<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 17, 1996
REGISTRATION NO. 333-13653
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
NATIONAL DATA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 58-0977458
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
NATIONAL DATA PLAZA
ATLANTA, GEORGIA 30329-2010
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
E. MICHAEL INGRAM
GENERAL COUNSEL AND SECRETARY NATIONAL DATA CORPORATION NATIONAL DATA PLAZA
ATLANTA, GEORGIA 30329-2010 (404) 728-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
THE COMMISSION IS REQUESTED TO SEND COPIES OF ALL COMMUNICATIONS TO:
JOEL J. HUGHEY ALSTON & BIRD ONE MARY A. BERNARD KING & SPALDING 120
ATLANTIC CENTER 1201 WEST PEACHTREE WEST 45TH STREET NEW YORK, NEW YORK
STREET ATLANTA, GEORGIA 30309-3424 10036 (212) 556-2100
(404) 881-7000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 17, 1996
$125,000,000
NATIONAL DATA CORPORATION
% CONVERTIBLE SUBORDINATED NOTES DUE NOVEMBER , 2003
LOGO
----------
The Notes are convertible at any time prior to maturity, unless previously
redeemed or repurchased, into shares of Common Stock, par value $.125 per share
("Common Stock"), of National Data Corporation (the "Company") at a conversion
rate of shares per each $1,000 principal amount of Notes (equivalent to a
conversion price of approximately $ per share), subject to adjustment in
certain circumstances. On October 16, 1996, the last reported sale price of the
Common Stock, which is traded under the symbol "NDC" on the New York Stock
Exchange, Inc. was $44.25 per share.
Interest on the Notes is payable on May and November of each year,
commencing May , 1997. The Notes are redeemable in whole or in part at the
Company's option at any time on or after November , 1999 at the redemption
prices set forth herein, plus accrued interest to the date of redemption. See
"Description of Notes -- Optional Redemption." The Notes are not entitled to
any sinking fund. The Notes will mature on November , 2003.
In the event of a Change of Control (as defined herein), each holder of Notes
may require the Company to repurchase its Notes, in whole or in part, for cash
or, at the Company's option, Common Stock (valued at 95% of the average last
reported sale prices for the five trading days immediately preceding and
including the third trading day prior to the repurchase date) at a repurchase
price of 100% of the principal amount of Notes to be repurchased, plus accrued
interest to the repurchase date. See "Description of Notes -- Repurchase at the
Option of Holders Upon a Change of Control."
The Notes are unsecured obligations subordinated in right of payment to all
existing and future Senior Indebtedness (as defined herein) of the Company and
effectively subordinated in right of payment to all indebtedness and other
liabilities of the Company's subsidiaries. As of August 31, 1996, after giving
effect to the offering of the Notes and the application of the net proceeds
therefrom, the Company would have had $11.4 million of Senior Indebtedness
outstanding and the aggregate amount of indebtedness and other liabilities of
the Company's subsidiaries would have been $50.9 million. The Indenture will
not restrict the Company or its subsidiaries from incurring additional Senior
Indebtedness or other indebtedness. See "Description of Notes --
Subordination."
Application will be made to list the Notes on the New York Stock Exchange.
The Notes will be represented by a Global Note registered in the name of the
nominee of The Depository Trust Company ("DTC"), which will act as depositary.
Beneficial interests in the Global Note will be shown on, and transfers thereof
will be effected only through, records maintained by DTC and its direct and
indirect participants. Except as described herein, Notes in definitive form
will not be issued. The Notes will be issued in registered form in
denominations of $1,000 and integral multiples thereof. See "Description of
Notes -- Book-Entry."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY INVESTORS IN
EVALUATING AN INVESTMENT IN THE SECURITIES OFFERED HEREBY, SEE "RISK FACTORS"
BEGINNING ON PAGE 8.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE(1) DISCOUNT(2) COMPANY(1)(3)
----------------- ------------ -------------
<S> <C> <C> <C>
Per Note........................... % % %
Total(4)........................... $ $ $
</TABLE>
- -----
(1) Plus accrued interest, if any, from November , 1996.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(3) Before deducting estimated expenses of $400,000 payable by the Company.
(4) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional $18,750,000 principal amount of Notes at the initial
public offering price shown above, less the underwriting discount, solely
to cover over-allotments. If such option is exercised in full, the total
initial public offering price, underwriting discount and proceeds to the
Company will be $ , $ and $ , respectively. See "Underwriting."
----------
The Notes offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that the
Notes will be ready for delivery in book-entry form only through the facilities
of DTC in New York, New York, on or about , 1996 against payment thereof
in immediately available funds.
GOLDMAN, SACHS & CO.
SALOMON BROTHERS INC
MONTGOMERY SECURITIES
NATWEST SECURITIES LIMITED
----------
The date of this Prospectus is , 1996.
<PAGE>
AVAILABLE INFORMATION
National Data Corporation (the "Company" or "NDC") has filed a Registration
Statement on Form S-3 (together with all amendments and exhibits filed or to
be filed in connection therewith, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Notes offered hereby. This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Securities and Exchange
Commission (the "Commission"). Statements contained herein concerning the
provisions of documents are necessarily summaries of such documents, and each
statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's regional offices located at 7 World Trade Center, Suite 1300,
New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. In addition, the Commission maintains a site
on the World Wide Web at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The common stock of the Company, $.125 par
value per share (the "Common Stock"), is listed on the New York Stock Exchange
(the "NYSE") under the symbol "NDC," and such reports, proxy statements and
other information concerning the Company are available for inspection at the
office of the NYSE, 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission (File No. 001-
12392) pursuant to the 1934 Act are hereby incorporated in this Prospectus by
reference:
1. The Company's Annual Report on Form 10-K for the year ended May 31,
1996;
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
August 31, 1996;
3. The Company's Current Reports on Form 8-K dated April 1, 1996, May 31,
1996 and October 1, 1996;
4. The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A as filed with the Commission on October
5, 1993; and
5. The description of the Company's Junior Preferred Stock Purchase
Rights contained in the Company's Registration Statement on Form 8-A as
filed with the Commission on January 22, 1991, as amended on October 5,
1993.
All information incorporated by reference herein should be read in
conjunction with the information set forth under the caption "Risk Factors"
beginning on page 8.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the 1934 Act subsequent to the date of this Prospectus and prior to
the termination of this offering shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the respective
dates of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified and superseded, to constitute a part of
this Prospectus.
The Company will provide without charge to each person to whom a Prospectus
is delivered, upon written or oral request of such person, a copy of any and
all of the information that has been incorporated by reference in this
Prospectus (excluding exhibits unless such exhibits are specifically
incorporated by reference into such documents). Please direct such requests to
the Secretary, National Data Corporation, National Data Plaza, Atlanta,
Georgia, 30329-2010, telephone number (404) 728-2000.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AND THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK
STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and notes thereto appearing
elsewhere or incorporated by reference into this Prospectus. Unless the context
otherwise requires, (i) the information in this Prospectus assumes the
Underwriters' over-allotment option is not exercised, (ii) all financial
information contained in this Prospectus has been restated to reflect the
Company's acquisition of C.I.S. Technologies, Inc. ("CIS") on May 31, 1996,
which was accounted for under the pooling of interests method, (iii) references
to the business or results of operations of Global Payment Systems LLC ("Global
Payment Systems" or "Global") with respect to time periods prior to April 1,
1996 refer to the business and results of operations of the Company's indirect
payment services and information systems and services business and (iv)
references to the "Company" or "NDC" include NDC and its subsidiaries.
References to fiscal years of the Company refer to its fiscal year ending May
31 of that calendar year.
THE COMPANY
National Data Corporation (the "Company" or "NDC") is a leading provider of
high-volume transaction processing services and application systems to the
health care and payment systems markets. The Company serves a diverse customer
base comprised of approximately 120,000 health care providers, 3,500 health
care plans, 700,000 merchant locations, 35,000 corporations and 400 banking
institutions, as well as federal and state government agencies. The Company
markets its services directly to health care providers and merchants and
indirectly through business alliances with a wide range of banks, insurance
companies and distributors. The Company is one of the largest independent
providers of health care transaction processing and integrated payment systems
services in the United States, having processed over 2.2 billion transactions
during fiscal 1996.
NDC provides electronic claims processing and adjudication services, practice
management systems, electronic data interchange ("EDI") services, billing
services, accounts receivable resolution, business office management services
and clinical data base information for pharmacies, dentists, physicians,
hospitals, health maintenance organizations, managed care companies, clinics
and nursing homes, as well as other health care providers. Management believes
that the Company is the largest independent processor of real-time health care
transactions and that it is well positioned to capitalize on the growing demand
for cost containment and improved patient care in the health care industry. For
the first quarter of fiscal 1997, approximately 38% of the Company's total
revenue was derived from the Company's health care systems and services.
The Company provides payment systems products and services in various
partnership forms with banks and other participants in the market through its
subsidiary, Global Payment Systems and its integrated payment systems business
unit. NDC offers transaction processing solutions to banks, corporations,
health care providers, government agencies and other enterprises. Global offers
its services on an indirect outsourcing basis through relationships with banks,
while the integrated payment systems unit provides a broad range of services in
partnership with banks via bank alliance programs, as well as through other
distribution channels. Through Global, the Company also offers electronic tax
filing and payment, cash management, information reporting and EDI services to
government and corporate customers. The Company is one of the largest providers
of credit card, debit card and check verification/guarantee processing services
and also provides electronic payment processing capabilities for business-to-
business purchasing transactions through its purchase card program. For the
first quarter of fiscal 1997, approximately 30% of the Company's total revenue
was derived from Global Payment Systems. The Company's integrated payment
systems unit accounted for approximately 32% of the Company's total revenue in
the first quarter of fiscal 1997.
The Company's products offer greater convenience to purchasers and providers
of goods and services and reduce processing costs, settlement delays and losses
from fraudulent transactions.
3
<PAGE>
NDC's advanced high speed computer and telecommunications network enables the
Company to electronically process, capture and transmit a high volume of point-
of-use transactions 24 hours a day, seven days a week. While the transition
from paper-based to electronic transactions continues, the earliest and most
significant penetration has occurred in the areas of credit card authorization
and settlement and pharmacy transaction processing. NDC believes that the rapid
transition to electronic transaction processing demonstrates the potential for
automation of other markets still dominated by paper-based processing, such as
additional health care applications and the transfer of information between
businesses.
The Company is a total solution provider of value-added transaction
processing systems and services in the markets it serves. NDC believes that
both the health care and the payment systems markets present attractive
opportunities for continued growth. In pursuing its strategy, the Company seeks
both to increase its penetration of existing application systems and point-of-
use transaction processing markets and to continue to identify and create new
markets for its services. The Company will also continue to seek to enhance
existing products and develop new systems and services.
To support its business strategy, NDC has focused on acquisition
opportunities and alliances with other companies that allow NDC to increase its
market penetration, technological capabilities, product offerings and
distribution capabilities. During fiscal 1996, the Company completed four
acquisitions and alliances with an aggregate cash purchase price of
approximately $145.8 million and the issuance of approximately 2,830,000 shares
of Common Stock. These acquisitions have expanded NDC's capabilities and
customer bases in the managed care, hospital and medical claims processing, EDI
and merchant processing markets.
The Company's address is National Data Plaza, Atlanta, Georgia 30329-2010 and
its telephone number is (404) 728-2000.
RECENT DEVELOPMENTS
Effective October 1, 1996, NDC acquired all of the outstanding capital stock
of Equifax Healthcare EDI Services, Inc. ("EDI Services") from Equifax, Inc.
for an aggregate purchase price of approximately $47.0 million. For its fiscal
year ended June 30, 1996, EDI Services had total revenue of $16.8 million. EDI
Services provides health care information services which link health care
providers, including over 40,000 physicians, insurance carriers, health
maintenance organizations, preferred provider organizations and other payors
including government intermediaries and financial institutions.
THE OFFERING
SECURITIES OFFERED......
$125,000,000 aggregate principal amount of %
Convertible Subordinated Notes due November , 2003
(the "Notes"). The Company has granted the
Underwriters an option for 30 days to purchase up to
$18,750,000 additional aggregate principal amount of
Notes, solely to cover over-allotments.
INTEREST PAYMENT
DATES.................. Interest on the Notes is payable at the rate set
forth on the cover page hereof, semi-annually on each
May and November , commencing May , 1997.
4
<PAGE>
CONVERSION RIGHT........ The Notes are convertible at any time prior to
maturity, unless previously redeemed or repurchased,
into shares of Common Stock at a conversion rate of
shares per $1,000 principal amount of Notes
(equivalent to a conversion price of approximately
$ per share), subject to adjustment in certain
circumstances as described herein. See "Description
of Notes -- Conversion Rights."
SUBORDINATION...........
The Notes are subordinated in right of payment to all
existing and future Senior Indebtedness (as defined
herein) of the Company. The Notes are also
effectively subordinated in right of payment to all
indebtedness and liabilities of the Company's
subsidiaries. As of August 31, 1996, after giving
effect to the offering of the Notes and the
application of the net proceeds therefrom, the
Company would have had $11.4 million of Senior
Indebtedness outstanding, and the aggregate amount of
indebtedness and other liabilities of the Company's
subsidiaries would have been $50.9 million. See
"Description of Notes -- Subordination."
OPTIONAL REDEMPTION.....
The Notes will be redeemable at the Company's option,
in whole or in part, at any time on or after November
, 1999 at the redemption prices set forth herein
plus accrued interest to the date of redemption. See
"Description of Notes -- Optional Redemption."
REPURCHASE AT OPTION OF
HOLDERS UPON A CHANGE
OF CONTROL.............
In the event of a Change of Control (as defined
herein), each holder of Notes may require the Company
to repurchase its Notes, in whole or in part, for
cash or, at the Company's option, Common Stock
(valued at 95% of the average last reported sale
prices for the five trading days immediately
preceding and including the third trading day prior
to the repurchase date) at a repurchase price of 100%
of the principal amount of Notes to be repurchased,
plus accrued interest to the repurchase date. See
"Description of Notes-- Repurchase at Option of
Holders Upon a Change of Control."
USE OF PROCEEDS......... The Company intends to use approximately $62.0
million of the net proceeds to repay outstanding
indebtedness. The remainder of such net proceeds will
be added to the Company's working capital to be
available for general corporate purposes, including
acquisitions. See "Use of Proceeds."
LISTING.................
Application will be made to list the Notes on the New
York Stock Exchange.
COMMON STOCK............ The Common Stock is listed on the New York Stock
Exchange under the symbol "NDC."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED AUGUST 31,
--------------------------------------------------------- -------------------------
PRO PRO
FORMA(1) FORMA(2)
-------- --------
1992 1993 1994(4) 1995(4) 1996(4) 1996 1995 1996 1996
-------- -------- -------- -------- -------- -------- ------- -------- --------
(IN THOUSANDS, EXCEPT RATIO AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue:
Health Care............ $ 72,398 $ 89,840 $ 94,870 $119,705 $144,879 $160,136 $35,899 $ 38,067 $ 41,923
Integrated Payment
Systems............... 80,207 69,579 78,787 88,489 104,829 104,829 25,742 31,926 31,926
Global Payment
Systems............... 90,074 80,391 64,002 69,889 76,095 118,875 16,649 31,171 31,171
-------- -------- -------- -------- -------- -------- ------- -------- --------
Total.................. 242,679 239,810 237,659 278,083 325,803 383,840 78,290 101,164 105,020
Operating income (loss) 17,124 14,894 18,423(3) 28,246 (11,834) 33,658 8,079 13,934 13,494
Net income (loss)....... $ 9,917 $ 8,045 $ 12,226(3) $ 18,421 $ (8,458) $ 17,850 $ 4,854 $ 8,205 $ 7,532
Earnings (loss) per
share.................. $ .48 $ .37 $ .55(3) $ .79 $ (.31) $ .66 $ .18 $ .30 $ .27
OTHER DATA:
Ratio of earnings to
fixed charges(5)...... 3.3 4.1 4.6 6.4 (0.7) 3.6 6.0 8.3 5.7
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31, 1996
----------------------
PRO FORMA
ACTUAL AS ADJUSTED(6)
------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital(7)....................................... $16,652 $ 77,084
Total assets............................................. 369,417 481,552
Long-term obligations(7)................................. 38,745 148,745
Stockholders' equity..................................... 242,134 242,134
</TABLE>
- --------
(1) Gives effect to the acquisition of (i) the Merchant Automated Point-of-Sale
Program business ("MAPP"), which was consummated in April 1996, and (ii)
EDI Services, which was consummated in October 1996, as if such
acquisitions had been consummated at the beginning of the period presented.
All of the restructuring, impairment and merger expenses incurred by the
Company in connection with the acquisition of MAPP and CIS as well as
certain other non-recurring items recognized by EDI Services during the
period are excluded from the pro forma summary consolidated financial data.
(2) Gives effect to the acquisition of EDI Services as if such acquisition had
been consummated at the beginning of the period presented. Certain other
non-recurring items recognized by EDI Services during the period are
excluded from the pro forma summary consolidated financial data.
(3) Includes a pre-tax charge of $2.5 million ($1.6 million after taxes or
$0.07 per share) relating to the settlement of a shareholder lawsuit
originally filed in 1990.
(4) The summary consolidated financial data set forth in the table above have
been restated to reflect the acquisition of CIS on May 31, 1996, which was
accounted for under the pooling of interests method. Set forth below is a
reconciliation of the revenue, net income (loss), and earnings (loss) per
share of the Company on a stand alone basis, CIS, and NDC and CIS combined
for fiscal 1994, 1995 and 1996:
<TABLE>
<CAPTION>
EARNINGS (LOSS)
REVENUE NET INCOME (LOSS) PER SHARE
-------------------- ----------------- ------------------
1994 1995 1996 1994 1995 1996 1994 1995 1996
------ ------ ------ ----- ----- ----- ----- ----- ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NDC................... $206.1 $242.0 $281.0 $ 9.7 $15.4 $(5.3) $0.50 $0.75 $(0.09)
CIS................... 31.6 36.1 44.8 2.5 3.0 (3.2) 0.05 0.04 (0.22)
------ ------ ------ ----- ----- ----- ----- ----- ------
NDC and CIS Combined.. $237.7 $278.1 $325.8 $12.2 $18.4 $(8.5) $0.55 $0.79 $(0.31)
====== ====== ====== ===== ===== ===== ===== ===== ======
</TABLE>
In connection with the acquisition of MAPP and CIS, the Company incurred
pre-tax restructuring, impairment, and merger expenses of $44.1 million
($30.0 million after taxes or $1.10 per share) in the fourth quarter of
fiscal 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
6
<PAGE>
(5) For purposes of calculating the ratio of earnings to fixed charges, (i)
earnings consist of income before income taxes plus fixed charges and (ii)
fixed charges consist of interest expense incurred, including capitalized
leases and the portion of rental expense under leases deemed by the Company
to be representative of the interest factor. For fiscal 1996, earnings were
insufficient to cover fixed charges by $11.7 million due to the
restructuring, impairment and merger expenses relating to the acquisition
of MAPP and CIS incurred by the Company during such period.
(6) Gives effect to the acquisition of EDI Services as if it had been
consummated on August 31, 1996 and adjusted to reflect the issuance and
sale of the Notes offered hereby and the application of the net proceeds
therefrom.
(7) Working capital excludes, and long-term obligations includes, a mortgage
payable of $10.9 million due January 1997 and borrowings under the
Company's revolving lines of credit of $15.0 million. At October 1, 1996,
long-term obligations were approximately $85.8 million.
7
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating an investment
in the Notes.
COMPETITION
The markets for the applications systems and services offered by the Company
are highly competitive. Competition in the health care transaction processing
and payment systems markets affects the Company's ability to gain new
customers and the prices it can charge. The key competitive factors for the
Company are functionality of products, quality of service and price. Many of
the Company's competitors have access to significant capital and management,
marketing and technological resources that are equal to or greater than those
of the Company, and there can be no assurance that the Company will continue
to be able to compete successfully with them. In addition, the Company
competes with businesses that internally perform data processing or other
services offered by the Company. See "Business -- Competition."
MARKETS AND APPLICATIONS
The Company's future growth and profitability will depend, in part, upon the
further expansion of the health care transaction processing and payment
systems markets, the emergence of other markets for electronic transaction
processing services and the Company's ability to penetrate such markets.
Further expansion of these markets is dependent upon the continued growth in
the number of transactions available to be processed and the continued
automation of traditional paper-based processing systems. The Company's
ability to penetrate such markets will depend, in turn, upon its ability to
apply its existing technology, or to develop new technology, to meet the
particular service needs of each new market. There can be no assurance that
markets for the Company's services will continue to expand and develop or that
the Company will be successful in its efforts, or have adequate financial,
marketing and technological resources to penetrate new markets. See "Business
- -- Business Strategy."
INTEGRATED PAYMENT SYSTEMS BUSINESS
The Company's merchant customers have liability for charges disputed by
cardholders. However, in the case of merchant fraud, or insolvency or
bankruptcy of the merchant, the Company may be liable for any of such charges
disputed by cardholders. The Company requires cash deposits and other types of
collateral by certain merchants to minimize any such contingent liability.
Based on its historical loss experience, the Company has established reserves
for estimated losses on transactions processed which management believes are
adequate. There can be no assurance, however, that such reserves for losses
will be adequate. Any such losses in excess of reserves could have a material
adverse effect on the financial condition and results of operations of the
Company.
ACQUISITION RISKS
The Company completed four acquisitions in fiscal 1996, and intends to seek
additional acquisition opportunities and alliance relationships with other
businesses that will allow it to increase its market penetration,
technological capabilities, product offerings and distribution capabilities.
There can be no assurance that the Company will be able successfully to
identify suitable acquisition candidates, complete acquisitions, integrate
acquired operations into its existing operations or expand into new markets.
There can also be no assurance that future acquisitions will not have an
adverse effect upon the Company's operating results, particularly in the
fiscal quarters immediately following the completion
8
<PAGE>
of such acquisitions while the operations of the acquired business are being
integrated into the Company's operations. Once integrated, acquired operations
may not achieve levels of revenues, profitability or productivity comparable
with those achieved by the Company's existing operations, or otherwise perform
as expected. In addition, the Company competes for acquisition and expansion
opportunities with companies that have substantially greater resources.
DISCRETION IN USE OF PROCEEDS
The Company intends to use approximately $62.0 million of the net proceeds
of this offering to repay certain of its outstanding indebtedness. The
remaining $59.5 million of the net proceeds of this offering will be added to
the Company's working capital and will be available for general corporate
purposes, including acquisitions. As of the date of this Prospectus, the
Company cannot specify with certainty the particular uses for the net proceeds
to be added to its working capital and accordingly management will have broad
discretion in the application of such net proceeds. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
SUBORDINATION
The Notes will be unsecured and subordinated in right of payment in full to
all existing and future Senior Indebtedness of the Company. As a result of
such subordination, in the event of the Company's liquidation or insolvency,
payment default with respect to Senior Indebtedness, a covenant default with
respect to Senior Indebtedness, or upon acceleration of the Notes due to an
event of default, the assets of the Company will be available to pay
obligations on the Notes only after all Senior Indebtedness has been paid in
full, and there may not be sufficient assets remaining to pay amounts due on
any or all of the Notes then outstanding. The Company may from time to time
incur indebtedness constituting Senior Indebtedness. The Notes are also
effectively subordinated in right of payment to all indebtedness and other
liabilities, including trade payables, of the Company's subsidiaries. The
Indenture does not prohibit or limit the incurrence of Senior Indebtedness or
other indebtedness and other liabilities by the Company or its subsidiaries.
The incurrence of additional indebtedness and other liabilities by the Company
or its subsidiaries could adversely affect the Company's ability to pay its
obligations on the Notes. In addition, the cash flow and ability of the
Company to service debt, including the Notes, may in the future become
dependent in part upon the earnings from the business conducted by the Company
through subsidiaries and distribution of those earnings, or upon loans or
other payments of funds by those subsidiaries to the Company. As of August 31,
1996, after giving effect to the offering of the Notes and the application of
the net proceeds therefrom, the Company would have had $11.4 million of Senior
Indebtedness outstanding, and the aggregate amount of indebtedness and other
liabilities of the Company's subsidiaries would have been $50.9 million. See
"Description of Notes -- Subordination."
LIMITATIONS ON REPURCHASE OF NOTES
Upon a Change of Control, each holder of Notes will have the right, at the
holder's option, to require the Company to repurchase all or a portion of such
holder's Notes. If a Change of Control were to occur, there can be no
assurance that the Company would have sufficient funds to pay the repurchase
price for all Notes tendered by the holders thereof. The Company may elect,
subject to certain conditions, to make such payment using shares of Common
Stock. In addition, the Company's repurchase of Notes as a result of the
occurrence of a Change of Control may be prohibited or limited by, or create
an event of default under, the terms of agreements related to borrowings which
the Company may enter into from time to time, including agreements relating to
Senior Indebtedness. The agreement relating to the Company's current Senior
Indebtedness would limit the Company's ability to repurchase the Notes. See
"Description of Notes -- Repurchase at Option of Holders Upon a Change of
Control."
9
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes offered hereby,
after deducting the underwriting discount and the estimated expenses of the
offering, are estimated to be $121.5 million ($139.8 million if the
Underwriter's over-allotment option is exercised in full). The Company intends
to use approximately $62.0 million of the net proceeds to repay outstanding
indebtedness under the Company's revolving lines of credit, which mature in
May 1999 and July 1999, and bore interest at rates which ranged from 5.5% to
5.7% during the three months ended August 31, 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
The remainder of the net proceeds will be added to the Company's working
capital and will be available for general corporate purposes, including
acquisitions. An important component of the Company's growth strategy is the
ability to pursue acquisitions. The purpose of this offering is to provide the
Company with increased financial flexibility to pursue acquisitions of other
businesses that are consistent with the Company's growth strategy. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business -- Acquisition
Strategy."
Pending use of the net proceeds of this offering, the Company may make
temporary investments in interest-bearing savings accounts, certificates of
deposit, United States Government obligations, money market accounts, interest
bearing securities or other insured short-term, interest-bearing investments.
10
<PAGE>
CAPITALIZATION
The following table sets forth, as of August 31, 1996, the capitalization of
the Company (i) on an actual basis, (ii) pro forma to give effect to the
acquisition of EDI Services as if such acquisition had been consummated on
August 31, 1996 and (iii) pro forma for such acquisition of EDI Services and as
adjusted to give effect to the issuance and sale of the Notes offered hereby
and the application of the net proceeds therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
AT AUGUST 31, 1996
--------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Indebtedness
Lines of credit.............................. $ 15,000 $ 62,000 $ --
Mortgage payable............................. 10,892 10,892 10,892
Long-term obligations........................ 12,853 12,853 12,853
% convertible subordinated notes due
2003........................................ -- -- 125,000
Stockholders' equity:
Preferred Stock, $1.00 par value per share;
1,000,000 shares authorized; none issued.... -- -- --
Common Stock, $.125 par value per share;
60,000,000 shares authorized; 25,962,939
shares issued and outstanding(1)............ 3,253 3,253 3,253
Capital in excess of par value............... 169,377 169,377 169,377
Retained earnings............................ 70,421 70,421 70,421
Cumulative translation adjustment............ (831) (831) (831)
Deferred compensation........................ (86) (86) (86)
-------- -------- --------
Total stockholders' equity................. 242,134 242,134 242,134
-------- -------- --------
Total capitalization..................... $280,879 $327,879 $390,879
======== ======== ========
</TABLE>
- --------
(1) Excludes shares issuable upon conversion of the Notes and 2,699,967
shares subject to options outstanding under the Company's stock option and
employee stock purchase plans as of August 31, 1996.
11
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock has been traded on the New York Stock Exchange under the
symbol NDC since October 14, 1993. Prior to that time, the Common Stock was
traded on the Nasdaq National Market. The table below sets forth the high and
low sales prices of the Common Stock and the quarterly cash dividends declared
per share of Common Stock during the periods indicated.
<TABLE>
<CAPTION>
PRICE RANGE
------------- CASH DIVIDENDS
HIGH LOW DECLARED
------ ------ -------------- ---
<S> <C> <C> <C> <C>
FISCAL 1995
First Quarter................................ $13.50 $10.33 $0.073
Second Quarter............................... 14.67 12.92 0.073
Third Quarter................................ 17.58 13.83 0.073
Fourth Quarter............................... 21.38 16.50 0.075
FISCAL 1996
First Quarter................................ 26.63 20.50 0.075
Second Quarter............................... 28.00 22.00 0.075
Third Quarter................................ 35.00 20.00 0.075
Fourth Quarter............................... 40.25 29.88 0.075
FISCAL 1997
First Quarter................................ 44.50 33.75 0.075
Second Quarter (through October 16, 1996).... 46.63 41.13 --
</TABLE>
The last sale price of the Common Stock as reported on the New York Stock
Exchange Composite Tape on October 16, 1996 was $44.25. As of October 2, 1996,
there were approximately 3,615 holders of record of the Common Stock.
The ability of the Company to pay dividends in the future will be dependent
upon general business conditions, earnings, capital requirements, funds legally
available for such dividends, contractual provisions of debt agreements and
other relevant factors.
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated financial data for fiscal 1994, 1995 and 1996 are derived
from the consolidated financial statements of the Company which have been
audited by Arthur Andersen LLP, independent public accountants. The
consolidated financial data for fiscal 1992 and 1993 have been derived from the
consolidated financial statements of the Company for fiscal 1992 and 1993
(which have been audited by Arthur Andersen LLP) and the consolidated financial
statements of CIS for the years ended December 31, 1991, 1992 and 1993 (which
have been audited by Coopers & Lybrand L.L.P.). The consolidated financial data
presented for the three months ended August 31, 1995 and 1996 are derived from
the unaudited consolidated financial statements of the Company. In the
Company's opinion, the unaudited consolidated financial statements of the
Company include all adjustments, consisting of normal recurring accruals
necessary for a fair presentation of its consolidated financial position and
results of operations for these periods. Operating results for the three months
ended August 31, 1996 are not necessarily indicative of the results that may be
expected for fiscal 1997. The pro forma consolidated financial data for fiscal
1996 and for and at the end of the three months ended August 31, 1996 are
derived from the unaudited pro forma condensed combined financial statements of
the Company incorporated by reference in this Prospectus. The pro forma
consolidated financial data does not purport to describe what the Company's
results of operations and financial position would actually have been had the
acquisitions described in the notes below actually occurred on the dates set
forth therein or to project the Company's results of operations or financial
condition for any future period or as of any date, respectively. The data
should be read in conjunction with the consolidated financial statements and
pro forma condensed combined financial statements of the Company and related
notes incorporated by reference in this Prospectus and "Management's Discussion
and Analysis of Financial Condition and Results of Operations," included
elsewhere herein.
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED AUGUST 31,
-------------------------------------------------------------- -----------------------------
PRO PRO
FORMA(1) FORMA(2)
-------- ---------
1992 1993 1994(3) 1995(3) 1996(3) 1996 1995 1996 1996
-------- -------- -------- -------- -------- -------- -------- -------- ---------
(IN THOUSANDS, EXCEPT RATIO AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Revenue:
Health Care............ $ 72,398 $ 89,840 $ 94,870 $119,705 $144,879 $160,136 $ 35,899 $ 38,067 $ 41,923
Integrated Payment
Systems............... 80,207 69,579 78,787 88,489 104,829 104,829 25,742 31,926 31,926
Global Payment
Systems............... 90,074 80,391 64,002 69,889 76,095 118,875 16,649 31,171 31,171
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total.................. 242,679 239,810 237,659 278,083 325,803 383,840 78,290 101,164 105,020
Operating expenses:
Cost of service........ 146,340 145,492 139,564 153,410 163,323 204,256 39,435 49,076 51,630
Sales, general and
administrative........ 79,215 79,424 77,172 96,247 130,246 145,926 30,776 38,154 39,896
Restructuring,
impairment and merger
expenses.............. -- -- -- -- 44,068(4) -- -- -- --
Settlement of
shareholder
litigation............ -- -- 2,500(5) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income
(loss)................. 17,124 14,894 18,423 28,426 (11,834) 33,658 8,079 13,934 13,494
Other income (expense):
Interest and other
income................ 2,512 2,625 1,528 2,079 4,476 1,012 1,141 319 380
Interest and other
expense............... (4,396) (2,470) (2,600) (2,635) (3,750) (6,893) (914) (935) (1,607)
Minority interest...... -- -- -- (393) (628) (731) (116) (498) (498)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes........... 15,240 15,049 17,351 27,477 (11,736) 27,046 8,190 12,820 11,769
Provision (benefit) for
income taxes........... 5,323 7,904 5,125 9,056 (3,278) 9,196 3,336 4,615 4,237
Cumulative effect of a
change in accounting
principle.............. -- 900 -- -- -- -- -- -- --
Net income (loss)....... $ 9,917 $ 8,045 $ 12,226 $ 18,421 $ (8,458) $ 17,850 $ 4,854 $ 8,205 $ 7,532
======== ======== ======== ======== ======== ======== ======== ======== ========
Fully-diluted earnings
(loss) per common and
common equivalent
shares................. $ .48 $ .37 $ .55 $ .79 $ (.31) $ .66 $ .18 $ .30 $ .27
OTHER DATA:
Ratio of earnings to
fixed charges(6)...... 3.3 4.1 4.6 6.4 (0.7) 3.6 6.0 8.3 5.7
</TABLE>
<TABLE>
<CAPTION>
AT MAY 31, AT AUGUST 31, 1996
-------------------------------------------- -----------------------
PRO FORMA
1992 1993 1994 1995 1996 ACTUAL AS ADJUSTED(7)
-------- -------- -------- -------- -------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital(8)...... $ 24,177 $ 47,465 $ 57,659 $ 33,609 $(20,282) $ 16,652 $ 77,084
Total assets............ 219,100 203,391 214,864 255,758 368,039 369,417 481,552
Long-term obliga-
tions(8)............... 31,308 20,254 21,664 26,410 13,324 38,745 148,745
Stockholders' equity.... 116,720 124,001 137,723 164,651 233,299 242,134 242,134
</TABLE>
13
<PAGE>
- --------
(1) Gives effect to the acquisition of MAPP and EDI Services as if such
acquisitions had been consummated at the beginning of the period presented.
All of the restructuring, impairment and merger expenses incurred by the
Company in connection with the acquisition of MAPP and CIS as well as
certain other non-recurring items recognized by EDI Services during the
period are excluded from the pro forma consolidated financial data.
(2) Gives effect to the acquisition of EDI Services as if such acquisition had
been consummated at the beginning of the period presented. Certain non-
recurring items recognized by EDI Services during the period are excluded
from the pro forma consolidated financial data.
(3) The selected consolidated financial data set forth in the table above have
been restated to reflect the acquisition of CIS on May 31, 1996, which was
accounted for under the pooling of interests method. Set forth below is a
reconciliation of the revenue, net income (loss), and earnings (loss) per
share of the Company on a stand alone basis, CIS, and NDC and CIS combined
for fiscal 1994, 1995 and 1996:
<TABLE>
<CAPTION>
EARNINGS (LOSS)
REVENUE NET INCOME (LOSS) PER SHARE
-------------------- ----------------- ------------------
1994 1995 1996 1994 1995 1996 1994 1995 1996
------ ------ ------ ----- ----- ----- ----- ----- ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NDC................... $206.1 $242.0 $281.0 $ 9.7 $15.4 $(5.3) $0.50 $0.75 $(0.09)
CIS................... 31.6 36.1 44.8 2.5 3.0 (3.2) 0.05 0.04 (0.22)
------ ------ ------ ----- ----- ----- ----- ----- ------
NDC and CIS Combined.. $237.7 $278.1 $325.8 $12.2 $18.4 $(8.5) $0.55 $0.79 $(0.31)
====== ====== ====== ===== ===== ===== ===== ===== ======
</TABLE>
(4) Includes (i) $35.1 million for the write-down of impaired assets to their
realizable value, and (ii) $9.0 million for investment banking, accounting
and legal fees and severance costs. After taxes, the restructuring,
impairment and merger expenses were $30.0 million or $1.10 per share.
(5) Relates to the settlement by the Company of a shareholder lawsuit
originally filed in 1990.
(6) For purposes of calculating the ratio of earnings to fixed charges, (i)
earnings consist of income before income taxes plus fixed charges and (ii)
fixed charges consist of interest expense incurred, including capitalized
leases and the portion of rental expense under leases deemed by the Company
to be representative of the interest factor. For fiscal 1996, earnings were
insufficient to cover fixed charges by $11.7 million due to the
restructuring, impairment and merger expenses relating to the acquisition
of MAPP and CIS incurred by the Company during the period.
(7) Gives effect to the acquisition of EDI Services as if it had been
consummated on August 31, 1996, and adjusted to reflect the issuance and
sale of the Notes offered hereby and the application of the net proceeds
therefrom.
(8) Working capital excludes, and long-term obligations includes, a mortgage
payable of $10.9 million due January 1997 and borrowings under the
Company's revolving lines of credit of $15.0 million. At October 1, 1996,
long-term obligations were approximately $85.8 million.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements of the Company and related notes incorporated by reference
in this Prospectus.
GENERAL
Founded in 1967, NDC's business initially focused on the utilization of toll-
free 800 telephone service to authorize petroleum company credit cards. Shortly
thereafter, the Company expanded the use of its technology to provide credit
card authorization for bank issued credit cards. This service has now grown
into the broad array of payment systems offered by the Company. In addition to
providing payment systems and services, since the early 1980's the Company has
provided pharmacy and dental automation and practice management systems
services and health care transactions processing. In 1988, the Company
pioneered the development of the pharmacy claims processing business. In fiscal
1993, under the leadership of new management, the Company focused its core
operations on the further development of its payment systems and health care
businesses and expansion into new segments of the health care industry.
RESULTS OF OPERATIONS
The comparison of results of operations of the Company for the three months
ended August 31, 1995 and 1996 include the operating results of CIS. The
comparisons of the results of operations of the Company for fiscal 1994, 1995
and 1996 first address the Company's results of operations before the effect of
the restructuring, impairment and merger expenses incurred in connection with
the acquisition of CIS and MAPP (the "Restructuring Charges") and without the
operating results of CIS. The discussions then address the Restructuring
Charges and the results of operations for CIS separately. This presentation is
intended to assist in the understanding of the impact of the acquisition of CIS
on the Company's consolidated results of operations.
THREE MONTHS ENDED AUGUST 31, 1996 COMPARED TO THREE MONTHS ENDED AUGUST 31,
1995
The following table sets forth, for the three months ended August 31, 1995
and 1996, selected amounts from the Company's consolidated statements of income
and such amounts as a percentage of total revenue:
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31,
---------------------------------
1995 1996
---------------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Revenues:
Health Care................................. $ 35.9 46% $ 38.1 38%
Integrated Payment Systems.................. 25.7 33 31.9 32
Global Payment Systems...................... 16.7 21 31.2 30
-------- ----- -------- -----
Total revenue............................. 78.3 100 101.2 100
Cost of Service:
Operations.................................. 29.3 37 38.4 38
Depreciation and amortization............... 6.5 8 6.5 7
Hardware sales.............................. 3.6 5 4.2 4
-------- ----- -------- -----
Total cost of service..................... 39.4 50 49.1 49
-------- ----- -------- -----
Gross margin.............................. 38.9 50 52.1 51
Sales, general and administrative............. 30.8 39 38.2 38
-------- ----- -------- -----
Operating margin.......................... 8.1 10 13.9 14
Interest and other income..................... 1.1 1 0.3 --
Interest and other expense.................... (0.9) (1) (0.9) (1)
Minority interest............................. (0.1) -- (0.5) --
-------- ----- -------- -----
Income before income taxes.................... 8.2 10 12.8 13
Provision for income taxes.................... 3.3 4 4.6 5
-------- ----- -------- -----
Net income.................................... $ 4.9 6% $ 8.2 8%
======== ===== ======== =====
Earnings per share............................ $ .18 -- $ .30 --
======== ===== ======== =====
</TABLE>
15
<PAGE>
REVENUE
Total revenue for the first quarter of fiscal 1997 was $101.2 million, an
increase of $22.9 million (29%) from $78.3 million in the same period in fiscal
1996. The revenue increase was the result of increased revenue in Global
Payment Systems, $14.5 million (87%); Integrated Payment Systems, $6.2 million
(24%); and Health Care, $2.2 million (6%).
HEALTH CARE. Revenue for the first quarter of fiscal 1997 increased 6% as
compared to the same period in fiscal 1996 as a result of increases in
electronic claims processing, increases in revenue due to a change in product
mix of pharmacy systems, and the impact of acquisitions completed after the
first quarter of fiscal 1996. This increase was offset in part by a decline in
revenue resulting from a non-recurring revenue item recognized by CIS in the
first quarter of fiscal 1996.
INTEGRATED PAYMENT SYSTEMS. Integrated Payment Systems revenue, consisting of
the direct payment services and the check guarantee businesses, increased 24%
in the first quarter of fiscal 1997 compared to the same period in fiscal 1996.
This increase was due primarily to higher volume of merchant sales processed,
which resulted in part from an alliance established with a financial
institution in March 1996.
GLOBAL PAYMENT SYSTEMS. Revenue increased 87% in the first quarter of fiscal
1997 compared to the first quarter of fiscal 1996 primarily due to the
acquisition of MAPP on April 1, 1996. In addition, this increase reflected
growth in the Company's existing credit card processing business. This increase
was partially offset by decreased information systems and services revenue.
COSTS AND EXPENSES
Total cost of service for the first quarter of fiscal 1997 was $49.1 million,
an increase of $9.6 million (24%) from the same period in fiscal 1996. Total
cost of service as a percentage of revenue decreased to 49% in the first
quarter of fiscal 1997 from 50% for the same period in fiscal 1996. Cost of
operations increased $9.1 million (31%) in the first quarter of fiscal 1997
over the same period in fiscal 1996 as a result of increased operating costs
related to the MAPP acquisition. Depreciation and amortization as a percentage
of revenue decreased to 7% in the first quarter of fiscal 1997 compared to 8%
in the first quarter of fiscal 1996. Hardware costs increased 15% in the first
quarter of fiscal 1997 over the same period in fiscal 1996 as a result of
increased sales of hardware for pharmacy practice management systems.
Gross margin increased to 51% in the first quarter of fiscal 1997 from 50% in
the first quarter of fiscal 1996 principally as a result of improved operating
efficiencies and leveraging of the Company's fixed investments.
Sales, general and administrative expense was $38.2 million in the first
quarter of fiscal 1997, an increase of $7.4 million (24%) from the same period
in fiscal 1996; however, as a percentage of revenue, these expenses decreased
to 38% in the first quarter of fiscal 1997 from 39% in the first quarter of
fiscal 1996. The increased expense was primarily due to increased product
development and sales and marketing expansion programs in existing and acquired
businesses.
INTEREST AND OTHER INCOME
Interest and other income for the first quarter of fiscal 1997 was $0.3
million, a decrease of $0.8 million (72%) from the same period in fiscal 1996.
This decrease was primarily the result of lower interest earnings due to less
average funds invested in short-term investments and marketable securities. The
cash balances at the end of the first quarter of fiscal 1996 were used to fund
acquisitions later in fiscal 1996.
INTEREST AND OTHER EXPENSE
Interest and other expense for the first quarter of fiscal 1997 was
relatively constant from the same period in fiscal 1996.
MINORITY INTEREST
Minority interest was $0.5 million for the first quarter of fiscal 1997, an
increase of $0.4 million (329%) from the same period of fiscal 1996. The
increase was primarily attributable to the establishment of an alliance with a
financial institution in March 1996.
16
<PAGE>
INCOME TAXES
The provision for income taxes, as a percentage of taxable income, was 36%
and 40% for the first quarter of fiscal 1997 and 1996, respectively. This
decrease was attributable to differences in the tax treatment of certain items
associated with CIS prior to the acquisition.
NET INCOME
Net income for the first quarter of fiscal 1997 was $8.2 million, an increase
of $3.4 million (69%), as compared to the same period in fiscal 1996. Earnings
per share for the first quarter of fiscal 1997 and fiscal 1996 were $0.30 and
$0.18, respectively. The fully diluted number of common and common equivalent
shares outstanding for the first quarter of fiscal 1997 was 27,800,000, an
increase of 756,000 (3%) as compared to the same period in fiscal 1996, due to
options granted and shares issued under the Company's stock purchase and stock
option plans.
FISCAL YEAR COMPARISONS
The following table sets forth, for the periods indicated, selected amounts
from the Company's consolidated statements of income and such amounts as a
percentage of total revenue (which amounts exclude the results of operations of
CIS and the Restructuring Charges):
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------
1994 1995 1996
----------- ----------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Health Care.......................... $ 63.3 31% $ 83.7 35% $ 100.1 36%
Integrated Payment Systems........... 68.2 33 88.4 36 104.8 37
Global Payment Systems............... 74.6 36 69.9 29 76.1 27
------ --- ------ --- ------- ---
Total revenue...................... 206.1 100 242.0 100 281.0 100
Cost of service:
Operations........................... 94.7 46 101.8 42 109.6 39
Depreciation and amortization........ 14.7 7 17.3 7 19.9 7
Hardware sales....................... 9.9 5 11.2 5 12.1 4
------ --- ------ --- ------- ---
Total cost of service.............. 119.3 58 130.3 54 141.6 50
------ --- ------ --- ------- ---
Gross margin....................... 86.8 42 111.7 46 139.4 50
------ --- ------ --- ------- ---
Sales, general and administrative...... 68.5 33 86.9 36 103.2 37
Settlement of shareholder litigation... 2.5 1 -- -- -- --
------ --- ------ --- ------- ---
Operating margin................... 15.8 8 24.8 10 36.2 13
Interest and other income.............. 1.5 -- 1.7 1 4.3 1
Interest and other expense............. (2.5) (1) (2.1) (1) (2.4) (1)
Minority interest...................... -- -- (0.4) -- (0.6) --
------ --- ------ --- ------- ---
Income before income taxes......... 14.8 7 24.0 10 37.5 13
Provision for income taxes............. 5.1 2 8.6 4 12.8 4
------ --- ------ --- ------- ---
Net income............................. $ 9.7 5% $ 15.4 6% $ 24.7 9%
Earning per share...................... $ .55 -- $ .79 -- $ 1.01 --
====== === ====== === ======= ===
</TABLE>
In connection with the acquisition of MAPP and CIS, the Company incurred the
Restructuring Charges of $44.1 million in the fourth quarter of fiscal 1996.
These charges consisted of (i) $35.1 million for the write-down of impaired
assets to their realizable value and (ii) $9.0 million for investment banking,
accounting and legal fees and severance costs. The following table is a summary
of the Company's fiscal 1996, 1995 and 1994 results of operations before and
after the effects of
17
<PAGE>
Restructuring Charges and the acquisition of CIS, which was accounted for under
the pooling of interests method:
<TABLE>
<CAPTION>
NDC RESTRUCTURING CIS CONSOLIDATED
------ ------------- ----- ------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
FISCAL 1996
Total revenue......................... $281.0 -- $44.8 $325.8
Cost of service....................... 141.6 -- 21.7 163.3
Sales, general and administrative..... 103.2 -- 27.0 130.2
Operating income (loss)............... 36.2 (44.1) (3.9) (11.8)
Net income (loss)..................... 24.7 (30.0) (3.2) (8.5)
Earnings (loss) per share............. $ 1.01 ($1.1) ($.22) ($.31)
FISCAL 1995
Total revenue......................... $242.0 -- $36.1 $278.1
Cost of service....................... 130.3 -- 23.1 153.4
Sales, general and administrative..... 86.9 -- 9.3 96.2
Operating income...................... 24.8 -- 3.6 28.4
Net income............................ 15.4 -- 3.0 18.4
Earnings per share.................... $ .75 -- $ .04 $ .79
FISCAL 1994
Total revenue......................... $206.1 -- $31.6 $237.7
Cost of service....................... 119.3 -- 20.3 139.6
Sales, general and administrative..... 68.5 -- 8.7 77.2
Operating income...................... 15.8 -- 2.6 18.4
Net income............................ 9.7 -- 2.5 12.2
Earnings per share.................... $ .50 -- $ .05 $ .55
</TABLE>
FISCAL 1996 COMPARED TO FISCAL 1995
REVENUE
Total revenue for fiscal 1996 was $281.0 million, an increase of $39.0
million (16%) from fiscal 1995. The revenue increase was the result of
increased revenue in Health Care, $16.4 million (20%), Integrated Payment
Systems, $16.4 million (19%), and Global Payment Systems, $6.2 million (9%).
HEALTH CARE. Health Care revenue increased 20% in fiscal 1996 as compared to
fiscal 1995 as a result of increases in electronic claims processing and
increases in revenue from the Company's practice management systems for the
pharmacy, dental and physician sectors.
INTEGRATED PAYMENT SYSTEMS. Integrated Payment Systems revenue, consisting of
the direct payment services and the check guarantee businesses, increased 19%
in fiscal 1996 compared to fiscal 1995. This increase was the result of several
factors. Direct payment services revenue for fiscal 1996 increased over the
same period in fiscal 1995, primarily due to increased volume of merchant sales
processed. The increase was also attributable to the establishment of an
alliance with a financial institution in March 1996.
GLOBAL PAYMENT SYSTEMS. Global Payment Systems consists of the Company's
indirect payment services and information systems and services business units,
the MAPP business acquired from MasterCard International Incorporated on April
1, 1996, and certain of the Company's back office processing functions. Revenue
increased 9% for fiscal 1996. This increase reflected growth in the credit card
processing business, which included the acquisition of MAPP, partially offset
by decreased information systems and services revenue.
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COSTS AND EXPENSES
Cost of service for fiscal 1996 was $141.6 million, an increase of $11.3
million (9%) compared to fiscal 1995. While the cost of operations increased
$7.8 million (8%), cost of operations as a percentage of total revenue
decreased from 42% in fiscal 1995 to 39% in fiscal 1996. Depreciation and
amortization as a percentage of total revenue held constant at 7%. Hardware
costs increased 8% in fiscal 1996 from fiscal 1995, related to volume
associated with increased equipment sales in the Integrated Payment Systems
business and increased obsolescence costs associated with Health Care
equipment.
Gross margin increased to 50% in fiscal 1996 from 46% for fiscal 1995
principally as a result of operating efficiencies and leveraging the Company's
fixed investments.
Sales, general and administrative expense increased $16.3 million (19%) for
fiscal 1996 as compared to fiscal 1995. As a percentage of total revenue,
sales, general and administrative expenses increased from 36% in fiscal 1995 to
37% in fiscal 1996. This increase was primarily due to increased product
development and sales and marketing expansion programs in existing and acquired
businesses.
OPERATING MARGIN
Operating margin increased 46% in fiscal 1996 from fiscal 1995. As a
percentage of total revenue operating margin increased to 13% in fiscal 1996
from 10% in fiscal 1995. These increases were a result of the items discussed
above.
INTEREST AND OTHER INCOME
Interest and other income for fiscal 1996 was $4.3 million, an increase of
$2.6 million (153%) over fiscal 1995. This increase was principally related to
increased cash available for investment during the first ten months of fiscal
1996 and increased interest rates on the investment of those cash balances. The
increased cash was the result of the secondary stock offering completed in the
first quarter of fiscal 1996.
INTEREST AND OTHER EXPENSE
Interest and other expense increased $0.3 million (14%) principally due to
borrowings to fund acquisitions.
INCOME TAXES
The provision for income taxes, as a percentage of taxable income, was 34%
and 36% for fiscal 1996 and 1995, respectively. The decrease was largely due to
tax-exempt earnings from invested cash balances and tax credits related to
research and development expenditures.
NET INCOME
Net income was $24.7 million in fiscal 1996, an increase of $9.3 million
(60%) from fiscal 1995. Fully diluted earnings per share for fiscal 1996 and
fiscal 1995 were $1.01 and $0.75, respectively. The fully diluted average
number of common and common equivalent shares outstanding, before the effects
of the acquisition of CIS, for fiscal 1996 was 24,483,000, an increase of
3,872,000 (19%) as compared to the same period in fiscal 1995. This increase in
shares was primarily due to the sale of approximately 3,162,500 additional
shares of the Company's Common Stock in June 1995.
19
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CIS OPERATING RESULTS
Revenue for fiscal 1996 was $44.8 million, an increase of $8.7 million (24%)
over fiscal 1995. The increase in revenue over the prior year was largely due
to the acquisition of a hospital consulting business in June 1995 as well as
growth in the financial services and EDI areas.
Operating expenses for fiscal 1996 totaled $48.7 million, consisting of cost
of services, $21.7 million, and sales, general and administrative expenses,
$27.0 million. Expenses for fiscal 1996 included approximately $3.7 million of
one-time operating adjustments to reflect changes in reserves. Operating
expenses for fiscal 1995 totaled $32.5 million. Excluding one-time adjustments,
these increased operating expenses were largely due to operating and
acquisition integration costs for the two acquisitions CIS consummated in
fiscal 1996.
Interest and other expense increased $0.9 million in fiscal 1996 from fiscal
1995 due to interest paid on notes issued to complete an acquisition.
Net loss for fiscal 1996, before restructuring, was $3.2 million compared to
fiscal 1995 net income of $3.0 million.
FISCAL 1995 COMPARED TO FISCAL 1994
REVENUE
Total revenue for fiscal 1995 was $242.0 million, an increase of $35.9
million (17%) from revenue of $206.1 million for fiscal 1994. The revenue
increase was the result of increased revenue in Health Care, $20.4 million
(32%), and Integrated Payment Systems, $20.2 million (30%), partially offset by
decreased revenue in Global Payment Systems, $4.7 million (6%).
HEALTH CARE. Health Care revenue increased 32% in fiscal 1995 as compared to
fiscal 1994 as a result of (i) increases in electronic claims processing, and
(ii) increases in revenue from the Company's practice management systems for
the pharmacy, dental, physician, government and institutional sectors,
including the impact of acquisitions completed during fiscal 1995.
INTEGRATED PAYMENT SYSTEMS. Integrated Payment Systems revenue, consisting of
the direct payment services and the check guarantee businesses, increased 30%
in fiscal 1995 compared to fiscal 1994. Direct payment services revenue for
fiscal 1995 increased over fiscal 1994, primarily due to increased volume of
merchant sales processed and equipment sales. In addition, two check guarantee
businesses were acquired during fiscal 1995.
GLOBAL PAYMENT SYSTEMS. Global Payment Systems revenue, consisting of the
indirect payment services and information systems and services business units,
for fiscal 1995 was $69.9 million, a decrease of $4.7 million (6%) from revenue
of $74.6 million for fiscal 1994. Revenue in the Company's indirect merchant
processing business decreased for fiscal 1995 from fiscal 1994 as a result of
mix and price changes, including activity associated with contract renewals in
exchange for increased volume commitments, as well as reductions in volume in
the information systems area.
COSTS AND EXPENSES
Cost of service for fiscal 1995 was $130.3 million, an increase of $11.0
million (9%) from fiscal 1994. While the cost of operations increased $7.1
million (7%) for fiscal 1995 as compared to fiscal 1994, cost of operations as
a percentage of revenue decreased from 46% in fiscal 1994 to 42% in fiscal
1995. Depreciation and amortization as a percentage of revenue held constant at
7%. Hardware costs increased $1.3 million (13%), primarily related to volume
associated with increased equipment sales in the Integrated Payment Systems
business.
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Gross margin increased to 46% from 42% for fiscal 1995 as compared to fiscal
1994.
Sales, general and administrative expense increased $18.4 million (27%) for
fiscal 1995 as compared to fiscal 1994. As a percentage of revenue, sales,
general and administrative expenses increased from 33% in fiscal 1994 to 36% in
fiscal 1995. This increase was primarily due to sales expansion and marketing
programs in the Integrated Payment Systems and Health Care areas as well as
increased sales, general and administrative expenses associated with acquired
businesses.
The Company recognized a charge relating to the settlement of shareholder
litigation of $2.5 million in the first quarter of fiscal 1994, representing
the settlement costs of a lawsuit originally filed in 1990.
OPERATING MARGIN
Operating margin increased 57% in fiscal 1995 from fiscal 1994 and as a
percentage of revenue increased to 10% in fiscal 1995 from 8% in fiscal 1994.
INTEREST AND OTHER INCOME
Interest and other income for fiscal 1995 was $1.7 million, an increase of
$0.2 million (13%) over fiscal 1994. The increase in interest and other income
was principally related to increased cash available for investment during the
first six months of fiscal 1995 and increased interest rates on the investment
of those cash balances.
INTEREST AND OTHER EXPENSE
Interest and other expenses decreased $0.4 million (16%) in fiscal 1995 from
fiscal 1994.
INCOME TAXES
The provision for income taxes, as a percentage of taxable income, was 36%
and 34% for fiscal 1995 and 1994, respectively. The lower rate in fiscal 1994
was primarily due to the resolution of issues associated with prior years.
NET INCOME
Net income for fiscal 1995 was $15.4 million, an increase of $5.7 million
(59%) as compared to fiscal 1994. Fully diluted earnings per share for fiscal
1995 and fiscal 1994 were $0.75 and $0.50, respectively. The fully diluted
average number of common and common equivalent shares outstanding, before the
effects of the acquisition of CIS, for fiscal 1995 was 20,611,000, an increase
of 1,130,000 (6%) as compared to fiscal 1994.
CIS OPERATING RESULTS
Revenue for fiscal 1995 was $36.1 million, an increase of $4.5 million (14%)
over fiscal 1994 principally as a result of growth in the EDI and financial
services areas.
Cost of service for fiscal 1995 totaled $23.1 million, an increase of $2.8
million (14%) from fiscal 1994. Sales, general and administrative expenses for
fiscal 1995 were $9.3 million, an increase of 8% over the prior year.
Net income for fiscal 1995 was $3.0 million, an increase of $0.5 million
(21%) compared to fiscal 1994.
21
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LIQUIDITY AND CAPITAL RESOURCES
On August 31, 1996, the Company and its subsidiaries had cash and cash
equivalents totaling $9.8 million. NDC has an unsecured $50.0 million revolving
line of credit which expires in May 1999. The interest rate options available
to the Company thereunder are (i) LIBOR plus an applicable margin (which ranges
from .275% to .50% depending on the ratio of the Company's consolidated funded
debt to consolidated cash flow), (ii) the higher of the bank's prime rate or
the federal funds rate plus .50% or (iii) a competitive bid rate. The NDC
revolving line of credit contains financial covenants including a limit on the
ratio of the Company's consolidated funded debt to consolidated cash flow, a
minimum net worth test and a requirement that a minimum fixed charge ratio be
maintained.
The Company's Global Payment Systems subsidiary has an unsecured $60.0
million revolving line of credit which expires in July 1999. The Global
revolving line of credit automatically reduces to $50.0 million on the first
anniversary of the credit agreement. The interest rate options available to
Global thereunder are (i) LIBOR plus an applicable margin (which ranges from
.25% to .50% depending on the ratio of Global's consolidated funded debt to
consolidated cash flow), (ii) the higher of the bank's corporate base rate or
the federal funds rate plus .50% or (iii) a competitive bid rate. The Global
line of credit contains financial covenants including a limit on the ratio of
Global's consolidated funded debt to consolidated cash flow, a minimum net
worth test and a requirement that a minimum fixed charge ratio be maintained.
The Company has entered into certain amendments to NDC's and Global's lines
of credit which will become effective concurrently with the issuance of the
Notes. Pursuant to such amendments, NDC and its subsidiaries (other than Global
and its subsidiaries) will guarantee Global's obligations under the Global line
of credit.
As of August 31, 1996, there were $15.0 million and no amounts outstanding
under the NDC and Global facilities, respectively. As of October 1, 1996, there
was $47.0 million and $15.0 million outstanding under the NDC and Global
facilities, respectively.
For the first quarter of fiscal 1997, capital expenditures aggregated $3.6
million and were used primarily for software development related to product
enhancement. For fiscal 1997 the Company expects to make capital expenditures
in the range of $18.0 million to increase processing capacity and for software
development related to product enhancement. For fiscal 1996, capital
expenditures aggregated $16.4 million related to continued growth in the
business and acceleration of certain strategic programs. In addition to capital
expenditures in fiscal 1996, the Company completed four acquisitions for an
aggregate cash purchase price of approximately $145.8 million, net of cash
acquired. The Company has financed its acquisitions through cash flows from
operations, proceeds from the sale of equity securities and borrowings under
its lines of credit.
Net cash provided by operating activities was $20.3 million for the first
quarter of fiscal 1997. Cash flows from operations for the same period of
fiscal 1997, consisting of net income adjusted for depreciation, amortization
and provision for bad debts, totaled $15.9 million. A $4.4 million change in
working capital resulted from changes in net merchant processing funds provided
and increases in accounts payable and accrued liabilities, offset by increases
in accounts receivable. These funds, provided by changes in merchant processing
working capital, reflect normal fluctuations in the timing of credit card sales
processed. The increases in accounts payable and accounts receivable are
primarily due to acquisitions. Cash used in investing activities for the first
quarter of fiscal 1997 was $4.0 million. Net cash used in financing activities
was $15.4 million for the first quarter of fiscal 1997, reflecting repayments
totaling $15.0 million on the Company's line of credit. In the first quarter of
fiscal 1997, no significant acquisition activities were consummated; however,
EDI Services was acquired on October 1, 1996, for a purchase price of $47.0
million.
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Net cash provided by operating activities was $45.3 million for fiscal 1996.
Cash flows from operations for fiscal 1996 were $57.0 million. Cash was
required in fiscal 1996 to fund working capital of $11.7 million. This was
principally the result of increased accounts receivable relating to increased
revenue. For fiscal 1996, cash used in investing activities was $146.7 million.
Net cash provided by financing activities was $80.1 million for fiscal 1996.
The net proceeds from the issuance of stock under a secondary offering were
approximately $63.7 million, net of underwriting discount and expenses.
Dividends of $6.9 million were paid during fiscal 1996.
Management of the Company believes that the net proceeds of this offering
together with borrowings available under the Company's and Global's credit
facilities, cash from operations and proceeds received from the sale of equity
or debt securities will be sufficient to fund the Company's working capital and
capital expenditure needs, including possible acquisitions, for the foreseeable
future.
23
<PAGE>
BUSINESS
GENERAL
NDC is a leading provider of high-volume transaction processing services and
application systems to the health care and payment systems markets. The Company
serves a diverse customer base comprised of approximately 120,000 health care
providers, 3,500 health care plans, 700,000 merchant locations, 35,000
corporations and 400 banking institutions, as well as federal and state
government agencies. The Company markets its services directly to merchants and
health care providers and indirectly through business alliances with a wide
range of banks, insurance companies and distributors. The Company is one of the
largest independent providers of health care transaction processing and payment
systems services in the United States, having processed over 2.2 billion
transactions during fiscal 1996.
INDUSTRY BACKGROUND
Advances in computer software, telecommunications and hardware technology
have aided the development of on-line, real-time information processing systems
that electronically capture and transmit high volumes of information. These
advances in technology allow information processors to offer greater
convenience to purchasers and providers of goods and services and reduce
processing costs, settlement delays and losses from fraudulent transactions.
HEALTH CARE MARKET
The health care sector of the market for information systems is growing
rapidly due to the need of employers, health care payers and providers to
control costs and to improve quality of care. A high percentage of health care
claims are still processed using manual, paper-based systems. Third party
payers, managed care companies and health care providers continue to seek
methods to automate processing in order to reduce costs and improve the quality
of health care services. The Company believes the health care industry is one
of the largest potential markets for electronic information processing
services, including the electronic transmission and capture of data for on-line
eligibility verification and settlement of insurance claims. The application of
technology to improve the flow of information to address patient care quality
is expanding as well.
Since the late 1980s, electronic processing technology has been applied to
the transmission and capture of data for pharmacy claims and transaction
processing. This technology is being adapted to the processing of other health
care data, including insurance claims for dentists, physicians and hospitals.
The Company believes that the ability to offer total solutions will be an
important competitive factor as automated claims processing and the
availability of information in this market continues to grow. As electronic
processing of health care claims accelerates, the Company believes it will be
important for companies to be able to offer integrated, value-added systems and
services to industry participants who continue to automate. Included in the
market's requirements are practice management systems, outsourcing
capabilities, as well as new information processing services. The market
includes, among others, managed care companies, payers and providers in the
health care markets.
PAYMENT SYSTEMS MARKET
Electronic transaction processing for the payment systems market involves
transaction authorization, data capture and settlement for credit and debit
cards, check verification and guarantee services and financial electronic data
interchange. Most retail credit card transactions are no longer processed
through paper-based systems and are instead electronically authorized, with an
increasing number electronically settled as well. The Company believes that the
number of transactions will
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<PAGE>
continue to grow and that an increasing percentage of these transactions will
be processed electronically due to convenience, efficiency and a desire to
reduce fraud and other processing costs in a continually growing number of
vertical markets in the U.S. and internationally.
The Company believes that there are significant opportunities for continued
growth in the application of electronic transaction processing services to the
payment systems market. Utilization of debit cards as a general payment
mechanism for goods and services continues to increase, principally in the
supermarket, discount retail and gasoline industries. There is also significant
potential for growth in the use of credit and debit cards in other traditional
cash payment markets, such as fast-food restaurants, gaming establishments,
cinemas and convenience stores. The increased use of credit and debit cards for
such transactions is primarily driven by the convenience they provide as well
as the ability to efficiently track expenses and purchase activity. In
addition, the Company believes the proliferation of affinity or co-branded
cards that provide consumers with added benefits should contribute to increased
use of credit and debit cards and the growth of the payment systems market.
In addition to services that enable merchants to accept credit and debit
cards, the payment systems market continues to expand to include increasing
levels of check verification and guarantee services. Demand for these services
has been growing in recent years as merchants seek to use check acceptance to
increase sales and reduce losses related to bad checks.
BUSINESS STRATEGY
The Company's business strategy centers on providing total solution, value-
added information processing services and application systems in the markets it
serves. NDC believes that both the health care and payment systems markets
present attractive opportunities for continued growth. In pursuing its business
strategy, the Company seeks both to increase its penetration of existing
information processing and application systems markets and to continue to
identify and create new markets through the:
. development of value-added applications, enhancement of existing
products and development of new systems and services;
. expansion of distribution channels; and
. acquisition of, or alliance with, companies that have desirable products
and/or distribution capabilities.
The resources required to effectively compete in the Company's markets
include an extensive computer and telecommunications network, a skilled
customer support, operations and systems development staff, and sophisticated
software systems. Management believes that the substantial investment required
to develop technologically advanced automated processing systems, together with
the demand for enhanced service at reduced costs, will continue to cause many
small and regional operators to leave the business or sell to larger
competitors, resulting in industry consolidation. As a result, the Company
believes that there is opportunity for increased market penetration for its
services as well as the addition of new markets through acquisitions and
alliances.
To support its business strategy, NDC has focused on acquisition
opportunities and alliances with other companies that allow it to increase its
market penetration, technological capabilities, product offerings and
distribution capabilities. The acquisition of CIS and Conceptual Systems in
fiscal 1996 and EDI Services in October 1996 provided additional penetration of
the physician and hospital electronic claims markets and expanded the scope of
the Company's health care product offerings to include managed care software
and services and accounts receivable and business office consulting and
outsourcing services. With these acquisitions, the Company became a leader in
hospital electronic claims processing services and acquired further access to
the managed care market.
25
<PAGE>
During fiscal 1996, the Company further expanded its presence in the payment
systems market. First, the Company formed Global Payment Systems for the
primary purpose of combining two of the industry's leading payment processing
operations to create one of the largest such operations in the world and to
expand its range of products and services. MasterCard's Merchant Automated
Point-of-Sale Program was acquired by the Company and combined with NDC's
indirect payment services, certain of its merchant processing back office
processing services and the Company's information systems and services
business. This combination resulted in a broadening of the products and
services available to the Company's customers and the creation of Global, an
indirect payment and financial EDI enterprise, majority-owned by the Company.
The Company also succeeded in expanding its payment systems market penetration
as a result of its alliance with Comerica Merchant Services, Inc.
PRODUCTS AND SERVICES
HEALTH CARE
The Company is a leading provider of a full range of products and services
that address health care cost containment and improved patient care issues. The
Company's products include electronic claims processing, adjudication and
payment systems, funding capabilities, billing services, accounts receivable
resolution, business office management services, practice management systems
and clinical data base information. These products are provided to a wide range
of health care customers including pharmacies, dentists, physicians, managed
care organizations, hospitals, HMO's, clinics and nursing homes. Revenue for
the Company's health care units' products and services consists of transaction
processing fees and recurring monthly maintenance and support fees, software
license revenue and proceeds from the sale of practice management systems as
well as upgrade charges for additional applications. Fees for electronic claims
processing services are based on a per transaction rate, with the rate varying
depending upon the volume and scope of services provided.
ELECTRONIC PROCESSING SERVICES. The Company's electronic processing services
are offered to physicians, managed care companies, pharmacies, dentists,
hospitals, HMO's and preferred provider organizations. These services include
eligibility verification, patient-specific benefit coverage, claims data
capture and editing, claim adjudication and retrospective and prospective drug
utilization review. The Company supports approximately almost 120,000 health
care provider locations and some 3,500 health care plans. Electronic processing
for health care transactions represents the Company's fastest growing service.
The Company recently expanded its presence in the health care claims processing
market with three acquisitions, CIS, specializing in hospital claims processing
and financial consulting services and EDI Services and Conceptual Systems,
further expanding NDC's penetration of the market for claims clearing and
processing systems for physicians' offices.
PRACTICE MANAGEMENT SYSTEMS. The Company's practice management systems are
designed to provide the health care market with applications solutions that
improve the efficiency of operations, address cost containment concerns and
enhance overall quality of patient care. In addition, NDC's practice management
systems are offered with the Company's claims processing services, credit and
debit card processing capabilities and other associated functions such as
inventory reporting and ordering.
Pharmacy. The Company's pharmacy practice management systems provide
solutions for independent and chain pharmacies, hospitals, HMO's, clinics and
nursing homes. These systems enable pharmacists to manage and perform patient
registration, drug record-keeping, private and third-party billing, inventory
control and ordering, price updates, management reporting and drug database
updates to detect potential clinical dispensing and prescribing problems. In
addition, the Company's systems provide value-added claims processing services.
The Company's systems are sold and maintained by the Company and can be
tailored to the needs of users utilizing micro- and mini-computer platforms. In
fiscal 1996, the Company expanded the capabilities of its pharmacy practice
management systems through the development of sophisticated, new order entry,
inventory management and enhanced retail point-of-sale products. The Company
also introduced products
26
<PAGE>
enhancing customers' ability to order re-fill prescriptions via telephone and
developed physician/pharmacy connectivity products enabling physicians to
electronically transmit prescriptions directly to pharmacies utilizing NDC's
pharmacy management systems.
Dental. The Company's dental management systems are designed to provide
dentists with patient record accounting, patient scheduling and recall, billing
and collection, insurance claims information and electronic processing to
improve the efficiency of office management. The Company expanded its dental
management product line in fiscal 1994 with the introduction of the NDC Dental
System, which incorporates advanced clinical functionality with customary
business automation functions.
Physician. The Company's physician management systems are designed to
provide physicians with patient scheduling, billing and collection, patient
record accounting, insurance claims information and electronic processing
designed to improve the efficiency of office management.
PAYMENT SYSTEMS
The Company's Payment Systems products provide a wide range of transaction
processing alternatives primarily to the retail, hospitality, health care and
government markets. The Company offers merchant credit and debit card
processing, check verification and guarantee and other services directly to
merchants and indirectly through financial institutions.
INTEGRATED PAYMENT SYSTEMS. NDC is a leader in partnering with banks and
others to offer merchant processing support for approximately 700,000 merchant
locations. NDC's merchant processing services include credit and debit card
authorization, data capture and product and customer support functions,
primarily for VISA and MasterCard bank cards. The Company also performs the
financial settlement between the merchant and the card associations,
reconciliation of the financial settlement and resolution of disputes between
the Company's merchants and cardholders. Fees for the Company's merchant
processing services are principally based on the dollar volume of transactions
processed directly for merchants and a per transaction rate for transactions
processed for banks on behalf of merchants.
The Integrated Payment Systems unit also offers merchants a check
verification service. In fiscal 1995, the Company expanded its payment system
services to include check guarantee services through the acquisition of two
check guarantee businesses. Check guarantee differs from check verification in
that the Company not only verifies the transaction but also guarantees payment.
If a check is not paid, the Company assumes the right to collect from the
individual writing the check. Fees for the Company's check verification
services are based on a per transaction rate, while fees for its check
guarantee services are based on a percentage, or discount, of the face value of
each check guaranteed by the Company.
GLOBAL PAYMENT SYSTEMS. Global provides payment processing services utilizing
point-of-sale terminals, electronic cash registers and proprietary personal
computer applications. These systems provide a comprehensive authorization
network for credit cards, debit cards and checks. Global also provides
electronic data capture systems that incorporate the capabilities of its
electronic point-of-sale authorization system, combined with enhanced software,
to enable Global to electronically capture the entire transaction and transmit
the necessary value-added information directly to Global's central computer
system for faster clearing through the banking system. These systems allow
quicker access to funds and avoid the necessity and cost of physically
processing paper charge slips. Customized value-added applications for
retailers, restaurants, lodging and direct marketers are marketed by Global.
Global also offers extensive back office support services such as charge back
processing, terminal conversion and deployment, help desk services, and credit-
scoring systems to its customers.
Global's information systems and services products include cash management,
information reporting and EDI. Global recently introduced a new cash management
system specifically designed
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<PAGE>
for use by large multi-national corporations. This new offering is being
marketed internationally through Global's sales force and indirectly through
relationships with several large financial institutions. The services provide
financial, management and operational data to corporate and government
institutions worldwide. Corporate and government organizations use these
services to collect, consolidate and report financial, administrative and
operating data.
Global also offers a purchase card service. This service is aimed at high
volume corporate or government purchases of low dollar value items. The product
is card-based and is intended to significantly reduce the cost of making such
small purchases, while at the same time making available to corporate
purchasing departments needed controls and management information relating to
purchases. The Company also offers tax products that provide for the electronic
filing and payment of corporate taxes. The Company initiates the electronic
funds transfer process for payment of the taxes due, while delivering the
information summary to the appropriate government agency.
SALES AND MARKETING
The Company's electronic transaction processing services are offered to the
health care markets directly through Company personnel and through alliances.
The Company's pharmacy and dental practice management systems are marketed
primarily through the Company's personnel but also jointly through alliances.
The Company offers its physician practice management system directly through
Company personnel and through value-added resellers. The Company markets its
payment systems products and services through financial institutions, bank
alliance programs, its own sales personnel and also through independent
contractors.
OPERATIONS AND SYSTEMS
The Company operates multiple data and voice center facilities. The primary
facilities are in Atlanta, Georgia, St. Louis, Missouri, and Tulsa, Oklahoma
with others in Texas, California, Toronto, Canada and the United Kingdom.
Because of the large number and variety of NDC's products and services, the
Company does not rely on a single technology to satisfy its sophisticated
computer systems needs but instead employs the best available technology that
is suitable for each particular task. Given this approach, NDC utilizes (i)
Tandem and Stratus fault-tolerant computers for high volume, fast response
transaction processing; (ii) client-server technology for end-user data base
applications; (iii) the latest Unisys mainframe class systems and the OS/2200
operating system for large scale transaction and batch data base processing;
(iv) the current generation of Data General and Digital Equipment Corporation
systems; and (v) UNIX and Windows(TM) based systems for focused communication
applications systems. These systems are linked via high speed, fiber optic-
based networked backbones for file exchange and inter-system communication
purposes.
COMPETITION
The markets for the application systems and services offered by the Company
are highly competitive. The Company has a number of actual and potential
competitors as to all of the systems and services that it offers. Many of the
Company's services compete directly with computer manufacturers that encourage
businesses to purchase or lease the manufacturers' computers and establish in-
house systems. In addition to this competition, the Company believes that there
are several companies that have the capability to offer some of the Company's
services in competition with the Company, certain of which are substantially
larger than the Company. The Company believes that its ability to offer
integrated solutions to its customers, including hardware, software, processing
and network facilities, is a positive factor pertaining to the competitive
position of the Company. The Company recognizes, however, that its industry
segment is increasingly competitive. The key competitive factors for the
Company are functionality of products, quality of service and price.
28
<PAGE>
MANAGEMENT
Set forth below is the name, age, position with the Company, present
principal occupation or employment and five-year employment history of each of
the directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME BUSINESS EXPERIENCE AGE
---- ------------------- ---
<C> <S> <C>
DIRECTORS
Robert A. Yellowlees Chairman of the Board of the Company since June 57
1992; President, Chief Executive Officer and
Chief Operating Officer of the Company since May
1992; Director of John H. Harland Co. and
Protective Life Corporation. Mr. Yellowlees has
been a director of the Company since April 1985.
Edward L. Barlow General Partner, Whitcom Partners, an investment 61
partnership, for more than five years. Mr. Barlow
has been a director of the Company since January
1969.
James B. Edwards President of the Medical University of South 67
Carolina since November 1982; Director of the
Harry Frank Guggenheim Foundation, Phillips
Petroleum Company, SCANA Corporation, IMO
Industries, Inc., WMX Technologies, Inc.,
Norfolk-Southern Corporation Advisory Board, GS
Industries, Inc. and the Gaylord and Dorothy
Donnelley Foundation. Dr. Edwards has been a
director of the Company since January 1989.
Don W. Sands Member of the Board of Directors of the Georgia 70
World Congress Center since 1985; Chief Executive
Officer Emeritus and Counselor to the Board of
Directors of Gold Kist, Inc. since November 1991;
President, Chief Executive Officer and Chairman
of the Management Executive Committee of Gold
Kist Inc. from July 1988 through October 1991;
director of Golden Poultry Company, Inc. Mr.
Sands has been a director of the Company since
September 1989.
Neil Williams Managing Partner of Alston & Bird since 1984, 60
attorneys and counsel for the Company. Director
of Printpack, Inc. Mr. Williams has been a
director of the Company since April 1977.
J. Veronica Biggins Consultant, Heidrick & Struggles since 1995; 49
Assistant to the President of the United States
from 1994 to 1995; Executive Vice President,
NationsBank of Georgia from 1973 to 1994;
Director of the Kaiser Foundation Health Plan of
Georgia, Inc. and Morrison Fresh Cooking, Inc.
Ms. Biggins has been a director of the Company
since October 1995.
EXECUTIVE OFFICERS
Richard S. Cohan General Manager, Health Care Information Network, 43
of the Company since April 1995; Senior Vice
President, Health Care Business Development from
December 1993 through March 1995; Senior Vice
President of the Health Care Application Systems
and Services unit of the Company from September
1992 to November 1993; Group Vice President and
General Manager of the Health Care Institutional
Services unit of the Company from December 1987
through August 1992.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
NAME BUSINESS EXPERIENCE AGE
---- ------------------- ---
<C> <S> <C>
Thomas M. Dunn General Manager, Integrated Payment Systems since 40
June 1996; Group Vice President from August 1992 to
June 1996; and Division Vice President from August
1988 to August 1992.
Donald B. Graham General Manager, Health Care Application Systems, of 56
the Company since October 1995; Senior Vice
President, Operations, of the Company from January
1994 until October 1995; President and Chief
Executive Officer of Information Systems of America
from February 1988 until July 1993.
E. Michael Ingram General Counsel and Secretary of the Company since 44
January 1985.
Kevin C. Shea Executive Vice President, Corporate Strategy & 46
Business Development since August 1996; General
Manager, Integrated Payment Systems, of the Company
from April 1995 until August 1996; Executive Vice
President, Integrated Payment Systems from
September 1992 through March 1995; Executive Vice
President, National Data Payment Systems, Inc.
("NDPS") from December 1990 through August 1992;
Group Vice President, NDPS from June 1988 through
November 1990.
M.P. Stevenson, Jr. Interim Chief Financial Officer of the Company since 41
September 1996; Vice President and Controller of
the Company from September 1992 until August 1996;
Division Controller, NDPS from March 1991 to August
1992; Director, Internal Audit from March 1986 to
February 1991.
Barbara J. Winant Controller of the Company since August 1996; 34
Assistant Controller of the Company from August
1994 until August 1996; Director of Accounting of
the Company from November 1992 until August 1994;
Senior Manager of Accounting of the Company from
March 1991 until November 1992; and Senior
Financial Analyst of the Company from July 1989
until March 1991.
</TABLE>
30
<PAGE>
DESCRIPTION OF NOTES
The Notes are to be issued under an Indenture, to be dated as of , 1996
(the "Indenture"), between the Company and The First National Bank of Chicago,
as Trustee (the "Trustee"), a copy of which is filed as an exhibit to the
Registration Statement. Wherever particular defined terms of the Indenture
(including the Notes) are referred to, such defined terms are incorporated
herein by reference (the Notes and various terms relating to the Notes being
referred to in the Indenture as "Securities"). References in this section to
the "Company" are solely to National Data Corporation and not to its
subsidiaries. The following summaries of certain provisions of the Indenture do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, the detailed provisions of the Notes and the
Indenture, including the definitions therein of certain terms. Section
references below are references to Sections of the Indenture.
GENERAL
The Notes will be unsecured subordinated obligations of the Company, will be
limited to $143,750,000 aggregate principal amount, and will mature on November
, 2003. The Notes will bear interest at the rate per annum shown on the front
cover of this Prospectus from November , 1996, payable semiannually on May
and November of each year, commencing on May , 1997. Interest payable per
$1,000 principal amount of Notes for the period from November , 1996 to May ,
1997 will be $ . ((S)(S) 301 and 307)
The Notes will be convertible into Common Stock initially at the conversion
rate stated on the cover page hereof, subject to adjustment upon the occurrence
of certain events described under
"-- Conversion Rights," at any time prior to the close of business on the
maturity date, unless previously redeemed or repurchased. ((S) 1301)
The Notes are redeemable under the circumstances and at the redemption prices
set forth below under "-- Optional Redemption," plus accrued interest to the
redemption date. ((S) 203)
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple thereof. ((S) 302). No
service charge will be made for any registration of transfer or exchange of
Notes, but the Company may require payment of a sum sufficient to cover any tax
or other governmental charge payable in connection therewith. ((S) 305)
CONVERSION RIGHTS
The Holder of any Note will have the right, at the Holder's option, to
convert any portion of the principal amount of a Note that is an integral
multiple of $1,000 into shares of Common Stock at any time prior to the
close of business on the maturity date, unless previously redeemed or
repurchased, at a conversion rate of shares of Common Stock per U.S. $1,000
principal amount of Notes (the "Conversion Rate") (equivalent to a conversion
price of approximately $ per share of Common Stock) (subject to adjustment as
described below). The right to convert a Note called for redemption will
terminate at the close of business on the Business Day prior to the Redemption
Date for such Note, and right to convert a Note tendered for repurchase will
terminate at the close of business on the Repurchase Date for such Note. ((S)
1301)
The right of conversion attaching to any Note may be exercised by the Holder
by delivering the Note at the specified office of the Conversion Agent,
accompanied by a duly signed and completed notice of conversion, a copy of
which may be obtained from the Trustee. The conversion date will be the date on
which the Note and the duly signed and completed notice of conversion are so
delivered. As promptly as practicable on or after the conversion date, the
Company will issue and deliver to the Trustee a certificate or certificates for
the number of full shares of Common Stock issuable upon
31
<PAGE>
conversion, together with payment in lieu of any fraction of a share; such
certificate will be sent by the Trustee to the Conversion Agent (if other than
the Trustee) for delivery to the Holder. Such shares of Common Stock issuable
upon conversion of the Notes, in accordance with the provisions of the
Indenture, will be fully paid and nonassessable and will rank pari passu with
the other shares of Common Stock of the Company outstanding from time to time.
Any Note surrendered for conversion during the period from the close of
business on any Regular Record Date next preceding any Interest Payment Date to
the opening of business on such Interest Payment Date (except Notes (or
portions thereof) called for redemption on a Redemption Date or which are
repurchaseable on a Repurchase Date occurring, in either case, within such
period (including any Notes (or portions thereof) called for redemption on a
Redemption Date that is a Record Date or Interest Payment Date, as the case may
be)) must be accompanied by payment of an amount equal to the interest payable
on such Interest Payment Date on the principal amount of Notes being
surrendered for conversion. The interest so payable on such Interest Payment
Date with respect to any Note (or portion thereof, if applicable) which has
been called for redemption on a Redemption Date, or which may be repurchased on
a Repurchase Date, occurring, in either case, during the period from the close
of business on any Record Date next preceding any Interest Payment Date to the
opening of business on such Interest Payment Date (including any Notes (or
portions thereof) called for redemption on a Redemption Date that is a Record
Date or Interest Payment Date, as the case may be), which Note (or portion
thereof, if applicable) is surrendered for conversion during such period (or on
the last Business Day prior to the Record Date or Interest Payment Date in the
case of a Note (or portions thereof) called for redemption on a Record Date or
Interest Payment Date, as the case may be), shall be paid to the Holder of such
Note being converted in an amount equal to the interest that would have been
payable on such Note if such Note had been converted as of the close of
business on such Interest Payment Date. The interest so payable on such
Interest Payment Date in respect of any Note (or portion thereof, as the case
may be) which has not been called for redemption on a Redemption Date, or is
not eligible for repurchase on a Repurchase Date, occurring, in either case,
during the period from the close of business on any Record Date next preceding
any Interest Payment Date to the opening of business on such Interest Payment
Date, which Note (or portion thereof, as the case may be) is surrendered for
conversion during such period, shall be paid to the Holder of such Note as of
such Regular Record Date. Interest payable in respect of any Note surrendered
for conversion or repurchase on or after an Interest Payment Date shall be paid
to the Holder of such Note as of the next preceding Regular Record Date,
notwithstanding the exercise of the right of conversion or repurchase. As a
result of the foregoing provisions, except as provided above, Holders that
surrender Notes for conversion on a date that is not an Interest Payment Date
will not receive any interest for the period from the Interest Payment Date
next preceding the date of conversion to the date of conversion or for any
later period, even if the Notes are surrendered after a notice of redemption
(except for the payment of interest on Notes called for redemption on a
Redemption Date or to be repurchased on a Repurchase Date between a Regular
Record Date and the Interest Payment Date to which it relates (including any
Notes (or portion thereof) called for redemption on a Redemption Date that is a
Record Date or Interest Payment Date, as the case may be), as provided above).
No other payment or adjustment for interest, or for any dividends in respect of
Common Stock, will be made upon conversion. Holders of Common Stock issued upon
conversion will not be entitled to receive any dividends payable to holders of
Common Stock as of any record time or date before the close of business on the
conversion date. No fractional shares will be issued upon conversion but, in
lieu thereof, the Company will pay an appropriate amount in cash based on the
market price of Common Stock at the close of business on the date of
conversion. ((S)(S) 101, 203, 307, 1302 and 1303)
A Holder delivering a Note for conversion will not be required to pay any
taxes or duties in respect of the issue or delivery of Common Stock on
conversion but will be required to pay any tax or duty which may be payable in
respect of any transfer involved in the issue or delivery of the Common Stock
in a name other than that of the Holder of the Note. Certificates representing
shares of Common Stock will not be issued or delivered unless all taxes and
duties, if any, payable by the Holder have been paid. ((S)(S) 1302 and 1308)
32
<PAGE>
The Conversion Rate is subject to adjustment in certain events, including,
without duplication: (a) dividends (and other distributions) payable in Common
Stock on shares of capital stock, (b) the issuance to all holders of Common
Stock of rights, options or warrants entitling them to subscribe for or
purchase Common Stock at less than the then Current Market Price of such Common
Stock (determined as provided in the Indenture) as of the record date for
stockholders entitled to receive such rights, options or warrants, (c)
subdivisions, combinations and reclassifications of Common Stock, (d)
distributions to all holders of Common Stock of evidences of indebtedness of
the Company, shares of capital stock, cash or assets (including securities, but
excluding those dividends, rights, options, warrants and distributions referred
to above, dividends and distributions paid exclusively in cash and in mergers
and consolidations to which the next succeeding paragraph applies), (e)
distributions consisting exclusively of cash (excluding any cash portion of
distributions referred to in (d) above) to all holders of Common Stock in an
aggregate amount that, combined together with (i) other such all-cash
distributions made within the preceding 12 months in respect of which no
adjustment has been made and (ii) any cash and the fair market value of other
consideration payable in respect of any tender offer by the Company or any of
its subsidiaries for Common Stock concluded within the preceding 12 months in
respect of which no adjustment has been made, exceeds 10% of the Company's
market capitalization (being the product of the then Current Market Price per
share of the Common Stock and the number of shares of Common Stock then
outstanding) on the record date for such distribution, and (f) the successful
completion of a tender offer made by the Company or any of its subsidiaries for
Common Stock which involves an aggregate consideration that, together with (i)
any cash and other consideration payable in a tender offer by the Company or
any of its subsidiaries for Common Stock expiring within the 12 months
preceding the expiration of such tender offer in respect of which no adjustment
has been made and (ii) the aggregate amount of any such all-cash distributions
referred to in (e) above to all holders of Common Stock within the 12 months
preceding the expiration of such tender offer in respect of which no
adjustments have been made, exceeds 10% of the Company's market capitalization
on the expiration of such tender offer. With respect to Rights (as defined
below) issued pursuant to the Rights Agreement (as defined below), if Holders
of the Notes exercising the right of conversion attaching thereto after the
Distribution Date (as defined in the Rights Agreement) are not entitled to
receive the Rights that would otherwise be attributable (but for the date of
conversion) to the shares of Common Stock received upon such conversion, the
Conversion Rate will be adjusted as though the Rights were being distributed to
holders of the Common Stock on the Distribution Date. If such an adjustment is
made and the Rights are later redeemed, invalidated or terminated, then a
corresponding reversing adjustment will be made to the Conversion Rate on an
equitable basis. The Company reserves the right to make such increases in the
Conversion Rate in addition to those required in the foregoing provisions as it
considers to be advisable in order that any event treated for federal income
tax purposes as a dividend or distribution of stock or issuance of rights or
warrants to purchase or subscribe for stock will not be taxable to the
recipients. No adjustment of the Conversion Rate will be required to be made
until the cumulative adjustments amount to 1.0% or more of the Conversion Rate.
((S)1304) The Company shall compute any adjustments to the Conversion Rate
pursuant to this paragraph and will give notice to the Holders of the Notes of
any adjustments. ((S) 1305)
In case of any consolidation or merger of the Company with or into another
Person or any merger of another Person into the Company (other than a merger
which does not result in any reclassification, conversion, exchange or
cancellation of the Common Stock), or in case of any sale or transfer of all or
substantially all of the assets of the Company, each Note then outstanding
will, without the consent of the Holder of any Note, become convertible only
into the kind and amount of securities, cash and other property receivable upon
such consolidation, merger, sale or transfer by a holder of the number of
shares of Common Stock into which such Note was convertible immediately prior
thereto (assuming such holder of Common Stock failed to exercise any rights of
election and that such Note was then convertible). ((S) 1311)
33
<PAGE>
The Company from time to time may increase the Conversion Rate by any amount
for any period of at least 20 days, in which case the Company shall give at
least 15 days' notice of such increase, if the Board of Directors has made a
determination that such increase would be in the best interests of the Company,
which determination shall be conclusive. No such increase shall be taken into
account for purposes of determining whether the closing price of the Common
Stock exceeds the Conversion Price by 105% in connection with an event which
otherwise would be a Change of Control. ((S) 1304)
If at any time the Company makes a distribution of property to its
stockholders which would be taxable to such stockholders as a dividend for
United States federal income tax purposes (e.g., distributions of evidence of
indebtedness or assets of the Company, but generally not stock dividends on
Common Stock or rights to subscribe for Common Stock) and, pursuant to the
anti-dilution provisions of the Indenture, the number of shares into which
Notes are convertible is increased, such increase may be deemed for federal
income tax purposes to be the payment of a taxable dividend to Holders of
Notes. See "Certain Federal Income Tax Considerations."
SUBORDINATION
The payment of the principal of, premium, if any, and interest on (including
any amounts payable upon the redemption or repurchase of the Notes permitted by
the Indenture), the Notes will be subordinated in right of payment, to the
extent set forth in the Indenture, to the prior payment in full of the
principal of, premium, if any, interest and other amounts in respect of all
Senior Indebtedness of the Company. The Notes also are effectively subordinated
in right of payment to all indebtedness and other liabilities of the Company's
subsidiaries. As of August 31, 1996, after giving effect to the offering of the
Notes and the application of the net proceeds therefrom, the Company would have
had $11.4 million of Senior Indebtedness outstanding (which currently consists
of amounts outstanding under capital leases and a mortgage on the Company's
headquarters), and the aggregate amount of indebtedness and other liabilities
of the Company's subsidiaries would have been $50.9 million.
Senior Indebtedness is defined in the Indenture to mean the principal of (and
premium, if any) and interest (including all interest accruing subsequent to
the commencement of any bankruptcy or similar proceeding, whether or not a
claim for post-petition interest is allowable as a claim in any such
proceeding) on, and all fees and other amounts payable in connection with, the
following, whether absolute or contingent, secured or unsecured, due or to
become due, outstanding on the date of the Indenture or thereafter created,
incurred or assumed: (a) indebtedness of the Company to banks, insurance
companies and other financial institutions evidenced by credit or loan
agreements, notes or other written obligations, (b) all other indebtedness of
the Company (including obligations of the Company arising from its guarantee of
the indebtedness of others) other than the Notes, whether outstanding on the
date of the Indenture or thereafter created, incurred or assumed, which is (i)
for money borrowed or (ii) evidenced by a note, security, debenture, bond or
similar instrument, (c) obligations of the Company as lessee under leases
required to be capitalized on the balance sheet of the lessee under generally
accepted accounting principles or in respect of any lease or related document
(including a purchase agreement) which provides that the Company is
contractually obligated to purchase or cause a third party to purchase the
leased property and thereby effectively guarantees a minimum residual value of
the leased property to the landlord and the obligations of the Company under
such lease or related document to purchase or cause a third party to purchase
such leased property, (d) obligations of the Company under interest rate and
currency swaps, caps, floors, collars or similar agreements or arrangements,
(e) all obligations of the Company issued or assumed as the deferred purchase
price of property (but excluding any portion thereof constituting trade
accounts payable arising in the ordinary course), (f) all obligations of the
Company for the reimbursement of any letters of credit (i) to the extent the
obligations underlying such letters of credit are Senior Indebtedness under
clauses (a) through (d) above or (ii) that secure the Company's obligations to
clearing institutions arising out of its merchant processing business to
the extent such obligations are incurred in the ordinary course of business in
amounts consistent with the Company's past practices, and (g) renewals,
34
<PAGE>
extensions, modifications, restatements and refundings of, and any amendments,
modifications or supplements to, or any indebtedness or obligation issued in
exchange for, any such indebtedness or obligation described in clauses (a)
through (f) of this paragraph; provided, however, that Senior Indebtedness
shall not include any such indebtedness or obligation if the terms of such
indebtedness or obligation (or the terms of the instrument under which, or
pursuant to which, it is issued) expressly provide that such indebtedness or
obligation shall not be senior in right of payment to the Notes, or expressly
provide that such indebtedness or obligation is "pari passu" with or "junior"
to the Notes. "Designated Senior Indebtedness" means any particular Senior
Indebtedness in which the instrument creating or evidencing the same or the
assumption or guarantee thereof (or related agreements or documents to which
the Company is a party) expressly provides that such Senior Indebtedness shall
be "Designated Senior Indebtedness" for purposes of the Indenture (provided
that such instrument, agreement or other document may place limitations and
conditions on the right of such Senior Indebtedness to exercise the rights of
Designated Senior Indebtedness). ((S)(S) 101, 1201 and 1202)
Upon any acceleration of the principal due on the Notes or payment or
distribution of assets of the Company to creditors upon any dissolution,
winding up, liquidation or reorganization, whether voluntary or involuntary, or
in bankruptcy, insolvency, receivership or other similar proceedings of the
Company, all principal, premium, if any, and interest or other amounts due on
all Senior Indebtedness must be paid in full before the Holders of the Notes
are entitled to receive any payment. ((S) 1202) The Indenture will further
require that the Company promptly notify holders of Senior Indebtedness if
payment of the Notes is accelerated because of an Event of Default. The Company
also may not make any payment upon or in respect of the Notes if (i) a default
in the payment of the principal of, premium, if any, interest or other amounts
due on any Senior Indebtedness occurs and is continuing beyond any applicable
period of grace or (ii) any other default occurs and is continuing with respect
to Designated Senior Indebtedness that permits holders of the Designated Senior
Indebtedness as to which such default relates to accelerate the maturity
thereof and the Trustee receives a notice of such default (a "Payment Blockage
Notice") from the Company, any lender of Designated Senior Indebtedness (or
agent bank on behalf of such lender) or other person permitted to give such
notice under the Indenture. Payments on the Notes may and shall be resumed (a)
in the case of a payment default, upon the date on which such default is cured
or waived in accordance with the agreements evidencing such Senior Indebtedness
and (b) in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived in accordance with the agreements
evidencing such Senior Indebtedness or 179 days after the date on which the
applicable Payment Blockage Notice is received. No new period of payment
blockage may be commenced unless and until (i) 365 days have elapsed since the
effectiveness of the immediately prior Payment Blockage Notice and (ii) all
scheduled payments of principal, premium, if any, and interest on the Notes
that have come due have been paid in full in cash. No nonpayment default that
existed or was continuing on the date of delivery of any Payment Blockage
Notice to the Trustee shall be, or be made, the basis for a subsequent Payment
Blockage Notice.
By reason of the foregoing subordination, in the event of insolvency,
creditors of the Company who are holders of Senior Indebtedness are likely to
recover more, ratably, than the Holders of the Notes, and such subordination
may result in a reduction or elimination of payments to the Holders of the
Notes.
The Indenture does not limit the Company's ability to incur Senior
Indebtedness or any other indebtedness or the ability of any subsidiary of the
Company to incur any indebtedness or other liabilities.
OPTIONAL REDEMPTION
The Notes may not be redeemed prior to November , 1999. Thereafter, the
Notes may be redeemed, in whole or in part, at the option of the Company, upon
not less than 30 nor more than 60 days' prior notice as provided under "--
Notices" below, at the redemption prices set forth below.
35
<PAGE>
The redemption prices (expressed as a percentage of principal amount) are as
follows for the 12-month period beginning on November , of the following
years:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
----- ----------
<S> <C>
1999.............................. %
2000..............................
2001..............................
2002..............................
</TABLE>
and thereafter at a redemption price equal to 100% of the principal amount, in
each case together with accrued interest to the date of redemption. ((S) 203,
Article Eleven)
No sinking fund is provided for the Notes.
REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE OF CONTROL
If a Change of Control (as defined) occurs, each Holder of Notes shall have
the right, at the Holder's option, to require the Company to repurchase all of
such Holder's Notes, or any portion of the principal amount thereof that is
equal to $1,000 or an integral multiple of $1,000 in excess thereof, on the
date (the "Repurchase Date") that is 45 days after the date of the Company
Notice (as defined), at a price equal to 100% of the principal amount of the
Notes to be repurchased, together with interest accrued to the Repurchase Date
(the "Repurchase Price"). ((S) 1401)
The Company may, at its option, in lieu of paying the Repurchase Price in
cash, pay the Repurchase Price in Common Stock valued at 95% of the average of
the last reported sale price of the Common Stock for the five consecutive
Trading Days ending on and including the third Trading Day preceding the
Repurchase Date; provided that payment may not be made in Common Stock unless
the Company satisfies certain conditions with respect to such payment as
provided in the Indenture. ((S)(S) 1401 and 1402)
Within 30 days after the occurrence of a Change of Control, the Company is
obligated to give to all Holders of the Notes notice, as provided in the
Indenture (the "Company Notice"), of the occurrence of such Change of Control
and of the repurchase right arising as a result thereof, or, at the request of
the Company on or before the 15th day after such occurrence, the Trustee shall
give the Company Notice. The Company must also deliver a copy of the Company
Notice to the Trustee and to the office of each Paying Agent. To exercise the
repurchase right, a Holder of Notes must deliver on or before the 30th day
after the date of the Company Notice irrevocable written notice to the Trustee
or Paying Agent of the Holder's exercise of such right, together with the Notes
with respect to which the right is being exercised. ((S) 1403)
A Change of Control shall be deemed to have occurred at such time after the
original issuance of the Notes as there shall occur:
(i) the acquisition by any Person (including any syndicate or group
deemed to be a "person" under Section 13(d)(3) of the Exchange Act) of (a)
beneficial ownership, directly or indirectly, through a purchase, merger or
other acquisition transaction or series of transactions, of shares of
capital stock of the Company entitling such Person to exercise 50% or more
of the total voting power of all shares of capital stock of the Company
entitled to vote generally in elections of directors, other than any such
acquisition by the Company, any subsidiary of the Company or any employee
benefit plan of the Company or (b) the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the
entire Board of Directors; or
36
<PAGE>
(ii) any consolidation of the Company with, or merger of the Company
into, any other Person, any merger of another Person into the Company, or
any conveyance, sale, transfer or lease, in one transaction or a series of
related transactions, of all or substantially all of the assets (other than
to a wholly owned Subsidiary of the Company) of the Company to any other
Person (other than (a) any such transaction pursuant to which the holders
of 50% or more of the total voting power of all shares of capital stock of
the Company entitled to vote generally in elections of directors
immediately prior to such transaction have, directly or indirectly, at
least 50% or more of the total voting power of all shares of capital stock
of the continuing of surviving corporation entitled to vote generally in
elections of directors of the continuing or surviving corporation
immediately after such transaction and (b) a merger (x) which does not
result in any reclassification, conversion, exchange or cancellation of
outstanding shares of capital stock of the Company or (y) which is effected
solely to change the jurisdiction of incorporation of the Company and
results in a reclassification, conversion or exchange of outstanding shares
of Common Stock into solely shares of common stock);
provided, however, that a Change of Control shall not be deemed to have
occurred if either (a) the last reported sale price per share of the Common
Stock for any five Trading Days within the period of 10 consecutive Trading
Days ending immediately after the later of the Change of Control or the public
announcement of the Change of Control (in the case of a Change of Control under
clause (i) above) or ending immediately before the Change of Control (in the
case of a Change of Control under clause (ii) above) shall equal or exceed 105%
of the Conversion Price of the Notes in effect on each such Trading Day or (b)
all of the consideration (excluding cash payments for fractional shares and
cash payments made pursuant to dissenters' appraisal rights) in a merger or
consolidation otherwise constituting the Change of Control described in clause
(i) and/or clause (ii) above consists of shares of common stock traded on the
New York Stock Exchange or other national securities exchange or listed on The
Nasdaq Stock Market and as a result of such transaction or transactions the
Notes become convertible solely into such common stock. The "Conversion Price"
is equal to $1,000 divided by the Conversion Rate. "Beneficial owner" shall be
determined in accordance with Rule 13d-3 promulgated by the Commission under
the Exchange Act, as in effect on the date of original execution of the
Indenture. ((S) 1404)
The Company's ability to repurchase Notes upon the occurrence of a Change of
Control is subject to limitations. There can be no assurance that the Company
would have the financial resources or be able to arrange financing on
acceptable terms to pay the Repurchase Price for all the Notes as to which the
purchase right is exercised. Further, any repurchase in connection with a
Change in Control could, depending on the circumstances and absent a waiver
from the holders of Senior Indebtedness, be blocked by the subordination
provisions of the Notes. See "-- Subordination." The agreement relating to the
Company's current Senior Indebtedness would limit the Company's ability to
repurchase the Notes. Failure by the Company to repurchase the Notes when
required may result in an Event of Default with respect to the Notes (and with
respect to Senior Indebtedness) whether or not such repurchase is permitted by
the subordination provisions. See "-- Events of Default" and "Risk Factors--
Limitations on Repurchase of Notes."
Rule 13e-4 under the Exchange Act requires the dissemination of certain
information to security holders in the event of an issuer tender offer and may
apply in the event that the repurchase option becomes available to Holders of
the Notes. The Company will comply with this rule to the extent applicable at
that time.
The foregoing provisions would not necessarily afford Holders of the Notes
protection in the event of highly leveraged or other transactions involving the
Company that may adversely affect Holders.
MERGERS AND SALES OF ASSETS BY THE COMPANY
The Company may not consolidate with or merge into any other Person or,
directly or indirectly, convey, transfer, sell, lease or otherwise dispose of
its properties and assets substantially as an entirety
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to any Person (other than a conveyance, sale, transfer or lease to a wholly-
owned subsidiary), and the Company may not permit any Person (other than a
wholly-owned subsidiary) to merge into the Company or convey, transfer or lease
its properties and assets substantially as an entirety to the Company, unless
(a) the Person formed by such consolidation or into which the Company is merged
or the Person to which the properties and assets of the Company are so
transferred or leased is a corporation, limited liability company, partnership
or trust organized and existing under the laws of the United States, any State
thereof or the District of Columbia and has expressly assumed the due and
punctual payment of the principal of, premium, if any, and interest on the
Notes and the performance of the other covenants of the Company under the
Indenture, (b) immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time or both, would
become an Event of Default, shall have occurred and be continuing, and (c) the
Company has provided to the Trustee an Officer's Certificate and Opinion of
Counsel if required by the Indenture. ((S) 801)
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture: (a) failure to
pay principal or Redemption Price of any Note when due, whether or not such
payment is prohibited by the subordination provisions of the Indenture; (b)
failure to pay any interest on any Note when due, continuing for 30 days,
whether or not such payment is prohibited by the subordination provisions of
the Indenture; (c) default in the Company's obligation to provide a Company
Notice of Change in Control; (d) failure to perform any other covenant of the
Company in the Indenture, continuing for 60 days after written notice as
provided in the Indenture; (e) any indebtedness for money borrowed by the
Company in an aggregate principal amount in excess of $10,000,000 is not paid
at final maturity or upon acceleration thereof and such default in payment or
acceleration is not cured or rescinded within 30 days after written notice as
provided in the Indenture; and (f) certain events of bankruptcy, insolvency or
reorganization. ((S) 501) Subject to the provisions of the Indenture relating
to the duties of the Trustee in case an Event of Default shall occur and be
continuing, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any of the
Holders, unless such Holders shall have offered to the Trustee reasonable
indemnity. ((S) 603) Subject to such provisions for the indemnification of the
Trustee, the Holders of a majority in aggregate principal amount of the
Outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee. ((S) 512)
If an Event of Default (other than an Event of Default specified in
subsection (f) above) occurs and is continuing, either the Trustee or the
Holders of not less than 25% in aggregate principal amount of the Outstanding
Notes, by notice in writing to the Company, declare the principal of all the
Notes to be due and payable immediately, and upon any such declaration such
principal and any accrued interest thereon will become immediately due and
payable. If an Event of Default specified in subsection (f) occurs and is
continuing, the principal and any accrued interest on all of the then
Outstanding Notes shall ipso facto become due and payable immediately without
any declaration or other Act on the part of the Trustee or any Holder. ((S)
502)
At any time after a declaration of acceleration has been made but before a
judgment or decree based on acceleration, the Holders of a majority in
aggregate principal amount of Outstanding Notes may, under certain
circumstances, rescind and annul such acceleration if all Events of Default,
other than the nonpayment of accelerated principal and interest have cured or
waived as provided in the Indenture. ((S) 502)
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless also the Holders of at least 25% in aggregate
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principal amount of the Outstanding Notes shall have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as
trustee, and the Trustee shall not have received from the Holders of a majority
in aggregate principal amount of the Outstanding Notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. ((S) 507) However, such limitations do not apply to a suit instituted by
a Holder of a Note for the enforcement of payment of the principal of, premium,
if any, or interest on such Note on or after the respective due dates expressed
in such Note or of the right to convert such Note in accordance with the
Indenture. ((S) 508)
The Company will be required to furnish to the Trustee annually a statement
as to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance. ((S) 1004)
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made, and certain past
defaults by the Company may be waived, with the written consent of the Holders
of not less than a majority in aggregate principal amount of the Notes at the
time Outstanding. However, no such modification or amendment may, without the
consent of the Holder of each outstanding Note affected thereby, (a) change the
Stated Maturity of the principal of, or any installment of interest on, any
Note, (b) reduce the principal amount of, or the premium, if any, or rate of
interest on, any Note, (c) reduce the amount payable upon redemption or
repurchase, (d) modify the provisions with respect to the repurchase right of
the Holders in a manner adverse to the Holders, (e) change the place or
currency of payment of principal of, premium, if any, or interest on, any Note,
(f) impair the right to institute suit for the enforcement of any payment on or
with respect to any Note (including any payment of the Repurchase Price in
respect of such Note), (g) modify the obligation of the Company to maintain an
office or agency in New York City, (h) except as otherwise permitted by the
Indenture or contemplated by provisions concerning consolidation, merger,
conveyance, transfer, sale or lease of all or substantially all of the property
and assets of the Company, adversely affect the right of Holders to convert any
of the Notes or to require the Company to repurchase any Note other than as
provided in the Indenture, (i) modify the subordination provisions in a manner
adverse to the Holders of the Notes, (j) reduce the above-stated percentage of
Outstanding Notes necessary to modify or amend the Indenture, or (k) reduce the
percentage of aggregate principal amount of Outstanding Notes necessary for
waiver of compliance with certain provisions of the Indenture or for waiver of
certain defaults. ((S)(S) 902 and 513)
The Holders of a majority in aggregate principal amount of the Outstanding
Notes may waive compliance by the Company with certain restrictive provisions
of the Indenture. ((S) 1009) The Holders of a majority in aggregate principal
amount of the Outstanding Notes also may waive any past default under the
Indenture, except a default in the payment of principal, premium, if any, or
interest. ((S) 513)
TRANSFER AND EXCHANGE
The Company has initially appointed the Trustee as security registrar and
transfer agent, acting through its Corporate Trust Office. The Company reserves
the right to vary or terminate the appointment of the security registrar or of
any transfer agent or to appoint additional or other transfer agents or to
approve any change in the office through which any security registrar or any
transfer agent acts. ((S)(S) 305 and 1002)
PURCHASE AND CANCELLATION
The Company or any subsidiary may at any time and from time to time purchase
Notes at any price in the open market or otherwise.
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All Notes surrendered for payment, redemption, repurchase, registration of
transfer or exchange or conversion shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee. All Notes so delivered to the
Trustee shall be cancelled promptly by the Trustee. No Notes shall be
authenticated in lieu of or in exchange for any Notes cancelled as provided in
the Indenture. Unless otherwise requested by the Company and confirmed in
writing, the Trustee shall, from time to time but not less than once annually,
destroy all cancelled Notes and deliver to the Company a certificate of
destruction, which certificate shall specify the number, principal amount and,
in the case of Notes the form of each cancelled Note so destroyed. ((S) 309)
TITLE
The Company and the Trustee may treat the registered owner (as reflected in
the Security Register) of any Note as the absolute owner thereof (whether or
not such Note shall be overdue) for the purpose of making payment and for all
other purposes.
NOTICES
Notice to Holders of the Notes will be given by mail to the addresses of such
Holders as they appear in the Security Register. Such notices will be deemed to
have been given on the date of the first such publication or on the date of
such mailing, as the case may be. ((S) 106)
Notice of a redemption of Notes will be given at least once not less than 20
nor more than 60 days prior to the redemption date (which notice shall be
irrevocable) and will specify the redemption date.
REPLACEMENT OF NOTES
Notes that become mutilated, destroyed, stolen or lost will be replaced by
the Company at the expense of the Holder upon delivery to the Trustee of the
mutilated Notes or evidence of the loss, theft or destruction thereof
satisfactory to the Company and the Trustee. In the case of a lost, stolen or
destroyed Note indemnity satisfactory to the Trustee and the Company may be
required at the expense of the Holder of such Note before a replacement Note
will be issued. ((S) 306)
SATISFACTION AND DISCHARGE
The Company may discharge its payment obligations under the Indenture while
Notes remain outstanding if (a) all outstanding Notes have become due and
payable or will become due and payable at their scheduled maturity within one
year, (b) all outstanding Notes are scheduled for redemption within one year or
(c) all outstanding Notes are delivered to the Trustee for conversion in
accordance with the Indenture and in the case of (a) or (b) above, the Company
has deposited with the Trustee an amount sufficient to pay and discharge the
entire indebtedness on all outstanding Notes on the date of their scheduled
maturity or the scheduled date of redemption. ((S) 401)
GOVERNING LAW
The Indenture and the Notes will be governed by and construed in accordance
with the laws of the State of New York. ((S) 112)
THE TRUSTEE
In case an Event of Default shall occur (and shall not be cured), the Trustee
will be required to use the degree of care of a prudent person in the conduct
of his own affairs in the exercise of its powers. Subject to such provisions,
the Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request of any of the Holders of Notes, unless they
shall have offered to the Trustee reasonable security or indemnity. ((S)(S) 601
and 603)
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BOOK-ENTRY
The Notes will be issued in the form of a global note (the "Global Note")
deposited with, or on behalf of, The Depository Trust Company ("DTC") and
registered in the name of Cede & Co. as DTC's nominee. Owners of beneficial
interests in the Notes represented by the Global Note will hold such interests
pursuant to the procedures and practices of DTC and must exercise any rights in
respect of their interests (including any right to convert or require
repurchase of their interests) in accordance with those procedures and
practices. Such beneficial owners will not be Holders, and will not be entitled
to any rights under the Global Note or the Indenture, with respect to the
Global Note, and the Company and the Trustee, and any of their respective
agents, may treat DTC as the sole Holder and owner of the Global Note.
DTC has advised the Company as follows: DTC is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Exchange Act. DTC holds securities that its participants
deposit with DTC. DTC also facilitates the settlement among participants of
securities transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
Direct participants include securities brokers and dealers (including Goldman,
Sachs & Co.), banks, trust companies, clearing corporation, and certain other
organizations. DTC is owned by a number of its direct participants and by the
New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks and
trust companies that clear through or maintain a custodial relationship with a
direct participant, either directly or indirectly. The rules applicable to DTC
and its participants are on file with the Securities and Exchange Commission.
Unless and until they are exchanged in whole or in part for certificated
Notes in definitive form as set forth below, the Global Note may not be
transferred except as a whole by DTC to a nominee of DTC, or by a nominee of
DTC to DTC or another nominee of DTC.
The Notes represented by the Global Note will not be exchangeable for
certificated Notes, provided that if (a) DTC is at any time unwilling, unable
or ineligible to continue as depositary and a successor depositary is not
appointed by the Company within 90 days or (b) there shall have occurred and be
continuing an Event of Default with respect to the Notes, the Company will
issue individual Notes in definitive form in exchange for the Global Note. In
addition, the Company may at any time and in its sole discretion determine not
to have a Global Note, and, in such event, will issue individual Notes in
definitive form in exchange for the Global Note previously representing all
such Notes. In either instance, an owner of a beneficial interest in a Global
Note will be entitled to physical delivery of Notes in definitive form equal in
principal amount to such beneficial interest and to have such Notes registered
in its name. Individual Notes so issued in definitive form will be issued in
denominations of $1,000 and any larger amount that is an integral multiple of
$1,000 and will be issued in registered form only, without coupons.
Payments of principal of and interest on the Notes will be made by the
Company through the Trustee to DTC or its nominee, as the case may be, as the
registered owner of the Global Note. Neither the Company nor the Trustee will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests of the Global
Note or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests. The Company expects that DTC, upon receipt of
any payment of principal or interest in respect of the Global Note, will credit
the accounts of the related participants with payment in amounts proportionate
to their respective holdings in principal amount of beneficial interest in the
Global Note as shown on
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the records of DTC. The Company also expects that payments by participants to
owners of beneficial interests in the Global Note will be governed by standing
customer instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in
"street name," and will be the responsibility of such participants.
So long as the Notes are represented by a Global Note, DTC or its nominee
will be the only entity that can exercise a right to repayment pursuant to the
Holder's option to elect repayment of its Notes or the right of conversion of
the Notes. Notice by participants or by owners of beneficial interests in a
Global Note held through such participants of the exercise of the option to
elect repayment, or the right of conversion, of beneficial interests in Notes
represented by the Global Note must be transmitted to DTC in accordance with
its procedures on a form required by DTC and provided to participants. In order
to ensure that DTC's nominee will timely exercise a right to repayment, or the
right of conversion, with respect to a particular Note, the beneficial owner of
such Notes must instruct the broker or other participant through which it holds
an interest in such Notes to notify DTC of its desire to exercise a right to
repayment, or the right of conversion. Different firms have different cut- off
times for accepting instructions from their customers and, accordingly, each
beneficial owner should consult the broker or other participant through which
it holds an interest in a Note in order to ascertain the cut-off time by which
such an instruction must be given in order for timely notice to be delivered to
DTC. The Company will not be liable for any delay in delivery of such notice to
DTC.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 60,000,000 shares of
Common Stock, par value $.125 per share, and 1,000,000 shares of Preferred
Stock, par value $1.00 per share. The following description of the capital
stock is qualified in all respects by reference to the Restated Certificate of
Incorporation, as amended, and Bylaws, as amended, of the Company, copies of
which are on file at the Company's principal executive offices.
COMMON STOCK
The holders of Common Stock, subject to such rights as may be granted to the
holders of Preferred Stock, elect all directors and are entitled to one vote
per share. All shares of Common Stock participate equally in dividends when, as
and if declared by the Board of Directors and share ratably, subject to the
rights and preferences of any Preferred Stock, in net assets on liquidation.
The shares of Common Stock outstanding prior to this offering are, and the
shares to be outstanding upon completion of this offering will be, duly
authorized, validly issued, fully paid and nonassessable. The shares of Common
Stock have no preference, conversion, exchange, preemptive or cumulative voting
rights.
STOCK PURCHASE RIGHTS
Pursuant to a Rights Agreement dated as of January 18, 1991 (the "Rights
Agreement"), each share of Common Stock is issued one right (a "Right") which
entitles the registered holder to purchase from the Company one one-hundredth
of a share (a "Unit") of Series A Junior Participating Preferred Stock, par
value $1.00 per share (the "Junior Preferred Stock"), at a purchase price of
$45.00 per Unit, subject to adjustment. Until the Distribution Date the Rights
are unexercisable and attach to and transfer with the Common Stock
certificates. The Distribution Date will occur upon the earlier of an
announcement of the acquisition by a third party of 15% or more of the Common
Stock, or the commencement of a tender offer for 15% or more of the Common
Stock.
The Rights may have certain anti-takeover effects because the rights will
cause substantial dilution to a person or group that attempts to acquire the
Company on terms not approved by the Board of Directors of the Company unless
the offer is conditioned on a substantial number of Rights being acquired.
However, the Rights should not interfere with any merger or other business
combination approved by a majority of the directors since the Rights may be
redeemed by the Company at $.01 per Right at any time on or prior to a stock
acquisition. Thus, the Rights are intended to encourage persons who may seek to
acquire control of the company to initiate such an acquisition through
negotiations with the 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,
or seeking to obtain control of, the Company. To the extent any potential
acquirers are deterred by the Rights, the Rights may have the effect of
preserving incumbent management in the office.
PREFERRED STOCK
The Company is authorized to issue 1,000,000 shares of Preferred Stock, par
value $1.00 per share, none of which is outstanding, although 200,000 shares of
Preferred Stock have been reserved for issuance pursuant to the Rights
described above. Preferred Stock may be issued from time to time by the Board
of Directors of the Company, without stockholder approval, in such series and
with such voting powers, full or limited, or no voting powers, and such
designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions, as may be
fixed by the Board of Directors in the resolution authorizing the issuance. The
issuance of Preferred Stock by the Board of Directors could adversely affect
the rights of holders of shares of Common Stock
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since Preferred Stock may be issued having preference with respect to dividends
and in liquidation over the Common Stock, and have voting rights, contingent or
otherwise, that could dilute the voting rights, net income per share and net
book value of the Common Stock. In addition, while the Board of Directors has
no current intention of doing so, the ability of the Board of Directors to
issue shares of Preferred Stock and to set the voting powers, full or limited,
or no voting powers, and such designations, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions, thereof without further stockholder action might
serve as an anti-takeover measure and, as such, help to perpetuate the
incumbent management of the Company or thwart a takeover attempt,
notwithstanding the desire of stockholders to change management or accept a
takeover offer. As of the date of this Prospectus, other than in connection
with the Rights described above, the Board of Directors has not authorized the
issuance of any shares of Preferred Stock, and the Company has no agreements,
arrangements or understandings with respect to the issuance of any shares of
Preferred Stock.
REGISTRAR AND TRANSFER AGENT
The Company's registrar and transfer agent is Wachovia Bank of North
Carolina, N.A., Winston-Salem, North Carolina.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
considerations relating to the purchase, ownership and disposition of the Notes
and of Common Stock into which Notes may be converted, but does not purport to
be a complete analysis of all the potential tax considerations relating
thereto. This summary is based on the Internal Revenue Code of 1986, as amended
(the "Code"), existing, temporary and proposed Treasury Regulations, laws,
rulings and decisions now in effect, all of which are subject to change. This
summary deals only with Holders that will hold Notes and Common Stock into
which Notes may be converted as "capital assets" (within the meaning of Section
1221 of the Code) and that are (i) citizens or residents of the United States,
(ii) domestic corporations, or (iii) otherwise subject to United States Federal
income taxation on a net income basis in respect of a Note or Common Stock.
This summary does not address tax considerations applicable to investors that
may be subject to special tax rules, such as banks, tax-exempt organizations,
insurance companies, dealers in securities or currencies, or persons that will
hold Notes as a position in a hedging transaction, "straddle" or "conversion
transaction" for tax purposes. This summary discusses the tax considerations
applicable to the initial purchasers of the Notes who purchase the Notes at
their "issue price" as defined in Section 1273 of the Code and does not discuss
the tax considerations applicable to subsequent purchasers of the Notes. The
Company has not sought any ruling from the Internal Revenue Services with
respect to the statements made and the conclusions reached in the following
summary, and there can be no assurance that the Internal Revenue will agree
with such statements and conclusions.
INVESTORS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME
AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
PAYMENT OF INTEREST
Interest on a Note generally will be includable in the income of a Holder as
ordinary income at the time such interest is received or accrued, in accordance
with such Holder's method of accounting for United States federal income tax
purposes.
SALE, EXCHANGE OR REDEMPTION OF THE NOTES
Upon the sale, exchange or redemption of a Note, a Holder generally will
recognize capital gain or loss equal to the difference between (i) the amount
of cash proceeds and the fair market value of any property received on the
sale, exchange or redemption (except to the extent such amount is attributable
to accrued interest income not previously included in income which is taxable
as ordinary income) and (ii) such Holder's adjusted tax basis in the Note. A
Holder's adjusted tax basis in a Note generally will equal the cost of the Note
to such Holder. Such capital gain or loss will be long-term capital gain or
loss if the Holder's holding period in the Note is more than one year at the
time of sale, exchange or redemption.
CONSTRUCTIVE DISTRIBUTION
If at any time (i) the Company makes a distribution of cash or property to
its stockholders or purchases Common Stock and such distribution or purchase
would be a taxable distribution to such stockholders for United States federal
income tax purposes (e.g., distributions of evidences of indebtedness or assets
of the Company, but generally not stock dividends or rights to subscribe for
Common Stock) and, pursuant to the anti-dilution provision of the Indenture,
the conversion rate of the Notes is increased, or (ii), the conversion rate of
the Notes is increased at the discretion of the
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Company, such increase in conversion rate may be deemed to be a taxable
distribution to Holders of Notes (pursuant to Section 305 of the Code). Such a
deemed distribution will be taxable as a dividend, return of capital or capital
gain in accordance with the earnings and profits rules discussed under "--
Dividends." Holders of Notes could therefore have taxable income as a result of
an event pursuant to which they received no cash or property.
CONVERSION OF THE NOTES
A Holder of a Note generally will not recognize any income, gain or loss upon
conversion of a Note into shares of Common Stock except with respect to cash
received either in lieu of a fractional Share of Common Stock or attributable
to accrued interest on the converted Notes. A Holder's tax basis in the Common
Stock received on conversion of a Note will be the same as such Holder's
adjusted tax basis in the Note at the time of conversion (reduced by any basis
allocable to a fractional share interest). The holding period for the shares of
Common Stock received on conversion will generally include the holding period
of the Note converted.
Cash received in lieu of a fractional share of Common Stock upon conversion
will be treated as a payment in exchange for the fractional share of Common
Stock. Accordingly, the receipt of cash in lieu of a fractional share of Common
Stock generally will result in capital gain or loss (measured by the difference
between the cash received for the fractional share and the Holder's adjusted
tax basis in the fractional share).
DIVIDENDS
Distributions paid on shares of Common Stock will constitute dividends for
United States Federal income tax purposes to the extent of the Company's
current or accumulated earnings and profits and will be includable in the
income of a Holder as ordinary income. Dividends paid to Holders that are
United States corporations may qualify for a dividends-received deduction.
To the extent, if any, that a Holder receives a distribution on shares of
Common Stock that would otherwise constitute a dividend for United States
federal income tax purposes but that exceeds current and accumulated earnings
and profits of the Company, such distribution will be treated first as a non-
taxable return of capital reducing the Holder's basis in the shares of Common
Stock. Any such distribution in excess of the Holder's basis in the shares of
Common Stock will be treated as capital gain.
SALE OF COMMON STOCK
Upon the sale or exchange of Common Stock, a Holder generally will recognize
capital gain or loss equal to the difference between (i) the amount of cash and
the fair market value of any property received upon the sale or exchange and
(ii) such Holder's adjusted tax basis in the Common Stock. Such capital gain or
loss will be long-term if the Holder's holding period in Common Stock is more
than one year at the time of the sale or exchange. A Holder's basis and holding
period in Common Stock received upon conversion of a Note are determined as
discussed above under "-- Conversion of the Notes."
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on a Note, payments of dividends on
Common Stock, payments of the proceeds of the sale of a Note and payments of
the proceeds of the sale of Common Stock to certain noncorporate Holders, and a
31% backup withholding tax may apply to such payments if the Holder (i) fails
to furnish or certify his correct taxpayer identification number to the payor
in the manner required, (ii) is notified
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by the Internal Revenue Service (the "IRS") that he has failed to report
payments of interest and dividends properly, or (iii) under certain
circumstances, fails to certify that he has not been notified by the IRS that
he is subject to backup withholding for failure to report interest and dividend
payments. Any amounts withheld under the backup withholding rules from a
payment to a Holder will be allowed as a credit against such Holder's United
States federal income tax and may entitle the Holder to a refund, provided that
the required minimum information is furnished to the IRS.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the Company
by Alston & Bird, Atlanta, Georgia, and for the Underwriters by King &
Spalding, Atlanta, Georgia.
EXPERTS
The consolidated financial statements and schedule of the Company included in
the Company's Annual Report on Form 10-K for the year ended May 31, 1996,
incorporated in this Prospectus and Registration Statement, have been
incorporated by reference herein in reliance upon the reports of Arthur
Andersen LLP, independent accountants, given on the authority of that firm as
experts in accounting and auditing.
The consolidated financial statements and schedule of CIS at December 31,
1995 and 1994, and for each of the three years in the period ended December 31,
1995, incorporated in this Prospectus and Registration Statement by reference
to the Current Report on Form 8-K of NDC dated May 31, 1996, have been
incorporated by reference herein in reliance upon the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
The consolidated financial statements and schedules of Equifax Healthcare EDI
Services, Inc., at June 30, 1995 and 1996, and for each of the two years in the
period ended June 30, 1995 incorporated in this Prospectus and Registration
Statement by reference to the Current Report on Form 8-K of NDC dated October
1, 1996, have been incorporated by reference herein in reliance upon the report
of Arthur Andersen LLP, independent accountants, given on the authority of that
firm as experts in accounting and auditing.
The financial statements as of December 31, 1995 and 1994 and for each of the
three years in the period ended December 31, 1995 of MasterCard Automated
Point-of-Sale Program (an organizational unit of MasterCard International
Incorporated) incorporated in this Prospectus and Registration Statement by
reference to the Current Report on Form 8-K of NDC dated April 1, 1996, had
been incorporated by reference herein in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of that firm as
experts in accounting and auditing.
47
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company has agreed to sell to each of the Underwriters named below, and
each of such Underwriters have severally agreed to purchase from the Company,
the respective principal amounts of the Notes set forth opposite its name
below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
UNDERWRITER OF NOTES
----------- ---------
<S> <C>
Goldman, Sachs & Co. ..............................................
Salomon Brothers Inc...............................................
Montgomery Securities..............................................
NatWest Securities Limited.........................................
----
Total............................................................
====
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Notes, if any are
taken.
The Underwriters propose to offer the Notes in part directly to the public
at the initial public offering price set forth on the cover page of this
Prospectus and in part to certain securities dealers at such price less a
concession of % of the principal amount of the Notes. The Underwriters may
allow, and such dealers may re-allow, a concession not to exceed % of the
principal amount of the Notes to certain brokers and dealers. After the Notes
are released for sale to the public, the public offering price and other
selling terms may from time to time be varied by the representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of
$18,750,000 additional principal amount of Notes solely to cover over-
allotments, if any. If the Underwriters exercise their over-allotment option,
the Underwriters have severally agreed, subject to certain conditions, to
purchase approximately the same percentage thereof that the principal amount
of the Notes to be purchased by each of them, as shown in the foregoing table,
bears to the aggregate principal amount of the Notes offered hereby.
Application will be made to list the Notes on the New York Stock Exchange.
The Underwriters have advised the Company that they currently intend to make a
market in the Notes. However, the Underwriters are not obligated to do so and
may discontinue any market making at any time without notice. No assurance can
be given as to the liquidity of the trading market for the Notes.
The Company has also agreed, subject to certain limited exceptions, that it
will not offer, sell, contract or sell or otherwise dispose of any Common
Stock (other than upon conversion of the Notes), any securities substantially
similar to the Notes or the Common Stock or any securities exchangeable or
exercisable for, or convertible into, Common Stock or substantially similar
securities (any such security, a "Covered Security"), without the prior
written consent of the Underwriters, for a period of 90 days after the date of
this Prospectus. The directors and executive officers of the Company have also
agreed, subject to certain limited exceptions, that they will not offer, sell,
contract to sell or otherwise dispose of any Common Stock or Covered
Securities beneficially owned by them without the prior written consent of the
Underwriters for a period of 90 days after the date of this Prospectus.
NatWest Securities Limited, a United Kingdom broker-dealer and a member of
the Securities and Futures Authority Limited, has agreed that, as part of the
distribution of the Notes offered hereby and subject to certain exceptions, it
will not offer or sell any Notes within the United States, its territories or
possessions or to persons who are citizens thereof or residents therein other
than through a United States broker-dealer. The Underwriting Agreement does
not limit the sale of Notes outside of the United States.
The Company has agreed to indemnify the Underwriters against certain
liabilities under the Securities Act.
U-1
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFOR-
MATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information.................................................... 2
Incorporation of Certain Documents by Reference.......................... 2
Prospectus Summary....................................................... 3
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 10
Capitalization........................................................... 11
Price Range of Common Stock and Dividends................................ 12
Selected Consolidated Financial Data..................................... 13
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 15
Business ................................................................ 24
Management............................................................... 29
Description of Notes..................................................... 31
Description of Capital Stock............................................. 43
Certain Federal Income Tax Considerations................................ 45
Legal Matters............................................................ 47
Experts.................................................................. 47
Underwriting............................................................. U-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-----------
LOGO
-----------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$125,000,000
NATIONAL DATA CORPORATION
% CONVERTIBLE SUBORDINATED NOTES DUE NOVEMBER , 2003
GOLDMAN, SACHS & CO.
SALOMON BROTHERS INC
MONTGOMERY SECURITIES
NATWEST SECURITIES LIMITED
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with the issuance and distribution of the Notes,
other than underwriting discounts, are set forth in the following table. All
amounts except the Securities and Exchange Commission registration fee and the
NASD filing fee are estimated.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $ 43,561
NASD filing fee.................................................... 14,875
NYSE listing fee................................................... 25,000*
Printing and engraving expenses.................................... 20,000*
Accountants' fees and expenses..................................... 85,000*
Legal fees and expenses............................................ 75,000*
Blue Sky fees and expenses......................................... 15,000*
Transfer agent and registrar fees.................................. 3,000*
Miscellaneous...................................................... 118,564*
--------
Total............................................................ $400,000
========
</TABLE>
- --------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Bylaws provide for indemnification of directors and officers
of the Company to the full extent permitted by Delaware law.
Section 145 of the General Corporation Law of the State of Delaware provides
generally that a corporation may indemnify any person 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, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at its request in
such capacity in another corporation or business association, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
In addition, pursuant to the authority of Delaware law, the Restated
Certificate of Incorporation of the Company also eliminates the monetary
liability of directors to the fullest extent permitted by Delaware law.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
*1 Form of Underwriting Agreement
**4.1 Form of Indenture
**4.2 Form of Convertible Subordinated Note (included in Exhibit 4.1)
**5 Opinion of Alston & Bird
*12 Computation of Ratio of Earnings to Fixed Charges
**23.1 Consent of Alston & Bird (included in Exhibit 5 above).
*23.2 Consent of Arthur Andersen LLP
*23.3 Consent of Coopers & Lybrand L.L.P.
*23.4 Consent of Price Waterhouse LLP
25 Form T-1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of The First National Bank of Chicago
</TABLE>
- --------
* Previously filed.
** To be filed by amendment.
ITEM 17. UNDERTAKINGS.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein and the offering of such securities
at that time shall be deemed the initial bona fide offering thereof.
(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(i) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT NO. 1
TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF ATLANTA, AND STATE OF GEORGIA, ON
OCTOBER 17, 1996.
National Data Corporation
/s/ Robert A. Yellowlees
By: _________________________________
ROBERT A. YELLOWLEESCHAIRMAN OF
THE BOARD
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES INDICATED ON OCTOBER 17, 1996.
SIGNATURE TITLE
/s/ Robert A. Yellowlees Chairman of the Board and Chief
- ------------------------------------- Executive Officer (Principal
ROBERT A. YELLOWLEES Executive Officer)
/s/ Marion P. Stevenson Interim Chief Financial Officer
- ------------------------------------- (Principal Financial and Accounting
MARION P. STEVENSON Officer)
Director
*
- -------------------------------------
EDWARD L. BARLOW
Director
*
- -------------------------------------
JAMES B. EDWARDS
Director
*
- -------------------------------------
DON W. SANDS
Director
*
- -------------------------------------
NEIL WILLIAMS
Director
*
- -------------------------------------
J. VERONICA BIGGINS
*/s/ E. Michael Ingram
- -------------------------------------
E. MICHAEL INGRAM
ATTORNEY-IN-FACT
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<C> <S> <C>
*1 Form of Underwriting Agreement
**4.1 Form of Indenture
**4.2 Form of Convertible Subordinated Note (included in Exhibit
4.1)
**5 Opinion of Alston & Bird
*12 Computation of Ratio of Earnings to Fixed Charges
**23.1 Consent of Alston & Bird (included in Exhibit 5 above).
*23.2 Consent of Arthur Andersen LLP
*23.3 Consent of Coopers & Lybrand L.L.P.
*23.4 Consent of Price Waterhouse LLP
25 Form T-1 Statement of Eligibility and Qualification under the
Trust Indenture Act of 1939 of The First National Bank of
Chicago
</TABLE>
- --------
* Previously Filed.
** To be filed by amendment.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
--------
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(B)(2) _____
__________________
THE FIRST NATIONAL BANK OF CHICAGO
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
A NATIONAL BANKING ASSOCIATION 36-0899825
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
ONE FIRST NATIONAL PLAZA, CHICAGO, ILLINOIS 60670-0126
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
THE FIRST NATIONAL BANK OF CHICAGO
ONE FIRST NATIONAL PLAZA, SUITE 0286
CHICAGO, ILLINOIS 60670-0286
ATTN: LYNN A. GOLDSTEIN, LAW DEPARTMENT (312) 732-6919
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
__________________
NATIONAL DATA CORPORATION
(EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER)
DELAWARE 58-0977458
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
NATIONAL DATA PLAZA
ATLANTA, GEORGIA 30329-2010
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
DEBT SECURITIES
(TITLE OF INDENTURE SECURITIES)
<PAGE>
ITEM 1. GENERAL INFORMATION. FURNISH THE FOLLOWING
--------------------
INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR
SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT.
Comptroller of Currency, Washington, D.C.,
Federal Deposit Insurance Corporation,
Washington, D.C., The Board of Governors of
the Federal Reserve System, Washington D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE
CORPORATE TRUST POWERS.
The trustee is authorized to exercise corporate
trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR. IF THE OBLIGOR
------------------------------
IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH
SUCH AFFILIATION.
No such affiliation exists with the trustee.
ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS A
-----------------
PART OF THIS STATEMENT OF ELIGIBILITY.
1. A copy of the articles of association of the
trustee now in effect.*
2. A copy of the certificates of authority of the
trustee to commence business.*
3. A copy of the authorization of the trustee to
exercise corporate trust powers.*
4. A copy of the existing by-laws of the trustee.*
5. Not Applicable.
6. The consent of the trustee required by
Section 321(b) of the Act.
2
<PAGE>
7. A copy of the latest report of condition of the
trustee published pursuant to law or the
requirements of its supervising or examining
authority.
8. Not Applicable.
9. Not Applicable.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, The First National Bank of Chicago, a national
banking association organized and existing under the laws of the United
States of America, has duly caused this Statement of Eligibility to be
signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of Chicago and State of Illinois, on the 16th day of October,
1996.
THE FIRST NATIONAL BANK OF CHICAGO,
TRUSTEE
BY /s/ Steven M. Wagner
--------------------------------------
STEVEN M. WAGNER
VICE PRESIDENT
* EXHIBIT 1, 2, 3 AND 4 ARE HEREIN INCORPORATED BY REFERENCE TO EXHIBITS
BEARING IDENTICAL NUMBERS IN ITEM 12 OF THE FORM T-1 OF THE FIRST NATIONAL BANK
OF CHICAGO, FILED AS EXHIBIT 25 TO THE REGISTRATION STATEMENT ON FORM S-3 OF ITT
CORPORATION, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15,
1996 (REGISTRATION NO. 333-07221).
3
<PAGE>
EXHIBIT 6
THE CONSENT OF THE TRUSTEE REQUIRED
BY SECTION 321(b) OF THE ACT
October 16, 1996
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In connection with the qualification of an indenture between National Data
Corporation and The First National Bank of Chicago, the undersigned, in
accordance with Section 321(b) of the Trust Indenture Act of 1939, as amended,
hereby consents that the reports of examinations of the undersigned, made by
Federal or State authorities authorized to make such examinations, may be
furnished by such authorities to the Securities and Exchange Commission upon its
request therefor.
Very truly yours,
THE FIRST NATIONAL BANK OF CHICAGO
BY: /s/ Steven M. Wagner
-------------------------------------
STEVEN M. WAGNER
VICE PRESIDENT
4
<PAGE>
EXHIBIT 7
Legal Title of Bank: The First National Bank of Chicago
Address: One First National Plaza, Ste 0460
City, State Zip: Chicago, IL 60670
FDIC Certificate No.: 0/3/6/1/8
---------
Call Date: 06/30/96 ST-BK: 17-1630 FFIEC 031
Page RC-1
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR JUNE 30, 1996
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount
outstanding of the last business day of the quarter.
SCHEDULE RC--BALANCE SHEET
<TABLE>
<CAPTION>
DOLLAR AMOUNTS IN C400
THOUSANDS RCFD BIL MIL THOU
------------- ---- ------------
ASSETS
<S> <C> <C> <C>
1. Cash and balances due from depository institutions (from Schedule
RC-A):
a. Noninterest-bearing balances and
currency and coin(1)........................................... 0081 3,572,641 1.a.
b. Interest-bearing balances(2)................................ 0071 6,958,367 1.b.
2. Securities
a. Held-to-maturity securities(from
Schedule RC-B, column A).................................... 1754 0 2.a.
b. Available-for-sale securities (from
Schedule RC-B, column D).................................... 1773 1,448,974 2.b.
3. Federal funds sold and securities purchased under agreements to
resell in domestic offices of the bank and
its Edge and Agreement
subsidiaries, and in IBFs:
a. Federal Funds sold.......................................... 0276 5,020,878 3.a.
b. Securities purchased under agreements
to resell................................................... 0277 918,688 3.b.
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income
(from Schedule RC-C)........................................... RCFD 2122 19,125,160 4.a.
b. LESS: Allowance for loan and lease losses................... RCFD 3123 379,232 4.b.
c. LESS: Allocated transfer risk reserve....................... RCFD 3128 0 4.c.
d. Loans and leases, net of unearned
income, allowance, and
reserve (item 4.a minus 4.b and 4.c)........................ 2125 18,745,928 4.d.
5. Assets held in trading accounts................................ 3545 9,599,172 5.
6. Premises and fixed assets (including capitalized leases)....... 2145 623,289 6.
7. Other real estate owned (from Schedule RC-M)................... 2150 8,927 7.
8. Investments in unconsolidated subsidiaries and associated
companies (from Schedule RC-M).................................. 2130 57,280 8.
9. Customers' liability to this bank on acceptances outstanding.... 2155 632,259 9.
10. Intangible assets (from Schedule RC-M)......................... 2143 156,715 10.
11. Other assets (from Schedule RC-F).............................. 2160 1,592,088 11.
12. Total assets (sum of items 1 through 11)....................... 2170 49,335,206 12.
</TABLE>
- ------------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
5
<PAGE>
Legal Title of Bank: The First National Bank of Chicago
Address: One First National
Plaza, Ste 0460
City, State Zip: Chicago, IL 60670
FDIC Certificate No.: 0/3/6/1/8
---------
Call Date: 06/30/96 ST-BK: 17-1630 FFIEC 031
Page RC-2
<TABLE>
<CAPTION>
SCHEDULE RC-CONTINUED DOLLAR AMOUNTS IN
Thousands BIL MIL THOU
------------- ------------
<S> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of
columns A and C from Schedule RC-E,
part 1)............................................ RCON 2200 16,878,870 13.a.
(1) Noninterest-bearing(1).......................... RCON 6631 7,855,880 13.a.(1)
(2) Interest-bearing................................ RCON 6636 9,022,990 13.a.(2)
b. In foreign offices, Edge and Agreement
subsidiaries, and IBFs (from Schedule
RC-E, part II)..................................... RCFN 2200 12,677,057 13.b.
(1) Noninterest bearing............................ RCFN 6631 766,936 13.b.(1)
(2) Interest-bearing............................... RCFN 6636 11,910,121 13.b.(2)
14. Federal funds purchased and securities sold
under agreements to repurchase in domestic
offices of the bank and of its Edge and Agreement
subsidiaries, and in IBFs:
a. Federal funds purchased............................. RCFD 0278 1,318,968 14.a.
b. Securities sold under agreements
to repurchase....................................... RCFD 0279 1,197,589 14.b.
15. a. Demand notes issued to the U.S. Treasury............ RCON 2840 104,546 15.a.
b. Trading Liabilities................................. RCFD 3548 6,431,784 15.b.
16. Other borrowed money:
a. With original maturity of one year or less.......... RCFD 2332 4,437,636 16.a.
b. With original maturity of more than one year........ RCFD 2333 75,308 16.b.
17. Mortgage indebtedness and obligations under
capitalized leases..................................... RCFD 2910 283,041 17.
18. Bank's liability on acceptance executed
and outstanding........................................ RCFD 2920 632,259 18.
19. Subordinated notes and debentures...................... RCFD 3200 1,275,000 19.
20. Other liabilities (from Schedule RC-G)................. RCFD 2930 892,947 20.
21. Total liabilities (sum of items 13
through 20)............................................ RCFD 2948 46,205,005 21.
22. Limited-Life preferred stock and related surplus....... RCFD 3282 0 22.
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus.......... RCFD 3838 0 23.
24. Common stock........................................... RCFD 3230 200,858 24.
25. Surplus (exclude all surplus related to
preferred stock)....................................... RCFD 3839 2,349,164 25.
26. a. Undivided profits and capital reserves
unrealized holding gains (losses) on
available-for-sale.................................. RCFD 3632 584,878 26.a.
b. Net securities...................................... RCFD 8434 (3,951) 26.b.
27. Cumulative foreign currency translation
adjustments............................................ RCFD 3284 (748) 27.
28. Total equity capital (sum of items 23
through 27)............................................ RCFD 3210 3,130,201 28.
29. Total liabilities, limited-life preferred stock,
and equity capital (sum of items 21, 22, and 28)...... RCFD 3300 49,335,206 29.
</TABLE>
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that
best describes the most comprehensive level of auditing work performed for
the bank by independent external auditors as of any date
during 1995...................................... RCFD 6724 Number
-------------
N/A
-------------
M.1.
1 = Independent audit of the bank 4 = Directors' examination of the
conducted in accordance bank performed by other
with generally accepted 5 = Review of the bank's financial
auditing standards by a statements by external
certified external auditors (may be 6 = Compilation of the bank's
required by state chartering financial statements by
public accounting firm external submits a report on
which submits a report on the the consolidated holding
bank authority) company auditors
2 = Independent audit of the bank's 7 = Other audit procedures
parent holding company conducted (excluding tax preparation
in accordance with generally work)
accepted auditing auditors 8 = No external audit work
standards by a certified public
accounting firm which (but not
on the bank separately)
3 = Directors' examination of the
bank conducted in accordance with
generally accepted auditing standards
by a certified public accounting
firm (may be required by
state chartering authority)
________________
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
6
