<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [_]
[_]Check the appropriate box:
[_]Preliminary proxy statement
[X]Definitive proxy statement
[_]Definitive additional materials
[_]Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
PAYMENTECH, INC.
-------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PAYMENTECH, INC.
-------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of Filing Fee (Check the appropriate box):
[X]No fee required.
[_]Fee computed on table per Exchange Act Rules 14a-6(i)(4) and 0-11.
<PAGE>
[LOGO OF PAYMENTECH APPEARS HERE]
PAYMENTECH, INC.
1601 ELM STREET
DALLAS, TEXAS 75201
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The 1997 Annual Meeting of the Stockholders of Paymentech, Inc. (f/k/a First
USA Paymentech, Inc.) will be held at 1601 Elm Street, 47th Floor, in Dallas,
Texas on Wednesday, December 3, 1997, at 10:00 a.m., Central Standard Time,
for the following purposes:
1. To elect two Class II directors to serve until the expiration of their
terms and until their successors are elected and qualify;
2. To authorize the adoption of an amendment to the Paymentech, Inc. 1996
Amended and Restated Stock Option Plan that would increase the number of
shares of common stock that may be granted under such plan; and
3. To transact whatever other business may properly be brought before the
meeting.
Stockholders of record at the close of business on October 24, 1997 by order
of the Board of Directors are entitled to notice of and to vote at the
meeting.
/s/ Pamela H. Patsley
Pamela H. Patsley
President and Chief Executive
Officer
October 28, 1997
Please mark, sign, date and return promptly the proxy in the enclosed
envelope even if you plan to attend the meeting. If you attend the meeting and
wish to vote in person, you may then withdraw your proxy.
<PAGE>
PAYMENTECH, INC.
1601 ELM STREET
DALLAS, TEXAS 75201
PROXY STATEMENT
Paymentech, Inc. (f/k/a First USA Paymentech, Inc.; the "Company"), is a
Delaware corporation which engages in the credit card industry primarily as a
payment processor of credit and debit card transactions on behalf of
merchants, financial institutions and sales agents, and which, according to
published industry sources, is the third largest payment processor of bankcard
transactions in the United States. The Company also provides third-party
credit and debit authorization services to financial institutions, sales
agents and the Company's direct merchants. In addition, the Company issues
commercial cards to businesses and other entities, which facilitate
centralized business-to-business payment procedures and reporting, replacing
traditional direct payment methods.
This Proxy Statement is furnished in connection with the solicitation by the
Company of proxies to be voted at its Annual Meeting of Stockholders to be
held at 10:00 a.m., Central Standard Time, on Wednesday, December 3, 1997, at
1601 Elm Street, 47th Floor, in Dallas, Texas, and at any adjournment thereof.
This Proxy Statement was first mailed or given to stockholders on October 30,
1997.
Solicitation of proxies may be made by mail, personal interview, telephone
and telegraph by directors, officers and employees of the Company. Expenses
for such solicitation will be borne by the Company. Brokers and others will be
reimbursed for their reasonable expenses in forwarding the proxy material to
their customers who have beneficial interests in stock of the Company
registered in names of nominees.
Any proxy may be revoked by a stockholder at any time prior to its use by
execution of another proxy bearing a later date, by written notice to the
Secretary of the Company at the address set forth above or by oral or written
statement at the meeting. Shares represented by any proxy properly executed
and received prior to the meeting will be voted at the meeting in accordance
with the proxy or, if the proxy does not specify, in accordance with the
recommendation of the Board of Directors.
Stockholders of record at the close of business on October 24, 1997 are
entitled to notice of and to vote at the meeting. On the record date the
Company had 35,353,249 shares of common stock of the Company (the "Common
Stock") outstanding. Each share of Common Stock outstanding on the record date
is entitled to one vote. There is no provision for cumulative voting. Of the
total number of shares outstanding on the record date, 19,979,081 shares (or
approximately 57%) were owned by First USA Financial, Inc. ("First USA
Financial"), a wholly owned subsidiary of BANC ONE CORPORATION ("Banc One").
In June 1997, First USA Financial's former parent, First USA, Inc. ("First
USA") merged with and into Banc One (the "Merger"), with Banc One continuing
as the surviving entity. In the Merger, each share of First USA common stock
was converted into 1.1659 shares of Banc One common stock.
Under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), publicly held corporations are generally precluded from deducting
compensation in excess of $1 million paid to the Chief Executive Officer or
any of the other four most highly compensated executive officers for federal
income tax purposes for a taxable year. Exceptions are made for, among other
things, qualified performance-based compensation. In order to ensure that
compensation paid or deemed paid by the Company to its executive officers will
be treated as qualified performance-based compensation and will, therefore,
not be subject to the limitation of Section 162(m) of the Code, stockholders
are requested to approve an amendment to the Company's 1996 Amended and
Restated Stock Option Plan (the "1996 Option Plan") that would increase the
number of shares of Common Stock that may be granted under the 1996 Option
Plan.
1
<PAGE>
A quorum for the meeting requires the presence in person or by proxy of
stockholders entitled to cast a majority of the votes entitled to be cast at
the meeting. The election of directors requires a plurality of the votes cast
by the holders of Common Stock at the meeting. The approval of the amendment
to the 1996 Option Plan requires the affirmative vote of the holders of a
majority of the voting power of the shares of Common Stock present or
represented and entitled to vote at the meeting; provided that the number of
votes cast on such proposal represents over 50% of the number of votes
entitled to be cast. First USA Financial has informed the Company that it
intends to vote FOR each of the matters described above at the annual meeting.
Stockholders will vote at the meeting by ballot and votes cast at the
meeting in person or by proxy will be tallied by the Company's Transfer Agent
and Registrar, the Bank of New York. Shares held by stockholders present at
the meeting in person who do not vote and ballots marked "abstain" or
"withheld" will be counted as present at the meeting for quorum purposes. With
respect to the items submitted for approval, abstentions will have the effect
of a vote against the proposal and broker non-votes will be disregarded and
will have no effect on the outcome of the vote. There are no rights of
appraisal or similar dissenter's rights with respect to any matter to be acted
upon pursuant to this proxy statement.
2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information believed by the Company
to be accurate based on information provided to it concerning the beneficial
ownership of Common Stock by each stockholder who is known by the Company to
own beneficially in excess of 5% of the outstanding Common Stock as of the
latest practicable date, and by each director, the Company's Chief Executive
Officer, each of the Company's other four most highly compensated executive
officers and all executive officers and directors as a group, as of October 1,
1997. Except as otherwise indicated, all persons listed below have (i) sole
voting power and investment power with respect to their shares, except to the
extent that authority is shared by spouses under applicable law, and (ii)
record and beneficial ownership with respect to their shares. The shares and
percentages set forth below include shares of Common Stock which were
outstanding or issuable within 60 days upon the exercise of options
outstanding as of October 1, 1997.
<TABLE>
<CAPTION>
COMMON STOCK
---------------------
NUMBER OF PERCENTAGE
NAME OF BENEFICIAL OWNER SHARES OF CLASS
------------------------ ---------- ----------
<S> <C> <C>
First USA Financial, Inc.(a)......................... 19,979,081 56.5%
Putnam Investments, Inc.(b).......................... 2,031,359 5.7%
Gene H. Bishop(c)(d)................................. 27,500 *
William P. Boardman(a)(c)............................ -- *
John B. McCoy(a)(c).................................. -- *
Pamela H. Patsley(c)(d).............................. 273,225 *
Rupinder S. Sidhu(c)(d)(e)........................... 27,500 *
John C. Tolleson(c)(d)............................... 255,000 *
Richard W. Vague(c)(d)............................... 250,000 *
James W. Baumgartner(d).............................. 95,923 *
Michael P. Duffy(d).................................. 99,795 *
Philip E. Taken(d)................................... 46,972 *
David W. Truetzel(d)(f).............................. 108,140 *
All executive officers and directors as a group (11
persons)(d)(e)...................................... 1,184,055 3.3%
</TABLE>
- - --------
* Less than 1.0%
(a) First USA Financial is a wholly owned subsidiary of Banc One. The address
of First USA Financial is Three Christina Centre, 201 North Walnut,
Wilmington, Delaware 19801, and the address of Banc One is 100 East Broad
Street, Columbus, Ohio 43271. Although neither Mr. McCoy nor Mr. Boardman
directly owns any shares of Common Stock, Mr. McCoy is Chairman and Chief
Executive Officer of Banc One, and Mr. Boardman is Senior Executive Vice
President of Banc One. Each could therefore be deemed to control the
shares indirectly owned by Banc One. Each of Messrs. McCoy and Boardman
disclaims beneficial ownership of such Banc One shares.
(b) Putnam Investments, Inc. ("PI"), which is a wholly owned subsidiary of
Marsh & McLennan Companies, Inc. ("M&MC"), wholly owns two registered
investment advisers: Putnam Investment Management, Inc., which is the
investment adviser to the Putnam family of mutual funds, and the Putnam
Advisory Company, Inc., which is the investment adviser to Putnam's
institutional clients. The address of PI is One Post Office Square,
Boston, Massachusetts 02109. Both subsidiaries have dispository power over
the shares as investment managers, but each of the mutual fund trustees
has voting power over the shares held by each fund, and the Putnam
Advisory Company, Inc. has shared voting power over the shares held by the
institutional clients. M&MC and PI have no power to vote or dispose of, or
direct the voting or disposition of, any such securities.
(c) Gene H. Bishop, William P. Boardman, John B. McCoy, Pamela H. Patsley,
Rupinder S. Sidhu, John C. Tolleson and Richard W. Vague are directors of
the Company.
(d) The shares include shares subject to options exercisable within 60 days of
October 1, 1997 as follows: Mr. Bishop, 7,500 shares; Ms. Patsley, 80,000
shares; Mr. Sidhu, 7,500 shares; Mr. Tolleson, 55,000 shares; Mr. Vague,
50,000 shares; Mr. Baumgartner, 51,000 shares; Mr. Duffy, 56,000 shares;
Mr. Taken, 16,000
3
<PAGE>
shares; Mr. Truetzel, 68,500 shares; all executive officers and directors as
a group, 391,500 shares. The address for Messrs. Bishop, Sidhu, Tolleson,
Duffy, Taken and Truetzel and Ms. Patsley is c/o Paymentech, Inc., 1601 Elm
Street, Dallas, Texas 75201. The address for Messrs. Boardman and McCoy is
BANC ONE CORPORATION, 100 East Broad Street, Columbus, Ohio 43271. The
address for Mr. Vague is c/o First USA Bank, Three Christina Centre, 201
North Walnut, Wilmington, Delaware 19801. The address for Mr. Baumgartner is
c/o First USA Financial Services, Inc., 3995 So. 700 E., Suite 400, Salt
Lake City, Utah 84107.
(e) The shares exclude 50,000 shares held by a limited partnership, for which
Mr. Sidhu is the President of the general partner, a limited liability
company. Mr. Sidhu disclaims beneficial ownership of such shares.
(f) Mr. Truetzel resigned his positions with the Company as of September 30,
1997. The shares listed do not include shares of restricted stock and
option grants which were forfeited as a result of Mr. Truetzel's
resignation.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors and
persons who own more than ten percent (10%) of a registered class of the
Company's equity securities (collectively, the "Reporting Persons") to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission (the "Commission") and to furnish the Company with copies of these
reports. The Company believes that all filings required to be made by the
Reporting Persons during the fiscal year ended June 30, 1997 were made on a
timely basis, except for a late reporting on Form 5 of a transaction by Jeff
Connelly in April 1997.
4
<PAGE>
ELECTION OF DIRECTORS
The Board of Directors has proposed Gene H. Bishop and Ronald G. Steinhart
as nominees for reelection as Class II directors to serve for three-year terms
and until their successors are elected and qualify. Richard W. Vague, whose
current term as Director expires at the 1997 annual meeting of stockholders,
has advised the Company that he does not wish to seek reelection to the Board
of Directors. A plurality of the votes cast at the meeting is required to
elect each nominee. Shares represented by proxies will be voted for the
election of the nominees named below unless authority to do so is withheld.
If, at the time of the annual meeting, any nominee should be unable to serve,
the shares represented by a proxy may be voted for a substitute nominee to be
designated by the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Gene H. Bishop.................................................. 67 Director
Ronald G. Steinhart............................................. 54 Director
</TABLE>
Gene H. Bishop. Mr. Bishop has been a Director of the Company since December
1995. Mr. Bishop served as Chairman and Chief Executive Officer of Life
Partners Group, Inc. from November 1991 until October 1994. From October 1990
until November 1991, he was Vice Chairman and Chief Financial Officer of Lomas
Financial Corporation and President and Chief Operating Officer of Lomas
Mortgage USA, a wholly owned subsidiary of Lomas Financial Corporation. From
March 1975 to July 1990, he was Chairman and Chief Executive Officer of MCorp,
a bank holding company. Mr. Bishop is also a Director of Southwest Airlines
Co., Liberte Investors, Southwestern Public Service Co. and Drew Industries,
Inc.
Ronald G. Steinhart. Mr. Steinhart has been Chairman and Chief Executive
Officer of Banc One's Commercial Banking Group since December 1996, and was
appointed Chairman and Chief Executive Officer of Bank One, Texas, N.A. in
January 1995. From November 1992 through December 1994, Mr. Steinhart served
as President and Chief Operating Officer of Bank One, Texas, N.A. From
February 1988 through November 1992, Mr. Steinhart served as Chairman and
Chief Executive Officer of Team Bancshares, Inc., which merged with Bank One,
Texas, N.A. in November 1992. Mr. Steinhart also serves as Trustee of Prentiss
Properties Trust.
A plurality of the votes cast by the holders of Common Stock at the meeting
will be required to reelect the nominees as Class II directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE FOR CLASS II
DIRECTOR.
5
<PAGE>
INCUMBENT DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William P. Boardman...... 55 Director
John B. McCoy............ 54 Director
Pamela H. Patsley........ 40 President, Chief Executive Officer and Director
Rupinder S. Sidhu........ 41 Director
John C. Tolleson......... 49 Chairman of the Board
</TABLE>
William P. Boardman. Mr. Boardman has been a Director of the Company since
June 1997. Mr. Boardman has served as Senior Executive Vice President of Banc
One since 1984. Mr. Boardman is also a Director of Checkfree Corporation, Visa
USA, Inc. and Electronic Payment Services, Inc.
John B. McCoy. Mr. McCoy has been a Director of the Company since June 1997.
Mr. McCoy has served as Chairman and Chief Executive Officer of Banc One since
January 1987. From January 1983 to January 1987, Mr. McCoy served as President
of Banc One. Mr. McCoy is also a Director of Cardinal Health, Inc., Ameritech
Corporation, Federal Home Loan Mortgage Corporation and Tenneco, Inc.
Pamela H. Patsley. Ms. Patsley has been President, Chief Executive Officer
and a Director of the Company since December 1995. She has also served as
President and Chief Executive Officer of Paymentech Merchant Services, Inc.,
the Company's payment processing subsidiary, since December 1991 and as
Chairman of the Board of First USA Financial Services, Inc., the Company's
commercial card subsidiary, since August 1994. Ms. Patsley also served as
Executive Vice President and Secretary of First USA from July 1989 until June
1997, and as Chief Financial Officer from January 1987 to April 1994. Ms.
Patsley is also a Director of First Virtual Holdings, Inc. ("First Virtual"),
Adolph Coors Company and Coors Brewing Company.
Rupinder S. Sidhu. Mr. Sidhu has been a Director of the Company since
December 1995. Mr. Sidhu has been President of Merion Capital Management LLC,
a private investment company, since 1994. From 1993 to 1994, Mr. Sidhu was a
Partner of Stonington Partners, Inc. (formerly known as First Capital
Partners, Inc.), a private investment firm. Mr. Sidhu has been a member of the
Board of Directors of Merrill Lynch Capital Partners, Inc., a private
investment firm affiliated with Merrill Lynch & Co., since 1987. He is also a
Director of CMI Industries, Inc.
John C. Tolleson. Mr. Tolleson has been Chairman of the Board of the Company
since December 1995. Mr. Tolleson also served as Chairman of the Board and
Chief Executive Officer of First USA from August 1989 until June 1997, and of
First USA's predecessor since its formation in May 1985. Mr. Tolleson also
currently serves on the Boards of Banc One, Visa USA, Inc., Visa
International, Inc., VIAD Corporation and Capstead Mortgage Corporation and on
the Executive Board of the Cox School of Business at Southern Methodist
University.
The Board of Directors of the Company is divided into three classes serving
staggered three-year terms. Directors for each class will be elected at the
annual meeting of stockholders held in the year in which the term for such
class expires, and will serve for three years. The term of Gene H. Bishop will
expire at the 1997 annual meeting and, if reelected, at the 2000 annual
meeting; the term of Ronald G. Steinhart, if elected, will expire at the 2000
annual meeting; the terms of William P. Boardman and John B. McCoy will expire
at the 1998 annual meeting; the terms of Pamela H. Patsley, Rupinder S. Sidhu
and John C. Tolleson will expire at the 1999 annual meeting; and the term of
Richard W. Vague will expire at the 1997 annual meeting. The Board of
Directors held 6 meetings during the last fiscal year and each of the
Company's Directors attended at least 75% of such meetings. Messrs. Bishop,
Sidhu and Tolleson serve on the Company's Compensation Committee (the
"Compensation Committee") and Audit Committee (the "Audit Committee"). The
Company has no nominating committee.
6
<PAGE>
The Audit Committee reviews and evaluates the Company's internal accounting
and auditing procedures, recommends to the Board of Directors the firm to be
appointed as independent accountants to audit the Company's financial
statements, reviews with management and the independent accountants the
Company's year-end and quarterly operating results, and reviews the scope and
results of the audit with the independent accountants. The Audit Committee met
4 times in fiscal 1997.
The Compensation Committee reviews compensation arrangements for executive
officers. The Compensation Committee also administers the Company's stock
option and restricted stock plans, and except with respect to grants of
options to outside directors, has full authority to determine the persons to
whom and the times at which options shall be granted, the number of option
shares to be granted and the price and other terms of options, except that the
Compensation Committee has granted to the Chief Executive Officer the
authority to grant during any fiscal quarter up to an aggregate of 25,000
options and 10,000 shares of restricted stock to employees who are not
"officers" within the meaning of Section 16 of the Exchange Act, in order to
attract and retain employees and for promotions. The Compensation Committee
met 2 times in fiscal 1997.
7
<PAGE>
EXECUTIVE COMPENSATION
The following tables set forth certain information concerning compensation
of, and stock options and restricted stock granted to, the Company's Chief
Executive Officer and the other four most highly paid officers in respect of
fiscal 1997, 1996 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------------------------------------- ----------------------------------
NUMBER OF
RESTRICTED OTHER RESTRICTED SECURITIES
FISCAL CASH STOCK ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) BONUS (2) COMPENSATION (3) AWARDS(4) OPTIONS(5) COMPENSATION
- - --------------------------- ------ -------- --------- ---------- ---------------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pamela H. Patsley....... 1997 $315,000 -- $379,805 -- $868,125 230,000 $ 3,719(6)
President and CEO 1996 280,000 $300,000 -- -- 550,000 275,000 3,388(7)
1995 225,000 168,750 -- -- 443,750 25,000 3,617(7)
James W. Baumgartner
(8).................... 1997 195,000 -- 176,027 $70,867 434,063 50,000 683,916(6)(9)
President of Financial 1996 26,591 30,000 -- -- -- 80,000 35,000(10)
Services
Michael P. Duffy (8).... 1997 146,375 -- 154,324 -- 434,063 50,000 588,100(6)(9)
Chief Operating Officer 1996 130,000 100,000 -- -- -- 80,000 1,013(6)
Philip E. Taken......... 1997 135,146 -- 140,173 -- 434,063 50,000 196,838(6)(9)
Chief Administrative 1996 118,958 50,000 -- -- -- 30,000 1,656(6)
Officer and General 1995 94,583 42,000 -- -- 110,938 10,000 1,425(6)
Counsel
David W. Truetzel (8)... 1997 178,146 -- 161,558 36,589 434,063 50,000 685,000(6)(9)
Chief Financial Officer 1996 92,083 85,000 -- -- 139,125 109,500 125,000(10)
and Secretary
</TABLE>
- - --------
(1) Bonuses for fiscal 1996 were approved by the Compensation Committee of
the Board of Directors of the Company on July 16, 1996 and paid in cash
on July 31, 1996. Bonuses for fiscal 1995 were approved by the Board of
Directors of First USA on July 19, 1995 and paid in cash on July 31,
1995. The 1996 amount for Mr. Duffy represents bonus payments made during
fiscal 1996 to Mr. Duffy with respect to the period from January 1, 1995
through June 30, 1996.
(2) Bonuses for fiscal 1997 were approved by the Compensation Committee of
the Board of Directors of the Company on July 17, 1997. Bonuses were paid
in the form of restricted stock to each of the named executive officers.
The values provided in the table above for fiscal 1997 are based upon the
closing price of $28.9375 of the Common Stock on the last trading day of
fiscal 1997. The restricted stock grants specified in this column vest
with respect to one third of the shares granted on each of the first and
second anniversaries of the date of grant, and with respect to the
remaining shares on the third anniversary of the date of grant. The
number of shares of restricted stock awarded to the named executive
officers as bonuses with respect to fiscal 1997 was as follows: Ms.
Patsley, 13,125 shares; Mr. Baumgartner, 6,083 shares; Mr. Duffy, 5,333
shares; Mr. Taken 4,844 shares; Mr. Truetzel, 5,583 shares.
(3) The amount for Mr. Baumgartner for fiscal 1997 includes $56,851 for
relocation expenses. The amount for Mr. Truetzel includes $19,300 for
relocation expenses and $9,900 for an automobile lease allowance. Where
no amount is stated, the aggregate value of Other Annual Compensation did
not exceed the lesser of $50,000 or 10% of such executive officer's
annual salary and bonus.
(4) Awards of restricted Common Stock were made to the named executive
officers in June 1997 in connection with the Merger. The Merger caused
nearly all restricted stock and option grants previously made to the
Company's named executive officers to vest, and thus management generally
no longer had unvested restricted stock and option grants. The Merger
also created an environment of greater uncertainty among management.
Accordingly, the Company made one-time grants to encourage the retention
of the Company's key management personnel following the Merger. The
values shown for restricted stock awards granted in fiscal 1997 are
calculated by multiplying the number of shares granted by $28.9375, the
closing price of the Common Stock on the date of grant.
No awards of restricted Common Stock were issued to the named executive
officers with respect to fiscal 1996. The amount for Ms. Patsley
represents 10,000 shares of restricted First USA common stock awarded
8
<PAGE>
to Ms. Patsley in July 1996, and the amount for Mr. Truetzel represents
3,000 shares of restricted First USA common stock awarded to Mr. Truetzel
in December 1995 in connection with commencement of his employment with
the Company. Such dollar amounts are based upon the closing prices of
$55.00 and $46.375 of First USA common stock on the last trading day of
fiscal 1996 and the date of grant, respectively. Awards of First USA
restricted stock for fiscal 1995 were approved by the Compensation
Committee of the Board of Directors of First USA on July 19, 1995. The
awards were made in recognition of the Company's and First USA's
performance and as incentive for future performance. The values shown for
restricted stock awards granted in fiscal 1995 are shown by multiplying
the number of shares granted by $44.375, the closing price of First USA's
common stock on the last trading day of fiscal 1995. Except as set forth
below, the number and value of shares of restricted Common Stock held by
the named executive officers on the last day of fiscal 1997 (including
shares of restricted stock paid as bonuses to the named executive officers
in fiscal 1997) were: Ms. Patsley, 43,125 shares, $1,247,930; Mr.
Baumgartner, 21,083 shares, $610,089; Mr. Duffy, 20,333 shares, $588,386;
Mr. Taken, 19,844 shares, $574,236; Mr. Truetzel, 20,583 shares, $595,621.
Such dollar amounts were based upon the closing price of $28.9375 for the
Common Stock on the last trading day of fiscal 1997. Upon closing of the
Merger all shares of restricted stock of First USA awarded prior to June
27, 1997 vested.
(5) Annual stock option grants for fiscal 1997 were approved by the
Compensation Committee of the Board of Directors of the Company on July
17, 1997. The Company also made special stock option grants in June 1997
in connection with the Merger to encourage the retention of the Company's
key management personnel following the Merger. Fiscal 1997 amounts
represent the number of options to purchase Common Stock granted to the
named executive officers as follows: Ms. Patsley, 50,000 annual award
shares and 180,000 Merger shares; Mr. Baumgartner, 30,000 annual award
shares and 20,000 Merger shares; Mr. Duffy, 30,000 annual award shares
and 20,000 Merger shares; Mr. Taken, 30,000 annual award shares and
20,000 Merger shares; and Mr. Truetzel, 30,000 annual award shares and
20,000 Merger shares.
Annual stock option grants for fiscal 1996 were approved by the
Compensation Committee of the Board of Directors of the Company on July
16, 1996. During fiscal 1996 the Company also made special stock option
grants and special grants pursuant to the Company's stock loan program in
connection with the March 1996 initial public offering of the Common Stock
(the "Initial Public Offering"). The numbers of shares representing
options for Messrs. Taken and Truetzel for fiscal 1996 include: Mr. Taken,
20,000 special grant shares in connection with the Initial Public Offering
and 10,000 shares of First USA common stock; and Mr. Truetzel, 67,500
special grant shares in connection with the Initial Public Offering,
30,000 annual award shares and 12,000 shares of First USA common stock
granted in connection with the commencement of his employment with the
company.
Fiscal 1995 amounts represent the number of options to purchase First USA
common stock. Such stock option grants were approved by the Compensation
Committee of the Board of Directors of First USA on July 19, 1995. The
awards were made in recognition of the Company's performance and as
incentive for future performance.
(6) Amounts for fiscal 1997 reflect employer matching contributions to the
Company's Retirement Savings Plan ("RSP") in the following amounts: Ms.
Patsley, $3,719; Mr. Baumgartner, $366; Mr. Duffy, $2,200; Mr. Taken,
$1,538, and Mr. Truetzel $1,450. Amounts for fiscal 1996 and 1995
represent employer matching contributions to the RSP.
(7) The amounts represent employer matching contributions to the Company's
Savings Restoration Plan.
(8) Mr. Baumgartner joined the Company in June 1996, Mr. Duffy joined the
Company in September 1995 and Mr. Truetzel joined the company in December
1995. Accordingly, no fiscal 1995 compensation is provided with respect
to these individuals. Mr. Duffy was with Litle & Company, Inc., which was
acquired by the Company in September 1995, prior to joining the Company.
Mr. Truetzel resigned his positions with the Company as of September 30,
1997.
(9) Reflects forgiveness, as a result of the Merger, of loans made by First
USA Financial in connection with the Company's stock loan program in the
following amounts: Mr. Baumgartner $683,550; Mr. Duffy, $585,900; Mr.
Taken, $195,300 and Mr. Truetzel, $683,550.
(10) The amounts represent signing bonuses paid to Mr. Baumgartner and Mr.
Truetzel upon joining the Company.
9
<PAGE>
OPTION GRANTS
The following table sets forth information concerning stock option grants
made with respect to fiscal 1997 to the named executive officers to purchase
Common Stock.
OPTION GRANTS WITH RESPECT TO LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(2)
NUMBER OF --------------------------------- ------------------------
SECURITIES % OF TOTAL
UNDERLYING OPTIONS EXERCISE
OPTIONS GRANTED TO PRICE PER EXPIRATION
GRANTED EMPLOYEES(1) SHARE DATE 5% 10%
---------- ------------ --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Pamela H. Patsley....... 50,000(3) 6.17% $ 29.00 7/17/07 $ 911,897 $ 2,310,927
180,000(4) 39.91% 28.9375 6/30/07 3,275,755 8,310,406
James W. Baumgartner.... 30,000(3) 3.70% 29.00 7/17/07 547,138 1,386,556
20,000(4) 4.43% 28.9375 6/30/07 363,973 922,378
Michael P. Duffy........ 30,000(3) 3.70% 29.00 7/17/07 547,138 1,386,556
20,000(4) 4.43% 28.9375 6/30/07 363,973 922,378
Philip E. Taken......... 30,000(3) 3.70% 29.00 7/17/07 547,138 1,386,556
20,000(4) 4.43% 28.9375 6/30/07 363,973 922,378
David W. Truetzel (5)... 30,000(3) 3.70% 29.00 7/17/07 547,138 1,386,556
20,000(4) 4.43% 28.9375 6/30/07 363,973 922,378
</TABLE>
- - --------
(1) Represents percentage of total options granted to employees of the Company
with respect to each grant.
(2) The dollar amounts under these columns are the result of calculations at
5% and 10% compounded annual rates set by the Commission, and therefore
are not intended to forecast future appreciation, if any, in the price of
Common Stock. Such amounts are calculated based upon the exercise price
for each option granted. The potential realizable values illustrated at 5%
and 10% compound annual appreciation of the options which expire on July
17, 2007 assume that the price of the Common Stock increases to $47.24 and
$75.22 per share, respectively, over the 10-year term of the options; and
the potential realizable values illustrated at 5% and 10% compound annual
appreciation of the options which expire on June 30, 2007 assume that the
price of the Common Stock increases to $47.14 and $75.06 per share,
respectively, over the 10-year term of the options.
(3) Represents annual option grants, which options vest in increments of 20%
on the date of grant and each anniversary of the date of grant, or
earlier, in the event of a change in control of the Company.
(4) Represents special option grants made in connection with the Merger, which
options vest on December 31, 2000, or earlier, in the event of a change in
control of the Company. These one-time grants were made to encourage the
retention of key management employees following the Merger.
(5) As a result of Mr. Truetzel's resignation effective September 30, 1997,
Mr. Truetzel's unexercisable options were forfeited.
10
<PAGE>
EXERCISE OF OPTIONS
The following table sets forth information concerning the exercise of stock
options to purchase Common Stock by the named executive officers during fiscal
1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUE COMMON STOCK
<TABLE>
<CAPTION>
VALUE REALIZED NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES (MARKET PRICE OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
ACQUIRED AT EXERCISE YEAR END FISCAL YEAR END(1)
ON LESS EXERCISE ------------------------- -------------------------
NAME EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Pamela H. Patsley....... -- -- 65,000 340,000 $376,300 $564,450
James W. Baumgartner.... -- -- 51,000 44,000 -- --
Michael P. Duffy........ -- -- 56,000 44,000 235,188 --
Philip E. Taken......... -- -- 16,000 44,000 94,075 --
David W. Truetzel....... -- -- 68,500 44,000(2) 305,744 --
</TABLE>
- - --------
(1) Calculated on the basis of the closing sale price per share for the Common
Stock on the New York Stock Exchange of $28.9375 on the last trading day
of fiscal 1997.
(2) Effective as of September 30, 1997, Mr. Truetzel's unexercisable options
were forfeited.
Prior to the Company's initial public offering in March 1996, awards of
options to purchase First USA common stock were made to officers as
recognition for the Company's and First USA's performance. The following table
sets forth information concerning the exercise of stock options to purchase
First USA common stock by the named executive officers during fiscal 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUE--FIRST USA COMMON STOCK
<TABLE>
<CAPTION>
VALUE REALIZED NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES (MARKET PRICE OPTIONS AT FISCAL IN-THE-MONEY
ACQUIRED AT EXERCISE YEAR END OPTIONS AT FISCAL YEAR END(1)
ON LESS EXERCISE ------------------------- ----------------------------------
NAME EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------------- ----------- ------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Pamela H. Patsley....... 37,308 $ 942,890 402,226 -- $ 16,510,712 --
James W. Baumgartner.... -- -- -- -- -- --
Michael P. Duffy........ -- -- -- -- -- --
Philip E. Taken......... 69,955 1,827,436 -- -- -- --
David W. Truetzel....... -- -- 27,982 -- 799,096 --
</TABLE>
- - --------
(1) Calculated on the basis of the closing sale price per share for Banc One
common stock (into which the First USA common stock was converted upon
consummation of the Merger) on the New York Stock Exchange of $48.4375 on
June 30, 1997.
PENSION PLANS
Pension Plan
The Company has a noncontributory, tax-qualified defined benefit, "cash
balance" retirement plan (the "Pension Plan") that provides retirement
benefits for eligible employees of the Company. Each participant's cash
balance account is credited with an amount equal to 4% of the participant's
compensation plus interest. Each participant becomes fully vested in benefits
under the Pension Plan after five years of employment with the
11
<PAGE>
Company. Prior to that time, no portion of a participant's benefit is vested.
Benefit may be paid under the Pension Plan, subject to limitations and
conditions imposed by the Code, upon a participant's termination of
employment, retirement (early, normal or late) or death. The Pension Plan
specifies various options that participants may select for the distribution of
their accrued balance, including forms of annuity payments and lump sum
distributions. The Pension Plan does not permit loans or in-service
withdrawals by participants. Contributions to the Pension Plan will be
actuarially determined and therefore cannot be attributed to individual
participants. As of July 1, 1997, the estimated annual benefit payable under
the Pension Plan to the named executive officers upon normal retirement age
(assuming the executive continues to work to age 65 at the same rate of
compensation as received for the previous 12 months) for Ms. Patsley, Mr.
Baumgartner, Mr. Duffy, Mr. Taken and Mr. Truetzel was $65,666, $44,101,
$42,079, $65,491 and $37,136, respectively.
First USA Supplemental Executive Retirement Plan
Eligible employees of the Company also receive benefits under the Company's
Supplemental Executive Retirement Plan (the "SERP"), which operates in
conjunction with the Pension Plan to provide eligible employees with benefits
that cannot be provided under the terms and conditions of the Pension Plan due
to Code limitations on the amount of compensation that may be considered under
the Pension Plan and Code limitations on the annual benefits that may be
provided under the Pension Plan. Contributions to the SERP will be actuarially
determined and therefore cannot be attributed to individual participants. As
of July 1, 1997, the estimated annual benefit payable upon normal retirement
age (assuming the executive continues to work to age 65 at the same rate of
compensation as received for the previous 12 months) for Ms. Patsley, Mr.
Baumgartner, Mr. Duffy, Mr. Taken and Mr. Truetzel was $125,621, $21,542,
$12,123, $16,060 and $26,004, respectively.
EMPLOYMENT AGREEMENTS
On June 27, 1997, the Company entered into employment agreements with each
of the named executive officers (the "Employment Agreements"). The material
provisions of the Employment Agreements are substantially similar. Annual base
salary under the Employment Agreement is payable at a rate which is at least
equal to or greater than twelve times the highest monthly base salary paid or
payable, in respect of the immediately preceding twelve-month period. Each
named executive officer is also entitled to receive an annual bonus consistent
with Past Practices (as such term is defined in the Employment Agreements). In
addition, each named executive officer is entitled to participate in all
annual and long-term incentive plans consistent with Past Practices. The
Employment Agreements also provide for certain fringe benefits. If a named
executive officer is terminated for Cause or resigns without Good Reason (as
such terms are defined in the Employment Agreements), the Company is not
obligated to continue base salary or bonus payments (except such amounts as
were incurred prior to termination). As consideration for entering into the
Employment Agreements, the named executive officers have agreed not to
disclose confidential information and not to compete with the Company during
the terms of the Employment Agreements, and in certain cases, for the one-year
period following termination. The term of the Employment Agreements is two
years. Mr. Truetzel's Employment Agreement was terminated effective September
30, 1997.
COMPENSATION OF OUTSIDE DIRECTORS
Members of the Company's Board of Directors who are not employees of the
Company, a parent company or their respective direct and indirect subsidiaries
receive cash compensation as follows: a $20,000 annual retainer and $1,000 for
each Board meeting attended and $500 for each committee meeting attended
(chairpersons receive $1,000 per committee meeting). In addition, such members
of the Board of Directors also receive an option to purchase 5,000 shares of
Common Stock on the date they become a director and annual grants of options
to purchase 2,500 shares of Common Stock under the 1996 Option Plan.
12
<PAGE>
COMPENSATION COMMITTEE REPORT
The following report is submitted by the Compensation Committee of the Board
of Directors (the "Compensation Committee"). Each member of the Compensation
Committee is a non-employee director. The Compensation Committee is
responsible for establishing the strategic objectives and guidelines for the
Company's executive compensation program. The Compensation Committee firmly
believes that the Company's executive officers directly impact the Company's
performance and the resulting impact on shareholder value, and such officers
should be rewarded in a manner consistent with the Company's financial and
non-financial results.
EXECUTIVE COMPENSATION PHILOSOPHY
The Company's executive compensation program has been designed to provide
compensation that is linked to the performance of the Company, recognize
achievement of annual and long-term goals, reward exceptional performance, and
help attract and retain qualified executives. Consistent with this philosophy,
the executive compensation program provides annual cash compensation through
base salary, an annual award component consisting of restricted stock, and an
additional long-term equity component through stock options. The program
supports a performance-oriented environment and focus on shareholder value by
providing equity-based incentive compensation that rewards financial
performance of the Company and management performance in support of strategic
objectives.
The Compensation Committee determines annual salaries, stock awards and
option grants for executive officers. Salaries are based primarily on
experience, responsibility, and individual performance. Annual Restricted
Stock grants are determined pursuant to the Company's Annual Incentive Plan
(the "Annual Incentive Plan"). Option grants are oriented toward the
achievement of increasing shareholder value over the long term.
ONE-TIME GRANT
On June 27, 1997, the Company's majority shareholder, First USA merged with
and into Banc One. This change in control caused nearly all previous option
grants by the Company to vest and caused the forgiveness of all stock loans to
management made in connection with the Company's initial public offering in
March 1996. Thus, management no longer had unvested option grants or
outstanding stock loans. Furthermore, the Merger created an environment of
greater uncertainty among the management. As a result, the Compensation
Committee made a one-time grant of restricted stock awards and option grants
to the Company's senior management, primarily to encourage the retention of
the Company's key management personnel.
BASE SALARY
The Compensation Committee establishes base salaries each year at a level
intended to be comparable to similarly-situated companies. In addition to the
competitive market range, many factors are considered in determining actual
base salaries, including the duties and responsibilities assumed by the
executive, the scope of the executive's position, length of service,
individual performance, internal equity considerations and special expertise
beneficial to the Company. The Compensation Committee also reviews the success
of the management team in areas of performance that are not easily captured
through accounting measures, such as business strategies and introductions of
new products and services.
ANNUAL INCENTIVE COMPENSATION
One of the Compensation Committee's priorities is for executive officers to
be stockholders so that their interests are aligned with the interests of the
Company's other stockholders. The Compensation Committee continues to believe
that this strategy motivates executives to remain focused on the overall long-
term performance of the Company. The Company pursues these objectives through
grants of restricted stock and options. Restricted stock awards are granted
under the Restricted Stock Plan pursuant to the Annual Incentive Plan.
13
<PAGE>
The Annual Incentive Plan is intended to provide incentives to achieve
financial and individual objectives, and to reward exceptional performance.
Under the Annual Incentive Plan, executive officers are eligible to receive
restricted stock awards based on the extent to which aggressive earnings goals
are attained during the fiscal year. If earnings goals are not achieved,
awards are not paid to the executive officer group. The Compensation Committee
establishes the individual award opportunities at levels intended to be
comparable to similarly-situated companies. The Compensation Committee also
makes an assessment of performance by considering such factors as the economic
environment, performance comparisons against competitors, the quality of
earnings, the balance between short- and long-term objectives and the
stability of the Company. For fiscal 1997, the Company met its goals for the
performance year and the Compensation Committee believed it was important to
grant the executive officers annual awards near or at the maximum individual
award opportunity levels.
OPTION GRANTS
Stock options are granted under the 1996 Option Plan in order to further
align the executive officers with shareholders and to motivate such officers
to remain focused on the long-term success of the Company.
Under the 1996 Option Plan, stock options may be granted to executive
officers with an exercise price equal to the fair market value of the Common
Stock on the date of the grant. If there is no appreciation in the Common
Stock, the option holders receive no benefit from the stock options. Such
stock options are generally exercisable between the date on which such options
vest and ten years from the date granted. Stock options are normally granted
annually to the executive officer group as well as employees at various levels
within the Company.
CHIEF EXECUTIVE OFFICER COMPENSATION
During fiscal 1997, the Company's most highly compensated executive officer
was Pamela H. Patsley, President and Chief Executive Officer. Ms. Patsley
participates in the same executive compensation program provided to the other
executive officers as described above. The Compensation Committee's approach
to establishing Ms. Patsley's compensation is to be competitive with
comparable companies and to have a major and significant portion of her
compensation depend on the achievement of financial and non-financial
performance criteria. All compensation actions relating to Ms. Patsley are
subject to the approval of the Board of Directors. Those actions which are
described in this report have been approved.
Ms. Patsley received 180,000 stock options at the time of the Merger and
30,000 shares of restricted stock as part of the one-time grant described
above. Following the Merger, nearly all previous option and restricted stock
grants vested, and the Company made one-time grants to encourage the retention
of its key management, including Ms. Patsley. Ms. Patsley's base salary for
fiscal 1997 was $315,000. Ms. Patsley's annual base salary was increased to
$330,750 for fiscal 1998, a 5% increase from her former base salary. Based on
the Compensation Committee's review of the salaries of other chief executive
officers of similarly situated organizations or competitor companies, the
Compensation Committee recognized that Ms. Patsley's base salary should be
increased. The Compensation Committee believes that Ms. Patsley's annual stock
award is appropriate given the Company's performance and earnings growth. In
connection with the Compensation Committee's compensation philosophy, a total
of 50,000 stock options and 13,125 shares of restricted stock were granted Ms.
Patsley in July 1997. Ms. Patsley received no cash bonus in fiscal 1997.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Code generally precludes a publicly held corporation
from a federal income tax deduction for a taxable year for compensation in
excess of $1 million paid to the chief executive officer or any of the four
most highly compensated other executive officers. Exceptions are made for,
among other things, qualified performance-based compensation. Qualified
performance-based compensation means compensation paid solely on account of
attainment of objective performance goals, provided that (i) performance goals
are established by a compensation committee consisting solely of two or more
outside directors, (ii) the material
14
<PAGE>
terms of the performance-based compensation are disclosed to and approved by a
separate stockholder vote prior to payment, and (iii) prior to payment, the
compensation committee certifies that the performance goals were attained and
other material terms were satisfied.
The 1996 Option Plan and Restricted Stock Plan are designed to be fully
deductible for income tax purposes and are in compliance with Section 162(m)
of the Code.
CONCLUSION
The Compensation Committee believes the mix of market-based salaries,
competitive variable stock awards and the potential for option grants for
long-term performance represents an appropriate balance of total compensation.
This balanced executive compensation program provides a competitive and
motivational compensation package to the executive officer team required to
produce the results the Company has historically achieved and strives to
achieve in the future. The Compensation Committee further believes that the
executive compensation program strikes an appropriate balance between the
interest of the stockholders, the needs of the Company in operating its
business and the executive team.
The Compensation Committee
Rupinder S. Sidhu, Chairman
Gene H. Bishop
John C. Tolleson
15
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1997, Messrs. Sidhu and Bishop served as members of the
Compensation Committee. Effective as of June 27, 1997, Mr. Tolleson also serves
as a member of the Compensation Committee. No member of the Committee is an
employee, officer, or former officer of the Company, and no member had a
relationship with the Company during fiscal year 1997 requiring disclosure
under Item 404 of Regulation S-K. No relationship existed during fiscal year
1997 that constituted a "Compensation Committee Interlock" within the meaning
of Item 402(j) of Regulation S-K.
STOCK PERFORMANCE GRAPH
The following chart compares the total stockholder return (stock price growth
plus dividends) on the Common Stock from March 22, 1996 through June 30, 1997
with the total stockholder return for the same period of the S&P 500 Index and
the S&P Computer Software and Services Index. The graph assumes that the value
of the investment in the Common Stock and each index was $100 on March 22, 1996
and that all dividends were reinvested. The Company notes that the Initial
Public Offering occurred on March 22, 1996 and that the initial offering price
of $21.00 was used as the beginning price for the Company's stock price on the
performance graph. The Company also notes that the initial offering price of
$21.00 is different from the Company's initial trading price of $32.50.
COMPARISON OF CUMULATIVE TOTAL RETURN
[STOCK PERFORMANCE GRAPH APPEARS HERE]
COMPARISON OF CUMULATIVE TOTAL RETURN
OF COMPANY, INDUSTRY INDEX AND BROAD MARKET
<TABLE>
<CAPTION>
FIRST
Measurement Period USA INDUSTRY BROAD
(Fiscal Year Covered) PAYMENTECH INC INDEX MARKET
- - --------------------- --------------- --------- ----------
<S> <C> <C> <C>
Measurement Pt-03/22/1996 $100.00 $100.00 $100.00
FYE 06/30/1996 $190.48 $112.60 $104.49
FYE 06/30/1997 $137.81 $187.11 $140.74
</TABLE>
On June 30, 1997, the total stockholder return on the Common Stock had
increased from March 22, 1996 (using the initial offering price of $21.00) by
37.81%, compared with increases in the total returns on the S&P 500 Index and
the S&P Computer Software and Services Index of 40.74% and 87.11%,
respectively.
16
<PAGE>
ADOPTION OF AN AMENDMENT TO
THE FIRST USA PAYMENTECH, INC.
1996 AMENDED AND RESTATED STOCK OPTION PLAN
The Board of Directors proposes and recommends that the stockholders approve
an amendment to the 1996 Option Plan, increasing by 2,500,000 the number of
shares of the Common Stock reserved for issuance under the 1996 Option Plan.
The Board of Directors believes that this amendment is necessary to meet the
Company's objectives of attracting, motivating and retaining officers and key
employees and increasing officers' and key employees' alignment of interests
with the Company's stockholders, while ensuring that no compensation payable
under the 1996 Option Plan fails to be deductible to the Company by reason of
Section 162(m) of the Code. The affirmative vote of a majority of the voting
power of the shares of Common Stock present or represented and entitled to
vote at the meeting will be required to approve the proposal; provided that
the total number of votes cast on such proposal represents over 50% of the
number of votes entitled to be cast.
As of October 1, 1997, only 738,850 shares remained available for issuance
under the 1996 Option Plan. The Board of Directors believes that the proposed
increase in the number of shares available for issuance under the 1996 Option
Plan is necessary in order to continue the effectiveness of the 1996 Option
Plan in attracting, motivating and retaining officers and key employees with
appropriate experience and ability, and to increase the grantees' alignment of
interest with the Company's stockholders.
The terms of the 1996 Option Plan are summarized below. This summary is
subject to the terms of the 1996 Option Plan, filed as Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1997.
1996 OPTION PLAN
A maximum of 4,000,000 shares of Common Stock has been reserved for issuance
under the 1996 Option Plan, subject to equitable adjustment upon the
occurrence of any increase in, decrease in or exchange of outstanding shares
of Common Stock through merger, consolidation, recapitalization,
reclassification, stock split, stock dividend or similar corporate
transaction. Currently approximately 375 employees of the Company are eligible
for and have received stock option awards.
The 1996 Option Plan is administered by the Compensation Committee, the
composition of which shall, unless otherwise determined by the Board of
Directors, at all times satisfy the provisions of Rule 16b-3 of the Exchange
Act, as from time to time in effect, and Section 162(m) of the Code.
Grants of "incentive stock options" (as such term is defined in Section 422
of the Code) and nonqualified stock options may be made under the 1996 Option
Plan to selected officers and key employees of the Company or one of its
direct or indirect subsidiaries, in the discretion of the Compensation
Committee. Options for no more than 250,000 shares may be granted to any
optionee in any year. In addition, no more than $100,000 in value of incentive
stock options (determined by the fair market value of a share of Common Stock
on the date of grant) may first become exercisable in any calendar year. To
the extent that stock options that are intended to be incentive stock options
fail to qualify as such, such options will be treated for all purposes as
nonqualified stock options. Unless otherwise determined by the Board of the
Directors, the exercise price of a stock option must be at least the fair
market value per share of Common Stock on the date of grant. Option agreements
also in most cases contain noncompete provisions.
Options become exercisable as determined by the Compensation Committee.
Options granted under the 1996 Option Plan expire as determined by the
Compensation Committee, but in no event later than the tenth anniversary of
the date of grant. An option can be exercised only if an optionee has been an
employee of the Company or one of its direct or indirect subsidiaries
continuously from the date of the option's grant to the date of the option's
exercise and is an employee on the date of the option's exercise, except that
(i) in the event of the termination of the optionee's employment other than
for "Cause" (as defined in the 1996 Option Plan), each
17
<PAGE>
stock option that is otherwise exercisable at the time of such termination
may, unless earlier terminated in accordance with its terms, be exercised
during the three-month period following the date of such termination, and (ii)
in the event of the termination of the optionee's employment by reason of
death or disability, each stock option that is otherwise exercisable at the
time of such termination may, unless earlier terminated in accordance with its
terms, be exercised at any time during the six-month period following the date
of such death or disability.
All options granted under the 1996 Option Plan that were not previously
exercisable will become fully exercisable in the event of the occurrence of an
"Acceleration Date." Under the 1996 Option Plan, in the event that (i) the
"beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act), of
securities representing 25% or more of the combined voting power of the
Company (but not including any securities acquired directly from the Company)
or any of its affiliates is acquired by any "person" as defined in Section
3(a)(9) of the Exchange Act, as such term is modified in Sections 13(d) and
14(d) of the Exchange Act (other than the Company or its affiliates, any
employee benefit plan of the Company, any corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company, or any underwriter
temporarily holding securities pursuant to an offering of such securities),
(ii) a merger or consolidation of the Company with another corporation is
consummated or the stockholders of the Company approve the issuance of voting
securities of the Company in connection with a merger of the Company (or any
direct or indirect subsidiary of the Company) pursuant to applicable stock
exchange requirements, or an agreement is consummated to sell or otherwise
dispose of all or substantially all of the Company's assets, or adopt a plan
of liquidation, other than certain types of mergers specified in the 1996
Option Plan, or (iii) during any period of two consecutive years, individuals
who at the beginning of such period were members of the Board of Directors of
the Company cease for any reason to constitute at least a majority thereof
(unless the election, or the nomination for election by the Company's
stockholders, of each new director was approved by a vote of at least two-
thirds of the directors then still in office who were directors at the
beginning of such period), then an Acceleration Date will occur on such date
as specified in the 1996 Option Plan.
In the event of an extraordinary or unusual corporate event, the
Compensation Committee, in its discretion, may adjust the terms of outstanding
awards, including in the case of stock options, the exercise price, the number
of shares of Common Stock available for awards, and such other adjustments as
the Compensation Committee shall deem appropriate and equitable under such
circumstances.
The 1996 Option Plan may, at any time and from time to time, be altered,
amended, suspended or terminated by the Board of Directors, in whole or in
part; provided, however, that, except as determined by the Board of Directors,
no amendment that requires stockholder approval in order for the 1996 Option
Plan to continue to comply with Rule 16b-3 under the Exchange Act or Section
162(m) of the Code will be effective unless such amendment has received the
requisite approval of stockholders. In addition, no amendment may be made that
adversely affects any of the rights of an optionee under any option or loan
theretofore granted, without such optionee's consent.
CERTAIN FEDERAL INCOME TAX EFFECTS
The following discussion is a brief summary of the principal United States
federal income tax consequences under current federal income tax laws relating
to awards under the 1996 Option Plan. This summary is not intended to be
exhaustive and, among other things, does not describe state, local or foreign
tax consequences.
Nonqualified Stock Options. An employee generally will not be taxed upon the
grant of a nonqualified stock option (a "NQSO"). Rather, at the time of
exercise of the NQSO (and in the case of an untimely exercise of an incentive
stock option), the employee will recognize ordinary income for federal income
tax purposes in an amount equal to the excess of the fair market value of the
shares purchased over the option price. The Company will generally be entitled
to a tax deduction at such time and in the same amount that the employee
recognizes ordinary income. Different rules may apply in the case of an
employee who is subject to the reporting requirements of Section 16(a) of the
Exchange Act.
18
<PAGE>
If shares acquired upon exercise of an NQSO (or upon untimely exercise of an
incentive stock option), are later sold or exchanged, then the difference
between the sales price and the fair market value of such stock on the date
that ordinary income was recognized with respect thereto will generally be
taxable as long-term or short-term capital gain or loss (if the stock is a
capital asset of the employee) depending upon whether the stock has been held
for the requisite period after such date.
Incentive Stock Options. In the case of an incentive stock option (an
"ISO"), an employee will not be in receipt of taxable income upon the grant of
the ISO or upon its timely exercise. Exercise of an ISO will be timely if made
during its term and if the employee remains an employee of the Company or a
subsidiary at all times during the period beginning on the date of grant of
the ISO and ending on the date three months before the date of exercise (or
one year before the date of exercise in the case of a disabled employee).
Exercise of an ISO will also be timely if made by the legal representative of
an employee who dies (i) while in the employ of the Company or a subsidiary or
(ii) within three months after termination of employment. The tax consequences
of an untimely exercise of an ISO will be determined in accordance with the
rules applicable to NQSOs. See "--Nonqualified Stock Options."
If stock acquired pursuant to a timely exercised ISO is later disposed of,
the employee will, except as noted below, recognize long-term capital gain or
loss (if the stock is a capital asset of the employee) equal to the difference
between the amount realized upon such sale and the option price. The Company,
under these circumstances, will not be entitled to any federal income tax
deduction in connection with either the exercise of the ISO or the sale of
such stock by the employee.
If, however, stock acquired pursuant to the exercise of an ISO is disposed
of by the employee prior to the expiration of two years from the date of grant
of the ISO or within one year from the date such stock is transferred to him
upon exercise (a "disqualifying disposition"), any gain realized by the
employee generally will be taxable at the time of such disqualifying
disposition as follows: (i) at ordinary income rates to the extent of the
difference between the option price and the lesser of the fair market value of
the stock on the date the ISO is exercised or the amount realized on such
disqualifying disposition and (ii) if the stock is a capital asset of the
employee, as short-term or long-term capital gain to the extent of any excess
of the amount realized on such disqualifying disposition over the fair market
value of the stock on the date that governs the determination of his ordinary
income. In such case, the Company may claim a federal income tax deduction at
the time of such disqualifying disposition of the amount taxable to the
employee as ordinary income. Any capital gain recognized by the employee will
be long-term capital gain if the stock is held for the requisite period.
Otherwise it will be short term capital gain.
The amount by which the fair market value of the stock on the exercise date
of an ISO exceeds the option price will be an item of adjustment for purposes
of the "alternative minimum tax" imposed by Section 55 of the Code.
COMPENSATION OF OUTSIDE DIRECTORS
Members of the Company's Board of Directors who are not employees of the
Company, a parent company or their respective direct and indirect subsidiaries
receive cash compensation as follows: a $20,000 annual retainer and $1,000 for
each Board meeting attended and $500 for each committee meeting attended
(chairpersons receive $1,000 per committee meeting). In addition, such members
of the Board of Directors also receive an option to purchase 5,000 shares of
Common Stock on the date they become a director and annual grants of options
to purchase 2,500 shares of Common Stock under the 1996 Option Plan.
On October 1, 1997, the closing stock price per share of Common Stock on the
New York Stock Exchange was $16.375.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO
THE 1996 STOCK OPTION PLAN.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
REGISTRATION RIGHTS
Banc One, as successor to First USA, and the Company are parties to a
Registration Rights Agreement (the "Registration Rights Agreement"). Pursuant
to the Registration Rights Agreement, Banc One has the right to require the
Company to use its best efforts to register under the Securities Act of 1933,
as amended, and the securities or blue sky laws of any jurisdiction designated
by Banc One all or a portion of the issued and outstanding Common Stock held
by Banc One (the "Registrable Shares") for sale in accordance with Banc One's
intended method of disposition thereof. Such demand rights would be subject to
the condition that the Company would not be required to effect more than four
demand registrations. Banc One also has the right to participate, or "piggy-
back," in certain equity offerings initiated by the Company, subject to
reduction of the size of the offering on the advice of the managing
underwriter. The Company and Banc One will share equally all expenses relating
to the performance of, or compliance with, demand registration requests under
the Registration Rights Agreement and the Company will pay all expenses
relating to the performance of, or compliance with, "piggy-back" registrations
under the Registration Rights Agreement. However, in either case, Banc One
will be responsible for underwriters' discounts and selling commissions with
respect to the Registrable Shares being sold and the fees and expenses of its
counsel in connection with such registration.
The Registration Rights Agreement also provides that during any period in
which Banc One owns at least 20% of the voting power of the outstanding
capital stock of the Company or in which Banc One is required to account for
its investment in the Company under the equity method of accounting, the
Company will provide Banc One with certain financial and other information.
SERVICES AND FACILITIES
The Company and First USA Financial are parties to two subleases, pursuant
to which First USA Financial provides the Company with certain office space.
Pursuant to an Intercompany Services Agreement with the Company (the
"Intercompany Agreement") First USA Financial and First USA Management, Inc.
allow the Company to participate in insurance coverage and certain benefit
plans made available by First USA Financial. In addition, prior to the merger
between First USA and Banc One, First USA Financial provided certain
administrative services to the Company under the Intercompany Agreement at a
rate equal to First USA Financial's costs.
LICENSE TO USE THE FIRST USA NAME AND CERTAIN TRADEMARKS
The Intercompany Agreement also provides for the grant by First USA
Financial to the Company of a license to use the name "First USA" and certain
trademarks (collectively referred to as the "Marks") in connection with the
Company's business. The Intercompany Agreement provides that the Company will
not, without First USA Financial's prior written consent, take any action with
respect to (i) any litigation or proceeding involving the Marks, (ii) any new
use of the Marks or changes in the purpose for which the Marks are used, (iii)
any change in the Company's names, logos and other identifications which
reasonably be expected to affect the Marks or (iv) if required by First USA
Financial, any advertising campaigns or strategies which use the Marks or
which refer to First USA Financial. First USA Financial has the right to
revoke the license to use the Marks under certain circumstances if there is a
change of control or a sale of the Company.
The Intercompany Agreement provides that the Company indemnify First USA
Financial, its subsidiaries and each of their respective officers, directors,
employees and agents against losses from third party claims based on, arising
out of or resulting from (i) the use of the Marks (but excluding any claim
relating to First USA Financial's rights in Marks), and (ii) any other acts or
omissions arising out of performance of the Intercompany Agreement.
The Intercompany Agreement provides that First USA Financial indemnify the
Company, its subsidiaries and each of their respective officers, directors,
employees and agents against losses from third party claims based on, arising
out of or resulting from (i) any third party claims relating to First USA
Financial's rights in the Marks, and (ii) any other acts or omissions arising
out of performance of the Intercompany Agreement.
20
<PAGE>
INTERCOMPANY INDEBTEDNESS
First USA Financial loaned the Company $25 million in connection with the
Company's August 1996 acquisition of GENSAR Holdings Inc. Such loan accrued
interest at the rate of LIBOR plus 0.25% and was repaid by the Company in
January 1997.
OTHER TRANSACTIONS
The Company entered into a Tax Sharing Agreement (the "Tax Sharing
Agreement") with First USA Financial, which governs tax related matters
affecting taxable periods ending prior to and subsequent to the Initial Public
Offering, including preparation and filing of tax returns, payment of taxes
and indemnification for tax liabilities. In general, under the Tax Sharing
Agreement, the Company is responsible for filing tax returns and paying taxes
of the Company. The Tax Sharing Agreement provides that First USA Financial
will retain control of audits affecting its consolidated, combined or unitary
returns which include the Company and its subsidiaries. The Company is allowed
to participate in, but not control any such audits with respect to matters for
which it may be required to indemnify First USA Financial under such Tax
Sharing Agreement.
The Company's other income for fiscal 1997 included related party
transactions with First USA resulting in a $3.5 million gain in December 1996
related to the termination of a call option on warrants held by First USA for
stock in First Virtual and a $5.0 million gain in March 1997 related to the
termination of an agreement that First USA would not compete with the Company
for business card customers. Both of these transactions were at terms which
the Company believes to be representative of an arms' length transaction.
During fiscal 1997, First USA Financial Services, Inc. from time to time
engaged in funding and investment transactions with First USA Bank, a wholly
owned subsidiary of First USA Financial. At June 30, 1997 and 1996, the
Company had $6.0 million and $86.7 million, respectively, invested in First
USA Bank certificates of deposit with initial maturities of less than 90 days.
The Company believes that such certificates of deposit earned interest at
market rates, and the terms and provisions of such transactions were the same
as the terms First USA Bank provides to non-affiliated entities in similar
transactions.
INDEPENDENT AUDITORS
The Company retained Ernst & Young LLP as the Company's independent auditors
for fiscal 1997. Representatives of Ernst & Young LLP will attend the annual
meeting and, while they do not intend to make a statement, they will respond
to appropriate questions directed to them. The Company has not yet made a
final determination as to its independent auditors for fiscal 1998, and is
currently evaluating its business and other requirements for its fiscal 1998
auditors.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Stockholder proposals to be included in the Company's proxy material for the
1998 annual meeting of stockholders must be received at the Company's
principal executive offices not later than July 2, 1998.
A Company by-law provides that a nomination for election as a director or
other proposals properly brought before an annual or special meeting of
stockholders may be brought by any stockholder provided the stockholder has
given written notice of the nomination to the Company's Secretary not less
than 60 days nor more than 90 days prior to the anniversary date of the
immediately preceding annual stockholders meeting. If the annual meeting is
not within 30 days before or after such anniversary date, the stockholder
notice must be received within 10 days following notice or publication of the
date of the meeting. The notice must include certain information concerning
the nomination for director. A copy of the by-law may be obtained from the
Secretary of the Company at the address set forth in the accompanying notice.
The by-law will apply to the 1998 annual meeting of stockholders.
21
<PAGE>
OTHER MATTERS
As of the date of this Proxy Statement, the Company does not intend to bring
any other matters before the meeting requiring action of the stockholders, nor
does it have any information that other matters will be brought before the
meeting. However, if any other matters requiring the vote of the stockholders
properly come before the meeting, it is the intention of the persons named in
the enclosed form of proxy to vote the proxy in accordance with their best
judgment in the interest of the Company.
/s/ Pamela H. Patsley
Pamela H. Patsley
President and Chief Executive
Officer
October 28, 1997
<PAGE>
Votes must be indicated (X) in Black or Blue ink. [_]
The Board of Directors recommends a vote FOR each item.
1. Election of Directors FOR all nominees [_] WITHHOLD AUTHORITY to vote
listed below for all nominees listed
below.
*EXCEPTIONS [_]
Nominees. Gene H. Bishop and Ronald G. Steinhart
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark
the "Exceptions" box and write that nominees' name in the space provided below.)
*Exceptions
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2. Proposal to adopt an amendment to the Paymentech, Inc. Amended and Restated
1996 Stock Option Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
3. The proxy is authorized to transact such other business as may properly come
before this meeting.
Change of Address and/ [_]
or comments Mark Here
(Please sign exactly as name appears hereon.
Joint owners should each sign. When signing
as attorney, executor, administrator,
trustee, guardian or other fiduciary, please
add that title.)
Dated: , 1997
-------------------------------
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Signature of Stockholder
--------------------------------------------
Signature of Stockholder
Please Mark, Date, Sign and Mail Your Proxy Promptly in the Envelope Provided.
================================================================================
PAYMENTECH, INC.
Proxy solicited by the Board of Directors for the
Annual Meeting of Stockholders to be held on December 3, 1997
The undersigned hereby appoints Pamela H. Patsley and Philip E. Taken, and
each of them, the true and lawful agents and proxies with full power of
substitution, to represent the undersigned at the Annual Meeting of Stockholders
of Paymentech, Inc. to be held at 1601 Elm Street, 47th floor, Dallas, Texas
75201, on December 3, 1997, at 10:00 a.m., Central Standard Time, and at any
adjournments thereof, for the transaction of the business described on the
opposite side of this card.
The Shares represented by this proxy will be voted as indicated on the
opposite side of this card. If no indication has been made, the Shares
represented by this proxy will be voted in favor of Proposals 1 and 2 and as the
named proxies deem advisable on such other business as may properly come before
the meeting.
Please sign, date and return this proxy promptly, using the enclosed return
envelope.
PAYMENTECH, INC.
P.O. BOX 11352
NEW YORK, N.Y. 10203-0352
