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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-14224
FIRST USA PAYMENTECH, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 75-2634185
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1601 ELM STREET, 8TH FLOOR DALLAS, 75201
TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 849-4770
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EXCHANGE
TITLE OF EACH CLASS ON WHICH EACH CLASS OF
STOCK IS REGISTERED
Common Stock, $.01 par value
New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by a check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in the definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [_] .
As of September 15, 1997, the aggregate market value of the voting stock
held by non-affiliates of the Registrant computed by reference to the closing
price of First USA Paymentech, Inc. Common Stock as reported on the New York
Stock Exchange on such date was approximately $442,650,869. For purposes of
such calculation, shares owned by directors and executive officers of the
Company have been treated as owned by affiliates of the Company, although such
treatment is not an admission of the affiliate status of any of such parties.
As of September 15, 1997, there were outstanding 35,321,961 shares of First
USA Paymentech, Inc. Common Stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the First USA Paymentech,
Inc. 1997 Annual Meeting of Stockholders are incorporated by reference into
Part III.
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FIRST USA PAYMENTECH, INC.
1997 FORM 10-K ANNUAL REPORT
Table Of Contents
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PART I Page
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ITEM 1. BUSINESS....................................................... 3
ITEM 2. PROPERTIES..................................................... 15
ITEM 3. LEGAL PROCEEDINGS.............................................. 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS............................................ 16
ITEM 6. SELECTED FINANCIAL DATA........................................ 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...................................... 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................... 25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE............................ 44
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............. 45
ITEM 11. EXECUTIVE COMPENSATION......................................... 46
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT..................................................... 46
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 47
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.................................................... 49
SIGNATURES................................................................. 51
EXHIBIT INDEX.............................................................. 52
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PART I
ITEM 1. BUSINESS
First USA Paymentech, Inc. (the "Company" or "Paymentech"), incorporated in
1995, 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. During fiscal
1997, the Company processed sales volume of approximately $41.3 billion and
approximately 1.3 billion total transactions. 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.
First USA Financial, Inc. ("First USA") is the beneficial owner of
approximately 57% of the outstanding common stock of the Company. First USA's
former parent, First USA, Inc., merged with and into BANC ONE CORPORATION
("Banc One") in June 1997, and accordingly First USA is a wholly owned
subsidiary of Banc One.
The address of the principal executive office of the Company is 1601 Elm
Street, Dallas, Texas 75201, and its telephone number is (214) 849-4770.
PAYMENT PROCESSING
General
According to published industry sources, the Company is the third largest
payment processor of bankcard transactions in the United States. During fiscal
1997, the Company processed approximately $41.3 billion in sales volume and
approximately 1.3 billion total transactions. The Company markets its services
directly to merchants, financial institutions and sales agents, and indirectly
through financial institutions and sales agents, which in turn market
processing services to merchants.
The principal operations of the Company are located in Dallas, Texas, with a
number of additional sales and support offices throughout the United States.
Payment processing operations are primarily performed through the Company's
wholly owned subsidiary Paymentech Merchant Services, Inc. ("Merchant
Services"). The principal corporate operations of the Company outside of
Dallas, Texas are located in Salem, New Hampshire; Tampa, Florida and Salt
Lake City, Utah.
Payment Cycle
The payment cycle includes authorizing bankcard transactions at the point of
sale, capturing data related to transactions, settling transactions with the
card associations on behalf of the merchant and providing transaction
reporting to the merchant. In the course of processing an electronic
transaction, various parties operate together and the authorization and
capture process is usually completed within 8-15 seconds. The authorization
process includes obtaining approval from the card issuing bank for the
cardholder's purchase at the merchant location. Authorization procedures
confirm that the cardholder has the available credit to cover the purchase,
and verify that the card has not been reported lost or stolen. In the event
that the merchant is not able to connect with the electronic draft capture
("EDC") network, the Company provides access to a voice authorization and
automated voice response unit that is available 24 hours a day, seven days a
week.
While each transaction is being authorized, the transaction data, including
dollar amount and card number, is captured in the EDC network and used in
settling the transaction and preparing reports to the merchant. Depending upon
the merchant's EDC network, the merchant can capture transactions at the
terminal level or the network computer level. The Company's internal
proprietary data capture system is capable of managing
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multiple batches of transactions and data per day from each merchant, which is
an important feature during peak sales periods. In addition, the Company's
high-speed batch deposit system allows direct response merchants to deliver
transactions to the Company and receive immediate authorization responses.
Settlement involves managing a record of each merchant's transactions and
transferring funds from the issuer of the card to the merchant for payment.
The Company transmits transaction information to the card issuing bank through
Visa and MasterCard and arranges for funds to be transferred to the merchant's
bank account via Automated Clearing House or Fedwire transfer, which is
ultimately credited to the merchant's account. The cardholder is then billed
by the card issuing bank. Settlement payments made to merchant accounts may
reflect a discount from the full transaction price, which generally includes
the Company's processing fee and Visa and MasterCard interchange and
assessments. Each step in the settlement process involves a number of
procedures that must be completed in accordance with Visa and MasterCard
requirements. From the time of closing a batch of transactions, the merchant's
account will generally be credited within 24 to 72 hours.
The Company uses its internal proprietary network and settlement system and
a number of third-party national networks for its authorization, capture and
merchant accounting services. The Company has entered into agreements with
several third-party vendors which provide processing services to the Company.
However, the Company has continued to emphasize converting existing merchants
to, and installing new merchants on, the Company's internal data processing
systems, which have operating costs that are lower than the costs of obtaining
data processing services from third-party vendors.
In furtherance of the Company's strategy to convert volume to internal
systems, in August 1996 the Company acquired GENSAR Holdings Inc. ("GENSAR"),
the largest independent provider of third-party credit and debit authorization
services to financial institutions and sales agents. This acquisition provided
the Company with new and advanced capabilities and product offerings which it
previously outsourced.
Products
The Company offers a wide range of quality products and services related to
payment processing. The Company's proprietary and third-party licensed
software applications and equipment permit authorization and capture of Visa,
MasterCard, Diners Club, Carte Blanche, JCB, American Express and Discover
transactions and various debit network transactions, as well as offering
settlement for Visa, MasterCard, Diners Club, Carte Blanche and JCB
transactions and various debit network transactions. The Company also provides
value-added services in connection with its processing systems, including on-
line data access, electronic mail communication capabilities and customized
reporting features. The Company has the equipment and applications which
permit it to process credit, charge, debit and private label card
transactions.
Retail POS Products. The Company provides products to customers at the point
of sale ("POS"), which are known as Paymentech Solutions. POS solutions are
available on terminals, PCs or through integrated solutions. Paymentech
Solutions include products and PC-support software targeted to specific
industries. In addition to the general retail EDC programs, Paymentech
Solutions provide products that meet the unique needs of the lodging, dining,
direct response, petroleum and convenience store industries.
Lodging Solutions enable hotels of all sizes to streamline front desk and
back office procedures by offering automatic re-authorization at checkout.
Through PC-support software and networking, they also enable hotels to
consolidate information from the gift shop, restaurant and front desk to a
single PC for night auditor or management review. Dining Solutions is the line
of specialized software applications for the dining industry, designed to
provide easy tip-editing and tab-opening functions and integrated reporting
packages which comply with the Internal Revenue Service tip reporting
requirements.
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Direct Response Solutions is the Company's comprehensive batch authorization
and accounting system developed exclusively for non-face-to-face transactions
that provides fast transaction authorization and capture capabilities and
installment and deferred billing programs, combined with advanced fraud
prevention and chargeback resolution capabilities. Recently the Company began
offering these products in Canada, the United Kingdom, Germany and France,
utilizing the local currency. The system also provides for automatic address
verification which reduces fraud. In addition to bankcard processing, the
Company also offers electronic check processing to merchants in the direct
response and catalog industries.
The Company also offers customized POS solution packages for car rental
agencies, health care providers, governmental agencies, salons/spas, gas
stations, supermarkets and other commercial establishments that are just
beginning to accept bankcards as payment.
Authorization Services. Through its subsidiary, Paymentech Network Services,
Inc. ("Network Services"), the Company provides authorization services to
financial institutions, sales agents and its direct merchants. The Company's
system provides POS transaction processing for host-based or terminal-based
electronic payment authorization and draft capture systems.
Help Desk Services. Through its subsidiary, Merchant-Link, Inc. ("Merchant-
Link"), the Company provides one-call technical support for merchants with
integrated point-of-sale ("POS") systems. POS systems typically are sold
through value-added resellers, which provide system software and hardware
support to merchants, but only minimal support for the credit card processing
function. The Company's help desk services provide assistance with the credit
card processing function, resulting in greater efficiency and responsiveness
for the merchant.
Reporting Products. The Company also provides a range of customized
reporting products to customers based on delivery method, data content and
frequency. Delivery methods for reports include paper, CD-rom, PC dial, e-mail
and file transmission, and data content of reports ranges from summary level
deposit information to interchange qualification information. Information
grouping is flexible based upon the customer's organization requirements.
New Product Initiatives. Given the large market potential for Internet
transactions, the Company continues to explore processing methods that are
secure and effective on the Internet. The Company is testing several
alternative approaches to the conduct of on-line commerce using bankcard
accounts. During fiscal 1997, the Company implemented systems to process
Internet commerce transactions using the Secure Electronic Transactions (SET)
Protocol.
The Company has an investment and processing relationship with First Virtual
Holdings, Inc. ("First Virtual"), a public company formed to facilitate
Internet commerce. First Virtual offers an off-line Internet payment system
which became operational in October 1994. The Company's President and Chief
Executive Officer serves as a director on the Board of Directors of First
Virtual. First USA also owns a minority interest in First Virtual, which the
Company sold to First USA during fiscal 1996.
The Company has several PC software products that provide deposit and
exception data to customers. In cooperation with American Express Co., the
Company recently introduced SE Workstation v.3.0, a software productivity
product which combines financial data and retrieval information related to the
Company's Visa, MasterCard, Diner's Club, and JCB business with similar
information related to American Express activity.
Revenue
The Company's revenue is generated primarily from fees from merchants
related to the processing of transactions (including merchant discount fees)
partially offset by interchange fees payable to credit card issuing
institutions and fees payable to credit card associations. Revenue also
includes fees earned from software maintenance and customer service and fees
for the deployment and repair of credit card terminals. In addition, operating
revenues earned on settlement assets are included in revenue.
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The processing fees charged to a particular customer vary with the total
dollar amount processed, average purchase amount and number of transactions
processed for the customer. There are two primary billing methods, each using
a per-transaction basis for calculating fees. The first billing method, the
discount rate method, is the traditional billing method and is most common for
smaller merchants. Under this billing method, a discount rate is charged for
each transaction. The other billing method is the per item or transaction fee
pricing method. Under this billing method, the merchant is billed a flat fee
per transaction, plus Visa and MasterCard interchange and assessments and
certain per item fees. Larger merchants often prefer this pass-through billing
method to the discount rate method. Financial institutions and sales agents
are also generally charged using the per item or transaction fee billing
method.
The Company incurs Visa and MasterCard interchange and assessment charges.
Interchange fees are stated fees charged by Visa and MasterCard to reimburse
card issuing banks for the risk of transaction fraud, processing expenses and
funding during the period from purchase to payment. The fee schedules are set
by Visa and MasterCard, and are based upon the type of merchant, transaction
type (electronic or paper-based) and settlement time. Interchange fees
generally range from 1.25% to 2.1% of the transaction amount. Although
interchange rates vary by merchant industry, they are uniform among payment
processors. Assessments are stated fees charged by Visa and MasterCard to fund
their internal operations. Assessments are also uniform among payment
processors.
The following table provides an example of a transaction in the amount of
$100 in the Visa network in which the discount rate charged to the merchant is
2.0%, the interchange fee is 1.25% and the Visa assessment fee is 0.08%. These
fees can vary substantially among different merchant types.
<TABLE>
<CAPTION>
PAYMENTS AND FEES MERCHANT THE COMPANY CARD ISSUING BANK VISA
----------------- -------- ----------- ----------------- -----
<S> <C> <C> <C> <C>
Transaction Amount........... $100.00 $(100.00) -- --
Discount..................... (2.00) 2.00 -- --
Interchange Fee.............. -- (1.25) $ 1.25 --
Assessment Fee............... -- (0.08) -- $0.08
Payment by Card Issuing
Bank........................ -- 100.00 (100.00) --
Payment by Cardholder........ -- -- 100.00 --
------- -------- ------- -----
Revenue.................. $ 98.00 $ 0.67 $ 1.25 $0.08
======= ======== ======= =====
</TABLE>
Operating Strategy
In order to remain competitive in the payment processing industry, the
Company continues to dedicate significant resources to acquiring and
developing unique products and services that will lower costs, generate new
sales and reduce customer attrition. The resulting proprietary products, along
with continuing systems enhancements and operating efficiencies, provide
improved services for its customers, and the Company believes its dedication
to developing these products will allow it to remain highly competitive in the
industry.
The Company is committed to providing superior service and retaining its
current customer base. The Company provides an extensive package of high
quality service features to its customers, including toll-free customer
service and terminal support 24 hours a day, seven days a week, 48-hour
terminal replacement, terminal set-up assistance and training for new
merchants and flexible reporting capabilities, both in frequency and format.
Long-term relationships are established through the continued support and
interaction of professional account managers.
The Company believes that its investment in open systems versus mainframe
technology has allowed it to efficiently implement competitive business
solutions for its customers. Open systems technology results in lower
equipment costs and allows the Company to respond more quickly to market
opportunities, resulting in competitive and innovative products and systems.
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Growth Strategy
The Company focuses its growth strategy in two areas: internal growth and
growth through acquisitions. Additionally, the Company benefits from the
continuing expansion of the markets which now accept bankcards but have
traditionally been cash payment markets.
Internal Growth. The Company's sales and marketing efforts include both
direct and indirect sales efforts. One aspect of the Company's growth strategy
relies on sales volume growth from merchants that are solicited directly
through the Company's internal sales force. Direct merchants are the most
profitable segment of the Company's merchant portfolio. The Company continues
to aggressively seek new direct merchant customers of all sizes, especially
within the Company's core merchant industries, which include the direct
response marketing, retail, travel and entertainment and petroleum industries.
The Company also directly markets its authorization services to financial
institutions and sales agents.
The Company also markets its services indirectly to merchants through sales
agents and financial institutions. Sales agents provide varying degrees of
customer service to the merchants which the Company approves for processing.
The fees charged to sales agents by the Company vary based upon level of
service provided, allocation of risk of loss and transaction volume. As part
of the process of approving a new sales agent, an analysis of the credit of
the sales agent as well as its principals is performed. This analysis
encompasses a business and personal credit review and contacting Visa and
MasterCard regarding the sales agent's relationship with prior processors. The
Company is required to register its sales agents with Visa and MasterCard and
file quarterly sales and activity reports.
The Company also markets to merchants through local, regional and national
financial institutions. The Company generally assumes the marketing and
support functions with respect to these relationships. In June 1997, the
Company sold certain non-core business agent bank contracts for $3.4 million
in cash and a $3.4 million note receivable.
The Company is dedicated to increasing the effectiveness and efficiency of
its sales team. The Company has a sales force automation system which provides
sales tools, instant data access and remote on-line communication to the sales
team. The sales group includes field representatives and proactive sales
representatives. Proactive sales is the telemarketing arm of the Company and
provides the Company with the ability to reach unmanned markets in a cost
effective manner. This group also supports the field representatives in a
broad range of programs that increase the productivity of the entire team as
well as increase penetration in any given vertical or geographic market.
Acquisitions. The Company completed a number of acquisitions during the past
fiscal year and continues to consider acquisition opportunities as an
important component of its growth.
In August 1996, the Company acquired GENSAR, the largest independent third-
party processor and one of the premier providers of EDC and authorization
services for financial institutions and sales agents. GENSAR processed
approximately 300 million transactions annually. This acquisition provided the
Company with new and advanced capabilities and product offerings which it
previously outsourced. As a result of the GENSAR acquisition, the Company
realized cost savings through vertical integration of formerly outsourced
services, enhanced existing products and services and generated new revenue by
establishing itself as a third-party processor.
In January 1997, the Company purchased all of the outstanding common stock
of Merchant-Link. This acquisition provided the Company with the ability to
offer one-call help desk service capabilities for merchants with integrated
POS systems.
In February 1997, the company purchased certain assets of TransGlobal
Systems, Inc. ("TransGlobal"), a processor of merchant credit card
transactions. The assets consisted primarily of a portfolio of merchants in
the hospitality and travel industries, as well as certain related systems and
software. This acquisition provided the Company the ability to offer a range
of customized POS applications and services tailored to the unique
requirements of lodging, cruise line, and restaurant merchants. These
capabilities include stand-alone dial-up terminal programs, PC applications to
support multiple terminals and/or industries, a chargeback system written
specifically for the travel and entertainment industry, and management
reporting tailored to the hospitality industry.
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In addition, during fiscal 1997 the Company purchased an additional 17
merchant portfolios, including the portfolios of CheckFree Corporation
("CheckFree"), and Mercantile Bancorporation Inc. The CheckFree portfolio
includes merchants with recurring billing needs, such as membership and
service fees, and provides merchants with the ability to directly debit either
a customer's credit card or checking account. Typical merchants include
Internet service providers, on-line interactive retailers, cellular
communications companies, and utility and insurance companies.
Customer Base
The Company's customer base consists of a diverse group of merchants, sales
agents and financial institutions. The Company's customer base is national in
scope, and includes customers of various sizes and in a number of industries.
The Company also began to offer international processing services during
fiscal 1997. During fiscal 1997, no one customer represented in excess of 5%
of the Company's annual sales volume processed.
The Company's merchant portfolio includes national accounts, as well as many
smaller, regional merchants. The merchant portfolio contains concentrations of
merchants in several industries. The largest industry categories as of June
30, 1997 were direct response marketing (38%), retail (27%), travel and
entertainment (18%) and petroleum (10%).
Customer attrition is a normal part of the payment processing business. The
Company believes that providing cost-effective, reliable and responsive
service is the most effective long-term strategy to attracting and retaining
customers in a competitive industry. In addition to the loss of customers
experienced by the Company due to attrition, in certain cases the Company has
elected not to continue processing for customers that were experiencing
financial difficulties. The Company has also lost customer accounts to
competitors in situations in which the Company was unwilling to match a
competitor's rates in light of the credit risks associated with the particular
customer or its industry.
Credit
Visa and MasterCard require that an in-depth examination of a merchant be
performed prior to processing for the merchant. The Company has established a
credit review policy that exceeds the minimum Visa and MasterCard standards
and examines other significant areas identified through its experience in the
payment processing business. For each merchant, the Company conducts a
premises inspection of the merchant location that includes verifying that the
location, the merchandise, the estimated sales volume and the average ticket
appear reasonable for the type of business. A review of the relationship with
the previous processor is conducted to determine the reason the merchant is
changing processors. An acceptable Combined Terminated Merchant File Report,
which is a report derived from a Visa and MasterCard database of merchants who
have violated Visa and MasterCard rules in the past, an acceptable credit
bureau report on principals of the business and acceptable financial
statements for the business are also required.
After merchants begin processing, the Company reviews unusual activity on a
daily basis. Visa and MasterCard have established minimum standards for weekly
review. The Company believes that its daily procedures generally exceed these
standards. Volume and average ticket variations are analyzed along with
excessive even dollar transactions, duplicate amounts, duplicate cardholder
transactions, keyed transactions and chargebacks. The Company has the ability
to hold a merchant's daily settlement if fraudulent activity is suspected.
Security analysts talk to cardholder banks, cardholders, Visa and MasterCard,
as well as the merchants to determine if the unusual activity is legitimate or
fraudulent. If fraudulent activity is discovered, the merchant is terminated
and placed in the Combined Terminated Merchant File so that future processors
will be aware of previous problems.
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The Company also reviews potential merchants based upon the merchant's
industry. According to Visa and MasterCard rules, the Company has contingent
liability for chargeback transactions. For most industry types, a chargeback
and potential Company liability is unlikely and limited because the product or
service charged by the cardholder is delivered upon payment. However, for
industries where the card is not present at the time of the transaction, such
as in the direct response industry, which includes the mail order and
telephone order businesses, the Company's potential liability is greater. The
Company takes these and other risks into account in making its credit
determinations with respect to potential new merchants. At June 30, 1997, the
Company had cash reserves from certain customers aggregating approximately
$18.9 million as an offset to potential contingent liabilities that are the
responsibility of such customers. These cash reserves are primarily related to
merchants in the direct response industry.
Credit losses incurred by the Company with respect to its payment processing
business were approximately $1.6 million, $640,000 and $310,000 in fiscal
1997, 1996 and 1995, respectively, compared to total sales volume processed in
such periods of $41.3 billion, $30.9 billion, and $20.1 billion, respectively.
Beginning in fiscal 1997, credit losses include losses incurred as a result of
third-party authorization transactions. The Company believes that this loss
history is significantly better than that of the industry. The Company's
payment processing operations are not exposed to cardholder credit losses.
However, the Company's commercial card operations incurred $364,000 in credit
losses during fiscal 1997.
The Company also in most cases performs a credit analysis of sales agents
prior to processing for such sales agents. Such review includes a business and
personal credit review of the sales agent and its principals, as well as
contacting Visa and MasterCard regarding the sales agent's relationship with
prior processors.
Competition
The payment processing market is highly competitive. Uniform interchange
requirements and Visa and MasterCard compliance rules limit significant
pricing variances among processors. Therefore, the Company competes on the
basis of customer service, product features and customized solutions,
processing speed and systems reliability, and the Company believes that these
are the critical factors analyzed by merchants when choosing a payment
processor.
As a result of its single purpose focus and many years of experience in
payment processing, the Company has been able to develop operating
efficiencies which the Company believes allow it to competitively bid for new
business. In addition, the Company has continually made technological
improvements, and is thus able to respond to the unique needs of customers in
various industries. Furthermore, such single purpose focus allows the
Company's workforce to provide more responsive customer service to customers.
Investment in open systems technology versus mainframe technology has
allowed the Company to efficiently implement competitive business solutions
for its customers. Open systems technology results in lower equipment costs
and allows the Company to respond more quickly to market opportunities,
resulting in competitive and innovative products and systems. Through a
combination of strategic acquisitions and construction of custom solutions,
the Company believes that it continues to deliver innovative choices to its
customers. Responding to the changing point of sale environment and rapidly
evolving payment systems is an ongoing requirement for payment processors.
The payment processing industry has consolidated significantly in the past
few years, due to the large investments required for the development of
technologically advanced systems and expanded business services. The Company
believes this trend will continue as the technological demand on processors
continues to increase.
COMMERCIAL CARDS
The Company conducts its commercial card operations in Salt Lake City, Utah
through its wholly owned subsidiary, First USA Financial Services, Inc.
("Financial Services"). The Company markets and issues commercial cards to
businesses and other entities. Commercial cards facilitate centralized
business-to-business
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payment procedures and reporting, replacing traditional direct payment
methods. The Company began to issue its commercial cards in September 1995
following receipt of an initial capital contribution of $16.1 million from
First USA. Commercial card revenue is derived primarily from interchange, fee
and interest income.
The Company's current operating and growth strategies are to aggressively
market its commercial card products and develop customer relationships that
will provide strategic business opportunities for growth. In addition to
developing its own partnerships with financial institutions, corporations and
other entities, the Company expects to realize synergies from existing
customer relationships established by its payment processing business, and can
rely upon its existing telemarketing and other sales and marketing structures.
The Company believes it is uniquely positioned in its ability to offer one-
stop payment processing solutions to customers that include integrated payment
processing and commercial card services.
The Company offers various types of Visa and MasterCard cards to its
customers. The origination and servicing of Visa and MasterCard accounts is
subject to the terms and conditions of membership in Visa and MasterCard, and
the Company has agreed to comply with the By-laws and Operating Regulations of
Visa and MasterCard, which are subject to change.
The Company offers its products for use by officers, directors, employees
and other individuals designated by a customer in connection with business
expenditures by such individuals. Each account is subject to an agreement with
the customer governing the terms and conditions of the related Visa or
MasterCard account, and in most cases, agreements with each individual
Cardmember.
The Company's product offerings include corporate cards, which are non-
revolving charge cards designed for use by medium to large companies for
travel and entertainment expenditures. Annual fees are negotiable based upon
certain pricing assumptions made by the Company, including the number of cards
that will be issued for the account of the customer, the expected aggregate
charge volume for the cards issued, the length of the billing cycle, the
anticipated credit losses associated with the cards, the liability structure
of the card account agreements and other considerations. The Company also
charges other fees associated with corporate cards, including late, cash
advance and returned check fees. Customers generally pay daily, weekly or
pursuant to other billing options of 30 days or less from the billing date. A
standard reporting package is provided to each customer, with enhanced on-line
packages available at the customer's request. As an incentive to the customer
to encourage use of its corporate cards, the Company may in some instances pay
rebates to the customer if certain charge volume or other requirements are
met.
In addition to corporate cards, the Company offers purchasing cards, which
are non-revolving charge cards designed for use by medium to large companies,
and are used by employees who are responsible for making regular purchases of
equipment, supplies and services on behalf of the customer. The purchasing
card permits the Cardmember to charge such items in a streamlined fashion
without the need for cumbersome and paper-intensive purchase orders and
invoices. The reporting package provided by the Company in connection with the
purchasing card provides detailed information regarding the products purchased
and other relevant information required for the customer's records, thereby
helping to eliminate the need for purchase orders and invoices. As with
corporate cards, annual fees charged for purchasing cards are negotiable based
upon certain pricing assumptions made by the Company, and in certain instances
the Company may grant rebates if a customer meets certain charge volume or
other requirements. The Company may also charge other fees associated with the
purchasing cards, including late, cash advance and returned check fees. The
Company also offers access to a cardless account through which purchases can
be made by authorized users for specific types of charges or charges made with
specific vendors. The fees and charges associated with these accounts are
similar to those charged for corporate card and purchasing card accounts.
During fiscal 1997, the Company and PHH Vehicle Management Services
Corporation ("PHH") formed a limited liability company for the purpose of
offering commercial cards that combine fleet, purchasing and travel and
entertainment needs in a single card. This MasterCard-branded product is
designed for companies with
10
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mobile employees requiring specific reporting information and flexibility in
card spending. In connection with this transaction, PHH contributed its
existing private label fleet card portfolio to the limited liability company.
The Company's products also include business cards designed for use by small
to medium companies for routine business purchases, including travel and
entertainment expenditures and equipment and supply purchases. Business cards
offer a revolving line of credit to Cardmembers at a floating interest rate
which adjusts monthly based upon the prime rate determined on a specified
date.
The Company competes with national, regional and other issuers of commercial
cards. In seeking funding from the public, the Company faces competition from
banks, savings institutions, money market funds, credit unions and a wide
variety of other entities that take deposits and/or sell debt securities. The
primary methods of funding Financial Services include issuing certificates of
deposit and other borrowings. Financial Services' liquidity is invested in
overnight reverse repurchase agreements and other short-term investments.
Financial Services' Asset and Liability Committee, consisting of executive
management, reviews and manages all funding and liquidity decisions. The
Company has an agreement with a third-party vendor for data processing
services in connection with the Company's commercial card business.
The Company currently expects its commercial card operations to become
profitable by the end of fiscal 1998. The losses associated with this
operation did not have a material impact on the consolidated results of the
Company in fiscal 1997.
EMPLOYEES
At June 30, 1997, the Company and its subsidiaries had approximately 1,200
employees. The Company views current employee relations to be satisfactory.
None of the Company's employees are covered under collective bargaining
agreements.
REGULATION OF FINANCIAL SERVICES
Financial Services is an industrial loan corporation chartered under the
laws of the State of Utah, the deposits of which are insured by the Bank
Insurance Fund (the "BIF") of the Federal Deposit Insurance Corporation
("FDIC"), up to applicable limits. Financial Services is subject to
comprehensive regulation and periodic examination by the Utah Department of
Financial Institutions and the FDIC, as administrator of the BIF. Financial
Services received FDIC approval for federal deposit insurance in September
1995.
The federal and state banking laws contain numerous provisions affecting
various aspects of the business and operations of Financial Services. The
following description of statutory and regulatory provisions, which is not
intended to be a complete description of these provisions or their effects on
Financial Services, is qualified in its entirety by reference to the
particular statutory or regulatory provisions or proposals.
Holding Company Status
Generally a company which controls a "bank," as defined in the Bank Holding
Company Act of 1956 (the "BHCA"), is required to register as a bank holding
company under the BHCA and becomes subject to regulation and examination as a
bank holding company by the Federal Reserve Board. The Company is not a bank
holding company under the BHCA, as a result of ownership of Financial Services
because Financial Services meets criteria to cause it to be exempt from the
definition of "bank" under the BHCA. However, the Company's indirect majority
shareholder, Banc One, is a bank holding company under the BHCA. As a bank
holding company, Banc One's activities and those of its banking and nonbanking
subsidiaries (including the Company) are limited to the business of banking
and activities closely related or incidental to banking. The Company's status
as a subsidiary of a bank holding company has not materially restricted,
curtailed or eliminated its current operations or activities, which generally
conform to these requirements. However, the Company's future operations,
investments and activities will be limited to the business of banking and may
be subject to prior approval by the Federal Reserve Board, so long as Banc One
owns a controlling interest in the Company's securities.
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Liability for Commonly-Controlled Institutions
A depository institution insured by the FDIC can be held liable for any loss
incurred, or reasonably anticipated to be incurred, by the FDIC in connection
with the default of any commonly-controlled FDIC-insured institution, or any
assistance provided by the FDIC to such commonly-controlled institution which
is in danger of default. All FDIC-insured depository institutions controlled
by Banc One are insured depository institutions under common control with
Financial Services for purposes of this statutory provision.
Dividends and Transactions with Affiliates
There are various limitations under federal and Utah law on the extent to
which Financial Services can finance or otherwise supply funds, through
dividends, loans or otherwise, to the Company's and Financial Services' other
affiliates. These limitations include minimum regulatory capital requirements,
Utah requirements concerning the payment of dividends out of net profits or
surplus, and Sections 23A and 23B of the Federal Reserve Act, governing
transactions between an insured depository institution and its affiliates.
Capital Maintenance and FDICIA
Financial Services is currently subject to capital adequacy guidelines
adopted by the FDIC, which provide generally for a minimum ratio of Tier 1
capital to risk-weighted assets (which are the credit risk equivalents of both
balance sheet items and certain off balance sheet items, such as stand-by
letters of credit) of 4%, and a minimum ratio of total capital (Tier 1 capital
plus Tier 2 capital) to risk-weighted assets of 8%. In addition, the
guidelines provide for a minimum leverage ratio (Tier 1 capital to total
assets) of 3% for the most highly-rated institutions, and not less than 4% for
all other institutions. The FDIC's risk-based and leverage ratios are minimum
supervisory ratios generally applicable to banks that meet certain specified
criteria, including having the highest regulatory rating. Banks not meeting
these criteria are expected to operate with capital positions well above the
minimum ratios. Failure to meet applicable capital guidelines could subject
Financial Services to a variety of enforcement remedies available to federal
regulatory authorities, including, in the most severe cases, the termination
of deposit insurance by the FDIC or placing the institution into
conservatorship or receivership. As of June 30, 1997, Financial Services'
total risk-based capital ratio was 40.7%, its Tier 1 risk-based capital ratio
was 39.9% and its leverage ratio was 32.7%, which reflect the start-up nature
of its operations.
In addition, under the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA"), the federal bank regulatory agencies are empowered, and in
certain cases required, to take "prompt corrective action" with respect to
banks that do not meet minimum capital requirements, including, in the most
severe cases, placing an institution into conservatorship or receivership. The
extent of the agencies' powers depends upon whether the institution in
question is "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized." Among other
things, an institution in one of the three undercapitalized categories is
required to submit a capital restoration plan to its appropriate federal
regulator, and the capital restoration plan will not be accepted without the
guaranty of the institution's parent company. As of June 30, 1997, Financial
Services met the capital requirements of a "well capitalized" institution.
Financial Services may accept brokered deposits as part of its funding.
Under FDICIA, only "well capitalized" and "adequately capitalized" banks may
accept brokered deposits. "Adequately capitalized" banks, however, must first
obtain a waiver from the FDIC before accepting brokered deposits, and there
are limitations on the rates that may be paid on such deposits.
Undercapitalized institutions may not accept, renew or roll over brokered
deposits.
Enforcement Powers of Federal and State Regulators
The FDIC has broad enforcement powers over the institutions it regulates,
including the power to terminate deposit insurance, impose substantial fines
and other civil penalties and, in the most severe cases, to appoint a
conservator or receiver. In addition, the Utah Commissioner of Financial
Institutions also has broad enforcement powers under state law, including the
power to take possession of an institution in certain circumstances.
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Lending Activities
Although Financial Services' activities are commercial and not consumer-
oriented, its activities as a credit card lender may be subject to regulation
under various federal laws including the Truth-in-Lending Act, the Equal
Credit Opportunity Act and the Soldiers' and Sailors' Civil Relief Act, as
well as state lending laws. Where applicable, regulators are authorized to
impose penalties for violations of these statutes and, in certain cases, to
order Financial Services to pay restitution to injured Cardmembers.
Cardmembers may also bring actions for up to treble damages for certain
violations. Federal and state bankruptcy and debtor relief laws may also
affect Financial Services' ability to collect outstanding balances owed by
Cardmembers who seek relief under these statutes.
CAUTIONARY STATEMENTS
Information or statements provided by the Company herein and from time to
time may contain certain "forward-looking information," including information
relating to anticipated growth in earnings per share, anticipated returns on
equity, anticipated growth in revenue, account origination and growth,
customer base, anticipated operations costs and employment growth, anticipated
marketing expense or anticipated credit and other losses. The cautionary
statements provided below are being made pursuant to the provisions of the
Private Securities Litigation Reform Act of 1995 (the "Act") and with the
intention of obtaining the benefits of the "safe harbor" provisions of the Act
for any such forward-looking information. Many of the following factors
discussed below as well as other factors have also been discussed in prior
filings made by the Company.
Factors which could cause the Company's actual financial and other results
to differ materially from any results that might be projected, forecast,
estimated or budgeted by the Company in forward-looking statements include,
but are not limited to the following:
Competition
Intense and increasing competition exists in the industry from numerous
providers of financial products and services who may employ various
competitive strategies. Competitive pressures by other providers have made it
difficult for payment processors to pass through their costs, such as Visa and
MasterCard interchange and assessments, to customers and could require the
Company to absorb increases in costs to maintain its customer base. In
addition, financial institutions which compete with the Company may leverage
existing lending or other relationships with potential customers. The Company
also competes against issuers of commercial cards that are offering highly
competitive and attractive rates, including rates which are at or below rates
charged by the Company, in order to preserve or gain market share.
Industry Consolidation
Industry consolidation has enabled a few of the Company's competitors to
have access to significant capital, management, marketing and technological
resources that are equal to or greater than those of the Company. The highly
competitive nature of the payment processing industry combined with the
market's requirement that payment processors continue to invest in and provide
advanced and efficient technology to their customers has caused other payment
processors to leave the business or merge with other providers resulting in
significant consolidation in the industry.
Acquisitions
The Company's ability to identify and consummate acquisitions of merchant
portfolios, operating businesses and payment processing assets upon
satisfactory terms and the Company's ability to achieve a smooth and timely
integration of newly acquired assets and operating businesses and to achieve
anticipated synergies. The Company has relied in part on such acquisitions in
order to achieve greater economies of scale and to develop new types of
systems and expertise. However, the Company faces competition within the
industry for future acquisitions and similar growth opportunities.
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Contingent Liabilities
Increased chargeback and other losses due to the Company's contingent
liability for such losses through its merchants (such as where the cardholder
is dissatisfied with the product or service charged); costs associated with an
increase in the number of customers seeking protection under the bankruptcy
laws, resulting in chargeback and other losses; effects of fraud by third-
parties or customers; and increased collection costs associated with such
occurrences.
Technology
Systems delays, malfunctions and errors in the proprietary and third-party
systems and networks used by the Company for its payment processing services
may lead to processing delays, additional costs to the Company and, if not
corrected in a timely fashion, customer dissatisfaction, which could
ultimately affect the Company's customer base and the level of service it is
able to provide to its customers.
New Products and Services
The impact of difficulties or delays in the development, production, testing
and marketing of products or services, including the Company's commercial card
operations, and the impact of the costs and losses associated with such
difficulties or delays. These may include, without limitation, a failure to
implement new product or service programs when anticipated, the failure of
customers to accept these products or services when planned, losses associated
with the testing of new products or services or financial, legal or other
difficulties that may arise in the course of such implementation.
Credit Card Acceptance
The impact of a lack of growth or a decline in the number and scope of card-
based payment transactions, on a worldwide basis, and a lack of growth or a
decline in the types of industries and merchants that accept card-based
transactions as a method of payment.
Seasonality
The impact of seasonality in the Company's business, typically realizing
higher revenue in its second fiscal quarter, which includes the end of the
year holiday season.
Regulation
The effects of, and changes in, monetary and fiscal policies, laws and
regulations (financial, regulatory or otherwise), other activities of
governments, agencies and similar organizations, and social and economic
conditions, such as inflation, and changes in taxation of the Company's
earnings. For example, in recent years, several pieces of legislation have
been proposed by members of Congress which, if adopted, would have had the
effect of limiting the interest rate that could be charged on credit card
accounts by credit card issuers.
Parent Company Merger
In June 1997, Paymentech's former indirect parent company, First USA, Inc.,
merged with and into Banc One, resulting in Banc One being the indirect owner
of 57% of Paymentech's outstanding stock. Banc One has stated that it expects
to reduce its ownership of Paymentech, provided such reduction is accomplished
in a way to preserve the pooling accounting treatment of the Banc One/First
USA, Inc. merger. The Company understands that such treatment could be
compromised if Paymentech were to issue common stock, including in an
acquisition or in a capital-raising offering, in an aggregate amount which
would cause Banc One's ownership to fall below a controlling interest. In
addition, the Company believes that growth in its third-party authorization
services and the number of acquisitions completed has slowed and been hampered
by the reluctance of some banks to engage in business with a subsidiary of a
large bank holding company. Banc One also owns a 50% interest in an alliance
with First Data Corporation, which alliance is a competitor of Paymentech.
Banc One refers all prospective merchant customers from its branch network to
such alliance.
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ITEM 2. PROPERTIES
First USA provides the Company with its principal office space in Dallas,
Texas consisting of approximately 110,000 square feet, pursuant to two
subleases. The Company's right to use such space expires upon the expiration
of First USA's underlying leases therefor in June 2005, unless First USA
exercises its right to extend the leases for two successive five-year periods.
See Item 13, "Certain Relationships and Related Transactions." The Company
leases additional facilities from which certain other operations of the
Company are conducted.
ITEM 3. LEGAL PROCEEDINGS
The Company has been named as a defendant in various legal actions arising
from the conduct of its normal business activities. Although the amount of any
liability that could arise with respect to these actions cannot be accurately
predicted, in the opinion of the Company, any such liability will not have a
material impact on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal 1997, no matters were submitted to a
vote of the stockholders of the Company.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's common stock, $0.01 par value (the "Common Stock") is listed
for trading on the New York Stock Exchange and began trading under the symbol
PTI on March 22, 1996. Paymentech's initial offering price was $21.00 per
share. As of June 30, 1997, Paymentech had 189 common stockholders of record.
During fiscal 1997, Paymentech did not declare or pay any dividends.
Paymentech's dividend policy since its initial public offering in March 1996
has been to retain earnings for future growth. On June 30, 1997, the closing
market price was $28.94. During the last two fiscal years, the high and low
sales prices and the close sales prices at the end of each fiscal quarter on
common stock per share have been:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
------------------------------------------------
1997 1996
------------------------- ----------------------
HIGH LOW CLOSE HIGH LOW CLOSE
------- ------- --------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Fourth fiscal quarter... $34 1/4 $20 5/8 $28 15/16 $47 3/8 $34 1/2 $ 40
Third fiscal quarter.... 35 3/4 25 26 1/8 37 1/4 30 1/8 35 1/4
Second fiscal quarter... 42 1/4 33 33 7/8
First fiscal quarter.... 43 3/4 34 40 5/8
</TABLE>
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<PAGE>
ITEM 6.SELECTED FINANCIAL DATA
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
FIVE-YEAR STATISTICAL SUMMARY
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-----------------------------------------------------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA) 1997 1996 1995 1994 1993
- ------------------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
Revenue................. $ 186,143 $ 124,067 $ 88,527 $ 64,379 $ 51,678
Other income............ 16,247 1,744 -- -- --
----------- ----------- ----------- ----------- -----------
Total revenue........... 202,390 125,811 88,527 64,379 51,678
----------- ----------- ----------- ----------- -----------
Operating expenses...... 77,462 53,795 41,467 34,410 28,590
Salaries and employee
benefits expense....... 51,712 38,753 31,051 19,028 15,618
Depreciation and
amortization expense... 20,572 7,669 4,210 1,794 1,275
Interest expense........ 4,884 1,842 589 307 362
Merger, integration and
impairment charges..... 20,541 -- -- -- --
First USA, Inc./Banc One
merger expense......... 12,473 -- -- -- --
----------- ----------- ----------- ----------- -----------
Total expenses.......... 187,644 102,059 77,317 55,539 45,845
----------- ----------- ----------- ----------- -----------
Income before income
taxes.................. 14,746 23,752 11,210 8,840 5,833
Provision for income
taxes.................. 11,020 9,500 3,290 2,489 1,714
----------- ----------- ----------- ----------- -----------
Net income.............. $ 3,726 $ 14,252 $ 7,920 $ 6,351 $ 4,119
=========== =========== =========== =========== ===========
Net income per share.... $ 0.11 $ 0.54 $ 0.32 $ 0.26 $ 0.17
=========== =========== =========== =========== ===========
BALANCE SHEET STATISTICS
Purchased merchant
portfolios, goodwill
and other intangibles,
net.................... $ 352,503 $ 88,894 $ 40,024 $ 3,930 $ 2,290
Total assets............ 631,000 290,221 84,038 37,805 24,500
Stockholders' equity.... 359,415 231,064 47,232 14,728 11,683
OTHER DATA
Bankcard sales volume
processed.............. $41,301,879 $30,875,857 $20,059,066 $18,425,550 $13,467,563
Total items processed*.. 1,332,519 574,157 358,705 321,791 237,740
</TABLE>
- --------
* Total items processed for the fiscal year ended June 30, 1997, includes
bankcard and other credit and debit card transactions, and credit and debit
authorization transactions. For the prior fiscal years, total items processed
includes bankcard transactions only.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Paymentech 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. Paymentech also provides third-party
credit and debit authorization services to financial institutions, sales
agents and Paymentech's direct merchants. During the fiscal year ended June
30, 1997, Paymentech processed approximately $41.3 billion in sales volume and
1.3 billion total transactions, making it the third largest processor of
bankcard transactions for merchants in the United States, according to
published industry sources. In addition, Paymentech markets and issues
commercial cards to businesses and other entities. Commercial cards facilitate
business-to-business payment procedures and reporting, replacing traditional
direct payment methods.
The Company is a 57%-owned subsidiary of First USA, which is a wholly owned
subsidiary of Banc One.
BUSINESS COMBINATIONS AND MERCHANT PORTFOLIO PURCHASES
In recent years, Paymentech has experienced significant growth through
acquisitions of other processing services operations and merchant portfolios.
On August 19, 1996, Paymentech purchased for approximately $170 million all
of the outstanding common stock of GENSAR. GENSAR was one of the nation's
largest providers of third-party credit and debit authorization services to
financial institutions, sales agents and direct merchants. Prior to its
acquisition, GENSAR also engaged in the payment processing business and
maintained a payment processing portfolio with approximately $1 billion in
annual sales volume. The acquisition of GENSAR enables Paymentech to offer
third-party credit and debit authorization services to financial institutions,
sales agents and Paymentech's direct merchants. These services are offered
through Network Services (formerly GENSAR Technologies Inc.). The acquisition
also enables Paymentech to directly provide its existing customers with point-
of-sale products and services that had previously been primarily outsourced.
As a result of the GENSAR acquisition, Paymentech realized cost savings
through vertical integration of formerly outsourced services, enhanced
existing products and services and generated new revenue by establishing
itself as a third-party processor. This acquisition was accounted for as a
purchase, and accordingly, GENSAR's results are included in Paymentech's
results of operations from the date of acquisition.
In January 1997, Paymentech purchased all of the outstanding capital stock
of Merchant-Link for approximately $4.8 million, which included $4.5 million
of the Company's Common Stock and $280,000 in cash. As a result of certain
performance objectives being met by Merchant-Link, in August 1997, the Company
paid an additional $1.5 million in Common Stock. Additional payments of up to
$3.7 million in Common Stock may be paid if certain performance objectives are
met during fiscal 1998. The merger agreement provides that in the event
certain price levels with respect to the Common Stock are not met at the
conclusion of two years from the acquisition date, additional amounts of
Common Stock or cash will be paid. Merchant-Link provides one-call support for
merchants with integrated point-of-sale systems. This acquisition was
accounted for as a purchase, and accordingly, Merchant-Link's results are
included in Paymentech's results of operations from the date of acquisition.
In February 1997, Paymentech paid $6.5 million for certain assets of
TransGlobal, a processor of merchant credit card transactions. The TransGlobal
merchant portfolio consists primarily of merchants in the hospitality and
travel industries. This acquisition was accounted for as a purchase.
First USA, Inc. issued common stock in September 1995 valued at $85.0
million in exchange for all the common stock of Litle & Company, Inc.
("Litle"). Litle, a participant in the direct response payment processing
business, was subsequently merged with a subsidiary of the Company. This
acquisition was accounted for as a pooling of interests, and therefore, the
Company's consolidated financial statements include Litle's operations for all
prior fiscal years presented.
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<PAGE>
In August 1995, the Company paid $34.0 million in cash for certain assets of
DMGT Corporation ("DMGT"), a participant in the direct response payment
processing business. This acquisition was accounted for as a purchase.
During fiscal 1997, the Company completed the process of combining the
operations of Litle and DMGT into a single facility. This operation is now
known as Paymentech New Hampshire, Inc. ("Paymentech New Hampshire"). As a
result of the combination, the Company realized cost savings, primarily from
reduced salary and employee benefits and data processing and communications
costs. In addition to the benefits of combining these two operations, the
Company expects to continue to realize additional synergies between the
combined direct response operation and its existing merchant processing
operations.
In December 1995, the Company and First USA, Inc. purchased the capital
stock of Mokarow & Associates, Inc. ("Mokarow"), a sales agent, for
approximately $14.3 million: $12.0 million in stock of First USA, Inc. and
$2.3 million in cash. First USA, Inc. contributed its investment in Mokarow to
the Company as a capital contribution.
During fiscal 1997, Paymentech purchased an additional 17 merchant
portfolios for a total of $39.9 million, including the portfolios of CheckFree
and Mercantile Bancorporation Inc. The CheckFree portfolio consists primarily
of merchants with recurring billing needs. In fiscal 1996 and 1995, Paymentech
purchased merchant portfolios for $4.7 million and $300,000, respectively.
RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED JUNE 30, 1997
Net income for the fiscal year ended June 30, 1997 decreased to $3.7
million, or $0.11 per share. Net income, excluding the effect of the one-time
merger, integration and impairment charges, the First USA, Inc./Banc One
merger expense and the one-time increase to operating expenses, increased to
$29.9 million, or $0.89 per share for the fiscal year ended June 30, 1997,
compared with $14.3 million, or $0.54 per share, for the fiscal year ended
June 30, 1996. The one-time merger, integration and impairment charge related
to GENSAR of $9.7 million after tax, or $0.29 per share included costs related
to the conversion from the third-party authorization networks to GENSAR's
authorization network, the closure of certain offices and employee severance.
An additional impairment charge of $3.1 million after tax, or $0.09 per share
was incurred in the fourth quarter to write-off certain assets consisting
primarily of obsolete technology and obsolete terminal inventory, not related
to core business systems. The one-time expense related to the First USA, Inc.
and Banc One merger of $10.8 million after tax, or $0.32 per share included
the cost associated with the accelerated vesting of First USA, Inc. restricted
stock grants and forgiveness of stock loans provided by First USA to
Paymentech employees. This was a noncash expense with an offsetting increase
to stockholders' equity. A one-time increase to operating expenses of $2.5
million after tax, or $0.08 per share was recorded in the fourth quarter to
write-off certain miscellaneous assets with shortened useful lives. Net income
included the operating results of GENSAR and Merchant-Link since their
acquisition dates of August 1996 and January 1997, respectively.
Revenue increased 50.0% to $186.1 million for the fiscal year ended June 30,
1997, compared with $124.1 million for fiscal 1996. The Company attributes the
increase in revenue primarily to the increase in sales volume processed as a
result of its direct sales efforts and its acquisitions of merchant portfolios
and other processing-related companies. Sales volume processed increased 33.8%
to $41.3 billion for the fiscal year ended June 30, 1997, compared with $30.9
billion for the fiscal year ended June 30, 1996. Other income included related
party transactions with First USA, Inc. resulting in a $3.5 million gain
related to the termination of a call option on warrants for stock in First
Virtual and a $5.0 million gain related to the termination of an agreement
that First USA, Inc. would not compete with Paymentech for business card
customers. Both of these transactions were on terms which the Company believes
to be representative of an arms' length transaction. Other income also
included a $6.8 million gain related to the divestiture of a portfolio of
certain agent bank contracts which did not represent core business. The
purchaser of the agent bank contracts also entered into a processing agreement
with the Company which provides an ongoing revenue stream. In addition, other
income includes interest income from investments.
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<PAGE>
Total expenses, excluding the one-time merger, integration and impairment
charges, the First USA, Inc./Banc One merger expense, the one-time increase to
operating expenses to reflect shortened useful lives of certain assets and the
amortization of goodwill, purchased merchant portfolios and other intangibles,
increased 38.8% to $138.2 million for the fiscal year ended June 30, 1997,
compared with $99.6 million for the fiscal year ended June 30, 1996. The
increase was primarily the result of the GENSAR acquisition and the increase
in sales volume processed. Total expenses for the fiscal year ended June 30,
1997 increased 83.9% to $187.6 million, compared with $102.1 million for the
fiscal year ended June 30, 1996. Salaries and employee benefits increased
33.4% to $51.7 million for the fiscal year ended June 30, 1997, compared with
$38.8 million for the fiscal year ended June 30, 1996. This resulted from an
increase in the number of employees to approximately 1,200 from 830, primarily
as a result of the Company's acquisitions and the growth in sales volume
processed. Operating expenses, which includes the cost of obtaining
authorizations and processing transactions as well as occupancy and equipment
costs, increased 44.0% to $77.5 million for the fiscal year ended June 30,
1997, compared with $53.8 million for the fiscal year ended June 30, 1996.
This was partially due to a one-time expense of $4.0 million to write-off
certain miscellaneous assets with shortened useful lives. Also, contributing
to this change was an increase in sales volume processed, partially offset by
cost savings realized as a result of converting existing merchants to, and
installing new merchants on, Paymentech's internal data processing systems,
which have lower operating costs than the costs of obtaining data processing
services from third-party vendors. Operating expenses, excluding the one-time
expense, for the fiscal year ended June 30, 1997 increased 36.6% to $73.5
million.
Depreciation and amortization was $20.6 million for the fiscal year ended
June 30, 1997, compared with $7.7 million for the same period of 1996. This
increase reflects the amortization of goodwill, purchased merchant portfolios
and other intangibles, and depreciation of property and equipment related to
acquisitions as well as investments in technology made during the year.
The one-time merger, integration and impairment charges recorded in fiscal
1997 include costs related to the conversion from third-party authorization
networks to GENSAR's authorization network of $6.4 million, the closure of
certain offices of $7.6 million and employee severance of $1.5 million. The
conversion costs consist primarily of the incremental labor costs of
converting existing merchant customers to the GENSAR authorization network.
The charge of $7.6 million related to office closings includes lease
termination costs as well as the write-off of $3.7 million pertaining to
certain intangible assets related to systems that will no longer be used. The
employee severance costs are primarily for individuals displaced as a result
of certain office closings. In addition, the one-time merger, integration and
impairment charges include a $5.0 million write-off of certain assets
consisting primarily of obsolete technology and obsolete terminal inventory,
not related to core business lines.
The First USA, Inc./Banc One merger expense included the costs associated
with the accelerated vesting of First USA, Inc. restricted stock grants and
forgiveness of stock loans provided by First USA to certain key Paymentech
employees. Certain key employees of the Company participated in First USA,
Inc.'s 1994 Restricted Stock Plan which allowed the granting of First USA,
Inc. restricted stock to eligible employees. First USA, Inc. restricted stock
was transferred to the recipient without payment to the Company or First USA,
Inc., and is subject to certain restrictions and risk of forfeiture. These
restrictions lapsed upon the merger of First USA, Inc. and Banc One,
generating an expense related to Paymentech employees of $6.6 million. In
addition, in March 1996, First USA made loans to certain key employees of the
Company to exercise 30 day stock options for Paymentech common stock at the
initial public offering price. The terms of these loans called for the
outstanding principal and accrued interest to be forgiven upon a change of
control of either First USA, Inc. or Paymentech. Therefore, these loans were
forgiven upon the merger of First USA, Inc. with Banc One, resulting in an
expense related to Paymentech employees of $5.9 million. Paymentech did not
expend any cash relative to either expense; rather, the total $12.5 million is
treated as a capital contribution from First USA to Paymentech.
20
<PAGE>
The following table presents, for the periods indicated, the percentage of
total revenue represented by certain expense items in Paymentech's
consolidated statements of income:
<TABLE>
<CAPTION>
PERCENT CHANGE
FISCAL YEAR ENDED JUNE 30, INCREASE (DECREASE)
------------------------------ ----------------------
1997 VS. 1996 VS.
1997(/1/) 1996 1995 1996 1995
-------------------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
TOTAL REVENUES.......... 100.0% 100.0% 100.0% 0.0% 0.0%
EXPENSES
Operating, before
charges discussed at
(1) below.............. 36.3 42.7 46.7 (15.0) (8.6)
Salaries and employee
benefits............... 25.5 30.8 35.1 (17.2) (12.3)
Depreciation and
amortization........... 10.2 6.1 4.8 67.2 27.1
Interest................ 2.4 1.5 0.7 60.0 114.3
-------- -------- --------
Total expenses, before
charges discussed at
(1) below............ 74.4 81.1 87.3 (8.3) (7.1)
-------- -------- --------
INCOME BEFORE INCOME
TAXES, before
charges discussed
at (1) below....... 25.6% 18.9% 12.7% 35.4% 48.8%
======== ======== ========
</TABLE>
- --------
(1) Excludes the effect of the one-time merger, integration and impairment
charges, the First USA, Inc./Banc One merger expense and the one-time
increase to operating expenses.
RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED JUNE 30, 1996
Net income for the fiscal year ended June 30, 1996, increased 79.9% to $14.3
million, or $0.54 per share, compared with $7.9 million, or $0.32 per share,
for the fiscal year ended June 30, 1995. Net income for the fiscal year ended
June 30, 1996, included a net charge of $1.0 million related to the Litle
acquisition offset by the reversal of certain accounting estimates related to
Litle expenses, and a net loss of $1.4 million related to the initial
operations of Financial Services. Net income included the operating results of
DMGT and Mokarow since their acquisition dates of August 1995 and December
1995, respectively.
Revenue increased 40.1% to $124.1 million for the fiscal year ended June 30,
1996, compared with $88.5 million for fiscal 1995. The Company attributes the
increase in revenue primarily to the increase in sales volume processed as a
result of its direct sales efforts and its acquisitions of merchant portfolios
and other processing-related companies. Sales volume processed increased 53.9%
to $30.9 billion for the fiscal year ended June 30, 1996, compared with $20.1
billion for the fiscal year ended June 30, 1995. Items processed increased
60.1% to 574.2 million, compared with 358.7 million for the same periods.
Total expenses increased 32.0% to $102.1 million for the fiscal year ended
June 30, 1996, compared with $77.3 million for the fiscal year ended June 30,
1995. The increase was primarily the result of the increase in sales volume
processed. Salaries and employee benefits increased 24.8% to $38.8 million for
the fiscal year ended June 30, 1996, compared with $31.1 million for the
fiscal year ended June 30, 1995. This resulted from an increase in the number
of employees to approximately 830 from 690, primarily a result of the DMGT
acquisition and the initial operations of Financial Services. Operating
expenses, which includes the cost of obtaining authorizations and processing
transactions as well as occupancy and equipment costs, increased 29.7% to
$53.8 million for the fiscal year ended June 30, 1996, compared with $41.5
million for the fiscal year ended June 30, 1995. This was due to the increase
in sales volume processed partially offset by favorable price renegotiations
with communications and authorization vendors.
Depreciation and amortization was $7.7 million for the fiscal year ended
June 30, 1996, compared with $4.2 million for the same period of 1995. This
increase reflects the amortization of goodwill, purchased merchant portfolios
and other intangibles, and the depreciation of property and equipment related
to acquisitions as well as investments in technology made during the year.
21
<PAGE>
SEASONALITY
Paymentech's revenue generally reflects the seasonal fluctuations that are
typically associated with traditional peaks in consumer retail sales. As a
result, Paymentech generally experiences higher revenue during the December
quarter.
COMMERCIAL CARDS
The Company, through its subsidiary Financial Services, markets and issues
commercial cards to businesses and other entities. Financial Services offers
innovative, efficient business-to-business payment solutions.
In January 1997, a subsidiary of the Company and PHH, a wholly owned
subsidiary of HFS Incorporated, formed PHH/Paymentech L.L.C.
("PHH/Paymentech"), a Delaware limited liability company, which is one of the
first to offer a MasterCard-branded single card payment system for fleet,
purchasing, travel and entertainment needs. PHH/Paymentech offers the
corporate fleet card solution to companies with mobile employees, marketing to
both existing customers of PHH and new prospects. As consideration for PHH's
contribution of existing client and supplier contracts to PHH/Paymentech, the
Company paid PHH $12.5 million with an additional $5.0 million payable within
one year. If certain performance objectives are met, an additional $2.5
million will be paid to PHH over the next three years.
Financial Services' liquidity is invested in investments and overnight
reverse repurchase agreements. At June 30, 1997 and 1996, Financial Services'
investments totaled $10.1 million and $12.4 million, respectively, and
consisted primarily of variable rate U.S. Government agency mortgage-backed
securities. Financial Services' policy is to hold securities until maturity.
The average maturity is approximately 6.79 years with a yield of 6.3%.
Financial Services' primary methods of funding include issuing certificates of
deposit and other borrowings.
Financial Services is subject to the capital adequacy guidelines adopted by
the FDIC. As of June 30, 1997 and 1996, Financial Services' risk-based capital
ratios exceeded the level required by the FDIC to be classified as a well
capitalized bank.
LIQUIDITY AND CAPITAL RESOURCES
Paymentech generated $111.8 million and $20.7 million of cash flow from
operating activities for the fiscal years ended June 30, 1997 and 1996,
respectively. During the fiscal years ended June 30, 1997 and 1996, Paymentech
used $238.9 million and $41.4 million, respectively, to purchase merchant
portfolios and processing services, and to make other acquisitions. Paymentech
received noncash capital contributions from First USA of $12.5 million and
$12.0 million in fiscal years ended June 30, 1997, and 1996, respectively,
related to the First USA, Inc./Banc One merger in 1997 and the Mokarow
acquisition in fiscal 1996. In addition, Paymentech received a $16.1 million
capital contribution in the form of cash from First USA to capitalize
Financial Services upon receiving FDIC approval in September 1995.
In December 1996, Paymentech completed an equity offering that provided
$100.3 million in net proceeds (the "Offering"). The net proceeds were used to
pay down debt owed by the Company under its revolving credit facility with a
bank syndicate ("Revolving Credit Facility") as a result of the GENSAR
acquisition.
The Revolving Credit Facility provides a source of liquidity to manage cash
flow, as well as capital to subsidiaries for expansion and for other corporate
uses. In October 1996, Paymentech increased its Revolving Credit Facility to
$200 million. The Revolving Credit Facility bears interest at the London
Interbank Offering Rate ("LIBOR") plus 35 to 90 basis points. At June 30,
1997, the Company had $75.0 million in borrowings under the Revolving Credit
Facility at a rate of LIBOR plus 35 basis points. At June 30, 1996, the
Company had no borrowings under the Revolving Credit Facility. The Revolving
Credit Facility also allows the Company to borrow up to $75.0 million from
First USA.
22
<PAGE>
On March 27, 1996, Paymentech completed an initial public underwritten
offering of 5.9 million shares of common stock, issued 635,000 shares in a
direct placement and issued 790,000 shares pursuant to a stock loan program
funded by First USA (the "Initial Offering"). The net proceeds from the
Initial Offering were $141.4 million. Paymentech used $40.6 million of the
proceeds to repay a loan payable to First USA and has used the remainder for
general corporate purposes, which included product and technology development
and funding of acquisitions.
Paymentech has 10.0 million shares of authorized preferred stock, of which
no shares have been issued and outstanding. The Board of Directors of the
Company has the authority to determine the principal rights, preferences and
privileges of the authorized preferred stock. Paymentech has no current plans
to issue such stock.
Paymentech has no current plans to pay dividends on the Common Stock. The
Company presently intends to retain earnings to support the growth of
Paymentech's business. The payment of any future dividends will be determined
by the Company's Board of Directors, in light of conditions then existing,
including Paymentech's results of operations, financial condition, capital
requirements, contractual restrictions and other factors deemed relevant at
the time by the Board of Directors. In addition, the payment of dividends may
be subject to certain restrictions under Paymentech's Revolving Credit
Facility. Prior to the first quarter of fiscal 1996, it was the Company's
policy to dividend a portion of its net income to First USA. Subsequently,
Paymentech has not paid dividends.
Paymentech's stockholders' equity was $359.4 million at June 30, 1997,
compared with $231.1 million at June 30, 1996. Stockholders' equity increased
primarily as a result of the Offering, the capital contribution from First USA
and the results of operations.
INCOME TAXES
Paymentech's consolidated provision for income taxes includes state and
federal income tax components. Paymentech's effective tax rate was 74.7%,
40.0% and 29.3% for the fiscal years ended June 30, 1997, 1996 and 1995,
respectively. The increase in the effective tax rate was the result of stock
compensation expense and amortization of goodwill, purchased merchant
portfolios and other intangibles, which are not deductible for tax purposes.
The tax rate for the periods prior to the second quarter of fiscal 1996
reflects Litle as a Subchapter S corporation, which included no federal income
taxes in its financial statements because its income was taxed at the
stockholder level. As a result, Paymentech's effective tax rate increased to
approximately 39% beginning with the second quarter of fiscal 1996.
CAPITAL EXPENDITURES
Paymentech spent $25.0 million and $21.3 million for capital expenditures in
fiscal 1997 and 1996, respectively. Capital expenditures are made generally to
accommodate growth in payment processing volume and provide for increased
operating efficiencies. Included in the 1997 capital expenditures are $7.7
million related to facility expansions and $6.1 million related to technology
upgrades.
CONTINGENT LIABILITIES THROUGH MERCHANTS AND CREDIT LOSSES
Under the rules of Visa and MasterCard, Paymentech has certain contingent
liabilities for the transactions it processes on behalf of merchants. If a
cardholder purchases a product or service, and is dissatisfied after the
purchase, the cardholder is able to return the product and demand a refund. If
the merchant, after having received payment from Paymentech, refuses to pay
the refund or properly provide the product or service, a chargeback results.
Merchants must follow certain processing procedures in order to limit their
exposure to chargebacks. The payment processor must fund the chargeback if the
merchant does not have sufficient funds to repay the chargeback.
Paymentech conducts reviews of potential merchants based upon the perceived
risk in the merchant's industry. The contingent liability risk is greater for
direct response merchants because the purchase is made
23
<PAGE>
before the product or service is delivered and the applicable card is not
typically present. Paymentech takes these and other risks into account in
making its credit determinations with respect to new merchants. At June 30,
1997, Paymentech had cash deposits from certain customers aggregating
approximately $18.9 million as an offset to potential contingent liabilities
that are the responsibility of such customers. These cash deposits are
primarily related to merchants in the direct response industry.
Credit losses incurred by Paymentech with respect to its payment processing
business were approximately $1.6 million, $640,000 and $310,000 for fiscal
1997, 1996 and 1995, respectively, compared with total sales volume processed
in such periods of $41.3 billion, $30.9 billion and $20.1 billion,
respectively. Beginning in fiscal 1997, credit losses include losses incurred
as a result of third-party authorization transactions. Paymentech's payment
processing operations are not exposed to cardholder credit losses. However,
the Company's commercial card operations incurred $364,000 in credit losses
during fiscal 1997.
PARENT COMPANY MERGER
In June 1997, Paymentech's former indirect parent company, First USA, Inc.,
merged with and into Banc One resulting in Banc One being the indirect owner
of 57% of Paymentech's outstanding stock. Banc One has stated that it expects
to reduce its ownership of Paymentech, provided such reduction is accomplished
in a way to preserve the pooling accounting treatment of the Banc One/First
USA, Inc. merger. The Company understands that such treatment could be
compromised if Paymentech were to issue common stock, including in an
acquisition or in a capital-raising offering, in an aggregate amount which
would cause Banc One's ownership to fall below a controlling interest. In
addition, the Company believes that growth in its third-party authorization
services and the number of acquisitions completed has slowed and been hampered
by the reluctance of some banks to engage in business with a subsidiary of a
large bank holding company. Banc One also owns a 50% interest in an alliance
with First Data Corporation, which alliance is a competitor of Paymentech.
Banc One refers all prospective merchant customers from Banc One's branch
network to such alliance.
Furthermore, as a result of the Banc One/First USA, Inc. merger and Banc
One's strategy to allow Paymentech to operate independently, the Company now
provides for itself certain administrative functions, including but not
limited to human resources, legal staff and facilities administration, which
functions were previously integrated with the same functions of the Company's
former parent, First USA, Inc. Effective as of July 1, 1997, the Company is
providing these administrative services in a manner that is not integrated
with Banc One. As a result, the Company expects to incur additional overhead
expenses.
RECENT ANNOUNCEMENT
The Company recently announced that it expects earnings per share for its
first fiscal quarter ended September 30, 1997 to be below analysts' consensus
estimate. The shortfall is primarily related to the following events.
Paymentech has continued to find it difficult to grow its third-party
processing business or to make acquisitions in calendar 1997 according to
Paymentech's original plans. Secondly, planned cost-savings have been slower
than expected, delaying their financial contribution. Furthermore, the
repricing of several key processing relationships impacted the quarter's
results. Additionally, many merchants in Paymentech's direct response business
either lost sales or had sales delayed by the United Parcel Service strike.
Consequently, Paymentech has experienced a shortfall in revenue for this major
line of business.
24
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
-----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996
- --------------------------------------------- -------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $119,466 $105,804
Receivables, net........................................... 45,563 25,952
Credit card loans, net..................................... 19,902 7,012
Terminal inventories....................................... 6,646 3,747
Prepaid expenses and other current assets.................. 14,953 7,618
-------- --------
Total current assets..................................... 206,530 150,133
Investments (market values of $10,143 and $12,315 at June 30,
1997 and 1996, respectively)................................ 10,083 12,379
Notes receivable............................................. 9,169 --
Property and equipment, net.................................. 44,103 30,344
Goodwill, net................................................ 253,255 62,375
Purchased merchant portfolios and other intangibles, net..... 99,248 26,519
Other assets................................................. 8,612 8,471
-------- --------
$631,000 $290,221
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... $112,752 $ 16,051
Interest-bearing deposits.................................. 20,721 5,335
Merchant deposits.......................................... 18,852 18,353
Accrued assessments........................................ 8,672 7,273
Other accrued expenses..................................... 35,448 11,455
-------- --------
Total current liabilities................................ 196,445 58,467
Notes payable to banks and other borrowings.................. 75,140 690
Commitments and Contingencies
Stockholders' equity:
Common stock, $0.01 par value, 200,000,000 shares
authorized, 35,090,395 and 31,701,081 issued and
outstanding at June 30, 1997 and 1996, respectively....... 351 317
Additional capital......................................... 335,435 210,433
Retained earnings.......................................... 23,629 20,314
-------- --------
Total stockholders' equity............................... 359,415 231,064
-------- --------
$631,000 $290,221
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
25
<PAGE>
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-----------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996 1995
- --------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Revenue...................................... $ 186,143 $ 124,067 $ 88,527
Other income................................. 16,247 1,744 --
----------- ----------- -----------
Total revenues............................. 202,390 125,811 88,527
EXPENSES
Operating.................................... 77,462 53,795 41,467
Salaries and employee benefits............... 51,712 38,753 31,051
Depreciation and amortization................ 20,572 7,669 4,210
Interest..................................... 4,884 1,842 589
Merger, integration and impairment........... 20,541 -- --
First USA, Inc./Banc One merger.............. 12,473 -- --
----------- ----------- -----------
Total expenses............................. 187,644 102,059 77,317
----------- ----------- -----------
INCOME BEFORE INCOME TAXES................. 14,746 23,752 11,210
Provision for income taxes................... 11,020 9,500 3,290
----------- ----------- -----------
NET INCOME................................. $ 3,726 $ 14,252 $ 7,920
=========== =========== ===========
Net income per share......................... $ 0.11 $ 0.54 $ 0.32
=========== =========== ===========
Weighted average common and common equivalent
shares outstanding.......................... 33,738,103 26,429,673 24,411,081
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
26
<PAGE>
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE THREE FISCAL YEARS ENDED JUNE 30, 1997
------------------------------------------------
COMMON STOCK
------------------ ADDITIONAL RETAINED
(DOLLARS IN THOUSANDS) SHARES AMOUNT CAPITAL EARNINGS TOTAL
- ---------------------- ---------- ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1994.... 24,411,081 $244 $ 10,035 $ 4,449 $ 14,728
Net income.................. -- -- 3,272 4,648 7,920
Capital contributions from
First USA.................. -- -- 27,571 -- 27,571
Cash dividends to First
USA........................ -- -- -- (2,987) (2,987)
---------- ---- -------- ------- --------
BALANCE AT JUNE 30, 1995.... 24,411,081 244 40,878 6,110 47,232
Net income.................. -- -- 48 14,204 14,252
Capital contributions from
First USA.................. -- -- 28,143 -- 28,143
Issuance of common stock,
net........................ 7,290,000 73 141,364 -- 141,437
---------- ---- -------- ------- --------
BALANCE AT JUNE 30, 1996.... 31,701,081 317 210,433 20,314 231,064
Net income.................. -- -- -- 3,726 3,726
Capital contribution from
First USA.................. -- -- 12,473 -- 12,473
Exercise of stock options... 27,220 -- 623 -- 623
Issuance of common stock,
net........................ 3,404,938 34 109,915 -- 109,949
Tax benefit from exercise of
stock options.............. -- -- 2,827 -- 2,827
Purchase and retirement of
common stock............... (42,844) -- (836) (411) (1,247)
---------- ---- -------- ------- --------
BALANCE AT JUNE 30, 1997.... 35,090,395 $351 $335,435 $23,629 $359,415
========== ==== ======== ======= ========
</TABLE>
See Notes to Consolidated Financial Statements.
27
<PAGE>
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
------------------------------
(IN THOUSANDS) 1997 1996 1995
- -------------- --------- --------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................... $ 3,726 $ 14,252 $ 7,920
Adjustments to reconcile net income to net
cash provided by (used for) operating
activities:
First USA, Inc./Banc One merger expense.... 12,473 -- --
Asset write-off............................ 16,452 -- --
Provision for depreciation and
amortization.............................. 20,572 7,669 4,210
Changes in operating assets and
liabilities:
Receivables.............................. (23,604) (14,782) 2,292
Accounts payable......................... 75,466 14,166 82
Other accrued expenses................... 26,624 5,786 456
Notes receivable......................... (9,169) -- --
Prepaid expenses and other current
assets.................................. (7,686) (6,582) (2,077)
Purchase of terminal inventories......... (2,839) (50) (2,914)
Accrued assessments...................... 1,399 2,949 550
Merchant deposits........................ (211) 1,499 6,497
Payable to affiliates.................... -- (4,074) 2,144
Other operating activities............... (1,438) (144) (1,823)
--------- --------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES.. 111,765 20,689 17,337
INVESTING ACTIVITIES
Purchases of merchant portfolios, processing
services and other acquisitions............. (238,882) (41,398) (14,665)
Purchases of property and equipment, net..... (24,994) (21,333) (9,229)
Proceeds from maturities of investments...... 2,296 570 --
Purchase of investments...................... -- (12,949) --
Other investing activities................... -- (4,000) --
--------- --------- --------
NET CASH USED FOR INVESTING ACTIVITIES..... (261,580) (79,110) (23,894)
FINANCING ACTIVITIES
Issuance of common stock, net................ 101,283 141,437 --
Increase in notes payable to banks and other
borrowings.................................. 75,000 -- --
Decrease in other notes payable.............. (23,444) -- --
Note payable to First USA.................... 25,000 59,473 4,000
Repayments to First USA...................... (25,000) (63,473) --
Issuance of interest-bearing deposits........ 11,885 6,025 --
Retirement of common stock................... (1,247) -- --
Capital contribution from First USA.......... -- 16,140 5,000
Dividends paid to First USA.................. -- -- (2,987)
--------- --------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES.. 163,477 159,602 6,013
--------- --------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................... 13,662 101,181 (544)
Cash and cash equivalents at beginning of
year.......................................... 105,804 4,623 5,167
--------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR... $ 119,466 $ 105,804 $ 4,623
========= ========= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Capital contribution from First USA.......... $ 12,473 $ 12,002 $ 22,571
========= ========= ========
</TABLE>
See Notes to Consolidated Financial Statements.
28
<PAGE>
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
The consolidated financial statements include the accounts of First USA
Paymentech, Inc. and its wholly owned subsidiaries ("Paymentech" or the
"Company"). Paymentech is a 57%-owned subsidiary of First USA Financial, Inc.
("First USA"), which is wholly owned by BANC ONE CORPORATION ("Banc One"). All
significant intercompany balances and transactions with the Company's wholly
owned subsidiaries have been eliminated. Paymentech indirectly conducts its
business through its primary operating subsidiaries, Paymentech Merchant
Services, Inc., Paymentech New Hampshire, Inc., GENSAR Holdings Inc. and First
USA Financial Services, Inc. The Company began payment processing in 1985 and
is among the largest processors of merchant credit and debit card transactions
in the United States. Paymentech also provides third-party credit and debit
authorization services to financial institutions, sales agents, and
Paymentech's direct merchants. In addition, the Company began in fiscal 1996
to market and issue--to businesses and other entities--commercial credit cards
that facilitate business-to-business payment solutions.
CASH AND CASH EQUIVALENTS
Paymentech considers all highly liquid investments, with maturities of three
months or less when purchased, to be cash equivalents.
RECEIVABLES
Receivables primarily represent fee income earned under processing
agreements with merchants, agent banks and sales agents.
CREDIT CARD LOANS
Credit card loans represent corporate, purchasing, fleet and business
MasterCard and Visa cards. Corporate cards are non-revolving charge cards
designed for use by medium to large companies primarily for travel and
entertainment expenditures. Purchasing cards are also non-revolving charge
cards designed for use by medium to large companies for purchases of
equipment, supplies and services. Fleet cards are non-revolving charge cards
that combine fleet, purchasing and travel and entertainment needs in a single
card. Business cards are revolving lines of credit designed for small to
medium-size companies to make routine business purchases, including travel and
entertainment, equipment and supplies.
TERMINAL LEASES
Leases that are generally noncancelable by the merchant are accounted for as
operating leases. Income from the lease of point-of-sale ("POS") terminals
under operating leases is recorded in accordance with the terms of the lease
agreements.
INVESTMENTS
Investments are carried at cost, adjusted for amortization of premiums and
accretion of discounts. The Company has both the ability and intent to hold
these investments to maturity.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost, net of accumulated depreciation
and amortization. Depreciation is provided on a straight-line basis over
periods ranging from two to ten years for furniture and equipment, and three
years for POS terminals held for lease. Leasehold improvements are amortized
over the lesser of the economic useful life of the improvement or the term of
the lease.
29
<PAGE>
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PURCHASED MERCHANT PORTFOLIOS, OTHER INTANGIBLES AND GOODWILL
Purchased merchant portfolios and other intangibles are amortized over the
estimated period to be benefited, primarily 25 years, on a straight-line
basis. Purchased merchant portfolios and other intangibles are evaluated by
management for impairment at each balance sheet date through review of actual
cash flows generated by each merchant portfolio in relation to the expected
cash flows and the recorded amortization expense. If, upon review, actual cash
flows indicate an impairment of the value of the purchased merchant portfolio,
amortization will be accelerated.
Goodwill represents the excess of purchase price over identifiable assets
acquired, less liabilities assumed from business combinations, and is
amortized over the estimated period to be benefited, generally 40 years, on a
straight-line basis. Goodwill is reviewed for impairment whenever events
indicate that the carrying amount may not be recoverable. If estimates of
future operating results would be insufficient to recover future charges to
goodwill amortization, then the recorded value of goodwill balances would be
reduced by the estimated deficiencies in operating results.
In fiscal 1997, Paymentech adopted the Financial Accounting Standards Board
("FASB") Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"), which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. The effect of adopting SFAS 121 did not have a material
impact.
NOTES RECEIVABLE
Notes receivable earn interest at a market rate with maturities ranging from
three to ten years. The Company continually reviews the collectibility of all
receivables and establishes valuation allowances as necessary.
CHARGEBACKS AND MERCHANT FRAUD
Disputes between a cardholder and a merchant periodically arise due to the
cardholder's dissatisfaction with merchandise quality or a merchant's service
and the disputes may not be resolved in the merchant's favor. In some of these
cases, the transaction is "charged back" to the merchant and the purchase
price is refunded to the cardholder by Visa and MasterCard. If the merchant is
unable to fund the refund, Paymentech is liable for the full amount of the
transaction. Paymentech maintains merchant deposits from certain customers as
an offset to potential contingent liabilities that are the responsibility of
such customers. Paymentech evaluates its risk and estimates its potential loss
for chargebacks based on historical experience. Paymentech pays the customer
interest of generally 2.0% on the merchant deposits.
REVENUE
Revenue is primarily fees from merchants related to the processing of
transactions (including merchant discount fees) partially offset by
interchange fees payable to credit card issuing institutions and fees payable
to credit card associations. Commercial card revenue is derived primarily from
interchange, fee and interest income. Revenue is recorded as services are
performed. Revenue also includes fees earned from software maintenance and
customer service and fees for the deployment and repair of credit card
terminals. In addition, operating revenues earned on settlement assets are
included in revenue.
STOCK-BASED COMPENSATION
Paymentech accounts for stock option and stock purchase plans in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" ("APB 25"). In accordance with APB 25,
30
<PAGE>
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
no compensation expense is recognized for stock options issued to employees
because the options have an exercise price equal to the market value of the
common stock on the date of grant. In addition, Paymentech does not recognize
compensation expense for its employee stock purchase plan because it qualifies
as a non-compensatory plan under APB 25. In 1995, the FASB issued Statement
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which allows
the Company to elect to recognize stock-based compensation expense based on
the fair value of the award, or continue to account for stock-based
compensation under APB 25 and disclose in the financial statements the effects
of SFAS 123 as if the recognition provisions were adopted. Paymentech has
evaluated its alternatives available under the provisions of SFAS 123 and has
determined that it will not adopt the recognition provisions of the statement.
Therefore, the adoption of SFAS 123 had no impact on the Company's
consolidated statements of income.
FEDERAL INCOME TAXES
Provision for income taxes includes a state and federal income tax
component. The income tax provision is provided for using the liability
method. Deferred tax assets and liabilities are determined based on
differences between financial reporting and tax basis of assets and
liabilities that are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts for fiscal 1996 and 1995 have been reclassified on the
Statements of Income to conform to the fiscal 1997 presentation.
NOTE B OFFERINGS
In December 1996, Paymentech completed a public underwritten offering of 3.1
million shares of its common stock, $0.01 par value, at $34.00 per share (the
"Offering"), which generated $100.3 million in net proceeds, which included
the exercise by the underwriters in the transaction of certain over-allotment
options. Concurrently, First USA sold 4.4 million shares of Paymentech's
stock. As a result of the above transaction, First USA's ownership percentage
was reduced from 77% to 57%.
On March 27, 1996, Paymentech completed an initial public underwritten
offering of 5.9 million shares of its common stock, $0.01 par value, at $21.00
per share and sold 635,000 shares in a direct placement at $19.53 per share,
the offering price less the underwriters' discount, and 790,000 shares
pursuant to a stock loan program funded by First USA (the "Initial Offering").
The net proceeds from the Initial Offering were $141.4 million, of which
Paymentech used $40.6 million of the net proceeds for repayment of a loan
payable to First USA.
31
<PAGE>
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE C BUSINESS COMBINATIONS AND ASSET PURCHASES
Paymentech has completed the following business combinations and merchant
portfolio purchases:
<TABLE>
<CAPTION>
CONSIDERATION (IN MILLIONS)
------------------------------
BUSINESS COMBINATIONS AND
MERCHANT PORTFOLIO PURCHASES DATE TOTAL CASH NONCASH
- ---------------------------- -------------- --------- --------- ----------
<S> <C> <C> <C> <C>
FISCAL YEAR 1997:
GENSAR Holdings Inc. ............ August 1996 $ 170.0 $ 170.0 $ --
Merchant-Link, Inc............... January 1997 4.8 0.3 4.5
Merchant Portfolios.............. Various 46.4 46.4 --
--------- --------- ---------
$ 221.2 $ 216.7 $ 4.5
========= ========= =========
FISCAL YEAR 1996:
Mokarow & Associates, Inc. ...... December 1995 $ 14.3 $ 2.3 $ 12.0
Litle & Company, Inc. ........... September 1995 85.0 -- 85.0
DMGT Corporation................. August 1995 34.0 34.0 --
Merchant Portfolios.............. Various 4.7 4.7 --
--------- --------- ---------
$ 138.0 $ 41.0 $ 97.0
========= ========= =========
FISCAL YEAR 1995:
NationalCard Processing Systems,
Inc............................. July 1994 $ 9.1 $ 9.1 $ --
Electronic Processing Source,
Inc............................. July 1994 22.7 -- 22.7
Processing Services.............. Various 5.3 5.3 --
Merchant Portfolios.............. Various 0.3 0.3 --
--------- --------- ---------
$ 37.4 $ 14.7 $ 22.7
========= ========= =========
</TABLE>
On August 19, 1996, Paymentech purchased for approximately $170 million all
of the outstanding stock of GENSAR Holdings Inc. ("GENSAR"), which owns 100%
of Paymentech Network Services, Inc. (formerly GENSAR Technologies Inc.) and
GENSAR Merchant Processing Inc. The acquisition was accounted for as a
purchase, and accordingly, GENSAR's results have been included in Paymentech's
results of operations since acquisition.
After all market value adjustments, the purchase resulted in identifiable
intangible assets of approximately $35 million, which have lives of eight to
ten years, and goodwill of approximately $170 million.
The following consolidated pro forma results give effect to the purchase of
GENSAR as if it had occurred on July 1, 1995:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
---------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996
------------------------------------- ------------- -------------
<S> <C> <C>
Total revenue................................... $ 204,815 $ 150,532
Income before income taxes...................... 13,655 11,418
Net income...................................... 3,311 6,190
Net income per share............................ $ 0.10 $ 0.23
</TABLE>
The pro forma results include the effect of all material adjustments related
to the purchase transaction and have been prepared using calculations based on
assumptions and adjustments deemed reasonable by Paymentech.
32
<PAGE>
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The pro forma results do not purport to be indicative of the results of
operations that would have actually been obtained if the purchase had been
consummated as of the beginning of the period presented. In addition, the pro
forma results do not purport to be indicative of the results of operations
which may be achieved in the future.
During the first quarter of fiscal 1997, Paymentech recorded a merger,
integration and impairment charge related to the acquisition of GENSAR of
$15.5 million, which reduced net income by $9.7 million. The charge includes
costs related to the conversion from third-party authorization networks to
GENSAR's authorization network, the closure of certain offices and employee
severance. The conversion costs consist primarily of the incremental labor
costs to convert existing merchant customers to the GENSAR authorization
network. The charge related to office closings includes lease termination
costs as well as the write-off of certain intangible assets related to systems
that will no longer be used. The employee related costs are primarily
severance for individuals displaced as a result of the office closings.
In January 1997, Paymentech purchased all of the outstanding stock of
Merchant-Link, Inc. ("Merchant-Link") which provides one-call support for
merchants with integrated point-of-sale systems. In addition to the $4.8
million paid in fiscal 1997, as a result of certain performance objectives
being met by Merchant-Link, in August 1997, the Company paid an additional
$1.5 million in the Company's common stock. Additional payments of up to $3.7
million in common stock may be paid if certain performance objectives are met
during fiscal 1998. The merger agreement provides that in the event certain
price levels with respect to the Company's common stock are not met at the
conclusion of two years from the acquisition date, additional amounts of the
common stock or cash will be paid. The acquisition was accounted for as a
purchase, and accordingly, Merchant-Link's results have been included in
Paymentech's results of operations since the date of acquisition. Pro forma
adjustment to reflect the purchase of Merchant-Link as if the acquisition
occurred on July 1, 1995, would not have a material impact on the reported
results of the Company.
In February 1997, Paymentech purchased certain assets of TransGlobal
Systems, Inc. The portfolio consists primarily of merchants in the hospitality
and travel industries. In March 1997, the credit card processing portfolio of
CheckFree Corporation was acquired. Typical merchants in this portfolio
include Internet service providers, on-line interactive retailers, cellular
communications companies, and utility and insurance companies.
In September 1995, First USA, Inc. acquired all the outstanding stock of
Litle & Company, Inc. ("Litle"). This transaction was accounted for as a
pooling of interests, and accordingly, Paymentech's consolidated financial
statements include Litle's operations for all prior fiscal years presented.
All other business combinations and asset purchases have been accounted for as
purchases, and accordingly, their results have been included in Paymentech's
results of operations from the effective dates of such acquisitions.
In connection with the Litle acquisition, approximately $1.6 million of
acquisition costs ($1.0 million net of income taxes, or $0.04 per share) were
incurred and recorded as operating expense in the first six months of fiscal
1996.
In July 1994, First USA's former parent, First USA, Inc., issued shares of
its common stock in exchange for the merchant contracts and certain other
assets of Electronic Processing Source, Inc. ("EPS"). First USA, Inc.
contributed the purchased merchant portfolio of EPS to Paymentech as a capital
contribution. Paymentech and First USA, Inc. also purchased the capital stock
of Mokarow & Associates, Inc. ("Mokarow"), a sales agent, for approximately
$14.3 million. First USA, Inc. contributed its investment in Mokarow to
Paymentech as a capital contribution.
Amortization expense related to goodwill, purchased merchant portfolios and
other intangibles was $12.4 million, $2.5 million and $1.2 million during
fiscal 1997, 1996 and 1995, respectively.
33
<PAGE>
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In January 1997, a subsidiary of Paymentech and PHH Vehicle Management
Services Corporation ("PHH"), an indirect wholly owned subsidiary of HFS
Incorporated, formed PHH/Paymentech L.L.C. ("PHH/Paymentech"), a Delaware
limited liability company that is one of the first to offer a MasterCard-
branded single card payment system for fleet, purchasing, travel and
entertainment needs. PHH/Paymentech offers the corporate fleet card solution
to companies with mobile employees, marketing to both existing customers and
prospects.
Upon formation of PHH/Paymentech, PHH contributed to PHH/Paymentech existing
client and supplier contracts relating to its private label fleet card
programs. As consideration for a portion of PHH's ownership in PHH/Paymentech,
the Company paid PHH $12.5 million with an additional $5.0 million payable
within one year. In addition, if certain performance objectives are met, an
additional $2.5 million will be paid to PHH over the next three years. The
Company and PHH each have a 50% interest in PHH/Paymentech.
NOTE D NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per share is calculated as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996 1995
--------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Net income................................. $ 3,726 $ 14,252 $ 7,920
---------- ---------- ----------
Weighted average common shares
outstanding............................... 33,422,464 26,315,065 24,411,081
Common stock equivalents--stock options.... 315,639 114,608 --
---------- ---------- ----------
Weighted average common and common
equivalent shares outstanding............. 33,738,103 26,429,673 24,411,081
---------- ---------- ----------
Net income per share....................... $ 0.11 $ 0.54 $ 0.32
========== ========== ==========
</TABLE>
NOTE E NOTES RECEIVABLE
In February 1997, the Company advanced $6.4 million in cash and received a
$6.4 million note from LitleNet L.L.C. as part of a litigation settlement.
This note is discounted to earn a market rate of interest with principal and
interest due in 2003.
In June 1997, the Company sold non-core business agent bank contracts for
cash and a $3.4 million note receivable. The purchaser also entered into a
processing agreement with the Company which provides for an ongoing revenue
stream. The note matures in 2000 and earns interest at a market rate with
principal and interest payments due quarterly. This sale generated a gain of
$6.8 million which is included in other income.
NOTE F PROPERTY AND EQUIPMENT
A summary of property and equipment by major class is as follows:
<TABLE>
<CAPTION>
JUNE 30,
----------------
(IN THOUSANDS) 1997 1996
-------------- ------- -------
<S> <C> <C>
Furniture and equipment.................................... $40,918 $27,599
Leasehold improvements..................................... 13,364 9,508
Credit card terminals held for lease....................... 5,954 4,622
------- -------
60,236 41,729
Less: accumulated depreciation............................. (16,133) (11,385)
------- -------
$44,103 $30,344
======= =======
</TABLE>
34
<PAGE>
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Depreciation expense was $8.2 million, $5.2 million and $3.0 million in
fiscal 1997, 1996 and 1995, respectively. During the fourth quarter of 1997,
the Company wrote off certain assets which consisted primarily of obsolete
technology and obsolete terminal inventory. This charge of $3.3 million is
included in the merger, integration and impairment charges.
NOTE G REVOLVING CREDIT FACILITY
The revolving credit facility payable to a bank syndicate ("Revolving Credit
Facility") provides a source of liquidity to manage cash flow, as well as
capital to subsidiaries for expansion, and for other corporate uses. In
October 1996, Paymentech increased its Revolving Credit Facility from $100
million to $200 million. The Revolving Credit Facility bears interest based on
the London Interbank Offering Rate ("LIBOR") plus 0.35% to 0.90% and
commitment fees ranging from 0.15% to 0.30% on the unused portion based on
Paymentech's debt to capitalization ratio, payable quarterly. The Revolving
Credit Facility expires in February 1999, with the option of two one-year
extensions. First USA is guarantor to the Revolving Credit Facility.
Paymentech's ability to pay dividends is conditioned upon the observance of
certain financial covenants in the agreement. The financial covenants require
Paymentech to maintain specified (i) debt to capitalization ratios, (ii) debt
to cash flow ratios, (iii) minimum interest coverage ratios, and (iv) minimum
levels of consolidated stockholders' equity.
At June 30, 1997, Paymentech had $75.0 million in borrowings under the
Revolving Credit Facility as a $40.0 million note and a $35.0 million note,
each at a rate of LIBOR plus 0.35% (approximately 6.04% as of June 30, 1997).
The Revolving Credit Facility allows Paymentech to borrow up to $75.0 million
from First USA; however, no such borrowings were outstanding at June 30, 1997.
In January 1997, Paymentech repaid a $25.0 million loan from First USA.
Paymentech paid interest of $4.4 million in fiscal 1997, primarily related
to Paymentech's Revolving Credit Facility, interest-bearing deposits and the
loan payable to First USA. In fiscal 1996 and 1995, Paymentech paid $1.7
million and $586,000 in interest, respectively, primarily related to merchant
deposits.
NOTE H PREFERRED STOCK
The Board of Directors of Paymentech has the authority to determine the
principal rights, preferences and privileges of 10.0 million shares of
authorized preferred stock. Provisions could be included in the shares of
preferred stock, such as extraordinary voting, dividend, redemption or
conversion rights, which could discourage an unsolicited tender offer or
takeover proposal. However, Paymentech has no current plans to issue preferred
stock.
NOTE I INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
----------------------------
(IN THOUSANDS) 1997 1996 1995
-------------- --------- -------- --------
<S> <C> <C> <C>
Federal income taxes--current................. $ 10,428 $ 7,610 $ 2,504
Federal income taxes--deferred................ (224) -- --
State income taxes, net of federal tax
benefit--current............................. 947 1,890 786
State income taxes, net of federal tax
benefit--deferred............................ (131) -- --
--------- -------- --------
$ 11,020 $ 9,500 $ 3,290
========= ======== ========
</TABLE>
35
<PAGE>
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to income before income taxes due to the
following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-----------------------------
(IN THOUSANDS) 1997 1996 1995
-------------- --------- -------- ---------
<S> <C> <C> <C>
Statutory tax rate applied to income before
income taxes............................... $ 5,161 $ 8,313 $ 3,924
State income taxes, net of federal income
tax benefit................................ 531 1,229 511
Stock-based compensation.................... 2,804 -- --
Amortization of goodwill, purchased merchant
portfolios
and other intangibles...................... 2,045 -- --
Subchapter S status of Litle................ -- (17) (1,145)
Other....................................... 479 (25) --
--------- -------- ---------
$ 11,020 $ 9,500 $ 3,290
========= ======== =========
</TABLE>
Deferred tax liabilities at June 30, 1997 consist of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Deferred tax liabilities:
Amortization of goodwill, purchased merchant portfolios
and other intangibles............................................. $3,837
Allowances for credit losses....................................... (140)
Basis difference of property and equipment......................... 1,272
Conversion costs................................................... 10
Deferred compensation.............................................. (989)
Other.............................................................. 4
------
$3,994
======
</TABLE>
Paymentech paid federal income tax payments of $18.7 million, $2.8 million
and $3.2 million during fiscal 1997, 1996 and 1995, respectively.
Prior to the Initial Offering, Paymentech was included in the consolidated
federal income tax return filed by First USA. Income tax expense was provided
based on earnings reported as if Paymentech filed a separate income tax
return.
NOTE J STOCK OPTIONS, STOCK PURCHASE AND RESTRICTED STOCK PLANS
The Company provides for grants of nonqualified stock options to certain key
employees of Paymentech under the First USA Paymentech, Inc. Amended and
Restated 1996 Stock Option Plan (the "1996 Option Plan"). All stock options
have an exercise price equal to the market value of Paymentech's common stock
on the date the option is granted and may not be exercised more than 10 years
from the date of grant.
Members of the Board of Directors of Paymentech who are not employees of the
Company or Banc One and its subsidiaries on the date they become a director
receive an option to purchase 5,000 shares of common stock at an option price
equal to the fair market value of the common stock on the date of grant. The
option is granted on the date the director joins the Board. Such directors
will also receive annual grants of options to purchase 2,500 shares of common
stock at an option price equal to the fair market value of the stock on the
date of grant. Options terminate if not exercised within 90 days after the
director ceases to be a member of the Board of Directors.
Under the 1996 Option Plan, 4,000,000 shares of common stock have been
reserved with 1,436,900 common shares available for future grants as of June
30, 1997.
36
<PAGE>
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes Paymentech's stock option activity, and
related information for the fiscal years ended June 30:
<TABLE>
<CAPTION>
1997 1996
-------------------------- --------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of fiscal year......... 808,500 $20.11 -- --
Granted................. 1,077,700 32.72 1,600,500 $20.14
Exercised............... 27,220 20.23 790,000 20.16
Forfeited............... 113,100 29.93 2,000 19.53
--------- ---------
Outstanding at end of
fiscal year............ 1,745,880 27.26 808,500 20.11
========= =========
Exercisable at end of
fiscal year............ 1,118,240 $26.48 162,100 $20.12
========= =========
</TABLE>
The following table summarizes information about stock options outstanding
at June 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
RANGE OF OPTION SHARES WEIGHTED AVERAGE WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING REMAINING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ------------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$19.53.................. 703,800 8.7 $19.53 628,800 $19.53
$22.38 to $28.94........ 480,000 10.0 28.82 7,600 27.33
$30.38 to $34.63........ 48,100 9.0 32.02 47,860 32.03
$35.00 to $39.50........ 513,980 9.1 $35.93 433,980 $35.92
</TABLE>
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if Paymentech had accounted
for its employee stock options under the fair value method of SFAS 123. The
fair value for these options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted average assumptions
for fiscal 1997 and fiscal 1996: risk-free interest rate of 6.30% and 6.29%,
respectively; expected volatility of 49.50%; and a weighted average expected
life of the option of five years. The weighted average fair value at date of
grant for options granted during fiscal 1997 and fiscal 1996 was $16.64 and
$14.89 per option, respectively.
Had compensation expense for Paymentech's stock option plan been determined
based on the fair value at the grant date for awards in fiscal 1997 and fiscal
1996 consistent with the provisions of SFAS 123, the Company's net loss and
loss per share for fiscal 1997 would have been $9.9 million and $0.29. Due to
the Banc One merger with First USA, Inc., most outstanding stock options at
June 30, 1997 became exercisable in fiscal 1997, increasing the compensation
expense determined under SFAS 123. Had the accelerated vesting not occurred,
the Company's fiscal 1997 pro forma net loss would have been minimal. For
fiscal 1996, Paymentech's net income and earnings per share would have been
$6.6 million and $0.25.
The effects of applying SFAS 123 in this pro forma disclosure may not be
representative of the pro forma impact on future years, as additional options
may be granted in future years and the vesting of options already granted will
impact the pro forma disclosures.
Effective January 1, 1997, employees of Paymentech were able to participate
in the First USA Paymentech, Inc. Employee Stock Purchase Plan (the "Purchase
Plan"). The Purchase Plan provides a means for employees to purchase shares of
Paymentech's common stock at 85% of the fair market value thereof. Under the
Purchase Plan, 150,000 shares of common stock have been reserved with 14,674
common shares issued as of June 30, 1997. Prior to adoption of this plan, the
employees of Paymentech were eligible to participate in the First USA, Inc.
Employee Stock Purchase Plan (the "First USA Purchase Plan"). The First USA
Purchase Plan provided a means for employees to purchase shares of First USA
common stock at 85% of the fair market value thereof.
37
<PAGE>
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The First USA Paymentech, Inc. Amended and Restated 1996 Restricted Stock
Plan (the "Restricted Stock Plan") authorizes the granting of awards in the
form of restricted shares of Paymentech's common stock to key officers and
employees of Paymentech subject to risks of forfeiture that may be eliminated
over time and, in some cases based on performance criteria. A maximum of
500,000 shares of common stock have been reserved for issuance under the
Restricted Stock Plan, subject to adjustment, of which 161,500 shares with a
weighted average grant-date fair value of $29.08 have been issued as of June
30, 1997.
NOTE K RETIREMENT BENEFITS
In March 1996, Paymentech adopted a noncontributory defined benefit
retirement plan (the "Retirement Plan") that provides retirement benefits for
eligible employees. Paymentech's funding policy is to annually contribute the
minimum amount required under the Employee Retirement Income Security Act of
1974. Contributions are intended to provide not only for benefits attributed
to compensation to date, but also for compensation increases to be earned in
the future. Each participant's cash balance account is credited with an amount
equal to 4% of the participant's compensation plus interest at a rate of 5%
per year. Each participant becomes fully vested in benefits under the plan
after five years of employment. Prior to that time, no portion of a
participant's benefits is vested. The plan assets consist primarily of
investments in mutual funds.
A summary of the components of the periodic pension expense follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
(IN THOUSANDS) JUNE 30, 1997
-------------- -----------------
<S> <C>
Service cost-benefits earned during the period............. $ 338
Interest cost on projected benefit obligation.............. 104
Actual return on plan assets............................... (258)
Net amortization and deferral.............................. 189
-----
Net periodic pension expense............................... $ 373
=====
Assumptions used in the accounting for the plan were:
<CAPTION>
FISCAL YEAR ENDED
JUNE 30, 1997
-----------------
<S> <C>
Discount rate.............................................. 8.0%
Expected rate of increase in compensation levels........... 5.0%
Expected long-term rate of return on assets................ 8.5%
</TABLE>
38
<PAGE>
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following sets forth the funded status and the amount recognized in the
consolidated balance sheets for the Company's defined benefit retirement plan:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
(IN THOUSANDS) JUNE 30, 1997
-------------- -----------------
<S> <C>
ACCUMULATED BENEFITS:
Actuarial present value of accumulated plan benefits:
Vested................................................. $ 906
Nonvested.............................................. 285
--------
Total................................................ $ 1,191
========
PENSION LIABILITY:
Projected benefit obligation for service rendered to
date.................................................... $ (1,671)
Fair value of net assets available for benefits.......... 1,237
--------
Projected benefit obligation in excess of plan assets.... (434)
Unrecognized prior service cost.......................... (50)
Unrecognized net loss.................................... 355
--------
Total................................................ $ (129)
========
</TABLE>
Prior to the adoption of the Retirement Plan, eligible employees
participated in the First USA noncontributory defined benefit retirement plan.
All of the Paymentech participants' plan assets and liabilities were
transferred from the First USA plan to Paymentech's Retirement Plan upon
adoption of the Retirement Plan. The statements of income include $322,000 and
$156,000 for contributions allocated to the Retirement Plan for fiscal 1996
and 1995, respectively.
Effective July 1, 1996, Paymentech adopted the Retirement Savings Plan (the
"Savings Plan"), which provides savings and investment opportunities to
employees of the Company. The Savings Plan stipulates that eligible employees
with at least one year of service and a minimum of 1,000 hours of service, may
elect to contribute to the plan. Pre-tax contributions up to 3% of an eligible
employee's defined compensation are matched 50% by Paymentech. Prior to the
adoption of the Savings Plan, the employees of Paymentech participated in the
First USA Retirement Savings Plan. All employee and employer contributions to
the First USA Savings Plan as well as the earnings on these contributions were
transferred from the First USA Savings Plan to Paymentech's Savings Plan upon
adoption of the Savings Plan. The consolidated statements of income include
$335,000, $211,000 and $288,000 for the contributions to the Savings Plan for
fiscal 1997, 1996 and 1995, respectively.
NOTE L COMMITMENTS AND CONTINGENCIES
Paymentech leases its office space and certain equipment under operating
leases with remaining terms ranging up to 10 years. Paymentech subleases its
principal office space from First USA. The office space leases contain renewal
options and generally require Paymentech to pay certain operating expenses.
Future minimum lease commitments under noncancelable leases as of June 30,
1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998................................................................. $ 6,734
1999................................................................. 5,635
2000................................................................. 5,007
2001................................................................. 4,766
2002................................................................. 4,239
Thereafter........................................................... 13,154
-------
$39,535
=======
</TABLE>
39
<PAGE>
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The consolidated statements of income include rental expense for operating
leases of $4.6 million, $3.8 million and $2.0 million for fiscal 1997, 1996
and 1995, respectively.
In the course of business, Paymentech is a defendant in various lawsuits.
Management believes that the resolution of these lawsuits will not have a
material impact on the Company.
NOTE M FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of Paymentech's financial instruments are as
follows:
<TABLE>
<CAPTION>
AT JUNE 30, 1997 AT JUNE 30, 1996
----------------- -----------------
CARRYING FAIR CARRYING FAIR
(IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE
-------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and cash equivalents.............. $119,466 $119,466 $105,804 $105,804
Investments............................ 10,083 10,143 12,379 12,315
Notes receivable....................... 9,169 9,169 -- --
FINANCIAL LIABILITIES:
Interest-bearing deposits.............. 20,721 20,740 5,335 5,335
Merchant deposits...................... 18,852 18,852 18,353 18,353
Notes payable to banks and other
borrowings............................ 75,140 75,140 690 690
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
Cash and cash equivalents: The carrying amounts for cash and cash
equivalents approximate fair value due to the short maturities of such
instruments.
Investments: Fair value is based on quoted market prices.
Notes receivable: The estimated fair value of notes receivable approximates
the carrying amount at June 30, 1997. The interest rates are commensurate with
the credit, interest rate and prepayment risks involved.
Interest-bearing deposits: The estimated fair values for interest-bearing
deposits are based on discounted cash flows. The discount rates used in these
analyses are based on market rates of alternative funding sources currently
available for similar remaining maturities.
Merchant deposits: The merchant deposits are interest-bearing and on terms
that are standard for the industry.
Notes payable to banks and other borrowings: The interest rate on the
Company's notes payable to banks and other borrowings is reset quarterly to
reflect current market rates. Consequently, the carrying amounts approximate
fair value.
NOTE N RELATED PARTIES
The Company subleases office space from First USA and participates in
insurance coverage and certain benefit plans with First USA. In addition,
until First USA, Inc.'s merger with Banc One, First USA provided certain other
administrative services to the Company. The consolidated statements of income
include an allocation to the Company of the costs incurred by First USA or one
of its subsidiaries. In conjunction with First USA, Inc.'s merger with Banc
One in June 1997, Paymentech assumed these administrative services.
40
<PAGE>
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. These
certificates of deposit earn interest at a market rate and had initial
maturities of less than 90 days.
Other income included related party transactions with First USA, Inc.
resulting in a $3.5 million gain in December 1996 related to the termination
of a call option on warrants held by First USA, Inc. for stock in First
Virtual Holdings, Inc. ("First Virtual") and a $5.0 million gain in March 1997
related to the termination of an agreement that First USA, Inc. would not
compete with Paymentech for business card customers. Both of these
transactions were on terms which the Company believes to be representative of
an arms' length transaction. Other income also included a $6.8 million gain
related to the divestiture of a portfolio of certain agent bank contracts
which did not represent core business.
In June 1997, First USA, Inc. merged with and into Banc One. This
transaction caused Paymentech to record a one-time merger expense of $12.5
million which included the costs associated with the accelerated vesting of
First USA, Inc. restricted stock grants and forgiveness of stock loans
provided by First USA to certain key Paymentech employees. Certain key
employees of the Company participated in First USA, Inc.'s 1994 Restricted
Stock Plan which allowed the granting of First USA, Inc. restricted stock to
eligible employees. First USA, Inc. restricted stock was transferred to the
recipient without payment to the Company or First USA, Inc., and is subject to
certain restrictions and risk of forfeiture. These restrictions lapsed upon
the merger of First USA, Inc. and Banc One generating an expense related to
Paymentech employees of $6.6 million. In addition, in March 1996, First USA
made loans to certain key employees of the Company to exercise 30 day stock
options for Paymentech common stock at the initial public offering price. The
terms of these loans called for the outstanding principal and accrued interest
to be forgiven upon a change of control of either First USA, Inc. or
Paymentech. Therefore, these loans were forgiven upon the merger of First USA,
Inc. with and into Banc One, resulting in an expense related to Paymentech
employees of $5.9 million. Paymentech did not expend any cash relative to
either expense; rather, the total $12.5 million is treated as a capital
contribution from First USA to Paymentech.
The President and Chief Executive Officer of the Company is a member of the
Board of Directors of First Virtual.
NOTE O RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued Statement No. 128, "Earnings per Share",
which simplifies the standards for computing and presenting earnings per
share. Under the new standards, the presentation of primary earnings per share
will be replaced with a presentation of basic earnings per share. Basic
earnings per share is computed excluding dilution caused by common stock
equivalents such as stock options. The presentation of fully diluted earnings
per share is replaced with a presentation of diluted earnings per share, which
is calculated in a similar fashion to how fully diluted earnings per share is
computed. Paymentech will adopt this pronouncement to report results of
operations for the second quarter of fiscal 1998. At that time, previously
reported earnings per share will be restated to conform to the new rules. This
adoption is not expected to have a material impact on earnings per share as
currently presented by Paymentech.
41
<PAGE>
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS AND INTERNAL CONTROL
The management of First USA Paymentech, Inc. and its subsidiaries prepared
the accompanying financial statements and is responsible for their integrity
and objectivity. The financial statements, which include amounts that are
based on management's best estimates and judgments, have been prepared in
conformity with generally accepted accounting principles and are free of
material misstatement. Management also prepared the other information in the
annual report and is responsible for its accuracy and consistency with the
financial statements.
Management of First USA Paymentech, Inc. maintains a system of internal
control over the preparation of its published annual financial statements. It
should be recognized that even an effective internal control system, no matter
how well designed, can provide only reasonable assurance with respect to the
preparation of reliable financial statements; further, because of changes in
conditions, internal control system effectiveness may vary over time.
Management believes that the system of internal control provides reasonable
assurance that assets are safeguarded and that transactions are properly
recorded and executed in accordance with management's authorization.
The consolidated financial statements have been audited by Paymentech's
independent auditors, Ernst & Young LLP, whose independent professional
opinion appears separately. Ernst & Young LLP obtains and maintains an
understanding of the internal control structure and conducts such tests and
other auditing procedures considered necessary in the circumstances to render
the opinion on the financial statements.
The Audit Committee of the Board of Directors, composed solely of outside
directors, met periodically during fiscal 1997 with the internal auditors and
management to review the work of each and ensure that each is properly
discharging its responsibilities. The independent auditors have free access to
the committee to discuss the results of their audit work and their evaluations
of the adequacy of accounting systems and internal control and the quality of
financial reporting.
JOHN C. TOLLESON
Chairman
PAMELA H. PATSLEY
President and Chief Executive
Officer
DAVID W. TRUETZEL
Chief Financial Officer and
Secretary
42
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
First USA Paymentech, Inc.
We have audited the accompanying consolidated balance sheets of First USA
Paymentech, Inc. and subsidiaries as of June 30, 1997 and 1996, and the
related consolidated statements of income, changes in stockholders' equity,
and cash flows for each of the three years in the period ended June 30, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of First USA
Paymentech, Inc. and subsidiaries at June 30, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1997, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Dallas, Texas
September 23, 1997
43
<PAGE>
FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES
QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FISCAL 1997
-----------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 4TH QUARTER 3RD QUARTER 2ND QUARTER 1ST QUARTER
- ------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue........................ $49,755 $46,957 $48,301 $41,130
Other income (1)............... 6,999 5,274 3,721 253
------- ------- ------- -------
Total revenues................. 56,754 52,231 52,022 41,383
------- ------- ------- -------
Operating expenses............. 24,608 18,786 17,985 16,083
Salaries and employee benefits
expense....................... 14,574 13,433 12,015 11,690
Depreciation and amortization
expense....................... 6,216 5,672 5,060 3,624
Interest expense............... 1,661 1,050 1,673 500
Merger, integration and
impairment charges............ 4,997 -- -- 15,544
First USA, Inc./Banc One merger
expense....................... 12,473 -- -- --
------- ------- ------- -------
Total expenses................. 64,529 38,941 36,733 47,441
------- ------- ------- -------
Income (loss) before income
taxes......................... (7,775) 13,290 15,289 (6,058)
Provision for income taxes..... 971 5,930 6,893 (2,774)
------- ------- ------- -------
Net income (loss).............. $(8,746) $ 7,360 $ 8,396 $(3,284)
======= ======= ======= =======
Net income (loss) per
share(2)...................... $ (0.25) $ 0.21 $ 0.26 $ (0.10)
======= ======= ======= =======
Weighted average common and
common equivalent shares
outstanding................... 35,180 35,197 32,522 32,124
======= ======= ======= =======
<CAPTION>
FISCAL 1996
-----------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 4TH QUARTER 3RD QUARTER 2ND QUARTER 1ST QUARTER
- ------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue........................ $34,801 $32,284 $32,579 $24,403
Other income (1)............... 1,260 208 206 70
------- ------- ------- -------
Total revenues................. 36,061 32,492 32,785 24,473
------- ------- ------- -------
Operating expenses............. 13,593 13,259 13,899 13,044
Salaries and employee benefits
expense....................... 10,901 10,089 9,473 8,290
Depreciation and amortization
expense....................... 2,375 2,085 1,697 1,512
Interest expense............... 188 697 587 370
------- ------- ------- -------
Total expenses................. 27,057 26,130 25,656 23,216
------- ------- ------- -------
Income before income taxes..... 9,004 6,362 7,129 1,257
Provision for income taxes..... 3,574 2,474 2,884 568
------- ------- ------- -------
Net income..................... $ 5,430 $ 3,888 $ 4,245 $ 689
======= ======= ======= =======
Net income per share(2)........ $ 0.17 $ 0.16 $ 0.17 $ 0.03
======= ======= ======= =======
Weighted average common and
common equivalent shares
outstanding................... 32,080 24,816 24,411 24,411
======= ======= ======= =======
</TABLE>
- --------
(1) Other income included related party transactions in the second and third
quarters resulting in a $3.5 million gain related to the termination of a
call option on warrants held by First USA, Inc. for stock in First Virtual
and a $5.0 million gain related to the termination of an agreement that
First USA, Inc. would not compete with Paymentech for business card
customers. Both of these transactions were on terms which the Company
believes to be representative of an arms' length transaction. Other income
in the fourth quarter included a $6.8 million gain related to the
divestiture of certain agent bank contracts which did not represent part
of the Company's core business. The purchaser of the agent bank contracts
also entered into an ongoing processing agreement which provides for a
future revenue stream.
(2) Quarterly income per share amounts are computed on the basis of the
weighted average number of shares outstanding for each quarter. Changes
between quarters in the number of shares outstanding result in the annual
computation of income per share differing from the aggregate of the
quarterly amounts.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
44
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the directors
and executive officers of the Company and its subsidiaries as of September 15,
1997.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Gene H. Bishop 67 Director
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
Richard W. Vague 41 Director
James W. Baumgartner 37 President and Director of Financial Services
Michael P. Duffy 38 Chief Operating Officer
Philip E. Taken 36 Chief Administrative Officer, General Counsel and Assistant Secretary
David W. Truetzel 40 Chief Financial Officer and Secretary
</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.
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 ("Merchant Services") since
December 1991 and as Chairman of the Board of First USA Financial Services,
Inc. ("Financial Services"), the Company's commercial card subsidiary, since
August 1994. Ms. Patsley also served as Executive Vice President and Secretary
of First USA, Inc. 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 and Adolph Coors Co.
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.
45
<PAGE>
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, Inc. from August 1989 until June 1997,
and of First USA's predecessor since its formation in May 1985. Mr. Tolleson
was the co-founder of First USA, Inc. with Mr. Vague. Mr. Tolleson also
currently serves on the Boards of Banc One, Visa USA, Inc., Visa
International, Inc., Capstead Mortgage Corporation, and VIAD Corporation and
on the Executive Board of the Cox School of Business at Southern Methodist
University.
Richard W. Vague. Mr. Vague has been a Director of the Company since
December 1995. Mr. Vague has served as President of First USA since June 1990
and as a Director of First USA since August 1989. Mr. Vague has also been
Chairman of the Board and Chief Executive Officer of First USA Bank, a
subsidiary of First USA since October 1995 and was a Director from May 1985
through October 1995. Mr. Vague served as President of First USA, Inc. from
June 1990 until June 1997 and as a Director of First USA, Inc. from August
1989 until June 1997. Mr. Vague serves on the Visa Marketing Committee, the
Visa International Card Products Committee and the MasterCard Marketing
Committee, and was co-founder of First USA, Inc. with Mr. Tolleson. Mr. Vague
is also a Director of Physician Support Systems, Inc.
James W. Baumgartner. Mr. Baumgartner has been President and a Director of
Financial Services since June 1996. From 1992 to June 1996, Mr. Baumgartner
was Senior Vice President and General Manager of the commercial card business
and merchant bankcard business at First Bank System, Inc. From 1989 to 1992,
Mr. Baumgartner was Vice President and Controller of the Electronic Banking
Division at First Bank System, Inc. Mr. Baumgartner was formerly a Senior
Manager at Ernst & Young LLP, where he was employed from 1982 to 1989.
Michael P. Duffy. Mr. Duffy has served as Chief Operating Officer since July
1997, and served as Group Executive of Direct Marketing Operations from
December 1995 through July 1997. From August 1992 to December 1995, Mr. Duffy
served as Vice President--Finance of Litle. Mr. Duffy also served as Vice
President and Assistant Group Controller at Equifax Credit Information
Services from November 1991 to August 1992, and Assistant Vice President--
Finance and Administration at Equifax Credit Bureau Marketing from June 1990
to October 1991.
Philip E. Taken. Mr. Taken has served as Chief Administrative Officer,
General Counsel and Assistant Secretary of the Company since July 1997, and
was Senior Vice President, General Counsel and Assistant Secretary of the
Company from December 1995 through June 1997. Mr. Taken also served as Senior
Vice President, General Counsel and Assistant Secretary of First USA, Inc.
from 1993 through June 1997 and was Vice President, General Counsel and
Assistant Secretary from 1989 to 1993. From 1986 through 1989, Mr. Taken was
associated with the law firm of Hughes and Luce, L.L.P.
David W. Truetzel. Mr. Truetzel has been Chief Financial Officer and
Secretary of the Company since December 1995. From June 1985 to December 1995,
Mr. Truetzel was affiliated with A.G. Edwards & Sons, Inc., where he most
recently served as a Vice President in the firm's Corporate Finance
Department. Mr. Truetzel was formerly employed by KPMG Peat Marwick, L.L.P.
and Deloitte, Touche, L.L.P. He is also a Director of National Home Centers,
Inc. Mr. Truetzel recently advised the Company that he has resigned his
positions with the Company effective as of September 30, 1997.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation" in the Company's definitive
Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Company's definitive Proxy Statement is incorporated herein
by reference.
46
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
REGISTRATION RIGHTS
Banc One, as successor to First USA, Inc., 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 are parties to two subleases, pursuant to which
First USA provides the Company with certain office space. Pursuant to an
Intercompany Services Agreement with the Company (the "Intercompany
Agreement") First USA and First USA Management, Inc. allow the Company to
participate in insurance coverage and certain benefit plans made available by
First USA. In addition, prior to the merger between First USA and Banc One,
First USA provided certain administrative services to the Company under the
Intercompany Agreement at a rate equal to First USA's costs.
LICENSE TO USE THE FIRST USA NAME AND CERTAIN TRADEMARKS
The Intercompany Agreement also provides for the grant by First USA 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'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 might reasonably
be expected to affect the Marks or (iv) if required by First USA, any
advertising campaigns or strategies which use the Marks or which refer to
First USA. First USA 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,
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's rights in the Marks), and (ii) any other acts or omissions arising
out of performance of the Intercompany Agreement.
The Intercompany Agreement provides that First USA indemnify the Company,
its subsidiaries and each of their respective officers, directors, employees
and agents against losses from third party claims based on, arising
47
<PAGE>
out of or resulting from (i) any third party claims relating to First USA's
rights in the Marks, and (ii) any other acts or omissions arising out of
performance of the Intercompany Agreement.
INTERCOMPANY INDEBTEDNESS
First USA loaned the Company $25 million in connection with the Company's
August 1996 acquisition of GENSAR. 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, which governs tax related matters affecting
taxable periods ending prior to and subsequent to the Company's 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 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 under such Tax Sharing
Agreement.
Other income included related party transactions with First USA, Inc.
resulting in a $3.5 million gain in December 1996 related to the termination
of a call option on warrants held by First USA, Inc. for stock in First
Virtual and a $5.0 million gain in March 1997 related to the termination of an
agreement that First USA, Inc. would not compete with Paymentech 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, Financial Services from time to time engaged in funding
and investment transactions with First USA Bank, a wholly owned subsidiary of
First USA. 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.
48
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
a. Index to Financial Statements:
(1) The following financial statements of First USA Paymentech, Inc. and
its subsidiaries are included in Item 8:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheets at June 30, 1997 and 1996.................. 25
Consolidated Statements of Income for each of the three years in the
period ended
June 30, 1997......................................................... 26
Consolidated Statements of Changes in Stockholders' Equity for each of
the three years in the period ended June 30, 1997..................... 27
Consolidated Statements of Cash Flows for each of the three years in
the period ended
June 30, 1997......................................................... 28
Notes to Consolidated Financial Statements............................. 29
Report of Independent Auditors......................................... 43
</TABLE>
(2) The following consolidated financial statement schedule of First USA
Paymentech, Inc. and its subsidiaries is included in Item 14(d):
No financial statement schedules are required to be filed.
(3) Listing of Exhibits
The following exhibits are incorporated by reference or filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2 Agreement and Plan of Merger, dated as of July 19, 1996, by and among
First USA, the Company, First USA Management Resources, Inc., First
USA Opportunity III, Inc., GENSAR and Golder Thoma Cressey Fund III
Limited Partnership and the other stockholders of GENSAR, filed as
Exhibit 2.1 to the Company's Current Report on Form 8-K filed
September 3, 1996 and incorporated herein by reference.
3.1 Certificate of Incorporation of the Company, as amended, filed as
Exhibit 3.1 to the Company's Registration Statement on Form S-1 (No.
333-262) (the "Registration Statement") and incorporated herein by
reference.
3.2* By-Laws of the Company.
10.1 Intercompany Services Agreement between the Company and First USA
Management, Inc., filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996, and
incorporated herein by reference.
10.2* First Amendment to Intercompany Services Agreement, dated as of June
24, 1997, among the Company, First USA Management, Inc. and First USA.
10.3 Registration Rights Agreement between the Company and Banc One, as
successor to First USA, Inc., filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 and
incorporated herein by reference.
10.4 Tax Sharing Agreement between the Company and First USA, filed as
Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996 and incorporated herein by reference.
10.5* Amended and Restated 1996 Stock Option Plan of the Company.
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.6* Amended and Restated 1996 Restricted Stock Plan of the Company.
10.7 Revolving Credit Agreement dated February 21, 1996 among the Company,
the lenders listed therein and NationsBank of Texas N.A., as Agent,
including the notes and guaranty related thereto, filed as Exhibit
10.6 to the Registration Statement and incorporated by reference
herein.
10.8 Form of Amendment No. 1 to Revolving Credit Agreement dated October
30, 1996, among the Company, the lenders listed herein and Nations
Bank of Texas, N.A., as Agent, filed as Exhibit 10.8 to the Company's
Registration Statement on Form S-1 (No. 333-15861) and incorporated
herein by reference.
10.9 Deferred Compensation Plan of First USA, filed as Exhibit 4.3 to the
Company's Registration Statement on Form S-8 (No. 333-06979) and
incorporated herein by reference.
10.10 Employee Stock Purchase Plan of the Company.
10.11 First USA Paymentech Retirement Savings Plan, filed as Exhibit 99.1 to
the Company's Registration Statement on Form S-8 (No. 333-11249) and
incorporated herein by reference.
10.12 First USA Paymentech Supplemental Executive Retirement Plan.
10.13 First USA Paymentech Savings Restoration Plan.
10.14* Sublease Incorporating Provisions of Lease, dated as of June 2, 1997,
between First USA and the Company.
10.15* Sublease Incorporating Provisions of Lease, dated as of June 2, 1997,
between First USA and the Company.
10.16* Amendment to Sublease Incorporating Provisions of Lease, dated as of
July 10, 1997, between First USA and the Company.
10.17* Employment Agreement, dated as of June 27, 1997, between the Company
and Pamela H. Patsley.
10.18* Form of Employment Agreements, each dated as of June 27, 1997, between
the Company and each named executive officer other than Ms. Patsley.
11* Computation of Net Income Per Share (included in Note D to the
Accompanying Notes to the Consolidated Financial Statements of the
Company included herein).
21* Subsidiaries of the Company.
23* Consent of Ernst & Young LLP.
27* Financial Data Schedule.
</TABLE>
- --------
* Filed herewith
a. Reports on Form 8-K filed during the fourth quarter of fiscal year ended
June 30, 1997:
None.
b. Reports on Form 8-K filed subsequent to the fourth quarter of fiscal year
ended June 30, 1997:
Report on Form 8-K filed July 2, 1997
Item 1. Changes in Control of Registrant
Item 5. Other Events
Report on Form 8-K/A filed July 2, 1997
Item 1. Changes in Control of Registrant
Item 5. Other Events
c. Exhibits--Such exhibits as are indicated in the Listing of Exhibits as
being filed herewith are filed as exhibits to this report.
d. Financial Statement Schedule--No financial statement schedules are
required or filed herewith.
50
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
First USA Paymentech, Inc.
/s/ Pamela H. Patsley
Dated: September 26, 1997 By: _________________________________
PAMELA H. PATSLEY PRESIDENT AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT
AND IN THE CAPACITIES INDICATED ON SEPTEMBER 26, 1997.
SIGNATURE TITLE
/s/ John C. Tolleson Chairman of the Board
- -------------------------------------
JOHN C. TOLLESON
/s/ Pamela H. Patsley President, Chief Executive Officer
- ------------------------------------- and Director (Principal Executive
PAMELA H. PATSLEY Officer)
/s/ David W. Truetzel Chief Financial Officer and
- ------------------------------------- Secretary (Principal Financial and
DAVID W. TRUETZEL Accounting Officer)
/s/ Gene H. Bishop Director
- -------------------------------------
GENE H. BISHOP
/s/ William P. Boardman Director
- -------------------------------------
WILLIAM P. BOARDMAN
/s/ John B. McCoy Director
- -------------------------------------
JOHN B. MCCOY
/s/ Rupinder S. Sidhu Director
- -------------------------------------
RUPINDER S. SIDHU
/s/ Richard W. Vague Director
- -------------------------------------
RICHARD W. VAGUE
51
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
------- ----------- --------
<C> <S> <C>
2 Agreement and Plan of Merger, dated as of July 19, 1996,
by and among First USA, the Company, First USA Management
Resources, Inc., First USA Opportunity III, Inc., GENSAR
and Golder Thoma Cressey Fund III Limited Partnership and
the other stockholders of GENSAR, filed as Exhibit 2.1 to
the Company's Current Report on Form 8-K filed September
3, 1996 and incorporated herein by reference.
3.1 Certificate of Incorporation of the Company, as amended,
filed as Exhibit 3.1 to the Company's Registration
Statement on Form S-1 (No. 333-262) (the "Registration
Statement") and incorporated herein by reference.
3.2* By-Laws of the Company.
10.1 Intercompany Services Agreement between the Company and
First USA Management, Inc., filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996, and incorporated herein by
reference.
10.2* First Amendment to Intercompany Services Agreement, dated
as of June 24, 1997, among the Company, First USA
Management, Inc. and First USA.
10.3 Registration Rights Agreement between the Company and Banc
One, as successor to First USA, Inc., filed as Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996 and incorporated herein
by reference.
10.4 Tax Sharing Agreement between the Company and First USA,
filed as Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996 and
incorporated herein by reference.
10.5* Amended and Restated 1996 Stock Option Plan of the
Company.
10.6* Amended and Restated 1996 Restricted Stock Plan of the
Company.
10.7 Revolving Credit Agreement dated February 21, 1996 among
the Company, the lenders listed therein and NationsBank of
Texas N.A., as Agent, including the notes and guaranty
related thereto, filed as Exhibit 10.6 to the Registration
Statement and incorporated herein by reference.
10.8 Form of Amendment No. 1 to Revolving Credit Agreement
dated October 30, 1996, among the Company, the lenders
listed herein and Nations Bank of Texas, N.A., as Agent,
filed as Exhibit 10.8 to the Company's Registration
Statement on Form S-1 (No. 333-15861) and incorporated
herein by reference.
10.9 Deferred Compensation Plan of First USA, filed as Exhibit
4.3 to the Company's Registration Statement on Form S-8
(No. 333-06979) and incorporated herein by reference.
10.10 Employee Stock Purchase Plan of the Company.
10.11 First USA Paymentech Retirement Savings Plan, filed as
Exhibit 99.1 to the Company's Registration Statement on
Form S-8 (No. 333-11249) and incorporated herein by
reference.
10.12 First USA Paymentech Supplemental Executive Retirement
Plan.
10.13 First USA Paymentech Savings Restoration Plan.
10.14* Sublease Incorporating Provisions of Lease, dated as of
June 2, 1997, between First USA and the Company.
10.15* Sublease Incorporating Provisions of Lease, dated as of
June 2, 1997, between First USA and the Company.
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
------- ----------- --------
<C> <S> <C>
10.16* Amendment to Sublease Incorporating Provisions of Lease,
dated as of July 10, 1997, between First USA and the
Company.
10.17* Employment Agreement, dated as of June 27, 1997, between
the Company and Pamela H. Patsley.
10.18* Form of Employment Agreements, each dated as of June 27,
1997, between the Company and each named executive officer
other than Ms. Patsley.
11* Computation of Net Income Per Share (included in Note D to
the Accompanying Notes to the Consolidated Financial
Statements of the Company included herein).
21* Subsidiaries of the Company.
23* Consent of Ernst & Young LLP.
27* Financial Data Schedule.
</TABLE>
- --------
* Filed herewith
53
<PAGE>
EXHIBIT 3.2
BY-LAWS
OF
FIRST USA PAYMENTECH, INC.
-----------------------------------
ARTICLE I
OFFICES
-------
Section 1. Registered Office. The registered office of First USA
-----------------
Paymentech, Inc. (hereinafter called the "Corporation"), in the State of
Delaware shall be at 32 Loockerman Square, Suite L-100, City of Dover, County of
Kent, and the registered agent in charge thereof shall be Prentice Hall
Corporation System, Inc.
Section 2. Other Offices. The Corporation may also have an office or
-------------
offices at any other place or places within or without the State of Delaware as
the Board of Directors (hereinafter called the "Board") may from time to time
determine.
ARTICLE II
MEETING OF STOCKHOLDERS
-----------------------
Section 1. Place of Meetings. Meetings of the stockholders for the
-----------------
election of directors or for any other purpose shall beheld at such time and
place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. Annual meetings of stockholders shall be held
---------------
on such date and at such time as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting, at which meetings
the stockholders shall elect by a plurality vote a Board of Directors, and
transact such other business as may properly be brought before the meeting.
Written notice of the annual meeting stating the place, date and hour of the
meeting shall be given to each stockholder entitled to vote at such meeting not
less than ten or more than sixty days before the date of the meeting.
Section 3. Special Meetings. Unless otherwise prescribed by law or by the
----------------
Certificate of Incorporation, special meetings of stockholders, for any purpose
or purposes, may be called by the Board, the Chairman of the Board or the
Secretary of the Corporation. Written notice of a special meeting stating the
place, date and hour of the meeting and the purpose or purposes for which the
meeting is called shall be given not
-1-
<PAGE>
less than ten nor more than sixty days before the date of the meeting to each
stockholder entitled to vote at such meeting.
Section 4. Waiver of Notice. Notice of any annual or special meeting of
----------------
stockholders need not be given to any stockholder who files a written waiver of
notice with the Secretary, signed by the person entitled to notice, whether
before or after the meeting. Neither the business to be transacted at, nor the
purpose of, any meeting of stockholders need be specified in any written waiver
of notice. Attendance of a stockholder at a meeting, in person or by proxy,
shall constitute a waiver of notice of such meeting, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened.
Section 5. Adjournments. When a meeting is adjourned to another date,
------------
hour or place, notice need not be given of the adjourned meeting if the date,
hour and place thereof are announced at the meeting at which the adjournment is
taken. If the adjournment is for more than 30 days, or if after the adjournment
a new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
adjourned meeting. At the adjourned meeting any business may be transacted
which might have been transacted at the original meeting.
Section 6. Quorum. Except as otherwise provided by law or the Certificate
------
of Incorporation, the holders of a majority of the shares entitled to vote
thereat, present in person or by proxy, shall constitute a quorum at all
meetings of the stockholders, whether annual or special, for the transaction of
business. If, however, such quorum shall not be present or represented at any
meeting of the stockholders, the stockholders entitled to vote thereat may
adjourn the meeting from time to time in accordance with Section 5 of this
Article until a quorum shall be present or represented.
Section 7. Voting. Except as otherwise provided by the Certificate of
------
Incorporation, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder. Except as otherwise provided by law or
the Certificate of Incorporation or these By-Laws, when a quorum is present at
any meeting, the vote of the holders of a majority of the shares constituting
such quorum shall decide any question brought before such meeting.
Section 8. Proxies. Each stockholder entitled to vote at a meeting of
-------
stockholders may authorize another person or persons to act for such stockholder
by proxy. Such proxy shall be filed with the Secretary before such meeting of
stockholders, at such time as the Board of Directors may require. No proxy
shall be voted after three years from its date, unless the proxy provides for a
longer period.
Section 9. Nomination of Directors. Only persons who are nominated in
-----------------------
accordance with the following procedures shall be eligible for election as
directors of the Corporation. Nominations of persons for election to the Board
of Directors may be made
-2-
<PAGE>
at any annual meeting of stockholders (a) by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (b) by any stockholder
of the Corporation (i) who is a stockholder of record on the date of the giving
of the notice provided for in this Section 9 and on the record date for the
determination of stockholders entitled to vote at such meeting and (ii) who
complies with the notice procedures set forth in this Section 9.
In addition to any other applicable requirements, for a nomination to be
made by a stockholder, such stockholder must have given timely notice thereof in
proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than sixty days nor more than ninety days prior to the anniversary date of
the immediately preceding annual meeting of stockholders; provided, however,
-------- -------
that in the event that the annual meeting is called for a date that is not
within thirty days before or after such anniversary date, or no annual meeting
was held in the immediately preceding year, notice by the stockholder in order
to be timely must be so received no later than the close of business on the
tenth day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure of the date of the annual meeting
was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must
set forth (a) as to each person whom the stockholder proposes to nominate for
election as a director (i) the name, age, business address and residence address
of the person, (ii) the principal occupation or employment of the person, (iii)
the class or series and number of shares of capital stock of the Corporation
which are owned beneficially or of record by the person and (iv) any other
information relating to the person that would be required to be disclosed in a
proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder, and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the person named in its notice and (v) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder. Such notice
must be accompanied by a written consent of each proposed nominee to being named
as a nominee and to serve as a director if elected.
-3-
<PAGE>
No person shall be eligible for election as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Section 9.
If the Chairman of the meeting determines that a nomination was not made in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the nomination was defective and such defective nomination shall be
disregarded.
Section 10. Business at Annual Meetings. No business may be transacted at
---------------------------
an annual meeting of stockholders, other than business that is either (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors (or any duly authorized committee
thereof), (b) otherwise properly brought before the annual meeting by or at the
direction of the Board of Directors (or any duly authorized committee thereof)
or (c) otherwise properly brought before the annual meeting by any stockholder
of the Corporation (i) who is a stockholder of record on the date of the giving
of the notice provided for in this Section 10 and on the record date for the
determination of stockholders of record on the date for the determination of
stockholders entitled to vote at such annual meeting and (ii) who complies with
the notice procedures set forth in this Section 10.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than sixty days nor more than ninety days prior to the anniversary date of
the immediately preceding annual meeting of stockholders; provided, however,
-------- -------
that in the event that the annual meeting is called for a date that is not
within thirty days before or after such anniversary date, or no annual meeting
was held in the immediately preceding year, notice by the stockholder in order
to be timely must be so received not later than the close of business on the
tenth day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure of the date of the annual meeting
was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must
be set forth as to each matter such stockholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of such stockholder, (iii) the
class or series and number of shares of capital stock of the Corporation which
are owned beneficially or of record by such stockholder, (iv) a description of
all arrangements or understandings between such stockholder and any other person
or persons (including their names) in connection with the proposal of such
business and (v) a representation that such stockholder intends to appear in
person or by proxy at the annual meeting to bring such business before the
meeting.
-4-
<PAGE>
No business shall be conducted at the annual meeting of stockholders except
business brought before the annual meeting in accordance with the procedures set
forth in this Section 10; provided, however, that, once business has been
-------- -------
properly brought before the annual meeting in accordance with such procedures,
nothing in this Section 10 shall be deemed to preclude discussion by any
stockholder of any such business. If the Chairman of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted.
ARTICLE III
BOARD OF DIRECTORS
------------------
Section 1. General Powers. The business and affairs of the Corporation
--------------
shall be managed by the Board, which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by law or by the
Certificate of Incorporation directed or required to be exercised or done by the
stockholders.
Section 2. Number and Election of Directors. The Board of Directors shall
--------------------------------
consist of not less than three nor more than fifteen members, the exact number
of which shall be fixed from time to time by the Board of Directors. Except as
provided in Section 3 of this Article III, directors shall be elected by a
plurality of the votes cast at annual meetings of stockholders. The directors
shall be divided into three classes of substantially equal numbers such that one
class is chosen annually at the annual meeting of stockholders and the members
of such class shall hold office until their successors be elected and qualified
or until his earlier resignation or removal. Any director may resign at any
time upon notice to the Corporation. Directors need not be stockholders.
Section 3. Vacancies. Vacancies and newly created directorships resulting
---------
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director. Any director of any class elected to fill a vacancy
resulting from an increase in the number of directors shall have a term that
shall coincide with the remaining term of that class. Any directors elected to
fill a vacancy not resulting from an increase in the number of directors shall
have the same remaining term as that of his or her predecessor.
Section 4. Meetings.
--------
(a) Annual Meetings. As soon as practicable after each annual
---------------
election of directors, the Board shall meet for the purpose of organization
and the transaction of other business.
-5-
<PAGE>
(b) Other Meetings. Other meetings of the Board shall be held
--------------
at such times as the Board or the Chairman of the Board shall from time to
time determine.
(c) Notice of Meetings. The Secretary shall give written notice
------------------
to each director of each meeting, which notice shall state the time, place
and purpose of such meeting. Notice of each such meeting shall be given to
each director, if by mail, addressed to him at his residence or usual place
of business, at least two days before the day on which such meeting is to
be held, or shall be sent to him at such place by telegraph, cable, or
other form of recorded communication, or be delivered personally or by
telephone not later than the day before the day on which such meeting is to
be held. A written waiver of notice, signed by the person entitled thereto,
whether before or after the time of the meeting stated therein, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except as provided by law.
(d) Place of Meetings. The Board may hold its meetings at such
-----------------
place or places within or without the State of Delaware as the Board or the
Chairman of the Board may from time to time determine, or as shall be
designated in the respective notices or waivers of notice thereof.
(e) Quorum and Manner of Acting. A majority of the total number
---------------------------
of directors then in office shall be present in person at any meeting of
the Board in order to constitute a quorum for the transaction of business
at such meeting, and the vote of a majority of those directors present at
any such meeting at which a quorum is present shall be necessary for the
passage of any resolution or act of the Board, except as otherwise
expressly required by law or these By-laws. In the absence of a quorum for
any such meeting, a majority of the directors present thereat may adjourn
such meeting from time to time until a quorum shall be present.
(f) Organization. At each meeting of the Board, one of the
------------
following shall act as chairman of the meeting and preside, in the
following order or precedence:
(i) the Chairman of the Board;
(ii) the President; or
(iii) any director chosen by a majority of the directors
present.
The Secretary or, in the case of his absence, any person (who shall be an
Assistant Secretary, if an Assistant Secretary is present) whom the
Chairman shall appoint shall act as secretary of such meeting and keep the
minutes thereof.
-6-
<PAGE>
Section 5. Directors' Consent in Lieu of Meeting. Any action required or
-------------------------------------
permitted to be taken at any meeting of the Board or of any committee thereof
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by all
the members of the Board or committee and such consent is filed with the minutes
of the proceedings of the Board. No action required or permitted to be taken at
any meeting of the Board or of any committee thereof may be taken without a
meeting, without prior notice and without a vote.
Section 6. Action by Means of Telephone or Similar Communications
------------------------------------------------------
Equipment. Any one or more members of the Board, or of any committee designated
- ---------
by the Board, may participate in a meeting of the Board or any such committee by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting by such means shall constitute presence in person at
such meeting.
ARTICLE IV
OFFICERS
--------
Section 1. Executive Officers. The executive officers of the Corporation
------------------
shall be a Chairman of the Board, a President and a Secretary and may include
one or more Vice Presidents and one or more Assistant Secretaries. Any two or
more offices may be held by the same person.
Section 2. Authority and Duties. All officers, as between themselves and
--------------------
the Corporation, shall have such authority and perform such duties in the
management of the Corporation as may be provided in these By-laws or, to the
extent not so provided, by resolution of the Board.
Section 3. Term of Office, Resignation and Removal. All officers shall be
---------------------------------------
elected or appointed by the Board and shall hold office for such term as may be
determined by the Board. Each officer shall hold office until his successor has
been elected or appointed and qualified or his earlier death or resignation or
removal in the manner hereinafter provided. The Board may require any officer
to give security for the faithful performance of his duties.
Any officer may resign at any time by giving written notice to the Board or
to the President or the Secretary of the Corporation, and such resignation shall
take effect at the time specified therein or, if the time when it shall become
effective is not specified therein, at the time it is accepted by action of the
Board. Except as aforesaid, acceptance of such resignation shall not be
necessary to make it effective.
-7-
<PAGE>
All officers and agents elected or appointed by the Board shall be subject
to removal at any time by the Board or by the stockholders of the Corporation
with or without cause.
Section 4. Vacancies. Any vacancy occurring in any office of the
---------
Corporation, for any reason shall be filled by action of the Board. Any officer
appointed or elected by the Board to fill any vacancy shall serve only until
such time as the unexpired term of his predecessor expires unless reelected or
reappointed by the Board.
Section 5. The Chairman of the Board. The Chairman of the Board, if there
-------------------------
be one, shall have the power to call special meetings of the stockholders, to
call special meeting meetings of the Board and to preside at all meetings of the
stockholders and all meetings of the Board.
Section 6. The Chief Executive Officer and the President. The Chief
---------------------------------------------
Executive Officer of the Corporation shall have general and active management
and control of the business and affairs of the Corporation subject to the
control of the Board, and shall see that all orders and resolutions of the Board
are carried into effect. The President, who may be the same person as the Chief
Executive Officer, shall work with the Chief Executive Officer in the management
and control of the business and in the management and control of the business
and affairs of the Corporation. The President shall assume the responsibilities
of the Chief Executive Officer in the absence of a Chief Executive Officer.
Section 7. Vice President. Vice Presidents, if any, in order of their
--------------
seniority or in any other order determined by the Board, shall generally assist
the Chief Executive Officer and perform such other duties as the Board or the
Chief Executive Officer shall prescribe, and in the absence or disability of the
President, perform the duties and exercise the powers of the President.
Section 8. The Secretary. The Secretary shall, to the extent practicable,
-------------
attend all meetings of the Board and all meetings of the stockholders and shall
record all votes and the minutes of all proceedings in a book to be kept for
that purpose, and shall perform like duties for any standing committees when
required. He shall give or cause to be given notice of all meetings of the
stockholders and of the Board, and shall perform such other duties as may be
prescribed by the Board or the Chief Executive Officer, under whose supervision
he shall act. He shall keep in safe custody the seal of the Corporation and
affix the same to any duly authorized instrument requiring it and, when so
affixed, it shall be attested by his signature or by the signature of the
Treasurer or an Assistant Secretary or an Assistant Treasurer. He shall keep in
safe custody the certificate books and stockholder records and such other books
and records as the Board may direct and shall perform all the duties incident to
the office of Secretary and such other duties as from time to time may be
assigned to him by the Chief Executive Officer or the Board.
-8-
<PAGE>
Section 9. Assistant Secretaries. Assistant Secretaries, if any, in order
---------------------
of their seniority or in any other order determined by the Board, shall
generally assist the Secretary and perform such other duties as the Board or the
Secretary shall prescribe, and, in the absence or disability of the Secretary,
shall perform the duties and exercise the powers of the Secretary.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
----------------------------------------------
Section 1. Execution of Documents. Executive officers of the Corporation
----------------------
shall have power to execute and deliver deeds, contracts, mortgages, bonds,
debentures, checks, drafts and other orders for the payment of money and other
documents for and in the name of the Corporation, and may delegate such power
(including authority to redelegate) by written instrument to other officers,
employees or agents of the Corporation; and, unless so designated or expressly
authorized by these By-laws or as may be limited by the Board of Directors, no
officer or agent or employee shall have the power or authority to bind the
Corporation by any contract or engagement or to pledge its credit or to render
it liable pecuniarily for any purpose or to any amount.
Section 2. Deposits. All funds of the Corporation not otherwise employed
--------
shall be deposited from time to time to the credit of the Corporation or
otherwise as the Board or any executive officer of the Corporation shall direct.
Section 3. Proxies in Respect of Stock or Other Securities of Other
--------------------------------------------------------
Corporations. Executive officers of the Corporation shall have authority from
- ------------
time to time to appoint an agent or agents of the Corporation to exercise in the
name and on behalf of the Corporation the powers and rights which the
Corporation may have as the holder of stock or other securities in any other
corporation, and to vote or consent in respect of such stock or securities.
Such officers may instruct the person or persons so appointed as the manner of
exercising such powers and rights, and such officers may execute or cause to be
executed in the name and on behalf of the Corporation and under its corporate
seal, or otherwise, such written proxies, powers of attorney or other
instruments as they may deem necessary or proper in order that the Corporation
may exercise its said powers and rights.
ARTICLE VI
SHARES AND TRANSFERS OF SHARES
------------------------------
Section 1. Certificates for Shares. Every owner of stock of the
-----------------------
Corporation shall be entitled to have a certificate certifying the number and
class of shares of the Corporation owned by him, which certificate shall be in
such form as shall be prescribed by the Board. Certificates shall be issued in
consecutive order shall be signed, in the
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<PAGE>
name of the Corporation by (i) the Chief Executive Officer and/or the President
and (ii) by the Secretary or an Assistant Secretary.
Section 2. Stock Ledger. A stock ledger in one or more counterparts shall
------------
be kept, in which shall be recorded the name of each person, firm or corporation
owning the shares evidenced by each certificate for stock of the Corporation
issued, the number of shares evidenced by each certificate, the date thereof
and, in the case of cancellation, the date of cancellation. Except as otherwise
expressly required by law, the person in whose name shares of stock stand on the
stock ledger of the Corporation shall be deemed the owner thereof for all
purposes as regards the Corporation.
Section 3. Transfer of Stock.
-----------------
(a) The transfer of stock and the certificates evidencing the
stock of the Corporation shall be governed by Article 8 of Subtitle I of
Title 6 of the Delaware Code (the Uniform Commercial Code), as amended from
time to time.
(b) Registration of transfers of shares of the Corporation shall
be made only on the books of the Corporation upon request of the registered
holder thereof, or of his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the Corporation, and
upon the surrender of the certificate or certificates for such shares
properly endorsed or accompanied by a stock power duly executed.
Section 4. Addresses of Stockholders. Each stockholder shall designate to
-------------------------
the Secretary of the Corporation an address at which notices of meetings and all
other corporate notices may be served or mailed to him, and, if any stockholder
shall fail to so designate such an address, corporate notices may be served upon
him by mail directed to him at his post office address, if any, as the same
appears on the share record books of the Corporation or at his last known post
office address.
Section 5. Lost, Destroyed and Multilated Certificates. A holder of any
-------------------------------------------
shares of the Corporation shall promptly notify the Corporation of any loss,
destruction or mutilation of any certificate or certificates evidencing all or
any such shares. The Board may, in its discretion, cause the Corporation to
issue a new certificate in place of any certificate theretofore issued by it and
alleged to have been mutilated, lost, stolen or destroyed, upon the surrender of
the mutilated certificates or, in the case of loss or destruction of the
certificate, upon satisfactory proof of such loss or destruction, and the Board
may, in its discretion, require the owner of the lost or destroyed certificate
or his legal representative to give the Corporation a bond sufficient to
indemnify the Corporation against any claim made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
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<PAGE>
Section 6. Regulations. The Board may make such rules and regulations as
-----------
it may deem expedient, not inconsistent with these By-laws, concerning the
issue, transfer and registration of certificates for stock of the Corporation.
Section 7. Fixing Date for Determination of Stockholders of Record. In
-------------------------------------------------------
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board may fix, in advance, a record date, which shall not be more than 60
nor less than 10 days before the date of such meeting, nor more than 60 days
prior to any other action. A determination of stockholders entitled to notice
of or to vote at a meeting of the stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board may fix a new record date for the
adjourned meeting.
ARTICLE VII
SEAL
----
The Board may provide a corporate seal, which shall be in the form of a
circle and shall bear the full name of the Corporation and the words and figures
"Corporate Seal 1995 Delaware."
ARTICLE VIII
FISCAL YEAR
-----------
The fiscal year of the Corporation shall end on the thirtieth day of June
in each year unless changed by resolution of the Board.
ARTICLE IX
INDEMNIFICATION AND INSURANCE
-----------------------------
Section 1. Indemnification.
---------------
(a) The Corporation shall 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 (other than an action by or in the right of
the Corporation) 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 the
request of the Corporation as a director, officer, employee or agent
(including trustee) of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection
-11-
<PAGE>
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. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent,
---- ----------
shall not, of itself, create a presumption that the person seeking
indemnification did not act in good faith and in a manner which reasonably
believed to be in or not opposed to the best interests of the Corporation,
or, with respect to any criminal action or proceeding, had reasonable cause
to believe that his conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit 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, except that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of
the Corporation has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in paragraphs (a) and (b) of
this Section 1, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith.
(d) Expenses incurred in defending a civil or criminal action,
suit or proceeding shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director, officer, employee or agent
involved to repay such amount if it shall ultimately be determined that he
is not entitled to be indemnified by the Corporation pursuant to this
Article IX or as otherwise authorized by law.
(e) The indemnification and advancement of expenses provided by
this Article IX shall not be deemed exclusive of any other rights to which
those
-12-
<PAGE>
seeking indemnification or advancement of expenses may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
(f) For purposes of this Article IX, references to "the
Corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its directors,
officers, employees or agents so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
the provisions of this Article IX with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence has continued.
(g) For purposes of this Article IX, references to "other
enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to any
employee benefit plan; and references to "serving at the request of the
Corporation" shall include any services as a director, officer, employee or
agent of the Corporation which imposes duties on, or involves services by,
such director, officer or employee or agent with respect to an employee
benefit plan, its participants, or beneficiaries; and a person who acted in
good faith and in a manner he reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
Corporation," as referred to in this Article IX.
(h) The indemnification and advancement of expenses provided by,
or granted pursuant to, this Article IX shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Section 2. Insurance for Indemnification. The Corporation may purchase and
-----------------------------
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of the General
Corporation Law of the State of Delaware.
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<PAGE>
ARTICLE X
AMENDMENTS
----------
These By-laws may be altered, amended or repealed, in whole or in part, or
new By-laws may be adopted by the vote of the holders of a majority of the
shares then entitled to vote at an election of directors or by vote of the
Board.
These By-laws were approved and adopted by the Corporation's Board of
Directors on April 22, 1997.
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<PAGE>
EXHIBIT 10.2
FIRST AMENDMENT TO INTERCOMPANY SERVICES AGREEMENT
--------------------------------------------------
This FIRST AMENDMENT TO INTERCOMPANY SERVICES AGREEMENT is entered into
this 24th day of June, 1997, by and between First USA Management, Inc., a
Delaware corporation ("First USA"), First USA Financial, Inc., a Delaware
corporation ("First USA Financial"), and First USA Paymentech, Inc., a Delaware
corporation (the "Company").
WHEREAS, as of June 23, 1997, First USA Financial is, by assignment, the
owner of the Marks, as defined in the INTERCOMPANY SERVICES AGREEMENT dated as
of March 21, 1996, by and between First USA and Company (the "Agreement"), and
as identified in Appendix A of the Agreement; and
WHEREAS, First USA Financial, as the new owner of the Marks, desires to
license to Company all of the rights in and to the Marks and assume all of the
obligations related to the Marks, pursuant to the terms of the Agreement.
In consideration of the premises and the mutual agreements contained
herein, and other good and valid consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
SECTIONS 1.1 through 1.9 of the Agreement are amended as follows: The term
"First USA" is hereby deleted and replaced with the term "First USA Financial."
SECTIONS 2.1 through 2.5 of the Agreement are amended as follows: The term
"First USA" is hereby deleted and replaced with the term "First USA Financial."
SECTION 2.1(ii) of the Agreement is deleted in its entirety and replaced
with the following: "(ii) any other acts or omissions arising out of the
performance of Article I of this Agreement by the Company or any Designated
Subsidiary;"
SECTION 4.3 of the Agreement is deleted in its entirety and replaced with
the following: Parties in Interest. Neither this Agreement nor any right
-------------------
granted hereunder shall be assigned by the Company either voluntarily or by
operation of law without the written consent of First USA or First USA
Financial, whichever is applicable, and any attempted assignment without such
consent shall be void and of no effect whatsoever; provided, further, Company
-----------------
consents in advance to any assignment of the Marks or any rights under this
agreement by First USA or First USA Financial, whichever is applicable.
SECTION 4.7 of the Agreement is amended to add:
"If to First USA Financial, Inc.
First USA Financial, Inc.
1601 Elm Street, Suite 4700
Dallas, Texas 75201
Attention: General Counsel
Facsimile No.: (214) 849-2067"
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed on its behalf by its duly authorized officers all as of the date and
year first written above.
FIRST USA PAYMENTECH, INC.
By: /s/ Philip E. Taken
-----------------------------------
Name: Philip E. Taken
Title: Senior Vice President &
General Counsel
FIRST USA MANAGEMENT, INC.
By: /s/ Philip E. Taken
-----------------------------------
Name: Philip E. Taken
Title: Senior Vice President &
General Counsel
FIRST USA FINANCIAL, INC.
By: /s/ Philip E. Taken
-----------------------------------
Name: Philip E. Taken
Title: Senior Vice President &
General Counsel
<PAGE>
EXHIBIT 10.5
AMENDED AND RESTATED
FIRST USA PAYMENTECH, INC.
1996
STOCK OPTION PLAN
-----------------
WHEREAS, the First USA Paymentech, Inc. 1996 Stock Option Plan (as
amended by the First Amendment thereto, the "Original Plan") was adopted by the
Board of Directors of First USA Paymentech, Inc., a Delaware corporation (the
"Company") as of February 7, 1996 and approved by the sole stockholder as of
February 7, 1996 and later approved by a majority of the public stockholders,
and
WHEREAS, the Company believes the Original Plan should be amended due
to the merger of First USA, Inc. and Banc One Corporation, and
WHEREAS, this Amended and Restated First USA Paymentech, Inc. 1996
Stock Option Plan (the "Plan") incorporates modifications to the Original Plan
to eliminate (i) the participation of officers other than the Company's
officers, and (ii) an acceleration of vesting upon a change in control of First
USA, Inc.
THEREFORE, the Company agrees as follows:
1. Purpose. The Plan is intended to provide an incentive to officers
-------
and key employees of the Company and its direct and indirect subsidiaries, to
remain in such employ and to increase their efforts for the success of the
Company by offering them an opportunity to increase their proprietary interest
in the Company, through the grant of stock options ("Options") to purchase
shares of common stock of the Company, par value $0.01 per share ("Common
Stock"). Consistent with these objectives, the Plan authorizes the granting of
Options to acquire shares of Common Stock pursuant to the terms and conditions
hereinafter set forth. Pursuant to Section 5 of the Plan, Options shall also be
granted to members of the Company's Board of Directors (the "Board") who are not
employees of the Company, a parent company or their respective direct and
indirect subsidiaries ("Nonemployee Directors"). Options granted pursuant to
the Plan may consist of incentive stock options ("Incentive Stock Options")
(within the meaning of section 422 of the Internal Revenue Code of 1986, as
amended (the "Code")) and Options that are not Incentive Stock Options
("Nonqualified Stock Options"). Each Option shall be designated as an Incentive
Stock Option or as a Nonqualified Stock Option. To the extent that any Option
intended to be an Incentive Stock Option does not qualify as such, it shall
constitute a separate Nonqualified Stock Option.
The Plan is intended to satisfy the requirements of Rule 16b-3 ("Rule
16b-3") promulgated under Section 16 of the Securities Exchange Act of 1934, as
from time to time amended (the "Exchange Act"), and section 162(m) of the Code,
and shall be interpreted in a manner consistent with the requirements thereof.
<PAGE>
2. Eligibility; Administration of the Plan.
---------------------------------------
(a) Eligibility. Options may be granted to selected officers and key
-----------
employees of the Company or its respective direct and indirect
subsidiaries. In determining the persons to whom Options shall be granted,
the Committee (as defined below) shall take into account such factors as
the Committee shall deem relevant in connection with accomplishing the
purposes of the Plan.
(b) Members of the Committee. Except as provided in Section 2(d)
------------------------
below, the Plan shall be administered by a committee (the "Committee")
appointed by the Board. The Committee shall consist solely of members of
the Board and shall have at least two members, each of whom shall be a
"disinterested person" within the meaning of Rule 16b-3 and an "outside
director" within the meaning of section 162(m) of the Code. Members of the
Committee shall serve at the discretion of the Board.
(c) Authority of the Committee. The Committee shall determine which
--------------------------
officers and key employees of the Company or its respective direct and
indirect subsidiaries shall receive Options and the terms and conditions
thereof. The Committee shall adopt such rules as it may deem appropriate
in order to carry out the purpose of the Plan. All questions of
interpretation, administration and application of the Plan shall be
determined by a majority of the members of the Committee then in office,
except that the Committee may authorize any one or more of its members, or
any officer of the Company, to execute and deliver documents on behalf of
the Committee. The determination of such majority shall be final and
binding in all matters relating to the Plan. No member of the Committee
shall be liable for any act done or omitted to be done by such member or by
any other member of the Committee in connection with the Plan, except for
such member's own willful misconduct or as expressly provided by statute.
(d) Delegated Authority. The Board may, at its discretion, authorize
-------------------
the Chief Executive Officer or President of the Company to grant Options to
employees of the Company pursuant to the Plan, with such restrictions on
such authority as the Board deems appropriate in its discretion. The Board
may, at anytime, terminate such authority, provided, however, that any
Options granted prior to such termination shall remain in effect in
accordance with the terms of the respective Option agreement and the Plan.
3. Stock Reserved for the Plan. The shares subject to the Plan shall
---------------------------
consist of 4,000,000 shares of Common Stock, subject to adjustment pursuant to
Section 4(h) hereof, which may be either authorized but unissued shares or
previously issued shares reacquired and held by the Company. If any outstanding
Option under the Plan for any reason expires or is canceled or otherwise
terminated without having been exercised in full, the shares of Common Stock
allocable to the unexercised portion of such Option
-2-
<PAGE>
shall (unless the Plan shall have been terminated) become available for
subsequent grants of Options under the Plan.
4. Terms and Conditions of Options. Each Option granted pursuant to the
-------------------------------
Plan shall be evidenced by a written agreement (the "Option Agreement") between
the Company and the person to whom such Option is awarded (the "Optionee"),
which Option Agreement shall comply with and be subject to the following terms
and conditions, except as otherwise determined by the Committee:
(a) Number of Shares. Each Option Agreement shall state the number of
----------------
shares of Common Stock to which the Option relates. No Optionee shall be
granted an Option or Options for more than 250,000 shares of Common Stock
during any fiscal year of the Company. In the event that the aggregate
Fair Market Value (determined as of the date the Option is granted) of the
shares of Common Stock with respect to which Incentive Stock Options
granted under this Plan and all other options plans of the Company, and its
respective direct and indirect subsidiaries become exercisable for the
first time by an Optionee during any calendar year exceeds $100,000,
Options granted in excess of such limit shall constitute Nonqualified Stock
Options for all purposes. The "Fair Market Value" of a share of Common
Stock shall mean (i) if the shares of Common Stock are then traded on an
over-the-counter market, the average of the closing bid and asked prices
for the shares of Common Stock in such over-the-counter market for the last
preceding date on which there was a sale of such Common Stock in such
market, (ii) if the shares of Common Stock are then listed on a national
securities exchange, the closing sales price per share for the last
preceding date on which there was a sale of such Common Stock on such
exchange, or (iii) if the shares of Common Stock are not then traded in an
over-the-counter market or listed on a national securities exchange, such
value as the Committee in its discretion may determine.
(b) Option Price. Each Option Agreement shall state the exercise
------------
price per share of Common Stock (the "Option Price"), which shall be not
less than one hundred percent (100%) of the Fair Market Value of the shares
of Common Stock on the date of grant of the Option; provided, however, that
if an Incentive Stock Option is granted to a person owning shares of the
Company possessing more than 10% of the total combined voting power of all
classes of shares of the Company as defined in section 422 of the Code (a
"10% Shareholder"), the Option Price shall equal 110% of the Fair Market
Value of the Common Stock at the time of grant. The Option Price shall be
subject to adjustment as provided in Section 4(h) hereof.
(c) Payment of Option Price; Withholding.
------------------------------------
(i) Shares of Common Stock shall be issued to the Optionee upon
payment in full either in cash (including through a Loan) or by an
-3-
<PAGE>
exchange of shares of Common Stock of the Company previously owned by
the Optionee, or a combination of cash and shares, in an amount or
having a combined value equal to the aggregate Option Price for the
shares subject to the Option or portion thereof being exercised. The
value of the previously owned shares of Common Stock exchanged in
full or partial payment for the shares purchased upon the exercise of
an Option shall be equal to the aggregate Fair Market Value of such
shares on the date of the exercise of such Option. The Optionee shall
be entitled to elect to pay all or a portion of the aggregate purchase
price by having shares of Common Stock having a Fair Market Value on
the date of exercise equal to the aggregate Option Price withheld by
the Company or sold by a broker-dealer under circumstances meeting the
requirements of 12 C.F.R. (S)220.
(ii) The Company may defer making payment or delivery of any
benefits under the Plan until satisfactory arrangements have been made
for the payment of any tax attributable to any amounts payable on
shares deliverable under the Plan. To the extent authorized by the
Committee, the Optionee shall be entitled to elect to pay all or a
portion of all taxes arising in connection with the exercise of an
Option by electing to (A) have the Company withhold shares of Common
Stock, or (B) deliver other shares of Common Stock previously owned by
the Optionee having a Fair Market Value equal to the amount to be
withheld; provided, however, that the amount to be withheld shall not
-------- -------
exceed the Optionee's estimated total federal, state and local tax
obligations associated with the transaction. The Fair Market Value of
fractional shares remaining after payment of the withholding taxes
shall be paid to the Optionee in cash. Such election by an Optionee
who is subject to the reporting requirements of Section 16(a) of the
Exchange Act shall be made in accordance with the requirements of Rule
16b-3 and, to the extent necessary to comply with the requirements of
Rule 16b-3 as from time to time in effect, shall not be permitted in
respect of an exercise of an Option that occurs within six months of
its grant.
(d) Term and Exercise of Options. Options shall be exercisable over
----------------------------
the exercise period as and at the times and upon the conditions that the
Committee may determine, as reflected in the Option Agreement; provided,
--------
however, that, under circumstances other than those set forth in Section
-------
4(h)(iii) hereof, the Committee shall have the authority to accelerate the
exercisability of any outstanding Option at such time and under such
circumstances as it, in its sole discretion, deems appropriate; and further
-------
provided, however, that such exercise period shall not exceed ten (10)
-------- -------
years from the date of grant of such Option; and further provided, however,
that an Incentive Stock Option granted to a 10% Shareholder shall have a
term not exceeding five years from the date of grant. The exercise period
shall be subject to earlier termination as provided in Sections 4(e) and
4(f) hereof. An Option may be exercised, as to any or all full shares of
-4-
<PAGE>
Common Stock as to which the Option has become exercisable, by giving
written notice of such exercise to the Committee or to such individual as
the Committee may from time to time designate.
(e) Termination. Except as provided in this Section 4(e) and in
-----------
Section 4(f) hereof, an Option may not be exercised unless the Optionee is
then in the employ of the Company, or one of its respective direct or
indirect subsidiaries, and unless the Optionee has remained continuously so
employed since the date of grant of the Option. In the event that the
employment of an Optionee shall terminate (other than by reason of death or
disability), all Options of such Optionee that are exercisable at the time
of such termination may, unless earlier terminated in accordance with their
terms, be exercised within three (3) months after such termination;
provided, however, that if the employment of an Optionee shall terminate
-------- -------
for cause (as determined by the Committee), all Options theretofore granted
to such Optionee shall, to the extent not theretofore exercised, terminate
forthwith. Nothing in the Plan or in any Option granted pursuant hereto
shall confer upon an individual any right to continue in the employ of the
Company, or its respective direct or indirect subsidiaries or interfere in
any way with the right of the Company, or direct or indirect subsidiaries
to terminate such employment.
(f) Death, Disability or Retirement of Optionee. If an Optionee shall
-------------------------------------------
die while employed by the Company or one of its direct or indirect
subsidiaries, or if the Optionee's employment shall terminate by reason of
disability, all Options theretofore granted to such Optionee shall fully
vest and be 100% exercisable and may, unless earlier terminated in
accordance with their terms, be exercised by the Optionee or by the
Optionee's estate or by a person who acquired the right to exercise such
Option by bequest or inheritance or otherwise by reason of the death or
disability of the Optionee, at any time within six (6) months (or such
longer period as may be determined by the Committee in its sole discretion)
after the date of death or disability of the Optionee. If Optionee
terminates employment with the Company or one of its subsidiaries, by
reason of Retirement (as defined below), then the Committee, in its
discretion, may determine whether or not the Option will vest in part or
whole, and any additional terms applicable to such vesting. "Retirement"
shall mean such circumstances determined as retirement in the sole
discretion of the Committee. If an Optionee shall die within three (3)
months after the termination of such Optionee's employment, other than for
cause (as determined by the Committee), all Options theretofore granted to
such Optionee (to the extent such Options were exercisable at the time of
death) may, unless earlier terminated in accordance with their terms, be
exercised by the Optionee's estate or by a person who acquired the right to
exercise such Option by bequest or inheritance or otherwise by reason of
the death of the Optionee, at any time within six (6) months (or such
longer period as may be determined by the Committee in its sole discretion)
after the date of death of the Optionee.
-5-
<PAGE>
(g) Transferability of Options. Options granted under the Plan shall
--------------------------
not be transferable except (i) by will or by the laws of descent and
distribution, or (ii) as specifically provided in this Section 4(g). Any
Option Agreement may be amended to provide for transferability of Options,
provided that such amendment must be approved by the Committee. Any Option
not granted pursuant to an Option Agreement expressly permitting its
transfer or amended expressly to permit its transfer shall not be
transferable. Options may be exercised, during the lifetime of the
Optionee, only by the Optionee or by his guardian or legal representative
or his transferee as permitted under this Section 4(g).
(h) Effect of Certain Changes.
-------------------------
(i) If there is any change in the number or class of shares of
Common Stock through the declaration of stock or cash dividends, or a
recapitalization resulting in stock splits, or combinations or
exchanges of such shares, the number or class of shares of Common
Stock available for Options, the number or class of such shares
covered by outstanding Options, and the price per share of such
Options may be proportionately adjusted by the Committee in its sole
discretion to reflect any such change in the number or class of issued
shares of Common Stock; provided, however, that any fractional shares
-------- -------
resulting from any such adjustment shall be eliminated. In the event
of any other extraordinary corporate transaction, including but not
limited to distributions of cash or other property to the Company's
shareholders, the Committee may equitably adjust outstanding Options
as it deems appropriate in its sole discretion.
(ii) In the event of the proposed dissolution or liquidation of
the Company, in the event of any corporate separation or division,
including, but not limited to, split-up, split-off or spin-off, or in
the event of a merger or consolidation of the Company with another
corporation, the Committee may provide that the holder of each Option
then exercisable shall have the right to exercise such Option (at its
then aggregate Option Price) solely for the kind and amount of shares
of stock and other securities, property, cash or any combination
thereof receivable upon such dissolution, liquidation, or corporate
separation or division, or merger or consolidation by a holder of the
number of shares of Common Stock for which such Option might have been
exercised immediately prior to such dissolution, liquidation, or
corporate separation or division, or merger or consolidation.
(iii) If while unexercised Options remain outstanding under the
Plan --
(A) any Person (as defined in this clause A) is or becomes
the beneficial owner (as defined in Rule 13d-3 of the
-6-
<PAGE>
Exchange Act), directly or indirectly, of securities of the
Company (not including in the securities beneficially owned by
such Person any securities acquired directly from the Company or
any of its affiliates) representing 25% or more of the combined
voting power of the Company's then outstanding voting securities.
For purposes of this Plan, "Person" shall mean any person (as
defined in Section 3(a)(9) of the Securities Exchange Act), as
such term is modified in Sections 13(d) and 14(d) of the Exchange
Act) other than (1) any employee plan established by the Company,
(2) the Company or any of its affiliates (as defined in Rule 12b-
2 promulgated under the Exchange Act), (3) an underwriter
temporarily holding securities pursuant to an offering of such
securities, and (4) a corporation owned, directly or indirectly,
by stockholders of the Company in substantially the same
proportions as their ownership of the Company; or
(B) during any period of up to two consecutive years (not
including any period prior to the date hereof), individuals who
at the beginning of such period and any new director (other than
a director whose initial assumption of office is in connection
with an actual or threatened election contest relating to the
election of directors of the Company) whose appointment or
election by the respective Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of
at least two-thirds (2/3) of the applicable directors then still
in office who either were directors at the beginning of such
period or whose appointment, election or nomination for election
was previously so approved, cease for any reason to constitute a
majority thereof; or
(C) there is consummated a merger or consolidation of the
Company with any other corporation or the stockholders of the
Company approve the issuance of voting securities of the Company
in connection with a merger or consolidation of the Company (or
any direct or indirect subsidiary of the Company) pursuant to
applicable stock exchange requirements, other than (i) a merger
or consolidation which would result in the voting securities of
the Company outstanding immediately prior to such merger or
consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity or any parent thereof), in combination with the
ownership of any trustee or other fiduciary holding securities
under an employee benefit plan of the Company, at least 75% of
the combined voting power of the voting securities of the Company
or such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (ii)
-7-
<PAGE>
a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which
no Person is or becomes the beneficial owner, directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person, any securities
acquired directly from the Company or its subsidiaries other than
in connection with the acquisition by the Company or its
subsidiaries of a business) representing 25% or more of either
the then outstanding shares of common stock of the Company or the
combined voting power of the Company's then outstanding
securities; or
(D) the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets,
other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity, at least
75% of the combined voting power of which are owned by Persons in
substantially the same proportions as their ownership of the
Company immediately prior to such sale;
then from and after the date on which the acquisition of such
percentage shall have been made or the date on which the change in the
composition of the Board of Directors set forth above shall have
occurred or the date of such consummation or approval, whichever is
applicable (the applicable date being referred to hereinafter as the
"Acceleration Date"), all then outstanding Options shall be
exercisable in full, whether or not otherwise exercisable. Following
the Acceleration Date, the Committee shall, in the case of a merger,
consolidation or sale or disposition of assets, promptly make an
appropriate adjustment to the number and class of shares of Common
Stock available for Options, and to the amount and kind of shares of
other securities or property receivable upon exercise of any
outstanding Options after the effective date of such transaction, and
the price thereof
(iv) In the event of a change in the Common Stock of the Company
as presently constituted, which is limited to a change of all of its
authorized shares with par value into the same number of shares with a
different par value or without par value, the shares resulting from
any such change shall be deemed to be the Common Stock within the
meaning of the Plan.
(v) To the extent that the foregoing adjustments relate to stock
or securities of the Company, such adjustments shall be made by the
-8-
<PAGE>
Committee, whose determination in that respect shall be final, binding
and conclusive.
(vi) Except as expressly provided in this Section 4(h), the
Optionee shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class or the payment of any
stock dividend or any other increase or decrease in the number shares
of stock of any class or by reason of any dissolution, liquidation,
merger, or consolidation or spin-off of assets or stock of another
corporation; and any issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class,
shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject
to the Option. The grant of an Option pursuant to the Plan shall not
affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its
capital or business structures or to merge or to consolidate or to
dissolve, liquidate or sell, or transfer all or part of its business
or assets.
(i) Rights as a stockholder. An Optionee or a transferee of an Option
-----------------------
shall have no rights as a stockholder with respect to any shares covered by
the Option until the date of the issuance of a stock certificate to him or
her for such shares. No adjustment shall be made for dividends (ordinary
or extraordinary, whether in cash, securities or other property) or the
distribution of other rights for which the record date is prior to the date
of such stock certificate is issued, except as provided in Section 4(h)
hereof.
(j) Other Provisions. The Option Agreements authorized under the
----------------
Plan shall contain such other provisions not inconsistent with this Plan
including, without limitation, the imposition of restrictions upon the
exercise of an Option, as the Committee shall deem advisable.
5. Nonemployee Director Options. Notwithstanding any of the other
----------------------------
provisions of the Plan to the contrary, the provisions of this Section 5 shall
apply only to grants of Options to Nonemployee Directors. Except as set forth
in this Section 5, the other provisions of the plan shall apply to grants of
Options to Nonemployee Directors to the extent not inconsistent with this
Section 5. For purposes of interpreting Section 4(e) hereof, a Nonemployee
Director's service as a member of the Board shall be deemed to be employment
with the Company.
(a) General. Nonemployee Directors shall receive Options in
-------
accordance with this Section 5 and may not be granted or other awards under
this Plan. The Option Price per share of Common Stock purchasable under
Options granted to Nonemployee Directors shall be the Fair Market Value of
a share on
-9-
<PAGE>
the date of grant. No Option Agreement with any Nonemployee Director may
alter the provisions of this Section 5.
(b) Automatic Grants. An Option to purchase 5,000 shares of Common
----------------
Stock shall be granted automatically, without action by the Committee, on
the date following the date on which a new Nonemployee Director shall be
elected or appointed, to such new Nonemployee Director. On the date
following each annual meeting of stockholders, each Nonemployee Director
(other than a Nonemployee Director who is first elected at such annual
meeting) shall be granted automatically, without action by the Committee,
an Option to purchase 2,500 shares of Common Stock.
(c) Exercisability. Each Option shall be fully exercisable on the
--------------
date the Option is granted.
(d) Duration. Each Option granted to a Nonemployee Director shall
--------
expire on the first to occur of (i) the tenth anniversary of the date of
grant of the Option, and (ii) ninety days following the Nonemployee
Director's termination of service as a member of the Board other than for
cause. The Committee may not provide for an extended exercise period
beyond the periods set forth in this Section 5.
6. Interpretation. The Plan is designed and intended to comply with Rule
--------------
16b-3 and, to the extent applicable, with section 162(m) of the Code, and all
provisions hereof shall be construed in a manner to so comply.
7. Term of Plan. Options may be granted pursuant to the Plan from time
------------
to time within a period of ten (10) years from the date the Plan is adopted by
the Board, or the date the Plan is approved by the stockholders of the Company,
whichever is earlier.
8. Amendment. The Board may at the time and from time to time alter,
---------
amend, suspend, or terminate the Plan in whole or in part; provided, however,
-------- -------
that no amendment which requires shareholder approval under applicable law or in
order for the exemptions available under Rule 16b-3 to be applicable to the Plan
and the Optionees or to preserve under section 162(m) of the Code the
deductibility by the Company of compensation related hereto, shall be effective
unless the same shall be approved by the stockholders of the Company entitled to
vote thereon on or before the effective date of the amendment. Such approval
shall be obtained in such manner as is required by the Company's Certificate of
Incorporation, its By-Laws, and the laws of the State of Delaware as in effect
at the time of such approval. Notwithstanding the foregoing, no amendment shall
affect adversely any of the rights or obligations of any Optionee, without such
Optionee's consent, under any Option theretofore granted under the Plan.
9. Effectiveness. This Plan shall become effective as of the
-------------
consummation of the merger of First USA, Inc. and Banc One Corporation and shall
govern all Options
-10-
<PAGE>
granted after the date thereof. All Options granted prior to the date thereof
shall be governed by the terms of the Original Plan. In the event there is no
merger of First USA, Inc. and Banc One Corporation prior to December 31, 1997,
then this Plan shall be void and the Original Plan shall continue in full force
and effect.
10. Headings. The headings of sections and subsections herein are
--------
included solely for convenience of reference and shall not affect the meaning of
any of the provisions of the Plan.
11. Governing Law. This Plan and all rights hereunder shall be construed
-------------
in accordance with and governed by the laws of the State of Delaware.
This Amended and Restated Plan has been adopted by the Board effective as
of April 23, 1997.
-11-
<PAGE>
EXHIBIT 10.6
AMENDED AND RESTATED
FIRST USA PAYMENTECH, INC.
1996
RESTRICTED STOCK PLAN
---------------------
WHEREAS, the First USA Paymentech, Inc. 1996 Restricted Stock Plan was
adopted by the Board of Directors of First USA Paymentech, Inc., a Delaware
corporation (the "Company") as of February 7, 1996 and approved by the sole
stockholder as of February 7, 1996 and later approved by a majority of the
public stockholders, and
WHEREAS, the Company believes the Plan should be amended due to the merger
of First USA, Inc. and Banc One Corporation, and
WHEREAS, this Amended and Restated First USA Paymentech, Inc. 1996
Restricted Stock Plan (the "Plan") incorporates modifications to the Plan to
eliminate (i) the participation of officers other than the Company's officers,
and (ii) an acceleration of vesting upon a change in control of First USA, Inc.
THEREFORE, the Company agrees as follows:
1. Purpose. The First USA Paymentech, Inc. 1996 Restricted Stock Plan
-------
(the "Plan") is intended to provide an incentive to officers and key employees
of the Company and its respective direct and indirect subsidiaries, who are
important to the success of the Company, as determined by the Committee, to
remain in the employ of the Company, to reinforce corporate, organizational and
business-development goals, to promote the achievement of long-range financial
and other business objectives, and to increase their efforts for the success of
the Company by offering them an opportunity to increase their proprietary
interest in the Company, through the award of restricted stock ("Restricted
Stock"). Consistent with these objectives, the Plan authorizes the awarding of
Restricted Stock.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the Committee of the Board as described in
Section 3 hereof.
-1-
<PAGE>
(d) "Common Stock" shall mean shares of common stock, par value $.01
per share, of the Company.
(e) "Company" shall mean First USA Paymentech, Inc., a Delaware
corporation.
(f) "Consolidated Net Earnings" shall mean consolidated net earnings
of the Company and its subsidiaries for each fiscal year in a Performance
Period determined in accordance with generally accepted accounting
principles and reported in the Company's audited financial statements for
such fiscal year.
(g) "Covered Employee" shall have the meaning set forth in section
162(m)(3) of the Code.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
from time to time amended.
(i) "Executive Officer" shall mean an officer of the Company who is an
"executive officer" of the Company within the meaning of Rule 3b-7
promulgated under the Exchange Act.
(j) "Grantee" shall mean the individual who has been awarded
Restricted Stock under the Plan.
(k) "Operating Earnings Per Share" shall mean Consolidated Net
Earnings divided by the number of shares of Common Stock outstanding at the
end of the Performance Period.
(l) "Performance Goal" shall mean the criteria and objectives,
determined by the Committee, which must be met during the applicable
Performance Period as a condition of the Grantee's receipt of payment with
respect to an award of Restricted Stock. Performance Goals may include any
or all of the following: (i) attainment of an amount of cumulative
Consolidated Net Earnings during a Performance Period; (ii) attainment of a
percentage of Return on Equity for a Performance Period; (iii) attainment
of amounts or percentage increase of Operating Earnings Per Share of the
Company; (iv) increases in the market price of Common Stock or levels of
total return to shareholders during the Performance Period; (v) attainment
of goals established based on the financial performance of individual
subsidiaries or business segments of the Company relating to increases in
total revenues, operating expenses or pretax operating earnings. With
respect to Grantees who are not Executive Officers, Performance Goals shall
also include such personal performance goals as the Committee shall, from
time to time, establish.
-2-
<PAGE>
(m) "Performance Period" shall mean a period of five consecutive years
or such other period (which in no case may be less than one year) as may be
determined by the Committee.
(n) "Plan" shall mean the First USA Paymentech, Inc. 1996 Restricted
Stock Plan.
(o) "Restricted Stock" shall mean restricted stock awarded pursuant to
the terms of the Plan.
(p) "Restricted Stock Agreement" shall mean the written agreement
between the Company and the Grantee evidencing an award of Restricted Stock
under the Plan.
(q) "Return on Equity" shall mean, for each fiscal year, the quotient
obtained by dividing (i) Consolidated Net Earnings for a fiscal year by
(ii) the average of common shareholders' equity of the Company as of the
beginning and the end of such fiscal year.
(r) "Rule 16b-3" shall mean Rule 16b-3 promulgated under Section 16 of
the Exchange Act.
3. Administration of the Plan.
--------------------------
(a) Members of the Committee. Except as provided in Section 3(c)
------------------------
below, the Plan shall be administered by the Committee appointed by the
Board. The Committee shall consist solely of members of the Board and
shall have at least two members, each of whom shall be a "disinterested
person" within the meaning of Rule 16b-3 and an "outside director" within
the meaning of section 162(m) of the Code. Members of the Committee shall
serve at the discretion of the Board.
(b) Authority of the Committee. The Committee shall determine which
--------------------------
officers and key employees of the Company or its direct and indirect
subsidiaries shall receive awards of Restricted Stock and the terms and
conditions thereof. The Committee shall adopt such rules as it may deem
appropriate in order to carry out the purpose of the Plan. All questions
of interpretation, administration and application of the Plan shall be
determined by a majority of the members of the Committee then in office,
except that the Committee may authorize any one or more of its members, or
any officer of the Company, to execute and deliver documents on behalf of
the Committee. The determination of such majority shall be final and
binding in all matters relating to the Plan. No member of the Committee
shall be liable for any act done or omitted to be done by such member or by
any other member of the Committee in connection with the
-3-
<PAGE>
Plan, except for such member's own willful misconduct or as expressly
provided by statute.
(c) Delegated Authority. The Board may, at its discretion, authorize
-------------------
the Chief Executive Officer or President of the Company to award Restricted
Stock to employees of the Company pursuant to the Plan, with such
restrictions on such authority as the Board deems appropriate in its
discretion. The Board may, at anytime, terminate such authority, provided,
however, that any Restricted Stock awarded prior to such termination shall
remain in effect in accordance with the terms of the respective Restricted
Stock agreement and the Plan.
4. Eligibility. Restricted Stock may be awarded to selected officers and
-----------
key employees of the Company and its direct and indirect subsidiaries. In
determining the persons to whom Restricted Stock shall be awarded, the Committee
shall take into account such factors as the Committee shall deem relevant in
connection with accomplishing the purposes of the Plan.
5. Stock Reserved for the Plan. The shares subject to the Plan shall
---------------------------
consist of 500,000 shares of Common Stock, subject to adjustment pursuant to
Section 6(f) hereof, which may be either authorized but unissued shares or
previously issued shares reacquired and held by the Company. If any outstanding
Restricted Stock under the Plan for any reason expires or is canceled or
otherwise terminated without having vested in full, the shares of Common Stock
allocable to the unvested portion of such Restricted Stock shall (unless the
Plan shall have been terminated) become available for subsequent awards of
Restricted Stock under the Plan.
6. Terms and Conditions of Restricted Stock. Each award of Restricted
----------------------------------------
Stock pursuant to the Plan shall be evidenced by a Restricted Stock Agreement,
and shall comply with and be subject to the following terms and conditions:
(a) Issuance and Restrictions. The Committee shall determine the
-------------------------
number of shares of Restricted Stock to be awarded pursuant to the
Restricted Stock Agreement. Restricted Stock shall be subject to such
restrictions on transferability and other restrictions, if any, as the
Committee may impose at the date of grant or thereafter, which restrictions
may lapse separately or in combination at such times, under such
circumstances, in such installments, or otherwise, as the Committee may
determine. Such conditions may lapse in whole or in part based upon
achievement of such Performance Goals for the Performance Period as have
been set by the Committee.
(b) Restrictions. Prior to vesting, shares of Restricted Stock may
------------
not be sold, assigned, transferred, pledged, hypothecated or otherwise
disposed of, except by will or the laws of descent and distribution, or, if
then permitted under Rule 16b-3, pursuant to a qualified domestic relations
order as defined in Title I of the Employee Retirement Income Security Act
of 1974, as amended. Certificates
-4-
<PAGE>
for shares of Common Stock issued pursuant to awards of Restricted Stock
shall bear an appropriate legend referring to such restrictions, and any
attempt to dispose of any such shares of Common Stock in contravention of
such restrictions shall be null and void and without effect. Prior to
vesting, such certificates shall be held either in escrow by an escrow
agent appointed by the Committee, or by the Grantee, as determined in the
sole discretion of the Committee.
(c) Forfeiture. Subject to such exceptions as may be determined by
----------
the Committee, if the Grantee's continuous employment with the Company or
its direct and indirect subsidiaries shall terminate for any reason (other
than by reason of death or disability) prior to vesting of the Restricted
Stock, or to the extent any Performance Goals for the Performance Period
are not met, any shares remaining subject to restrictions shall thereupon
be forfeited by the Grantee and transferred to, and reacquired by, the
Company at no cost to the Company; provided, however, that, with respect to
-------- -------
Grantees who are not Executive Officers, (i) the Committee may provide, by
rule or regulation or in any Restricted Stock Agreement, or may determine
in any individual case, that restrictions or forfeiture conditions relating
to Restricted Stock will be waived in whole or in part in the event of
terminations resulting from specified causes, and (ii) the Committee may in
other cases waive in whole or in part the forfeiture of Restricted Stock.
Nothing in the Plan or in any Restricted Stock Agreement shall confer upon
an individual any right to continue in the employ of the Company or
interfere in any way with the right of the Company to terminate such
employment.
(d) Withholding. The Company may defer making payment or delivery of
-----------
any benefits under the Plan until satisfactory arrangements have been made
for the payment of any tax attributable to any amounts payable with respect
to Restricted Stock awarded under the Plan. The Company is authorized to
take any action as the Committee may deem advisable to enable the Company
and Grantee to satisfy obligations for the payment of withholding taxes and
other tax obligations relating to any award under the Plan. This authority
shall include authority to withhold or receive stock or other property and
to make cash payments in respect thereof in satisfaction of the Grantee's
tax obligations.
(e) Death, Disability or Retirement of Grantee. If a Grantee shall
------------------------------------------
die while employed by the Company or its direct and indirect subsidiaries,
or if the Grantee's employment shall terminate by reason of disability, all
Restricted Stock theretofore awarded to such Grantee shall vest as of the
date of death or disability of the Grantee. If a Grantee terminates
employment with the Company by reason of Retirement (as defined below)
prior to vesting of the Restricted Stock, then the Committee, in its sole
discretion, may determine whether or not the Grantee remains eligible to
retain the Restricted Stock, provided, however, that the Restricted Stock
-------- -------
shall remain subject to the applicable Performance Goals and the other
terms and conditions herein if the Grantee is allowed to retain the
Restricted
-5-
<PAGE>
Stock. "Retirement" shall mean such circumstances determined as retirement
in the sole discretion of the Committee.
(f) Effect of Certain Changes.
-------------------------
(i) If there is any change in the number or class of shares of
Common Stock through the declaration of stock or cash dividends, or
recapitalization resulting in stock splits, or combinations or
exchanges of such shares, the number or class of shares of Common
Stock available for awards of Restricted Stock and the number or class
of shares of such outstanding Restricted Stock may be proportionately
adjusted by the Committee in its sole discretion to reflect any such
change in the number or class of issued shares of Common Stock;
provided, however, that any fractional shares resulting from any such
-------- -------
adjustment shall be eliminated. In the event of any other
extraordinary corporate transaction, including but not limited to
distributions of cash or other property to the Company's shareholders,
the Committee may equitably adjust outstanding Restricted Stock as it
deems appropriate in its sole discretion.
(ii) If while unvested Restricted Stock remains outstanding under
the Plan--
(A) any Person (as defined in this clause A) is or becomes
the beneficial owner (as defined in Rule 13d-3 of the Exchange
Act), directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such Person any
securities acquired directly from the Company or any of its
affiliates) representing 25% or more of the combined voting power
of the Company's then respective outstanding voting securities.
For purposes of the Plan, "Person" shall mean 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 (1) any employee plan established by the Company, (2) the
Company or any of its affiliates (as defined in Rule 12b-2
promulgated under the Exchange Act), (3) an underwriter
temporarily holding securities pursuant to an offering of such
securities, and (4) a corporation owned, directly or indirectly,
by stockholders of the Company in substantially the same
proportions as their ownership of the Company; or
(B) during any period of up to two consecutive years (not
including any period prior to date hereof), individuals who at
the beginning of such period and any new director (other than a
director whose initial assumption of office is in connection with
an actual or threatened election contest relating to the election
of
-6-
<PAGE>
directors of the Company) whose appointment or election by the
respective Board of Directors or nomination for election by the
Company's stockholders was approved by a vote of at least two-
thirds (2/3) of the directors then still in office who either
were directors at the beginning of such period or whose
appointment, election or nomination for election was previously
so approved, cease for any reason to constitute a majority
thereof; or
(C) there is consummated a merger or consolidation of the
Company with any other corporation or the stockholders of the
Company approve the issuance of voting securities of the Company
in connection with a merger or consolidation of the Company (or
any direct or indirect subsidiary of the Company) pursuant to
applicable stock exchange requirements, other than (i) a merger
or consolidation which would result in the voting securities of
the Company outstanding immediately prior to such merger or
consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity or any parent thereof), in combination with the
ownership of any trustee or other fiduciary holding securities
under an employee benefit plan of the Company, at least 75% of
the combined voting power of the voting securities of the Company
or such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (ii) a merger
or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no Person is or becomes
the beneficial owner, directly or indirectly, of securities of
the Company (not including in the securities beneficially owned
by such Person, any securities acquired directly from the Company
or its subsidiaries other than in connection with the acquisition
by the Company or its subsidiaries of a business) representing
25% or more of either the then outstanding shares of common stock
of the Company or the combined voting power of the Company's then
outstanding securities; or
(D) the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets,
other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity, at least
75% of the combined voting power of which are owned by Persons in
substantially the same proportions as their ownership of the
Company immediately prior to such sale;
-7-
<PAGE>
then from and after the date on which the acquisition of such
percentage shall have been made or the date on which the change in the
composition of the Board of Directors set forth above shall have
occurred or the date of such consummation or approval, whichever is
applicable, all then outstanding Restricted Stock shall vest in full
and all restrictions imposed on such Restricted Stock pursuant to this
Plan shall lapse.
(iii) In the event of a change in the Common Stock of the
Company as presently constituted, which is limited to a change of all
of its authorized shares with par value into the same number of shares
with a different par value or without par value, the shares resulting
from any such change shall be deemed to be the Common Stock within the
meaning of the Plan.
(iv) To the extent that the foregoing adjustments relate to
stock or securities of the Company, such adjustments shall be made by
the Committee, whose determination in that respect shall be final,
binding and conclusive.
(v) Except as expressly provided in the Plan, the Grantee
shall have no rights by reason of any subdivision or consolidation of
shares of stock of any class or the payment of any stock dividend or
any other increase or decrease in the number of shares of stock of any
class or by reason of any dissolution, liquidation, merger, or
consolidation or spin-off of assets or stock of another corporation;
and any issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall not
affect, and no adjustment by reason thereof shall be made with respect
to, the Restricted Stock. The award of Restricted Stock pursuant to
the Plan shall not affect in any way the right or power of the Company
to make adjustments, reclassifications, reorganizations or changes of
its capital or business structures or to merge or to consolidate or to
dissolve, liquidate or sell, or transfer all or part of its business
or assets.
(g) Rights as a Stockholder. Except to the extent restricted under
-----------------------
the Restricted Stock Agreement, a Grantee shall have all of the rights of a
stockholder including, without limitation, the right to vote Restricted
Stock and the right to receive dividends thereon.
(h) Other Provisions. The Restricted Stock Agreements authorized
----------------
under the Plan shall contain such other provisions not inconsistent with
this Plan, including, without limitation, the imposition of restrictions
upon the transferability of Restricted Stock and conditions on vesting of
Restricted Stock, as the Committee shall deem advisable.
-8-
<PAGE>
(i) Special Provisions Regarding Certain Awards. Notwithstanding
-------------------------------------------
anything to the contrary contained in this Section 6, the vesting of
Restricted Stock awarded pursuant to this Plan to an Executive Officer
shall be based on the attainment of the Performance Goals during the
Performance Period. In no event shall the number of shares of Restricted
Stock awarded to a Covered Employee for a Performance Period exceed
150,000. Unless otherwise determined by the Committee, in the case of
Grantees who are Covered Employees as of the end of the Performance Period,
shares of Restricted Stock shall be released from restrictions only after
achievement of the applicable Performance Goals has been certified by the
Committee.
7. Term of Plan. Restricted Stock may be awarded pursuant to the Plan
------------
from time to time within a period of ten years from the date the Plan is adopted
by the Board, or the date the Plan is approved by the stockholders of the
Company, whichever is earlier.
8. Amendment and Termination of the Plan. The Board or the Committee may
-------------------------------------
at any time and from time to time alter, amend, suspend, or terminate the Plan
in whole or in part; provided, however, that no amendment which requires
-------- -------
stockholder approval under applicable law or in order for the exemptions
available under Rule 16b-3 to be applicable to the Plan and the Grantees or to
preserve under section 162(m) of the Code the deductibility by the Company of
compensation related hereto, shall be effective unless the same shall be
approved by the stockholders of the Company entitled to vote thereon on or
before the effective date of the amendment. Such approval shall be obtained in
such manner as is required by the Company's Certificate of Incorporation, its
By-Laws, and the laws of the State of Delaware as in effect at the time of such
approval. Notwithstanding the foregoing, no amendment shall affect adversely
any of the rights or obligations of any Grantee, without such Grantee's consent,
with respect to any Restricted Stock theretofore awarded under the Plan.
9. Effectiveness. This Plan shall become effective as of the
-------------
consummation of the merger of First USA, Inc. and Banc One Corporation and shall
govern all Restricted Stock awarded after the date thereof. All Restricted
Stock awarded prior to the date thereof shall be governed by the terms of the
Original Plan. In the event there is no merger of First USA, Inc. and Banc One
Corporation prior to December 31, 1997, then this Plan shall be void and the
Original Plan shall continue in full force and effect.
10. Headings. The headings of sections and subsections herein are
--------
included solely for convenience of reference and shall not affect the meaning of
any of the provisions of the Plan.
11. Governing Law. This Plan and all rights hereunder shall be construed
-------------
in accordance with and governed by the laws of the State of Delaware.
-9-
<PAGE>
12. Interpretation. The Plan is designed and intended to comply with Rule
--------------
16b-3 and, to the extent applicable, with section 162(m) of the Code, and all
provisions hereof shall be construed in a manner to so comply.
This Plan has been adopted by the Board effective as of April 23, 1997.
-10-
<PAGE>
EXHIBIT 10.14
SUBLEASE INCORPORATING PROVISIONS
OF LEASE
This SUBLEASE INCORPORATING PROVISIONS OF LEASE entered into as of
June 2, 1997 (this "Sublease") between FIRST USA FINANCIAL, INC., a Delaware
--------
corporation ("Sublessor"), and FIRST USA PAYMENTECH, INC., a Delaware
---------
corporation ("Sublessee").
---------
W I T N E S S E T H:
-------------------
A. Pursuant to that certain Lease Agreement dated as of December 14,
1994 (the "Original Lease"), Comerica Bank-Texas, a Texas state banking
--------------
association ("Comerica") leased to Sublessor portions of those certain premises
--------
located at 1601 Elm Street, Dallas, Texas 75201.
B. The Original Lease has been amended by an Amendment to Lease dated
August 25, 1995, a Second Amendment to Lease dated December 18, 1996, and by
certain letter agreements. Said amendments and letter agreements are referred to
herein collectively as the "Amendments".
----------
C. The Original Lease, as amended by the Amendments, is referred to
herein as the "Lease". The property subject to the Lease is referred to herein
-----
as the "Leased Premises".
---------------
D. Sublessor desires to sublease portions of the Leased Premises to
Sublessee, and Sublessee desires to sublease those portions of the Leased
Premises from Sublessor.
NOW THEREFORE, in consideration of the covenants set forth herein,
Sublessor and Sublessee agree as follows:
1. Term. Sublessor, in consideration of the covenants and agreements
----
to be performed by Sublessee and upon the terms and conditions hereinafter
stated, shall lease, demise and let unto Sublessee, and Sublessee shall lease
from Sublessor those portions of the Leased Premises more fully described on
Exhibit "A" attached hereto and incorporated herein by reference (the "Subleased
- ------- --- ---------
Premises"), beginning on the Rent Commencement Date (hereinafter defined), to
- --------
have and to hold for the remainder of the Lease, including any renewals or
extensions thereof (the "Sublease Term"). Upon expiration of the Lease, as
-------------
renewed or extended (if applicable), or upon earlier termination of the Lease,
this Sublease shall expire.
2. Sublessee Subject to All Terms and Conditions of the Lease. This
----------------------------------------------------------
Sublease is expressly subject and subordinate to the Lease and all of the terms,
conditions and covenants therein contained. Except to the extent otherwise set
forth in this Sublease, in which event the terms of this Sublease shall prevail,
all the terms, covenants and conditions of the Lease shall be applicable to this
Sublease with the same force and effect as if Sublessor were the landlord under
the Lease and Sublessee were the tenant thereunder and the provisions of the
Lease are
1
<PAGE>
incorporated herein by reference with the same force and effect as if
they were fully set forth herein. Sublessee assumes and agrees to fully perform
and discharge all obligations of Sublessor as tenant under the Lease (to the
extent such obligations related to the Subleased Premises) during the Sublease
Term. Capitalized terms not defined herein shall have the meanings ascribed to
them in the Lease.
3. Definitions. For the purposes of this Sublease, the following
-----------
terms in the Lease shall have the definitions provided below, rather than the
definitions set forth in the Lease:
"Rent Commencement Date" shall mean with respect to the Subleased
----------------------
Premises, July 1, 1997.
"Landlord" shall mean First USA Financial, Inc.
--------
"Tenant" shall mean First USA Paymentech, Inc.
------
4. Rental Payments. Rental for the Subleased Premises payable by
---------------
Sublessee shall be equal to the rental (including, without limitation, Basic
Rental and Additional Rental) payable by Sublessor to Comerica with respect to
the portion of the Leased Premises that constitutes the Subleased Premises (the
"Sublease Rental").
---------------
5. Amendment and Deletion of Lease Provisions. For the purposes of this
------------------------------------------
Sublease only:
(a) The references to "Guarantor" and "Guaranty" are deleted.
--------- --------
(b) Section 42(b) (Guaranty) is deleted in its entirety.
(c) Exhibit "G" (Guaranty of Lease) is deleted in its entirety.
-----------
6. Sublessor's Obligations. Except as otherwise specified herein, the
-----------------------
only services or rights to which Sublessee is entitled under this Sublease are
those to which Sublessor is entitled under the Lease and Sublessee will look
solely to Comerica for all such services and rights.
Notwithstanding any other provision of the Lease or this Sublease,
Sublessor hereby covenants and agrees that any expansion options, renewal
options, rights of first refusal and purchase options exercisable by Sublessor
as Tenant under the Lease (collectively, the "Options", and respectively, an
-------
"Option") shall be held by Sublessor for the benefit of Sublessee. Therefore, in
- -------
the event Sublessor, as Tenant under the Lease has such an Option, Sublessor
shall give Sublessee written notice of the Option (the "Option Notice"), the
-------------
requirements for the exercise of the Option, and the date of termination of the
Option at least 30 days prior to the termination of the Option (or, if Sublessor
does not have 30 days to consider the Option under the Lease, Sublessor shall
give Sublessee the Option Notice as soon as reasonably practicable under the
circumstances). If Sublessee desires that the Option be exercised so that
Sublessee may benefit from such exercise, Sublessor shall, after receiving
written notice from Sublessee,
2
<PAGE>
promptly exercise the Option for and on behalf of Sublessee. The rights and
obligations of Landlord and Tenant granted due to the exercise of the Option
shall be applicable to this Sublease with the same force and effect as if
Sublessor were the landlord under the Lease and Sublessee were the tenant
thereunder.
7. Liability for Obligations on Subleased Premises. It is the intention
-----------------------------------------------
of the parties that, except as otherwise provided herein, Sublessee shall be
liable for all costs, expenses and obligations of every kind relating to the
Subleased Premises that Sublessor is required to pay to Comerica arising out of
the Lease on and after the Rent Commencement Date. For convenience, all such
costs, expenses and obligations due from Sublessee under this Sublease shall be
paid directly to Comerica until such time as Sublessor instructs Sublessee in
writing. Any insurance policies required of the Tenant under the Lease shall
name both Comerica and Sublessor as additional insureds.
8. No Default Under Lease. Sublessor represents and warrants that, as of
----------------------
the date hereof, to Sublessor's knowledge, there are no defaults (nor any
conditions that, with the giving of notice or with the passage of time, or both,
would constitute a default) on the part of Comerica or Sublessor under the
Lease.
9. No Termination; Indemnity. (a) Neither Sublessor nor Sublessee shall
-------------------------
do anything nor permit anything to be done that would cause the Lease to be
terminated or forfeited because of any right of termination or forfeiture
reserved or vested in Comerica under the Lease, or that would cause Sublessor or
Sublessee to be in default under the Lease. Each party hereto ("First Party")
-----------
will indemnify and hold the other party ("Other Party") harmless from and
-----------
against all liabilities and claims of any kind by reason of any breach or
default under the Lease that is caused by any act or omission on the part of the
First Party by reason of which the Lease may be terminated or forfeited, or by
reason of which the Other Party may be found to be in default under the Lease.
Sublessor will indemnify and hold Sublessee harmless from and against all
liabilities or claims of any kind under the Lease which arose prior to the date
hereof. This Section 9 shall survive the expiration or termination of the Lease
and this Sublease.
10. Termination of Lease. In the event of termination of the Lease due to
--------------------
any casualty suffered by the Leased Premises, condemnation or destruction of the
whole or any portion of the Leased Premises, or for any other reason, this
Sublease shall cease and terminate upon the same date that the Lease terminates.
Such cancellation shall become effective without further notice upon the
termination of the Lease. Upon the effective date of such cancellation, neither
Sublessor nor Sublessee shall have any liability or obligation to the other
party hereunder pursuant to this Sublease, except for liabilities or obligations
that accrued prior to the effective date of such cancellation (including, but
not limited to, any liability that either party may have to the other party
under Section 9 hereof).
11. No Amendment of Lease Without Sublessee's Consent. During the term of
-------------------------------------------------
the Sublease, Sublessor shall not amend the Lease without Sublessee's prior
written consent, which consent shall be in Sublessee's sole discretion.
3
<PAGE>
12. No Waiver. The failure of Sublessor or Sublessee to insist in any
---------
instance upon the strict keeping, observance or performance of any covenant,
agreement, term, provision or condition of this Sublease or to exercise any
election herein contained shall not be construed as a waiver or relinquishment
for the future of such covenant, agreement, term, provision, condition or
election, but the same shall continue and remain in full force and effect. No
waiver or modification by Sublessor or Sublessee of any covenant, agreement,
term, provision or condition of this Sublease shall be deemed to have been made
unless expressed in writing and signed by Sublessor and Sublessee.
13. Required Notice Under Lease. Sublessor shall promptly give written
---------------------------
notice to Sublessee of (i) all claims, demands, or controversies by or with
Comerica under the Lease, and (ii) any events which require that Sublessee give
notice to Comerica under the Lease.
14. Brokers. Each party hereto represents and warrants that it knows of no
-------
broker or any other party who is entitled to receive a commission or similar
compensation in connection with this Sublease. Each party agrees to indemnify
and hold harmless the other party of and from all liabilities, costs and claims
for commissions, or similar compensation, in connection with this Sublease that
is made by anyone claiming by, through or under the indemnifying party.
15. Complete Agreement. All prior understandings and agreements between
------------------
the parties are merged within this Sublease, which alone fully and completely
sets forth the understanding of the parties, and this Sublease may not be
changed or terminated other than by an agreement in writing and signed by
Sublessor and Sublessee.
16. Notices. Any notice or demand which either party may or must give to
-------
the other under this Sublease shall be deemed to have been duly given if in
writing and delivered personally or sent by certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to Sublessor: First USA Financial, Inc.
1601 Elm Street
Dallas, Texas 75201
Attention: Roger Hart, Senior Counsel
If to Sublessee: First USA Paymentech, Inc.
1601 Elm Street
Dallas, Texas 75201
Attention: Philip Taken, General Counsel
Either party may, by notice in writing, direct that future notices or demands be
sent to a different address.
17. Successors. The covenants and agreements herein contained shall bind
----------
and inure to the benefit of Sublessor, Sublessee and their respective successors
and assigns.
4
<PAGE>
18. Captions. The captions or headings of paragraphs in this Sublease are
--------
inserted for convenience only, and shall not be considered in construing the
provisions hereof if any question of intent should arise.
19. Severability. If any provisions of this Sublease shall be held to be
------------
invalid or unenforceable, the validity and enforceability of the remaining
provisions of this Sublease shall not be affected thereby.
20. Governing Law. This Agreement shall be construed in accordance with,
-------------
and governed by, the laws of the State of Texas.
21. Further Assurances. Sublessor and Sublessee shall execute,
------------------
acknowledge and deliver such instruments and take such other action as may be
reasonably necessary to carry out their obligations under this Sublease.
22. Counterparts; Facsimile. This document may be signed in any number of
-----------------------
several counterparts, each of which shall be an original, but all such
counterparts together constitute one and the same agreement. The parties may
execute and deliver such counterparts via facsimile, which shall have the same
effect as delivery of original counterparts.
23. Sublessee's Expansion Rights. Sublessee shall have a right of first
----------------------------
refusal ("ROFR") and an expansion option (the "Expansion Option") on any of the
---- ----------------
Leased Premises not occupied or to be vacated by Sublessor, as the case may be,
according to the following terms:
a. Expansion Option. Sublessor shall, from time to time, promptly give
----------------
Sublessee written notice of any space within the Leased Premises that Sublessor
is not occupying or which Sublessor intends to vacate, and said notice shall
specify the period of time that Sublessor intends to keep such space vacant (the
"Vacancy Period"). Following receipt of such notice, Sublessee may, at its sole
--------------
discretion, exercise its Expansion Option for all or a portion of the unoccupied
Leased Premises, or the space to be so vacated by Sublessor, as the case may be,
by delivering written notice (the "Expansion Notice") to Sublessor at least 30
----------------
days prior to the expiration of the Vacancy Period. In the Expansion Notice,
Sublessee shall specify which additional portion or portions of the Leased
Premises (the "Additional Subleased Premises") it desires to occupy as part of
-----------------------------
the Subleased Premises. Sublessor shall sublease to Sublessee the Additional
Subleased Premises upon the terms and conditions of this Sublease, and Sublessee
shall be liable for all costs, expenses and obligations of every kind relating
to the Additional Subleased Premises that Sublessor is required to pay to
Comerica arising out of the Lease and relating to the Additional Subleased
Premises on and after the date that Sublessee occupies the Additional Subleased
Premises.
b. ROFR. In the event Sublessor desires to sublease additional
----
portions of the Leased Premises to third parties (or assign its interest in the
Lease, in whole or in part, to third parties) upon terms that a third party
desires to accept, or Sublessor receives a bona fide offer from a third party
potential sublessee to sublease additional portions of the Leased Premises or
5
<PAGE>
take an assignment, in whole or in part, of Sublessor's interest in the Lease,
which offer Sublessor desires to accept (the portion of the Leased Premises that
is subject to any such offer is herein called the "Offered Property"), then:
----------------
(i) Sublessor shall provide Sublessee with a description of the
terms and conditions of the proposed sublease or assignment, the identification
of the proposed sublessee or assignee, and a description of the Offered Property
and a description of all material terms and conditions of the proposed sublease
or assignment (the "Sublessor's ROFR Notice"). Sublessor shall also provide
-----------------------
Sublessee with a copy of the proposed sublease or assignment if such is
available.
(ii) If Sublessee does not elect to sublease from Sublessor the
Offered Property within 30 days after actual receipt of the Sublessor's ROFR
Notice by delivering written notice thereof to Sublessor, then Sublessee's ROFR
shall not apply to the sublease or assignment of the Offered Property if the
Offered Property is subleased or assigned to the proposed sublessee or assignee
identified in and on the terms and conditions set forth in Sublessor's ROFR
Notice within 30 days after the expiration of Sublessee's 30-day response
period.
(iii) If the sublease or assignment by Sublessor to the proposed
sublessee or assignee does not occur within said 30-day period, Sublessee's ROFR
shall remain in full force and effect with respect to the Offered Property. If a
portion of the Leased Premises is subleased or assigned to a third party after
compliance with the terms of this paragraph 23(b), the ROFR shall remain in full
force and effect for all other parts of the Leased Premises.
(iv) If Sublessee exercises its ROFR as provided for herein, the
terms and conditions shall be the terms and conditions that Sublessor intends to
sublease or assign the Offered Property as set forth in the Sublessor's ROFR
Notice.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed as of the date first written above.
SUBLESSOR:
---------
FIRST USA FINANCIAL, INC.,
a Delaware corporation
By: /s/ Tracie Klein
-----------------------------
Name: Tracie Klein
------------------------
Title: Vice President
-----------------------
6
<PAGE>
SUBLESSEE:
---------
FIRST USA PAYMENTECH, INC.,
a Delaware corporation
By: /s/ David W. Truetzel
-------------------------------
Name: David W. Truetzel
--------------------------
Title: Chief Financial Officer
------------------------
7
<PAGE>
EXHIBIT "A" -- COMMERCIA BANK TEXAS
-----------------------------------
All of the Leased Premises on the following floors of Thanksgiving Tower:
6
7
8
<PAGE>
EXHIBIT 10.15
SUBLEASE INCORPORATING PROVISIONS
OF LEASE
This SUBLEASE INCORPORATING PROVISIONS OF LEASE entered into as of
June 2, 1997 (this "Sublease") between FIRST USA FINANCIAL, INC., a Delaware
--------
corporation ("Sublessor"), and FIRST USA PAYMENTECH, INC., a Delaware
---------
corporation ("Sublessee").
---------
W I T N E S S E T H:
-------------------
A. Pursuant to that certain Lease Agreement dated as of December 14,
1994 (the "Original Lease"), Elm Partners Limited, a Texas limited partnership
--------------
("EPL") leased to Sublessor portions of those certain premises located at 1601
---
Elm Street, Dallas, Texas 75201.
B. The Original Lease has been amended by an Amendment to Lease dated
June 12, 1995, a Second Amendment to Lease dated August 24, 1995, a letter
agreement dated September 18, 1995, a letter agreement dated October 18, 1995, a
letter agreement dated November 17, 1995, a Third Amendment to Lease dated March
28, 1996, a letter agreement dated June 27, 1996, a letter agreement dated July
31, 1996, a letter agreement dated October 11, 1996, a letter agreement dated
November 1, 1996, a letter agreement dated November 26, 1996 and a Fourth
Amendment to Lease dated on or around February __, 1997. Said amendments and
letter agreements are referred to herein collectively as the "Amendments".
----------
C. The Original Lease, as amended by the Amendments, is referred to
herein as the "Lease". The property subject to the Lease is referred to herein
-----
as the "Leased Premises".
---------------
D. Sublessor desires to sublease portions of the Leased Premises to
Sublessee, and Sublessee desires to sublease those portions of the Leased
Premises from Sublessor.
NOW THEREFORE, in consideration of the covenants set forth herein,
Sublessor and Sublessee agree as follows :
1. Term. Sublessor, in consideration of the covenants and agreements
----
to be performed by Sublessee and upon the terms and conditions hereinafter
stated, shall lease, demise and let unto Sublessee, and Sublessee shall lease
from Sublessor those portions of the Leased Premises more fully described on
Exhibit "A" attached hereto and incorporated herein by reference (the "Subleased
- ----------- ---------
Premises"), beginning on the Rent Commencement Date (hereinafter defined), to
- --------
have and to hold for the remainder of the Lease, including any renewals or
extensions thereof (the "Sublease Term"). Upon expiration of the Lease, as
-------------
renewed or extended (if applicable), or upon earlier termination of the Lease,
this Sublease shall expire.
1
<PAGE>
2. Sublessee Subject to All Terms and Conditions of the Lease. This
----------------------------------------------------------
Sublease is expressly subject and subordinate to the Lease and all of the terms,
conditions and covenants therein contained. Except to the extent otherwise set
forth in this Sublease, in which event the terms of this Sublease shall prevail,
all the terms, covenants and conditions of the Lease shall be applicable to this
Sublease with the same force and effect as if Sublessor were the landlord under
the Lease and Sublessee were the tenant thereunder and the provisions of the
Lease are incorporated herein by reference with the same force and effect as if
they were fully set forth herein. Sublessee assumes and agrees to fully perform
and discharge all obligations of Sublessor as tenant under the Lease (to the
extent such obligations related to the Subleased Premises) during the Sublease
Term. Capitalized terms not defined herein shall have the meanings ascribed to
them in the Lease.
3. Definitions. For the purposes of this Sublease, the following
-----------
terms in the Lease shall have the definitions provided below, rather than the
definitions set forth in the Lease:
"Rent Commencement Date" shall mean with respect to the Subleased
----------------------
Premises, July 1, 1997.
"Landlord" shall mean First USA Financial, Inc.
--------
"Tenant" shall mean First USA Paymentech, Inc.
------
4. Rental Payments. Rental for the Subleased Premises payable by
---------------
Sublessee shall be equal to the rental (including, without limitation, Basic
Rental and Additional Rental) payable by Sublessor to EPL with respect to the
portion of the Leased Premises that constitutes the Subleased Premises (the
"Sublease Rental").
- ----------------
5. Amendment and Deletion of Lease Provisions. For the purposes of this
------------------------------------------
Sublease only:
(a) The references to "Guarantor" and "Guaranty" are deleted.
--------- --------
(b) Section 42(b) (Guaranty) is deleted in its entirety.
(c) Exhibit "G" (Guaranty of Lease) is deleted in its entirety.
-----------
6. Sublessor's Obligations. Except as otherwise specified herein, the
-----------------------
only services or rights to which Sublessee is entitled under this Sublease are
those to which Sublessor is entitled under the Lease and Sublessee will look
solely to EPL for all such services and rights.
Notwithstanding any other provision of the Lease or this Sublease,
Sublessor hereby covenants and agrees that any expansion options, renewal
options, rights of first refusal and purchase options exercisable by Sublessor
as Tenant under the Lease (collectively, the "Options", and respectively, an
-------
"Option") shall be held by Sublessor for the benefit of Sublessee. Therefore, in
- -------
the event Sublessor, as Tenant under the Lease has such an Option, Sublessor
shall
2
<PAGE>
give Sublessee written notice of the Option (the "Option Notice"), the
-------------
requirements for the exercise of the Option, and the date of termination of the
Option at least 30 days prior to the termination of the Option (or, if Sublessor
does not have 30 days to consider the Option under the Lease, Sublessor shall
give Sublessee the Option Notice as soon as reasonably practicable under the
circumstances). If Sublessee desires that the Option be exercised so that
Sublessee may benefit from such exercise, Sublessor shall, after receiving
written notice from Sublessee, promptly exercise the Option for and on behalf of
Sublessee. The rights and obligations of Landlord and Tenant granted due to the
exercise of the Option shall be applicable to this Sublease with the same force
and effect as if Sublessor were the landlord under the Lease and Sublessee were
the tenant thereunder.
7. Liability for Obligations on Subleased Premises. It is the intention
-----------------------------------------------
of the parties that, except as otherwise provided herein, Sublessee shall be
liable for all costs, expenses and obligations of every kind relating to the
Subleased Premises that Sublessor is required to pay to EPL arising out of the
Lease on and after the Rent Commencement Date. For convenience, all such costs,
expenses and obligations due from Sublessee under this Sublease shall be paid
directly to EPL until such time as Sublessor instructs Sublessee in writing. Any
insurance policies required of the Tenant under the Lease shall name both EPL
and Sublessor as additional insureds.
8. No Default Under Lease. Sublessor represents and warrants that, as of
----------------------
the date hereof, to Sublessor's knowledge, there are no defaults (nor any
conditions that, with the giving of notice or with the passage of time, or both,
would constitute a default) on the part of EPL or Sublessor under the Lease.
9. No Termination; Indemnity. (a) Neither Sublessor nor Sublessee shall
-------------------------
do anything nor permit anything to be done that would cause the Lease to be
terminated or forfeited because of any right of termination or forfeiture
reserved or vested in EPL under the Lease, or that would cause Sublessor or
Sublessee to be in default under the Lease. Each party hereto ("First Party")
-----------
will indemnify and hold the other party ("Other Party") harmless from and
-----------
against all liabilities and claims of any kind by reason of any breach or
default under the Lease that is caused by any act or omission on the part of the
First Party by reason of which the Lease may be terminated or forfeited, or by
reason of which the Other Party may be found to be in default under the Lease.
Sublessor will indemnify and hold Sublessee harmless from and against all
liabilities or claims of any kind under the Lease which arose prior to the date
hereof. This Section 9 shall survive the expiration or termination of the Lease
and this Sublease.
10. Termination of Lease. In the event of termination of the Lease due to
--------------------
any casualty suffered by the Leased Premises, condemnation or destruction of the
whole or any portion of the Leased Premises, or for any other reason, this
Sublease shall cease and terminate upon the same date that the Lease terminates.
Such cancellation shall become effective without further notice upon the
termination of the Lease. Upon the effective date of such cancellation, neither
Sublessor nor Sublessee shall have any liability or obligation to the other
party hereunder pursuant to this Sublease, except for liabilities or obligations
that accrued prior to the effective
3
<PAGE>
date of such cancellation (including, but not limited to, any liability that
either party may have to the other party under Section 9 hereof).
11. No Amendment of Lease Without Sublessee's Consent. During the term of
-------------------------------------------------
the Sublease, Sublessor shall not amend the Lease without Sublessee's prior
written consent, which consent shall be in Sublessee's sole discretion.
12. No Waiver. The failure of Sublessor or Sublessee to insist in any
---------
instance upon the strict keeping, observance or performance of any covenant,
agreement, term, provision or condition of this Sublease or to exercise any
election herein contained shall not be construed as a waiver or relinquishment
for the future of such covenant, agreement, term, provision, condition or
election, but the same shall continue and remain in full force and effect. No
waiver or modification by Sublessor or Sublessee of any covenant, agreement,
term, provision or condition of this Sublease shall be deemed to have been made
unless expressed in writing and signed by Sublessor and Sublessee.
13. Required Notice Under Lease. Sublessor shall promptly give written
---------------------------
notice to Sublessee of (i) all claims, demands, or controversies by or with EPL
under the Lease, and (ii) any events which require that Sublessee give notice to
EPL under the Lease.
14. Brokers. Each party hereto represents and warrants that it knows of no
-------
broker or any other party who is entitled to receive a commission or similar
compensation in connection with this Sublease. Each party agrees to indemnify
and hold harmless the other party of and from all liabilities, costs and claims
for commissions, or similar compensation, in connection with this Sublease that
is made by anyone claiming by, through or under the indemnifying party.
15. Complete Agreement. All prior understandings and agreements between
------------------
the parties are merged within this Sublease, which alone fully and completely
sets forth the understanding of the parties, and this Sublease may not be
changed or terminated other than by an agreement in writing and signed by
Sublessor and Sublessee.
16. Notices. Any notice or demand which either party may or must give to
-------
the other under this Sublease shall be deemed to have been duly given if in
writing and delivered personally or sent by certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to Sublessor: First USA Financial, Inc.
1601 Elm Street
Dallas, Texas 75201
Attention: Roger Hart, Senior Counsel
If to Sublessee: First USA Paymentech, Inc.
1601 Elm Street
Dallas, Texas 75201
Attention: Philip Taken, General Counsel
4
<PAGE>
Either party may, by notice in writing, direct that future notices or demands be
sent to a different address.
17. Successors. The covenants and agreements herein contained shall bind
----------
and inure to the benefit of Sublessor, Sublessee and their respective successors
and assigns.
18. Captions. The captions or headings of paragraphs in this Sublease are
--------
inserted for convenience only, and shall not be considered in construing the
provisions hereof if any question of intent should arise.
19. Severability. If any provisions of this Sublease shall be held to be
------------
invalid or unenforceable, the validity and enforceability of the remaining
provisions of this Sublease shall not be affected thereby.
20. Governing Law. This Agreement shall be construed in accordance with,
-------------
and governed by, the laws of the State of Texas.
21. Further Assurances. Sublessor and Sublessee shall execute,
------------------
acknowledge and deliver such instruments and take such other action as may be
reasonably necessary to carry out their obligations under this Sublease.
22. Counterparts; Facsimile. This document may be signed in any number of
-----------------------
several counterparts, each of which shall be an original, but all such
counterparts together constitute one and the same agreement. The parties may
execute and deliver such counterparts via facsimile, which shall have the same
effect as delivery of original counterparts.
23. Sublessee's Expansion Rights. Sublessee shall have a right of first
----------------------------
refusal ("ROFR") and an expansion option (the "Expansion Option") on any of the
---- ----------------
Leased Premises not occupied or to be vacated by Sublessor, as the case may be,
according to the following terms:
a. Expansion Option. Sublessor shall, from time to time, promptly give
----------------
Sublessee written notice of any space within the Leased Premises that Sublessor
is not occupying or which Sublessor intends to vacate, and said notice shall
specify the period of time that Sublessor intends to keep such space vacant (the
"Vacancy Period"). Following receipt of such notice, Sublessee may, at its sole
--------------
discretion, exercise its Expansion Option for all or a portion of the unoccupied
Leased Premises, or the space to be so vacated by Sublessor, as the case may be,
by delivering written notice (the "Expansion Notice") to Sublessor at least 30
----------------
days prior to the expiration of the Vacancy Period. In the Expansion Notice,
Sublessee shall specify which additional portion or portions of the Leased
Premises (the "Additional Subleased Premises") it desires to occupy as part of
-----------------------------
the Subleased Premises. Sublessor shall sublease to Sublessee the Additional
Subleased Premises upon the terms and conditions of this Sublease, and Sublessee
shall be liable for all costs, expenses and obligations of every kind relating
to the Additional Subleased Premises that Sublessor is required to pay to EPL
arising out of the Lease and relating
5
<PAGE>
to the Additional Subleased Premises on and after the date that Sublessee
occupies the Additional Subleased Premises.
b. ROFR. In the event Sublessor desires to sublease additional
----
portions of the Leased Premises to third parties (or assign its interest in the
Lease, in whole or in part, to third parties) upon terms that a third party
desires to accept, or Sublessor receives a bona fide offer from a third party
potential sublessee to sublease additional portions of the Leased Premises or
take an assignment, in whole or in part, of Sublessor's interest in the Lease,
which offer Sublessor desires to accept (the portion of the Leased Premises that
is subject to any such offer is herein called the "Offered Property"), then:
----------------
(i) Sublessor shall provide Sublessee with a description of the
terms and conditions of the proposed sublease or assignment, the identification
of the proposed sublessee or assignee, and a description of the Offered Property
and a description of all material terms and conditions of the proposed sublease
or assignment (the "Sublessor's ROFR Notice"). Sublessor shall also provide
-----------------------
Sublessee with a copy of the proposed sublease or assignment if such is
available.
(ii) If Sublessee does not elect to sublease from Sublessor the
Offered Property within 30 days after actual receipt of the Sublessor's ROFR
Notice by delivering written notice thereof to Sublessor, then Sublessee's ROFR
shall not apply to the sublease or assignment of the Offered Property if the
Offered Property is subleased or assigned to the proposed sublessee or assignee
identified in and on the terms and conditions set forth in Sublessor's ROFR
Notice within 30 days after the expiration of Sublessee's 30-day response
period.
(iii) If the sublease or assignment by Sublessor to the proposed
sublessee or assignee does not occur within said 30-day period, Sublessee's ROFR
shall remain in full force and effect with respect to the Offered Property. If a
portion of the Leased Premises is subleased or assigned to a third party after
compliance with the terms of this paragraph 23(b), the ROFR shall remain in full
force and effect for all other parts of the Leased Premises.
(iv) If Sublessee exercises its ROFR as provided for herein, the
terms and conditions shall be the terms and conditions that Sublessor intends to
sublease or assign the Offered Property as set forth in the Sublessor's ROFR
Notice.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed as of the date first written above.
SUBLESSOR:
---------
FIRST USA FINANCIAL, INC.,
a Delaware corporation
By: /s/ Tracie Klein
-----------------------------
Name: Tracie Klein
------------------------
Title: Vice President
-----------------------
SUBLESSEE:
---------
FIRST USA PAYMENTECH, INC.,
a Delaware corporation
By: /s/ David W. Truetzel
------------------------------
Name: David W. Truetzel
-------------------------
Title: Chief Financial Officer
-----------------------
7
<PAGE>
EXHIBIT "A"--ELM PARTNERS LIMITED
---------------------------------
All of the Leased Premises on the following floors of Thanksgiving Tower:
9
10
12
<PAGE>
EXHIBIT 10.16
AMENDMENT TO SUBLEASE INCORPORATING
PROVISIONS OF LEASE
This AMENDMENT TO SUBLEASE INCORPORATING PROVISIONS OF LEASE
("Amendment") is made to be effective as of July 10, 1997 (the "Effective
--------- ---------
Date"), by and between First USA Financial, Inc. ("Sublessor") and First USA
- ---- ---------
Paymentech, Inc. ("Sublessee").
---------
RECITALS:
A. Sublessor and Sublessee entered into a
certain Sublease Incorporating Provisions of Lease dated as of June 2, 1997 (the
"Sublease") with respect to certain premises described therein. The Sublease is
--------
a sublease of certain premises leased from Elm Partners Limited ("EPL") to
---
Sublessor pursuant to a lease dated as of December 14, 1994, as amended from
time to time (said lease, as amended, is referred to herein as the "Lease"). The
-----
Sublease is made a part hereof, and capitalized terms used but not otherwise
defined herein shall have the same meanings ascribed to them in the Sublease.
B. Sublessor is the current sublessor under the Sublease. Sublessee
is the current sublessee under the Sublease.
C. Sublessor and Sublessee desire to amend certain provisions of the
Sublease in the manner hereinafter provided.
NOW, THEREFORE, for and in consideration of the sum of One Dollar
($1.00) paid by each of the parties hereto to the other, and in further
consideration of the mutual covenants and promises herein contained, the receipt
and sufficiency of which are hereby acknowledged by each of the parties hereto,
it is agreed that said Sublease be, and is hereby amended in the following
respects:
1. Upon the Rent Commencement Date (as defined in the Lease) for
Sublessor's leasing of floor 11 of the Premises (as defined in the Lease) from
EPL, Sublessor shall sublease floor 11 of the Premises (as defined in the Lease)
to Sublessee upon the terms and conditions contained in the Sublease.
2. Upon Sublessor's subleasing of floor 11 of the Premises (as
defined in the Lease) to Sublessee, said floor 11 shall automatically be added
to Exhibit "A" of the Sublease.
-----------
3. Except as amended by this Amendment, the Sublease remains in full
force and effect in accordance with the terms thereof.
This document may be executed in multiple counterparts.
SUBLESSOR:
FIRST USA FINANCIAL, INC.
By: /s/ Jack M. Antonini
---------------------
Name: Jack M. Antonini
--------------------
Title: Vice Chairman
--------------------
<PAGE>
SUBLESSEE:
FIRST USA PAYMENTECH, INC.
By: /s/ Philip Taken
---------------------
Name: Philip Taken
--------------------
Title: Chief Adm. Officer and General Councel
---------------------------------------
<PAGE>
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and among First USA Paymentech, Inc., a Delaware corporation
(the "Company"), and Pamela Patsley (the "Executive"), dated as of the 27th day
of June, 1997.
The Board of Directors of the Company (the "Board") has determined that it
is in the best interest of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive pending the merger
of First USA, Inc. and Banc One Corporation (the "Merger") pursuant to the
Agreement and Plan of Merger dated as of January 19, 1997 (the "Merger
Agreement"). Therefore, in order to accomplish this objective, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date. The "Effective Date" shall mean July 1, 1997.
--------------
2. Employment Period. The Company hereby agrees to employ the Executive,
-----------------
and the Executive hereby agrees to accept employment with and remain in the
employ of the Company subject to the terms and conditions of this Agreement, for
the period commencing on the Effective Date and ending on the second anniversary
of the Effective Date (the "Employment Period").
3. Terms of Employment.
-------------------
(a) Position and Duties.
-------------------
(i) (A) During the Employment Period, the Executive shall serve
as President and Chief Executive Officer and shall retain her position as a
Director on the Board of Directors, with such authority, duties and
responsibilities as are commensurate with such positions, consistent with
past practices of the Company and the practices of other rapidly growing
companies in comparable industries, and as may be assigned to the Executive
by the Board of Directors of the Company; (B) the Executive's services
shall be performed at Dallas, Texas. There shall be no diminution of the
Executive's authority, duties and responsibilities during the Employment
Period. The Executive shall report only to the Board of Directors of the
Company during the Employment Period.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote substantially all of her attention and time during normal
business hours to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable efforts to perform
faithfully and efficiently such responsibilities. Notwithstanding the
foregoing, during the Employment Period it shall not be a violation of this
Agreement for the Executive to serve on
- 1 -
<PAGE>
corporate, civic or charitable boards or committees, so long as such
activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance
with this Agreement. It is also expressly understood and agreed that to the
extent that such activities have been conducted by the Executive prior to
the Effective Date, the continued conduct of such activities (or the
conduct of activities similar in nature and scope thereto) subsequent to
the Effective date shall not thereafter be deemed to interfere with the
performance of the Executive's responsibilities to the Company.
(b) Compensation.
------------
(i) Base Salary. During the Employment Period, the Executive
-----------
shall receive an annual base salary ("Annual Base Salary") which shall be
paid at a monthly rate at least equal to or greater than twelve times the
highest monthly base salary paid or payable, including any base salary
which has been earned but deferred, to the Executive by the Company and its
affiliated companies in respect of the twelve-month period immediately
preceding the month in which the Effective Date occurs. Increases in
Annual Base Salary shall be consistent with the Company's past practices,
guided by the compensation practices of other rapidly growing companies in
industries comparable to the Company ("Past Practices").
(ii) Annual Bonus. In addition to Annual Base Salary, for the
------------
fiscal year ended June 30, 1997 and each fiscal year ending during the
Employment Period the Executive shall receive, as a percentage of Annual
Base Salary, an annual bonus opportunity consistent with Past Practices
("Annual Bonus"). If the Company changes its fiscal year, then the
Executive shall be paid a pro rata bonus by the Company with respect to the
year-to-date period at the end of the Employment Period.
(iii) Incentive Compensation. During the Employment Period, the
----------------------
Executive shall participate in all annual and long-term incentive plans,
practices, policies and programs consistent with Past Practices; provided
--------
that the Executive shall receive stock-based awards as set forth on
Schedule A, attached hereto. The Executive shall be eligible for
----------
additional stock option awards in July, 1997 and both stock options and
other stock-based awards in 1998 and each year thereafter at such times as
such awards are made to other Executives of the Company. Each stock option
agreement between the Company and the Executive shall provide that such
stock options, to the extent exercisable upon the Executive's termination
of employment, shall remain exercisable following such termination, for a
period ending no earlier than the expiration of the Restricted Period (as
defined in Section 8(b) hereof).
- 2 -
<PAGE>
(iv) Savings and Retirement Plans. During the Employment
----------------------------
Period, the Executive shall be entitled to participate in all savings and
retirement plans, practices, policies and programs on a basis no less
favorable than that applicable to peer executives of the Company.
(v) Welfare Benefit Plans. During the Employment Period, the
---------------------
Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and
its affiliated companies (including, without limitation, medical, dental,
disability, life, accidental death and travel accident insurance plans and
programs) on a basis no less favorable than that applicable to peer
executives of the Company.
(vi) Expenses. During the Employment Period, the Executive
--------
shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the Company's
policies.
(vii) Fringe Benefits. During the Employment Period, the
---------------
Executive shall be entitled to fringe benefits, including, without
limitation, payment of club dues, 25 hours per year of personal use of a
company airplane, and, an automobile allowance, on a basis no less
favorable than (A) that applicable to peer executives of the Company and
its affiliated companies and (B) the benefits provided to the Executive
immediately prior to the Effective Date.
(viii) Office and Support Staff. During the Employment Period,
------------------------
the Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments as provided generally at any time
thereafter with respect to peer executives of the Company.
(ix) Vacation. During the Employment Period, the Executive
--------
shall be entitled to paid vacation in accordance with the plans, policies,
programs and practices of the Company on a basis no less favorable than
that applicable to peer executives of the Company but in any event no less
than five weeks vacation per annum during the Employment Period.
4. Termination of Employment.
-------------------------
(a) Death or Disability. The Executive's employment shall terminate
-------------------
automatically upon the Executive's death during the Employment Period. If the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), the Company may give to the
Executive written notice in accordance with Section 10(b) of this Agreement of
its intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 60th
day after receipt of such notice by the Executive (the
- 3 -
<PAGE>
"Disability Effective Date"), provided that, within the 60 days after such
receipt, the Executive shall not have returned to substantially full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by an independent physician selected by the Company or its
insurers and acceptable to the Executive or the Executive's legal
representative.
(b) Cause. The Company may terminate Executive's employment during
-----
the Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the
Company; or
(ii) a material breach by the Executive of this Agreement which
is not remedied by the Executive promptly after receipt of notice thereof
given by the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company.
(c) Good Reason. The Executive's employment may be terminated by the
-----------
Executive for or without Good Reason. For purposes of this Agreement, "Good
Reason" shall mean, in the absence of a written consent of the Executive, any
failure by the Company to comply with any of the provisions of this Agreement,
other than an isolated, insubstantial and inadvertent failure not occurring in
bad faith and which is remedied by the Company promptly after receipt of notice
thereof given by the Executive.
(d) Notice of Termination. Any termination by the Company for Cause,
---------------------
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 10(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the
- 4 -
<PAGE>
Executive or the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company, respectively, hereunder or
preclude the Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein within 30 days of such notice, as the case may
be, (ii) if the Executive's employment is terminated by the Company other than
for Cause or Disability, the Date of Termination shall be the date on which the
Company notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
5. Obligations of the Company upon Termination.
-------------------------------------------
(a) Good Reason; Other Than for Cause, Death or Disability. If,
------------------------------------------------------
during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the sum of the following
amounts: (1) the Executive's Annual Base Salary through the Date of
Termination to the extent not theretofore paid; (2) any compensation
previously deferred (other than pursuant to a qualified plan) by the
Executive (together with any accrued interest or earnings thereon) to the
extent not theretofore paid; (3) the product of (a) the Annual Bonus paid
to the Executive with respect to the fiscal year prior to the fiscal year
in which the Date of Termination occurs (the "Prior Fiscal Year") and (b) a
fraction, the numerator of which is the number of days from the end of the
Prior Fiscal Year to the Date of Termination and the denominator of which
is 365 (the sum of the amounts described in clauses (1), (2) and (3) shall
be hereinafter referred to as the "Accrued Obligations"); and (4) the
product of (x) the sum of (I) the Executive's Annual Base Salary and (II)
the Annual Bonus paid to the Executive with respect to the Prior Fiscal
Year and (y) a fraction, the numerator of which is the greater of (I) the
number of days remaining in the Employment Period from the Date of
Termination, or (II) the number of days remaining in the Restricted Period
(as defined in Section 8(b) hereof) from the Date of Termination (such
greater number of days being hereinafter referred to as the "Continuation
Period"), and the denominator of which is 365; and
- 5 -
<PAGE>
(ii) during the Continuation Period, or such longer period as may
be provided by the terms of the appropriate plan, program, practice or
policy, the Company shall continue benefits to the Executive and/or the
Executive's family at least equal to those which would have been provided
to them in accordance with the plans, programs, practices and policies
described in Section 3(b)(v) of this Agreement if the Executive's
employment had not been terminated or, if more favorable to the Executive,
as in effect generally at any time thereafter with respect to peer
executives of the Company and their families, provided, however, that if
the Executive becomes reemployed with another employer and is eligible to
receive medical or other welfare benefits under another employer provided
plan, the medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during such applicable
period of eligibility. For purposes of determining eligibility (but not
the time of commencement of benefits) of the Executive for retiree benefits
pursuant to such plans, practices, programs and policies, the Executive
shall be considered to have remained employed for the Continuation Period,
and to have retired on the last day of such period; and
(iii) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible
to receive under any plan, program, policy or practice or contract or
agreement of the Company, including any amount which (i) is earned by, but
has not been paid to, the Executive and (ii) would have been paid or vested
in the calendar year in which the Executive's termination of employment
occurs (such other amounts and benefits shall be hereinafter referred to as
the "Other Benefits"); and
(iv) all stock-based awards (including, without limitation, stock
options and restricted stock grants) shall become immediately vested and
that certain Full Recourse Secured Promissory Note dated March 22, 1996
whereby First USA Financial, Inc. loaned $1,953,000 to the Executive (the
"Stock-Loan") shall be immediately paid in full by the Company and forgiven
in full, without any payment or liability to the Executive.
(b) Death. If the Executive's employment is terminated by reason of
-----
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations, forgiveness
of the Stock-Loan and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 5(b) shall include death benefits as in effect on the
date of the Executive's death with respect to peer executives of the Company and
their beneficiaries.
- 6 -
<PAGE>
(c) Disability. If the Executive's employment is terminated by reason
----------
of the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations, forgiveness of the Stock-Loan and the timely payment or
provision of Other Benefits. Accrued Obligations shall be paid to the Executive
in a lump sum in cash within 30 days of the Date of Termination. With respect
to the provision of Other Benefits, the term Other Benefits as utilized in this
Section 5(c) shall include, and the Executive shall be entitled after the
Disability Effective Date to receive, disability and other benefits as in effect
at any time thereafter generally with respect to peer executives of the Company
and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment
---------------------------------
shall be terminated for Cause or the Executive terminates her employment without
Good Reason during the Employment Period, this Agreement shall terminate without
further obligations to the Executive other than the obligation to pay to the
Executive (x) his Annual Base Salary through the Date of Termination, (y) the
amount of any compensation previously deferred by the Executive (other than
pursuant to a qualified plan), and (z) Other Benefits, in each case to the
extent not theretofore unpaid.
6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
-------------------------
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 10(f), shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies, except where there would be a duplication of benefits. Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan, policy, practice or program of or any contract or agreement with
the Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program or contract or agreement except as explicitly modified by this
Agreement.
7. Full Settlement. The Company's obligation to make the payments
---------------
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and, except as
provided in Section 5 (a) (ii), such amounts shall not be reduced whether or not
the Executive obtains other employment.
8. Confidential Information; Non-Competition; Non-Solicitation.
------------------------------------------------------------
(a) Confidential Information. The Executive shall hold in a fiduciary
-------------------------
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated
- 7 -
<PAGE>
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process or in order to
enforce her rights under this Agreement or as necessary to defend herself
against a claim asserted directly or indirectly by the Company or its
affiliates, communicate or divulge any such information, knowledge or data that
is not otherwise publicly available to anyone other than the Company and those
designated by it.
(b) Non-Competition. During the Employment Period and until the
---------------
earlier of (1) the second anniversary of the Effective Date, or if later, until
one year following the Executive's Date of Termination, or (2) such earlier date
as the Company may specify to the Executive, in writing, no later than 10 days
after the Date of Termination (the earlier of clause (1) or (2), the "Restricted
Period"), the Executive shall not, except in furtherance of the Executive's
duties to the Company or unless the Executive receives the prior consent of the
Company, within the United States of America, directly or indirectly: (1) own
or become employed by or provide consulting services to, any business other than
the Company or its affiliates, engaged or planning to become engaged in the
business of issuing MasterCard, Visa or other credit card accounts; (2) own or
become employed by or provide consulting services to, any business other than
the Company or its affiliates, engaged or planning to become engaged in the
business of credit card processing, authorization or clearing services; (3)
offer, accept, purchase, solicit or assist in the offering, acceptance, purchase
or solicitation of MasterCard, Visa or other credit card accounts for herself or
any business other than the Company or its affiliates; or (4) solicit, offer or
assist in the solicitation or offering of (i) transaction payment processing,
authorization or clearing services, or (ii) the development, design or
implementation of any computer hardware or software or system or technology
relative to transaction payment processing, authorization or clearing services,
except on behalf of the Company or its affiliates.
The restrictions in the previous paragraph shall not prohibit the
Executive from directly or indirectly owning as a passive investment a less than
2 percent capital and/or profits interest in any entity, provided that the Board
has determined that such entity or interest is not a business or investment
opportunity for the Company or one of its subsidiaries, and that any business or
entity in which said entity has a direct or indirect interest is not a business
investment opportunity for the Company of any of its subsidiaries.
(c) Non-Solicitation. During the Restricted Period, the Executive
----------------
shall not, directly or indirectly solicit for employment, or directly or
indirectly employ, any individual who at the time of the Executive's termination
of employment or within six months prior thereto was employed by the Company or
its subsidiaries.
- 8 -
<PAGE>
(d) Remedies; Effectiveness In the event of a breach or threatened
-----------------------
breach of this Section 8, the Executive agrees that the Company shall be
entitled to injunctive relief in a court of appropriate jurisdiction to remedy
any such breach or threatened breach, the Executive acknowledges that damages
would be inadequate and insufficient. This Section 8 shall cease to be
effective upon the occurrence of an Acceleration Date described in Section
4(h)(iii) of the Company's 1996 Stock Option Plan.
9. Successors.
----------
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
10. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
-------------------
Pamela Patsley
3713 Marquette
Dallas, TX 75225
- 9 -
<PAGE>
If to the Company:
-----------------
First USA Paymentech, Inc.
1601 Elm Street
Dallas, TX 75201
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder shall not be deemed to be
a waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that after the Effective
Date, this Agreement will constitute the entire agreement between the parties
and integrate all agreements between the parties with respect to the Executive's
employment by the Company, the terms and conditions of such employment, or the
termination of such employment. Any and all prior agreements, understandings or
commitments between the Company and the Executive with respect to any such
matter will, after the Effective Date, be hereby superseded and revoked.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused this to be executed in its name on its behalf, all as of the day and year
first above written.
FIRST USA PAYMENTECH, INC.
By: /s/ Philip Taken
------------------------------------
Title: Senior Vice President
---------------------------------
/s/ Pamela Patsley
---------------------------------------
Pamela Patsley
- 10 -
<PAGE>
EXHIBIT 10.18
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and among First USA Paymentech, Inc., a Delaware corporation
(the "Company"), and [name]* (the "Executive"), dated as of the
----------------------
27th day of June, 1997.
The Board of Directors of the Company (the "Board") has determined that it
is in the best interest of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive pending the merger
of First USA, Inc. and Banc One Corporation (the "Merger") pursuant to the
Agreement and Plan of Merger dated as of January 19, 1997 (the "Merger
Agreement"). Therefore, in order to accomplish this objective, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date. The "Effective Date" shall mean July 1, 1997.
--------------
2. Employment Period. The Company hereby agrees to employ the Executive,
-----------------
and the Executive hereby agrees to accept employment with and remain in the
employ of the Company subject to the terms and conditions of this Agreement, for
the period commencing on the Effective Date and ending on the second anniversary
of the Effective Date (the "Employment Period").
3. Terms of Employment.
-------------------
(a) Position and Duties.
-------------------
(i) (A) During the Employment Period, the Executive shall serve
as [title]* , with such authority, duties and
------------------------
responsibilities as are commensurate with such position and as may be
assigned to the Executive by the Chief Executive Officer of the Company or
her designee; (B) the Executive's services shall be performed at Dallas,
Texas, or such other location as mutually agreed to by the Executive and
the Chief Executive Officer of the Company.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote substantially all of his attention and time during normal
business hours to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable efforts to perform
faithfully and efficiently such responsibilities. Notwithstanding the
foregoing, during the Employment Period it shall not be a violation of this
Agreement for the Executive to serve on corporate, civic or charitable
boards or committees, so long as such activities do not significantly
interfere with the performance of the Executive's responsibilities as an
employee of the Company in accordance with this Agreement. It is also
expressly understood and
-1-
<PAGE>
agreed that to the extent that such activities have been conducted by the
Executive prior to the Effective Date, the continued conduct of such
activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Effective date shall not thereafter be deemed to
interfere with the performance of the Executive's responsibilities to the
Company.
(b) Compensation.
------------
(i) Base Salary. During the Employment Period, the Executive
-----------
shall receive an annual base salary ("Annual Base Salary") which shall be
paid at a monthly rate at least equal to or greater than twelve times the
highest monthly base salary paid or payable, including any base salary
which has been earned but deferred, to the Executive by the Company and its
affiliated companies in respect of the twelve-month period immediately
preceding the month in which the Effective Date occurs. Increases in
Annual Base Salary shall be consistent with the Company's past practices,
guided by the compensation practices of other rapidly growing companies in
industries comparable to the Company ("Past Practices").
(ii) Annual Bonus. In addition to Annual Base Salary, for the
------------
fiscal year ended June 30, 1997 and each fiscal year ending during the
Employment Period the Executive shall receive, as a percentage of Annual
Base Salary, an annual bonus opportunity consistent with Past Practices
("Annual Bonus"). If the Company changes its fiscal year, then the
Executive shall be paid a pro rata bonus by the Company with respect to the
year-to-date period at the end of the Employment Period.
(iii) Incentive Compensation. During the Employment Period, the
----------------------
Executive shall participate in all annual and long-term incentive plans,
practices, policies and programs consistent with Past Practices; provided
--------
that the Executive shall receive stock-based awards as set forth on
Schedule A, attached hereto. The Executive shall be eligible for
----------
additional stock option awards in July, 1997 and both stock options and
other stock-based awards in 1998 and each year thereafter at such times as
such awards are made to other Executives of the Company. Each stock option
agreement between the Company and the Executive shall provide that such
stock options, to the extent exercisable upon the Executive's termination
of employment, shall remain exercisable following such termination, for a
period ending no earlier than the expiration of the Restricted Period (as
defined in Section 8(b) hereof).
(iv) Savings and Retirement Plans. During the Employment
----------------------------
Period, the Executive shall be entitled to participate in all savings and
retirement plans, practices, policies and programs on a basis no less
favorable than that applicable to peer executives of the Company.
-2-
<PAGE>
(v) Welfare Benefit Plans. During the Employment Period, the
---------------------
Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and
its affiliated companies (including, without limitation, medical, dental,
disability, life, accidental death and travel accident insurance plans and
programs) on a basis no less favorable than that applicable to peer
executives of the Company.
(vi) Expenses. During the Employment Period, the Executive
--------
shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the Company's
policies.
(vii) Fringe Benefits. During the Employment Period, the
---------------
Executive shall be entitled to fringe benefits, including, without
limitation, payment of an automobile allowance, on a basis no less
favorable than (A) that applicable to peer executives of the Company and
(B) the benefits provided to the Executive immediately prior to the
Effective Date.
(viii) Office and Support Staff. During the Employment Period,
------------------------
the Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments as provided generally at any time
thereafter with respect to peer executives of the Company.
(ix) Vacation. During the Employment Period, the Executive
--------
shall be entitled to paid vacation in accordance with the plans, policies,
programs and practices of the Company on a basis no less favorable than
that applicable to peer executives of the Company but in any event no less
than four weeks vacation per annum during the Employment Period.
4. Termination of Employment.
-------------------------
(a) Death or Disability. The Executive's employment shall terminate
-------------------
automatically upon the Executive's death during the Employment Period. If the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), the Company may give to the
Executive written notice in accordance with Section 10(b) of this Agreement of
its intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 60th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 60 days after such receipt, the Executive
shall not have returned to substantially full-time performance of the
Executive's duties. For purposes of this Agreement, "Disability" shall mean the
absence of the Executive from the Executive's duties with the Company on a full-
time basis for 180 consecutive business days as a result of incapacity due to
mental or physical illness which is determined to be total and
-3-
<PAGE>
permanent by an independent physician selected by the Company or its insurers
and acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate Executive's employment during
-----
the Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the
Company; or
(ii) a material breach by the Executive of this Agreement which
is not remedied by the Executive promptly after receipt of notice thereof
given by the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company.
(c) Good Reason. The Executive's employment may be terminated by the
-----------
Executive for or without Good Reason. For purposes of this Agreement, "Good
Reason" shall mean, in the absence of a written consent of the Executive, any
failure by the Company to comply with any of the provisions of this Agreement,
other than an isolated, insubstantial and inadvertent failure not occurring in
bad faith and which is remedied by the Company promptly after receipt of notice
thereof given by the Executive.
(d) Notice of Termination. Any termination by the Company for Cause,
---------------------
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 10(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
-4-
<PAGE>
(e) Date of Termination. "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein within 30 days of such notice, as the case may
be, (ii) if the Executive's employment is terminated by the Company other than
for Cause or Disability, the Date of Termination shall be the date on which the
Company notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
5. Obligations of the Company upon Termination.
-------------------------------------------
(a) Good Reason; Other Than for Cause, Death or Disability. If,
------------------------------------------------------
during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the sum of the following
amounts: (1) the Executive's Annual Base Salary through the Date of
Termination to the extent not theretofore paid; (2) any compensation
previously deferred (other than pursuant to a qualified plan) by the
Executive (together with any accrued interest or earnings thereon) to the
extent not theretofore paid; (3) the product of (a) the Annual Bonus paid
to the Executive with respect to the fiscal year prior to the fiscal year
in which the Date of Termination occurs (the "Prior Fiscal Year") and (b) a
fraction, the numerator of which is the number of days from the end of the
Prior Fiscal Year to the Date of Termination and the denominator of which
is 365 (the sum of the amounts described in clauses (1), (2) and (3) shall
be hereinafter referred to as the "Accrued Obligations"); and (4) the
product of (x) the sum of (I) the Executive's Annual Base Salary and (II)
the Annual Bonus paid to the Executive with respect to the Prior Fiscal
Year and (y) a fraction, the numerator of which is the greater of (I) the
number of days remaining in the Employment Period from the Date of
Termination, or (II) the number of days remaining in the Restricted Period
(as defined in Section 8(b) hereof) from the Date of Termination (such
greater number of days being hereinafter referred to as the "Continuation
Period"), and the denominator of which is 365; and
(ii) during the Continuation Period, or such longer period as
may be provided by the terms of the appropriate plan, program, practice or
policy, the Company shall continue benefits to the Executive and/or the
Executive's family at least equal to those which would have been provided
to them in accordance with the plans, programs, practices and policies
described in Section 3(b)(v) of this Agreement if the Executive's
employment had not been terminated or, if more favorable to the Executive,
as in effect generally at any time
-5-
<PAGE>
thereafter with respect to peer executives of the Company and their
families, provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other welfare
benefits under another employer provided plan, the medical and other
welfare benefits described herein shall be secondary to those provided
under such other plan during such applicable period of eligibility. For
purposes of determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be considered to have
remained employed for the Continuation Period, and to have retired on the
last day of such period; and
(iii) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible
to receive under any plan, program, policy or practice or contract or
agreement of the Company, including any amount which (i) is earned by, but
has not been paid to, the Executive and (ii) would have been paid or vested
in the calendar year in which the Executive's termination of employment
occurs (such other amounts and benefits shall be hereinafter referred to as
the "Other Benefits"); and
(iv) all stock-based awards (including, without limitation,
stock options and restricted stock grants) shall become immediately vested.
(b) Death. If the Executive's employment is terminated by reason of
-----
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be
paid to the Executive's estate or beneficiary, as applicable, in a lump sum in
cash within 30 days of the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 5(b)
shall include death benefits as in effect on the date of the Executive's death
with respect to peer executives of the Company and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
----------
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 5(c)
shall include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits as in effect at any
time thereafter generally with respect to peer executives of the Company and
their families.
-6-
<PAGE>
(d) Cause; Other than for Good Reason. If the Executive's employment
---------------------------------
shall be terminated for Cause or the Executive terminates his employment without
Good Reason during the Employment Period, this Agreement shall terminate without
further obligations to the Executive other than the obligation to pay to the
Executive (x) his Annual Base Salary through the Date of Termination, (y) the
amount of any compensation previously deferred by the Executive (other than
pursuant to a qualified plan), and (z) Other Benefits, in each case to the
extent not theretofore unpaid.
6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
-------------------------
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 10(f), shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies, except where there would be a duplication of benefits. Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan, policy, practice or program of or any contract or agreement with
the Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program or contract or agreement except as explicitly modified by this
Agreement.
7. Full Settlement. The Company's obligation to make the payments
---------------
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and, except as
provided in Section 5 (a) (ii), such amounts shall not be reduced whether or not
the Executive obtains other employment.
8. Confidential Information; Non-Competition; Non-Solicitation.
------------------------------------------------------------
(a) Confidential Information. The Executive shall hold in a
-------------------------
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process or in order to
enforce his rights under this Agreement or as necessary to defend himself
against a claim asserted directly or indirectly by the Company or its
affiliates, communicate or divulge any such information, knowledge or data that
is not otherwise publicly available to anyone other than the Company and those
designated by it.
-7-
<PAGE>
(b) Non-Competition. During the Employment Period and until the
---------------
earlier of (1) the second anniversary of the Effective Date, or if later, until
one year following the Executive's Date of Termination, or (2) such earlier date
as the Company may specify to the Executive, in writing, no later than 10 days
after the Date of Termination (the earlier of clause (1) or (2), the "Restricted
Period"), the Executive shall not, except in furtherance of the Executive's
duties to the Company or unless the Executive receives the prior consent of the
Company, within the United States of America, directly or indirectly: (1) own
or become employed by or provide consulting services to, any business other than
the Company or its affiliates, engaged or planning to become engaged in the
business of issuing MasterCard, Visa or other credit card accounts; (2) own or
become employed by or provide consulting services to, any business other than
the Company or its affiliates, engaged or planning to become engaged in the
business of credit card processing, authorization or clearing services; (3)
offer, accept, purchase, solicit or assist in the offering, acceptance, purchase
or solicitation of MasterCard, Visa or other credit card accounts for herself or
any business other than the Company or its affiliates; or (4) solicit, offer or
assist in the solicitation or offering of (i) transaction payment processing,
authorization or clearing services, or (ii) the development, design or
implementation of any computer hardware or software or system or technology
relative to transaction payment processing, authorization or clearing services,
except on behalf of the Company or its affiliates.
The restrictions in the previous paragraph shall not prohibit the
Executive from directly or indirectly owning as a passive investment a less than
2 percent capital and/or profits interest in any entity, provided that the Board
has determined that such entity or interest is not a business or investment
opportunity for the Company or one of its subsidiaries, and that any business or
entity in which said entity has a direct or indirect interest is not a business
investment opportunity for the Company of any of its subsidiaries.
(c) Non-Solicitation. During the Restricted Period, the Executive
----------------
shall not, directly or indirectly solicit for employment, or directly or
indirectly employ, any individual who at the time of the Executive's termination
of employment or within six months prior thereto was employed by the Company or
its subsidiaries.
(d) Remedies; Effectiveness In the event of a breach or threatened
-----------------------
breach of this Section 8, the Executive agrees that the Company shall be
entitled to injunctive relief in a court of appropriate jurisdiction to remedy
any such breach or threatened breach, the Executive acknowledges that damages
would be inadequate and insufficient. This Section 8 shall cease to be
effective upon the occurrence of an Acceleration Date described in Section
4(h)(iii) of the Company's 1996 Stock Option Plan.
-8-
<PAGE>
9. Successors.
----------
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
10. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
-------------------
--------------------------
--------------------------
If to the Company:
-----------------
First USA Paymentech, Inc.
1601 Elm Street
Dallas, TX 75201
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
-9-
<PAGE>
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder shall not be deemed to be
a waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that after the
Effective Date, this Agreement will constitute the entire agreement between the
parties and integrate all agreements between the parties with respect to the
Executive's employment by the Company, the terms and conditions of such
employment, or the termination of such employment. Any and all prior agreements,
understandings or commitments between the Company and the Executive with respect
to any such matter will, after the Effective Date, be hereby superseded and
revoked.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused this to be executed in its name on its behalf, all as of the day and year
first above written.
FIRST USA PAYMENTECH, INC.
By:
-------------------------------------
Title:
----------------------------------
----------------------------------------
Executive
-10-
<PAGE>
* The Company has entered into employment agreements in the form above with
each of the following executive officers:
James W. Baumgartner President of First USA Financial Services, Inc.
Michael P. Duffy Chief Operating Officer
Philip E. Taken Chief Administrative Officer and General Counsel
David W. Truetzel Chief Financial Officer and Secretary
-11-
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
NAME OF ENTITY STATE OF INCORPORATION
- -------------- ----------------------
First USA Direct Marketing, Inc. Delaware
First USA Financial Services, Inc. Utah Industrial Loan Company
First USA Technology, Inc. Delaware
Gensar Holdings, Inc. Delaware
Gensar Merchant Processing, Inc. Delaware
MAGroup, Inc. Arizona
Merchant Link, Inc. Delaware
National Card Processing Systems, Inc. Delaware
Paymentech Data Services, Inc. Delaware
Paymentech Fleet Services, Inc. Delaware
Paymentech ICS, Inc. Delaware
Paymentech New Hampshire, Inc. Delaware
Paymentech Management Resources, Inc. Delaware
Paymentech Merchant Services, Inc. Nevada
Paymentech Network Services, Inc. Delaware
PHH/Paymentech L.L.C. Delaware
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-11249) pertaining to the First USA Paymentech, Inc. Retirement
Savings Plan, the Registration Statement (Form S-8 No. 333-06979) pertaining to
the First USA, Inc. Deferred Compensation Plan, the Registration Statement (Form
S-8 No. 333-02786) pertaining to the First USA Paymentech, Inc. Amended and
Restated 1996 Stock Option Plan and the First USA Paymentech, Inc. Amended and
Restated 1996 Restricted Stock Plan, the Registration Statement (Form S-8 No.
333-17645) pertaining to the Employee Stock Purchase Plan of First USA
Paymentech, Inc., the Registration Statement (Form S-4 No. 333-24859) and
related Prospectus of First USA Paymentech, Inc. for the registration of
4,000,000 shares of its common stock, and the Registration Statement (Form S-3
No. 333-32697) and related Prospectus of First USA Paymentech, Inc. for the
registration of 360,000 shares of its common stock of our report dated September
23, 1997, with respect to the consolidated financial statements of First USA
Paymentech, Inc. included in the Annual Report (Form 10K) for the year ended
June 30, 1997.
/s/ ERNST & YOUNG LLP
Dallas, Texas
September 23, 1997
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<PAGE>
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<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 119,466
<SECURITIES> 0
<RECEIVABLES> 45,563
<ALLOWANCES> 0
<INVENTORY> 6,646
<CURRENT-ASSETS> 206,530
<PP&E> 44,103
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<CURRENT-LIABILITIES> 196,445
<BONDS> 0
0
0
<COMMON> 351
<OTHER-SE> 359,064
<TOTAL-LIABILITY-AND-EQUITY> 631,000
<SALES> 0
<TOTAL-REVENUES> 202,390
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<INCOME-PRETAX> 14,746
<INCOME-TAX> 11,020
<INCOME-CONTINUING> 3,726
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,726
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
