<PAGE>
[LOGO OF NATIONAL DATA CORPORATION]
EXHIBIT 99.1
NATIONAL DATA CORPORATION
National Data Plaza
Atlanta, Georgia 30329-2010
, 2000
Dear Fellow Stockholder:
I am pleased to inform you that the previously announced spin-off of our
eCommerce business will take place on , 2000. The eCommerce
business will be grouped under Global Payments Inc., our new wholly owned
subsidiary, the shares of which will be distributed to you in the spin-off.
You will receive 0.8 of a Global Payments share for each NDC share held.
You do not have to take any action to receive your Global Payments shares. You
will not be required to pay anything or to surrender your NDC shares.
The enclosed Information Statement describes the distribution and provides
important financial and other information about Global Payments. Please read
it carefully.
Sincerely,
Robert A. Yellowlees
Chairman and Chief Executive
Officer
<PAGE>
INFORMATION STATEMENT RELATING TO THE DISTRIBUTION
BY NATIONAL DATA CORPORATION
OF GLOBAL PAYMENTS INC. COMMON STOCK
We have prepared this statement to provide you with information about the
spin-off of Global Payments by NDC. NDC will effect the spin-off by
distributing shares of our common stock to you. That is why we also refer to
the spin-off as the distribution.
The number of shares of our stock that you will receive will be based on
the number of shares of NDC common stock that you held at the close of
business on , 2000, the record date for the distribution.
Global Payments provides electronic transaction processing and funds
transfer services to merchants, corporations, financial institutions, and
government agencies. We serve as an intermediary in the exchange of
information and funds between merchants and credit card issuers, enabling
consumers, corporations, and government agencies to purchase goods and
services through the use of credit cards. We also provide debit card,
business-to-business purchasing card, check guarantee, check verification and
recovery, and terminal management services.
The number of NDC shares that you own will not change as a result of the
distribution. No vote of stockholders is required in connection with the
distribution. We are not asking you for a proxy. Please do not send us a proxy
or your share certificates. There is no current public trading market for our
shares, although a "when-issued" trading market may develop prior to the
distribution. Our shares will be listed on the New York Stock Exchange, under
the symbol "GPN."
If you have any questions regarding the distribution, you may contact
SunTrust Bank, Stock Transfer Department, P.O. Box 4625, Atlanta, Georgia
30302, or by telephone at (800) 568-3476, or NDC's Investor Relations
Department at NDC, National Data Plaza, Atlanta, Georgia 30329-3010, or by
telephone at (404) 728-2363.
You should carefully consider the Risk Factors described in this
Information Statement beginning on page 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this Information Statement is truthful or complete. Any representation to the
contrary is a criminal offense.
This Information Statement is not an offer to sell or the solicitation of
an offer to buy any securities.
The date of this information statement is , 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Questions and Answers About the Distribution.............................. 1
Summary of Our Business................................................... 4
Why We Sent This Document to You......................................... 4
Global Payments' Business................................................ 4
Recent Developments...................................................... 5
Summary Historical Combined Financial Data............................... 6
Summary Pro Forma Combined Financial Data................................ 7
Risk Factors.............................................................. 8
Risks Relating to The Distribution....................................... 8
Risks Relating to Global Payments........................................ 9
Forward Looking Statements................................................ 14
The Distribution.......................................................... 15
Reasons for the Distribution............................................. 15
Manner of Effecting the Distribution..................................... 16
Results of the Distribution.............................................. 17
Listing and Trading of the Global Payments Shares........................ 17
Certain Federal Income Tax Consequences.................................. 18
Reasons for Furnishing This Document...................................... 20
Relationship Between NDC and Global Payments Following the Distribution... 20
Distribution Agreement................................................... 20
Tax Sharing and Indemnification Agreement................................ 21
Employee Benefits Agreement.............................................. 22
Real Estate Agreements................................................... 25
Intercompany Systems/Network Services Agreement.......................... 26
Transaction Processing Agreement......................................... 27
Transition Support Agreement............................................. 27
Capitalization............................................................ 28
Dividend Policy........................................................... 29
Selected Financial Data................................................... 30
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 31
General.................................................................. 31
Components of Income Statement........................................... 31
Results of Operations.................................................... 32
Liquidity and Capital Resources.......................................... 35
Credit Facility.......................................................... 36
Market Risk/Interest Rate Risk........................................... 36
Seasonality, Inflation and Economic Downturns............................ 36
Global Payments' Business................................................. 37
General.................................................................. 37
Industry Overview/Target Markets......................................... 38
Strategy................................................................. 38
Products and Services.................................................... 39
Sales and Marketing...................................................... 40
International Operations................................................. 41
Employees................................................................ 41
Competition.............................................................. 41
Properties............................................................... 41
Legal Proceedings........................................................ 42
Banking Regulations...................................................... 42
Management................................................................ 43
Directors................................................................ 43
Committees of the Board of Directors..................................... 44
Directors' Compensation.................................................. 44
Executive Officers....................................................... 47
Historical Compensation of Our Executive Officers........................ 48
Option Grants In Last Fiscal Year........................................ 49
Aggregated Option/Stock Appreciation Right Exercises In Last Fiscal Year
And Fiscal Year-End Option/Stock Appreciation Rights Values............. 49
Defined Benefit Retirement Plans......................................... 50
Long-Term Incentive Plan................................................. 50
Global Payments Employee Stock Purchase Plan............................. 53
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Employment, Severance and Change of Control Agreements.................. 55
Security Ownership of Certain Beneficial Owners.......................... 58
Beneficial Ownership of Management....................................... 59
Description of Global Payments' Capital Stock............................ 60
Authorized Capital Stock................................................ 60
Common Stock............................................................ 60
Preferred Stock......................................................... 60
No Preemptive Rights.................................................... 61
Transfer Agent And Registrar............................................ 61
Summary of the Purchase of CIBC Merchant Acquiring Business.............. 62
General................................................................. 62
Purchase Agreement...................................................... 62
Marketing Alliance Agreement............................................ 63
CIBC Credit Agreement................................................... 63
Transition Agreement.................................................... 63
Investor Rights Agreement............................................... 64
Anti-takeover Effects of Our Articles of Incorporation, By-laws, Rights
Agreement and Georgia Law............................................... 65
General................................................................. 65
Classified Board of Directors........................................... 65
Number of Directors; Removal; Filling Vacancies......................... 65
Shareholder Action...................................................... 66
Advance Notice to Investors Prior to Business Combination............... 66
Advance Notice for Shareholder Proposals or Nominations at Meetings..... 66
Amendments to By-laws................................................... 66
Preferred Stock......................................................... 66
Rights Agreement........................................................ 66
Anti-Takeover Legislation--Georgia Law.................................. 69
Liability and Indemnification of Directors and Officers.................. 70
Experts.................................................................. 70
Where You Can Obtain Additional Information.............................. 70
Index to Financial Statements............................................ F-1
Report of Independent Public Accountants................................. F-2
Combined Statements of Income............................................ F-3
Combined Balance Sheets.................................................. F-4
Combined Statements of Cash Flows........................................ F-5
Combined Statements of Changes in Shareholders' Equity................... F-6
Notes to Combined Financial Statements................................... F-7
Note 1--Spin off and Basis of Presentation.............................. F-7
Note 2--Summary of Significant Accounting Policies...................... F-7
Note 3--Business Acquisition............................................ F-9
Note 4--Transactions with NDC........................................... F-10
Note 5--Property and Equipment.......................................... F-10
Note 6--Software Costs.................................................. F-10
Note 7--Intangible Assets............................................... F-11
Note 8--Accounts Payable and Accrued Liabilities........................ F-11
Note 9--Retirement Benefits............................................. F-11
Note 10--Income Taxes................................................... F-13
Note 11--Long-Term Debt................................................. F-14
Note 12--Shareholder's Equity........................................... F-14
Note 13--Related Party Transactions..................................... F-15
Note 14--Commitments and Contingencies.................................. F-15
Note 15--Supplemental Cash Flow Information............................. F-16
Note 16--Quarterly Combined Financial Information (Unaudited)........... F-17
Note 17--Event Subsequent to Auditor's Report (Unaudited)............... F-17
Report of Independent Public Accountants as to Schedule.................. F-18
Combined Schedule II--Valuation and Qualifying Accounts.................. F-19
Pro Forma Combined Financial Statements.................................. F-20
CIBC Merchant Acquiring Business Audited Financial Statements............ F-26
</TABLE>
i
<PAGE>
SUMMARY OF THE DISTRIBUTION
Q: WHAT BUSINESS WILL GLOBAL PAYMENTS CONDUCT FOLLOWING THE DISTRIBUTION?
A: After the distribution, we will continue operating NDC's current
eCommerce business and following the purchase of the merchant acquiring
business of Canadian Imperial Bank of Commerce, we will also operate
that business. See the description of our business in the summary
beginning on page 4, and under "Global Payments' Business" beginning on
page 37.
Q: WHAT WILL I RECEIVE IN THE DISTRIBUTION OTHER THAN GLOBAL PAYMENTS
SHARES?
A: With each share of Global Payments common stock you will receive a
preferred stock purchase right. The preferred stock purchase rights
will be issued pursuant to our shareholder rights plan which entitles
our common shareholders to purchase preferred stock upon the occurrence
of a transaction that would result in a change in control of our
company that is not approved by our Board of Directors. See the
description of the rights agreement in "Anti-Takeover Effects of our
Articles of Incorporation, By-laws, Rights Agreement and Georgia Law--
Rights Agreement" on page 66. If you are entitled to a fractional share
of our stock as a result of the distribution, you will receive cash
instead. Please refer to "The Distribution--Manner of Effecting the
Distribution" on page 16 for a complete discussion.
Q: WHEN WILL I RECEIVE MY GLOBAL PAYMENTS SHARES?
A: If you hold NDC shares in your own name as a stockholder of record, the
distribution agent will automatically mail to you a Global Payments
common stock certificate. You should allow several days after the
distribution date, , 2000, for the mail to reach you.
If you hold NDC shares through your stockbroker, bank or other nominee,
you are probably not a stockholder of record and your receipt of Global
Payments shares depends on your arrangements with the nominee that
holds your NDC shares for you. NDC anticipates that stockbrokers and
banks generally will credit their customers' accounts with Global
Payments shares on or about , 2000, but you should check with
your stockbroker, bank or other nominee. For more details, please refer
to "The Distribution--Manner of Effecting the Distribution" on page 16.
Q: WHEN WILL MY GLOBAL PAYMENTS SHARES BEGIN TRADING?
A: We expect that regular trading will begin on the New York Stock
Exchange on , 2000. A temporary form of trading called
"when-issued trading" may occur for Global Payments common stock on or
about , 2000 and continue through , 2000. A when-
issued listing may be identified by the "wi" letters next to Global
Payments common stock on the New York Stock Exchange Composite Tape. If
when-issued trading develops, you may buy or sell Global Payments
common stock in advance of the distribution. For an explanation of
when-issued trading, see "The Distribution--Listing and Trading of the
Global Payments Shares" beginning on page 17.
Q: HOW WILL THE DISTRIBUTION AFFECT MY NDC SHARES?
A: Following the distribution, NDC shares will continue to be listed and
traded on the New York Stock Exchange under the symbol "NDC." The
distribution will not affect the number of outstanding shares of NDC
stock or any rights of NDC stockholders. NDC common stock will continue
to trade on a regular basis and may also trade on an "ex-dividend"
basis, reflecting an assumed post-distribution value for NDC Common
Stock. Ex-dividend trading in NDC Common Stock, if available,
1
<PAGE>
could last from on or about , 2000 through , 2000. If
this occurs, an additional listing for NDC common stock, followed by the
"x" letters will appear on the New York Stock Exchange Composite Tape.
For a complete discussion please read "The Distribution--Listing and
Trading of the Global Payments Shares" beginning on page 17.
Q: WHAT IF I WANT TO SELL MY NDC SHARES OR MY GLOBAL PAYMENTS SHARES?
A: If you do decide to sell any shares, you should make sure your
stockbroker, bank or other nominee understands whether you want to sell
your NDC shares or your Global Payments shares, or both. The following
information may be helpful in discussions with your stockbroker, bank or
other nominee.
Beginning about , 2000 and continuing through ,
2000, New York Stock Exchange practice of when-issued trading should
generally allow you to sell your NDC shares either together with the
right to receive the Global Payments shares in the distribution or
without the right to receive the Global Payments shares. If you sell
your NDC shares with the right to receive the Global Payments shares,
you (or your broker or bank) will be required to transfer to the buyer
the Global Payments shares you receive in the distribution. You should
also be able to sell your right to receive the Global Payments shares
without selling your NDC shares.
Sales of NDC shares with the right to receive the Global Payments shares
should generally settle in a three business day settlement period. Sales
of NDC shares without the right to receive the Global Payments shares
and sales of the Global Payments shares without NDC shares are expected
to settle four business days following the date certificates for the
Global Payments shares are mailed. Check with your stockbroker, bank or
other nominee. Beginning about , 2000, you may only sell your
NDC shares and Global Payments shares separately.
Q: WILL I BE PAID DIVIDENDS ON MY GLOBAL PAYMENTS SHARES?
A: We may, but cannot assure you, that we will pay cash dividends on our
stock in the future. Please refer to "Dividend Policy" on page 29 for a
full discussion.
Q: IS THE DISTRIBUTION TAXABLE FOR UNITED STATES FEDERAL INCOME TAX
PURPOSES?
A: No. NDC has received a tax ruling from the Internal Revenue Service
stating in principle that the distribution will be tax-free to NDC and
to NDC stockholders. Any cash you receive for fractional shares may be
taxable to you. If you have any questions, please consult your tax
advisor.
Q: WILL THERE BE ANY CHANGE IN THE UNITED STATES FEDERAL TAX BASIS OF MY
NDC SHARES AS A RESULT OF THE DISTRIBUTION?
A: Yes, your tax basis in your NDC shares will be reduced. Please refer to
"The Distribution--Certain Federal Income Tax Consequences" beginning on
page 18 for a complete discussion.
Q: WHAT TYPE OF RELATIONSHIP WILL GLOBAL PAYMENTS HAVE WITH NDC AFTER THE
DISTRIBUTION?
A: After the distribution, NDC and Global Payments will operate
independently as separate public companies. Prior to the distribution,
Global Payments and NDC will enter into the following agreements:
. Distribution Agreement
. Tax Sharing And Indemnification Agreement
2
<PAGE>
. Employee Benefits Agreement
. Real Estate Agreements
. Intercompany Systems/Network Services Agreement
. Batch Processing Agreement, and
. Transition Support Agreement.
After the distribution, NDC and Global Payments will not have any other
material contracts or other arrangements between them. For a full
description of these agreements and arrangements, see "Relationship
Between NDC and Global Payments Following the Distribution" beginning on
page 20.
Q: WILL NDC COMPLETE THE DISTRIBUTION EVEN IF THE ACQUISITION OF CIBC'S
MERCHANT ACQUIRING BUSINESS CANNOT BE COMPLETED?
A: Yes. After the distribution, we plan to complete the acquisition of
CIBC's merchant acquiring business if all of the conditions in the
asset purchase agreement, including the regulatory approvals in the
United States and Canada, have been satisfied or waived.
Q: WHEN WILL THE ACQUISITION OF CIBC'S MERCHANT ACQUIRING BUSINESS OCCUR?
A: We expect the acquisition to occur within 10 days after the
distribution is completed, subject to regulatory approvals.
Q: WHERE CAN I GET MORE INFORMATION?
A: If you have any questions relating to the mechanics of the
distribution and the delivery of stock certificates or the trading of
NDC or Global Payments shares prior to the distribution, you can
contact the distribution agent:
SunTrust Bank
Stock Transfer Department
P.O. Box 4625
Atlanta, Georgia 30302
After the distribution, Global Payments shareholders with inquiries
related to the distribution or their investment in Global Payments
should contact
Global Payments Inc.
Four Corporate Square
Atlanta, Georgia 30329
Attention: Suellyn P. Tornay
Corporate Secretary
(800) 568-3476
(404) 728-3288
After the distribution, NDC stockholders with inquiries relating to the
distribution or their investment in NDC should contact:
National Data Corporation
National Data Plaza
Atlanta, Georgia 30329-2010
Attention: Patricia A. Wilson
Corporate Secretary
(404) 728-2363
3
<PAGE>
SUMMARY OF OUR BUSINESS
This summary highlights selected information from this information statement
relating to our business. To better understand our business and financial
position, you should carefully review this entire information statement
including the risks described in "Risk Factors" beginning on page 8 and the
combined financial statements and the notes thereto beginning on page F-1.
Why We Sent This Document To You
We are sending you this document because you were an owner of NDC common
stock on the record date. This document describes Global Payments' business,
the risks associated with that business, the relationship between NDC and
Global Payments after the distribution, and other information to assist you in
evaluating the benefits and risks of holding or disposing of the Global
Payments shares that you will receive in the distribution. You should be aware
of certain risks relating to the distribution and Global Payments' business,
which are described in this document beginning on page 8.
Global Payments' Business
We enable consumers, corporations, and government agencies to purchase goods
and services by providing electronic transaction processing services. We serve
as an intermediary in the exchange of information and funds that must occur
between merchants and credit card issuers before a transaction can be
completed. As part of NDC, Global Payments has provided credit card transaction
processing services since 1968. Since that time, we have expanded our business
to include processing for debit cards and business-to-business purchasing
cards, check guarantee services, check verification and recovery services, and
terminal management services. We collectively refer to these as our merchant
service offerings. In addition, we provide funds transfer services to domestic
and international financial institutions, corporations, and government agencies
in the United States, Canada, and Europe.
In our merchant services product offering, we have a high percentage of
recurring revenues and process over 1.6 billion transactions per year servicing
more than 775,000 merchant locations. We provide our electronic transaction
processing services directly to our merchant customers, as well as to financial
institutions and independent sales organizations who purchase and resell our
services to their own portfolio of merchant customers. We offer end-to-end
services, which means that we believe that we have the ability to fulfill all
of our customers' needs with respect to electronic transaction processing.
We operate in one business segment, electronic transaction processing, and
provide products and services through our merchant services and funds transfer
offerings. We market our services through a variety of sales channels including
a sizable dedicated sales force, independent sales organizations, independent
sales representatives, an internal telesales group, alliance bank
relationships, and financial institutions. We provide our services primarily
using network telecommunications infrastructure.
Global Payments Inc. was formed on September 1, 2000. Currently we do not
have any operations, assets or liabilities. At the time of the distribution,
NDC's eCommerce business segment will be contributed to us and will be
reorganized as Global Payments Inc. Please refer to "Relationship Between NDC
and Global Payments Following the Distribution--The Distribution Agreement" for
a complete description of the reorganization.
The information in this information statement assumes that we will complete
the acquisition of CIBC's merchant acquiring business. You should read the
description of the acquisition set forth below and the more detailed
description of the transaction set forth in "Summary of the Purchase of CIBC
Merchant Acquiring Business" beginning on page 62.
4
<PAGE>
Recent Developments
Purchase of Merchant Acquiring Business and Ten-Year Marketing Alliance with
Canadian Imperial Bank of Commerce.
On November 9, 2000, we agreed to acquire certain net assets of the
merchant acquiring business of Canadian Imperial Bank of Commerce and to form
a 10-year marketing alliance with CIBC to offer VISA credit and debit card
payment products and services to merchants in Canada. The acquisition and the
related marketing alliance will significantly broaden our scope and presence
in North America and will provide merchants served by CIBC's merchant
acquiring business with a larger array of existing and new payment solutions.
We expect to close the acquisition after the distribution is completed,
subject to regulatory approvals.
The CIBC merchant acquiring business is largely comparable to our merchant
services offering. CIBC's service offerings include card processing services
consisting of credit and debit card authorization and the capture of related
transaction data, settlement and funding services, customer support services,
terminal deployment, merchant statements and risk management. During 1999,
this business processed approximately 800 million transactions from
approximately 140,000 merchant locations in Canada.
The revenues of the business are generated by approximately 140,000
merchant locations, which are marketed through a combination of a direct sales
force, referrals from CIBC's approximate 1,200 bank branch locations
comprising CIBC's branch network and an independent sales organization. The
merchants served by the business include leading North American grocers,
specialty retailers, home furnishings retailers, automotive service station
chains and department stores. For the 12 months ended October 31, 1999, CIBC's
merchant acquiring business reported revenues of $87 million (U.S.) and income
before taxes of $23 million (U.S.). For the nine months ended July 31, 2000,
CIBC's merchant acquiring business had revenues of $67 million (U.S.) and
income before taxes of $13 million (U.S.).
As part of our business strategy, we are focused upon internal and external
opportunities to expand our merchant services product offering. This
acquisition and our alliance with CIBC will provide us with a significant
presence in the Canadian market, for which we presently have a modest share.
Additionally, management believes this acquisition will allow us to better
leverage our fixed cost infrastructure and cross-sell both companies' value
added, end-to-end services in the United States and Canada.
Divestiture of Card Issuing Business
We recently divested our card issuing business for cash consideration
approximately equal to the net book value. Revenues related to those services
were approximately $8.8 million in fiscal 2000.
5
<PAGE>
Summary Historical Combined Financial Data
The summary historical combined financial data of Global Payments set forth
below should be read in conjunction with the Combined Financial Statements of
the NDC eCommerce Business Segment, including the Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this information statement.
The historical income statement data for each of the three years ended May
31, 2000 and the historical balance sheet data as of May 31, 2000 and 1999 are
derived from the combined financial statements included elsewhere in this
document that have been audited by Arthur Andersen LLP, NDC's and Global
Payments' independent public accountants. The historical income statement data
for the three months ended August 31, 2000 and 1999 and the years ended May 31,
1997 and 1996 and the historical balance sheet data as of August 31, 2000 and
1999 and May 31, 1998, 1997 and 1996 are derived from unaudited combined
financial statements that have been prepared by management. Operating costs and
expenses in the historical income statements reflect direct charges of the
business together with certain allocations by NDC for corporate services,
communication and other shared services that have been charged to our company
based on usage or other methodologies appropriate for such expenses. In the
opinion of management, these allocations have been made on a reasonable basis
and approximate all the material incremental costs we would have incurred had
we been operating on a stand-alone basis, except for the pro forma adjustments
relating to the distribution included in the Pro Forma Combined Financial
Statements included elsewhere in this information statement.
Summary Combined Financial Data
<TABLE>
<CAPTION>
Historical
----------------------------------------------------------------------
Three Months Ended
August 31, Year Ended May 31,
-------------------- ------------------------------------------------
2000 1999 2000 1999 1998 1997 1996
--------- --------- -------- -------- -------- -------- --------
(In thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $ 87,191 $ 89,828 $340,033 $330,051 $291,547 $257,679 $180,924
Operating expenses:
Cost of service........ 45,881 46,022 181,479 169,805 153,518 142,479 95,588
Sales, general and
administrative........ 24,728 23,267 95,342 83,571 80,055 75,622 61,315
--------- --------- -------- -------- -------- -------- --------
Operating income........ 16,582 20,539 63,212 76,675 57,974 39,578 24,021
Other income (expense),
net.................... (2,518) (2,321) (9,440) (10,074) (7,366) (3,134) 2,261
--------- --------- -------- -------- -------- -------- --------
Earnings before income
taxes.................. 14,064 18,218 53,772 66,601 50,608 36,444 26,282
Provision for income
taxes.................. 5,415 7,014 20,725 25,265 19,531 13,811 8,715
--------- --------- -------- -------- -------- -------- --------
Net income.............. $ 8,649 $ 11,204 $ 33,047 $ 41,336 $ 31,077 $ 22,633 $ 17,567
========= ========= ======== ======== ======== ======== ========
Basic earnings per
share(1)............... $ 0.33 $ 0.41 $ 1.24 $ 1.53 $ 1.21 $ 0.93 $ 0.73
Total assets............ $ 285,850 $ 298,706 $287,946 $289,667 $276,753 $260,134 $249,292
Due to NDC.............. $ 75,014 $ 89,875 $ 96,125 $ 89,375 $109,375 $ 71,875 $ 15,000
Line of Credit.......... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Long-term obligations... $ 6,506 $ 8,882 $ 7,232 $ 15,774 $ 6,616 $ 5,067 $ 7,876
Total shareholder's
equity................. $ 132,690 $ 106,062 $120,885 $108,013 $ 84,896 $104,044 $168,861
</TABLE>
--------
(1) Using the distribution ratio of 0.8 of a share of Global Payments common
stock for each share of NDC common stock held. Weighted average shares
outstanding is computed by applying the distribution ratio to the
historical NDC weighted average shares outstanding for all periods
presented.
6
<PAGE>
Summary Pro Forma Combined Financial Data (Unaudited)
The summary pro forma combined financial data reflects adjustments to the
historical combined balance sheet of Global Payments as if the distribution to
shareholders and the acquisition of CIBC's merchant acquiring business had
occurred on August 31, 2000 and to the historical combined income statements of
Global Payments as if the distribution and the acquisition had occurred on June
1, 1999. The summary pro forma combined financial data should be read in
conjunction with the Pro Forma Combined Financial Statements, including the
Notes thereto, included elsewhere in this information statement.
Summary Pro Forma Combined Financial Data(2)
<TABLE>
<CAPTION>
Three Months Ended Year Ended
August 31, 2000 May 31, 2000
----------------------------------- -----------------------------------
Pro Pro Forma Pro Pro Forma
Historical Forma(3) As Adjusted(4) Historical Forma(3) As Adjusted(4)
---------- -------- -------------- ---------- -------- --------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Revenue................. $ 87,191 $ 87,191 $112,928 $340,033 $340,033 $430,796
Operating expenses:
Cost of service........ 45,881 45,881 61,250 181,479 181,479 237,227
Sales, general and
administrative........ 24,728 25,051 27,591 95,342 99,039 110,018
-------- -------- -------- -------- -------- --------
Operating income........ 16,582 16,259 24,087 63,212 59,515 83,551
Other income (expense),
net.................... (2,518) (2,932) (4,778) (9,440) (10,073) (14,821)
-------- -------- -------- -------- -------- --------
Earnings before income
taxes.................. 14,064 13,327 19,309 53,772 49,442 68,730
Provision for income
taxes.................. 5,415 5,131 7,805 20,725 19,058 27,711
-------- -------- -------- -------- -------- --------
Net income.............. $ 8,649 $ 8,196 $ 11,504 $ 33,047 $ 30,384 $ 41,019
======== ======== ======== ======== ======== ========
Basic earnings per
share(1)............... $ 0.33 $ 0.31 $ 0.32(5) $ 1.24 $ 1.14 $ 1.14
Total assets............ $285,850 $285,850 $434,090 $287,946 $287,946
Due to NDC.............. $ 75,014 $ -- $ -- $ 96,125 $ --
Line of Credit.......... $ -- $ 75,014 $ 75,014 $ -- $ 96,125
Long-term obligations... $ 6,506 $ 6,506 $ 8,335 $ 7,232 $ 7,232
Total shareholders'
equity................. $132,690 $132,690 $269,536 $120,885 $120,885
</TABLE>
--------
(1) Using the distribution ratio of 0.8 of a share of Global Payments common
stock for each share of NDC common stock held. Weighted average shares
outstanding is computed by applying the distribution ratio to the
historical NDC weighted average shares outstanding for all periods
presented.
(2) For further detail of pro forma adjustments, see pages F-20 through F-25.
(3) Gives effect to the distribution as if it had occurred on June 1, 1999 for
the combined income statements and August 31, 2000 for the combined
balance sheet.
(4) Gives effect to the distribution and the acquisition of CIBC's merchant
acquiring business as if it had occurred on June 1, 1999 for the combined
income statements and August 31, 2000 for the combined balance sheet.
(5) As presented above, the acquisition is accretive to our basic earnings per
share, and management believes, assuming operating synergies can be
achieved following the acquisition, that the acquisition will continue to
be accretive in the future.
7
<PAGE>
RISK FACTORS
The distribution and ownership of our common stock involve risks. Our
business, financial condition or results of operations could be adversely
affected by any of the following risks. In addition, you should keep in mind
that the risks described below are not the only risks that we face. The risks
described below are the risks that we currently believe are material risks of
ownership of our common stock; however, additional risks not presently known to
us, or risks that we currently believe are not material, may also impair our
business operations.
Risks Relating To The Distribution
Our shares of common stock may not trade on the NYSE at a price that reflects
the distribution ratio.
It could be assumed that our common stock would initially trade at a price
equal to a percentage of the price of NDC's shares, based on the distribution
ratio. We cannot assure you that this will be the case, or that our shares will
be actively traded. Some of the NDC stockholders who receive our shares may
decide that they do not want shares in Global Payments, and may sell their
shares immediately following the distribution. This may delay the development
of an orderly trading market in the Global Payments shares for a period of time
following the distribution. Until the Global Payments shares are fully
distributed and an orderly market develops, the prices at which the Global
Payments shares trade may fluctuate significantly and may be lower or higher
than the price that would be expected based on the distribution ratio. In
addition, the price of our shares may be depressed until investors have an
opportunity to fully familiarize themselves with our business and how it
relates to and competes within the electronic payments industry.
If the distribution fails to qualify as a tax-free transaction, you and NDC
could be subject to substantial tax liability
NDC has received a tax ruling relating to the qualification of the
distribution as a tax-free distribution within the meaning of Section 355 of
the Internal Revenue Code, which generally is binding on the IRS. However, the
continuing validity of a tax ruling is subject to certain factual
representations and assumptions. If the distribution were not to qualify as a
tax-free distribution, NDC would recognize taxable gain equal to the excess of
the fair market value of our common stock distributed to NDC's stockholders
over NDC's tax basis in the stock. In addition, each NDC stockholder who
receives our common stock in the distribution would generally be treated as
receiving a taxable distribution in an amount equal to the fair market value of
the stock.
If the distribution qualified under Section 355 of the Code but was
disqualified as tax-free to NDC because of certain post-distribution
circumstances, such as an acquisition of Global Payments within two years after
the distribution that, together with the distribution, is treated as pursuant
to a single plan, NDC would recognize taxable gain but the distribution would
generally remain tax-free to each NDC stockholder.
Although any U.S. federal income taxes imposed in connection with the
distribution generally would be imposed on NDC and its stockholders, we would
be liable for all or a portion of such taxes in the following circumstances:
. First, as part of the distribution, NDC and our company will enter into
a tax sharing and indemnification agreement. This agreement will
generally allocate, between NDC and us, the taxes and liabilities
relating to the failure of the distribution to be tax-free. In addition,
under the tax sharing agreement, if the distribution fails to qualify as
a tax-free distribution because of an acquisition of our stock or
assets, or some other action of ours, then we will be solely liable for
any resulting corporate taxes. For a more complete discussion of the
allocation of taxes and liabilities between NDC and us under the tax
sharing agreement, please see "Relationship Between NDC and Global
Payments Following the Distribution--Tax Sharing and Indemnification
Agreement."
. Second, aside from the tax sharing agreement, under U.S. federal income
tax laws, we and NDC would be jointly and severally liable for NDC's
federal income taxes resulting from the distribution being taxable. This
means that even if we do not have to indemnify NDC for any tax
liabilities if the distribution fails to be tax-free, we may still be
liable for any part of, including the whole amount of, these liabilities
and expenses if NDC fails to pay them.
8
<PAGE>
The cost of operations reflected in the historical financial statements
included in this information statement are based on an allocation of a portion
of NDC's costs to our business and may not accurately reflect what our actual
costs will be in the future
Prior to the distribution, our business was operated by NDC as a part of its
broader corporate organization rather than as a stand-alone company. NDC
assisted us by providing financing as well as other corporate and other related
allocated services. Following the distribution, NDC will provide us
telecommunications and transaction processing services, systems support, tax
return preparation support, and various corporate support services during a
transition period.
We are in the process of creating our own business functions to replace
those NDC will provide to us. We may not be able to develop these same
functions at the same cost as NDC.
In addition to our operational costs, our historical financial information
also contains other assumptions about our expenses that may change after the
distribution:
. our consolidated financial statements reflect allocations, primarily
with respect to corporate overhead, for services provided to us by NDC,
which may not reflect the actual costs we will incur for similar
services as a stand-alone company;
. in our consolidated financial statements we recorded a portion of the
debt and related interest expense of NDC for those periods, which
allocations do not reflect the actual financing costs we will incur as a
stand-alone company; and
. the financial information does not reflect changes that we expect to
occur in the future as a result of our separation from NDC, including
changes in how we fund our operations as well as tax and employee
matters.
Therefore, no assumptions regarding our future performance should be made
based on our consolidated financial statements. For additional information
about our past financial performance and the basis of presentation of our
consolidated financial statements, including our estimates of interest expense,
please see "Selected Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and the notes thereto included elsewhere in this information
statement.
We have not yet executed our credit agreement, and will not complete the
transaction unless it is fully executed before the distribution
We have a commitment from a syndicate of financial institutions for a $110
million revolving line of credit. This line of credit is needed to fund the
cash dividend we must make to NDC to fund our share of NDC's pre-distribution
debt, and is also needed for our working capital and acquisition needs after
the distribution. Based on this commitment, we have negotiated a credit
agreement with the financial institutions; however, the credit agreement will
not be executed until immediately prior to the distribution, which is scheduled
for , 2000. If for any reason we or the financial institutions fail to
execute the credit agreement, the distribution could be delayed.
Risks Relating to Global Payments
The integration of the operations of CIBC's merchant acquiring business
could result in increased operating costs if the anticipated synergies of
operating both businesses as one are not achieved, a loss of strategic
opportunities if management is distracted by the integration process, and a
loss of customers if our service levels drop during or following the
integration process.
Following the distribution, we will complete the acquisition of the merchant
acquiring business of CIBC. The integration of CIBC's business with ours
presents several challenges, including the fact that it is almost
9
<PAGE>
entirely based in Canada, where we currently have limited operations. If the
integration process does not proceed smoothly, the following factors could
reduce our revenues, increase our operating costs and result in a loss of the
projected synergies of operating the two businesses as one:
. if we are not successful in integrating the benefits plans, duties and
responsibilities, and other factors of interest to the management and
employees of the acquired business, we could lose employees to our
competitors in Canada, which could significantly affect our ability to
operate the business and complete the integration;
. if the integration process causes any delays with the delivery of our
services, or the quality of those services, we could lose customers to
our competitors; and
. completing the distribution, the acquisition and the related
integration, could divert the attention of our management from other
strategic matters including possible acquisitions and alliances, and
planning for new product development or expansion into new electronic
payments markets.
Following the acquisition of 26.25% of our common stock by CIBC, certain U.S.
banking regulations will limit the types of business in which we can engage.
Following the acquisition of 26.25% of our common stock by CIBC, technically
we will be considered as though we were a subsidiary of CIBC for purposes of
certain U.S. banking regulations, and will be subject to the same restrictions
on our business activities as are applicable to CIBC. As a general matter, we
will be able to operate our merchant service and funds transfer businesses as
we have historically but our ability to expand into unrelated businesses may be
limited unless they are activities the act allows or the Federal Reserve Board
(the primary U.S. federal regulator for CIBC and its U.S.-based subsidiaries)
approves. The applicable regulations are interpreted to mean that a company
will be deemed a subsidiary of a bank holding company, and therefore subject to
the regulations, if the bank holding company owns 25% or more of the equity of
a company. These restrictions are contained in the Bank Holding Company Act, as
recently amended by the Gramm-Leach-Bliley Act. The restrictions on our
business activities would also apply to any investments or alliances that we
might consider.
The Bank Holding Company Act limits CIBC and its subsidiaries to activities
that are closely related to the business of banking. Under the Gramm-Leach-
Bliley amendments, certain well managed and well capitalized companies may
elect to be treated as "financial holding companies," and may thus also engage
in certain financial activities such as insurance and securities underwriting.
CIBC has elected to be a financial holding company. If CIBC ever fails to
maintain its status as a financial holding company, they and we would lose the
benefit of the expanded activities provided by the Gramm-Leach-Bliley
amendments and may have to divest of certain businesses or investments.
In being considered a subsidiary of CIBC for purposes of certain U.S.
banking regulations, we will be subject to supervision and examination by the
Federal Reserve Board. We and CIBC will be required to comply with the Federal
Reserve Board's regulatory requirements prior to commencing new activities,
engaging in acquisitions or making new investments. Should CIBC fail to be in
compliance with the Federal Reserve Board's regulatory requirements, it could
affect our ability to obtain necessary approvals or clearances. Such
limitations could impede our ability to compete with other companies not
subject to such restrictions. For a more complete discussion of the banking
regulations we are subject to please see "Business--Banking Regulations."
With the acquisition of CIBC's merchant acquiring business, we will be exposed
to foreign currency risks and risks from our variable rate credit facility
with CIBC that could reduce our earnings and significantly increase our cost
of capital.
After we acquire the assets of CIBC's merchant acquiring business, we will
have significant operations in Canada which will be denominated in Canadian
dollars. The repatriation of our earnings in Canada will subject
10
<PAGE>
us to the risk that currency exchange rates between Canada and the United
States will fluctuate and we will lose some of our earnings when they are
exchanged into U.S. dollars. Additionally, our credit facility with CIBC will
carry an interest rate based on Canadian Dollar LIBOR (C$LIBOR). This rate
will fluctuate with market rates, and if it increases, our cost of capital
will also increase which will reduce our earnings from operations. The credit
facility will have an initial term of 364 days and is renewable only at the
consent of CIBC. CIBC may choose not to renew the credit facility at which
point we will have to find alternative financing or fund the Canadian
merchants ourselves. Alternative financing may carry a higher interest rate
which would reduce our earnings from operations. We may not have the cash flow
necessary to fund the Canadian merchants ourselves, and we may lose those
customers as a result.
After the acquisition, we will be dependent on CIBC to continue to provide
services to merchants under a transition agreement, and the failure of CIBC
to provide those services could result in our loss of the business of the
merchants we are receiving in the acquisition.
We will enter into a transition agreement with CIBC under which CIBC will
continue to provide some services to the merchants included in the merchant
acquiring business we are acquiring from CIBC. If CIBC does not provide those
services in a satisfactory manner we may not be able to perform such services
ourselves and may not be able to find other third party service providers. In
that instance, the merchants may terminate their contracts with us and move
their business to another electronic processing provider, which could have a
significant effect on our revenues and earnings.
In order for us to continue to grow and increase our profitability, we must
continue to expand our share of the existing electronic payments market and
also expand into new markets, including internet payment systems
Our future growth and profitability depends upon our continued expansion
within the electronic payments markets in which we currently operate, the
further expansion of these markets, the emergence of other markets for
electronic transaction processing, including internet payment systems, and our
ability to penetrate these markets. As part of our strategy to achieve this
expansion, we are continually looking for acquisition opportunities,
investments and alliance relationships with other businesses that will allow
us to increase our market penetration, technological capabilities, product
offerings and distribution capabilities. We may not be able to successfully
identify suitable acquisition, investment and alliance candidates in the
future, and if we do, they may not provide us with the benefits we
anticipated. Once completed, investments and alliances may not realize the
value that we expect.
Our expansion into new markets is also dependent upon our ability to apply
our existing technology or to develop new applications to meet the particular
service needs of each new payment services market. We may not have adequate
financial and technological resources to develop products and distribution
channels that will satisfy the demands of these new markets. If we fail to
expand into new and existing electronic payments markets, we will not be able
to continue to grow our revenues and earnings.
In order to remain competitive and continue to grow our revenues, we must
continually update our products and services, a process which could result in
increased research and development costs in excess of historical levels and
the loss of revenues and customers if the new products and services do not
perform as intended or are not accepted in the marketplace.
The electronic payments market in which we compete includes a wide range of
products and services including electronic transaction processing, reporting
on transactions and other customer support services. The market is
characterized by technological change, new product introductions, evolving
industry standards and changing customer needs. In order to remain
competitive, we are continually involved in a number of research and
developments projects. These projects carry the risks associated with any
research and development effort, including cost overruns, delays in delivery
and performance problems, but in the electronic payments market these risks
are even more acute. Our market is constantly experiencing rapid technological
change. Any delay in the delivery of new products or services could render
them less desirable by our customers, or possibly even obsolete. In addition,
the products and services we deliver to the electronic payments market are
designed to
11
<PAGE>
process very complex transactions and deliver reports and other information on
those transactions, all at very high volumes and processing speeds. Any
performance issue that arises with a new product or service could result in
significant processing or reporting errors. As a result of these factors, our
research and development efforts could result in increased costs that could
reduce our operating profit, a loss of revenue if promised new products are
not timely delivered to our customers, or a loss of revenue or possible claims
for damages if new products and services do not perform as anticipated.
We are dependent on NDC for the provision of critical telecommunications
services, network systems and other related services for the operation of our
business, and the failure of NDC to provide those services in a satisfactory
manner could affect our relationships with customers and our financial
performance.
Under the terms of the intercompany systems/network services agreement
between NDC and us, NDC will provide us with a continuation of the
telecommunication services from the carriers who have and will continue to
provide telecommunication services to NDC, including engineering and
procurement. In addition, NDC will supply us with the necessary network
systems services, including operations and administrative services and
computing hardware and software facilities, technical support for transaction
processing, cash management and file transfer and communications hardware and
software system services. See "The Distribution--Intercompany Systems/Network
Services Agreement." These services, especially telecommunications services,
are an essential communications link between us and our customers and an
essential component of the services that we provide. If NDC should not
continue to perform these services efficiently and effectively, our
relationships with our customers may be adversely affected and customers may
terminate their use of our services. If we are not able to successfully
develop the capacity to provide these services prior to the expiration of our
agreement with NDC or if NDC does not provide such services in an efficient
and effective manner during the term of that agreement, we are not certain
whether we could locate alternative sources of such services, particularly
telecommunications services, or that, if available, such services would be
available on favorable terms.
Our revenues from the sale of services to VISA and MasterCard organizations
are dependent upon our continued VISA and MasterCard certification and
financial institution sponsorship.
In order to provide our transaction processing services, we must be
designated a certified processor by, and be a member service provider of,
MasterCard and an independent sales organization of VISA. This designation is
dependent upon our being sponsored by member clearing banks of both
organizations and our continuing adherence to the standards of the VISA and
MasterCard associations. The member financial
institutions of VISA and MasterCard, some of which are our competitors, set
the standards with which we must comply. If we fail to comply with these
standards, our designation as a certified processor, a member service provider
or as an independent sales organization could be suspended or terminated. The
termination of our member service provider status or our status as a certified
processor, or any changes in the VISA and MasterCard rules that prevent our
registration or otherwise limit our ability to provide transaction processing
and marketing services for the VISA or MasterCard organizations would most
likely result in the loss of these organizations as customers and lead to a
reduction in our revenues.
Increases in credit card association fees may result in the loss of customers
or a reduction in our profit margin.
From time to time, VISA and MasterCard increase the fees (interchange fees)
that they charge processors such as us. We could attempt to pass these
increases along to our merchant customers, but this might result in the loss
of those customers to our competitors who do not pass along the increases. If
competitive practices prevent our passing along all such increased fees to our
merchant customers in the future, we would have to absorb a portion of such
increases thereby increasing our operating costs and reducing our profit
margin.
We may become subject to additional U.S. state taxes that cannot be passed
through to our merchant customers, in which case our profitability could be
adversely affected.
Transaction processing companies like us may be subject to taxation by
various U.S. states on certain portions of our fees charged to customers for
our services. Application of this tax is an emerging issue in our
12
<PAGE>
industry and the states have not yet adopted uniform regulations on this
topic. If we are required to pay such taxes and are not able to pass the tax
expense through to our merchant customers, our operating costs will increase,
reducing our profit margin.
Anti-takeover provisions of our articles of incorporation and by-laws, our
rights agreement and provisions of Georgia law could delay or prevent a
change of control that you may favor
Provisions of our articles of incorporation and by-laws, our rights
agreement and provisions of applicable Georgia law, which will be in effect
after the distribution, may discourage, delay or prevent a merger or other
change of control that shareholders may consider favorable. The provisions of
our articles and by-laws, among other things, will
. divide our board of directors into three classes, with members of each
class to be elected in staggered three-year terms;
. limit the right of shareholders to remove directors;
. regulate how shareholders may present proposals or nominate directors
for election at annual meetings of shareholders; and
. authorize our board of directors to issue preferred shares in one or
more series, without shareholder approval.
Please see "Relationship Between NDC and Global Payments Following the
Distribution--Distribution Agreement," "Description of Global Payments Capital
Stock" and "Anti-takeover Effects of Our Articles of Incorporation, By-laws,
Rights Agreement and Georgia Law" for a more detailed description of these
agreements and provisions.
Also, under Section 355(e) of the Internal Revenue Code the distribution
would be treated as a taxable transaction if one or more persons acquire
directly or indirectly 50% or more of our or NDC's stock (measured by vote or
value) as part of a plan or series of related transactions that is linked to
the distribution under the rules of Section 355(e). For this purpose, any
acquisitions of our stock or NDC stock within two years before or after the
distribution are presumed to be part of such a plan, although NDC or we may be
able to rebut that presumption. If such an acquisition of our stock triggers
the application of Section 355(e), under the tax sharing agreement, we would
be required to indemnify NDC for the resulting tax. This indemnity obligation
might discourage, delay or prevent a change of control that shareholders may
consider favorable. Please see "The Distribution--Certain Federal Income Tax
Consequences" and "Relationship Between NDC and Global Payments Following the
Distribution--Tax Sharing and Indemnification Agreement" for a more detailed
discussion of Section 355(e) of the Code and the tax sharing agreement.
We may not be able or we may decide not to pay dividends at a level
anticipated by shareholders on our common stock, which could reduce your
return on shares you hold.
The payment of dividends is at the discretion of our board of directors and
will be subject to our financial results, our working capital requirements,
the availability of surplus funds to pay dividends and restrictions under our
credit facility. No assurance can be given that we will be able to or will
choose to pay any dividends in the foreseeable future. See "Dividend Policy"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Credit Facility."
13
<PAGE>
FORWARD LOOKING STATEMENTS
When used in this information statement, in documents that we incorporate by
reference and elsewhere by our management, from time to time, the words
"believes," "anticipates," "expects," "intends" and similar expressions are
intended to identify forward-looking statements concerning our business
operations, economic performance and financial condition, including in
particular, our business strategy and means to implement the strategy, our
objectives, the amount of future capital expenditures, the likelihood of our
success in developing and introducing new products and expanding our business,
and the timing of the introduction of new and modified products or services.
For those statements, we claim the protection of the safe harbor for forward-
looking statements contained in the Private Securities Litigation Reform Act of
1995. These statements are based on a number of assumptions and estimates that
are inherently subject to significant risks and uncertainties, many of which
are beyond our control, cannot be foreseen, and reflect future business
decisions that are subject to change. As a result of a variety of factors,
actual results could differ materially from those anticipated in our forward-
looking statements. The factors that could affect our results include: (a)
those set forth under the heading "Risk Factors" in this information statement;
and (b) those set forth from time to time in our press releases and reports and
other filings made with the Securities and Exchange Commission. We caution that
such factors are not exclusive. All of the forward-looking statements made
herein are qualified by these cautionary statements and readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof.
14
<PAGE>
THE DISTRIBUTION
On , 2000, NDC's Board of Directors declared a pro rata
distribution, payable to the holders of record of NDC common stock at the close
of business on the record date of , 2000, equal to 0.8 of a share
of common stock of Global Payments for every share of NDC common stock
outstanding on the record date. The distribution will be effective at 11:59
p.m., Eastern Standard Time, on , 2000. Stock certificates
representing the Global Payments shares will be mailed to record holders by
SunTrust Bank shortly after the effective date of the distribution. Global
Payments shares should be credited to accounts with stockbrokers, banks or
nominees of NDC stockholders that are not record holders on or about
, 2000.
Reasons for the Distribution
The board of directors and management of NDC believe that the distribution
is in the best interests of NDC's stockholders. The following discussion is a
summary of the reasons considered by the board in reaching this conclusion.
NDC has been engaged in both the health information services and eCommerce
businesses for more than two decades. In the last five years there has been a
significant expansion in the range of products and services as well as the
breadth of distribution channels for each line of business. The businesses have
also been affected by market consolidation and specialization as well as by
growing acceptance of the Internet by target markets and customers. As a result
of these changes and other developments, NDC's previous reliance on common
product development, common computer operations and support, and common
marketing management for the two businesses began to cause operational and
management challenges. NDC recognized that these changes called for dedicated
management for each business that could focus on the unique opportunities and
requirements of that business.
Several years ago NDC began a move toward specialization of operations and
personnel by these two businesses. This movement toward specialization
culminated in April 1999 in the establishment for business organizational
purposes of two separate businesses, each with its own chief executive officer
and separate line management, and the related alignment of common staff
support. This realignment along business lines has culminated with NDC's
decision to separate its two businesses through the proposed distribution of
the eCommerce business. Some of the benefits anticipated from the distribution
include:
. Management Focus. The distribution will facilitate and promote greater
management focus. In the last two years, in its efforts to increase
management focus, NDC appointed additional separate management--a chief
executive officer and key operations management--for each of the two
businesses. However, NDC concluded that the limitations and conflicts
resulting from the ownership of both businesses in a single consolidated
group did not permit maximum focus in each line of business.
. Conflicts Among, and Difficulties Setting Corporate Objectives and
Allocations. The common ownership and control of the two businesses
created difficulties in setting company-wide corporate objectives.
Even though NDC's two businesses each had its own chief executive
officer, those officers ultimately were responsible to and under the
control of NDC's chief executive officer and board of directors, as
well as being subject to judgments and requirements of common
financial, legal, and human resources staffs. These corporate groups
had a responsibility for both businesses, but lacked a specific
focus on either. As a result, the ultimate decisions on major
matters affecting each business, including allocations of capital,
staff support, and other resources, had to be made by a group of
persons whose time, energies, and priorities are shared among, as
opposed to being directly tied to one of, these two disparate
businesses.
. Partiality of Customers and Business Partners. Customers are
increasingly partial to doing business with companies whose top
management is exclusively focused on the client's specific business.
Similarly, potential business partners have a preference to partner
with companies whose top management are focused on and understand
the subtleties of their markets as they
15
<PAGE>
attempt to develop compatible products, services, and distribution
models. The creation through the distribution of two separate,
independent companies each with its own management team focused on
their respective business should contribute significantly to
remedying this impaired relationship with customers and business
partners.
. Recruitment of Key Personnel. Being a hybrid company has impaired the
ability of NDC to effectively recruit and secure middle and
professional-level personnel. NDC has experienced significant
competition in recruiting new personnel, particularly from single-
business competitors offering incentive competition directly tied to
the success of the more narrowly focused business involved.
. Retention of Key Personnel. Similar to recruitment, NDC has
experienced added difficulties in the retention of key personnel,
particularly given the perceived attractiveness and perceived
advantages in today's environment of working for a singularly focused
as opposed to hybrid organization.
. Differing Markets and Customers. NDC's two businesses engage in
businesses in distinct and differing markets with widely differing
customers. The ability of a single corporate management team and board
of directors to understand market trends and to focus on and
successfully operate across those businesses has become increasingly
difficult as the nature of the businesses become more complex and
diverging.
. Disparate Business Models. The two businesses compete in two wholly
differing competitive environments requiring increasingly disparate
skill sets and experience. The creation of two separate and independent
organizations through the spin-off of the eCommerce business will better
enable us as well as the health information services business of NDC to
identify, recruit, and retain management and supervisory personnel
possessing the requisite skills and experience singularly focused on,
dedicated to, and necessary to be competitive in the respective
businesses.
. Access to Capital Markets. NDC historically has accessed the capital
markets at the parent company level. In turn, within that corporate
structure, the health information services and eCommerce businesses have
financed their capital needs through intercompany debt and annual
predetermined budgeting mechanisms. To obtain financing, each business
currently competes with the other for a finite amount of capital within
the current corporate structure. As NDC is presently organized, it would
be difficult for the health information services and eCommerce
businesses to separately raise necessary capital on the most attractive
terms for their respective growth and working capital needs based on the
assets, performance, and prospects of their own business. The ability of
NDC, and consequently the health information services and eCommerce
businesses, to raise capital is largely interdependent and co-dependent
of the combined assets, performance, and prospects of the two
businesses. The distribution of Global Payments into a separate, stand-
alone, public company will permit the two businesses to look to and to
raise capital from the public and private capital markets based on the
merits and prospects of its own business without regard to the other.
Manner of Effecting the Distribution
The general terms and conditions relating to the distribution are set forth
in a Distribution Agreement between NDC and Global Payments. For a detailed
discussion of the terms of the agreement see "Relationship Between NDC and
Global Payments Following the Distribution--Distribution Agreement" beginning
on page 20.
The actual total number of Global Payments shares to be distributed will
depend on the number of NDC shares outstanding on the record date. Options to
purchase NDC shares held by NDC employees who will become Global Payments
employees will, under certain conditions, be replaced by options to purchase
Global Payments shares. See "Relationship Between NDC and Global Payments
Following the Distribution-- Employee Benefits Agreement" beginning on page
22.
16
<PAGE>
Fractional shares of Global Payments will not be issued. For those
stockholders who own a fractional NDC share as of the record date, the
distribution agent will aggregate all fractional Global Payments shares that
they are otherwise entitled to into whole shares, and will sell such whole
shares in the open market at then prevailing prices. All stockholders who were
entitled to receive fractional shares of our stock will receive cash in the
amount of their pro rata share of the total sale proceeds, net of brokerage
commissions. Such sales are expected to be made as soon as practicable after
the mailing of the stock certificates to the record holders.
No NDC stockholder will be required to pay any cash or other consideration
for the Global Payments shares received in the distribution, or to surrender or
exchange NDC shares in order to receive Global Payments shares. The
distribution will not affect the number of, or the rights attaching to,
outstanding NDC shares. No vote of NDC stockholders is required or sought in
connection with the distribution, and NDC stockholders will have no appraisal
rights in connection with the distribution.
Results of the Distribution
After the distribution, Global Payments will be a separate public company.
Immediately after the distribution, Global Payments expects to have
approximately holders of record of Global Payments shares and
approximately Global Payments shares outstanding, based on the
number of stockholders of record and outstanding NDC shares on
, 2000. The actual number of Global Payments shares to be
distributed will be determined as of the record date.
The distribution will not affect the number of outstanding NDC shares or any
rights of NDC stockholders.
Listing and Trading of the Global Payments Shares
The Global Payments shares have been approved for listing on the New York
Stock Exchange, subject to official notice of issuance, under the symbol "GPN."
Prior to the distribution, we do not expect any public trading market for
shares to exist, except that beginning on , 2000, the Global
Payments shares are expected to trade on a "when-issued" basis on the New York
Stock Exchange for settlement when the distribution occurs. The term "when-
issued" means trading in shares prior to the time the Global Payments shares
are actually available or issued. If the distribution conditions are not
satisfied and the Global Payments shares are not distributed, all "when-issued"
trading will become null and void. If the distribution closes as planned, it is
expected that "regular way" trading will commence on , 2000 at
9:30 a.m. New York time.
Some of the NDC stockholders who receive Global Payments shares may decide
that they do not want shares in a company that provides our products and
services, and may sell their Global Payments shares following the distribution.
This may delay the development of an orderly trading market in the Global
Payments shares for a period of time following the distribution. Until the
Global Payments shares are fully distributed and an orderly market develops,
the prices at which the Global Payments shares trade may fluctuate
significantly and may be lower or higher than the price that would be expected
for a fully distributed issue. Prices for Global Payments shares will be
determined in the marketplace and may be influenced by many factors, including
the depth and liquidity of the market for the Global Payments shares, Global
Payments' results of operations, investors' perception of Global Payments, its
products and services, the amount of dividends that Global Payments pays,
changes in economic conditions in our industry and general economic and market
conditions.
Following the distribution, NDC common stock will continue to be listed and
traded on the New York Stock Exchange under the symbol "NDC." As a result of
the distribution, the trading price of NDC common stock immediately following
the distribution will likely be lower than the trading price of NDC common
stock immediately prior to the distribution. Until the market has fully
analyzed the operations of NDC without the operations of Global Payments, the
prices at which NDC common stock trades may fluctuate significantly.
17
<PAGE>
Global Payments shares distributed to NDC stockholders will be freely
transferable, except for Global Payments shares received by persons who may be
deemed to be "affiliates" of Global Payments under the federal Securities Act
of 1933. Persons who may be deemed to be affiliates of Global Payments after
the distribution generally include individuals or entities that control, are
controlled by, or are under common control with Global Payments and may include
certain directors, officers and significant shareholders of Global Payments.
Persons who are affiliates of Global Payments will be permitted to sell their
Global Payments shares only pursuant to an effective registration statement
under the Securities Act or an exemption from the registration requirements of
the Securities Act, such as the exemptions afforded by Section 4(1) of the
Securities Act and the brokerage sales provisions of Rule 144 thereunder. We
estimate that persons who may be deemed to be affiliates of Global Payments
immediately after the distribution will beneficially own approximately
Global Payments shares, or less than % of the outstanding
Global Payments shares. We estimate that persons who may be deemed to be
affiliates of Global Payments immediately after the acquisition will
beneficially own approximately Global Payments shares, or less than % of
the outstanding Global Payments shares.
Certain Federal Income Tax Consequences
The following is a summary of the material U.S. federal income tax
consequences of the distribution. It is not intended to address the tax
consequences for every NDC stockholder. In particular, this summary does not
cover state, local or non-U.S. income and other tax consequences. Accordingly,
stockholders are strongly encouraged to consult their individual tax advisors
for information on the tax consequences applicable to their individual
situations. In addition, stockholders residing outside of the United States are
encouraged to seek tax advice regarding the tax implications of the
distribution.
NDC has received a tax ruling from the IRS stating in principle that, among
other things, the distribution will qualify as a tax-free distribution under
Section 355 of the Internal Revenue Code. In accordance with this tax ruling:
. No gain or loss will be recognized by NDC upon the distribution of
Global Payments common stock to NDC's stockholders.
. No gain or loss will be recognized by NDC's stockholders as a result of
their receipt of Global Payments common stock in the distribution except
to the extent that a stockholder receives cash in lieu of any fractional
shares.
. A NDC stockholder who receives cash as a result of the sale of a
fractional share of Global Payments common stock by the distribution
agent on behalf of such stockholder will be treated as having received
the fractional share in the distribution and then having sold the
fractional share. Accordingly, the stockholder will recognize gain or
loss equal to the difference between the cash received and the amount of
tax basis allocable (as described below) to the fractional share. Such
gain or loss will be capital gain or loss if the fractional share would
have been held by the stockholder as a capital asset.
. A stockholder's tax basis in NDC common stock will be apportioned
between NDC common stock and Global Payments common stock received in
the distribution on the basis of the relative fair market values of the
shares at the time of the distribution.
. The holding period for capital gains purposes of Global Payments common
stock received in the distribution will include the holding period of
NDC common stock on which the distribution was made, provided that the
stockholder holds the NDC common stock as a capital asset on the date of
the distribution.
A tax ruling relating to the qualification of a spin-off as a tax-free
distribution within the meaning of Section 355 of the code generally is binding
on the IRS. However, the continuing validity of a tax ruling is subject to
certain factual representations and assumptions. Neither we nor NDC are aware
of any facts or circumstances that would cause the representations and
assumptions contained in the tax ruling request made by NDC to be untrue.
18
<PAGE>
If the distribution were not to qualify as a tax-free distribution, NDC
would recognize taxable gain equal to the excess of the fair market value of
the Global Payments common stock distributed to NDC's stockholders over NDC's
tax basis in the Global Payments common stock. In addition, each NDC
stockholder who receives Global Payments common stock in the distribution would
generally be treated as receiving a taxable distribution in an amount equal to
the fair market value of Global Payments common stock.
Under Section 355(e) of the code, the distribution will be disqualified if
one or more persons acquire directly or indirectly 50% or more of our or NDC's
stock (measured by vote or value) as part of a plan or series of related
transactions that is linked to the distribution under the rules of Section
355(e) of the code. Section 355(e) of the code also creates a rebuttable
presumption that any acquisition that occurred two years before or after a
Section 355(a) distribution is part of such a plan unless it is established
that the distribution and acquisition are not pursuant to a plan or series of
related transactions. If the distribution qualified under Section 355 of the
code but was disqualified under Section 355(e) of the code, NDC would recognize
taxable gain but the distribution would remain generally tax-free to each NDC
stockholder. For example, if there is an acquisition of Global Payments within
two years after the distribution that, together with the distribution, is
treated as pursuant to a single plan, NDC would recognize taxable gain but the
distribution would generally remain tax-free to each NDC stockholder. We are
not aware of any such transactions that would violate Section 355(e) of the
code and, therefore, trigger a gain. In addition, we and NDC have made
representations in the tax sharing agreement that no transactions will occur in
violation of Section 355(e) of the code. No assurance can be given, however,
that such transactions will not occur within the two year period following the
distribution. In the event that such transactions do occur, the party violating
the representations contained in the tax sharing agreement will indemnify the
other for any resulting tax liability.
The foregoing is only a summary of the material U.S. federal income tax
consequences of the distribution under current law and is intended for general
information only. Each NDC stockholder should consult his or her tax advisor as
to the particular consequences of the distribution to such stockholder,
including the application of state, local and non-U.S. tax laws, and as to
possible changes in tax law that may affect the tax consequences described
above.
19
<PAGE>
REASONS FOR FURNISHING THIS DOCUMENT
This information statement is being furnished solely to provide information
to NDC stockholders who will receive Global Payments shares in the
distribution. It is not an inducement or encouragement to buy or sell any
securities of NDC or Global Payments.
RELATIONSHIP BETWEEN NDC AND GLOBAL PAYMENTS
FOLLOWING THE DISTRIBUTION
For purposes of governing certain of the ongoing relationships between NDC
and Global Payments after the distribution and to provide for an orderly
transition to the status of two independent companies, we will enter into the
agreements described in this section with NDC. These agreements were negotiated
before the distribution, and thus were negotiated between affiliated parties.
We anticipate that the terms of these agreements will equitably reflect the
benefits and costs of our ongoing relationship with NDC.
The forms of agreements summarized in this section are included as exhibits
to the Registration Statement on Form 10 that we have filed with the Securities
and Exchange Commission. See "Where You Can Obtain Additional Information"
beginning on page 70.
Distribution Agreement
We will enter into a distribution agreement with NDC which details among
other things the principal corporate transactions required to effect the
distribution and certain other agreements relating to the continuing
relationship between us and NDC after the distribution.
The distribution agreement provides that on or prior to the effective date
of the distribution, NDC will have contributed to Global Payments all of the
issued and outstanding capital stock of those subsidiaries conducting our
business, and all assets, including intellectual property used in the conduct
of NDC's electronic transaction processing and information systems and services
business; and we will have issued to NDC that number of Global Payments shares
equal to the amount of shares to be distributed in the distribution.
The distribution agreement also provides generally that all assets and
liabilities of Global Payments and the business of providing electronic
transaction processing and information systems and services conducted by NDC
prior to the distribution will be vested solely in Global Payments after the
distribution. NDC will have no interest in the assets and business of Global
Payments and will have no obligation with respect to the liabilities of the
business after the distribution. Similarly, Global Payments and its
subsidiaries will have no interest in the assets of NDC's other businesses and
will have no obligation with respect to the liabilities of NDC's businesses
after the distribution.
Under the distribution agreement and effective as of the date of the
distribution, we will assume, and will agree to indemnify NDC against, all
liabilities, litigation and claims, including related insurance costs, arising
out of our business, and NDC will retain, and will agree to indemnify us
against, all liabilities, litigation and claims, including related insurance
costs, arising out of NDC's businesses, excluding the NDC eCommerce business
segment. An indemnified party may not recover from the other party if the
liability is covered by proceeds received by the indemnified party from any
third party insurance policy.
20
<PAGE>
The distribution agreement provides that the distribution will not occur
until all of the following conditions are satisfied or waived by the NDC board
of directors:
. A favorable tax ruling is received from the IRS;
. The registration statement on Form 10, of which this information
statement is a part, has been declared effective under the federal
Securities Exchange Act;
. The Global Payments board of directors named in this information
statement has been elected and the Global Payments articles of
incorporation and by-laws have been adopted and are in effect;
. The Global Payments common stock has been approved for listing on the
New York Stock Exchange, subject to official notice of issuance;
. We have entered into an agreement establishing our new credit facility;
. We have performed our obligations under the distribution agreement; and
. No order shall have been issued, or be in effect, by any court
preventing consummation of the distribution.
Neither we nor NDC are aware of any material consent that is required in
order to complete the distribution, except those otherwise listed above as
separate conditions. The tax ruling, the financing commitment, the
effectiveness of the Form 10 and the approval for listing on the New York Stock
Exchange of the Global Payments common stock have been received.
Following the satisfaction or waiver of the conditions enumerated above, the
distribution agreement provides that on or prior to the effectiveness of the
distribution, NDC will deliver to the distribution agent a certificate or
certificates representing all of the outstanding shares of Global Payments
common stock. NDC will instruct the distribution agent to distribute those
shares on , 2000 or as soon thereafter as practicable in a proportion
equal to 0.8 of a share of Global Payments common stock for each share of NDC
common stock outstanding as of , 2000.
Tax Sharing and Indemnification Agreement
We will enter a tax sharing and indemnification agreement with NDC that will
govern the allocation between the companies of federal, state, local, and
foreign tax liabilities and related tax matters, such as the preparation and
filing of tax returns and tax contests, for the taxable periods before and
after the distribution.
The tax sharing agreement has the following provisions that concern events
which might occur after the distribution that could have an adverse affect on
the tax treatment of the distribution:
. Each company will be responsible for, and will indemnify the other
company from and against, any tax liability resulting from any action
that may be inconsistent with the tax treatment of the contributions to
capital and the distribution as contemplated in the IRS ruling request.
. Each company will be responsible for, and will indemnify the other
company from and against, any tax liability resulting from any breach of
a factual statement or representation made by such indemnifying company
to the IRS in connection with the IRS ruling request.
. To maintain the tax-free treatment of the distribution, there are
material limitations on transactions in which either company may be
involved during the two year period following the distribution date.
Specifically, during this two year period, a company may not engage in
any of the following transactions unless they obtain (i) a private
letter ruling from the IRS or an opinion from tax counsel
21
<PAGE>
providing that the transaction will not affect the tax-free treatment of
the distribution and the preceding contributions of capital, and (ii)
the consent of the other party to the tax sharing agreement:
. the liquidation or merger with another corporation,
. the issuance of more than 35% of the company's capital stock,
. the redemption, purchase, or reacquisition of the company's own
capital stock,
. the disposition or sale, other than in the ordinary course of
business, of more than 40% of the assets constituting the company's
current trades or business being relied upon in the IRS ruling
request,
. the discontinuance of the active conduct of the company's current
trades or businesses being relied upon in the IRS ruling request; or
. any other transaction resulting in the direct or indirect
acquisition of the indemnifying company's stock representing 50% or
greater interest in such company within the meaning of Section
355(e) of the Internal Revenue Code.
If a company enters into any of these transactions, without the required IRS
private letter ruling or opinion from tax counsel, or without the other party's
consent, such company will be responsible for, and will indemnify the other
company from and against, any tax liability resulting from any such
transaction.
The Tax Sharing and Indemnification Agreement also contains the following
technical provisions:
. We will be responsible for the respective federal, state and foreign
income tax liabilities attributable to any of Global Payments'
subsidiaries relating to all taxable periods. Accordingly, we will
indemnify NDC and its subsidiaries against any such tax liabilities
attributable to any of our subsidiaries.
. Similarly, NDC will be responsible for the respective federal, state and
foreign income tax liabilities attributable to NDC or its subsidiaries
relating to all taxable periods. Accordingly, NDC will indemnify us and
our subsidiaries against any such tax liabilities attributable to any of
NDC's remaining subsidiaries.
. Any tax refund or tax benefit received by either company that is on
account of or otherwise attributable to the other company will be paid
by the receiving company to the other company.
. Following the distribution, the company to which a tax return relates
generally will be responsible for preparing and filing such return, with
the other company providing the requisite information, assistance, and
cooperation.
. Each company generally will be responsible for handling, settling, and
contesting any tax liability for which it is liable under the terms of
the tax sharing agreement.
Employee Benefits Agreement
We will enter into an employee benefits agreement with NDC concerning our
employee benefits obligations in connection with the distribution. Under the
agreement, we will assume certain liabilities for pension, welfare and other
employee benefits with respect to our employees and agree to establish certain
benefit plans for these individuals.
The employee benefits agreement does not preclude us from discontinuing or
changing such plans, or establishing any new plans, at any time after the
distribution. In addition, the agreement represents an agreement between NDC
and us and does not create or establish any contract with, or other right or
interest of, any of our employees or those of NDC or any other party with
respect to employee benefits.
22
<PAGE>
Retirement Plans
Effective before or immediately after the distribution, we will establish
our own qualified defined contribution plan under Section 401(k) of the
Internal Revenue Code, and nonqualified supplemental executive retirement plan,
which generally will be the same as NDC's respective plans as in effect at that
time. In addition, NDC will transfer to the Global Payments defined benefit
pension plan a proportionate share of assets allocable to the accrued benefits
for our employees under the NDC defined benefit pension plan. NDC also will
transfer to the Global Payments 401(k) plan assets equal to the account
balances under the NDC 401(k) plan of our employees. We will recognize the
service and compensation of our employees that was recognized previously by the
NDC retirement plans.
Effective as of the date of the distribution, our pilot supplemental
executive retirement plan will assume and we will be solely responsible for the
liabilities under the NDC supplemental executive retirement plan with respect
to the applicable employees. NDC will have no liability after the effective
date of the distribution for the accrued benefits of any Global Payments
employee under the NDC supplemental executive retirement plan.
Health and Welfare Plans
As of the distribution, we will assume all liabilities and responsibilities
for providing health and welfare benefits to our employees. Prior to the
distribution, we understand that NDC will use its best efforts to have each
insurance carrier that insures a NDC health or welfare plan issue a policy to
us that is identical to the respective NDC policy.
Stock and Incentive Compensation Plans
In addition to the plans discussed above, we will establish certain
nonqualified stock and incentive compensation plans and arrangements similar to
those currently offered by NDC. These plans and arrangements include a long-
term incentive plan providing for stock options and awards of restricted stock
for employees and a stock option plan for non-employee directors. The treatment
of awards or grants to our employees under NDC's stock-based plans is described
below. We further intend to establish an employee stock purchase plan under
Section 423 of the code for our employees that will allow them to invest in our
future growth by purchasing Global Payments stock at a discount to market
prices.
Stock Options
Pursuant to the employee benefits agreement, each stock option for NDC
common stock granted under any of NDC's stock option plans and outstanding as
of the date of the distribution will be adjusted to reflect the distribution as
described below.
Each NDC option will be adjusted to reflect the effect of the distribution
by multiplying the number of shares by a fraction:
. the numerator of which is the fair market value of one share of NDC
common stock immediately before giving effect to the distribution,
determined by reference to the closing price of the NDC common stock
trading "regular way" as reported on the New York Stock Exchange on the
day prior to the "ex-dividend" date, and
. the denominator of which is the fair market value of one share of NDC
common stock immediately after giving effect to the distribution,
determined by reference to the opening price of the NDC common stock
trading "regular way" as reported on the New York Stock Exchange on the
"ex-dividend" date.
The result will be rounded down to the nearest whole share. Similarly, the
exercise price of the NDC option will be divided by the same fraction and
rounded up to the nearest cent. Each adjusted NDC option will
23
<PAGE>
otherwise have the same terms and conditions as were applicable to the NDC
option as of the close of the distribution.
For purposes of the option plans, each of our employees will be treated as
if their employment had been terminated by NDC as of the date of the
distribution. Any NDC option held by a Global Payments employee will be
replaced with an option to acquire Global Payments common stock. Each
replacement Global Payments stock option will have an aggregate intrinsic value
equal to or less than the aggregate intrinsic value of the forfeited NDC
option. Each replacement Global Payments option will have the same vesting and
terms as the forfeited NDC option it replaces, except that:
. the Global Payments option will be exercisable for the largest number of
whole shares of Global Payments common stock determined by multiplying
the number of shares of NDC common stock underlying the forfeited NDC
option by a fraction:
. the numerator of which is the fair market value of one share of NDC
common stock immediately before giving effect to the distribution,
determined by reference to the closing price of the NDC common stock
trading "regular way" as reported on the New York Stock Exchange on
the day prior to the "ex-dividend" date, and
. the denominator of which is the fair market value of one share of
Global Payments common stock immediately after giving effect to the
distribution, determined by reference to the opening price of the
Global Payments common stock trading "regular way" as reported on
the New York Stock Exchange on the "ex-dividend" date; and
. the exercise price for the Global Payments option will equal the amount
obtained by dividing the exercise price of the forfeited NDC option by
the same fraction, and rounding up to the nearest cent.
Because Mr. Yellowlees will have continuing responsibilities with Global
Payments after the distribution as the Chairman of our Board of Directors, his
NDC options (other than those that will expire shortly after the distribution,
which will be adjusted as provided above) will be split into options to acquire
Global Payments common stock and NDC common stock. His NDC options will be
adjusted by dividing the exercise price by a fraction:
. the numerator of which is the fair market value of one share of NDC
common stock immediately before giving effect to the distribution,
determined by reference to the closing price of the NDC common stock
trading "regular way" as reported on the New York Stock Exchange on the
day prior to the "ex-dividend" date, and
. the denominator of which is the fair market value of one share of NDC
common stock immediately after giving effect to the distribution,
determined by reference to the opening price of the NDC common stock
trading "regular way" as reported on the New York Stock Exchange on the
"ex-dividend" date and rounding up to the nearest cent. All other terms
of his NDC options, including the number of NDC shares underlying the
option, and time for vesting and exercise, will remain unchanged.
In addition, for each NDC option held by Mr. Yellowlees at the close of the
distribution (other than his NDC options that will expire shortly after the
distribution), Global Payments will grant to him an option to acquire the
largest number of whole shares of Global Payments common stock determined by
multiplying the number of option shares underlying his NDC option by the number
of shares of Global Payments common stock to be distributed for each one share
of NDC common stock in the distribution. The exercise price of such Global
Payments option will be determined by dividing the pre-adjustment exercise
price of his NDC option by a fraction:
. the numerator of which is the fair market value of one share of NDC
common stock immediately before giving effect to the distribution,
determined by reference to the closing price of the NDC
24
<PAGE>
common stock trading "regular way" as reported on the New York Stock
Exchange on the day prior to the "ex-dividend" date, and
. the denominator of which is the fair market value of one share of Global
Payments common stock immediately after giving effect to the
distribution, determined by reference to the opening price of the Global
Payments common stock trading "regular way" as reported on the New York
Stock Exchange on the "ex-dividend" date, and rounding up to the nearest
cent.
All other terms of his Global Payments options, including the time for
vesting and exercise, will be the same as in his adjusted NDC options. The
aggregate intrinsic value of Mr. Yellowlees' Global Payments options and NDC
options immediately after giving effect to the distribution will not be
greater than the aggregate intrinsic value of his NDC options immediately
before giving effect to the distribution.
Restricted Stock Awards
Restricted stock awards held by NDC employees at the date of the
distribution will not be affected by the distribution, except that the holders
thereof will receive a distribution of Global Payments common stock as part of
the distribution. Such shares of Global Payments common stock will bear the
same restrictions and risks of forfeiture as apply to the shares of restricted
NDC common stock as to which they were distributed.
For purposes of the restricted stock awards, each Global Payments employee
will be treated as if their employment had been terminated by NDC as of the
date of the distribution. Any NDC restricted stock award held by a Global
Payments employee will be replaced with a Global Payments restricted stock
award. Such replacement award will consist of the largest whole number of
shares of Global Payments common stock determined by dividing the fair market
value of the forfeited NDC restricted stock award immediately before giving
effect to the distribution by the fair market value of one share of Global
Payments common stock immediately after giving effect to the distribution,
determined by reference to the opening price of the Global Payments common
stock trading "regular way" as reported on the New York Stock Exchange on the
"ex-dividend" date. Such replacement Global Payments restricted stock awards
will have the same restrictions, terms and conditions (including the remaining
vesting periods) as were applicable to the corresponding forfeited NDC
restricted stock awards, except that references to employment will refer to
employment by us or our affiliates rather than by NDC or its affiliates. NDC
will use reasonable efforts to cancel any certificates in such Global Payments
employees' names with respect to restricted shares of NDC common stock.
Employee Stock Purchase Plan
Effective as of the date of the distribution we will establish an employee
stock purchase plan for the benefit of our employees that is substantially
similar to NDC's current plan.
Real Estate Agreements
Headquarters Lease Agreement
We will enter into a lease agreement with NDC for approximately 85,000
rentable square feet of space owned by NDC in Building I of National Data
Plaza. The term of the lease will be for three years, at fair market rental
rates. We will also have the non-exclusive right to use the cafeteria, as well
as the conference rooms on the first floor of Building II. The lease will be a
full service lease, with NDC responsible for performance of all maintenance
and repair as well as payment of all utility costs and real property taxes
associated with Building I. NDC will provide us with an allowance to be
applied toward the cost of re-modeling work as well as additional work
required by us and approved by NDC.
Additional Office Space (Subleases and Assignments)
We will enter into a sub-lease agreement with NDC for a portion of NDC's
existing office space located in San Diego, California. NDC will also enter
into a sub-lease with us for a portion of our existing office space in
25
<PAGE>
St. Louis, Missouri. Both of these sub-lease agreements will be "pass through"
sub-leases with the applicable sub-lessee assuming the obligations of the
existing lease (as in effect on the date of the distribution) with respect to
the sub-leased space. In addition, we will be taking an assignment of several
other NDC office space leases around the country.
Intercompany Systems / Network Services Agreement
The Services. We will enter into an exclusive intercompany services
agreement with NDC for telecommunications services, and transaction processing
services and support.
As part of the telecommunications services under the agreement, we will
continue to receive telecommunications service from the carriers that will
continue to provide telecommunication services to NDC. In addition, NDC will
supply us with the necessary engineering, procurement, operations and
administrative services.
The transaction processing services include facilities, operations, and
technical support for transaction processing and file transfer services.
NDC intends to segregate and split our local area network and wide area
network support and engineering, email support, customer service system
support, financial systems support and personal computer and printer support
functions to us prior to the distribution. In the event that there are some of
these functions that have not been transferred at the time of the distribution,
then NDC will continue to support these functions for a period not to exceed
twelve months (24 months in the case of human resources and payroll systems).
Allocation of Costs. We will be charged for our use of the services based on
an allocation of costs. Where technology and services are shared by NDC and us,
we will pay a percentage of NDC's overall costs based on our share of the
aggregate costs. Where services are provided by NDC to us exclusively, rather
than being shared, we will pay NDC the direct cost of the services. Other
services will be charged to us based on NDC's actual manpower costs to provide
the services, including all costs directly associated with such manpower.
Our allocation of costs will be calculated at the beginning of each fiscal
year, based on the projected use of shared technology services. We will
estimate our need for services monthly on a 12 month rolling forecast basis,
based on which NDC will make commitments of personnel, equipment and other
costs. Actual costs allocated to us will be based on actual costs expended by
NDC to provide our technology needs. In the case of telecommunications
services, where services are provided exclusively to us as identified by the
carrier in its billing to NDC, we will pay those specific charges; otherwise,
costs will be allocated based on proportionate usage. If our actual use of
services is less than projected, our cost will decrease as long as NDC is not
subject to third party contract minimums.
Acknowledgement of certain principles relating to shared systems. In the
agreement, we acknowledge certain principles relating to the fact that the
services NDC will provide will utilize shared systems:
. the computing services will be provided to us by NDC using the same
integrated and networked system that provides similar services to NDC;
. the telecommunications services will be managed and supervised as part
of similar services obtained for NDC's business using the same
integrated and networked system;
. the costs to both parties to obtain telecommunications services will
likely increase if the parties are unable to take advantage of their
combined volume needs;
. the parties are sharing systems, and diminution of quality, or
performance will impact both parties equally; and
. NDC is not providing the services to make a profit.
26
<PAGE>
Term of the Agreement. The initial term of the agreement is three years,
with an option to renew for up to two additional years. If, with our consent,
NDC enters into new contracts for telecommunications services or renews an
existing contract for such services in order to provide telecommunications
services to us, and that contract expires after the term of our agreement with
NDC, then our agreement will be extended until NDC's new telecommunication
contract expires for the sole purpose of obtaining service pursuant to those
contracts. The contract will also be extended for up to 12 months if we ask for
termination assistance services that extend beyond the contract term.
Termination for Convenience. We can terminate the entire services agreement
for convenience by giving NDC at least one year's advance notice and paying the
termination fee. The termination fee will include all costs incurred or to be
incurred by NDC as a result of the termination, including the balance of
software license or maintenance agreements, the book value or remaining lease
balance of any facility installations installed for us, the impact of NDC's
inability to meet telecommunications contract minimums, and one-half of any
other costs reasonably incurred by NDC that are directly related to splitting
or transferring hardware or software to us.
Service Levels. We have agreed with NDC on a procedures manual that sets out
applicable service levels and the remedies we have if such service levels are
not met. If a service level for a particular service is not set forth in the
procedures manual, and we request that one be established, NDC, with our
assistance, will assess the historical service levels for the 12 months prior
to the effective date and will propose a service level. If accepted, it will be
added to the procedures manual. The parties intend that services will be
provided at a level not less than the service levels immediately prior to the
distribution.
Jointly Owned Software. NDC has internally developed certain software, some
of which supported NDC's business and our business. The shared software will be
jointly owned by NDC and us, but each party's use of it will be subject to
certain restrictions. NDC will not be permitted to use the shared software to
operate any business substantially similar to our ecommerce business (except to
perform the services for us). We will not be permitted to use the shared
software to operate any business substantially similar to the health care
information services business of NDC. Neither of us may sell nor license the
shared software to any third party without the consent of the other party.
Transaction Processing Agreement
We will enter into a transaction processing agreement with NDC for a
transition period pursuant to which we will provide NDC with claims processing
for transactions that are not time sensitive, printing services, backup tapes,
system backup and offsite storage services, that are currently performed on
systems that we own. The services will be provided to NDC based on an
allocation of costs. The term of the agreement begins on the date of the
distribution and ends on May 31, 2001, unless extended in accordance with its
terms.
Transition Support Agreement
We will enter into a transition support agreement with NDC prior to the date
of distribution under which, in exchange for the fees specified in such
agreement, NDC will agree to continue to provide tax return preparation, stock
option administration services, lease negotiation and administration services,
and certain other administrative services, and we will agree to provide certain
administrative services to NDC and the use of space in one of our offices. The
transition support agreement will provide that each of Global Payments and NDC
will undertake to provide the same degree of care and diligence as each of us
use in providing these services to our businesses and subsidiaries. Provision
of services under the transition support agreement will terminate no later than
three years following the effective date of the distribution.
27
<PAGE>
CAPITALIZATION
The following table sets forth our historical and pro forma combined debt
and capitalization at August 31, 2000. This data should be read in conjunction
with our historical combined balance sheet and the notes thereto, appearing
elsewhere in this information statement. The pro forma information set forth
below gives effect to the distribution as if it had occurred on August 31, 2000
and the pro forma, as adjusted, gives effect to the distribution as if it had
occurred on August 31, 2000 and the acquisition of CIBC's merchant acquiring
business as if it had occurred on August 31, 2000. This information may not
necessarily reflect the debt and capitalization of Global Payments in the
future or as it would have been had we been a separate, independent company at
August 31, 2000 or had the distribution and the acquisition actually been
effected on such date.
Based upon the relative financial conditions, results of operations and
prospects of NDC and Global Payments, NDC determined that $96.1 million would
be an appropriate allocation to Global Payments of the existing NDC debt at May
31, 2000. For the three months ended August 31, 2000 Global Payments made net
repayments of $21.1 million, thereby reducing this $96.1 million due to NDC to
$75.0 million as of August 31, 2000. Accordingly Global Payments will make a
net cash payment to NDC at the time of the distribution equal to $75.0 million
adjusted for the net cash contributions of eCommerce operations between
September 1 and the actual date of the distribution. This will be the only cash
paid to NDC, except for final adjustments according to the distribution
agreement. We have a commitment for a $110 million revolving line of credit. It
will fund the cash due to NDC to reflect our share of NDC's pre-distribution
debt used to establish our initial capitalization. This line of credit will
also be used to meet our working capital and acquisition needs after the
distribution. Consistent with the allocation of NDC debt at May 31, 2000, NDC
utilized a rollback approach to allocate the anticipated portion of the NDC
consolidated groups debt for all historical periods. This treatment records the
current proposed debt allocation percentage for all historical periods.
<TABLE>
<CAPTION>
August 31, 2000
--------------------------------------
Pro Forma
Historical Pro Forma(1) As Adjusted(2)
---------- ------------ --------------
(In thousands except share data)
<S> <C> <C> <C>
Due to NDC........................... $ 75,014 -- --
Line of credit....................... -- $ 75,014 $ 75,014
Long-term debt, excluding current
portion............................. -- -- --
Shareholder's Equity:
NDC equity investment............... 133,004 -- --
Preferred stock, no par value,
5,000,000 authorized, none issued.. -- -- --
Common stock, no par value,
200,000,000 shares authorized, none
issued and outstanding (Historical)
and 26,279,708 issued and
outstanding (Pro Forma(1))
35,633,502 issued and outstanding
(Pro Forma, as adjusted(2))........ -- -- --
Paid in capital..................... -- 133,004 269,850
Cumulative translation adjustment... (314) (314) (314)
-------- -------- --------
Total Shareholder's Equity........... 132,690 132,690 269,536
-------- -------- --------
Total Capitalization................. $207,704 $207,704 $344,550
======== ======== ========
</TABLE>
--------
(1) Pro forma combined debt and capitalization at August 31, 2000 presents the
financial condition of Global Payments as if the distribution had occurred
on August 31, 2000 with adjustments made for the repayment of the amount
due to NDC with proceeds from a new bank line of credit and
reclassification of the NDC equity investment to paid in capital.
(2) Pro forma, as adjusted, combined debt and capitalization at August 31,
2000, presents the financial condition of Global Payments as if the
distribution and the acquisition of CIBC's merchant acquiring business had
occurred on August 31, 2000, with adjustments made for the repayment of
the amount due to NDC with proceeds from a new bank line of credit,
reclassification of the NDC equity investment to paid in capital and the
issuance of common shares in connection with the acquisition as an
increase to paid in capital.
28
<PAGE>
DIVIDEND POLICY
Our dividend policy will be set by our Board of Directors after the
effective date of the distribution. The declaration and payment of dividends is
at the discretion of our Board of Directors and will be subject to our
financial results and the availability of surplus funds to pay dividends.
Georgia law prohibits us from paying dividends or otherwise distributing funds
to our shareholders, except out of legally available funds. No such
distribution may be made if as a result the company would not be able to pay
its debts as they become due in the usual course of business or its total
assets would be less than the sum of its total liabilities plus the amount that
would be needed, if the company were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution.
The amount of any quarterly cash dividends will depend on a number of
factors, including our financial condition, capital requirements, results of
operations, future business prospects and other factors our Board may deem
relevant, including restrictions on our ability to declare and pay dividends
and distributions on the Global Payments shares. We may, but cannot assure you,
that we will pay cash dividends on our stock in the future. We also cannot
assure you that such dividends, if commenced, will be at a rate equivalent to
that currently paid by NDC or that such dividends will not be increased,
decreased or terminated.
29
<PAGE>
SELECTED FINANCIAL DATA
The selected historical combined financial data of Global Payments set forth
below should be read in conjunction with our combined financial statements,
including the notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
information statement. The income statement data for each of the three fiscal
years ended May 31, 2000 and the balance sheet data as of May 31, 2000 and 1999
are derived from the audited combined financial statements included elsewhere
in this information statement. The income statement data for the three months
ended August 31, 2000 and 1999 and the years ended May 31, 1997 and 1996 and
the balance sheet data as of August 31, 2000 and 1999 and May 31, 1998, 1997
and 1996 are derived from the unaudited combined financial statements that have
been prepared by management.
We were formed in September, 2000 for the purpose of taking title to the
stock of the NDC subsidiaries operating as its eCommerce business. We do not
have a recent operating history as an independent company. Our historical
combined financial statements contained in this document reflect periods during
which neither we nor any of our subsidiaries operated as an independent
company, and certain assumptions were made in preparing such financial
statements.
The financial information we have included in this information statement
reflects the historical results of operations and cash flows of Global Payments
with adjustments made for corporate services provided to us by NDC and interest
expense and related debt based on the current proposed debt allocation
percentage. Operating costs and expenses reflect direct charges of the
eCommerce business together with certain allocations by NDC for corporate
services, communication and other shared services that have been charged to our
company based on usage or other methodologies appropriate for such expenses. In
the opinion of management, these allocations have been made on a reasonable
basis and approximate all the material incremental costs we would have incurred
had we been operating on a stand-alone basis, except for the pro forma
adjustments relating to the distribution included elsewhere in this information
statement.
<TABLE>
<CAPTION>
Selected Financial Data
----------------------------------------------------------------------
Three Months Ended
August 31, Year Ended May 31,
-------------------- ------------------------------------------------
2000 1999 2000 1999 1998 1997 1996
--------- --------- -------- -------- -------- -------- --------
(In thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $ 87,191 $ 89,828 $340,033 $330,051 $291,547 $257,679 $180,924
Operating expenses:
Cost of service........ 45,881 46,022 181,479 169,805 153,518 142,479 95,588
Sales, general and
administrative........ 24,728 23,267 95,342 83,571 80,055 75,622 61,315
--------- --------- -------- -------- -------- -------- --------
Operating income........ 16,582 20,539 63,212 76,675 57,974 39,578 24,021
Other income (expense),
net.................... (2,518) (2,321) (9,440) (10,074) (7,366) (3,134) 2,261
--------- --------- -------- -------- -------- -------- --------
Earnings before income
taxes.................. 14,064 18,218 53,772 66,601 50,608 36,444 26,282
Provision for income
taxes.................. 5,415 7,014 20,725 25,265 19,531 13,811 8,715
--------- --------- -------- -------- -------- -------- --------
Net income.............. $ 8,649 $ 11,204 $ 33,047 $ 41,336 $ 31,077 $ 22,633 $ 17,567
========= ========= ======== ======== ======== ======== ========
Basic earnings per
share(1)............... $ 0.33 $ 0.41 $ 1.24 $ 1.53 $ 1.21 $ 0.93 $ 0.73
Total assets............ $ 285,850 $ 298,706 $287,946 $289,667 $276,753 $260,134 $249,292
Due to NDC.............. $ 75,014 $ 89,875 $ 96,125 $ 89,375 $109,375 $ 71,875 $ 15,000
Long-term obligations... $ 6,506 $ 8,882 $ 7,232 $ 15,774 $ 6,616 $ 5,067 $ 7,876
Total shareholder's
equity................. $ 132,690 $ 106,062 $120,885 $108,013 $ 84,896 $104,044 $168,861
</TABLE>
--------
(1) Using the distribution ratio of 0.8 of a share of Global Payments common
stock for each share of NDC common stock held. Weighted average shares
outstanding is computed by applying the distribution ratio to the
historical NDC weighted average shares outstanding for all periods
presented.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Data," and the other financial information appearing elsewhere in
this information statement. Except for the historical information contained
herein, the discussions in this document contain forward-looking statements
that involve risks and uncertainties. Our actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed under
"Risk Factors" beginning on page 8, as well as those discussed elsewhere in
this information statement.
General
We are one of the largest independent electronic transaction processing
service providers in the world. We provide a wide range of end-to-end
electronic commerce solutions to merchants, corporations, financial
institutions and government agencies. We market our products and services
through a variety of distinct sales channels including a sizable, dedicated
direct sales force, independent sales organizations, independent sales
representatives, an internal telesales group, alliance bank relationships and
financial institutions. We have a high percentage of recurring revenues and
process over 1.6 billion transactions per year servicing more than 775,000
merchant locations.
Components of Income Statement
We derive our revenues from three primary sources: (i) charges based on
volumes and fees for merchant services; (ii) charges based on transaction
quantity; and (iii) equipment sales, leases and service fees. Revenues
generated by these areas depend upon a number of factors, such as demand for
and price of our services, the technological competitiveness of our product
line, our reputation for providing timely and reliable service, competition
within our industry, and general economic conditions.
Cost of service consists primarily of the cost of network telecommunications
capability, transaction processing systems, personnel to develop and maintain
applications and operate computer networks and to provide customer support, and
depreciation and occupancy costs associated with the facilities performing
these functions. Sales, general and administrative expenses consist primarily
of salaries, wages and related expenses paid to sales, non-revenue customer
support functions and administrative employees and management, commissions to
independent contractors, advertising costs, other selling expenses, employee
training costs and occupancy of leased space directly related to these
functions.
Other income and expense consists of minority interest in earnings expense,
interest expense and other miscellaneous items of income and expense.
Our earnings before interest, taxes, depreciation and amortization, or
EBITDA, is defined as operating income plus depreciation and amortization. This
statistic and its results as a percentage of revenue may not be comparable to
similarly titled measures reported by other companies. EBITDA is not a
measurement of financial performance under generally accepted accounting
principles and is not presented as a substitute for net income or cash flow
from operating, investing or financing activities determined in accordance with
generally accepted accounting principles. However, we believe this statistic is
a relevant measurement and provides a comparable cash earnings measure,
excluding the impact of the amortization of acquired intangibles and potential
timing differences associated with capital expenditures and the related
depreciation charges.
31
<PAGE>
Results Of Operations
First Quarter Ended August 31, 2000 Compared to First Quarter Ended August 31,
1999
The following table provides comparisons of our results of operations for
the first quarter ended August 31, 2000 and 1999, respectively:
<TABLE>
<CAPTION>
Three Months Ended August 31,
-------------------------------------------
2000 1999
--------------------- --------------------- 2000 vs.
% of % of 1999
Actual Revenue Actual Revenue Change
------------- ------- ------------- ------- --------
(in millions) (in millions)
<S> <C> <C> <C> <C> <C>
Revenue.................. $87.2 $89.8 (3)%
Operating expenses:
Cost of service......... 45.9 53 % 46.0 51 % -- %
Sales, general and
administrative......... 24.7 28 % 23.3 26 % 6 %
----- --- ----- --- ---
Operating income......... 16.6 19 % 20.5 23 % (19)%
Other income (expense)... (2.5) (3)% (2.3) (3)% (9)%
----- --- ----- --- ---
Earnings before income
taxes................... $14.1 16 % $18.2 20 % (23)%
===== === ===== === ===
Depreciation and
Amortization............ $ 5.0 6 % $ 5.1 6 % (2)%
EBITDA................... $21.6 25 % $25.6 29 % (16)%
Net cash provided by
operating activities.... 17.3 20 % 21.5 24 % (20)%
Net cash used in
investing activities.... (2.0) (2)% (1.9) (2)% 5 %
Net cash used in
financing activities.... (16.8) (19)% (18.9) (21)% (11)%
</TABLE>
Our revenue decrease of $2.6 million or 3% in the first quarter ended
August 31, 2000 reflects volume growth in merchant acquiring card processing
services offset by declines in other merchant services product offerings and
funds transfer offerings compared to the prior year's first quarter. We expect
this decline to continue in the next quarter primarily due to the recent
divesture of product offerings in merchant services and funds transfer.
Cost of service decreased $0.1 million the first quarter ended August 31,
2000 from the prior year's first quarter. As a percentage of revenue, cost of
service increased to 53% in the first quarter ended August 31, 2000 compared to
51% in the prior year's first quarter. These increases are primarily due to a
change in the product and service revenue mix to a higher cost service coupled
with investments in infrastructure, which may continue in the next quarter.
Sales, general and administrative expenses increased $1.4 million or 6% in
the first quarter ended August 31, 2000 from the prior year's first quarter. As
a percentage of revenue, these expenses increased to 28% for the first quarter
ended August 31, 2000 compared to 26% in the prior year's first quarter. These
increases are primarily due to investments in distribution channel expansion,
sales staffing and programs, and management and related corporate costs in
anticipation of becoming a separate public entity.
Operating income decreased $3.9 million or 19% to $16.6 million in the first
quarter ended August 31, 2000 from $20.5 million in the prior year's first
quarter. As a percentage of revenue, our operating income margin decreased to
19% in the first quarter ended August 31, 2000 from 23% in the prior year's
first quarter. This decline is due primarily to the factors described above.
32
<PAGE>
EBITDA for the first quarter ended August 31, 2000 was $21.6 million
compared to $25.6 million in the prior year's first quarter. Earnings before
income taxes were $14.1 million in the first quarter ended August 31, 2000
compared to $18.2 million in the prior year's first quarter.
Total other expense increased $0.2 million for the first quarter ended
August 31, 2000 compared to the prior year's first quarter. This increase was
primarily the result of increased minority interest expense due to improved
partnership earnings and an increase in MasterCard's earnings participation
percentage.
Fiscal Year Ended May 31, 2000 Compared to Fiscal Year Ended May 31, 1999
The following table provides comparisons of our results of operations for
fiscal years 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
--------------------- --------------------- 2000 vs.
% of % of 1999
Actual Revenue Actual Revenue Change
------------- ------- ------------- ------- --------
(in millions) (in millions)
<S> <C> <C> <C> <C> <C>
Revenue................. $340.0 $330.1 3 %
Operating expenses:
Cost of service........ 181.5 53 % 169.8 52 % 7 %
Sales, general and
administrative........ 95.3 28 % 83.6 25 % 14 %
------ --- ------ --- ---
Operating income........ 63.2 19 % 76.7 23 % (18)%
Other income (expense).. (9.4) (3)% (10.1) (3)% (7)%
------ --- ------ --- ---
Earnings before income
taxes.................. $ 53.8 16 % $ 66.6 20 % (19)%
====== === ====== === ===
Depreciation and
Amortization........... $ 20.0 6 % $ 19.9 6 % -- %
EBITDA.................. $ 83.2 24 % $ 96.6 29 % (14)%
Net cash provided by
operating activities... 41.3 12 % 60.5 18 % (32)%
Net cash used in
investing activities... (11.0) (3)% (14.0) (4)% (21)%
Net cash used in
financing activities... (28.9) (9)% (46.2) (14)% (37)%
</TABLE>
Our revenue increase of $9.9 million or 3% in fiscal 2000 reflects 4% growth
in revenue from merchant services product offerings partially offset by a 4%
decline in revenues from funds transfer product offerings compared to the prior
year. We expect this decline in funds transfer revenue to continue in fiscal
2001, primarily due to a recent divestiture of a product offering. The growth
in merchant services revenue is due primarily to the addition of new merchant
relationships coupled with increased usage of credit cards, debit cards and
checks from existing customers.
Cost of service increased $11.7 million or 7% in fiscal 2000 from the prior
year. As a percentage of revenue, cost of service increased to 53% in fiscal
2000 compared to 52% in the prior year. These increases are primarily due to a
change in the product and service revenue mix to a higher cost service coupled
with investments in infrastructure, which may continue in fiscal 2001.
Sales, general and administrative expenses increased $11.7 million or 14% in
fiscal 2000 from the prior year. As a percentage of revenue, these expenses
increased to 28% for fiscal 2000 compared to 25% in the prior year. These
increases are primarily due to investments in distribution channel expansion,
sales staffing and
33
<PAGE>
programs, customer service improvements, product development activities, and
management and related corporate costs in anticipation of becoming a separate
public entity. We anticipate increased expenses for the next fiscal year as a
result of operating as a stand-alone company.
Operating income decreased $13.5 million or 18% to $63.2 million in fiscal
2000 from $76.7 million in the prior year. As a percentage of revenue, our
operating income margin decreased to 19% in fiscal 2000 from 23% in the prior
year. This decline is due primarily to the factors described above.
EBITDA for fiscal 2000 was $83.2 million compared to $96.6 million in the
prior year. Earnings before income taxes were $53.8 million in fiscal 2000
compared to $66.6 million in the prior year.
Total other expense decreased $0.7 million for fiscal 2000 compared to the
prior year. This decrease was primarily the result of decreased interest
expense due to the retirement of the $6.0 million note related to a prior
acquisition.
Fiscal Year Ended May 31, 1999 Compared to Fiscal Year Ended May 31, 1998
The following table provides comparisons of our results of operations for
fiscal years 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------------------- --------------------- 1999 vs.
% of % of 1998
Actual Revenue Actual Revenue Change
------------- ------- ------------- ------- --------
(in millions) (in millions)
<S> <C> <C> <C> <C> <C>
Revenue................. $330.1 $291.5 13 %
Operating expenses:
Cost of service........ 169.8 52 % 153.5 53 % 11 %
Sales, general and
administrative........ 83.6 25 % 80.0 27 % 5 %
------ --- ------ --- ---
Operating income........ 76.7 23 % 58.0 20 % 32 %
Other income (expense).. (10.1) (3)% (7.4) (3)% 36 %
------ --- ------ --- ---
Earnings before income
taxes.................. $ 66.6 20 % $ 50.6 17 % 32 %
====== === ====== === ===
Depreciation and
Amortization........... $ 19.9 6 % $ 18.4 6 % 8 %
EBITDA.................. $ 96.6 29 % $ 76.4 26 % 26 %
Net cash provided by
operating activities... 60.5 18 % 45.8 16 % 32 %
Net cash used in
investing activities... (14.0) (4)% (25.6) (9)% (45)%
Net cash used in
financing activities... (46.2) (14)% (21.4) (7)% 116 %
</TABLE>
The revenue increase of $38.6 million or 13% in fiscal 1999 primarily
reflects the full year impact of the CheckRite acquisition, growth of programs
directed at vertical industry offerings, and growth within the existing
customer base. This growth was reflected in an increase in the volumes of
merchant sales and transactions processed due to a larger customer base and
increased consumer usage of credit cards, debit cards and checks.
Cost of service increased $16.3 million or 11% in fiscal 1999 from the prior
year. The increase was primarily due to higher operating costs associated with
increased transaction growth. Total cost of service, as a percentage of
revenue, was 52% in fiscal 1999 compared to 53% in the prior year.
34
<PAGE>
Sales, general and administrative expenses increased $3.6 million or 5% in
fiscal 1999 from the prior year due primarily to costs related to the
integration of the CheckRite acquisition offset by lower corporate allocated
expenses.
Operating income increased $18.7 million or 32% to $76.7 million in fiscal
1999 from $58.0 million in the prior year. As a percentage of revenue, the
Company's operating income margin increased to 23% in fiscal 1999 from 20% in
the prior year. These increases are primarily due to the factors described
above.
EBITDA for fiscal 1999 was $96.6 million compared to $76.4 million in the
prior year. Earnings before income taxes in fiscal 1999 grew by 32% to $66.6
million from $50.6 million in the prior year.
Total other expense increased $2.7 million for fiscal 1999 compared to the
prior year. This increase was primarily the result of higher interest expense
due to increased utilization of capital leases as a financing option for
capital expenditures.
Liquidity and Capital Resources
Net cash provided by operating activities decreased 20% to $17.3 million for
the first quarter ended August 31, 2000 from $21.5 million for the prior year's
first quarter driven primarily by the decrease in earnings. Net cash used in
investing activities was $2.0 million for the first quarter ended August 31,
2000 compared to $1.9 million in the prior year's first quarter. Net cash used
in financing activities decreased 11% to $16.8 million for the first quarter
ended August 31, 2000 from $18.9 million in the prior year's first quarter.
Cash flow generated from operations provides us with a significant source of
liquidity to meet our needs. At May 31, 2000, we had cash and cash equivalents
totaling $2.8 million. Net cash provided by operating activities decreased 32%
to $41.3 million for fiscal 2000 from $60.5 million for the prior year. This
difference is driven primarily by the decrease in earnings, changes in deferred
income taxes and changes in net merchant processing funds partially offset by
changes in income taxes and reduced accounts receivable. The changes in net
merchant processing funds reflect fluctuations in the timing of credit card
settlement and funding of merchants and may vary from month to month. In
addition to timing and cutoff, the balance is also influenced by volume growth
and interchange rates. The change in income taxes was due to reduced taxable
income and timing of estimated payments. The reductions in accounts receivables
resulted from improved collections.
Net cash used in investing activities was $11.0 million for fiscal 2000
compared to $14.0 million for the prior year. This is primarily due to a 1999
system development project that was completed in early 2000.
Net cash used in financing activities decreased to $28.9 million for fiscal
2000 from $46.2 million in the prior year. The net effect of the payments and
borrowings due to NDC is $6.8 million in borrowings for fiscal 2000 compared to
a $20.0 million payment for the prior year. Principal payments under capital
lease arrangements and other long term debt increased to $9.5 million for
fiscal 2000 from $3.6 million in the prior year due primarily to the retirement
of a $6.0 million note payable related to a prior acquisition.
We believe that our current level of cash and borrowing capacity under our
committed line of credit described below, along with future cash flows from
operations, are sufficient to meet the needs of our existing operations and
planned requirements for the foreseeable future. Over the next two to three
years, we may develop our own hardware and software facilities for the
transaction processing, cash management, file transfer and related
communications functions in an effort to improve productivity and reduce cost
of services. If undertaken, this development would increase our capital
expenditures above historical levels over the next two to three years. In
addition, if we close the acquisition of CIBC's merchant acquiring business, we
will begin the planning and development process which will allow us to assume
the processing services CIBC will initially provide to the Canadian merchants
under a transition agreement. This development effort will also increase our
capital expenditures above historical levels over the next two years. We
regularly evaluate cash requirements for current operations, commitments,
development activities and acquisitions. We may elect to raise additional funds
for these purposes, either through the issuance of debt or equity or otherwise,
as appropriate.
35
<PAGE>
Credit Facility
Our short-term and long-term liquidity needs depend upon our level of net
income, accounts receivable, accounts payable and accrued expenses. We have a
commitment for a $110 million revolving line of credit. It will fund the cash
due to NDC to reflect our share of NDC's pre-distribution debt used to
establish our initial capitalization. This line of credit will also be used to
meet our working capital and acquisition needs after the distribution. This
line has a variable interest rate based on market rates and customary
origination-related fees and expenses. The credit agreement will contain
certain financial and non-financial covenants customary for financings of this
nature. The facility will have a three year term.
Market Risk / Interest Rate Risk
We have secured a commitment for a line of credit which has a variable
interest rate based on LIBOR. Accordingly, we are exposed to the impact of
interest rate movement. We have performed an interest rate sensitivity analysis
over the near term with a 10% change in interest rates. Based on this analysis,
our net income is not subject to material interest rate risk. We also do not
have exposure to material market risk from changes in foreign currency rates,
commodity rates or equity rates.
Seasonality, Inflation and Economic Downturns
We are subject to the impact of general economic conditions; however, this
has historically been tempered by the continued demand for electronic
processing of payments. We are also subject to certain seasonal fluctuations
such as peak activity during the winter holiday buying season.
We do not believe that the rate of inflation has had a material effect on
our operating results because the underlying growth in the mix of electronic
transactions tends to outpace any dampening of sales levels due to higher
inflation.
36
<PAGE>
GLOBAL PAYMENTS' BUSINESS
General
As an electronic transaction processor, we enable consumers, corporations,
and government agencies to purchase goods and services through the use of
credit cards. Our role is to serve as an intermediary in the exchange of
information and funds that must occur between merchants and credit card issuers
before a transaction can be completed. As part of NDC, Global Payments has
provided credit card transaction processing services since 1968. Since that
time, we have expanded our business to include debit card, business-to-business
purchasing card, check guarantee, check verification and recovery, and terminal
management services, and collectively refer to these as our merchant service
offerings. In addition, we provide funds transfer services to domestic and
international financial institutions, corporations, and government agencies in
the United States, Canada, and Europe.
Although a credit card transaction may appear simplistic, a complex process
involving various participants in an intricate series of electronic connections
is necessary to make it possible. Aside from electronic transaction processors,
participants in this process include card issuers, cardholders, merchants, and
card associations. Card issuers are financial institutions that issue credit
cards to approved applicants and are identifiable by their trade name typically
imprinted on the issued cards. The approved applicant is referred to as a
cardholder, and may be any entity for which an issuer wishes to extend a line
of credit, such as a consumer, a corporation, or a government agency.
The term merchant is generally used to refer to any location where a credit
card is used, such as retail stores, restaurants, corporate purchasing
departments, universities, and government agencies. The card may be used at any
merchant location that meets the qualification standards of the card
associations, known as Mastercard and VISA, or other issuers such as American
Express, Discover, and Diners Club. The card associations consist of card
issuer members and were essentially created to establish uniform regulations
that govern much of the industry.
Before a merchant accepts a credit card as a payment alternative to cash, it
must receive information from the card issuer that the card is authentic and
that the impending transaction value will not cause the cardholder to exceed a
defined credit limit. The merchant must also eventually be compensated for the
value of the purchased good, which also involves the card issuer. The card
issuer then seeks reimbursement from the cardholder in the form of a monthly
credit card bill. The merchant and the card issuer, however, generally do not
interface directly with each other, and, instead rely on electronic transaction
processors and card associations to exchange the required information and funds
between them.
Thus, as an electronic transaction processor, we serve as an intermediary in
the exchange of credit card transaction information and funds between merchants
and card associations. The card associations then use a system known as
interchange to transfer the information and funds between electronic
transaction processors and card issuers, thus completing the required link
between merchants and card issuers described above.
We have a high percentage of recurring revenues and process over 1.6 billion
transactions per year servicing more than 775,000 merchant locations. The
acquisition of CIBC's merchant acquiring business will add over 800 million
transactions per year and approximately 140,000 merchant locations in Canada.
Based on this data and on industry publications such as The Nilson Report, we
believe that we are one of the largest electronic transaction processors in the
world. We provide services directly to our merchant customers, as well as to
financial institutions and independent sales organizations who purchase and
resell our services to their own portfolio of merchant customers.
We offer end-to-end services, which means that we believe that we have the
ability to fulfill all of our customers' needs with respect to electronic
transaction processing. We market our services through a variety of sales
channels including a sizable, dedicated sales force, independent sales
organizations, independent sales representatives, an internal telesales group,
alliance bank relationships, and financial institutions. We provide our
services primarily using network telecommunication infrastructure.
37
<PAGE>
Industry Overview / Target Markets
We believe that there are significant opportunities for continued growth in
the application of transaction processing services to the electronic commerce
market. Both the consumer-to-business and business-to-business aspects of
electronic commerce demand a growing array of processing and support services.
A large percentage of retail transactions still utilize cash and checks.
Merchants continue to encourage electronically authorized and settled
transactions using credit and debit cards as a more efficient means of
transacting business. The rapid growth of retail credit card transactions, as
well as the increased utilization of debit cards, has directly correlated to
the historic growth of our business. In addition, we believe that the
proliferation of "loyalty" or co-branded cards that provide consumers with
added benefits should contribute to increased use of credit and debit cards in
the future. Both of these market trends should increase demand for our
services.
Business-to-business electronic data interchange using purchasing card
technology and its associated systems software is providing businesses with
increased efficiency and is providing us with strong growth in industries that
have not traditionally utilized credit cards. Purchasing cards and the related
business-to-business electronic data interchange replace the costly, time-
consuming paper ordering and invoicing with inexpensive, real-time electronic
payment processing transactions.
We believe that the number of electronic transactions will continue to grow
in the future and that an increasing percentage of these transactions will be
processed via the Internet. The Internet will be a major factor in accelerating
the continued conversion from paper to electronic pulse, which will result in
greater growth opportunities for our business. The Internet is an important
component in our strategy for expansion of services to new customers. We
believe that "brick and mortar" retailers will be successful virtual retailers
as they leverage their brand awareness, along with emerging "e-tailers" that
are creating broader transactions markets. Our Internet-related services
include secure credit and debit card processing and tax payment services.
Payment processing service providers such as Global Payments provide high
volume electronic transaction processing and support services directly to
banking institutions and other new entrants into the business. The shift in the
industry from traditional financial institution providers to independent
providers is due in large part to more efficient distribution channels, as well
as increased technological capabilities required for the rapid and efficient
creation, processing, handling, storage, and retrieval of information. These
capabilities have become increasingly complex, requiring significant capital
commitments to develop, maintain, and update the systems necessary to provide
these advanced services at a competitive price.
As a result, several large merchant processors, including our company, have
expanded their operations through the creation of alliances or joint ventures
with banks and have acquired new merchant portfolios from banks that previously
serviced these merchant accounts.
Strategy
Our business strategy centers on providing a full range of electronic
transaction processing services in the markets we serve. We believe that this
strategy provides the greatest opportunity for leveraging our existing
infrastructure and maintaining a consistent base of recurring revenues. We
believe that the electronic commerce market presents attractive opportunities
for continued growth. In pursuing our business strategy, we seek both to
increase our penetration of existing markets and to continue to identify and
create new markets through the following:
. development of value-added applications, enhancement of existing
products, and development of new systems and services;
. expansion of distribution channels (including the Internet); and
. acquisition of, investments in, or alliances with, companies that have
compatible products, services, development capabilities and/or
distribution capabilities.
38
<PAGE>
Products and Services
We operate in one business segment, electronic transaction processing, and
provide products and services through our merchant services and funds transfer
offerings. A summary description of these services follows.
Merchant Services
Our merchant services offerings include credit and debit card transaction
processing, business-to-business purchasing card transaction processing, check
guarantee, check verification and recovery, and terminal management services.
Credit card and business-to-business purchasing card processing are
essentially the same service, except that credit card processing is used to
describe a consumer acquiring goods or services from a retail location, whereas
business-to-business card processing is used to describe a corporate purchasing
department acquiring such goods as office supplies or raw materials from a
corporate vendor. We also provide certain debit card transaction processing
services, which are similar to credit card transactions, except that the
information and funds are exchanged between the merchant and a cardholder's
personal bank account, instead of between the merchant and a credit card
issuer.
Our card processing services can be marketed in several distinct categories:
authorization, electronic draft capture, settlement, retrieval of credit card
receipts, charge back resolution, merchant accounting, risk management, and
support services. Revenue for these services are primarily based on a
percentage of transaction value or on a specified amount per transaction. We
also typically charge for various processing fees, unrelated to number of
transactions or transaction value.
Authorization and electronic draft capture are related services and
generally refer to the process whereby the card issuer indicates whether a
particular credit card is authentic and whether the impending transaction value
will cause the cardholder to exceed a defined credit limit. The authorization
process typically begins when a cardholder presents a card for payment at a
merchant location and the merchant swipes the card's magnetic strip through a
point of sale terminal card reader. The terminal electronically records sales
draft information, such as the credit card identification number, transaction
date, and dollar value of the goods or services purchased, and then
automatically dials a pre-programmed phone number connected to the network of
an electronic transaction processor, such as Global Payments. The electronic
transaction processor then routes the request to the applicable card
association, such as Mastercard or Visa. The card association then routes the
authorization request to the card issuer, who determines a response based on
the status of the cardholder's account. The response is then returned to the
merchant's terminal via the same communication network. This entire
authorization and response process occurs within seconds once the merchant
swipes the card's magnetic strip through the point of sale terminal card
reader.
After a transaction has been authorized, the merchant must be compensated
for the value of the purchased good or service, which is typically described as
settlement. We use our network telecommunication infrastructure and the Federal
Reserve's Automated Clearing House system to ensure that our merchants receive
the proper funds due to them for the value of the goods or services that the
cardholder purchased. We also provide retrieval of credit card receipts and
charge back resolution services, both of which relate to cardholders disputing
an amount that has been charged to their credit card. We not only retrieve the
original sales draft from the merchant location, but also review the dispute
and handle the related exchange of information and funds between the merchant
and the card issuer if a charge is to be reversed.
Our merchant accounting services allow merchants to monitor portfolio
performance, control expenses, disseminate information, and track profitability
through the production and distribution of detailed statements summarizing
electronic transaction processing activity. Our risk management services allow
financial institutions to monitor credit risk, thereby enhancing the
profitability of their merchant portfolios. Our risk management services
include credit underwriting, credit scoring, fraud control, account processing,
and collections. We also provide our customers with various support services,
such as working with merchants to set-up their credit card programs or
resolving issues relating to their terminal card readers.
39
<PAGE>
Check guarantee services include comprehensive check verification and
guarantee services designed for a merchant's specific needs and risk adversity.
Since this offering guarantees all checks that are electronically verified
(primarily using point-of-sale check readers) through our extensive database,
merchants may safely expand their revenue base by applying less stringent
requirements when accepting checks. If a verified check is dishonored, check
guarantee provides the merchant with reimbursement of the check's face value,
and then collects the check through its internal collection services. To
protect against this risk, verification databases are used that contain
information on historical delinquent check writing activity and up-to-date
consumer bank account status. Revenue for these services is primarily derived
from a percentage of the face value of each guaranteed check.
Check verification and recovery services are similar to those provided in
the check guarantee service (verification primarily through point-of-sale check
readers), except that this service does not guarantee its verified checks. This
service provides a low-cost, loss-reduction solution for merchants wishing to
quickly measure a customer's check presentment worthiness at the point of sale,
while not having to incur the additional expense of check guarantee services.
Revenue for these services is primarily derived from the service fees collected
from delinquent check writers, fees charged to merchants based on a transaction
rate per verified check, and fees to charged to merchants for specialized
services, such as electronic re-deposits of dishonored checks.
The terminal management offering provides a variety of products and services
relating to electronic transaction processing equipment, such as terminal
programming and deployment, set-up and telephone training, maintenance and
equipment replacement, warehousing and inventory control, customer service and
technical support, customized reporting, and conversions. We provide these
services directly to our own portfolio of merchants, as well as indirectly to
merchants on behalf of our financial institution and independent sales
organization customers. Revenue is derived from equipment sales and rentals,
programming and deployment fees, and repairs and maintenance services.
Funds Transfer
The electronic funds transfer set of offerings includes a wide variety of
services such as cash management and account balance reporting, management
information and deposit reporting. These products and services provide
financial, management and operational data to corporate and government agencies
worldwide and allow these organizations to exchange such information with
financial institutions and other service providers. We also provide an Internet
tax filing and payment service that allows financial institutions and
government agencies to offer corporate taxpayers a secure and convenient method
of paying taxes electronically. Security on the system is handled through both
encryption/decryption and multi-level password access and operates through a
web site that serves as the portal for securely receiving tax information and
delivering the transaction for payment.
Alliances and Direct Investments
Our strategy includes direct investment in or formation of business
alliances with financial institutions and other distributors as well as with
emerging payment technology companies to leverage our existing customer
relationships and infrastructure and to accelerate product time-to-market.
During fiscal year 2000, we made a direct investment in a company that offers
Internet users secure and convenient ways to make purchases over the Internet.
Additionally, we announced several alliances with emerging payment technology
companies providing capability such as electronic barter and billing through
established vehicles such as phone bills.
Sales and Marketing
We market our services to the electronic commerce markets through a variety
of distinct sales channels including a sizable, dedicated sales force,
independent sales organizations, independent sales representatives, an internal
telesales group, alliance bank relationships, and financial institutions.
40
<PAGE>
Additionally, we market directly to customers primarily through print
advertising and direct mail efforts. We participate in major industry tradeshow
and publicity events and actively employ various public relations campaigns.
This strategy is intended to utilize the lowest delivery cost system available
to successfully acquire target customers.
International Operations
We operate facilities in Canada and Europe as part of our funds transfer
service offerings. We also will operate additional facilities in Canada
following our acquisition of CIBC's merchant acquiring business.
Employees
As of September 30, 2000, Global Payments and its subsidiaries had
approximately 1,600 employees. The acquisition of the CIBC merchant acquiring
business will add approximately 100 employees. Many of our employees are highly
skilled in technical areas specific to electronic transaction processing, and
we believe that our current and future operations depend substantially on
retaining such employees. Our employees are not represented by any labor unions
and we believe our employee relations to be excellent.
Competition
We operate in the payment systems industry. Our primary competitors in this
industry include other independent processors, as well as certain major
national and regional banks, financial institutions and independent sales
organizations. Certain of these companies are privately-held, and the majority
of those that are publicly-held do not release the information necessary to
precisely quantify our relative competitive position. Based on industry
publications such as The Nilson Report, management believes, however, that we
are one of the largest electronic transaction processors in the world.
The most significant competitive factors related to our services are their
value-added features, functionality, price and the reliability of our service,
as well as breadth and effectiveness of distribution channel, the manner in
which we deliver our services.
These competitive factors will continue to change as new distribution
channels and alternative payment solutions are developed by us and our
competitors. Although the Internet does not currently reflect a significant
form of payment processing when compared to traditional forms, it is a rapidly
emerging medium that will likely have a growing impact on the industry.
Our primary strategy to distinguish ourselves from our competitors is
focused on differentiating ourselves by offering a variety of solutions to our
customers. These enhanced services involve vertical market features, and
sophisticated reporting features that add value to the information obtained
from our electronic commerce transaction processing databases. We believe that
our knowledge of these specific markets, the size and effectiveness of our
dedicated sales force, and our ability to offer specific, integrated solutions
to our customers, including hardware, software, processing, and network
facilities, and our flexibility in packaging these products are positive
factors that enhance our competitive position.
Properties
Our corporate headquarters are located in Atlanta, Georgia. We occupy a
five-story 85,000 square foot building at Four Corporate Square in Atlanta,
Georgia. The facility is leased from NDC. Our merchant services business
maintains support operations in Hanover, Maryland in a 35,000 square foot
facility. After the acquisition, our merchant services business will also have
operations based in Toronto, Canada.
In addition to the above facilities, we will lease or rent a total of 34
other facilities. We own or lease a variety of computers and other related
equipment for our operational needs. We continue to upgrade and expand our
computers and related equipment in order to increase efficiency, enhance
reliability, and provide the necessary base for business expansion.
41
<PAGE>
We believe that our facilities and equipment are suitable and adequate for
our business as presently conducted.
Legal Proceedings
We are party to a number of claims and lawsuits incidental to our business.
In our opinion, the ultimate outcome of such matters, in the aggregate, will
not have a material adverse impact on our financial position, liquidity or
results of operations.
Banking Regulations
Following our acquisition of CIBC's merchant acquiring business, CIBC will
own 26.25% of our common stock. As a result of CIBC's equity interest in our
company, we will be considered a subsidiary of CIBC for U.S. bank regulatory
purposes. CIBC is a Canadian Bank with operations in the United States.
Accordingly, CIBC is regulated as a bank holding company under provisions of
the Bank Holding Company Act. In being considered a subsidiary of CIBC, we will
be subject to those same regulations. As a general matter, we will be able to
operate our merchant service and funds transfer businesses as we have
historically but our ability to expand into unrelated businesses may be limited
unless they are activities the act allows or the Federal Reserve Board
approves.
Bank holding companies may engage in the business of banking, of managing
and controlling banks, and in other activities so closely related to managing
and controlling banks as to be a proper incident thereto. The Gramm-Leach-
Bliley legislation was enacted in 1999 and amended the Bank Holding Company Act
to allow greater operational flexibility for bank holding companies that are
well capitalized, well managed and meet certain other conditions. Such
companies are referred to as "financial holding companies." CIBC has elected to
be a financial holding company under the act. Financial holding companies may
engage in activities that are financial in nature, or that are incidental or
complimentary to financial activities. The legislation defines securities and
insurance activities as being permissible financial activities, allows certain
merchant banking activities, and establishes a procedure for the Federal
Reserve to add new activities. The Federal Reserve has taken a very cautious
approach to adding new financial activities to this list of permissible
activities for financial holding companies.
The Federal Reserve acts as umbrella supervisor for financial holding
companies and may establish consolidated capital requirements for such
companies. It has the right to examine all subsidiaries of financial holding
companies which will include our company following the acquisition. If a
financial holding company falls out of compliance with the well-managed, well-
capitalized, community reinvestment requirements, the holding company must
enter into an agreement with the Federal Reserve to rectify the situation. The
Federal Reserve may refuse to allow the financial holding company, which would
include its subsidiaries, to engage in new "financial" activities; may require
it to cease current "financial" activities; and may require it to divest its
bank.
The merchant services and funds transfer businesses that we conduct are
permissible activities for bank holding companies and we do not expect the
limitations described above to adversely affect our current operations. It is
possible, however, that these restrictions might limit out ability to enter
other businesses that we may wish to engage in at some time in the future. It
is also possible that these laws may be amended in the future, or new laws or
regulations adopted, that adversely affect our ability to engage in our current
or additional businesses.
42
<PAGE>
MANAGEMENT
Directors
We expect the following persons to serve as our directors following the
distribution. In addition, at the time we complete the acquisition of CIBC's
merchant acquiring business, we will add two additional directors to be named
by CIBC. Our board of directors will be divided into three classes. Each
director initially will serve until the annual meeting of shareholders held in
the year in which his or her term expires and will serve thereafter for three-
year terms. Of the five directors, one is also expected to serve as an
executive officer.
<TABLE>
<CAPTION>
Term Business Affiliations for the
Name Age Expires Position(s) Past Five Years
---- --- ------- ----------- -----------------------------
<C> <C> <C> <C> <S>
Robert A. Yellowlees.. 61 2002 Chairman Chairman of the Board of NDC
since June 1992; President,
Chief Executive Officer and
Chief Operating Officer of NDC
since May 1992; director of
Protective Life Corporation.
Edwin H. Burba, Jr. .. 64 2001 Director Business Consultant, 1993 to
present; Commander in Chief,
Forces Command, United States
Army, 1989-1993; Commanding
General, Combined Field Army of
the Republic of Korea and
United States, 1988-1989.
Paul R. Garcia........ 48 2002 Director Chief Executive Officer, NDC
eCommerce since July 1999;
President and Chief Executive
Officer of Productivity Point
International from March 1997
to September 1998; Group
President of First Data Card
Services from 1995 to 1997;
Chief Executive Officer,
National Bancard Corporation
(NaBANCO) from 1989 to 1995.
Pete Hart............. 60 2003 Director Business Consultant, October
1997-Present; President and
Chief Executive Officer,
Advanta Corporation (a provider
of financial services) 1995-
1997; Executive Vice Chairman,
Advanta Corporation, 1994;
President and Chief Executive
Officer, MasterCard
International, 1988-1994.
Director, Sanchez Computer
Associates, Ethentica, Inc.,
4AnythingNetwork, HNC Software,
Retek, Inc. and Destiny
Solutions. He is on the
advisory Board of Internet
Capital Group. He also serves
as Chairman of e-PROFILE.
William I Jacobs...... 58 2003 Director Managing Director and Chief
Financial Officer, The New
Power Company (a provider of
residential and small business
energy services), June 2000 to
present; Senior Executive Vice
President, Strategic Ventures
for MasterCard International,
Inc., 1999 to June 2000 and
Executive Vice President,
Global Resources for MasterCard
International, 1995-1999;
Executive Vice President, Chief
Operating Officer, Financial
Security Assurance, Inc. 1984-
1994. Director, The New Power
Company, Blackboard, Inc.,
Mondex International and
Investment Technology Group.
Chairman, Board of Trustees,
American University.
</TABLE>
43
<PAGE>
Committees of the Board of Directors
Our board of directors will establish committees, described below, to assist
in the discharge of its responsibilities. We do not have a nominating
committee. The full board of directors will perform the function which would be
performed by a nominating committee.
Audit Committee
The audit committee will conduct its duties consistent with its charter
which will include a review of the scope and results of the annual audit of the
financial statements and other services provided by our independent
accountants. The audit committee will also evaluate the professional competency
of our financial staff and internal auditors, review the scope of the internal
audit program, review the nature and extent of non-audit professional services
performed by the auditors and annually recommend to the board of directors the
firm of independent public accountants to be selected as our auditors. The
audit committee may also undertake special projects, such as reviewing our
environmental policies.
Compensation Committee
The compensation committee will review and evaluate plans for the
development, training and succession of our management. The committee will also
review our compensation policies and will establish the compensation of our
officers, except for the chief executive officer and chief operating officer.
The committee will recommend the compensation for our chief executive officer
and chief operating officer, subject to the approval of our non-executive
directors. In addition the committee will administer our stock incentive and
stock based compensation plans and other incentive plans. The committee will
also oversee the financial administration and operation of our retirement and
pension plans, including the selection and review of the performance of the
investment funds and the independent investment advisors for the plans. The
full board of directors will approve the selection of the chief executive
officer and the chief financial officer. The compensation committee will
approve selection of all other candidates to executive positions.
Special Committees
The board of directors may from time to time establish special committees to
act on behalf of the board of directors on matters delegated to it by the full
board. This may include matters such as approval of final terms of acquisitions
and divestitures, alliances and capital expenditures.
Compensation Committee Interlocks and Insider Participation
are expected to be the members of the Compensation Committee. None of
the members of the compensation committee served as an officer or an employee
of NDC eCommerce during the previous fiscal year, nor is any member expected to
serve as an officer or an employee of Global Payments following the
distribution.
Directors' Compensation
We will compensate each non-employee director $15,000 in cash and $15,000 in
company stock per year, plus $1,000 for each board meeting he or she attends.
In addition, non-employee directors who serve on one of our committees will
receive $1,000 per meeting and $1,500 per meeting when serving as chairperson
of a committee. A non-employee director who serves as chairman of the board
will be compensated at a rate of $30,000 per year in cash and $30,000 in stock,
as well as a meeting fee of $1,000 per meeting. We will also reimburse each
non-employee director for out-of-pocket expenses incurred in connection with
attendance at Board and committee meetings. Pursuant to the Global Payments
Inc. 2000 Non-Employee Director Stock Option Plan (described below), we will
also grant to each non-employee director options to purchase shares of our
common stock.
44
<PAGE>
Global Payments Inc. 2000 Non-Employee Director Stock Option Plan
On , 2000, our board of directors adopted the Global Payments Inc.
2000 Non-Employee Director Stock Option Plan. NDC, as our sole shareholder
approved the director plan on , 2000, to become effective as of the
date of the distribution. We have reserved 400,000 shares of the authorized but
unissued shares of our common stock for issuance under the director plan. The
full text of the director plan has been filed as an exhibit to the Registration
Statement on Form 10 which we have filed with the SEC. See "Where You Can
Obtain Additional Information."
We established the director plan to encourage ownership of our common stock
by our directors, which gives directors an increased incentive to devote their
efforts to our success on behalf of shareholders. The director plan will also
help us to attract qualified directors.
Each director who is not employed by us or any of our affiliates will be
eligible to participate in the director plan.
Grants of awards under the director plan are automatic. We intend the
director plan to be a "formula plan" for purposes of Section 16(b) of the
Exchange Act. Our board of directors will administer and interpret the director
plan.
Shares subject to the director plan may be authorized but unissued shares or
shares that were once issued and subsequently reacquired by us. The total
number of shares of common stock for which options may be granted under the
director plan is 400,000 shares, subject to adjustment.
Awards granted pursuant to the director plan will be subject to the
following terms and conditions:
. Each person who is a non-employee director on the effective date of the
director plan will be granted an option to purchase shares of our common
stock having a fair market value equal to $125,000 as of that date. Each
person who later becomes a non-employee director will receive a prorata
grant based on the number of full months between the date that he or she
became a non-employee director and the next annual shareholders meeting.
In addition, as of the day following the annual meeting of our
shareholders in 2001, and on the day following each subsequent annual
meeting of our shareholders, each non-employee director serving on that
date will be granted an option to purchase shares of our common stock
having a fair market value on the date of grant equal to $125,000.
. All options granted under the director plan will become exercisable, in
the aggregate, as to 25% of the shares after two years, 45% after three
years, 70% after four years, and 100% after five years of service from
the date of grant, except that an option will become fully exercisable
upon the death, disability or retirement of the grantee, as such terms
are defined in the director plan, or upon the grantee's failure to be
re-nominated or re-elected as a director.
. Upon a grantee's termination as a director for any reason (including by
reason of death, retirement or failure to be re-nominated or re-elected
as a director), the options held by such person under the director plan
will remain exercisable for five years or until the earlier expiration
of the option.
. The exercise price for each option granted under the director plan will
be the fair market value of the shares of common stock subject to the
option on the date of grant. Each option granted under the director plan
will, to the extent not previously exercised, terminate and expire on
the date ten years after the date of grant of the option, unless the
director plan provides earlier termination.
. Options granted under the director plan will be assignable by will, by
the laws of descent and distribution, or pursuant to a qualified
domestic relations order. In addition, any option granted pursuant to
the director plan will be transferable by the grantee to certain
designated family members or trusts or foundations for the benefit of
such family members.
45
<PAGE>
Termination and Amendment
The director plan will terminate automatically on the second day following
our 2010 annual meeting of shareholders, but our board of directors may
terminate the director plan at any time before that date. Our board of
directors may amend the director plan at any time without shareholder approval;
but it may condition any amendment on the approval of our shareholders if such
approval is necessary or deemed advisable with respect to tax, securities or
other applicable laws, policies or regulations. No amendment modification or
termination of the director plan shall adversely affect the rights of the
grantees who have outstanding options without the consent of such grantees.
Certain Federal Income Tax Effects
The options granted under the director plan will be non-qualified stock
options. Present federal income tax regulations impose no federal income tax
consequences to us or a grantee upon the grant of a non-qualified stock option.
When the grantee exercises a non-qualified option, however, he or she will
realize ordinary income in an amount equal to the excess of (1) the fair market
value of the option share that he or she receives upon exercise of the option
at the time of exercise over (2) the exercise price, and we will be allowed a
corresponding federal income tax deduction. Any gain that a grantee realizes
when the grantee later sells or disposes of the option shares will be short-
term or long-term capital gain, depending on how long he or she held the
shares.
Benefits to Non-Employee Directors
There will be four non-employee directors eligible to participate in the
director plan on the effective date. Each of them will be granted on that date
an option to acquire shares of our common stock having a fair market value of
$125,000. Subsequent grants will be made under the director plan as described
above.
46
<PAGE>
Executive Officers
We expect the following individuals, who currently manage our eCommerce
business, to serve as our executive officers following the distribution. Our
board of directors may appoint additional executive officers from time to time.
<TABLE>
<CAPTION>
Position with Global Payments
and Principal Business
Affiliations for Past Five
Name Age Current Position(s) Years
---- --- ------------------- -----------------------------
<C> <C> <C> <S>
Paul R. Garcia... 48 Chief Executive Officer Chief Executive Officer, NDC
eCommerce since July 1999;
President and Chief Executive
Officer of Productivity Point
International from March 1997
to September 1998; Group
President of First Data Card
Services from 1995 to 1997;
Chief Executive Officer,
National Bancard Corporation
(NaBANCO) from 1989 to 1995.
Thomas M. Dunn... 43 Chief Operating Officer Chief Operating Officer, NDC
eCommerce since March 1999;
and General Manager,
Integrated Payment Systems, a
division of NDC eCommerce,
from June 1996 to March 1999;
Group Vice President from
August 1992 to June 1996.
James G. Kelly... 38 Chief Financial Officer Chief Financial Officer, NDC
eCommerce since April 2000;
Managing Director with Alvarez
& Marsal from March 1996 to
April 2000; Director with
Alvarez & Marsal from 1992 to
1996 and Associate with
Alvarez & Marsal from 1990 to
1992; and Manager with Ernst &
Young's mergers and
acquisitions/audit groups from
1989 to 1990.
Barry W. Lawson.. 54 Chief Information Officer Chief Information Officer, NDC
eCommerce since November 1999;
CEO Systems and Network
Consultants from April 1996 to
October 1999; and Chief
Operating Officer of National
Bancard Corporation (NaBANCO)
from August 1993 to March
1996.
</TABLE>
There is no family relationship between any of our executive officers or
directors and there are no arrangements or understandings between any of our
executive officers or directors and any other person pursuant to which any of
them was elected an officer or director, other than arrangements or
understandings with our directors or officers acting solely in their capacities
as such. Generally, following the distribution, our executive officers will
serve at the pleasure of our board of directors.
47
<PAGE>
Historical Compensation of Our Executive Officers
The following table sets forth certain information concerning compensation
paid by NDC for services in all capacities awarded to, earned by, or paid to
our chief executive officer and our other three most highly compensated
executives. During the time period reflected in the following tables, the
individuals were compensated in accordance with NDC's plans and policies, and
all references in the following tables to stock and stock options relate to
awards of stock and stock options granted by NDC and have not been adjusted to
give effect to the distribution. These tables do not reflect the compensation
the officers will receive following the distribution. NDC options held by our
employees will be replaced by our options. The option price and number of
shares subject to each option will be adjusted so that the aggregate difference
between the market price and the option price will be the same for our new
option and the terminated NDC option.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards
----------------------- --------------------------
Restricted Securities
Name and Principal Fiscal Stock Underlying All Other
Position Year Salary($) Bonus($) Award(s)($)(1) Options(#) Compensation($)
------------------ ------ ---------- --------- -------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Paul R. Garcia............ 2000 369,039(2) 127,500(2) 2,555,530(5) -- (4) 51,095
Chief Executive Officer 1999 -- -- -- -- --
1998 -- -- -- -- --
Thomas M. Dunn............ 2000 300,000 80,000 585,000 -- 6,934
Chief Operating Officer 1999 232,308 140,000 190,585 9,200 6,264
1998 180,000 120,000 40,505 20,000(3) 11,786
James G. Kelly............ 2000 39,231(2) -- 849,988(5) 57,000(3) --
Chief Financial Officer 1999 -- -- -- -- --
1998 -- -- -- -- --
Barry W. Lawson........... 2000 144,231(2) 80,000 300,825(5) 42,000(3) --
Chief Information Officer 1999 -- -- -- -- --
1998 -- -- -- -- --
</TABLE>
--------
(1) Awards of restricted shares to Messrs. Garcia and Dunn have been made under
NDC's 1983 stock option plan. Awards of restricted stock to Messrs. Kelly
and Lawson have been made under NDC's 2000 Long Term Incentive Plan. These
are valued in the table based upon the closing market prices of the NDC
common stock on the grant dates. Grantees have the right to vote and
dividends are payable to the grantees with respect to all awards of
restricted shares reported in this column. The restrictions on 339; 340;
340; 354; 354 and 355 shares awarded to Mr. Dunn expired or shall expire on
8/1/98; 8/1/99; 8/1/00; 8/25/99; 8/25/00; and 8/25/01, respectively. The
value of the restricted stock held by the named executive officers at May
31, 2000 was $1,225,543; $592,950; $707,575; $277,956 for Messrs. Garcia,
Dunn, Kelly and Lawson, respectively. The numbers of shares of restricted
stock held by Messrs. Garcia, Dunn, Kelly and Lawson, at May 31, 2000 were
55,555; 26,879; 32,075; 12,600, respectively.
(2) Mr. Garcia began full time employment in July of 1999. Mr. Kelly began full
time employment in April of 2000. Mr. Lawson began full time employment in
November of 1999.
(3) Such awards are intended to be awards for more than one year.
(4) Stock options were granted to Mr. Garcia during fiscal year 2000 but were
voluntarily surrendered on 5/31/00.
(5) Such awards were intended as one time awards at time of hire.
48
<PAGE>
Option Grants In Last Fiscal Year
Shown below is additional information on grants of stock options made under
the NDC stock incentive plans during NDC's fiscal year ended May 31, 2000.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
------------------------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise or Grant Date
Options Employees in Base Expiration Present
Name Granted(#) Fiscal Year Price($/Sh) Date Value($)(1)
---- ---------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Paul R. Garcia..... -- -- -- -- --
Thomas M. Dunn..... -- -- -- -- --
James G. Kelly..... 57,000(2) 4.9% $26.50 4/10/10 $806,071
Barry W. Lawson.... 42,000(2) 3.6% $23.875 11/1/09 $532,354
</TABLE>
--------
(1) These grant date values, based on the Black-Scholes option pricing model,
are for illustrative purposes only, and are not intended to be a forecast
of what future performance will be. These values are based on the following
assumptions: (i) an expected stock price volatility of 50%; (ii) a risk-
free rate of return of 6.5%; (iii) an expected dividend yield of 1.0%; and
(iv) an expected grant life of 7 years.
(2) Such awards are intended to be awards for more than one year.
Aggregated Option / Stock Appreciation Right Exercises In Last Fiscal Year And
Fiscal Year-End Option / Stock Appreciation Rights Values
Shown below is information concerning the number of NDC shares each
executive officer acquired upon exercise of stock options and the aggregate
gains realized on exercises during the fiscal year ended May 31, 2000. The
table also sets forth the number of shares underlying exercisable and
unexercisable options held by each officer executive on May 31, 2000 and the
aggregate gains that would have been realized if these options were exercised
on May 31, 2000.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options at
Shares Year-End(#) Fiscal Year-End($)
Acquired on Value ------------------------- -------------------------
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul R. Garcia.......... -- -- -- -- -- --
Thomas M. Dunn.......... 12,750 438,296 23,620 31,180 141,962 1,912
James G. Kelly.......... -- -- -- 57,000 -- --
Barry W. Lawson......... -- -- -- 42,000 -- --
</TABLE>
49
<PAGE>
Defined Benefit Retirement Plans
The following table shows estimated annual retirement benefits payable to
participants in the NDC Retirement Plan and the pilot NDC supplemental
executive retirement plan on a straight life annuity basis upon retirement in
specified years of continuous service and remuneration classes.
Estimated Annual Retirement Benefits
Years of Continuous Service(1)
<TABLE>
<CAPTION>
Three-Year
Average
Earnings 10 15 20 25 30 35
---------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
$200,000 48,000 72,000 83,000 94,000 105,000 116,000
250,000 60,000 90,000 103,750 117,500 131,250 145,000
300,000 72,000 108,000 124,500 141,000 157,500 174,000
350,000 84,000 126,000 145,250 164,500 183,750 203,000
400,000 96,000 144,000 166,000 188,000 210,000 232,000
450,000 108,000 162,000 186,750 211,500 236,250 261,000
500,000 120,000 180,000 207,500 235,000 262,500 290,000
550,000 132,000 198,000 228,250 258,500 288,750 319,000
600,000 144,000 216,000 249,000 282,000 315,000 348,000
650,000 156,000 234,000 269,750 305,500 341,250 377,000
700,000 168,000 252,000 290,500 329,000 367,500 406,000
750,000 180,000 270,000 311,250 352,500 393,750 435,000
800,000 192,000 288,000 332,000 376,000 420,000 464,000
850,000 204,000 306,000 352,750 399,500 446,250 493,000
900,000 216,000 324,000 373,500 423,000 472,500 522,000
950,000 228,000 342,000 394,250 446,500 498,750 551,000
</TABLE>
--------
(1) The average annual earnings for the highest three years over the last 10-
year period and the eligible years of credited service as of May 31, 2000
for the only named executive officer participating in the pilot NDC
executive retirement plan was as follows: Mr. Dunn (over 11 years)--
$316,487. The amounts shown in the columns "Salary" and "Bonus" in the
Summary Compensation Table above are substantially equal to the
compensation of the individuals named in such table for purposes of the
pilot NDC executive retirement plan and the NDC Retirement Plan. Federal
regulations, however, cap the total compensation that may be considered in
providing benefits under the Retirement Plan.
Long-Term Incentive Plan
On , 2000, we adopted the Global Payments 2000 Long-Term Incentive
Plan. NDC, as our sole shareholder approved the option plan on , 2000.
We have reserved 800,000 shares of the authorized but unissued shares of our
common stock for issuance under the option plan. The full text of the option
plan has been filed as an exhibit to the Registration Statement on Form 10
which we have filed with the SEC. See "Where you can Obtain Additional
Information."
We established the option plan to promote success by linking the personal
interests of our employees, officers and directors to those of our
shareholders, and by providing participants with an incentive for outstanding
performance. As of the distribution date, there will be approximately
people eligible to participate in the option plan.
The option plan authorizes the granting of the following awards:
. options to purchase shares of common stock, which may be incentive stock
options or non-qualified
. stock appreciation rights
50
<PAGE>
. performance shares
. restricted stock
. dividend equivalents
. other stock-based awards
. any other right or interest relating to common stock, or
. cash.
Our compensation committee will administer the option plan. The committee
has the authority to designate participants; determine the types of awards to
be granted to each participant and the number, terms and conditions thereof;
establish, adopt or revise any rules and regulations as it may deem advisable
to administer the option plan; and make all other decisions and determinations
that may be required under the option plan. All awards under the option plan
will be evidenced by a written award agreement between us and the participant,
which will include any provisions specified by the committee.
Subject to adjustment as provided in the option plan, the aggregate number
of shares reserved and available for awards under the option plan is
shares, plus an annual increase equal to the lesser of shares or the number
of shares necessary to bring the total number of available shares to 3.5% of
the fully diluted shares outstanding. The increase will be effective on the
last day of each fiscal year, beginning in 2001 and ending in 2005. Not more
than 15% of the total authorized shares may be granted as awards of restricted
stock or unrestricted stock awards. The maximum number of shares underlying
options and/or stock appreciation rights that may be granted during any one
calendar year under the option plan to any one person is . The maximum fair
market value of any awards (other than options and stock appreciation rights)
that may be received by a participant (less any consideration paid by the
participant for such award) during any one calendar year under the option plan
is $ .
Pursuant to section 162(m) of the Internal Revenue Code, we may not deduct
compensation in excess of $1 million paid to our chief executive officer and
our other four most highly compensated executive officers. We designed the
option plan to comply with code section 162(m) so that the grant of options and
stock appreciation rights under the option plan, and other awards, such as
performance shares, that are conditioned on the performance goals described in
the option plan, will be excluded from the calculation of annual compensation
for purposes of code section 162(m) and will be fully deductible by us. In
order to preserve full deductibility under code section 162(m), the committee
may determine that any award will be determined solely on the basis of:
. the achievement by Global Payments or any parent or subsidiary of Global
Payments of a specified target return, or target growth in return, on
equity or assets,
. total shareholder return (Global Payments' stock price appreciation plus
reinvested dividends) relative to a defined comparison group or target
over a specific performance period,
. Global Payments' stock price,
. the achievement by Global Payments or a business unit of Global
Payments, a parent or subsidiary of a specified target, or target growth
in, revenue, profit contribution, net income, EBIT, EBITDA, return on
investment, return on assets or earnings per share,
. the achievement by Global Payments or a business unit of Global
Payments, a parent or subsidiary of a specified target, or target growth
in, operating income and/or margin percentage of revenue, or
. any combination of the above.
51
<PAGE>
Limitations on Transfer
No participant may transfer or assign an award under the option plan other
than by will or the laws of descent and distribution or, except in the case of
an incentive stock option, pursuant to a qualified domestic relations order.
The committee may permit other transfers if it deems appropriate.
Acceleration of Vesting Upon Certain Events
Upon a participant's death or disability, all of his or her outstanding
awards will become fully vested and exercisable. The awards will thereafter
continue or terminate in accordance with the other provisions of the option
plan and the award agreement. In addition, the committee may at any time in its
discretion declare any or all awards to be fully or partially vested and
exercisable. The committee may discriminate among participants or among awards
in exercising such discretion.
Effect on Options of Retirement
Upon a participant's retirement (as defined in the option plan), all of his
or her outstanding options will fully vest and will remain exercisable for five
years or until the earlier expiration of the option.
Termination and Amendment
Our board of directors or the committee may at any time amend or terminate
the option plan without shareholder approval, but it may condition any
amendment on the approval of its shareholders if such approval is necessary or
advisable under tax, securities or other applicable laws, policies or
regulations. The committee may amend or terminate any outstanding award without
the participant's approval, but the amendment or termination may not, without
the participant's consent, reduce or diminish the value of the award determined
as if it had been exercised, vested, cashed in or otherwise settled on the date
of such amendment or termination.
Certain Federal Income Tax Effects
The following discussion is a summary of the federal income tax provisions
relating to the grant and exercise of awards under the option plan and the
subsequent sale of common stock acquired under the option plan. The tax effect
of exercising awards may vary depending upon the particular circumstances, and
the income tax laws and regulations change frequently.
. Non-qualified Stock Options. There will be no federal income tax
consequences to a participant or to us upon the grant of a non-qualified stock
option. When the participant exercises a non-qualified option, however, he or
she will realize ordinary income in an amount equal to the excess of (1) the
fair market value of the option shares that he or she receives upon exercise of
the option at the time of exercise over (2) the exercise price, and we will be
allowed a corresponding federal income tax deduction, subject to applicable
limitations. Any gain that a participant realizes when the participant later
sells or disposes of the option shares will be short-term or long-term capital
gain, depending on how long he held the shares.
. Incentive Stock Options. There typically will be no federal income tax
consequences to a participant or to us upon the grant or exercise of an
incentive stock option. If the participant holds the option shares for the
required holding period of at least two years after the date the option was
granted or one year after exercise the option, the difference between (1) the
exercise price and (2) the amount realized upon sale or disposition of the
option shares will be long-term capital gain or loss, and we will not be
entitled to a federal income tax deduction. If the participant disposes of the
option shares in a sale, exchange, or other disqualifying disposition before
the required holding period ends, he or she will realize taxable ordinary
income in an amount equal to the excess of (1) the fair market value of the
option shares at the time of exercise over (2) the exercise price, and we will
be allowed a federal income tax deduction equal to such amount, subject to
applicable limitations. While the exercise of an incentive stock option does
not result in current taxable income, the excess of (1) the
52
<PAGE>
fair market value of the option shares at the time of exercise over (2) the
exercise price will be an item of adjustment for purposes of determining the
participant's alternative minimum tax income.
. Stock Appreciation Rights. The participant will not recognize income, and
we will not be allowed a tax deduction, at the time a stock appreciation right
is granted. When the participant exercises the stock appreciation right, the
amount of cash and the fair market value of any shares of common stock received
will be ordinary income, and we will be allowed a tax deduction equal to that
amount, subject to applicable limitations.
. Restricted Stock. Unless a participant makes an election to accelerate
recognition of the income to the date of grant as described below, the
participant will not recognize income, and we will not be allowed a tax
deduction, at the time a restricted stock award is granted. When the
restrictions lapse, the participant will recognize ordinary income equal to the
fair market value of the common stock as of that date (less any amount he paid
for the stock), and we will be allowed a corresponding federal income tax
deduction at that time, subject to applicable limitations. If the participant
files an election under Section 83(b) of the Code within 30 days after the date
of grant of the restricted stock, he will recognize ordinary income as of the
date of grant equal to the fair market value of the stock as of that date (less
any amount a participant paid for the stock), and we will be allowed a
corresponding federal income tax deduction at that time, subject to applicable
limitations. Any future appreciation in the stock will be taxable to the
participant at capital gains rates. However, if the stock is later forfeited,
he or she will not be able to recover the tax previously paid pursuant to his
or her section 83(b) election.
. Performance Shares. A participant will not recognize income, and we will
not be allowed a tax deduction, at the time performance shares are granted.
When the participant receives payment under the performance shares, the amount
of cash and the fair market value of any shares of stock received will be
ordinary income to the participant, and we will be allowed a corresponding tax
deduction at that time, subject to applicable limitations.
Benefits to Named Executive Officers and Others
As of the date of this information statement, no awards had been granted or
approved for grant under the option plan, other than replacement awards for NDC
options forfeited as a result of the distribution. Any future awards under the
option plan will be made at the discretion of the committee or our board of
directors. Consequently, it is not presently possible to determine either the
benefits or amounts that will be received by any particular person or group
pursuant to the option plan.
Global Payments Employee Stock Purchase Plan
On , 2000, we adopted the Global Payments Inc. 2000 Employee Stock
Purchase Plan. NDC, as our sole shareholder, approved the stock purchase plan
on , 2000. The full text of the stock purchase plan has been filed as
an exhibit to the Registration Statement on Form 10 which we have filed with
the SEC. See "Where You Can Obtain Additional Information."
We established the stock purchase plan to encourage ownership of our common
stock among our employees and employees of our subsidiaries that we designate
as eligible to participate in the stock purchase plan.
Our compensation committee will administer the stock purchase plan. Subject
to the express provisions of the stock purchase plan, the committee has
authority to interpret and construe the provisions of the stock purchase plan,
to adopt rules and regulations for administering the stock purchase plan, and
to make all other determinations necessary or advisable for administering the
stock purchase plan. The committee will select from time to time an
administrator to operate and perform the daily administration of the stock
purchase plan and maintain records of the stock purchase plan.
53
<PAGE>
A maximum of 1,200,000 shares of our common stock will be made available for
purchase by participants under the stock purchase plan, subject to appropriate
adjustment for stock dividends, stock split or combination of shares,
recapitalization or other changes in our capitalization. The shares issuable
under the stock purchase plan may be issued out of authorized but unissued
shares or may be shares issued and later acquired by us. We may use all cash
received or held by us under the stock purchase plan for any corporate purpose.
All of our employees or employees of our participating subsidiaries who are
regularly scheduled to work at least 20 hours each week and at least five
months each calendar year are eligible to participate in the stock purchase
plan. As of the distribution date, there will be approximately
employees eligible to participate in the stock purchase plan.
An eligible employee may elect to become a participant in the stock purchase
plan by filing with the administrator a request form, which authorizes a
regular payroll deduction from the employee's paycheck. A participants' request
form authorizing a payroll deduction will remain effective from offering period
to offering period until amended or canceled. Offering periods are the three-
month periods beginning January 1, April 1, July 1 and October 1 of each year
during which options to purchase common stock are outstanding under the stock
purchase plan. The first offering period will begin on the first trading day
following distribution and will end on March 31, 2001. A participant's payroll
deduction must be in any whole dollar amount or percentage from one to twenty
percent of such participant's eligible compensation payable each pay period,
and at any other time an element of eligible compensation is payable. A
participant may not make cash contributions or payments to the stock purchase
plan.
We will establish a book account for each participant, to which the
participant's payroll deductions will be credited, until these amounts are
either withdrawn, distributed or used to purchase common stock, as described
below. No interest will be credited on these cash amounts. Whole shares of
common stock will be held in the participant's account until distributed as
described below.
On the first day of each offering period we will grant to each eligible
employee an option to purchase on the last day of the offering period (the
"purchase date") at the price described below (the "purchase price") the number
of full shares of common stock which the cash credited to the participant's
account at that time will purchase at the purchase price. An employee may not
be granted an option for an offering period if immediately after the grant, he
or she would own five percent or more of the total combined voting power or
value of all classes of stock of Global Payments or any of its subsidiaries. A
participant cannot receive options that, in combination with options under
other plans qualified under section 423 of the code, would result in the
purchase of shares having an aggregate fair market value of more than $25,000
during any calendar year. The maximum number of shares of common stock that any
participant may purchase in the stock purchase plan during any one offering
period is 1,600 shares.
Unless the cash credited to a participant's account is withdrawn or
distributed, his or her option to purchase shares of common stock will be
deemed to have been exercised automatically on the purchase date. We will
refund to the participant the cash balance, if any, remaining in the
participant's account at the end of an offering period without interest. The
purchase price will be the lesser of (i) 85% of the fair market value of the
common stock on the first trading day of the offering period; or (ii) 85% of
the fair market value of the common stock on the last trading day of the
offering period. Since the shares will be purchased at less than market value,
employees will receive a benefit from participating in the stock purchase plan.
A participant may not transfer options granted under the stock purchase plan
other than by will or by the laws of descent and distribution. The participant
may exercise the options only during his or her lifetime. Participation in the
stock purchase plan will not be deemed to give to any employee the right to be
retained as our employee or an employee of any of our subsidiaries. If a
participant terminates employment, the cash balance in the participant's
account will be returned to him or her in cash, without interest, as soon as
54
<PAGE>
practicable, and certificates for the shares of common stock credited to the
participant's account will be distributed as soon as practicable or other
appropriate evidence of ownership effected.
The committee may amend or terminate the stock purchase plan at any time,
but no amendment may affect any outstanding right (unless required by law) or,
unless previously approved by our shareholders if required by applicable law or
rule, no amendment may materially affect the eligibility requirements or
increase the number of shares of common stock eligible for purchase under the
stock purchase plan. If the stock purchase plan is terminated, the
administrator will terminate all contributions to the stock purchase plan and
distribute participants' cash balances as soon as practicable, without
interest.
Certain Federal Income Tax Effects
The stock purchase plan is designed to qualify as an employee stock purchase
plan under section 423 of the code. A general summary of the federal income tax
consequences regarding the stock purchase plan is stated below.
Neither the grant nor the exercise of options under the stock purchase plan
will have a tax impact on us or the participant. If a participant disposes of
the common stock acquired upon the exercise of his or her options after at
least two years from the date of grant and one year from the date of exercise,
then the participant must treat as ordinary income the amount by which the
lesser of (1) the fair market value of the common stock at the time of
disposition, or (2) the fair market value of the common stock at the date of
grant, exceeds the purchase price. Any gain in addition to this amount will be
treated as a capital gain. If a participant holds common stock at the time of
his or her death, the holding period requirements are automatically deemed to
have been satisfied and he or she will realize ordinary income in the amount by
which the lesser of (1) the fair market value of the common stock at the time
of death, or (2) the fair market value of the common stock at the date of grant
exceeds the purchase price. We will not be allowed a deduction if the holding
period requirements are satisfied. If a participant disposes of common stock
before expiration of two years from the date of grant and one year from the
date of exercise, then the participant must treat as ordinary income the excess
of the fair market value of the common stock on the date of exercise of the
option over the purchase price. Any additional gain will be treated as long-
term or short-term capital gain or loss, as the case may be. We will be allowed
a federal income tax deduction equal to the amount of ordinary income
recognized by the participant.
The above discussion is intended to summarize the applicable provisions of
the code which are in effect as of the date of this registration statement. The
tax consequences of participating in the stock purchase plan may vary with
respect to individual situations. Accordingly, participants should consult with
their tax advisors in regard to the tax consequences of participating in the
stock purchase plan as to both federal and state income tax considerations.
Benefits to Named Executive Officers and Others
Participation in the stock purchase plan is voluntary. Consequently, it is
not presently possible to determine either the benefits or amounts that will be
received by any person or group pursuant to the stock purchase plan.
Employment, Severance and Change of Control Agreements
Paul R. Garcia, Thomas M. Dunn, James G. Kelly and Barry W. Lawson. Each of
Messrs. Garcia, Dunn, Kelly and Lawson entered into employment agreements with
NDC in 2000, the material terms of which are summarized below. These employment
agreements will be assumed by Global Payments at the effective time of the
distribution.
The executive is entitled to a minimum annual salary, subject to yearly
review, plus an annual at-risk incentive bonus opportunity, which is determined
annually based on a range of specific financial objectives
55
<PAGE>
reflecting his area and scope of responsibility. The executive is also entitled
to participate in all incentive, savings and welfare benefit plans generally
made available to executive officers of the employer. The current annual
salaries of these executive officers are as follows: Mr. Garcia--$400,000; Mr.
Dunn--$300,000; Mr. Kelly--$300,000; and Mr. Lawson--$250,000.
Each of Messrs. Garcia, Dunn, Kelly and Lawson has agreed in his employment
agreement not to disclose confidential information or compete with the
employer, and not to solicit the employer's customers or recruit its employees,
for a period of 24 months following the termination of his employment.
Each of the employment agreements may be terminated by the employer at any
time for "cause" or "poor performance" (as defined therein) or for no reason,
or by the executive with or without "good reason" (as defined therein). The
agreement will also be terminated upon the death, disability or retirement of
the executive. Depending on the reason for the termination and when it occurs,
the executive will be entitled to certain severance benefits, as described
below.
If, prior to a change in control, the executive's employment is terminated
by the employer without cause (but not for poor performance) or he resigns for
good reason, the employer will be required to pay him his accrued salary and
benefits through the date of termination plus a portion of his target annual
bonus for the current year. For up to 18 months, or until he is employed
elsewhere or he violates certain restrictive covenants, the employer will
continue to pay the executive his base salary and will provide him with health
insurance coverage. In addition, all of the executive's restricted stock awards
will vest and those stock options that would have vested in the next 24 months
will vest and remain exercisable for 90 days after the end of the salary
continuation period, as described above.
If, prior to a change in control, the executive's employment is terminated
by the employer for poor performance, the employer will be required to pay him
his accrued salary and benefits through the date of termination plus a portion
of his target annual bonus for the current year. For up to 12 months, or until
he is employed elsewhere or he violates certain restrictive covenants, the
employer will continue to pay the executive his base salary and will provide
him with health insurance coverage. In addition, all of the executive's
restricted stock awards and stock options that would have vested in the next 24
months will vest and the options will remain exercisable for 90 days after the
earlier of six months or the end of the salary continuation period, as
described above.
Mr. Kelly's agreement provides that if the distribution has not occurred by
June 2001, he may voluntarily terminate his employment. If Mr. Kelly terminates
his employment prior to a change in control, the employer will pay him his
accrued salary and benefits through the date of termination. In addition, for
12 months, or until he violates certain restrictive covenants, the employer
will continue to pay Mr. Kelly his base salary and one-twelfth of his target
annual bonus (reduced by any salary and bonus payable by a subsequent employer
during such time) and will provide him with health insurance coverage. In
addition, all of his restricted stock awards will vest.
If, within 36 months after a change in control, the executive's employment
is terminated by the employer without cause or he resigns for good reason, the
employer will be required to pay him his accrued salary and benefits through
the date of termination plus 100% of his annual bonus opportunity for the
current year. For 24 months or unless he violates certain restrictive
covenants, the employer will continue to pay the executive his base salary and
will provide him with health insurance coverage. In addition, all of the
executive's restricted stock awards and stock options will vest and the options
will remain exercisable for 90 days after the end of the salary continuation
period, as described above.
Whether or not a change in control shall have occurred, if the employment of
the executive is terminated by reason of his death, disability or retirement,
he will be entitled to his accrued salary and benefits through the date of
termination and any death, disability or retirement benefits that may apply,
but no additional severance amount. If the employer terminates the executive
for cause, or if he resigns from the employer without good
56
<PAGE>
reason, he will be entitled to his accrued salary and benefits through the date
of termination, but no additional severance amount. If Mr. Kelly terminates
under these conditions before April 2001, he will be required to repay any
advance on his first annual bonus and certain relocation costs paid by the
employer.
For purposes of these employment agreements, a change in control of the
employer is generally defined as the acquisition by a third party of 35% or
more of the voting power of the employer, or the consummation of certain
mergers, asset sales or other major business combinations. A restructuring or
separation of any line of business of the employer will not, of itself,
constitute a change in control. Each of these employment agreements provides
that the executive will be entitled to a tax gross-up payment from the employer
to cover any excise tax liability he may incur as a result of payments or
benefits contingent on a change in control, but such gross-up payment will be
made only if the after-tax benefit to the executive of such tax gross-up is at
least $50,000. If not, the benefits would be reduced to an amount that would
not trigger the excise tax.
57
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Currently, and until the distribution, NDC holds all of our outstanding
shares. Based on what we know about the ownership of NDC common stock, we
expect the following persons to own beneficially more than 5% of our
outstanding shares outstanding immediately following the distribution and the
purchase of CIBC's merchant acquiring business. These beneficial owners may
alter their holdings following the date of distribution.
<TABLE>
<CAPTION>
Shares Percentage of Percentage of
Beneficially Outstanding Outstanding
Name of Beneficial Owner Owned(1) Shares(2) Shares(3)
------------------------ ------------ ------------- -------------
<S> <C> <C> <C>
Canadian Imperial Bank of
Commerce(3)......................... 9,353,794(3) 0% 26.25%
Massachusetts Financial Services
Company(4).......................... 2,679,951 10.2% 7.5%
Wanger Asset Management, Ltd., Wanger
Asset Management L.P., and Acorn
Investment Trust(5)................. 2,511,600 9.5% 7.1%
T. Rowe Price Associates, Inc.(6).... 1,376,760(7) 5.2% 3.9%
</TABLE>
--------
(1) Assumes for purposes of this table a distribution ratio of 0.8 of a share
of Global Payments common stock for each share of NDC common stock held.
(2) Assumes that the distribution occurs but the acquisition of CIBC's merchant
acquiring business does not occur. It also assumes that Global Payments has
26,279,708 shares of common stock outstanding, based on NDC having
32,849,635 shares of common stock outstanding on August 31, 2000.
(3) Assumes the completion of both the distribution and the purchase of CIBC's
merchant acquiring business. It also assumes that Global Payments has
35,633,502 shares of common stock outstanding immediately after the
acquisition.
(4) This information is contained in a Schedule 13G dated May 11, 2000 filed by
Massachusetts Financial Services Company with the Securities and Exchange
Commission, a copy of which was received by NDC. Such Schedule 13G states
that Massachusetts Financial Services has sole voting power with respect to
2,738,479 NDC shares and sole dispositive power with respect to 3,349,939
NDC shares. Their address is 500 Boylston St., 15th Floor, Boston, MA
02116.
(5) This information is contained in a Schedule 13G dated February 11, 2000
filed by Wanger Asset Management Ltd., Wanger Asset Management L.P. and
Acorn Investment Trust with the Commission, a copy of which was received by
NDC. Such Schedule 13G states that Wanger Ltd., Wanger L.P. and Acorn have
shared voting and dispositive power with respect to all shares. Their
address is 227 W. Monroe St., Suite 3000, Chicago, IL 60606.
(6) This information is contained in a Schedule 13G dated June 9, 2000 filed by
T. Rowe Price Inc. with the Commission, a copy of which was received by
NDC. Such Schedule 13G states that T. Rowe Price has sole voting power with
respect to 311,750 NDC shares and sole dispositive power with respect to
1,720,950 NDC shares. Their address is 100 East Pratt St., Baltimore, MD
21202.
(7) These securities are owned by various individual and institutional
investors which T. Rowe Price serves as investment adviser with power to
direct investments and/or sole power to vote the securities. For purposes
of the reporting requirements of the Securities Exchange Act of 1934, T.
Rowe Price is deemed to be a beneficial owner of such securities; however,
T. Rowe Price expressly disclaims that it is, in fact, the beneficial owner
of such securities.
58
<PAGE>
BENEFICIAL OWNERSHIP OF MANAGEMENT
Currently, and until the distribution, NDC holds all of our outstanding
shares; therefore, none of our directors or executive officers owns any of the
shares. We predict that following the distribution, our directors and executive
officers will beneficially own that number of shares set forth below. Unless
otherwise indicated, the projections are based on the number of NDC shares
owned by such persons as of October 31, 2000 and reflect the distribution ratio
of 0.8 of a Global Payments share for every share of common stock of NDC owned
on the record date. The stock options and restricted stock holdings of our
directors and executive officers have not been adjusted to give effect to the
distribution, except for Mr. Yellowlees' holdings which have been adjusted to
give effect to the distribution. For a complete explanation of how they will be
adjusted, please refer to "Relationship Between NDC and Global Payments
Following the Distribution--Employee Benefits Agreement" on page 22.
<TABLE>
<CAPTION>
Shares Percentage of
Beneficially Outstanding
Name Owned(1)(2) Shares(2)
---- ------------ -------------
<S> <C> <C>
Executive Officers:
Paul R. Garcia..................................... 65,850(4) *
Thomas M. Dunn..................................... 83,811(5) *
James G. Kelly..................................... 32,000(6) *
Barry W. Lawson.................................... 12,600(7) *
Directors:
Edwin H. Burba, Jr................................. 740 *
Paul R. Garcia..................................... -- (3) *
Pete Hart.......................................... -- --
William I Jacobs................................... -- --
Robert A. Yellowlees............................... 652,569(8) 2.5%
------- ---
All Directors and Executive Officers named above,
which included
8 persons as a group............................... 847,570 3.2%
======= ===
</TABLE>
--------
* Less than 1%
(1) The amounts and percentages of common stock beneficially owned are reported
on the basis of regulations of the SEC governing the determination of
beneficial ownership of securities. The beneficial owner has both voting
and investment power over the shares, unless otherwise indicated. Shares
underlying stock options that are exercisable within 60 days are deemed to
be outstanding for the purpose of computing the outstanding shares owned by
that particular person and by the group but are not deemed outstanding for
other purposes.
(2) Assumes for purposes of this table a distribution ratio of 0.8 of a share
of Global Payments common stock for each share of NDC common stock held.
The stock options and restricted stock included in the numbers above have
not been adjusted to give effect to the distribution. The percentage
calculations are based on 26,279,708 shares outstanding. See note 2 on page
58 for an explanation of this assumption.
(3) Amounts listed for Mr. Garcia are set forth under Executive Officers.
(4) This amount includes 56,928 shares of restricted stock over which Mr.
Garcia currently has sole voting power only.
(5) This amount includes 34,160 shares of common stock of which Mr. Dunn has
the right to acquire beneficial ownership and 38,705 shares of restricted
stock over which he currently has sole voting power only.
(6) This amount represents restricted stock over which Mr. Kelly has sole
voting power only.
(7) This amount represents restricted stock over which Mr. Lawson has sole
voting power only.
(8) This amount includes 274,832 shares of common stock of which Mr. Yellowlees
has the right to acquire beneficial ownership, 32,000 shares held by The
Yellowlees Charitable Trust, of which Mr. Yellowlees is the Trustee, 25,555
shares of restricted stock over which he currently has sole voting power
only and 6,271 shares held by Mr. Yellowlees' wife as to which he disclaims
all beneficial ownership.
59
<PAGE>
DESCRIPTION OF GLOBAL PAYMENTS' CAPITAL STOCK
Global Payments was formed on September 1, 2000. On October 27, 2000, NDC
subscribed for shares of our common stock in a securities purchase exempt
under Article 4(2) of the Securities Act of 1933.
Authorized Capital Stock
Our articles of incorporation authorize 205,000,000 shares of all classes of
stock, of which 5,000,000 are shares of preferred stock, and 200,000,000 are
shares of common stock, no par value. Based on the number of NDC shares
outstanding on , 2000. of our shares, constituting all
of outstanding shares as of such date, will be issued to NDC stockholders on
the distribution date. All of the shares to be distributed to NDC stockholders
in the distribution will be fully paid and non-assessable.
We have reserved shares for issuance under our 2000 Long-Term Incentive
Plan, 1,200,000 shares for issuance under our 2000 Employee Stock Purchase Plan
and 400,000 shares for issuance under our 2000 Non-Employee Directors Stock
Option Plan. No shares of preferred stock have been issued, although shares of
preferred stock have been reserved for issuance under the Rights Agreement (as
described below).
The following summary describes material provisions of our articles of
incorporation and by-laws. You should read copies of these documents, which are
included as exhibits to the Registration Statement on Form 10 which we have
filed with the SEC. See "Where You Can Obtain Additional Information."
Common Stock
Our shareholders will be entitled to one vote for each share on all matters
voted on by shareholders, and our shareholders will possess all voting power,
except as otherwise required by law or provided in any resolution adopted by
our board of directors with respect to any series of our preferred stock.
Shareholders have no cumulative voting rights. Accordingly, the holders of a
majority of our shares voting for the election of directors can elect all of
the directors, if they choose to do so, subject to any rights of the holders of
preferred stock to elect directors. Subject to any preferential or other rights
of any outstanding series of our preferred stock that may be designated by our
board of directors, our shareholders will be entitled to such dividends as our
board of directors may declare from time to time from funds available therefor
and, upon liquidation, will be entitled to receive pro rata all of our assets
available for distribution to such holders. See "Risk Factors--We may not be
able or we may decide not to pay dividends at a level anticipated by
shareholders on our common stock, which could reduce your return on shares you
hold" on page 13 and "Dividend Policy" on page 29.
Preferred Stock
Our articles of incorporation authorize our board of directors, without
further shareholder approval (except as may be required by applicable law or
New York Stock Exchange regulations), to provide for the issuance of shares of
preferred stock, in one or more series, and to fix for each series such voting
powers, designations, preferences and relative, participating, optional and
other special rights, and such qualifications, limitations or restrictions, as
stated in the resolution adopted by our board of directors providing for the
issuance of such series and as are permitted by the Georgia Business
Corporation Code. See "Anti-Takeover Effects of Our Articles of Incorporation,
By-laws, Rights Agreement and Georgia Law--Preferred Stock" on page 66. If our
board of directors issues preferred stock, the rights and privileges of our
shareholders could be made subject to the rights and privileges of the holders
of preferred stock. We have no plans to issue any preferred stock, except that
our rights agreement provides for the issuance of shares of participating
preferred stock under the circumstances specified in the rights agreement, upon
exercise or exchange of rights issued thereunder. See "Anti-Takeover Effects of
Our Articles of Incorporation, By-laws, Rights Agreement and Georgia Law--
Rights Agreement" beginning on page 66.
60
<PAGE>
No Preemptive Rights
No shareholder of any class of stock authorized at the distribution date
will have any preemptive right to subscribe to any kind or class of our
securities.
Transfer Agent And Registrar
Our transfer agent and registrar is SunTrust Bank.
61
<PAGE>
SUMMARY OF THE PURCHASE OF CIBC MERCHANT ACQUIRING BUSINESS
General
On November 9, 2000, we agreed to acquire certain net assets of the merchant
acquiring business of Canadian Imperial Bank of Commerce and to form a 10-year
marketing alliance with CIBC to offer VISA and debit card payment products and
services in Canada. Upon completion of the acquisition, CIBC will be our
largest shareholder and will be entitled to nominate two persons for election
to the board of directors.
The acquisition will be recorded using the purchase method of accounting. We
intend to operate the business in a manner consistent with CIBC's historical
operations. We will retain the major functions of sales, support and equipment
deployment in Canada and contract with CIBC for other key functions.
The acquisition is subject to completion of the distribution and customary
closing conditions, including obtaining all required regulatory approvals in
the United States and Canada. We anticipate closing within ten days after the
distribution is completed, subject to regulatory approval.
The following is a summary of each of the primary agreements involved in the
acquisition, the asset purchase agreement, the marketing alliance agreement,
the CIBC credit facility, the transition agreement and the investor rights
agreement. Copies of these agreements have been filed as exhibits to our
registration statement on Form 10. Please refer to "Where You Can Obtain
Additional Information" for information on how you can review these agreements.
Purchase Agreement
On November 9, 2000, we entered into an asset purchase agreement with CIBC
to purchase substantially all of the assets of their merchant acquiring
business. The assets comprise the business of accepting, processing and
settling credit and debit card transaction records for merchants. We have
agreed to pay CIBC approximately $137 million for the assets which they will in
turn immediately use to purchase 26.25% of the total number of shares of our
common stock outstanding or reserved for issuance upon exercise of outstanding
stock options on the closing date of the acquisition pursuant to a stock
purchase agreement.
The asset purchase agreement contains non-competition provisions for CIBC
and us. CIBC has agreed that it will not compete with us in the United States
or Canada by soliciting or accepting merchant acquiring business or acquire
control of a company with a merchant acquiring business for a period of time
ending the later of three years following the closing of the acquisition or one
year after any termination of the marketing alliance agreement, which has an
initial 10 year term and is described below. We have agreed that we will not
compete with CIBC by introducing or making available banking products to
merchants who are customers of CIBC.
The asset purchase agreement contains customary representations and
warranties from CIBC regarding the assets in the merchant acquiring business.
In addition to the customary conditions to the closing of the transaction, the
agreement requires the execution and delivery of a stock purchase agreement, a
transition agreement, a marketing alliance agreement, an investor rights
agreement, a trademark license agreement and a credit facility. There are also
regulatory approvals that must be satisfied prior to the closing. These include
approvals or waivers under the Canadian Competition Act, the Investment Canada
Act, the Bank Act (Canada), the Bank Holding Company Act (U.S.), the Hart-
Scott-Rodino Antitrust Improvements Act of 1976 (U.S.), and by the Office of
the Superintendent of Financial Institutions (Canada). The agreement also
requires that the distribution as contemplated in this information statement
must be completed prior to the closing of the acquisition.
The stock purchase agreement under which CIBC will purchase 26.25% of our
common stock calculated on a fully-diluted basis will contain customary
representations and warranties regarding our common stock and CIBC's investment
experience and investment intent.
62
<PAGE>
Under the terms of the asset purchase agreement and the stock purchase
agreement, CIBC agrees to indemnify us for breaches of their representations
and warranties and covenants and for liabilities other than those expressly
assumed by us. There will be no indemnity obligation by CIBC unless our losses
are greater than $500,000 and then only to the extent that the losses exceed
that amount. In addition, there is an overall indemnity cap that limits CIBC's
indemnity obligation to no more than C$150,000,000. We have agreed to indemnify
CIBC for breaches of our representations and warranties and covenants and for
the assumed liabilities, with the same indemnity limitations as CIBC's.
Marketing Alliance Agreement
As part of the acquisition, we will enter into a marketing alliance
agreement with CIBC. Under the marketing alliance,
. CIBC will refer all new merchant processing relationships exclusively to
us in exchange for a referral fee;
. we will encourage our new merchant customers who were initially targeted
by our joint marketing efforts to open merchant accounts with CIBC; and
. we will work together to develop emerging payment solutions.
The marketing alliance will be branded and advertised under the name "CIBC
MCS, an alliance with Global Payments Inc." Our use of the bank's name will be
covered by a separate trademark license agreement.
CIBC will also continue to provide the banking services required as part of
the merchant processing business and will provide us with access to VISA and
MasterCard clearing capabilities in the U.S. and VISA clearing capabilities in
Canada.
The marketing alliance agreement has an initial term of ten years, with
automatic renewals for successive one year terms unless either of us gives
notice of termination 270 days prior to the end of any term. If either of us
defaults on our obligations under the agreement, or become insolvent, the
agreement may be terminated by the non-defaulting party. In that circumstance,
the agreement would extend for 270 days beyond notice of the termination to
allow for an orderly transition of the business.
CIBC Credit Agreement
Canadian merchant acquiring businesses typically advance payment to
merchants for credit card transactions before receiving the interchange
reimbursement from the card issuing banks. This business model differs sharply
from the U.S. where merchant funding only occurs after we receive the funds
from the card issuing banks. CIBC has agreed to provide us with a revolving
credit facility which will be available to us to fund the approximate two day
interval between our payment of Canadian merchants and our receipt of the
interchange fee.
The credit facility will provide us with a line of credit of up to C$140
million with an additional overdraft facility available to cover larger
advances during periods of peak usage of credit and debit cards, and will carry
an interest rate based on Canadian Dollar LIBOR (C$LIBOR). It contains
customary covenants and events of default. The line of credit will be secured
by a first priority security interest in our accounts receivable from VISA
Canada/International, and will be guaranteed by us and our subsidiaries. This
guarantee will be subordinated to our primary credit facility. The CIBC credit
facility will have an initial term of 364 days from the date of the closing of
the acquisition. The credit facility is renewable annually at CIBC's option.
63
<PAGE>
Transition Agreement
At the closing of the acquisition, we will enter into a transition agreement
with CIBC under which CIBC will continue to provide some of the services
currently provided to the merchants until we can provide for an orderly
migration to our own services. The balance of the services will be provided by
us through our senior management team and the sales, customer support,
technology and terminal services acquired by us at closing. CIBC will agree to
perform their services in substantially the same manner as the services have
been performed by CIBC prior to the acquisition. We will reimburse CIBC for its
reasonable costs incurred in providing the services. The agreement will have a
term of up to 24 months. CIBC also will allow employees who will be hired by us
in connection with the acquisition to continue to occupy space at several CIBC
regional offices during the transition period.
Investor Rights Agreement
At the closing of the acquisition, we will enter into an investor rights
agreement with CIBC which grants rights to and imposes restrictions on CIBC as
a shareholder, other than those shared by all of our shareholders.
The agreement will restrict CIBC's right to resell the shares of common
stock it will receive when we purchase CIBC's merchant acquiring business. CIBC
may sell these share at any time, if it has our prior written consent, if the
sale is to a CIBC subsidiary, or if it is required to do so by a regulatory
body. During the period starting two years after closing and ending on the
earlier of six months after termination of the marketing alliance agreement or
three years following the closing, CIBC may only sell its shares pursuant to
the limitations provided in Rule 144 under the Securities Act or pursuant to a
tender offer that has not been rejected by our board of directors.
The agreement also will restrict CIBC's ability to purchase additional
shares of our common stock until the earlier of five years after the closing of
the acquisition, or six months after the termination of the marketing alliance
agreement. Under this standstill, CIBC will agree that it will not purchase
more than 29.9% of our common stock during this period, unless an unaffiliated
third party has commenced a tender offer for 40% or more of our common stock
that our board does not reject or such third party acquires 35% or more of our
outstanding common stock. Furthermore, during the standstill period, CIBC may
not undertake to effect or participate in any acquisition of our voting
securities or a substantial portion of our assets through any merger,
recapitalization, tender or exchange offer or any other means, or seek to
exercise a controlling influence over our board of directors.
Three years after the closing of the acquisition, CIBC will be permitted to
participate in any of our registered public offerings of securities or they may
require us to register their shares of our common stock for sale to the public.
The investor rights agreement will limit CIBC's demand registration rights,
however, to one demand in any 12 month period if we are a Form S-1 registrant,
and three demands in any 12 month period if we are a Form S-3 registrant. In
addition, we will not be required to act on their demand registration unless
CIBC proposes to sell securities at an aggregate price to the public of at
least US$5,000,000. The registration rights are also subject to other customary
limitations.
At the closing of the acquisition, we will appoint two designees of CIBC to
our board. One designee will be appointed to a term ending not less than one
year after the closing and the other designee will be appointed to a term
ending not less than two years after the closing. Following the expiration of
their initial terms, we will nominate CIBC's directors for re-election for one
additional term and will use our best efforts to elect them to our board. We
will also appoint one of the designees to the audit and compensation committees
of our board as well as other key committees mutually agreed to by the parties.
The investor rights agreement will also limit our actions and business and
those of CIBC required by regulatory authorities. Specifically, we will agree
to limit our acquisitions of voting securities and assets of other companies
and businesses, and the types of businesses in which we engage, to comply with
the provisions of the Bank Holding Company Act (U.S.) and the Bank Act
(Canada). If we fail to comply with this provision, CIBC will no longer be
bound by the restrictions on transfer of their shares of our common stock and
will automatically be permitted to demand registration of their shares.
64
<PAGE>
ANTI-TAKEOVER EFFECTS
OF OUR ARTICLES OF INCORPORATION, BY-LAWS,
RIGHTS AGREEMENT AND GEORGIA LAW
General
Our articles of incorporation, by-laws, rights agreement and the Georgia
Business Corporation Code contain certain provisions that could delay or make
more difficult an acquisition of control of our company not approved by our
board of directors, whether by means of a tender offer, open market purchases,
a proxy contest or otherwise. These provisions have been implemented to enable
us, particularly (but not exclusively) in the initial years of our existence as
an independent, publicly owned company, to develop our business in a manner
which will foster long-term growth without disruption caused by the threat of a
takeover not deemed by our board of directors to be in the best interests of
our company and its shareholders. See also "--Rights Agreement" beginning on
page 66 and "Anti-Takeover Legislation--Georgia Law" beginning on page 69.
These provisions could discourage third parties from making proposals to
acquire or control our company, even if some of the proposals, if made, might
be considered desirable by a majority of our shareholders.
These provisions may also make it more difficult for third parties to cause
the replacement of our current management without the concurrence of our board
of directors. In addition, certain provisions of the tax sharing agreement may
also have the effect of discouraging third parties from proposing to acquire or
control us prior to the second anniversary of the distribution date. See
"Relationship Between NDC and Global Payments Following the Distribution--Tax
Sharing and Indemnity Agreement" beginning on page 21. Set forth below is a
description of the provisions contained in our articles of incorporation and
by-laws, the rights agreement and the Georgia Code that could impede or delay
an acquisition of control that our board of directors has not approved. The
full text of the articles of incorporation, by-laws and rights agreement have
been filed as exhibits to the Registration Statement on Form 10 which we have
filed with the SEC. See "Where You Can Obtain Additional Information."
Classified Board of Directors
Before the distribution, our articles of incorporation and by-laws will
divide our board of directors into three classes of directors serving staggered
three-year terms. As a result, approximately one-third of our board of
directors will be elected each year. The first class of directors will
initially serve a one-year term, and the second class of directors will
initially serve a two-year term. Thereafter, each class of directors will be
elected for a three-year term. See "Management--Directors" beginning on page
43.
Our staggered board of directors could prevent a party who acquires control
of a majority of the outstanding voting stock from obtaining control of our
board of directors until the second annual shareholders meeting following the
date on which the acquiror obtains the controlling stock interest. This result
could have the effect of discouraging a potential acquiror from making a tender
offer or otherwise attempting to obtain control of our company.
Number of Directors; Removal; Filling Vacancies
Our articles of incorporation and by-laws provide that the number of
directors shall be fixed by resolution of our shareholders or by resolution of
two-thirds ( 2/3) of the board of directors, from time to time. Our articles of
incorporation provide that shareholders may remove directors only for cause and
by the affirmative vote of at least two-thirds ( 2/3) of the shares entitled to
vote.
Only a majority vote of the remaining directors, or if only one, the sole
remaining director, may fill vacancies on the board of directors.
65
<PAGE>
Shareholder Action
Shareholder action may be taken only at an annual meeting of shareholders or
a special meeting of shareholders or by the unanimous written consent of all of
the shareholders. Special meetings of shareholders may be called by our board
of directors, by the chairman of the board of directors or the affirmative vote
of at least two-thirds ( 2/3) of the shares entitled to vote.
Advance Notice to Board of Directors Prior to Business Combination
Our by-laws provide that our board of directors shall not approve or
authorize a business combination transaction involving our company or any of
our subsidiaries without giving each board member five days prior written
notice of such transaction. This provision may not be modified, amended or
repealed except by the affirmative vote of the holders of a majority of the
outstanding shares of common stock.
Advance Notice for Shareholder Proposals or Nominations at Meetings
Any shareholder proposals or director nominations must be provided to us in
writing at least 120 days before the date of an annual meeting of shareholders
(in determining such date, one uses the mailing date for the previous year's
annual meeting) or, in the case of a special meeting of shareholders, within 10
days after notice of the meeting was sent to the shareholders. This provision
may preclude shareholders from bringing matters before the shareholders at an
annual meeting or from making nominations for directors at an annual meeting.
Amendments to By-laws
Either the board of directors or the holders of two-thirds ( 2/3) of the
shares of stock entitled to vote at an annual or special meeting of
shareholders may amend or repeal our by-laws.
Preferred Stock
Our board of directors has the power to issue one or more series of
preferred stock and to determine, with respect to any series of preferred
stock, the terms and rights of such series.
The authorized shares of preferred stock, as well as common stock, will be
available for issuance without further action by our shareholders, unless such
action is required by applicable law or the rules of the New York Stock
Exchange or any other stock exchange on which our securities may be listed. We
will be able to issue shares of preferred stock without the expense and delay
of a special shareholders' meeting. We believe that the availability of
preferred stock provides us with increased flexibility in structuring possible
future financing and acquisitions and in meeting other corporate needs which
might arise. Although our board of directors has no present intention to issue
a series of preferred stock, it does have the power (subject to applicable law)
to do so. Our rights agreement provides for the issuance of shares of
participating preferred stock under the circumstances specified in the rights
agreement, upon exercise or exchange of rights issued thereunder. The preferred
stock could, depending on its terms, impede the completion of a merger, tender
offer or other takeover attempt. For instance, subject to applicable law, a
series of preferred stock that has class voting rights might impede a business
combination because the holders of that series of preferred stock may be able
to block such a transaction. See "--Rights Agreement" below.
Rights Agreement
We will issue one preferred share purchase right for each share of our
common stock distributed in the distribution.
66
<PAGE>
The rights are designed to ensure that all shareholders receive fair and
equal treatment in the event of any unsolicited proposal to acquire control of
our company and to guard against takeover tactics that are not in the best
interests of all shareholders. The rights could make a third party's
acquisition attempt more difficult if the transaction is not approved by our
board of directors.
Concurrent with the distribution, our board of directors will declare a
distribution of one right for each outstanding share of our common stock to
shareholders of record at the close of business on , 2000 and for
each share of common stock issued (including shares distributed from treasury)
by us thereafter and prior to the separation time (as described below). Each
right entitles the registered holder to purchase from us one ten-thousandth (
1/10,000th) of a share (which we refer to as a unit) of Series A Junior
Participating Preferred Stock, par value $1.00 per share, at a purchase price
of $100 per unit, subject to adjustment. The description and terms of the
rights are set forth in the rights agreement. See "Where You Can Obtain
Additional Information."
Initially, the rights will attach to all certificates representing shares of
our outstanding common stock, and no separate rights certificates will be
distributed. The rights will separate from the common stock (or flip-in) and
the separation time will occur upon the earlier of:
. ten business days (unless otherwise accelerated or delayed by our Board
of Directors) following our public announcement that a person or group
of affiliated or associated persons (referred to as an acquiring person)
has acquired, obtained the right to acquire, or otherwise obtained
beneficial ownership of 20% or more of our then-outstanding shares of
common stock, or
. ten business days (unless otherwise delayed by our board of directors)
following the commencement of a tender offer or exchange offer that
would result in a person or group beneficially owning 20% or more of the
then-outstanding shares of our common stock.
CIBC and its affiliates will be excluded from this provision and the
acquisition by CIBC of 26.25% of our common stock and for any further
acquisition by CIBC of our common stock up to 29.90% of our common stock will
not cause the rights to separate from our common stock.
Promptly after the separation time, we will mail rights certificates to
holders of record of common stock as of the close of business on the date when
the separation time occurs and, thereafter, the separate rights certificates
alone will represent the rights. Effective as of the separation time, holders
of rights that are or were beneficially owned by an acquiring person or an
acquiring persons' affiliate or associate thereof or by any transferee of any
of the foregoing, shall be void.
The rights are not exercisable until the separation time and will expire at
the close of business on , 2010 unless we earlier exchange or terminate
them, as described below.
If a flip-in occurs and if we have not terminated the rights, then a right
entitles its holder to acquire shares of our common stock (rather than
preferred stock) having a value equal to twice the right's exercise price.
Instead of issuing shares of common stock upon exercise of a right following a
flip-in date, we may substitute one ten-thousandth ( 1/10,000th) of a share of
preferred stock for each share of common stock issuable. In the event we do not
have sufficient treasury shares or authorized but unissued shares of common
stock or preferred stock to permit exercise in full of the rights, we may
substitute cash, debt or equity securities or other assets (or any combination
of the above). In addition, our board of directors may, after a flip-in date
and prior to the time that an acquiring person becomes the beneficial owner of
more than 50% of the common stock, elect to exchange all outstanding rights
(other than rights that have become void) for shares of common stock at an
exchange ratio (subject to adjustment) of share of common stock per right.
Notwithstanding any of the foregoing, rights that are, or (under certain
circumstances set forth in the rights agreement) were, beneficially owned by
any person on or after the date such person becomes an acquiring person will be
null and void.
Following the flip-in date, if an acquiring person controls our board of
directors, then we shall not enter into an agreement with respect to,
consummate or permit to occur any (i) consolidation, merger or share exchange
if either the acquiring person (or an affiliate or associate of the acquiring
person) is a party to the
67
<PAGE>
transaction or the terms of the transaction are not the same for the acquiring
person as for the other holders of common stock or (ii) sale or transfer of a
majority of our assets, unless, in each case, we enter into an agreement for
the benefit of the holders of the rights (other than rights that have become
void) providing that upon consummation of such transaction each right (other
than rights that have become void) shall constitute the right to purchase stock
in the acquiring entity having a value equal to twice the exercise price of the
rights.
The exercise price payable and the number of rights outstanding are subject
to adjustment from time to time to prevent dilution in the event of a stock
dividend, stock split or reverse stock split, or other recapitalization which
would change the number of shares of common stock outstanding.
If prior to the separation time, we distribute securities or assets in
exchange for common stock (other than regular cash dividends or a dividend paid
solely in common stock) whether by dividend, reclassification, or otherwise, we
shall make such adjustments, if any, in the exercise price, number of rights
and otherwise as the board of directors deems appropriate.
At any time until the close of business on the flip-in date, the board of
directors may terminate all of the rights without any payment to the holders
thereof. The board of directors may condition termination of the rights upon
the occurrence of a specified future time or event. Rights that are terminated
will become null and void.
Any provisions of the rights agreement may be amended at any time prior to
the close of business on the flip-in date without the approval of holders of
the rights, and thereafter, the rights agreement may be amended without
approval of the holders of the rights in any way which does not materially
adversely affect the interests of the rights holders generally or to cure an
ambiguity or to correct or supplement any provision which may be inconsistent
with any other provision or otherwise defective.
Until a right is exercised, the holder thereof, as such, will have no rights
as a shareholder, including, without limitation, the right to vote or to
receive dividends. While the distribution of the rights will not be taxable to
us or to our shareholders, shareholders may, depending upon the circumstances,
recognize taxable income in the event that the rights become exercisable.
We have initially reserved whole shares of preferred stock for
issuance upon exercise of the rights. The number of shares of preferred stock
subject to the rights may be increased or decreased (but not below the number
of shares then outstanding) by our board of directors.
Each unit of preferred stock will receive dividends at a rate per unit equal
to any dividends (except dividends payable in common stock) paid with respect
to a share of common stock and, on a quarterly basis, an amount per whole share
of preferred stock equal to the excess of $ over the aggregate dividends
per whole share of preferred stock during the immediately preceding three-month
period.
In the event of liquidation, the holder of each unit of preferred stock will
receive a preferred liquidation payment equal to the greater of $ or the
per share amount paid in respect of a share of common stock.
Each unit of preferred stock will have one vote, voting together with the
common stock.
In the event of any merger, consolidation, statutory share exchange or other
transaction in which shares of common stock are exchanged, each unit of
preferred stock will be entitled to receive the per share consideration paid in
respect of each share of common stock.
The rights of holders of the preferred stock as to dividends, liquidation
and voting, and in the event of mergers, statutory share exchanges and
consolidations, are protected by customary anti-dilution provisions.
Because of the nature of the preferred stock's dividend, liquidation and
voting rights, the economic value of one unit of preferred stock that may be
acquired upon the exercise of each right should approximate the economic value
of share of common stock.
68
<PAGE>
The rights may have certain anti-takeover effects. The rights will cause
substantial dilution to a person or group that attempts to acquire us on terms
not approved by our board of directors unless the offer is conditioned on a
substantial number of rights being acquired. However, the rights will not
interfere with any merger, statutory share exchange or other business
combination approved by our board of directors since the rights may be
terminated upon resolution of our board of directors at any time on or before
the close of business on a date ten business days after our announcement that a
person has become an acquiring person. Thus, the rights are intended to
encourage persons who may seek to acquire control of us to initiate such an
acquisition through negotiations with our board of directors. However, the
effect of the rights may be to discourage a third party from making a partial
tender offer or otherwise attempting to obtain a substantial equity position in
the equity securities of us or seeking to obtain control of us. To the extent
any potential acquirors are deterred by the rights, the rights may have the
effect of preserving incumbent management in office.
Anti-Takeover Legislation--Georgia Law
The Georgia Code generally restricts a company from entering into certain
business combinations with any person or entity that is the beneficial owner of
at least 10% of a company's voting stock or its affiliates for a period of five
years after the date on which such shareholder obtained 10% of the company's
stock, unless (i) the board of directors approves the transaction prior to the
date such person obtained 10% of the stock, (ii) the shareholder acquires 90%
of the company's voting stock in the same transaction in which it exceeds 10%,
or (iii) subsequent to acquiring 10% of the stock, the shareholder acquires 90%
of the company's voting stock and the holders of a majority of the voting stock
entitled to vote, other than the shareholder seeking to enter into the business
combination, approves the business combination. We have elected to be covered
by this business combination statute.
The Georgia Code also contains provisions that impose certain fair price and
other procedural requirements applicable to certain business combinations with
any person who owns 10% or more of the common stock. These statutory
requirements restrict business combinations with, and accumulations of shares
of voting stock of, certain Georgia corporations. The fair price statute
applies to a company only if the company elects to be covered by the
restrictions imposed by these statutes. We have not elected to be covered by
the fair price statute.
69
<PAGE>
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our articles of incorporation eliminate the personal liability of our
directors to our company or its shareholders for monetary damages for breach of
fiduciary duty as a director to the extent permitted under the Georgia Code.
Our directors remain liable for (i) any appropriation, in violation of the
director's duties, of any business opportunity, (ii) acts or omissions that
involve intentional misconduct or a knowing violation of law, (iii) unlawful
corporate distributions as set forth in section 14-2-832 of the Georgia Code,
or (iv) any transactions from which the director derived an improper personal
benefit. If the Georgia Code is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, the liability of
our directors shall be eliminated or limited to the fullest extent permitted by
the Georgia Code, as amended, without further action by the shareholders. These
provisions in our articles of incorporation will limit the remedies available
to a shareholder in the event of breaches of any director's duties.
Our by-laws require us to indemnify and hold harmless any director or
officer who was or is a party or is threatened to be made a party, to any
threatened, pending or completed action, suit or proceeding whether civil,
criminal, administrative or investigative (including any action or suit by or
in the right of our company) because the person is or was our director or
officer against liability incurred in such proceeding. We are not, however,
required to indemnify officers and directors for liability incurred in a
proceeding in which the director or officer is adjudged liable to us or is
subjected to injunctive relief in our favor for (i) any appropriation, in
violation of the director's or officer's duties, of any business opportunity,
(ii) any acts or omissions which involve intentional misconduct or a knowing
violation of law, (iii) any types of liability with respect to distributions as
set forth in section 14-2-832 of the Georgia Code, or (iv) any transaction from
which such officer or director received an improper personal benefit. In
addition, our by-laws provide that we (i) must advance funds to pay or
reimburse the reasonable expenses incurred by a director or officer who is a
party to a proceeding because that person is a director or officer if other
conditions are satisfied, and (ii) may indemnify and advance expenses to any
employee or agent who is not a director or officer to the same extent and
subject to the same condition that we could, without shareholder approval under
the Georgia Code, indemnify and advance expenses to a director.
There is no pending litigation or proceeding involving any of our directors,
officers, employees or any other agent of as to which indemnification is sought
by any director, officer, employee or other agent.
EXPERTS
The consolidated financial statements for us and our subsidiaries at May 31,
2000 and May 31, 1999, and for each of the three years in the period ended May
31, 2000, and the financial statements for the CIBC Merchant Acquiring Business
at July 31, 2000 and October 31, 1999 and the nine months ended July 31, 2000
and the years ended October 31, 1999 and 1998, appearing in this information
statement have been audited by Arthur Andersen LLP, independent public
accountants, as set forth in their report thereon appearing elsewhere herein,
and are included in reliance upon said report given on the authority of such
firm as experts in giving said reports.
WHERE YOU CAN OBTAIN ADDITIONAL INFORMATION
We have filed a Registration Statement on Form 10 with the Securities and
Exchange Commission under the Exchange Act, with respect to our common stock
and the preferred stock purchase rights associated with each share of our
common stock. This document does not contain all of the information set forth
in the Registration Statement and the exhibits and schedules thereto, to which
reference is hereby made. Statements made in this document as to the contents
of any contract, agreement or other document referred to herein are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made
to such exhibit for a more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by such
reference.
70
<PAGE>
You may inspect and copy the Registration Statement and the exhibits thereto
at the public reference facilities maintained by the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549, as well as at the Regional Offices of the
Securities and Exchange Commission at Seven World Trade Center, Thirteenth
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such information can be obtained
by mail from the Public Reference Branch of the Securities and Exchange
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The SEC maintains a website that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC. The address of the SEC's website is http://www.sec.gov. Our
website address is http://www.globalpaymentsinc.com.
After the distribution, we will be required to comply with the reporting
requirements of the Exchange Act and to file with the SEC reports, proxy
statements and other information as required by the Exchange Act. Additionally,
we will be required to provide our annual reports containing audited financial
statements to our shareholders in connection with its annual meetings of
shareholders. After the distribution, you may inspect and copy these reports,
proxy statements and other information at the public reference facilities of
the SEC or obtained by mail or over the Internet from the SEC, as described
above. After the distribution, the Global Payments shares will be listed on the
New York Stock Exchange. When the Global Payments shares commence trading on
the New York Stock Exchange, such reports, proxy statements and other
information will be available for inspection at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005.
71
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
NDC eCOMMERCE BUSINESS SEGMENT (To be reorganized as Global Payments Inc.)
Historical:
Report of Independent Public Accountants................................ F-2
Combined Statements of Income for the Three Months ended August 31, 2000
and 1999 (unaudited) and for the Years ended May 31, 2000, 1999, and
1998 .................................................................. F-3
Combined Balance Sheets as of May 31, 2000 and 1999 and August 31, 2000
(unaudited) ........................................................... F-4
Combined Statements of Cash Flows for the Three Months ended August 31,
2000 and 1999 (unaudited) and for the Years ended May 31, 2000, 1999,
and 1998 .............................................................. F-5
Combined Statements of Changes in Shareholder's Equity for the Years
ended May 31, 2000, 1999, and 1998 and for the Three Months ended
August 31, 2000 (unaudited) ........................................... F-6
Notes to Combined Financial Statements.................................. F-7
Report of Independent Public Accountants as to Schedule................. F-18
Combined Schedule II--Valuation and Qualifying Accounts................. F-19
Pro Forma (Unaudited)
Introduction to the Pro Forma Combined Financial Statements............. F-20
Pro Forma Combined Balance Sheet as of August 31, 2000.................. F-21
Pro Forma Combined Statements of Income for the Year ended May 31,
2000................................................................... F-22
Pro Forma Combined Statements of Income for the Three Months ended
August 31, 2000........................................................ F-23
Notes to Pro Forma Combined Financial Statements........................ F-24
CIBC MERCHANT ACQUIRING BUSINESS
Report of Independent Public Accountants................................. F-26
Balance Sheets as of July 31, 2000 and October 31, 1999.................. F-27
Statements of Income for the Nine Months ended July 31, 2000 and the
Years ended October 31, 1999 and 1998................................... F-28
Statements of Cash Flows for the Nine Months ended July 31, 2000 and the
Years ended October 31, 1999 and 1998................................... F-29
Statements of Changes in Shareholder's Equity for the Nine Months ended
July 31, 2000 and the Years ended October 31, 1999 and 1998............. F-30
Notes to Financial Statements............................................ F-31
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To National Data Corporation:
We have audited the accompanying combined balance sheets of the NDC
eCommerce business segment (to be reorganized as Global Payments Inc., a
Georgia corporation--Note 1) as of May 31, 2000 and May 31, 1999 and the
related combined statements of income, changes in shareholders' equity, and
cash flows for each of the three years in the period ended May 31, 2000. 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 auditing standards generally
accepted in the United States. 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 financial position of the NDC eCommerce business
segment as of May 31, 2000 and May 31, 1999 and the results of their operations
and their cash flows for each of the three years in the period ended May 31,
2000, in conformity with accounting principles generally accepted in the United
States.
/s/ Arthur Andersen LLP
Atlanta, Georgia
August 25, 2000
F-2
<PAGE>
COMBINED STATEMENTS OF INCOME
NDC eCOMMERCE BUSINESS SEGMENT
(To be reorganized as Global Payments Inc.--Note 1)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months
Ended
August 31, Year Ended May 31,
---------------- ----------------------------
2000 1999 2000 1999 1998
------- ------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues...................... $87,191 $89,828 $340,033 $330,051 $291,547
------- ------- -------- -------- --------
Operating expenses:
Cost of service.............. 45,881 46,022 181,479 169,805 153,518
Sales, general and
administrative.............. 24,728 23,267 95,342 83,571 80,055
------- ------- -------- -------- --------
70,609 69,289 276,821 253,376 233,573
------- ------- -------- -------- --------
Operating income.............. 16,582 20,539 63,212 76,675 57,974
------- ------- -------- -------- --------
Other income (expense):
Interest and other income.... 700 283 796 1,183 1,450
Interest and other expense... (1,791) (1,533) (6,119) (7,448) (6,190)
Minority interest in
earnings.................... (1,427) (1,071) (4,117) (3,809) (2,626)
------- ------- -------- -------- --------
(2,518) (2,321) (9,440) (10,074) (7,366)
------- ------- -------- -------- --------
Income before income taxes.... 14,064 18,218 53,772 66,601 50,608
Provision for income taxes.... 5,415 7,014 20,725 25,265 19,531
------- ------- -------- -------- --------
Net income................... $ 8,649 $11,204 $ 33,047 $ 41,336 $ 31,077
======= ======= ======== ======== ========
Basic weighted average shares
outstanding.................. 26,309 27,101 26,586 26,980 25,760
------- ------- -------- -------- --------
Basic earnings per share...... $ 0.33 $ 0.41 $ 1.24 $ 1.53 $ 1.21
======= ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these Combined Financial
Statements.
F-3
<PAGE>
COMBINED BALANCE SHEETS
NDC eCOMMERCE BUSINESS SEGMENT
(To be reorganized as Global Payments Inc.--Note 1)
(In thousands)
<TABLE>
<CAPTION>
August 31, May 31, May 31,
2000 2000 1999
----------- -------- --------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 1,199 $ 2,766 $ 1,356
Billed accounts receivable.................... 38,019 35,176 38,779
Allowance for doubtful accounts............... (1,148) (1,231) (1,202)
-------- -------- --------
Accounts receivable, net..................... 36,871 33,945 37,577
-------- -------- --------
Merchant processing receivable................ 33,939 32,497 22,063
Income tax receivable......................... -- 980 5,340
Inventory..................................... 3,976 3,694 1,582
Deferred income taxes......................... -- -- 828
Prepaid expenses and other current assets..... 7,875 6,343 3,956
-------- -------- --------
Total current assets......................... 83,860 80,225 72,702
-------- -------- --------
Property and equipment, net.................... 24,290 28,665 31,769
Intangible assets, net......................... 171,181 173,726 184,074
Investments.................................... 5,000 5,000 --
Other.......................................... 1,519 330 1,122
-------- -------- --------
Total Assets................................. $285,850 $287,946 $289,667
======== ======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Due to NDC.................................... $ 75,014 $ 96,125 $ 89,375
Merchant processing payable................... 18,088 11,880 23,725
Current portion of long-term debt............. -- -- 6,000
Obligations under capital leases.............. 2,842 2,900 3,400
Accounts payable and accrued liabilities...... 21,341 25,249 27,792
Income taxes payable.......................... 3,823 -- --
Deferred income taxes......................... 410 410 --
-------- -------- --------
Total current liabilities.................... 121,518 136,564 150,292
-------- -------- --------
Obligations under capital leases............... 3,664 4,332 6,374
Deferred income taxes.......................... 5,403 5,403 4,855
Other long-term liabilities.................... 3,824 2,291 1,401
-------- -------- --------
Total liabilities............................ 134,409 148,590 162,922
-------- -------- --------
Commitments and contingencies
Minority interest in equity of subsidiaries.... 18,751 18,472 18,732
Shareholder's equity:
NDC equity investment......................... 133,004 121,250 108,178
Cumulative translation adjustment............. (314) (365) (165)
-------- -------- --------
Total shareholder's equity................... 132,690 120,885 108,013
-------- -------- --------
Total Liabilities and Shareholder's Equity..... $285,850 $287,946 $289,667
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these Combined Financial
Statements.
F-4
<PAGE>
COMBINED STATEMENTS OF CASH FLOWS
NDC eCOMMERCE BUSINESS SEGMENT
(To be reorganized as Global Payments Inc.--Note 1)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
August 31, Year Ended May 31,
-------------------- ----------------------------
2000 1999 2000 1999 1998
--------- --------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income................ $ 8,649 $ 11,204 $ 33,047 $ 41,336 $ 31,077
Adjustments to reconcile
net income to cash
provided by operating
activities before changes
in assets and
liabilities:
Depreciation and
amortization............ 2,450 2,528 9,688 9,438 8,650
Amortization of acquired
intangibles and
goodwill................ 2,546 2,601 10,340 10,515 9,806
Deferred income taxes.... -- -- 1,786 6,690 1,804
Minority interest in
earnings................ 1,427 1,071 4,117 3,809 2,626
Provision for bad debts.. 132 87 1,019 479 502
Other, net............... 394 441 1,500 1,909 1,884
Changes in assets and
liabilities which
provided (used) cash, net
of the effects of
acquisitions:
Accounts receivable,
net..................... (3,035) (9,335) 2,423 (4,843) (3,146)
Merchant processing...... 4,766 (7,073) (22,280) 1,488 (2,386)
Inventory................ (282) (612) (2,112) (739) 539
Prepaid expenses and
other assets............ (2,607) (5,069) (1,269) (54) (2,493)
Accounts payable and
accrued liabilities..... (2,486) 15,547 (999) (3,589) 1,769
Deferred income.......... 512 (134) (324) 150 (146)
Income taxes............. 4,803 10,199 4,360 (6,120) (4,688)
--------- --------- -------- -------- --------
Net cash provided by
operating activities..... 17,269 21,455 41,296 60,469 45,798
--------- --------- -------- -------- --------
Cash flows from investing
activities:
Capital expenditures...... (2,016) (1,878) (6,002) (12,528) (8,666)
Business acquisitions, net
of acquired cash......... -- -- -- (1,484) (16,966)
Increase in investments... -- -- (5,000) -- --
--------- --------- -------- -------- --------
Net cash used in investing
activities............... (2,016) (1,878) (11,002) (14,012) (25,632)
--------- --------- -------- -------- --------
Cash flows from financing
activities:
Net borrowings
(repayments) to (from)
NDC...................... (21,111) 500 6,750 (20,000) 37,500
Net increase (decrease) in
NDC equity investment.... 6,165 (11,324) (21,800) (18,596) (50,351)
Principal payments under
capital lease
arrangements and other
long-term debt........... (726) (6,891) (9,457) (3,552) (3,431)
Distributions to minority
interests................ (1,148) (1,194) (4,377) (4,080) (5,118)
--------- --------- -------- -------- --------
Net cash provided by (used
in) financing
activities............... (16,820) (18,909) (28,884) (46,228) (21,400)
--------- --------- -------- -------- --------
Increase (decrease) in cash
and cash equivalents...... (1,567) 668 1,410 229 (1,234)
Cash and cash equivalents,
beginning of period....... 2,766 1,356 1,356 1,127 2,361
--------- --------- -------- -------- --------
Cash and cash equivalents,
end of period............. $ 1,199 $ 2,024 $ 2,766 $ 1,356 $ 1,127
========= ========= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these Combined Financial
Statements.
F-5
<PAGE>
COMBINED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
NDC eCOMMERCE BUSINESS SEQUENCE
(To be reorganized as Global Payments Inc.--Note 1)
(In thousands)
<TABLE>
<CAPTION>
Accumulated
Other
NDC Equity Comprehensive Total
Investment Loss Equity
---------- ------------- --------
<S> <C> <C> <C>
Balance at May 31, 1997..................... $104,027 $ 17 $104,044
-------- ----- --------
Comprehensive income
Net income................................ 31,077 31,077
Foreign currency translation adjustment... (141) (141)
--------
Total comprehensive income................. 30,936
--------
Net transactions with NDC.................. (13,264) (13,264)
Net distributions to NDC................... (36,820) (36,820)
-------- ----- --------
Balance at May 31, 1998..................... 85,020 (124) 84,896
-------- ----- --------
Comprehensive income
Net income................................ 41,336 41,336
Foreign currency translation adjustment... (41) (41)
--------
Total comprehensive income................. 41,295
--------
Net transactions with NDC.................. (13,224) (13,224)
Net distributions to NDC................... (4,954) (4,954)
-------- ----- --------
Balance at May 31, 1999..................... 108,178 (165) 108,013
-------- ----- --------
Comprehensive income
Net income................................ 33,047 33,047
Foreign currency translation adjustment... (200) (200)
--------
Total comprehensive income................. 32,847
--------
Net transactions with NDC.................. (12,718) (12,718)
Net distributions to NDC................... (7,257) (7,257)
-------- ----- --------
Balance at May 31, 2000..................... 121,250 (365) 120,885
-------- ----- --------
Comprehensive income (unaudited)...........
Net income (unaudited).................... 8,649 8,649
Foreign currency translation adjustment
(unaudited).............................. 51 51
--------
Total comprehensive income (unaudited)..... 8,700
--------
Net transactions with NDC (unaudited)...... (6,051) (6,051)
Net distributions to NDC (unaudited)....... 9,156 9,156
-------- ----- --------
Balance at August 31, 2000 (unaudited)...... $133,004 $(314) $132,690
======== ===== ========
</TABLE>
The accompanying notes are an integral part of these Combined Financial
Statements.
F-6
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 1--Spin off and Basis of Presentation
In December 1999, National Data Corporation announced its intent to spin-off
the NDC eCommerce business segment into a separate publicly traded company with
its own management and Board of Directors. This Distribution is expected to
occur on , 2000 (the "Distribution Date") and will be accomplished
by forming Global Payments Inc. ("Global Payments"), transferring the stock of
the companies which comprise the NDC eCommerce business segment to Global
Payments and then distributing all of the shares of common stock of Global
Payments to NDC's stockholders. NDC stockholders will receive 0.8 share of
Global Payments for each NDC share held as of the Distribution Date. After the
Distribution, Global Payments and NDC will be two separate public companies.
Global Payments was incorporated on September 1, 2000 and will not have any
operations, assets or liabilities until immediately prior to the Distribution.
These combined financial statements include the accounts of the subsidiaries
of NDC that comprise its eCommerce business segment (collectively referred to
as "the Company"). The Company is an integrated provider of high volume
electronic transaction processing and value-added end-to-end information
services and systems to merchants, multinational corporations, financial
institutions, and government agencies. These services are marketed to customers
within the merchant services and the funds transfer business through various
sales channels. The Company's operations are provided in the United States,
Canada, and Europe.
The Company adopted Statement of Financial Accounting Standards No. 131
("SFAS 131"), "Disclosure About Segments of an Enterprise and Related
Information." Accordingly, the Company's chief operating decision making group
currently operates as one reportable segment--electronic transaction
processing--therefore the majority of the disclosures required by SFAS 131 do
not apply to the Company. The Company's results of operations and its financial
condition are not significantly reliant upon any single customer or foreign
operations. Revenues from external customers from the Company's two service
offerings are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Merchant services................................. $318,262 $307,317 $268,752
Funds transfer.................................... 21,771 22,734 22,795
-------- -------- --------
$340,033 $330,051 $291,547
======== ======== ========
</TABLE>
The combined financial statements have been prepared on the historical cost
basis in accordance with accounting principles generally accepted in the United
States, and present the Company's financial position, results of operations,
and cash flows as derived from NDC's historical financial statements.
Significant intercompany transactions have been eliminated in consolidation. As
further described in Note 4, certain allocations of corporate and interest
expenses have been allocated that were previously not allocated to NDC's
eCommerce business segment. These allocations were based on an estimate of the
proportion of corporate expenses related to the Company, utilizing such factors
as revenues, number of employees, number of transactions processed and other
applicable factors. In the opinion of management, these allocations have been
made on a reasonable basis. The costs of these services charged to the Company
may not reflect the actual costs the Company would have incurred for similar
services as a stand-alone company.
In conjunction with the separation of their businesses, the Company and NDC
will enter into various agreements that address the allocation of assets and
liabilities between them and that define their relationship after the
Distribution, including the Distribution Agreement, the Tax Sharing and
Indemnification Agreement, the Employee Benefits Agreement, the Lease Agreement
for Office Headquarters, the Intercompany Systems/Network Services Agreement,
the Batch Processing Agreement and the Transition Support Agreement.
Note 2--Summary of Significant Accounting Policies
Use of estimates--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make certain estimates and assumptions. These
F-7
<PAGE>
estimates and assumptions affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and expenses
during the reported period. Actual results could differ from these estimates.
Revenue--Revenue related to information and transaction processing services
provided is recognized as such services are performed. Revenue for processing
services provided directly to merchants is recorded net of certain costs not
controlled by the Company (primarily interchange fees charged by credit card
associations).
Cash and cash equivalents--Cash and cash equivalents include cash on hand
and all liquid investments with an initial maturity of three months or less
when purchased.
Inventory--Inventory, which includes microcomputer hardware and peripheral
equipment, and electronic point-of-sale terminals, is stated at the lower of
cost or market. Cost is determined by using the average cost method.
Merchant processing receivable/payable--The merchant processing
receivable/payable results from timing differences in the Company's settlement
process with merchants and credit card sales processed.
Property and equipment--Property and equipment, including equipment under
capital leases, is stated at cost. Depreciation and amortization are calculated
using the straight-line method. Equipment is depreciated over 2 to 5 year
lives. Leasehold improvements and property acquired under capital leases are
amortized over the shorter of the useful life of the asset or the term of the
lease. The costs of purchased and internally developed software used to provide
services to customers or internal administrative services are capitalized and
amortized on a straight-line basis over their estimated useful lives, not to
exceed 5 years. Maintenance and repairs are charged to operations as incurred.
Intangible assets--Intangible assets primarily represent goodwill, customer
base and trademarks associated with acquisitions. For significant acquisitions,
the Company obtains an independent valuation to determine the fair value and
related useful lives of customer base, trademarks, goodwill and other
identifiable intangibles. Customer base and trademarks acquired are amortized
using the straight-line method over their estimated useful lives, which
approximates the legal lives when applicable, of 10 to 40 years. Goodwill
represents the excess of the cost of acquired businesses over the fair market
value of their identifiable net assets. Goodwill is being amortized on a
straight-line basis over periods ranging from 7 to 40 years.
Impairment of long-lived assets--The Company regularly evaluates whether
events and circumstances have occurred that indicate the carrying amount of
property and equipment or goodwill and other intangibles may warrant revision
or may not be recoverable. When factors indicate that long-lived assets should
be evaluated for possible impairment, the Company assesses the recoverability
of long-lived assets by determining whether the carrying value of such long-
lived assets will be recovered through the future undiscounted cash flows
expected from use of the asset and its eventual disposition. In management's
opinion, the long-lived assets, including property and equipment and intangible
assets, are appropriately valued at May 31, 2000 and May 31, 1999.
Investments--The Company holds an investment in eCharge Corporation, a
private company that offers Internet users secure and convenient ways to make
purchases over the Internet. This investment is recorded at its historical cost
of $5.0 million. Although the market value is not readily determinable,
management believes the fair value of this investment approximates its carrying
amount.
Income taxes--Deferred income taxes are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax laws and rates (see Note 10).
F-8
<PAGE>
Fair value of financial instruments--Management considers that the carrying
amounts of financial instruments, including cash, receivables, accounts payable
and accrued expenses, and current maturities of long-term obligations,
approximates fair value.
Foreign currency translation--The Company has a foreign subsidiary in Canada
and the United Kingdom, whose functional currency is their local currency.
Gains and losses on transactions denominated in currencies other than the
functional currencies are included in determining net income for the period in
which exchange rates change. The assets and liabilities of foreign subsidiaries
are translated at the year-end rate of exchange, and income statement items are
translated at the average rates prevailing during the year. The resulting
translation adjustment is recorded as a component of shareholders' equity.
Translation gains and losses on intercompany balances of a long-term investment
nature are also recorded as a component of shareholders' equity. The effects of
foreign currency gains and losses arising from these translations of assets and
liabilities are included as a component of other comprehensive income.
Earnings Per Share--Basic earnings per share is computed by dividing
reported earnings available to common shareholders by weighted average shares
outstanding during the period. Earnings available to common shareholders is the
same as reported net income for all periods presented. Weighted average shares
outstanding is computed by applying the distribution ratio of 0.8 of a share of
the Company for each NDC share held to the historical NDC weighted average
shares outstanding for the same periods presented.
Diluted earnings per share is computed by dividing reported earnings
available to common shareholders by weighted average shares outstanding during
the period and the impact of securities that, if exercised, would have a
dilutive effect on earnings per share. All options with an exercise price less
than the average market share price for the period generally are assumed to
have a dilutive effect on earnings per share. Diluted earnings per share is not
presented in these financial statements, as there are no historical market
share prices for the Company, as public trading will not commence until the
distribution occurs. Accordingly, the dilutive effect of stock options cannot
be determined.
Unaudited interim financial information--The accompanying interim combined
financial statements have been prepared by the Company in accordance with
accounting principles generally accepted in the United States. In the opinion
of management of the Company, these combined financial statements contain all
adjustments (consisting only of normal recurring adjustments) which are
necessary for a fair presentation of the interim periods. Results of operations
for interim periods presented herein are not necessarily indicative of results
of operations for the entire year.
Note 3--Business Acquisition
In May 1998, the Company acquired certain assets of CheckRite International,
Inc. This acquisition has been recorded using the purchase method of
accounting, and accordingly, the purchase price has been allocated to the
assets acquired and liabilities assumed based on their estimated fair value as
of the date of acquisition. The operating results are included in the Company's
combined statements of income from the date of the acquisition.
The aggregate price paid for this acquisition and final adjustments to prior
period acquisitions consisted of $17.0 million; liabilities were assumed as
follows:
<TABLE>
<CAPTION>
1998
--------------
(In thousands)
<S> <C>
Fair value of assets acquired................................. $19,814
Cash acquired................................................. (1,124)
Liabilities assumed........................................... (1,724)
-------
Cash paid for acquisitions.................................... $16,966
=======
</TABLE>
The excess of cost over tangible assets acquired of $16.3 million was
allocated to goodwill and other intangible assets. The depreciable and
intangible assets are being amortized over periods ranging from 2 to 20 years
(see Note 7).
F-9
<PAGE>
Note 4--Transactions with NDC
There were no material intercompany purchase or sales transactions between
NDC and the Company. The Company was charged with incremental corporate costs
in the amount of $5.0 million in fiscal 2000, $3.2 million in fiscal 1999, and
$6.6 million in fiscal 1998. These allocations were based on an estimate of the
proportion of corporate expenses related to the Company, utilizing such factors
as revenues, number of employees, number of transactions processed and other
applicable factors.
The Company was also charged corporate interest expense based on the
anticipated corporate debt allocations of NDC to the Company at the
Distribution Date. The Company utilized a rollback approach to allocate the
anticipated portion of the NDC consolidated group's debt and interest expense
for all historical periods presented. This treatment records the current
proposed debt allocation percentage for all historical periods presented. The
allocated portion of the consolidated group's debt is presented as due to NDC
on the accompanying combined balance sheets. Interest expense recorded by the
Company related to this debt was $4.6 million in fiscal 2000, $5.0 million in
fiscal 1999, and $2.8 million in fiscal 1998 and is included in interest and
other expense.
Note 5--Property and Equipment
As of May 31, 2000 and May 31, 1999, property and equipment consisted of the
following:
<TABLE>
<CAPTION>
2000 1999
------- -------
(In thousands)
<S> <C> <C>
Property under capital leases............................... $11,838 $14,738
Equipment................................................... 30,647 36,421
Software.................................................... 19,594 20,147
Leasehold improvements...................................... 6,410 7,338
Furniture and fixtures...................................... 3,002 4,974
Work in progress............................................ 2,532 1,852
------- -------
74,023 85,470
Less: accumulated depreciation and amortization............. 45,358 53,701
------- -------
$28,665 $31,769
======= =======
</TABLE>
Note 6--Software Costs
The following table sets forth information regarding the Company's costs
associated with software development for the years ended May 31, 2000, May 31,
1999 and May 31, 1998. These amounts exclude other expenditures for product
improvements, customer requested enhancements, maintenance and Year 2000
remediation.
<TABLE>
<CAPTION>
2000 1999 1998
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Total costs associated with software development...... $2,623 $1,774 $1,822
Less: capitalization of internally developed
software............................................. 884 625 122
------ ------ ------
Net research and development expense.................. $1,739 $1,149 $1,700
====== ====== ======
</TABLE>
The Company capitalizes costs related to the development of certain software
products. In accordance with Statement of Financial Accounting Standards No.
86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed", capitalization of costs begins when technological
feasibility has been established and ends when the product is available for
general release to customers. Amortization is computed on an individual product
basis and has been recognized for those products available for market based on
the products' estimated economic lives, not to exceed five years.
F-10
<PAGE>
Additionally, the Company capitalizes costs related to the development of
computer software developed or obtained for internal use in accordance with the
AICPA SOP 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." Costs incurred in the application development phase
are capitalized and amortized over the useful life, not to exceed five years.
Total unamortized capitalized software costs (purchased and internally
developed) were approximately $7.9 million and $10.3 million as of May 31, 2000
and May 31, 1999, respectively. Total software amortization expense was
approximately $2.6 million, $1.9 million and $2.0 million in fiscal 2000, 1999
and 1998, respectively.
Note 7--Intangible Assets
As of May 31, 2000 and May 31, 1999, intangible assets consisted of the
following:
<TABLE>
<CAPTION>
2000 1999
-------- --------
(In thousands)
<S> <C> <C>
Customer base............................................. $102,475 $102,483
Trademarks................................................ 28,273 28,273
Goodwill and other intangibles............................ 120,199 120,199
-------- --------
250,947 250,955
Less: accumulated amortization............................ 77,221 66,881
-------- --------
$173,726 $184,074
======== ========
</TABLE>
The Company had expanded its focus on acquisition opportunities and
alliances with other companies to increase its market penetration,
technological capabilities, product offerings and distribution capabilities to
support its business strategy. Since fiscal 1996, the Company has completed
seven acquisitions accounted for under the purchase method.
In 1996, the Company acquired the Merchant Automated Point-of-Sale Program
("MAPP") from MasterCard International Incorporated ("MasterCard"). The net
assets of MAPP consisted primarily of tangible personal property, leased
personal and real property, customer contracts, assembled workforce and the
goodwill of the business. The Company paid $110 million plus the granting of a
7.5% membership interest in one of the Company's subsidiaries (Global Payment
Systems LLC) to MasterCard. The total consideration paid for the MAPP business,
was $131.6 million, and resulted in an excess cost over tangible assets of
$127.2 million. The aggregate estimated life of these intangible assets is 35
years.
Note 8--Accounts Payable and Accrued Liabilities
As of May 31, 2000 and May 31, 1999, accounts payable and accrued
liabilities consisted of the following:
<TABLE>
<CAPTION>
2000 1999
------- -------
(In thousands)
<S> <C> <C>
Trade accounts payable...................................... $ 7,209 $ 6,230
Accrued compensation and benefits........................... 8,043 6,843
Accrued pensions............................................ 372 524
Other accrued liabilities................................... 9,625 14,063
------- -------
$25,249 $27,660
======= =======
</TABLE>
Note 9--Retirement Benefits
Historically, the Company has participated in the NDC noncontributory
defined benefit pension plan (the "Plan") covering substantially all of its
United States employees who have met the eligibility provisions of the plan as
of May 31, 1998. NDC closed the defined benefit pension plan to new
participants beginning
F-11
<PAGE>
June 1, 1998. Benefits are based on years of service and the employee's
compensation during the highest five consecutive years of earnings of the last
ten years of service. Plan provisions and funding meet the requirements of the
Employee Retirement Income Security Act of 1974, as amended. The expenses for
the plan are allocated to the Company based on the relative projected benefit
obligations for all the Company's employees compared with the obligations for
all participants. In the opinion of management, the expenses have been
allocated on a reasonable basis and, for fiscal 2000, were actuarially
allocated to approximate the expense Global Payments would have incurred had it
been operating on a stand-alone basis.
The following table provides a reconciliation of the changes in the Plan's
benefit obligations and fair value of assets over the one-year period ending
May 31, 2000 and a statement of funded status:
Changes in benefit obligations
<TABLE>
<CAPTION>
2000
--------------
(In thousands)
<S> <C>
Balance at beginning of year.................................. $6,268
Service cost.................................................. --
Interest cost................................................. 453
Benefits paid................................................. (219)
Actuarial gain................................................ (383)
------
Balance at end of year........................................ $6,119
======
</TABLE>
Changes in plan assets
<TABLE>
<CAPTION>
2000
--------------
(In thousands)
<S> <C>
Balance at beginning of year.................................. $5,763
Actual return on plan assets.................................. 642
Employer contributions........................................ --
Benefits paid................................................. (219)
------
Balance at end of year........................................ $6,186
======
</TABLE>
The accrued pension costs recognized in the Consolidated Balance Sheets were
as follows:
<TABLE>
<CAPTION>
2000
--------------
(In thousands)
<S> <C>
Funded status............................................... $ 67
Unrecognized net (gain) loss................................ (391)
Unrecognized prior service cost............................. 42
Unrecognized net asset at June 1, 1985, being amortized over
17 years................................................... (90)
-----
Accrued pension cost........................................ $(372)
=====
</TABLE>
Net pension expense (income) included the following components for the
fiscal year ending May 31:
<TABLE>
<CAPTION>
2000
--------------
(In thousands)
<S> <C>
Service cost-benefits earned during the Period................ $ --
Interest cost on projected benefit obligation................. 453
Expected return on plan assets................................ (576)
Net amortization and deferral................................. (30)
-----
Net pension expense (income).................................. $(153)
=====
</TABLE>
F-12
<PAGE>
Significant assumptions used in determining net pension expense and related
obligations were as follows:
<TABLE>
<CAPTION>
2000
-----
<S> <C>
Discount rate......................................................... 7.75%
Rate of increase in compensation levels............................... 4.33%
Expected long-term rate of return on assets........................... 10.00%
</TABLE>
Information relating to accumulated benefits and plan assets as they may be
allocable to the Company's participants at May 31, 1999 and 1998 is not
available. The pension expense allocated to the Company for fiscal 1999 and
1998 was $0.1 million and $1.1 million, respectively.
Historically, the Company has participated in the NDC deferred compensation
401(k) plan that is available to substantially all employees with three months
of service. Expenses of $.6 million, $.9 million, and $.8 million were
allocated to the Company in proportion to total payroll for fiscal 2000, 1999,
and 1998, respectively. The Company intends to establish its own 401(k) with
substantially the same terms as the existing NDC plan with the matching
contribution in the form of Global Payments' common stock.
Note 10--Income Taxes
Historically, the Company has been included in the consolidated federal
income tax return of NDC. Tax provisions are settled through the intercompany
account and NDC made income tax payments on behalf of the Company (see Note
15). The Company's provision for income taxes in the accompanying consolidated
statements of income reflects federal and state income taxes calculated on the
Company's separate income.
The provision for income taxes includes:
<TABLE>
<CAPTION>
2000 1999 1998
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Current tax expense:
Federal............................................. $16,266 $20,146 $16,182
State............................................... 780 1,481 1,545
------- ------- -------
17,046 21,627 17,727
------- ------- -------
Deferred tax expense:
Federal............................................. 3,389 3,366 1,677
State............................................... 290 272 127
------- ------- -------
3,679 3,638 1,804
------- ------- -------
Total................................................ $20,725 $25,265 $19,531
======= ======= =======
</TABLE>
The Company's effective tax rates differ from federal statutory rates as
follows:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate................................ 35.0 % 35.0 % 35.0 %
State income taxes, net of federal income tax
benefit.............................................. 1.3 % 1.7 % 2.2 %
Non-deductible amortization and write-off of
intangible assets.................................... 1.6 % 1.3 % 2.2 %
Tax credits........................................... (0.5)% (0.3)% (0.2)%
Other................................................. 1.1 % 0.2 % (0.6)%
---- ---- ----
Total................................................ 38.5 % 37.9 % 38.6 %
==== ==== ====
</TABLE>
F-13
<PAGE>
Deferred income taxes as of May 31, 2000 and May 31, 1999 reflect the impact
of temporary differences between the amounts of assets and liabilities for
financial accounting and income tax purposes. As of May 31, 2000 and May 31,
1999, principal components of deferred tax items were as follows:
<TABLE>
<CAPTION>
2000 1999
------- -------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......................... $ -- $ 183
Accrued expenses......................................... 368 958
------- -------
368 1,141
------- -------
Deferred tax liabilities:
Property and equipment................................... 1,692 3,654
Acquired intangibles..................................... 3,903 506
Prepaid expenses......................................... 386 418
Other.................................................... 200 590
------- -------
6,181 5,168
------- -------
Net deferred tax liability................................ (5,813) (4,027)
Less: Current deferred tax (liability) asset.............. (410) 828
------- -------
Non-current deferred tax liability........................ $(5,403) $(4,855)
======= =======
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Realization of
the operating loss carry-forwards is not considered by management to be
uncertain. The Company has not established valuation allowances for these tax
assets. Net operating loss carry-forwards expire between the fiscal years 2001
and 2007.
Note 11--Long-Term Debt
As of May 31, 1999, long-term debt classified as current portion consisted
of a promissory note issued to Electronic Data Systems Corporation in the
amount of $6.0 million. This note was settled on June 30, 1999. This note was
issued in consideration for the Company's acquisition of their multi-client
bank card processing business in January 1997.
Note 12--Shareholder's Equity
NDC equity investment--NDC's equity investment includes the original
investment in the Company, accumulated income of the Company, and the dividend
to NDC arising from the forgiveness of the net intercompany receivable due from
NDC reflecting transactions described in Note 4. The NDC equity investment as
of May 31, 2000 and May 31, 1999 was $121.3 million and $108.2 million,
respectively.
Stock Options--NDC has certain Stock Option Plans (the "Plans") under which
incentive stock options and non-qualified stock options have been granted to
officers, key employees and directors of NDC. In connection with the separation
of the Company from NDC, stock options under the Plans held by employees of the
Company that are not exercised prior to the date of the Distribution will be
replaced with options of Global Payments. In accordance with the provisions of
EITF 90-9, NDC stock options will be replaced with Global Payments stock
options in amounts and at exercise prices intended to preserve the economic
benefit of the NDC stock options at such time. No compensation expense is
expected to result from the replacement of the options. The number of shares of
NDC common stock subject to options held by option holders expected to become
Global Payments employees at May 31, 2000 was 639,366 shares. The exercise
price of such options range from $6.67 to $37.56. The ultimate number of stock
options to be held by Global Payments employees and the number and exercise
price of the Global Payments stock options to be issued, subject to the above
calculation, cannot yet be determined.
F-14
<PAGE>
Note 13--Related Party Transactions
In connection with the fiscal 1996 purchase of Merchant Automated Point of
Sale Program ("MAPP") from MasterCard International Incorporated, MasterCard
holds a 7.5% minority interest in Global Payment Systems, LLC, a partnership
with MasterCard International Incorporated. MasterCard provides certain
services for the MAPP business unit. The original service agreement was for a
period of three years and ended on March 31, 1999. The services agreement was
then amended to allow certain services to be provided through April 1, 2000.
The Company now performs the services formerly provided by MasterCard under
this service agreement internally. For the years ended May 31, 2000, May 31,
1999 and May 31, 1998 the Company incurred expenses of approximately $.2
million, $3.0 million and $6.8 million respectively, related to these services.
Also, during fiscal 1996, the Company formed an alliance with Comerica Bank
and purchased 51% ownership interest in NDPS Comerica Alliance, LLC. There are
agreements in place for the Company to reimburse Comerica Bank for any expenses
incurred on behalf of the alliance. For the years ended May 31, 2000, May 31,
1999 and May 31, 1998 the Company incurred expenses of approximately $.9
million, $.6 million and $.6 million, respectively, related to these services.
Note 14--Commitments and Contingencies
The Company conducts a major part of its operations using leased facilities
and equipment. Many of these leases have renewal and purchase options and
provide that the Company pay the cost of property taxes, insurance and
maintenance.
Rent expense on all operating leases for fiscal 2000, 1999 and 1998 was
approximately $5.8 million, $6.3 million and $6.9 million, respectively.
Future minimum lease payments for all noncancelable leases at May 31, 2000
were as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
(In thousands)
<S> <C> <C>
2001..................................................... $3,489 $ 4,685
2002..................................................... 2,671 3,703
2003..................................................... 1,722 2,974
2004..................................................... 386 2,179
2005..................................................... -- 1,590
Thereafter............................................... -- 3,846
------ -------
Total future minimum lease payments...................... 8,268 $18,977
=======
Less: amount representing interest....................... 1,036
------
Present value of net minimum lease payments.............. 7,232
Less: current portion.................................... 2,900
------
Long-term obligations under capital leases at May 31,
2000.................................................... $4,332
======
</TABLE>
The Company is party to a number of claims and lawsuits incidental to its
business. In the opinion of management, the ultimate outcome of such matters,
individually or in the aggregate, will not have a material adverse impact on
the Company's financial position, liquidity or results of operations.
Subsequent to the date of the auditor's report, the Company obtained a
commitment for a $110 million revolving line of credit. It will fund the
payment of the cash due to NDC to reflect our share of NDC's pre-distribution
debt used to establish the Company's initial capitalization. This line of
credit will also be used to meet working capital and acquisition needs after
the Distribution. This line has a variable interest rate based on
F-15
<PAGE>
market rates. The credit agreement contains certain financial and non-financial
covenants customary for financings of this nature. Final maturity will be three
years from the Distribution. As indicated in Note 4, the Company utilized a
"rollback" approach to allocate the anticipated portion of the NDC consolidated
group's debt and interest expense. Accordingly, as of May 31, 2000 and May 31,
1999, there was $96.1 million and $89.4 million respectively, allocated and
outstanding as due to NDC.
The Company processes credit card transactions for direct merchant
locations. The Company's merchant customers have the liability for any charges
properly reversed by the cardholder. In the event, however, that the Company is
not able to collect such amount from the merchants, due to merchant fraud,
insolvency, bankruptcy or another reason, the Company may be liable for any
such reversed charges. The Company requires cash deposits and other types of
collateral by certain merchants to minimize any such contingent liability. The
Company also utilizes a number of systems and procedures to manage merchant
risk. In addition, the Company believes that the diversification of its
merchant portfolio among industries and geographic regions minimizes its risk
of loss.
The Company recognizes revenue based on a percentage of the gross amount
charged and has a potential liability for the full amount of the charge. The
Company establishes reserves for operational losses based on historical and
projected experiences concerning such charges. In the opinion of management,
such reserves for losses are adequate. Expenses of $3.0 million, $2.4 million
and $2.4 million were recorded for fiscal 2000, 1999 and 1998, respectively,
for these reserves.
The Company also has a check guarantee business. Similar to the credit card
business, the Company charges its merchants a percentage of the gross amount of
the check and guarantees payment of the check to the merchant in the event the
check is not honored by the checkwriter's bank. As a result, the Company incurs
operational charges in this line of business. The Company has the right to
collect the full amount of the check from the checkwriter but has not
historically recovered 100% of the guaranteed checks. The Company establishes
reserves for this activity based on historical and projected loss experiences.
Expenses of $10.1 million, $8.5 million and $8.8 million were recorded for
fiscal 2000, 1999 and 1998, respectively, for these reserves.
In connection with the Company's acquisition of merchant credit card
operations of banks, the Company has also entered into depository and
processing agreements (the "Agreements") with certain of the banks. These
Agreements allow the Company to use the banks' "Bank Identification Number"
("BIN") to clear credit card transactions through VISA and MasterCard. Certain
agreements contain financial covenants, and the Company was in compliance with
all such covenants as of May 31, 2000 or had obtained a verbal waiver of such
covenants. In management's opinion, the Company would be able to obtain
alternative BIN agreements without material impact to the Company in the event
of the termination of these Agreements.
Effective April 1, 2000, MasterCard may put to the Company ("Put Right") all
or any portion of its membership interest in Global Payment Systems LLC.
MasterCard's Put Right shall be exercised by providing Global Payment Systems
LLC with notice specifying the percentage of its membership interest to be put,
the date on which the proposed put price is to be paid, and the proposed put
price. The proposed put price shall be based on the fair market value of Global
Payment Systems LLC on a stand-alone basis. As an alternative to purchasing
MasterCard's membership interest in the event of the exercise of the put right,
Global Payment Systems LLC may elect to dissolve the partnership with
MasterCard receiving a share of the net liquidation proceeds, in proportion to
their membership interest.
Note 15--Supplemental Cash Flow Information
Historically, the Company's cash flow had been calculated with and included
in the NDC consolidated group's Supplemental Cash Flows. The Company's payments
for income taxes have been calculated on the Company's separate income and
reflect federal and state income tax payment allocations as if the Company had
been operating on a stand-alone basis (Note 10). The Company has utilized a
"rollback" approach to allocate the portion of the consolidated group's
interest payments for all historical periods presented (Note 4).
F-16
<PAGE>
Supplemental cash flow disclosures and non-cash investing and financing
activities for the years ended May 31, 2000, May 31, 1999 and May 31, 1998 are
as follows:
<TABLE>
<CAPTION>
2000 1999 1998
------ ------- -------
(In thousands)
<S> <C> <C> <C>
Supplemental cash flow information:
Income taxes paid, net of refunds.................. $5,816 $28,134 $20,375
Interest paid...................................... 8,506 7,070 5,712
Supplemental non-cash investing and financing
activities:
Capital leases entered into in exchange for
property and equipment............................ 915 6,710 4,815
</TABLE>
Note 16--Quarterly Combined Financial Information (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------
August 31 November 30 February 29 May 31
--------- ----------- ----------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Fiscal Year 2000
Revenue.............................. $89,828 $84,174 $81,827 $84,204
Operating income..................... 20,539 15,275 13,420 13,978
Net income........................... 11,204 8,023 6,930 6,890
Basic earnings per share(1).......... $ 0.41 $ 0.30 $ 0.26 $ 0.26
Fiscal Year 1999
Revenue.............................. $82,397 $79,319 $81,782 $86,553
Operating income..................... 20,393 15,926 17,691 22,665
Net income........................... 11,158 8,694 9,502 11,982
Basic earnings per share(1).......... $ 0.41 $ 0.32 $ 0.35 $ 0.44
</TABLE>
--------
(1) Using the distribution ratio of 0.8 share of Global Payments Inc. common
stock for each share of NDC common stock held. Weighted average shares
outstanding is computed by applying the distribution ratio to the
historical NDC weighted average shares outstanding for all periods
presented.
Note 17--Event Subsequent to Auditor's Report (Unaudited)
On November 9, 2000, the Company entered into certain definitive agreements
to purchase the Canadian Imperial Bank of Commerce ("CIBC") Merchant Acquiring
or Merchant Card Services ("MCS") business and to form a ten-year marketing
alliance to jointly provide payment related products and services in Canada.
Under the terms of the purchase agreement, the Company will issue an amount of
its common stock after the distribution, whereby CIBC will own 26.25% or
approximately 9,354,000 shares, of the outstanding common stock of Global
Payments, in consideration for certain net assets of CIBC-MCS. The net assets
to be acquired consist of accounts receivable, inventory, tangible personal
property, customer contracts, assembled workforce and the goodwill of the
business, net of certain accrued expenses. The acquisition will be recorded for
using the purchase method of accounting. The acquisition is expected to close
after the distribution if completed, subject to regulatory approvals. The
Company intends to operate the business in a manner consistent with CIBC's
historical operations. The Company will retain the major functions of sales,
customer support and service, and equipment warehousing, repair and deployment
in Canada and contract with CIBC for other key functions, such as funds
transfer and daily settlement services.
F-17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE
We have audited in accordance with auditing standards generally accepted in
the United States, the financial statements of the NDC eCommerce business
segment (to be reorganized as Global Payments Inc., a Georgia corporation--See
Note 1) included in this information statement on Form 10, and have issued our
report thereon dated August 25, 2000. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedule listed in
the index on page F-1 is the responsibility of Global Payments' management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Atlanta, Georgia
August 25, 2000
F-18
<PAGE>
NDC eCOMMERCE BUSINESS SEGMENT
COMBINED SCHEDULE II
Valuation & Qualifying Accounts
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- ---------- ------------------- ------------- ----------
1 2
Balance at Charged to Uncollectible Balance at
Beginning Costs and Acquired Accounts End
Description of Period Expenses Balances Write-Off of Period
----------- ---------- ---------- -------- ------------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Trade Receivable
Allowances
May 31, 1998............ $ 609 $ 1,304 $343 $ 870 $1,386
May 31, 1999............ 1,386 1,473 -- 1,657 1,202
May 31, 2000............ 1,202 1,345 -- 1,316 1,231
Reserves for operational
losses--Merchant card
processing and check
guarantee processing(1)
May 31, 1998............ $3,330 $11,256 $677 $11,022 $4,241
May 31, 1999............ 4,241 10,891 -- 10,539 4,593
May 31, 2000............ 4,593 13,074 -- 13,537 4,130
</TABLE>
--------
(1) Included in Merchant processing payable.
F-19
<PAGE>
NDC eCOMMERCE BUSINESS SEGMENT
(To be reorganized as Global Payments Inc.)
Pro Forma Combined Financial Statements
(Unaudited)
On , 2000, NDC's Board of Directors declared a pro rata
distribution payable to the holders of record of NDC common stock at the close
of business on , 2000, of 0.8 of a share of common stock of Global
Payments Inc. for every share of NDC common stock outstanding on the record
date. The board of directors of NDC believes that the distribution is in the
best interests of NDC's stockholders.
On November 9, 2000, the Company entered into certain definitive agreements
to purchase the Canadian Imperial Bank of Commerce ("CIBC") Merchant Acquiring
or Merchant Card Services ("MCS") business and to form a ten-year marketing
alliance to jointly provide payment related products and services in Canada.
Under the terms of the purchase agreements, the Company will issue an amount of
its common stock after the distribution, whereby CIBC will own 26.25% or
approximately 9,354,000 shares, of the outstanding common stock of Global
Payments, in consideration for certain net assets of CIBC-MCS. The net assets
to be acquired consist of accounts receivable, inventory, tangible personal
property, customer contracts, assembled workforce and the goodwill of the
business, net of certain accrued expenses. The acquisition will be recorded for
using the purchase method of accounting. The acquisition is expected to close
after the distribution if completed, subject to regulatory approvals. The
Company intends to operate the business in a manner consistent with CIBC's
historical operations. The Company will retain the major functions of sales,
customer support and service, and equipment warehousing, repair and deployment
in Canada and contract with CIBC for other key functions, such as funds
transfer and daily settlement services.
Under the terms of the marketing alliance, CIBC is required to refer all new
merchant processing relationships exclusively to Global Payments. In addition,
the Company will jointly develop emerging payment solutions for distribution
and marketing in the Company's North American customer base. The alliance will
significantly broaden the Company's scope and presence in North America. This
transaction will provide MCS' existing distribution channel with a larger array
of existing and new payment solutions. After the acquisition is completed, the
alliance will be branded under the name "CIBC MCS, a Global Payment alliance".
Any adjustments to the purchase price allocations are not expected to be
material to the pro forma combined financial statements taken as a whole.
The following pro forma combined financial statements have been prepared as
if the acquisition and the distribution had taken place on August 31, 2000 for
the pro forma combined balance sheet and June 1, 1999 for the pro forma
combined income statements. The Company has a fiscal year end of May 31st.
CIBC-MCS has a fiscal year end of October 31st. For purposes of the pro forma
combined financial statements, CIBC-MCS information is presented using the same
fiscal year end of the Company.
The unaudited pro forma financial statements are not necessarily indicative
of the results that would have occurred if the acquisition and the distribution
had occurred on the dates indicated or the expected financial position or
results of operations in the future. The unaudited pro forma combined financial
statements should be read in conjunction with the separate historical financial
statements and notes there to of the Company, as well as the historical
financial statements and notes thereto of CIBC-MCS contained elsewhere herein,
and in conjunction with the related notes to these unaudited pro forma combined
financial statements.
F-20
<PAGE>
NDC eCOMMERCE BUSINESS SEGMENT
(To be reorganized as Global Payments Inc.)
PRO FORMA COMBINED BALANCE SHEET
August 31, 2000
Unaudited
(In thousands)
<TABLE>
<CAPTION>
Pro
NDC eCommerce Forma As
Business Segment Pro Forma Pro Forma CIBC-MCS Pro Forma Adjusted
Historical Adjustments(A) Combined Historical Adjustments(B) Combined
---------------- -------------- --------- ---------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 1,199 $ -- $ 1,199 $ -- $ -- $ 1,199
Billed accounts
receivable............ 38,019 -- 38,019 -- -- 38,019
Allowance for doubtful
accounts.............. (1,148) -- (1,148) -- -- (1,148)
-------- --------- -------- ------- -------- --------
Accounts receivable,
net................... 36,871 -- 36,871 -- -- 36,871
-------- --------- -------- ------- -------- --------
Merchant processing
receivable............ 33,939 -- 33,939 78,849 -- 112,788
Inventory.............. 3,976 -- 3,976 -- -- 3,976
Prepaid expenses and
other current assets.. 7,875 -- 7,875 -- -- 7,875
-------- --------- -------- ------- -------- --------
Total current assets... 83,860 -- 83,860 78,849 -- 162,709
-------- --------- -------- ------- -------- --------
Property and equipment,
net................... 24,290 -- 24,290 18,302 -- 42,592
Intangible assets,
net................... 171,181 -- 171,181 -- 51,089 (e) 222,270
Investments............ 5,000 -- 5,000 -- -- 5,000
Other.................. 1,519 -- 1,519 -- -- 1,519
-------- --------- -------- ------- -------- --------
Total Assets........... $285,850 $ -- $285,850 $97,151 $ 51,089 $434,090
======== ========= ======== ======= ======== ========
LIABILITIES AND
SHAREHOLDER'S EQUITY
Current liabilities:
Due to NDC............. $ 75,014 $ (75,014)(a) $ -- $ -- $ -- $ --
Line of credit......... 75,014 (a) 75,014 -- 75,014
Merchant processing
payable............... 18,088 -- 18,088 2,144 -- 20,232
Obligations under
capital leases........ 2,842 -- 2,842 1,737 -- 4,579
Accounts payable and
accrued liabilities... 21,341 -- 21,341 3,421 4,000 (f) 28,762
Income taxes payable... 3,823 -- 3,823 2,969 (2,969)(g) 3,823
Deferred income taxes.. 410 -- 410 1,198 (1,198)(g) 410
-------- --------- -------- ------- -------- --------
Total current
liabilities........... 121,518 -- 121,518 11,469 (167) 132,820
-------- --------- -------- ------- -------- --------
Obligations under
capital leases......... 3,664 -- 3,664 92 -- 3,756
Deferred income taxes... 5,403 -- 5,403 -- -- 5,403
Other long-term
liabilities............ 3,824 -- 3,824 -- -- 3,824
-------- --------- -------- ------- -------- --------
Total liabilities...... 134,409 -- 134,409 11,561 (167) 145,803
-------- --------- -------- ------- -------- --------
Commitments and
contingencies
Minority interest in
equity of
subsidiaries........... 18,751 -- 18,751 -- -- 18,751
Shareholders' equity:
NDC equity investment.. 133,004 (133,004)(a) -- -- -- --
CIBC equity
investment............ -- -- -- 86,716 (86,716)(h) --
Preferred stock........ -- -- -- -- -- --
Common stock, no par... -- -- -- -- -- --
Paid in capital........ -- 133,004 (a) 133,004 -- 136,846 (f) 269,850
Cumulative translation
adjustment............ (314) -- (314) (1,126) 1,126 (h) (314)
-------- --------- -------- ------- -------- --------
Total shareholders'
equity................ 132,690 -- 132,690 85,590 51,256 269,536
-------- --------- -------- ------- -------- --------
Total Liabilities and
Shareholders' Equity... $285,850 $ -- $285,850 $97,151 $ 51,089 $434,090
======== ========= ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of this unaudited Pro Forma
Combined Balance Sheet.
F-21
<PAGE>
NDC eCOMMERCE BUSINESS SEGMENT
(To be reorganized as Global Payments Inc.)
PRO FORMA COMBINED INCOME STATEMENT
FOR THE YEAR ENDED MAY 31, 2000
Unaudited
(In thousands, except per share data)
<TABLE>
<CAPTION>
NDC eCommerce
Business Pro Forma
Segment Pro Forma Pro Forma CIBC-MCS Pro Forma As Adjusted
Historical Adjustments(A) Combined Historical Adjustments(B) Combined
------------- -------------- --------- ---------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $340,033 $ -- $340,033 $90,763 $ -- $430,796
-------- ------- -------- ------- ------- --------
Operating expenses:
Cost of service........ 181,479 -- 181,479 52,726 3,022 (i) 237,227
Sales, general and
administrative........ 95,342 3,697 (b) 99,039 10,979 -- 110,018
-------- ------- -------- ------- ------- --------
276,821 3,697 280,518 63,705 3,022 347,245
-------- ------- -------- ------- ------- --------
Operating income........ 63,212 (3,697) 59,515 27,058 (3,022) 83,551
-------- ------- -------- ------- ------- --------
Other income (expense):
Interest and other
income................ 796 -- 796 -- -- 796
Interest and other
expense............... (6,119) (633)(c) (6,752) (4,748) -- (11,500)
Minority interest in
earnings.............. (4,117) -- (4117) -- -- (4,117)
-------- ------- -------- ------- ------- --------
(9,440) (633) (10,073) (4,748) -- (14,821)
-------- ------- -------- ------- ------- --------
Income (loss) before
income taxes........... 53,772 (4,330) 49,442 22,310 (3,022) 68,730
Provision for income
taxes.................. 20,725 (1,667)(d) 19,058 9,817 (1,164)(j) 27,711
-------- ------- -------- ------- ------- --------
Net income (loss)...... $ 33,047 $(2,663) $ 30,384 $12,493 $(1,858) $ 41,019
======== ======= ======== ======= ======= ========
Number of common and
common equivalent
shares................. 26,586 26,586 9,354 (k) 35,940
======== ======== ======= ========
Earnings per share...... $ 1.24 $ 1.14 $ 1.14
======== ======== ========
</TABLE>
The accompanying notes are an integral part of this unaudited Pro Forma
Combined Income Statement.
F-22
<PAGE>
NDC eCOMMERCE BUSINESS SEGMENT
(To be reorganized as Global Payments Inc.)
PRO FORMA COMBINED INCOME STATEMENT
For the Three Months Ended August 31, 2000
Unaudited
(In thousands, except per share data)
<TABLE>
<CAPTION>
NDC
eCommerce Pro
Business Pro Forma As
Segment Pro Forma Forma CIBC-MCS Pro Forma Adjusted
Historical Adjustments(A) Combined Historical Adjustments(B) Combined
---------- -------------- -------- ---------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $87,191 $ -- $87,191 $25,737 $ -- $112,928
------- ----- ------- ------- ----- --------
Operating expenses:
Cost of service........ 45,881 -- 45,881 14,613 756 (i) 61,250
Sales, general and
administrative........ 24,728 323 (b) 25,051 2,540 -- 27,591
------- ----- ------- ------- ----- --------
70,609 323 70,932 17,153 756 88,841
------- ----- ------- ------- ----- --------
Operating income........ 16,582 (323) 16,259 8,584 (756) 24,087
------- ----- ------- ------- ----- --------
Other income (expense):
Interest and other
income................ 700 -- 700 -- -- 700
Interest and other
expense............... (1,791) (414)(c) (2,205) (1,846) -- (4,051)
Minority interest in
earnings.............. (1,427) -- (1,427) -- -- (1,427)
------- ----- ------- ------- ----- --------
(2,518) (414) (2,932) (1,846) -- (4,778)
------- ----- ------- ------- ----- --------
Income (loss) before
income taxes........... 14,064 (737) 13,327 6,738 (756) 19,309
Provision for income
taxes.................. 5,415 (284)(d) 5,131 2,965 (291)(j) 7,805
------- ----- ------- ------- ----- --------
Net income (loss)...... $ 8,649 $(453) $ 8,196 $ 3,773 $(465) $ 11,504
======= ===== ======= ======= ===== ========
Number of common and
common equivalent
shares................. 26,309 26,309 9,354 (k) 35,663
======= ======= ===== ========
Earnings per share...... $ 0.33 $ 0.31 $ 0.32
======= ======= ========
</TABLE>
The accompanying notes are an integral part of this unaudited Pro Forma
Combined Income Statement.
F-23
<PAGE>
NDC eCommerce Business Segment
(To be reorganized as Global Payments Inc.)
Notes to Unaudited Pro Forma Combined Financial Statements
(In thousands, except share data)
A. DISTRIBUTION PRO FORMA ADJUSTMENTS
1. Pro Forma Combined Balance Sheet Adjustments
The following pro forma adjustments were made to the historical combined
balance sheets of the Company to reflect the distribution as if it had occurred
on August 31, 2000.
a. To reflect the repayment of the amount Due to NDC with the proceeds from
a line of credit and the reclassification of the NDC equity investment,
in conjunction with the distribution.
2. Pro Forma Combined Income Statement Adjustments
The following pro forma adjustments were made to the historical combined
income statements of the Company for the three months ended August 31, 2000 and
the year ended May 31, 2000 to reflect the distribution as if it had occurred
on June 1, 1999.
b. To reflect additional sales, general and administrative expenses
expected to be incurred as a separate independent public company.
c. To reflect an increase in interest expense as a result of the difference
in the interest rate under the terms of the new line of credit versus
the amounts that have been historically allocated.
d. To reflect the income tax benefit on the pro forma adjustments using the
Company's effective rates for those periods.
B. ACQUISITION PRO FORMA ADJUSTMENTS
1. Pro Forma Combined Balance Sheet Adjustments
The following pro forma adjustments were made to the historical combined
balance sheets of the Company and CIBC-MCS to reflect the acquisition and
distribution as if they had occurred on August 31, 2000.
e. To reflect the increase in goodwill and other intangibles associated
with the acquisition of CIBC-MCS. The amount is calculated as follows:
<TABLE>
<S> <C>
Purchase price ................................................ $140,846
Less: Net assets of CIBC-MCS .................................. (85,590)
Liabilities of CIBC-MCS not assumed............................ (4,167)
--------
$ 51,089
========
</TABLE>
The purchase price was determined based upon the determination of value
of the common stock issued to CIBC as of the date of signing the
purchase and sale agreement plus direct costs of the acquisition.
f. To reflect the purchase price in the form of issuing approximately
9,354,000 shares of common stock with a fair value of $136,846 and
direct costs of the acquisition of approximately $4,000 in conjunction
with the acquisition.
F-24
<PAGE>
g. To reflect liabilities of CIBC-MCS not being assumed in the acquisition.
h. To reflect the elimination of the book equity of CIBC-MCS in conjunction
with the acquisition.
2. Pro Forma Combined Income Statement Adjustments
The following pro forma adjustments were made to the historical combined
income statements of the Company and CIBC-MCS for the three months ended August
31, 2000 and the year ended May 31, 2000 to reflect the acquisition and
distribution as if they had occurred on June 1, 1999.
i. To reflect the increase of amortization expense related to the goodwill
and other intangibles associated with the acquisition, over a weighted-
average life of 17.5 years.
j. To reflect the income tax benefit on the pro forma adjustments using the
Company's effective rates for those periods.
k. To reflect the shares of common stock issued in conjunction with the
acquisition.
F-25
<PAGE>
AUDITORS' REPORT
To the Board of Directors of
Canadian Imperial Bank of Commerce
We have audited the balance sheets of CIBC MERCHANT ACQUIRING BUSINESS (the
"Business") as of July 31, 2000 and October 31, 1999 and the related statements
of income, cash flows and changes in CIBC's equity in division for the nine
month period ended July 31, 2000 and the years ended October 31, 1999 and 1998.
These financial statements are the responsibility of the Business' management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Canada. Those standards require that we plan and perform an 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Division as of July 31, 2000 and
October 31, 1999 and the results of its operations and its cash flows for the
nine month period ended July 31, 2000 and the years ended October 31, 1999 and
1998 in accordance with accounting principles generally accepted in the United
States.
As disclosed in note 1, the Business has no separate legal status or
existence.
/s/ Arthur Andersen LLP
October 10, 2000
Toronto, Canada
F-26
<PAGE>
CIBC MERCHANT ACQUIRING BUSINESS
BALANCE SHEETS
JULY 31, 2000 AND OCTOBER 31, 1999
(See Note 1 to Financial Statements)
(thousands of US dollars)
<TABLE>
<CAPTION>
July 31, October 31,
2000 1999
-------- -----------
<S> <C> <C>
ASSETS
Current Assets
VISA International / Canada receivable................... $ 58,075 $31,863
Merchant processing receivable........................... 28,512 24,650
-------- -------
86,587 56,513
Property and equipment, net (note 4)...................... 18,539 20,963
Other..................................................... 34 264
-------- -------
Total assets.............................................. $105,160 $77,740
======== =======
LIABILITIES AND CIBC'S EQUITY IN DIVISION
Current Liabilities
Income taxes payable..................................... $ 4,494 $10,167
Accounts payable and accrued liabilities (Note 5)........ 4,248 4,293
Obligations under capital lease.......................... 1,820 1,942
Deferred income taxes.................................... 1,198 256
Merchant payable......................................... 931 1,015
IDP Merchant payable..................................... 467 147
Other.................................................... 956 854
-------- -------
Total current liabilities................................. 14,114 18,674
Obligations under capital lease........................... 162 1,497
-------- -------
Total liabilities......................................... 14,276 20,171
-------- -------
Commitments and contingencies (note 9)
CIBC'S equity in division (note 8)
CIBC'S equity investment................................. 94,489 60,048
Cumulative translation adjustment........................ (3,605) (2,479)
-------- -------
90,884 57,569
-------- -------
Total liabilities and CIBC'S equity in division........... $105,160 $77,740
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
CIBC MERCHANT ACQUIRING BUSINESS
STATEMENTS OF INCOME
FOR THE NINE MONTH PERIOD ENDED JULY 31, 2000
AND THE YEARS ENDED OCTOBER 31, 1999 AND 1998
(See Note 1 to Financial Statements)
(thousands of US dollars)
<TABLE>
<CAPTION>
July 31, October 31, October 31,
2000 1999 1998
-------- ----------- -----------
<S> <C> <C> <C>
Revenues....................................... $67,245 $86,622 $80,948
------- ------- -------
Operating Expenses
Cost of service............................... 35,533 42,321 40,317
Sales, general and administrative............. 14,313 16,622 15,839
------- ------- -------
49,846 58,943 56,156
------- ------- -------
Operating Income............................... 17,399 27,679 24,792
------- ------- -------
Other Expenses
Interest and other expenses................... 4,302 4,405 4,216
------- ------- -------
Income Before Income Taxes..................... 13,097 23,274 20,576
Provision For Income Taxes (note 7)............ 5,763 10,241 9,054
------- ------- -------
Net Income..................................... $ 7,334 $13,033 $11,522
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
CIBC MERCHANT ACQUIRING BUSINESS
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIOD ENDED JULY 31, 2000
AND THE YEARS ENDED OCTOBER 31, 1999 AND 1998
(See Note 1 to Financial Statements)
(thousands of US dollars)
<TABLE>
<CAPTION>
July 31, October 31, October 31,
2000 1999 1998
-------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................... $ 7,334 $13,033 $11,522
Adjustments to reconcile net income to cash
provided by operating activities before
changes in assets and liabilities
Depreciation and amortization............... 5,864 7,559 5,752
Deferred income taxes....................... 956 (301) (232)
------- ------- -------
14,154 20,291 17,042
Changes in non-cash working capital:
Merchant processing receivable.............. (4,173) (5,168) (1,145)
VISA Canada receivable...................... (26,878) (6,394) (2,834)
Income taxes payable........................ (5,635) 1,695 (1,109)
Accounts payable and accrued liabilities.... 1 152 184
Obligations under capital lease............. (1,437) (1,709) (1,568)
Merchant payable............................ (74) 651 183
IDP Merchant payable........................ 325 145 --
Other, net.................................. 342 805 (231)
------- ------- -------
Net cash (used in) provided by operating
activities.................................. (23,375) 10,468 10,522
------- ------- -------
Cash flows from investing activities:
Capital expenditures......................... (3,732) (8,968) (6,729)
------- ------- -------
Net cash used in investing activities........ (3,732) (8,968) (6,729)
------- ------- -------
Cash flows from financing activities
Investment by CIBC during the year........... 27,107 (1,500) (3,793)
------- ------- -------
Net cash provided by (used in) financing
activities.................................. 27,107 (1,500) (3,793)
------- ------- -------
Increase (decrease) in cash and cash
equivalents:
Cash, beginning of period..................... -- -- --
------- ------- -------
Cash, end of period........................... $ -- $ -- $ --
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
CIBC MERCHANT ACQUIRING BUSINESS
STATEMENTS OF CHANGES IN CIBC'S EQUITY IN DIVISION
FOR THE NINE MONTH PERIOD ENDED JULY 31, 2000
AND THE YEARS ENDED OCTOBER 31, 1999 AND 1998
(See Note 1 to Financial Statements)
(thousands of US dollars)
<TABLE>
<CAPTION>
Accumulated
CIBC's Other
Equity Comprehensive Total
Investment Income/(Loss) Equity
---------- ------------- -------
<S> <C> <C> <C>
Balance at October 31, 1997................... $40,786 $(1,108) $39,678
------- ------- -------
Comprehensive income
Net income.................................. 11,522 11,522
Foreign currency translation adjustment..... (2,374) (2,374)
------- ------- -------
Total comprehensive income................... 9,148
Net investment during the period............. (3,793) (3,793)
------- ------- -------
Balance at October 31, 1998................... 48,515 (3,482) 45,033
------- ------- -------
Comprehensive income
Net income.................................. 13,033 13,033
Foreign currency translation adjustment..... 1,003 1,003
------- ------- -------
Total comprehensive income................... 14,036
Net investment during the period............. (1,500) (1,500)
------- ------- -------
Balance at October 31, 1999................... 60,048 (2,479) 57,569
------- ------- -------
Comprehensive income
Net income.................................. 7,334 7,334
Foreign currency translation adjustment..... (1,126) (1,126)
------- ------- -------
Total comprehensive income................... 6,208
Net investment during the period............. 27,107 27,107
------- ------- -------
Balance at July 31, 2000...................... $94,489 $(3,605) $90,884
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
CIBC MERCHANT ACQUIRING BUSINESS
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2000, OCTOBER 31, 1999 AND 1998
(thousands of US dollars)
1. Basis of Presentation
The Merchant Acquiring Business ("Merchant Acquiring" or the "Business") is
part of Canadian Imperial Bank of Commerce's ("CIBC") Card Products Division.
The Business operates within a single industry segment and is responsible for
the capture, routing and processing of credit card transactions and debit
consumer point-of-sale (POS) transactions. Merchant Acquiring's operations are
provided predominantly in Canada. Management considers that this represents one
reportable segment--electronic transactions processing--therefore the majority
of the disclosures required by Statement of Financial Accounting Standards No.
131 do not apply.
These financial statements represent the business operations identified as
the Merchant Acquiring Business of CIBC. Accordingly, there is no share capital
or retained earnings in the Business' accounts. CIBC's equity in division
represents the funding provided to the Business to carry out its activities.
The financial statements have been prepared on the historical cost basis in
accordance with accounting principles generally accepted in the United States,
and present Merchant Acquiring's financial position, results of operations, and
cash flows as derived from CIBC's historical financial statements. As further
described in Note 3, certain allocations of corporate and interest expenses
have been allocated to Merchant Acquiring. These allocations were based on an
estimate of the proportion of corporate expenses related to Merchant Acquiring,
utilizing such factors as revenues, number of employees, number of transactions
processed and other applicable factors.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
certain estimates and assumptions. These estimates and assumptions affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reported period. Actual
results could differ from these estimates.
Revenue
Revenue for processing services provided directly to merchants is recorded
net of certain costs not controlled by Merchant Acquiring (primarily
interchange fees charged by credit card associations). Fees and rental revenues
are recognized as earned.
Merchant Processing Receivable/Payable
The merchant processing receivable/payable results from timing differences
in Merchant Acquirings' settlement process with merchants and credit card sales
processed.
Property and Equipment
Property and equipment, including equipment under capital leases, is stated
at cost. Depreciation and amortization is calculated using the straight-line
method. Equipment is depreciated over 3 to 7 years, software over 1 to 5 years
and furniture and fixtures over 15 years. Leasehold improvements and equipment
under
F-31
<PAGE>
capital leases are amortized over the shorter of the useful life of the asset
or the term of the lease. Maintenance and repairs are charged to operations as
incurred.
Deferred Income Taxes
Deferred income taxes are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax
laws and rates.
Fair Value of Financial Instruments
Management considers that the carrying amounts of financial instruments,
including cash, receivables, accounts payable and accrued expenses,
approximates fair value.
Foreign Currency Translation
The assets and liabilities are translated at the period-end rate of
exchange, and income statement and cash flow items are translated at the
average rates prevailing during the period. The resulting translation
adjustment is recorded as a component of CIBC's equity in division. The effect
of foreign exchange gains and losses arising from these translations of assets
and liabilities are included as a component of other comprehensive income.
3. Transactions with Related Parties
These divisional financial statements reflect corporate allocations from
CIBC for services provided to the Business in the amount of $3,261 for the nine
month period ending July 31, 2000 and $3,827 and $3,516 for the years ended
October 31, 1999 and 1998, respectively. These allocations were based on the
proportion of corporate expenses related to Merchant Acquiring based on the
percentage of the Business' direct operating expenses as a proportion of
CIBC's, a method of allocation management believes to be reasonable. Merchant
Acquiring utilized a rollback approach to allocate the expenses for all
historical periods presented. This treatment records the current allocation
percentage for all historical periods presented. These amounts have been
included in sales, general and administrative expenses.
These divisional financial statements also reflect corporate allocations
from CIBC Card Products Division for expenses incurred in relation to
activities of the Business in the amounts of $1,819 for the nine month period
ending July 31, 2000 and $2,466 and $2,373 for the years ended October 31, 1999
and 1998, respectively. These allocations were based on an estimate of the
proportion of expenses related to Merchant Acquiring, utilizing such factors as
estimated number of employees providing merchant card service functions, number
of transactions processed and other applicable factors, a method of allocation
management believes to be reasonable. These amounts have been included in cost
of service.
Merchant Acquiring is funded by CIBC. As such, the Business has applied a
cost of funds on the net book value of property and equipment and a one day
average of outstanding receivables based on a 5.8% rate (internal cost of
funding). Interest expense recorded by Merchant Acquiring related to this
funding was $2,969 for the nine month period ended July 31, 2000 and $3,277 and
$3,016 for the years ended October 31, 1999 and 1998, respectively and is
included in interest and other expense.
Merchant Acquiring outsources its back office operations to Intria Items
Inc. and utilizes Intria HP for systems and systems support. Both Intria Items
Inc. and Intria HP are joint ventures owned 51% by CIBC and 49% by third
parties. Expenses are based upon established service level agreements. The
Business incurred costs of $18,768 for the nine month period ending July 31,
2000 and $21,749 and $22,876 for the years ended October 31, 1999 and 1998,
respectively. These amounts are included in sales, general and administrative
expenses.
F-32
<PAGE>
The Business has amounts payable of $2,060 and $1,845 to Intria Items Inc.
and Intria HP as at July 31, 2000 and October 31, 1999, respectively. Amounts
payable to CIBC are included in CIBC's equity in the division.
4. Property and Equipment
As of July 31, 2000 and October 31, 1999, property and equipment consisted
of the following:
<TABLE>
<CAPTION>
July 31, October 31,
2000 1999
-------- -----------
<S> <C> <C>
Equipment under capital lease........................... $ 8,433 $ 8,523
Equipment............................................... 34,855 31,599
Software................................................ 221 224
Leasehold improvements.................................. 1,637 1,654
Furniture and fixtures.................................. 1,628 1,645
------- -------
46,774 43,645
Less: Accumulated depreciation and amortization......... 28,235 22,682
------- -------
$18,539 $20,963
======= =======
</TABLE>
5. Accounts Payable and Accrued Liabilities
As of July 31, 2000 and October 31, 1999, accounts payable and accrued
liabilities consisted of the following:
<TABLE>
<CAPTION>
July 31, October 31,
2000 1999
-------- -----------
<S> <C> <C>
Operating expenses payable.............................. $1,141 $ 963
Accrued compensation and benefits....................... 546 457
Accrued pension and retirement benefits................. 241 312
Other accrued liabilities............................... 260 716
System support fees payable............................. 2,060 1,845
------ ------
$4,248 $4,293
====== ======
</TABLE>
Certain of these payables are due to other related parties within the CIBC
group and are settled through CIBC group clearing accounts. Certain assumptions
have been made regarding the settlement periods in order to present the
information above.
6. Pension and Retirement Benefits
Merchant Acquiring has participated in the CIBC non-contributory defined
benefit pension plan (the "plan"). Management has estimated the pension and
other post retirement benefits expense based upon the employees as a percentage
of the total employees participating in the plan. Expenses estimated for
pension and other post retirement benefits were $584 for the nine month period
ended July 31, 2000 and $682 and $693 for the years ended October 31, 1999 and
1998, respectively.
7. Income Taxes
Merchant Acquiring is not a separate legal entity for purposes of remitting
taxes and filing income tax returns. Income taxes for the Business are reported
in CIBC's income tax returns and paid by CIBC. Accordingly, income taxes have
been calculated on these divisional statements based on an effective tax rate
of 44% on Canadian dollar net income.
F-33
<PAGE>
The provision for income taxes includes:
<TABLE>
<CAPTION>
July 31, October 31, October 31,
2000 1999 1998
-------- ----------- -----------
<S> <C> <C> <C>
Current tax expense......................... $4,550 $ 9,989 $8,487
Deferred tax expense........................ 1,213 252 567
------ ------- ------
Total....................................... $5,763 $10,241 $9,054
====== ======= ======
</TABLE>
CIBC is subject to capital taxes, which have been reflected in "interest and
other expenses" in the statements of income.
8. CIBC'S Equity in the Business
CIBC's Equity in the Business
CIBC's equity includes the accumulated income of Merchant Acquiring, the
funding for assets employed in the business and the net intercompany
receivable/payable reflecting transactions described in Note 3.
Stock Options
CIBC has certain Stock Option Plans under which incentive stock options
and non-qualified stock options have been granted to officers, key
employees and directors of CIBC.
9. Commitments and Contingencies
The long term capital lease payable as of July 31, 2000 was $162 and is due
in 2002.
Expenses for premises are included as a corporate allocation in cost of
service (see Note 3).
Merchant Acquiring is party to a number of claims and lawsuits incidental to
its business. In the opinion of management, the ultimate outcome of such
matters, in the aggregate, will not have a material adverse impact on Merchant
Acquiring's financial position, liquidity or results of operations.
Merchant Acquiring is currently in negotiations with VISA relating to the
interpretation of the regulations surrounding interchange fees. Management
believes it is premature to determine the impact, if any, on the business in
the future.
Merchant Acquiring processes credit card transactions for direct merchant
locations. Merchant Acquiring's merchant customers have the liability for any
charges properly reversed by the cardholder. In the event, however, that
Merchant Acquiring is not able to collect such amounts from the merchants, due
to merchant fraud, insolvency, bankruptcy or another reason, Merchant Acquiring
may be liable for any such reversed charges. Merchant Acquiring requires
pledged funds from certain merchants to minimize any such contingent liability.
Pledged funds as of July 31, 2000 are $5,890. Merchant Acquiring also utilizes
a number of systems and procedures to manage merchant risk. In addition,
Merchant Acquiring believes that the diversification of its merchant portfolio
among industries and geographic regions minimizes its risk of loss.
Merchant Acquiring recognizes revenue based on a percentage of the gross
amount charged and has a potential liability for the full amount of the charge.
Merchant Acquiring does not establish reserves for operational losses but
expenses these as they are incurred. In the opinion of management, such
reserves would be immaterial.
F-34
<PAGE>
10. Supplemental Cash Flow Information
Merchant Acquiring does not maintain cash accounts. All cash flows are
included in CIBC's consolidated cash flows. Accordingly, there is insufficient
information to separately disclose Merchant Acquiring's supplemental cash flows
relating to interest and income taxes paid.
11. Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------
January 31 April 30 July 31 October 31
---------- -------- ------- ----------
<S> <C> <C> <C> <C>
Fiscal Year 2000
Revenue.................................. $21,972 $20,762 $24,547 $ --
Operating income......................... 5,458 4,849 7,092 --
Net income............................... 2,254 1,912 3,168 --
Fiscal Year 1999
Revenue.................................. $20,378 $19,593 $23,060 $23,591
Operating income......................... 6,335 5,631 8,633 7,080
Net income............................... 2,931 2,537 4,217 3,348
</TABLE>
F-35
