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================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________________________ FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____. Commission File Number 0-25346 TRANSACTION SYSTEMS ARCHITECTS, INC. (Exact name of registrant as specified in its charter) Delaware 47-0772104 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) 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) 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 the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: 33,100,247 shares of Class A Common Stock at August 10, 2000 ================================================================================

TRANSACTION SYSTEMS ARCHITECTS, INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 TABLE OF CONTENTS Page ---- Part I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Balance Sheets as of June 30, 2000 and September 30, 1999 3 Condensed Consolidated Statements of Income for the three and nine months ended June 30, 2000 and 1999 4 Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2000 and 1999 5 Notes to Condensed Consolidated Financial Statements 6 - 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 - 14 Item 3. Quantitative and Qualitative Disclosures about Market Risk 14 Part II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 15 Signatures 16 Index to Exhibits 17

TRANSACTION SYSTEMS ARCHITECTS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited and in thousands) June 30, September 30, 2000 1999 -------------- --------------- ASSETS Current assets: Cash and cash equivalents $ 29,501 $ 70,482 Marketable securities 12,038 8,456 Billed receivables, net 60,108 50,619 Accrued receivables 49,539 41,880 Refundable income taxes 9,599 - Deferred income taxes 1,419 1,164 Other 12,128 7,215 -------------- --------------- Total current assets 174,332 179,816 Property and equipment, net 20,252 20,754 Software, net 25,689 25,835 Intangible assets, net 67,425 61,612 Long-term accrued receivables 21,215 26,850 Investments and notes receivable 7,791 3,569 Deferred income taxes 2,469 97 Other 5,875 4,785 -------------- --------------- Total assets $ 325,048 $ 323,318 ============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 10,539 $ 501 Accounts payable 16,464 8,030 Accrued employee compensation 5,593 7,192 Accrued liabilities 17,599 18,287 Income taxes - 8,521 Deferred revenue 58,211 54,627 -------------- --------------- Total current liabilities 108,406 97,158 Long-term debt 815 991 -------------- --------------- Total liabilities 109,221 98,149 -------------- --------------- Stockholders' equity: Class A Common Stock 165 163 Additional paid-in capital 170,466 161,630 Retained earnings 84,105 82,922 Treasury stock, at cost (35,258) (14,250) Accumulated other comprehensive income (3,651) (5,296) -------------- --------------- Total stockholders' equity 215,827 225,169 -------------- --------------- Total liabilities and stockholders' equity $ 325,048 $ 323,318 ============== =============== See notes to condensed consolidated financial statements.

TRANSACTION SYSTEMS ARCHITECTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited and in thousands, except per share amounts) Three Months Ended June 30, Nine Months Ended June 30, -------------------------------- ----------------------------------- 2000 1999 2000 1999 ------------ ------------ -------------- -------------- Revenues: Software license fees $ 46,498 $ 53,259 $ 128,259 $ 149,888 Maintenance fees 17,340 16,042 51,229 47,605 Services 14,992 18,858 41,848 61,462 Hardware, net 72 967 72 3,192 ------------ ------------ -------------- -------------- Total revenues 78,902 89,126 221,408 262,147 ------------ ------------ -------------- -------------- Operating expenses: Cost of software license fees 11,851 10,381 33,760 32,153 Cost of maintenance and services 17,952 17,740 52,008 56,071 Research and development 10,125 8,711 28,553 25,447 Selling and marketing 18,837 17,495 54,602 50,821 General and administrative costs 16,185 14,639 45,982 43,984 Amortization of goodwill and purchased intangibles 2,035 1,572 5,970 3,121 ------------ ------------ -------------- -------------- Total operating expenses 76,985 70,538 220,875 211,597 ------------ ------------ -------------- -------------- Operating income 1,917 18,588 533 50,550 ------------ ------------ -------------- -------------- Other income (expense): Interest income 985 706 2,649 2,130 Interest expense (178) (77) (313) (236) Transaction related expenses - - - (653) Other (1,065) (131) (933) 37 ------------ ------------ -------------- -------------- Total other (258) 498 1,403 1,278 ------------ ------------ -------------- -------------- Income before income taxes 1,659 19,086 1,936 51,828 Provision for income taxes (644) (7,237) (753) (19,726) ------------ ------------ -------------- -------------- Net income $ 1,015 $ 11,849 $ 1,183 $ 32,102 ============ ============ ============== ============== Earnings Per Share Data: Basic: Net income $ 0.03 $ 0.37 $ 0.04 $ 1.02 ============ ============ ============== ============== Average shares outstanding 31,621 32,016 31,789 31,465 ============ ============ ============== ============== Diluted: Net income $ 0.03 $ 0.36 $ 0.04 $ 1.00 ============ ============ ============== ============== Average shares outstanding 31,875 32,650 32,201 32,214 ============ ============ ============== ============== See notes to condensed consolidated financial statements.

TRANSACTION SYSTEMS ARCHITECTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited and in thousands) Nine Months Ended June 30, ------------------------------------ 2000 1999 -------------- -------------- Cash flows from operating activities: Net income $ 1,183 $ 32,102 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 6,438 6,074 Amortization 15,301 8,619 Changes in operating assets and liabilities: Billed and accrued receivables (11,297) (4,720) Other current and noncurrent assets (19,190) (13,304) Accounts payable 7,929 (72) Deferred revenue 3,219 4,774 Other current liabilities (11,892) (8,440) -------------- -------------- Net cash provided by (used in) operating activities (8,309) 25,033 -------------- -------------- Cash flows from investing activities: Purchases of property and equipment (4,926) (5,026) Purchases of software (8,295) (5,560) Purchase of marketable securities - (6,500) Acquisition of businesses, net of cash acquired (7,959) (9,967) Additions to investments and notes receivable (4,222) (602) -------------- -------------- Net cash used in investing activities (25,402) (27,655) -------------- -------------- Cash flows from financing activities: Proceeds from issuance of Class A Common Stock 1,406 755 Proceeds from exercise of stock options 2,005 2,114 Purchases of Class A Common Stock (21,008) - Borrowings on line of credit 10,000 - Payments of long-term debt (495) (1,350) -------------- -------------- Net cash provided by (used in) financing activities (8,092) 1,519 -------------- -------------- Effect of exchange rate fluctuations on cash 822 68 -------------- -------------- Decrease in cash and cash equivalents (40,981) (1,035) Cash and cash equivalents, beginning of period 70,482 63,648 -------------- -------------- Cash and cash equivalents, end of period $ 29,501 $ 62,613 ============== ============== See notes to condensed consolidated financial statements.

TRANSACTION SYSTEMS ARCHITECTS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Consolidated Financial Statements Transaction Systems Architects, Inc. (the Company or TSA) develops, markets, installs and supports a broad line of software products and services primarily focused on facilitating electronic payments and electronic commerce. In addition to its own products, the Company distributes or acts as a sales agent for software developed by third parties. The products are used principally by financial institutions, retailers and third-party processors, both in domestic and international markets. The condensed consolidated financial statements at June 30, 2000 and for the three and nine months ended June 30, 2000 and 1999 are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management's discussion and analysis of financial condition and results of operations, contained in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1999. The results of operations for the three and nine months ended June 30, 2000 are not necessarily indicative of the results for the entire fiscal year ending September 30, 2000. Certain September 30, 1999 amounts have been reclassified to conform to the June 30, 2000 presentation. 2. Comprehensive Income The components of other comprehensive income were as follows (in thousands): Three Months Ended June 30, Nine Months Ended June 30, ------------------------------------ ------------------------------------ 2000 1999 2000 1999 --------------- -------------- -------------- --------------- Net income $ 1,015 $ 11,849 $ 1,183 $ 32,102 Other comprehensive income: Unrealized investment holding gain (loss) (7,072) 687 3,695 844 Foreign currency translation adjustments (1,038) 29 (2,050) (1,861) --------------- -------------- -------------- --------------- Comprehensive income (loss) $ (7,095) $ 12,565 $ 2,828 $ 31,085 =============== ============== ============== =============== Components of accumulated other comprehensive income at each balance sheet date were as follows (in thousands): June 30, September 30, 2000 1999 -------------- --------------- Unrealized investment holding gain (loss) $ 653 $ (3,043) Foreign currency translation adjustments (4,304) (2,253) -------------- --------------- $ (3,651) $ (5,296) ============== =============== As of August 10, 2000, the fair value of the marketable securities declined from $12.0 million at June 30, 2000 to approximately $7.8 million. 3. Revenue Recognition The Company accounts for revenue in accordance with American Institute of Certified Public Accountants Statement of Position 97-2, "Software Revenue Recognition" (SOP 97-2). The Company has concluded that for certain software arrangements entered into after October 1, 1998 with extended guaranteed payment terms, the "fixed or determinable" presumption of SOP 97-2 has been overcome and software license fees, net of third party royalties in fiscal 1999, should be recognized upon meeting all other SOP 97-2 revenue recognition criteria ("guaranteed software license fees"). The present value of the guaranteed software license fees recognized during the three months ended June 30, 2000 and 1999 totaled $11.2 million and $18.9 million, respectively. The present value of the guaranteed software license fees recognized during the nine months ended June 30, 2000 and 1999 totaled $21.7 million and $37.5 million, respectively. The discount rates used to determine the present value of the guaranteed software license fees, representing the Company's incremental borrowing rates, ranged from 9.5% to 11.0%. The portion of the guaranteed software license fees that has been recognized by the Company, but not yet billed, is reflected in accrued receivables in the accompanying condensed consolidated balance sheets. 4. Earnings Per Share Basic earnings per share is computed using the weighted average number of shares outstanding during the period. Diluted earnings per share is computed on the basis of the weighted average number of common shares outstanding plus the dilutive effect of outstanding stock options using the "treasury stock" method. The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts): Three Months Ended June 30, Nine Months Ended June 30, ---------------------------------- ---------------------------------- 2000 1999 2000 1999 ------------- ------------- ------------- ------------- Net income $ 1,015 $ 11,849 $ 1,183 $ 32,102 ============= ============= ============= ============= Weighted average shares outstanding 31,621 32,016 31,789 31,465 Dilutive effect of stock options 254 634 412 749 ------------- ------------- ------------- ------------- Dilutive shares outstanding 31,875 32,650 32,201 32,214 ============= ============= ============= ============= Basic earnings per share $ 0.03 $ 0.37 $ 0.04 $ 1.02 ============= ============= ============= ============= Diluted earnings per share $ 0.03 $ 0.36 $ 0.04 $ 1.00 ============= ============= ============= ============= For the three months ended June 30, 2000 and 1999, stock options representing 3,668,875 and 137,889 shares of the Company's common stock, respectively, have been excluded from the computation of diluted earnings per share as exercise prices of the stock options were greater than the average market price of the common stock. For the nine months ended June 30, 2000 and 1999, stock options representing 2,064,457 and 40,552 shares of the Company's common stock, respectively, have been excluded from the computation of diluted earnings per share as exercise prices of the stock options were greater than the average market price of the common stock. 5. Acquisitions In April 2000, TSA and WorkPoint Systems, Inc. (WorkPoint Systems) completed a stock exchange transaction which resulted in WorkPoint Systems becoming a wholly-owned subsidiary of TSA. WorkPoint Systems is a provider of multi-user software that enables enterprises to model processes over a distributed corporate network. This software can be used to create graphical models that provide a visual representation of and automatically execute various steps in a business process. Shareholders of WorkPoint Systems received 164,680 shares of TSA Class A Common Stock, with a market value of $4,750,000, in exchange for 100% of WorkPoint Systems shares. The stock exchange was accounted for using the purchase method of accounting. Accordingly, the excess purchase price over the estimated fair value of the net tangible assets acquired totaling $4.3 million was allocated to goodwill. This goodwill is being amortized using the straight-line method over five years. In June 2000, the Company acquired a 70% ownership in Hospital Health Plan Corporation (HHPC), a business that offers a suite of products designed to facilitate the automatic adjudication of medical claims. HHPC was acquired for $4.6 million in cash and $3.3 million in assumed liabilities. This acquisition was accounted for as a purchase and resulted in the recording of goodwill of $7.8 million that is being amortized using the straight-line method over five years. 6. Line of Credit During the quarter, the Company replaced its $10 million bank line of credit with a $25 million bank line of credit. The new line is secured by certain trade accounts receivable of TSA. Among other restrictions, the Company must maintain a minimum accounts receivable balance, minimum tangible net worth and minimum working capital levels at each reporting date. After obtaining a waiver from the bank, the Company is in compliance with all debt covenants as of June 30, 2000. Interest accrues at an annual rate equal to the bank's "base rate" less .75% and is payable at the end of each month. During the quarter ended June 30, 2000, the Company recorded interest expense of $104,000. Current borrowings outstanding amount to $10 million and at June 30, 2000, the remaining $15 million was available to the Company for future borrowings. The bank line of credit expires on May 31, 2001. 7. Segment Information During the second quarter of fiscal 2000, the Company announced a business strategy resulting in the formation of six business units organized around the Company's products and services. Key elements of the strategy include aligning the Company's business into vertically-integrated business units targeted at key markets where the Company's products and services best match emerging market demand. During the third quarter of fiscal 2000, the Company's strategy was further defined whereby the six business units were classified into 'core' and 'non-core' businesses. The core businesses are comprised of the Consumer Banking, Electronic Commerce and Internet Banking units and the non-core businesses are comprised of the Electronic Business Infrastructure, Corporate Banking e-Payments and Health Claims Transaction Processing and Management units. The Company plans to direct the majority of its focus on the core businesses, which in total make up its consumer payments business. The Company is considering various alternatives for its non-core businesses, including possible spin-offs, sales or attracting additional capital and partners. One of the first steps of this new business strategy was the announcement of the formation of Insession Technologies, Inc., the Electronic Business Infrastructure business unit of the company. As indicated in the Company's June 5, 2000 news release, Insession Technologies, Inc. filed a registration statement with the Securities and Exchange Commission for a proposed initial public offering of Insession Technologies, Inc. common stock, all of which will be offered by Insession Technologies, Inc. The timing and size of the offering are dependent on market conditions and other factors. This does not constitute an offer of any securities for sale. Insession Technologies, Inc. is currently a wholly-owned subsidiary of the Company. The Company currently plans to distribute all of its remaining shares of Insession Technologies, Inc. common stock to the Company's stockholders on a pro rata basis within approximately 12 months after the Insession Technologies, Inc. initial public offering, subject to receiving a ruling from the IRS that the distribution will be tax-free. However, the Company is not obligated to complete the distribution or otherwise divest its shares of Insession Technologies, Inc. common stock, and the distribution or other divestiture may not occur by the anticipated time or at all. A summary of the products and related services associated with each operating segment is as follows: Core operating segments: o Consumer Banking products focus on the consumer side of financial institutions related to automated teller machine (ATM) networks, point-of-sale deployments, branch networks, home banking, fraud detection and back-office payments management. o Electronic Commerce products offer retailers, merchant banks and payment processors electronic payment solutions such as secure web-based payments, debit and credit transaction authorization, fraud management and targeted marketing programs. o Internet Banking products offer banking and bill payments solutions to large financial institutions as well as small community banks. Non-core operating segments: o Electronic Business Infrastructure products facilitate communication, data movement, transaction processing and systems monitoring across incompatible computing systems involving mainframes, distributed computing networks and the Internet. o Corporate Banking e-Payments products offer electronic commerce and electronic payments solutions to corporate banking institutions. o Health Claims Transaction Processing and Management products allow large companies and healthcare payment processors to automate claims eligibility determination, claims capture and claims payments. In evaluating segment performance, management focuses on income from operations. The table below presents revenues and operating income for each operating segment (in thousands): Three Months Ended Nine Months Ended June 30, June 30, ---------------------------------- ---------------------------------- 2000 1999 2000 1999 -------------- ------------- ------------- ------------- Segment revenues: Consumer Banking $ 47,832 $ 62,541 $ 136,091 $ 183,590 Electronic Commerce 8,256 5,156 17,207 13,700 Internet Banking 2,311 2,945 6,765 8,121 -------------- ------------- ------------- ------------- Revenues - core business units 58,399 70,642 160,063 205,411 Electronic Business Infrastructure 10,421 9,100 32,267 30,012 Corporate Banking e-Payments 9,114 8,321 26,364 23,711 Health Claims Transaction Processing and Management 968 1,063 2,714 3,013 -------------- ------------- ------------- ------------- Revenues - non-core business units 20,503 18,484 61,345 56,736 -------------- ------------- ------------- ------------- Total revenues $ 78,902 $ 89,126 $ 221,408 $ 262,147 ============== ============= ============= ============= Segment operating income (loss): Consumer Banking $ 3,822 $ 18,163 $ 2,820 $ 49,821 Electronic Commerce (1,568) (1,679) (7,767) (3,949) Internet Banking (590) 472 (1,247) 1,359 -------------- ------------- ------------- ------------- Operating income (loss) - core business units 1,664 16,956 (6,194) 47,231 Electronic Business Infrastructure 711 749 5,614 2,538 Corporate Banking e-Payments 214 584 1,810 124 Health Claims Transaction Processing and Management (672) 299 (697) 657 -------------- ------------- ------------- ------------- Operating income (loss) - non-core business units 253 1,632 6,727 3,319 -------------- ------------- ------------- ------------- Total operating income $ 1,917 $ 18,588 $ 533 $ 50,550 ============== ============= ============= ============= The Company currently does not track long-lived or total assets separately for each operating segment. The Company's products are sold and supported through distribution networks covering the geographic regions of Americas, Europe/Middle East/Africa (EMEA) and Asia/Pacific. The following are revenue and long-lived assets for these geographic regions (in thousands): Three Months Ended Nine Months Ended June 30, June 30, ---------------------------------- ---------------------------------- 2000 1999 2000 1999 -------------- ------------- ------------- ------------- Revenues by geographic region: United States $ 35,735 $ 43,491 $ 101,797 $ 127,110 Americas - other 9,811 8,863 26,987 28,822 -------------- ------------- ------------- ------------- Total Americas 45,546 52,354 128,784 155,932 EMEA 26,386 29,090 71,192 82,514 Asia/Pacific 6,970 7,682 21,432 23,701 -------------- ------------- ------------- ------------- $ 78,902 $ 89,126 $ 221,408 $ 262,147 ============== ============= ============= ============= June 30, September 30, 2000 1999 ------------- ------------- Long-lived assets by geographic region: Americas (primarily United States) $ 113,253 $ 103,425 EMEA 12,260 11,520 Asia/Pacific 1,519 1,620 ------------- ------------- $ 127,032 $ 116,565 ============= ============= 8. Accounting Pronouncements Issued But Not Yet Effective In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements". The Company will be required to adopt SAB 101 no later than the fourth quarter ending September 30, 2001. SAB 101 requires, among other things, that license and other up-front fees be recognized over the term of the agreement, unless the fees are in exchange for products delivered or services performed that represent the culmination of a separate earnings process. The Company does not expect this change in accounting principle to have a material effect on the Company's financial position and results of operation. In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44, "Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25". The Interpretation clarifies the application of APB Opinion No. 25 for certain issues involving employee stock compensation. The Interpretation is effective July 1, 2000. Adoption of this Interpretation is not expected to have a significant effect on the Company's consolidated financial statements. 9. Subsequent Event In June 1999, the Company entered into a transaction with Digital Courier Technologies, Inc. (DCTI), whereby the Company acquired 1.25 million shares of DCTI's Common Stock for $6.5 million. At that time, the Company received warrants to purchase an additional 1.0 million shares at an exercise price of $5.20 per share. In July 2000, the Company exercised its rights to purchase 1.0 million shares of DCTI Common Stock at $5.20 per share. At the time of the exercise, the market price of the DCTI stock was approximately $7.56 per share. As of August 10, 2000, the market value of the DCTI stock has declined to approximately $4.03 per share.

TRANSACTION SYSTEMS ARCHITECTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following table sets forth certain financial data and the percentage of total revenues of the Company for the periods indicated: Three Months Ended June 30, Nine Months Ended June 30, ----------------------------------------- ------------------------------------------- 2000 1999 2000 1999 ------------------ ------------------ ------------------- ------------------- % of % of % of % of Amount Revenue Amount Revenue Amount Revenue Amount Revenue --------- ------- --------- ------- ---------- ------- ---------- ------- Revenues: Software license fees $ 46,498 58.9 % $ 53,259 59.7 % $ 128,259 58.0 % $ 149,888 57.2 % Maintenance fees 17,340 22.0 16,042 18.0 51,229 23.1 47,605 18.2 Services 14,992 19.0 18,858 21.2 41,848 18.9 61,462 23.4 Hardware, net 72 0.1 967 1.1 72 0.0 3,192 1.2 --------- ------- --------- ------- ---------- ------- ---------- ------- Total revenues 78,902 100.0 89,126 100.0 221,408 100.0 262,147 100.0 --------- ------- --------- ------- ---------- ------- ---------- ------- Operating expenses: Cost of software license fees 11,851 15.0 10,381 11.6 33,760 15.2 32,153 12.3 Cost of maintenance and services 17,952 22.8 17,740 19.9 52,008 23.5 56,071 21.3 Research and development 10,125 12.8 8,711 9.8 28,553 12.9 25,447 9.7 Selling and marketing 18,837 23.9 17,495 19.6 54,602 24.7 50,821 19.4 General and administrative costs 16,185 20.5 14,639 16.4 45,982 20.8 43,984 16.8 Amortization of goodwill and purchased intangibles 2,035 2.6 1,572 1.8 5,970 2.7 3,121 1.2 --------- ------- --------- ------- ---------- ------- ---------- ------- Total operating expenses 76,985 97.6 70,538 79.1 220,875 99.8 211,597 80.7 --------- ------- --------- ------- ---------- ------- ---------- ------- Operating income 1,917 2.4 18,588 20.9 533 0.2 50,550 19.3 --------- ------- --------- ------- ---------- ------- ---------- ------- Other income (expense): Interest income 985 1.2 706 0.7 2,649 1.1 2,130 0.8 Interest expense (178) (0.2) (77) (0.1) (313) (0.1) (236) (0.1) Transaction related expenses - 0.0 - 0.0 - 0.0 (653) (0.2) Other (1,065) (1.3) (131) (0.1) (933) (0.4) 37 0.0 --------- ------- --------- ------- ---------- ------- ---------- ------- Total other (258) (0.3) 498 0.5 1,403 0.6 1,278 0.5 --------- ------- --------- ------- ---------- ------- ---------- ------- Income before income taxes 1,659 2.1 19,086 21.4 1,936 0.8 51,828 19.8 Provision for income taxes (644) (0.8) (7,237) (8.1) (753) (0.3) (19,726) (7.6) --------- ------- --------- ------- ---------- ------- ---------- ------- Net income $ 1,015 1.3 % $ 11,849 13.3 % $ 1,183 0.5 % $ 32,102 12.2 % ========= ======= ========= ======= ========== ======= ========== ======= Revenues Total revenues for the third quarter of fiscal 2000 decreased 11.5% or $10.2 million from the comparable period in fiscal 1999. Of this decrease, $6.8 million resulted from an 12.7% decrease in software license fee revenue, $3.9 million from a 20.5% decrease in services revenue, $895,000 from a 92.6% decrease in hardware revenue, offset by a $1.3 million, or 8.1%, increase in maintenance fee revenue. Total revenues for the first three quarters of fiscal 2000 decreased 15.5% or $40.7 million from the comparable period in fiscal 1999. Of this decrease, $21.6 million resulted from a 14.4% decrease in software license fee revenue, $19.6 million from a 31.9% decrease in services revenue, $3.1 million from a 97.7% decrease in hardware revenue, offset by a $3.6 million, or 7.6%, increase in maintenance fee revenue. During the first three quarters of fiscal 2000, 54.0% of total revenues resulted from international operations as compared to 52.9% for all of fiscal 1999. During the first quarter of fiscal 2000, the Company's large bank and merchant customers and potential new customers, in effect, locked down their systems in preparation for the Year 2000. This Year 2000 lock-down has had a negative impact on the Company's software license fee and services revenue during the first two quarters and, to a lesser extent, the third quarter of fiscal 2000 due to the less than expected demand by the Company's customers and potential new customers to upgrade and enhance their current systems. In addition, since the Year 2000 cutover, the Company has found its customers increasingly scrutinizing their information technology purchases which has led to further delays in software and services purchases as compared to the activity in the second and third quarters of fiscal 1999. The Company believes overall demand for the Company's products and services is increasing at a gradual pace. However, the Year 2000 lock-down described above interrupted the Company's normal sales cycle and therefore may have a negative impact on the company's revenue and net income beyond the first three quarters of fiscal 2000. The Company also believes customer demand for system upgrades and enhancements will be slow to return to normal growth levels, as many of the Company's customers upgraded and enhanced their systems prior to the Year 2000. The statements in this report regarding future results are preliminary and "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, this report contains other forward-looking statements including statements regarding the Company's expectations, plans and beliefs. The forward-looking statements in this report are subject to a variety of risks and uncertainties. Actual results could differ materially. Factors that could cause actual results to differ include but are not limited to those described above and the following: o That the Company will continue to derive a substantial majority of its total revenue from licensing its BASE24 family of software products and providing services and maintenance related to those products. Any reduction in demand for, or increase in competition with respect to, BASE24 products would have a material adverse effect on TSA's financial condition and results of operations. o That the Company's business is concentrated in the banking industry, making it susceptible to a downturn in that industry. o Fluctuations in quarterly operating results may result in volatility in TSA's stock price. No assurance can be given that operating results will not vary. o TSA's stock price may be volatile, in part due to external factors such as announcements by third parties or competitors, inherent volatility in the high-technology sector and changing market conditions in the industry. For a detailed discussion of these and other risk factors, interested parties should review the Company's filings with the Securities and Exchange Commission, including Exhibit 99.01 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1999. Monthly License Fees (MLF) revenue, a component of software license fees, was $14.3 million and $14.1 million in the third quarter of fiscal 2000 and 1999, respectively and $43.2 million and $40.1 million for the first three quarters of fiscal 2000 and 1999, respectively. The increase in MLF revenue is a result of the continued growth of the installed base of the Company's consumer banking, electronic business infrastructure and Internet banking products. Maintenance fees revenue for the third quarter of fiscal 2000 and 1999 was $17.3 million and $16.0 million, respectively. Maintenance fees revenue for the first three quarters of fiscal 2000 and 1999 was $51.2 million and $47.6 million, respectively. The increase in maintenance fees revenue is a result of continued growth of the installed base of the Company's consumer banking and corporate banking products. Hardware revenue consists primarily of revenues received under a market development funding program with Compaq which expired on September 30, 1999 and was not renewed. Hardware revenue for the third quarter of fiscal 2000 and 1999 was $0.1 million and $1.0 million, respectively. Hardware revenue for the first three quarters of fiscal 2000 and 1999 was $0.1 million and $3.2 million, respectively. Expenses Total operating expenses for the third quarter of fiscal 2000 increased 9.1% or $6.4 million over the comparable period in fiscal 1999. The increase for the quarter is due primarily to additional operating expenses incurred from the acquisitions of SDM International, Inc. (in July 1999), WorkPoint Systems, and HHPC and an increase in marketing program expenses. This increase in expense was offset, in part, by a reduction in staff required to support the Company's products and services. Total operating expenses for the first three quarters of fiscal 2000 increased 4.4% or $9.3 million over the comparable period in fiscal 1999. This increase is primarily due to the acquisitions of SDM International, Inc., WorkPoint Systems and HHPC. This increase in expense was offset, in part, by a reduction in staff required to support the Company's products and services. Total staff (including both employees and independent contractors) decreased from 2,252 at June 30, 1999 to 2,156 at June 30, 2000. Income Taxes The effective tax rate for the first three quarters of fiscal 2000 was 38.9% as compared to 37.8% for all of fiscal 1999. This increase is primarily attributable to non-deductible amortization associated with the fiscal 1999 acquisitions of Insession Inc. and SDM International, Inc. As of June 30, 2000, the Company has deferred tax assets of $17.6 million and deferred tax liabilities of $4.8 million. Each quarter, the Company evaluates its historical operating results as well as its projections for the future to determine the realizability of the deferred tax assets. This analysis indicated that $8.7 million of the deferred tax assets were more likely than not to be realized. Accordingly, the Company has recorded a valuation allowance of $8.9 million as of June 30, 2000. The Company intends to analyze the realizability of the net deferred tax assets at each future reporting period. Such analysis may indicate that the realization of various deferred tax benefits is more likely than not and, therefore, the valuation reserve may be further reduced. Backlog As of June 30, 2000 and 1999, the Company had non-recurring revenue backlog of $28.5 million and $31.5 million in software license fees, respectively, and $27.8 million and $24.0 million in services, respectively. The Company includes in its non-recurring revenue backlog all fees specified in contracts which have been executed by the Company and its customers to the extent that the Company contemplates recognition of the related revenue within one year. There can be no assurance that the contracts included in non-recurring revenue backlog will actually generate the specified revenues or that the actual revenues will be generated within the one year period. As of June 30, 2000 and 1999, the Company had recurring revenue backlog of $138.6 million and $138.5 million, respectively. The Company defines recurring revenue backlog to be all monthly license fees, maintenance fees and facilities management fees specified in contracts which have been executed by the Company and its customers to the extent that the Company contemplates recognition of the related revenue within one year. There can be no assurance, however, that contracts included in recurring revenue backlog will actually generate the specified revenues or that the actual revenues will be generated within the one-year period. Liquidity and Capital Resources As of June 30, 2000, the Company's principal sources of liquidity consisted of $29.5 million of cash and cash equivalents and a bank line of credit in the amount of $25 million with outstanding borrowings of $10.0 million at June 30, 2000. The bank line of credit is subject to maintenance of certain covenants. The Company's net cash flows used in operating activities for the first three quarters of fiscal 2000 amounted to $8.3 million. This compares to $25.0 million in net cash flows provided by operating activities for the first three quarters of fiscal 1999. The decrease of $33.3 million in cash flows from operating activities is principally due to lower net income offset by an increase in amortization expense due to the acquisitions of Insession Inc. in March 1999 and SDM International, Inc. in July 1999. A contributor to the Company's cash management program is the factoring of accrued receivables, whereby interest in Company receivables is transferred on a non-recourse basis to third-party financial institutions in exchange for cash. During the first three quarters of fiscal 2000 and 1999, the Company generated operating cash flows from the factoring of accrued receivables of $19.6 million and $20.4 million, respectively. The Company's net cash flows used in investing activities totaled $25.4 million and $27.7 million in the first three quarters of fiscal 2000 and 1999, respectively. This decrease is primarily due to a reduction in the purchase of marketable securities and cash paid for the acquisition of businesses, offset by an increase in software purchases and additions to investments and notes receivables. Cash used in investing activities of $3.0 million related to the Company's final payment in the first quarter of fiscal 2000 in connection with the acquisition of Insession Inc. The Company's Board of Directors has approved the repurchase of up to 2,000,000 shares of Common Stock through February 2001. The purpose of the stock repurchase program is to replace the shares issued in the SDM International, Inc. acquisition completed in July 1999, and to fund a reserve of shares for future employee stock option grants, acquisitions or other corporate purposes. Under this repurchase program, the Company purchased 1,000,300 shares at an average cost of $21.00 for approximately $21.0 million during the first three quarters of fiscal 2000. The total number of shares purchased under the stock repurchase program through June 30, 2000 amounts to 1,475,300 shares. The Company used available cash to fund the Common Stock repurchases. Management believes that the Company's working capital, cash flow generated from operations and funds available from the bank line of credit will be sufficient to meet the Company's working capital requirements for the foreseeable future. Corporate Business Strategy During the second quarter of fiscal 2000, the Company announced a business strategy resulting in the formation of six business units organized around the Company's products and services. Key elements of the strategy include aligning the Company's business into vertically-integrated business units targeted at key markets where the Company's products and services best match emerging market demand. During the third quarter of fiscal 2000, the Company's strategy was further defined whereby the six business units were classified into 'core' and 'non-core' businesses. The core businesses are comprised of the Consumer Banking, Electronic Commerce and Internet Banking units and the non-core businesses are comprised of the Electronic Business Infrastructure, Corporate Banking e-Payments and Health Claims Transaction Processing and Management units. The Company plans to direct the majority of its focus on the core businesses, which in total make up its consumer payments business. The Company is considering various alternatives for its non-core business, including possible spin-offs, sales or attracting additional capital and partners. One of the first steps of this new business strategy was the announcement of the formation of Insession Technologies, Inc., the Electronic Business Infrastructure business unit of the company. As indicated in the Company's June 5, 2000 news release, Insession Technologies, Inc. filed a registration statement with the Securities and Exchange Commission for a proposed initial public offering of Insession Technologies, Inc. common stock, all of which will be offered by Insession Technologies, Inc. The timing and size of the offering are dependent on market conditions and other factors. This does not constitute an offer of any securities for sale. Insession Technologies, Inc. is currently a wholly-owned subsidiary of the Company. The Company currently plans to distribute all of its remaining shares of Insession Technologies, Inc. common stock to the Company's stockholders on a pro rata basis within approximately 12 months after the Insession Technologies, Inc. initial public offering, subject to receiving a ruling from the IRS that the distribution will be tax-free. However, the Company is not obligated to complete the distribution or otherwise divest its shares of Insession Technologies, Inc. common stock, and the distribution or other divestiture may not occur by the anticipated time or at all. Quantitative and Qualitative Disclosures about Market Risk There have been no material changes to the Company's market risk for the three and nine month periods ended June 30, 2000. See the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1999 for additional discussion regarding quantitative and qualitative disclosure about market risk.

TRANSACTION SYSTEMS ARCHITECTS, INC. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.26 Credit Facility Letter Agreement and Promissory Note with Wells Fargo Bank Nebraska, N.A. 10.33 Transaction Systems Architects, Inc. 2000 Non-Employee Director Stock Option Plan 27.00 Financial Data Schedule (b) Reports on Form 8-K None

SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: August 14, 2000 TRANSACTION SYSTEMS ARCHITECTS, INC. (Registrant) /s/ Edward C. Fuxa -------------------------- Edward C. Fuxa Controller (Principal Accounting Officer)

TRANSACTION SYSTEMS ARCHITECTS, INC. INDEX TO EXHIBITS Exhibit Number Description - ------ ----------- 10.26 Credit Facility Letter Agreement and Promissory Note with Wells Fargo Bank Nebraska, N.A. 10.33 Transaction Systems Architects, Inc. 2000 Non-Employee Director Stock Option Plan 27.00 Financial Data Schedule


June 16, 2000


Transaction Systems Architects, Inc.
330 South 108th Avenue
Omaha, Nebraska  68154-2684

Attention:        Mr. Edward Fuxa
                  Controller


Dear Mr. Fuxa:

Pursuant to our recent discussions, Norwest Bank Nebraska, N.A., (hereinafter
referred to as the "Bank"), is pleased to offer a secured, committed credit
facility jointly to Transaction Systems Architects, Inc., a Delaware
corporation ("TSA") and ACI Worldwide Inc., a Nebraska corporation  ("ACI")
(hereinafter referred to individually and collectively as the "Joint
Borrowers").

The terms of the facility set forth in this Letter Agreement (hereinafter
referred to as the "Facility Letter") are:

1)     Amount:                 The aggregate amount outstanding shall not
                               exceed Twenty Five Million and 00/100 United
                               States Dollars (USD) ($25,000,000.00)
                               (hereinafter referred to as the "Credit
                               Facility Amount") at any time, which shall be
                               available to the Joint Borrowers in the form of
                               loans (hereinafter referred to as "Advance(s)")
                               or standby letters of credit (hereinafter
                               referred to as "SLC(s)"), subject to a sublimit
                               of Ten Million and 00/100 United States Dollars
                               (USD) ($10,000,000.00) in the aggregate on
                               outstanding SLCs, including any Reimbursement
                               Obligations, as hereafter defined.

2)     Purpose:                General corporate purposes, provided that the
                               Joint Borrowers will not use the proceeds of
                               any Advances or SLCs extended or issued under
                               this facility for the purpose of purchasing or
                               carrying "margin stock" as defined in
                               Regulation U of the Board of Governors of the
                               Federal Reserve System.

3)     Evidence of
          Indebtedness:        A Promissory Note in the form of Exhibit A
                               hereto to be signed by the Joint Borrowers
                               (hereinafter referred to as the "Note").  The
                               indebtedness shall be the joint and several
                               obligation of TSA and ACI.

4)     Expiration Date:        This facility shall expire on May 31, 2001,
                               upon which date the total unpaid principal
                               balance, all accrued but unpaid interest and
                               any outstanding Reimbursement Obligations, as
                               hereafter defined, shall be paid in full.

5)     Interest Rate:          The unpaid principal balance of all Advances
                               hereunder shall bear interest as follows:

                               (a)  Base Rate: Before maturity of this credit
                                    facility, and except for  LIBOR Rate
                                    Advances, as hereafter defined, at an
                                    annual rate equal to 0.75% below the Base
                                    Rate adjusted at the time of changes in
                                    the Base Rate.  "Base Rate" shall mean the
                                    rate of interest established by Norwest
                                    Bank Nebraska, N.A. from time to time as
                                    its "base" or "prime" or "Norwest Money
                                    Market Rate."  Interest shall be paid
                                    monthly at the end of each month on any
                                    Advances made at the Base Rate.  Advances
                                    made at the Base Rate shall be made in the
                                    minimum principal amount of $10,000.

                               (b)  LIBOR Rate: LIBOR Rate is the rate at
                                    which deposits in U.S. dollars in the
                                    amount and for a maturity corresponding to
                                    that of any Advances made at the LIBOR
                                    Rate ("LIBOR Rate Advances") are offered
                                    to the Bank in the offshore inter-bank
                                    market at approximately 10:00 a.m.,
                                    (London, England time), two business days
                                    prior to the date on which such Advance is
                                    made, adjusted for maximum statutory
                                    reserve requirements, plus 175 basis
                                    points (1.75%) per annum.

                                    LIBOR Rate Advances shall be for periods,
                                    at the Joint Borrowers' option, of one
                                    (1), two (2) or three (3) months (each, an
                                    "Interest Period"); provided, that the
                                    Interest Period shall not extend beyond
                                    the Expiration Date.  Interest shall be
                                    payable at the maturity of each Interest
                                    Period and shall be calculated on actual
                                    days elapsed on a 360 day year.

                                    With respect to the renewal of any LIBOR
                                    Rate Advance, or any new borrowing
                                    hereunder, in the event that deposits in
                                    the amount and for the term of the
                                    selected Interest Period are unavailable
                                    to Bank, or that by reason or
                                    circumstances affecting the inter-bank
                                    markets generally, adequate and reasonable
                                    means do not exist for ascertaining the
                                    interest rate applicable to such LIBOR
                                    Rate Advance for the selected Interest
                                    Period, Joint Borrowers shall either repay
                                    such LIBOR Rate Advance or direct Bank to
                                    convert such LIBOR Rate Advance into an
                                    Advance of a type which is available on
                                    the last day of the then current Interest
                                    Period, said choice between repayment or
                                    conversion to be solely at Joint
                                    Borrowers' option.

                                    If it shall become unlawful (or contrary
                                    to any direction from or requirement of
                                    any governmental authority having
                                    jurisdiction over Bank) for Bank to
                                    continue to fund or maintain any LIBOR
                                    Rate Advance or to perform its obligations
                                    hereunder, then upon demand by Bank to
                                    Joint Borrowers, such LIBOR Rate Advance
                                    or other obligation shall thereupon be
                                    canceled, and, if it is unlawful for Bank
                                    to continue to fund or maintain any LIBOR
                                    Rate Advance, Joint Borrowers shall prepay
                                    such LIBOR Rate Advance without premium or
                                    penalty, together with accrued interest
                                    thereon, on the last day of the then
                                    current Interest Period or on such earlier
                                    date as may be required by law.

                                    The Joint Borrowers may obtain multiple
                                    LIBOR Rate Advances hereunder; provided,
                                    that each LIBOR Rate Advance shall be in
                                    the minimum principal amount of $1,000,000
                                    and shall be payable in full, with
                                    interest thereon, at the maturity of each
                                    LIBOR Rate Advance.

                               (c)  Default Rate: After maturity, whether by
                                    lapse of time, default, acceleration or
                                    otherwise, at a rate equal to the Base
                                    Rate plus three percent (3%) per annum
                                    (the "Default Rate").

6)     Request for
         Advances:             Requests for Advances by the Joint Borrowers
                               shall be made by telephonic, telecopier or
                               telex notice to the Bank (which notice shall be
                               promptly confirmed in writing) by Dwight G.
                               Hanson, Chief Financial Officer, Edward Fuxa,
                               Controller, or Frances Stein, General Manager,
                               Account Operations, all of TSA, or such other
                               person or persons subsequently designated by
                               the Joint Borrowers in writing.  Each request
                               by Joint Borrowers for an Advance at the Base
                               Rate must be received by the Bank no later than
                               12:00 p.m. Omaha, Nebraska time, on the day on
                               which it is to be funded.  Each request by
                               Joint Borrowers for a LIBOR Rate Advance must
                               be received by the Bank no later than 11:00
                               a.m. Omaha, Nebraska time, on the day which is
                               three (3) business days prior to the day on
                               which it is to be funded.  The Joint Borrowers
                               agree that the Bank may rely on any such
                               telephonic, telecopier or telex notice given by
                               any person it in good faith believes is
                               authorized to give such notice without the
                               necessity of independent investigation, and in
                               the event any notice by such means conflicts
                               with the written confirmation, such notice
                               shall govern if the Bank has acted in reliance
                               thereon.

7)     Prepayment:             The principal balance of the LIBOR Rate
                               Advances may not be prepaid, in whole or in
                               part, before the end of any Interest Period.
                               If, for any reason, a LIBOR Rate Advance is
                               paid prior to the last business day of any
                               Interest Period, the Joint Borrowers agree to
                               indemnify the Bank against any loss (including
                               any loss on redeployment of the funds repaid),
                               cost or expense incurred by the Bank as a
                               result of such prepayment.

8)     Standby Letters
         of Credit:            Each SLC shall be issued pursuant to an
                               Application for Letter of Credit in form and
                               substance satisfactory to the Bank.  The
                               expiration date of each SLC shall be on or
                               before the Expiration Date of this facility.
                               Upon the issuance of each SLC, Joint Borrowers
                               shall pay the Bank a commission fee in the
                               amount of one and three-quarters percent
                               (1.75%) on the amount of each SLC issued
                               hereunder plus the Bank's issuance costs.

                               Joint Borrowers are obligated, and hereby
                               unconditionally agree, to pay to the Bank, in
                               immediately available funds, the face amount of
                               each draft drawn and presented under an SLC
                               issued by the Bank hereunder (the obligation of
                               the Joint Borrowers hereunder with respect to
                               drafts drawn on any SLC is a "Reimbursement
                               Obligation").  If at any time the Joint
                               Borrowers fail to pay any Reimbursement
                               Obligation when due, the Joint Borrowers shall
                               be deemed to have requested an Advance from the
                               Bank hereunder at the Base Rate, as of the date
                               such Reimbursement Obligation is due, the
                               proceeds of which Advance shall be used to
                               repay such Reimbursement Obligation.  Such
                               Advance shall only be made if no Event of
                               Default shall exist and shall be subject to
                               availability under the Credit Facility Amount.
                               If such Advance is not made by the Bank for any
                               reason, the unpaid amount of such Reimbursement
                               Obligation shall be due and payable to the Bank
                               upon demand and shall bear interest at the
                               Default Rate of interest specified herein.

9)     Commitment Fee:         In consideration for the Bank making this
                               facility available to the Joint Borrowers, the
                               Joint Borrowers agree to pay to the Bank a
                               commitment fee of 25 basis points per annum of
                               the Credit Facility Amount, payable at closing.

10)    Non-Use Fee:            In consideration for the Bank making this
                               facility available to the Joint Borrowers, the
                               Joint Borrowers agree to pay to the Bank a
                               non-use fee on the average unused portion of
                               the Credit Facility Amount during each quarter
                               of 25 basis points per annum, payable quarterly
                               in arrears on each March 31, June 30, September
                               30, December 31 and on the Expiration Date.

11)    Guarantors:             Applied Communications, Inc. U.K. Holding
                               Company, Regency Systems, Inc. and IntraNet,
                               Inc. (individually and collectively the
                               "Guarantors") shall execute and deliver to the
                               Bank, "Guaranties," in form and substance
                               acceptable to the Bank.  The Guaranties shall
                               provide the Bank with an absolute,
                               unconditional and unlimited guarantee of
                               payment of the Obligations, as hereafter
                               defined, by each of the Guarantors.  Regency
                               Systems, Inc. and IntraNet, Inc. (collectively
                               the "Domestic Guarantors") shall further
                               provide the Bank a security interest in all of
                               their accounts, as more fully set forth in the
                               following section.

12)    Security:               As security for the payment of the Note
                               executed in connection herewith (including any
                               and all extensions, renewals, modifications and
                               substitutions thereof, or exchanges therefore),
                               any and all future advances of credit to the
                               Joint Borrowers the performance of this
                               Facility Letter, the payment of any and all
                               amounts advanced by the Bank hereunder or
                               otherwise on behalf of the Joint Borrowers, any
                               legal fees and all other fees, charges,
                               expenses, or costs incurred by the Bank in
                               connection herewith, and for the satisfaction
                               of any and all other liabilities or obligations
                               of the Joint Borrowers to the Bank, howsoever
                               created, direct or indirect, absolute or
                               contingent, joint or several, now or hereafter
                               existing, or due or to become due (herein
                               collectively called the "Obligations"), the
                               Joint Borrowers and the Domestic Guarantors
                               have executed and delivered to the Bank, or
                               will execute and deliver to the Bank, Security
                               Agreements and Financing Statements granting
                               the Bank a security interest and first lien on
                               all accounts of the Joint Borrowers and the
                               Domestic Guarantors.

                               Joint Borrowers previously executed and
                               delivered Security Agreements to the Bank dated
                               June 8, 1995.  The Joint Borrowers hereby
                               reaffirm the security interest granted to the
                               Bank pursuant to said Security Agreements, and
                               agree that the security interests granted
                               thereby shall continue with respect to the
                               Obligations.

                               Joint Borrowers hereby agree to execute and
                               deliver on demand and hereby irrevocably
                               constitute and appoint the Bank the attorney-in
                               fact-of the Joint Borrowers coupled with an
                               interest, to execute, deliver, and if
                               appropriate, to file with the appropriate
                               filing officer or office such security
                               agreements, financing statements or other
                               instruments as the Bank may request or require
                               in order to impose or perfect the lien or
                               security interests hereof more specifically
                               thereon.

                               The executed Security Agreements and Financing
                               Statements are collectively and individually
                               referred to as the "Security Documents."

13)    Indemnity:              The Joint Borrowers hereby agree to indemnify the
                               Bank against any loss (including any loss on
                               redeployment of the funds prepaid), cost or
                               expense incurred by the Bank as a result of
                               default or acceleration of the Note, including
                               all court costs, reasonable attorneys' fees and
                               other costs of collection.

14)    Representations:        (a)   The Joint Borrowers are duly organized
                                     and existing under the laws of their
                                     respective states of incorporation, have
                                     full and adequate corporate powers to
                                     carry on their respective businesses as
                                     now conducted, are duly licensed or
                                     qualified in all jurisdictions wherein
                                     the nature of their respective activities
                                     require such licensing or qualifying, and
                                     where a failure to so qualify would have
                                     a material adverse effect on the
                                     Borrower, have full right, power and
                                     authority to enter into and perform this
                                     Facility Letter, the Note, Security
                                     Documents, and entering into and
                                     performing this Facility Letter, the
                                     Note, and Security Documents has been
                                     authorized by all necessary corporate
                                     action and does not contravene any
                                     provision of any charter or bylaw
                                     provision or any covenant, indenture or
                                     agreement of or affecting the Joint
                                     Borrowers, or any of their properties.

                               (b)   The Joint Borrowers have heretofore
                                     delivered to the Bank a copy of TSA's:
                                     (i) Annual Report on Form 10-K for the
                                     fiscal year ended as of September 30,
                                     1999; (ii) Quarterly Report on Form 10-Q
                                     for the quarterly period ended December
                                     31, 1999; and (iii) Quarterly Report on
                                     Form 10-Q for the quarterly period ended
                                     March 31, 2000 (the "TSA Reports").  The
                                     financial statements contained in the TSA
                                     Reports were prepared on a consolidated
                                     basis in accordance with generally
                                     accepted accounting principles on a basis
                                     consistent with that of the previous
                                     fiscal year or period, except where
                                     otherwise noted in the financial
                                     statements, and fairly reflects the
                                     financial position of the Joint Borrowers
                                     as of the date thereof, and the results
                                     of their respective operations for the
                                     period covered thereby.  The Joint
                                     Borrowers do not have any significant
                                     known contingent liabilities other than
                                     as indicated on said financial statements
                                     and since said date of March 31, 2000,
                                     there has been no material adverse change
                                     in the condition, financial or otherwise,
                                     of the Joint Borrowers.

                               (c)   There is no material litigation or
                                     administrative or governmental
                                     proceedings pending, nor to the knowledge
                                     of the Joint Borrowers threatened against
                                     the Joint Borrowers, which, if adversely
                                     determined, would result in any material
                                     adverse change in the properties,
                                     business or operations of the Joint
                                     Borrowers.  All federal, state and local
                                     income tax returns for the Joint
                                     Borrowers required to be filed have been
                                     filed on a timely basis, and all amounts
                                     required to be paid as shown by said
                                     returns have been paid.  There are no
                                     material pending, or to the best of the
                                     Joint Borrowers' knowledge, threatened
                                     objections to or controversies in respect
                                     of the federal, state and local income
                                     tax returns of the Joint Borrowers for
                                     any fiscal year.  No authorization,
                                     consent, license, exemption or filing or
                                     registration with any court or
                                     governmental department, agency or
                                     instrumentality is or will be necessary
                                     to the valid execution, delivery or
                                     performance by the Joint Borrowers of
                                     this Facility Letter, the Note and
                                     Security Documents.

                               (d)   Joint Borrowers are in full compliance
                                     with all of the terms and conditions of
                                     this Facility Letter, and no Event of
                                     Default, as hereafter defined, is
                                     existing under this Facility Letter.

                               (e)   The Joint Borrowers are  in compliance in
                                     all material respects with ERISA, as
                                     hereafter defined, to the extent
                                     applicable to it, except for any
                                     noncompliance which could not reasonably
                                     be expected to result in any material
                                     adverse change in the properties,
                                     business, or operations of the Joint
                                     Borrowers, and have received no notice to
                                     the contrary from the PBGC, as hereafter
                                     defined, or any other governmental entity
                                     or agency.

                               (f)   No information, exhibit or report
                                     prepared by the Joint Borrowers and
                                     furnished to the Bank in connection with
                                     the negotiation of the Facility Letter
                                     contained any material misstatement of
                                     fact or omitted to state a material fact
                                     or any fact necessary to make the
                                     statements contained therein not
                                     misleading in light of the circumstances
                                     in which made.

                               (g)   This Facility Letter, the Note and
                                     Security Documents, when executed and
                                     delivered by the Joint Borrowers
                                     hereunder, will constitute the legal,
                                     valid and binding obligation of the Joint
                                     Borrowers enforceable against the Joint
                                     Borrowers in accordance with their
                                     respective terms.

                               (h)   To the best of the Joint Borrowers'
                                     knowledge, following reasonable inquiry,
                                     the Joint Borrowers do not have any
                                     material liability, contingent or
                                     otherwise, arising under any applicable
                                     federal or state environmental health and
                                     safety statutes and regulations.

                               (i)   The provisions of the Security
                                     Agreements, as provided herein, are
                                     effective to create in favor of the Bank,
                                     legal, valid and enforceable liens on all
                                     of the "accounts," as defined in the
                                     Security Agreements, of the Joint Debtors
                                     and the Domestic Guarantors.  Financing
                                     Statements filed with the Secretary of
                                     State of Nebraska naming each of the
                                     Joint Borrowers as the "Debtor" shall
                                     constitute fully perfected first security
                                     interests and liens on all right, title
                                     and interest of the Joint Borrowers and
                                     the Domestic Guarantors in the accounts
                                     of the Joint Debtors and Domestic
                                     Guarantors described therein, prior and
                                     superior to all other liens.

                               (j)   The principal place of business and chief
                                     executive offices of TSA and ACI are
                                     located in Omaha, Nebraska.  The
                                     principal place of business and chief
                                     executive office of Regency Systems, Inc.
                                     are located in Dallas, Texas.  The
                                     principal place of business and chief
                                     executive office of IntraNet, Inc. are
                                     located in Newton, Massachusetts.

                               (k)   Except for a portion of their receivables
                                     which are factored from time to time in
                                     the ordinary course of business, none of
                                     the assets of the Joint Borrowers are
                                     subject to any mortgage, pledge, title
                                     retention lien, or other lien,
                                     encumbrance or security interest, except
                                     for:  (a) current taxes not delinquent or
                                     taxes being contested as provided by law
                                     in good faith and by appropriate legal
                                     proceedings; (b) liens arising in the
                                     ordinary course of business for sums not
                                     due or sums being contested in good faith
                                     and by appropriate legal proceedings, but
                                     not involving any deposits or advances of
                                     borrowed money or the deferred purchase
                                     price of property or services; and (c) to
                                     the extent specifically shown in the
                                     financial statement referred to above.
                                     The Bank acknowledges (i) that the Joint
                                     Borrowers and Domestic Guarantors have
                                     previously factored a portion of their
                                     receivables, (ii) that the Joint
                                     Borrowers and Domestic Guarantors will
                                     factor a portion of their receivables in
                                     the future, and (iii) that the foregoing
                                     actions will not constitute a breach of
                                     any representation, covenant or other
                                     provision of this Facility Letter;
                                     provided that the Joint Borrowers shall
                                     be in compliance with the covenant
                                     requiring a minimum balance of eligible
                                     receivables both before and after any
                                     such factoring of $35,000,000, as set
                                     forth in Section 15(j).

                               (l)   The Joint Borrowers are not parties to
                                     any agreement or instrument, or subject
                                     to any charter or other corporate
                                     restriction, nor are they subject to any
                                     judgment, decree or order of any court or
                                     governmental body, which Joint Borrowers
                                     know or reasonably should know may have a
                                     material and adverse effect on the
                                     business, assets, liabilities, financial
                                     condition, operations or obligations
                                     under this Facility Letter or the Note or
                                     Security Documents.  Joint Borrowers have
                                     no, nor with reasonable diligence should
                                     have had, knowledge of or notice that
                                     they are in default on the performance,
                                     observance or fulfillment of any of the
                                     obligations, covenants or conditions
                                     contained in any agreement, instrument,
                                     charter or other corporate restriction,
                                     judgment, decree or order of any court or
                                     governmental body that might have a
                                     material adverse impact on the Joint
                                     Borrowers.

                               (m)   Except in the ordinary course of
                                     business, the Joint Borrowers have not
                                     sold, conveyed, transferred, disposed of,
                                     or otherwise further encumbered, any
                                     material amount of the Joint Borrowers'
                                     assets within the last ninety (90) days.
                                     The Bank acknowledges that the Joint
                                     Borrowers factor a portion of their
                                     receivables in the ordinary course of
                                     business.

                               (n)   The amounts to be received by Bank as
                                     interest payments under the Note shall
                                     constitute lawful interest and shall be
                                     neither usurious nor illegal under the
                                     laws of the State of Nebraska.

                               (o)   The best of their knowledge, Joint
                                     Borrowers:  (a) are not in violation of
                                     any federal, state or county governmental
                                     rule, regulation or ordinance; or (b)
                                     have not failed to obtain any license,
                                     permit, franchise or other governmental
                                     authorization necessary to the ownership
                                     of Joint Borrowers' respective properties
                                     or the conduct of their businesses; which
                                     violation or failure (in the event that
                                     such violation or failure were asserted
                                     by any person or entity by appropriate
                                     action) would result in a material
                                     impediment to the conduct of the Joint
                                     Borrowers' regular business.

                               (p)   None of the Joint Borrowers are an
                                     "investment company" or a company
                                     "controlled" by an "investment company"
                                     within the meaning of the Investment
                                     Company Act of 1940, as amended.

15)    Covenants:              (a)   The  Joint Borrowers shall preserve and
                                     maintain their respective corporate
                                     existence and shall keep in force and
                                     effect all licenses, permits and
                                     franchises necessary and material to the
                                     proper conduct of their respective
                                     businesses.  The Joint Borrowers shall
                                     maintain, preserve and keep their
                                     respective property, plant and equipment,
                                     including, without limitation, all
                                     tangible and intangible assets, in good
                                     repair, working order and condition.

                               (b)   The Joint Borrowers shall duly pay and
                                     discharge all material taxes,
                                     assessments, fees and governmental
                                     charges upon them or any of their
                                     properties before the same become
                                     delinquent, except to the extent that
                                     they are being contested in good faith by
                                     appropriate proceedings and adequate
                                     reserves are provided therefor.

                               (c)   The Joint Borrowers shall maintain a
                                     standard accounting system in accordance
                                     with generally accepted accounting
                                     principles ("GAAP") and shall furnish to
                                     the Bank the following:

                                     (i)    as soon as available and in any
                                            event within 45 days after the end
                                            of each fiscal quarter, the
                                            consolidated and consolidating
                                            balance sheet of the Joint
                                            Borrowers and their subsidiaries,
                                            consolidated and consolidating
                                            statements of income, retained
                                            earnings and cash flows of the
                                            Joint Borrowers and their
                                            subsidiaries for such fiscal
                                            quarter, prepared in accordance
                                            with GAAP and certified as
                                            accurate by the chief financial
                                            officer of the Joint Borrowers,
                                            together with related 10-Q filings
                                            made with the Securities and
                                            Exchange Commission;

                                     (ii)   as soon as available and in any
                                            event within 90 days after the end
                                            of each fiscal year, the
                                            consolidated and consolidating
                                            balance sheet of the Joint
                                            Borrowers and their subsidiaries,
                                            consolidated and consolidating
                                            statements of income, retained
                                            earnings and cash flows of the
                                            Joint Borrowers and their
                                            subsidiaries for such fiscal year,
                                            accompanied by an unqualified
                                            opinion prepared by independent
                                            public accountants of recognized
                                            national standing, in accordance
                                            with GAAP, together with related
                                            10-K filings made with the
                                            Securities and Exchange
                                            Commission;;

                                     (iii)  Each of the financial statements
                                            furnished to the Bank pursuant to
                                            paragraphs 15 (c) (i) and (ii)
                                            above shall be accompanied by a
                                            written compliance certificate of
                                            the Joint Borrowers signed by
                                            TSA's chief financial officer: (1)
                                            to the effect that the signer
                                            thereof has reviewed the terms and
                                            provisions of this Facility Letter
                                            and that no Event of Default has
                                            occurred during the period covered
                                            by such statements or if any such
                                            Event of Default has occurred
                                            during such period, setting forth
                                            a description of such Event of
                                            Default and specifying the action,
                                            if any, taken by the Joint
                                            Borrowers to remedy the same; and
                                            (2) setting forth the information
                                            and computations (in sufficient
                                            detail) required to establish
                                            whether the Joint Borrowers were
                                            in compliance with the financial
                                            requirements and covenants set
                                            forth herein during the period
                                            covered by the financial
                                            statements then being furnished;

                                     (iv)   Promptly upon obtaining knowledge
                                            of the existence thereof, the
                                            Joint Borrowers shall give written
                                            notice of the occurrence of any
                                            Event of Default hereunder
                                            together with a detailed statement
                                            by a responsible officer of the
                                            Joint Borrowers of the steps being
                                            taken by the Joint Borrowers to
                                            cure any such Event of Default;

                                     (v)    Immediately upon the occurrence of
                                            a default, breach or event of
                                            default under any note or any
                                            other evidence of indebtedness of
                                            the Joint Borrowers in excess of
                                            $1,000,000, or upon becoming aware
                                            that the holder of any such note
                                            or other evidence of indebtedness
                                            has given or threatened to give
                                            notice or taken any other action
                                            with respect to a claim of
                                            default, breach or event of
                                            default under such evidence of
                                            indebtedness, the Joint Borrowers
                                            shall give the Bank notice
                                            describing the action taken, the
                                            nature of the actual or claimed
                                            default and the period of
                                            existence thereof, together with a
                                            detailed statement by an officer
                                            of the Joint Borrowers of the
                                            steps being taken by the Joint
                                            Borrowers to cure the actual or
                                            claimed default; and

                                     (vi)   Immediately after the commencement
                                            thereof, notice in writing of all
                                            litigation and of all proceedings
                                            before any governmental or
                                            regulatory agency affecting the
                                            Joint Borrowers, or which seek a
                                            monetary recovery for uninsured
                                            claims against the Joint Borrowers
                                            in excess of $1,000,000, or
                                            $2,000,000 for claims subject to
                                            Employment Practice Liability
                                            insurance.

                               (d)   The Joint Borrowers shall not, either
                                     directly or indirectly, be a party to any
                                     merger or consolidation, nor sell,
                                     transfer, lease, encumber or otherwise
                                     dispose of all or any substantial part of
                                     their respective property or business or
                                     all or any substantial part of their
                                     respective assets other than in the
                                     ordinary course of business.  The term
                                     "substantial," as used herein shall mean
                                     25% of the Joint Borrowers' Tangible Net
                                     Worth at the close of the most recent
                                     fiscal year.

                               (e)   The Joint Borrowers shall comply in all
                                     material respects with the requirements
                                     of all federal, state and local laws,
                                     rules, regulations, ordinances and orders
                                     applicable to the Joint Borrowers or
                                     their respective properties or business
                                     operations, the non-compliance with which
                                     could have a material adverse effect on
                                     the financial condition, properties or
                                     business of the Joint Borrowers.

                               (f)   Without the prior written consent of the
                                     Bank, and until all Advances hereunder
                                     are paid in full, all SLCs issued by the
                                     Bank have expired, and all Reimbursement
                                     Obligations are paid in full, and the
                                     Bank has no remaining obligation to issue
                                     SLCs or to make further Advances to the
                                     Joint Borrowers, Joint Borrowers shall
                                     not incur indebtedness for borrowed money
                                     except unsecured loans not to exceed
                                     $7,000,000 in the aggregate outstanding
                                     at any time.  This covenant shall not
                                     apply to purchase money indebtedness or
                                     capital lease obligations incurred by the
                                     Joint Debtors in the ordinary course of
                                     business.

                               (g)   Until all Advances hereunder are paid in
                                     full, all SLCs issued by the Bank have
                                     expired, and all Reimbursement
                                     Obligations are paid in full and the Bank
                                     has no remaining obligation to issue SLCs
                                     or to make further Advances to the Joint
                                     Borrowers, the Joint Borrowers agree not
                                     to create, assume, incur or suffer or
                                     permit to exist any mortgage, pledge,
                                     encumbrance, security interest,
                                     assignment, lien or charge of any kind or
                                     character upon any asset of the Joint
                                     Borrowers whether owned at the date
                                     hereof or hereafter acquired except:

                                     (A)    liens for taxes, assessments or
                                            other governmental charges not yet
                                            due or which are being contested
                                            in good faith by appropriate
                                            proceedings;

                                     (B)    other liens, charges and
                                            encumbrances incidental to the
                                            conduct of its business or the
                                            ownership of its property which
                                            were not incurred in connection
                                            with the borrowing of money or the
                                            obtaining of an advance of credit,
                                            and which do not in the aggregate
                                            materially detract from the net
                                            value of their property or assets
                                            or materially impair the use
                                            thereof in the operation of their
                                            respective businesses;

                                     (C)    liens arising out of judgments or
                                            awards with respect to which the
                                            Joint Borrowers shall concurrently
                                            therewith be prosecuting an appeal
                                            or proceedings for review and with
                                            respect to which they shall have
                                            secured a stay of execution
                                            pending such appeal or review;

                                     (D)    pledges or deposits to secure
                                            obligations under workmen's
                                            compensation laws or similar
                                            legislation;

                                     (E)    deposits to secure public or
                                            statutory obligations of the Joint
                                            Borrowers; and

                                     (F)    liens granted in the ordinary
                                            course of business for purchase
                                            money security interests and
                                            capital leases.

                               (h)   The Joint Borrowers shall maintain a
                                     consolidated Minimum Tangible Net Worth
                                     according to the following schedule:

                                     $132,000,000.00 as of June 30, 2000;

                                     $137,000,000.00 as of September 30, 2000;

                                     $142,000,000.00 as of December 31, 2000;

                                     $147,000,000.00 as of March 31, 2001.

                                     For purposes of this covenant, "Tangible
                                     Net Worth" shall mean the stockholders'
                                     equity, minus the amount of all
                                     intangibles, and excluding "accumulated
                                     other comprehensive income," all as
                                     determined in accordance with GAAP.

                               (i)   The Joint Borrowers shall maintain a
                                     consolidated Minimum Working Capital of
                                     Fifty Million and 00/100 United States
                                     Dollars (USD) ($50,000,000.00) at all
                                     times.  For purposes hereof, "Working
                                     Capital" shall mean the difference
                                     between total  current assets and total
                                     current liabilities, as shown on a
                                     balance sheet prepared in accordance with
                                     GAAP.

                               (j)   The Joint Borrowers shall maintain a
                                     balance of eligible accounts receivable
                                     (accounts receivable that remain unpaid
                                     120 days or less after the date of
                                     invoice) at all times of not less than
                                     Thirty Five Million and No/100 United
                                     States Dollars (USD) ($35,000,000.00) in
                                     the aggregate.

                               (k)   The Joint Borrowers will maintain
                                     insurance coverage by good and
                                     responsible insurance underwriters in
                                     such forms and amounts and against such
                                     risks and hazards as are customary for
                                     companies engaged in similar businesses
                                     and owning and operating similar
                                     properties.

                               (l)   The Joint Borrowers will promptly pay and
                                     discharge all obligations and liabilities
                                     arising under the Employee Retirement
                                     Income Security Act of 1974, as amended
                                     ("ERISA"), of a character which if unpaid
                                     or unperformed might result in the
                                     imposition of a lien against its
                                     properties and assets and will promptly
                                     notify the Bank of (i) the occurrence of
                                     any reportable event (as defined in
                                     ERISA) which might result in the
                                     termination by the Pension Benefit
                                     Guaranty Corporation ("PBGC") of any
                                     employee benefit plan covering any
                                     officers or employees of the Joint
                                     Borrowers, any benefits of which are or
                                     are required to be guaranteed by PBGC
                                     ("Plan"), (ii) receipt of any notice from
                                     PBGC of its intention to seek termination
                                     of such Plan or appointment of a trustee
                                     therefor, and (iii) its intention to
                                     terminate or withdraw from any Plan.  The
                                     Joint Borrowers will not terminate any
                                     such Plan or withdraw therefrom unless it
                                     shall be in compliance with all of the
                                     terms and conditions of this Facility
                                     Letter after giving effect to any
                                     liability to PBGC resulting from such
                                     termination or withdrawal.

                               (m)   The Joint Borrowers shall comply in all
                                     material respects with the requirements
                                     of all federal, state and local pollution
                                     laws, regulations, and orders applicable
                                     to or pertaining to its properties and
                                     business operations of the Joint
                                     Borrowers.

                               (n)   For purposes of this covenant, the
                                     management of Joint Borrowers includes
                                     and is limited to William E. Fisher,
                                     Chief Executive Officer and Chairman of
                                     the Board, David C. Russell, President,
                                     and Dwight G. Hanson, Chief Financial
                                     Officer, all of TSA, and Mark R. Vipond,
                                     Chief Operating Officer of ACI.  Joint
                                     Borrowers shall not change the management
                                     of Joint Borrowers without the Bank's
                                     prior written consent, except for
                                     terminations for good cause related
                                     solely to the performance of their
                                     respective management responsibilities.

                               (o)   Joint Borrowers will permit the Bank or
                                     any officer, employee or agent of the
                                     Bank at any time during the Joint
                                     Borrowers' regular business hours to
                                     inspect their properties and to inspect
                                     and copy their books and records,
                                     including, without limitation, accounts
                                     receivable records.  The Bank shall also
                                     be entitled, at its expense, to have an
                                     independent audit of Joint Borrowers'
                                     books and records.

                               (p)   Joint Borrowers shall not change the
                                     location of their chief executive offices
                                     and principal place of business from
                                     Omaha, Nebraska, unless Joint Borrowers
                                     shall give the Bank at least sixty (60)
                                     days prior written notice thereof and all
                                     actions necessary or advisable in the
                                     Bank's opinion to protect the Bank's liens
                                     covered by the Security Documents have
                                     been taken.

                               (q)   ITI - Initial Public Offering: On behalf
                                     of its subsidiary, Insession
                                     Technologies, Inc. ("ITI"), TSA has
                                     caused a Registration Statement on Form
                                     S-1 to be filed with the SEC for the
                                     purpose of completing an initial public
                                     offering of the stock of ITI and,
                                     thereafter, subject to receipt of
                                     appropriate IRS letter ruling or other
                                     tax approvals or opinions, TSA intends to
                                     distribute all of the remaining shares of
                                     ITI held by TSA to TSA's shareholders
                                     (the "IPO A Distribution").   In
                                     connection with the IPO A Distribution,
                                     TSA plans to transfer, or cause one or
                                     more of its subsidiaries to transfer, to
                                     ITI certain assets, liabilities and
                                     equity interests, all as described in the
                                     S-1 Registration Statement.  The Joint
                                     Borrowers covenant and agree that they
                                     shall not transfer, or cause or permit to
                                     be transferred, to ITI any assets,
                                     liabilities or equity interests unless
                                     and until (i) Joint Borrowers notify the
                                     Bank thereof in writing, and (ii) ITI
                                     agrees in writing, in form and substance
                                     acceptable to the Bank, to become
                                     obligated to pay $9,000,000 of the
                                     indebtedness due or to become due on the
                                     Note, plus related interest, fees and
                                     expenses, and to provide the Bank with a
                                     security interest in its accounts, all
                                     upon terms and conditions consistent in
                                     all material respects with this Facility
                                     Letter; and provided that the Joint
                                     Borrowers shall remain liable for the
                                     entire Credit Facility Amount.

16)    Default:                The Joint Borrowers, without notice or demand
                               of any kind, shall be in default under this
                               Facility Letter upon the occurrence of any of
                               the following events (each an "Event of
                               Default").

                               (a)   Any amount due and owing on the Note or
                                     on any Reimbursement Obligation or any
                                     other obligation owed by the Joint
                                     Borrowers hereunder, whether by its terms
                                     or as otherwise provided herein, or any
                                     obligation owed by the Joint Borrowers
                                     under the Security Documents, is not paid
                                     when due.

                               (b)   Any written warranty, representation,
                                     certificate or statement herein or any
                                     other written agreement with the Bank
                                     shall be false when made.

                               (c)   Any failure to perform or default in the
                                     performance of any covenant, condition or
                                     agreement contained herein, in the
                                     Security Documents or in any other
                                     written agreement with the Bank.

                               (d)   The Joint Borrowers makes an assignment
                                     for the benefit of creditors, fails to
                                     pay, or admits in writing its inability
                                     to pay its debts as they mature; or if a
                                     trustee of any substantial part of the
                                     assets of the Joint Borrowers is applied
                                     for or appointed, and in the case of such
                                     trustee being appointed in a proceeding
                                     brought against the Joint Borrowers, the
                                     Joint Borrowers , by any action or
                                     failure to act indicates their approval
                                     of, consent to, or acquiescence in such
                                     appointment and such appointment is not
                                     vacated, stayed on appeal or otherwise
                                     shall not have ceased to continue in
                                     effect within 60 days after the date of
                                     such appointment.

                               (e)   Any proceeding involving the Joint
                                     Borrowers is commenced under any
                                     bankruptcy, reorganization, arrangement,
                                     insolvency, readjustment of debt,
                                     dissolution or liquidation law or statute
                                     of the federal government or any state
                                     government, and in the case of any such
                                     proceeding being instituted against the
                                     Joint Borrowers, (i) the Joint Borrowers,
                                     by any action or failure to act indicate
                                     their approval of, consent to or
                                     acquiescence therein, or (ii) an order
                                     shall be entered approving the petition
                                     in such proceedings and such order is not
                                     vacated, stayed on appeal or otherwise
                                     shall not have ceased to continue in
                                     effect within 60 days after the entry
                                     thereof.

                               (f)   The entry of any judgment, decree, levy,
                                     attachment, garnishment or other process,
                                     in excess of $1,000,000, or the filing of
                                     any lien against the Joint Borrowers
                                     which is not covered by insurance and
                                     such judgment, decree, levy, attachment,
                                     garnishment, lien or other process shall
                                     not have been vacated, discharged or
                                     stayed pending appeal within thirty (30)
                                     days from the entry thereof.

                               (g)   If a default exists and the Joint
                                     Borrowers are notified of a default (or,
                                     if no such declaration or notification
                                     exists, a default occurs which is of the
                                     type which allows such party to declare
                                     the outstanding amounts immediately due
                                     and payable without prior declaration of
                                     notice to Joint Borrowers) in the payment
                                     or performance by Joint Borrowers of any
                                     agreement in excess of $1,000,000, or
                                     agreements in excess of $5,000,000 in the
                                     aggregate, between the Joint Borrowers
                                     and any party other than the Bank
                                     evidencing the borrowing of money or a
                                     guaranty, the effect of which default is
                                     to cause or permit the holder of such
                                     obligation(s) to cause such obligation(s)
                                     to become due prior to its stated
                                     maturity.

                               (h)   The acquisition by any person or entity,
                                     or two or more persons or entities acting
                                     in concert, of beneficial ownership
                                     (within the meaning of Rule 13d-3 of the
                                     Securities and Exchange Commission under
                                     the Securities Exchange Act of 1934) of
                                     20% or more of the outstanding shares of
                                     voting stock of the Joint Borrowers.

                               (i)   Any default by the Guarantors under the
                                     terms of the Guaranties, or under the
                                     terms of the Security Agreements given by
                                     the Domestic Guarantors.

                               (j)   There shall occur or exist any facts
                                     which lead the Bank to believe in good
                                     faith that Joint Borrowers will not, or
                                     will be unable to, pay, in the normal
                                     course, any of the Obligations.

17)    Remedies                (a)   Non-bankruptcy Defaults.  When any Event of
                                     Default described in subsection (a)
                                     through (c), (f), (g), or (h) of Section
                                     16 has occurred and is continuing, the
                                     Bank may, by notice to the Joint
                                     Borrowers, take one or more of the
                                     following actions:

                                     (i)    terminate the obligation of the
                                            Bank, to extend any further credit
                                            hereunder on the date (which may
                                            be the date thereof) stated in
                                            such notice;

                                     (ii)   declare the principal of and the
                                            accrued interest on the Note to be
                                            forthwith due and payable and
                                            thereupon the Note, including both
                                            principal and interest and all
                                            fees, charges and other
                                            obligations payable hereunder and
                                            under any other document executed
                                            between the Joint Borrowers and
                                            the Bank, shall be and become
                                            immediately due and payable
                                            without further demand,
                                            presentment, protest or notice of
                                            any kind; and

                                     (iii)  enforce any and all rights and
                                            remedies available to it under any
                                            other document executed between
                                            the Joint Borrowers and the Bank
                                            or under applicable law.
                               (b)   Bankruptcy Defaults.  When any Event of
                                     Default described in subsection (d) or
                                     (e) of Section 16 has occurred and is
                                     continuing, then the Note, including both
                                     principal and interest, and all fees,
                                     charges and other obligations payable
                                     hereunder and thereunder, shall
                                     immediately become due and payable
                                     without presentment, demand, protest or
                                     notice of any kind, and the obligation of
                                     the Bank to extend further credit
                                     pursuant to any of the terms hereof shall
                                     immediately terminate.  In addition, the
                                     Bank may exercise any and all remedies
                                     available to it under any other document
                                     executed between the Joint Borrowers and
                                     the Bank or applicable law.

18)    Miscellaneous:          (a)   At the date of this Facility Letter and
                                     any Advance or issuance of an SLC, the
                                     Joint Borrowers' representations and
                                     warranties set forth herein shall be true
                                     and correct as at such date with the same
                                     effect as though those representations
                                     and warranties had been made on and as at
                                     such date.

                               (b)   At the time of this Facility Letter and
                                     any Advance or issuance of an SLC the
                                     Joint Borrowers shall be in compliance
                                     with all the terms and provisions set
                                     forth herein on their part to be observed
                                     or performed, and no Event of Default
                                     shall have occurred and be continuing at
                                     the time of an Advance or issuance of an
                                     SLC or would result from the making of an
                                     Advance or issuance of an SLC or any
                                     subsequent Advances or issuance of SLCs.

                               (c)   The request by the Joint Borrowers for
                                     any Advance or the issuance of any SLCs,
                                     shall be deemed a representation and
                                     warranty by the Joint Borrowers that the
                                     representations contained herein are true
                                     and correct on and as of the date of each
                                     such request for an Advance or the
                                     issuance of an SLC and that the Joint
                                     Borrowers are in compliance with all
                                     covenants set forth herein.

                               (d)   The Bank may, by written notice to the
                                     Joint Borrowers, at any time and from
                                     time to time, waive any default in the
                                     performance or observance of any
                                     condition, covenant or other term hereof,
                                     which shall be for such period and
                                     subject to such conditions as shall be
                                     specified in any such notice.  In the
                                     case of any such waiver, the Bank and the
                                     Joint Borrowers shall be restored to
                                     their former position and rights
                                     hereunder and under the Note, and any
                                     Event of Default so waived shall be
                                     deemed to be cured and not continuing;
                                     but no such waiver shall affect, extend
                                     or impair any rights of the Bank with
                                     respect to any default, except as
                                     specifically set forth in the Bank's
                                     written notice, nor shall it affect
                                     Bank's rights with respect to any
                                     subsequent or other Event of Default.

                               (e)   No failure to exercise, and no delay in
                                     exercising, on the part of the Bank of
                                     any right, power or privilege hereunder
                                     shall preclude any other or further
                                     exercise thereof or the exercise of any
                                     other right, power or privilege.  The
                                     rights and remedies of the Bank herein
                                     provided are cumulative and not exclusive
                                     of any rights or remedies provided by law.

                               (f)   All agreements, representations and
                                     warranties made herein shall survive the
                                     delivery of this Facility Letter, the
                                     Note and the Security Documents and the
                                     making of any loans or advances.

                               (g)   From time to time, the Joint Borrowers
                                     will execute and deliver to the Bank such
                                     additional documents, and will provide
                                     such additional information as the Bank
                                     may reasonably require to carry out the
                                     terms of this Facility Letter and be
                                     informed of the Joint Borrowers' status
                                     and affairs.

                               (h)   This Facility Letter, the Note and
                                     Security Documents and any document or
                                     instrument or other agreement executed in
                                     connection herewith and except as
                                     otherwise specifically provided therein
                                     shall be governed by, and construed and
                                     interpreted in accordance with, the
                                     internal laws of the State of Nebraska,
                                     and shall be deemed to have been executed
                                     in the State of Nebraska.

                               (i)   This Facility Letter constitutes the
                                     entire understanding between the parties
                                     hereto with respect to the subject matter
                                     hereof, superseding all prior written or
                                     oral understandings, and may not be
                                     modified, amended or terminated except by
                                     a written agreement signed by each of the
                                     parties hereto or thereto.
                                     Notwithstanding the foregoing, the
                                     provisions of this Facility Letter are
                                     not intended to supersede the provisions
                                     of the Note or Security Documents, but
                                     shall be construed as supplemental
                                     thereto.

                               (j)   If any term or provision of this Facility
                                     Letter, or the Note or Security
                                     Documents, or any document or instrument
                                     executed in connection therewith,
                                     including amendments and modifications or
                                     the application thereof to any person or
                                     circumstance shall to any extent be
                                     invalid or unenforceable, the terms and
                                     provisions or the application of such
                                     term or provision to person or
                                     circumstances other than those as to which
                                     it is held invalid or unenforceable shall
                                     not be affected thereby, and each form
                                     and provision shall be valid or enforced
                                     to the fullest extent possible by law.

                               (k)   The Bank shall have sole discretion
                                     regarding the application of any payments
                                     or proceeds received from the Joint
                                     Borrowers and the Guarantors, voluntary
                                     or involuntary, including, without
                                     limitation, any proceeds from the sale or
                                     other disposition of any of the
                                     collateral or security described herein.

19)    Credit Agreement
       Notice                  A credit agreement must be in writing to be
                               enforceable under Nebraska law.  To protect you
                               and us from any misunderstandings or
                               disappointments, any contract, promise,
                               undertaking, or offer to forebear repayment of
                               money or to make any other financial
                               accommodation in connection with this loan of
                               money or grant or extension of credit, or any
                               amendment of, cancellation of, waiver of, or
                               substitution for any or all of the terms or
                               provisions of any instrument or document
                               executed in connection with this loan of money
                               or grant or extension of credit must be in
                               writing to be effective.

The Joint Borrowers understand and agree that this facility is not assignable
by the Joint Borrowers.  Bank reserves the right to sell assignments and
participations in this facility.

We trust that the foregoing adequately sets forth the terms and conditions
with respect to this facility.  If you are in agreement with the above, please
execute and return the enclosed Note, Security Documents, Guaranties  and a
copy of this Facility Letter.  This facility shall be effective when you have
signed and returned all of such items to us.  The offer to establish a
facility which is evidenced by the Bank's delivery of a copy of this letter to
the Joint Borrowers will expire at 5:00 p.m., Central Daylight Time, on June
16, 2000, unless on or prior to such time the Bank shall have received a copy
of this letter signed by the Joint Borrowers.  Prior to borrowing under this
facility the Joint Borrowers and Guarantors will supply the Bank with
satisfactory corporate resolutions and incumbency certificates.

Sincerely,


Bill Weber
Vice President
Corporate Banking




Acknowledged and Agreed
as of June 16, 2000


TRANSACTION SYSTEMS ARCHITECTS, INC.


By:/s/ Dwight G. Hanson

Title:  Chief Financial Officer


By:__________________________

Title:_______________________


ACI WORLDWIDE INC.

By:/s/ Dwight G. Hanson

Title:  Chief Financial Officer


By:__________________________

Title:_______________________



                                PROMISSORY NOTE

USD $25,000,000.00                               Dated: June 16, 2000

         TRANSACTION SYSTEMS ARCHITECTS, INC. and ACI WORLDWIDE INC. (the
"Joint Borrowers"), jointly and severally, for value received, promise to pay
to the order of Norwest Bank Nebraska, N.A. (the "Bank"), in lawful money of
the United States at the principal office of the Bank in Omaha, Nebraska, or
as the Bank may otherwise direct, the lesser of the principal sum of
Twenty-Five Million and 00/100 United States Dollars or the principal amount
outstanding, if any, under the letter agreement dated June 16, 2000, between
the Joint Borrowers and the Bank (the "Facility Letter"), with interest
(computed on actual days elapsed on the basis of a 360 day year) on the
principal amount outstanding hereunder as hereinafter set forth, together with
all costs of collection, including reasonable attorneys' fees, upon default.

         The unpaid principal balance of all loans ("Advances") hereunder
shall bear interest as follows:

                  (a)      Base Rate: Before maturity of this Note,
         and except for  LIBOR Rate Advances, as hereafter defined,
         at an annual rate equal to 0.75% below the Base Rate
         adjusted at the time of changes in the Base Rate.  "Base
         Rate" shall mean the rate of interest established by Norwest
         Bank Nebraska, N.A. from time to time as its "base" or
         "prime" or "Norwest Money Market Rate."  Interest shall be
         paid monthly at the end of each month on any Advances made
         at the Base Rate.  Advances made at the Base Rate shall be
         made in the minimum principal amount of $10,000.

                  (b)      LIBOR Rate: LIBOR Rate is the rate at
         which deposits in U.S. dollars in the amount and for a
         maturity corresponding to that of any Advances made at the
         LIBOR Rate ("LIBOR Rate Advances") are offered to the Bank
         in the offshore inter-bank market at approximately 10:00
         a.m., (London, England time), two business days prior to the
         date on which such LIBOR Rate Advance is made, adjusted for
         maximum statutory reserve requirements, plus 175 basis
         points (1.75%) per annum.

                  LIBOR Rate Advances shall be for periods, at the
         Joint Borrowers' option, of one (1), two (2) or three (3)
         months (each, an "Interest Period"); provided, that the
         Interest Period shall not extend beyond the Expiration
         Date.  Interest shall be payable at the maturity of each
         Interest Period and shall be calculated on actual days
         elapsed on a 360 day year.

                  With respect to the renewal of any LIBOR Rate
         Advance, or any new borrowing hereunder, in the event that
         deposits in the amount and for the term of the selected
         Interest Period are unavailable to Bank, or that by reason
         or circumstances affecting the inter-bank markets generally,
         adequate and reasonable means do not exist for ascertaining
         the interest rate applicable to such LIBOR Rate Advance for
         the selected Interest Period, Joint Borrowers shall either
         repay such LIBOR Rate Advance or direct Bank to convert such
         LIBOR Rate Advance into an Advance of a type which is
         available on the last day of the then current Interest
         Period, said choice between repayment or conversion to be
         solely at Joint Borrowers' option.

                  If it shall become unlawful (or contrary to any
         direction from or requirement of any governmental authority
         having jurisdiction over Bank) for Bank to continue to fund
         or maintain any LIBOR Rate Advance or to perform its
         obligations hereunder, then upon demand by Bank to Joint
         Borrowers, such LIBOR Rate Advance or other obligation shall
         thereupon be canceled and, if it is unlawful for Bank to
         continue to fund or maintain any LIBOR Rate Advance, Joint
         Borrowers shall prepay such LIBOR Rate Advance without
         premium or penalty, together with accrued interest thereon,
         on the last day of the then current Interest Period or on
         such earlier date as may be required by law.

                  The Joint Borrowers may obtain multiple LIBOR Rate
         Advances hereunder; provided, that each LIBOR Rate Advance
         shall be in the minimum principal amount of $1,000,000 and
         shall be payable in full, with interest thereon, at the
         maturity of each LIBOR Rate Advance.

                  (c)      Default Rate: After maturity, whether by
         lapse of time, default, acceleration or otherwise, at a rate
         equal to the Base Rate plus three percent (3%) per annum
         (the "Default Rate").

                  Requests for Advances by the Joint Borrowers shall
         be made by telephonic, telecopier or telex notice to the
         Bank (which notice shall be promptly confirmed in writing)
         by Dwight G. Hanson, Chief Financial Officer, Edward Fuxa,
         Controller, or Frances Stein, General Manager, Account
         Operations, all of TSA, or such other person or persons
         subsequently designated by the Joint Borrowers in writing.
         Each request by Joint Borrowers for an Advance at the Base
         Rate must be received by the Bank no later than 12:00 p.m.
         Omaha, Nebraska time, on the day on which it is to be
         funded.  Each request by Joint Borrowers for a LIBOR Rate
         Advance must be received by the Bank no later than 11:00
         a.m. Omaha, Nebraska time, on the day which is three (3)
         business days prior to the day on which it is to be funded.
         The Joint Borrowers agree that the Bank may rely on any such
         telephonic, telecopier or telex notice given by any person
         it in good faith believes is authorized to give such notice
         without the necessity of independent investigation, and in
         the event any notice by such means conflicts with the
         written confirmation, such notice shall govern if the Bank
         has acted in reliance thereon.

                  The principal balance of the LIBOR Rate Advances
         may not be prepaid, in whole or in part, before the end of
         any Interest Period.  If, for any reason, a LIBOR Rate
         Advance is paid prior to the last business day of any
         Interest Period, the Joint Borrowers agree to indemnify the
         Bank against any loss (including any loss on redeployment of
         the funds repaid), cost or expense incurred by the Bank as a
         result of such prepayment.

                  The total unpaid principal balance and all accrued
         but unpaid interest on this Note shall be due and payable at
         maturity on May 31, 2001 (the "Expiration Date").

         The Bank, on the occurrence of any Event of Default under the Facility
Letter may, without notice, appropriate and apply toward the payment of the
outstanding balance of the Note, if not paid when due, or toward the payment
of outstanding sums due to the Bank under the Facility Letter, any
indebtedness of the Bank to the Joint Borrowers howsoever created or arising,
including, without limitation, any and all balances, credits, deposits,
accounts or monies of the Joint Borrowers.

         All amounts outstanding under this Note shall become immediately due
and payable at the option of the Bank, without any demand or notice
whatsoever, in the event that (i) the Joint Borrowers shall fail to make any
payment when due of principal or interest on this Note or on any other
obligation of the Joint Borrowers to the Bank or (ii) any other Event of
Default shall occur under the Facility Letter.  In addition, this and all
other obligations of the Joint Borrowers to the Bank shall be and become due
and payable immediately without any demand or notice whatsoever:  (a) in the
event of any assignment for the benefit of creditors of the Joint Borrowers,
or the commencement of any bankruptcy, receivership, insolvency
reorganization, or liquidation proceedings by or against the Joint Borrowers;
or (b) the event of any garnishment, attachment, levy or lien being asserted
against any deposit balance maintained (or any property deposited) by the
Joint Borrowers with the Bank.

         All Advances made by the Bank and all payments made by the Joint
Borrowers hereunder shall be recorded on the books and records of the Bank.
The Joint Borrowers agree that in any action or proceeding instituted to
collect or enforce collection of this Note, the amount endorsed on the
Schedule attached to this Note at that time or inscribed in such other records
of the Bank shall be prima-facie evidence of the unpaid principal balance of
this Note.

         If any payment to be made by the Joint Borrowers hereunder shall
become due on a Saturday, Sunday or business holiday under Federal law or the
laws of the State of Nebraska, such payment shall be made on the next
succeeding business day and such extension of time shall be included in
computing any interest in respect of such payment.

         If any change in any law, rule, regulation or directive (including,
without limitation, Regulation D of the Board of Governors of the Federal
Reserve System) imposes any condition the result of which is to increase the
cost to the Bank of making, funding or maintaining any LIBOR Rate Advance or
reduces any amount receivable by the Bank hereunder in connection with a LIBOR
Rate Advance, the Joint Borrowers shall pay the Bank the amount of such
increased expense incurred or the reduction in any amount received which the
Bank determines is attributable to making, funding and maintaining the LIBOR
Rate Advances.

         The Bank may elect to sell participations in or assign its rights
under Advances.  The Joint Borrowers agree that if they fail to pay any
Advance when due, any purchaser of an interest in such Advance shall be
entitled to seek enforcement of this Note if the purchaser is permitted to do
so pursuant to the terms of the participation agreement between the Bank and
such purchaser.

         The Joint Borrowers hereby authorize the Bank and any other holder of
an interest in this Note (a "holder") to disclose confidential information
relating to the financial condition or operations of the Joint Borrowers (i)
to any affiliate of the Bank or any holder, (ii) to any purchaser or
prospective purchaser of an interest in any Advance, (iii) to legal counsel,
accountants, and other professional advisors to the Bank or any holder, (iv)
to regulatory officials, (v) as requested or required by law, regulation, or
legal process or (vi) in connection with any legal proceeding to which the
Bank or any other holder is a party.

         (A)      in the case of disclosures pursuant to (i), (ii) and (iii)
                  above, the Bank shall have first received from each such
                  disclosee, a written agreement to maintain such confidential
                  information in strict confidence and;

         (B)      in the case of disclosures pursuant to (iv), (v) an (vi)
                  above, the Bank shall have given TSA reasonable notice so as
                  to afford TSA an opportunity to secure protection of the
                  confidential information.

         The Joint Borrowers hereby indemnify the Bank against any loss
(including any loss on redeployment of funds prepaid), cost or expense
incurred by the Bank as a result of a default hereunder or under the Facility
Letter or acceleration of this Note and all Advances evidenced hereby,
including, without limitation, all court costs, reasonable attorneys' fees and
other costs of collection.

         This Note is executed in conjunction with the Facility Letter and is
subject to all of the terms and conditions contained therein.  THIS NOTE SHALL
BE GOVERNED BY THE INTERNAL LAW (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF
NEBRASKA, GIVING EFFECT, HOWEVER, TO FEDERAL LAWS APPLICABLE TO NATIONAL
BANKS. THE JOINT BORROWERS AND THE BANK EACH HEREBY WAIVE TRIAL BY JURY IN ANY
JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER
SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF RELATED TO,
OR CONNECTED WITH THIS NOTE OR THE RELATIONSHIP ESTABLISHED HEREUNDER.


TRANSACTION SYSTEMS ARCHITECTS, INC.


By:/s/ Dwight G. Hanson

Its:

By:

Its:


ACI WORLDWIDE INC.


By:/s/ Dwight G. Hanson

Its:

By:

Its:



                                    SCHEDULE

                       to be attached and become a part of
                       the Promissory Note dated June 16,
                      2000 executed by Transaction Systems
                     Architects Inc. and ACI Worldwide Inc.
                       as "Joint Borrowers" and payable to
                           Norwest Bank Nebraska, N.A.


                                                       Unpaid     Initials
                                 Amount               Principal      of
    Date     Amount                of                  Balance     Person
     of        of               Interest   Principal     of        Making
Transaction   Loan   Maturity     Rate      Payment     Note      Notation
- -----------   ----   --------     ----      -------     ----      --------


                      TRANSACTION SYSTEMS ARCHITECTS, INC.
                  2000 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

         1.       Purpose of the Plan.  The purpose of the  Transaction  Systems
Architects,  Inc.  2000  Non-Employee  Director  Stock Option Plan is to promote
the long-term  growth of the Company by increasing the  proprietary  interest of
Non-Employee  Directors  in the  Company  and to  retain  highly  qualified  and
capable Non-Employee Directors.

         2.       Definitions.    Unless   the   context    clearly    indicates
otherwise, the following terms shall have the following meanings:

                  "Board" means the Board of Directors of the Company.

                  "Code"  shall  mean the  Internal  Revenue  Code of  1986,  as
         amended.

                  "Company" means Transaction Systems Architects, Inc.

                  "Disability"  shall mean  permanent  and total  disability  as
         defined in Section 22(e)(3) of the Code.

                  "Exchange  Act"  shall  mean the  Securities  Exchange  Act of
         1934, as amended.

                  "Fair  Market  Value"  shall mean the closing bid price on the
         date  in   question,   as  such  price  is  reported  by  the  National
         Association  of  Securities  Dealers on the Nasdaq  National  Market or
         any  successor  system  for a share  of  Class A  Common  Stock  of the
         Company.

                  "Option"  means an option to  purchase  Shares  awarded  under
         Section 4.

                  "Option Grant Date" means May 5, 2000.

                  "Optionee"  means a  Non-Employee  Director  of the Company to
         whom an Option has been granted.

                  "Non-Employee  Director"  means a director  of the Company who
         is not an employee of the Company or any subsidiary of the Company.

                  "Plan" means the  Transaction  Systems  Architects,  Inc. 2000
         Non-Employee Director Stock Option Plan, as amended from time to time.

                  "Shares"  means  shares  of the  Class A  Common  Stock of the
         Company.

                  "Stock Option  Agreement" means a written  agreement between a
         Non-Employee  Director  and the  Company  evidencing  an Option in such
         form as the Committee shall approve.

         3.       Administration  of the Plan.  The Plan  shall be  administered
by the  Compensation  Committee  of the Board,  or such other  committee  of the
Board as may be  directed  by the Board  consisting  of no less than two persons
(the  "Committee").  Alternatively,  the Board may elect to administer  the Plan
in whole or in part in which  case  references  to the  Committee  herein  shall
also mean the  Board,  as  applicable.  All  members of the  committee  shall be
"Non-Employee  Directors"  within the meaning of Rule 16b-3  under the  Exchange
Act.  The  Committee  shall be  appointed  from time to time by, and shall serve
at the pleasure of, the Board.  The  Committee  shall be authorized to interpret
the Plan and may,  from time to time,  adopt,  amend  and  rescind  such  rules,
regulations   and   procedures  as  it  may  deem  advisable  to  implement  and
administer the Plan. The  interpretation  and  construction  by the Committee of
any  provision  of the Plan,  any  Option  granted  hereunder  or any  agreement
evidencing  any such Option  shall be final,  conclusive  and  binding  upon all
parties.

         All  expenses  and  liabilities   incurred  by  the  Committee  in  the
administration  of the Plan shall be borne by the  Company.  The  Committee  may
employ attorneys,  consultants,  accountants or other persons in connection with
the  administration  of the Plan.  The Company,  and its officers and directors,
shall be entitled to rely upon the advice,  opinions or  valuations  of any such
persons.  No  member  of the  Board or the  Committee  shall be  liable  for any
action,  determination  or  interpretation  taken  or made in  good  faith  with
respect to the Plan or any Option granted hereunder.

         The  Committee  shall have full power and  authority to  interpret  and
construe  the Plan  and  adopt  such  rules  and  regulations  as it shall  deem
necessary  and  advisable  to  implement  and  administer  the  Plan.  All  such
interpretations,  rules and  regulations  shall be conclusive and binding on all
parties.

         4.       One  Time  Option  Grant.  On  the  Option  Grant  Date,  each
person  who is a  Non-Employee  Director  as of such date  shall be  granted  an
Option to purchase  6,250  Shares.  Each Option  granted under the Plan shall be
evidenced  by a Stock  Option  Agreement.  No person shall have any rights under
any Option  granted  under the Plan  unless and until the Company and the person
to whom such Option shall have been granted  shall have  executed and  delivered
a Stock Option Agreement.

         5.       Eligibility.  Non-Employee  Directors of the Company  shall be
eligible to participate in the Plan in accordance with Section 4.

         6.       Shares   Subject  to  the  Plan.   Subject  to  adjustment  as
provided in Section 11, the  aggregate  number of Shares  which may be issued or
delivered  upon the  exercise of Options  shall not exceed  25,000  Shares.  The
Shares  that may be  subject to  Options  granted  under this Plan may be either
authorized  and  unissued  shares  or shares  reacquired  at any time and now or
hereafter held as treasury stock as the Committee may determine.

         7.       Non-Transferability   of   Options.   Options   shall  not  be
transferable  otherwise  than by will or the laws of descent  and  distribution,
and during an  Optionee's  lifetime an Option shall be  exercisable  only by the
Optionee.

         8.       Non-Qualified  Options.  Each Option  issued  hereunder  shall
not  constitute  nor be treated  as an  "incentive  stock  option" as defined in
Section  422 of the Code or an option  described  in Section  423(b) of the Code
and will be a "non-qualified stock option" for federal income tax purposes.

         9.       Exercise  Price.  The Option  exercise  price per share  under
each Option  shall be equal to 100% of the Fair Market  Value per Share  subject
to the Option on the Option Grant Date.

         10.      Exercise of  Options.  An Option may not be  exercised  during
the first year after the  Option  Grant  Date.  After the first  anniversary  of
the Option  Grant Date,  it may be  exercised as to not more than 33-1/3% of the
Shares  available for purchase  under the Option and, after the second and third
anniversaries  of the Option  Grant  Date,  it may be  exercised  as to not more
than an  additional  33-1/3%  of such  shares  plus any  shares  as to which the
Option  might  theretofore  have  been  exercisable  but  shall  not  have  been
exercised.  No option shall be  exercised  later than ten years after the Option
Grant Date.

         Except as  provided  in this  Section  10,  all  Options  granted  to a
Non-Employee  Director  shall  automatically  be forfeited by such person at the
time such person  shall cease to be a  Non-Employee  Director  provided  that an
Optionee may exercise  vested  options within 30 days after  termination  unless
the termination of a Non-Employee  Director's  service on the Board results from
an  act of (a)  fraud  or  intentional  misrepresentation  or (b)  embezzlement,
misappropriation  or  conversion  of assets or  opportunities  of the Company or
any  direct  or  indirect  majority-owned  subsidiary  of the  Company,  by such
Non-Employee  Director.  The determination of whether  termination  results from
such act shall be made by the Board,  whose  determination  shall be conclusive.
If service by the Optionee as a  Non-Employee  Director  terminates by reason of
Disability,  the  unexercised  portion of any Option  held by such  Optionee  at
that  time may be  exercised  within  one  year  after  the  date on  which  the
Optionee  ceased  to serve as a  Non-Employee  Director,  but no later  than the
date the  Option  expires,  and to the  extent  that  the  Optionee  could  have
otherwise  exercised such Option if it had been completely  exercisable.  To the
extent that the  Optionee is not  entitled to exercise  the Option on such date,
or if the Optionee does not exercise it within the time  specified,  such Option
shall  terminate.  The Committee  shall have the authority to determine the date
an  Optionee  ceases  to serve  as a  Non-Employee  Director  by  reason  of his
Disability.  If an Optionee  dies while  serving as a  Non-Employee  Director of
the  Company  (or dies  within  a period  of 30 days  after  termination  of his
service as a  Non-Employee  Director  for any reason  other than  Disability  or
within a period of one year after  termination  of his service as a Non-Employee
Director by reason of Disability),  the  unexercised  portion of any Option held
by such  Optionee  at the time of his death  may be  exercised  within  one year
after the date of such Optionee's  death,  but no later than the date the Option
expires,  and to the extent that the  Optionee  could have  otherwise  exercised
such  Option  if  it  had  been  completely  exercisable.  Such  Option  may  be
exercised by the executor or  administrator  of the Optionee's  estate or by any
person  or  persons  who  shall  have  acquired  the  Option  directly  from the
Optionee  by  bequest  or  inheritance.  To the  extent  that the  Option is not
entitled to be exercised on such date or if the Option is not  exercised  within
the time specified, such Option shall terminate.

         An Option may not be  exercised  for a fraction  of a Share.  An Option
shall be deemed to be exercised  when written  notice of such  exercise has been
given  to  the  Company  in  accordance  with  the  terms  of the  Stock  Option
Agreement by the  Optionee  entitled to exercise the Option and full payment for
the Shares with  respect to which the Option is exercised  has been  received by
the  Company.  Payment for the Shares upon  exercise of an Option  shall be made
in cash, by certified  check, or if authorized by the Committee,  by delivery of
other  Shares  having a Fair Market  Value on the date of delivery  equal to the
aggregate  exercise  price  of the  Shares  as to  which  the  Option  is  being
exercised,  or if authorized by the  Committee,  by  authorizing  the Company to
withhold  from the total  number of Shares to be  acquired  upon  exercise of an
Option that number of Shares  having an  aggregate  Fair Market Value (as of the
date the  withholding  is  effected)  that would  equal the  aggregate  exercise
price of the  Shares  as to which  the  Option  is  being  exercised,  or by any
combination  of such  methods of payment or by any other  method of payment that
may be permitted  under  applicable law and  authorized by the  Committee.  Each
exercise of an Option  shall  reduce,  by an equal  number,  the total number of
Shares that may thereafter be purchased under such Option.

         11.      Adjustments.  In the event that the  outstanding  Shares shall
be increased or  decreased or changed into or exchanged  for a different  number
or kind of shares of stock or other  securities  of the  Company  or of  another
corporation,  effected  without the  receipt of  consideration  by the  Company,
through    reorganization,    merger   or    consolidation,    recapitalization,
reclassification,  stock split,  reverse stock split,  split-up,  combination or
exchange  of shares or  declaration  of any  dividends  payable in  Shares,  the
Board  shall  appropriately  adjust,  subject  to  any  required  action  by the
stockholders  of the Company,  (i) the number of Shares (and the Option exercise
price per share) subject to the unexercised  portion of any  outstanding  Option
(to the nearest  possible  full share),  and (ii) the number of Shares for which
Options  may be granted  under the Plan,  as set forth in Section 6 hereof,  and
such  adjustments  shall be final,  conclusive  and binding for all  purposes of
the Plan.  Except as expressly  provided  herein,  no issuance by the Company of
shares of stock of any class shall affect,  and no adjustment by reason  thereof
shall be made with  respect  to,  the  number or price of Shares  subject  to an
Option.

         Notwithstanding  the  foregoing,  in the  event  of (i)  any  offer  or
proposal  to holders of the  Company's  Shares  relating to the  acquisition  of
their  shares,  including,  without  limitation,  through  purchase,  merger  or
otherwise,  or (ii) any  transaction  generally  relating to the  acquisition of
substantially  all of the  assets  or  business  of the  Company,  or (iii)  the
dissolution  or  liquidation  of  the  Company,  the  Committee  may  make  such
adjustment  as it deems  equitable  in respect of  outstanding  Options  (and in
respect  of the  Shares  for which  Options  may be  granted  under  the  Plan),
including,  without limitation,  the revision,  acceleration,  cancellation,  or
termination of any outstanding  Options,  or the change,  conversion or exchange
of the Shares under  outstanding  Options  (and of the Shares for which  Options
may be  granted  under the Plan) into or for  securities  or other  property  of
another  corporation.  Any such  adjustments  by the  Committee  shall be final,
conclusive and binding for all purposes of the Plan.

         12.      Amendment  of the  Plan.  The  Board  may  amend the Plan from
time to time as it deems  desirable in its sole discretion  without  approval of
the stockholders of the Company,  except to the extent  stockholder  approval is
required by Rule 16b-3 of the Exchange Act,  applicable  NASDAQ  National Market
or stock exchange rules,  applicable Code  provisions,  or other applicable laws
or regulations.

         13.      Termination  of the Plan.  The Board  may  terminate  the Plan
at any time in its sole  discretion.  No Option may be granted  hereunder  after
termination  of the Plan.  The  termination  or  amendment of the Plan shall not
alter or impair any rights or obligations  under any Option  previously  granted
under the Plan in any  material  adverse  way without  the  affected  Optionee's
consent.

         14.      Modification,  Extension  and Renewal of  Options.  Within the
limitations  of the Plan and  subject to Section 11, the  Committee  may modify,
extend or renew  outstanding  Options or accept the  cancellation of outstanding
Options   for  the   granting   of  new   Options  in   substitution   therefor.
Notwithstanding the preceding sentence,  except for any adjustment  described in
Section 11, (i) no modification  of an Option shall,  without the consent of the
Optionee,   alter  or  impair  any  rights  or  obligations   under  any  Option
previously  granted  under the Plan in any  material  adverse  way  without  the
affected  Optionee's  consent,  and  (ii)  the  exercise  price  of  outstanding
Options may not be altered, amended or modified.

         15.      Governing  Law.  The  Plan  and all  Stock  Option  Agreements
executed  in  connection  with the Plan shall be governed  by and  construed  in
accordance  with the laws of the State of Delaware,  without  regard to conflict
of laws principles.

         16.      Successors.  This  Plan is  binding  on and will  inure to the
benefit  of  any   successor  to  the   Company,   whether  by  way  of  merger,
consolidation, purchase, or otherwise.

         17.      Severability.  If any  provision  of  the  Plan  or any  Stock
Option  Agreement  shall  be  held  illegal  or  invalid  for any  reason,  such
illegality or invalidity  shall not affect the remaining  provisions of the Plan
or such  agreement,  and the Plan and such agreement shall each be construed and
enforced as if the invalid provisions had never been set forth therein.

         18.      Plan  Provisions  Control.  The terms of the Plan  govern  all
Options  granted  under the Plan,  and in no event will the  Committee  have the
power  to  grant  any  Option  under  the Plan  that is  contrary  to any of the
provisions  of the Plan.  In the  event  any  provision  of any  Option  granted
under the Plan shall  conflict  with any term in the Plan,  the term in the Plan
shall control.

         19.      Headings.  The headings  used in the Plan are for  convenience
only,  do not  constitute a part of the Plan,  and shall not be deemed to limit,
characterize,  or  affect  in any  way  any  provisions  of the  Plan,  and  all
provisions  of the Plan shall be  construed  as if no captions  had been used in
the Plan.

         20.      Rights as  Stockholder.  No person  shall  have any right as a
stockholder  of the Company  with  respect to any Shares which are subject to an
Option  unless  and until  such  person  becomes a  stockholder  of record  with
respect to such Shares.

  

                               5
                         1000

                          
                       3-MOS
             SEP-30-2000
                APR-01-2000
                  JUN-30-2000
                             29,501
                       12,038
                     109,647
                            0
                             0
                  174,332
                             20,252
                          0
                    325,048
             108,406
                                 0
                   0
                             0
                              165
                        215,662
      325,048
                            78,902
                   78,902
                              29,803
                      76,985
                       80
                        0
                    178
                     2,546
                          664
                 1,015
                          0
                         0
                               0
                        1,015
                           .03
                         .03