<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 19, 1998
FILE NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
NOVA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 7375 58-2209575
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NO.)
JURISDICTION OF CLASSIFICATION CODE
INCORPORATION OR NUMBER)
ORGANIZATION)
ONE CONCOURSE PARKWAY, SUITE 300, ATLANTA, GEORGIA 30328
(770) 396-1456
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
JAMES M. BAHIN
CHIEF FINANCIAL OFFICER
NOVA CORPORATION
ONE CONCOURSE PARKWAY, SUITE 300, ATLANTA, GEORGIA 30328
(770) 396-1456
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------
COPIES TO:
DAVID M. CALHOUN, ESQ. HOWARD W. HERNDON, ESQ.
LONG ALDRIDGE & NORMAN LLP WALLER LANSDEN DORTCH & DAVIS, PLLC
5300 ONE PEACHTREE CENTER 511 UNION STREET, SUITE 2100
303 PEACHTREE STREET NASHVILLE, TENNESSEE 37219
ATLANTA, GEORGIA 30308 (615) 252-2442
(404) 527-4000
--------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement and the
effective time of the merger (the "Merger") of Church Merger Corp., a
Tennessee corporation and a wholly-owned subsidiary of the Registrant, with
and into PMT Services, Inc., a Tennessee corporation, pursuant to the
Agreement and Plan of Merger dated as of June 17, 1998, among the Registrant,
Church Merger Corp. and PMT Services, Inc.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE(2) FEE(2)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01par 39,940,009
value per share........ Shares N/A $1,087,541,299.29 $58,280.38
</TABLE>
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(1) The number of shares to be registered is based upon (a) an estimate of the
maximum number of shares of Common Stock, $.01 par value per share, of PMT
Services, Inc. presently outstanding or issuable under options or warrants
to purchase PMT Services, Inc. Common Stock or otherwise expected to be
issued in connection with the Merger multiplied by (b) the exchange ratio
of 0.715 shares of Common Stock, $.01 par value per share, of the
Registrant.
(2) Calculated in accordance with Rule 457(f)(1) under the Securities Act,
based on the aggregate market value on August 15, 1998 of the shares of
PMT Services, Inc. Common Stock expected to be exchanged in connection
with the Merger and computed by multiplying (A) the average of the high
and low prices of PMT Services, Inc. Common Stock as reported on the
Nasdaq National Market on August 15, 1998 ($19.469) by (B) 55,860,152,
representing the maximum number of shares of PMT Services, Inc. Common
Stock presently outstanding or issuable under options or warrants to
purchase PMT Services, Inc. Common Stock or otherwise expected to be
exchanged in connection with the Merger, excluding shares of PMT Services,
Inc. Common Stock owned by the Registrant or PMT Services, Inc. Pursuant
to Rule 457(b), the amount of the fee has been reduced by $262,544.31,
which represents the filing fee previously paid to the Securities and
Exchange Commission by the Registrant on July 30 and 31, 1998, pursuant to
the Registrant's filing of a Schedule 14A in connection with the Merger.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
LOGO
NOVA CORPORATION
ONE CONCOURSE PARKWAY
SUITE 300
ATLANTA, GEORGIA 30328
August 20, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
NOVA Corporation ("NOVA") to be held at NOVA's corporate headquarters, One
Concourse Parkway, Suite 300, Atlanta, Georgia, at 10:00 a.m., Atlanta time,
on Thursday, September 24, 1998. At this important meeting, you will be asked
to consider and vote upon the approval of an Agreement and Plan of Merger
dated as of June 17, 1998 (the "Merger Agreement"), a copy of which is
included in the attached Joint Proxy Statement/Prospectus, pursuant to which
PMT Services, Inc. ("PMT") will become a wholly-owned subsidiary of NOVA in a
"merger of equals." If the transactions contemplated in the Merger Agreement
are consummated, each issued and outstanding share of Common Stock of PMT will
be converted into and exchanged for 0.715 shares of Common Stock of NOVA (the
"Share Issuance"). At the Special Meeting you also will be asked to approve
related proposals to (1) amend NOVA's Articles of Incorporation to increase
the number of shares of authorized Common Stock to 200,000,000 shares to
enable the Share Issuance and (2) amend NOVA's 1996 Employees Stock Incentive
Plan (the "Plan") to increase the number of shares of Common Stock of NOVA
issuable pursuant to the Plan to 6,000,000 from 2,000,000.
Enclosed are the (i) Notice of Special Meeting, (ii) Joint Proxy
Statement/Prospectus and (iii) proxy for the Special Meeting. Please review
carefully the Joint Proxy Statement/Prospectus which describes in more detail
the Merger Agreement, including the Share Issuance, and the proposed
amendments to NOVA's Articles of Incorporation and the Plan.
Your Board of Directors has unanimously determined that the Merger Agreement
and the transactions contemplated thereby, including the Share Issuance, and
the amendments to the Articles of Incorporation and the Plan, are in the best
interests of NOVA's shareholders, and that the proposed merger is fair to NOVA
from a financial point of view. Accordingly, your Board of Directors has
approved and adopted the Merger Agreement and consummation of the transactions
contemplated thereby, and recommends that you vote "FOR" each of the proposals
described in the attached Joint Proxy Statement/Prospectus.
The Merger Agreement provides that the consummation of the transactions
contemplated by the Merger Agreement is subject to a number of conditions,
including approval of each of the Merger Agreement and the transactions
contemplated thereby and the proposed amendment to NOVA's Articles of
Incorporation by the shareholders of NOVA. In view of the importance of the
action to be taken, we urge you to complete, sign and date the enclosed proxy
card and return it promptly in the enclosed envelope, whether or not you plan
to attend the Special Meeting. If you attend the Special Meeting, you may vote
in person, even if you previously returned your proxy.
We look forward to seeing you at the Special Meeting.
Sincerely,
/s/ Edward Grzedzinski
----------------------
Edward Grzedzinski
Chairman of the Board, President and
Chief Executive Officer
<PAGE>
NOVA CORPORATION
ONE CONCOURSE PARKWAY
SUITE 300
ATLANTA, GEORGIA 30328
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AT 10:00 A.M. ON THURSDAY, SEPTEMBER 24, 1998
TO THE SHAREHOLDERS OF NOVA CORPORATION:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of NOVA
Corporation ("NOVA") will be held at NOVA's corporate headquarters, One
Concourse Parkway, Suite 300, Atlanta, Georgia, at 10:00 a.m., Atlanta time,
on Thursday, September 24, 1998, for the following purposes:
1. The Merger. To consider and vote upon a proposal to approve the
Agreement and Plan of Merger dated as of June 17, 1998 (the "Merger
Agreement"), among NOVA, Church Merger Corp., a Tennessee corporation and a
wholly-owned subsidiary of NOVA ("Mergerco"), and PMT Services, Inc., a
Tennessee corporation ("PMT"), and the consummation of the transactions
contemplated thereby. The Merger Agreement provides, among other things,
for the merger of Mergerco with and into PMT (the "Merger") as a result of
which PMT will become a wholly-owned subsidiary of NOVA. Pursuant to the
Merger Agreement, each share of Common Stock of PMT ("PMT Stock")
outstanding immediately prior to the Merger will cease to be outstanding
and will be converted into and exchanged for 0.715 shares of Common Stock
of NOVA ("NOVA Stock"). The Merger Agreement and the Merger are more fully
described in the accompanying Joint Proxy Statement/Prospectus.
2. Amendment to Articles of Incorporation. To consider and vote upon a
proposal to amend the Articles of Incorporation of NOVA to increase the
number of authorized shares of NOVA Stock to 200,000,000 from 50,000,000.
3. Amendment to 1996 Employees Stock Incentive Plan. To consider and vote
upon a proposal to amend the NOVA Corporation 1996 Employees Stock
Incentive Plan to increase the number of shares of NOVA Stock issuable
thereunder to 6,000,000 from 2,000,000.
4. Other Business. To transact such other business as may properly come
before the Special Meeting or any adjournments or postponements thereof.
Information relating to the above matters is set forth in the accompanying
Joint Proxy Statement/Prospectus. A copy of the Merger Agreement is set forth
as Appendix A to the Joint Proxy Statement/Prospectus and is incorporated
herein by reference.
THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE SUBJECT
TO CERTAIN CONDITIONS, INCLUDING THE APPROVAL OF EACH OF THE PROPOSALS LISTED
IN PARAGRAPHS (1) AND (2) ABOVE. ACCORDINGLY, THE SHAREHOLDERS OF NOVA MUST
APPROVE EACH OF SUCH PROPOSALS IN ORDER FOR THE MERGER TO BE CONSUMMATED ON
THE TERMS AND CONDITIONS CONTAINED IN THE MERGER AGREEMENT.
Only shareholders of record of NOVA at the close of business on August 20,
1998, are entitled to receive notice of and to vote at the Special Meeting or
any adjournments or postponements thereof. Approval of the Merger Agreement
and the consummation of the transactions contemplated thereby, approval of the
amendment to the Articles of Incorporation and approval of the amendment of
the Plan requires the affirmative vote of the holders of a majority of the
shares of NOVA Stock entitled to vote at the Special Meeting. As of August 20,
1998, First Union Corporation, Warburg, Pincus Investors, L.P. and WorldCom,
Inc. owned or controlled the vote with respect to approximately 19.9%, 25.8%
and 5.5%, respectively, of the NOVA Stock entitled to vote at the Special
Meeting. Subject to certain limited exceptions, each of these entities has
agreed to vote all shares of NOVA Stock owned or controlled by them in favor
of each of Proposals 1, 2 and 3 described above. Accordingly, approval of the
Merger Agreement and the transactions contemplated thereby, the amendment to
the Articles of Incorporation and the amendment to the Plan is reasonably
assured.
<PAGE>
THE BOARD OF DIRECTORS OF NOVA RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE MERGER AGREEMENT AND CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED THEREBY, AND "FOR" APPROVAL OF THE PROPOSED AMENDMENTS TO THE
ARTICLES OF INCORPORATION AND THE PLAN.
Even if you plan to attend the Special Meeting, please fill in, date and
sign the enclosed proxy card and promptly return it in the enclosed return
envelope, which requires no postage if mailed in the United States, to ensure
that your shares will be represented at the Special Meeting. If you attend in
person, the proxy can be disregarded, if you wish, and you may vote your
shares in person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Edward Grzedzinski
------------------------------------
Edward Grzedzinski
Chairman of the Board, President and
Chief Executive Officer
Atlanta, Georgia
August 20, 1998
2
<PAGE>
[PMT LOGO]
PMT SERVICES, INC.
3841 GREEN HILLS VILLAGE DRIVE
NASHVILLE, TENNESSEE 37215
August 20, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of PMT
Services, Inc. ("PMT") to be held at PMT's corporate headquarters, 3841 Green
Hills Village Drive, Nashville, Tennessee, at 9:00 a.m., Nashville time, on
Thursday, September 24, 1998. At this important meeting, you will be asked to
consider and vote upon the approval of an Agreement and Plan of Merger dated
as of June 17, 1998 (the "Merger Agreement"), a copy of which is included in
the attached Joint Proxy Statement/Prospectus, pursuant to which PMT will
become a wholly-owned subsidiary of NOVA Corporation ("NOVA") in a "merger of
equals." If the transactions contemplated in the Merger Agreement are
consummated, each issued and outstanding share of Common Stock of PMT will be
converted into and exchanged for 0.715 shares of Common Stock of NOVA.
Enclosed are the (i) Notice of Special Meeting, (ii) Joint Proxy
Statement/Prospectus and (iii) proxy for the Special Meeting. Please review
carefully the Joint Proxy Statement/Prospectus which describes in more detail
the Merger Agreement.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE IN THE BEST INTERESTS OF PMT'S
SHAREHOLDERS, AND THAT THE PROPOSED MERGER IS FAIR TO PMT'S SHAREHOLDERS FROM
A FINANCIAL POINT OF VIEW. ACCORDINGLY, YOUR BOARD OF DIRECTORS HAS APPROVED
AND ADOPTED THE MERGER AGREEMENT AND CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED THEREBY, AND RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL TO
APPROVE THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
The Merger Agreement provides that the consummation of the transactions
contemplated by the Merger Agreement is subject to a number of conditions,
including approval of the Merger Agreement by the shareholders of PMT and
NOVA. In view of the importance of the action to be taken, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in
the enclosed envelope, whether or not you plan to attend the Special Meeting.
If you attend the Special Meeting, you may vote in person, even if you
previously returned your proxy.
We look forward to seeing you at the Special Meeting.
Sincerely,
Richardson M. Roberts
Chairman and Chief Executive Officer
<PAGE>
PMT SERVICES, INC.
3841 GREEN HILLS VILLAGE DRIVE
NASHVILLE, TENNESSEE 37215
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AT 9:00 A.M. ON THURSDAY, SEPTEMBER 24, 1998
TO THE SHAREHOLDERS OF PMT SERVICES, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of PMT
Services, Inc. ("PMT") will be held at the corporate headquarters of PMT, 3841
Green Hills Village Drive, Nashville, Tennessee, at 9:00 a.m., Nashville time,
on Thursday, September 24, 1998, for the following purposes:
1. The Merger. To consider and vote upon a proposal to approve the
Agreement and Plan of Merger dated as of June 17, 1998 (the "Merger
Agreement"), among NOVA Corporation, a Georgia corporation ("NOVA"), Church
Merger Corp., a Tennessee corporation and a wholly-owned subsidiary of NOVA
("Mergerco"), and PMT, and the consummation of the transactions
contemplated thereby. The Merger Agreement provides, among other things,
for the merger of Mergerco with and into PMT (the "Merger") as a result of
which PMT will become a wholly-owned subsidiary of NOVA. Pursuant to the
Merger Agreement, each share of Common Stock of PMT ("PMT Stock")
outstanding immediately prior to the Merger will cease to be outstanding
and will be converted into and exchanged for 0.715 shares of Common Stock
of NOVA ("NOVA Stock"). The Merger Agreement and the Merger are more fully
described in the accompanying Joint Proxy Statement/Prospectus.
2. Other Business. To transact such other business as may properly come
before the Special Meeting or any adjournments or postponements thereof.
Information relating to the above matters is set forth in the accompanying
Joint Proxy Statement/Prospectus. A copy of the Merger Agreement is set forth
as Appendix A to the Joint Proxy Statement/Prospectus and is incorporated
herein by reference.
Only shareholders of record of PMT at the close of business on August 20,
1998, are entitled to receive notice of and to vote at the Special Meeting or
any adjournments or postponements thereof. Approval of the Merger Agreement
and the consummation of the transactions contemplated thereby requires the
affirmative vote of the holders of a majority of the shares of PMT Stock
entitled to vote at the Special Meeting. As of August 20, 1998, the directors
and executive officers of PMT owned or controlled the vote with respect to
approximately 5.6% of the PMT Stock entitled to vote at the Special Meeting.
Subject to certain limited exceptions, Richardson M. Roberts and Gregory S.
Daily, who owned approximately 3.1% and 2.4%, respectively, of the outstanding
PMT Stock on such date, have agreed to vote in favor of the Merger Agreement
and the transactions contemplated thereby.
THE BOARD OF DIRECTORS OF PMT RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE MERGER AGREEMENT AND CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED THEREBY.
Even if you plan to attend the Special Meeting, please fill in, date and
sign the enclosed proxy card and promptly return it in the enclosed return
envelope, which requires no postage if mailed in the United States, to ensure
that your shares will be represented at the Special Meeting. If you attend in
person, the proxy can be disregarded, if you wish, and you may vote your
shares in person.
BY ORDER OF THE BOARD OF DIRECTORS
Richardson M. Roberts
Chairman and Chief Executive Officer
Nashville, Tennessee
August 20, 1998
<PAGE>
JOINT PROXY STATEMENT
OF
NOVA CORPORATION
AND
PMT SERVICES, INC.
----------------
PROSPECTUS
OF
NOVA CORPORATION
----------------
This Joint Proxy Statement/Prospectus is being furnished to the holders of
Common Stock ("NOVA Stock") of NOVA Corporation ("NOVA") and the holders of
Common Stock ("PMT Stock") of PMT Services, Inc. ("PMT") in connection with
the solicitation of proxies by the Boards of Directors of NOVA and PMT for use
at the Special Meeting of Shareholders of NOVA to be held at 10:00 a.m.,
Atlanta time, on Thursday, September 24, 1998, at NOVA's corporate
headquarters, One Concourse Parkway, Suite 300, Atlanta, Georgia (the "NOVA
Special Meeting") and at the Special Meeting of Shareholders of PMT to be held
at 9:00 a.m., Nashville time, on Thursday, September 24, 1998, at the
corporate headquarters of PMT, 3841 Green Hills Village Drive, Nashville,
Tennessee (the "PMT Special Meeting" and, together with the NOVA Special
Meeting, the "Meetings"), and at any adjournments of the Meetings.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of NOVA
relating to the shares of NOVA Stock to be issued to the shareholders of PMT
pursuant to the terms of the Agreement and Plan of Merger dated as of June 17,
1998 (the "Merger Agreement") among NOVA, Church Merger Corp., a wholly-owned
subsidiary of NOVA ("Mergerco"), and PMT. The Merger Agreement provides, among
other things, that Mergerco will merge (the "Merger") with and into PMT and,
as a result, PMT will become a wholly-owned subsidiary of NOVA. At the
effective time of the Merger (the "Effective Time"), holders of PMT Stock will
have the right to receive 0.715 shares of NOVA Stock (the "Exchange Ratio")
for each of their shares of PMT Stock plus cash in lieu of fractional shares
of NOVA Stock (such shares of NOVA Stock and cash in lieu of fractional shares
is referred to herein as the "Merger Consideration").
The transactions contemplated by the Merger Agreement are subject to the
satisfaction of certain conditions, including approval of the Merger Agreement
and the transactions contemplated thereby by the shareholders of NOVA and PMT.
Additionally, the shareholders of NOVA must approve an amendment to the
Articles of Incorporation of NOVA to increase the number of authorized shares
of NOVA Stock in order to consummate the Merger and the issuance of the NOVA
Stock in connection therewith (the "Share Issuance") on the terms and
conditions contained in the Merger Agreement.
As soon as practicable after the Merger, NOVA will send to holders of PMT
Stock a letter of transmittal providing instructions for exchanging their
certificates representing any shares of PMT Stock (a "PMT Certificate") for
NOVA Stock. PMT shareholders should not surrender or otherwise attempt to
exchange their PMT Certificates for NOVA Stock certificates unless and until
they have received appropriate notice and instructions for exchange.
All shares of PMT Stock outstanding immediately before the Effective Time
will, as a result of the Merger, no longer be outstanding and will
automatically be canceled and retired and will cease to exist, and each holder
of a PMT Certificate will cease to have any rights with respect thereto,
except the right to receive the Merger Consideration in consideration therefor
upon the surrender of such PMT Certificate and the rights accorded to such
shares under the Tennessee Business Corporation Act.
This Joint Proxy Statement/Prospectus and the accompanying proxy cards are
first being mailed to shareholders of NOVA and PMT on or about August 24,
1998.
THE NOVA STOCK ISSUABLE IN THE MERGER HAS NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COM-
MISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REP- RESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The NOVA Stock is listed on the New York Stock Exchange, Inc. (the "NYSE")
under the symbol "NIS." The PMT Stock is listed on the Nasdaq National Market
under the symbol "PMTS." On August 18, 1998, the closing sale price for the
NOVA Stock as quoted by the NYSE was $28.00 per share and the closing sale
price of the PMT Stock as quoted by the Nasdaq National Market was $19.750 per
share.
The date of this Joint Proxy Statement/Prospectus is August 20, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
AVAILABLE INFORMATION.................................................. 1
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE...................... 2
SUMMARY................................................................ 3
Parties to the Merger................................................ 3
The NOVA Special Meeting............................................. 3
The PMT Special Meeting.............................................. 4
The Proposed Merger.................................................. 5
General............................................................ 5
Merger Consideration............................................... 5
Description of NOVA Stock.......................................... 6
Recommendations of the Boards of Directors......................... 6
Opinions of Financial Advisors..................................... 6
Effective Time of the Merger....................................... 6
Exchange of PMT Stock.............................................. 7
Certain Federal Income Tax Consequences............................ 7
Accounting Treatment............................................... 7
Management and Operations After the Merger......................... 7
Interests of Certain Persons in the Merger......................... 8
Conditions to Consummation......................................... 8
Regulatory Approvals............................................... 9
Conduct of Business Pending the Merger............................. 9
Termination........................................................ 10
Stock Option Agreements............................................ 10
Resales of NOVA Stock.............................................. 11
Other Significant Considerations................................... 11
Equivalent Per Share Data............................................ 12
Market Prices and Dividends on NOVA Stock and PMT Stock.............. 13
Summary Consolidated Financial and Other Data........................ 15
Selected Pro Forma Combined Condensed Financial Data............... 17
RISK FACTORS........................................................... 18
VISA and MasterCard Registration Termination......................... 18
Conversion of PMT Merchant Portfolio................................. 18
Risks Associated with the Merger and Acquisition Strategy............ 19
Increased Consolidation in the Marketplace......................... 19
Complexity of Risk Analysis of Acquisition Targets................. 19
Conversion of Merchant Portfolios.................................. 19
Risks Associated with Joint Venture Alliances...................... 20
Competition and Consolidation........................................ 21
Merchant Attrition................................................... 21
Dependence on Merchant Accounting Relationships...................... 22
Announced Interchange Rate Increases................................. 22
Chargeback Risk...................................................... 22
Merchant Fraud....................................................... 22
Telecommunications Services Provided by WorldCom, Inc................ 23
Certain State Tax Issues............................................. 23
Development and Market Acceptance of New Products.................... 23
Fluctuation in Quarterly Operating Results........................... 23
Dependence on Key Management......................................... 23
Significant Intangible Assets........................................ 24
</TABLE>
i
<PAGE>
<TABLE>
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<S> <C>
Banking and Territorial Restrictions................................ 24
Certain Anti-Takeover Provisions.................................... 24
Controlling Shareholders............................................ 25
Possible Volatility of Stock Price.................................. 25
Shares Eligible for Future Sale..................................... 25
INFORMATION REGARDING THE MEETINGS.................................... 26
General............................................................. 26
NOVA Special Meeting................................................ 26
PMT Special Meeting................................................. 26
Record Date; Quorum................................................. 26
Vote Required....................................................... 27
Solicitation and Revocability of Proxies............................ 28
Recommendations of the Boards of Directors.......................... 28
Dissenters' Rights.................................................. 29
PROPOSAL 1--THE PROPOSED MERGER....................................... 30
General............................................................. 30
The Proposed Merger................................................. 30
Merger Consideration................................................ 30
Effective Time...................................................... 30
Exchange of PMT Stock Certificates.................................. 31
No Fractional Shares................................................ 31
Management and Operations After the Merger.......................... 32
Interests of Certain Persons in the Merger.......................... 32
Employment Agreements............................................. 32
Registration Rights Agreement..................................... 34
Indemnification; Directors and Officers Insurance................. 35
Employee Benefits Matters........................................... 35
Background of the Merger............................................ 35
Reasons for the Merger.............................................. 37
Opinions of Financial Advisors...................................... 40
Certain Federal Income Tax Consequences............................. 50
Regulatory Approvals................................................ 51
Summary of Certain Provisions of the Merger Agreement............... 51
Conditions to the Merger.......................................... 51
Representations and Warranties.................................... 52
Conduct of Business Pending the Merger............................ 52
No Solicitation................................................... 53
Amendment, Waiver and Termination................................. 53
Expenses and Fees................................................... 54
Stock Option Agreements............................................. 55
Shareholder Agreements.............................................. 57
Accounting Treatment................................................ 58
Restrictions on Resales of NOVA Stock............................... 58
PRO FORMA COMBINED CONDENSED FINANCIAL DATA........................... 59
Pro Forma Combined Condensed Balance Sheet as of June 30, 1998...... 60
Pro Forma Combined Condensed Statement of Operations for the Six
Months Ended June 30, 1998......................................... 61
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
Pro Forma Combined Condensed Statement of Operations Year Ended
December 31, 1997 ................................................ 62
Pro Forma Combined Condensed Statement of Operations Year Ended
December 31, 1996................................................. 63
Pro Forma Combined Condensed Statement of Operations Ten Months
Ended December 31, 1995 .......................................... 64
Notes to Unaudited Pro Forma Combined Condensed Financial
Statements........................................................ 65
INFORMATION CONCERNING NOVA.......................................... 69
Selected Consolidated Financial and Other Data..................... 69
Management's Discussion and Analysis of Financial Condition and Re-
sults of Operations............................................... 70
Overview......................................................... 70
Components of Revenues and Expenses.............................. 70
Results of Operations............................................ 71
Liquidity and Capital Resources.................................... 74
Business of NOVA................................................... 75
Recent Transactions.............................................. 75
Industry Overview................................................ 77
Merchant Services Provided by NOVA............................... 79
Technology....................................................... 80
Software Application Products and Value-Added Services........... 82
Customer Base.................................................... 84
Marketing........................................................ 85
Acquisition Strategy............................................. 87
Risk Management.................................................. 88
Merchant Accounting and Clearing Bank Relationships.............. 89
Customer Service and Support..................................... 89
Proprietary Rights............................................... 90
Competition and Consolidation.................................... 90
Banking Regulation............................................... 91
Employees........................................................ 92
Properties....................................................... 92
Legal Proceedings................................................ 92
Management of NOVA................................................. 93
Directors, Executive Officers and Key Employees.................. 93
Executive Compensation........................................... 95
Employment Agreements............................................ 96
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Option Values..................................................... 97
Stock Option Grants in Last Fiscal Year............................ 97
Director Compensation.............................................. 97
Certain Relationships and Related Transactions Regarding NOVA...... 98
Transactions with WorldCom....................................... 98
Transactions Related to the First Union Alliance................. 98
Transactions with KeyBank........................................ 99
Security Ownership of Certain Beneficial Owners and Management..... 99
INFORMATION CONCERNING PMT........................................... 102
DESCRIPTION OF NOVA CAPITAL STOCK.................................... 104
NOVA Stock......................................................... 104
Preferred Stock.................................................... 104
Agreements and Restrictions Relating to Stock...................... 104
First Union Voting Agreement....................................... 105
Certain Charter and Bylaw Provisions............................... 105
Limitation of Directors' Liability............................... 105
</TABLE>
iii
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<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
Anti-Takeover Provisions......................................... 105
Constituency Considerations...................................... 105
Election, Term and Removal of Directors.......................... 105
Transfer Agent and Registrar....................................... 106
COMPARISON OF SHAREHOLDER RIGHTS..................................... 107
Authorized Capital Stock........................................... 107
Amendment or Repeal of the Charter or Articles of Incorporation.... 108
Election, Term and Removal of the Board of Directors............... 108
Liability of Directors............................................. 109
Conversion and Dissolution......................................... 109
Shareholder Meetings............................................... 110
Change of Control.................................................. 110
PROPOSAL 2--AMENDMENT TO THE ARTICLES OF INCORPORATION OF NOVA....... 112
PROPOSAL 3--AMENDMENT TO THE NOVA CORPORATION 1996 EMPLOYEES STOCK
INCENTIVE PLAN...................................................... 113
General............................................................ 113
Eligible Participants; Proposed Amendment.......................... 113
Administration..................................................... 113
Number of Shares Available......................................... 113
Option Exercise Price.............................................. 114
Option Vesting..................................................... 114
Restricted Stock................................................... 114
Stock Appreciation Rights.......................................... 114
Termination........................................................ 114
Change of Control.................................................. 114
Federal Income Tax Consequences.................................... 115
Incentive Stock Options.......................................... 115
Nonqualified Stock Options....................................... 116
Stock Appreciation Rights........................................ 116
Restricted Stock................................................. 116
Limitation on NOVA Deductions.................................... 117
ERISA............................................................ 117
Future Grants.................................................... 117
EXPERTS.............................................................. 118
LEGAL MATTERS........................................................ 118
OTHER MATTERS........................................................ 118
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF NOVA CORPORATION....... F-1
</TABLE>
APPENDICES:
Appendix A--Agreement and Plan of Merger dated as of June 17, 1998, by and
among NOVA, Mergerco and PMT
Appendix B--Stock Option Agreement dated as of June 17, 1998, between NOVA (as
issuer) and PMT (as grantee).
Appendix C--Stock Option Agreement dated as of June 17, 1998, between PMT (as
issuer) and NOVA (as grantee).
Appendix D--Opinion of Salomon Smith Barney as to the fairness of the Merger
to NOVA.
Appendix E--Opinion of BT Alex. Brown Incorporated as to the fairness of the
Merger to the PMT shareholders.
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<PAGE>
AVAILABLE INFORMATION
NOVA has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), relating to the NOVA Stock to be issued pursuant to the Merger
Agreement. This Joint Proxy Statement/Prospectus, which is a part of the
Registration Statement, does not contain all of the information set forth in,
or annexed as exhibits to, the Registration Statement, certain portions of
which have been omitted pursuant to the rules and regulations of the
Commission. For further information with respect to NOVA and the shares of
NOVA Stock to be issued pursuant to the Merger Agreement, reference is hereby
made to the Registration Statement and the related exhibits thereto.
Statements contained or incorporated by reference in this Joint Proxy
Statement/Prospectus as to the contents of any contract or other document are
not necessarily complete. In each instance, each statement is qualified in all
respects by reference to the copy of such contract or other document filed as
an exhibit to or incorporated by reference in the Registration Statement. Such
information is available for inspection without charge at, and copies can be
obtained at prescribed rates from, the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549.
NOVA and PMT are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, file reports, proxy and information statements and other
information with the Commission. Such reports, proxy and information
statements and other information may be inspected and copied at prescribed
rates at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's Regional Offices at: Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, New York 10048. Such material also may be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov. Such reports, proxy and information statements and other
information (1) concerning NOVA, also can be inspected at the offices of the
NYSE located at 20 Broad Street, New York, New York 10005, and (2) concerning
PMT, can be inspected at the offices of The Nasdaq Stock Market, 1735 K
Street, N.W., Washington, D.C. 20006.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
JOINT PROXY STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY NOVA OR
PMT. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS JOINT PROXY STATEMENT/PROSPECTUS
RELATES SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF NOVA, PMT OR ANY SUBSIDIARY THEREOF SINCE THE
DATE HEREOF OR THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THEREOF.
THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR
A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO
MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
1
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE CERTAIN
DOCUMENTS WITH RESPECT TO PMT THAT ARE NOT PRESENTED HEREIN OR DELIVERED
HEREWITH. SUCH DOCUMENTS ARE AVAILABLE WITHOUT CHARGE UPON REQUEST FROM: PMT
SERVICES, INC., 3841 GREEN HILLS VILLAGE DRIVE, NASHVILLE, TENNESSEE 37215,
ATTENTION: VICKIE G. JOHNSON, (615) 254-1539. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUESTS SHOULD BE RECEIVED BY PMT NO LATER
THAN FIVE BUSINESS DAYS PRIOR TO THE PMT SPECIAL MEETING.
The following documents filed by PMT with the Commission (Commission File
No. 0-24420) under Section 13(a) or 15(d) of the Exchange Act are hereby
incorporated by reference in and made a part of this Joint Proxy
Statement/Prospectus:
(i) PMT's Annual Report on Form 10-K, and as amended on Form 10-K/A, for
the year ended July 31, 1997;
(ii) PMT's Quarterly Report on Form 10-Q for the quarter ended October
31, 1997;
(iii) PMT's Quarterly Report on Form 10-Q for the quarter ended January
31, 1998;
(iv) PMT's Quarterly Report on Form 10-Q for the quarter ended April 30,
1998; and
(v) PMT's Current Reports on Form 8-K dated October 10, 1997, December
31, 1997, July 20, 1998 and August 17, 1998 and PMT's Current Reports on
Form 8-K/A dated September 16, 1997 and October 14, 1997.
All documents filed by PMT pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date hereof and prior to the date on which
the PMT Special Meeting is held shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing of such
documents. Any statement contained herein, in any supplement hereto or in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of the Registration
Statement and this Joint Proxy Statement/Prospectus to the extent that a
statement contained herein, in any supplement hereto or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of the Registration Statement, this Joint
Proxy Statement/Prospectus, or any supplement hereto.
2
<PAGE>
SUMMARY
The following Summary does not contain a complete description of all material
features of the Merger Agreement or the transactions contemplated thereby and
is subject to and qualified in its entirety by reference to the more detailed
information contained or incorporated by reference in this Joint Proxy
Statement/Prospectus, including the Appendices hereto. Shareholders of NOVA and
PMT are urged to read carefully the entire Joint Proxy Statement/Prospectus,
including the Appendices. As used in this Joint Proxy Statement/Prospectus, the
terms "NOVA" and "PMT" refer to such corporations and, where the context
requires, the respective corporation and its subsidiaries. References in this
Joint Proxy Statement/Prospectus to the dollar volume of transactions processed
reflect only VISA and MasterCard transactions, and references to NOVA's or
PMT's ranking in the industry are based on transaction processing volume.
PARTIES TO THE MERGER
NOVA CORPORATION...... ONE NOVA is an integrated provider of transaction
CONCOURSE PARKWAY SUITE processing services, related software application
300 ATLANTA, GEORGIA products and value-added services primarily to
30328 (770) 396-1456 small- to medium-sized merchants. NOVA 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. On a pro forma
basis giving effect to the recent transactions, the
aggregate dollar volume of VISA and MasterCard
credit card transactions processed by NOVA in 1997
would have been over $24.0 billion.
PMT SERVICES, INC. .. 3841 PMT is an independent service organization that
GREEN HILLS VILLAGE DRIVE markets and services electronic credit card
NASHVILLE, TENNESSEE authorization and payment systems to merchants
37215 (615) 254-1539 located throughout the United States. PMT's
operating and growth strategies focus on expanding
PMT's customer base of small- to medium-sized
merchants through trade and other association
affiliations, telemarketing, acquiring subsidiary
sales forces, merchant portfolio purchases and the
provision of high levels of customer service. PMT
has experienced rapid growth in its total merchant
portfolio base which has caused significant growth
in PMT's revenues and earnings.
THE NOVA SPECIAL MEETING
TIME, DATE AND PLACE...... The NOVA Special Meeting will be held at
10:00 a.m., Atlanta, Georgia time, on Thursday,
September 24, 1998, at NOVA's corporate
headquarters, One Concourse Parkway, Suite 300,
Atlanta, Georgia, and at any adjournments or
postponements thereof.
RECORD DATE AND SHARES
ENTITLED TO VOTE.........
Holders of record of the NOVA Stock at the close of
business on August 20, 1998 (the "NOVA Record
Date"), are entitled to notice of and to vote at
the NOVA Special Meeting. At such date and time
there were approximately 34,289,850 shares of NOVA
Stock outstanding.
3
<PAGE>
PURPOSE OF THE NOVA
SPECIAL MEETING..........
The purpose of the NOVA Special Meeting is to
consider and vote upon (1) a proposal to approve
the Merger Agreement and the transactions
contemplated thereby including without limitation
the Share Issuance ("NOVA Proposal 1"), (2) a
related proposal to amend the Articles of
Incorporation of NOVA to increase the number of
authorized shares of NOVA Stock to 200,000,000
shares from 50,000,000 shares ("NOVA Proposal 2")
and (3) a related proposal to amend the NOVA
Corporation 1996 Employees Stock Incentive Plan
(the "Plan") to increase the number of shares of
NOVA Stock issuable under the Plan to 6,000,000
shares from 2,000,000 shares ("NOVA Proposal 3" and
together with Proposal 1 and Proposal 2, the "NOVA
Proposals"). See "Information Regarding the
Meetings" and "Proposal 1--The Proposed Merger,"
"Proposal 2--Amendment to the Articles of
Incorporation of NOVA" and "Proposal 3--Amendment
to the NOVA Corporation 1996 Employees Stock
Incentive Plan."
VOTE REQUIRED............. The approval by the NOVA shareholders of the NOVA
Proposals will require the affirmative vote of the
holders of at least a majority of the outstanding
shares of NOVA Stock on each of the NOVA Proposals.
As of the NOVA Record Date, all directors and
executive officers of NOVA as a group beneficially
owned approximately 54.2% of the outstanding NOVA
Stock. Such shares include shares owned or
controlled by First Union Corporation ("First
Union"), Warburg, Pincus Investors, L.P.
("Warburg") and WorldCom, Inc. ("WorldCom"). First
Union, Warburg and WorldCom own or control the vote
with respect to approximately 19.9%, 25.8%, and
5.5%, respectively, of the NOVA Stock entitled to
be voted at the NOVA Special Meeting. Subject to
certain limited exceptions, each of First Union
(and its affiliates), Warburg and WorldCom has
agreed to vote its shares of NOVA Stock in favor of
each of the NOVA Proposals. Accordingly, approval
of each of the NOVA Proposals by the shareholders
of NOVA is reasonably assured. See "Information
Regarding the Meetings," "Proposal 1--The Proposed
Merger--Shareholder Agreements" and "Information
Concerning NOVA--Security Ownership of Certain
Beneficial Owners and Management."
THE APPROVAL OF EACH OF NOVA PROPOSAL 1 AND NOVA
PROPOSAL 2 IS A CONDITION TO CONSUMMATION OF THE
MERGER.
THE PMT SPECIAL MEETING
TIME, DATE AND PLACE...... The PMT Special Meeting will be held at 9:00 a.m.,
Nashville, Tennessee time, on Thursday,
September 24, 1998, at the corporate headquarters
of PMT, 3841 Green Hills Village Drive, Nashville,
Tennessee, and at any adjournments or postponements
thereof.
4
<PAGE>
RECORD DATE AND SHARES
ENTITLED TO VOTE.........
Holders of record of the PMT Stock at the close of
business on August 20, 1998 (the "PMT Record
Date"), are entitled to notice of and to vote at
the Special Meeting. At such date and time there
were approximately 52,655,844 shares of PMT Stock
outstanding.
PURPOSE OF THE PMT
SPECIAL MEETING..........
The purpose of the PMT Special Meeting is to
consider and vote upon a proposal to approve the
Merger Agreement and the transactions contemplated
thereby. See "Information Regarding the Meetings"
and "Proposal 1--The Proposed Merger."
VOTE REQUIRED............. The approval by the PMT shareholders of the Merger
Agreement and the transactions contemplated thereby
will require the affirmative vote of the holders of
at least a majority of the outstanding shares of
PMT Stock. As of the PMT Record Date, the directors
and executive officers of PMT owned or controlled
the vote with respect to approximately 5.6% of the
PMT Stock entitled to be voted at the PMT Special
Meeting. Subject to certain limited exceptions,
Richardson M. Roberts and Gregory S. Daily, who
owned approximately 3.1% and 2.4%, respectively, of
the outstanding PMT Stock as of the PMT Record
Date, have agreed to vote their shares of PMT Stock
in favor of the Merger Agreement and the
transactions contemplated thereby. See "Proposal
1--The Proposed Merger--Shareholder Agreements."
THE PROPOSED MERGER
General. The Merger Agreement provides, among other things, that Mergerco
will merge with and into PMT, whereby PMT shall survive and the separate
corporate existence of Mergerco shall cease. As a result of the Merger, PMT
will become a wholly-owned subsidiary of NOVA. Upon consummation of the Merger,
each outstanding share of PMT Stock will cease to be outstanding and will be
converted into and exchanged for the Merger Consideration. If the Merger
Agreement is approved at the Meetings, NOVA Proposal 2 is approved at the NOVA
Special Meeting, all required governmental and other consents and approvals are
obtained, and all of the other conditions to the obligations of the parties to
consummate the Merger are either satisfied or waived, the Merger will be
consummated. See "Proposal 1--The Proposed Merger."
Merger Consideration. The Merger Agreement provides that, at the Effective
Time, each outstanding share of PMT Stock will cease to be outstanding and will
be converted into and exchanged for 0.715 shares of NOVA Stock. Additionally,
each option or warrant to purchase PMT Stock outstanding at the Effective Time
will be converted automatically into an option or warrant, as the case may be,
to purchase a number of shares of NOVA Stock equal to (A) the number of shares
of PMT Stock issuable upon exercise of the option or warrant multiplied by (B)
the Exchange Ratio (0.715) at a price per share of NOVA Stock equal to the per
share option or warrant exercise price specified in the respective option or
warrant divided by the Exchange Ratio (rounded to the nearest whole cent).
Pursuant to the terms of PMT's 1994 Incentive Stock Plan, as amended and
restated, 1994 Non-Employee Director Stock Option Plan, as amended and
restated, 1997 Executive Stock Incentive Plan and 1997 Non-Qualified Stock
Option Plan (collectively, the "PMT Stock Option Plans"), all options
previously granted under the PMT Stock Option Plans that are not fully vested
prior to the Effective Time will become fully vested at the Effective Time. As
of the PMT Record Date, approximately 52,655,844 shares of PMT Stock were
issued and outstanding and approximately 3,204,308 shares of PMT Stock were
issuable upon exercise of outstanding options and warrants (assuming full
vesting) to purchase PMT Stock. As a result, NOVA is expected
5
<PAGE>
to issue an aggregate of approximately 37,648,930 shares of NOVA Stock in the
Merger and to reserve approximately 2,291,080 shares of NOVA Stock for issuance
upon exercise of the PMT Stock options and warrants (assuming in each case, no
exercise of options or warrants to purchase PMT Stock from the PMT Record Date
through the Effective Time). NOVA will issue only whole shares of NOVA Stock in
the Merger and will pay to PMT shareholders cash in lieu of fractional shares
of NOVA Stock to which they otherwise would be entitled. Neither the PMT
shareholders nor the NOVA shareholders have any dissenters' rights with respect
to the Merger Agreement or the transactions contemplated thereby.
Description of NOVA Stock. The holders of NOVA Stock are entitled to
dividends as and when declared by the Board of Directors of NOVA out of funds
legally available therefor, to one vote for each share held on matters
submitted to a vote of NOVA shareholders, and, in the event of liquidation, to
the net assets remaining after satisfaction of all liabilities. As of August
20, 1998, 34,289,850 shares of NOVA Stock were outstanding and held by
approximately 46 shareholders of record. See "Description of NOVA Capital
Stock" and "Comparison of Shareholder Rights."
Recommendations of the Boards of Directors.
NOVA. The Board of Directors of NOVA believes that the Merger is fair to, and
in the best interests of, NOVA and its shareholders. Accordingly, after
consideration of relevant business, financial, legal and market factors, the
Board of Directors adopted and approved the Merger Agreement and the
transactions contemplated thereby by unanimous vote and voted to recommend that
NOVA shareholders vote "FOR" the approval of each of the NOVA Proposals. See
"Proposal 1--The Proposed Merger--Reasons for the Merger."
PMT. The Board of Directors of PMT has unanimously adopted and approved the
Merger Agreement and the transactions contemplated thereby. The PMT Board of
Directors believes that the Merger is fair to and in the best interests of PMT
and its shareholders and unanimously recommends that the shareholders of PMT
vote "FOR" approval of the Merger Agreement and the consummation of the
transactions contemplated thereby.
Opinions of Financial Advisors.
NOVA. NOVA's financial advisor, Salomon Smith Barney, has rendered an opinion
to the Board of Directors of NOVA that, as of the date thereof, the Exchange
Ratio is fair to NOVA from a financial point of view. A copy of such opinion is
set forth in Appendix D hereto and should be read in its entirety with respect
to the assumptions made, other matters considered and limitations on the
reviews undertaken. It is anticipated that Salomon Smith Barney will confirm
its opinion in writing as of the date of mailing of this Joint Proxy
Statement/Prospectus; however, confirmation of such opinion is not a condition
to the Merger. See "Proposal 1--The Proposed Merger--Opinions of Financial
Advisors."
PMT. BT Alex. Brown Incorporated ("BT Alex. Brown") rendered an opinion to
the Board of Directors of PMT that, as of the date thereof, the Exchange Ratio
is fair to the shareholders of PMT from a financial point of view. A copy of
such opinion is set forth in Appendix E hereto and should be read in its
entirety with respect to the assumptions made, other matters considered and
limitations on the reviews undertaken. It is anticipated that BT Alex. Brown
will confirm its opinion in writing as of the date of mailing of this Joint
Proxy Statement/Prospectus; however, confirmation of such opinion is not a
condition to the Merger. See "Proposal 1--The Proposed Merger--Opinions of
Financial Advisors."
Effective Time of the Merger. If the Merger Agreement and the transactions
contemplated thereby are approved by the requisite vote of the NOVA and PMT
shareholders, NOVA Proposal 2 is approved by the requisite vote of the NOVA
shareholders, all required governmental and other consents and approvals are
obtained and not withdrawn, and the other conditions to the obligations of the
parties to consummate the Merger are either satisfied or waived (as permitted),
the Merger will be consummated and will become effective on the date and at the
time that Articles of Merger, reflecting the Merger, are filed with the
Secretary of State of Tennessee or such later date and time as may be specified
in the Articles of Merger. All required applications and notices with respect
to the Merger Agreement and the transactions contemplated thereby have been
filed with applicable government agencies. Assuming satisfaction of all
conditions to consummation, the Merger is expected to become effective in early
Fall 1998. NOVA and PMT have the right to terminate the Merger
6
<PAGE>
Agreement if all conditions to closing required by the Merger Agreement have
not been met, or waived by NOVA or PMT, by November 30, 1998, or the Merger has
not been consummated by November 30, 1998 (which date may be extended upon the
occurrence of certain events to February 28, 1999). See "Proposal 1--The
Proposed Merger--Effective Time," "Proposal 1--The Proposed Merger--Summary of
Certain Provisions of the Merger Agreement--Amendment, Waiver and Termination"
and "Proposal 1--The Proposed Merger--Conditions to the Merger."
Exchange of PMT Stock. NOVA has authorized First Union National Bank
("FUNB"), a subsidiary of First Union, to act as Exchange Agent in connection
with the Merger. As soon as practicable after the Effective Time, NOVA will
deposit with the Exchange Agent, in trust for the holders of shares of PMT
Stock converted in the Merger, certificates representing the shares of NOVA
Stock issuable pursuant to the Merger Agreement in exchange for outstanding
shares of PMT Stock and cash, as required to make payments in lieu of any
fractional shares (such cash and shares of NOVA Stock, together with any
dividends or distributions with respect thereto, being the "Exchange Fund").
The Exchange Agent will deliver the NOVA Stock issuable pursuant to the Merger
Agreement out of the Exchange Fund.
As soon as practicable after the Merger, NOVA will cause the Exchange Agent
to send to the holders of PMT Stock a letter of transmittal in customary form
providing instructions for exchanging their PMT Certificates for the Merger
Consideration. The Exchange Agent will not be obligated to deliver the NOVA
Stock to which any former holder of PMT Stock is entitled until such holder
surrenders his or her PMT Certificate or Certificates for exchange. The PMT
Certificate or Certificates so surrendered must be duly endorsed as NOVA may
require. PMT SHAREHOLDERS SHOULD NOT SEND THEIR PMT CERTIFICATES WITH THEIR
PROXY CARDS. See "Proposal 1--The Proposed Merger--Exchange of PMT Stock
Certificates."
Certain Federal Income Tax Consequences. It is a condition to the Merger that
NOVA receive an opinion from Long Aldridge & Norman LLP, and that PMT receive
an opinion from Waller Lansden Dortch & Davis, a Professional Limited Liability
Company, each dated as of the Effective Time, that the Merger qualifies as a
tax-free reorganization under the Internal Revenue Code of 1986, as amended
(the "Code"), for federal income tax purposes. As a tax-free reorganization (i)
no gain or loss will be recognized by NOVA or PMT for federal income tax
purposes and (ii) no gain or loss will be recognized by the PMT shareholders
for federal income tax purposes except in respect of cash received in lieu of
fractional shares of NOVA Stock. See "Proposal 1--The Proposed Merger--Certain
Federal Income Tax Consequences."
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF EACH PMT SHAREHOLDER AND OTHER FACTORS, EACH PMT
SHAREHOLDER IS URGED TO CONSULT SUCH SHAREHOLDER'S OWN TAX ADVISOR TO DETERMINE
THE PARTICULAR TAX CONSEQUENCES TO SUCH SHAREHOLDER OF THE MERGER (INCLUDING
THE APPLICATION AND EFFECT OF STATE AND LOCAL INCOME AND OTHER TAX LAWS).
Accounting Treatment. The Merger is expected to qualify as a "pooling of
interests" transaction for accounting and financial reporting purposes. The
obligations of NOVA and PMT to consummate the Merger are subject to the receipt
by NOVA of letters from Ernst & Young LLP dated as of the effective date of the
Registration Statement and as of the Effective Time regarding its concurrence
with management's conclusion that the Merger qualifies for pooling of interests
accounting treatment under Accounting Principles Board Opinion No. 16 if closed
and consummated in accordance with the Merger Agreement, and the receipt by PMT
of letters from PricewaterhouseCoopers LLP dated as of the effective date of
the Registration Statement and the Effective Time to the same effect. See
"Proposal 1--The Proposed Merger--Accounting Treatment."
Management and Operations After the Merger. Pursuant to the Merger Agreement,
NOVA has agreed that at the Effective Time the Board of Directors of NOVA will
consist of 11 directors, comprised of five directors designated by NOVA (the
"NOVA Designated Directors"), five directors designated by PMT (the "PMT
Designated Directors"), and one director nominated by NOVA and approved by PMT
(the "Nominated Director"). NOVA has designated Edward Grzedzinski, James M.
Bahin, Dr. Henry Kressel, Maurice F.
7
<PAGE>
Terbrueggen and Stephen E. Wall as the NOVA Designated Directors and intends to
nominate Charles T. Cannada as the Nominated Director, each of whom currently
is a director of NOVA. PMT has designated Richardson M. Roberts, Gregory S.
Daily, Stephen D. Kane, Harold L. Siebert and George M. Miller II as the PMT
Designated Directors, each of whom (other than Mr. Miller) currently is a
director of PMT. PMT has indicated that it intends to approve Mr. Cannada as
the Nominated Director. In order to facilitate the recomposition of the NOVA
Board, it is anticipated that Dr. James E. Carnes, U. Bertram Ellis, and Joseph
P. Landy will resign as directors of NOVA as of the Effective Time.
Following the Effective Time, Edward Grzedzinski, the current Chairman,
President and Chief Executive Officer of NOVA, and James M. Bahin, the current
Vice Chairman, Chief Financial Officer and Secretary of NOVA, will retain their
current positions. Richardson M. Roberts, the current Chairman and Chief
Executive Officer of PMT, will continue as Chief Executive Officer of PMT and
will be elected a Vice Chairman of NOVA's Board of Directors. Additionally,
Gregory S. Daily, the current President of PMT, will continue as President of
PMT and will be elected a Vice Chairman of NOVA's Board of Directors.
Following the Effective Time, the Board of Directors of PMT (which will be a
wholly-owned subsidiary of NOVA) will consist of Richardson M. Roberts, Gregory
S. Daily, Edward Grzedzinski, and James M. Bahin. The remaining executive
officers of PMT after the Effective Time will be agreed upon by Richardson M.
Roberts and Edward Grzedzinski. See "Proposal 1--The Proposed Merger--
Management and Operations After the Merger" and "Proposal 1--The Proposed
Merger--Interests of Certain Persons in the Merger."
Interests of Certain Persons in the Merger. Following the Merger, Edward
Grzedzinski, the current Chairman, President and Chief Executive Officer of
NOVA, will continue to serve in that capacity; James M. Bahin, the current Vice
Chairman, Chief Financial Officer and Secretary of NOVA, will continue to serve
in that capacity; Richardson M. Roberts, the current Chairman and Chief
Executive Officer of PMT, will continue as Chief Executive Officer of PMT and
will become a Vice Chairman of NOVA's Board of Directors; and Gregory S. Daily,
the current President of PMT, will continue as President of PMT and will become
a Vice Chairman of NOVA's Board of Directors. In connection with the Merger
Agreement, NOVA entered into Employment Agreements with each of Messrs. Roberts
and Daily. The Employment Agreements are intended to replace each of Messrs.
Roberts' and Daily's existing employment agreements with PMT, and will become
effective only in the event the Merger is consummated. Each Employment
Agreement has a term of one year, beginning at the Effective Time, subject to
early termination or renewal as therein provided. The Employment Agreements
provide for payment of base salary, bonuses, and certain fringe benefits, and
also provide for termination payments to be made to the employee in the event
of termination of employment (including payments in the event NOVA undergoes a
"change in control," as defined under the Employment Agreements). See "Proposal
1--The Proposed Merger--Interests of Certain Persons in the Merger."
In connection with the Merger Agreement, NOVA entered into a Registration
Rights Agreement with Messrs. Roberts and Daily. The Registration Rights
Agreement provides that NOVA will provide reasonable assistance to Messrs.
Roberts and Daily in the event either of them elects to dispose of a portion of
the shares of the NOVA Stock that they receive in the Merger. Additionally, the
Registration Rights Agreement provides that Messrs. Roberts and Daily will have
certain limited incidental registration rights in the event NOVA registers
securities of NOVA. See "Proposal 1--The Proposed Merger--Interests of Certain
Persons in the Merger--Registration Rights."
Conditions to Consummation. Consummation of the Merger Agreement and the
transactions contemplated thereby are subject to a number of conditions,
including, among other things: (i) approval of the Merger Agreement and the
transactions contemplated thereby by the shareholders of PMT and NOVA, and
approval of the proposed amendment to the Articles of Incorporation of NOVA
(NOVA Proposal 2) by the shareholders of NOVA; (ii) receipt of all governmental
and other consents and approvals necessary to permit consummation of the
Merger, including the expiration of all applicable waiting periods (or
extensions thereof) under the Hart-
8
<PAGE>
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act");
(iii) receipt by NOVA of an opinion from Long Aldridge & Norman LLP and receipt
by PMT of an opinion of Waller Lansden Dortch & Davis, a Professional Limited
Liability Company, each dated as of the Effective Time, that the Merger
qualifies as a tax-free reorganization under the Code for federal income tax
purposes; (iv) the receipt by NOVA of letters from Ernst & Young LLP dated as
of the effective date of the Registration Statement and as of the Effective
Time regarding its concurrence with management's conclusion that the Merger
qualifies for pooling of interests accounting treatment under Accounting
Principles Board Opinion No. 16 if closed and consummated in accordance with
the Merger Agreement, and the receipt by PMT of letters from
PricewaterhouseCoopers LLP dated as of the effective date of the Registration
Statement and the Effective Time to the same effect; and (v) the approval for
listing on the NYSE of the NOVA Stock to be issued in the Merger, subject to
notice of issuance. Further, PMT has the right to terminate the Merger
Agreement if the value of the Merger Consideration to be received by PMT
shareholders at the Effective Time would be less than $15.00 per share of PMT
Stock exchanged therefor, subject to NOVA's right to adjust the Exchange Ratio
so that the value of the Merger Consideration on the date of the Effective Time
is $15.00 per share of PMT Stock. See "Proposal 1--The Proposed Merger--
Conditions to the Merger" and "Proposal 1--The Proposed Merger--Summary of
Certain Provisions of the Merger Agreement."
Regulatory Approvals. The Merger is subject to review by the United States
Department of Justice and the Federal Trade Commission under the HSR Act. NOVA
and PMT have filed the required notifications with the Department of Justice
and the Federal Trade Commission under the HSR Act. See "Proposal 1--The
Proposed Merger--Regulatory Approvals."
Conduct of Business Pending the Merger. Each of NOVA and PMT has agreed in
the Merger Agreement to, among other things, operate its business only in the
ordinary course of its business as currently conducted and, to the extent
consistent therewith, to use reasonable best efforts to preserve intact its
current business organizations, keep available the services of its current
officers and employees and preserve its relationship with customers, suppliers
and others having business dealings with it to the end that its goodwill and
ongoing business will be unimpaired at the Effective Time. In addition, and
without limiting the generality of the foregoing sentence, each of NOVA and PMT
has agreed not to take certain actions relating to its operations pending
consummation of the Merger without the prior consent of the other party, except
as otherwise permitted by the Merger Agreement, including, among other things,
that each of NOVA and PMT will not: (i) declare, set aside, or pay any
dividends on, or make distributions in respect of its stock, or split, combine
or reclassify any of its stock, or issue or authorize the issuance of any other
securities in respect of its stock, or, subject to certain limitations,
purchase, redeem or otherwise acquire any shares of its stock; (ii) issue any
shares of its stock, other than pursuant to certain exceptions; (iii) acquire
or agree to acquire any entity or the assets or business of any entity, except
for certain transactions in the ordinary course of business which such party is
obligated to consummate pursuant to agreements in effect as of the date of the
Merger Agreement; (iv) incur any indebtedness or guarantee any indebtedness,
subject to certain limited exceptions; or (v) take any action, other than
reasonable and usual actions in the ordinary course of business consistent with
past practice, with respect to accounting policies or procedures (other than
actions required to be taken by generally accepted accounting principles). See
"Proposal 1--The Proposed Merger--Conduct of Business Pending the Merger."
On May 14, 1998, PMT acquired MBN National, Inc., a California corporation
("MBN"), an independent service organization ("ISO") with a merchant portfolio
generating annualized charge volume of approximately $400 million. Pursuant to
the merger agreement between PMT and MBN, PMT acquired all of the issued and
outstanding capital stock of MBN, and MBN became a wholly-owned subsidiary of
PMT. Total consideration paid was 987,500 shares of PMT Stock, which was
determined through arm's length negotiations. Pursuant to this merger
agreement, PMT has agreed to register for resale up to 25% of the aggregate
number of shares of PMT Stock issued to the shareholders of MBN.
9
<PAGE>
On July 30, 1998, PMT acquired Superior Bankcard Service, Inc., a California
corporation ("Superior"), an ISO with a merchant portfolio generating
annualized charge volume of approximately $1.0 billion. Pursuant to the merger
agreement between PMT and Superior, PMT acquired all of the issued and
outstanding capital stock of Superior, and Superior became a wholly-owned
subsidiary of PMT. Total consideration paid was 3,720,930 shares of PMT Stock,
which was determined through arm's length negotiations. Pursuant to this merger
agreement, PMT has agreed to register for resale up to 25% of the aggregate
number of shares of PMT Stock issued to the shareholders of Superior, which
registration rights terminate if the Merger is consummated.
Termination. The Merger Agreement may be terminated at any time prior to the
Effective Time under certain circumstances, including, among other things, (i)
by the mutual consent of NOVA and PMT, (ii) by either NOVA or PMT if the Merger
has not been effected prior to the close of business on November 30, 1998,
which date may be extended under certain circumstances to February 28, 1999,
(iii) by either NOVA or PMT if the requisite shareholder approvals are not
obtained, (iv) by either NOVA or PMT in certain circumstances involving a
competing transaction or a withdrawal or modification by a Board of Directors
of its recommendation of the Merger, (v) by either NOVA or PMT in certain
instances of a material breach by the other party of its representations,
warranties, covenants or agreements contained in the Merger Agreement, and (vi)
by PMT, if the value of the Merger Consideration to be received by PMT
shareholders at the Effective Time would be less than $15.00 per share of PMT
Stock exchanged therefor, subject to NOVA's right to adjust the Exchange Ratio
so that the value of the Merger Consideration at the Effective Time is $15.00
per share of PMT Stock. See "Proposal 1--The Proposed Merger--Summary of
Certain Provisions of the Merger Agreement."
Stock Option Agreements. In connection with the Merger Agreement, NOVA (as
issuer) entered into a Stock Option Agreement with PMT (as grantee), dated as
of June 17, 1998 (the "NOVA Stock Option Agreement"), and PMT (as issuer)
entered into a Stock Option Agreement with NOVA (as grantee), dated as of June
17, 1998 (the "PMT Stock Option Agreement" and, together with the PMT Stock
Option Agreement, the "Stock Option Agreements"). The NOVA Stock Option
Agreement and the PMT Stock Option Agreement are attached to this Joint Proxy
Statement/Prospectus as Appendix B and Appendix C, respectively, and are
incorporated by reference herein.
Pursuant to the PMT Stock Option Agreement, PMT granted to NOVA an
irrevocable option (the "PMT Option"), exercisable only under certain limited
and specifically defined circumstances (none of which, to the best of PMT's and
NOVA's knowledge, has occurred as of the date hereof) to purchase up to a
number of shares of PMT Stock equal to 19.9% of the total number of shares of
PMT Stock issued and outstanding at the time of exercise for a purchase price
of $25.16 per share, subject to adjustment in certain circumstances.
Pursuant to the NOVA Stock Option Agreement, NOVA granted to PMT an
irrevocable option (the "NOVA Option" and, together with the PMT Option, the
"Options"), exercisable only under certain limited and specifically defined
circumstances (none of which, to the best of NOVA's and PMT's knowledge, has
occurred as of the date hereof) to purchase up to a number of shares of NOVA
Stock equal to 19.9% of the total number of shares of NOVA Stock issued and
outstanding at the time of exercise for a purchase price of $35.19 per share,
subject to adjustment in certain circumstances.
Under certain circumstances, if an Option becomes exercisable, the holder of
such Option will have the right to require the issuer of the Option to
repurchase such Option (or the shares purchased pursuant thereto).
The Stock Option Agreements and the Options are intended to increase the
likelihood that the Merger will be consummated on the terms set forth in the
Merger Agreement, and may be expected to discourage offers by third parties to
acquire or otherwise propose business combination transactions with PMT or NOVA
prior to the Merger.
In the event that either the PMT shareholders or the NOVA shareholders fail
to approve the Merger Agreement and the transactions contemplated thereby, or,
in the case of the NOVA shareholders, NOVA
10
<PAGE>
Proposal 2, either PMT or NOVA may terminate the Merger Agreement. See
"Proposal 1--The Proposed Merger--Amendment, Waiver and Termination." If such
termination occurs prior to the occurrence of an Initial Triggering Event (as
such term is hereinafter defined) under the Stock Option Agreements, the Stock
Option Agreements will automatically terminate at such time. If a Subsequent
Triggering Event (as hereinafter defined) occurs under either Stock Option
Agreement prior to termination of such Stock Option Agreement, however, PMT or
NOVA, as applicable, will be entitled to exercise the related Option in
accordance with its or their terms, as applicable. See "Proposal 1--The
Proposed Merger--Stock Option Agreements."
Resales of NOVA Stock. The NOVA Stock issued in connection with the Merger
will be freely transferable by the holders of such shares, except for those
holders who may be deemed to be "affiliates" (generally including directors,
certain executive officers, and 10% or more shareholders) of NOVA or PMT under
applicable federal securities laws and under the accounting requirements for a
pooling of interests transaction. Affiliates of NOVA or PMT may not sell shares
of NOVA Stock acquired in connection with the Merger except pursuant to an
effective registration statement under the Securities Act or in compliance with
Rule 144, or Rule 145, in the case of affiliates of PMT, promulgated under the
Securities Act or another applicable exemption from the registration
requirements of the Securities Act and except in compliance with the accounting
requirements of a pooling of interests transaction. See "Proposal 1--The
Proposed Merger--Restrictions on Resales of NOVA Stock."
Other Significant Considerations. In determining whether to approve the
transactions pursuant to the Merger Agreement, NOVA and PMT shareholders should
consider that the price of the NOVA Stock may vary from the price at the
Effective Time, as well as from the prices at the date of this Joint Proxy
Statement/Prospectus and at the date of the Meetings. Such variations may be
the result of changes in the business, operations or prospects of NOVA or PMT,
market assessments of the likelihood that the Merger will be consummated and
the timing thereof, regulatory considerations, general market and economic
conditions and other factors. Because the Effective Time may occur at a later
date than the date of the Meetings, there can be no assurance that the price of
NOVA Stock on the date of the Meetings will be indicative of the price of NOVA
Stock at the Effective Time. The Effective Time will occur as soon as
practicable following the Meetings and the satisfaction or waiver of the other
conditions set forth in the Merger Agreement. See "Proposal 1--The Proposed
Merger--Conditions to the Merger."
Shareholders of NOVA and PMT also should consider that the Exchange Ratio is
a fixed ratio in the Merger Agreement. As a result, except with respect to the
Exchange Ratio adjustment mechanism in favor of PMT described elsewhere herein
(see "Proposal 1--The Proposed Merger--Summary of Certain Provisions of the
Merger Agreement"), the Exchange Ratio will not be adjusted in the event of an
increase or decrease in the market price of either the NOVA Stock or the PMT
Stock, or both. NOVA and PMT shareholders are urged to obtain current market
quotations for the NOVA Stock and the PMT Stock.
11
<PAGE>
EQUIVALENT PER SHARE DATA
The following sets forth certain data concerning the historical net income,
dividends and book value per share for each of NOVA and PMT, and for combined
NOVA and PMT on a pro forma basis after giving effect to the Merger. The pro
forma combined information combines NOVA's historical results for the six
months ended June 30, 1998, the years ended December 31, 1997 and 1996, and the
ten-month period ended December 31, 1995, with PMT's historical results for the
six months ended April 30, 1998 and the 12 months ended October 31, 1997, July
31, 1996 and July 31, 1995, respectively, giving effect to the Merger as if it
had occurred on March 1, 1995. The information below should be read in
conjunction with the unaudited Pro Forma Combining Financial Statements and the
historical financial statements of NOVA and PMT included elsewhere in this
Joint Proxy Statement/Prospectus or incorporated herein by reference. The
unaudited pro forma equivalent per share data shows, for each share of NOVA
Stock and PMT Stock before the Merger, its equivalent position after giving
effect to the Merger. PMT shareholders will receive 0.715 shares of NOVA Stock
(plus cash in lieu of fractional shares of NOVA Stock) for each share of PMT
Stock outstanding at the Effective Time.
<TABLE>
<CAPTION>
TEN MONTH YEAR ENDED DECEMBER 31 SIX MONTHS NINE MONTHS
PERIOD ENDED (NOVA), JULY 31 (PMT), ENDED ENDED
DECEMBER 31, ----------------------------- JUNE 30, APRIL 30,
1995 1995 1996 1997 1998 1998
------------ ----- ----------- ----------- ---------- -----------
HISTORICAL NOVA PMT NOVA PMT NOVA PMT NOVA PMT
---------- ------------ ----- ----- ----- ----- ----- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income per common
share.................. $0.24 $0.18 $0.25 $0.28 $0.60 $0.42 $0.29 $0.43
Net income per common
shares--assuming
dilution............... 0.24 0.18 0.25 0.27 0.58 0.41 0.28 0.42
Book value per common
share at end of period. 2.29 2.83 2.96 3.81 3.55 4.01 7.48 4.15
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31 (NOVA),
JULY 31 (PMT),
-------------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
PRO FORMA COMBINED 1995 1996 1997 1998
------------------ ------ ------ ------------ ----------------
<S> <C> <C> <C> <C>
Net income per common
share..................... $0.25 $0.32 $0.64 $0.35
Net income per common
share, assuming dilution.. 0.25 0.32 0.62 0.34
Book value per common share
at end of period.......... 2.76 4.26 4.81 6.66
<CAPTION>
EQUIVALENT PRO FORMA
COMBINED--PER PMT SHARE(1)
--------------------------
<S> <C> <C> <C> <C>
Net income per common
share..................... $0.18 $0.23 $0.46 $0.25
Net income per common
share, assuming dilution.. 0.18 0.23 0.44 0.24
Book value per common share
at end of period.......... 1.97 3.05 3.44 4.76
</TABLE>
- --------
(1) Equivalent pro forma data is calculated as the pro forma combined
information multiplied by 0.715 (the Exchange Ratio).
12
<PAGE>
MARKET PRICES AND DIVIDENDS ON NOVA STOCK AND PMT STOCK
NOVA. The NOVA Stock began trading on the NYSE on May 8, 1996, under the
symbol "NIS." Prior to that date, there was no public market for the NOVA
Stock. The following table sets forth, for the fiscal periods indicated, the
high and low last sale prices per share for the NOVA Stock as reported on the
NYSE.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1996:
From May 8 to June 30, 1996................................ $39.875 $26.000
Quarter Ended September 30, 1996........................... 36.000 27.500
Quarter Ended December 31, 1996............................ 33.500 18.000
1997:
Quarter Ended March 31, 1997............................... $23.500 $12.875
Quarter Ended June 30, 1997................................ 26.563 15.625
Quarter Ended September 30, 1997........................... 29.125 23.500
Quarter Ended December 31, 1997............................ 30.813 23.250
1998:
Quarter Ended March 31, 1998............................... $33.500 $22.750
Quarter Ended June 30, 1998................................ 35.875 31.000
Quarter Ended September 30, 1998 (through August 18, 1998). 37.118 27.938
</TABLE>
On June 17, 1998, the last trading day prior to public announcement that the
parties had entered into the Merger Agreement, the last reported sale price per
share of the NOVA Stock on the NYSE was $35.19. The last reported sale price of
the NOVA Stock on the NYSE on August 18, 1998, was $28.00 per share. As of
August 20, 1998, NOVA had approximately 46 shareholders of record.
NOVA has never declared or paid cash dividends on the NOVA Stock. The current
policy of NOVA's Board of Directors is to retain any available earnings for use
in the operation and expansion of NOVA's business. Therefore, no payment of
cash dividends on the NOVA Stock is likely in the foreseeable future. Any
future determination to pay cash dividends will be at the discretion of the
Board of Directors and will depend upon NOVA's earnings, capital requirements,
financial condition, the ability of NOVA's subsidiaries to pay cash dividends
to NOVA and any other factors deemed relevant by the Board of Directors. NOVA's
loan agreements also restrict the payment of cash dividends. See "Information
Concerning NOVA--Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Information Concerning NOVA--Liquidity and
Capital Resources" and Note 6 to NOVA's Consolidated Financial Statements.
13
<PAGE>
PMT. The PMT Stock is listed and traded on the Nasdaq National Market under
the symbol "PMTS." The following table sets forth, for the calendar periods
indicated, the high and low last sale prices per share for the PMT Stock on the
Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1996:
Quarter Ended March 31, 1996............................... $16.417 $ 9.583
Quarter Ended June 30, 1996................................ 28.625 15.833
Quarter Ended September 30, 1996........................... 28.750 16.500
Quarter Ended December 31, 1996............................ 22.500 16.750
1997:
Quarter Ended March 31, 1997............................... $18.313 $11.000
Quarter Ended June 30, 1997................................ 16.500 10.375
Quarter Ended September 30, 1997........................... 19.625 15.250
Quarter Ended December 31, 1997............................ 18.063 12.000
1998:
Quarter Ended March 31, 1998............................... $18.000 $12.750
Quarter Ended June 30, 1998................................ 25.438 18.063
Quarter Ended September 30, 1998 (through August 18, 1998). 26.625 19.125
</TABLE>
On June 17, 1998, the last trading day prior to public announcement that the
parties had entered into the Merger Agreement, the last reported sale price per
share of the PMT Stock on the Nasdaq National Market was $20.63. The last
reported sale price of the PMT Stock on the Nasdaq National Market on August
18, 1998, was $19.750 per share. As of August 20, 1998, PMT had approximately
171 shareholders of record.
The stock prices for fiscal year 1996 (which ended July 31, 1996) have been
adjusted to give retroactive effect to PMT's stock splits. The stock split for
shareholders of record on December 29, 1995, was a two-for-one stock split
effected in the form of a stock dividend. The stock split for shareholders of
record on May 28, 1996, was a three-for-two stock split effected in the form of
a stock dividend.
PMT currently intends to retain all earnings to finance the development and
expansion of its operations and, therefore, does not anticipate paying cash
dividends or making any other cash distributions on its shares of PMT Stock in
the foreseeable future. PMT's future dividend policy will be determined by its
Board of Directors on the basis of various factors, including PMT's results of
operations, financial condition, business opportunities and capital
requirements. The declaration of cash dividends is currently prohibited by the
Merger Agreement.
NOVA and PMT shareholders are advised to obtain current market quotations for
the NOVA Stock and PMT Stock. No assurance can be given as to the market price
of NOVA Stock or PMT Stock at or, in the case of NOVA Stock, after the
Effective Time.
14
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
NOVA. The following table sets forth selected historical financial data of
NOVA and has been derived from and should be read in conjunction with the
audited consolidated financial statements of NOVA for each of the three years
in the period ended December 31, 1997, and the unaudited interim consolidated
financial statements of NOVA for the six months ended June 30, 1997 and 1998,
including the respective notes thereto, which are included elsewhere herein.
The interim financial data is unaudited but reflects all adjustments which, in
the opinion of management of NOVA, are necessary for a fair presentation. All
adjustments reflected in the interim financial data are of a normal recurring
nature. Interim results for the six months ended June 30, 1998, are not
necessarily indicative of the results to be expected for the full year.
<TABLE>
<CAPTION>
SIX MONTHS
TEN-MONTH YEAR ENDED ENDED
YEAR ENDED FEBRUARY 28, PERIOD ENDED DECEMBER 31, JUNE 30,
------------------------ DECEMBER 31, ----------------------- ----------------------
1994 1995 1995(1) 1996 1997 1997 1998
----------- ----------- ------------ ----------- ----------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ 68,213 $ 93,592 $ 129,035 $ 265,829 $ 335,625 $ 144,569 $ 298,873
Operating income (loss). (3,931) (245) 2,789 11,905 28,362 11,714 19,838
Net income (loss)....... (4,142) (1,213) 4,887(2) 7,267 17,385 7,561 8,967
Net income (loss) per
common share(3)........ -- $ (0.13) $ 0.24 $ 0.25 $ 0.60 $ 0.26 $ 0.29
=========== =========== ========== =========== =========== ========== ===========
Net income (loss) per
common share assuming
dilution(3)............ -- $ (0.13) $ 0.24 $ 0.25 $ 0.58 $ 0.25 $ 0.28
=========== =========== ========== =========== =========== ========== ===========
Weighted average common
shares outstanding(3).. -- 13,603 18,024 28,604 28,863 28,845 31,060
Weighted average common
shares outstanding
assuming dilution(3)... -- 13,603 18,024 28,604 30,116 29,941 32,269
OTHER DATA:
Merchant sales volume
processed.............. $ 2,871,793 $ 4,131,071 $5,975,013 $11,925,126 $14,980,287 $6,441,151 $12,858,970
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets................................................. $121,861 $339,873
Long-term debt and capital lease obligations, less current
portion..................................................... 832 17,266
Total shareholders' equity................................... 92,703 256,188
</TABLE>
- --------
(1) NOVA changed its fiscal year end from the last day of February to December
31, effective December 31, 1995. For financial reporting purposes, the ten-
month period ended December 31, 1995 is considered an annual period.
Revenues and net income for the 12 months ended December 31, 1995 were
$147.8 million and $3.6 million, respectively.
(2) 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 NOVA's Consolidated Financial Statements.
(3) Pro forma prior to May 8, 1996. See Note 11 to NOVA's Consolidated
Financial Statements.
15
<PAGE>
PMT. The following table sets forth selected historical financial data of PMT
and has been derived from and should be read in conjunction with PMT's Annual
Report on Form 10-K for the year ended July 31, 1997 (as amended by Form 10-K/A
filed on October 31, 1997), and the audited financial statements of PMT for
each of the three years in the period ended July 31, 1997, and PMT's Quarterly
Report on Form 10-Q for the quarter ended April 30, 1998, and the unaudited
interim financial statements of PMT for the nine months ended April 30, 1998,
including the respective notes thereto which are incorporated by reference
herein. See "Incorporation of Certain Information by Reference." The interim
financial data is unaudited but reflects all adjustments which, in the opinion
of management of PMT, are necessary for a fair presentation. All adjustments
reflected in the interim financial data are of a normal recurring nature.
Interim results for the nine months ended April 30, 1998, are not necessarily
indicative of the results to be expected for the full year.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED JULY 31, APRIL 30,
------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $69,955 $110,202 $163,663 $263,450 $355,010 $251,237 $327,353
Operating income........ 3,722 7,494 12,785 19,261 31,242 21,065 33,990
Net income.............. 2,289 3,570 6,378 11,881 20,514 13,570 22,310
Net income per common
share(3)............... $ 0.10 $ 0.15 $ 0.18 $ 0.28 $ 0.42 $ 0.28 $ 0.43
======= ======== ======== ======== ======== ======== ========
Net income per common
share assuming
dilution(3)............ $ 0.10 $ 0.15 $ 0.18 $ 0.27 $ 0.41 $ 0.28 $ 0.42
======= ======== ======== ======== ======== ======== ========
Weighted average common
shares outstanding(3).. 23,192 23,412 34,847 41,906 48,542 47,944 51,590
Weighted average common
shares outstanding
assuming dilution(3)... 23,838 24,033 35,685 43,285 49,723 49,146 52,693
</TABLE>
<TABLE>
<CAPTION>
APRIL 30,
-----------------
1997 1998
-------- --------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets................................................. $243,970 $274,928
Long-term debt and capital lease obligations, less current
portion..................................................... 18,398 19,337
Total shareholders' equity................................... 195,128 218,180
</TABLE>
16
<PAGE>
Selected Pro Forma Combined Condensed Financial Data. The following table
sets forth unaudited selected pro forma combined condensed financial data of
NOVA after giving effect to the Merger accounted for under the pooling of
interests method as of March 1, 1995 for income statement data and as of June
30,1998 for balance sheet data. The unaudited selected pro forma combined
condensed financial data combine NOVA's historical results for the six months
ended June 30, 1998 and 1997, the years ended December 31, 1997 and 1996, and
the ten-month period ended December 31, 1995, with PMT's historical results for
the six months ended April 30, 1998 and 1997 and the 12 months ended October
31, 1997, July 31, 1996 and July 31, 1995, respectively. The pro forma combined
condensed financial data is presented for illustrative purposes only and is not
necessarily indicative of the operating results or financial position that
would have occurred if the Merger had been consummated on the dates indicated,
nor is it necessarily indicative of future operating results or financial
position. The pro forma combined condensed financial and per share data has
been derived from and should be read in conjunction with the pro forma combined
condensed financial data, including the notes thereto, appearing elsewhere
herein. See "Pro Forma Combined Condensed Financial Data."
<TABLE>
<CAPTION>
SIX-MONTH
TEN-MONTH YEAR ENDED PERIOD ENDED
PERIOD ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, ----------------- -----------------
1995(1) 1996 1997 1997 1998
------------ -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................................... $285,779 $520,417 $700,523 $306,555 $516,706
Operating income (loss)....................... 15,574 30,870 61,800 25,343 42,811
Net income (loss)............................. 11,265 19,148 40,945 16,577 23,638
Net income (loss) per common share(3)......... $ 0.25 $ 0.32 $ 0.64 $ 0.26 $ 0.35
======== ======== ======== ======== ========
Net income (loss) per common share assuming
dilution(3).................................. $ 0.25 $ 0.32 $ 0.62 $ 0.25 $ 0.34
======== ======== ======== ======== ========
Weighted average common shares outstanding(3). 42,940 58,567 64,058 63,998 68,344
Weighted average common shares outstanding as-
suming dilution(3)........................... 43,539 59,553 70,365 65,199 66,139
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
1998
------------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets...................................................... $614,801
Long-
term debt and capital lease obligations, less current portion.... 36,603
Total shareholder's equity........................................ 450,694
</TABLE>
- --------
(1) NOVA changed its fiscal year end from the last day of February to December
31, effective December 31, 1995. For financial reporting purposes, the ten
month period ended December 31, 1995 is considered an annual period.
Revenues and net income for the 12 months ended December 31, 1995 were
$147.8 million and $3.6 million, respectively.
(2) 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 NOVA's Consolidated Financial Statements.
(3) Pro forma prior to May 8, 1996. See Note 11 to NOVA's Consolidated
Financial Statements.
17
<PAGE>
RISK FACTORS
In addition to the other information included or incorporated by reference
in this Joint Proxy Statement/Prospectus, the following risk factors should be
considered carefully by the shareholders of PMT in evaluating an investment in
the NOVA Stock offered by this Joint Proxy Statement/Prospectus and by the
shareholders of NOVA in evaluating the NOVA Proposals.
This Joint Proxy Statement/Prospectus contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended
(the "Securities Act"), and Section 20A of the Exchange Act, which represent
NOVA's or PMT's expectations or beliefs, including, but not limited to,
statements concerning transaction volume and the impact of acquisitions, joint
ventures and alliances. When used in this Joint Proxy Statement/Prospectus,
the words "may," "could," "should," "would," "believe," "anticipate,"
"estimate," "expect," "intend," "plan" and similar terms and/or expressions
are intended to identify forward-looking statements. These statements by their
nature involve substantial risks and uncertainties, certain of which are
beyond NOVA's and PMT's control. NOVA and PMT caution that various factors,
including the factors described under the caption "Risk Factors" and
"Information Concerning NOVA--Management's Discussion and Analysis of
Financial Condition and Results of Operations" and those discussed in NOVA's
and PMT's filings with the Commission, as well as general economic conditions
and industry trends could cause actual results or outcomes to differ
materially from those expressed in any forward-looking statements of NOVA or
PMT. Any forward-looking statement speaks only as of the date of this Joint
Proxy Statement/Prospectus, and NOVA and PMT undertake no obligation to update
any forward-looking statement or statements to reflect events or circumstances
after the date on which such statement is made or to reflect the occurrence of
an unanticipated event. New factors emerge from time to time, and it is not
possible for NOVA or PMT to predict all of such factors. Further, NOVA and PMT
cannot assess the impact of each such factor on its business or the extent to
which any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking statements.
VISA AND MASTERCARD REGISTRATION TERMINATION
NOVA and PMT, along with all other nonbank transaction processors, must be
sponsored by a financial institution that is a principal member of the VISA
and MasterCard credit card associations in order to process bankcard
transactions. Through each of Regions Bank, Bank of the West, Mellon Bank,
N.A. ("Mellon Bank"), Firstar Bank U.S.A., N.A. ("Firstar"), KeyBank National
Association ("KeyBank") and FUNB, a subsidiary of First Union, which serve as
member clearing banks for NOVA, NOVA is registered with VISA and MasterCard as
a certified processor and member service provider. PMT is registered as a
member service provider with many of the clearing banks that currently provide
processing services on behalf of PMT. NOVA's designation with VISA and
MasterCard as a certified processor and NOVA's and PMT's status as a member
service provider are dependent upon NOVA's and PMT'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 NOVA and PMT. In the event NOVA
or PMT fails to comply with these standards, NOVA's designation as a certified
processor or NOVA's or PMT's status as a member service provider could be
suspended or terminated. There can be no assurance that VISA and MasterCard
will maintain NOVA's and PMT's registrations or that the current VISA and
MasterCard rules allowing NOVA, PMT and other nonbank transaction processors
to market and provide transaction processing services will remain in effect.
The termination of NOVA's or PMT's member service provider registrations or
NOVA's status as a certified processor, or any changes in the VISA or
MasterCard rules that prevent NOVA's or PMT's registration or otherwise limit
NOVA's or PMT's ability to provide transaction processing and marketing
services for VISA or MasterCard, would have a material adverse effect on
NOVA's and PMT's financial condition and results of operations. See
"Information Concerning NOVA--Business of NOVA--Merchant Accounting and
Clearing Bank Relationships."
CONVERSION OF PMT MERCHANT PORTFOLIO
After the consummation of the Merger, and in order to fully realize the
anticipated cost savings and synergies resulting from the Merger, NOVA intends
to convert (the "PMT Conversion") a substantial portion
18
<PAGE>
of PMT's merchant portfolio to the processing systems of NOVA, as well as to
NOVA's proprietary telecommunications network (the "NOVA Network"). However,
because PMT, in a manner similar in many respects to NOVA, utilizes the
services of third party processors and third party clearing and settlement
banks, the cooperation of such third parties is critical to a successful PMT
Conversion. Further, such third parties may claim an ownership interest in
certain of the PMT merchant relationships to which they are party, and those
claims, if successful, could impede the PMT Conversion and, correspondingly,
reduce the cost savings and synergies anticipated to be gained by virtue of
the Merger. In the event such third party claims arise or such third parties
refuse or fail to cooperate in the PMT Conversion, the resulting inability to
achieve anticipated cost savings and synergies from the Merger could have a
material adverse effect on NOVA after the Merger. See "--Risks Associated with
the Merger and Acquisition Strategy--Conversion of Merchant Portfolios."
RISKS ASSOCIATED WITH THE MERGER AND ACQUISITION STRATEGY
Increased Consolidation in the Marketplace. A material element of NOVA's and
PMT's growth strategy is the purchase of additional merchant portfolios and
acquisition of operating businesses and transaction processing assets in order
to facilitate growth, expand NOVA's and PMT's distribution channels and create
greater economies of scale. NOVA and PMT face significant competition from
other transaction processors and ISOs for available acquisition, joint venture
and alliance opportunities. This competition has an impact on the price and
availability of acquisitions, joint ventures and alliances. In addition,
community and regional banks, whose transaction processing businesses have
been NOVA's primary source of acquisition opportunities, in recent years 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 banks
that compete with NOVA or banks that have a relationship or alliance with one
or more competitors of NOVA, thus potentially depriving NOVA of acquisition
opportunities. There can be no assurance that the historical or current level
of acquisition opportunities will continue to exist, that NOVA or PMT will be
able to acquire merchant portfolios, operating businesses and transaction
processing assets that satisfy NOVA's or PMT's criteria, or that any such
acquisition will be on terms favorable to NOVA or PMT.
Complexity of Risk Analysis of Acquisition Targets. In evaluating any
potential purchase of a merchant portfolio, joint venture or business
combination (including the Merger), NOVA conducts a due diligence review of
the related merchant portfolio. The review process includes analyzing the
composition of the merchant portfolio, applying uniform standards and
underwriting guidelines developed by NOVA to the merchant portfolio and
attempting to identify high-risk merchants contained in the merchant
portfolio. Notwithstanding these due diligence efforts, however, there can be
no assurance that NOVA will properly assess the risk attributes associated
with a purchased portfolio or otherwise identify high-risk merchants.
Incorrect risk assessments may result in excessive losses from chargebacks or
merchant fraud in connection with any portfolio purchased or otherwise
acquired by NOVA.
Conversion of Merchant Portfolios. At the time of consummation of merchant
portfolio purchases, business combinations (including the Merger) or joint
ventures, merchants in a purchased portfolio typically are not operating on
the NOVA Network and may not use the merchant accounting processors used by
NOVA. Until NOVA converts each newly-purchased merchant to the NOVA Network
and NOVA's merchant accounting processors, NOVA has little, if any, control
over the performance of such other networks and processors and typically is
unable to apply fully its risk management and fraud avoidance practices to
such merchants. NOVA also must continue to pay third parties for processing
services until the purchased portfolio is fully converted to the NOVA Network,
reducing the economic benefits to NOVA during such time. Moreover, the
merchant customers that comprise a purchased portfolio may have been sold
transaction processing services by ISOs and financial institutions sponsored
by a principal member of the VISA and MasterCard credit card associations.
ISOs are independent agents that typically market and sell the full range of
transaction processing services to merchants, with such services primarily
being outsourced on a non-exclusive basis. Further, the conversion of
merchants may require that merchants learn new operating procedures and could
result in problems, causing
19
<PAGE>
merchants to seek verbal authorization of credit and debit card transactions.
As a condition to conversion, merchants also may seek to negotiate lower fees.
As a result of the Merger, the magnitude, scope, timing, duration and
expense of the PMT Conversion, and the ongoing conversion of the merchant
portfolio associated with NOVA's joint venture transaction with KeyBank will,
in the aggregate, be greater than any conversion previously undertaken by
NOVA, and there can be no assurance that NOVA can successfully complete these
conversions in a timely manner, either concurrently or in series. Failure to
complete these conversions in accordance with management plans could have a
material adverse effect on NOVA's financial condition and results of
operations.
NOVA's acquisition strategy and the resulting growth of NOVA from that
strategy will require that NOVA continue to attract and retain qualified
personnel, while concurrently expanding its managerial and operational
infrastructure. Further, the success of the PMT Conversion and the success of
the operations of PMT following the Merger also will depend on NOVA's ability
to retain a significant number of PMT's current key operations personnel
following the Merger. There can be no assurance that NOVA will be able to hire
and retain qualified personnel in connection with the Merger or otherwise or
that NOVA will be able to expand successfully its infrastructure as
appropriate to accommodate future acquisitions or growth. NOVA's acquisitions
may involve the hiring by NOVA of certain management and sales personnel
affiliated with the purchased portfolio, and the failure to integrate
successfully such personnel into NOVA's operations and business culture may
adversely affect the conversion process. As a result of any of these factors
and considerations, NOVA may not realize the expected economic benefits
associated with its acquisitions, which may have a material adverse effect on
NOVA's financial condition and results of operations.
There can be no assurance that future acquisitions will not have an adverse
effect upon NOVA's operating results, particularly in the fiscal quarters
immediately following the completion of such transactions, while the
operations of the acquired entities are converted and integrated into NOVA's
operations. NOVA's acquisition strategy will require substantial capital
resources, and is likely to result in NOVA incurring additional indebtedness.
There can be no assurance that financing for future acquisitions will be
available or will be obtained on terms favorable to NOVA. See "Information
Concerning NOVA--Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Information Concerning NOVA--Liquidity and
Capital Resources," "Information Concerning NOVA--Business of NOVA--
Acquisition Strategy" and "Information Concerning NOVA--Certain Relationships
and Related Transactions Regarding NOVA--Transactions Related to the First
Union Alliance."
Risks Associated with Joint Venture Alliances. The recently consummated
joint venture alliances with each of Firstar and KeyBank (each a "Joint
Venture," and collectively, the "Joint Ventures") present certain risks to
NOVA in addition to the risks normally associated with portfolio acquisitions
which have been, and continue to be, a material element of NOVA's growth
strategy. Because each of the Joint Ventures involved the creation of a newly-
formed limited liability company jointly owned, managed and serviced by NOVA
and Firstar or KeyBank, as the case may be, continued cooperation with each of
Firstar and KeyBank is important to the success of the Joint Ventures. There
can be no assurance that NOVA's relationships with each of Firstar and KeyBank
will continue to be cooperative and, accordingly, there can be no assurance
that NOVA will realize the anticipated economic benefits from the Joint
Ventures. Further, in the event of a change in control of NOVA's partners in
the Joint Ventures, there can be no assurance that the resulting entity will
support the Joint Ventures in the same manner and to the same degree as its
predecessor. For instance, Firstar Corporation, the parent of Firstar,
recently announced that it had agreed to merge with Star Banc Corporation.
There can be no assurance that the resulting entity in this merger will
support the Firstar Joint Venture in the same manner and to the same degree as
Firstar. Further, the management and provision of processing services to each
of Elan Merchant Services, LLC ("Elan Merchant Services") and Key Merchant
Services, LLC ("Key Merchant Services") (collectively, the "Limited Liability
Companies") imposes increased administrative, managerial and technological
demands on NOVA's infrastructure and related systems, and there can be no
assurance that NOVA will meet successfully such material demands and
requirements.
20
<PAGE>
Each of the Joint Ventures has been formed for a definitive term (subject in
each case to renewal provisions), but is subject to earlier termination by
NOVA or Firstar or KeyBank, as the case may be, under a variety of
circumstances. In the event of earlier termination, or upon termination of
either Joint Venture upon expiration of its term in the absence of renewal,
the then-current assets and merchant portfolio of such Joint Venture are
subject to "repurchase rights" by either NOVA or Firstar or KeyBank, as the
case may be, depending on the circumstances of termination. For example, each
of the Joint Ventures imposes upon NOVA certain standards with respect to the
performance of its processing services. In the event such standards are
breached and not appropriately remedied by NOVA, Firstar or KeyBank, as the
case may be, would have the right to purchase NOVA's interest in Elan Merchant
Services or Key Merchant Services, respectively. Any such purchase would
likely result in a significant decrease in the number of merchant locations
served and the aggregate sales volume processed by NOVA, which may have a
material adverse effect on NOVA's financial condition and results of
operations. Further, in valuing the Joint Ventures, and establishing a
purchase price in connection therewith, NOVA assumes the continuance of each
of the Joint Ventures for a minimum term. Earlier termination may result in
NOVA not realizing the anticipated economic and marketing benefits from the
Joint Ventures, which may have a material adverse effect on NOVA's financial
condition and results of operations.
COMPETITION AND CONSOLIDATION
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. According to industry
sources, the ten largest bankcard processors accounted for approximately 85%
of the total charge volume processed in 1997. The largest bankcard processor
accounted for approximately 38% of total charge volume processed in 1997. NOVA
would have processed 4.2% of the total charge volume processed in 1997, after
giving pro forma effect to the transactions discussed in "Information
Concerning NOVA--Business of NOVA--Recent Transactions." Several of NOVA's and
PMT's competitors and potential competitors have, and after the merger will
continue to have, greater financial, technological, marketing and personnel
resources than NOVA, and there can be no assurance that NOVA and PMT will
continue to be able to compete successfully with such entities. In addition,
the competitive pricing pressures that would result from any increase in
competition would adversely affect NOVA's and PMT's margins and may have a
material adverse effect on NOVA's and PMT's financial condition and results of
operations. See "Information Concerning NOVA--Business of NOVA--Competition
and Consolidation." NOVA and, to a lesser extent, PMT, market their services
through several different marketing channels, including through banks. In the
event that there is continued significant consolidation in the banking
industry, banks that market NOVA's and PMT's services through joint ventures,
alliance relationships, and otherwise may be acquired by banks that compete
with NOVA and PMT or by banks that have a relationship or alliance with one or
more competitors of NOVA, thus potentially depriving NOVA and PMT of a
distribution channel. For instance, each of Firstar (one of NOVA's joint
venture partners) and Crestar (a bank with whom NOVA maintains an alliance
relationship) recently announced that they had agreed to engage in business
combination transactions with third party financial institutions. While
management does not believe that such business combinations, if consummated,
will have a material adverse effect on NOVA's relationship with either Firstar
or Crestar, there can be no assurance that the resulting entities in such
business combinations will support their respective relationships with NOVA in
the same manner and to the same degree as their predecessors.
MERCHANT ATTRITION
NOVA and PMT experience attrition of their merchant base in the ordinary
course of business resulting from several factors, including business
closures, losses to competitors and conversion-related losses. In addition,
substantially all of NOVA's contracts with its merchants may be terminated by
either party upon prior notice of 30 days or less. Increased merchant
attrition may have a material adverse effect on NOVA's and PMT's financial
condition and results of operations. There can be no assurance that NOVA and
PMT will not experience higher rates of attrition in the future, particularly
in connection with purchased merchant portfolios generally, and the PMT
Conversion specifically. See "Information Concerning NOVA--Business of NOVA--
Customer Base" and "Information Concerning NOVA--Business of NOVA--Risk
Management."
21
<PAGE>
DEPENDENCE ON MERCHANT ACCOUNTING RELATIONSHIPS
NOVA outsources certain merchant accounting services to Vital Processing
Services L.L.C. (formerly Total System Services, Inc.) ("Vital Processing
Services") and Mellon Bank. These 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. The failure of Vital Processing Services and Mellon Bank
to continue to perform these services efficiently and effectively may
adversely affect NOVA's relationships with its merchant customers and may
result in the termination by merchants of their agreements with NOVA. The
agreement with Vital Processing Services expires July 1, 2001, and the
agreement with Mellon Bank expires June 30, 1999. NOVA currently is developing
internal systems to provide its own merchant accounting services. Termination
of either agreement would require NOVA to seek alternative outsourcing
arrangements prior to NOVA's implementation of NOVA's internal system to
provide these merchant accounting services. Although management believes that
in the event of termination of either or both of these agreements, NOVA could
locate alternative outsourcing arrangements or develop internal systems to
perform these services, there can be no assurance that such arrangements will
be available on terms as favorable to NOVA as the existing contracts or that
NOVA could develop internal systems on a timely or cost effective basis.
Accordingly, termination of either agreement could have a material adverse
effect on NOVA's financial condition and results of operations. See
"Information Concerning NOVA--Business of NOVA--Merchant Accounting and
Clearing Bank Relationships."
ANNOUNCED INTERCHANGE RATE INCREASES
Historically, VISA and MasterCard have increased their respective
interchange rates each year. These increases affect all transaction processing
industry competitors. While NOVA and PMT historically have reflected these
increases in their pricing to merchants, there can be no assurance that
merchants will continue to assume the entire impact of the future changes or
that transaction processing volumes and merchant attrition will not be
adversely affected by the changes.
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 the amount of the transaction is credited to the cardholder. Reasons for
billing disputes include, among others: (i) nonreceipt of merchandise or
services; (ii) unauthorized use of a credit card; and (iii) general disputes
between a customer and a merchant as to the quality of the goods sold or the
services rendered by that merchant. Some of NOVA's and PMT's merchant
customers, including certain merchants that generate high transaction
processing volume, require full or partial payment from debit and credit
cardholders for products or services to be delivered or rendered in the
future. If NOVA or PMT or their clearing banks are unable to collect
chargeback amounts from a merchant's account, and if the merchant refuses or
is unable due to bankruptcy or other reasons to reimburse NOVA or PMT, as the
case may be, for the chargeback, NOVA or PMT, as the case may be, bears the
loss for the amount of the refund paid to the cardholder. NOVA and PMT attempt
to reduce their exposure to such losses by performing periodic credit reviews
on their merchant customers and adjusting rates based, in part, on the
merchant's credit risk, business or industry. There can be no assurance that
NOVA and PMT will not experience significant losses from chargebacks in the
future. Increases in chargebacks not paid by merchants may have a material
adverse effect on NOVA's and PMT's financial condition and results of
operations. See "Information Concerning NOVA--Business of NOVA--Risk
Management."
MERCHANT FRAUD
NOVA and PMT bear the risk of losses caused by fraudulent credit card
transactions initiated by their merchant customers. Examples of merchant fraud
include inputting false sales transactions or false credits. NOVA and PMT
monitor merchant transactions against a series of standards that each company
has developed to detect merchant fraud. Notwithstanding these measures,
however, there can be no assurance that NOVA and
22
<PAGE>
PMT will not experience significant amounts of merchant fraud in the future,
which may have a material adverse effect on NOVA's and PMT's financial
condition and results of operations. See "Information Concerning NOVA--
Business of NOVA--Customer Base" and "Information Concerning NOVA--Business of
NOVA--Risk Management."
TELECOMMUNICATIONS SERVICES PROVIDED BY WORLDCOM
NOVA has developed a proprietary telecommunications network, the NOVA
Network, and maintains an operating relationship with WorldCom. Pursuant to
its agreement with NOVA, WorldCom provides long-distance and local
telecommunications access, as well as technical support, to NOVA in connection
with the NOVA Network. This agreement was renegotiated recently and expires
July 1, 2001, subject to earlier termination by NOVA in the event of quality
deficiencies in WorldCom's service. If the WorldCom agreement is terminated or
not renewed, NOVA would be required to utilize the long-distance and local
telecommunications access of another long-distance provider, which may
increase NOVA's expenses for network services, resulting in a material adverse
effect on the financial condition and results of operations of NOVA. WorldCom
owns approximately 5.5% of the outstanding NOVA Stock and has a representative
on NOVA's Board of Directors. There can be no assurance that conflicts of
interests between WorldCom and NOVA will not arise or that any such conflicts
will be resolved in a manner favorable to NOVA. See "Information Concerning
NOVA--Business of NOVA--Technology" and "Information Concerning NOVA--Certain
Relationships and Related Transactions Regarding NOVA--Transactions with
WorldCom."
CERTAIN STATE TAX ISSUES
Transaction processing companies like NOVA and PMT 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 transaction
processing industry and the states have not yet adopted uniform guidelines
implementing these regulations. If either NOVA or PMT is required to pay such
taxes and is unable to pass this tax expense through to its merchant
customers, the financial condition and results of operations of NOVA and PMT
could be adversely affected.
DEVELOPMENT AND MARKET ACCEPTANCE OF NEW PRODUCTS
Because the transaction processing industry and the software application
products and value-added services of the type offered by NOVA and PMT have
been characterized by rapidly changing technology and the development of new
products and services, management of NOVA and PMT believe that the future
success of NOVA and PMT will depend, in part, on NOVA's and PMT'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 NOVA and
PMT will continue to develop successful new products and services or that
NOVA's and PMT's newly-developed products and services will perform
satisfactorily or be widely accepted in the marketplace. See "Information
Concerning NOVA--Business of NOVA--Software Application Products and Value-
Added Services."
FLUCTUATION IN QUARTERLY OPERATING RESULTS
NOVA has experienced and expects to continue to experience significant
seasonality in its business. NOVA 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 also are affected by the
timing of purchases of merchant portfolios and joint ventures and the timing
and magnitude of expenses for merchant portfolio conversions. Fluctuations in
operating results may result in volatility in the price of the NOVA Stock.
DEPENDENCE ON KEY MANAGEMENT
The development of NOVA's and PMT's business and operations has been
materially dependent upon the active participation of their respective
executive officers and other key employees. The loss of one or more of
23
<PAGE>
NOVA's executive officers or other key employees may have a material adverse
effect on NOVA's and PMT's financial condition and results of operations, as
the case may be. See "Proposal 1--The Proposed Merger--Management and
Operations After the Merger" and "Information Concerning NOVA--Management of
NOVA."
SIGNIFICANT INTANGIBLE ASSETS
A substantial portion of NOVA's and PMT's assets are intangible assets
related to purchased 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 fair value and, as a result, the carrying value of the related
intangible asset will be reduced. Additionally, changes in accounting policies
or rules that affect the way in which such intangible assets are reflected in
NOVA's or PMT's financial statements, or the way in which they are treated for
tax purposes, could have a material adverse effect on NOVA's or PMT's
financial condition.
BANKING AND TERRITORIAL RESTRICTIONS
To facilitate First Union's compliance with applicable banking laws,
regulations and orders (collectively, the "Banking Laws"), and to allow First
Union to obtain any required consents or approvals, NOVA has agreed to notify,
and obtain approval from, First Union before NOVA enters into any business
activities substantially different from the business activities NOVA currently
conducts. As of the NOVA Record Date, First Union beneficially owned
approximately 19.9% of the outstanding NOVA Stock and currently has one
representative on NOVA's Board of Directors. Pursuant to the Joint Ventures
and to the extent required by the Banking Laws, NOVA may be required to take
certain measures in the event either NOVA or the Limited Liability Companies
enter into or acquire any other entity which is engaged in a business that is
substantially different from the business activities NOVA, or either Limited
Liability Company, currently conducts. Such measures may include applying for
any required regulatory consents, or assisting either KeyBank, Firstar, or the
Limited Liability Companies, as the case may be, to prepare such applications.
If the required consents and approvals are not received, NOVA may not engage
in the new business activity (such restrictions, including the restrictions
relating to First Union, being collectively referred to herein as the "Banking
Restrictions").
In connection with a December 1995 transaction between NOVA and First Union
(the "First Union Alliance"), the purchase of the merchant portfolio of
Crestar Bank ("Crestar"), NOVA's joint venture transaction with Firstar (the
"Firstar Joint Venture"), and the KeyBank Joint Venture, NOVA agreed that it
would not, without the prior consent of the affected entity, enter into
certain marketing or, in certain instances, acquisition agreements with third
parties located in specified areas where, as of the date of such transactions,
any of First Union, Crestar, Firstar or KeyBank maintain a significant banking
presence (such restrictions being collectively referred to herein as the
"Territorial Restrictions"). The effect of the Banking Restrictions and the
Territorial Restrictions is to limit in certain respects NOVA's ability to
directly seek or take advantage of certain business or marketing opportunities
other than through a venture with NOVA's regional bank partners. The
agreements generally do not prohibit NOVA from pursuing transactions
indirectly through the respective alliance or joint venture. NOVA has obtained
the consents required under such Territorial Restrictions from KeyBank and
First Union in connection with the Merger Agreement and the transactions
contemplated thereby. See "Information Concerning NOVA--Certain Relationships
and Related Transactions Regarding NOVA--Transactions Related to the First
Union Alliance" and "Information Concerning NOVA--Business of NOVA--Banking
Regulation."
CERTAIN ANTI-TAKEOVER PROVISIONS
NOVA's Articles of Incorporation authorize NOVA to issue up to 5,000,000
shares of Preferred Stock with such designations, powers, preferences and
rights as may be fixed by the Board of Directors of NOVA, without any further
vote or action by the NOVA shareholders. The issuance of Preferred Stock could
have the effect of delaying, deferring or preventing a change in control of
NOVA.
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<PAGE>
CONTROLLING SHAREHOLDERS
After giving effect to the issuance of the shares of NOVA Stock to the PMT
shareholders in the Merger, Warburg, First Union, executive officers, and
directors of NOVA and their affiliates, and WorldCom will own beneficially
approximately 12.3%, 9.5%, 26.3%, and 2.6%, respectively, of the outstanding
NOVA Stock. See "Information Concerning NOVA--Management of NOVA" and
"Information Concerning NOVA--Security Ownership of Certain Beneficial Owners
and Management." As a result of such stock ownership, these shareholders, if
acting together or in certain combinations, would be able to exert influence
on matters requiring approval by NOVA's shareholders, including the election
of directors.
POSSIBLE VOLATILITY OF STOCK PRICE
Since NOVA's initial public offering in May 1996, there has been and may
continue to be significant volatility in the market for the NOVA Stock, and
there can be no assurance that an active market for the NOVA Stock can be
sustained. See "Summary--Market Prices and Dividends on NOVA Stock and PMT
Stock." Factors such as changes in quarterly operating results, the gain or
loss of significant contracts, the entry of new competitors into NOVA's
markets, changes in management, announcements of technological innovations or
new products by NOVA or its competitors, and general events and circumstances
beyond NOVA's control could have a significant impact on the future market
prices of the NOVA Stock and the relative volatility of such market prices.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of NOVA Stock in the public market
following the Merger could adversely affect the prevailing market price of the
NOVA Stock and could impair NOVA's ability to raise additional equity capital.
Following the Merger, NOVA will have outstanding approximately 71,938,780
shares of NOVA Stock. Of these shares, the approximately 37,648,930 shares to
be issued in the Merger and the currently outstanding shares will be freely
tradeable without restriction or further registration under the Securities
Act, unless held by "affiliates" of NOVA or PMT as that term is defined in
Rule 144 and Rule 145 under the Securities Act. In addition, upon consummation
of the Merger, the holders of a total of approximately 17,600,000 shares of
NOVA Stock have the right under certain circumstances to require NOVA to
register under the Securities Act their shares for resale to the public. See
"Shares Eligible for Future Sale." An additional 2,709,391 shares of NOVA
Stock that may be issued in the future upon exercise of options granted and to
be granted under NOVA's stock option plans have been registered under the
Securities Act and therefore will be freely tradeable when issued (subject to
the volume and certain other conditions of Rule 144 in the case of shares to
be sold by affiliates of NOVA). Options and warrants for the purchase of
approximately 2,538,493 shares of NOVA Stock were outstanding as of August 18,
1998, of which options and warrants for 836,237 shares were exercisable.
Additionally, pursuant to the Merger Agreement, outstanding options and
warrants to purchase PMT Stock will be converted into and exchanged for
options and warrants to purchase shares of NOVA Stock which will result in the
grant of options and warrants to purchase approximately 2,291,080 additional
shares of NOVA Stock.
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INFORMATION REGARDING THE MEETINGS
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to the shareholders
of NOVA and PMT in connection with the solicitation of proxies by the Boards
of Directors of NOVA and PMT for use at the NOVA Special Meeting and the PMT
Special Meeting, respectively, and at any adjournments thereof. Each copy of
this Joint Proxy Statement/Prospectus that is being mailed or delivered to
NOVA shareholders is accompanied by a NOVA Proxy Card and the Notice of
Special Meeting of Shareholders of NOVA. Each copy of this Joint Proxy
Statement/Prospectus that is being mailed or delivered to PMT shareholders is
accompanied by a PMT Proxy Card and the Notice of Special Meeting of
Shareholders of PMT. This Joint Proxy Statement/Prospectus and the
accompanying form of proxy are first being mailed to shareholders of NOVA and
PMT on or about August 24, 1998.
This Joint Proxy Statement/Prospectus is also being furnished by NOVA to the
shareholders of PMT as a Prospectus in connection with the issuance by NOVA of
shares of NOVA Stock in connection with the Merger.
NOVA SPECIAL MEETING
The NOVA Special Meeting is scheduled to be held at NOVA's corporate
headquarters, One Concourse Parkway, Suite 300, Atlanta, Georgia, on Thursday,
September 24, 1998, beginning at 10:00 a.m., Atlanta time. At the NOVA Special
Meeting, NOVA shareholders will consider and vote upon (i) a proposal to
approve the Merger Agreement and the transactions contemplated thereby,
including without limitation the Share Issuance, (ii) a proposal to amend the
Articles of Incorporation of NOVA to increase the number of authorized shares
of NOVA Stock to 200,000,000 from 50,000,000 shares, and (iii) a proposal to
amend the Plan to increase the number of shares of NOVA Stock issuable
thereunder to 6,000,000 from 2,000,000. See "Proposal 1--The Proposed Merger,"
"Proposal 2--Amendment to the Articles of Incorporation of NOVA" and "Proposal
3--Amendment to the NOVA Corporation 1996 Employees Stock Incentive Plan." The
Board of Directors of NOVA knows of no business that will be presented for
consideration at the NOVA Special Meeting other than the NOVA Proposals
described in this Joint Proxy Statement/Prospectus.
PMT SPECIAL MEETING
The PMT Special Meeting is scheduled to be held at the corporate
headquarters of PMT, 3841 Green Hills Village Drive, Nashville, Tennessee, on
Thursday, September 24, 1998, beginning at 9:00 a.m., Nashville time. At the
PMT Special Meeting, holders of PMT Stock will consider and vote upon a
proposal to approve the Merger Agreement and the transactions contemplated
thereby. See "Proposal 1--The Proposed Merger." The Board of Directors of PMT
knows of no business that will be presented for consideration at the PMT
Special Meeting other than the matters described in this Joint Proxy
Statement/Prospectus.
RECORD DATE; QUORUM
NOVA. The Board of Directors of NOVA has fixed the close of business on
August 20, 1998, as the NOVA Record Date for determining the NOVA shareholders
entitled to receive notice of and to vote at the NOVA Special Meeting. Only
holders of record of NOVA Stock as of the NOVA Record Date are entitled to
notice of and to vote at the NOVA Special Meeting. As of the NOVA Record Date,
there were 34,289,850 shares of NOVA Stock issued and outstanding and held by
46 record holders. Holders of NOVA Stock are entitled to one vote on each
matter considered and voted on at the NOVA Special Meeting for each share of
NOVA Stock held of record at the close of business on the NOVA Record Date.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of NOVA Stock entitled to vote at the NOVA
Special Meeting is necessary to constitute a quorum at the NOVA Special
Meeting. Abstentions will be counted as shares present for purposes of
determining the presence of a quorum. Shares of NOVA Stock as to which a
broker indicates it has no discretion to vote and which are not voted will be
considered not present at the NOVA Special Meeting for purposes of determining
the presence of a quorum and as unvoted for the purposes of approving each of
the NOVA Proposals to be submitted at the NOVA Special Meeting. Because the
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approval of a majority of the outstanding shares of NOVA Stock is required to
approve each of the NOVA Proposals, abstentions will have the effect of a vote
"AGAINST" the NOVA Proposals.
PMT. The Board of Directors of PMT has fixed the close of business on
August 20, 1998, as the PMT Record Date for determining the PMT shareholders
entitled to receive notice of and to vote at the PMT Special Meeting. Only
holders of record of PMT Stock as of the PMT Record Date are entitled to
notice of and to vote at the PMT Special Meeting. As of the PMT Record Date,
there were approximately 52,655,844 shares of PMT Stock issued and outstanding
and held by 171 record holders. Holders of PMT Stock are entitled to one vote
on each matter considered and voted on at the PMT Special Meeting for each
share of PMT Stock held of record at the close of business on the PMT Record
Date. The presence, in person or by properly executed proxy, of the holders of
a majority of the outstanding shares of PMT Stock entitled to vote at the PMT
Special Meeting is necessary to constitute a quorum at the PMT Special
Meeting. Abstentions will be counted as shares present for purposes of
determining the presence of a quorum. Shares of PMT Stock as to which a broker
indicates it has no discretion to vote and which are not voted will be
considered not present at the PMT Special Meeting for purposes of determining
the presence of a quorum and as unvoted for the purposes of approving the
proposal to be submitted at the PMT Special Meeting. Because the approval of a
majority of the outstanding shares of PMT Stock is required to approve the
Merger Agreement and the consummation of the transactions contemplated
thereby, abstentions will have the effect of a vote "AGAINST" the proposal.
VOTE REQUIRED
NOVA. Approval of each of the NOVA Proposals requires the affirmative vote
of the holders of a majority of the outstanding shares of NOVA Stock entitled
to vote thereon at the NOVA Special Meeting. IT IS A CONDITION TO THE MERGER
THAT THE NOVA SHAREHOLDERS APPROVE NOVA PROPOSAL 1 AND NOVA PROPOSAL 2.
ACCORDINGLY, IF THE NOVA SHAREHOLDERS DO NOT APPROVE BOTH OF SUCH PROPOSALS,
THE MERGER AGREEMENT MAY BE TERMINATED. See "Proposal 1--The Proposed Merger."
As of the NOVA Record Date, First Union (and its affiliates), Warburg and
WorldCom owned or controlled the vote of approximately 19.9%, 25.8% and 5.5%,
respectively, of the outstanding shares of NOVA Stock entitled to vote at the
NOVA Special Meeting. The directors and executive officers of NOVA owned or
controlled an additional 3.0% of the outstanding shares of NOVA Stock. Subject
to certain limited exceptions, each of First Union, Warburg, and WorldCom has
agreed to vote all shares owned or controlled by it in favor of each of the
NOVA Proposals. Because such shareholders own or control a majority of the
outstanding shares of NOVA Stock, the approval of each of the NOVA Proposals
is reasonably assured. See "Information Concerning NOVA--Security Ownership of
Certain Beneficial Owners and Management." As of the PMT Record Date, NOVA's
directors and executive officers, and their affiliates, held no shares of PMT
Stock.
PMT. Approval of the Merger Agreement and consummation of the transactions
contemplated thereby requires the affirmative vote of the holders of a
majority of the outstanding shares of PMT Stock entitled to vote thereon at
the PMT Special Meeting. IT IS A CONDITION TO THE MERGER THAT THE PMT
SHAREHOLDERS APPROVE THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY. ACCORDINGLY, IF THE PMT SHAREHOLDERS DO NOT APPROVE THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, THE MERGER AGREEMENT MAY
BE TERMINATED. See "Proposal 1--The Proposed Merger."
As of the PMT Record Date, PMT's directors and executive officers owned or
controlled the vote of approximately 5.6% of the outstanding shares of PMT
Stock entitled to vote at the PMT Special Meeting. Such shares include 3.1% of
the outstanding PMT Stock owned by Richardson M. Roberts and 2.4% of the
outstanding PMT Stock owned by Gregory S. Daily. Subject to certain limited
exceptions, each of Messrs. Roberts and Daily have agreed to vote their shares
in favor of the Merger Agreement and the transactions contemplated thereby.
Further, each of the other directors of PMT have indicated their intent to
vote their shares of PMT Stock in favor of the Merger Agreement and the
transactions contemplated thereby. As of the NOVA Record Date, PMT's directors
and executive officers and their affiliates held no shares of NOVA Stock.
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SOLICITATION AND REVOCABILITY OF PROXIES
Shares of NOVA Stock and PMT Stock represented by properly executed proxies,
if such proxies are received in time and are not revoked, will be voted at the
respective meetings in accordance with the instructions indicated on the
proxies. IF NO INSTRUCTIONS ARE INDICATED, SUCH PROXIES WILL BE VOTED "FOR"
APPROVAL OF EACH OF THE PROPOSALS LISTED ON THE RESPECTIVE PROXY CARDS. ANY
HOLDER OF NOVA STOCK OR PMT STOCK WHO RETURNS A SIGNED PROXY BUT FAILS TO
PROVIDE INSTRUCTIONS AS TO THE MANNER IN WHICH SUCH HOLDER'S SHARES ARE TO BE
VOTED WILL BE DEEMED TO HAVE VOTED "FOR" APPROVAL OF EACH OF THE PROPOSALS
LISTED ON THE PROXY CARD. If any other matters properly come before the NOVA
Special Meeting or the PMT Special Meeting, including without limitation a
proposal to adjourn a Meeting until a later time or date, as the case may be,
the persons named as proxies will vote upon such matters according to their
judgment.
All proxy cards delivered pursuant to this solicitation are revocable at any
time prior to the vote at the respective Meeting at the option of the persons
executing them, in the case of the NOVA shareholders, by giving written notice
to the secretary of NOVA, by delivering a later dated proxy card or by voting
in person at the NOVA Special Meeting, or in the case of the PMT shareholders,
by giving written notice to the secretary of PMT, by delivering a later dated
proxy card or by voting in person at the PMT Special Meeting. All written
notices of revocation and other communications with respect to revocations of
proxies should be addressed by NOVA shareholders to: NOVA Corporation, One
Concourse Parkway, Suite 300, Atlanta, Georgia 30328, Attention: James M.
Bahin, Secretary, and by PMT Shareholders to: PMT Services, Inc., 3841 Green
Hills Village Drive, Nashville, Tennessee 37215, Attention: Vickie G. Johnson,
Secretary. Attendance at the NOVA Special Meeting or the PMT Special Meeting
will not in and of itself constitute a revocation of a proxy.
HOLDERS OF NOVA STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO NOVA IN THE ACCOMPANYING POSTAGE-
PAID ENVELOPE. HOLDERS OF PMT STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN
THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO PMT IN THE ACCOMPANYING
POSTAGE-PAID ENVELOPE.
NOVA and PMT will each bear their own costs of soliciting proxies. Proxies
initially will be solicited by each of NOVA and PMT by mail, but directors,
officers and selected employees of each company may solicit proxies from their
respective shareholders personally or by telephone, telecopy or other forms of
communication. Such directors, officers and employees will not receive any
additional compensation for such solicitation. Each of NOVA and PMT also will
request brokerage houses, nominees, fiduciaries and other custodians to
forward soliciting materials to beneficial owners, and NOVA and PMT, as the
case may be, will reimburse such persons for their reasonable expenses
incurred in doing so. All expenses incurred in connection with the
solicitation of proxies will be borne by NOVA and PMT, as the case may be.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
NOVA. The Board of Directors of NOVA has unanimously adopted and approved
the Merger Agreement and the transactions contemplated thereby, the proposed
amendment to the Articles of Incorporation and the proposed amendment to the
Plan, and believes each of the NOVA Proposals is fair to and in the best
interest of NOVA and its shareholders. Accordingly, the Board of Directors of
NOVA unanimously recommends that shareholders of NOVA vote "FOR" approval of
each of the NOVA Proposals. See "Proposal 1--The Proposed Merger--Reasons for
the Merger," "Proposal 2--Amendment to the Articles of Incorporation of NOVA"
and "Proposal 3--Amendment to the NOVA Corporation 1996 Employees Stock
Incentive Plan."
PMT. The Board of Directors of PMT has unanimously adopted and approved the
Merger Agreement and the transactions contemplated thereby. The PMT Board of
Directors believes that the Merger is fair to and in the best interests of PMT
and its shareholders and unanimously recommends that the shareholders of PMT
vote
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"FOR" approval of the Merger Agreement and the consummation of the
transactions contemplated thereby. See "Proposal 1--The Proposed Merger--
Reasons for the Merger."
DISSENTERS' RIGHTS
Under Tennessee and Georgia law, the PMT shareholders and the NOVA
shareholders are not entitled to dissent from the Merger and receive cash from
PMT or NOVA equal to the fair value of such shareholders' PMT Stock or NOVA
Stock.
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PROPOSAL 1--THE PROPOSED MERGER
GENERAL
The following sets forth a summary of the material terms of the Merger
Agreement and the transactions contemplated thereby, as well as certain other
agreements executed in connection with the Merger Agreement. This description
does not purport to describe all provisions of the Merger Agreement or such
other agreements and is qualified in its entirety by reference to the
Appendices hereto, including the Merger Agreement, a copy of which is set
forth in Appendix A to this Joint Proxy Statement/Prospectus and is
incorporated herein by reference. All NOVA and PMT shareholders are urged to
read the Appendices in their entirety.
THE PROPOSED MERGER
The Merger Agreement provides, among other things, that Mergerco will merge
with and into PMT. PMT will be the surviving corporation in the Merger and
will become a wholly-owned subsidiary of NOVA. The Merger Agreement and the
transactions contemplated thereby are subject to the satisfaction or waiver of
certain conditions. See "--Summary of Certain Provisions of the Merger
Agreement--Conditions to the Merger."
MERGER CONSIDERATION
At the Effective Time, each outstanding share of PMT Stock will cease to be
outstanding and will be converted into and exchanged for 0.715 shares of NOVA
Stock (the Exchange Ratio), with fractional shares to be settled in cash. See
"--No Fractional Shares."
At the Effective Time, each option or warrant to purchase PMT Stock
outstanding at the Effective Time, whether or not exercisable, will be
converted automatically into an option or warrant, as the case may be, to
purchase a number of shares of NOVA Stock equal to (A) the number of shares of
PMT Stock issuable upon exercise of the option or warrant (assuming full
vesting) multiplied by (B) the Exchange Ratio; provided, that the number of
shares of NOVA Stock issuable upon exercise of an option or warrant will be
rounded to the nearest whole number of shares of NOVA Stock. The exercise
price per share of NOVA Stock issuable upon exercise of such converted options
and warrants will be equal to (A) the exercise price per share of PMT Stock
under such option or warrant divided by (B) the Exchange Ratio and rounded to
the nearest cent. Pursuant to the terms of the PMT Stock Option Plans, all
options previously granted under such plans prior to the Effective Time will
become fully vested at the Effective Time. The other terms and conditions of
the options and warrants will be substantially the same as the terms and
conditions of the options and warrants immediately prior to the Effective
Time.
The Exchange Ratio was determined through negotiations between NOVA and PMT
and their respective financial advisors to reflect the "merger of equals"
character of the transaction. See "--Background of the Merger."
EFFECTIVE TIME
If the Merger Agreement is approved by the PMT shareholders and the NOVA
shareholders, the NOVA shareholders approve NOVA Proposal 2, and the other
conditions to the Merger are satisfied or waived, the Merger will become
effective when Articles of Merger are filed with the Secretary of State of the
State of Tennessee or on such later date and time as may be specified in the
Articles of Merger. The filing of the Articles of Merger will occur on the
date of the closing of the transactions contemplated by the Merger Agreement.
Either NOVA or PMT may terminate the Merger Agreement, among other reasons,
(i) if the Merger has not been consummated by November 30, 1998 (which date
may be extended to February 28, 1999 upon the occurrence of certain events),
(ii) upon the mutual consent of NOVA and PMT, or (iii) upon the failure of PMT
to obtain shareholder approval to the Merger Agreement and the transactions
contemplated thereby or NOVA to obtain shareholder approval of the NOVA
Proposal 1 and NOVA Proposal 2. See "--Summary of Certain Provisions of the
Merger Agreement--Conditions to the Merger" and "--Summary of Certain
Provisions of the Merger Agreement--Amendment, Waiver and Termination."
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EXCHANGE OF PMT STOCK CERTIFICATES
NOVA has authorized FUNB to act as Exchange Agent. As soon as practicable
after the Effective Time, NOVA will deposit with the Exchange Agent, in trust
for the holders of shares of PMT Stock converted in the Merger, the Exchange
Fund consisting of certificates representing the shares of NOVA Stock issuable
pursuant to the Merger Agreement in exchange for outstanding shares of PMT
Stock and cash, as required to make payments in lieu of any fractional shares.
The Exchange Agent will deliver the NOVA Stock issuable pursuant to the Merger
Agreement out of the Exchange Fund.
As soon as practicable after the Merger, NOVA will cause the Exchange Agent
to send to the holders of PMT Stock a letter of transmittal in customary form
providing instructions for exchanging their PMT Certificates for the Merger
Consideration. PMT SHAREHOLDERS SHOULD NOT SURRENDER THEIR PMT CERTIFICATES
FOR EXCHANGE UNTIL THEY RECEIVE SUCH LETTER OF TRANSMITTAL AND INSTRUCTIONS.
After the Effective Time, each holder of shares of PMT Stock issued and
outstanding at the Effective Time shall surrender their PMT Certificate or
Certificates to NOVA or the Exchange Agent, and the PMT Certificates thus
surrendered will be canceled. Unless otherwise designated by a PMT shareholder
on the transmittal letter, certificates representing shares of NOVA Stock
issued in connection with the Merger will be issued and delivered to the
tendering record holder. The Exchange Agent shall not be obligated to deliver
the Merger Consideration to which any holder of PMT Stock is entitled until
such holder surrenders his PMT Certificate or Certificates for exchange. The
PMT Certificate or Certificates so surrendered must be duly endorsed as NOVA
or the Exchange Agent may require.
From and after the Effective Time, holders of PMT Certificates will have no
rights with respect to the shares of PMT Stock formerly represented thereby
other than the right to surrender such PMT Certificates and receive in
exchange therefor the shares of NOVA Stock to which such holders are entitled,
as described above. In addition, no dividend or other distribution payable to
holders of record of NOVA Stock will be paid to the holder of any PMT
Certificates until such holder surrenders such PMT Certificates for exchange
as instructed. Subject to applicable law, upon surrender of the PMT
Certificates, such holders will receive the certificates representing the
number of whole shares of NOVA Stock issuable upon the exchange or conversion
of such shares of PMT Stock, any withheld dividends or other distributions
(without interest), and any withheld cash payments (without interest) for a
fractional share of NOVA Stock to which such Shareholder is entitled.
If any certificate for NOVA Stock is to be issued in a name other than that
in which the PMT Certificate surrendered for exchange is issued, the PMT
Certificate so surrendered shall be properly endorsed and otherwise in proper
form for transfer, and the person requesting such exchange shall affix any
requisite stock transfer tax stamps to the PMT Certificates surrendered, shall
provide funds for their purchase, or shall establish to NOVA's satisfaction
that such taxes are not payable. Such person also shall be required to provide
evidence satisfactory to NOVA that such transfer is made in compliance with
applicable federal and state securities laws.
In the event that any portion of the Exchange Fund remains undistributed for
one year after the Effective Time, the undistributed portion of the Exchange
Fund will be returned to NOVA. Thereafter, any PMT shareholders that did not
surrender their PMT Certificates to the Exchange Agent may look only to NOVA
for the shares of NOVA Stock, and cash in lieu of fractional shares, to which
they are entitled.
NO FRACTIONAL SHARES
Pursuant to the terms of the Merger Agreement, each holder of shares of PMT
Stock exchanged pursuant to the Merger who would otherwise be entitled to
receive a fraction of a share of NOVA Stock shall receive, in lieu of such
fractional share, cash (without interest) in an amount equal to such fraction
multiplied by the per share closing price on the NYSE of the NOVA Stock (as
reported in the NYSE Composite Transactions) on the date of the Effective Time
(or, if the shares of NOVA Stock do not trade on the NYSE on such date, the
first date of trading of shares of NOVA Stock on the NYSE after the Effective
Time). For example, a holder of 25 shares of PMT Stock would be entitled to
17.875 shares of NOVA Stock (25 multiplied by 0.715). However, because no
fractional shares of NOVA Stock will be issued, that shareholder would receive
17 shares of NOVA
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Stock and $30.63 in cash in lieu of the fractional share assuming the closing
price per share of the NOVA Stock on the NYSE is $35.00 on the date of the
Effective Time (0.875 x $35.00). No such holder will be entitled to dividends,
conversion rights or any other rights as a NOVA shareholder in respect of any
fractional shares.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Pursuant to the Merger Agreement, NOVA has agreed that at the Effective Time
the Board of Directors of NOVA will consist of 11 directors, comprised of five
NOVA Designated Directors, five PMT Designated Directors, and one Nominated
Director who is nominated by NOVA and approved by PMT. NOVA has designated
Edward Grzedzinski, James M. Bahin, Dr. Henry Kressel, Maurice F. Terbrueggen,
and Stephen E. Wall as the NOVA Designated Directors and intends to nominate
Charles T. Cannada as the Nominated Director, each of whom currently is a
director of NOVA. PMT has designated Richardson M. Roberts, Gregory S. Daily,
Stephen D. Kane, Harold L. Siebert and George M. Miller II as the PMT
Designated Directors, each of whom (other than Mr. Miller) currently is a
director of PMT. PMT has indicated that it intends to approve Mr. Cannada as
the Nominated Director. In order to facilitate the recomposition of the NOVA
Board, it is anticipated that Dr. James E. Carnes, U. Bertram Ellis, and
Joseph P. Landy will resign as directors of NOVA as of the Effective Time.
Following the Effective Time, Edward Grzedzinski, the current Chairman,
President and Chief Executive Officer of NOVA, and James M. Bahin, the current
Vice Chairman, Chief Financial Officer and Secretary of NOVA, will retain
their current positions. Richardson M. Roberts, the current Chairman and Chief
Executive Officer of PMT, will continue as Chief Executive Officer of PMT and
will be elected a Vice Chairman of NOVA's Board of Directors. Additionally,
Gregory S. Daily, the current President of PMT, will continue as President of
PMT and will be elected a Vice Chairman of the NOVA Board of Directors.
Following the Effective Time, the Board of Directors of PMT (which will be a
wholly-owned subsidiary of NOVA) will consist of Richardson M. Roberts,
Gregory S. Daily, Edward Grzedzinski, and James M. Bahin. The remaining
executive officers of PMT after the Effective Time will be agreed upon by
Richardson M. Roberts and Edward Grzedzinski.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Other than as described herein, no director or executive officer of NOVA or
PMT, and no affiliate of any such person, has any substantial interest, direct
or indirect, in the Merger, other than an interest arising from the ownership
of NOVA Stock or PMT Stock, in which case the director or executive officer
receives no extra or special benefit not shared on a pro rata basis by all
other holders of NOVA Stock or PMT Stock, as the case may be.
Following the Effective Time, the Board of Directors of NOVA will be
composed of 11 persons, to be elected as described in "--Management and
Operations After the Merger" above.
Employment Agreements. In connection with the Merger, NOVA has entered into
Employment Agreements with each of Richardson M. Roberts, the current Chairman
and PMT Chief Executive Officer of PMT, and Gregory S. Daily, the current
President of PMT. Each of such Employment Agreements will become effective
only upon the Effective Time. Additionally, PMT has entered into Amendments to
the Employment Agreements of each of Clay M. Whitson, the current Chief
Financial Officer and Treasurer of PMT, Joseph T. Stewart, Jr., the current
Chief Operating Officer of PMT, Vickie G. Johnson, the current Chief
Accounting Officer and Secretary of PMT, and Tony VanBrackle, the current Vice
President for Business Development of PMT.
Pursuant to his Employment Agreement with NOVA, Mr. Roberts will be employed
by NOVA as Vice Chairman of NOVA's Board of Directors, as well as Chief
Executive Officer of PMT. Mr. Roberts will receive compensation based on an
annual salary of $360,000, subject to merit increases and certain fringe
benefits.
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Pursuant to his Employment Agreement with NOVA, Mr. Daily will be employed by
NOVA as a Vice Chairman of NOVA's Board of Directors, and shall continue in
his capacity as President of PMT. Mr. Daily will receive compensation in this
capacity based on an annual salary of $360,000, subject to merit increases and
certain fringe benefits. In addition, Messrs. Roberts and Daily each has the
opportunity to earn a percentage of his base salary as a cash bonus tied to
the performance of NOVA.
The Employment Agreements will replace the existing employment agreements
between PMT and each of Messrs. Roberts and Daily at the Effective Time. Each
Employment Agreement has a term of one year, automatically renewing for
successive one-year terms unless either party provides written notice to the
other party at least 90 days before such renewal.
Upon termination of his Employment Agreement, Messrs. Roberts or Daily, as
the case may be, is entitled to certain termination payments. In the event (A)
the Employment Agreement is terminated for any reason other than (i) by NOVA
for "Cause" (as defined in the Employment Agreements), (ii) by the employee
without cause, or (iii) a nonrenewal of the Employment Agreement by employee
(collectively, the "Termination Exclusions"), and (B) such termination occurs
within 24 months of the effective date of the Employment Agreement or within
24 months of a "change in control" of NOVA (as defined in the Employment
Agreements), then the terminated employee will be entitled to receive a
termination payment, payable over a two-year period, equal to: (1) 450% of the
employee's base salary in effect as of the termination date; (2) continuation
of the benefits afforded to the employee under the Employment Agreement for
two years (to the extent reasonably obtainable); (3) a one-time severance
payment of $600,000; and (4) any "gross-up" payments necessary to compensate
the employee for excise taxes imposed by Section 4999 of the Code. Messrs.
Roberts and Daily also agreed to waive their rights under their current
employment agreements to certain payments to be made by PMT with respect to
excise taxes, if any, to which either may become subject as a result of the
grant of options in January 1998, but only to the extent that the aggregate
amount of such payments due to them, together with any other similar payments
to be made by PMT to other employees of PMT by reason of the options granted
in 1998, would otherwise exceed $500,000. For the duration of the two-year
period referred to above, Messrs. Roberts or Daily, as the case may be, would
be bound by the nonsolicitation, noncompetition, and nondisclosure provisions
of the Employment Agreement.
In the event the Employment Agreement is terminated for one of the
Termination Exclusions, otherwise expires or is terminated under circumstances
not covered by the preceding paragraph, then the employee will receive a pro
rata portion of his base salary until the date of termination and
reimbursement of business expenses incurred through the date of termination.
Additionally, in such event, NOVA has the option of requiring the employee to
comply with the nonsolicitation, noncompetition, and nondisclosure provisions
of his Employment Agreement for a period of either one year or two years
following termination, upon payment of the "One Year Amount" or the "Two Year
Amount", as described below. The One Year Amount is equal to 225% of
Employee's base salary in effect on the date of termination, plus $300,000,
plus continuation of benefits for one year (to the extent reasonably
obtainable). The Two Year Amount is equal to 450% of Employee's base salary in
effect on the date of termination, plus $600,000, plus continuation of
benefits for two years (to the extent reasonably obtainable).
In connection with the Merger, each of Clay M. Whitson, Joseph T. Stewart,
Jr., Vickie G. Johnson, and Tony VanBrackle (each, a "PMT Officer" and
collectively, the "PMT Officers") entered into an amendment to his or her
current Employment Agreements with PMT to amend provisions to limit the
circumstances under which the payment of certain termination payments would be
made upon the termination of such agreement and a subsequent change in control
of PMT. Otherwise, the Employment Agreement which each such person currently
has with PMT will remain in full force and effect after the Effective Time
according to its terms.
As of February 2, 1998, each of the PMT Officers entered into Employment
Agreements with PMT, which were amended on June 17, 1998, the provisions of
which are described below:
The initial term of each of the Employment Agreements with the PMT Officers
is for one year. Pursuant to their respective Employment Agreements, Mr.
Whitson is employed as the Chief Financial Officer and Treasurer
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of PMT for a base salary of $159,000 per year, Mr. VanBrackle is employed as
the Vice President for Business Development of PMT for a base salary of
$110,000 per year, Mr. Stewart is employed as the Chief Operating Officer of
PMT for a base salary of $164,300 per year and Ms. Johnson is employed as
Chief Accounting Officer and Secretary of PMT for a base salary of $100,000
per year. The Employment Agreements with the PMT Officers provide that each
PMT Officer may receive an annual bonus as determined by the PMT Board of
Directors. All base salary amounts and bonus amounts are subject to annual
review by the PMT Board of Directors or the Compensation Committee of the
Board of Directors.
The Employment Agreements with the PMT Officers provide employee benefits
(such as health and life insurance) to each PMT Officer. The Employment
Agreements also contain non-competition and confidentiality provisions. The
Employment Agreements provide that each of the PMT Officers may terminate his
or her employment without cause by giving written notice. In the event any PMT
Officer is terminated without cause, such PMT Officer will be paid all accrued
base salary and bonus compensation (to the extent earned) and his or her base
salary for the remainder of the term of his or her Employment Agreement.
In the event a PMT Officer's employment with PMT is terminated by the
Company without cause or by the PMT Officer for cause, within 24 months after
a "change in control" of PMT (as defined in the Employment Agreements) the PMT
Officer will be entitled to a termination payment based upon a multiple of the
PMT Officer's base salary and highest annual bonus. In such event: Mr. Whitson
would be entitled to a termination payment equal to the sum of (i) three times
his base salary, (ii) three times his highest annual bonus and (iii) a one
time severance payment of $80,000; Mr. Stewart would be entitled to a
termination payment equal to the sum of (i) two times his base salary, (ii)
two times his highest annual bonus and (iii) $160,000; Ms. Johnson would be
entitled to a termination payment equal to the sum of her base salary and
highest annual bonus; and Mr. VanBrackle would be entitled to a termination
payment equal to the sum of (i) two times his base salary and (ii) two times
his annual bonus.
Each of the Employment Agreements will be deemed to have terminated upon the
death of the respective PMT Officer. Upon such occurrence, the PMT Officer's
estate would receive all compensation due to such PMT Officer. In addition,
the estates of Messrs. Whitson and Stewart would receive a one-time payment
equal to 50% of the respective PMT Officer's base salary and the estate of Mr.
VanBrackle and Ms. Johnson would receive a one-time payment equal to 25% of
the respective PMT Officer's base salary.
Registration Rights Agreement. In connection with the Merger Agreement, NOVA
entered into a Registration Rights Agreement with Messrs. Roberts and Daily
(the "Holders"). The Registration Rights Agreement grants certain rights to
the Holders relating to the registration of the shares of NOVA Stock issued to
them in the Merger (the "Registrable Securities"). The Registration Rights
Agreement provides that:
(A) if, after the publication of financial results covering at least 30
days of combined post-Merger operations, either or both of the Holders
elect to dispose of Registrable Securities with an aggregate market value
of up to $15.0 million with respect to each Holder, then NOVA shall use its
reasonable best efforts to render reasonable assistance with respect to
such proposed disposition, including assisting the Holders in disposing of
the shares as a private placement, or preparing and filing a registration
statement to register the shares for sale under the Securities Act. NOVA's
obligations in this regard are conditioned upon the proposed disposition
not having or causing a material adverse effect or impact on (i) NOVA, (ii)
the market perception of NOVA, or (iii) NOVA's financing needs or plans or
prospects in connection with financing; and
(B) if NOVA shall at any time propose the filing of a registration
statement for any NOVA securities (other than pursuant to the foregoing
subparagraph (A) and other than pursuant to registrations on Forms S-4 or
S-8), then the Holders may elect to include in such registration some or
all of the Registrable Securities then owned by them. In the event such
registration is in connection with an underwritten public offering, then
NOVA's obligations to include the Registrable Securities in the
registration shall be subject to further conditions, including the judgment
of the underwriter(s) with respect to the possible interference of such
inclusion with the orderly distribution of the securities to be registered.
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In the event of a distribution or registration effected under subparagraphs
(A) or (B) above, NOVA will bear the expenses of the registration, except that
the Holders will bear the cost of any underwriter's discounts or commissions
from the sale of their shares.
Indemnification; Directors and Officers Insurance. NOVA has agreed in the
Merger Agreement that for six years from and after the Effective Time, it will
not, and it will not permit PMT to, alter the provisions of PMT's Amended and
Restated Charter and Bylaws relating to indemnification of officers and
directors of PMT for acts or omissions occurring at or prior to the Effective
Time. For a period of six years from the Effective Time, NOVA also will cause
PMT to provide PMT's current directors and officers an insurance and
indemnification policy that provides coverage for events occurring prior to
the Effective Time that is no less favorable than PMT's existing policy or, if
substantially equivalent insurance coverage is unavailable, the best available
coverage; provided, however, that PMT (as the surviving corporation in the
Merger) will not be required to pay an annual premium for the insurance in
excess of 300% of the last annual premiums paid prior to the date of the
Merger Agreement, but in such case shall purchase as much coverage as possible
for such amount.
EMPLOYEE BENEFITS MATTERS
NOVA and PMT have agreed that it is their intent that, from and after the
Effective Time and subject to applicable law, the employees of PMT and the
employees of NOVA, to the extent such employees are similarly situated, shall
have substantially equivalent benefits (the "Similarly Situated Intent"),
subject to the following understanding: (1) immediately after the Effective
Time, PMT and NOVA will continue to maintain their separate respective plans
(including employee benefit plans), programs and arrangements for their
respective employees pursuant to the transactions contemplated by the Merger
Agreement, and (2) in furtherance of the Similarly Situated Intent, PMT and
NOVA may, from and after the Effective Time, take such steps as are reasonable
and appropriate to carry out the Similarly Situated Intent by having their
employees participate in unified plans (whether by plan mergers, adoption of
plans by a company, and/or modification of the eligibility provisions of
existing plans), by modifying existing separate plans so that they thereafter
provide substantially equivalent benefits, and/or by taking other measures
consistent with the Similarly Situated Intent, as the then current management
of PMT and NOVA determine in their discretion. The provisions of the Similarly
Situated Intent are not intended to confer upon any person other than NOVA and
PMT any rights or remedies with respect to the Similarly Situated Intent.
In the event that the employees of PMT are included in any benefits plan of
NOVA, NOVA shall, and shall cause its subsidiaries to, provide each such
employee (i) with respect to any welfare plans, full credit for service with
PMT (and its predecessors) (collectively, "Prior Service") for purposes of
eligibility to participate in, vesting and payment of benefits under, and
eligibility for any subsidized benefit provided under any such welfare plan of
NOVA, and (ii) with respect to NOVA's 401(k) Profit-Sharing Plan, full credit
for such Prior Service for purposes of eligibility to participate in such plan
and vesting in employer contributions thereunder. However, no such Prior
Service crediting shall be required to the extent that doing so: (i) would
violate federal or state law; (ii) cause a benefit plan to violate the
nondiscrimination requirements referenced in Section 414(t) of the Code (as
applicable); or (iii) would result in a violation of the tax-qualification
requirements of Section 401(a) of the Code (as applicable).
BACKGROUND OF THE MERGER
Senior management of PMT and NOVA have held informal discussions from time
to time with each other as well as with other companies within the transaction
processing industry regarding the possibility of pursuing business
combinations. Prior to April 1998, the discussions between NOVA and PMT were
very general in nature, and no proposals were presented in any such
discussions.
On April 30, 1998, NOVA, Salomon Smith Barney, PMT and PMT's financial
advisors, Bear, Stearns & Co. Inc. ("Bear, Stearns") and BT Alex. Brown met in
Atlanta in the first formal discussion regarding a
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proposed business combination. At this meeting, NOVA indicated that it might
be interested in pursuing a business combination of the two companies. The
parties discussed several conceptual issues related to such a transaction,
including the management structure of the surviving entity, whether a premium
would be paid to the shareholders of PMT, and the conceptual valuation of both
companies and the transaction. The parties did not reach any agreements or
understandings with respect to a business combination at this meeting.
Thereafter, the senior management of NOVA and PMT, from time to time, had
further preliminary discussions with respect to a possible business
combination. During this time, no proposals regarding a transaction were made.
On May 12, 1998, as a result of further consultation with Salomon Smith
Barney, Mr. Grzedzinski sent a formal written proposal in the form of a letter
to PMT proposing the terms for a business combination of PMT and NOVA. The
letter specified that the transaction would be a merger, and that after it was
consummated, PMT would become a wholly-owned subsidiary of NOVA. Additionally,
the shareholders of PMT would receive 0.695 shares of NOVA Stock for each
share of PMT Stock, reflecting a premium of 17% based on PMT's closing price
of $19.00 per share on May 11, 1998. The proposed merger would qualify as a
tax-free reorganization for federal income tax purposes, and would qualify for
pooling of interests accounting treatment.
After discussions with BT Alex. Brown and Bear, Stearns, PMT responded with
an oral counter-offer on May 13, 1998. This counter-proposal provided for an
exchange ratio of 0.758 shares of NOVA Stock for each share of PMT Stock.
Following this exchange of proposals, NOVA and PMT exchanged several offers
and counter-offers within the basic transaction structure initially proposed
by Mr. Grzedzinski on May 12.
On May 26, 1998, with the assistance of their financial advisors, the senior
management of NOVA and PMT reached a non-binding agreement in principle on the
basic terms of the Merger and agreed to a non-binding term sheet setting forth
those terms. The term sheet provided that PMT would become a wholly-owned
subsidiary of NOVA, and that the exchange ratio would be 0.715 shares of NOVA
Stock for each share of PMT Stock, which reflected a 20.4% premium on the PMT
Stock, based on the closing price of $19.00 on May 14, 1998, and which would
result in the PMT shareholders owning approximately 50.5% of the combined
company. PMT would also have a "walk-away" right, exercisable in the event
that the exchange ratio would result in PMT shareholders receiving less than
the equivalent of $15.00 in Merger Consideration for each share of PMT Stock
(subject to NOVA's election to adjust the Exchange Ratio is further detailed
herein). The term sheet also provided that the parties would execute cross-
option agreements whereby each of NOVA and PMT would grant to the other party
the option to purchase up to 19.9% of the outstanding shares of its common
stock, exercisable only upon certain events. NOVA would enter into employment
agreements with Richardson M. Roberts, the Chairman and Chief Executive
Officer of PMT, and Gregory S. Daily, the President of PMT. The Merger would
qualify as a tax-free reorganization and as a pooling of interests.
On May 26, 1998, the PMT Board of Directors reviewed the term sheet and
authorized management and PMT's legal and financial advisors to enter into
discussions with NOVA for the purpose of negotiating a definitive merger
agreement relating to NOVA's proposal. On May 29, 1998, the parties executed a
confidentiality agreement and exchanged financial and business information.
Thereafter, senior management of PMT and NOVA and their respective legal and
financial advisors held discussions concerning the terms of a definitive
agreement. From June 2, 1998 through June 4, 1998, NOVA and PMT and their
respective financial advisors met in Nashville to perform operational due
diligence in connection with the transaction. Persons present included: (from
PMT) Messrs. Richardson and Daily, Joseph T. Stewart, Chief Operating Officer,
Clay M. Whitson, Chief Financial Officer and Treasurer, and Vickie G. Johnson,
Chief Accounting Officer and Secretary; (from NOVA) Mr. Grzedzinski, James M.
Bahin, Vice Chairman, Chief Financial Officer and Secretary, Henry Lyon, Vice
President and Treasurer, Pamela A. Joseph, Executive Vice President and Chief
Information Officer, Rebecca L. Powell, Executive Vice President, Merchant
Services and Operations, and John M. Perry, Executive Vice President, Sales
and Marketing; and representatives of each of Salomon Smith Barney, BT Alex.
Brown, and Bear, Stearns.
At a meeting held on June 7, 1998, the PMT Board of Directors reviewed the
proposal made by NOVA with the assistance of Bear, Stearns, BT Alex. Brown,
and PMT's outside legal advisors. The PMT Board of
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Directors also reviewed other strategic alternatives available to PMT.
Management and PMT's legal and financial advisors also reviewed with the PMT
Board of Directors their due diligence findings concerning NOVA.
During the week of June 8, 1998, counsel to NOVA and PMT continued to draft
and negotiate the transaction documents, including the Merger Agreement, the
Stock Option Agreements, the Employment Agreements between each of Mr. Roberts
and Mr. Daily and NOVA, and the Registration Rights Agreement. On June 10,
1998, the Board of Directors of NOVA held a telephonic meeting, and discussed
the status of the negotiations, NOVA's due diligence examination of PMT and
the potential synergies to be realized as a result of the Merger.
On June 14, 1998, the Board of Directors of NOVA again held a telephonic
meeting, where the Board received an update on the progress of negotiations
and the due diligence examination of PMT. Also on June 14, 1998, the PMT Board
of Directors discussed the status of negotiations and various issues relating
to the Merger Agreement.
During the week of June 15, 1998, counsel to NOVA and PMT continued to
negotiate and revise the transaction documents. On June 17, 1998, the terms of
the documents were finalized, and the documents were presented to the Board of
Directors of NOVA later that day at a telephonic meeting. At the meeting, the
Board of Directors of NOVA reviewed and discussed the terms of the agreements
and the Merger generally. Salomon Smith Barney delivered to the Board of
Directors of NOVA its oral opinion (subsequently confirmed by delivery of a
written opinion dated the same date) that, based on its review and as of the
date of the opinion, the Exchange Ratio was fair to NOVA from a financial
point of view. See "--Opinions of Financial Advisors." Based upon this review
of the transaction documents, the financial terms of the transaction, the
opinion of Salomon Smith Barney and other relevant factors, the Board of
Directors of NOVA unanimously approved and adopted the Merger, the Merger
Agreement, and all related documents, and authorized the execution of the
transaction documents.
Similarly, on June 17, 1998, the PMT Board of Directors held a meeting to
discuss and review, with the assistance of its legal and financial advisors,
the Merger Agreement, the Stock Option Agreements and related matters,
including the Employment Agreements to be entered into between NOVA and each
of Messrs. Roberts and Daily. See "--Interests of Certain Persons in the
Merger." Representatives of Bear, Stearns and BT Alex. Brown reviewed
financial information concerning NOVA, PMT and the proposed Merger, and BT
Alex. Brown delivered to the PMT Board of Directors its oral opinion (which
was subsequently confirmed in writing) that, as of such date, the Exchange
Ratio was fair, from a financial point of view, to the PMT shareholders. See
"-- Opinions of Financial Advisors." Based upon the PMT Board of Directors'
review of the definitive terms of the transaction, the opinion of BT Alex.
Brown and other relevant factors, the PMT Board of Directors, by unanimous
vote of all directors, approved and adopted the Merger Agreement and
authorized the execution of the Merger Agreement and the Stock Option
Agreements.
REASONS FOR THE MERGER
NOVA. The Board of Directors of NOVA believes that the Merger is fair to,
and in the best interests of, NOVA and its shareholders. Accordingly, after
consideration of relevant business, financial, legal and market factors, the
Board of Directors approved the Merger Agreement and the transactions
contemplated thereby by unanimous vote and voted to recommend that NOVA
shareholders vote "FOR" the approval of each of the NOVA Proposals.
In reaching its determination to adopt the Merger Agreement, the Board of
Directors of NOVA consulted with its management and its financial and legal
advisors, and considered a number of factors. The following include all of the
material factors considered thereby:
(i) the Board of Directors' review, based in part on presentations by its
financial advisors and NOVA's management, of the business, operations,
financial condition and earnings of NOVA and PMT on an historical and a
prospective basis and of the combined company on a pro forma basis and the
historical
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stock price performance of the NOVA Stock and the PMT Stock, the resulting
relative interests of NOVA shareholders and PMT shareholders in the common
equity of the combined company;
(ii) the presentation of Salomon Smith Barney to the NOVA Board, the
financial information reviewed by Salomon Smith Barney at the meetings of
the NOVA Board on June 17, 1998, and the opinion of Salomon Smith Barney
rendered on June 17, 1998, that, as of such date and based upon and subject
to the procedures followed, assumptions made, matters considered, and
limitations on the analyses undertaken, the Exchange Ratio was fair from a
financial point of view to NOVA (see "--Opinions of Financial Advisors");
(iii) PMT's emphasis on serving small- to medium-sized merchants (similar
to NOVA) and PMT's focus on the acquisition of ISOs, which provides PMT
with a different market focus complementary to NOVA's;
(iv) the terms of the Merger Agreement and the Merger, including the
Exchange Ratio;
(v) the current and prospective economic and competitive environment
facing the transaction processing industry generally, and NOVA in
particular, including the continued rapid consolidation in the industry and
the increasing importance of operational scale and financial resources in
maintaining efficiencies and remaining competitive and in being able to
capitalize on technological developments which significantly impact
industry competition;
(vi) the expectation that the Merger would constitute a "reorganization"
under Section 368(a) of the Code and that it would be accounted for as a
pooling of interests for accounting and financial reporting purposes (see
"--Certain Federal Income Tax Consequences" and "--Accounting Treatment");
(vii) the anticipated cost savings, operating efficiencies and other
synergies available to the combined company from the Merger, and the
likelihood of the foregoing being achieved following consummation of the
Merger;
(viii) the fact that Messrs. Roberts and Daily would be appointed as Vice
Chairmen of the Board of Directors of NOVA following the Effective Time,
that Mr. Roberts would serve as Chief Executive Officer of PMT following
the Merger and that the PMT Board of Directors would select five
individuals to become members of the NOVA Board at the Effective Time and
that such members would have the right to approve the eleventh director.
The NOVA Board also considered that Messrs. Roberts and Daily would enter
into employment agreements with NOVA to be effective as of the Effective
Time (see "--Interests of Certain Persons in the Merger");
(ix) the terms of the NOVA Stock Option Agreement, including the risk
that the NOVA Stock Option Agreement might discourage third parties from
offering to acquire NOVA by increasing the cost of such an acquisition and
because of the potential adverse effect of the NOVA Stock Option Agreement
on the ability of a competing transaction to be accounted for as a pooling
of interests, and recognizing that the NOVA Stock Option Agreement was
entered into in connection with the Merger Agreement (see "--Stock Option
Agreements"); and
(x) the results of the due diligence investigation of PMT conducted by
NOVA's management and legal advisors.
The foregoing discussion of the information and factors considered by the
NOVA Board of Directors is not intended to be exhaustive, but includes all of
the material factors considered by the NOVA Board of Directors. In the course
of its deliberations with respect to the Merger, the NOVA Board of Directors
discussed the anticipated impact of the Merger on NOVA and the NOVA
shareholders. In reaching its determination to approve and recommend the
Merger, the NOVA Board of Directors generally viewed each of the foregoing
factors as supporting its approval and recommendation of the Merger Agreement
but did not assign any relative or specific weight to the factors considered
in reaching such determination, and individual directors may have given
differing weights to different factors.
THE NOVA BOARD OF DIRECTORS BELIEVES THAT THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO, AND IN THE BEST INTERESTS OF,
NOVA AND THE NOVA SHAREHOLDERS. THE NOVA BOARD UNANIMOUSLY
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RECOMMENDS THAT NOVA SHAREHOLDERS VOTE "FOR" THE APPROVAL OF EACH OF THE NOVA
PROPOSALS.
PMT. In reaching its determination to adopt the Merger Agreement, the Board
of Directors of PMT consulted with its management and its financial and legal
advisors, and considered a number of factors. The following include all of the
material factors considered thereby:
(i) the Board of Directors' familiarity with and review of PMT's
business, operations, financial condition and earnings on an historical and
a prospective basis;
(ii) the Board of Directors' review, based in part on presentations by
its financial advisors and PMT's management, of the business, operations,
financial condition and earnings of NOVA on an historical and a prospective
basis and of the combined company on a pro forma basis and the historical
stock price performance of the NOVA Stock, the resulting relative interests
of PMT shareholders and NOVA shareholders in the common equity of the
combined company, and the potential impact on the market value of NOVA
Stock following the proposed Merger;
(iii) the presentations of Bear, Stearns and BT Alex. Brown to the PMT
Board of Directors, the financial information reviewed by Bear, Stearns and
BT Alex. Brown at the meetings of the PMT Board of Directors on June 7,
1998, and June 17, 1998, and the opinion of BT Alex. Brown rendered on June
17, 1998, that, as of such date and based upon and subject to the
procedures followed, assumptions made, matters considered, and limitations
on the analyses undertaken, the Exchange Ratio was fair from a financial
point of view to PMT shareholders (see "--Opinions of Financial Advisors");
(iv) the terms of the Merger Agreement and the Merger, including the
Exchange Ratio, noting that it reflected a 22.2% premium for the holders of
PMT Stock based on the closing prices of NOVA Stock and PMT Stock on June
16, 1998, the last trading day prior to the approval by the PMT Board of
Directors of the Merger;
(v) the current and prospective economic and competitive environment
facing the credit card processing industry generally, and PMT in
particular, including the continued rapid consolidation in the industry and
the increasing importance of operational scale and financial resources in
maintaining efficiencies and remaining competitive and in being able to
capitalize on technological developments which significantly impact
industry competition;
(vi) the Board of Directors' review, based in part on the presentations
of Bear, Stearns and BT Alex. Brown to the PMT Board, of alternative
existing business strategies and the belief of the Board of Directors,
based upon such review, that the Merger was preferable to such alternatives
in terms of long-term value for PMT shareholders;
(vii) the fact that NOVA owns a proprietary telecommunications network
which the PMT Board of Directors expects will enable NOVA to successfully
leverage through the integration of the respective operations of NOVA and
PMT in connection with the Merger;
(viii) the expectation that the Merger would constitute a
"reorganization" under Section 368(a) of the Code and that it would be
accounted for as a pooling of interests for accounting and financial
reporting purposes (see "--Certain Federal Income Tax Consequences" and "--
Accounting Treatment");
(ix) the anticipated cost savings and operating efficiencies available to
the combined company from the Merger, and the likelihood of the foregoing
being achieved following consummation of the Merger;
(x) the effect of the Merger on PMT's pending acquisition transactions;
(xi) the fact that Messrs. Roberts and Daily would be appointed as Vice
Chairmen of the Board of Directors of NOVA following the Effective Time,
that Mr. Roberts would serve as Chief Executive Officer of PMT following
the Merger and that the PMT Board of Directors would select five
individuals to become members of the NOVA Board of Directors at the
Effective Time and that such members would have the right to approve the
eleventh director. The PMT Board also considered that Messrs. Roberts and
Daily would enter into employment agreements with NOVA to be effective as
of the Effective Time, and that the
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directors and officers of PMT might be deemed to have interests in the
Merger other than their interests generally as PMT shareholders (see "--
Interests of Certain Persons in the Merger");
(xii) the terms of the PMT Stock Option Agreement, including the risk
that the PMT Stock Option Agreement might discourage third parties from
offering to acquire PMT by increasing the cost of such an acquisition and
because of the potential adverse effect of the PMT Stock Option Agreement
on the ability of a competing transaction to be accounted for as a pooling
of interests, and recognizing that the execution of the PMT Stock Option
Agreement was entered into in connection with the Merger Agreement (see "--
Stock Option Agreements"); and
(xiii) the results of the due diligence investigation of NOVA conducted
by PMT's management and legal advisors.
The foregoing discussion of the information and factors considered by the
PMT Board of Directors is not intended to be exhaustive, but includes all of
the material factors considered by the PMT Board of Directors. In the course
of its deliberations with respect to the Merger, the PMT Board of Directors
discussed the anticipated impact of the Merger on PMT and the PMT
shareholders. In reaching its determination to approve and recommend the
Merger, the PMT Board of Directors generally viewed each of the foregoing
factors as supporting its approval and recommendation of the Merger Agreement
but did not assign any relative or specific weight to the factors considered
in reaching such determination, and individual directors may have given
differing weights to different factors.
THE PMT BOARD OF DIRECTORS BELIEVES THAT THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO, AND IN THE BEST INTERESTS OF,
PMT AND THE PMT SHAREHOLDERS. THE PMT BOARD UNANIMOUSLY RECOMMENDS THAT PMT
SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
OPINIONS OF FINANCIAL ADVISORS
NOVA. NOVA retained Salomon Smith Barney to act as its financial advisor in
connection with the proposed Merger and in that connection requested that
Salomon Smith Barney evaluate the fairness, from a financial point of view, to
NOVA of the Exchange Ratio. On June 17, 1998, at a meeting of the NOVA Board
of Directors held to evaluate the Merger, Salomon Smith Barney delivered an
oral opinion (subsequently confirmed by delivery of a written opinion dated
the same date) to the NOVA Board to the effect that, as of the date of such
opinion and based upon and subject to certain matters stated therein, the
Exchange Ratio was fair, from a financial point of view, to NOVA. It is
anticipated that Salomon Smith Barney will confirm its opinion in writing as
of the date of mailing of this Joint Proxy Statement/Prospectus; however, such
confirmation is not a condition to the Merger.
In arriving at its opinion, Salomon Smith Barney reviewed a draft of the
Merger Agreement (which was substantially in the form set forth in Appendix A)
relating to the proposed Merger, and held discussions with certain senior
officers, directors and other representatives and advisors of NOVA and with
certain senior officers, directors and other representatives and advisors of
PMT concerning the businesses, operations and prospects of NOVA and PMT.
Salomon Smith Barney examined certain publicly available business and
financial information relating to NOVA and PMT as well as certain financial
forecasts and other data for NOVA and PMT provided by or otherwise discussed
with the managements of NOVA and PMT, including information relating to
certain strategic implications and operational benefits anticipated from the
Merger and analysts' estimates as to the future financial performance of NOVA
and PMT. Salomon Smith Barney reviewed the financial terms of the Merger as
set forth in the Merger Agreement in relation to, among other things: (i)
current and historical market prices and trading volumes of the NOVA Stock and
PMT Stock; (ii) historical and projected earnings and operating data of NOVA
and PMT; and (iii) the capitalization and financial condition of NOVA and PMT.
Salomon Smith Barney also evaluated the potential pro forma financial impact
of the Merger on NOVA. Salomon Smith Barney also considered, to the extent
publicly available, the financial terms of certain other similar transactions
recently effected that it considered relevant in evaluating the Merger and
analyzed certain financial, stock market and other publicly available
information relating to the businesses of other companies whose operations it
considered
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relevant in evaluating those of NOVA and PMT. In addition to the foregoing,
Salomon Smith Barney conducted such other analyses and examinations and
considered such other financial, economic and market criteria as it deemed
appropriate in arriving at its opinion.
In rendering its opinion, Salomon Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information publicly available or furnished to or otherwise reviewed
by or discussed with it. With respect to financial forecasts and other
information and data furnished to or otherwise reviewed by or discussed with
Salomon Smith Barney, the managements of NOVA and PMT advised Salomon Smith
Barney that such forecasts and other information and data were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the managements of NOVA and PMT as to the future financial
performance of NOVA and PMT and the potential strategic implications and
operational benefits anticipated from the Merger. Salomon Smith Barney assumed
that the Merger will be treated as a pooling of interests in accordance with
generally accepted accounting principles and as a tax-free reorganization for
federal income tax purposes.
Salomon Smith Barney's opinion relates to the relative values of NOVA and
PMT. Salomon Smith Barney did not express any opinion as to what the value of
the NOVA Stock actually will be when issued to PMT shareholders pursuant to
the Merger or the prices at which the NOVA Stock will trade subsequent to the
consummation of the Merger. Salomon Smith Barney did not make and was not
provided with an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of NOVA or PMT, nor did it make any
physical inspection of the properties or assets of NOVA or PMT. Although
Salomon Smith Barney evaluated the Exchange Ratio in the Merger from a
financial point of view, it was not asked to consider, and its opinion did not
address, the relative merits of the Merger compared to any alternative
business strategies that might exist for NOVA or the effect of any other
transaction in which NOVA might engage. Salomon Smith Barney's opinion is
necessarily based upon information available to it, and financial, stock
market and other conditions and circumstances existing and disclosed to it, as
of the date thereof. No limitations were imposed upon Salomon Smith Barney
with respect to the investigations made or procedures followed in rendering
its opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF SALOMON SMITH BARNEY, WHICH SETS
FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN, IS ATTACHED HERETO AS APPENDIX D AND SHOULD BE READ CAREFULLY IN
ITS ENTIRETY. THE OPINION OF SALOMON SMITH BARNEY IS DIRECTED TO THE BOARD OF
DIRECTORS OF NOVA AND RELATES ONLY TO THE FAIRNESS OF THE EXCHANGE RATIO IN
THE MERGER FROM A FINANCIAL POINT OF VIEW, DOES NOT ADDRESS ANY OTHER ASPECT
OF THE MERGER OR RELATED TRANSACTIONS AND DOES NOT CONSTITUTE A RECOMMENDATION
TO ANY NOVA SHAREHOLDER AS TO HOW SUCH NOVA SHAREHOLDER SHOULD VOTE AT THE
NOVA SPECIAL MEETING. THE SUMMARY OF THE OPINION OF SALOMON SMITH BARNEY SET
FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In preparing its opinion to the NOVA Board of Directors, Salomon Smith
Barney performed a variety of financial and comparative analyses, including
those described below. The following summary does not purport to be a complete
description of the analyses underlying Salomon Smith Barney's opinion. The
preparation of a financial opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Accordingly, Salomon Smith Barney believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and factors, without considering all analyses and factors, could
create a misleading or incomplete view of the processes underlying such
analyses and opinion. In its analyses, Salomon Smith Barney made numerous
assumptions with respect to NOVA, PMT, industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of NOVA and PMT. The estimates contained in such analyses
and the valuation ranges resulting from any particular analysis are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those suggested
by such analyses. In addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty. Salomon Smith
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Barney's opinion and financial analyses were only one of many factors
considered by the NOVA Board of Directors in its evaluation of the Merger and
should not be viewed as determinative of the views of the NOVA Board of
Directors or management with respect to the consideration to be paid by NOVA
in the Merger.
The following is a summary of the material financial analyses performed by
Salomon Smith Barney in connection with rendering its opinion:
Transaction Overview. Salomon Smith Barney reviewed the terms of the Merger,
including, among other things, the form of consideration, the Exchange Ratio,
the proposed accounting treatment, the walk-away provision, the pro forma
ownership of the combined company, the indicated value per share of PMT Stock
(the "Indicated Value") and the indicated aggregate transaction value of PMT
in the Merger (the "Indicated Transaction Value"). The Indicated Value was
$23.86, determined by multiplying the Exchange Ratio by the closing price of
the NOVA Stock on the NYSE on June 16, 1998. The Indicated Transaction Value
was $1.209 billion based upon 50.7 million fully-diluted shares of PMT
outstanding at April 30, 1998 (using the Treasury Stock method at the
Indicated Value).
The Indicated Value represented premiums to the market price of PMT Stock
one day, one week and one month prior to the announcement of the Merger of
22.2%, 22.4% and 24.4%, respectively, and represented a multiple of net income
for the 12 months ended April 30, 1998 of 48.6x and multiples of 1998 and 1999
estimated earnings per share ("EPS") of 34.6x and 26.5x, respectively.
Additionally, the multiples of adjusted market value (defined as the market
value of the common stock, plus total debt and book value of preferred stock,
minus cash, and referred to herein as "AMV") of PMT to revenue, earnings
before interest and taxes ("EBIT") and earnings before interest, taxes,
depreciation and amortization ("EBITDA") for the twelve months ended April 30,
1998 were 3.1x, 32.2x and 22.5x, respectively. Salomon Smith Barney compared
such multiples to trading multiples of NOVA Stock as of June 16, 1998 of 69.2x
net income for the 12 months ended March 31, 1998, 44.5x estimated 1998 EPS
and 27.8x estimated 1999 EPS, and multiples of AMV of NOVA to revenues, EBIT
and EBITDA for the twelve months ended March 31, 1998 of 2.8x, 39.5x and
26.3x, respectively. Projected EPS for 1998 and 1999 were based on mean First
Call earnings estimates and Institutional Brokers Estimate System ("I/B/E/S")
long-term growth rates.
Selected Precedent Transactions Analysis. No transaction used in the
"Selected Precedent Transactions Analysis" as a comparison is identical to the
Merger. Accordingly, an analysis of such transaction data necessarily involves
complex considerations and judgments concerning differences in financial and
operating characteristics of NOVA and PMT and other factors that could affect
the acquisition value of the companies to which they are being compared.
Mathematical analysis (such as determining the mean or median) is not itself a
meaningful method of using comparable transaction data.
Using publicly available information, Salomon Smith Barney analyzed the
purchase price and implied transaction value multiples paid in selected
transactions, which Salomon Smith Barney considered reasonably comparable to
the Merger, (i) since January 1, 1997, involving companies in the transaction
processing services industry generally, consisting of (target/acquiror):
MoneyGram Payment Systems/Viad Corp.; Checkmate Electronics,
Inc./International Verifact, Inc.; Boston Technology, Inc./Comverse
Technology, Inc.; Computer Data Systems, Inc./Affiliated Computer Service,
Inc.; Premenos Technology Corp./Harbinger Corporation; HPR Inc./HBO & Company;
Medic Computer Systems, Inc./MISYS Plc.; BBN Corporation/GTE Corporation;
VerifFone, Inc./Hewlett-Packard Company; American List Corporation/Snyder
Communications, Inc.; and BHC Financial, Inc./Fiserv, Inc. (collectively,
"NOVA Processing Transactions"), and (ii) since January 1, 1994, involving
companies in the transaction processing services industry that specialize in
merchant processing, consisting of (target/acquiror): GENSAR Holdings
Inc./Paymentech, Inc.; First Financial Management Corporation/First Data
Corporation; Card Establishment Services/First Data Corporation; and Envoy
Corporation/First Data Corporation (collectively, "NOVA Merchant Processing
Transactions," and together with NOVA Processing Transactions, "NOVA Selected
Transactions"). Salomon Smith Barney compared purchase prices in the NOVA
Selected Transactions as a multiple of, among other things, latest 12 months
net income and estimated net income and compared AMV as a multiple of, among
other things, EBIT and EBITDA.
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Salomon Smith Barney also compared purchase prices in the NOVA Selected
Transactions as a ratio of estimated net income relative to the S&P 500 (based
upon the S&P 500 price/forward earnings multiple of 25.7x on June 16, 1998).
All multiples for the NOVA Selected Transactions were based on information
available at the time of announcement of the transaction and PMT's estimated
net income was based upon calendarized mean First Call earnings estimates.
Applying the range of multiples for NOVA Processing Transactions of, among
other things, latest 12 months net income, 1998 estimated net income, 1998
estimated net income relative to the S&P 500, EBIT and EBITDA of 12.1x to
184.8x (with a median of 35.8), 14.5x to 34.9x (with a median of 24.5x), -
36.3% to 63.8%, (with a median of 13.1%), 4.4x to 302.4x (with a median of
27.9), and 4.2x to 27.5x (with a median of 18.3), respectively, to
corresponding financial data for PMT, resulted in an implied valuation range
of $2.90 to $220.83 (with a median of $19.43) per share of PMT Stock, on a
fully diluted basis, compared to the implied valuation of the consideration to
be received by PMT shareholders in the Merger of $23.86 per share of PMT
Stock, on a fully diluted basis, based on the closing price of PMT Stock on
June 16, 1998. Applying the range of multiples for NOVA Merchant Processing
Transactions of, among other things, latest 12 months net income, 1998
estimated net income, 1998 estimated net income relative to the S&P 500,
latest 12 months EBIT and latest 12 months EBITDA of 29.6x to 39.7x (with a
median of 34.7x), 29.5x to 29.5x (with a median of 29.5x), 80.1% to 80.1%
(with a median of 80.1%), 19.8x to 23.6x (with a median of 21.7x), and 12.2x
to 71.1x (with a median of 16.0x), respectively, to corresponding financial
data for PMT, resulted in an implied valuation range of $12.42 to $74.07 (with
a median of $22.98) per share of PMT Stock, on a fully diluted basis, compared
to the implied valuation of the consideration to be received by PMT
shareholders in the Merger of $23.86 per share of PMT Stock, on a fully
diluted basis, based on the closing price of PMT Stock on June 16, 1998.
Discounted Cash Flow Analysis. Using calendarized mean First Call earnings
estimates and I/B/E/S long-term growth rates, multiples of estimated 2002 net
income ranging from 20.0x to 24.0x, and discount rates ranging from 14.0% to
18.0%, Salomon Smith Barney determined an implied reference range of per-share
value for PMT Stock on a stand-alone basis of between $22.20 and $29.80,
compared to the implied equity valuation of the consideration to be received
by PMT shareholders in the Merger of $23.86 based on the closing price of PMT
Stock on June 16, 1998. The discounted cash flow analysis did not purport to
be indicative of actual future results and did not purport to reflect the
prices at which shares of PMT Stock may trade. Discounted cash flow analysis
was included because it is a widely used valuation methodology, but the
results of such methodology are highly dependent upon the numerous assumptions
that must be made, including earnings estimates, growth rates and discount
rates.
Pro Forma Analysis. Salomon Smith Barney analyzed certain pro forma effects
resulting from the Merger, including, among other things, the impact of the
Merger on estimated fully diluted EPS of NOVA for the years ending December
31, 1998 through 2000, resulting from the Merger including, without
independent verification, the cost savings, operating efficiencies and
financial synergies (collectively, the "Synergies") expected from the Merger
as estimated by the management of NOVA. The pro forma analysis is based on a
number of assumptions provided by NOVA's management, including, among other
things, the cost of integration and estimated amounts and timing of the
Synergies. Estimated fully diluted EPS numbers were based on mean First Call
earnings estimates for 1998 and 1999 and I/B/E/S long-term growth rates. The
results of the pro forma merger analysis suggested that the Merger would be
accretive to the fully diluted EPS of NOVA for each of the three years ending
December 31, 1998, 1999 and 2000, after giving effect to the Synergies and the
cost of integration expected from the Merger, but not including the impact of
any restructuring charge, as estimated by the management of NOVA. The actual
results achieved by the combined company may vary from projected results and
the variations may be material.
Contribution Analysis. Salomon Smith Barney analyzed the respective
contributions of NOVA and PMT to, among other things, the gross revenues,
EBIT, EBITDA and net income of the combined company for the latest 12 months
ended March 31, 1998 for NOVA and April 30, 1998 for PMT and the estimated net
income of the combined company for the calendar years 1998 and 1999. Estimated
net income figures were based on mean First Call earnings estimates and
I/B/E/S long-term growth rates. This analysis indicated that (i) for the
latest 12 months ended March 31, 1998 for NOVA and April 30, 1998 for PMT,
NOVA would have contributed approximately 50.7% of gross revenues, 44.7% of
EBITDA, 43.6% of EBIT and 40.8% of net income, and PMT
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would have contributed approximately 49.3% of gross revenues, 55.3% of EBITDA,
56.4% of EBIT and 59.2% of net income of the combined company; and (ii) for
the estimated calendar years 1998 and 1999, NOVA would have contributed
approximately 42.2% and 48.3% of net income, respectively, and PMT would have
contributed approximately 57.8% and 51.7% of net income, respectively, of the
combined company. Based on the consideration to be received by PMT
shareholders in the Merger, current shareholders of NOVA and PMT would own, on
a fully diluted basis, approximately 49.5% and 50.5%, respectively, of the
equity value of the combined company upon consummation of the Merger.
Comparative Operating Performance. Salomon Smith Barney compared various
measures of operating performance of NOVA to those of PMT and to those of NOVA
and PMT combined, including, among others, revenue growth, EBIT growth and
EBITDA growth, and gross profit, EBIT and EBITDA margins. Revenue growth, EBIT
growth and EBITDA growth for the year ended December 31, 1997, for NOVA were
26.3%, 131.7% and 102.5%, respectively, compared to revenue growth, EBIT
growth and EBITDA growth for the 12 months ended January 31, 1998 for PMT and
for the year ended December 31, 1997 for NOVA and PMT combined of 25.0%, 39.1%
and 38.7% and 25.6%, 69.9% and 61.3%, respectively. Gross profit, EBIT and
EBITDA margins for the year ended December 31, 1997 for NOVA were 22.5%, 8.2%
and 11.4%, respectively, compared to gross profit, EBIT and EBITDA margins for
the 12 months ended January 31, 1987 for PMT and for the year ended December
31, 1997 for NOVA and PMT combined of 28.1%, 9.1% and 13.1% and 25.4%, 8.7%
and 12.3%, respectively. Salomon Smith Barney also compared EPS growth of NOVA
for the year ended December 31, 1997 of 140.0% to EPS growth of PMT for the
year ended January 31, 1998 of 42.9%, and compared estimated 1998 EPS growth
of NOVA and PMT of 25.0% and 38.0%, respectively, and estimated 1999 EPS
growth and estimated 2000 EPS growth of NOVA of 60.0% and 29.0% to estimated
1999 EPS growth and estimated 2000 growth of PMT and of NOVA and PMT combined
of 30.4% and 28.3% and 41.4% and 35.2%, respectively. Projected EPS growth was
based on mean First Call earnings estimates and I/B/E/S long-term growth
rates.
Selected Companies Analysis. No company used in the "Selected Companies
Analysis" as a comparison is identical to NOVA or PMT. Accordingly, an
analysis of such company data necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
NOVA and PMT and other factors that could affect the acquisition value of the
companies to which they are being compared. Mathematical analysis (such as
determining the mean or median) is not itself a meaningful method of using
comparable company data.
Using publicly available information, Salomon Smith Barney analyzed, among
other things, the market values and trading multiples of NOVA and PMT and the
following selected publicly traded companies in the transaction processing
services industry, which Salomon Smith Barney considered to be reasonably
comparable to NOVA and PMT: (i) bank-owned transaction processing companies
consisting of BA Merchant Services and National Processing, Inc. (the "Bank-
owned Processing Companies") and (ii) independent transaction processing
companies consisting of Concord EFS, Inc., First Data Corporation, National
Data Corporation and Paymentech, Inc. (the "Independent Processing
Companies"). Salomon Smith Barney compared estimated calendar years 1998 and
1999 P/E ratios, P/E ratios as a percentage of estimated long-term growth rate
for calendar years 1998 and 1999 and AMV as a multiple of, among other things,
latest twelve months gross revenues, EBIT and EBITDA. Price and earnings
estimates were based on mean First Call earnings estimates and I/B/E/S long-
term growth rate estimates.
Multiples of AMV to the latest twelve months revenues, EBIT and EBITDA for
the Bank-owned Processing Companies were 3.2x, 14.4x and 10.9x, respectively,
for the Independent Processing Companies were 3.0x, 22.9x and 13.0x,
respectively, and overall were 3.0x, 18.9x and 12.9x, respectively, compared
to multiples for NOVA and PMT of 2.8x, 39.5x and 26.3x and 2.5x, 26.1x and
18.2x, respectively. Multiples of estimated calendar year 1998 and 1999 P/E
ratios for the Bank-owned Processing Companies were 19.7x and 16.5x,
respectively, for the Independent Processing Companies were 25.3x and 21.1x,
respectively, and overall were 20.5x and 17.3x, respectively, compared to
multiples for NOVA and PMT of 44.5x and 27.8x and 28.3x and 21.7x,
respectively. Estimated calendar year 1998 and 1999 P/E ratios as a percentage
of estimated growth rates for calendar years 1998 and 1999 for the Bank-owned
Processing Companies were 117% and 98%, respectively, for the
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Independent Processing Companies were 116% and 94%, respectively, and overall
were 116% and 97%, respectively, compared to 153% and 96% for NOVA and 100%
and 77% for PMT.
Other Factors and Comparative Analyses. In rendering its opinion, Salomon
Smith Barney considered certain other factors and conducted certain other
comparative analyses, including, among other things, a review of (i) the
history of trading prices and volume for NOVA Stock and PMT Stock and the
relationship between movements in such stock and movements in the S&P 500;
(ii) selected published analysts' reports on PMT, including analysts'
estimates as to the long-term EPS potential of PMT; and (iii) the historical
ratio of the price of NOVA Stock to the price of PMT Stock from January 2,
1997 to June 16, 1998.
Pursuant to the terms of Salomon Smith Barney's engagement, NOVA has agreed
to pay Salomon Smith Barney for its services rendered in connection with the
Merger an aggregate financial advisory fee equal to $3,300,000, $300,000 of
which was payable following the execution of the Merger Agreement and
$3,000,000 of which is payable upon consummation of an acquisition by NOVA of
a significant portion of the assets or securities of PMT, including upon
consummation of the Merger. In the event that the Merger Agreement is
terminated and the Merger abandoned, NOVA has agreed to pay Salomon Smith
Barney a cash fee equal to 10% of any related termination fee obtained by NOVA
or any profit resulting from any option on any shares of PMT received by NOVA
(up to $3,300,000). NOVA has also agreed to reimburse Salomon Smith Barney for
travel and other out-of-pocket expenses incurred by Salomon Smith Barney in
performing its services, including the fees and expenses of its legal counsel,
and to indemnify Salomon Smith Barney and related persons against certain
liabilities, including liabilities under the federal securities laws, arising
out of Salomon Smith Barney's engagement.
Salomon Smith Barney has advised NOVA that, in the ordinary course of
business, Salomon Smith Barney and its affiliates may hold or actively trade
the securities of NOVA and PMT for its own account or for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities. Salomon Smith Barney has in the past provided, and currently
is providing, financial advisory and investment banking services to NOVA and
its affiliates unrelated to the Merger, and Salomon Smith Barney has received,
and will receive, fees for such services. In addition, Salomon Smith Barney
and its affiliates (including Travelers Group Inc. and its affiliates) may
maintain other business relationships with NOVA and PMT and their respective
affiliates. Salomon Smith Barney is an internationally recognized investment
banking firm and was selected by NOVA based on its experience, expertise and
familiarity with NOVA and its business. Salomon Smith Barney regularly engages
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
PMT. PMT engaged BT Alex. Brown to provide an opinion as to the fairness,
from a financial point of view, of the Exchange Ratio to PMT shareholders in
connection with the Merger. At the June 17, 1998 meeting of the PMT Board of
Directors, BT Alex. Brown delivered its opinion, dated as of such date, to the
PMT Board of Directors to the effect that, as of the date of such opinion,
based upon and subject to the assumptions made, matters considered and limits
of the review undertaken by BT Alex. Brown, the Exchange Ratio was fair, from
a financial point of view, to PMT shareholders. It is anticipated that BT
Alex. Brown will confirm its opinion in writing as of the date of mailing of
this Joint Proxy Statement/Prospectus; however, such confirmation is not a
condition to the Merger.
THE FULL TEXT OF BT ALEX. BROWN'S WRITTEN OPINION, DATED JUNE 17, 1998 (THE
"BT ALEX. BROWN OPINION"), WHICH SETS FORTH, AMONG OTHER THINGS, THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN BY BT
ALEX. BROWN IN CONNECTION WITH THE OPINION, IS ATTACHED AS APPENDIX E TO THIS
JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. PMT
SHAREHOLDERS ARE URGED TO READ THE BT ALEX. BROWN OPINION IN ITS ENTIRETY. THE
SUMMARY OF THE BT ALEX. BROWN OPINION SET FORTH IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE BT ALEX. BROWN OPINION.
In arriving at its opinion, BT Alex. Brown has, among other things, reviewed
certain publicly available financial information and other information
concerning PMT and NOVA and certain internal analyses and other information
furnished to it by PMT and NOVA. BT Alex. Brown also held discussions with the
members of the senior managements of PMT and NOVA regarding the businesses and
prospects of their respective companies
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and the joint prospects of a combined enterprise. In addition, BT Alex. Brown
(i) reviewed the reported prices and trading activity for the NOVA Stock and
PMT Stock, (ii) compared certain financial and stock market information for
PMT and NOVA with similar information for selected companies whose securities
are publicly traded, (iii) reviewed the financial terms of selected recent
business combinations which it deemed comparable in whole or in part, (iv)
reviewed the terms of the Merger Agreement and certain related documents, and
(v) performed such other studies and analyses and considered such other
factors as it deemed appropriate.
In preparing its opinion, BT Alex. Brown did not assume responsibility for
the independent verification of, and did not independently verify any
information, whether publicly available or furnished to it, concerning PMT or
NOVA, including, without limitation, any financial information, forecasts or
projections, considered in connection with the rendering of its opinion.
Accordingly, for purposes of its opinion, BT Alex. Brown assumed and relied
upon the accuracy and completeness of all such information. BT Alex. Brown did
not conduct a physical inspection of any of the properties or assets, and did
not prepare or obtain any independent evaluation or appraisal of any of the
assets or liabilities of PMT or NOVA. With respect to certain Synergies
expected by PMT and NOVA to be achieved as a result of the Merger, and used by
BT Alex. Brown in its analysis, BT Alex. Brown assumed that they reflected the
best then available estimates and judgments of the management of PMT or NOVA.
In rendering its opinion, BT Alex. Brown expressed no view as to the
reasonableness of the Synergies, or the assumptions on which they are based.
The BT Alex. Brown Opinion was necessarily based upon economic, market and
other conditions as in effect on, and the information made available to BT
Alex. Brown as of, the date of such opinion.
For purposes of rendering its opinion, BT Alex. Brown has assumed that, in
all respects material to its analysis, the representations and warranties of
PMT and NOVA contained in the Merger Agreement are true and correct, that PMT
and NOVA will each perform all of the covenants and agreements to be performed
by it under the Merger Agreement and all conditions to the obligation of each
of PMT and NOVA to consummate the Merger will be satisfied without any waiver
thereof. BT Alex. Brown has also assumed that all material governmental,
regulatory or other approvals and consents required in connection with the
consummation of the transactions contemplated by the Merger Agreement will be
obtained and that in connection with obtaining any necessary governmental,
regulatory or other approvals and consents, or any amendments, modifications
or waivers to any agreements, instruments or orders to which either PMT or
NOVA is a party or subject or by which it is bound, no limitations,
restrictions or conditions will be imposed or amendments, modifications or
waivers made that would have a material adverse effect on PMT or NOVA or
materially reduce the contemplated benefits of the Merger to PMT. In addition,
BT Alex. Brown has been advised by PMT, and accordingly has assumed for
purposes of its opinion, that the Merger will be tax-free to each of PMT and
NOVA and their respective shareholders and that the Merger will be accounted
for as a pooling of interests.
In arriving at its opinion, BT Alex. Brown was not authorized to solicit,
and did not solicit, interest from any other person with respect to a business
combination with PMT or an acquisition of PMT or any of its assets, nor did BT
Alex. Brown review with PMT or its Board of Directors any potential
transaction in lieu of the Merger.
Set forth below is a brief summary of certain financial analyses performed
by BT Alex. Brown in connection with its opinion and reviewed with the PMT
Board of Directors at its meeting on June 17, 1998.
Historical Stock Performance. BT Alex. Brown reviewed and analyzed recent
and historical market prices and trading volume for NOVA Stock and PMT Stock
and compared such market prices to certain stock market and industry indices.
Based on the closing sale price of NOVA Stock on the NYSE Composite Tape on
June 16, 1998, the last trading date before the meeting at which the PMT Board
approved the Merger Agreement, the implied value of the Merger Consideration
was $23.86 per share of PMT Stock.
Analysis Of Selected Publicly Traded Companies. BT Alex. Brown compared
certain financial information and commonly used valuation measurements for
NOVA and PMT to corresponding information and measurements for a group of
seven publicly traded merchant credit card processing companies consisting, in
the
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case of NOVA, of BA Merchant Services Inc., Concord EFS Inc., First Data
Corporation, Paymentech Inc., National Data Corporation, National Processing
Inc. and PMT (collectively, the "NOVA Selected Companies"), and, in the case
of PMT, of BA Merchant Services Inc., Concord EFS Inc., First Data
Corporation, Paymentech Inc., National Data Corporation, National Processing
Inc. and NOVA (collectively, the "PMT Selected Companies"). Such financial
information and valuation measurements included, among other things, (i)
common equity market valuation; (ii) operating performance; (iii) ratios of
common equity market value as adjusted for debt and cash ("Enterprise Value")
to revenues and EBIT; and (iv) ratios of common equity market prices per share
("Equity Value") to EPS. To calculate the trading multiples for NOVA, PMT, the
NOVA Selected Companies and the PMT Selected Companies, BT Alex. Brown used
publicly available information concerning historical and projected financial
performance, including published historical financial information and earnings
estimates reported by First Call. First Call is a data service that monitors
and publishes compilations of earnings estimates by selected research analysts
regarding companies of interest to institutional investors. BT Alex. Brown
calculated that, on a latest 12 months ("LTM") basis, the multiple of
Enterprise Value to revenues was 2.8x for NOVA and 2.5x for PMT, compared to a
range of 1.3x to 8.3x, with a median of 2.9x, for both the NOVA Selected
Companies and the PMT Selected Companies; and the multiple of Enterprise Value
to EBIT was 34.9x for NOVA and 25.1x for PMT, compared to a range of 12.1x to
36.0x, with a median of 16.1x, for both the NOVA Selected Companies and the
PMT Selected Companies. BT Alex. Brown further calculated that the multiple of
Equity Value to LTM EPS was 52.8x for NOVA and 36.2x for PMT, compared to a
range of 20.0x to 51.9x, with a median of 24.3x, for the NOVA Selected
Companies, and a range of 20.0x to 52.8x, with a median of 24.3x, for the PMT
Selected Companies; the multiple of Equity Value to estimated calendar year
1998 EPS was 43.9x for NOVA and 28.9x for PMT, compared to a range of 18.5x to
36.0x, with a median of 21.3x, for the NOVA Selected Companies, and a range of
18.5x to 43.9x, with a median of 21.3x, for the PMT Selected Companies; and
the multiple of Equity Value to estimated calendar year 1999 EPS was 27.8x for
NOVA and 22.3x for PMT, compared to a range of 16.4x to 27.2x, with a median
of 17.5x, for the NOVA Selected Companies, and a range of 16.4x to 27.8x, with
a median of 17.5x, for the PMT Selected Companies.
None of the companies utilized as a comparison were identical to NOVA or
PMT. Accordingly, BT Alex. Brown believes the analysis of publicly traded
comparable companies is not simply mathematical. Rather, it involves complex
considerations and qualitative judgments, reflected in BT Alex. Brown's
opinion, concerning differences in financial and operating characteristics of
the comparable companies and other factors that could affect the public
trading value of the comparable companies.
Analysis of Selected Precedent Transactions. BT Alex. Brown reviewed the
financial terms, to the extent publicly available, of six pending or completed
mergers and acquisition transactions since July 1, 1994 involving companies in
the transaction processing industry (the "PMT Selected Transactions"). BT
Alex. Brown calculated various financial multiples based on certain publicly
available information for each of the PMT Selected Transactions and compared
them to corresponding financial multiples for the Merger, based on the
Exchange Ratio. The transactions reviewed were (target/acquiror (date
announced)): Associates First Capital Corporation/SPS Transaction Services
Inc. (April 1998); Affiliated Computer Services Inc./Genix Group (June 1996);
Ceridian Corporation/Comdata Holdings Corporation (August 1995); First Data
Corporation/First Financial Management Inc. (June 1995); First Data
Corporation/Card Establishment Services Inc. (November 1994); and First Data
Corporation/ENVOY Corporation (August 1994). BT Alex. Brown calculated that
the multiple of Enterprise Value to LTM revenues was 3.1x for the Merger
compared to a range of 1.6x to 4.3x, with a median of 2.5x, for the PMT
Selected Transactions; the multiple of Enterprise Value to LTM EBIT was 31.0x
for the Merger compared to a range of 13.3x to 21.4x, with a median of 16.5x,
for the PMT Selected Transactions. BT Alex. Brown further calculated that the
multiple of Equity Value to LTM net income was 44.2x for the Merger compared
to a range of 22.9x to 34.7x, with a median of 30.2x, for the PMT Selected
Transactions. All multiples for the PMT Selected Transactions were based on
public information available at the time of announcement of such transaction,
without taking into account differing market and other conditions during the
four-year period in which the PMT Selected Transactions occurred.
BT Alex. Brown reviewed the financial terms, to the extent publicly
available, of 20 completed mergers and acquisition transactions since July 1,
1988, involving companies in various industries, in which the
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shareholders of each of the combining companies received an ownership interest
of between 40%-60% in the combined company, as well as equal board of
directors representation (the "Selected Merger of Equals Transactions"). BT
Alex. Brown calculated that the Selected Merger of Equals Transactions were
effected at premiums/discounts to the exchange ratio one day prior to the
announcement of the transaction and to the exchange ratio four weeks prior to
the announcement of the transaction ranging from -9.8% to 75.5%, with a median
of 9.4%, and -13.1% to 110.6%, with a median of 6.2%, respectively, compared
to premiums of 22.2% and 19.6%, respectively, for the Merger based on the
Exchange Ratio one day and four weeks prior to the announcement of the
proposed Merger.
Because the reasons for, and circumstances surrounding, each of the
precedent transactions analyzed were so diverse, and due to the inherent
differences between the operations and financial conditions of NOVA and PMT
and the companies involved in the PMT Selected Transactions and the Selected
Merger of Equals Transactions, BT Alex. Brown believes that a comparable
transaction analysis is not simply mathematical. Rather, it involves complex
considerations and qualitative judgments, reflected in BT Alex. Brown's
opinion, concerning differences between the characteristics of these
transactions and the Merger that could affect the value of the subject
companies and businesses and NOVA and PMT.
Historical Exchange Ratio Analysis. BT Alex. Brown reviewed the historical
ratio of the daily per share market closing prices of PMT Stock divided by the
corresponding prices of NOVA Stock over the one-year, 180-day, 90-day, 60-day,
and 30-day periods prior to June 16, 1998 and as of June 16, 1998 (the last
trading day before the meeting at which the PMT Board of Directors approved
the Merger Agreement). The average exchange ratios for these time periods and
as of such date were 0.609x, 0.585x, 0.596x, 0.593x, 0.582x and 0.585x,
respectively. BT Alex. Brown then calculated the respective premiums over such
average daily exchange ratios represented by the Exchange Ratio, which for the
same time periods and as of such date were 17.4%, 22.3%, 20.0%, 20.6%, 22.8%
and 22.2%, respectively.
Contribution Analysis. BT Alex. Brown analyzed the relative contributions of
NOVA and PMT, as compared to PMT's relative ownership of approximately 50.5%
of the outstanding capital of the combined company, to the pro forma income
statement of the combined company, based on publicly available information.
This analysis showed, excluding (i) the effect of any Synergies that may be
realized as a result of the Merger, and (ii) non-recurring expenses relating
to the Merger, that on a pro forma combined basis, based on the LTM period
ending March 31, 1998 for NOVA and the LTM period ending April 30, 1998 for
PMT, and based on estimated calendar years ending December 31, 1998 and
December 31, 1999 for NOVA and PMT, NOVA and PMT would account for
approximately 50.7% and 49.3%, 56.6% and 43.4%, and 57.0% and 43.0%,
respectively, of the combined company's pro forma revenue; 45.7% and 54.3%,
48.9% and 51.1%, and 54.3% and 45.7%, respectively, of the combined company's
pro forma EBIT; and 42.0% and 58.0%, 44.1% and 55.9%, and 49.1% and 50.9%,
respectively, of the combined company's pro forma net income. Estimated
financial data for PMT and NOVA were based on the estimates of equity research
analysts.
Pro Forma Accretion/Dilution Analysis. BT Alex. Brown analyzed certain pro
forma effects of the Merger with respect to PMT. BT Alex. Brown computed the
accretion/dilution resulting from the Merger to the EPS estimates for PMT for
the calendar years ending December 31, 1998 and December 31, 1999, before and
after taking into account the Synergies identified by management of NOVA and
PMT and before non-recurring costs relating to the Merger. BT Alex. Brown
noted that before taking into account the Synergies and before non-recurring
costs, the Merger would be approximately 16.6% dilutive and 5.1% dilutive to
the EPS estimates for PMT for the calendar years ending December 31, 1998 and
December 31, 1999, respectively. BT Alex. Brown also noted that after taking
into account the Synergies, and before conversion costs for the calendar years
ending December 31, 1998 and December 31, 1999, respectively, and before non-
recurring costs, the Merger would be approximately 16.6% dilutive to the EPS
estimate for PMT for the calendar year ending December 31, 1998 and
approximately 1.6% dilutive to the EPS estimate for PMT for the calendar year
ending December 31, 1999. In addition, BT Alex. Brown noted that after taking
into account the Synergies, and after conversion costs for the
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calendar years ending December 31, 1998 and December 31, 1999, respectively,
and before non-recurring costs, the Merger would be approximately 16.6%
dilutive to the EPS estimate for PMT for the calendar year ending December 31,
1998 and approximately 6.3% dilutive to the EPS estimate for PMT for the
calendar year ending December 31, 1999. BT Alex. Brown noted that, at trading
multiples of Equity Value to estimated calendar year 1998 EPS of between 35.0x
(approximately the average of the multiples of Equity Value to estimated
calendar year 1998 EPS for NOVA and PMT) and 43.0x (slightly below the
multiple of Equity Value to estimated calendar year 1998 EPS for NOVA on June
16, 1998) and at trading multiples of Equity Value to estimated calendar year
1999 EPS of between 24.0x (approximately the average of the multiples of
Equity Value to estimated calendar year 1999 EPS for NOVA and PMT) and 28.0x
(slightly below the multiple of Equity Value to estimated calendar year 1999
EPS for NOVA on June 16, 1998), before non-recurring costs relating to the
Merger and before and after taking into account both the Synergies and the
conversion costs identified by management of NOVA and PMT, the imputed value
of the shares of the combined company received by PMT shareholders represented
a premium to the closing sale price of PMT Stock on the Nasdaq National Market
on June 16, 1998, the last trading date before the meeting at which the PMT
Board of Directors approved the Merger.
The foregoing summary describes all analyses and factors that BT Alex. Brown
deemed material in its presentation to the PMT Board of Directors, but is not
a comprehensive description of all analyses performed and factors considered
by BT Alex. Brown in connection with preparing its opinion. The preparation of
a fairness opinion is a complex process involving the application of
subjective business judgment in determining the most appropriate and relevant
methods of financial analysis and the application of those methods to the
particular circumstances and, therefore, is not readily susceptible to summary
description. BT Alex. Brown believes that its analyses must be considered as a
whole and that considering any portion of such analyses and of the factors
considered without considering all analyses and factors could create a
misleading view of the process underlying the opinion. In arriving at its
fairness determination, BT Alex. Brown did not assign specific weights to any
particular analyses.
In conducting its analyses and arriving at its opinions, BT Alex. Brown
utilized a variety of generally accepted valuation methods. The analyses were
prepared solely for the purpose of enabling BT Alex. Brown to provide its
opinion to the PMT Board of Directors as to the fairness to PMT of the
Exchange Ratio and do not purport to be appraisals or necessarily reflect the
prices at which businesses or securities actually may be sold, which are
inherently subject to uncertainty. In connection with its analyses, BT Alex.
Brown made, and was provided by PMT management with, numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond PMT's or NOVA's control. Analyses
based on estimates or forecasts of future results are not necessarily
indicative of actual past or future values or results, which may be
significantly more or less favorable than suggested by such analyses. Because
such analyses are inherently subject to uncertainty, being based upon numerous
factors or events beyond the control of PMT, NOVA or their respective
advisors, neither NOVA, PMT nor BT Alex. Brown nor any other person assumes
responsibility if future results or actual values are materially different
from these forecasts or assumptions.
The terms of the Merger were determined through negotiations between PMT and
NOVA and were approved by the PMT Board of Directors, and the decision to
enter into the Merger was solely that of the PMT Board of Directors. As
described above, the opinion and presentation of BT Alex. Brown to the PMT
Board of Directors were only one of a number of factors taken into
consideration by the PMT Board of Directors in making its determination to
approve the Merger Agreement and the transactions contemplated thereby. BT
Alex. Brown's opinion was provided to the PMT Board of Directors to assist it
in connection with its consideration of the Merger and does not constitute a
recommendation to any holder of PMT Stock as to how to vote with respect to
the Merger.
PMT selected BT Alex. Brown to provide an opinion as to the fairness, from a
financial point of view, of the Exchange Ratio to PMT shareholders in
connection with the Merger, based on BT Alex. Brown's qualifications,
expertise, reputation and experience in mergers and acquisitions. PMT has
retained BT Alex.
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Brown pursuant to a letter agreement dated April 30, 1998 (the "BT Alex. Brown
Engagement Letter"). As compensation for BT Alex. Brown's services in
connection with the Merger, PMT has paid BT Alex. Brown a cash fee of $500,000
and has agreed to pay an additional cash fee of $1.25 million if the Merger is
consummated. Regardless of whether the Merger is consummated, PMT has agreed
to reimburse BT Alex. Brown for reasonable fees and disbursements of BT Alex.
Brown's counsel and all of BT Alex. Brown's reasonable travel and other out-
of-pocket expenses incurred in connection with the Merger or otherwise arising
out of the retention of BT Alex. Brown under the BT Alex. Brown Engagement
Letter. PMT has also agreed to indemnify BT Alex. Brown and certain related
persons to the full extent lawful against certain liabilities, including
certain liabilities under the federal securities laws arising out of its
engagement or the Merger.
BT Alex. Brown (together with its affiliates, the "BT Group") is an
internationally recognized investment banking firm experienced in providing
advice in connection with mergers and acquisitions and related transactions.
One or more members of the BT Group have, from time to time, provided
investment banking services to PMT and NOVA or their affiliates for which it
has received compensation, including acting as lead or co-lead managing
underwriter in connection with a number of underwritten public offerings of
common stock by each of PMT and NOVA. Members of the BT Group may actively
trade securities of PMT or NOVA for their own account or the account of their
customers and, accordingly, may from time to time hold a long or short
position in such securities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The federal income tax summary set forth below is included for general
information only. The summary describes the material federal income tax
consequences of the Merger, the federal income tax consequences to PMT's
shareholders as a result of the Merger, and the federal income tax
consequences of ownership of NOVA Stock. No information is provided with
respect to the tax consequences under foreign, state or local laws. The
summary, except where noted, deals only with NOVA Stock held as capital assets
by United States holders and does not deal with holders subject to special
treatment under federal income tax law (i.e., it may not be applicable to
certain classes of taxpayers, including insurance companies, securities
dealers, financial institutions and foreign persons). Furthermore, the
discussion below is based upon the provisions of the Code, regulations,
rulings and judicial decisions thereunder as of the date of this Joint Proxy
Statement/Prospectus, and such authorities may be repealed, revoked, or
modified so as to result in federal income tax consequences different from
those discussed below. Additionally, it cannot be predicted whether or when
new tax legislation will be enacted and, if enacted, how such legislation
would impact the federal income tax consequences to PMT's shareholders.
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF EACH PMT SHAREHOLDER AND OTHER FACTORS, PMT
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE
FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS, AS
WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING
JURISDICTION AND PROSPECTS FOR ENACTMENT OF FUTURE FEDERAL INCOME TAX
LEGISLATION.
The Merger is intended to qualify as a tax-free reorganization within the
meaning of Section 368(a) of the Code. Assuming that the Merger so qualifies,
the principal federal income tax consequences of the Merger will be as
follows:
(i) No gain or loss will be recognized by NOVA, Mergerco or PMT as a
result of the Merger.
(ii) No gain or loss will be recognized by the shareholders of PMT upon
their receipt of shares of NOVA Stock in exchange for their shares of PMT
Stock, except as described in (v) below.
(iii) The tax basis of the shares of NOVA Stock (including fractional
share interests for which cash is ultimately received) received by the
shareholders of PMT will be the same as the tax basis of their shares of
PMT Stock exchanged therefor, plus any gain recognized on the Merger.
(iv) The holding period of the NOVA Stock in the hands of the PMT
shareholders will include the holding period of their shares of PMT Stock
exchanged therefore, provided that such shares were held as a capital asset
at the Effective Time.
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(v) A cash payment in lieu of a fractional share will be treated as if a
fractional share of NOVA Stock had been received in the Merger and then
redeemed by NOVA. Each shareholder of PMT who receives cash proceeds from
the sale of fractional interests in shares of NOVA Stock will recognize
gain or loss equal to the difference between such proceeds and the tax
basis allocated to such shareholder's fractional share interests. Any such
gain or loss recognized as described in this paragraph will constitute
capital gain or loss if the shareholder's shares of PMT Stock were held as
a capital asset at the Effective Time.
Consummation of the Merger is conditioned upon receipt by NOVA of an opinion
from Long Aldridge & Norman LLP, and receipt by PMT of an opinion from Waller
Lansden Dortch & Davis, a Professional Limited Liability Company, each dated
as of the Effective Time, that the Merger will be treated for federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code. Such opinions will be issued with the understanding that the relevant
facts are as described in this Joint Proxy Statement/Prospectus and exhibits
and appendices hereto, and in rendering such opinions such counsel will rely
upon the accuracy of the factual statements and representations in the
foregoing documents and upon certain representations made in writing to such
counsel by NOVA and PMT. An opinion of counsel, however, is not binding on the
Internal Revenue Service or the courts. No ruling on the Merger will be sought
from the Internal Revenue Service.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. IT
DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE MERGER. IN
ADDITION, THE DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES THAT MAY BE
RELEVANT TO PARTICULAR CATEGORIES OF SHAREHOLDERS SUBJECT TO SPECIAL TREATMENT
UNDER CERTAIN FEDERAL INCOME TAX LAWS, SUCH AS DEALERS IN SECURITIES, BANKS,
INSURANCE COMPANIES, FOREIGN INDIVIDUALS AND ENTITIES AND REGULATED INVESTMENT
COMPANIES. THE DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE
CODE, EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT
ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT
TO CHANGE, POSSIBLY WITH RETROACTIVE EFFECT, AND ANY SUCH SHAREHOLDER SHOULD
CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER TO HIM OR HER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE,
LOCAL AND FOREIGN TAX LAWS.
REGULATORY APPROVALS
The Merger is subject to review by the Department of Justice and the Federal
Trade Commission under the HSR Act. NOVA and PMT have filed the required
notifications with the Department of Justice and the Federal Trade Commission
under the HSR Act.
SUMMARY OF CERTAIN PROVISIONS OF THE MERGER AGREEMENT
Conditions to the Merger. Consummation of the Merger Agreement and the
transactions contemplated thereby are subject to a number of conditions,
including (i) approval of the Merger Agreement and the transactions
contemplated thereby by the shareholders of NOVA and PMT and, in the case of
NOVA's shareholders, approval of the proposed amendment to NOVA's Articles of
Incorporation (NOVA Proposal 2); (ii) the Registration Statement shall have
become effective, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated, no action to limit, stop or prohibit the
mailing of this Joint Proxy Statement/Prospectus to shareholders shall have
been initiated or threatened, and all necessary state securities or Blue Sky
authorizations shall have been received by each of NOVA or PMT as appropriate;
(iii) receipt of all governmental and other consents and approvals necessary
to permit consummation of the Merger, including the expiration of the waiting
period (or any extension thereof) applicable to consummation of the Merger
under the HSR Act; (iv) receipt by NOVA of an opinion from Long Aldridge &
Norman LLP, and receipt by PMT of an opinion of Waller Lansden Dortch & Davis,
a Professional Limited Liability Company, each dated as of the Effective Time,
that the Merger qualifies as a tax-free reorganization under the Code for
federal income tax purposes; (v) the receipt by NOVA of letters from
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Ernst & Young LLP dated as of the effective date of the Registration Statement
and as of the Effective Time regarding its concurrence with management's
conclusion that the Merger qualifies for pooling of interests accounting
treatment under Accounting Principles Board Opinion No. 16, and the receipt by
PMT of letters from PricewaterhouseCoopers LLP dated as of the effective date
of the Registration Statement and the Effective Time to the same effect; (vi)
the approval for listing on the NYSE of the NOVA Stock to be issued in the
Merger, subject to notice of issuance; and (vii) that no court or other
governmental entity having jurisdiction over either NOVA or PMT or their
respective subsidiaries shall have enacted, issued, promulgated, enforced or
entered any law, rule, regulation, executive order, decree, injunction or
other order (whether temporary, preliminary or permanent) which is then in
effect and has the effect of making the Merger or any of the transactions
contemplated by the Merger Agreement illegal.
Representations and Warranties. The Merger Agreement contains certain
customary representations and warranties by each of NOVA and PMT relating to,
among other things, (i) corporate organization, standing and power; (ii)
subsidiaries; (iii) capital structure; (iv) authorization, power and authority
of each of the parties with respect to required consents, approvals, orders
and authorizations of governmental authorities relating to, and
noncontravention of certain agreements as a result of, the Merger Agreement;
(v) documents filed by each of NOVA and PMT with the Commission and other
regulatory entities, the accuracy of information contained therein and the
absence of undisclosed liabilities of each of NOVA and PMT; (vi) the accuracy
of information supplied by each of NOVA and PMT in connection with this Joint
Proxy Statement/Prospectus and the Registration Statement; (vii) absence of
material changes or events with respect to each of NOVA and PMT since December
31, 1997, in the case of NOVA, and July 31, 1997, in the case of PMT; (viii)
compliance with applicable laws and litigation; (ix) absence of changes in
benefit plans; (x) matters relating to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"); (xi) tax matters; (xii) required
shareholder votes in connection with the Merger Agreement; (xiii) compliance
with certain laws and satisfaction of certain state takeover statutes; (xiv)
labor matters; (xv) intellectual properties; (xvi) treatment of the Merger as
a pooling of interests for accounting purposes; and (xvii) engagement of and
payment of fees to brokers, investment bankers, finders and financial advisors
in connection with the Merger Agreement.
Conduct of Business Pending the Merger. Each of NOVA and PMT has agreed in
the Merger Agreement to, among other things, operate its business only in the
ordinary course of its business as currently conducted and, to the extent
consistent therewith, to use reasonable best efforts to preserve intact its
current business organizations, keep available the services of its current
officers and employees and preserve its relationships with customers,
suppliers and others having business dealings with it to the end that its
goodwill and ongoing business shall be unimpaired at the Effective Time. In
addition, each of NOVA and PMT has agreed not to take certain actions relating
to its operation pending consummation of the Merger without the prior consent
of the other party, except as otherwise permitted by the Merger Agreement.
Such provisions restrict each of NOVA's and PMT's ability to: (i) declare, set
aside, or pay any dividends on, or make distributions in respect of its stock,
or split, combine or reclassify any of its stock or issue or authorize the
issuance of any other securities in respect of its stock, or, subject to
certain limitations, purchase, redeem or otherwise acquire any shares of its
stock; (ii) issue, deliver, sell, pledge, dispose of or otherwise encumber any
shares of its stock, other than pursuant to certain exceptions; (iii) amend
its Articles of Incorporation (or charter) or bylaws (except the amendment to
NOVA's Articles of Incorporation contemplated in NOVA Proposal 2 herein); (iv)
acquire or agree to acquire any business or any corporation, partnership,
association or other business organization or otherwise acquire or agree to
acquire any assets, except those transactions in the ordinary course of
business which it is obligated to consummate, and the consideration for which
consists solely of cash, pursuant to agreements to which it is a party in
effect as of the date of the Merger Agreement; (v) sell, lease or otherwise
dispose of any of its assets, other than in the ordinary course of business
and which is not material to such party; (vi) incur any indebtedness for
borrowed money, guarantee any indebtedness or make any loans or capital
contributions or investments in any other entity, subject to certain limited
exceptions; (vii) alter its corporate structure or ownership or any subsidiary
thereof; (viii) enter into or adopt or amend any existing severance plan
agreement or arrangement or enter into or amend any stock option plan or
employment or consulting agreement, other than as explicitly contemplated by
the Merger Agreement or as described in NOVA Proposal 3 herein; (ix) increase
the
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compensation payable or to become payable to its officers or employees, except
for increases in the ordinary course of business, or grant any severance or
termination pay to or enter into any employment or severance agreement with
any of its directors or officers or any of its subsidiaries, or establish,
adopt, enter into or, except as may be required to comply with applicable law,
amend in any material respect any labor, collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
director, officer or employee; (x) knowingly violate or knowingly fail to
perform any material obligation or duty imposed upon it or any of its
subsidiaries by any applicable material federal, state or local law, rule,
regulation, guideline or ordinance; (xi) take any action, other than
reasonable and usual actions in the ordinary course of business consistent
with past practice, with respect to accounting policies or procedures (other
than actions required to be taken by generally accepted accounting
principles); (xii) make any tax election or settle or compromise any material
federal, state, local or foreign income tax liability; or (xiii) authorize,
recommend or announce an intention to do any of the foregoing, or enter into
any contract, agreement, commitment or arrangement to do any of the foregoing.
NOVA and PMT also agree that neither they nor their respective subsidiaries
will knowingly take or fail to take any action which action or failure would
jeopardize the treatment of the Merger as a pooling of interests for
accounting purposes or jeopardize the qualification of the Merger as a tax-
free reorganization for federal income tax purposes.
No Solicitation. Pursuant to the Merger Agreement, from and after the date
of the Merger Agreement, each of NOVA and PMT will not, and will not cause,
authorize or permit its subsidiaries to, and will not permit any of its
officers, directors, employees, attorneys, financial advisors, agents or other
representatives or those of any of its subsidiaries to, solicit, participate
in, or encourage inquiries or proposals with respect to, or engage in any
negotiations concerning, or provide any confidential information to, or have
any discussions or negotiations with, any person relating to any takeover
proposal or offer for a business combination other than as contemplated by the
Merger Agreement (a "Takeover Proposal"); provided, however, that each of NOVA
and PMT may engage in discussions or negotiations with, or furnish information
regarding itself and its subsidiaries, business, properties or furnish
information regarding itself and its subsidiaries, business, properties or
assets to, any third party which makes a Takeover Proposal if its Board of
Directors concludes in good faith on the basis of the advice of its outside
legal counsel that the failure to take such action would violate the fiduciary
obligations of such Board of Directors under applicable law. Each of NOVA and
PMT shall advise the other party within 24 hours of receiving any Takeover
Proposal and the material terms thereof (including the identity of the person
making such Takeover Proposal), and shall immediately advise the other party
of any developments with respect to such Takeover Proposal.
Amendment, Waiver and Termination. The Merger Agreement may be amended by
written agreement among the parties any time before or after approval of the
Merger Agreement by the shareholders of NOVA and PMT. After any such
shareholder approval, the parties cannot amend the Merger Agreement without
shareholder approval of such amendment except to the extent applicable law
allows such an amendment without shareholder approval.
At any time prior to the Effective Time, the parties to the Merger Agreement
may (i) extend the time for the performance of any obligations or other acts
of the other parties thereto, (ii) waive any inaccuracies in the
representations and warranties contained in the Merger Agreement or any
document delivered pursuant to the Merger Agreement, and (iii) waive
compliance with any of the agreements or conditions contained in the Merger
Agreement which may legally be waived.
The Merger Agreement may be terminated, and the Merger abandoned, at any
time prior to the Effective Time by the mutual written consent of NOVA and
PMT. In addition, the Merger Agreement may be terminated prior to the
Effective Time (whether before or after any approval of the matters presented
in connection with the Merger by the shareholders of NOVA or PMT) by either
NOVA or PMT:
(i) if the other party fails to comply in any material respect with any
of its covenants or agreements contained in the Merger Agreement which are
required to be complied with prior to the date of such termination, which
failure to comply has not been cured within five business days following
receipt of
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written notice of such failure to comply; provided, however, that if any
such breach is curable by the breaching party through the exercise of that
party's best efforts, and for so long as the breaching party is using its
best efforts to cure such breach, the non-breaching party may not terminate
the Merger Agreement;
(ii) if there has been (A) a breach by the other party of any
representation or warranty not qualified as to materiality which has the
effect of making such representation or warranty not true and correct in
all material respects, or (B) a breach by the other party of any
representation or warranty that is qualified as to materiality, in each
case which breach has not been cured within five business days following
receipt by the breaching party of written notice of the breach; provided,
however, that if any such breach is curable by the breaching party through
the exercise of the breaching party's best efforts, and for so long as the
breaching party is using its best efforts to cure such breach, the non-
breaching party may not terminate the Merger Agreement;
(iii) if: (A) the Merger has not been effected on or prior to the close
of business on November 30, 1998; provided, however, that (x) this right to
terminate the Merger Agreement is not available to any party whose failure
to fulfill any of its obligations contained in the Merger Agreement has
been the cause of, or resulted in, the failure of the Merger to have
occurred on or prior to such date; and (y) such termination date may be
extended prior to the termination of the Merger Agreement by written notice
of one party to the other to a date not later than February 28, 1999, if
the Merger shall not have been consummated as a result of either party
having failed by November 30, 1998, to receive all required regulatory
approvals or consents with respect to the Merger; or (B) any court or other
governmental entity having jurisdiction over a party to the Merger shall
have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the transaction
contemplated by the Merger Agreement, and such order, decree, ruling or
other action shall have become final and non-appealable;
(iv) if the shareholders of either NOVA or PMT do not approve the Merger
Agreement and the transactions contemplated thereby, or if the NOVA
shareholders do not approve the proposed amendment to NOVA's Articles of
Incorporation (NOVA Proposal 2) in each case, at the appropriate Meeting or
any adjournment or postponement thereof; or
(v) if: (A) the Board of Directors of the other party shall not have
recommended to its shareholders the approval of the Merger Agreement and
the transactions contemplated thereby, or shall have resolved not to make
such recommendation, or shall have withdrawn, rescinded, modified or
materially qualified in any adverse manner, or taken any action or made any
statement materially inconsistent with such recommendation; (B) the Board
of Directors of the other party shall have recommended to its shareholders
any tender offer, exchange offer or proposal for business combination
involving such party or any of its subsidiaries other than the Merger; or
(C) a tender offer or exchange offer for 20% or more of the outstanding
shares of capital stock of such other party is commenced, and the Board of
Directors of such party fails to recommend against acceptance of the tender
offer or exchange offer by its shareholders (including by taking no
position with respect to the acceptance of the tender offer or exchange
offer by its shareholders).
Additionally, the Merger Agreement may be terminated by PMT if the product
of the Exchange Ratio and the average closing price of NOVA Stock for the ten
day trading period immediately preceding the day which is two business days
before the date of the closing of the transactions contemplated by the Merger
Agreement would result in each shareholder of PMT receiving Merger
Consideration with a value of less than $15.00 per share of PMT Stock held by
such shareholder as so measured; provided, however, that before PMT may
terminate the Merger Agreement pursuant to this provision, it must provide
written notice of its intent to terminate the Merger Agreement at least one
business day prior to such date of closing, and NOVA, after receiving such
notice, may elect to submit to its shareholders for approval an "Exchange
Ratio Adjustment" in order to adjust the Exchange Ratio so that each
shareholder of PMT will receive consideration with the value of $15.00 at the
date of closing. The mechanism described in this paragraph may be invoked only
once by NOVA.
EXPENSES AND FEES
Regardless of whether the Merger is consummated, all costs and expenses
incurred in connection with the Merger Agreement and the transactions
contemplated thereby including, without limitation, the fees and
54
<PAGE>
disbursements of counsel, financial advisors and accountants, shall be paid by
the party incurring such costs and expenses, provided, however, that all
printing expenses and filing fees shall be divided equally between NOVA and
PMT.
STOCK OPTION AGREEMENTS
Pursuant to the NOVA Stock Option Agreement, NOVA granted the NOVA Option to
PMT, exercisable in whole or in part only under certain limited and
specifically defined circumstances, none of which, to the best of NOVA's and
PMT's knowledge, has occurred as of the date hereof, to purchase up to a
number of shares of NOVA Stock equal to 19.9% of the total number of shares of
NOVA Stock issued and outstanding at the time of exercise of the Option for a
purchase price of $35.19 per share, subject to adjustment in certain
circumstances.
Pursuant to the PMT Stock Option Agreement, PMT granted the PMT Option to
NOVA, exercisable in whole or in part only under certain limited and
specifically defined circumstances, none of which, to the best of PMT's and
NOVA's knowledge, has occurred as of the date hereof, to purchase up to a
number of shares of PMT Stock equal to 19.9% of the total number of shares of
PMT Stock issued and outstanding at the time of exercise of the Option for a
purchase price of $25.16 per share, subject to adjustment in certain
circumstances.
For purposes of the following summary of the material provisions of the
Stock Option Agreements, the term (i) "Issuer" means NOVA with respect to the
NOVA Stock Option Agreement and PMT with respect to the PMT Stock Option
Agreement, and (ii) "Grantee" means PMT with respect to the NOVA Stock Option
Agreement and NOVA with respect to the PMT Stock Option Agreement.
Subject to applicable law and regulatory restrictions, the Grantee may
exercise the Option, in whole or in part, only if both an Initial Triggering
Event (as hereinafter defined) and a Subsequent Triggering Event (as
hereinafter defined) have occurred prior to the occurrence of an Exercise
Termination Event (as defined in the Stock Option Agreements), provided that
written notice of such exercise is provided prior to the occurrence of an
Exercise Termination Event.
As defined in the Stock Option Agreements, "Initial Triggering Event" means
any of the following events or transactions occurring after the date of
signing the Stock Option Agreements:
(i) Issuer or any of its subsidiaries (each an "Issuer Subsidiary"),
without having received Grantee's prior written consent, shall have entered
into an agreement to engage in an "Acquisition Transaction" (as hereinafter
defined) with any person or entity other than Grantee or any of its
Subsidiaries (each, a "Grantee Subsidiary") or the Board of Directors of
Issuer shall have recommended that the shareholders of Issuer approve or
accept any Acquisition Transaction other than the Merger. "Acquisition
Transaction" means (w) a merger or consolidation, or any similar
transaction, involving the Issuer or any significant subsidiary of the
Issuer, (x) a purchase, lease or other acquisition or assumption of all or
a substantial portion of the assets of the Issuer or any significant
subsidiary of the Issuer, (y) a purchase or other acquisition (including by
way of merger, consolidation, share exchange or otherwise) of securities
representing 15% or more of the voting power of the Issuer, or (z) any
substantially similar transaction, other than certain limited transactions
in the ordinary course of business of the Issuer specifically permitted by
the Merger Agreement;
(ii) the Issuer or any Issuer Subsidiary, without having received
Grantee's prior written consent, shall have authorized, recommended,
proposed or publicly announced its intention to authorize, recommend or
propose, to engage in an Acquisition Transaction with any person other than
Grantee or a Grantee Subsidiary, or the Board of Directors of the Issuer
shall have withdrawn or modified, or publicly announced its interest to
withdraw or modify, in any manner adverse to Grantee, its recommendation
that the shareholders of the Issuer approve the transactions contemplated
by the Merger Agreement in anticipation of engaging in an Acquisition
Transaction, or the Board of Directors of the Issuer shall not have
55
<PAGE>
recommended that the shareholders of the Issuer approve the transactions
contemplated by the Merger Agreement, or shall have abandoned the
transactions contemplated by the Merger Agreement in each case in
anticipation of engaging in an Acquisition Transaction;
(iii) any person or entity other than Grantee, any Grantee Subsidiary or
any Issuer Subsidiary acting in a fiduciary capacity in the ordinary course
of its business shall have acquired beneficial ownership or the right to
acquire beneficial ownership of 10% or more of the outstanding shares of
common stock of the Issuer;
(iv) any person other than Grantee or any Grantee Subsidiary shall have
made a bona fide proposal to the Issuer or its shareholders by public
announcement or written communication that is or becomes the subject of
public disclosure to engage in an Acquisition Transaction;
(v) after an overture is made by a third party to the Issuer or its
shareholders to engage in an Acquisition Transaction, the Issuer shall have
breached any covenant or obligation contained in the Merger Agreement and
such breach (x) would entitle Grantee to terminate the Merger Agreement and
(y) shall not have been cured prior to the date the Grantee gives notice of
exercise of the Option; or
(vi) the shareholders of the Issuer shall have voted and failed to
approve the Merger Agreement and the transactions contemplated thereby at a
meeting which has been held for that purpose or any adjournment or
postponement thereof, or such meeting shall not have been held in violation
of the Merger Agreement or shall have been canceled prior to the
termination of the Merger Agreement if, prior to such meeting (or, if such
meeting shall not have been held or shall have been canceled, prior to such
termination), it has been publicly announced that any person or entity
(other than Grantee or any of its subsidiaries) shall have made, or
disclosed an intention to make, a proposal to engage in an Acquisition
Transaction.
As defined in the Stock Option Agreements, "Subsequent Triggering Event"
means any of the following events or transactions occurring after the date of
signing the Stock Option Agreements:
(i) The acquisition by any person or entity of beneficial ownership of
20% or more of the then outstanding common stock of the Issuer; or
(ii) The occurrence of the Initial Triggering Event described in
paragraph (i) of the definition of Initial Triggering Event above, except
that the percentage referred to in clause (y) thereof shall be 20%.
At any time after the occurrence of a Repurchase Event (as hereinafter
defined) at the request of the holder of the Option, delivered prior to an
Exercise Termination Event (or such later period as provided in the Stock
Option Agreements), the Issuer must repurchase the Option (or the shares of
Issuer acquired by Grantee pursuant to exercise of the Option) from the
Grantee at a price (the "Option Repurchase Price"), which in most cases is
equal to the amount by which (i) the market/offer price exceeds the Option
exercise price, (ii) multiplied by the number of shares for which the Option
may then be exercised. With respect to the PMT Stock Option Agreement, the
Option Repurchase Price may be affected by the application of applicable
provisions of the Tennessee Business Corporation Act; in such event, the
Option Repurchase Price shall be equal to $.05 multiplied by the number of
shares for which the Option may then be exercised.
A "Repurchase Event" will be deemed to have occurred upon the occurrence of
any of the following events or transactions:
(i) upon the consummation of any merger, consolidation or similar
transaction involving the Issuer or any purchase, lease or other
acquisition of all or a substantial portion of the assets of the Issuer,
other than any transaction that would not constitute an Acquisition
Transaction pursuant to the provisos to the definition of Acquisition
Transaction, or
(ii) upon the acquisition by any person of beneficial ownership of 50% or
more of the then outstanding shares of common stock of the Issuer, provided
that no such event shall constitute a Repurchase Event unless a Subsequent
Triggering Event shall have occurred prior to an Exercise Termination
Event.
56
<PAGE>
The Stock Option Agreements and the Options are intended to increase the
likelihood that the Merger will be consummated according to the terms set
forth in the Merger Agreement, and may be expected to discourage offers by
third parties to acquire PMT or NOVA prior to the Merger.
To the knowledge of PMT and NOVA, no event giving rise to the exercise of
either of the Options has occurred as of the date of this Joint Proxy
Statement/Prospectus.
SHAREHOLDER AGREEMENTS
In connection with the Merger Agreement, PMT entered into Shareholder
Agreements with each of First Union (and certain of its affiliates), Warburg
and WorldCom. First Union, Warburg and WorldCom owned or controlled the vote
with respect to approximately 19.9%, 25.8% and 5.5% of the NOVA Stock
outstanding on the NOVA Record Date. Similarly, NOVA entered into Shareholder
Agreements with Messrs. Roberts and Daily, each of whom is a senior executive
officer and owned 3.1% and 2.4%, respectively, of the PMT Stock outstanding on
the PMT Record Date. (Each of First Union, Warburg, WorldCom and Messrs.
Roberts and Daily is referred to individually as a "Voting Shareholder" and
collectively as the "Voting Shareholders.")
The Shareholder Agreements are substantially similar to one another. The
Shareholder Agreements generally provide that, subject to the exceptions
described below, each Voting Shareholder will vote all shares of NOVA Stock or
PMT Stock, as the case may be, owned by it in favor of the Merger Agreement
and the transactions contemplated thereby, and in the case of the Voting
Shareholders of NOVA, in favor of the other NOVA Proposals, so long as the
Board of Directors of the company in which the Voting Shareholder owns shares
(the "Applicable Company") has recommended the Merger and has solicited such a
shareholder vote. This obligation to vote in favor of the Merger and the
transactions contemplated thereby shall be waived in the event of any of the
following (each, a "Specified Transaction Exception"): (i) the Voting
Shareholder has voted for the approval of another transaction that will result
or has resulted in a "Specified Transaction" (as defined below), (ii) any
person or entity shall have made a bona fide unsolicited proposal to the
Applicable Company or the Voting Shareholder by public announcement or written
communication, that is or becomes the subject of public disclosure, of a
transaction that would result in a Specified Transaction (the "Transaction
Proposal"), and such Transaction Proposal has not been publicly withdrawn
prior to the vote of shareholders of the Applicable Company relating to the
Merger, (iii) the Exchange Ratio is increased in any respect, or (iv) the
Merger Agreement is otherwise amended in a manner which, in the Voting
Shareholder's reasonable judgment exercised in good faith, is materially
adverse to the Voting Shareholder's interests; provided, however, that in the
case of either clause "(i)" or "(ii)" that the Applicable Company shall not be
in breach or violation of (aa) the covenant not to solicit other proposals
contained in the Merger Agreement, or (bb) its representation and warranty in
the Merger Agreement relating to no material adverse change (but only to the
extent that such breach or violation of such representation or warranty
results from or arises out of an agreement existing at the date of signing of
the Merger Agreement and relating to or in contemplation of the transaction
triggering the Specified Transaction Exception hereunder).
A "Specified Transaction" means (i) a merger, reorganization, consolidation,
share exchange, business combination, recapitalization, liquidation,
dissolution or similar transaction involving the Applicable Company as a
result of which either (A) the Applicable Company's shareholders prior to such
transaction (by virtue of their ownership of the Applicable Company's shares)
in the aggregate cease to own at least 50% of the voting securities of the
entity surviving or resulting from such transaction (or the ultimate parent
entity thereof), or (B) the individuals comprising the board of directors of
the Applicable Company prior to such transaction do not constitute a majority
of the board of directors of such ultimate parent entity, (ii) a sale, lease,
exchange, transfer or other disposition of at least 50% of the assets of the
Applicable Company and its subsidiaries, taken as a whole, in a single
transaction or a series of related transactions, or (iii) the acquisition,
directly or indirectly, by a person of beneficial ownership of 50% or more of
the common stock of the Applicable Company whether by merger, consolidation,
share exchange, business combination, tender or exchange offer or otherwise;
provided that the Merger shall not be deemed a Specified Transaction.
57
<PAGE>
The Shareholder Agreements expire upon the earlier of (i) the Effective Time
or (ii) the termination of the Merger Agreement in accordance with its terms.
ACCOUNTING TREATMENT
The Merger is expected to qualify as a pooling of interests transaction for
accounting and financial reporting purposes. Under this method of accounting,
the assets and liabilities of PMT and NOVA will be carried forward to the
combined company at their recorded amounts, subject to any adjustments
required to conform the accounting policies of the companies. Financial
statements issued after consummation of the Merger will be restated
retroactively to reflect the consolidated historical financial position and
results of operations of NOVA and PMT as if the Merger were effected prior to
the periods covered by the financial statements. See "Pro Forma Combined
Condensed Financial Data."
PMT has agreed that it will use its reasonable best efforts to cause the
persons whom PMT identifies as "Rule 145 Affiliates" of PMT to deliver to
NOVA, prior to the Effective Time, written agreements that from the date that
is 30 days prior to the Effective Time, they will not sell, transfer or
otherwise dispose of, or reduce their risk relative to, any of their shares of
PMT Stock and that they will not sell, transfer or otherwise dispose of, or
reduce their risk relative to, any shares of NOVA Stock that they receive in
the Merger until after such time as financial results covering at least 30
days of post-Merger combined operations of PMT and NOVA have been published by
NOVA which satisfy the publication requirements for the preservation of
pooling of interests. Similarly, NOVA has agreed that it will use its
reasonable best efforts to cause the persons whom it identifies as affiliates
of NOVA under applicable Commission accounting releases to deliver to PMT,
prior to the Effective Time, written agreements to the same effect with
respect to their shares of NOVA Stock. Certain affiliates of NOVA (including
First Union and certain of its affiliates, Warburg, and WorldCom) have
executed such written agreements. A "Rule 145 Affiliate" of an entity
generally includes directors, certain executive officers and beneficial owners
of 10% or more of the outstanding capital stock of the entity.
RESTRICTIONS ON RESALES OF NOVA STOCK
The shares of NOVA Stock to be issued in connection with the Merger have
been registered under the Securities Act. Consequently, such shares will be
freely transferable under the Securities Act, except for shares issued to any
shareholder who may be deemed to be a Rule 145 Affiliate as of the date of the
Meetings. Such Rule 145 Affiliates, as well as any "affiliates" of NOVA as
defined in Rule 144 promulgated under the Securities Act, may not sell any
shares of NOVA Stock, whether previously owned or acquired in connection with
the Merger, except pursuant to an effective registration statement under the
Securities Act or other applicable exemption from the registration
requirements of the Securities Act. Such affiliates may sell their shares in
accordance with the exemption from registration provided by Rule 144 under the
Securities Act. In general, under Rule 144, as currently in effect, an
affiliate may sell securities in brokers' transactions or directly through
market makers provided the number of shares sold in any three-month period
does not exceed the greater of 1% of the then outstanding shares of NOVA Stock
(approximately 719,400 shares, based on the number of shares to be outstanding
immediately following the Merger) or the average weekly trading volume in the
public market during the four calendar weeks preceding the filing of the
seller's Form 144. Sales under Rule 144 also are subject to certain notice of
sale requirements and the availability of current public information
concerning NOVA. NOVA may place restrictive legends on certificates
representing NOVA Stock issued to all persons who are deemed to be Rule 145
Affiliates.
The NOVA Stock is listed for trading on the NYSE under the symbol "NIS."
58
<PAGE>
PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following unaudited pro forma combined condensed financial statements,
including the notes thereto, are qualified in their entirety by reference to,
and should be read in conjunction with the historical consolidated financial
statements of NOVA and PMT, including the notes thereto, which are included in
this Joint Proxy Statement/Prospectus or are incorporated herein by reference.
The unaudited pro forma combined condensed financial statements assume a
business combination between NOVA and PMT accounted for as a pooling of
interests and are based on each company's respective historical audited and
unaudited consolidated financial statements and notes thereto, which are
included in this Joint Proxy Statement/Prospectus or are incorporated herein
by reference. The unaudited pro forma combined condensed balance sheet
combines NOVA's consolidated condensed balance sheet as of June 30, 1998, and
PMT's consolidated condensed balance sheet as of April 30, 1998, giving effect
to the Merger as if it had occurred on June 30, 1998.
The unaudited pro forma combined condensed statements of operations combine
NOVA's historical results for the six months ended June 30, 1998, the years
ended December 31, 1997 and 1996, and the ten month period ended December 31,
1995, with PMT's historical results for the six months ended April 30, 1998
and the twelve months ended October 31, 1997, July 31, 1996 and July 31, 1995,
respectively, giving effect to the Merger as if it had occurred on March 1,
1995.
As permitted by Commission regulations, PMT's three-month period ended
October 31, 1996, has been omitted from the unaudited pro forma combined
condensed statements of operations. PMT's sales, profit from operations and
net income were $85.5 million, $6.8 million and $4.6 million, respectively,
for such three-month period. There were no dividends declared or paid by PMT
during this three-month period.
Certain data and notes normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted. The unaudited pro forma combined condensed financial statements
provide information about the impact of the Merger by showing how it might
have affected the financial condition and results of operations of NOVA had
the Merger actually been completed as of the dates indicated. The unaudited
pro forma combined condensed financial statements are provided for
informational purposes only and are not necessarily indicative of actual
results that would have been achieved had the Merger been consummated at the
beginning of the periods presented or of future results and should be read in
conjunction with the historical financial statements of NOVA and PMT and notes
thereto, which are included in this Joint Proxy Statement/Prospectus or are
incorporated by reference.
59
<PAGE>
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
NOVA PMT
JUNE 30, APRIL PRO FORMA COMBINED
1998 30, 1998 ADJUSTMENTS PRO FORMA
-------- -------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 91,985 $ 38,852 $ -- $130,837
Investments........................... -- 13,680 -- 13,680
Trade receivables..................... 39,337 33,059 -- 72,396
Current portion of net investment in
finance leases....................... -- 10,334 -- 10,334
Inventory............................. 3,187 3,513 -- 6,700
Deferred tax asset and other current
assets............................... 5,836 5,073 -- 10,909
-------- -------- -------- --------
Total current assets................... 140,345 104,511 -- 244,856
Merchant and customer contracts........ 142,807 92,761 -- 235,568
Long-term portion of net investment in
finance leases........................ -- 29,665 -- 29,665
Property and equipment, net............ 41,181 14,099 -- 55,280
Excess cost of businesses acquired..... 12,560 -- -- 12,560
Long term note receivable.............. -- 13,300 -- 13,300
Deferred tax asset and other non-
current assets........................ 2,980 20,592 -- 23,572
-------- -------- -------- --------
Total assets........................... $339,873 $274,928 $ -- $614,801
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...................... $ 13,973 $ 12,194 $ -- $ 26,167
Accounts payable to affiliates........ 1,768 -- -- 1,768
Settlement obligations................ 9,585 -- -- 9,585
Other accrued liabilities............. 13,514 10,554 23,674 47,742
Long-term debt obligations due within
one year............................. 18,239 14,092 -- 32,331
-------- -------- -------- --------
Total current liabilities.............. 57,079 36,840 23,674 117,593
Deferred tax liability................. 5,085 571 -- 5,656
Long-term debt obligations............. 17,266 19,337 -- 36,603
Minority interest in subsidiary........ 4,255 -- -- 4,255
Shareholders' equity:
Common stock.......................... 343 526 (526)
376 719
Additional paid-in-capital............ 244,198 172,385 526
(376) 416,733
Retained earnings..................... 11,647 45,269 (23,674) 33,242
-------- -------- -------- --------
Total shareholders' equity............. 256,188 218,180 (23,674) 450,694
-------- -------- -------- --------
Total liabilities and shareholders'
equity................................ $339,873 $274,928 $ -- $614,801
======== ======== ======== ========
</TABLE>
See accompanying notes.
60
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
JUNE 30, 1998 APRIL 30, 1998 COMBINED
NOVA PMT PRO FORMA
------------- -------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues................................ $298,873 $217,833 $516,706
Operating expenses:
Cost of service........................ 235,924 157,967 393,891
Conversion costs....................... 6,612 -- 6,612
Selling, general and administrative.... 24,862 28,274 53,136
Depreciation and amortization.......... 11,637 8,619 20,256
-------- -------- --------
Operating income........................ 19,838 22,973 42,811
Interest expense (income), net.......... 1,138 (1,001) 137
Minority interest in income of
subsidiary............................. 4,466 -- 4,466
Other expense........................... -- 1,350 1,350
-------- -------- --------
Income before provision for income
taxes.................................. 14,234 22,624 36,858
Provision for income taxes.............. 5,267 7,953 13,220
-------- -------- --------
Net income.............................. $ 8,967 $ 14,671 $ 23,638
======== ======== ========
Net income per common share............. $ 0.29 $ 0.28 $ 0.35
======== ======== ========
Net income per common share--assuming
dilution............................... $ 0.28 $ 0.28 $ 0.34
======== ======== ========
Weighted average common shares
outstanding............................ 31,060 52,145 68,344
======== ======== ========
Weighted average common shares
outstanding assuming dilution.......... 32,269 53,281 70,365
======== ======== ========
</TABLE>
See accompanying notes.
61
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------
DECEMBER 31, 1997 OCTOBER 31, 1997 COMBINED
NOVA PMT PRO FORMA
----------------- ---------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues...................... $335,625 $364,898 $700,523
Operating expenses:
Cost of service.............. 260,058 270,812 530,870
Conversion costs............. 2,595 -- 2,595
Selling, general and
administrative.............. 33,952 46,766 80,718
Depreciation and
amortization................ 10,658 13,882 24,540
-------- -------- --------
Operating income.............. 28,362 33,438 61,800
Interest expense (income),
net.......................... (721) (1,581) (2,302)
Minority interest in income of
subsidiary................... 776 -- 776
Other expense................. -- 1,057 1,057
-------- -------- --------
Income before provision for
income taxes................. 28,307 33,962 62,269
Provision for income taxes.... 10,922 10,402 21,324
-------- -------- --------
Net income.................... $ 17,385 $ 23,560 $ 40,945
======== ======== ========
Net income per common share... $ 0.60 $ 0.48 $ 0.64
======== ======== ========
Net income per common share--
assuming dilution............ $ 0.58 $ 0.47 $ 0.62
======== ======== ========
Weighted average common shares
outstanding.................. 28,863 49,224 64,058
======== ======== ========
Weighted average common shares
outstanding assuming
dilution..................... 30,116 50,381 66,139
======== ======== ========
</TABLE>
See accompanying notes.
62
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------
DECEMBER 31, 1996 JULY 31, 1996 COMBINED
NOVA PMT PRO FORMA
----------------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues............................. $265,829 $254,588 $520,417
Operating expenses:
Cost of service..................... 207,595 192,482 400,077
Conversion costs.................... 6,395 -- 6,395
Selling, general and administrative. 32,952 35,128 68,080
Depreciation and amortization....... 6,982 8,013 14,995
-------- -------- --------
Operating income..................... 11,905 18,965 30,870
Interest expense (income), net....... (126) 1,945 1,819
Other income......................... -- (1,000) (1,000)
-------- -------- --------
Income before provision for income
taxes............................... 12,031 18,020 30,051
Provision for income taxes........... 4,764 6,139 10,903
-------- -------- --------
Net income........................... $ 7,267 $ 11,881 $ 19,148
======== ======== ========
Net income per common share (Note 6). $ 0.25 $ 0.28 $ 0.32
======== ======== ========
Net income per common share--assuming
dilution (Note 6)................... $ 0.25 $ 0.27 $ 0.32
======== ======== ========
Weighted average common shares
outstanding (Note 6)................ 28,604 41,906 58,567
======== ======== ========
Weighted average common shares
outstanding assuming dilution (Note
6).................................. 28,604 43,285 59,553
======== ======== ========
</TABLE>
See accompanying notes.
63
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE TEN MONTHS ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
TEN MONTH
PERIOD ENDED YEAR ENDED
DECEMBER 31, JULY 31,
1995 1995 COMBINED
NOVA PMT PRO FORMA
------------ ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Revenues..................................... $129,035 $156,744 $285,779
Operating expenses:
Cost of service............................. 100,375 115,768 216,143
Conversion costs............................ 3,441 -- 3,441
Selling, general and administrative......... 17,795 24,379 42,174
Depreciation and amortization............... 4,635 3,812 8,447
-------- -------- --------
Operating income............................. 2,789 12,785 15,574
Interest expense net......................... 1,959 3,101 5,060
-------- -------- --------
Income before provision for income taxes..... 830 9,684 10,514
Provision (benefit) for income taxes......... (4,057) 3,306 (751)
-------- -------- --------
Net income................................... $ 4,887 $ 6,378 $ 11,265
======== ======== ========
Net income per common share (Note 6)......... $ 0.24 $ 0.18 $ 0.25
======== ======== ========
Net income per common share--assuming
dilution (Note 6)........................... $ 0.24 $ 0.18 $ 0.25
======== ======== ========
Weighted average common shares outstanding
(Note 6).................................... 18,024 34,847 42,940
======== ======== ========
Weighted average common shares outstanding
assuming dilution
(Note 6).................................... 18,024 35,686 43,539
======== ======== ========
</TABLE>
See accompanying notes.
64
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The Merger has been accounted for in the unaudited Pro Forma Combined
Condensed Financial Statements using the pooling of interests method of
accounting and, as a result, the unaudited pro forma combined condensed
balance sheet and statements of operations are presented as if the combining
companies had been combined for all periods presented. The unaudited pro forma
combined condensed financial statements for the 12-month period ended December
31, 1996, and the ten month period ended December 31, 1995, will become the
historical financial statements of NOVA upon issuance of financial statements
for a period that includes the date of the Merger. Due to Commission
regulations, the unaudited pro forma combined condensed financial statements
for the year ended December 31, 1997 will be different than the financial
statements for the same period when issued in conjunction with NOVA's Annual
Report on Form 10-K for the year ended December 31, 1998. No material
adjustments were required to conform the accounting policies of NOVA and PMT.
For the financial statements issued in conjunction with NOVA's Annual Report
on Form 10-K for the year ended December 31, 1998, NOVA's twelve months ended
December 31, 1998 will be combined with PMT's twelve months ended October 31,
1998. PMT's three month period ended October 31, 1997 will be omitted as
permitted by Commission regulations. PMT's reporting periods will be conformed
to NOVA's effective January 1, 1999.
The unaudited pro forma condensed combined statements of operations combine
the historical statements of operations of NOVA for the six months ended June
30, 1998, the years ended December 31, 1997 and 1996, and the ten month period
ended December 31, 1995, with the historical statements of operations of PMT
for the six months ended April 30, 1998, and the 12 months ended October 31,
1997, July 31, 1996 and July 31, 1995, respectively.
NOVA has a fiscal year ending December 31, and PMT has a fiscal year ending
July 31. Accordingly, the unaudited pro forma combined financial statements
for the year ended December 31, 1997, include PMT's financial statements
conformed within 93 days to NOVA's fiscal year end. In July 1998 and May 1998,
PMT acquired Superior and MBN, respectively, in separate merger transactions.
See "Information Concerning PMT." The financial statements of PMT included in
the pro forma combined condensed statements reflect retroactive restatement
for the Superior and MBN mergers which were consummated on July 30, 1998 and
May 14, 1998, respectively. These mergers were accounted for as pooling of
interests transactions in accordance with Accounting Principles Board Opinion
No. 16. The unaudited pro forma combined condensed financial statements,
including the notes thereto, should be read in conjunction with the historical
consolidated financial statements of NOVA and PMT, which are included in this
Joint Proxy Statement/Prospectus or are incorporated herein by reference. The
pro forma combining financial statements are presented for comparative
purposes only and are not intended to be indicative of actual results had the
Merger occurred as of the dates indicated above nor do they purport to
indicate results which may be obtained in the future.
2. SHAREHOLDERS' EQUITY
The common shareholders' equity account of NOVA as of June 30, 1998, has
been adjusted to reflect the assumed issuance of approximately 37.6 million
shares of NOVA Stock in exchange for all the issued and outstanding PMT Stock
based upon the Exchange Ratio of 0.715 shares of NOVA Stock for each share of
PMT Stock. The actual number of shares of NOVA Stock to be issued will be
determined at the Effective Time based on the Exchange Ratio and the number of
shares of PMT Stock then outstanding.
3. RECONCILIATION TO HISTORICAL PMT CONSOLIDATED FINANCIAL STATEMENTS
As permitted by Commission regulations, the historical PMT income statement
for the year ended July 31, 1997, has been conformed to a fiscal year end of
October 31, which falls within 93 days of the fiscal year end of NOVA. In
addition, certain amounts have been reclassified in PMT's financial statements
to conform with NOVA's presentation as follows: PMT records certain amounts
paid to third parties under revenue sharing or similar agreements in selling,
general and administrative expenses. NOVA includes these costs in net
revenues. PMT classifies certain compensation costs in costs of service. NOVA
includes these costs in selling, general and administrative expenses. PMT
records certain acquisition costs in other income. NOVA includes these costs
in
65
<PAGE>
selling, general and administrative expenses. The following reconciles the
historical PMT financial statements to the pro forma statements of operations.
<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL 30, 1998
----------------------------------------------------------------------------
UNAUDITED
----------------------------------------------------------------------------
NINE MONTHS LESS: SIX MONTHS PRO FORMA
ENDED THREE MONTHS ENDED ENDED RECLASS- SIX MONTHS ENDED
APRIL 30, 1998 OCTOBER 31, 1997 APRIL 30, 1998 IFICATIONS APRIL 30, 1998
-------------- ------------------ -------------- ---------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues................ $327,353 $103,752 $223,601 $(5,768) $217,833
Operating expenses:
Cost of service........ 233,771 75,002 158,769 (802) 157,967
Selling, general and
administrative........ 47,112 14,362 32,750 (4,476) 28,274
Depreciation and
amortization.......... 12,479 3,860 8,619 -- 8,619
-------- -------- -------- ------- --------
Operating income........ 33,991 10,528 23,463 (490) 22,973
Interest expense
(income), net.......... (1,532) (531) (1,001) -- (1,001)
Other expense (income),
net.................... 2,283 443 1,840 (490) 1,350
-------- -------- -------- ------- --------
Income before provision
for income taxes....... 33,240 10,616 22,624 -- 22,624
Provision for income
taxes.................. 10,930 2,977 7,953 -- 7,953
-------- -------- -------- ------- --------
Net income.............. $ 22,310 $ 7,639 $ 14,671 $ -- $ 14,671
======== ======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, 1997
--------------------------------------------------------------------------------------------
AUDITED UNAUDITED
------------- ------------------------------------------------------------------------------
LESS: ADD:
THREE MONTHS THREE MONTHS PRO FORMA PRO FORMA
YEAR ENDED ENDED ENDED YEAR ENDED RECLASS- YEAR ENDED
JULY 31, 1997 OCTOBER 31, 1996 OCTOBER 31, 1997 OCTOBER 31, 1997 IFICATIONS OCTOBER 31, 1997
------------- ---------------- ---------------- ---------------- ---------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $355,010 $85,475 $103,752 $373,287 $(8,389) $364,898
Operating expenses:
Cost of service........ 260,881 63,421 75,002 272,462 (1,650) 270,812
Selling, general and
administrative........ 49,942 12,303 14,362 52,001 (5,235) 46,766
Depreciation and
amortization.......... 12,945 2,923 3,860 13,882 -- 13,882
-------- ------- -------- -------- ------- --------
Operating income........ 31,242 6,828 10,528 34,942 (1,504) 33,438
Interest expense
(income), net.......... (1,156) (106) (531) (1,581) -- (1,581)
Other expense........... 2,244 126 443 2,561 (1,504) 1,057
-------- ------- -------- -------- ------- --------
Income before provision
for income taxes....... 30,154 6,808 10,616 33,962 -- 33,962
Provision for income
taxes.................. 9,640 2,215 2,977 10,402 -- 10,402
-------- ------- -------- -------- ------- --------
Net income.............. $ 20,514 $ 4,593 $ 7,639 $ 23,560 $ -- $ 23,560
======== ======= ======== ======== ======= ========
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED JULY 31, 1996
----------------------------------
AUDITED RECLASS- AUDITED
CONDENSED IFICATIONS RECLASSIFIED
--------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues...................................... $263,450 $(8,862) $254,588
Operating expenses:
Cost of service.............................. 193,477 (995) 192,482
Selling, general and administrative.......... 42,699 (7,571) 35,128
Depreciation and amortization................ 8,013 -- 8,013
-------- ------- --------
Operating income.............................. 19,261 (296) 18,965
Interest expense, net......................... 1,945 -- 1,945
Other income.................................. (704) (296) (1,000)
-------- ------- --------
Income before provision for income taxes...... 18,020 -- 18,020
Provision for income taxes.................... 6,139 -- 6,139
-------- ------- --------
Net income.................................... $ 11,881 $ -- $ 11,881
======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JULY 31, 1995
---------------------------------
AUDITED RECLASS- AUDITED
CONDENSED IFICATIONS RECLASSIFIED
--------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues...................................... $163,663 $(6,919) $156,744
Operating expenses:
Cost of service.............................. 116,592 (824) 115,768
Selling, general and administrative.......... 30,474 (6,095) 24,379
Depreciation and amortization................ 3,812 -- 3,812
-------- ------- --------
Operating income.............................. 12,785 -- 12,785
Interest expense, net......................... 3,101 -- 3,101
-------- ------- --------
Income before provision for income taxes...... 9,684 -- 9,684
Provision (benefit) for income taxes.......... 3,306 -- 3,306
-------- ------- --------
Net income.................................... $ 6,378 $ -- $ 6,378
======== ======= ========
</TABLE>
4. MERGER-RELATED EXPENSES
The unaudited pro forma data are presented for informational purposes only
and do not give effect to any Synergies that may occur due to the combining of
NOVA's and PMT's existing operations. NOVA expects to incur charges to
operations currently estimated to be approximately $38.0 million in the
quarter ended September 30, 1998, the quarter in which the Merger is expected
to be consummated, to reflect costs associated with combining the operations
of the two companies, primarily the closing of duplicate facilities and
transaction fees and costs incident to the Merger. An estimate of Merger-
related expenses, after effecting for estimated tax benefits, of $23.7 million
is reflected in the unaudited pro forma combined condensed balance sheet and
is not included in the unaudited pro forma combined condensed statement of
operations. This is a preliminary estimate only and, therefore, is subject to
change.
5. PRO FORMA ADJUSTMENTS
Adjustments have been included in the pro forma combined condensed balance
sheet to reflect the Exchange Ratio and the Merger related costs described in
Note 4. Pro forma adjustments to reflect the effect of the Merger on the pro
forma condensed combined balance sheet at June 30, 1998, are as follows:
a. Common stock is increased by $376,000 to record the NOVA Stock issued
in the Merger and is decreased by $526,000 to record the retirement of the
PMT Stock.
b. Combined additional paid-in capital is adjusted for the effects of the
pro forma adjustment (a) above.
67
<PAGE>
c. Accrued liabilities and retained earnings reflect the estimated direct
costs of the Merger of $23.7 million, after effecting for estimated tax
benefits.
6. NET INCOME PER SHARE
Pro forma earnings per basic and diluted share for each period are based on
the combined weighted average number of shares of common stock outstanding
(and dilutive securities for diluted earnings per share), after adjusting
NOVA's historical amounts for the conversion of outstanding shares of PMT
Stock into NOVA Stock at the Exchange Ratio.
NOVA's net income per common share for 1995 and 1996 is a pro forma
calculation based on net income attributable to holders of NOVA Stock and the
weighted-average number of common stock and common equivalent shares
outstanding during the respective periods, assuming conversion of series A, B
and C Convertible Preferred Stock into common stock. Refer to Note 11 in
NOVA's consolidated financial statements which appear elsewhere herein.
68
<PAGE>
INFORMATION CONCERNING NOVA
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth selected consolidated financial and other
data for NOVA as of and for the two years ended February 28, 1995, the ten-
month period ended December 31, 1995 and the two years ended December 31,
1997. The selected consolidated financial data have been derived from NOVA'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 "Information Concerning NOVA--Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and notes thereto appearing elsewhere in
this Joint Proxy Statement/Prospectus. NOVA changed its fiscal year end from
the last day of February to December 31, effective December 31, 1995. For
financial reporting purposes, the ten-month period ended December 31, 1995 is
considered an annual period.
<TABLE>
<CAPTION>
YEAR ENDED TEN-MONTH YEAR ENDED SIX MONTHS ENDED
FEBRUARY 28, PERIOD ENDED DECEMBER 31, JUNE 30,
---------------------- DECEMBER 31, ------------------------ -----------------------
1994 1995 1995(1) 1996 1997 1997 1998
---------- ---------- ------------ ----------- ----------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ 68,213 $ 93,592 $ 129,035 $ 265,829 $ 335,625 $ 144,569 $ 298,873
Cost of service......... 544,984 74,032 100,375 207,595 260,058 111,666 235,924
Conversion costs........ 2,080 1,827 3,441 6,395 2,595 990 6,612
Selling, general and
administrative......... 12,419 14,091 17,795 32,952 33,952 15,948 24,862
Depreciation and
amortization........... 2,661 3,887 4,635 6,982 10,658 4,251 11,637
---------- ---------- ---------- ----------- ----------- ---------- -----------
Operating income (loss). (3,931) (245) 2,789 11,905 28,362 11,714 19,838
Interest expense
(income), net.......... 211 968 1,959 (126) (721) (641) 1,138
Minority interest in
income of subsidiary... -- -- -- -- 776 -- 4,466
---------- ---------- ---------- ----------- ----------- ---------- -----------
Income (loss) before
provision for income
taxes.................. (4,142) (1,213) 830 12,031 28,307 12,355 14,234
Provision (benefit) for
income taxes........... -- -- (4,057) 4,764 10,922 4,794 5,267
---------- ---------- ---------- ----------- ----------- ---------- -----------
Net income (loss)....... $ (4,142) $ (1,213) $ 4,887(2) $ 7,267 $ 17,385 $ 7,561 $ 8,967
========== ========== ========== =========== =========== ========== ===========
Net income (loss) per
common share(3)........ -- $ (0.13) $ 0.24 $ 0.25 $ 0.60 $ 0.26 $0.29
Net income (loss) per
common share assuming
dilution(3)............ -- $ (0.13) $ 0.24 $ 0.25 $ 0.58 $ 0.25 $0.28
========== ========== ========== =========== =========== ========== ===========
Weighted average common
shares outstanding(3).. -- 13,603 18,024 28,604 28,863 28,845 31,060
Weighted average common
shares outstanding
assuming dilution(3)... -- 13,603 18,024 28,604 30,116 29,941 32,269
========== ========== ========== =========== =========== ========== ===========
OTHER DATA:
Merchant sales volume
processed.............. $2,871,793 $4,131,071 $5,975,013 $11,925,126 $14,980,287 $6,441,151 $12,858,970
BALANCE SHEET DATA (AT
PERIOD END):
Total assets............ $ 26,437 $ 47,823 $ 61,001 $ 107,705 $ 170,528 121,861 339,873
Long-term debt and
capital lease
obligations, less
current portion........ 1,950 16,694 17,738 859 33,296 832 17,266
Total shareholders'
equity................. 18,783 18,719 26,017 84,882 102,937 92,703 256,188
</TABLE>
- --------
(1) Revenues and net income for the 12 months ended December 31, 1995, were
$147.8 million and $3.6 million, respectively.
(2) 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 NOVA's Consolidated Financial Statements.
(3) Pro forma prior to May 8, 1996. See Note 11 to NOVA's Consolidated
Financial Statements.
69
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
NOVA's predecessor, NOVA Information Systems, Inc., was formed in February
1991 to provide sophisticated and cost-effective transaction processing and
related services primarily to small- to medium-sized merchants by effectively
employing the latest advances in transaction processing and telecommunications
technology.
Since inception, NOVA 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, NOVA
continues to develop the marketing, customer support and managerial expertise
necessary to execute its business strategy. Through the fiscal year ended
February 28, 1995, NOVA incurred losses, as the expenditures for the
development of this infrastructure and the cost to convert purchased
portfolios, combined with the cost of providing service, exceeded revenues
from its merchant portfolio. NOVA's ongoing expansion of its merchant and
customer base resulted in NOVA achieving profitability for the first time in
the ten-month period ended December 31, 1995.
NOVA has increased its merchant and customer base through a combination of
its own marketing programs and through a series of merchant portfolio
purchases, joint ventures and alliances that have produced significant
additional revenue in each year since formation. Since its inception in 1991,
NOVA has consummated 95 transactions consisting of 89 merchant portfolio
purchases, three operating business acquisitions, two joint ventures and the
First Union Alliance. Such transactions include the KeyBank Joint Venture, the
MBNA portfolio purchase, the Firstar Joint Venture and the Crestar portfolio
purchase discussed below under "Information Concerning NOVA--Business--Recent
Transactions."
NOVA expects these transactions to provide significant strategic and
financial benefits, including: (i) enhanced distribution channels to
facilitate growth of NOVA's processed transaction volume and the number of
merchant locations served; (ii) further geographic diversification of NOVA's
portfolio into additional regions of the United States; and (iii) economies of
scale from substantial increases in transaction processing volume once the
merchant accounts and other services are fully integrated into NOVA's
operating platform. See "--Business of NOVA--Recent Transactions" below.
Historically, NOVA has achieved savings through economies of scale and
operating efficiencies derived from the conversion and integration of its
purchased portfolios. The costs of these conversion activities are expensed as
incurred. As a result of the Merger, the magnitude, scope, timing, duration
and expense of the PMT Conversion, together with the ongoing conversion of the
merchant portfolio associated with the KeyBank Joint Venture, will, in the
aggregate, be greater than any conversion previously undertaken by NOVA.
Failure to complete these conversions in accordance with management plans
could have a material adverse effect on NOVA's financial condition and results
of operations.
NOVA 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 year ended December 31,
1997 with the year ended December 31, 1996, and the year ended December 31,
1996 with the ten-month period ended December 31, 1995.
Components of Revenues and Expenses
Revenues. NOVA derives revenues principally from processing credit, charge
and debit card transactions that are authorized and captured through the NOVA
Network and through third-party networks prior to conversion. NOVA 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,
additional fees per transaction. These charges, referred to as "discount
fees," are individually negotiated with each merchant and, in the aggregate,
represented approximately 92.2%, 94.6% and 93.7% of NOVA's revenues for the
years ended December 31,
70
<PAGE>
1997 and 1996 and the ten-month period ended December 31, 1995, respectively
and 92.1% and 93.3% of NOVA's revenues for the six months ended June 30, 1998
and 1997, respectively. Certain of NOVA's merchant customers are charged a
flat fee per transaction, while others are also charged miscellaneous fees,
including fees assessed by NOVA for handling chargebacks, monthly minimums,
equipment leases, rentals and sales, and other miscellaneous services. NOVA's
revenues are reported net of amounts paid to 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 NOVA'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 ("POS") 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 POS terminals at merchant locations, duplicate costs
to process transactions prior to conversion, 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 NOVA's operations and marketing centers and its corporate office.
Depreciation and amortization are related to NOVA's capital expenditures,
merchant portfolio purchases 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. Merchant
portfolio purchases result in the capitalization of merchant and customer
contract values, which are amortized over ten years based upon NOVA'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 NOVA's consolidated statements of
operations:
<TABLE>
<CAPTION>
SIX MONTHS
TEN MONTH YEAR ENDED ENDED JUNE
PERIOD ENDED DECEMBER 31, 30,
DECEMBER 31, -------------- -------------
1995 1996 1997 1997 1998
------------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
Revenues....................... 100.0 % 100.0% 100.0 % 100.0 % 100.0%
Cost of service................ 77.8 78.1 77.5 77.2 78.9
Conversion costs............... 2.7 2.4 0.8 0.7 2.2
Selling, general and adminis-
trative....................... 13.8 12.4 10.1 11.0 8.3
Depreciation and amortization.. 3.6 2.6 3.2 2.9 3.9
Operating income............... 2.2 4.5 8.4 8.1 6.6
Interest (income) expense, net. 1.5 0.0 (0.2) (0.4) 0.4
Minority interest in income of
subsidiary.................... -- -- 0.2 -- 1.5
Income before provision for in-
come taxes.................... 0.6 4.5 8.4 8.5 4.8
Provision (benefit) for income
taxes......................... (3.1) 1.8 3.2 3.3 1.8
Net income..................... 3.8 % 2.7% 5.2 % 5.2 % 3.0%
</TABLE>
71
<PAGE>
Six Months Ended June 30, 1998 Compared with Six Months Ended June 30, 1997
Revenues. NOVA's revenues increased 112.1% to $165.6 million for the quarter
ended June 30, 1998, compared to $78.0 million for the quarter ended June 30,
1997. For the first six months of 1998, NOVA reported revenues of $298.9
million, 106.7% higher than revenues of $144.6 million for the same period in
1997. For the three month period and the six month period ended June 30, 1998,
respectively, the increases resulted primarily from 102.2% and 99.6% increases
in merchant sales volume processed to $6.9 billion and $12.9 billion,
respectively, compared to $3.4 billion and $6.4 billion, respectively, in the
same periods of 1997. During the quarter ended June 30, 1998, increased
revenues of $64.2 million and increased merchant sales volume processed of
$2.7 billion are attributable to the portfolios purchased from Crestar in May
1997 and from MBNA America Bank, N.A. ("MBNA") in December 1997 and to NOVA's
joint ventures with Firstar and KeyBank. For the six months ended June 30,
1998, increased revenues of $115.1 million and increased merchant sales volume
processed of $4.9 billion are attributable to these same transactions.
Cost of Service. Cost of service increased 119.1% to $130.6 million for the
quarter ended June 30, 1998, compared to $59.6 million for the quarter ended
June 30, 1997. For the six months ended June 30, 1998, cost of service
increased 111.3% to $235.9 million from $111.7 million during the same period
in 1997. The increase in cost of service is due primarily to the increase in
merchant sales volume processed. The percentage increase is higher than the
percentage increase in merchant sales volume processed primarily because a
substantial portion of the volume from recent portfolio purchases and joint
venture transactions has not been converted to NOVA's operating platform and
is therefore being processed by higher cost third party vendors. An additional
significant factor is an increase in the VISA and MasterCard interchange rate
that went into effect on March 27, 1998. Since this rate increase was in
effect during the entire second quarter, as compared to only four days in the
first quarter, the effect on the comparison to the prior year is more
pronounced for the three month period than the six month period.
Conversion Costs. Conversion costs increased 305.8% to $2.0 million for the
quarter ended June 30, 1998, compared to $499,000 for the quarter ended June
30, 1997. For the six month period ended June 30, 1998, conversion costs
increased 567.9% to $6.6 million from $990,000 during the same period in 1997.
Of these increases, $2.0 million ($1.3 million, net of tax) relates to a non-
recurring charge for early termination of a merchant processing contract with
a third-party processor. This charge was incurred during the first quarter of
1998. The remaining increases relate to the significance of conversion efforts
currently underway as compared to 1997.
Selling, General and Administrative. Selling, general and administrative
expenses increased 59.3% to $13.7 million for the quarter ended June 30, 1998,
compared to $8.6 million for the quarter ended June 30, 1997. During the six
months ended June 30, 1998, such costs increased 55.9% to $24.9 million,
compared to $15.9 million in the same period of 1997. These increases are
attributable to the costs paid to sellers for operating and managing merchant
portfolios during transition and an expanded sales force associated with
marketing arrangements entered into in conjunction with recent portfolio
purchases and joint venture transactions. In addition, during the three months
ended June 30, 1998, NOVA experienced additional personnel and facilities
costs in anticipation of assuming all operational and managerial functions for
the KeyBank and MBNA portfolios effective July 1, 1998.
Depreciation and Amortization. Depreciation and amortization increased
157.0% to $6.1 million for the quarter ended June 30, 1998, compared to $2.4
million for the quarter ended June 30, 1997 due to amortization expense
associated with the recent portfolio purchases and joint ventures. These same
factors account for the 173.7% increase, from $4.3 million to $11.6 million,
for the six month period ended June 30, 1998 compared to the same period in
1997.
Operating Income. For the foregoing reasons, operating income for the
quarter and six months ended June 30, 1998 increased 88.2% and 69.4%,
respectively, to $13.1 million and $19.8 million, respectively, compared to
$7.0 million and $11.7 million, respectively, in the same periods of 1997.
72
<PAGE>
Interest Expense (Income)--Net. Net interest income decreased 91.0% to
$27,000 for the quarter ended June 30, 1998 compared to net interest income of
$299,000 for the same period in 1997. While NOVA had higher average cash and
investments during the second quarter of 1998, outstanding debt balances were
also higher, offsetting higher interest earnings. Although NOVA repaid
outstanding borrowings under its credit facility using proceeds from the
public offering in April 1998, interest charges continue to accrue on deferred
portions of purchase obligations outstanding.
Net interest income decreased $1.8 million for the six months ended June 30,
1998, resulting in net interest expense of $1.1 million compared to net
interest income of $641,000 for the same period in 1997. The increase in
interest expense resulted from bank borrowings outstanding until NOVA repaid
the outstanding borrowings following the public offering in April 1998, as
well as deferred purchase obligations. Bank borrowings were used primarily to
purchase merchant portfolios and investments in joint venture transactions.
Income Taxes. Income tax expense was recorded at an effective tax rate of
37.0% for the quarter and six months ended June 30, 1998. Income tax expense
increased to $3.6 million for the quarter ended June 30, 1998 and $5.3 million
for the six months ended June 30, 1998, compared to $2.9 million and $4.8
million, respectively, for the same periods in 1997. This increase resulted
primarily from increased pre-tax income.
Net Income. Due to the factors discussed above, net income increased 37.6%
to $6.1 million for the quarter ended June 30, 1998, compared to $4.4 million
for the quarter ended June 30, 1997. For the six months ended June 30, 1998,
net income increased 18.6% to $9.0 million, from $7.6 million in the same
period in 1997. Net income for the six month period ended June 30, 1998
reflected a $2.0 million ($1.3 million, net of tax) non-recurring charge for
early termination of a merchant processing contract with a third-party
processor. Prior to this charge, net income increased 35.2% to $10.2 million,
due to the factors discussed above.
Year Ended December 31, 1997 Compared with Year Ended December 31, 1996
Revenues. Revenues increased 26.3% to $335.6 million for the year ended
December 31, 1997, compared with $265.8 million in 1996. The increase resulted
from a 25.6% increase in merchant sales volume processed to $15.0 billion for
1997, compared to $11.9 billion in 1996. Of these increases, $34.0 million in
revenues and $1.5 billion in sales volume processed are attributable to the
Firstar Joint Venture and the Crestar portfolio purchase, with the remainder
resulting primarily from internal sales efforts and other bank marketing
relationships.
Cost of Service. Cost of service increased 25.3% to $260.1 million for the
year ended December 31, 1997, compared with $207.6 million in 1996. 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 percentage of revenues declined from 78.1% to 77.5%, reflecting
continuing cost efficiencies. These cost efficiencies result from
proportionately lower payments to third-party networks as fewer NOVA merchants
utilize third-party networks and merchant accounting processors, as well as
increased economies of scale.
Conversion Costs. Conversion costs decreased 59.4% to $2.6 million for the
year ended December 31, 1997, compared with $6.4 million in 1996. The decrease
resulted primarily from the substantial completion of the conversion of the
First Union portfolio in 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 3.0% to $34.0 million for the year ended
December 31, 1997, compared with $33.0 million for the same period in 1996.
Higher expenses in 1997 resulted from the addition of personnel in NOVA's
operations center to support the increased merchant sales volume processed.
Additionally, sales and marketing expenses increased to support NOVA's growing
number of merchants and bank marketing relationships. Selling, general and
administrative expenses declined to 10.1% of revenues for the year ended
December 31, 1997, compared with 12.4% in 1996, reflecting operational
efficiencies.
Depreciation and Amortization. Depreciation and amortization increased 52.6%
to $10.7 million for the year ended December 31, 1997, compared with $7.0
million in 1996. This increase is attributable to increased depreciation from
significant investments in NOVA's transaction processing network to expand
capacity and additional amortization from merchant portfolio purchases.
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Operating Income. For the foregoing reasons, operating income for the year
ended December 31, 1997, increased 138.3% to $28.4 million compared with $11.9
million for the same period in 1996.
Interest Expense (Income)--Net. Net interest income increased to $721,000
for the year ended December 31, 1997, compared with $126,000 for the same
period in 1996. This increase relates to lower average bank debt during 1997
than existed during 1996. NOVA used the net proceeds received from the initial
public offering in May 1996 to reduce the bank debt. Further, interest income
was generated from the investment of the remaining net proceeds of the
offering and cash flow from operations.
Income Taxes. Income tax expense was recorded at an effective tax rate of
38.6% in fiscal 1997. Income tax expense increased to $10.9 million for the
year ended December 31, 1997, compared to $4.8 million for the same period in
1996. This increase resulted from increased pre-tax income.
Net Income. Net income increased $10.1 million to $17.4 million for the year
ended December 31, 1997, compared with net income of $7.3 million for the same
period in 1996, due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
NOVA's primary uses of its capital resources include purchases of merchant
portfolios, investments in joint ventures, capital expenditures and working
capital.
Net cash provided by operating activities was $25.6 million for the six
months ended June 30, 1998, as compared to $7.8 million for the six months
ended June 30, 1997.
Net cash used in investing activities was $46.7 million for the six months
ended June 30, 1998, as compared to $28.1 million for the six months ended
June 30, 1997. Cash used in purchases of merchant portfolios and investments
in joint ventures totaled $26.4 million for the six month period in 1998, as
compared to $22.3 million during the same period in 1997. Capital equipment
purchases increase approximately $14.5 million to $20.3 million during the six
months ended June 30, 1998 as compared to 1997 levels. Major expenditures
during the first six months of 1998 include computer and software investments
to increase capacity and enhance services, including the development of
internal merchant processing systems provided by the NOVA Network and the
purchase, remodeling and equipping of approximately 80,000 square feet for
expanded operating facilities necessary to accommodate NOVA's growth. NOVA
anticipates that it will incur approximately $13.0 million in additional
capital expenditures during the remainder of fiscal 1998 for additional
operating facilities and for the expansion of NOVA's information systems.
The above investments were funded primarily from the net cash flow from
financing activities, which totaled $112.4 million during the six months ended
June 30, 1998, as compared to $230,000 for the same period in 1997. Cash flows
from financing activities included $144.3 million in net proceeds received
from NOVA's public offering in April 1998 and, prior to the offering, $21.1
million in borrowings under credit facilities with banks. Subsequent to the
public offering, NOVA used $53.1 million to repay all amounts outstanding
under its bank credit facilities.
NOVA 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. In addition, increasing acquisition
activity may cause variations in working capital due to conversion-period
operating costs and the transition in the payment of expenses and the
collection of receivables from a former processor to NOVA. Because of the
seasonality of NOVA's business, capital requirements may be greater in certain
amounts.
At June 30, 1998, NOVA had cash and cash equivalents of $92.0 million. NOVA
expects that existing cash and cash equivalents, as well as cash generated
from operations, are sufficient to satisfy existing purchase obligations
relating to completed acquisitions, to purchase merchant portfolios and to
enter joint ventures and alliances in the ordinary course of business, to fund
capital expenditures and to meet working capital requirements.
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NOVA must address Year 2000 compliance for POS merchant activity, internal
operating systems and suppliers and vendors. In June 1997, NOVA was certified
by VISA U.S.A. and MasterCard International as capable of processing
transactions for cards issued with expiration dates of 2000 and beyond.
Management believes that all of NOVA's customers have been upgraded with
compliant transaction processing software, and that the NOVA Network can
accommodate the Year 2000.
NOVA has developed a plan in an effort to ensure all internal systems are
compliant with the Year 2000. These efforts are underway and are scheduled to
be completed by year end 1998. NOVA's significant outside vendors and
suppliers also are scheduled to be Year 2000 compliant by year end 1998.
However, while NOVA believes its planning efforts are adequate to address its
Year 2000 concerns, there can be no guarantee that the systems of other
companies on which NOVA's systems and operations rely will be properly
converted on a timely basis and will not have a material effect on NOVA. It is
assumed that should any vendor not be compliant by January 1, 1999, NOVA will
have sufficient time to engage an alternative vendor which is compliant. The
cost of Year 2000 initiatives has not been and is not expected to be material
to NOVA's results of operations or financial position.
BUSINESS OF NOVA
NOVA is an integrated provider of transaction processing services, related
software application products and value-added services primarily to small- to
medium-sized merchants. NOVA 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. On a pro forma basis giving effect
to the recent transactions discussed below, the aggregate dollar volume of
VISA and MasterCard transactions processed by NOVA in 1997 would have been
over $24.0 billion.
NOVA provides merchants with a broad range of transaction processing
services, including authorizing card transactions at the POS, capturing and
transmitting transaction data, effecting the settlement of payments and
assisting merchants in resolving billing disputes with their customers. In
addition, NOVA has developed several software applications that can be
delivered to its customers and updated via the NOVA Network. The NOVA Network
was developed in conjunction with WorldCom and is the principal conduit
through which NOVA provides its services. The capabilities of the NOVA Network
result in rapid response time and its substantial bandwidth facilitates the
delivery of sophisticated value-added services. NOVA's ability to effectively
employ technology, together with the capabilities of the NOVA Network, allow
NOVA to respond quickly and effectively to the changing and diverse needs of
its merchant customers.
Recent Transactions
NOVA consummated three significant transactions in 1997 and a fourth in
January 1998, which in the aggregate would have added approximately $10.9
billion of transaction processing volume to the NOVA Network if the
transactions had been consummated at the beginning of 1997. The transactions
collectively represent increases of 91.4% over fiscal 1996 transaction
processing volume of $11.9 billion. The aggregate maximum consideration paid
or to be paid by NOVA in connection with these four transactions is
approximately $140.1 million. NOVA also consummated 16 community bank
transactions in 1997, for an aggregate purchase price of approximately $10.0
million and which, in the aggregate, represent approximately $774.0 million of
transaction processing volume. During 1998, NOVA consummated five community
bank transactions for an aggregate purchase price of approximately $12.5
million and which, in the aggregate, represented approximately $1 billion in
transaction processing volume.
KeyBank Joint Venture. On January 21, 1998, NOVA consummated the KeyBank
Joint Venture with KeyBank pursuant to which NOVA and KeyBank formed Key
Merchant Services, a Delaware limited liability company jointly owned and
operated by Key Payment Services, Inc., a wholly-owned subsidiary of KeyBank,
and NOVA. In connection with the KeyBank Joint Venture, KeyBank, Key Payment
Services and POS Sales and Services, Inc., a wholly-owned subsidiary of
KeyBank, contributed substantially all of their then existing
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bankcard payment processing contracts (representing approximately $5.1 billion
in annualized credit and debit card volume) to Key Merchant Services. NOVA
purchased a 51% interest in Key Merchant Services from KeyBank and POS Sales
and Services.
Key Merchant Services has an initial operating term expiring in January 2005
with automatic three-year extensions unless either Key Payment Services or
NOVA, as the sole members of Key Merchant Services, gives notice of
termination at least 12 months prior to a scheduled expiration date. Although
certain authority is reserved exclusively in a Management Committee, a
Manager, who is a designated employee of NOVA, has the power and authority to
make decisions and take actions on behalf of Key Merchant Services in
connection with its day-to-day operation and management in the ordinary course
of business. The Management Committee is comprised of five persons, with two
members selected by Key Payment Services and three members selected by NOVA.
NOVA also provides to Key Merchant Services transaction processing and other
services for which NOVA receives compensation. Key Merchant Services markets
transaction processing services with its own employees throughout the United
States. Further, KeyBank markets and promotes, on an exclusive basis,
transaction processing services on behalf of Key Merchant Services through
KeyBank's bank branch locations. KeyBank and its affiliate banks also agreed
to provide certain other services, including clearing and settlement services,
to Key Merchant Services for which KeyBank will receive compensation.
Upon termination or expiration of the KeyBank Joint Venture, either KeyBank
or NOVA, depending on the circumstances of such termination or expiration, may
elect to purchase the other party's interest in Key Merchant Services at "fair
market value" determined pursuant to the terms of the KeyBank Joint Venture.
In connection with the formation of Key Merchant Services, NOVA has
undertaken the conversion of merchant processing to NOVA's operating platform.
In addition to NOVA's normal conversion related expenses, NOVA accrued a non-
recurring charge of approximately $1.3 million, net of tax, in the first
quarter of 1998 principally to account for early termination of a contract for
merchant processing with a third party processor.
MBNA Portfolio. On December 30, 1997, NOVA consummated a transaction with
MBNA pursuant to which NOVA purchased substantially all of MBNA's merchant
portfolio. In connection with the MBNA transaction, MBNA has agreed to
cooperate with NOVA in marketing NOVA's merchant transaction processing
services and to refer exclusively to NOVA all merchants, trade associations,
financial institutions, ISOs and other organizations that request or evidence
an interest in merchant transaction processing services. NOVA, among other
things, is required to pay to MBNA a fee for each merchant that enters into a
merchant transaction processing contract with NOVA as a result of any such
referral. In conjunction with the MBNA transaction, NOVA agreed to pay to MBNA
a percentage of the portfolio's net revenues. NOVA's marketing agreement with
MBNA has an initial term of ten years (i.e., through December 31, 2007)
subject to automatic two year extensions unless either party gives notice of
termination at least 75 days prior to an expiration date. NOVA estimates that
the MBNA portfolio will add approximately $1.0 billion in annualized credit
and debit card transaction processing volume.
Firstar Joint Venture. Effective on October 31, 1997, NOVA consummated the
Firstar Joint Venture with Firstar and Firstar Milwaukee, each of which are
subsidiaries of Firstar Corporation, pursuant to which NOVA and Firstar
jointly own and operate Elan Merchant Services, a newly formed Wisconsin
limited liability company. In connection with the Firstar Joint Venture,
Firstar, Firstar Milwaukee and the other banking affiliates of Firstar
contributed substantially all of their then existing bankcard payment
processing contracts (representing approximately $3.0 billion in annualized
credit and debit card volume) to Elan Merchant Services in return for a 49%
equity interest in Elan Merchant Services, and NOVA purchased a 51% equity
interest in Elan Merchant Services.
Elan Merchant Services has an initial term expiring on August 31, 2008, with
automatic one year extensions unless either Firstar or NOVA, as the sole
members of Elan Merchant Services, gives notice of termination at least six
months prior to a scheduled expiration date. Although certain powers are
reserved exclusively in a Management Committee, NOVA, as Manager of Elan
Merchant Services, has the power and authority to make decisions and take
actions on behalf of Elan Merchant Services in connection with its day-to-day
operation and
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management in the ordinary course of business. The Management Committee is
comprised of four persons, with two members selected by each of Firstar and
NOVA. Elan Merchant Services pays NOVA an annual fee for its managerial
services. NOVA also provides to Elan Merchant Services transaction processing
and other services for which NOVA receives compensation. Firstar will market
and promote, on an exclusive basis, transaction processing services on behalf
of Elan Merchant Services directly and through a network of over 850
correspondent financial institutions. Elan Merchant Services, among other
things, is required to pay Firstar a fee for each merchant that enters into a
merchant transaction processing contract with Elan Merchant Services as a
result of any such referral, including a fixed percentage of sales volume the
referred merchant processes through NOVA. Firstar and its affiliate banks also
agreed to provide certain other services, including clearing and settlement
services, to Elan Merchant Services, for which Firstar receives compensation.
Upon termination or expiration of the Firstar Joint Venture, either Firstar
or NOVA, depending on the circumstances of such termination or expiration, may
elect to purchase the other party's interest in Elan Merchant Services at the
"fair market value" determined through negotiations between the parties at the
time of termination. If Firstar and NOVA are unable to mutually agree upon the
"fair market value," an independent appraiser shall make such determination.
Firstar Corporation, the parent of Firstar, recently announced that it had
agreed to merge with Star Banc Corporation. While management does not believe
that the proposed merger, if consummated, will have a material adverse effect
on NOVA's relationship with Firstar or the expected strategic and financial
benefits derived from such relationship, there can be no assurance that the
resulting entity in such merger will support NOVA's relationship with Firstar
in the same manner and to the same degree as Firstar.
Crestar Portfolio. On May 29, 1997, NOVA consummated a transaction with
Crestar pursuant to which NOVA purchased substantially all of Crestar's
merchant portfolio. Crestar has agreed that for an initial term expiring May
1, 2002 (subject to automatic two year extensions unless either party gives
notice of termination at least 180 days prior to an expiration date), Crestar
will cooperate with NOVA in marketing NOVA's merchant transaction processing
services and refer exclusively to NOVA all merchants, financial institutions,
ISOs and other organizations that request or evidence an interest in merchant
transaction processing services. NOVA, among other things, is required to pay
Crestar a fee for each such referral, including a fixed percentage of sales
volume the referred merchant processes through NOVA.
NOVA estimates that the Crestar portfolio will add approximately $1.8
billion in annualized credit and debit card transaction processing volume.
Crestar's 500 branch locations will offer NOVA's transaction processing
services thereby expanding NOVA's distribution network.
NOVA expects each of these transactions to provide significant strategic and
financial benefits, including: (i) enhanced distribution channels to
facilitate growth of NOVA's processed transaction volume and number of
merchant locations served; (ii) further geographic diversification of NOVA's
merchant portfolio into additional regions of the United States; and (iii)
economies of scale from substantial increases in transaction processing volume
once the merchant accounts and other services are fully integrated into NOVA's
operating platform.
Crestar Financial Corporation, the parent of Crestar, recently announced
that it had agreed to merge with SunTrust Banks, Inc. While management does
not believe that the proposed merger, if consummated, will have a material
adverse effect on NOVA's relationship with Crestar or the expected strategic
and financial benefits derived from such relationship, there can be no
assurance that the resulting entity in such merger will support NOVA's
relationship with Crestar in the same manner and to the same degree as
Crestar.
Industry Overview
The transaction processing industry provides merchants with credit, charge
and debit card and other payment processing services, as well as related
information services. This industry has grown rapidly in recent years as a
result of wider merchant acceptance and increased consumer use of such cards,
and advances in transaction processing and telecommunications technology.
These factors, together with the efficiencies derived from economies of scale,
are causing the consolidation of transaction processing providers and the
availability of more sophisticated products and services to all merchant
customers.
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Increased Growth in Card Use. The proliferation in the uses and types of
credit, charge and debit cards, rapid technological advances in transaction
processing and financial incentives offered by credit card associations and
issuers have contributed greatly to wider merchant acceptance and increased
consumer use of such cards. For example, industry sources indicate that for
the five years ended December 31, 1996, charge volume of VISA and MasterCard
credit cards grew at a compounded annual growth rate of approximately 18.7%.
The growth in charge volume and the increase in the acceptance of credit cards
are expected to continue as consumers expand their use of such cards as an
alternative to cash and checks. VISA and MasterCard charge volume is projected
to exceed $1.0 trillion by the year 2000 (The Nilson Report--September 1996).
Technology. Rapid technological advances in transaction processing,
particularly the transition from paper-based to electronic processing, have
contributed greatly to wider merchant acceptance and increased consumer use of
such cards. Electronic processing provides greater convenience to merchants
and consumers, reduces fees charged to merchants, and facilitates faster and
more accurate settlement of payments. According to industry sources,
approximately 87% of the dollar volume of credit card transactions was
processed electronically or by voice automation in 1995, up from approximately
77% in 1990. Increased card acceptance and usage, coupled with technological
advances in electronic processing, have created an opportunity for service
providers to offer a variety of sophisticated processing and information
services to merchants.
Specifically, advances in less costly, scalable and networked computer
systems, including distributed client/server architecture and relational
database management systems, afford transaction processors greatly improved
flexibility and responsiveness in providing customer service and applications.
In addition, the use of fiber optic cables and advanced switching technology
in telecommunications networks and competition among long-distance carriers
further enhance the ability of processors to provide faster and more reliable
service at lower per-transaction costs than previously possible.
Advances in personal computer ("PC") and POS terminal technology have
increasingly allowed access to a greater array and level of sophisticated
services at the POS and contributed to the demand for such services. In
addition, more sophisticated uses of integrated cash registers and networked
systems at the merchant site create further demand for comparably advanced and
sophisticated products and services accessible at the POS. These trends have
created the opportunity for transaction processors to leverage technologies by
developing business management and other software application products and
services.
Segmentation of Merchants and Service Providers. The transaction processing
industry is characterized by a small number of large transaction processors
that focus on servicing large merchants and by many smaller transaction
processors that provide a limited range of services to small- to medium-sized
merchants. Large merchants (i.e. those with multiple locations and high
volumes of card transactions) typically demand and receive the full range of
transaction processing services as well as customized information services at
low per-transaction costs. By contrast, small- to medium-sized merchants
historically have not been offered the same level of services as large
merchants and have incurred relatively higher per-transaction costs. The
growth in card transactions and the transition from paper-based to electronic
transaction processing have, however, caused small- to medium-sized merchants
increasingly to demand sophisticated transaction processing and information
services similar to those provided to large merchants.
Transaction processing services are marketed and sold to small- to medium-
sized merchants primarily by community and regional banks and ISOs that
outsource all or a portion of the transaction processing services they offer.
It is difficult, however, for banks and ISOs to customize transaction
processing services for the small- to medium-sized merchant on a cost-
effective basis or to provide sophisticated value-added services. Accordingly,
the services provided to small- to medium-sized merchants historically have
been characterized by basic transaction processing without the availability of
the more sophisticated processing, information-based services or customer
service offered to large merchants.
Consolidation. The transaction processing industry has undergone rapid
consolidation over the last several years. The costs to convert from paper-
based to electronic processing, merchant requirements for improved
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customer service, and the demands for additional customer applications have
made it difficult for community and regional banks and ISOs to remain
competitive. Many of these providers are unwilling or unable to invest the
capital required to meet these evolving demands, and are increasingly exiting
the transaction processing business or otherwise seeking alliance partners to
provide transaction processing for their customers. Despite this ongoing
consolidation, the industry remains fragmented with respect to the number of
entities providing merchant services. Industry sources indicate that in 1997,
although the ten largest bankcard processors accounted for approximately 85%
of the total charge volume processed and the largest single processor
accounted for approximately 38% of the total volume, there were several
hundred additional registered service providers marketing and selling
transaction processing services to merchants. Management believes that these
factors will result in continuing industry consolidation opportunities over
the next several years.
Merchant Services Provided by NOVA
Authorization Services. NOVA provides electronic transaction authorization
services for all major credit and charge cards. Authorization generally
involves approving a cardholder's purchase at the POS 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" 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 NOVA'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 NOVA'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 NOVA. 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 NOVA has programmed into the merchant's POS
terminal, and transmits this information to NOVA where it is organized into
two files. One file is transmitted to either Vital Processing Services or
Mellon Bank for merchant accounting as described below. The other file is
maintained by NOVA in its database to allow NOVA to run its proprietary fraud
detection software program against each of the day's transactions processed
via the NOVA Network. This information also allows NOVA 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
NOVA's database through a PC.
Settlement, Accounting and Clearing Services. Merchant accounting services
are performed on NOVA's behalf by Vital Processing Services and Mellon Bank,
with each of NOVA's merchant customers assigned to one of these processors. No
less often than once each day, NOVA forwards to Vital Processing Services and
Mellon Bank, respectively, transaction data regarding NOVA's merchant
customers. Vital Processing 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, Vital Processing Services and Mellon Bank send statements to
NOVA'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, Mellon Bank, Firstar,
KeyBank and FUNB, which serve as member clearing banks for NOVA, NOVA is
registered with VISA and MasterCard as a certified processor and member
service provider. NOVA'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, NOVA collects applicable merchant discount and other fees
from each merchant for transactions effected and services provided during the
preceding month.
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Chargeback Services. In the event of a billing dispute between a cardholder
and a merchant, NOVA assists the merchant in investigating and resolving the
dispute. These billing disputes include, among others: (i) nonreceipt of
merchandise or services; (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. NOVA 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 NOVA 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 NOVA 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 NOVA for the
chargeback, NOVA bears the loss for the amount of the refund paid to the
cardholder.
Customer Service and Support. NOVA provides its merchant customers with a
variety of customer services and support. These services include leasing,
renting or selling POS terminals, downloading software application products
and services to POS terminals, maintaining POS terminals, and customizing
software for merchant applications. In addition, NOVA maintains a 24-hours-a-
day, seven-days-a-week helpline staffed by full-time customer service
representatives.
Technology
One of NOVA's principal strategies is to maximize the benefits of available
technologies to deliver transaction processing and related software
application products and services on a cost-effective basis. Accordingly, NOVA
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 NOVA's service capabilities.
NOVA 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
NOVA 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 NOVA's proprietary telecommunications network and the principal conduit
through which NOVA 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. In working with WorldCom, NOVA
was able to design a network specifically tailored to the services NOVA
desired to provide, the equipment NOVA intended to use in providing those
services, and the functionality those services were designed to achieve. 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 NOVA, WorldCom
provides long-distance and local telecommunication access, as well as
technical support, to NOVA in connection with the NOVA Network. This agreement
was renegotiated recently and expires July 1, 2001, subject to earlier
termination by NOVA in the event of quality deficiencies in WorldCom's
service.
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 a
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 NOVA and its merchants. With the use of
ISDN technology, however, end-users such as NOVA can utilize an SS7 switching
system without sacrificing any of the enhanced
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performance attributes derived from SS7 technology. Although significant
hardware and software obstacles currently are inherent to end-user utilization
of an SS7 switching system, NOVA 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
providers other than WorldCom, which would reduce NOVA's historical dependence
on WorldCom. NOVA has developed and tested a network interface with AT&T and
management believes that, if necessary or convenient, NOVA 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, can be accomplished without sacrificing
any significant performance or operational attributes of the NOVA Network,
although such a transfer may increase NOVA'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 that no single element is shared with the principal WorldCom
system, enhances NOVA's ability to provide a high level of reliability in its
network service. Through an agreement with Electronic Data Systems
Corporation, NOVA 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. NOVA 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 critical to NOVA's ability to respond
flexibly to changing customer needs and improving technologies. Most of the
POS terminals utilized by NOVA's merchant customers have been programmed by
NOVA with specific applications. By programming POS terminals, NOVA can avoid
the limitations of the preexisting 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 NOVA'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, NOVA 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 NOVA 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, NOVA expects such use to
increase. Further, the terms of the First Union Alliance provide that, when
feasible, NOVA will assist First Union in developing new products or services
relating to transaction processing or in otherwise supporting new business
ventures. NOVA 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.
NOVA actively encourages third party software developers to write
applications to NOVA's specifications and network protocols. These
applications, once certified by NOVA, allow integration of NOVA's transaction
processing services with the business management software created by such
developers for use at the merchant's POS. These developers often function as
value-added resellers ("VARs") for NOVA as they frequently market their
business management software in connection with NOVA'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 NOVA, has modified
its software to allow full integration of NOVA's transaction processing
services. In this way, VARs such as Squirrel
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indirectly perform a marketing function for NOVA since their software is often
offered on a fully-integrated basis with NOVA's transaction processing
services, creating additional opportunities for NOVA to reach small- to
medium-sized merchants. NOVA has certified in excess of 30 third party
software developers, including IC Verify, Aluim Payment Groups, Southern
DataCom, Inc., Datacap, Inc. and Smokey Mountain Systems.
Use of Networked Systems for Customer Service. The information access and
retrieval capabilities of networked systems, where real-time information is
available to any of NOVA's customer service representatives, allow NOVA to
provide a level of customer service and support to small- to medium-sized
merchants previously available only to much larger merchants. For example, any
of NOVA's customer service representatives may access, on a real-time basis,
all of the relevant information pertaining to any particular merchant that may
call and ask for assistance. NOVA also recently implemented an on-line
informational database that provides NOVA's customer services representatives
user-friendly access to an array of additional information relative to NOVA's
services, products and systems, which often allows NOVA to more quickly and
effectively resolve customer service inquiries. In addition to their customer
service capabilities, NOVA's networked systems are highly automated and
require minimal staffing, which allows NOVA to contain costs and achieve
greater operating efficiencies.
Year 2000 Updates. NOVA must address Year 2000 compliance for POS merchant
activity, internal operating systems and suppliers and vendors. In June 1997,
NOVA was certified by VISA U.S.A. and MasterCard International as capable of
processing transactions for cards issued with expiration dates of 2000 and
beyond. Management believes that all of NOVA's customers have been upgraded
with compliant transaction processing software, and NOVA's network and switch
can accommodate the Year 2000.
NOVA has developed a plan in an effort to ensure all internal systems are
compliant with the Year 2000. These efforts are underway and are scheduled to
be completed by year end 1998. NOVA's significant outside vendors and
suppliers also are scheduled to be Year 2000 compliant by year end 1998.
However, while NOVA believes its planning efforts are adequate to address its
Year 2000 concerns, there can be no guarantee that the systems of other
companies on which NOVA's systems and operations rely will be properly
converted on a timely basis and will not have a material effect on NOVA. It is
assumed that should any vendor not be compliant by January 1, 1999, NOVA will
have sufficient time to engage an alternative vendor which is compliant. The
cost of Year 2000 initiatives has not been and is not expected to be material
to NOVA's results of operations or financial position.
Software Application Products and Value-Added Services
In addition to card transaction processing, NOVA offers related software
application products and value-added services to its merchant customers. These
products and services are designed to run on existing POS terminals and DOS-
and Windows-based PCs. Offering a broad range of products and services
historically unavailable to small- to medium-sized merchants is an integral
part of NOVA's strategy of focusing on these merchants and differentiating
itself among the banks and ISOs serving this market segment. Management
believes that the quality and reliability of its products and services enhance
NOVA's ability to attract and retain merchant customers.
NOVA currently offers a variety of software application products and value-
added services, including the following core products and services that are
basic to the NOVA Network:
Encompass. Encompass is the latest generation of NOVA's user interface. NOVA
presently provides Encompass to all new merchant customers, and generally
charges a one-time fee to upgrade existing merchants to Encompass. In addition
to NOVA's core transaction processing services, Encompass enables merchants to
access NOVA's software application products and value-added services,
including those described below. Encompass also allows the merchant to access
other business management applications, including customized end-of-day
processing (allowing, for instance, the performance by the merchant of daily
audit functions) and other review and reporting features (e.g., summary report
generation). Designed as a flexible "modular" system, Encompass allows the
merchant to add features and capability as its business needs evolve.
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NOVA Shadow Pay. NOVA Shadow Pay, introduced by NOVA in February 1996,
addresses the increasing use by merchants of integrated and modem-enabled cash
registers and PCs. NOVA Shadow Pay eliminates the necessity of a traditional,
stand-alone POS terminal. Typically, merchants accepting cards for payment
key-in or input transaction data at their cash register and then key-in
certain redundant transaction data to their POS terminal for authorization and
processing. This redundant keying of data increases both the probability of
human error as well as the amount of time it takes a merchant to process a
transaction. NOVA Shadow Pay is a PC application that allows the merchant's
modem-enabled cash register or PC to capture the transaction data that is
keyed or otherwise input into the cash register or PC, and transmits such data
for authorization and processing, eliminating both the need for a stand-alone
POS terminal and the redundant keying of transaction data associated
therewith. In addition, NOVA Shadow Pay provides the merchant access to
certain review and reporting features allowing, for instance, the merchant to
more easily reconcile transaction activity for any given period with the data
captured and stored by the merchant's cash register or PC. NOVA charges a one-
time license fee for access to NOVA Shadow Pay.
Mass Transact and PC Transact It. Mass Transact is a mainframe-to-mainframe
transaction processing application that NOVA developed specifically for
businesses utilizing mainframe technology and processing large numbers of
credit card transactions on a batch basis. A merchant using Mass Transact
(typically one that accepts a large number of credit card transactions by
telephone or mail) assembles a batch file of transactions and the merchant's
mainframe transmits that information to NOVA for processing. Insurance
companies and magazine publishers, each of which process large numbers of
transactions for recurring payments such as insurance premiums and
subscription renewals, respectively, are examples of the type of merchant
customers who currently utilize Mass Transact. PC Transact It is a similar
application that allows PCs, rather than mainframes, to process transactions
on a batch basis. Merchants who subscribe to Mass Transact or PC Transact It
pay a one-time license fee and a percentage of the dollar amount of each
transaction processed.
InnResponse and NOVALodge. InnResponse and NOVALodge are transaction
processing applications designed to address the special needs of the
hospitality industry. InnResponse is a PC-based lodging solution for small
hotels and motels and tracks check-in and check-out data by portfolio.
NOVALodge is a PC-based application for larger hospitality facilities and
accommodates multiple terminals at a front desk as well as multiple on-site
locations such as restaurants, gift shops or golf facilities. Enhanced
reporting provides totals and allows sorting by terminal or location.
Gratuit. Gratuit is a transaction processing application designed
specifically for use by restaurants. Gratuit tracks server data and includes
"tip" capability and enhanced reporting capabilities. Similar to Encompass,
Gratuit software integrates a time clock into the software as well as a
frequent diner program.
In addition to NOVA's core products and services, NOVA offers the following
value-added software applications and services:
NOVA ACS. NOVA ACS (Automated Customer Service) is a PC-based system that
allows NOVA's bank alliance and ISO partners access to NOVA's databases in
order to track and compile the transaction processing activity of their
respective merchant customers. NOVA ACS also is utilized by NOVA's merchant
customers to access NOVA's databases to track and compile information
regarding their own transaction activity. Through such access and related
information retrieval capabilities, NOVA ACS expands greatly the banks', ISOs'
and merchants' ability to design and obtain customized informational reports
and, in the case of banks and ISOs, to perform for their merchant customers a
variety of customer service related activities. NOVA ACS 2.5, which was
introduced in 1997, incorporates retrieval and chargeback information as well
as on-line statements. These enhancements give the ISO, bank or merchant the
opportunity to retrieve information on-line.
SCAN Check Verification Services. Through an agreement with Deluxe Payment
Protection Systems, Inc. ("DPPS"), doing business as SCAN, NOVA offers check
verification services to its customers. Specifically,
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NOVA can provide its customers with direct access via the NOVA Network to the
SCAN database managed by DPPS. The SCAN database is composed of information
relating to checks returned to subscribers of the SCAN database for
insufficient funds. This access allows merchants to compare the information
included in the database against any check presented to the merchant for
payment. This service is accessible to the merchant through the merchant's POS
terminal and was introduced in May 1995, with significant telemarketing of
SCAN to existing NOVA merchants commencing in January 1996. Merchants pay per-
transaction fees for access to such service.
In March 1997, NOVA entered into an additional agreement with DPPS pursuant
to which DPPS agreed to refer to NOVA prospective merchants for credit, charge
and debit card processing.
Cellular Digital Packet Data. The use of Cellular Digital Packet Data
("CDPD"), marketed under the name "Traverse," allows NOVA to process
transactions utilizing cellular airwaves, as opposed to traditional phone
lines, enabling wireless transaction authorization and processing. NOVA
currently has agreements with AT&T Wireless Services, GTE and Bell Atlantic
NYNEX Mobile to provide cellular transmission services. 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.
NOVA WEBWAY. Through an agreement with Harbinger Corporation, NOVA offers
Internet services to merchant customers. NOVA WEBWAY is software designed to
allow small- to medium-sized merchants the opportunity to build a functional
commerce-ready web-site complete with up to a 99-page catalog. Using a wizard
interface, NOVA WEBWAY prompts a customer to describe its business, load
product descriptions, pricing and pictures and includes secure on-line
ordering and encrypted credit card payment capabilities. NOVA WEBWAY is a
total web page solution at an attractive price point specifically designed for
small business.
Internet Processing. NOVA is actively pursuing development initiatives
relating to transaction processing services on the Internet and other forms of
electronic commerce. NOVA is exploring with First Union and other third
parties several Internet-related opportunities, which include processing
transactions via the Internet, accepting merchant applications via the
Internet and developing, on behalf of merchants, "homepages" on the Internet.
In addition, NOVA has entered into an agreement with CyberCash Inc. pursuant
to which CyberCash will provide to NOVA encryption services (a security
measure) for transactions processed via the Internet. These Internet-related
initiatives are still in formative stages and security is the prevailing issue
and concern. NOVA, however, is active in the development process and
management believes that the Internet ultimately may become another
distribution channel for NOVA's products and services.
NOVA Perks. NOVA Perks is a PC-based application that allows a subscribing
merchant to design and operate a customized frequent shopper program. This
program enables the merchant to promote sales and to track, store and retrieve
detailed information about its customers and all of their purchases regardless
of the method of payment. Merchants who do not use NOVA for transaction
processing services may nevertheless utilize NOVA Perks. NOVA Perks has not
yet achieved significant market usage although management believes it is an
attractive product to prospective customers.
Customer Base
NOVA's merchant customer base consists primarily of small- to medium-sized
merchants, with an historic concentration in the restaurant, specialty retail,
furniture, automobile repair and lodging industries. In addition, banks also
are customers of NOVA insofar as those banks accept credit card cash advance
transactions. While NOVA's merchants vary significantly in size, a typical
merchant customer generates approximately $130,000 in annual charge volume.
Although NOVA focuses primarily on small- to medium-sized merchants, NOVA 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 years ended December 31, 1997 and 1996, no merchant
customer accounted for more than 2.5% of NOVA's revenues.
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NOVA enters into direct contractual relationships with its merchants, which
reduce the financial risks to NOVA in the event any of NOVA's bank alliance
partners no longer desire to utilize NOVA's services. In contrast to NOVA's
approach, the typical transaction processor/bank relationship involves a
processor negotiating with a bank to serve all of the bank's merchants, with
the bank maintaining direct control over each merchant relationship. Such a
structure exposes the processor to the risk that each of the merchant
relationships, and the revenues from those relationships, easily could be
jeopardized if, for example, the bank were to sell its merchant business
portfolio to an acquiror that provided its own transaction processing
services.
Marketing
To reach its target market segment in a cost-effective manner and to further
its market penetration, NOVA markets its services through three principal
channels: (i) bank alliances, including joint ventures, through which NOVA
offers its services to merchants in cooperation with community and regional
banks, allowing NOVA to capitalize on the presence of those banks in
particular geographic markets; (ii) partnering with ISOs that market and sell
NOVA's services to merchants, typically in areas where NOVA does not have bank
alliances; and (iii) direct sales on behalf of and as a supplement to the bank
alliance and ISO partnering channels. In addition, NOVA engages in marketing
efforts that include marketing agreements with various trade and other
associations and marketing through VARs that integrate NOVA's transaction
processing services with specialized business management software. The KeyBank
Joint Venture, the Firstar Joint Venture, the Crestar transaction, the MBNA
transaction and the First Union Alliance are NOVA's most significant examples
of marketing through bank alliances, and enhanced significantly NOVA's ability
to further its market penetration and increase the size of its customer base
through the marketing assistance, support and exclusive merchant referrals
provided by the participating banks.
Bank Alliances. NOVA's principal marketing efforts are directed at forming
bank alliances. During 1997 and January 1998, NOVA entered into bank alliances
in connection with the KeyBank Joint Venture, the Firstar Joint Venture, the
Crestar transaction and the MBNA transaction. Through its relationships with
its bank alliance partners, NOVA offers its services to merchants in
cooperation with community and regional banks, allowing NOVA to capitalize on
the presence of those banks in particular geographic markets. NOVA's bank
alliances consist of four types of relationships: (i) relationships created as
a result of NOVA's acquisition of a bank's merchant portfolio, pursuant to
which NOVA provides transaction processing services on a co-branded basis with
such bank ("Acquisition Alliances"); (ii) relationships created through a
joint venture (generally in the form of a limited liability company) owned
jointly by NOVA and a bank, pursuant to which NOVA provides transaction
processing services to the joint venture and the bank provides marketing and
referral services to the joint venture ("Joint Venture Alliances"); (iii)
agent bank relationships where the bank purchases NOVA's services and markets
and resells those services directly to merchants ("Agent Bank Alliances"); and
(iv) bank referral relationships where the bank refers to NOVA merchants who
desire or otherwise inquire about transaction processing services ("Bank
Referral Alliances").
Acquisition Alliances and Joint Venture Alliances are an integral part of
NOVA's overall acquisition strategy, pursuant to which NOVA offers banks the
opportunity to transfer management and operational responsibility for their
merchant portfolios to NOVA (either directly or through the joint venture),
while continuing to offer transaction processing services on a co-branded
basis in cooperation with NOVA. Because an Acquisition Alliance or a Joint
Venture Alliance may involve NOVA (or the joint venture) maintaining
transaction processing salespersons on-site at the bank branch to service
existing merchant customers and to market and sell NOVA's processing services
to new merchant customers, NOVA can often effect a nondisruptive transition of
services from the merchants' perspective. To ease further this transition
process and to assist its Acquisition Alliance and Joint Venture Alliance
partners, NOVA has created an intensive training program whereby NOVA's
personnel train and educate its Acquisition Alliance and Joint Venture
Alliance partners in all aspects of NOVA's transaction processing services,
software application products and value-added services. Additionally, NOVA
utilizes its internal sales force to market transaction processing services on
behalf of the
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Acquisition Alliances and Joint Venture Alliances. The internal sales force
includes a National Account Sales team that supports Acquisition Alliances and
Joint Venture Alliances in signing larger and more technologically
sophisticated merchants.
NOVA compensates its bank alliance partners through varying means.
Acquisition Alliance partners typically are compensated by NOVA remitting to
them a residual for each transaction processed by NOVA for merchants
attributable to the alliance. NOVA compensates its Bank Referral Alliance
partners typically by paying them a one-time referral fee. Agent Bank Alliance
partners are not directly compensated by NOVA; rather, they derive revenue by
reselling NOVA's services to merchants at a price determined by the Agent
Bank. NOVA 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 NOVA. NOVA's agreement with Kessler is
scheduled to expire June 30, 2001, subject to renewal for two additional years
unless either NOVA or Kessler gives notice of termination prior to the
expiration of the initial term.
NOVA also employs a direct sales force that markets the services of NOVA on
behalf of NOVA's alliance, ISO and joint venture partners.
ISO Partnering. With the acquisition of the merchant portfolio of the Bank
of Boulder in December 1994, which included 24 marketing agreements with ISOs,
NOVA made its first significant entry into the ISO marketing channel. ISOs are
entities that market NOVA's products in conjunction with other products
offered by the ISO, such as card readers and related equipment. Generally, ISO
partnering involves engaging an ISO to market and sell NOVA's products and
services on a non-exclusive basis. An ISO that desires to refer a merchant
customer to NOVA will procure the merchant's application and submit it to NOVA
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. NOVA compensates ISOs by paying them a residual for each transaction
processed by NOVA for merchants referred to NOVA by the ISO. The ISO's
determination of whether to refer a particular merchant to NOVA depends on a
variety of factors, including the terms of the residual offered by NOVA and
the industry in which the merchant conducts its business. As of July 29, 1998,
NOVA had 38 marketing agreements with ISOs.
Association Marketing. Through its association marketing program, NOVA
negotiates and enters into marketing agreements with various trade and other
associations. Pursuant to these relationships, associations endorse and
promote to their membership the transaction processing services provided by
NOVA, creating additional opportunities for NOVA to reach small- to medium-
sized merchants. NOVA currently has agreements with 180 associations. NOVA
expects that the MBNA transaction will expand NOVA's association marketing
opportunities.
Other Marketing Efforts. In addition to bank alliances, ISO partnering and
direct sales and telemarketing, NOVA engages in other marketing efforts that
management believes complement and diversify further NOVA's overall marketing
strategy:
Marketing Through VARs. NOVA's marketing efforts are diversified further
through the integration of its transaction processing services with the
specialized business management software of a growing number of VARs. VARs
perform a marketing function for NOVA since their software often is offered on
a fully-integrated basis with NOVA's transaction processing services, creating
additional opportunities for NOVA to satisfy the particular needs of its
merchant customers.
Procurement and Purchasing Cards. Corporate procurement and purchasing cards
are growing in popularity and flexibility of use, and NOVA is exploring
opportunities intended to take advantage of this emergence. Procurement and
purchasing cards, although very similar in most respects to bank and charge
cards,
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are tailored to a specific business and functionality. Purchasing cards may be
used, for example, to replace the traditional use of paper-based purchase
orders, confirmations and invoices with electronically authorized, processed
and recorded transactions. Another illustrative use of a purchasing card is an
insurance company that issues purchasing cards to its policy holders for the
purchase by such policy holders of medical supplies, prescriptions and
services from certain health care providers, all of whom have agreed, in
advance, to accept the insurance company's purchasing cards.
NOVA periodically reviews its marketing efforts and distribution channels to
minimize channel conflict. Although channel conflict among bank alliances, ISO
partnering and direct sales marketing may occur, to date NOVA has not
experienced any significant conflict while pursuing its overall sales
strategy.
Acquisition Strategy
The transaction processing industry has undergone rapid consolidation over
the last several years. The costs to convert from paper-based to electronic
processing, merchant requirements for improved customer service, and the
demands for additional customer applications have made it difficult for
community and regional banks and ISOs to remain competitive. Many of these
providers are unwilling or unable to invest the capital required to meet these
demands, and increasingly are exiting the transaction processing business or
otherwise seeking alliance partners to provide transaction processing for
their customers.
Since inception, NOVA has pursued an active acquisition strategy, including
the formation of joint ventures and bank alliances, and has consummated 95
transactions since its inception in 1991, consisting of 89 merchant portfolio
purchases, three operating business acquisitions, two joint ventures and the
First Union Alliance. In 1996, NOVA consummated 13 transactions, which added
approximately $317.2 million in annualized processing volume. Since January
1997, NOVA has consummated 25 transactions, anticipated to add more than $12.0
billion in annualized processing volume.
NOVA intends to continue to pursue purchases of merchant portfolios and the
formation of joint ventures and alliances with other financial institutions as
a principal component of its growth strategy in order to facilitate growth,
expand NOVA's distribution channels and achieve greater economies of scale.
This strategy focuses on the merchant portfolios and related assets of banks
and ISOs that no longer desire or are unable to provide efficient and cost-
effective transaction processing services. NOVA attempts to structure its
acquisitions, joint ventures and alliances both to increase its merchant base
and to expand its distribution and marketing capabilities. NOVA accomplishes
this objective principally by entering into an exclusive marketing agreement
with a bank that sells its merchant portfolio to, or enters into a joint
venture or alliance with, NOVA. The exclusive marketing agreement typically
provides that the bank will refer to NOVA, on an exclusive basis and generally
for a period of five years, any merchants that request or otherwise inquire
about transaction processing services. This agreement generally also provides
that the bank will not compete with NOVA in the provision of transaction
processing services during the term of the agreement and, in some cases, for a
period of up to two years after expiration of the agreement. In addition, NOVA
or the joint venture may continue to maintain on-site transaction processing
salespersons to service existing merchant customers and to market and sell
NOVA's processing services to new merchant customers, often allowing NOVA to
effect a nondisruptive transition of services from the merchants' perspective.
These purchases, joint ventures and alliances offer banks the opportunity to
transfer management and operational responsibility for their merchant
portfolios to NOVA or the joint venture, while continuing to offer transaction
processing services on a co-branded basis in cooperation with NOVA. Banks are
therefore able to view the purchase of their merchant portfolio or the joint
venture as a way to maintain a full-service relationship with their merchant
depositors.
NOVA continues to evaluate potential purchases of merchant portfolios, joint
ventures and alliances and to negotiate with several third parties that may be
seeking purchasers of their merchant portfolios although, except as described
in this Joint Proxy Statement/Prospectus, NOVA currently is not a party to any
agreements or understandings with respect to any such material purchases. In
addition, each of the First Union Alliance and the Crestar marketing
relationship may create additional purchase opportunities for NOVA, as NOVA
and each of
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First Union and Crestar have agreed that NOVA generally may, at its option and
subject to agreement on price and other terms, purchase from First Union or
Crestar any merchant portfolios purchased by First Union or Crestar through
whole-bank or other acquisitions. On April 28, 1998, First Union completed its
merger with CoreStates Financial Corp ("CoreStates") which had an estimated
$3.0 billion merchant transaction processing portfolio. Although NOVA has the
option to purchase the CoreStates transaction portfolio, subject to agreement
on price and other terms, there can be no assurance that NOVA will be able to
purchase the CoreStates transaction processing portfolio on terms acceptable
to NOVA, if at all. Further, there can be no assurance that the First Union
Alliance or the Crestar marketing relationship will provide any other
acquisition opportunities or that any such acquisition opportunities can be
completed on terms favorable to NOVA, if at all.
Risk Management
NOVA views its risk management and fraud avoidance practices as integral to
its operations and overall success because of NOVA'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 NOVA against certain criteria to determine acceptance or
denial. The criteria used by NOVA to determine whether to accept or deny
applications, and the rate structure charged to a particular merchant, 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.
NOVA'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 NOVA's overall program to control fraud and manage
risk and is an example of NOVA's strategy of leveraging available
technologies, and the NOVA Network, to competitive advantage. Specifically,
the NOVA Network allows NOVA to send a file comprised of the day's transaction
activity to its operations center in Knoxville, Tennessee at or prior to the
time it sends that information to Vital Processing Services or Mellon Bank for
merchant accounting. In Knoxville, NOVA runs its proprietary rule-based fraud
detection software program against each of the day's transactions processed on
the NOVA Network, resulting in a computer-generated identification of
potentially fraudulent activity. Once identified, NOVA analyzes and reviews
the suspect transactions to resolve potential problems. This can be
accomplished before funds are transferred to the merchant in payment for such
transactions. If NOVA needs more time to review a transaction or series of
transactions, however, NOVA can specify that the batches containing the
identified transactions be withheld from further processing to allow
additional time to attempt to verify the authenticity of such transactions.
The NOVA Network also allows NOVA to review certain types of transactions on a
real time basis, as they are processed. Consequently, NOVA has the ability to
intercept and review potentially fraudulent transactions and stop payment or
otherwise resolve them, as appropriate, prior to the time when financial
liability for such transactions has shifted to NOVA. Despite NOVA's risk
management and fraud avoidance capabilities, NOVA is unable to identify all
fraudulent transactions resulting in financial exposure to NOVA. Further,
until NOVA converts each newly acquired merchant account to NOVA's merchant
accounting processors, NOVA is unable to apply fully its risk management and
fraud avoidance practices to such merchant accounts.
In connection with portfolio purchases, NOVA reviews any merchant portfolio
that it proposes to purchase. The review process includes analyzing the
composition of the portfolio, applying uniform standards and underwriting
guidelines developed by NOVA to the portfolio and identifying any high-risk
merchants contained in the portfolio. Upon completion of this review, NOVA
determines whether the portfolio meets NOVA's standards and guidelines and is
otherwise a suitable acquisition target. If NOVA decides to proceed with the
proposed purchase, NOVA will focus on the high-risk merchants identified by
its review and attempt to manage the risk associated with such merchants.
Typically, NOVA will seek to exclude high-risk merchants from the portfolio
purchase, require the seller of the merchant portfolio to establish a reserve
account or require the seller of the merchant portfolio to indemnify NOVA for
any liability associated with such merchants. The experience
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accumulated by NOVA during the course of its purchases is constantly drawn
upon to refine NOVA's due diligence procedures and practices, and management
expects to continue to improve its due diligence efforts. Nevertheless, there
can be no assurance that NOVA's due diligence process will consistently
identify all high-risk merchants or that NOVA will otherwise assess properly
the risk attributes of any purchased portfolio.
Merchant Accounting and Clearing Bank Relationships
NOVA relies upon third parties to provide merchant accounting and clearing
bank services to NOVA and its merchant customers. In each of these instances,
NOVA 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 NOVA's
behalf by each of Vital Processing Services and Mellon Bank under agreements
expiring July 1, 2001 and June 30, 1999, respectively. NOVA currently is
developing internal systems to provide its own merchant accounting services.
Clearing Bank Arrangements. NOVA'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, NOVA collects applicable merchant discount and
other fees from each merchant for transactions effected and services provided
during the preceding month. NOVA, 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, Mellon Bank, Firstar, KeyBank
and FUNB, which serve as member clearing banks for NOVA, NOVA is registered
with VISA and MasterCard as a certified processor and member service provider.
While NOVA's registration as a certified processor and member service provider
is necessary in order for NOVA to process VISA and MasterCard transactions,
management believes that the revocation of such registrations is unlikely and
inconsistent to the objectives of both the credit card associations and the
clearing banks because of the adverse effect such action would have on the
continuity of credit card acceptance.
Regions Bank and Mellon Bank clear most of NOVA's transactions while Bank of
the West clears only those transactions originating from merchants acquired by
NOVA as part of the October 1993 purchase of the merchant portfolio of Bank of
the West. Pursuant to the First Union Alliance, FUNB, a subsidiary of First
Union, acts as the exclusive clearing and settlement bank, subject to certain
exceptions and conditions, for merchant customers of First Union. While NOVA's
Depositary and Settlement Agreement with First Union does contain certain
conditions relative to NOVA's ability to transfer clearing and settlement
functions for the merchant customers of First Union away from First Union,
NOVA's agreements with its principal member clearing banks generally provide
that the merchant relationship is controlled by NOVA. Accordingly, NOVA
generally is not obligated to continue to utilize the clearing services of
these banks, and may transfer the clearing functions to another principal
member clearing bank (i.e., any member of the VISA and MasterCard
associations), although there can be no assurance that NOVA would be able to
find a financial institution to sponsor it on terms acceptable to NOVA. See
"--Certain Relationships and Related Transactions Regarding NOVA--Transactions
Related to the First Union Alliance."
Customer Service and Support
NOVA is dedicated to providing reliable and effective customer service and
support to its merchant customers. The information access and retrieval
capabilities of networked systems, where real-time information is available to
any of NOVA's customer service representatives, allow NOVA to provide a level
of customer service and support to small- to medium-sized merchants
historically available only to much larger merchants. For example, any of
NOVA's customer service representatives may access, on a real-time basis, all
of the relevant information pertaining to any particular merchant that may
call and ask for assistance. NOVA also has
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implemented an on-line, informational database that provides NOVA's customer
service representatives user-friendly access to an array of additional
information relative to NOVA's services, products and systems, which often
allows NOVA to more quickly and effectively resolve customer service
inquiries.
NOVA maintains a 24-hours-a-day, seven-days-a-week helpline at its
operations center in Knoxville, Tennessee. NOVA measures the efficiency of its
customer service through certain quantitative data such as the number of rings
prior to operator pick-up, the number of abandoned calls, the number of calls
per day and the number of calls per customer service representative. NOVA has
developed comprehensive programs and procedures for training its approximately
160 full-time customer service representatives to assist NOVA's merchant
clients in a timely and efficient manner with any problems, issues or concerns
they may have. Management is dedicated to providing outstanding customer
service and support and continually reviews its policies and procedures in an
effort to improve these services.
Proprietary Rights
NOVA 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. NOVA regards its
proprietary software as protected by trade secret and copyright laws of
general applicability. NOVA 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 NOVA's
software or to otherwise obtain or use other information NOVA regards as
proprietary. While NOVA'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 NOVA's success than other factors such as the knowledge,
ability and experience of NOVA'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 NOVA's software application products
infringe or may infringe the proprietary rights of such entities. These third
parties may seek damages from NOVA as a result of such alleged infringement,
demand that NOVA license certain proprietary rights from them or otherwise
demand that NOVA 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 NOVA's financial condition and results of
operations.
NOVA 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. Management believes that it will be
necessary to continue this practice in the future, although there can be no
assurance that NOVA will be able to do so on favorable terms or at all.
NOVA'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, however, NOVA only has sought to have "NOVA"
and "NOVA Perks" registered on the federal level. NOVA's application to
register "NOVA" was refused and allowed to lapse without contesting the
refusal.
Competition and Consolidation
The market for providing credit, charge and debit card transaction services
to the merchant customers served by NOVA is highly competitive. The level of
competitiveness has increased significantly since NOVA's inception and this
trend is expected to continue. NOVA competes for its merchant customers on the
basis of price, the availability of related products and services, the quality
of customer service and support, and
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transaction processing speed, quality and reliability. Several of NOVA's
competitors and potential competitors have greater financial, technological,
marketing and personnel resources than NOVA, and there can be no assurance
that NOVA will continue to be able to compete successfully with such entities.
According to industry sources, the ten largest bankcard processors accounted
for approximately 85% of the total charge volume processed in 1997. The
largest bankcard processor accounted for approximately 38% of the total charge
volume processed in 1997, and NOVA processed approximately 4.2% of the total
charge volume for the same period after giving pro forma effect to NOVA's
recent transactions discussed under "--Business of NOVA--Recent Transactions."
NOVA believes that it has reached a sufficient size whereby economies of
scale allow it to offer competitive pricing. However, certain of NOVA's
competitors may have lower costs which could potentially give them an
advantage. As a result of its experience in payment processing, NOVA has been
able to develop operating efficiencies that NOVA believes allow it to
competitively bid for new business. In addition, NOVA has continually made
technological improvements and is thus able to respond to the unique needs of
merchants in various industries. Management believes that the quality, speed
and reliability of the NOVA Network and the breadth, flexibility and user-
friendliness of its software application products and services constitute a
competitive advantage. NOVA intends to maintain its strategy of focusing on
small- to medium-sized merchants because management believes these merchants
somewhat less price sensitive than larger accounts.
NOVA 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 NOVA'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 banks that compete with
NOVA or banks that have a relationship or alliance with one or more
competitors of NOVA, thus potentially depriving NOVA of acquisition
opportunities. The First Union Alliance and the Crestar marketing
relationship, however, may create additional acquisition opportunities for
NOVA, as NOVA and each of First Union and Crestar have agreed that NOVA
generally may, at its option and subject to agreement on price and other
terms, purchase from First Union or Crestar any merchant portfolios acquired
by First Union or Crestar through whole-bank or other acquisitions. On April
28, 1998, First Union completed its merger with CoreStates, which had an
estimated $3.0 billion merchant transaction processing portfolio. Although
NOVA has the option to purchase the CoreStates transaction portfolio, subject
to agreement on price and other terms, there can be no assurance that NOVA
will be able to purchase the CoreStates transaction processing portfolio on
terms acceptable to NOVA, if at all. Further, there can be no assurance that
the First Union Alliance or the Crestar marketing relationship will provide
any other acquisition opportunities or that any such acquisition opportunities
can be completed on terms favorable to NOVA, if at all. See "--Certain
Relationships and Related Transactions Regarding NOVA--Transactions Related to
the First Union Alliance."
Banking Regulation
As a result of First Union's ownership interest in NOVA, NOVA has become
subject to the Banking Laws. For example, NOVA is now subject to the
supervision and examination of the Office of the Comptroller of the Currency
(the "OCC"), one of the principal banking regulatory bodies (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 KeyBank Joint Venture, the First Union Alliance and the
Firstar Joint Venture and the terms thereof, and the OCC's written approval
was required in order to consummate those transactions. To facilitate First
Union's compliance with the Banking Laws, and to allow First Union to obtain
any required consents or approvals, NOVA has agreed to notify, and obtain
approval from, First Union before NOVA enters into any business activities
substantially different from the business activities NOVA currently conducts.
Pursuant to the KeyBank Joint Venture and the Firstar Joint Venture and to the
extent required by the Banking
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Laws, NOVA may be required to take certain measures in the event either NOVA
or the Limited Liability Companies enter into or acquire any other entity
which is engaged in a business that is substantially different from the
business activities NOVA, or the Limited Liability Companies, currently
conduct. Such measures may include applying for any required regulatory
consents, or assisting either KeyBank, Firstar, or the Limited Liability
Companies, as the case may be, to prepare such applications. If the required
consents and approvals are not received, NOVA may not engage in the new
business activity. See "Risk Factors--Banking and Territorial Restrictions"
and "Certain Relationships and Related Transactions Regarding NOVA--
Transactions Related to the First Union Alliance."
Employees
At June 30, 1998, NOVA had 696 full-time employees, of which 220 were in
sales and marketing, 363 were in operations and 113 were corporate and general
administrative employees. Of these employees, 236 were based in Atlanta,
Georgia at NOVA's principal executive offices, 308 were based in Knoxville,
Tennessee at NOVA's operations center, nine were based in Arvada, Colorado,
and ten were based in Jacksonville, Florida in connection with the First Union
Alliance. NOVA's 220 sales and marketing employees include 133 salespersons
located throughout the United States, of whom 60 were based at branches of
banks with which NOVA has formed Acquisition Alliances. None of NOVA's
employees are represented by a collective bargaining agreement nor has NOVA
ever experienced any work stoppage. Management believes that NOVA's
relationship with its employees is good.
Properties
NOVA'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. NOVA relocated its principal
executive offices in October 1996 to allow for NOVA's continued growth. In
connection with this relocation, NOVA transferred certain of its operational
functions, including the conversion management functions, from Knoxville,
Tennessee and Boulder, Colorado to Atlanta. NOVA's current 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. NOVA leases an additional 9,000 square feet adjacent
to the operations center which houses files and deployment and programming
functions. Certain of NOVA's operations are conducted in facilities located in
Jacksonville, Florida and Arvada, Colorado consisting of approximately 9,360
and 3,040 square feet of space, respectively. The Jacksonville space is being
leased pursuant to an agreement scheduled to expire January 31, 2000. The
Arvada space is leased on a month to month basis. Certain of NOVA's employees
also occupy other office facilities at various locations under leases and
various other agreements, which require aggregate payments that are not
material.
In March 1998, NOVA Services Limited Partnership, a wholly-owned subsidiary
of NOVA, purchased a 112,000 square-foot building in Knoxville, Tennessee for
$2.7 million. Prior to NOVA's purchase of the property, the facility was a
retail shopping center. NOVA is in the process of relocating its current
Knoxville operations center to approximately 84,000 square feet of space in
the newly acquired facility. The remaining 28,000 square feet will be reserved
for future expansion. The customer service function moved to the new facility
in July 1998 and occupies approximately one-third of the space. NOVA intends
to relocate its remaining Knoxville operations by September 1998.
Subsequently, the deployment and programming functions will be relocated from
the adjacent facilities to the former operations center facility, and the
adjacent facilities will be reserved for future expansion or sub-lease to
third parties.
Legal Proceedings
NOVA 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 such matters will have a
material adverse effect on the financial condition of NOVA.
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MANAGEMENT OF NOVA
Directors, Executive Officers and Key Employees
The following table sets forth certain information regarding the directors
and executive officers of NOVA. For a discussion concerning the Board of
Directors and management following the Merger, see "Proposal 1--The Proposed
Merger--Management and Operations After the Merger."
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Edward Grzedzinski...... Director, Chairman of the Board, President and Chief
43 Executive Officer
James M. Bahin.......... 53 Director, Vice Chairman of the Board, Chief Financial
Officer and Secretary
Pamela A. Joseph........ 39 Executive Vice President and Chief Information Officer
John M. Perry........... 41 Executive Vice President--Sales and Marketing
Rebecca L. Powell....... 46 Executive Vice President--Merchant Services and Operations
Charles T. Cannada(1)... 39 Director
Dr. James E. Carnes(1).. 58 Director
U. Bertram Ellis(1)(2).. 44 Director
Dr. Henry Kressel(2).... 64 Director
Joseph P. Landy......... 37 Director
Maurice F. Terbrueggen,
Jr. ................... 52 Director
Stephen E. Wall......... 56 Director
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Mr. Grzedzinski has served with NOVA or its predecessor since February 1991,
most recently as a director, Chairman of the Board, President and Chief
Executive Officer. He co-founded NOVA's subsidiary and predecessor, NOVA
Information Systems, Inc., as its Chief Operating Officer in 1991 and was
named Chief Executive Officer in September 1995. From October 1990 to February
1991, Mr. Grzedzinski served as an officer of Phoenix Consulting Group, Inc.,
a transaction processing consulting company. Mr. Grzedzinski has over 12 years
experience in the bankcard industry.
Mr. Bahin has served with NOVA or its predecessor since January 1992, most
recently as a director, Vice Chairman of the Board, Chief Financial Officer
and Secretary. Prior to joining NOVA, Mr. Bahin served in various officer
capacities with Fuqua Industries, Inc., a diversified manufacturing and
service company, most recently as Senior Vice President of Operations. Mr.
Bahin has over 25 years of financial and management experience.
Ms. Joseph has served with NOVA or its predecessor since July 1994, most
recently as Executive Vice President and Chief Information Officer. Prior to
joining NOVA, Ms. Joseph served for over two years as Director, New Market
Development, for VISA and for eight years in various management positions at
Wells Fargo Bank.
Mr. Perry joined NOVA in April 1996 as Executive Vice President, Sales and
Marketing. Before coming to NOVA, he served as Executive Vice President and
Chief Operating Officer of First Data Corporation's Client Merchant Services
Division. For over seven years prior to that, he held various executive level
management, sales and marketing positions with Card Establishment Services,
Harbridge Merchant Services, VISA USA and Wells Fargo Bank. From 1980 to 1988,
Mr. Perry served in the United States Army, finishing his career as a captain.
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Ms. Powell has served with NOVA or its predecessor since February 1991, most
recently as Executive Vice President, Merchant Services and Operations. Prior
to joining NOVA, Ms. Powell served for 20 years in various management
positions with National Data Corporation.
Mr. Cannada has served as a director with NOVA or its predecessor since
January 1995. Mr. Cannada has served with WorldCom, a publicly-held global
telecommunications company, since October 1989, most recently as Senior Vice
President.
Dr. Carnes has served as a director of NOVA since November 1997. Dr. Carnes
is the President and Chief Executive Officer of Sarnoff Corporation, a
contract research and development company in the electronics and information
technology industry, and has held this position since 1990. He has served with
Sarnoff Corporation, and its predecessor, since 1969.
Mr. Ellis has served as a director of NOVA since October 1996. Mr. Ellis is
the Chairman and Chief Executive Officer of IXL Holdings, Inc., the parent
company of IXL Inc., a full-service provider of interactive communication
services, and has held this position since April 1996. Prior to joining IXL
Holdings, Mr. Ellis founded and served as the President and Chief Executive
Officer of Ellis Communications, a privately-held owner and operator of
television and radio stations, from 1993 to 1996. Prior to founding Ellis
Communications, Mr. Ellis served from 1986 to 1992 in the capacities of
President, Chief Executive Officer and Chief Operating Officer of Act III
Broadcasting, a television broadcast group. From 1992 to 1993, Mr. Ellis
served as the Chief Executive Officer of American Innovations, Inc., which
filed a petition for relief under Chapter 11 of the U.S. Bankruptcy Code in
1993. Mr. Ellis is a director of OrthAlliance, a publicly-held provider of
orthodontic practice management services.
Dr. Kressel has served as a director of NOVA or its predecessor since
November 1991. Dr. Kressel has served with E. M. Warburg, Pincus & Co., LLC,
an investment firm, since 1983, most recently as Managing Director. Dr.
Kressel serves as a director of Level One Communications, Inc. and Zilog,
Inc., each a publicly-held semiconductor company, Maxis Inc., a publicly-held
software development company, TresCom International, Inc., a publicly-held
long-distance telephone company, IA Corporation, a publicly-held software
development company, and other privately-held companies.
Mr. Landy has served as a director of NOVA or its predecessor since August
1994. Mr. Landy has served with E. M. Warburg, Pincus & Co., LLC, an
investment firm, since 1985, most recently as Managing Director. Mr. Landy
serves as a director of Level One Communications, Inc., a publicly-held
semiconductor company, CN Biosciences, Inc., a publicly-held manufacturer of
specialty chemical reagents and pharmaceutical raw materials, Indus
International, a publicly-held software development company, and other
privately-held companies.
Mr. Terbrueggen has served as a director of NOVA or its predecessor since
January 1996. Mr. Terbrueggen has served with First Union, a bank holding
company, since July 1973, most recently as Senior Vice President and Division
Manager of the First Union merchant acquiring business. Mr. Terbrueggen has
over 29 years of management experience in the financial services industry,
including over 24 years in the bankcard industry.
Mr. Wall has been a director of NOVA since May 1998. He has served with
KeyCorp (a bank holding company) and its predecessors since 1970, most
recently as Executive Vice President. Mr. Wall serves as a director of
MasterCard International, a global payment system comprised of financial
institution members, and Electronic Payment Services, Inc., a privately-held
electronic transaction processor. Mr. Wall has over 30 years experience in the
financial services industry.
NOVA's Articles of Incorporation provide that the Board of Directors will
consist of not less than seven persons, with all directors to be elected by
the holders of shares of NOVA's Voting Stock, as defined below, at the annual
meeting of shareholders. Such directors shall serve until the election of
their successors at the next annual meeting of shareholders. NOVA's Articles
of Incorporation authorize cumulative voting by holders of NOVA's Stock in the
election of NOVA's directors. NOVA's Articles of Incorporation further provide
that no
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bylaw, resolution, written consent or amendment to the Articles of
Incorporation purporting to create a classified or "staggered" Board of
Directors or requiring prior notice or qualification of members for director
shall be effective.
No family relationship exists among any of the directors and executive
officers of NOVA.
The Board of Directors has established an Audit Committee and a Compensation
Committee. The functions of the Audit Committee include recommending to the
Board of Directors the retention of independent public auditors, reviewing the
scope of the annual audit undertaken by NOVA's independent public auditors and
the progress and results of their work, and reviewing the financial statements
of NOVA and its internal accounting and auditing procedures. The functions of
the Compensation Committee include reviewing and approving executive
compensation policies and practices, reviewing salaries and bonuses for
certain officers of NOVA, administering NOVA's 1991 Stock Option Plan and the
Plan, and considering other matters referred to the Committee by the Board.
The Compensation Committee has full power to take any actions required or
permitted to be taken under such plans.
Executive Compensation
The following table summarizes the compensation awarded or paid for the
fiscal years ended December 31, 1996 and 1997 to NOVA's Chief Executive
Officer and the four other most highly compensated executive officers whose
total annual salary and bonus for the fiscal year ended December 31, 1997
exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------- -------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) COMPENSATION(3) OPTIONS(#)(4) COMPENSATION
- --------------------------- ---- --------- -------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Edward Grzedzinski...... 1997 $298,077 $156,000 $635 50,000 $ --
Chairman, President and 1996 249,519 125,000 190 -- --
Chief Executive Officer
James M. Bahin.......... 1997 $226,154 $116,480 $-- 50,000 --
Vice Chairman, Chief 1996 200,000 102,000 -- -- --
Financial Officer and
Secretary
Pamela A. Joseph........ 1997 $127,116 $ 63,750 $-- 50,000 $ --
Executive Vice 1996 100,231 34,500 17 16,500 5,126(5)
President and
Chief Information
Officer
John M. Perry........... 1997 $202,308 $104,000 $767 75,000 $ --
Executive Vice 1996 121,154 90,000 -- 79,500 84,915(6)
President,
Sales and Marketing
Rebecca L. Powell....... 1997 $110,192 $ 38,500 $811 50,000 $ --
Executive Vice 1996 95,000 25,000 337 15,500 --
President, Merchant
Services and Operations
</TABLE>
- --------
(1) Amounts shown include cash compensation earned and received by the Named
Executive Officer as well as amounts earned but deferred at the election
of the officer pursuant to the NOVA Information Systems 401(k) and Profit
Sharing Plan.
(2) Amounts shown include bonus compensation attributable to the year shown,
although in certain cases such amounts were paid in the following year.
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(3) Represents employer matching contributions to the Named Executive
Officer's account pursuant to the NOVA Information Systems 401(k) and
Profit Sharing Plan.
(4) Represents employee stock options granted to the Named Executive Officer
for the fiscal years ended December 31, 1996 and 1997. NOVA has not issued
any stock appreciation rights.
(5) Represents the reimbursement of additional income taxes attributable to
the relocation of Ms. Joseph to Atlanta, Georgia in connection with Ms.
Joseph's joining NOVA in 1994.
(6) Represents reimbursed expenses attributable to the relocation of Mr. Perry
to Atlanta, Georgia in connection with Mr. Perry's joining NOVA in 1996.
Employment Agreements
Messrs. Grzedzinski and Bahin entered into written employment agreements
with NOVA dated October 27, 1995. John M. Perry, Pamela A. Joseph and Rebecca
L. Powell entered into written employment agreements with NOVA dated July 31,
1998, which agreements were approved by NOVA's Board of Directors at its May
5, 1998 meeting and which will be deemed effective March 1, 1998 (the
employment agreements with each of Messrs. Grzedzinski, Bahin and Perry, and
Ms. Joseph and Ms. Powell, are sometimes collectively referred to herein as
the "Existing Employment Agreements"). Pursuant to the Existing Employment
Agreements, Mr. Grzedzinski is employed by NOVA as President and Chief
Executive Officer and serves as Chairman of the Board of Directors of NOVA;
Mr. Bahin is employed by NOVA as Chief Financial Officer and Secretary and
serves as Vice Chairman of the Board of Directors of NOVA; Mr. Perry is
employed by NOVA as Executive Vice President, Sales and Marketing; Ms. Joseph
is employed by NOVA as Executive Vice President and Chief Information Officer;
and Ms. Powell is employed by NOVA as Executive Vice President, Operations.
Currently, Messrs. Grzedzinski, Bahin and Perry, and Ms. Joseph and Ms.
Powell, receive an annual base salary of $354,000, $257,600, $230,000,
$156,250, and $143,000, respectively, as may be adjusted from time to time by
the Board of Directors (with respect to Messrs. Grzedzinski and Bahin) and the
Chief Executive Officer (with respect to Mr. Perry, Ms. Joseph, and Ms.
Powell). In addition, Messrs. Grzedzinski, Bahin and Perry, and Ms. Joseph and
Ms. Powell, each has the opportunity to earn a percentage of his or her base
salary as a cash bonus tied to the performance of NOVA. The Existing
Employment Agreements provide that each employee is entitled to participate in
all of NOVA's employee benefit plans and programs, including any stock option
plans adopted by the Board of Directors of NOVA. Each of the Existing
Employment Agreements is for an initial two-year term and automatically renews
for successive two-year terms unless either party provides written notice to
the other party at least 180 days before renewal.
Upon termination of employment other than as a result of the Termination
Exceptions, as defined below, each Existing Employment Agreement provides for
cash severance compensation equal to two times the employee's annual base
salary to be paid in 24 equal monthly payments. In addition, stock options
granted to the employee as of the effective date of the Existing Employment
Agreement will become vested and immediately exercisable. Such severance
compensation is triggered by, among other things, the occurrence of a "change
in control" (as defined in the Existing Employment Agreements), a material
diminution in the employee's duties and responsibilities, or the failure of
NOVA to automatically renew the Existing Employment Agreement. The Termination
Exceptions consist of termination for cause, nonrenewal by the employee of his
or her Existing Employment Agreement, or voluntary termination of employment
by the employee. In return for such severance compensation, Messrs.
Grzedzinski, Bahin and Perry, and Ms. Joseph and Ms. Powell, each has agreed,
for a period of two years after termination of employment, (i) not to use or
disclose any confidential information of NOVA, (ii) not to solicit the
customers or employees of NOVA, and (iii) not to become employed by, or to
have a financial interest in, any other business which will compete with NOVA
in providing credit card and debit card transaction processing services within
the United States. In the event that the employment of Messrs. Grzedzinski,
Bahin or Perry or Ms. Joseph or Ms. Powell terminates as a result of one of
the Termination Exceptions, NOVA has the option of requiring the employee to
comply with the non-disclosure and non-competition provisions of his Existing
Employment Agreement for a period of either one year or two years, upon
payment of an amount equal to one year's base salary or two years' base
salary, respectively.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table summarizes (i) the aggregate number of options exercised
by the Named Executive Officers during the year ended December 31, 1997, and
(ii) the aggregate number and value of options held by the Named Executive
Officers at December 31, 1997. NOVA has not issued any stock appreciation
rights.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
VALUE REALIZED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES (MARKET PRICE AT OPTIONS AT FISCAL YEAR END(#) AT FISCAL YEAR END($)(1)
ACQUIRED ON EXERCISE LESS -------------------------------- -------------------------
NAME EXERCISE(#) EXERCISE PRICE)($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------------ -------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Edward Grzedzinski...... -0- $ -0- 133,300 226,031 $3,175,206 $4,761,808
James M. Bahin.......... -0- -0- 140,979 224,593 3,358,120 4,727,555
Pamela A. Joseph........ 13,000 224,885 35,594 97,355 774,592 1,476,974
John M. Perry........... -0- -0- 19,875 134,625 119,531 1,211,719
Rebecca L. Powell....... 17,236 383,422 750 79,197 4,688 1,057,628
</TABLE>
- --------
(1) Calculated based upon the closing sale price per share of the NOVA Stock
of $25.00 on the NYSE on December 31, 1997.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
Options were granted to each of the Named Executive Officers during the
fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM
OPTIONS EMPLOYEES BASE PRICE EXPIRATION -----------------------
NAME GRANTED(#)($) IN FISCAL YEAR(2) ($/SH)(3) DATE 5%($) 10%($)
---- ------------- ------------------ ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Edward Grzedzinski...... 50,000 9.92% $13.625 3/18/2007 $ 428,434 $ 1,085,737
James M. Bahin.......... 50,000 9.92% 13.625 3/18/2007 428,434 1,085,737
Pamela A. Joseph........ 50,000 9.92% 13.625 3/18/2007 428,434 1,085,737
John M. Perry........... 75,000 14.88% 13.625 3/18/2007 642,652 1,628,600
Rebecca L. Powell....... 50,000 9.92% 13.625 3/18/2007 428,434 1,085,737
</TABLE>
STOCK OPTION GRANTS IN LAST FISCAL YEAR
- --------
(1) These options were granted pursuant to the 1996 Option Plan "at market" on
the date of grant and first become exercisable on the first anniversary of
the grant date, with 25% of the underlying shares becoming exercisable at
that time, an additional 25% of the option shares becoming exercisable on
each successive anniversary date, and full vesting on the fourth
anniversary date. Under the terms of the 1996 Option Plan, the
Compensation Committee retains discretion, subject to plan limits, to
modify the terms of outstanding options and to reprice the options.
(2) Represents the percentage of total options granted to all employees in
1997.
(3) The exercise price and tax withholding obligations, related to exercise,
may be paid by delivery of already owned shares or by offset of the
underlying shares, subject to certain conditions.
DIRECTOR COMPENSATION
Directors of NOVA, other than employees of NOVA (or its subsidiaries) and
director representatives of Warburg, First Union and WorldCom, receive a
retainer of $2,000 per month for service as a director. Additionally, such
directors are entitled to receive $1,000 for attendance and participation at
each Board of
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Directors meeting, and $500 for attendance and participation in each committee
meeting if such committee meeting is not held on the same day as a Board of
Directors meeting. Directors receive reimbursement for their expenses incurred
in connection with travel to and from a meeting.
The NOVA Corporation 1996 Directors Stock Option Plan (the "Directors Plan")
provides for stock options to be granted to outside directors of NOVA other
than the director representatives of Warburg, First Union and WorldCom, as
partial compensation for their service on the Board of Directors. The number
of options to be granted to each such director is determined as follows: (i)
upon an eligible director's initial election to the Board, an option to
purchase 2,000 shares of NOVA Stock; and (ii) upon beginning any term of
service as a director, an option to purchase a number of shares equal to a
fraction, the numerator of which is 2,000 multiplied by the number of full or
partial months to be served in such term, and the denominator of which shall
be 12. Pursuant to the Directors Plan, NOVA has granted to each of Mr. Ellis,
Dr. Carnes and Mr. Wall options to purchase 7,000, 5,000 and 2,000 shares of
NOVA Stock, respectively. The Board of Directors administers the Directors
Plan subject to certain limitations.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS REGARDING NOVA
Transactions with WorldCom
On February 28, 1996, NOVA and WorldCom entered into an Agreement (the
"WorldCom Agreement"), effective as of March 1, 1996, pursuant to which
WorldCom provides long-distance and local telecommunications access, as well
as technical support, to NOVA in connection with the NOVA Network. The
WorldCom Agreement was renegotiated recently and expires July 1, 2001, subject
to earlier termination by NOVA in the event of quality deficiencies in
WorldCom's service. NOVA paid WorldCom an aggregate of $606,000, $901,000,
$1.2 million, $1.8 million and $2.7 million during the fiscal years ended
February 28, 1994 and 1995, the ten-month period ended December 31, 1995 and
the years ended December 31, 1996 and 1997, respectively, for these services.
Transactions Related to the First Union Alliance
In December 1995, NOVA and First Union consummated the First Union Alliance,
pursuant to which First Union contributed its transaction processing assets,
including the transaction processing assets of First Fidelity Bancorporation
and its banking subsidiaries (which merged with and into First Union effective
January 1, 1996), to NOVA. Concurrently, the then current shareholders of
NOVA's predecessor (the "Original Shareholders"), contributed to NOVA all of
the shares of capital stock of NOVA's predecessor owned by them together with
all of their rights to acquire shares of capital stock of NOVA's predecessor,
causing NOVA's predecessor to become a wholly-owned subsidiary of NOVA. In
exchange for their respective contributions to NOVA, First Union received
9,149,209 shares of NOVA Stock, while the Original Shareholders collectively
received an aggregate of 2,228,911 shares of NOVA Stock, together with the
right to acquire (through the exercise of options and the conversion of
preferred stock) an aggregate of 14,762,487 shares of NOVA Stock.
In connection with the First Union Alliance, NOVA and First Union entered
into a Marketing Support Agreement which provides, subject to certain
exceptions, that the bank affiliates of First Union, together with and through
each of the more than 2,000 First Union branches, shall actively market NOVA's
transaction processing services to merchants and shall refer merchants that
request transaction processing services exclusively to NOVA. The marketing
services and assistance provided by the bank affiliates of First Union include
the distribution by each bank affiliate of First Union of promotional and
informational materials and supplies relating to NOVA's transaction processing
services, and such other services and assistance as may mutually be agreed
upon by First Union and NOVA. The Marketing Support Agreement also provides
that NOVA will, when feasible, assist First Union in developing new products
or services relating to transaction processing or in otherwise supporting new
business ventures. The Marketing Support Agreement also generally provides
that NOVA may not, without the prior consent of First Union, enter into
certain marketing agreements with third parties generally located in specified
areas where First Union currently maintains a significant banking presence.
The Marketing Support Agreement expires January 31, 2003.
NOVA and First Union also entered into a Depositary and Settlement Agreement
under which a subsidiary of First Union generally will act as the exclusive
clearing and settlement bank for transactions originating from
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merchants maintaining a depository account with First Union for receipt of
payment of cleared transactions. The Depositary and Settlement Agreement
provides, however, that NOVA may solicit from one or more other member
clearing banks proposals to provide clearing and settlement services to such
merchants, although First Union will have the opportunity to match the terms
and conditions of any such third party proposal. The Depositary and Settlement
Agreement expires January 31, 2003.
Concurrently with the consummation of the First Union Alliance, NOVA, its
shareholders and First Union entered into a Shareholders Agreement which,
among other things, provides that NOVA may, at its option and subject to
agreement on price and other terms, purchase from First Union any merchant
portfolios acquired by First Union through whole-bank or other acquisitions.
The Shareholders Agreement also imposes restrictions on NOVA's ability to
engage in certain new business activities or proceed with acquisitions of
entities engaged in business activities substantially different from those
currently conducted by NOVA. Accordingly, NOVA may be limited in its ability
to seek or take advantage of certain business opportunities or relationships
which differ substantially from the business activities NOVA currently
conducts.
Transactions With KeyBank
On January 21, 1998, NOVA consummated the KeyBank Joint Venture with KeyBank
pursuant to which NOVA and KeyBank formed Key Merchant Services. Key Merchant
Services is jointly owned by NOVA and a wholly-owned subsidiary of KeyBank.
Stephen E. Wall, a director of NOVA and a NOVA Designated Director, is an
executive officer of KeyBank. For more information concerning the KeyBank
Joint Venture, see "--Business of NOVA--Recent Transactions."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth certain information regarding the beneficial
ownership of the NOVA Stock as of August 20, 1998 of (i) each person or entity
known by NOVA to own beneficially 5% or more of the NOVA Stock, (ii) each
director of NOVA, (iii) each Named Executive Officer, and (iv) all directors
and executive officers of NOVA as a group. Except as otherwise indicated, the
persons or entities listed below have sole voting and investment power with
respect to all shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
---------------------
NAME AND POSITION NUMBER(1) PERCENT(2)
----------------- ---------- ----------
<S> <C> <C>
PRINCIPAL SHAREHOLDERS
Warburg, Pincus Investors, L.P.(3)................... 8,853,182 25.8 %
First Union Corporation(4)........................... 6,824,470 19.9
WorldCom, Inc.(5).................................... 1,893,379 5.5
NAMED EXECUTIVE OFFICERS AND DIRECTORS
Edward Grzedzinski(6)................................ 848,971 1.9
James M. Bahin(7).................................... 718,383 1.5
Pamela A. Joseph(8).................................. 226,123 *
John M. Perry(9)..................................... 254,500 *
Rebecca L. Powell(10)................................ 187,183 *
Charles T. Cannada(5)................................ 1,893,379 5.5
Dr. James E. Carnes(11).............................. 5,200 *
U. Bertram Ellis(12)................................. 7,000 *
Dr. Henry Kressel(3)................................. 8,853,182 25.8
Joseph P. Landy(3)................................... 8,853,182 25.8
Maurice F. Terbrueggen, Jr.(4)....................... 6,824,470 19.9
Stephen E. Wall(13).................................. 3,000 *
All executive officers and directors as a group (12
persons)(14)........................................ 19,821,391 54.2
</TABLE>
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<PAGE>
- --------
* Less than 1% of the outstanding NOVA Stock.
(1) Includes shares of NOVA Stock which the named shareholder has a right to
acquire upon the exercise of vested and nonvested options.
(2) Includes shares of NOVA Stock which the named shareholder has a right to
acquire, upon the exercise of options, within 60 days of the date of this
Joint Proxy Statement/Prospectus but not options that become exercisable
after such date. Such shares receivable upon the exercise of options are
deemed outstanding for purposes of completing the percentage ownership of
the person holding such shares, but are not deemed outstanding for
purposes of computing the percentage ownership of any other person shown
in the table.
(3) The shares shown are owned by Warburg. The sole general partner of
Warburg is Warburg, Pincus & Co., a New York general partnership ("WP").
E. M. Warburg, Pincus & Co., LLC, a New York limited liability company
("EMW LLC"), manages Warburg. The members of EMW LLC are substantially
the same as the partners of WP. Lionel I. Pincus is the managing partner
of WP and the managing member of EMW LLC and may be deemed to control
both WP and EMW LLC. WP, as the sole general partner of Warburg, has a
20% interest in the profits of Warburg. Dr. Kressel and Mr. Landy,
directors of NOVA, are Managing Directors and members of EMW LLC and
general partners of WP. As such, Dr. Kressel and Mr. Landy may be deemed
to have an indirect pecuniary interest (within the meaning of Rule 16a-1
under the Exchange Act) in an indeterminate portion of the shares
beneficially owned by Warburg and WP. Dr. Kressel and Mr. Landy disclaim
beneficial ownership of the shares. The named shareholders' address is
477 Lexington Avenue, 10th Floor, New York, New York 10017.
(4) The shares indicated are owned beneficially by indirect, wholly-owned
subsidiaries of First Union. Pursuant to the terms of a voting agreement
among FUNB and such subsidiaries, FUNB holds the proxy for each of such
subsidiaries with respect to such shares. Accordingly, each of First
Union and FUNB may be deemed to be the beneficial owner of all such
shares within the meaning of Rule 13d-3 under the Exchange Act. Such
shares also may be attributed to Mr. Terbrueggen, a director of NOVA, who
serves as Senior Vice President of First Union. Mr. Terbrueggen disclaims
beneficial ownership of the shares. First Union's and Mr. Terbrueggen's
address is Two First Union Center, 301 South College Street, Charlotte,
North Carolina 28288.
(5) The shares shown are owned by WorldCom. Mr. Cannada may be deemed to
beneficially own the shares within the meaning of Rule 13d-3 under the
Exchange Act due to his affiliation with WorldCom as a Senior Vice
President. Mr. Cannada disclaims beneficial ownership of these shares.
Mr. Cannada's and WorldCom's address is 515 East Amite, Jackson,
Mississippi 39201.
(6) Includes 25,000 shares held in the name of Mr. Grzedzinski's spouse, 50
shares held by his spouse as custodian for a minor child, and 50 shares
held by Mr. Grzedzinski's daughter. Also includes 262,618 shares that Mr.
Grzedzinski may acquire, upon the exercise of options, within 60 days of
the date of this Joint Proxy Statement/Prospectus, and 196,713 shares
that Mr. Grzedzinski may acquire upon the exercise of options which will
not be exercisable within the aforementioned 60 day period.
(7) Includes 268,859 shares that Mr. Bahin may acquire, upon the exercise of
options, within 60 days of the date of this Joint Proxy
Statement/Prospectus, and 196,713 shares that Mr. Bahin may acquire upon
the exercise of options which will not be exercisable within the
aforementioned 60 day period.
(8) Includes 19,750 shares that Ms. Joseph may acquire, upon the exercise of
options, within 60 days of the date of this Joint Proxy
Statement/Prospectus, and 164,240 shares that Ms. Joseph may acquire upon
the exercise of options which will not be exercisable within the
aforementioned 60 day period.
(9) Includes 57,375 shares that Mr. Perry may acquire, upon the exercise of
options, within 60 days of the date of this Joint Proxy
Statement/Prospectus, and 197,125 shares that Mr. Perry may acquire upon
the exercise of options which will not be exercisable within the
aforementioned 60 day period.
(10) Includes 153,506 shares that Ms. Powell may acquire upon the exercise of
options which will not be exercisable within 60 days of the date of this
Joint Proxy Statement/Prospectus.
(11) Includes 5,000 shares that Dr. Carnes may acquire upon the exercise of
options which will not be exercisable within 60 days of the date of this
Joint Proxy Statement/Prospectus.
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(12) Includes 2,000 shares that Mr. Ellis may acquire, upon the exercise of
options, within 60 days of the date of this Joint Proxy
Statement/Prospectus, and 5,000 shares that Mr. Ellis may acquire upon
the exercise of options which will not be exercisable within the
aforementioned 60 day period.
(13) Includes 2,000 shares that Mr. Wall may acquire upon the exercise of
options which will not be exercisable within 60 days of the date of this
Joint Proxy Statement/Prospectus.
(14) Includes 610,602 shares which may be acquired upon the exercise of
options within 60 days of the date of this Joint Proxy
Statement/Prospectus, and 920,297 shares which may be acquired upon the
exercise of options that will not be exercisable within 60 days of the
date of this Joint Proxy Statement/Prospectus. Includes 6,824,470 shares
owned by indirect wholly-owned subsidiaries of First Union and included
due to the affiliation of Mr. Terbrueggen with First Union. Includes
8,853,182 shares owned by Warburg and included due to the affiliation of
Dr. Kressel and Mr. Landy with Warburg. Includes 1,893,379 shares owned
by WorldCom and included due to Mr. Cannada's affiliation with WorldCom.
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INFORMATION CONCERNING PMT
PMT, conducting business directly and through its operating subsidiaries, is
an ISO which markets and services electronic credit card authorization and
payment systems to merchants located throughout the United States. PMT's
operating and growth strategies focus on expanding PMT's customer base of
small merchants through trade and other association affiliations,
telemarketing, acquiring subsidiary sales forces, merchant portfolio purchases
and the provision of high levels of customer service. PMT has experienced
rapid growth in its total merchant portfolio base which has caused significant
growth in PMT's revenues and earnings. From July 31, 1989 to July 31, 1997,
PMT's revenues increased from $4.3 million to $284.2 million. This increase in
revenues resulted primarily from the purchase of merchant portfolios, the
acquisition of operating businesses with existing merchant portfolios, new
merchant contracts generated through PMT's internal marketing and sales
efforts and, to a lesser extent, revenue enhancements with existing merchants.
PMT's sales force generally targets small merchants for its primary customer
base. These merchants typically have a low volume of credit card transactions,
are difficult to identify and have traditionally been underserved by credit
card processors. Management of PMT estimates that there are approximately 3.0
million merchant locations in the United States currently accepting VISA and
MasterCard credit cards in the small merchant market segment and approximately
2.2 million of such small merchant locations who have credit card processing
equipment utilizing electronic processing for credit card transactions. The
balance of these small merchant locations still utilize paper-based
authorization and settlement. Management of PMT believes that small- and
medium-sized merchants offer PMT significant growth opportunities for (i)
installing and servicing credit card authorization and payment systems, (ii)
converting small- and medium-sized merchants currently accepting credit cards
from a paper-based system to an electronic processing system and (iii)
migrating from paper and cash to electronic format of presentment of other
payment systems such as debit and electronic benefits transfer.
PMT markets and services electronic credit card authorization and payment
systems pursuant to contractual relationships with processing banks that are
members of VISA and MasterCard. Under such contractual relationships, PMT's
processing banks process merchant credit card transactions pursuant to
contracts, the terms of which have been negotiated by PMT (or certain other
independent service organizations from whom PMT has acquired merchant
portfolios) and approved by the processing bank. PMT's processing banks
withhold from the merchants a discount rate and various fees for the
processing of each credit card transaction. From PMT's discount rate revenues,
amounts are paid to the issuing bank, the network service provider, VISA or
MasterCard and to the processing bank.
The primary source of revenue for PMT is the discount rate paid by the
merchant for each credit card transaction processed for that merchant. In
addition to revenues derived from the discount rate, PMT receives periodic
fees from most of its merchants for providing various other services. The
discount rate and fees are negotiated by PMT, within the terms of PMT's
processing agreements, with each of the merchants to which PMT provides
services. PMT contracts with third parties to provide a portion of the
services to the merchant, including communication networks, transaction
processing and monthly preparation of detailed merchant statements.
Additionally, PMT complies with the pricing structures established by VISA and
MasterCard associations for the interchange fee paid to the retail consumers'
card-issuing banks and the associations' fees. The primary costs incurred by
PMT in delivering its services to the merchants are (i) an interchange fee
paid to the card-issuing bank which is set by the VISA and MasterCard
associations and which is calculated as a percentage of the transaction
amount, (ii) a fee calculated as a percentage of the transaction amount that
is paid to the VISA or MasterCard association which is established by the
member banks of the VISA and MasterCard associations, (iii) a fixed, per-
transaction fee paid to the network service provider which is negotiated
between PMT and the network service provider, and (iv) a fixed, per-
transaction fee paid to the processing bank which is negotiated between PMT
and the processing bank. PMT recognizes as revenue in its statement of income
the full discount rate collected from the merchant and various fees associated
with servicing merchant accounts. Also, the various costs incurred by PMT
discussed above (e.g., amount paid to the card-issuing bank and network
provider) are reflected as costs of revenues.
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In pursuing its operating and growth strategies, PMT utilizes a multi-
faceted marketing approach which includes a nationwide field sales and
telemarketing force. PMT also has various relationships with other ISOs,
independent sales representatives and joint marketing arrangements with banks.
Since the beginning of fiscal 1997, PMT has pursued acquisitions of operating
businesses with significant field sales forces to improve PMT's internal
growth capabilities. As a result of these acquisitions, PMT provides services
to many of the nation's key population centers. This field sales force
represents PMT's primary channel for internal merchant account acquisitions.
PMT provides comprehensive customer service and support to merchants
requiring consultative problem solving and account management. Management of
PMT believes providing cost-effective, reliable and responsive service is the
most effective long-term strategy to retain its merchant base. PMT maintains a
department of customer service personnel available 24-hours a day to respond
to inquiries from merchants regarding terminal, communication and training
issues. Service personnel provide terminal application consultation by
telephone and regularly reprogram terminals via telephone lines to accommodate
particular merchant needs regarding program enhancements, terminal
malfunctions and VISA and MasterCard regulations. In addition, merchants may
obtain direct, personal assistance in reconciling network and communications
problems, including problems with network outages and local phone company
services.
On May 14, 1998, PMT acquired MBN, an ISO with a merchant portfolio
generating annualized charge volume of approximately $400 million. Pursuant to
the merger agreement between PMT and MBN, PMT acquired all of the issued and
outstanding capital stock of MBN, and MBN became a wholly-owned subsidiary of
PMT. Total consideration paid was 987,500 shares of PMT Stock, which was
determined through arm's length negotiations. Pursuant to the merger
agreement, PMT has registered for resale 25% of the aggregate number of shares
of PMT Stock issued to the shareholders of MBN.
On July 30, 1998, PMT acquired Superior, an ISO with a merchant portfolio
generating annualized charge volume of approximately $1.0 billion. Pursuant to
the merger agreement between PMT and Superior, PMT acquired all of the issued
and outstanding capital stock of Superior, and Superior became a wholly-owned
subsidiary of PMT. Total consideration paid was 3,720,930 shares of PMT Stock,
which was determined through arm's length negotiations. Pursuant to the merger
agreement, PMT has agreed to register for resale up to 25% of the aggregate
number of shares of PMT Stock issued to the shareholders of Superior.
Additional information concerning PMT is included in the reports, proxy
statements and other information of PMT filed with the Commission which are
incorporated by reference in this Joint Proxy Statement/Prospectus. See
"Incorporation of Certain Information by Reference."
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DESCRIPTION OF NOVA CAPITAL STOCK
The authorized capital stock of NOVA consists of 50,000,000 shares of NOVA
Stock, $.01 par value per share, and 5,000,000 shares of Preferred Stock,
without par value ("Preferred Stock"). NOVA Proposal 2 would increase the
number of authorized shares of NOVA Stock from 50,000,000 to 200,000,000.
NOVA STOCK
As of August 20, 1998, there were 34,289,850 shares of NOVA Stock
outstanding and held of record by approximately 46 shareholders. Holders of
NOVA Stock are entitled to one vote for each share held of record on all
matters submitted to a vote of the shareholders, including the election of
directors. NOVA's Articles of Incorporation provide that holders of Voting
Stock (defined as stock entitled to vote in the election of directors) may
cumulate their votes. Accordingly, holders of NOVA Stock are entitled to
cumulate their votes in the election of directors, and it is possible for the
holders of less than a majority of the shares of NOVA Stock to elect one or
more of NOVA's directors.
Subject to the preferences that may be applicable to any then outstanding
Preferred Stock, holders of NOVA Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board out of
funds legally available therefor. Upon any liquidation, dissolution or winding
up, whether voluntary or involuntary, of NOVA, holders of NOVA Stock are
entitled to receive pro rata all assets available for distribution to
shareholders after payment or provision for payment of the debts and other
liabilities of NOVA and the liquidation preferences of any then outstanding
Preferred Stock. There are no preemptive or other subscription rights,
conversion rights, or redemption or sinking fund provisions with respect to
shares of NOVA Stock. All outstanding shares of NOVA Stock are, and all shares
of NOVA Stock to be outstanding upon consummation of the Merger will be, fully
paid and nonassessable.
PREFERRED STOCK
Pursuant to NOVA's Articles of Incorporation, NOVA is authorized to issue up
to 5,000,000 shares of Preferred Stock. No shares of Preferred Stock currently
are outstanding. The Preferred Stock may be issued at any time or from time to
time in one or more classes or series with such designations, powers,
preferences, rights, qualifications, limitations and restrictions (including
dividend, conversion and voting rights) as may be fixed by the Board of
Directors, without any further vote or action by the shareholders. Although
NOVA has no present plans to issue any Preferred Stock, the ownership and
control of NOVA by the holders of the NOVA Stock would be diluted if NOVA were
to issue Preferred Stock that had voting rights or that was convertible into
NOVA Stock. In addition, the holders of Preferred Stock issued by NOVA would
be entitled by law to vote on certain transactions such as a merger or
consolidation, and thus the issuance of Preferred Stock could dilute the
voting rights of the holders of the NOVA Stock on such issues. The issuance of
Preferred Stock also could have the effect of delaying, deferring or
preventing a change in control of NOVA.
AGREEMENTS AND RESTRICTIONS RELATING TO STOCK
In connection with the consummation of the First Union Alliance, NOVA, First
Union, Warburg, WorldCom and each of the other Original Shareholders of NOVA
entered into the Shareholders Agreement. Pursuant to the Shareholders
Agreement, each Original Shareholder agreed not to sell or transfer NOVA's
equity securities except as expressly permitted by the Shareholders Agreement.
The Shareholders Agreement also provides that Warburg and First Union each has
a right of first refusal with respect to any security offered or sold by NOVA
which is convertible into or exchangeable for NOVA Stock; this right of first
refusal does not extend to securities issued by NOVA in connection with the
distribution of securities in the Merger.
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FIRST UNION VOTING AGREEMENT
The shares of NOVA Stock owned by First Union are held of record by
indirect, wholly-owned subsidiaries of First Union. Each of such subsidiaries
has entered into a voting agreement with FUNB that grants FUNB the right to
vote all of the shares of NOVA Stock held by such subsidiaries. This proxy
automatically terminates upon the transfer of such shares to any person that
is not an affiliate of First Union, and also may be terminated by such
subsidiaries upon written notice delivered to FUNB at least 15 days prior to
the proposed date of termination.
CERTAIN CHARTER AND BYLAW PROVISIONS
Shareholders' rights and related matters are governed by the Georgia
Business Corporation Code and NOVA's Articles of Incorporation and Bylaws, as
amended. Certain provisions of the Articles of Incorporation and Bylaws of
NOVA, which are summarized below, could either alone or in combination with
each other, have the effect of preventing a change in control of NOVA or
making changes in management more difficult.
Limitation of Directors' Liability. NOVA's Articles of Incorporation
eliminate, subject to certain exceptions, the personal liability of directors
to NOVA or its shareholders for monetary damages for breaches of each
director's duty of care or other duties as a director. The Articles do not
provide for the elimination of or any limitation on the personal liability of
a director for (i) any appropriation, in violation of the director's duties,
of any business opportunity of NOVA, (ii) acts or omissions that involve
intentional misconduct or a knowing violation of law, (iii) unlawful corporate
distributions, or (iv) any transaction from which the director received an
improper benefit. In addition, NOVA's Bylaws provide broad indemnification
rights to directors and officers so long as the director or officer acted in a
manner he or she believed in good faith to be in, or not opposed to, the best
interests of NOVA, and with respect to criminal proceedings, if the director
had no reasonable cause to believe his or her conduct was unlawful. NOVA is
also required to indemnify its directors and officers against reasonable
expenses incurred in the defense of any action if the director or officer has
been successful in such defense. NOVA may not indemnify any of its directors
or officers, however, against any liability incurred in connection with a
proceeding in which the director or officer was adjudged liable on the basis
that personal benefit was improperly received by him or her or in connection
with a proceeding by or in the right of NOVA in which the director or officer
was adjudged liable to NOVA. These provisions of the Articles and Bylaws will
limit the remedies available to a shareholder who is dissatisfied with a Board
decision protected by these provisions, and such shareholder's only remedy in
that circumstance may be to bring a suit to prevent the Board's action. In
many situations, this remedy may not be effective, as, for example, when
shareholders have no prior awareness of the Board's consideration of the
particular transaction or event.
Anti-Takeover Provisions. NOVA's Articles of Incorporation authorize NOVA to
issue up to 5,000,000 shares of Preferred Stock with such designations,
powers, preferences and rights as may be fixed by the Board of Directors,
without any further vote or action by the shareholders. The issuance of
Preferred Stock could have the effect of delaying, deferring or preventing a
change in control of NOVA.
Constituency Considerations. NOVA's Articles of Incorporation provide the
Board of Directors the right to consider the interests of various
constituencies, including employees, customers, suppliers and creditors of
NOVA, as well as the communities in which NOVA is located, in addition to the
interest of NOVA and its shareholders, in discharging their duties in
determining what is in NOVA's best interests.
Election, Term and Removal of Directors. NOVA's Articles of Incorporation
provide that the Board of Directors will consist of not less than seven
persons, with all directors to be elected by the holders of shares of NOVA's
voting stock at the annual meeting of shareholders. Such directors shall serve
until the election of their successors at the next annual meeting of
shareholders. Under Georgia law, the articles of incorporation or a bylaw
adopted by the shareholders may provide for staggering the terms of the
directors by dividing the total number of directors into two or more groups,
with each group containing, to the extent practicable, an equal number of
directors. NOVA's Articles of Incorporation provide that no bylaw, resolution,
written consent or amendment to the Articles of Incorporation purporting to
create a classified or "staggered" Board of Directors
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or requiring prior notice or qualification of members for director shall be
effective. For a discussion of the Board of Directors of NOVA following the
Merger, see "Proposal 1--The Proposed Merger--Management and Operations After
the Merger."
NOVA's Articles of Incorporation and Bylaws provide that directors may be
removed with or without cause at any annual or special meeting of the
shareholders. Under Georgia law, if cumulative voting is authorized, a
director may not be removed if the number of votes sufficient to elect him
under cumulative voting is voted against his removal; if cumulative voting is
not authorized, a director may be removed only by a majority of the votes
entitled to be cast. Accordingly, under NOVA's Articles of Incorporation, a
director may not be removed if the number of votes sufficient to elect him is
voted against his removal.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for NOVA Stock is FUNB.
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COMPARISON OF SHAREHOLDER RIGHTS
At the Effective Time, PMT shareholders will become NOVA shareholders.
Because NOVA is incorporated in Georgia and PMT is incorporated in Tennessee,
holders of the shares of PMT Stock, whose rights are currently governed by
Tennessee corporate law and the Amended and Restated Charter of PMT, as
amended (the "PMT Charter"), and the Bylaws of PMT, as amended, (the "PMT
Bylaws") will have the rights and obligations as shareholders of NOVA after
the Merger governed by Georgia law and the NOVA Articles of Incorporation and
Bylaws. Set forth below is a summary comparison of the rights of a NOVA
shareholder under Georgia law, the NOVA Articles of Incorporation, as amended,
and NOVA Bylaws, as amended, on the one hand, and the rights of a PMT
shareholder under Tennessee law, the PMT Charter and the PMT Bylaws, on the
other hand. The information set forth below is qualified in its entirety by
reference to the Georgia Business Corporation Code (the "GBCC"), the NOVA
Articles of Incorporation, the NOVA Bylaws, the Tennessee Business Corporation
Act (the "TBCA"), the PMT Charter and the PMT Bylaws.
AUTHORIZED CAPITAL STOCK
PMT. PMT is authorized by the PMT Charter to issue up to 110,000,000 shares
of capital stock of which 100,000,000 PMT shares are designated PMT Common
Stock, $.01 par value per share (previously defined herein as the "PMT
Stock"), and 10,000,000 shares are designated PMT Preferred Stock, $.01 par
value per share. As of August 20, 1998, there were approximately 52,655,844
shares of PMT Stock issued and outstanding, and 57,344,156 shares were
available for issuance. In addition, there were outstanding options under PMT
stock option plans and warrants granted outside of such plans to purchase an
additional 3,204,308 shares of PMT Stock. Furthermore, 10,000 shares are
reserved for issuance upon the exercise of outstanding warrants. The Board of
Directors of PMT has the authority to issue PMT Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions for
each such series, without any further vote or action by the shareholders. As
of August 20, 1998, there were no shares of PMT Preferred Stock issued and
outstanding, and the Board of Directors of PMT has no present intention of
issuing shares of PMT Preferred Stock.
NOVA. The authorized capital stock of NOVA consists of 50,000,000 shares of
Common Stock, $.01 par value per share (previously defined herein as "NOVA
Stock"), and 5,000,000 shares of Preferred Stock, without par value. As of
August 20, 1998, there were 34,289,850 shares of NOVA Stock issued and
outstanding, 30 shares were treasury shares, and 15,710,150 shares were
available for issuance. In addition, there were 709,391 shares of NOVA Stock
subject to options granted under NOVA's 1991 Stock Option and Stock
Appreciation Rights Plan, as amended, but not exercised, an additional
2,000,000 shares were reserved for issuance under the Plan, as amended, and
16,000 shares were subject to options granted under the Directors Plan. NOVA's
Board of Directors has approved an amendment to NOVA's Articles of
Incorporation to increase the number of authorized shares of NOVA Stock from
50,000,000 to 200,000,000 shares. If the proposed amendment is approved by the
shareholders at the NOVA Special Meeting, prior to the Effective Time NOVA
will increase the number of authorized shares by filing an amendment to its
Articles of Incorporation with the Georgia Secretary of State. Approximately
37,648,930 shares of NOVA Stock will be issued in the Merger and approximately
2,291,080 shares will be reserved for issuance upon the exercise of options
and warrants that, prior to the Effective Time, represented the right to
purchase shares of PMT Stock. As of August 20, 1998, there were no shares of
NOVA Preferred Stock outstanding. See "Proposal 2--Amendment to the Articles
of Incorporation of NOVA."
The NOVA Preferred Stock may be issued at any time or from time to time in
one or more classes or series with such designations, powers, preferences,
rights, qualifications, limitations and restrictions (including dividend,
conversion and voting rights) as may be fixed by the Board of Directors of
NOVA, without any further vote or action by the NOVA shareholders, unless such
action is required by applicable rules or regulations or by the terms of other
outstanding series of preferred stock. Any shares of NOVA Preferred Stock
which may be issued may rank prior to shares of NOVA Stock as to payment of
dividends and upon liquidation. See "Description of NOVA Capital Stock."
If Proposal 2 is approved the number of authorized shares of NOVA Stock and
NOVA Preferred Stock which may be issued by NOVA without shareholder approval
will be sufficient to enable NOVA to declare stock
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splits and dividends and will enhance NOVA's flexibility to engage in a
variety of business transactions, including additional acquisitions and the
raising of new capital. Additionally, in the event of a proposed merger,
tender offer or other attempt to gain control of NOVA of which the Board of
Directors of NOVA does not approve, it would be possible for the Board of
Directors to authorize the issuance of additional shares of NOVA Stock to a
person or entity that thereby might obtain sufficient voting power to impede
completion of the proposed merger, tender offer or other transaction.
Therefore, an effect of the increased number of authorized shares that are not
issued or reserved may be to deter a future takeover attempt that some or a
majority of the holders of NOVA Stock may deem to be in their best interests
or in which holders of NOVA Stock may receive a premium for their shares over
the then market price. Additionally, NOVA's Board of Directors could issue a
series of Preferred Stock with rights more favorable with regard to dividends
and liquidation than the rights of the holders of NOVA Stock and which could
also be used for the purpose of preventing an attempt to gain control of NOVA
of which the Board of Directors does not approve. NOVA's Board of Directors,
however, has no current plans to issue shares of NOVA Stock or NOVA Preferred
Stock after the Merger. For a description of the terms of NOVA's capital
stock, see "Description of NOVA Capital Stock."
AMENDMENT OR REPEAL OF THE CHARTER OR ARTICLES OF INCORPORATION
PMT. With the exception of certain administrative amendments, the TBCA
requires approval by holders of at least a majority of the outstanding shares
entitled to vote thereon to repeal or amend the PMT Charter. The PMT Bylaws
provide that a majority of the PMT Board of Directors or the holders of a
majority of the outstanding shares of capital stock entitled to vote at a
meeting may alter, amend or repeal the PMT Bylaws. The affirmative vote of at
least 75% of the voting power of the shares entitled to vote at any election
of directors shall be required to amend, alter, change or repeal any of the
provisions in PMT's Charter and Bylaws relating to the number, election and
removal of directors at a shareholder meeting called for such purpose.
NOVA. With the exception of certain administrative amendments, the GBCC
requires approval by holders of at least a majority of the votes entitled to
be cast thereon to repeal or amend the NOVA Articles of Incorporation. The
NOVA Bylaws provide that a majority of the NOVA Board of Directors or the
holders of a majority of the votes entitled to be cast may alter or amend the
NOVA Bylaws.
ELECTION, TERM AND REMOVAL OF THE BOARD OF DIRECTORS
PMT. The PMT Charter provides that the PMT Board of Directors shall consist
of at least three directors and not more than nine directors and that the size
of the PMT Board of Directors may be fixed by the directors then in office.
Directors are divided into three classes with elections for one class of
directors being held at each annual meeting of shareholders. Directors of PMT
are elected by a plurality of votes cast at the annual meeting of
shareholders. Vacancies in the Board of Directors and newly created
directorships resulting from any increase in the authorized number of
directors are filled by a majority of directors then in office or the
shareholders. The PMT Bylaws also provide for the election of an Advisory
Board of Directors by the majority of the Board of Directors. Such Advisory
Directors, who are to assist the Board of Directors in its conduct of the
affairs of PMT, hold office for such term as determined by the Board of
Directors. Currently, PMT has no Advisory Directors.
The PMT Bylaws provide that a director may be removed only for cause by
either (i) an affirmative vote of holders of 75% or more of the voting power
of the shares entitled to vote at a special meeting of the shareholders called
for the purpose, or (ii) a majority of the entire Board of Directors at a
special meeting called for the purpose.
NOVA. The NOVA Articles of Incorporation provide that the Board of
Directors will consist of not less than seven persons, with all directors to
be elected by the holders of shares of the NOVA Stock at the annual meeting of
shareholders. The NOVA Articles of Incorporation provide that holders of NOVA
Stock may cumulate their votes. Accordingly, it is possible for the holders of
less than a majority of the shares of NOVA Stock to elect one or more of the
NOVA directors. The NOVA Articles of Incorporation provide that no bylaw,
resolution, written consent or amendment to the NOVA Articles of Incorporation
purporting to create a classified or staggered board of directors or requiring
prior notice or qualification of members for director shall be effective.
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NOVA directors may be removed with or without cause at any annual or special
meeting of the shareholders. Under the GBCC, if cumulative voting is
authorized, a director may not be removed if the number of votes sufficient to
elect him under cumulative voting is voted against his removal; if cumulative
voting is not authorized, a director may be removed only by a majority of the
votes entitled to be cast. Accordingly, under the NOVA Articles of
Incorporation, a director may not be removed if the number of votes sufficient
to elect him is voted against his removal.
LIABILITY OF DIRECTORS
PMT. The PMT Charter provides that directors of PMT shall not be personally
liable to PMT or its shareholders for monetary damages for any breach of
fiduciary duty by such director as a director. A director shall be liable to
the extent provided by applicable law for breach of the director's duty of
loyalty to PMT or its shareholders, for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, or for
liability pursuant to the TBCA relating to unlawful distributions.
The PMT Charter provides that PMT will indemnify and upon request shall
advance expenses to, any person who was, or is a party to, or is threatened to
be made a party to, any such action because such person is or was a director,
officer or employee of PMT or is or was serving at the request of PMT as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise. This indemnification is
subject to the limitations stated above.
The Merger Agreement provides that all rights to indemnification for acts or
omissions occurring at or prior to the Effective Time of the Merger now
existing in favor of the current or former directors or officers of PMT as
provided by Tennessee law or in PMT's Charter or Bylaws shall survive the
Merger and shall continue in full force and effect in accordance with their
terms for a period of six years from the Effective Time.
In addition, NOVA shall cause to be provided, for a period of six years from
the Effective Time, to PMT's existing officers and directors an insurance and
indemnification policy that provides coverage for events occurring prior to
the Effective Time that is no less favorable than PMT's existing policy or, if
substantially equivalent insurance coverage is unavailable, the best available
coverage; provided, however, that NOVA shall not be required to pay an annual
premium for such insurance in excess of 300% of the last annual premium paid
prior to July 17, 1998, but in such case shall purchase as much coverage as
possible for such amount.
NOVA. The NOVA Articles of Incorporation eliminate, to the fullest extent
permitted by Georgia law subject to certain exceptions, the personal liability
of directors to NOVA or its shareholders for monetary damages for breaches of
each director's duty of care or other duties as a director. The NOVA Articles
of Incorporation do not provide for the elimination of or any limitation on
the personal liability of a director for (i) any appropriation, in violation
of the director's duties, of any business opportunity of NOVA, (ii) acts or
omissions that involve intentional misconduct or a knowing violation of law,
(iii) unlawful corporate distributions, or (iv) any transaction from which the
director received an improper benefit. Additionally, officers and directors of
NOVA are presently covered by insurance which (with certain exceptions and
within certain limitations) indemnifies them against any losses or liabilities
arising from any alleged "wrongful act" including any alleged breach of duty,
neglect, error, misstatement, misleading statement, omissions or other act
done or wrongfully attempted. The cost of such insurance is borne by NOVA as
permitted by the NOVA Bylaws and the laws of the State of Georgia.
CONVERSION AND DISSOLUTION
PMT. The PMT Stock has no conversion features. The PMT Charter authorizes
10,000,000 shares of PMT Preferred Stock, $.01 par value per share, and
provides that such shares of PMT Preferred Stock may have such voting powers,
preferences and other special rights (including, without limitation, the right
to convert the shares of such PMT Preferred Stock into shares of PMT Stock) as
shall be determined by the Board of Directors.
NOVA. The NOVA Stock has no conversion features. The NOVA Articles of
Incorporation authorize 5,000,000 shares of NOVA Preferred Stock, without par
value, and provide that such shares of NOVA Preferred
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Stock may have such voting powers, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions (including, without limitation, whether the shares shall be
convertible into or exchangeable for shares of any other class or classes of
any stock or any other series of any class of stock of NOVA) as shall be
determined by the Board of Directors.
SHAREHOLDER MEETINGS
PMT. The PMT Bylaws provide that a special meeting of the PMT shareholders
may be called by the President of PMT, the Board of Directors or by the
holders of at least 10% of the outstanding shares of capital stock of PMT
entitled to vote on any issue proposed to be considered at the proposed
special meeting.
NOVA. The NOVA Bylaws provide that a special meeting of the NOVA
shareholders may be called at any time by the President of NOVA or any holder
or holders of at least 25% of the outstanding NOVA Stock. 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.
CHANGE OF CONTROL
PMT. The Tennessee Business Combination Act (the "Combination Act") provides
that any corporation to which the Combination Act applies, including PMT,
shall not engage in any "business combination," as defined in the Combination
Act, with an "interested shareholder" for a period of five years following the
date that such shareholder became an interested shareholder unless, prior to
such date, the board of directors of the corporation approved either the
business combination or the transaction which resulted in the shareholder
becoming an interested shareholder.
"Interested shareholder" is defined in the Combination Act as any person
that is (a) the beneficial owner of 10% or more of the voting power of any
class or series of stock of the corporation or (b) is an affiliate and at any
time within the five-year period immediately prior to the date in question was
the beneficial owner of 10% or more of the voting power of any class of series
of stock of the corporation.
The Tennessee Control Share Acquisition Act (the "Acquisition Act")
prohibits certain shareholders from exercising in excess of 20% of the voting
power in a corporation acquired in a "control share acquisition," as defined
in the Acquisition Act, unless such voting rights have been previously
approved by the disinterested shareholders of the corporation. The Acquisition
Act does not apply to PMT at present, because PMT has not elected to be
covered by such act. No assurance can be given that such an election, which
must be expressed in the form of a charter or bylaw provision, will be made by
PMT.
The Tennessee Greenmail Act prohibits PMT from purchasing or agreeing to
purchase any of its securities at a price in excess of fair market value from
a holder of 3% or more of any class of such securities who has beneficially
owned such securities for less than two years, unless such purchase has been
approved by the affirmative vote of a majority of the outstanding shares of
such class of voting stock issued by PMT or PMT makes an offer of at least
equal value per share to all holders of shares of such class.
NOVA. The NOVA Articles of Incorporation provide that NOVA shall not adopt
any Protective Measure (as defined below) without first having obtained the
written consent (in addition to any other shareholder approval, if any, as may
be required by law, the NOVA Articles of Incorporation or the NOVA Board of
Directors) of each Major Shareholder (defined as each of Warburg and First
Union); provided that in the event that any Major Shareholder shall object in
writing to a proposed Protective Measure, NOVA may adopt such proposed
Protective Measure with the affirmative vote of a majority of the votes
entitled to be cast by the holders of the outstanding NOVA Stock.
A Protective Measure is (i) any amendment of the NOVA Articles of
Incorporation or NOVA Bylaws or resolution of the NOVA Board of Directors
purporting to apply to NOVA the provisions of the GBCC concerning fair price
requirements or business combinations with interested shareholders and (ii)
any amendment of the NOVA Articles of Incorporation or NOVA Bylaws, resolution
of the NOVA Board of Directors, or written
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consent adopting any shareholder rights plan or other defensive measure aimed
at preventing or substantially limiting the potential for any merger, business
combination, or purchase of NOVA or its equity securities by or with any
individual, group, or entity).
Additionally, NOVA's Articles of Incorporation authorize NOVA to issue up to
5,000,000 shares of NOVA Preferred Stock with such designations, powers,
preferences and rights as may be fixed by the NOVA Board of Directors, without
any further vote or action by the shareholders. The issuance of NOVA Preferred
Stock could have the effect of delaying, deferring or preventing a change in
control of NOVA.
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PROPOSAL 2--AMENDMENT TO THE ARTICLES OF INCORPORATION OF NOVA
NOVA's Board of Directors has approved an amendment to NOVA's Articles of
Incorporation to increase the number of authorized shares of NOVA Stock from
50,000,000 to 200,000,000 shares. If approved by the shareholders, NOVA would
immediately increase the number of authorized shares by filing an amendment to
its Articles of Incorporation with the Georgia Secretary of State. The
authorized capital stock of NOVA currently consists of 50,000,000 shares of
NOVA Stock and 5,000,000 shares of Preferred Stock.
The proposed amendment to the Articles of Incorporation is a condition to
the closing of the Merger, so that NOVA will have a sufficient number of
authorized shares of NOVA Stock to issue to holders of PMT Stock upon the
Merger. Upon consummation of the Merger, NOVA will have approximately
71,938,780 shares of NOVA Stock outstanding and reserved for issuance. In
order to provide NOVA with the ability to issue shares of NOVA Stock pursuant
to the Merger, and to otherwise have sufficient shares of NOVA Stock available
for issuance from time to time in the discretion of the Board of Directors
upon its determination that such issuance is appropriate and in the best
interests of NOVA, the Board of Directors has approved, and recommends that
NOVA's shareholders approve, the amendment to the NOVA Articles of
Incorporation increasing the number of authorized shares of NOVA Stock to
200,000,000 shares. If the shareholders approve Proposal 2, the number of
shares of NOVA Stock which may be issued without shareholder approval will be
sufficient to enable NOVA to declare stock splits and dividends and will
enhance NOVA's flexibility to engage in a variety of business transactions,
including additional acquisitions and the raising of new capital. Other than
the Merger, NOVA currently is not a party to any agreement, letter of intent
or understanding with any other party respecting any additional acquisitions
in exchange for NOVA Stock. However, NOVA may pursue acquisition opportunities
as they become available upon a determination that such opportunities meet
NOVA's criteria and are in NOVA's best interest.
If NOVA Proposal 1 or NOVA Proposal 2 is not approved or the Merger is not
consummated for any reason, but the amendment to the NOVA Articles of
Incorporation is approved by NOVA shareholders, the amendment will be
effective and will be implemented by NOVA.
The amendment to the NOVA Articles of Incorporation to increase the number
of authorized shares of NOVA Stock requires the vote of the holders of a
majority of the outstanding shares of NOVA Stock.
THE BOARD OF DIRECTORS OF NOVA UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL
AND ADOPTION OF THE PROPOSED AMENDMENT TO THE NOVA ARTICLES OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF NOVA STOCK FROM 50,000,000 TO
200,000,000 SHARES.
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PROPOSAL 3--AMENDMENT TO THE NOVA CORPORATION
1996 EMPLOYEES STOCK INCENTIVE PLAN
GENERAL
The shareholders are being asked to consider and approve an amendment to the
Plan to increase the number of shares which could be subject to ESIP Stock
Rights (as defined below) under the Plan from 2,000,000 shares to 6,000,000.
The Board of Directors believes that stock ownership is an important incentive
for employees to influence the success of NOVA, and that it is in the best
interests of NOVA to have more shares of NOVA Stock available subject to ESIP
Stock Rights under the Plan. The purpose of the Plan is to further the growth
and development of NOVA by encouraging employees to obtain a proprietary
interest in NOVA by owning or sharing in the appreciation of its stock. On
June 17, 1998 and August 4, 1998, the Board of Directors approved the
amendment to the Plan, subject to the approval of the amendment by NOVA's
shareholders at the NOVA Special Meeting. The amendment is intended to
facilitate future grants of ESIP Stock Rights to employees of NOVA and PMT
after the consummation of the Merger. In approving the amendment to the Plan,
the Board of Directors considered a number of factors, including the number of
shares of NOVA Stock currently available under the Plan that are not subject
to outstanding ESIP Stock Rights, the number of employees of NOVA and PMT that
will be eligible to participate in the Plan following the Merger, and the past
practice of PMT of granting options in connection with acquisition
transactions.
The following is a summary of the Plan and the proposed amendment thereto. A
copy of the full text of the Plan, as proposed to be amended, will be
furnished to any shareholder upon written request made to the Secretary of
NOVA.
If NOVA Proposal 1 or NOVA Proposal 2 is not approved or the Merger is not
consummated for any reason, but the amendment to the Plan is approved by NOVA
shareholders, the amendment will be effective and will be implemented by NOVA.
ELIGIBLE PARTICIPANTS; PROPOSED AMENDMENT
Under the current terms of the Plan, the individuals eligible to receive
Incentive Stock Options ("Incentive Options"), Non-qualified Stock Options
("NQSOs"), Stock Appreciation Rights ("SARs") and restricted stock awards
(collectively, "ESIP Stock Rights") are employees of NOVA or NOVA's subsidiary
corporations, including such employees who are also members of the Board of
Directors of NOVA or of any parent or subsidiary corporation of NOVA or any
parent or subsidiary of NOVA that conducts business as a limited liability
company, a limited liability corporation or a partnership; provided, however,
that no non-employee director shall be eligible to receive any ESIP Stock
Rights pursuant to the Plan. The number of eligible participants in the Plan
as of July 31, 1998 was approximately 740 persons. The employees of PMT will
become eligible to participate in the Plan at the Effective Time.
ADMINISTRATION
The Plan is administered by a committee composed of two or more
disinterested outside directors of NOVA (the "ESIP Committee"). The ESIP
Committee has discretionary authority (i) to determine the individuals to whom
ESIP Stock Rights will be granted from among those individuals who are
eligible, as well as the terms of ESIP Stock Rights and the number of shares
of NOVA Stock issuable in connection with such ESIP Stock Rights, (ii) to
determine whether an option will constitute an Incentive Option or a NQSO, and
(iii) to interpret the provisions of, and prescribe, amend and rescind any
rules and regulations relating to, the Plan.
NUMBER OF SHARES AVAILABLE
The Plan currently has 2,000,000 shares of NOVA Stock reserved for issuance,
of which 120,045 shares have been issued pursuant to options exercised and
1,763,102 options were outstanding as of August 20, 1998. If the proposed
amendment is approved by the shareholders, 4,000,000 additional shares of NOVA
Stock will be available for ESIP Stock Rights under the Plan. Options to
purchase NOVA Stock to be granted at the Effective Time upon conversion of
outstanding options to purchase PMT Stock will not be granted under the Plan
and, therefore, will not affect the number of shares of NOVA Stock available
with respect to ESIP Stock Rights.
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OPTION EXERCISE PRICE
The exercise price of each Incentive Option shall not be less than 100% of
the fair market value of the NOVA Stock at the time of grant, except that in
the case of a grant to an employee who owns (within the meaning of Section
422(b)(6) of the Code) 10% or more of the outstanding stock of NOVA (a "10%
Shareholder"), the exercise price shall be not less than 110% of such fair
market value. The exercise price of each NQSO shall be at not less than 75% of
fair market value of the NOVA Stock at the time of grant.
OPTION VESTING
Incentive Options and NQSOs shall vest (i.e., become exercisable), unless
otherwise agreed to or accelerated by the ESIP Committee, 25% on the first
anniversary of the date of grant and 25% on each anniversary thereafter.
Incentive Options and NQSOs issued under the Plan may not be exercisable on or
after the tenth anniversary (fifth anniversary in the case of an Incentive
Option granted to a 10% Shareholder) of the date of grant of such options.
RESTRICTED STOCK
Restricted stock granted under the Plan will be subject to such restrictions
as the ESIP Committee shall determine and will be subject to forfeiture by the
recipient until the earlier of (i) the time such restrictions lapse or are
satisfied, or (ii) the time such shares are forfeited. In addition to such
other restrictions as may be determined by the ESIP Committee, all restricted
stock granted under the Plan shall vest (i.e., become nonforfeitable) 25% on
the first anniversary of the date of grant, and an additional 25% on each
anniversary thereafter unless accelerated by the ESIP Committee. Generally,
the termination of the recipient's employment with NOVA or any subsidiary for
any reason will result in forfeiture of any restricted stock for which the
restrictions have not lapsed, although the ESIP Committee may provide
otherwise.
STOCK APPRECIATION RIGHTS
An SAR entitles the holder thereof to receive, upon the surrender of the SAR
(or portion thereof), an amount payable in NOVA Stock, cash or a combination
of NOVA Stock and cash (as specified by the ESIP Committee at the time of
grant or, if not so specified, as specified by the SAR recipient at the time
of exercise) equal to the excess of the fair market value of the shares of
NOVA Stock subject to such SAR (or portion thereof) over the exercise price of
such shares. The exercise price of the shares of NOVA Stock underlying an SAR
shall be the fair market value of the NOVA Stock on the date the SAR is
granted, unless otherwise determined by the ESIP Committee. The ESIP Committee
may grant SARs in connection with Incentive Options or NQSOs granted under the
Plan, or independently. SARs related to an Incentive Option or NQSO are
granted concurrently with the related underlying Incentive Option or NQSO. An
Incentive Option or NQSO related to an SAR ceases to be exercisable to the
extent of the shares with respect to which the related SAR was exercised, and
upon exercise or termination of a related Incentive Option or NQSO, any
related SAR terminates to the extent of the shares with respect to which the
related option was exercised or terminated.
TERMINATION
The Plan will terminate on the later of (a) the complete exercise or lapse
of the last outstanding Stock Right granted under the Plan, or (b) ten years
following adoption of the Plan, subject to the earlier termination by the
Board of Directors at any time.
CHANGE OF CONTROL
Incentive Options, NQSOs and restricted stock awards granted under the Plan
will become fully vested upon a "change of control." For purposes of the Plan,
the term "change of control" is defined to mean any one of the following
events: a "change of control" is deemed to have occurred when (i) any
individual or entity, including related parties, becomes the actual or
beneficial owner of 30% or more of the NOVA Stock (on a fully-diluted basis)
without the prior approval of NOVA's Continuing Directors (a term defined as
directors as of the date of adoption of the Plan and their duly approved
successors), (ii) NOVA's Continuing Directors fail to constitute at least a
majority of the members of the Board of Directors of NOVA, (iii) all or
substantially all of
114
<PAGE>
the assets of NOVA or any "Significant Subsidiary" (as such term is defined in
Rule 1.02 of Regulation S-X promulgated by the Commission) are sold or
otherwise transferred without the approval of the Continuing Directors, and
(iv) any individual or entity has filed an application with any regulatory
authority having jurisdiction over the ownership of NOVA in connection with
any transaction by such person or entity to acquire 20% or more of the
combined voting power of NOVA's then outstanding securities without the prior
approval of NOVA's Continuing Directors.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief general description of the consequences under the
Code of the receipt or exercise of Stock Rights under the Plan:
Incentive Stock Options. An option holder has no tax consequences upon
issuance or, generally, upon exercise of an incentive option. However, the
excess of fair market value of the shares transferred upon the exercise of an
Incentive Option over the exercise price for such shares generally will
constitute an item of alternative minimum tax adjustment to the option holder
for the year in which the option is exercised, and thus may increase the
federal income tax liability of the option holder as a result of the exercise
of an Incentive Option under the alternative minimum tax rules of the Code.
Otherwise, an option holder will recognize income when he sells or exchanges
the shares acquired upon exercise of an Incentive Option. This income will be
taxed at the applicable capital gains rate if the sale or exchange occurs
after the expiration of the requisite holding periods. Generally, the
requisite holding periods expire two years after the date of grant of the
Incentive Option and one year after the date of acquisition of the NOVA Stock
pursuant to the exercise of the Incentive Option.
If an option holder disposes of the NOVA Stock acquired pursuant to exercise
of an Incentive Option before the expiration of the requisite holding periods,
the option holder will recognize ordinary income in an amount equal to the
difference between the option price and the lesser of (i) the fair market
value of the shares on the date of exercise and (ii) the price at which the
shares are sold. If the sale price of the shares is greater than the fair
market value on the date of exercise, the difference will be recognized as
gain by the option holder and taxed at the applicable capital gains rate. If
the sale price of the shares is less than the option price, the option holder
will recognize a capital loss equal to the excess of the option price over the
sale price. Such capital gain or loss will be treated as long-term or short-
term capital gain or loss depending upon whether the holding period applicable
to long-term capital assets is satisfied.
For these purposes, the use of shares acquired upon exercise of an Incentive
Option to pay the option price of another option (whether or not it is an
Incentive Option) will be considered a disposition of the shares. If this
disposition occurs before the expiration of the requisite holding periods, the
option holder will have the same tax consequences as are described above in
the preceding paragraph. If the option holder transfers any such shares after
holding them for the requisite holding periods or transfers shares acquired
pursuant to exercise of an NQSO or on the open market, he generally will not
recognize any income upon the exercise. Whether or not the transferred shares
were acquired pursuant to an Incentive Option and regardless of how long the
option holder has held such shares, the basis of the new shares received
pursuant to the exercise will be computed in two steps. In the first step, a
number of new shares equal to the number of older shares tendered (in payment
of the option's exercise) is considered exchanged under Code (S)1036 and the
rulings thereunder; these new shares receive the same holding period and the
same basis the option holder had in the old tendered shares, if any, plus the
amount included in income from the deemed sale of the old shares and the
amount of cash or other nonstock consideration paid for the new shares, if
any. In the second step, the number of new shares received by the option
holder in excess of the old tendered shares receives a basis of zero, and the
option holder's holding period with respect to such shares commences upon
exercise.
There will be no tax consequences to NOVA upon issuance or, generally, upon
exercise of an Incentive Option. However, to the extent that an option holder
recognizes ordinary income upon exercise, as described
115
<PAGE>
above, NOVA generally will have a deduction in the same amount, provided NOVA
satisfies applicable federal income tax reporting requirements or the option
holder actually reports such income on his or her federal income tax return.
Nonqualified Stock Options. Neither NOVA nor the option holder has income
tax consequences from the issuance of NQSO's. Generally, in the tax year when
an option holder exercises NQSO's, the option holder recognizes ordinary
income in the amount by which the fair market value of the shares at the time
of exercise exceeds the option price for such shares. NOVA generally will have
a deduction in the same amount as the ordinary income recognized by the option
holder in NOVA's tax year during which the option holder recognizes ordinary
income, provided NOVA satisfies applicable federal income tax reporting
requirements or the option holder actually reports such income on his or her
federal income tax return.
Depending upon the period shares of NOVA Stock are held after exercise, the
sale or other taxable disposition of the shares acquired through the exercise
of a NQSO generally will result in a short-term or long-term capital gain or
loss equal to the difference between the amount realized on such disposition
and the fair market value of such shares when the NQSO was exercised.
Special rules apply to an employee who exercises a NQSO by paying the
exercise price, in whole or in part, by the transfer of shares of NOVA Stock
to NOVA. If an option holder exercises a NQSO by paying the option price with
previously acquired NOVA Stock, the option holder will generally recognize
income (relative to the new shares he is receiving) in two steps. In the first
step, a number of new shares equivalent to the number of older shares tendered
(in payment of the NQSO exercised) is considered to have been exchanged in
accordance with Code (S)1036 and the rulings thereunder, and no gain or loss
is recognized. In the second step, with respect to the number of new shares
acquired in excess of the number of old shares tendered, the option holder
will recognize income on those new shares equal to their fair market value
less any nonstock consideration tendered.
The new shares equal to the number of the older shares tendered will receive
the same basis the option holder had in the older shares and the option
holder's holding period with respect to the tendered older shares will apply
to those new shares. The excess new shares received will have a basis equal to
the amount of income recognized by the option holder by exercise, increased by
any nonstock consideration tendered. Their holding period will commence upon
the exercise of the option.
Stock Appreciation Rights. At the time an SAR is granted, an SAR holder will
recognize no taxable income, and there are no tax consequences to NOVA. The
SAR holder will recognize taxable income at the time the SAR is exercised in
an amount equal to the amount of cash and the fair market value of the shares
of the NOVA Stock received upon such exercise. The income recognized on
exercise of an SAR will be taxable at ordinary income tax rates. NOVA
generally will be entitled to a deduction with respect to the exercise of an
SAR in an amount equal to the amount of ordinary income recognized by the SAR
holder upon such exercise, provided NOVA satisfies applicable federal income
tax reporting requirements or the SAR holder actually reports such income on
his or her federal income tax returns. Any gain or loss upon the disposition
of the NOVA Stock acquired pursuant to the exercise of an SAR will qualify as
short-term or long-term capital gain or loss depending on how long the SAR
holder holds the NOVA Stock before such disposition.
Restricted Stock. A holder of restricted stock will recognize income upon
its receipt, but generally only to the extent that it is not subject to a
substantial risk of forfeiture. If the restricted stock is subject to
restrictions that lapse in increments over a period of time, so that the
holder becomes vested in a portion of the shares as the restrictions lapse,
the holder will recognize income in any tax year only with respect to the
shares that become nonforfeitable during that year. The income recognized will
be equal to the fair market value of those shares, determined as of the time
that the restrictions on those shares lapse. That income generally will be
taxable at ordinary income tax rates. NOVA generally will be entitled to a
deduction in an amount equal to the amount of ordinary income recognized by
the holder of the restricted stock, provided NOVA satisfies applicable federal
116
<PAGE>
income tax reporting requirements or the holder of the restricted stock
actually reports such income on his or her federal income tax return.
Alternatively, a holder of restricted stock may make a timely Code (S)83(b)
election to recognize ordinary income for the taxable year in which he
receives an award of restricted stock in an amount equal to the fair market
value of all shares of restricted stock awarded to his (even if the shares are
subject to forfeiture). That income will be taxable at ordinary income tax
rates. At the time of disposition of the shares, a holder who has made such an
election will recognize gain in an amount equal to the difference between the
sales price and the fair market value of the shares at the time of the award.
Such gain will be taxable at the applicable capital gains rate. A timely Code
(S)83(b) election must be made within 30 days after the transfer of the
restricted stock to the holder. NOVA will generally be entitled to a deduction
in an amount equal to the amount of ordinary income recognized by the holder
at the time of his election, provided NOVA satisfies applicable federal income
tax reporting requirements or the employee actually reports such income on his
or her federal income tax returns.
Cash dividends paid to a holder of restricted stock prior to the date the
restricted stock is no longer subject to a substantial risk of forfeiture or
is forfeited are treated as ordinary income of the holder of restricted stock
in the year received. Depending upon the period shares of NOVA Stock are held
after receipt by a holder of restricted stock, the sale or other taxable
disposition of such shares will result in short-term or long-term capital gain
or loss equal to the difference between the amount realized on such
disposition and the fair market value of such shares generally when the
restricted stock is no longer subject to a substantial risk of forfeiture.
Limitation on NOVA Deductions. Notwithstanding the preceding provisions, no
federal income tax deduction is allowed for compensation paid to a "covered
employee" in any taxable year of NOVA beginning on or after January 1, 1994,
to the extent that such compensation exceeds $1,000,000. For this purpose,
"covered employees" are generally the chief executive officer of NOVA and the
four highest compensated officers of NOVA, and the term "compensation"
generally includes amounts includable in gross income as a result of the
exercise of stock options or stock appreciation rights, or the receipt of
restricted stock. This deduction limitation does not apply to compensation
that is commission based compensation, performance based compensation,
compensation which would not be includable in an employee's gross income, and
compensation payable under a written binding contract in existence on February
17, 1993, and not materially modified thereafter.
Regulations indicate that compensation attributable to a stock option or a
stock appreciation right will generally satisfy the limitation exception for
performance based compensation if the grant or award is made by a
"compensation committee" (a committee composed of "outside" directors), the
Plan under which the option or right is granted states the maximum number of
shares with respect to which the options or rights may be granted during a
specified period to any employee, and, under the terms of the option or right,
the amount of compensation the employee could receive is based solely on an
increase in the value of the stock after the date of the grant or award.
ERISA. The Plan is not, and is not intended to be, an employee benefit plan
or tax-qualified retirement plan. The Plan is not, therefore, subject to ERISA
or Code (S)401(a).
Future Grants. The ESIP Committee has not yet made any determination as to
which eligible participants will be awarded options under the Plan in the
future. Consequently, it is not presently possible to determine the benefits
or amounts to be received in the future by any employees of NOVA or PMT under
the Plan.
THE BOARD OF DIRECTORS OF NOVA UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" THE PROPOSAL TO AMEND THE PLAN.
117
<PAGE>
EXPERTS
The consolidated financial statements of NOVA as of December 31, 1996 and
1997 and for the ten month period ended December 31, 1995 and the years ended
December 31, 1996 and 1997 included in this Joint Proxy Statement/Prospectus
and Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing. The consolidated financial
statements of PMT Services, Inc. as of July 31, 1997 and 1996, and for each of
the three years in the period ended July 31, 1997, incorporated in this Joint
Proxy Statement/Prospectus by reference to the Annual Report on Form 10-K of
PMT for the year ended July 31, 1997, and the audited historical consolidated
financial statements on page 1 of PMT's Current Report on Form 8-K dated
August 17, 1998, have been so incorporated by reference in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
Representatives of Ernst & Young LLP and PricewaterhouseCoopers LLP are
expected to be present at the NOVA Special Meeting and the PMT Special
Meeting, respectively, where they will have the opportunity to make a
statement if they desire and will be available to respond to appropriate
questions.
LEGAL MATTERS
The legality of the shares of NOVA Stock being to be issued in the Merger is
being passed upon for NOVA by Long Aldridge & Norman LLP, Atlanta, Georgia. It
is a condition to the Merger that Long Aldridge & Norman LLP and Waller
Lansden Dortch & Davis, a Professional Limited Liability Company, Nashville,
Tennessee, deliver their opinions to NOVA and PMT, respectively, as to certain
federal income tax consequences of the Merger. See "Proposal 1--The Proposed
Merger--Certain Federal Income Tax Consequences."
OTHER MATTERS
As of the date of this Joint Proxy Statement/Prospectus, the Boards of
Directors of NOVA and PMT know of no matters that will be presented for
consideration at the Meetings other than as described in this Joint Proxy
Statement/Prospectus. However, if any other matter shall come before the
Meetings or any adjournments or postponements thereof and shall be voted upon,
the proxy will be deemed to confer authority to the individuals named as
authorized therein to vote the shares represented by such proxy as to any such
matters that fall within the purposes set forth in the respective Notice of
Special Meeting.
118
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF
NOVA CORPORATION
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
AUDITED FINANCIAL STATEMENTS
Report of Independent Auditors.......................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996............ F-3
Consolidated Statements of Operations for the years ended December 31,
1997 and 1996, and the ten month period ended December 31, 1995........ F-4
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997 and 1996, and the ten month period ended December 31,
1995................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1997 and 1996, and the ten month period ended December 31, 1995........ F-6
Notes to Consolidated Financial Statements.............................. F-7
UNAUDITED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1997 and June 30, 1998
(Unaudited as of June 30, 1998)........................................ F-21
Unaudited Consolidated Statements of Operations for the three months and
six months ended June 30, 1997 and 1998................................ F-22
Unaudited Consolidated Statements of Cash Flows for the three months and
six months ended June 30, 1997 and 1998................................ F-23
Notes to Unaudited Consolidated Financial Statements.................... F-24
</TABLE>
F-1
<PAGE>
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, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for the years
ended December 31, 1997 and 1996, and the 10-month period ended December 31,
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, 1997 and 1996, and the consolidated results of its
operations and its cash flows for the years ended December 31, 1997 and 1996,
and the 10-month period ended December 31, 1995, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Atlanta, Georgia
February 17, 1998
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 739,000 $ 40,326,000
Trade receivables, less allowance for doubtful
accounts of $2,822,000 and $2,707,000 at December
31, 1997 and December 31, 1996, respectively...... 35,377,000 16,147,000
Inventory.......................................... 1,156,000 857,000
Deferred tax asset and other current assets........ 5,373,000 3,160,000
------------ ------------
Total current assets............................. 42,645,000 60,490,000
Merchant and customer contracts.................... 92,197,000 21,868,000
Property and equipment, net........................ 21,017,000 10,212,000
Excess cost of businesses acquired................. 12,805,000 13,301,000
Deferred tax asset and other non-current assets.... 1,864,000 1,834,000
------------ ------------
$170,528,000 $107,705,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................... $ 8,015,000 $ 4,810,000
Accounts payable to affiliate...................... 3,410,000 1,534,000
Accrued compensation and related costs............. 726,000 1,416,000
Settlement obligations............................. 10,896,000 7,691,000
Other accrued liabilities.......................... 7,010,000 5,157,000
Long-term debt obligations due within one year..... 350,000 507,000
------------ ------------
Total current liabilities........................ 30,407,000 21,115,000
Deferred tax liability............................. 3,112,000 849,000
Long-term debt obligations......................... 33,296,000 859,000
Minority interest in subsidiary.................... 776,000 --
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common Stock, $.01 par value, 50,000,000 shares
authorized, 29,031,000 and 28,721,000 shares
issued at December 31, 1997 and 1996,
respectively...................................... 290,000 288,000
Additional paid in capital......................... 99,967,000 99,299,000
Retained earnings (accumulated deficit)............ 2,680,000 (14,705,000)
------------ ------------
Total shareholders' equity....................... 102,937,000 84,882,000
------------ ------------
$170,528,000 $107,705,000
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
10-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
-------------------------- ------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES............................. $335,625,000 $265,829,000 $129,035,000
OPERATING EXPENSES:
Cost of service...................... 260,058,000 207,595,000 100,375,000
Conversion costs..................... 2,595,000 6,395,000 3,441,000
Selling, general and administrative.. 33,952,000 32,952,000 17,795,000
Depreciation and amortization........ 10,658,000 6,982,000 4,635,000
------------ ------------ ------------
OPERATING INCOME..................... 28,362,000 11,905,000 2,789,000
Interest (income) expense, net....... (721,000) (126,000) 1,959,000
Minority interest in income of
subsidiary.......................... 776,000 -- --
------------ ------------ ------------
Income before provision for income
taxes............................... 28,307,000 12,031,000 830,000
Provision (benefit) for income taxes. 10,922,000 4,764,000 (4,057,000)
------------ ------------ ------------
NET INCOME........................... $ 17,385,000 $ 7,267,000 $ 4,887,000
============ ============ ============
Net income per common share (pro
forma prior to May 8, 1996)......... $ 0.60 $ 0.25 $ 0.24
============ ============ ============
Net income per common share--assuming
dilution (pro forma prior to May 8,
1996)............................... $ 0.58 $ 0.25 $ 0.24
============ ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------------- -------------------- PAID-IN ACCUMULATED TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT STOCK
------- ------------ ---------- -------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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) --
Exercise of stock
options............... -- -- 310,000 2,000 668,000 -- --
Net income............. -- -- -- -- -- 17,385,000 --
------- ------------ ---------- -------- ----------- ------------ ---------
Balance at December 31,
1997................... -- -- 29,031,000 $290,000 $99,967,000 $ 2,680,000 $ --
======= ============ ========== ======== =========== ============ =========
</TABLE>
See accompanying notes.
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
10-MONTH
YEAR ENDED DECEMBER 31, PERIOD ENDED
------------------------- DECEMBER 31,
1997 1996 1995
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $17,385,000 $ 7,267,000 $ 4,887,000
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 10,658,000 6,982,000 4,635,000
Deferred income taxes................. 2,331,000 3,045,000 (4,057,000)
Loss on disposal of equipment......... 12,000 -- --
Minority interest..................... 776,000 -- --
Gain on disposition of non-compete
agreement............................ -- (150,000) --
Changes in assets and liabilities, net
of the effects of business
acquisitions:
Trade receivables................... (19,230,000) (6,079,000) (4,606,000)
Inventory........................... (299,000) 223,000 (303,000)
Other assets........................ (3,057,000) (84,000) (348,000)
Accounts payable.................... 5,081,000 (719,000) 3,451,000
Accrued liabilities................. 4,368,000 10,242,000 1,260,000
----------- ------------ -----------
Net cash provided by operating
activities......................... 18,025,000 20,727,000 4,919,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of merchant contracts....... (75,410,000) (3,967,000) (3,302,000)
Additions to property and equipment... (15,152,000) (6,065,000) (1,624,000)
Other................................. -- 64,000 (130,000)
----------- ------------ -----------
Net cash used in investing activities. (90,562,000) (9,968,000) (5,056,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit and notes
payable, net......................... 32,800,000 4,008,000 4,900,000
Payment of long-term debt and capital
leases............................... (520,000) (25,692,000) (5,129,000)
Payment of Preferred Stock dividends.. -- (11,689,000) --
Proceeds from stock options exercised. 670,000 1,982,000 --
Proceeds from IPO, net................ -- 65,328,000 --
Redemption of Preferred Stock......... -- (5,000,000) --
----------- ------------ -----------
Net cash provided by (used in)
financing activities................. 32,950,000 28,937,000 (229,000)
----------- ------------ -----------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS.......................... (39,587,000) 39,696,000 (366,000)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR.............................. 40,326,000 630,000 996,000
----------- ------------ -----------
CASH AND CASH EQUIVALENTS, END OF
YEAR................................. $ 739,000 $ 40,326,000 $ 630,000
=========== ============ ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
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 ("POS"), 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. Also included in the
consolidated financial statements are the accounts of Elan Merchant Services,
LLC, a joint venture owned 51% by the Company. The operating results from the
joint venture are included from the date the Company purchased its membership
interest, October 31, 1997. All significant intercompany accounts and
transactions have been eliminated in consolidation. The Company has made
business and customer base purchases 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 purchase.
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
$8,153,000, $6,455,000 and $5,446,000 for the years ended December 31, 1997
and 1996 and 10-month period ended December 31, 1995, respectively.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1997, and December 31, 1996, included in property and equipment
was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
---------- ----------
<S> <C> <C>
Cost of equipment..................................... $6,715,000 $5,796,000
Less accumulated depreciation......................... 4,490,000 2,939,000
---------- ----------
$2,225,000 $2,857,000
========== ==========
</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.
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 purchased 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. The Company
capitalizes costs associated with the development of software for the
Company's internal use. Such costs are depreciated over the useful life of the
software of up to seven years.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTANGIBLES The excess cost of businesses acquired is amortized on the
straight-line basis over 30 years. Accumulated amortization at December 31,
1997 and 1996 was $2,048,000 and $1,552,000, 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
$13,255,000 and $8,174,000 at December 31, 1997 and 1996, 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 purchase 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
purchased. If this evaluation indicates that 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.
INCOME TAXES The Company accounts for income taxes under the liability method.
Under the liability method, deferred income taxes are recorded to reflect the
net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting and the amounts used for income
tax purposes.
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.
NET INCOME PER SHARE In 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and, where appropriate, restated to conform
to the SFAS 128 requirements.
NOTE 2 -- MERCHANT PORTFOLIO PURCHASES AND BUSINESS ACQUISITIONS
During the years ended December 31, 1997 and 1996, and the 10-month period
ended December 31, 1995, the Company made purchases from various banks and
third parties, including investments in a joint venture, for an aggregate
purchase price of $75,660,000, $4,095,000 and $3,476,000, respectively.
Significant 1997 transactions include purchases of the Crestar Bank
("Crestar") merchant portfolio effective May 29, 1997 and the MBNA America
Bank, N.A. ("MBNA") merchant portfolio effective December 31, 1997. The
Company also entered into a joint venture with Firstar Bank, U.S.A., N.A.
("Firstar") effective October 31, 1997, whereby Firstar and each of the other
banking affiliates of Firstar contributed substantially all merchant portfolio
contracts to the joint venture. The Company owns 51% of the joint venture and
will perform the transaction processing services for the joint venture's
merchant contracts. Estimated annual
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
processing volume for the Crestar, MBNA and Firstar merchant contracts are
$1.8 billion, $1.0 billion and $3.0 billion, respectively. The Company's
operating results reflect each of these purchases from the effective dates of
the transactions.
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,
----------------------------------
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Current assets........................... $ -- $ -- $ 157,000
Property and equipment................. -- -- 15,000
Non-compete agreement.................. 250,000 128,000 330,000
Excess cost of businesses acquired..... -- -- 354,000
Merchant contracts..................... 75,410,000 3,967,000 2,620,000
----------- ---------- ----------
75,660,000 4,095,000 3,476,000
Liabilities assumed...................... -- -- --
Notes payable to seller.................. -- (128,000) (174,000)
----------- ---------- ----------
Net cash paid............................ $75,660,000 $3,967,000 $3,302,000
=========== ========== ==========
</TABLE>
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 and 1996, consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Land and building.................................. $ 744,000 $ 614,000
Equipment.......................................... 20,641,000 13,179,000
Software, internally developed..................... 4,125,000 68,000
Furniture and fixtures............................. 1,934,000 1,394,000
Leasehold improvements............................. 1,375,000 1,129,000
Work-in-progress................................... 2,701,000 --
----------- -----------
31,520,000 16,384,000
Less accumulated depreciation and amortization..... (10,503,000) (6,172,000)
----------- -----------
$21,017,000 $10,212,000
=========== ===========
</TABLE>
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 -- INCOME TAXES
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,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Property and equipment............................... $2,576,000 $ 426,000
Tax over book amortization........................... -- 22,000
Other................................................ 540,000 411,000
---------- ----------
Total deferred tax liabilities..................... 3,116,000 859,000
========== ==========
DEFERRED TAX ASSETS:
Start-up expenses.................................... 4,000 10,000
Allowance for doubtful accounts...................... 1,590,000 1,348,000
Accrued liabilities.................................. 761,000 305,000
Book over tax amortization........................... 121,000 --
Credit carryforwards................................. -- 39,000
Net operating loss carryforwards..................... -- 848,000
---------- ----------
Total deferred tax assets.......................... 2,476,000 2,550,000
---------- ----------
Net deferred taxes................................... $ (640,000) $1,691,000
========== ==========
</TABLE>
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 will be realized.
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 10-MONTH
31, PERIOD ENDED
---------------------- DECEMBER 31,
1997 1996 1995
----------- ---------- ------------
<S> <C> <C> <C>
Current:
Federal............................... $ 7,922,000 $1,541,000 $ --
State................................. 669,000 178,000 --
Deferred:
Federal............................... 2,149,000 2,638,000 871,000
State................................. 182,000 407,000 50,000
Change in valuation allowance......... -- -- (4,978,000)
----------- ---------- -----------
$10,922,000 $4,764,000 $(4,057,000)
=========== ========== ===========
</TABLE>
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 DECEMBER 10-MONTH
31, PERIOD ENDED
---------------------- DECEMBER 31,
1997 1996 1995
----------- ---------- ------------
<S> <C> <C> <C>
Provision for income taxes at statutory
rate................................... $ 9,907,000 $4,211,000 $ 282,000
Amortization of excess cost of
businesses acquired.................... 57,000 57,000 48,000
Change in valuation allowance........... -- -- (4,978,000)
State income taxes, net of federal tax
benefit................................ 494,000 381,000 33,000
Other................................... 464,000 115,000 558,000
----------- ---------- -----------
$10,922,000 $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.
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, 1997 and 1996 consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
----------- ----------
<S> <C> <C>
Revolving loans due September 30, 2002............... $32,800,000 $ --
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.. 320,000 459,000
Other................................................ 94,000 182,000
Capital lease obligations (Note 7)................... 432,000 725,000
----------- ----------
Total long-term debt obligations..................... 33,646,000 1,366,000
Less amounts due within one year..................... 350,000 507,000
----------- ----------
Long-term debt obligations........................... $33,296,000 $ 859,000
=========== ==========
</TABLE>
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The annual aggregate maturities of long-term obligations, excluding capital
lease obligations, at December 31, 1997, are as follows:
<TABLE>
<S> <C>
1998............................................................. $ 247,000
1999............................................................. 167,000
2000............................................................. --
2001............................................................. --
2002............................................................. 32,800,000
-----------
$33,214,000
===========
</TABLE>
In October 1997, the Company entered into an agreement with a bank for
aggregate loans of up to $80 million. The Company, at its option and subject
to the satisfaction of certain conditions, may increase the aggregate amount
available on the credit facility to $100 million. On September 30, 2000, all
outstanding borrowings in excess of $50 million convert to term loans due in
eight equal quarterly installments commencing December 31, 2000 and ending
September 30, 2002. All outstanding borrowings under the then remaining $50
million revolving loan commitment are due September 30, 2002.
The Company pays a quarterly commitment fee in arrears on the average daily
unused portion of the funds available for revolving loans and letters of
credit. This commitment fee ranges from .125% to .200% depending on certain
financial ratios. The Company also pays commitment fees for outstanding
letters of credit. Such fees range from .35% to .65% depending on certain
financial ratios. Interest on outstanding borrowings is charged using, at the
Company's option, either the bank's base rate, as defined, or the prevailing
Eurodollar rate plus a margin determined from certain financial ratios. At
December 31, 1997, outstanding borrowings included $22.8 million at the bank's
base rate of 8.5% and $10.0 million in Eurodollar-based loans as a weighted-
average rate of 6.2%. Concurrent with entering the above credit agreement, the
Company cancelled its previous credit facility, which had available borrowings
of $10.0 million. There were no borrowings outstanding under the previous
facility at the date of cancellation.
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 and restrictions on the payment of dividends.
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, 1997 and 1996 and the 10-month
period ended December 31, 1995, was approximately $1,454,000, $912,000 and
$509,000, respectively.
Asset balances for property acquired under capital leases included in
property and equipment consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
---------- ---------
<S> <C> <C>
Building.................................................. $ 273,000 $ 273,000
Equipment................................................. 1,658,000 1,658,000
---------- ---------
1,931,000 1,931,000
Less accumulated depreciation............................. 1,468,000 1,409,000
---------- ---------
$ 463,000 $ 522,000
========== =========
</TABLE>
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future minimum lease payments for all non-cancelable leases at December 31,
1997, are summarized below:
<TABLE>
<CAPTION>
OPERATING LEASES CAPITAL LEASES
---------------- --------------
<S> <C> <C>
Year ending December 31, 1998................. $1,434,000 $159,000
1999......................................... 1,163,000 151,000
2000......................................... 1,081,000 95,000
2001......................................... 926,000 70,000
2002......................................... 157,000 70,000
Thereafter.................................... -- 45,000
---------- --------
Total future minimum lease payments........... $4,761,000 $590,000
==========
Less amount representing interest............. 158,000
--------
Present value of minimum lease payments....... 432,000
Less amounts due within one year.............. 103,000
--------
Long-term obligations under capital leases.... $329,000
========
</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.
NOTE 9 -- SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow disclosures, including non-cash investing and financing
activities, are:
<TABLE>
<CAPTION>
YEAR ENDED 10-MONTH
DECEMBER 31, PERIOD ENDED
---------------------- DECEMBER 31,
1997 1996 1995
----------- ---------- ------------
<S> <C> <C> <C>
Interest paid............................. $ 300,000 $1,178,000 $2,251,000
Income taxes paid......................... 10,350,000 230,000 --
Acquisition of equipment in exchange for
debt or capital leases................... -- -- 383,000
Note payable issued in conjunction with
business acquisition..................... -- 128,000 174,000
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
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
options was estimated at the date of grant using a Black-Scholes option
pricing model, with the following weighted-average assumptions for 1997: risk-
free interest rate of 5.70%; a dividend yield of 0%; volatility factors of the
expected market price of the Company's Common Stock of 0.544 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 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>
1997 1996
-------- --------
<S> <C> <C> <C>
Pro forma net
income...... $16,245,000 $6,824,000
Pro forma net
income per
share....... 0.56 0.23
Pro forma net
income per
share--
assuming
dilution.... 0.54 0.23
</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. Because 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 under the 1991 Plan, and
related information, follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
NUMBER OF OPTIONS EXERCISE PRICE
----------------- ----------------
<S> <C> <C>
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
Terminated.............................. (20,736) 1.47
Exercises............................... (289,673) 1.25
Balance at December 31, 1997.............. 896,999 1.18
==========
Exercisable at December 31, 1997.......... 710,139 1.18
==========
</TABLE>
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Exercise prices for options outstanding as of December 31, 1997, ranged from
$1.18 to $2.34. The weighted-average remaining contractual life of those
options is 6.4 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 under the 1996 employee
plan, 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
Granted................................ 504,090 13.74
Terminated............................. (118,202) 17.53
Exercised.............................. (33,054) 18.99
--------
Balance at December 31, 1997............. 962,304 16.37
--------
Exercisable at December 31, 1997......... 111,475 18.93
========
Weighted-average fair value of options
granted during 1996..................... 13.46
Weighted-average fair value of options
granted during 1997..................... 8.49
</TABLE>
Exercise prices for options outstanding as of December 31, 1997, ranged from
$13.63 to $19.00. The weighted-average remaining contractual life of those
options is 8.8 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. The weighted-average remaining
contractual life of those options is 9.3 years.
A summary of the Company's stock option activity under the 1996 Directors
Plan, and related information follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER AVERAGE
OF OPTIONS EXERCISE PRICE
---------- --------------
<S> <C> <C>
Balance at December 31, 1995....................... --
Granted ......................................... 3,000 $30.50
Terminated....................................... -- --
-----
Balance at December 31, 1996....................... 3,000 30.50
Granted.......................................... 5,000 23.49
Terminated....................................... -- --
-----
Balance at December 31, 1997....................... 8,000 26.12
=====
Exercisable at December 31, 1997................... 750 30.50
=====
</TABLE>
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 -- PRO FORMA INFORMATION
Pro forma net income 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 for the year ended December 31, 1996
and the 10-month period ended December 31, 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 12 -- NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net
income per share in accordance with SFAS 128:
<TABLE>
<CAPTION>
YEAR ENDED 10-MONTH
DECEMBER 31, PERIOD ENDED
------------------------- DECEMBER 31,
1997 1996 1995
------------ ------------ -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Numerator:
Net income........................ $ 17,385 $ 7,267 $ 4,887
Preferred stock dividends......... -- (1,486) (3,178)
------------ ------------ ------------
Numerator for basic net income per
share--income available to common
shareholders..................... $ 17,385 $ 5,781 $ 1,709
Effect of diluted securities:
Preferred stock dividends for
Series A, B and C preferred
stock.......................... -- 1,256 2,689
------------ ------------ ------------
Numerator for diluted net income
per share--income available to
common shareholders after
assumed conversions............ 17,385 7,037 4,398
Denominator:
Denominator for basic net income
per share--weighted-average
shares........................... 28,863 22,811 2,646
Effect of dilutive securities:
Employee stock options.......... 1,253 1,672 1,756
Cheap stock..................... -- -- 52
Convertible preferred stock..... -- -- 11,876
Effect of conversion of
preferred stock................ -- 4,121 --
------------ ------------ ------------
1,253 5,793 13,684
Dilutive potential common shares
Denominator for diluted net
income per share--adjusted
weighted-average shares and
assumed conversions............ 30,116 28,604 16,330
============ ============ ============
Basic net income per share.......... $ 0.60 $ 0.25 $ 0.65
============ ============ ============
Diluted net income per share........ $ 0.58 $ 0.25 $ 0.27
============ ============ ============
</TABLE>
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 -- RELATED PARTY TRANSACTIONS
The Company paid one of its shareholders $2,730,000, $1,817,000 and $1,220,000
in the years ended December 31, 1997 and 1996, and the 10-month period ended
December 31, 1995, respectively, relating to the Company's utilization of the
shareholder's telecommunications network.
The Company paid another of its shareholders $2,595,000, $9,532,000 and
$943,000 in the years ended December 31, 1997 and 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 $850,000 and $1,154,000 of interest income from one of
its shareholders in the years ended December 31, 1997 and 1996, respectively.
NOTE 14 -- 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 years ended December 31, 1997
and 1996, and the 10-month period ended December 31, 1995, contribution
expenses related to the Plan were not significant.
NOTE 15 -- FINANCIAL INSTRUMENTS
The Company's financial instruments at December 31, 1997 and 1996, consist
primarily of cash and cash equivalents and loans payable to a bank. Due to the
short maturities of the cash and cash equivalents, 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. In addition, the Company performs
ongoing credit evaluations of their customers' financial condition. The
Company's cash and cash equivalents at December 31, 1997, 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 16 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1997 CALENDAR QUARTER ENDED 1996 CALENDAR QUARTER ENDED
--------------------------------- --------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------- ------- -------- -------- ------- ------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $66,525 $78,044 $87,489 $103,567 $60,199 $67,568 $70,459 $67,603
Cost of service......... 52,071 59,595 67,499 80,893 46,634 52,624 55,223 53,114
Net income.............. 3,145 4,416 4,757 5,067 1,115 1,439 2,369 2,344
Net income per share.... 0.11 0.15 0.16 0.17 0.01 0.04 0.08 0.08
Net income per share--
assuming dilution...... 0.11 0.15 0.16 0.17 0.04 0.05 0.08 0.08
</TABLE>
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 merchant portfolio purchases 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.
NOTE 17 -- SUBSEQUENT EVENT
On January 21, 1998, the Company consummated a transaction (the "KeyBank
Joint Venture") with KeyBank National Association ("KeyBank") pursuant to
which the Company will provide transaction processing services to, and jointly
own and operate with KeyBank, a newly created limited liability company called
Key Merchant Services, LLC ("KMS"). The purchase price of the Company's
membership interest is payable over a three year period and is contingent upon
achieving certain levels of credit and debit card transaction processing
volume. The maximum consideration payable is $74 million. The Company owns a
51% interest in KMS.
F-19
<PAGE>
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................. $ 739 $ 91,985
Trade receivables, less allowance for doubtful
accounts of $2,822 and $4,048 at December 31, 1997
and March 31, 1998, respectively..................... 35,377 39,337
Inventory............................................. 1,156 3,187
Deferred tax asset and other current assets........... 5,373 5,836
-------- --------
Total current assets................................ 42,645 140,345
Merchant and customer contracts....................... 92,197 142,807
Property and equipment, net........................... 21,017 41,181
Excess cost of businesses acquired.................... 12,805 12,560
Deferred tax asset and other non-current assets....... 1,864 2,980
-------- --------
Total assets........................................ $170,528 $339,873
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable...................................... $ 8,015 $ 13,973
Accounts payable to affiliate......................... 3,410 1,768
Accrued compensation and related costs................ 726 691
Settlement obligations................................ 10,896 9,585
Other accrued liabilities............................. 7,010 12,823
Long-term debt obligations due within one year........ 350 18,239
-------- --------
Total current liabilities........................... 30,407 57,079
Deferred tax liability................................ 3,112 5,085
Long-term debt obligations............................ 33,296 17,266
Minority interest in subsidiary....................... 776 4,255
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value, 50,000,000 shares
authorized, 29,031,000 and 34,261,000 shares issued
at December 31, 1997 and June 30, 1998, respectively. 290 343
Additional paid in capital............................ 99,967 244,198
Retained earnings..................................... 2,680 11,647
-------- --------
Total stockholders' equity.......................... 102,937 256,188
-------- --------
Total liabilities and stockholders' equity.......... $170,528 $339,873
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-20
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------- --------------------
1997 1998 1997 1998
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
REVENUE............................ $ 78,044 $ 165,555 $ 144,569 $ 298,873
OPERATING COST
Cost of service.................... 59,595 130,594 111,666 235,924
Conversion cost.................... 499 2,025 990 6,612
Selling, general and
administrative.................... 8,590 13,686 15,948 24,862
Depreciation and amortization...... 2,375 6,103 4,251 11,637
--------- ---------- --------- ---------
TOTAL OPERATING COST............. 71,059 152,408 132,855 279,035
OPERATING INCOME................... 6,985 13,147 11,714 19,838
Interest expense (income), net..... (299) (27) (641) 1,138
Minority interest in income of
subsidiary........................ -- 3,529 -- 4,466
--------- ---------- --------- ---------
INCOME BEFORE PROVISION FOR INCOME
TAXES............................. 7,284 9,645 12,355 14,234
Provision for income taxes......... 2,868 3,569 4,794 5,267
--------- ---------- --------- ---------
NET INCOME......................... $ 4,416 $ 6,076 $ 7,561 $ 8,967
========= ========== ========= =========
Net income per share............... $ 0.15 $ 0.18 $ 0.26 $ 0.29
========= ========== ========= =========
Net income per share assuming
dilution.......................... $ 0.15 $ 0.18 $ 0.25 $ 0.28
========= ========== ========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-21
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 7,561 $ 8,967
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 4,251 11,637
Deferred income tax..................................... -- 1,245
Minority interest....................................... -- 1,685
Changes in assets and liabilities, net of the effects of
business acquisitions:
Trade receivables..................................... (9,131) (3,960)
Inventory............................................. (40) (1,694)
Other assets.......................................... (1,176) (1,046)
Accounts payable...................................... 2,274 4,317
Accrued liabilities................................... 4,088 4,466
--------- ---------
Net cash provided by operating activities............. 7,827 25,617
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of merchant and customer contracts............ (22,288) (26,415)
Additions to property and equipment..................... (5,807) (20,313)
--------- ---------
Net cash used in investing activities................. (28,095) (46,728)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit and notes payable.......... -- 21,146
Payment of long-term debt and capital leases............ (27) (53,073)
Proceeds from stock issued and stock options exercised.. 257 144,284
--------- ---------
Net cash provided by financing activities............. 230 112,357
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (20,038) 91,246
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.......... 40,326 739
CASH AND CASH EQUIVALENTS, END OF PERIOD................ $ 20,288 $ 91,985
Supplemental Cash Flow Information
Supplemental cash flow disclosures, including non-cash
investing and financing activities, are:
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Interest paid........................................... $ 115 $ 1,087
Income taxes paid....................................... $ 1,924 $ 3,356
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered
necessary for a fair presentation have been included. These financial
statements should be read in conjunction with the Company's audited financial
statements included in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 filed with the Securities and Exchange Commission
(Commission File No. 1-14342). The results for the six months ended or the
quarter ended June 30, 1998 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1998.
NOTE 2--NET INCOME PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share" ("SFAS 128"). SFAS 128 replaces the calculation of
primary and fully diluted earnings per share with basic and diluted earnings
per share. Unlike primary earnings per share, basic earnings per share
excludes any dilutive effects of options, warrants and convertible securities.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. All earnings per share amounts for all periods
have been presented and, where appropriate, restated to conform to the SFAS
128 requirements.
The following table sets forth the computation of basic and diluted net
income per share in accordance with SFAS 128 (In thousands, except per share
data):
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE THREE MONTHS MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------- ---------------
1997 1998 1997 1998
---------- ---------- ------- -------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic and diluted net
income per share--income available
To common shareholders................ $ 4,416 $ 6,076 $ 7,561 $ 8,967
Denominator:
Denominator for basic net income per
share--weighted-average shares........ 28,845 33,063 28,798 31,060
Effect of diluted securities:
Employee stock options............... 1,176 1,227 1,143 1,209
Dilutive potential common shares
Denominator for diluted net income
per share--adjusted weighted-average
shares and assumed conversions...... 30,021 34,290 29,941 32,269
---------- ---------- ------- -------
Basic net income per share............... $ 0.15 $ 0.18 $ 0.26 $ 0.29
========== ========== ======= =======
Diluted net income per share............. $ 0.15 $ 0.18 $ 0.25 $ 0.28
========== ========== ======= =======
</TABLE>
NOTE 3--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 currently pending matters will not have a material
adverse affect on the Company's financial position and results of operations.
F-23
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, is made, entered into and effective as of
the 17th day of June, 1998 (this "Agreement"), among NOVA CORPORATION, a
Georgia corporation ("Parent"), CHURCH MERGER CORP., a Tennessee corporation
and a wholly-owned subsidiary of Parent ("Sub"), and PMT SERVICES, INC., a
Tennessee corporation (the "Company") (Sub and the Company being hereinafter
collectively referred to as the "Constituent Corporations").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have approved and declared advisable the merger of Sub and the Company (the
"Merger"), upon the terms and subject to the conditions set forth herein,
whereby each issued and outstanding share of Common Stock, par value $.01 per
share, of the Company ("Company Common Stock") not owned directly or
indirectly by Parent or the Company will be converted into shares of Parent
Common Stock, par value $.01 per share ("Parent Common Stock");
WHEREAS, the respective Boards of Directors of Parent and the Company have
determined that the Merger, which is intended to be a "merger of equals," is
in furtherance of and consistent with their respective long-term business
strategies and is in the best interest of their respective shareholders;
WHEREAS, each of Parent and Company has granted to the other an option to
purchase up to 19.9% of its Common Stock, all pursuant to the Stock Option
Agreements of even date herewith (collectively, the "Stock Option
Agreements").
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a)(2)(E)
of the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, it is intended that the Merger shall be recorded for accounting
purposes as a pooling of interests.
NOW, THEREFORE, in consideration of the premises, representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. Upon the terms and subject to the conditions hereof, and in
accordance with the Tennessee Business Corporation Act (the "TBCA"), Sub shall
be merged with and into the Company at the Effective Time (as hereinafter
defined). Following the Merger, the separate corporate existence of Sub shall
cease and the Company shall continue as the surviving corporation (the
"Surviving Corporation") and shall succeed to and assume all the rights and
obligations of Sub in accordance with the TBCA.
1.2 EFFECTIVE TIME. The Merger shall become effective when Articles of
Merger (the "Articles of Merger"), executed in accordance with the relevant
provisions of the TBCA, are filed with the Secretary of State of the State of
Tennessee; provided, however, that, upon mutual consent of the Constituent
Corporations, the Articles of Merger may provide for a later date of
effectiveness of the Merger not more than 30 days after the date the Articles
of Merger are filed. When used in this Agreement, the term "Effective Time"
shall mean the later of the date and time at which the Articles of Merger are
filed or such later time established by the Articles of Merger. The filing of
the Articles of Merger shall be made on the date of the "Closing" (as defined
in Section 1.16).
A-1
<PAGE>
1.3 EFFECTS OF THE MERGER. The Merger shall have the effects set forth in
Section 48-21-108 of the TBCA.
1.4 CHARTER AND BYLAWS. At the Effective Time, the Amended and Restated
Charter of the Company, as in effect immediately prior to the Effective Time,
shall be the Charter of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law. At the Effective Time, the
Bylaws of the Company, as in effect immediately prior to the Effective Time,
shall be the Bylaws of the Surviving Corporation until thereafter changed or
amended as provided therein or by the Amended and Restated Charter of the
Surviving Corporation or by applicable law. At the Effective Time, the board
of directors and officers of the Surviving Corporation shall be comprised of
the individuals identified on Schedule 1.4 attached hereto.
1.5 CONVERSION OF SECURITIES. As of the Effective Time, by virtue of the
Merger and without any action on the part of Sub, the Company, or the holders
of any securities of the Constituent Corporations:
(a) Each issued and outstanding share of common stock, par value $.01 per
share, of Sub shall cease to be outstanding and shall be converted into one
validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation.
(b) All shares of Company Common Stock that are held in the treasury of
the Company or by any wholly-owned "Subsidiary" (as defined in Section 2.1)
of the Company shall be canceled and no capital stock of Parent or other
consideration shall be delivered in exchange therefor.
(c) Subject to the provisions of Sections 1.8 and 1.10 hereof, each share
of Company Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares to be canceled in accordance with Section
1.5(b)) shall be converted into 0.715 (such number being the "Conversion
Number") validly issued, fully paid and nonassessable shares of Parent
Common Stock. All such shares of Company Common Stock, when so converted,
shall no longer be outstanding and shall automatically be canceled and
retired and each holder of a certificate representing any such shares shall
cease to have any rights with respect thereto, except the right to receive
(i) any dividends and other distributions in accordance with Section 1.7,
(ii) certificates representing the shares of Parent Common Stock into which
such shares are converted, and (iii) any cash, without interest, in lieu of
fractional shares to be issued or paid in consideration therefor pursuant
to Section 1.8 upon the surrender of such certificate in accordance with
Section 1.6.
1.6 PARENT TO MAKE CERTIFICATES AVAILABLE.
(a) Exchange of Certificates. Parent shall authorize a commercial bank
reasonably acceptable to the Company (or such other person or persons as
shall be acceptable to Parent and the Company) to act as Exchange Agent
hereunder (the "Exchange Agent"). As soon as practicable after the
Effective Time, Parent shall deposit with the Exchange Agent, in trust for
the holders of shares of Company Common Stock converted in the Merger, (i)
certificates representing the shares of Parent Common Stock issuable
pursuant to Section 1.5(c) in exchange for outstanding shares of Company
Common Stock, and (ii) cash, as required to make payments in lieu of any
fractional shares pursuant to Section 1.8 (such cash and shares of Parent
Common Stock, together with any dividends or distributions with respect
thereto, being hereinafter referred to as the "Exchange Fund"). The
Exchange Agent shall, pursuant to irrevocable instructions, deliver the
Parent Common Stock contemplated to be issued pursuant to Section 1.5(c)
out of the Exchange Fund. Except as contemplated by Sections 1.8 and 1.9,
the Exchange Fund shall not be used for any other purpose.
(b) Exchange Procedures. As soon as practicable after the Effective Time,
Parent shall cause the Exchange Agent to mail to each record holder of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock converted in the
Merger (the "Certificates") a letter of transmittal (which shall be in
customary form, shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon actual delivery of
the Certificates to the Exchange Agent, and shall contain instructions for
use in effecting the surrender of the Certificates in exchange for
certificates representing shares of Parent Common Stock and cash in lieu of
fractional shares).
A-2
<PAGE>
Upon surrender for cancellation to the Exchange Agent of a Certificate,
together with such letter of transmittal, properly executed and duly
executed in accordance with the instructions thereon, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Parent Common Stock into which
the shares represented by the surrendered Certificate shall have been
converted at the Effective Time pursuant to this Article I, cash in lieu of
any fractional share in accordance with Section 1.8, and certain dividends
and other distributions in accordance with Section 1.7, and any Certificate
so surrendered shall forthwith be canceled.
1.7 DIVIDENDS; TRANSFER TAXES; WITHHOLDING. No dividends or other
distributions that are declared on or after the Effective Time on Parent
Common Stock, or that are payable to the holders of record thereof on or after
the Effective Time, will be paid to any person entitled by reason of the
Merger to receive a certificate representing Parent Common Stock until such
person surrenders the related Certificate or Certificates, as provided in
Section 1.6, and no cash payment in lieu of fractional shares will be paid to
any such person pursuant to Section 1.8 until such person shall so surrender
the related Certificate or Certificates. Subject to the effect of applicable
law, there shall be paid to each record holder of a new certificate
representing such Parent Common Stock: (i) at the time of such surrender or as
promptly as practicable thereafter, the amount of any dividends or other
distributions theretofore paid with respect to the shares of Parent Common
Stock represented by such new certificate and having a record date on or after
the Effective Time and a payment date prior to such surrender; (ii) at the
appropriate payment date or as promptly as practicable thereafter, the amount
of any dividends or other distributions payable with respect to such shares of
Parent Common Stock and having a record date on or after the Effective Time
but prior to such surrender and a payment date on or subsequent to such
surrender; and (iii) at the time of such surrender or as promptly as
practicable thereafter, the amount of any cash payable with respect to a
fractional share of Parent Common Stock to which such holder is entitled
pursuant to Section 1.8. In no event shall the person entitled to receive such
dividends or other distributions be entitled to receive interest on such
dividends or other distributions. If any cash or certificate representing
shares of Parent Common Stock is to be paid to or issued in a name other than
that in which the Certificate surrendered in exchange therefor is registered,
it shall be a condition of such exchange that the Certificate so surrendered
shall be properly endorsed and otherwise in proper form for transfer and that
the person requesting such exchange shall pay to the Exchange Agent any
transfer or other taxes required by reason of the issuance of certificates for
such shares of Parent Common Stock in a name other than that of the registered
holder of the Certificate surrendered, or shall establish to the satisfaction
of the Exchange Agent that such tax has been paid or is not applicable. Parent
or the Exchange Agent shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any holder of
shares of Company Common Stock such amounts as Parent or the Exchange Agent is
required to deduct and withhold with respect to the making of such payment
under the Code or under any provision of state, local or foreign tax law. To
the extent that amounts are so withheld by Parent or the Exchange Agent, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the holder of the shares of Company Common Stock in respect of
which such deduction and withholding was made by Parent or the Exchange Agent.
1.8 NO FRACTIONAL SECURITIES. No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender
for exchange of Certificates pursuant to this Article I, and no Parent
dividend or other distribution or stock split shall relate to any fractional
share, and no fractional share shall entitle the owner thereof to vote or to
any other rights of a security holder of Parent. In lieu of any such
fractional share, each holder of Company Common Stock who would otherwise have
been entitled to a fraction of a share of Parent Common Stock upon surrender
of Certificates for exchange pursuant to this Article I will be paid an amount
in cash (without interest), rounded to the nearest cent, determined by
multiplying (i) the per share closing price on the New York Stock Exchange,
Inc. (the "NYSE") of Parent Common Stock (as reported in the NYSE Composite
Transactions) on the date of the Effective Time (or, if the shares of Parent
Common Stock do not trade on the NYSE on such date, the first date of trading
of shares of Parent Common Stock on the NYSE after the Effective Time) by (ii)
the fractional interest to which such holder would otherwise be entitled. As
promptly as practicable after the determination of the amount of cash, if any,
to be paid to holders of fractional share interests, the Exchange Agent shall
so notify the Parent, and the Parent shall deposit such amount with the
A-3
<PAGE>
Exchange Agent and shall cause the Exchange Agent to forward payments to such
holders of fractional share interests subject to and in accordance with the
terms of Section 1.7 and this Section 1.8.
1.9 RETURN OF EXCHANGE FUND. Any portion of the Exchange Fund which remains
undistributed to the former shareholders of the Company for one year after the
Effective Time shall be delivered to Parent, upon demand of Parent, and any
such former shareholders who have not theretofore complied with this Article I
shall thereafter look only to Parent for payment of their claim for Parent
Common Stock, any cash in lieu of fractional shares of Parent Common Stock,
and any dividends or distributions with respect to Parent Common Stock.
Neither Parent nor the Surviving Corporation shall be liable to any former
holder of Company Common Stock for any such shares of Parent Common Stock,
cash and dividends, and/or distributions held in the Exchange Fund which are
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
1.10 ADJUSTMENT OF CONVERSION NUMBER. In the event of any reclassification,
stock split or stock dividend with respect to Parent Common Stock, any change
or conversion of Parent Common Stock into other securities, any adjustment
pursuant to Section 7.1(g) hereof, or any other dividend or distribution with
respect to the Parent Common Stock other than normal quarterly cash dividends
as the same may be adjusted from time to time pursuant to the terms of this
Agreement (or if a record date with respect to any of the foregoing should
occur) prior to the Effective Time, appropriate and proportionate adjustments,
if any, shall be made to the Conversion Number, and all references to the
Conversion Number in this Agreement shall be deemed to be to the Conversion
Number as so adjusted.
1.11 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All shares of
Parent Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms hereof (including any cash paid pursuant to Section
1.8) shall be deemed to have been issued in full satisfaction of all rights
pertaining to the shares of Company Common Stock represented by such
Certificates.
1.12 CLOSING OF COMPANY TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Company shall be closed and no transfer of shares of
Company Common Stock shall thereafter be made on the records of the Company.
If, after the Effective Time, Certificates are presented to the Surviving
Corporation, the Exchange Agent or the Parent, such Certificates shall be
canceled and exchanged as provided in this Article I.
1.13 LOST CERTIFICATES. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond, in such
reasonable amount as the Surviving Corporation may direct (but consistent with
the practices the Parent applies to its own shareholders), as indemnity
against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen
or destroyed Certificate the shares of Parent Common Stock, any cash in lieu
of fractional shares of Parent Common Stock to which the holders thereof are
entitled pursuant to Section 1.8, and any dividends or other distributions to
which the holders thereof are entitled pursuant to Section 1.7.
1.14 [INTENTIONALLY OMITTED.]
1.15 FURTHER ASSURANCES. If at any time after the Effective Time the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (a) to vest, perfect or confirm, of record or otherwise,
in the Surviving Corporation its right, title or interest in, to or under any
of the rights, privileges, powers, franchises, properties or assets of either
of the Constituent Corporations, or (b) otherwise to carry out the purposes of
this Agreement, the Surviving Corporation and its proper officers and
directors or their designees shall be authorized to execute and deliver, in
the name and on behalf of either of the Constituent Corporations, all such
deeds, bills of sale, assignments and assurances and to do, in the name and on
behalf of either Constituent Corporation, all such other acts and things as
may be necessary, desirable or proper to vest, perfect or confirm the
Surviving Corporation's right, title or interest in, to or under any of the
rights, privileges, powers, franchises, properties or assets of such
Constituent Corporation and otherwise to carry out the purposes of this
Agreement.
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1.16 CLOSING. The closing of the transactions contemplated by this Agreement
(the "Closing") and all actions specified in this Agreement to occur at the
Closing shall take place at the offices of Long Aldridge & Norman LLP at 10:00
a.m., local time, no later than the second business day following the day on
which the last of the conditions set forth in Article VI shall have been
fulfilled or waived, or at such other time and place as Parent and the Company
shall agree.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub jointly and severally represent and warrant to the Company as
follows:
2.1 ORGANIZATION, STANDING AND POWER. Each of Parent and Sub is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Georgia and Tennessee, respectively, and has the
requisite corporate power and authority to carry on its business as now being
conducted. Each Subsidiary of Parent is duly organized, validly existing and
in good standing under the laws of the jurisdiction in which it is organized
and has the requisite corporate (in the case of a Subsidiary that is a
corporation) or other power and authority to carry on its business as now
being conducted, except where the failure to be so organized, existing or in
good standing or to have such power or authority would not, individually or in
the aggregate, have a "Material Adverse Effect" (as defined in this Section
2.1) on Parent. Except as set forth on Schedule 2.1, Parent and each of its
Subsidiaries are duly qualified to do business, and are in good standing, in
each jurisdiction where the character of their properties owned or held under
lease or the nature of their activities makes such qualification necessary,
except where the failure to be so qualified would not, individually or in the
aggregate, have a Material Adverse Effect on Parent. For purposes of this
Agreement, (a) "Material Adverse Change" or "Material Adverse Effect" means,
when used with respect to Parent or the Company, as the case may be, any
change or effect that is materially adverse to the business, prospects,
assets, liabilities, results of operation or financial condition of Parent and
its Subsidiaries, taken as a whole, or the Company and its Subsidiaries, taken
as a whole, as the case may be, and (b) "Subsidiary" means any corporation,
partnership, joint venture or other legal entity of which Parent or the
Company, as the case may be (either alone or through or together with any
other Subsidiary), owns, directly or indirectly, 50% or more of the stock or
other equity interests the holders of which are generally entitled to vote for
the election of the board of directors or other governing body of such
corporation, partnership, joint venture or other legal entity.
2.2 CAPITAL STRUCTURE. As of the date hereof, the authorized capital stock
of Parent consists of 50,000,000 shares of Parent Common Stock, par value $.01
per share, and 5,000,000 shares of Preferred Stock, without par value (the
"Parent Preferred Stock"); provided, however, that if Parent's shareholders,
at or prior to the "Parent Shareholder Meeting" (as defined in Section 5.1),
approve an amendment to Parent's Articles of Incorporation which increases the
authorized capital stock of Parent, then the authorized capital stock as of
the Effective Time will be as so increased. At June 12, 1998 (except with
respect to the representation and warranty made in subsection (v) below, which
is made as of the date hereof), (i) 34,253,368 shares of Parent Common Stock
were issued and outstanding, all of which were validly issued, fully paid and
nonassessable and free of preemptive rights or rights of first refusal, (ii)
no shares of Parent Common Stock were held in the treasury of Parent or by the
Subsidiaries of Parent, (iii) 5,250,000 shares of Parent Common Stock
originally were reserved for future issuance, and of such shares, 3,017,284
are reserved for future issuance as of June 12, 1998, pursuant to Parent's
1991 Employees' Stock Option and Stock Appreciation Rights Plan, as amended,
the 1996 Employees' Stock Incentive Plan, as amended, and 1996 Directors'
Stock Option Plan (collectively, the "Parent Option Plans"), (iv) 50,000
shares of Parent Common Stock were reserved for issuance pursuant to the
Warrant Agreement between Parent and Kessler Financial Services, L.P. (the
"Kessler Warrant"), and (v) 6,816,420 shares of Parent Common Stock were
reserved for issuance pursuant to the Stock Option Agreement, of even date
herewith, between Parent and Company (the "Parent Stock Option Agreement"). No
shares of Parent Preferred Stock are outstanding. All of the shares of Parent
Common Stock issuable in exchange for Company Common Stock at the Effective
Time in accordance with this Agreement will be, when so issued, duly
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authorized, validly issued, fully paid and nonassessable and free of
preemptive rights or rights of first refusal. As of the date of this
Agreement, except for (a) this Agreement, (b) the Kessler Warrant, (c) the
Parent Stock Option Agreement, and (d) stock options covering not in excess of
2,526,496 shares of Parent Common Stock under the Parent Option Plans
(collectively, the "Parent Options"), there are no options, warrants, calls,
rights or agreements to which Parent or any of its Subsidiaries is a party or
by which any of them is bound obligating Parent or any of its Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock of Parent or any of its Subsidiaries or obligating
Parent or any of its Subsidiaries to grant, extend or enter into any such
option, warrant, call, right or agreement. Since June 12, 1998, Parent has not
issued any shares of its capital stock, or securities convertible into or
exchangeable for such capital stock. Each outstanding share of capital stock
of each Subsidiary of Parent is duly authorized, validly issued, fully paid
and nonassessable, and, except as set forth on Schedule 2.2, each such share
is owned by Parent or another Subsidiary of Parent, free and clear of all
security interests, liens, claims, pledges, options, rights of first refusal,
agreements, limitations on voting rights, charges and other encumbrances of
any nature whatsoever. Except as set forth in Schedule 2.2, Exhibit 21 to
Parent's Annual Report on Form 10-K for the year ended December 31, 1997, as
filed with the Securities and Exchange Commission (the "SEC") (the "Parent
Annual Report"), is a true, accurate and correct statement in all material
respects of all of the information required to be set forth therein by the
regulations of the SEC.
2.3 AUTHORITY.
(1) The respective Boards of Directors of Parent and Sub have, on or
prior to the date of this Agreement at a meeting duly called and held and
not subsequently rescinded or modified in any way, (i) unanimously adopted
this Agreement in accordance with the Georgia Business Corporation Code
(the "GBCC") and the TBCA, respectively, (ii) resolved to recommend the
approval of this Agreement to their respective shareholders, (iii) directed
that this Agreement be submitted to their respective shareholders for
approval, (iv) (with respect to Parent) approved the amendment of its
Articles of Incorporation, the amendment of its 1996 Employees' Stock
Incentive Plan and any other amendments or actions necessary to consummate
the Merger (collectively, the "Parent Amendments"), (v) (with respect to
Parent) resolved to recommend the Parent Amendments to its shareholders,
and (vi) (with respect to Parent) directed that the Parent Amendments be
submitted to its shareholders for approval.
(2) Each of Parent and Sub has all requisite corporate power and
authority to enter into this Agreement and, subject to approval by the
shareholders of Parent of this Agreement and the transactions contemplated
hereby (including but not limited to the Parent Amendments) and the
issuance of Parent Common Stock in connection with the Merger (the "Share
Issuance"), to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by Parent and Sub and the
consummation by Parent and Sub of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of
Parent and Sub, subject to (x) approval by the shareholders of Parent of
this Agreement and the transactions contemplated hereby, including without
limitation, the Share Issuance and the Parent Amendments, and (y) the
filing of appropriate Merger documents as required by the TBCA. This
Agreement has been duly executed and delivered by Parent and Sub and
(assuming the valid authorization, execution and delivery of this Agreement
by the Company) this Agreement constitutes the valid and binding obligation
of Parent and Sub enforceable against each of them in accordance with its
terms. The Merger, the Share Issuance, the Parent Amendments, and the
filing of a joint proxy statement and a registration statement on Form S-4
(or other appropriate form) with the SEC by Parent under the Securities
Exchange Act of 1934, as amended (together with the rules and regulations
promulgated thereunder, the "Exchange Act") and the Securities Act of 1933,
as amended (together with the rules and regulations promulgated thereunder,
the "Securities Act"), for the purpose of registering the shares of Parent
Common Stock to be issued in the Merger and seeking approval of this
Agreement, the transactions contemplated hereby, the Parent Amendments, and
the Share Issuance by the shareholders of Parent (together with any
amendments or supplements thereto, whether prior to or after the effective
date thereof, the "Registration Statement") have been duly authorized by
Parent's Board of Directors.
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2.4 CONSENTS AND APPROVALS; NO VIOLATION. Assuming that all consents,
approvals, authorizations and other actions described in this Section 2.4 have
been obtained and all filings and obligations described in this Section 2.4
have been made, and except as set forth in Schedule 2.4 (including the
required consents, approvals, authorizations and other actions identified
therein), the execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give to others a right of
termination, cancellation or acceleration of any obligation or the loss of a
material benefit under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of Parent
or any of its Subsidiaries under, any provision of (i) the Articles of
Incorporation or Bylaws of Parent, (ii) any provision of the comparable
charter or organization documents of any of Parent's Subsidiaries, (iii) any
loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license applicable to
Parent or any of its Subsidiaries or (iv) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Parent or any of its
Subsidiaries or any of their respective properties or assets, other than, in
the case of clauses (ii), (iii) or (iv), any such violations, defaults,
rights, liens, security interests, charges or encumbrances that, individually
or in the aggregate, would not have a Material Adverse Effect on Parent, or
prevent the consummation of any of the transactions contemplated hereby. No
filing or registration with, or authorization, consent or approval of, any
domestic (federal and state), foreign or supranational court, commission,
governmental body, regulatory agency, authority or tribunal (each, a
"Governmental Entity") is required by or with respect to Parent or any of its
Subsidiaries in connection with the execution and delivery of this Agreement
by Parent or Sub or is necessary for the consummation of the Merger and the
other transactions contemplated by this Agreement, except for (i) in
connection, or in compliance, with the provisions of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the Securities
Act and the Exchange Act, (ii) the filing of the Articles of Merger with the
Secretary of State of the State of Tennessee and appropriate documents with
the relevant authorities of other states in which Parent or any of its
Subsidiaries is qualified to do business, (iii) such filings and consents as
may be required under any environmental, health or safety law or regulation
pertaining to any notification, disclosure or required approval triggered by
the Merger or by the transactions contemplated by this Agreement, (iv) such
filings, authorizations, orders and approvals as may be required by state
takeover laws (the "State Takeover Approvals"), (v) such filings and consents
as may be required under any state or foreign laws pertaining to debt
collection, the issuance of payment instruments or money transmission, (vi)
applicable requirements, if any, of state securities or "blue sky" laws ("Blue
Sky Laws") and the NYSE, and (vii) such other consents, orders,
authorizations, registrations, declarations and filings, the failure of which
to be obtained or made would not, individually or in the aggregate, have a
Material Adverse Effect on Parent, or prevent the consummation of any of the
transactions contemplated hereby.
2.5 SEC DOCUMENTS AND OTHER REPORTS. Parent has filed all required
documents, reports and schedules with the SEC since December 31, 1996
(collectively, the "Parent SEC Documents"). As of their respective dates, the
Parent SEC Documents complied in all material respects with the requirements
of the Securities Act or the Exchange Act, as the case may be, and, at the
respective times they were filed, none of the Parent SEC Documents contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. Except
as set forth in Schedule 2.5, the consolidated financial statements
(including, in each case, any notes thereto) of Parent included in the Parent
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with respect thereto, were prepared in accordance with generally accepted
accounting principles (except as may be indicated therein or in the notes
thereto) applied on a consistent basis during the periods involved (except as
may be indicated therein or in the notes thereto) and fairly presented in all
material respects the consolidated financial position of Parent and its
consolidated Subsidiaries as at the respective dates thereof and the
consolidated results of their operations and their consolidated cash flows for
the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments and to any other adjustments described
therein). Except as set forth in Schedule 2.5, Parent has not, since December
31, 1997, made any change in the accounting practices or policies applied in
the preparation of financial statements.
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2.6 REGISTRATION STATEMENT AND JOINT PROXY STATEMENT. None of the
information to be supplied by Parent or Sub for inclusion or incorporation by
reference in the Registration Statement, the joint proxy statement/prospectus
included therein (together with any amendments or supplements thereto, the
"Joint Proxy Statement") relating to the "Shareholder Meetings" (as defined in
Section 5.1) or any other document filed with any other regulatory agency in
connection herewith will: (i) in the case of the Registration Statement, at
the time it becomes effective, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
in order to make the statements therein not misleading; (ii) in the case of
the Joint Proxy Statement, at the time of the mailing of the Joint Proxy
Statement, the time of each of the Shareholder Meetings, and at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading; or, (iii) in the case of any other filing required by any
regulatory agency in connection herewith, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make statements therein, in light of the
circumstances under which they are made, not misleading. If, at any time prior
to the Effective Time, any event with respect to Parent, its officers and
directors or any of its Subsidiaries shall occur which is required to be
described in the Joint Proxy Statement or the Registration Statement, such
event shall be so described, and an appropriate amendment or supplement shall
be promptly filed with the SEC and, as required by law, disseminated to the
shareholders of Parent and the Company. The Registration Statement (except for
portions thereof that relate only to the Company or any of its Subsidiaries)
and the Joint Proxy Statement (except for portions thereof that relate only to
the Company or any of its Subsidiaries) will comply as to form in all material
respects with the provisions of the Securities Act and the Exchange Act, as
applicable.
2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on Schedule
2.7, since December 31, 1997: (A) Parent and its Subsidiaries have not
incurred any material liability or obligation (indirect, direct or
contingent), or entered into any material oral or written agreement or other
transaction, that is not in the ordinary course of business or that would
result in a Material Adverse Effect on Parent, excluding any changes and
effects resulting from changes in economic, regulatory or political conditions
or changes in conditions generally applicable to the industries in which
Parent and Subsidiaries of Parent are involved and except for any such changes
or effects resulting from this Agreement, the transactions contemplated
hereby, or the announcement thereof; (B) Parent and its Subsidiaries have not
sustained any loss or interference with their business or properties from
fire, flood, windstorm, accident or other calamity (whether or not covered by
insurance) that has had a Material Adverse Effect on Parent; (C) other than
any indebtedness incurred by Parent after the date hereof as permitted by
Section 4.1(a)(vi), there has been no material change in the consolidated
indebtedness of Parent and its Subsidiaries, and no dividend or distribution
of any kind declared, paid or made by Parent on any class of its stock; and
(D) there has been no event causing a Material Adverse Effect on Parent,
excluding any changes and effects resulting from changes in economic,
regulatory or political conditions or changes in conditions generally
applicable to the industries in which Parent and Subsidiaries of Parent are
involved and which do not affect Parent in a manner materially
disproportionate to the effect on the Company) and except for any such changes
or effects resulting from this Agreement, the transactions contemplated hereby
or the announcement thereof.
2.8 PERMITS AND COMPLIANCE. Except as set forth on Item 2 of Schedule 2.8,
each of Parent and its Subsidiaries is in possession of all franchises,
grants, authorizations, licenses, permits, easements, variances, exceptions,
consents, certificates, approvals and orders of any Governmental Entity
necessary for Parent or any of its Subsidiaries to own, lease and operate its
properties or to carry on its business as it is now being conducted
(collectively, the "Parent Permits"), except where the failure to have any of
the Parent Permits would not, individually or in the aggregate, have a
Material Adverse Effect on Parent, and, as of the date of this Agreement, no
suspension or cancellation of any of the Parent Permits is pending or, to the
"Knowledge of Parent" (as defined in this Section 2.8), threatened, except
where the suspension or cancellation of any of the Parent Permits would not,
individually or in the aggregate, have a Material Adverse Effect on Parent.
Neither Parent nor any of its Subsidiaries is in default or violation of (A)
its charter, bylaws or other organizational documents, (B) any applicable law,
ordinance, administrative or governmental rule or regulation, (C) any order,
decree or judgment
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of any Governmental Entity having jurisdiction over Parent or any of its
Subsidiaries, or (D) any provisions of the rules and regulations of VISA
U.S.A., Inc., VISA International, Inc., MasterCard International, Inc. and any
successor organizations or associations (collectively, the "Credit Card
Associations"), except, in the case of clauses (A), (B), (C) and (D), for any
violations that, individually or in the aggregate, would not have a Material
Adverse Effect on Parent. Except as disclosed in Schedule 2.8, as of the date
hereof there is no contract or agreement that is material to the business,
financial condition or results of operations of Parent and its Subsidiaries,
taken as a whole. Except as set forth in Schedule 2.8, as of the date of this
Agreement, no event of default or event that, but for the giving of notice or
the lapse of time or both, would constitute an event of default exists or,
upon the consummation by Parent of the transactions contemplated by this
Agreement, will exist under any indenture, mortgage, loan agreement, note or
other agreement or instrument for borrowed money, any guarantee of any
agreement or instrument for borrowed money or any lease, contractual license
or other agreement or instrument to which Parent or any of its Subsidiaries is
a party or by which Parent or any such Subsidiary is bound or to which any of
the properties, assets or operations of Parent or any such Subsidiary is
subject, other than any defaults that, individually or in the aggregate, would
not have a Material Adverse Effect on Parent. Set forth in Schedule 2.8 is a
description of any material changes to the amount and terms of the
indebtedness of the Parent and its Subsidiaries as described in the Parent
Annual Report. For purposes of this Agreement, "Knowledge of Parent" means the
actual knowledge of the individuals identified in Schedule 2.8.
2.9 TAX MATTERS.
(a) Tax Definitions. For purposes of this Agreement, the following
definitions shall apply:
(i) The term "Taxes" shall mean all taxes, however denominated,
including any interest, penalties or other additions to tax that may
become payable in respect thereof, imposed by any federal, territorial,
state, local or foreign government or any agency or political
subdivision of any such government, which taxes shall include, without
limiting the generality of the foregoing, all income or profits taxes
(including, but not limited to, federal income taxes and state income
taxes), payroll and employee withholding taxes, unemployment insurance,
social security taxes, sales and use taxes, ad valorem taxes, excise
taxes, franchise taxes, gross receipts taxes, business license taxes,
occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, transfer taxes, workers' compensation, Pension
Benefit Guaranty Corporation premiums and other governmental charges,
and other obligations of the same or of a similar nature to any of the
foregoing, which a party is required to pay, withhold or collect.
(ii) The term "Return" or "Tax Return" shall mean all reports,
estimates, declarations of estimated tax, information statements and
returns relating to, or required to be filed in connection with, any
Taxes, including information returns or reports with respect to backup
withholding and other payments to third parties.
(b) Returns Filed and Taxes Paid. Except as otherwise disclosed in
Schedule 2.9(b), or except as would not have a Material Adverse Effect on
Parent: (i) all Returns required to be filed by or on behalf of Parent and
each of its Subsidiaries have been duly filed on a timely basis and such
Returns are correct, true, and complete; (ii) all Taxes shown to be payable
on the Returns or on subsequent assessments with respect thereto have been
paid in full on a timely basis, and no other Taxes are payable by Parent or
any of its Subsidiaries with respect to items or periods covered by such
Returns or with respect to any taxable periods ending prior to the date of
this Agreement; (iii) Parent and each of its Subsidiaries has withheld and
paid over all Taxes required to have been withheld and paid over, and
complied with all information reporting and backup withholding
requirements, including maintenance of required records with respect
thereto, in connection with amounts paid or owing to any employee,
creditor, independent contractor, or other third party; and (iv) there are
no liens on any of the assets of Parent or any of its Subsidiaries with
respect to Taxes, other than liens for Taxes not yet due and payable.
(c) Tax Deficiencies; Audits; Statutes of Limitations. Except as
otherwise disclosed in Schedule 2.9(c), or except as would not have a
Material Adverse Effect on Parent: (i) neither the Returns of
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Parent nor any of its Subsidiaries have been audited by a government or
taxing authority, nor is any such audit in process; (ii) no deficiencies
exist or have been asserted (either in writing or verbally, formally or
informally) or are expected to be asserted with respect to Taxes of Parent
or any of its Subsidiaries, and neither Parent nor any of its Subsidiaries
has received notice (either in writing or verbally, formally or informally)
that it has not filed a Return or paid Taxes required to be filed or paid
by it; (iii) neither Parent nor any of its Subsidiaries is a party to any
action or proceeding for assessment or collection of Taxes, nor has such
event been asserted or threatened (either in writing or verbally, formally
or informally) against Parent or any of its Subsidiaries, or any of their
respective assets; (iv) no waiver or extension of any statute of
limitations is in effect with respect to Taxes or Returns of Parent or any
of its Subsidiaries; and (v) Parent and each of its Subsidiaries have
disclosed on their federal income tax returns all positions taken therein
that could give rise to a substantial understatement penalty within the
meaning of Section 6662 of the Code.
(d) Tax Sharing Agreements. Except as otherwise disclosed in Schedule
2.9(d), neither Parent nor any of its Subsidiaries are a party to any tax
sharing agreement, and (i) the Parent has never been a party to a tax
sharing agreement, and (ii) to the Knowledge of Parent, none of its
Subsidiaries has ever been a party to any tax sharing agreement.
2.10 ACTIONS AND PROCEEDINGS. Except as set forth in Schedule 2.10, there
are no outstanding orders, judgments, injunctions, awards or decrees of any
Governmental Entity against or involving Parent or any of its Subsidiaries, or
against or involving any of the present or former directors, officers,
employees, consultants, agents or shareholders of Parent or any of its
Subsidiaries, as such, any of its or their properties, assets or business or
any "Parent Plan" (as defined in Section 2.13) or any fiduciary, agent or
consultant of any Parent Plan that, individually or in the aggregate, would
have a Material Adverse Effect on Parent. As of the date of this Agreement,
there are no actions, suits or claims or legal, administrative or arbitrative
proceedings or investigations pending or, to the Knowledge of Parent,
threatened against or involving Parent or any of its Subsidiaries or any of
its or their present or former directors, officers, employees, consultants,
agents or shareholders, as such, any of its or their properties, assets or
business or any Parent Plan or any fiduciary, agent or consultant of any
Parent Plan that, individually or in the aggregate, would have a Material
Adverse Effect on Parent. As of the date hereof, there are no actions, suits,
labor disputes or other litigation, legal or administrative proceedings or
governmental investigations pending or, to the Knowledge of Parent, threatened
against or affecting Parent or any of its Subsidiaries or any of its or their
present or former officers, directors, employees, consultants, agents or
shareholders, as such, or any of its or their properties, assets or business
or any Parent Plan or any fiduciary, agent or consultant of any Parent Plan
relating to the transactions contemplated by this Agreement.
2.11 [INTENTIONALLY OMITTED].
2.12 CERTAIN AGREEMENTS. As of the date of this Agreement, neither Parent
nor any of its Subsidiaries is a party to any "Plan" (as defined in this
Section 2.12), any of the benefits of which will be increased, or the vesting
of the benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement. For purposes of this Agreement, "Plan" shall
mean, with respect to an entity, all present and prior (including terminated
and transferred) plans, programs, agreements, arrangements, commitments and/or
methods of contribution or compensation whether formal or informal, oral or
written, whether funded or unfunded, and whether legally binding or not, which
provides any remuneration or benefits to, or covers any current or former
employee of such entity or any other individual who provides services to such
entity (including, but not limited to, any shareholder, officer, director,
employee or consultant of such entity), or any spouse, child or other
dependent of such current or former employee or individual, or which is
sponsored, maintained, adopted or contributed to (in whole or in part) by such
entity, and includes, but is not limited to, pension, retirement, profit
sharing, stock bonus, nonqualified deferred compensation, disability, medical,
dental, workers' compensation, health, life insurance, cafeteria, medical
reimbursement, dependent care assistance, incentive, bonus, restricted stock,
stock purchase, or stock option plans. No holder of any option to purchase
shares of Parent Common Stock, or shares of Parent Common Stock granted in
connection with the
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performance of services for Parent or its Subsidiaries, is or will be entitled
to receive cash from Parent or any Subsidiary in lieu of or in exchange for
such option or shares as a result of the transactions contemplated by this
Agreement.
2.13 ERISA.
(a) With respect to each Plan of Parent or any "ERISA Affiliate" (as
defined in this Section 2.13) of Parent, Parent has made available to
Company a true and correct copy of (i) the most recent annual report (Form
5500) filed with the Internal Revenue Service (the "IRS"), (ii) the plan
documents of such Plan, (iii) each trust agreement, insurance contract or
administration agreement relating to such Plan, (iv) the most recent
summary plan description for each Plan for which a summary plan description
is required or the most recent employee communication explanation for each
other Plan, (v) the most recent actuarial report or valuation relating to a
Plan subject to Title IV of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and (vi) the most recent determination letter,
if any, issued by the IRS with respect to any Plan intended to be qualified
under section 401(a) of the Code. Each Plan of Parent or any ERISA
Affiliate of Parent complies in all material respects with ERISA, the Code
and all other applicable statutes and governmental rules and regulations,
and (i) no "reportable event" (within the meaning of Section 4043 of ERISA)
has occurred with respect to any "Parent Plan" (as defined in this Section
2.13), (ii) neither Parent nor any of its ERISA Affiliates has withdrawn
(or partially withdrawn) from any Parent Plan or "Parent Multiemployer
Plan" (as defined in this Section 2.13) or instituted, or is currently
considering taking, any action to do so, and (iii) no action has been
taken, or is currently being considered, to terminate any Parent Plan
subject to Title IV of ERISA. No Parent Plan, nor any trust created
thereunder, has incurred any "accumulated funding deficiency" (as defined
in Section 302 of ERISA), whether or not waived. To the best Knowledge of
Parent, no Parent Plan has engaged in a prohibited transaction with a
fiduciary or party-in-interest within the meaning of Section 4975 of the
Code or Section 406 of ERISA, unless a statutory exception exists for such
transaction.
(b) With respect to the Plans of Parent or any ERISA Affiliate of Parent,
no event has occurred and, to the Knowledge of Parent, there exists no
condition or set of circumstances in connection with which Parent or any
ERISA Affiliate of Parent could be subject to any liability under the terms
of such Plans, ERISA, the Code, any contract or document relating to such
Plans, or any other applicable law, which would have a Material Adverse
Effect on Parent. All Parent Plans that are intended to be qualified under
Section 401(a) of the Code have been determined by the Internal Revenue
Service to be so qualified, or a timely (within the meaning of Section
401(b) of the Code) application for such determination is now pending, and
Parent is not aware of any reason why any such Parent Plan is not so
qualified in operation. Neither Parent nor any of its ERISA Affiliates has
been notified by any Parent Multiemployer Plan that such Parent
Multiemployer Plan is currently in reorganization or insolvency under and
within the meaning of Section 4241 or 4245 of ERISA or that such Parent
Multiemployer Plan intends to terminate or has been terminated under
Section 4041A of ERISA. Neither Parent nor any of its ERISA Affiliates has
any liability or obligation under any Plan or other contract or agreement
to provide benefits after termination of employment to any employee or
dependent of an employee other than as required by ERISA or as disclosed in
the Parent Annual Report. As used herein, (i) "Parent Plan" means a
"pension plan" (as defined in Section 3(2) of ERISA (other than a Parent
Multiemployer Plan)) or a "welfare plan" (as defined in Section 3(1) of
ERISA) established or maintained by Parent or any of its ERISA Affiliates
or as to which Parent or any of its ERISA Affiliates has contributed or
otherwise may have any liability, and (ii) "Company Multiemployer Plan"
means a "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) to
which Parent or any of its ERISA Affiliates is or has been obligated to
contribute or otherwise may have any liability. With respect to any Parent
Plan which is subject to Title IV of ERISA, the fair market value of the
assets of such Plan are currently (and are expected to be as of the
Effective Time) greater than or equal to the present value of all "benefit
liabilities" (within the meaning of Section 4001(a)(6) of ERISA) of such
Parent Plan.
(c) Parent has made available to the Company true and complete (i) copies
of all severance and employment agreements with officers of Parent and each
ERISA Affiliate of Parent, (ii) copies of all severance programs and
policies of Parent with or relating to its employees; and (iii) copies of
all plans,
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programs, agreements and other arrangements of Parent with or relating to
its employees which contain change of control or similar provisions. "ERISA
Affiliate" means, with respect to a person, any trade or business (whether
or not incorporated) which would be considered a single employer with such
person pursuant to Section 414(b), (c), (m) or (o) of the Code and the
regulations promulgated under those sections or pursuant to Section 4001(b)
of ERISA and the regulations promulgated thereunder.
2.14 COMPLIANCE WITH CERTAIN LAWS. The properties, assets and operations of
Parent and its Subsidiaries are in compliance in all material respects with
all applicable federal, state, local and foreign laws, rules and regulations,
orders, decrees, judgments, permits and licenses relating to public and worker
health and safety (collectively, "Worker Safety Laws") and the protection and
clean-up of the environment and activities or conditions related thereto,
including, without limitation, those relating to the generation, handling,
disposal, transportation or release of hazardous materials (collectively,
"Environmental Laws"), except for any violations that, individually or in the
aggregate, would not have a Material Adverse Effect on Parent. With respect to
such properties, assets and operations, including any previously owned, leased
or operated properties, assets or operations, there are no past, present or
reasonably anticipated future events, conditions, circumstances, activities,
practices, incidents, actions or plans of Parent or any of its Subsidiaries
that may interfere with or prevent compliance or continued compliance in all
material respects with applicable Worker Safety Laws and Environmental Laws,
other than any such interference or prevention as would not, individually or
in the aggregate with any such other interference or prevention, have a
Material Adverse Effect on Parent. The term "hazardous materials" shall mean
those substances that are regulated by, or form the basis for liability under,
any applicable Environmental Laws.
2.15 LIABILITIES. Except as set forth in Schedule 2.15 or except as fully
reflected or reserved against in the financial statements included in the
Parent Annual Report, or disclosed in the footnotes thereto, Parent and its
Subsidiaries had no liabilities (including, without limitation, tax
liabilities) at the date of such financial statements, absolute or contingent,
other than liabilities that, individually or in the aggregate, would not have
a Material Adverse Effect on Parent, and had no liabilities (including,
without limitation, tax liabilities) that were not incurred in the ordinary
course of business. Except as so reflected, reserved or disclosed, Parent and
its Subsidiaries have no commitments, other than any commitments which,
individually or in the aggregate, would not have a Material Adverse Effect on
Parent.
2.16 LABOR MATTERS. Neither Parent nor any of its Subsidiaries is a party to
any collective bargaining agreement or labor contract. Neither Parent nor any
of its Subsidiaries has engaged in any unfair labor practice with respect to
any persons employed by or otherwise performing services primarily for Parent
or any of its Subsidiaries (the "Parent Business Personnel"), and there is no
unfair labor practice complaint or grievance against Parent or any of its
Subsidiaries by the National Labor Relations Board or any comparable state
agency pending or threatened in writing with respect to the Parent Business
Personnel, except where such unfair labor practice, complaint or grievance
would not have a Material Adverse Effect on Parent. There is no labor strike,
dispute, slowdown or stoppage pending or, to the Knowledge of Parent,
threatened against or affecting Parent or any of its Subsidiaries which may
interfere with the respective business activities of Parent or any of its
Subsidiaries, except where such dispute, strike or work stoppage would not
have a Material Adverse Effect on Parent. Parent and all of its Subsidiaries
are in compliance with all federal and state laws respecting employment and
employment practices, immigration, terms and conditions of employment, and
wages and hours, except where such noncompliance would not have a Material
Adverse Effect on Parent. With respect to the employees of Parent and/or its
Subsidiaries, to the Knowledge of Parent, no event has occurred and there
exists no condition or set of circumstances in connection with which Parent or
any of its Subsidiaries or any ERISA Affiliate of Parent could be subject to
any liability under any federal or state law handicap or disability
discrimination law, any federal, state or local fair employment practices or
nondiscrimination act, or any other applicable law which would have a Material
Adverse Effect on Parent.
2.17 INTELLECTUAL PROPERTY. Parent and its Subsidiaries have all patents,
trademarks, trade names, service marks, trade secrets, copyrights and other
proprietary intellectual property rights (collectively, "Intellectual Property
Rights") as are necessary in connection with the business of Parent and its
Subsidiaries, taken as a
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whole, except where the failure to have such Intellectual Property Rights
would not have a Material Adverse Effect on Parent. Neither Parent nor any of
its Subsidiaries has infringed any Intellectual Property Rights of any third
party other than any infringements that, individually or in the aggregate,
would not have a Material Adverse Effect on Parent.
2.18 POOLING OF INTERESTS; REORGANIZATION. To the Knowledge of Parent,
neither Parent, any of its Subsidiaries, nor any of its directors or officers
has (i) taken any action or failed to take any action which action or failure
would jeopardize the treatment of the Merger as a pooling of interests for
accounting purposes or (ii) taken any action or failed to take any action
which action or failure would jeopardize the qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code.
2.19 REQUIRED VOTE OF PARENT SHAREHOLDERS. Except with respect to the Share
Issuance and the amendment of Parent's 1996 Employee Stock Incentive Plan, as
amended (the "1996 Plan"), the affirmative vote of a majority of the votes
entitled to be cast is required to approve this Agreement and the transactions
contemplated hereby, including without limitation the amendment of Parent's
Articles of Incorporation. The affirmative vote of the holders of a majority
of shares represented and entitled to vote on such amendment is required for
the amendment of the 1996 Plan, provided that a quorum is present at the
meeting at which such amendment is voted upon. The affirmative vote of a
majority of votes cast on a proposal in a proxy bearing on the Share Issuance,
in which the total vote cast on the Share Issuance represents over fifty
percent (50%) in interest of all securities entitled to vote on the proposal,
is required to approve the Share Issuance (the required shareholder votes
referred to in this sentence and two preceding sentences are collectively
referred to herein as the "Parent Required Vote"). Except for the vote of
Parent's shareholders approving this Agreement, the transactions contemplated
hereby, the Share Issuance, the amendment to Parent's Articles of
Incorporation which increases the authorized capital stock of Parent, and the
amendment of the 1996 Plan, no other vote of the shareholders of Parent is
required by law, the Articles of Incorporation or Bylaws of Parent or
otherwise in order for Parent to consummate the Share Issuance, the Merger and
the transactions contemplated hereby.
2.20 OPERATIONS OF SUB. Sub is a direct, wholly-owned subsidiary of Parent,
was formed solely for the purpose of engaging in the transactions contemplated
hereby, has engaged in no other business activities and has conducted its
operations only as contemplated hereby.
2.21 BROKERS. No broker, investment banker or other person, other than
Salomon Smith Barney, is entitled to any broker's, finder's or other similar
fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of Parent.
2.22 OPINION OF FINANCIAL ADVISOR. Parent has received the opinion of
Salomon Smith Barney dated as of the date hereof (which opinion is written or,
if initially given verbally, shall immediately hereafter be memorialized in a
written opinion to be delivered to Parent), to the effect that, as of the date
hereof, the Conversion Number is fair to Parent's shareholders from a
financial point of view (the "Parent Fairness Opinion").
2.23 STATE TAKEOVER STATUTES. The Board of Directors of Parent has, to the
extent such statutes are applicable, (a) taken all action necessary to exempt
the Company, its Subsidiaries and "Affiliates" (as defined in this Section
2.23), the Merger, this Agreement and the transactions contemplated hereby
from Sections 14-2-1110 through 14-2-1133 of the GBCC and (b) taken all action
necessary to satisfy the provisions of Sections 14-2-1110 through 14-2-1133 of
the GBCC. To the Knowledge of Parent, no other state takeover statutes are
applicable to the Merger, this Agreement and the transactions contemplated
hereby. For purposes of this Section 2.23 and Section 3.19, an "Affiliate" of
a party means any person or entity controlling, controlled by, or under common
control with such party. For the purposes of this definition, "control" shall
mean, as to any entity, the power to direct or cause the direction of the
management and policies of such entity through (i) control of a majority of
the members of the Board of Directors of such entity, or (ii) ownership of
fifty percent (50%) or more of the total outstanding voting securities of such
entity. "Controlling" and "controlled" shall have a correlative meaning.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
3.1 ORGANIZATION, STANDING AND POWER. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Tennessee and has the requisite corporate power and authority to carry on
its business as now being conducted. Each Subsidiary of the Company is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized and has the requisite corporate (in the
case of a Subsidiary that is a corporation) or other power and authority to
carry on its business as now being conducted, except where the failure to be
so organized, existing or in good standing or to have such power or authority
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company. The Company and each of its Subsidiaries are duly qualified to do
business, and are in good standing, in each jurisdiction where the character
of their properties owned or held under lease or the nature of their
activities makes such qualification necessary, except where the failure to be
so qualified would not, individually or in the aggregate, have a Material
Adverse Effect on the Company.
3.2 CAPITAL STRUCTURE. As of the date hereof, the authorized capital stock
of the Company consists of 100,000,000 shares of Company Common Stock, par
value $.01 per share, and 10,000,000 shares of Preferred Stock, par value $.01
per share ("Company Preferred Stock"). At the close of business on June 12,
1998 (except with respect to the representation and warranty in subsection (v)
below which is made as of the date hereof), (i) 48,911,724 shares of Company
Common Stock were issued and outstanding, all of which were validly issued,
fully paid and nonassessable and free of preemptive rights or rights of first
refusal, (ii) no shares of Company Common Stock were held in the treasury of
the Company or by the Subsidiaries of the Company, (iii) 5,145,000 shares of
Company Common Stock were reserved for future issuance pursuant to the
Company's 1994 Incentive Stock Plan, as amended and restated, 1994 Non-
Employee Director Stock Option Plan, as amended and restated, 1997 Executive
Stock Incentive Plan, the 1997 Non-Qualified Stock Option Plan, and the Non-
Employee Director Restricted Stock Award Plan (collectively, the "Company
Stock Option Plans"), (iv) 10,000 shares of Company Common Stock, in the
aggregate, were reserved for issuance pursuant to Stock Purchase Warrants
issued to each of Fred Armstrong and David Ford in connection with an
acquisition by the Company of a merchant portfolio (collectively, the "Company
Warrants"), and (v) 9,733,433 shares of Company Common Stock were reserved for
issuance pursuant to the Stock Option Agreement, of even date herewith,
between the Company and Parent (the "Company Stock Option Agreement"). No
shares of Company Preferred Stock are outstanding. As of the date of this
Agreement, except for (a) stock options covering not in excess of 3,090,873
shares of Company Common Stock under the Company Stock Option Plans
(collectively, the "Company Options"), (b) the Company Warrants or (c) the
Company Stock Option Agreement, there are no options, warrants, calls, rights
or agreements to which the Company or any of its Subsidiaries is a party or by
which any of them is bound obligating the Company or any of its Subsidiaries
to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock of the Company or any of its Subsidiaries
or obligating the Company or any of its Subsidiaries to grant, extend or enter
into any such option, warrant, call, right or agreement. Since June 12, 1998,
the Company has not issued any shares of its capital stock, or securities
convertible into or exchangeable for such capital stock. Each outstanding
share of capital stock of each Subsidiary of the Company that is a corporation
is duly authorized, validly issued, fully paid and nonassessable and, except
as disclosed in the "Company SEC Documents" (as defined in Section 3.5) or
Schedule 3.2, each such share is owned by the Company or another Subsidiary of
the Company, free and clear of all security interests, liens, claims, pledges,
options, rights of first refusal, agreements, limitations on voting rights,
charges and other encumbrances of any nature whatsoever. Except as disclosed
in Schedule 3.2, Exhibit 21.1 to the Company's Annual Report on Form 10-K, as
amended, for the year ended July 31, 1997, as filed with the SEC (the "Company
Annual Report"), is a true, accurate and correct statement in all material
respects of all of the information required to be set forth therein by the
regulations of the SEC.
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3.3 AUTHORITY.
(a) The Board of Directors of the Company has on or prior to the date of
this Agreement at a meeting duly called and held and not subsequently
rescinded or modified in any way (i) unanimously adopted this Agreement in
accordance with the TBCA, (ii) resolved to recommend the approval of this
Agreement to the Company's shareholders and (iii) directed that this
Agreement be submitted to the Company's shareholders for approval.
(b) The Company has all requisite corporate power and authority to enter
into this Agreement and, subject to approval by the shareholders of the
Company of this Agreement, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Company, subject to (x) approval of this Agreement by the shareholders of
the Company and (y) the filing of appropriate Merger documents as required
by the TBCA. This Agreement has been duly executed and delivered by the
Company and (assuming the valid authorization, execution and delivery of
this Agreement by Parent and Sub) constitutes the valid and binding
obligation of the Company enforceable against the Company in accordance
with its terms. The Merger, the transactions contemplated hereby, the
filing of the Joint Proxy Statement, and the inclusion of other necessary
materials in the Registration Statement, with the SEC has been duly
authorized by the Company's Board of Directors.
3.4 CONSENTS AND APPROVALS; NO VIOLATION. Assuming that all consents,
approvals, authorizations and other actions described in this Section 3.4 have
been obtained and all filings and obligations described in this Section 3.4
have been made, and except as set forth in Schedule 3.4 (including the
required consents, approvals, authorizations and other actions identified
therein), the execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give to others a right of
termination, cancellation or acceleration of any obligation or the loss of a
material benefit under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of the
Company or any of its Subsidiaries under, any provision of (i) the Amended and
Restated Charter or Bylaws of the Company, (ii) any provision of the
comparable charter or organization documents of any of the Company's
Subsidiaries, (iii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise
or license applicable to the Company or any of its Subsidiaries or (iv) any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any of its Subsidiaries or any of their
respective properties or assets, other than, in the case of clauses (ii),
(iii) or (iv), any such violations, defaults, rights, liens, security
interests, charges or encumbrances that, individually or in the aggregate,
would not have a Material Adverse Effect on the Company, or prevent the
consummation of any of the transactions contemplated hereby. No filing or
registration with, or authorization, consent or approval of, any Governmental
Entity is required by or with respect to the Company or any of its
Subsidiaries in connection with the execution and delivery of this Agreement
by the Company or is necessary for the consummation of the Merger and the
other transactions contemplated by this Agreement, except for (i) in
connection, or in compliance, with the provisions of the HSR Act, the
Securities Act and the Exchange Act, (ii) the filing of the Articles of Merger
with the Secretary of State of the State of Tennessee and appropriate
documents with the relevant authorities of other states in which the Company
or any of its Subsidiaries is qualified to do business, (iii) such filings and
consents as may be required under any environmental, health or safety law or
regulation pertaining to any notification, disclosure or required approval
triggered by the Merger or by the transactions contemplated by this Agreement,
(iv) such filings, authorizations, orders and approvals as may be required to
obtain the State Takeover Approvals, (v) such filings and consents as may be
required under any state or foreign laws pertaining to debt collection, the
issuance of payment instruments or money transmission, (vi) applicable
requirements, if any, of Blue Sky Laws and the Nasdaq National Market, and
(vii) such other consents, orders, authorizations, registrations, declarations
and filings the failure of which to be obtained or made would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company or prevent the consummation of any of the transactions contemplated
hereby.
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3.5 SEC DOCUMENTS AND OTHER REPORTS. The Company has filed all required
documents, reports and schedules with the SEC since December 31, 1996 (the
"Company SEC Documents"). As of their respective dates, the Company SEC
Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and, at the respective
times they were filed, none of the Company SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except as set forth
in Schedule 3.5, the consolidated financial statements (including, in each
case, any notes thereto) of the Company included in the Company SEC Documents
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, were prepared in accordance with generally accepted accounting
principles (except as may be indicated therein or in the notes thereto)
applied on a consistent basis during the periods involved (except as may be
indicated therein or in the notes thereto) and fairly presented in all
material respects the consolidated financial position of the Company and its
consolidated Subsidiaries as at the respective dates thereof and the
consolidated results of their operations and their consolidated cash flows for
the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments and to any other adjustments described
therein). Except as disclosed in Schedule 3.5, the Company has not, since July
31, 1997, made any change in the accounting practices or policies applied in
the preparation of financial statements.
3.6 REGISTRATION STATEMENT AND JOINT PROXY STATEMENT. None of the
information to be supplied by the Company for inclusion or incorporation by
reference in the Registration Statement, the Joint Proxy Statement or any
other document filed with any other regulatory agency in connection herewith,
will: (i) in the case of the Registration Statement, at the time it becomes
effective, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein not misleading; (ii) in the case of the Joint Proxy
Statement, at the time of the mailing of the Joint Proxy Statement, the time
of each of the Shareholder Meetings and at the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading; or (iii) in the case of any other filing required by any
regulatory agency in connection herewith, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. If at any time prior
to the Effective Time any event with respect to the Company, its officers and
directors or any of its Subsidiaries shall occur which is required to be
described in the Joint Proxy Statement or the Registration Statement,
information concerning such event shall be supplied by the Company to Parent
and its representatives in connection with their preparation and prompt filing
with the SEC of an appropriate amendment or supplement and, as required by
law, disseminated to the shareholders of the Company. The Joint Proxy
Statement (except for portions thereof that relate only to Parent or any of
its Subsidiaries) will comply as to form in all material respects with the
provisions of the Exchange Act.
3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in Schedule
3.7, since July 31, 1997, (A) the Company and its Subsidiaries have not
incurred any material liability or obligation (indirect, direct or
contingent), or entered into any material oral or written agreement or other
transaction, that is not in the ordinary course of business or that would
result in a Material Adverse Effect on the Company, excluding any changes and
effects resulting from changes in economic, regulatory or political conditions
or changes in conditions generally applicable to the industries in which the
Company and Subsidiaries of the Company are involved and except for any such
changes or effects resulting from this Agreement, the transactions
contemplated hereby or the announcement thereof; (B) the Company and its
Subsidiaries have not sustained any loss or interference with their business
or properties from fire, flood, windstorm, accident or other calamity (whether
or not covered by insurance) that has had a Material Adverse Effect on the
Company; (C) other than any indebtedness incurred by the Company after the
date hereof as permitted by Section 4.1(b)(vi), there has been no material
change in the consolidated indebtedness of the Company and its Subsidiaries,
and no dividend or distribution of any kind declared, paid or made by the
Company on any class of its stock; and (D) there has been no event causing a
Material Adverse Effect on the Company, excluding any changes and effects
resulting from changes in economic,
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regulatory or political conditions or changes in conditions generally
applicable to the industries in which the Company and Subsidiaries of the
Company are involved and which do not affect the Company in a manner
materially disproportionate to the effect on Parent) and except for any such
changes or effects resulting from this Agreement, the transactions
contemplated hereby or the announcement thereof.
3.8 PERMITS AND COMPLIANCE. Each of the Company and its Subsidiaries is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exceptions, consents, certificates, approvals and orders
of any Governmental Entity necessary for the Company or any of its
Subsidiaries to own, lease and operate its properties or to carry on its
business as it is now being conducted (collectively, the "Company Permits"),
except where the failure to have any of the Company Permits would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company, and, as of the date of this Agreement, no suspension or cancellation
of any of the Company Permits is pending or, to the "Knowledge of the Company"
(as defined in this Section 3.8), threatened, except where the suspension or
cancellation of any of the Company Permits would not, individually or in the
aggregate, have a Material Adverse Effect on Company. Neither the Company nor
any of its Subsidiaries is in default or violation of (A) its charter, bylaws
or other organizational documents, (B) any applicable law, ordinance,
administrative or governmental rule or regulation, (C) any order, decree or
judgment of any Governmental Entity having jurisdiction over the Company or
any of its Subsidiaries, or (D) any provisions of the rules and regulations of
the Credit Card Associations, except, in the case of clauses (A), (B), (C), or
(D) for any violations that, individually or in the aggregate, would not have
a Material Adverse Effect on the Company. Except as disclosed in Schedule 3.8,
as of the date hereof there is no contract or agreement that is material to
the business, financial condition or results of operations of the Company and
its Subsidiaries, taken as a whole. Except as set forth in Schedule 3.8, as of
the date of this Agreement, no event of default or event that, but for the
giving of notice or the lapse of time or both, would constitute an event of
default exists or, upon the consummation by the Company of the transactions
contemplated by this Agreement, will exist under any indenture, mortgage, loan
agreement, note or other agreement or instrument for borrowed money, any
guarantee of any agreement or instrument for borrowed money or any lease,
contractual license or other agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which the Company or any such
Subsidiary is bound or to which any of the properties, assets or operations of
the Company or any such Subsidiary is subject, other than any defaults that,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company. Set forth in Schedule 3.8 is a description of any material
changes to the amount and terms of the indebtedness of the Company and its
Subsidiaries as described in the Company Annual Report. "Knowledge of the
Company" means the actual knowledge of the individuals identified in Schedule
3.8.
3.9 TAX RETURNS.
(a) Returns Filed and Taxes Paid. Except as otherwise disclosed in
Schedule 3.9(a), or except as would not have a Material Adverse Effect on
the Company: (i) all Returns required to be filed by or on behalf of the
Company and each of its Subsidiaries have been duly filed on a timely basis
and such Returns are correct, true, and complete; (ii) all Taxes shown to
be payable on the Returns or on subsequent assessments with respect thereto
have been paid in full on a timely basis, and no other Taxes are payable by
the Company or any of its Subsidiaries with respect to items or periods
covered by such Returns or with respect to any taxable periods ending prior
to the date of this Agreement; (iii) the Company and each of its
Subsidiaries have withheld and paid over all Taxes required to have been
withheld and paid over, and complied with all information reporting and
backup withholding requirements, including maintenance of required records
with respect thereto, in connection with amounts paid or owing to any
employee, creditor, independent contractor, or other third party; and (iv)
there are no liens on any of the assets of the Company or any of its
Subsidiaries with respect to Taxes, other than liens for Taxes not yet due
and payable.
(b) Tax Deficiencies; Audits; Statutes of Limitations. Except as
otherwise disclosed in Schedule 3.9(b), or except as would not have a
Material Adverse Effect on the Company: (i) neither the Returns of the
Company nor any of its Subsidiaries have been audited by a government or
taxing authority, nor is any such audit in process; (ii) no deficiencies
exist or have been asserted (either in writing or verbally, formally or
informally) or are expected to be asserted with respect to Taxes of the
Company or any of its
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Subsidiaries, and neither the Company nor any of its Subsidiaries has
received notice (either in writing or verbally, formally or informally)
that it has not filed a Return or paid Taxes required to be filed or paid
by it; (iii) neither the Company nor any of its Subsidiaries is a party to
any action or proceeding for assessment or collection of Taxes, nor has
such event been asserted or threatened (either in writing or verbally,
formally or informally) against the Company or any of its Subsidiaries, or
any of their respective assets; (iv) no waiver or extension of any statute
of limitations is in effect with respect to Taxes or Returns of the Company
or any of its Subsidiaries; and (v) the Company and each of its
Subsidiaries have disclosed on their federal income tax returns all
positions taken therein that could give rise to a substantial
understatement penalty within the meaning of Section 6662 of the Code.
(c) Tax Sharing Agreements. Except as otherwise disclosed in Schedule
3.9(c), neither the Company nor any of its Subsidiaries are a party to any
tax sharing agreement, and (i) the Company has never been a party to a tax
sharing agreement, and (ii) to the Knowledge of the Company, none of its
Subsidiaries has ever been a party to any tax sharing agreement.
3.10 ACTIONS AND PROCEEDINGS. Except as set forth in Schedule 3.10, there
are no outstanding orders, judgments, injunctions, awards or decrees of any
Governmental Entity against or involving the Company or any of its
Subsidiaries, or against or involving any of the present or former directors,
officers, employees, consultants, agents or shareholders of the Company or any
of its Subsidiaries, as such, any of its or their properties, assets or
business or any "Company Plan" (as defined in Section 3.13) or any fiduciary,
agent or consultant of any Company Plan that, individually or in the
aggregate, would have a Material Adverse Effect on the Company. As of the date
of this Agreement, there are no actions, suits or claims or legal,
administrative or arbitrative proceedings or investigations pending or, to the
Knowledge of the Company, threatened against or involving the Company or any
of its Subsidiaries or any of its or their present or former directors,
officers, employees, consultants, agents or shareholders, as such, or any of
its or their properties, assets or business or any Company Plan or any
fiduciary, agent or consultant of any Company Plan that, individually or in
the aggregate, would have a Material Adverse Effect on the Company. As of the
date hereof, there are no actions, suits, labor disputes or other litigation,
legal or administrative proceedings or governmental investigations pending or,
to the Knowledge of the Company, threatened against or affecting the Company
or any of its Subsidiaries or any of its or their present or former officers,
directors, employees, consultants, agents or shareholders, as such, or any of
its or their properties, assets or business or any Company Plan or any
fiduciary, agent or consultant of any Company Plan relating to the
transactions contemplated by this Agreement.
3.11 [INTENTIONALLY OMITTED].
3.12 CERTAIN AGREEMENTS. Except as set forth in Schedule 3.12, as of the
date of this Agreement, neither the Company nor any of its Subsidiaries is a
party to any agreement or Plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any
of the transactions contemplated by this Agreement. No holder of any option to
purchase shares of Company Common Stock, or shares of Company Common Stock
granted in connection with the performance of services for the Company or its
Subsidiaries, is or will be entitled to receive cash from the Company or any
Subsidiary in lieu of or in exchange for such option or shares as a result of
the transactions contemplated by this Agreement.
3.13 ERISA.
(a) With respect to each Plan of the Company or any ERISA Affiliate of
the Company, the Company has made available to Parent a true and correct
copy of (i) the most recent annual report (Form 5500) filed with the
Internal Revenue Service (the "IRS"), (ii) the plan documents of such Plan,
(iii) each trust agreement, insurance contract or administration agreement
relating to such Plan, (iv) the most recent summary plan description for
each Plan for which a summary plan description is required or the most
recent employee communication explanation for each other Plan, (v) the most
recent actuarial report or valuation relating to a Plan subject to Title IV
of ERISA, and (vi) the most recent determination letter, if any, issued by
the IRS with respect to any Plan intended to be qualified under section
401(a) of the Code. Each Plan of
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the Company or any ERISA Affiliate of the Company complies in all material
respects with ERISA, the Code and all other applicable statutes and
governmental rules and regulations, and (i) no "reportable event" (within
the meaning of Section 4043 of ERISA) has occurred with respect to any
"Company Plan" (as defined in this Section 3.13), (ii) neither the Company
nor any of its ERISA Affiliates has withdrawn (or partially withdrawn) from
any Company Plan or "Company Multiemployer Plan" (as defined in this
Section 3.13) or instituted, or is currently considering taking, any action
to do so, and (iii) no action has been taken, or is currently being
considered, to terminate any Company Plan subject to Title IV of ERISA. No
Company Plan, nor any trust created thereunder, has incurred any
"accumulated funding deficiency" (as defined in Section 302 of ERISA),
whether or not waived. To the best Knowledge of the Company, no Company
Plan has engaged in a prohibited transaction with a fiduciary or party-in-
interest within the meaning of Section 4975 of the Code or Section 406 of
ERISA, unless a statutory exception exists for such transaction.
(b) With respect to the Plans of the Company or any ERISA Affiliate of
the Company, no event has occurred and, to the Knowledge of the Company,
there exists no condition or set of circumstances in connection with which
the Company or any ERISA Affiliate of the Company could be subject to any
liability under the terms of such Plans, ERISA, the Code, any contract or
document relating to such Plans, or any other applicable law, which would
have a Material Adverse Effect on the Company. All Company Plans that are
intended to be qualified under Section 401(a) of the Code have been
determined by the Internal Revenue Service to be so qualified, or a timely
(within the meaning of Section 401(b) of the Code) application for such
determination is now pending, and the Company is not aware of any reason
why any such Company Plan is not so qualified in operation. Neither the
Company nor any of its ERISA Affiliates has been notified by any Company
Multiemployer Plan that such Company Multiemployer Plan is currently in
reorganization or insolvency under and within the meaning of Section 4241
or 4245 of ERISA or that such Company Multiemployer Plan intends to
terminate or has been terminated under Section 4041A of ERISA. Neither the
Company nor any of its ERISA Affiliates has any liability or obligation
under any Plan or other contract or agreement to provide benefits after
termination of employment to any employee or dependent of an employee other
than as required by ERISA or as disclosed in the Company Annual Report. As
used herein, (i) "Company Plan" means a "pension plan" (as defined in
Section 3(2) of ERISA (other than a Company Multiemployer Plan)) or a
"welfare plan" (as defined in Section 3(1) of ERISA) established or
maintained by the Company or any of its ERISA Affiliates or as to which the
Company or any of its ERISA Affiliates has contributed or otherwise may
have any liability, and (ii) "Company Multiemployer Plan" means a
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) to which
the Company or any of its ERISA Affiliates is or has been obligated to
contribute or otherwise may have any liability. With respect to any Company
Plan which is subject to Title IV of ERISA, the fair market value of the
assets of such Plan are currently (and are expected to be as of the
Effective Time) greater than or equal to the present value of all "benefit
liabilities" (within the meaning of Section 4001(a)(6) of ERISA) of such
Company Plan.
(c) The Company has made available to Parent true and complete (i) copies
of all severance and employment agreements with officers of the Company and
each ERISA Affiliate of the Company, (ii) copies of all severance programs
and policies of the Company with or relating to its employees; and (iii)
copies of all plans, programs, agreements and other arrangements of the
Company with or relating to its employees which contain change of control
or similar provisions.
3.14 COMPLIANCE WITH CERTAIN LAWS. The properties, assets and operations of
the Company and its Subsidiaries are in compliance in all material respects
with all applicable Worker Safety Laws and Environmental Laws, except for any
violations that, individually or in the aggregate, would not have a Material
Adverse Effect on the Company. With respect to such properties, assets and
operations, including any previously owned, leased or operated properties,
assets or operations, there are no past, present or reasonably anticipated
future events, conditions, circumstances, activities, practices, incidents,
actions or plans of the Company or any of its Subsidiaries that may interfere
with or prevent compliance or continued compliance in all material respects
with applicable Worker Safety Laws and Environmental Laws, other than any such
interference or prevention as
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would not, individually or in the aggregate with any such other interference
or prevention, have a Material Adverse Effect on the Company.
3.15 LIABILITIES. Except as fully reflected or reserved against in the
financial statements included in the Company Annual Report, or disclosed in
the footnotes thereto, the Company and its Subsidiaries had no liabilities
(including, without limitation, tax liabilities) at the date of such financial
statements, absolute or contingent, other than liabilities that, individually
or in the aggregate, would not have a Material Adverse Effect on the Company,
and had no liabilities (including, without limitation, tax liabilities) that
were not incurred in the ordinary course of business. Except as so reflected,
reserved or disclosed, the Company and its Subsidiaries have no commitments,
other than any commitments which, individually or in the aggregate, would not
have a Material Adverse Effect on the Company.
3.16 LABOR MATTERS. Neither the Company nor any of its Subsidiaries is a
party to any collective bargaining agreement or labor contract. Neither the
Company nor any of its Subsidiaries has engaged in any unfair labor practice
with respect to any persons employed by or otherwise performing services
primarily for the Company or any of its Subsidiaries (the "Company Business
Personnel"), and there is no unfair labor practice complaint or grievance
against the Company or any of its Subsidiaries by the National Labor Relations
Board or any comparable state agency pending or threatened in writing with
respect to the Company Business Personnel, except where such unfair labor
practice, complaint or grievance would not have a Material Adverse Effect on
the Company. There is no labor strike, dispute, slowdown or stoppage pending
or, to the Knowledge of the Company, threatened against or affecting the
Company or any of its Subsidiaries which may interfere with the respective
business activities of the Company or any of its Subsidiaries, except where
such dispute, strike or work stoppage would not have a Material Adverse Effect
on the Company. There is no labor strike, dispute, slowdown or stoppage
pending or, to the Knowledge of Company, threatened against or affecting
Company or any of its Subsidiaries which may interfere with the respective
business activities of Company or any of its Subsidiaries, except where such
dispute, strike or work stoppage would not have a Material Adverse Effect on
Company. The Company and all of its Subsidiaries are in compliance with all
federal and state laws respecting employment and employment practices,
immigration, terms and conditions of employment, and wages and hours, except
where noncompliance would not have a Material Adverse Effect on the Company.
With respect to the employees of Company and/or its Subsidiaries, to the
Knowledge of Company, no event has occurred and there exists no condition or
set of circumstances in connection with which Company, or any of its
Subsidiaries or any ERISA Affiliate of Company could be subject to any
liability under any federal or state law handicap or disability discrimination
law, any federal, state or local fair employment practices or
nondiscrimination act, or any other applicable law which would have a Material
Adverse Effect on Company.
3.17 INTELLECTUAL PROPERTY. The Company and its Subsidiaries have all
Intellectual Property Rights as are necessary in connection with the business
of the Company and its Subsidiaries, taken as a whole, except where the
failure to have such Intellectual Property Rights would not have a Material
Adverse Effect on the Company. Neither the Company nor any of its Subsidiaries
has infringed any Intellectual Property Rights of any third party other than
any infringements that, individually or in the aggregate, would have a
Material Adverse Effect on the Company.
3.18 OPINION OF FINANCIAL ADVISOR. The Company has received the opinion of
BT Alex. Brown Incorporated, dated the date hereof (which opinion is written
or, if initially given verbally, shall immediately hereafter be memorialized
in a written opinion to be delivered to Company), to the effect that, as of
the date hereof, the Conversion Number is fair to the Company's shareholders
from a financial point of view (the "Company Fairness Opinion").
3.19 STATE TAKEOVER STATUTES. The Board of Directors of the Company has, to
the extent such statutes are applicable, (a) taken all action necessary to
exempt Parent, its Subsidiaries and Affiliates, the Merger, this Agreement and
the transactions contemplated hereby from Sections 48-103-101 through 48-103-
505 of the TBCA and (b) taken all action necessary to satisfy the provisions
of Sections 48-103-101 through 48-103-505 of the TBCA. To the Knowledge of the
Company, no other state takeover statutes are applicable to the Merger, this
Agreement and the transactions contemplated hereby.
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3.20 REQUIRED VOTE OF COMPANY SHAREHOLDERS. The affirmative vote of the
holders of not less than a majority of the outstanding shares of Company
Common Stock is required to approve this Agreement (the "Company Required
Vote"). No other vote of the shareholders of the Company is required by law,
the Amended and Restated Charter or Bylaws of the Company or otherwise in
order for the Company to consummate the Merger and the transactions
contemplated hereby.
3.21 POOLING OF INTERESTS; REORGANIZATION. To the Knowledge of the Company,
neither it, any of its Subsidiaries, nor any of its directors or officers has
(i) taken any action or failed to take any action which action or failure
would jeopardize the treatment of the Merger as a pooling of interests for
accounting purposes or (ii) taken any action or failed to take any action
which action or failure would jeopardize the qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code.
3.22 BROKERS. No broker, investment banker or other person is entitled to
any broker's, finder's or other similar fee or commission in connection with
the transactions contemplated by this Agreement, other than BT Alex. Brown
Incorporated, and Bear, Stearns & Co. Inc., based upon arrangements made by or
on behalf of the Company.
3.23 EMPLOYMENT AGREEMENTS. Each of Richardson M. Roberts and Gregory S.
Daily has executed an employment agreement with Parent, such employment
agreements to be effective and deemed delivered only upon the Effective Time.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 CONDUCT OF BUSINESS PENDING THE MERGER.
(a) Actions by Parent. Except as expressly permitted by clauses (i)
through (xiii) of this Section 4.1(a), during the period from the date of
this Agreement through the Effective Time, Parent shall, and shall cause
each of its Subsidiaries to, in all material respects carry on its business
in the ordinary course of its business as currently conducted and, to the
extent consistent therewith, use reasonable best efforts to preserve intact
its current business organizations, keep available the services of its
current officers and employees and preserve its relationships with
customers, suppliers and others having business dealings with it to the end
that its goodwill and ongoing business shall be unimpaired at the Effective
Time. Without limiting the generality of the foregoing, and except as
otherwise expressly contemplated by this Agreement, Parent shall not, and
shall not permit any of its Subsidiaries to, without the prior written
consent of the Company, which consent for purposes of Section 4.1(a)(iv),
may not be unreasonably withheld or delayed:
(i)(A) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its
capital stock, or otherwise make any payments to its shareholders in
their capacity as such (other than dividends and other distributions by
Subsidiaries), (B) other than in the case of any Subsidiary, split,
combine or reclassify any of its capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (C) subject to the
limitations of Section 4.4 and 5.9(b), purchase, redeem or otherwise
acquire any shares of capital stock of Parent or any other securities
thereof or those of any Subsidiary or any other securities thereof or
any rights, warrants or options to acquire any such shares or other
securities;
(ii) issue, deliver, sell, pledge, dispose of or otherwise encumber
any shares of its capital stock, any other voting securities or equity
equivalent or any securities convertible into, or any rights, warrants
or options to acquire any such shares, voting securities, equity
equivalent or convertible securities, other than (A) the issuance of
shares of Parent Common Stock upon the exercise of Parent Options
outstanding on the date of this Agreement in accordance with their
current terms, (B) the issuance of shares of Parent Common Stock in
connection with acquisitions permitted pursuant to clause (iv) of this
paragraph (a); and (C) the issuance by any wholly-owned Subsidiary of
Parent of its capital stock to Parent or another wholly-owned
Subsidiary of Parent;
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(iii) amend its Articles of Incorporation or Bylaws; provided,
however, that Parent may amend its Articles of Incorporation to
increase its authorized capital stock to 100,000,000 authorized shares
of Parent Common Stock (as referenced in Section 2.2 hereof);
(iv) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of or equity in, or
by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or
otherwise acquire or agree to acquire any assets, except those
transactions in the ordinary course of business which Parent or any of
its Subsidiaries is obligated to consummate, and the consideration for
which consists solely of cash, pursuant to agreements to which Parent
or any of its Subsidiaries is a party in effect as of the date hereof;
(v) sell, lease or otherwise dispose of, or agree to sell, lease or
otherwise dispose of, any of its assets, other than transactions that
are in the ordinary course of business consistent with past practice
and not material to Parent and its Subsidiaries taken as a whole;
(vi) incur any indebtedness for borrowed money, guarantee any such
indebtedness or make any loans, advances or capital contributions to,
or other investments in, any other person, other than (A) in the
ordinary course of business consistent with past practice and (B)
indebtedness, loans, advances, capital contributions and investments
between Parent and any of its Subsidiaries or between any of such
Subsidiaries;
(vii) alter (through merger, liquidation, reorganization,
restructuring or in any other fashion) the corporate structure or
ownership of Parent or any Subsidiary;
(viii) enter into or adopt, or amend any existing, severance plan,
agreement or arrangement or enter into or amend any Parent Plan or
employment or consulting agreement, other than as required by law or by
this Agreement;
(ix) increase the compensation payable or to become payable to its
officers or employees, except for increases in the ordinary course of
business consistent with past practice in salaries or wages of
employees of Parent or any of its Subsidiaries who are not officers of
Parent or any of its Subsidiaries, or grant any severance or
termination pay to, or enter into any employment or severance agreement
with, any director or officer of Parent or any of its Subsidiaries, or
establish, adopt, enter into, or, except as may be required to comply
with applicable law, amend in any material respect or take action to
enhance in any material respect or accelerate any rights or benefits
under, any labor, collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of
any director, officer or employee;
(x) knowingly violate or knowingly fail to perform any material
obligation or duty imposed upon it or any Subsidiary by any applicable
material federal, state or local law, rule, regulation, guideline or
ordinance;
(xi) take any action, other than reasonable and usual actions in the
ordinary course of business consistent with past practice, with respect
to accounting policies or procedures (other than actions required to be
taken by generally accepted accounting principles);
(xii) make any tax election or settle or compromise any material
federal, state, local or foreign income tax liability; or
(xiii) authorize, recommend or announce an intention to do any of the
foregoing, or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
(b) Actions by the Company. Except as expressly permitted by clauses (i)
through (xiii) of this Section 4.1(b), during the period from the date of
this Agreement through the Effective Time, the Company shall, and shall
cause each of its Subsidiaries to, in all material respects carry on its
business in the ordinary
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course of its business as currently conducted and, to the extent consistent
therewith, use reasonable best efforts to preserve intact its current
business organizations, keep available the services of its current officers
and employees and preserve its relationships with customers, suppliers and
others having business dealings with it to the end that its goodwill and
ongoing business shall be unimpaired at the Effective Time. Without
limiting the generality of the foregoing, and except as otherwise expressly
contemplated by this Agreement, the Company shall not, and shall not permit
any of its Subsidiaries to, without the prior written consent of Parent,
which consent, for purposes of Section 4.1(b)(iv), may not be unreasonably
withheld or delayed:
(i)(A) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its
capital stock, or otherwise make any payments to its shareholders in
their capacity as such (other than dividends and other distributions by
Subsidiaries), (B) other than in the case of any Subsidiary, split,
combine or reclassify any of its capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (C) subject to the
limitations set forth in Sections 4.4 and 5.9(b), purchase, redeem or
otherwise acquire any shares of capital stock of the Company or any
other securities thereof or any rights, warrants or options to acquire
any such shares or other securities;
(ii) issue, deliver, sell, pledge, dispose of or otherwise encumber
any shares of its capital stock, any other voting securities or equity
equivalent or any securities convertible into, or any rights, warrants
or options to acquire any such shares, voting securities, equity
equivalent or convertible securities, other than (A) the issuance of
shares of Company Common Stock upon the exercise of Company Options
outstanding on the date of this Agreement in accordance with their
current terms, (B) the issuance of shares of Company Common Stock in
connection with acquisitions permitted pursuant to clause (iv) of this
paragraph (b), and (C) the issuance by any wholly-owned Subsidiary of
the Company of its capital stock to the Company or another wholly-owned
Subsidiary of the Company;
(iii) amend its Charter or Bylaws;
(iv) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of or equity in, or
by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or
otherwise acquire or agree to acquire any assets, except those
transactions in the ordinary course of business which the Company or
any of its Subsidiaries is obligated to consummate, and the
consideration for which consists solely of cash, pursuant to agreements
to which the Company or any of its Subsidiaries is a party in effect as
of the date hereof;
(v) sell, lease or otherwise dispose of, or agree to sell, lease or
otherwise dispose of, any of its assets, other than transactions that
are in the ordinary course of business consistent with past practice
and not material to the Company and its Subsidiaries taken as a whole;
(vi) incur any indebtedness for borrowed money, guarantee any such
indebtedness or make any loans, advances or capital contributions to,
or other investments in, any other person, other than (A) in the
ordinary course of business consistent with past practices and (B)
indebtedness, loans, advances, capital contributions and investments
between the Company and any of its Subsidiaries or between any of such
Subsidiaries;
(vii) alter (through merger, liquidation, reorganization,
restructuring or in any other fashion) the corporate structure or
ownership of the Company or any Subsidiary;
(viii) enter into or adopt, or amend any existing, severance plan,
agreement or arrangement or enter into or amend any Company Plan or
employment or consulting agreement, other than as required by law;
(ix) except as set forth in Schedule 4.1(b)(ix), increase the
compensation payable or to become payable to its officers or employees,
except for increases in the ordinary course of business consistent with
past practice in salaries or wages of employees of the Company or any
of its Subsidiaries who are not officers of the Company or any of its
Subsidiaries, or grant any severance or termination pay to, or
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enter into any employment or severance agreement with, any director or
officer of the Company or any of its Subsidiaries, or establish, adopt,
enter into, or, except as may be required to comply with applicable
law, amend in any material respect or take action to enhance in any
material respect or accelerate any rights or benefits under, any labor,
collective bargaining, bonus, profit sharing, thrift, compensation,
stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any
director, officer or employee;
(x) knowingly violate or knowingly fail to perform any material
obligation or duty imposed upon it or any Subsidiary by any applicable
material federal, state or local law, rule, regulation, guideline or
ordinance;
(xi) take any action, other than reasonable and usual actions in the
ordinary course of business consistent with past practice, with respect
to accounting policies or procedures (other than actions required to be
taken by generally accepted accounting principles);
(xii) make any tax election or settle or compromise any material
federal, state, local or foreign income tax liability; or
(xiii) authorize, recommend, propose or announce an intention to do
any of the foregoing, or enter into any contract, agreement, commitment
or arrangement to do any of the foregoing.
4.2 NO SOLICITATION.
(a) The Company agrees that, from and after the date hereof, it shall
not, and shall not cause, authorize or permit its Subsidiaries or any of
its officers, directors, agents, attorneys, accountants, advisors,
affiliates and other representatives, or those of any of its Subsidiaries
to, solicit, participate in, or encourage inquiries or proposals with
respect to, or engage in any negotiations concerning, or provide any
confidential information to, or have any discussions or negotiations with,
any person relating to, any "Company Takeover Proposal" (as such term is
defined in Section 4.2(c)); provided, however, that the Company may engage
in discussions or negotiations with, or furnish information concerning the
Company and its Subsidiaries, business, properties or assets to, any third
party which makes a Company Takeover Proposal if the Board of Directors of
the Company concludes in good faith on the basis of the advice of its
outside legal counsel (who may be its regularly engaged outside legal
counsel) that the failure to take such action would violate the fiduciary
obligations of such Board under applicable law. The Company shall promptly
(within 24 hours) advise Parent following the receipt by the Company of any
Company Takeover Proposal and the material terms thereof (including the
identity of the person making such Company Takeover Proposal), and advise
Parent of any developments with respect to such Company Takeover Proposal
immediately upon the occurrence thereof.
(b) Parent agrees that, from and after the date hereof, it shall not, and
shall not cause, authorize or permit its Subsidiaries or any of its
officers, directors, agents, attorneys, accountants, advisors, affiliates
and other representatives, or those of any of its Subsidiaries to, solicit,
participate in, or encourage inquiries or proposals with respect to, or
engage in any negotiations concerning, or provide any confidential
information to, or have any discussions or negotiations with, any person
relating to, any "Parent Takeover Proposal" (as such term is defined in
Section 4.2(d)); provided, however, that Parent may engage in discussions
or negotiations with, or furnish information concerning Parent and its
Subsidiaries, business, properties or assets to, any third party which
makes a Parent Takeover Proposal if the Board of Directors of Parent
concludes in good faith on the basis of the advice of its outside counsel
(who may be its regularly engaged outside counsel) that the failure to take
such action would violate the fiduciary obligations of such Board under
applicable law. Parent shall promptly (within 24 hours) advise the Company
following the receipt by Parent of any Parent Takeover Proposal and the
material terms thereof (including the identity of the person making such
Parent Takeover Proposal), and advise the Company of any developments with
respect to such Parent Takeover Proposal immediately upon the occurrence
thereof.
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(c) "Company Takeover Proposal" means any tender offer or exchange offer,
proposal for a merger, consolidation or other business combination
involving the Company or any of its Subsidiaries or any proposal or offer
to acquire in any manner a substantial equity interest in, or a substantial
portion of the assets of, the Company or any of its Subsidiaries, other
than by the transactions contemplated under, or otherwise permitted by,
this Agreement.
(d) "Parent Takeover Proposal" means any tender offer or exchange offer,
proposal for a merger, consolidation or other business combination
involving Parent or any of its Subsidiaries or any proposal or offer to
acquire in any manner a substantial equity interest in, or a substantial
portion of the assets of, Parent or any of its Subsidiaries, other than by
the transactions contemplated under, or otherwise permitted by, this
Agreement.
4.3 THIRD PARTY STANDSTILL AGREEMENTS. During the period from the date of
this Agreement through the Effective Time, neither Parent nor the Company
shall terminate, amend, modify or waive any provision of any confidentiality
or standstill agreement to which such party or any of its Subsidiaries is a
party (other than any involving the other party hereto). During such period,
Parent and the Company agree to enforce, to the fullest extent permitted under
applicable law, the provisions of any such agreements, including, but not
limited to, obtaining injunctions to prevent any breaches of such agreements
and to enforce specifically the terms and provisions thereof in any court of
the United States or any state thereof having jurisdiction.
4.4 POOLING OF INTERESTS; REORGANIZATION. During the period from the date of
this Agreement through the Effective Time, unless the other party shall
otherwise agree in writing, none of Parent, the Company or any of their
respective Subsidiaries (or Affiliates over which each has control) shall (a)
knowingly take or fail to take any action which action or failure would
jeopardize the treatment of the Merger as a pooling of interests for
accounting purposes or (b) knowingly take or fail to take any action which
action or failure would jeopardize the qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code. Between the
date of this Agreement and the Effective Time, Parent and the Company each
shall take all reasonable actions necessary to cause the characterization of
the Merger as a pooling of interests for accounting purposes (it being agreed
that such actions will include, if necessary, in the case of Parent, the sale
or transfer for fair value of all shares of Parent Common Stock that currently
are treasury shares). Following the Effective Time, neither Parent nor the
Company shall knowingly take any action, or fail to take any action, that
would jeopardize the characterization of the Merger as a "pooling of
interests" for accounting purposes.
4.5 NO PURCHASE OF SECURITIES; OTHER ACTIONS.
(a) Except as provided in this Agreement or pursuant to the Stock Option
Agreements of even date herewith, during the period from the date of this
Agreement through the earlier of (aa) the Effective Time, or (bb) the
termination of this Agreement, neither Parent nor any of its Subsidiaries
will, in any manner, (i) acquire, or offer to acquire, any equity
securities of the Company (including options to acquire securities), (ii)
acquire, or offer to acquire, any assets of the Company, or (iii) otherwise
act, alone or in concert with others, to seek to control or influence the
management, the Board of Directors or the policies of the Company. Neither
Parent nor any of its Subsidiaries will initiate any request for any waiver
of the foregoing provisions or any consent to any action which otherwise
would be prohibited thereby and may request such a waiver or consent only
if the Company has initiated such request in writing prior thereto.
(b) Except as provided in this Agreement or pursuant to the Stock Option
Agreements of even date herewith, during the period from the date of this
Agreement through the earlier of (aa) the Effective Time, or (bb) the
termination of this Agreement, neither Company nor any of its Subsidiaries
will, in any manner, (i) acquire, or offer to acquire, any equity
securities of Parent (including options to acquire securities),
(ii) acquire, or offer to acquire, any assets of Parent, or (iii) otherwise
act, alone or in concert with others, to seek to control or influence the
management, the Board of Directors or the policies of Parent. Neither the
Company nor any of its Subsidiaries will initiate any request for any
waiver of the foregoing provisions or any consent to any action which
otherwise would be prohibited thereby and may request such a waiver or
consent only if Parent has initiated such request in writing prior thereto.
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ARTICLE V
ADDITIONAL AGREEMENTS
5.1 SHAREHOLDER MEETINGS.
(a) The Company and Parent each shall duly take all lawful action to
call, give notice of, convene and hold a meeting of its shareholders
(respectively, the "Company Shareholder Meeting" and the "Parent
Shareholder Meeting" and, collectively, the "Shareholder Meetings") to be
held as promptly as practicable after the effective date of the
Registration Statement for the purpose of considering, voting upon, and
obtaining the Parent Required Vote and the Company Required Vote with
respect to the approval of this Agreement, the transactions contemplated
hereby and, in the case of Parent, for the additional purposes of
considering and voting upon the Share Issuance and the Parent Amendments.
The Company and Parent shall coordinate and cooperate with respect to the
timing of such meetings and shall use their reasonable best efforts to hold
such meetings on the same day.
(b) The Company and Parent shall take all lawful action to solicit the
adoption of this Agreement by the Company Required Vote and the Parent
Required Vote, respectively. Further, the Parent and Company will, through
their respective Boards of Directors, recommend to their respective
shareholders approval of the matters described in Section 5.1(a) above to
the effects set forth in Section 2.3(a) (with respect to Parent, the
"Parent Recommendation")) and 3.3(a) (with respect to Company, the "Company
Recommendation")) and shall not withdraw, rescind, modify, or materially
qualify in any adverse manner, or take any action or make any statement in
connection with its Shareholders Meeting materially inconsistent with such
recommendation (an "Adverse Change in Recommendation"); provided, however,
that a Board of Directors shall not be required to make such recommendation
or solicit the adoption of this Agreement by the Company Required Vote or
the Parent Required Vote, as the case may be, and shall be entitled to make
an Adverse Change in Recommendation, if such Board concludes in good faith
on the basis of the advice of its outside legal counsel (who may be its
regularly engaged outside legal counsel) that the making of such
recommendation, or the failure to make an Adverse Change in Recommendation,
would violate the fiduciary obligations of such Board under applicable law.
The parties acknowledge and agree that in no event will the exercise by a
party of the provisions of this Section 5.1(b) (allowing such party, for
instance, under certain specified circumstances and acting through its
Board of Directors, to withdraw, rescind, modify, or materially qualify in
any adverse manner its recommendation) excuse or relieve such party of its
obligation to hold its Shareholder Meeting as provided in Section 5.1(a)
above.
5.2 PREPARATION OF THE REGISTRATION STATEMENT AND THE JOINT PROXY
STATEMENT. The Company and Parent shall promptly prepare the Joint Proxy
Statement and Parent shall promptly prepare the Registration Statement, in
which the Joint Proxy Statement will be included, and Parent and Company shall
promptly thereafter file the Registration Statement and Joint Proxy Statement.
Each of Parent and the Company shall use its reasonable best efforts to cause
its financial advisor to reconfirm and reissue, as of the date of mailing of
the Joint Proxy Statement, the Parent Fairness Opinion and the Company
Fairness Opinion, respectively, for inclusion and reference in the Joint Proxy
Statement; provided, however, that in no event shall the reconfirmation and
reissuance of either the Parent Fairness Opinion or the Company Fairness
Opinion be a condition precedent to the obligations set forth in Section 5.1
above or a condition precedent to the mailing of the Joint Proxy Statement.
Further, in no event shall the reconfirmation or reissuance, at whatever date,
of the Parent Fairness Opinion or the Company Fairness Opinion, as the case
may be, constitute a condition precedent to Closing. Each of Parent and the
Company shall use its reasonable best efforts to have the Registration
Statement declared effective under the Securities Act as promptly as
practicable after such filing. As promptly as practicable after the
Registration Statement shall have become effective, each of Parent and the
Company shall mail the Joint Proxy Statement to its shareholders. Parent shall
also take any action (other than qualifying to do business in any jurisdiction
in which it is now not so qualified) required to be taken under any applicable
state securities laws in connection with the issuance of Parent Common Stock
in the Merger, and the Company shall furnish all information concerning the
Company and the holders of Company Common Stock as may be reasonably requested
in connection with any such action. No amendment or supplement to the Joint
Proxy Statement or the
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Registration Statement will be made by Parent or the Company without the prior
approval of the other party. Further, to the extent any such amendments or
supplements are required and consented to by each of Parent and the Company,
Parent or the Company, as the case may be, shall promptly prepare and file
such amendement or supplement, as the case may be. Parent and the Company each
will advise the other, promptly after it receives notice thereof, of the time
when the Registration Statement has become effective or any supplement or
amendment has been filed, of the issuance of any stop order, of the suspension
of the qualification of the Parent Common Stock issuable in connection with
the Merger for offering or sale in any jurisdiction, or of any request by the
SEC for amendment of the Joint Proxy Statement or the Registration Statement
or comments thereon and responses thereto or requests by the SEC for
additional information.
5.3 EMPLOYEE BENEFITS MATTERS. Exhibit 5.3 hereto sets forth certain
agreements among the parties hereto with respect to employee benefit matters
and is incorporated herein by reference.
5.4 ACCESS TO INFORMATION. Subject to currently existing contractual and
legal restrictions applicable to Parent or to the Company or any of their
Subsidiaries, each of Parent and the Company shall, and shall cause each of
its Subsidiaries to, afford to the accountants, counsel, financial advisors
and other representatives of the other party hereto reasonable access to, and
permit them to make such inspections as they may reasonably require of, during
normal business hours during the period from the date of this Agreement
through the Effective Time, all their respective properties, books, contracts,
commitments and records (including, without limitation, the work papers of
independent accountants, if available and subject to the consent of such
independent accountants) and, during such period, Parent and the Company
shall, and shall cause each of its Subsidiaries to, furnish promptly to the
other (i) a copy of each report, schedule, registration statement and other
document filed by it during such period pursuant to the requirements of
federal or state securities laws and (ii) all other information concerning its
business, properties and personnel as the other may reasonably request. No
investigation pursuant to this Section 5.4 shall affect any representation or
warranty in this Agreement of any party hereto or any condition to the
obligations of the parties hereto. All information obtained by Parent or the
Company pursuant to this Section 5.4 shall be kept confidential in accordance
with that certain Mutual Non-Disclosure Agreement dated May 29, 1998 between
Parent and the Company (the "Non-Disclosure Agreement").
5.5 COMPLIANCE WITH THE SECURITIES ACT; POOLING PERIOD.
(a) Prior to the Effective Time, the Company shall cause to be prepared
and delivered to Parent a list (reasonably satisfactory to counsel for
Parent) identifying all persons who, at the time of the Company Shareholder
Meeting, in the Company's reasonable judgment, may be deemed to be
"affiliates" of the Company as that term is used in paragraphs (c) and (d)
of Rule 145 promulgated under the Securities Act (the "Rule 145
Affiliates"). The Company shall use its reasonable best efforts to cause
each person who is identified as a Rule 145 Affiliate in such list to
deliver to Parent on or prior to the Effective Time a written agreement, in
substantially the form of Exhibit 5.5(a) hereto. Parent shall publish, in a
manner that satisfies the "publication" requirements under applicable SEC
rules or accounting releases, financial results (including combined sales
and net income) covering at least 30 days of post-Merger operations no
later than 60 days following the first quarter-end that is at least 30 days
after the Effective Time. The period commencing 30 days prior to the
Effective Time and ending on the date of the publication of the post-Merger
financial results is referred to herein as the "Pooling Period."
(b) Prior to the Effective Time, Parent shall deliver to the Company a
list (reasonably satisfactory to counsel to the Company) identifying those
persons who may be, in Parent's reasonable judgment, at the time of the
Parent Shareholder Meeting, affiliates of Parent under applicable SEC
accounting releases with respect to pooling of interests accounting
treatment. Parent shall provide the Company such information and documents
as the Company shall reasonably request for purposes of reviewing such
list. Parent shall use its reasonable best efforts to deliver or cause to
be delivered to the Company, prior to the Effective Time, a written
agreement in substantially the form of Exhibit 5.5(b) hereto, executed by
each of such persons identified in the foregoing list.
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(c) At the Effective Time, Parent and the persons listed on Schedule
5.5(c) shall have executed and delivered a Registration Rights Agreement in
the form attached as Exhibit 5.5(c).
5.6 STOCK EXCHANGE LISTINGS. Parent shall obtain approval for the listing of
the shares of Parent Common Stock to be issued in connection with the Merger.
5.7 FEES AND EXPENSES. Except as provided in this Section 5.7, whether or
not the Merger is consummated, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby including,
without limitation, the fees and disbursements of counsel, financial advisors
and accountants, shall be paid by the party incurring such costs and expenses,
provided that all printing expenses and filing fees shall be divided equally
between Parent and the Company.
5.8 COMPANY OPTIONS; STOCK PURCHASE PLAN.
(a) At the Effective Time, by virtue of the Merger and without any
further action on the part of the Company or the holder thereof, each
"Company Option" will be assumed or substituted by Parent in such manner
that Parent (i) is a corporation "issuing or assuming a stock option in a
transaction to which Section 424(a) applies" within the meaning of Section
424(a) of the Code or (ii) Parent, to the extent that Section 424 of the
Code does not apply to any such Company Options, would be such a
corporation were Section 424 of the Code applicable to such Company
Options. At the Effective Time, by virtue of the Merger and without any
further action on the part of the Company, the Parent or the holder of any
Company Option, each Company Option will be automatically converted into a
Parent Option to purchase a number of shares of Parent Common Stock equal
to the number of shares of Company Common Stock that could have been
purchased (assuming full vesting) under such Company Option multiplied by
the Conversion Number (rounded to the nearest whole number of shares of
Parent Common Stock) at a price per share of Parent Common Stock equal to
the per share option exercise price specified in the Company Option divided
by the Conversion Number (rounded to the nearest whole cent). Each such
Parent Option shall contain terms and provisions which are substantially
similar to those terms, conditions and provisions contained in the original
Company Option, except that references to the Company in such Company
Option will be deemed to refer to Parent and the date of grant of the
Parent Option for purposes of interpretation for terms, conditions and
provisions in the new Parent Option shall be deemed to be the date of grant
of such Company Option. For Federal income tax purposes, the date of grant
of the substituted Parent Option shall be the date on which the
corresponding Company Option was granted. At the Effective Time, for
purposes of interpretation of such new Parent Options, (i) all references
in any stock option plan of the Company shall be deemed to refer to Parent;
(ii) any stock option plan of the Company which governs a Company Option
shall continue to govern the Parent Option substituted therefor; and (iii)
Parent shall, as soon as practicable after the Effective Time, issue to
each holder of an outstanding Company Option a document evidencing the
foregoing issued and substituted Parent Option by Parent. At the Effective
Time, by virtue of the Merger and without any further action on the part of
the Company, each Company Option shall become fully vested pursuant to the
terms and provisions of the agreement pertaining to such option and the
plan (as amended and restated, if applicable) under which such option was
granted. It is the intention of the parties: (1) that, subject to
applicable law, the Company Options assumed by Parent qualify, following
the Effective Time, as incentive stock options, as defined in Section 422
of the Code, to the extent that the Company Options qualified as incentive
stock options prior to the Effective Time, (2) that each holder of a
Company Option shall receive a new Parent Option which preserves (but does
not increase) the excess of the fair market value of the shares subject to
the option immediately before the Effective Time over the aggregate option
price of such shares immediately before the Effective Time, (3) that the
terms, conditions, restrictions and provisions of the Parent Option be
identical to the terms, conditions, restrictions and provisions of the
Company Option for which it was substituted assuming that the Parent had
originally issued such Company Option for Parent Common Stock, and (4) any
terms, conditions, restrictions or provisions of an option applicable to a
number of shares rather than a percentage or fraction of shares should be
appropriately adjusted based upon the Conversion Number. No options shall
be issued by Company on or after the Effective Time under any stock option
plan currently maintained by the Company.
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(b) With respect to each Company Option converted into a Parent Option
pursuant to Section 5.8(a), and with respect to the shares of Parent Common
Stock underlying such option, Parent shall file and keep current all
requisite registration statements, on Form S-8 or other appropriate form,
for as long as such options remain outstanding, which registration
statement shall include a prospectus meeting the requirements of General
Instruction C to Form S-8 with respect to affiliates of the Company,
subject at all times to compliance with all applicable federal and state
securities laws.
(c) Except as provided in Section 4.1(b)(ix), the Company agrees that it
will not grant any restricted stock, stock appreciation rights or limited
stock appreciation rights and also agrees that it will not permit cash
payments to holders of Company Options in lieu of the substitution therefor
of Parent Options, as described in this Section 5.8.
5.9 REASONABLE BEST EFFORTS; POOLING OF INTERESTS.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use reasonable best efforts to
take, or cause to be taken, all actions, and to do, or cause to be done,
and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the
most expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including, but not limited to: (i) the
obtaining of all necessary actions or non-actions, waivers, consents and
approvals from all Governmental Entities and the making of all necessary
registrations and filings (including filings with Governmental Entities)
and the taking of all reasonable steps as may be necessary to obtain an
approval or waiver from, or to avoid an action or proceeding by, any
Governmental Entity (including those in connection with the HSR Act and
State Takeover Approvals), (ii) the obtaining of all necessary consents,
approvals or waivers from third parties, (iii) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions
contemplated hereby, including seeking to have any stay or temporary
restraining order entered by any court or other Governmental Entity vacated
or reversed, and (iv) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by this
Agreement. No party to this Agreement shall consent to any voluntary delay
of the consummation of the Merger at the behest of any Governmental Entity
without the consent of the other parties to this Agreement, which consent
shall not be unreasonably withheld.
(b) Each of Parent and the Company agrees to take, together with their
respective accountants, all actions reasonably necessary in order to obtain
a favorable determination (if required) from the SEC that the Merger may be
accounted for as a pooling of interests in accordance with generally
accepted accounting principles.
(c) Each party shall use all reasonable best efforts to not take any
action, or enter into any transaction, which would cause any of its
representations or warranties contained in this Agreement to be untrue or
result in a breach of any covenant or agreement made by it in this
Agreement.
(d) Notwithstanding anything to the contrary contained in this Agreement,
in connection with any filing or submission required or action to be taken
by either Parent or the Company to effect the Merger and to consummate the
other transactions contemplated hereby, the Company shall not, without
Parent's prior written consent, commit to any divestiture transaction, and
neither Parent nor any of its Affiliates shall be required to divest or
hold separate or otherwise take or commit to take any action that limits
its freedom of action with respect to, or its ability to retain, the
Company or any of the material businesses, product lines or assets of
Parent or any of its Affiliates or that otherwise would have a Material
Adverse Effect on Parent.
5.10 PUBLIC ANNOUNCEMENTS. Parent and the Company will not issue any press
release with respect to the transactions contemplated by this Agreement or
otherwise issue any written public statements with respect to such
transactions other than upon mutual agreement and cooperation with the other
party, except as may be required by applicable law or by obligations pursuant
to any listing agreement with any national securities exchange. Parent and the
Company also agree to reasonably cooperate regarding any written
communications
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which relate to the transactions contemplated by this Agreement made to their
employees during the period from the date hereof until the Effective Time.
5.11 STATE TAKEOVER LAWS. If any "fair price," "business combination",
"control share acquisition", or "greenmail" statute or other similar statute
or regulation shall become applicable to the transactions contemplated hereby,
Parent and the Company and their respective Boards of Directors shall use
their reasonable best efforts to obtain or grant such approvals and take such
actions as are necessary so that the transactions contemplated hereby may be
consummated as promptly as practicable on the terms contemplated hereby and
otherwise act to minimize the effects of any such statute or regulation on the
transactions contemplated hereby.
5.12 NOTIFICATION OF CERTAIN MATTERS. Parent shall use its reasonable best
efforts to give prompt notice to the Company, and the Company shall use its
reasonable best efforts to give prompt notice to Parent, of: (i) the
occurrence, or non-occurrence, of any event the occurrence, or non-occurrence,
of which it is aware and which would be reasonably likely to cause (x) any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect or (y) any covenant, condition or agreement
contained in this Agreement not to be complied with or satisfied in all
material respects, (ii) any failure of Parent or the Company, as the case may
be, to comply in a timely manner with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder or (iii) any change
or event which would be reasonably likely to have a Material Adverse Effect on
Parent or the Company, as the case may be; provided, however, that the
delivery of any notice pursuant to this Section 5.12 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
5.13 RESIGNATION OF DIRECTORS. The Company shall cause each director of the
Company to resign as a director of the Company immediately after the Effective
Time. Immediately thereafter, the Board of Directors of the Company shall be
comprised of the individuals identified on Schedule 1.4.
5.14 BOARD OF DIRECTORS OF PARENT. Effective at the Effective Time, the
Board of Directors of Parent shall consist of eleven (11) directors (the
"Directors"), that five (5) of such Directors shall have been duly appointed
by Parent, five (5) of such Directors shall have been duly appointed by the
Company, and one (1) Director shall have been nominated by Parent and approved
by the Company (and such Director shall not be employed by either Parent, the
Company, nor any Subsidiary or Affiliate thereof). Effective at the Effective
Time, the Parent's Board of Directors, and the Compensation Committee of the
Board of Directors, shall consist of the individuals identified on Schedule
5.14 attached hereto, and each of Richardson M. Roberts and Gregory S. Daily
shall serve, together with James M. Bahin, as a Vice Chairman of Parent.
5.15 INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE. For six years from
and after the Effective Time, Parent agrees not to, and agrees to cause the
Surviving Corporation not to, alter the provisions of the Company's Amended
and Restated Charter and Bylaws relating to indemnification of officers and
directors of the Company and its Subsidiaries for acts or omissions occurring
at or prior to the Effective Time. Parent shall cause the Surviving
Corporation to provide, for a period of six years from the Effective Time, the
Company's current directors and officers an insurance and indemnification
policy that provides coverage for events occurring prior to the Effective Time
(the "D&O Insurance") that is no less favorable than the Company's existing
policy or, if substantially equivalent insurance coverage is unavailable, the
best available coverage; provided, however, that the Surviving Corporation
shall not be required to pay an annual premium for the D&O Insurance in excess
of 300 percent of the last annual premiums paid prior to the date hereof
(which premiums the Company represents and warrants to be approximately
$85,000), but in such case shall purchase as much coverage as possible for
such amount.
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ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) Shareholder Approval. This Agreement and the transactions
contemplated hereby shall have been duly approved by the requisite vote of
shareholders of the Company in accordance with applicable law, and the
Amended and Restated Charter and Bylaws of the Company, and the Share
Issuance, this Agreement, and the transactions contemplated hereby
(including, if applicable, any Conversion Number Adjustment pursuant to
Section 7.1(g)) shall have been approved by the requisite vote of the
shareholders of Parent in accordance with applicable rules of the NYSE,
applicable law and the Articles of Incorporation and Bylaws of Parent.
(b) Stock Exchange Listings. The Parent Common Stock issuable in the
Merger shall have been approved for listing on the NYSE, subject to notice
of issuance.
(c) HSR and Other Approvals.
(i) The waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated.
(ii) All authorizations, consents, orders, declarations or approvals
of, or filings with, or terminations or expirations of waiting periods
imposed by, any Governmental Entity, which the failure to obtain, make
or occur would have the effect of making the Merger or any of the
transactions contemplated hereby illegal or would have a Material
Adverse Effect on Parent (assuming the Merger had taken place), shall
have been obtained, shall have been made or shall have occurred.
(d) Registration Statement. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act. No stop
order suspending the effectiveness of the Registration Statement shall have
been issued by the SEC and no proceedings for that purpose, and no action
to limit, stop or prohibit the mailing of the Joint Proxy Statement to
shareholders, shall have been initiated or, to the Knowledge of Parent or
the Company, threatened by the SEC. All necessary state securities or blue
sky authorizations (including State Takeover Approvals) shall have been
received.
(e) No Order. No court or other Governmental Entity having jurisdiction
over the Company or Parent, or any of their respective Subsidiaries, shall
have enacted, issued, promulgated, enforced or entered any law, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is then in effect and has the
effect of making the Merger or any of the transactions contemplated hereby
illegal.
6.2 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE MERGER. The
obligation of the Company to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) Performance of Obligations; Representations and Warranties. Each of
Parent and Sub shall have performed in all material respects each of its
agreements contained in this Agreement required to be performed on or prior
to the Effective Time, each of the representations and warranties of Parent
and Sub contained in this Agreement that is qualified by materiality shall
be true and correct on and as of the Effective Time as if made on and as of
such date (other than representations and warranties which address matters
only as of a certain date which shall be true and correct as of such
certain date) and each of the representations and warranties that is not so
qualified shall be true and correct in all material respects on and as of
the Effective Time as if made on and as of such date (other than
representations and warranties which address matters only as of a certain
date which shall be true and correct in all material respects as of such
certain date), in each case except as contemplated or permitted by this
Agreement, and the Company
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shall have received a certificate signed on behalf of each of Parent and
Sub by its Chief Executive Officer and its Chief Financial Officer to such
effect.
(b) Tax Opinion. The Company shall have received an opinion of counsel to
the Company, in form and substance reasonably satisfactory to the Company,
dated the Effective Time, substantially to the effect that on the basis of
facts, representations and assumptions set forth in such opinion which are
consistent with the state of facts existing as of the Effective Time, for
federal income tax purposes:
(i) the Merger will constitute a "reorganization" within the meaning
of Section 368(a) of the Code, and the Company, Sub and Parent will
each be a party to that reorganization within the meaning of Section
368(b) of the Code;
(ii) no gain or loss will be recognized by Parent, Sub or the Company
as a result of the Merger; and
(iii) except with respect to cash received in lieu of a fractional
share interest, no gain or loss will be recognized by the shareholders
of the Company upon the conversion of their shares of Company Common
Stock into shares of Parent Common Stock pursuant to the Merger, except
with respect to cash, if any, received in lieu of fractional shares of
Parent Common Stock.
In rendering such opinion, counsel to the Company shall receive and may
rely upon such representations as reasonably requested by counsel to the
Company from Parent, the Company, and others, including representations
from Parent substantially similar to the representations in Section 2.9
hereof and representations from the Company substantially similar to the
representations in Section 3.9 hereof.
(c) Pooling Opinion. The Company shall have received the opinion of Price
Waterhouse LLP, dated as of the date on which the Registration Statement
shall become effective and the Effective Time, to the effect that the
Merger qualifies for pooling-of-interests accounting treatment under
Accounting Principles Board Opinion No. 16 if consummated in accordance
with this Agreement.
6.3 CONDITIONS TO OBLIGATIONS OF PARENT AND SUB TO EFFECT THE MERGER. The
obligations of Parent and Sub to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) Performance of Obligations; Representations and Warranties. The
Company shall have performed in all material respects each of its
agreements contained in this Agreement required to be performed on or prior
to the Effective Time, each of the representations and warranties of the
Company contained in this Agreement that is qualified by materiality shall
be true and correct on and as of the Effective Time as if made on and as of
such date (other than representations and warranties which address matters
only as of a certain date which shall be true and correct as of such
certain date) and each of the representations and warranties that is not so
qualified shall be true and correct in all material respects on and as of
the Effective Time as if made on and as of such date (other than
representations and warranties which address matters only as of a certain
date which shall be true and correct in all material respects as of such
certain date), in each case except as contemplated or permitted by this
Agreement, and Parent shall have received a certificate signed on behalf of
the Company by its Chief Executive Officer and its Chief Financial Officer
to such effect.
(b) Tax Opinion. Parent shall have received an opinion of counsel to
Parent, in form and substance reasonably satisfactory to the Company, dated
the Effective Time, substantially to the effect that on the basis of facts,
representations and assumptions set forth in such opinion which are
consistent with the state of facts existing as of the Effective Time, for
federal income tax purposes:
(i) the Merger will constitute a "reorganization" within the meaning
of Section 368(a) of the Code, and the Company, Sub and Parent will
each be a party to that reorganization within the meaning of Section
368(b) of the Code;
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(ii) no gain or loss will be recognized by Parent, Sub or the Company
as a result of the Merger; and
(iii) except with respect to cash received in lieu of a fractional
share interest, no gain or loss will be recognized by the shareholders
of the Company upon the conversion of their shares of Company Common
Stock into shares of Parent Common Stock pursuant to the Merger, except
with respect to cash, if any, received in lieu of fractional shares of
Parent Common Stock.
In rendering such opinion, counsel to Parent shall receive and may rely
upon such representations as reasonably requested by counsel to Parent from
Parent, the Company, and others, including representations from Parent
substantially similar to the representations in Section 2.9 hereof and
representations from the Company substantially similar to the
representations in Section 3.9 hereof.
(c) Pooling Opinion. Parent shall have received the opinion of Ernst &
Young LLP, dated as of the date on which the Registration Statement shall
become effective and the Effective Time, to the effect that the Merger
qualifies for pooling-of-interests accounting treatment under Accounting
Principles Board Opinion No. 16 if consummated in accordance with this
Agreement.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after any approval of the matters presented
in connection with the Merger by the shareholders of the Company or Parent:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company, if the other party shall have failed
to comply in any material respect with any of its covenants or agreements
contained in this Agreement required to be complied with prior to the date
of such termination, which failure to comply has not been cured within five
business days following receipt by such other party of written notice of
such failure to comply; provided, however, that if any such breach is
curable by the breaching party through the exercise of the breaching
party's best efforts and for so long as the breaching party shall be so
using its best efforts to cure such breach, the non-breaching party may not
terminate this Agreement pursuant to this paragraph;
(c) by either Parent or the Company, if there has been (i) a breach by
the other party (in the case of Parent, including any material breach by
Sub) of any representation or warranty that is not qualified as to
materiality which has the effect of making such representation or warranty
not true and correct in all material respects or (ii) a breach by the other
party (in the case of Parent, including any material breach by Sub) of any
representation or warranty that is qualified as to materiality, in each
case which breach has not been cured within five business days following
receipt by the breaching party of written notice of the breach; provided,
however, that if any such breach is curable by the breaching party through
the exercise of the breaching party's best efforts and for so long as the
breaching party shall be so using its best efforts to cure such breach, the
non-breaching party may not terminate this Agreement pursuant to this
paragraph;
(d) by Parent or the Company, if: (i) the Merger has not been effected on
or prior to the close of business on November 30, 1998 (the "Termination
Date", subject to extension as provided herein); provided, however, that
(A) the right to terminate this Agreement pursuant to this Section 7.1(d)
shall not be available to any party whose failure to fulfill any of its
obligations contained in this Agreement has been the cause of, or resulted
in, the failure of the Merger to have occurred on or prior to the aforesaid
date; and (B) the Termination Date may be extended prior to the termination
hereof by written notice of either Parent or the Company to the other to a
date not later than February 28, 1999, if the Merger shall not have been
consummated as a result of the Company or Parent having failed by November
30, 1998 to receive all required regulatory approvals or consents with
respect to the Merger necessary to satisfy the condition set
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forth in Section 6.1(c); or (ii) any court or other Governmental Entity
having jurisdiction over a party hereto shall have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the transactions contemplated by this Agreement and
such order, decree, ruling or other action shall have become final and
nonappealable;
(e) by Parent or the Company, if the shareholders of the Company do not
approve this Agreement and the transactions contemplated hereby at the
Company Shareholder Meeting or any adjournment or postponement thereof;
(f) by Parent or the Company, if the shareholders of Parent do not
approve this Agreement, the transactions contemplated hereby, and the Share
Issuance at the Parent Shareholder Meeting or any adjournment or
postponement thereof;
(g) by the Company, if the product of the Conversion Number and the
average closing price of Parent for the ten trading-day period immediately
preceding the day which is two (2) business days before the Closing Date
would result in each shareholder of the Company receiving consideration
with a value of less than $15.00 per share of the Company Common Stock held
by such shareholder as so measured; provided; however, that before the
Company may terminate this Agreement pursuant to this Section 7.1(g), the
Company shall provide written notice of such intent at least one (1)
business day prior to the Closing Date. After receipt of such notice,
Parent shall have until the Closing Date to notify the Company of its
election to submit to its shareholders for approval a "Conversion Number
Adjustment" (as defined in this Section 7.1(g)). So long as Parent secures
and delivers to the Company "Revised Shareholder Agreements" (as defined
herein), the Company shall not have the right to terminate this Agreement
pursuant to this Section 7.1(g) pending the approval of Parent's
shareholders of the Conversion Number Adjustment. For purposes of this
Section 7.1(g), "Conversion Number Adjustment" shall mean the appropriate
adjustment of the Conversion Number to provide that each shareholder of the
Company shall receive consideration at Closing with a value equal to $15.00
per share of Company Common Stock held by such shareholder; "Revised
Shareholder Agreements" shall mean those Shareholder Agreements executed by
the Company and certain shareholders of Parent of even date herewith, as
amended to provide that each such shareholder shall vote in favor of this
Agreement, the Merger, the Share Issuance, the Parent Amendments, and the
other transactions hereby contemplated, notwithstanding the adjustment of
the Conversion Number pursuant to this Section 7.1(g). Notwithstanding
anything to the contrary in this Section 7.1(g), the Conversion Number
Adjustment mechanism described herein may be invoked only once.
(h) by Parent, if: (i) the Board of Directors of the Company shall not
have made the Company Recommendation, or shall have resolved not to make
the Company Recommendation, or shall have made an Adverse Change in
Recommendation, or shall have resolved to do so; (ii) the Board of
Directors of the Company shall have recommended to the shareholders of the
Company any Company Takeover Proposal, or shall have resolved to do so; or
(iii) a tender offer or exchange offer for 20% or more of the outstanding
shares of capital stock of the Company is commenced, and the Board of
Directors of the Company fails to recommend against acceptance of such
tender offer or exchange offer by its shareholders (including by taking no
position with respect to the acceptance of such tender offer or exchange
offer by its shareholders);
(i) by the Company, if: (i) the Board of Directors of Parent shall not
have made the Parent Recommendation, or shall have resolved not to make the
Parent Recommendation, or shall have made an Adverse Change in
Recommendation, or shall have resolved to do so; or (ii) the Board of
Directors of Parent shall have recommended to the shareholders of Parent
any Parent Takeover Proposal, or shall have resolved to do so; or (iii) a
tender offer or exchange offer for 20% or more of the outstanding shares of
capital stock of the Company is commenced, and the Board of Directors of
Parent fails to recommend against acceptance of such tender offer or
exchange offer by its shareholders (including by taking no position with
respect to the acceptance of such tender offer or exchange offer by its
shareholders);
The right of any party hereto to terminate this Agreement pursuant to this
Section 7.1 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
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controlling any such party or any of their respective officers or directors,
whether prior to or after the execution of this Agreement.
7.2 EFFECT OF TERMINATION. In the event of termination of this Agreement by
either Parent or the Company, as provided in Section 7.1, this Agreement shall
forthwith become void and there shall be no liability hereunder on the part of
the Company, Parent, Sub or their respective officers or directors (except for
the last sentence of Section 5.4 and the entirety of Section 5.7 and Article
VIII, which shall survive the termination); provided, however, that nothing
contained in this Section 7.2 shall relieve any party hereto from any
liability for any willful breach of a representation or warranty contained in
this Agreement or the breach of any covenant contained in this Agreement.
7.3 AMENDMENT. This Agreement may be amended by the parties hereto, by or
pursuant to action taken by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the
Merger by the shareholders of Parent and the Company, but, after any such
approval, no amendment shall be made which by law requires further approval by
such shareholders without such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
7.4 WAIVER. At any time prior to the Effective Time, the parties hereto may
(i) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein which may legally be waived. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
8.1 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The
representations, warranties and agreements in this Agreement or in any
Schedule, Exhibit or instrument delivered pursuant to this Agreement shall
terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 7.1, as the case may be, except that the agreements set
forth in Article I, Section 4.4, Section 5.14, Section 5.15 and this Article
VIII shall survive the Effective Time, and those set forth in the last
sentence of Section 5.4, Sections 5.7 and 7.2 and this Article VIII shall
survive termination.
8.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given when delivered personally, one day after
being delivered to an overnight courier or when telecopied (with a
confirmatory copy sent by overnight courier) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Parent or Sub, to
NOVA Corporation
One Concourse Parkway, Suite 300
Atlanta, Georgia 30328
Attention: Edward Grzedzinski
Chief Executive Officer
Facsimile No.: (770) 698-1013
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<PAGE>
with copies to:
Long Aldridge & Norman LLP
One Peachtree Center, Suite 5300
303 Peachtree Street
Atlanta, Georgia 30308
Attention: David M. Ivey, Esq.
Facsimile No.: (404) 527-4198
(b) if to the Company, to
PMT Services, Inc.
3841 Green Hills Village Drive
Nashville, Tennessee 37215
Attention: Richardson M. Roberts
Chief Executive Officer
Facsimile No.: (615) 254-1501
with copies to:
Waller Lansden Dortch & Davis,
a Professional Limited Liability Company
511 Union Street, Suite 2100
Nashville, Tennessee 37219
Attention: J. Chase Cole, Esq.
Facsimile No.: (615) 244-6804
8.3 INTERPRETATION. When a reference is made in this Agreement to a Section,
such reference shall be to a Section of this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
8.4 COUNTERPARTS. This Agreement may be executed in counterparts, all of
which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been signed by each of the
parties and delivered to the other parties.
8.5 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement, except
as provided in the last sentence of Section 5.4, constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof. This
Agreement, is not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder.
8.6 GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Tennessee, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof. Each of the parties hereto irrevocably waives its right to a trial by
jury in any action, proceeding or counterclaim arising out of or relating to
this Agreement or the actions of Parent, the Company, or Sub in the
negotiation, administration, performance and enforcement thereof.
8.7 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the
other parties.
8.8 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic and legal
substance of the transactions
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contemplated hereby are not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties shall negotiate in good
faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that
the transactions contemplated by this Agreement may be consummated as
originally contemplated to the fullest extent possible.
8.9 ENFORCEMENT OF THIS AGREEMENT. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, such remedy being in addition to any other
remedy to which any party is entitled at law or in equity.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
and Plan of Merger to be signed by their respective officers thereunto duly
authorized all as of the date first written above.
"PARENT:"
NOVA CORPORATION
/s/ Edward Grzedzinski
By: _________________________________
Edward Grzedzinski
Chief Executive Officer
"SUB:"
CHURCH MERGER CORP.
/s/ Edward Grzedzinski
By: _________________________________
Edward Grzedzinski
Chief Executive Officer
"COMPANY:"
PMT SERVICES, INC.
/s/ Richardson M. Roberts
By: _________________________________
Richardson M. Roberts
Chief Executive Officer
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<PAGE>
EXHIBIT 5.3
EMPLOYEE BENEFITS MATTERS
1. CONTINUATION OF BENEFITS.
(a) The parties hereto agree it is their intent that, from and after the
Closing and subject to applicable law, the employees of the Company and the
employees of Parent, to the extent such employees are similarly situated,
shall have substantially equivalent benefits (the "Similarly Situated
Intent"), subject to the following understanding: (1) immediately after the
Closing, the Company (which will, as a result of the Merger, become a
wholly-owned subsidiary of Parent) and Parent shall continue to maintain
their separate respective plans (including employee benefit plans),
programs and arrangements for their respective employees pursuant to the
transactions contemplated by this Agreement, and (2) in furtherance of the
Similarly Situated Intent, the Company and Parent may, from and after the
Closing, take such steps as are reasonable and appropriate to carry out the
Similarly Situated Intent by having their employees participate in unified
plans (whether by plan mergers, adoption of plans by a company, and/or
modification of the eligibility provisions of existing plans), by modifying
existing separate plans so that they thereafter provide substantially
equivalent benefits, and/or by taking other measures consistent with the
Similarly Situated Intent, as the then current management of the Company
and Parent shall determine in their discretion. The provisions hereof are
not intended to confer upon any person other than the parties hereto any
rights or remedies hereunder.
(b) In the event that the employees of Company or any of its subsidiaries
are included in any benefits plan of Parent or any of Parent's
subsidiaries, Parent shall, and shall cause its subsidiaries to, provide
each such employee (i) with respect to any welfare plans, full credit for
service with Company and each of Company's subsidiaries (and their
respective predecessors) (collectively, "Prior Service") for purposes of
eligibility to participate in, vesting and payment of benefits under, and
eligibility for any subsidized benefit provided under any such welfare plan
of Parent or any of Parent's subsidiaries, and (ii) with respect to
Parent's 401(k) Profit-Sharing Plan, full credit for such Prior Service for
purposes of eligibility to participate in such plan and vesting in employer
contributions thereunder. However, no such Prior Service crediting shall be
required to the extent that doing so: (i) would violate federal or state
law; (ii) cause a benefit plan to violate the nondiscrimination
requirements referenced in Section 414(t) of the Internal Revenue Code (as
applicable); or (iii) would result in a violation of the tax-qualification
requirements of Section 401(a) of the Internal Revenue Code (as
applicable).
2. CHANGE IN CONTROL PAYMENTS.
(a) Company and Parent each acknowledge that consummation of the
transactions contemplated by this Agreement will constitute a change in
control of Company under the terms of Company's stock option plans and
employment contracts described in Schedule 3.12.
(b) Company and Parent acknowledge and agree that each employee of
Company, in accordance with the terms of the relevant plans and agreements,
shall have the right at the Closing (with respect to any restricted stock
delivered at Closing or Company Stock Options exercised at the Closing) or
thereafter (with respect to the exercise of any Company Stock Options after
the Closing) (i) to have shares withheld from shares issuable in connection
with the exercise of Company Stock Options to pay statutory minimum
withholding for Federal, state and local tax requirements, (ii) to
surrender shares held more than six months ("Mature Shares") to satisfy
Federal, state and local tax requirements associated with the vesting of
restricted shares or exercise of Company Stock Options in excess of
statutory minimum withholding requirements for vested restricted stock
awards and Company Stock Option exercises, and (iii) to surrender Mature
Shares to pay any or all of the exercise price of Company Stock Options.
3. Notwithstanding any provision in the Agreement to the contrary, Company
shall be entitled to pay cash bonuses to certain employees in amounts
previously identified by the Company which are (i) specified in employment
agreements with the Company in effect immediately prior to execution of the
Merger Agreement
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and related documents with respect to employees who are parties to such
agreements and (ii) consistent with past practice with respect to employees
not parties to such agreements; provided such bonuses shall only be payable to
an individual if he or she is employed by Company on the date of Closing.
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APPENDIX B
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
THIS STOCK OPTION AGREEMENT (the "Agreement") is made, entered into and
effective as of the 17th day of June, 1998, between NOVA CORPORATION, a
Georgia corporation ("Issuer") and PMT SERVICES, INC., a Tennessee corporation
("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger of even date herewith (the "Merger Agreement"), which agreement has
been executed by the parties hereto immediately prior to this Agreement; and
WHEREAS, as a condition to Grantee's entering into the Merger Agreement and
in consideration therefor, Issuer has agreed to grant Grantee the "Option" (as
defined in Section 1(a));
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and
agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. GRANT OF OPTION; ADJUSTMENT.
(a) Issuer hereby grants to Grantee an unconditional, irrevocable option
(the "Option") to purchase, subject to the terms hereof, up to 6,816,420
fully paid and nonassessable shares of Issuer's Common Stock, par value
$.01 per share ("Common Stock"), at a price of $35.19 per share (the
"Option Price"); provided, however, that in no event shall the number of
shares of Common Stock for which this Option is exercisable exceed 19.9% of
the Issuer's issued and outstanding shares of Common Stock without giving
effect to any shares subject to or issued pursuant to the Option. The
number of shares of Common Stock that may be received upon the exercise of
the Option and the Option Price are subject to adjustment as herein set
forth.
(b) In the event that any additional shares of Common Stock are either
(i) issued or otherwise become outstanding after the date hereof (other
than pursuant to this Agreement) or (ii) redeemed, repurchased, retired or
otherwise cease to be outstanding after the date of the Agreement, the
number of shares of Common Stock subject to the Option shall be increased
or decreased, as appropriate, so that, after such issuance, such number
equals 19.9% of the number of shares of Common Stock then issued and
outstanding without giving effect to any shares subject or issued pursuant
to the Option. Nothing contained in this Section 1(b) or elsewhere in this
Agreement shall be deemed to authorize Issuer or Grantee to breach any
provision of the Merger Agreement.
2. EXERCISE OF OPTION.
(a) The "Holder" (as defined in Section 2(a)) may exercise the Option, in
whole or part, and from time to time, if, but only if, both an "Initial
Triggering Event" (as defined in Section 2(b)) and a "Subsequent Triggering
Event" (as defined in Section 2(c)) shall have occurred prior to the
occurrence of an "Exercise Termination Event" (as defined in this Section
2(a)), provided that the Holder shall have sent the written notice of such
exercise (as provided in Section 2(e)) prior to the occurrence of an
Exercise Termination Event. Each of the following shall be an "Exercise
Termination Event": (i) the Effective Time (as defined in the Merger
Agreement) of the Merger; (ii) termination of the Merger Agreement in
accordance with the provisions thereof if such termination occurs prior to
the occurrence of an Initial Triggering Event, except a termination by
Grantee pursuant to Section 7.1(b) or 7.1(c) of the Merger Agreement
(unless the breach by Issuer giving rise to such right of termination is
non-volitional); or (iii) the
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passage of 12 months after termination of the Merger Agreement if such
termination follows the occurrence of an Initial Triggering Event or is a
termination by Grantee pursuant to Section 7.1(b) or 7.1(c) of the Merger
Agreement (unless the breach by Issuer giving rise to such right of
termination is non-volitional). The term "Holder" shall mean the holder or
holders of the Option.
(b) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each an "Issuer Subsidiary"),
without having received Grantee's prior written consent, shall have
entered into an agreement to engage in an "Acquisition Transaction" (as
defined in this Section 2(b)(i)) with any person (the term "person" for
purposes of this Agreement having the meaning assigned thereto in
Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and the rules and regulations thereunder)
other than Grantee or any of its Subsidiaries (each, a "Grantee
Subsidiary") or the Board of Directors of Issuer shall have recommended
that the shareholders of Issuer approve or accept any Acquisition
Transaction other than the Merger. For purposes of this Agreement,
"Acquisition Transaction" shall mean (w) a merger or consolidation, or
any similar transaction, involving Issuer or any "Significant
Subsidiary" (as defined in Rule 1-02 of Regulation S-X promulgated by
the Securities and Exchange Commission (the "SEC")) of Issuer, (x) a
purchase, lease or other acquisition or assumption of all or a
substantial portion of the assets of Issuer or any Significant
Subsidiary of Issuer, (y) a purchase or other acquisition (including by
way of merger, consolidation, share exchange or otherwise) of
securities representing 15% or more of the voting power of Issuer, or
(z) any substantially similar transaction; provided, however, that in
no event shall any merger, consolidation or similar transaction
permitted by, and effected in accordance with, Sections 4.1(a)(ii)(B)
or 4.1(a)(iv) of the Merger Agreement be deemed to be an Acquisition
Transaction;
(ii) Issuer or any Issuer Subsidiary, without having received
Grantee's prior written consent, shall have authorized, recommended,
proposed or publicly announced its intention to authorize, recommend or
propose, to engage in an Acquisition Transaction with any person other
than Grantee or a Grantee Subsidiary, or the Board of Directors of
Issuer shall have withdrawn or modified, or publicly announced its
interest to withdraw or modify, in any manner adverse to Grantee, its
recommendation that the shareholders of Issuer approve the transactions
contemplated by the Merger Agreement in anticipation of engaging in an
Acquisition Transaction, or the Board of Directors of Issuer shall not
have recommended that the shareholders of Issuer approve the
transactions contemplated by the Merger Agreement, or shall have
abandoned the transactions contemplated by the Merger Agreement in each
case in anticipation of engaging in an Acquisition Transaction;
(iii) Any person other than Grantee, any Grantee Subsidiary or any
Issuer Subsidiary acting in a fiduciary capacity in the ordinary course
of its business shall have acquired beneficial ownership or the right
to acquire beneficial ownership of 10% or more of the outstanding
shares of Common Stock (the term "beneficial ownership" for purposes of
this Agreement having the meaning assigned thereto in Section 13(d) of
the 1934 Act, and the rules and regulations thereunder);
(iv) Any person other than Grantee or any Grantee Subsidiary shall
have made a bona fide proposal to Issuer or its shareholders by public
announcement or written communication that is or becomes the subject of
public disclosure to engage in an Acquisition Transaction;
(v) After an overture is made by a third party to Issuer or its
shareholders to engage in an Acquisition Transaction, Issuer shall have
breached any covenant or obligation contained in the Merger Agreement
and such breach (x) would entitle Grantee to terminate the Merger
Agreement and (y) shall not have been cured prior to the "Notice Date"
(as defined in Section 2(e)); or
(vi) The shareholders of Issuer shall have voted and failed to
approve the Merger Agreement and the transactions contemplated thereby
at a meeting which has been held for that purpose or any adjournment or
postponement thereof, or such meeting shall not have been held in
violation of the Merger Agreement or shall have been cancelled prior to
the termination of the Merger Agreement if,
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prior to such meeting (or, if such meeting shall not have been held or
shall have been cancelled, prior to such termination), it shall have
been publicly announced that any person (other than Grantee or any of
its Subsidiaries) shall have made, or disclosed an intention to make, a
proposal to engage in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial ownership of 20% or
more of the then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
paragraph (i) of subsection (b) of this Section 2, except that the
percentage referred to in clause (y) thereof shall be 20%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of
any Initial Triggering Event or Subsequent Triggering Event of which it has
notice (together, a "Triggering Event"), it being understood that the
giving of such notice by Issuer shall not be a condition to the right of
the Holder to exercise the Option.
(e) In the event the Holder is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice (the date of which notice
is herein referred to as the "Notice Date") specifying (i) the total number
of shares of Common Stock it will purchase pursuant to such exercise and
(ii) a place and date, not earlier than three business days nor later than
60 business days from the Notice Date, for the closing (the "Closing") of
such purchase (the "Closing Date"). Any exercise of the Option shall be
deemed to occur on the Notice Date relating thereto.
(f) At the Closing, the Holder shall pay to Issuer the aggregate purchase
price for the shares of Common Stock purchased pursuant to the exercise of
the Option in immediately available funds by wire transfer to a bank
account designated by Issuer, provided that failure or refusal of Issuer to
designate such a bank account shall not preclude the Holder from exercising
the Option.
(g) At the Closing, simultaneously with the delivery of immediately
available funds as provided in Section 2(f), Issuer shall deliver to the
Holder a certificate or certificates representing the number of shares of
Common Stock purchased by the Holder and, if the Option should be exercised
in part only, a new Option evidencing the rights of the Holder thereof to
purchase the balance of the shares purchasable hereunder, and the Holder
shall deliver to Issuer a copy of this Agreement and a letter agreeing that
the Holder will not offer to sell or otherwise dispose of such shares in
violation of applicable law or the provisions of this Agreement.
(h) Certificates for Common Stock delivered at Closing may be endorsed
with a restrictive legend that shall read substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR
SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS
ON TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT DATED AS OF JUNE
17, 1998, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER.
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "1933 Act"), in
the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the Holder shall have delivered to Issuer a copy
of a letter from the staff of the SEC, or an opinion of counsel, in form
and substance reasonably satisfactory to Issuer, to the effect that such
legend is not required for purposes of the 1933 Act; (ii) the reference to
the provisions to this Agreement in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if the shares
have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required
by law.
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(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under Section 2(e) and the tender of
the applicable purchase price in immediately available funds, the Holder
shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books
of Issuer shall then be closed or that certificates representing such
shares of Common Stock shall not then be actually delivered to the Holder.
Issuer shall pay all expenses, and any and all United States federal, state
and local taxes and other charges that may be payable in connection with
the preparation, issue and delivery of stock certificates under this
Section 2 in the name of the Holder or its assignee, transferee or
designee.
3. AGREEMENT BY ISSUER. Issuer agrees: (i) that it shall at all times
maintain, free from preemptive rights, sufficient authorized but unissued or
treasury shares of Common Stock so that the Option may be exercised without
additional authorization of Common Stock after giving effect to all other
options, warrants, convertible securities and other rights to purchase Common
Stock; (ii) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other
voluntary act, avoid or seek to avoid the observance or performance of any of
the covenants, stipulations or conditions to be observed or performed
hereunder by Issuer; (iii) that it will promptly take all action as may from
time to time be required (including complying with all premerger notification,
reporting and waiting period requirements specified in 15 U.S.C. Section 18a
and regulations promulgated thereunder) in order to permit the Holder to
exercise the Option and Issuer duly and effectively to issue shares of Common
Stock pursuant hereto; and (iv) that it will promptly take all action provided
herein to protect the rights of the Holder against dilution.
4. EXCHANGE. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender of this Agreement at the principal office of Issuer, for other
Agreements providing for Options of different denominations entitling the
holder thereof to purchase, on the same terms and subject to the same
conditions as are set forth herein, in the aggregate the same number of shares
of Common Stock purchasable hereunder. The terms "Agreement" and "Option" as
used in this Section 4 include any Stock Option Agreements and related Options
for which this Agreement (and the Option granted hereby) may be exchanged.
Upon receipt by Issuer of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Agreement, and (in the case of loss,
theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Agreement, if mutilated, Issuer will
execute and deliver a new Agreement of like tenor and date. Any such new
Agreement executed and delivered shall constitute an additional contractual
obligation on the part of Issuer, whether or not the Agreement so lost,
stolen, destroyed or mutilated shall at any time be enforceable by anyone.
5. ADJUSTMENT. In addition to the adjustment in the number of shares of
Common Stock that are purchasable upon exercise of the Option pursuant to
Section 1 of this Agreement, the number of shares of Common Stock purchasable
upon the exercise of the Option and the Option Price shall be subject to
adjustment from time to time as provided in this Section 5. In the event of
any change in, or distributions in respect of, the Common Stock by reason of
stock dividends, split-ups, mergers, recapitalizations, combinations,
subdivisions, conversions, exchanges of shares, distributions on or in respect
of the Common Stock that would be prohibited under the terms of the Merger
Agreement, or the like, the type and number of shares of Common Stock
purchasable upon exercise hereof and the Option Price shall be appropriately
adjusted in such manner as shall fully preserve the economic benefits provided
hereunder and proper provision shall be made in any agreement governing any
such transaction to provide for such proper adjustment and the full
satisfaction of the Issuer's obligations hereunder.
6. REGISTRATION. Upon the occurrence of a Subsequent Triggering Event that
occurs prior to an Exercise Termination Event, Issuer shall, at the request of
Grantee delivered within 90 days of such Subsequent Triggering Event (whether
on its own behalf or on behalf of any subsequent holder of this Option (or
part thereof) or any of the shares of Common Stock issued pursuant hereto),
promptly prepare, file and keep current a shelf registration statement under
the 1933 Act covering this Option and any shares of Common Stock or other
securities issued and issuable pursuant to this Option and shall use its
reasonable best efforts to cause such registration statement
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to become effective and remain current in order to permit the sale or other
disposition of this Option and any shares of Common Stock issued upon total or
partial exercise of this Option ("Option Shares") in accordance with any plan
of disposition reasonably requested by Grantee. Issuer will use its reasonable
best efforts to cause such registration statement first to become effective
and then to remain effective for such period not in excess of 180 days from
the day such registration statement first becomes effective or such shorter
time as may be reasonably necessary to effect such sales or other
dispositions. Grantee shall have the right to demand two such registrations.
The foregoing notwithstanding, if, at the time of any request by Grantee for
registration of the Option or Option Shares as provided above, Issuer is in
registration with respect to an underwritten public offering of shares of
Common Stock, and if in the good faith judgment of the managing underwriter or
managing underwriters, or, if none, the sole underwriter or underwriters, of
such offering the inclusion of the Holder's Option or Option Shares would
interfere with the successful marketing of the shares of Common Stock offered
by Issuer, the number of Option Shares otherwise to be covered in the
registration statement contemplated hereby may be reduced; and provided,
however, that after any such required reduction the number of Option Shares to
be included in such offering for the account of the Holder shall constitute at
least 25% of the total number of shares to be sold by the Holder and Issuer in
the aggregate; and provided further, however, that if such reduction occurs,
then the Issuer shall file a registration statement for the balance as
promptly as practicable and no reduction shall thereafter occur. Each such
Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If requested by
any such Holder in connection with such registration, Issuer shall become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in secondary
offering underwriting agreements for the Issuer. Upon receiving any request
under this Section 6 from any Holder, Issuer agrees to send a copy thereof to
any other person known to Issuer to be entitled to registration rights under
this Section 6, in each case by promptly mailing the same, postage prepaid, to
the address of record of the persons entitled to receive such copies.
Notwithstanding anything to the contrary contained herein, in no event shall
Issuer be obligated to effect more than two registrations pursuant to this
Section 6 by reason of the fact that there shall be more than one Grantee as a
result of any assignment or division of this Agreement.
7. REPURCHASE.
(a) Immediately prior to the occurrence of a "Repurchase Event" (as
defined in Section 7(d)), (i) following a request of the Holder, delivered
prior to an Exercise Termination Event, Issuer (or any successor thereto)
shall repurchase the Option from the Holder at a price (the "Option
Repurchase Price") equal to the amount by which (A) the "Market/Offer
Price" (as defined in this Section 7(a)) exceeds (B) the Option Price,
multiplied by the number of shares for which this Option may then be
exercised, and (ii) at the request of the owner of Option Shares from time
to time (the "Owner"), delivered within 90 days of the occurrence of such
Repurchase Event (or such later period as provided in Section 10), Issuer
shall repurchase such number of the Option Shares from the Owner as the
Owner shall designate at a price (the "Option Share Repurchase Price")
equal to the Market/Offer Price multiplied by the number of Option Shares
so designated. The term "Market/Offer Price" shall mean the highest of (i)
the price per share of Common Stock at which a tender offer or exchange
offer therefor has been made, (ii) the price per share of Common Stock to
be paid by any third party pursuant to an agreement with Issuer, (iii) the
highest closing price for shares of Common Stock within the 90-day period
immediately preceding the date the Holder gives notice of the required
repurchase of this Option or the Owner gives notice of the required
repurchase of Option Shares, as the case may be, or (iv) in the event of a
sale of all or a substantial portion of Issuer's assets, the sum of the
price paid in such sale for such assets and the current market value of the
remaining assets of Issuer as determined by a nationally recognized
investment banking firm selected by the Holder or the Owner, as the case
may be, and reasonably acceptable to the Issuer, divided by the number of
shares of Common Stock of Issuer outstanding at the time of such sale. In
determining the Market/Offer Price, the value of consideration other than
cash shall be determined by a nationally recognized investment banking firm
selected by the Holder or Owner, as the case may be, and reasonably
acceptable to the Issuer.
(b) The Holder and the Owner, as the case may be, may exercise its right
to require Issuer to repurchase the Option and any Option Shares pursuant
to this Section 7 by surrendering for such purpose to
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Issuer, at its principal office, a copy of this Agreement or certificates
for Option Shares, as applicable, accompanied by a written notice or
notices stating that the Holder or the Owner, as the case may be, elects to
require Issuer to repurchase this Option and/or the Option Shares in
accordance with the provisions of this Section 7. At the later to occur of
(x) within five business days after the surrender of the Option and/or
certificates representing Option Shares and the receipt of such notice or
notices relating thereto and (y) the time that is immediately prior to the
occurrence of a Repurchase Event, Issuer shall deliver or cause to be
delivered to the Holder the Option Repurchase Price and/or to the Owner the
Option Share Repurchase Price therefor or the portion thereof, if any, that
Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation from repurchasing the Option and/or the Option Shares in full,
then the Issuer shall immediately so notify the Holder and/or the Owner and
thereafter deliver or cause to be delivered, from time to time, to the
Holder and/or the Owner, as appropriate, the portion of the Option
Repurchase Price and the Option Share Repurchase Price, respectively, that
it is no longer prohibited from delivering, within five business days after
the date on which Issuer is no longer so prohibited; provided, however,
that if Issuer at any time after delivery to it of a notice of repurchase
pursuant to paragraph (b) of this Section 7 is prohibited under applicable
law or regulation from delivering to the Holder and/or the Owner, as
appropriate, the Option Repurchase Price and the Option Share Repurchase
Price, respectively, in full (and Issuer hereby undertakes to use its best
efforts to obtain all required regulatory and legal approvals and to file
any required notices, in each case as promptly as practicable in order to
accomplish such repurchase), the Holder or Owner may revoke its notice of
repurchase of the Option or the Option Shares either in whole or to the
extent of the prohibition, whereupon, in the latter case, Issuer shall
promptly (i) deliver to the Holder and/or the Owner, as appropriate, that
portion of the Option Repurchase Price or the Option Share Repurchase Price
that Issuer is not prohibited from delivering; and (ii) deliver, as
appropriate, either (A) to the Holder, a new Stock Option Agreement
evidencing the right of the Holder to purchase that number of shares of
Common Stock obtained by multiplying the number of shares of Common Stock
for which the surrendered Stock Option Agreement was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator
of which is the Option Repurchase Price less the portion thereof
theretofore delivered to the Holder and the denominator of which is the
Option Repurchase Price, or (B) to the Owner, a certificate for the Option
Shares it is then so prohibited from repurchasing.
(d) For purposes of this Section 7, a "Repurchase Event" shall be deemed
to have occurred (i) upon the consummation of any merger, consolidation or
similar transaction involving Issuer or any purchase, lease or other
acquisition of all or a substantial portion of the assets of Issuer, other
than any such transaction which would not constitute an Acquisition
Transaction pursuant to the provisos to Section 2(b)(i) hereof, or (ii)
upon the acquisition by any person of beneficial ownership of 50% or more
of the then outstanding shares of Common Stock, provided that no such event
shall constitute a Repurchase Event unless a Subsequent Triggering Event
shall have occurred prior to an Exercise Termination Event. The parties
hereto agree that Issuer's obligations to repurchase the Option or Option
Shares under this Section 7 shall not terminate upon the occurrence of an
Exercise Termination Event unless no Subsequent Triggering Event shall have
occurred prior to the occurrence of an Exercise Termination Event.
8. SUBSTITUTE OPTION.
(a) In the event that, prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any
person, other than Grantee or one of its Subsidiaries, and shall not be the
continuing or surviving corporation of such consolidation or merger, (ii)
to permit any person, other than Grantee or one of its Subsidiaries, to
merge into Issuer, and Issuer shall be the continuing or surviving
corporation, but, in connection with such merger, the then outstanding
shares of Common Stock shall be changed into or exchanged for stock or
other securities of any other person or cash or any other property or the
then outstanding shares of Common Stock shall after such merger represent
less than 50% of the outstanding voting shares and voting share equivalents
of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or one of
its Subsidiaries, then,
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and in each such case, the agreement governing such transaction shall make
proper provision so that the Option shall, upon the consummation of any
such transaction and upon the terms and conditions set forth herein, be
converted into, or exchanged for, an option (the "Substitute Option"), at
the election of the Holder, of either (x) the "Acquiring Corporation" (as
defined in Section 8(b)) or (y) any person that controls the Acquiring
Corporation.
(b) The following terms have the meanings indicated:
(A) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if
other than Issuer), (ii) Issuer, in a merger in which Issuer is the
continuing or surviving person, and (iii) the transferee of all or
substantially all of Issuer's assets.
(B) "Substitute Common Stock" shall mean the common stock issued by
the issuer of the Substitute Option upon exercise of the Substitute
Option.
(C) "Assigned Value" shall mean the Market/Offer Price, as defined in
Section 7.
(D) "Average Price" shall mean the average closing price of a share
of the Substitute Common Stock for the one year immediately preceding
the consolidation, merger or sale in question, but in no event higher
than the closing price of the shares of Substitute Common Stock on the
day preceding such consolidation, merger or sale; provided that if
Issuer is the issuer of the Substitute Option, the Average Price shall
be computed with respect to a share of common stock issued by the
person merging into Issuer or by any company which controls or is
controlled by such person, as the Holder may elect.
(c) The Substitute Option shall have the same terms as the Option,
provided, that if the terms of the Substitute Option cannot, for legal
reasons, have the same terms as the Option, such terms shall be as similar
as possible and in no event less advantageous to the Holder. The issuer of
the Substitute Option shall also enter into an agreement with the then
Holder or Holders of the Substitute Option in substantially the same form
as this Agreement, which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares
of Substitute Common Stock as is equal to the Assigned Value multiplied by
the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price. The exercise price of the
Substitute Option per share of Substitute Common Stock shall then be equal
to the Option Price multiplied by a fraction, the numerator of which shall
be the number of shares of Common Stock for which the Option is then
exercisable and the denominator of which shall be the number of shares of
Substitute Common Stock for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute
Option. In the event that the Substitute Option would be exercisable for
more than 19.9% of the shares of Substitute Common Stock outstanding prior
to exercise but for this Section 8(e), the issuer of the Substitute Option
(the "Substitute Option Issuer") shall make a cash payment to Holder equal
to the excess of (i) the value of the Substitute Option, without giving
effect to the limitation in this Section 8(e), over (ii) the value of the
Substitute Option, after giving effect to the limitation in this Section
8(e). This difference in value shall be determined by a nationally
recognized investment banking firm selected by the Holder or the Owner, as
the case may be, and reasonably acceptable to the Acquiring Corporation.
(f) Issuer shall not enter into any transaction described in Section 8(a)
unless the Acquiring Corporation and any person that controls the Acquiring
Corporation assume in writing all the obligations of Issuer hereunder.
9. REPURCHASE OF SUBSTITUTE OPTION.
(a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the Substitute Option Issuer shall repurchase
the Substitute Option from the Substitute Option Holder at a price (the
"Substitute Option Repurchase Price") equal to the amount by which (i) the
"Highest Closing Price" (as defined in Section 9(a)) exceeds (ii) the
exercise price of the Substitute Option, multiplied by the number of shares
of Substitute Common Stock for which the Substitute Option may then be
exercised, and at the
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request of the owner (the "Substitute Share Owner") of shares of Substitute
Common Stock (the "Substitute Shares"), the Substitute Option Issuer shall
repurchase the Substitute Shares at a price (the "Substitute Share
Repurchase Price") equal to the Highest Closing Price multiplied by the
number of Substitute Shares so designated. The term "Highest Closing Price"
shall mean the highest closing price for shares of Substitute Common Stock
within the 90-day period immediately preceding the date the Substitute
Option Holder gives notice of the required repurchase of the Substitute
Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as the
case may be, may exercise its respective right to require the Substitute
Option Issuer to repurchase the Substitute Option and the Substitute Shares
pursuant to this Section 9 by surrendering for such purpose to the
Substitute Option Issuer, at its principal office, the agreement for such
Substitute Option (or, in the absence of such an agreement, a copy of this
Agreement) and certificates for Substitute Shares accompanied by a written
notice or notices stating that the Substitute Option Holder or the
Substitute Share Owner, as the case may be, elects to require the
Substitute Option Issuer to repurchase the Substitute Option and/or the
Substitute Shares in accordance with the provisions of this Section 9. As
promptly as practicable, and in any event within five business days after
the surrender of the Substitute Option and/or certificates representing
Substitute Shares and the receipt of such notice or notices relating
thereto, the Substitute Option Issuer shall deliver or cause to be
delivered to the Substitute Option Holder the Substitute Option Repurchase
Price (and/or to the Substitute Share Owner the Substitute Share Repurchase
Price) therefor or, in either case, the portion thereof which the
Substitute Option Issuer is not then prohibited under applicable law and
regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation from repurchasing the Substitute Option and/or
the Substitute Shares in part or in full, the Substitute Option Issuer,
following a request for repurchase pursuant to this Section 9, shall
immediately so notify the Substitute Option Holder (and/or the Substitute
Share Owner), and thereafter deliver or cause to be delivered, from time to
time, to the Substitute Option Holder and/or the Substitute Share Owner, as
appropriate, the portion of the Substitute Share Repurchase Price, or the
Substitute Share Repurchase Price, respectively, which it is no longer
prohibited from delivering, within five business days after the date on
which the Substitute Option Issuer is no longer so prohibited; provided,
however, that if the Substitute Option Issuer is at any time after delivery
of a notice of repurchase pursuant to Section 9(b) prohibited under
applicable law or regulation from delivering to the Substitute Option
Holder and/or the Substitute Share Owner, as appropriate, the Substitute
Option Repurchase Price and the Substitute Share Repurchase Price,
respectively, in full (and the Substitute Option Issuer shall use its best
efforts to obtain all required regulatory and legal approvals, in each case
as promptly as practicable, in order to accomplish such repurchase), the
Substitute Option Holder or Substitute Share Owner may revoke its notice of
repurchase of the Substitute Option or the Substitute Shares either in
whole or to the extent of the prohibition, whereupon, in the latter case,
the Substitute Option Issuer shall promptly (i) deliver to the Substitute
Option Holder or Substitute Share Owner, as appropriate, that portion of
the Substitute Option Repurchase Price or the Substitute Share Repurchase
Price that the Substitute Option Issuer is not prohibited from delivering;
and (ii) deliver, as appropriate, either (A) to the Substitute Option
Holder, a new Substitute Option evidencing the right of the Substitute
Option Holder to purchase that number of shares of the Substitute Common
Stock obtained by multiplying the number of shares of the Substitute Common
Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator
of which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator
of which is the Substitute Option Repurchase Price, or (B) to the
Substitute Share Owner, a certificate for the Substitute Shares it is then
so prohibited from repurchasing.
10. EXTENSION. The periods for exercise of certain rights under Sections 2,
6, 7 and 13 shall be extended: (i) to the extent necessary to obtain all
regulatory approvals for the exercise of such rights, and to permit the
expiration of all statutory waiting periods; and (ii) to the extent necessary
to avoid liability under Section 16(b) of the 1934 Act by reason of such
exercise.
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11. REPRESENTATIONS AND WARRANTIES OF ISSUER. Issuer hereby represents and
warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by
the Board of Directors of Issuer, and no other corporate proceedings on the
part of Issuer are necessary to authorize this Agreement or to consummate
the transactions so contemplated. This Agreement has been duly and validly
executed and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof
through the termination of this Agreement in accordance with its terms will
have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common
Stock at any time and from time to time issuable hereunder, and all such
shares, upon issuance pursuant hereto, will be duly authorized, validly
issued, fully paid, nonassessable, and will be delivered free and clear of
all claims, liens, encumbrances and security interests and not subject to
any preemptive rights.
12. REPRESENTATION AND WARRANTIES OF GRANTEE. Grantee hereby represents and
warrants to Issuer as follows:
(a) Grantee has all requisite corporate power and authority to enter into
this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Grantee. This Agreement has been duly executed and
delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or other
securities acquired by Grantee upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the 1933 Act.
13. ASSIGNMENT. Neither of the parties hereto may assign any of its rights
or obligations under this Option Agreement, or the Option created hereunder,
to any other person, without the express written consent of the other party,
except that in the event a Subsequent Triggering Event shall have occurred
prior to an Exercise Termination Event, Grantee, subject to the express
provisions hereof, may assign in whole or in part its rights and obligations
hereunder within 90 days following such Subsequent Triggering Event (or such
later period as provided in Section 10).
14. BEST EFFORTS. Each of Grantee and Issuer will use its best efforts to
make all filings with, and to obtain consents of, all third parties and
governmental authorities necessary to the consummation of the transactions
contemplated by this Agreement, including without limitation making
application to list the shares of Common Stock issuable hereunder on the New
York Stock Exchange, Nasdaq National Market, or such other exchange or market
on which the shares of Issuer may be listed upon official notice of issuance.
15. INJUNCTIVE RELIEF. The parties hereto acknowledge that damages would be
an inadequate remedy for a breach of this Agreement by either party hereto and
that the obligations of the parties hereto shall be enforceable by either
party hereto through injunctive or other equitable relief.
16. SEVERABILITY. If any term, provision, covenant or restriction contained
in this Agreement is held by a court or a federal or state regulatory agency
of competent jurisdiction to be invalid, void or unenforceable, the remainder
of the terms, provisions and 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 the Holder is not permitted to acquire, or Issuer is
not permitted to repurchase pursuant to Section 7, the full number of shares
of Common Stock provided in Section 1(a) hereof (as adjusted
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pursuant to Sections 1(b) or 5 hereof), it is the express intention of Issuer
to allow the Holder to acquire or to require Issuer to repurchase such lesser
number of shares as may be permissible, without any amendment or modification
hereof.
17. NOTICES. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail
(postage prepaid, return receipt requested) at the respective addresses of the
parties set forth in the Merger Agreement.
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws
thereof (except to the extent that mandatory provisions of federal law or the
TBCA apply).
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
20. FEES AND EXPENSES. Except as otherwise expressly provided herein, each
of the parties hereto shall bear and pay all costs and expenses incurred by it
or on its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
21. ENTIRE AGREEMENT. Except as otherwise expressly provided herein or in
the Merger Agreement, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereto, written or
oral. The terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and
permitted assigns. Nothing in this Agreement, expressed or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors (except as assigns) any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
22. DEFINED TERMS. Capitalized terms used in this Agreement and not defined
herein shall have the meanings assigned thereto in the Merger Agreement.
(signatures on following page)
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
"ISSUER":
NOVA CORPORATION
/s/ Edward Grzedzinski
By: _________________________________
Edward Grzedzinski
Chief Executive Officer
"GRANTEE":
PMT SERVICES, INC.
/s/ Richardson M. Roberts
By: _________________________________
Richardson M. Roberts
Chief Executive Officer
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APPENDIX C
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
THIS STOCK OPTION AGREEMENT (the "Agreement") is made, entered into and
effective as of the 17th day of June, 1998, between PMT SERVICES, INC., a
Tennessee corporation ("Issuer") and NOVA CORPORATION, a Georgia corporation
("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger of even date herewith (the "Merger Agreement"), which agreement has
been executed by the parties hereto immediately prior to this Agreement; and
WHEREAS, as a condition to Grantee's entering into the Merger Agreement and
in consideration therefor, Issuer has agreed to grant Grantee the "Option" (as
defined in Section 1(a));
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and
agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. GRANT OF OPTION; ADJUSTMENT.
(a) Issuer hereby grants to Grantee an unconditional, irrevocable option
(the "Option") to purchase, subject to the terms hereof, up to 9,733,433
fully paid and nonassessable shares of Issuer's Common Stock, par value
$.01 per share ("Common Stock"), at a price of $25.16 per share (the
"Option Price"); provided, however, that in no event shall the number of
shares of Common Stock for which this Option is exercisable exceed 19.9% of
the Issuer's issued and outstanding shares of Common Stock without giving
effect to any shares subject to or issued pursuant to the Option. The
number of shares of Common Stock that may be received upon the exercise of
the Option and the Option Price are subject to adjustment as herein set
forth.
(b) In the event that any additional shares of Common Stock are either
(i) issued or otherwise become outstanding after the date hereof (other
than pursuant to this Agreement) or (ii) redeemed, repurchased, retired or
otherwise cease to be outstanding after the date of the Agreement, the
number of shares of Common Stock subject to the Option shall be increased
or decreased, as appropriate, so that, after such issuance, such number
equals 19.9% of the number of shares of Common Stock then issued and
outstanding without giving effect to any shares subject or issued pursuant
to the Option. Nothing contained in this Section 1(b) or elsewhere in this
Agreement shall be deemed to authorize Issuer or Grantee to breach any
provision of the Merger Agreement.
2. EXERCISE OF OPTION.
(a) The "Holder" (as defined in Section 2(a)) may exercise the Option, in
whole or part, and from time to time, if, but only if, both an "Initial
Triggering Event" (as defined in Section 2(b)) and a "Subsequent Triggering
Event" (as defined in Section 2(c)) shall have occurred prior to the
occurrence of an "Exercise Termination Event" (as defined in this Section
2(a)), provided that the Holder shall have sent the written notice of such
exercise (as provided in Section 2(e)) prior to the occurrence of an
Exercise Termination Event. Each of the following shall be an "Exercise
Termination Event": (i) the Effective Time (as defined in the Merger
Agreement) of the Merger; (ii) termination of the Merger Agreement in
accordance with the provisions thereof if such termination occurs prior to
the occurrence of an Initial Triggering Event, except a termination by
Grantee pursuant to Section 7.1(b) or 7.1(c) of the Merger Agreement
(unless the breach by Issuer giving rise to such right of termination is
non-volitional); or (iii) the
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passage of 12 months after termination of the Merger Agreement if such
termination follows the occurrence of an Initial Triggering Event or is a
termination by Grantee pursuant to Section 7.1(b) or 7.1(c) of the Merger
Agreement (unless the breach by Issuer giving rise to such right of
termination is non-volitional). The term "Holder" shall mean the holder or
holders of the Option.
(b) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each an "Issuer Subsidiary"),
without having received Grantee's prior written consent, shall have
entered into an agreement to engage in an "Acquisition Transaction" (as
defined in this Section 2(b)(i)) with any person (the term "person" for
purposes of this Agreement having the meaning assigned thereto in
Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and the rules and regulations thereunder)
other than Grantee or any of its Subsidiaries (each, a "Grantee
Subsidiary") or the Board of Directors of Issuer shall have recommended
that the shareholders of Issuer approve or accept any Acquisition
Transaction other than the Merger. For purposes of this Agreement,
"Acquisition Transaction" shall mean (w) a merger or consolidation, or
any similar transaction, involving Issuer or any "Significant
Subsidiary" (as defined in Rule 1-02 of Regulation S-X promulgated by
the Securities and Exchange Commission (the "SEC")) of Issuer, (x) a
purchase, lease or other acquisition or assumption of all or a
substantial portion of the assets of Issuer or any Significant
Subsidiary of Issuer, (y) a purchase or other acquisition (including by
way of merger, consolidation, share exchange or otherwise) of
securities representing 15% or more of the voting power of Issuer, or
(z) any substantially similar transaction; provided, however, that in
no event shall any merger, consolidation or similar transaction
permitted by, and effected in accordance with, Sections 4.1(b)(ii)(B)
or 4.1(b)(iv) of the Merger Agreement be deemed to be an Acquisition
Transaction;
(ii) Issuer or any Issuer Subsidiary, without having received
Grantee's prior written consent, shall have authorized, recommended,
proposed or publicly announced its intention to authorize, recommend or
propose, to engage in an Acquisition Transaction with any person other
than Grantee or a Grantee Subsidiary, or the Board of Directors of
Issuer shall have withdrawn or modified, or publicly announced its
interest to withdraw or modify, in any manner adverse to Grantee, its
recommendation that the shareholders of Issuer approve the transactions
contemplated by the Merger Agreement in anticipation of engaging in an
Acquisition Transaction, or the Board of Directors of Issuer shall not
have recommended that the shareholders of Issuer approve the
transactions contemplated by the Merger Agreement, or shall have
abandoned the transactions contemplated by the Merger Agreement in each
case in anticipation of engaging in an Acquisition Transaction;
(iii) Any person other than Grantee, any Grantee Subsidiary or any
Issuer Subsidiary acting in a fiduciary capacity in the ordinary course
of its business shall have acquired beneficial ownership or the right
to acquire beneficial ownership of 10% or more of the outstanding
shares of Common Stock (the term "beneficial ownership" for purposes of
this Agreement having the meaning assigned thereto in Section 13(d) of
the 1934 Act, and the rules and regulations thereunder);
(iv) Any person other than Grantee or any Grantee Subsidiary shall
have made a bona fide proposal to Issuer or its shareholders by public
announcement or written communication that is or becomes the subject of
public disclosure to engage in an Acquisition Transaction;
(v) After an overture is made by a third party to Issuer or its
shareholders to engage in an Acquisition Transaction, Issuer shall have
breached any covenant or obligation contained in the Merger Agreement
and such breach (x) would entitle Grantee to terminate the Merger
Agreement and (y) shall not have been cured prior to the "Notice Date"
(as defined in Section 2(e)); or
(vi) The shareholders of Issuer shall have voted and failed to
approve the Merger Agreement and the transactions contemplated thereby
at a meeting which has been held for that purpose or any adjournment or
postponement thereof, or such meeting shall not have been held in
violation of the Merger Agreement or shall have been cancelled prior to
the termination of the Merger Agreement if,
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prior to such meeting (or, if such meeting shall not have been held or
shall have been cancelled, prior to such termination), it shall have
been publicly announced that any person (other than Grantee or any of
its Subsidiaries) shall have made, or disclosed an intention to make, a
proposal to engage in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial ownership of 20% or
more of the then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
paragraph (i) of subsection (b) of this Section 2, except that the
percentage referred to in clause (y) thereof shall be 20%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of
any Initial Triggering Event or Subsequent Triggering Event of which it has
notice (together, a "Triggering Event"), it being understood that the
giving of such notice by Issuer shall not be a condition to the right of
the Holder to exercise the Option.
(e) In the event the Holder is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice (the date of which notice
is herein referred to as the "Notice Date") specifying (i) the total number
of shares of Common Stock it will purchase pursuant to such exercise and
(ii) a place and date, not earlier than three business days nor later than
60 business days from the Notice Date, for the closing (the "Closing") of
such purchase (the "Closing Date"). Any exercise of the Option shall be
deemed to occur on the Notice Date relating thereto.
(f) At the Closing, the Holder shall pay to Issuer the aggregate purchase
price for the shares of Common Stock purchased pursuant to the exercise of
the Option in immediately available funds by wire transfer to a bank
account designated by Issuer, provided that failure or refusal of Issuer to
designate such a bank account shall not preclude the Holder from exercising
the Option.
(g) At the Closing, simultaneously with the delivery of immediately
available funds as provided in Section 2(f), Issuer shall deliver to the
Holder a certificate or certificates representing the number of shares of
Common Stock purchased by the Holder and, if the Option should be exercised
in part only, a new Option evidencing the rights of the Holder thereof to
purchase the balance of the shares purchasable hereunder, and the Holder
shall deliver to Issuer a copy of this Agreement and a letter agreeing that
the Holder will not offer to sell or otherwise dispose of such shares in
violation of applicable law or the provisions of this Agreement.
(h) Certificates for Common Stock delivered at Closing may be endorsed
with a restrictive legend that shall read substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR
SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS
ON TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT DATED AS OF JUNE
17, 1998, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER.
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "1933 Act"), in
the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the Holder shall have delivered to Issuer a copy
of a letter from the staff of the SEC, or an opinion of counsel, in form
and substance reasonably satisfactory to Issuer, to the effect that such
legend is not required for purposes of the 1933 Act; (ii) the reference to
the provisions to this Agreement in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if the shares
have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required
by law.
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(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under Section 2(e) and the tender of
the applicable purchase price in immediately available funds, the Holder
shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books
of Issuer shall then be closed or that certificates representing such
shares of Common Stock shall not then be actually delivered to the Holder.
Issuer shall pay all expenses, and any and all United States federal, state
and local taxes and other charges that may be payable in connection with
the preparation, issue and delivery of stock certificates under this
Section 2 in the name of the Holder or its assignee, transferee or
designee.
3. AGREEMENT BY ISSUER. Issuer agrees: (i) that it shall at all times
maintain, free from preemptive rights, sufficient authorized but unissued or
treasury shares of Common Stock so that the Option may be exercised without
additional authorization of Common Stock after giving effect to all other
options, warrants, convertible securities and other rights to purchase Common
Stock; (ii) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other
voluntary act, avoid or seek to avoid the observance or performance of any of
the covenants, stipulations or conditions to be observed or performed
hereunder by Issuer; (iii) that it will promptly take all action as may from
time to time be required (including complying with all premerger notification,
reporting and waiting period requirements specified in 15 U.S.C. Section 18a
and regulations promulgated thereunder) in order to permit the Holder to
exercise the Option and Issuer duly and effectively to issue shares of Common
Stock pursuant hereto; and (iv) that it will promptly take all action provided
herein to protect the rights of the Holder against dilution.
4. EXCHANGE. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender of this Agreement at the principal office of Issuer, for other
Agreements providing for Options of different denominations entitling the
holder thereof to purchase, on the same terms and subject to the same
conditions as are set forth herein, in the aggregate the same number of shares
of Common Stock purchasable hereunder. The terms "Agreement" and "Option" as
used in this Section 4 include any Stock Option Agreements and related Options
for which this Agreement (and the Option granted hereby) may be exchanged.
Upon receipt by Issuer of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Agreement, and (in the case of loss,
theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Agreement, if mutilated, Issuer will
execute and deliver a new Agreement of like tenor and date. Any such new
Agreement executed and delivered shall constitute an additional contractual
obligation on the part of Issuer, whether or not the Agreement so lost,
stolen, destroyed or mutilated shall at any time be enforceable by anyone.
5. ADJUSTMENT. In addition to the adjustment in the number of shares of
Common Stock that are purchasable upon exercise of the Option pursuant to
Section 1 of this Agreement, the number of shares of Common Stock purchasable
upon the exercise of the Option and the Option Price shall be subject to
adjustment from time to time as provided in this Section 5. In the event of
any change in, or distributions in respect of, the Common Stock by reason of
stock dividends, split-ups, mergers, recapitalizations, combinations,
subdivisions, conversions, exchanges of shares, distributions on or in respect
of the Common Stock that would be prohibited under the terms of the Merger
Agreement, or the like, the type and number of shares of Common Stock
purchasable upon exercise hereof and the Option Price shall be appropriately
adjusted in such manner as shall fully preserve the economic benefits provided
hereunder and proper provision shall be made in any agreement governing any
such transaction to provide for such proper adjustment and the full
satisfaction of the Issuer's obligations hereunder.
6. REGISTRATION. Upon the occurrence of a Subsequent Triggering Event that
occurs prior to an Exercise Termination Event, Issuer shall, at the request of
Grantee delivered within 90 days of such Subsequent Triggering Event (whether
on its own behalf or on behalf of any subsequent holder of this Option (or
part thereof) or any of the shares of Common Stock issued pursuant hereto),
promptly prepare, file and keep current a shelf registration statement under
the 1933 Act covering this Option and any shares of Common Stock or other
securities issued and issuable pursuant to this Option and shall use its
reasonable best efforts to cause such registration statement
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to become effective and remain current in order to permit the sale or other
disposition of this Option and any shares of Common Stock issued upon total or
partial exercise of this Option ("Option Shares") in accordance with any plan
of disposition reasonably requested by Grantee. Issuer will use its reasonable
best efforts to cause such registration statement first to become effective
and then to remain effective for such period not in excess of 180 days from
the day such registration statement first becomes effective or such shorter
time as may be reasonably necessary to effect such sales or other
dispositions. Grantee shall have the right to demand two such registrations.
The foregoing notwithstanding, if, at the time of any request by Grantee for
registration of the Option or Option Shares as provided above, Issuer is in
registration with respect to an underwritten public offering of shares of
Common Stock, and if in the good faith judgment of the managing underwriter or
managing underwriters, or, if none, the sole underwriter or underwriters, of
such offering the inclusion of the Holder's Option or Option Shares would
interfere with the successful marketing of the shares of Common Stock offered
by Issuer, the number of Option Shares otherwise to be covered in the
registration statement contemplated hereby may be reduced; and provided,
however, that after any such required reduction the number of Option Shares to
be included in such offering for the account of the Holder shall constitute at
least 25% of the total number of shares to be sold by the Holder and Issuer in
the aggregate; and provided further, however, that if such reduction occurs,
then the Issuer shall file a registration statement for the balance as
promptly as practicable and no reduction shall thereafter occur. Each such
Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If requested by
any such Holder in connection with such registration, Issuer shall become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in secondary
offering underwriting agreements for the Issuer. Upon receiving any request
under this Section 6 from any Holder, Issuer agrees to send a copy thereof to
any other person known to Issuer to be entitled to registration rights under
this Section 6, in each case by promptly mailing the same, postage prepaid, to
the address of record of the persons entitled to receive such copies.
Notwithstanding anything to the contrary contained herein, in no event shall
Issuer be obligated to effect more than two registrations pursuant to this
Section 6 by reason of the fact that there shall be more than one Grantee as a
result of any assignment or division of this Agreement.
7. REPURCHASE.
(a) Immediately prior to the occurrence of a "Repurchase Event" (as
defined in Section 7(d)), (i) following a request of the Holder, delivered
prior to an Exercise Termination Event, Issuer (or any successor thereto)
shall repurchase the Option from the Holder at a price (the "Option
Repurchase Price") equal to the amount by which (A) the "Market/Offer
Price" (as defined in this Section 7(a)) exceeds (B) the Option Price,
multiplied by the number of shares for which this Option may then be
exercised, and (ii) at the request of the owner of Option Shares from time
to time (the "Owner"), delivered within 90 days of the occurrence of such
Repurchase Event (or such later period as provided in Section 10), Issuer
shall repurchase such number of the Option Shares from the Owner as the
Owner shall designate at a price (the "Option Share Repurchase Price")
equal to the Market/Offer Price multiplied by the number of Option Shares
so designated. The term "Market/Offer Price" shall mean the highest of (i)
the price per share of Common Stock at which a tender offer or exchange
offer therefor has been made, (ii) the price per share of Common Stock to
be paid by any third party pursuant to an agreement with Issuer, (iii) the
highest closing price for shares of Common Stock within the 90-day period
immediately preceding the date the Holder gives notice of the required
repurchase of this Option or the Owner gives notice of the required
repurchase of Option Shares, as the case may be, or (iv) in the event of a
sale of all or a substantial portion of Issuer's assets, the sum of the
price paid in such sale for such assets and the current market value of the
remaining assets of Issuer as determined by a nationally recognized
investment banking firm selected by the Holder or the Owner, as the case
may be, and reasonably acceptable to the Issuer, divided by the number of
shares of Common Stock of Issuer outstanding at the time of such sale. In
determining the Market/Offer Price, the value of consideration other than
cash shall be determined by a nationally recognized investment banking firm
selected by the Holder or Owner, as the case may be, and reasonably
acceptable to the Issuer.
(b) The Holder and the Owner, as the case may be, may exercise its right
to require Issuer to repurchase the Option and any Option Shares pursuant
to this Section 7 by surrendering for such purpose to
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Issuer, at its principal office, a copy of this Agreement or certificates
for Option Shares, as applicable, accompanied by a written notice or
notices stating that the Holder or the Owner, as the case may be, elects to
require Issuer to repurchase this Option and/or the Option Shares in
accordance with the provisions of this Section 7. At the later to occur of
(x) within five business days after the surrender of the Option and/or
certificates representing Option Shares and the receipt of such notice or
notices relating thereto and (y) the time that is immediately prior to the
occurrence of a Repurchase Event, Issuer shall deliver or cause to be
delivered to the Holder the Option Repurchase Price and/or to the Owner the
Option Share Repurchase Price therefor or the portion thereof, if any, that
Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) (i) To the extent that Issuer is prohibited under applicable law or
regulation (with the exception of TBCA (S) 48-103-501 et seq. (the
"Greenmail Act"), in which event Section 7(c)(ii) shall govern) from
repurchasing the Option and/or the Option Shares in full, then the Holder
and/or Owner may in its sole discretion elect to proceed under this Section
7(c)(i). If the Holder and/or Owner elects to proceed under this Section
7(c)(i), Issuer shall immediately so notify the Holder and/or the Owner and
thereafter deliver or cause to be delivered, from time to time, to the
Holder and/or the Owner, as appropriate, the portion of the Option
Repurchase Price and the Option Share Repurchase Price, respectively, that
it is no longer prohibited from delivering, within five business days after
the date on which Issuer is no longer so prohibited; provided, however,
that if Issuer at any time after delivery to it of a notice of repurchase
pursuant to paragraph (b) of this Section 7 is prohibited under applicable
law or regulation from delivering to the Holder and/or the Owner, as
appropriate, the Option Repurchase Price and the Option Share Repurchase
Price, respectively, in full (and Issuer hereby undertakes to use its best
efforts to obtain all required regulatory and legal approvals and to file
any required notices, in each case as promptly as practicable in order to
accomplish such repurchase), the Holder or Owner may revoke its notice of
repurchase of the Option or the Option Shares either in whole or to the
extent of the prohibition, whereupon, in the latter case, Issuer shall
promptly (i) deliver to the Holder and/or the Owner, as appropriate, that
portion of the Option Repurchase Price or the Option Share Repurchase Price
that Issuer is not prohibited from delivering; and (ii) deliver, as
appropriate, either (A) to the Holder, a new Stock Option Agreement
evidencing the right of the Holder to purchase that number of shares of
Common Stock obtained by multiplying the number of shares of Common Stock
for which the surrendered Stock Option Agreement was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator
of which is the Option Repurchase Price less the portion thereof
theretofore delivered to the Holder and the denominator of which is the
Option Repurchase Price, or (B) to the Owner, a certificate for the Option
Shares it is then so prohibited from repurchasing.
(ii) In the event that the Greenmail Act is deemed to be applicable to
the repurchase of the Option and/or the Option Shares, and the Holder
and/or Owner elects to proceed under this Section 7(c)(ii) and complies
with the notice requirements set forth in Section 7(a), then Issuer shall
be required to repurchase the Option at the Option Repurchase Price (as
calculated in accordance with Section 7(c)(ii)(A)) and/or the Option Shares
at the Option Share Repurchase Price (as calculated in accordance with
Section 7(c)(ii)(B)).
(A) With respect to a repurchase of the Option, if the Market/Offer
Price is or must be reduced in order to comply or allow compliance with
the Greenmail Act (such reduced Market/Offer Price being referred to
herein as the "Reduced Market/Offer Price"), then the Issuer shall
repurchase the Option from the Holder at a price equal to the Reduced
Market/Offer Price minus the Option Price, multiplied by the number of
shares for which the Option may then be exercised, provided, however,
that if, after giving effect to such reduction, the Reduced
Market/Offer Price would be an amount less than the Option Price, then,
for purposes of this Section 7(c)(ii)(A), the Option Price will
automatically be decreased (such decreased Option Price being referred
to herein as the "Reduced Option Price") to the extent necessary such
that subtracting the Reduced Option Price from the Reduced Market/Offer
Price yields a difference of $.05 per share which amount shall be
adjusted as appropriate to reflect any stock dividends, split-ups,
mergers, recapitalizations, combinations, subdivisions, conversions,
exchanges of shares, or distributions relating to the Common Stock (the
"Adjusted Option Price"), and in such event, the Issuer shall
repurchase the Option for $.05, or the Adjusted Option Price, as the
case may be, multiplied by the number of shares for which the Option
may then be exercised.
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(B) With respect to the repurchase of the Option Shares, if the
Market/Offer Price is or must be reduced in order to comply or allow
compliance with the Greenmail Act (such reduced Market/Offer Price
being referred to herein as the "Reduced Market/Offer Price"), then
Issuer shall repurchase such number of the Option Shares as the Owner
shall designate at a price equal to the Reduced Market/Offer Price
multiplied by the number of Option Shares so designated.
(d) For purposes of this Section 7, a "Repurchase Event" shall be deemed
to have occurred (i) upon the consummation of any merger, consolidation or
similar transaction involving Issuer or any purchase, lease or other
acquisition of all or a substantial portion of the assets of Issuer, other
than any such transaction which would not constitute an Acquisition
Transaction pursuant to the provisos to Section 2(b)(i) hereof, or (ii)
upon the acquisition by any person of beneficial ownership of 50% or more
of the then outstanding shares of Common Stock, provided that no such event
shall constitute a Repurchase Event unless a Subsequent Triggering Event
shall have occurred prior to an Exercise Termination Event. The parties
hereto agree that Issuer's obligations to repurchase the Option or Option
Shares under this Section 7 shall not terminate upon the occurrence of an
Exercise Termination Event unless no Subsequent Triggering Event shall have
occurred prior to the occurrence of an Exercise Termination Event.
8. SUBSTITUTE OPTION.
(a) In the event that, prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any
person, other than Grantee or one of its Subsidiaries, and shall not be the
continuing or surviving corporation of such consolidation or merger, (ii)
to permit any person, other than Grantee or one of its Subsidiaries, to
merge into Issuer, and Issuer shall be the continuing or surviving
corporation, but, in connection with such merger, the then outstanding
shares of Common Stock shall be changed into or exchanged for stock or
other securities of any other person or cash or any other property or the
then outstanding shares of Common Stock shall after such merger represent
less than 50% of the outstanding voting shares and voting share equivalents
of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or one of
its Subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set
forth herein, be converted into, or exchanged for, an option (the
"Substitute Option"), at the election of the Holder, of either (x) the
"Acquiring Corporation" (as defined in Section 8(b)) or (y) any person that
controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(A) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if
other than Issuer), (ii) Issuer, in a merger in which Issuer is the
continuing or surviving person, and (iii) the transferee of all or
substantially all of Issuer's assets.
(B) "Substitute Common Stock" shall mean the common stock issued by
the issuer of the Substitute Option upon exercise of the Substitute
Option.
(C) "Assigned Value" shall mean the Market/Offer Price, as defined in
Section 7.
(D) "Average Price" shall mean the average closing price of a share
of the Substitute Common Stock for the one year immediately preceding
the consolidation, merger or sale in question, but in no event higher
than the closing price of the shares of Substitute Common Stock on the
day preceding such consolidation, merger or sale; provided that if
Issuer is the issuer of the Substitute Option, the Average Price shall
be computed with respect to a share of common stock issued by the
person merging into Issuer or by any company which controls or is
controlled by such person, as the Holder may elect.
(c) The Substitute Option shall have the same terms as the Option,
provided, that if the terms of the Substitute Option cannot, for legal
reasons, have the same terms as the Option, such terms shall be as similar
as possible and in no event less advantageous to the Holder. The issuer of
the Substitute Option shall also enter into an agreement with the then
Holder or Holders of the Substitute Option in substantially the same form
as this Agreement, which shall be applicable to the Substitute Option.
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(d) The Substitute Option shall be exercisable for such number of shares
of Substitute Common Stock as is equal to the Assigned Value multiplied by
the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price. The exercise price of the
Substitute Option per share of Substitute Common Stock shall then be equal
to the Option Price multiplied by a fraction, the numerator of which shall
be the number of shares of Common Stock for which the Option is then
exercisable and the denominator of which shall be the number of shares of
Substitute Common Stock for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute
Option. In the event that the Substitute Option would be exercisable for
more than 19.9% of the shares of Substitute Common Stock outstanding prior
to exercise but for this Section 8(e), the issuer of the Substitute Option
(the "Substitute Option Issuer") shall make a cash payment to Holder equal
to the excess of (i) the value of the Substitute Option, without giving
effect to the limitation in this Section 8(e), over (ii) the value of the
Substitute Option, after giving effect to the limitation in this Section
8(e). This difference in value shall be determined by a nationally
recognized investment banking firm selected by the Holder or the Owner, as
the case may be, and reasonably acceptable to the Acquiring Corporation.
(f) Issuer shall not enter into any transaction described in Section 8(a)
unless the Acquiring Corporation and any person that controls the Acquiring
Corporation assume in writing all the obligations of Issuer hereunder.
9. REPURCHASE OF SUBSTITUTE OPTION.
(a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the Substitute Option Issuer shall repurchase
the Substitute Option from the Substitute Option Holder at a price (the
"Substitute Option Repurchase Price") equal to the amount by which (i) the
"Highest Closing Price" (as defined in Section 9(a)) exceeds (ii) the
exercise price of the Substitute Option, multiplied by the number of shares
of Substitute Common Stock for which the Substitute Option may then be
exercised, and at the request of the owner (the "Substitute Share Owner")
of shares of Substitute Common Stock (the "Substitute Shares"), the
Substitute Option Issuer shall repurchase the Substitute Shares at a price
(the "Substitute Share Repurchase Price") equal to the Highest Closing
Price multiplied by the number of Substitute Shares so designated. The term
"Highest Closing Price" shall mean the highest closing price for shares of
Substitute Common Stock within the 90-day period immediately preceding the
date the Substitute Option Holder gives notice of the required repurchase
of the Substitute Option or the Substitute Share Owner gives notice of the
required repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as the
case may be, may exercise its respective right to require the Substitute
Option Issuer to repurchase the Substitute Option and the Substitute Shares
pursuant to this Section 9 by surrendering for such purpose to the
Substitute Option Issuer, at its principal office, the agreement for such
Substitute Option (or, in the absence of such an agreement, a copy of this
Agreement) and certificates for Substitute Shares accompanied by a written
notice or notices stating that the Substitute Option Holder or the
Substitute Share Owner, as the case may be, elects to require the
Substitute Option Issuer to repurchase the Substitute Option and/or the
Substitute Shares in accordance with the provisions of this Section 9. As
promptly as practicable, and in any event within five business days after
the surrender of the Substitute Option and/or certificates representing
Substitute Shares and the receipt of such notice or notices relating
thereto, the Substitute Option Issuer shall deliver or cause to be
delivered to the Substitute Option Holder the Substitute Option Repurchase
Price (and/or to the Substitute Share Owner the Substitute Share Repurchase
Price) therefor or, in either case, the portion thereof which the
Substitute Option Issuer is not then prohibited under applicable law and
regulation from so delivering.
(c)(i) To the extent that the Substitute Option Issuer is prohibited
under applicable law or regulation (with the exception of the Greenmail
Act, in which event Section 9(c)(ii) shall govern) from repurchasing the
Substitute Option and/or the Substitute Shares in part or in full, then the
Substitute Option Holder and/or Substitute Share Owner may in its sole
discretion elect to proceed under this Section 9(c)(i). If the Substitute
Option Holder (and/or the Substitute Share Owner) elects to proceed under
this Section 9(c)(i), the
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Substitute Option Issuer, following a request for repurchase pursuant to
this Section 9, shall immediately so notify the Substitute Option Holder
(and/or the Substitute Share Owner), and thereafter deliver or cause to be
delivered, from time to time, to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, the portion of the Substitute Share
Repurchase Price, or the Substitute Share Repurchase Price, respectively,
which it is no longer prohibited from delivering, within five business days
after the date on which the Substitute Option Issuer is no longer so
prohibited; provided, however, that if the Substitute Option Issuer is at
any time after delivery of a notice of repurchase pursuant to Section 9(b)
prohibited under applicable law or regulation from delivering to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate,
the Substitute Option Repurchase Price and the Substitute Share Repurchase
Price, respectively, in full (and the Substitute Option Issuer shall use
its best efforts to obtain all required regulatory and legal approvals, in
each case as promptly as practicable, in order to accomplish such
repurchase), the Substitute Option Holder or Substitute Share Owner may
revoke its notice of repurchase of the Substitute Option or the Substitute
Shares either in whole or to the extent of the prohibition, whereupon, in
the latter case, the Substitute Option Issuer shall promptly (i) deliver to
the Substitute Option Holder or Substitute Share Owner, as appropriate,
that portion of the Substitute Option Repurchase Price or the Substitute
Share Repurchase Price that the Substitute Option Issuer is not prohibited
from delivering; and (ii) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of
the Substitute Option Holder to purchase that number of shares of the
Substitute Common Stock obtained by multiplying the number of shares of the
Substitute Common Stock for which the surrendered Substitute Option was
exercisable at the time of delivery of the notice of repurchase by a
fraction, the numerator of which is the Substitute Option Repurchase Price
less the portion thereof theretofore delivered to the Substitute Option
Holder and the denominator of which is the Substitute Option Repurchase
Price, or (B) to the Substitute Share Owner, a certificate for the
Substitute Shares it is then so prohibited from repurchasing.
(ii) In the event that the Greenmail Act is deemed to be applicable to
the repurchase of the Substitute Option and/or Substitute Shares, and the
Substitute Option Holder and/or Substitute Share Owner elects to proceed
under this Section 9(c)(ii), and at the request of the Substitute Option
Holder and/or the Substitute Share Owner, then the Substitute Option Issuer
shall be required to repurchase the Substitute Option at the Substitute
Option Repurchase Price (as calculated in accordance with Section
9(c)(ii)(A)) and/or the Substitute Shares at the Substitute Share
Repurchase Price (as calculated in accordance with Section 9(c)(ii)(B).
(A) With respect to the repurchase of the Substitute Option, if
the Highest Closing Price is or must be reduced in order to comply
or allow compliance with the Greenmail Act (such reduced Highest
Closing Price being referred to herein as the "Reduced Highest
Closing Price"), then the Substitute Option Issuer shall repurchase
the Substitute Option from the Substitute Option Holder at a price
equal to the Reduced Highest Closing Price minus the exercise price
of the Substitute Option, multiplied by the number of Substitute
Shares for which the Substitute Option may then be exercised;
provided, however, that if, after giving effect to such reduction,
the Reduced Highest Closing Price would be an amount less than the
exercise price of the Substitute Option, then the exercise price of
the Substitute Option will automatically be decreased (such
decreased exercise price being referred to herein as the "Reduced
Substitute Exercise Price") to the extent necessary such that
subtracting the Reduced Substitute Exercise Price from the Reduced
Highest Closing Price yields a resulting Substitute Option
Repurchase Price of $.05 per share which amount shall be adjusted as
appropriate to reflect any stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions,
exchanges of shares, or distributions relating to the Common Stock
(the "Adjusted Substitute Option Price"), and in such event, the
Substitute Option Issuer shall repurchase the Substitute Option for
$.05, or the Adjusted Substitute Option Price, as the case may be,
multiplied by the number of shares for which the Substitute Option
may then be exercised.
(B) With respect to the repurchase of the Substitute Shares, if
the Highest Closing Price is or must be reduced in order to comply
or allow compliance with the Greenmail Act (such reduced
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Highest Closing Price being referred to herein as the "Reduced
Highest Closing Price"), then the Substitute Option Issuer shall
repurchase such number of the Substitute Shares at a price equal to
the Reduced Highest Closing Price multiplied by the number of
Substitute Shares so designated.
10. EXTENSION. The periods for exercise of certain rights under Sections 2,
6, 7 and 13 shall be extended: (i) to the extent necessary to obtain all
regulatory approvals for the exercise of such rights, and to permit the
expiration of all statutory waiting periods; and (ii) to the extent necessary
to avoid liability under Section 16(b) of the 1934 Act by reason of such
exercise.
11. REPRESENTATIONS AND WARRANTIES OF ISSUER. Issuer hereby represents and
warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by
the Board of Directors of Issuer, and no other corporate proceedings on the
part of Issuer are necessary to authorize this Agreement or to consummate
the transactions so contemplated. This Agreement has been duly and validly
executed and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof
through the termination of this Agreement in accordance with its terms will
have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common
Stock at any time and from time to time issuable hereunder, and all such
shares, upon issuance pursuant hereto, will be duly authorized, validly
issued, fully paid, nonassessable, and will be delivered free and clear of
all claims, liens, encumbrances and security interests and not subject to
any preemptive rights.
12. REPRESENTATION AND WARRANTIES OF GRANTEE. Grantee hereby represents and
warrants to Issuer as follows:
(a) Grantee has all requisite corporate power and authority to enter into
this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Grantee. This Agreement has been duly executed and
delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or other
securities acquired by Grantee upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the 1933 Act.
13. ASSIGNMENT. Neither of the parties hereto may assign any of its rights
or obligations under this Option Agreement, or the Option created hereunder,
to any other person, without the express written consent of the other party,
except that in the event a Subsequent Triggering Event shall have occurred
prior to an Exercise Termination Event, Grantee, subject to the express
provisions hereof, may assign in whole or in part its rights and obligations
hereunder within 90 days following such Subsequent Triggering Event (or such
later period as provided in Section 10).
14. BEST EFFORTS. Each of Grantee and Issuer will use its best efforts to
make all filings with, and to obtain consents of, all third parties and
governmental authorities necessary to the consummation of the transactions
contemplated by this Agreement, including without limitation making
application to list the shares of Common Stock issuable hereunder on the New
York Stock Exchange, Nasdaq National Market, or such other exchange or market
on which the shares of Issuer may be listed upon official notice of issuance.
15. INJUNCTIVE RELIEF. The parties hereto acknowledge that damages would be
an inadequate remedy for a breach of this Agreement by either party hereto and
that the obligations of the parties hereto shall be enforceable by either
party hereto through injunctive or other equitable relief.
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16. SEVERABILITY. If any term, provision, covenant or restriction contained
in this Agreement is held by a court or a federal or state regulatory agency
of competent jurisdiction to be invalid, void or unenforceable, the remainder
of the terms, provisions and 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 the Holder is not permitted to acquire, or Issuer is
not permitted to repurchase pursuant to Section 7, the full number of shares
of Common Stock provided in Section 1(a) hereof (as adjusted pursuant to
Sections 1(b) or 5 hereof), it is the express intention of Issuer to allow the
Holder to acquire or to require Issuer to repurchase such lesser number of
shares as may be permissible, without any amendment or modification hereof.
17. NOTICES. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail
(postage prepaid, return receipt requested) at the respective addresses of the
parties set forth in the Merger Agreement.
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Tennessee, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof (except to the extent that mandatory provisions of federal law or the
GBCC apply).
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
20. FEES AND EXPENSES. Except as otherwise expressly provided herein, each
of the parties hereto shall bear and pay all costs and expenses incurred by it
or on its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
21. ENTIRE AGREEMENT. Except as otherwise expressly provided herein or in
the Merger Agreement, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereto, written or
oral. The terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and
permitted assigns. Nothing in this Agreement, expressed or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors (except as assigns) any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
22. DEFINED TERMS. Capitalized terms used in this Agreement and not defined
herein shall have the meanings assigned thereto in the Merger Agreement.
(signatures on following page)
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
"ISSUER":
PMT SERVICES, INC.
/s/ Richardson M. Roberts
By: _________________________________
Richardson M. Roberts
Chief Executive Officer
"GRANTEE":
NOVA CORPORATION
/s/ Edward Grzedzinski
By: _________________________________
Edward Grzedzinski
Chief Executive Officer
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APPENDIX D
JUNE 17, 1998
The Board of Directors
NOVA Corporation
One Concourse Parkway, Suite 300
Atlanta, GA 30328
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to NOVA Corporation ("NOVA") of the Exchange Ratio (defined below) set
forth in the Agreement and Plan of Merger, dated as of June 17, 1998 (the
"Merger Agreement"), by and among NOVA, Church Merger Corp., a wholly owned
subsidiary of NOVA ("Sub"), and PMT Services, Inc. ("PMT"). As more fully
described in the Merger Agreement, (i) Sub will be merged with and into PMT
(the "Merger") and (ii) each outstanding share of the common stock, par value
$0.01 per share, of PMT (the "PMT Common Stock") will be converted into 0.715
shares (the "Exchange Ratio") of the common stock, par value $0.01 per share,
of NOVA (the "NOVA Common Stock").
In arriving at our opinion, we reviewed a draft of the Merger Agreement
dated the date hereof of NOVA and PMT relating to the proposed Merger, and
held discussions with certain senior officers, directors and other
representatives and advisors of NOVA and with certain senior officers,
directors and other representatives and advisors of PMT concerning the
businesses, operations and prospects of NOVA and PMT. We examined certain
publicly available business and financial information relating to NOVA and PMT
as well as certain financial forecasts and other data for NOVA and PMT which
were provided to us by or otherwise discussed with the respective managements
of NOVA and PMT, including information relating to certain strategic
implications and operational benefits anticipated from the Merger and
analysts' estimates as to the future financial performance of NOVA and PMT. We
reviewed the financial terms of the Merger as set forth in the Merger
Agreement in relation to, among other things: current and historical market
prices and trading volumes of the NOVA Common Stock and PMT Common Stock;
historical and projected earnings and operating data of NOVA and PMT; and the
capitalization and financial condition of NOVA and PMT. We also evaluated the
potential pro forma financial impact of the Merger on NOVA. We also
considered, to the extent publicly available, the financial terms of certain
other similar transactions recently effected that we considered relevant in
evaluating the Merger and analyzed certain financial, stock market and other
publicly available information relating to the businesses of other companies
whose operations we considered relevant in evaluating those of NOVA and PMT.
In addition to the foregoing, we conducted such other analyses and
examinations and considered such other financial, economic and market criteria
as we deemed appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information publicly available or furnished to or otherwise reviewed by or
discussed with us. With respect to financial forecasts and other information
and data furnished to or otherwise reviewed by or discussed with us, we have
been advised by the respective managements of NOVA and PMT that such forecasts
and other information and data were reasonably prepared on bases reflecting
the best currently available estimates and judgments of the managements of
NOVA and PMT as to the future financial performance of NOVA and PMT and the
potential strategic implications and operational benefits anticipated from the
Merger. We have assumed, with your consent, that the Merger will be treated as
a pooling of interests in accordance with generally accepted accounting
principles and as a tax-free reorganization for federal income tax purposes.
We have assumed that the Merger Agreement, in the form executed and delivered
by the parties thereto, will not vary from the draft reviewed by us in any
regard that is material to our analysis. Our opinion, as set forth herein,
relates to the relative values of NOVA and PMT. We are not expressing any
opinion as to what the value of the NOVA Common Stock actually will be when
issued to PMT stockholders pursuant to the Merger or the prices at which the
NOVA Common Stock will trade subsequent to the Merger.
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We have not made or been provided with an independent evaluation or appraisal
of the assets or liabilities (contingent or otherwise) of NOVA or PMT nor have
we made any physical inspection of the properties or assets of NOVA or PMT. We
were not asked to consider, and our opinion does not address, the relative
merits of the Merger as compared to any alternative business strategies that
might exist for NOVA or the effect of any other transaction in which NOVA
might engage. Our opinion is necessarily based upon information available to
us, and financial, stock market and other conditions and circumstances
existing and disclosed to us, as of the date hereof.
Salomon Smith Barney has been engaged to render financial advisory services
to NOVA with respect to this opinion and will receive a fee for such services,
a portion of which is payable upon the delivery of this opinion. In the
ordinary course of business, we and our affiliates may hold or actively trade
the securities of NOVA and PMT for our own account or for the accounts of our
customers and, accordingly, may at any time hold a long or short position in
such securities. We are familiar with NOVA and its business and have in the
past provided, and are currently providing, financial advisory and investment
banking services to NOVA and its affiliates unrelated to the Merger, and we
have received, and will receive, fees for such services. In addition, we and
our affiliates (including Travelers Group Inc. and its affiliates) may
maintain other business relationships with NOVA and PMT and their respective
affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of NOVA in evaluating the proposed
Merger, and our opinion is not intended to be and does not constitute a
recommendation to any stockholder as to how such stockholder should vote on
the proposed Merger. Our opinion may not be published or otherwise used or
referred to, nor shall any public reference to Salomon Smith Barney be made,
without our prior written consent; provided, that our opinion may be included
in its entirety in the joint proxy statement/prospectus relating to the
Merger.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Exchange Ratio is fair
from a financial point of view, to NOVA.
Very truly yours,
/s/ Salomon Smith Barney
_____________________________________
Salomon Smith Barney
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APPENDIX E
JUNE 17, 1998
Board of Directors
PMT Services, Inc.
3841 Green Hills Village Drive
Nashville, TN 37215
Gentlemen:
You have requested the opinion of BT Alex. Brown Incorporated ("BT Alex.
Brown") as to the fairness, from a financial point of view, of the Exchange
Ratio (as defined below) in connection with the proposed merger of PMT
Services, Inc. ("Client") and NOVA Corporation (the "Company") pursuant to the
Agreement and Plan of Merger, dated as of June 17, 1998, among Client, the
Company, and Church Merger Corp., a wholly-owned subsidiary of the Company
("Company Sub") (the "Merger Agreement"). The Merger Agreement provides, among
other things, for the merger of Company Sub with and into Client (the
"Transaction"), as a result of which Client will become a wholly-owned
subsidiary of the Company. As set forth more fully in the Merger Agreement, as
a result of the Transaction, each share of the Common Stock, par value $0.01
per share, of Client ("Client Common Stock") not owned directly or indirectly
by Client or the Company will be converted into the right to receive 0.715
shares (the "Exchange Ratio") of Common Stock, par value $0.01 per share, of
the Company ("Company Common Stock"). The terms and conditions of the
Transaction are more fully set forth in the Merger Agreement.
In arriving at its opinion, BT Alex. Brown has reviewed certain publicly
available financial and other information concerning the Company and Client
and certain internal analyses and other information furnished to it by the
Company and Client. BT Alex. Brown has also held discussions with members of
the senior management of the Company and Client regarding the businesses and
prospects of their respective companies and the joint prospects of a combined
company. In addition, BT Alex. Brown has (i) reviewed the reported prices and
trading activity for Company Common Stock and Client Common Stock, (ii)
compared certain financial and stock market information for the Company and
Client with similar information for certain other companies whose securities
are publicly traded, (iii) reviewed the financial terms of certain recent
business combinations which it deemed comparable in whole or in part, (iv)
reviewed the terms of the Merger Agreement, and (v) performed such other
studies and analyses and considered such other factors as it deemed
appropriate.
BT Alex. Brown has not assumed responsibility for independent verification
of, and has not independently verified, any information, whether publicly
available or furnished to it, concerning the Company or Client, including,
without limitation, any financial information, forecasts or projections
considered in connection with the rendering of its opinion. Accordingly, for
purposes of its opinion, BT Alex. Brown has assumed and relied upon the
accuracy and completeness of all such information and BT Alex. Brown has not
conducted a physical inspection of any of the properties or assets, and has
not prepared or obtained any independent evaluation or appraisal of any of the
assets or liabilities, of the Company or Client. BT Alex. Brown's opinion is
necessarily based upon economic, market and other conditions as in effect on,
and the information made available to it as of, the date hereof.
For purposes of rendering its opinion, BT Alex. Brown has assumed that, in
all respects material to its analysis, the representations and warranties of
Client, the Company and Company Sub contained in the Merger Agreement are true
and correct, Client, the Company and Company Sub will each perform all of the
covenants and agreements to be performed by it under the Merger Agreement and
all conditions to the obligations of each of Client, the Company and Company
Sub to consummate the Transaction will be satisfied without any waiver
thereof. BT Alex. Brown has also assumed that all material governmental,
regulatory or other approvals and consents required in connection with the
consummation of the Transaction will be obtained and that in connection with
obtaining any necessary governmental, regulatory or other approvals and
consents, or any
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amendments, modifications or waivers to any agreements, instruments or orders
to which either Client or the Company is a party or is subject or by which it
is bound, no limitations, restrictions or conditions will be imposed or
amendments, modifications or waivers made that would have a material adverse
effect on Client or the Company or materially reduce the contemplated benefits
of the Transaction. In addition, you have informed BT Alex. Brown, and
accordingly, for purposes of rendering its opinion, BT Alex. Brown has
assumed, that the Transaction will be tax- free to each of Client and the
Company and their respective stockholders and that the Transaction will be
accounted for as a pooling of interests.
In arriving at its opinion, BT Alex. Brown was not authorized to solicit,
and did not solicit, interest from any party with respect to a business
combination with Client or the acquisition of Client or any of its assets, nor
has BT Alex. Brown reviewed with Cathedral or its Board of Directors any
potential transaction in lieu of the Transaction.
This opinion is addressed to, and for the use and benefit of, the Board of
Directors of Client and is not a recommendation to the stockholders of Client
to approve the Transaction. This opinion is limited to the fairness, from a
financial point of view, of the Exchange Ratio, and BT Alex. Brown expresses
no opinion as to the merits of the underlying decision by Client to engage in
the Transaction.
BT Alex. Brown (together with its affiliates, the "BT Group") is a
registered broker-dealer and member of the Now York Stock Exchange. BT Alex.
Brown will be paid a fee for its services to Client in connection with the
Transaction, a substantial portion of which is contingent upon consummation of
the Transaction. One or more members of the BT Group have, from time to time,
provided investment banking services to Client and the Company or their
affiliates for which it has received compensation, including acting as lead or
co-lead managing underwriter in connection with a number of underwritten
public offerings of common stock by each of Client and the Company. In the
ordinary course of business, members of the BT Group may actively trade in the
securities and other instruments and obligations of Client and the Company for
their own accounts and for the accounts of their customers. Accordingly, the
BT Group may at any time hold a long or short position in such securities,
instruments and obligations.
Based upon and subject to the foregoing, it is BT Alex. Brown's opinion as
investment bankers that the Exchange Ratio is fair, from a financial point of
view, to the holders of Client Common Stock.
Very truly yours,
/s/ BT Alex. Brown Incorporated
_____________________________________
BT Alex. Brown Incorporated
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 14-2-202(b)(4) of the Georgia Business Corporation Code (the
"Georgia Code") provides that a corporation's Articles of Incorporation may
include a provision that eliminates or limits the personal liability of
directors for monetary damages to the corporation or its shareholders for
breach of their duty of care and other duties as directors; provided, however,
that the Section does not permit a corporation to eliminate or limit the
liability of a director for appropriating, in violation of his duties, any
business opportunity of the corporation, engaging in intentional misconduct or
a knowing violation of law, obtaining an improper personal benefit, or voting
for or assenting to an unlawful distribution (whether as a dividend, stock
repurchase or redemption or otherwise) as provided in Section 14-2-832 of the
Georgia Code. Section 14-2-202(b)(4) also does not eliminate or limit the
rights of a corporation or any shareholder to seek an injunction or other non-
monetary relief in the event of a breach of a director's fiduciary duty. In
addition, Section 14-2-202(b)(4) applies only to claims against a director
arising out of his role as a director and does not relieve a director from
liability arising from his role as an officer or in any other capacity. The
provisions of Article VII of the Registrant's Articles of Incorporation (the
"Articles") are similar in all substantive respects to those contained in
Section 14-2-202(b)(4) of the Georgia Code outlined above, and provide that
the liability of directors of the Registrant shall be limited to the fullest
extent permitted by amendments to Georgia law.
Sections 14-2-850 to 14-2-859, inclusive, of the Georgia Code govern the
indemnification of directors, officers, employees and agents. Section 14-2-851
of the Georgia Code provides for indemnification of a director of the
Registrant for liability incurred by him in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (including civil actions brought as derivative
actions by or in the right of the Registrant) in which he may become involved
by reason of being a director of the Registrant. Section 14-2-851 also
provides such indemnity for directors who, at the request of the Registrant,
act as directors, officers, partners, trustees, employees or agents of another
foreign or domestic corporation, partnership, joint venture, trust, employee
benefit plan or another enterprise. The Section permits indemnification if the
director acted in a manner he believed in good faith to be in or not opposed
to the best interest of the Registrant and, in addition, in criminal
proceedings, if he had no reasonable cause to believe his conduct was
unlawful. If the required standard of conduct is met, indemnification may
include judgments, settlements, penalties, fines or reasonable expenses
(including attorneys' fees) incurred with respect to a proceeding. However, if
the director is adjudged liable to the Registrant in a derivative action or on
the basis that personal benefit was improperly received by him, the director
will only be entitled to such indemnification for reasonable expenses as a
court finds to be proper in accordance with the provisions of Section 14-2-
854.
Section 14-2-852 of the Georgia Code provides that directors who are
successful with respect to any claim brought against them, which claim is
brought because they are or were directors of the Registrant, are entitled to
indemnification against reasonable expenses as of right. Conversely, if the
charges made in any action are sustained, the determination of whether the
required standard of conduct has been met will be made, in accordance with the
provisions of Section 14-2-855 of the Georgia Code, as follows: (i) by the
majority vote of a quorum of the disinterested members of the board of
directors, (ii) if a quorum cannot be obtained, by a committee thereof duly
designated by the board of directors, consisting of two or more disinterested
directors, (iii) by special legal counsel, or (iv) by the shareholders, but,
in such event, the shares owned by or voted under the control of directors
seeking indemnification may not be voted.
Section 14-2-857 of the Georgia Code provides that an officer of the
Registrant (but not an employee or agent generally) who is not a director has
the mandatory right of indemnification granted to directors under Section 14-
2-852, as described above. In addition, the Registrant may, as provided by its
Articles, Bylaws, general or specific actions by its Board of Directors, or by
contract, indemnify and advance expenses to an officer, employee or agent who
is not a director to the extent that such indemnification is consistent with
public policy.
II-1
<PAGE>
The provisions of Article IX of the Registrant's Bylaws provide for
indemnification by the Registrant to the full extent permitted by the
foregoing provisions of the Georgia Code outlined above.
Officers and directors of the Registrant are presently covered by insurance
which (with certain exceptions and within certain limitations) indemnifies
them against any losses or liabilities arising from any alleged "wrongful act"
including any alleged breach of duty, neglect, error, misstatement, misleading
statement, omissions or other act done or wrongfully attempted. The cost of
such insurance is borne by the Registrant as permitted by the Bylaws of the
Registrant and the laws of the State of Georgia.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a)Exhibits required by Item 601 of Regulation S-K.
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger dated as of June 17, 1998, among the
Registrant, Church Merger Corp. and PMT Services, Inc. (included as
Appendix A to the Joint Proxy Statement/Prospectus included in this
Registration Statement and incorporated herein by reference)
3.1 Articles of Incorporation of the Registrant, as amended(1)
3.2 Bylaws of the Registrant, as amended(2)
4.1 Specimen Common Stock certificate(1)
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 Shareholder Agreement, dated June 17, 1998, between the Registrant and
Richardson M. Roberts(9)
4.4 Shareholder Agreement, dated June 17, 1998, between the Registrant and
Gregory S. Daily(9)
4.5 Registration Rights Agreement, dated as of June 17, 1998, between the
Registrant, Richardson M. Roberts and Gergory S. Daily(9)
5 Opinion of Long Aldridge & Norman LLP as to the legality of the shares
being issued**
8.1 Form of Opinion of Long Aldridge & Norman LLP regarding the federal
income tax consequences of the Merger**
8.2 Form of Opinion of Waller Lansden Dortch & Davis, a Professional
Limited Liability Company, regarding the federal income tax
consequences of the Merger**
9.1 Shareholder Agreement, incorporated by reference to Exhibit 4.3(9)
9.2 Shareholder Agreement, incorporated by reference to Exhibit 4.4(9)
10.1 Shareholders Agreement dated January 31, 1996, among the Registrant
(formerly NOVA Holdings, Inc.), NOVA Information Systems, Inc., First
Union Corporation, WorldCom, Inc., Warburg, Pincus Investors, L.P. and
each of the other Original Shareholders(1), as amended by supplements
dated as of August 15, 1997, August 22, 1997 and September 8, 1997(8)
10.2 Registration Rights Agreement dated January 31, 1996, among the
Registrant (formerly NOVA Holdings, Inc.), Warburg, Pincus Investors,
L.P., WorldCom, Inc., and First Union Corporation(1)
10.3 1991 Employees' Stock Option and Stock Appreciation Rights Plan, as
amended(1)
10.4 1996 Employees Stock Incentive Plan, together with form of Incentive
Stock Option Agreement and Non-Qualified Stock Option Agreement, as
amended by the First Amendment(1) and the Second Amendment(9)
10.5 Proposed Third Amendment to the 1996 Employees Stock Incentive Plan**
10.6 1996 Directors Stock Option Plan, as amended and restated(2)
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.7 Contribution Agreement, dated October 30, 1995, among the Registrant
(formerly NOVA Holdings, Inc.), NOVA Information Systems, Inc., the
then-current shareholders of NOVA Information Systems, Inc., First
Union Corporation, the First Union Banks, and First Fidelity
Bancorporation and its banking subsidiaries(1)
10.8 Lease Agreement dated May 31, 1996 between NOVA Information Systems,
Inc. and Concourse I, LTD.(4)
10.9 Sublease, dated April 1, 1991, between Inter-Banc, Inc. and The Baptist
Health System of East Tennessee, Inc.(1)
10.10 Credit Agreement, dated October 27, 1997, among NOVA Information
Systems, Inc., the Lenders named therein, First Union National Bank as
Documentation Agent and Bank of America National Trust and Savings
Association, as Agent(7)
10.11 Service Agreement dated July 1, 1998, between NOVA Information Systems,
Inc. and WorldCom**
10.12 Processing Services Agreement, dated July 1, 1998, between NOVA
Information Systems, Inc. and Vital Processing Services, L.L.C.**
*10.13 Marketing Agreement, dated June 30, 1994, between NOVA Information
Systems, Inc. and Kessler Financial Services, L.P.(1), and Addendum to
Marketing Agreement dated July 24, 1997, effective January 1, 1997,
between NOVA Information Systems and Kessler Financial Services,
L.P.(7)
*10.14 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)
*10.15 Agreement dated June 3, 1992, as amended December 9, 1992, and November
2, 1994, between NOVA Information Systems, Inc. and Mellon Bank,
together with the Letter Agreement dated June 3, 1992, between NOVA
Information Systems, Inc. and Mellon Bank relating to fees, as amended
December 10, 1992, and June 10, 1997(1), both as amended by Letter
Agreement June 10, 1997(7)
10.16 Depositary and Processing Agreement, dated September 30, 1993, between
NOVA Information Systems, Inc. and Bank of the West(1)
10.17 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.(1)
10.18 Marketing Agreement, dated October 1, 1992, between NOVA Information
Systems, Inc. and MBNA America Bank, N.A.(1)
10.19 Agreement Not to Compete, dated October 1, 1992, between NOVA
Information Systems, Inc. and MBNA America Bank, N.A.(1)
10.20 Depositary and Settlement Agreement, dated January 31, 1996, among the
Registrant (formerly NOVA Holdings, Inc.), NOVA Information Systems,
Inc. and FUNB(1)
10.21 Marketing Support Agreement, dated January 31, 1996, among the
Registrant (formerly NOVA Holdings, Inc.), NOVA Information Systems,
Inc. and the First Union Banks(1)
10.22 Merchant Asset Purchase Agreement, dated as of May 29, 1997, between
NOVA Information Systems, Inc. and Crestar Bank(5)
10.23 Agreement Respecting a Limited Liability Company, dated October 7,
1997, among NOVA Information Systems, Inc., Firstar Bank U.S.A., N.A.
d/b/a Elan Financial Services and Firstar Bank Milwaukee, N.A.(6)
*10.24 Agreement Respecting a Limited Liability Company, dated December 12,
1997, among the Registrant, NOVA Information Systems, Inc. and KeyBank
National Association(7)
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
*10.25 Merchant Asset Purchase Agreement, dated December 30, 1997, between
NOVA Information Systems, Inc., and MBNA America Bank, N.A.(7)
10.26 Shareholder Agreement, incorporated by reference to Exhibit 4.3(9)
10.27 Shareholder Agreement, incorporated by reference to Exhibit 4.4(9)
10.28 Registration Rights Agreement, incorporated by reference to Exhibit
4.5(9)
10.29 Stock Option Agreement dated as of June 17, 1998, between the
Registrant (as issuer) and PMT Services, Inc. (included as Appendix B
to the Joint Proxy Statement/Prospectus included in this Registration
Statement and incorporated herein by reference)
10.30 Stock Option Agreement dated as of June 17, 1998, between PMT Services,
Inc. (as issuer) and the Registrant (included as Appendix C to the
Joint Proxy Statement/Prospectus included in this Registration
Statement and incorporated herein by reference)
10.31 Employment Agreement, dated as of June 17, 1998, between Richardson M.
Roberts and the Registrant(9)
10.32 Employment Agreement, dated as of June 17, 1998, between Gregory S.
Daily and the Registrant(9)
10.33 Employment Agreement, dated July 31, 1998, effective March 1, 1998,
between the Registrant and Rebecca L. Powell**
10.34 Employment Agreement, dated July 31, 1998, effective March 1, 1998,
between the Registrant and Pamela A. Joseph**
10.35 Employment Agreement, dated July 31, 1998, effective March 1, 1998,
between the Registrant and John M. Perry**
10.36 Employment Agreement, dated October 27, 1995, effective January 31,
1996, between NOVA Information Systems, Inc. and Edward Grzedzinski(1)
10.37 Employment Agreement, dated October 27, 1995, effective January 31,
1996, between NOVA Information Systems, Inc. and James M. Bahin(1)
21 Subsidiaries of the Registrant(7)
23.1 Consent of Long Aldridge & Norman LLP (included in its opinions filed
as Exhibits 5 and 8.1)
23.2 Consent of Waller Lansden Dortch & Davis, a Professional Limited
Liability Company (included in its opinion filed as Exhibit 8.2)
23.3 Consent of Ernst & Young LLP relating to the audited financial
statements of the Registrant**
23.4 Consent of PricewaterhouseCoopers LLP relating to the audited financial
statements of PMT Services, Inc.**
24 Powers of Attorney (included on the Signature Page of this Registration
Statement)
27 Financial Data Schedule**
99.1 Form of proxy card for the Registrant's Special Meeting of
Shareholders**
99.2 Form of proxy card for PMT Services, Inc.'s Special Meeting of
Shareholders**
99.3 Form of Letter of Transmittal**
</TABLE>
- --------
<TABLE>
<S> <C>
*Confidential treatment pursuant to 17 CFR ((S)(S)) 200.80 and 230.406 has been requested regarding
certain portions of the indicated Exhibit, which portions have been filed separately with the
Commission.
</TABLE>
II-4
<PAGE>
** Filed herewith.
(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 Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, and incorporated by reference herein.
(3) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, filed on August 13, 1997, Commission File No.
1-14342, and incorporated herein by reference.
(4) 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.
(5) Filed as an exhibit to the Company's Current Report on Form 8-K, filed
June 12, 1997, Commission File No. 1-14342, and incorporated herein by
reference.
(6) Filed as an exhibit to the Company's Current Report on Form 8-K, filed
November 14, 1997, Commission File No. 1-14342, and incorporated herein by
reference.
(7) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, and incorporated by reference herein.
(8) Filed as an exhibit to the Company's Registration Statement on Form S-1
(Registration No. 333-45997), and incorporated herein by reference.
(9) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998, filed on August 14, 1998, Commission file No.
1-14342, and incorporated herein by reference.
(b) Financial Statement Schedules:
None
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.
ITEM 22. UNDERTAKINGS.
(a) RULE 415 OFFERING. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-5
<PAGE>
(b) REGISTRATION ON FORM S-4.
(1) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form
with respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other Items of the
applicable form.
(2) The undersigned Registrant undertakes that every prospectus: (i)
that is filed pursuant to the paragraph immediately preceding, or (ii)
that purports to meet the requirements of Section 10(a)(3) of the Act and
is used in connection with an offering of securities subject to Rule 415,
will be filed as part of an amendment to the registration statement and
will not be used until such amendment is effective, and that, for purposes
of determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) ACCELERATION OF EFFECTIVENESS. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Exchange Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Exchange Act and will be governed by
the final adjudication of such issue.
(d) RESPONSE TO REQUESTS FOR INFORMATION. The undersigned Registrant hereby
undertakes to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of Form S-
4, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of this Registration Statement through the date of responding to the
request.
(e) POST-EFFECTIVE AMENDMENT. The undersigned Registrant hereby undertakes
to supply by means of a post-effective amendment all information concerning a
transaction, and the company being acquired involved therein, that was not the
subject of and included in this Registration Statement when it became
effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of
Georgia, on August 19, 1998.
NOVA CORPORATION
(Registrant)
By: /s/ Edward Grzedzinski
-----------------------------------
Edward Grzedzinski
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Edward Grzedzinski and James M. Bahin, and each
of them, as his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and 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 attorneys-in-fact and agents, or either of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on August 19, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Edward Grzedzinski Chairman of the Board, President and Chief
______________________________ Executive Officer (Principal Executive
Edward Grzedzinski Officer)
/s/ James M. Bahin Vice Chairman of the Board, Chief Financial
______________________________ Officer and Secretary (Principal Accounting
James M. Bahin Officer)
/s/ Charles T. Cannada Director
______________________________
Charles T. Cannada
/s/ Dr. James E. Carnes Director
______________________________
Dr. James E. Carnes
/s/ U. Bertram Ellis, Jr. Director
______________________________
U. Bertram Ellis, Jr.
/s/ Dr. Henry Kressel Director
______________________________
Dr. Henry Kressel
/s/ Joseph P. Landy Director
______________________________
Joseph P. Landy
/s/ Maurice F. Terbrueggen, Jr. Director
______________________________
Maurice F. Terbrueggen, Jr.
/s/ Stephen E. Wall Director
______________________________
Stephen E. Wall
</TABLE>
II-7
<PAGE>
INDEX OF EXHIBITS
The following exhibits are filed as part of this Registration Statement:
EXHIBIT NUMBER DESCRIPTION
(a) Exhibits required by Item 601 of Regulation S-K.
2.1 Agreement and Plan of Merger dated as of June 17, 1998, among the
Registrant, Church Merger Corp. and PMT Services, Inc. (included
as Appendix A to the Joint Proxy Statement/Prospectus included in
this Registration Statement and incorporated herein by reference)
3.1 Articles of Incorporation of the Registrant, as amended(1)
3.2 Bylaws of the Registrant, as amended(2)
4.1 Specimen Common Stock certificate(1)
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 Shareholder Agreement, dated June 17, 1998, between the Registrant
and Richardson M. Roberts(9)
4.4 Shareholder Agreement, dated June 17, 1998, between the Registrant
and Gregory S. Daily(9)
4.5 Registration Rights Agreement, dated as of June 17, 1998, among
the Registrant, Richardson M. Roberts and Gregory S. Daily(9)
5 Opinion of Long Aldridge & Norman LLP as to the legality of the
shares being issued**
8.1 Form of Opinion of Long Aldridge & Norman LLP regarding the
federal income tax consequences of the Merger**
8.2 Form of Opinion of Waller Lansden Dortch & Davis, a Professional
Limited Liability Company, regarding the federal income tax
consequences of the Merger**
9.1 Shareholder Agreement, incorporated by reference to Exhibit 4.3(9)
9.2 Shareholder Agreement, incorporated by reference to Exhibit 4.4(9)
10.1 Shareholders Agreement dated January 31, 1996, among the
Registrant (formerly NOVA Holdings, Inc.), NOVA Information
Systems, Inc., First Union Corporation, WorldCom, Inc., Warburg,
Pincus Investors, L.P. and each of the other Original
Shareholders(1), as amended by supplements dated as of August 15,
1997, August 22, 1997 and September 8, 1997(8)
10.2 Registration Rights Agreement dated January 31, 1996, among the
Registrant (formerly NOVA Holdings, Inc.), Warburg, Pincus
Investors, L.P., WorldCom, Inc., and First Union Corporation(1)
10.3 1991 Employees' Stock Option and Stock Appreciation Rights Plan,
as amended(1)
10.4 1996 Employees Stock Incentive Plan, together with form of
Incentive Stock Option Agreement and Non-Qualified Stock Option
Agreement, as amended by the First Amendment(1) and the Second
Amendment(9)
10.5 Proposed Third Amendment to the 1996 Employees Stock Incentive
Plan**
10.6 1996 Directors Stock Option Plan, as amended and restated(2)
II-8
<PAGE>
10.7 Contribution Agreement, dated October 30, 1995, among the
Registrant (formerly NOVA Holdings, Inc.), NOVA Information
Systems, Inc., the then-current shareholders of NOVA Information
Systems, Inc., First Union Corporation, the First Union Banks, and
First Fidelity Bancorporation and its banking subsidiaries(1)
10.8 Lease Agreement dated May 31, 1996, between NOVA Information
Systems, Inc. and Concourse I, LTD.(4)
10.9 Sublease, dated April 1, 1991, between Inter-Banc, Inc. and The
Baptist Health System of East Tennessee, Inc.(1)
10.10 Credit Agreement, dated October 27, 1997, among NOVA Information
Systems, Inc. the Lenders named therein, First Union National Bank
as Documentation Agent and Bank of America National Trust and
Savings Association, as Agent(7)
10.11 Service Agreement dated July 1, 1998, between NOVA Information
Systems, Inc. and WorldCom**
10.12 Processing Services Agreement, dated July 1, 1998, between NOVA
Information Systems, Inc. and Vital Processing Services, L.L.C.**
*10.13 Marketing Agreement, dated June 30, 1994, between NOVA Information
Systems, Inc. and Kessler Financial Services, L.P.(1), and
Addendum to Marketing Agreement dated July 24, 1997, effective
January 1, 1997, between NOVA Information Systems, Inc. and
Kessler Financial Services, L.P.(7)
*10.14 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)
*10.15 Agreement dated June 3, 1992, as amended December 9, 1992, and
November 2, 1994, between NOVA Information Systems, Inc. and
Mellon Bank, together with the Letter Agreement dated June 3,
1992, between NOVA Information Systems, Inc. and Mellon Bank
relating to fees, as amended December 10, 1992, and June 10,
1997(1), both as amended by Letter Agreement June 10, 1997(7)
10.16 Depositary and Processing Agreement, dated September 30, 1993,
between NOVA Information Systems, Inc. and Bank of the West(1)
10.17 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.(1)
10.18 Marketing Agreement, dated October 1, 1992, between NOVA
Information Systems, Inc. and MBNA America Bank, N.A.(1)
10.19 Agreement Not to Compete, dated October 1, 1992, between NOVA
Information Systems, Inc. and MBNA America Bank, N.A.(1)
10.20 Depositary and Settlement Agreement, dated January 31, 1996, among
the Registrant (formerly NOVA Holdings, Inc.), NOVA Information
Systems, Inc. and FUNB(1)
10.21 Marketing Support Agreement, dated January 31, 1996, among the
Registrant (formerly NOVA Holdings, Inc.), NOVA Information
Systems, Inc. and the First Union Banks(1)
10.22 Merchant Asset Purchase Agreement, dated as of May 29, 1997,
between NOVA Information Systems, Inc. and Crestar Bank(5)
10.23 Agreement Respecting a Limited Liability Company, dated October 7,
1997, among NOVA Information Systems, Inc., Firstar Bank U.S.A.,
N.A. d/b/a Elan Financial Services and Firstar Bank Milwaukee,
N.A.(6)
*10.24
Agreement Respecting a Limited Liability Company, dated December
12, 1997, among the Registrant, NOVA Information Systems, Inc. and
KeyBank National Association(7)
II-9
<PAGE>
*10.25 Merchant Asset Purchase Agreement, dated December 30, 1997,
between NOVA Information Systems, Inc. and MBNA America Bank,
N.A.(7)
10.26 Shareholder Agreement, incorporated by reference to Exhibit 4.3(9)
10.27 Shareholder Agreement, incorporated by reference to Exhibit 4.4(9)
10.28 Registration Rights Agreement, incorporated by reference to
Exhibit 4.5(9)
10.29 Stock Option Agreement dated as of June 17, 1998, between the
Registrant (as issuer) and PMT Services, Inc. (included as
Appendix B to the Joint Proxy Statement/Prospectus included in
this Registration Statement and incorporated herein by reference)
10.30 Stock Option Agreement dated as of June 17, 1998, between PMT
Services, Inc. (as issuer) and the Registrant (included as
Appendix C to the Joint Proxy Statement/Prospectus included in
this Registration Statement and incorporated herein by reference)
10.31 Employment Agreement, dated as of June 17, 1998, between
Richardson M. Roberts and the Registrant(9)
10.32 Employment Agreement, dated as of June 17, 1998, between Gregory
S. Daily and the Registrant(9)
10.33 Employment Agreement, dated July 31, 1998, effective March 1,
1998, between the Registrant and Rebecca L. Powell**
10.34 Employment Agreement, dated July 31, 1998, effective March 1,
1998, between the Registrant and Pamela A. Joseph**
10.35 Employment Agreement, dated July 31, 1998, effective March 1,
1998, between the Registrant and John M. Perry**
10.36 Employment Agreement, dated October 27, 1995, effective January
31, 1996, between NOVA Information Systems, Inc. and Edward
Grzedzinski(1)
10.37 Employment Agreement, dated October 27, 1995, effective January
31, 1996, between NOVA Information Systems, Inc. and James M.
Bahin(1)
21 Subsidiaries of the Registrant(7)
23.1 Consent of Long Aldridge & Norman LLP (included in its opinions
filed as Exhibits 5 and 8.1)
23.2 Consent of Waller Lansden Dortch & Davis, a Professional Limited
Liability Company (included in its opinion filed as Exhibit 8.2)
23.3 Consent of Ernst & Young LLP relating to the audited financial
statements of the Registrant**
23.4 Consent of PricewaterhouseCoopers LLP relating to the audited
financial statements of PMT Services, Inc.**
24 Powers of Attorney (included on the Signature Page of this
Registration Statement)
27
Financial Data Schedule**
99.1
Form of proxy card for the Registrant's Special Meeting of
Shareholders**
II-10
<PAGE>
99.2 Form of proxy card for PMT Services, Inc.'s Special Meeting of
Shareholders**
99.3 Form of Letter of Transmittal**
- --------
* Confidential treatment pursuant to 17 CFR ((S)(S)) 200.80 and 230.406 has
been requested regarding certain portions of the indicated Exhibit, which
portions have been filed separately with the Commission.
** Filed herewith.
(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 Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, and incorporated by reference herein.
(3) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, filed on August 13, 1997, Commission File No.
1-14342, and incorporated herein by reference.
(4) 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.
(5) Filed as an exhibit to the Company's Current Report on Form 8-K, filed
June 12, 1997, Commission File No. 1-14342, and incorporated herein by
reference.
(6) Filed as an exhibit to the Company's Current Report on Form 8-K, filed
November 14, 1997, Commission File No. 1-14342, and incorporated herein by
reference.
(7) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, and incorporated by reference herein.
(8) Filed as an exhibit to the Company's Registration Statement on Form S-1
(Registration No. 333-45997), and incorporated herein by reference.
(9) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998, filed on August 14, 1998, Commission file No.
1-14342, and incorporated herein by reference.
II-11
<PAGE>
EXHIBIT 5
August 19, 1998
NOVA Corporation
One Concourse Parkway
Suite 300
Atlanta, Georgia 30328
Re Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as counsel to NOVA Corporation, a Georgia corporation (the
"Company"), in connection with the filing by the Company of a Registration
Statement on Form S-4 with the Securities and Exchange Commission (the
"Commission") registering under the Securities Act of 1933, as amended, up to
39,940,009 shares of the Company's Common Stock, par value $.01 per share (the
"Shares"). The Company proposes to issue the Shares in connection with the
proposed merger transaction (the "Merger") in which PMT Services, Inc., a
Tennessee corporation ("PMT"), will become a wholly-owned subsidiary of the
Company pursuant to the terms of an Agreement and Plan of Merger dated as of
June 17, 1998 (the "Merger Agreement"), by and among the Company, Church Merger
Corp., a Tennessee corporation and wholly-owned subsidiary of the Company, and
PMT.
The opinion hereinafter set forth is given pursuant to Item 21(a) of Form
S-4 and Item 60l(b)(5) of Regulation S-K. The only opinion rendered by this
firm consists of the matters set forth in numbered paragraph 1 below (our
"Opinion"), and no opinion is implied or to be inferred beyond such matters.
Additionally, our Opinion is based upon and subject to the qualifications,
limitations and exceptions set forth in this letter.
In rendering our Opinion, we have examined such agreements, documents,
instruments and records as we deemed necessary or appropriate under the
circumstances for us to express the Opinion, including, without limitation, the
Articles of Incorporation and Bylaws of the Company, the minutes of the
proceedings of the Board of Directors of the Company and the Merger Agreement.
In making the foregoing examinations, we assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to the original documents of all documents submitted to us as copies
and the authority of the person or persons who executed each of such documents
on behalf of any person or entity other than the Company. Members of this firm
are admitted to the Bar of the State of Georgia and are duly qualified to
practice law in that state. We do not herein express any opinion concerning any
matter respecting or affected by any laws of any other state. The Opinion
hereinafter set forth is based upon pertinent laws and facts in existence as of
the date hereof, and we expressly disclaim any obligation to advise you of
changes to such pertinent laws or facts that hereafter may come to our
attention.
<PAGE>
NOVA Corporation
August 19, 1998
Page 2
As to various factual matters that are material to our Opinion, we have
relied upon certificates of officers of the Company and certificates of various
public officials. We have not independently verified or investigated, nor do we
assume any responsibility for, the factual accuracy or completeness of such
factual statements.
Based upon and subject to the foregoing, we are of the Opinion that:
1. The Shares to be issued in the Merger upon conversion of and in
exchange for the shares of PMT Stock issued and outstanding
immediately prior to the effective time of the Merger, when issued in
accordance with the terms of the Merger Agreement, will be validly
issued, fully paid and nonassessable. The Shares that will be
issuable upon exercise of options or warrants that immediately prior
to the effective time of the Merger represented options or warrants to
purchase shares of PMT Stock, when issued in accordance with the terms
of the respective option or warrant agreement, as adjusted or modified
pursuant to the Merger Agreement, against payment in full therefore,
will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion letter as an exhibit to the
aforesaid Registration Statement, and we hereby consent to the reference to our
firm under the headings "Summary - Certain Federal Income Tax Consequences of
the Merger," "Proposal 1 - The Proposed Merger - Certain Federal Income Tax
Consequences of the Merger" and "Legal Matters" set forth in the Proxy
Statement/Prospectus forming a part of said Registration Statement.
Very truly yours,
LONG ALDRIDGE & NORMAN LLP
By: /s/ David M. Calhoun
-----------------------------
David M. Calhoun
<PAGE>
EXHIBIT 8.1
[Letterhead of Long Aldridge & Norman LLP]
____________, 1998
NOVA Corporation
One Concourse Parkway
Suite 300
Atlanta, Georgia 30328
RE: MERGER OF CHURCH MERGER CORP. INTO PMT SERVICES, INC.
Gentlemen:
We have acted as counsel to NOVA Corporation ("NOVA") in connection with
the merger (the "Merger") of Church Merger Corp., a wholly-owned subsidiary of
NOVA ("Sub"), into PMT Services, Inc. ("PMT").
In issuing our opinion, we have reviewed the Joint Proxy
Statement/Prospectus included in the Form S-4 Registration Statement related to
the Merger (the "Registration Statement"), the representations made to us by
NOVA and PMT in Tax Certificates, and such other documents as we have deemed
appropriate. Our opinion is based upon our understanding that the facts and
representations set forth in the Joint Proxy Statement/Prospectus and the Tax
Certificates are true and correct as of the present time and will be true and
correct as of the Effective Time of the Merger.
On the basis of the facts and representations referenced in the next
previous paragraph, it is our opinion that the Merger will have the following
federal income tax consequences:
(i) The Merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and the Company, Sub and Parent will each be a party to that reorganization
within the meaning of Section 368(b) of the Code.
(ii) No gain or loss will be recognized by NOVA, Sub or PMT as a result of
the Merger.
(iii) Except with respect to cash received in lieu of fractional share
interests, no gain or loss will be recognized by the shareholders of PMT upon
their receipt of shares of NOVA Common Stock in exchange for their shares of PMT
common stock.
<PAGE>
NOVA Corporation
, 1998
- ------------
Page 2
This opinion is rendered solely with respect to the federal income tax
consequences of the Merger specifically set forth above, and only with respect
to shareholders of PMT who are not subject to special tax rules. We express no
opinion as to the treatment of the Merger under the income or other tax laws of
any foreign, state or local jurisdiction. Our opinions are based upon the
present provisions of the Code, the regulations issued thereunder, current case
law and published rulings of the Internal Revenue Service. The foregoing are
subject to change and such changes may be given retroactive effect. In the
event of such changes, our opinions may be affected.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the reference to our firm under the heading
"Certain Federal Income Tax Consequences" in the Prospectus forming a part of
the Registration Statement.
Very truly yours,
LONG ALDRIDGE & NORMAN LLP
<PAGE>
EXHIBIT 8.2
, 1998
PMT Services, Inc.
3841 Green Hills Village Drive
Nashville, Tennessee 37215
Re: Certain Federal Income Tax Consequences of Merger of
Church Merger Corp., a Wholly Owned Subsidiary of
NOVA Corporation, with and into PMT Services, Inc.
----------------------------------------------------
Ladies and Gentlemen:
We have acted as tax counsel to PMT Services, Inc. a Tennessee corporation
("PMT"), in connection with the merger (the "Merger") of Church Merger Corp., a
Tennessee corporation ("Sub") and a wholly owned subsidiary of NOVA Corporation,
a Georgia corporation ("NOVA") with and into PMT, pursuant to the Merger
Agreement dated as of June 17, 1998 (the "Merger Agreement"). We are hereby
providing our opinion regarding certain of the federal income tax consequences
of the Merger.
Information Relied Upon
-----------------------
In rendering the opinion set forth herein, we have examined and relied
upon originals or copies, certified or otherwise identified to our satisfaction,
of the Joint Proxy Statement/Prospectus included in the Form S-4 Registration
Statement related to the Merger (the "Registration Statement") and the
representations made to us by PMT and NOVA in certificates (the "Certificates").
In addition, we have examined such other documents, agreements, and certificates
and made such investigations of law and fact as we have deemed necessary or
appropriate as a basis for the opinion set forth below.
In our examination, we have assumed, with your consent, the genuineness of
all signatures, the legal capacity of natural persons, the authenticity
<PAGE>
, 1998
Page 2
of all documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as certified or photocopies, and the
authenticity of the originals of such copies. As to any facts material to this
opinion which we did not independently establish or verify, we have relied upon
statements and representations made by PMT and NOVA and have assumed that such
matters remain true and correct through the date hereof. In addition, we have
assumed, with your consent, that the statements contained in the Certificates
are true and correct on the date hereof, and that any representation made in any
of the documents referred to herein "to the best of the knowledge and belief"
(or similar qualification) of any person or party is correct without such
qualification.
All references herein to the Code are to the Internal Revenue Code of
1986, as amended ("Code"). Unless specified, capitalized terms used herein shall
have the meanings assigned to them in the Joint Proxy Statement/Prospectus.
Opinion
-------
It is our opinion, subject to the facts, representation, and
qualifications stated herein, that the following are the primary federal income
tax consequences:
(i) The merger will constitute a "reorganization" within the meaning of
Section 868(a) of the Code.
(ii) No gain or loss will be recognized by PMT. NOVA or Sub as a result of
the Merger.
(iii) No gain or loss will be recognized by the shareholders of PMT upon
the exchange in the Merger of their PMT Common Stock for Nova Common Stock,
except with respect to cash received in lieu of fractional interests in NOVA
Common Stock.
The opinion expressed herein is based upon existing statutory, regulatory,
and judicial authority, any of which may be changed at any time with retroactive
effect. In addition, our opinion is based solely on the documents that we have
examined, the additional information that we have obtained, and the facts set
out in the Certificates that we have assumed, with your consent, to be true and
correct. Our opinion cannot be relied upon if any of the facts contained in such
<PAGE>
, 1998
Page 3
documents or in any such additional information is, or later becomes,
inaccurate, or if any of the facts set out in the Certificates is, or later
becomes, inaccurate.
Our opinion is limited to the United States federal income tax matters
specifically covered thereby, and we have not been asked to address, nor have we
addressed, any other tax consequences that may result from the Merger or any
other transaction (including any transaction undertaken in connection with the
Merger). We express no opinion regarding the tax consequences of the Merger to
shareholders of PMT that are subject to special tax rules, and we express no
opinion regarding the tax consequences of the Merger arising in connection with
the ownership of options or warrants for PMT Common Stock.
In rendering this opinion, we have assumed that Long Aldridge Norman LLP
has delivered, and has not withdrawn, their opinion regarding certain of the
federal income tax consequences of the Merger.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the reference to our firm under the heading
"Certain Federal Income Tax Consequences" in the Prospectus forming a part of
the Registration Statement.
Very truly yours,
Waller Lansden Dortch & Davis
A Professional Limited Liability Company
<PAGE>
EXHIBIT 10.5
THIRD AMENDMENT
TO THE
NOVA CORPORATION
1996 EMPLOYEES STOCK INCENTIVE PLAN
THIS THIRD AMENDMENT to the NOVA Corporation 1996 Employees Stock Incentive
Plan (the "Plan"), made as of the day and year noted below, by NOVA Corporation
(the "Company"), to be effective as noted below.
W I T N E S S E T H:
WHEREAS, the Company sponsors and maintains the Plan for the exclusive
benefit of its eligible employees and their beneficiaries, and pursuant to
Section 12.1 thereof, the Company has the right to amend the Plan at any time,
subject to Section 12.2 of the Plan; and
WHEREAS, the Company amended the Plan on February 27, 1996 for the purpose
of increasing the aggregate number of shares of common stock of the Company
which could be granted to, or for which stock options may be granted to, persons
participating in the Plan from 600,000 to 2,000,000; and
WHEREAS, the Company wishes to further amend the Plan at this time for the
purpose of increasing the aggregate number of shares of common stock of the
Company which may be granted to, or for which stock options may be granted to,
persons participating in the Plan from, 2,000,000 to 6,000,000;
NOW, THEREFORE, the Plan is hereby amended as follows effective as of [date
of shareholder approval], 1998:
1.
Article 4 of the Plan, as amended by that certain Amendment, dated February
27, 1996, is hereby further amended by deleting the phase "2,000,000 shares of
Common Stock" and inserting in lieu thereof the phrase "6,000,000 shares of
Common Stock."
2.
All other provisions of the Plan not inconsistent herewith are hereby
confirmed and ratified.
ADOPTED BY THE BOARD OF DIRECTORS ON AUGUST 4, 1998
APPROVED BY THE SHAREHOLDERS AS OF ____________, 1998
<PAGE>
EXHIBIT 10.11
WORLDCOM SERVICE AGREEMENT
This Service Agreement (the "Agreement") is made by and between
WorldCom Technologies, Inc. ("WorldCom"), located at 515 East Amite, Jackson,
Mississippi 39201-2702, and Nova Information Systems, Inc. ("Customer"), with
its principal office at One Concourse Parkway, Suite 300, Atlanta, Georgia
30328, (hereinafter, collectively, the "Parties") for services described below.
1. SERVICE:
-------
(A) WorldCom will provide WorldOne/(SM)/ Option G, 36-Month ESP
Service (the "Service") subject to the rules and regulations
governing Service pursuant to the applicable tariffs of WorldCom
Technologies, Inc. (the "Tariffs"), as may be amended or
succeeded from time to time.
(B) The rules and regulations of the Tariffs provide terms and
conditions on which apply to the Services, which include, but are
not limited to, termination liability, taxes, credit approval
procedures, Customer credits, and limitations with respect to the
assignment of the Services. The Tariffs may be modified from time
to time by WorldCom in accordance with law and thereby affect the
Service furnished to Customer except that the terms and
conditions contained in this Agreement shall supplement or to the
extent inconsistent, supersede the Tariffs' rules and
regulations.
(C) This Agreement is not intended to offer or provide the Service or
any element or portion thereof for the purpose of resale of same
by Customer or any agent of Customer to another person or entity
not a party hereto.
(D) Notwithstanding the provisions regarding termination of this
Agreement by Customer prior to completion of the initial Term,
Customer shall be permitted to terminate this Agreement during
the Term without penalty or further obligation, except for
charges incurred up to the date of termination, in the event that
quality deficiencies solely caused by WorldCom in the provision
of telecommunications service hereunder are demonstrated by
Customer to affect adversely and materially Customers
telecommunications applications (such a termination under this
clause constituting a "Termination for Causes"). A Termination
for Cause shall not be effective unless Customer has reported
trouble on a circuit-specific basis to (and received a
corresponding trouble ticket from) the appropriate WorldCom
Support Center and a period of not less than thirty (30) days
after receipt of Customers written notice, as specified by this
Agreement, of termination has elapsed during which WorldCom falls
to correct such quality deficiencies. Provided, nothing contained
herein shall impose any liability on WorldCom and Customers sole
remedy shall be the termination of the affected Service as
described.
(E) In the event of a network optimization or technology change using
WORLDCOM's Services available now, or in the future, any of which
significantly reduces the volume of network, notwithstanding
CUSTOMER's best efforts to avoid such a shortfall, WORLDCOM and
CUSTOMER will negotiate in good faith to amend this Agreement or
develop a new agreement that will satisfy the needs of both
parties and comply with all applicable legal and regulatory
requirements. Such amendments or new agreement may include, but
not be limited to, changes in rates, nonrecurring charges,
revenue and/or volume commitments, discounts, the multi-year
services period, and other provisions. WORLDCOM will prepare and
file any tariff revisions, if necessary, to implement such
amendment or new agreement, subject to all applicable legal
requirements, including the requirements of the Federal
Communications Commission and the Communications Act of 1934, as
amended by the Telecommunications Act of 1996. This provision
shall not apply to change resulting from a decision by CUSTOMER
(i) to reduce its overall use of telecommunications, or (ii) to
transfer portions of Its traffic or projected growth to carriers
other than WORLDCOM. This provision does not constitute a waiver
of any charges for Service provided to CUSTOMER prior to the
effective date of an amendment to, or replacement, of this
Agreement.
Terms and conditions contained herein will be offered for
fifteen (15) days from July 1, 1998
Please mail originals to: WorldCom Sales Contracts Administration,
515 East Amite, 4th Floor, Jackson, MS 39201-2702
<PAGE>
(F) This Agreement is not intended to offer or provide the Service or
any element or portion thereof for the purpose of resale of same
by Customer or any agent of Customer to another person or entity
not a Party hereto.
2. CUSTOMER COMMITMENT PERIOD AND MINIMUM ANNUAL COMMITMENT:
--------------------------------------------------------
(A) Customer's Service shall be provided applying the rates for the
above-referenced WorldOne(SM)Option and Extended Service Plan
("ESP"), as further conditioned in Section 2(B) below:
(B) SERVICE TERM/ANNUAL MINIMUM BILLING COMMITMENT:
For purposes of this Agreement, "Annual Minimum Billing
Commitment" ("Commitment") will consist of net revenues for
Service after discounts have been applied.
(1) Commitment: $3,600,000
(2) Service Term ("Term"): [X] 3 Yr.
(3) Effective Date: July 1, 1998
For the purposes of this Agreement, (i) if Customer has an
existing service agreement with WorldCom, the "Effective
Date" will be the next billing cycle following the date
this Agreement has been fully executed by both parties and
Customer has received a satisfactory credit review and
approval from WorldCom's Credit Department, and all
security documentation, if any, required by WorldCom has
been properly executed and delivered to WorldCom
(collectively, the "Credit Review"), and (ii) if Customer
does not have an existing service agreement with WorldCom,
the "Effective Date" will be the date this Agreement has
been fully executed by both parties and the Credit Review
has been completed.
(4) Term shall begin with the first complete billing month after
execution of this Agreement by WorldCom and installation of
Service is completed. Upon expiration of the Term or any annual
renewal thereof, unless either party gives written notice to the
other party thirty (30) days prior to the end of the Term, the
Term will continue on an annual basis until this Agreement is
terminated by either party on at least thirty (30) days prior
written notice to the other party.
(C) At any time during the Term of this Agreement, upon at least
thirty (30) days prior written notice to WorldCom, Customer may
elect to increase the Annual Commitment as set forth in 2 (B)(1)
to one (1) of the commitment levels as set forth in Schedule A
under the heading "Options to increase Annual Commitment,"
Customer shall then receive the appropriate interstate rates
pursuant to the commitment level as set forth on Schedule A,
attached hereto. The election shall then be effective for the
remainder of the Term or until such time as Customer elects to
increase the Annual Commitment to the next higher commitment
level.
(D) If Customer's annual Service usage charges (the "Annual Usage
Charges") for any year in the Term are less than the Annual
Commitment, Customer shall pay WorldCom the difference between
the Annual Usage Charges and the Annual Commitment (the
"Deficiency Charge"). The Deficiency Charge shall be due in
addition to the charges for all Service provided pursuant to this
Agreement. The Deficiency Charge, if any, shall be due and
payable at the same time payment is due for Customer's Services
provided by WorldCom. Charges for OnLine World Calling Card
Service, Operator Services and Directory Assistance usage do not
count in determining if the Commitment has been met.
3. RATES AND CHARGES:
-----------------
Rates and charges for Service shall be as set forth in Schedule A,
attached hereto. All rates and charges for other services, if any,
will be as set forth in the Tariffs applicable to those services at
the time they are provided to Customer.
(A) Except for such rates as may be set forth on Schedule A attached
hereto, charges for Service shall be as set forth in the Tariffs.
WorldCom may, upon thirty (30) days' prior written notice to
Customer modify any rate
Terms and conditions contained herein will be offered for
fifteen (15) days from July 1, 1998
Please mail originals to: WorldCom Sales Contracts Administration,
515 East Amite, 4th Floor, Jackson, MS 39201-2702
<PAGE>
set forth in Schedule A of this Agreement ("Rate Change Notice").
Customer may not terminate this Agreement based on a Rate Change
Notice unless the Rate Change Notice results in an increase of
more than five percent (5%) in Customer's overall net
telecommunications usage charges from WorldCom based on the
average of Customers previous three months telecommunications
invoiced billing charges ("Net Increase"). In the event of a Net
Increase to Customer, Customer will have thirty (30) days from the
date of receipt of Rate Change Notice to elect to terminate this
Agreement upon at least thirty (30) days prior written notice to
WorldCom of such termination without incurring further liability
to WorldCom.
4. BUSINESS DOWNTURN:
-----------------
In the event of a business downturn beyond Customer's control or a
divestiture of an Affiliate of Customer that significantly reduces the
volume of network services required by the Customer with the result
the Customer will be unable to meet its revenue and/or volume
commitments under this Contract (notwithstanding Customer's best
efforts to avoid such a shortfall), WorldCom and Customer will
cooperate in efforts to develop a mutually agreeable alternative
proposal that will satisfy the concerns of both parties and comply
with all applicable legal and regulatory requirements. By way of
example and not limitation, such alternative proposals may include
changes in rates, nonrecurring charges, revenue and/or volume
commitments, discounts, the multi-year services period and other
provisions. Subject to all applicable legal and regulatory
requirements, including the requirements of the Federal Communications
Commission and the Communications Act of 1934 (as revised and
amended), WorldCom will prepare and file any tariff revisions
necessary to implement such mutually agreeable alternative proposal.
This provision shall not apply to change resulting from a decision by
Customer to: (i) reduce its overall use of telecommunications; or
(ii) transfer portions of its traffic or projected growth to carriers
other than WorldCom. The Customer must give WorldCom sixty (60) days'
prior written notice of the conditions it believes will require the
application of this provision. This provision does not constitute a
waiver of any charges, including shortfall charges, incurred by the
Customer prior to the time the parties mutually agree to amend or
replace this Agreement.
5. NOTICES:
-------
Notices under this Agreement shall be in writing and delivered to the
person identified below at the offices of the Parties as they appear
below, or as otherwise provided for, by proper notice hereunder.
Notices will be effective and deemed delivered (i) three (3) business
days after posting with the United States Postal Service ("U.S. Mail")
when mailed by certified mail, return receipt requested; (ii) one (1)
business day after pick-up by a courier service when sent by overnight
courier, or (iii) one (1) business day after the date of the senders
electronic confirmation of receipt when sent by facsimile
transmission. The Party sending a notice by U.S. Mail or overnight
courier will bear the postage charges required for the selected
delivery method. Parties to receive notices are:
If to WorldCom: If to Customer:
Frank Grillo, VP. Marketing Tim Barnett
---------------------------------- ---------------------------------
(NAME - PARTY TO RECEIVE NOTICES) (NAME - PARTY TO RECEIVE NOTICES)
Address (not P.O. Box address): Address (not P.O. Box address):
--- ---
515 East Amite One Concourse Parkway
---------------------------------- ---------------------------------
Fourth Floor Suite 300
---------------------------------- ---------------------------------
Jackson, MS 39201-2702 Atlanta, Georgia 30328
---------------------------------- ---------------------------------
Phone No.: 601-974-8425 Phone No.: 770-396-1456
----------------------- ----------------------
Fax No.: 601-974-8450 Fax No.. 770-396-2117
------------------------- ------------------------
6. ENTIRE AGREEMENT:
----------------
This Agreement including the Tariffs and any documents incorporated
herein by reference, constitutes the full understanding of the
Parties and supersedes any prior agreements between the Parties.
Terms and conditions contained herein will be offered for
fifteen (15) days from July 1, 1998
Please mail originals to: WorldCom Sales Contracts Administration,
515 East Amite, 4th Floor, Jackson, MS 39201-2702
<PAGE>
EXHIBIT 10.12
PROCESSING SERVICES AGREEMENT
BETWEEN
VITAL PROCESSING SERVICES L.L.C.
and
NOVA INFORMATION SYSTEMS, INC. DATED
July 1, 1998
1
<PAGE>
VITAL PROCESSING SERVICES AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into this ______
day of ____________ by and between VITAL PROCESSING SERVICES L.L.C. ("VITAL"),
of Tempe, Arizona, and NOVA INFORMATION SYSTEMS,, INC. ("NOVA"), of Atlanta,
Georgia, and is effective July 1, 1998.
PREAMBLE
The terms and provisions of this Agreement provide for the utilization
by NOVA of the VITAL System for card and merchant authorization services as
described in Exhibit "A" hereto and for merchant accounting and clearing
services as described in Exhibit "B" hereto and in the VITAL Manuals. Merchant
authorization services and merchant accounting and clearing services are
hereinafter referred to as "Merchant Services". To provide for the use of the
Merchant Services by NOVA and in consideration of the terms and provisions
specified in this Agreement, the parties hereto agree as follows:
1. SERVICES PROVIDED BY VITAL
1.1 VITAL will make available to NOVA Merchant Services some or all of
which NOVA presently agrees to use, and others of which VITAL offers to NOVA for
its future use. NOVA shall from time to time designate which of the Merchant
Services described herein and in the Manuals it elects to use.
1.2 In performing the Merchant Services contemplated under this
Agreement, and in the selection and use of facilities, equipment. machines and
personnel required for such performance, and in the custody and safekeeping of
materials furnished to VITAL by, or acquired by VITAL on behalf of NOVA in
connection therewith, VITAL shall exercise ordinary care and diligence, subject
to the limitations set forth in this paragraph. The parties recognize that there
are no universally accepted industry standards which are commonly accepted as a
standard of ordinary care and diligence for the performance of the Merchant
Services. Accordingly, NOVA agrees that VITAL shall be deemed to be exercising
ordinary care and diligence in the performance of the services required of VITAL
under this Agreement if VITAL follows the procedures and practices set forth in
the Manuals, as such Manuals may be revised from time to time. NOVA will be
provided copies of all revisions made from time to time to the Manuals.
1.3 VITAL will provide, upon the written request of NOVA, such
personnel to assist in the conversion or start-up of NOVA's accounts for the
merchant accounting and clearing services and for such other purposes within the
scope of this Agreement (i.e. Training) as may be deemed desirable by NOVA on an
out-of-pocket expense basis for a period of one hundred and twenty (120) days
commencing seventy-five (75) days prior to and ending forty-five (45) days
following the conversion or start-up date. Before the beginning and after the
end of such period, VITAL will furnish personnel for such assistance, additional
training and consultation at its then current per diem or hourly charged basis
for such services, plus reasonable out-of-pocket expenses. For purposes of
2
<PAGE>
this paragraph, out-of-pocket expenses shall be construed to include, but not be
limited to, travel, lodging, ground transportation, meals and related expenses.
1.4 VITAL agrees to provide or make available the Merchant
Services in accordance with the performance standards set forth in Exhibit "C".
1.5 VITAL will use best efforts to meet reasonable implementation
dates for acquisitions/conversions as required by NOVA.
1.6 VITAL will supply information and back-up documentation for
derivation of costs and time estimates for custom-code projects.
(a) VITAL will supply documented plans for tests,
encompassing all aspects of the projects to assure, to the best of their
ability, smooth implementation for custom-code projects and/or system
enhancements. The purpose is to minimize the impact to NOVA operations and
minimize utilization of NOVA resources to resolve VITAL major production
problems and expenses incurred due to VITAL implementations.
(b) NOVA will provide VITAL with written documentation on all
custom-code requests including requirements and test plans in an adequate time
frame prior to requested implementation date. VITAL will provide to NOVA
cost/time estimates in a reasonable time period after VITAL has received
complete requirements documentation from NOVA.
1.7 VITAL agrees to retain insurance on its properly for the
replacement value of such property and to retain general liability insurance in
an amount not less than $20,000,000.00 and errors and omissions insurance that
covers VITAL'S errors and omissions in its performance under this Agreement in
an amount not less than $5,000,000.00 and providing for, among other things.:
(a) Coverage for any and all amounts necessary to replace
magnetic tapes and reconstruct information stored on such magnetic tapes or any
other medium whatsoever or other evidence of any transactions received by VITAL
and required to be maintained by VITAL pursuant to this Agreement;
(b) Coverage for additional expenses incurred by VITAL which
are required to allow VITAL to continue processing and servicing in accordance
with this Agreement and in accordance with VITAL'S past custom and practice: and
(c) Coverage for any and all amounts necessary to replace all
processing units, computer consoles or other computer hardware of VITAL used in
connection with the processing activities of VITAL under this Agreement.
1.8 Throughout the term of this Agreement, VITAL agrees to
maintain and retain: (1) adequate backup of all of its software in the form of
the offsite storage of its
3
<PAGE>
source and object codes as well as all documentation necessary to reconstruct
the software; (2) offsite storage for each of NOVA'S data files used in
connection with processing services provided by VITAL under this Agreement; (3)
a backup power supply system to guard against electrical outages; and (4)
adequate backup for on-line communications, provided that NOVA maintains an
appropriate modem for such on-line communications as specified by VITAL.
1.9 Concepts. ideas, know-how, techniques, software, including,
but not limited to, programs, program listings and programming tools and
documentation. including, but not limited to, manuals, techniques, reports and
drawings developed by VITAL and used by VITAL to fulfill its obligations under
this Agreement shall be the sole and exclusive property of VITAL even if NOVA
assisted VITAL in the development or modification of such properly, and NOVA
shall have no interest whatsoever in and to such property. Notwithstanding the
foregoing, in such event NOVA has paid VITAL for the development of any such
properly, NOVA shall be given a fully paid perpetual license in such properly
for its use and the use of its customers unless VITAL sets forth in writing what
other rights NOVA shall have in such properly before the development thereof.
1.10 Vital agrees to pay NOVA a signing bonus of $175,000 as an
inducement to enter into this Agreement for Merchant Services.
Further, VITAL covenants and agrees to maintain and retain
throughout the term of this Agreement commercially reasonable offsite disaster
recovery capabilities which permit VITAL to recover from a disaster and continue
providing the Merchant Services required under this Agreement. VITAL agrees to
test the operation and effectiveness of its disaster recovery plan on a periodic
basis to ensure its effectiveness in providing disaster recovery capability.
2. OBLIGATIONS OF NOVA
2.1 Insofar as the performance of Merchant Services under this
Agreement by VITAL requires data, documents information or materials of any
nature to be furnished, in whole or in part, by NOVA or NOVA'S employees, agents
or other representatives, or which requires other services to be performed by
NOVA or NOVA'S employees, agents or other representatives, NOVA hereby agrees to
furnish or cause its employees, agents or other representatives to furnish, all
such data, documents, information and materials, and to perform all such
services within such time or times, and in such form or manner as is necessary
in order to enable VITAL to perform Merchant Services hereunder in a timely
manner.
2.2 NOVA agrees during the term of this Agreement to maintain a
correspondent demand deposit account ("clearing account") with Columbus Bank and
Trust Company, Columbus, Georgia, and agrees to adhere to the current
obligations as required by Columbus Bank and Trust Company.
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2.3 NOVA agrees that during the term of this Agreement, VITAL
will be the exclusive provider of merchant accounting and clearing services as
described in Exhibit "B" hereto except for the following:
a) Any existing merchant accounting and clearing services not
being provided on the effective date of this Agreement including but not limited
to the Mellon portfolio.
b) Merchant accounting and clearing services that NOVA is
contractually obligated to process on another processor resulting from a
purchase of a portfolio or a joint venture entered into by NOVA or another
similar transaction after the effective date of this Agreement
c) Merchant accounting and clearing services provided by a
proprietary system developed or purchased by NOVA.
2.4 Preferred POS Network. NOVA agrees that the VITAL POS System
---------------------
will be the preferred outsource POS network for NOVA.
3. PRICES FOR VITAL SERVICES
3.1 (a) VITAL's fees for Merchant Services provided hereunder are
set forth in Exhibit "A" and Exhibit "B". VITAL will invoice NOVA for the fees
and expenses incurred in connection with the Services provided to NOVA as of the
end, of each calendar month. Such invoice shall indicate type of service, number
of transactions and other relevant information. NOVA shall designate a NOVA bank
account (hereinafter referred to as "the designated account") with respect to
which VITAL shall have the authority to debit the account for the fees and
expenses. VITAL shall debit NOVA's designated account the full amount of the
fees and charges shown on the invoice fifteen (15) days after the date of the
invoice; provided, however, that in the event that NOVA has provided VITAL with
written notice as to any disputed fees and/or charges, VITAL shall not debit
NOVA's designated account for the disputed amount until such time as the dispute
has been resolved to both parties' satisfaction. VITAL may modify its billing
procedures upon ninety (90) days notice to NOVA. Any modification to these
procedures will not shorten the period of time that the fees and charges are
payable.
(b) It is understood and agreed between the parties hereto
that the fees provided for in this Agreement are exclusive of any and all
applicable taxes or assessments, whether designated as sales taxes, use taxes,
ad valorem taxes, properly taxes or by some other name or designation, and
including any interest or penalties thereon, which may be levied upon or
assessed by any governmental or taxing jurisdiction in connection with the
performance of services hereunder for NOVA or the provision to NOVA of any
equipment necessary for the performance of services hereunder for NOVA, and
exclusive of any expenses which expenses, by the express terms hereof, are to be
paid by NOVA; provided, however, that NOVA shall not be
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required to pay or reimburse VITAL for net income or excess profit taxes or
other taxes measured by the net income of VITAL or any personal property taxes
levied upon the value of any goods or materials prior to delivery of such goods
or materials to NOVA. VITAL shall provide written notice to NOVA in the event
any such tax, assessment or expense is due and owing. In the event of the
payment of or for any such tax, assessment or expense by VITAL for NOVA, NOVA
shall in turn pay VITAL for such items.
3.2 The agreed upon fees stated in Exhibit "B" shall be guaranteed for
the entire initial term of this Agreement VITAL shall have the right to change
any of the fees specified in Exhibit "H" at the end of said period or at any
time and at all times subsequent thereto, provided that such increase shall be
no more than 8% of the fees in effect and that VITAL shall give NOVA not less
than sixty (60) days advance written notice, and each such change shall become
effective after such sixty (60) day period and each such change shall be
guaranteed by VITAL to remain at that level for a period of at least one year
from the effective date thereof.
3.3 Any other provision herein to the contrary notwithstanding, the
fees paid by NOVA for the Merchant Services provided herein may be increased to
directly offset any increase in rates charged by any communication common
carriers. VITAL shall give NOVA ninety (90) days written notice of any such
increase or the amount of notice that VITAL receives of such increase if such
notice to VITAL is less than ninety (90) days. Any such increase payable by NOVA
shall become effective on the same day as the increase in rates charged by the
communications common carrier becomes effective.
3.4 Any other provision herein to the contrary notwithstanding, the
fees to be paid by NOVA may be increased if any change in applicable law or the
rules, regulations or operating procedures of either VISA, MasterCard, other
supported plans, or any applicable federal or state governmental agency or
regulatory authority results in such cost increase. VITAL shall give NOVA ninety
(90) days written notice of any such increase or the amount of notice that VITAL
receives of such increase if such notice to VITAL is less than ninety (90) days.
Any such increase payable by NOVA shall become effective on the same day as the
change in such law, rules, regulations or operating procedures resulting in such
increase becoming effective.
3.5 NOVA agrees to provide VITAL with at least one hundred and eighty
(180) days prior written notice of any conversion from VITAL to another
processor.
4. TERM OF THE AGREEMENT
4.1 The initial term of this Agreement shall begin on July 1, 1998,
and shall continue in full force and effect for a period of three (3) years from
such date ("initial term").
4.2 Upon the expiration of the initial term of this Agreement, this
Agreement shall be automatically renewed for an indefinite number of consecutive
one (1) year terms thereafter unless either party gives the other party one
hundred eighty (180) days
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written notice of its intent for this Agreement not to renew or until and unless
terminated as provided in Section 4 hereinbelow.
4.3 During the initial term of this Agreement, or any subsequent term
of this Agreement. NOVA may terminate this Agreement without cause by giving
VITAL at least one hundred and eighty (180) days written notice. In the event
NOVA elects to terminate this Agreement prior to the end of the initial term
pursuant to this paragraph 4.3, NOVA shall pay VITAL, at the time notification
is given to VITAL, a termination fee of three hundred thousand dollars
($300,000):
4.4 If the period of time to deconvert after the notice of termination
exceeds the one hundred eighty (180) days provided for in Paragraph 4.2, the
service will thereafter be provided by VITAL on a month-to-month basis with no
minimums and pricing VITAL'S standard pricing, but in no event will such
month-to-month relationship go beyond twelve (12) months of the termination date
unless agreed to by VITAL in writing. The standard pricing may be raised by
VITAL 10% at the end of the initial six (6) months of the month-to-month and 10%
every six (6) months thereafter with no notice to NOVA.
4.5 VITAL may terminate this Agreement in the event NOVA fails to make
or to adequately and timely provide for the payment of fees and expenses due
hereunder, but only if VITAL gives NOVA written notice of such failure and NOVA
fails to remedy such failure within thirty (30) days after its receipt of said
notice. Upon the expiration of the thirty (30) day period provided for above,
VITAL may terminate this Agreement by giving NOVA written notice, which
termination shall be effective immediately. If such failure to pay is remedied
by NOVA within such thirty (30) day period, then this Agreement shall continue
as though no such notice had been given.
4.6 If either party fails to observe, keep or perform any term or
condition of this Agreement, except for the performance standards in Exhibit "C"
required to be observed, kept or performed by that party, the other party, in
addition to any other rights and remedies it may have, shall have the right to
terminate this Agreement without paying a termination fee; provided, however,
that the party seeking to terminate the Agreement gives the other party a
written notice of such failure claimed to be a breach of terms and conditions of
this Agreement, and the party receiving said notice fails to remedy the breach
within thirty (30) days after its receipt of said notice. If the breach is not
remedied by the defaulting party within the thirty (30) day period provided for
above, the non-defaulting party may terminate this Agreement by giving the
defaulting party written notice effective immediately. If the breach is remedied
by the defaulting party within such thirty (30) day period, then this Agreement
shall continue as though no such notice had been given. If VITAL terminates the
Agreement pursuant to Paragraph 4.5 and 4.6, VITAL may terminate all services
provided pursuant to the Agreement.
4.7 Termination of this Agreement shall not terminate NOVA's
obligations to pay VITAL fees for all services performed and expenses incurred
under the Agreement prior to the discontinuance of performance of Merchant
Services by VITAL hereunder.
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4.8 Upon termination, unless such termination is pursuant to Paragraph
4.5 or 4.6, VITAL shall cooperate with NOVA in transferring processing promptly
and smoothly to any other processor designated by NOVA and VITAL shall make
available to such processor all information VITAL possesses regarding NOVA's
customers and accounts in such form as NOVA may reasonably request, together
with adequate instructions concerning the format and means of accessing NOVA's
data. If NOVA elects to terminate for any reason other than nonperformance of
VITAL, NOVA shall pay VITAL the deconversion fee listed in Exhibit "B" and shall
pay VITAL at VITAL's current per diem or hourly charged rates for all services
provide by VITAL at NOVA's request and with NOVA's approval in connection with
such deconversion, and NOVA shall pay VITAL for all expenses actually incurred
by VITAL in connection therewith, including costs of magnetic tapes, disks,
punch cards or other storage devices or media transferred by VITAL. In such an
event, NOVA shall also pay VITAL for any and all supplies and forms which bear
NOVA's name or other identifying mark or logo and were acquired by VITAL for
NOVA's benefit which, as a result of such termination and deconversion, shall
not be used by VITAL to provide services to NOVA hereunder, including but not
limited to, supplies and forms, such as periodic statements, which would have
been provided by VITAL to NOVA without additional charge or expense if VITAL had
continued to provide services to NOVA hereunder. Any payments to be made by NOVA
to VITAL under this paragraph shall be made within thirty (30) days of the
receipt by NOVA of in invoice from VITAL including such fees and expenses.
5. CONFIDENTIAL INFORMATION
5.1 All information of a business nature relating to NOVA's
assets, liabilities, credit programs, customers or other business affairs
disclosed to VITAL by NOVA or disclosed in connection with this Agreement is
confidential. VITAL shall not, without the express written consent of NOVA,
disclose, or permit access to any such information by any person, firm or
corporation.
VITAL shall cause its officers, employees and agents to take
such action as shall be necessary, or advisable to preserve and protect the
confidentiality of such information. This shall not prohibit VITAL from
disclosing such information to persons required to have access thereto for the
performance of this Agreement; provided. however, that VITAL shall inform such
persons of the confidential nature of such information, and such persons shall
agree to be bound by the provisions of this Section 5 and not to use or disclose
such information to any other person. All such information, including records
created therefrom by VITAL, shall remain the property of NOVA, and VITAL shall
provide such information to NOVA or to another party upon NOVA's request.
Immediately upon (i) the written or verbal request of NOVA or (ii) the
termination of this Agreement for any reason, VITAL shall promptly return to
NOVA all copies of such confidential information and shall destroy all copies of
any analyses, compilations, studies or other documents prepared by it or for its
use containing or reflecting, or developed with respect to, any such
confidential information.
5.2 NOVA agrees to hold confidential and to use only in
connection with the
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services provided under this Agreement all information furnished to NOVA by
VITAL including, but not limited to, VITAL system design, programming
techniques, training materials or other unique techniques.
5.3 The parties agree that the terms and conditions of this Agreement,
including the fees for Merchant Services provided hereunder which are set forth
in Exhibit "A" and Exhibit "B" hereto, are confidential. Neither party shall,
without the express prior written consent of the other party, disclose such
terms and conditions (including fees) to any other unaffiliated person, firm or
corporation.
5.4 VITAL and NOVA's obligations and agreements under this paragraph
shall not apply to any information supplied that:
(a) was known to either party prior to the disclosure by the
other, or
(b) is or becomes generally available to the public other
than by breach of this Agreement,
(c) otherwise becomes lawfully available on a nonconfidential
basis from a third party who is not under an obligation of confidence to either
party, or
(d) is independently developed by either party without the
use of information provided by the other party.
5.5 It is understood and agreed by the parties hereto that the
performance of said services are subject to audit and/or examination by
authorized representatives of NOVA, VITAL, auditors of either party and/or other
appropriate federal or state regulatory agencies, and that either party is and
shall be authorized to submit or furnish to any such representative or
regulatory agency reports, information, assurances or other data as may be
required or requested by them under applicable laws and regulations; provided,
however, that the party that is subject to such request or requirement shall
provide the other party with prompt prior written notice of such request or
requirement so that the other party may seek a protective order or other
appropriate remedy and/or waive compliance with the terms of this Section 5. In
the event that such protective order or remedy is nor obtained, or that the
other party waives compliance with the provisions hereof, the party that is
subject to such request or requirement agrees to furnish only that portion of
the confidential information which they are advised by written opinion of
counsel is legally required to be disclosed and to exercise best efforts to
obtain assurances that confidential treatment will be accorded such confidential
information.
5.6 The parties agree that the provisions of this Section 5 shall
survive the termination of this Agreement for three (3) years after the date of
said termination.
6. NETWORK CONFIGURATION
6.1 NOVA and NOVA merchants will access VITAL's system utilizing data
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communication protocols, transaction formulas and devices certified by VITAL.
6.2 NOVA and/or NOVA merchants will be responsible for the
installation, servicing and maintenance of equipment at NOVA or it's merchant's
facilities, and will be responsible for the connection of those devices to the
network in compliance with VITAL's requirements.
6.3 VITAL reserves the right to change all or part of the protocols
and the network configuration used by VITAL in providing the Merchant Services,
provided that if any change in the network configuration would require NOVA or
its merchants to change data communication protocols or communication networks,
VITAL will provide NOVA with one hundred eighty (180) days written notice.
7. AUDIT PROCEDURE
---------------
7.1 VITAL acknowledges that its performance of the Services for NOVA
hereunder is subject to audit or examination by the authorized representatives
of NOVA, NOVA's auditors, federal bank examiners and other federal and state
regulatory agencies. If VITAL is given written notice at least thirty (30) days
in advance of a requested audit or examination, VITAL will allow such auditors
or examiners access to VITAL's place of business during normal business hours
and furnish such auditors or examiners with such information, data and reports
related to the Services provided hereunder as is reasonably requested by them.
NOVA will pay VITAL on a time and materials basis, at VITAL's then standard
rates, for VITAL's compliance with any such audit or examination by authorized
representatives or auditors of NOVA. If the request for an audit or examination
concerning NOVA'S business does not originate from NOVA, VITAL will notify NOVA
in writing of such request (which notice will include a copy of such request)
and shall comply only upon NOVA's written verification of its obligation to pay
VITAL as required hereby in connection with such audit or examination.
Notwithstanding anything in this Section 7 to the contrary, VITAL will not be
required, in connection with any such audit or examination, to furnish, or
provide access to, any information that is not directly related to NOVA's
business or the Services provided hereunder.
7.2 In the event the findings of any such audit or examination require
any changes or revisions to VITAL's operations, NOVA shall have the right to
request that any such changes be made and VITAL shall cooperate with NOVA to
make such requested changes, on such schedule as may be acceptable to both VITAL
and NOVA. The costs of making changes requested or required by NOVA or its
authorized representatives or auditors shall be born by NOVA.
8. COMPLIANCE WITH OPERATING RULES AND REGULATIONS
-----------------------------------------------
8.1 VITAL and NOVA will be responsible for knowing and conforming in
their respective capacities to the bylaws, rules, regulations and other
requirements established by Visa, MasterCard, Discover, American Express, Diners
Club, Carte
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Blanche, JCB, ETC Scan check authorization service, debit network and other like
entities that apply to the provision of Services hereunder. Each party will be
responsible for its own costs of complying therewith.
8.2 Neither VITAL nor NOVA will be responsible for failure of the other
party, the other party's merchants, or the employees and subcontractors thereof,
to comply with any of the rules or regulations referred to in Section 8.1.
8.3 For the purposes of compliance with the Visa or the MasterCard
operating regulations, NOVA appoints VITAL as its agent to use the Visa or the
MasterCard data processing and communication system, and agrees to register
VITAL as such agent pursuant to such regulations. To the extent any other credit
card association, or credit card issuing company, at any time requires a similar
agent designation and registration, NOVA will so designate and register VITAL in
respect to NOVA's transactions.
9. INDEMNIFICATION
---------------
9.1 NOVA agrees to indemnify and hold VITAL harmless from and against
any and all loss, liability, cost, damage and expense (including reasonable
legal and accounting fees and expenses) to which VITAL may be subjected or which
it may incur in connection with any claims which arise from or out of or as the
result of (i) NOVA's breach of this Agreement; (ii) performance by NOVA of its
duties and obligations under this Agreement; or (iii) the act, negligence or
willful misconduct of NOVA. Unless such claim is the result of the act,
negligence or willful misconduct of VITAL, NOVA shall bear all risk of loss of
items, records, data and materials, including magnetic tapes, during transit
from NOVA to VITAL's location (or that of its agents or subcontractors) or from
NOVA's location to VITAL.
9.2 Year 2000 Indemnification. VITAL shall be liable to and shall
-------------------------
indemnify and hold NOVA harmless from and against any and all loss, liability,
cost, damage or expense (including reasonable legal and accounting fees and
expenses) incurred by NOVA resulting from the inability of THE VITAL SYSTEM to
accurately calculate, compare and sequence date data involving the years 1999,
2000 and later dates provided that NOVA utilizes THE VITAL SYSTEM in accordance
with the Manuals or other written operating materials provided to NOVA. Further,
in the event that THE VITAL SYSTEM fails to accurately calculate, compare and
sequence date data involving the years 1999, 2000 and a later date, and the
failure has a material and adverse impact on NOVA, NOVA shall have the right to
terminate this Agreement in accordance with Section 4.6 above, provided the
failure does not result from NOVA's use of THE VITAL SYSTEM in a manner
inconsistent with the Manuals or other written operating instructions provided
to NOVA.
9.3 NOVA shall indemnify and hold VITAL harmless from and against any
and all loss, liability, cost, damage and expense (including reasonable legal
and accounting fees and expenses) or claims in respect thereof asserted against
VITAL by third parties and arising out of information provided to VITAL by NOVA,
or by officers,
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employees and agents of NOVA, or arising out of the use of such information when
furnished by VITAL to NOVA, to merchants affiliated with NOVA, to other third
persons at NOVA'S request, or to officers, employees and agents of NOVA, unless
such loss, damage or expense arises out of the act, negligence or willful
misconduct of VITAL.
9.4 VITAL shall be liable to and shall indemnify and hold NOVA and the
applicable clearing bank(s) harmless from and against any and all loss,
liability, cost, damage and expense (including reasonable legal and accounting
fees and expenses) to which NOVA or the applicable clearing bank(s) may be
subjected or which they may incur in connection with any claims which arise from
or out of or as the result of (i) VITAL's breach of this Agreement; (ii)
performance by VITAL of its duties and obligations under this Agreement; or
(iii) the act, negligence or willful misconduct of VITAL.
9.5 Notwithstanding any other provision hereof, VITAL shall not be
liable for failure to provide Services if such failure is due to any cause or
condition beyond the reasonable control of VITAL or of any applicable
subcontractors or permitted outsources. Such causes or conditions shall include,
but shall not be limited to, acts of God or of the public enemy, acts of the
Government in either its sovereign or contractual capacity, fires, floods,
epidemics, quarantine restrictions, strikes and freight embargoes.
9.6 VITAL shall be entitled to rely upon and use, without
verification, any and all information, data and instructions at any time
submitted to VITAL by NOVA or by Visa and/or MasterCard and having to do with
NOVA or its accounts, and VITAL shall have no responsibility or liability
whatsoever for the accuracy or inaccuracy thereof, for the wording or text
authored or submitted by NOVA to VITAL for the mailers or periodic statements to
be furnished by VITAL or for other purposes, for the wording or text appearing
on any forms, bankcards or other materials furnished by NOVA to VITAL or for
whether or not such information, data, instruction, wording or text complies
with applicable laws and regulations; provided, however, that in the case of
information, data or instructions received from NOVA, VITAL has received such
information, data or instructions from an employee of NOVA previously identified
by an officer of NOVA as authorized to communicate such information, data or
instructions.
9.7 NOVA agrees to randomly check all output information produced by
VITAL, including but not limited to, statements and interchange qualification
level to determine if such information is correct, and will promptly report any
errors discovered therein to VITAL. In no event shall VITAL be liable with
respect to any loss, liability, cost, damage or expense caused by VITAL's
failure to perform under this Section 9.6 but not reported by NOVA to VITAL
within ninety (90) days of when such failure to perform is known or should have
been known to NOVA.
9.8 In no event shall VITAL be liable with respect to any loss,
liability, cost damage or expense arising out of a claim by NOVA or by third
parties in connection with the data, computations and services provided and/or
performed by VITAL hereunder to
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the extent of such data, computations and/or services as to which claim arises
were provided and/or performed in accordance with: (i) NOVA's written
requirements and/or instructions in such regard, including, but not limited to,
NOVA's memoranda, data entry instructions or computer field instructions; or
(ii) NOVA's written concurrence that such data, computations and services
provided or performed or to be provided or performed comply with NOVA's
previously communicated requirements and/or instructions in such regard.
9.9 IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY SPECIAL,
INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES, INCLUDING BUT NOT LIMITED TO,
LOST PROFITS, EVEN IF SUCH PARTY KNEW OF THE POSSIBILITY OF SUCH DAMAGES.
THE EXPRESS PROVISIONS HEREOF ARE IN LIEU OF ALL OTHER WARRANTIES,
WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATIONS,
THE WARRANTY OF MERCHANTABILITY AND THE WARRANTY OF FITNESS FOR A PARTICULAR
PURPOSE.
9.10 The total liability of VITAL hereunder to NOVA or to any party
claiming by, through or under NOVA, shall be limited, for all claims asserted
during the period from the effective date hereof to the first anniversary of the
effective date, to the aggregate amount of fees for the three most recent
monthly billing amounts prior to the occurrence resulting in the claim and for
claims asserted during subsequent one year periods beginning on the first
anniversary of the date hereof, to the aggregate of the fees for the three most
recent monthly billing amounts prior to the occurrence resulting in the claim.
10. NOTICES
10.1 Any written notice required or permitted to be given by NOVA to
VITAL hereunder shall be addressed to:
VITAL PROCESSING SERVICES L.L.C.
Attention: General Counsel
8320 South Hardy Road
Tempe, AZ 85284
(602) 333-7604 TEL
(602) 333-8604 FAX
and any written notice required, or permitted to be given by VITAL to NOVA under
this Agreement shall be addressed to:
NOVA INFORMATION SYSTEMS, INC.
Attention: Edward Grzedzinski
One Concourse Parkway, Ste. 300
Atlanta, GA 30328
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(770) 396-1456 TEL
(770) 698-1013 FAX
10.2 All written notices provided for hereunder shall be delivered in
person or shall be sent by courier or by certified mail with a return receipt
requested and shall be effective when delivered or when deposited in the United
States Post Office, postage prepaid and addressed as provided above. The parties
to this Agreement, by notice in writing, may designate another address or office
to which notices shall be given pursuant to this Agreement.
11. DEFAULT
11.1 A party shall be deemed to be in default under this Agreement:
(a) If its obligations with respect to confidential information
provided in Article 5 are breached and such breach is not cured within sixty
(60) days or notice thereof, except that if the failure is one that by its
nature cannot be cured in sixty (60) days, the breaching party must make
reasonable efforts to minimize the breach and to prevent the recipient of the
confidential information from using same;
(b) If it files a voluntary petition for reorganization under
the Bankruptcy Code, or if a petition for such a reorganization is filed against
it by a third party and is not dismissed within ninety (90) days.
11.2 If a party is in default hereunder, the other party may terminate
this Agreement, effective upon written notice to the party in default. The
non-defaulting party shall have the right to receive payment of any amounts
owing to it at the time of termination.
12. AGENCY
------
12.1 Neither party has the authority to make any statement,
representation, warranty or other commitment on behalf of the other, and this
Agreement does not create any agency, employment, partnership, joint venture or
similar relationship between the parties.
13. ASSIGNMENT
----------
13.1 This Agreement shall not be assignable in whole or in part by
NOVA or VITAL without the other party's prior written consent, except that NOVA
shall have the right to assign this Agreement to a parent, affiliate or
subsidiary without the written consent of VITAL, but NOVA agrees to provide
VITAL with notice of such assignment. VITAL may, however, without NOVA's prior
written consent, subcontract with other entities with respect to the provision
of Merchant Services hereunder, but no such subcontracts shall alter NOVA's
rights against VITAL under this Agreement or VITAL's obligations hereunder.
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14. REPRESENTATION
14.1 Each party to this Agreement hereby represents and warrants to
the other that it has the full right, power and authority to enter into and
perform this Agreement in accordance with all of the terms, provisions,
covenants and conditions hereof and that the execution and delivery of this
Agreement has been duly authorized by proper corporate action.
15. EXCLUSIVE REMEDY
----------------
15.1 Any delay, waiver or omission by NOVA or VITAL to exercise any
right or power arising from any breach or default of the other party in any of
the terms, provisions or covenants of this Agreement shall not be construed to
be a waiver by VITAL or NOVA of any subsequent breach or default of the same or
other terms, provisions or covenants on the part of the other party.
16. BINDING NATURE
--------------
16.1 This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their representatives and their respective
successors and assigns.
17. ENTIRE AGREEMENT
----------------
17.1 This Agreement constitutes the entire agreement between the
parties hereto relating to the subject matter hereof, and all prior
negotiations, agreements and understandings, whether oral or written, are
superseded hereby. No modification or amendment to this Agreement shall be
effective unless and until set forth in writing and signed by both parties
hereto.
18. GOVERNING LAW
-------------
18.1 This Agreement, its validity, construction and effect, will be
governed by and interpreted under the laws of the State of Georgia, without
giving effect to the provisions thereof regarding conflicts of laws.
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IN WITNESS WHEREOF each of the parties has caused this Agreement to be
executed on its behalf by its duly authorized officers as of the day, month and
year first above written.
VITAL PROCESSING SERVICES, L.L.C.
By: [SIGNATURE APPEARS HERE]
-------------------------------
Title: EVP
----------------------------
NOVA INFORMATION SYSTEMS, INC.
By: /s/ Pamela A. Joseph
-------------------------------
Name: Pamela A. Joseph
-----------------------------
Title: Chief Information Officer
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EXHIBIT 10.33
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made this 31st of July
1998, to be effective as of the 1st day of March 1998 (the "Effective Date") by
and among Rebecca L. Powell (hereinafter referred to as "Employee") and NOVA
Corporation, a Georgia corporation ("NOVA").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, NOVA is in the business of providing credit and debit card
transaction processing services (and related products and services) to
merchants, financial institutions, independent sales organizations ("ISOs"), and
other similar customers (the "Business") throughout the United States;
WHEREAS, Employee currently serves as Executive Vice President, Operations
of NOVA;
WHEREAS, NOVA, or its assigns, will continue to engage in the Business
throughout the United States (the "Territory);
WHEREAS, NOVA desires for Employee to continue to work for NOVA and
Employee desires to continue said employment, all as contemplated herein;
NOW, THEREFORE, for and in consideration of her continued employment by
NOVA pursuant to this Agreement, NOVA Confidential Information and Trade Secrets
(as hereafter defined) furnished to Employee by NOVA in order that she may
continue to perform her duties under this Agreement, the mutual covenants and
agreements herein contained, and other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Employment of Employee. NOVA hereby employs Employee for a period
beginning as of the Effective Date (the "Employment Commencement Date") and
ending February 29, 2000 (the "Initial Term"), unless Employee's employment by
NOVA is sooner terminated or automatically renewed pursuant to the terms of this
Agreement (Employee's employment by NOVA pursuant to the terms of this Agreement
shall hereinafter be referred to as "Employment").
(a) Employee agrees to such Employment on the terms and conditions herein
set forth and agrees to devote her reasonable best efforts to her
duties under this Agreement and to perform such duties diligently and
efficiently and in accordance with the directions of NOVA's Chief
Executive Officer.
(b) During the term of Employee's Employment, Employee shall be employed
as Executive Vice President, Operations of NOVA. Employee shall be
responsible primarily for such duties as are assigned to her, from
time to time, by NOVA's Chief Executive Officer which in any event
shall be such duties as are customary for an officer in those
positions.
(c) Employee shall devote substantially all of her business time,
attention, and energies to NOVA's Business, shall act at all times in
the best interest of NOVA, and shall not during the term of her
Employment be engaged in any other business activity, whether or not
such business is pursued for gain, profit, or other pecuniary
advantage, or permit such personal interests as she may have to
interfere with the performance of her duties hereunder.
Notwithstanding the foregoing, Employee may participate in industry,
civic and charitable activities so long as such activities do not
materially interfere with the performance of her duties hereunder.
<PAGE>
2. Compensation. During the term of Employee's Employment and in
accordance with the terms hereof, NOVA shall pay or otherwise provide to
Employee the following compensation:
(a) Employee's annual salary during the term of her Employment shall be
One Hundred Forty-Three Thousand Dollars ($143,000)("Base Salary"),
with such increases as may from time to time be deemed appropriate by
NOVA's Chief Executive Officer (subject to approval by the
Compensation Committee of NOVA) (a "Merit Increase"); provided,
however, that so long as this Agreement remains in effect, Employee's
Base Salary shall be reviewed annually by NOVA's Chief Executive
Officer.
(b) Employee's Base Salary shall be paid by NOVA in accordance with NOVA's
regular payroll practice.
(c) In addition to the Base Salary, Employee may annually receive bonus
compensation pursuant to the schedule set forth as Exhibit A ("Bonus
---------
Compensation"). Employee may also receive such other bonus or
incentive compensation as may be awarded Employee from time to time by
the Board of Directors of NOVA.
(d) NOVA may withhold from any compensation payable under this Agreement
all federal, state, city or other taxes as shall be required pursuant
to any law or governmental regulation or ruling.
3. Benefits. During the term of Employee's employment, and for such time
thereafter as may be required by Section 7 hereof, NOVA shall provide Employee
the following benefits:
(a) Medical Insurance. Employee and her dependents shall be entitled to
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participate in such medical, dental, vision, prescription drug,
wellness, or other health care or medical coverage plans as may be
established, offered or adopted form time to time by NOVA for the
benefit of its employees and/or executive officers, at no cost to
Employee.
(b) Life Insurance. Employee shall be entitled to participate in any life
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insurance plans established, offered, or adopted from time to time by
NOVA for the benefit of its employees and/or executive officers.
(c) Disability Insurance. Employee shall be entitled to participate in
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any disability insurance plans established, offered, or adopted from
time to time by NOVA for the benefit of its employees and/or executive
officers.
(d) Vacations, Holidays. Employee shall be entitled to at least four (4)
-------------------
weeks of paid vacation each year and all holidays observed by NOVA.
(e) Stock Option Plans. Employee shall be eligible for participation in
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any Stock Option Plan adopted by NOVA's Board of Directors.
(f) Other Benefits. In addition to and not in any way in limitation of
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the benefits set forth in this Section 3, Employee shall be eligible
to participate in all additional employee benefits provided by NOVA
(including, without limitation, all tax-qualified retirement plans,
non-qualified retirement and/or deferred compensation plans, incentive
plans, other stock option
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or purchase plans, and fringe benefits) on the same basis as such are
afforded to other executive officers of NOVA during the term of this
Agreement.
(g) Terms and Provisions of Plans Control. Notwithstanding any provisions
-------------------------------------
of this Section 3 to the contrary, Employee and her dependents shall
only be entitled to participate in plans or arrangements of NOVA to
the extent generally allowed for similarly situated employees and/or
executive officers by the terms and provisions of such plans or
arrangements. NOVA agrees that it shall not take action (during the
term of this Agreement or the Severance Period, as hereinafter
defined) to modify the terms and provisions of any such plan or
arrangement so as to exclude only Employee and/or her dependents
either by excluding Employee and/or her dependents explicitly by name
or by modifying provisions generally applicable to all employees and
dependents so that only Employee and/or her dependents would ever
possibly be affected.
4. Personnel Policies. Employee shall conduct herself at all times in a
businesslike and professional manner as appropriate for a person in her position
and shall represent NOVA in all respects as complies with good business and
ethical practices. In addition, Employee shall be subject to and abide by the
policies and procedures of NOVA applicable to personnel of NOVA, as adopted from
time to time.
5. Reimbursement for Business Expenses. Employee shall be reimbursed in
accordance with NOVA's regular expense reimbursement practice for all out-of-
pocket business expenses incurred by her in the performance of her duties
hereunder, provided that Employee shall first document and substantiate said
business expenses in the manner generally required by NOVA under its policies
and procedures.
6. Term and Termination of Employment.
(a) This Agreement shall be effective as of the Effective Date.
(b) Employee's Employment shall terminate immediately upon the discharge
of Employee for "Cause." For the purpose of this Agreement, the term
"Cause," when used with respect to termination by NOVA of Employee's
Employment hereunder, shall mean termination as a result of: (i)
Employee's competition with the Business of NOVA either directly or
indirectly, (ii) Employee's willful, intentional, or grossly negligent
failure to perform her duties under this Agreement diligently and in
accordance with the directions of NOVA; (iii) Employee's willful,
intentional, or grossly negligent failure to comply with the decisions
or policies of NOVA; (iv) Employee's failure to discharge Employee's
duty of loyalty to NOVA; or (v) final conviction of Employee of a
felony; provided, however, that in the event NOVA desires to terminate
Employee's Employment pursuant to subsections (i), (ii), (iii), or
(iv) of this Section 6 (b), NOVA shall first give Employee written
notice of such intent, detailed and specific description of the
reasons and basis therefor, and thirty (30) days to remedy or cure
such perceived breaches or deficiencies by Employee (the "Cure
Period"). If Employee does not cure the perceived breaches or
deficiencies within the Cure Period, NOVA may discharge Employee
immediately upon written notice to Employee. If NOVA desires to
terminate Employee's Employment pursuant to subsection (v) of this
Section 6(b), NOVA shall first give Employee three (3) days prior
written notice of such intent.
(c) Employee's Employment shall terminate immediately upon the death of
Employee.
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<PAGE>
(d) Employee's Employment shall terminate immediately upon thirty (30)
days prior written notice to Employee if Employee shall at any time be
incapacitated by reason of physical or mental illness or otherwise
incapable of performing the duties under this Agreement for a
continuous period of one hundred eighty (180) consecutive days;
provided, however, to the extent NOVA could, with reasonable
accommodation and without undue hardship, continue to employ Employee
in some other capacity after such one hundred eighty (180) day period,
NOVA shall, to the extent required by the Americans With Disabilities
Act, offer to do so, and, if such offer is accepted by Employee,
Employee shall be compensated accordingly.
(e) Employee may terminate this Agreement, upon thirty (30) days prior
written notice to NOVA (the "Notice Period"), in the event (i) there
is a material diminution in Employee's duties and responsibilities, or
such duties and responsibilities are otherwise diminished such that
they no longer reflect duties and responsibilities customary for an
Executive Vice President, Operations, or (ii) Employee is required to
relocate to an office that is more than fifty (50) miles from
Employee's current office located at One Concourse Parkway, Suite 300,
Atlanta, Georgia 30328 (each of (i) and (ii) being referred to as a
"Responsibilities Breach"), and NOVA fails to cure said
Responsibilities Breach, to the reasonable satisfaction of Employee,
within the Notice Period.
(f) Employee may, at her sole option and her sole discretion, give notice
of her intent to terminate her Employment hereunder at any time within
ninety (90) days after a "Change in Control" (as defined below) has
occurred, and may thereafter terminate her employment hereunder
pursuant to the terms of this Section 6(f). Employee may exercise this
right by giving NOVA one hundred eighty (180) days written notice of
such intent at any time within such ninety (90) day period, and
Employee's Employment hereunder shall terminate as of the expiration
of such one hundred eighty (180) day period. For the purposes of this
Agreement, "Change in Control" means (i) the acquisition, directly or
indirectly, by any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended), within
any 12 month period, of securities of the corporation representing an
aggregate of twenty-five percent (25%) or more of the combined voting
power of NOVA's outstanding securities (an "Acquisition"), and during
the period of 18 months following such Acquisition, individuals who at
the beginning of such period constitute NOVA's board of directors,
cease for any reason to constitute at least a majority thereof, unless
the election of each new director was approved in advance by a vote of
at least a majority of the directors then still in office who were
directors at the beginning of the period, or (ii) the sale of all or
substantially all of NOVA's assets.
(g) This Agreement shall automatically renew for successive two (2) year
terms (each a "Renewal Term") unless either party hereto gives the
other party hereto written notice of its or her intent not to renew
this Agreement no later than one hundred eighty (180) days prior to
the date the Initial Term, or any Renewal Term, is scheduled to
expire.
(h) Other than as specifically provided in this Section 6, and then only
in strict compliance with the terms hereof, NOVA may not terminate
this Agreement and/or Employee's Employment.
7. The Severance Period.
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(a) Upon termination of Employee's Employment, for whatever reason (other
than termination for "Cause" pursuant to Section 6(b), termination
because this Agreement has not been automatically renewed by Employee
after the Initial Term or any Renewal Term, or termination because
Employee "quits" or otherwise voluntarily terminates her Employment
other than as specifically contemplated herein (each, a "Termination
Exclusion"), but including termination because this Agreement has not
been automatically renewed by NOVA) (the effective date of such
termination being referred to as the "Termination Date"), in addition
to any amounts payable to Employee hereunder (including but not
limited to accrued but unpaid Base Salary or Bonus Compensation), and
any other benefits required to be provided to Employee and her
dependents under contract and applicable law:
(i) NOVA shall pay Employee an aggregate amount in cash equal to
two (2) times her then Base Salary (the "Severance Payment").
The Severance Payment shall be paid by NOVA to Employee in
twenty-four (24) equal monthly payments, the first of which
shall be made on the first day of the calendar month following
the calendar month in which the Termination Date occurs;
provided, however, that if Employee terminates her Employment
after a Change in Control of NOVA pursuant to the terms of
Section 6(f) hereof, NOVA shall pay Employee the Severance
Payment in one lump sum within fifteen (15) days of the
Termination Date;
(ii) Not later than ninety (90) days after the end of the fiscal
year during which the Termination Date occurs, NOVA shall pay
Employee a pro rata (relative to the Termination Date) portion
of the Bonus Compensation Employee would have been eligible for
had she remained in the employ of the Company until the end of
such fiscal year;
(iii) Notwithstanding any provision to the contrary in any other
agreement or document (including but not limited to NOVA's
stock option plans), all stock options that, as of the
Effective Date, have been granted to Employee shall become
vested and exercisable immediately upon notice of such
termination (whether given by NOVA or by Employee, and
including notice by NOVA pursuant to Section 6(g) that it does
not intend to renew this Agreement, but excluding notice given
by Employee in connection with a Termination Exclusion)
(collectively, the "Vested Options"), and until the later of
the Termination Date or such later date as provided under the
applicable stock option plan or stock option agreement,
Employee shall have the continuing right to exercise any or all
of the Vested Options;
(iv) To the extent that Employee and/or any of her dependents is
eligible to, and timely elects to, receive continuation
coverage under any group health plan providing medical,
dental, vision, prescription drug, wellness or other health
care or medical coverage which is subject to the provisions
of part 6 of Title I of ERISA ("COBRA"), NOVA shall timely
pay any premiums required for such coverage for the duration
of the two (2) year period following the Termination Date
(the "Severance Period"), or, at the election of NOVA, NOVA
shall pay Employee a lump sum as reimbursement for such
COBRA expenses. This payment of premiums by NOVA is not
intended to alter in any way the provisions of any group
health plan of NOVA, and all time limits, effects of
subsequent coverage and all other relevant provisions of any
group health plan of NOVA, and all time limits, effects of
subsequent coverage and all other relevant provisions of any
such plan remain unchanged and shall
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<PAGE>
control Employee's (and her dependents') entitlement to
coverage or benefits under such plan;
(v) For the duration of the Severance Period (or until Employee
becomes an employee of another company providing Employee and her
dependents with medical, life and disability insurance), NOVA shall
provide to Employee and her dependents the coverage for the benefits
described in Sections 3(b) and (c); provided, however, such coverage
shall not be provided to the extent that such coverage is generally
provided through an insurance contract with a licensed insurance
company and such insurance company will not agree to insure for such
coverage; and
(vi) During the Severance Period, Employee shall comply with the
non-disclosure obligations and covenants not to solicit or
compete set forth in Sections 9 and 10 below.
(b) In the event Employee's Employment is terminated as a result of one of
the Termination Exclusions identified in Section 7(a), NOVA, at its
sole option and its sole discretion and at any time within fifteen
(15) days of the Termination Date, may cause Employee to be obligated
to comply with the non-disclosure obligations and covenants not to
solicit or compete set forth in Sections 9 and 10 below for a period
of one (1) or two (2) years following the Termination Date, as set
forth below:
(i) By giving notice to Employee at any time within fifteen (15)
days of the Termination Date of its intent to exercise the
"One Year Option" herein described, NOVA may cause Employee to
be obligated to comply with the non-disclosure obligations and
covenants not to solicit or compete set forth in Sections 9
and 10 below for a period of one (1) year following the
Termination Date; provided, however, that NOVA shall pay
Employee an aggregate amount in cash equal to Employee's then
current Base Salary multiplied by one (1) (the "One Year
Payment"). The One Year Payment shall be paid by NOVA to
Employee in twelve (12) equal monthly payments, the first of
which shall be made on the first day of the calendar month
following the calendar month in which the Termination Date
occurs. In the event NOVA exercises the One Year Option, the
one (1) year period following the Termination Date shall be
deemed the "Exclusion Period";
(ii) By giving notice to Employee any time within fifteen (15) days
of the Termination Date of its intent to exercise the "Two
Year Option" herein described, NOVA may cause Employee to be
obligated to comply with the non-disclosure obligations and
covenants not to solicit or compete set forth in Sections 9
and 10 below for a period of two (2) years following the
Termination Date; provided, however, that NOVA shall pay
Employee an aggregate amount in cash equal to Employee's then
current Base Salary multiplied by two (2) (the "Two Year
Payment"). The Two Year Payment shall be paid by NOVA to
Employee in twenty-four (24) equal monthly payments, the first
of which shall be made on the first day of the calendar month
following the calendar month in which the Termination Date
occurs. In the event NOVA exercises the Two Year Option, the
two (2) year period following the Termination Date shall be
deemed the "Exclusion Period".
(c) In the event of the death of Employee, all benefits and compensation
hereunder shall, unless otherwise specified by Employee, be payable
to, or exercisable by, Employee's estate.
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<PAGE>
8. Products, Notes, Records and Software. Employee acknowledges and agrees
that all memoranda, notes, records and other documents and computer software
created, developed, compiled, or used by Employee or made available to her
during the term of her Employment concerning or relative to the Business of
NOVA, including, without limitation, all customer data, billing information,
service data, and other technical material of NOVA is and shall be NOVA's
property. Employee agrees to deliver without demand all such materials to NOVA
within three (3) days after the termination of Employee's Employment. Employee
further agrees not to use materials for any reason after said termination.
9. Nondisclosure.
(a) NOVA Confidential Information. Employee acknowledges and agrees that
------------------------------
because of her Employment, she will have access to proprietary
information of NOVA concerning or relative to the Business of NOVA
(collectively, "NOVA Confidential Information") which includes, without
limitation, technical material of NOVA, sales and marketing
information, customer account records, billing information, training
and operations information, materials and memoranda, personnel records,
pricing and financial information relating to the business, accounts,
customers, prospective customers, employees and affairs of NOVA, and
any information marked "Confidential" by NOVA. Employee acknowledges
and agrees that NOVA Confidential Information is and shall be NOVA's
property. Employee agrees that during the term of her Employment,
Employee shall keep NOVA Confidential Information confidential, and
Employee shall not use NOVA Confidential Information for any reason
other than on behalf of NOVA pursuant to, and in strict compliance
with, the terms of this Agreement. Employment further agrees that
during the Severance Period or the Exclusion Period, as applicable (as
defined above), Employee shall continue to keep NOVA Confidential
Information confidential, and Employee shall not use NOVA Confidential
Information for any reason or in any manner.
(b) Notwithstanding the foregoing, Employee shall not be subject to the
restrictions set forth in subsection (a) of this Section 9 with
respect to information which:
(i) becomes generally available to the public other than as a
result of disclosure by Employee or the breach of Employee's
obligations under this Agreement;
(ii) becomes available to Employee from a source which is unrelated
to her Employment or the exercise of her duties under this
Agreement, provided that such source lawfully obtained such
information and is not bound by a confidentiality agreement
with NOVA; or
(iii) is required by law to be disclosed.
(c) Trade Secrets. Employee acknowledges and agrees that because of her
-------------
Employment, she will have access to "trade secrets" (as defined in the
Uniform Trade Secrets Act, O.C.G.A. (S) 10-1-760, et seq. (the Uniform
-- ----
Trade Secrets Act") of NOVA ("Trade Secrets"). Nothing in this
Agreement is intended to alter the applicable law and remedies with
respect to information meeting the definition of "trade secrets" under
the Uniform Trade Secrets Act, which law and remedies shall be in
addition to the obligations and rights of the parties hereunder.
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<PAGE>
10. Covenants Not to Solicit or Compete.
(a) Employee acknowledges and agrees that, because of her Employment, she
does and will continue to have access to confidential or proprietary
information concerning merchants, associate banks and ISOs of NOVA and
establish relationships with such merchants, associate banks and ISOs
as well as with the vendors, consultants, and suppliers used to
service such merchants, associate banks and ISOs within the Territory.
In consideration of the benefits and compensation Employee is
receiving hereunder, and other valuable consideration, Employee agrees
that during the term of her Employment and continuing throughout the
Severance Period or the Exclusion Period, as applicable (provided NOVA
complies with its obligations set forth in Section 7 hereof), Employee
shall not, directly or indirectly, either individually, in
partnership, jointly, or in conjunction with, or on behalf of, any
person, firm, partnership, corporation, or unincorporated association
or entity of any kind:
(i) (aa) compete with NOVA in providing credit card and debit card
transaction processing services within the Territory or (bb)
otherwise obtain any interest in, lend money to, guarantee the
debts or obligations of, or perform services in either a
supervisory or managerial capacity or as an advisor,
consultant or independent contractor for, or otherwise
participate in the management or control of, any person, firm,
partnership, corporation, or unincorporated association of any
kind which is providing credit card and debit card transaction
processing services within the Territory in competition with
NOVA;
(ii) solicit or contact, for the purpose of providing products or
services the same as or substantially similar to those
provided by NOVA in connection with the Business, any person
or entity that during the term of Employee's Employment was a
merchant, associate bank, ISO or customer (including any
actively-sought prospective merchant, associate bank, ISO or
customer) of NOVA and with whom Employee had material contact
or about whom Employee learned material information during her
Employment;
(iii) persuade or attempt to persuade any merchant, associate bank,
ISO, customer, or supplier of NOVA to terminate or modify such
merchant's, associate bank's, ISO's, customer's, or supplier's
relationship with NOVA if Employee had material contact with
or learned material information about such merchant, associate
bank, ISO, customer or supplier during her Employment; or
(iv) persuade or attempt to persuade any person who (aa) was
employed by NOVA as of the date of the termination of
Employee's Employment and (bb) is in a sales or management
position with NOVA at the time of such contact, to terminate
or modify her employment relationship, whether or not pursuant
to a written agreement, with NOVA.
11. New Developments. Any discovery, invention, process or improvement
made or discovered by Employee during the term of her Employment in connection
with or in any way affecting or relating to the Business of NOVA (as then
carried on or under active consideration) shall forthwith be disclosed to NOVA
and shall belong to and be the absolute property of NOVA; provided, however,
that this provision does not apply to an invention for which no equipment,
supplies, facility, or trade secret information of NOVA was used and which was
developed entirely on Employee's own time, unless (a)
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the invention relates (i) directly to the Business of NOVA or (ii) to NOVA's
actual or demonstrably anticipated research or development; or (b) the invention
results from any work performed by Employee for NOVA.
12. Remedy for Breach. Employee acknowledges and agrees that her breach
of any of the covenants contained in Sections 8, 9 and 10 of this Agreement
would cause irreparable injury to NOVA and that remedies at law of NOVA for any
actual or threatened breach by Employee of such covenants would be inadequate
and that NOVA shall be entitled to specific performance of the covenants in such
sections or injunctive relief against activities in violation of such sections,
or both, by temporary or permanent injunction or other appropriate judicial
remedy, writ or order, without the necessity of proving actual damages. This
provision with respect to injunctive relief shall not diminish the right of NOVA
to claim and recover damages against Employee for any breach of this Agreement
in addition to injunctive relief. Employee acknowledges and agrees that she
will be responsible for all legal expenses, including attorney's fees, which
NOVA incurs in pursuing remedies, whether legal or equitable, for any actual or
threatened breach of this Agreement by Employee. Employee acknowledges and
agrees that, subject to NOVA's compliance with the provisions of Section 7
hereof, the covenants contained in Sections 8, 9 and 10 of this Agreement shall
be construed as agreements independent of any other provision of this or any
other contract between the parties hereto, and that the existence of any claim
or cause of action by Employee against NOVA, whether predicated upon this or any
other contract, shall not constitute a defense to the enforcement by NOVA of
said covenants.
13. Reasonableness. Employee has carefully considered the nature and
extent of the restrictions upon her and the rights and remedies conferred on
NOVA under this Agreement, and Employee hereby acknowledges and agrees that:
(a) the restrictions and covenants contained herein, and the rights and
remedies conferred upon NOVA, are necessary to protect the goodwill
and other value of the Business of NOVA;
(b) the restrictions placed upon Employee hereunder are narrowly drawn,
are fair and reasonable in time and territory, will not prevent her
from earning a livelihood, and place no greater restraint upon
Employee than is reasonably necessary to secure the Business and
goodwill of NOVA;
(c) NOVA is relying upon the restrictions and covenants contained herein
in continuing to make available to Employee information concerning the
Business of NOVA; and
(d) Employee's Employment places her in a position of confidence and trust
with NOVA and its employees, merchants, associate banks, ISOs,
customers, vendors and suppliers.
14. Invalidity of Any Provision. It is the intention of the parties
hereto that the provisions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies of each state and
jurisdiction in which such enforcement is sought, but that the unenforceability
(or the modification to conform with such laws or public policies) of any
provision hereof shall not render unenforceable or impair the remainder of this
Agreement which shall be deemed amended to delete or modify, as necessary, the
invalid or unenforceable provisions. The parties further agree to alter the
balance of this Agreement in order to render the same valid and enforceable.
The terms of the non-competition provisions of this Agreement shall be deemed
modified to the extent necessary to be enforceable; it shall be modified to
encompass the longest term which is enforceable and, if the scope of the
geographic area of non-competition is too great to be enforceable, it shall be
modified to encompass the greatest area that is enforceable. The parties
further agree to submit any issues regarding such
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<PAGE>
modification to a court of competent jurisdiction if they are unable to agree
and further agree that if said court declines to so amend or modify this
Agreement, the parties will submit the issue of amendment or modification of the
non-competition covenants in this Agreement to binding arbitration in accordance
with the commercial arbitration rules then in effect of the American Arbitration
Association. Any such arbitration hearing will be held in Atlanta, Georgia, and
this Agreement shall be construed and enforced in accordance with the laws of
the State of Georgia, including this arbitration provision.
15. Applicable Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Georgia.
16. Waiver of Breach. The waiver by NOVA of a breach of any provision of
this Agreement by Employee shall not operate or be construed as a waiver of any
subsequent breach by Employee.
17. Successors and Assigns. This Agreement shall inure to the benefit of
NOVA, its respective subsidiaries and affiliates, and their respective
successors and assigns. This Agreement is not assignable by Employee but shall
be freely assignable by NOVA.
18. Notices. All notices, demands and other communications hereunder
shall be in writing and shall be delivered in person or deposited in the United
States mail, certified or registered, with return receipt requested, as follows:
(i) If to Employee, to:
Rebecca L. Powell
2815 Strathmore Drive
Cumming, Georgia 30041
Telephone No.: (770) 889-8515
(ii) If to NOVA, to:
NOVA Corporation
One Concourse Parkway, Suite 300
Atlanta, Georgia 30328
Attention: James M. Bahin
Chief Financial Officer
Telephone No.: (770) 396-1456
19. Entire Agreement. This Agreement contains the entire agreement of the
parties with respect to the subject matter hereof, and supersedes in its
entirety the Employment Agreement between Employee and NOVA Information Systems,
Inc. dated November 1, 1991, which is of no further force or effect and hereby
deemed terminated. It may not be changed orally but only by an agreement in
writing signed by the party against whom enforcement of any waiver, change,
modification, extension, or discharge is sought.
20. Indemnification. At all times during and after Employee's Employment
and the effectiveness of this Agreement, NOVA shall indemnify Employee (as a
director, officer, employee and otherwise) to the fullest extent permitted by
law and shall at all times maintain appropriate provisions in its Articles of
Incorporation and Bylaws which mandate that NOVA provide such indemnification.
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21. Survival. The provisions of Sections 7, 8, 9, 10, 11, 12, 14 and 20
shall survive termination of Employee's Employment and termination of this
Agreement.
(Signatures begin on following page)
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the date first above shown.
"EMPLOYEE":
BY: /s/ Rebecca L. Powell
-----------------------------
"NOVA":
NOVA Corporation
By: /s/ Edward Grzedzinski
-----------------------------
Edward Grzedzinski
Chairman, CEO and President
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EXHIBIT A
Annual Incentive Compensation Schedule
. Payment of annual incentive (the "Bonus Payment") to be based upon relative
achievement of Targeted Net Income (as defined).
. Net Income is Net Income determined in accordance with GAAP as determined
from the annual audited Financial Statements, as adjusted to exclude non-
operating gains and losses.
. Targeted Net Income will be established annually by the Board of Directors.
. Payment will be calculated y determining the percentage relationship
between Net Income and Targeted Net Income (such percentage relationship
being referred to as the "Actual/Targeted Ratio"). For each full percent
by which the Actual/Targeted Ratio equals or exceeds 80%, Employee will
receive, in addition to her then current Base Salary, the following
percentage (the "Bonus Percentage") of her Base Salary as the Bonus
Payment:
<TABLE>
<CAPTION>
Actual Net Income/
Targeted Net Income Bonus Percentage Maximum % of Base Salary
(the "Actual/Targeted Ratio") (% of Base Salary) Payable as the Bonus Payment
- ----------------------------- ------------------ -----------------------------
<S> <C> <C>
80% - 84% 1% 5%
85% - 89% 2% 15%
90% - 94% 3% 30%
95% - 99% 4% 50%
* *
</TABLE>
* If the Actual/Targeted Ratio is equal to or greater than 101%, for each
full percentage point by which the Actual/Targeted Ratio exceeds 100% (the
"Excess"), the Bonus Percentage (pursuant to which Employee's Bonus Payment
shall be calculated) shall be equal to the aggregate of (i) 50%, and (ii)
the Excess; provided, however, that the Bonus Percentage may never exceed
100%.
For Example, if the Actual/Targeted Ratio is 112%, the Actual/Targeted
Ratio exceeds 100% by 12%, and 12% is the "Excess." Therefore, the Bonus
Percentage would be equal to the aggregate of (i) 50%, and (ii) 12%;
accordingly, the Bonus Percentage would be 62% and Employee's Bonus Payment
would be 62% of her then current Base Salary. If Employee's Base Salary was
$100,000, Employee would receive, in addition to her Base Salary, a Bonus
Payment of $62,000.
. The foregoing notwithstanding, in order for any bonus to be payable with
respect to any fiscal year, the Revenue for such fiscal year must equal or
exceed 105% of the Revenue for the immediately preceding fiscal year.
13
<PAGE>
EXHIBIT 10.34
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made this 31st day of
July 1998, to be effective as of the 1st day of March 1998 (the "Effective
Date") by and between PAMELA A. JOSEPH (hereinafter referred to as "Employee")
and NOVA CORPORATION, a Georgia corporation ("NOVA").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, NOVA is in the business of providing credit and debit card
transaction processing services (and related products and services) to
merchants, financial institutions, independent sales organizations ("ISOs"),and
other similar customers (the "Business") throughout the United States;
WHEREAS, Employee currently serves as Executive Vice President and Chief
Information Officer of NOVA;
WHEREAS, NOVA, or its assigns, will continue to engage in the Business
throughout the United States (the "Territory);
WHEREAS, NOVA desires for Employee to continue to work for NOVA and
Employee desires to continue said employment, all as contemplated herein;
NOW, THEREFORE, for and in consideration of her continued employment by
NOVA pursuant to this Agreement, NOVA Confidential Information and Trade Secrets
(as hereafter defined) furnished to Employee by NOVA in order that she may
continue to perform her duties under this Agreement, the mutual covenants and
agreements herein contained, and other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. EMPLOYMENT OF EMPLOYEE. NOVA hereby employs Employee for a period
beginning as of the Effective Date (the "Employment Commencement Date") and
ending February 29, 2000 (the "Initial Term"), unless Employee's employment by
NOVA is sooner terminated or automatically renewed pursuant to the terms of this
Agreement (Employee's employment by NOVA pursuant to the terms of this Agreement
shall hereinafter be referred to as "Employment").
(a) Employee agrees to such Employment on the terms and conditions
herein set forth and agrees to devote her reasonable best efforts to her
duties under this Agreement and to perform such duties diligently and
efficiently and in accordance with the directions of NOVA's Chief Executive
Officer.
(b) During the term of Employee's Employment, Employee shall be employed
as Executive Vice President and Chief Information Officer of NOVA.
Employee shall be responsible primarily for such duties as are assigned to
her, from time to time, by NOVA's Chief Executive Officer which in any
event shall be such duties as are customary for an officer in those
positions.
(c) Employee shall devote substantially all of her business time,
attention, and energies to NOVA's Business, shall act at all times in the
best interest of NOVA, and shall not during the term of her Employment be
engaged in any other business activity, whether or not such business is
pursued for gain, profit, or other pecuniary advantage, or permit such
personal interests as she may have to interfere with the performance of her
duties hereunder. Notwithstanding the foregoing, Employee may participate
in industry, civic and charitable activities so long as such activities do
not materially interfere with the performance of her duties hereunder.
<PAGE>
2. COMPENSATION. During the term of Employee's Employment and in
accordance with the terms hereof, NOVA shall pay or otherwise provide to
Employee the following compensation:
(a) Employee's annual salary during the term of her Employment shall be
One Hundred Fifty-Six Thousand Two Hundred Fifty Dollars ($156,250)("Base
Salary"), with such increases as may from time to time be deemed
appropriate by NOVA's Chief Executive Officer (subject to approval by the
Compensation Committee of NOVA) (a "Merit Increase"); provided, however,
that so long as this Agreement remains in effect, Employee's Base Salary
shall be reviewed annually by NOVA's Chief Executive Officer.
(b) Employee's Base Salary shall be paid by NOVA in accordance with
NOVA's regular payroll practice.
(c) In addition to the Base Salary, Employee may annually receive bonus
compensation pursuant to the schedule set forth as Exhibit A ("Bonus
---------
Compensation"). Employee may also receive such other bonus or incentive
compensation as may be awarded Employee from time to time by the Board of
Directors of NOVA.
(d) NOVA may withhold from any compensation payable under this Agreement
all federal, state, city or other taxes as shall be required pursuant to
any law or governmental regulation or ruling.
3. BENEFITS. During the term of Employee's employment, and for such time
thereafter as may be required by Section 7 hereof, NOVA shall provide Employee
the following benefits:
(a) Medical Insurance. Employee and her dependents shall be entitled to
-----------------
participate in such medical, dental, vision, prescription drug, wellness,
or other health care or medical coverage plans as may be established,
offered or adopted form time to time by NOVA for the benefit of its
employees and/or executive officers, at no cost to Employee.
(b) Life Insurance. Employee shall be entitled to participate in any
--------------
life insurance plans established, offered, or adopted from time to time by
NOVA for the benefit of its employees and/or executive officers.
(c) Disability Insurance. Employee shall be entitled to participate in
--------------------
any disability insurance plans established, offered, or adopted from time
to time by NOVA for the benefit of its employees and/or executive officers.
(d) Vacations, Holidays. Employee shall be entitled to at least four
-------------------
(4) weeks of paid vacation each year and all holidays observed by NOVA.
(e) Stock Option Plans. Employee shall be eligible for participation
------------------
in any Stock Option Plan adopted by NOVA's Board of Directors.
(f) Other Benefits. In addition to and not in any way in limitation of
--------------
the benefits set forth in this Section 3, Employee shall be eligible to
participate in all additional employee benefits provided by NOVA
(including, without limitation, all tax-qualified retirement plans, non-
qualified retirement and/or deferred compensation plans, incentive plans,
other stock option or purchase plans, and fringe benefits) on the same
basis as such are afforded to other executive officers of NOVA during the
term of this Agreement.
2
<PAGE>
(g) Terms and Provisions of Plans Control. Notwithstanding any
-------------------------------------
provisions of this Section 3 to the contrary, Employee and her dependents
shall only be entitled to participate in plans or arrangements of NOVA to
the extent generally allowed for similarly situated employees and/or
executive officers by the terms and provisions of such plans or
arrangements. NOVA agrees that it shall not take action (during the term
of this Agreement or the Severance Period, as hereinafter defined) to
modify the terms and provisions of any such plan or arrangement so as to
exclude only Employee and/or her dependents either by excluding Employee
and/or her dependents explicitly by name or by modifying provisions
generally applicable to all employees and dependents so that only Employee
and/or her dependents would ever possibly be affected.
4. PERSONNEL POLICIES. Employee shall conduct herself at all times in a
businesslike and professional manner as appropriate for a person in her position
and shall represent NOVA in all respects as complies with good business and
ethical practices. In addition, Employee shall be subject to and abide by the
policies and procedures of NOVA applicable to personnel of NOVA, as adopted from
time to time.
5. REIMBURSEMENT FOR BUSINESS EXPENSES. Employee shall be reimbursed in
accordance with NOVA's regular expense reimbursement policy for all out-of-
pocket business expenses incurred by her in the performance of her duties
hereunder, provided that Employee shall first document and substantiate said
business expenses in the manner generally required by NOVA under its policies
and procedures.
6. TERM AND TERMINATION OF EMPLOYMENT.
(a) This Agreement shall be effective as of the Effective Date.
(b) Employee's Employment shall terminate immediately upon the discharge
of Employee for "Cause." For the purpose of this Agreement, the term
"Cause," when used with respect to termination by NOVA of Employee's
Employment hereunder, shall mean termination as a result of: (i)
Employee's competition with the Business of NOVA either directly or
indirectly, (ii) Employee's willful, intentional, or grossly negligent
failure to perform her duties under this Agreement diligently and in
accordance with the directions of NOVA; (iii) Employee's willful,
intentional, or grossly negligent failure to comply with the decisions or
policies of NOVA; (iv) Employee's failure to discharge Employee's duty of
loyalty to NOVA; or (v) final conviction of Employee of a felony; provided,
however, that in the event NOVA desires to terminate Employee's Employment
pursuant to subsections (i), (ii), (iii), or (iv) of this Section 6 (b),
NOVA shall first give Employee written notice of such intent, detailed and
specific description of the reasons and basis therefor, and thirty (30)
days to remedy or cure such perceived breaches or deficiencies by Employee
(the "Cure Period"). If Employee does not cure the perceived breaches or
deficiencies within the Cure Period, NOVA may discharge Employee
immediately upon written notice to Employee. If NOVA desires to terminate
Employee's Employment pursuant to subsection (v) of this Section 6(b), NOVA
shall first give Employee three (3) days prior written notice of such
intent.
(c) Employee's Employment shall terminate immediately upon the death of
Employee.
(d) Employee's Employment shall terminate immediately upon thirty (30)
days prior written notice to Employee if Employee shall at any time be
incapacitated by reason of physical or mental illness or otherwise
incapable of performing the duties under this Agreement for a continuous
period of one hundred eighty (180) consecutive days; provided, however, to
the extent NOVA could, with reasonable accommodation and without undue
hardship, continue to employ Employee in some other capacity after such one
hundred eighty (180) day period, NOVA shall, to the extent required by the
Americans With Disabilities Act, offer to do so, and, if such offer is
accepted by Employee, Employee shall be compensated accordingly.
3
<PAGE>
(e) Employee may terminate this Agreement, upon thirty (30) days prior
written notice to NOVA (the "Notice Period"), in the event (i) there is a
material diminution in Employee's duties and responsibilities, or such
duties and responsibilities are otherwise diminished such that they no
longer reflect duties and responsibilities customary for an Executive Vice
President and Chief Information Officer, or (ii) Employee is required to
relocate to an office that is more than fifty (50) miles from Employee's
current office located at One Concourse Parkway, Suite 300, Atlanta,
Georgia 30328 (each of (i) and (ii) being referred to as a
"Responsibilities Breach"), and NOVA fails to cure said Responsibilities
Breach, to the reasonable satisfaction of Employee, within the Notice
Period.
(f) Employee may, at her sole option and her sole discretion, give
notice of her intent to terminate her Employment hereunder at any time
within ninety (90) days after a "Change in Control" (as defined below) has
occurred, and may thereafter terminate her employment hereunder pursuant to
the terms of this Section 6(f). Employee may exercise this right by giving
NOVA one hundred eighty (180) days written notice of such intent at any
time within such ninety (90) day period, and Employee's Employment
hereunder shall terminate as of the expiration of such one hundred eighty
(180) day period. For the purposes of this Agreement, "Change in Control"
means (i) the acquisition, directly or indirectly, by any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended), within any 12 month period, of securities of the
corporation representing an aggregate of twenty-five percent (25%) or more
of the combined voting power of NOVA's outstanding securities (an
"Acquisition"), and during the period of 18 months following such
Acquisition, individuals who at the beginning of such period constitute
NOVA's board of directors, cease for any reason to constitute at least a
majority thereof, unless the election of each new director was approved in
advance by a vote of at least a majority of the directors then still in
office who were directors at the beginning of the period, or (ii) the sale
of all or substantially all of NOVA's assets.
(g) This Agreement shall automatically renew for successive two (2) year
terms (each a "Renewal Term") unless either party hereto gives the other
party hereto written notice of its or her intent not to renew this
Agreement no later than one hundred eighty (180) days prior to the date the
Initial Term, or any Renewal Term, is scheduled to expire.
(h) Other than as specifically provided in this Section 6, and then only
in strict compliance with the terms hereof, NOVA may not terminate this
Agreement and/or Employee's Employment.
7. THE SEVERANCE PERIOD.
(a) Upon termination of Employee's Employment, for whatever reason
(other than termination for "Cause" pursuant to Section 6(b), termination
because this Agreement has not been automatically renewed by Employee after
the Initial Term or any Renewal Term, or termination because Employee
"quits" or otherwise voluntarily terminates her Employment other than as
specifically contemplated herein (each, a "Termination Exclusion"), but
including termination because this Agreement has not been automatically
renewed by NOVA) (the effective date of such termination being referred to
as the "Termination Date"), in addition to any amounts payable to Employee
hereunder (including but not limited to accrued but unpaid Base Salary or
Bonus Compensation), and any other benefits required to be provided to
Employee and her dependents under contract and applicable law:
(i) NOVA shall pay Employee an aggregate amount in cash equal to two
(2) times her then Base Salary (the "Severance Payment"). The Severance
Payment shall be paid by NOVA to Employee in twenty-four (24) equal
monthly payments, the first of which shall be made on the first day of
the calendar month following the calendar month in which the Termination
4
<PAGE>
Date occurs; provided, however, that if Employee terminates her
Employment after a Change in Control of NOVA pursuant to the terms of
Section 6(f) hereof, NOVA shall pay Employee the Severance Payment in
one lump sum within fifteen (15) days of the Termination Date;
(ii) Not later than ninety (90) days after the end of the fiscal year
during which the Termination Date occurs, NOVA shall pay Employee a pro
rata (relative to the Termination Date) portion of the Bonus
Compensation Employee would have been eligible for had she remained in
the employ of the Company until the end of such fiscal year;
(iii) Notwithstanding any provision to the contrary in any other
agreement or document (including but not limited to NOVA's stock option
plans), all stock options that, as of the Effective Date, have been
granted to Employee shall become vested and exercisable immediately upon
notice of such termination (whether given by NOVA or by Employee, and
including notice by NOVA pursuant to Section 6(g) that it does not
intend to renew this Agreement, but excluding notice given by Employee
in connection with a Termination Exclusion) (collectively, the "Vested
Options"), and until the later of the Termination Date or such later
date as provided under the applicable stock option plan or stock option
agreement, Employee shall have the continuing right to exercise any or
all of the Vested Options;
(iv) To the extent that Employee and/or any of her dependents is
eligible to, and timely elects to, receive continuation coverage under
any group health plan providing medical, dental, vision, prescription
drug, wellness or other health care or medical coverage which is subject
to the provisions of part 6 of Title I of ERISA ("COBRA"), NOVA shall
timely pay any premiums required for such coverage for the duration of
the two (2) year period following the Termination Date (the "Severance
Period"), or, at the election of NOVA, NOVA shall pay Employee a lump
sum as reimbursement for such COBRA expenses. This payment of premiums
by NOVA is not intended to alter in any way the provisions of any group
health plan of NOVA, and all time limits, effects of subsequent coverage
and all other relevant provisions of any group health plan of NOVA, and
all time limits, effects of subsequent coverage and all other relevant
provisions of any such plan remain unchanged and shall control
Employee's (and her dependents') entitlement to coverage or benefits
under such plan;
(v) For the duration of the Severance Period (or until Employee
becomes an employee of another company providing Employee and her
dependents with medical, life and disability insurance), NOVA shall
provide to Employee and her dependents the coverage for the benefits
described in Sections 3(b) and (c); provided, however, such coverage
shall not be provided to the extent that such coverage is generally
provided through an insurance contract with a licensed insurance company
and such insurance company will not agree to insure for such coverage;
and
(vi) During the Severance Period, Employee shall comply with the non-
disclosure obligations and covenants not to solicit or compete set forth
in Sections 9 and 10 below.
(b) In the event Employee's Employment is terminated as a result of one
of the Termination Exclusions identified in Section 7(a), NOVA, at its sole
option and its sole discretion and at any time within fifteen (15) days of
the Termination Date, may cause Employee to be obligated to comply with the
non-disclosure obligations and covenants not to solicit or compete set
forth in Sections 9 and 10 below for a period of one (1) or two (2) years
following the Termination Date, as set forth below:
(i) By giving notice to Employee at any time within fifteen (15) days
of the Termination Date of its intent to exercise the "One Year Option"
herein described, NOVA may cause Employee to be obligated to comply with
5
<PAGE>
the non-disclosure obligations and covenants not to solicit or compete
set forth in Sections 9 and 10 below for a period of one (1) year
following the Termination Date; provided, however, that NOVA shall pay
Employee an aggregate amount in cash equal to Employee's then current
Base Salary multiplied by one (1) (the "One Year Payment"). The One
Year Payment shall be paid by NOVA to Employee in twelve (12) equal
monthly payments, the first of which shall be made on the first day of
the calendar month following the calendar month in which the Termination
Date occurs. In the event NOVA exercises the One Year Option, the one
(1) year period following the Termination Date shall be deemed the
"Exclusion Period";
(ii) By giving notice to Employee any time within fifteen (15) days of
the Termination Date of its intent to exercise the "Two Year Option"
herein described, NOVA may cause Employee to be obligated to comply with
the non-disclosure obligations and covenants not to solicit or compete
set forth in Sections 9 and 10 below for a period of two (2) years
following the Termination Date; provided, however, that NOVA shall pay
Employee an aggregate amount in cash equal to Employee's then current
Base Salary multiplied by two (2) (the "Two Year Payment"). The Two
Year Payment shall be paid by NOVA to Employee in twenty-four (24) equal
monthly payments, the first of which shall be made on the first day of
the calendar month following the calendar month in which the Termination
Date occurs. In the event NOVA exercises the Two Year Option, the two
(2) year period following the Termination Date shall be deemed the
"Exclusion Period".
(c) In the event of the death of Employee, all benefits and compensation
hereunder shall, unless otherwise specified by Employee, be payable to, or
exercisable by, Employee's estate.
8. PRODUCTS, NOTES, RECORDS AND SOFTWARE. Employee acknowledges and
agrees that all memoranda, notes, records and other documents and computer
software created, developed, compiled, or used by Employee or made available to
her during the term of her Employment concerning or relative to the Business of
NOVA, including, without limitation, all customer data, billing information,
service data, and other technical material of NOVA is and shall be NOVA's
property. Employee agrees to deliver without demand all such materials to NOVA
within three (3) days after the termination of Employee's Employment. Employee
further agrees not to use materials for any reason after said termination.
9. NONDISCLOSURE.
(a) NOVA Confidential Information. Employee acknowledges and agrees
------------------------------
that because of her Employment, she will have access to proprietary
information of NOVA concerning or relative to the Business of NOVA
(collectively, "NOVA Confidential Information") which includes, without
limitation, technical material of NOVA, sales and marketing information,
customer account records, billing information, training and operations
information, materials and memoranda, personnel records, pricing and
financial information relating to the business, accounts, customers,
prospective customers, employees and affairs of NOVA, and any information
marked "Confidential" by NOVA. Employee acknowledges and agrees that NOVA
Confidential Information is and shall be NOVA's property. Employee agrees
that during the term of her Employment, Employee shall keep NOVA
Confidential Information confidential, and Employee shall not use NOVA
Confidential Information for any reason other than on behalf of NOVA
pursuant to, and in strict compliance with, the terms of this Agreement.
Employment further agrees that during the Severance Period or the Exclusion
Period, as applicable (as defined above), Employee shall continue to keep
NOVA Confidential Information confidential, and Employee shall not use NOVA
Confidential Information for any reason or in any manner.
(b) Notwithstanding the foregoing, Employee shall not be subject to the
restrictions set forth in subsection (a) of this Section 9 with respect to
information which:
6
<PAGE>
(i) becomes generally available to the public other than as a result
of disclosure by Employee or the breach of Employee's obligations under
this Agreement;
(ii) becomes available to Employee from a source which is unrelated to
her Employment or the exercise of her duties under this Agreement,
provided that such source lawfully obtained such information and is not
bound by a confidentiality agreement with NOVA; or
(iii) is required by law to be disclosed.
(c) Trade Secrets. Employee acknowledges and agrees that because of her
-------------
Employment, she will have access to "trade secrets" (as defined in the
Uniform Trade Secrets Act, O.C.G.A. (S) 10-1-760, et seq. (the "Uniform
-- ----
Trade Secrets Act") of NOVA ("Trade Secrets"). Nothing in this Agreement is
intended to alter the applicable law and remedies with respect to
information meeting the definition of "trade secrets" under the Uniform
Trade Secrets Act, which law and remedies shall be in addition to the
obligations and rights of the parties hereunder.
10. COVENANTS NOT TO SOLICIT OR COMPETE.
(a) Employee acknowledges and agrees that, because of her Employment,
she does and will continue to have access to confidential or proprietary
information concerning merchants, associate banks and ISOs of NOVA and
establish relationships with such merchants, associate banks and ISOs as
well as with the vendors, consultants, and suppliers used to service such
merchants, associate banks and ISOs within the Territory. In consideration
of the benefits and compensation Employee is receiving hereunder, and other
valuable consideration, Employee agrees that during the term of her
Employment and continuing throughout the Severance Period or the Exclusion
Period, as applicable (provided NOVA complies with its obligations set
forth in Section 7 hereof), Employee shall not, directly or indirectly,
either individually, in partnership, jointly, or in conjunction with, or on
behalf of, any person, firm, partnership, corporation, or unincorporated
association or entity of any kind:
(i) (aa) compete with NOVA in providing credit card and debit card
transaction processing services within the Territory or (bb) otherwise,
obtain any interest in, lend money to, guarantee the debts or
obligations of, or perform services in either a supervisory or
managerial capacity or as an advisor, consultant or independent
contractor for, or otherwise participate in the management or control
of, any person, firm, partnership, corporation, or unincorporated
association of any kind which is providing credit card and debit card
transaction processing services within the Territory in competition with
NOVA;
(ii) solicit or contact, for the purpose of providing products or
services the same as or substantially similar to those provided by NOVA
in connection with the Business, any person or entity that during the
term of Employee's Employment was a merchant, associate bank, ISO or
customer (including any actively-sought prospective merchant, associate
bank, ISO or customer) of NOVA and with whom Employee had material
contact or about whom Employee learned material information during her
Employment;
(iii) persuade or attempt to persuade any merchant, associate bank,
ISO, customer, or supplier of NOVA to terminate or modify such
merchant's, associate bank's, ISO's, customer's, or supplier's
relationship with NOVA if Employee had material contact with or learned
material information about such merchant, associate bank, ISO, customer
or supplier during her Employment; or
7
<PAGE>
(iv) persuade or attempt to persuade any person who (aa) was employed
by NOVA as of the date of the termination of Employee's Employment and
(bb) is in a sales or management position with NOVA at the time of such
contact, to terminate or modify her employment relationship, whether or
not pursuant to a written agreement, with NOVA.
11. NEW DEVELOPMENTS. Any discovery, invention, process or improvement
made or discovered by Employee during the term of her Employment in connection
with or in any way affecting or relating to the Business of NOVA (as then
carried on or under active consideration) shall forthwith be disclosed to NOVA
and shall belong to and be the absolute property of NOVA; provided, however,
that this provision does not apply to an invention for which no equipment,
supplies, facility, or trade secret information of NOVA was used and which was
developed entirely on Employee's own time, unless (a) the invention relates (i)
directly to the Business of NOVA or (ii) to NOVA's actual or demonstrably
anticipated research or development; or (b) the invention results from any work
performed by Employee for NOVA.
12. REMEDY FOR BREACH. Employee acknowledges and agrees that her breach
of any of the covenants contained in Sections 8, 9 and 10 of this Agreement
would cause irreparable injury to NOVA and that remedies at law of NOVA for any
actual or threatened breach by Employee of such covenants would be inadequate
and that NOVA shall be entitled to specific performance of the covenants in such
sections or injunctive relief against activities in violation of such sections,
or both, by temporary or permanent injunction or other appropriate judicial
remedy, writ or order, without the necessity of proving actual damages. This
provision with respect to injunctive relief shall not diminish the right of NOVA
to claim and recover damages against Employee for any breach of this Agreement
in addition to injunctive relief. Employee acknowledges and agrees that she
will be responsible for all legal expenses, including attorney's fees, which
NOVA incurs in pursuing remedies, whether legal or equitable, for any actual or
threatened breach of this Agreement by Employee. Employee acknowledges and
agrees that, subject to NOVA's compliance with the provisions of Section 7
hereof, the covenants contained in Sections 8, 9 and 10 of this Agreement shall
be construed as agreements independent of any other provision of this or any
other contract between the parties hereto, and that the existence of any claim
or cause of action by Employee against NOVA, whether predicated upon this or any
other contract, shall not constitute a defense to the enforcement by NOVA of
said covenants.
13. REASONABLENESS. Employee has carefully considered the nature and
extent of the restrictions upon her and the rights and remedies conferred on
NOVA under this Agreement, and Employee hereby acknowledges and agrees that:
(a) the restrictions and covenants contained herein, and the rights and
remedies conferred upon NOVA, are necessary to protect the goodwill and
other value of the Business of NOVA;
(b) the restrictions placed upon Employee hereunder are narrowly drawn,
are fair and reasonable in time and territory, will not prevent her from
earning a livelihood, and place no greater restraint upon Employee than is
reasonably necessary to secure the Business and goodwill of NOVA;
(c) NOVA is relying upon the restrictions and covenants contained herein
in continuing to make available to Employee information concerning the
Business of NOVA; and
(d) Employee's Employment places her in a position of confidence and
trust with NOVA and its employees, merchants, associate banks, ISOs,
customers, vendors and suppliers.
8
<PAGE>
14. INVALIDITY OF ANY PROVISION. It is the intention of the parties
hereto that the provisions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies of each state and
jurisdiction in which such enforcement is sought, but that the unenforceability
(or the modification to conform with such laws or public policies) of any
provision hereof shall not render unenforceable or impair the remainder of this
Agreement which shall be deemed amended to delete or modify, as necessary, the
invalid or unenforceable provisions. The parties further agree to alter the
balance of this Agreement in order to render the same valid and enforceable.
The terms of the non-competition provisions of this Agreement shall be deemed
modified to the extent necessary to be enforceable; it shall be modified to
encompass the longest term which is enforceable and, if the scope of the
geographic area of non-competition is too great to be enforceable, it shall be
modified to encompass the greatest area that is enforceable. The parties
further agree to submit any issues regarding such modification to a court of
competent jurisdiction if they are unable to agree and further agree that if
said court declines to so amend or modify this Agreement, the parties will
submit the issue of amendment or modification of the non-competition covenants
in this Agreement to binding arbitration in accordance with the commercial
arbitration rules then in effect of the American Arbitration Association. Any
such arbitration hearing will be held in Atlanta, Georgia, and this Agreement
shall be construed and enforced in accordance with the laws of the State of
Georgia, including this arbitration provision.
15. APPLICABLE LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Georgia.
16. WAIVER OF BREACH. The waiver by NOVA of a breach of any provision of
this Agreement by Employee shall not operate or be construed as a waiver of any
subsequent breach by Employee.
17. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
NOVA, its respective subsidiaries and affiliates, and their respective
successors and assigns. This Agreement is not assignable by Employee but shall
be freely assignable by NOVA.
18. NOTICES. All notices, demands and other communications hereunder
shall be in writing and shall be delivered in person or deposited in the United
States mail, certified or registered, with return receipt requested, as follows:
(i) If to Employee, to:
Pamela A. Joseph
775 Clubside Drive
Roswell, GA 30076
Telephone No.: (770) 552-9721
(ii) If to NOVA, to:
NOVA Corporation
One Concourse Parkway, Suite 300
Atlanta, Georgia 30328
Attention: James M. Bahin
Chief Financial Officer
Telephone No.: (770) 396-1456
9
<PAGE>
19. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties with respect to the subject matter hereof. It may not be changed orally
but only by an agreement in writing signed by the party against whom enforcement
of any waiver, change, modification, extension, or discharge is sought.
20. INDEMNIFICATION. At all times during and after Employee's Employment
and the effectiveness of this Agreement, NOVA shall indemnify Employee (as a
director, officer, employee and otherwise) to the fullest extent permitted by
law and shall at all times maintain appropriate provisions in its Articles of
Incorporation and Bylaws which mandate that NOVA provide such indemnification.
21. SURVIVAL. The provisions of Sections 7, 8, 9, 10, 11, 12, 14 and 20
shall survive termination of Employee's Employment and termination of this
Agreement.
(SIGNATURES BEGIN ON FOLLOWING PAGE)
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the date first above shown.
"EMPLOYEE":
BY: /s/ Pamela A. Joseph
------------------------------------
"NOVA":
NOVA Corporation
By: /s/ Edward Grzedzinski
------------------------------------
Edward Grzedzinski
Chairman, CEO and President
11
<PAGE>
EXHIBIT A
ANNUAL INCENTIVE COMPENSATION SCHEDULE
. Payment of annual incentive (the "Bonus Payment") to be based upon relative
achievement of Targeted Net Income (as defined).
. Net Income is Net Income determined in accordance with GAAP as determined
from the annual audited Financial Statements, as adjusted to exclude non-
operating gains and losses.
. Targeted Net Income will be established annually by the Board of Directors.
. Payment will be calculated y determining the percentage relationship between
Net Income and Targeted Net Income (such percentage relationship being
referred to as the "Actual/Targeted Ratio"). For each full percent by which
the Actual/Targeted Ratio equals or exceeds 80%, Employee will receive, in
addition to her then current Base Salary, the following percentage (the
"Bonus Percentage") of her Base Salary as the Bonus Payment:
<TABLE>
<CAPTION>
Actual Net Income/
Targeted Net Income Bonus Percentage Maximum % of Base Salary
(the "Actual/Targeted Ratio") (% of Base Salary) Payable as the Bonus Payment
- ------------------------------- ------------------ -----------------------------
<S> <C> <C>
80% - 84% 1% 5%
85% - 89% 2% 15%
90% - 94% 3% 30%
95% - 99% 4% 50%
* *
</TABLE>
* If the Actual/Targeted Ratio is equal to or greater than 101%, for each full
percentage point by which the Actual/Targeted Ratio exceeds 100% (the "Excess"),
the Bonus Percentage (pursuant to which Employee's Bonus Payment shall be
calculated) shall be equal to the aggregate of (i) 50%, and (ii) the Excess;
provided, however, that the Bonus Percentage may never exceed 100%.
For Example, if the Actual/Targeted Ratio is 112%, the Actual/Targeted
Ratio exceeds 100% by 12%, and 12% is the "Excess." Therefore, the Bonus
Percentage would be equal to the aggregate of (i) 50%, and (ii) 12%;
accordingly, the Bonus Percentage would be 62% and Employee's Bonus Payment
would be 62% of her then current Base Salary. If Employee's Base Salary was
$100,000, Employee would receive, in addition to her Base Salary, a Bonus
Payment of $62,000.
. The foregoing notwithstanding, in order for any bonus to be payable with
respect to any fiscal year, the Revenue for such fiscal year must equal or
exceed 105% of the Revenue for the immediately preceding fiscal year.
12
<PAGE>
EXHIBIT 10.35
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made this 31st day of
July 1998, to be effective as of the 1st day of March 1998 (the "Effective
Date") by and between JOHN M. PERRY (hereinafter referred to as "Employee") and
NOVA CORPORATION, a Georgia corporation ("NOVA").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, NOVA is in the business of providing credit and debit card
transaction processing services (and related products and services) to
merchants, financial institutions, independent sales organizations ("ISOs"), and
other similar customers (the "Business") throughout the United States;
WHEREAS, Employee currently serves as Executive Vice President, Sales and
Marketing of NOVA;
WHEREAS, NOVA, or its assigns, will continue to engage in the Business
throughout the United States (the "Territory");
WHEREAS, NOVA desires for Employee to continue to work for NOVA and
Employee desires to continue said employment, all as contemplated herein;
NOW, THEREFORE, for and in consideration of his continued employment by
NOVA pursuant to this Agreement, NOVA Confidential Information and Trade Secrets
(as hereafter defined) furnished to Employee by NOVA in order that he may
continue to perform his duties under this Agreement, the mutual covenants and
agreements herein contained, and other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. EMPLOYMENT OF EMPLOYEE. NOVA hereby employs Employee for a period
beginning as of the Effective Date (the "Employment Commencement Date") and
ending February 29, 2000 (the "Initial Term"), unless Employee's employment by
NOVA is sooner terminated or automatically renewed pursuant to the terms of this
Agreement (Employee's employment by NOVA pursuant to the terms of this Agreement
shall hereinafter be referred to as "Employment").
(a) Employee agrees to such Employment on the terms and conditions
herein set forth and agrees to devote his reasonable best efforts to his
duties under this Agreement and to perform such duties diligently and
efficiently and in accordance with the directions of NOVA's Chief Executive
Officer.
(b) During the term of Employee's Employment, Employee shall be employed
as Executive Vice President, Sales and Marketing of NOVA. Employee shall
be responsible primarily for such duties as are assigned to him, from time
to time, by NOVA's Chief Executive Officer which in any event shall be such
duties as are customary for an officer in those positions.
(c) Employee shall devote substantially all of his business time,
attention, and energies to NOVA's Business, shall act at all times in the
best interest of NOVA, and shall not during the term of his Employment be
engaged in any other business activity, whether or not such business is
pursued for gain, profit, or other pecuniary advantage, or permit such
personal interests as he may have to interfere with the performance of his
duties hereunder. Notwithstanding the foregoing, Employee may participate
in industry, civic and charitable activities so long as such activities do
not materially interfere with the performance of his duties hereunder.
<PAGE>
2. COMPENSATION. During the term of Employee's Employment and in
accordance with the terms hereof, NOVA shall pay or otherwise provide to
Employee the following compensation:
(a) Employee's annual salary during the term of his Employment shall be
Two Hundred Thirty Thousand Dollars ($230,000)("Base Salary"), with such
increases as may from time to time be deemed appropriate by NOVA's Chief
Executive Officer (subject to approval by the Compensation Committee of
NOVA) (a "Merit Increase"); provided, however, that so long as this
Agreement remains in effect, Employee's Base Salary shall be reviewed
annually by NOVA's Chief Executive Officer.
(b) Employee's Base Salary shall be paid by NOVA in accordance with
NOVA's regular payroll practice.
(c) In addition to the Base Salary, Employee may annually receive bonus
compensation pursuant to the schedule set forth as Exhibit A ("Bonus
---------
Compensation"). Employee may also receive such other bonus or incentive
compensation as may be awarded Employee from time to time by the Board of
Directors of NOVA.
(d) NOVA may withhold from any compensation payable under this Agreement
all federal, state, city or other taxes as shall be required pursuant to
any law or governmental regulation or ruling.
3. BENEFITS. During the term of Employee's employment, and for such time
thereafter as may be required by Section 7 hereof, NOVA shall provide Employee
the following benefits:
(a) Medical Insurance. Employee and his dependents shall be entitled to
-----------------
participate in such medical, dental, vision, prescription drug, wellness,
or other health care or medical coverage plans as may be established,
offered or adopted form time to time by NOVA for the benefit of its
employees and/or executive officers, at no cost to Employee.
(b) Life Insurance. Employee shall be entitled to participate in any
--------------
life insurance plans established, offered, or adopted from time to time by
NOVA for the benefit of its employees and/or executive officers.
(c) Disability Insurance. Employee shall be entitled to participate in
--------------------
any disability insurance plans established, offered, or adopted from time
to time by NOVA for the benefit of its employees and/or executive officers.
(d) Vacations, Holidays. Employee shall be entitled to at least four
-------------------
(4) weeks of paid vacation each year and all holidays observed by NOVA.
(e) Stock Option Plans. Employee shall be eligible for participation
------------------
in any Stock Option Plan adopted by NOVA's Board of Directors.
(f) Other Benefits. In addition to and not in any way in limitation of
--------------
the benefits set forth in this Section 3, Employee shall be eligible to
participate in all additional employee benefits provided by NOVA
(including, without limitation, all tax-qualified retirement plans, non-
qualified retirement and/or deferred compensation plans, incentive plans,
other stock option or purchase plans, and fringe benefits) on the same
basis as such are afforded to other executive officers of NOVA during the
term of this Agreement.
2
<PAGE>
(g) Terms and Provisions of Plans Control. Notwithstanding any
-------------------------------------
provisions of this Section 3 to the contrary, Employee and his dependents
shall only be entitled to participate in plans or arrangements of NOVA to
the extent generally allowed for similarly situated employees and/or
executive officers by the terms and provisions of such plans or
arrangements. NOVA agrees that it shall not take action (during the term
of this Agreement or the Severance Period) to modify the terms and
provisions of any such plan or arrangement so as to exclude only Employee
and/or his dependents either by excluding Employee and/or his dependents
explicitly by name or by modifying provisions generally applicable to all
employees and dependents so that only Employee and/or his dependents would
ever possibly be effected.
4. PERSONNEL POLICIES. Employee shall conduct himself at all times in a
businesslike and professional manner as appropriate for a person in his position
and shall represent NOVA in all respects as complies with good business and
ethical practices. In addition, Employee shall be subject to and abide by the
policies and procedures of NOVA applicable to personnel of NOVA, as adopted from
time to time.
5. REIMBURSEMENT FOR BUSINESS EXPENSES. Employee shall be reimbursed in
accordance with NOVA's regular expense reimbursement policy for all out-of-
pocket business expenses incurred by him in the performance of his duties
hereunder, provided that Employee shall first document and substantiate said
business expenses in the manner generally required by NOVA under its policies
and procedures.
6. TERM AND TERMINATION OF EMPLOYMENT.
(a) This Agreement shall be effective as of the Effective Date.
(b) Employee's Employment shall terminate immediately upon the discharge
of Employee for "Cause." For the purpose of this Agreement, the term
"Cause," when used with respect to termination by NOVA of Employee's
Employment hereunder, shall mean termination as a result of: (i)
Employee's competition with the Business of NOVA either directly or
indirectly, (ii) Employee's willful, intentional, or grossly negligent
failure to perform his duties under this Agreement diligently and in
accordance wit the directions of NOVA; (iii) Employee's willful,
intentional, or grossly negligent failure to comply with the decisions or
policies of NOVA; (iv) Employee's failure to discharge Employee's duty of
loyalty to NOVA; or (v) final conviction of Employee of a felony; provided,
however, that in the event NOVA desires to terminate Employee's Employment
pursuant to subsections (i), (ii), (iii), or (iv) of this Section 6 (b),
NOVA shall first give Employee written notice of such intent, detailed and
specific description of the reasons and basis therefor, and thirty (30)
days to remedy or cure such perceived breaches or deficiencies by Employee
(the "Cure Period"). If Employee does not cure the perceived breaches or
deficiencies within the Cure Period, NOVA may discharge Employee
immediately upon written notice to Employee. If NOVA desires to terminate
Employee's Employment pursuant to subsection (v) of this Section 6(b), NOVA
shall first give Employee three (3) days prior written notice of such
intent.
(c) Employee's Employment shall terminate immediately upon the death of
Employee.
(d) Employee's Employment shall terminate immediately upon thirty (30)
days prior written notice to Employee if Employee shall at any time be
incapacitated by reason of physical or mental illness or otherwise
incapable of performing the duties under this Agreement for a continuous
period of one hundred eighty (180) consecutive days; provided, however, to
the extent NOVA could, with reasonable accommodation and without undue
hardship, continue to employ Employee in some other capacity after such one
hundred eighty (180) day period, NOVA shall, to the extent required by the
3
<PAGE>
Americans With Disabilities Act, offer to do so, and, if such offer is
accepted by Employee, Employee shall be compensated accordingly.
(e) Employee may terminate this Agreement, upon thirty (30) days prior
written notice to NOVA (the "Notice Period"), in the event (i) there is a
material diminution in Employee's duties and responsibilities, or such
duties and responsibilities are otherwise diminished such that they no
longer reflect duties and responsibilities customary for an Executive Vice
President, Sales and Marketing, or (ii) Employee is required to relocate to
an office that is more than fifty (50) miles from Employee's current office
located at One Concourse Parkway, Suite 300, Atlanta, Georgia 30328 (each
of (i) and (ii) being referred to as a "Responsibilities Breach"), and NOVA
fails to cure said Responsibilities Breach, to the reasonable satisfaction
of Employee, within the Notice Period.
(f) Employee may, at his sole option and his sole discretion, give
notice of his intent to terminate his Employment hereunder at any time
within ninety (90) days after a "Change in Control" (as defined below) has
occurred, and may thereafter terminate his employment hereunder pursuant to
the terms of this Section 6(f). Employee may exercise this right by giving
NOVA one hundred eighty (180) days written notice of such intent at any
time within such ninety (90) day period, and Employee's Employment
hereunder shall terminate as of the expiration of such one hundred eighty
(180) day period. For the purposes of this Agreement, "Change in Control"
means (i) the acquisition, directly or indirectly, by any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended), within any 12 month period, of securities of the
corporation representing an aggregate of twenty-five percent (25%) or more
of the combined voting power of NOVA's outstanding securities (an
"Acquisition"), and during the period of 18 months following such
Acquisition, individuals who at the beginning of such period constitute
NOVA's board of directors, cease for any reason to constitute at least a
majority thereof, unless the election of each new director was approved in
advance by a vote of at least a majority of the directors then still in
office who were directors at the beginning of the period, or (ii) the sale
of all or substantially all of NOVA's assets.
(g) This Agreement shall automatically renew for successive two (2) year
terms (each a "Renewal Term") unless either party hereto gives the other
party hereto written notice of its or his intent not to renew this
agreement no later than one hundred eighty (180) days prior to the date the
Initial Term, or any Renewal Term, is scheduled to expire.
(h) Other than as specifically provided in this Section 6, and then only
in strict compliance with the terms hereof, NOVA may not terminate this
Agreement and/or Employee's Employment.
7. THE SEVERANCE PERIOD.
(a) Upon termination of Employee's Employment, for whatever reason
(other than termination for "Cause" pursuant to Section 6(b), termination
because this Agreement has not been automatically renewed by Employee after
the Initial Term or any Renewal Term, or termination because Employee
"quits" or otherwise voluntarily terminates his Employment other than as
specifically contemplated herein) (each, a "Termination Exclusion"), but
including termination because this Agreement has not been automatically
renewed by NOVA (the effective date of such termination being referred to
as the "Termination Date"), in addition to any amounts payable to Employee
hereunder (including but not limited to accrued but unpaid Base Salary or
Bonus Compensation), and any other benefits required to be provided to
Employee and his dependents under contract and applicable law:
4
<PAGE>
(i) NOVA shall pay Employee an aggregate amount in cash equal to two
(2) times his then Base Salary (the "Severance Payment"). The
Severance Payment shall be paid by NOVA to Employee in twenty-four
(24) equal monthly payments, the first of which shall be made on
the first day of the calendar month following the calendar month
in which the Termination Date occurs; provided, however, that If
Employee terminates his Employment after a Change in Control of
NOVA pursuant to the terms of Section 6(f) hereof, NOVA shall pay
Employee the Severance Payment in one lump sum within fifteen (15)
days of the Termination Date;
(ii) Not later than ninety (90) days after the end of the fiscal year
during which the Termination Date occurs, NOVA shall pay employee
a pro rata (relative to the Termination Date) portion of the Bonus
Compensation employee would have been eligible for had he remained
in the employ of the Company until the end of such fiscal year;
(iii) Notwithstanding any provision to the contrary in any other
agreement or document (including but not limited to NOVA's stock
option plans), all stock options that, as of the Effective Date,
have been granted to Employee shall become vested and exercisable
immediately upon notice of such termination (whether given by NOVA
or by Employee, and including notice by NOVA pursuant to Section
6(g) that it does not intend to renew this Agreement, but
excluding notice given by Employee in connection with a
Termination Exclusion) (collectively, the "Vested Options"), and
until the later of the Termination Date or such later date as
provided under the applicable stock option plan or stock option
agreement, Employee shall have the continuing right to exercise
any or all of the Vested Options;
(iv) To the extent that Employee and/or any of his dependents is
eligible to, and timely elects to, receive continuation coverage
under any group health plan providing medical, dental, vision,
prescription drug, wellness or other health care or medical
coverage which is subject to the provisions of part 6 of Title I
of ERISA ("COBRA"), NOVA shall timely pay any premiums required
for such coverage for the duration of the two (2) year period
following the Termination Date (the "Severance Period"), or, at
the election of NOVA, NOVA shall pay Employee a lump sum as
reimbursement for such COBRA expenses. This payment of premiums by
NOVA is not intended to alter in any way the provisions of any
group health plan of NOVA, and all time limits, effects of
subsequent coverage and all other relevant provisions of any group
health plan of NOVA, and all time limits, effects of subsequent
coverage and all other relevant provisions of any such plan remain
unchanged and shall control Employee's (and his dependent's)
entitlement to coverage or benefits under such plan;
(v) For the duration of the Severance Period (or until Employee
becomes an employee of another company providing Employee and his
dependents with medical, life and disability insurance), NOVA
shall provide to Employee and his dependents the coverage for the
benefits described in Sections 3(b) and (c); provided, however,
such coverage shall not be provided to the extent that such
coverage is generally provided through an insurance contract with
a licensed insurance company and such insurance company will not
agree to insure for such coverage; and
5
<PAGE>
(vi) During the Severance Period, Employee shall comply with the non-
disclosure obligations and covenants not to solicit or compete
set forth in Sections 9 and 10 below.
(b) In the event Employee's Employment is terminated as a result of one
of the Termination Exclusions identified in Section 7(a), NOVA, at its sole
option and its sole discretion and at any time within fifteen (15) days of
the Termination Date, may cause Employee to be obligated to comply with the
non-disclosure obligations and covenants not to solicit or compete set
forth in Sections 9 and 10 below for a period of one (1) or two (2) years
following the Termination Date, as set forth below:
(i) By giving notice to Employee at any time within fifteen (15) days
of the Termination Date of its intent to exercise the "One Year
Option" herein described, NOVA may cause Employee to be obligated
to comply with the non-disclosure obligations and covenants not to
solicit or compete set forth in Sections 9 and 10 below for a
period of one (1) year following the Termination Date; provided,
however, that NOVA shall pay Employee an aggregate amount in cash
equal to Employee's then current Base Salary multiplied by one (1)
(the "One Year Payment"). The One Year Payment shall be paid by
NOVA to Employee in twelve (12) equal monthly payments, the first
of which shall be made on the first day of the calendar month
following the calendar month in which the Termite Date occurs. In
the event NOVA exercises the One Year Option, the one (1) year
period following the Termination Date shall be deemed the
"Exclusion Period";
(ii) By giving notice to Employee any time within fifteen (15) days of
the Termination Date of its intent to exercise the "Two Year
Option" herein described, NOVA may cause Employee to be obligated
to comply with the non-disclosure obligations and covenants not to
solicit or compete set forth in Sections 9 and 10 below for a
period of two (2) years following the Termination Date; provided,
however, that NOVA shall pay Employee an aggregate amount in cash
equal to Employee's then current Base Salary multiplied by two (2)
(the "Two Year Payment"). The Two Year Payment shall be paid by
NOVA to Employee in twenty-four (24) equal monthly payments, the
first of which shall be made on the first day of the calendar
month following the calendar month in which the Termination Date
occurs. In the event NOVA exercises the Two Year Option, the two
year period following the Termination Date shall be deemed the
"Exclusion Period".
(c) In the event of the death of Employee, all benefits and compensation
hereunder shall, unless otherwise specified by Employee, be payable to,
exercisable by, Employee's estate.
8. PRODUCTS, NOTES, RECORDS AND SOFTWARE. Employee acknowledges and
agrees that all memoranda, notes, records and other documents and computer
software created, developed, compiled, or used by Employee or made available to
him during the term of his Employment concerning or relative to the Business of
NOVA, including, without limitation, all customer data, billing information,
service data, and other technical material of NOVA is and shall be NOVA's
property. Employee agrees to deliver without demand all such materials to NOVA
within three (3) days after the termination of Employee's Employment. Employee
further agrees not to use materials for any reason after said termination.
6
<PAGE>
9. NONDISCLOSURE.
(a) NOVA Confidential Information. Employee acknowledges and agrees
------------------------------
that because of his Employment, he will have access to proprietary
information of NOVA concerning or relative to the Business of NOVA
(collectively, "NOVA Confidential Information") which includes, without
limitation, technical material of NOVA, sales and marketing information,
customer account records, billing information, training and operations
information, materials and memoranda, personnel records, pricing and
financial information relating to the business, accounts, customers,
prospective customers, employees and affairs of NOVA, and any information
marked "Confidential" by NOVA. Employee acknowledges and agrees that NOVA
Confidential Information is and shall be NOVA's property. Employee agrees
that during the term of his Employment, Employee shall keep NOVA
Confidential Information confidential, and Employee shall not use NOVA
Confidential Information for any reason other than on behalf of NOVA
pursuant to, and in strict compliance with, the terms of this Agreement.
Employment further agrees that during the Severance Period of the Exclusion
Period, as applicable (as defined above), Employee shall continue to keep
NOVA Confidential Information confidential, and Employee shall not use NOVA
Confidential Information for any reason or in any manner.
(b) Notwithstanding the foregoing, Employee shall not be subject to the
restrictions set forth in subsection (a) of this Section 9 with respect to
information which:
(i) becomes generally available to the public other than as a result
of disclosure by Employee or the breach of Employee's obligations
under this Agreement;
(ii) becomes available to Employee from a source which is unrelated to
his Employment or the exercise of his duties under this
Agreement, provided that such source lawfully obtained such
information and is not bound by a confidentiality agreement with
NOVA; or
(iii) is required by law to be disclosed.
(c) Trade Secrets. Employee acknowledges and agrees that because of his
-------------
Employment, he will have access to "trade secrets" (as defined in the
Uniform Trade Secrets Act, O.C.G.A. (S) 10-1-760, et seq. (the Uniform
-- ----
Trade Secrets Act") of NOVA ("Trade Secrets"). Nothing in this Agreement is
intended to alter the applicable law and remedies with respect to
information meeting the definition of "trade secrets" under the Uniform
Trade Secrets Act, which law and remedies shall be in addition to the
obligations and rights of the parties hereunder.
10. COVENANTS NOT TO SOLICIT OR COMPETE.
(a) Employee acknowledges and agrees that, because of his Employment, he
does and will continue to have access to confidential or proprietary
information concerning merchants, associate banks and ISOs of NOVA and
establish relationships with such merchants, associate banks and ISOs as
well as with the vendors, consultants, and suppliers used to service such
merchants, associate banks and ISOs within the Territory. In consideration
of the benefits and compensation Employee is receiving hereunder, and other
valuable consideration, Employee agrees that during the term of his
Employment and continuing throughout the Severance Period of the Exclusion
Period, as applicable (provided NOVA complies with its obligations set
forth in Section 7 hereof), Employee shall not, directly or indirectly,
either individually, in partnership, jointly, or in conjunction with, or on
behalf of, any person, firm, partnership, corporation, or unincorporated
association or entity of any kind:
7
<PAGE>
(i) (aa) compete with NOVA in providing credit card and debit card
transaction processing services within the Territory or (bb)
otherwise, obtain any interest in, lend money to, guarantee the
debts or obligations of, or perform services in either a
supervisory or managerial capacity or as an advisor, consultant or
independent contractor for, or otherwise participate in the
management or control of, any person, firm, partnership,
corporation, or unincorporated association of any kind which is
providing credit card and debit card transaction processing
services within the Territory in competition with NOVA;
(ii) solicit or contact, for the purpose of providing products or
services the same as or substantially similar to those provided by
NOVA in connection with the Business, any person or entity that
during the term of Employee's Employment was a merchant, associate
bank, ISO or customer (including any actively-sought perspective
merchant, associate bank, ISO or customer) of NOVA and with whom
Employee had material contact or about whom Employee learned
material information during his Employment;
(iii) persuade or attempt to persuade any merchant, associate bank,
ISO, customer, or supplier of NOVA to terminate or modify such
merchant's, associate bank's, ISO's, customer's, or supplier's
relationship with NOVA if Employee had material contact with or
learned material information about such merchant, associate bank,
ISO, customer or supplier during his Employment; or
(iv) persuade or attempt to persuade any person who (aa) was employed
by NOVA as of the date of the termination of Employee's Employment
and (bb) is in a sales or management position with NOVA at the
time of such contact, to terminate or modify his employment
relationship, whether or not pursuant to a written agreement, with
NOVA.
11. NEW DEVELOPMENTS. Any discovery, invention, process or improvement
made or discovered by Employee during the term of his Employment in connection
with or in any way affecting or relating to the Business of NOVA (as then
carried on or under active consideration) shall forthwith be disclosed to NOVA
and shall belong to and be the absolute property of NOVA; provided, however,
that this provision does not apply to an invention for which no equipment,
supplies, facility, trade secret information of NOVA was used and which was
developed entirely on Employee's own time, unless (a) the invention relates (i)
directly to the Business of NOVA or (ii) to NOVA's actual or demonstrably
anticipated research or development; or (b) the invention results from any work
performed by Employee for NOVA.
12. REMEDY FOR BREACH. Employee acknowledges and agrees that his breach
of any of the covenants contained in Sections 8, 9 and 10 of this Agreement
would cause irreparable injury to NOVA and that remedies at law of NOVA for any
actual or threatened breach by Employee of such covenants would be inadequate
and that NOVA shall be entitled to specific performance of the covenants in such
sections or injunctive relief against activities in violation of such sections,
or both, by temporary or permanent injunction or other appropriate judicial
remedy, writ or order, without the necessity of proving actual damages. This
provision with respect to injunctive relief shall not diminish the right of NOVA
to claim and recover damages against Employee for any breach of this Agreement
in addition to injunctive relief. Employee acknowledges and agrees that he will
be responsible for all legal expenses, including attorney's fees, which NOVA
incurs in pursuing remedies, whether legal or equitable, for any actual or
threatened breach of this Agreement by Employee. Employee acknowledges and
agrees that, subject to NOVA's compliance with the provisions of Section 7
hereof, the covenants contained in Sections 8, 9 and 10 of this Agreement shall
be construed as agreements independent of any other provision of this or any
other contract between the parties hereto, and
8
<PAGE>
that the existence of any claim or cause of action by Employee against NOVA,
whether predicated upon this or any other contract, shall not constitute a
defense to the enforcement by NOVA of said covenants.
13. REASONABLENESS. Employee has carefully considered the nature and
extent of the restrictions upon him and the rights and remedies conferred on
NOVA under this Agreement, and Employee hereby acknowledges and agrees that:
(a) the restrictions and covenants contained herein, and the rights and
remedies conferred upon NOVA, are necessary to protect the goodwill and
other value of the Business of NOVA;
(b) the restrictions placed upon Employee hereunder are narrowly drawn,
are fair and reasonable in time and territory, will not prevent him from
earning a livelihood, and place no greater restraint upon Employee than is
reasonably necessary to secure the Business and goodwill of NOVA;
(c) NOVA is relying upon the restrictions and covenants contained herein
in continuing to make available to Employee information concerning the
Business of NOVA; and
(d) Employee's Employment places him in a position of confidence and
trust with NOVA and its employees, merchants, associate banks, ISOs,
customers, vendors and suppliers.
14. INVALIDITY OF ANY PROVISION. It is the intention of the parties
hereto that the provisions of this Agreement shall be enforced to the fullest
permissible under the laws and public policies of each state and jurisdiction in
which such enforcement sought, but that the unenforceability (or the
modification to conform with such laws or public policies) of any provision
hereof shall not render unenforceable or impair the remainder of this Agreement
which shall be deemed amended to delete or modify, as necessary, the invalid or
unenforceable provisions. The parties further agree to alter the balance of
this Agreement in order to render the same valid and enforceable. The terms of
the non-competition provisions of this Agreement shall be deemed modified to the
extent necessary to be enforceable, it shall be modified to encompass the
longest term which is enforceable and, if the scope of the geographic area of
non-competition is too great to be enforceable, it shall be modified to
encompass the greatest area that is enforceable. The parties further agree to
submit any issues regarding such modification to a court of competent
jurisdiction if they are unable to agree and further agree that if said court
declines to so amend or modify this Agreement, the parties will submit the issue
of amendment or modification of the non-arbitration rules then in effect of
American Arbitration Association. Any such arbitration hearing will be held in
Atlanta, Georgia, and this Agreement shall be construed and enforced in
accordance with the laws of the State of Georgia, including this arbitration
provision.
15. APPLICABLE LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Georgia.
16. WAIVER OF BREACH. The waiver by NOVA of a breach of any provision of
this Agreement by Employee shall not operate or be construed as a waiver of any
subsequent breach by Employee.
17. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
NOVA, its respective subsidiaries and affiliates, and their respective
successors and assigns. This Agreement is not assignable by Employee but shall
be freely assignable by NOVA.
9
<PAGE>
18. NOTICES. All notices, demands and other communications hereunder
shall be in writing and shall be delivered in person or deposited in the United
States mail, certified or registered, with return receipt requested, as follows:
(i) If to Employee, to:
John M Perry
4411 Jett Road, N.W.
Atlanta, GA 30327
Telephone No.: (404) 845-0798
(ii) If to NOVA, to:
NOVA Corporation
One Concourse Parkway, Suite 300
Atlanta, Georgia 30328
Attention: James M. Bahin
Chief Financial Officer
Telephone No.: (770) 396-1456
19. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties with respect to the subject matter hereof, and supersedes in its
entirety the Employment Agreement between Employee and NOVA Information Systems,
Inc. dated April 4, 1997, which is of no further force or effect and hereby
deemed terminated. It may not be changed orally but only by an agreement in
writing signed by the party against whom enforcement of any waiver, change,
modification, extension, or discharge is sought.
20. INDEMNIFICATION. At all times during and after Employee's Employment
and the effectiveness of this Agreement, NOVA shall indemnify Employee (as a
director, officer, employee and otherwise) to the fullest extent permitted by
law and shall at all times maintain appropriate provisions in its Articles of
Incorporation and Bylaws which mandate that NOVA provide such indemnification.
21. SURVIVAL. The provisions of Sections 7, 8, 9, 10, 11, 12, 14 and 20
shall survive termination of Employee's Employment and termination of this
Agreement.
(SIGNATURES BEGIN ON FOLLOWING PAGE)
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the date first above shown.
"EMPLOYEE":
BY: /s/ John Perry
---------------------------------
"NOVA":
NOVA Corporation
By: /s/ Edward Grzedzinski
----------------------------------
Edward Grzedzinski
Chairman, CEO and President
11
<PAGE>
EXHIBIT A
ANNUAL INCENTIVE COMPENSATION SCHEDULE
. Payment of annual incentive (the "Bonus Payment") to be based upon relative
achievement of Targeted Net Income (as defined).
. Net Income is Net Income determined in accordance with GAAP as determined
from the annual audited Financial Statements, as adjusted to exclude non-
operating gains and losses.
. Targeted Net Income will be established annually by the Board of Directors.
. Payment will be calculated y determining the percentage relationship between
Net Income and Targeted Net Income (such percentage relationship being
referred to as the "Actual/Targeted Ratio"). For each full percent by which
the Actual/Targeted Ratio equals or exceeds 80%, Employee will receive, in
addition to his then current Base Salary, the following percentage (the
"Bonus Percentage") of his Base Salary as the Bonus Payment:
<TABLE>
<CAPTION>
Actual Net Income/
Targeted Net Income Bonus Percentage Maximum % of Base Salary
(the "Actual/Targeted Ratio") (% of Base Salary) Payable as the Bonus Payment
- ------------------------------- ------------------ -----------------------------
<S> <C> <C>
80% - 84% 1% 5%
85% - 89% 2% 15%
90% - 94% 3% 30%
95% - 99% 4% 50%
* *
</TABLE>
* If the Actual/Targeted Ratio is equal to or greater than 101%, for each
full percentage point by which the Actual/Targeted Ratio exceeds 100% (the
"Excess"), the Bonus Percentage (pursuant to which Employee's Bonus Payment
shall be calculated) shall be equal to the aggregate of (i) 50%, and (ii)
the Excess; provided, however, that the Bonus Percentage may never exceed
100%.
For Example, if the Actual/Targeted Ratio is 112%, the Actual/Targeted
Ratio exceeds 100% by 12%, and 12% is the "Excess." Therefore, the Bonus
Percentage would be equal to the aggregate of (i) 50%, and (ii) 12%;
accordingly, the Bonus Percentage would be 62% and Employee's Bonus Payment
would be 62% of his then current Base Salary. If Employee's Base Salary was
$100,000, Employee would receive, in addition to his Base Salary, a Bonus
Payment of $62,000.
. The foregoing notwithstanding, in order for any bonus to be payable with
respect to any fiscal year, the Revenue for such fiscal year must equal or
exceed 105% of the Revenue for the immediately preceding fiscal year.
12
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
"Selected Consolidated Financial and Other Data" and to the use of our report
dated February 17, 1998, included in the Proxy Statement of NOVA Corporation
that is made a part of the Registration Statement and Prospectus of NOVA
Corporation for the registration of 37,648,930 shares of its common stock.
/s/ Ernst & Young LLP
---------------------------------------
Ernst & Young LLP
Atlanta, Georgia
August 18, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of NOVA Corporation
of our report on the consolidated financial statements of PMT Services, Inc. for
the three years ended July 31, 1997 dated September 23, 1997, except as to the
pooling of interests with Superior Bankcard Service, Inc., which is as of July
30, 1998, appearing on page 1 of Item 7(a)(1) of the Current Report on Form 8-K
of PMT Services, Inc. dated August 17, 1998. We also consent to the application
of such report to the Financial Statement Schedules for the three years ended
July 31, 1997 which appear on page 35 of such Current Report on Form 8-K. We
also consent to the references to us under the heading "Experts" in such
Prospectus.
PricewaterhouseCoopers LLP
Nashville, Tennessee
August 19, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 91,985,000
<SECURITIES> 0
<RECEIVABLES> 43,385,000
<ALLOWANCES> 4,048,000
<INVENTORY> 3,187,000
<CURRENT-ASSETS> 140,345,000
<PP&E> 55,157,000
<DEPRECIATION> 13,976,000
<TOTAL-ASSETS> 339,873,000
<CURRENT-LIABILITIES> 57,079,000
<BONDS> 0
0
0
<COMMON> 343,000
<OTHER-SE> 255,845,000
<TOTAL-LIABILITY-AND-EQUITY> 339,873,000
<SALES> 165,555,000
<TOTAL-REVENUES> 165,555,000
<CGS> 130,594,000
<TOTAL-COSTS> 130,594,000
<OTHER-EXPENSES> 25,343,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (27,000)
<INCOME-PRETAX> 9,645,000
<INCOME-TAX> 3,569,000
<INCOME-CONTINUING> 6,076,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,076,000
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
<PAGE>
EXHIBIT
99.1
NOVA CORPORATION
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON SEPTEMBER 24, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF NOVA CORPORATION
The undersigned hereby appoints Edward Grzedzinski and James M. Bahin, and
each of them, as proxies to act for and in the name of the undersigned to vote
all shares of Common Stock of NOVA Corporation which the undersigned is
entitled to vote at a Special Meeting of Shareholders, to be held at NOVA's
corporate headquarters, One Concourse Parkway, Suite 300, Atlanta, Georgia
30328 on September 24, 1998 at 10:00 a..m., Atlanta, Georgia, and at any and
all adjournments or postponements thereof, as indicated below.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1, 2 AND 3.
1. The approval and adoption of the Agreement and Plan of Merger dated as of
June 17, 1998, among NOVA Corporation, Church Merger Corp. and PMT Services,
Inc. (Check applicable box.)
[_] FOR [_] AGAINST [_] ABSTAIN
2. The authorization and approval of an amendment to the Articles of
Incorporation of NOVA Corporation to increase the number of authorized
shares of Common Stock of NOVA Corporation to 200,000,000 from 50,000,000
shares. (Check applicable box.)
[_] FOR [_] AGAINST [_] ABSTAIN
3. The authorization and approval of an amendment to the NOVA Corporation 1996
Employees Stock Incentive Plan to increase the number of shares of Common
Stock of NOVA Corporation issuable thereunder to 6,000,000 from 2,000,000.
(Check applicable box.)
[_] FOR [_] AGAINST [_] ABSTAIN
In their discretion, the proxies are authorized to vote upon such other
business matters as properly may come before the Special Meeting and at any
and all adjournments or postponements thereof.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY CARD IN THE ENCLOSED POSTAGE-
PAID ENVELOPE.
(continued, and to be dated and signed on the reverse side).
<PAGE>
(continued from other side)
This proxy card, when properly executed, will be voted as directed herein. IF
NO INSTRUCTIONS ARE SPECIFIED, THIS PROXY CARD WILL BE VOTED IN THE DISCRETION
OF THE PROXIES "FOR" THE APPROVAL OF PROPOSALS 1, 2 AND 3. IF ANY OTHER
BUSINESS MATTERS ARE PROPERLY PRESENTED AT THE SPECIAL MEETING, THIS PROXY CARD
WILL BE VOTED BY THE PROXIES IN THEIR BEST JUDGMENT. At the present time, the
Board of Directors knows of no other business matters to be presented to a vote
of the shareholders at the Special Meeting.
If the undersigned elects to withdraw this proxy card at or before the time
of the Special Meeting or any adjournments or postponements thereof and
notifies the Secretary of NOVA Corporation at or prior to the Special Meeting
of the decision of the undersigned to withdraw this proxy card, then the power
of said proxies shall be deemed terminated and of no further force and effect.
The undersigned may withdraw this proxy card in the manner described above, or
by submitting a duly executed and later dated proxy card, or by appearing and
voting in person at the Special Meeting all shares of Common Stock of NOVA
Corporation owned by the undersigned as of the record date of August 20, 1998.
The undersigned hereby revokes any previous proxies submitted with respect to
the matters covered by this proxy card.
The undersigned acknowledges receipt of the Notice of Special Meeting of
Shareholders to be held September 24, 1998, and the related Joint Proxy
Statement/Prospectus.
Please mark this card on the reverse
side and then date and sign this proxy
card below exactly as your name appears
on the NOVA Corporation stock records.
When shares are held jointly, both
holders should sign. When signing as
executor, attorney, administrator,
trustee, custodian or guardian, please
give the full title. If the holder is a
corporation or partnership, the full
corporate or partnership name should be
provided and this card executed by a
duly authorized officer.
Dated ________ , 1998
----------------------------------------
Signature
----------------------------------------
Signature, if shares held jointly
Do you plan to attend the Special
Meeting? [_] YES [_] NO
<PAGE>
EXHIBIT
99.2
PMT SERVICES, INC.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON SEPTEMBER 24, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PMT SERVICES,
INC.
The undersigned hereby appoints Richardson M. Roberts and Gregory S. Daily,
and each of them, as proxies to act for and in the name of the undersigned to
vote all shares of Common Stock of PMT Services, Inc. which the undersigned is
entitled to vote at a Special Meeting of Shareholders, to be held at the
offices of PMT Services, Inc., 3841 Green Hills Village Drive, Nashville,
Tennessee 37215 on September 24, 1998 at 9:00 a.m., Nashville, Tennessee time,
and at any and all adjournments or postponements thereof, as indicated below.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL.
1. The approval of the Agreement and Plan of Merger dated as of June 17, 1998,
among NOVA Corporation, Church Merger Corp. and PMT Services, Inc. (Check
applicable box.)
[_] FOR [_] AGAINST [_] ABSTAIN
In their discretion, the proxies are authorized to vote upon such other
business matters as properly may come before the Special Meeting and at any
and all adjournments or postponements thereof.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY CARD IN THE ENCLOSED POSTAGE-
PAID ENVELOPE.
(continued, and to be dated and signed on the reverse side).
<PAGE>
(continued from other side)
This proxy card, when properly executed, will be voted as directed. IF NO
INSTRUCTIONS ARE SPECIFIED, THIS PROXY CARD WILL BE VOTED IN THE DISCRETION OF
THE PROXIES "FOR" THE APPROVAL OF THE PROPOSAL. IF ANY OTHER BUSINESS MATTERS
ARE PROPERLY PRESENTED AT THE SPECIAL MEETING, THIS PROXY CARD WILL BE VOTED BY
THE PROXIES IN THEIR BEST JUDGMENT. At the present time, the Board of Directors
knows of no other business matters to be presented to a vote of the
shareholders at the Special Meeting.
If the undersigned elects to withdraw this proxy card at or before the time
of the Special Meeting or any adjournments or postponements thereof and
notifies the Secretary of PMT Services, Inc. at or prior to the Special Meeting
of the decision of the undersigned to withdraw this proxy card, then the power
of said proxies shall be deemed terminated and of no further force and effect.
The undersigned may withdraw this proxy card in the manner described above, or
by submitting a duly executed and later dated proxy card, or by appearing and
voting in person at the Special Meeting all shares of Common Stock of PMT
Services, Inc. owned by the undersigned as of the record date of August 20,
1998.
The undersigned hereby revokes any previous proxies submitted with respect to
the matters covered by this proxy card.
The undersigned acknowledges receipt of the Notice of Special Meeting of
Shareholders to be held September 24, 1998, and the related Joint Proxy
Statement/Prospectus.
Please mark this card on the reverse
side and then date and sign this proxy
card below exactly as your name appears
on the PMT Services, Inc. stock
records. When shares are held jointly,
both holders should sign. When signing
as executor, attorney, administrator,
trustee, custodian or guardian, please
give the full title. If the holder is a
corporation or partnership, the full
corporate or partnership name should be
provided and this card executed by a
duly authorized officer.
Dated ________ , 1998
----------------------------------------
Signature
----------------------------------------
Signature, if shares held jointly
Do you plan to attend the Special
Meeting? [_] YES [_] NO
<PAGE>
EXHIBIT 99.3
LETTER OF TRANSMITTAL
TO ACCOMPANY CERTIFICATES FOR SHARES OF COMMON STOCK OF
PMT SERVICES, INC. TO BE SURRENDERED IN EXCHANGE FOR SHARES
OF COMMON STOCK OF NOVA CORPORATION
Ladies and Gentlemen:
In connection with the merger (the "Merger") among NOVA Corporation
("NOVA"), Church Merger Corp., a wholly-owned subsidiary of NOVA, and PMT
Services, Inc. ("PMT"), through which PMT became a wholly-owned subsidiary of
NOVA, the undersigned herewith surrenders their certificate(s) listed below
which prior to the Merger represented shares of Common Stock, $.01 par value
per share, of PMT ("PMT Stock") and which now represent(s) the right to
receive .715 shares of Common Stock, $.01 par value per share, of NOVA ("NOVA
Stock") for each share of PMT Stock formerly represented by such
certificate(s). No certificates or scrip representing fractional shares of
NOVA Stock will be issued upon the surrender for exchange of PMT Certificates.
In lieu of any such fractional share of NOVA Stock, each holder of PMT
Certificates who would otherwise have been entitled to a fraction of a share
of NOVA Stock will be paid for such fractional share in cash.
DESCRIPTION OF SHARES SURRENDERED
- -------------------------------------------------------------------------------
NAME AND
ADDRESS OF
REGISTERED
HOLDER
(AS IT APPEARS
ON CERTIFICATE
CERTIFICATES)* NUMBERS NO. OF SHARES
- ------------------------------------------
TOTAL NUMBER
OF SHARES
* Please list each stock certificate separately. Attach schedule if needed.
Note: If you have more than one PMT Stock certificate ("PMT Certificate")
and if one PMT Certificate is registered in a different form of name than
another (e.g. one PMT Certificate includes your middle initial and another PMT
Certificate does not), separate Letters of Transmittal must be prepared for
each form of registration. All PMT Certificates and Letters of Transmittal may
be grouped and mailed together.
[_]CHECK HERE IF ANY OF THE PMT CERTIFICATES THAT YOU OWN HAVE BEEN LOST OR
DESTROYED AND SEE INSTRUCTION 5.
Number of shares of PMT Stock represented by the lost or destroyed PMT
Certificates:
PLEASE READ AND FOLLOW THE ACCOMPANYING INSTRUCTIONS
This Letter of Transmittal should be completed, signed and submitted,
together with your PMT Certificate(s) to:
First Union National Bank
NC 1153
1525 West W.T. Harris Boulevard, 363
Charlotte, North Carolina 28288-1153
<PAGE>
The methods of delivery of all documents is at the choice and risk of the
holder; however, if sent by mail, registered mail, return receipt requested,
is recommended. Delivery shall be effected, and risk of loss and title to the
PMT Certificate(s) shall pass, only upon proper delivery of the PMT
Certificate(s) to First Union National Bank.
In connection with the Merger, the undersigned herewith surrenders the PMT
Certificate(s) listed on the first page of this Letter of Transmittal, which
prior to the Merger represented shares of PMT Stock and which now represent(s)
the right to receive .715 shares of NOVA Stock for each share of PMT Stock
formerly represented by such PMT Certificate(s) plus cash for any fractional
shares of NOVA Stock.
Unless otherwise indicated below under "Special Exchange Instructions," the
certificate(s) for shares of NOVA Stock will be issued in the name(s) of the
person(s) on whose behalf this Letter of Transmittal is submitted. Similarly,
unless otherwise indicated below under "Special Delivery Instructions," such
certificate(s) will be mailed to the person(s) on whose behalf this Letter of
Transmittal is submitted at the address to which NOVA delivered this Letter of
Transmittal.
SPECIAL EXCHANGE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTION 3) (SEE INSTRUCTION 4)
To be completed ONLY if the cer- To be completed ONLY if the cer-
tificates for shares of NOVA tificate(s) for shares of NOVA
Stock is (are) to be issued in Stock is (are) to be issued in
the name(s) of someone other than the name(s) of the registered
the registered holder(s) appear- holder(s) appearing on the PMT
ing on the PMT Certificate(s) Certificate(s) surrendered here-
surrendered herewith. Certificate with, but is (are) to be sent to
to be issued to:* someone other than the registered
holder(s) or to an address other
than the address to which NOVA
delivered this Letter of Trans-
mittal.
Name _____________________________
(Please Print)
Address __________________________
__________________________________
(Include Zip Code) Certificate(s) to be delivered
__________________________________ to:*
(Tax Identification or Social
Security Number) Name _____________________________
(Please Print)
*Attach additional sheets if Address __________________________
necessary. __________________________________
(Including Zip Code)
__________________________________
(Tax Identification or Social
Security Number)
*Attach additional sheets if
necessary.
2
<PAGE>
The undersigned hereby represents and warrants that the undersigned has full
power and authority to surrender the above described PMT Certificate(s) and
that the undersigned has good and unencumbered title thereto, free and clear
of all liens, restrictions, charges and encumbrances and not subject to any
adverse claim. The undersigned, upon request, will execute and deliver any
additional documents deemed by NOVA to be necessary or desirable to complete
the surrender of such PMT Certificate(s).
HOLDERS OF PMT STOCK MUST SIGN HERE
AND, IF REQUIRED, HAVE SIGNATURES GUARANTEED
(See Instruction 2 concerning signature guarantee)
PLEASE SIGN HERE*
x Name(s):
(Please Print)
x Name(s):
(Please Print)
x Name(s):
(Signature(s) of Owner(s)) (Please Print)
*IMPORTANT NOTE: Address:
This Letter of Transmittal must
be signed by the registered
holder(s) of PMT Stock exactly
as their name(s) appear(s) on
their PMT Certificate(s) or by
assignees of registered
holder(s) of PMT Certificates
and documents transmitted
herewith. If signature is by an
officer of a corporation, an
attorney-in-fact, executor,
administrator, trustee or
guardian or others acting in a
representative or fiduciary
capacity, set forth full title
and see Instruction 2.
(Area Code and Telephone Number)
(Tax Identification or Social
Security Number)
SIGNATURE GUARANTEE
(If Required--See Instruction 2)
X______________________________________________________________________________
Authorized Signature
_______________________________________________________________________________
Name (Please Print)
Full Title Name of Firm
_______________________________________________________________________________
Address
_______________________________________________________________________________
Zip Code
(Area Code) Telephone No.
Dated:
3
<PAGE>
In order to prevent the application of federal income tax backup
withholding, each shareholder must provide NOVA with his or her correct
Taxpayer Identification Number ("TIN"). An individual's social security number
is his or her TIN. The TIN should be provided in the following Substitute Form
W-9.
Taxpayer Identification
PLEASE PROVIDE YOUR Number (Social Security or
TAXPAYER IDENTIFICATION Employee Identification
NUMBER IN THE BOX AT THE No. or "Applied For," if
RIGHT applicable)
---------------------------
Employer identification
number
-----------------------------------------------------------
Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer
Identification Number ("TIN") (or I have applied for
a TIN and am waiting for one, to be issued to me),
and
(2) I am not subject to backup withholding because (a) I
am exempt from backup withholding, or (b) I have not
SUBSTITUTE been notified by the Internal Revenue Service
FORM W-9 ("IRS") that I am subject to backup withholding as a
PAYER'S REQUEST, result of a failure to report all interest or
FOR dividends, or (c) the IRS has notified me that I am
TAXPAYER no longer subject to backup withholding.
IDENTIFICATION
NUMBER AND You must cross out item (2) above if you have been
CERTIFICATION notified by the IRS that you are subject to backup
withholding because of under reporting interest or
dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup
withholding you receive another notification from the
IRS that you are no longer subject to backup
withholding, do not cross out item (2).
-----------------------------------------------------------
PRINT YOUR NAME:
SIGNATURE: DATE:
PLEASE SIGN HERE>
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office, or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of payment, 31% of all reportable payments of or on Nova Stock made to
me will be withheld until I provide a number.
Signature: Dated:
4
<PAGE>
INSTRUCTIONS FOR COMPLETION OF LETTER OF TRANSMITTAL
1. GENERAL. This Letter of Transmittal (or a facsimile hereof) must be
properly completed and signed in the exact manner in which the PMT
Certificate(s) being surrendered herewith is (are) registered. The completed
and executed Letter of Transmittal, together with the PMT Certificate(s) and
any required supporting documents, must be delivered to First Union National
Bank at its indicated address before the certificate(s) for shares of NOVA
Stock will be sent to the holder(s) of PMT Stock as set forth herein.
2. SIGNATURES. The signature or signatures, in the case of PMT Certificates
owned by two or more joint holders, on this Letter of Transmittal should
correspond exactly with the name(s) as written on the face of the PMT
Certificate(s) being surrendered herewith unless the PMT Stock described in
this Letter of Transmittal has been assigned by registered holder(s), in which
event this Letter of Transmittal should be signed in exactly the same form as
the name of the last transferee indicated on the transfers attached to or
endorsed on the PMT Certificate(s).
If this Letter of Transmittal is signed by a person other than the
registered holder of the PMT Certificate(s) listed, the PMT Certificate(s)
must be endorsed or accompanied by appropriate stock power(s), in either case
signed by the registered holder(s) in the name(s) that appear(s) on the PMT
Certificate(s), and said signature(s) must be guaranteed by an eligible
guarantor institution (banks, stock brokers, savings and loan associations and
credit unions with a membership in an approved signature guarantee medallion
program) pursuant to SEC Rule 17Ad-15.
In all cases where this Letter of Transmittal is executed by an officer of a
corporation, an attorney-in-fact, trustee, custodian, executor, administrator,
guardian or other person acting in a representative or fiduciary capacity, the
person so executing, unless he is the registered holder, must give his full
title in such capacity, and appropriate evidence of such person's authority to
act in such capacity must accompany this Letter of Transmittal.
PMT Certificates may be surrendered by a firm acting as agent for the
registered holder(s) if such firm is a member of a registered national
securities exchange or of the NASD, or is a commercial bank or trust company
in the United States.
3. SPECIAL EXCHANGE INSTRUCTIONS. If the certificate(s) for shares of NOVA
Stock is (are) to be issued in the name of someone other than the registered
holder(s) appearing on the PMT Certificate(s) amended herewith, the PMT
Certificate(s) must be enclosed or accompanied by appropriate signed stock
power(s), the signature(s) appearing on such endorsement(s) or stock power(s)
and on this Letter of Transmittal must be guaranteed by an eligible guarantor
institution (banks, stock brokers, savings and loan associations and credit
unions with a membership in an approved signature guarantee medallion program)
pursuant to Sec Rule 17Ad-15 and the amount of any stock transfer taxes
payable on account of the transfer to such other person will be deducted from
payments of NOVA Stock unless evidence satisfactory to NOVA of the payment of
such taxes, or exemption therefrom, is submitted.
4. SPECIAL DELIVERY INSTRUCTIONS. If the certificate(s) for shares of NOVA
Stock is to be issued in the name of the registered holder(s) appearing on the
PMT Certificate(s) surrendered herewith, but is to be sent to someone other
than the registered holder(s) or to an address other than the address to which
NOVA delivered this Letter of Transmittal, it will be necessary to indicate
such person or address in the space provided.
5. LOST OR DESTROYED PMT CERTIFICATES. If your PMT Certificate(s) have been
lost, destroyed or stolen, the shareholder should promptly notify First Union
National Bank by checking the box on the front page of this Letter of
Transmittal indicating the number of shares lost and delivering the Letter of
Transmittal. The shareholder will then be contacted and provided with
instructions as to the procedures for replacing the PMT Certificate(s). This
Letter of Transmittal and related documents cannot be processed until the
procedures for replacing lost, destroyed or stolen certificates have been
followed.
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6. DETERMINATION OF QUESTIONS. All questions with respect to the Letter of
Transmittal will be determined by NOVA, whose determination shall be
conclusive and binding. NOVA shall have the absolute right to reject any and
all Letters of Transmittal not in proper form or to waive any irregularities
in any Letter of Transmittal.
7. QUESTIONS AND REQUESTS FOR INFORMATION. Questions and requests for
information or assistance relating to the Letter of Transmittal should be
directed to First Union National Bank at (704) 590-7380. Additional copies of
the Letter of Transmittal may be obtained from First Union National Bank at
the address on the front page of this Letter of Transmittal.
8. IMPORTANT TAX INFORMATION. In order to prevent the application of federal
income tax backup withholding, each shareholder must provide NOVA with his or
her correct Taxpayer Identification Number ("TIN"). An individual's social
security number is his or her TIN. The TIN should be provided in the box in
Substitute Form W-9. A shareholder who does not file a Letter of Transmittal
should provide the TIN to NOVA on Internal Revenue Service Form W-9.
Under federal income tax law, any person who is required to furnish his or
her correct TIN to another person, and who fails to comply with such
requirements, may be subject to a $50 penalty imposed by the Internal Revenue
Service.
If backup withholding applies, NOVA will be required to withhold 31% on
future payments on NOVA Stock made to the shareholder. Backup withholding is
not an additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If backup
withholding results in an overpayment of taxes, a refund may be obtained from
the Internal Revenue Service. Certain shareholders (including, among others,
all corporations and certain foreign shareholders) are not subject to these
backup withholding and reporting requirements. To qualify as an exempt
recipient on the basis of foreign status, a foreign shareholder must submit a
Form W-8, signed under penalty of perjury, attesting to that shareholder's
exempt status. A Form W-8 can be obtained from First Union National Bank.
If the shareholder has not been issued a TIN and has applied for a TIN or
intends to apply for a TIN in the near future, "Applied For" should be written
in the box provided for in TIN Substitute Form W-9. In such case, if NOVA is
not provided with a TIN within 60 days, First Union National Bank will
withhold 31% of payments on NOVA Stock made to the shareholder until a TIN is
provided to First Union National Bank.
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