risk management, purchase card services and financial electronic data interchange ("FEDI"). The primary markets include global and domestic financial institutions, corporations, alliance partners, federal and state governmental agencies, universities, lodging, restaurants, retail businesses and health care providers. The Company's Electronic Commerce business represented approximately 45% of the Company's total revenue for fiscal 1998. 3 The Company's products and services offer a wide range of value-added information with greater convenience to purchasers and providers of goods and services. These products and services reduce processing costs, settlement delays and losses from fraudulent transactions. NDC's advanced high speed computer and telecommunications network enables the Company to electronically process, capture and transmit a high volume of point-of-service transactions 24 hours a day, seven days a week. While the transition from paper-based to electronic transaction processing continues, the earliest and most significant penetration has occurred in the areas of credit card authorization and settlement and pharmacy transaction processing. NDC believes that the rapid transition to electronic transaction processing in these areas demonstrates the potential for automation of other market segments, requiring timely information, which are still dominated by paper-based processing, such as additional health care applications, check and cash transactions and the transfer of information between businesses. The Company's business strategy is to be an end-to-end solutions provider of value-added systems and services in the markets it serves. NDC believes that both the health care and electronic commerce markets present attractive opportunities for continued growth. In pursuing its strategy, the Company seeks both to increase its penetration of existing applications and to continue to identify and create new markets for its services. The Company will also continue to seek to enhance existing products and develop, as well as acquire, new systems and services; such as services relating to credit card issuing services, financial electronic data interchange and health care information management services. To support its business strategy, the Company has expanded its focus on acquisition opportunities and alliances with other companies that allow NDC to increase its market penetration, technological capabilities, product offerings and distribution capabilities. In fiscal year 1998, six (6) purchase acquisitions (one (1) of which was closed by Physician Support Systems, Inc. ("PHSS") prior to December 19, 1997) were completed which gave NDC expanded capabilities and customer bases in the informational services, pharmacy systems, physician, and electronic commerce markets. The most significant of these acquisitions was on December 15, 1997, when the Company acquired two related healthcare information management businesses based in Phoenix, Arizona. In this transaction the Company acquired the stock of Source Informatics Inc., a privately held company, and the stock of a subsidiary of Pharmaceutical Marketing Services Inc. ("PMSI"), which holds its Over-The-Counter Physician Survey business unit as well as PMSI's interest in a joint venture it formed with Source Informatics Inc (collectively "Source"). In addition, on December 19, 1997, the Company merged with PHSS in a pooling-of-interests transaction, to expand geographic presence and market share in physician and hospital management services. During fiscal year 1997, the Company completed ten (10) acquisitions (four (4) of which were closed by PHSS prior to December 19, 1997). 4 INDUSTRY BACKGROUND Advances in computer software, hardware and telecommunications technology have aided the development of on-line, real-time information processing systems that electronically capture and transmit high volumes of information. These advances in technology allow information processors to offer greater convenience to purchasers and providers of goods and services and reduce processing costs, settlement delays and losses from fraudulent transactions. HEALTH CARE MARKET The health care sector of the market for information services and systems is growing rapidly due to the need of employers, health care payers and providers to control costs and to improve quality of care. A high percentage of health care transactions are still processed using manual, paper-based methods. Third party payers, managed care companies and health care providers continue to seek methods to automate processing and obtain information in order to reduce costs and improve the quality of health care services. The Company believes the health care industry is one of the largest untapped markets for electronic information processing services, including the electronic transmission and capture of data for on-line eligibility verification and reimbursement for services. The application of technology to improve the flow of information to address the quality of patient care is expanding as well. Since the late 1980s, electronic processing technology has been applied to the transmission and capture of data for pharmacy claims and transaction processing. This technology has been adapted to the processing of other health care data, including a variety of transactions for dentists, physicians and hospitals. The Company believes that the ability to offer total end-to-end solutions is an important competitive advantage as automated transaction processing and the availability of information in the health care market continues to grow. As electronic processing of health care claims accelerates, the Company believes it will be important for companies to be able to offer integrated, value-added services and systems to industry participants who continue to automate. Included in the market's requirements are practice management systems, contract management, referrals, eligibility verification and outsourcing capabilities, as well as new information processing services. The market includes, among others, managed care companies, payers, pharmaceutical manufacturers, and providers in the health care markets. Consistent with this strategy, the Company acquired Conceptual Systems in January 1996, and C.I.S. Technologies, Inc. ("CIS") in May 1996. In fiscal 1997, the Company acquired Equifax Health EDI Services, Inc. and Health Communication Services, Inc. These acquisitions provided additional penetration of the physician and hospital electronic transaction markets and expanded the scope of the Company's health care product offerings to include managed care software and services and accounts receivable and business office consulting and outsourcing services. With the CIS merger, the Company became the 5 worldwide leader in hospital electronic claims processing services. That position was strengthened by the acquisition of Health Communication Services, Inc. The Company's position in the physician market was expanded by those as well as the acquisition of the Equifax Health EDI business. In the merger with C.I.S. Technologies, Inc., the Company gained presence and capability in the delivery of hospital billing and accounts receivable management services. In fiscal 1998, the Company increased its geographic presence and market share in hospital management services and expanded into physician management services, with the merger with PHSS, to position NDC as a leading provider of information services in both the hospital business office and physician markets. In addition, the Company acquired Source Informatics Inc., a major provider of information services to pharmaceutical manufacturers and other segments of the health care industry. This strategic acquisition expanded the Company's information management services capabilities, introducing new data collection, database management and analytical modeling. Further, the Company established a strong presence in the United Kingdom, with the acquisitions of Chemtec Systems Limited and Hadley Hutt Computing Limited in July 1997. These acquisitions have been subsequently integrated with previous NDC internal programs addressing complimentary products and services. ELECTRONIC COMMERCE MARKET Electronic transaction processing for the electronic commerce market involves transaction authorization, data capture and settlement for credit and debit cards, check verification and guarantee services, financial electronic data interchange and electronic cash management. Most retail credit card transactions are no longer processed through paper-based systems and are instead electronically authorized, with an increasing number electronically settled as well. The Company believes that the number of transactions will continue to grow and that an increasing percentage of these transactions will be processed electronically due to convenience, efficiency and a desire to reduce fraud and other processing costs in a continually growing number of vertical markets in the U.S. and internationally. The Company believes that there are significant opportunities for continued growth in the application of electronic transaction processing services to the electronic commerce market. Utilization of debit cards as a general payment mechanism for goods and services continues to increase. Smart cards are also becoming more widely accepted. The Company is also seeing good growth in the check verification/guarantee areas. There is also significant potential for growth in the use of credit and debit cards in other traditional cash payment markets such as fast-food restaurants, gaming establishments, cinemas and convenience stores. The increased use of credit and debit cards for such transactions is primarily driven by the convenience they provide as well as the ability to efficiently track expenses and purchase activity. The continued rapid expansion of the Internet also provides potential growth opportunities for electronic payment applications. In addition, the 6 Company believes the proliferation of affinity or co-branded cards that provide consumers with added benefits should contribute to increased use of credit and debit cards and the growth of the electronic commerce market. Purchasing cards provide business-to-business credit card acceptance for industries that have not traditionally utilized credit cards. Purchasing cards replace the paper ordering, invoicing and payment processing with electronic transactions. This market continues to grow and provide excellent opportunities. Other service providers similar to the Company provide high volume electronic transaction processing and support services directly to banking institutions and other new entrants into the business. The shift in the industry from traditional financial institution providers to independent providers is due in large part to more efficient distribution channels as well as the increased technological capabilities required for the rapid and efficient creation, processing, handling, storage and retrieval of information. These technological capabilities have become increasingly complex, requiring significant capital commitments to develop, maintain and update the systems necessary to provide these technologically advanced services at a competitive price. As a result, several large merchant processors, including the Company, have expanded their operations through the creation of alliances or joint ventures with banks and acquisitions of new merchant accounts from banks who previously serviced those accounts. In addition, many small information processing organizations are consolidating with larger service providers. In addition to services that enable merchants to accept credit and debit cards, the market continues to expand to include increasing levels of check verification and guarantee services. Demand for these services has been growing in recent years as merchants seek to reduce losses related to bad checks and use check acceptance to increase sales. During fiscal 1996, the Company further expanded its presence and range of services for the electronic commerce market. The Company formed Global Payment Systems for the primary purpose of combining two of the industry's leading electronic payment processing operations to create one of the largest such operations in the world and to expand to a new class of back office services. MasterCard's Merchant Automated Point-of-Sale Program ("MAPP") was acquired by the Company and combined with NDC's card authorization network services, certain of its merchant processing back office services and the Company's information systems and services business. This combination resulted in a broadening of the products and services available to the Company's customers. During fiscal 1997, Global acquired Electronic Data Systems Corporation's ("EDS") service bureau- based card processing business, adding credit card issuing as well as additional merchant processing capabilities to its existing business line. The Company also acquired Merchant Services USA, Inc., a terminal deployment and customer support management business in fiscal 1997. With the product capabilities acquired in these transactions, combined with the Company's extensive range of electronic commerce, the Company is now positioned to provide a full range of end-to-end systems and services to its target markets. 7 BUSINESS STRATEGY The Company's business strategy centers on providing end-to-end solutions, value-added information processing services and application systems in the markets it serves. NDC believes that both the health care and electronic commerce markets present attractive opportunities for continued growth. In pursuing its business strategy, the Company seeks both to increase its penetration of existing information processing and application systems markets and to continue to identify and create new markets through the: . development of value-added applications, enhancement of existing products and development of new systems and services; . expansion of distribution channels; and . acquisition of, or alliance with, companies that have desirable products, market share and/or distribution capabilities. PRODUCTS AND SERVICES HEALTH INFORMATION SERVICES The Company is a leading provider of a full range of products and services that help its customers to: . Increase efficiency; . Enhance the quality of patient care; . Optimize revenue and profitability; . Increase cash flow; . Reduce overhead costs; . React quickly to changing market conditions; . Improve business operations; . Streamline administrative processes; and . Maintain compliance. The Company's products include electronic claims processing, claims adjudication and payment systems, funding capabilities, billing services, accounts receivable resolution, business office management services, practice management systems and clinical database information for pharmacies, dentists, physicians, pharmaceutical manufacturers and distributors, managed care organizations, hospitals, HMO's, clinics and nursing homes. Revenue for the Company's Health Information Services consists of recurring transaction processing, monthly maintenance and support fees, software license revenue and proceeds from the sale of practice management systems, as well as upgrade charges for additional 8 applications. Fees for electronic claims processing services are based on a per transaction rate, with the rate varying depending upon the volume and scope of services provided. In addition, the Company realizes revenue based on a percentage of the net collections related to the management of hospital and physician group practice business offices. NETWORK SERVICES The Company's electronic processing services are offered to managed care organizations, pharmacies, physicians, HMO's and preferred provider organizations. These services include transaction submission, eligibility verification, patient-specific benefit coverage, transaction data capture and editing, claim adjudication and retrospective and prospective drug utilization review. Electronic processing for health care transactions represents the Company's fastest growing service. The Company expanded its presence in the health care transaction processing market with two acquisitions in fiscal 1997, Health Communication Services, Inc., specializing in hospital transaction processing and Equifax Health EDI Services, Inc., further expanding NDC's penetration of the market for transaction clearing and processing systems for physicians' offices. PRACTICE MANAGEMENT SYSTEMS The Company's practice management systems are designed to provide the health care market with application solutions that improve the efficiency of operations, address cost containment concerns and enhance overall quality of patient care. In addition, NDC's practice management systems are offered with the Company's transaction processing services, check, credit and debit card processing capabilities and other associated functions, such as inventory reporting and ordering. These systems are offered through various practice management systems vendors, payer organizations and health care product distributors. The Company's pharmacy practice management systems provide solutions for independent and chain pharmacies, hospitals, mail order, HMO's, clinics and nursing homes. These systems enable pharmacists to manage and perform patient registration, drug record-keeping, private and third-party billing, inventory control and ordering, price updates, management reporting and drug database updates to detect potential clinical dispensing and prescribing problems. In addition, the Company's systems provide value-added transaction processing services. The Company's systems are sold and maintained by the Company and can be tailored to the needs of users utilizing micro- and mini-computer platforms. In fiscal years 1996 and 1997, the Company expanded the capabilities of its pharmacy practice management systems through the development of sophisticated, new order entry and inventory management capabilities and enhanced retail point- of-sale capabilities. The Company also introduced products enhancing customers' ability to order re-fill prescriptions via telephone and developed physician/pharmacy connectivity products enabling physicians to electronically transmit prescriptions directly to pharmacies utilizing NDC's pharmacy management systems. In fiscal 1998, the Company expanded internationally, with the acquisition of two pharmacy systems companies in the United Kingdom, creating a significant presence in that country. 9 The Company's dental management systems are designed to provide dentists with patient record accounting, patient scheduling and recall, billing and collection, insurance transaction information and electronic processing to improve the efficiency of office management. The systems also incorporate advanced clinical functionality with customary business automation functions. The Company's physician management systems are designed to provide physicians with patient scheduling, billing and collection, patient record accounting, eligibility verification, coordination of multiple payers and payment plans, insurance transaction information and electronic processing designed to improve the efficiency of office management, as well as electronic communication with pharmacies to reduce time spent on prescription requests and refill authorizations. MANAGEMENT SERVICES The Company provides business office services designed to increase profitability in hospital and physician group business offices. To assist with managed care contract administration, the Company offers systems that provide consistent interpretation of contract terms and improved revenue recovery rates. Consultant audit services identify lost revenue, improve billing accuracy and speed reimbursement. The Company also can provide comprehensive outsourcing services ranging from accounts receivable management to financial, administrative and strategic support, data management and information services. INFORMATION SOLUTIONS The Company is a leading provider of proprietary health care information, technology and consulting services, primarily to the pharmaceutical and retail pharmacy markets. The Information Solutions services enable its customers to better understand individual prescriber, payer, consumer, pharmaceutical manufacturer, pharmacy benefit manager and retail pharmacy behavior in order to compete more effectively in the market. The Company provides its services through a broad array of information, including data mining and integrated marketing decision-making tools. The Information Solution database is a repository of intelligence on managed care organizations, prescribers, retailers, prescriptions and non-personalized patient data. Using this database and other tools, the Company is able to provide critical competitive intelligence for its client companies. The Company typically enters into significant, long-term relationships with its clients, providing integrated services to executives in the sales, marketing, market research and information technology areas. 10 ELECTRONIC COMMERCE The Company's Electronic Commerce products provide a wide range of end-to-end transaction processing alternatives to the retail, hospitality, lodging, health care and government markets. The Company offers credit and debit card services, check verification and guarantee and other related services directly to merchants and indirectly through financial institutions. GLOBAL PAYMENT SYSTEMS Global Payment Systems is a worldwide provider of electronic commerce products and services that manage, support and speed the processing of funds in a cost- effective manner. The company's offerings provide a comprehensive range of financial and information management applications and end-to-end payment processing products and services enabling both issuers and acquirers to provide innovative merchant services, operate more cost-effectively and to meet their profitability goals. Global has offices located in the United States, Canada, United Kingdom and Japan serving hundreds of thousands of businesses and corporations, hundreds of financial institutions, and numerous government agencies. ACQUIRER SERVICES. The acquirer services provide a single source solution for delivering merchant payment services. These services consist of: . electronic storefront capabilities with secure payment processing; . internet gateway services; . comprehensive authorization network for credit cards, debit cards and checks; . electronic data capture (which incorporates the capabilities of the Company's authorization system, combined with enhanced software) enables an entire data transmission to be electronically captured and transmitted to provide faster clearing through the banking system; . an advanced merchant accounting system allowing maximum flexibility to record activity and fund merchants; . exception processing, including sales draft retrieval and chargeback resolution; . point of sale terminal deployment and management; . fraud monitoring; and . customized, value-added applications for retailers, restaurants, lodging and direct marketers. 11 ISSUER SERVICES. Global's issuer services allow financial institutions to create new card programs and monitor credit risk to enhance the profitability of their portfolios by providing services such as: . authorization; . card production, fulfillment and inventory services; . automated credit application processing systems; . cardholder statements; . exception processing; and . cardholder analysis systems. ELECTRONIC INFORMATION SOLUTIONS. Global's information systems and services products include cash management, information reporting and electronic data interchange ("EDI"). Global's cash management system is specifically designed for use by large multi-national corporations and is marketed internationally. The products and services provide multi-currency/multi-format financial, management and operational data to corporate and government institutions worldwide. Organizations use these services to collect, consolidate and report financial, administrative and operating data from hundreds of thousands of locations. INTEGRATED PAYMENT SYSTEMS NDC is a leader in partnering with banks and others to offer its merchant processing support. Under the Company's Bank Alliance Program, the Company and financial institutions jointly market and sell card acceptance services. Integrated Payment Systems performs the financial settlement between the merchant and the card association, offers risk management services and provides merchant customer support in addition to all the authorization, terminal deployment and back office services performed by Global Payment Systems. Fees for the Company's merchant processing services are principally based on a percentage of the dollar volume of transactions processed for merchants. Integrated Payment Systems also offers merchants check guarantee services. Check guarantee differs from check verification in that the Company not only verifies the transaction but also guarantees payment. If a check is not paid, the Company assumes the right to collect from the individual writing the check. Fees for the Company's check services are based on a per transaction rate, while fees for its check guarantee services are based on a percentage, or discount, of the face value of each check guaranteed by the Company. 12 SALES AND MARKETING The Company's electronic transaction processing services are offered to the health care markets directly through Company personnel and through alliances with other organizations. The Company's practice management systems are marketed directly and through alliances with other companies, value-added re-sellers, as well as the Company's personnel. During 1998, the Company launched the NDC Health Information Services branding program, to organize its business under a single identity. The Company markets its electronic commerce products and services through financial institutions, bank alliance programs, its own sales personnel and also through independent contractors. OPERATIONS AND SYSTEMS The Company operates multiple data and customer support facilities. The primary facilities are in Atlanta, Georgia; Tulsa, Oklahoma; Hanover, Maryland; Phoenix, Arizona; and St. Louis, Missouri with others in Ohio, Pennsylvania, North Carolina, Texas, California, Virginia, Canada and the United Kingdom. Because of the large number and variety of NDC's products and services, the Company does not rely on a single technology to satisfy its sophisticated computer systems needs but instead employs the best available technology that is suitable for each particular task. Given this approach, NDC utilizes (i) Tandem fault-tolerant computers for high volume, fast response transaction processing; (ii) client-server technology for end-user data base applications; (iii) the latest Unisys mainframe class systems and the OS/2200 operating system for large scale transaction and batch data base processing; and (iv) UNIX and Windows based systems for specialized communication applications systems. These systems are linked via high speed, fiber optic-based networked backbones for file exchange and inter-system communication purposes. NDC also maintains storage systems connected to the backbones, including a robotic tape library and optical storage for archival purposes. All of the Company's systems are supported by an experienced systems support, operations and production control staff with an advanced network control center. The Company's communications network is made up of several discrete networks, each designed for a different purpose. NDC maintains three primary networks: a high speed, short transaction network called FASTNET; a private line nationwide high bandwidth backbone network; and a dial-up voice/data network for interactive and voice traffic. The Company also maintains a number of support services offering satellite, wireless, INTERNET and ISDN/DOV connectivity. 13 COMPETITION The markets for the application systems and services offered by the Company are highly competitive. The Company has a number of actual and potential competitors for all of the systems and services that it offers. Many of the Company's services compete directly with computer manufacturers that encourage businesses to purchase or lease the manufacturers' computers and establish in- house systems. In addition to this competition, the Company believes that there are several companies that have the capability to offer some of the Company's services in competition with the Company, certain of which are substantially larger than the Company. The Company believes that its knowledge of its specific markets and its ability to offer market specific, integrated solutions to its customers, including hardware, software, processing and network facilities and its flexibility in packaging these products, is a positive factor pertaining to the competitive position of the Company. The Company recognizes, however, that its industry segment is increasingly competitive. The key competitive factors for the Company are functionality of products, quality of service and price. RESEARCH AND DEVELOPMENT During fiscal 1998, 1997, and 1996, the Company expensed approximately $77.6 million, $13.2 million, and $8.8 million, respectively, on activities relating to the development and improvement of new and existing products, services and techniques. These activities specifically exclude Year 2000 compliance and routine maintenance costs associated with existing products and services. Research and development costs for fiscal 1998 includes $67.0 million determined by an independent third party valuation representing in-process research and development activities acquired through the Source acquisition. These costs were not capitalizable and appropriately charged to expense under generally accepted accounting principles (see Note 11 to the Consolidated Financial Statements). EMPLOYEES As of May 31, 1998 the Company and its subsidiaries had approximately 6,100 employees. 14 FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENT AND CLASSES OF SERVICES In fiscal 1998, the Company operated in one reportable industry segment, Data Processing Services. See Management's Discussion and Analysis of Financial Condition and Results of Operations for a further discussion. The following table sets forth the approximate contribution to consolidated revenues of each class of service in the Data Processing Services segment during the Company's last three fiscal years.
1998 1997 1996 ------------------------------------------- Revenue: Health Information Services $357,498 $267,488 $210,164 Electronic Commerce: Integrated Payment Systems 159,310 131,477 104,829 Global Payment Systems 159,456 149,797 79,650 Intercompany (27,220) (23,595) (3,555) ------------------------------------------- 291,546 257,679 180,924 ------------------------------------------- Total $649,044 $525,167 $391,088 ===========================================
ITEM 2. PROPERTIES - ------------------- In January 1987, the Company took occupancy of a newly constructed six-story, 120,000 square foot corporate headquarters building at Two National Data Plaza in Atlanta, Georgia. There is no outstanding debt on the facility. In addition to the above facility, the Company leases or rents a total of 83 other facilities to serve as regional operating centers or sales offices. The Company owns or leases a variety of computers and other computer equipment for its operational needs. In recent years the Company has significantly upgraded and expanded its computers and related equipment in order to increase efficiency, enhance reliability, and provide the necessary base for business expansion. The Company believes that its facilities and equipment are suitable and adequate for the business of the Company as presently conducted. Information about leased properties is incorporated by reference from Note 13 of the Notes to the Consolidated Financial Statements on page A-40 of this Report. 15 ITEM 3. LEGAL PROCEEDINGS - -------------------------- The Company is party to a number of claims and lawsuits incidental to its business. In the opinion of management, the ultimate outcome of such matters, in the aggregate, will not have a material adverse impact on the Company's financial position, liquidity or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ None. 16 EXECUTIVE OFFICERS OF THE REGISTRANT The names, titles, ages, and business experience of all present executive officers of the Company are listed below. All officers hold office at the pleasure of the Board of Directors, unless they earlier retire or resign.
Name Business Experience Age ---- ------------------- --- Robert A. Yellowlees Chairman of the Board of the Company since June 1992; 59 President, Chief Executive Officer and Chief Operating Officer of the Company since May 1992; director of John H. Harland Co. and Protective Life Corporation. Mr. Yellowlees has been a director of the Company since April 1985. Steven L. Arnold General Manager, Network Services since May 1998; Chief 58 Administrative Officer of the Company from March 1997 to May 1998; Lt. General, United States Army from July 1994 to March 1997; Major General, United States Army from April 1991 to July 1994. Robert R. Brown General Manager, Information Solutions Group since 54 December 1997; President and Chief Operating Officer, Walsh America from January 1995 to December 1997; Senior Vice President, Information Services and Chief Information Officer FoxMeyer Corporation from 1992 to January 1995 J. Michael Drinkwater General Manager, Physician Management Services since 45 December 1997; President and Chief Operating Officer of Physician Support Systems, Inc. from June 1997 to December 1997; President of Medaphis Corporation's physician services division from March 1996 to May 1997; President of Gottlieb's Financial Services from August 1990 to March 1996. Thomas M. Dunn General Manager, Integrated Payment Systems since June 41 1996; Group Vice President from August 1992 to June 1996; and Division Vice President from August 1988 to August 1992. Walter M. Hoff President and Chief Executive Officer, Health 46 Information Services since August 1998; Executive Vice President of First Data Corporation from April 1992 to July 1998.
17 Name Business Experience Age ---- ------------------- --- David K. Hunt President, Chief Executive Officer and member of the 52 Board of Directors of Global Payments Systems LLC, a subsidiary of the Company, since January 1997; President and Chief Executive Officer of AT&T Universal Card Services, Inc. from May 1993 to November 1996; Senior Executive Vice President of Signet Banking Corporation from October 1989 until May 1993. E. Michael Ingram General Counsel and Secretary of the Company since 46 January 1985. William H. McCahan General Manager, Pharmacy Systems and Services since 61 May 1998 and Chief Marketing Officer since July 1997; Chief Marketing Officer for the 1996 Centennial Olympic Games in Atlanta, 1992 to 1996; Assistant General Manager, responsible for Marketing--Entry Systems line of business, IBM, 1989-1991; 31 years in various management positions with IBM. Kevin C. Shea Chief Financial Officer of the Company since May 1998; 48 Executive Vice President, Corporate Strategy & Business Development from June 1996 to May 1998; General Manager, Integrated Payment Systems, from September 1992 to May 1996 and Executive Vice President, National Data Payment Systems, Inc. ("NDPS") from December 1990 through August 1992. David H. Shenk Controller and Chief Accounting Officer of the Company 50 since January 1998; Corporate Controller, Rollins, Inc., 1992-1997. Peter T. van der Grinten General Manager, Hospital Management Services since 46 May 1998; Director, Healthcare Division, SAP America, Inc., October 1997 to May 1998; Vice President, International Operations, Oacis Healthcare Systems, May 1996 to October 1997; Executive Vice President, Healthcare Systems, Bell Atlantic, 1988 to May 1996.
18 PART II ------- ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND - ---------------------------------------------------------------------------- RELATED STOCKHOLDER MATTERS - --------------------------- Market Price and Dividend Information appears on Page A-2 of this report. Item 6. SELECTED FINANCIAL DATA - -------------------------------- Selected Financial Data appears on Page A-1 of this report. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - -------------------------------------------------------------------------------- OF OPERATIONS - ------------- Management's Discussion and Analysis of Financial Condition and Results of Operations appears on pages A-3 to A-11 of this report. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ------------------------------------------------------------------- Not applicable ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------- Financial statements and supplementary information appears on pages A-12 to A-43 of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------------------------------------------------------------------------ FINANCIAL DISCLOSURE - -------------------- Not applicable. 19 PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------ The Company hereby incorporates by reference the information contained under the heading "Election of Directors - Certain Information Concerning Nominee and Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" from its definitive Proxy Statement to be delivered to the stockholders of the Company in connection with the 1998 Annual Meeting of Stockholders to be held on October 22, 1998. Certain information relating to executive officers of the Company appears at pages 16 to 17 of this Annual Report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION - -------------------------------- The Company hereby incorporates by reference the information contained under the heading "Election of Directors - Compensation and Other Benefits" from its definitive proxy statement to be delivered to the stockholders of the Company in connection with the 1998 Annual Meeting of Stockholders to be held on October 22, 1998. In no event shall the information contained in the proxy statement under the sections entitled "Stockholder Return Analysis" and "Report of the Compensation Committee" be included herein by this reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------------------------------------------------------------------------ The Company hereby incorporates by reference the information contained under the headings "Election of Directors - Common Stock Ownership of Management" and " - Common Stock Ownership by Certain Other Persons" from its definitive Proxy Statement to be delivered to the stockholders of the Company in connection with the 1998 Annual Meeting of Stockholders to be held on October 22, 1998. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- Neil Williams, a Director of the Company, is a partner of Alston & Bird LLP (attorneys and counsel for the Company). The Company paid Alston & Bird LLP approximately $830,700, $1,371,600 and $572,300 in fiscal 1998, 1997 and 1996, respectively for legal services rendered in connection with numerous matters. 20 PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - -------------------------------------------------------------------------- (a)(1) The following consolidated financial statements for the Registrant and its subsidiaries appear in Appendix A to this report and are filed as a part hereof: Consolidated Statements of Income for the three fiscal years ended May 31, 1998. Consolidated Balance Sheets at May 31, 1998 and 1997. Consolidated Statements of Changes in Shareholders' Equity for the three fiscal years ended May 31, 1998. Consolidated Statements of Cash Flows for the three fiscal years ended May 31, 1998. Notes to Consolidated Financial Statements. Report of Independent Public Accountants (a)(2) Other than as described below, Financial Statement Schedules are not filed with this Report because the Schedules are either inapplicable or the required information is presented in the Financial Statements or Notes thereto. The following Schedule is filed in Appendix A as a part hereof: Consolidated Schedule II - Valuation and Qualifying Accounts. Report of Independent Public Accountants as to Schedule (a)(3) Exhibits 2(i) Stock Purchase Agreement dated September 3, 1996, as amended, September 24, 1996 between the Registrant and Equifax Healthcare Information Services, Inc. (filed as Exhibit 2 to the Registrant's Current Report on Form 8-K dated October 1, 1996, File No. 001-12392, and incorporated herein by reference.) (ii) Stock Purchase Agreement dated December 5, 1996 among the Registrant, Blue Cross and Blue Shield of Virginia and Consolidated Healthcare, Inc. (filed as Exhibit 2 to the Registrant's Current Report on Form 8-K dated December 31, 1996, File No. 001-12392, and incorporated herein by reference.) 21 (iii) Stock Purchase Agreement dated as of August 20, 1997, by and among Registrant, PMSI Database Holdings, Inc. and Pharmaceutical Marketing Services, Inc. (included as Exhibit 2.1 to the Registrant's Registration Statement on Form S-4 (Registration No. 333-35991), as amended, previously filed and incorporated by reference herein). (iv) Agreement and Plan of Merger dated as of August 20, 1997 by and among the Registrant, Source Informatics Inc., and a wholly owned Subsidiary of the Registrant (included as Exhibit 2.1 to the Registrant's Registration Statement on Form S-4 (Registration No. 333-35995), as amended, previously filed with the Commission and incorporated by reference herein). (v) Agreement and Plan of Merger dated as of October 14, 1997 by and among the Registrant, a Subsidiary of the Registrant and Physician Support Systems, Inc.(filed as Annex A to the Proxy Statement/Prospectus previously filed as part of the Registrant's Registration Statement on Form S-4 (Registration No. 333- 40153) and incorporated by reference herein). (3)(i) Certificate of Incorporation of the Registrant, as amended (filed as Exhibit 4(a) to the Registrant's Registration Statement on Form S-8 (Registration No. 333-05427) and incorporated herein by reference). (ii) Certificate of Amendment to Certificate of Incorporation of the Registrant, dated October 28, 1996 (filed as Exhibit 3.1 to the Registrant's Current Report on Form 8-K dated October 29, 1996, file No. 001-12392, and incorporated herein by reference.) (iii) Amended Certificate of Designations of the Registrant, dated October 28, 1996 (filed as Exhibit 3.2 to the Registrant's Current Report on Form 8-K dated October 29, 1996, file No. 001-12392, and incorporated herein by reference.) (iv) Bylaws of the Registrant, as amended (filed as Exhibit 3(ii) to the Registrant's Annual Report on Form 10-K for the year ended May 31, 1991, File No. 001-12392, and incorporated herein by reference.) (v) Amendment to Bylaws of the Registrant, as previously amended (filed as Exhibit 3(iii) to the Registrant's Annual Report on Form 10-K for the year ended May 31, 1995, File No. 001-12392, and incorporated herein by reference.) (4)(i) Rights Agreement, dated as of January 18, 1991, between the Registrant and the Rights Agent, as amended (incorporated by reference from Exhibit 2 to the Registrant's Registration Statement on Form 8-A, File No. 001-12392, as filed on October 5, 1993.) 22 (ii) Form of Indenture between the Registrant and The First National Bank of Chicago, as Trustee, relating to Registrant's 5% Convertible Subordinated Notes due 2003 (filed as Exhibit 4.1 to Registrant's Current Report on Form 8-K dated October 29, 1996, File No. 001-12392, and incorporated herein by reference.) (iii) Form of the Registrant's 5% Convertible Subordinated Note due 2003 (filed as Exhibit 4.2 to Registrant's Current Report on Form 8-K dated October 29, 1996, File No. 001-12392, and incorporated herein by reference.) (10)(i) Operating Agreement of Global Payment Systems LLC dated March 31, 1996 between MasterCard International Incorporated, GPS Holding Limited Partnership, National Data Corporation of Canada, Ltd., National Data Corporation, NDC International, Ltd. and National Data Payment Systems, Inc. (filed as Exhibit 10(i) to the Registrant's Annual Report on Form 10-K for the year ended May 31, 1996, File No. 001-12392, and incorporated herein by reference). (ii) Registration Rights Agreement dated April 1, 1996 between Global Payment Systems LLC and MasterCard International Incorporated (filed as Exhibit 10(ii) to the Registrant's Annual Report on Form 10-K for the year ended May 31, 1996, File No. 001-12392, and incorporated herein by reference). (iii) Credit Agreement dated as of March 18, 1996 between the Registrant and Wachovia Bank of Georgia, N.A., as Agent (filed as Exhibit 10(iii) to the Registrant's Annual Report on Form 10-K for the year ended May 31, 1996, File No. 001-12392, and incorporated herein by reference). (iv) Credit Agreement dated as of July 16, 1996 between the Registrant and the First National Bank of Chicago, as Agent (filed as Exhibit 10(iv) to the Registrant's Annual Report on Form 10-K for the year ended May 31, 1996, File No. 001-12392, and incorporated herein by reference). (v) Amendment dated as of October 23, 1996 to the Credit Agreement between the Registrant and Wachovia Bank of Georgia, N.A., as Agent, dated as of May 31, 1996 (filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated October 29, 1996, File No. 001-12392, and incorporated herein by reference). (vi) Amendment dated as of October 23, 1996 to the Credit Agreement between the Registrant and the First National Bank of Chicago, as Agent, dated as of May 31, 1996 (filed as Exhibit 10.2 to the Registrant's Current Report on Form 8-K dated October 29, 1996, File No. 001-12392, and incorporated herein by reference). (vii) Credit Agreement dated as of December 19, 1997, among the Registrant, The First National Bank of Chicago, as Administrative Agent, Wachovia Bank, N.A., as Documentation Agent, and the Lenders named therein. 23 (viii) First Amendment dated April 10, 1998 to the Credit Agreement dated as of December 19, 1997, among the Registrant, The First National Bank of Chicago, as Administrative Agent, Wachovia Bank, N.A., as Documentation Agent, and the Lenders named therein. EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS (ix) Form of Executive Severance Compensation Agreement with certain executive officers (filed as Exhibit 10(ii) to the Registrant's Annual Report on Form 10-K for the year ended May 31, 1986, File No. 001-12392, and incorporated herein by reference.) (x) Non-Employee Directors Stock Option Plan (filed as Exhibit 10(iv) to the Registrant's Annual Report on Form 10-K for the year ended May 31, 1987, File No. 001-12392, and incorporated herein by reference.) (xi) 1995 Non-Employee Director Compensation Plan (filed as Exhibit 10(vii) to the Registrant's Annual Report on Form 10-K for the year ended May 31, 1996, File No. 001-12392, and incorporated herein by reference). (xii) Renewal Employment Agreement effective as of May 18, 1995 between Robert A. Yellowlees and the Registrant (filed as Exhibit 10(x) to the Registrant's Annual Report on Form 10-K for the year ended May 31, 1994, File No. 001-12392, and incorporated herein by reference.) (xiii) Amended and Restated Retirement Plan for Non-Employee Directors, dated as of April 20, 1994 (filed as Exhibit 10(xii) to the Registrant's Annual Report on Form 10-K for the year ended May 31, 1994, File No. 001-12392, and incorporated herein by reference.) (xiv) Amendment to Amended and Restated Retirement Plan for Non-Employee Directors (filed as Exhibit 4(xi) to the Registrant's Annual Report on Form 10-K for the year ended May 31, 1995, File No. 001-12392, and incorporated herein by reference). (xv) 1983 Restricted Stock Plan, as amended (incorporated by reference from Exhibit 10 to the Registrant's Registration Statement on Form S-8, No. 333- 05451). (xvi) 1987 Stock Option Plan, as amended (incorporated by reference from Exhibit 10 to the Registrant's Registration Statement on Form S-8, No. 333-05449). (xvii) Amended and Restated C.I.S. Technologies, Inc. Stock Option Plan (incorporated by reference from Exhibit 10(a) to the Registrant's Registration Statement on Form S-8, No. 333-05427). 24 (xviii) Amended and Restated C.I.S. Technologies, Inc. Employee Stock Option Plan (incorporated by reference from Exhibit 10(b) to the Registrant's Registration Statement on Form S-8, No. 333-05427). (xix) C.I.S. Technologies, Inc. HCC Management Stock Option Plan (incorporated by reference from Exhibit 10(c) to the Registrant's Registration Statement on Form S-8, No. 333-05427). (xx) C.I.S. Technologies, Inc. 1995 Directors' Stock Option Plan (incorporated by reference from Exhibit 10(d) to the Registrant's Registration Statement on Form S-8, No. 333-05427). (xxi) C.I.S. Technologies, Inc. 1995 Stock Incentive Plan (incorporated by reference from Exhibit 10(e) to the Registrant's Registration Statement on Form S-8, No. 333-05427). (xxii) Supplemental Executive Retirement Plan effective June 1, 1997 (incorporated by reference from Exhibit 10(xx) to the Registrant's Annual Report on Form 10-K for the year ended May 31, 1997, File No. 001-12392). (xxiii) Amendment to Registrant's 1987 Stock Option Plan effective September 28, 1996 (incorporated by reference from Exhibit 10(xxi) to the Registrant's Annual Report on Form 10-K for the year ended May 31, 1997, File No. 001-12392). (xxiv) Amendment to Registrant's 1983 Restricted Stock Plan effective December 17, 1996 (incorporated by reference from Exhibit 10(xxii) to the Registrant's Annual Report on Form 10-K for the year ended May 31, 1997, File No. 001-12392). (xxv) Global Payment Systems 1996 Option Plan effective September 13, 1996 (incorporated by reference from Exhibit 10(xxiii) to the Registrant's Annual Report on Form 10-K for the year ended May 31, 1997, File No. 001-12392). (xxvi) Employment Agreement effective June 1, 1997 between Robert A. Yellowlees and the Registrant (incorporated by reference from Exhibit 10(xxiv) to the Registrant's Annual Report on Form 10-K for the year ended May 31, 1997, File No. 001-12392). (xxvii) Synergistic Systems, Inc. 1996 Stock Option Plan (incorporated herein by reference from Exhibit 4(a) to the Registrant's Registration Statement on Form S-8 (Reg. No. 333-44823). (xxviii) Physician Support Systems, Inc. 1996 Stock Option Plan (incorporated herein by reference from Exhibit 4(b) to the Registrant's Registration Statement on Form S-8 (Reg. No. 333-44823). 25 (21) Subsidiaries of the Registrant (included in Appendix A, page A-47). (23) Consent of Independent Public Accountants (included in Appendix A, page A- 45). (27) Financial Data Schedule (for SEC use only). (99.1) Private Securities Litigation Reform Act Of 1995 Safe Harbor Compliance Statement For Forward-Looking Statements. (b) None. (c) The Exhibits to this Report are listed under Item 14(a)(3) above. (d) The Financial Statement Schedule to this Report is listed under Item 14(a)(2) above. 26 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, National Data Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NATIONAL DATA CORPORATION By: /s/ Robert A. Yellowlees ------------------------------------- Robert A. Yellowlees, Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) By: /s/ Kevin C. Shea ------------------------------------- Kevin C. Shea Chief Financial Officer (Principal Financial Officer) By: /s/ David H. Shenk ------------------------------------- David H. Shenk Controller (Chief Accounting Officer) Date: September 3, 1998 27 APPENDIX A to ANNUAL REPORT ON FORM 10-K NATIONAL DATA CORPORATION AND ITS SUBSIDIARIES FINANCIAL STATEMENTS AND SCHEDULES CONTENTS Selected Financial Data............................................... A-1 Market Price and Dividend Information................................. A-2 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................ A-3 Consolidated Statements of Income for the three years ended May 31, 1998..................................................... A-12 Consolidated Statements of Cash Flows for the three years ended May 31, 1998..................................................... A-13 Consolidated Balance Sheets at May 31, 1998 and 1997.................. A-14 Consolidated Statements of Changes in Shareholders' Equity for the three years ended May 31, 1998................................... A-15 Notes to Consolidated Financial Statements............................ A-16 Report of Independent Public Accountants.............................. A-43 Consolidated Schedule II - Valuation and Qualifying Accounts.......... A-44 Report of Independent Public Accountants As to Schedule............... A-45 Index to Exhibits .................................................... A-46 Consent of Independent Public Accountants............................. A-47 28 Selected Consolidated Financial Data (In thousands, except per share data)
1998 1997 1996 1995 1994 ------------------------------------------------------------------------- Revenue: Health Information Services $357,498 $267,488 $210,164 $175,529 $136,361 Electronic Commerce: Integrated Payment Systems 159,310 131,477 104,829 88,489 78,787 Global Payment Systems 159,456 149,797 79,650 69,889 64,002 Intercompany (27,220) (23,595) (3,555) -- -- ------------------------------------------------------------------------- 291,546 257,679 180,924 158,378 142,789 ------------------------------------------------------------------------- Total $649,044 $525,167 $391,088 $333,907 $279,150 Operating Income (Loss) ($25,896) $60,852 ($14,830) $29,645 $20,210 Net Income (Loss) ($61,326) $29,398 ($11,845) $18,642 $13,035 Diluted Earnings (Loss) Per Share ($1.90) $.91 ($.40) $.67 $.49 Dividends Per Share $.30 $.30 $.30 $.30 $.29 Total Assets $731,215 $626,322 $442,351 $347,663 $257,166 Long-Term Obligations $180,541 $165,388 $23,329 $44,932 $47,499 Total Shareholders' Equity $347,935 $323,249 $283,735 $174,715 $137,755
All years have been restated to include the results of C.I.S. Technologies, Inc. ("CIS"), acquired May 31, 1996 and Physician Support Systems, Inc. ("PHSS"), acquired December 19, 1997, both in pooling-of-interests transactions. The Company incurred non-recurring charges of $120.2 million, $9.5 million and $47.7 million in fiscal 1998, 1997 and 1996, respectively. Operating income excluding these charges was $94.3 million, $70.4 million and $32.9 million in fiscal 1998, 1997 and 1996, respectively. Net income excluding these charges was $49.9 million or $1.48 per share, $39.8 million or $1.23 per share, and $21.0 million or $0.67 per share in fiscal 1998, 1997 and 1996, respectively. A-1 MARKET PRICE AND DIVIDEND INFORMATION - ------------------------------------------------------------- National Data Corporation's common stock is traded on the New York Stock Exchange under the ticker symbol "NDC." The high and low sales prices and dividends paid per share of the Company's common stock for each quarter during the last two fiscal years were as follows:
Dividend Per High Low Share - ----------------------------------------------------------------------------------------------------- Fiscal Year 1998 First Quarter $46.50 $36.31 $.075 Second Quarter 44.25 33.75 .075 Third Quarter 44.63 32.13 .075 Fourth Quarter 46.00 35.50 .075 Fiscal Year 1997 First Quarter $44.50 $33.75 $.075 Second Quarter 46.63 37.88 .075 Third Quarter 47.50 35.00 .075 Fourth Quarter 44.00 33.75 .075
The number of shareholders of record as of August 14, 1998 was 3,663. A-2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For an understanding of the significant factors that influenced the Company's results during the past three years, the following discussion should be read in conjunction with the consolidated financial statements of the Company and related notes appearing elsewhere in this report. All prior periods presented include the retroactive effect of all acquisitions accounted for under the pooling-of-interests method. These mergers include Physician Support Systems, Inc. ("PHSS") in fiscal 1998 and C.I.S. Technologies, Inc. ("CIS") in fiscal 1996. RESULTS OF OPERATIONS GENERAL The following tables are a summary of the Company's results of operations before and after effects of non-recurring charges (In millions, except per share data):
1998 vs. 1997 1997 vs. 1996 1998 1997 1996 Change Change - --------------------------------------------------------------------------------------------------------------------------- AS REPORTED Revenue $ 649.0 $ 525.2 $ 391.1 $ 123.8 24% $ 134.1 34% Operating Income (Loss) (25.9) 60.9 (14.8) (86.8) * 75.7 * Net Income (Loss) (61.3) 29.4 (11.9) (90.7) * 41.3 * Diluted Earnings (Loss) Per Share (1.90) 0.91 (0.40) (2.81) * 1.31 * * - percentage change deemed not meaningful EXCLUDING NON-RECURRING CHARGES Revenue $ 649.0 $ 525.2 $ 391.1 $ 123.8 24% $ 134.1 34% Operating Income 94.3 70.4 32.9 23.9 34% 37.5 114% Net Income 49.9 39.8 21.0 10.1 25% 18.8 90% Diluted Earnings Per Share 1.48 1.23 0.67 0.25 20% 0.56 84%
The Company incurred non-recurring charges of $120.2 million, $9.5 million and $47.7 million in fiscal 1998, 1997 and 1996, respectively. After- tax, these charges were $111.2 million or $3.38 per share, $10.4 million or $0.32 per share and $32.9 million or $1.07 per share in fiscal 1998, 1997 and 1996, respectively. In general, these charges were incurred in connection with mergers and related restatements that occurred during each of the fiscal years presented. The components of the charges include merger transaction costs, asset impairment losses, and restructuring activities. The 1998 charge also includes a $67.0 million in-process research and development charge as a result of the acquisition of A-3 Source Informatics Inc. Restructuring activities reflect charges for severance and other related costs associated with plans to reduce staffing in areas of redundant operations and activities. For more detailed discussion of the non- recurring charges, refer to Note 11 to the Consolidated Financial Statements. The remainder of the results of operations discussion will exclude the impacts of non-recurring charges, as the Company believes that this will provide for more meaningful comparisons. FISCAL YEARS 1998 AND 1997 REVENUE
(In millions) 1998 1997 Increase ---------------------------------------------------------------- Revenue: Health Information Services $ 357.5 55% $ 267.5 51% 34% Electronic Commerce: Integrated Payment Systems 159.3 24% 131.5 25% 21% Global Payment Systems 159.5 25% 149.8 28% 6% Intercompany Revenue (27.3) (4%) (23.6) (4%) 16% ---------------------------------------------------------------- 291.5 45% 257.7 49% 13% ================================================================ Total Revenue $ 649.0 100% $ 525.2 100% 24% ================================================================
Total revenue for fiscal 1998 was $649.0 million, an increase of $123.8 million (24%) from the same period in fiscal 1997. The increase resulted from increased revenue in Health Information Services, $90.0 million (34%); and in the Electronic Commerce business, specifically, Integrated Payment Systems, $27.8 million (21%); and Global Payment Systems, $9.7 million (6%). Health Information Services. Health Information Services revenue growth --------------------------- (34%) in fiscal 1998 was a result of increases from internally developed products and services, primarily electronic transaction processing and business management services provided to hospitals and physicians. In addition, revenue growth resulted from the impact of the third quarter fiscal 1998 acquisitions of two related healthcare information management businesses, Source Informatics Inc. ("Source") and a subsidiary of Pharmaceutical Marketing Services Inc. ("PMSI"). Integrated Payment Systems. The Integrated Payment Systems revenue -------------------------- increase of $27.8 million (21%) reflects the impact of growth of the industry, programs directed at new vertical industry offerings and new distribution channels in addition to growth in basic market demand. This growth was reflected in an increase in the volumes of merchant sales processed due to a larger customer base and higher consumer credit card spending. A-4 Global Payment Systems. Global Payment Systems ("Global") revenue ---------------------- reflects an increase in the number of authorizations performed for the Company's customers under the historic network services business. New back office services are in the development and sales cycle and did not have a material impact on the fiscal 1998 reported results. Intercompany. A portion of Global's revenue is derived from ------------ intercompany sales of services primarily for processing services provided to the Integrated Payment Systems business unit. COSTS AND EXPENSES Cost of service increased $61.1 million (23%) in fiscal 1998 from the same period in fiscal 1997. The increases were primarily a result of increased operating costs associated with revenue growth and higher cost of service margins in new acquisitions. Total cost of service, as a percentage of revenue remained constant at 50% for both fiscal 1998 and 1997. The Company continues to leverage its computer operations, telecommunication infrastructure, and investments in new market opportunities. Sales, general and administrative expenses ("SG&A") increased $38.8 million (20%) from the same period last year. This increase was primarily due to expenses associated with continuing investments in product development, distribution channel expansion and the development of the Health Information Services branding program for future revenue growth. In addition, the increases were due to higher SG&A ratios in acquired businesses. However, as a percentage of revenue, these expenses decreased to 35% for fiscal 1998 from 36% for fiscal 1997. SG&A expenses continue to decrease as a percentage of revenue since revenues are growing at a faster rate than these expenses, including synergies realized from the integration of acquisitions. OPERATING INCOME Operating income, excluding non-recurring charges, increased from $70.4 million in fiscal 1997 to $94.3 million (34%) in fiscal 1998. As a percentage of revenue, the Company's operating income margin increased 8% to 14.5% in fiscal 1998 from 13.4% in fiscal 1997, excluding non-recurring charges. These improvements reflect improved margins in operations and profitability through execution of strategies to reposition the base business and investments in new market opportunities. Earnings before interest, taxes, depreciation and amortization ("EBITDA"), excluding non-recurring charges, was $142.7 million for fiscal 1998 and $110.7 million for fiscal 1997 and as a percentage of revenue was 22% and 21%, respectively. A-5 The Company's EBITDA formula and results as a percentage of revenue may not be comparable to similarly titled measures reported by other companies. However, management believes this statistic is a relevant measurement and provides a comparable operating income measure, excluding the impact of the amortization of acquired intangibles, potential timing differences associated with capital expenditures and the related depreciation charges and non-recurring charges. OTHER EXPENSE Total other expense increased $6.2 million for fiscal 1998 compared to 1997. This increase was primarily the result of lower interest earnings due to lower average funds available for investment and increased interest expense. The interest expense increase reflects the full-year impact of the interest expense on the $143.8 million in convertible debt issued in fiscal 1997 (see Note 9 to the Consolidated Financial Statements) and borrowings on the Company's line of credit during fiscal 1998 to finance acquisition activities. FISCAL YEARS 1997 AND 1996 REVENUE
(In millions) 1997 1996 Increase ----------------------------------------------------------------- Revenue: Health Information Services $ 267.5 51% $ 210.2 54% 27% Electronic Commerce: Integrated Payment Systems 131.5 25% 104.8 27% 25% Global Payment Systems 149.8 28% 79.7 20% 88% Intercompany Revenue (23.6) (4%) (3.6) (1%) - ----------------------------------------------------------------- 257.7 49% 180.9 46% 42% ================================================================= Total Revenue $ 525.2 100% $ 391.1 100% 34% =================================================================
Total revenue for fiscal 1997 was $525.2 million, an increase of $134.1 million (34%) from fiscal 1996. The increase was the result of increased revenue in Health Information Services, $57.3 million (27%); and our Electronic Commerce business, specifically, Integrated Payment Systems, $26.7 million (25%); and Global Payment Systems, $70.1 million (88%). A-6 Health Information Services. Health Information Services revenue growth --------------------------- (27%) in fiscal 1997 was a result of increases from existing products and services, primarily electronic transaction processing, and the impact of acquisition activity. The acquisitions of Equifax Healthcare EDI Services, Inc. and Health Communication Services, Inc. were completed in fiscal 1997. The increase also reflects the full-year impact of the pooling-of-interests accounting for the PHSS merger, which had completed five purchase acquisitions in the last half of fiscal 1996. Integrated Payment Systems. The Integrated Payment Systems revenue -------------------------- increase of $26.7 million (25%) was primarily due to higher volumes of merchant sales processed, which resulted from increased sales productivity, and an alliance established with a financial institution in April 1996. Global Payment Systems. Global revenue reflects an increase in the ---------------------- number of authorizations performed for the Company's customers and the full-year impact of the acquisition of MasterCard's Merchant Automated Point-of-Sale Program ("MAPP") on April 1, 1996. In addition, during the third quarter of fiscal 1997, Global completed the purchase of a portion of Electronic Data System Corporation's ("EDS") card processing business and launched a joint marketing and service alliance with EDS. Intercompany. Commencing April 1, 1996, with the formation of Global ------------ Payment Systems, a portion of Global's revenue was derived from intercompany sales of services primarily for processing services provided to the Integrated Payment Systems business unit. COSTS AND EXPENSES Cost of service increased $59.0 million (29%) in fiscal 1997 from the same period in fiscal 1996. These increases were primarily a result of increased operating costs associated with revenue growth and cost of service margins in new acquisitions. Total cost of service as a percentage of revenue decreased to 50% for fiscal 1997 from 52% for the same period in fiscal 1996. The decrease as a percentage of revenue is attributable to the Company's ability to leverage its computer operations and synergies realized from the integration of acquisitions. SG&A increased $37.6 million (25%) from the same period last year. This increase was primarily due to expenses associated with investments made in product development and sales personnel for future revenue growth. In addition, the increases in expenses were due to higher SG&A ratios in acquired businesses. However, as a percentage of revenue, these expenses decreased to 36% for fiscal 1997 from 39% for fiscal 1996. The Company attributes the improvement in this expense margin to synergies realized from acquisitions, principally CIS. A-7 OPERATING INCOME Operating income, excluding non-recurring charges, increased from $32.9 million in fiscal 1996 to $70.4 million (114%) in fiscal 1997. As a percentage of revenue, operating income increased to 13% in fiscal 1997 from 8% in fiscal 1996, excluding the non-recurring charges, reflecting improved margins in operations and profitability from CIS and PHSS. EBITDA, excluding non-recurring charges was $110.7 million for fiscal 1997 and $66.2 million for fiscal 1996 and as a percentage of revenue was 21% and 17%, respectively. OTHER EXPENSE Total other expense increased $6.6 million for fiscal 1997 compared to 1996. This increase was primarily the result of lower interest earnings due to lower average funds available for investment. In addition, in fiscal 1997, the Company issued $143.8 million in convertible debt (see Note 9 to the Consolidated Financial Statements) increasing interest expense. The decrease in cash available and issuance of debt in 1997 reflects the Company's acquisition activity. LIQUIDITY AND CAPITAL RESOURCES Cash flow generated from operations provides the Company with a significant source of liquidity to meet its needs. Net cash provided by operating activities decreased 16% to $49.0 million for fiscal 1998, from $58.6 million in fiscal 1997. Cash provided by operations before changes in working capital was $96.4 million for fiscal 1998, an increase of $15.8 million (20%) compared to the prior year. This difference is primarily driven by the $10.0 million increase in amortization of acquired intangibles and goodwill resulting from acquisition activities. Cash was required in fiscal 1998 to fund net changes in working capital of $47.4 million, compared to $22.0 million for fiscal 1997. The changes in working capital resulted primarily from increases in accounts receivable due to acquisitions, changes in net merchant processing funds, and the timing and payments on accounts payable and accrued liabilities, including income taxes. The changes in net merchant processing funds reflect normal fluctuations in the timing of credit card sales processed. The changes due to accounts payable and accrued liabilities primarily relate to the timing of payroll and related liabilities, and an increase in deferred revenue resulting from acquisitions. As a result of the non-recurring charges and PHSS merger, the company is expecting a net income tax refund of approximately $0.6 million for fiscal 1998 compared to the net liability of $1.8 million that existed for fiscal 1997. A-8 For fiscal 1998, cash used in investing activities decreased to $85.9 million, compared to $180.3 million in fiscal 1997. The Company continues to invest in capital expenditures related to growth in the business and acceleration of certain strategic initiatives. Additionally, in fiscal 1998, the Company completed six acquisitions for an aggregate cash consideration of approximately $63.1 million, net of cash acquired and the issuance of the Company's Common Stock valued at approximately $92.7 million. During fiscal 1997, the Company completed ten acquisitions (four of which were closed by PHSS prior to December 19, 1997) for an aggregate cash purchase price of approximately $161.3 million, net of cash acquired, with additional funding provided by the issuance of Common Stock valued at approximately $17.8 million. The Company has financed its acquisition program through cash flows from operations, equity, borrowings on its line of credit and debt offerings. Net cash provided by financing activities decreased to $21.2 million for fiscal 1998 from $117.3 in the prior year. The Company borrowed $75.0 million to finance portions of its fiscal 1998 acquisitions, merger costs and to eliminate PHSS' outstanding line of credit balance ($32.6 million). In addition, the Company purchased 170,000 shares of its own Common Stock valued at $6.4 million. During fiscal 1997, the Company completed an issuance of long-term public debt, providing net proceeds of $139.7 million. The cash provided by the debt issuance was partially offset by repayments of long-term debt of $24.3 million (including $10.9 million to pay off the mortgage on the Company's headquarters building). Dividends of $9.0 million and $9.1 million were paid during fiscal 1998 and 1997, respectively. The fiscal 1997 dividends include $1.2 million in distributions to PHSS shareholders, prior to its merger with the Company. The Company has a committed, unsecured $125.0 million revolving line of credit that expires in December 2002. At May 31, 1998, there was $75.0 million outstanding under the facility. The Company also has a $15.0 million uncommitted line of credit to fund working capital requirements, under which there were no amounts outstanding at May 31, 1998. Management believes that its current level of cash and borrowing capacity, along with future cash flows from operations are sufficient to meet the needs of its existing operations and its planned requirements for the foreseeable future. The Company regularly evaluates cash requirements for current operations, commitments, development activities and strategic acquisitions. The Company may elect to raise additional funds for these purposes, either through the issuance of additional debt or equity or otherwise, as appropriate. A-9 YEAR 2000 COMPLIANCE The Company has conducted a comprehensive review of its computer systems to identify the systems that could be affected by the "Year 2000" issue and has developed an implementation plan to resolve the issue. The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have time/date-sensitive software and hardware may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a major system failure or miscalculation. The Company presently believes that, with modification to existing software and hardware and the purchase of new software, the Year 2000 issue will not pose significant operations problems for the Company's systems as so modified and converted. As it relates to internal computer systems, the Company expects to incur internal staff costs as well as consulting and other expenses related to infrastructure and facilities enhancements necessary to prepare the systems for the year 2000. Given the nature of the Company's perpetual system development activities throughout its businesses, it is difficult to quantify, with specificity, the costs being incurred to address this issue. A significant portion of these costs is not likely to be incremental costs to the Company, but will represent the redeployment of existing information technology resources. The Company's resource commitment towards these issues is estimated to range between $10-$15 million for 1998 and 1999. Less significant amounts will likely be required in fiscal 2000 to finalize these activities. The Year 2000 issue creates risk for the Company from unforeseen problems in its own computer systems and from third parties on which the Company relies. Accordingly, the Company is requesting assurances from all software vendors from which it has purchased or from which it may purchase software that the software sold to the Company will correctly process all date information at all times. In addition, the Company is querying its customers and suppliers as to their progress in identifying and addressing problems that their computer systems will face in correctly processing date information as the year 2000 approaches and is reached. However, there are no assurances that the Company will identify all date-handling problems in its business systems or that the Company will be able to successfully remedy Year 2000 compliance issues that are discovered. To the extent that the Company is unable to resolve its Year 2000 issues prior to January 1, 2000, operating results could be adversely affected. In addition, the Company could be adversely affected if other entities (e.g., vendors or customers) not affiliated with the Company do not appropriately address their own year 2000 compliance issues in advance of their occurrence. A-10 FORWARD-LOOKING INFORMATION While past performance does not guarantee future results, the Company is committed to continuing to sustain quality earnings growth. The Company's strategy to attain growth is to position the Company for continued future success through ongoing investment in new market opportunities as well as through strategic alliances and acquisitions. The Company also intends to continue expansion into additional market segments related to its two primary markets. The Company will continue to make investments in new technology infrastructure and productivity tools to ensure long-term competitiveness and maximize operating capacity and efficiency. This document may contain forward-looking statements concerning the Company's operations, current and future performance and financial condition. These items involve risks and uncertainties such as product demand, market and customer acceptance, the effect of economic conditions, competition, pricing, development difficulties, the ability to consummate and integrate acquisitions, and other risks detailed in the Company's SEC filings. The Company undertakes no obligation to revise any of these statements to reflect future circumstances or the occurrence of unanticipated events. A-11 CONSOLIDATED STATEMENTS OF INCOME (LOSS) NATIONAL DATA CORPORATION
(In thousands, except per share data) - ------------------------------------------------------------------------------------------ Year Ended May 31, 1998 1997 1996 -------- --------- --------- Revenue $649,044 $525,167 $391,088 - ------------------------------------------------------------------------------------------- Operating expenses: Cost of service 325,397 264,253 205,275 Sales, general and administrative 229,380 190,559 152,925 Non-recurring charges 120,163 9,503 47,718 - ------------------------------------------------------------------------------------------- 674,940 464,315 405,918 - ------------------------------------------------------------------------------------------- Operating income (loss) (25,896) 60,852 (14,830) - ------------------------------------------------------------------------------------------- Other income (expense): Interest and other income 1,685 2,686 4,947 Interest and other expense (12,870) (8,614) (5,326) Minority interest (2,626) (1,694) (628) - ------------------------------------------------------------------------------------------- (13,811) (7,622) (1,007) - ------------------------------------------------------------------------------------------- Income (loss) before income taxes (39,707) 53,230 (15,837) Provision (benefit) for income taxes 21,619 23,832 (3,992) - ------------------------------------------------------------------------------------------- Net income (loss) $(61,326) $ 29,398 $(11,845) ====================================== Earnings (loss) per common and common equivalent share: Basic $ (1.90) $ 0.96 $ (0.40) ====================================== Diluted $ (1.90) $ 0.91 $ (0.40) ======================================
The accompanying notes are an integral part of these consolidated statements. A-12 CONSOLIDATED STATEMENTS OF CASH FLOWS NATIONAL DATA CORPORATION (In thousands)
----------------------------------------------------------------------------------------------------------- Year Ended May 31, 1998 1997 1996 -------- -------- -------- Cash flows from operating activities: Net income (loss) $(61,326) $ 29,398 $ (11,845) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 23,890 25,800 22,641 Amortization of acquired intangibles and goodwill 24,469 14,514 10,739 Non-recurring charges 110,340 6,578 35,116 Deferred income taxes (9,353) 517 (15,169) Minority interest in earnings 2,626 1,694 628 Provision for bad debts 4,353 1,540 5,694 Other, net 1,446 570 299 Changes in current assets and liabilities which provided (used) cash, net of the effects of acquisitions: Accounts receivable, net (26,967) (16,916) (19,584) Merchant processing working capital (2,386) 3,913 (4,076) Inventory (2,597) (300) 1,060 Prepaid expenses and other assets (2,200) (3,192) 8,582 Accounts payable and accrued liabilities (10,773) (13,297) 19,241 Income taxes payable (2,491) 7,829 (4,937) ------------ ------------ ----------- Net cash provided by operating activities 49,031 58,648 48,389 ------------ ------------ ----------- Cash flows from investing activities: Capital expenditures (22,816) (19,009) (17,842) Business acquisitions, net of cash acquired (63,113) (161,299) (146,124) Other, net - 25 275 ------------ ------------ ----------- Net cash used in investing activities (85,929) (180,283) (163,691) ------------ ------------ ----------- Cash flows from financing activities: Net borrowings under lines of credit 42,417 8,303 29,306 Payments on notes and earn-out payable (2,762) (1,250) (5,552) Net principal payments under mortgage, capital lease arrangements and other long-term debt (7,434) (24,292) (25,884) Net proceeds from the issuance of long-term debt - 139,682 - Net proceeds from sale of common stock - - 107,143 Net proceeds from the issuance of stock under various stock plans 9,143 6,110 9,057 Common stock purchased for treasury (5,980) - - Distributions to minority interests (5,118) (2,068) - Dividends paid (9,036) (9,143) (7,498) ------------ ------------ ----------- Net cash provided by financing activities 21,230 117,342 106,572 ------------ ------------ ----------- Decrease in cash and cash equivalents (15,668) (4,293) (8,730) Cash and cash equivalents, beginning of period 18,909 23,888 32,618 ------------ ------------ ----------- Cash and cash equivalents, end of period $ 3,241 $ 19,595 $ 23,888 ============ =========== ============ The accompanying notes are an integral part of these consolidated statements.
A-13 CONSOLIDATED BALANCE SHEETS NATIONAL DATA CORPORATION
(In thousands, except share data) - ----------------------------------------------------------------------------------------------------------- May 31, 1998 1997 -------- -------- ASSETS Current assets: Cash and cash equivalents $ 3,241 $ 19,595 Billed accounts receivable 135,223 95,023 Unbilled accounts receivable 18,835 18,913 Allowance for doubtful accounts (7,394) (4,903) -------- -------- Accounts receivable, net 146,664 109,033 Income tax receivable 635 - Deferred income taxes - 1,308 Inventory 5,253 2,260 Prepaid expenses and other current assets 16,333 8,620 -------- -------- Total current assets 172,126 140,816 -------- -------- Property and equipment, net 74,234 58,960 Intangible assets, net 458,223 407,484 Deferred income taxes 20,145 9,392 Other 6,487 9,670 -------- -------- Total Assets $731,215 $626,322 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Line of credit $ 75,000 $ 34,298 Current portion of long-term debt 1,621 1,973 Obligations under capital leases 11,053 3,628 Accounts payable and accrued liabilities 73,115 67,843 Income taxes - 1,794 Deferred income taxes 92 - Deferred income 25,216 7,389 -------- -------- Total current liabilities 186,097 116,925 -------- -------- Long-term debt 155,477 155,962 Obligations under capital leases 12,390 3,825 Other long-term liabilities 10,313 5,223 -------- -------- Total liabilities 364,277 281,935 -------- -------- Minority interest in equity of subsidiaries 19,003 21,138 Commitments and contingencies (Notes 13 and 14) Shareholders' equity: Preferred stock, par value $1.00 per share; 1,000,000 shares authorized, none issue - - Common stock, par value $.125 per share; 100,000,000 shares authorized, 33,791,534 and 30,802,452 shares issued, respectively. 4,224 3,850 Capital in excess of par value 344,019 240,917 Treasury stock, at cost, 159,200 shares (5,980) - Retained earnings 9,537 80,127 Cumulative translation adjustment (2,011) (727) -------- -------- 349,789 324,167 Less: Deferred compensation (1,854) (918) -------- -------- Total Shareholders' Equity 347,935 323,249 -------- -------- Total Liabilities and Shareholders' Equity $731,215 $626,322 ======== ========
The accompanying notes are an integral part of these consolidated statements. A-14 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY NATIONAL DATA CORPORATION
- ----------------------------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) Common Stock ------------------ Capital in Cumulative Deferred Number Excess of Treasury Retained Translation Compen- of Shares Amount Par Value Stock Earnings Adjustment sation - ----------------------------------------------------------------------------------------------------------------------------------- Balance at May 31, 1995 24,115 $3,015 $ 84,822 $ - $ 79,215 $ (550) $ (274) - ----------------------------------------------------------------------------------------------------------------------------------- Net loss (11,845) Cash dividends ($.30 per share) (7,498) Secondary stock offering 4,914 614 106,594 Foreign currency translation adjustment (203) Stock issued under employee stock plans 610 76 4,946 Stock issued under non- employee stock plans 49 6 500 Stock issued under restricted stock plans 4 64 (100) Tax benefit from exercise of stock options 3,330 Increase in capital due to issuance of subsidiary ownership interest 12,052 Stock issued for acquisitions 5 1 249 Amortization of deferred compensation 232 - ----------------------------------------------------------------------------------------------------------------------------------- Balance at May 31, 1996 29,697 3,712 212,557 - 59,872 (753) (142) - ----------------------------------------------------------------------------------------------------------------------------------- Net income 29,398 Cash dividends ($.30 per share) (9,143) Foreign currency translation adjustment 26 Stock issued under employee stock plans 407 51 4,644 Stock issued under non-employee stock plans 14 2 201 Stock issued under restricted stock plans 34 4 1,188 (1,229) Tax benefit from exercise of stock options 1,955 Stock issued for acquisitions 593 74 17,756 Stock issued in exchange for shareholders note 57 7 2,616 Amortization of deferred compensation 453 - ----------------------------------------------------------------------------------------------------------------------------------- Balance at May 31, 1997 30,802 3,850 240,917 - 80,127 (727) (918) - ----------------------------------------------------------------------------------------------------------------------------------- Net loss (61,326) Cash dividends ($.30 per share) (9,036) PHSS year-end restatement (Note 1) (228) Foreign currency translation adjustment (1,284) Treasury shares purchased (6,383) Stock issued under employee stock plans 256 32 6,102 403 Stock issued under non-employee stock plans 27 3 375 Stock issued under restricted stock plans 44 6 1,732 (1,738) Tax benefit from exercise of stock options 2,478 Stock issued for acquisitions 2,663 333 92,415 Amortization of deferred compensation 802 - ----------------------------------------------------------------------------------------------------------------------------------- Balance at May 31, 1998 33,792 $4,224 $344,019 $(5,980) $ 9,537 $(2,011) $(1,854) - -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated statements. A-15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of operations - The Company is primarily a provider of information - -------------------- processing services and systems to the health care and electronic commerce markets. In addition, the Company provides business management services to hospitals and physicians. The principal markets for the Company's products and services are retailers, banks and financial institutions, health care providers, insurance companies, managed care organizations, pharmaceutical manufacturers and distributors. Basis of presentation - The consolidated financial statements include the - --------------------- accounts of the Company and its majority-owned subsidiaries including the retroactive effect of all mergers which have been accounted for under the pooling-of-interests method of accounting. For fiscal 1997 and 1996, the consolidated financial statements reflect Physician Support Systems, Inc.'s ("PHSS") financial position at June 30 and the results of its operations and cash flows for the years then ended. Consequently, PHSS' results of operations for the month of June 1997 have been included in both fiscal 1998 and 1997. Significant intercompany transactions have been eliminated in consolidation. Certain reclassifications have been made to the fiscal 1997 and 1996 consolidated financial statements to conform with the fiscal 1998 presentation. Use of estimates - The preparation of financial statements in conformity with - ---------------- generally accepted accounting principles requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reported period. Actual results could differ from these estimates. Revenue - Revenue related to services provided, including the Company's - ------- government cost-plus contracts, is recognized as services are performed. Revenue related to software sales, software license agreements and hardware sales is recognized upon shipment. Revenue related to hardware and software maintenance contracts is recognized ratably over the terms of the contracts. Portions of the Company's revenues are earned as a percentage of amounts collected on behalf of its customers from patients and third-party payers. For customers where the amount and timing of collection of their accounts receivable can be reasonably estimated, the Company estimates the fees that it will invoice those customers upon collection of their accounts receivable and recognizes such revenues when substantially all services to be performed by the Company have been completed. As a result of the fiscal 1998 merger with PHSS, all prior periods have been restated to reflect the adjustments necessary to conform one of the Company's subsidiaries' revenue A-16 recognition method for contingent billings, related to certain revenue streams, to the method utilized by PHSS for certain of its similar clients. The conformity adjustment is reflected as a reduction of unbilled receivables and revenues previously recognized in the accompanying consolidated financial statements. Cash and cash equivalents - For purposes of reporting cash flows, cash and cash - ------------------------- equivalents include cash on hand and all liquid investments with a maturity of three months or less when purchased. Inventory - Inventory, which is composed primarily of microcomputer hardware and - --------- peripheral equipment and electronic point-of-sale terminals, is stated at the lower of cost or market. Cost is determined by using the average cost method. Property and equipment - Property and equipment, including equipment under - ---------------------- capital leases, is stated at cost. Depreciation and amortization are calculated using the straight-line method. Equipment is depreciated over 2 to 5 year lives, and buildings are depreciated over a 40 year life. Leasehold improvements and property acquired under capital leases are amortized over the shorter of the useful life of the asset or the term of the lease. The costs of purchased and internally developed software used to provide services to customers or internal administrative services are capitalized and amortized on a straight-line basis over their estimated useful lives, not to exceed five years. Maintenance and repairs are charged to operations as incurred. Intangible assets - Intangible assets primarily represent customer contracts, - ----------------- trademarks and covenants-not-to-compete associated with the Company's acquisitions. Acquired intangibles are amortized using the straight-line method over their estimated useful lives of 4 to 25 years. Goodwill represents the excess of the cost of acquired businesses over the fair market value of their identifiable net assets. Goodwill is being amortized on a straight-line basis over periods ranging from 10 to 40 years. Impairment of Long-Lived Assets - The Company regularly evaluates whether events - ------------------------------- and circumstances have occurred that indicate the carrying amount of property and equipment or goodwill and other intangibles may warrant revision or may not be recoverable. When factors indicate that long-lived assets should be evaluated for possible impairment, the Company uses an estimate of the future undiscounted net cash flows associated with the asset over the remaining life of the asset in measuring whether the long-lived asset is recoverable (see Notes 2 and 11). In management's opinion, the long-lived assets, including property and equipment and intangible assets, are appropriately valued at May 31, 1998 and 1997. Income taxes - Deferred income taxes are determined based on the difference - ------------ between the financial statement and tax bases of assets and liabilities using enacted tax laws and rates (see Note 8). A-17 Fair value of financial instruments - Management considers that the carrying - ----------------------------------- amounts of financial instruments, including cash, receivables, accounts payable and accrued expenses, and current maturities of long-term obligations, approximates fair value. Interest on long-term debt is primarily payable at fixed rates, which approximate market rates at May 31, 1998 and 1997 (see Note 9). Foreign currency translation - The assets and liabilities of foreign - ---------------------------- subsidiaries are translated at the year-end rate of exchange, and income statement items are translated at the average rates prevailing during the year. The resulting translation adjustment is recorded as a component of shareholders' equity. Exchange gains and losses on intercompany balances of a long-term investment nature are also recorded as a component of shareholders' equity. Earnings per common share - During 1998, and retroactive for all prior periods, - ------------------------- the Company adopted Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings per Share". Basic earnings per share is computed by dividing reported earnings available to common shareholders by weighted average shares outstanding during the period. Diluted earnings per share is computed by dividing reported earnings available to common shareholders by weighted average shares outstanding during the period and the impact of securities that, if exercised, would have a dilutive effect on earnings per share using the treasury stock method. All options with an exercise price less than the higher of (1) the ending market share price for the period or, (2) the average market share price for the period, generally are assumed to have a dilutive effect on earnings per share. The convertible notes issued in fiscal 1997 have an antidilutive effect on diluted earnings per share; accordingly, the notes are excluded from earnings per share calculations. The basic and diluted number of shares outstanding are as follows:
Year Ended May 31, ------------------ (In thousands) 1998 1997 1996 ---- ---- ---- Basic 32,200 30,571 29,971 Stock Options -- 1,691 -- ------------------------------------------ Diluted 32,200 32,262 29,971 ==========================================
Net income available to common shareholders is the same for basic and diluted earnings per share, as the dilutive nature of the stock options, if exercised, do not have an impact on net income. In 1998 and 1996, where there was a net loss generated by the non-recurring charges, basic and diluted earnings per share are the same, as the effect of any potentially dilutive securities is antidilutive. A-18 Recent accounting pronouncements - In June 1997, the Financial Accounting - -------------------------------- Standards Board ("FASB") issued Statement No. 130 ("SFAS 130"), "Reporting Comprehensive Income". SFAS 130 requires companies to disclose, with the same prominence as other financial statement items, the components of comprehensive income. Comprehensive income includes not only net earnings, but also revenues, expenses, gains and losses that are excluded from net earnings under generally accepted accounting principles. Examples include foreign currency translation adjustments and unrealized gains and losses on investments. SFAS 130 is effective annual periods and subsequent interim periods beginning after December 15, 1997. Adoption of SFAS 130 is not expected to materially impact the Company's reported results, since each component of comprehensive income is currently reported separately in both Shareholders' Equity on the Consolidated Balance Sheets and in the Consolidated Statements of Shareholders' Equity. The Company will include disclosure of comprehensive income in accordance with the provisions of SFAS 130 beginning in the financial statements for the first quarter of fiscal 1999. In June 1997, the FASB issued Statement No. 131 ("SFAS 131"), "Disclosures About Segments of an Enterprise and Related Information". SFAS 131 establishes new standards for the way public business enterprises are to report information about operating segments in annual financial statements and requires those enterprises to report selected financial information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS 131 is effective for annual periods beginning after December 15, 1997. Adoption of SFAS 131 will have no impact on the Company's consolidated results of operations, financial condition or cash flows. A-19 NOTE 2 - BUSINESS ACQUISITIONS During fiscal 1998, 1997, and 1996, the Company completed the following acquisitions: Date Ownership Business Acquired Percentage - ------------------------------------------------------------------------------- 1998 - ---- Chemtec Systems Limited July 1997 100% Hadley Hutt Computing Limited July 1997 100% Physi-Bill, Inc. * October 1997 100% Source Informatics Inc. a subsidiary of Pharmaceutical Marketing Services Inc. ("PMSI"), and a PMSI joint venture formed with Source Informatics Inc. December 1997 100% CheckRite International, Inc. May 1998 100% 1997 - ---- Medical Intercept Systems Group * September 1996 100% Equifax Healthcare EDI Services, Inc. October 1996 100% MARS Group * December 1996 100% Health Communication Services, Inc. January 1997 100% Electronic Data Systems Corporation's multi-client bank card processing business January 1997 100% Comerica Bank merchant portfolio January 1997 51% Physician Accounts Management & Billing, Inc. * January 1997 100% Physerv Solutions, Inc. * February 1997 100% Merchant Services U.S.A., Inc. March 1997 100% HealthTec April 1997 100% 1996 - ---- Hospital Cost Consultants, Inc. ** June 1995 100% Conceptual Systems Corp., Inc. January 1996 100% North Coast Health Care Management Group * February 1996 100% Medical Management Support, Inc. * February 1996 100% Data Processing Systems, Inc. * February 1996 100% Merchant Automated Point of Sale Program ("MAPP") April 1996 92.5% Comerica Bank merchant portfolio April 1996 51% PBS Northwest, Inc. * May 1996 100% ALM, Inc. * May 1996 100% A-20 * Acquired by PHSS prior to its merger with the Company on December 19, 1997. ** Acquired by CIS prior to its merger with the Company on May 31, 1996. Each of the foregoing acquisitions has been recorded using the purchase method of accounting, and accordingly, the purchase price has been allocated to the assets acquired and liabilities assumed based on their estimated fair value as of the date of acquisition. The allocation of the purchase price of the 1998 acquisitions is in some instances preliminary and will be adjusted when the necessary information is available. The operating results of the acquired businesses are included in the Company's consolidated statements of income (loss) from the respective dates of acquisition. On December 15, 1997, the Company acquired two related healthcare information management businesses based in Phoenix, Arizona. In this transaction the Company acquired the stock of Source Informatics Inc., a privately held company, and the stock of a subsidiary of Pharmaceutical Marketing Services Inc. ("PMSI"), which holds its Over-The-Counter Physician Survey business unit as well as PMSI's interest in a joint venture it formed with Source Informatics Inc. (collectively "Source"). The total consideration paid for the Source acquisition was $131.1 million, which consists of $38.6 million in cash and 2,658,468 shares of the Company's common stock valued at $92.5 million. The net value of the tangible assets acquired was approximately a deficit (liabilities assumed exceeded tangible assets acquired) of $7.2 million, creating an excess of cost over tangible assets of $138.3 million. It was determined $67.0 million of the excess cost over tangible assets represented in-process research and development costs which were appropriately expensed under SFAS 86 as a component of the 1998 non-recurring charges (see Note 11). The remainder of the intangible assets acquired was allocated to goodwill and customer relationships, assembled workforce, and developed technology and will be amortized over periods ranging from 7 to 20 years. The total aggregate price paid for the 1998 purchase acquisitions was $159.4 million, consisting of cash of $65.1 million, common stock of $92.7 million and notes of $1.6 million. The excess of cost over tangible assets acquired of $165.5 million was allocated to goodwill and other intangible assets and the in-process research and development charge. The goodwill and other intangible assets will be amortized over periods ranging from 5 to 20 years. The aggregate price paid for the 1997 acquisitions was $185.7 million, consisting of cash of $161.7 million, common stock of $17.8 million and notes of $6.2 million. The net value of the tangible assets acquired was approximately $0.8 million, creating an excess of cost over tangible assets of $184.9 million. The intangible assets will be amortized over periods ranging from 5 to 25 years. A-21 In order to effect the 1996 MAPP acquisition, the Company organized a Georgia limited liability company, Global Payment Systems LLC ("Global"), to which it transferred its Payment Services business unit, its Information Systems and Services business unit and certain back office support functions from the Company's Payment Systems business unit. Global then acquired MAPP from MasterCard International Incorporated ("MasterCard"). The net assets of MAPP consisted primarily of tangible personal property, leased personal and real property, customer contracts, assembled workforce and the goodwill of the business. The consideration paid for MAPP was $110 million plus the granting of a 7.5% minority interest in Global to MasterCard. The gain from the issuance of the 7.5% minority interest in Global has been reflected as a capital transaction in the Consolidated Statements of Changes in Shareholders' Equity. The total consideration paid for the MAPP business was $131.6 million, which consists of $112.8 million in cash and the 7.5% minority interest with an estimated value of $18.8 million. The net value of the tangible assets acquired was approximately $5.0 million, creating excess cost over tangible assets of $126.6 million. The aggregated estimated life of the intangible assets is 34 years. The aggregate price paid for the other purchase acquisitions completed in 1996 was $55.8 million, consisting of cash of $43.9 million, notes payable of $11.7 million and common stock of $0.2 million. The excess cost over net tangible assets acquired of $58.1 million was allocated to goodwill and intangible assets and will be amortized over periods ranging from 10 to 20 years. The following unaudited pro forma information for the fiscal 1998 and 1997 purchase acquisitions discussed above has been prepared as if these acquisitions had occurred on June 1, 1996. The information is based on historical results of the separate companies and may not necessarily be indicative of the results that would have been achieved or of results that may occur in the future. The pro forma information includes the expense for amortization of goodwill and other intangible assets resulting from these transactions and interest expense related to financing costs but does not reflect any synergies or operating cost reductions that may be achieved from the combined operations. In addition, the pro forma information excludes the impact of non-recurring charges. (In thousands, except per share data) 1998 1997 -------- -------- Revenue $716,773 $676,876 Net income $50,092 $43,577 Diluted earnings per share $1.42 $1.24 A-22 In addition to the purchase acquisitions, the Company merged with Physician Support Systems, Inc. ("PHSS") on December 19, 1997 and C.I.S. Technologies, Inc. ("CIS") on May 31, 1996. These acquisitions were accounted for using the pooling-of-interests method. In accordance with the pooling-of-interests method, the consolidated financial statements of the Company include the financial statements of these companies for all periods presented. PHSS is engaged in the business of providing business management services to hospitals and physicians. In this merger, each share of PHSS Common Stock was converted into the right to receive .435 shares of the Company's Common Stock. The Company issued approximately 4,237,784 shares of its Common Stock valued at approximately $140 million, in exchange for the outstanding PHSS Common Stock. CIS provides transaction processing, consulting and outsourcing services to the health care market, primarily hospitals and physicians. In the merger, each share of CIS Common Stock and Series A Preferred Stock was converted into the right to receive .08682 shares of the Company's Common Stock. The Company issued approximately 2,829,746 shares of its Common Stock, valued at approximately $107 million, in exchange for the outstanding CIS Common Stock and Series A Preferred Stock. Prior to its 1998 merger with the Company, PHSS consummated three transactions accounted for as a pooling-of-interests, as follows: On June 28, 1996, PHSS merged with Synergistic Systems, Inc. ("SSI") by exchanging 944,992 shares of PHSS' Common Stock for all the outstanding shares of SSI's Common Stock. On August 31, 1996, PHSS merged with EE&C Financial Services ("EE&C") by exchanging 1,026,852 shares of PHSS' Common Stock for all the outstanding shares of EE&C's Common Stock. In addition, PHSS repaid all outstanding indebtedness of EE&C in an aggregate amount of $2.6 million by issuing an additional 131,148 shares of PHSS' Common Stock. On December 31, 1996, PHSS merged with Revenue Production Management, Inc. ("RPM") by exchanging 315,048 shares of PHSS' Common Stock for all the outstanding shares of RPM's Common Stock. In accordance with the pooling-of-interests method of accounting, the consolidated financial statements of these entities were reflected in the financial statements of PHSS. A-23 A reconciliation of revenue, net income and diluted earnings per share of the Company, as previously reported and restated for the revenue recognition conformity adjustment (see Note 1), PHSS and combined is as follows:
(In thousands, except per share data) 1997 1996 - ---------------------------------------------------------------------------------------------- Revenue: NDC, as previously reported and restated $ 431,500 $ 326,472 PHSS 93,667 64,616 ========================================= Combined $ 525,167 $ 391,088 ========================================= Net income (loss): NDC, as previously reported and restated $ 37,219 $ (8,023) PHSS (7,821) (3,822) ========================================= Combined $ 29,398 $ (11,845) ========================================= Diluted earnings (loss) per share: NDC, as previously reported and restated $ 1.33 $ (0.31) ========================================= Combined $ 0.91 $ (0.40) =========================================
NOTE 3 - PROPERTY AND EQUIPMENT As of May 31, 1998 and 1997, property and equipment consisted of the following: (In thousands) 1998 1997 - ------------------------------------------------------------------------------ Land $ 402 $ 402 Buildings 7,474 6,503 Property under capital leases 29,134 14,296 Equipment 62,959 58,473 Software 32,405 35,079 Leasehold improvements 16,354 17,354 Furniture and fixtures 11,550 12,008 Work in progress 12,359 7,228 ------------------------------ 172,637 151,343 Less: accumulated depreciation and amortization 98,403 92,383 ------------------------------ $74,234 $58,960 ============================== A-24 NOTE 4 - SOFTWARE COSTS The following table sets forth information regarding the Company's costs associated with software development for the years ended May 31, 1998, 1997 and 1996
(In thousands) 1998 1997 1996 - ----------------------------------------------------------------------------------- Total costs associated with software development $15,576 $18,015 $15,706 In-process research and development charge (see Note 11) 67,000 - - Less: capitalization of internally developed software 5,013 4,805 6,872 ------------------------------------------ Net research and development costs $77,563 $13,210 $8,834 ==========================================
The Company capitalizes costs related to the development of certain software products. In accordance with Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed", capitalization of costs begins when technological feasibility has been established and ends when the product is available for general release to customers. Amortization is computed on an individual product basis and has been recognized for those products available for market based on the products' estimated economic lives, not to exceed five years. Total unamortized capitalized software costs (purchased and internally developed) were approximately $15,882,000 and $17,590,000 as of May 31, 1998 and 1997, respectively. Total software amortization expense was approximately $5,792,000, $4,928,000 and $6,445,000 in fiscal 1998, 1997 and 1996, respectively. NOTE 5 - INTANGIBLE ASSETS As of May 31, 1998 and 1997, intangible assets consisted of the following: (In thousands) 1998 1997 - ----------------------------------------------------------------- Customer base $164,753 $165,047 Trademarks 28,273 28,273 Goodwill and other intangibles 360,487 292,003 ------------------------------ 553,513 485,323 Less: accumulated amortization 95,290 77,839 ------------------------------ $458,223 $407,484 ============================== The increase in intangible assets during fiscal 1998 is primarily due to acquisitions (see Note 2). A-25 NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES As of May 31, 1998 and 1997, accounts payable and accrued liabilities consisted of the following: (In thousands) 1998 1997 ------------------------------------- Trade accounts payable $ 9,018 $16,501 Accrued compensation and benefits 15,562 11,471 Accrued merger related expenses 5,655 4,444 Accrued pensions 4,031 2,826 Merchant processing payable 306 2,009 Other accrued liabilities 38,543 30,592 ===================================== $73,115 $67,843 ===================================== A-26 NOTE 7 - RETIREMENT BENEFITS The Company has a noncontributory defined benefit pension plan (the "Plan") covering substantially all of its United States employees who have met the eligibility provisions of the plan. Benefits are based on years of service and the employee's compensation during the highest five consecutive years of earnings of the last ten years of service. Plan provisions and funding meet the requirements of the Employee Retirement Income Security Act of 1974, as amended. The following table sets forth the Plan's funded status and amounts recognized in the Company's consolidated financial statements at May 31, 1998 and 1997: (In thousands) 1998 1997 -------------------------------- Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $23,491 and $18,138, respectively $24,863 $19,126 Projected compensation increases 6,747 6,318 ------------------------------- Projected benefit obligation for services rendered to date 31,610 25,444 Plan assets at fair market value, primarily stocks and bonds 25,841 21,582 ------------------------------- Projected benefit obligation in excess of plan assets (5,769) (3,862) Unrecognized net loss 2,670 2,099 Unrecognized prior service cost 378 467 Unrecognized net asset at June 1, 1985, being amortized over 17 years (912) (1,149) ------------------------------- Accrued pension cost ($3,633) ($2,445) =============================== Net pension expense included the following components for the fiscal years ending May 31: (In thousands) 1998 1997 1996 -------------------------------------- Service cost-benefits earned during the period $2,146 $1,672 $1,272 Interest cost on projected benefit obligation 2,106 1,855 1,603 Actual return on plan assets (4,244) (2,846) (2,858) Net amortization and deferral 1,929 910 1,242 -------------------------------------- Net pension expense $1,937 $1,591 $1,259 ====================================== A-27 Significant assumptions used in determining net pension expense and related obligations were as follows: 1998 1997 ------------------------------------ Discount rate 7.25% 7.75% Rate of increase in compensation levels 4.33% 4.33% Expected long-term rate of return on assets 10.00% 10.00% The Company has a retirement plan for non-employee directors of the Company with five or more years of service ("the Directors' Plan"). The Directors' Plan benefits are based on 50% of the annual director retainer amount in effect on the date of a director's retirement plus 10% for each year of service up to 100% of the base amount for ten years' service. The benefits are payable upon retirement, at or after age 70, for a period equal to the number of years of service as a director, but not more than 15 years for participants with 15 or more years of board service as of the effective date of the Directors' Plan and not more than 10 years for all other participants. The Directors' Plan eligibility is limited to members of the board of directors of the Company elected prior to January 1, 1995. The expense related to the Directors' Plan was immaterial in fiscal 1998, 1997 and 1996. On June 1, 1997, the Company adopted a Supplemental Executive Retirement Plan ("SERP") for certain key executives. Benefits payable under this plan are based upon the participant's highest three consecutive years of earnings of the last ten years of service. Retirement benefits are reduced by a portion of the participant's annual social security benefits and any retirement benefits under the company's tax-qualified or non-qualified defined benefit plans. Benefits earned under the SERP are fully vested after five years of service. Expense related to the plan was $904,000 in fiscal 1998. The Company sponsors a deferred compensation 401(k) plan that is available to substantially all employees with three months of service. The charges to expense for the Company match were $2,127,000 in fiscal 1998, $1,348,000 in fiscal 1997 and $1,248,000 in fiscal 1996. A-28 NOTE 8 - INCOME TAXES The provision for income taxes includes: (In thousands) 1998 1997 1996 Current tax expense: ---- ---- ---- Federal $ 27,888 $ 21,946 $ 10,832 State 3,084 1,369 345 -------------------------------------------- 30,972 23,315 11,177 -------------------------------------------- Deferred (prepaid) tax expense: Federal (8,615) 399 (14,367) State (738) 118 (802) -------------------------------------------- (9,353) 517 (15,169) -------------------------------------------- Total $ 21,619 $ 23,832 $ (3,992) ============================================ The Company's effective tax rates differ from federal statutory rates as follows: 1998 1997 1996 ---- ---- ---- Federal statutory rate (35.0%) 35.0% (35.0%) State income taxes, net of federal income tax benefit 4.0% 1.8% (1.8%) Non-taxable interest income (0.1%) - (2.3%) Non-deductible amortization and write-off of intangible assets 77.4% 6.3% 18.1% Utilization of tax loss carry forwards - - (2.2%) Tax credits (1.0%) (0.7%) (2.3%) Merger costs 12.2% 1.4% 2.5% Recognition of tax assets - 0.1% (7.8%) Other (3.1%) 0.9% 5.6% --------------------------------------- Total 54.4% 44.8% (25.2%) ======================================= A-29 Deferred income taxes as of May 31, 1998 and 1997 reflect the impact of temporary differences between the amounts of assets and liabilities for financial accounting and income tax purposes. Net deferred taxes at May 31, 1998 and 1997 consisted of net current deferred tax liabilities of $92,000 and net current deferred tax assets of $1,308,000, respectively, and net non-current deferred tax assets of $20,145,000 and $9,392,000, respectively. As of May 31, 1998 and 1997, principal components of deferred tax items were as follows: (In thousands) 1998 1997 ---- ---- Deferred tax liabilities: Property and equipment $ 6,287 $ 5,758 Prepaid expenses 539 477 Unbilled accounts receivable 4,476 3,906 Other 576 1,599 ----------------------------------------- 11,878 11,740 ----------------------------------------- Deferred tax assets: Net operating loss and credit carryforwards 11,737 11,851 Accrued expenses 5,741 6,044 Acquired intangibles 7,252 3,968 Accrued non-recurring charges 8,836 1,130 Employee benefit plans 1,076 334 Valuation allowance (2,362) (2,362) Other (349) 1,475 ----------------------------------------- 31,931 22,440 ----------------------------------------- Net deferred tax asset $ 20,053 $ 10,700 ========================================= A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Realization of a portion of the operating loss and credit carryforwards are considered by management to be uncertain. The Company has established valuation allowances for a portion of these tax assets. Net operating loss and credit carryforwards expire between the years 2001 and 2011. A-30 NOTE 9 - LONG-TERM DEBT As of May 31, 1998 and 1997, long-term debt consisted of the following:
(In thousands) 1998 1997 -------- -------- Convertible notes $143,750 $143,750 Promissory notes issued in consideration for acquisitions: Electronic Data Systems Corporation 6,000 6,000 Mercantile Systems, Inc. - 3.5% due September 1997 - 1,026 Hadley Hutt Computing Ltd. - 7% due October 1998 1,301 - Hadley Hutt Computing Ltd. - 6.97% due June 2003 227 - Spring Anesthesia Group, Inc. - 7.6% due August 2003 5,500 5,500 Other notes payable: Non-interest bearing - note due May 1999 164 346 Payable to a shareholder due in monthly installments with interest at 7.5% due December 2004 156 712 Other - 601 --------------- ---------------- $157,098 $157,935 Less: current maturities 1,621 1,973 --------------- ---------------- Long-term debt $155,477 $155,962 =============== ================
On November 6, 1996, the Company issued convertible notes ("the Notes"), providing $139,682,000 in proceeds, net of $4,068,000 in debt issuance costs. The issuance costs are included in other assets and are being amortized over the life of the Notes. The Notes are unsecured subordinated obligations of the Company, $143,750,000 aggregate principal amount, and will mature on November 1, 2003. The Notes bear interest at 5% per annum and are convertible into approximately 2,750,000 shares of common stock at $52.23 per share at any time prior to maturity. Subsequent to November 1, 1999, the Notes are redeemable at the option of the Company, in whole or in part, initially at 102.857% and thereafter at prices declining to 100% at maturity, together with accrued interest. The note payable to Electronic Data Systems Corporation was issued in connection with the Company's acquisition of its multi-client bank card processing business (See Note 2). The note accrues interest monthly at a rate equal to 7.32% per annum. The principal balance and accrued interest are payable in full on the earlier of June 30, 1999 or the occurrence of any one of certain key events specified in the note. The note may be prepaid at anytime without penalty. A-31 NOTE 10 - SHAREHOLDERS' EQUITY Stock Option Plans - On October 23, 1997, the Company adopted a new employee - ------------------ stock option plan, the 1997 Stock Option Plan ("the 1997 Plan"), that provides for the granting of options to certain officers and key employees to purchase the Company's common stock. A total of 1,228,000 authorized but unissued shares of common stock are reserved under the 1997 Plan. Options may be issued at, below, or above the fair market value of the common stock at the time of grant. Options granted become exercisable in various annual increments and terminate over a period not to exceed ten years. The Company has an employee stock option plan, the 1987 Stock Option Plan ("the 1987 Plan"), that provides for the granting of options to certain officers and key employees to purchase the Company's common stock. No additional options will be granted under the 1987 Plan. Options granted become exercisable in various annual increments and terminate over a period not to exceed ten years. The Company also has a Non-Employee Directors Stock Option Plan which provides for grants of options, consisting of 5,000 shares of the Company's Common Stock for each completed year of service, to directors who are not employees of the Company. A maximum of five options may be granted to each such director, and the maximum number of shares for which options may be granted is 345,000. Options granted prior to October 26, 1995 are exercisable immediately at the current market value on the date of grant. Options granted on or after October 26, 1995 vest 20% two years after the date of grant, an additional 25% after three years, another 25% after four years, and the remaining 30% after five years. Additionally, as a result of the merger with PHSS on December 19, 1997 the Company has the Physician Support Systems, Inc. Stock Option Plan and the Synergistic Systems, Inc. Stock Option Plan ("the PHSS Plans"). However, no additional options will be granted under the PHSS Plans. All options issued under the PHSS Plans have an exercise price of not less than 100% of the fair market value of a share of the Company's common stock on the date of the grant, vest over five years and must be exercised within ten years from the date of the grant. Each PHSS option outstanding on December 19, 1997 was converted to .435 options to receive the Company's Common Stock. Other Stock Plans - The Company has an Employee Stock Purchase Plan under which - ----------------- the sale of 1,350,000 shares of its Common Stock has been authorized. Employees may designate up to the lesser of $25,000 or 20% of their annual compensation for the purchase of stock. The price for shares purchased under the plan is the lower of 85% of market value on the first day or the last day of the purchase period. At May 31, 1998, 1,071,974 shares have been issued under this plan, with 278,026 shares reserved for future issuance. A-32 The Company's 1983 Restricted Stock Plan ("the Restricted Plan") authorizes 750,000 shares of the Company's Common Stock to be awarded to key employees. Shares awarded under the Restricted Plan are held in escrow and released to the grantee upon the grantee's satisfaction of conditions of the grantee's restricted stock agreement. Awards are recorded as deferred compensation, a reduction of shareholders' equity based on the quoted fair market value of the Company's Common Stock at the award date. Compensation expense is recognized ratably during the escrow period of the award. There were 44,111, 34,132 and 3,864 shares of the Company's Common Stock awarded under the Restricted Plan during fiscal years 1998, 1997 and 1996, respectively. These awards have restriction periods of one to three years. As of May 31, 1998, 64,865 shares remained in escrow. There were 407,641 shares reserved for future issuance under this plan. The Company expensed $649,000, $327,000 and $232,000 for the years ended May 31, 1998, 1997 and 1996, respectively, in connection with the Restricted Plan. A-33 Transactions under the Stock Option Plans are summarized as follows:
1987 Plan Non-Employee Directors Plan ------------------------------------------------------------------------------------ Weighted Average Weighted Average Shares Under Option Price Per Shares Under Option Price Per Option Share Option Share ------------------------------------------------------------------------------------ Outstanding at May 31, 1995 2,816,685 $ 13.11 259,500 $ 11.66 Granted 682,875 22.96 25,000 25.13 Exercised (566,411) 7.98 (51,000) 10.24 Expired or terminated (244,984) 13.33 - - - -------------------------------------------------------------------------------------------------------------------------- Outstanding at May 31, 1996 2,688,165 15.54 233,500 13.41 Granted 214,050 36.11 25,000 41.00 Exercised (220,807) 15.48 (13,500) 15.03 Expired or terminated (211,576) 17.26 - - - -------------------------------------------------------------------------------------------------------------------------- Outstanding at May 31, 1997 2,469,832 17.21 245,000 16.14 Granted 212,950 37.56 25,000 36.94 Exercised (279,417) 11.16 (25,500) 12.48 Expired or terminated (131,382) 28.36 - - - -------------------------------------------------------------------------------------------------------------------------- Outstanding at May 31, 1998 2,271,983 19.21 244,500 18.65 - -------------------------------------------------------------------------------------------------------------------------- Exercisable at May 31, 1998 1,134,336 13.25 174,500 12.08 - -------------------------------------------------------------------------------------------------------------------------- Available for future grants - - - -------------------------------------------------------------------------------------------------------------------------- 1997 Plan PHSS Plans ------------------------------------------------------------------------------- Weighted Average Weighted Average Shares Under Option Price Per Shares Under Option Price Per Option Share Option Share ------------------------------------------------------------------------------- Outstanding at May 31, 1995 - $ - - $ - Granted - - 92,325 34.52 Exercised - - - - Expired or terminated - - - - - -------------------------------------------------------------------------------------------------------------------------- Outstanding at May 31, 1996 - - 92,325 34.52 Granted - - 262,486 35.44 Exercised - - - - Expired or terminated - - (43,494) 40.34 - -------------------------------------------------------------------------------------------------------------------------- Outstanding at May 31, 1997 - - 311,317 34.48 Granted 142,800 33.81 20,515 36.77 Exercised - - (84,517) 25.71 Expired or terminated (28,000) 35.50 (5,544) 32.20 - -------------------------------------------------------------------------------------------------------------------------- Outstanding at May 31, 1998 114,800 33.40 241,771 37.79 - -------------------------------------------------------------------------------------------------------------------------- Exercisable at May 31, 1998 - - 217,846 38.94 - -------------------------------------------------------------------------------------------------------------------------- Available for future grants 1,113,200 - - --------------------------------------------------------------------------------------------------------------------------
A-34 The following table sets forth the exercise price range, number of shares, weighted average exercise price and remaining contractual lives by groups of similar price and grant dates:
1987 Plan Non-Employee Director Plan --------------------------------------------------------------------------------------------------- Number of Weighted Weighted Average Number of Weighted Weighted Average Exercise Price Range Shares Average Contractual Life Shares Average Contractual Life Price Price - -------------------------------------------------------------------------------------------------------------------------- $ 6.17 - $ 9.17 456,949 $ 6.69 4.0 years 97,500 $ 7.87 3.5 years $ 9.67 - $14.33 659,519 10.54 5.6 years 30,000 10.83 5.5 years $15.25 - $22.54 488,722 21.04 6.9 years 42,000 21.20 1.3 years $23.38 - $34.38 356,416 29.20 7.3 years 25,000 25.13 7.5 years $35.99 - $53.27 279,780 39.14 8.4 years 50,000 38.97 8.9 years $56.15 - $78.47 30,597 65.40 4.5 years - - - 1997 Plan PHSS Plans --------------------------------------------------------------------------------------------------- Number of Weighted Weighted Average Number of Weighted Weighted Average Exercise Price Range Shares Average Contractual Life Shares Average Contractual Life Price Price - --------------------------------------------------------------------------------------------------------------------------- $15.25 - $22.54 - - - 35,661 $ 18.58 8.9 years $23.04 - $32.56 89,600 32.56 9.5 years 41,411 25.33 8.4 years $35.20 - $50.00 25,200 36.38 9.6 years 164,699 45.09 8.4 years
The Company has chosen the disclosure option under SFAS No. 123 and continues to apply APB Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for options granted under the plans. Had compensation cost for these plans been recognized based on the fair value of the options at the grant dates for awards under the plans consistent with the method of SFAS No. 123, the Company's net income and earnings per share would have been reduced to the following pro forma amounts:
(In thousands, except per share data) 1998 1997 1996 ------------------------------------------------------ Net Income: As reported $ (61,326) $ 29,398 $ (11,845) Pro forma (63,796) 27,741 (12,578) Basic earnings (loss) per share: As reported (1.90) 0.96 (0.40) Pro forma (1.98) 0.91 (0.42) Diluted earnings (loss) per share: As reported (1.90) 0.91 (0.40) Pro forma (1.98) 0.87 (0.42)
A-35 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for the grants during the respective fiscal year:
1998 1997 1996 -------------------------------------------- 1987 Plan Risk-free interest rates 6.3% 6.6% 6.1% Expected dividend yields 0.8% 0.8% 1.4% Expected lives 7 years 7 years 7 years Non-employee Directors Plan Risk-free interest rates 4.2% 6.5% 6.2% Expected dividend yields 0.6% 0.7% 1.2% Expected lives 10 years 10 years 10 years 1997 Plan Risk-free interest rates 5.8% - - Expected dividend yields 0.9% - - Expected lives 7 years - - PHSS Plans Risk-free interest rates 6.0% 6.7% 6.1% Expected dividend yields 0.8% 1.1% 0.8% Expected lives 7 years 7 years 5 years Employee Stock Purchase Plan Risk-free interest rates 5.5% 5.7% 5.6% Expected dividend yields 0.8% 0.7% 1.1% Expected lives 1 year 1 year 1 year
The expected volatility assumption is 40% for all plans and all years presented. A-36 NOTE 11 - NON-RECURRING CHARGES Non-recurring charges include the following components for the fiscal years ending May 31: (In thousands) 1998 1997 1996 ---- ---- ---- Asset impairment $32,353 $6,578 $35,116 In-process research & development 67,000 -- -- Merger related expenses 20,810 2,925 12,602 ========================================= Total $120,163 $9,503 $47,718 ========================================= In connection with the December 1997 mergers with PHSS and Source, the Company incurred a non-recurring, pre-tax charge of $120.2 million. Included in this charge was $67.0 million for in-process research and development, $32.4 million for asset impairment, and $20.8 million for merger related expenses ($14.3 million of cash items and $6.5 million, non-cash). The in-process research and development charge, asset impairment and portions of the merger related expenses were considered non-cash items, totaling $110.3 million. The cash merger related expenses were either paid at the time of the merger or accrued at the time the expenses were incurred. Assets impaired included intangible assets and capitalized software. As a result of the Source and PMSI acquisition, the Company obtained an independent third party valuation of the research and development activities of the acquired companies. The valuation determined that $67.0 million of the acquired companies' projects represented in-process research and development that was not capitalizable under generally accepted accounting principles. The merger related expenses consisted of transaction costs of $7.0 million, anticipated severance benefits and other related costs of $7.3 million arising from the Company's plans to realign redundant operations and activities, and restructuring charges of $6.5 million. Merger transaction costs primarily consisted of investment banking and professional fees. Restructuring charges included the write-off of PHSS prepaid expenses from which the Company will not realize future economic value and a provision for additional PHSS integration costs. As of May 31, 1998, $9.0 million have been expended toward the 1998 restructuring activities and merger transaction cost accruals, leaving $4.9 million accrued primarily for future severance costs. A-37 In connection with PHSS' fiscal 1997 mergers with EE&C and RPM and operating inefficiencies at PHSS' subsidiary, Spring Anesthesia Group, Inc. ("Spring"), a total charge of $9.5 million was incurred. Included in this charge was $2.2 million for the merger transaction costs (cash items), $6.6 million for Spring intangible impaired assets (primarily customer contracts and goodwill) and $0.7 million to exit Spring processing facilities (cash item). The Spring operating inefficiencies led to client dissatisfaction. PHSS' efforts to improve operating conditions were unsuccessful and led to the loss of clients and related revenues. As a result, it was determined an impairment loss should be recognized under SFAS 121. As of May 31, 1998, all amounts accrued for the cash items under the 1997 non-recurring charges have been expended. As of May 31, 1997, $2.1 million had been expended toward the 1997 merger transaction cost accruals, leaving $0.1 million. In connection with the fiscal 1996 creation of Global and the merger with CIS, the Company incurred a total charge of $44.1 million. Included in this charge was $35.1 million for intangibles and capitalized software asset impairment (non-cash charge), $5.2 million for restructuring, and $3.8 million for merger transaction costs. The restructuring and merger transaction costs that were considered cash items were accrued at the time the charges were incurred. The restructuring charge reflects the anticipated severance benefits and other related costs arising from the Company's plans to downsize personnel in areas of redundant operations and activities. Merger transaction costs primarily consisted of investment banking and professional fees related to the CIS merger. In connection with PHSS' fiscal 1996 merger with SSI, a total charge of $3.6 million was incurred, primarily for transaction and other merger related costs, including severance activities. As of May 31, 1998, $0.7 million remains accrued under the 1996 restructuring activities, expending $4.0 million during the fiscal year. During the period ended May 31, 1997, $3.1 million and $3.5 million had been expended toward the 1996 restructuring activities and merger transaction cost accruals, leaving $4.3 million accrued at the end of this period. A-38 NOTE 12 - RELATED PARTY TRANSACTIONS During fiscal 1996, Global Payment Systems, a subsidiary of the Company, purchased MAPP from MasterCard International Incorporated (see Note 2). In addition, MasterCard holds a 7.5% minority interest in Global. There are agreements in place for MasterCard to provide certain services for the MAPP business unit during a defined transition period. There were accounts payable of $363,000 at May 31, 1998 and $2,348,000 at May 31, 1997. Also during fiscal 1996, National Data Payment Systems, Inc., a subsidiary of the Company, formed an alliance with Comerica Bank and purchased a 51% ownership interest in a merchant portfolio (see Note 2). There are agreements in place for the Company to reimburse Comerica Bank for any expenses incurred on behalf of the alliance. The Company had $99,000 at May 31, 1998 and $162,000 at May 31, 1997 payable to Comerica Bank for such expenses included in its accounts payable balance. Legal services provided by related parties were $3,243,000, $3,397,000, and $4,338,000 for the years ended May 31, 1998, 1997 and 1996, respectively. A-39 NOTE 13 - LEASE OBLIGATIONS The Company conducts a major part of its operations using leased facilities and equipment. Many of these leases have renewal and purchase options and provide that the Company pay the cost of property taxes, insurance and maintenance. Rent expense on all operating leases for fiscal 1998, 1997 and 1996 was approximately $19,372,000, $14,524,000 and $10,713,000, respectively. Future minimum lease payments for all noncancelable leases at May 31, 1998 were as follows:
Capital Leases Operating Leases -------------- ---------------- (In thousands) 1999 $12,501 $13,229 2000 8,144 10,083 2001 3,664 7,743 2002 1,328 6,073 2003 430 3,255 Thereafter - 4,328 ----------------------------------- Total future minimum lease payments 26,067 $44,711 ================= Less: amount representing interest 2,624 ----------------- Present value of net minimum lease payments 23,443 Less: current portion 11,053 ----------------- Long-term obligations under capital leases at May 31, 1998 $12,390 =================
NOTE 14 - COMMITMENTS AND CONTINGENCIES The Company is party to a number of claims and lawsuits incidental to its business. In the opinion of management, the ultimate outcome of such matters, in the aggregate, will not have a material adverse impact on the Company's financial position, liquidity or results of operations. In fiscal 1998, the Company entered into a $125,000,000 committed line of credit primarily to fund the Company's acquisition requirements and a $15,000,000 uncommitted line of credit to fund working capital requirements. The lines of credit are not secured. These agreements require the Company to maintain certain financial ratios and contain other restrictive covenants. As of May 31, 1998, there was $75,000,000 outstanding under the committed line of credit and the Company was in compliance with all restrictive covenants. The committed line of credit expires in 2002. A-40 As of May 31, 1998, the Company processed credit card transactions for approximately 126,000 direct merchant locations. The Company's merchant customers have liability for charges disputed by cardholders. However, in the case of merchant fraud or insolvency or bankruptcy of the merchant, the Company may be liable for any of such charges disputed by cardholders. The Company requires cash deposits and other types of collateral by certain merchants to minimize any such contingent liability. In addition, the Company believes that the diversification of its merchant portfolio among industries and geographic regions minimizes its risk of loss. The Company recognizes revenue based on a percentage of the gross amount charged and has a potential liability for the full amount of the charge. The Company establishes reserves for operational losses based on historical and projected experiences concerning such charges. In the opinion of management, such reserves for losses are adequate. The Company also has a check guarantee business. Similar to the credit card business, the Company charges its merchants a percentage of the gross amount of the check and guarantees payment of the check to the merchant in the event the check is not honored by the checkwriter's bank. As a result, the Company incurs operational charges in this line of business. The Company has the right to collect the full amount of the check from the checkwriter but has not historically recovered 100% of the guaranteed checks. The Company establishes reserves for this activity based on historical and projected loss experiences. Expenses of $8,844,000, $8,061,000 and $7,120,000 were recorded for fiscal 1998, 1997 and 1996, respectively, for these reserves. In connection with the Company's acquisition of merchant credit card operations of banks, the Company has also entered into depository and processing agreements ("the Agreements") with certain of the banks. The Agreements allow the Company to use the banks' "Bank Identification Number" ("BIN") to clear credit card transactions through VISA and MasterCard. Certain Agreements contain financial covenants, and the Company was in compliance with all such covenants as of May 31, 1998 or had obtained a verbal waiver of such covenants. In the event of the termination of these Agreements, the Company would be able to obtain alternative BIN agreements without material harm to the Company. A-41 NOTE 15 - SUPPLEMENTAL CASH FLOW INFORMATION Supplemental cash flow disclosures and non-cash investing and financing activities for the years ended May 31, 1998, 1997 and 1996 are as follows:
(In thousands) 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------- Supplemental cash flow information: Income taxes paid, net of refunds $32,023 $19,103 $9,623 Interest paid 11,424 9,743 3,983 Supplemental non-cash investing and financing activities: Capital leases entered into in exchange for property and equipment 10,426 2,195 1,412
In fiscal 1998, 1997 and 1996, the Company acquired various businesses that were accounted for as purchases (see Note 2). In conjunction with these transactions, liabilities were assumed as follows:
(In thousands) 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------- Fair value of assets acquired $209,128 $206,008 $201,452 Notes and deferred payments (1,528) (6,195) (11,654) Stock issued (92,748) (17,830) (250) Cash acquired (1,982) (419) (10,554) Liabilities assumed (49,757) (20,265) (32,870) ============================================== Cash paid for acquisitions $63,113 $161,299 $146,124 ==============================================
NOTE 16 - QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
(In thousands, except per share data) Quarter Ended Aug. 31 Nov. 30 Feb. 28 May 31 - --------------------------------------------------------------------------------------------------------------- Fiscal Year 1998 Revenue $147,904 $144,325 $171,541 $185,274 Operating income 21,799 14,870 (92,271) 29,706 Net income 11,590 7,062 (96,227) 16,249 Basic earnings per share .38 .23 (2.89) .48 Diluted earnings per share .36 .22 (2.89) .47 Fiscal Year 1997 Revenue $120,237 $123,243 $136,783 $144,904 Operating income 13,950 7,894 17,562 21,446 Net income 5,489 2,595 9,725 11,589 Basic earnings per share .18 .09 .32 .38 Diluted earnings per share .17 .08 .30 .36
A-42 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To National Data Corporation: We have audited the accompanying consolidated balance sheets of National Data Corporation (a Delaware corporation) and subsidiaries as of May 31, 1998 and 1997 and the related consolidated statements of income (loss), changes in shareholders' equity, and cash flows for each of the three years in the period ended May 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of National Data Corporation and subsidiaries as of May 31, 1998 and 1997 and the results of their operations and their cash flows for each of the three years in the period ended May 31, 1998, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Atlanta, Georgia July 15, 1998 A-43 NATIONAL DATA CORPORATION CONSOLIDATED SCHEDULE II VALUATION & QUALIFYING ACCOUNTS
- ---------------------------------------------------------------------------------------------------------- (In Thousands) Column A Column B Column C Column D Column E 1 2 Balance at Charged to Uncollectible Balance at Beginning Cost and Acquired Accounts End Description of Period Expenses Balances Write-Off of Period Trade Receivable Allowances: May 31, 1996 2,004 5,632 11 4,018 $3,629 May 31, 1997 3,629 5,216 1,764 5,706 $4,903 May 31, 1998 4,903 8,006 619 6,134 $7,394
A-44 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE We have audited in accordance with generally accepted auditing standards, the financial statements included in National Data Corporation's annual report to shareholders in this Form 10-K, and have issued our report thereon dated July 15, 1998. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index on page 28 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Atlanta, Georgia July 15, 1998 A-45 NATIONAL DATA CORPORATION FORM 10-K INDEX TO EXHIBITS Exhibit Numbers Description 10(vii) Credit Agreement dated as of December 19, 1997, among the Registrant, The First National Bank of Chicago, as Administrative Agent, Wachovia Bank, N.A., as Documentation Agent, and the Lenders named therein. 10(viii) First Amendment dated April 10, 1998 to the Credit Agreement dated as of December 19, 1997, among the Registrant, The First National Bank of Chicago, as Administrative Agent, Wachovia Bank, N.A., as Documentation Agent, and the Lenders named therein. (21) Subsidiaries of the Registrant. (included in Appendix A). (23) Consent of Independent Public Accountants (included in Appendix A). (27) Financial Data Schedule (for SEC use only). (99.1) Private Securities Litigation Reform Act Of 1995 Safe Harbor Compliance Statement For Forward-Looking Statements. A-46 EX-10.7 2 CREDIT AGREEMENT EXHIBIT 10.7 CREDIT AGREEMENT THIS CREDIT AGREEMENT dated as of December 19, 1997, among NATIONAL DATA CORPORATION, as Borrower, the banks and other financial institutions listed on the signature pages hereof, as Lenders, THE FIRST NATIONAL BANK OF CHICAGO, as Administrative Agent for such Lenders, and WACHOVIA BANK, N.A., as Documentation Agent for such lenders. The parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Definitions. The terms as defined in this Section 1.01 ----------- shall, for all purposes of this Agreement and any amendment hereto (except as herein otherwise expressly provided or unless the context otherwise requires), have the meanings set forth herein: "Absolute Rate" means, with respect to an Absolute Rate Loan made by a ------------- Lender for the relevant Absolute Rate Interest Period, the rate of interest per annum (rounded to the nearest 1/10,000 of 1%) offered by such Lender and accepted by the Borrower pursuant to Section 2.04(f). "Absolute Rate Advance" means a Borrowing hereunder consisting of the --------------------- aggregate amount of the several Absolute Rate Loans made by some or all of the Lenders to the Borrower at the same time and for the same Absolute Rate Interest Period. "Absolute Rate Auction" means a solicitation of Competitive Bid Quotes --------------------- setting forth Absolute Rates pursuant to Section 2.04. "Absolute Rate Interest Period" means, with respect to an Absolute Rate ----------------------------- Advance or Absolute Rate Loan, a period of not less than 7 and not more than 180 days commencing on a Business Day selected by the Borrower pursuant to this Agreement, but in no event extending beyond the Facility Termination Date. If an Absolute Rate Interest Period would end on a day that is not a Business Day, such Absolute Rate Interest Period shall end on the next succeeding Business Day. "Absolute Rate Loan" means a Loan which bears interest at the Absolute ------------------ Rate. "Acquisition" means any transaction, or any series of related transactions, ----------- consummated on or after the date of this Agreement, by which the Borrower or any of its Subsidiaries (i) acquires any going business or all or substantially all of the assets of any firm, corporation, limited liability company or division thereof, whether through purchase of assets, merger or otherwise or (ii) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) or a majority (by percentage or voting power) of the outstanding ownership interests of a partnership or limited liability company. "Administrative Agent" means The First National Bank of Chicago, a national -------------------- banking association organized under the laws of the United States of America, in its capacity as administrative agent for the Lenders hereunder, its successors and permitted assigns in such capacity, and any other Person appointed as Administrative Agent in accordance with Section 8.09. "Administrative Agent/Arranger Letter Agreement" means that certain letter ---------------------------------------------- agreement dated as of July 8, 1997, among the Borrower, GPS, the Administrative Agent, and the Arranger relating to certain fees from time to time payable to the Administrative Agent and the Arranger, together with all amendments and supplements thereto. "Advance" means a Borrowing hereunder (or, in the case of a Syndicated ------- Advance, the conversion or continuation thereof) consisting of the aggregate amount of the several Loans made by one or more of the Lenders to the Borrower on the same Borrowing Date (or date of conversion or continuation), of the same Type (or, in the case of a Competitive Bid Advance, on the same interest basis) and, in the case of a Fixed Rate Advance, for the same Interest Period, and includes a Syndicated Advance, a Competitive Bid Advance, and a Swing Line Advance. "Affiliate" means (i) any Person that directly, or indirectly through one --------- or more intermediaries, controls the Borrower (a "Controlling Person"), (ii) any Person (other than the Borrower) which is controlled by or is under common control with a Controlling Person, or (iii) any Person of which the Borrower owns, directly or indirectly, 20% or more of the common stock or equivalent equity interests. As used herein, the term "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Aggregate Commitment" means the aggregate of the Commitments of all the -------------------- Lenders, being $125,000,000 as of the date of this Agreement, as the same may be reduced from time to time pursuant to the terms hereof. "Aggregate Subsidiary Threshold" means an amount equal to eighty percent ------------------------------ (80%) of (i) the total consolidated revenue of the Borrower and its Subsidiaries (which includes the GPS Group), less (ii) the total consolidated revenue of the GPS Group, in each case for the most recent Fiscal Quarter as shown on the Financial Statements (Annual) or Financial Statements -2- (Quarterly), as the case may be, as most recently delivered or required to be delivered pursuant to Section 5.01. "Agreement" means this Credit Agreement, together with all amendments and --------- supplements hereto and all restatements hereof. "Alternate Base Rate" means, for any day, a rate of interest per annum ------------------- equal to the higher of (i) the Corporate Base Rate for such day and (ii) the sum of the Federal Funds Effective Rate for such day plus 2%. "Applicable Margin" means, at any date of determination thereof with ----------------- respect to any Syndicated Advance, the respective rates per annum for such Syndicated Advance calculated in accordance with Section 2.06(c). "Approved Investment Policy" means, with respect to the Borrower or any of -------------------------- its Subsidiaries, the cash investments policy formally approved by its Board of Directors from time to time, a copy of which policy as in effect on the Closing Date has been delivered to the Administrative Agent, together with any subsequent amendment, exception or supplement thereto, to the extent a copy of such amendment, exception or supplement has previously been delivered to the Administrative Agent. "Arranger" means First Chicago Capital Markets, Inc., a Delaware -------- corporation, and its successors, in its capacity as arranger of the credit facilities provided to the Borrower by this Agreement. "Asset Purchase and Contribution Agreement" means the Asset Purchase and ----------------------------------------- Contribution Agreement dated as of February 22, 1996, among Mastercard International Incorporated, the Borrower, and POS Acquisition Company LLC, as amended by Amendment No. 1 to Asset Purchase and Contribution Agreement dated as of February 22, 1996, among the Borrower, Mastercard International Incorporated, GPS, GPS Holding Limited Partnership, National Data Corporation of Canada, Ltd., National Data Payment Systems, Inc., and NDC International, Ltd. "Assignee" has the meaning set forth in Section 9.08(c) -------- "Assignment Agreement" means an Assignment Agreement executed in accordance -------------------- with Section 9.08(c) in the form attached hereto as Exhibit F. --------- "ATT" means collectively, both (i) AT&T Capital Leasing Services, Inc., a --- Massachusetts corporation, and (ii) Eaton Financial Corporation, a Massachusetts corporation, a subsidiary of AT&T Capital Corporation. -3- "ATT Agreements" means both (i) that certain lease program agreement dated -------------- as of March 7, 1994 with Eaton Financial Corporation, and (ii) that certain purchase agreement dated as of December 30, 1994 with AT&T Capital Leasing Services, Inc., together with all amendments and supplements thereto. "Authorized Officer" means any of the President, Chief Financial Officer, ------------------ Treasurer, or Secretary of the Borrower, acting singly. "Borrower" means National Data Corporation and its successors and permitted -------- assigns. "Borrowing" means a borrowing hereunder consisting of a Loan or Loans made --------- to the Borrower pursuant to Article II. "Borrowing Date" means a date on which an Advance is made hereunder. -------------- "Business Day" means (i) with respect to any borrowing, payment or rate ------------ selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago and New York for the conduct of substantially all of their commercial lending activities and on which dealings in United States dollars are carried on in the London interbank market, and (ii) for all other purposes, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago for the conduct of substantially all of their commercial lending activities. "Capital Expenditures" means, without duplication, any expenditures for any -------------------- purchase or other acquisition of any asset that would be classified as a fixed or capital asset on a consolidated balance sheet of the Borrower and its Subsidiaries prepared in accordance with GAAP. "Capital Stock" means any nonredeemable capital stock (or in the case of a ------------- limited liability company, the members' equivalent equity interest) of the Borrower or any of its Consolidated Subsidiaries (to the extent issued to a Person other than the Borrower), whether common or preferred. "Capitalized Lease" of a Person means any lease of Property by such Person ----------------- as lessee that would be capitalized on a balance sheet of such Person prepared in accordance with GAAP. "CERCLA" means the Comprehensive Environmental Response Compensation and ------ Liability Act, 42 U.S.C. ' 9601 et. seq. and its implementing regulations and amendments. "CERCLIS" means the Comprehensive Environmental Response Compensation and ------- Liability Inventory System established pursuant to CERCLA. "Closing Date" means the date on which all conditions set forth in Section ------------ 3.01 are fulfilled. -4- "Code" means the Internal Revenue Code of 1986, as amended, or any ---- successor Federal tax code. "Comerica" means, collectively, (i) NDPS Comerica Alliance, LLC, a Georgia -------- limited liability company, (ii) the subsidiaries of such company, and (iii) the successors of the Persons described in the foregoing clauses (i) and (ii) resulting from a conversion of such Person to a corporation or a limited liability company. "Commitment" means (i) for each Lender, the obligation of such Lender to ---------- make Syndicated Loans not exceeding the applicable amount set forth opposite its signature below or as set forth in any Notice of Assignment relating to any assignment thereof that has become effective pursuant to Section 9.08(c), as such amount may be reduced from time to time pursuant to the terms hereof, and (ii) for the Swing Line Lender, the obligation of the Swing Line Lender to make Swing Line Loans not exceeding $15,000,000 or as set forth in any Notice of Assignment relating to any assignment thereof that has become effective pursuant to Section 9.08(c), as such amount may be reduced from time to time pursuant to the terms hereof. "Competitive Bid Advance" means a borrowing hereunder consisting of the ----------------------- aggregate amount of the several Competitive Bid Loans made by some or all of the Lenders to the Borrower on the same Borrowing Date, at the same interest basis, and for the same Interest Period. "Competitive Bid Borrowing Notice" is defined in Section 2.04(f). -------------------------------- "Competitive Bid Loan" means, with respect of a Lender, a Loan made by such -------------------- Lender pursuant to Section 2.04. "Competitive Bid Margin" means the margin above or below the applicable ---------------------- Eurodollar Base Rate offered for a Eurodollar Bid Rate Loan, expressed as a percentage (rounded to the nearest 1/100 of 1%) to be added or subtracted from such Eurodollar Base Rate. "Competitive Bid Note" means a promissory note, substantially in the form -------------------- of Exhibit "A-2" with appropriate insertions, duly executed and delivered to the ------------- Administrative Agent by the Borrower for the account of a Lender and payable to the order of such Lender, including any amendment, modification, renewal or replacement of such promissory note. "Competitive Bid Quote" means a Competitive Bid Quote, substantially in the --------------------- form of Exhibit "D" hereto, completed and delivered by a Lender to the ----------- Administrative Agent in accordance with Section 2.04(d). "Competitive Bid Quote Request" means a Competitive Bid Quote Request, ----------------------------- substantially in the form of Exhibit "B" hereto, completed and delivered by the ----------- Borrower to the Administrative Agent in accordance with Section 2.04(b). -5- "Compliance Certificate" means a compliance certificate, substantially in ---------------------- the form of Exhibit "E" hereto, signed by the chief financial officer or chief ----------- accounting officer of the Borrower, showing the calculations necessary to determine compliance with this Agreement and stating that no Default or Event of Default exists, or if any Default or Event of Default exists, stating the nature and status thereof. "Consolidated Cash Flow" means, as at any date of determination for any ---------------------- period, with respect to the Borrower and its Consolidated Subsidiaries on a consolidated basis for such period and in accordance with GAAP, Consolidated Net Income, plus (to the extent deducted in calculating such Consolidated Net ---- Income) the sum of (i) depreciation and amortization, and (ii) all other non- cash charges (less non-cash gains). "Consolidated Debt" means at any date the Debt of the Borrower and its ----------------- Consolidated Subsidiaries, determined on a consolidated basis as of such date. "Consolidated Fixed Charges" means, without duplication, as at any date of -------------------------- determination for any period, with respect to the Borrower and its Consolidated Subsidiaries on a consolidated basis for such period and in accordance with GAAP, the sum of (i) Consolidated Interest Expense, and (ii) all payment obligations of the Borrower and its Consolidated Subsidiaries under all Operating Leases and rental agreements. "Consolidated Funded Debt" means at any date, with respect to the Borrower ------------------------ and its Consolidated Subsidiaries on a consolidated basis as of such date and in accordance with GAAP, Consolidated Debt (excluding therefrom, however, Guarantees of Debt of the Borrower or any of its Consolidated Subsidiaries, respectively, by the Borrower or any such Consolidated Subsidiary). "Consolidated Interest Expense" means, as at any date of determination for ----------------------------- any period, without duplication, interest, whether expensed or capitalized, in respect of outstanding Consolidated Debt of the Borrower and its Consolidated Subsidiaries during such period; provided, that, in determining Consolidated -------- ---- Interest Expense, interest on Debt referred to in clauses (viii) and (ix) of the definition of Debt shall only be included to the extent that the Borrower's or any Consolidated Subsidiary's obligation to pay such Debt is not contingent in nature, as of any date of determination. "Consolidated Net Income" means, as at any date of determination for any ----------------------- period, the Net Income of the Borrower and its Consolidated Subsidiaries determined on a consolidated basis for such period, but excluding (i) extraordinary items, and (ii) any equity interests of the Borrower or any Consolidated Subsidiary in the unremitted earnings of any Person that is not a Consolidated Subsidiary. "Consolidated Net Worth" means, at any date, the shareholders' (or in the ---------------------- case of a limited liability company, the members') equity of the Borrower and its Consolidated -6- Subsidiaries, as set forth or reflected on the most recent consolidated balance sheet of the Borrower and its Consolidated Subsidiaries prepared in accordance with GAAP, but excluding any Redeemable Preferred Stock of the Borrower or any --- --------- of its Consolidated Subsidiaries. Shareholders' equity generally would include, but not be limited to (i) the par or stated value of all outstanding Capital Stock, (ii) capital surplus, (iii) retained earnings, and (iv) various deductions such as (A) purchases of treasury stock, (B) valuation allowances, (C) receivables due from an employee stock ownership plan, (D) employee stock ownership plan debt guarantees, and (E) translation adjustments for foreign currency transactions. "Consolidated Subsidiary" means at any date any Subsidiary or other entity ----------------------- the accounts of which, in accordance with GAAP, would be consolidated with those of the Borrower in its consolidated financial statements as of such date; provided, however, that Comerica shall be treated as a Consolidated Subsidiary - -------- ------- only for purposes of (i) determining the Borrower's Status pursuant to Section 2.06(c) and (ii) Sections 6.01, 6.02 and 6.03. "Contribution Agreement" means the Contribution Agreement, substantially in ---------------------- the form of Exhibit "J" executed and delivered by the Borrower and those ----------- Consolidated Subsidiaries of the Borrower that are parties to the Subsidiary Guarantee, in favor of the Administrative Agent for the ratable benefit of the Lenders, as the same may be amended, supplemented and restated from time to time. "Contribution Agreement Supplement" means the Supplement substantially in --------------------------------- the form of Annex I to the Contribution Agreement executed and delivered by an ------- Operating Subsidiary of the Borrower pursuant to Section 5.03. "Controlled Group" means all members of a controlled group of corporations ---------------- and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414 of the Code. "Conversion/Continuation Notice" is defined in Section 2.03(g). ------------------------------ "Corporate Base Rate" means a rate per annum equal to the corporate base ------------------- rate of interest announced by First Chicago from time to time, changing when and as said corporate base rate changes. "Debt" of any Person means at any date, without duplication, (i) all ---- obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee under Capitalized Leases and leases (so-called "synthetic leases") that are treated as finance leases for tax purposes but that do not constitute Capitalized Leases under generally accepted accounting principles, (v) all obligations of such Person to reimburse any bank or other Person in respect of amounts payable -7- under a banker's acceptance, (vi) all Redeemable Preferred Stock of such Person, (vii) all obligations (regardless of whether contingent or absolute) of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (viii) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person, (ix) all Debt of others Guaranteed by such Person, and (x) the present value of estimated future payments payable in connection with earn-out agreements executed in connection with Acquisitions by such Person, all as determined in accordance with GAAP; provided, however, "Debt" of the Borrower or -------- ------- any Subsidiary of the Borrower shall not be deemed to include any non-recourse obligations under any Equipment Lease Agreements. "Default" means any condition or event which constitutes an Event of ------- Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Documentation Agent" means Wachovia Bank, N.A., a national banking ------------------- association organized under the laws of the United States of America, in its capacity as documentation agent for the Lenders, its successors and permitted assigns in such capacity, and any other Person appointed as Documentation Agent hereunder. "Dollars" or "$" means dollars in lawful currency of the United States of ------- - America. "Environmental Authorizations" means all licenses, permits, orders, ---------------------------- approvals, notices, registrations or other legal prerequisites for conducting the business of the Borrower and its Subsidiaries required by any Environmental Requirement. "Environmental Authority" means any foreign, federal, state, local or ----------------------- regional government that exercises any form of jurisdiction or authority under any Environmental Requirement. "Environmental Judgments and Orders" means all judgments, decrees or orders ---------------------------------- arising from or in any way associated with any Environmental Requirements, whether or not entered upon consent or written agreements with an Environmental Authority or other entity arising from or in any way associated with any Environmental Requirement, whether or not incorporated in a judgment, decree or order. "Environmental Liabilities" means any liabilities, whether accrued, ------------------------- contingent or otherwise, arising from and in any way associated with any Environmental Requirements. "Environmental Notices" means notice from any Environmental Authority or by --------------------- any other person or entity, of possible or alleged noncompliance with or liability under any Environmental Requirement, including without limitation any complaints, citations, demands or requests from any Environmental Authority or from any other person or entity for correction of -8- any, violation of any Environmental Requirement or any investigations concerning any violation of any Environmental Requirement. "Environmental Proceedings" means any judicial or administrative ------------------------- proceedings arising from or in any way associated with any Environmental Requirement. "Environmental Releases" means releases as defined in CERCLA or under any ---------------------- applicable state or local environmental law or regulation. "Environmental Requirements" means any legal requirement relating to -------------------------- health, safety or the environment and applicable to the Borrower, any Subsidiary or the Properties, including but not limited to any such requirement under CERCLA or similar state legislation and all federal, state and local laws, ordinances, regulations, orders, writs, decrees and common law. "Equipment Lease Agreements" means the ATT Agreement, the Sanwa Agreement -------------------------- and any other similar agreements (whether relating to software and/or hardware) entered into by the Borrower or any of the Subsidiary Guarantors from time to time. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended from time to time, or any successor law. Any reference to any provision of ERISA shall also be deemed to be a reference to any successor provision or provisions thereof. "Eurodollar Advance" means a Eurodollar Syndicated Advance or a Eurodollar ------------------ Bid Rate Advance, as applicable. "Eurodollar Auction" means a solicitation of Competitive Bid Quotes setting ------------------ forth Competitive Bid Margins pursuant to Section 2.04 . "Eurodollar Base Rate" means, with respect to a Eurodollar Advance for the -------------------- relevant Eurodollar Interest Period, the rate determined by the Administrative Agent to be the rate at which First Chicago offers to place deposits in U.S. dollars with first-class banks in the London interbank market at approximately 11 a.m. (London time) two Business Days prior to the first day of such Eurodollar Interest Period, in the approximate amount of First Chicago's relevant Eurodollar Loan, or, in the case of a Eurodollar Bid Rate Advance, the amount of the Eurodollar Bid Rate Advance requested by the Borrower, and having a maturity approximately equal to such Eurodollar Interest Period. "Eurodollar Bid Rate" means, with respect to a Eurodollar Bid Rate Loan ------------------- made by a Lender for the relevant Eurodollar Interest Period, the sum of (i) the Eurodollar Base Rate and (ii) the Competitive Bid Margin offered by such Lender and accepted by the Borrower pursuant to Section 2.04(f). -9- "Eurodollar Bid Rate Advance" means a Competitive Bid Advance which bears --------------------------- interest at a Eurodollar Bid Rate. "Eurodollar Bid Rate Loan" means a Competitive Bid Loan which bears ------------------------ interest at a Eurodollar Bid Rate. "Eurodollar Interest Period" means, with respect to a Eurodollar Advance, a -------------------------- period of one, two, three or six months commencing on a Business Day selected by the Borrower pursuant to this Agreement. Such Eurodollar Interest Period shall end on the day which corresponds numerically to such date one, two, three or six months thereafter, provided, however, that if there is no such numerically corresponding day in such next, second, third or sixth succeeding month, such Eurodollar Interest Period shall end on the last Business Day of such next, second, third or sixth succeeding month. If a Eurodollar Interest Period would otherwise end on a day which is not a Business Day, such Eurodollar Interest Period shall end on the next succeeding Business Day, provided, however, that if said next succeeding Business Day falls in a new calendar month, such Eurodollar Interest Period shall end on the immediately preceding Business Day. "Eurodollar Loan" means a Eurodollar Syndicated Loan or a Eurodollar Bid --------------- Rate Loan, as applicable. "Eurodollar Rate" means, with respect to a Eurodollar Syndicated Advance --------------- for the relevant Eurodollar Interest Period, the sum of (i) the quotient of (a) the Eurodollar Base Rate applicable to such Eurodollar Interest Period, divided by (b) one minus the Reserve Requirement (expressed as a decimal) applicable to such Eurodollar Interest Period, plus (ii) the Applicable Margin. The Eurodollar Rate shall be rounded to the next higher multiple of 1/16 of 1% if the rate is not such a multiple. "Eurodollar Syndicated Advance" means a Syndicated Advance which bears ----------------------------- interest at a Eurodollar Rate. "Eurodollar Syndicated Loan" means a Syndicated Loan which bears interest -------------------------- at a Eurodollar Rate. "Event of Default" has the meaning set forth in Section 7.01. ---------------- "Facility Termination Date" means December 19, 2002 or any earlier date on ------------------------- which the Aggregate Commitment is reduced to zero or otherwise terminated pursuant to the terms hereof. "Federal Funds Effective Rate" means, for any day, an interest rate per ---------------------------- annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a -10- Business Day, the average of the quotations at approximately 10 a.m. (Chicago time) on such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent in its sole discretion. "Financial Institution" has the meaning ascribed thereto in O.C.G.A. (S) 7- --------------------- 1-4(21) as of the date hereof. "Financial Statements (Annual)" means the balance sheet of such Person as ----------------------------- of the end of such Fiscal Year and the related consolidated statements of income, shareholders' equity and cash flows for such Fiscal Year, setting forth in each case in comparative form the figures for the previous Fiscal Year. "Financial Statements (Quarterly)" means the balance sheet of such Person -------------------------------- as of the end of such quarter and the related statement of income and statement of cash flows for such quarter and for the portion of the Fiscal Year ended at the end of such quarter, setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of the previous Fiscal Year. "First Chicago" means The First National Bank of Chicago in its individual ------------- capacity, and its successors. "Fiscal Quarter" means any fiscal quarter of the Borrower. -------------- "Fiscal Year" means any fiscal year of the Borrower. ----------- "Fixed Rate" means an Absolute Rate, Eurodollar Rate, Eurodollar Bid Rate, ---------- or Quoted Fixed Rate, as the case may be. "Fixed Rate Advance" means an Advance which bears interest at a Fixed Rate. ------------------ "Fixed Rate Swing Line Advance" means a Swing Line Advance which bears ----------------------------- interest at a Quoted Fixed Rate. "Fixed Rate Syndicated Advance" means a Syndicated Advance which bears ----------------------------- interest at a Eurodollar Rate. "Fixed Rate Loan" means a Loan which bears interest at a Fixed Rate. --------------- "Floating Rate" means, for any day, a rate per annum equal to the Alternate ------------- Base Rate for such day, in each case changing when and as the Alternate Base Rate changes. "Floating Rate Advance" means a Syndicated Advance or Swing Line Advance --------------------- which bears interest at the Floating Rate. -11- "Floating Rate Loan" means a Syndicated Loan or Swing Line Loan which bears ------------------ interest at the Floating Rate. "Funded Debt to Cash Flow Ratio" means, as of the end of any Fiscal ------------------------------ Quarter, the ratio of Consolidated Funded Debt as of such date to Consolidated Cash Flow for the period indicated. "GAAP" means generally accepted accounting principles applied on a basis ---- consistent with those which, in accordance with Section 1.02, are to be used in making the calculations for purposes of determining compliance with the terms of this Agreement. "GPS" means Global Payment Systems LLC, a limited liability company --- organized under the laws of Georgia, its successors and permitted assigns. "GPS Credit Agreement" means the Credit Agreement dated as of July 16, -------------------- 1996, among GPS, the lenders that are parties thereto, and The First National Bank of Chicago, as administrative agent for such lenders, as the same has been amended and is in effect as of the date of the Agreement. "GPS Group" means GPS and each of its Consolidated Subsidiaries. --------- "Guarantee" by any Person means any obligation, contingent or otherwise, of --------- such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to secure, purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to provide collateral security, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), provided that the term Guarantee shall -------- not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Hazardous Materials" includes, without limitation, (a) solid or hazardous ------------------- waste, as defined in the Resource Conservation and Recovery Act of 1980, 42 U.S.C. ' 6901 et. seq. and its implementing regulations and amendments, or in any applicable state or local law or regulation, (b) "hazardous substance", "pollutant", or "contaminant" as defined in CERCLA, or in any applicable state or local law or regulation, (c) gasoline, or any other petroleum product or by- product, including, crude oil or any fraction thereof (d) toxic substances, as defined in the Toxic Substances Control Act of 1976, or in any applicable state or local law or regulation or (e) insecticides, fungicides, or rodenticides, as defined in the Federal Insecticide, Fungicide, and Rodenticide Act of 1975, or in any applicable state or local law or regulation, as each such Act, statute or regulation may be amended from time to time. -12- "Income Available for Fixed Charges" means, as at any date of determination ---------------------------------- for any period, without duplication, Consolidated Net Income plus the sum of the ---- following items (to the extent deducted in calculating such Consolidated Net Income): (i) Consolidated Interest Expense, (ii) all payment obligations of the Borrower and its Consolidated Subsidiaries for such period under all Operating Leases and rental agreements, and (iii) taxes on income, all determined with respect to the Borrower and its Consolidated Subsidiaries for such period on a consolidated basis and in accordance with GAAP. "Indenture" means the trust indenture dated as of November 6, 1996, between --------- the Borrower and The First National Bank of Chicago, as trustee, pursuant to which the Borrower issued its Convertible Subordinated Notes Due 2003 in an aggregate principal amount of $143,750,000. "Interest Period" means (i) an Absolute Rate Interest Period, (ii) a --------------- Eurodollar Interest Period, or (iii) a Quoted Fixed Rate Interest Period. "Investment" means any investment in any Person, whether by means of ---------- purchase or acquisition of obligations or securities of such Person, capital contribution to such Person, loan or advance to such Person, making of a time deposit with such Person, Guarantee or assumption of any obligation of such Person or otherwise. "Invitation for Competitive Bid Quotes" means an Invitation for Competitive ------------------------------------- Bid Quotes, substantially in the form of Exhibit "C" hereto, completed and ----------- delivered by the Administrative Agent to the Lenders in accordance with Section 2.04(c). "Lender" means each bank or other financial institution or lender listed on ------ the signature pages hereof as having a Commitment, and its successors and permitted assigns. "Lending Installation" means, with respect to a Lender or the -------------------- Administrative Agent, any office, branch, subsidiary or affiliate of such Lender or the Administrative Agent. "Lending Office" means, as to each Lender, its office located at its -------------- address set forth on the signature pages hereof (or identified on the signature pages hereof as its Lending Office) or such other office as such Lender may hereafter designate as its Lending Office by written notice to the Borrower and the Administrative Agent. "Level I Status" exists at any date if the Funded Debt to Cash Flow Ratio -------------- in effect as of such date is less than 1.0 to 1.0. "Level II Status" exists at any date if the Funded Debt to Cash Flow Ratio --------------- in effect as of such date is greater than or equal to 1.0 to 1.0, but less than 1.5 to 1.0. -13- "Level III Status" exists at any date if the Funded Debt to Cash Flow Ratio ---------------- in effect as of such date is greater than or equal to 1.5 to 1.0, but less than 2.5 to 1.0. "Level IV Status" exists at any date if the Funded Debt to Cash Flow Ratio --------------- in effect as of such date is greater than or equal to 2.5 to 1.0, but less than 3.5 to 1.0. "Level V Status" exists at any date if the Funded Debt to Cash Flow Ratio -------------- in effect as of such date is greater than or equal to 3.5 to 1.0. "Lien" means, with respect to any asset, any mortgage, deed to secure debt, ---- deed of trust, lien, pledge, charge, security interest, security title, preferential arrangement, which has the practical effect of constituting a security interest or encumbrance, or encumbrance or servitude of any kind in respect of such asset to secure or assure payment of a Debt or a Guarantee, whether by consensual agreement or by operation of statute or other law. For the purposes of this Agreement, the Borrower and each of its Subsidiaries shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. "LLC Conversion" means the transaction or series of related transactions -------------- (including, without limitation, a merger, reorganization, liquidation, or transfer of members' interests or assets) pursuant to which a business corporation organized under the laws of a state of the United States, the shares of which are owned by the members of GPS immediately prior to such transaction(s) in the same proportion as their respective members' interests in GPS immediately following such transaction(s), succeeds to all assets and businesses of GPS as in existence immediately prior to such transaction(s). "LLC Conversion Date" means the date on which a Permitted LLC Conversion is ------------------- consummated and effective. "LLC Operating Agreement" means the Operating Agreement of Global Payment ----------------------- Systems LLC Limited Liability Company dated as of March 31, 1996, among Mastercard International Incorporated, GPS Holding Limited Partnership, National Data Corporation of Canada, Ltd., the Borrower, NDC International, Ltd., and National Data Payment Systems, Inc., as amended and in effect from time to time. "Loan" means, with respect to a Lender, a loan made by such Lender pursuant ---- to Article II (or, in the case of a Syndicated Loan, any conversion or continuation thereof). "Loan Documents" means this Agreement, the Notes, the Subsidiary Guarantee, -------------- the Contribution Agreement, and all other documents and agreements contemplated hereby and executed by the Borrower or any Consolidated Subsidiary of the Borrower in favor of the Administrative Agent or any Lender. -14- "Long-Term Debt" means at any date any Consolidated Debt which matures (or -------------- the maturity of which may at the option of the Borrower or any Consolidated Subsidiary be extended such that it matures) more than one year after such date. "Margin Stock" means "margin stock" as defined in Regulations G, T, U or X. ------------ "Material Adverse Effect" means, with respect to any event, act, condition ----------------------- or occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences, whether or not related, a material adverse change in, or a material adverse effect upon, any of (a) the financial condition, operations, business, properties or prospects of the Borrower and its Consolidated Subsidiaries taken as a whole, (b) the rights and remedies of the Administrative Agent or the Lenders under the Loan Documents, or the ability of the Borrower or any of its Subsidiaries to perform its obligations under the Loan Documents to which it is a party (such obligations to include, without limitation, payment of the Obligations and observance and performance of the covenants set forth in Articles V and VI hereof), as applicable, or (c) the legality, validity or enforceability of any Loan Document. "Multiemployer Plan" shall have the meaning set forth in Section 4001(a) ------------------ (3) of ERISA. "NDC Credit Agreement" means the Credit Agreement dated as of May 31, 1996 -------------------- among the Borrower, the lenders that are parties thereto, and Wachovia Bank of Georgia, N.A. (now Wachovia Bank, N.A.), as Administrative Agent, as the same has been amended and is in effect as of the date of this Agreement. "NDC Group" means the Borrower and each of its Consolidated Subsidiaries --------- other than the GPS Group. "NDPS" means National Data Payment Systems, Inc., a New York corporation, ---- and its successors and permitted assigns. "Net Income" means, as applied to any Person for any period, the aggregate ---------- amount of net income of such Person, after taxes, for such period, as determined in accordance with GAAP. "Net Proceeds of Capital Stock" means any proceeds received or deemed ----------------------------- received by the Borrower or its Consolidated Subsidiary in respect of the issuance or sale of Capital Stock or conversion of any Debt to Capital Stock, after deducting therefrom all reasonable and customary costs and expenses incurred by the Borrower or such Consolidated Subsidiary directly in connection with such issuance or sale of such Capital Stock or conversion of such Debt. "Notes" means, collectively, the Syndicated Notes, the Competitive Bid ----- Notes, and the Swing Line Note; and "Note" means any one of the Notes. -15- "Notice of Assignment" means a Notice of Assignment to be delivered -------------------- pursuant to the provisions of the Assignment Agreement. "Obligations" means all unpaid principal of and accrued and unpaid interest ----------- on the Notes, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations of the Borrower to the Lenders or to any Lender, the Swing Line Lender, the Administrative Agent or any indemnified party hereunder arising under the Loan Documents. "Operating Lease" of a Person means any lease of Property (other than a --------------- Capitalized Lease) by such Person as lessee which has an original term (including any required renewals and any renewals effective at the option of the lessor) of one year or more. "Operating Subsidiary" means any Subsidiary of the Borrower which owns or -------------------- acquires assets. "Participant" has the meaning set forth in Section 9.08(b). ----------- "Payment Date" means the first Business Day of each calendar quarter, ------------ beginning with the calendar quarter commencing January 1, 1998, except that with respect only to such calendar quarter commencing January 1, 1998, the Payment Date shall be January 5, 1998. "PBGC" means the Pension Benefit Guaranty Corporation or any entity ---- succeeding to any or all of its functions under ERISA. "Permitted LLC Conversion" means an LLC Conversion effected and implemented ------------------------ in accordance with the conditions and requirements of Section 6.09(b). "Person" means an individual, a corporation, a limited liability company, a ------ partnership, an unincorporated association, a trust or any other entity or organization, including, but not limited to, a government or political subdivision or an agency or instrumentality thereof. "Plan" means at any time an employee pension benefit plan which is covered ---- by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and is either (i) maintained by a member of the Controlled Group for employees of any member of the Controlled Group or (ii) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which a member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions. "Properties" means, as of the date of any determination, all real property ---------- currently owned, leased or otherwise used or occupied by the Borrower or any of its Subsidiaries, wherever located. -16- "Quoted Fixed Rate" means a fixed rate of interest quoted by the Swing Line ----------------- Lender to the Borrower, and accepted by the Borrower, pursuant to Section 2.05(e) to be applicable to a Swing Line Loan as specified by the Borrower for a Quoted Fixed Rate Interest Period. "Quoted Fixed Rate Interest Period" means a period not to exceed seven (7) --------------------------------- calendar days specified by the Borrower as being applicable to a Swing Line Loan being requested by the Borrower to bear interest at a Quoted Fixed Rate. "Redeemable Preferred Stock" of any Person means any preferred stock (or in -------------------------- the case of a limited liability company, the members' equivalent equity interest) issued by such Person which is at any time prior to the Facility Termination Date either (i) mandatorily redeemable (by sinking fund or similar payments or otherwise) or (ii) redeemable at the option of the holder thereof. "Regulation D" means Regulation D of the Board of Governors of the Federal ------------ Reserve System as from time to time in effect and any successor thereto or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System. "Regulation G" means Regulation G of the Board of Governors of the Federal ------------ Reserve System, as in effect from time to time, together with all official rulings and interpretations issued thereunder. "Regulation T" means Regulation T of the Board of Governors of the Federal ------------ Reserve System, as in effect from time to time, together with all official rulings and interpretations issued thereunder. "Regulation U" means Regulation U of the Board of Governors of the Federal ------------ Reserve System, as in effect from time to time, together with all official rulings and interpretations issued thereunder. "Regulation X" means Regulation X of the Board of Governors of the Federal ------------ Reserve System, as in effect from time to time, together with all official rulings and interpretations issued thereunder. "Reportable Event" means a reportable event as defined in Section 4043 of ---------------- ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event, provided, however, that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code. -17- "Required Lenders" means at any time Lenders having at least 51% of the ---------------- Aggregate Commitment or, if the Aggregate Commitment is no longer in effect, Lenders holding at least 51% of the aggregate outstanding principal amount of the sum of the Loans. "Reserve Requirement" means, with respect to a Eurodollar Interest Period, ------------------- the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D on new non- personal time deposits of $100,000 or more with a maturity equal to that of such Eurocurrency liabilities (in the case of Eurodollar Advances). "Restricted Investments" means cash investments in U.S. dollars in (i) U.S. ---------------------- Government securities and United States agency securities, including repurchase agreements with a short-term rating of A1 by Standard & Poor's Corporation ("S&P") or P1 by Moody's Investors Services, Inc. ("Moody's"), (ii) municipal securities rated AAA by S&P or AA by Moody's, (iii) certificates of deposit issued by a bank rated A1 by S&P or P1 by Moody's, (iv) commercial paper rated A1 by S&P or P1 by Moody's, (v) tender bonds or variable rate demand bonds supported by a letter of credit issued by a United States bank whose long-term certificates of deposit are rated AA by S&P or Aa by Moody's, and (vi) auction rate municipal securities (35-day auction cycle) with long-term debt ratings of AAA by S&P or Aaa by Moody's, provided that all such cash investments shall be -------- made in accordance with the guidelines and other requirements of the Approved Investment Policy, including without limitation, the requirement that an amount estimated to meet a minimum seven day cash requirement of the Borrower be held in overnight funds, and without giving effect to any exceptions to any such guidelines or requirements. "Restricted Payment" means (i) any dividend or other distribution on any ------------------ Capital Stock of the Borrower (except dividends payable solely in its Capital Stock) or (ii) any payment on account of the purchase, redemption, retirement or acquisition of (a) any Capital Stock of the Borrower (except as acquired upon the conversion thereof into additional Capital Stock) or (b) any option, warrant or other right to acquire any Capital Stock of the Borrower. "Sanwa" means Sanwa Business Credit Corporation. ----- "Sanwa Letter Agreement" means that certain Letter Agreement, dated October ---------------------- 30, 1992, between Technology Sales and Leasing Co., Inc. and Sanwa, together with all amendments and supplements thereto. "Single Employer Plan" means a Plan maintained by the Borrower or any -------------------- member of the Controlled Group for employees of the Borrower or any member of the Controlled Group. "Single Subsidiary Threshold" means an amount equal to ten percent (10%) of --------------------------- (i) the total consolidated revenue of the Borrower and its Subsidiaries (which includes the GPS Group), less (ii) the total consolidated revenue of the GPS Group, in each case for the most recent Fiscal -18- Quarter as shown on the Financial (Annual) or Financial Statements (Quarterly), as the case may be, as most recently delivered or required to be delivered pursuant to Section 5.01. "Special Charges" means any restructuring charges, asset impairment --------------- charges, in-process research and development charges, and transaction expense charges required to be taken by the Borrower and its Subsidiaries, in each case net of taxes, in an aggregate amount not to exceed $75,000,000 as a result of the acquisition of (i) Source Informatics Inc. and its subsidiaries and (ii) Physician Support Systems, Inc. and its subsidiaries. "Status" means, at any date of determination, whichever of Level I Status, ------ Level II Status, Level III Status, Level IV Status, or Level V Status exists at such time. "Subsidiary" of a Person means (i) any corporation more than 50% of the ---------- outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any partnership, limited liability company, association, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a Subsidiary of the Borrower (including GPS and each Subsidiary of GPS). "Subsidiary Guarantee" means the Subsidiary Guarantee substantially in the -------------------- form of Exhibit "I" executed and delivered by the Subsidiary Guarantors, in ----------- favor of the Administrative Agent for the ratable benefit of the Lenders, as the same may be amended, supplemented and restated from time to time. "Subsidiary Guarantee Supplement" means each Supplement substantially in ------------------------------- the form of Annex I to the Subsidiary Guarantee executed and delivered by an ------- Operating Subsidiary of NDC pursuant to Section 5.03. "Subsidiary Guarantors" means, collectively, the Subsidiaries of the --------------------- Borrower that are parties to the Subsidiary Guarantee and each additional Operating Subsidiary of the Borrower that executes and delivers a Subsidiary Guarantee Supplement pursuant to Section 5.03. "Swing Line Advance" means a Borrowing pursuant to Section 2.05 consisting ------------------ of a Swing Line Loan (which may be made either as a Floating Rate Advance or as a Quoted Fixed Rate Advance) made by the Swing Line Lender to the Borrower on the same date and interest rate basis and, if made as a Quoted Fixed Rate Advance, for the same Interest Period. "Swing Line Borrowing Notice" means the notice given by the Borrower to the --------------------------- Administrative Agent requesting a Swing Line Advance as provided in Section 2.05(e). -19- "Swing Line Commitment" means the commitment of the Swing Line Lender to --------------------- make Swing Line Loans to the Borrower in an aggregate principal amount at any time outstanding not to exceed $15,000,000. "Swing Line Lender" means The First National Bank of Chicago or any ----------------- subsequent Lender extending to the Borrower the Swing Line Commitment hereunder. "Swing Line Loans" means, collectively, the loans made to the Borrower by ---------------- the Swing Line Lender pursuant to Section 2.05. "Swing Line Note" means the promissory notes evidencing the Swing Line --------------- Loans substantially in the form of Exhibit "A-3" and duly completed in ------------- accordance with the terms hereof, including any amendment, modification, renewal or replacement of such promissory note. "Syndicated Advance" means a borrowing hereunder (or conversion or ------------------ continuation thereof) consisting of the aggregate amount of the several Syndicated Loans made by the Lenders to the Borrower, on the same Borrowing Date (or date of conversion or continuation), of the same Type and, in the case of a Fixed Rate Syndicated Advance, for the same Interest Period. "Syndicated Borrowing Notice" is defined in Section 2.03(f). --------------------------- "Syndicated Loan" means, with respect of a Lender, a Loan made by such --------------- Lender pursuant to Section 2.03. "Syndicated Note" means a promissory note, substantially in the form of --------------- Exhibit "A-1" with appropriate insertions, duly executed and delivered to the - ------------- Administrative Agent by the Borrower for the account of a Lender and payable to the order of such Lender in the amount of its Commitment, including any amendment, modification, renewal or replacement of such promissory note. "Syndication Agent" means First Chicago Capital Markets, Inc., a Delaware ----------------- corporation, and its successors, in its capacity as syndication agent for the credit facilities provided to the Borrower by this Agreement. "Third Parties" means all lessees, sublessees, licensees and other users of ------------- the Properties, excluding those users of the Properties in the ordinary course of the Borrower's business and on a temporary basis. "Transferee" has the meaning set forth in Section 9.08(d) ---------- "Type" means (i) with respect to any Advance, its nature as an Absolute ---- Rate Advance, a Eurodollar Bid Rate Advance, a Eurodollar Syndicated Advance, a Swing Line Quoted Rate -20- Advance, or a Floating Rate Advance, (ii) with respect to any Syndicated Advance, its nature as a Eurodollar Syndicated Advance or a Floating Rate Advance, and (iii) with respect to any Swing Line Advance, its nature as a Quoted Fixed Rate Advance or a Floating Rate Advance. "Unfunded Vested Liabilities" means, with respect to any Plan at any time, --------------------------- the amount (if any) by which (i) the present value of all vested nonforfeitable benefits under such Plan exceeds (ii) the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the Controlled Group to the PBGC or the Plan under Title IV of ERISA. "Wholly Owned Subsidiary" means any Subsidiary all of the Capital Stock or ----------------------- other ownership interests of which (except directors' qualifying shares) are at the time directly or indirectly owned by the Borrower. SECTION 1.02. Accounting Terms and Determinations. Unless otherwise ----------------------------------- specified herein, all terms of an accounting character used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with GAAP, applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants or otherwise required by a change in GAAP) with the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Lenders unless with respect to any such change concurred in by the Borrower's independent public accountants or required by GAAP, in determining compliance with any of the provisions of any of the Loan Documents: (i) the Borrower shall have objected to determining such compliance on such basis at the time of delivery of such financial statements, or (ii) the Required Lenders shall so object in writing within 30 days after the delivery of such financial statements, in either of which events such calculations shall be made on a basis consistent with those used in the preparation of the latest financial statements as to which such objection shall not have been made (which, if objection is made in respect of the first financial statements delivered under Section 5.01, shall mean the financial statements referred to in Section 4.04). SECTION 1.03. References. Unless otherwise indicated, references in this ---------- Agreement to "Articles", "Exhibits", "Schedules", "Sections" and other Subdivisions are references to Articles, exhibits, schedules, sections and other subdivisions hereof. SECTION 1.04. Use of Defined Terms. All terms defined in this Agreement -------------------- shall have the same defined meanings when used in any of the other Loan Documents, unless otherwise defined therein or unless the context shall require otherwise. SECTION 1.05. Terminology. ----------- -21- (a) General. All personal pronouns used in this Agreement, whether ------- used in the masculine, feminine or neuter gender, shall include all other genders; the singular shall include the plural, and the plural shall include the singular. Titles of Articles and Sections in this Agreement are for convenience only, and neither limit nor amplify the provisions of this Agreement. (b) Special Corporate Terminology. All references to corporate ----------------------------- nature, the capital stock, stockholders, directors, articles or certificate of incorporation and by-laws, or such similar terms, of any Person shall, if such Person is a limited liability company, refer respectively to the limited liability company nature, the equity interest, members, managing member, articles of organization and operating agreement of such Person. In addition, after a Permitted LLC Conversion, all references to GPS's limited liability status, equity interest, members, managing member, articles of organization and operating agreement shall be deemed to refer respectively to GPS's corporate nature, the capital stock, stockholders, directors, articles or certificate of incorporation and by-laws. ARTICLE II THE CREDITS SECTION 2.01. Description of Facility. Upon the terms and subject to the ----------------------- conditions set forth in this Agreement, the Lenders hereby grant to the Borrower a revolving credit facility pursuant to which: (i) each Lender severally agrees to make Syndicated Loans to the Borrower in accordance with Section 2.03; (ii) each Lender may, in its sole discretion, make bids to make Competitive Bid Loans to the Borrower in accordance with Section 2.04; and (iii) the Swing Line Lender agrees to make Swing Line Loans to the Borrower in accordance with Section 2.05; provided that in no event may the aggregate principal amount of all outstanding - -------- Advances to the Borrower (including Syndicated Advances, Competitive Bid Advances, and Swing Line Advances) exceed the Aggregate Commitment. SECTION 2.02. Availability of Facility. Subject to the terms and ------------------------ conditions of this Agreement, the revolving credit facility is available from the date of this Agreement to the Facility Termination Date, and the Borrower may borrow, repay and reborrow at any time prior to the Facility Termination Date. SECTION 2.03. Syndicated Advances. -------------------- (a) Commitment. From and including the date of this Agreement and ---------- prior to the Facility Termination Date, each Lender severally agrees, on the terms and conditions set forth in this Agreement, to make Syndicated Loans to the Borrower from time to time in amounts not to exceed in the aggregate at any one time outstanding the amount of its Commitment then in effect. The Commitment by each Lender to lend hereunder shall expire on the Facility Termination Date. -22- (b) Required Payments; Termination. Any outstanding Syndicated ------------------------------ Advances and all other unpaid Obligations shall be paid in full by the Borrower on the Facility Termination Date. (c) Ratable Loans. Each Syndicated Advance hereunder shall consist of ------------- Syndicated Loans made from the several Lenders ratably in proportion to the ratio that their respective Commitments bear to the Aggregate Commitment. (d) Types of Syndicated Advances. The Syndicated Advances may be ---------------------------- Eurodollar Syndicated Advances, Floating Rate Advances or a combination thereof, selected by the Borrower in accordance with Sections 2.03(f) and 2.03(g). The Syndicated Advances shall be evidenced by the Syndicated Notes. (e) Minimum Amount of Each Syndicated Advance; Maximum Number of ------------------------------------------------------------ Advances. Each Eurodollar Syndicated Advance shall be in the minimum -------- amount of $1,000,000 (and in multiples of $500,000 if in excess thereof), and each Floating Rate Advance shall be in the minimum amount of $500,000 (and in multiples of $100,000 if in excess thereof); provided, however, -------- ------- that any Floating Rate Advance may be in the amount of the unused Aggregate Commitment, and any Eurodollar Syndicated Advance may be in the amount of the unused Aggregate Commitment so long as such Advance is not less than $1,000,000; and provided, further, that the total combined number of -------- ------- Syndicated Advances and Competitive Bid Advances outstanding at any time shall not exceed nine (9) (with all Floating Rate Advances for purposes of the foregoing limitation being deemed to constitute a single Advance). (f) Method of Selecting Types and Interest Periods for New Syndicated ----------------------------------------------------------------- Advances. The Borrower shall select the Type of Syndicated Advance and, in -------- the case of each Eurodollar Syndicated Advance, the Interest Period applicable to each such Eurodollar Syndicated Advance from time to time. The Borrower shall give the Administrative Agent irrevocable notice (a "Syndicated Borrowing Notice") not later than 10:00 a.m. (Chicago time) at least one Business Day before the Borrowing Date of each Floating Rate Advance and three Business Days before the Borrowing Date for each Eurodollar Syndicated Advance, specifying: (i) the Borrowing Date, which shall be a Business Day, of such Syndicated Advance, (ii) the aggregate amount of such Syndicated Advance, (iii) the Type of Syndicated Advance selected, and (iv) in the case of each Eurodollar Syndicated Advance, the Interest Period applicable thereto. -23- Not later than noon (Chicago time) on each Borrowing Date, each Lender shall make available its Syndicated Loan or Loans, in funds immediately available in Chicago to the Administrative Agent at its address specified pursuant to Article IX. The Administrative Agent will make the funds so received from the Lenders available to the Borrower at the Administrative Agent's aforesaid address not later than 2:00 p.m. (Chicago time) on such date. (g) Conversion and Continuation of Outstanding Syndicated Advances. -------------------------------------------------------------- Floating Rate Advances shall continue as Floating Rate Advances unless and until such Floating Rate Advances are converted into Eurodollar Syndicated Advances. Each Eurodollar Syndicated Advance of any Type shall continue as a Eurodollar Syndicated Advance of such Type until the end of the then applicable Interest Period therefor, at which time such Eurodollar Syndicated Advance shall be automatically converted into a Floating Rate Advance unless the Borrower shall have given the Administrative Agent a Conversion/Continuation Notice requesting that, at the end of such Interest Period, such Eurodollar Syndicated Advance either continue as a Eurodollar Syndicated Advance of such Type for the same or another Interest Period or be converted into a Syndicated Advance of another Type. Subject to the terms of Section 2.03(e), the Borrower may elect from time to time to convert all or any part of a Syndicated Advance of any Type into any other Type or Types of Syndicated Advances; provided that any conversion of any Eurodollar Syndicated Advance shall be made on, and only on, the last day of the Interest Period applicable thereto. The Borrower shall give the Administrative Agent irrevocable notice (a "Conversion/Continuation Notice") of each conversion of a Syndicated Advance or continuation of a Eurodollar Syndicated Advance not later than 10:00 a.m. (Chicago time) at least one Business Day, in the case of a conversion into a Floating Rate Advance, or three Business Days, in the case of a conversion into or continuation of a Eurodollar Syndicated Advance, prior to the date of the requested conversion or continuation, specifying: (i) the requested date which shall be a Business Day, of such conversion or continuation; (ii) the aggregate amount and Type of Syndicated Advance(s) which is [are] to be converted or continued; and (iii) the amount and Type(s) of Syndicated Advance(s) into which such Syndicated Advance is to be converted or continued and, in the case of a conversion into or continuation of a Eurodollar Syndicated Advance, the duration of the Interest Period applicable thereto. SECTION 2.04. Competitive Bid Advances. ------------------------ -24- (a) Competitive Bid Option; Repayment of Competitive Bid Advances. In ------------------------------------------------------------- addition to Syndicated Advances pursuant to Section 2.03, but subject to the terms and conditions of this Agreement (including, without limitation, the limitations set forth in Section 2.01 as to the maximum aggregate principal amount of all outstanding Advances hereunder and as to the maximum combined number of Syndicated Advances and Competitive Bid Advances that may be outstanding at any time hereunder), the Borrower may, as set forth in this Section 2.04, request the Lenders, prior to the Facility Termination Date, to make offers to make Competitive Bid Advances to the Borrower. Each Lender may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section 2.04. Competitive Bid Advances shall be evidenced by the Competitive Bid Notes. Each Competitive Bid Advance shall be repaid in full by the Borrower on the last day of the Interest Period applicable thereto. (b) Competitive Bid Quote Request. When the Borrower wishes to ----------------------------- request offers to make Competitive Bid Loans under this Section 2.04, the Borrower shall transmit to the Administrative Agent by telex or facsimile transmission a Competitive Bid Quote Request so as to be received not later than (x) 10:00 a.m. (Chicago time) at least five Business Days prior to the Borrowing Date proposed therein, in the case of a Eurodollar Auction, or (y) 10:00 a.m. (Chicago time) at least one Business Day prior to the Borrowing Date proposed therein, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Administrative Agent shall have mutually agreed upon and shall have notified to the Lenders not later than the date of the Competitive Bid Quote Request for the first Eurodollar Auction or Absolute Rate Auction for which such change is to be effective), specifying: (i) the proposed Borrowing Date for the proposed Competitive Bid Advance; (ii) the aggregate principal amount of such Competitive Bid Advance, which shall be in the minimum amount of $5,000,000 and in multiples of $1,000,000 if in excess thereof); (iii) whether the Competitive Bid Quotes requested are to set forth a Competitive Bid Margin or an Absolute Rate, or both; and (iv) the Interest Period applicable thereto. The Borrower may request offers to make Competitive Bid Loans for more than one Interest Period and for a Eurodollar Auction and an Absolute Rate Auction in a single Competitive Bid Quote Request. No Competitive Bid Quote Request shall be given within five Business Days (or, upon reasonable prior notice to the Lenders, such other number of days as the Borrower and the Administrative Agent may agree upon) of any other Competitive Bid Quote Request. A Competitive Bid Quote Request that does not conform substantially to the format of Exhibit "B" ----------- -25- hereto shall be rejected, and the Administrative Agent shall promptly notify the Borrower of such rejection by telex or facsimile transmission. (c) Invitation for Competitive Bid Quotes. Promptly upon receipt of a ------------------------------------- Competitive Bid Quote Request that is not rejected pursuant to Section 2.04(b), the Administrative Agent shall send to each of the Lenders by telex or facsimile transmission an Invitation for Competitive Bid Quotes, which shall constitute an invitation by the Borrower to each Lender to submit Competitive Bid Quotes offering to make the Competitive Bid Loans to which such Competitive Bid Quote Request relates in accordance with this Section 2.04. (d) Submission and Contents of Competitive Bid Quotes. ------------------------------------------------- (i) Each Lender may, in its sole discretion, submit a Competitive Bid Quote containing an offer or offers to make Competitive Bid Loans in response to any Invitation for Competitive Bid Quotes. Each Competitive Bid Quote must comply with the requirements of this Section 2.04(d) and must be submitted to the Administrative Agent by telex or facsimile transmission at its offices specified in or pursuant to Article IX not later than (i) 1:00 p.m. (Chicago time) at least four Business Days prior to the proposed Borrowing Date in the case of a Eurodollar Auction, or (ii) 9:00 a.m. (Chicago time) on the proposed Borrowing Date in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Administrative Agent shall have mutually agreed up and shall have notified to the Lenders not later than the date of the first Eurodollar Auction or Absolute Rate Auction for which such change is to be effective); provided that Competitive Bid Quotes submitted by -------- the Administrative Agent (or any Affiliate of the Administrative Agent) in the capacity of a Lender may be submitted, and may only be submitted, if the Administrative Agent or such Affiliate notifies the Borrower of the terms of the offer or offers contained therein not later than (x) 15 minutes prior to the deadline for the other Lenders, in the case of a Eurodollar Auction, or (y) 15 minutes prior to the deadline for the other Lenders, in the case of an Absolute Rate Auction. Subject to Articles III and VII, any Competitive Bid Quote so made shall be irrevocable except with the written consent of the Administrative Agent given on the instructions of the Borrower. (ii) Each Competitive Bid Quote shall in any case specify: (A) the proposed Borrowing Date, which shall be the same as that set forth in the applicable Invitation for Competitive Bid Quotes; (B) the principal amount of the Competitive Bid Loan for which each such offer is being made, which principal amount (1) may be greater than, less than or equal to the Commitment of the quoting Lender, but in no case greater than the unutilized Aggregate Commitment, (2) must be at least -26- $2,500,000 (and an integral multiple of $500,000 if in excess thereof), and (3) may not exceed the principal amount of Competitive Bid Loans for which offers were requested; (C) in the case of a Eurodollar Auction, the Competitive Bid Margin offered for each such Competitive Bid Loan; (D) in the case of an Absolute Rate Auction, the Absolute Rate offered for each such Competitive Bid Loan; (E) the minimum or maximum amount, if any, of the Competitive Bid Loan which may be accepted by the Borrower; (F) the applicable Interest Period; and (G) the identity of the quoting Lender. (iii) The Administrative Agent shall reject any Competitive Bid Quote that: (A) is not substantially in the form of Exhibit "D" hereto or does ----------- not specify all of the information required by Section 2.04(d)(ii); (B) contains qualifying, conditional or similar language; (C) proposes terms other than or in addition to those set forth in the applicable Invitation for Competitive Bid Quotes; or (D) arrives after the time set forth in Section 2.04(d)(i). (iv) If any Competitive Bid Quote shall be rejected pursuant to Section 2.04(d)(iii), then the Administrative Agent shall notify the affected Lender of such rejection as soon as practicable. (e) Notice to the Borrower. The Administrative Agent shall, as soon ---------------------- as practicable but in any event prior to 10:00 a.m. (Chicago time) on the date specified in Section 2.04(f) for the Borrower's acceptance or rejection of offers, notify the Borrower of the terms (i) of any Competitive Bid Quote submitted by a Lender that is in accordance with Section 2.04(d) and (ii) of any Competitive Bid Quote that is in accordance with Section 2.04(d) and amends, modifies or is otherwise inconsistent with a previous Competitive Bid Quote submitted by such Lender with respect to the same Competitive Bid Quote Request. Any such subsequent Competitive Bid Quote shall be disregarded by the Administrative Agent unless such subsequent Competitive Bid Quote specifically states that it is submitted solely to correct a manifest error in such former Competitive -27- Bid Quote. The Administrative Agent's notice to the Borrower shall specify the aggregate principal amount of Competitive Bid Loans for which offers have been received for each Interest Period specified in the related Competitive Bid Quote Request and the respective principal amounts and Competitive Bid Margins or Absolute Rates, as the case may be, so offered. (f) Acceptance and Notice by the Borrower. Subject to the receipt of ------------------------------------- the notice from the Administrative Agent referred to in Section 2.04(e), not later than (i) 10:00 a.m. (Chicago time) at least three Business Days prior to the proposed Borrowing Date, in the case of a Eurodollar Auction, or (ii) 10:00 a.m. (Chicago time) on the proposed Borrowing Date, in the case of an Absolute Rate Auction (or in either case, such other time or date as the Borrower and the Administrative Agent shall have mutually agreed upon and shall have notified to the Lenders not later than the date of the Competitive Bid Quote Request for the first Eurodollar Auction or Absolute Rate Auction for which such change is to be effective), the Borrower shall notify the Administrative Agent of the Borrower's acceptance or rejection of the offers so notified to it pursuant to Section 2.04(e); provided, however, that the failure by the Borrower to give such notice to -------- ------- the Administrative Agent shall be deemed to be a rejection by the Borrower of all such offers. In the case of acceptance, such notice (a "Competitive Bid Borrowing Notice") shall specify the aggregate principal amount of offers for each Interest Period that are accepted. The Borrower may accept or reject any Competitive Bid Quote in whole or in part (subject to the terms of Section 2.04(d)(ii)(E)); provided that: (i) the aggregate principal amount of each Competitive Bid Advance may not exceed the applicable amount set forth in the related Competitive Bid Quote Request; (ii) the principal amount of each Competitive Bid Advance must be at least $5,000,000 (and an integral multiple of $1,000,000 if in excess thereof); (iii) acceptance of offers may only be made on the basis of ascending Competitive Bid Margins or Absolute Rates, as the case may be; and (iv) the Borrower may not accept any offer of the type described in Section 2.04(d)(iii) or that otherwise fails to comply with the requirements of this Agreement in respect of obtaining a Competitive Bid Loan under this Agreement. (g) Allocation by the Administrative Agent. If offers are made by two -------------------------------------- or more Lenders with the same Competitive Bid Margins or Absolute Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which offers are permitted to be accepted for the related Interest Period, the principal amount of Competitive Bid Loans in respect of which such offers are accepted shall be allocated by the Administrative Agent among such Lenders as nearly as possible (in such multiples as the -28- Administrative Agent may deem appropriate) in proportion to the aggregate principal amount of such offers; provided, however, that no Lender shall be -------- ------- allocated a portion of any Competitive Bid Advance which is less than the minimum amount which such Lender has indicated that it is willing to accept. Allocations by the Administrative Agent of the amounts of Competitive Bid Loans shall be conclusive in the absence of manifest error. The Administrative Agent shall promptly, but in any event on the same Business Day, in the case of Eurodollar Bid Rate Advances, and by 11:00 a.m. (Chicago time) on the same Business Day, in the case of Absolute Rate Advances, notify each Lender of its receipt of a Competitive Bid Borrowing Notice and the aggregate principal amount of each Competitive Bid Advance allocated to each participating Lender. (h) Funding of Competitive Bid Advances. Not later than noon (Chicago ----------------------------------- time) on each Borrowing Date for a Competitive Bid Advance, each Lender participating in such Advance shall make available its Competitive Bid Loan or Loans, in funds immediately available in Chicago to the Administrative Agent at its address specified pursuant to Article IX. The Administrative Agent will make the funds so received from such Lenders available to the Borrower at the Administrative Agent's aforesaid address not later than 2:00 p.m. (Chicago time) on such date. SECTION 2.05. Swing Line Advances. ------------------- (a) Commitment. From and including the date of this Agreement and ---------- prior to the Facility Termination Date, the Swing Line Lender agrees, on the terms and conditions set forth in this Agreement, to make Swing Line Loans to the Borrower from time to time in amounts not to exceed in the aggregate at any one time outstanding the amount of the Swing Line Commitment then in effect. The Borrower shall be entitled to repay and reborrow Swing Line Loans in accordance with the provisions, and subject to the limitations, set forth herein (including the limitations set forth in Section 2.01 as to the maximum aggregate principal amount of all outstanding Advances hereunder). The Commitment of the Swing Line Lender to lend hereunder shall expire on the Facility Termination Date. (b) Required Payments; Termination. Each Swing Line Advance shall be ------------------------------ repaid in full within seven (7) days from the date such Advance is made to the Borrower. All outstanding Swing Line Advances shall be paid in full by the Borrower on the Facility Termination Date. (c) Types of Swing Line Advances. The Swing Line Advances may be ---------------------------- Floating Rate Advances or Quoted Fixed Rate Advances, or a combination thereof, selected by the Borrower in accordance with Section 2.05(e). The Swing Line Advances shall be evidenced by the Swing Line Note. -29- (d) Minimum Amount of Each Swing Line Advance. Each Swing Line ----------------------------------------- Advance shall be in the minimum amount of $500,000 and in multiples of $100,000 if in excess thereof; provided, however, that any Swing Line -------- ------- Advance may be in the amount of the unused portion of the Swing Line Commitment so long as such Advance is not less than $100,000. Notwithstanding the foregoing, the Borrower shall not be entitled to have outstanding at any time more than three Swing Line Advances. (e) Method of Selecting Types of Swing Line Advances. Whenever the ------------------------------------------------ Borrower desires to obtain a Swing Line Advance, the Borrower shall give the Swing Line Lender (with a copy to the Administrative Agent) prior written notice (or telephonic notice promptly confirmed in writing) of such Swing Line Advance (each a "Swing Line Borrowing Notice." Each Swing Line --------------------------- Borrowing Notice requesting a Floating Rate Advance shall be given prior to 2:00 p.m. (Chicago time) on the Borrowing Date for such Advance and shall specify the aggregate principal amount of such Advance and the date such Advance is to be made (which shall be a Business Day). Each Swing Line Borrowing Notice requesting a Quoted Fixed Rate Advance shall be given prior to 12:00 noon (Chicago time) on the Borrowing Date and shall specify the aggregate principal amount of such Advance, the date such Advance is to be made (which shall be a Business Day), and the Interest Period to be applicable to such Advance. The Swing Line Lender shall promptly furnish the Borrower (with a copy to the Administrative Agent) with a quotation of the Quoted Fixed Rate being offered with respect to such Swing Line Advance by telephone (promptly confirmed in writing, if requested) or by facsimile transmission. The Borrower shall immediately inform the Swing Line Lender (with a copy to the Administrative Agent) of its decision as to whether to accept the Quoted Fixed Rate and to confirm the borrowing of the Swing Line Advance (which may be done by telephone, promptly confirmed in writing, and which decision shall be irrevocable). If the Borrower has so informed the Swing Line Lender and confirmed the terms of the Swing Line Advance, then no later than 4:00 p.m. (Chicago time) on such date, the Swing Line Lender shall make the principal amount of the Swing Line Advance available to the Administrative Agent in immediately available funds at the Payment Office of the Administrative Agent, and the Administrative Agent will make available to the Borrower such amount by crediting such amount to the Borrower's demand deposit account maintained with the Administrative Agent. In the event the Swing Line Lender does not make such amount available to the Administrative Agent at the time prescribed above, but such amount is received later that day, such amount may be credited to the Borrower in the manner described in the preceding sentence on the next Business Day (with interest on such amount to begin accruing hereunder on such next Business Day). (f) Purchase by Lenders of Swing Line Advances. If the Borrower fails ------------------------------------------ to repay a Swing Line Advance when required by Section 2.05(b), then upon request of the Swing Line Lender, each Lender other than the Swing Line Lender shall purchase a participating interest in such Swing Line Advance in an amount equal to its pro rata share (based on its respective Commitment) of such Swing Line Advance, and the Swing Line -30- Lender shall furnish each Lender with confirmation evidencing such participating interest. Such purchase shall be made on the next Business Day following such request. On the date of such required purchase, each Lender will immediately transfer to the Swing Line Lender, in immediately available funds, the amount of its participation. If such Swing Line Advance is not outstanding as a Floating Rate Advance at the time of such purchase, such Swing Line Advance shall automatically be converted to, and thereafter bear interest, as a Floating Rate Advance. Whenever, at any time after the Swing Line Lender has received from any such Lender the funds for its participating interest in a Swing Line Advance, the Administrative Agent receives any payment on account thereof, the Administrative Agent will distribute to such Lender its participating interest in such amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender's participating interest was outstanding and funded); provided, however, that if such payment received -------- ------- by the Administrative Agent is required to be returned, such Lender will return to the Administrative Agent any portion thereof previously distributed by the Administrative Agent to it. Each Lender's obligation to purchase such participating interest shall be absolute and unconditional and shall not be affected by any circumstance, including without limitation (i) any setoff, counterclaim, recoupment, defense or other right that such Lender or any other Person may have against the Swing Line Lender or any other Person for any reason whatsoever, (ii) the occurrence or continuation of a Default or an Event of Default or the termination of any of the Commitments, (iii) any adverse change in the condition (financial or otherwise) of the Borrower or any of its Consolidated Subsidiaries, or any other Person, (iv) any breach of this Agreement by the Borrower or by any other Lender, or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. SECTION 2.06. General Facility Terms. ---------------------- (a) Fees; Reductions in Aggregate Commitment. ---------------------------------------- (i) Fees. The Borrower agrees to pay to the Administrative Agent the ---- following fees: (A) For the account of each Lender, a facility fee equal to the total Commitment of such Lender in effect from time to time (whether or not used by the Borrower) multiplied by the applicable per annum ---------- -- facility fee rate set forth in Section 2.06(c), payable quarterly in arrears on the first Business Day of each Fiscal Quarter, commencing March 1, 1998, and on the Facility Termination Date. (B) For the account of the Administrative Agent and the Arranger, the fees due under the Administrative Agent/Arranger Letter Agreement payable as provided therein. -31- (ii) Voluntary Reductions in Aggregate Commitment. The Borrower may -------------------------------------------- permanently reduce the Aggregate Commitment in whole, or in part ratably among the Lenders in a minimum amount of $1,000,000 and in integral multiples of $500,000, upon at least three Business Days' written notice to the Administrative Agent, which notice shall specify the amount of any such reduction; provided, however, that the amount -------- ------- of the Aggregate Commitment may not be reduced below the aggregate principal amount of the outstanding Advances. (b) Optional Principal Payments. The Borrower may from time to time --------------------------- pay, without penalty or premium, any outstanding Floating Rate Advance in full, or in part in a minimum aggregate amount of $500,000 or any integral multiple of $100,000 in excess thereof, upon one Business Day's prior notice to the Administrative Agent. Any Fixed Rate Advance may be paid in full, or in part in a minimum aggregate amount of $1,000,000 (or $500,000, in the case of a Swing Line Advance) or any integral multiple of $500,000 (or $100,000, in the case of a Swing Line Advance) in excess thereof, upon three Business Days' prior notice to the Administrative Agent (i) without penalty or premium if paid on the last day of an applicable Interest Period, and (ii) with payment of all applicable amounts specified in Section 2.10 if paid on any other day. (c) Applicable Margin and Facility Fee Rates. The Applicable Margin ---------------------------------------- set forth below with respect to each Eurodollar Syndicated Advance and the applicable rates set forth below for the facility fees payable pursuant to Section 2.06(a) shall be subject to adjustment (upwards or downwards, as appropriate) based on the Borrower's Status as at the end of each fiscal quarter in accordance with the table set forth below. The Borrower's Status as at the last day of each fiscal quarter shall be determined from the then most recent annual or quarterly financial statements of the Borrower delivered by the Borrower pursuant to Section 5.01(a) or 5.01(b) and the Compliance Certificate delivered by the Borrower pursuant to Section 5.01(c). The adjustment, if any, to the Applicable Margin shall be effective with respect to all Eurodollar Syndicated Advances made, and all conversions to and continuations of Eurodollar Syndicated Advances occurring, on and after the next Business Day following the delivery to the Administrative Agent of such financial statements and Compliance Certificate (the "Adjustment Effective Date"); the adjustment, if any, to the facility fee rates shall be effective on the Adjustment Effective Date. No adjustment in Applicable Margin shall be effective with respect to Eurodollar Syndicated Advances outstanding on and prior to the Adjustment Effective Date until such Advances are subsequently continued or converted as Eurodollar Syndicated Advances with a new Interest Period. In the event that the Borrower shall at any time fail to furnish to the Lenders such financial statements and Compliance Certificate within the applicable time limitations specified by Section 5.01, then the maximum Applicable Margin and facility fee rates shall apply from the date of such failure until the next Business Day after such financial statements and Compliance Certificate are so delivered. Notwithstanding anything to the contrary contained herein, -32- the Borrower's Status as of the date of this Agreement shall be deemed to be Level III Status and shall be adjusted hereafter as set forth above. Applicable Margin for Eurodollar Committed Facility Status Advances Fee Rates ------ ---------- --------- Level I .210% .090% Level II .250% .125% Level III .275% .150% Level IV .350% .200% Level V .500% .250% (d) Changes in Interest Rate, etc. Each Floating Rate Advance shall ------------------------------ bear interest on the outstanding principal amount thereof, for each day from and including the date such Floating Rate Advance is made or is converted from a Fixed Rate Syndicated Advance into a Floating Rate Advance pursuant to Section 2.03(f) to but excluding the date it becomes due or is converted into a Fixed Rate Syndicated Advance pursuant to Section 2.03(f) hereof, at a rate per annum equal to the Floating Rate for such day. Changes in the rate of interest on any Floating Rate Advance will take effect simultaneously with each change in the Alternate Base Rate. Each Fixed Rate Advance shall bear interest on the outstanding principal amount thereof from and including the first day of the Interest Period applicable thereto to (but not including) the last day of such Interest Period at the interest rate determined as applicable to such Fixed Rate Advance. No Interest Period may end after the Facility Termination Date. (e) Rates Applicable After Default. Notwithstanding anything to the ------------------------------- contrary contained in Section 2.03(e) or 2.03(f), during the continuance of a Default or Event of Default the Required Lenders may, at their option, by notice to the Borrower (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 9.06(a) requiring unanimous consent of the Lenders to changes in interest rates), declare that no Syndicated Advance may be made as, converted into or continued as a Fixed Rate Syndicated Advance. During the continuance of an Event of Default, (i) the Required Lenders may, at their option, by notice to the Borrower (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 9.06(a) requiring unanimous consent of the Lenders to changes in interest rates), declare that (x) each Fixed Rate Advance shall bear interest for the remainder of the applicable Interest Period at the rate otherwise applicable to such Interest Period plus 2% per annum and (y) each Floating Rate Advance shall bear interest at a rate per annum equal to the Alternate Base Rate plus 2% per annum, and (ii) the Swing Line Lender may, at its option, by notice to the Borrower (which notice may be revoked at the option of the Swing Line Lender notwithstanding any provision of Section 9.06(a) requiring unanimous consent for the Lenders to changes in -33- interest rates), declare that each Swing Line Advance shall bear interest at a rate per annum equal to the Alternate Base Rate plus two percent (2.0%) per annum. (f) Method of Payment. All payments of the Obligations hereunder ----------------- shall be made, without setoff, deduction, or counterclaim, in immediately available funds to the Administrative Agent at the Administrative Agent's address specified pursuant to Article IX, or at any other Lending Installation of the Administrative Agent specified in writing by the Administrative Agent to the Borrower, by noon (local time at the Lending Installation) on the date when due and the Administrative Agent will promptly distribute to each Lender its ratable share of each such payment received by the Administrative Agent for the account of the Lenders; provided, however, that if on any date the Borrower shall pay less than the -------- ------- full amount of its Obligations owing on such date, such payment shall be distributed to the Lenders ratably based upon the ratio that the aggregate amount of such Obligations owing to each such Lender on such date bears to the aggregate amount of such Obligations owing to all the Lenders on such date. Each payment delivered to the Administrative Agent for the account of any Lender shall be delivered promptly by the Administrative Agent to such Lender in the same type of funds that the Administrative Agent received at its address specified pursuant to Article IX or at any Lending Installation specified in a notice received by the Administrative Agent from such Lender. The Administrative Agent is hereby authorized to charge the respective accounts of the Borrower maintained with First Chicago for each payment of principal, interest, fees and other Obligations as it becomes due hereunder. (g) Notes; Telephonic Notices. Each Lender is hereby authorized to ------------------------- record the principal amount of each of its Loans and each repayment on the schedule attached to its applicable Notes, provided, however, that neither -------- ------- the failure to so record nor any error in such recordation shall affect the Borrower's obligations under any such Note. The Borrower hereby authorizes the Lenders, the Swing Line Lender, and the Administrative Agent to extend, convert or continue Advances, effect selections of Types of Advances and to transfer funds based on telephonic notices made by any person or persons the Administrative Agent, the Swing Line Lender, or any Lender in good faith believes to be acting on behalf of the Borrower. The Borrower agrees to deliver promptly to the Administrative Agent a written confirmation, if such confirmation is requested by the Administrative Agent, any Lender or the Swing Line Lender of each telephonic notice signed by an Authorized Officer. If the written confirmation differs in any material respect from the action taken by the Administrative Agent, the Lenders, or the Swing -34- Line Lender, the records of the Administrative Agent, the Lenders, and the Swing Line Lender shall govern absent manifest error. (h) Interest Payment Dates; Interest and Fee Basis. Interest accrued ---------------------------------------------- on each Floating Rate Advance shall be payable on each Payment Date, commencing with the first such date to occur after the date hereof, on any date on which the Floating Rate Advance is paid, whether due to acceleration or otherwise, and at maturity. Interest accrued on that portion of the outstanding principal amount of any Floating Rate Advance converted into a Fixed Rate Syndicated Advance on a day other than a Payment Date shall be payable on the date of conversion. Interest accrued on each Fixed Rate Advance shall be payable on the last day of its applicable Interest Period, on any date on which the Fixed Rate Advance is paid, whether by acceleration or otherwise, and at maturity. Interest accrued on each Fixed Rate Advance having an Interest Period longer than three months shall also be payable on the last day of each three-month interval during such Interest Period. Interest on Advances and facility fees shall be calculated for actual days elapsed on the basis of a 360-day year. Interest shall be payable for the day an Advance is made but not for the day of any payment on the amount paid if payment is received prior to noon (local time) at the place of payment. If any payment of principal of or interest on an Advance shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment. (i) Notification of Advances, Interest Rates, Prepayments and --------------------------------------------------------- Commitment Reductions. Promptly after receipt thereof, the Administrative --------------------- Agent will notify each Lender of the contents of each Aggregate Commitment reduction notice, Syndicated Borrowing Notice, Competitive Bid Borrowing Notice, Conversion/Continuation Notice and repayment notice received by it hereunder. The Administrative Agent will notify each Lender of the interest rate applicable to each Fixed Rate Advance promptly upon determination of such interest rate and will give each Lender prompt notice of each change in the Alternate Base Rate. (j) Lending Installations. Subject to Section 2.11, each of the --------------------- Lenders and Swing Line Lender may book its Loans at any Lending Installation selected by it and may change its Lending Installation from time to time. All terms of this Agreement shall apply to any such Lending Installation and the Notes shall be deemed held by each Lender and Swing Line Lender for the benefit of such Lending Installation. Each Lender and Swing Line Lender may, by written or telex notice to the Administrative Agent and the Borrower, designate a Lending Installation through which Loans will be made by it and for whose account Loan payments are to be made. (k) Non-Receipt of Funds by the Administrative Agent. Unless the ------------------------------------------------ Borrower or a Lender, as the case may be, notifies the Administrative Agent prior to the date on -35- which it is scheduled to make payment to the Administrative Agent of (i) in the case of a Lender, the proceeds of a Loan or (ii) in the case of the Borrower, a payment of principal, interest or fees to the Administrative Agent for the account of the Lenders or the Swing Line Lender, that it does not intend to make such payment, the Administrative Agent may assume that such payment has been made. The Administrative Agent may, but shall not be obligated to, make the amount of such payment available to the intended recipient in reliance upon such assumption. If such Lender or the Borrower, as the case may be, has not in fact made such payment to the Administrative Agent, the recipient of such payment shall, on demand by the Administrative Agent, repay to the Administrative Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Administrative Agent until the date the Administrative Agent recovers such amount at a rate per annum equal to (i) in the case of repayment by a Lender or the Swing Line Lender, the Federal Funds Effective Rate for such day or (ii) in the case of repayment by the Borrower, the interest rate applicable to the relevant Loan. SECTION 2.07. Yield Protection. If any law or any governmental or quasi- ---------------- governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any interpretation thereof, or the compliance of any Lender or the Swing Line Lender therewith, (i) subjects any Lender or the Swing Line Lender or any applicable Lending Installation to any tax, duty, charge or withholding on or from payments due from the Borrower (excluding taxation of the overall net income of such Lender or the Swing Line Lender or applicable Lending Installation imposed by the jurisdiction or taxing authority in which its principal executive office or Lending Installation is located), or changes the basis of taxation of payments to any Lender or the Swing Line Lender in respect of its Loans or other amounts due it hereunder, or (ii) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or the Swing Line Lender or any applicable Lending Installation (other than reserves and assessments taken into account in determining the interest rate applicable to Fixed Rate Advances), or (iii) imposes any other condition the result of which is to increase the cost to any Lender or the Swing Line Lender or any applicable Lending Installation of making, funding or maintaining its Loans or reduces any amount receivable by any Lender or the Swing Line Lender or any applicable Lending Installation in connection with its Loans, or requires any Lender or the Swing Line Lender or any applicable Lending Installation to make any payment calculated by reference to the amount of Loans held or interest received by it, by an amount deemed material by it, -36- then, within 15 days of demand by such Lender or the Swing Line Lender, the Borrower shall pay that portion of such increased expense incurred or reduction in an amount received which such Lender or the Swing Line Lender determines is attributable to making, funding and maintaining its Loans and its Commitment. SECTION 2.08. Changes in Capital Adequacy Regulations. If a Lender or the --------------------------------------- Swing Line Lender determines the amount of capital required or expected to be maintained by it, its Lending Installation or any corporation controlling it is increased as a result of a Change, then, within 15 days of demand by such Lender or the Swing Line Lender, the Borrower shall pay such Lender or the Swing Line Lender the amount necessary to compensate for any shortfall in the rate of return on the portion of such increased capital which such Lender or the Swing Line Lender determines is attributable to this Agreement, its Loans or its obligation to make Loans hereunder (after taking into account its then-existing policies as to capital adequacy applicable to comparable credit facilities generally). "Change" means (i) any change after the date of this Agreement in the Risk-Based Capital Guidelines or (ii) any adoption of or change in any other law, governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) after the date of this Agreement which affects the amount of capital required or expected to be maintained by any Lender or the Swing Line Lender or any Lending Installation or any corporation controlling it. "Risk-Based Capital Guidelines" means (i) the risk-based capital guidelines in effect in the United States on the date of this Agreement, including transition rules, and (ii) the corresponding capital regulations promulgated by regulatory authorities outside the United States implementing the July 1988 report of the Basle Committee on Banking Regulation and Supervisory Practices Entitled "International Convergence of Capital Measurements and Capital Standards," including transition rules, and any amendments to such regulations adopted prior to the date of this Agreement. SECTION 2.09. Availability of Types of Advances. If any Lender determines --------------------------------- that maintenance of its Eurodollar Syndicated Loans or Eurodollar Bid Rate Loans at a suitable Lending Installation would violate any applicable law, rule, regulation, or directive, whether or not having the force of law, or if the Required Lenders determine that (i) deposits of a type and maturity appropriate to match fund Fixed Rate Advances (other than Absolute Rate Advances) are not available or (ii) the interest rate applicable to a Type of Syndicated Advance does not accurately reflect the cost of making or maintaining such Syndicated Advance, then the Administrative Agent shall suspend the availability of the affected Type of Advance or Syndicated Advance, as the case may be, and require any Fixed Rate Advances of the affected Type to be repaid or, in the case of a Fixed Rate Syndicated Advance, promptly converted into an unaffected Type of Syndicated Advance. SECTION 2.10. Funding Indemnification. If any payment of a Fixed Rate ----------------------- Advance occurs on a date which is not the last day of the applicable Interest Period, whether because of acceleration, prepayment or otherwise, or a Fixed Rate Advance is not made on the date specified -37- by the Borrower for any reason other than default by the Lenders, the Borrower will indemnify each Lender for any loss or cost incurred by it resulting therefrom, including, without limitation, any lost profits and any loss or cost in liquidating or employing deposits acquired to fund or maintain the Fixed Rate Advance. SECTION 2.11. Lending Installation; Lender Statements; Survival of ---------------------------------------------------- Indemnity. To the extent reasonably possible, each Lender and the Swing Line - --------- Lender shall designate an alternate Lending Installation with respect to its Fixed Rate Loans to reduce any liability of the Borrower to it under Sections 2.07 and 2.08 or to avoid the unavailability of a Type of Advance under Section 2.09, so long as such designation is not disadvantageous to it in its reasonable judgment. Each Lender and the Swing Line Lender shall deliver a written statement to the Borrower (with a copy to the Administrative Agent) as to the amount due, if any, under Section 2.07, 2.08, or 2.10. Such written statement shall set forth in reasonable detail the calculations upon which it determined such amount and shall be conclusive in the absence of manifest error. Determination of amounts payable under such Sections in connection with a Fixed Rate Loan shall be calculated as though such Lender or the Swing Line Lender funded its Fixed Rate Loan through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the Fixed Rate applicable to such Loan, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the written statement of any such Lender or the Swing Line Lender shall be payable on demand after receipt by the Borrower of such written statement. The obligations of the Borrower under Sections 2.07, 2.08, and 2.10 shall survive payment of the Obligations and termination of this Agreement. SECTION 2.12. Withholding Tax Exemption. ------------------------- (a) Prior to or simultaneously with becoming a "Lender" or a "Swing Line Lender" for purposes of this Agreement, each Lender or Swing Line Lender that is not incorporated under the laws of the United States of America, or a state thereof, agrees that it will deliver to each of the Borrower and the Administrative Agent two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, certifying in either case that such Lender or the Swing Line Lender is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any United States federal income taxes. Each such Lender or the Swing Line Lender which so delivers a Form 1001 or 4224 further undertakes to deliver to each of the Borrower and the Administrative Agent two additional copies of such form (or a successor form) on or before the date that such form expires (currently, three successive calendar years for Form 1001 and one calendar year for Form 4224) or becomes obsolete or after the occurrence of any event requiring a change in the most recent forms so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably requested by the Borrower or the Administrative Agent, in each case certifying that such Lender or the Swing Line Lender is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any United States federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred -38- prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent it from duly completing and delivering any such form with respect to it and such Lender or the Swing Line Lender advises the Borrower and the Administrative Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax. (b) If any Lender organized in a jurisdiction outside the United States of America issues a public announcement with respect to the closing of its lending offices in the United States such that any withholdings or deductions and additional payments with respect to Taxes may be required to be made by the Borrower thereafter pursuant to the terms of this Agreement, such Lender shall furnish to the Borrower notice thereof as soon as practicable thereafter. SECTION 2.13. Designated Senior Indebtedness. All Obligations of the ------------------------------ Borrower to the Administrative Agent, the Lenders, and the Swing Line Lender under this Agreement, the Notes, and the other Loan Documents are hereby designated by the Borrower as, and shall constitute, "Designated Senior Indebtedness" as defined in and for all purposes under the Indenture. ARTICLE III CONDITIONS TO BORROWINGS SECTION 3.01. Conditions to First Borrowing. The obligation of each ----------------------------- Lender and the Swing Line Lender to make a Loan on the occasion of the first Borrowing is subject to the satisfaction of the conditions set forth in Section 3.02 and receipt by the Administrative Agent and the Documentation Agent of the following (in sufficient number of counterparts (except as to the Notes)) for delivery of a counterpart to each Lender and the Swing Line Lender and retention of one counterpart by each of the Administrative Agent and the Documentation Agent): (a) from each of the Lenders of either (i) a duly executed counterpart of each of the Loan Documents signed by such party or (ii) a facsimile transmission of the duly executed counterpart of each such Loan Document together with a confirmation that such original counterpart is being sent to the Administrative Agent; (b) a duly executed Syndicated Note and Competitive Bid Note for the account of each Lender, and a duly executed Swing Line Note for the account of the Swing Line Lender; (c) the duly executed Subsidiary Guarantee; (d) the duly executed Contribution Agreement; -39- (e) the opinions of (i) Michael Ingram, general counsel of the Borrower and the Subsidiary Guarantors, and (ii) Alston & Bird, special counsel for the Borrower and the Subsidiary Guarantors, in each case dated as of the date hereof, substantially in the forms of Exhibit "H-1" and "H- ------------- -- 2", respectively, and covering such additional matters relating to the -- transactions contemplated hereby as the Administrative Agent or any Lender may reasonably request; (f) a certificate, dated as of the date hereof, signed on behalf of the Borrower by its principal financial officer, to the effect that (i) no Default or Event of Default has occurred and is continuing on such date and (ii) the representations and warranties of the Borrower contained in Article IV are true on and as of such date; (g) all documents which the Administrative Agent or any Lender may reasonably request relating to the existence of the Borrower and each Subsidiary Guarantor, the authority for and the validity of this Agreement, the Notes, the Guaranty, and any other matters relevant hereto, all in form and substance satisfactory to the Administrative Agent, including, without limitation, a certificate of the Borrower and each Subsidiary Guarantor signed by the Secretary or an Assistant Secretary of such Person, certifying as to the names, true signatures and incumbency of the officer or officers of such Person authorized to execute and deliver the Loan Documents, and certified copies of the following items: (i) the certificate of incorporation of the Borrower and the certificate or articles of incorporation of each of the Subsidiary Guarantors that is a corporation, (ii) the articles of organization of GPS and each of the Subsidiary Guarantors that is a limited liability company, (iii) the partnership agreement of each of the Subsidiary Guarantors that is a partnership, (iv) the by-laws of the Borrower and each of the Subsidiary Guarantors that is a corporation, (v) the LLC Operating Agreement and each operating or management agreement of a Subsidiary Guarantor that is a limited liability company, (vi) a certificate of the Secretary of State of the jurisdiction of organization of the Borrower and the Subsidiary Guarantors as to the good standing of the Borrower and Subsidiary Guarantors in such jurisdiction and, as to the Borrower and each of the Subsidiary Guarantors doing business in Georgia, a certificate of the Secretary of State of Georgia as to its good standing in such jurisdiction, and (vii) the action taken by the respective boards of directors of the Borrower and the Subsidiary Guarantors authorizing the execution, delivery and performance of this Agreement, the Notes and the other Loan Documents to which they are parties; (h) the written agreements of the parties to the NDC Credit Agreement and GPS Credit Agreement confirming the termination of such Credit Agreements and all commitments thereunder, and the payment by the Borrower and GPS of all amounts owing thereunder; -40- (i) written money transfer instructions, in substantially the form of Exhibit "G" hereto, addressed to the Administrative Agent and signed by an ----------- Authorized Officer of the Borrower, together with such other related money transfer authorizations as the Administrative Agent may have reasonably requested; (j) a copy of the Borrower's and each of its Subsidiaries' cash investments policy as formally approved by its Board of Directors as in effect on the Closing Date; (k) an opinion of King & Spalding, special counsel for the Administrative Agent, addressed to the Administrative Agent and the Lenders and dated the date hereof, as to the enforceability of the Loan Documents and covering such additional matters relating to the Loan Documents as the Administrative Agent or any Lender may reasonably request; and (l) a Notice of Borrowing. SECTION 3.02. Conditions to All Borrowings. The obligation of each ---------------------------- Lender and the Swing Line Lender to make a Loan on the occasion of each Borrowing is subject to the satisfaction of the following conditions: (a) receipt by the Administrative Agent of a Notice of Borrowing; (b) the fact that, immediately after such Borrowing, no Default or Event of Default shall have occurred and be continuing; (c) the fact that the representations and warranties of the Borrower contained in Article IV of this Agreement shall be true on and as of the date of such Borrowing except for changes expressly permitted herein and except to the extent that such representations and warranties relate solely to an earlier date; and (d) the fact that, immediately after such Borrowing (i) the aggregate outstanding principal amount of the Loans of each Lender and the Swing Line Lender will not exceed the amount of its Commitment, except where such excess amount results from such Lender's having made one or more Competitive Bid Loans, and (ii) the aggregate outstanding principal amount of all Loans of all Lenders and the Swing Line Lender will not exceed the amount of the Aggregate Commitment. Each Borrowing hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing as to the facts specified in paragraphs (b), (c) and (d) of this Section. -41- ARTICLE IV REPRESENTATIONS AND WARRANTIES On the Closing Date, and at such other times as specified in Section 3.02, the Borrower represents and warrants that: SECTION 4.01. Existence and Power. The Borrower (i) is duly organized, ------------------- validly existing and in good standing under the laws of its jurisdiction of organization, (ii) is duly qualified to transact business in every jurisdiction set forth on Schedule 4.01, and the failure of the Borrower to be so qualified ------------- in any other jurisdiction could not reasonably be expected to have or cause a Material Adverse Effect, and (iii) has all powers and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, except where the failure to have any such licenses, authorizations, consents and approvals could not reasonably be expected to have or cause a Material Adverse Effect. SECTION 4.02. Organizational and Governmental Authorization; No ------------------------------------------------- Contravention. The execution, delivery and performance by the Borrower of - ------------- this Agreement, the Notes and the other Loan Documents (i) are within the Borrower's powers as a corporation or limited liability company, as the case may be, (ii) have been duly authorized by all necessary organizational action, (iii) require no action by or in respect of or filing with, any governmental body, agency or official, (iv) do not contravene, or constitute a default under, any provision of applicable law or regulation or of the Borrower's organizational documents or of any material agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or any of its Subsidiaries, and (v) do not result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. SECTION 4.03. Binding Effect. This Agreement constitutes a valid and -------------- binding agreement of the Borrower enforceable in accordance with its terms, and the Notes and the other Loan Documents to which the Borrower or any Subsidiary is a party, when executed and delivered in accordance with this Agreement, will constitute valid and binding obligations of the Borrower or such Subsidiary, as the case may be, enforceable in accordance with their respective terms, provided -------- that the enforceability hereof and thereof is subject in each case to general principles of equity and to bankruptcy, insolvency, fraudulent transfer, and similar laws affecting the enforcement of creditors' rights generally. SECTION 4.04. Financial Information. --------------------- (a) The Borrower has heretofore furnished to the Lenders true and correct copies of the financial statements and related documents described in Section 5.01(a) for the Fiscal Year ending May 31, 1997 (collectively, the "1997 Annual Financial Statements"). The 1997 Annual Financial -------------------------------- Statements fairly present in all material -42- respects and in accordance with GAAP the financial position of the respective entities covered by such 1997 Annual Financial Statements and the results of operations and cash flows for such entities for the Fiscal Year then ended. (b) The Borrower has heretofore furnished to the Lenders true and correct copies of the financial statements and related documents described in Section 5.01(b) for the Fiscal Quarter ending August 31, 1997 (collectively, the "1998 First Quarter Financial Statements"). The 1998 --------------------------------------- First Quarter Financial Statements fairly present in all material respects and in accordance with GAAP (subject to normal year-end adjustments) the financial position of the respective entities covered by such 1998 First Quarter Financial Statements and the results of operations and cash flows for such entities for the Fiscal Quarter then ended. (c) Since August 31, 1997, there have been no events, acts, conditions or occurrences, singly or in the aggregate, having or reasonably expected to have or cause a Material Adverse Effect, other than the Special Charges, which the Lenders agree shall not be deemed to constitute a Material Adverse Effect. SECTION 4.05. No Litigation, Contingent Liabilities. There is no ------------------------------------- action, suit or proceeding pending, or to the knowledge of the Borrower threatened, against or affecting the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official which could reasonably be expected to have or cause a Material Adverse Effect. Neither the Borrower nor any of its Subsidiaries has any material Contingent Obligations not provided for or disclosed in the financial statements referred to in Section 4.04(a) or delivered to the Lenders pursuant to Section 5.01. SECTION 4.06. Compliance with ERISA. --------------------- (a) The Borrower and each member of the Controlled Group have fulfilled their obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and are in compliance in all material respects with the presently applicable provisions of ERISA and the Code, and have not incurred any liability to the PBGC under Title IV of ERISA. (b) Neither the Borrower nor any member of the Controlled Group is or ever has been obligated to contribute to any Multiemployer Plan. SECTION 4.07. Compliance with Laws; Taxes. The Borrower and its --------------------------- Subsidiaries are in compliance with all applicable laws, regulations and similar requirements of governmental authorities, except where such compliance is being contested in good faith through appropriate proceedings. There have been filed on behalf of the Borrower and its Subsidiaries all Federal, state and local income, excise, property and other tax returns which are required to be filed by them and all taxes due pursuant to such returns or pursuant to any assessment received by or on -43- behalf of the Borrower or any Subsidiary have been paid or contested as permitted by Section 5.06. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate. SECTION 4.08. Subsidiaries. Each of the Subsidiaries, if any, listed on ------------ Schedule 4.08 is a corporation (or a limited liability company or partnership) - ------------- duly organized, validly existing and in good standing under the laws of the jurisdiction where it was created and organized, is qualified to transact business in every jurisdiction where the failure of any such Subsidiary to be so qualified in any other jurisdictions could reasonably be expected to have or cause a Material Adverse Effect, and has all powers and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, except where the failure to have any such licenses, authorizations, consents and approvals could not reasonably be expected to have or cause a Material Adverse Effect. The Borrower has no Subsidiaries except for those Subsidiaries listed on Schedule 4.08, as the same may be supplemented from ------------- time to time in writing by the Borrower, which accurately sets forth their respective jurisdictions of creation. SECTION 4.09. Not an Investment Company. Neither the Borrower nor any ------------------------- Subsidiary is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 4.10. Ownership of Property; Liens. The Borrower and its ---------------------------- Subsidiaries have title to its properties sufficient for the conduct of its business, and none of such property is subject to any Lien except as permitted in Section 6.08. SECTION 4.11. No Default. Neither the Borrower nor any of its ---------- Subsidiaries is in default under or with respect to any agreement, instrument or undertaking to which it is a party (including, without limitation, the Subsidiary Guarantee) or by which it or any of its property is bound which could reasonably be expected to have or cause a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. SECTION 4.12. Full Disclosure. All (i) information, whether written or --------------- oral, heretofore furnished by any officer of the Borrower, and (ii) written information heretofore furnished by any of the other employees of the Borrower, to the Administrative Agent or any Lender for purposes of or in connection with this Agreement or any transaction contemplated hereby (excluding any superseded information corrected or updated by delivery to the Administrative Agent, prior to the Closing Date, of corrected, updated or restated information) is, and all such information hereafter furnished by such representatives of the Borrower to the Administrative Agent or any Lender will be, true, accurate and complete in every material respect or based on reasonable estimates on the date as of which such information is stated or certified. The Borrower has disclosed to the Lenders in writing any and all facts known to the Borrower, after due inquiry, which could reasonably be expected to have or cause a Material Adverse Effect. -44- SECTION 4.13. Environmental Matters. --------------------- (a) Neither the Borrower nor any of its Subsidiaries is subject to any Environmental Liability which could reasonably be expected to have or cause a Material Adverse Effect and, to the best of the Borrower's knowledge, neither the Borrower nor any of its Subsidiaries has been designated as a potentially responsible party under CERCLA or under any state statute similar to CERCLA. To the best of the Borrower's knowledge, none of the Properties has been identified on any current or proposed (i) National Priorities List under 40 C.F.R. (S) 300, (ii) CERCLIS list or (iii) any list arising from a state statute similar to CERCLA. (b) No Hazardous Materials are being, and, to the best of the Borrower's knowledge, have been, used, produced, manufactured, processed, treated, recycled, generated, stored, disposed of, managed or otherwise handled at, or shipped or transported to or from the Properties or are otherwise present at, on, in or under the Properties, or, to the best of the knowledge of the Borrower, without independent inquiry, at or from any adjacent site or facility, except for Hazardous Materials used, produced, manufactured, processed, treated, recycled, generated, stored, disposed of, managed, or otherwise handled in minimal amounts in the ordinary course of business in compliance in all material respects with all applicable Environmental Requirements. (c) The Borrower and its Subsidiaries are in compliance in all material respects with all Environmental Requirements in connection with the operation of the Properties and the Borrower's and its Subsidiary's respective businesses. SECTION 4.14. Capital Stock. All Capital Stock, debentures, bonds, ------------- notes and all other securities and equity interests of the Borrower and its Subsidiaries presently issued and outstanding are validly and properly issued in accordance with all applicable laws, including but not limited to, the "Blue Sky" laws of all applicable states and the federal securities laws. The Capital Stock of the Borrower's Wholly Owned Subsidiaries is owned by the Borrower free and clear of any Lien or adverse claim. At least a majority of the Capital Stock of the Borrower's other Subsidiaries (other than Wholly Owned Subsidiaries) is owned by the Borrower free and clear of any Lien or adverse claim. SECTION 4.15. Margin Stock. Neither the Borrower nor any of its ------------ Subsidiaries is engaged principally, or as one of its important activities, in the business of purchasing or carrying any Margin Stock, and no part of the proceeds of any Loan will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock, or be used for any purpose which violates, or which is inconsistent with, the provisions of Regulation U or Regulation X. SECTION 4.16. Insolvency. After giving effect to the execution and ---------- delivery of the Loan Documents and the making of the Loans under this Agreement, the Borrower will not be -45- "insolvent," within the meaning of such term as used in O.C.G.A. (S) 18-2-22 or as defined in (S) 101 of Title 11 of the United States Code, as amended from time to time, or be unable to pay its debts generally as such debts become due, or have an unreasonably small capital to engage in any business or transaction, whether current or contemplated. SECTION 4.17. LLC Status. At all times prior to the LLC Conversion Date, ---------- (i) GPS is and will be a validly existing limited liability company not subject to federal income tax at the entity level, (ii) no event described in Section 23.1 ("Dissolving Events") of the LLC Operating Agreement has occurred, and (iii) no action has been taken by GPS or its members that would render inaccurate the matters stated in the preceding clauses (i) and (ii). SECTION 4.18. Senior Debt. All of the Obligations of the Borrower ----------- constitute "Designated Senior Indebtedness" for purposes of the Indenture, and the Administrative Agent, the Lenders and the Swing Line Lender will have all rights and benefits of holders of senior indebtedness as provided therein. SECTION 4.19. Asset Purchase and Contribution Agreement. All material ----------------------------------------- assets required to be contributed or sold to GPS by the Borrower or Mastercard International Incorporated pursuant to the terms of the Asset Purchase and Contribution Agreement have been received or purchased by GPS, and the conveyances and other transactions contemplated by the terms of the Asset Purchase and Contribution Agreement have been made and consummated in all material respects in accordance with the terms thereof. As of the Closing Date, there is no Indemnification Claim (as defined in the Asset Purchase and Contribution Agreement) pending against any party thereunder, and the Borrower has no knowledge of any such claim or potential claim that, if not promptly satisfied, could reasonably be expected to have or cause a Material Adverse Effect. ARTICLE V AFFIRMATIVE COVENANTS The Borrower agrees that, from and after the Closing Date and for so long as any Lender has any Commitment hereunder or any amount payable hereunder or under any Note remains unpaid: SECTION 5.01. Information. The Borrower will deliver to each of the ----------- Lenders: (a) as soon as available and in any event within 95 days after the end of each Fiscal Year, Financial Statements (Annual) of (i) the Borrower and its Consolidated Subsidiaries on a consolidated basis, and (ii) GPS and its Consolidated Subsidiaries on a consolidated basis, all certified by Arthur Andersen LLP or other independent public accountants of nationally recognized standing, with such certification to be free of -46- exceptions and qualifications not acceptable to the Required Lenders (provided, that delivery pursuant to paragraph (g) below of copies of the Annual Report on Form 10-K of the Borrower for such Fiscal Year filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 5.01(a) with respect to the Borrower); (b) as soon as available and in any event within 50 days after the end of each of the first three quarters of each Fiscal Year, Financial Statements (Quarterly) of (i) the Borrower and its Consolidated Subsidiaries on a consolidated basis, and (ii) GPS and its Consolidated Subsidiaries on a consolidated basis, all certified as to fairness of presentation in all material respects, generally accepted accounting principles and consistency by the chief financial officer or the chief accounting officer of the Borrower or GPS, as the case may be, (provided, that delivery pursuant to clause (g) below of copies of the Quarterly Report on Form 10-Q of the Borrower for such Fiscal Quarter filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 5.01(b) with respect to the Borrower); (c) simultaneously with the delivery of each set of financial statements referred to in paragraphs (a) and (b) above, a certificate, substantially in the form of Exhibit F (a "Compliance Certificate"), of the --------- chief financial officer or the chief accounting officer of the Borrower (i) setting forth in reasonable detail the calculations required to establish compliance with the requirements of Sections 5.03 and 6.01 through 6.09 inclusive, on the date of such financial statements and (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (d) within five Business Days after the delivery of each set of annual financial statements referred to in paragraph (a) above, a statement of the firm of independent public accountants which reported on such statements to the effect that nothing has come to their attention in the course of their audit to cause them to believe that any Default existed on the date of such financial statements; (e) within five Business Days after the chief executive officer, chief financial officer, chief accounting officer, controller or chief legal officer of the Borrower (or any other individual having similar duties and responsibilities as any of the foregoing although not having the same title) becomes aware of the occurrence of any Default (including, without limitation, the occurrence of a "Change in Control" or "Event of Default" as defined in and under the Indenture), a certificate of the chief financial officer or the chief accounting officer or such other Person of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; -47- (f) promptly upon the mailing thereof to the shareholders of the Borrower or the members or shareholders of GPS generally, copies of all financial statements, reports and proxy statements so mailed; (g) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and annual, quarterly or monthly reports which the Borrower shall have filed with the Securities and Exchange Commission; (h) if and when the Borrower or any member of the Controlled Group (i) gives or is required to give notice to the PBGC of any Reportable Event with respect to any Plan which might reasonably be expected to constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such Reportable Event, a copy of the notice of such Reportable Event given or required to be given to the PBGC, (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA, a copy of such notice, or (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate or appoint a trustee to administer any Plan, a copy of such notice, in each case where such Reportable Event, withdrawal liability, termination or appointment could reasonably be expected to have or cause a Material Adverse Effect, (i) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries as the Administrative Agent, at the request of any Lender, may reasonably request; (j) copies of the Borrower's and each of its Operating Subsidiaries' investment policy formally approved by its respective Board of Directors as of the Closing Date and within 14 Business Days of any subsequent change therein; (k) promptly upon the receipt thereof, a copy of any management letter or management report prepared by the Borrower's independent certified public accountants in conjunction with the financial statements described in Section 5.01(a); and (l) within five Business Days after the chief executive officer, chief financial officer, chief accounting officer, controller or chief legal officer of the Borrower (or any other individual having similar duties and responsibilities as any of the foregoing although not having the same title) becomes aware of any pending or overtly threatened litigation or other legal proceedings, or any cancellation or termination of any material agreement or receipt or sending of written notice of default or intended cancellation or termination in respect thereof, or the occurrence of any other event or condition that, in any such case, could reasonably be expected to have a Material Adverse Effect. -48- SECTION 5.02. Inspection of Property, Books and Records. The Borrower ----------------------------------------- will (i) keep, and cause each of its Subsidiaries to keep, proper books of record and account in which full, true and correct entries in conformity with GAAP shall be made of all dealings and transactions in relation to its business and activities; and (ii) permit, and cause each of its Subsidiaries to permit, representatives of any Lender, after notice to an officer of the Borrower or Subsidiary, at such Lender's expense during any period in which a Default or Event of Default is not in existence and at the Borrower's expense during any period in which a Default or Event of Default is in existence, to visit (which date of visit shall be two (2) Business Days after the date such request is made or any earlier date as may be mutually agreed by the Borrower and such Lender) and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants. The Borrower agrees to cooperate and assist in such visits and inspections, in each case at such reasonable times and as often as may reasonably be desired. Notwithstanding the foregoing, during any period in which a Default or Event of Default is not in existence, no Lender may engage in (i) more than two inspections per Fiscal Year or (ii) discussions with the Borrower's independent public accountants, unless the Borrower shall have otherwise consented to same. SECTION 5.03. Additional Subsidiary Guarantors. -------------------------------- (a) If any Operating Subsidiary of the Borrower (but excluding any Operating Subsidiary that is a member of the GPS Group), whether now existing or hereafter organized or acquired, has consolidated revenue in any Fiscal Quarter that exceeds the Single Subsidiary Threshold, then the Borrower shall cause such Operating Subsidiary to become an additional Subsidiary Guarantor, as provided in this Section 5.03, within 30 days after delivery of the Financial Statements (Annual) or Financial Statements (Quarterly), as the case may be, with respect to such Fiscal Quarter; provided, however, that in those instances where as a result of an --------- ------- Acquisition, or as a result of the sale, contribution, or other transfer of assets to a Subsidiary of the Borrower (other than a member of the GPS Group), the consolidated revenue of the resulting Operating Subsidiary is projected (on a pro forma basis) by the Borrower to exceed the Single Subsidiary Threshold during the current or the immediately succeeding Fiscal Quarter of the Borrower, and such Operating Subsidiary is not then a Subsidiary Guarantor, the Borrower shall cause such Operating Subsidiary to become an additional Subsidiary Guarantor, as provided in this Section 5.03, within thirty (30) days after the date of such Acquisition, sale, contribution or other transfer of assets. (b) If for any Fiscal Quarter of the Borrower, the aggregate revenue (on a non-consolidated basis) of the Borrower and those Operating Subsidiaries that are then Subsidiary Guarantors are less than the Aggregate Subsidiary Threshold, then the Borrower shall cause one or more other Operating Subsidiaries to become additional Subsidiary Guarantors, as provided in this Section 5.03, within 30 days after delivery of the Financial Statements (Annual) or Financial Statements (Quarterly), as the case may -49- be, with respect to such Fiscal Quarter, so that after including the revenue of such additional Subsidiary Guarantor(s), the aggregate revenue (on a non-consolidated basis) of the Borrower and all Subsidiary Guarantors would equal or exceed the Aggregate Subsidiary Threshold for such Fiscal Quarter; provided, however, that in those instances where as a --------- ------- result of an Acquisition, or as a result of the sale, contribution, or other transfer of assets to a Subsidiary of the Borrower (other than a member of the GPS Group), or as a result of the sale or other disposition of assets by the Borrower or any Subsidiary (including the sale or other disposition of the capital stock of any Subsidiary, other than a Subsidiary of the GPS Group), the aggregate revenue (on a non-consolidated basis) of the Borrower and those Operating Subsidiaries that are then Subsidiary Guarantors are projected (on a pro forma basis) by the Borrower to be less than the Aggregate Subsidiary Threshold during the current or the immediately succeeding Fiscal Quarter of the Borrower, then the Borrower shall cause one or more other Operating Subsidiaries to become additional Subsidiary Guarantors, as provided in this Section 5.03, within thirty (30) days after the date of such Acquisition, sale, contribution or other transfer or disposition, so that after including the revenue of such additional Subsidiary Guarantor(s), the aggregate revenue (on a non- consolidated basis) of the Borrower and all Subsidiary Guarantors for such Fiscal Quarter would equal or exceed the Aggregate Subsidiary Threshold. (c) The Borrower may elect at any time to have an Operating Subsidiary become an additional Subsidiary Guarantor as provided in this Section 5.03. (d) Upon the occurrence and during the continuation of any Event of Default, if the Required Lenders so direct, the Borrower shall cause all of its Operating Subsidiaries (excluding Operating Subsidiaries that are members of the GPS Group) to become additional Subsidiary Guarantors, as provided in this Section 5.03, within 30 days after the Borrower's receipt of written confirmation of such direction from the Administrative Agent. (e) An Operating Subsidiary shall become an additional Subsidiary Guarantor by executing and delivering to the Administrative Agent a Subsidiary Guarantee Supplement and a Contribution Agreement Supplement, accompanied by (i) all other Loan Documents related thereto, and (ii) such other documents as the Administrative Agent may reasonably request (including, without limitation, certified copies of certificates or articles of incorporation or organization, by-laws, membership operating agreements, and other organizational documents, appropriate authorizing resolutions of the board of directors of such Operating Subsidiaries, and opinions of counsel comparable to those delivered pursuant to Section 3.01(e)). No Operating Subsidiary that becomes a Subsidiary Guarantor shall thereafter cease to be a Subsidiary Guarantor or be entitled to be released or discharged from its obligations under the Subsidiary Guarantee or Contribution Agreement. -50- SECTION 5.04. Maintenance of Existence. The Borrower shall at all times ------------------------ maintain its existence as a corporation in the jurisdiction of its incorporation. At all times prior to the LLC Conversion Date, the Borrower shall cause GPS to maintain its existence as a limited liability company not subject to federal income tax, and at all times thereafter as a corporation in the jurisdiction of its incorporation. The Borrower shall cause each of its Operating Subsidiaries to maintain its legal existence, and carry on its business in substantially the same industry as such business shall be carried on the date of the first Borrowing hereunder; provided, that (i) the Borrower may -------- dissolve Subsidiaries from time to time if (x) the Board of Directors of the Borrower has determined that such dissolution is desirable, and (y) such dissolution could not reasonably be expected to have or cause a Material Adverse Effect, (ii) the Borrower or any Subsidiary may eliminate or discontinue a business line pursuant to Section 6.09(a), and (iii) the Borrower or any Subsidiary may carry on additional lines of business of an immaterial nature in an industry different from the industry in which their respective business shall be carried on the date of the first Borrowing hereunder. SECTION 5.05. Use of Proceeds. The proceeds of the Loans may be used for --------------- working capital and other general corporate purposes, in each case to the extent not otherwise prohibited herein (including, without limitation, pursuant to Section 6.06(b)). No portion of the proceeds of the Loans will be used by the Borrower (i) in connection with any hostile tender offer for, or other hostile acquisition of, stock (or in the case of a limited liability company, the members' equivalent equity interest) of any corporation or limited liability company with a view towards obtaining control of such other corporation or limited liability company, (ii) directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any Margin Stock, or (iii) for any purpose in violation of any applicable law or regulation. SECTION 5.06. Compliance with Laws; Payment of Taxes. The Borrower will, -------------------------------------- and will cause each of its Subsidiaries and each member of the Controlled Group to, comply in all material respects with applicable laws (including but not limited to ERISA), regulations and similar requirements of governmental authorities (including but not limited to PBGC), except where the necessity of such compliance is being contested in good faith through appropriate proceedings. The Borrower will, and will cause each of its Subsidiaries to, pay, prior to the accrual of any penalty in respect thereof, all taxes, assessments, governmental charges, claims for labor, supplies, rent and other obligations which, if unpaid, might become a Lien against the property of the Borrower or any Subsidiary, except liabilities being contested in good faith and against which, if reasonably requested by the Administrative Agent, the Borrower will set up reserves in accordance with GAAP. SECTION 5.07. Insurance. The Borrower will maintain, and will cause each --------- of its Subsidiaries to maintain (either in the name of the Borrower or in such Subsidiary's own name), with financially sound and reputable insurance companies, insurance on all its property in at least such amounts and against at least such risks as are usually insured against in the same general area by companies of established repute engaged in the same or similar business. -51- SECTION 5.08. Maintenance of Property. The Borrower shall, and shall ----------------------- cause each of its Subsidiaries to, maintain all of its properties and assets in good condition, repair and working order, ordinary wear and tear excepted. SECTION 5.09. Environmental Notices. Upon obtaining knowledge thereof, --------------------- the Borrower shall furnish to the Lenders and the Administrative Agent prompt written notice of all Environmental Liabilities, pending, threatened or anticipated Environmental Proceedings, Environmental Notices, Environmental Judgments and Orders, and Environmental Releases at, on, in, under or in any way affecting the Properties or any adjacent property, and all facts, events, or conditions that could lead to any of the foregoing if any of the foregoing could reasonably be expected to have or cause a Material Adverse Effect; provided, that should the Borrower or any of its Subsidiaries receive any written notice with respect to any of the foregoing, then the Borrower shall provide the Lenders and the Administrative Agent with a copy of same, regardless of whether the facts, events or conditions described therein might have or cause a Material Adverse Effect. SECTION 5.10. Environmental Release. The Borrower agrees that upon the --------------------- occurrence of an Environmental Release it will act promptly to investigate the extent of, and to take appropriate remedial action to remedy, such Environmental Release, to the extent required by any applicable Environmental Requirement or any Environmental Judgment and Order, unless the Borrower is contesting such action in good faith through appropriate proceedings. ARTICLE VI NEGATIVE COVENANTS The Borrower agrees that, from and after the date of this Agreement and for so long as any Lender has any Commitment hereunder or any amount payable hereunder or under any Note remains unpaid: SECTION 6.01. Ratio of Consolidated Funded Debt to Consolidated Cash Flow. ----------------------------------------------------------- The Funded Debt to Cash Flow Ratio at the end of each Fiscal Quarter shall not be greater than 4.0 to 1.0 for the Fiscal Quarter just ended and the immediately preceding three Fiscal Quarters. SECTION 6.02. Minimum Consolidated Net Worth. Consolidated Net Worth, as ------------------------------ at the end of each Fiscal Quarter, will not be less than the sum of (i) $250,000,000 less the Special Charges, plus (ii) 50% of cumulative Consolidated ---- Net Income after May 31, 1997 (taken as one accounting period), calculated quarterly at the end of each Fiscal Quarter, but excluding from such calculations of Consolidated Net Income for purposes of this clause (i), any Fiscal Quarter in which the Consolidated Net Income of the Borrower and its Consolidated Subsidiaries is negative, plus (iii) 100% of the cumulative Net ---- Proceeds of Capital Stock received or deemed received during any period after the Closing Date, calculated quarterly at the end of each Fiscal -52- Quarter, plus (iv) 100% of the increase to Consolidated Net Worth resulting from ---- the conversion of Debt into equity interests. SECTION 6.03. Fixed Charge Coverage. The ratio of (A) Income Available --------------------- for Fixed Charges to (B) Consolidated Fixed Charges as at the end of each Fiscal Quarter shall not be less than or equal to 3.0 to 1.0 for the Fiscal Quarter just ended and the immediately preceding three Fiscal Quarters. SECTION 6.04. Restricted Payments. The Borrower will not declare or make ------------------- any Restricted Payment if, after giving effect thereto, (i) the aggregate of all Restricted Payments declared or made during any Fiscal Year exceeds $20,000,000, or (ii) any Default shall be in existence (which has not been specifically waived in writing pursuant to Section 9.06) either immediately preceding or succeeding the making or declaration of any such Restricted Payment. SECTION 6.05. Loans or Advances. Neither the Borrower nor any of its ----------------- Subsidiaries shall make loans or advances to any Person except: (i) loans or advances (other than travel advances described in clause (v) below) to employees not exceeding $1,000,000 in aggregate principal amount (in the case of the NDC Group) or $500,000 in aggregate principal amount (in the case of the GPS Group), in each case made in the ordinary course of business and consistent with practices existing on the Closing Date, (ii) deposits required by government agencies or public utilities, (iii) loans or advances by the Borrower to its Operating Subsidiaries (which shall not include GPS or Subsidiaries of GPS) or by such Operating Subsidiaries to the Borrower, (iv) loans or advances by GPS to its Operating Subsidiaries or by such Operating Subsidiaries to GPS, (v) travel advances to employees not exceeding $500,000 in the aggregate principal amount outstanding at any time for each of the NDC Group and the GPS Group, in each case made in the ordinary course of business and consistent with practices existing on the Closing Date, (vi) loans or advances by the Borrower to GPS as permitted by Section 6.07, and/or (vii) loans or advances by the Borrower to Comerica not exceeding the aggregate outstanding sum of (x) $18,000,000 minus ----- (y) Investments made under Section 6.06 (viii); provided that after giving -------- effect to the making of any loans, advances or deposits permitted by clause (i), (ii), (iii), (iv), (v), (vi), and (vii) of this Section, no Default shall be in existence (which has not been specifically waived in writing pursuant to Section 9.06). SECTION 6.06. Investments; Acquisitions. ------------------------- (a) Neither the Borrower nor any of its Subsidiaries shall make Investments in any Person except as permitted by Section 6.05 and except the following Investments (provided such Investments do not violate Section 6.06(b)): (i) absent the existence of a Default, Investments made in accordance with the Borrower's or Subsidiary's Approved Investment Policy and otherwise in accordance with the terms set forth herein; -53- (ii) Investments in Subsidiaries other than members of the GPS Group; (iii) Absent the existence of a Default, Investments (other than (i) equity contributed before October 1, 1997, and (ii) Guarantees) in GPS by the Borrower and the Subsidiaries not exceeding in the aggregate (A) $65,000,000 minus (B) all outstanding Indebtedness as permitted by Section ----- 6.07(b); (iv) Guarantees (A) by the Borrower for the benefit of GPS or Comerica in existence as of August 31, 1997, of obligations in amounts not greater than the amounts guaranteed thereunder as of August 31, 1997, (B) by the Borrower for certain obligations of Technology Sales and Leasing Co., Inc., or any other Subsidiary (other than a Subsidiary that is a member of the GPS Group) in connection with the Equipment Lease Agreements, but solely to the extent that such Guarantees and the Debt Guaranteed pursuant thereto are not prohibited by any other terms of this Agreement, (C) by the Borrower for the benefit of GPS in favor of Electronic Data Systems Corporation in accordance with the terms of that certain Guarantee dated as of December 30, 1996 and for a guaranteed obligation which matures on or before June 30, 1999 and is for a guaranteed amount not greater than $6,000,000, (D) by the Borrower and its Subsidiaries of obligations of other Subsidiaries of the Borrower (other than Subsidiaries that are members of the GPS Group) of Debt that is not of the types described in clauses (i) through (iv) of the definition of the term "Debt", provided that the obligations that are being Guaranteed are not prohibited by the terms of this Agreement, (E) by GPS of obligations of other members of the GPS Group, and (F) by the Borrower and the Subsidiary Guarantors in respect of the Obligations hereunder; provided that (1) with respect to clauses (A) -------- and (C), the Borrower shall be obligated to obtain a release of such Guarantees without any further liability thereunder upon the Borrower and its Subsidiaries ceasing to be the Majority in Interest members of GPS, and (2) with respect to the preceding clauses (B), (D), and (E) no Default or Event of Default is in existence before or upon or after giving effect thereto; (v) an Investment by the Borrower and its Subsidiaries in Comerica not exceeding in the aggregate (A) $18,000,000 minus (B) loans or advances made ----- under Section 6.05 (vi), (vi) capital contributions of assets as permitted by Section 6.09(a), and (vii) Investments made in Subsidiaries of GPS by GPS or by other Subsidiaries of GPS. (b) Without the prior written consent of the Required Lenders, the Borrower will not, nor will it permit any of its Subsidiaries to, acquire, whether directly or through the purchase of stock, convertible notes or otherwise, any assets other than the acquisition of the loans, advances and investments permitted by Section 6.05 or 6.06(a), the assets of -54- one of its Subsidiaries, or of fixed assets (which fixed assets do not constitute all or substantially all of the assets of the Person from whom such assets are acquired) unless (x) such acquisition is of a business which is similar (as to product sold or service rendered) to the Borrower's or any relevant Subsidiary's, (y) such acquisition is to be made upon a negotiated basis with the approval of the board of directors of the Person to be acquired, or of the percentage of ownership interests required by the charter documents of such Person to approve any such acquisition, and (z) no Default shall be in existence or be caused thereby (which has not been specifically waived in writing pursuant to Section 9.06). SECTION 6.07. Indebtedness. The Borrower will not, nor will it permit any ------------ of its Subsidiaries to, create, incur or suffer to exist any Debt, other than: (a) the Loans; (b) Debt of GPS owing to the Borrower in an aggregate principal amount outstanding at any time not exceeding (A) $65,000,000 minus (B) the ----- aggregate amount of all Investments made by the Borrower and its Subsidiaries in GPS after September 30, 1997 pursuant to Section 6.06(a)(iv) (but without duplication of any such amounts); (c) Debt secured by Liens permitted pursuant to Section 6.08; (d) Debt owing to the Borrower by any of its Subsidiaries (other than Subsidiaries that are members of the GPS Group), and Debt owing to GPS by any other members of the GPS Group, in any such case payable on demand on a non-subordinated basis; (e) Debt arising from the renewal or extension of any Debt described in clauses (b) and (c) above, provided that the amount of such Debt is not increased; (f) Debt owing to any Person as a portion of the consideration payable to the seller(s) in an Acquisition permitted by Section 6.06; (g) Debt owing by a Subsidiary of the Borrower that was in existence at the time such Person became a Subsidiary of the Borrower and not created or incurred in contemplation of such event, and that cannot be prepaid without penalty or premium or assumed by the Borrower, in an aggregate principal amount not to exceed $5,000,000; (h) Debt of the Borrower evidenced by its Convertible Subordinated Notes Due 2003; and (i) Debt of the Borrower not described in clauses (a) through (h) above in an aggregate principal amount outstanding at any time not to exceed $50,000,000. -55- Notwithstanding the foregoing, no Subsidiary of the Borrower that is not a Subsidiary Guarantor (excluding GPS and the other members of the GPS Group) shall in any event create, incur or suffer to exist any Debt of the types described in clause (i) or (ii) of the definition of the term "Debt", other than Debt owing to the Borrower or any Subsidiary Guarantor and payable on demand on a non-subordinated basis. SECTION 6.08. Negative Pledge. Neither the Borrower nor any of its --------------- Subsidiaries will create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except for the following. (a) Liens existing on the date of this Agreement and described on Schedule 6.08 securing Debt outstanding on the date of this Agreement in an ------------- aggregate principal amount not exceeding $28,000,000 for the NDC Group and $6,500,000 for the GPS Group; (b) any Lien existing on any asset of any Person at the time such Person becomes a Subsidiary and not created in contemplation of such event; (c) any Lien on any asset securing Debt (including, without limitation, a Capitalized Lease) incurred or assumed for the purpose of financing all or any part of the cost of acquiring or constructing such asset, provided that such Lien (A) attaches to such asset (and no other -------- asset) concurrently with or within 18 months after the acquisition or completion of construction thereof, and (B) secures solely such Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring or constructing such asset; (d) any Lien on any asset of any Person existing at the time such Person is merged or consolidated with or into the Borrower or a Consolidated Subsidiary and not created in contemplation of such event; (e) any Lien existing on any asset prior to the acquisition thereof by the Borrower or a Subsidiary and not created in contemplation of such acquisition; (f) Liens securing Debt owing by any Subsidiary of the Borrower (other than a Subsidiary that is a member of the GPS Group) to the Borrower or to any other Subsidiary of the Borrower (other than a Subsidiary that is a member of the GPS Group); (g) any Lien arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by any of the foregoing clauses (a) through (f) of this Section, provided that (i) such Debt is not -------- secured by any additional assets, and (ii) the amount of such Debt secured by any such Lien is not increased; -56- (h) Liens incidental to the conduct of its business or the ownership of its assets, including, without limitation, Liens of materialmen and landlords, which (i) do not secure Debt and (ii) do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business; (i) any Lien in respect of any taxes which are either (x) not, as at any date of determination, due and payable or (y) being contested in good faith as permitted by Section 5.06; (j) Liens in respect of judgments or awards for which appeals or proceedings for review are being prosecuted and in respect of which a stay of execution upon any such appeal or proceeding for review shall have been secured, provided that such Person shall have established reserves which are adequate under GAAP for such judgments or awards; (k) Liens existing on the date of this Agreement created by NDPS on certain of its assets, and securing certain indemnity obligations of NDPS to the sellers of the merchant credit card processing contracts; (l) Liens securing the Borrower's or any Subsidiary's recourse obligations under any Equipment Lease Agreements as the same may be Guaranteed by the Borrower from time to time; provided, that such Liens -------- shall only attach to property which has been sold to the respective Equipment Lease Party; and (m) Liens not otherwise permitted by the foregoing paragraphs of this Section securing Debt in an aggregate principal amount at any time outstanding not to exceed $5,000,000 for the NDC Group or $5,000,000 for the GPS Group, Provided Liens permitted by the foregoing paragraphs (a) through (m) (but - -------- excluding paragraph (l)) shall at no time secure Debt in an aggregate amount greater than $55,000,000. SECTION 6.09. Consolidations, Mergers and Sales of Assets. ------------------------------------------- (a) The Borrower will not, nor will it permit any of its Subsidiaries to, consolidate or merge with or into, or sell, lease or otherwise transfer all or any substantial part of its assets to, any other Person, or discontinue or eliminate any Operating Subsidiary or business segment, provided that (a) the Borrower may merge with another Person if (i) such -------- Person was organized under the laws of the United States of America or one of its states, (ii) the Borrower is the corporation surviving such merger and (iii) immediately after giving effect to such merger, no Default shall have occurred and be continuing, (b) Subsidiaries may merge with, and sell assets to, one another and the Borrower, except that no Subsidiary of the Borrower, other than a member of the GPS Group, shall merge with or sell assets to a member of the GPS Group, (c) the Borrower and its Subsidiaries may eliminate or discontinue business lines and segments from time -57- to time if (i) such action has been approved by the Board of Directors of the Borrower, and (ii) such elimination or discontinuance will not jeopardize the Borrower's or any Subsidiary Guarantor's ability to perform under any of the Loan Documents, (d) so long as no Default shall be in existence either immediately prior to or following any asset disposition, the Borrower and its respective Subsidiaries may sell or otherwise dispose of (x) any Equipment Lease Agreements and (y) any other assets in an aggregate amount of up to $10,000,000 in fair market value during each consecutive 12 month period, (e) during the existence of a Default which does not constitute an Event of Default, the Borrower may continue to enter into Equipment Lease Agreements on the same terms on which such sales customarily were consummated prior to such Default, (f) Subsidiaries which are formed for the sole purpose of (1) merging into Persons that will become Subsidiaries, or (2) acquiring the assets or stock (or in the case of a limited liability company, the members' equivalent equity interests) of Persons and thereafter becoming Subsidiaries, may merge with such Persons or consolidate those Persons' assets with the assets of those Subsidiaries and (g) GPS may effect an LLC Conversion as set forth in Section 6.09(b). (b) GPS will not effect an LLC Conversion except upon compliance with and satisfaction of the following requirements and conditions: (1) GPS will give the Administrative Agent not less than 30 days' prior written notice of its intent to effect an LLC Conversion, such notice to include the earliest date of the LLC Conversion and a description in reasonable detail of the transactions that will be consummated in order to effect the LLC Conversion; (2) GPS will submit to the Administrative Agent not less than 15 days prior to the LLC Conversion Date the proposed forms of transaction documents (e.g., merger agreement, asset contribution or transfer agreements, assignments, and assumption agreements) to be used by GPS to effect the LLC Conversion (collectively, the "LLC Conversion Documents"); (3) There will be executed and delivered to the Administrative Agent, at or before the LLC Conversion the following documents, all in form and substance satisfactory to the Required Lenders: (A) a tax sharing agreement between Newco and the Borrower (or other entity with whom Newco's tax returns may be consolidated for federal and state income tax purposes); (B) a certificate, dated as of the LLC Conversion Date, signed on behalf of each of GPS and Newco by a principal financial officer of each of GPS and Newco, to the effect -58- that (i) no Default or Event of Default has occurred and is continuing on such date, and (ii) the representations and warranties contained in Article IV are true on and as of such date; (C) a certified copy of the LLC Conversion Documents as the same are being executed and delivered in connection with the LLC Conversion; and (D) all documents which the Administrative Agent or any Lender may reasonably request relating to the existence of Newco, the authority for and the validity of the LLC Conversion Documents and the documents to be delivered pursuant to this Section 6.09(b)(3) (collectively, the "Newco Documents"), and any other matters relevant thereto, including without limitation, a certificate of Newco signed by the Secretary or an Assistant Secretary of Newco, certifying as to the names, true signatures and incumbency of the officer or officers of Newco authorized to execute and deliver the LLC Conversion Documents and the Newco Documents, and certified copies of the certificate or articles of incorporation and by- laws of Newco, the action taken by the Board of Directors of Newco authorizing the execution, delivery and performance of the LLC Conversion Documents and the Newco Documents, and a certificate of the Secretary of State of Georgia (and, if different, the Secretary of State of the state of incorporation of Newco) as to the good standing of Newco. SECTION 6.10. Limitation on Payment Restrictions Affecting Subsidiaries. --------------------------------------------------------- The Borrower will not, nor will it permit any of its Subsidiaries to, create or otherwise cause or suffer to exist or become effective, any consensual encumbrance or restriction (excluding any such encumbrance or restriction under this Agreement) on the ability of any such Subsidiary to (i) pay dividends or make any other distributions on any of its Capital Stock, or (ii) pay any indebtedness owed to the Borrower or any of its Subsidiaries, or (iii) transfer any of its property or assets to the Borrower or any of its Subsidiaries, except any such encumbrance or restriction imposed by a lender extending purchase money financing in respect of any asset or assets of the Borrower or any Subsidiary so long as such encumbrance or restriction does not so encumber or restrict any other assets or property of the Borrower or any Subsidiary. SECTION 6.11. Change in Fiscal Year. The Borrower will not change its --------------------- Fiscal Year without the consent of the Required Lenders, which consent shall not be unreasonably withheld. -59- SECTION 6.12. Environmental Matters. The Borrower will not, and will not --------------------- permit any Third Party to, use, produce, manufacture, process, treat, recycle, generate, store, dispose of, manage at, or otherwise handle, or ship or transport to or from the Properties any Hazardous Materials except for Hazardous Materials used, produced, manufactured, processed, treated, recycled, generated, stored, disposed, managed, or otherwise handled in the ordinary course of business in compliance in all material respects with all applicable Environmental Requirements. SECTION 6.13. Transactions with Affiliates. Neither the Borrower nor any ---------------------------- of its Subsidiaries shall enter into, or be a party to, any transaction with any Affiliate of the Borrower or such Subsidiary (which Affiliate is not the Borrower or its Wholly Owned Subsidiary), except as permitted by law and in the ordinary course of business and pursuant to reasonable terms which are no less favorable to the Borrower or such Subsidiary than would be obtained in a comparable arm's length transaction with a Person which is not an Affiliate. SECTION 6.14. GPS Membership Interest Voting; GPS Restrictive Agreements. ---------------------------------------------------------- (a) The Borrower shall cause its Subsidiaries to vote their respective equity shares to cause GPS to make distributions and then distribute the same to the Borrower to the maximum extent permitted under the Operating Agreement in order for the Borrower to meet its obligations with respect to fees, interest and principal payments on the Loans and other Obligations payable by the Borrower hereunder. (b) The Borrower shall not permit, without the prior written consent of the Administrative Agent and all of the Lenders, (i) any amendment of the definition of "Majority in Interest" contained in the Operating Agreement, (ii) any amendment or other modification to the Operating Agreement which (1) limits distributions or other payments payable by GPS to the Borrower through its Subsidiaries, or (2) reduce the percentage of voting control held by the Borrower through its Subsidiaries in GPS, or (iii) otherwise restricts distributions from GPS through its Subsidiaries to the Borrower. SECTION 6.15. Amendments to Indenture. Without the prior written consent ----------------------- of the Administrative Agent and all of the Lenders, the Borrower will not permit any amendment of or other modification to the subordination provisions of the Indenture in favor of "Senior Indebtedness" as defined in the Indenture. ARTICLE VII DEFAULTS SECTION 7.01. Events of Default. If one more of the following events ----------------- ("Events of Default") shall have occurred and be continuing at any time: -60- (a) the Borrower shall fail to pay when due any principal of any Loan, or shall fail to pay any interest on any Loan within three Business Days after such interest shall become due, or shall fail to pay any fee or other amount payable hereunder within five Business Days after such fee or other amount becomes due; or (b) the Borrower shall fail to observe or perform any covenant contained in Section 5.01(e), Section 5.02(ii), Sections 6.01 through 6.09 inclusive, Section 6.14, or Section 6.15; (c) the Borrower shall fail to observe or perform any covenant or agreement contained or incorporated by reference in this Agreement (other than those covered by paragraph (a) or (b) above) and such failure shall not have been cured within 30 days after the earlier to occur of (i) written notice thereof has been given to the Borrower by the Administrative Agent at the request of any Lender or (ii) the Borrower otherwise becomes aware of any such failure; or (d) any representation, warranty, certification or statement made or incorporated by reference in Article IV hereof, in any other Loan Document, or in any certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect or misleading in any material respect when made (or deemed made); or (e) the Borrower or any of its Subsidiaries shall fail to make any payment in respect of Debt outstanding in the aggregate principal amount of $5,000,000 or greater (other than (i) the Notes and (ii) Debt held by the Borrower owed by a Consolidated Subsidiary or Debt held by a Consolidated Subsidiary owed by the Borrower) when due or within any applicable grace period; or (f) an "Event of Default" shall occur under any of the other Loan Documents; provided, that, should any such "Event of Default" be waived by -------- ---- the Required Lenders (or, if required by Section 9.06(a) or the terms of such other Loan Document, all Lenders), then, such waiver shall operate as a waiver of an Event of Default arising under this Section 7.01(f) as a result of same; or (g) any event or condition shall occur which results in the acceleration of the maturity of Debt outstanding of the Borrower or any of its Subsidiaries (other than (i) the Notes and (ii) Debt held by the Borrower owed by a Consolidated Subsidiary or Debt held by a Consolidated Subsidiary owed by the Borrower) in the aggregate principal amount of $5,000,000 or greater (including, without limitation, any "put" of such Debt to the Borrower or any of its Subsidiaries) or enables (or, with the giving of notice or lapse of time or both, would enable) the holders of such Debt or any Person acting on such -61- holders' behalf to accelerate the maturity thereof (including, without limitation, any "put" of such Debt to the Borrower or any of its Subsidiaries); or (h) the Borrower or any of its Subsidiaries shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any action to authorize any of the foregoing; or (i) an involuntary case or other proceeding shall be commenced against the Borrower or any of its Subsidiaries seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower or any of its Subsidiaries under the federal bankruptcy laws as now or hereafter in effect; or (j) the Borrower or any member of its Controlled Group shall fail to pay when due any material amount which it shall have become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of intent to terminate a Plan or Plans shall be filed under Title IV of ERISA by the Borrower, any member of its Controlled Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any such Plan or Plans or a proceeding shall be instituted by a fiduciary of any such Plan or Plans to enforce Section 515 or 4219(c) (5) of ERISA and such proceeding shall not have been dismissed within 30 days thereafter; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any such Plan or Plans must be terminated; or the Borrower or any other member of its Controlled Group shall enter into, contribute or be obligated to contribute to, terminate or incur any withdrawal liability with respect to, a Multiemployer Plan; provided, that no Default or Event of Default shall arise under this paragraph (j) so long as the maximum potential liability to the Borrower or any member of its Controlled Group shall be not greater than $1,000,000; or (k) one or more judgments or orders for the payment of money in an aggregate amount in excess of $5,000,000, shall be rendered against the Borrower or any of its Subsidiaries and such judgment or order shall continue unsatisfied and unstayed for a period of 30 days; or -62- (l) a federal tax lien shall be filed against the Borrower under Section 6323 of the Code or a lien of the PBGC shall be filed against the Borrower under Section 4068 of ERISA and in either case such lien shall (i) secure an obligation, or asserted obligation, in excess of $1,000,000 and (ii) remain undischarged or unstayed for a period of 30 days after the date of filing; or (m) (i) any Person or two or more Persons acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 30% or more of the outstanding shares of the voting stock of the Borrower, or (ii) as of any date a majority of the Board of Directors of the Borrower consists of individuals who were not either (A) directors of the Borrower as of the corresponding date of the previous year, (B) selected or nominated to become directors by the Board of Directors of the Borrower of which a majority consisted of individuals described in clause (A), or (C) selected or nominated to become directors by the Board of Directors of the Borrower of which a majority consisted of individuals described in clause (A) and individuals described in clause (B); or (n) (i) prior to the LLC Conversion Date, the Borrower and its Subsidiaries shall cease to be the "Majority in Interest" (as defined in the LLC Operating Agreement on the Closing Date) of GPS or its successor, or shall cease to have the right under the LLC Operating Agreement to designate a majority of the Board of Directors of GPS; or (ii) as of any date on or after the LLC Conversion Date, (A) any Person or two or more Persons acting in concert (other than the Borrower and its Subsidiaries) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 20% or more of the outstanding shares of the voting stock of GPS; or (B) a majority of the Board of Directors of GPS consists of individuals who were not either (x) directors of GPS as of the corresponding date of the previous year, (y) selected or nominated to become directors by the Board of Directors of GPS of which a majority consisted of individuals described in clause (x), or (z) selected or nominated to become directors by the Board of Directors of GPS of which a majority consisted of individuals described in clause (x) and individuals described in clause (y); or (o) the dissolution or liquidation of GPS under the LLC Operating Agreement or under applicable law, or the consummation of any LLC Conversion, other than a Permitted LLC conversion; or (p) a "Change of Control" or an "Event of Default" shall occur under the Indenture, as such terms are defined therein, and, except in the event that either the Commitments have been terminated or the Loans have been accelerated, such occurrence -63- shall be continuing without cure by the Borrower or waiver by the holders of the Convertible Subordinated Notes issued under the Indenture; or (q) (i) the Subsidiary Guarantee shall cease to be enforceable or (ii) the Borrower or any Subsidiary Guarantor shall assert that any Loan Document is not enforceable; then, and in every such event, (i) the Administrative Agent shall, if requested by the Required Lenders, by notice to the Borrower terminate the Commitments and they shall thereupon terminate, (ii) any Lender may terminate its obligation to fund a Competitive Bid Loan; (iii) the Swing Line Lender may terminate the Swing Line Commitment by notice to the Borrower and it shall thereupon terminate, and (iv) the Administrative Agent shall, if requested by the Required Lenders, by notice to the Borrower declare the Notes (together with accrued interest thereon) to be, and the Notes shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower, together with interest at the rate specified in Section 2.06(e) accruing on the principal amount thereof from and after the date of such Event of Default; provided that if any Event of Default -------- specified in paragraph (h) or (i) above occurs with respect to the Borrower, without any notice to the Borrower or any other act by the Administrative Agent or the Lenders, the Commitments shall thereupon terminate and the Notes (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower, together with interest thereon at the rate specified in Section 2.06(e) accruing on the principal amount thereof from and after the date of such Event of Default. Notwithstanding the foregoing, the Administrative Agent shall have available to it all other remedies at law or equity, and shall exercise any one or all of them at the request of the Required Lenders. SECTION 7.02. Notice of Default. The Administrative Agent shall give ----------------- notice to the Borrower of any Default under Section 7.01(c) promptly upon being requested to do so by any Lender and shall thereupon notify all the Lenders thereof. ARTICLE VIII THE ADMINISTRATIVE AGENT SECTION 8.01. Appointment; Powers and Immunities. Each Lender hereby ---------------------------------- irrevocably appoints and authorizes the Administrative Agent to act as its Administrative Agent hereunder and under the other Loan Documents with such powers as are specifically delegated to the Administrative Agent by the terms hereof and thereof, together with such other powers as are reasonably incidental thereto. The Administrative Agent: (a) shall have no duties or responsibilities except as expressly set forth in this Agreement and the other Loan Documents, and shall not by reason of this Agreement or any other Loan Document be a trustee for any -64- Lender; (b) shall not be responsible to the Lenders for any recitals, statements, representations or warranties contained in this Agreement or any other Loan Document, or in any certificate or other document referred to or provided for in, or received by any Lender under, this Agreement or any other Loan Document, or for the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or any other document referred to or provided for herein or therein or for any failure by the Borrower to perform any of its obligations hereunder or thereunder; (c) shall not be required to initiate or conduct any litigation or collection proceedings hereunder or under any other Loan Document except to the extent requested by the Required Lenders, and then only on terms and conditions satisfactory to the Administrative Agent, and (d) shall not be responsible for any action taken or omitted to be taken by it hereunder or under any other Loan Document or any other document or instrument referred to or provided for herein or therein or in connection herewith or therewith, except for its own gross negligence or wilful misconduct. The Administrative Agent may employ Administrative Agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such Administrative Agents or attorneys-in-fact selected by it with reasonable care. The provisions of this Article VIII are solely for the benefit of the Administrative Agent and the Lenders, and the Borrower shall not have any rights as a third party beneficiary of any of the provisions hereof, other than the right of the Borrower to consent to the appointment of a successor Administrative Agent as set forth in the second sentence of Section 8.09. In performing its functions and duties under this Agreement and under the other Loan Documents, the Administrative Agent shall act solely as Administrative Agent of the Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for the Borrower. The duties of the Administrative Agent shall be ministerial and administrative in nature, and the Administrative Agent shall not have by reason of this Agreement or any other Loan Document a fiduciary relationship in respect of any Lender. SECTION 8.02. Reliance by Administrative Agent. The Administrative -------------------------------- Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telefax, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants or other experts selected by the Administrative Agent. As to any matters not expressly provided for by this Agreement or any other Loan Document, the Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and thereunder in accordance with instructions signed by the Required Lenders, and such instructions of the Required Lenders in any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. SECTION 8.03. Defaults. The Administrative Agent shall not be deemed -------- to have knowledge of the occurrence of a Default or an Event of Default (other than the nonpayment of principal of or interest on the Loans) unless the Administrative Agent has received notice from a Lender or the Borrower specifying such Default or Event of Default and stating that such notice is a "Notice of Default." In the event that the Administrative Agent receives such a notice of the occurrence of a Default or an Event of Default, the Administrative Agent shall give prompt -65- notice thereof to the Lenders. The Administrative Agent shall give each Lender prompt notice of each nonpayment of principal of or interest on the Loans whether or not it has received any notice of the occurrence of such nonpayment. The Administrative Agent shall (subject to Section 8.08 and Section 9.06) take such action hereunder with respect to such Default or Event of Default as shall be directed by the Required Lenders, provided that, unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. SECTION 8.04. Rights of Administrative Agent as a Lender. With ------------------------------------------ respect to the Loans made by it, First Chicago in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as the Administrative Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include First Chicago in its individual capacity. The Administrative Agent may (without having to account therefor to any Lender) accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with the Borrower and any of its Affiliates) as if it were not acting as the Administrative Agent, and the Administrative Agent may accept fees and other consideration from the Borrower (in addition to any agency fees and arrangement fees heretofore agreed to between the Borrower and the Administrative Agent) for services in connection with this Agreement or any other Loan Document or otherwise without having to account for the same to the Lenders. SECTION 8.05. Indemnification. Each Lender severally agrees to --------------- indemnify the Administrative Agent, to the extent the Administrative Agent shall not have been reimbursed by the Borrower, ratably in accordance with its Syndicated Commitment, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including, without limitation, counsel fees and disbursements) or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or any other Loan Document or any other documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby (excluding, unless an Event of Default has occurred and is continuing, the normal administrative costs and expenses incident to the performance of its agency duties hereunder) or the enforcement of any of the terms hereof or thereof or any such other documents; provided, however that no Lender shall be liable for -------- ------- any of the foregoing to the extent they arise from the gross negligence or wilful misconduct of the Administrative Agent. If any indemnity furnished to the Administrative Agent for any purpose shall, in the opinion of the Administrative Agent, be insufficient or become impaired, the Administrative Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. SECTION 8.06. Payee of Note Treated as Owner. The Administrative ------------------------------ Agent may deem and treat the payee of any Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof shall have been filed with the Administrative -66- Agent and the provisions of Section 9.08(c) have been satisfied. Any requests, authority or consent of any Person who at the time of making such request or giving such authority or consent is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee or assignee of that Note or of any Note or Notes issued in exchange therefor or replacement thereof. SECTION 8.07. Nonreliance on Administrative Agent and Other Lenders. ----------------------------------------------------- Each Lender agrees that it has, independently and without reliance on the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and decision to enter into this Agreement and that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any of the other Loan Documents. The Administrative Agent shall not be required to keep itself informed as to the performance or observance by the Borrower of this Agreement or any of the other Loan Documents or any other document referred to or provided for herein or therein or to inspect the properties or books of the Borrower or any other Person. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Administrative Agent hereunder or under the other Loan Documents, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Borrower or any other Person (or any of their Affiliates) which may come into the possession of the Administrative Agent. SECTION 8.08. Failure to Act. Except for action expressly required of -------------- the Administrative Agent hereunder or under the other Loan Documents, the Administrative Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction by the Lenders of their indemnification obligations under Section 8.05 against any and all liability and expense which may be incurred by the Administrative Agent by reason of taking, continuing to take, or failing to take any such action. SECTION 8.09. Resignation or Removal of Administrative Agent. Subject ---------------------------------------------- to the appointment and acceptance of a successor Administrative Agent as provided below, the Administrative Agent may resign at any time by giving notice thereof to the Lenders and the Borrower and the Administrative Agent may be removed at any time with or without cause by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Administrative Agent, provided that so long as no Event of -------- Default shall have occurred and be continuing, such appointment shall be subject to the prior written consent of the Borrower, which consent shall not be unreasonably withheld or delayed. If no successor Administrative Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent's notice of resignation or the Required Lenders' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent. Any successor Administrative Agent shall be a bank which has a -67- combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Article VIII shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Administrative Agent hereunder. SECTION 8.10. LIMITATION OF DAMAGES. THE ADMINISTRATIVE AGENT SHALL --------------------- NOT BE RESPONSIBLE OR LIABLE TO ANY PERSON OR ENTITY FOR ANY PUNITIVE OR EXEMPLARY DAMAGES WHICH MAY BE ALLEGED AGAINST THE ADMINISTRATIVE AGENT IN ITS AGENCY CAPACITY AS A RESULT OF THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. ARTICLE IX MISCELLANEOUS ------------- SECTION 9.01. Notices. All notices, requests and other communications ------- to any party hereunder shall be in writing (including bank wire, telex, telecopier or similar writing) and shall be given to such party at its address or telecopier or telex number set forth on the signature pages hereof or such other address or telecopier or telex number as such party may hereafter specify for the purpose by notice to each other party. Each such notice, request or other communication shall be effective (i) if given by telecopier or telex, when such telecopier or telex is transmitted to the telecopier or telex number specified in this Section and the appropriate confirmation or answerback is received, (ii) if given by certified mail return-receipt requested, on the date set forth on the receipt (provided, that any refusal to accept any such notice shall be deemed to be notice thereof as of the time of any such refusal), addressed as aforesaid or (iii) if given by any other means, when delivered at the address specified in this Section; provided that notices to the -------- Administrative Agent under Article II shall not be effective until received. SECTION 9.02. No Waivers. No failure or delay by the Administrative ---------- Agent, any Lender or the Borrower in exercising any right, power or privilege hereunder or under any Note shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 9.03. Expenses; Documentary Taxes. The Borrower shall pay (i) --------------------------- all reasonable out-of-pocket costs and expenses of the Administrative Agent, including the fees and -68- disbursements of Administrative Agent's counsel (including King & Spalding), in connection with the preparation of this Agreement and the other Loan Documents, any waiver or consent hereunder or thereunder or any amendment hereto or thereto, and (ii) if a Default occurs, all reasonable out-of-pocket expenses incurred by the Administrative Agent and any Lender, including reasonable fees and disbursements of counsel, in connection with such Default and collection and other enforcement proceedings resulting therefrom, including reasonable out-of- pocket expenses incurred in enforcing this Agreement and the other Loan Documents. The Borrower shall indemnify the Administrative Agent and each Lender against any transfer taxes, documentary taxes, assessments or charges made by any Authority by reason of the execution and delivery of this Agreement or the other Loan Documents. SECTION 9.04. Indemnification. --------------- (a) The Borrower shall indemnify the Administrative Agent, the Lenders and each affiliate thereof and their respective directors, officers, employees and Administrative Agents (each an "Indemnified Party") from, and hold each of them harmless against, any and all losses, liabilities, claims or damages to which any of them may become subject, insofar as such losses, liabilities, claims or damages arise out of or result from any actual or proposed use by the Borrower of the proceeds of any extension of credit by any Lender hereunder or breach by the Borrower of this Agreement or any other Loan Document or from any investigation, litigation or other proceeding (including any threatened investigation or proceeding) relating to the foregoing (an "Indemnity Proceeding"), and the Borrower shall reimburse each Indemnified Party, upon demand (but no more frequently than every Fiscal Quarter) for any reasonable expenses (including, without limitation, reasonable legal fees) incurred in connection with any such investigation or proceeding ("Claims and Expenses"); but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or wilful misconduct of the Indemnified Party; provided, that should the Borrower pay any amounts to the Administrative Agent or the Lenders due to this Section, and it shall be determined that the harm being indemnified against resulted from the Administrative Agent's or any Lender's gross negligence or wilful misconduct, then such party receiving such payment shall rebate such payment to the Borrower, together with interest thereon accruing at the Federal Funds Rate from the date such payment was made until the date such rebate is received by the Borrower (calculated for the actual number of days elapsed on the basis of a 365 day year). (b) If the Borrower is required to indemnify an Indemnified Party pursuant hereto and have provided evidence reasonably satisfactory to such Indemnified Party that the Borrower has the financial wherewithal to reimburse such Indemnified Party for any amount paid by such Indemnified Party with respect to such Indemnity Proceeding, such Indemnified Party shall not settle or compromise any such Indemnity Proceeding without the prior written consent of the Borrower (which consent shall not be unreasonably withheld or delayed). -69- (c) If a claim is to be made by an Indemnified Party under this Section, the Indemnified Party shall give written notice to the Borrower promptly after the Indemnified Party receives actual notice of any Claims and Expenses incurred or instituted for which the indemnification is sought; provided, that, the failure to give such prompt notice shall not -------- ---- decrease the Claims and Expenses payable by the Borrower, except to the extent that such failure has caused the Borrower to forfeit any substantive right of a material nature. If requested by the Borrower in writing, and so long as (i) no Event of Default shall have occurred and be continuing and (ii) the Borrower has acknowledged in writing to the Indemnified Party that the Borrower shall be obligated under the terms of its indemnity hereunder in connection with such Indemnity Proceeding (subject to the exclusion of any losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the Indemnified Party), the Borrower may, at its election, conduct the defense of any such Indemnified Proceeding to the extent such contest may be conducted in good faith on legally supported grounds. If any lawsuit or enforcement action is filed against any Indemnified Party entitled to the benefit of indemnity under this Section, written notice thereof shall be given to the Borrower as soon as practicable (and in any event within 15 days after the service of the citation or summons). Notwithstanding the foregoing, the failure so to notify the Borrower as provided in this Section will not relieve the Borrower from liability hereunder. After such notice, the Borrower shall be entitled, if they so elect, to take control of the defense and investigation of such lawsuit or action and to employ and engage counsel of their own choice reasonably acceptable to the Indemnified Party to handle and defend the same, at the Borrower's cost, risk and expense; provided -------- however, that the Borrower and its counsel shall proceed with diligence and ------- in good faith with respect thereto. If (i) the engagement of such counsel by the Borrower would present a conflict of interest which would prevent such counsel from effectively defending such action on behalf of the Indemnified Party, (ii) the defendants in, or targets of, any such lawsuit or action include both the Indemnified Party and Borrower, and the Indemnified Party reasonably concludes that there may be legal defenses available to it that are different from or in addition to those available to the Borrower, (iii) the Borrower fails to assume the defense of the lawsuit or action or to employ counsel reasonably satisfactory to such Indemnified Party, in either case in a timely manner, or (iv) an Event of Default shall occur and be continuing, then such Indemnified Party may employ separate counsel to represent or defend it in any such action or proceeding and the Borrower will pay the fees and disbursements of such counsel; provided, however that each Indemnified Party shall, in connection -------- ------- with any matter covered by this Section which also involves other Indemnified Parties, use reasonable efforts to avoid unnecessary duplication of efforts by counsel for all indemnities. Should the Borrower be entitled to conduct the defense of any Indemnity Proceeding pursuant to the terms of this Section, the Indemnified Party shall cooperate (with all Claims and Expenses associated therewith to be paid by the Borrower) in all reasonable respects with the Borrower and such attorneys in the investigation, trial and defense of such lawsuit or action and any appeal arising therefrom; provided, -------- -70- however that the Indemnified Party may, at its own cost (except as set ------- forth in, and in accordance with, the foregoing sentence), participate in the investigation, trial and defense of such lawsuit or action and any appeal arising therefrom. (d) The Administrative Agent and each Lender agree that in the event that any Indemnity Proceeding is asserted or threatened in writing or instituted against it or any other party entitled to indemnification hereunder, the Administrative Agent or such Lender shall promptly notify the Borrower thereof in writing and agree, to the extent appropriate, to consult with the Borrower with a view to minimizing the cost to the Borrower of its obligations under this Section; provided, that, the failure -------- ---- to so notify the Borrower will not relieve the Borrower from liability hereunder except to the extent such failure has caused the Borrower to forfeit any substantive right of a material nature. SECTION 9.05. Sharing of Setoffs. Each Lender agrees that if it shall, ------------------ by exercising any right of setoff or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest owing with respect to the Note held by it which is greater than the proportion received by any other Lender in respect of the aggregate amount of all principal and interest owing with respect to the Note held by such other Lender, the Lender receiving such proportionately greater payment shall purchase such participations in the Notes held by the other Lenders owing to such other Lenders, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Notes held by the Lenders owing to such other Lenders shall be shared by the Lenders pro rata; provided that (i) nothing in this Section shall impair the right of any Lender - -------- to exercise any right of setoff or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness under the Notes, and (ii) if all or any portion of such payment received by the purchasing Lender is thereafter recovered from such purchasing Lender, such purchase from each other Lender shall be rescinded and such other Lender shall repay to the purchasing Lender the purchase price of such participation to the extent of such recovery together with an amount equal to such other Lender's ratable share (according to the proportion of (x) the amount of such other Lender's required repayment to (y) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Note, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of setoff or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation. SECTION 9.06. Amendments and Waivers. ---------------------- (a) Except as otherwise specifically provided herein, any provision of this Agreement, the Notes or any other Loan Documents may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Lenders (and, if the rights or duties of the Administrative Agent are affected -71- thereby, by the Administrative Agent); provided that, except as provided in -------- the next succeeding proviso, no such amendment or waiver shall, unless signed by all Lenders, (i) change the Commitment of any Lender or subject any Lender to any additional obligation, (ii) reduce the principal of or rate of interest on any Loan or any fees hereunder (other than fees payable under the Administrative Agent/Arranger Letter Agreement), (iii) extend the date fixed for any payment of principal of or interest on any Loan or any fees (other than fees payable under the Administrative Agent/Arranger Letter Agreement) hereunder (including, without limitation, any payments required to be made pursuant to Section 2.05(a)(iii)), (iv) reduce the amount of principal, interest or fees due on any date fixed for the payment thereof, (v) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, or the number of Lenders, which shall be required for the Lenders or any of them to take any action under this Section or any other provision of this Agreement, (vi) change the manner of application of any payments made under this Agreement or the Notes, or (vii) reduce any obligation owed under or release any Guarantee (except as permitted under Section 5.04 or 6.09 in connection with the dissolution, sale or other disposition of a Subsidiary Guarantor) given to support payment of the Loans. (b) The Borrower will not solicit, request or negotiate for or with respect to any proposed waiver or amendment of any of the provisions of this Agreement unless each Lender shall be informed thereof by the Borrower and shall be afforded an opportunity of considering the same and shall be supplied by the Borrower with both (i) reasonably sufficient information to enable it to make an informed decision with respect thereto, and (ii) substantially the same information as supplied by the Borrower to any other Lender. Executed or true and correct copies of any waiver or consent effected pursuant to the provisions of this Agreement shall be delivered by the Borrower to each Lender within two Business Days following the date on which the same shall have been executed and delivered by the requisite percentage of Lenders. The Borrower will not, directly or indirectly, pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, to any Lender (in its capacity as such) as consideration for or as an inducement to the entering into by such Lender of any waiver or amendment of any of the terms and provisions of this Agreement unless such remuneration is concurrently paid, on the same terms, ratably to all such Lenders. SECTION 9.07. No Margin Stock Collateral. Each of the Lenders -------------------------- represents to the Administrative Agent, each of the other Lenders and the Borrower that it in good faith is not, directly or indirectly (by negative pledge or otherwise), relying upon any Margin Stock as collateral in the extension or maintenance of the credit provided for in this Agreement. SECTION 9.08. Successors and Assigns. ---------------------- (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that the -------- -72- Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of the Administrative Agent and the Lenders. (b) Any Lender may at any time sell to one or more Persons (each a "Participant") participating interests in any Loan owing to such Lender, any Note held by such Lender, any Commitment hereunder or any other interest of such Lender hereunder, provided that such participations shall -------- be in minimum amounts of $5,000,000. In the event of any such sale by a Lender of a participating interest to a Participant, such Lender's obligations under this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Note for all purposes under this Agreement, and the Borrower and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. In no event shall a Lender that sells a participation be obligated to the Participant to take or refrain from taking any action hereunder except that such Lender may agree that it will not (except as provided below), without the consent of the Participant, agree to (i) the extension of any date fixed for the payment of principal of or interest on the related loan or loans, (ii) the reduction of the amount of any principal, interest or fees due on any date fixed for the payment thereof with respect to the related loan or loans, (iii) the reduction in the rate at which either interest is payable thereon or (if the Participant is entitled to any part thereof) facility fee is payable hereunder from the rate at which the Participant is entitled to receive interest or facility fee (as the case may be) in respect of such participation, or (iv) the reduction of any obligation owing under or the release of any Guarantee (except as permitted under Section 5.04 or 6.09(a) in connection with the dissolution, sale or other disposition of a Subsidiary Guarantor) given to support payment of the Loans. Each Lender selling a participating interest in any Loan, Note, Commitment or other interest under this Agreement, other than a Competitive Bid Loan or Competitive Bid Note, shall, within 10 Business Days of such sale, provide the Borrower and the Administrative Agent with written notification stating that such sale has occurred and identifying the Participant and the interest purchased by such Participant. The Borrower acknowledges and agrees that the benefits of Sections 2.07 through 2.10 shall continue in effect with respect to the full amount of each Lender's Loans and Commitment, notwithstanding its sale of participating interests therein as contemplated hereby. (c) Any Lender may at any time assign to one or more banks or financial institutions (each an "Assignee") all, or a proportionate part of all, of its rights and obligations under this Agreement, the Notes, and any other Loan Documents, and such Assignee shall assume all such rights and obligations, pursuant to an Assignment Agreement in the form attached hereto as Exhibit "F", executed by such Assignee, such transferor Lender ----------- and the Administrative Agent (and, in the case of an Assignee that is not then a Lender, by the Borrower); provided that (i) no interest may be sold -------- by a Lender pursuant to this paragraph (c) unless the Assignee shall agree to assume ratably -73- equivalent portions of the transferor Lender's Commitment, (ii) the amount of the Commitment of the assigning Lender subject to such assignment (determined as of the effective date of the assignment) shall be equal to $5,000,000 (or any larger multiple of $1,000,000), and (iii) no interest may be sold by a Lender pursuant to this paragraph (c) to any Assignee that is not then a Lender, or an Affiliate of a Lender, without the prior written consent of the Borrower and the Administrative Agent, which consent of the Borrower and the Administrative Agent shall not be unreasonably withheld or delayed. Upon (A) execution of the Assignment Agreement by such transferor Lender, such Assignee, the Administrative Agent and (if applicable) the Borrower, (B) delivery of a Notice of Assignment and an executed copy of the Assignment Agreement to the Borrower and the Administrative Agent, (C) payment by such Assignee to such transferor Lender of an amount equal to the purchase price agreed between such transferor Lender and such Assignee, and (D) payment of a processing and recordation fee of $3,000 to the Administrative Agent, such Assignee shall, on the "Effective Date" as provided in the Assignment Agreement, for all purposes be a Lender party to this Agreement and shall have all the rights and obligations of a Lender under this Agreement to the same extent as if it were an original party hereto with a Commitment as set forth in such instrument of assumption, and the transferor Lender shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by the Borrower, the Lenders or the Administrative Agent shall be required. Upon the consummation of any transfer to an Assignee pursuant to this paragraph (c), the transferor Lender, the Administrative Agent and the Borrower shall make appropriate arrangements so that, if required, a new Note is issued to such Assignee and, if necessary, a new Note shall be issued to the transferor Lender. (d) Subject to the provisions of Section 9.09, the Borrower authorizes each Lender to disclose to any Participant, Assignee or other transferee (each a "Transferee") and any prospective Transferee any and all financial information in such Lender's possession concerning the Borrower which has been delivered to such Lender by the Borrower pursuant to this Agreement or which has been delivered to such Lender by the Borrower in connection with such Lender's credit evaluation prior to entering into this Agreement. (e) Transferees shall be entitled to receive a greater payment under Section 2.07 or 2.08 than the transferor Lender would have been entitled to receive with respect to the rights transferred, only if such transfer is made with the Borrower's prior written consent or by reason of the provisions of Section 2.11 requiring such Lender to designate a different Lending Installation under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. (f) Anything in this Section 9.08 to the contrary notwithstanding, any Lender may assign and pledge all or any portion of the Loans and/or obligations owing to it to any Federal Reserve Bank or the United States Treasury as collateral security pursuant to -74- Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank, provided that -------- any payment in respect of such assigned Loans and/or obligations made by the Borrower to the assigning and/or pledging Lender in accordance with the terms of this Agreement shall satisfy the Borrower's obligations hereunder in respect of such assigned Loans and/or obligations to the extent of such payment. No such assignment shall release the assigning and/or pledging Lender from its obligations hereunder. SECTION 9.09. Confidentiality. Each Lender agrees to exercise its --------------- reasonable efforts and in any event not less than the same degree of care as it uses to maintain its own confidential information in maintaining the confidentiality of any information delivered or made available by the Borrower to it which is clearly indicated to be confidential information from any one other than persons employed or retained by such Lender who are or are expected to become engaged in evaluating, approving, structuring or administering the Loans; provided, however that nothing herein shall prevent any Lender from -------- ------- disclosing such information (i) to any other Lender or an affiliate of any Lender, (ii) upon the order of any court or administrative agency, (iii) upon the request or demand of any regulatory agency or authority having jurisdiction over such Lender, (iv) which has been publicly disclosed by means which are not violative of this Section 9.09, (v) to the extent reasonably required in connection with any litigation to which the Administrative Agent, any Lender or their respective Affiliates may be a party, (vi) to the extent reasonably required in connection with the exercise of any right, power of remedy hereunder or under any of the other Loan Documents, (vii) to such Lender's legal counsel and independent auditors and (viii) to any actual or proposed Participant, Assignee or other Transferee of all or part of its rights hereunder which has agreed in writing (aa) to be bound by the provisions of this Section 9.09 and (bb) that the Borrower is a third party beneficiary of such agreement, and (cc) to return all copies of the confidential information to the Administrative Agent if the proposed assignment or participation is not consummated. SECTION 9.10. Representation by Lenders. Each Lender hereby represents ------------------------- that it is a commercial lender or financial institution which makes Loans in the ordinary course of its business and that it will make its Loans hereunder for its own account in the ordinary course of such business; provided, however that, -------- ------- subject to Section 9.08, the disposition of the Note or Notes held by that Lender shall at all times be within its exclusive control. SECTION 9.11. Obligations Several. The obligations of each Lender ------------------- hereunder are several, and no Lender shall be responsible for the obligations or commitment of any other Lender hereunder. Nothing contained in this Agreement and no action taken by Lenders pursuant hereto shall be deemed to constitute the Lenders to be a partnership, an, association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled to protect and enforce its rights arising out of this Agreement or any other Loan Document and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose. -75- SECTION 9.12. Georgia Law . This Agreement and each Note shall be ----------- construed in accordance with and governed by the law of the State of Georgia without regard to the effect of conflicts of laws. SECTION 9.13. Interpretation. No provision of this Agreement or any of -------------- the other Loan Documents shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured or dictated such provision. SECTION 9.14. WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION. THE --------------------------------------------- BORROWER (A) AND EACH OF THE LENDERS AND THE ADMINISTRATIVE AGENT IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF THIS AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS, OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, (B) SUBMITS TO THE NONEXCLUSIVE PERSONAL JURISDICTION IN THE STATE OF GEORGIA, THE COURTS THEREOF AND THE UNITED STATES DISTRICT COURTS SITTING THEREIN, FOR THE ENFORCEMENT OF THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS, AND (C) WAIVES ANY AND ALL PERSONAL RIGHTS UNDER THE LAW OF ANY JURISDICTION TO OBJECT ON ANY BASIS (INCLUDING, WITHOUT LIMITATION, INCONVENIENCE OF FORUM) TO JURISDICTION OR VENUE WITHIN THE STATE OF GEORGIA FOR THE PURPOSE OF LITIGATION TO ENFORCE THIS AGREEMENT, THE NOTES OR THE OTHER LOAN DOCUMENTS. NOTHING HEREIN CONTAINED, HOWEVER, SHALL PREVENT THE ADMINISTRATIVE AGENT OR THE BANKS FROM BRINGING ANY ACTION OR EXERCISING ANY RIGHTS AGAINST THE BORROWER PERSONALLY, AND AGAINST ANY ASSETS OF THE BORROWER, WITHIN ANY OTHER STATE OR JURISDICTION. SECTION 9.15. Counterparts. This Agreement may be signed in any number ------------ of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. SECTION 9.16. Severability. In case any one or more of the provisions ------------ contained in this Agreement, the Notes or any of the other Loan Documents should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby and shall be enforced to the greatest extent permitted by law. SECTION 9.17. Interest. In no event shall the amount of interest, and -------- all charges, amounts or fees contracted for, charged or collected pursuant to this Agreement, the Notes or the other Loan Documents and deemed to be interest under applicable law (collectively, "Interest") exceed the highest rate of interest allowed by applicable law (the "Maximum Rate"), and in the event any such payment is inadvertently received by any Lender, then the excess sum (the -76- "Excess") shall be credited as a payment of principal, unless the Borrower shall notify such Lender in writing that it elects to have the Excess returned forthwith. It is the express intent hereof that the Borrower not pay and the Lenders not receive, directly or indirectly in any manner whatsoever, interest in excess of that which may legally be paid by the Borrower under applicable law. The right to accelerate maturity of any of the Loans does not include the right to accelerate any interest that has not otherwise accrued on the date of such acceleration, and the Administrative Agent and the Lenders do not intend to collect any unearned interest in the event of any such acceleration. All monies paid to the Administrative Agent or the Lenders hereunder or under any of the Notes or the other Loan Documents, whether at maturity or by prepayment, shall be subject to rebate of unearned interest as and to the extent required by applicable law. By the execution of this Agreement, the Borrower covenants, to the fullest extent permitted by law, that (i) the credit or return of any Excess shall constitute the acceptance by the Borrower of such Excess, and (ii) the Borrower shall not seek or pursue any other remedy, legal or equitable, against the Administrative Agent or any Lender, based in whole or in part upon contracting for charging or receiving any Interest in excess of the Maximum Rate. For the purpose of determining whether or not any Excess has been contracted for, charged or received by the Administrative Agent or any Lender, all interest at any time contracted for, charged or received from the Borrower in connection with this Agreement, the Notes or any of the other Loan Documents shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread in equal parts throughout the full term of the Commitments. The Borrower, the Administrative Agent and each Lender shall, to the maximum extent permitted under applicable law, (i) characterize any non-principal payment as an expense, fee or premium rather than as Interest and (ii) exclude voluntary prepayments and the effects thereof. The provisions of this Section shall be deemed to be incorporated into each Note and each of the other Loan Documents (whether or not any provision of this Section is referred to therein). All such Loan Documents and communications relating to any Interest owed by the Borrower and all figures set forth therein shall, for the sole purpose of computing the extent of obligations hereunder and under the Notes and the other Loan Documents be automatically recomputed by the Borrower, and by any court considering the same, to give effect to the adjustments or credits required by this Section. SECTION 9.18. Replacement of Lenders. If (i) any Lender or the Swing ---------------------- Line Lender demands payment of amounts pursuant to Section 2.07 or 2.08 that exceed comparable amounts being demanded by the other Lenders in respect of the circumstances described in either such Section, or (ii) any Lender sends the Borrower a notice of violation of applicable law, rule, regulation, or directive pursuant to Section 2.09 and such notice is not sent by the other Lenders, then in any such case the Borrower may, in its sole discretion and at its sole expense, on 10 Business Days' prior notice to the Administrative Agent and the affected Lender, cause such Lender to (and such Lender shall) assign, pursuant to Section 9.08(c), all of its rights and obligations under this Agreement to a financial institution designated by the Borrower that is willing to become a Lender, such assignment to be made upon payment to the assigning Lender of an amount equal to the outstanding principal amount of the Loans payable to such Lender plus all accrued but unpaid interest on such Loans, all accrued but ---- unpaid fees with respect to such Lender's Commitment, and all other amounts payable to such Lender under this Agreement. -77- Without limiting the foregoing, the Borrower may in lieu of finding a replacement Lender for the affected Lender, elect to reduce the Aggregate Commitment by the amount of the Commitment of such affected Lender. -78- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers or member, as the case may be, as of the day and year first above written. NATIONAL DATA CORPORATION Address for Notices: - ------------------- By: /s/ Robert L. Walker Name: ------------------------------------- Title: Chief Financial Officer National Data Plaza Atlanta, Georgia 30329-2010 Attention: E. Michael Ingram, Esq. Telecopier No.: 404/728-2990 Attest: /s/ E. Michael Ingram ---------------------------------- Name: E. Michael Ingram Title: Secretary THE FIRST NATIONAL BANK OF CHICAGO, as Administrative Agent and Lender Address for Notices - ------------------- By: /s/ A. R. Chicop -------------------------------------- One First National Plaza Name: A. R. Chicop Mail Suite 0324, Tenth Floor Title: Agent Chicago, Illinois 60670 Attention: David McNeela Telecopier No.: 312/732-2991 Lending Installation: -------------------- One First National Plaza Chicago, Illinois 60670 SYNDICATED LOAN COMMITMENT: -------------------------- $40,000,000 WACHOVIA BANK, N.A., as Documentation Agent and Lender Address for Notices - ------------------- By: /s/ William B. Nixon -------------------------------------- 191 Peachtree Street Name: William B. Nixon 29th Floor Title: Vice President Atlanta, Georgia 30303 Attention: William B. Nixon Telecopier No.: 404/332-5016 Lending Installation: -------------------- 191 Peachtree Street Atlanta, Georgia SYNDICATED LOAN COMMITMENT: -------------------------- $40,000,000 SUNTRUST BANK, ATLANTA, as Lender Address for Notices By: /s/ Christopher Deisley - ------------------- -------------------------------------- Name: Christopher Deisley Title: First Vice President 25 Park Place, N.E. 23rd Floor Atlanta, Georgia 30303 Attention: Brian Peters Telecopier No.: 404/588-8833 By: /s/ R. Michael Dunlap ------------------------------------- Name: R. Michael Dunlap Title: Vice President Lending Installation: -------------------- 25 Park Place, N.E. Atlanta, Georgia SYNDICATED LOAN COMMITMENT: -------------------------- $35,000,000 FIRST AMERICAN NATIONAL BANK, as Lender Address for Notices - ------------------- By: /s/ Mary E. Buckner ----------------------- Name: Mary E. Buckner Suite 100 Title: Vice President One Union Square Chattanooga, TN 37402 Attention: Mary Buckner Telecopier No.: 423/755-6014 Lending Installation: --------------------- Suite 100, One Union Square --------------------------- Chattanooga, TN 37402 --------------------------- SYNDICATED LOAN COMMITMENT: -------------------------- $10,000,000 EXHIBIT "A-1" SYNDICATED REVOLVING CREDIT NOTE -------------------------------- U.S. $_____________ December __, 1997 Atlanta, Georgia FOR VALUE RECEIVED, the undersigned NATIONAL DATA CORPORATION, a Delaware corporation (herein called "the Borrower"), hereby promises to pay to the order of [LENDER] (herein, together with any subsequent holder hereof, called the "Lender"), for the account of its applicable Lending Installation, the lesser of (i) the principal sum of _______ MILLION AND NO/100 DOLLARS ($__________.00), and (ii) the outstanding principal amount of the Syndicated Loans made by Lender to the Borrower pursuant to the terms of the Credit Agreement referred to below on the earlier of (x) the Facility Termination Date, and (y) the date on which all amounts outstanding under this Syndicated Revolving Credit Note have become due and payable pursuant to the provisions of Article VII of the Credit Agreement. The Borrower likewise promises to pay interest on the outstanding principal amount of each such Loan, at such interest rates, payable at such times, and computed in such manner, as are specified for such Loan in the Credit Agreement in strict accordance with the terms thereof. The Lender shall record all Syndicated Loans made pursuant to its Commitment under the Credit Agreement and all payments of principal of such Syndicated Loans and, prior to any transfer hereof, shall endorse such Syndicated Loans and payments on the schedule annexed hereto and made a part hereof, or on any continuation thereof which shall be attached hereto and made a part hereof, which endorsement shall constitute prima facie evidence of the ----------- accuracy of the information so endorsed; provided, however, that delay or -------- ------- failure of the Lender to make any such endorsement or recordation shall not affect the obligations of the Borrower hereunder or under the Credit Agreement with respect to the Syndicated Loans evidenced hereby. Any principal or, to the extent not prohibited by applicable law, interest due under this Syndicated Revolving Credit Note that is not paid on the due date therefor, whether on the Facility Termination Date, or resulting from the acceleration of maturity upon the occurrence of an Event of Default, shall bear interest from the date due to payment in full at the rate as provided in Section 2.06(e) of the Credit Agreement. -1- All payments of principal and interest shall be made in lawful money of the United States of America in immediately available funds at the office of the Administrative Agent specified in the Credit Agreement. This Syndicated Revolving Credit Note is issued pursuant to, and is one of the Syndicated Notes referred to in, the Credit Agreement dated as of December __, 1997, among National Data Corporation, The First National Bank of Chicago, as Administrative Agent, Wachovia Bank, N.A., as Documentation Agent, and the banks and other lending institutions listed on the signature pages thereof (as the same may be further amended, modified or supplemented from time to time, the "Credit Agreement") and each assignee thereof becoming a "Lender" as provided therein, and the Lender is and shall be entitled to all benefits thereof. Except as otherwise expressly defined herein, capitalized terms defined in the Credit Agreement are used herein with the same meanings. The Credit Agreement, among other things, contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and for mandatory prepayments upon the occurrence of certain events. The Borrower agrees to make payments of principal on the Syndicated Loans outstanding hereunder on the dates and in the amounts specified in the Credit Agreement for such Syndicated Loans in strict accordance with the terms thereof. This Syndicated Revolving Credit Note may be prepaid in whole or in part, without premium or penalty but with accrued interest on the principal amount prepaid to the date of prepayment, and otherwise in accordance with the terms and conditions of Section 2.06 of the Credit Agreement. In case an Event of Default shall occur and be continuing, the principal of and all accrued interest on this Syndicated Revolving Credit Note may automatically become, or be declared, due and payable in the manner and with the effect provided in the Credit Agreement. The Borrower agrees to pay, and save the Lender harmless against any liability for the payment of, all reasonable out-of-pocket costs and expenses, including reasonable attorneys' fees actually incurred by or on behalf of the Lender, arising in connection with the enforcement by the Lender of any of its rights under this Syndicated Revolving Credit Note or the Credit Agreement. This Syndicated Revolving Credit Note has been executed and delivered in Georgia and the rights and obligations of the Lender and the Borrower hereunder shall be governed by and construed in accordance with the laws (without giving effect to the conflict of law principles thereof) of the State of Georgia. -2- The Borrower expressly waives any presentment, demand, protest or notice in connection with this Syndicated Revolving Credit Note, now or hereafter required by applicable law. TIME IS OF THE ESSENCE OF THIS SYNDICATED REVOLVING CREDIT NOTE. -3- IN WITNESS WHEREOF, the Borrower has caused this Syndicated Revolving Credit Note to be executed and delivered by its duly authorized officers as of the date first above written. NATIONAL DATA CORPORATION By: ---------------------- Name: Title: Attest: ------------------- Name: Title: Secretary -4- SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL TO SYNDICATED REVOLVING CREDIT NOTE OF [LENDER] DATED DECEMBER __, 1997 Principal Maturity Principal Amount of of Interest Amount Unpaid Date Syndicated Loan Period Paid Balance - ----------- ---------------- ----------- --------- ------- -5- EXHIBIT "A-2" COMPETITIVE BID NOTE -------------------- December __, 1997 Atlanta, Georgia FOR VALUE RECEIVED, the undersigned NATIONAL DATA CORPORATION, a Delaware corporation (herein called "Borrower"), hereby promises to pay to the order of [LENDER] (herein, together with any subsequent holder hereof, called the "Lender"), for the account of its applicable Lending Installation, the outstanding principal amount of each Competitive Bid Loan made by the Lender to Borrower pursuant to the terms of the Credit Agreement referred to below on the earlier of (x) the last day of the Interest Period applicable to each such Competitive Bid Loan, and (y) the date on which all amounts outstanding under this Competitive Bid Note have become due and payable pursuant to the provisions of Article VII of the Credit Agreement. Borrower likewise promises to pay interest on the outstanding principal amount of each such Competitive Bid Loan, at such interest rate, payable at such times, and computed in such manner, as are specified for such Competitive Bid Loan in the Credit Agreement in strict accordance with the terms thereof. The Lender shall record all Competitive Bid Loans made pursuant to the Credit Agreement and all payments of principal of such Competitive Bid Loans and, prior to any transfer hereof, shall endorse such Competitive Bid Loans and payments on the schedule annexed hereto and made a part hereof, or on any continuation thereof which shall be attached hereto and made a part hereof, which endorsement shall constitute prima facie evidence of the accuracy of the ----------- information so endorsed; provided, however, that delay or failure of the Lender -------- ------- to make any such endorsement or recordation shall not affect the obligations of Borrower hereunder or under the Credit Agreement with respect to the Competitive Bid Loans evidenced hereby. Any principal or, to the extent not prohibited by applicable law, interest due under this Competitive Bid Note that is not paid on the due date therefor, whether on the last day of any applicable Interest Period or any other date on which interest is due and payable on any Competitive Bid Loan, or on the Facility Termination Date, or resulting from the acceleration of maturity upon the occurrence of an Event of Default, shall bear interest from the date due to payment in full at the rate as provided in Section 2.06(e) of the Credit Agreement. This Competitive Bid Note is issued pursuant to the Credit Agreement dated as of December __, 1997 among National Data Corporation, The First National Bank of Chicago, as -1- Administrative Agent, Wachovia Bank, N.A., as Documentation Agent, and the banks and other lending institutions listed on the signature pages thereof (as the same may be amended, restated or supplemented from time to time, the "Credit Agreement") and each assignee thereof becoming a "Lender" as provided therein, and the Lender is and shall be entitled to all benefits thereof. Except as otherwise expressly defined therein, terms defined in the Credit Agreement are used herein with the same meanings. The Credit Agreement, among other things, contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and for mandatory prepayments upon the occurrence of certain events. Borrower agrees to make payments of principal on the Competitive Bid Loans outstanding hereunder on the dates and in the amounts specified in the Credit Agreement for such Competitive Bid Loans in strict accordance with the terms thereof. This Competitive Bid Note may be prepaid in whole or in part, without premium or penalty but with accrued interest on the principal amount prepaid to the date of prepayment, and otherwise in accordance with the terms and conditions of Section 2.06 of the Credit Agreement. In case an Event of Default shall occur and be continuing, the principal of and all accrued interest on this Competitive Bid Note may automatically become, or be declared, due and payable in the manner and with the effect provided in the Credit Agreement. Borrower agrees to pay, and save the Lender harmless against, any liability for the payment of, all reasonable out-of-pocket costs and expenses, including reasonable attorneys' fees actually incurred by or on behalf of the Lender, arising in connection with the enforcement by the Lender of any of its rights under this Competitive Bid Note or the Credit Agreement. This Competitive Bid Note has been executed and delivered in the State of Georgia, U.S.A., and the rights and obligations of the Lender and Borrower hereunder shall be governed by and construed in accordance with the laws (without giving effect to the conflict of law principles thereof) of the State of Georgia. Borrower expressly waives any presentment, demand, protest or notice in connection with this Competitive Bid Note, now or hereafter required by applicable law. TIME IS OF THE ESSENCE OF THIS COMPETITIVE BID NOTE. -2- IN WITNESS WHEREOF, Borrower has caused this Competitive Bid Note to be executed and delivered by its duly authorized officers as of the date first above written. NATIONAL DATA CORPORATION By: ----------------------- Name: Title: Attest: ------------------- Name: Title: Secretary -3- SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL TO COMPETITIVE BID NOTE OF [LENDER], DATED DECEMBER __, 1997 Principal Maturity Principal Amount of of Interest Amount Unpaid Date Competitive Bid Loan Period Paid Balance - ----------- -------------------- ----------- --------- ------- -4- EXHIBIT "A-3" SWING LINE NOTE --------------- U.S. $15,000,000.00 December 19, 1997 Atlanta, Georgia FOR VALUE RECEIVED, the undersigned NATIONAL DATA CORPORATION, a Delaware corporation (herein called "the Borrower"), hereby promises to pay to the order of THE FIRST NATIONAL BANK OF CHICAGO (herein, together with any subsequent holder hereof, called the "Lender"), for the account of its applicable Lending Installation, the lesser of (i) the principal sum of FIFTEEN MILLION AND NO/100 DOLLARS ($15,000,000.00), and (ii) the outstanding principal amount of the Swing Line Loans made by Lender to the Borrower pursuant to the terms of the Credit Agreement referred to below on the earlier of (x) the Facility Termination Date, and (y) the date on which all amounts outstanding under this Swing Line Note have become due and payable pursuant to the provisions of Article VII of the Credit Agreement. The Borrower likewise promises to pay interest on the outstanding principal amount of each such Loan, at such interest rates, payable at such times, and computed in such manner, as are specified for such Loan in the Credit Agreement in strict accordance with the terms thereof. The Lender shall record all Swing Line Loans made pursuant to its Commitment under the Credit Agreement and all payments of principal of such Swing Line Loans and, prior to any transfer hereof, shall endorse such Swing Line Loans and payments on the schedule annexed hereto and made a part hereof, or on any continuation thereof which shall be attached hereto and made a part hereof, which endorsement shall constitute prima facie evidence of the accuracy ----------- of the information so endorsed; provided, however, that delay or failure of the -------- ------- Lender to make any such endorsement or recordation shall not affect the obligations of the Borrower hereunder or under the Credit Agreement with respect to the Swing Line Loans evidenced hereby. Any principal or, to the extent not prohibited by applicable law, interest due under this Swing Line Note that is not paid on the due date therefor, whether on the Facility Termination Date, or resulting from the acceleration of maturity upon the occurrence of an Event of Default, shall bear interest from the date due to payment in full at the rate as provided in Section 2.06(e) of the Credit Agreement. -1- All payments of principal and interest shall be made in lawful money of the United States of America in immediately available funds at the office of the Administrative Agent specified in the Credit Agreement. This Swing Line Note is issued pursuant to, and is one of the Swing Line Notes referred to in, the Credit Agreement dated as of December 19, 1997, among National Data Corporation, The First National Bank of Chicago, as Administrative Agent, Wachovia Bank, N.A., as Documentation Agent, and the banks and other lending institutions listed on the signature pages thereof (as the same may be further amended, modified or supplemented from time to time, the "Credit Agreement") and each assignee thereof becoming a "Lender" as provided therein, and the Lender is and shall be entitled to all benefits thereof. Except as otherwise expressly defined herein, capitalized terms defined in the Credit Agreement are used herein with the same meanings. The Credit Agreement, among other things, contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and for mandatory prepayments upon the occurrence of certain events. The Borrower agrees to make payments of principal on the Swing Line Loans outstanding hereunder on the dates and in the amounts specified in the Credit Agreement for such Swing Line Loans in strict accordance with the terms thereof. This Swing Line Note may be prepaid in whole or in part, without premium or penalty but with accrued interest on the principal amount prepaid to the date of prepayment, and otherwise in accordance with the terms and conditions of Section 2.06 of the Credit Agreement. In case an Event of Default shall occur and be continuing, the principal of and all accrued interest on this Swing Line Note may automatically become, or be declared, due and payable in the manner and with the effect provided in the Credit Agreement. The Borrower agrees to pay, and save the Lender harmless against any liability for the payment of, all reasonable out-of-pocket costs and expenses, including reasonable attorneys' fees actually incurred by or on behalf of the Lender, arising in connection with the enforcement by the Lender of any of its rights under this Swing Line Note or the Credit Agreement. This Swing Line Note has been executed and delivered in Georgia and the rights and obligations of the Lender and the Borrower hereunder shall be governed by and construed in accordance with the laws (without giving effect to the conflict of law principles thereof) of the State of Georgia. -2- The Borrower expressly waives any presentment, demand, protest or notice in connection with this Swing Line Note, now or hereafter required by applicable law. TIME IS OF THE ESSENCE OF THIS SWING LINE NOTE. -3- IN WITNESS WHEREOF, the Borrower has caused this Swing Line Note to be executed and delivered by its duly authorized officers as of the date first above written. NATIONAL DATA CORPORATION By: ---------------------------- Name: Title: Attest: ------------------------- Name: Title: Secretary -4- SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL TO SWING LINE NOTE OF THE FIRST NATIONAL BANK OF CHICAGO DATED DECEMBER 19, 1997 Principal Maturity Principal Amount of of Interest Amount Unpaid Date Swing Line Loan Period Paid Balance - ----------- --------------- ----------- --------- ------- -5- EXHIBIT "B" COMPETITIVE BID QUOTE REQUEST ----------------------------- (Section 2.04(b)) To: The First National Bank of Chicago, as Administrative Agent From: [Borrower] Re: Credit Agreement dated as of December __, 1997 (which, as it may be amended or modified and in effect from time to time, is herein called the "Agreement") among National Data Corporation, The First National Bank of Chicago, as Administrative Agent, Wachovia Bank, N.A., as Documentation Agent, and the Lenders that are parties thereto. 1. Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to such terms in the Agreement. 2. We hereby give notice pursuant to Section 2.04(b) of the Agreement that we request Competitive Bid Quotes for the following proposed Competitive Bid Advance(s): Borrowing Date: _________, ____ Principal Amount/1/ Interest Period/2/ ------------------ ----------------- 3. Such Competitive Bid Quotes should offer [a Competitive Bid Margin] [an Absolute Rate]. 4. Upon our acceptance of any or all of the Competitive Bid Advances offered by the Lenders in response to this request, we shall be deemed to affirm as of the Borrowing Date thereof the representations and warranties made in Article IV of the Agreement. NATIONAL DATA CORPORATION By: _________________________________________ Title: _________________________________________ _______________________ /1/Amount must be at least $5,000,000 and an integral multiple of $1,000,000 if in excess thereof. /2/One, two, three or six months (Eurodollar Auction) or at least 7 and up to 180 days (Absolute Rate Auction), subject to the provisions of the definitions of Eurodollar Interest Period and Absolute Rate Interest Period. EXHIBIT "C" INVITATION FOR COMPETITIVE BID QUOTES ------------------------------------- (Section 2.04 (c)) To: Each of the Lenders party to the Agreement referred to below Re: Invitation for Competitive Bid Quotes to National Data Corporation Pursuant to Section 2.04(c) of the Credit Agreement dated as of December __, 1997 (which, as it may be amended or modified and in effect from time to time, is herein called, the "Agreement") among National Data Corporation, The First National Bank of Chicago, as Administrative Agent, Wachovia Bank, N.A., as Documentation Agent, and the Lenders that are parties thereto, we are pleased, on behalf of National Data Corporation, to invite you to submit Competitive Bid Quotes to National Data Corporation for the following proposed Competitive Bid Advance(s): Borrowing Date: _________, _____ Principal Amount Interest Period ---------------- --------------- Such Competitive Bid Quotes should offer [a Competitive Bid Margin] [an Absolute Rate]. Your Competitive Bid Quote must comply with Section 2.04(d) of the Agreement and the foregoing. Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to such terms in the Agreement. Please respond to this invitation by no later than [1:00 p.m.] [9:00 a.m.] (Chicago time) on _________, ____. THE FIRST NATIONAL BANK OF CHICAGO, as Administrative Agent By: ______________________________________________ Name: Title: EXHIBIT "D" COMPETITIVE BID QUOTE --------------------- (Section 2.04(d)) To: The First National Bank of Chicago, as Administrative Agent Re: Competitive Bid Quote to National Data Corporation In response to your Invitation for Competitive Bid Quotes dated ___________, made on behalf of National Data Corporation, we (herein sometimes referred to as the "Quoting Lender") hereby make the following Competitive Bid Quote pursuant to Section 2.04(d) of the Agreement (as hereinafter defined) and on the following terms: 1. Quoting Lender: ------------------ 2. Person to contact at Quoting Lender: ---------------- 3. Borrowing Date: /1/ -------------- 4. We hereby offer to make Competitive Bid Loan(s) in the following principal amounts, for the following Interest Periods and at the following rates: Principal Interest [Competitive [Absolute Minimum Amount/2/ Period/3/ Bid Margin/4/] Rate/5/] Amount/6/ -------- -------- -------------- -------- -------- - ------------------------------------ /1/As specified in the related Invitation For Competitive Bid Quotes. /2/Principal amount bid for each Interest Period may not exceed the principal amount requested. Bids must be made for at least $2,500,000 and an integral multiple of $500,000 if in excess thereof. /3/One, two, three or six months or at least 7 and up to 180 days, as specified in the related Invitation For Competitive Bid Quotes. /4/Competitive Bid Margin over or under the Eurodollar Base Rate determined for the applicable Interest Period. Specify percentage (rounded to the nearest 1/100 of 1%) and specify whether "PLUS" or "MINUS". /5/Specify rate of interest per annum (rounded to the nearest 1/100 of 1%). /6/Specify minimum or maximum amount, if any, which the Borrower may accept (see Section 2.04(d)(ii)(E)). We understand and agree that the offer(s) set forth above, subject to the satisfaction of the applicable conditions set forth in the Credit Agreement dated as of December __, 1997 (which, as it may be amended or modified and in effect from time to time, is herein called the "Agreement") among National Data Corporation, The First National Bank of Chicago, as Administrative Agent, Wachovia Bank, N.A., as Documentation Agent, and the Lenders that are parties thereto, irrevocably obligates us to make the Competitive Bid Loan(s) for which any offer(s) are accepted, in whole or in part. Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to such terms in the Agreement. Very truly yours, [NAME OF LENDER] By: --------------------------- Title: --------------------------- -2- EXHIBIT "E" COMPLIANCE CERTIFICATE ---------------------- To: The Lenders parties to the Credit Agreement described below This Compliance Certificate is furnished pursuant to that certain Credit Agreement dated as of December 19, 1997 (which, as it may be amended or modified and in effect from time to time, is herein called the "Agreement") among National Data Corporation, The First National Bank of Chicago, as Administrative Agent, Wachovia Bank, N.A., as Documentation Agent, and the Lenders that are parties thereto. Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to such terms in the Agreement. THE UNDERSIGNED HEREBY CERTIFIES THAT: 1. I am the duly elected _____________________ of the Borrower; 2. I have reviewed the terms of the Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of the Borrower and its Consolidated Subsidiaries during the accounting period covered by the attached financial statements; 3. The examinations described in paragraph 2 did not disclose, and I have no knowledge of, the existence of any condition or event which constitutes a Default or an Event of Default during or at the end of the accounting period covered by the attached financial statements or as of the date of this Certificate, except as set forth below; and 4. Schedule I attached hereto sets forth financial data and computations ---------- evidencing compliance with Section 5.03 and Sections 6.01 through 6.09, inclusive, of the Agreement, all of which data and computations are true, complete and correct. 5. Schedule II attached hereto sets forth the determination of the ----------- Applicable Margin to be paid for Syndicated Advances and facility fee rates to be effective as provided in Section 2.06(c) of the Agreement. 6. Schedule III attached hereto sets forth the various financial ------------ statements, reports and deliveries which are required under the Agreement and the other Loan Documents and the status of compliance. 7. The Single Subsidiary Threshold for the most recent fiscal quarter covered by the attached financial statements is $_____________. No Operating Subsidiaries of the Borrower are required to become additional Subsidiary Guarantors under Section 5.03(a) of the Agreement, except as follows: ____________________________________________________. 8. The Aggregate Subsidiary Threshold for the most recent fiscal quarter covered by the attached financial statements is $__________. No Operating Subsidiaries of the Borrower are required to become additional Subsidiary Guarantors under Section 5.03(b) of the Agreement, other than the following Operating Subsidiaries designated by the Borrower: _______________. Described below are the exceptions, if any, to paragraph 3 by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which has been taken, is being taking, or is being proposed to be taken with respect to each such condition or event: ________________________________________________________ ________________________________________________________ ________________________________________________________ ________________________________________________________ The foregoing certifications, together with the computations set forth in Schedule I and Schedule II hereto, and the financial statements and reports - ---------- ----------- delivered with this Certificate in support hereof, are made and delivered this ____ day of ____________. _________________________________ Name: ___________________________ Title: _________________________ -2- SCHEDULE I TO COMPLIANCE CERTIFICATE Compliance as of ___________ with Sections 5.03 and 6.01 through 6.09 inclusive of the Agreement -3- SCHEDULE II TO COMPLIANCE CERTIFICATE Applicable Margin and Facility Fee Rate Determination -4- SCHEDULE III TO COMPLIANCE CERTIFICATE Financial Statements, Reports and Deliveries -5- EXHIBIT "F" ASSIGNMENT AGREEMENT -------------------- This Assignment Agreement (this "Assignment Agreement") between __________________________ (the "Assignor") and __________________ (the "Assignee") is dated as of ________. The parties hereto agree as follows: 1. PRELIMINARY STATEMENT. The Assignor is a party to a Credit Agreement --------------------- (which, as it may be amended or modified and in effect from time to time, is herein called the "Credit Agreement") described in Item 1 of Schedule 1 attached hereto ("Schedule 1"). Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to such terms in the Credit Agreement. 2. ASSIGNMENT AND ASSUMPTION. The Assignor hereby sells and assigns to ------------------------- the Assignee, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to the Assignor's rights and obligations under the Credit Agreement such that after giving effect to such assignment the Assignee shall have purchased pursuant to this Assignment Agreement the percentage interest specified in Item 3 of Schedule 1 of all outstanding rights and obligations ---------- under the Credit Agreement relating to the facilities listed in Item 3 of Schedule 1 and the other Loan Documents. The aggregate Commitment (or Loans, if - ---------- the applicable Commitment has been terminated) purchased by the Assignee hereunder is set forth in Item 4 of Schedule 1. ---------- 3. EFFECTIVE DATE. The effective date of this Assignment Agreement (the -------------- "Effective Date") shall be the later of the date specified in Item 5 of Schedule -------- 1 or two Business Days (or such shorter period agreed to by the Administrative - - Agent) after a Notice of Assignment substantially in the form of Exhibit "I" ----------- attached hereto has been delivered to the Administrative Agent. Such Notice of Assignment must include any consents required to be delivered to the Administrative Agent by Section 9.08(c) of the Credit Agreement. In no event will the Effective Date occur if the payments required to be made by the Assignee to the Assignor on the Effective Date under Sections 4 and 5 hereof are not made on the proposed Effective Date. The Assignor will notify the Assignee of the proposed Effective Date no later than the Business Day prior to the proposed Effective Date. As of the Effective Date, (i) the Assignee shall have the rights and obligations of a Lender under the Loan Documents with respect to the rights and obligations assigned to the Assignee hereunder and (ii) the Assignor shall relinquish its rights and be released from its corresponding obligations under the Loan Documents with respect to the rights and obligations assigned to the Assignee hereunder. 4. PAYMENTS OBLIGATIONS. On and after the Effective Date, the Assignee -------------------- shall be entitled to receive from the Administrative Agent all payments of principal, interest and fees with respect to the interest assigned hereby. The Assignee shall advance funds directly to the Administrative Agent with respect to all Loans and reimbursement payments made on or after the Effective Date with respect to the interest assigned hereby. [In consideration for the sale and assignment of Loans hereunder, (i) the Assignee shall pay the Assignor, on the Effective Date, an amount equal to the principal amount of the portion of all Floating Rate Loans assigned to the Assignee hereunder and (ii) with respect to each Fixed Rate [Syndicated] Loan made by the Assignor and assigned to the Assignee hereunder which is outstanding on the Effective Date, (a) on the last day of the Interest Period therefor or (b) on such earlier date agreed to by the Assignor and the Assignee or (c) on the date on which any such Fixed Rate [Syndicated] Loan either becomes due (by acceleration or otherwise) or is prepaid (the date as described in the foregoing clauses (a), (b) or (c) being hereinafter referred to as the "Payment Date"), the Assignee shall pay the Assignor an amount equal to the principal amount of the portion of such Fixed Rate [Syndicated] Loan assigned to the Assignee which is outstanding on the Payment Date. If the Assignor and the Assignee agree that the Payment Date for such Fixed Rate [Syndicated] Loan shall be the Effective Date, they shall agree to the interest rate applicable to the portion of such Fixed Rate [Syndicated] Loan assigned hereunder for the period from the Effective Date to the end of the existing Interest Period applicable to such Fixed Rate [Syndicated] Loan (the "Agreed Interest Rate") and any interest received by the Assignee in excess of the Agreed Interest Rate shall be remitted to the Assignor. In the event interest for the period from the Effective Date to but not including the Payment Date is not paid with respect to any Fixed Rate [Syndicated] Loan sold by the Assignor to the Assignee hereunder, the Assignee shall pay to the Assignor interest for such period on the portion of such Fixed Rate [Syndicated] Loan sold by the Assignor to the Assignee hereunder at the applicable rate provided by the Credit Agreement. In the event a prepayment of any Fixed Rate [Syndicated] Loan which is existing on the Payment Date and assigned by the Assignor to the Assignee hereunder occurs after the Payment Date but before the end of the Interest Period applicable to such Fixed Rate [Syndicated] Loan, the Assignee shall remit to the Assignor the excess of the prepayment penalty paid with respect to the portion of such Fixed Rate [Syndicated] Loan assigned to the Assignee hereunder over the amount which would have been paid if such prepayment penalty was calculated based on the Agreed Interest Rate. The Assignee will also promptly remit to the Assignor (i) any principal payments received from the Administrative Agent with respect to Fixed Rate [Syndicated] Loans prior to the Payment Date and (ii) any amounts of interest on Loans and fees received from the Administrative Agent which relate to the portion of the Loans assigned to the Assignee hereunder for periods prior to the Effective Date, in the case of Floating Rate Loans or fees, or the Payment Date, in the case of Fixed Rate [Syndicated] Loans, and not previously paid by the Assignee to the Assignor.]* In the event that either party hereto receives any payment to which the other party hereto is entitled under this Assignment Agreement, then the party receiving such amount shall promptly remit it to the other party hereto. *Each Assignor may insert its standard payment provisions in lieu of the payment terms included in this Exhibit. -2- 5. FEES PAYABLE BY THE ASSIGNEE. The Assignee shall pay to the Assignor a ---------------------------- fee on each day on which a payment of interest or facility fees is made under the Credit Agreement with respect to the amounts assigned to the Assignee hereunder (other than a payment of interest or facility fees for the period prior to the Effective Date or, in the case of Fixed Rate [Syndicated] Loans, the Payment Date, which the Assignee is obligated to deliver to the Assignor pursuant to Section 4 hereof). The amount of such fee shall be the difference between (i) the interest or fee, as applicable, paid with respect to the amounts assigned to the Assignee hereunder and (ii) the interest or fee, as applicable, which would have been paid with respect to the amounts assigned to the Assignee hereunder if each interest rate was ___ of 1% less than the interest rate paid by the Borrower or if the facility fee was ___ of 1% less than the facility fee paid by the Borrowers as the case may be. In addition, the Assignee agrees to pay ___% of the recordation fee required to be paid to the Administrative Agent in connection with this Assignment Agreement. 6. REPRESENTATIONS OF THE ASSIGNOR; LIMITATIONS ON THE ASSIGNOR'S -------------------------------------------------------------- LIABILITY. The Assignor represents and warrants that it is the legal and - --------- beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim created by the Assignor. It is understood and agreed that the assignment and assumption hereunder are made without recourse to the Assignor and that the Assignor makes no other representation or warranty of any kind to the Assignee. Neither the Assignor nor any of its officers, directors, employees, agents or attorneys shall be responsible for (i) the due execution, legality, validity, enforceability, genuineness, sufficiency or collectability of any Loan Document, including without limitation, documents granting the Assignor and the other Lenders a security interest in assets of the Borrower or any guarantors, (ii) any representation, warranty or statement made in or in connection with any of the Loan Documents, (iii) the financial condition or creditworthiness of the Borrower or any guarantors, (iv) the performance of or compliance with any of the terms or provisions of any of the Loan Documents, (v) inspecting any of the Property, books or records of the Borrower, (vi) the validity, enforceability, perfection, priority, condition, value or sufficiency of any collateral securing or purporting to secure the Loans or (vii) any mistake, error of judgment, or action taken or omitted to be taken in connection with the Loans or the Loan Documents. 7. REPRESENTATIONS OF THE ASSIGNEE. The Assignee (i) confirms that it has ------------------------------- received a copy of the Credit Agreement, together with copies of the financial statements requested by the Assignee and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment Agreement, (ii) agrees that it will, independently and without reliance upon the Administrative Agent, the Assignor or any other Lender and based on such documents and information at it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, (iii) appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under the Loan -3- Documents as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto, (iv) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender, (v) agrees that its payment instructions and notice instructions are as set forth in the attachment to Schedule 1, [AND] (vi) confirms that none of the ---------- funds, monies, assets or other consideration being used to make the purchase and assumption hereunder are "plan assets" as defined under ERISA and that its rights, benefits and interests in and under the Loan Documents will not be "plan assets" under ERISA[, AND (VII) ATTACHES THE FORMS PRESCRIBED BY THE INTERNAL REVENUE SERVICE OF THE UNITED STATES CERTIFYING THAT THE ASSIGNEE IS ENTITLED TO RECEIVE PAYMENTS UNDER THE LOAN DOCUMENTS WITHOUT DEDUCTION OR WITHHOLDING OF ANY UNITED STATES FEDERAL INCOME TAXES].** **to be inserted if the Assignee is not incorporated under the laws of the United States, or a state thereof. 8. INDEMNITY. The Assignee agrees to indemnify and hold the Assignor --------- harmless against any and all losses, costs and expenses (including, without limitation, reasonable attorneys' fees) and liabilities incurred by the Assignor in connection with or arising in any manner from the Assignee's non-performance of the obligations assumed under this Assignment Agreement. 9. SUBSEQUENT ASSIGNMENTS. After the Effective Date, the Assignee shall ---------------------- have the right pursuant to Section 9.08(c) of the Credit Agreement to assign the rights which are assigned to the Assignee hereunder to any entity or person, provided that (i) any such subsequent assignment does not violate any of the terms and conditions of the Loan Documents or any law, rule, regulation, order, writ, judgment, injunction or decree and that any consent required under the terms of the Loan Documents has been obtained and (ii) unless the prior written consent of the Assignor is obtained, the Assignee is not thereby released from its obligations to the Assignor hereunder, if any remain unsatisfied, including, without limitation, its obligations under [Sections 4, 5 and 8] hereof. 10. REDUCTIONS OF AGGREGATE COMMITMENT. If any reduction in the Aggregate ---------------------------------- Commitment occurs between the date of this Assignment Agreement and the Effective Date, the percentage interest specified in Item 3 of Schedule 1 shall ---------- remain the same, but the dollar amount purchased shall be recalculated based on the reduced Aggregate Commitment. 11. ENTIRE AGREEMENT. This Assignment Agreement and the attached Notice ---------------- of Assignment embody the entire agreement and understanding between the parties hereto and -4- supersede all prior agreements and understandings between the parties hereto relating to the subject matter hereof. 12. GOVERNING LAW. This Assignment Agreement shall be governed by the ------------- internal law, and not the law of conflicts, of the State of Georgia. 13. NOTICES. Notices shall be given under this Assignment Agreement in ------- the manner set forth in the Credit Agreement. For the purpose hereof, the addresses of the parties hereto (until notice of a change is delivered) shall be the address set forth in the attachment to Schedule 1. ---------- IN WITNESS WHEREOF, the parties hereto have executed this Assignment Agreement by their duly authorized officers as of the date first above written. [NAME OF ASSIGNOR] By: ---------------------------- Title: ---------------------------- ---------------------------- ---------------------------- [NAME OF ASSIGNEE] By: ---------------------------- Title: ---------------------------- ---------------------------- ---------------------------- -5- SCHEDULE 1 to Assignment Agreement 1. Description and Date of Credit Agreement: Credit Agreement dated December __, 1997, among National Data Corporation, The First National Bank of Chicago, as Administrative Agent, Arranger and Syndication Agent, Wachovia Bank, N.A., as Documentation Agent, and the Lenders that are parties thereto. 2. Date of Assignment Agreement: ------------------ 3. Amounts (As of Date of Item 2 above): Syndicated Revolving Competitive Bid Credit Facility Facility ------------------------ -------------------- a. Total of Commitments (Loans)** under Credit Agreement $____ $____ b. Assignee's Percentage of each Facility** purchased under the Assignment Agreement*** ____% ____% c. Amount of Assigned Share in each Facility purchased under the Assignment Agreement $____ $____ 4. Assignee's Aggregate (Loan Amount)* Commitment Amount Purchased Hereunder: $____________ 5. Proposed Effective Date: ____________ Accepted and Agreed: [NAME OF ASSIGNOR] [NAME OF ASSIGNEE] By: By: ------------------------- ------------------------ Title: Title: ------------------------- ------------------------ * Commitments and Loans to both Borrowers under each Facility must be ---- assigned together ** If a Commitment has been terminated, insert outstanding Loans in place of Commitment *** Percentage taken to 10 decimal places -6- ATTACHMENT TO SCHEDULE 1 TO ASSIGNMENT AGREEMENT Attach Assignor's Administrative Information Sheet, which must include notice address for the Assignor and the Assignee -7- EXHIBIT "G" LOAN/CREDIT RELATED MONEY TRANSFER INSTRUCTION ---------------------------------------------- To: The First National Bank of Chicago, as Administrative Agent (the "Agent") under the Credit Agreement Described Below. Re: Credit Agreement, dated December 19, 1997 (as it may be amended or modified and in effect from time to time, the "Credit Agreement"), among National Data Corporation, The First National Bank of Chicago, as Administrative Agent, Wachovia Bank, N.A., as Documentation Agent, and the Lenders that are parties thereto. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned thereto in the Credit Agreement. The Agent is specifically authorized and directed to act upon the following standing money transfer instructions with respect to the proceeds of Advances or other extensions of credit from time to time until receipt by the Agent of a specific written revocation of such instructions by the undersigned Borrower, provided, however, that the Agent may otherwise transfer funds as hereafter directed in writing by the undersigned Borrower in accordance with Section 9.01 of the Credit Agreement or based on any telephonic notice made in accordance with Section 2.06(g) of the Credit Agreement. Facility Identification Number(s) 08596330 Customer/Account Name National Data Corporation Transfer Funds To Wachovia Bank, Atlanta, GA ABA #061000010 For Account No. 17618165 (National Data Corporation) Reference/Attention To Proceeds of Loan Authorized Officer (Customer Representative) for Date: December 19, 1997 NATIONAL DATA CORPORATION, as Borrower ____________________________ ____________________________ (Please Print) Signature Bank Officer Name Date: December 19, 1997 ____________________________ ____________________________ (Please Print) Signature EXHIBIT "I" TO ASSIGNMENT AGREEMENT NOTICE OF ASSIGNMENT ------------- To: [BORROWER]* [ADMINISTRATIVE AGENT] From: [ASSIGNOR] (the "Assignor") [ASSIGNEE] (the "Assignee") 1. We refer to that Credit Agreement (the "Credit Agreement") described in Item 1 of Schedule 1 attached hereto ("Schedule 1"). Capitalized ---------- terms used herein and not otherwise defined herein shall have the meanings attributed to them in the Credit Agreement. 2. This Notice of Assignment (this "Notice") is given and delivered to ****[the Borrower and]**** the Administrative Agent pursuant to Section 9.08(c) of the Credit Agreement. 3. The Assignor and the Assignee have entered into an Assignment Agreement, dated as of _________ (the "Assignment"), pursuant to which, among other things, the Assignor has sold, assigned, delegated and transferred to the Assignee, and the Assignee has purchased, accepted and assumed from the Assignor the percentage interest specified in Item 3 of Schedule 1 of all outstandings, ---------- rights and obligations under the Credit Agreement relating to the facilities listed in Item 3 of Schedule 1. The Effective Date of the Assignment shall be ---------- the later of the date specified in Item 5 of Schedule 1 or two Business Days (or ---------- such shorter period as agreed to by the Administrative Agent) after this Notice of Assignment and any consents and fees required by Section 9.08(c) of the Credit Agreement have been delivered to the Administrative Agent, provided that the Effective Date shall not occur if any condition precedent agreed to by the Assignor and the Assignee has not been satisfied. *To be included only if consent must be obtained from the Borrower pursuant to Section 9.08(c) of the Credit Agreement. 4. The Assignor and the Assignee hereby give to the Borrower and the Administrative Agent notice of the assignment and delegation referred to herein. The Assignor will confer with the Administrative Agent before the date specified in Item 5 of Schedule 1 to determine if the Assignment Agreement will become ---------- effective on such date pursuant to Section 3 hereof, and will confer with the Administrative Agent to determine the Effective Date pursuant to Section 3 hereof if it occurs thereafter. The Assignor shall notify the Administrative Agent if the Assignment Agreement does not become effective on any proposed Effective Date as a result of the failure to satisfy the conditions precedent agreed to by the Assignor and the Assignee. At the request of the Administrative Agent, the Assignor will give the Administrative Agent written confirmation of the satisfaction of the conditions precedent. 5. The Assignor or the Assignee shall pay to the Administrative Agent on or before the Effective Date the processing fee of $3,000 required by Section 9.08(c) of the Credit Agreement. 6. If Notes are outstanding on the Effective Date, the Assignor and the Assignee request and direct that the Administrative Agent prepare and cause the Borrower to execute and deliver new Notes or, as appropriate, replacements notes, to the Assignor and the Assignee. The Assignor and, if applicable, the Assignee each agree to deliver to the Administrative Agent the original [Syndicated] Note(s) received by it from the Borrower upon its receipt of [a] new [Syndicated] Note(s) in the appropriate amount(s). 7. The Assignee advises the Administrative Agent that notice and payment instructions are set forth in the attachment to Schedule 1. ---------- 8. The Assignee hereby represents and warrants that none of the funds, monies, assets or other consideration being used to make the purchase pursuant to the Assignment are "plan assets" as defined under ERISA and that its rights, benefits, and interests in and under the Loan Documents will not be "plan assets" under ERISA. 9. The Assignee authorizes the Administrative Agent to act as its agent under the Loan Documents in accordance with the terms thereof. The Assignee acknowledges that the Administrative Agent has no duty to supply information with respect to the Borrower or the Loan Documents to the Assignee until the Assignee becomes a party to the Credit Agreement.* *May be eliminated if Assignee is a party to the Credit Agreement prior to the Effective Date. NAME OF ASSIGNOR NAME OF ASSIGNEE By: By: ------------------------ ----------------------- Title: Title: ------------------------ ----------------------- -2- ACKNOWLEDGED [AND CONSENTED TO] ACKNOWLEDGED [AND CONSENTED TO] BY: THE FIRST NATIONAL BANK BY: NATIONAL DATA OF CHICAGO, As CORPORATION Administrative Agent By: By: ----------------------- ----------------------- Title: Title: ----------------------- ----------------------- [Attach photocopy of Schedule 1 to Assignment] -3- EXHIBIT "J" CONTRIBUTION AGREEMENT ---------------------- THIS CONTRIBUTION AGREEMENT (this "Agreement") is entered into as of December 19, 1997, by and among NATIONAL DATA CORPORATION, a Delaware corporation (the "Principal"), each subsidiary of the Principal listed on Schedule I attached hereto (collectively, the "Guarantors"), and The First - ---------- National Bank of Chicago, a national banking association, as Administrative Agent (the "Administrative Agent") for the Lenders (as defined in the Credit Agreement referred to below). W I T N E S S E T H: ------------------- WHEREAS, pursuant to a certain Credit Agreement dated as of December 19, 1997, among the Principal, The First National Bank of Chicago, as Administrative Agent, Wachovia Bank, N.A., as Documentation Agent, and the banks and other lending institutions from time to time that are parties thereto (such Credit Agreement, as the same may have been or may hereafter from time to time be amended, modified, and restated, being herein referred to as the "Credit Agreement"), the Lenders have agreed to make Loans and other extensions of credit to the Principal; WHEREAS, pursuant to the requirements of the Credit Agreement, the Guarantors have executed and delivered a certain Subsidiary Guarantee dated as of December 19, 1997 in favor of the Administrative Agent for the ratable benefit of the Lenders (such Subsidiary Guarantee, as the same may have been or may hereafter from time to time be amended, modified, and restated, being hereinafter referred to as the "Guarantee Agreement"); WHEREAS, it is a further requirement and condition of the Credit Agreement that the Guarantors execute and deliver an agreement in the form hereof; NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained, and to induce each Guarantor to enter into the Guarantee Agreement, each Guarantor and the Administrative Agent agree as follows: SECTION 1. Indemnity and Subrogation. In addition to all such rights ------------------------- of indemnity and subrogation as the Guarantors may have under applicable law (but subject to Section 3), the Principal agrees that in the event a payment shall be made on behalf of the Principal by any Guarantor under the Guarantee Agreement, the Principal shall indemnify such Guarantor for the full amount of such payment and such Guarantor shall be subrogated to the rights of the person to whom such payment shall have been made to the extent of such payment. SECTION 2. Contribution and Subrogation. Each Guarantor (a ---------------------------- "Contributing Guarantor") agrees (subject to Section 3) that, in the event a payment shall be made by any other Guarantor under the Guarantee Agreement and such other Guarantor (the "Claiming Guarantor") shall not have been fully indemnified by the Principal as provided in Section 1, each Contributing Guarantor shall indemnify each Claiming Guarantor in an amount equal to the amount of such payment, in each case multiplied by a fraction of which the numerator shall be the net worth of such Contributing Guarantor on the date hereof and the denominator shall be the aggregate net worth of the Principal and all Guarantors on the date hereof (or, in the case of any Guarantor becoming a party hereto pursuant to Section 12, the date of the Supplement hereto executed and delivered by such Guarantor). Any Contributing Guarantor making any payment to a Claiming Guarantor pursuant to this Section 2 shall be subrogated to the rights of such Claiming Guarantor under Section 1 to the extent of such payment. As used herein, the term "net worth" shall mean, as at any date of determination, the consolidated members' capital, partners' capital, and stockholders' equity of the Principal and the Guarantors, as determined on a consolidated basis in accordance with GAAP. SECTION 3. Subordination. Notwithstanding any provision of this ------------- Agreement to the contrary, all rights of the Principal and the Guarantors under Sections 1 and 2 and all other rights of indemnity, contribution or subrogation under applicable law or otherwise shall be fully subordinated to the indefeasible payment in full in cash of the Obligations owing by the Principal. No failure on the part of the Principal or any Guarantor to make the payments required by Sections 1 and 2 (or any other payments required under applicable law or otherwise) shall in any respect limit the obligations and liabilities of the Principal or any Guarantor with respect to its obligations hereunder, and the Principal and each Guarantor shall remain liable for the full amount of the obligations of the Principal and each Guarantor hereunder. SECTION 4. Termination. This Agreement shall survive and be in full ----------- force and effect so long as any Obligation owing by the Principal is outstanding and has not been indefeasibly paid in full in cash, and so long as the Commitments in favor of the Principal under the Credit Agreement have not been terminated, and shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any such Obligation is rescinded or must otherwise be restored by any Lender or any Guarantor upon the bankruptcy or reorganization of the Principal or any Guarantor or otherwise. SECTION 5. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND ------------- CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA. SECTION 6. No Waiver; Amendment. (a) No failure on the part of the -------------------- Administrative Agent, the Principal, or any Guarantor to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy by the Administrative Agent, the Principal or any Guarantor preclude any other or further exercise thereof or the exercise of any other right power or remedy. All remedies hereunder are cumulative and are not exclusive of any other remedies provided by law. None of the Administrative Agent, the Principal and the Guarantors shall be deemed to have waived any rights hereunder unless such waiver shall be in writing and signed by such parties. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to a written agreement entered into among the Principal, the Guarantors -2- and the Administrative Agent, with the prior written consent of the Required Lenders (except as otherwise provided in the Credit Agreement). SECTION 7. Notices. All communications and notices hereunder shall ------- be in writing and given as provided in the Guarantee Agreement and addressed as specified therein. SECTION 8. Binding Agreement; Assignments. Whenever in this ------------------------------ Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the parties that are contained in this Agreement shall bind and inure to the benefit of their respective successors and assigns. Neither the Principal nor any Guarantor may assign or transfer any of its rights or obligations hereunder (and any such attempted assignment or transfer shall be void) without the prior written consent of the Required Lenders. SECTION 9. Survival of Agreement; Severability. (a) All covenants ----------------------------------- and agreements made by the Principal and each Guarantor herein and in the certificates or other instruments prepared or delivered in connection with this Agreement or the other Loan Documents shall be considered to have been relied upon by the Administrative Agent, the Lenders, the Principal, and each Guarantor and shall survive the making by the Lenders of the Loans, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loans or any other fee or amount payable by the Principal under the Credit Agreement or this Agreement or under any of the other Loan Documents is outstanding and unpaid or as long as any Commitments in favor of the Principal under the Credit Agreement have not been terminated. (b) In case any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, no party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 10. Counterparts. This Agreement may be executed in ------------ counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement shall be effective with respect to the Principal or Guarantor when a counterpart bearing the signature of the Principal or such Guarantor shall have been delivered to the Administrative Agent. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Agreement. SECTION 11. Effect of Contribution Agreement. This Agreement is -------------------------------- intended only to define the relative rights of the Principal and the Guarantors, and nothing set forth in this Agreement is intended to or shall impair the obligations of the Guarantors, jointly and severally, to -3- pay any amounts, as and when the same shall become due and payable in accordance with the terms of the Guarantee Agreement. The parties hereto acknowledge that the rights of indemnification, subrogation, and contribution hereunder shall constitute assets in favor of each Guarantor to which such right of indemnification, subrogation, or indemnification is owing. SECTION 12. Additional Guarantors. Pursuant to Section 5.03 of the --------------------- Credit Agreement, certain Subsidiaries of the Principal are required to enter into the Guarantee Agreement as a Guarantor. Upon execution and delivery, after the date hereof, by the Administrative Agent and such a Subsidiary of an instrument in the form of Annex 1 hereto, such Subsidiary shall become a ------- Guarantor hereunder with the same force and effect as if originally named as a Guarantor hereunder. The execution and delivery of any instrument adding an additional Guarantor as a party to this Agreement shall not require the consent of any Guarantor hereunder. The rights and obligations of each Guarantor hereunder shall remain in full force and effect notwithstanding the addition of any new Guarantor as a party to this Agreement. -4- IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized offices as of the date first appearing above. NATIONAL DATA CORPORATION, as the Principal By: ----------------------------------- Name: Title EACH OF THE SUBSIDIARIES LISTED ON SCHEDULE I ---------- HERETO, as a Guarantor By: ----------------------------------- Name Title: THE FIRST NATIONAL BANK OF CHICAGO, as Administrative Agent By: ----------------------------------- Name: Title: -5- SCHEDULE I GUARANTORS ---------- NATIONAL DATA PAYMENT SYSTEMS, INC. A New York Corporation NDC/YES CHECK, INC. A Georgia Corporation C.I.S. TECHNOLOGIES, INC. A Delaware Corporation HEALTH COMMUNICATION SERVICES, INC. A Virginia Corporation SOURCE INFORMATICS INC. A Delaware Corporation -6- ANNEX I SUPPLEMENT TO NDC CONTRIBUTION AGREEMENT ---------------------------------------- THIS SUPPLEMENT TO NDC CONTRIBUTION AGREEMENT (this "Supplement") dated as of ________________________, made by _________________, a __________ (the "New Guarantor"), in favor of the Administrative Agent, for the ratable benefit of the Lenders, under the Credit Agreement referred to below. A. Reference is made to (a) the Credit Agreement dated as of December 19, 1997 (as amended, supplemented and restated from time to time, the "Credit Agreement"), among National Data Corporation (the "Principal"), The First National Bank of Chicago, as Administrative Agent, Wachovia Bank, N.A., as Documentation Agent, and the banks and other lending institutions from time to time that are parties thereto, (b) the Subsidiary Guarantee dated as of December 19, 1997, among the Guarantors that are parties thereto and the Administrative Agent (as amended, supplemented and restated from time to time, the "Guarantee Agreement"), and (c) the Contribution Agreement dated as of December 19, 1997, among the Principal, the Guarantors that are parties thereto, and the Administrative Agent (as amended, supplemented and restated from time to time, the "Contribution Agreement"). B. Capitalized terms used herein and not otherwise defined herein shall have the meaning assigned to such terms in the Contribution Agreement or the Credit Agreement, as the case may be. C. The Principal and the Guarantors have entered into the Contribution Agreement in order to induce the Lenders to make Loans and other extensions of credit to the Principal. Pursuant to Section 5.03 of the Credit Agreement, certain Subsidiaries of the Principal are required to enter into the Guarantee Agreement as a Guarantor. Section 12 of the Contribution Agreement provides that additional Subsidiaries of the Principal may become Guarantors under the Contribution Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned Subsidiary of the Principal (the "New Guarantor") is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Guarantor under the Contribution Agreement in order to induce the Lenders to make additional Loans and other extensions of credit to the Principal and as consideration for Loans and other extensions of credit previously made. Accordingly, the Administrative Agent and the New Guarantor agree as follows: SECTION 13. In accordance with Section 12 of the Contribution Agreement, the New Guarantor by its signature below becomes a Guarantor under the Contribution Agreement with the same force and effect as if originally named therein as a Guarantor, and the New Guarantor hereby agrees to all the terms and provisions of the Contribution Agreement applicable to it as a Guarantor thereunder. Each reference to a "Guarantor" in the Contribution Agreement shall deemed to include the New Guarantor. The Contribution Agreement is hereby incorporated herein by reference. SECTION 14. The New Guarantor represents and warrants to the Administrative Agent and the Lenders that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms. SECTION 15. This Supplement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Supplement shall become effective when the Administrative Agent shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Guarantor and the Administrative Agent. Delivery of an executed signature page to this Supplement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Supplement. SECTION 16. Except as expressly supplemented hereby, the Contribution Agreement shall remain in full force and effect. SECTION 17. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA. SECTION 18. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, neither party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the remaining provisions contained herein and in the Contribution Agreement shall not in any way be affected or impaired. The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 19. All communications and notices hereunder shall be in writing and given as provided in Section 7 of the Contribution Agreement. All communications and notices hereunder to the New Guarantor shall be given to it at the address of the Principal. SECTION 20. The New Guarantor agrees to reimburse the Administrative Agent for its reasonable out-of-pocket expenses in connection with this Supplement, including the reasonable fees, other charges and disbursements of counsel for the Administrative Agent. IN WITNESS WHEREOF, the New Guarantor and the Administrative Agent have duly executed this Supplement to the Contribution Agreement as of the day and year first above written. [NAME OF NEW GUARANTOR] By: ----------------------------------- Name: Title: THE FIRST NATIONAL BANK OF CHICAGO, as Administrative Agent By: ----------------------------------- Name: Title: EXHIBIT "I" SUBSIDIARY GUARANTEE -------------------- THIS SUBSIDIARY GUARANTEE (this "Guarantee") is made as of the 19th day of December, 1997, by each of the subsidiaries of National Data Corporation, a Delaware corporation (the "Principal"), listed on Schedule I attached hereto ---------- (each a "Subsidiary Guarantor" and collectively the "Subsidiary Guarantors") in favor of the Administrative Agent, for the ratable benefit of the Lenders, under the Credit Agreement referred to below; W I T N E S S E T H: ------------------- WHEREAS, the Principal, The First National Bank of Chicago, as Administrative Agent (the "Administrative Agent"), Wachovia Bank, N.A., as Documentation Agent, and the banks and lending institutions from time to time that are lenders thereunder ("Lenders") have entered into a certain Credit Agreement dated as of December 19, 1997 (as the same may have been or may hereafter be amended or supplemented from time to time, the "Credit Agreement") providing, subject to the terms and conditions thereof, for Loans and other extensions of credit to be made by the Lenders to the Principal; WHEREAS, it is a requirement of the Credit Agreement that the Subsidiary Guarantors execute and deliver this Guarantee whereby the Subsidiary Guarantors shall guarantee the payment when due of all principal, interest and all other amounts that shall be at any time payable by the Principal under the Credit Agreement, the Notes, and the other Loan Documents; WHEREAS, in consideration of the financial and other support that the Principal has provided, and such financial and other support as the Principal may in the future provide, to the Subsidiary Guarantors, and in order to induce the Administrative Agent and the Lenders to enter into the Credit Agreement and extend credit to the Principal thereunder, the Subsidiary Guarantors are willing to guarantee the obligations of the Principal under the Credit Agreement, the Notes, and the other Loan Documents; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. Definitions. ------------ (a) Terms defined in the Credit Agreement and not otherwise defined herein have, as used herein, the respective meanings provided for therein. (b) As used herein, "Material Adverse Effect" shall mean, with respect to any event, act, condition or occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences, whether or not related, a material adverse change in, or a material adverse effect upon, any of (i) the financial condition, operations, business, properties or prospects of the Principal and its Consolidated Subsidiaries (as defined in the Credit Agreement and including, for purposes hereof, GPS and its Consolidated Subsidiaries) taken as a whole, (ii) the rights and remedies of the Administrative Agent or the Lenders under the Loan Documents, or the ability of the Principal or any Subsidiary Guarantor hereunder to perform its obligations under the Loan Documents to which it is a party, as applicable, or (iii) the legality, validity or enforceability of any Loan Document. SECTION 2.01 Representations and Warranties. Each Subsidiary ------------------------------- Guarantor represents and warrants (which representations and warranties shall be deemed to have been renewed upon each Borrowing by the Principal under the Credit Agreement) that: (a) It (i) is a corporation, limited liability company, or partnership, as the case may be, duly organized or formed, validly existing and in good standing under the laws of its jurisdiction of organization or formation; (ii) has all requisite power, and has all material governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted; and (iii) is qualified to do business in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify would have a Material Adverse Effect. (b) It has all necessary power and authority to execute, deliver and perform its obligations under this Guarantee; the execution, delivery and performance of this Guarantee have been duly authorized by all necessary organizational action; and this Guarantee has been duly and validly executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, or moratorium or other similar laws relating to the enforcement of creditors' rights generally and by general equitable principles. (c) Neither the execution and delivery by it of this Guarantee nor compliance with the terms and provisions hereof will conflict with or result in a breach of, or require any consent under, organizational documents or any material applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority or agency, or any material agreement or instrument to which it is a party or by which it is bound or to which it is subject, or constitute a default under any such material agreement or instrument, or result in the creation or imposition of any Lien upon any of its revenues or assets pursuant to the terms of any such material agreement or instrument. SECTION 2.02 Covenants. Each Subsidiary Guarantor covenants that, so ---------- long as any Lender has any Commitment to the Principal outstanding under the Credit Agreement or any -2- amount payable by the Principal under the Credit Agreement or any Note shall remain unpaid, that it will, and, if necessary, will enable the Principal, to fully comply with those covenants and agreements set forth in Articles V and VI of the Credit Agreement. SECTION 3. The Guarantee. Each Subsidiary Guarantor hereby -------------- unconditionally guarantees, jointly and severally, the full and punctual payment (whether at stated maturity, upon acceleration or otherwise) of the principal of and interest on each Note issued by the Principal pursuant to the Credit Agreement, and the full and punctual payment of all other amounts payable by the Principal under the Credit Agreement and the other Loan Documents including, without limitation, all Obligations owing by the Principal (all of the foregoing, including without limitation, interest accruing or that would have accrued after the filing of a petition in bankruptcy or other insolvency proceeding, being referred to collectively as the "Guaranteed Obligations"). Upon failure by the Principal to pay punctually any such amount, each Subsidiary Guarantor agrees that it shall forthwith on demand pay the amount not so paid at the place and in the manner specified in the Credit Agreement, each Note and the relevant Loan Documents, as the case may be. Each Subsidiary Guarantor acknowledges and agrees that this is a guarantee of payment when due, and not of collection, and that this Guarantee may be enforced up to the full amount of the Guaranteed Obligations without proceeding against the Principal, any security for the Guaranteed Obligations, or against any other party that may have liability on all or any portion of the Guaranteed Obligations. SECTION 4. Guarantee Unconditional. The obligations of each ------------------------ Subsidiary Guarantor hereunder shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by: (i) any extension, renewal, settlement, compromise, waiver or release in respect of any obligation of the Principal under the Credit Agreement, any Note, or any other Loan Document, by operation of law or otherwise or any obligation of any other guarantor of any of the Obligations; (ii) any modification or amendment of or supplement to the Credit Agreement, any Note, or any other Loan Document; (iii) any release, nonperfection or invalidity of any direct or indirect security for any obligation of the Principal under the Credit Agreement, any Note, any Loan Document, or any obligations of any other guarantor of any of the Obligations; (iv) any change in the existence, structure or ownership of the Principal or any other guarantor of any of the Obligations, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting the Principal, or any other guarantor of the Obligations, or its assets or any resulting release or discharge of any obligation of the Principal, or any other guarantor of any of the Obligations; -3- (v) the existence of any claim, setoff or other rights which any Subsidiary Guarantor may have at any time against the Principal, any other guarantor of any of the Obligations, the Agent, any Lender or any other Person, whether in connection herewith or any unrelated transactions, provided that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim; (vi) any invalidity or unenforceability relating to or against the Principal, or any other guarantor of any of the Obligations, for any reason related to the Credit Agreement, any other Loan Document, or any provision of applicable law or regulation purporting to prohibit the payment by the Principal, or any other guarantor of the Obligations, of the principal of or interest on any Note or any other amount payable by the Principal under the Credit Agreement, the Notes, or any other Loan Document; or (vii) any other act or omission to act or delay of any kind by the Principal, any other guarantor of the Obligations, the Administrative Agent, any Lender or any other Person or any other circumstance whatsoever which might, but for the provisions of this paragraph, constitute a legal or equitable discharge of any Subsidiary Guarantor's obligations hereunder. SECTION 5. Discharge Only Upon Payment In Full; Reinstatement In ----------------------------------------------------- Certain Circumstances. Each Subsidiary Guarantor's obligations hereunder shall - ---------------------- remain in full force and effect until all Guaranteed Obligations shall have been paid in full and the Commitments under the Credit Agreement in favor of the Principal shall have terminated or expired. If at any time any payment of the principal of or interest on any Note or any other amount payable by the Principal under the Credit Agreement or any other Loan Document is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of the Principal or otherwise, each Subsidiary Guarantor's obligations hereunder with respect to such payment shall be reinstated as though such payment had been due but not made at such time. SECTION 6. Waiver of Notice. Each Subsidiary Guarantor irrevocably ----------------- waives acceptance hereof, presentment, demand, protest and, to the fullest extent permitted by law, any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against the Principal, any other guarantor of the Obligations, or any other Person. SECTION 7. Judgment Currency. ------------------ -4- (a) Each Subsidiary Guarantor shall pay all amounts due hereunder in U.S. dollars, and such obligations hereunder to make payments in U.S. dollars shall not be discharged or satisfied by any tender or recovery pursuant to any judgment expressed in or converted into any currency other than U.S. dollars, except to the extent that such tender or recovery results in the effective receipt by the Lenders and the Administrative Agent of the full amount of U.S. dollars expressed to be payable under this Guarantee or the Credit Agreement. If for the purpose of obtaining or enforcing judgment against a Subsidiary Guarantor in any court or in any jurisdiction, it becomes necessary to convert into or from any currency other than U.S. dollars (such other currency being hereinafter referred to as the "Judgment Currency") an amount due in U.S. dollars, the conversion shall be made, and the currency equivalent determined, in each case, as on the day immediately preceding the day on which the judgment is given (such Business Day being hereinafter referred to as the "Judgment Currency Conversion Date"). (b) If there is a change in the rate of exchange prevailing between the Judgment Currency Conversion Date and the date of actual payment of the amounts due, the applicable Subsidiary Guarantor covenants and agrees to pay, or cause to be paid, such additional amounts, if any (but in any event not a lesser amount), as may be necessary to insure that the amount paid in the Judgment Currency, when converted at the rate of exchange prevailing on the date of payment, will produce the amount of U.S. dollars which could have been purchased with the amount of Judgment Currency stipulated in the judgment or judicial award at the rate of exchange prevailing on the Judgment Currency Conversion Date. (c) For purposes of determining the currency equivalent for this Section, such amounts shall include any premium and costs payable in connection with the purchase of U.S. dollars. (d) The currency equivalent of U.S. dollars shall mean, with respect to any monetary amount in a currency other than U.S. dollars, at any time for the determination thereof, the amount of U.S. dollars obtained by converting such foreign currency involved in such computation into U.S. dollars at the spot rate for the purchase of U.S. dollars with the applicable foreign currency as quoted by the Administrative Agent at approximately 11:00 a.m. (Chicago, Illinois time) on the date of determination thereof specified herein or, if the date of determination thereof is not otherwise specified herein, on the date two (2) Business Days prior to such determination. SECTION 8. Stay of Acceleration. If acceleration of the time for --------------------- payment of any amount payable by the Principal under the Credit Agreement, any Note or any other Loan Document is stayed upon the insolvency, bankruptcy or reorganization of the Principal, all such amounts otherwise subject to acceleration under the terms of the Credit Agreement, any Note or any other Loan Document shall nonetheless be payable by each Subsidiary Guarantor hereunder forthwith on demand by the Administrative Agent made at the request of the Required Lenders. -5- SECTION 9. Right of Set Off. If an Event of Default shall have ----------------- occurred and be continuing, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of any Subsidiary Guarantor against any or all the obligations of such Subsidiary Guarantor now or hereafter existing under this Guarantee, and the other Loan Documents held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Guarantee or any other Loan Document and although such obligations may be unmatured. The rights of each Lender under this Section 9 are in addition to other rights and remedies (including other rights of set off) which such Lender may have. SECTION 10. Notices. All notices, requests and other communications -------- to any party hereunder shall be given or made by telecopier or other writing and telecopied, or mailed or delivered to the intended recipient at the following address or telecopier number: c/o National Data Corporation 4 Corporate Square Atlanta, Georgia 30329-2010 Attention: Office of Corporate Secretary Telecopier No.: 404/728-2990 or such other address or telecopy number as such party may hereafter specify for such purpose by notice to the Administrative Agent in accordance with the provisions of Section 9.01 of the Credit Agreement. Except as otherwise provided in this Guarantee, all such communications shall be deemed to have been duly given when transmitted by telecopier, or personally delivered or, in the case of a mailed notice sent by certified mail return-receipt requested, on the date set forth on the receipt (provided, that any refusal to accept any such notice shall be deemed to be notice thereof as of the time of any such refusal), in each case given or addressed as aforesaid. SECTION 11. No Waivers. No failure or delay by the Administrative ----------- Agent or any Lenders in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided in this Guarantee, the Credit Agreement, the Notes, and the other Loan Documents shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 12. Successors and Assigns. This Guarantee is for the ----------------------- benefit of the Administrative Agent and the Lenders and their respective successors and permitted assigns and in the event of an assignment of any amounts payable under the Credit Agreement, the Notes, or the other Loan Documents, the rights hereunder, to the extent applicable to the indebtedness so assigned, may be transferred with such indebtedness. This Guarantee shall be binding upon each Subsidiary Guarantor and its successors and permitted assigns. -6- SECTION 13. Changes in Writing. Neither this Guarantee nor any ------------------- provision hereof may be changed, waived, discharged or terminated orally, but only in writing signed by each Subsidiary Guarantor and the Administrative Agent with the consent of the Required Lenders or, if required pursuant to Section 9.06(a) of the Credit Agreement, all of the Lenders. SECTION 14. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY --------------------------------------------------------- TRIAL. THIS GUARANTEE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE - ------ LAW OF THE STATE OF GEORGIA. EACH SUBSIDIARY GUARANTOR HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA AND OF ANY GEORGIA STATE COURT SITTING IN ATLANTA, GEORGIA AND FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS GUARANTEE (INCLUDING, WITHOUT LIMITATION, ANY OF THE OTHER LOAN DOCUMENTS) OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH SUBSIDIARY GUARANTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH SUBSIDIARY GUARANTOR, AND THE ADMINISTRATIVE AGENT AND THE LENDERS ACCEPTING THIS GUARANTEE, HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTEE OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 15. Taxes. etc. All payments required to be made by each ----------- Subsidiary Guarantor hereunder shall be made without set off or counterclaim and free and clear of and without deduction or withholding for or on account of, any present or future taxes, levies, imposts, duties or other charges of whatsoever nature imposed by any government or any political or taxing authority thereof; provided, however, that if a Subsidiary Guarantor is required by law to make - -------- ------- such deduction or withholding, such Subsidiary Guarantor shall forthwith pay to the Administrative Agent or any Lender, as applicable, such additional amount as results in the net amount received by the Administrative Agent or any Lender, as applicable, equaling the full amount which would have been received by the Administrative Agent or any Lender, as applicable, had no such deduction or withholding been made. SECTION 16. Additional Subsidiary Guarantors. Upon execution and --------------------------------- delivery by any subsidiary of the Principal of an instrument in the form of Annex 1 attached hereto, such subsidiary shall become a Subsidiary Guarantor - ------- hereunder with the same force and effect as if originally named a Subsidiary Guarantor herein (each an "Additional Subsidiary Guarantor"). The execution and delivery of any such instrument shall not require the consent of any other Subsidiary Guarantor hereunder. The rights and obligations of each Subsidiary Guarantor hereunder shall remain in full -7- force and effect notwithstanding the addition of any Additional Subsidiary Guarantor as a party to this Guarantee. SECTION 17. Other Guarantees. This Guarantee is in addition to, and ----------------- does not supersede or otherwise replace or affect, any other Guarantee that may previously have been executed, or may in the future be executed, in respect of any of the Guaranteed Obligations. SECTION 18. Counterparts. This Guarantee may be executed in ------------- counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed signature page to this Guarantee by facsimile transmission shall be an effective as delivery of a manually executed counterpart of this Guarantee. IN WITNESS WHEREOF, each Subsidiary Guarantor has caused this Guarantee to be duly executed by its authorized officer as of the day and year first above written. EACH OF THE SUBSIDIARIES OF NDC LISTED ON SCHEDULE I ATTACHED HERETO: ---------- By: ----------------------------------- Name: ------------------------------ Title ------------------------------ -8- SCHEDULE I SUBSIDIARY GUARANTORS --------------------- NATIONAL DATA PAYMENT SYSTEMS, INC. A New York Corporation NDC/YES CHECK, INC. A Georgia Corporation C.I.S. TECHNOLOGIES, INC. A Delaware Corporation HEALTH COMMUNICATION SERVICES, INC. A Virginia Corporation SOURCE INFORMATICS INC. A Delaware Corporation -9- ANNEX 1 SUPPLEMENT TO SUBSIDIARY GUARANTEE ---------------------------------- THIS SUPPLEMENT TO SUBSIDIARY GUARANTEE (this "Supplement") dated as of _______, made by ____________________________, a _________________ (the "Additional Subsidiary Guarantor"), in favor of the Administrative Agent, for the ratable benefit of the Lenders, under the Credit Agreement referred to below. A. Reference is made to the Credit Agreement dated as of December 19, 1997 (as the same may have been or may hereafter be amended, supplemented, and restated from time to time, the "Credit Agreement"), among National Data Corporation, a Delaware corporation (the "Principal"), The First National Bank of Chicago, as Administrative Agent (the "Administrative Agent"), Wachovia Bank, N.A., as Documentation Agent, and the banks and lending institutions from time to time that are lenders thereunder (the "Lenders"). B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement and the NDC Guarantee. C. The Subsidiary Guarantors have entered into the Subsidiary Guarantee in order to induce the Lenders to make Loans and other extensions of credit to the Principal under the Credit Agreement. Pursuant to Section 5.03 of the Credit Agreement, certain subsidiaries of the Borrower are required to enter into the Subsidiary Guarantee and become a Subsidiary Guarantor thereunder. The undersigned (the "Additional Subsidiary Guarantor") is executing this Supplement in accordance with the requirements of the Subsidiary Guarantee to become a Subsidiary Guarantor under the Subsidiary Guarantee in order to induce the Lenders to make Loans and other extensions of credit to the Principal and as consideration for Loans and other extensions of credit previously made. Accordingly, the Administrative Agent and the Additional Subsidiary Guarantor agree as follows: SECTION 1. (a) By its signature below, the Additional Subsidiary Guarantor becomes a Subsidiary Guarantor under the Subsidiary Guarantee with the same force and effect as if originally named therein as a Subsidiary Guarantor therein, and the Additional Subsidiary Guarantor hereby (a) agrees to all the terms and provisions of the Subsidiary Guarantee applicable to it as a Subsidiary Guarantor thereunder, and (b) represents and warrants that the representations and warranties made by it as a Subsidiary Guarantor thereunder are true and correct on and as of the date hereof. Each reference to a "Subsidiary Guarantor" in the Subsidiary Guarantee shall be deemed to include the Additional Subsidiary Guarantor. The Subsidiary Guarantee is hereby incorporated herein by reference. (b) Without limiting the foregoing, the Additional Subsidiary Guarantor hereby jointly and severally (with respect to the obligations of the Subsidiary Guarantors under the Subsidiary Guarantee) irrevocably and unconditionally guarantees the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all principal of, and interest on, each Note issued by the Principal pursuant to the Credit Agreement, and the full and punctual payment of all other Obligations payable by the Principal under the Credit Agreement and the other Loan Documents (including, without limitation, interest accruing or that would have accrued after the filing of a petition in bankruptcy or other insolvency proceeding). Upon failure by the Principal to pay punctually any such amount, the Additional Subsidiary Guarantor agrees that it shall forthwith on demand pay the amount not so paid at the place and in the manner specified in the Credit Agreement, the Notes or the relevant Loan Documents, as the case may be. The Additional Subsidiary Guarantor acknowledges and agrees that this is a guarantee of payment when due, and not of collection, and that the obligations of the Additional Subsidiary Guarantor hereunder may be enforced up to the full amount hereof without proceeding against the Principal, any security held by the Administrative Agent or the Lenders, or against any other Subsidiary Guarantor, the Principal, or any other party that may have liability on all or any portion of the obligations guaranteed hereby. SECTION 2. The Additional Subsidiary Guarantor represents and warrants to the Administrative Agent and the Lenders that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms. SECTION 3. This Supplement may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single agreement. This Supplement shall become effective when the Administrative Agent shall have received counterparts of this Supplement that, when taken together, bear the signatures of the Additional Subsidiary Guarantor and the Administrative Agent. Delivery of an executed signature page to this Supplement by facsimile transmission shall be effective as delivery of a manually counterpart of this Supplement. SECTION 4. Except as expressly supplemented hereby, the Subsidiary Guarantee shall remain in full force and effect. SECTION 5. This Supplement shall be governed by, and construed in accordance with, the laws of the State of Georgia, without giving effect to the principles of conflict of laws thereof. SECTION 6. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and in the Subsidiary Guarantee shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision hereof in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction.) The parties hereto shall endeavor in good faith negotiations to replace the invalid, -2- illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 7. All communications and notices hereunder shall be in writing and given as provided in the Subsidiary Guarantee. All communications and notices hereunder to the Additional Subsidiary Guarantor shall be given to it at the address of the Borrower. IN WITNESS WHEREOF, the Additional Subsidiary Guarantor and the Administrative Agent have duly executed this Supplement to the Subsidiary Guarantee as of the day and year first above written. [NAME OF ADDITIONAL SUBSIDIARY GUARANTOR] By: ------------------------------ Name: Title: THE FIRST NATIONAL BANK OF CHICAGO, AS ADMINISTRATIVE AGENT By: ------------------------------ Name: Title: -3- EX-10.8 3 FIRST AMENDMENT TO CREDIT AGREEMENT EXHIBIT 10.8 FIRST AMENDMENT TO CREDIT AGREEMENT ----------------------------------- THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "First Amendment") dated as of April 10, 1998, among NATIONAL DATA CORPORATION, as Borrower, the banks and other financial institutions listed on the signature pages hereof, as Lenders, THE FIRST NATIONAL BANK OF CHICAGO, as Administrative Agent for such Lenders, and WACHOVIA BANK, N.A., as Documentation Agent for such Lenders. W I T N E S S E T H: ------------------- WHEREAS, the Borrower, the Lenders, the Administrative Agent, and the Documentation Agent are parties to a certain Credit Agreement dated as of December 19, 1997 (the "Credit Agreement"); WHEREAS, the parties hereto desire to amend the Credit Agreement in certain respects as more particularly set forth in this First Amendment; NOW, THEREFORE, in consideration of the premises and for Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. DEFINED TERMS. Except as otherwise expressly defined herein, all ------------- capitalized terms used in this First Amendment that are used in the Credit Agreement shall have the same meanings herein as are specified for such capitalized terms in the Credit Agreement. 2. AMENDMENTS TO SECTION 1.01 ("DEFINITIONS"). Each of the defined terms "Net ------------------------------------------ Proceeds of Capital Stock" and "Special Charges" and the definitions accompanying such terms as set forth in Section 1.01 of the Credit Agreement are hereby deleted in their entirety and the following defined terms and accompanying definitions are hereby substituted in lieu thereof: "Net Proceeds of Capital Stock" means any proceeds received or deemed ----------------------------- received by the Borrower or its Consolidated Subsidiary in respect of the issuance or sale of Capital Stock or conversion of any Debt to Capital Stock, after deducting therefrom all reasonable and customary costs and expenses incurred by the Borrower or such Consolidated Subsidiary directly in connection with such issuance or sale of such Capital Stock or conversion of such Debt. In the case of an Acquisition where some or all of the consideration for the Acquisition is Capital Stock, the amount of proceeds received or deemed received in respect of such Capital Stock shall be equal to the shareholders' (or in the case of a limited liability company or partnership, the members' or partners') equity of the Person being so acquired immediately following the Acquisition, as determined in accordance with GAAP, less all non-cash, non-recurring charges required or appropriate under GAAP to be taken by the Borrower and its Consolidated Subsidiaries for any period after February 28, 1998 as a result of the Acquisition, provided that in no instance shall "Net -------- Proceeds of Capital Stock" as so calculated be less than zero. "Special Charges" means any restructuring charges, asset impairment --------------- charges, in-process research and development charges, and transaction expense charges required or appropriate under GAAP to be taken by the Borrower and its Subsidiaries, in each case net of taxes, in an aggregate amount not to exceed $111,200,000 as a result of (a) the acquisition of (i) Source Informatics Inc. and its subsidiaries and (ii) Physician Support Systems, Inc. and its subsidiaries, and (b) other such charges required or appropriate under GAAP to be taken by Borrower and its Consolidated Subsidiaries in the Fiscal Quarter ending February 28, 1998. 3. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to the ------------------------------ Lenders as follows: (a) All representations and warranties set forth in the Credit Agreement and the other Loan Documents are true and correct on and as of the date of this First Amendment except for changes expressly permitted therein and except to the extent that such representations and warranties relate solely to an earlier date; and (b) After giving effect to this First Amendment, no Default or Event of Default has occurred and is continuing. 4. EFFECT OF FIRST AMENDMENT. On and after the date this First Amendment ------------------------- becomes effective as provided herein (i) each and every reference in the Credit Agreement to "hereof," "hereunder," "herein," "hereby" and each other similar reference, and each and every reference to "this Agreement" and each other similar reference, shall refer to the Credit Agreement as amended hereby, and as the same may be further amended, restated or supplemented from time to time, and (ii) each and every reference in the Loan Documents to the Credit Agreement shall be deemed to refer to and mean the Credit Agreement as amended by this First Amendment, and as the same may be further amended, supplemented or restated from time to time. The Borrower confirms and agrees that (i) except as expressly amended herein, the Credit Agreement remains in full force and effect in accordance with its terms, and (ii) all other Loan Documents remain in full force and effect in accordance with their respective terms. 5. RATIFICATION. The Borrower hereby restates, ratifies and reaffirms each and ------------ every term, covenant and condition set forth in the Credit Agreement and the other Loan Documents effective as of the date hereof. To induce the Lenders to enter into this First Amendment and to continue to make advances pursuant to the Credit Agreement, the Borrower acknowledges and agrees that, as of the date hereof and after giving effect to the terms hereof, there exists no right of offset, defense, counterclaim, claim or objection in favor of the Borrower arising out of or with respect to any of the obligations arising under the Credit Agreement or the other Loan Documents. -2- 6. COUNTERPARTS. This First Amendment may be executed in any number of ------------ counterparts and by the different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same instrument. 7. CONDITION TO EFFECTIVENESS OF FIRST AMENDMENT. This First Amendment shall --------------------------------------------- not become effective or have any force or effect until counterparts of this First Amendment have been executed on behalf of the Borrower and those Lenders constituting the Required Lenders under the terms of the Credit Agreement, and all such executed counterparts shall have been delivered to the Administrative Agent. 8. MISCELLANEOUS. This First Amendment shall be construed in accordance with ------------- and governed by the laws of the State of Georgia, without regard to the effect of conflicts of laws. This First Amendment shall be binding on, and shall inure to the benefit of and be enforceable by, the respective successors and permitted assigns of the parties hereto. -3- IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be executed by their duly authorized officers or representatives as of the date first above written. NATIONAL DATA CORPORATION By: /s/ Robert L. Walker -------------------------------- Name: Robert L. Walker Title: Chief Financial Officer THE FIRST NATIONAL BANK OF CHICAGO, AS ADMINISTRATIVE AGENT AND LENDER By: /s/ David T. McNeela -------------------------------- Name: David T. McNeela Title: Authorized Agent WACHOVIA BANK, N.A., AS DOCUMENTATION AGENT AND LENDER By: /s/ John C. Cantry --------------------------------- Name: John C. Cantry Title: Banking Officer -4- SUNTRUST BANK, ATLANTA, AS LENDER By: /s/ Brian K. Peters -------------------------------- Name: Brian K. Peters Title: Vice President FIRST AMERICAN NATIONAL BANK, AS LENDER By: /s/ Suzanne T. Schriver --------------------------------- Name: Suzanne T. Schriver Title: Executive Vice President -5- EX-21 4 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT The Registrant had the following subsidiaries at May 31, 1998, each of which was wholly-owned by the Registrant, except as noted below: Jurisdiction of Name Incorporation - -------------------------------------------------------------------------------- National Data Payment Systems, Inc. New York Modular Data, Inc. Delaware NDC Federal Systems, Inc. Delaware NDC International, Ltd. United Kingdom National Data Corporation of Canada, Inc. Canada NDC Yes Check, Inc. Georgia NDC Check Services, Inc. Illinois Zadall Systems Group, Inc. Texas NDPS Comerica Alliance, LLC (Note 1) Delaware Global Payment Systems LLC (Note 2) Georgia Global Payment Holding Company Delaware GPS Holding Limited Partnership Georgia Global Payment Systems of Canada, Ltd. Canada C.I.S. Technologies, Inc. Delaware C.I.S., Inc. Oklahoma AMSC, Inc. Florida AMSC Midwest, Inc. Florida ClinLab, Inc. (Note 3) Florida Health Communication Services, Inc. Virginia Health Communication Services (Bermuda) Ltd. Bermuda Merchant Services U.S.A., Inc. North Carolina MKA Software (Holdings) Ltd. United Kingdom Hadley Hutt Computing Limited United Kingdom Chemtec Systems Limited United Kingdom NDC Holdings (UK) Ltd. Georgia Source Informatics Inc. Delaware Source Informatics Holdings Inc. Delaware International Health Systems Ltd. Delaware NDC Health Information Services (Arizona) Inc. Delaware SI Software Ltd. Delaware SI PMSI Ltd. Delaware Walsh International Domestic Finance, Ltd. Delaware PMSI Database Holdings Inc. Delaware Physician Support Systems, Inc. Delaware PSS ALM, Inc. Delaware Data Processing Systems, Inc. Delaware EE&C Financial Services, Inc. New York PSS EE&C Health Services, Inc. Delaware A-47 Jurisdiction of Name Incorporation - -------------------------------------------------------------------------------- Medical Management Support Delaware North Coast Health Care Management, Inc. Ohio North Coast Account Systems, Inc. Delaware PSS PBS Northwest, Inc. Delaware PSS Pambi, Inc. Delaware Anesthesia Billing Consultants, Inc. Michigan Synergistic Systems, Inc. California Spring Anesthesia Group, Inc. California Independent Anesthesia IPA of California, Inc. California Independent Anesthesia IPA of Arizona, Inc. Arizona Revenue Production Management, Inc. Illinois PSS C-Care, Inc. Delaware C-Care, Inc. New Jersey H.O.P.E. Enterprises Group, Inc. New Jersey Professional Medical Recovery Service, Inc. New Jersey Medical Intercept Systems, LLC Texas Med-Data Interface Systems, LLC Texas CheckRite Recovery Services, Inc. Georgia Note 1. NDPS Comerica Alliance, LLC is 51% owned by the Registrant. Note 2. Global Payment Systems LLC is 92.5% owned by the Registrant. Note 3. ClinLab, Inc. is 80% owned by the Registrant. A-48 EX-23 5 CONSENT OF THE ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Registrant's previously filed Registration Statements, File Numbers 2-81717, 2-86961, 2-92193, 33-25635, 33-43005, 33-44858, 33-58622, 33-58624, 33-59717, 33-55057, 333-05449, 333-05451, 333-05427, 333-40153, 333-41553, 333-44803, and 333-44823. /s/ Arthur Andersen LLP - ----------------------- Atlanta, Georgia August 28, 1998 A-49 EX-27.1 6 FINANCIAL DATA SCHEDULE
5 1,000 YEAR MAY-31-1998 JUN-01-1997 MAY-31-1998 3,241 0 154,058 7,394 5,253 172,126 172,637 98,403 731,215 186,097 155,477 0 0 4,224 343,711 731,215 0 649,044 0 325,397 349,543 4,353 12,870 (39,707) 21,619 (61,326) 0 0 0 (61,326) (1.90) (1.90) The Company incurred non-recurring charges of $120.2 million ($111.2 million or $3.38 per share net-of-tax).
EX-27.2 7 FINANCIAL DATA SCHEDULE
5 1,000 YEAR MAY-31-1997 JUN-01-1996 MAY-31-1997 19,595 0 113,936 4,903 2,260 140,816 151,343 92,383 626,322 116,925 155,962 0 0 3,850 319,399 626,322 0 525,167 0 264,253 200,062 1,540 8,614 53,230 23,832 29,398 0 0 0 29,398 0.96 0.91 INCLUDES $9.5 MILLION OF NON-RECURRING CHARGES ($10.4 MILLION OR $0.32 PER SHARE AFTER-TAX)
EX-27.3 8 FINANCIAL DATA SCHEDULE
5 1,000 YEAR MAY-31-1996 JUN-01-1995 MAY-31-1996 23,888 0 94,674 3,629 1,869 115,833 138,523 76,583 459,944 122,095 23,136 0 0 3,712 271,534 459,944 0 391,088 0 205,275 200,643 5,694 5,326 (15,837) (3,992) (11,845) 0 0 0 (11,845) (0.40) (0.40) INCLUDES $47.7 MILLION OF NON-RECURRING CHARGES ($32.9 MILLION OR $1.07 PER SHARE AFTER-TAX)
EX-99.1 9 SAFE HARBOR COMPLIANCE STATEMENT EXHIBIT 99.1 PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS In passing the Private Securities Litigation Reform Act of 1995 (the "Reform Act"), 15 U.S.C.A. Sections 77z-2 and 78u-5 (Supp. 1996), Congress encouraged public companies to make "forward-looking statements" by creating a safe harbor to protect companies from securities law liability in connection with forward-looking statements. National Data Corporation ("NDC" or the "Company") intends to qualify both its written and oral forward-looking statements for protection under the Reform Act and any other similar safe harbor Provisions. "Forward-looking statements" are defined by the Reform Act. Generally, forward-looking statements include expressed expectations of future events and the assumptions on which the expressed expectations are based. All forward- looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected. Due to those uncertainties and risks, the investment community is urged not to place undue reliance on written or oral forward-looking statements of NDC. The Company undertakes no obligation to update or revise this Safe Harbor Compliance Statement for Forward-Looking Statements (the "Safe Harbor Statement") to reflect future developments. In addition, NDC undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time. NDC provides the following risk factor disclosure in connection with its continuing effort to qualify its written and oral forward-looking statements for the safe harbor protection of the Reform Act and any other similar safe harbor provisions. Important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include the disclosures contained in the Annual Report on Form 10-K to which this statement is appended as an exhibit and also include the following: COMPETITION AND CONSOLIDATION The markets for the applications systems and services offered by NDC are highly competitive. Competition in the health care transaction processing and payment systems markets affects NDC's ability to gain new customers and the prices it can charge. The key competitive factors for NDC are functionality of products, quality of service and price. Some of NDC's competitors have access to significant capital and management, marketing and technological resources that are equal to or greater than those of NDC, and there can be no assurance that NDC will continue to be able to compete successfully with them. In addition, NDC competes with businesses that internally perform data processing or other services offered by NDC. In addition, there has been and continues to be significant consolidation in the banking and health care provider industries. The Company markets its credit, charge and debit card transaction services through several marketing channels, including banks. As a result of consolidation, banks that market the Company's financial services may be acquired by banks that compete with the Company or by banks that have a relationship with one or more of the Company's competitors, thereby potentially depriving the Company of a distribution channel. The consolidation of health care providers reduces the number of potential customers for the Company's health care related services and the increased bargaining power of these larger consolidated organizations could lead to reductions in the amounts paid for such services. The overall impact of such consolidation in the banking and health care industries is difficult to predict and could have a material adverse effect on the Company's business, financial condition and results of operations. MARKETS AND APPLICATIONS NDC's future growth and profitability will depend, in part, upon the further expansion of the health care transaction processing and payment systems markets, the emergence of other markets for electronic transaction processing services and NDC's ability to penetrate such markets. Further expansion of these markets is dependent upon the continued growth in the number of transactions available to be processed and the continued automation of traditional paper- based processing systems. NDC's ability to penetrate such markets will depend, in turn, upon its ability to apply its existing technology, or to develop new technology, to meet the particular service needs of each new market. There can be no assurance that markets for NDC's services will continue to expand and develop or that NDC will be successful in its efforts, or have adequate financial, marketing and technological resources to penetrate new markets. HEALTH INFORMATION SERVICES Federal and state governments have recently focused significant attention on health care reform. It is not possible to predict which, if any, proposal that has been or will be considered will be adopted. There can be no assurance that the health care regulatory environment will not change so as to restrict the existing operations of, impose additional requirements on or limit the expansion of NDC. Costs of compliance with changes in government regulations may not be subject to recovery by NDC through price increases. Significant media and public attention has recently been focused on the health care industry due to ongoing federal and state investigations purportedly related to certain referral and billing practices. The Office of the Inspector General and the Department of Justice have initiated hospital laboratory billing review projects in certain states and are expected to extend such projects to additional states, including states in which NDC operates. These projects increase the likelihood of governmental investigations of hospitals, laboratories and other institutions for which NDC perform services. Although NDC currently monitors billing practices and arrangements to ensure compliance with prevailing industry practices under applicable laws, such laws are complex and constantly evolving and there can be no assurance that governmental investigators will not take positions that are inconsistent with industry practices, including NDC's practices. ELECTRONIC COMMERCE BUSINESS NDC's direct merchant customers have liability for charges disputed by cardholders. However, in the case of merchant fraud, or insolvency or bankruptcy of the merchant, NDC may be liable for any of such charges disputed by cardholders. NDC requires cash deposits and other types of collateral by certain merchants to minimize any such contingent liability. Based on its historical loss experience, NDC has established reserves, which management believes are adequate, for estimated losses on transactions processed. There can be no assurance, however, that such reserves for losses will be adequate. Any such losses in excess of reserves could have a material adverse effect on the financial condition and results of operations of NDC. ACQUISITION RISKS NDC completed six acquisitions in fiscal 1998 and intends to seek additional acquisition opportunities and alliance relationships with other businesses that will allow it to increase its market penetration, technological capabilities, product offerings and distribution capabilities. There can be no assurance that NDC will be able successfully to identify suitable acquisition candidates, complete acquisitions or expand into new markets. As a result of the acquisitions of each of Source Informatics Inc. ("Source"), PMSI Database Holdings Inc. ("PMSI Database") and Physician Support Systems, Inc. ("PHSS"), NDC is currently devoting significant management and other resources toward the assimilation of these businesses with NDC, particularly PHSS. There can be no assurance that NDC will be able to successfully integrate the operations of acquired businesses into NDC's operations. In addition, there can also be no assurance that future acquisitions will not have an adverse effect upon NDC's operating results, particularly in the fiscal quarters immediately following the completion of such acquisitions while the operations of the acquired business are being integrated into NDC's operations. Once integrated, acquired operations may not achieve levels of revenue growth, profitability or productivity comparable with those achieved by NDC's existing operations, or otherwise perform as expected. Specifically, with regard to the acquisition of Source, certain products currently under development may never reach technological feasibility, which could have a material adverse effect upon NDC's operating results. NDC may incur indebtedness in the future, including through borrowings under a credit facility, if a credit facility is available, to finance acquisitions. As a result, NDC expects to be subject to risks associated with debt financing, including the risk that interest rates may increase, the risk that NDC's cash flow will be insufficient to meet required payments on its debt and the risk that NDC may be unable to refinance or repay the debt as it comes due. In addition, NDC competes for acquisition and expansion opportunities with companies that have substantially greater resources. ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW, CERTAIN CHARTER AND BY-LAW PROVISIONS AND STOCKHOLDER RIGHTS PLAN Certain provisions of NDC's Certificate of Incorporation and By-laws could delay, defer or prevent a takeover attempt that a stockholder might consider in its best interest. These provisions may adversely affect prevailing market prices for NDC Common Stock. These provisions, among other things, classify NDC's Board of Directors into three classes as nearly equal in number as the total number of directors permits, each of which serve for different three-year terms, and authorize the Board of Directors to issue preferred stock in one or more classes or series and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any action on the part of the stockholders. The rights of the holders of NDC Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of NDC. NDC has no current plans to issue shares of preferred stock. NDC also maintains a stockholder rights plan which entitles the stockholders of NDC, upon the happening of certain events, to purchase preferred stock of NDC. These NDC Rights (hereinafter defined) may have certain anti- takeover effects because the rights will cause substantial dilution to a person or group that attempts to acquire NDC on terms not approved by the Board of Directors of NDC unless the offer is conditioned on a substantial number of NDC Rights being acquired. In addition, Section 203 of the Delaware General Corporation Law (the "DGCL") prohibits certain persons from engaging in business combinations with NDC, which may also have the effect of delaying, deterring or preventing a change of control of NDC. NEW PRODUCT INTRODUCTIONS With NDC's acquisition of Source, PMSI Database and PHSS, NDC plans to introduce products and services different from those NDC has traditionally provided. The market for these products and services is characterized by rapid technological change, frequent new product introductions, evolving industry standards and changing customer needs. There can be no assurance that NDC will be successful in developing and marketing these new products and services or that current or new products and services of Source and PHSS will adequately meet the quickly changing demands of their customers. In addition, in order to meet its customers' demands, Source and PHSS are continually involved in a number of development projects, including Source's efforts to update its core mainframe-based products. Because it is generally not possible to predict the time required and costs involved in reaching certain research, development and engineering objectives, estimated product development schedules could require extensions. NDC believes that the future success of its newly acquired businesses will depend in large part on its ability to maintain and enhance its current product and service offerings and to continually develop and introduce new products and services that will keep pace with technological advances and satisfy evolving customer requirements. Further, there can be no assurance that NDC will not experience difficulties that could delay or prevent the successful development, introduction and marketing of these products and services. If NDC is unable to develop and introduce new products and services in a timely manner, or if a new or updated product does not achieve market acceptance, NDC's financial condition and results of operations could be materially adversely affected. YEAR 2000 COMPLIANCE The Company has conducted a comprehensive review of its computer systems to identify the systems that could be affected by the "Year 2000" issue and has developed an implementation plan to resolve the issue. The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have time/date-sensitive software and hardware may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a major system failure or miscalculation. The Company presently believes that, with modification to existing software and hardware and the purchase of new software, the Year 2000 issue will not pose significant operations problems for the Company's systems as so modified and converted. The Year 2000 issue creates risk for the Company from unforeseen problems in its own computer systems and from third parties on which the Company relies. Accordingly, the Company is requesting assurances from all software vendors from which it has purchased or from which it may purchase software that the software sold to the Company will correctly process all date information at all times. In addition, the Company is querying its customers and suppliers as to their progress in identifying and addressing problems that their computer systems will face in correctly processing date information as the year 2000 approaches and is reached. However, there are no assurances that the Company will identify all date-handling problems in its business systems or that the Company will be able to successfully remedy Year 2000 compliance issues that are discovered. To the extent that the Company is unable to resolve its Year 2000 issues prior to January 1, 2000, operating results could be adversely affected. In addition, the Company could be adversely affected if other entities (e.g., vendors or customers) not affiliated with the Company do not appropriately address their own year 2000 compliance issues in advance of their occurrence. -----END PRIVACY-ENHANCED MESSAGE-----