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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] For the fiscal year ended December 31, 1996
OR
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
Commission File Number 1-14342
NOVA CORPORATION
(Exact name of registrant as specified in its charter)
GEORGIA 58-2209575
(State of organization) (IRS Employer Identification No.)
ONE CONCOURSE PARKWAY, SUITE 300, ATLANTA, GEORGIA 30328
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (770) 396-1456
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, $0.01 par value per share New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
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 _____
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
As of February 28, 1997, the aggregate market value of the 4,796,880 shares of
Common Stock of the Company held by non-affiliates of the Company was
approximately $78,548,910, based upon the closing price of $16.375 per share on
The New York Stock Exchange composite tape on such date. Non-affiliate ownership
is calculated by excluding all shares that may be deemed to be beneficially
owned by executive officers and directors, without conceding that all such
persons are "affiliates" for purposes of the federal securities laws. As of
February 28, 1997, there were 28,730,185 shares of the Company's Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
1996 Parts II and IV
Portions of the Proxy Statement for the 1997 Annual Meeting of Shareholders to
be held on May 14, 1997 Part III
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PART I
ITEM 1. BUSINESS
NOVA Corporation (the "Company" or "NOVA"), a Georgia corporation
incorporated in December 1995, is an integrated provider of transaction
processing services, related software application products and value-added
services primarily to small- to medium-sized merchants. The Company provides
transaction processing support for all major credit and charge cards, including
VISA, MasterCard, American Express, Discover, Diner's Club and JCB, and also
provides access to debit card processing and check verification services. The
Company provides merchants with a broad range of transaction processing
services, including authorizing card transactions at the point-of-sale,
capturing and transmitting transaction data, effecting the settlement of
payments and assisting merchants in resolving billing disputes with their
customers. In addition, the Company has developed several software applications
that can be delivered to its customers and updated via its proprietary
telecommunications network (the "NOVA Network"). The NOVA Network was
developed in conjunction with WorldCom, Inc. ("WorldCom"), one of the nation's
largest long-distance telecommunications providers and is the principal conduit
through which the Company provides its services. While the NOVA Network is an
efficient and reliable telecommunications network, the Company continues to
develop and pursue enhancements to its telecommunications network in order to
allow the Company to maintain the advantages derived from its network
technology.
The Company's objective is to deliver transaction processing services and
related software application products and services to its merchant customers on
a cost-effective basis and increase the size of its customer base through its
marketing and acquisition programs. The Company seeks to accomplish this
objective by focusing on small- to medium-sized merchants, providing
high-quality, reliable service and support, and; pursuing acquisitions to create
greater economies of scale. Management believes the quality and reliability of
its products and services enhance the Company's ability to attract and retain
merchant customers.
The Company generates revenues principally by charging a fee based on a
percentage of the dollar volume of each transaction processed and by charging
fees for related credit card services. In 1996, the aggregate dollar volume of
VISA and MasterCard credit card transactions processed by the Company was
approximately $11.9 billion. At December 31, 1996, the Company provided
transaction processing services to approximately 82,900 merchant locations
nationwide.
NOVA Corporation was incorporated in Georgia in December 1995 in connection
with the First Union Alliance (defined below). NOVA Information Systems, Inc., a
wholly-owned subsidiary and predecessor to the Company ("NOVA Information
Systems"), was incorporated in Georgia in February 1991. Unless the context
otherwise requires, references in this Annual Report on Form 10-K to "NOVA" and
the "Company" refer to NOVA Corporation and its subsidiaries.
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MERCHANT SERVICES PROVIDED BY THE COMPANY
Authorization Services. The Company provides electronic transaction
authorization services for all major credit and charge cards. Authorization
generally involves approving a cardholder's purchase at the point-of-sale after
verifying that the card is not lost or stolen and that the purchase amount is
within the cardholder's credit or account limit. The electronic authorization
process for a credit card transaction begins when the merchant "swipes"
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the card through its POS Terminal and enters the dollar amount of the purchase.
After capturing the data, the POS Terminal transmits the authorization request
via the NOVA Network to the Company's switching center, where the data is routed
to the appropriate credit card association for authorization. The transaction is
approved or declined by the credit card association, and the response is
transmitted back to the Company's switching center, where it is routed to the
appropriate merchant.
Data Capture and Reporting Services. At the time of authorization, data
relating to the transaction, such as the purchase price and card number, is
recorded electronically both at the merchant's POS Terminal and by the Company.
This redundancy maximizes accurate transaction reconciliation with each merchant
and protects against potential loss of data. On a periodic basis throughout the
day, the merchant aggregates and organizes this transaction data, using a
software application that the Company has programmed into the merchant's POS
Terminal, and transmits this information to the Company where it is organized
into two files. One file is transmitted to either Total System Services, Inc.
("Total System Services") or Mellon Bank, N.A. ("Mellon Bank") for merchant
accounting as described below. The other file is maintained by the Company in
its database to allow the Company to run its proprietary fraud detection
software program against the day's transactions processed via the NOVA Network.
This information also allows the Company to provide merchants with information
services such as specialized management reports and to assist in its other
customer service operations. Merchants can access this archived information
through customer service representatives or through applications such as NOVA
ACS and NOVA Perks which allow the merchant direct access to the Company's
database through a PC.
Settlement, Accounting and Clearing Services. Merchant accounting services
are performed on the Company's behalf by Total System Services and Mellon Bank,
with each of the Company's merchant customers assigned to one of these
processors. No less often than once each day, the Company forwards to Total
System Services and Mellon Bank, respectively, transaction data regarding the
Company's merchant customers. Total System Services and Mellon Bank reorganize
and accumulate this data on a merchant-by-merchant and card issuer-by-card
issuer basis and forward this data to the credit card associations for ultimate
payment. On a monthly basis, Total System Services and Mellon Bank send
statements to the Company's merchant customers for whom they provide settlement
and accounting services, detailing the previous month's transaction activity.
Through each of Regions Bank, Bank of the West and Mellon Bank, which serve
as member clearing banks for the Company, the Company is registered with VISA
and MasterCard as a certified processor and member service provider. FUNB-NC
also serves as a clearing bank for the Company. The Company's clearing banks
receive payment for merchant transactions from credit card associations (net of
fees payable to the credit card associations and card issuing banks), from which
the clearing banks remit payment to the merchant for the gross amount of the
merchant's transactions. Once each month, the Company collects applicable
merchant discount and other fees from each merchant for transactions effected
and services provided during the preceding month.
Chargeback Services. In the event of a billing dispute between a cardholder
and a merchant, the Company assists the merchant in investigating and resolving
the dispute. These billing disputes include, among others: (i) nonreceipt of
merchandise; (ii) unauthorized use of a credit card; and (iii) general disputes
between a customer and a merchant as to the quality of the goods purchased or
the services rendered by that merchant. The Company provides a sophisticated
chargeback control system for its merchants that includes actively prescreening
disputes and the use of proprietary software programs to automate chargeback
controls. These chargeback control systems are designed to reduce the time and
expense that the Company and merchants spend on cardholder requests for
chargebacks. In the event a billing dispute between a cardholder and a merchant
is not resolved in favor of the merchant, the transaction is "charged back" to
the merchant and that amount is credited or otherwise refunded to the
cardholder. If the Company or its clearing banks are unable to collect such
amounts from the merchant's account, and if the merchant refuses or is unable
due to bankruptcy or other reasons to reimburse the Company for the chargeback,
the Company bears the loss for the amount of the refund paid to the cardholder.
Customer Service and Support. The Company provides its merchant customers
with a variety of customer services and support. These services include leasing
or selling POS Terminals, downloading software application products and services
to POS Terminals, maintaining POS Terminals, and customizing software for
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merchant applications. In addition, the Company maintains a 24-hours-a-day,
seven-days-a-week helpline staffed by full-time customer service
representatives. These customer service representatives serve the Company's
merchants with networked systems that provide access to real-time customer
transaction information, a capability historically available only to large
merchants.
TECHNOLOGY
The Company seeks to maximize the benefits of available technologies
to deliver transaction processing and related software application products and
services on a cost-effective basis. Accordingly, the Company regularly uses and
adapts technologies developed for applications outside the transaction
processing industry. In particular, technologies developed for networked PCs and
the telecommunications market have been important to the NOVA Network and the
Company's service capabilities.
The Company employs a development team concept in its approach to the use,
adaptation and development of technology. Pursuant to this concept, the Company
generally organizes development teams typically consisting of at least one
representative from each of the Company's sales, marketing, operations, finance,
customer service and technology departments. These teams coordinate their
efforts to use technology in such a way that it will be responsive to the
Company's and the customers' needs, supportable and serviceable by the Company's
personnel, and technologically feasible and efficient.
The Company exercises significant control over the development and
enhancement of the combination of hardware, software and network services that
comprise NOVA's transaction processing and information delivery system. This
provides the Company with greater control over the functionality, quality,
reliability, cost and efficiency of its transaction processing services and
related software application products and services.
The NOVA Network. The NOVA Network, developed in conjunction with WorldCom,
is the Company's proprietary telecommunications network and the principal
conduit through which the Company provides its services. The design of the NOVA
Network provides efficient switching capabilities, resulting in rapid response
time for transaction authorizations. Fiber optic communications are employed
throughout the NOVA Network, providing the substantial bandwidth capable of
supporting sophisticated value-added services. As customer needs change and as
technology improves, management believes that it will be able to adapt and
customize the NOVA Network as necessary to achieve the functionality it desires.
Pursuant to its agreement with the Company, WorldCom provides long-distance and
local telecommunication access, as well as technical support, to the Company in
connection with the NOVA Network. This agreement expires February 28, 1999,
subject to earlier termination by the Company if WorldCom fails to meet certain
agreed-upon performance objectives.
The NOVA Network is the result of combining WorldCom's Common Channel
Signaling Specification Number Seven, commonly referred to as an "SS7"
switching system, with the use of advanced Integrated Services Digital Network
("ISDN") and Non-Facilities Associated Signaling ("NFAS") features. SS7 is
high-speed call-switching technology utilized in telecommunications networks and
originally intended only for carrier-to-carrier use, such as a regional phone
company switching long-distance calls to WorldCom for transmission, as opposed
to use by end-users such as the Company and its merchants. With the use of ISDN
technology, however, end-users such as the Company can utilize an SS7 switching
system without sacrificing any of the enhanced performance attributes derived
from SS7 technology. Although significant hardware and software obstacles
currently are inherent to end-user utilization of an SS7 switching system, the
Company developed a proprietary ISDN interface enabling it effectively to employ
SS7 technology as part of the NOVA Network. Further, the NFAS features of the
NOVA Network allow for a greater portability of the NOVA Network to
long-distance and local telecommunications access
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providers other than WorldCom, which would reduce the Company's historical
dependence on WorldCom. The Company has developed and tested a network interface
with AT&T and management believes that, if necessary or convenient, the Company
could utilize the telecommunications access of AT&T in connection with the NOVA
Network. Management believes that transferring the NOVA Network to AT&T, or
another telecommunications access provider, could be accomplished without
sacrificing significant performance or operational attributes of the NOVA
Network, although such a transfer may increase the Company's expenses for
network services.
The reliability of the NOVA Network is enhanced by the backup service
provided by AT&T. The existence and maintenance of this backup system, which is
designed so no single element is shared with the principal WorldCom system,
enhances the Company's ability to provide a high level of reliability in its
network service. Through an agreement with Electronic Data Systems Corporation,
the Company maintains a voice authorization backup system. This backup system
allows merchants to receive voice authorization of transactions in the event of
a POS Terminal malfunction, network outage or other similar circumstances.
Software development for POS Terminals and PCs. The Company is continuously
developing new software applications for POS Terminals and PCs in an effort to
improve existing and create additional product and service offerings. This
software development capability is important to the Company's ability to respond
flexibly to changing customer needs and improving technologies. Most of the POS
Terminals utilized by the Company's merchant customers have been programmed by
the Company with specific applications. By programming POS Terminals, the
Company can avoid the limitations of certain older applications programmed into
POS Terminals, which are designed for broad applicability to a wide range of
users, and can provide its merchant customers with specifically tailored
applications at an increased level of functionality. Distribution of software
application products designed for use through POS Terminals generally is
accomplished by downloading such applications over the NOVA Network, enabling a
merchant to utilize the Company's products and services quickly and
inexpensively.
As the use of PCs by merchants grows, and as merchants continue to move
toward fully-integrated cash registers and payment systems, the Company
continues its efforts to extend its POS Terminal software application product
and service offerings to PCs. For instance, NOVA ACs, NOVA Perks, PC TRANSACT __
IT, and NOVA Shadow Pay are PC-based applications, and the Company intends to
expand the number of its products and services available for PC use or that
otherwise allow the POS Terminal to interface with a PC. While merchant use of
such products and services currently is limited, and there can be no assurance
that such products and services will be widely accepted, the company expects
such use to increase. Further, the terms of the First Union Alliance provide
that, when feasible, the Company will assist First Union in developing new
products or services relating to transaction processing or in otherwise
supporting new business ventures. The Company and First Union are actively
pursuing initiatives relating to transaction processing via the Internet and
procurement and purchasing cards, and management believes that these and other
efforts may result in the development of additional software application
products and value-added services.
The Company actively encourages third party software developers to write
applications to the Company's specifications and network protocols. These
applications, once certified by the Company, allow integration of the Company's
transaction processing services with the business management software created by
such developers for use at the merchant's point-of-sale. These developers often
function as value-added resellers ("VARS") for the Company as they frequently
market their business management software in connection with the Company's
services. For example, Squirrel restaurant products ("Squirrel"), one of the
leading VARS, provides software applications to accommodate the specialized
business management needs of the restaurant industry. Squirrel, in cooperation
with the Company, has modified its software to allow full integration of the
Company's transaction processing services. In this way, VARS such as Squirrel
indirectly perform a marketing function for the Company since their software is
often offered on a fully-integrated basis with the Company's transaction
processing services, creating additional opportunities for the Company to reach
small- to medium-sized merchants. The Company has certified in excess of 30
third party software developers, including IC verify, Aluim Payment Groups,
Southern DataCom, Inc., Datacap, Inc. and Smoky Mountain Systems.
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Year 2000 updates. The card issuing members of VISA and MasterCard have begun
issuing to cardholders credit cards with expiration dates in the year 2000 or
later ("Year 2000 Cards"). As a result, the Company, like other card processors,
is in the process of implementing a plan to ensure that POS Terminals at its
merchant customer locations is capable of accepting Year 2000 cards prior to the
end of 1997. VISA and MasterCard required processors to submit compliance plans
setting forth the processors' plans to ensure compliance for Year 2000 cards.
The Company, through its member clearing banks, submitted its compliance plans
within the time frames required by VISA and MasterCard.
SOFTWARE APPLICATION PRODUCTS AND VALUE-ADDED SERVICES
The Company currently offers a variety of software application products and
services designed to run on existing POS Terminals and DOS- and Windows-based
PCs, including the following:
Encompass. Encompass is the latest generation of the Company's user
interface. The Company presently provides Encompass to all new merchant
customers, and generally charges a one-time fee to upgrade existing merchants to
Encompass. Encompass enables merchants to access the Company's core transaction
processing services, as well as its software application products and value-
added services. Encompass also allows merchants to access other business
management applications, including customized end-of-day processing (allowing,
for instance, merchants to perform daily audit functions) and other review and
reporting features (e.g., summary report generation). Designed as a flexible
"modular" system, Encompass allows a merchant to add features and capability as
its business needs evolve.
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Cellular Digital Packet Data. The use of Cellular Digital Packet Data
("CDPD") allows the Company to process transactions utilizing cellular
airwaves, as opposed to traditional phone lines, enabling wireless transaction
authorization and processing. The Company currently has an agreement with McCaw
Wireless Data, Inc. (doing business as AT&T Wireless Services), GTE and Bell
Atlantic NYNEX Mobile, to provide cellular transmission services. In February
1996, in cooperation with AT&T Wireless Services, the Company commenced a pilot
CDPD program with San Francisco Yellow Cab, and since such time the Company
recently has begun offering CDPD services to existing and prospective merchant
customers. CDPD enables transaction authorization and processing in environments
where traditional phone lines are unavailable, inconvenient and/or prohibitively
expensive, affording merchants increased flexibility, mobility and security in
processing card transactions. Further, CDPD will allow merchants that have
relied on paper-based processing, where the ability to check if a card is stolen
or credit limits exceeded is generally unavailable or inconvenient, to convert
to electronic processing. In so doing, such merchants can also avoid the higher
rates imposed by each of VISA and MasterCard for paper-based transactions.
Other Products and Services. The Company offers other products and
services, including (i) systems that allow the Company's bank alliance and ISO
partners to access the Company's databases in order to track and compile the
transaction processing activities of their respective merchant customers; (ii)
an application allowing the Company's merchant customers to design and operate
customized frequent shopper programs, which utilize plastic "frequent shopper
cards" to enable merchants to promote sales and to track, store and retrieve
information about their customers and all of their purchases regardless of the
method of payment used; (iii) a check verification service offered by the
Company through an agreement with Electronic Transaction Corporation (SCAN);
(iv) software that enables merchants with modem-enabled cash registers to
transmit transaction data directly from the register for authorization and
processing, eliminating the need for a stand-alone POS Terminal and the
redundant keying of transaction data associated therewith; (v) applications that
permit bulk transfer of credit card transaction data from a merchant's mainframe
to the Company; and (vi) an application that enables merchants to utilize
standard POS or PC terminals to track hours worked by each employee, thereby
reducing associated bookkeeping time and costs. The Company has also developed
the capability, currently utilized by select merchants on a limited basis, to
process transactions via the Internet and other forms of electronic commerce.
CUSTOMER BASE
The Company's merchant customer base consists primarily of small- to
medium-sized merchants, with a particular concentration in the restaurant,
specialty retail, furniture, automobile repair and lodging industries. In
addition, banks also are customers of the Company insofar as those banks accept
credit card cash advance transactions. While the Company's merchants vary
significantly in size, a typical NOVA merchant generates approximately $140,000
in annual charge volume. The Company also serves a significant number of large
merchants and has in place the technical, operational and management
infrastructure necessary to continue to serve large merchants. For the year
ended December 31, 1996, no merchant customer accounted for more than 2.5% of
the Company's revenues. The Company generally enters into direct contractual
relationships with its merchants. At December 31, 1996, the Company provided
transaction processing services to approximately 82,900 merchant locations
nationwide.
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MARKETING
The Company markets its services principally through the following
channels:
Bank Alliances. The Company's principal marketing efforts are directed at
forming bank alliances. Through these relationships, the Company offers its
services to merchants in cooperation with community and regional banks, allowing
the Company to capitalize on the presence of those banks in particular
geographic markets. The Company's bank alliances consist of three types of
relationships: (i) relationships created as a result of the Company's
acquisition of a bank's merchant portfolio, pursuant to which the Company
provides transaction processing services on a co-branded basis with such bank
("Acquisition Alliances"); (ii) agent bank relationships where the bank
purchases the Company's services and markets and resells those services directly
to merchants ("Agent Bank Alliances"); and (iii) bank referral relationships
where the bank refers to the Company merchants who desire or otherwise inquire
about transaction processing services ("Bank Referral Alliances").
Acquisition Alliances are an integral part of the Company's overall
acquisition strategy pursuant to which the Company offers banks the opportunity
to transfer management and operational responsibility for their merchant
portfolios to the Company, while continuing to offer transaction processing
services on a co-branded basis in cooperation with the Company. Because an
Acquisition Alliance may involve the Company hiring the bank's transaction
processing salespersons and keeping them on-site at the bank branch to service
existing merchant customers and to market and sell the Company's processing
services to new merchant customers, the Company can often effect a nondisruptive
transition of services from the merchants' perspective. To ease transitions, the
Company's personnel train and educate its Acquisition Alliance partners in all
aspects of the Company's transaction processing services, software application
products and value-added services.
The Company compensates its bank alliance partners through varying means.
Acquisition Alliance partners typically are compensated by the Company remitting
to them a residual for each transaction processed by the Company for new
merchants attributable to the alliance. The Company compensates its Bank
Referral Alliance partners typically by paying them a one-time referral fee.
Agent Bank Alliance partners are not directly compensated by the Company;
rather, they derive revenue by reselling the Company's services to merchants at
a price determined by the Agent Bank. The Company is assisted in its alliance
efforts through a marketing agreement with Kessler Financial Services L.P.
("Kessler"), an independent marketing organization. Pursuant to this
agreement, Kessler identifies potential alliance or acquisition prospects for
the Company. The Company's agreement with Kessler is scheduled to expire June
30, 1999.
ISO Partnering. ISO partnering involves engaging an ISO to market and sell
the Company's products and services on a non-exclusive basis. An ISO that
desires to refer a merchant customer to the Company will procure the merchant's
application and submit it to the Company on the merchant's behalf. Thereafter,
if the application is approved, the ISO will sell or lease POS Terminals and
related hardware and software to such merchant. The Company compensates ISOs by
paying them a residual for each transaction processed by the Company for
merchants referred to the Company by the ISO. In 1996, the Company actively
marketed its services to prospective ISOs principally through its Arvada,
Colorado office. As of March 26, 1997, the Company had 26 marketing agreements
with ISOs.
Direct Sales, Including Telemarketing. The Company continues to expand its
direct sales activities. In 1996, the Company deployed a telemarketing sales
force based in Jacksonville, Florida to generate further internal growth from
existing relationships with regional and community banks, ISOs and merchant
trade and other associations. As of December 31, 1996, approximately 10% of
the Company's applications from prospective merchants were processed through the
telemarketing office. Management believes that its direct sales and
telemarketing efforts constitute a significant opportunity to augment its bank
alliance and ISO partnering efforts. The National Accounts Sales team,
organized in 1996, supports the Acquisition Alliances in signing larger and more
technologically sophisticated merchants.
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FIRST UNION SHAREHOLDERS AGREEMENT.
Concurrently with the consummation of the First Union Alliance, the
Company, its shareholders and First Union entered into a Shareholders Agreement
that sets forth, among other things, agreements regarding the composition of the
Company's Board of Directors, the transferability of the Company's capital stock
and the Company's future business activities. In particular, the Shareholders
Agreement provides that the Company may, at its option, purchase from First
Union any merchant portfolios acquired by First Union through whole-bank or
other acquisitions. To facilitate First Union's compliance with the banking
laws, and to allow First Union to obtain any required consents or approvals, the
Company also has agreed to notify First Union before it enters into, or acquires
any company which is engaged in, business activities substantially different
from the business activities the Company currently conducts. If First Union is
unable to obtain such consents or approvals, the Company may not engage in the
new business activity or proceed with the contemplated acquisition. Accordingly,
the Company may be limited in its ability to seek or take advantage of certain
business opportunities or relationships which differ substantially from the
business activities the Company currently conducts. Nevertheless, management
believes that the synergies and other significant benefits derived from the
First Union Alliance offset the potential limitations imposed by the banking
laws.
ACQUISITIONS
Since inception, the Company has consummated 74 transactions consisting of
70 merchant portfolio acquisitions, three operating business acquisitions and a
transaction with First Union Corporation and each of its principal banking
subsidiaries (collectively, the "First Union Banks") (First Union Corporation
and the First Union Banks are collectively referred to herein as "First Union").
In 1996, the Company consummated 23 transactions, anticipated to add
approximately $385 million annualized processing volume. The transaction with
First Union (the "First Union Alliance"), which was effective as of December 1,
1995, is the Company's most significant transaction to date representing the
addition of approximately 31,000 merchants accounting for approximately $4.6
billion in 1995 credit card charge volume which produced approximately $105
million in revenues for 1995. The First Union Alliance resulted in the transfer
by First Union of its transaction processing assets to the Company, increasing
the Company's merchant customer base by 66.9% and increasing the annual credit
card charge volume processed by the Company by 71.8%. First Union became a
significant shareholder of the Company in connection with the First Union
Alliance and owned 9,149,209 shares of the Company's Common Stock at March 15,
1997. The conversion and integration of the transaction processing assets
transferred to the Company as a result of the First Union Alliance currently is
in progress and is expected to be completed in the fall of 1997. In connection
with the First Union Alliance, First Union also agreed, until January 31, 2003
and subject to certain specified exceptions and conditions, not to solicit,
contract or generally do business with merchants or ISOs with whom the Company
has a contractual relationship. First Union National Bank of North Carolina
("FUNB-NC") generally will act until January 31, 2003 as the exclusive clearing
and settlement bank for transactions originating from merchants maintaining a
depository account with First Union for receipt of payment of cleared
transactions, although the Company may solicit from one or more other member
clearing banks proposals to provide clearing and settlement services to the
First Union Merchants. See "Business-First Union Shareholders Agreement.
The Company intends to continue to pursue acquisitions of merchant
portfolios as a principal component of its growth strategy in order to achieve
greater economies of scale. This acquisition strategy focuses on the merchant
portfolios of banks and ISOs that no longer desire or are unable to provide
efficient and cost-effective transaction processing services. The Company
attempts to structure its acquisition of merchant portfolios both to increase
its merchant base and to expand its distribution and marketing capabilities. The
Company accomplishes this objective principally by entering into an exclusive
marketing agreement or alliance with a bank that sells its merchant portfolio to
the Company. These alliances offer banks the opportunity to transfer management
and operational responsibility for their merchant portfolios to the Company,
while continuing to offer transaction processing services on a co-branded basis
in cooperation with the Company. Banks are therefore able to view the
acquisition of their merchant portfolio by the Company as a way to maintain a
full-service relationship with their merchant depositors. Since inception, the
Company has consummated 74 transactions consisting of 70 merchant portfolio
acquisitions, three operating business acquisitions and the First Union
Alliance.
RISK MANAGEMENT
The Company views its risk management and fraud avoidance practices as
integral to its operations and overall success because of the Company's
potential liability for merchant fraud, chargebacks and other losses. Risk
management and fraud avoidance occur initially at the application stage, when
merchant applications are reviewed by the Company against certain criteria to
determine acceptance or denial. The criteria used by the Company to determine
whether to accept or deny applications include the credit history of the
applicant, the industry in which the applicant conducts its business and various
other relevant factors. In certain instances, guarantees may be required before
an application is approved.
The Company's principal advantage in its risk management and fraud
avoidance capabilities, is the ability to run its proprietary fraud detection
software program against each transaction electronically processed on the NOVA
Network before funds are transferred to the merchant in payment for such
transaction. This ability is critical to the Company's overall program to
control fraud and manage risk and is an example of the Company's strategy of
leveraging available technologies, and the NOVA Network, to competitive
advantage. Despite the Company's risk management and fraud avoidance
capabilities, the Company is unable to identify all fraudulent transactions
resulting in financial exposure to the Company. Further, until the Company
converts each newly acquired merchant account to the Company's merchant
accounting processors, the Company is unable to apply fully its risk management
and fraud avoidance practices to such merchant accounts.
In connection with portfolio acquisitions, the Company reviews any merchant
portfolio that it proposes to acquire. The review process includes analyzing the
composition of the portfolio, applying uniform standards and underwriting
guidelines developed by the Company to the portfolio and identifying high-risk
merchants contained in the portfolio. Upon completion of this review, the
Company determines whether the portfolio meets the Company's standards and
guidelines and is otherwise a suitable acquisition target. If the Company
decides to proceed with the proposed acquisition, the Company will focus on the
high-risk merchants identified by its review and attempt to manage the risk
associated with such merchants. Typically, the Company will seek to exclude
high-risk merchants from the portfolio acquisition, require the seller of the
merchant portfolio to establish a reserve account or require the seller of the
merchant portfolio to indemnify the Company for any liability associated with
such merchants. There can be no assurance that the Company's review process will
consistently identify all high-risk merchants or that the Company will otherwise
assess properly the risk attributes of any acquired portfolio.
11
<PAGE>
MERCHANT ACCOUNTING AND CLEARING BANK RELATIONSHIPS
The Company relies upon third parties to provide merchant accounting and
clearing bank services to the Company and its merchant customers. In each of
these instances, the Company has engaged multiple providers to safeguard against
the loss of services or quality of any one of these providers.
Merchant Accounting. Merchant accounting services consist of reorganizing
and accumulating daily transaction data on a merchant-by-merchant and card
issuer-by-card issuer basis, and forwarding this data to the credit card
associations for ultimate payment. These functions are performed on the
Company's behalf by each of Total System Services and Mellon Bank under
agreements expiring April 30, 1998 and February 28, 1998, respectively.
Clearing Bank Arrangements. The Company's clearing banks receive payment
for merchant transactions from credit card associations (net of fees payable to
the credit card associations and card issuing banks), from which the clearing
banks remit payment to the merchant for the gross amount of the merchant's
transactions. Once each month, the Company collects applicable merchant discount
and other fees from each merchant for transactions effected and services
provided during the preceding month. The Company, along with all other nonbank
transaction processors that process VISA and MasterCard transactions, must be
sponsored by a financial institution that is a principal member of the VISA and
MasterCard credit card associations in order to process these bankcard
transactions. Through each of Regions Bank, Bank of the West and Mellon Bank,
which serve as member clearing banks for the Company, the Company is registered
with VISA and MasterCard as a certified processor and member service provider.
FUNB-NC also serves as a clearing bank for the Company.
PROPRIETARY RIGHTS
The Company has developed proprietary software for use in four principal
areas: (i) applications for POS Terminals and PCs; (ii) transaction switching;
(iii) the NOVA Network; and (iv) customer service and chargebacks. The Company
regards its proprietary software as protected by trade secret and copyright laws
of general applicability. The Company attempts to safeguard its software
through the protection afforded by the above-referenced laws, employee and
third-party non-disclosure agreements, licensing agreements and other methods of
protection. Despite these precautions, it may be possible for unauthorized
third parties to copy, obtain or reverse engineer certain portions of the
Company's software or to otherwise obtain or use other information the Company
regards as proprietary. While the Company's competitive position may be
affected by its ability to protect its software and other proprietary
information, management believes that the protection afforded by trade secret
and copyright laws are less significant to the Company's success than other
factors such as the knowledge, ability and experience of the Company's personnel
and the continued pursuit and implementation of its operating strategies.
As the number of software application products in the transaction
processing industry increases, and as the functionality of such products further
overlaps, third parties could assert that the Company's software application
products infringe or may infringe the proprietary rights of such entities. These
third parties may seek damages from the Company as a result of such alleged
infringement, demand that the Company license certain proprietary rights from
them or otherwise demand that the Company cease and desist from its use and/or
license of the allegedly infringing software. Although management is not
currently aware of any alleged infringement issues, any such action, if it were
to occur, may result in protracted and costly litigation or royalty arrangements
or otherwise have a material adverse effect on the Company's financial condition
and results of operations.
The Company currently licenses certain software from third parties to
supplement its internal software and technology development and to shorten time-
to-market software application product deliveries. For instance, the Company
licenses the software for NOVA Time. Management believes that it will be
necessary to continue this practice in the future, although there can be no
assurance that the Company will be able to do so on favorable terms or at all.
The Company's trademarks include "NOVA," "NOVA Information Systems,"
"NOVA ACS," "NOVA Remote ACS," "NOVA Time," "NOVA Clock," "NOVA
Perks," "PC Transact-It" and "NOVA Shadow Pay". To date,
12
<PAGE>
however, the Company only has sought to have "NOVA" and "NOVA Perks" registered
on the federal level. The Company's application to register "NOVA Perks" with
the U.S. Patent and Trademark Office was approved January 23, 1996. The
Company's application to register "NOVA" was refused and allowed to lapse
without contesting the refusal. The Company intends to refile this application.
There can be no assurance, however, that the Company will be successful in its
attempt to register "NOVA" or that it will otherwise be able to continue to use
any of the foregoing trademarks in its operations.
COMPETITION
The market for providing credit, charge and debit card transaction services
to the small- to medium-sized merchant segment served by the Company is highly
competitive. The level of competitiveness has increased significantly since the
Company's inception and this trend is expected to continue. The Company competes
in this market segment on the basis of price, the availability of related
products and services, the quality of customer service and support, and
transaction processing speed, quality and reliability. The Company's principal
competitors in this market segment include other smaller vertically integrated
processors, community and regional banks and ISOs and, increasingly, the ten
largest bankcard processors. Several of the Company's competitors and potential
competitors have greater financial, technological, marketing and personnel
resources than the Company, and there can be no assurance that the Company will
continue to be able to compete successfully with such entities.
The Company believes that it has reached a sufficient size whereby
economies of scale allow it to offer competitive pricing. However, certain of
the Company's competitors may have lower costs which could potentially give them
an advantage. The Company intends to maintain its strategy of focusing on small-
to medium-sized merchants because management believes this market segment is
somewhat less price sensitive than larger accounts.
The Company faces increasing competition from other transaction processors
for available acquisition opportunities. In addition, in recent years community
and regional banks, whose transaction processing businesses have been the
Company's primary source of acquisition opportunities, have been undergoing
extensive consolidation reflective of underlying trends in the financial
institutions industry and unrelated to their transaction processing businesses.
As a result, smaller banks that may have sought to divest themselves of their
transaction processing businesses may be acquired by a competitor of the
Company, thus depriving the Company of an acquisition opportunity. The First
Union Alliance, however, may create additional acquisition opportunities for the
Company, as the Company and First Union have agreed that the Company generally
may, at its option, purchase from First Union any merchant portfolios acquired
by First Union through whole-bank or other acquisitions.
BANKING REGULATION
As a result of First Union's ownership interest in the Company, the Company
is subject to certain banking laws, orders and regulations (collectively, the
"Banking Laws"). For example, the Company is now subject to the supervision and
examination of the Office of the Comptroller of the Currency (the "OCC"), one of
the principal regulatory bodies having jurisdiction over First Union (although
management does not believe it is likely that the OCC would ever exercise this
supervisory and examination authority). In addition, the OCC reviewed
extensively the First Union Alliance and the terms thereof, and the OCC's
written approval was required in order for the First Union Alliance to be
consummated (the "OCC Approval"). To facilitate First Union's compliance with
the OCC Approval and the other Banking Laws, and to allow First Union to obtain
any required consents or approvals, the Company has agreed to notify First Union
before it enters into, or acquires any company that is engaged in, any business
activities substantially different from the business activities the Company
currently conducts. If First Union is unable to obtain such consents or
approvals, the Company may not engage in the new business activity or proceed
with the contemplated acquisition. Management does not believe, however, that
the Banking Laws will impact significantly the manner in which the Company
intends to conduct or expand its business or product and services offerings,
although there can be no assurance that the Banking Laws will not have such an
effect.
13
<PAGE>
CAUTIONARY STATEMENTS
This Annual Report on Form 10-K and other information that is provided by
the Company from time to time contain statements that are not historical facts,
including statements about (i) the Company's strategies and expectations for
existing and new products, services, technologies and opportunities, (ii) demand
for and acceptance of new and existing products and services, and (iii) return
on investments in products and markets. These statements are forward-looking
statements that are subject to important risks and uncertainties, which may
cause the actual results of the Company's operations to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. These important risks and uncertainties
include, but are not limited to, the following:
VISA and MasterCard Registration Termination. The Company's designation
with VISA and MasterCard as a certified processor and its status as a member
service provider are dependent upon the Company's continuing adherence to the
standards of the VISA and MasterCard credit card associations. These standards
are set by the respective member financial institutions of VISA and MasterCard,
some of which are competitors of the Company. There can be no assurance that
VISA and MasterCard will maintain the Company's registrations or that the
current VISA and MasterCard rules allowing the Company and other nonbank
transaction processors to market and provide transaction processing services
will remain in effect. The termination of the Company's registrations or the
Company's status as a certified processor would have a material adverse effect
on the Company's financial condition and results of operations.
Competition. The market for credit, charge and debit card transaction
processing services is highly competitive. The level of competition has
increased significantly in recent years and this trend is expected to continue.
Several of the Company's competitors and potential competitors have greater
financial, technological, marketing and personnel resources than the Company.
In addition, the competitive pricing pressures that would result from any
increase in competition would adversely affect the Company's margins and may
have a material adverse effect on the Company's financial condition and results
of operations.
Dependence on Merchant Accounting Relationships. The Company outsources
certain merchant accounting services to Total System Services and Mellon Bank.
The failure of Total System Services or Mellon Bank to continue to perform these
services efficiently and effectively may adversely affect the Company's
relationships with its merchant customers and may result in the termination by
merchants of their agreements with the Company. The agreement with Total System
Services expires April 30, 1998. The agreement with Mellon Bank expires February
28, 1998. Termination of either agreement would require the Company either to
seek alternative outsourcing agreements or to make significant capital
expenditures to develop internal systems to provide these merchant accounting
services. Although management believes that in the event of any such termination
the Company could locate alternative outsourcing arrangements, any such
termination could have a material adverse effect on the Company's financial
condition and results of operations.
Risks Associated with Acquisition Strategy. A material element of the
Company's growth strategy is the acquisition of additional merchant portfolios,
operating businesses and transaction processing assets in order to achieve
greater economics of scale. There can be no assurance that the current level of
acquisition opportunities will continue to exist, that the Company will be able
to acquire merchant portfolios, operating businesses and transaction processing
assets that satisfy the Company's criteria, or that any such acquisition will be
on terms favorable to the Company. Further, there can be no assurance that the
Company will properly assess the risk attributes associated with an acquired
portfolio. Incorrect risk assessments may result in excessive losses from
chargebacks or merchant fraud in connection with any acquired portfolio. Until
the Company converts each newly-acquired merchant to the NOVA Network and the
Company's merchant accounting processors, the Company has little, if any,
control over the performance of such other networks and processors and typically
is unable to fully apply its risk management and fraud avoidance practices to
such merchants. Conversion is often subject to difficulties such as lack of
cooperation on the part of acquired merchants' former transaction processors.
The Company's acquisition strategy and the growth resulting therefrom will
require that the Company continue to hire qualified personnel, while
concurrently expanding its managerial and operational infrastructure. There can
be no assurance that the Company will be able to hire and retain qualified
personnel or that the Company will be able to expand successfully its
infrastructure as appropriate to accommodate future acquisitions or growth. As a
result of these factors, the Company may not realize the expected economic
benefits associated with its acquisitions, which may have a material adverse
effect on the Company's financial condition and results of operations.
Merchant Attrition. The Company's merchant agreements generally are
terminable by either party with 30 days' or less notice. Increased merchant
attrition may have a material adverse effect on the Company's financial
condition and results of operations. There can be no assurance that the Company
will not experience higher rates of attrition in the future, particularly in
connection with acquired merchant portfolios.
Chargeback Risk. When a billing dispute between a cardholder and a
merchant is not resolved in favor of the merchant, the transaction is "charged
back" to the merchant and that amount is credited to the cardholder, in some
cases at the Company's expense. There can be no assurance that the Company will
not experience significant losses from chargebacks in the future.
Merchant Fraud. The Company bears the risk of losses caused by fraudulent
credit card transactions initiated by its merchant customers. There can be no
assurance that the Company will not experience significant amounts of merchant
fraud in the future, which may have a material adverse effect on the Company's
financial condition and results of operations.
Certain State Tax Issues. Transaction processing companies like the
Company may be subject to state taxation of certain portions of their fees
charged to merchants for their services. Application of this tax is an emerging
issue in the industry and the states have not yet adopted uniform guidelines. If
the Company is required to pay such taxes and is unable to pass such costs
through to its merchant customers, the financial condition and results of
operations of the Company could be adversely affected.
Development and Market Acceptance of New Products. Because the transaction
processing industry has been characterized by rapidly changing technology and
the development of new services and products, management believes that the
future success of the Company will depend, in part, on the Company's ability to
continue to improve its products and services and to offer its merchant
customers new products and services. There can be no assurance that the
Company's newly-developed products and services will perform satisfactorily or
be widely accepted in the marketplace. For a description of the Company's
methods for protecting its proprietary rights in the products and services it
develops, see "Business--Proprietary Rights."
Fluctuation in Quarterly Operating Results. The Company has experienced
and expects to continue to experience significant seasonality in its business.
The Company typically realizes higher revenues in the third calendar quarter and
lower revenues in the first calendar quarter. Quarterly results are also
affected by the timing of acquisitions and the timing and magnitude of expenses
for merchant portfolio conversions. Fluctuations in operating results may
result in volatility in the price of the Company's Common Stock.
Significant Intangible Assets; Accounting Policies. A substantial portion
of the Company's assets are intangible assets related to acquired merchant
portfolios or business operations. In the event of a material decline in
revenues generated from any of such merchant portfolios or business operations
which would not be recovered from future cash flows, the carrying value of the
related intangible asset will be reduced to fair value. Further, changes in
accounting policies or rules that affect the way in which such intangible assets
are reflected in the Company's financial statements, or the way in which they
are treated for tax purposes, could have a material adverse effect on the
Company's financial condition.
Banking and Territorial Restrictions. In connection with the First Union
Alliance, the Company has agreed to notify and obtain approval from First Union
before it enters into any business activities substantially different from the
business activities the Company currently conducts. The Company also generally
may not, without the prior consent of First Union, enter into certain marketing
agreements with third parties located in specified areas where First Union
currently maintains a significant banking presence. The effect of these
restrictions is to limit in certain respects the Company's ability to seek or
take advantage of certain business or marketing opportunities, which may have a
material adverse effect on the Company's financial condition and results of
operations.
EMPLOYEES
At February 28, 1997, the Company had 400 full-time employees, of which 114
were in sales and marketing, 245 were in operations and 41 were corporate and
general administrative employees. Of these employees, 120 were based in Atlanta,
Georgia at the Company's principal executive offices, 176 were based in
Knoxville, Tennessee at the Company's operations center, 6 were based in Arvada,
Colorado, and 16 were based in Jacksonville, Florida. In addition, the Company's
114 sales and marketing employees include 82 salespersons located throughout the
United States, of whom 53 were based at branches of banks with which the Company
has formed Acquisition Alliances. None of the Company's employees is represented
by a collective bargaining agreement nor has the Company ever experienced any
work stoppage. Management believes that the Company's relationship with its
employees is good.
ITEM 2. PROPERTIES
The Company's principal executive offices are located in Atlanta, Georgia
and consist of approximately 38,000 square feet that are leased pursuant to an
agreement scheduled to expire November 30, 2001. The Company relocated its
principal executive offices in October 1996 to allow for the Company's continued
growth. In connection with this relocation, the Company transferred certain of
its operational functions, including the transition management functions, from
Knoxville, Tennessee or Boulder, Colorado to Atlanta. The Company's operations
center is located in Knoxville, Tennessee and consists of approximately 26,000
square feet. This facility is leased pursuant to a sublease agreement scheduled
to expire September 1, 2003. Certain of the Company's operations are conducted
in facilities located in Jacksonville, Florida and Arvada, Colorado consisting
of approximately 9,360 and approximately 3,040 square feet of space,
respectively. The Jacksonville space is being leased pursuant to an agreement
scheduled to expire in 1998. The Arvada space is being leased pursuant to an
agreement scheduled to expire June 30, 1997. Certain of the Company's employees
also occupy other office facilities at various locations under leases and
various other agreements, which require aggregate payments that are not
material.
ITEM 3. LEGAL PROCEEDINGS
The Company has been involved from time to time in litigation in the normal
course of its business. While management is aware of and dealing with certain
pending or threatened litigation, management does not believe that such matters,
individually or in the aggregate, will have a material adverse effect on the
financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's shareholders during the
fourth quarter of the fiscal year ended December 31, 1996.
14
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the executive
officers of the Company as of February 28, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Edward Grzedzinski 42 Chairman, President and Chief
Executive Officer
James M. Bahin 52 Vice Chairman, Chief Financial
Officer and Secretary
Paul W. Bowers 56 Executive Vice President - Systems
and Product
John M. Koopman 44 Executive Vice President - Merchant
Services and Operations
John M. Perry 40 Executive Vice President - Sales
and
Marketing
</TABLE>
Each executive officer will serve until the first meeting of the board of
directors after the next annual meeting of shareholders and a successor is
elected or appointed and qualified, or until such officer resigns or is removed
by the board of directors.
EDWARD GRZEDZINSKI. Ed Grzedzinski has been the Chairman, President and Chief
Executive Officer of NOVA Corporation since its inception in 1995. He co-
founded NOVA Corporation's subsidiary, NOVA Information Systems, Inc. as its
Chief Operating Officer in February 1991 and was named Chief Executive Officer
in September 1995.
JAMES M. BAHIN. James Bahin joined NOVA Information Systems as Chief Financial
Officer in January 1992. Since its inception in December 1995, Mr. Bahin has
served as Vice Chairman, Chief Financial Officer and Secretary of the Company.
PAUL W. BOWERS . Paul Bowers joined NOVA Information Systems at its February
1991 inception as Vice President -Systems. From July 1994 through September
1996, Mr. Bowers served as Senior Vice President - Operations, and was named
Executive Vice President, Systems and Product for the Company in September 1996.
JOHN M. KOOPMAN. John Koopman joined NOVA Information Systems in February
1996 as Senior Vice President and General Manager of Operations, and was named
Executive Vice President of Merchant Services Operations in May 1996. Prior to
joining NOVA, Mr. Koopman served in various positions with PNC Bank, N.A. from
January 1977 through January 1996, most recently as Vice President and Manager
of Merchant Services from December 1993 through January 1996, and as Vice
President and Manager of Student Lending from May 1985 through November 1996.
JOHN M. PERRY. John Perry joined NOVA Information Systems in April 1996
as Executive Vice President, Sales and Marketing. Prior to joining NOVA, he
served as Executive Vice President with First Data Corporation from November
1995 to April 1996, as Senior Vice President-Retail, with CES Corporation
from April 1993 to November 1995, and as Vice President-Marketing and Sales
with Harbridge Merchant Services from January 1992 to April 1993.
15
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The section entitled "Shareholder Information" of the Company's 1996 Annual
Report to Shareholders is incorporated herein by reference and filed as part of
Exhibit 13.
Recent Sales of Unregistered Securities.
On January 31, 1996, in connection with the consolidation transaction with
First Union Corporation and various banking subsidiaries of First Union
Corporation (the "First Union Banks") (First Union Corporation and the First
Union Banks are collectively referred to herein as "First Union"), the Company
acquired all of the outstanding capital stock of NOVA Information Systems, Inc.
("NOVA Information Systems") and issued the following securities:
(i) an aggregate of 9,149,209 shares of Common Stock to the First Union
Banks in exchange for the transaction processing assets of First Union (the
"First Union Assets");
(ii) 1,168,291 shares of Common Stock, 14,832 shares of Series A
Convertible Preferred Stock, 10,027 shares of Series B Convertible
Preferred Stock and 5,000 shares of Series D Preferred Stock to Warburg,
Pincus Investors, L.P. ("Warburg") in exchange for 768,000 shares of common
stock of NOVA Information Systems, a warrant to purchase 512,000 shares of
common stock of NOVA Information Systems, 14,832 shares of Series A
Convertible Preferred Stock of NOVA Information Systems, 10,027 shares of
Series B Convertible Preferred Stock of NOVA Information Systems, and 5,000
shares of Series D Preferred Stock of NOVA Information Systems;
(iii) 413,324 shares of Common Stock, 683.34 shares of Series A
Convertible Preferred Stock and 3,029 shares of Series C Convertible
Preferred Stock to WorldCom, Inc. ("WorldCom") in exchange for 256,000
shares of common stock of NOVA Information Systems, a warrant to purchase
665,600 shares of common stock of NOVA Information Systems, 683.34 shares
of Series A Convertible Preferred Stock of NOVA Information Systems, and
3,029 shares of Series C Convertible Preferred Stock of NOVA Information
Systems;
(iv) 192,000 shares, 153,600 shares and 54,912 shares of Common Stock,
respectively, to Edward Grzedzinski, James M. Bahin, and Paul Bowers in
exchange for 192,000 shares, 153,600 shares and 54,912 shares of common
stock of NOVA Information Systems, respectively; and
(v) an aggregate of 246,784 shares of Common Stock to eight members of
management of NOVA Information Systems in exchange for an aggregate of
246,784 shares of common stock of NOVA Information Systems.
This transaction was effected in reliance upon the exemption from
registration set forth in Rule 506 of Regulation D under the Securities Act of
1933, as amended (the "Securities Act").
In addition, on January 31, 1996, the Registrant assumed all obligations
under each outstanding option representing the right to purchase shares of
common stock of NOVA Information Systems granted under the terms of the 1991
Employees' Stock Option and Stock Appreciation Rights Plan of NOVA Information
Systems (the "1991 Stock Option Plan"). Such options were converted into options
representing the right to purchase an equal number of shares of Common Stock of
the Registrant at the same exercise price. This transaction was effected in
reliance upon the exemption from registration set forth in Section 4(2) of the
Securities Act.
On October 8, 1993, NOVA Information Systems issued 4,000 shares of Series
D Preferred Stock ($1,000 per share) to Warburg in satisfaction of its
obligations under a promissory note in the original principal amount of
$4,000,000 held by Warburg. This transaction was effected in reliance upon the
exemption from registration set forth in Section 4(2) of the Securities Act.
On December 31, 1993, NOVA Information Systems granted options to acquire
an aggregate of 1,488,793 shares of common stock having an original exercise
price of $1.18 per share to employees of NOVA Information Systems pursuant to
the 1991 Stock Option Plan. This transaction was effected in reliance upon the
exemption from registration set forth in Section 4(2) of the Securities Act.
On February 28, 1994, NOVA Information Systems issued 1,000 shares of
Series D Preferred Stock to Warburg for aggregate consideration of $1,000,000
($1,000 per share). This transaction was effected in reliance upon the exemption
from registration set forth in Section 4(2) of the Securities Act.
On February 28, 1994, NOVA Information Systems issued 153,600 shares of
common stock to James M. Bahin for aggregate consideration of $181,500 ($1.18
per share). This transaction was effected in reliance upon the exemption from
registration set forth in Section 4(2) of the Securities Act.
On October 17, 1994, NOVA Information Systems granted options representing
the right to purchase an aggregate of 1,087,360 shares of common stock having an
original exercise price of $1.18 per share to employees of NOVA Information
Systems pursuant to the 1991 Stock Option Plan. This transaction was effected in
reliance upon the exemption from registration set forth in Section 4(2) of the
Securities Act.
On July 21, 1995, in connection with the acquisition of the bankcard
processing operations of the Bank of Boulder, NOVA Information Systems granted
options to acquire an aggregate of 25,600 shares of common stock having an
original exercise price of $1.18 per share to an employee of Boulder Bankcard
Processing, Inc. and options to acquire an aggregate of 38,400 shares of common
stock having an original exercise price of $2.34 per share to employees of NOVA
Information Systems, pursuant to the 1991 Stock Option Plan. This transaction
was effected in reliance upon the exemption from registration set forth in
Section 4(2) of the Securities Act.
In March 1996, NOVA Corporation issued an aggregate of 986,116 shares of
Common Stock to certain employees in connection with the exercise of stock
options previously granted by NOVA Information Systems pursuant to the 1991
Stock Option Plan for aggregate consideration of $1,163,616.88 ($1.18 per
share). These transactions were effected in reliance upon the exemption from
registration set forth in Section 4(2) of the Securities Act.
In April 1996, NOVA Corporation issued an aggregate of 641,532 shares of
Common Stock to certain employees in connection with the exercise of stock
options previously granted by NOVA Information Systems pursuant to the 1991
Stock Option Plan for aggregate consideration of $764,431 ($1.18-$2.34 per
share). These transactions were effected in reliance upon the exemption from
registration set forth in Section 4(2) of the Securities Act.
In May 1996, NOVA Corporation issued an aggregate of 8,000 shares of Common
Stock to one employee in connection with the exercise of stock options
previously granted by NOVA Information Systems pursuant to the 1991 Stock Option
Plan for aggregate consideration of $9,440 ($1.18 per share). This transaction
was effected in reliance upon the exemption from registration set forth in
Section 4(2) of the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA
The section entitled "Selected Consolidated Financial Data" of the
Company's 1996 Annual Report to Shareholders is incorporated herein by reference
and filed as part of Exhibit 13.
The following table sets forth selected consolidated statement of
operations data for the ten month period ended December 31, 1995 and 1994. The
selected consolidated statement of operations data for the 10-month period ended
December 31, 1995 are derived from the Company's Consolidated Financial
Statements and notes thereto, which have been audited by Ernst & Young LLP,
independent auditors. The information for the 10 months ended December 31, 1994
is unaudited, but in the opinion of management reflects all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the results for such period.
<TABLE>
<CAPTION>
10-month
period ended
December 31,
------------------------
in millions 1995 1994
------------------------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C>
Revenues $ 129.0 $ 74.8
- --------------------------------------------------------------------------------
Cost of service 100.4 59.0
- --------------------------------------------------------------------------------
Conversion costs 3.4 0.9
- --------------------------------------------------------------------------------
Selling, general and administrative 17.8 11.2
- --------------------------------------------------------------------------------
Depreciation and amortization 4.6 2.9
- --------------------------------------------------------------------------------
Operating income 2.8 0.8
- --------------------------------------------------------------------------------
Interest expense, net 2.0 0.6
- --------------------------------------------------------------------------------
Income before provision for income taxes 0.8 0.2
- --------------------------------------------------------------------------------
Provision (benefit) for income taxes (4.1)
- --------------------------------------------------------------------------------
Net income $ 4.9 $ 0.2
- --------------------------------------------------------------------------------
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
The section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of the Company's 1996 Annual Report to
Shareholders is incorporated herein by reference and filed as part of Exhibit
13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Accompanying Notes to
Consolidated Financial Statements and the section entitled "Report of
Independent Auditors" of the Company's 1996 Annual Report to Shareholders is
incorporated herein by reference and filed as part of Exhibit 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
16
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as set forth under the caption "Executive Officers of the
Registrant" in Part I, the information required by Part III, Items 10, 11, 12
and 13 is hereby incorporated by reference to the Company's Definitive Proxy
Statement for its Annual Meeting of Shareholders, presently scheduled for May
14, 1997, which Proxy Statement will be filed pursuant to Regulation 14a under
the Securities Exchange Act of 1934 not later than May 1, 1997 in accordance
with General Instruction G(3) to Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a)(1). Index to Consolidated Financial Statements
The following financial statements are incorporated herein by reference to
the Company's 1996 Annual Report to Shareholders, and are filed herewith as
part of Exhibit 13:
Consolidated Balance Sheets at December 31, 1996 and 1995.
Consolidated Statements of Operations for each of the three fiscal years
ending December 31, 1996, December 31, 1995 and February 28, 1995.
Consolidated Statements of Shareholders' Equity for each of the three
fiscal years ending December 31, 1996, December 31, 1995 and February 28,
1995.
Consolidated Statements of Cash Flows for each of the three fiscal years
ending December 31, 1996, December 31, 1995 and February 28, 1995.
Notes to Consolidated Financial Statements
Report of Independent Auditors
(2) The following consolidated financial statement schedule of the Company
is included in Item 14(d):
Schedule II. - Valuation and Qualifying Accounts
Schedules not included above have been omitted because they are not
applicable, not material, or the required information is given in the financial
statements or notes thereto.
(3) The following exhibits are incorporated by reference or filed
herewith:
17
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- --------
2.1 Merchant Business Purchase Agreement, dated October 18, 1994, as amended
November 30, 1994 and December 9, 1994, among NOVA Information Systems,
Inc., the Bank of Boulder, Bolder Bancorporation and NOVA Newco, Inc.
(the "Bank of Boulder Business Purchase Agreement") /(1)/
*2.2 Contribution Agreement, dated October 30, 1995 (the "Contribution
Agreement"), among the Registrant (formerly NOVA Holdings, Inc.), NOVA
Information Systems, Inc., the then-current shareholders of NOVA
Information Systems, Inc. (the "Original Shareholders"), First Union
Corporation, the First Union Union Banks, and First Fidelity
Bancorporation and its banking subsidiaries (which merged with and into
First Union Corporation effective January 1, 1996) /(1)/
3.1 Articles of Incorporation of the Registrant, as amended /(1)/
3.2 Bylaws of the Registrant, as amended
4.1 Specimen form of Common Stock certificate
4.2 See Articles of Incorporation of the Registrant and Bylaws of the
Registrant, filed as Exhibits 3.1 and 3.2, respectively
4.3 Shareholders Agreement dated January 31, 1996 (the "Shareholders
Agreement"), among the Registrant (formerly NOVA Holdings, Inc.), NOVA
Information Systems, Inc., First Union, WorldCom, Warburg and each of the
other Original Shareholders /(1)/
4.4 Registration Rights Agreement (the "Registration Rights Agreement") dated
January 31, 1996, among the Registrant (formerly NOVA Holdings, Inc.),
Warburg, WorldCom, and First Union /(1)/
9 Shareholders Agreement, incorporated by reference to Exhibit 4.3 /(1)/
10.1 Shareholders Agreement, incorporated by reference to Exhibit 4.3 /(1)/
10.2 Registration Rights Agreement, incorporated by reference to Exhibit 4.4
/(1)/
10.3 Employment Agreement, dated October 27, 1995, effective January 31, 1996,
between NOVA Information Systems, Inc. and Edward Grzedzinski /(1)/
10.4 Employment Agreement dated October 27, 1995, effective January 31, 1996,
between NOVA Information Systems, Inc. and James M. Bahin /(1)/
10.5 1991 Employees' Stock Option and Stock Appreciation Rights Plan, as
amended /(1)/
10.6 1996 Employees Stock Incentive Plan, as amended, together with form of
Incentive Stock Option Agreement and Non-Qualified Stock Option Agreement
/(1)/
10.7 1996 Directors Stock Option Plan, as amended and restated
10.8 Contribution Agreement, incorporated by reference to Exhibit 2.2 /(1)/
10.9 Lease Agreement dated May 31, 1996 by and between NOVA Information
Systems, Inc. and Concourse I, LTD. /(2)/
10.10 Sublease, dated April 1, 1991, between Inter-Banc, Inc. and The Baptist
Health System of East Tennessee, Inc./ (1)/
18
<PAGE>
10.11 Credit Agreement, dated December 8, 1994, as amended and restated
January 31, 1996 among NOVA Information Systems, Inc., the Lenders named
therein, and Bank of America National Trust and Savings Association, as
Agent, and First Amendment and Waiver to Amended and Restated Credit
Agreement dated as of May 1, 1996. /(2)/
10.12 Agreement dated February 28, 1996, between NOVA Information Systems,
Inc. and WorldCom /(1)/
10.13 Subscribers Agreement, dated May 1, 1993, between NOVA Information
Systems, Inc. and Total System Services, Inc., and Addendum to
Subscribers Agreement, dated July 1993, between NOVA Information
Systems, Inc. and Total System Services, Inc. /(1)/
*10.14 Marketing Agreement, dated June 30, 1994, between NOVA Information
Systems, Inc. and Kessler Financial Services, L.P. /(1)/
*10.15 Agreement Regarding Merchant Processing Services and Other Matters,
dated May 5, 1995, among NOVA Information Systems, Inc., First Alabama
Bank and Regions Financial Corp. /(1)/
*10.16 Agreement, dated June 3, 1992, as amended December 9, 1992, April 28,
1994 and November 2, 1994 between NOVA Information Systems, Inc. and
Mellon Bank, N.A. (''Mellon Bank''), together with the Letter Agreement
dated June 3, 1992 between NOVA Information Systems, Inc. and Mellon
Bank relating to fees /(1)/
10.17 Depositary and Processing Agreement, dated September 30, 1993, between
NOVA Information Systems, Inc. and Bank of the West /(1)/
*10.18 Bank of Boulder Purchase Agreement, incorporated by reference to Exhibit
2.1 /(1)/
*10.19 Non-Competition Agreement, dated December 9, 1994, among NOVA
Information Systems, Boulder Bankcard Processing, Inc. and Steven K.
Bosley /(1)/
10.20 Marketing Agreement, dated October 1, 1992, between NOVA Information
Systems, Inc. and MBNA America Bank, N.A. /(1)/
10.21 Agreement Not to Compete, dated October 1, 1992, between NOVA
Information Systems, Inc. and MBNA America Bank, N.A. /(1)/
10.22 Depositary and Settlement Agreement, dated January 31, 1996, among the
Registrant (formerly NOVA Holdings, Inc.), NOVA Information Systems,
Inc. and FUNB-NC /(1)/
10.23 Marketing Support Agreement, dated January 31, 1996, among the
Registrant (formerly NOVA Holdings, Inc.), NOVA Information Systems,
Inc. and the First Union Banks /(1)/
11.1 Statement re: Computation of Pro Forma Earnings Per Share
11.2 Statement re: Computation of Historical Earnings Per Share
11.3 Statement re: Computation of Supplemental Earnings Per Share
13 1996 Annual Report to Shareholders - Following portions only:
"Shareholder Information;" "Selected Consolidated Financial Data;"
"Management's Discussion and Analysis of Financial Condition and Results
of Operations;" the Consolidated Financial Statements and Accompanying
Notes to Consolidated Financial Statements and the "Report of
Independent Auditors"
21 Subsidiaries of Registrant
23 Consent of Ernst & Young LLP
19
<PAGE>
24 Powers of Attorney
27 Financial Data Schedule
______________________
* Confidential treatment pursuant to 17 CFR (S)(S) 200.80 and 230.406 was
previously requested regarding certain portions of the indicated Exhibit in
connection with the Company's Registration Statement on Form S-1 (Registration
No. 333-3287), which portions have been filed separately with the
Commission.
/(1)/ Filed as an exhibit to the Company's Registration Statement on Form S-1
(Registration No. 333-3287), and incorporated herein by reference.
/(2)/ Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996, filed on June 18, 1996, Commission File No. 1-
14342, and incorporated herein by reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed or required to be filed during the
fourth quarter of 1996.
20
<PAGE>
(c) Index of Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------
<S> <C>
2.1 Merchant Business Purchase Agreement, dated October 18, 1994, as amended
November 30, 1994 and December 9, 1994, among NOVA Information Systems,
Inc., the Bank of Boulder, Bolder Bancorporation and NOVA Newco, Inc.
(the "Bank of Boulder Business Purchase Agreement") /(1)/
*2.2 Contribution Agreement, dated October 30, 1995 (the "Contribution
Agreement"), among the Registrant (formerly NOVA Holdings, Inc.), NOVA
Information Systems, Inc., the then-current shareholders of NOVA
Information Systems, Inc. (the "Original Shareholders"), First Union
Corporation, the First Union Union Banks, and First Fidelity
Bancorporation and its banking subsidiaries (which merged with and into
First Union Corporation effective January 1, 1996) /(1)/
3.1 Articles of Incorporation of the Registrant, as amended /(1)/
3.2 Bylaws of the Registrant, as amended
4.1 Specimen form of Common Stock certificate
4.2 See Articles of Incorporation of the Registrant and Bylaws of the
Registrant, filed as Exhibits 3.1 and 3.2, respectively
4.3 Shareholders Agreement dated January 31, 1996 (the "Shareholders
Agreement"), among the Registrant (formerly NOVA Holdings, Inc.), NOVA
Information Systems, Inc., First Union, WorldCom, Warburg and each of
the other Original Shareholders /(1)/
4.4 Registration Rights Agreement (the "Registration Rights Agreement")
dated January 31, 1996, among the Registrant (formerly NOVA Holdings,
Inc.), Warburg, WorldCom, and First Union /(1)/
9 Shareholders Agreement, incorporated by reference to Exhibit 4.3 /(1)/
10.1 Shareholders Agreement, incorporated by reference to Exhibit 4.3 /(1)/
10.2 Registration Rights Agreement, incorporated by reference to Exhibit 4.4
/(1)/
10.3 Employment Agreement, dated October 27, 1995, effective January 31,
1996, between NOVA Information Systems, Inc. and Edward Grzedzinski
/(1)/
10.4 Employment Agreement dated October 27, 1995, effective January 31, 1996,
between NOVA Information Systems, Inc. and James M. Bahin /(1)/
10.5 1991 Employees' Stock Option and Stock Appreciation Rights Plan, as
amended /(1)/
10.6 1996 Employees Stock Incentive Plan, as amended, together with form of
Incentive Stock Option Agreement and Non-Qualified Stock Option
Agreement /(1)/
10.7 1996 Directors Stock Option Plan, as amended and restated
10.8 Contribution Agreement, incorporated by reference to Exhibit 2.2 /(1)/
10.9 Lease Agreement dated May 31, 1996 by and between NOVA Information
Systems, Inc. and Concourse I, LTD. /(2)/
10.10 Sublease, dated April 1, 1991, between Inter-Banc, Inc. and The Baptist
Health System of East Tennessee, Inc./ (1)/
10.11 Credit Agreement, dated December 8, 1994, as amended and restated
January 31, 1996 among NOVA Information Systems, Inc., the Lenders named
therein, and Bank of America National Trust and Savings Association, as
Agent, and First Amendment and Waiver to Amended and Restated Credit
Agreement dated as of May 1, 1996. /(2)/
10.12 Agreement dated February 28, 1996, between NOVA Information Systems,
Inc. and WorldCom /(1)/
10.13 Subscribers Agreement, dated May 1, 1993, between NOVA Information
Systems, Inc. and Total System Services, Inc., and Addendum to
Subscribers Agreement, dated July 1993, between NOVA Information
Systems, Inc. and Total System Services, Inc. /(1)/
*10.14 Marketing Agreement, dated June 30, 1994, between NOVA Information
Systems, Inc. and Kessler Financial Services, L.P. /(1)/
*10.15 Agreement Regarding Merchant Processing Services and Other Matters,
dated May 5, 1995, among NOVA Information Systems, Inc., First Alabama
Bank and Regions Financial Corp. /(1)/
*10.16 Agreement, dated June 3, 1992, as amended December 9, 1992, April 28,
1994 and November 2, 1994 between NOVA Information Systems, Inc. and
Mellon Bank, N.A. (''Mellon Bank''), together with the Letter Agreement
dated June 3, 1992 between NOVA Information Systems, Inc. and Mellon
Bank relating to fees /(1)/
10.17 Depositary and Processing Agreement, dated September 30, 1993, between
NOVA Information Systems, Inc. and Bank of the West /(1)/
*10.18 Bank of Boulder Purchase Agreement, incorporated by reference to Exhibit
2.1 /(1)/
*10.19 Non-Competition Agreement, dated December 9, 1994, among NOVA
Information Systems, Boulder Bankcard Processing, Inc. and Steven K.
Bosley /(1)/
10.20 Marketing Agreement, dated October 1, 1992, between NOVA Information
Systems, Inc. and MBNA America Bank, N.A. /(1)/
10.21 Agreement Not to Compete, dated October 1, 1992, between NOVA
Information Systems, Inc. and MBNA America Bank, N.A. /(1)/
10.22 Depositary and Settlement Agreement, dated January 31, 1996, among the
Registrant (formerly NOVA Holdings, Inc.), NOVA Information Systems,
Inc. and FUNB-NC /(1)/
10.23 Marketing Support Agreement, dated January 31, 1996, among the
Registrant (formerly NOVA Holdings, Inc.), NOVA Information Systems,
Inc. and the First Union Banks /(1)/
11.1 Statement re: Computation of Pro Forma Earnings Per Share
11.2 Statement re: Computation of Historical Earnings Per Share
11.3 Statement re: Computation of Supplemental Earnings Per Share
13 1996 Annual Report to Shareholders - Following portions only:
"Shareholder Information;" "Selected Consolidated Financial Data;"
"Management's Discussion and Analysis of Financial Condition and Results
of Operations;" the Consolidated Financial Statements and Accompanying
Notes to Consolidated Financial Statements and the "Report of
Independent Auditors"
21 Subsidiaries of Registrant
23 Consent of Ernst & Young LLP
24 Powers of Attorney
27 Financial Data Schedule
</TABLE>
- ----------------------
* Confidential treatment pursuant to 17 CFR (S)(S) 200.80 and 230.406 was
previously requested regarding certain portions of the indicated Exhibit in
connection with the Company's Registration Statement on Form S-1 (Registration
No. 333-3287), which portions have been filed separately with the
Commission.
/(1)/ Filed as an exhibit to the Company's Registration Statement on Form S-1
(Registration No. 333-3287), and incorporated herein by reference.
/(2)/ Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996, filed on June 18, 1996, Commission File No. 1-
14342, and incorporated herein by reference.
<PAGE>
(d) The following financial statement schedules are filed herewith:
SCHEDULE II
NOVA INFORMATION SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
---------------------------------------------------------------
BALANCE AT CURRENT CURRENT BALANCE AT
THE BEGINNING YEAR YEAR THE END
OF THE PERIOD COST/EXPENSE WRITE-OFFS OF THE PERIOD
---------------------------------------------------------------
FISCAL YEAR ENDING DECEMBER 31, 1996:
<S> <C> <C> <C> <C>
Reserve For Doubtful Accounts and Chargebacks $440,000 $3,245,000 $978,000 2,707,000
Credit and Fraud Loss Reserve 883,000 0 133,000 750,000
TEN MONTHS PERIOD ENDING DECEMBER 31, 1995:
Reserve For Doubtful Accounts and Chargebacks $206,000 $ 634,000 $400,000 $ 440,000
Credit and Fraud Loss Reserve 691,000 337,000 145,000 883,000
FISCAL YEAR ENDING FEBRUARY 28, 1995:
Reserve For Doubtful Accounts and Chargebacks $210,000 $ 668,000 $672,000 $ 206,000
Credit and Fraud Loss Reserve 587,000 264,000 160,000 691,000
</TABLE>
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on the 27th day of
March, 1997.
NOVA CORPORATION
By: /s/
---------------------------
Edward Grzedzinski
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities indicated on March 27th, 1997.
SIGNATURE TITLE
--------- -----
/s/ Director, Chairman of the Board,
- ---------------------------- President and Chief Executive Officer
Edward Grzedzinski (principal executive officer)
/s/ Director, Vice Chairman of the Board,
- ---------------------------- Chief Financial Officer and Secretary
James M. Bahin (principal financial and accounting
officer)
/s/ Director
- ----------------------------
Charles T. Cannada
/s/ Director
- ----------------------------
U. Bertram Ellis, Jr.
/s/ Director
- ----------------------------
Dr. Henry Kressel
/s/ Director
- ----------------------------
Joseph P. Landy
/s/ Director
- ----------------------------
Maurice F. Terbrueggen, Jr.
/s/ Director
- ----------------------------
Fred Martin Winkler
*By:
---------------------
James M. Bahin
as Attorney-In-Fact
22
<PAGE>
Effective Date
January 31, 1996
AMENDMENT TO
NOVA CORPORATION
BYLAWS
Section 3.2 of the Corporation's Bylaws is deleted in its entirety, and
replaced with the following, effective as of January 31, 1996:
3.2 Number of Directors. The Board of Directors shall fix by resolution the
precise number of members of the Board of Directors. Directors shall be
elected at each annual meeting of the shareholders and shall serve for a term
of one year and until their successors are elected. A majority of said
directors shall constitute a quorum for the transaction of business. All
resolutions adopted and all business transacted by the Board of Directors
shall require the affirmative vote of a majority of the directors present at
the meeting.
EXHIBIT 4
BYLAWS
OF
NOVA HOLDINGS, INC.
ARTICLE I
OFFICES
The Corporation shall at all times maintain a registered office in the State
of Georgia and a registered agent at that address but may have other offices
located within or without the State of Georgia as the Board of Directors may
determine.
ARTICLE II
SHAREHOLDERS' MEETINGS
2.1 ANNUAL MEETING. A meeting of shareholders of the Corporation shall be
held annually within five (5) months of the end of each fiscal year of the
Corporation. The annual meeting shall be held at such time and place and on
such date as the Directors shall determine from time to time and as shall be
specified in the notice of the meeting.
2.2 SPECIAL MEETINGS. Special meetings of the shareholders may be called at
any time by the President or any holder or holders of at least twenty-five
percent of the outstanding Voting Stock (as defined in the Corporation's
Articles of Incorporation) of the Corporation. Special meetings shall be held
at such a time and place and on such date as shall be specified in the notice of
the meeting.
2.3 PLACE. Annual or special meetings of shareholders may be held within or
without the State of Georgia.
2.4 NOTICE. Notice of annual or special shareholders' meetings stating the
place, day and hour of the meeting shall be given in writing not less than ten
nor more than sixty days before the date of the meeting, either mailed to the
last known address of such shareholder as shown in the stock records of the
Corporation or personally given to the shareholder. Notice of any special
meeting of shareholders shall state the purpose or purposes for which the
meeting is called. The notice of any meeting at which amendments to or
restatements of the Articles of Incorporation, merger, share exchange or
consolidation of the Corporation, or the disposition of corporate assets
requiring shareholder approval are to be considered shall state such purpose,
and shall further comply with all requirements of law. Notice of a meeting may
be waived by an instrument in writing executed before or after the meeting. The
waiver need not specify the purpose of the meeting or the business transacted,
unless one of the purposes of the meeting concerns a plan of merger, share
exchange or consolidation, in which event the waiver shall comply with the
further requirements of law concerning such waivers. Attendance at such meeting
in person or by proxy shall constitute a waiver of notice thereof unless the
shareholder shall provide written notice to the Corporation prior to the taking
of any action by the shareholders at such meeting that his attendance is not to
be deemed a waiver of the requirement that such notice be given or of the
adequacy of any notice that may have been given to such shareholder.
<PAGE>
2.5 QUORUM. At all meetings of shareholders the presence in person or by
proxy of persons having the right to cast a majority of the votes entitled to be
cast at such meeting by a voting group shall constitute a quorum of that voting
group for the transaction of business. Regardless of whether a quorum is
present, the affirmative vote of a majority of the votes entitled to be cast by
those present shall be sufficient to adjourn a meeting from day to day, and to
specify the time and place to which the meeting is adjourned.
2.6 PROXIES; REQUIRED VOTE. At every meeting of the shareholders, including
meetings of shareholders for the election of Directors, any shareholder having
the right to vote shall be entitled to vote in person or by proxy, but no proxy
shall be voted after eleven months from its date, unless said proxy provides for
a longer period. If a quorum is present, action on a matter (other than the
election of directors) by a voting group is approved by such voting group if the
votes cast within such voting group favoring such action exceed the votes cast
within such voting group opposing such action, unless the Articles of
Incorporation, a bylaw adopted by the shareholders, or the Georgia Business
Corporation Code requires a greater number of affirmative votes. The required
vote for the election of directors shall be governed by the Georgia Business
Corporation Act.
2.7 PRESIDING OFFICER AND SECRETARY. At every meeting of shareholders the
Chairman of the Board, or in his absence or if there be none, the Vice Chairman
of the Board, or in his absence or if there be none, the President, or in his
absence a Vice President, or, if none be present, the appointee of the meeting,
shall preside. The Secretary, or in his absence an Assistant Secretary, or if
none be present, the appointee of the presiding officer of the meeting, shall
act as secretary of the meeting.
2.8 SHAREHOLDER LIST. The officer or agent having charge of the stock
transfer books of the Corporation shall produce for inspection of any
shareholder at, and continuously during, every meeting of the shareholders, a
complete alphabetical list of shareholders arranged by voting group (and within
each voting group by class or series of shares) showing the address and share
holdings of each shareholder. If the record of shareholders readily shows such
information, it may be produced in lieu of such a list.
2.9 ACTION IN LIEU OF MEETING. Any action to be taken at a meeting of the
shareholders of the Corporation, or any action that may be taken at a meeting of
the shareholders, may be taken without a meeting if a consent in writing setting
forth the action so taken shall be obtained from the requisite persons entitled
to vote at a meeting.
2.10 VOTING GROUP. Voting group means all shares of one or more classes or
series that are entitled to vote and be counted together collectively on a
matter at a meeting of shareholders. All shares entitled to vote generally on
the matter are for that purpose a single voting group.
ARTICLE III
DIRECTORS
3.1 MANAGEMENT. Subject to these bylaws, or any lawful agreement between the
shareholders, the full and entire management of the affairs and business of the
Corporation shall be vested in the Board of Directors, which shall have and may
exercise all of the powers that may be exercised or performed by the
Corporation. In furtherance of the power of the Board of Directors
2
<PAGE>
hereunder and not by way of limitation, the following actions may not be taken
on behalf of the Corporation without prior approval of a majority of the entire
Board of Directors: (1) approving the acquisition of any business whether by a
plan of merger, share exchange, asset purchase or otherwise; (2) the creation,
incurrence or assumption of any indebtedness; (3) approving capital expenditures
in excess of an aggregate of $50,000 in any one fiscal year; (4) approving or
directing a change of employment or compensation of any executive officer; or
(5) approving the sale of any assets in excess of an aggregate of $50,000 in any
fiscal year.
3.2 ACTION BY DIRECTORS. A majority of the Directors then in office shall
constitute a quorum for the transaction of business. All resolutions adopted
and all business transacted by the Board of Directors shall require the
affirmative vote of a majority of the Directors present at the meeting.
3.3 ELECTION OF DIRECTORS. Directors shall be elected annually, at the
annual meeting of shareholders or at a special meeting in lieu of the annual
meeting of shareholders or by written consent of the holders of shares entitled
to vote thereon in lieu of a meeting. The Directors shall serve for a term of
one year and until their successors are elected. If the annual election of
Directors is not held on the date designated therefor, the Directors shall cause
such election to be held as soon thereafter as convenient.
3.4 RESIGNATION. Any Director may resign at any time either orally at any
meeting of the Board of Directors or by so advising the Chairman of the Board,
if any, or the President, or by giving written notice to the Corporation. A
Director who resigns may postpone the effectiveness of his resignation to a
future date or upon the occurrence of a future event specified in a written
tender of resignation. If no time of effectiveness is specified therein, a
resignation shall be effective upon tender. A vacancy shall be deemed to exist
at the time a resignation is tendered, and the Board of Directors or the
shareholders may, then or thereafter, elect or appoint a successor to take
office when the resignation by its terms becomes effective.
3.5 COMPENSATION. Directors may be allowed such compensation for attendance
at regular or special meetings of the Board of Directors and of any special or
standing committees thereof as may be determined from time to time by resolution
of the Board of Directors.
3.6 NUMBER; REMOVAL. The Board of Directors shall consist of one or more
individuals, the precise number to be fixed by resolution of the shareholders or
the Board of Directors from time to time; provided, however,that no decrease in
the number of Directors shall have the effect of shortening the term of an
incumbent Director. In the event of any increase or decrease in the authorized
number of Directors, each Director then serving shall continue as a Director
until the expiration of his current term, or his earlier resignation, removal
from office or death. Directors may be removed by the shareholders with or
without cause in accordance with Section 14-2-808 of the Georgia Business
Corporation Code. Removal action may be taken at any shareholders' meeting with
respect to which notice of such purpose has been given, and a removed Director's
successor may be elected at the same meeting to serve the unexpired term.
ARTICLE IV
COMMITTEES
3
<PAGE>
4.1 EXECUTIVE COMMITTEE.
(a) The Board of Directors may by resolution adopted by a majority of the
entire Board designate an Executive Committee of one or more directors. Each
member of the Executive Committee shall hold office until the first meeting of
the Board of Directors after the annual meeting of shareholders next following
his election and until his successor is elected and qualified, or until his
death, resignation or removal, or until he shall cease to be a director.
(b) During the intervals between the meetings of the Board of Directors,
the Executive Committee may exercise all the authority of the Board of
Directors; provided, however, that the Executive Committee shall not have the
power to amend or repeal any resolution of the Board of Directors that by its
terms shall not be subject to amendment or repeal by the Executive Committee,
and the Executive Committee shall not have the authority of the Board of
Directors in reference to (1) approving or proposing to shareholders action
required to be approved by shareholders; (2) filling vacancies on the Board of
Directors or on any of its committees; (3) amending the Articles of
Incorporation; (4) adopting, amending or repealing bylaws; (5) authorizing the
issuance of any securities; (6) approving the acquisition of any business
whether by a plan of merger, share exchange, asset purchase or otherwise; (7)
approving the creation, incurrence or assumption of any indebtedness; (8)
approving capital expenditures in excess of an aggregate of $50,000 in any one
fiscal year; (9) approving or directing a change of employment or compensation
of any executive officer; or (10) approving the sale of any assets in excess of
an aggregate of $50,000 in any fiscal year.
(c) The Executive Committee shall meet from time to time on call of the
Chairman of the Board or the President or of any two or more members of the
Executive Committee. Meetings of the Executive Committee may be held at such
place or places, within or without the State of Georgia, as the Executive
Committee shall determine or as may be specified or fixed in the respective
notices or waivers of such meetings. The Executive Committee may fix its own
rules of procedures, including provision for notice of its meetings. It shall
keep a record of its proceedings and shall report these proceedings to the Board
of Directors at the meeting thereof held next after they have been taken, and
all such proceedings shall be subject to revision or alteration by the Board of
Directors except to the extent that action shall have been taken pursuant to or
in reliance upon such proceedings prior to any such revision or alteration.
(d) The Executive Committee shall act by majority vote of its members;
provided, that contracts or transactions of and by the Corporation in which
officers or directors of the Corporation are interested shall require the
affirmative vote of a majority of the disinterested members of the Executive
Committee, at a meeting of the Executive Committee at which the material facts
as to the interest and as to the contract or transaction are disclosed or known
to the members of the Executive Committee prior to the vote.
(e) Members of the Executive Committee may participate in committee
proceedings by means of conference telephone or similar communications equipment
by means of which all persons participating in the proceedings can hear each
other, and such participation shall constitute presence in person at such
proceedings.
4
<PAGE>
(f) The Board of Directors, by resolution adopted in accordance with
paragraph (a) of this section, may designate one or more directors as alternate
members of the Executive Committee who may act in the place and stead of any
absent member or members at any meeting of said committee.
4.2 COMPENSATION AND AUDIT COMMITTEES. The Board of Directors shall by
resolution adopted by a majority of the entire Board designate a Compensation
Committee and Audit Committee, each consisting of three (3) directors. Each
member of the Compensation Committee and Audit Committee shall hold office until
the first meeting of the Board of Directors after the annual meeting of
shareholders next following his election and until his successor is elected and
qualified, or until his death, resignation or removal, or until he shall cease
to be a director. The Board of Directors will at all times maintain a
Compensation Committee and an Audit Committee of the Board of Directors. At
least a majority of the members of each such committee shall consist of
directors who are not members of management of the Corporation. The
Compensation Committee shall make recommendations to the Board of Directors
regarding all matters of compensation, including stock options for employees of
the Corporation.
4.3 OTHER COMMITTEES. The Board of Directors, by resolution adopted by a
majority of the entire Board, may designate one or more committees, each
committee to consist of two or more of the Directors of the Corporation, which
shall have such name or names and shall have and may exercise such powers of the
Board of Directors, except as otherwise provided by law, by the Articles of
Incorporation or by these Bylaws, as may be determined from time to time by the
Board of Directors. Such committees shall provide for their own rules of
procedure, subject to the same restrictions thereon as provided above for the
Executive Committee.
4.4 REMOVAL. The Board of Directors shall have power at any time to remove
any member of any committee, with or without cause, and to fill vacancies in and
to dissolve any such committee.
ARTICLE V
MEETINGS OF THE BOARD OF DIRECTORS
5.1 TIME AND PLACE. Meetings of the Board of Directors may be held at any
place either within or without the State of Georgia. Each newly elected Board
of Directors shall meet immediately following the close of the annual meeting of
shareholders and at the place thereof, or such newly elected Board of Directors
may hold such meeting at such place and time as shall be fixed by the consent in
writing of all the Directors. In any such case no notice of such meeting to the
newly elected Directors shall be necessary in order legally to constitute the
meeting. If the Board of Directors is elected by written consent of
shareholders without a meeting, then the newly elected Board shall meet as soon
as is reasonably practicable after such consent is duly filed with the
Corporation, at the call of the Chairman of the Board, if any, or of the
President or of at least one-third of the Directors then in office, at such time
and place as shall be specified by written notice thereof given to each Director
either by personal delivery or by mail, telegram, or cablegram at least two days
before the meeting.
5.2 REGULAR MEETINGS. Regular meetings of the Board of Directors may be held
without notice at such time and place, within or without the State of Georgia,
as shall be determined by the
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Board of Directors from time to time.
5.3 SPECIAL MEETINGS; NOTICE. Special meetings of the Board of Directors may
be called by the Chairman of the Board or the President on not less than two
days' notice by telephone, mail, telegram, cablegram or personal delivery to
each Director and shall be called by the Chairman of the Board, the President or
the Secretary in like manner and on like notice on the written request of any
two or more Directors. Any such special meeting shall be held at such time and
place, within or without the State of Georgia, as shall be stated in the notice
of meeting. No notice of any meeting of the Board of Directors need state the
purposes thereof.
5.4 WAIVER OF NOTICE. Notice of any meeting may be waived by an instrument
in writing executed before or after the meeting. Attendance in person at any
such meeting shall constitute a waiver of notice thereof.
5.5 QUORUM. At all meetings of the Board of Directors, the presence of a
majority of the authorized number of Directors shall be necessary and sufficient
to constitute a quorum for the transaction of business. Directors may
participate in any meeting by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting by means of such
communications equipment shall constitute the presence in person at such
meeting. The act of a majority of the Directors present at any meeting at which
there is a quorum shall be the act of the Board of Directors, except as may be
otherwise specifically provided by law, the Articles of Incorporation or these
bylaws. In the absence of a quorum a majority of the Directors present at any
meeting may adjourn the meeting from time to time until a quorum is present.
Notice of any adjourned meeting need only be given by announcement at the
meeting at which the adjournment is taken.
5.6 ACTION IN LIEU OF MEETING. Any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting if a written consent setting forth the action so taken
is signed by all members of the Board of Directors or of such committee, as the
case may be, and such written consent is delivered to the Corporation for filing
with the minutes of the proceedings of the Board of Directors or of such
committee and any further requirements of law pertaining to such consents have
been complied with.
5.7 INTERESTED DIRECTORS AND OFFICERS. An interested Director or officer is
one who is a party to a contract or transaction with the Corporation or who is
an officer or Director of, or has a financial interest in, another corporation,
partnership, association or other entity which is a party to a contract or
transaction with the Corporation. Contracts and transactions between the
Corporation and one or more interested Directors or officers shall not be void
or voidable solely because of the involvement or vote of such interested persons
as long as (i) the contract or transaction is approved in good faith by the
Board of Directors or appropriate committee by the affirmative vote of a
majority of disinterested Directors, even if the disinterested Directors be less
than a quorum, at a meeting of the Board or committee at which the material
facts as to the interest of the interested person or persons and the contract or
transaction are disclosed or known to the Board or committee prior to the vote;
or (ii) the contract or transaction is approved in good faith by the
shareholders after the material facts as to the interest of the interested
person or persons and the contract or transaction have been disclosed to them;
or (iii) the contract or transaction is fair as to the Corporation as of the
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time it is authorized, approved or ratified by the Board, committee, or
shareholders. Interested Directors may be counted in determining the presence
of a quorum at a meeting of the Board or committee which authorizes the contract
or transaction.
ARTICLE VI
OFFICERS, AGENTS AND EMPLOYEES
6.1 GENERAL PROVISIONS. The officers of the Corporation shall consist of a
President, a Secretary, and a Treasurer, and may include a Chairman of the
Board, a Vice Chairman of the Board, one or more Executive Vice Presidents,
Senior Vice Presidents and Vice Presidents, one or more Assistant Secretaries,
and one or more Assistant Treasurers. The officers shall be elected by the
Board of Directors at the first meeting of the Board of Directors after the
annual meeting of the shareholders in each year or shall be appointed as
provided in these bylaws. The Board of Directors may elect other officers,
agents and employees, who shall have such authority and perform such duties as
may be prescribed by the Board of Directors. All officers shall hold office
until the meeting of the Board of Directors following the next annual meeting of
the shareholders after their election or appointment and until their successors
shall have been elected or appointed and shall have qualified. Any two or more
offices may be held by the same person. Any officer, agent or employee of the
Corporation may be removed by the Board of Directors with or without cause.
Such removal without cause shall be without prejudice to such person's contract
rights, if any, but the election or appointment of any person as an officer,
agent or employee of the Corporation shall not of itself create contract rights.
The compensation of officers, agents and employees elected by the Board of
Directors shall be fixed by the Board of Directors. The Board of Directors may
require any officer, agent or employee to give security for the faithful
performance of his duties.
6.2 POWERS AND DUTIES OF THE CHAIRMAN OF THE BOARD, THE VICE CHAIRMAN OF THE
BOARD AND THE PRESIDENT. The powers and duties of the Chairman of the Board,
the Vice Chairman of the Board and the President, subject to the supervision and
control of the Board of Directors, shall be those usually appertaining to their
respective offices and whatever other powers and duties are prescribed by these
bylaws or by the Board of Directors.
(a) The Chairman of the Board shall preside at all meetings of the Board
of Directors and at all meetings of the shareholders.
(b) The Vice Chairman of the Board shall, in the absence or disability of
the Chairman, perform the duties of the Chairman.
(c) The President shall, unless otherwise provided by the Board of
Directors, be the chief executive officer of the Corporation. He shall have
general charge of the business and affairs of the Corporation and shall keep the
Board of Directors fully advised. He shall employ and discharge employees and
agents of the Corporation, except such as shall be elected by the Board of
Directors, and he may delegate these powers. He shall have such powers and
perform such duties as generally pertain to the office of the President, as well
as such further powers and duties as may be prescribed by the Board of
Directors. The President may vote the shares or other securities of any other
domestic or foreign corporation of any type or kind which may at any time be
owned by the Corporation, may execute any shareholders' or other consents in
respect thereof and may in his
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discretion delegate such powers by executing proxies, or otherwise, on behalf of
the Corporation. The Board of Directors, by resolution from time to time, may
confer like powers upon any other person or persons.
6.3 POWERS AND DUTIES OF VICE PRESIDENTS. Each Executive Vice President,
Senior Vice President and Vice President shall have such powers and perform such
duties as the Board of Directors or the President may prescribe and shall
perform such other duties as may be prescribed by these bylaws. In the absence
or inability to act of the President, unless the Board of Directors shall
otherwise provide, the Executive Vice President, or if there be none, the Senior
Vice President who has served in that capacity for the longest time and who
shall be present and able to act, or if there be none, the Vice President who
has served in that capacity for the longest time and who shall be present and
able to act, shall perform all duties and may exercise any of the powers of the
President. The performance of any such duty by an Executive Vice President, a
Senior Vice President or a Vice President shall be conclusive evidence of his
power to act.
6.4 POWERS AND DUTIES OF THE SECRETARY. The Secretary shall have charge of
the minutes of all proceedings of the shareholders and of the Board of Directors
and shall keep the minutes of all their meetings at which he is present. Except
as otherwise provided by these bylaws he shall attend to the giving of all
notices to shareholders and Directors. He shall have charge of the seal of the
Corporation, shall attend to its use on all documents the execution of which on
behalf of the Corporation under its seal is duly authorized and shall attest the
same by his signature whenever required. He shall have charge of the record of
shareholders of the Corporation, of all written requests by shareholders that
notices be mailed to them at an address other than their addresses on the record
of shareholders, and of such other books and papers as the Board of Directors
may direct. Subject to the control of the Board of Directors, he shall have all
such powers and duties as generally are incident to the position of corporate
secretary or as may be assigned to him by the President or the Board of
Directors.
6.5 POWERS AND DUTIES OF THE TREASURER. The Treasurer shall have charge of
all funds and securities of the Corporation, shall endorse the same for deposit
or collection when necessary and deposit the same to the credit of the
Corporation in such banks or depositories as the Board of Directors may
authorize. He may endorse all commercial documents requiring endorsements for
or on behalf of the Corporation and may sign all receipts and vouchers for
payments made to the Corporation. He shall have all such powers and duties as
generally are incident to the position of corporate treasurer or as may be
assigned to him by the President or by the Board of Directors.
6.6 DELEGATION OF DUTIES. In case of the absence of any officer of the
Corporation, or for any other reason that the Board of Directors may deem
sufficient, the Board of Directors (or in the case of Assistant Secretaries or
Assistant Treasurers only, the President) may confer for the time being the
powers and duties, or any of them, of such officer upon any other officer
(provided that the powers and duties of the President may not be conferred upon
the Secretary, and vice versa), or elect or appoint any new officer to fill a
vacancy created by death, resignation, retirement or termination of any officer.
In such latter event such new officer shall serve until the next annual election
of officers.
ARTICLE VII
CAPITAL STOCK
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7.1 CERTIFICATES. The interest of each shareholder shall be evidenced by a
certificate or certificates representing shares of the Corporation which shall
be in such form as the Board of Directors may from time to time adopt and shall
be numbered and shall be entered in the books of the Corporation as they are
issued. Each certificate representing shares shall set forth upon the face
thereof the following:
(a) the name of this Corporation;
(b) that the Corporation is organized under the laws of the State of
Georgia;
(c) the name or names of the person or persons to whom the certificate is
issued;
(d) the number and class of shares, and the designation of the series, if
any, which the certificate represents; and
(e) if any shares represented by the certificate are non-voting shares, a
statement or notation to that effect; and, if the shares represented by the
certificate are subordinate to shares of any other class or series with respect
to dividends or amounts payable on liquidation, shall further set forth on
either the face or back of the certificate a clear and concise statement to that
effect.
Each certificate shall be signed by the President or a Vice President and the
Secretary or an Assistant Secretary and may be sealed with the seal of the
Corporation or a facsimile thereof. If a certificate is countersigned by a
transfer agent or registered by a registrar, other than the Corporation itself
or an employee of the Corporation, the signature of any such officer of the
Corporation may be a facsimile. In case any officer or officers who shall have
signed, or whose facsimile signature or signatures shall have been used on, any
such certificate or certificates shall cease to be such officer or officers of
the Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates may nevertheless be delivered as though the person
or persons who signed such certificate or certificates or whose facsimile
signatures shall have been used thereon had not ceased to be such officer or
officers.
7.2 SHAREHOLDER LIST. The Corporation shall keep or cause to be kept a
record of the shareholders of the Corporation which readily shows, in
alphabetical order or by alphabetical index, by voting group and, within each
voting group, by classes or series of stock, if any, the names of the
shareholders entitled to vote, with the address of and the number of shares held
by each. Said record shall be presented and kept open at all meetings of the
shareholders.
7.3 TRANSFERS OF SHARES. Transfers of stock shall be made on the books of
the Corporation only by the person named in the certificate, or by power of
attorney lawfully constituted in writing, and upon surrender of the certificate
thereof, or in the case of a certificate alleged to have been lost, stolen or
destroyed, upon compliance with the provisions of Section 7.9 of these bylaws.
7.4 AUTHORIZATION OF DECLARATION OF DISTRIBUTIONS AND DIVIDENDS. Unless the
Articles of Incorporation provide otherwise, the Board of Directors from time to
time in its discretion may
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authorize or declare distributions or share dividends in accordance with the
Georgia Business Corporation Code.
7.5 DUTY OF CORPORATION TO REGISTER TRANSFER. The Corporation is under a
duty to register the transfer of shares only if:
(a) the certificate is endorsed by the appropriate person or persons; and
(b) reasonable assurance is given that the endorsement or affidavit is
genuine and effective; and
(c) the Corporation either has no duty to inquire into adverse claims or
has discharged that duty; and
(d) the requirements of any applicable law relating to the collection of
taxes have been met; and
(e) the transfer in fact is rightful or is to a bona fide purchaser.
7.6 RECORD DATES.
(a) For the purpose of determining shareholders entitled to notice of or
to vote at any meeting of shareholders or any adjournment thereof, or entitled
to receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors may provide
that the stock transfer books shall be closed for a stated period but not to
exceed seventy days. If the stock transfer books shall be closed for the
purpose of determining shareholders entitled to notice of or to vote at a
meeting of shareholders, such books shall be closed for at least ten days
immediately preceding such meeting.
(b) In lieu of closing the stock transfer books, the Board of Directors
may fix in advance a date as the record date for any such determination of
shareholders, such date to be not more than seventy days and, in case of a
meeting of shareholders, not less than ten days, prior to the date on which the
particular action requiring such determination of shareholders is to be taken.
7.7 REGISTERED OWNER. The Corporation shall be entitled to treat the holder
of record of any share of stock of the Corporation as the person entitled to
vote such share, to receive any dividend or other distribution with respect to
such share, and for all other purposes and accordingly shall not be bound to
recognize any equitable or other claim or interest in such share on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by law.
7.8 TRANSFER AGENT AND REGISTRARS. The Board of Directors may appoint one or
more transfer agents and one or more registrars and may require each stock
certificate to bear the signature or signatures of a transfer agent or a
registrar or both.
7.9 LOST CERTIFICATES. Any person claiming a certificate of stock to be
lost, stolen or
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destroyed shall make an affidavit or affirmation of the fact in such manner as
the Board of Directors may require and shall, if the Directors so require, give
the Corporation a bond of indemnity in form and amount and with one or more
sureties satisfactory to the Board of Directors, whereupon an appropriate new
certificate may be issued in lieu of the certificate alleged to have been lost,
stolen or destroyed.
7.10 FRACTIONAL SHARES OR SCRIP. The Corporation may, when and if authorized
so to do by its Board of Directors, issue certificates for fractional shares or
scrip in order to effect share transfers, share distributions or
reclassifications, mergers, consolidations or reorganizations. Holders of
fractional shares shall be entitled, in proportion to their fractional holdings,
to exercise voting rights, receive dividends and participate in any of the
assets of the Corporation in the event of liquidation. Holders of scrip shall
not, unless expressly authorized by the Board of Directors, be entitled to
exercise any rights of a shareholder of the Corporation, including voting
rights, dividend rights or the right to participate in any distribution of
assets of the Corporation in the event of liquidation. In lieu of issuing
fractional shares or scrip, the Corporation may pay in cash the fair value of
fractional interests as determined by the Board of Directors; and the Board of
Directors may adopt resolutions regarding rights with respect to fractional
shares or scrip as it may deem appropriate, including without limitation the
right for persons entitled to receive fractional shares to sell such fractional
shares or purchase such additional fractional shares as may be needed to acquire
one full share, or sell such fractional shares or scrip for the account of such
persons.
ARTICLE VIII
BOOKS AND RECORDS; SEAL; ANNUAL STATEMENTS
8.1 INSPECTION OF BOOKS AND RECORDS. Any person who is the holder of record
of, or authorized in writing by the holders of record of, more than two percent
(2%) of the outstanding shares of any class or series of the Corporation, upon
written demand stating the purpose thereof, shall have the right to inspect in
person or by agent or attorney, at any reasonable time or times, excerpts from
minutes of any meeting of the Board of Directors, records of any action of a
committee thereof while acting in place of the Board of Directors on behalf of
the Corporation, minutes of any meeting of shareholders, and records of action
taken by the shareholders or Board of Directors without a meeting, accounting
records of the Corporation, and the record of shareholders and to make copies
therefrom.
A shareholder may inspect and copy the records described in the immediately
preceding paragraph only if (1) his demand is made in good faith and for a
proper purpose that is reasonably relevant to his legitimate interest as a
shareholder; (2) he describes with reasonable particularity his purpose and the
records he desires to inspect; (3) the records are directly connected with his
purpose; and (4) the records are to be used only for the stated purpose.
If the Secretary or a majority of the Board of Directors find the request
proper, the Secretary shall promptly notify the shareholder of the time and
place at which the inspection may be conducted.
If said request is found by the Secretary or the Board of Directors not to be
proper, the Secretary shall promptly notify the requesting shareholder on or
prior to the date on which the shareholder requested to conduct the inspection.
The Secretary shall specify in said notice the basis for the
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rejection of the shareholder's request.
The Secretary and the Board of Directors shall at all times be entitled to
rely on the corporate records in making any determination hereunder.
8.2 SEAL. The corporate seal shall be in such form as the Board of Directors
may from time to time determine. In the event it is inconvenient to use such a
seal at any time, the signature of the Corporation followed by the word "Seal"
enclosed in parentheses or scroll shall be deemed the seal of the Corporation.
8.3 ANNUAL STATEMENTS. Not later than four months after the close of each
fiscal year, and in any case prior to the next annual meeting of shareholders,
the Corporation shall prepare:
(a) A balance sheet showing in reasonable detail the financial condition
of the Corporation as of the close of its fiscal year;
(b) A profit and loss statement showing the results of its operations
during its fiscal year. Upon written request, the Corporation promptly shall
mail to any shareholder of record a copy of the most recent such balance sheet
and profit and loss statement; and
(c) Such other documents and reports as may be required by law.
ARTICLE IX
INDEMNIFICATION
9.1 CERTAIN DEFINITIONS. As used in this Article, the following
capitalized terms shall have the following meanings:
(a) "Corporation" includes any domestic or foreign predecessor entity
of this Corporation in a merger or other transaction in which the predecessor's
existence ceased upon consummation of the transaction.
(b) "Director" means an individual who is or was a director of the
Corporation or an individual who, while a director of the Corporation, is or was
serving at the Corporation's request as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan, or other enterprise. A Director is
considered to be serving an employee benefit plan at the Corporation's request
if his duties to the Corporation also impose duties on, or otherwise involve
services by, him to the plan or to participants in or beneficiaries of the plan.
"Director" includes, unless the context requires otherwise, the estate or
personal representative of a Director.
(c) "Expenses" includes attorneys' fees.
(d) "Liability" means the obligation to pay a judgment, settlement, penalty,
fine (including an excise tax assessed with respect to an employee benefit
plan), or reasonable Expenses incurred with respect to a proceeding.
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(e) "Party" includes an individual who was, is, or is threatened to be made
a named defendant or respondent in a proceeding.
(f) "Proceeding" means any threatened, pending, or completed action, suit,
or proceeding, whether civil, criminal, administrative, or investigative and
whether formal or informal.
(g) "Reviewing Party" shall mean the person or persons making the
entitlement determination pursuant to Section 9.4 of this Article, and shall not
include a court making any determination under this Article or otherwise.
9.2 BASIC INDEMNIFICATION ARRANGEMENT.
(a) Except as provided in Section 9.7 and subsections 9.2(d), 9.2(e) and
9.2(f) below, the Corporation shall indemnify an individual who is made a Party
to a Proceeding because he is or was a Director against Liability incurred by
him in the Proceeding if he acted in a manner he believed in good faith to be in
or not opposed to the best interests of the Corporation and, in the case of any
criminal Proceeding, he had no reasonable cause to believe his conduct was
unlawful.
(b) A person's conduct with respect to an employee benefit plan for a
purpose he believed in good faith to be in the interests of the participants in
and beneficiaries of the plan is conduct that satisfies the requirement of
subsection 9.2(a).
(c) The termination of a Proceeding by judgment, order, settlement, or
conviction, or upon a plea of nolo contendere or its equivalent shall not, of
itself, be determinative that the proposed indemnitee did not meet the standard
of conduct set forth in subsection 9.2(a).
(d) The Corporation shall not indemnify a person under this Article in
connection with (i) a Proceeding by or in the right of the Corporation in which
such person was adjudged liable to the Corporation, unless, and then only to the
extent that, the Reviewing Party, or a court of competent jurisdiction acting
pursuant to Section 9.5 of this Article or Section 14-2-854 of the Georgia
Business Corporation Code, determines that, in view of the circumstances of the
case, the indemnitee is fairly and reasonably entitled to indemnification, or
(ii) any Proceeding in which such person was adjudged liable on the basis that
he improperly received a personal benefit, unless, and then only to the extent
that, the Reviewing Party, or a court of competent jurisdiction acting pursuant
to Section 9.5 of this Article or Section 14-2-854 of the Georgia Business
Corporation Code, determines that, in view of the circumstances of the case,
such person is fairly and reasonably entitled to indemnification.
(e) Indemnification permitted under this Article in connection with a
Proceeding by or in the right of the Corporation shall include reasonable
Expenses, penalties, fines (including an excise tax assessed with respect to an
employee benefit plan) and amounts paid in settlement in connection with the
Proceeding, but, unless ordered by a court, shall not include judgments.
(f) Notwithstanding any other provision of this Article, no person shall be
entitled to indemnification or advancement of Expenses hereunder with respect to
any Proceeding or claim brought or made by him against the Corporation, other
than a Proceeding or claim seeking or
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defending such person's right to indemnification or advancement of expense
pursuant to Section 9.5 hereof or otherwise.
(g) If any person is entitled under any provision of this Article to
indemnification by the Corporation for some portion of Liability incurred by
him, but not the total amount thereof, the Corporation shall indemnify such
person for the portion of such Liability to which he is entitled.
(h) The Corporation shall indemnify a Director to the extent that he has
been successful, on the merits or otherwise, in the defense of any Proceeding to
which he was a Party, or in defense of any claim, issue or matter therein,
because he is or was a Director, against reasonable Expenses incurred by him in
connection with the Proceeding.
9.3 ADVANCES FOR EXPENSES.
(a) The Corporation shall pay for or reimburse the reasonable Expenses
incurred by a Director as a Party to a Proceeding in advance of final
disposition of the Proceeding if:
(i) Such person furnishes the Corporation a written affirmation of his
good faith belief that he has met the standard of conduct set forth in
subsection 9.2(a) above and that his conduct does not constitute behavior of the
kind described in subsections 9.7 (i)-(iv) below; and
(ii) Such person furnishes the Corporation a written undertaking (meeting
the qualifications set forth below in subsection 9.3(b)), executed personally or
on his behalf, to repay any advances if it is ultimately determined that he is
not entitled to indemnification under this Article or otherwise.
(b) The undertaking required by subsection 9.3(a)(ii) above must be an
unlimited general obligation of the proposed indemnitee but need not be secured
and shall be accepted without reference to financial ability to make repayment.
If a Director seeks to enforce his rights to indemnification in a court pursuant
to Section 9.5, such undertaking to repay shall not be applicable or enforceable
unless and until there is a final court determination that he is not entitled to
indemnification, as to which all rights of appeal have been exhausted or have
expired.
9.4 AUTHORIZATION OF AND DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
(a) The Corporation acknowledges that indemnification of a Director under
Section 9.2 has been pre-authorized by the Corporation in the manner described
in subsection 9.4(b) below. Nevertheless, the Corporation shall not indemnify a
Director under Section 9.2 unless a separate determination has been made in the
specific case that indemnification of such person is permissible in the
circumstances because he has met the standard of conduct set forth in subsection
9.2(a); provided, however, that no entitlement decision need be made prior to
the advancement of Expenses and that, regardless of the result or absence of any
such determination, and unless limited by the Articles of Incorporation of this
Corporation, the Corporation shall make any indemnification mandated by Section
9.2(h) above.
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(b) The determination referred to in subsection 9.4(a) above shall be made,
at the election of the Board of Directors:
(i) by the Board of Directors of the Corporation by majority vote of a
quorum consisting of directors not at the time parties to the Proceeding;
(ii) if a quorum cannot be obtained under subdivision (i), by majority
vote of a committee duly designated by the Board of Directors (in which
designation directors who are parties may participate), consisting solely of two
or more directors not at the time parties to the Proceeding;
(iii) by special legal counsel:
(1) selected by the Board of Directors or its committee in the
manner prescribed in subdivision (i) or (ii); or
(2) if a quorum of the Board of Directors cannot be obtained under
subdivision (i) and a committee cannot be designated under subdivision (ii),
selected by a majority vote of the full Board of Directors (in which selection
directors who are parties may participate); or
(iv) by the shareholders; provided that shares owned by or voted under
the control of directors who are at the time parties to the Proceeding may not
be voted on the determination.
(c) As acknowledged above, the Corporation has pre-authorized the
indemnification of Directors hereunder, subject to a case-by-case determination
that the proposed indemnitee met the applicable standard of conduct under
subsection 9.2(a). Consequently, no further decision need or shall be made on a
case-by-case basis as to the authorization of the Corporation's indemnification
of Directors hereunder. Nevertheless, except as set forth in subsection 9.4(d)
below, evaluation as to reasonableness of Expenses of a Director in the specific
case shall be made in the same manner as the determination that indemnification
is permissible, as described in subsection 9.4(b) above, except that if the
determination is made by special legal counsel, evaluation as to reasonableness
of Expenses shall be made by those entitled under subsection 9.4(b)(iii) to
select counsel.
(d) Notwithstanding the requirement under subsection 9.4(c) that the
Reviewing Party evaluate the reasonableness of Expenses claimed by the proposed
indemnitee, any Expenses claimed by the proposed indemnitee shall be deemed
reasonable if the Reviewing Party fails to make the evaluation required by
subsection 9.4(c) within thirty days following the proposed indemnitee's written
request for indemnification for, or advancement of, Expenses.
(e) The Reviewing Party, however chosen, shall make the requested
determination as promptly as reasonably practical after a request for
indemnification is presented.
9.5 COURT-ORDERED INDEMNIFICATION AND ADVANCES FOR EXPENSES. Unless this
Corporation's Articles of Incorporation provide otherwise, a Director who is a
Party to a Proceeding may apply for
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indemnification or advances for Expenses to the court conducting the Proceeding
or to another court of competent jurisdiction. For purposes of this Article,
the Corporation hereby consents to personal jurisdiction and venue in any court
in which is pending a Proceeding to which a Director is a Party. Regardless of
any determination by the Reviewing Party that the proposed indemnitee is not
entitled to indemnification or advancement of Expenses or as to the
reasonableness of Expenses, and regardless of any failure by the Reviewing Party
to make a determination as to such entitlement or the reasonableness of
Expenses, such court's review shall be a de novo review. On application, the
court, after giving any notice it considers necessary, may order indemnification
or advancement of Expenses if it determines that:
(i) The applicant is entitled to mandatory indemnification under Section
9.2(h) above (in which case the Corporation shall pay the indemnitee's
reasonable Expenses incurred to obtain court-ordered indemnification);
(ii) The applicant is fairly and reasonably entitled to indemnification in
view of all the relevant circumstances, whether or not he met the standard of
conduct set forth in subsection 9.2(a) above or was adjudged liable as described
in subsection 9.2(d) above (in which case any court-ordered indemnification need
not be limited to reasonable Expenses incurred by the indemnitee but may include
Expenses, penalties, fines, judgments, amounts paid in settlement and any other
amounts ordered by the court to be indemnified, and, whether or not so ordered,
the Corporation shall pay the applicant's reasonable Expenses incurred to obtain
court-ordered indemnification); or
(iii) In the case of advances for Expenses, the applicant is entitled
pursuant to the Articles of Incorporation, Bylaws or applicable resolution or
agreement to payment for or reimbursement of his reasonable Expenses incurred as
a Party to a Proceeding in advance of final disposition of the Proceeding (in
which case the Corporation shall pay the applicant's reasonable Expenses
incurred to obtain court-ordered advancement of Expenses); or
(iv) The applicant is otherwise entitled to enforcement of his rights
hereunder (in which case the Corporation shall pay the indemnitee's reasonable
Expenses incurred to obtain such enforcement).
9.6 INDEMNIFICATION OF OFFICERS, EMPLOYEES AND AGENTS. Unless this
Corporation's Articles of Incorporation provide otherwise, (i) the Corporation
shall indemnify and advance Expenses under this Article to an officer of the
Corporation who is not a Director to the same extent, and subject to the same
conditions, as to a Director, and (ii) the Corporation may, subject to
authorization in the specific case, indemnify and advance Expenses under this
Article to an employee or agent of the Corporation who is not a Director to the
same extent as to a Director, or to any lesser extent (or greater extent if
permitted by law) determined by the Board of Directors.
9.7 LIMITATIONS ON INDEMNIFICATION. Regardless of whether a proposed
indemnitee has met the applicable standard of conduct set forth in subsection
9.2(a), the Corporation shall not indemnify a person under this Article for any
Liability incurred in a Proceeding in which the person is adjudged liable to the
Corporation or is subjected to injunctive relief in favor of the Corporation:
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(i) for any appropriation, in violation of his duties, of any business
opportunity of the Corporation;
(ii) for acts or omissions which involve intentional misconduct or a
knowing violation of law;
(iii) for the types of liability set forth in Section 14-2-832 of the
Georgia Business Corporation Code; or
(iv) for any transaction from which he received an improper personal
benefit.
9.8 LIABILITY INSURANCE. The Corporation may purchase and maintain
insurance on behalf of a Director or an individual who is or was an officer,
employee or agent of the Corporation or who, while an officer, employee or agent
of the Corporation, is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust, employee benefit plan,
or other enterprise against Liability asserted against or incurred by him in
that capacity or arising from his status as a Director, officer, employee, or
agent, whether or not the Corporation would have power to indemnify him against
the same Liability under Section 9.2, Section 9.3 or Section 9.4 above.
9.9 WITNESS FEES. Nothing in this Article shall limit the Corporation's
power to pay or reimburse Expenses incurred by a person in connection with his
appearance as a witness in a Proceeding at a time when he has not been made a
named defendant or respondent in the Proceeding.
9.10 REPORT TO SHAREHOLDERS. If the Corporation indemnifies or advances
Expenses to a Director in connection with a Proceeding by or in the right of the
Corporation, the Corporation shall report the indemnification or advance, in
writing, to the shareholders with or before the notice of the next shareholders'
meeting.
9.11 SECURITY FOR INDEMNIFICATION OBLIGATIONS. The Corporation may at any
time and in any manner, at the discretion of the Board of Directors, secure the
Corporation's obligations to indemnify or advance Expenses to a person pursuant
to this Article.
9.12 NO DUPLICATION OF PAYMENTS. The Corporation shall not be liable under
this Article to make any payment to a person hereunder to the extent such person
has otherwise actually received payment (under any insurance policy, agreement
or otherwise) of the amounts otherwise payable hereunder.
9.13 SUBROGATION. In the event of payment under this Article, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Corporation effectively to
bring suit to enforce such rights.
9.14 CONTRACT RIGHTS. The right to indemnification and advancement of
Expenses conferred hereunder to Directors shall be a contract right and shall
not be affected adversely to any Director
17
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by any amendment of these Bylaws with respect to any action or inaction
occurring prior to such amendment; provided, however, that this provision shall
not confer upon any indemnitee or potential indemnitee (in his capacity as such)
the right to consent or object to any subsequent amendment of these Bylaws.
9.15 SPECIFIC PERFORMANCE. In any Proceeding brought by or on behalf of a
Director to specifically enforce the provisions of this Article, the Corporation
hereby waives the claim or defense therein that the plaintiff or claimant has an
adequate remedy at law, and the Corporation shall not urge in any such
Proceeding the claim or defense that such remedy at law exists. The provisions
of this Section 9.15, however, shall not prevent the Director from seeking a
remedy at law in connection with any breach of the provisions of this Article.
9.16 NON-EXCLUSIVITY, ETC. The rights of a Director hereunder shall be in
addition to any other rights with respect to indemnification, advancement of
Expenses or otherwise that he may have under contract or the Georgia Business
Corporation Code or otherwise.
9.17 AMENDMENTS. It is the intent of the Corporation to indemnify and
advance Expenses to its Directors to the full extent permitted by the Georgia
Business Corporation Code, as amended from time to time. To the extent that the
Georgia Business Corporation Code is hereafter amended to permit a Georgia
business corporation to provide to its directors greater rights to
indemnification or advancement of Expenses than those specifically set forth
hereinabove, this Article shall be deemed amended to require such greater
indemnification or more liberal advancement of Expenses to the Corporation's
Directors, in each case consistent with the Georgia Business Corporation Code as
so amended from time to time. No amendment, modification or rescission of this
Article, or any provision hereof, the effect of which would diminish the rights
to indemnification or advancement of Expenses as set forth herein shall be
effective as to any person with respect to any action taken or omitted by such
person prior to such amendment, modification or rescission.
9.18 SEVERABILITY. To the extent that the provisions of this Article are
held to be inconsistent with the provisions of Part 5 of Article 8 of the
Georgia Business Corporation Code, such provisions of such Code shall govern.
In the event that any of the provisions of this Article (including any provision
within a single section, subsection, division or sentence) is held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable, the
remaining provisions of this Article shall remain enforceable to the fullest
extent permitted by law.
ARTICLE X
NOTICES; WAIVERS OF NOTICE
10.1 NOTICES. Except as otherwise specifically provided in these bylaws,
whenever under the provisions of these bylaws notice is required to be given to
any shareholder, Director or officer, it shall not be construed to mean personal
notice, but such notice may be given by personal notice or by cable, telegraph,
or facsimile transmission, or by mail by depositing the same in the post office
or letter box in a postage-paid sealed wrapper, addressed to such shareholder,
officer or Director at such address as appears on the books of the Corporation,
and such notice shall be deemed to be given at the time when the same shall be
thus sent or mailed.
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10.2 WAIVERS OF NOTICE. Except as otherwise provided in these bylaws, when
any notice whatever is required to be given by law, by the Articles of
Incorporation or by these bylaws, a written waiver thereof, signed by the person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to notice. In the case of a shareholder, such waiver of
notice may be signed by the shareholder's attorney or proxy duly appointed in
writing.
ARTICLE XI
EMERGENCY POWERS
11.1 BYLAWS. The Board of Directors may adopt emergency bylaws, subject to
repeal or change by action of the shareholders, which shall, notwithstanding any
provision of law, the Articles of Incorporation or these bylaws, be operative
during any emergency in the conduct of the business of the Corporation resulting
from any catastrophic event including, without limitation, an attack on the
United States or on a locality in which the Corporation conducts its business or
customarily holds meeting of its Board of Directors or its shareholders, or
during any nuclear or atomic disaster, or during the existence of any
catastrophe, or other similar emergency condition, as a result of which a quorum
of the Board of Directors or a standing committee thereof cannot readily be
convened for action. The emergency bylaws may make any provision that may be
practical and necessary for the circumstances of the emergency.
11.2 LINES OF SUCCESSION. The Board of Directors, either before or during
any such emergency, may provide, and from time to time modify, lines of
succession in the event that during such an emergency any or all officers or
agents of the Corporation shall for any reason be rendered unavailable or
otherwise incapable of discharging their duties.
11.3 HEAD OFFICE. The Board of Directors, either before or during any such
emergency, may, effective in the emergency, change the head office or designate
several alternative head offices or regional offices, or authorize the officers
to do so.
11.4 PERIOD OF EFFECTIVENESS. To the extent not inconsistent with any
emergency bylaws so adopted, these bylaws shall remain in effect during any such
emergency and upon its termination the emergency bylaws shall cease to be
operative.
11.5 NOTICES. Unless otherwise provided in emergency bylaws, notice of any
meeting of the Board of Directors during any such emergency may be given only to
such of the Directors as it may be practical to reach at the time, and by such
means as may be practical at the time, including publication, radio or
television.
11.6 OFFICERS AS DIRECTORS PRO TEMPORE. To the extent required to
constitute a quorum at any meeting of the Board of Directors during any such
emergency, the officers of the Corporation who are present shall, unless
otherwise provided in emergency bylaws, be deemed, in order of rank and within
the same rank in order of seniority, Directors for such meeting.
11.7 LIABILITY OF OFFICERS, DIRECTORS AND AGENTS. No officer, Director,
agent or employee acting in accordance with any emergency bylaws shall be liable
except for willful misconduct. No officer, Director, agent or employee shall be
liable for any action taken by him in good faith in such
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<PAGE>
an emergency in furtherance of the ordinary business affairs of the Corporation
even though not authorized by the bylaws then in effect.
ARTICLE XII
CHECKS, NOTES, DRAFTS, ETC.
Checks, notes, drafts, acceptances, bills of exchange and other orders or
obligations for the payment of money shall be signed by such officer or officers
or person or persons as the Board of Directors by resolution shall from time to
time designate.
ARTICLE XIII
AMENDMENTS
These bylaws may be altered or amended and new bylaws may be adopted by the
shareholders at any annual or special meeting of the shareholders or by the
Board of Directors at any regular or special meeting of the Board of Directors;
provided, however, that if such action is to be taken at a meeting of the
shareholders, notice of the general nature of the proposed change in the bylaws
shall be given in the notice of meeting. The shareholders may provide by
resolution that any bylaw provision repealed, amended, adopted, or altered by
them may not be repealed, amended, adopted or altered by the Board of Directors.
Action by the shareholders with respect to bylaws shall be taken by an
affirmative vote of a majority of the votes entitled to be cast by holders of
Voting Stock, and action by the Board of Directors with respect to bylaws shall
be taken by an affirmative vote of a majority of the entire Board of Directors.
I HEREBY CERTIFY that the foregoing Bylaws were duly adopted by the
shareholders of the Corporation on __________, 199_.
Secretary
(CORPORATE SEAL)
20
<PAGE>
COMMON STOCK THIS CERTIFICATE IS TRANSFERABLE
IN NEW YORK, NEW YORK OR
CHARLOTTE, NORTH CAROLINA
NUMBER SHARES
NIS
[LOGO OF NOVA CORPORATION APPEARS HERE]
INCORPORATED UNDER THE LAWS
OF THE STATE OF GEORGIA
CUSIP 669784 10 0
SEE REVERSE FOR CERTAIN
DEFINITIONS
NOVA CORPORATION (GEORGIA)
This Certifies that
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK PAR VALUES $.01 PER
SHARE OF
NOVA Corporation, transferable on the books of the Corporation in person or by
duly authorized attorney upon surrender of this Certificate properly endorsed.
This Certificate and the shares of stock represented hereby are issued and shall
be held subject to all of the provisions of the Articles of Incorporation of the
Corporation and all amendments thereto (copies of which are on file with the
Transfer Agent), to all of which the holder by acceptance hereof assents. This
Certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated
COUNTERSIGNED AND REGISTERED
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
(CHARLOTTE, N.C)
TRANSFER AGENT
AND REGISTRAR
BY /s/
CHAIRMAN PRESIDENT AND
CHIEF EXECUTIVE OFFICER
/s/
VICE CHAIRMAN CHIEF
FINANCIAL OFFICER AND
SECRETARY
[SEAL]
AUTHORIZED SIGNATURE
<PAGE>
THE CORPORATION WILL FURNISH TO ANY SHAREHOLDER, UPON REQUEST AND WITHOUT
CHARGE, A FULL STATEMENT OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND
RELATIVE RIGHTS OF THE SHARES OF EACH CLASS AUTHORIZED TO BE ISSUED AND THE
VARIATIONS IN THE RELATIVE RIGHTS AND PREFERENCES BETWEEN THE SHARES OF EACH
SUCH SERIES SO FAR AS THE SAME HAVE BEEN FIXED AND DETERMINED. THE ARTICLES OF
INCORPORATION OF THE CORPORATION PROVIDE THAT THE PREFERRED STOCK MAY BE ISSUED,
IN ONE OR MORE SERIES, THE RELATIVE RIGHTS AND PREFERENCES OF WHICH MAY BE FIXED
AND DETERMINED BY THE BOARD OF DIRECTORS FROM TIME TO TIME.
NOVA CORPORATION
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT .........Custodian........
TEN ENT -- as tenants by (Cust) (Minor)
the entireties
JT TEN -- as joint tenants under Uniform Gifts to Minors
with right of survivorship and Act .........................
not as tenants in common (State)
Additional abbreviations may also be used though not in the above list.
For value received,________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------------
- -------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ____________________________.
____________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
____________________________________________
SIGNATURE(S) GUARANTEED: THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION, BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C RULE 17 ***
KEEP THIS CERTIFICATE IN A SAFE PLACE, IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
<PAGE>
NOVA CORPORATION
1996 DIRECTORS STOCK OPTION PLAN
<PAGE>
NOVA CORPORATION
1996 DIRECTORS STOCK OPTION PLAN
ARTICLE 1
PURPOSE
1.1 General Purpose. The purpose of this Plan is to further the growth
and development of the Company by encouraging Directors who are not employees of
the Company to obtain a proprietary interest in the Company by owning its stock.
The Company intends that the Plan will provide such persons with an added
incentive to continue to serve as Directors and will stimulate their efforts in
promoting the growth, efficiency and profitability of the Company. The Company
also intends that the Plan will afford the Company a means of attracting persons
of outstanding quality to service on the Board and on the board of directors of
parent and subsidiary corporations of the Company.
1.2 Intended Tax Effects of Options. It is intended that the tax effects
of any NQSO granted hereunder should be determined under Code (S)83.
ARTICLE 2
DEFINITIONS
The following words and phrases as used in this Plan shall have the
meanings set forth in this Article unless a different meaning is clearly
required by the context:
2.1 1933 Act shall mean the Securities Act of 1933, as amended.
2.2 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
2.3 Beneficiary shall mean, with respect to an Optionee, the individual or
individuals to whom the Optionee's Options shall be transferred upon the
Optionee's death (i.e., the Optionee's Beneficiary).
(a) Designation of Beneficiary. An Optionee's Beneficiary shall be the
individual who is last designated in writing by the Optionee as such Optionee's
Beneficiary hereunder. An Optionee shall designate his or her original
Beneficiary in writing on his or her Option Agreement. Any subsequent
modification of the Optionee's Beneficiary shall be in a written executed and
notarized letter addressed to the Company and shall be effective when it is
received and accepted by the Committee, determined in the Committee's sole
discretion.
(b) No Designated Beneficiary. If, at any time, no Beneficiary has been
validly designated by an Optionee, or the Beneficiary designated by the Optionee
is no longer living at the time of the Optionee's death, then the Optionee's
Beneficiary shall be deemed to be the individual or individuals in the first of
the following classes of individuals with one or members of such class
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surviving or in existence as of the Optionee's death, and in the absence
thereof, the Optionee's estate: (A) the Optionee's surviving spouse; or (B) the
Optionee's then living lineal descendants, per stirpes.
(c) Designation of Multiple Beneficiaries. An Optionee may, consistent
with subsection (a) above, designate more than one Person as a Beneficiary if,
for each such Beneficiary, the Optionee also designates a percentage of the
Optionee's Options to be transferred to such Beneficiary upon the Optionee's
death. Unless otherwise specified by the Optionee, any designation by the
Optionee of multiple Beneficiaries shall be interpreted as a designation by the
Optionee that each such Beneficiary should be entitled to an equal percentage of
the Optionee's Options. Each Beneficiary shall have complete and non-joint
rights with respect to the portion of an Optionee's Options to be transferred to
such Beneficiary upon the Optionee's death.
(d) Contingent Beneficiaries. An Optionee may designate a contingent
Beneficiary to receive a Beneficiary's Option in the event that such Beneficiary
should predecease the Optionee; otherwise, in the event a Beneficiary
predeceases the Optionee, then the individual or individuals specified in
subsection (b) above shall be the Optionee's Beneficiary.
2.4 Board shall mean the Board of Directors of the Company.
2.5 Cause shall mean an act or acts by an individual involving personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, breach of contract or violation of Company policy, intentional
failure to perform stated duties or willful violation of any law, rule or
regulation (other than traffic violations or similar offenses), and the unlawful
trading in the securities of the Company or of another corporation based on
information gained as a result of the performance of services for the Company.
2.6 Change of Control shall mean the occurrence of any one of the
following events:
(a) Acquisition By Person of Substantial Percentage. The acquisition by
any individual or entity (including "affiliates" and "associates" of such
individual or entity, but excluding the Company, any "parent" or "subsidiary" of
the Company, or any employee benefit plan of the Company or of any "parent" or
"subsidiary" of the Company) of a sufficient number of shares of the Common
Stock, or securities convertible into the Common Stock, and whether through
direct acquisition of shares or by merger, consolidation, share exchange,
reclassification of securities or recapitalization of or involving the Company
or any "parent" or "subsidiary" of the Company, to constitute the individual or
entity the actual or beneficial owner (within the meaning of that term as it is
used in Section 13(d) of the 1934 Act and the rules promulgated thereunder) of
20% or more of the Common Stock, but only if such acquisition occurs without the
prior approval of the Company's Continuing Directors;
(b) Substantial Change of Board Members. The Company's Continuing
Directors fail to constitute at least a majority of the members of the Board of
Directors of the Corporation;
(c) Disposition of Assets. Any sale or other transfer of all or
substantially all of the assets of the Company or of any "significant
subsidiary" (as that term is defined in Rule 1.02 of the Regulation S-X
promulgated under the 1934 Act) of the Company without the approval of the
Corporation's Continuing Directors; or
2
<PAGE>
(d) Transactions Requiring Regulatory Approval. The filing by an
individual or entity of an application with any regulatory authority having
jurisdiction over the ownership of the Company in connection with any
transaction by such individual or entity to acquire 20% or more of the combined
voting power of the Company's then outstanding securities without the prior
approval of the Company's Continuing Directors.
For purposes of this Section, the terms "affiliate," "associate," "parent" and
"subsidiary" shall have the respective meanings ascribed to such terms in Rule
12b-2 under Section 12 of the 1934 Act.
2.7 Code shall mean the Internal Revenue Code of 1986, as amended.
2.8 Committee shall mean the Board which shall administer and interpret
the Plan in accordance with Article 3 below.
2.9 Common Stock shall mean the common stock of the Company.
2.10 Company shall mean NOVA Corporation, and shall also mean any parent
or subsidiary corporation of NOVA Corporation unless the context clearly
indicates otherwise.
2.11 Continuing Director shall mean a Director (i) who was a Director as
of the Effective Date, or (ii) who becomes a Director subsequent to the
Effective Date and whose election or nomination for election by the Board was
duly approved by Directors at the time of such election or nomination who were
Directors as of the Effective Date, whether by a specific vote or by approval of
the proxy statement issued by the Company on behalf of the Board.
2.12 Director shall mean an individual who is serving as a member of the
Board (i.e., a director of the Company) or who is serving as a member of the
board of directors of a parent or subsidiary corporation of the Company.
2.13 Disability shall mean, with respect to an individual, the total and
permanent disability of such individual as determined by the Committee in its
sole discretion.
2.14 Effective Date shall mean October 17, 1996, the date on which this
Plan was originally adopted by the Board, subject to shareholder approval. See
Article 9 herein.
2.15 Fair Market Value of the Common Stock as of a date of determination
shall mean the following:
(a) Stock Listed and Shares Traded. If the Common Stock is listed and
traded on a national securities exchange (as such term is defined by the 1934
Act) or on the Nasdaq National Market System on the date of determination, the
Fair Market Value per share shall be the closing price of a share of the Common
Stock on said national securities exchange or National Market System on the date
of determination. If the Common Stock is traded in the over-the-counter market,
the Fair Market Value per share shall be the average of the closing bid and
asked prices on the date of determination.
(b) Stock Listed But No Shares Traded. If the Common Stock is listed on a
national securities exchange or on the National Market System but no shares of
the Common Stock are traded
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<PAGE>
on the date of determination but there were shares traded on dates within a
reasonable period before the date of determination, the Fair Market Value shall
be the closing price of the Common Stock on the most recent date before the date
of determination. If the Common Stock is regularly traded in the over-the-
counter market but no shares of the Common Stock are traded on the date of
determination (or if records of such trades are unavailable or burdensome to
obtain) but there were shares traded on dates within a reasonable period before
the date of determination, the Fair Market Value shall be the average of the
closing bid and asked prices of the Common Stock on the most recent date before
the date of determination.
(c) Stock Not Listed. If the Common Stock is not listed on a national
securities exchange or on the National Market System and is not regularly traded
in the over-the-counter market, then the Committee shall determine the Fair
Market Value of the Common Stock from all relevant available facts, which may
include the average of the closing bid and asked prices reflected in the over-
the-counter market on a date within a reasonable period either before or after
the date of determination or opinions of independent experts as to value and may
take into account any recent sales and purchases of such Common Stock to the
extent they are representative.
The Committee's determination of Fair Market Value, which shall be made pursuant
to the foregoing provisions, shall be final and binding for all purposes of this
Plan.
2.16 NQSO shall mean an option to which Code (S)422 (relating generally to
certain incentive stock options and other options) does not apply.
2.17 Option shall mean NQSO's granted to individuals pursuant to the terms
and provisions of this Plan.
2.18 Option Agreement shall mean a written agreement, executed and dated
by the Company and an Optionee, evidencing an Option granted under the terms and
provisions of this Plan, setting forth the terms and conditions of such Option,
and specifying the name of the Optionee and the number of shares of stock
subject to such Option.
2.19 Option Price shall mean the purchase price of the shares of Common
Stock underlying an Option.
2.20 Optionee shall mean an individual who is granted an Option pursuant
to the terms and provisions of this Plan.
2.21 Person shall mean any individual, organization, corporation,
partnership or other entity.
2.22 Plan shall mean this NOVA Corporation 1996 Directors Stock Option
Plan, which was amended and restated as of March 25, 1997.
ARTICLE 3
ADMINISTRATION
3.1 General Administration. The Plan shall be administered and
interpreted by the Committee. Subject to the express provisions of the Plan, the
Committee shall have authority to interpret the Plan, to
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<PAGE>
prescribe, amend and rescind rules and regulations relating to the Plan, to
determine the terms and provisions of the Option Agreements by which Options
shall be evidenced (which shall not be inconsistent with the terms of the Plan),
and to make all other determinations necessary or advisable for the
administration of the Plan, all of which determinations shall be final, binding
and conclusive; provided, however, no individual who is a member of the
Committee shall administer or interpret any Option granted to such individual or
participate in any decision made pursuant to Section 5.2(e) concerning the
exchange of Options granted to such individual.
3.2 Organization. The Committee may select one of its members as its
chairman and shall hold its meetings at such times and at such places as it
shall deem advisable. A majority of the Committee shall constitute a quorum,
and such majority shall determine its actions. The Committee shall keep minutes
of its proceedings and shall report the same to the Board at the meeting next
succeeding.
3.3 Indemnification. In addition to such other rights of indemnification
as they have as directors or as members of the Committee, the members of the
Committee, to the extent permitted by applicable law, shall be indemnified by
the Company against reasonable expenses (including, without limitation,
attorneys' fees) actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal, to
which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any Options granted
hereunder, and against all amounts paid by them in settlement thereof (provided
such settlement is approved to the extent required by and in the manner provided
by the articles or certificate of incorporation or the bylaws of the Company
relating to indemnification of directors) or paid by them in satisfaction of a
judgment in any such action, suit or proceeding, except in relation to matters
as to which it shall be adjudged in such action, suit or proceeding that such
Committee member or members did not act in good faith and in a manner he or they
reasonably believed to be in or not opposed to the best interest of the Company.
ARTICLE 4
STOCK
The stock subject to the Options and other provisions of the Plan shall be
authorized but unissued or reacquired shares of Common Stock. Subject to
readjustment in accordance with the provisions of Article 7, the total number of
shares of Common Stock which may be granted to, or for which Options may be
granted to, persons participating in the Plan shall not exceed in the aggregate
150,000 shares of Common Stock. Notwithstanding the foregoing, shares of Common
Stock allocable to the unexercised portion of any expired or terminated Option
again may become subject to Options under the Plan.
ARTICLE 5
ELIGIBILITY TO RECEIVE AND GRANT OF OPTIONS
5.1 Individuals Eligible for Grants of Options. The individuals eligible
to receive Options hereunder shall be solely those individuals who are Directors
and who are not employees of the Company or any parent or subsidiary corporation
of the Company and who are not designated by 5% or more shareholders of the
Company. Such Directors shall receive Options hereunder in accordance with the
provisions of Section 5.2 below.
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5.2 Grant of Options. Upon the approval of the Committee, Options shall
be granted to those Directors who are eligible under Section 5.1 above in
accordance with the following formulas:
(a) Option Upon Initially Becoming a Director. Upon initially becoming a
Director, an individual shall, subject to subsection (d) below, be granted an
Option to purchase 2,000 shares of Common Stock. Options granted under this
subsection shall be subject to the provisions of Article 6 below and evidenced
by the Option Agreement shown in Exhibit A. The Options granted under this
subsection (a) shall not be granted to a Director who has previously served as a
Director and who is again becoming a Director, but shall only be granted upon an
individual's initially becoming a Director.
(b) Option Upon Commencement of Term. Upon beginning any term of service
as a Director, an individual shall, subject to subsection (d) below, be granted
an Option to purchase a number of shares of Common Stock, where such number of
shares subject to the Option is equal to a fraction, the numerator of which
shall be 2,000 multiplied by the number of full calendar months to be served in
such Director's initial term, and the denominator of which shall be 12. Partial
calendar months to be served shall be counted as full months for the purposes of
this subsection only. Options granted under this subsection shall be subject to
the provisions of Article 6 below and evidenced by the Option Agreement shown in
Exhibit A.
(c) Transitional Provisions. Except as provided in this subsection (c), no
individual who is serving as a Director as of the Effective Date of this Plan
shall be entitled to any Options under this Plan until the expiration of his
current term:
(A) Initial Options. Each Director as of the Effective Date shall, subject
to subsection (d) below, be granted Options under the terms and provisions of
subsection (a) above as of the Effective Date as if such Director had initially
become a Director on the Effective Date. Options granted under this subsection
(A) shall be evidenced by the Option Agreement shown in Exhibit A.
(B) Term Options. Each Director as of the Effective Date shall, subject to
subsection (d) below, be granted Options under the terms and provisions of
subsection (b) above as of the Effective Date as if such Director had begun a
new term as a Director on the Effective Date, with such new term to begin on the
Effective Date and ending as of the date on which the Director's current term
would otherwise have ended. Options granted under this subsection (B) shall be
evidenced by the Option Agreement shown in Exhibit A.
(d) Rules Against Double Granting of Options for Simultaneous Service.
Notwithstanding any provision of this Section to the contrary, an individual who
becomes a Director by virtue of simultaneously becoming a member of the Board
and a member of the board of directors of a parent or subsidiary corporation of
the Company, or who continues as a Director by virtue of simultaneously being
elected or appointed to a new term on the Board and on the board of directors of
a parent or subsidiary corporation of the Company, shall only be granted Options
pursuant to the preceding subsections (a), (b) or (c) of this Section by virtue
of such individual's service on the Board, and not by virtue of such
individuals's service on the board of directors of a parent or subsidiary
corporation of the Company.
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(e) Exchange of Options. The Committee in its sole discretion may grant
new Options to purchase shares of Common Stock to a Director in exchange for the
voluntary surrender by such Director of Options previously granted to such
Director under the terms and provisions of subsections (a) through (d) of this
Section 5.2, where such new Options shall contain exercise periods, expiration
dates, vesting periods, number of shares subject to option, and other terms and
provisions which are exactly identical to the exercise periods, expiration
dates, vesting periods, number of shares subject to option, and other terms and
provisions of the Options surrendered, with the sole exception that the Option
Price under the new Options granted shall be the Fair Market Value of the Common
Stock on the date the new Options are granted rather than on the date the
surrendered Options were granted. For purposes of interpreting the preceding
sentence, it is intended that any new Options granted in lieu of surrendered
Options would be exactly identical to the surrendered Options if such
surrendered Options had originally specified an Option Price equal to the Fair
Market Value of the Common Stock on the date the new Options are granted rather
than on the date the surrendered Options were granted. Thus, for example, the
Optionee will vest in such newly granted Options on the same date and in the
same manner as he would have vested in the surrendered Options, the Optionee
will be able to exercise the newly granted Options on the same date and in the
same manner as he would have vested in the surrendered Options, and the
Optionee's newly granted Options shall expire on the same date and in the same
manner as would his surrendered Options.
ARTICLE 6
TERMS AND CONDITIONS OF OPTIONS
Options granted hereunder and Option Agreements shall comply with and be
subject to the following terms and conditions:
6.1 Requirement of Option Agreement. Upon the grant of an Option
hereunder, the Committee shall prepare (or cause to be prepared) an Option
Agreement. The Committee shall present such Option Agreement to the Optionee.
Upon execution of such Option Agreement by the Optionee, such Option shall be
deemed to have been granted effective as of the date of grant. The failure of
the Optionee to execute the Option Agreement within 30 days after the date of
the receipt of same shall render the Option Agreement and the underlying Option
null and void ab initio.
6.2 Optionee and Number of Shares. Each Option Agreement shall state the
name of the Optionee and the total number of shares of the Common Stock to which
it pertains, the Option Price, the Beneficiary of the Optionee, and the date as
of which the Option was granted under this Plan.
6.3 Vesting. Each Option shall first become exercisable (i.e., vested)
with respect to such portions of the shares subject to such Option as are
specified in the schedule set forth hereinbelow:
(a) Commencing as of the first anniversary of the date the Option is
granted, the Optionee shall have the right to exercise the Option with respect
to, and to thereby purchase, 25% of the shares subject to such Option. Prior to
said date, the Option shall be unexercisable in its entirety.
(b) Commencing as of the second anniversary of the date the Option is
granted, the Optionee shall have the right to exercise the Option with respect
to, and to thereby purchase, an additional 25% of the shares subject to the
Option.
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(c) Commencing as of the third anniversary of the date the Option is
granted, the Optionee shall have the right to exercise the Option with respect
to, and to thereby purchase, an additional 25% of the shares subject to the
Option.
(d) Commencing as of the fourth anniversary of the date the Option is
granted, the Optionee shall have the right to exercise the Option with respect
to, and to thereby purchase, the remainder of the shares subject to such Option.
(e) Notwithstanding subsections (a) through (d) above, any Options
previously granted to an Optionee shall become immediately vested and
exercisable for 100% of the number of shares subject to the Options upon the
Optionee's becoming Disabled or upon his death or upon a Change in Control.
Other than as provided above, if an Optionee ceases to be a Director of the
Company, his rights with regard to all non-vested Options shall cease
immediately.
6.4 Option Price. The Option Price of the shares of Common Stock
underlying each Option shall be the Fair Market Value of the Common Stock on the
date the Option is granted. Upon execution of an Option Agreement by both the
Company and Optionee, the date as of which the Option was granted under this
Plan as noted in the Option Agreement shall be considered the date on which such
Option is granted.
6.5 Terms of Options. Terms of Options granted under the Plan shall
commence on the date of grant and shall expire on such date as the Committee may
determine for each Option; provided, in no event shall any Option be exercisable
after ten years from the date the Option is granted. No Option shall be granted
hereunder after ten years from the earlier of (a) the date the Plan is approved
by the shareholders, or (b) the date the Plan is adopted by the Board.
6.6 Terms of Exercise. The exercise of an Option may be for less than the
full number of shares of Common Stock subject to such Option, but such exercise
shall not be made for less than (i) 100 shares or (ii) the total remaining
shares subject to the Option, if such total is less than 100 shares. Subject to
the other restrictions on exercise set forth herein, the unexercised portion of
an Option may be exercised at a later date by the Optionee.
6.7 Method of Exercise. All Options granted hereunder shall be exercised
by written notice directed to the Secretary of the Company at its principal
place of business or to such other person as the Committee or the Secretary of
the Company may direct. Each notice of exercise shall identify the Option which
the Optionee is exercising (in whole or in part) and shall be accompanied by
payment of the Option Price for the number of shares specified in such notice
and by any documents required by Section 8.1. The Company shall make delivery
of such shares within a reasonable period of time; provided, if any law or
regulation requires the Company to take any action (including, but not limited
to, the filing of a registration statement under the 1933 Act and causing such
registration statement to become effective) with respect to the shares specified
in such notice before the issuance thereof, then the date of delivery of such
shares shall be extended for the period necessary to take such action.
6.8 Medium and Time of Payment.
(a) The Option Price shall be payable upon the exercise of the Option in an
amount equal to the number of shares then being purchased times the per share
Option Price. Payment, at the
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election of the Optionee (or his Beneficiary as provided in subsection (c) of
Section 6.9), shall be (A) in cash; (B) by delivery to the Company of a
certificate or certificates for shares of the Common Stock duly endorsed for
transfer to the Company with signature guaranteed by a member firm of a national
stock exchange or by a national or state bank or a federally chartered thrift
institution (or guaranteed or notarized in such other manner as the Committee
may require); (C) by instructing the Company to retain shares of Common Stock
upon the exercise of the Option with a Fair Market Value equal to the exercise
price as payment; or (D) by a combination of (A), (B) and (C).
(b) If all or part of the Option Price is paid by delivery or withholding
of shares of the Common Stock, on the date of such payment, the Optionee must
have held such shares for at least six months from (i) the date of acquisition,
in the case of shares acquired other than through a stock option or other stock
award plan, or (ii) the date of grant or award in the case of shares acquired
through such a plan; and the value of such Common Stock (which shall be the Fair
Market Value of such Common Stock on the date of exercise) shall be less than or
equal to the total Option Price payment. If the Optionee delivers Common Stock
with a value that is less than the total Option Price, then such Optionee shall
pay the balance of the total Option Price in cash.
(c) In addition to the payment of the purchase price of the shares then
being purchased, an Optionee also shall pay in cash (or have withheld from his
normal pay) an amount equal to, or by instructing the Company to retain Common
Stock upon the exercise of the Option with a Fair Market Value equal to, the
amount, if any, which the Company at the time of exercise is required to
withhold under the income tax or Federal Insurance Contributions Act tax
withholding provisions of the Code, of the income tax laws of the state of the
Optionee's residence, and of any other applicable law.
6.9 Effect of Termination of Service, Disability or Death. Except as
provided in subsections (a), (b) and (c) below, no Option shall be exercisable
unless the Optionee thereof shall have been a Director from the date of the
granting of the Option until the date of exercise; provided, the Committee, in
its sole discretion, may waive the application of this Section and, instead, may
provide a different expiration date or dates in an Option Agreement.
(a) Termination of Service. In the event an Optionee ceases to be a
Director for any reason other than death or Disability, any Option or
unexercised portion thereof granted to him shall terminate on and shall not be
exercisable after the earliest to occur of (i) the expiration date of the
Option, (ii) three months after the date the Optionee ceases to be a Director or
(iii) the date on which the Company gives notice to such Optionee of termination
of his service as a Director if service is terminated by the Company or by its
shareholders for Cause (an Optionee's resignation in anticipation of termination
of service by the Company or by its shareholders for Cause shall constitute a
notice of termination by the Company); provided, the Committee may provide in
the Option Agreement that such Option or any unexercised portion thereof shall
terminate sooner. Notwithstanding the foregoing, in the event that an Optionee's
service as a Director terminates for a reason other than death or Disability at
any time after a Change of Control, the term of all Options of that Optionee
shall be extended through the end of the three-month period immediately
following the date of such termination of service. Prior to the earlier of the
dates specified in the preceding sentences of this subsection (a), the Option
shall be exercisable only in accordance with its terms and only for the number
of shares exercisable on the date of termination of service as a Director. The
question of whether an authorized leave of absence or absence for military or
government service or for any other reason shall constitute a termination of
service as a Director for purposes of the Plan shall be determined by the
Committee, which determination shall be final and conclusive.
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(b) Disability. Upon the termination of an Optionee's service as a
Director due to Disability, any Option or unexercised portion thereof granted to
him which is otherwise exercisable shall terminate on and shall not be
exercisable after the earlier to occur of (i) the expiration date of such
Option, or (ii) one year after the date on which such Optionee ceases to be a
Director due to Disability; provided, the Committee may provide in the Option
Agreement that such Option or any unexercised portion thereof shall terminate
sooner. Prior to the earlier of such date, such Option shall be exercisable
only in accordance with its terms and only for the number of shares exercisable
on the date such Optionee's service as a Director ceases due to Disability.
(c) Death. In the event of the death of the Optionee (i) while he is a
Director, (ii) within three months after the date on which such Optionee's
service as a Director is terminated (for a reason other than Cause) as provided
in subsection (a) above, or (iii) within one year after the date on which such
Optionee's service as a Director terminated due to his Disability, any Option or
unexercised portion thereof granted to him which is otherwise exercisable may be
exercised by the Optionee's Beneficiary at any time prior to the expiration of
one year from the date of death of such Optionee, but in no event later than the
date of expiration of the option period; provided, the Committee may provide in
the Option Agreement that such Option or any unexercised portion thereof shall
terminate sooner. Such exercise shall be effected pursuant to the terms of this
Section as if such Beneficiary is the named Optionee.
6.10 Restrictions on Transfer and Exercise of Options. No Option shall be
assignable or transferable by the Optionee except (i) by transfer to a
Beneficiary upon the death of the Optionee, or (ii) by transfer from the
Optionee to a spouse, lineal ascendant or lineal descendant of the Optionee or a
spouse of a lineal ascendant or descendant of the Optionee, and any purported
transfer (other than as excepted above) shall be null and void. After the death
of an Optionee and upon the death of the Optionee's Beneficiary, an Option shall
be transferred only by will or by the laws of descent and distribution. During
the lifetime of an Optionee, the Option shall be exercisable only by him;
provided, however, that in the event the Optionee is incapacitated and unable to
exercise Options, such Options may be exercised by such Optionee's legal
guardian, legal representative, fiduciary or other representative whom the
Committee deems appropriate based on applicable facts and circumstances.
6.11 Rights as a Shareholder. An Optionee shall have no rights as a
shareholder with respect to shares covered by his Option until date of the
issuance of the shares to him and only after the Option Price of such shares is
fully paid. Unless specified in Article 7, no adjustment will be made for
dividends or other rights for which the record date is prior to the date of such
issuance.
6.12 No Obligation to Exercise Option. The granting of an Option shall
impose no obligation upon the Optionee to exercise such Option.
6.13 Acceleration. The Committee shall at all times have the power to
accelerate the vesting date of Options previously granted under this Plan.
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ARTICLE 7
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
7.1 Recapitalization. In the event that the outstanding shares of
the Common Stock of the Company are hereafter increased or decreased or changed
into or exchanged for a different number or kind of shares or other securities
of the Company by reason of a recapitalization, reclassification, stock split,
combination of shares or dividend payable in shares of the Common Stock, the
following rules shall apply:
(a) The Committee shall make an appropriate adjustment in the number
and kind of shares available for the granting of Options under the Plan.
(b) The Committee also shall make an appropriate adjustment in the
number and kind of shares as to which outstanding Options, or portions thereof
then unexercised, shall be exercisable; any such adjustment in any outstanding
Options shall be made without change in the total price applicable to the
unexercised portion of such Option and with a corresponding adjustment in the
Option Price per share. No fractional shares shall be issued or optioned in
making the foregoing adjustments, and the number of shares available under the
Plan or the number of shares subject to any outstanding Options shall be the
next lower number of shares, rounding all fractions downward.
(c) If any rights or warrants to subscribe for additional shares are
given pro rata to holders of outstanding shares of the class or classes of stock
then set aside for the Plan, each Optionee shall be entitled to the same rights
or warrants on the same basis as holders of the outstanding shares with respect
to such portion of his Option as is exercised on or prior to the record date for
determining shareholders entitled to receive or exercise such rights or
warrants.
7.2 Reorganization. Subject to any required action by the
shareholders, if the Company shall be a party to any reorganization involving
merger, consolidation, acquisition of the stock or acquisition of the assets of
the Company which does not constitute a Change of Control, the Committee, in its
discretion, may declare that:
(a) any Option granted but not yet exercised shall pertain to and
apply, with appropriate adjustment as determined by the Committee, to the
securities of the resulting corporation to which a holder of the number of
shares of the Common Stock subject to such Option would have been entitled;
(b) any or all outstanding Options granted hereunder shall become
immediately nonforfeitable and fully exercisable or vested (to the extent
permitted under federal or state securities laws); and/or
(c) any or all Options granted hereunder shall become immediately
nonforfeitable and fully exercisable or vested (to the extent permitted under
federal or state securities laws) and are to be terminated after giving at least
30 days' notice to the Optionees to whom such Options have been granted.
7.3 Dissolution and Liquidation. If the Board adopts a plan of
dissolution and liquidation that is approved by the shareholders of the Company,
the Committee shall give each Optionee written notice of such event at least ten
days prior to its effective date, and the rights of all Optionees shall become
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immediately nonforfeitable and fully exercisable or vested (to the extent
permitted under federal or state securities laws).
7.4 Limits on Adjustments. Any issuance by the Company of stock of
any class, or securities convertible into shares of stock of any class, shall
not affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of the Common Stock subject to any Option, except
as specifically provided otherwise in this Article. The grant of Options
pursuant to the Plan shall not affect in any way the right or power of the
Company to make adjustments, reclassifications, reorganizations or changes of
its capital or business structure or to merge, consolidate or dissolve, or to
liquidate, sell or transfer all or any part of its business or assets. All
adjustments the Committee makes under this Article shall be conclusive.
ARTICLE 8
AGREEMENT BY OPTIONEE AND SECURITIES REGISTRATION
8.1 Agreement. If, in the opinion of counsel to the Company, such
action is necessary or desirable, no Options shall be granted to any Optionee,
and no Option shall be exercisable, unless, at the time of grant or exercise, as
applicable, such Optionee (i) represents and warrants that he will acquire the
Common Stock for investment only and not for purposes of resale or distribution,
and (ii) makes such further representations and warranties as are deemed
necessary or desirable by counsel to the Company with regard to holding and
resale of the Common Stock. The Optionee shall, upon the request of the
Committee, execute and deliver to the Company an agreement or affidavit to such
effect. Should the Committee have reasonable cause to believe that such
Optionee did not execute such agreement or affidavit in good faith, the Company
shall not be bound by the grant of the Option or by the exercise of the Option.
All certificates representing shares of Common Stock issued pursuant to the Plan
shall be marked with the following restrictive legend or similar legend, if such
marking, in the opinion of counsel to the Company, is necessary or desirable:
The shares represented by this certificate [have not been registered under
the Securities Act of 1933, as amended, or the securities laws of any state
and] are held by an "affiliate" (as such term is defined in Rule 144
promulgated by the Securities and Exchange Commission under the Securities
Act of 1933, as amended) of the Corporation. Accordingly, these shares may
not be sold, hypothecated, pledged or otherwise transferred except (i)
pursuant to an effective registration statement under the Securities Act of
1933, as amended, and any applicable securities laws or regulations of any
state with respect to such shares, (ii) in accordance with Securities and
Exchange Commission Rule 144, or (iii) upon the issuance to the Corporation
of a favorable opinion of counsel or the submission to the Corporation of
such other evidence as may be satisfactory to the Corporation that such
proposed sale, assignment, encumbrance or other transfer will not be in
violation of the Securities Act of 1933, as amended, or any applicable
securities laws of any state or any rules or regulations thereunder. Any
attempted transfer of this certificate or the shares represented hereby
which is in violation of the preceding restrictions will not be recognized
by the Corporation, nor will any transferee be recognized as the owner
thereof by the Corporation.
If the Common Stock is (A) held by an Optionee who ceases to be an "affiliate,"
as that term is defined in Rule 144 of the 1933 Act, or (B) registered under the
1933 Act and all applicable state securities laws and regulations as provided in
Section 8.2, the Committee, in its discretion and with the advice of counsel,
may dispense with or authorize the removal of the restrictive legend set forth
above or the portion thereof which is inapplicable.
8.2 Registration. In the event that the Company in its sole
discretion shall deem it necessary or advisable to register, under the 1933 Act
or any state securities laws or regulations, any shares with respect to
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which Options have been granted hereunder, then the Company shall take such
action at its own expense before delivery of the certificates representing such
shares to an Optionee. In such event, and if the shares of Common Stock of the
Company shall be listed on any national securities exchange or on Nasdaq at the
time of the exercise of any Option, the Company shall make prompt application at
its own expense for the listing on such stock exchange or Nasdaq of the shares
of Common Stock to be issued.
ARTICLE 9
EFFECTIVE DATE
The Plan shall be effective as of the Effective Date, and no Options
shall be granted hereunder prior to said date. Adoption of the Plan shall be
approved by the shareholders of the Company at the earlier of (i) the annual
meeting of the shareholders of the Company which immediately follows the date of
the first grant or award of Options hereunder, or (ii) 12 months after the
adoption of the Plan by the Board. Shareholder approval shall be made by a
majority of the votes cast at a duly held meeting at which a quorum representing
a majority of all outstanding voting stock is, either in person or by proxy,
present and voting on the Plan, or by the written consent in lieu of a meeting
of the holders of a majority of the outstanding voting stock or such greater
number of shares of voting stock as may be required by the Company's articles or
certificate of incorporation and bylaws and by applicable law; provided,
however, such shareholder approval, whether by vote or by written consent in
lieu of a meeting, must be solicited substantially in accordance with the rules
and regulations in effect under Section 14(a) of the 1934 Act. Failure to
obtain such approval shall render the Plan and any Options granted hereunder
null and void ab initio.
ARTICLE 10
AMENDMENT AND TERMINATION
10.1 Amendment and Termination By the Board. Subject to Section 10.2
below, the Board shall have the power at any time to add to, amend, modify or
repeal any of the provisions of the Plan, to suspend the operation of the entire
Plan or any of its provisions for any period or periods or to terminate the Plan
in whole or in part. In the event of any such action, the Board shall prepare
written procedures which shall govern the administration of the Plan resulting
from such addition, amendment, modification, repeal, suspension or termination.
10.2 Restrictions on Amendment and Termination. Notwithstanding the
provisions of Section 10.1 above, no addition, amendment, modification, repeal,
suspension or termination shall adversely affect, in any way, the rights of the
Optionees who have outstanding Options without the consent of such Optionees.
ARTICLE 11
MISCELLANEOUS PROVISIONS
11.1 Application of Funds. The proceeds received by the Company from
the sale of the Common Stock subject to the Options granted hereunder will be
used for general corporate purposes.
11.2 Notices. All notices or other communications by an Optionee to
the Committee pursuant to or in connection with the Plan shall be deemed to have
been duly given when received in the form specified by the Committee at the
location, or by the person, designated by the Committee for the receipt thereof.
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11.3 Term of Plan. Subject to the terms of Article 10, the Plan
shall terminate upon the later of (i) the complete exercise or lapse of the last
outstanding Option, or (ii) the last date upon which Options may be granted
hereunder.
11.4 Compliance with Rule 16b-3. This Plan is intended to be
administered and operated in compliance with the requirements of Rule 16b-3 as
promulgated under Section 16 of the 1934 Act.
11.5 Governing Law. The Plan shall be governed by and construed in
accordance with the laws of the State of Georgia.
11.6 Additional Provisions By Committee. The Option Agreements
authorized under the Plan may contain such other provisions, including, without
limitation, restrictions upon the exercise of an Option, as the Committee shall
deem advisable.
11.7 Plan Document Controls. In the event of any conflict between
the provisions of an Option Agreement and the Plan, the Plan shall control.
11.8 Gender and Number. Wherever applicable, the masculine pronoun
shall include the feminine pronoun, and the singular shall include the plural.
11.9 Headings. The titles in this Plan are inserted for convenience
of reference; they constitute no part of the Plan and are not to be considered
in the construction hereof.
11.10 Legal References. Any references in this Plan to a provision
of law which is, subsequent to the Effective Date of this Plan, revised,
modified, finalized or redesignated, shall automatically be deemed a reference
to such revised, modified, finalized or redesignated provision of law.
11.11 No Rights to Perform Services. Nothing contained in the Plan,
or any modification thereof, shall be construed to give any individual any
rights to perform services for the Company or any parent or subsidiary
corporation of the Company.
11.12 Unfunded Arrangement. The Plan shall not be funded, and except
for reserving a sufficient number of authorized shares to the extent required by
law to meet the requirements of the Plan, the Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any grant under the Plan.
ADOPTED BY BOARD OF DIRECTORS ON __________ ___ , 1997
APPROVED BY SHAREHOLDERS AS OF ____________ ___, 1997
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EXHIBIT A
NONQUALIFIED STOCK OPTION NO. __________
NOVA CORPORATION
1996 DIRECTORS STOCK OPTION PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
This Nonqualified Stock Option Agreement (the "Agreement") is entered
into as of the ____ day of ___________________, ________, by and between NOVA
Corporation (the "Company") and
_______________________________________________________ ("Optionee").
W I T N E S S E T H:
WHEREAS, the Company (which term as used herein shall include any
parent or subsidiary of the Company) has adopted the NOVA Corporation 1996
Directors Stock Option Plan (the "Plan") which is administered by the Company's
Board of Directors (the "Committee"); and
WHEREAS, effective as of _________________, _______, the Committee
granted to Optionee a nonqualified stock option under, and in accordance with,
the terms of the Plan to reward Optionee for his efforts on behalf of the
Company and to encourage his continued loyalty and diligence; and
WHEREAS, to comply with the terms of the Plan and to further the
interests of the Company and Optionee, the parties hereto have set forth the
terms of such option in writing in this Agreement;
NOW, THEREFORE, for and in consideration of the premises and mutual
promises herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are acknowledged, the parties agree as follows:
1. Grant of Option. Effective as of _________________, ________,
the Optionee was granted a nonqualified stock option under the Plan. Under that
option and subject to the terms and conditions set forth herein, Optionee shall
have the right to purchase _______ shares of the common stock of the Company
(the "Common Stock"); such _______ shares hereinafter are referred to as the
"Optioned Shares", and this option hereinafter is referred to as the "Option".
The Option is intended to be a nonqualified stock option.
2. Option Price. The price per share for each of the Optioned Shares
shall be $________________ (the "Option Price"), which is 100% of the per
share Fair Market Value of the Optioned Shares on the date of grant specified
above.
3. Exercise of Option.
(a) General. The Option may be exercised by Optionee's delivery to
the Secretary of the Company of a written notice of exercise executed by
Optionee (the "Notice of Exercise"). The Notice of Exercise shall be
substantially in the form set forth as Appendix A, attached hereto and made a
part hereof, and shall identify the Option and the number of Optioned Shares
that are being exercised.
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(b) Beginning of Exercise Period. The Option first shall become
exercisable (i.e., vested) according to the following schedule; provided, if
Optionee ceases to be a director of the Company, his rights with regard to all
non-vested Options under this schedule shall cease immediately; and further
provided, Optionee's rights with regard to all non-vested Options shall cease at
such time and upon such terms and conditions, if any, as are set forth in
Attachment I attached hereto and made a part hereof:
(i) As of the first anniversary of the date of grant of the Option,
Optionee shall have the right to exercise 25% of the Optioned Shares;
(ii) As of the second anniversary of the date of grant of the Option,
Optionee shall have the right to exercise an additional 25% of the Optioned
Shares;
(iii) As of the third anniversary of the date of grant of the Option,
Optionee shall have the right to exercise an additional 25% of the Optioned
Shares; and
(iv) As of the fourth anniversary of the date of grant of the Option,
Optionee shall have the right to exercise the remainder of the Optioned Shares.
Notwithstanding the foregoing, the Option shall become 100% vested immediately
upon the death or Disability of Optionee or upon a Change of Control of the
Company.
(c) Partial Exercise. Optionee may exercise the Option for less than
the full number of exercisable Optioned Shares, but such exercise may not be
made for less than 100 shares or the total remaining shares subject to the
Option, if less than 100 shares.
4. Termination of Option. Notwithstanding any provisions to the
contrary herein, and except as otherwise specified in Attachment I (if any)
hereto, the Option shall not be exercisable either in whole or in part after the
earliest of:
(a) Ten years from the date of grant;
(b) The date that is immediately prior to the first anniversary of the
date on which Optionee dies (i) while a director of the Company, (ii) within the
three-month period that begins on the date on which Optionee ceases to be a
director of the Company for any reason other than death or Disability or (iii)
within the one-year period that begins on the date on which Optionee ceases to
be a director of the Company due to Disability;
(c) The date of expiration of the one-year period that begins on the
date on which Optionee ceases to be a director of the Company due to Disability;
provided, if Optionee dies during such one-year period, the terms of subsection
(b) shall control;
(d) The date of expiration of the three-month period that begins on
the date on which Optionee ceases to be a director of the Company for any reason
other than death or Disability; provided, if Optionee dies during such three-
month period, the terms of subsection (b) shall control;
(e) The date on which the Company gives notice (or is deemed to have
given notice) to Optionee of his termination of service as a director for Cause,
all as described in Section 6.9(a) of the Plan; or
(f) Such other earlier date as may be required
under the terms of the Plan or set forth in Attachment I hereto.
2
<PAGE>
5. Option Non-Transferable. The Option shall not be transferable by
Optionee other than by (i) by transfer to a Beneficiary upon the death of the
Optionee, or (ii) by transfer from the Optionee to a spouse, lineal ascendant or
lineal descendant of the Optionee or a spouse of a lineal ascendant or
descendant of the Optionee, and any purported transfer (other than as excepted
above) shall be null and void. After the death of the Optionee and upon the
death of the Optionee's Beneficiary, the Option may be transferred by will or by
the laws of descent and distribution. During the lifetime of Optionee, the
Option shall be exercisable only by Optionee (or, if he becomes disabled or
otherwise incapacitated, by the guardian of his property or his duly appointed
attorney-in-fact), and shall not be assignable or transferable by Optionee and,
subject to Section 6 hereof, no other person shall acquire any rights in the
Option.
6. Death of Optionee and Transfer of Option. Except as otherwise
specified in Attachment I (if any) hereto, in the event of the death of Optionee
while a director of the Company, within a period of one year after the
termination of his service as a director of the Company due to Disability, or
within a three-month period after the director ceases to be a director of the
Company for any reason other than for Cause, all or any of the unexercised
portion of the Option owned by the deceased Optionee may be exercised by
Optionee's Beneficiary at any time prior to the first anniversary of the date of
the death of Optionee, but in no event later than the date as of which such
Option expires pursuant to Section 4 hereof. Such exercise shall be effected in
accordance with the terms hereof as if such Beneficiary was Optionee herein.
The Optionee agrees that the following individual shall initially be his
Beneficiary:
Name: ________________________________
Address: ________________________________
________________________________
________________________________
Any subsequent modification of the Optionee's Beneficiary shall be made pursuant
to the terms and provisions of the Plan.
7. Medium and Time of Payment of Option Price.
(a) General. The Option Price shall be payable by Optionee (or his
Beneficiary in accordance with Section 6 hereof) upon exercise of the Option and
shall be paid in cash, in shares of the Common Stock or by instructing the
Company to retain shares of Common Stock as payment, or any combination thereof.
(b) Payment in Shares of the Common Stock. If Optionee pays all or
part of the Option Price with shares of the Common Stock, the following
conditions shall apply:
(i) Optionee shall deliver to the Secretary of the Company a
certificate or certificates for shares of the Common Stock duly endorsed for
transfer to the Company with signature guaranteed by a member firm of a national
stock exchange or by a national or state bank (or guaranteed or notarized in
such other manner as the Committee may require);
(ii) Optionee must have held any shares of the Common Stock used to
pay the Option Price for at least six months prior to the date such payment is
made;
(iii) Such shares shall be valued on the basis of the fair market
value of the Common Stock on the date of exercise pursuant to the terms of the
Plan; and
(iv) The value of such Common Stock shall be less than or equal to the
Option Price. If Optionee delivers Common Stock with a value that is less than
the Option Price, then Optionee shall pay the balance of the Option Price in a
form allowed under subsection (a) above.
3
<PAGE>
In addition to the payment of the Option Price, Optionee also shall pay in cash
(or have withheld from his normal pay) an amount equal to, or by instructing the
Company to retain Common Stock upon the exercise of the Option with a Fair
Market Value equal to, the amount, if any, which the Company at the time of
exercise is required to withhold under the income tax and FICA withholding
provisions of the Code and of the income tax laws of the state of Optionee's
residence.
8. Agreement of Optionee. Optionee acknowledges that he has read
Article 8 of the Plan and understands that certain restrictions may apply with
respect to shares of the Common Stock acquired by him pursuant to his exercise
of the Option (including restrictions on resale applicable to "affiliates" under
Rule 144 of the Securities Act of 1933, as amended, and restrictions on resale
applicable to shares of the Common Stock that have not been registered under the
Securities Act of 1933, as amended, and applicable state securities laws).
Optionee hereby agrees to execute such documents and take such actions as the
Company may require with respect to state and federal securities laws and any
restrictions on the resale of such shares which may pertain.
9. Delivery of Stock Certificates. As promptly as practical after
the date of exercise of the Option and the receipt by the Company of full
payment therefor, the Company shall deliver to Optionee a stock certificate
representing the shares of the Common Stock acquired by Optionee pursuant to his
exercise of the Option.
10. Notices. All notices or other communications hereunder shall be
in writing and shall be effective (i) when personally delivered by courier
(including overnight carriers) or otherwise to the party to be given such notice
or other communication or (ii) on the third business day following the date
deposited in the United States mail if such notice or other communication is
sent by certified or registered mail with return receipt requested and postage
thereon fully prepaid. The addresses for such notices shall be as follows:
If to the Company:
NOVA Corporation
Attention: General Counsel
Five Concourse Parkway
Suite 700
Atlanta, Georgia 30328
If to Optionee:
__________________________
__________________________
__________________________
__________________________
Any party hereto, by notice of the other party hereunder, may change its address
for receipt of notices hereunder.
11. Other Terms and Conditions. In addition to the terms and
conditions set forth herein, the Option is subject to and governed by the other
terms and conditions set forth in the Plan which is hereby incorporated by
reference. In the event of any conflict between the provisions of this
Agreement and the Plan, the Plan shall control. In the event of any conflict
between the provisions of this Agreement and Attachment I, Attachment I shall
control.
4
<PAGE>
12. Miscellaneous.
(a) The granting of the Option and the execution of this Agreement
shall not give Optionee any rights to similar grants in future years or any
right to be retained in the service of the Company or to interfere in any way
with the right of the Company to terminate Optionee's services at any time.
(b) Unless and except as otherwise specifically provided in this
Agreement, Optionee shall have no rights of a stockholder with respect to any
shares covered by the Option until the date of issuance of a stock certificate
to him for such shares.
(c) If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal regulatory agency of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions contained in this Agreement shall remain
in full force and effect, and shall in no way be affected, impaired or
invalidated. If for any reason such court or regulatory agency determines that
this Agreement will not permit Optionee to acquire the full number of Optioned
Shares as provided in Section 1 hereof, it is the express intention of the
Company to allow Optionee to acquire such lesser number of shares as may be
permissible without any amendment or modification hereof.
(d) This Agreement shall be construed and enforced in accordance with
the laws of the State of Georgia.
(e) This Agreement, together with the Plan, contains the entire
understanding among the parties and supersedes any prior understanding and
agreements between them representing the subject matter hereof. There are no
representations, agreements, arrangements or understandings, oral or written,
between and among the parties hereto relating to the subject matter hereof which
are not fully expressed herein, or in the Plan.
(f) Section and other headings contained in this Agreement are for
reference purposes only and are in no way intended to describe, interpret,
define or limit the scope, extent or intent of this Agreement or any provision
hereof.
(g) This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original and all of which shall constitute one
agreement, and the signatures of any party or any counterpart shall be deemed to
be a signature to, and may be appended to, any other counterpart.
(h) All capitalized terms in this Agreement shall be construed in
accordance with their defined terms under the Plan.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the first date written above.
NOVA CORPORATION
By:__________________________________________
Title: ________________________________________
OPTIONEE:
_____________________________________________
Signature
_____________________________________________
Print or type name
6
<PAGE>
NONQUALIFIED STOCK OPTION NO. __________
NOVA CORPORATION
1996 DIRECTORS STOCK OPTION PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
ATTACHMENT I
ADDITIONAL TERMS AND PROVISIONS REGARDING OPTION
<PAGE>
APPENDIX A
NOVA CORPORATION
1996 DIRECTORS STOCK OPTION PLAN
NOTICE OF EXERCISE FOR NONQUALIFIED STOCK OPTION AGREEMENT
This Notice of Exercise is given pursuant to the terms of the
Nonqualified Stock Option Agreement, dated __________________, ________,
between NOVA Corporation (the "Company") and the undersigned Optionee (the
"Agreement"), which Agreement represents Nonqualified Stock Option No. ________
and which is made a part hereof and incorporated herein by reference.
EXERCISE OF OPTION. Optionee hereby exercises his option to purchase
_______ of his Optioned Shares. Optionee hereby delivers, or has instructed the
Company to retain, as the case may be, together with this written statement of
exercise, the full Option Price with respect to the exercised Optioned Shares,
which consists of: [COMPLETE ONLY ONE]
[_] cash in the total amount of $________________.
[_] ________ shares of the Company's Common Stock delivered to
the Company.
[_] ________ shares of the Company's Common Stock retained by
the Company.
[_] cash in the total amount of $_________________ and
_________ shares of the Company's Common Stock, delivered or
retained.
ACKNOWLEDGMENT. Optionee hereby acknowledges that, to the extent he
is an "affiliate" of the Company (as that term is defined in Rule 144
promulgated under the Securities Act of 1933, as amended) or to the extent that
the Optioned Shares have not been registered under the Securities Act of 1933,
as amended, or applicable state securities laws, any shares of the Company's
Common Stock acquired by him as a result of his exercise of the Option pursuant
to this Notice are subject to, and the certificates representing such shares
shall be legended to reflect, certain trading restrictions under applicable
securities laws (including particularly the Securities and Exchange Commission's
Rule 144), all as described in Article 8 of the Plan, and Optionee hereby agrees
to comply with all such restrictions and to execute such documents or take such
other actions as the Company may require in connection with such restrictions.
Executed this ______ day of _________________, ________.
OPTIONEE:
_____________________________________________
Signature
_____________________________________________
Print or Type Name
NOVA Corporation hereby acknowledges receipt of this Notice of
Exercise and receipt of payment in the form and amount indicated above, all on
this ______ day of ____________________, ________.
NOVA CORPORATION
By:
__________________________________________
Title:
_______________________________________
<PAGE>
EXHIBIT 11.1
NOVA CORPORATION
COMPUTATION OF PRO FORMA EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR TEN MONTH YEAR
ENDED PERIOD ENDED ENDED
FEBRUARY 28, 1995 DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Weighted average Common Stock outstanding during the period............. 1,674,607 2,645,290 26,932,029
Cheap Stock(1).......................................................... 52,061 52,061 --
Conversion of Preferred Stock into Common Stock......................... 11,876,218 11,876,218 --
Dilutive effect of common stock equivalents............................. -- 3,450,913 1,671,743
----------- ----------- -----------
Total.............................................................. 13,602,886 18,024,482 28,603,772
=========== =========== ===========
Net income (loss)....................................................... $(1,213,000) $ 4,887,000 $ 7,267,000
Less: Preferred Stock dividends......................................... 534,601 488,899 229,677
----------- ----------- -----------
Net income available for Common Stock and common stock equivalents...... $(1,747,601) $ 4,398,101 $ 7,037,323
=========== =========== ===========
Per share amount........................................................ $(0.13) $0.24 $0.25
=========== =========== ===========
</TABLE>
(1) Pursuant to Securities and Exchange Commission Accounting Bulletin No.
83, common stock and common stock equivalents issued at prices below
the assumed initial public offering price per share ("cheap stock")
during the twelve months immediately preceding the initial filing date
of the Company's Registration Statement for its public offering have
been included as outstanding for all periods presented.
<PAGE>
EXHIBIT 11.2
NOVA CORPORATION
COMPUTATION OF HISTORICAL EARNINGS PER SHARE
<TABLE>
<CAPTION>
TEN MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED
FEBRUARY 28, 1995 DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
PRIMARY
Weighted average Common Stock outstanding
during the period................................... 1,674,607 2,645,290 22,811,044
Cheap Stock(1)........................................ 52,061 52,061 --
Dilutive effect of common stock equivalents........... -- 1,756,247 1,671,743
----------- ----------- -----------
Total............................................... 1,726,668 4,453,598 24,482,787
=========== =========== ===========
Net income (loss)..................................... $(1,213,000) $ 4,887,000 $ 7,267,000
Less: Preferred Stock dividends....................... 3,507,000 3,178,000 1,486,000
----------- ----------- -----------
Net income (loss) available for Common Stock and
common stock equivalent............................. $(4,720,000) $ 1,709,000 $ 5,781,000
=========== =========== ===========
Per share amount.................................... $(2.73) $0.38 $0.24
=========== =========== ===========
FULLY DILUTED
Weighted average Common Stock outstanding
during the period................................... 1,674,607 2,645,290 26,932,029
Cheap Stock(1)........................................ 52,061 52,061 --
Dilutive effect of preferred stock.................... -- 11,876,218 --
Dilutive effect of common stock equivalents........... -- 1,756,247 1,671,743
----------- ----------- -----------
Total............................................... 1,726,668 16,329,816 28,603,772
=========== =========== ===========
Net income............................................ $(1,213,000) $ 4,887,000 $ 7,267,000
Less: Preferred Stock dividends....................... 3,507,000 488,899 229,677
----------- ----------- -----------
Net income available for Common Stock and
common stock equivalent............................. $(4,720,000) $ 4,398,101 $ 7,037,323
=========== =========== ===========
Per share amount (2).................................. $(2.73) $0.27 $0.25
=========== =========== ===========
</TABLE>
____________
(1) Pursuant to Securities and Exchange Commission Accounting Bulletin No. 83,
common stock and common stock equivalents issued at prices below the
assumed initial public offering price per share ("cheap stock") during
the twelve months immediately preceding the initial filing date of the
Company Registration Statement for its public offering have been included
as outstanding for all periods presented.
(2) The effect of the preferred stock conversion in the calculation of the 1996
fully diluted income per common share is anti-dilutive. Accordingly,
primary and fully diluted income per common share for 1996 are the same.
<PAGE>
EXHIBIT 11.3
NOVA CORPORATION
COMPUTATION OF SUPPLEMENTAL EARNINGS PER SHARE
<TABLE>
<CAPTION>
TEN MONTH
PERIOD ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Weighted average Common Stock outstanding
during the period................................................ 2,645,290 22,811,044
Common Stock issued to repay current & long-term
indebtedness and redeem Series D Preferred Stock (2) 1,126,043 390,731
Cheap Stock(1).................................................... 52,061 --
Common Stock equivalents.......................................... 1,756,247 1,671,743
Conversion of Series A, B, and C Preferred Stock into
shares of Common Stock 11,876,218 4,120,983
----------- ----------
Total............................................................ 17,455,859 28,994,501
=========== ===========
Income before income taxes........................................ $ 830,000 $12,031,000
PLUS: Reduction in interest expense from the
repayment of indebtedness from proceeds of the
initial public offering 1,336,000 461,000
----------- -----------
Pro Forma net income before taxes 2,166,000 12,492,000
Pro forma income tax (expense) / benefit 4,112,000 (4,997,000)
Pro Forma net income available for Common Stock and
common stock equivalents.................................... $ 6,278,000 $ 7,495,000
=========== ===========
Pro forma per share amount.................................... $0.36 $0.26
=========== ===========
</TABLE>
____________________
(1) Pursuant to Securities and Exchange Commission Accounting Bulletin No. 83,
common stock and common stock equivalents issued at prices below the
assumed initial public offering price per share ("cheap stock") during
the twelve months immediately preceding the initial filing date of the
Company Registration Statement for its public offering have been included
as outstanding for all periods presented.
Supplementary earnings per share reflects the number of shares of common stock
upon consummation of the initial public offering used to repay current and long-
term indebtedness as if such issuance had occurred at the beginning of the
periods presented. In addition, the calculations reflect the redemption of
Series D Preferred Stock at the beginning of the periods presented.
<PAGE>
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
Index to Financials
____
Management's Discussion and Analysis
of Financial Condition & Results of Operations 16
........................................................
Consolidated Balance Sheets 23
........................................................
Consolidated Statements of Operations 24
........................................................
Consolidated Statements of Shareholders' Equity 25
........................................................
Consolidated Statements of Cash Flows 26
........................................................
Notes to Consolidated Financial Statements 27
........................................................
Report of Independent Auditors 43
........................................................
Selected Consolidated Financial Data 44
........................................................
- --------------------------------------------------------------------------------
[15]
<PAGE>
NOVA CORPORATION
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition
& Results of Operations
Overview
The Company was formed in February 1991 to provide sophisticated and cost-
effective transaction processing and related services to small- to medium-
sized merchants by effectively employing the latest advances in transaction
processing and telecommunications technology. The Company has focused on
increasing the size of its customer base through its marketing and
acquisition program initiatives that continued with the acquisition of the
merchant service business of The Bank of Boulder, effective as of November
1, 1994 (the "Boulder Acquisition"), the consummation of the First
Union Alliance, effective as of December 1, 1995, and the consummation of
23 merchant portfolio transactions in 1996.
Since inception, the Company has invested significant capital to
develop an integrated operating platform consisting of hardware, software
and network architecture to process large volumes of card transactions. In
addition, the Company continues to develop the marketing, customer support
and managerial expertise necessary to execute its business strategy.
Through the fiscal year ended February 28, 1995, the Company incurred
losses, as the expenditures for the development of this infrastructure and
the cost to convert acquired portfolios, combined with the cost of
providing service, exceeded revenues from its merchant portfolio. The
Company's ongoing expansion of its merchant and customer base resulted in
the Company achieving profitability for the first time in the 10-month
period ended December 31, 1995.
The Company has increased its merchant and customer base through a
combination of its own marketing programs and through a series of
acquisitions that have produced significant additional revenue in each year
since formation. Since inception, the Company has consummated 74
transactions consisting of 70 merchant portfolio acquisitions, three
operating business acquisitions and the First Union Alliance. The Boulder
Acquisition was the largest of the operating business acquisitions and
added approximately 19,000 new merchant locations to the Company's merchant
base, while the First Union Alliance added approximately 31,000 new
merchant locations to the Company's merchant base. The Company accounted
for the First Union Alliance as a transfer of nonmonetary assets, which was
accounted for at the historical cost of the assets transferred.
Other than with respect to the First Union Alliance, the Company has
consolidated substantially all of its previous transactions. The
consolidation of the operating centers acquired in the First Union
Alliance, into the Company's Knoxville, Tennessee, facility, is
substantially complete. In addition, the majority of the merchant terminals
resulting from the First Union Alliance have been converted to the NOVA
Network, and all of these merchants have been converted to the Company's
merchant accounting systems. The Company has commenced the conversion and
integration of other smaller merchant portfolios into the Company's
operations, which is expected to be completed in the Fall of 1997.
Historically, the Company has achieved savings through economies of scale
and operating efficiencies derived from the conversion and integration of
its transactions. Similarly, the Company anticipates savings in cost of
service and selling, general and administrative expenses from the remaining
conversions relating to the First Union Alliance. The costs of these
conversion activities are expensed as incurred.
- --------------------------------------------------------------------------------
[16]
<PAGE>
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
Management's Discussion and Analysis
The Company changed its fiscal year end from the last day of February
to December 31, effective December 31, 1995. Accordingly, the following
discussion of results of operations includes a comparison of the 12 month
year ended December 31, 1996, with the 10 month period ended December 31,
1995 and the 10-month period ended December 31, 1995, with the 10 month
period December 31, 1995 with the 10 month period ended December 31, 1994.
Components of Revenues and Expenses
____
Revenues
The Company derives revenues principally from processing credit, charge and
debit card transactions that are authorized and captured through the NOVA
Network. The Company typically charges merchants for these card processing
services at a bundled rate that is a percentage of the dollar amount of
each transaction and, in some instances, an additional fee per transaction.
These charges, referred to as "discount fees," are individually negotiated
with each merchant and, in the aggregate, represented approximately 94.6%
and 93.7% of the Company's revenues for the years ended December 31, 1996
and 1995, respectively. Certain of the Company's merchant customers are
charged a flat fee per transaction, while others are also charged
miscellaneous fees, including fees assessed by the Company for handling
chargebacks, monthly minimums, equipment leases, rentals and sales, and
other miscellaneous services. The Company's revenues are reported net of
amounts paid to independent sales organizations ("ISOs") and agent banks
under revenue sharing agreements pursuant to which such parties receive
payments based primarily on processing volume for particular groups of
merchants.
Expenses
Cost of service includes all costs directly attributable to the Company's
provision of services to its merchant customers. The most significant
component of cost of service includes interchange and assessment fees,
which are amounts charged by the credit card associations for clearing
services, advertising and other expenses. Interchange and assessment fees
are billed primarily as a percent of dollar volume processed and, to a
lesser extent, as a per-transaction fee. Cost of service also includes
charges paid to third parties for point-of-sale network service (for
merchant customers acquired but not yet converted to the NOVA Network),
merchant accounting and settlement fees paid to third-party vendors, cost
of equipment leased, rented or sold, NOVA Network costs and other operating
expenses.
Conversion costs include costs incurred to convert the acquired
portfolios to the NOVA Network and operating systems. These costs include
expenses related to reprogramming point-of-sale ("POS") terminals at
merchant locations, duplicate costs to process transactions, unfavorable
contract payments for transaction authorizations and independent contractor
fees.
Selling, general and administrative expenses include salaries,
commissions and benefits, travel and entertainment, telephone, and other
operating costs of the Company's operations and marketing centers and its
corporate office. Also included in this category are systems and product
development expenses, which represent the internal costs of developing and
implementing the NOVA Network and its processing and POS systems. The
Company has not capitalized any internal expenditures with respect to these
items.
- --------------------------------------------------------------------------------
[17]
<PAGE>
NOVA CORPORATION
- --------------------------------------------------------------------------------
Management's Discussion and Analysis
Depreciation and amortization is related to the Company's capital
expenditures and merchant portfolio and business acquisitions. Depreciation of
property and equipment is recognized on a straight-line basis over periods of
three to seven years for equipment and 30 years for buildings. The acquisition
of merchant portfolios results in the capitalization of merchant and customer
contract values, which are amortized over 10 years based upon the Company's
merchant attrition experience and projected revenue streams. Excess cost of
businesses acquired is amortized over 30 years.
Results of Operations
The following table sets forth for the periods indicated the percentage of
revenues represented by certain items on the Company's consolidated statements
of operations:
Percentage of Total Revenues
<TABLE>
<CAPTION>
10-month 10-month
Year ended period ended period ended Year ended
December 31, December 31, December 31, February 28,
---------------- ------------------------------ ---------------------
1996 1995 1994 1995 1994
---------------- ------------------------------ ---------------------
<S> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0% 100.0%
........................................................................................................................
Cost of service 78.1 77.8 78.9 79.1 80.6
........................................................................................................................
Conversion costs 2.4 2.7 1.2 2.0 3.0
........................................................................................................................
Selling, general and administrative 12.4 13.8 15.0 15.0 18.3
........................................................................................................................
Depreciation and amortization 2.6 3.6 3.9 4.2 3.9
- ------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 4.5 2.1 1.0 (0.3) (5.8)
........................................................................................................................
Interest expense, net 0.0 1.5 0.8 1.0 0.3
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) before provision for income taxes 4.5 0.6 0.2 (1.3) (6.1)
........................................................................................................................
Provision (benefit) for income taxes 1.8 (3.1) -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) 2.7% 3.7% 0.2% (1.3)% (6.1)%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Year Ended December 31, 1996, Compared to
10 Month Period Ended December 31, 1995
____
Revenues
Revenues for the year ended December 31, 1996 increased 106.0% to $265.8 million
compared with $129.0 million for the 10 months ended December 31, 1995. The
increase resulted primarily from a 99.6 %, or $6.0 billion, increase in sales
volume processed for the year to $11.9 billion from $5.9 billion in 1995. This
increase was attributable to the increased bankcard volume from the acquisition
of the First Union's merchant processing portfolio acquisition, as well as
record new customer volume added from the marketing efforts targeted towards
- --------------------------------------------------------------------------------
[18]
<PAGE>
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
Management's Discussion and Analysis
regional, national and local merchants. Due to the Company's change in fiscal
year end, effective as of December 31, 1995, the Company's revenues in 1996
included a full 12 months, as compared to the prior year's 10-month fiscal year.
Additionally, the Company has entered into 17 signed exclusive bank marketing
agreements in 1996 which are expected to result in increased annualized bankcard
volume of approximately $385 million.
Cost of Service
NOVA's cost of service increased 106.8% to $207.6 million for the year ended
December 31, 1996 from $100.3 million for the 10 month period ended December 31,
1995. As a percentage of revenues, cost of service increased to 78.1% for the
year ended December 31, 1996 from 77.8% for the 10 months ended December 31,
1995 prior year. These increases resulted from additional interchange and
assessment fees associated with the higher volume of merchant sales and from
authorization fees paid to third-party networks and merchant accounting
processors for merchants not yet converted to the NOVA Network.
Conversion Costs
Conversion costs increased 85.8% to $6.4 million for the year ended December 31,
1996, as compared with $3.4 million for the 10 month period ended December 31,
1995. The increase resulted primarily from the ongoing conversion of the First
Union portfolio, acquired in December 1995.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 85.1% to $33.0 million in
the year ended December 31, 1996 from $17.8 million for the 10 month period
ended December 31, 1995. Higher expenses in 1996 resulted from additional
staffing levels in the Company's operations center to support the increased
merchant sales volume processed, as well as a one-time cost involved in
consolidating three operational offices around the country to NOVA's corporate
headquarters and the Knoxville, Tennessee center. In addition, sales and
marketing expenses increased to support the Company's growing merchant and bank
alliance relationships. The Company's consolidation plan is to provide even
higher-quality information systems processing to all market sectors within the
credit card industry, provide for operational efficiencies, as well as create
new revenue opportunities in the future. Selling, general and administrative
expenses decreased as a percent of revenues to 12.4% in 1996 from 13.8% in the
prior year, reflecting operating efficiencies.
Depreciation and Amortization
Depreciation and amortization increased 50.6% to $7.0 million for the year ended
December 31, 1996, from $4.6 million for the 10 month period ended December 31,
1995. The increase was principally due to greater depreciation for POS
terminals, additional systems hardware and software purchases to enhance the
Company's transaction processing system, as well as operational equipment needed
to support NOVA's growth. To a lesser extent, this expense increased due to
additional amortization of certain intangible assets related to the acquisition
of merchant portfolios.
- --------------------------------------------------------------------------------
[19]
<PAGE>
NOVA CORPORATION
- --------------------------------------------------------------------------------
Management's Discussion and Analysis
Operating Income
For the foregoing reasons, operating income increased 326.9%, or $9.1 million,
to $11.9 million for the year ended December 31, 1996, compared to $2.8 million
for the 10 month period ended December 31, 1995.
Interest Expense (Income) - Net
Net interest expense decreased $2.1 million for the year ended December 31,
1996, resulting in net interest income of $126,000, compared to net interest
expense of $2.0 million for the prior year. The decrease in interest expense was
due to reduced levels of bank debt and purchase note obligations resulting from
the use of net proceeds received from the Company's initial public offering. The
increase in interest income was generated from the investment of the net
proceeds received from the Company's initial public offering, as well as cash
generated from operating activities in 1996.
Income Taxes
Income tax expense was recorded at an effective tax rate of 40% in 1996. During
the fiscal year ended December 31, 1995, a one-time tax benefit of $5.0 million
was included in the provision for income tax reflecting the reversal of a
deferred tax valuation allowance as a result of the Company's improved
profitability in 1995.
Net Income
For the year ended December 31, 1996, net income increased $2.4 million, or
48.7%, to $7.3 million compared to $4.9 million for the 10 month period ended
December 31, 1995, due to the factors discussed above. Net income for 1995
included a one-time tax benefit of $5.0 million.
10-Month Period Ended December 31, 1995, Compared With
10 Months Ended December 31, 1994
____
Revenues
Revenue increased 72.5% to $129.0 million for the 10-month period ended December
31, 1995, compared with $74.8 million for the same period in 1994. This increase
resulted from an 81.8% increase in merchant sales volume processed to $6.0
billion for 1995, compared to $3.3 billion in 1994. This increased sales volume
was primarily attributable to $1.7 billion from the Boulder Acquisition, $426
million from the First Union Alliance and new merchants added as a result of
Company sales efforts.
Cost of Service
Cost of service increased 70.2% to $100.4 million for the 10-month period ended
December 31, 1995, compared with $59.0 million for the same period in 1994. The
increase resulted from additional interchange and assessment fees and other
operating costs associated with the higher volume of merchant sales. Cost of
service as a percent of revenues declined from 78.9% to 77.8%, reflecting
continuing cost efficiencies realized from the consolidation of the operations
relating to the Boulder Acquisition.
- --------------------------------------------------------------------------------
[20]
<PAGE>
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
Management's Discussion and Analysis
Conversion Costs
Conversion costs increased 270.8% to $3.4 million for the 10-month period ended
December 31, 1995, compared with $900,000 for the same period in 1994. The
increase resulted primarily from the acquisition and conversion of the Boulder
portfolio.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 58.9% to $17.8 million
for the 10-month period ended December 31, 1995, compared with $11.2 million for
the same period in 1994. Higher expenses in 1995 resulted from the addition of
personnel in the Company's operations center to support the increased merchant
sales volume and the addition of approximately 34,000 merchant locations served.
Additionally, sales and marketing expenses increased to support the Company's
growing number of merchants and bank alliance relationships. Selling, general
and administrative expenses declined to 13.8% of revenues for the 10-month
period ended December 31, 1995, compared with 15.0% for the same period in 1994,
reflecting operational efficiencies.
Depreciation and Amortization
Depreciation and amortization increased 60.2% to $4.6 million for the 10-month
period ended December 31, 1995, compared with $2.9 million for the same period
in 1994. The increase was principally due to additional amortization of certain
intangible assets related to the acquisition of merchant portfolios and the
Boulder Acquisition. To a lesser extent, this expense increased because of
greater depreciation for point-of-sale and systems equipment purchased in the
10-month period ended December 31, 1995, compared with the 10-month period ended
December 31, 1994.
Operating Income
For the foregoing reasons, operating income for the 10-month period ended
December 31, 1995, increased 298.4% to $2.8 million compared with $800,000 for
the same period in 1994.
Interest Expense
Interest expense increased to $2.0 million for the 10-month period ended
December 31, 1995, compared with $600,000 for the same period in 1994, due to
interest related to the bank debt and purchase note obligations incurred
principally in connection with the Boulder Acquisition.
Income Taxes
For the 10-month period ended December 31, 1995, the income tax provision
reflects the recognition of $5.0 million in tax benefits related to prior year
tax losses.
Net Income
Net income increased $4.7 million to $4.9 million for the 10-month period ended
December 31, 1995, compared with net income of $200,000 for the same period in
1994, due to the factors discussed above.
- --------------------------------------------------------------------------------
[21]
<PAGE>
NOVA CORPORATION
- --------------------------------------------------------------------------------
Management's Discussion and Analysis
Liquidity and Capital Resources
_____
The Company's primary uses of its capital resources include acquisitions of
merchant portfolios, capital expenditures and working capital.
The Company entered into a credit agreement with Bank of America in 1994,
which was amended on January 31, 1996, and May 1, 1996, for aggregate loans of
up to $36,083,000. Term loans of $11,083,000 and a combination of revolving
loans, letters of credit and acquisition loans aggregating $25,000,000
($10,000,000 after June 30, 1997) are available under the agreement. As of
December 31, 1996, no borrowings exist under this agreement.
Net cash provided by operating activities was $20.7 million for the year
ended December 31, 1996, as compared to $4.9 million for the 10-month period
ended December 31, 1995.
Net cash used in investing activities was $10 million for the year ended
December 31, 1996, as compared to $5.1 million for the 10-month period ended
December 31, 1995. The Company's capital expenditure requirements include point-
of-sale terminals ("POS Terminals") that are leased to merchants and computer
hardware and software necessary to support the NOVA Network and the systems at
the Company's operations center, as well as the expansion and consolidation to
the new Atlanta facility. For the year ended December 31, 1996 and the 10-month
period ended December 31, 1995, and the fiscal year ended February 28, 1995, the
Company's capital expenditures totaled approximately $6.0 million, $1.6 million
and $0.8 million, respectively. In addition to capital expenditures, the Company
purchased various merchant processing portfolios totaling $4.0 million, $3.5
million and $20.1 million in the year ended December 31, 1996, the 10-month
period ended December 31, 1995, and the fiscal year ended February 28, 1995,
respectively.
Net cash provided by financing activities was $28.9 million for the year
ended December 31, 1996, due primarily to the Company's initial public offering.
The proceeds received were used to reduce most of the bank debt, to redeem the
5,000 shares of Series D Preferred Stock for $5.0 million and to pay all
cumulative dividends of $11.7 million to holders of Preferred Stock concurrent
upon the liquidation of all series of Preferred Stock.
The Company typically has relatively low working capital requirements
because discount fees charged to merchants are collected in an average of 15
days, while normal payables are paid in 30 days or longer in the case of POS
Terminal purchases. In addition, increasing acquisition activity may cause
variations in working capital due to conversion-period operating costs. Because
of the seasonality of the Company's business, capital requirements may be
greater in certain months.
The Company expects that cash generated from operations will be the
principal source of funds for its cash requirements. The Company intends to use
the $25.0 million acquisition commitment included in the Credit Agreement and
cash generated from operations to fund future merchant portfolio acquisitions
and working capital requirements for the foreseeable future.
- --------------------------------------------------------------------------------
[22]
<PAGE>
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 40,326,000 $ 630,000
................................................................................................
Trade receivables, less allowance for doubtful accounts
of $2,707,000 and $440,000 at December 31, 1996 and
December 31, 1995, respectively 16,147,000 10,068,000
................................................................................................
Inventory 857,000 1,080,000
................................................................................................
Deferred tax asset and
other current assets 3,160,000 3,759,000
- ------------------------------------------------------------------------------------------------
Total current assets 60,490,000 15,537,000
................................................................................................
Merchant and customer contracts 21,868,000 20,603,000
................................................................................................
Property and equipment, net 10,212,000 7,403,000
................................................................................................
Excess cost of businesses acquired 13,301,000 13,795,000
................................................................................................
Deferred tax asset and
other non-current assets 1,834,000 3,663,000
- ------------------------------------------------------------------------------------------------
$107,705,000 $ 61,001,000
- ------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,810,000 $ 4,180,000
................................................................................................
Accounts payable to affiliate 1,534,000 2,883,000
................................................................................................
Accrued compensation and related costs 1,416,000 996,000
................................................................................................
Settlement obligations 7,691,000 --
................................................................................................
Other accrued liabilities 5,157,000 4,003,000
................................................................................................
Long-term debt obligations due within one year 507,000 5,184,000
- ------------------------------------------------------------------------------------------------
Total current liabilities 21,115,000 17,246,000
................................................................................................
Deferred tax liability 849,000 --
................................................................................................
Long-term debt obligations 859,000 17,738,000
................................................................................................
Commitments and Contingencies
Shareholders' Equity:
Preferred Stock -- 33,571,000
................................................................................................
Common Stock, $.01 par value, 50,000,000 shares
authorized, 28,721,000 and 11,378,000 shares issued at
December 31, 1996, and December 31, 1995, respectively 288,000 114,000
................................................................................................
Additional paid in capital 99,299,000 2,615,000
................................................................................................
Accumulated deficit (14,705,000) (10,283,000)
- ------------------------------------------------------------------------------------------------
Total shareholder's equity 84,882,000 26,017,000
- ------------------------------------------------------------------------------------------------
$107,705,000 $ 61,001,000
- ------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
[23]
<PAGE>
NOVA CORPORATION
- --------------------------------------------------------------------------------
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended 10 month period ended Year ended
December 31, December 31, February 28,
- --------------------------------------------------------------------------------------------------------------
1996 1995 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES $265,829,000 $129,035,000 $93,592,000
..............................................................................................................
OPERATING EXPENSES:
Cost of service 207,595,000 100,375,000 74,032,000
..............................................................................................................
Conversion costs 6,395,000 3,441,000 1,827,000
..............................................................................................................
Selling, general and administrative 32,952,000 17,795,000 14,091,000
..............................................................................................................
Depreciation and amortization 6,982,000 4,635,000 3,887,000
- --------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) 11,905,000 2,789,000 (245,000)
..............................................................................................................
Interest expense (income), net (126,000) 1,959,000 968,000
- --------------------------------------------------------------------------------------------------------------
Income (loss) before provision for income taxes 12,031,000 830,000 (1,213,000)
..............................................................................................................
Provision (benefit) for income taxes 4,764,000 (4,057,000) --
- --------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 7,267,000 $ 4,887,000 $(1,213,000)
- --------------------------------------------------------------------------------------------------------------
Pro forma net income (loss) per common and
common equivalent share $ 0.25 $ 0.24 $ (0.13)
- --------------------------------------------------------------------------------------------------------------
Pro forma weighted-average common and
common equivalent shares outstanding 28,604,000 18,024,000 13,603,000
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
[24]
<PAGE>
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL ACCUMULATED TREASURY SUBSCRIPTION
PREFERRED STOCK COMMON STOCK PAID-IN CAPITAL DEFICIT STOCK RECEIVABLE
----------------------------------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
..................................................................................................................................
BALANCE AT March 1, 1994 32,571 $32,571,000 1,792,000 $ 18,000 $ 301,000 $ (13,815,000) $ (110,000) $ (182,000)
..................................................................................................................................
Issuance of Preferred
Stock 1,000 1,000,000 -- -- -- -- -- --
..................................................................................................................................
Purchase of treasury
shares -- -- -- -- -- -- (33,000) --
..................................................................................................................................
Payment of Common Stock
subscriptions -- -- -- -- -- -- -- 182,000
..................................................................................................................................
Net loss -- -- -- -- -- (1,213,000) -- --
----------------------------------------------------------------------------------------------------------------------------------
BALANCE at February 28,
1995 33,571 33,571,000 1,792,000 18,000 301,000 (15,028,000) (143,000) --
..................................................................................................................................
Retirement of treasury
stock -- -- (121,000) (1,000) -- (142,000) 143,000 --
..................................................................................................................................
Issuance of Common Stock
in a non-monetary transaction
with First Union -- -- 9,149,000 91,000 2,320,000 -- -- --
..................................................................................................................................
Issuance of Common Stock
in exchange for outstanding
warrants -- -- 558,000 6,000 (6,000) -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Net Income -- -- -- -- -- 4,887,000 -- --
----------------------------------------------------------------------------------------------------------------------------------
BALANCE at December 31,
1995 33,571 33,571,000 11,378,000 114,000 2,615,000 (10,283,000) -- --
..................................................................................................................................
Exchange of Preferred
Stock for Common Stock (28,571) (28,571,000) 11,876,000 119,000 28,452,000 -- -- --
..................................................................................................................................
Redemption of Series D
Preferred Stock (5,000) (5,000,000) -- -- -- -- -- --
..................................................................................................................................
Payment of accrued
dividends on Preferred
Stock -- -- -- -- -- (11,689,000) -- --
..................................................................................................................................
Exercise of stock options -- -- 1,674,000 17,000 1,965,000 -- -- --
..................................................................................................................................
Income tax benefit from
stock option exercises -- -- -- -- 977,000 -- -- --
..................................................................................................................................
Issuance of Common Stock
related to IPO -- -- 3,793,000 38,000 72,038,000 -- -- --
..................................................................................................................................
IPO expenses -- -- -- -- (6,748,000) -- -- --
..................................................................................................................................
Net Income -- -- -- -- -- 7,267,000 -- --
----------------------------------------------------------------------------------------------------------------------------------
BALANCE at December 31,
1996 -- $ -- 28,721,000 $288,000 $99,299,000 $ (14,705,000) $ -- $ --
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
[25]
<PAGE>
NOVA CORPORATION
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended 10 months period ended Year ended
December 31, December 31, February 28,
----------------------------------------------------------------------------------------------------------------
1996 1995 1995
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 7,267,000 $ 4,887,000 $ (1,213,000)
................................................................................................................
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 6,982,000 4,635,000 3,887,000
................................................................................................................
Deferred income taxes 3,045,000 (4,057,000) --
................................................................................................................
Interest paid with in-kind debentures -- -- 38,000
................................................................................................................
Gain on disposition of non-compete agreement (150,000) -- --
................................................................................................................
Changes in assets and liabilities, net of the
effects of business acquisitions:
Trade receivables (6,079,000) (4,606,000) (1,972,000)
................................................................................................................
Inventory 223,000 (303,000) 813,000
................................................................................................................
Other assets (84,000) (348,000) (729,000)
................................................................................................................
Accounts payable (719,000) 3,451,000 1,851,000
................................................................................................................
Accrued liabilities 10,242,000 1,260,000 (147,000)
----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 20,727,000 4,919,000 2,528,000
................................................................................................................
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of businesses (3,967,000) (3,302,000) (16,631,000)
................................................................................................................
Additions to property and equipment (6,065,000) (1,624,000) (828,000)
................................................................................................................
Other 64,000 (130,000) (92,000)
----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (9,968,000) (5,056,000) (17,551,000)
................................................................................................................
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit and notes payable 4,008,000 4,900,000 16,150,000
................................................................................................................
Payment of long-term debt and capital leases (25,692,000) (5,129,000) (1,650,000)
................................................................................................................
Payment of Preferred Stock dividends (11,689,000) -- --
................................................................................................................
Proceeds from stock options exercised 1,982,000 -- --
................................................................................................................
Proceeds from IPO, net 65,328,000 -- --
................................................................................................................
Redemption of Preferred Stock (5,000,000) -- --
................................................................................................................
Purchase of treasury stock -- -- (33,000)
................................................................................................................
Proceeds from Common Stock subscriptions receivable -- -- 182,000
................................................................................................................
Proceeds from sale of Preferred Stock -- -- 1,000,000
----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 28,937,000 (229,000) 15,649,000
----------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 39,696,000 (366,000) 626,000
................................................................................................................
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 630,000 996,000 370,000
----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 40,326,000 $ 630,000 $ 996,000
----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
[26]
<PAGE>
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
Note 1
____
Summary of Significant Accounting Policies
DESCRIPTION OF BUSINESS AND ORGANIZATION NOVA Corporation (the "Company"
or "NOVA") is an integrated provider of transaction processing services,
related software application products and value-added services primarily to
small- to medium-sized merchants. The Company provides transaction
processing support for all major credit and charge cards, including VISA,
MasterCard, American Express, Discover, Diners Club and JCB, and also
provides access to debit card processing and check verification services.
The Company provides merchants with a broad range of transaction processing
services, including authorizing card transactions at the point of sale,
capturing and transmitting transaction data, effecting the settlement of
payments and assisting merchants in resolving billing disputes with their
customers.
NOVA Corporation was incorporated in December 1995. NOVA Information
Systems, Inc., a wholly owned subsidiary and predecessor to the Company
("NOVA Information Systems"), was incorporated in Georgia in February 1991.
Effective December 1, 1995, the then current shareholders of NOVA
Information Systems contributed to NOVA Corporation all of the shares of
capital stock of NOVA Information Systems owned by them, thereby causing
NOVA Information Systems to become a wholly owned subsidiary of NOVA
Corporation.
On October 30, 1995, NOVA entered into an agreement with First Union
Corporation ("First Union") whereby First Union agreed to contribute its
transaction processing assets, including those acquired by First Union
through its acquisition of First Fidelity Bancorporation, to NOVA in
exchange for 9,149,209 shares of NOVA's Common Stock. The transaction,
which was consummated on January 31, 1996, is reflected in the accompanying
financial statements since December 1, 1995, because, pursuant to the terms
of the agreement, revenues since December 1, 1995, derived from the First
Union assets have irrevocably accrued to the benefit of NOVA. The transfer
of these nonmonetary assets, primarily terminals at merchant locations, by
First Union has been accounted for at their historical cost of $2,411,000,
because First Union is deemed under the rules and regulations of the
Securities and Exchange Commission to be a promoter of NOVA.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include
the accounts of NOVA Corporation and its wholly owned subsidiaries as if
NOVA Corporation existed for all periods presented. All significant
intercompany accounts and transactions have been eliminated in
consolidation. The Company has made business and customer base acquisitions
and has accounted for them as purchase transactions, and, accordingly, the
results of the acquired businesses or customer bases are included since the
dates of acquisition.
RECLASSIFICATIONS Certain prior year items have been reclassified to
conform to current year presentation.
- --------------------------------------------------------------------------------
[27]
<PAGE>
NOVA CORPORATION
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
FISCAL YEAR The Company changed its fiscal year end from the last day of
February to December 31, effective December 31, 1995.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS In preparing
financial statements in conformity with generally accepted accounting
principles, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements
and revenues and expenses during the reporting period. Actual results could
differ from those estimates.
REVENUE AND COST RECOGNITION Revenues derived from the electronic
processing of transactions (principally merchant discount) are recognized
at the time the merchants' transactions are processed. Related commissions
and processing charges are also recognized at that time.
When the Company purchases merchant portfolios, it generally enters
into revenue sharing agreements with sellers. The revenue sharing amounts
are determined primarily based on sales volume processed for a particular
group of merchants. The revenue sharing agreements generally have an
initial term of at least three years with renewal provisions. Revenue is
shown in the accompanying statements of operations net of revenue sharing
amounts of $6,455,000, $5,446,000 and $3,547,000 for the year ended
December 31, 1996, ten months ended December 31, 1995, and year ended
February 28, 1995, respectively.
Cost of service includes interchange fees paid to the credit card
issuing-bank, communications costs, VISA and MasterCard assessments, and
merchant accounting processing fees. These costs are recognized at the time
the merchants' transactions are processed and the related revenue is
recorded.
RENTAL EQUIPMENT The Company rents POS equipment to merchants under month-
to-month agreements. The rented equipment is capitalized and depreciated
over three years. The cost of such equipment and accumulated depreciation
at December 31, 1996, and December 31, 1995, included in property and
equipment was as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------
1996 1995
---------------------------------------------------------------------------
<S> <C> <C>
Cost of equipment $5,796,000 $4,357,000
...........................................................................
Less accumulated depreciation 2,939,000 1,626,000
---------------------------------------------------------------------------
$2,857,000 $2,731,000
---------------------------------------------------------------------------
</TABLE>
ACCOUNTS RECEIVABLE Accounts receivable are primarily comprised of amounts
due from the Company's clearing and settlement banks and represent the
discount earned, after related interchange fees on transactions processed
during the month ending on the balance sheet date. Such balances are
received from the Company's clearing and settlement banks approximately 15
days following the end of each month.
- --------------------------------------------------------------------------------
[28]
<PAGE>
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
The Company's merchant customers have liability for charges disputed
by cardholders. However, in the case of merchant insolvency, bankruptcy or
other nonpayment, the Company may be liable for any of such charges
disputed by cardholders. The Company believes that the diversification of
its merchant portfolio among industries and geographic regions minimizes
its risk of loss. Based on its historical loss experience, the Company has
established reserves for estimated credit losses on transactions processed.
STOCK COMPENSATION The Company accounts for its stock option plans in
accordance with Accounting Principles Board Opinion Number 25, "Accounting
for Stock Issued to Employees" ("APB 25"). In accordance with APB 25, no
compensation expense has been recognized, because the options had an
exercise price equal to the market value of Common Stock on the day of
grant. Refer to Note 10 regarding pro forma information provided pursuant
to Financial Accounting Standard Board (FASB) Statement No. 123,
"Accounting for Stock-Based Compensation."
INVENTORY Inventory, which consists of electronic point-of-sale equipment,
held for sale or rental to merchants, is stated at the lower of cost or
market. Cost is determined using the first-in, first-out method.
CONVERSION COSTS The cost of converting acquired merchant portfolios from
the seller's processing platform and telecommunications network to the
Company's network is expensed as incurred.
PROPERTY AND EQUIPMENT Property and equipment is stated at cost less
accumulated depreciation. Depreciation is calculated using the straight-
line method for financial reporting purposes and primarily accelerated
methods for tax purposes. For financial reporting purposes, equipment is
depreciated over three to seven years and buildings are depreciated over 30
years. Leasehold improvements and property acquired under capital leases
are amortized over the useful life of the asset or the lease term,
whichever is shorter.
INTANGIBLES The excess cost of businesses acquired is amortized on the
straight-line basis over 30 years. Accumulated amortization at December 31,
1996, and December 31, 1995, was $1,552,000 and $1,058,000, respectively.
Amortization of merchant and customer contracts (portfolios) is
provided on a straight-line basis over a 10-year life, based on the
Company's estimates of future merchant sales volumes. Accumulated
amortization of portfolios was $8,174,000 and $5,451,000 at December 31,
1996, and December 31, 1995, respectively. The Company evaluates the
reasonableness of the amortization period for its portfolios by monitoring
the merchant sales volume processed for those merchants included in the
portfolio at the acquisition date. The Company will adjust the amortization
period of the portfolios if actual merchant sales volumes indicate a
different amortization period is more appropriate.
Management periodically evaluates intangibles for indications of
impairment based on the operating results of the related business or
merchant portfolio acquired. If this evaluation indicates that
- --------------------------------------------------------------------------------
[29]
<PAGE>
NOVA CORPORATION
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
the intangible asset will not be recoverable, as determined based on the
undiscounted cash flows related to the intangible asset over the remaining
life of the asset, the carrying value of the related intangible asset will
be reduced to fair value.
The Company adopted Financial Accounting Standards Board Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("SFAS 121") on January 1, 1996. The adoption of
SFAS 121 did not have any effect on the financial statements.
SETTLEMENT OBLIGATIONS Settlement obligations result from timing
differences in the Company's settlement processes with merchants.
CASH AND CASH EQUIVALENTS For purposes of the consolidated statements of
cash flows, the Company considers all highly liquid debt instruments with
original maturities of three months or less to be cash equivalents.
NOTE 2
____
Business Acquisitions
During the year ended December 31, 1996, and the 10 month period ending
December 31, 1995, the Company made similar purchases from various banks
and third parties for an aggregate purchase price of $4,095,000 and
$3,476,000, respectively.
During the fiscal year ended February 28, 1995, the Company purchased
the rights and interests under certain merchant credit card processing
agreements and the related assets and liabilities, primarily from the Bank
of Boulder ("Boulder") for a purchase price which aggregated approximately
$20,066,000.
The following summarizes the allocation of the purchase price to the
major categories of assets acquired and liabilities assumed resulting from
the acquisitions:
<TABLE>
<CAPTION>
December 31, December 31, February 28,
----------------------------------------------------------------------------------
1996 1995 1995
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets $ -- $ 157,000 $ 285,000
..................................................................................
Property and equipment -- 15,000 739,000
..................................................................................
Non-compete agreement 128,000 330,000 693,000
..................................................................................
Excess cost of businesses acquired -- 354,000 9,623,000
..................................................................................
Merchant and customer contracts 3,967,000 2,620,000 8,726,000
----------------------------------------------------------------------------------
4,095,000 3,476,000 20,066,000
..................................................................................
Liabilities assumed -- -- 459,000
..................................................................................
Notes payable to seller 128,000 174,000 2,976,000
----------------------------------------------------------------------------------
Net cash paid $ 3,967,000 $3,302,000 $16,631,000
----------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
[30]
<PAGE>
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
The merchant business of Boulder is included in the accompanying
consolidated financial statements beginning November 1, 1994. The following
unaudited pro forma summary presents the Company's results of operations as
if the acquisition had occurred at the beginning of fiscal 1995. These pro
forma results have been prepared for comparative purposes and do not
purport to be indicative of what would have occurred had the acquisition
been made at the beginning of fiscal 1995, or of the results which may
occur in the future.
<TABLE>
<CAPTION>
Year ended
February 28,
---------------------------------------------------------------------------
1995
---------------------------------------------------------------------------
<S> <C>
Revenues $128,157
...........................................................................
Net loss (908)
...........................................................................
Pro forma net loss per common share, assuming
conversion of Preferred Stock as described in Note 12 (0.11)
...........................................................................
</TABLE>
The pro forma net income per common share results do not include
adjustments for the expected reductions from certain third-party processing
costs which will be realized as the portfolios are converted to the NOVA
Network.
NOTE 3
_____
Property and Equipment
Property and equipment at December 31, 1996, and 1995, consist of:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------
1996 1995
---------------------------------------------------------------------------
<S> <C> <C>
Land and building $ 614,000 $ 343,000
...........................................................................
Equipment 13,247,000 10,293,000
...........................................................................
Furniture and fixtures 1,394,000 1,190,000
...........................................................................
Leasehold improvements 1,129,000 611,000
---------------------------------------------------------------------------
16,384,000 12,437,000
...........................................................................
Less accumulated depreciation and amortization (6,172,000) (5,034,000)
---------------------------------------------------------------------------
$10,212,000 $ 7,403,000
---------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
[31]
<PAGE>
NOVA CORPORATION
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
Note 4
____
Income Taxes
At December 31, 1996, the Company had available net operating loss
carryforwards of approximately $2,174,000 for income tax purposes that will
expire in years 2010 through 2012. In the 10 month period ended December
31, 1995, there was a $5,206,000 change in the valuation allowance which
resulted in a reduction of the excess cost of business acquired of $228,000
as a result of deductible temporary differences acquired in businesses
combinations. The remainder of $4,978,000 was included in the provision for
income taxes. In assessing the likelihood of utilization of existing net
deferred tax assets, management considered (a) its current operating
environment, (b) results of future operations to generate sufficient
taxable income and (c) the excess of its appreciated asset values over the
related tax basis and, accordingly, has determined that it is more likely
than not that the deferred tax assets at December 31, 1996, will be
realized.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amount used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------
1996 1995
-------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
.............................................................
Property and equipment $ 426,000 $ 129,000
.............................................................
Tax over book amortization 22,000 79,000
.............................................................
Other 411,000 305,000
-------------------------------------------------------------
Total deferred tax liabilities 859,000 513,000
.............................................................
DEFERRED TAX ASSETS:
Start-up expenses 10,000 74,000
.............................................................
Allowance for doubtful accounts 1,348,000 424,000
.............................................................
Accrued liabilities 305,000 130,000
.............................................................
Credit carryforwards 39,000 --
.............................................................
Net operating loss carryforwards 848,000 4,621,000
.............................................................
Total deferred tax assets 2,550,000 5,249,000
-------------------------------------------------------------
Net deferred taxes $1,691,000 $4,736,000
-------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
[32]
<PAGE>
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
Year ended 10 month period ended Year ended
December 31, December 31, February 28,
--------------------------------------------------------------------------------------------------
1996 1995 1995
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
..................................................................................................
Federal $ 1,541,000 -- --
..................................................................................................
State 178,000 -- --
..................................................................................................
Deferred:
..................................................................................................
Federal 2,638,000 871,000 (262,000)
..................................................................................................
State 407,000 50,000 (21,000)
..................................................................................................
Change in valuation allowance -- (4,978,000) 283,000
--------------------------------------------------------------------------------------------------
$ 4,764,000 $ (4,057,000) $ --
--------------------------------------------------------------------------------------------------
</TABLE>
The provision (benefit) for income taxes differs from the amount computed
by applying the federal statutory rate to income before provision for income
taxes for the following reasons:
<TABLE>
<CAPTION>
Year ended 10 month period ended Year ended
December 31, December 31, February 28,
--------------------------------------------------------------------------------------------------------------------------
1996 1995 1995
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision (benefit) for income taxes at statutory rate $ 4,211,000 $ 282,000 $(412,000)
..........................................................................................................................
Amortization of excess cost of businesses acquired 57,000 48,000 57,000
..........................................................................................................................
Change in valuation allowance -- (4,978,000) --
..........................................................................................................................
State income taxes, net of federal tax benefit 381,000 33,000 (14,000)
..........................................................................................................................
Other 115,000 558,000 369,000
--------------------------------------------------------------------------------------------------------------------------
$4,764,000 $(4,057,000) $ --
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 5
_____
Capitalization
PREFERRED STOCK The Company is authorized to issue 5,000,000 shares of
Preferred Stock in one or more series with such designations, powers,
preferences, rights, qualifications, limitations and restrictions as may be
fixed by the Board of Directors.
On May 8, 1996, upon consummation of the Company's initial public
offering, the Series A, B and C Preferred Stock totaling 28,571 shares were
converted into 11,876,218 shares of Common Stock. In addition, the Company
redeemed the 5,000 shares of Series D Preferred Stock for $5,000,000 on May
8, 1996.
- --------------------------------------------------------------------------------
[33]
<PAGE>
NOVA CORPORATION
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
Cumulative dividends of $11,689,000 were paid to holders of Preferred
Stock concurrent upon the liquidation of all series of Preferred Stock.
Effective December 1, 1995, all outstanding warrants held by two
principal investors to purchase 1,177,600 shares of Common Stock at prices
from $2.34 -$8.20 per share were exchanged for 557,616 shares of the
Company's Common Stock. The fair value of the shares issued in exchange for
the warrants was based upon the value of the shares inherent in the First
Union transaction, which approximated market value. No compensation or
distributions were recorded with respect to the exchange.
NOTE 6
____
Long-Term Debt Obligations
Long-term debt obligations at December 31, 1996 and 1995, consist of:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------------------------------------------
1996 1995
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Term loan payable to bank, due in quarterly principal installments of
$792,000. Interest is payable quarterly at rates based on Eurodollars $ -- $ 11,083,000
............................................................................................................
Acquisition loan payable to bank, due in equal quarterly installments
of $760,000, beginning March 1997. Interest is payable quarterly
at rates based on Eurodollars -- 7,600,000
............................................................................................................
Line of credit, due in equal quarterly installments of $95,000,
beginning March 1997. Interest is payable quarterly at rates
based on Eurodollars -- 950,000
............................................................................................................
Non-compete payable to The Bank of Boulder, discounted at an
effective rate of 9% and due in equal annual installments
of $180,000 through 1999 459,000 587,000
............................................................................................................
Note payable to former owner of a business acquired,
discounted at an effective rate of 9% and due in varying
payments through 1996 -- 574,000
............................................................................................................
Other 182,000 320,000
............................................................................................................
Capital lease obligations (Note 7) 725,000 1,808,000
------------------------------------------------------------------------------------------------------------
Total long-term debt obligations 1,366,000 22,922,000
------------------------------------------------------------------------------------------------------------
Less amounts due within one year 507,000 5,184,000
------------------------------------------------------------------------------------------------------------
Long-term debt obligations $ 859,000 $ 17,738,000
------------------------------------------------------------------------------------------------------------
</TABLE>
The annual aggregate maturities of long-term obligations, excluding
capital lease obligations, at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 227,000
............................................................................................................
1998 247,000
............................................................................................................
1999 167,000
------------------------------------------------------------------------------------------------------------
$ 641,000
------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
[34]
<PAGE>
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
The Company entered into an agreement in 1994, which was amended on January
31, 1996, and May 1, 1996, for aggregate loans of up to $36,083,000. Term loans
of $11,083,000 and a combination of revolving loans, letters of credit and
acquisition loans aggregating $25,000,000 ($10,000,000 on June 30, 1997) are
available under the agreement. Amounts drawn under the revolving loans and
letters of credit are not to exceed $20,000,000 and $5,000,000, respectively.
Funds may be drawn until June 30, 1999, or until the aggregate borrowing limit
has been reached. The Company pays a quarterly commitment fee in arrears at .25%
per annum on the average daily unused portion of the funds available for
revolving loans, letters of credit and acquisition loans, and .75% per annum on
the outstanding letter of credit balance. As of December 31, 1996, no borrowings
exist under this agreement.
Borrowings under the loan agreement are collateralized by substantially all
the assets of the Company. The loan agreement contains restrictive covenants
which include, among other items, maintenance of specified ratios of EBITDA
(earnings before interest, taxes, depreciation and amortization) to fixed
charges and funded debt, minimum tangible net worth requirements and
restrictions on the payment of dividends and capital expenditures.
Note 7
____
Lease Obligations
The Company leases office facilities and equipment under non-cancelable capital
lease agreements. The Company also has entered into non-cancelable operating
leases covering certain other equipment and office facilities. Rental expense
for the year ended December 31, 1996, the 10 month period ended December 31,
1995, and year ended February 28, 1995, was approximately $912,000, $509,000 and
$363,000, respectively.
Asset balances for property acquired under capital leases included in
property and equipment consist of:
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------
1996 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Building $ 273,000 $ 273,000
................................................................................
Equipment 1,658,000 2,573,000
................................................................................
1,931,000 2,846,000
................................................................................
Less accumulated depreciation 1,409,000 1,130,000
................................................................................
$ 522,000 $1,716,000
................................................................................
</TABLE>
- --------------------------------------------------------------------------------
[35]
<PAGE>
NOVA CORPORATION
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
Future minimum lease payments for all non-cancelable leases at December 31,
1996, are summarized below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Operating Leases Capital Leases
- --------------------------------------------------------------------------------
<S> <C> <C>
Year ending December 31,
1997 $1,234,000 $347,000
................................................................................
1998 1,275,000 160,000
................................................................................
1999 1,084,000 151,000
................................................................................
2000 1,081,000 95,000
................................................................................
2001 926,000 70,000
................................................................................
Thereafter 157,000 116,000
................................................................................
Total future minimum lease payments $5,757,000 $939,000
................................................................................
Less amount representing interest 214,000
................................................................................
Present value of minimum lease payments 725,000
................................................................................
Less amounts due within one year 280,000
................................................................................
Long-term obligations under capital leases $445,000
................................................................................
</TABLE>
Note 8
____
Contingencies
The Company is, from time to time, subject to claims and suits arising in the
ordinary course of its business. In the opinion of management, the ultimate
resolution of any such pending matters will not have a material effect on the
Company's financial position and results of operations.
- --------------------------------------------------------------------------------
[36]
<PAGE>
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
Note 9
____
Supplemental Cash Flow Information
Supplemental cash flow disclosures, including non-cash investing and financing
activities, are:
<TABLE>
<CAPTION>
Year ended 10 month period ended Year ended
December 31, December 31, February 28,
- ------------------------------------------------------------------------------------------------------
1996 1995 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest paid $1,178,000 $2,251,000 $ 971,000
......................................................................................................
Income taxes paid 230,000 -- --
......................................................................................................
Acquisition of equipment in exchange for
debt or capital leases -- 383,000 1,773,000
......................................................................................................
Note payable issued in conjunction with
business acquisition 128,000 174,000 2,976,000
......................................................................................................
Transfer of transaction processing assets,
primarily terminals at merchant locations,
in exchange for Common Stock -- 2,411,000 --
......................................................................................................
</TABLE>
Note 10
____
Stock Option Plans
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994, under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model, with the following weighted-average
assumptions for 1996: risk-free interest rate of 6.08%; a dividend yield of 0%;
volatility factors of the expected market price of the Company's Common Stock of
0.692 and a weighted-average expected life of the option of seven years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
- --------------------------------------------------------------------------------
[37]
<PAGE>
NOVA CORPORATION
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996
- --------------------------------------------------------------------------------
<S> <C>
Pro forma net income $6,824,000
................................................................................
Pro forma earnings per share:
Primary and fully diluted .23
................................................................................
</TABLE>
The effect of applying Statement 123's fair-value method to the Company's
stock-based awards granted in 1995 results in net income and earnings per share
that are not materially different from amounts reported, because the Company
elected to use the minimum value method allowed under Statement 123 for
non-public companies. Statement 123 is applicable only to options granted
subsequent to December 31, 1994, its pro forma effect will not be fully
reflected until 1999.
A description and summary of the Company's stock option plans and activity
follows:
The Company has reserved 3,100,000 common shares related to options and
550,000 shares related to stock appreciation rights, pursuant to its 1991 stock
option and stock appreciation rights plan. The plan is administered by a
committee of the Board of Directors, which determines the number of shares to be
granted and the option price per share. Each option expires 10 years from the
grant date. The options may be exercised in 20% increments annually, beginning
on March 1 following the date of grant. No options or rights shall be granted
under the Plan after November 2, 2001. No appreciation rights have been granted.
A summary of the Company's stock option activity, and related information,
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Weighted-Average
Number of Options Exercise Price
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance at March 1, 1994 1,927,808 $ 1.18
................................................................................
Granted 1,087,357 1.18
................................................................................
Terminated (142,976) 1.18
................................................................................
Balance at February 28, 1995 2,872,189 1.18
................................................................................
Granted 64,000 2.34
................................................................................
Terminated (24,320) 1.18
................................................................................
Balance at December 31, 1995 2,911,869 1.21
................................................................................
Terminated (31,029) 1.18
................................................................................
Exercised (1,673,432) 1.18
................................................................................
Balance at December 31, 1996 1,207,408 1.24
................................................................................
Exercisable at December 31, 1996 26,979 1.18
................................................................................
</TABLE>
- --------------------------------------------------------------------------------
[38]
<PAGE>
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
Exercise prices for options outstanding as of December 31, 1996, ranged
from $1.18 to $2.34. The weighted-average remaining contractual life of those
options is 7.5 years.
The Company has reserved 2,000,000 shares of Common Stock for issuance
under the 1996 Employees Stock Incentive Plan related to Incentive Stock
Options, Non-qualified Stock Options, stock appreciation rights and restricted
stock awards. The shares subject to options can be purchased, and rights
exercised, in 25% increments at the end of each of the four years subsequent to
the date of grant. The option price per share for Incentive Stock Options cannot
be less than the fair market value of the Common Stock on the date the option is
granted. Each option expires 10 years after the date of grant.
A summary of the Company's stock option activity, and related information,
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Weighted-Average
Number of Options Exercise Price
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1995 --
................................................................................
Granted 666,890 $ 19.51
................................................................................
Terminated (57,420) 25.57
................................................................................
Balance at December 31, 1996 609,470 18.94
................................................................................
Exercisable at December 31, 1996 --
................................................................................
Weighted-average fair value of options
granted during the year 13.46
................................................................................
</TABLE>
Exercise prices for options outstanding as of December 31, 1996, ranged
from $18.75 to $19.00. The weighted-average remaining contractual life of those
options is ten years.
On October 17, 1996, the Company adopted the NOVA Corporation 1996
Directors Stock Option Plan, and reserved 150,000 shares of Common Stock for
issuance pursuant to this plan. Stock options granted under this plan are
exercisable in 25% increments at the end of each of the four years subsequent to
the date of grant. Options are granted at a purchase price per share no less
than the market value per share on the grant date. Options totaling 3,000 were
granted in 1996 at an option price of $30.50. The weighted-average fair value of
the options granted was $12.20. As of December 31, 1996, no options had been
exercised.
Note 11
____
Stock Subscriptions
Stock subscriptions for 768,000 shares of Common Stock were issued in 1992. The
Company canceled subscriptions for 384,000 during 1993, and the remainder during
1994, and refunded all amounts previously paid toward the subscriptions,
including interest, at the time of cancellation. Concurrently, the shares
previously under subscription were granted to the former subscribers as
compensation. Compensation expense of $146,000 was recognized in 1994, related
to these transactions.
Stock subscriptions for 153,600 shares were issued during 1994, and paid
during 1995.
- --------------------------------------------------------------------------------
[39]
<PAGE>
NOVA CORPORATION
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
Note 12
____
Pro Forma Information
Pro forma net income (loss) per common share is based on net income attributable
to holders of the Company's Common Stock (net income less dividends on Series D
Preferred Stock of $230,000 and $489,000 and 535,000 for the year ended December
31, 1996, and the 10 month period ended December 31, 1995, and the year ended
February 28, 1995, respectively) and the weighted-average number of common and
common equivalent shares outstanding during the respective periods, assuming the
conversion of Series A, B and C Convertible Preferred Stock into Common Stock.
Dilutive common equivalents consist of stock options (calculated using the
treasury-stock method). Pursuant to the requirements of the Securities and
Exchange Commission, common shares and common equivalent shares issued at prices
below the public offering price of $19.00 per share during the 10 months
immediately preceding the date of the initial filing of the Registration
Statement have been included in the calculation of common shares and common
shares equivalents, using the treasury-stock method, as if they were outstanding
for all periods presented. Weighted-average shares outstanding do not include
Common Stock equivalents which are anti-dilutive. All common share and per share
data, except par value per share, have been retroactively adjusted to reflect
the 2.56-for-one stock split effected in the form of a stock dividend of the
Company's Common Stock, effective February 1996.
Note 13
____
Net Income (Loss) Per Share
The historical net income (loss) per common share amounts, as required by
generally accepted accounting principles, which do not give effect to the pro
forma amounts described in Note 12, are as follows:
<TABLE>
<CAPTION>
Year ended 10 month period ended Year ended
(In thousands, except per share data) December 31, December 31, February 28,
- ------------------------------------------------------------------------------------------------------------
1996 1995 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) $ 7,267 $ 4,887 $(1,213)
............................................................................................................
Less undeclared Preferred Stock dividends (1,486) (3,178) (3,507)
............................................................................................................
Net income (loss) applicable to common shares $ 5,781 $ 1,709 $(4,720)
............................................................................................................
Net income (loss) per common share - primary $ 0.24 $ 0.38 $ (2.73)
............................................................................................................
Weighted average common and common equivalent
shares outstanding - primary 24,483 4,454 1,727
............................................................................................................
Net income (loss) per common share - fully diluted $ 0.25 $ 0.27 $ (2.73)
............................................................................................................
Weighted average common and common equivalent
shares outstanding - fully diluted 28,604 16,330 1,727
............................................................................................................
</TABLE>
- --------------------------------------------------------------------------------
[40]
<PAGE>
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
The effect of the Preferred Stock conversion in the calculation of the 1996
fully diluted income per common share is anti-dilutive. Accordingly, primary and
fully diluted income per common share for 1996 are the same.
Of the net proceeds from the sale of shares of Common Stock offered by the
Company in the Initial Public Offering ("IPO"), approximately $15.7 million were
used to repay aggregate bank borrowings, including accrued interest, $700,000 to
pay accrued Preferred Stock dividends on the Series D Preferred Stock earned
through March 1, 1995, and $5.0 million to redeem the Series D Preferred Stock.
In addition, upon consummation of the IPO, the Series A, B and C Preferred Stock
were converted into 11,876,218 shares of Common Stock. Assuming the conversion
of the Series A, B and C Preferred Stock and the issuance and sale of only that
number of shares of Common Stock which would generate net proceeds sufficient to
repay the above indebtedness and assuming that such indebtedness had been repaid
as of March 1, 1995, supplementary pro forma net income per common share for
1996 and 1995 would have been $0.26 and $0.36, respectively. For purposes of
this computation, the weighted-average number of shares of Common Stock
outstanding during the periods ended December 31, 1996, and 1995 is 28,994,500
and 17,455,859, respectively.
Note 14
____
Related Party Transactions
The Company paid one of its shareholders $1,817,000, $1,220,000 and $901,000 in
the year ended December 31, 1996, the 10 months ended December 31, 1995, and the
year ended February 28, 1995, respectively, relating to the Company's
utilization of a shareholder's telecommunications network.
The Company paid another of its shareholders $9,532,000 and $943,000 in the
year ended December 31, 1996, and the 10-month period ended December 31, 1995,
respectively, relating to the Company's utilization of the shareholder's labor
force during conversion, as well as fees paid for certain transaction processing
expenses.
The Company received $1,154,000 of interest income from one of its
shareholders in the year ended December 31, 1996.
Note 15
____
Retirement Plan
The Company maintains the NOVA Information Systems, Inc. 401(k) and Profit
Sharing Plan (the "Plan"), which covers substantially all eligible employees of
the Company. Under the Plan, the Company may match a percentage of employee
contributions. The Company may also make a profit sharing contribution to the
Plan on behalf of eligible employees. During the year ended December 31, 1996,
and the 10 months ended December 31, 1995, contribution expenses related to the
Plan were not significant.
- --------------------------------------------------------------------------------
[41]
<PAGE>
NOVA CORPORATION
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
Note 16
____
Financial Instruments
The Company's financial instruments at December 31, 1996 and 1995, consist
primarily of cash and cash equivalents, loans payable to a bank and a short-term
note payable. Due to the short maturities of the cash, cash equivalents and note
payable, carrying amounts approximate the respective fair values. The loans
payable are variable rate instruments at terms the Company believes would be
available if similar financing were obtained from another third party. As such,
their carrying amounts also approximate their fair value.
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts receivable
and cash investments. Concentrations of credit risk with respect to trade
accounts receivable are limited, due to the large number of entities comprising
the Company's customer base. The Company performs ongoing credit evaluations of
their customers' financial condition. The Company's cash and cash equivalents at
December 31, 1996, are primarily held at one financial institution. However, the
Company believes the credit risk is limited, due to the credit standing of the
financial institution. In addition, since the amounts are invested in cash
equivalents, there is limited market risk (such as a reduction in the fair value
of investment securities due to rising interest rates).
Note 17
____
Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
1996 calendar quarter ended 1995 calendar quarter ended
----------------------------------- ------------------------------------------
(in thousands) Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31/(1)/
----------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $60,199 $67,568 $70,459 $67,603 $29,841 $34,170 $37,554 $46,259
.......................................................................................................
Cost of service 46,634 52,624 55,223 53,114 23,754 26,724 29,162 35,660
.......................................................................................................
Net income (loss) 1,115 1,439 2,344 2,264 (1,599) (440) 400 5,221/(2)/
.......................................................................................................
Pro forma net income
(loss) per share 0.04 0.05 0.08 0.08 (0.13) (0.04) 0.02 0.26/(2)/
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes revenues related to the December 1995 processing of the First
Union Alliance merchant portfolios aggregating approximately $9.5 million,
together with related First Union costs reimbursed by the Company derived
from the transaction processing assets transferred to the Company.
(2) Includes a one-time tax benefit of $5.0 million or $0.24.
The Company has experienced, and expects to continue to experience,
significant seasonality in its business. The Company typically realizes higher
revenues in the third calendar quarter and lower revenues in the first calendar
quarter, reflecting increased transaction volumes during the Summer months and a
significant decrease in transaction volume during the period immediately
following the holiday season. Quarterly results are also affected by the timing
of acquisitions and the timing and magnitude of expenses for merchant portfolio
conversions. Therefore, the results reported in the table above do not
necessarily indicate the Company's normal seasonal trends.
- --------------------------------------------------------------------------------
[42]
<PAGE>
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
Report of Independent Auditors
To the Board of Directors and Shareholders of NOVA Corporation:
We have audited the accompanying consolidated balance sheets of NOVA
Corporation as of December 31, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity and cash flows for the year ended
December 31, 1996, the 10-month period ended December 31, 1995, and for the year
ended February 28, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of NOVA
Corporation at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for the year ended December 31, 1996, the 10-month
period ended December 31, 1995, and for the year ended February 28, 1995, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Atlanta, Georgia
February 18, 1997
- --------------------------------------------------------------------------------
[43]
<PAGE>
NOVA CORPORATION
- --------------------------------------------------------------------------------
Selected Consolidated Financial Data
The following table sets forth selected consolidated financial data for the
Company as of, and for the two years ended December 31, 1996 and the three years
ended February 28 or 29, 1995. Such selected consolidated financial data have
been derived from the Company's Consolidated Financial Statements and notes
thereto, which have been audited by Ernst & Young LLP, independent auditors. The
following data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and notes thereto, appearing elsewhere in this Annual
Report. The Company changed its fiscal year end from the last day of February to
December 31, effective December 31, 1995. For financial reporting purposes, the
10-month period ended December 31, 1995, is considered an annual period.
<TABLE>
<CAPTION>
10 month period
Year ended ended Year ended
December 31, December 31, February 28 or 29,
------------ ------------ ------------------------------------
(in thousands, except per share and merchant data) 1996 1995/(1)/ 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $ 265,829 $ 129,035 $ 93,592 $ 68,213 $ 37,230
....................................................................................................................................
Cost of service 207,595 100,375 74,032 54,984 30,206
....................................................................................................................................
Conversion costs 6,395 3,441 1,827 2,080 1,472
....................................................................................................................................
Selling, general and administrative 32,952 17,795 14,091 12,419 9,327
....................................................................................................................................
Depreciation and amortization 6,982 4,635 3,887 2,661 1,646
....................................................................................................................................
Operating income (loss) 11,905 2,789 (245) (3,931) (5,421)
....................................................................................................................................
Interest expense, (income), net (126) 1,959 968 211 996
....................................................................................................................................
Income (loss) before provision for
income taxes 12,031 830 (1,213) (4,142) (6,417)
....................................................................................................................................
Provision (benefit) for income taxes 4,764 (4,057) -- -- --
....................................................................................................................................
Net income (loss)/(2)/ $ 7,267 $ 4,887 $ (1,213) $ (4,142) $ (6,417)
....................................................................................................................................
Pro forma net income (loss) per common
and common equivalent share/(3)/ $0.25 $0.24 $(0.13) -- --
....................................................................................................................................
Pro forma weighted average
common and common equivalent
shares outstanding/(4)/ 28,604 18,024 13,603 -- --
....................................................................................................................................
Other Data:
Merchant sales volume processed $11,925,126 $5,975,013 $4,131,071 $2,871,793 $1,409,861
....................................................................................................................................
Merchant locations at period end 82,906 77,884 43,980 24,838 19,179
....................................................................................................................................
Balance Sheet Data (at period end):
Total assets $ 107,705 $ 61,001 $ 47,823 $ 26,437 $ 27,879
....................................................................................................................................
Long-term debt and capital lease
obligations, less current portion 859 17,738 16,694 1,950 2,339
....................................................................................................................................
Total shareholders' equity 84,882 26,017 18,719 18,783 19,079
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Revenues and net income for the 12 months ended December 31, 1995, were
$147.8 million and $3.6 million, respectively.
(2) Net income for the 10-month year ended December 31, 1995, reflects the
reduction of valuation allowance against deferred taxes of $5.0 million,
the benefits of which have been recognized in the provision for income
taxes. See Note 4 to the Company's Consolidated Financial Statements.
(3) Pro forma net income per share gives effect to the Preferred Stock
Transaction as if it had occurred as of March 1, 1994. See Note 12 to
the Company's Consolidated Financial Statements.
(4) See Note 12 to the Company's Consolidated Financial Statements.
- --------------------------------------------------------------------------------
[44]
<PAGE>
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
Corporate Address and Phone
NOVA Corporation
One Concourse Parkway
Suite 300
Atlanta, Georgia 30328
(770) 396-1456
Website:www.novainfo.com
Independent Auditors
Ernst & Young LLP
600 Peachtree Street
Atlanta Georgia 30308
(404) 874-8300
Form 10-K and Investor Contact
A copy of NOVA's Annual Report on Form 10-K for 1996 (without exhibits) is
available from the Company at no charge. Requests for the Annual Report on
Form 10-K and other investor information should be addressed to
Susan Logan Howard
Manager, Shareholder Relations
NOVA Corporation
One Concourse Parkway
Suite 300
Atlanta, Georgia 30328
(770) 396-1456
Financial Inquires Contact
Financial analysts and professional investment managers are invited to
contact:
James M. Bahin,
Vice Chairman, Chief Financial Officer and Secretary
NOVA Corporation
One Concourse Parkway
Suite 300
Atlanta Georgia 50528
(770) 396-1456
Annual Shareholders Meeting
The 1997 Annual Meeting of Shareholders will be held on Monday May 14, 1997
at 10:00 a.m. at the offices of the Company. Proxies for the meeting of
Shareholders are being solicited by the Board of Directors. A formal notice
of the meeting, proxy statement and proxy card have been mailed with the
1996 Annual Report to Shareholders.
Common Stock Listing
The Common Stock of NOVA Corporation is traded on the New York Stock
Exchange under the ticker symbol "NIS". It appears in newspaper financial
listings as "NOVA Cpn."
Shareholders of Record and Shares Outstanding
As of March 14, 1997, there were approximately 55 shareholders of record
and 28,814,905 shares outstanding.
Transfer Agent and Registrar
First Union National Bank of North Carolina
230 South Tryon Street
CMC 11
Charlotte, North Carolina 28288
(704) 374-6718
Quarterly Stock Prices
The following table reflects the quarterly high and low closing sales
prices as reported in the listing of the NYSE composite transactions for
shares of the Company's Common Stock for fiscal 1996 beginning as of
May 8, 1996 (the first date of public trading on the New York Stock
Exchange).
The Company has never paid cash dividends on its Common Stock. The current
policy of the Company's Board of Directors is to retain any available earnings
for use in the operation and expansion of the Company's business. Therefore, no
payment of cash dividends on the Common Stock is likely in the foreseeable
future. The Company's loan agreement restricts the payment of dividends. See
Note 6 to the accompanying Consolidated Financial Statements of the Company.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Quarter ended HIGH LOW
- --------------------------------------------------------------------------------
<S> <C> <C>
June 30, 1996 $ 38.875 $ 26.250
September 30, 1996 $ 35.500 $ 28.250
December 31, 1996 $ 33.250 $ 18.250
</TABLE>
<PAGE>
EXHIBIT 21
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Name Under
Which Subsidiary
Subsidiary Jurisdicition of Incorporation Does Business
- ---------- ------------------------------ -------------
<S> <C> <C>
Nova Information Systems, Inc. Georgia Nova Information Systems, Inc.
Boulder Bankcard Processing, Inc. Colorado Boulder Bankcard Processing, Inc.
Linknet, Inc. (inactive) Georgia Linknet, Inc.
</TABLE>
27
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of NOVA Corporation of our report dated February 18, 1997, included in the 1996
Annual Report to Shareholders of NOVA Corporation.
Our audits also included the financial statement schedule of NOVA Corporation
listed in Item 14 (a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-04351) pertaining to the NOVA Corporation 1991 Employees'
Stock Option and Stock Appreciation Rights Plan and the NOVA Corporation 1996
Employees Stock Incentive Plan of our report dated February 18, 1997 with
respect to the consolidated financial statements incorporated by reference and
our report included in the preceding paragraph with respect to the financial
statement schedule included in this Annual Report on Form 10-K of NOVA
Corporation.
Ernst & Young LLP
Atlanta Georgia
March 27, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints James M. Bahin and Cathy A. Harper, and either of them, his true and
lawful attorney-in-fact and agent, with full power of substitution for him and
in his name, place and stead, in any and all capacities, (i) to sign the Annual
Report on Form 10-K under the provisions of the Securities Exchange Act of 1934,
as amended, for the year ended December 31, 1996 of NOVA Corporation (the
"Company"), (ii) to sign any and all amendments thereto, and (iii) to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said authority to do
and perform each and every act and thing requisite or necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, and either of
them, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof in connection with the matters set forth in items (i) through
(iii) above.
This 14th day of March, 1997.
/s/
---------------------------
Edward Grzedzinski
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints James M. Bahin and Cathy A. Harper, and either of them, his true and
lawful attorney-in-fact and agent, with full power of substitution for him and
in his name, place and stead, in any and all capacities, (i) to sign the Annual
Report on Form 10-K under the provisions of the Securities Exchange Act of 1934,
as amended, for the year ended December 31, 1996 of NOVA Corporation (the
"Company"), (ii) to sign any and all amendments thereto, and (iii) to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said authority to do
and perform each and every act and thing requisite or necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, and either of
them, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof in connection with the matters set forth in items (i) through
(iii) above.
This 14th day of March, 1997.
/s/
---------------------------
Charles T. Cannada
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints James M. Bahin and Cathy A. Harper, and either of them, his true and
lawful attorney-in-fact and agent, with full power of substitution for him and
in his name, place and stead, in any and all capacities, (i) to sign the Annual
Report on Form 10-K under the provisions of the Securities Exchange Act of 1934,
as amended, for the year ended December 31, 1996 of NOVA Corporation (the
"Company"), (ii) to sign any and all amendments thereto, and (iii) to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said authority to do
and perform each and every act and thing requisite or necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, and either of
them, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof in connection with the matters set forth in items (i) through
(iii) above.
This 14th day of March, 1997.
/s/
---------------------------
U. Bertram Ellis
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints James M. Bahin and Cathy A. Harper, and either of them, his true and
lawful attorney-in-fact and agent, with full power of substitution for him and
in his name, place and stead, in any and all capacities, (i) to sign the Annual
Report on Form 10-K under the provisions of the Securities Exchange Act of 1934,
as amended, for the year ended December 31, 1996 of NOVA Corporation (the
"Company"), (ii) to sign any and all amendments thereto, and (iii) to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said authority to do
and perform each and every act and thing requisite or necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, and either of
them, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof in connection with the matters set forth in items (i) through
(iii) above.
This 14th day of March, 1997.
/s/
---------------------------
Dr. Henry Kressel
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints James M. Bahin and Cathy A. Harper, and either of them, his true and
lawful attorney-in-fact and agent, with full power of substitution for him and
in his name, place and stead, in any and all capacities, (i) to sign the Annual
Report on Form 10-K under the provisions of the Securities Exchange Act of 1934,
as amended, for the year ended December 31, 1996 of NOVA Corporation (the
"Company"), (ii) to sign any and all amendments thereto, and (iii) to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said authority to do
and perform each and every act and thing requisite or necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, and either of
them, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof in connection with the matters set forth in items (i) through
(iii) above.
This 14th day of March, 1997.
/s/
---------------------------
Joseph P. Landy
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints James M. Bahin and Cathy A. Harper, and either of them, his true and
lawful attorney-in-fact and agent, with full power of substitution for him and
in his name, place and stead, in any and all capacities, (i) to sign the Annual
Report on Form 10-K under the provisions of the Securities Exchange Act of 1934,
as amended, for the year ended December 31, 1996 of NOVA Corporation (the
"Company"), (ii) to sign any and all amendments thereto, and (iii) to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said authority to do
and perform each and every act and thing requisite or necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, and either of
them, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof in connection with the matters set forth in items (i) through
(iii) above.
This 14th day of March, 1997.
/s/
----------------------------
Maurice F. Terbrueggen, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints James M. Bahin and Cathy A. Harper, and either of them, his true and
lawful attorney-in-fact and agent, with full power of substitution for him and
in his name, place and stead, in any and all capacities, (i) to sign the Annual
Report on Form 10-K under the provisions of the Securities Exchange Act of 1934,
as amended, for the year ended December 31, 1996 of NOVA Corporation (the
"Company"), (ii) to sign any and all amendments thereto, and (iii) to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said authority to do
and perform each and every act and thing requisite or necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, and either of
them, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof in connection with the matters set forth in items (i) through
(iii) above.
This 14th day of March, 1997.
/s/
---------------------------
Fred Martin Winkler
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM NOVA
CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996
<CASH> 630,000 40,326,000
<SECURITIES> 0 0
<RECEIVABLES> 10,508,000 18,854,000
<ALLOWANCES> 440,000 2,707,000
<INVENTORY> 1,080,000 857,000
<CURRENT-ASSETS> 15,537,000 60,490,000
<PP&E> 12,437,000 16,384,000
<DEPRECIATION> 5,034,000 6,172,000
<TOTAL-ASSETS> 61,001,000 107,705,000
<CURRENT-LIABILITIES> 17,246,000 21,115,000
<BONDS> 0 0
0 0
0 0
<COMMON> 114,000 288,000
<OTHER-SE> 25,903,000 84,594,000
<TOTAL-LIABILITY-AND-EQUITY> 61,001,000 107,705,000
<SALES> 129,035,000 265,829,000
<TOTAL-REVENUES> 129,035,000 265,829,000
<CGS> 100,375,000 207,595,000
<TOTAL-COSTS> 100,375,000 207,595,000
<OTHER-EXPENSES> 25,871,000 46,329,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,959,000 (126,000)
<INCOME-PRETAX> 830,000 12,031,000
<INCOME-TAX> (4,057,000) 4,764,000
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,887,000 7,267,000
<EPS-PRIMARY> .24 .25
<EPS-DILUTED> .24 .25
</TABLE>
