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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report: March 7, 2005
(Date of earliest event reported)
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TRANSACTION SYSTEMS ARCHITECTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-25346 47-0772104
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
224 South 108th Avenue
Omaha, Nebraska 68154
(Address of principal executive offices, including zip code)
(402) 334-5101
(Registrant's telephone number, including area code)
N/A
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425
under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12
under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b)
under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c)
under the Exchange Act (17 CFR 240.13e-4(c))
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Item 1.01. Entry into a Material Definitive Agreement.
1. Employment Agreement.
On March 8, 2005, Transaction Systems Architects, Inc. (the "Company")
entered into an Employment Agreement (the "Employment Agreement") with Philip G.
Heasley, pursuant to which Mr. Heasley agreed to serve as the Company's
President and Chief Executive Officer for an initial term of four years. Under
the Employment Agreement, Mr. Heasley will be employed through March 8, 2009
(the "Employment Period"), after which the Employment Period will be extended
for successive one-year periods, unless the Company gives 30 days written notice
to Mr. Heasley that the Employment Period will not be extended for an additional
year or unless the Employment Period otherwise terminates. So long as Mr.
Heasley continues to serve as President and Chief Executive Officer, the Board
will nominate Mr. Heasley to serve as a member of the Company's Board of
Directors. The Employment Agreement provides that Mr. Heasley will receive an
initial base salary of $500,000 per year as well as other compensation,
including bonus opportunities, as set forth in the Employment Agreement attached
as Exhibit 10.1 to this Current Report and incorporated herein by reference. For
the remainder of fiscal year 2005, Mr. Heasley's bonus will be based on (i) the
achievement of the financial performance objectives set forth in the Company's
2005 Fiscal Year Management Incentive Compensation Plan, a description of which
was filed as Exhibit 10.2 to the Form 8-K filed by the Company with the
Securities and Exchange Commission on September 29, 2004, and (ii) the
attainment of certain internal planning objectives.
The Employment Agreement also provides that, within six months of
entering into the Employment Agreement (or within such longer time period as may
be determined by the Board under compelling circumstances), Mr. Heasley will
acquire through purchase on the NASDAQ National Market System at least 100,000
shares of the Company's common stock. Once Mr. Heasley acquires the 100,000
shares, he is required to continue to own 100,000 shares at all times during his
initial term of employment.
Pursuant to the Employment Agreement, if Mr. Heasley's employment is
terminated by the Company without cause or by Mr. Heasley for good reason, Mr.
Heasley will be entitled to (i) a lump sum payment equal to his bonus for the
quarter in which his employment is terminated (unless termination occurs during
fiscal year 2005); (ii) a lump sum payment equal to two times the sum of (A) his
base salary at the time of termination and (B) his average annual bonus amount
received during the two most recent fiscal years of the Company ending prior to
the date of termination; and (iii) continued participation in the Company's
medical and dental plans for two years or until he is covered under the plans of
another employer. Mr. Heasley will also be subject to non-competition
obligations for a period of one year following termination of his employment.
The Employment Agreement also provides that if payments by the Company to Mr.
Heasley would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code, then Mr. Heasley will be entitled to a gross up payment
such that he will be in the same after-tax position as if no excise tax had been
imposed. If Mr. Heasley is entitled to payments under the Change in Control
Severance Compensation Agreement (as described below), no payment will be made
to Mr. Heasley under the Employment Agreement.
Further, in connection with his entry into employment with the Company,
Mr. Heasley entered into the Company's standard Indemnification Agreement for
executive officers, the form of which was filed as Exhibit 10.17 to the
Company's annual report on Form 10-K for the fiscal year ended September 30,
2003.
2. Stock Option Agreement.
On March 9, 2005, in connection with the entry into the Employment
Agreement, the Company entered into a Stock Option Agreement with Mr. Heasley
(attached as Exhibit 10.2 to this Current Report and incorporated herein by
reference) under the Company's 2005 Equity and Performance Incentive Plan (the
"2005 Incentive Plan"), pursuant to which the Company granted Mr. Heasley an
option to purchase 1,000,000 shares of Class A Common Stock of the Company
(reclassified as Common Stock) ("Common Stock") with an exercise price of $22.65
per share. 600,000 of the option shares are time-vested and will vest 25% per
year beginning with the first anniversary of the date of grant. The agreement
provides for accelerated vesting of these time-vested option shares if, during
the term of the option, Mr. Heasley's employment is terminated by the Company
without cause or by Mr. Heasley with good reason. 400,000 of the option shares
are performance-vested and will vest, if at all, upon the attainment by the
Company, at any time following the second anniversary of the date of grant of
the option, of a market price per share of the Company's Common Stock of at
least $50 for 60 consecutive trading days. The agreement provides for
accelerated vesting of these performance-vested option shares if, within two
years from the date of grant, Mr. Heasley's employment is terminated by the
Company without cause or by Mr. Heasley with good reason and if, prior to his
termination of employment, the Company has attained a market price per share of
the Company's Common Stock of at least $50 for 60 consecutive trading days.
3. Change in Control Severance Compensation Agreement.
On March 8, 2005, in connection with the entry into the Employment
Agreement, the Company entered into a Change in Control Severance Compensation
Agreement (the "Change in Control Agreement") with Mr. Heasley. The Change in
Control Agreement provides for a severance payment if Mr. Heasley's employment
is terminated by the Company without cause or by Mr. Heasley with good reason
within two years after a change in control of the Company. As set forth in more
detail in the Change in Control Agreement attached as Exhibit 10.3 to this
Current Report and incorporated herein by reference, this severance payment will
be a lump sum cash payment and will include (i) a lump sum payment equal to two
times the sum of (A) his base salary at the time of termination and (B) his
average annual bonus amount received during the two most recent fiscal years of
the Company ending prior to the date of termination; (ii) his earned but unpaid
base salary through the date of termination of employment; (iii) a quarterly
incentive award for the current fiscal quarter, prorated through the date of
termination of employment (unless termination occurs during fiscal year 2005);
and (iv) interest on the amounts described in (i), (ii) and (iii). Additionally,
Mr. Heasley will be entitled to continued participation in employee benefit
plans and programs of the Company for two years or until he receives equivalent
coverage and benefits under the plans or programs of a subsequent employer. The
Change in Control Agreement also provides that if payments by the Company to Mr.
Heasley would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code, then Mr. Heasley will be entitled to a gross up payment
such that he will be in the same after-tax position as if no excise tax had been
imposed.
4. 2005 Equity and Performance Incentive Plan.
On December 1, 2004, the Board of Directors of the Company approved the
Company's 2005 Incentive Plan, subject to stockholder approval. On March 8,
2005, at the Company's annual meeting of stockholders, the stockholders of the
Company approved the 2005 Incentive Plan. The 2005 Incentive Plan is listed as
Exhibit 10.4 to this Current Report and is incorporated herein by reference to
Annex B to the Company's Proxy Statement for its 2005 annual meeting of
stockholders, filed on January 26, 2005.
The purpose of the 2005 Incentive Plan is to attract and retain
directors, officers and other employees of the Company and to provide such
persons incentives and rewards for superior performance. Officers, other key
employees and non-employee directors of the Company are eligible to participate.
The maximum number of shares that may be issued in connection with awards
granted under the 2005 Incentive Plan is 3,000,000 shares of Common Stock plus
certain shares of Common Stock underlying outstanding awards that are forfeited,
expire or are canceled, are settled in cash without delivery of Common Stock, or
that result in the forfeiture or relinquishment of Common Stock back to the
Company. Awards that may be granted under the 2005 Incentive Plan include stock
options, stock appreciation rights, restricted stock, restricted stock units,
performance shares and performance units, awards to non-employee directors and
other cash awards and awards based on the Company's shares.
5. Form of Director Option Agreement.
On March 9, 2005, the Board of Directors of the Company approved a
grant of 8,000 non-qualified stock options to each of the duly elected
non-employee directors under the 2005 Incentive Plan, using the form of
Nonqualified Stock Option Agreement - Non-Employee Director under the 2005
Incentive Plan attached as Exhibit 10.5 to this Current Report and incorporated
herein by reference. The stock options granted to the non-employee directors
were granted with an exercise price equal to $22.65 per share, the closing sale
price (price for last trade) of the Common Stock as reported by the Nasdaq
National Market System for the day preceding the date of grant. Further, the
options provide, and the form of agreement attached hereto provides, that the
options granted to the non-employee directors of the Company will vest with
respect to 100% of the option shares on the earlier to occur of (i) the date
which is one year following the date of grant and (ii) the day immediately prior
to the date of the next annual meeting of the Company's stockholders occurring
following the date of grant. The options provide for accelerated vesting upon
the death or disability of the optionee or upon a change in control of the
Company.
6. Amendment to 2002 Non-Employee Director Stock Option Plan and Related
Stock Option Agreements.
On March 7, 2005, the Company amended its 2002 Non-Employee Director
Stock Option Plan (the "2002 Director Plan") with respect to Frank R. Sanchez
and amended certain Stock Option Agreements, dated May 8, 2002 and March 9, 2004
(the "Option Agreements"), pursuant to which Mr. Sanchez was granted options. As
a result of his not standing for re-election to the Board of Directors of the
Company, Mr. Sanchez would have forfeited certain options granted to him under
the 2002 Director Plan, notwithstanding the fact that Mr. Sanchez substantially
served the term for which the options were granted. The 2002 Director Plan and
the Option Agreements were amended to accelerate the vesting of Mr. Sanchez's
options to avoid this unintended result. Other unvested options held by Mr.
Sanchez were forfeited as a result of his not standing for re-election to the
Board. The amendments to the 2002 Director Plan and Option Agreements are
attached as Exhibit 10.6 to this Current Report and incorporated herein by
reference.
Item 1.02. Termination of a Material Definitive Agreement.
On March 9, 2005, in connection with the approval of the 2005 Incentive
Plan by the Company's stockholders, the Board of Directors of the Company
approved the termination of the following existing stock option plans of the
Company:
(i) the 1994 Stock Option Plan, as amended (provides for the grant of
stock options to employees, including employees who are also
officers or directors, of the Company);
(ii) the 1996 Stock Option Plan (provides for the grant of stock
options to employees and directors of the Company);
(iii) the 1997 Management Stock Option Plan (provides for the grant of
stock options to management employees of the Company);
(iv) the MessagingDirect Ltd. Amended and Restated Employee Share
Option Plan (provides for the grant of stock options to employees,
officers, directors and consultants of the Company);
(v) the 2000 Non-Employee Director Stock Option Plan (provides for the
grant of stock options to non-employee directors of the Company);
and
(vi) the 2002 Non-Employee Director Stock Option Plan, as amended
(provides for the grant of stock options to non-employee directors
of the Company).
Termination of these plans will not affect any options outstanding under these
plans immediately prior to termination thereof.
Item 5.02. Departure of Directors or Principal Officers; Election of
Directors; Appointment of Principal Officers.
Effective as of March 8, 2005, Gregory D. Derkacht resigned from his
position as President and Chief Executive Officer of the Company. On March 9,
2005, the Company appointed Mr. Derkacht to serve as its Executive Vice
President.
Effective as of March 8, 2005, Philip G. Heasley was appointed to serve
as President and Chief Executive Officer of the Company, replacing Mr. Derkacht.
Additionally, on March 9, 2005, to fill the vacancy created as a result of the
creation of a new position on the Board of Directors, the Company's Board of
Directors elected Mr. Heasley to serve as a director of the Company until the
Company's 2006 annual meeting of stockholders and until his successor is elected
and qualified. Pursuant to the terms of Mr. Heasley's Employment Agreement, so
long as he serves as President and Chief Executive Officer of the Company, the
Board of Directors will nominate him to serve as a member of the Company's Board
of Directors.
Mr. Heasley has a comprehensive background in payment systems and
financial services. From 2003 to the present, Mr. Heasley served as Chairman and
CEO of PayPower LLC, an acquisition and consulting firm specializing in
financial services and payment services. Previously, Mr. Heasley was Chairman
and CEO of First USA Bank, from 2000 to 2003. Prior to joining First USA Bank,
from 1987 until 2000, Mr. Heasley served in various capacities for U.S.
Bankcorp, including Executive Vice President, and President and Chief Operating
Officer. Mr. Heasley is 55 years old.
See the disclosure under Item 1.01 above for the material terms of Mr.
Heasley's Employment Agreement and the other material terms of his employment
with the Company.
Item 9.01. Financial Statements and Exhibits.
(c) Exhibits.
Exhibit
Number Description
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10.1 Employment Agreement by and between the Company and Philip G.
Heasley, dated March 8, 2005.
10.2 Stock Option Agreement (under the Company's 2005 Equity and
Performance Incentive Plan) by and between the Company and
Philip G. Heasley, dated March 9, 2005.
10.3 Change in Control Severance Compensation Agreement by and
between the Company and Philip G. Heasley, dated March 8,
2005.
10.4 2005 Equity and Performance Incentive Plan (filed, on January
26, 2005, as Annex B to the Company's Proxy Statement for its
2005 Annual Meeting (File No. 000-25346), and incorporated
herein by reference).
10.5 Form of Nonqualified Stock Option Agreement - Non-Employee
Director (under the Company's 2005 Equity and Performance
Incentive Plan).
10.6 Amendment to 2002 Non-Employee Director Stock Option Plan,
Amendment No. 1 to Stock Option Agreement (dated as of May 8,
2002) and Amendment No. 1 to Stock Option Agreement (dated as
of March 9, 2004).
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TRANSACTION SYSTEMS ARCHITECTS, INC.
Date: March 9, 2005 By: /s/ Dennis P. Byrnes
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Dennis P. Byrnes
Senior Vice President,
General Counsel and Secretary
EXHIBIT INDEX
Exhibit
Number Description
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10.1 Employment Agreement by and between the Company and Philip G.
Heasley, dated March 8, 2005.
10.2 Stock Option Agreement (under the Company's 2005 Equity and
Performance Incentive Plan) by and between the Company and
Philip G. Heasley, dated March 9, 2005.
10.3 Change in Control Severance Compensation Agreement by and
between the Company and Philip G. Heasley, dated March 8,
2005.
10.4 2005 Equity and Performance Incentive Plan (filed, on January
26, 2005, as Annex B to the Company's Proxy Statement for its
2005 Annual Meeting (File No. 000-25346), and incorporated
herein by reference).
10.5 Form of Nonqualified Stock Option Agreement - Non-Employee
Director (under the Company's 2005 Equity and Performance
Incentive Plan).
10.6 Amendment to 2002 Non-Employee Director Stock Option Plan,
Amendment No. 1 to Stock Option Agreement (dated as of May 8,
2002) and Amendment No. 1 to Stock Option Agreement (dated as
of March 9, 2004).