<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
Check the appropriate box:
[_] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PAYMENTECH, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials:
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
[LOGO OF PAYMENTECH, INC. APPEARS HERE]
PAYMENTECH, INC.
1601 ELM STREET
DALLAS, TEXAS 75201
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The 1998 Annual Meeting of the Stockholders of Paymentech, Inc. will be held
at 1601 Elm Street, 47th Floor, in Dallas, Texas, on Wednesday, November 4,
1998, at 10:00 a.m., Central Standard Time, for the following purposes:
1. To elect two directors to serve for three-year terms and until their
successors are elected and qualified;
2. To authorize the adoption of an amendment to the Paymentech, Inc.
Employee Stock Purchase Plan that would increase the number of shares of
common stock that may be sold under such plan; and
3. To transact whatever other business may properly be brought before the
meeting.
Stockholders of record at the close of business on September 14, 1998 by
order of the Board of Directors are entitled to notice of and to vote at the
meeting.
[SIGNATURE OF PAMELA H. PATSLEY APPEARS HERE]
Pamela H. Patsley
President and Chief Executive
Officer
September 25, 1998
Please mark, sign, date and promptly return the proxy in the enclosed
envelope even if you plan to attend the meeting. If you attend the meeting and
wish to vote in person, you may then withdraw your proxy.
<PAGE>
PAYMENTECH, INC.
1601 ELM STREET
DALLAS, TEXAS 75201
PROXY STATEMENT
Paymentech, Inc. (the "Company") is a Delaware corporation which engages in
the credit card industry primarily as a payment processor of credit and debit
card transactions on behalf of merchants, financial institutions and sales
agents, and which, according to published industry sources, is the third
largest payment processor of bankcard transactions in the United States. The
Company also provides third-party credit and debit authorization services to
financial institutions, sales agents and the Company's direct merchants. In
addition, the Company 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.
This Proxy Statement is furnished in connection with the solicitation by the
Company of proxies to be voted at its Annual Meeting of Stockholders to be
held at 10:00 a.m., Central Standard Time, on Wednesday, November 4, 1998, at
1601 Elm Street, 47th Floor, in Dallas, Texas, and at any adjournment thereof.
This Proxy Statement was first mailed or given to stockholders on or about
September 25, 1998.
Solicitation of proxies may be made by mail, personal interview, telephone
and telegraph by directors, officers and employees of the Company. Expenses
for such solicitation will be borne by the Company. Brokers and others will be
reimbursed for their reasonable expenses in forwarding the proxy material to
their customers who have beneficial interests in stock of the Company
registered in names of nominees.
Any proxy may be revoked by a stockholder at any time prior to its use by
execution of another proxy bearing a later date, by written notice to the
Secretary of the Company at the address set forth above or by oral or written
statement at the meeting. Shares represented by any proxy properly executed
and received prior to the meeting will be voted at the meeting in accordance
with the proxy or, if the proxy does not specify, in accordance with the
recommendation of the Board of Directors.
Stockholders of record at the close of business on September 14, 1998, are
entitled to notice of and to vote at the meeting. On the record date the
Company had 36,121,989 shares of common stock of the Company (the "Common
Stock") outstanding. Each share of Common Stock outstanding on the record date
is entitled to one vote. There is no provision for cumulative voting. Of the
total number of shares outstanding on the record date, 19,979,081 shares (or
approximately 55%) were owned by First USA Financial, Inc. ("First USA
Financial"), a wholly owned subsidiary of BANC ONE CORPORATION ("Banc One").
At the meeting stockholders will be asked to re-elect two members of the
Company's Board of Directors. In addition, stockholders will also be requested
to approve an amendment to the Company's Employee Stock Purchase Plan (the
"ESPP") that would increase by 250,000 the number of shares of Common Stock
that may be sold under the ESPP. The Board of Directors believes that the
proposed increase in the number of shares available for issuance under the
ESPP is necessary in order to continue the effectiveness of the ESPP in
attracting, motivating and retaining employees with appropriate experience and
ability, and to increase the employees' alignment of interest with the
Company's stockholders.
A quorum for the meeting requires the presence in person or by proxy of
stockholders entitled to cast a majority of the votes entitled to be cast at
the meeting. The election of directors requires a plurality of the votes cast
by the holders of Common Stock at the meeting. The approval of the amendment
to the ESPP requires the
1
<PAGE>
affirmative vote of the holders of a majority of the voting power of the
shares of Common Stock present or represented and entitled to vote at the
meeting; provided that the number of votes cast on such proposal represents
over 50% of the number of votes entitled to be cast. First USA Financial has
informed the Company that it intends to vote FOR each of the matters described
above at the annual meeting.
Stockholders will vote at the meeting by ballot and votes cast at the
meeting in person or by proxy will be tallied by the Company's transfer agent
and registrar, The Bank of New York. Shares held by stockholders present at
the meeting in person who do not vote and ballots marked "abstain" or
"withheld" will be counted as present at the meeting for quorum purposes. With
respect to the items submitted for approval, abstentions will have the effect
of a vote against the proposal and broker non-votes will be disregarded and
will have no effect on the outcome of the vote. There are no rights of
appraisal or similar dissenter's rights with respect to any matter to be acted
upon pursuant to this proxy statement.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information believed by the Company
to be accurate based on information provided to it concerning the beneficial
ownership of Common Stock by each stockholder who is known by the Company to
own beneficially in excess of 5% of the outstanding Common Stock as of the
latest practicable date, and by each director, the Company's Chief Executive
Officer, each of the Company's other four most highly compensated executive
officers and all executive officers and directors as a group, as of August 1,
1998. Except as otherwise indicated, all persons listed below have (i) sole
voting power and investment power with respect to their shares, except to the
extent that authority is shared by spouses under applicable law, and
(ii) record and beneficial ownership with respect to their shares. The shares
and percentages set forth below include shares of Common Stock which were
outstanding or issuable within 60 days upon the exercise of options
outstanding as of August 1, 1998.
<TABLE>
<CAPTION>
COMMON STOCK
---------------------
NUMBER OF PERCENTAGE
NAME OF BENEFICIAL OWNER SHARES OF CLASS
------------------------ ---------- ----------
<S> <C> <C>
First USA Financial, Inc.(a).......................... 19,979,081 55%
Gene H. Bishop(b)(c).................................. 30,000 *
William P. Boardman(a)(b)............................. -- *
John B. McCoy(a)(b)................................... -- *
Pamela H. Patsley(b)(c)............................... 355,025 *
Rupinder S. Sidhu(b)(c)(d)............................ 130,000 *
Ronald G. Steinhart(a)(b)............................. -- *
John C. Tolleson(b)(d)................................ 207,500 *
James W. Baumgartner(c)............................... 109,923 *
Michael P. Duffy(c)................................... 113,795 *
Kathryn J. Kessler(c)................................. 14,846 *
Philip E. Taken(c).................................... 60,972 *
All executive officers and directors as a group (11
persons)(c)(d)....................................... 1,022,061 3%
</TABLE>
- --------
* Less than 1.0%
(a) First USA Financial is a wholly owned subsidiary of Banc One. The address
of First USA Financial is Three Christina Centre, 201 North Walnut,
Wilmington, Delaware 19801, and the address of Banc One is 100 East Broad
Street, Columbus, Ohio 43271. Although none of Mr. McCoy, Mr. Steinhart
and Mr. Boardman
2
<PAGE>
directly owns any shares of Common Stock, Mr. McCoy is Chairman and Chief
Executive Officer of Banc One, Mr. Boardman is Senior Executive Vice
President of Banc One and Mr. Steinhart is Chairman and Chief Executive
Officer of Banc One Commercial Banking Group. Each could therefore be
deemed to control the shares indirectly owned by Banc One. Each of Messrs.
McCoy, Boardman and Steinhart disclaims beneficial ownership of such Banc
One shares. Banc One has agreed to combine with First Chicago NBD
Corporation (the "Banc One Merger") into a new Delaware corporation to be
named "BANK ONE CORPORATION." Upon completion of such combination, First
USA Financial will be a wholly owned subsidiary of BANK ONE CORPORATION.
(b) Gene H. Bishop, William P. Boardman, John B. McCoy, Pamela H. Patsley,
Rupinder S. Sidhu, Ronald G. Steinhart and John C. Tolleson are directors
of the Company.
(c) The shares include shares subject to options exercisable within 60 days of
August 1, 1998 as follows: Mr. Bishop, 10,000 shares; Ms. Patsley, 161,800
shares; Mr. Sidhu, 10,000 shares; Mr. Tolleson, 7,500 shares; Mr.
Baumgartner, 65,000 shares; Mr. Duffy, 70,000 shares; Ms. Kessler, 9,280
shares; Mr. Taken, 30,000 shares; all executive officers and directors as
a group, 363,580 shares. The address for Messrs. Bishop, Sidhu, Tolleson,
Duffy, and Taken and Ms. Patsley and Ms. Kessler is c/o Paymentech, Inc.,
1601 Elm Street, Dallas, Texas 75201. The address for Messrs. Boardman and
McCoy is BANC ONE CORPORATION, 100 East Broad Street, Columbus, Ohio
43271. The address for Mr. Steinhart is BANC ONE CORPORATION, 1717 Main
Street, 7th Floor, Dallas, 75201. The address for Mr. Baumgartner is c/o
First USA Financial Services, Inc., 3995 So. 7000 E., Suite 400, Salt Lake
City, Utah 84107.
(d) The shares exclude 70,000 shares held by a limited partnership, for which
Mr. Sidhu is the President of the general partner, a limited liability
company. Mr. Sidhu disclaims beneficial ownership of such shares.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors and
persons who own more than ten percent (10%) of a registered class of the
Company's equity securities (collectively, the "Reporting Persons") to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission (the "Commission") and to furnish the Company with copies of these
reports. The Company believes that all filings required to be made by the
Reporting Persons during the fiscal year ended June 30, 1998 were made on a
timely basis.
3
<PAGE>
ELECTION OF DIRECTORS
The Board of Directors has proposed John B. McCoy and William P. Boardman as
nominees for reelection as directors to serve for three-year terms and until
their successors are elected and qualify. A plurality of the votes cast at the
meeting is required to elect each nominee. Shares represented by proxies will
be voted for the election of the nominees named below unless authority to do
so is withheld. If, at the time of the annual meeting, any nominee should be
unable to serve, the shares represented by a proxy may be voted for a
substitute nominee to be designated by the Board of Directors.
<TABLE>
<CAPTION>
NAME POSITION AGE
---- -------- ---
<S> <C> <C>
John B. McCoy............................................... Director 55
William P. Boardman......................................... Director 57
</TABLE>
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 and Federal Home Loan Mortgage Corporation.
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.
A plurality of the votes cast by the holders of Common Stock at the meeting
will be required to reelect the nominees as directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE FOR DIRECTOR.
INCUMBENT DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Gene H. Bishop................... 68 Director
Ronald G. Steinhart.............. 58 Director
Pamela H. Patsley................ 41 President, Chief Executive Officer
and Director
Rupinder S. Sidhu................ 42 Director
John C. Tolleson................. 50 Chairman of the Board
</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 and Drew Industries, Inc.
Pamela H. Patsley. Ms. Patsley has been President, Chief Executive Officer
and a Director of the Company since December 1995. She has also served as
President and Chief Executive Officer of Paymentech Merchant Services, Inc.,
the Company's payment processing subsidiary since December 1991 and as
Chairman of the Board of First USA Financial Services, Inc., the Company's
commercial card subsidiary, since August 1994. Ms. Patsley also served as
Executive Vice President and Secretary of First USA, 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 Holdings, Inc. ("First Virtual"),
Adolph Coors Company and Coors Brewing Company.
4
<PAGE>
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.
Ronald G. Steinhart. Mr. Steinhart has been Chairman and Chief Executive
Officer of Banc One's Commercial Banking Group since December 1996, and was
appointed Chairman and Chief Executive Officer of Bank One, Texas, N.A., in
January 1995. From November 1992 through December 1994, Mr. Steinhart served
as President and Chief Operating Officer of Bank One, Texas, N.A. From
February 1988 through November 1992, Mr. Steinhart served as Chairman and
Chief Executive Officer of Team Bancshares, Inc., which merged with Bank One,
Texas, N.A. in November 1992. Mr. Steinhart also serves as Trustee of Prentiss
Properties Trust.
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
serves as a director on several boards, including Banc One, Capstead Mortgage
Corporation, Haggar Clothing Company, Southwestern Medical Foundation, Viad
Corporation, Visa International, Inc. and Visa USA, Inc. He serves on the
Dallas County Advisory Board of The Salvation Army and also serves on the
executive board of the Cox School of Business. In addition, he is a member of
the Board of Directors of The Willis M. Tate Distinguished Lecture Series at
Southern Methodist University in Dallas.
The Board of Directors of the Company is divided into three classes serving
staggered three-year terms. Directors for each class will be elected at the
annual meeting of stockholders held in the year in which the term for such
class expires, and will serve for three years. The terms of William P.
Boardman and John B. McCoy will expire at the 1998 annual meeting and, if
reelected, at the 2001 annual meeting; the terms of Pamela H. Patsley,
Rupinder S. Sidhu and John C. Tolleson will expire at the 1999 annual meeting;
and the terms of Gene H. Bishop and Ronald G. Steinhart will expire at the
2000 annual meeting. The Board of Directors held eleven meetings during the
last fiscal year. Mr. McCoy attended eight of such meetings. Each of the
Company's other Directors attended at least 75% of the aggregate number of
meetings of the Board of Directors and committees of the Board of Directors on
which they served. Messrs. Bishop, Sidhu and Tolleson serve on the Company's
Compensation Committee (the "Compensation Committee") and Audit Committee (the
"Audit Committee"). The Company has no nominating committee.
The Audit Committee reviews and evaluates the Company's internal accounting
and auditing procedures, recommends to the Board of Directors the firm to be
appointed as independent accountants to audit the Company's financial
statements, reviews with management and the independent accountants the
Company's year-end and quarterly operating results, and reviews the scope and
results of the audit with the independent accountants. The Audit Committee met
five times in fiscal 1998.
The Compensation Committee reviews compensation arrangements for executive
officers. The Compensation Committee also administers the Company's stock
option and restricted stock plans, and except with respect to grants of
options to outside directors, has full authority to determine the persons to
whom and the times at which options shall be granted, the number of option
shares to be granted and the price and other terms of options, except that the
Compensation Committee has granted to the Chief Executive Officer the
authority to grant during any fiscal quarter up to an aggregate of 25,000
options and 10,000 shares of restricted stock to employees who are not
"officers" within the meaning of Section 16 of the Exchange Act, in order to
attract and retain employees and for promotions. The Compensation Committee
met five times in fiscal 1998.
5
<PAGE>
EXECUTIVE COMPENSATION
The following tables set forth certain information concerning compensation
of, and stock options and restricted stock granted to, the Company's Chief
Executive Officer and the other four most highly paid executive officers in
respect of fiscal 1998, 1997 and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
--------------------------------------------------- ----------------------------------
NUMBER OF
RESTRICTED RESTRICTED SECURITIES
NAME AND PRINCIPAL FISCAL CASH STOCK OTHER ANNUAL STOCK UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS(1) BONUS(2) COMPENSATION(3) AWARDS(4) OPTIONS(5) COMPENSATION
------------------ ------ -------- -------- ---------- --------------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pamela H. Patsley....... 1998 $330,747 $314,212 -- -- -- 184,000 $ 8,793(6)
President and Chief 1997 315,000 -- $379,805 -- $868,125 230,000 3,719(6)
Executive Officer 1996 280,000 300,000 -- -- 550,000 275,000 3,388(7)
James W. Baumgartner.... 1998 212,431 150,500 -- -- -- 40,000 8,039(6)
President of 1997 195,000 -- 176,027 $70,867 434,063 50,000 683,916(9)
Financial Services 1996 26,591 30,000 -- -- -- 80,000 35,000(10)
Michael P. Duffy........ 1998 192,802 140,000 -- -- -- 40,000 8,074(6)
Chief Operating 1997 146,375 -- 154,324 -- 434,063 50,000 588,100(9)
Officer 1996 130,000 100,000 -- -- -- 80,000 1,013(6)
Kathryn J. Kessler (8).. 1998 116,500 84,000 -- -- 81,875 16,400 4,076(6)
Chief Accounting 1997 92,481 16,000 15,916 -- -- 8,000 --
Officer 1996 -- -- -- -- -- 3,000 --
Philip E. Taken......... 1998 171,522 122,500 -- -- -- 40,000 8,119(6)
Chief Administrative 1997 135,146 -- 140,173 -- 434,063 50,000 196,838(9)
Officer, General 1996 118,958 50,000 -- -- -- 10,000 1,656(6)
Counsel and Secretary
</TABLE>
- --------
(1) Bonuses for fiscal 1998 were approved by the Compensation Committee of
the Board of Directors of the Company on July 21, 1998 and paid in cash
on September 15, 1998.
Bonuses for fiscal 1996 were approved by the Compensation Committee of the
Board of Directors of the Company on July 16, 1996 and paid in cash on July
31, 1996. The 1996 amount for Mr. Duffy represents bonus payments made
during fiscal 1996 to Mr. Duffy with respect to the period from January 1,
1995 through June 30, 1996.
(2) Bonuses for fiscal 1997 were approved by the Compensation Committee of
the Board of Directors of the Company on July 17, 1997. Bonuses were paid
in the form of restricted stock to each of the named executive officers,
except Ms. Kessler who also received a cash bonus for fiscal 1997. The
values provided in the table above for fiscal 1997 are based upon the
closing price of $28.9375 of the Common Stock on the last trading day of
fiscal 1997. The restricted stock grants specified in this column vest
with respect to one third of the shares granted on each of the first and
second anniversaries of the date of grant, and with respect to the
remaining shares on the third anniversary of the date of grant. The
number of shares of restricted stock awarded to the named executive
officers as bonuses with respect to fiscal 1997 was as follows:
Ms. Patsley, 13,125 shares; Mr. Baumgartner, 6,083 shares; Mr. Duffy,
5,333 shares; Ms. Kessler, 550 shares; Mr. Taken, 4,844 shares.
(3) The amount for Mr. Baumgartner for fiscal 1997 includes $56,851 for
relocation expenses. Where no amount is stated, the aggregate value of
Other Annual Compensation did not exceed the lesser of $50,000 or 10% of
such executive officer's annual salary and bonus.
(4) An award of restricted Common Stock was made to Ms. Kessler in September
1997. The value shown is calculated by multiplying the number of shares
granted by $16.3750, the closing price of the Common Stock on the date of
grant. No other executive officer received restricted Common Stock awards
with respect to fiscal 1998.
6
<PAGE>
Awards of restricted Common Stock were made to the named executive officers
in June 1997 in connection with the June 1997 merger of First USA, Inc.
("First USA") with and into Banc One (the "Merger"). The Merger caused
nearly all restricted stock and option grants previously made to the
Company's named executive officers to vest, and thus management no longer
had unvested restricted stock and option grants. The Merger also created an
environment of greater uncertainty among management. Accordingly, the
Company made one-time grants to encourage the retention of the Company's
key management personnel following the Merger. The values shown for
restricted stock granted in fiscal 1997 are calculated by multiplying the
number of shares granted by $28.9375, the closing price of the Common Stock
on the date of grant.
No awards of restricted Common Stock were issued to the named executive
officers with respect to fiscal 1996. Except as set forth below, the number
and value of shares of restricted Common Stock held by the named executive
officers on the last day of fiscal 1998 (including shares of restricted
stock paid as bonuses to the named executive officers in fiscal 1997) were:
Ms. Patsley, 43,125 shares, $886,758; Mr. Baumgartner, 21,083 shares,
$433,519; Mr. Duffy, 20,333 shares, $418,097; Ms. Kessler, 5,550 shares,
$114,122; Mr. Taken, 19,844 shares, $408,042. Such dollar amounts were
based upon the closing price of $20.5625 for the Common Stock on the last
trading day of fiscal 1998. Upon closing of the Merger all shares of
restricted stock of First USA awarded prior to June 27, 1997 vested. The
amounts in this column and footnote do not reflect any shares of restricted
stock of First USA granted to the named executive officers following the
March 1996 initial public offering of the Common Stock (the "Initial Public
Offering"). Such shares of First USA restricted stock were granted as
compensation in recognition for services rendered to First USA.
(5) Stock option grants for fiscal 1998 were approved by the Compensation
Committee of the Board of Directors of the Company on December 3, 1997.
In addition, Ms. Kessler received a stock option grant of 5,000 shares in
September 1997 and a stock option grant of 5,000 shares in January 1998
which were approved by the Compensation Committee of the Board of
Directors.
Annual stock option grants for fiscal 1997 were approved by the
Compensation Committee of the Board of Directors of the Company on July 17,
1997. The Company also made special stock option grants in June 1997 in
connection with the Merger to encourage the retention of the Company's key
management personnel following the Merger. Fiscal 1997 amounts represent
the number of options to purchase Common Stock granted to the named
executive officers as follows: Ms. Patsley, 50,000 annual award shares and
180,000 Merger shares; Mr. Baumgartner, 30,000 annual award shares and
20,000 Merger shares; Mr. Duffy, 30,000 annual award shares and 20,000
Merger shares; Ms. Kessler, 5,000 annual award shares and 3,000 Merger
shares; Mr. Taken, 30,000 annual award shares and 20,000 Merger shares.
Annual stock option grants for fiscal 1996 were approved by the
Compensation Committee of the Board of Directors of the Company on July 16,
1996. During fiscal 1996 the Company also made special stock option grants
and special grants pursuant to the Company's stock loan program in
connection with the Initial Public Offering.
(6) Amounts for fiscal 1998 reflect employer matching contributions to the
Company's Retirement Savings Plan ("RSP") in the following amounts: Ms.
Patsley, $2,393; Mr. Baumgartner, $2,215; Mr. Duffy, $1,674; Ms. Kessler,
$1,676 and Mr. Taken, $1,719. Also reflects employer contributions to the
Company's pension plan in the following amounts: Ms. Patsley, $6,400; Mr.
Baumgartner, $5,824; Mr. Duffy, $6,400; Ms. Kessler, $2,400 and Mr. Taken
$6,400. Amounts for fiscal 1997 and 1996 represent employer contributions
to the RSP.
(7) The amount represents employer matching contributions to the Company's
Savings Restoration Plan.
(8) Ms. Kessler joined the Company in July 1996; therefore, no fiscal 1996
compensation is provided.
7
<PAGE>
(9) Reflects forgiveness, as a result of the Merger, of loans made by First
USA Financial in connection with the Company's stock loan program in the
following amounts: Mr. Baumgartner, $683,550; Mr. Duffy, $585,900 and Mr.
Taken, $195,300. Also reflects employer matching contributions to the RSP
in the following amounts: Mr. Baumgartner, $366; Mr. Duffy, $2,200 and
Mr. Taken, $1,538.
(10) The amount represents signing bonus paid to Mr. Baumgartner upon joining
the Company.
OPTION GRANTS
The following table sets forth information concerning stock option grants
made with respect to fiscal 1998 to the named executive officers to purchase
Common Stock.
OPTION GRANTS WITH RESPECT TO LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL EXERCISE PRICE APPRECIATION
UNDERLYING OPTIONS PRICE FOR OPTION TERM(5)
OPTIONS GRANTED TO PER EXPIRATION ---------------------
GRANTED EMPLOYEES(4) SHARE DATE 5% 10%
---------- ------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Pamela H. Patsley....... 184,000(1) 57.88% $15.3750 12/03/07 $1,780,200 $4,508,920
James W. Baumgartner.... 40,000(1) 12.58% 15.3750 12/03/07 387,000 980,200
Michael P. Duffy........ 40,000(1) 12.58% 15.3750 12/03/07 387,000 980,200
Kathryn J. Kessler...... 6,400(1) 2.01% 15.3750 12/03/07 61,920 156,832
5,000(2) 100.00% 16.3750 09/30/07 51,475 130,475
5,000(3) 52.63% 14.5625 01/13/08 45,788 116,038
Philip E. Taken......... 40,000(1) 12.58% 15.3750 12/03/07 387,000 980,200
</TABLE>
- --------
(1) Represents annual option grants awarded in December 1997, which options
vest in increments of 20% beginning on July 1, 1998 and each anniversary
of the vesting date, or earlier, in the event of a change in control of
the Company.
(2) Represents an option grant in September 1997, which vests in increments of
20% on the date of grant, or earlier, in the event of a change in control
of the Company.
(3) Represents an option grant in January 1998, which vests in increments of
20% on the date of grant, or earlier, in the event of a change in control
of the Company.
(4) Represents percentage of total options granted to employees of the Company
with respect to each grant.
(5) The dollar amounts under these columns are the result of calculations at
5% and 10% compounded annual rates set by the Securities and Exchange
Commission, and therefore are not intended to forecast future
appreciation, if any, in the price of Common Stock. Such amounts are
calculated based upon the exercise price for each option granted. The
potential realizable values illustrated at 5% and 10% compound annual
appreciation of the options which expire on December 3, 2007 assume that
the price of the Common Stock increases to $25.05 and $39.88 per share,
respectively, over the 10-year term of the options; and the potential
realizable values illustrated at 5% and 10% compound annual appreciation
of the options which expire on September 30, 2007 assume that the price of
the Common Stock increases to $26.67 and $42.47 per share, respectively,
over the 10-year term of the options; and the potential realizable values
illustrated at 5% and 10% compound annual appreciation of the options
which expire on January 13, 2008 assume that the price of the Common Stock
increases to $23.72 and $37.77 per share, respectively, over the 10-year
term of the options.
8
<PAGE>
EXERCISE OF OPTIONS
No executive officer exercised stock options to purchase Common Stock during
fiscal 1998. The following table sets forth information concerning the value
of stock options to purchase Common Stock by the named executive officers at
the end of fiscal 1998.
FISCAL YEAR END OPTION VALUE--PAYMENTECH COMMON STOCK
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR IN-THE-MONEY OPTIONS AT
END FISCAL YEAR END(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Pamela H. Patsley........... 100,000 489,000 $61,950 $995,800
James W. Baumgartner........ 51,000 84,000 -- 207,500
Michael P. Duffy............ 56,000 84,000 25,813 207,500
Kathryn J. Kessler.......... 6,000 21,400 10,188 73,950
Philip E. Taken............. 16,000 84,000 10,325 207,500
</TABLE>
- --------
(1) Calculated on the basis of the closing sale price per share for the Common
Stock on the New York Stock Exchange of $20.5625 on the last trading day
of fiscal 1998.
Prior to the Company's Initial Public Offering, awards of options to
purchase First USA common stock were made to officers as recognition for the
Company's and First USA's performance. Such options converted into Banc One
options as a result of the Merger. During fiscal 1998 no executive officer
exercised stock options to purchase Banc One Common Stock, except Ms. Patsley.
Ms. Patsley acquired 133,176 shares of Banc One Common Stock on exercise with
a realized value (market price at exercise less exercise price) of $7,424,452.
At fiscal year end, Ms. Patsley had 309,273 shares of Banc One Common Stock
currently exercisable with a value of $14,487,416 which is calculated on the
basis of the closing sale price per share for Banc One Common Stock on the New
York Stock Exchange of $55.8125 on June 30, 1998. All Banc One stock options
held by Ms. Patsley are exercisable.
PENSION PLANS
Pension Plan
The Company has a noncontributory, tax-qualified defined benefit, "cash
balance" retirement plan (the "Pension Plan") that provides retirement
benefits for eligible employees of the Company. Each participant's cash
balance account is credited with an amount equal to 4% of the participant's
compensation plus interest. Each participant becomes fully vested in benefits
under the Pension Plan after five years of employment with the Company. Prior
to that time, no portion of a participant's benefit is vested. Benefit may be
paid under the Pension Plan, subject to limitations and conditions imposed by
the Code, upon a participant's termination of employment, retirement (early,
normal or late) or death. The Pension Plan specifies various options that
participants may select for the distribution of their accrued balance,
including forms of annuity payments and lump sum distributions. The Pension
Plan does not permit loans or in-service withdrawals by participants.
Contributions to the Pension Plan will be actuarially determined and therefore
cannot be attributed to individual participants. As of July 1, 1998, the
estimated annual benefit payable under the Pension Plan to the named executive
officers upon normal retirement age (assuming the executive continues to work
to age 65 at the same rate of compensation as received for the previous 12
months) for Ms. Patsley, Mr. Baumgartner, Mr. Duffy, Ms. Kessler and Mr. Taken
was $67,832, $46,348, $44,206, $30,080 and $68,343, respectively.
9
<PAGE>
Supplemental Executive Retirement Plan
Eligible employees of the Company also receive benefits under the Company's
Supplemental Executive Retirement Plan (the "SERP"), which operates in
conjunction with the Pension Plan to provide eligible employees with benefits
that cannot be provided under the terms and conditions of the Pension Plan due
to Code limitations on the amount of compensation that may be considered under
the Pension Plan and Code limitations on the annual benefits that may be
provided under the Pension Plan. Contributions to the SERP will be actuarially
determined and therefore cannot be attributed to individual participants. As
of July 1, 1998, the estimated annual benefit payable upon normal retirement
age (assuming the executive continues to work to age 65 at the same rate of
compensation as received for the previous 12 months) for Ms. Patsley, Mr.
Baumgartner, Mr. Duffy and Mr. Taken was $56,419, $15,220, $8,619 and $4,592,
respectively.
EMPLOYMENT AGREEMENTS
On June 27, 1997, the Company entered into employment agreements with Ms.
Patsley and Messrs. Baumgartner, Duffy and Taken (the "Employment
Agreements"). The material provisions of the Employment Agreements are
substantially similar. Annual base salary under the Employment Agreement is
payable at a rate which is at least equal to or greater than twelve times the
highest monthly base salary paid or payable, in respect of the immediately
preceding twelve-month period. Each named executive officer is also entitled
to receive an annual bonus consistent with Past Practices (as such term is
defined in the Employment Agreements). In addition, each named executive
officer is entitled to participate in all annual and long-term incentive plans
consistent with Past Practices. The Employment Agreements also provide for
certain fringe benefits. If a named executive officer is terminated for Cause
or resigns without Good Reason (as such terms are defined in the Employment
Agreements), the Company is not obligated to continue base salary or bonus
payments (except such amounts as were incurred prior to termination). As
consideration for entering into the Employment Agreements, the named executive
officers have agreed not to disclose confidential information and not to
compete with the Company during the terms of the Employment Agreements, and in
certain cases, for the one-year period following termination. The term of the
Employment Agreements expire on June 26, 1999.
COMPENSATION OF OUTSIDE DIRECTORS
Members of the Company's Board of Directors who are not employees of the
Company, a parent company or their respective direct and indirect subsidiaries
receive cash compensation as follows: a $20,000 annual retainer and $1,000 for
each Board meeting attended and $500 for each committee meeting attended
(chairpersons receive $1,000 per committee meeting). In addition, such members
of the Board of Directors also receive an option to purchase 5,000 shares of
Common Stock on the date they become a director and annual grants of options
to purchase 2,500 shares of Common Stock under the 1996 Amended and Restated
Stock Option Plan (the "1996 Option Plan").
10
<PAGE>
COMPENSATION COMMITTEE REPORT
The following report is submitted by the Compensation Committee. Each member
of the Compensation Committee is a non-employee director. The Compensation
Committee is responsible for establishing the strategic objectives and
guidelines for the Company's executive compensation program. The Compensation
Committee firmly believes that the Company's executive officers directly
impact the Company's performance and the resulting impact on shareholder
value, and such officers should be rewarded in a manner consistent with the
Company's financial and non-financial results.
EXECUTIVE COMPENSATION PHILOSOPHY
The Company's executive compensation program has been designed to provide
compensation that is linked to the performance of the Company, recognize
achievement of annual and long-term goals, reward exceptional performance, and
help attract and retain qualified executives. Consistent with this philosophy,
the executive compensation program provides annual cash compensation through
base salary, an annual award component consisting of either cash or restricted
stock, and an additional long-term equity component through stock options. The
program supports a performance-oriented environment and focus on shareholder
value by providing equity-based incentive compensation that rewards financial
performance of the Company and management performance in support of strategic
objectives.
The Compensation Committee determines annual salaries, cash bonuses, stock
awards and option grants for executive officers. Salaries are based primarily
on experience, responsibility, and individual performance. Annual Cash Bonuses
and Restricted Stock grants are determined pursuant to the Company's Annual
Incentive Plan (the "Annual Incentive Plan"). Option grants are oriented
toward the achievement of increasing shareholder value over the long-term.
BASE SALARY
The Compensation Committee establishes base salaries each year at a level
intended to be comparable to similarly-situated companies. In addition to the
competitive market range, many factors are considered in determining actual
base salaries, including the duties and responsibilities assumed by the
executive, the scope of the executive's position, length of service,
individual performance, internal equity considerations and special expertise
beneficial to the Company. The Compensation Committee also reviews the success
of the management team in areas of performance that are not easily captured
through accounting measures, such as business strategies and introductions of
new products and services.
ANNUAL INCENTIVE COMPENSATION
One of the Compensation Committee's priorities is for executive officers to
be stockholders so that their interests are aligned with the interests of the
Company's other stockholders. The Compensation Committee continues to believe
that this strategy motivates executives to remain focused on the overall long-
term performance of the Company. The Company pursues these objectives through
grants of restricted stock and options. Restricted stock awards are granted
under the Restricted Stock Plan pursuant to the Annual Incentive Plan.
The Annual Incentive Plan is intended to provide incentives to achieve
financial and individual objectives, and to reward exceptional performance.
Under the Annual Incentive Plan, executive officers are eligible to receive
either cash bonuses or restricted stock awards based on the extent to which
earnings goals are attained
11
<PAGE>
during the fiscal year. The Compensation Committee establishes the individual
award opportunities at levels intended to be comparable to similarly-situated
companies. The Compensation Committee also makes an assessment of performance
by considering such factors as the economic environment, performance
comparisons against competitors, the quality of earnings, the balance between
short- and long-term objectives and the stability of the Company. For fiscal
1998, the Compensation Committee believed it was important to grant the
executive officers annual awards in amounts less than the maximum individual
award opportunity levels but at a significant level to reflect the difficult
rebuilding and reorganization which occurred this year.
OPTION GRANTS
Stock options are granted under the 1996 Option Plan in order to further
align the executive officers with shareholders and to motivate such officers
to remain focused on the long-term success of the Company.
Under the 1996 Option Plan, stock options may be granted to executive
officers with an exercise price equal to the fair market value of the Common
Stock on the date of the grant. If there is no appreciation in the Common
Stock, the option holders receive no benefit from the stock options. Such
stock options are generally exercisable between the date on which such options
vest and ten years from the date granted. Stock options are normally granted
annually to the executive officer group as well as employees at various levels
within the Company.
CHIEF EXECUTIVE OFFICER COMPENSATION
During fiscal 1998, the Company's most highly compensated executive officer
was Pamela H. Patsley, President and Chief Executive Officer. Ms. Patsley
participates in the same executive compensation program provided to the other
executive officers as described above. The Compensation Committee's approach
to establishing Ms. Patsley's compensation is to be competitive with
comparable companies and to have a major and significant portion of her
compensation depend on the achievement of financial and non-financial
performance criteria.
Ms. Patsley received 184,000 stock options in fiscal 1998. Ms. Patsley's
base salary for fiscal 1998 was $330,747 and was maintained at that level for
fiscal 1999. The Compensation Committee believes that Ms. Patsley's annual
cash bonus is appropriate given the Company's performance and the difficulties
of the prior year.
CONCLUSION
The Compensation Committee believes the mix of market-based salaries,
competitive variable cash and stock awards and the potential for option grants
for long-term performance represents an appropriate balance of total
compensation. This balanced executive compensation program provides a
competitive and motivational compensation package to the executive officer
team required to produce the results the Company strives to achieve in the
future. The Compensation Committee further believes that the executive
compensation program strikes an appropriate balance between the interest of
the stockholders, the needs of the Company in operating its business and the
executive team.
The Compensation Committee
Rupinder S. Sidhu, Chairman
Gene H. Bishop
John C. Tolleson
12
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1998, Messrs. Sidhu, Bishop and Tolleson served as members of
the Compensation Committee. No member of the Committee is an employee,
officer, or former officer of the Company, and no member had a relationship
with the Company during fiscal 1998 requiring disclosure under Item 404 of
Regulation S-K. No relationship existed during fiscal year 1998 that
constituted a "Compensation Committee Interlock" within the meaning of Item
402(j) of Regulation S-K.
STOCK PERFORMANCE GRAPH
The following chart compares the total stockholder return (stock price
growth plus dividends) on the Common Stock from March 22, 1996 through June
30, 1998 with the total stockholder return for the same period of the S&P 500
Index and the S&P Computer Software and Services Index. The graph assumes that
the value of the investment in the Common Stock and each index was $100 on
March 22, 1996 and that all dividends were reinvested. The Company notes that
the Initial Public Offering occurred on March 22, 1996 and that the initial
offering price of $21.00 was used as the beginning price for the Company's
stock price on the performance graph. The Company also notes that the initial
offering price of $21.00 is different from the Company's initial trading price
of $32.50.
[PERFORMANCE GRAPH APPEARS HERE]
--------------FISCAL YEAR ENDING---------------
COMPANY/INDEX/MARKET 3/22/1996 6/28/1996 6/30/1997 6/30/1998
Paymentech Inc. 100.00 190.48 137.81 97.90
Computers Software/Svcs 100.00 112.60 187.11 290.19
S&P Composite 100.00 104.49 140.49 183.19
LOGO
On June 30, 1998, the total stockholder return on the Common Stock had
decreased from March 22, 1996 (using the initial offering price of $21.00) by
2.08%, compared with increases in the total returns on the S&P 500 Index and
the S&P Computer Software and Services Index of 83.19% and 190.19%,
respectively.
13
<PAGE>
ADOPTION OF AN AMENDMENT TO
THE EMPLOYEE STOCK PURCHASE PLAN
OF PAYMENTECH, INC.
The Board of Directors proposes and recommends that the stockholders approve
an amendment to the Employee Stock Purchase Plan ("the ESPP"), providing for
an additional 250,000 shares of Common Stock reserved for issuance under the
ESPP. The Board of Directors believes that this amendment is necessary to meet
the Company's objectives of attracting, motivating and retaining employees and
giving employees an opportunity to align their interests with the Company's
stockholders. The affirmative vote of a majority of the voting power of the
shares of Common Stock present or represented and entitled to vote at the
meeting will be required to approve the proposal; provided that the total
number of votes cast on such proposal represents over 50% of the number of
votes entitled to be cast.
Under the ESPP, as previously adopted and approved by stockholders, an
aggregate of 150,000 shares of Common Stock were authorized for issuance. As
of April 15, 1998, only approximately 24,000 shares remained available for
issuance under the Employee Stock Purchase Plan of the Company. The Board of
Directors believes that the proposed increase in the number of shares
available for issuance under the ESPP is necessary in order to continue the
effectiveness of the ESPP in attracting, motivating and retaining employees
with appropriate experience and ability, and to increase the employees'
alignment of interest with the Company's stockholders.
The terms of the ESPP are summarized below. This summary is subject to the
terms of the Employee Stock Purchase Plan, filed as Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996.
Purpose. The ESPP provides a means for eligible employees of the Company to
purchase shares of Common Stock through payroll deductions.
Eligible Employees. All regular full-time employees of the Company or an
approved affiliate are eligible to participate in the ESPP. Approximately
1,270 employees of the Company or its designated subsidiaries are eligible to
participate in the ESPP.
Terms and Conditions. Pursuant to the ESPP, each eligible employee will be
permitted to purchase shares of Common Stock through regular payroll
deductions. The purchase price of each share will be the lessor of (i) 85% of
the fair market value of a share of Common Stock at the beginning of each
designated three-month period and (ii) 85% of such fair market value on the
date the Common Stock is purchased.
Each eligible employee may have payroll deductions of any whole percentable
up to 20% of such employee's annual base salary (up to $21,250 per year) used
to purchase shares of Common Stock, provided that no employee may purchase
Common Stock through the ESPP with a fair market value greater than that
permitted by law in any calendar year. The amounts deducted will be
accumulated, and at the end of each designated three-month period the
accumulated amounts will be applied to the purchase of shares of Common Stock
at the appropriate purchase price (as described above). Accumulated payroll
deductions which are insufficient to purchase a whole share will be carried
into the next purchase period.
14
<PAGE>
As of September 14, 1998, the fair market value per share of Common Stock
was $11.8750 Since participation in the ESPP will be elective, the benefits to
participants in the ESPP are not currently determinable.
Administration. The ESPP will be administered by the Compensation Committee.
Duration; Amendment. The ESPP will remain in effect until all shares
authorized to be paid under the ESPP have been sold.
The Board of Directors may from time to time amend or terminate the ESPP,
provided that (i) no such amendment or termination may adversely affect the
rights of any participant without the consent of such participant and (ii) to
the extent required by Rule 16b-3 promulgated under the Exchange Act or any
other law, regulation or stock exchange rule, no such amendment will be
effective without the approval of the Company's stockholders.
CERTAIN FEDERAL INCOME TAX EFFECTS
The following discussion is a brief summary of the principal United States
federal income tax consequences under current federal income tax laws relating
to awards under the ESPP. This summary is not intended to be exhaustive and,
among other things, does not describe state, local or foreign income and other
tax consequences. For purposes of this discussion the right to purchase shares
under the ESPP is described as an option.
The ESPP is intended to qualify as an "employee stock purchase plan" as
defined in Section 423 of the Code. Assuming such qualification, a participant
will not recognize any taxable income as a result of participating in the
ESPP, exercising options granted pursuant to the ESPP or receiving shares of
Common Stock purchased pursuant to such options. A participant may, however,
be required to recognize taxable income as described below.
If a participant disposes of any share of Common Stock purchased pursuant to
the ESPP after the later to occur of (i) two years from the grant date for the
related option and (ii) one year after the exercise date for the related
option (such disposition, a "Qualifying Transfer"), or if he dies (whenever
occurring) while owning any share purchased under the ESPP, the participant
generally will recognize compensation income, for the taxable year in which
such disposition occurs or the taxable year which closes upon the
participant's death, in an amount equal to the lesser of (i) the excess of the
market value of the disposed share at the time of such disposition over its
purchase price, and (ii) 15% of the market value of the disposed share on the
grant date for the option to which such disposed share relates. In the case of
a Qualifying Transfer, (a) the basis of the disposed share will be increased
by an amount equal to the amount of compensation income so recognized, and (b)
the participant will recognize a capital gain or loss, as the case may be,
equal to the difference between the amount realized from the disposition of
the shares and the basis for such shares.
If the participant disposes of any share other than by a Qualifying
Transfer, the participant generally will recognize compensation income in an
amount equal to the excess of the market value of the disposed share on the
date of purchase over its purchase price. In such event, the Company will be
entitled to a tax deduction equal to the amount of compensation income
recognized by the participant. Otherwise, the Company will not be entitled to
any tax deduction with respect to the grant or exercise of options under the
ESPP or the subsequent sale by participants of shares purchased pursuant to
the ESPP. A transfer of shares purchased under the ESPP after the death of a
participant by the estate of the decedent has the same federal income tax
effects on the Company as a Qualifying Transfer.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO
THE ESPP.
15
<PAGE>
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 Financial are parties to two subleases, pursuant
to which First USA Financial provides the Company with certain office space.
Pursuant to an Intercompany Services Agreement with the Company (the
"Intercompany Agreement"), First USA Financial and First USA Management, Inc.
allow the Company to participate in insurance coverage made available by First
USA Financial.
LICENSE TO USE THE FIRST USA NAME AND CERTAIN TRADEMARKS
The Intercompany Agreement also provides for the grant by First USA
Financial to the Company of a license to use the name "First USA" and certain
trademarks (collectively referred to as the "Marks") in connection with the
Company's business. The Intercompany Agreement provides that the Company will
not, without First USA Financial's prior written consent, take any action with
respect to (i) any litigation or proceeding involving the Marks, (ii) any new
use of the Marks or changes in the purpose for which the Marks are used, (iii)
any change in the Company's names, logos and other identifications which
reasonably be expected to affect the Marks or (iv) if required by First USA
Financial, any advertising campaigns or strategies which use the Marks or
which refer to First USA Financial. First USA Financial has the right to
revoke the license to use the Marks under certain circumstances if there is a
change of control or a sale of the Company.
The Intercompany Agreement provides that the Company indemnify First USA
Financial, its subsidiaries and each of their respective officers, directors,
employees and agents against losses from third party claims based on, arising
out of or resulting from (i) the use of the Marks (but excluding any claim
relating to First USA Financial's rights in Marks), and (ii) any other acts or
omissions arising out of performance of the Intercompany Agreement.
16
<PAGE>
The Intercompany Agreement provides that First USA Financial indemnify the
Company, its subsidiaries and each of their respective officers, directors,
employees and agents against losses from third party claims based on, arising
out of or resulting from (i) any third party claims relating to First USA
Financial's rights in the Marks, and (ii) any other acts or omissions arising
out of performance of the Intercompany Agreement.
TAX AGREEMENT
The Company entered into a Tax Sharing Agreement (the "Tax Sharing
Agreement") with First USA Financial, which governs tax related matters
affecting taxable periods ending prior to and subsequent to the 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 Financial will retain control of audits affecting its consolidated,
combined or unitary returns which include the Company and its subsidiaries.
The Company is allowed to participate in, but not control any such audits with
respect to matters for which it may be required to indemnify First USA
Financial under such Tax Sharing Agreement.
INDEPENDENT AUDITORS
The Company retained Ernst & Young LLP as the Company's independent auditors
for fiscal 1998. Representatives of Ernst & Young LLP will attend the annual
meeting and, while they do not intend to make a statement, they will respond
to appropriate questions directed to them. The Company has not yet made a
final determination as to its independent auditors for fiscal 1999, and is
currently evaluating its business and other requirements for its fiscal 1999
auditors.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Proposals and suggestions received from stockholders are given careful
consideration by the Company in accordance with Rule 14a-8 under the Exchange
Act. Stockholder proposals are eligible for consideration for inclusion in the
proxy statement for the 1999 Annual Meeting of Stockholders if they are
received by the Company on or before May 28, 1999. Any proposal should be
directed to the attention of the Secretary, Paymentech, Inc., 1601 Elm Street,
Dallas, Texas 75201. In order for a shareholder proposal submitted outside of
Rule 14a-8 to be considered "timely" within the meaning of Rule 14a-4(c), such
proposal must be received by the Company on or prior to August 11, 1999 and in
order for a proposal to be timely under the Company's By-laws it must be
received on or prior to August 2, 1999 but no earlier than July 2, 1999.
17
<PAGE>
OTHER MATTERS
As of the date of this Proxy Statement, the Company does not intend to bring
any other matters before the meeting requiring action of the stockholders, nor
does it have any information that other matters will be brought before the
meeting. However, if any other matters requiring the vote of the stockholders
properly come before the meeting, it is the intention of the persons named in
the enclosed form of proxy to vote the proxy in accordance with their best
judgment in the interest of the Company.
[SIGNATURE OF PAMELA H. PATSLEY APPEARS HERE]
Pamela H. Patsley
President and Chief Executive
Officer
September 25, 1998
18
<PAGE>
[ ]
VOTES MUST BE INDICATED (X) IN BLACK OR BLUE INK. [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH ITEM.
1. Election of Directors FOR all nominees [ ]
listed below
WITHHOLD AUTHORITY to vote for all [ ] *EXCEPTIONS [ ]
nominees listed below.
Nominees: John B. McCoy and William P. Boardman
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
* Exceptions
-------------------------------------------------------------------
2. Proposal to adopt an amendment 3. The Proxy is authorized to transact
to the Paymentech, Inc. Employee such other business as may properly
Stock Purchase Plan. come before the meeting.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Change of Address and/ [ ]
or Comments Mark Here
(Please sign exactly as name appears
hereon. Joint owners should each
sign. When signing as attorney,
executor, administrator, trustee,
guardian or other fiduciary, please
add that title.)
Dated:_______________________, 1998
___________________________________
Signature of Stockholder
PLEASE MARK, DATE, SIGN AND MAIL YOUR ___________________________________
PROXY PROMPTLY IN THE ENVELOPE PROVIDED. Signature of Stockholder
PAYMENTECH, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON NOVEMBER 4, 1998
The undersigned hereby appoints Pamela H. Patsley and Philip E. Taken,
and each of them, the true and lawful agents and proxies with full power of
substitution, to represent the undersigned at the Annual Meeting of
Stockholders of Paymentech, Inc. to be held at 1601 Elm Street, 47th floor,
Dallas, Texas 75201, on November 4, 1994, at 10:00 a.m., Central Standard Time,
and at any adjournments thereof, for the transaction on the business described
on the opposite side of this card.
The Shares represented by this proxy will be voted as indicated on the
opposite side of this card. If no indication has been made, the Shares
represented by this proxy will be voted in favor of Proposals 1 and 2 and as
the named proxies deem advisable on such other business as may properly come
before the meeting.
Please sign, date and return this proxy promptly,
using the enclosed return envelope.
PAYMENTECH, INC.
P.O. BOX 11352
NEW YORK, NY 10203-0352
