Item 1.01. | Entry into a Material Definitive Agreement. |
Second Amended and Restated Master Service Agreement
As previously disclosed on February 24, 2022, Popular, Inc. (“Popular” or the “Corporation”) entered into an Asset Purchase Agreement, dated as of February 24, 2022 (as amended from time to time, the “Asset Purchase Agreement”), by and among Popular, its wholly-owned subsidiary Banco Popular de Puerto Rico (“BPPR”), Evertec, Inc. (“Evertec”) and Evertec Group, LLC (“Evertec Group”). Completion of the transactions contemplated by the Asset Purchase Agreement (collectively, the “Evertec Transaction”) occurred on July 1, 2022 (the “Closing Date”).
In connection with the closing of the Evertec Transaction and as previously disclosed on February 24, 2022, Popular, BPPR and Evertec Group entered into a Second Amended and Restated Master Service Agreement (the “Second A&R MSA”) on July 1, 2022, pursuant to which Evertec Group will continue to provide various key information technology and various transaction processing services to Popular, BPPR and their respective subsidiaries, which services were previously provided under the Amended and Restated Master Service Agreement (the “Original MSA”), dated September 30, 2010, among Popular, BPPR and Evertec Group. In addition, the Second A&R MSA provides for the matters described below.
Under the Second A&R MSA, Popular and BPPR are no longer subject to exclusivity provisions that existed under the Original MSA and required Popular and BPPR to obtain certain services from Evertec, nor are they subject to rights of first refusal that Evertec had under the Original MSA with respect to certain technology projects. In connection with the elimination of exclusivity provisions under the Original MSA, Evertec Group is now entitled to receive monthly payments from Popular and BPPR to the extent that Evertec Group’s revenues under the Second A&R MSA fall below certain agreed minimum amounts on an annualized basis (each, an “Annual Minimum”). The Annual Minimum will equal (i) $170,000,000 for each one-year period from the Closing Date through September 30, 2025 (which is approximately 93% of the annual fees paid under the Original MSA in 2021 (disregarding the fees that were paid for services that have been removed from the scope of the Second A&R MSA, and disregarding the increase in fees attributable to the Annual MSA CPI Escalation (as defined below) that became effective as of October 1, 2021)); (ii) $165,000,000 for each one-year period from October 1, 2025 through September 30, 2026; and (iii) $160,000,000 for each one-year period from October 1, 2026 through September 30, 2028 (in each case, pro-rated for any partial one-year period).
Under the Original MSA, Evertec was entitled to increase annually the fees charged under the agreement based on the annual increases in the Consumer Price Index (the “Annual MSA CPI Escalation”), subject to an annual cap of 5%. Under the Second A&R MSA, the Annual MSA CPI Escalation that became effective as of October 1, 2021 has been retroactively eliminated, and Popular and BPPR are entitled to a credit against fees payable under the Second A&R MSA equal to the amount by which the fees paid by Popular or BPPR for the period from October 1, 2021 through the Closing Date were increased as a result of the most recent Annual MSA CPI Escalation. Additionally, the cap on the Annual MSA CPI Escalation has been reduced relative to the Original MSA, which provided for an Annual MSA CPI Escalation of up to 5% each year. Specifically, under the Second A&R MSA, the Annual MSA CPI Escalation is capped (i) at 1.5% for each one-year period beginning on the Closing Date through September 30, 2025, and (ii) at 2% for each one-year period from October 1, 2025 through September 30, 2028 (or if lower, at the percentage by which the CPI increase during the prior one-year period exceeded 2%). In addition, beginning in October 2025, BPPR will receive a 10% fee discount for services provided under the Second A&R MSA.
The Second A&R MSA requires Evertec Group to deliver to BPPR a core application programming interface (the “Core API Layer”). The Core API Layer will be a middle layer to connect the assets acquired by BPPR in connection with the Evertec Transaction to existing Evertec Group core applications in a manner expected to enable BPPR’s ability to enhance its customer facing digital channels in the future. The deadline for the delivery of the Core API Layer is January 31, 2024, subject to certain terms and conditions. If the delivery of the Core API Layer is delayed beyond the applicable deadline, Evertec Group will be required to make monetary payments to BPPR in accordance with an agreed schedule, and if the delay persists beyond a period of 12 months to 18 months following such deadline (such period depending on the delivery date that is determined for the Core API Layer), Popular or BPPR may terminate the Second A&R MSA.
The Second A&R MSA provides for a term that commenced on the Closing Date and ends on September 30, 2028 (a three-year extension of the term of the Original MSA), unless earlier terminated in accordance with its terms. The Second A&R MSA provides for termination by a party (i) for the other party’s material breach of the agreement, (ii) for a failure by the other party to pay any properly submitted invoice for a material amount in the aggregate that
