-----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, LUL0DbYwWDizblohpobKl92Vcgy+U7QijB7btNOe3uuc9J2hllZ4FUSmVDA68gdO fmQl5/Q+saL/K4LtY+5pfg== 0000950131-02-000697.txt : 20020414 0000950131-02-000697.hdr.sgml : 20020414 ACCESSION NUMBER: 0000950131-02-000697 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020227 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FISERV INC CENTRAL INDEX KEY: 0000798354 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 391506125 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-14948 FILM NUMBER: 02559256 BUSINESS ADDRESS: STREET 1: 255 FISERV DR STREET 2: PO BOX 979 CITY: BROOKFIELD STATE: WI ZIP: 53045 BUSINESS PHONE: 4148795000 MAIL ADDRESS: STREET 1: 255 FISERV DRIVE CITY: BROOKFIELD STATE: WI ZIP: 53045 10-K405 1 d10k405.txt FORM 10-K (FISCAL YEAR DECEMBER 31, 2001) SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2001 Commission file no. 0-14948 FISERV, INC. ------------ (Exact name of registrant as specified in its charter) WISCONSIN 39-1506125 --------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 255 FISERV DRIVE, BROOKFIELD, WISCONSIN 53045 - --------------------------------------- ----- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (262) 879-5000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE ---- (Title of Class) SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $0.01 Par Value ----------------------------- (Title of Class) Preferred Stock Purchase Rights ------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of January 31, 2002: $8,087,000,000 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of January 31, 2002: 190,545,290 DOCUMENTS INCORPORATED BY REFERENCE: 2001 Annual Report to Shareholders - Parts II, IV Proxy Statement for March 28, 2002, Annual Meeting of Shareholders - Part III Fiserv, Inc. and Subsidiaries Form 10-K December 31, 2001 PART I Page - ------ ---- Item 1. Business 1 Item 2. Properties 8 Item 3. Legal Proceedings 9 Item 4. Submission of Matters to a Vote of Security Holders 9 Executive Officers of the Registrant 9 PART II - ------- Item 5. Market for the Registrant's Common Equity and Related Shareholder Matters 11 Item 6. Selected Financial Data 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 7a. Quantitative and Qualitative Disclosure about Market Risk 11 Item 8. Financial Statements and Supplementary Data 11 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 11 PART III - -------- Item 10. Directors and Executive Officers of the Registrant 12 Item 11. Executive Compensation 12 Item 12. Security Ownership of Certain Beneficial Owners and Management 12 Item 13. Certain Relationships and Related Transactions 12 PART IV - ------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 12 ================================================================================ PART I ================================================================================ Special Note Regarding Forward-Looking Statements Certain matters discussed in this Annual Report on Form 10-K are "forward-looking statements" intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement will include words such as "believes," "anticipates" or "expects," or words of similar import. Similarly, statements that describe future plans, objectives or goals of Fiserv, Inc. ("Fiserv" or the "Company") are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated. Factors that could affect results include, among others, economic, competitive, governmental and technological factors affecting the Company's operations, markets, services and related products, prices and other factors discussed in the Company's prior filings with the Securities and Exchange Commission. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. Item 1. Business Fiserv is a leading technology resource for information management systems used by the financial industry. The Company was formed on July 31, 1984, through the combination of two major regional data processing firms located in Milwaukee, Wisconsin, and Tampa, Florida. These firms--First Data Processing of Milwaukee and Sunshine State Systems of Tampa--began their operations in 1964 and 1971, respectively, as the data processing operations of their parent financial institutions. Historically, operations were expanded by developing a range of services for these parent organizations as well as other financial institutions. Since its organization in 1984, Fiserv has grown through the continuing development of highly specialized services and product enhancements, the addition of new clients and the acquisition of firms complementing the Fiserv organization. Headquartered in Brookfield, Wisconsin, Fiserv provides information management technology and related services to banks, broker-dealers, credit unions, financial planners and investment advisers, insurance agents and companies, leasing companies, mortgage lenders and savings institutions. The Company operates centers nationwide for full-service financial data processing, software system development, item processing and check imaging, technology support and related product businesses. In addition, the Company has business support centers in Argentina, Australia, Colombia, Indonesia, the Philippines, Poland, Singapore and the United Kingdom. Business Strategy - ----------------- The market for products and services offered by financial institutions continues to undergo change. New alternative lending and investment products are being introduced and implemented by the financial industry with great frequency; the distinctions among financial services traditionally offered by banking and thrift organizations as well as by securities and insurance firms continue to narrow; and financial institutions diversify and consolidate on an ongoing basis in response to market pressures, as well as under the auspices of regulatory agencies. Although such market changes have led to consolidations that have reduced the number of financial institutions in the United States, such consolidations have not resulted in a material reduction of the number of customers or financial accounts serviced by the financial industry as a whole. New organizations entering the once limited financial services industry have opened new markets for Fiserv services. 1 To stay competitive in this changing marketplace, financial institutions are finding they must aggressively meet the growing needs of their customers for a broad variety of new products and services that are typically transaction-oriented and fee-based. The growing volume and types of transactions and accounts have increased the data processing requirements of these institutions. As a consequence, Fiserv management believes that the financial services industry is one of the largest users of data processing products and services. Moreover, Fiserv expects that the industry will continue to require significant commitments of capital and human resources to the information systems requirements, to require application of more specialized systems and to require development, maintenance and enhancement of applications software. Fiserv believes that economies of scale in data processing operations are essential to justify the required level of expenditures and commitment of human resources. In response to these market dynamics, the means by which financial institutions obtain data processing services have changed. Many smaller, local and regional third-party data processors are leaving the business or consolidating with larger providers. A number of large financial institutions previously providing third-party processing services for other institutions have withdrawn from the business to concentrate on their primary, core businesses. Similarly, an increasing number of financial institutions that previously developed their own software systems and maintained their own data processing operations have outsourced their data processing requirements by licensing their software from a third party or by contracting with third-party processors to reduce costs and enhance their products and services. Outsourcing can involve simply the licensing of software, thereby eliminating the costly technical expertise within the financial institution, or the utilization of service bureaus, facilities management or resource management capabilities. Fiserv provides all of these options to the financial industry. To capitalize on these industry trends and to become the premier provider of data processing products and related services, Fiserv has implemented a strategy of continuing to develop new products, improving the cost effectiveness of services provided to clients, aggressively soliciting new clients, and making both opportunistic and strategic acquisitions. Acquisition History - -------------------
Formed Acquired Company Service ================================================================================================================ 1964 July 1984 First Data Processing, Milwaukee, WI Data processing 1971 July 1984 Sunshine State Systems, Tampa, FL Data processing 1966 Nov. 1984 San Antonio, Inc., San Antonio, TX Data processing 1982 Oct. 1985 Sendero Corporation, Scottsdale, AZ Asset/liability management 1962 Oct. 1985 First Trust Corporation, Denver, CO Retirement plans 1962 Oct. 1985 First Retirement Marketing, Denver, CO Retirement plan marketing 1973 Jan. 1986 On-Line, Inc., Seattle, WA Data processing, forms 1966 May 1986 First City Financial Systems, Inc., Beaumont, TX Data processing 1962 Feb. 1987 Pamico, Inc., Milwaukee, WI Specialized forms 1975 Apr. 1987 Midwest Commerce Data Corp., Elkhart, IN Data processing 1969 Apr. 1987 Fidelity Financial Services, Inc., Spokane, WA Data processing 1965 Oct. 1987 Capbanc Computer Corp., Baton Rouge, LA (sold 1991) Data processing 1971 Feb. 1988 Minnesota On-Line Inc., Minneapolis, MN Data processing 1965 May 1988 Citizens Financial Corporation, Cleveland, OH Data processing 1980 May 1988 ZFC Electronic Data Services, Inc., Bowling Green, KY Data processing 1969 June 1988 GESCO Corporation, Fresno, CA Data processing
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Formed Acquired Company Service ===================================================================================================================== 1967 Nov. 1988 Valley Federal Data Services, Los Angeles, CA Data processing 1984 Dec. 1988 Northeast Savings Data Services, Hartford, CT Data processing 1982 May 1989 Triad Software Network, Ltd., Chicago, IL (sold 1996) Data processing 1969 Aug. 1989 Northeast Datacom, Inc., New Haven, CT Data processing 1978 Feb. 1990 Financial Accounting Services Inc., Pittsburgh, PA Data processing 1974 June 1990 Accurate Data On Line, Inc., Titusville, FL Data processing 1982 June 1990 GTE EFT Services Money Network, Fresno, CA EFT networks 1968 July 1990 First Interstate Management, Milwaukee, WI Data processing 1982 Oct. 1990 GTE ATM Networks, Fresno, CA EFT networks 1867 Nov. 1990 Boston Safe Deposit & Trust Co. IP services, MA Item processing 1968 Dec. 1990 First Bank, N.A. IP services, Milwaukee, WI Item processing 1979 Apr. 1991 Citicorp Information Resources, Inc., Stamford, CT Data processing 1980 Apr. 1991 BMS Processing, Inc., Randolph, MA Item processing 1979 May 1991 FHLB of Dallas IP services, Dallas, TX Item processing 1980 Nov. 1991 FHLB of Chicago IP services, Chicago, IL Item processing 1977 Feb. 1992 Data Holdings, Inc., Indianapolis, IN Automated card services 1980 Feb. 1992 BMS On-Line Services, Inc. (assets), Randolph, MA Data processing 1982 Mar. 1992 First American Information Services, St. Paul, MN Data processing 1981 July 1992 Cadre, Inc., Avon, CT (sold 1996) Disaster recovery 1992 July 1992 Performance Analysis, Inc., Cincinnati, OH Asset/liability management 1986 Oct. 1992 Chase Manhattan Bank, REALM Software, NY Asset/liability management 1984 Dec. 1992 Dakota Data Processing, Inc., Fargo, ND Data processing 1983 Dec. 1992 Banking Group Services, Inc., Somerville, MA Item processing 1968 Feb. 1993 Basis Information Technologies, Atlanta, GA Data processing, EFT 1986 Mar. 1993 IPC Service Corporation (assets), Denver, CO Item processing 1973 May 1993 EDS' FHLB Seattle (assets), Seattle, WA Item processing 1982 June 1993 Datatronix Financial Services, San Diego, CA Item processing 1966 July 1993 Data Line Service, Covina, CA Data processing 1978 Nov. 1993 Financial Processors, Inc., Miami, FL Data processing 1974 Nov. 1993 Financial Data Systems, Jacksonville, FL Item processing 1961 Nov. 1993 Financial Institutions Outsourcing, Pittsburgh, PA Data processing 1972 Nov. 1993 Data-Link Systems, South Bend, IN Mortgage banking services 1985 Apr. 1994 National Embossing Company, Inc., Houston, TX Automated card services 1962 May 1994 Boatmen's Information Systems of Iowa, Des Moines Data processing 1981 Aug. 1994 FHLB of Atlanta IP services, Atlanta, GA Item processing 1989 Nov. 1994 CBIS Imaging Technology Banking Unit, Maitland, FL Imaging technology 1987 Dec. 1994 RECOM Associates, Inc., Tampa, FL (sold 1998) Network integration 1970 Jan. 1995 Integrated Business Systems, Glendale, CA Specialized forms 1977 Feb. 1995 BankLink, Inc., New York, NY Cash management 1976 May 1995 Information Technology, Inc., Lincoln, NE Software and services 1957 Aug. 1995 Lincoln Holdings, Inc., Denver, CO DP for retirement planning 1993 Sept. 1995 SRS, Inc., Austin, TX Data processing 1992 Sept. 1995 ALLTEL's Document Management Services, CA, NJ Item processing 1978 Nov. 1995 Financial Information Trust, Des Moines, IA Data processing
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Formed Acquired Company Service =========================================================================================================================== 1983 Jan. 1996 UniFi, Inc., Fort Lauderdale, FL Software and services 1982 Nov. 1996 Bankers Pension Services, Inc., Tustin, CA DP for retirement planning 1992 Apr. 1997 AdminaStar Communications, Indianapolis, IN Laser print/mailing services 1982 May 1997 Interactive Planning Systems, Atlanta, GA PC-based financial systems 1983 May 1997 BHC Financial, Inc., Philadelphia, PA Securities services 1968 Sept. 1997 FIS, Inc., Orlando, FL, and Baton Rouge, LA Data processing n/a Sept. 1997 Stephens Inc. clearing business, Little Rock, AR Securities services 1986 Oct. 1997 Emerald Publications, San Diego, CA Financial seminars and training 1968 Oct. 1997 Central Service Corp., Greensboro, NC Data and item processing 1993 Oct. 1997 Savoy Discount Brokerage, Seattle, WA Securities services 1990 Dec. 1997 Hanifen, Imhoff Holdings, Inc., Denver, CO Securities services 1980 Jan. 1998 Automated Financial Technology, Inc., Malvern, PA Data processing 1981 Feb. 1998 The LeMans Group, King of Prussia, PA Automobile leasing software n/a Feb. 1998 PSI Group, Seattle, WA Laser printing 1956 Apr. 1998 Network Data Processing Corporation, Cedar Rapids, IA Insurance data processing 1977 Apr. 1998 CUSA Technologies, Inc., Salt Lake City, UT Software and services 1982 May 1998 Specialty Insurance Service, Orange, CA Insurance data processing 1985 Aug. 1998 Deluxe Card Services, St. Paul, MN Automated card services 1981 Oct. 1998 FHLB of Topeka IP services, Topeka, KS Item processing n/a Oct. 1998 FiCATS, Norristown, PA Item processing 1984 Oct. 1998 Life Instructors, Inc., New Providence, NJ Insurance/securities training 1994 Nov. 1998 ASI Financial, Inc., New Jersey and New York PC-based financial systems 1986 Dec. 1998 The FREEDOM Group, Inc., Cedar Rapids, IA Insurance data processing 1994 Jan. 1999 QuestPoint, Philadelphia, PA Item processing 1981 Feb. 1999 Eldridge & Associates, Lafayette, CA PC-based financial systems 1984 Feb. 1999 RF/Spectrum Decision Science Corporation, Oakland, CA Software and services 1978 Mar. 1999 FIPSCO, Inc., Des Plaines, IL Insurance marketing systems 1987 Apr. 1999 Progressive Data Solutions, Inc./Infinity Software Insurance software systems Systems, Inc., Orlando, FL 1973 June 1999 JWGenesis Clearing Corporation, Boca Raton, FL Securities services 1987 June 1999 Alliance ADS, Redwood Shores, CA Imaging technology 1962 Aug. 1999 Envision Financial Technologies, Inc., Chicago, IL Data processing 1995 Oct. 1999 Pinehurst Analytics, Inc., Chapel Hill, NC PC-based financial systems 1982 Dec. 1999 Humanic Design Corporation, Mahwah, NJ (sold 2001) Software and services 1983 Jan. 2000 Patterson Press, Inc., Nashville, TN Card services 1982 May 2000 Resources Trust Company, Denver, CO DP for retirement planning 1986 Sept. 2000 National Flood Services, Inc., Kalispell, MT Insurance data processing 1982 Jan. 2001 Benefit Planners, Boerne, TX Insurance data processing n/a Feb. 2001 Marshall & Ilsley IP services, IA, MN, MO Item processing 1972 Mar. 2001 Facilities and Services Corp., Agoura Hills, Novato, CA Insurance software systems 1991 Mar. 2001 Remarketing Services of America, Inc., Amherst, NY Automobile leasing services 1982 July 2001 EPSIIA Corporation, Austin, TX Data processing 1996 July 2001 Catapult Technology Limited, London, England Software and services 1985 Sept. 2001 FHLB of Pittsburgh IP services, Pittsburgh, PA Item processing 1959 Nov. 2001 NCR bank processing operations, Dayton, OH Data and item processing 1972 Nov. 2001 NCSI, Rockville, MD Insurance data processing
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Formed Acquired Company Service =================================================================================================================== 1940 Nov. 2001 Integrated Loan Services, Rocky Hill, CT Loan services 1954 Nov. 2001 Trewit Inc., Minneapolis, MN Insurance data processing n/a Nov. 2001 FACT 400 credit card solution, Bogota, Colombia Software and services
Information Technology Services - ------------------------------- Fiserv is a technology company focused on helping financial services providers meet the challenges and opportunities of today's dynamic financial marketplace. The Company's core business is serving the needs of banking, lending, insurance, financial planners and securities providers. With its wide array of industry-specific products, Fiserv clients can satisfy their customers' growing desire for anywhere, anytime financial services. The Company's operations have been classified into three business segments: Financial institution outsourcing, systems and services; Securities processing and trust services; and All other and corporate. The Financial institution outsourcing, systems and services business segment provides account and transaction processing solutions and services to financial institutions and other financial intermediaries. The Securities processing and trust services business segment provides securities processing solutions and retirement plan administration services to brokerage firms, investment advisors and financial institutions. The All other and corporate business segment provides plastic card services and document solutions, and includes general corporate expenses. The following discussion covers the two major operating segments: Financial Institution Outsourcing, Systems and Services. Account processing is a core requirement of every financial institution. It's also vital to the operations of brokerage firms and insurance companies. No matter how the industry may consolidate and evolve, Fiserv expects that the need for account processing will always remain. That's where Fiserv is positioned--as a leader in financial information management. Fiserv provides comprehensive solutions designed to meet the information processing requirements of financial institutions, including account and transaction processing services, item processing, loan servicing and lending systems. The Company offers its clients service bureau and in-house processing systems, e-commerce solutions and complementary products. In essence, Fiserv provides all the technology a bank, credit union, mortgage lender, savings or financing institution needs to run its operations--from deposit accounts to loans to general ledger to check processing. Fiserv products, services and software solutions are available through multiple delivery channels to financial institutions in the United States, and many of its systems have applications designed for the unique requirements of financial institutions operating outside of North America. Fiserv international teams develop, sell, install and support core banking and delivery channel integration solutions for a wide range of international banks and financial services companies located in over 65 countries. All Fiserv core systems can be complemented with a number of other products that allow clients to create a total servicing solution, depending on their requirements. These complementary products and back-office solutions include treasury and investment management, decision support and performance measurement solutions, electronic funds transfer services, imaging systems, call center systems, loan origination and tracking, auto leasing software, data warehousing/data mining and credit services. The insurance industry, like banking, has requirements for basic administration services and information processing systems. Fiserv brings expertise in information management technology and related administration processing services to the insurance and banking industries. The products and solutions offered by the Company automate the full range of insurance services. Fiserv insurance solutions include administration services and software for life, annuity, health insurance, property & casualty, flood and workers compensation; award-winning claims workstation software; comprehensive financial accounting systems; computer-based training for insurance and securities; administrative services for employee benefit programs; and electronic sales platforms that can be delivered over the Internet. 5 Securities Processing and Trust Services. The securities business is about transactions and volume; advanced technology that makes executing and clearing trades faster, easier and more economical; and service excellence and customer satisfaction. Fiserv has accumulated the technology resources and industry knowledge required to meet the needs of brokerage firms and financial institutions that are expanding into this business. The Company provides comprehensive clearing, execution and brokerage services. With Fiserv, brokerage firms and financial institutions gain a technology resource with the volumes, management expertise, products and service necessary to help satisfy customer needs. The administration of self-directed retirement plans is also a highly specialized business that benefits, as do all financial services applications, from technology. Fiserv has built a trusted reputation in this field by applying its expertise to technology for administration of business and self-directed retirement plans and related services. The Fiserv Trust Services Group is a leading provider of retirement plan products and back-office services to financial advisors. Financial information concerning the Company's industry segments is included in Note 8 to the Consolidated Financial Statements contained in the Company's Annual Report to Shareholders included in this Annual Report on Form 10-K as Exhibit 13 and such information is incorporated herein by reference. Servicing the Market - -------------------- The market for Fiserv account and transaction processing services and products has specific needs and requirements, with strong emphasis placed by clients on software flexibility, product quality, reliability of service, comprehensiveness and integration of product lines, timely introduction of new products and features, cost effectiveness and demand for service excellence. Through its multiple product offerings, the Company successfully services these market needs for clients ranging in size from start-ups to some of the largest financial services providers in the world. Fiserv believes that the position it holds as an independent, growth-oriented company dedicated to its business is an advantage to its clients. The Company differs from many of the account and transaction processing resources currently available since it isn't a regional or local cooperatively owned organization, nor a data processing subsidiary, an affiliate of a financial institution or a hardware vendor. Due to the economies of scale gained through its broad market presence, Fiserv offers clients a selection of information management and data processing solutions designed to meet the specific needs of the ever-changing financial industry. The Company believes this independence and primary focus on the financial industry helps its business development and related client service and product support teams remain responsive to the technology needs of its market, now and for the future. "The Client Comes First" is one of the Company's founding principles. It is a belief backed by a dedication to providing ongoing client service and support--no matter the client size. The Company believes its commitment of substantial resources to training and technical support helps retain Fiserv clients. Fiserv conducts the majority of its new and ongoing client training in its technology centers, where the Company maintains fully equipped demonstration and training facilities containing equipment used in the delivery of Fiserv services. Fiserv also provides local and on-site training services. Fiserv has been an international company since 1986, when its retail banking products were first launched throughout Europe, Asia and Latin America. Since then, the Company has grown an impressive infrastructure for supporting clients in international markets. Fiserv currently maintains international support staffs in Argentina, Australia, Colombia, Indonesia, the Philippines, Poland, Singapore and the United Kingdom. 6 Product Development - ------------------- In order to meet the changing technology needs of the clients served by Fiserv, the Company continually develops, maintains and enhances its systems. Resources applied to product development and maintenance are believed to be approximately 8% to 10% of Company revenues, about half of which is dedicated to software development. The Fiserv network of development and financial information technology centers applies the shared expertise of multiple Fiserv teams to design, develop and maintain specialized processing systems around the leading technology platforms. The applications of its account processing systems meet the preferences and diverse requirements of the various international, national, regional or local market-specific financial service environments of the Company's many clients. Though multiple Fiserv centers share the Company's variety of nationally developed and supported software, each center has specialized capabilities that enable it to offer system application features and functions unique to its client base. Where the client's requirements warrant, Fiserv purchases software programs from third parties that are interfaced with existing Fiserv systems. In developing its products, Fiserv stresses interaction with and responsiveness to the needs of its clients. Fiserv provides a dedicated solution that is designed, developed, maintained and enhanced according to each client's goals for service quality, business development, asset/liability mix, local market positioning and other user-defined parameters. Fiserv regards its software as proprietary and utilizes a combination of trade secrecy laws, internal security practices and employee non-disclosure agreements for protection. The Company believes that legal protection of its software, while important, is less significant than the knowledge and experience of the Company's management and personnel and their ability to develop, enhance and market new products and services. The Company believes that it holds all proprietary rights necessary for the conduct of its business. Competition - ----------- The market for information technology products and services within the financial industry is highly competitive. The Company's principal competitors include internal data processing departments, data processing affiliates of large companies or large computer hardware manufacturers, independent computer service firms and processing centers owned and operated as user cooperatives. Certain competitors possess substantially greater financial, sales and marketing resources than the Company. Competition for in-house data processing and software departments is intensified by the efforts of computer hardware vendors who encourage the growth of internal data centers. Competitive factors for processing services include product quality, reliability of service, comprehensiveness and integration of product lines, timely introduction of new products and features, and price. The Company believes that it competes favorably in each of these categories. In addition, the Company believes that its position as an independent vendor, rather than as a cooperative, an affiliate of a larger corporation or a hardware vendor, is a competitive advantage. Government Regulation - --------------------- The Company's data processing subsidiaries are not themselves directly subject to federal or state regulations specifically applicable to financial institutions such as banks, thrifts and credit unions. As a provider of services to these entities, however, the data processing operations are observed from time to time by the Federal Deposit Insurance Corporation, the National Credit Union Association, the Office of Thrift Supervision, the Office of the Comptroller of the Currency and various state regulatory authorities. In addition, several of the Company's operations are reviewed annually by independent auditors to provide internal control evaluations for its clients' auditors and regulators. As trust companies under Colorado law, First Trust, Lincoln Trust, Resources Trust and Trust Industrial Bank are subject to the regulations of the Colorado Division of Banking. First Trust, Lincoln 7 Trust, Resources Trust and Trust Industrial Bank historically have complied with such regulations and although no assurance can be given, the Company believes First Trust, Lincoln Trust, Resources Trust and Trust Industrial Bank will continue to be able to comply with such regulations. Commencing in 1991, First Trust received approval of its application for Federal Deposit Insurance Corporation coverage of its customer deposits. The Company's securities business, Fiserv Securities, Inc. (formerly BHC Financial, Inc., Hanifen, Imhoff Clearing Corporation and JWGenesis Clearing Corporation), is subject to the broker-dealer rules of the Securities and Exchange Commission and the New York Stock Exchange, as well as the National Association of Securities Dealers and other stock exchanges of which it is a member. Employees - --------- Fiserv employs approximately 18,200 specialists in its information management centers and related product and service companies. This service support network includes employees with backgrounds in computer science and the financial industry, often complemented by management and other direct experience in banks, credit unions, mortgage firms, savings and other financial services business environments. Fiserv employees provide expertise in sales and marketing; account management and client services; computer operations, network control and technical support; programming, software development, modification and maintenance; conversions and client training; financial planning and related support services. In supporting international markets, Fiserv works closely with its clients to help ensure their continued success. Fiserv employees speak the same language as their clients, they also understand the differences in the style of doing business, as well as the financial products requirements and regulations unique to each client and its specific market. Fiserv employees are not represented by a union, and there have been no work stoppages, strikes or organizational attempts. The service nature of the Fiserv business makes its employees an important corporate asset, and while the market for qualified personnel is competitive, the Company does not experience significant difficulty with hiring or retaining its staff of top industry professionals. In assessing companies to acquire, the quality and stability of the prospective company's staff are emphasized. Management attributes its ability to attract and keep quality employees to, among other things, the Company's growth and dedication to state-of-the-art software development tools and hardware technologies. Item 2. Properties Fiserv currently operates full-service data centers, software system development centers, and item processing and back-office support centers in 164 cities (153 in the United States): Birmingham, Alabama; Phoenix and Scottsdale, Arizona; Agoura Hills, Diamond Bar, Foster City, Fresno, Marina del Rey, Moorpark, Novato, Oakland, Ontario, Orange, Redwood Shores, Sacramento, San Diego, San Leandro, Torrance, Van Nuys and Walnut, California; Denver, Englewood, Greenwood Village and Pueblo, Colorado; East Hartford, Fairfield, Glastonbury, North Haven, Rocky Hill, Wallingford and Windsor, Connecticut; Deerfield Beach, Jacksonville, Lake Mary, Lake Wales, Maitland, Melbourne, Miami, Miami Lakes, Orlando, Plantation, Tampa and Titusville, Florida; Atlanta, Duluth, Macon, Marietta and Norcross, Georgia; Honolulu, Hawaii; Cedar Rapids and West Des Moines, Iowa; Arlington Heights, Chicago, Des Plaines, Marion, Naperville, Mt. Prospect, Rock Island, Rockford and Schaumburg, Illinois; Indianapolis and South Bend, Indiana; Topeka, Kansas; Bowling Green and Louisville, Kentucky; Kenner and Shreveport, Louisiana; Bangor and Scarborough, Maine; Columbia, Gaithersburg, and Rockville, Maryland; Auburn, Braintree, Charlestown, Framingham, Mansfield, Quincy and Somerville, Massachusetts; Flint, Northville and Troy, Michigan; Brooklyn Center, Eagan, Edina, Mendota Heights, 8 Minnetonka, Shoreview and Wayzata, Minnesota; Kansas City and St. Louis, Missouri; Kalispell, Montana; Lincoln and Omaha, Nebraska; New Providence, Secaucus and South Plainfield, New Jersey; Santa Fe, New Mexico; Amherst, Fayetteville, New Hartford, New York, Utica and White Plains, New York; Chapel Hill and Greensboro, North Carolina; Fargo, North Dakota; Cleveland, Dayton, Milford, Westerville and Youngstown, Ohio; Duncan and Oklahoma City, Oklahoma; Corvallis and Portland, Oregon; Bryn Mawr, Conshohoken, Erie, Malvern, Norristown, King of Prussia, Philadelphia, Pittsburgh, Valley Forge and Williamsport, Pennsylvania; Newberry, South Carolina; Brentwood and Nashville, Tennessee; Addison, Arlington, Austin, Boerne, Beaumont, Dallas, Houston, Irving, San Antonio, South Lake and Stafford, Texas; Salt Lake City and Taylorsville, Utah; Norfolk and Williamsburg, Virginia; Bellevue, Kent, Lynnwood and Seattle, Washington; Brookfield, Milwaukee, New Berlin, Sheboygan and Waukesha, Wisconsin. International business centers are located in Buenos Aires, Argentina; North Sydney, New South Wales, Australia; Bogota, Colombia; London, Slough (Berkshire) and Uxbridge (Middlesex), England; Jakarta, Indonesia; Manila, Philippines; Warsaw, Poland; and Singapore, Singapore. The Company owns facilities in Brookfield, Columbia, Corvallis, Glastonbury, Greensboro, Kalispell, Lincoln, Marion, Moorpark, South Bend and Valley Forge; all other buildings in which centers are located are subject to leases expiring through 2003 and beyond. The Company owns or leases approximately 170 mainframe computers (Compaq Alpha, Data General, Hewlett Packard, IBM, NCR, SUN, Tandem and Unisys). In addition, the Company maintains its own national data communication network consisting of communications processors and leased lines. Fiserv believes its facilities and equipment are generally well maintained and are in good operating condition. The Company believes that the computer equipment it owns and its various facilities are adequate for its present and foreseeable business. Fiserv periodically upgrades its mainframe capability as needed. Fiserv contracts with multiple sites to provide processing back-up in the event of a disaster and maintains duplicate tapes of data collected and software used in its business in locations away from the Company's facilities. Item 3. Legal Proceedings In the normal course of business, the Company and its subsidiaries are named as defendants in various lawsuits in which claims are asserted against the Company. In the opinion of management, the liabilities, if any, which may ultimately result from such lawsuits are not expected to have a material adverse effect on the consolidated financial statements of the Company. Item 4. Submission of Matters to a Vote of Security Holders During the fourth quarter of the fiscal year covered by this report, no matter was submitted to a vote of security holders of the Company. Executive Officers of the Registrant - ------------------------------------ The executive officers and other officers of the Company as of February 26, 2002, together with their ages, positions and business experience are described below: Name Age Position Leslie M. Muma 57 President and Chief Executive Officer Donald F. Dillon 61 Chairman of the Board and Chairman of Information Technology, Inc. Kenneth R. Jensen 58 Senior Executive Vice President, Chief Financial Officer and Treasurer 9 Norman J. Balthasar 55 President and Chief Operating Officer, Financial Institution Group Robert H. Beriault 50 President and Chief Operating Officer, Securities Group Michael D. Gantt 50 President and Chief Operating Officer, Insurance Solutions Group Thomas A. Neill 52 President and Chief Operating Officer, Credit Union and Industry Products Group Gordon G. Rockafellow 65 President and Chief Operating Officer, Trust Services Group Dean C. Schmelzer 51 Executive Vice President - Marketing & Sales Charles W. Sprague 52 Executive Vice President, General Counsel, Chief Administrative Officer and Secretary Mr. Muma has been a Director of the Company since it was established in 1984. He has served as President and Chief Operating Officer of the Company from 1984 to 1999, when he was named President and Chief Executive Officer. Mr. Dillon was named Chairman of the Board of Directors in July 2000. He served as Vice Chairman from 1995 to 2000. From 1976 to 1995, Mr. Dillon was co-founder and President of Information Technology, Inc. ("ITI"), a software and services organization that was acquired by the Company in 1995. Mr. Dillon also serves as Chairman of ITI. Mr. Jensen has been Executive Vice President, Chief Financial Officer, Treasurer, Assistant Secretary and a Director of the Company since it was established in 1984. He was named Senior Executive Vice President in 1986. Mr. Balthasar was named President and Chief Operating Officer of the Fiserv Financial Institution Group in 2000. He served as Corporate Executive Vice President and President-Savings and Community Bank Group from 1996 to 1999, when he was named President and Chief Operating Officer of the Fiserv Financial Institution Outsourcing Group. Mr. Balthasar has been with Fiserv and its predecessor company since 1974. Mr. Beriault was named President and Chief Operating Officer of the Fiserv Securities Group in 1999. He served as Corporate Executive Vice President and President-Securities Processing Group from 1998 to 1999. From 1986 to 1998, Mr. Beriault was President of Lincoln Trust Company, which was acquired by the Company in 1995. Mr. Gantt was named President and Chief Operating Officer of the Fiserv Insurance Solutions Group in 2001. He joined Fiserv in 2000 and served as Executive Vice President and Chief Operating Officer of the Group. Prior to joining Fiserv, he was Senior Vice President and Group Manager for PMSC's (Policy Management Systems Corporation) Claims and Risk Management Group. Mr. Neill was named President and Chief Operating Officer of the Fiserv Credit Union and Industry Products Group in 2000. He served as President of the Products & Services Division and Group President of the Industry Products and Services Group from 1993 to 2000. Mr. Rockafellow was named President and Chief Operating Officer of the Fiserv Trust Services Group in 1999. He has served as Corporate Executive Vice President and President-Trust Group since 1998. Mr. Rockafellow was the President and CEO of First Trust Corporation from 1982 to 1985, when it was acquired by the Company, and served in that capacity until 1999. Mr. Schmelzer was named Corporate Executive Vice President, Marketing & Sales for the Company in 1992. Prior to joining Fiserv, he was Director of Commercial Analysis for IBM. Mr. Sprague has been Corporate Executive Vice President, General Counsel and Secretary since 1994, and Chief Administrative Officer of the Company since 1999. He has been involved with the Company's corporate and legal concerns since it was formed in 1984. 10 ================================================================================ PART II ================================================================================ Item 5. Market for Registrant's Common Equity and Related Shareholder Matters The information required by this item under Item 201 of Regulation S-K is incorporated by reference to the information pertaining thereto set forth under the caption "Quarterly Financial Information" in the Company's 2001 Annual Report to Shareholders (the "Annual Report"). In connection with the Company's acquisition of Trewit Inc. on November 30, 2001, the Company issued 2,721,615 shares of its common stock to the shareholders of Trewit. In connection with the Company's acquisition of Benefit Planners, Ltd., L.L.P. on January 2, 2001, the Company issued 330,155 shares of its common stock, as adjusted to reflect a three-for-two stock split effective in August 2001, to the shareholders of Benefit Planners. For each of these transactions, the Company relied on the exemption from registration under Section 4(2) of the Securities Act of 1933, based upon the number and sophistication of recipients of the shares, their positions and the aggregate value of the transactions. No underwriter was involved in any of these transactions. Item 6. Selected Financial Information The information required by this item is incorporated by reference to the information set forth under the caption "Selected Financial Data" in the Annual Report. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation The information required by this item is incorporated by reference to the information set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report. Item 7A. Quantitative and Qualitative Disclosures About Market Risk The information required by this item is incorporated by reference to the information set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Risk Factors" in the Annual Report. Item 8. Financial Statements and Supplementary Data The information required by this item is incorporated by reference to the information set forth under the captions "Consolidated Statements of Income," "Consolidated Balance Sheets," "Consolidated Statements of Shareholders' Equity," "Consolidated Statements of Cash Flows," "Notes to Consolidated Financial Statements," "Quarterly Financial Information" and "Independent Auditors' Report" in the Annual Report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. 11 ================================================================================ PART III ================================================================================ Item 10. Directors and Executive Officers The information required by this item with respect to directors is incorporated by reference to the information set forth under the captions "Matter 1. Election of Directors" and "Information with Respect to Continuing Directors" in the definitive proxy statement for the Company's 2002 annual meeting of shareholders (the "Proxy Statement"). The information required by this item with respect to executive officers appears at the end of Part I of this Form 10-K. The information required by this item with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934 by directors and officers is incorporated by reference to the information set forth under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement. Item 11. Executive Compensation The information required by this item is incorporated herein by reference to the information set forth under the captions "Compensation of Directors," "Compensation of Executive Officers," "Agreements with Executive Officers" and "Stock Price Performance Graph" in the Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by this item is incorporated herein by reference to the information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement. Item 13. Certain Relationships and Related Transactions Not applicable. ================================================================================ PART IV ================================================================================ Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) (1) Financial Statements: The consolidated financial statements of the Company as of December 31, 2001 and 2000 and for each of the three years in the period ended December 31, 2001, together with the report thereon of Deloitte & Touche LLP, dated January 25, 2002, appear on pages 23 through 44 of the Company's Annual Report to Shareholders and Exhibit 13 to this Form 10-K Annual Report, and are incorporated herein by reference. 12 (a) (2) Financial Statement Schedule: The following financial statement schedule of the Company and related independent auditors' report are included in this Report on Form 10-K: Page ---- Independent Auditors' Report 15 Schedule II-Valuation and Qualifying Accounts 15 All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. (b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter ended December 31, 2001. (c) Exhibits: The exhibits listed in the accompanying exhibit index are filed as part of this Annual Report on Form 10-K. 13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: February 26, 2002 FISERV, INC. By /s/ Leslie M. Muma ------------------------------------- Leslie M. Muma President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant and in the capacities indicated on February 26, 2002.
Signature Capacity /s/ Leslie M. Muma - --------------------------------------- Leslie M. Muma Director, President and Chief Executive Officer /s/ Donald F. Dillon - --------------------------------------- Donald F. Dillon Chairman of the Board, Chairman-Information Technology, Inc. /s/ Kenneth R. Jensen - -------------------------------------- Kenneth R. Jensen Director, Senior Executive Vice President, Chief Financial Officer, Treasurer /s/ Daniel P. Kearney - --------------------------------------- Daniel P. Kearney Director /s/ Gerald J. Levy - --------------------------------------- Gerald J. Levy Director /s/ Glenn M. Renwick - --------------------------------------- Glenn M. Renwick Director /s/ L. William Seidman - --------------------------------------- L. William Seidman Director /s/ Thekla R. Shackelford - --------------------------------------- Thekla R. Shackelford Director
14 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Fiserv, Inc.: We have audited the consolidated financial statements of Fiserv, Inc. and subsidiaries as of December 31, 2001 and 2000, and for each of the three years in the period ended December 31, 2001, and have issued our report thereon dated January 25, 2002; such consolidated financial statements and report are included in your 2001 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of Fiserv, Inc., listed in Item 14. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Milwaukee, Wisconsin January 25, 2002 SCHEDULE II Valuation and Qualifying Accounts Allowance for Doubtful Accounts
Year Ended Beginning Charged December 31, Balance to Expense Write-offs Balance ------------ ------- ---------- ---------- ------- 2001 $16,001,000 $1,101,000 ($2,399,000) $14,703,000 2000 11,606,000 6,803,000 (2,408,000) 16,001,000 1999 8,041,000 7,028,000 (3,463,000) 11,606,000
15 EXHIBIT INDEX Exhibit Number Exhibit Description - ------ ------------------- 3.1 Restated Articles of Incorporation, as amended (filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K dated February 28, 2000, and incorporated herein by reference (File No. 0-14948)). 3.2 By-laws, as amended (filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K dated February 28, 2000, and incorporated herein by reference (File No. 0-14948)). 4.1 Shareholder Rights Agreement (filed as Exhibit 4 to the Company's Current Report on Form 8-K dated February 23, 1998, and incorporated herein by reference (File No. 0-14948)). 4.2 First Amendment to the Shareholder Rights Agreement (filed as Exhibit 4.3 to the Company's Form S-8 dated April 7, 2000, and incorporated herein by reference (File No. 333-34310)). 4.3 Second Amendment to the Shareholder Rights Agreement (filed as Exhibit 4.6 to the Company's Form 10-K dated February 27, 2001, and incorporated herein by reference (File No. 0-14948)). Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the Company agrees to furnish to the Securities and Exchange Commission, upon request, any instrument defining the rights of holders of long-term debt that is not filed as an exhibit to this Form 10-K. 10.1 Fiserv, Inc. Stock Option Plan, as amended (filed as Exhibit 4.1 to the Company's Form S-8 Registration Statement dated April 7, 2000, and incorporated herein by reference (File No. 333-34310)). 10.2 Fiserv, Inc. Executive Incentive Compensation Plan (filed as Exhibit A to the Company's Proxy Statement for the 2001 Annual Meeting of Shareholders). 10.3 Form of Key Executive Employment and Severance Agreement, between Fiserv, Inc. and each of Donald F. Dillon, Leslie M. Muma and Kenneth R. Jensen. 10.4 Form of Key Executive Employment and Severance Agreement, between Fiserv, Inc. and each of Norman J. Balthasar, Robert H. Beriault, Michael D. Gantt, Thomas A. Neill, Gordon G. Rockafellow, Dean C. Schmelzer and Charles W. Sprague. 13 2001 Annual Report to Shareholders (to the extent incorporated by reference herein). 21 List of Subsidiaries of the Registrant. 23 Independent Auditors' Consent. 16 EX-10.3 3 dex103.txt SINGLE TRIGGER KEESA EXHIBIT 10.3 KEY EXECUTIVE EMPLOYMENT AND SEVERANCE AGREEMENT ------------------------------------------------ THIS AGREEMENT, made and entered into as of the ____ day of ______, 2001, by and between Fiserv, Inc., a Wisconsin corporation (hereinafter referred to as the "Company"), and _____________________ (hereinafter referred to as the "Executive"). W I T N E S S E T H - - - - - - - - - - WHEREAS, the Executive is employed by the Company and/or a subsidiary of the Company (hereinafter referred to collectively as the "Employer") in a key executive capacity and the Executive's services are valuable to the conduct of the business of the Company; WHEREAS, the Company desires to continue to attract and retain dedicated and skilled management employees in a period of industry consolidation, consistent with achieving the best possible value for its shareholders in any change in control of the Company; WHEREAS, the Company recognizes that circumstances may arise in which a change in control of the Company occurs, through acquisition or otherwise, thereby causing a potential conflict of interest between the Company's needs for the Executive to remain focused on the Company's business and for the necessary continuity in management prior to and following a change in control, and the Executive's reasonable personal concerns regarding future employment with the Employer and economic protection in the event of loss of employment as a consequence of a change in control; WHEREAS, the Company and the Executive are desirous that any proposal for a change in control or acquisition of the Company will be considered by the Executive objectively and with reference only to the best interests of the Company and its shareholders; WHEREAS, the Executive will be in a better position to consider the Company's best interests if the Executive is afforded reasonable economic security, as provided in this Agreement, against altered conditions of employment which could result from any such change in control or acquisition; WHEREAS, the Executive possesses intimate knowledge of the business and affairs of the Company and has acquired certain confidential information and data with respect to the Company; and WHEREAS, the Company desires to insure, insofar as possible, that it will continue to have the benefit of the Executive's services and to protect its confidential information and goodwill. NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements hereinafter set forth, the parties hereto mutually covenant and agree as follows: 1. Definitions. ----------- (a) Accrued Benefits. The term "Accrued Benefits" shall include the ---------------- following amounts, payable as described herein: (i) all base salary for the time period ending with the Termination Date; (ii) reimbursement for any and all monies advanced in connection with the Executive's employment for reasonable and necessary expenses incurred by the Executive on behalf of the Employer for the time period ending with the Termination Date; (iii) any and all other cash earned through the Termination Date and deferred at the election of the Executive or pursuant to any deferred compensation plan then in effect; (iv) notwithstanding any provision of any bonus or incentive compensation plan applicable to the Executive, a lump sum amount, in cash, equal to the sum of (A) any bonus or incentive compensation that has been allocated or awarded to the Executive for a fiscal year or other measuring period under the plan that ends prior to the Termination Date but has not yet been paid (pursuant to Section ------- 5(f) or otherwise) and (B) a pro rata portion to the Termination Date of the - ---- aggregate value of all contingent bonus or incentive compensation awards to the Executive for all uncompleted periods under the plan calculated as to each such award as if the Goals with respect to such bonus or incentive compensation award had been attained; and (v) all other payments and benefits to which the Executive (or in the event of the Executive's death, the Executive's surviving spouse or other beneficiary) may be entitled on the Termination Date as compensatory fringe benefits or under the terms of any benefit plan of the Employer, excluding severance payments under any Employer severance policy, practice or agreement in effect on the Termination Date. Payment of Accrued Benefits shall be made promptly in accordance with the Company's prevailing practice with respect to clauses (i) and (ii) or, with respect to clauses (iii), ----------- ---- ------------- (iv) and (v), pursuant to the terms of the benefit plan or practice establishing - ---- --- such benefits. (b) Act. The term "Act" means the Securities Exchange Act of 1934, as --- amended. (c) Affiliate and Associate. The terms "Affiliate" and "Associate" ----------------------- shall have the respective meanings ascribed to such terms in Rule l2b-2 of the General Rules and Regulations under the Act. (d) Annual Cash Compensation. The term "Annual Cash Compensation" ------------------------ shall mean the sum of (i) the Executive's Annual Base Salary (determined as of the time of the Change in Control of the Company or, if higher, immediately prior to the date the Notice of Termination is given) plus (ii) an amount equal to (A) if the Executive has been employed by the Company for three or more years prior to the Change in Control of the Company, the highest annual incentive bonus the Executive received for any of the three fiscal years prior to the Change in Control of the Company, or (B) if the Executive has not been employed by the Company for three or more years prior to the Change in Control of the Company, the greater of (x) 60% of the Executive's Annual Base Salary as of the time of the Change in Control of the Company or (y) the highest annual incentive bonus the Executive received for any of the two fiscal years prior to the Change in Control of the Company in which the Executive was employed by the Company (the aggregate amount set forth in clause (i) and clause (ii) shall hereafter be ---------- ----------- referred to as the "Annual Cash Compensation"). -2- (e) Beneficial Owner. A Person shall be deemed to be the "Beneficial ---------------- Owner" of any securities: (i) which such Person or any of such Person's Affiliates or Associates has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, (A) securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase, or (B) securities issuable upon exercise of Rights issued pursuant to the terms of the Company's Shareholder Rights Agreement, dated as of February 24, 1998, between the Company and Equiserve Limited Partnership, as amended from time to time (or any successor to such Rights Agreement), at any time before the issuance of such securities; (ii) which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has "beneficial ownership" of (as determined pursuant to Rule l3d-3 of the General Rules and Regulations under the Act), including pursuant to any agreement, arrangement or understanding; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security under this clause (ii) as a result of an agreement, arrangement ----------- or understanding to vote such security if the agreement, arrangement or understanding: (A) arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations under the Act and (B) is not also then reportable on a Schedule l3D under the Act (or any comparable or successor report); or (iii) which are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in clause (ii) above) or disposing of any voting securities of ----------- the Company. (f) Cause. "Cause" for termination by the Employer of the Executive's ----- employment in connection with a Change in Control of the Company shall be limited to (i) the engaging by the Executive in intentional conduct not taken in good faith that the Company establishes, by clear and convincing evidence, has caused demonstrable and serious financial injury to the Employer, as evidenced by a determination in a binding and final judgment, order or decree of a court or administrative agency of competent jurisdiction, in effect after exhaustion or lapse of all rights of appeal, in an action, suit or proceeding, whether civil, criminal, administrative or investigative; (ii) conviction of a felony (as evidenced by binding and final judgment, order or decree of a court of competent jurisdiction, in effect after exhaustion of all rights of appeal), which substantially impairs the Executive's ability to perform his duties or responsibilities; or -3- (iii) continuing willful and unreasonable refusal by the Executive to perform the Executive's duties or responsibilities (unless significantly changed without the Executive's consent). (g) Change in Control of the Company. A "Change in Control of the -------------------------------- Company" shall be deemed to have occurred if an event set forth in any one of the following paragraphs shall have occurred: (i) any Person (other than (A) the Company or any of its subsidiaries, (B) a trustee or other fiduciary holding securities under any employee benefit plan of the Company or any of its subsidiaries, (C) an underwriter temporarily holding securities pursuant to an offering of such securities or (D) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock in the Company ("Excluded Persons")) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates after November 14, 2001, pursuant to express authorization by the Board that refers to this exception) representing 20% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding voting securities; or (ii) the following individuals cease for any reason to constitute a majority of the number of directors of the Company then serving: (A) individuals who, on November 14, 2001 constituted the Board and (B) any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on November 14, 2001, or whose appointment, election or nomination for election was previously so approved (collectively the "Continuing Directors"); provided, however, that individuals who are appointed to the Board pursuant to or in accordance with the terms of an agreement relating to a merger, consolidation, or share exchange involving the Company (or any direct or indirect subsidiary of the Company) shall not be Continuing Directors for purposes of this Agreement until after such individuals are first nominated for election by a vote of at least two-thirds (2/3) of the then Continuing Directors and are thereafter elected as directors by the shareholders of the Company at a meeting of shareholders held following consummation of such merger, consolidation, or share exchange; and, provided further, that in the event the failure of any such persons appointed to the Board to be Continuing Directors results in a Change in Control of the Company, the subsequent qualification of such persons as Continuing Directors shall not alter the fact that a Change in Control of the Company occurred; or (iii) the shareholders of the Company approve a merger, consolidation or share exchange of the Company with any other corporation or approve the issuance of voting securities of the Company in connection with a -4- merger, consolidation or share exchange of the Company (or any direct or indirect subsidiary of the Company) pursuant to applicable stock exchange requirements, other than (A) a merger, consolidation or share exchange which would result in the voting securities of the Company outstanding immediately prior to such merger, consolidation or share exchange continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 50% of the combined voting power of the voting securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger, consolidation or share exchange, or (B) a merger, consolidation or share exchange effected to implement a recapitalization of the Company (or similar transaction) in which no Person (other than an Excluded Person) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates after November 14, 2001, pursuant to express authorization by the Board that refers to this exception) representing 20% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding voting securities; or (iv) the shareholders of the Company approve of a plan of complete liquidation or dissolution of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets (in one transaction or a series of related transactions within any period of 24 consecutive months), other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity at least 75% of the combined voting power of the voting securities of which are owned by Persons in substantially the same proportions as their ownership of the Company immediately prior to such sale. Notwithstanding the foregoing, no "Change in Control of the Company" shall be deemed to have occurred if there is consummated any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to own, directly or indirectly, in the same proportions as their ownership in the Company, an entity that owns all or substantially all of the assets or voting securities of the Company immediately following such transaction or series of transactions. (h) Code. The term "Code" means the Internal Revenue Code of 1986, ---- including any amendments thereto or successor tax codes thereof. (i) Covered Termination. Subject to Section 2(b), the term "Covered ------------------- ------------ Termination" means any termination of the Executive's employment during the Employment Period where the Termination Date, or the date Notice of Termination is delivered, is any date prior to the end of the Employment Period. -5- (j) Employment Period. Subject to Section 2(b), the term "Employment ----------------- ------------ Period" means a period commencing on the date of a Change in Control of the Company, and ending at 11:59 p.m. Central Time on the third anniversary of such date. (k) Good Reason. The Executive shall have "Good Reason" for ----------- termination of employment in connection with a Change in Control of the Company in the event of: (i) any breach of this Agreement by the Employer, including specifically any breach by the Employer of the agreements contained in Section 3(b), Section 4, Section 5, or Section 6, other than an isolated ------------ --------- --------- --------- insubstantial and inadvertent failure not occurring in bad faith that the Employer remedies promptly after receipt of notice thereof given by the Executive; (ii) any reduction in the Executive's base salary, percentage of base salary available as incentive compensation or bonus opportunity or benefits, in each case relative to those most favorable to the Executive in effect at any time during the 180-day period prior to the Change in Control of the Company or, to the extent more favorable to the Executive, those in effect at any time during the Employment Period; (iii) the removal of the Executive from, or any failure to reelect or reappoint the Executive to, any of the positions held with the Employer on the date of the Change in Control of the Company or any other positions with the Employer to which the Executive shall thereafter be elected, appointed or assigned, except in the event that such removal or failure to reelect or reappoint relates to the termination by the Employer of the Executive's employment for Cause or by reason of disability pursuant to Section 12; ---------- (iv) a good faith determination by the Executive that there has been a material adverse change, without the Executive's written consent, in the Executive's working conditions or status with the Employer relative to the most favorable working conditions or status in effect during the 180-day period prior to the Change in Control of the Company, or, to the extent more favorable to the Executive, those in effect at any time during the Employment Period, including but not limited to (A) a significant change in the nature or scope of the Executive's authority, powers, functions, duties or responsibilities, or (B) a significant reduction in the level of support services, staff, secretarial and other assistance, office space and accoutrements, but in each case excluding for this purpose an isolated, insubstantial and inadvertent event not occurring in bad faith that the Employer remedies within ten (10) days after receipt of notice thereof given by the Executive; (v) the relocation of the Executive's principal place of employment to a location more than 35 miles from the Executive's principal place of employment on the date 180 days prior to the Change in Control of the Company; -6- (vi) the Employer requires the Executive to travel on Employer business 20% in excess of the average number of days per month the Executive was required to travel during the 180-day period prior to the Change in Control of the Company; (vii) failure by the Company to obtain the Agreement referred to in Section 17(a) as provided therein; or ------------- (viii) any voluntary termination of employment by the Executive where the Notice of Termination is delivered during the six months following the first six months after the Change in Control of the Company. (l) Person. The term "Person" shall mean any individual, firm, ------ partnership, corporation or other entity, including any successor (by merger or otherwise) of such entity, or a group of any of the foregoing acting in concert. (m) Termination Date. Except as otherwise provided in Section 2(b), ---------------- ------------ Section 10(b), and Section 17(a), the term "Termination Date" means (i) if the - ------------- ------------- Executive's employment is terminated by the Executive's death, the date of death; (ii) if the Executive's employment is terminated by reason of voluntary early retirement, as agreed in writing by the Employer and the Executive, the date of such early retirement which is set forth in such written agreement; (iii) if the Executive's employment is terminated for purposes of this Agreement by reason of disability pursuant to Section 12, the earlier of thirty days after ---------- the Notice of Termination is given or one day prior to the end of the Employment Period; (iv) if the Executive's employment is terminated by the Executive voluntarily (other than for Good Reason), the date the Notice of Termination is given; and (v) if the Executive's employment is terminated by the Employer (other than by reason of disability pursuant to Section 12) or by the Executive ---------- for Good Reason, the earlier of thirty days after the Notice of Termination is given or one day prior to the end of the Employment Period. Notwithstanding the foregoing, (A) If termination is for Cause pursuant to Section 1(f)(iii) ---------------- and if the Executive has cured the conduct constituting such Cause as described by the Employer in its Notice of Termination within such thirty-day or shorter period, then the Executive's employment hereunder shall continue as if the Employer had not delivered its Notice of Termination. (B) If the Executive shall in good faith give a Notice of Termination for Good Reason and the Employer notifies the Executive that a dispute exists concerning the termination within the fifteen-day period following receipt thereof, then the Executive may elect to continue his or her employment during such dispute and the Termination Date shall be determined under this paragraph. If the Executive so elects and it is thereafter determined that Good Reason did exist, the Termination Date shall be the earliest of (1) the date on which the dispute is finally determined, either (x) by mutual written agreement of the parties or (y) in accordance with Section 22, (2) the date of the Executive's death or (3) ---------- one day prior to the end of the Employment Period. If the Executive so elects and it is thereafter determined that Good Reason did not exist, then the employment -7- of the Executive hereunder shall continue after such determination as if the Executive had not delivered the Notice of Termination asserting Good Reason and there shall be no Termination Date arising out of such Notice. In either case, this Agreement continues, until the Termination Date, if any, as if the Executive had not delivered the Notice of Termination except that, if it is finally determined that Good Reason did exist, the Executive shall in no case be denied the benefits described in Section 9 (including a --------- Termination Payment) based on events occurring after the Executive delivered his Notice of Termination. (C) Except as provided in Section 1(m)(B), if the party receiving -------------- the Notice of Termination notifies the other party that a dispute exists concerning the termination within the appropriate period following receipt thereof and it is finally determined that the reason asserted in such Notice of Termination did not exist, then (1) if such Notice was delivered by the Executive, the Executive will be deemed to have voluntarily terminated his employment and the Termination Date shall be the earlier of the date fifteen days after the Notice of Termination is given or one day prior to the end of the Employment Period and (2) if delivered by the Company, the Company will be deemed to have terminated the Executive other than by reason of death, disability or Cause. 2. Termination or Cancellation Prior to Change in Control. ------------------------------------------------------ (a) Subject to Section 2(b), the Employer and the Executive shall ------------ each retain the right to terminate the employment of the Executive at any time prior to a Change in Control of the Company. Subject to Section 2(b), in the ------------ event the Executive's employment is terminated prior to a Change in Control of the Company, this Agreement shall be terminated and cancelled and of no further force and effect, and any and all rights and obligations of the parties hereunder shall cease. (b) Anything in this Agreement to the contrary notwithstanding, if a Change in Control of the Company occurs and if the Executive's employment with the Employer is terminated (other than a termination due to the Executive's death or as a result of the Executive's disability) during the period of 180 days prior to the date on which the Change in Control of the Company occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control of the Company or (ii) otherwise arose in connection with or in anticipation of a Change in Control of the Company, then for all purposes of this Agreement such termination of employment shall be deemed a "Covered Termination," "Notice of Termination" shall be deemed to have been given, and the "Employment Period" shall be deemed to have begun on the date of such termination which shall be deemed to be the "Termination Date" and the date of the Change of Control of the Company for purposes of this Agreement. 3. Employment Period; Vesting of Certain Benefits. ----------------------------------------------- (a) If a Change in Control of the Company occurs when the Executive is employed by the Employer, the Employer will continue thereafter to employ the Executive during the Employment Period, and the Executive will remain in the employ of the Employer in -8- accordance with and subject to the terms and provisions of this Agreement. Any termination of the Executive's employment during the Employment Period, whether by the Company or the Employer, shall be deemed a termination by the Company for purposes of this Agreement. (b) If a Change in Control of the Company occurs when the Executive is employed by the Employer, (i) the Company shall cause all restrictions on restricted stock awards made to the Executive prior to the Change in Control of the Company to lapse such that the Executive is fully and immediately vested in the Executive's restricted stock upon such a Change in Control of the Company; and (ii) the Company shall cause all stock options granted to the Executive prior to the Change in Control of the Company pursuant to the Company's stock option plan(s) to be fully and immediately vested upon such a Change in Control of the Company. 4. Duties. During the Employment Period, the Executive shall, in the ------ same capacities and positions held by the Executive at the time of the Change in Control of the Company or in such other capacities and positions as may be agreed to by the Employer and the Executive in writing, devote the Executive's best efforts and all of the Executive's business time, attention and skill to the business and affairs of the Employer, as such business and affairs now exist and as they may hereafter be conducted; provided, however, that the Executive shall be entitled (a) to serve as director of other corporations and (b) to devote time to personal and financial activities, in each case so long as such activities do not materially affect the Executive's ability to perform the Executive's duties hereunder. 5. Compensation. During the Employment Period, the Executive shall be ------------ compensated as follows: (a) The Executive shall receive, at reasonable intervals (but not less often than monthly) and in accordance with such standard policies as may be in effect immediately prior to the Change in Control of the Company, an annual base salary in cash equivalent of not less than twelve times the Executive's highest monthly base salary for the twelve-month period immediately preceding the month in which the Change in Control of the Company occurs or, if higher, an annual base salary at the rate in effect immediately prior to the Change in Control of the Company (which base salary shall, unless otherwise agreed in writing by the Executive, include the current receipt by the Executive of any amounts which, prior to the Change in Control of the Company, the Executive had elected to defer, whether such compensation is deferred under Section 401(k) of the Code or otherwise), subject to adjustment as hereinafter provided in Section 6 (such --------- salary amount as adjusted upward from time to time is hereafter referred to as the "Annual Base Salary"). (b) The Executive shall receive fringe benefits at least equal in value to the highest value of such benefits provided for the Executive at any time during the 180-day period immediately prior to the Change in Control of the Company or, if more favorable to the Executive, those provided generally at any time during the Employment Period to any executives of the Employer of comparable status and position to the Executive; and shall be reimbursed, at such intervals and in accordance with such standard policies that are most favorable to the Executive that were in effect at any time during the 180-day period immediately prior to the Change in Control of the Company, for any and all monies advanced in connection with the Executive's employment for reasonable and necessary expenses incurred by the Executive on behalf of the Employer, including travel expenses. -9- (c) The Executive and/or the Executive's family, as the case may be, shall be included, to the extent eligible thereunder (which eligibility shall not be conditioned on the Executive's salary grade or on any other requirement which excludes persons of comparable status to the Executive unless such exclusion was in effect for such plan or an equivalent plan at any time during the 180-day period immediately prior to the Change in Control of the Company), in any and all plans providing benefits for the Employer's salaried employees in general, including but not limited to group life insurance, hospitalization, medical, dental, profit sharing and stock bonus plans; provided, that, (i) in no event shall the aggregate level of benefits under such plans in which the Executive is included be less than the aggregate level of benefits under plans of the Employer of the type referred to in this Section 5(c) in which the ----------- Executive was participating at any time during the 180-day period immediately prior to the Change in Control of the Company and (ii) in no event shall the aggregate level of benefits under such plans be less than the aggregate level of benefits under plans of the type referred to in this Section 5(c) provided at ----------- any time after the Change in Control of the Company to any executive of the Employer of comparable status and position to the Executive. (d) The Executive shall annually be entitled to not less than the amount of paid vacation and not fewer than the highest number of paid holidays to which the Executive was entitled annually at any time during the 180-day period immediately prior to the Change in Control of the Company or such greater amount of paid vacation and number of paid holidays as may be made available annually to other executives of the Employer of comparable status and position to the Executive at any time during the Employment Period. (e) The Executive shall be included in all plans providing additional benefits to executives of the Employer of comparable status and position to the Executive, including but not limited to deferred compensation, split-dollar life insurance, supplemental retirement, stock option, stock appreciation, stock bonus and similar or comparable plans; provided, that, (i) in no event shall the aggregate level of benefits under such plans be less than the highest aggregate level of benefits under plans of the Employer of the type referred to in this Section 5(e) in which the Executive was participating at any time during the - ----------- 180-day period immediately prior to the Change in Control of the Company; (ii) in no event shall the aggregate level of benefits under such plans be less than the aggregate levels of benefits under plans of the type referred to in this Section 5(e) provided at any time after the Change in Control of the Company to - ----------- any executive of the Employer comparable in status and position to the Executive; and (iii) the Employer's obligation to include the Executive in bonus or incentive compensation plans shall be determined by Section 5(f). ----------- (f) To assure that the Executive will have an opportunity to earn incentive compensation after a Change in Control of the Company, the Executive shall be included in a bonus plan of the Employer which shall satisfy the standards described below (such plan, the "Bonus Plan"). Bonuses under the Bonus Plan shall be payable with respect to achieving such financial or other goals reasonably related to the business of the Employer as the Employer shall establish (the "Goals"), all of which Goals shall be attainable, prior to the end of the Employment Period, with approximately the same degree of probability as the most attainable goals under the Employer's bonus plan or plans as in effect at any time during the 180-day period immediately prior to the Change in Control of the Company (whether one or more, the "Company Bonus Plan") and in view of the Employer's existing and projected financial and business circumstances applicable at the time. The amount of the bonus (the "Bonus Amount") that the Executive is -10- eligible to earn under the Bonus Plan shall be no less than the amount of the Executive's maximum award provided in such Company Bonus Plan (such bonus amount herein referred to as the "Targeted Bonus"), and in the event the Goals are not achieved such that the entire Targeted Bonus is not payable, the Bonus Plan shall provide for a payment of a Bonus Amount equal to a portion of the Targeted Bonus reasonably related to that portion of the Goals which were achieved. Payment of the Bonus Amount shall not be affected by any circumstance occurring subsequent to the end of the Employment Period, including termination of the Executive's employment. 6. Annual Compensation Adjustments. During the Employment Period, ------------------------------- the Board of Directors of the Company (or an appropriate committee thereof) will consider and appraise, at least annually, the contributions of the Executive to the Company, and in accordance with the Company's practice prior to the Change in Control of the Company, due consideration shall be given to the upward adjustment of the Executive's Annual Base Salary, at least annually, (a) commensurate with increases generally given to other executives of the Company of comparable status and position to the Executive, and (b) as the scope of the Company's operations or the Executive's duties expand. 7. Termination For Cause or Without Good Reason. If there is a -------------------------------------------- Covered Termination for Cause or due to the Executive's voluntarily terminating his or her employment other than for Good Reason (any such terminations to be subject to the procedures set forth in Section 13), then the Executive shall be ---------- entitled to receive only Accrued Benefits. 8. Termination Giving Rise to a Termination Payment. If there is a ------------------------------------------------ Covered Termination by the Executive for Good Reason, or by the Company other than by reason of (i) death, (ii) disability pursuant to Section 12, or (iii) ---------- Cause (any such terminations to be subject to the procedures set forth in Section 13), then the Executive shall be entitled to receive, and the Company - ----------- shall promptly pay, Accrued Benefits and, in lieu of further base salary for periods following the Termination Date, as liquidated damages and additional severance pay and in consideration of the covenant of the Executive set forth in Section 14(a), the Termination Payment pursuant to Section 9(a). - ------------- ------------ 9. Payments Upon Termination. ------------------------- (a) Termination Payment. ------------------- (i) Subject to Section 9(a)(ii), the "Termination Payment" shall ---------------- be an amount equal to the Annual Cash Compensation times two (2). The Termination Payment shall be paid to the Executive in cash equivalent ten (10) business days after the Termination Date. Such lump sum payment shall not be reduced by any present value or similar factor, and the Executive shall not be required to mitigate the amount of the Termination Payment by securing other employment or otherwise, nor will such Termination Payment be reduced by reason of the Executive securing other employment or for any other reason. The Termination Payment shall be in lieu of, and acceptance by the Executive of the Termination Payment shall constitute the Executive's release of any rights of the Executive to, any other cash severance payments under any Company severance policy, practice or agreement. -11- (ii) Notwithstanding any other provision of this Agreement, if any portion of the Termination Payment or any other payment under this Agreement, or under any other agreement with or plan of the Employer (in the aggregate, "Total Payments"), would constitute an "excess parachute payment," then the Executive shall have the option to have the Total Payments to be made to the Executive reduced such that the value of the aggregate Total Payments that the Executive is entitled to receive shall be One Dollar ($1) less than the maximum amount which the Executive may receive without becoming subject to the tax imposed under Section 4999 of the Code (or any successor provision). For purposes of this Agreement, the terms "excess parachute payment" and "parachute payments" shall have the meanings assigned to them in Section 280G of the Code (or any successor provision) and such "parachute payments" shall be valued as provided therein. Present value for purposes of this Agreement shall be calculated in accordance with Section 1274(b)(2) of the Code (or any successor provision). Within forty days following a Covered Termination or notice by one party to the other of its belief that there is a payment or benefit due the Executive that will result in an "excess parachute payment" as defined in Section 280G of the Code (or any successor provision), the Executive and the Company, at the Company's expense, shall obtain the opinion (which need not be unqualified) of nationally recognized tax counsel ("National Tax Counsel") selected by the Company's independent auditors and reasonably acceptable to the Executive (which may be regular outside counsel to the Company), which opinion sets forth (A) the amount of the Base Period Income, (B) the amount and present value of Total Payments, (C) the amount and present value of any excess parachute payments determined without regard to any reduction of Total Payments pursuant to this Section 9(a)(ii) ---------------- and (D) the net after-tax proceeds to the Executive, taking into account the tax imposed under Section 4999 of the Code if (x) the Total Payments were reduced in accordance with the first sentence of this Section 9(a)(ii) ---------------- or (y) the Total Payments were not so reduced. As used in this Agreement, the term "Base Period Income" means an amount equal to the Executive's "annualized includable compensation for the base period" as defined in Section 280G(d)(1) of the Code. For purposes of such opinion, the value of any noncash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Section 280G(d)(3) and (4) of the Code (or any successor provisions), which determination shall be evidenced in a certificate of such auditors addressed to the Company and the Executive. The opinion of National Tax Counsel shall be addressed to the Company and the Executive and shall be binding upon the Company and the Executive. If such National Tax Counsel opinion determines that there would be an excess parachute payment, then, at the Executive's option, then, at the Executive's sole discretion, the Termination Payment hereunder or any other payment or benefit determined by such counsel to be includable in Total Payments may be reduced or eliminated as specified by the Executive in writing delivered to the Company within thirty days of his receipt of such opinion so that under the bases of calculations set forth in such opinion there will be no excess parachute payment. If such National Tax Counsel so requests in connection with the opinion required by this Section 9(a), the Executive and the ------------ -12- Company shall obtain, at the Company's expense, and the National Tax Counsel may rely on, the advice of a firm of recognized executive compensation consultants as to the reasonableness of any item of compensation to be received by the Executive solely with respect to its status under Section 280G of the Code and the regulations thereunder. (iii) The Company agrees to bear all costs associated with, and to indemnify and hold harmless, the National Tax Counsel of and from any and all claims, damages, and expenses resulting from or relating to its determinations pursuant to this Section 9(a), except for claims, damages or ------------ expenses resulting from the gross negligence or willful misconduct of such firm. (b) Additional Benefits. If there is a Covered Termination and the ------------------- Executive is entitled to Accrued Benefits and the Termination Payment, then the Company shall provide to the Executive the following additional benefits: (i) The Executive shall receive, at the expense of the Company, outplacement services, on an individualized basis at a level of service commensurate with the Executive's status with the Company immediately prior to the date of the Change in Control of the Company (or, if higher, immediately prior to the termination of the Executive's employment), provided by a nationally recognized executive placement firm selected by the Company; provided that the cost to the Company of such services shall not exceed 10% of the Executive's Annual Base Salary. (ii) Until the earlier of the end of the Employment Period or such time as the Executive has obtained new employment and is covered by benefits which in the aggregate are at least equal in value to the following benefits, the Executive shall continue to be covered, at the expense of the Company, by the same or equivalent life insurance, hospitalization, medical and dental coverage as was required hereunder with respect to the Executive immediately prior to the date the Notice of Termination is given. (iii) The Company shall reimburse the Executive for up to $15,000 in the aggregate of fees and expenses of consultants and/or legal or accounting advisors engaged by the Executive to advise the Executive as to matters relating to the computation of benefits due and payable under this Section 9. --------- (iv) The Company shall cause all performance plan awards granted to the Executive pursuant to any long-term incentive plan maintained by the Company to be paid out at target, as if all performance requirements had been satisfied, on a pro rata basis based on the completed portion of each award cycle. 10. Death. ----- (a) Except as provided in Section 10(b), in the event of a Covered ------------- Termination due to the Executive's death, the Executive's estate, heirs and beneficiaries shall receive all the Executive's Accrued Benefits through the Termination Date. -13- (b) In the event the Executive dies after a Notice of Termination is given (i) by the Company or (ii) by the Executive for Good Reason, the Executive's estate, heirs and beneficiaries shall be entitled to the benefits described in Section 10(a) and, subject to the provisions of this Agreement, to ------------- such Termination Payment as the Executive would have been entitled to had the Executive lived. For purposes of this Section 10(b), the Termination Date shall ------------- be the earlier of thirty days following the giving of the Notice of Termination, subject to extension pursuant to Section 1(m), or one day prior to the end of ------------ the Employment Period. 11. Retirement. If, during the Employment Period, the Executive and the Employer shall execute an agreement providing for the early retirement of the Executive from the Employer, or the Executive shall otherwise give notice that he is voluntarily choosing to retire early from the Employer, the Executive shall receive Accrued Benefits through the Termination Date; provided, that if the Executive's employment is terminated by the Executive for Good Reason or by the Company other than by reason of death, disability or Cause and the Executive also, in connection with such termination, elects voluntary early retirement, the Executive shall also be entitled to receive a Termination Payment pursuant to Section 8. --------- 12. Termination for Disability. If, during the Employment Period, as a -------------------------- result of the Executive's disability due to physical or mental illness or injury (regardless of whether such illness or injury is job-related), the Executive shall have been absent from the Executive's duties hereunder on a full-time basis for a period of six consecutive months and, within thirty days after the Company notifies the Executive in writing that it intends to terminate the Executive's employment (which notice shall not constitute the Notice of Termination contemplated below), the Executive shall not have returned to the performance of the Executive's duties hereunder on a full-time basis, the Company may terminate the Executive's employment for purposes of this Agreement pursuant to a Notice of Termination given in accordance with Section 13. If the ---------- Executive's employment is terminated on account of the Executive's disability in accordance with this Section, the Executive shall receive Accrued Benefits through the Termination Date and shall remain eligible for all benefits provided by any long term disability programs of the Company in effect at the time of such termination. 13. Termination Notice and Procedure. Any Covered Termination by the -------------------------------- Company or the Executive (other than a termination of the Executive's employment that is a Covered Termination by virtue of Section 2(b)) shall be communicated ------------- by a written notice of termination ("Notice of Termination") to the Executive, if such Notice is given by the Company, and to the Company, if such Notice is given by the Executive, all in accordance with the following procedures and those set forth in Section 23: ---------- (a) If such termination is for disability, Cause or Good Reason, the Notice of Termination shall indicate in reasonable detail the facts and circumstances alleged to provide a basis for such termination. (b) Any Notice of Termination by the Company shall have been approved, prior to the giving thereof to the Executive, by a resolution duly adopted by a majority of the directors of the Company (or any successor corporation) then in office. -14- (c) If the Notice is given by the Executive for Good Reason, the Executive may cease performing his duties hereunder on or after the date fifteen days after the delivery of Notice of Termination and shall in any event cease employment on the Termination Date. If the Notice is given by the Company, then the Executive may cease performing his duties hereunder on the date of receipt of the Notice of Termination, subject to the Executive's rights hereunder. (d) The Executive shall have thirty days, or such longer period as the Company may determine to be appropriate, to cure any conduct or act, if curable, alleged to provide grounds for termination of the Executive's employment for Cause under this Agreement pursuant to Section 1(f)(iii). ----------------- (e) The recipient of any Notice of Termination shall personally deliver or mail in accordance with Section 23 written notice of any dispute ---------- relating to such Notice of Termination to the party giving such Notice within fifteen days after receipt thereof; provided, however, that if the Executive's conduct or act alleged to provide grounds for termination by the Company for Cause is curable, then such period shall be thirty days. After the expiration of such period, the contents of the Notice of Termination shall become final and not subject to dispute. 14. Further Obligations of the Executive. ------------------------------------ (a) Competition. The Executive agrees that, in the event of any ----------- Covered Termination where the Executive is entitled to Accrued Benefits and the Termination Payment, the Executive shall not, for a period expiring six months after the Termination Date, without the prior written approval of the Company's Board of Directors, participate in the management of, be employed by or own any business enterprise at a location within the United States that engages in substantial competition with the Company or its subsidiaries, where such enterprise's revenues from any competitive activities amount to 10% or more of such enterprise's net revenues and sales for its most recently completed fiscal year; provided, however, that nothing in this Section 14(a) shall prohibit the ------------- Executive from owning stock or other securities of a competitor amounting to less than five percent of the outstanding capital stock of such competitor. (b) Confidentiality. During and following the Executive's employment --------------- by the Company, the Executive shall hold in confidence and not directly or indirectly disclose or use or copy or make lists of any confidential information or proprietary data of the Company (including that of the Employer), except to the extent authorized in writing by the Board of Directors of the Company or required by any court or administrative agency, other than to an employee of the Company or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of duties as an executive of the Company. Confidential information shall not include any information known generally to the public or any information of a type not otherwise considered confidential by persons engaged in the same business or a business similar to that of the Company. All records, files, documents and materials, or copies thereof, relating to the business of the Company which the Executive shall prepare, or use, or come into contact with, shall be and remain the sole property of the Company and shall be promptly returned to the Company upon termination of employment with the Company. (c) No Solicitation. The Executive agrees that, in the event of any --------------- Covered Termination where the Executive is entitled to Accrued Benefits and the Termination Payment, the -15- Executive shall not, for a period expiring two years after the Termination Date, without the prior written approval of the Company's Board of Directors, hire or solicit for employment any person who is or was employed by the Company during the then immediately preceding twelve months, other than pursuant to a general published solicitation of employment. 15. Expenses and Interest. If, after a Change in Control of the --------------------- Company, (a) a dispute arises with respect to the enforcement of the Executive's rights under this Agreement or (b) any legal or arbitration proceeding shall be brought to enforce or interpret any provision contained herein or to recover damages for breach hereof, in either case so long as the Executive is not acting in bad faith, then the Company shall reimburse the Executive for any reasonable attorneys' fees and necessary costs and disbursements incurred as a result of the dispute, legal or arbitration proceeding ("Expenses"), and prejudgment interest on any money judgment or arbitration award obtained by the Executive calculated at the rate of interest announced by The Bank of New York, from time to time at its prime or base lending rate from the date that payments to him or her should have been made under this Agreement. Within ten days after the Executive's written request therefor, the Company shall pay to the Executive, or such other person or entity as the Executive may designate in writing to the Company, the Executive's reasonable Expenses in advance of the final disposition or conclusion of any such dispute, legal or arbitration proceeding. 16. Payment Obligations Absolute. The Company's obligation during and ---------------------------- after the Employment Period to pay the Executive the amounts and to make the benefit and other arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company may have against him or anyone else. Except as provided in Section ------- 15, all amounts payable by the Company hereunder shall be paid without notice or - -- demand. Each and every payment made hereunder by the Company shall be final, and the Company will not seek to recover all or any part of such payment from the Executive, or from whomsoever may be entitled thereto, for any reason whatsoever. 17. Successors. ---------- (a) If the Company sells, assigns or transfers all or substantially all of its business and assets to any Person or if the Company merges into or consolidates or otherwise combines (where the Company does not survive such combination) with any Person (any such event, a "Sale of Business"), then the Company shall assign all of its right, title and interest in this Agreement as of the date of such event to such Person, and the Company shall cause such Person, by written agreement in form and substance reasonably satisfactory to the Executive, to expressly assume and agree to perform from and after the date of such assignment all of the terms, conditions and provisions imposed by this Agreement upon the Company. Failure of the Company to obtain such agreement prior to the effective date of such Sale of Business shall be a breach of this Agreement constituting "Good Reason" hereunder, except that for purposes of implementing the foregoing the date upon which such Sale of Business becomes effective shall be deemed the Termination Date. In case of such assignment by the Company and of assumption and agreement by such Person, as used in this Agreement, "Company" shall thereafter mean such Person which executes and delivers the agreement provided for in this Section 17 or which otherwise ---------- becomes bound by all the terms and provisions of this Agreement by operation of law, and this Agreement shall inure to the benefit of, and be enforceable by, such Person. The Executive shall, in his or -16- her discretion, be entitled to proceed against any or all of such Persons, any Person which theretofore was such a successor to the Company and the Company (as so defined) in any action to enforce any rights of the Executive hereunder. Except as provided in this Section 17(a), this Agreement shall not be assignable ------------- by the Company. This Agreement shall not be terminated by the voluntary or involuntary dissolution of the Company. (b) This Agreement and all rights of the Executive shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, heirs and beneficiaries. All amounts payable to the Executive under Sections 7, 8, 9, 10, 11, 12 and 15 if the ----------------------------------- Executive had lived shall be paid, in the event of the Executive's death, to the Executive's estate, heirs and representatives; provided, however, that the foregoing shall not be construed to modify any terms of any benefit plan of the Employer, as such terms are in effect on the date of the Change in Control of the Company, that expressly govern benefits under such plan in the event of the Executive's death. 18. Severability. The provisions of this Agreement shall be regarded ------------ as divisible, and if any of said provisions or any part hereof are declared invalid or unenforceable by a court of competent jurisdiction, the validity and enforceability of the remainder of such provisions or parts hereof and the applicability thereof shall not be affected thereby. 19. Contents of Agreement; Waiver of Rights; Amendment. This Agreement -------------------------------------------------- sets forth the entire understanding between the parties hereto with respect to the subject matter hereof, and the Executive hereby waives all rights under, any prior or other agreement or understanding between the parties with respect to such subject matter. This Agreement may not be amended or modified at any time except by written instrument executed by the Company and the Executive. 20. Withholding. The Company shall be entitled to withhold from ----------- amounts to be paid to the Executive hereunder any federal, state or local withholding or other taxes or charges which it is from time to time required to withhold; provided, that the amount so withheld shall not exceed the minimum amount required to be withheld by law. The Company shall be entitled to rely on an opinion of the National Tax Counsel if any question as to the amount or requirement of any such withholding shall arise. 21. Certain Rules of Construction. No party shall be considered as ----------------------------- being responsible for the drafting of this Agreement for the purpose of applying any rule construing ambiguities against the drafter or otherwise. No draft of this Agreement shall be taken into account in construing this Agreement. Any provision of this Agreement which requires an agreement in writing shall be deemed to require that the writing in question be signed by the Executive and an authorized representative of the Company. 22. Governing Law; Resolution of Disputes. This Agreement and the ------------------------------------- rights and obligations hereunder shall be governed by and construed in accordance with the laws of the State of Wisconsin. Any dispute arising out of this Agreement shall, at the Executive's election, be determined by arbitration under the rules of the American Arbitration Association then in effect (in which case both parties shall be bound by the arbitration award) or by litigation. Whether the dispute is to be settled by arbitration or litigation, the venue for the arbitration or litigation shall be -17- Milwaukee, Wisconsin or, at the Executive's election, if the Executive is not then residing or working in the Milwaukee, Wisconsin metropolitan area, in the judicial district encompassing the city in which the Executive resides; provided, that, if the Executive is not then residing in the United States, the election of the Executive with respect to such venue shall be either Milwaukee, Wisconsin or in the judicial district encompassing that city in the United States among the thirty cities having the largest population (as determined by the most recent United States Census data available at the Termination Date) which is closest to the Executive's residence. The parties consent to personal jurisdiction in each trial court in the selected venue having subject matter jurisdiction notwithstanding their residence or situs, and each party irrevocably consents to service of process in the manner provided hereunder for the giving of notices. 23. Notice. Notices given pursuant to this Agreement shall be in ------ writing and, except as otherwise provided by Section 13(d), shall be deemed ------------- given when actually received by the Executive or actually received by the Company's Secretary or any officer of the Company other than the Executive. If mailed, such notices shall be mailed by United States registered or certified mail, return receipt requested, addressee only, postage prepaid, if to the Company, to Fiserv, Inc., Attention: Secretary (or President, if the Executive is then Secretary), 255 Fiserv Drive, Brookfield, Wisconsin 53045, or if to the Executive, at the address set forth below the Executive's signature to this Agreement, or to such other address as the party to be notified shall have theretofore given to the other party in writing. 24. No Waiver. No waiver by either party at any time of any breach by --------- the other party of, or compliance with, any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same time or any prior or subsequent time. 25. Headings. The headings herein contained are for reference only -------- and shall not affect the meaning or interpretation of any provision of this Agreement. -18- IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. FISERV, INC. By: ________________________________________ Its: ___________________________________ Attest:_____________________________________ Its:____________________________________ EXECUTIVE: ______________________________________(SEAL) Address: ___________________________________ ___________________________________ -19- EX-10.4 4 dex104.txt DOUBLE TRIGGER KEESA EXHIBIT 10.4 KEY EXECUTIVE EMPLOYMENT AND SEVERANCE AGREEMENT ------------------------------------------------ THIS AGREEMENT, made and entered into as of the ____ day of ______, 2001, by and between Fiserv, Inc., a Wisconsin corporation (hereinafter referred to as the "Company"), and _____________________ (hereinafter referred to as the "Executive"). W I T N E S S E T H ------------------- WHEREAS, the Executive is employed by the Company and/or a subsidiary of the Company (hereinafter referred to collectively as the "Employer") in a key executive capacity and the Executive's services are valuable to the conduct of the business of the Company; WHEREAS, the Company desires to continue to attract and retain dedicated and skilled management employees in a period of industry consolidation, consistent with achieving the best possible value for its shareholders in any change in control of the Company; WHEREAS, the Company recognizes that circumstances may arise in which a change in control of the Company occurs, through acquisition or otherwise, thereby causing a potential conflict of interest between the Company's needs for the Executive to remain focused on the Company's business and for the necessary continuity in management prior to and following a change in control, and the Executive's reasonable personal concerns regarding future employment with the Employer and economic protection in the event of loss of employment as a consequence of a change in control; WHEREAS, the Company and the Executive are desirous that any proposal for a change in control or acquisition of the Company will be considered by the Executive objectively and with reference only to the best interests of the Company and its shareholders; WHEREAS, the Executive will be in a better position to consider the Company's best interests if the Executive is afforded reasonable economic security, as provided in this Agreement, against altered conditions of employment which could result from any such change in control or acquisition; WHEREAS, the Executive possesses intimate knowledge of the business and affairs of the Company and has acquired certain confidential information and data with respect to the Company; and WHEREAS, the Company desires to insure, insofar as possible, that it will continue to have the benefit of the Executive's services and to protect its confidential information and goodwill. NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements hereinafter set forth, the parties hereto mutually covenant and agree as follows: 1. Definitions. ----------- (a) Accrued Benefits. The term "Accrued Benefits" shall include the ---------------- following amounts, payable as described herein: (i) all base salary for the time period ending with the Termination Date; (ii) reimbursement for any and all monies advanced in connection with the (a) Executive's employment for reasonable and necessary expenses incurred by the Executive on behalf of the Employer for the time period ending with the Termination Date; (iii) any and all other cash earned through the Termination Date and deferred at the election of the Executive or pursuant to any deferred compensation plan then in effect; (iv) notwithstanding any provision of any bonus or incentive compensation plan applicable to the Executive, a lump sum amount, in cash, equal to the sum of (A) any bonus or incentive compensation that has been allocated or awarded to the Executive for a fiscal year or other measuring period under the plan that ends prior to the Termination Date but has not yet been paid (pursuant to Section ------- 5(f) or otherwise) and (B) a pro rata portion to the Termination Date of the - ---- aggregate value of all contingent bonus or incentive compensation awards to the Executive for all uncompleted periods under the plan calculated as to each such award as if the Goals with respect to such bonus or incentive compensation award had been attained; and (v) all other payments and benefits to which the Executive (or in the event of the Executive's death, the Executive's surviving spouse or other beneficiary) may be entitled on the Termination Date as compensatory fringe benefits or under the terms of any benefit plan of the Employer, excluding severance payments under any Employer severance policy, practice or agreement in effect on the Termination Date. Payment of Accrued Benefits shall be made promptly in accordance with the Company's prevailing practice with respect to clauses (i) and (ii) or, with respect to clauses (iii), ----------- --- ------------- (iv) and (v), pursuant to the terms of the benefit plan or practice establishing - ---- --- such benefits. (b) Act. The term "Act" means the Securities Exchange Act of 1934, as --- amended. (c) Affiliate and Associate. The terms "Affiliate" and "Associate" ----------------------- shall have the respective meanings ascribed to such terms in Rule l2b-2 of the General Rules and Regulations under the Act. (d) Annual Cash Compensation. The term "Annual Cash Compensation" ------------------------ shall mean the sum of (i) the Executive's Annual Base Salary (determined as of the time of the Change in Control of the Company or, if higher, immediately prior to the date the Notice of Termination is given) plus (ii) an amount equal to (A) if the Executive has been employed by the Company for three or more years prior to the Change in Control of the Company, the highest annual incentive bonus the Executive received for any of the three fiscal years prior to the Change in Control of the Company, or (B) if the Executive has not been employed by the Company for three or more years prior to the Change in Control of the Company, the greater of (x) 60% of the Executive's Annual Base Salary as of the time of the Change in Control of the Company or (y) the highest annual incentive bonus the Executive received for any of the two fiscal years prior to the Change in Control of the Company in which the Executive was employed by the Company (the aggregate amount set forth in clause (i) and clause (ii) shall hereafter be ---------- ----------- referred to as the "Annual Cash Compensation"). -2- (e) Beneficial Owner. A Person shall be deemed to be the "Beneficial ---------------- Owner" of any securities: (i) which such Person or any of such Person's Affiliates or Associates has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, (A) securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase, or (B) securities issuable upon exercise of Rights issued pursuant to the terms of the Company's Shareholder Rights Agreement, dated as of February 24, 1998, between the Company and Equiserve Limited Partnership, as amended from time to time (or any successor to such Rights Agreement), at any time before the issuance of such securities; (ii) which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has "beneficial ownership" of (as determined pursuant to Rule l3d-3 of the General Rules and Regulations under the Act), including pursuant to any agreement, arrangement or understanding; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security under this clause (ii) as a result of an agreement, arrangement or ---------- understanding to vote such security if the agreement, arrangement or understanding: (A) arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations under the Act and (B) is not also then reportable on a Schedule l3D under the Act (or any comparable or successor report); or (iii) which are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in clause (ii) above) or disposing of any voting securities of ----------- the Company. (f) Cause. "Cause" for termination by the Employer of the Executive's ----- employment in connection with a Change in Control of the Company shall be limited to (i) the engaging by the Executive in intentional conduct not taken in good faith that the Company establishes, by clear and convincing evidence, has caused demonstrable and serious financial injury to the Employer, as evidenced by a determination in a binding and final judgment, order or decree of a court or administrative agency of competent jurisdiction, in effect after exhaustion or lapse of all rights of appeal, in an action, suit or proceeding, whether civil, criminal, administrative or investigative; (ii) conviction of a felony (as evidenced by binding and final judgment, order or decree of a court of competent jurisdiction, in effect after exhaustion of all rights of appeal), which substantially impairs the Executive's ability to perform his duties or responsibilities; or -3- (iii) continuing willful and unreasonable refusal by the Executive to perform the Executive's duties or responsibilities (unless significantly changed without the Executive's consent). (g) Change in Control of the Company. A "Change in Control of the -------------------------------- Company" shall be deemed to have occurred if an event set forth in any one of the following paragraphs shall have occurred: (i) any Person (other than (A) the Company or any of its subsidiaries, (B) a trustee or other fiduciary holding securities under any employee benefit plan of the Company or any of its subsidiaries, (C) an underwriter temporarily holding securities pursuant to an offering of such securities or (D) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock in the Company ("Excluded Persons")) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates after November 14, 2001, pursuant to express authorization by the Board that refers to this exception) representing 20% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding voting securities; or (ii) the following individuals cease for any reason to constitute a majority of the number of directors of the Company then serving: (A) individuals who, on November 14, 2001 constituted the Board and (B) any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on November 14, 2001, or whose appointment, election or nomination for election was previously so approved (collectively the "Continuing Directors"); provided, however, that individuals who are appointed to the Board pursuant to or in accordance with the terms of an agreement relating to a merger, consolidation, or share exchange involving the Company (or any direct or indirect subsidiary of the Company) shall not be Continuing Directors for purposes of this Agreement until after such individuals are first nominated for election by a vote of at least two-thirds (2/3) of the then Continuing Directors and are thereafter elected as directors by the shareholders of the Company at a meeting of shareholders held following consummation of such merger, consolidation, or share exchange; and, provided further, that in the event the failure of any such persons appointed to the Board to be Continuing Directors results in a Change in Control of the Company, the subsequent qualification of such persons as Continuing Directors shall not alter the fact that a Change in Control of the Company occurred; or (iii) the shareholders of the Company approve a merger, consolidation or share exchange of the Company with any other corporation or approve the issuance of voting securities of the Company in connection with a -4- merger, consolidation or share exchange of the Company (or any direct or indirect subsidiary of the Company) pursuant to applicable stock exchange requirements, other than (A) a merger, consolidation or share exchange which would result in the voting securities of the Company outstanding immediately prior to such merger, consolidation or share exchange continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 50% of the combined voting power of the voting securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger, consolidation or share exchange, or (B) a merger, consolidation or share exchange effected to implement a recapitalization of the Company (or similar transaction) in which no Person (other than an Excluded Person) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates after November 14, 2001, pursuant to express authorization by the Board that refers to this exception) representing 20% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding voting securities; or (iv) the shareholders of the Company approve of a plan of complete liquidation or dissolution of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets (in one transaction or a series of related transactions within any period of 24 consecutive months), other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity at least 75% of the combined voting power of the voting securities of which are owned by Persons in substantially the same proportions as their ownership of the Company immediately prior to such sale. Notwithstanding the foregoing, no "Change in Control of the Company" shall be deemed to have occurred if there is consummated any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to own, directly or indirectly, in the same proportions as their ownership in the Company, an entity that owns all or substantially all of the assets or voting securities of the Company immediately following such transaction or series of transactions. (h) Code. The term "Code" means the Internal Revenue Code of 1986, ---- including any amendments thereto or successor tax codes thereof. (i) Covered Termination. Subject to Section 2(b), the term "Covered ------------------- ------------ Termination" means any termination of the Executive's employment during the Employment Period where the Termination Date, or the date Notice of Termination is delivered, is any date prior to the end of the Employment Period. -5- (j) Employment Period. Subject to Section 2(b), the term "Employment ----------------- ------------ Period" means a period commencing on the date of a Change in Control of the Company, and ending at 11:59 p.m. Central Time on the third anniversary of such date. (k) Good Reason. The Executive shall have "Good Reason" for ----------- termination of employment in connection with a Change in Control of the Company in the event of: (i) any breach of this Agreement by the Employer, including specifically any breach by the Employer of the agreements contained in Section 3(b), Section 4, Section 5, or Section 6, other than an isolated, ------------ --------- --------- insubstantial and inadvertent failure not occurring in bad faith that the Employer remedies promptly after receipt of notice thereof given by the Executive; (ii) any reduction in the Executive's base salary, percentage of base salary available as incentive compensation or bonus opportunity or benefits, in each case relative to those most favorable to the Executive in effect at any time during the 180-day period prior to the Change in Control of the Company or, to the extent more favorable to the Executive, those in effect at any time during the Employment Period; (iii) the removal of the Executive from, or any failure to reelect or reappoint the Executive to, any of the positions held with the Employer on the date of the Change in Control of the Company or any other positions with the Employer to which the Executive shall thereafter be elected, appointed or assigned, except in the event that such removal or failure to reelect or reappoint relates to the termination by the Employer of the Executive's employment for Cause or by reason of disability pursuant to Section 12; ---------- (iv) a good faith determination by the Executive that there has been a material adverse change, without the Executive's written consent, in the Executive's working conditions or status with the Employer relative to the most favorable working conditions or status in effect during the 180- day period prior to the Change in Control of the Company, or, to the extent more favorable to the Executive, those in effect at any time during the Employment Period, including but not limited to (A) a significant change in the nature or scope of the Executive's authority, powers, functions, duties or responsibilities, or (B) a significant reduction in the level of support services, staff, secretarial and other assistance, office space and accoutrements, but in each case excluding for this purpose an isolated, insubstantial and inadvertent event not occurring in bad faith that the Employer remedies within ten (10) days after receipt of notice thereof given by the Executive; (v) the relocation of the Executive's principal place of employment to a location more than 35 miles from the Executive's principal place of employment on the date 180 days prior to the Change in Control of the Company; -6- (vi) the Employer requires the Executive to travel on Employer business 20% in excess of the average number of days per month the Executive was required to travel during the 180-day period prior to the Change in Control of the Company; or (vii) failure by the Company to obtain the Agreement referred to in Section 17(a) as provided therein. ------------- (l) Person. The term "Person" shall mean any individual, firm, ------ partnership, corporation or other entity, including any successor (by merger or otherwise) of such entity, or a group of any of the foregoing acting in concert. (m) Termination Date. Except as otherwise provided in Section 2(b), ---------------- ------------ Section 10(b), and Section 17(a), the term "Termination Date" means (i) if the - ------------- ------------- Executive's employment is terminated by the Executive's death, the date of death; (ii) if the Executive's employment is terminated by reason of voluntary early retirement, as agreed in writing by the Employer and the Executive, the date of such early retirement which is set forth in such written agreement; (iii) if the Executive's employment is terminated for purposes of this Agreement by reason of disability pursuant to Section 12, the earlier of thirty days after ---------- the Notice of Termination is given or one day prior to the end of the Employment Period; (iv) if the Executive's employment is terminated by the Executive voluntarily (other than for Good Reason), the date the Notice of Termination is given; and (v) if the Executive's employment is terminated by the Employer (other than by reason of disability pursuant to Section 12) or by the Executive ---------- for Good Reason, the earlier of thirty days after the Notice of Termination is given or one day prior to the end of the Employment Period. Notwithstanding the foregoing, (A) If termination is for Cause pursuant to Section 1(f)(iii) ----------------- and if the Executive has cured the conduct constituting such Cause as described by the Employer in its Notice of Termination within such thirty- day or shorter period, then the Executive's employment hereunder shall continue as if the Employer had not delivered its Notice of Termination. (B) If the Executive shall in good faith give a Notice of Termination for Good Reason and the Employer notifies the Executive that a dispute exists concerning the termination within the fifteen-day period following receipt thereof, then the Executive may elect to continue his or her employment during such dispute and the Termination Date shall be determined under this paragraph. If the Executive so elects and it is thereafter determined that Good Reason did exist, the Termination Date shall be the earliest of (1) the date on which the dispute is finally determined, either (x) by mutual written agreement of the parties or (y) in accordance with Section 22, (2) the date of the Executive's death or (3) ---------- one day prior to the end of the Employment Period. If the Executive so elects and it is thereafter determined that Good Reason did not exist, then the employment of the Executive hereunder shall continue after such determination as if the Executive had not delivered the Notice of Termination asserting Good Reason and there shall be no Termination Date arising out of such Notice. In either case, this Agreement continues, until the Termination Date, if any, as if the Executive had -7- not delivered the Notice of Termination except that, if it is finally determined that Good Reason did exist, the Executive shall in no case be denied the benefits described in Section 9 (including a Termination --------- Payment) based on events occurring after the Executive delivered his Notice of Termination. (C) Except as provided in Section 1(m)(B), if the party receiving --------------- the Notice of Termination notifies the other party that a dispute exists concerning the termination within the appropriate period following receipt thereof and it is finally determined that the reason asserted in such Notice of Termination did not exist, then (1) if such Notice was delivered by the Executive, the Executive will be deemed to have voluntarily terminated his employment and the Termination Date shall be the earlier of the date fifteen days after the Notice of Termination is given or one day prior to the end of the Employment Period and (2) if delivered by the Company, the Company will be deemed to have terminated the Executive other than by reason of death, disability or Cause. 2. Termination or Cancellation Prior to Change in Control. ------------------------------------------------------ (a) Subject to Section 2(b), the Employer and the Executive shall each ----------- retain the right to terminate the employment of the Executive at any time prior to a Change in Control of the Company. Subject to Section 2(b), in the event the ----------- Executive's employment is terminated prior to a Change in Control of the Company, this Agreement shall be terminated and cancelled and of no further force and effect, and any and all rights and obligations of the parties hereunder shall cease. (b) Anything in this Agreement to the contrary notwithstanding, if a Change in Control of the Company occurs and if the Executive's employment with the Employer is terminated (other than a termination due to the Executive's death or as a result of the Executive's disability) during the period of 180 days prior to the date on which the Change in Control of the Company occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control of the Company or (ii) otherwise arose in connection with or in anticipation of a Change in Control of the Company, then for all purposes of this Agreement such termination of employment shall be deemed a "Covered Termination," "Notice of Termination" shall be deemed to have been given, and the "Employment Period" shall be deemed to have begun on the date of such termination which shall be deemed to be the "Termination Date" and the date of the Change of Control of the Company for purposes of this Agreement. 3. Employment Period; Vesting of Certain Benefits. ---------------------------------------------- (a) If a Change in Control of the Company occurs when the Executive is employed by the Employer, the Employer will continue thereafter to employ the Executive during the Employment Period, and the Executive will remain in the employ of the Employer in accordance with and subject to the terms and provisions of this Agreement. Any termination of the Executive's employment during the Employment Period, whether by the Company or the Employer, shall be deemed a termination by the Company for purposes of this Agreement. -8- (b) If a Change in Control of the Company occurs when the Executive is employed by the Employer, (i) the Company shall cause all restrictions on restricted stock awards made to the Executive prior to the Change in Control of the Company to lapse such that the Executive is fully and immediately vested in the Executive's restricted stock upon such a Change in Control of the Company; and (ii) the Company shall cause all stock options granted to the Executive prior to the Change in Control of the Company pursuant to the Company's stock option plan(s) to be fully and immediately vested upon such a Change in Control of the Company. 4. Duties. During the Employment Period, the Executive shall, in the ------ same capacities and positions held by the Executive at the time of the Change in Control of the Company or in such other capacities and positions as may be agreed to by the Employer and the Executive in writing, devote the Executive's best efforts and all of the Executive's business time, attention and skill to the business and affairs of the Employer, as such business and affairs now exist and as they may hereafter be conducted; provided, however, that the Executive shall be entitled (a) to serve as director of other corporations and (b) to devote time to personal and financial activities, in each case so long as such activities do not materially affect the Executive's ability to perform the Executive's duties hereunder. 5. Compensation. During the Employment Period, the Executive shall be ------------ compensated as follows: (a) The Executive shall receive, at reasonable intervals (but not less often than monthly) and in accordance with such standard policies as may be in effect immediately prior to the Change in Control of the Company, an annual base salary in cash equivalent of not less than twelve times the Executive's highest monthly base salary for the twelve-month period immediately preceding the month in which the Change in Control of the Company occurs or, if higher, an annual base salary at the rate in effect immediately prior to the Change in Control of the Company (which base salary shall, unless otherwise agreed in writing by the Executive, include the current receipt by the Executive of any amounts which, prior to the Change in Control of the Company, the Executive had elected to defer, whether such compensation is deferred under Section 401(k) of the Code or otherwise), subject to adjustment as hereinafter provided in Section 6 (such --------- salary amount as adjusted upward from time to time is hereafter referred to as the "Annual Base Salary"). (b) The Executive shall receive fringe benefits at least equal in value to the highest value of such benefits provided for the Executive at any time during the 180-day period immediately prior to the Change in Control of the Company or, if more favorable to the Executive, those provided generally at any time during the Employment Period to any executives of the Employer of comparable status and position to the Executive; and shall be reimbursed, at such intervals and in accordance with such standard policies that are most favorable to the Executive that were in effect at any time during the 180-day period immediately prior to the Change in Control of the Company, for any and all monies advanced in connection with the Executive's employment for reasonable and necessary expenses incurred by the Executive on behalf of the Employer, including travel expenses. (c) The Executive and/or the Executive's family, as the case may be, shall be included, to the extent eligible thereunder (which eligibility shall not be conditioned on the Executive's salary grade or on any other requirement which excludes persons of comparable status -9- to the Executive unless such exclusion was in effect for such plan or an equivalent plan at any time during the 180-day period immediately prior to the Change in Control of the Company), in any and all plans providing benefits for the Employer's salaried employees in general, including but not limited to group life insurance, hospitalization, medical, dental, profit sharing and stock bonus plans; provided, that, (i) in no event shall the aggregate level of benefits under such plans in which the Executive is included be less than the aggregate level of benefits under plans of the Employer of the type referred to in this Section 5(c) in which the Executive was participating at any time during the - ------------ 180-day period immediately prior to the Change in Control of the Company and (ii) in no event shall the aggregate level of benefits under such plans be less than the aggregate level of benefits under plans of the type referred to in this Section 5(c) provided at any time after the Change in Control of the Company to - ------------ any executive of the Employer of comparable status and position to the Executive. (d) The Executive shall annually be entitled to not less than the amount of paid vacation and not fewer than the highest number of paid holidays to which the Executive was entitled annually at any time during the 180-day period immediately prior to the Change in Control of the Company or such greater amount of paid vacation and number of paid holidays as may be made available annually to other executives of the Employer of comparable status and position to the Executive at any time during the Employment Period. (e) The Executive shall be included in all plans providing additional benefits to executives of the Employer of comparable status and position to the Executive, including but not limited to deferred compensation, split-dollar life insurance, supplemental retirement, stock option, stock appreciation, stock bonus and similar or comparable plans; provided, that, (i) in no event shall the aggregate level of benefits under such plans be less than the highest aggregate level of benefits under plans of the Employer of the type referred to in this Section 5(e) in which the Executive was participating at any time during the - ------------ 180-day period immediately prior to the Change in Control of the Company; (ii) in no event shall the aggregate level of benefits under such plans be less than the aggregate levels of benefits under plans of the type referred to in this Section 5(e) provided at any time after the Change in Control of the Company to - ------------ any executive of the Employer comparable in status and position to the Executive; and (iii) the Employer's obligation to include the Executive in bonus or incentive compensation plans shall be determined by Section 5(f). ------------ (f) To assure that the Executive will have an opportunity to earn incentive compensation after a Change in Control of the Company, the Executive shall be included in a bonus plan of the Employer which shall satisfy the standards described below (such plan, the "Bonus Plan"). Bonuses under the Bonus Plan shall be payable with respect to achieving such financial or other goals reasonably related to the business of the Employer as the Employer shall establish (the "Goals"), all of which Goals shall be attainable, prior to the end of the Employment Period, with approximately the same degree of probability as the most attainable goals under the Employer's bonus plan or plans as in effect at any time during the 180-day period immediately prior to the Change in Control of the Company (whether one or more, the "Company Bonus Plan") and in view of the Employer's existing and projected financial and business circumstances applicable at the time. The amount of the bonus (the "Bonus Amount") that the Executive is eligible to earn under the Bonus Plan shall be no less than the amount of the Executive's maximum award provided in such Company Bonus Plan (such bonus amount herein referred to as the "Targeted Bonus"), and in the event the Goals are not achieved such that the entire Targeted Bonus -10- is not payable, the Bonus Plan shall provide for a payment of a Bonus Amount equal to a portion of the Targeted Bonus reasonably related to that portion of the Goals which were achieved. Payment of the Bonus Amount shall not be affected by any circumstance occurring subsequent to the end of the Employment Period, including termination of the Executive's employment. 6. Annual Compensation Adjustments. During the Employment Period, ------------------------------- the Board of Directors of the Company (or an appropriate committee thereof) will consider and appraise, at least annually, the contributions of the Executive to the Company, and in accordance with the Company's practice prior to the Change in Control of the Company, due consideration shall be given to the upward adjustment of the Executive's Annual Base Salary, at least annually, (a) commensurate with increases generally given to other executives of the Company of comparable status and position to the Executive, and (b) as the scope of the Company's operations or the Executive's duties expand. 7. Termination For Cause or Without Good Reason. If there is a -------------------------------------------- Covered Termination for Cause or due to the Executive's voluntarily terminating his or her employment other than for Good Reason (any such terminations to be subject to the procedures set forth in Section 13), then the Executive shall be ---------- entitled to receive only Accrued Benefits. 8. Termination Giving Rise to a Termination Payment. If there is a ------------------------------------------------ Covered Termination by the Executive for Good Reason, or by the Company other than by reason of (i) death, (ii) disability pursuant to Section 12, or (iii) ---------- Cause (any such terminations to be subject to the procedures set forth in Section 13), then the Executive shall be entitled to receive, and the Company - ---------- shall promptly pay, Accrued Benefits and, in lieu of further base salary for periods following the Termination Date, as liquidated damages and additional severance pay and in consideration of the covenant of the Executive set forth in Section 14(a), the Termination Payment pursuant to Section 9(a). - ------------- ------------ 9. Payments Upon Termination. ------------------------- (a) Termination Payment. ------------------- (i) Subject to Section 9(a)(ii), the "Termination Payment" shall ---------------- be an amount equal to the Annual Cash Compensation times two (2). The Termination Payment shall be paid to the Executive in cash equivalent ten (10) business days after the Termination Date. Such lump sum payment shall not be reduced by any present value or similar factor, and the Executive shall not be required to mitigate the amount of the Termination Payment by securing other employment or otherwise, nor will such Termination Payment be reduced by reason of the Executive securing other employment or for any other reason. The Termination Payment shall be in lieu of, and acceptance by the Executive of the Termination Payment shall constitute the Executive's release of any rights of the Executive to, any other cash severance payments under any Company severance policy, practice or agreement. (ii) Notwithstanding any other provision of this Agreement, if any portion of the Termination Payment or any other payment under this -11- Agreement, or under any other agreement with or plan of the Employer (in the aggregate, "Total Payments"), would constitute an "excess parachute payment," then the Executive shall have the option to have the Total Payments to be made to the Executive reduced such that the value of the aggregate Total Payments that the Executive is entitled to receive shall be One Dollar ($1) less than the maximum amount which the Executive may receive without becoming subject to the tax imposed under Section 4999 of the Code (or any successor provision). For purposes of this Agreement, the terms "excess parachute payment" and "parachute payments" shall have the meanings assigned to them in Section 280G of the Code (or any successor provision) and such "parachute payments" shall be valued as provided therein. Present value for purposes of this Agreement shall be calculated in accordance with Section 1274(b)(2) of the Code (or any successor provision). Within forty days following a Covered Termination or notice by one party to the other of its belief that there is a payment or benefit due the Executive that will result in an "excess parachute payment" as defined in Section 280G of the Code (or any successor provision), the Executive and the Company, at the Company's expense, shall obtain the opinion (which need not be unqualified) of nationally recognized tax counsel ("National Tax Counsel") selected by the Company's independent auditors and reasonably acceptable to the Executive (which may be regular outside counsel to the Company), which opinion sets forth (A) the amount of the Base Period Income, (B) the amount and present value of Total Payments, (C) the amount and present value of any excess parachute payments determined without regard to any reduction of Total Payments pursuant to this Section 9(a)(ii) ---------------- and (D) the net after-tax proceeds to the Executive, taking into account the tax imposed under Section 4999 of the Code if (x) the Total Payments were reduced in accordance with the first sentence of this Section 9(a)(ii) ---------------- or (y) the Total Payments were not so reduced. As used in this Agreement, the term "Base Period Income" means an amount equal to the Executive's "annualized includable compensation for the base period" as defined in Section 280G(d)(1) of the Code. For purposes of such opinion, the value of any noncash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Section 280G(d)(3) and (4) of the Code (or any successor provisions), which determination shall be evidenced in a certificate of such auditors addressed to the Company and the Executive. The opinion of National Tax Counsel shall be addressed to the Company and the Executive and shall be binding upon the Company and the Executive. If such National Tax Counsel opinion determines that there would be an excess parachute payment, then, at the Executive's option, then, at the Executive's sole discretion, the Termination Payment hereunder or any other payment or benefit determined by such counsel to be includable in Total Payments may be reduced or eliminated as specified by the Executive in writing delivered to the Company within thirty days of his receipt of such opinion so that under the bases of calculations set forth in such opinion there will be no excess parachute payment. If such National Tax Counsel so requests in connection with the opinion required by this Section 9(a), the Executive and the ------------ Company shall obtain, at the Company's expense, and the National Tax Counsel may rely on, the advice of a firm of recognized executive compensation consultants as to the reasonableness of -12- any item of compensation to be received by the Executive solely with respect to its status under Section 280G of the Code and the regulations thereunder. (iii) The Company agrees to bear all costs associated with, and to indemnify and hold harmless, the National Tax Counsel of and from any and all claims, damages, and expenses resulting from or relating to its determinations pursuant to this Section 9(a), except for claims, damages or ------------ expenses resulting from the gross negligence or willful misconduct of such firm. (b) Additional Benefits. If there is a Covered Termination and the ------------------- Executive is entitled to Accrued Benefits and the Termination Payment, then the Company shall provide to the Executive the following additional benefits: (i) The Executive shall receive, at the expense of the Company, outplacement services, on an individualized basis at a level of service commensurate with the Executive's status with the Company immediately prior to the date of the Change in Control of the Company (or, if higher, immediately prior to the termination of the Executive's employment), provided by a nationally recognized executive placement firm selected by the Company; provided that the cost to the Company of such services shall not exceed 10% of the Executive's Annual Base Salary. (ii) Until the earlier of the end of the Employment Period or such time as the Executive has obtained new employment and is covered by benefits which in the aggregate are at least equal in value to the following benefits, the Executive shall continue to be covered, at the expense of the Company, by the same or equivalent life insurance, hospitalization, medical and dental coverage as was required hereunder with respect to the Executive immediately prior to the date the Notice of Termination is given. (iii) The Company shall reimburse the Executive for up to $15,000 in the aggregate of fees and expenses of consultants and/or legal or accounting advisors engaged by the Executive to advise the Executive as to matters relating to the computation of benefits due and payable under this Section 9. --------- (iv) The Company shall cause all performance plan awards granted to the Executive pursuant to any long-term incentive plan maintained by the Company to be paid out at target, as if all performance requirements had been satisfied, on a pro rata basis based on the completed portion of each award cycle. 10. Death. ----- (a) Except as provided in Section 10(b), in the event of a Covered ------------- Termination due to the Executive's death, the Executive's estate, heirs and beneficiaries shall receive all the Executive's Accrued Benefits through the Termination Date. (b) In the event the Executive dies after a Notice of Termination is given (i) by the Company or (ii) by the Executive for Good Reason, the Executive's estate, heirs and -13- beneficiaries shall be entitled to the benefits described in Section 10(a) and, ------------- subject to the provisions of this Agreement, to such Termination Payment as the Executive would have been entitled to had the Executive lived. For purposes of this Section 10(b), the Termination Date shall be the earlier of thirty days ------------- following the giving of the Notice of Termination, subject to extension pursuant to Section 1(m), or one day prior to the end of the Employment Period. ------------ 11. Retirement. If, during the Employment Period, the Executive and ---------- the Employer shall execute an agreement providing for the early retirement of the Executive from the Employer, or the Executive shall otherwise give notice that he is voluntarily choosing to retire early from the Employer, the Executive shall receive Accrued Benefits through the Termination Date; provided, that if the Executive's employment is terminated by the Executive for Good Reason or by the Company other than by reason of death, disability or Cause and the Executive also, in connection with such termination, elects voluntary early retirement, the Executive shall also be entitled to receive a Termination Payment pursuant to Section 8. --------- 12. Termination for Disability. If, during the Employment Period, as a -------------------------- result of the Executive's disability due to physical or mental illness or injury (regardless of whether such illness or injury is job-related), the Executive shall have been absent from the Executive's duties hereunder on a full-time basis for a period of six consecutive months and, within thirty days after the Company notifies the Executive in writing that it intends to terminate the Executive's employment (which notice shall not constitute the Notice of Termination contemplated below), the Executive shall not have returned to the performance of the Executive's duties hereunder on a full-time basis, the Company may terminate the Executive's employment for purposes of this Agreement pursuant to a Notice of Termination given in accordance with Section 13. If the ---------- Executive's employment is terminated on account of the Executive's disability in accordance with this Section, the Executive shall receive Accrued Benefits through the Termination Date and shall remain eligible for all benefits provided by any long term disability programs of the Company in effect at the time of such termination. 13. Termination Notice and Procedure. Any Covered Termination by the -------------------------------- Company or the Executive (other than a termination of the Executive's employment that is a Covered Termination by virtue of Section 2(b)) shall be communicated ------------ by a written notice of termination ("Notice of Termination") to the Executive, if such Notice is given by the Company, and to the Company, if such Notice is given by the Executive, all in accordance with the following procedures and those set forth in Section 23: ---------- (a) If such termination is for disability, Cause or Good Reason, the Notice of Termination shall indicate in reasonable detail the facts and circumstances alleged to provide a basis for such termination. (b) Any Notice of Termination by the Company shall have been approved, prior to the giving thereof to the Executive, by a resolution duly adopted by a majority of the directors of the Company (or any successor corporation) then in office. (c) If the Notice is given by the Executive for Good Reason, the Executive may cease performing his duties hereunder on or after the date fifteen days after the delivery of Notice of Termination and shall in any event cease employment on the Termination Date. If the Notice is -14- given by the Company, then the Executive may cease performing his duties hereunder on the date of receipt of the Notice of Termination, subject to the Executive's rights hereunder. (d) The Executive shall have thirty days, or such longer period as the Company may determine to be appropriate, to cure any conduct or act, if curable, alleged to provide grounds for termination of the Executive's employment for Cause under this Agreement pursuant to Section 1(f)(iii). ----------------- (e) The recipient of any Notice of Termination shall personally deliver or mail in accordance with Section 23 written notice of any dispute ---------- relating to such Notice of Termination to the party giving such Notice within fifteen days after receipt thereof; provided, however, that if the Executive's conduct or act alleged to provide grounds for termination by the Company for Cause is curable, then such period shall be thirty days. After the expiration of such period, the contents of the Notice of Termination shall become final and not subject to dispute. 14. Further Obligations of the Executive. ------------------------------------ (a) Competition. The Executive agrees that, in the event of any ----------- Covered Termination where the Executive is entitled to Accrued Benefits and the Termination Payment, the Executive shall not, for a period expiring six months after the Termination Date, without the prior written approval of the Company's Board of Directors, participate in the management of, be employed by or own any business enterprise at a location within the United States that engages in substantial competition with the Company or its subsidiaries, where such enterprise's revenues from any competitive activities amount to 10% or more of such enterprise's net revenues and sales for its most recently completed fiscal year; provided, however, that nothing in this Section 14(a) shall prohibit the ------------- Executive from owning stock or other securities of a competitor amounting to less than five percent of the outstanding capital stock of such competitor. (b) Confidentiality. During and following the Executive's employment --------------- by the Company, the Executive shall hold in confidence and not directly or indirectly disclose or use or copy or make lists of any confidential information or proprietary data of the Company (including that of the Employer), except to the extent authorized in writing by the Board of Directors of the Company or required by any court or administrative agency, other than to an employee of the Company or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of duties as an executive of the Company. Confidential information shall not include any information known generally to the public or any information of a type not otherwise considered confidential by persons engaged in the same business or a business similar to that of the Company. All records, files, documents and materials, or copies thereof, relating to the business of the Company which the Executive shall prepare, or use, or come into contact with, shall be and remain the sole property of the Company and shall be promptly returned to the Company upon termination of employment with the Company. (c) No Solicitation. The Executive agrees that, in the event of any --------------- Covered Termination where the Executive is entitled to Accrued Benefits and the Termination Payment, the Executive shall not, for a period expiring two years after the Termination Date, without the prior written approval of the Company's Board of Directors, hire or solicit for employment any person -15- who is or was employed by the Company during the then immediately preceding twelve months, other than pursuant to a general published solicitation of employment. 15. Expenses and Interest. If, after a Change in Control of the --------------------- Company, (a) a dispute arises with respect to the enforcement of the Executive's rights under this Agreement or (b) any legal or arbitration proceeding shall be brought to enforce or interpret any provision contained herein or to recover damages for breach hereof, in either case so long as the Executive is not acting in bad faith, then the Company shall reimburse the Executive for any reasonable attorneys' fees and necessary costs and disbursements incurred as a result of the dispute, legal or arbitration proceeding ("Expenses"), and prejudgment interest on any money judgment or arbitration award obtained by the Executive calculated at the rate of interest announced by The Bank of New York, from time to time at its prime or base lending rate from the date that payments to him or her should have been made under this Agreement. Within ten days after the Executive's written request therefor, the Company shall pay to the Executive, or such other person or entity as the Executive may designate in writing to the Company, the Executive's reasonable Expenses in advance of the final disposition or conclusion of any such dispute, legal or arbitration proceeding. 16. Payment Obligations Absolute. The Company's obligation during and ---------------------------- after the Employment Period to pay the Executive the amounts and to make the benefit and other arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company may have against him or anyone else. Except as provided in Section ------- 15, all amounts payable by the Company hereunder shall be paid without notice or - -- demand. Each and every payment made hereunder by the Company shall be final, and the Company will not seek to recover all or any part of such payment from the Executive, or from whomsoever may be entitled thereto, for any reason whatsoever. 17. Successors. ---------- (a) If the Company sells, assigns or transfers all or substantially all of its business and assets to any Person or if the Company merges into or consolidates or otherwise combines (where the Company does not survive such combination) with any Person (any such event, a "Sale of Business"), then the Company shall assign all of its right, title and interest in this Agreement as of the date of such event to such Person, and the Company shall cause such Person, by written agreement in form and substance reasonably satisfactory to the Executive, to expressly assume and agree to perform from and after the date of such assignment all of the terms, conditions and provisions imposed by this Agreement upon the Company. Failure of the Company to obtain such agreement prior to the effective date of such Sale of Business shall be a breach of this Agreement constituting "Good Reason" hereunder, except that for purposes of implementing the foregoing the date upon which such Sale of Business becomes effective shall be deemed the Termination Date. In case of such assignment by the Company and of assumption and agreement by such Person, as used in this Agreement, "Company" shall thereafter mean such Person which executes and delivers the agreement provided for in this Section 17 or which otherwise ---------- becomes bound by all the terms and provisions of this Agreement by operation of law, and this Agreement shall inure to the benefit of, and be enforceable by, such Person. The Executive shall, in his or her discretion, be entitled to proceed against any or all of such Persons, any Person which theretofore was such a successor to the Company and the Company (as so defined) in any action to -16- enforce any rights of the Executive hereunder. Except as provided in this Section 17(a), this Agreement shall not be assignable by the Company. This - ------------- Agreement shall not be terminated by the voluntary or involuntary dissolution of the Company. (b) This Agreement and all rights of the Executive shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, heirs and beneficiaries. All amounts payable to the Executive under Sections 7, 8, 9, 10, 11, 12 and 15 if the ----------------------------------- Executive had lived shall be paid, in the event of the Executive's death, to the Executive's estate, heirs and representatives; provided, however, that the foregoing shall not be construed to modify any terms of any benefit plan of the Employer, as such terms are in effect on the date of the Change in Control of the Company, that expressly govern benefits under such plan in the event of the Executive's death. 18. Severability. The provisions of this Agreement shall be regarded ------------ as divisible, and if any of said provisions or any part hereof are declared invalid or unenforceable by a court of competent jurisdiction, the validity and enforceability of the remainder of such provisions or parts hereof and the applicability thereof shall not be affected thereby. 19. Contents of Agreement; Waiver of Rights; Amendment. This Agreement -------------------------------------------------- sets forth the entire understanding between the parties hereto with respect to the subject matter hereof, and the Executive hereby waives all rights under, any prior or other agreement or understanding between the parties with respect to such subject matter. This Agreement may not be amended or modified at any time except by written instrument executed by the Company and the Executive. 20. Withholding. The Company shall be entitled to withhold from ----------- amounts to be paid to the Executive hereunder any federal, state or local withholding or other taxes or charges which it is from time to time required to withhold; provided, that the amount so withheld shall not exceed the minimum amount required to be withheld by law. The Company shall be entitled to rely on an opinion of the National Tax Counsel if any question as to the amount or requirement of any such withholding shall arise. 21. Certain Rules of Construction. No party shall be considered as ----------------------------- being responsible for the drafting of this Agreement for the purpose of applying any rule construing ambiguities against the drafter or otherwise. No draft of this Agreement shall be taken into account in construing this Agreement. Any provision of this Agreement which requires an agreement in writing shall be deemed to require that the writing in question be signed by the Executive and an authorized representative of the Company. 22. Governing Law; Resolution of Disputes. This Agreement and the ------------------------------------- rights and obligations hereunder shall be governed by and construed in accordance with the laws of the State of Wisconsin. Any dispute arising out of this Agreement shall, at the Executive's election, be determined by arbitration under the rules of the American Arbitration Association then in effect (in which case both parties shall be bound by the arbitration award) or by litigation. Whether the dispute is to be settled by arbitration or litigation, the venue for the arbitration or litigation shall be Milwaukee, Wisconsin or, at the Executive's election, if the Executive is not then residing or working in the Milwaukee, Wisconsin metropolitan area, in the judicial district encompassing the -17- city in which the Executive resides; provided, that, if the Executive is not then residing in the United States, the election of the Executive with respect to such venue shall be either Milwaukee, Wisconsin or in the judicial district encompassing that city in the United States among the thirty cities having the largest population (as determined by the most recent United States Census data available at the Termination Date) which is closest to the Executive's residence. The parties consent to personal jurisdiction in each trial court in the selected venue having subject matter jurisdiction notwithstanding their residence or situs, and each party irrevocably consents to service of process in the manner provided hereunder for the giving of notices. 23. Notice. Notices given pursuant to this Agreement shall be in ------ writing and, except as otherwise provided by Section 13(d), shall be deemed ------------- given when actually received by the Executive or actually received by the Company's Secretary or any officer of the Company other than the Executive. If mailed, such notices shall be mailed by United States registered or certified mail, return receipt requested, addressee only, postage prepaid, if to the Company, to Fiserv, Inc., Attention: Secretary (or President, if the Executive is then Secretary), 255 Fiserv Drive, Brookfield, Wisconsin 53045, or if to the Executive, at the address set forth below the Executive's signature to this Agreement, or to such other address as the party to be notified shall have theretofore given to the other party in writing. 24. No Waiver. No waiver by either party at any time of any breach by --------- the other party of, or compliance with, any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same time or any prior or subsequent time. 25. Headings. The headings herein contained are for reference only and -------- shall not affect the meaning or interpretation of any provision of this Agreement. -18- IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. FISERV, INC. By:________________________________________ Its:____________________________________ Attest: Its:___________________________________ EXECUTIVE: ______________________________________(SEAL) Address:___________________________________ ___________________________________ -19- EX-13 5 dex13.txt 2001 ANNUAL REPORT EXHIBIT 13 2001 ANNUAL REPORT FISERV, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data) Years ended December 31, 2001 2000 1999 ------------------------------------- REVENUES $1,890,467 $1,653,606 $1,407,545 ------------------------------------- COST OF REVENUES: Salaries, commissions and payroll related costs 921,779 792,799 677,226 Data processing expenses, rentals and telecommunication costs 126,360 115,029 111,163 Other operating expenses 377,570 316,638 272,616 Depreciation and amortization of property and equipment 76,701 70,147 63,713 Amortization of intangible assets 35,532 42,812 22,600 Amortization (capitalization) of internally generated computer software-net (1,172) 1,875 7,142 ------------------------------------- TOTAL COST OF REVENUES 1,536,770 1,339,300 1,154,460 ------------------------------------- OPERATING INCOME 353,697 314,306 253,085 Interest expense - net (12,073) (22,089) (19,410) Realized gain from sale of investment 5,404 7,818 - ------------------------------------- INCOME BEFORE INCOME TAXES 347,028 300,035 233,675 Income tax provision 138,811 123,014 95,807 ------------------------------------- NET INCOME $ 208,217 $ 177,021 $ 137,868 ===================================== NET INCOME PER SHARE: Basic $ 1.11 $ 0.96 $ 0.75 ===================================== Diluted $ 1.09 $ 0.93 $ 0.73 ===================================== SHARES USED IN COMPUTING NET INCOME PER SHARE: Basic 186,929 184,788 184,714 ===================================== Diluted 191,584 189,804 190,018 =====================================
See notes to consolidated financial statements. CONSOLIDATED BALANCE SHEETS (Dollars in thousands) December 31, 2001 2000 ------------- ----------- ASSETS Cash and cash equivalents $136,088 $98,856 Accounts receivable-net 311,217 265,640 Securities processing receivables 1,427,051 2,193,291 Prepaid expenses and other assets 108,003 91,077 Investments 1,885,063 1,796,899 Property and equipment-net 247,748 205,555 Internally generated computer software-net 97,250 88,263 Intangible assets-net 1,109,822 846,739 ------------- ----------- TOTAL $5,322,242 $5,586,320 ============= =========== LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable $83,303 $80,633 Securities processing payables 1,289,479 1,977,323 Short-term borrowings 112,800 19,725 Accrued expenses 241,904 182,090 Accrued income taxes 15,373 22,207 Deferred revenues 171,101 156,668 Customer retirement account deposits 1,420,956 1,525,652 Deferred income taxes 39,407 34,992 Long-term debt 343,093 334,958 ------------- ----------- TOTAL LIABILITIES 3,717,416 4,334,248 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Common stock issued, 190,281,000 and 188,078,000 shares, respectively 1,903 1,881 Additional paid-in capital 564,959 454,817 Accumulated other comprehensive income 76,216 78,869 Accumulated earnings 961,748 753,531 Treasury stock, at cost, 2,372,900 shares in 2000 - (37,026) ------------- ----------- TOTAL SHAREHOLDERS' EQUITY 1,604,826 1,252,072 ------------- ----------- TOTAL $5,322,242 $5,586,320 ============= =========== See notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands) Years ended December 31,
2001 2000 ------------------ -------------- SHARES ISSUED-300,000 AUTHORIZED: Balance at beginning of year 125,388 125,388 Shares issued under stock plans-net 248 - Shares issued for acquired companies 1,955 - Three-for-two stock split 62,690 - ----------------- -------------- Balance at end of year 190,281 125,388 ================= ============== COMMON STOCK-PAR VALUE $0.01 PER SHARE: Balance at beginning of year $1,254 $1,254 Shares issued under stock plans-net 2 - Shares issued for acquired companies 20 - Three-for-two stock split 627 - ----------------- -------------- Balance at end of year 1,903 1,254 ----------------- -------------- ADDITIONAL PAID-IN CAPITAL: Balance at beginning of year 455,444 458,550 Shares issued under stock plans-net of income tax benefit 9,442 (3,106) Shares issued for acquired companies 100,700 - Three-for-two stock split (627) - ----------------- -------------- Balance at end of year 564,959 455,444 ----------------- -------------- ACCUMULATED OTHER COMPREHENSIVE INCOME: Balance at beginning of year 78,869 125,026 Unrealized gains (losses) on investments-net of tax 9,710 $ 9,710 (39,765) $(39,765) Reclassification adjustment for realized gains included in net income (3,513) (3,513) (5,082) (5,082) Fair market value adjustment on derivatives-net of tax (5,272) (5,272) - - Foreign currency translation adjustment (881) (881) (1,310) (1,310) Other (2,697) - ----------------- -------------- 76,216 78,869 ----------------- -------------- ACCUMULATED EARNINGS: Balance at beginning of year 753,531 576,510 Net income 208,217 208,217 177,021 177,021 ---------------- ------------- -------------- --------------- 961,748 753,531 Balance at end of year ---------------- -------------- TREASURY STOCK, AT COST: Balance at beginning of year (37,026) (70,324) Purchase of treasury stock - (9,884) Shares issued under stock plans-net 20,655 43,182 Shares issued for acquired companies 16,371 - ----------------- -------------- Balance at end of year - (37,026) ----------------- -------------- TOTAL COMPREHENSIVE INCOME $208,261 $130,864 ============== =============== TOTAL SHAREHOLDERS' EQUITY $1,604,826 $1,252,072 ================= ============== (In thousands) Years ended December 31, 1999 ---------- SHARES ISSUED-300,000 AUTHORIZED: Balance at beginning of year 83,253 Shares issued under stock plans-net 394 Shares issued for acquired companies - Three-for-two stock split 41,741 -------------- Balance at end of year 125,388 ============== COMMON STOCK-PAR VALUE $0.01 PER SHARE: Balance at beginning of year $833 Shares issued under stock plans-net 4 Shares issued for acquired companies - Three-for-two stock split 417 -------------- Balance at end of year 1,254 -------------- ADDITIONAL PAID-IN CAPITAL: Balance at beginning of year 448,877 Shares issued under stock plans-net of income tax benefit 10,090 Shares issued for acquired companies - Three-for-two stock split (417) -------------- Balance at end of year 458,550 -------------- ACCUMULATED OTHER COMPREHENSIVE INCOME: Balance at beginning of year 39,875 Unrealized gains (losses) on investments-net of tax 85,496 $85,496 Reclassification adjustment for realized gains included in net income - - Fair market value adjustment on derivatives-net of tax - - Foreign currency translation adjustment (345) (345) Other - -------------- Balance at end of year 125,026 -------------- ACCUMULATED EARNINGS: Balance at beginning of year 438,642 Net income 137,868 137,868 --------------- ----------- Balance at end of year 576,510 -------------- TREASURY STOCK, AT COST: Balance at beginning of year (42,430) Purchase of treasury stock (28,713) Shares issued under stock plans-net 819 Shares issued for acquired companies - -------------- Balance at end of year (70,324) -------------- TOTAL COMPREHENSIVE INCOME $223,019 ============ TOTAL SHAREHOLDERS' EQUITY $1,091,016 ==============
See notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) Years ended December 31, 2001 2000 1999 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 208,217 $ 177,021 $ 137,868 Adjustments to reconcile net income to net cash provided by operating activities: Realized gain from sale of investment (5,404) (7,818) - Deferred income taxes 11,700 4,813 14,183 Depreciation and amortization of property and equipment 76,701 70,147 63,713 Amortization of intangible assets 35,532 42,812 22,600 Amortization of internally generated computer software 35,463 35,883 33,194 ----------------------------------- 362,209 322,858 271,558 Changes in assets and liabilities-net of effects from acquisitions of businesses: Accounts receivable (1,656) (21,153) 18,853 Prepaid expenses and other assets (10,694) (179) (3,299) Accounts payable and accrued expenses (7,669) 9,706 14,394 Deferred revenues 6,422 24,844 17,210 Accrued income taxes 15,127 32,674 (1) Securities processing receivables and payables - net 78,396 215,718 (140,878) ----------------------------------- Net cash provided by operating activities 442,135 584,468 177,837 ----------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (67,974) (72,979) (69,697) Capitalization of internally generated computer software (36,635) (34,008) (26,052) Payment for acquisitions of businesses- net of cash acquired (224,842) (88,764) (210,587) Investments (72,571) 136,726 (209,011) ----------------------------------- Net cash used in investing activities (402,022) (59,025) (515,347) ----------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from (repayments of) short-term borrowings-net 93,075 (214,625) 119,226 Proceeds from long-term debt 1,800 5,004 103,523 Repayments of long-term debt (8,113) (143,899) (52,790) Issuance of common stock 15,053 20,576 5,913 Purchases of treasury stock - (9,884) (28,713) Customer retirement account deposits (104,696) (164,313) 199,347 ----------------------------------- Net cash (used in) provided by financing activities (2,881) (507,141) 346,506 ----------------------------------- Change in cash and cash equivalents 37,232 18,302 8,996 Beginning balance 98,856 80,554 71,558 ----------------------------------- Ending balance $ 136,088 $ 98,856 $ 80,554 ===================================
See notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2001, 2000 and 1999 NOTE 1. Summary of Significant Accounting Policies PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Fiserv, Inc. and all majority owned subsidiaries (the "Company"). All significant intercompany transactions and balances have been eliminated in consolidation. Certain amounts reported in prior periods have been reclassified to conform to the 2001 presentation. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FAIR VALUES The fair values of cash equivalents, accounts receivable, accounts payable, securities processing receivables and payables, customer retirement account deposits, short-term borrowings and accrued expenses approximate the carrying value due to the short period of time to maturity. The fair value of investments is determined based on quoted market prices. The fair value of long-term borrowings is estimated using discounted cash flows based on the Company's current incremental borrowing rates and the fair value of derivative instruments is determined based on dealer quotes (see Note 3). DERIVATIVE INSTRUMENTS The Company uses interest rate swaps to hedge its exposure to interest rate changes. Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, which requires that all derivative instruments be reported on the balance sheet at fair value. If the derivative instrument is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative instrument are either recognized in net income or in other comprehensive income until the hedged item is recognized in net income. The adoption of SFAS No. 133 on January 1, 2001, did not have a significant effect on the consolidated financial statements. The Company's accounting method for derivative financial instruments is based upon the designation of such instruments as hedges under accounting principles generally accepted in the United States of America. It is the policy of the Company to execute such instruments with creditworthy banks and not to enter into derivative financial instruments for speculative purposes. REVENUE RECOGNITION Revenues from the sale of data processing services, plastic card services, document solutions and administration fees on trust accounts are recognized as the related services are provided or when the product is shipped. Revenues from the sale of securities processing services are recognized as securities transactions are processed on a trade-date basis. Revenues from securities processing and trust services include net investment income of $101,610,000, $124,338,000 and $88,458,000, net of direct credits to customer accounts of $45,154,000, $94,133,000 and $63,519,000 in 2001, 2000 and 1999, respectively. Revenues from software license fees are recognized when written contracts are signed, delivery of the product has occurred, the fee is fixed or determinable and collection is probable. Maintenance fee revenues are recognized ratably over the term of the related support period, generally 12 months. Consulting revenues are recognized as the related services are provided. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash and investments with original maturities of 90 days or less. SECURITIES PROCESSING RECEIVABLES AND PAYABLES The Company's securities processing subsidiaries had receivables from and payables to brokers or dealers and clearing organizations related to the following at December 31: (In thousands) 2001 2000 ----------------------- RECEIVABLES: Securities failed to deliver $ 39,611 $ 17,974 Securities borrowed 706,918 1,101,261 Receivables from customers 649,252 1,036,114 Other 31,270 37,942 ----------------------- TOTAL $1,427,051 $2,193,291 ======================= PAYABLES: Securities failed to receive $ 50,563 $ 19,558 Securities loaned 797,619 1,405,107 Payables to customers 354,515 462,485 Other 86,782 90,173 ----------------------- TOTAL $1,289,479 $1,977,323 ======================== Securities failed to deliver and failed to receive represent the contract value of securities that have not been delivered or received as of the settlement date. Securities borrowed and loaned represent deposits made to or received from other broker-dealers. Receivables from and payables to customers represent amounts due on cash and margin transactions. INVESTMENTS The Company's trust administration subsidiaries accept money market deposits from trust customers and invest the funds in securities. Such amounts due trust depositors represent the primary source of funds for the Company's investment securities and amounted to $1,420,956,000 and $1,525,652,000 as of December 31, 2001 and 2000, respectively. Trust account investments in government agency and certain fixed income obligations have an average duration of approximately two years and three months at December 31, 2001. These investments are held to maturity and carried at amortized cost as the Company has the ability and intent to hold these investments to maturity. Available for sale equity investments are carried at market, based upon quoted market prices. Unrealized gains or losses on available for sale equity investments are accumulated in shareholders' equity as other comprehensive income, net of related deferred income taxes. Related gross unrealized gains were $142,224,000 and $134,270,000 as of December 31, 2001 and 2000, respectively. Realized gains or losses are computed based on specific identification of the equity investments sold. The following summarizes the Company's investments at December 31:
2001 2000 ------------------------------ ------------------------ Carrying Estimated Carrying Estimated (In thousands) Value Fair Value Value Fair Value ------------------------------ ------------------------ U.S. Government and government agency obligations $ 986,531 $ 998,026 $ 737,291 $ 741,699 Other fixed income obligations 600,156 613,621 760,824 766,278 ------------------------------ ------------------------ Total held to maturity investments 1,586,687 1,611,647 1,498,115 1,507,977 Available for sale equity investments 145,417 145,417 137,100 137,100 Money market mutual funds 115,901 115,901 142,467 142,467 Other investments 37,058 37,058 19,217 19,217 ------------------------------ ------------------------ TOTAL $1,885,063 $1,910,023 $1,796,899 $1,806,761 ============================== ========================
PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation and amortization are computed primarily using the straight-line method over the estimated useful lives of the assets, ranging from three to 40 years. Property and equipment consist of the following at December 31: (In thousands) 2001 2000 ------------------------------- Data processing equipment $279,714 $232,597 Purchased software 113,205 98,033 Buildings and leasehold improvements 105,416 89,799 Furniture and equipment 134,494 111,615 ------------------------------- 632,829 532,044 Less accumulated depreciation and amortization 385,081 326,489 ------------------------------- TOTAL $247,748 $205,555 =============================== INTERNALLY GENERATED COMPUTER SOFTWARE The Company capitalizes certain costs incurred to develop new software or enhance existing software which is marketed externally or utilized by the Company to process customer transactions. Costs are capitalized commencing when the technological feasibility of the software has been established. Amortization of capitalized costs is computed on a straight-line basis over the expected useful life of the product, generally three to five years. Routine maintenance of software products, design costs and development costs incurred prior to establishment of a product's technological feasibility are expensed as incurred. INTANGIBLE ASSETS Intangible assets consist of the following at December 31: (In thousands) 2001 2000 --------------------------------------- Goodwill $1,146,112 $843,658 Other 156,825 151,299 --------------------------------------- 1,302,937 994,957 Less accumulated amortization 193,115 148,218 --------------------------------------- TOTAL $1,109,822 $846,739 ======================================= The excess of the purchase price over the estimated fair value of tangible and identifiable intangible assets acquired is recorded as goodwill and is generally amortized over 40 years using the straight-line method prior to the adoption of recent accounting pronouncements. Other intangible assets consist primarily of computer software, contract rights, customer bases and trademarks applicable to acquired businesses. These assets are generally amortized using the straight-line method over their estimated useful lives, ranging from three to 35 years. IMPAIRMENT OF LONG-LIVED ASSETS The Company periodically assesses the likelihood of recovering the cost of long-lived assets based on current and projected operating results and cash flows of the related business operations using undiscounted cash flow analyses. These factors, along with management's plans with respect to the operations, are considered in assessing the recoverability of property, equipment and intangible assets. Measurement of any impairment loss is based on discounted operating cash flows. During 2000, the Company recorded a charge of $11,000,000 for impairment of goodwill associated with the consolidation of certain ancillary product lines in the Company's software businesses. This charge was recorded in the Financial institution outsourcing, systems and services segment as additional amortization of intangible assets. SHORT-TERM BORROWINGS The Company's securities and trust processing subsidiaries had short-term loans payable of $112,800,000 and $19,725,000 as of December 31, 2001 and 2000, respectively, which bear interest at an average rate of 1.8% as of December 31, 2001, and were collateralized by investments and customers' margin account securities. INCOME TAXES The consolidated financial statements are prepared on the accrual method of accounting. Deferred income taxes are provided for temporary differences between the Company's income for accounting and tax purposes. NET INCOME PER SHARE Basic net income per share is computed using the weighted average number of common shares outstanding during the periods. Diluted net income per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the periods. Common equivalent shares consist of stock options and are computed using the treasury stock method. Net income per share for prior years has been restated to reflect a three-for-two stock split effective in August 2001. SHAREHOLDER RIGHTS PLAN The Company has a shareholder rights plan. Under this plan, each shareholder holds one preferred stock purchase right for each outstanding share of the Company common stock held. The stock purchase rights are not exercisable until certain events occur. SUPPLEMENTAL CASH FLOW INFORMATION
(In thousands) 2001 2000 1999 ------------------------------------------------- Interest paid $ 19,469 $ 29,346 $ 26,075 Income taxes paid 117,443 87,633 81,499 Liabilities assumed in acquisitions of businesses 68,833 401,129 246,120
RECENT ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually. The Company will adopt SFAS No. 142 on January 1, 2002. The Company anticipates that the effect of adopting SFAS No. 142 will increase diluted net income per share by approximately $0.09 in 2002, due to eliminating the annual amortization expense and related tax effects associated with existing goodwill and intangible assets with indefinite lives. The Company has not yet completed its assessment of the additional effects of adopting SFAS No. 142, but anticipates that there will not be a material impact on the consolidated financial statements, other than the elimination of amortization expense and related tax effects discussed above. In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses the financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. The Company will adopt SFAS No. 144 on January 1, 2002. The Company anticipates that the adoption of this statement will not have a material impact on the consolidated financial statements. NOTE 2. Acquisitions During 2001, 2000 and 1999 the Company completed the following acquisitions:
Month Company Acquired Service Consideration - ----------------------------------------------------------------------------------------------------------- 2001: Benefit Planners Jan. Insurance data processing Cash and stock for stock Marshall & Ilsley IP services Feb. Item processing Cash for assets Facilities and Services Corp. Mar. Insurance software systems Cash for stock Remarketing Services of America, Inc. Mar. Automobile leasing services Cash for stock EPSIIA Corporation July Data processing Cash for stock Catapult Technology Limited July Software and services Cash for stock FHLB of Pittsburgh IP services Sept. Item processing Cash for assets NCR bank processing operations Nov. Data and item processing Cash for assets NCSI Nov. Insurance data processing Cash for stock Integrated Loan Services Nov. Loan services Cash for assets Trewit Inc. Nov. Insurance data processing Cash and stock for stock FACT 400 credit card solution Nov. Software and services Cash for assets 2000: Patterson Press, Inc. Jan. Card services Cash for stock Resources Trust Company May Data processing for retirement Cash for assets planning National Flood Services, Inc. Sept. Insurance data processing Cash for stock 1999: QuestPoint Jan. Item processing Cash for assets Eldridge & Associates Feb. PC-based financial systems Cash for assets RF/Spectrum Decision Science Corp. Feb. Software and services Cash for stock FIPSCO, Inc. Mar. Insurance marketing systems Cash for stock Progressive Data Solutions, Inc./ Apr. Insurance software systems Cash for stock Infinity Software Systems, Inc. JWGenesis Clearing Corporation June Securities services Cash for stock Alliance ADS June Imaging technology Cash for assets Envision Financial Technologies, Inc. Aug. Data processing Cash for stock Pinehurst Analytics, Inc. Oct. PC-based financial systems Cash for assets Humanic Design Corporation Dec. Software and services Cash for stock
The acquisitions were accounted for as purchases and, accordingly, the operations of the acquired companies were included in the consolidated financial statements since their respective dates of acquisition as set forth above. Net cash paid in connection with these acquisitions was $224,842,000, $88,764,000 and $210,587,000 in 2001, 2000 and 1999, respectively, subject to certain adjustments and contingent payments. The Company may be required to pay additional cash and common stock consideration for the 2001 acquisitions, if certain of the acquired entities achieve specific escalating operating income targets during the next four years, up to a maximum cumulative payment of $190,000,000. Any additional consideration will be treated as additional purchase price. In addition to cash consideration, the Company also issued in conjunction with two of the acquisitions in 2001 approximately 3,050,000 unregistered shares of its common stock, valued at approximately $117,000,000. The Company has made preliminary purchase price allocations for its 2001 acquisitions resulting in the recording of goodwill of approximately $300,000,000, however, these initial estimates need to be refined. The Company anticipates finalizing the purchase price allocations within one year of each acquisition. If the acquisitions completed in 2001 had been completed on January 1, 2000, the Company's unaudited pro forma revenues would have approximated $2,177,000,000 and $1,973,000,000 in 2001 and 2000, respectively. The Company's unaudited pro forma net income and net income per share - diluted would not have been significantly different from the amounts originally reported. NOTE 3. Long-term debt The Company has available a $497,500,000 unsecured line of credit and commercial paper facility with a group of banks, of which $214,000,000 was in use at December 31, 2001. The credit facilities, which expire in May 2004, are comprised of a $250,000,000 five-year revolving credit facility and a $247,500,000 364-day revolving credit facility which is renewable annually through 2004. There were no significant commitment fees or compensating balance requirements under these facilities. The loan agreements covering the Company's long-term borrowings contain certain restrictive covenants with which the Company was in compliance at December 31, 2001. As of December 31, 2001, the Company had interest rate swap agreements to fix the interest rates on certain floating rate debt at an average rate approximating 6.75% (based on current bank fees and spreads) for a principal amount of $200,000,000 until 2005. As of December 31, 2001, the Company has available $100,000,000 in additional unsecured lines of credit, of which $52,000,000 was in use at an average variable rate of 2.3%. The carrying value and estimated fair values of the Company's long-term debt and interest rate swap agreements at December 31, 2001 and 2000, are as follows:
2001 2000 ----------------------------------------------------------------------- Carrying Estimated Carrying Estimated (In thousands) Value Fair Value Value Fair Value 8.00% senior notes payable, due 2002-2005 $ 51,428 $ 56,871 $ 64,286 $ 65,692 Bank notes and commercial paper, at short-term rates 291,665 291,665 270,672 270,672 ----------------------------------------------------------------------- Long-term debt $343,093 $348,536 $334,958 $336,364 ======================================================================= Interest rate swap agreements $ 13,062 $ 13,062 - $ 4,493 =======================================================================
Annual principal payments required under the terms of the long-term debt agreements were as follows at December 31, 2001: (In thousands) Years ending December 31, 2002 $ 48,409 2003 15,660 2004 265,169 2005 13,855 ----------- TOTAL $343,093 =========== Interest expense with respect to long-term debt was approximately $20,159,000, $28,823,000 and $25,111,000 in 2001, 2000 and 1999, respectively. NOTE 4. Income taxes A reconciliation of recorded income tax expense with income tax computed at the statutory federal tax rates for the three years ended December 31, 2001, is as follows:
(In thousands) 2001 2000 1999 ------------------------------------------------------------- Statutory federal tax rate 35% 35% 35% Tax computed at statutory rate $121,460 $105,012 $81,786 State income taxes net of federal effect 12,033 11,156 9,375 Non-deductible amortization 4,219 3,887 3,161 Other 1,099 2,959 1,485 ------------------------------------------------------------- TOTAL $138,811 $123,014 $95,807 ============================================================= The provision for income taxes consisted of the following: (In thousands) 2001 2000 1999 ------------------------------------------------------------- Current: Federal $108,993 $101,906 $69,250 State 18,118 16,295 12,374 ------------------------------------------------------------- 127,111 118,201 81,624 ------------------------------------------------------------- Deferred: Federal 10,752 4,425 11,833 State 948 388 2,350 ------------------------------------------------------------- 11,700 4,813 14,183 ------------------------------------------------------------- TOTAL $138,811 $123,014 $95,807 =============================================================
Significant components of the Company's net deferred tax (liability) asset consisted of the following at December 31:
(In thousands) 2001 2000 -------------------------------------- Purchased incomplete software technology $ 37,477 $ 43,051 Accrued expenses not currently deductible 33,671 27,380 Deferred revenues 11,916 15,494 Internally generated capitalized software (31,641) (30,373) Excess of tax over book depreciation and amortization (29,739) (25,413) Unrealized gains on investments (55,467) (53,722) Other (5,624) (11,409) -------------------------------------- TOTAL $(39,407) ($34,992) ======================================
Tax benefits associated with the exercise of non-qualified employee stock options were credited directly to additional paid-in capital and amounted to $15,000,000, $19,500,000 and $5,000,000 in 2001, 2000 and 1999, respectively. NOTE 5. Employee Benefit Plans STOCK OPTION PLAN The Company's Stock Option Plan (the "Plan") provides for the granting to its employees and directors of either incentive or non-qualified options to purchase shares of the Company's common stock for a price not less than 100% of the fair value of the shares at the date of grant. In general, 20% of the shares awarded under the Plan may be purchased annually and expire 10 years from the date of the award. Changes in stock options outstanding are as follows:
Weighted Number of Average Shares Exercise Price ------------------------------------ Outstanding, December 31, 1998 12,685,310 $ 9.71 Granted 2,302,904 20.63 Forfeited (525,140) 18.28 Exercised (868,647) 8.32 ------------------------------------ Outstanding, December 31, 1999 13,594,427 11.26 Granted 1,791,981 21.48 Forfeited (625,236) 19.18 Exercised (2,303,616) 8.85 ------------------------------------ Outstanding, December 31, 2000 12,457,556 12.76 Granted 2,277,308 36.99 Forfeited (386,366) 18.18 Exercised (1,345,341) 8.68 ------------------------------------ Outstanding, December 31, 2001 13,003,157 $17.18 ====================================
The following summarizes information about the Company's stock options outstanding and exercisable at December 31, 2001:
Options Outstanding Options Outstanding and Exercisable ------------------------------------------------------------------- ------------------------------------ Weighted Weighted Average Weighted Range of Number of Average Remaining Number of Average Exercise Prices Shares Exercise Price Contractual Life Shares Exercise Price - --------------------------------------------------------------------------------------------------------------------------------- $1.84 - $ 9.04 3,965,650 $ 6.48 2.6 3,965,650 $ 6.48 9.32 - 19.67 3,862,265 14.16 5.7 3,150,325 13.82 20.14 - 40.34 5,175,242 27.63 8.3 1,912,961 24.22 - --------------------------------------------------------------------------------------------------------------------------------- $ 1.84 - $40.34 13,003,157 $17.18 5.8 9,028,936 $12.80 =================================================================================================================================
At December 31, 2001, options to purchase 9,943,900 shares were available for grant under the Plan. The Company has accounted for its stock-based compensation plans in accordance with the provisions of Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees." Accordingly, the Company did not record any compensation expense in the accompanying consolidated financial statements for its stock-based compensation plans. Had compensation expense been recognized consistent with SFAS No.123, "Accounting for Stock-Based Compensation," the Company's net income and net income per share - diluted would have been changed to the pro forma amounts indicated below: (In thousands, except per share data)
2001 2000 1999 ---------- ----------- ---------- Net income: As reported $208,217 $177,021 $137,868 Pro forma 194,817 167,321 131,868 Net income per share-diluted: As reported $ 1.09 $ 0.93 $ 0.73 Pro forma 1.02 0.88 0.69
The fair value of each stock option granted in 2001, 2000 and 1999 was estimated on the date of grant using the Black-Scholes pricing model with the following weighted average assumptions:
2001 2000 1999 --------- --------- ---------- Expected life (in years) 5.0 5.0 5.0 Risk-free interest rate 4.6% 5.0% 6.0% Volatility 49.8% 48.6% 41.8% Dividend yield 0.0% 0.0% 0.0%
The weighted-average estimated fair value of stock options granted during 2001, 2000 and 1999 was $18.02, $10.72 and $8.79 per share, respectively. EMPLOYEE STOCK PURCHASE PLAN Effective January 1, 2000, the Company adopted an employee stock purchase plan under which eligible employees may purchase a limited number of shares of common stock each quarter through payroll deductions, at a purchase price equal to 85% of the closing price of the Company's common stock on the last business day of each calendar quarter. As of January 1, 2002, there were 999,600 shares available for grant under this plan. EMPLOYEE SAVINGS PLAN The Company and its subsidiaries have contributory savings plans covering substantially all employees, under which eligible participants may elect to contribute a specified percentage of their salaries, subject to certain limitations. The Company makes matching contributions, subject to certain limitations, and makes discretionary contributions based upon the attainment of certain profit goals. Company contributions vest ratably at 20% for each year of service. Contributions charged to operations under these plans approximated $35,300,000, $30,400,000 and $24,000,000 in 2001, 2000 and 1999, respectively. NOTE 6. Restructuring and Other Charges In the second quarter of 2001, the Company recorded $12,300,000 of pre-tax charges consisting of severance and related termination benefits ($3,800,000), future lease and other contractual obligations ($6,200,000), and the disposal and write-down of assets ($2,300,000). These charges relate to management's plan to improve overall business efficiencies by consolidating the Company's securities processing operations and eliminating duplicate operational functions. As of December 31, 2001, the remaining accrued expenses related to these charges were $6,200,000. NOTE 7. Leases, other commitments and contingencies LEASES Future minimum rental payments on various operating leases for office facilities and equipment were due as follows as of December 31, 2001: (In thousands) Years Ending December 31, 2002 $ 77,087 2003 66,838 2004 55,208 2005 41,763 2006 30,323 Thereafter 68,135 -------------- TOTAL $339,354 ============== Rent expense applicable to all operating leases was approximately $87,100,000, $83,100,000 and $78,600,000 in 2001, 2000 and 1999, respectively. OTHER COMMITMENTS AND CONTINGENCIES The Company's trust administration subsidiaries had fiduciary responsibility for the administration of approximately $29 billion in trust funds as of December 31, 2001. With the exception of the trust account investments discussed in Note 1, such amounts are not included in the accompanying consolidated balance sheets. The Company's securities processing subsidiaries are subject to the Uniform Net Capital Rule of the Securities and Exchange Commission. At December 31, 2001, the aggregate net capital of such subsidiaries was $143,825,000, exceeding the net capital requirement by $128,944,000. In the normal course of business, the Company and its subsidiaries are named as defendants in various lawsuits in which claims are asserted against the Company. In the opinion of management, the liabilities, if any, which may ultimately result from such lawsuits are not expected to have a material adverse effect on the consolidated financial statements of the Company. NOTE 8. Business Segment Information The Company is a leading independent provider of data processing systems and related information management services and products to financial institutions and other financial intermediaries. The Company has three business segments: Financial institution outsourcing, systems and services; Securities processing and trust services; and All other and corporate. The Financial institution outsourcing, systems and services segment provides account and transaction processing solutions and services to financial institutions and other financial intermediaries. The Securities processing and trust services segment provides securities processing solutions and retirement plan administration services to brokerage firms, financial planners and financial institutions. The All other and corporate segment provides plastic card services and document solutions, and includes general corporate expenses. The plastic card and document solutions businesses provide plastic card issuance services, card design, personalization and mailing, along with electronic document delivery and print-related solutions. Summarized financial information by business segment for each of the three years in the period ended December 31, 2001, is as follows:
(In thousands) 2001 2000 1999 -------------------------------------- Revenues: Financial institution outsourcing, systems and services $ 1,544,721 $ 1,243,509 $ 1,066,514 Securities processing and trust services 273,504 341,155 276,215 All other and corporate 72,242 68,942 64,816 -------------------------------------- Total $ 1,890,467 $ 1,653,606 $ 1,407,545 -------------------------------------- Operating income: Financial institution outsourcing, systems and services $ 321,193 $ 218,935 $ 175,194 Securities processing and trust services 35,673 97,125 80,125 All other and corporate (3,169) (1,754) (2,234) -------------------------------------- Total $ 353,697 $ 314,306 $ 253,085 -------------------------------------- Identifiable assets: Financial institution outsourcing, systems and services $ 1,648,196 $ 1,185,819 $ 1,169,666 Securities processing and trust services 3,417,789 4,160,939 3,832,868 All other and corporate 256,257 239,562 305,176 -------------------------------------- Total $ 5,322,242 $ 5,586,320 $ 5,307,710 -------------------------------------- Depreciation expense: Financial institution outsourcing, systems and services $ 58,046 $ 52,191 $ 48,407 Securities processing and trust services 12,659 11,395 9,510 All other and corporate 5,996 6,561 5,796 -------------------------------------- Total $ 76,701 $ 70,147 $ 63,713 -------------------------------------- Amortization of intangible assets: Financial institution outsourcing, systems and services $ 23,127 $ 32,847 $ 18,843 Securities processing and trust services 11,538 9,104 3,040 All other and corporate 867 861 717 -------------------------------------- Total $ 35,532 $ 42,812 $ 22,600 -------------------------------------- Capital expenditures: Financial institution outsourcing, systems and services $ 55,648 $ 54,750 $ 52,724 Securities processing and trust services 8,234 12,836 12,119 All other and corporate 4,092 5,393 4,854 -------------------------------------- Total $67,974 $ 72,979 $ 69,697 ======================================
The revenues of each segment were principally domestic, and no single customer accounted for 10% or more of consolidated revenues during the years ended December 31, 2001, 2000 and 1999. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the relative percentage which certain items in the Company's consolidated statements of income bear to revenues and the percentage change in those items from period to period.
Percentage of Revenues Period to Period Percentage Years Ended December 31, Increase (Decrease) 2001 vs. 2000 vs. 2001 2000 1999 2000 1999 ----------------------------------- --------------------------- Revenues 100.0% 100.0% 100.0% 14% 17% ----------------------------------- Cost of revenues: Salaries, commissions and payroll related costs 48.8 48.0 48.1 16 17 Data processing expenses, rentals and telecommunication costs 6.7 7.0 7.9 10 3 Other operating expenses 20.0 19.1 19.4 19 16 Depreciation and amortization of property and equipment 4.0 4.2 4.5 9 10 Amortization of intangible assets 1.9 2.6 1.6 (17) 89 Amortization (capitalization) of internally generated computer software-net (0.1) 0.1 0.5 ----------------------------------- Total cost of revenues 81.3 81.0 82.0 15 16 ----------------------------------- Operating income 18.7% 19.0% 18.0% 13% 24% =================================== Income before income taxes 18.4% 18.1% 16.6% 16% 28% =================================== Net income 11.0% 10.7% 9.8% 18% 28% ===================================
Revenues increased $236,861,000 in 2001 and $246,061,000 in 2000. In 2001 and 2000, approximately 50% and 60% of the revenue growth, respectively, was derived from sales to new clients, cross-sales to existing clients, increases in transaction volumes from existing clients and price increases, with the remaining revenue growth from acquired businesses. Revenue growth in 2001 was positively impacted by strong growth of $301,212,000 compared to 2000 in the Financial institution outsourcing, systems and services segment, which is the Company's main operating segment. In addition, revenue growth was negatively impacted by the Securities processing and trust services segment, primarily due to significantly lower transaction volumes due to overall weakness in the United States retail financial markets in 2001. Revenues for the Securities processing and trust services segment decreased $79,651,000 in 2001 compared to 2000, excluding a $12,000,000 termination fee received in 2001 from a broker-dealer customer acquired by a third party. Cost of revenues increased $197,470,000 in 2001 and $184,840,000 in 2000. The make-up of cost of revenues has been affected in all years by business acquisitions, changes in the mix of the Company's business and operational efficiencies. In 2001, the Company recorded charges of $12,300,000, as explained in Note 6 of the accompanying consolidated financial statements. Amortization of intangible assets decreased $7,280,000 in 2001 and increased $20,212,000 in 2000. The decrease in amortization in 2001 compared to 2000 was due primarily to an impairment charge recorded in the second quarter of 2000, offset by amortization associated with acquisitions completed prior to June 30, 2001. The increase in amortization in 2000 compared to 1999 was due to amortization associated with acquisitions and the goodwill impairment charge. Operating income increased $39,391,000 in 2001 and $61,221,000 in 2000. The Company's operating income and margins were negatively impacted in 2001 primarily due to reduced operating income and margins in the Company's Securities processing and trust services segment. The effective income tax rate was 40% in 2001 and 41% in 2000 and 1999. The effective income tax rate for 2002 is expected to decline from 40% to 39% due to the impact of adopting SFAS No. 142. Net income per share - diluted (excluding realized gain from sale of investment) was $1.07 in 2001 compared to $0.91 in 2000. The Company's growth has been accomplished, to a significant degree, through the acquisition of businesses which are complementary to its operations. Management believes that a number of acquisition candidates are available which would further enhance its competitive position and plans to pursue them vigorously. Management is engaged in an ongoing program to reduce expenses related to acquisitions by eliminating operating redundancies. The Company's approach has been to move slowly in achieving this goal in order to minimize the amount of disruption experienced by its clients and the potential loss of clients due to this program. SEGMENT INFORMATION The following table sets forth revenue and operating income by business segment for the years ended December 31:
(In thousands) 2001 2000 1999 -------------- -------------- --------------- Revenues: Financial institution outsourcing, systems and services $1,544,721 $1,243,509 $1,066,514 Securities processing and trust services 273,504 341,155 276,215 All other and corporate 72,242 68,942 64,816 -------------- -------------- --------------- Total $1,890,467 $1,653,606 $1,407,545 -------------- -------------- --------------- Operating income: Financial institution outsourcing, systems and services $321,193 $218,935 $175,194 Securities processing and trust services 35,673 97,125 80,125 All other and corporate (3,169) (1,754) (2,234) -------------- -------------- --------------- Total $353,697 $314,306 $253,085 -------------- -------------- ---------------
Revenues in the Financial institution outsourcing, systems and services business segment increased $301,212,000 in 2001 and $176,995,000 in 2000. Revenue growth in 2001 and 2000 was derived from sales to new clients, cross-sales to existing clients, growth in the transaction volume experienced by existing clients, price increases and revenues from acquired businesses. Operating income in the Financial institution outsourcing, systems and services business segment increased $102,258,000 and $43,741,000 in 2001 and 2000, respectively. Operating income and margin increases in 2001 and 2000 over prior periods were primarily due to continued revenue growth, operational efficiencies, increased operating leverage of existing operations and the impact of certain acquisitions. Revenues in the Securities processing and trust services business segment decreased $67,651,000 in 2001 and increased $64,940,000 in 2000. The revenue decrease in 2001 compared to 2000 was primarily related to significantly lower transaction volumes in the Securities processing and trust services segment due to overall weakness in the United States retail financial markets in 2001, partially offset by a termination fee of $12,000,000 received in the second quarter of 2001 from a broker-dealer customer acquired by a third party. Revenue growth in 2000 compared to 1999 was derived primarily from increased transaction volumes from existing clients, sales to new clients and revenues from acquired businesses. Operating income in the Securities processing and trust services business segment decreased $61,452,000 in 2001 and increased $17,000,000 in 2000. In the second quarter of 2001, the segment recorded charges of $12,300,000, as previously explained. Operating income and margins were lower in 2001 when compared to 2000 due primarily to reduced transaction volumes for securities processing services due to overall weakness in the United States retail financial markets in 2001. LIQUIDITY AND CAPITAL RESOURCES The following table summarizes the Company's primary sources (uses) of funds during the years ended December 31:
(In thousands) 2001 2000 1999 --------------- ------------- ------------ Cash provided by operating activities before changes in securities processing receivables and payables-net $ 363,739 $ 368,750 $ 318,715 Securities processing receivables and payables-net 78,396 215,718 (140,878) --------------- ------------- ------------ Cash provided by operating activities 442,135 584,468 177,837 Increase (decrease) in net borrowings 86,762 (353,520) 169,959 --------------- ------------- ------------ TOTAL $ 528,897 $ 230,948 $ 347,796 =============== ============= ============
The Company has used a significant portion of its cash flow from operations for acquisitions and capital expenditures with any remainder used to reduce long-term debt. The Company's strategy includes the acquisition of complementary businesses financed by a combination of internally generated funds and borrowings from the Company's credit facilities. The Company believes that its cash flow from operations together with other available sources of funds will be adequate to meet its funding requirements. In the event that the Company makes significant future acquisitions, however, it may raise funds through additional borrowings or the issuances of securities. The Company's policy is to retain earnings to support future business opportunities, rather than to pay dividends. During 1999, the Company's Board of Directors authorized the repurchase of up to 4,875,000 shares of the Company's common stock. Shares purchased under the authorization will be made through open market transactions that may occur from time to time as market conditions warrant. Shares acquired will be held for issuance in connection with acquisitions and employee stock option and purchase plans. As of December 31, 2001, approximately 2,771,000 shares remained available under the repurchase authorization. MARKET RISK FACTORS Market risk refers to the risk that a change in the level of one or more market prices, interest rates, indices, correlations or other market factors, such as liquidity, will result in losses for a certain financial instrument or group of financial instruments. The Company is exposed primarily to interest rate risk and market price risk on investments and borrowings. The Company actively monitors these risks through a variety of control procedures involving senior management. The Company's trust administration subsidiaries accept money market account deposits from trust customers and invest those funds in marketable securities. Substantially all of the investments are rated within the highest investment grade categories for securities. The Company's trust administration subsidiaries utilize simulation models for measuring and monitoring interest rate risk and market value of portfolio equities. A formal Asset Liability Committee of the Company meets quarterly to review interest rate risks, capital ratios, liquidity levels, portfolio diversification, credit risk ratings and adherence to investment policies and guidelines. Substantially all of the investments at December 31, 2001, have contractual maturities of one year or less except for government agency and certain fixed income mortgage backed obligations, which have an average duration of approximately two years and three months. The Company manages its debt structure and interest rate risk through the use of fixed and floating-rate debt and through the use of interest rate swaps. The Company uses interest rate swaps to partially hedge its exposure to interest rate changes, and to control its financing costs. Generally, under these swaps, the Company agrees with a counterparty to exchange the difference between fixed-rate and floating-rate interest amounts based on an agreed principal amount. Based on the controls in place, management believes the risks associated with these financial instruments at December 31, 2001, will not have a material effect on the Company's consolidated financial position or results of operations. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Except for the historical information contained herein, the matters discussed in this Annual Report are forward-looking statements which involve risks and uncertainties, including but not limited to economic, competitive, governmental and technological factors affecting the Company's operations, markets, services and related products, prices and other factors discussed in the Company's prior filings with the Securities and Exchange Commission. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate. Therefore, there can be no assurance that the forward-looking statements included in this Annual Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. Selected Financial Data The following data, which has been affected by acquisitions, should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Annual Report.
(In thousands, except per share data) Years ended December 31, 2001 2000 1999 1998 1997 ------------------------------------------------------------ Revenues $1,890,467 $1,653,606 $1,407,545 $1,233,670 $974,432 Income before income taxes 347,028 300,035 233,675 193,684 153,899 Income tax provision 138,811 123,014 95,807 79,410 63,099 Net income 208,217 177,021 137,868 114,274 90,800 Net income per share: Basic $1.11 $0.96 $0.75 $0.62 $0.52 ------------------------------------------------------------ Diluted $1.09 $0.93 $0.73 $0.60 $0.50 ------------------------------------------------------------ Diluted (excluding realized gain from sale of investment) $1.07 $0.91 $0.73 $0.60 $0.50 ------------------------------------------------------------ Total assets $5,322,242 $5,586,320 $5,307,710 $3,958,338 $3,636,491 Long-term debt 343,093 334,958 472,824 389,622 252,031 Shareholders' equity 1,604,826 1,252,072 1,091,016 885,797 769,255
The above information has been restated to recognize three-for-two stock splits effective in August 2001, April 1999 and May 1998. QUARTERLY FINANCIAL INFORMATION (Unaudited)
(In thousands, except per share data) Quarters ------------------------------------------ 2001 First Second Third Fourth Total ----------------------------------------------------- Revenues $453,912 $472,646 $467,173 $496,736 $1,890,467 Cost of revenues 367,307 384,267 377,958 407,238 1,536,770 ----------------------------------------------------- Operating income 86,605 88,379 89,215 89,498 353,697 Interest expense - net (3,817) (3,237) (2,501) (2,518) (12,073) Realized gain from sale of investment 1,821 1,506 1,000 1,077 5,404 ----------------------------------------------------- Income before income taxes 84,609 86,648 87,714 88,057 347,028 Income tax provision 33,844 34,659 35,085 35,223 138,811 ----------------------------------------------------- Net income $ 50,765 $51,989 $52,629 $52,834 $208,217 ----------------------------------------------------- Net income per share: Basic $0.27 $0.28 $0.28 $0.28 $1.11 ===================================================== Diluted $0.27 $0.27 $0.27 $0.27 $1.09 ===================================================== Diluted (excluding realized gain from sale of investment) $0.26 $0.27 $0.27 $0.27 $1.07 ===================================================== 2000 Revenues $396,402 $416,434 $406,189 $434,581 $1,653,606 Cost of revenues 317,448 337,046 327,966 356,840 1,339,300 ------------------------------------------------------ Operating income 78,954 79,388 78,223 77,741 314,306 Interest expense - net (5,806) (6,000) (5,295) (4,988) (22,089) Realized gain from sale of investment - 2,928 2,907 1,983 7,818 ------------------------------------------------------ Income before income taxes 73,148 76,316 75,835 74,736 300,035 Income tax provision 29,991 31,289 31,093 30,641 123,014 ------------------------------------------------------ Net income $43,157 $45,027 $44,742 $44,095 $177,021 ------------------------------------------------------ Net income per share: Basic $0.23 $0.24 $0.24 $0.24 $0.96 ====================================================== Diluted $0.23 $0.24 $0.23 $0.23 $0.93 ====================================================== Diluted (excluding realized gain from sale of investment) $0.23 $0.23 $0.22 $0.22 $0.91 ======================================================
MARKET PRICE INFORMATION The following information relates to the closing price of the Company's $.01 par value common stock, which is traded on the Nasdaq Stock Market under the symbol FISV. Information has been adjusted to recognize the three-for-two stock split effective August 2001. 2001 2000 - ------------------------------------------------------------------ Quarter Ended High Low High Low - ------------------------------------------------------------------ March 31 $38.00 $29.58 $25.67 $16.21 June 30 42.65 30.29 33.58 22.46 September 30 42.12 32.72 42.75 28.46 December 31 44.39 31.93 41.75 28.96 At December 31, 2001, the Company's common stock was held by 2,842 shareholders of record. It is estimated that an additional 40,000 shareholders own the Company's stock through nominee or street name accounts with brokers. The closing sale price for the Company's stock on January 23, 2002, was $43.30 per share. MANAGEMENT'S STATEMENT OF RESPONSIBILITY The management of Fiserv, Inc. assumes responsibility for the integrity and objectivity of the information appearing in the 2001 Annual Report. This information was prepared in conformity with accounting principles generally accepted in the United States of America and necessarily reflects the best estimates and judgment of management. To provide reasonable assurance that transactions authorized by management are recorded and reported properly and that assets are safeguarded, the Company maintains a system of internal controls. The concept of reasonable assurance implies that the cost of such a system is weighed against the benefits to be derived therefrom. The control environment is complemented by the Company's internal audit function, which evaluates the adequacy of the controls, policies and procedures in place, as well as adherence to them, and recommends improvements for implementation when applicable. In addition, Deloitte & Touche LLP, certified public accountants, audits the financial statements of the Company in accordance with auditing standards generally accepted in the United States of America. Their audit includes a review of the internal control system, and improvements are made to the system based upon their recommendations. The Audit Committee ensures that management and the independent auditors are properly discharging their financial reporting responsibilities. In performing this function, the Committee meets with management and the independent auditors throughout the year. Additional access to the Committee is provided to Deloitte & Touche LLP on an unrestricted basis, allowing discussion of audit results and opinions on the adequacy of internal accounting controls and the quality of financial reporting. /s/ Leslie M. Muma - ------------------ LESLIE M. MUMA President and Chief Executive Officer INDEPENDENT AUDITORS' REPORT SHAREHOLDERS AND DIRECTORS OF FISERV, INC. We have audited the accompanying consolidated balance sheets of Fiserv, Inc. and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2001. 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 auditing standards generally accepted in the United States of America. 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, such consolidated financial statements present fairly, in all material respects, the financial position of Fiserv, Inc. and subsidiaries at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP - ------------------------- Deloitte & Touche LLP Milwaukee, Wisconsin January 25, 2002 EX-21 6 dex21.txt SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT
Name under which Subsidiary does Business State (Country) of Incorporation The Affinity Group, Inc. Colorado Agio Insurance Agency, Inc. Montana Aspen Investment Alliance, Inc. Colorado Benefit Control Management, LLC Texas Benefit Planners Limited, L.L.P. Texas Benesight Insurance Agency of Massachusetts, Inc. Delaware Benesight, Inc. Delaware BHC Investments, Inc. Delaware BHC Trading Corp. Delaware BHCM Insurance Agency, Inc. Delaware BP, Inc. Delaware Catapult Technology Limited England Cusick Enterprises Limited, L.L.P. Texas Cusick Management, LLC Texas Data-Chain Solutions, Inc. Delaware Data-Link Systems, LLC Wisconsin Employee Benefit Services, Inc. Louisiana EPSIIA Corporation Texas F.T. Agency, Inc. Ohio First Trust Corporation Colorado Fiserv (ASPAC) Pte. Ltd. Singapore Fiserv (Europe) Ltd. England Fiserv Argentina S.R.L. Argentina Fiserv Australia Pty. Limited New South Wales Fiserv BP, Inc. Wisconsin Fiserv BPI, Inc. Texas Fiserv CIR, Inc. Delaware Fiserv Clearing, Inc. Delaware Fiserv Colombia Limitada Colombia Fiserv Connecticut Sub, Inc. Connecticut Fiserv FSC, Inc. California Fiserv Federal Systems, Inc. Delaware FIserv Fresno, Inc. California Fiserv Insurance Agency of Alabama, Inc. Alabama Fiserv Investor Services, Inc. Delaware Fiserv International (Barbados) Limited Barbados Fiserv LeMans, Inc. Pennsylvania Fiserv Mercosur, Inc. Delaware Fiserv NCSI, Inc. Maryland Fiserv Polska Sp. z.o.o. Poland Fiserv San Juan, Inc. Puerto Rico Fiserv Securities, Inc. Delaware Fiserv Solutions of Canada Inc. Ontario
Name under which Subsidiary does Business State (Country) of Incorporation Fiserv Solutions, Inc. Wisconsin The Freedom Group, Inc. Iowa Harrington Benefit Services, Inc. Delaware HEC Newbridge Insurance Services, Inc. Texas HEPSIIAN LLC Delaware ILS Title Agency, LLC Delaware ILS Services, LLC Delaware Information Technology, Inc. Nebraska ITI of Nebraska, Inc. Nebraska J.O. One, Ltd. Texas Life Instructors, Inc. New Jersey Lincoln Trust Company Colorado National Flood Services, Inc. Montana Precision Direct, Inc. Washington Preferred Health Arrangement Limited, LLP Texas PT Fiserv Indonesia Indonesia Remarketing Services of America, Inc. Delaware REH Agency, Inc. Ohio RemitStream Solutions, LLC Delaware RL Reserve, Inc. Colorado Sheridan Re Cayman Islands Specialty Insurance Service California Tower Agency, Inc. Ohio TPA.com, Inc. Delaware TradeStar Investments, Inc. Delaware Trewit Inc. Delaware Trust Industrial Bank Colorado USERS Incorporated Maryland XP Systems Corporation Minnesota
EX-23 7 dex23.txt INDEPENDENT AUDITORS' CONSENT EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 333-64353, 333-04417, 333-28121, 333-34310, 333-34396 and 333-89957 on Form S-8; Registration Statement No. 333-44935 on Form S-4; and Registration Statement No. 333-74910 on Form S-3 of Fiserv, Inc. of our reports dated January 25, 2002, appearing in and incorporated by reference in this Annual Report on Form 10-K of Fiserv, Inc. for the year ended December 31, 2001. /s/ Deloitte & Touche LLP ---------------------- DELOITTE & TOUCHE LLP Milwaukee, Wisconsin February 26, 2002 -----END PRIVACY-ENHANCED MESSAGE-----