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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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NATIONAL PROCESSING, INC.
(Name of Subject Company)
NATIONAL PROCESSING, INC.
(Name of Person Filing Statement)
COMMON STOCK, WITHOUT PAR VALUE
(Title of class of Securities)
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637229 10 5
(CUSIP Number of Class of Securities)
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PRESTON B. HELLER, JR.
CHAIRMAN OF THE SPECIAL COMMITTEE
NATIONAL PROCESSING, INC.
1231 DURRETT LANE
LOUISVILLE, KENTUCKY 40285
(502) 315-2000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS
ON BEHALF OF THE PERSON FILING STATEMENT)
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COPY TO:
R. JOEL SWANSON
BAKER & BOTTS, L.L.P.
3000 ONE SHELL PLAZA
HOUSTON, TEXAS 77002-4995
(713) 229-1234
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ITEM 1 -- SECURITY AND SUBJECT COMPANY.
The name of the subject company is National Processing, Inc., an Ohio
corporation (the "Company"), and the address of the principal executive offices
of the Company is 1231 Durrett Lane, Louisville, Kentucky 40285. The title of
the class of equity securities to which this statement relates is the Company's
common stock, without par value (the "Shares").
ITEM 2 -- TENDER OFFER OF THE BIDDER.
This statement relates to the tender offer (the "Offer") disclosed in the
Tender Offer Statement on Schedule 14D-1 dated June 28, 1999, as amended by
Amendment No. 1 thereto (the "Schedule 14D-1"), and a Rule 13E-3 Transaction
Statement on Schedule 13E-3 dated June 28, 1999, as amended by Amendment No. 1
thereto (the "Schedule 13E-3"), filed by National City Corporation, a Delaware
corporation ("Parent"), to purchase all of the Company's outstanding Shares at a
price of $9.50 per share, net to the seller in cash (the "Offer Price"), without
interest thereon. The Schedule 14D-1 and Schedule 13E-3 also disclosed that,
following consummation of the Offer, Parent intends to cause the Company to
merge with and into Parent (the "Merger" and together with the Offer, the
"Parent Proposal"), with each Share (excluding any Shares beneficially owned by
Parent or in the treasury of the Company or held by Shareholders who perfect
their appraisal rights under the Ohio General Corporation Law) being converted
into the right to receive $9.50 in cash per share, without interest thereon.
The Schedule 14D-1 and Schedule 13E-3 each indicate that the principal
executive offices of Parent are located at 1900 East Ninth Street, Cleveland,
Ohio 44114.
ITEM 3 -- IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
statement, are set forth in Item 1 above. Unless the context otherwise requires,
references to the Company in this statement are to the Company and its
subsidiaries and predecessors, viewed as a single entity.
(b) Certain contracts, agreements, arrangements or understandings between
the Company or its affiliates and certain of its executive officers, directors
or affiliates are described in the sections entitled "Compensation of
Directors," "Beneficial Ownership," "Beneficial Security Ownership of
Management," "Remuneration of Executive Officers and Transactions with
Management" and "Transactions with Management" of the Company's Proxy Statement
dated May 10, 1999, relating to its May 16, 1999 Annual Meeting of Stockholders
(the "Proxy Statement"). A copy of such sections of the Proxy Statement is filed
as Exhibit (c)(1) to this Schedule 14D-9, and the portions of such Proxy
Statement referred to above are incorporated herein by reference. Set forth
below is a description of certain other contracts, agreements, arrangements,
understandings and actual or potential conflicts of interest between the Company
or its affiliates and (1) the executive officers, directors and affiliates of
the Company and (2) Parent, its executive officers, directors or affiliates.
COMPOSITION OF THE BOARD OF DIRECTORS
The Board of Directors of the Company (the "Company Board") is composed of
the following seven members:
<TABLE>
<S> <C>
*JAMES R. BELL, III, Executive Vice President of Parent since 1996.
Age: 42 Executive Vice President of Retail Sales and
Distribution of Parent since 1998. President and
Chief Executive Officer of National City Bank of
Kentucky, a commercial bank, from 1996 to 1998.
Vice Chairman of National City Bank of Kentucky
from 1995 to 1996 and Executive Vice President of
National City Bank of Kentucky from 1994 to 1995.
Director of the Company since 1996.
</TABLE>
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<TABLE>
<S> <C>
CHRISTOS M. COTSAKOS, President and Chief Executive Officer of E*TRADE
Age: 50 Group, Inc., an electronic commerce company,
since 1996. President and Co-Chief Executive
Officer of A. C. Nielsen, Inc. from 1992 to 1995.
Director of the Company since 1996. Chairman of
the Compensation Committee and member of the
Audit Committee.
AURELIANO GONZALEZ-BAZ, Partner in Bryan Gonzalez Vargas y Gonzalez-Baz,
Age: 51 a full service law firm, since 1974. Director of
the Company since 1996. Chairman of the Audit
Committee and member of the Compensation
Committee.
PRESTON B. HELLER, JR., Retired as Chairman, Chief Executive Officer and
Age: 69 President of Pioneer-Standard Electronics, Inc.,
an industrial distributor of electronics and
computer products, during 1996. Prior to that
time he served as Chairman and Chief Executive
Officer from 1992 to 1995. Director of the
Company since 1996. Member of the Audit Committee
and the Compensation Committee.
*JEFFREY D. KELLY, Executive Vice President of Parent since 1994.
Age: 45 Senior Vice President of Parent from 1990 to
1994.
ROBERT E. SHOWALTER, President and Chief Executive Officer of the
Age: 62 Company since March 1997. President and Chief
Executive Officer of National City Bank,
Northeast from 1995 to 1997 and President and
Chief Executive Officer of National City Bank,
Northwest from 1991 to 1995. Director of the
Company since 1997.
*ROBERT G. SIEFERS, Chairman of the Board of the Company since May
Age: 53 1997. Vice Chairman and Chief Financial Officer
of Parent since August 1997. Executive Vice
President and Chief Financial Officer of Parent
from 1991 to August 1997. Director of the Company
since 1996.
</TABLE>
*Designates directors deemed to be an affiliate of Parent.
COMPENSATION OF DIRECTORS
Members of the Company Board who are not officers of Parent, the Company or
any of their subsidiaries ("Outside Directors"), receive a yearly retainer,
payable in quarterly installments, and a fee for each meeting of the board, and
each committee thereof, which they attend. The yearly retainer is $12,000. The
fee for attendance at any board meeting or any committee meeting is $1,000. The
chairperson of each committee receives a fee of $500 for each meeting of that
committee attended by that chairperson. In addition, pursuant to the National
Processing, Inc. Nonemployee Directors Stock Option Plan, each non-affiliated
director is awarded options to purchase 25,000 Shares upon election to the
Company Board and 2,500 Shares on the first Friday following each annual meeting
of the Company's shareholders, with an exercise price equal to the market value
as of the date of such first Friday.
Messrs. Cotsakos, Gonzalez-Baz and Heller each received non-qualified stock
options to purchase 25,000 shares in 1996 and 2,500 shares in each of 1997, 1998
and 1999.
SPECIAL COMMITTEE FEES
Members of the Special Committee of the Company Board (the "Special
Committee") are entitled to receive the fees described above under "Compensation
of Directors" for attendance at any meeting of the
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Special Committee. In addition, prior to the announcement of the Offer, the
Company Board and the Special Committee reached an understanding that each
member of the Special Committee would receive a fee of $25,000 for their
services as members of the Special Committee in considering any proposal from
Parent. This fee is payable regardless of whether a transaction with Parent is
completed or whether the Special Committee recommends such a transaction.
INDEMNIFICATION AGREEMENTS
On June 6, 1999, the Company Board approved indemnification agreements with
each of its directors (the "Indemnification Agreement"), and the Company
subsequently entered into these Indemnification Agreements. The Indemnification
Agreements provide that, if a director is a party or threatened to be made a
party to any proceeding by reason of the fact that he is or was a director of
the Company, the Company will indemnify any director of the Company to the
fullest extent permitted by the Company's Articles of Incorporation, its Code of
Regulations, Ohio law or other applicable law, as in effect as of the date of
the agreement or to such greater extent as the Company's Articles of
Incorporation, its Code of Regulations, Ohio law or applicable law may
thereafter permit, from and against all costs, charges, expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement. The
Indemnification Agreements further provide that, in the event of any proceeding
in which a director is a party and that may give rise to a right of
indemnification under the Indemnification Agreements or in which a director is
involved as a witness, following written request by such person, the Company
will promptly pay to such person amounts to cover expenses reasonably incurred
by such person in such proceeding in advance of its final disposition upon the
receipt by the Company of a written undertaking executed by or on behalf of such
person providing that such person will cooperate with the Company concerning the
proceeding and repay the advance if it is ultimately determined that such person
is not entitled to be indemnified by the Company as provided in the
Indemnification Agreements. The Indemnification Agreements also include
provisions meant to facilitate the indemnitee's receipt of benefits. These
provisions cover, among other things: (i) specification of the method of
determining entitlement to indemnification and the selection of independent
counsel that will in some cases make such determination, (ii) specification of
certain time periods by which certain payments or determinations must be made
and actions must be taken and (iii) the establishment of certain presumptions in
favor of an indemnitee.
BENEFICIAL OWNERSHIP OF THE SHARES
Schedule I of Parent's Offer to Purchase dated June 28, 1999, a copy of
which is filed as Exhibit (a)(2) to this Schedule 14D-9, sets forth information
concerning beneficial ownership of the Shares by each of the directors and
executive officers of Parent.
TREATMENT OF STOCK OPTIONS
Parent is not offering to acquire outstanding options to purchase Shares
("Options") in the Offer. Each holder of an Option that is vested may exercise
such Option prior to the consummation of the Offer, and the Shares received upon
such exercise may be tendered pursuant to the Offer. Parent's Offer to Purchase
disclosed that it is Parent's intention that each Option outstanding immediately
prior to the consummation of the Merger will no longer be exercisable for the
purchase of Shares but will, at Parent's discretion, either (i) entitle each
holder thereof, in cancellation and settlement therefor, to a cash payment
promptly after the consummation of the Merger equal to the product of (x) the
total number of Shares subject to such Option and (y) the excess, if any, of the
consideration to be paid in the Merger over the exercise price per Share subject
to such Option, or (ii) be converted into an option to purchase common stock of
Parent ("Parent Shares"). If Parent elects to convert Options into options to
purchase Parent Shares, each Option would be converted into an option to acquire
a number of Parent Shares equal to (a) the number of Shares subject to such
Option multiplied by (b) the Conversion Fraction (defined below). The exercise
price applicable to such option would be equal to (x) the exercise price
applicable to the Option divided by (y) the Conversion Fraction. The Conversion
Fraction would have a numerator equal to the consideration to be paid in the
Merger (per Share) and a denominator equal to the closing price for Parent
Shares on the day the Merger becomes effective.
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MANAGEMENT AFTER THE OFFER
Parent currently intends to seek to retain all management and other
personnel employed by the Company, to retain the Company's headquarters and
other facilities at their present locations, and except for the Company's Stock
Option Plan and the Company Non-employee Directors Stock Option Plan, continue
the Company's employee benefit plans for the foreseeable future.
RELATED PARTY TRANSACTIONS
Mr. Aureliano Gonzalez-Baz, a director since 1996, provided various legal
services in excess of $60,000 to the Company and its subsidiaries in the
ordinary course of business in 1998. Such services pertained to legal advice
related to the Company's business operations in foreign countries. Without
exception, all services provided by the director were at market rates. Similar
additional services may be provided in the ordinary course of business in the
future.
The Company is included in the consolidated federal income tax return of
Parent. The Parent's policy is to allocate income taxes to its subsidiaries on a
separate return basis. The Company paid taxes to Parent in the amounts of $5.2
million, $14.4 million and $18.9 million for fiscal years 1998, 1997 and 1996,
respectively.
Through National City Bank of Kentucky, a wholly-owned subsidiary of Parent
("NCBK"), which serves as a member bank for the Company, the Company is
registered with VISA(R) and Mastercard(R) as a certified processor and member
service provider. The Company also uses the proof and transit department of NCBK
to provide processing for remittances. The charges for these services were $3.6
million in 1998, $5.5 million in 1997 and $4.1 million in 1996.
The Company participates in Parent's Savings and Investment Plan, a
qualified salary reduction profit-sharing plan within the meaning of Section
401(k) of the Internal Revenue Code provided by the Company for eligible
employees, as well as Parent's Executive Savings Plan, a similar non-qualified
salary reduction profit-sharing plan provided by the Company for key officers of
the Company or its subsidiaries designated from time to time by the Company's
compensation committee.
ITEM 4 -- THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation of the Special Committee.
THE SPECIAL COMMITTEE HAS UNANIMOUSLY DETERMINED THAT THE OFFER IS
INADEQUATE AND NOT IN THE BEST INTERESTS OF THE HOLDERS OF SHARES OTHER THAN
PARENT (THE "PUBLIC SHAREHOLDERS"). ACCORDINGLY, THE SPECIAL COMMITTEE
UNANIMOUSLY RECOMMENDS THAT THE PUBLIC SHAREHOLDERS REJECT THE OFFER AND NOT
TENDER THEIR SHARES PURSUANT TO THE OFFER.
The Special Committee's determination, which was reached at a meeting held
on July 8, 1999, was based on the Special Committee's review and consideration
of the interests of the Public Shareholders. At the same meeting, the Special
Committee determined that the interests of the Public Shareholders would be best
served if the Public Shareholders reject the Offer and not tender their Shares
pursuant to the Offer.
Copies of a letter to the shareholders of the Company communicating the
Special Committee's recommendation, and a press release announcing the Special
Committee's determination, are filed as Exhibits (a)(5) and (a)(6) hereto,
respectively, and are incorporated herein by reference.
At a meeting of the Company Board held on February 24, 1999, the Company
Board granted to the Special Committee the authority to consider and respond to
any proposal or offer by Parent to acquire all or a portion of the Shares not
currently owned by Parent. Accordingly, the Company Board did not act with
respect to the Offer, and the Special Committee's determination and
recommendation with respect to the Offer is made on behalf of the Company.
(b) Background of the Offer; Reasons for the Recommendation.
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BACKGROUND OF THE OFFER
In 1988, Parent acquired First Kentucky National Corporation. At the time
of that acquisition, National Processing Company was a wholly owned subsidiary
of First Kentucky National Corporation.
The Company was formed in June 1996 in contemplation of an initial public
offering of the Shares (the "IPO"). In connection with its organization, the
Company issued to Parent all of its then-outstanding Shares, and Parent
contributed to the Company all of the outstanding common stock of National
Processing Company, which was then a wholly owned subsidiary of Parent. On
August 9, 1996, the Company sold 7,475,000 Shares in the IPO at a price to the
public of $16.50 per Share. The Company retained the $114,965,500 net proceeds
from the IPO to fund internal business development needs. Following consummation
of the IPO, Parent continued to own 43,100,000 Shares or approximately 85.2% of
the then-outstanding Shares.
For the first three quarters following the IPO, the Company's reported
earnings per share were lower than analyst estimates. Possibly impacted by these
lower than estimated earnings, the market price of the Shares declined from a
price that was at times above $20 during the quarter following the IPO to a
price that generally ranged between $7 and $10 during the first and second
quarters of 1997.
On May 2, 1997, Parent announced its intent to acquire up to 2,000,000
additional Shares in open market transactions. On May 7, 1997, Parent purchased
1,114,200 Shares at a price of $9.13 per Share, and on May 8, 1997, Parent
purchased 151,200 Shares at a price of $8.85 per Share, resulting in Parent's
ownership increasing to 44,365,400 Shares (87.6% of the then-outstanding
shares). In Parent's press release announcing its intent to acquire additional
Shares, a representative of Parent stated "Following National Processing's
successful initial public offering last August, the stock valuation has recently
lagged its peer group. We believe it to be in the best interests of National
City stockholders to increase National City's investment in National Processing
at what appears to be an attractive price."
During the second half of 1997 and the first half of 1998 the market price
of the Shares generally ranged from $10 to $13. During 1997 and January 1998,
the Company completed six acquisitions for a total purchase price of
approximately $137 million.
On June 9, 1998, Parent announced that although it was considering the
possible acquisition of the remaining outstanding Shares, it had not formulated
the terms of any plans or proposals to acquire additional Shares (other than its
previously announced intent to acquire up to 2,000,000 Shares), and no proposal
had been made to the Company or the Company Board. The closing price of the
Shares on June 9, 1998 was $11.19, and on June 8, 1998, the last full trading
day before this public announcement, the closing price was $9.94.
At a meeting of the Company Board held on February 24, 1999,
representatives of Parent advised the Company Board that Parent was considering
a range of alternatives with respect to its investment in the Company, including
Parent's acquisition of the publicly held Shares. No terms were discussed. These
representatives of Parent suggested that the Company Board form a special
committee of directors that were neither affiliated with Parent nor officers of
the Company to consider any proposals from Parent that might be presented in the
future. These representatives also suggested that this committee retain its own
legal and financial advisors. After discussion, the Company Board established
the Special Committee to consider and respond to a proposal by Parent to acquire
the publicly held Shares. Messrs. Preston B. Heller, Jr. (Chairman), Aureliano
Gonzalez-Baz and Christos M. Cotsakos were appointed to the Special Committee.
None of the members of the Special Committee are present or former employees,
officers or directors of Parent or employees or officers of the Company.
The Company announced in late 1998 and early 1999 that the Company's board
of directors had authorized management to investigate strategic options for
various product and business lines, including the possible restructuring,
divestiture or liquidation of certain lines. The Company stated that it was
evaluating all of its businesses in an effort to reorganize the Company to
maximize efficiency and profitability. The Company's Annual Report on Form 10-K
for 1998 indicated that it had entered into an agreement to sell its payables
and freight business lines. It also disclosed that the Company had adopted a
formal plan to either sell
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or discontinue the check and remittance business lines. A $73.9 million pre-tax
impairment loss related to these planned dispositions was recorded during the
first quarter of 1999. Members of the Special Committee were informed by Parent
that a proposal to acquire the publicly held Shares would not likely be made
until after these planned dispositions were completed.
On March 8, 1999, the Special Committee held its initial meeting at which
it discussed plans to contact prospective legal and financial advisors.
On March 10, 1999, the Special Committee held a meeting and engaged Baker &
Botts, L.L.P. ("Baker & Botts") as its legal advisor.
On March 31, 1999, the Special Committee held a meeting and discussed the
anticipated proposal by Parent, preparations for negotiating with Parent and
progress to date in the selection of a financial advisor.
On April 19, 1999, the Special Committee held a meeting and engaged
Deutsche Bank Securities Inc. ("Deutsche Bank") as its financial advisor.
On May 3, 1999, the Special Committee met by conference call with its legal
advisors. At this meeting, Baker & Botts advised members of the Special
Committee concerning their duties under applicable law and that it was their
responsibility to act in the best interests of the Public Shareholders. The
Special Committee also discussed the final terms of the sale of the payables and
freight business lines, which were lower than previously announced. The Special
Committee also discussed that representatives of Parent had indicated that they
did not currently anticipate any adjustments to the reserve recorded during the
first quarter of 1999. Members of the Special Committee also discussed the
impact of that reserve on the market price for the Shares.
On May 4, 1999, the Special Committee met by conference call with its legal
and financial advisors. The Special Committee reviewed the history of Parent's
investment in National Processing Company, the formation of the Company and the
Company's performance since the IPO. The Special Committee also discussed the
sale of the payables, freight, check and remittance business lines and the
Special Committee's belief that these sales would enable the Company to focus on
its core businesses. The anticipated proposal from Parent was also discussed,
including that it was anticipated to be made after the business line sales and
that the consideration was expected to be cash.
On May 11, 1999, the Special Committee's legal and financial advisors met
with management of the Company to conduct due diligence. Representatives of
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Parent's
financial advisor, also attended this meeting. At this meeting, management of
the Company made presentations and responded to questions regarding the
Company's businesses, its business plan, its historical financial results and
management's projections of future financial results.
The Special Committee met with its legal and financial advisors on May 17,
1999. At this meeting, representatives of Deutsche Bank reviewed with the
Special Committee the preliminary results of its due diligence and financial
analysis of the Company. This presentation included a review of selected
historical developments with respect to the Company, the recent business line
dispositions, the Company's core business lines (merchant credit card services,
corporate services and travel services) and financial information relating to
the Company on a historical basis, on a pro forma basis reflecting the business
line dispositions and based on management projections. Deutsche Bank also
reviewed several initiatives that were not included in the management
projections that had been provided to them. The Special Committee extensively
discussed Deutsche Bank's preliminary analysis and the Special Committee's views
of the appropriate valuation of the Company. Members of the Special Committee
expressed the view that the current market price for the Shares did not reflect
an appropriate valuation for the Company as a result of low institutional
interest in the Shares due to the small public float, the low volume of trading
in the Shares and the lack of a broad market understanding of the value of the
Company. The Special Committee believed that this lack of understanding was the
result of a variety of factors, including the conservative approach recently
taken by the Company in its discussions with analysts. In addition, the Special
Committee expressed the view that due to the market's reaction to several
instances where the Company's reported earnings were below analyst estimates,
the Company might need to demonstrate sustained improvements in performance
before the market would fully
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react to those improvements. Deutsche Bank's analysis indicated the significant
difference between expectations in the public markets based on analyst earnings
estimates and internal management estimates. Deutsche Bank noted that, although
the Company had failed to meet analyst earnings estimates several times in the
past, current management earnings projections were higher than analyst
estimates, and the Company's internal reports for the four months ended April
30, 1999 indicated that actual performance exceeded management expectations. The
reliability of the management projections provided to Deutsche Bank was
discussed, and the Special Committee expressed the view that the Company's
ability to focus on its core businesses, which are more stable than those
recently sold by the Company, should improve the reliability of management
projections. Deutsche Bank also noted that several initiatives were not included
at all in the management projections. Although on balance the Special Committee
did not believe that the management projections were overly optimistic, the
Special Committee considered the risks involved in the projections and in the
Company's business. Deutsche Bank and the Special Committee discussed
extensively the improved operating position of the Company as a result of the
recent business line sales and resulting ability of the Company to focus on its
core business lines and the significant inflow of cash as a result of recent
business line dispositions. Following this meeting, Deutsche Bank informed
Merrill Lynch that although the Special Committee was prepared to consider a
proposal from Parent, the Special Committee believed that completing a
transaction with Parent in the near term was undesirable due to the recent
changes in the Company's business.
In late May 1999, Merrill Lynch contacted Deutsche Bank and indicated a
desire to meet to discuss the valuation of the Company. Deutsche Bank again
relayed the Special Committee's timing concerns, but indicated they would meet
to discuss a specific proposal. Merrill Lynch indicated that Parent intended to
wait until the previously announced business line sales were complete before
proceeding with any specific proposal to acquire the publicly held Shares.
On June 1, 1999, the Company announced the completion of its sale of the
remittance business, the last of the four business lines the Company had
intended to dispose.
On June 4, 1999, representatives of Deutsche Bank and Merrill Lynch met by
telephone. Merrill Lynch indicated that Parent might contemplate making an offer
in the range of $7.50 to $8.00 per Share. Deutsche Bank indicated that, based on
their discussions with the Special Committee, they believed the Special
Committee would find an offer in that range unacceptable.
On June 8, 1999, representatives of Deutsche Bank and Merrill Lynch met
again by telephone, and Merrill Lynch indicated that Parent might contemplate
making an offer in the $7.50 to $8.50 range. Deutsche Bank stated that it
believed the Special Committee would find an offer in that range unacceptable.
Deutsche Bank also reviewed certain valuation criteria that supported a
substantially higher valuation of the Shares and conveyed the Special
Committee's belief that the Company's recent financial performance indicated a
turnaround from its historical disappointing performance. Merrill Lynch replied
that due to the Company's poor historical performance a valuation based on
comparable companies' valuation multiples was not appropriate and that the
contemplated offer reflected a significant premium to the current market price
of the Shares. Deutsche Bank stated its view that the premium reflected by a
price in the range contemplated by Parent should be discounted in view of the
depressed trading levels of the Shares as a result of the first quarter write
off of $73.9 million (approximately $6.5 million of which was expected to be
reversed), the low levels of institutional interest in the Company due to its
small public float and the lack of market understanding of the Company's recent
performance. Merrill Lynch indicated that they would consult with Parent
regarding the difference in views as to the Company's value. Deutsche Bank
indicated that it would discuss Parent's contemplated offer range with the
Special Committee.
On June 9, 1999, representatives of Merrill Lynch contacted representatives
of Deutsche Bank to discuss a recent article appearing in the American Banker.
This article speculated on the possible sale of the Company (or purchase by
Parent). In the article, an industry analyst at Keefe, Bruyette & Woods Inc.
(one of only two analysts that had published estimates) indicated that if the
Company were sold, it "could go for $12 to $14 a share." The article also
reported that the analyst had raised his earnings estimate and target stock
price for the Company. A representative of Parent was also quoted in the article
saying "We have said in the past, we would not consider buying back National
Processing until the divestiture of some business lines was completed.
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Those divestitures are now complete, so we will ultimately consider what is the
best ownership structure for that unit."
On June 11, 1999, representatives of Merrill Lynch and Deutsche Bank met by
telephone. Merrill Lynch indicated that it had reviewed their valuation analysis
of the Company with Parent and that Parent might consider making an offer of
between $9.00 and $9.25.
On June 16, 1999, representatives of Merrill Lynch and Deutsche Bank met
again by telephone to discuss Parent's contemplated offer. Merrill Lynch
indicated that it believed a $9.25 price was near to the highest amount that
Parent would be willing to pay and requested that the Special Committee respond
to this suggested amount, including by making a counter-offer if possible.
On June 18, 1999, the Special Committee met with its legal and financial
advisors. Deutsche Bank reviewed its conversations with Merrill Lynch and
provided an update of a portion of the preliminary financial analysis presented
to the Special Committee on May 17, 1999. The Special Committee discussed the
apparent difference between the views of Parent and the Special Committee as to
the appropriate valuation of the Company and indicated that they believed that
conversations should occur among representatives of Parent, the Special
Committee and their respective financial advisors in order to discuss these
different views. The Special Committee concluded that Deutsche Bank should
contact Merrill Lynch, inform it that the Special Committee believed that an
appropriate price for the Company was $16.50 per Share and suggest that
representatives of Parent, the Special Committee and their respective financial
advisors meet.
Later on June 18, 1999, Deutsche Bank contacted Merrill Lynch and informed
it of the Special Committee's response. Merrill Lynch pointed out the
significant difference between Parent's proposal and the Special Committee's
proposal and indicated that it would discuss the Special Committee's proposal
with Parent and respond by the close of business that day. Later that day,
Merrill Lynch informed Deutsche Bank that Parent would not be ready to respond
until Monday, June 21, 1999. Deutsche Bank informed Merrill Lynch that Mr.
Heller (Chairman of the Special Committee) would be available during the weekend
or the week of June 21 for discussions with Parent.
On June 21, 1999, Merrill Lynch contacted Deutsche Bank and informed it
that Parent intended to commence a cash tender offer at $9.50 per Share. Parent
issued a press release the following day announcing this tender offer.
On June 22, 1999, the Special Committee met to discuss Parent's tender
offer. Deutsche Bank reviewed its conversations with Merrill Lynch. The Special
Committee discussed the difference between the tender offer price and the range
of values reflected by Deutsche Bank's analysis. The Special Committee also
discussed the timing of the tender offer, which was announced before the
Company's second quarter earnings and the approximate $6.5 million expected
reversal of the impairment loss related to the Company's dispositions were
publicly announced and taken into account by the market. Possible responses to
the tender offer were also discussed. The Special Committee concluded that it
should wait to make a determination and recommendation with respect to the Offer
until Parent's Schedule 14D-1 was filed with the Securities and Exchange
Commission and the Special Committee had the opportunity to study the detailed
terms of the Offer disclosed therein. The Special Committee also expressed its
continued desire for direct meetings between the Special Committee, Parent and
their respective advisors.
On June 23 and 24, 1999, Merrill Lynch and Deutsche Bank discussed the fact
that the Special Committee did not support the tender offer and whether a
meeting among representatives of Parent, the Special Committee and their
financial advisors was warranted. Members of the Special Committee and
representatives of Parent had similar conversations.
On June 28, 1999, Parent filed its Schedule 14D-1 and Schedule 13E-3.
On June 30, 1999, representatives of Parent, the Company and their
financial and legal advisors met in Cleveland, Ohio. The parties discussed the
views of Parent and the Special Committee as to the appropriate valuation of the
Company. Representatives of Parent expressed their view that the Company's
financial projections were overly aggressive and unduly optimistic given the
Company's operations and current market
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position. Representatives of the Special Committee discussed the range of values
suggested by the preliminary financial analysis performed by Deutsche Bank and
that, based on the Special Committee's knowledge of the Company and recognizing
the risks inherent in financial projections and the Company's business, the
Special Committee did not believe that the Company's financial projections were
overly optimistic.
On July 8, 1999, the Special Committee met to consider the Offer.
Representatives of Deutsche Bank presented its analysis of the adequacy of the
Offer and rendered an oral opinion (subsequently confirmed by delivery of a
written opinion dated July 8, 1999) to the effect that, as of the date of such
opinion, based upon and subject to the assumptions made, matters considered and
limits of the review undertaken by Deutsche Bank, the Offer was inadequate, from
a financial point of view, to the Public Shareholders. Representatives of Baker
& Botts then discussed certain legal considerations in connection with the
Offer. After a full discussion, the Special Committee unanimously determined
that the Offer is inadequate and not in the best interests of the Public
Shareholders and unanimously recommended that the Public Shareholders reject the
Offer and not tender their Shares pursuant to the Offer.
REASONS FOR THE RECOMMENDATION
In reaching its determination that the Offer is not in the best interests
of the Public Shareholders and recommending that the Offer be rejected, the
Special Committee considered the factors listed below, each of which, in the
view of the Special Committee, supported such determination and recommendation.
THE OFFER PRICE IS INADEQUATE. The Special Committee believes that the
Offer Price is inadequate and does not reflect the inherent value of the
Company. The Offer Price is below the low end of most of the ranges of values
reflected by the financial analysis presented by Deutsche Bank to the Special
Committee on July 8, 1999. Moreover, the Special Committee believes that the
inherent value of the Company is substantially in excess of the Offer Price. The
Special Committee based this belief on its familiarity with, and management's
review of, the Company's business, financial condition, results of operations,
business strategy and future prospects and with the nature of the businesses in
which the Company operates. In this connection, the Special Committee
particularly considered the recent progress made in repositioning the Company,
including the Company's improved operating performance and increased ability to
focus on its core businesses following recent business line dispositions.
PURSUIT OF THE COMPANY'S BUSINESS PLAN SHOULD PRODUCE GREATER VALUE THAN
THE OFFER. The Special Committee believes that the Company is just beginning to
realize for its shareholders the values that will be created as a result of the
recent progress made in repositioning the Company and that pursuit of the
Company's business plan, including the refinements that may result from
management's ongoing review, should produce greater long-term value for the
Public Shareholders than the Offer.
PRESENTATION AND OPINION OF DEUTSCHE BANK. The Special Committee based its
recommendation on, among other things, the presentation made by Deutsche Bank to
the Special Committee on July 8, 1999 concerning the Company and the Offer, and
the opinion delivered by Deutsche Bank to the Special Committee to the effect
that, as of July 8, 1999, based upon and subject to the assumptions made,
matters considered and limits of the review undertaken by Deutsche Bank, the
Offer is inadequate, from a financial point of view, to the Public Shareholders.
The full text of the opinion of Deutsche Bank is included as Appendix A hereto
and may be read in its entirety.
THE TIMING OF THE OFFER IS NOT APPROPRIATE. The Special Committee believes
that the Offer was commenced and is scheduled to expire at an inopportune time.
Although the performance of the Company has recently improved, the Public
Shareholders have not had an opportunity to fully assess this improved
performance. In addition, the Special Committee believes that the Company is
only beginning to realize the benefits of the increased focus on its core
businesses following its recent divestitures and more time may be necessary to
fully assess the impact of this increased focus. Moreover, the Special Committee
believes that due to the adverse market reaction to prior instances when the
Company reported earnings below analyst estimates, sustained improvements to the
Company's results might be necessary before the market fully reacts to these
developments.
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THE SHARES WERE UNDERVALUED PRIOR TO THE OFFER, RENDERING THE PREMIUM
REPRESENTED BY THE OFFER PRICE MEANINGLESS. The Special Committee believes that
the marketplace and many of the Company's shareholders do not yet fully
appreciate and recognize the benefits already achieved, and still to be
achieved, under the Company's business plan. The Special Committee believes that
this resulted in a market price of the Shares prior to the public announcement
of the Offer that did not represent an adequate valuation of the Shares. The
Special Committee believes that results for the second quarter of 1999 will
demonstrate the Company's improved performance. In addition, during the second
quarter of 1999, the Company is expected to record a reversal of approximately
$6.5 million in the first quarter's $73.9 million pre-tax impairment loss
related to the Company's recent dispositions. Because neither the Company's
second quarter results nor the reversal had been publicly announced at the time
of the announcement of the Offer, the market could not reflect that information.
The Special Committee also believes that the Company's relatively small public
float (resulting in low institutional interest in the Shares) and low volume of
trading tend to depress the market price of the Shares. Although the Special
Committee recognizes that the Offer Price represents a substantial premium to
the market price of the Shares prior to the public announcement of the Offer,
because of its belief that this market price did not represent an adequate
valuation of the Shares, the Special Committee does not consider this premium
amount to be meaningful for purposes of its determination.
THE STRUCTURE OF THE OFFER IS NOT FAIR TO THE PUBLIC SHAREHOLDERS. Although
the Offer is conditioned upon satisfaction of the Minimum Condition (as defined
in the Purchaser's Offer to Purchase), which would require the tender of a
majority of the Shares not beneficially owned by Parent, Parent could waive this
condition in its sole discretion. As a result, if this condition is waived by
Parent and as few as 2% of the outstanding Shares (or 17% of the Shares not
beneficially owned by Parent) are tendered pursuant to the Offer, Parent could
cause the Company to merge into Parent under applicable law without the approval
of the Public Shareholders. Parent has indicated its intent to cause such a
merger following completion of the Offer, which would result in the conversion
of the then outstanding Shares into $9.50 per share in cash, the same value as
the Offer Price.
THE COMPANY HAS A SUBSTANTIAL AMOUNT OF EXCESS CASH. As of June 30, 1999,
the Company had approximately $153 million of cash and cash equivalents. As of
June 30, 1999, approximately 50,645,000 Shares were outstanding. As a result,
the Company's cash and cash equivalents represent approximately $3.02 per
outstanding Share. The Company could use a portion of its cash to fund capital
expenditures or acquisitions to generate growth. In addition to the Company's
current cash and cash equivalents, contingent payments could result in the
Company's receipt of additional proceeds from the Company's recent dispositions.
In reaching its determination that the Offer is not in the best interests
of the Public Shareholders and recommending that the Offer be rejected, the
Special Committee also considered the factors listed below, each of which in the
view of the Special Committee did not support such determination and
recommendation, but did not outweigh the factors listed above.
THE MARKET PRICE OF ANY SHARES NOT PURCHASED BY PARENT PURSUANT TO THE
OFFER MAY DECLINE. If Parent withdraws the Offer, the market price of the Shares
may decline from current levels. The closing price of the Shares on July 12,
1999, the last trading day before the date of this Schedule 14D-9, was $10.38
and the closing price of the Shares on June 21, 1999, the last trading day
before Parent's announcement of its intention to commence the Offer, was $7.96.
The low sales price of the Shares during 1999 (through July 12, 1999) was $4.00.
The Shares may trade at a price at or below these levels if Parent withdraws the
Offer.
PARENT COULD CAUSE A MERGER OF THE COMPANY INTO PARENT WITH EACH PUBLICLY
HELD SHARE BEING CONVERTED INTO AN AMOUNT LESS THAN $9.50. In the event that the
Offer is terminated without the purchase of any Shares by Parent, Parent's Offer
to Purchase discloses that Parent may (i) leave the Company as a publicly held
corporation, (ii) engage in certain open market or privately negotiated
purchases of Shares to increase Parent's ownership to at least 90% of the
outstanding Shares and effect a short-form merger under the Ohio General
Corporation Law, or (iii) cause the Company to call a special meeting of
shareholders to approve a merger and vote all of its Shares in favor of approval
of the merger, which will require the filing with the
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<PAGE> 12
Securities and Exchange Commission of certain disclosure materials prior to
adoption of the merger by the Parent. If the Parent terminates the Offer, any
purchases made by the Parent may be at prices less than $9.50, and the
consideration shareholders receive in any merger may be less than $9.50.
THE COMPANY'S PURSUIT OF ITS BUSINESS PLAN MAY NOT RESULT IN A MARKET PRICE
OF THE SHARES THAT IS HIGHER THAN THE OFFER PRICE. There are numerous risks
inherent in the Company's business, including those described in the Company's
filings with the Securities and Exchange Commission. In particular, the Company
will need to develop additional software to remain competitive within its
industry, there is intense price competition in the large merchant sector of the
Company's business and there has recently been a reduction in the Company's
travel related business. In addition, there are numerous uncertainties inherent
in the preparation of financial projections, including those considered by the
Special Committee in connection with the Parent Proposal, and there can be no
assurance that these projections will be realized. The failure of the Company to
successfully pursue its business plan or to realize its financial projections
could adversely affect the market price of the Shares if the Parent Proposal is
not successful. Even if the Company is successful in pursuing its business plan,
adverse market conditions unrelated to the Company's performance could adversely
affect the market price of the Shares.
The description set forth above of the factors considered by the Special
Committee is not intended to be exhaustive, but summarizes the primary factors
considered. The members of the Special Committee evaluated the Offer in light of
their knowledge of the business, financial condition and prospects of the
Company, and based upon the advice of financial and legal advisors. In light of
the number and variety of factors that the Special Committee considered in
connection with their evaluation of the Offer, the Special Committee found it
impracticable to assign relative or specific weights to the foregoing factors,
and, accordingly, the Special Committee did not do so. Individual members of the
Special Committee may have given differing weights to different factors and may
have viewed certain factors more positively or negatively than others.
OPINION OF DEUTSCHE BANK, FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE
Deutsche Bank has acted as financial advisor to the Special Committee in
connection with the Offer. At the July 8, 1999 meeting of the Special Committee,
Deutsche Bank delivered its written opinion, dated as of such date to the
Special Committee to the effect that, as of the date of such opinion, based upon
and subject to the assumptions made, matters considered and limits of the review
undertaken by Deutsche Bank, the Offer was inadequate, from a financial point of
view, to the Public Shareholders.
The full text of Deutsche Bank's written opinion, dated July 8, 1999 (the
"Deutsche Bank Opinion"), which sets forth, among other things, the assumptions
made, matters considered and limits on the review undertaken by Deutsche Bank in
connection with the opinion, is attached as Appendix A to this Schedule 14D-9
and is incorporated herein by reference. The Public Shareholders are urged to
read the Deutsche Bank Opinion in its entirety. The summary of the Deutsche Bank
Opinion set forth in this Schedule 14D-9 is qualified in its entirety by
reference to the full text of the Deutsche Bank Opinion.
In connection with Deutsche Bank's role as financial advisor to the Special
Committee, and in arriving at the opinion expressed below, Deutsche Bank has,
among other things, reviewed certain publicly available financial information
and other information concerning the Company and certain internal information
(including projections, forecasts, estimates, pro formas and other analyses
prepared by the Company) furnished to it by the Company. Deutsche Bank also held
discussions with the members of the senior management of the Company and the
Special Committee regarding the business and prospects of the Company. In
addition, Deutsche Bank (i) reviewed the reported prices and trading activity
for the common stock of the Company, (ii) compared certain financial and stock
market information for the Company, including pro forma historical income
statements reflecting the divestitures of non-core businesses which were
completed on June 1, 1999, with similar information for selected companies whose
securities are publicly traded, (iii) reviewed the financial terms of selected
recent business combinations which it deemed comparable in whole or in part, and
(iv) performed such other studies and analyses and considered such other
factors, including the majority ownership of the Company by National City
Corporation and its effect on the trading characteristics of the Company's
common shares, as it deemed appropriate.
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In preparing its opinion, Deutsche Bank did not assume responsibility for
the independent verification of, and did not independently verify, any
information, whether publicly available or furnished to it, concerning the
Company, including, without limitation, any financial information, forecasts or
projections considered in connection with the rendering of its opinion.
Accordingly, for purposes of its opinion, Deutsche Bank assumed and relied upon
the accuracy and completeness of all such information. Deutsche Bank did not
conduct a physical inspection of any of the properties or assets, and did not
prepare or obtain any independent evaluation or appraisal of any of the assets
or liabilities of the Company. With respect to the financial forecasts and
projections and pro forma historical data made available to Deutsche Bank and
used in its analysis, Deutsche Bank has assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the management of the Company as to the matters covered thereby. In
rendering its opinion, Deutsche Bank expressed no view as to the reasonableness
of such forecasts and projections or the assumptions on which they are based.
The Deutsche Bank Opinion was necessarily based upon economic, market and other
conditions as in effect on, and the information made available to Deutsche Bank
as of, the date of such opinion.
In connection with Deutsche Bank's role as financial advisor to the Special
Committee and in arriving at its opinion, Deutsche Bank was not authorized to
solicit, and did not solicit, interest from any other person with respect to the
acquisition of the Company or any of its assets.
Set forth below is a brief summary of the financial analyses performed by
Deutsche Bank in connection with its opinion and reviewed with the Special
Committee at its meeting on July 8, 1999.
Historical Stock Performance. Deutsche Bank reviewed and analyzed recent
and historical market prices and trading volume for the Company Common Stock and
compared such market prices to certain stock market and industry indices.
Deutsche Bank noted that since the Company's initial public offering on August
14, 1996, the Company has underperformed both the S&P 500 index and the Nasdaq
composite index. Deutsche Bank also compared the historical market prices of the
Company Common Stock and compared the movement of such closing prices with the
movement of a composite average of a group of publicly traded transaction
processing companies (consisting of First Data Corporation, National Data
Corporation and NOVA Corporation (collectively, the "Selected Companies")) since
the Company's initial public offering. On a relative basis the Company slightly
underperformed the Selected Companies through approximately September 1998 and
significantly underperformed the Selected Companies since that time, following
the Company's reporting of its results for the third quarter of 1998. This
information was provided to give the Special Committee background information
regarding the stock prices of the Company since its initial public offering.
Analysis of Selected Publicly Traded Companies. Deutsche Bank compared
certain financial information and commonly used valuation measurements for the
Company based on the Offer to corresponding information and measurements for the
Selected Companies. Such financial information and valuation measurements
included, among other things, (i) common equity market valuation ("Equity
Value"); (ii) operating performance; (iii) ratios of Equity Value as adjusted
for debt and cash ("Enterprise Value") to revenues and earnings before interest
expense and income taxes ("EBIT"); and (iv) ratios of Equity Value per share to
earnings per share ("EPS"). To calculate the trading multiples for the Company
and the Selected Companies, Deutsche Bank used publicly available information
and information provided by senior management of the Company concerning pro
forma historical and projected financial performance, including published
historical financial information and earnings estimates from Keefe, Bruyette &
Woods Inc. ("KBW") and those reported by the Institutional Brokers Estimate
System ("IBES"). IBES is a data service that monitors and publishes compilations
of earnings estimates by selected research analysts regarding companies of
interest to institutional investors.
Deutsche Bank calculated that, on a trailing twelve month basis, the
Company's multiple of Enterprise Value to pro forma revenues was 1.2x based on
the Offer, compared to a range of 1.6x to 4.4x, with a median of 2.4x, for the
Selected Companies; and the Company's multiple of Enterprise Value to pro forma
EBIT was 11.3x based on the Offer, compared to a range of 14.7x to 23.5x, with a
median of 21.2x, for the Selected Companies. Deutsche Bank further calculated
that the Company's multiple of Equity Value to trailing twelve
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month pro forma EPS was 21.4x based on the Offer, compared to a range of 25.5x
to 41.7x, with a median of 37.1x, for the Selected Companies; the Company's
multiple of Equity Value to management's projected calendar year 1999 EPS was
15.1x based on the Offer compared to a range of 20.5x to 28.8x, with a median of
22.2x, for the Selected Companies; the Company's multiple of Equity Value to KBW
estimated calendar year 1999 EPS was 19.0x based on the Offer, compared to a
range of 20.5x to 28.8x, with a median of 22.2x, for the Selected Companies; the
Company's multiple of Equity Value to management's projected calendar year 2000
EPS was 12.3x based on the Offer compared to a range of 16.1x to 25.4x, with a
median of 17.3x, for the Selected Companies; and the Company's multiple of
Equity Value to KBW estimated calendar year 2000 EPS was 13.6x based on the
Offer, compared to a range of 16.1x to 25.4x, with a median of 17.3x, for the
Selected Companies.
None of the companies utilized as a comparison is identical to the Company.
Accordingly, Deutsche Bank believes the analysis of publicly traded comparable
companies is not simply mathematical. Rather, it involves complex considerations
and qualitative judgments, reflected in Deutsche Bank's opinion, concerning
differences in financial and operating characteristics of the comparable
companies and other factors that could affect the public trading value of the
comparable companies.
Analysis of Selected Precedent Transactions. Deutsche Bank reviewed the
financial terms, to the extent publicly available, of ten proposed, pending or
completed mergers and acquisition transactions since August 1994 involving
companies in the transaction processing industry (the "Selected Transactions").
Deutsche Bank calculated various financial multiples based on certain publicly
available information for each of the Selected Transactions and compared them to
corresponding financial multiples for the Company based on the Offer. Deutsche
Bank calculated that the Company's multiple of Enterprise Value to pro forma
trailing twelve month revenues was 1.2x based on the Offer compared to a range
of 1.6x to 5.3x, with a median of 3.0x, for the Selected Transactions; and the
Company's multiple of Enterprise Value to pro forma trailing twelve month EBIT
was 11.3x based on the Offer compared to a range of 13.3x to 36.4x, with a
median of 20.1x, for the Selected Transactions. Deutsche Bank further calculated
that the Company's multiple of Equity Value to pro forma trailing twelve month
net income was 21.3x based on the Offer compared to a range of 22.9x to 57.8x,
with a median of 32.8x, for the Selected Transactions.
Deutsche Bank also calculated the premium paid over market value for 50
transactions involving the acquisition by a controlling majority shareholder of
the shares of minority shareholders ("Minority Squeezeouts"). Deutsche Bank
observed that the premiums paid in these transaction to the public market price
four weeks prior to the announcement of the transaction, and to the public
market price one day prior to announcement of the transaction ranged from -40.8%
to 78.9%, with a median of 26.8%, and -11.1% to 100.0%, with a median of 18.8%,
respectively. These ranges were compared to premiums of 60.0% and 23.6%,
respectively, for the Offer (based on the per share market price four weeks and
one day prior to the June 22, 1999 announcement of the proposed Offer).
All multiples and premiums for the observed transactions were based on
public information available at the time of announcement of such transaction,
without taking into account differing market and other conditions during the
five-year period during which the transactions occurred.
Because the reasons for, and circumstances surrounding, each of the
transactions analyzed were so diverse, and due to the inherent differences
between the operations and financial conditions of the Company and the companies
involved in the transactions, Deutsche Bank believes that a comparable
transaction analysis is not simply mathematical. Rather, it involves complex
considerations and qualitative judgments, reflected in Deutsche Bank's opinion,
concerning differences between the characteristics of these transactions and the
Offer that could affect the value of the subject companies and businesses and
the Company.
Discounted Cash Flow Analysis. Deutsche Bank performed a discounted cash
flow analysis for the Company. Deutsche Bank calculated the discounted cash flow
values for the Company as the sum of the net present values of (i) the estimated
future cash flow that the Company will generate for the years 1999 through 2004,
plus (ii) the value of the Company at the end of such period. The estimated
future cash flows were based on the financial projections for the Company for
the years 1999 through 2004 provided by the Company's management. The terminal
values of the Company were calculated based on projected revenue
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<PAGE> 15
and EBITDA for 2004 and a range of multiples of 1.5x to 2.5x for revenue and
10.0x to 13.0x for EBITDA. Deutsche Bank used discount rates ranging from 12.5%
to 17.5%. Deutsche Bank selected such discount rates based on its judgment of
the estimated weighted average cost of capital of the Selected Companies, and
used such multiples based on its review of the trading characteristics of the
common stock of the Selected Companies. This analysis indicated a range of
values of $11.55 to $20.06 per share.
The foregoing summary describes all analyses and factors that Deutsche Bank
deemed material in its presentation to the Special Committee, but is not a
comprehensive description of all analyses performed and factors considered by
Deutsche Bank in connection with preparing its opinion. The preparation of an
opinion is a complex process involving the application of subjective business
judgment in determining the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances
and, therefore, is not readily susceptible to summary description. Deutsche Bank
believes that its analyses must be considered as a whole and that considering
any portion of such analyses and of the factors considered without considering
all analyses and factors could create a misleading view of the process
underlying the opinion. In arriving at its conclusion, Deutsche Bank did not
assign specific weights to any particular analyses.
In conducting its analyses and arriving at its opinion, Deutsche Bank
utilized a variety of generally accepted valuation methods. The analyses were
prepared solely for the purpose of enabling Deutsche Bank to provide its opinion
to the Special Committee as to the adequacy of the Offer and does not purport to
be appraisals or necessarily reflect the prices at which businesses or
securities actually may be sold, which are inherently subject to uncertainty. In
connection with its analyses, Deutsche Bank made, and was provided by Company
management with, numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond the Company's control. Analyses based on estimates or forecasts of future
results are not necessarily indicative of actual past or future values or
results, which may be significantly more or less favorable than suggested by
such analyses. Because such analyses are inherently subject to uncertainty,
being based upon numerous factors or events beyond the control of the Company or
their respective advisors, neither Deutsche Bank nor any other person assumes
responsibility if future results or actual values are materially different from
these forecasts or assumptions.
The Special Committee selected Deutsche Bank as financial advisor in
connection with the Offer based on Deutsche Bank's qualifications, expertise,
reputation and experience in mergers and acquisitions. The Special Committee
retained BT Alex. Brown Incorporated pursuant to a letter agreement dated May 3,
1999 (the "Engagement Letter"). Deutsche Bank is the successor to the investment
banking and client advisory businesses of BT Alex. Brown Incorporated and has
assumed BT Alex. Brown Incorporated's rights and responsibilities under the
Engagement Letter. As compensation for Deutsche Bank's services, the Company has
paid Deutsche Bank a cash fee of $100,000 and has agreed to pay an additional
cash fee of $400,000 upon delivery of its opinion and an additional fee of
$900,000 if the Offer is consummated. Regardless of whether the Offer is
consummated, the Company has agreed to reimburse Deutsche Bank for reasonable
fees and disbursements of Deutsche Bank's counsel and all of Deutsche Bank's
reasonable travel and other out-of-pocket expenses incurred in connection with
the Offer or otherwise arising out of the retention of Deutsche Bank under the
Engagement Letter. The Company has also agreed to indemnify Deutsche Bank and
certain related persons to the full extent lawful against certain liabilities,
including certain liabilities under the federal securities laws, arising out of
its engagement or the Offer.
Deutsche Bank is an internationally recognized investment banking firm
experienced in providing advice in connection with mergers and acquisitions and
related transactions. Deutsche Bank and its affiliates may actively trade
securities of the Company or National City for their own account or the account
of their customers and, accordingly, may from time to time hold a long or short
position in such securities.
ITEM 5 -- PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Special Committee has retained Deutsche Bank as its financial advisor
in connection with its consideration of any proposals made by Parent to acquire
the publicly held Shares pursuant to the Engagement Letter.
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Pursuant to the terms of the Engagement Letter, the Company has agreed to
pay Deutsche Bank for its financial advisory services in connection with its
services under the Engagement Letter: (i) a fee of $100,000 payable upon the
execution of the Engagement Letter; (ii) an additional fee of $400,000 payable
upon either the execution of an agreement between the Company and Parent whereby
Parent acquires 40% or more of the publicly held Shares or the delivery of
Deutsche Bank's opinion to the Special Committee; and (iii) a fee of $1,300,000
(reduced by any fees paid under clause (i) or (ii)) payable upon the closing of
a transaction whereby Parent acquires 40% or more of the publicly held Shares.
In addition, the Company has agreed to reimburse Deutsche Bank for its
reasonable out-of-pocket expenses, including the fees and expenses of its legal
counsel, incurred in connection with the engagement, and to indemnify Deutsche
Bank against certain liabilities relating to or arising out of its engagement,
or to contribute to payments Deutsche Bank may be required to make in respect
thereof.
Except as set forth above, neither the Company nor any person acting on its
behalf, including the Special Committee, currently intends to employ, retain or
compensate any person to make solicitations or recommendations to security
holders on its behalf concerning the Offer.
ITEM 6 -- RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) To the best of the Company's knowledge, no transactions in the Shares
have been effected during the past 60 days by the Company or by any executive
officer, director or affiliate of the Company.
(b) To the best of the Company's knowledge, the Company's executive
officers and directors who own Shares currently intend to respond to the Offer
as follows. Messrs. James R. Bell, III, Jeffrey D. Kelly and Robert G. Siefers
intend to tender all of their Shares pursuant to the Offer. Mr. James W. Cate
intends to sell all of his Shares in the open market prior to expiration of the
Offer. Messrs. Christos M. Cotsakos, Aureliano Gonzalez-Baz, Preston B. Heller,
Jr., Robert E. Showalter, Steve Peterson and Thomas A. Wimsett do not intend to
tender any of their Shares pursuant to the Offer.
ITEM 7 -- CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth in this Schedule 14D-9, no negotiation is being
undertaken or is underway by the Company in response to the Offer which relates
to or would result in (i) an extraordinary transaction, such as a merger or
reorganization, involving the Company or any subsidiary thereof; (ii) a
purchase, sale or transfer of a material amount of assets by the Company or any
subsidiary thereof, (iii) a tender offer for or other acquisition of securities
by or of the Company; or (iv) any material change in the present capitalization
or dividend policy of the Company.
(b) Except as described in this Schedule 14D-9, there are no transactions,
board resolutions, agreements in principle or signed contracts in response to
the Offer that relate to or would result in one or more of the events referred
to in Item 7(a) above.
ITEM 8 -- ADDITIONAL INFORMATION TO BE FURNISHED.
On June 23, 1999, two lawsuits were filed, and on June 25, 1999, a third
lawsuit was filed, in the Court of Common Pleas in Cuyahoga County, Ohio by
alleged shareholders of the Company against the Company, Parent and individual
members of the Company's Board of Directors. Each of these suits was filed as a
purported class action on behalf of all shareholders of the Company except the
defendants and their affiliates. Each of the complaints is similar in its
allegations, which include, among other things, that the defendants have
breached their fiduciary duties to plaintiff in connection with the Offer by
failing to act in the best interests of the Company's public shareholders,
failing to exercise independent business judgment and acting to the detriment of
the Company's public shareholders for their own personal benefit. Each complaint
seeks: (i) class certification, (ii) preliminary and permanent injunctive relief
enjoining defendants from proceeding with or consummating the proposed
transactions, (iii) rescission of the transactions if consummated, (iv) monetary
damages, (v) attorney's fees and (vi) such other relief as the court determines
is just and proper.
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ITEM 9 -- MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Press Release issued by Parent dated June 22, 1999
(a)(2) Offer to Purchase dated June 28, 1999
(a)(3) Letter of Transmittal dated June 28, 1999
(a)(4) Opinion of Deutsche Bank Securities Inc. dated July 8, 1999 (included as
Appendix A)
(a)(5) Letter to shareholders of the Company dated July 13, 1999
(a)(6) Press Release issued by the Company dated July 13, 1999.
(a)(7) Forms of Indemnification Agreements
(b) None
(c)(1) Selected Sections of the Company's Proxy Statement dated May 10, 1999
FORWARD-LOOKING STATEMENTS
This document contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which are intended to be
covered by the safe harbors created thereby. Forward-looking statements can be
identified by the use of words like "anticipate," "believe," "budget,"
"estimate," "expect," "forecast," "intend," "plan," "predict," "project" and
similar expressions. Any statement that is not a historical fact is a
forward-looking statement. These forward-looking statements are subject to
numerous risks and uncertainties and involve numerous assumptions, including,
but not limited to, the risks inherent in the Company's business, changes in
general economic conditions, the Company's ability to execute its business plans
and other factors detailed in the Company's filings with the Securities and
Exchange Commission. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, actual results may
differ materially.
16
<PAGE> 18
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
July 13, 1999
NATIONAL PROCESSING, INC.
By: /s/ PRESTON B. HELLER, JR.
------------------------------------
Name: Preston B. Heller, Jr.
Title: Chairman of the Special
Committee
17
<PAGE> 19
LOGO
APPENDIX A
July 8, 1999
Special Committee of the Board of Directors
National Processing, Inc.
1231 Durrett Lane
Louisville, Kentucky 40285
Gentlemen:
Deutsche Bank Securities Inc. ("Deutsche Bank") has acted as financial
advisor to the Special Committee of the Board of Directors of National
Processing, Inc. (the "Special Committee") in connection with the offer (the
"Offer") by National City Corporation to purchase for cash all outstanding
common shares of National Processing, Inc. (the "Company") for $9.50 net per
share (the "Consideration"). You have requested Deutsche Bank's opinion, as
investment bankers, as to the adequacy, from a financial point of view, to the
public shareholders of the Company other than National City Corporation (the
"Public Shareholders") of the Consideration.
In connection with Deutsche Bank's role as financial advisor to the Special
Committee, and in arriving at the opinion expressed below, Deutsche Bank has
reviewed certain publicly available financial and other information concerning
the Company and certain internal information (including projections, forecasts,
estimates, pro formas and other analyses prepared by the Company) furnished to
it by the Company. Deutsche Bank has also held discussions with members of the
senior management of the Company and the Special Committee regarding the
business and prospects of the Company. In addition, Deutsche Bank has (i)
reviewed the reported prices and trading activity for the Company's common
shares and, (ii) compared certain financial and stock market information for the
Company with similar information for certain other companies whose securities
are publicly traded, (iii) reviewed the financial terms of certain recent
business combinations which it deemed comparable in whole or in part, and (iv)
performed such other studies and analyses and considered such other factors,
including the majority ownership of the Company by National City Corporation and
its effect on the trading characteristics of the Company's common shares, as it
deemed appropriate.
Deutsche Bank has not assumed responsibility for independent verification
of, and has not independently verified, any information, whether publicly
available or furnished to it, concerning the Company, including, without
limitation, any financial information, forecasts, estimates, pro formas or
projections considered in connection with the rendering of its opinion.
Accordingly, for purposes of its opinion, Deutsche Bank has assumed and relied
upon the accuracy and completeness of all such information and Deutsche Bank has
not conducted a physical inspection of any of the properties or assets, and has
not prepared or obtained any independent evaluation or appraisal of any of the
assets or liabilities, of the Company. With respect to the financial forecasts
and projections made available to Deutsche Bank and used in its analyses,
Deutsche Bank has assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of the Company, as the case may be, as to the matters covered
thereby. In rendering its opinion, Deutsche Bank expresses no view as to the
reasonableness of such forecasts and projections or the assumptions on which
they are based. Deutsche Bank's opinion is necessarily based upon economic,
market and other conditions as in effect on, and the information made available
to it as of, the date hereof.
This opinion is addressed to, and for the use and benefit of, the Special
Committee and is not a recommendation to the Public Shareholders whether or not
to tender their shares. This opinion is limited to the adequacy, from a
financial point of view, to the Public Shareholders of the Consideration, and
Deutsche Bank expresses no opinion as to the merits of the underlying decision
by the Special Committee whether or not to recommend the Offer to the Public
Shareholders.
A-1
<PAGE> 20
Special Committee of the Board of Directors
National Processing, Inc.
July 8, 1999
Deutsche Bank will be paid a fee for its services as financial advisor to
the Special Committee in connection with the Offer, a portion of which is
payable upon the delivery of this opinion and a portion of which is contingent
upon consummation of the Offer (or certain similar transactions). We are an
affiliate of Deutsche Bank AG (together with its affiliates, the "DB Group"). In
the ordinary course of business, members of the DB Group may actively trade in
the securities and other instruments and obligations of the Company and National
City Corporation for their own accounts and for the accounts of their customers.
Accordingly, the DB Group may at any time hold a long or short position in such
securities, instruments and obligations.
Based upon and subject to the foregoing, it is Deutsche Bank's opinion as
investment bankers that the Consideration is inadequate, from a financial point
of view, to the Public Shareholders.
Very truly yours,
/s/ DEUTSCHE BANK SECURITIES INC.
--------------------------------------
DEUTSCHE BANK SECURITIES INC.
A-2
<PAGE> 21
Resolutions Adopted by the Board of Directors
of National Processing, Inc. on February 24, 1999
RESOLVED, that the Board of Directors of the Corporation (the "Board")
hereby establishes a special committee of the Board (the "Committee") to
consider and respond to a potential proposal by National City Corporation to
acquire all or a portion of the outstanding shares of common stock of the
Corporation not currently owned by National City Corporation (a "Transaction");
and be it further
RESOLVED, that the Committee shall have the authority to consider and
respond to any proposal or offer for a Transaction, to initiate and participate
in discussions for or otherwise assist or facilitate proposals for a
Transaction, and to review, evaluate and negotiate the terms of a Transaction;
and be it further
RESOLVED, that the Committee shall consist of three persons, namely,
Preston B. Heller, Chairman
Aureliano Gonzalez-Baz
Christos M. Cotsakos
who shall serve until respective successors are chosen and qualified and that
Preston B. Heller shall be chairman of the Committee with the person selected by
him to act as chairman in his absence; and be it further
RESOLVED, that the Committee be, and hereby is, authorized to retain a
financial advisor to consult and advise the Committee with respect to any
proposed Transaction and to render an opinion as to the fairness to the
Corporation's shareholders, from a financial point of view, of any proposed
Transaction; and be it further
RESOLVED, that the Committee be, and hereby is, authorized to retain
legal counsel to advise the Committee with respect to any proposed Transaction;
and be it further
RESOLVED, that the Committee be, and hereby is, authorized to retain
such other consultants and agents to perform such other services, as the
Committee may deem necessary or appropriate in order for the Committee to
discharge its responsibilities; and be it further
RESOLVED, that the Committee be, and hereby is, authorized to enter
into such contracts on behalf of the Corporation providing for the retention,
compensation, reimbursement of expenses, and indemnification of such consultants
and agents retained by the Committee to provide services for the Committee, as
the Committee may deem necessary or appropriate, and that the Corporation be
directed to pay all fees, expenses, and disbursements of such consultants and
agents and to honor all other obligations of the Corporation under such
contracts; and be it further
<PAGE> 22
RESOLVED, that the members of the Committee shall be indemnified to the
full extent provided by Ohio law for all acts or omissions to act by them in
connection with the Transactions; and be it further
RESOLVED, that as compensation for their service on the Committee, each
member of the Committee shall be paid $1,000 per meeting and the Chairman of the
Committee shall be paid $1,500 per meeting, plus the expenses incurred by each
member of the Committee, regardless of the consummation of any Transaction; and
be it further
RESOLVED, that the officers of the Corporation be, and each hereby is,
authorized and directed to provide to the Committee, and any advisors, agents,
counsel, and designees of the Committee, such information and materials,
including but not limited to books, records, projections, and financial
statements of the Corporation any documents relating to the Transaction as may
be useful or helpful in the discharge of the Committee's responsibilities, and
be it further;
RESOLVED, that the members of the Committee be, and each hereby is,
authorized for and behalf of the Corporation to negotiate, execute, seal, file,
deliver and carry out such other documents and agreements, including any
acquisition agreement regarding a Transaction, and to take such steps and to
perform such acts (including taking any actions required by state and federal
securities laws), as may in their judgment be necessary, incidental or
convenient to the implementation of the transactions contemplated by or in
furtherance of, any of the foregoing resolutions, and any such documents and
agreements executed and delivered, or acts taken by them or any of them, shall
be conclusive evidence of his authority in so doing, and that the Corporation
hereby ratifies and confirms and all actions hereafter taken by any such person
in implementation of the foregoing purposes.
<PAGE> 1
EXHIBIT (a)(1)
National City Corporation
P.O. Box 5756
Cleveland, OH 44101-0756
NATIONAL CITY
FOR INFORMATION CONTACT:
NEWS RELEASE
Thomas A. Richlovsky
Senior Vice President and Treasurer
(216) 575-2126
For Immediate Release
NATIONAL CITY CORPORATION ANNOUNCES INTENTION TO COMMENCE
---------------------------------------------------------
$9.50 PER SHARE TENDER OFFER FOR THE 12% OF NATIONAL
----------------------------------------------------
PROCESSING, INC. IT DOES NOT CURRENTLY OWN
------------------------------------------
CLEVELAND, Ohio -- June 22, 1999 -- National City Corporation (NYSE:NCC)
today announced that it intends to commence a tender offer, for $9.50 per share
in cash, for all the publicly traded outstanding common shares of National
Processing, Inc. (NYSE:NAP) that it does not currently own. National City
currently owns approximately 88% of National Processing's outstanding common
shares.
National City believes that its offer of $9.50 per share represents an
attractive premium of 24% over National Processing's June 21 closing price of
$7.69, and a 51% premium over National Processing's 30-day average closing price
of $6.28. This proposal follows several weeks of conversations with National
Processing and reflects a meaningful increase over the per share price initially
discussed between the financial advisors. The formal offer will commence within
the next five business days.
In March of 1999, National City informed the Board of Directors of National
Processing that it was considering a range of alternatives with respect to its
investment in National Processing, including the possibility that it might
consider making an offer to acquire the outstanding public shares of National
Processing. National City suggested that the unaffiliated directors form a
Special Committee and retain their own financial advisor and legal advisor to
assist in evaluating any proposal that might be forthcoming. Following National
Processing's engagement of the financial and legal advisors, due diligence was
conducted. In early June, National City's financial advisor advised National
Processing's financial advisor that National City might contemplate making an
offer in the $7.50 to $8.50 range. At that time the indication of value
represented premiums of 26% to 43% over National Processing's market price of
$5.94. Subsequently, National Processing, through its financial advisor,
notified National City's financial advisor that this range was not acceptable to
the Special Committee. Following discussions between the financial advisors
regarding valuation methodology and issues pertinent to their respective
valuations, National City indicated that it might consider an improved valuation
of $9.00 to $9.25. Following further discussions, National City's financial
advisor
<PAGE> 2
expressed a potential willingness to pursue discussions at the high end of the
range, $9.25. National Processing's financial advisor notified National City's
financial advisor that the Special Committee again rejected National City's
proposal for discussions at that level of value. On June 21, National City's
financial advisor notified the financial advisor of the Special Committee that
National City was prepared to further increase its contemplated valuation to
$9.50 and that failure of the Special Committee to pursue discussions on this
basis would necessitate National City making its cash proposal available
directly to the National Processing shareholders for their consideration.
National City Corporation is an $84 billion diversified financial services
company headquartered in Cleveland, Ohio. National City operates banks and other
financial services subsidiaries principally in Ohio, Michigan, Pennsylvania,
Indiana, Kentucky and Illinois.
<PAGE> 1
Exhibit (a)(2)
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING COMMON SHARES
OF
NATIONAL PROCESSING, INC.
AT
$9.50 NET PER SHARE
BY
NATIONAL CITY CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON MONDAY, JULY 26, 1999, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED PRIOR TO THE EXPIRATION OF THE OFFER AND NOT PROPERLY WITHDRAWN A
NUMBER OF COMMON SHARES WHICH REPRESENTS AT LEAST A MAJORITY OF THE COMMON
SHARES THEN OUTSTANDING AND NOT OWNED, BENEFICIALLY OR OF RECORD, BY NATIONAL
CITY CORPORATION (OTHER THAN COMMON SHARES HELD BY AFFILIATES OF NATIONAL CITY
CORPORATION IN TRUST ACCOUNTS, MANAGED ACCOUNTS OR IN ANY SIMILAR MANNER AS
TRUSTEE OR IN A FIDUCIARY CAPACITY, OR ACQUIRED IN SATISFACTION OF DEBTS
PREVIOUSLY CONTRACTED). THE OFFER IS ALSO SUBJECT TO THE CONDITIONS SET FORTH IN
THIS OFFER TO PURCHASE. THE OFFER IS NOT CONDITIONED UPON NATIONAL CITY
CORPORATION'S OBTAINING FINANCING. SEE THE INTRODUCTION AND SECTIONS 1, 13 AND
14 OF THE OFFER TO PURCHASE.
------------------------
IMPORTANT
Any shareholder desiring to tender all or any portion of such shareholder's
Shares (as defined herein) should either (a) complete and sign the Letter of
Transmittal (or a facsimile thereof) in accordance with the instructions in the
Letter of Transmittal and mail or deliver it together with the certificate(s)
representing tendered Shares and any other required documents to the Depositary
(as defined herein) or tender such Shares pursuant to the procedures for
book-entry transfer set forth in Section 3 or (b) request such shareholder's
broker, dealer, commercial bank, trust company or other nominee to effect such
transaction. A shareholder whose Shares are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee must contact such
broker, dealer, commercial bank, trust company or other nominee if such
shareholder desires to tender such Shares.
A shareholder who desires to tender Shares and whose certificates
representing such Shares are not immediately available or who cannot comply with
the procedures for book-entry transfer on a timely basis may tender such Shares
by following the procedures for guaranteed delivery set forth in Section 3.
Questions and requests for assistance may be directed to the Information
Agent (as defined herein) or the Dealer Manager (as defined herein) at their
respective addresses and telephone numbers set forth on the back cover of this
Offer to Purchase. Additional copies of this Offer to Purchase, the Letter of
Transmittal, the Notice of Guaranteed Delivery and other related materials may
be obtained from the Information Agent or the Dealer Manager or from brokers,
dealers, commercial banks and trust companies.
------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
The Dealer Manager for the Offer is:
MERRILL LYNCH & CO.
June 28, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INTRODUCTION................................................ 1
SPECIAL FACTORS............................................. 2
THE OFFER................................................... 9
1. Terms of the Offer................................... 9
2. Acceptance for Payment and Payment................... 10
3. Procedures for Accepting the Offer and Tendering
Shares............................................... 11
4. Withdrawal Rights.................................... 13
5. Certain Tax Consequences............................. 14
6. Price Range of the Shares; Dividends................. 15
7. Possible Effects of the Offer on the Market for the
Shares; NYSE Listing; Exchange Act Registration..... 15
8. Certain Information Concerning the Company........... 16
9. Certain Information Concerning Parent and the
Purchaser............................................ 20
10. The Merger; Plans for the Company.................... 21
11. Source and Amount of Funds........................... 23
12. Dividends and Distributions.......................... 23
13. Certain Conditions of the Offer...................... 23
14. Certain Legal Matters; Required Regulatory
Approvals............................................ 26
15. Certain Fees and Expenses............................ 29
16. Miscellaneous........................................ 30
SCHEDULE I
Directors and Executive Officers of the Purchaser......... S-I-1
</TABLE>
i
<PAGE> 3
TO: ALL HOLDERS OF COMMON SHARES OF NATIONAL PROCESSING, INC.:
INTRODUCTION
National City Corporation, a Delaware corporation (the "Purchaser"), hereby
offers to purchase all outstanding common shares, no par value (the "Shares"),
of National Processing, Inc., an Ohio corporation (the "Company"), at a purchase
price of $9.50 per Share, net to the seller in cash, without interest thereon,
upon the terms and subject to the conditions set forth in this Offer to Purchase
and in the related Letter of Transmittal (which together, and with any
amendments or supplements hereto or thereto, constitute the "Offer").
Tendering shareholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of Shares by the Purchaser
pursuant to the Offer. The Purchaser will pay all charges and expenses of
National City Bank, as Depositary (the "Depositary"), Corporate Investor
Communications, Inc., as Information Agent (the "Information Agent") and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, which is acting as Dealer Manager
(the "Dealer Manager" or "Merrill Lynch"), in connection with the Offer. See
Section 15.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED PRIOR TO THE EXPIRATION OF THE OFFER AND NOT PROPERLY WITHDRAWN A
NUMBER OF SHARES WHICH REPRESENTS AT LEAST A MAJORITY OF SHARES THEN OUTSTANDING
AND NOT OWNED, BENEFICIALLY OR OF RECORD, BY THE PURCHASER (OTHER THAN SHARES
HELD BY AFFILIATES OF THE PURCHASER IN TRUST ACCOUNTS, MANAGED ACCOUNTS OR IN
ANY SIMILAR MANNER AS TRUSTEE OR IN A FIDUCIARY CAPACITY, OR ACQUIRED IN
SATISFACTION OF DEBTS PREVIOUSLY CONTRACTED ("TRUST SHARES")) (THE "MINIMUM
CONDITION"). FOR THE PURPOSE OF DETERMINING WHETHER THE MINIMUM CONDITION IS
MET, THE TRUST SHARES WILL BE COUNTED, IF TENDERED. THE OFFER IS ALSO SUBJECT TO
THE CONDITIONS SET FORTH IN THIS OFFER TO PURCHASE. THE OFFER IS NOT CONDITIONED
UPON THE PURCHASER'S OBTAINING FINANCING. SEE SECTIONS 1, 13 AND 14 OF THE OFFER
TO PURCHASE.
Following consummation of the Offer, the Purchaser currently intends to
cause the Company to merge with and into the Purchaser (the "Merger"), with the
Purchaser continuing as the surviving corporation (the "Surviving Corporation").
In the Merger, each outstanding Share (including Trust Shares but excluding any
other Shares held by the Purchaser or any subsidiary of the Purchaser or in the
treasury of the Company, which will be canceled with no payment being made with
respect thereto, and other than Shares ("Dissenting Shares"), if any, held by
shareholders who perfect their appraisal rights under the Ohio General
Corporation Law (the "GCL")) will, by virtue of the Merger and without any
action by the holder thereof, be converted into the right to receive $9.50 in
cash (the "Merger Consideration"), payable to the holder thereof, without
interest thereon, upon the surrender of the certificate formerly representing
such Share. Certain tax consequences of the sale of Shares pursuant to the Offer
and the Merger, as the case may be, are described in Section 5 below.
As of the date of this Offer to Purchase, the Purchaser beneficially owns
44,365,400 Shares (excluding Trust Shares), which represents approximately 87.6%
of the outstanding Shares. Upon consummation of the Offer, the Purchaser will
own at least 90% of the outstanding Shares and, under the GCL, will be able to
cause the Merger to occur without a vote of the Company's shareholders.
If the Minimum Condition is not met, the Purchaser currently intends to
terminate the Offer without purchasing any Shares. In that event, the Purchaser
may (i) leave the Company as a publicly held corporation, (ii) engage in certain
open market or privately negotiated purchases of Shares to increase the
Purchaser's ownership to at least 90% of the outstanding Shares and effect a
short-form merger under the GCL, or (iii) cause the Company to call a special
meeting of shareholders to approve a merger and vote all of its Shares in favor
of approval of the merger, which will require the filing with the Commission of
certain disclosure materials prior to adoption of the merger by the Purchaser.
If the purchaser terminates the Offer, any purchases made by the Purchaser may
be at prices less than $9.50, and the consideration shareholders receive in any
merger may be less than $9.50.
<PAGE> 4
No assurance can be given as to whether or when any merger of the Company
with the Purchaser will be consummated and, similarly, no assurance can be given
as to whether or when any consideration will be paid to shareholders who do not
tender their Shares into the Offer. In no event will any interest be paid on the
Merger Consideration. If the Purchaser were to leave the Company public,
shareholders would receive no cash for their Shares from the Purchaser, and the
trading price for the Shares could decline, including down to a price at or
below which the Shares were trading prior to the time that the Purchaser
announced its intention to commence the Offer. If the Purchaser were to pursue
either of the actions set forth in clauses (ii) or (iii) above, it could take
considerably longer for shareholders to receive any consideration for their
Shares than if they had tendered their Shares into the Offer, and shareholders
may receive less consideration than is being offered hereunder.
The Purchaser reserves the right, however, in its sole discretion, to
extend the Offer in order to meet the Minimum Condition or any other condition.
According to the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999, there are 50,644,651 Shares issued and outstanding.
According to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 (the "Company Form 10-K"), stock options ("Options") to
purchase 2,943,881 Shares are outstanding. As of June 25, 1999, there were 122
shareholders of record.
No appraisal rights are available in connection with the Offer; however,
shareholders may have appraisal rights in connection with the Merger regardless
of whether the Merger is consummated with or without a vote of the Company's
shareholders. See Section 10.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION AND SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER.
SPECIAL FACTORS
BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY
On August 14, 1996, the Company completed its initial public offering of
7,475,000 Shares at a price per Share of $16.50. Prior to its initial public
offering, the Company was a wholly owned subsidiary of the Purchaser. Following
completion of the Company's initial public offering, the Purchaser continued to
own 43,100,000 Shares, or approximately 85.2% of the then outstanding Shares.
On May 2, 1997, the Purchaser announced its intention to acquire up to
2,000,000 additional Shares in open market transactions. On May 7, 1997, the
Purchaser purchased 1,114,200 Shares at $9.125 per Share, and on May 8, 1997,
the Purchaser purchased an additional 151,200 Shares at $8.85 per Share. At the
time of these purchases, and again in the summer of 1998, the Purchaser
disclosed publicly that it intended to continually review its equity position in
the Company, including, among other alternatives, the possible acquisition of
the remaining Shares it did not already own (the "Publicly Held Shares").
In mid-February 1999, as part of a strategic review of the Purchaser's
entire business, the Purchaser began to consider a range of alternatives with
respect to its investment in the Company, including the possibility of making an
offer to purchase all or a portion of the Publicly Held Shares by tender offer,
merger or otherwise. At this time, the Purchaser had not determined whether to
pursue any transaction.
On February 24, 1999, at a regularly scheduled meeting of the Board of
Directors of the Company, representatives of the Purchaser, including the
officers of the Purchaser who are also directors of the Company, discussed with
the Board of Directors of the Company that the Purchaser was considering a
number of options with respect to its investment in the Company, including the
possibility of making an offer to acquire the Publicly Held Shares. These
representatives of the Purchaser suggested that the Board of Directors of the
Company form a special committee of directors that were neither affiliated with
the Purchaser nor officers of the Company (the "Special Committee") to represent
the unaffiliated holders of Shares in considering any proposal by the Purchaser
that might be forthcoming. The Purchaser also suggested that the Special
Committee retain its own legal counsel and financial advisor to assist the
Special Committee in conducting its evaluation.
2
<PAGE> 5
At this meeting, the Board of Directors of the Company adopted a resolution
forming the Special Committee. Messrs. Preston B. Heller, Jr., Christos M.
Cotsakos and Aureliano Gonzalez-Baz were appointed as members of the Special
Committee. The Special Committee then retained outside legal and financial
advisors.
In mid-March 1999, the Purchaser retained Merrill Lynch to render financial
advisory services to the Purchaser in connection with a possible acquisition of
the Publicly Held Shares by tender offer, merger or otherwise. Merrill Lynch is
an internationally recognized investment banking firm and, as a customary part
of its investment banking activities, is regularly engaged in the evaluation of
businesses and their securities in connection with mergers and acquisitions and
other purposes. Merrill Lynch was selected by the Purchaser because of its
expertise, reputation and familiarity with the Purchaser, the Company and their
respective businesses and with transactions similar to the Offer.
From March until late April 1999, the Purchaser and Merrill Lynch conducted
financial due diligence on the Company. This due diligence consisted of
evaluating publicly available information about the Company, publicly available
information about comparable companies and comparable transactions and
internally generated analyses provided by the Purchaser, which analyses
included, in part, information provided by the Company.
On April 30, 1999, representatives of the Purchaser and representatives of
Merrill Lynch participated in a telephonic working session regarding the
desirability of acquiring the Publicly Held Shares and making a proposal to the
Special Committee. During the working session, representatives of the Purchaser
and Merrill Lynch discussed their preliminary financial due diligence reviews to
date and the additional due diligence investigations still needed to be done.
The working session also included a preliminary discussion of approaches to
valuation of the Company, as well as whether or not the proposal being
considered by the Purchaser was comparable to similar transactions in the
industry served by the Company or similar transactions in other related
industries, and whether or not there are any companies comparable to the
Company. The working group also reviewed the projections of the Company and
internally generated analyses provided by the Purchaser and discussed whether
the Company's projections were reasonable or attainable. Representatives of the
Purchaser and Merrill Lynch also discussed the possible assertions that the
Special Committee's representatives and financial advisors could make with
respect to the financial valuation of the Company in order to negotiate for a
higher offer price. While various written materials were reviewed in connection
with such discussions, at no time during its due diligence investigation or
subsequent negotiations with the financial advisor to the Special Committee did
Merrill Lynch provide to the Purchaser, and the Purchaser did not ask for, any
opinion relating to the consideration proposed to be offered by the Purchaser to
the holders of the Publicly Held Shares.
During May 1999, the Purchaser and Merrill Lynch continued their due
diligence investigation of the Company, including being present during on-site
investigations by the Special Committee's financial advisor at the Company's
offices in early May. On May 18, 1999, representatives of the Purchaser and
Merrill Lynch further discussed the valuation analysis of the Company that could
be utilized in discussions with the Special Committee or its financial advisor.
In late May 1999, Merrill Lynch, on behalf of the Purchaser, contacted the
Special Committee's financial advisor to request a meeting to discuss the
valuation analysis of the Company. The Special Committee's financial advisor
declined Merrill Lynch's request to meet, but asked Merrill Lynch to have the
Purchaser provide a valuation proposal to which they could respond.
In early June 1999, the Purchaser directed Merrill Lynch to advise the
Special Committee's financial advisor that the Purchaser might contemplate
making an offer in the $7.50 to $8.50 range. At that time, that valuation range
represented a range of premiums of 26% to 43% over the Company's market price of
$5.94. Subsequently, the Special Committee, through its financial advisor,
notified Merrill Lynch that this range was not acceptable to the Special
Committee and that there was no reason to meet based on the valuation range that
Merrill had presented.
3
<PAGE> 6
On June 9, 1999, an article appeared in the American Banker stating that
the Company might be sold for $12.00 to $14.00 per Share. The source of this
speculation was not identified in the article. Over the next five trading days,
the Company's closing stock price increased from $6.25 to $7.38, an increase of
18%, on above-average trading volume.
Following further discussions between Merrill Lynch and the Special
Committee's financial advisor regarding valuation methodology and issues
pertinent to the Purchaser's and the Special Committee's respective positions,
the Purchaser indicated that it might consider an improved valuation of $9.00 to
$9.25. Following further discussions, the Purchaser directed Merrill Lynch to
communicate the Purchaser's willingness to pursue discussions at the high end of
this range to the Special Committee's financial advisor. The Special Committee's
financial advisor notified Merrill Lynch that the Special Committee again
rejected the Purchaser's proposal for discussions at that level of value.
On June 21, 1999, Merrill Lynch notified the Special Committee's financial
advisor that the Purchaser was prepared to further increase its contemplated
valuation to $9.50, and that continued failure of the Special Committee to
pursue discussions on this basis would necessitate the Purchaser's making its
cash proposal available directly to the Company's shareholders for their
consideration.
Early in the morning on June 22, 1999, the Special Committee's financial
advisor notified Merrill Lynch that the Special Committee had rejected the
Purchaser's proposal for discussions at the $9.50 level of value. Later that
morning, after further discussions with Merrill Lynch regarding the Purchaser's
range of alternatives with respect to the Company, including the possibility of
leaving the Company public, the Purchaser determined that it would propose to
acquire the Publicly Held Shares, despite not receiving the support of the
Special Committee, and issued a press release announcing its intention to
commence the Offer.
On June 23 and June 24, 1999, various telephonic conversations occurred
between and among members of the Special Committee, representatives of the
Purchaser, the Special Committee's financial advisor and Merrill Lynch regarding
the valuation of the Company and whether or not a meeting of the parties was
warranted.
The Purchaser commenced the Offer on June 28, 1999.
FAIRNESS OF THE OFFER AND THE MERGER TO UNAFFILIATED SHAREHOLDERS
Because the Purchaser currently owns approximately 87.6% of the outstanding
Shares, the Purchaser is deemed an "affiliate" of the Company under Rule 12b-2
of the Securities Exchange Act of 1934 (the "Exchange Act"). Accordingly, in
compliance with Rule 13e-3 under the Exchange Act, the Purchaser has considered
the fairness of the Offer to the shareholders of the Company, other than itself,
and, in connection with the Offer, the Purchaser has filed with the Commission a
Rule 13e-3 Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3").
The Purchaser believes that the Offer is fair to the unaffiliated holders
of Shares. In concluding that the Offer is fair to such shareholders, the
Purchaser has considered, among other matters, (i) that the $9.50 per Share
Offer price represents a premium of (a) $3.56, or 60%, over the closing sales
price of $5.94 per Share as reported by the New York Stock Exchange (the "NYSE")
on June 4, 1999, prior to the publication of the American Banker article which
speculated that the Company might be sold, (b) $3.22, or 51%, over the Company's
30-day average closing price of $6.28 prior to the public announcement of the
Purchaser's intention to commence the Offer, and (c) $1.81, or 24%, over the
closing sales price of $7.69 per Share as reported by the NYSE on June 21, 1999,
the date prior to the announcement by the Purchaser of its intention to commence
the Offer; (ii) the recent and historical market prices of the Shares since the
Company became a public company in August 1996; (iii) the Purchaser's evaluation
of competitive trends and other conditions in the markets in which the Company
operates; (iv) the Purchaser's knowledge of the business, historical results of
operations and the properties, assets and earnings of the Company and its recent
financial and operating performance; (v) the Company's historical
underperformance (in terms of its historical compound growth rates and revenue,
EBITDA and
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net income performance margins) relative to management's budgets and median
"Street" estimates, and its underperformance in comparison to its competitors
and the processing industry in general; (vi) the per Share price of $16.50
($15.38 net of underwriting discounts) received by the Company from the sale of
7,475,000 Shares in the August 1996 initial public offering; (vii) the per Share
prices paid by the Purchaser ranging from $8.85 to $9.125 to acquire 1,265,400
Shares in the open market in May 1997; (viii) that the Shares have been trading
for a considerable amount of time with no tangible increase in the per Share
trading price; (ix) the fact that the Purchaser already beneficially owns 87.6%
of the outstanding Shares; (x) that the Purchaser and the Special Committee were
unable to negotiate a mutually acceptable merger agreement, including the
appropriate range of values for the Shares, and that the Offer and the Merger
have not been approved by the Special Committee; (xi) that the Offer is an
all-cash offer for all Publicly Held Shares, which the holders thereof can
accept or reject voluntarily; and (xii) that the Offer provides shareholders who
are considering selling their Shares with the opportunity to do so without
incurring the transaction costs typically associated with market sales.
The foregoing discussion of the information and factors considered by the
Purchaser is not intended to be exhaustive. In view of the wide variety of
factors considered in connection with its determination of the Offer price and
its evaluation of the fairness of the Offer, the Purchaser did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the foregoing factors or determine that any factor was of particular
importance. Rather, the Purchaser viewed its position as being based on the
totality of the information presented to and considered by it. On balance,
however, the Purchaser viewed the factors in items (i) through (v), (viii) and
(ix) as favorable to its decision, the matters set forth in items (vii), (xi)
and (xii) as being influential, and the factors in items (vi) and (x) as
unfavorable to its decision. In particular, the Purchaser considered that the
Offer price of $9.50 per Share represents a premium over the price at which the
Shares were trading immediately prior to the date of commencement of the Offer
and an even larger premium over recent historical trading prices.
Because the Board of Directors of the Company, at the Purchaser's
suggestion, did form the Special Committee to consider the Purchaser's proposal,
which Special Committee was comprised of all of the independent directors of the
Company, none of whom were officers or employees of the Company, the Purchaser
or their respective affiliates, and the Special Committee engaged independent
counsel and a financial advisor, each of whom acted on behalf of, and in the
interests of, the Company's unaffiliated shareholders, the Purchaser did not
suggest to the Special Committee that it, and the Special Committee did not,
retain an unaffiliated representative to act solely on behalf of the
unaffiliated shareholders of the Company for the purpose of negotiating the
terms of the Offer.
The Purchaser has not received, nor sought to obtain, any report, opinion
or appraisal from an outside party, including, without limitation, an opinion
from an investment banker, relating to the consideration or fairness of the
consideration offered to the unaffiliated shareholders of the Company in the
Offer and the Merger or the fairness of the Offer and the Merger to the Company,
the Purchaser or any unaffiliated shareholders of the Company.
The Purchaser cautions and strongly urges the Company's shareholders that
they must view all of the opinions, views, beliefs and recommendations contained
herein within the context of the associations and affiliations, if any, of the
persons giving such opinions, views, beliefs and recommendations with either the
Company or the Purchaser or both. The opinions, views, beliefs and
recommendations contained herein do not purport to be the only ones possible,
and none of them are presented as objectively correct. In the final analysis,
the adequacy, fairness and acceptability of the Offer are for each shareholder
to decide in the manner that each shareholder believes best. Consequently, the
Purchaser strongly urges the Company's shareholders that they should ultimately
make their own decision as to the acceptability of the Offer based on all of the
available information.
PURPOSE AND STRUCTURE OF THE TRANSACTION
The purpose of the Offer and the Merger is to enable the Purchaser to
acquire the entire equity interest in the Company. The Purchaser determined to
make the proposal to acquire the entire equity
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<PAGE> 8
interest in the Company for several reasons. First, the changes in the merchant
processing industry altered many of the original motivations for the offering of
the Shares in August 1996. Among other things, the Purchaser's management
perceived that conflicts were arising between the Purchaser's evolving retail
and commercial bank strategy of customer orientation and integrated product
delivery and the orientation of the Company as a "monoline" company (i.e., a
company that focuses on a single line of business). Thus, the Company's desire
to enter into merchant processing relationships with particular customers only
when the merchant processing relationship is profitable had been determined in
some instances to be potentially inconsistent with the Purchaser's objective of
delivering a full array of banking services to particular customer relationships
when such relationships, taken as a whole, are profitable. Additionally, due in
part to increasing concentration and price competition in the merchant
processing industry, the market value of the Company's stock, and that of stocks
in the merchant processing industry generally, since 1996, have compared
unfavorably to the market values prevailing in the financial services industry
generally, including values of the stocks of major bank holding companies such
as the Purchaser, and the sector multiples between these segments of the
financial services industry have converged in recent years. Management of the
Purchaser also had begun to reconsider the original strategy of using
acquisitions to grow the business of the Company in light of the increasing
concentration in the merchant processing industry and the consequent reduction
of acquisition opportunities and the increased pricing levels of acquisitions.
In determining to purchase the Shares at this time, the Purchaser focused
on a number of factors, including the conflicts that have arisen between the
interest of public shareholders in the Company's near-term earnings results and
the Company's long-term business strategy to solidify and enhance its position
in the merchant processing industry. The Company's long-term business strategy
to solidify and enhance its position in the merchant processing industry will
require significant capital investments in technology and origination
capabilities, which in the Purchaser's view, could adversely affect near-term
earnings and the trading price of the Shares.
The acquisition of the entire equity interest in the Company has been
structured as a cash tender offer followed by a cash merger in order to provide
a prompt and orderly transfer of ownership of the Publicly Held Shares from the
public shareholders to the Purchaser and to provide cash to the holders of
Shares. Prior to determining to proceed with the Offer to be followed by the
Merger, the Purchaser also considered acquiring the remaining equity interest it
did not already own through open-market purchases to be followed by a merger or
through a one-step merger transaction.
The Purchaser rejected open-market purchases to be followed by a merger
because open-market purchases would not be as efficient as a tender offer and
would not guarantee that all holders of Shares would receive the same amount of
consideration for their Shares.
The Purchaser rejected a one-step merger because the Purchaser currently
owns only approximately 87.6% of the outstanding Shares and could not effect a
short-form merger without owning at least 90% of the outstanding Shares.
Consequently, it would take significantly longer to provide cash to holders of
Shares without first acquiring additional Shares in the Offer. In addition,
unlike a merger, under the GCL, the approval of the Board of Directors of the
Company is not required for the Purchaser to commence a tender offer.
Consequently, once the Special Committee determined not to accept the
Purchaser's proposal, pursuing the Offer enabled the Purchaser potentially to
acquire the entire equity interest in the Company without the approval of the
Board of Directors of the Company or any committee thereof if all of the
Publicly Held Shares are acquired in the Offer. Finally, the Purchaser can
pursue the Offer without any material assistance from the Company.
Following completion of the Offer, the Purchaser currently intends to
acquire any remaining equity interest in the Company not then owned by the
Purchaser by consummating the Merger. Under the GCL, to effect the Merger,
whether or not the Merger is a short-form merger, an agreement of merger must be
approved by the Board of Directors of each of the Purchaser and the Company. If
the Purchaser does not acquire all of the Publicly Held Shares in the Offer, the
Purchaser currently intends to cause the Board of Directors of the Company to
approve an agreement of merger in order to comply with the GCL.
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<PAGE> 9
If the Minimum Condition is not met, the Purchaser currently intends to
terminate the Offer without purchasing any Shares. In that event, the Purchaser
may (i) leave the Company as a publicly held corporation, (ii) engage in certain
open market or privately negotiated purchases of Shares to increase the
Purchaser's ownership to at least 90% of the outstanding Shares and effect a
short-form merger under the GCL, or (iii) cause the Company to call a special
meeting of shareholders to approve a merger and vote all of its Shares in favor
of approval of the merger, which will require the filing with the Commission of
certain disclosure materials prior to adoption of the merger by the Purchaser.
If the Purchaser terminates the Offer, any purchases made by the Purchaser may
be at prices less than $9.50, and the consideration shareholders receive in any
merger may be less than $9.50.
No assurance can be given as to whether or when any merger of the Company
with the Purchaser will be consummated and, similarly, no assurance can be given
as to whether or when any consideration, will be paid to shareholders who do not
tender their Shares into the Offer. In no event will any interest be paid on the
Merger Consideration. If the Purchaser were to leave the Company public,
shareholders would receive no cash for their Shares from the Purchaser, and the
trading price for the Shares could decline, including down to a price at or
below which the Shares were trading prior to the time that the Purchaser
announced its intention to commence the Offer. If the Purchaser were to pursue
either of the actions set forth in clauses (ii) or (iii) above, it would take
considerably longer for shareholders to receive any consideration for their
Shares than if they had tendered their Shares into the Offer, and shareholders
may receive less consideration than is being offered hereunder.
The Purchaser reserves the right, however, in its sole discretion, to
extend the Offer in order to meet the Minimum Condition or any other condition.
EFFECTS OF THE OFFER AND THE MERGER
The purchase of Shares pursuant to the Offer will reduce the number of
Shares that might otherwise trade publicly and the number of holders of Shares
and could adversely affect the liquidity and market value of the remaining
Shares held by the public and have other consequences with respect to NYSE
listing, and registration under the Exchange Act. See Section 7. For a
discussion of certain tax consequences related to the Offer, see Section 5.
Following the consummation of the Offer, if the Merger is not consummated,
the Purchaser will be able to continue to influence decisions of the Board of
Directors of the Company. This concentration of influence in one shareholder may
adversely affect the market value of the Shares. In addition, shareholders of
the Company, other than those affiliated with the Purchaser, will continue to
lack sufficient voting power to elect directors or to cause other actions to be
taken which require majority shareholder approval. If, for any reason the Offer
is terminated or, following completion of the Offer, the Merger is not
consummated, the Purchaser reserves the right to acquire additional Shares
through private purchases, market transactions, tender or exchange offers or
otherwise on terms and at prices that may be more or less favorable than those
of the Offer or, subject to any applicable legal restrictions, to dispose of any
or all of the Shares owned by the Purchaser.
Following the Offer and the Merger, the interest of the Purchaser in the
Company's net book value and net income will be 100%. The Purchaser will
thereafter benefit from any increases in the value of the Company and also bear
the risk of any decreases in the value of the Company's operations. Conversely,
following the Offer and the Merger, persons who were shareholders of the Company
immediately prior to the Offer and the Merger will no longer have the
opportunity to continue their interests in the Company as an ongoing corporation
and therefore will not share in its future earnings and potential growth.
At the Effective Time, (i) the Company will merge with and into the
Purchaser, with the Purchaser remaining as the Surviving Corporation, and the
separate corporate existence of the Company will cease, (ii) all the rights,
privileges, immunities, powers and franchises of the Company and the Purchaser
will vest in the Surviving Corporation, and (iii) all obligations, duties, debts
and liabilities of the Company and the Purchaser will be the obligations,
duties, debts and liabilities of the Surviving Corporation. The Certificate of
Incorporation of the Purchaser, as in effect immediately prior to the Effective
Time, will be
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the Certificate of Incorporation of the Surviving Corporation and the By-laws of
the Purchaser, as in effect immediately prior to the Effective Time, will be the
By-laws of the Surviving Corporation. The directors of the Purchaser immediately
prior to the Effective Time will, from and after the Effective Time, be the
directors of the Surviving Corporation. The officers of the Purchaser prior to
the Effective Time will, from and after the Effective Time, be the officers of
the Surviving Corporation.
The Purchaser is not offering to acquire outstanding Options in the Offer.
Each holder of an Option that is vested may exercise such Option prior to the
consummation of the Offer, and the Shares received upon such exercise may be
tendered pursuant to the Offer. It is the Purchaser's intention that each Option
outstanding immediately prior to the consummation of the Merger will no longer
be exercisable for the purchase of Shares but will, at the Purchaser's
discretion, either (i) entitle each holder thereof, in cancellation and
settlement therefor, to a cash payment promptly after the consummation of the
Merger equal to the product of (x) the total number of Shares subject to such
Company Option and (y) the excess, if any, of the Merger Consideration over the
exercise price per Share subject to such Option, or (ii) be converted into an
option to purchase common stock of the Purchaser ("Purchaser Shares"). If the
Purchaser elects to convert Options into options to purchase Purchaser Shares,
each Option would be converted into an option to acquire a number of the
Purchaser Shares equal to (a) the number of Shares subject to such Option
multiplied by (b) the Conversion Fraction (defined below). The exercise price
applicable to such option would be equal to (x) the exercise price applicable to
the Option divided by (y) the Conversion Fraction. The Conversion Fraction would
have a numerator equal to the Merger Consideration (per Share) and a denominator
equal to the closing price for Purchaser Shares on the day the Merger becomes
effective.
The Purchaser currently intends to seek to retain all management and other
personnel employed by the Company, to retain the Company's headquarters and
other facilities at their present locations, and except for the Company's Stock
Option Plan and the Company Non-employee Directors Stock Option Plan, continue
the Company's employee benefit plans for the foreseeable future. See Section 10.
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<PAGE> 11
THE OFFER
1. TERMS OF THE OFFER
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Purchaser will, as soon as practicable after the Expiration
Date (as defined below), accept for payment and thereby purchase all Shares
validly tendered on or prior to such Expiration Date and not withdrawn in
accordance with the procedures set forth in Section 4. The Offer will remain
open until 12:00 midnight, New York City time, on Monday, July 26, 1999 (the
"Expiration Date"), unless and until the Purchaser shall have extended the
period of time for which the Offer is open, in which event the term "Expiration
Date" shall mean the time and date at which the Offer, as so extended by the
Purchaser, will expire. During any such extension, all Shares previously
tendered and not withdrawn will remain subject to the Offer and subject to the
right of a tendering shareholder to withdraw such shareholder's Shares. See
Section 4.
The Purchaser reserves the right, in its sole discretion, at any time and
from time to time (but shall not be obligated), to extend the Offer for any
reason by giving oral or written notice to the Depositary. There can be no
assurance that the Purchaser will exercise its right to extend the Offer. During
any extension, all Shares previously tendered and not properly withdrawn will
remain subject to the Offer and to the right of a tendering shareholder to
withdraw.
Subject to the applicable regulations of the Securities and Exchange
Commission (the "Commission"), the Purchaser also expressly reserves the right,
in its sole discretion, at any time and from time to time, to: (i) delay
acceptance for payment of, or regardless of whether such Shares were theretofore
accepted for payment, payment for such Shares pending receipt of any regulatory
or governmental approvals specified in Section 14; (ii) terminate the Offer
(whether or not any Shares have theretofore been accepted for payment) if any
condition referred to in Section 13 has not been satisfied or upon the
occurrence of any event specified in Section 13; (iii) waive any condition; or
(iv) otherwise amend the Offer in any respect, in each case, by giving oral or
written notice of such termination, waiver or amendment to the Depositary.
The rights reserved by the Purchaser in the preceding paragraph are in
addition to the Purchaser's rights pursuant to Section 13. Any extension,
termination or amendment of the Offer will be followed as promptly as
practicable by public announcement thereof, and such announcement in the case of
an extension will be made no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date. Without
limiting the manner in which the Purchaser may choose to make any public
announcement, subject to applicable law (including Rules 14d-4(c) and 14d-6(d)
under the Exchange Act, which require that material changes be promptly
disseminated to holders of Shares), the Purchaser will have no obligation to
publish, advertise or otherwise communicate any such public announcement other
than by issuing a release to the Dow Jones News Service and making any
appropriate filings with the Commission.
If the Purchaser makes a material change in the terms of the Offer, or if
it waives a material condition to the Offer, the Purchaser will extend the Offer
and disseminate additional tender offer materials to the extent required by
Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The minimum period
during which an offer must remain open following material changes in the terms
of the Offer, other than a change in price or a change in percentage of
securities sought, will depend upon the facts and circumstances, including the
materiality of the changes. In the Commission's view, an offer should remain
open for a minimum of five business days from the date the material change is
first published, sent or given to shareholders, and, if material changes are
made with respect to information that approaches the significance of price and
the percentage of securities sought, a minimum of ten business days may be
required to allow for adequate dissemination and investor response. With respect
to a change in price or a change in percentage of securities sought, a minimum
ten business day period from the date of such change is generally required under
applicable Commission rules and regulations to allow for adequate dissemination
to shareholders. The requirement to extend the Offer will not apply to the
extent
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<PAGE> 12
that the number of business days remaining between the occurrence of the change
and the then-scheduled Expiration Date equals or exceeds the minimum extension
period that would be required because of such amendment. For purposes of the
Offer, a "business day" means any day other than a Saturday, Sunday or a Federal
holiday and consists of the time period from 12:01 a.m. through 12:00 midnight,
New York City time.
In accordance with the GCL, the Company furnished the Purchaser with its
shareholder list for the purpose of disseminating the Purchaser's Offer to
holders of Shares. This Offer to Purchase, the related Letter of Transmittal and
other relevant materials have been mailed by the Purchaser to record holders of
Shares and will be furnished by the Purchaser to brokers, dealers, commercial
banks, trust companies and similar persons whose names, or the names of whose
nominees, appear on the shareholder list or, if applicable, who are listed as
participants in a clearing agency's security position listing, for subsequent
transmittal to beneficial owners of Shares.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of the Offer as so
extended or amended), the Purchaser will purchase, by accepting for payment, and
will pay for, all Shares validly tendered and not properly withdrawn (in
accordance with Section 4) prior to the Expiration Date promptly after the later
to occur of (i) the Expiration Date and (ii) the satisfaction or waiver of the
conditions to the Offer set forth in Section 13. See Sections 1 and 13. In
addition, subject to applicable rules of the Commission, the Purchaser expressly
reserves the right to delay acceptance for payment of, or payment for, Shares
pending receipt of any regulatory or governmental approvals specified in Section
14. See Section 14.
In all cases, payment for Shares purchased pursuant to the Offer will be
made only after timely receipt by the Depositary of (i) certificates
representing such Shares ("Share Certificates") or timely confirmation (a
"Book-Entry Confirmation") of the book-entry transfer of such Shares into the
Depositary's account at The Depository Trust Company (the "Book-Entry Transfer
Facility") pursuant to the procedures set forth in Section 3; (ii) the
appropriate Letter of Transmittal (or a facsimile thereof), properly completed
and duly executed, with any required signature guarantees or an Agent's Message
(as defined below) in connection with a book-entry transfer; and (iii) any other
documents required by the Letter of Transmittal.
The term "Agent's Message" means a message transmitted by the Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has
received an express acknowledgment from the participant in the Book-Entry
Transfer Facility tendering the Shares which are the subject of such Book-Entry
Confirmation that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that the Purchaser may enforce such
agreement against such participant.
For purposes of the Offer, the Purchaser will be deemed to have accepted
for payment, and thereby purchased, Shares validly tendered and not withdrawn
as, if and when the Purchaser gives oral or written notice to the Depositary of
the Purchaser's acceptance of such Shares for payment pursuant to the Offer. In
all cases, upon the terms and subject to the conditions of the Offer, payment
for Shares purchased pursuant to the Offer will be made by deposit of the
purchase price therefor with the Depositary, which will act as agent for
tendering shareholders for the purpose of receiving payment from the Purchaser
and transmitting payment to validly tendering shareholders.
UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE FOR SHARES BE
PAID BY THE PURCHASER.
If any tendered Shares are not purchased pursuant to the Offer for any
reason, or if Share Certificates are submitted representing more Shares than are
tendered, Share Certificates representing unpurchased or untendered Shares will
be returned, without expense, to the tendering shareholder (or, in the case of
Shares delivered by book-entry transfer into the Depositary's account at the
Book-Entry Transfer Facility pursuant to the procedures set forth in Section 3,
such Shares will be credited to an account maintained
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within the Book-Entry Transfer Facility), as promptly as practicable following
the expiration, termination or withdrawal of the Offer.
IF, PRIOR TO THE EXPIRATION DATE, THE PURCHASER SHALL INCREASE THE
CONSIDERATION OFFERED TO HOLDERS OF SHARES PURSUANT TO THE OFFER, SUCH INCREASED
CONSIDERATION SHALL BE PAID TO ALL HOLDERS OF SHARES THAT ARE PURCHASED PURSUANT
TO THE OFFER, WHETHER OR NOT SUCH SHARES WERE TENDERED PRIOR TO SUCH INCREASE IN
CONSIDERATION.
The Purchaser reserves the right to assign, in whole or from time to time
in part, to one or more of its subsidiaries or affiliates the right to purchase
all or any portion of the Shares tendered pursuant to the Offer, but no such
assignment will relieve the Purchaser of its obligations under the Offer or
prejudice the rights of tendering shareholders to receive payment for Shares
validly tendered and accepted for payment pursuant to the Offer.
3. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES
Valid Tender of Shares. Except as set forth below, in order for Shares to
be validly tendered pursuant to the Offer, the Letter of Transmittal (or a
facsimile thereof), properly completed and duly executed, together with any
required signature guarantees (or an Agent's Message in connection with a
book-entry delivery of Shares), and any other documents required by the Letter
of Transmittal must be received by the Depositary at one of its addresses set
forth on the back cover of this Offer to Purchase on or prior to the Expiration
Date and either (i) Share Certificates representing tendered Shares must be
received by the Depositary or tendered pursuant to the procedure for book-entry
transfer set forth below and Book-Entry Confirmation must be received by the
Depositary, in each case on or prior to the Expiration Date, or (ii) the
guaranteed delivery procedures set forth below must be complied with. No
alternative, conditional or contingent tenders will be accepted.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
SHAREHOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Book-Entry Transfer. The Depositary will make a request to establish an
account with respect to the Shares at the Book-Entry Transfer Facility for
purposes of the Offer within two business days after the date of this Offer to
Purchase. Any financial institution that is a participant in the system of the
Book-Entry Transfer Facility may make book-entry delivery of Shares by causing
the Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account at the Book-Entry Transfer Facility in accordance with the Book-Entry
Transfer Facility's procedures for such transfer. However, although delivery of
Shares may be effected through book-entry transfer into the Depositary's account
at the Book-Entry Transfer Facility, the Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, or an Agent's Message in connection with a book-entry transfer, and
any other required documents must, in any case, be transmitted to and received
by the Depositary at one of its addresses set forth on the back cover of this
Offer to Purchase on or prior to the Expiration Date, or the guaranteed delivery
procedure set forth below must be complied with.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE
WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY
TO THE DEPOSITARY.
Signature Guarantees. Signatures on all Letters of Transmittal must be
guaranteed by a firm that is a bank, broker, dealer, credit union, savings
association or other entity that is a member in good standing of the Securities
Transfer Agents Medallion Program (an "Eligible Institution"), unless the Shares
tendered thereby are tendered (i) by a registered holder of Shares who has not
completed either the box labeled "Special Payment Instructions" or the box
labeled "Special Delivery Instructions" on the Letter of Transmittal or (ii) for
the account of an Eligible Institution. See Instruction 1 of the Letter of
Transmittal.
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If the Share Certificates are registered in the name of a person other than
the signer of the Letter of Transmittal, or if payment is to be made to, or
Share Certificates for Shares not tendered or not accepted for purchase are to
be issued or returned to, a person other than the registered holder, then the
tendered certificates must be endorsed or accompanied by appropriate stock
powers, signed exactly as the name or names of the registered holder or holders
appear on the certificates, with the signatures on the certificates or stock
powers guaranteed by an Eligible Institution as provided in the Letter of
Transmittal. See Instructions 1 and 5 of the Letter of Transmittal.
If the Share Certificates are forwarded separately to the Depositary, a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof) must accompany each such delivery.
Guaranteed Delivery. If a shareholder desires to tender Shares pursuant to
the Offer and such shareholder's Share Certificates are not immediately
available or time will not permit all required documents to reach the Depositary
on or prior to the Expiration Date or the procedures for book-entry transfer
cannot be completed on a timely basis, such Shares may nevertheless be tendered
if all of the following guaranteed delivery procedures are duly complied with:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by the Purchaser, is
received by the Depositary, as provided below, on or prior to the
Expiration Date; and
(iii) the Share Certificates (or a Book-Entry Confirmation)
representing all tendered Shares, in proper form for transfer together with
a properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees (or, in the case of a
book-entry transfer, an Agent's Message) and any other documents required
by the Letter of Transmittal are received by the Depositary within three
NYSE trading days after the date of execution of such Notice of Guaranteed
Delivery. A "NYSE trading day" is any day on which the NYSE is open for
business.
The Notice of Guaranteed Delivery may be delivered by hand or mail or
transmitted by facsimile transmission to the Depositary and must include a
guarantee by an Eligible Institution in the form set forth in such Notice of
Guaranteed Delivery and a representation that the shareholder on whose behalf
the tender is being made is deemed to own the Shares being tendered within the
meaning of Rule 14e-4 under the Exchange Act.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of (i) Share Certificates for, or, of Book-Entry
Confirmation with respect to, such Shares, (ii) a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), together with any
required signature guarantees (or, in the case of a book-entry transfer, an
Agent's Message), and (iii) any other documents required by the Letter of
Transmittal. Accordingly, payment might not be made to all tendering
shareholders at the same time, and will depend upon when Share Certificates are
received by the Depositary or Book-Entry Confirmations of such Shares are
received into the Depositary's account at the Book-Entry Transfer Facility.
Backup Federal Income Tax Withholding. Under the backup federal income tax
withholding laws applicable to certain shareholders (other than certain exempt
shareholders, including, among others, all corporations and certain foreign
individuals), the Depositary may be required to withhold 31% of the amount of
gross proceeds payable to such shareholders pursuant to the Offer. To prevent
backup federal income tax withholding, each such shareholder must provide the
Depositary with such shareholder's correct taxpayer identification number and
certify that such shareholder is not subject to backup federal income tax
withholding by completing the Substitute Form W-9 included in the Letter of
Transmittal. See Instruction 9 of the Letter of Transmittal.
Appointment as Proxy. By executing the Letter of Transmittal, a tendering
shareholder irrevocably appoints designees of the Purchaser, and each of them,
as such shareholder's agents, attorneys-in-fact and proxies, with full power of
substitution, in the manner set forth in the Letter of Transmittal, to the full
12
<PAGE> 15
extent of such shareholder's rights with respect to the Shares tendered by such
shareholder and accepted for payment by the Purchaser and with respect to any
and all other Shares and other securities or rights issued or issuable in
respect of such Shares on or after the date of this Offer to Purchase. All such
powers of attorney and proxies shall be considered irrevocable and coupled with
an interest in the tendered Shares. Such appointment will be effective upon the
acceptance for payment of such Shares by the Purchaser in accordance with the
terms of the Offer. Upon such acceptance for payment, all other powers of
attorney and proxies given by such shareholder with respect to such Shares and
such other securities or rights prior to such payment will be revoked, without
further action, and no subsequent powers of attorney and proxies may be given by
such shareholder (and, if given, will not be deemed effective). The designees of
the Purchaser will, with respect to the Shares and such other securities and
rights for which such appointment is effective, be empowered to exercise all
voting and other rights of such shareholder as they in their sole discretion may
deem proper at any annual or special meeting of the Company's shareholders, or
any adjournment or postponement thereof, or by consent in lieu of any such
meeting or otherwise. In order for Shares to be deemed validly tendered,
immediately upon the acceptance for payment of such Shares, the Purchaser or its
designee must be able to exercise full voting rights with respect to such Shares
and other securities, including voting at any meeting of shareholders (whether
or not adjourned) or acting by written consent without a meeting in respect of
such Shares.
Determination of Validity. All questions as to the form of documents and
the validity, eligibility (including time of receipt) and acceptance for payment
of any tender of Shares will be determined by the Purchaser, in its sole
discretion, whose determination shall be final and binding on all parties. The
Purchaser reserves the absolute right to reject any or all tenders determined by
it not to be in proper form or the acceptance of or payment for which may, in
the opinion of the Purchaser's counsel, be unlawful. The Purchaser also reserves
the absolute right to waive any of the conditions of the Offer or any defect or
irregularity in any tender of Shares of any particular shareholder whether or
not similar defects or irregularities are waived in the case of other
shareholders.
The Purchaser's interpretation of the terms and conditions of the Offer
will be final and binding. No tender of Shares will be deemed to have been
validly made until all defects and irregularities with respect to such tender
have been cured or waived by the Purchaser. None of the Purchaser or any of its
affiliates or assigns, the Depositary, the Information Agent, the Dealer Manager
or any other person or entity will be under any duty to give any notification of
any defects or irregularities in tenders or incur any liability for failure to
give any such notification.
The Purchaser's acceptance for payment of Shares tendered pursuant to any
of the procedures described above will constitute a binding agreement between
the tendering shareholder and the Purchaser upon the terms and subject to the
conditions of the Offer.
4. WITHDRAWAL RIGHTS
Except as otherwise provided in this Section 4, tenders of Shares made
pursuant to the Offer are irrevocable. Shares tendered pursuant to the Offer may
be withdrawn at any time on or prior to the Expiration Date and, unless
theretofore accepted for payment as provided herein, may also be withdrawn at
any time after August 26, 1999.
If, for any reason whatsoever, acceptance for payment of any Shares
tendered pursuant to the Offer is delayed, or the Purchaser is unable to accept
for payment or pay for Shares tendered pursuant to the Offer, then, without
prejudice to the Purchaser's rights set forth herein, the Depositary may,
nevertheless, on behalf of the Purchaser, retain tendered Shares and such Shares
may not be withdrawn except to the extent that the tendering shareholder is
entitled to exercise and duly exercises withdrawal rights as described in this
Section 4. Any such delay will be by an extension of the Offer to the extent
required by law.
In order for a withdrawal to be effective, a written or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses or facsimile numbers set forth on the back cover of this
Offer to Purchase. Any such notice of withdrawal must specify the name of the
person who
13
<PAGE> 16
tendered the Shares to be withdrawn, the number of Shares to be withdrawn, and
(if Share Certificates have been tendered) the name of the registered holder of
the Shares as set forth in the Share Certificate, if different from that of the
person who tendered such Shares. If Share Certificates have been delivered or
otherwise identified to the Depositary, then prior to the physical release of
such certificates, the tendering shareholder must submit the serial numbers
shown on the particular certificates evidencing the Shares to be withdrawn, and
the signature on the notice of withdrawal must be guaranteed by an Eligible
Institution, except in the case of Shares tendered for the account of an
Eligible Institution. If Shares have been tendered pursuant to the procedures
for book-entry transfer set forth in Section 3, the notice of withdrawal must
specify the name and number of the account at the Book-Entry Transfer Facility
to be credited with the withdrawn Shares, in which case a notice of withdrawal
will be effective if delivered to the Depositary by any method of delivery
described in the first sentence of this paragraph. Withdrawals of Shares may not
be rescinded. Any Shares properly withdrawn will be deemed not validly tendered
for purposes of the Offer, but may be tendered at any subsequent time prior to
the Expiration Date by following any of the procedures described in Section 3.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Purchaser, in its sole
discretion, whose determination shall be final and binding. None of the
Purchaser or any of its affiliates or assigns, the Depositary, the Information
Agent, the Dealer Manager or any other person or entity will be under any duty
to give any notification of any defects or irregularities in any notice of
withdrawal or incur any liability for failure to give any such notification.
5. CERTAIN TAX CONSEQUENCES
The receipt of cash for Shares pursuant to the Offer or the Merger will be
a taxable transaction for federal income tax purposes under the Internal Revenue
Code of 1986, as amended (the "Code") and also may be a taxable transaction
under applicable state, local, foreign and other tax laws. For federal income
tax purposes, each selling or exchanging shareholder would generally recognize
gain or loss equal to the difference between the amount of cash received and
such shareholder's tax basis for the Shares tendered in exchange therefor. Gain
or loss will be determined separately for each block of Shares (i.e., Shares
acquired at the same time and price) exchanged pursuant to the Offer or the
Merger. Such gain or loss will be capital gain or loss (assuming the Shares are
held as a capital asset) and any such capital gain or loss will be long term if,
as of the date of sale or exchange, the Shares were held for more than one year
or will be short term if, as of such date, the Shares were held for one year or
less.
A holder of Shares who perfects his appraisal rights in the Merger, if any,
under the GCL will probably recognize gain or loss at the Effective Time in an
amount equal to the difference between the "amount realized" and such
shareholder's adjusted tax basis of such Shares. For this purpose, although
there is no authority to this effect directly on point, the amount realized
should generally equal the trading value per Share at the Effective Time.
Ordinary interest income and/or capital gain or (capital loss), assuming that
the Shares were held as capital assets, should be recognized by such shareholder
at the time of actual receipt of payment, to the extent that such payment
exceeds (or is less than) the amount realized at the Effective Time.
The foregoing discussion may not be applicable to certain types of
shareholders, including shareholders who acquired Shares pursuant to the
exercise of Options or otherwise as compensation, individuals who are not
citizens or residents of the United States and foreign corporations, or entities
that are otherwise subject to special tax treatment under the Code (such as
financial institutions, insurance companies, tax-exempt entities, dealers in
securities and regulated investment companies).
THE FOREGOING SUMMARY IS FOR GENERAL INFORMATION PURPOSES ONLY AND IS BASED
ON UNITED STATES FEDERAL INCOME TAX LAW NOW IN EFFECT, WHICH IS SUBJECT TO
CHANGE, POSSIBLY RETROACTIVELY. SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE OFFER AND
THE MERGER, INCLUDING FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES.
14
<PAGE> 17
6. PRICE RANGE OF THE SHARES; DIVIDENDS
According to the Company Form 10-K, the Shares are traded on the NYSE under
the symbol "NAP." The following table sets forth, for the periods indicated, the
reported high and low sale prices for the Shares on the NYSE as reported in the
Company Form 10-K with respect to calendar periods occurring in 1997 and 1998,
and as reported thereafter by published financial sources with respect to the
first two calendar quarters of 1999.
NATIONAL PROCESSING, INC.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1997
First Quarter............................................... $16 1/8 $ 7 7/8
Second Quarter.............................................. 11 1/4 6 3/4
Third Quarter............................................... 11 5/8 9 1/8
Fourth Quarter.............................................. 11 11/16 9 3/8
1998
First Quarter............................................... $12 1/2 $ 9 3/4
Second Quarter.............................................. 12 15/16 9 1/2
Third Quarter............................................... 11 5/16 6 9/16
Fourth Quarter.............................................. 7 1/16 5 7/16
1999
First Quarter............................................... $ 6 7/8 $ 4 1/2
Second Quarter (through June 25, 1999)...................... 10 1/8 4 3/8
</TABLE>
On June 21, 1999, the last full day of trading prior to the Purchaser's
announcement of its intention to commence the Offer, according to published
sources, the reported closing price on NYSE for the Shares was $7.69 per Share.
The Share Offer price represents a premium of (a) $3.56, or 60%, over the
closing sales price of $5.94 per Share as reported by the New York Stock
Exchange (the "NYSE") on June 4, 1999, prior to the publication of the American
Banker article which speculated that the Company might be sold, (b) $3.22, or
51%, over the Company's 30-day average closing price of $6.28 prior to the
public announcement of the Purchaser's intention to commence the Offer, and (c)
$1.81, or 24%, over the closing sales price, on June 21, 1999. On June 25, 1999,
the last full trading day prior to the date of this Offer to Purchase, according
to published sources, the reported closing price on NYSE for the Shares was
$10.13 per Share.
According to the Company's Form 10-K, the Company has never declared or
paid cash dividends on its Shares.
SHAREHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES.
7. POSSIBLE EFFECTS OF THE OFFER ON THE MARKET FOR THE SHARES; NYSE LISTING;
EXCHANGE ACT REGISTRATION
Possible Effects of the Offer on the Market for the Shares. The purchase
of Shares pursuant to the Offer will reduce the number of Shares that might
otherwise trade publicly and could adversely affect the liquidity and market
value of the remaining Shares held by the public. The purchase of Shares
pursuant to the Offer also can be expected to reduce the number of holders of
Shares. The Purchaser cannot predict whether the reduction in the number of
Shares that might otherwise trade publicly would have an adverse or beneficial
effect on the market price for or marketability of the Shares or whether it
would cause future market prices to be greater or less than the Offer price
therefor.
NYSE Listing. Depending upon the number of Shares purchased pursuant to
the Offer, the Shares may no longer meet the standards for continued listing on
the NYSE. According to NYSE's published guidelines, the NYSE would consider
delisting the Shares if, among other things, the number of Publicly
15
<PAGE> 18
Held Shares falls below 600,000, the number of holders of Shares falls below 100
or the aggregate market value of such Publicly Held Shares falls below
$5,000,000. Shares held directly or indirectly by an officer or director of the
Company or by a beneficial owner of more than 10% of the Shares will ordinarily
not be considered as being publicly held for purposes of these standards. In the
event the Shares are no longer listed or traded on the NYSE, it is possible that
the Shares would trade on another securities exchange or in the over-the-counter
market and that quotations might still be available from other sources. The
extent of the public market for the Shares and the availability of such
quotations would, however, depend upon the number of holders of such Shares
remaining at such time, the interest in maintaining a market in such Shares on
the part of securities firms, the possible termination of registration of such
Shares under the Exchange Act as described below and other factors.
Exchange Act Registration. The Shares are currently registered under the
Exchange Act. The purchase of the Shares pursuant to the Offer may result in the
Shares becoming eligible for termination of registration under the Exchange Act.
Registration of the Shares may be terminated upon application by the Company to
the Commission if the Shares are not listed on a "national securities exchange"
and there are fewer than 300 record holders of Shares. Termination of
registration of the Shares under the Exchange Act would substantially reduce the
information required to be furnished by the Company to its shareholders and the
Commission and would make certain provisions of the Exchange Act, such as the
obligation to file reports pursuant to Sections 13 and 15(d), the short-swing
profit recovery provisions of Section 16(b) and the requirements of furnishing a
proxy statement in connection with shareholders' meetings pursuant to Section
14(a) or 14(c) and the related requirement of an annual report, no longer
applicable to the Company. If the Shares are no longer registered under the
Exchange Act, the requirements of Rule 13e-3 under the Exchange Act with respect
to "going private" transactions would no longer be applicable to the Company.
Furthermore, the ability of "affiliates" of the Company and persons holding
"restricted securities" of the Company to dispose of such securities pursuant to
Rule 144 promulgated under the Securities Act of 1933, as amended, may be
impaired or, with respect to certain persons, eliminated. If registration of the
Shares under the Exchange Act were terminated, the Shares would no longer be
eligible for stock exchange listing or NYSE market reporting. The Purchaser
believes that the purchase of the Shares pursuant to the Offer may result in the
Shares becoming eligible for termination of registration under the Exchange Act,
and it is the intention of the Purchaser to cause the Company to make an
application for termination of registration of the Shares as soon as possible
after successful completion of the Offer if the Shares are then eligible for
such termination.
If registration of the Shares is not terminated prior to the Merger, then
following the consummation of the Merger, the Shares will no longer be eligible
for listing on the NYSE and the registration of the Shares under the Exchange
Act will be terminated.
8. CERTAIN INFORMATION CONCERNING THE COMPANY
The Company is an Ohio corporation with its principal executive offices
located at 1231 Durrett Lane, Louisville, Kentucky 40285-0001. The following
description of the Company's business has been derived from the Company Form
10-K and is qualified in its entirety by reference to the Company Form 10-K:
The Company, through its wholly-owned operating subsidiary, National
Processing Company, is a provider of low-cost, high-volume transaction
processing services and customized processing solutions. Deploying
technology and applications software, the Company currently provides
products and services which include (i) processing of card transactions and
check transactions for merchants and other commercial businesses, (ii)
outsourcing of administrative and financial functions for corporations
seeking to reduce overhead costs, and (iii) ticket processing and
settlement for providers of travel-related services.
On August 14, 1996, the Company completed its initial public offering of
7,475,000 Shares at $16.50 per Share, with net proceeds to the Company of
$110,390,000. Prior to its initial public offering, the Company was a
wholly-owned subsidiary of the Purchaser. Following completion of the Company's
initial public offering, the Purchaser continued to own 43,100,000 Shares, or
approximately 85.2% of the then
16
<PAGE> 19
outstanding Shares. On May 2, 1997, the Purchaser announced its intent to
acquire up to 2,000,000 additional Shares in open market transactions in
accordance with applicable federal and state laws and regulations. On May 7,
1997, the Purchaser purchased 1,114,200 Shares at a price of $9.125 per Share,
and on May 8, 1997, the Purchaser purchased 151,200 Shares at a price of $8.85
per Share. As of June 28, 1999, the Purchaser continues to own 44,365,400
Shares, or approximately 87.6% of the outstanding Shares.
In addition, the directors and officers of the Purchaser set forth in
Schedule I own the number of Shares indicated therein. To the knowledge of the
Purchaser, such persons intend to tender their Shares into the Offer. Neither
the Purchaser nor any of the persons listed in Schedule I hereto makes any
recommendation to the shareholders of the Company regarding the Offer.
The Company is included in the consolidated federal income tax return of
the Purchaser. The Purchaser's policy is to allocate income taxes to its
subsidiaries on a separate return basis. The Company paid taxes to the Purchaser
in the amounts of $5.2 million, $14.4 million and $18.9 million for fiscal years
1998, 1997 and 1996, respectively.
Through National City Bank of Kentucky, a wholly-owned subsidiary of the
Purchaser ("NCBK"), which serves as a member bank for the Company, the Company
is registered with VISA(R) and Mastercard(R) as a certified processor and member
service provider. The Company also uses the proof and transit department of NCBK
to provide processing for remittances. The charges for these services were $3.6
million in 1998, $5.5 million in 1997 and $4.1 million in 1996.
The Company participates in the Purchaser's Savings and Investment Plan, a
qualified salary reduction profit-sharing plan within the meaning of Section
401(k) of the Code provided by the Company for eligible employees, as well as
the Purchaser's Executive Savings Plan, a similar non-qualified salary reduction
profit-sharing plan provided by the Company for key officers of the Company or
its subsidiaries designated from time to time by the Company's compensation
committee.
The selected financial information of the Company and its consolidated
subsidiaries set forth below has been excerpted and derived from the Company
Form 10-K and the Company's Quarterly Report on Form 10-Q for the period ended
March 31, 1999 (the "Company Form 10-Q"). More comprehensive financial and other
information is included in such reports (including management's discussion and
analysis of financial condition and results of operations) and in other reports
and documents filed by the Company with the Commission. The financial
information set forth below is qualified in its entirety by reference to such
reports and documents filed with the Commission and the financial statements and
related notes contained therein. These reports and other documents may be
examined and copies thereof may be obtained in the manner set forth below.
17
<PAGE> 20
NATIONAL PROCESSING, INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FOR THE THREE FISCAL YEAR ENDED
MONTHS ENDED DECEMBER 31,
MARCH 31, --------------------------
1999 1998 1997 1996
------------- ------ ------ ------
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues........................................... $124.4 $483.2 $405.7 $373.7
Other Income....................................... -- 4.0 -- 3.9
Operating Expenses................................. 60.5 242.5 193.4 182.3
Wages and Other Personnel Expenses................. 31.1 126.9 101.6 83.2
General and Administrative Expenses................ 16.8 66.8 50.8 49.0
Restructuring Charges and Impairment Loss.......... 76.1 -- 13.3 --
Depreciation and amortization...................... 7.1 26.8 17.8 12.8
------ ------ ------ ------
Income (Loss) from Operations...................... (67.2) 24.2 28.8 50.3
Net Interest Income................................ -- 0.9 4.0 2.8
------ ------ ------ ------
Income (Loss) Before Taxes......................... $(67.2) $ 25.1 $ 32.8 $ 53.1
Provision for Income Taxes......................... 1.0 9.8 11.7 21.7
------ ------ ------ ------
Net Income (Loss).................................. $(68.2) $ 15.3 $ 21.1 $ 31.4
====== ====== ====== ======
Basic and Diluted Net Income (Loss) per Common
Share............................................ $(1.35) $ .30 $ .42 $ .68
====== ====== ====== ======
BALANCE SHEET DATA
Working Capital.................................... $ 74.2 $ 72.4 $ 79.3 $178.8
Goodwill........................................... 103.9 171.4 170.3 70.6
Total Assets....................................... 470.9 512.4 523.3 418.6
Total Liabilities.................................. 186.4 159.8 186.4 102.9
Shareholders' Equity............................... $284.5 $352.7 $336.8 $315.7
Book Value per Share(1)............................ $ 5.61 $ 6.96 $ 6.64 $ 6.85
</TABLE>
- ---------------
(1) Book Value per Share has been calculated by dividing Shareholders' Equity by
50.7 million Shares outstanding for the quarter ending March 31, 1999 and
for fiscal years ended December 31, 1998 and 1997, and by 46.1 million
Shares outstanding for fiscal year ended December 31, 1996, as such numbers
of Shares outstanding were set forth in the Company Form 10-K and the
Company Form 10-Q.
The Company is subject to the informational reporting requirements of the
Exchange Act and in accordance therewith is required to file periodic reports,
proxy statements and other information with the Commission relating to its
business, financial condition and other matters. Certain information, as of
particular dates, concerning the Company's business, principal physical
properties, capital structure, material pending legal proceedings, operating
results, financial condition, directors and officers (including their
remuneration and the stock options granted to them), the principal holders of
the Company's securities, any material interests of such persons in transactions
with the Company and certain other matters is required to be disclosed in proxy
statements and annual reports distributed to the Company's shareholders and
filed with the Commission. Such reports, proxy statements and other information
can be inspected and copied at the public reference facilities maintained by
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's regional offices at 500 West Madison Street, Chicago,
Illinois 60606 and 7 World Trade Center, New York, New York 10048. Copies of
such material can also be obtained at prescribed rates from the Public Reference
Section of the
18
<PAGE> 21
Commission at its principal office at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such material may be obtained electronically by visiting
the Commission's web site on the Internet at http://www.sec.gov. Shares of the
Company are traded on the NYSE. Reports, proxy statements and other information
concerning the Company also should be available for inspection at the New York
Stock Exchange, 20 Broad Street, New York, New York 10005.
Although the Purchaser has no knowledge that any such information is
untrue, the Purchaser takes no responsibility for the accuracy or completeness
of information contained in this Offer to Purchase with respect to the Company
or any of its subsidiaries or affiliates or for any failure by the Company to
disclose events which may have occurred or may affect the significance or
accuracy of any such information.
In the course of the discussions between representatives of the Purchaser
and the Company, certain forecasts of future operating performance were
furnished to the Purchaser's representatives.
THESE FORECASTS WERE NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE OR
COMPLIANCE WITH PUBLISHED GUIDELINES OF THE COMMISSION OR THE GUIDELINES
ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING
PROJECTIONS. THESE FORECASTS ARE INCLUDED IN THIS OFFER TO PURCHASE ONLY BECAUSE
THEY WERE PROVIDED TO THE PURCHASER BY THE COMPANY, AND THE PURCHASER ASSUMES NO
RESPONSIBILITY FOR THEIR ACCURACY. WHILE PRESENTED WITH NUMERICAL SPECIFICITY,
THESE FORECASTS ARE BASED UPON A VARIETY OF ASSUMPTIONS (NOT ALL OF WHICH WERE
STATED THEREIN AND NOT ALL OF WHICH WERE PROVIDED TO THE PURCHASER) RELATING TO
THE BUSINESSES OF THE COMPANY WHICH MAY NOT BE REALIZED AND ARE SUBJECT TO
SIGNIFICANT FINANCIAL, MARKET, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND
CONTINGENCIES WHICH ARE DIFFICULT OR IMPOSSIBLE TO PREDICT ACCURATELY, MANY OF
WHICH ARE BEYOND THE CONTROL OF THE COMPANY AND THE PURCHASER. THERE CAN BE NO
ASSURANCE THAT THE FORECASTS WILL BE REALIZED, AND ACTUAL RESULTS MAY VARY
MATERIALLY FROM THOSE SHOWN. THE INCLUSION OF THE PROJECTIONS SET FORTH BELOW
SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE PURCHASER OR ANY OF ITS
AFFILIATES OR REPRESENTATIVES OR BY THE COMPANY OR ITS REPRESENTATIVES THAT THE
PROJECTED RESULTS WILL BE ACHIEVED.
Set forth below is a summary of these projections. The projections should
be read together with the financial statements of the Company referred to
herein.
The Company provided the Purchaser with a forecast dated April 22, 1999
(the "Forecast"), of its income statement for the fiscal years ending December
31, 1999 through 2004, which estimated total revenues, gross profit and net
income for its core retained businesses as follows (dollars in millions):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------
1999 2000 2001 2002 2003 2004
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Total Revenues...................... $363.5 $402.8 $444.4 $493.3 $545.1 $605.4
Gross Profit........................ 123.8 130.7 137.8 149.0 164.3 183.9
Net Income.......................... 31.9 38.9 44.5 50.9 59.9 72.3
</TABLE>
The Forecast was prepared by the Company's management in the ordinary course of
the Company's annual budgeting process and makes certain assumptions with
respect to revenue growth, profit margins, operating expenses (including general
and administrative expenses), depreciation and amortization, net interest
expense and certain other future conditions.
In contemplation of making its proposal, the Purchaser, among other things,
reviewed these financial projections. The Purchaser, as a majority owner of the
Company since its August 1996 initial public offering and a 100% owner prior
thereto, is very familiar with the Company's business and operations, its
financial performance relative to its competitors and the processing industry in
general.
In analyzing the Company's ability to achieve its financial projections and
determining the appropriate value for the Company, the Purchaser considered the
Company's historical underperformance relative to management budgets and median
"Street" estimates as presented by First Call. The Purchaser also noted that the
projected revenue, gross profit and EBITDA growth rates for the years 1999
through 2004 were significantly higher than what the Company had actually
achieved (excluding acquisitions) in the years 1996, 1997 and 1998. In addition,
the projected EBITDA margins for 1999 through 2004 were higher than
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<PAGE> 22
what the Company had actually achieved in 1996, 1997 and 1998. Based on these
factors, the Purchaser believed that the Company's financial projections were
overly aggressive and unduly optimistic given the Company's operations and
current market position.
9. CERTAIN INFORMATION CONCERNING THE PURCHASER
The Purchaser is a Delaware corporation with its principal executive
offices located at 1900 East Ninth Street, Cleveland, Ohio 44114. The Purchaser
is an $85 billion-asset company providing banking and financial services
primarily in Ohio, Michigan, Pennsylvania, Kentucky, Indiana and Illinois. The
Purchaser's main business lines include retail banking, corporate banking, and
fee-based business lines. The Purchaser had revenue of approximately $5.1
billion in 1998.
The name, business address, citizenship, present principal occupation and
employment history for the past five years of each of the directors and
executive officers of the Purchaser are set forth in Schedule I.
The Purchaser is subject to the informational reporting requirements of the
Exchange Act and in accordance therewith is required to file periodic reports,
proxy statements and other information with the Commission relating to its
business, financial condition and other matters. Certain information, as of
particular dates, concerning the Purchaser's business, principal physical
properties, capital structure, material pending legal proceedings, operating
results, financial condition, directors and officers (including their
remuneration and stock options granted to them), the principal holders of the
Purchaser's securities, any material interests of such persons in transactions
with the Purchaser and certain other matters is required to be disclosed in
proxy statements and annual reports distributed to the Purchaser's shareholders
and filed with the Commission. Such reports, proxy statements and other
information may be inspected and copied at the Commission's public reference
facilities and should also be available for inspection at the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
Set forth below is certain consolidated financial information with respect
to the Purchaser and its consolidated subsidiaries for its fiscal years ended
and as of December 31, 1998, 1997 and 1996 and the fiscal quarter ended March
31, 1999. More comprehensive financial and other information is included in the
Purchaser's Annual Report on Form 10-K for the fiscal year ended December 31,
1998, the Purchaser's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1999, and other reports and documents filed by the Purchaser with the
Commission, each of which is incorporated herein by reference. The financial
information set forth below is qualified in its entirety by reference to such
reports and documents filed with the Commission and the financial statements and
related notes contained therein. These reports and other documents may be
examined and copies thereof may be obtained in the manner set forth above.
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<PAGE> 23
NATIONAL CITY CORPORATION
SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FOR THE THREE FISCAL YEAR
MONTHS ENDED ENDED DECEMBER 31,
MARCH 31, -----------------------------
1999 1998 1997 1996
------------------- ------- ------- -------
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue................................... $ 1,347 $ 5,291 $ 4,577 $ 4,374
Net Income................................ 351 1,071 1,122 994
Net income per share -- basic............. 1.09 3.28 3.48 3.00
Net Income per share -- diluted........... 1.08 3.22 3.42 2.95
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets.............................. $ 84,094 $88,246 $75,779 $72,918
Total deposits............................ 52,051 58,247 52,617 53,619
Stockholders' equity...................... 6,257 7,013 6,158 6,216
</TABLE>
Except as set forth elsewhere in this Offer to Purchase or Schedule I
hereto: (i) neither the Purchaser nor, to the knowledge of the Purchaser, any of
the persons listed in Schedule I hereto or any associate or majority-owned
subsidiary of the Purchaser or any of the persons so listed, beneficially owns
or has a right to acquire any Shares or any other equity securities of the
Company; (ii) neither the Purchaser nor, to the knowledge of the Purchaser, any
of the persons or entities referred to in clause (i) above or any of their
executive officers, directors or subsidiaries has effected any transaction in
the Shares or any other equity securities of the Company during the past 60
days; (iii) neither the Purchaser nor, to the knowledge of the Purchaser, any of
the persons listed in Schedule I hereto, has any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of the Company (including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or the voting
of any such securities, joint ventures, loan or option arrangements, puts or
calls, guaranties of loans, guaranties against loss or the giving or withholding
of proxies, consents or authorizations); (iv) there have been no transactions
which would require reporting under the rules and regulations of the Commission
between the Purchaser or any of its subsidiaries or, to the knowledge of the
Purchaser, any of the persons listed in Schedule I hereto, on the one hand, and
the Company or any of its executive officers, directors or affiliates, on the
other hand; and (v) there have been no contacts, negotiations or transactions
between the Purchaser or any of its subsidiaries or, to the knowledge of the
Purchaser, any of the persons listed in Schedule I hereto, on the one hand, and
the Company or any of its subsidiaries or affiliates, on the other hand,
concerning a merger, consolidation or acquisition, a tender offer or other
acquisition of securities, an election of directors or a sale or other transfer
of a material amount of assets.
10. THE MERGER; PLANS FOR THE COMPANY
Statutory Requirements
In general, under the GCL a merger of two corporations requires the
approval of the Board of Directors and the affirmative vote of the holders of
two-thirds of all outstanding common shares of each of the corporations desiring
to merge. Also, under the GCL, an agreement of merger is required to contain
certain statutorily specified matters including the names and form of each
corporation involved in the merger, the name of the surviving or new
corporation, the terms of the merger and the mode of carrying them into effect.
According to the Company's Articles of Incorporation, the Shares are the only
securities of the Company which entitle the holders thereof to voting rights.
The GCL also provides that if a parent company owns at least 90% of each
class of stock of a subsidiary, the parent company can effect a short-form
merger with that subsidiary without the action of
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<PAGE> 24
the other shareholders of the subsidiary. Accordingly, if as a result of the
Offer or otherwise the Purchaser acquires or controls the voting power of at
least 90% of the Shares, the Purchaser could, and intends to, effect the Merger
without prior notice to, or any action by, any other shareholder of the Company,
subject to approval by the Company's Board of Directors. See "Special
Factors -- Purpose and Structure of the Transaction."
Appraisal Rights
No appraisal rights are available in connection with the Offer. If the
Merger is consummated, however, shareholders of the Company who have not
tendered their Shares will have certain rights under the GCL to dissent and
demand appraisal of, and to receive payment in cash of the fair value of, their
Shares. Shareholders who perfect such rights by complying with the procedures
set forth in Section 1701.84 of the GCL ("Section 1701.84") will not be paid any
consideration at the time of the Merger and will ultimately have the fair value
of their Shares (exclusive of any element of value arising from the
accomplishment or expectation of the Merger) determined by the Ohio trial court
and will be entitled to receive a cash payment equal to such fair value from the
Surviving Corporation. In addition, such dissenting shareholders would be
entitled to receive payment of a fair rate of interest from the date of
consummation of the Merger on the amount determined to be the fair value of
their Shares. In determining the fair value of the Shares, the court is required
to take into account all relevant factors; provided, however, that any
appreciation or depreciation in market value resulting from the transaction
contemplated by an agreement of merger will be excluded. Accordingly, such
determination could be based upon considerations other than, or in addition to,
the market value of the Shares, including, among other things, asset values and
earning capacity and could result in a value that is greater than or less than
the price offered pursuant to the Offer and the Merger.
THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING SHAREHOLDERS UNDER THE
GCL DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES TO BE FOLLOWED
BY SHAREHOLDERS DESIRING TO EXERCISE ANY APPRAISAL RIGHTS AVAILABLE UNDER THE
GCL.
THE PRESERVATION AND EXERCISE OF APPRAISAL RIGHTS REQUIRE STRICT ADHERENCE
TO THE APPLICABLE PROVISIONS OF THE GCL.
Plans for the Company
Following consummation of the Merger, the Purchaser presently intends to
operate the Company's business as currently structured, i.e., through the
Company's wholly owned, operating subsidiary, National Processing Company.
However, the Purchaser will conduct a further review of the Company's assets,
businesses, corporate structure, capitalization, operations, properties,
policies, management and personnel. After such review, the Purchaser will
determine what actions or changes, if any, would be desirable in light of the
circumstances which then exist, and reserves the right to effect such actions or
changes. The Purchaser's decisions could be affected by information hereafter
obtained, changes in general economic or market conditions or in the business of
the Company and other factors.
Except as described in this Offer to Purchase, neither the Purchaser, nor,
to the best knowledge of the Purchaser, any of the persons listed on Schedule I,
has any present plans or proposals that would relate to or would result in (i)
an extraordinary corporate transaction, such as a merger, reorganization or
liquidation, involving the Company or any of its subsidiaries, (ii) a sale or
transfer of a material amount of assets of the Company or any of its
subsidiaries, (iii) any change in the present Board of Directors or management
of the Company, (iv) any material change in the present dividend rate or the
Company's present policy on indebtedness or capitalization, (v) any material
change in the Company's corporate structure or business, (vi) causing a class of
securities of the Company to be delisted from a national securities exchange or
to cease to be authorized to be quoted in an inter-dealer quotation system of a
registered national securities association or (vii) a class of equity securities
of the Company becoming eligible for termination of registration pursuant to
Section 12(g)(4) of the Exchange Act.
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<PAGE> 25
"Going Private" Transactions
The Offer constitutes a "going private" transaction under Rule 13e-3 of the
Exchange Act. Consequently, the Purchaser has filed with the Commission the
Schedule 13E-3, together with exhibits, in addition to filing with the
Commission a Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1").
Pursuant to Rule 13e-3, this Offer to Purchase contains information relating to,
among other matters, the fairness of the Offer to the Company's shareholders.
See "Special Factors."
11. SOURCE AND AMOUNT OF FUNDS
The total amount of funds required by the Purchaser to purchase all of the
outstanding Shares pursuant to the Offer, to cash out the Options and to pay
fees and expenses related to the Offer and the Merger is expected to be
approximately $70 million. The Purchaser has the available funds on hand needed
for the Offer and the Merger.
12. DIVIDENDS AND DISTRIBUTIONS
If the Company (i) splits, combines or otherwise changes the Shares or its
capitalization, (ii) acquires Shares or otherwise causes a reduction in the
number of Shares, (iii) issues or sells additional Shares (other than the
issuance of Shares reserved for issuance as of the date of this Offer to
Purchase under option and employee stock purchase plans in accordance with their
terms as publicly disclosed as of the date of this Offer to Purchase) or any
shares of any other class of capital stock, other voting securities or any
securities convertible into or exchangeable for, or rights, warrants or options,
conditional or otherwise, to acquire, any of the foregoing or (iv) discloses
that it has taken such action, then, without prejudice to the Purchaser's rights
under Section 13, the Purchaser, in its sole discretion, may make such
adjustments in the per Share price of the Offer and other terms of the Offer as
it deems appropriate to reflect such split, combination or other change or
action, including, without limitation, the number or type of securities offered
to be purchased.
If the Company declares or pays any dividend on the Shares or any
distribution (including, without limitation, the issuance of additional Shares
pursuant to a stock dividend or stock split, the issuance of other securities or
the issuance of rights for the purchase of any securities) with respect to the
Shares that is payable or distributable to shareholders of record on a date
prior to the transfer into the name of the Purchaser or its nominees or
transferees on the Company's stock transfer records of the Shares purchased
pursuant to the Offer, and if Shares are purchased in the Offer, then, without
prejudice to the Purchaser's rights under Section 13, (i) the Offer Price will
be reduced by the amount of any such cash dividend or cash distribution and (ii)
any such non-cash dividend, distribution, issuance, proceeds or rights to be
received by the tendering shareholders will (A) be received and held by the
tendering shareholders for the account of the Purchaser and will be required to
be promptly remitted and transferred by each tendering shareholder to the
Depositary for the account of the Purchaser, accompanied by appropriate
documentation of transfer or (B) at the direction of the Purchaser, be exercised
for the benefit of the Purchaser, in which case the proceeds of such exercise
will promptly be remitted to the Purchaser. Pending such remittance and subject
to applicable law, the Purchaser will be entitled to all rights and privileges
as owner of any such non-cash dividend, distribution, issuance, proceeds or
rights and may withhold the entire purchase price or deduct from the purchase
price the amount or value thereof, as determined by the Purchaser in its sole
discretion.
13. CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, and in addition to (and
not in limitation of) the Purchaser's right to extend and/or amend the Offer at
any time in its sole discretion, the Purchaser shall not be required to accept
for payment or, subject to any applicable rules and regulations of the
Commission, including Rule 14e-1(c) promulgated under the Exchange Act (relating
to the Purchaser's obligation to pay for or return tendered Shares promptly
after termination or withdrawal of the Offer), pay for, and (subject to any such
rules or regulations) may delay the acceptance for payment of any tendered
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<PAGE> 26
Shares and amend or terminate the Offer as to any Shares not then paid for if at
any time before the time of payment for any such Shares (whether or not any
Shares have theretofore been accepted for payment or paid for pursuant to the
Offer), unless there shall have been validly tendered and not withdrawn prior to
the Expiration Date a sufficient number of Shares to satisfy the Minimum
Condition.
Furthermore, notwithstanding any other provision of the Offer, and in
addition to (and not in limitation of) the Purchaser's right to extend and/or
amend the Offer at any time in its sole discretion, the Purchaser shall not be
required to accept for payment or, subject as aforesaid, to pay for any Shares
not theretofore accepted for payment or paid for, and may amend or terminate the
Offer, if, prior to the time of acceptance of such Shares for payment, any of
the following conditions exists:
(a) there shall be in effect an injunction or other order, decree,
judgment or ruling by a court of competent jurisdiction or by governmental,
regulatory or administrative agency or commission of competent jurisdiction
or a statute, rule, regulation, executive order or other action shall have
been promulgated, enacted, taken or threatened by governmental authority or
a governmental, regulatory or administrative agency or commission of
competent jurisdiction which in any such case (i) restrains or prohibits
the making or consummation of the Offer or the consummation of the Merger,
(ii) prohibits or restricts the ownership or operation by the Purchaser (or
any of its affiliates or subsidiaries) of any material portion of its or
the Company's business or assets, or compels the Purchaser (or any of its
affiliates or subsidiaries) to dispose of or hold separate any material
portion of its or the Company's business or assets, (iii) imposes material
limitations on the ability of the Purchaser effectively to acquire or to
hold or to exercise full rights of ownership of the Shares, including,
without limitation, the right to vote the Shares purchased by the Purchaser
on all matters properly presented to the shareholders of the Company, (iv)
imposes any material limitation on the ability of the Purchaser or any of
its affiliates or subsidiaries effectively to control in any material
respect the business and operations of the Company or which would have a
material adverse effect on the Company or any of its subsidiaries, taken as
a whole, or the value of the Shares, or (v) might result, in the judgment
of the Purchaser, in a diminution of the benefits expected to be derived by
the Purchaser or any of its affiliates as a result of the Offer or the
Merger or any other business combination involving the Company, or in a
diminution of the value of the Shares or the Company or any of its
subsidiaries to the Purchaser or any or its affiliates; or
(b) there shall be instituted or pending any action or proceeding
before any governmental, regulatory or administrative agency or commission
of competent jurisdiction seeking any injunction, order, decree, judgment
or ruling having any effect set forth in (a) above; or
(c) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for securities on any national securities
exchange or in the over-the-counter market in the United States, (ii) the
declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, (iii) a material adverse change in
United States or any other currency exchange rates or a suspension of, or a
limitation on, the markets therefor, (iv) the commencement of a war, armed
hostilities or other international or national calamity directly or
indirectly involving the United States, (v) any limitation (whether or not
mandatory) by any governmental authority on, or any other event which, in
the sole judgment of the Purchaser, might affect the extension of credit by
banks or other lending institutions, or (vi) in the case of any of the
foregoing existing at the time of the commencement of the Offer, in the
sole judgment of the Purchaser, a material acceleration or worsening
thereof; or
(d) any change shall have occurred or been threatened (or any
condition, event or development shall have occurred or been threatened
involving a prospective change) in the business, properties, assets,
liabilities, capitalization, shareholders' equity, condition (financial or
otherwise), operations, licenses or franchises, results of operations or
prospects of the Company, that in the sole judgment of the Purchaser, is or
may be materially adverse to the Company or to the value of the Shares to
the Purchaser or any other affiliate of the Purchaser, or the Purchaser
shall have become aware of any facts that, in the sole judgment of the
Purchaser, have or may have material adverse significance with
24
<PAGE> 27
respect to either the value of the Company or the value of the Shares to
the Purchaser or any other affiliate of the Purchaser; or
(e) unless the Purchaser shall have consented thereto in writing, the
Company or any of its subsidiaries shall have, on or after June 28, 1999,
(i) issued, distributed, pledged or sold, or authorized, proposed or
announced the issuance, distribution, pledge or sale of (A) any shares of
capital stock (including, without limitation, the Shares), or securities
convertible into any such shares, or any rights, warrants, or options to
acquire any such shares or convertible securities, other than Shares issued
or sold upon the exercise (in accordance with the present terms thereof) of
employee stock options outstanding on June 28, 1999 or (B) any other
securities in respect of, in lieu of, or in substitution for Shares (ii)
purchased or otherwise acquired, or proposed or offered to purchase or
otherwise acquire, any outstanding Shares or other securities, (iii)
declared or paid any dividend or distribution on any shares of capital
stock or issued, or authorized, recommended or proposed the issuance of,
any other distribution in respect of the Shares, whether payable in cash,
securities or other property, or altered or proposed to alter any material
term of any outstanding security, (iv) issued, or announced its intention
to issue, any debt securities or any securities convertible into or
exchangeable for debt securities or any rights, warrants or options
entitling the holder thereof to purchase or otherwise acquire any debt
securities, or incurred, or announced its intention to incur, any debt
other than in the ordinary course of business and consistent with past
practice, (v) authorized, recommended, proposed or publicly announced its
intention to enter into (A) any merger, consolidation, liquidation,
dissolution, business combination, acquisition of assets or securities or
disposition of assets or securities other than in the ordinary course of
business, (B) any material change in its capitalization, (C) any release or
relinquishment of any material contract rights, or (D) any comparable event
not in the ordinary course of business, (vi) authorized, recommended or
proposed or announced its intention to authorize, recommend or propose any
transaction which could adversely affect the value of the Shares, (vii)
proposed, adopted or authorized any amendment to its Articles of
Incorporation or Code of Regulations or similar organizational documents of
the Purchaser shall have learned about any such proposal or amendment which
shall not have been previously disclosed or (viii) agreed in writing or
otherwise to take any of the foregoing actions; or
(f) the Company or any of its subsidiaries shall have entered into any
employment, severance or similar agreement, arrangement or plan with any of
its employees other than in the ordinary course of business or entered into
or amended any agreements, arrangements or plans so as to provide for
increased benefits to the employee as a result of or in connection with the
transactions contemplated by the Offer; or
(g) the Purchaser shall fail to receive all governmental or third
party consents and approvals to consummate the Offer which, if not
received, would in the aggregate have or be reasonably anticipated to have
a materially adverse effect on the Purchaser or the Company or any of their
respective subsidiaries, or the Purchaser shall have determined in good
faith that consummation of the Offer would cause a breach of or constitute
(with or without due notice or lapse of time or both) a default (or give
rise to any right of termination, cancellation or acceleration) under
agreements or other obligations of the Company which would individually or
in the aggregate have or be reasonably anticipated to have a material
adverse effect on the Purchaser or the Company or any of their respective
subsidiaries; or
(h) the Purchaser and the Company shall have entered into an agreement
that the Offer be terminated or amended, or the Purchaser shall have
entered into an agreement with the Company providing for a merger or other
business combination with the Company,
which, in the sole judgment of the Purchaser in any such case, and regardless of
the circumstances (including any action or inaction by the Purchaser) giving
rise to any such condition, makes it inadvisable to proceed with the Offer
and/or with such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of the Purchaser and may
be asserted by the Purchaser regardless of the circumstances (including any
action or inaction by the Purchaser) giving rise
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<PAGE> 28
to any such conditions and may be waived by the Purchaser in whole or in part at
any time and from time to time, in each case, in the exercise of the good faith
judgment of the Purchaser. The failure by the Purchaser at any time to exercise
any of the foregoing rights shall not be deemed a waiver of any such right and
each such right shall be deemed an ongoing right which may be asserted at any
time and from time to time.
A public announcement may be made of a material change in, or wavier of,
such conditions and the Offer may, in certain circumstances, be extended in
connection with any such change or waiver.
The Purchaser acknowledges that the Commission believes that (i) if the
Purchaser is delayed in accepting the Shares it must either extend the Offer or
terminate the Offer and promptly return the Shares and (ii) the circumstances in
which a delay in payment is permitted are limited and do not include unsatisfied
conditions of the Offer, except with respect to most required regulatory
approvals.
14. CERTAIN LEGAL MATTERS; REQUIRED REGULATORY APPROVALS
Except as set forth in this Offer to Purchase, based on its review of
publicly available filings by the Company with the Commission and other
information regarding the Company, the Purchaser is not aware of any licenses or
regulatory permits that appear to be material to the business of the Company and
its subsidiaries, taken as a whole, and that might be adversely affected by the
Purchaser's acquisition of Shares (and the indirect acquisition of the stock of
the Company's subsidiaries) as contemplated herein, or any filings, approvals or
other actions by or with any domestic, foreign or supranational governmental
authority or administrative or regulatory agency that would be required for the
acquisition or ownership of the Shares (or the indirect acquisition of the stock
of the Company's subsidiaries) by the Purchaser pursuant to the Offer as
contemplated herein. Should any such approval or other action be required, it is
presently contemplated that such approval or action would be sought except as
described below under "State Takeover Laws." Should any such approval or other
action be required, there can be no assurance that any such approval or action
would be obtained at all or without substantial conditions or that adverse
consequences would not result to the Company's or its subsidiaries' businesses,
or that certain parts of the Company's, the Purchaser's or any of their
respective subsidiaries' businesses might not have to be disposed of or held
separate or other substantial conditions complied with in order to obtain such
approval or action or in the event that such approvals were not obtained or such
actions were not taken. The Purchaser's obligation to purchase and pay for
Shares is subject to certain conditions, including conditions with respect to
litigation and governmental actions. See Introduction and Section 13 for a
description thereof.
State Takeover Laws. A number of states have adopted "takeover" statutes
that purport to apply to attempts to acquire corporations that are incorporated
in such states, or whose business operations have substantial economic effects
in such states, or that have substantial assets, security holders, employees,
principal executive offices or places of business in such states.
Sections 1707.01, 1707.041, and 1707.042 of the Ohio Revised Code
(collectively, the "Ohio Take-Over Act") regulate tender offers for any equity
security of a subject company from a resident of Ohio if, after the purchase,
the offeror would directly or indirectly be the beneficial owner of more than
10% of any class of issued and outstanding equity securities of such company (a
"control bid"). A subject company includes an issuer, such as the Company, that
either has its principal place of business or principal executive offices
located in Ohio or owns or controls assets located in Ohio that have a fair
market value of at least $1.0 million, and that has more than 10% of its
beneficial or record equity security holders resident in Ohio, or has more than
10% of its equity securities owned, beneficially or of record, by residents of
Ohio, or has 1,000 beneficial or record equity security holders who are resident
in Ohio. A subject company, however, need not be incorporated in Ohio.
The Ohio Take-Over Act prohibits an offeror from making a control bid for
securities of a subject company pursuant to a tender offer until the offeror has
filed specified information with the Ohio Division of Securities (the "Ohio
Division"). In addition, the offeror is required to deliver a copy of such
information to the subject company not later than the offeror's filing with the
Ohio Division and to send or
26
<PAGE> 29
deliver such information and the material terms of the proposed offer to all
offerees in Ohio as soon as practicable after the offeror's filing with the Ohio
Division.
Within five calendar days of such filing, the Ohio Division may, by order,
summarily suspend the continuation of the control bid if it determines that the
offeror has not provided all of the specified information or that the control
bid materials provided to offerees do not provide full disclosure of all
material information concerning the control bid. If the Ohio Division summarily
suspends a control bid, it must schedule and hold a hearing within 10 calendar
days of the date on which the suspension is imposed and must make its
determination within three calendar days after the hearing has been completed
but no later than 14 calendar days after the date on which the suspension is
imposed. The Ohio Division may maintain its suspension of the continuation of
the control bid if, based upon the hearing, it determines that all of the
information required to be provided by the Ohio Take-Over Act has not been
provided by the offeror, that the control bid materials provided to offerees do
not provide full disclosure of all material information concerning the control
bid, or that the control bid is in material violation of any provision of the
Ohio securities laws. If, after the hearing, the Ohio Division maintains the
suspension, the offeror has the right to correct the disclosure and other
deficiencies identified by the Ohio Division and to reinstitute the control bid
by filing new or amended information pursuant to the Ohio Take-Over Act.
The Purchaser has filed the information required under the Ohio Take-Over
Act.
The Ohio Business Combination Law prohibits certain business combinations
and other transactions (each, a "Chapter 1704 Transaction") such as the Merger,
between an issuing public corporation (such as the Company) and any "Interested
Shareholder" (defined generally as any person that, directly or indirectly, is
entitled to exercise or direct the exercise of 10% or more of the outstanding
voting power of a corporation in the election of directors) for a period of
three years after the date the person becomes an Interested Shareholder. After
such three-year period, a Chapter 1704 Transaction between an issuing public
corporation and such Interested Shareholder is prohibited unless either certain
"fair price" provisions are complied with or the Chapter 1704 Transaction is
approved by certain supermajority shareholder votes.
The Ohio Business Combination Law restrictions do not apply to a Chapter
1704 Transaction with an Interested Shareholder if either the acquisition of the
corporation's shares that would cause the Interested Shareholder to become an
Interested Shareholder, or the Chapter 1704 Transaction is approved by a
resolution of the board of directors of the corporation adopted prior to the
date on which the Interested Shareholder became an Interested Shareholder. Prior
to 1996, the Company was a wholly-owned subsidiary of the Purchaser. Since the
Company's initial public offering, the Purchaser has continued to own more than
85% of the Company's outstanding Shares. Thus, the Ohio Business Combination Law
restrictions would not apply to the Purchaser, as the Purchaser has been an
Interested Shareholder of the Company since its organization. In addition, the
Company's Board of Directors exempted the Purchaser from Chapter 1704 at the
time of the Company's initial public offering.
Section 1701.831 of the GCL provides that any control share acquisition of
shares of an issuing public corporation such as the Company shall be made only
upon prior approval of a majority of shareholders present (in person or in
proxy) and voting at a special meeting held within fifty days from the date the
issuing public corporation first received an "acquiring person statement." An
acquiring person statement is a statement that is required to be delivered by
the person proposing to make a control share acquisition to the issuing public
corporation. The acquiring person statement must disclose the identity of the
acquiring person, the number of shares held by such person directly or
indirectly and a description of the terms of the proposed control share
acquisition. The control share acquisition provisions of the GCL do not apply to
the Offer or the Merger because the Purchaser currently controls approximately
87.6% of the voting rights of the Company, such interest was acquired in
compliance with the provisions of Section 1701.831, and any Shares acquired in
the Offer and the Merger will be in the same range of ownership (i.e., a
majority or more) currently held by the Purchaser.
The Supreme Court of the United States, in Edgar v. MITE Corporation,
invalidated on constitutional grounds the Illinois Business Takeovers Statute,
which, as a matter of state securities law,
27
<PAGE> 30
made takeovers of corporations meeting certain requirements more difficult. The
reasoning in such decision is likely to apply to certain other state takeover
statutes. In 1987, however, in CTS Corp. v. Dynamics Corp. of America, the
Supreme Court of the United States held that the State of Indiana could, as a
matter of corporate law and, in particular, those aspects of corporate law
concerning corporate governance, constitutionally disqualify a potential
acquiror from voting on the affairs of a target corporation without the prior
approval of the remaining shareholders, provided that such laws were applicable
only under certain conditions. Subsequently, in TLX Acquisition Corp. v. Telex
Corp., a Federal district court in Oklahoma ruled that the Oklahoma statutes
were unconstitutional insofar as they apply to corporations incorporated outside
Oklahoma in that they would subject such corporations to inconsistent
regulations. Similarly, in Tyson Foods, Inc. v. McReynolds, a Federal district
court in Tennessee ruled that four Tennessee takeover statutes were
unconstitutional as applied to corporations incorporated outside Tennessee. This
decision was affirmed by the United States Court of Appeals for the Sixth
Circuit. In December 1988, a Federal district court in Florida held, in Grand
Metropolitan PLC v. Butterworth, that the provisions of the Florida Affiliated
Transactions Act and Florida Control Share Acquisition Act were unconstitutional
as applied to corporations incorporated outside of Florida.
Except as described herein, the Purchaser has not attempted to comply with
any state takeover statutes in connection with the Offer or the Merger. The
Purchaser reserves the right to challenge the validity or applicability of any
state law allegedly applicable to the Offer or the Merger, and nothing in this
Offer to Purchase nor any action taken in connection herewith is intended as a
waiver of that right. In the event that it is asserted that one or more state
takeover statutes apply to the Offer or the Merger, and it is not determined by
an appropriate court that such statute or statutes do not apply or are invalid
as applied to the Offer or the Merger, as applicable, the Purchaser may be
required to file certain documents with, or receive approvals from, the relevant
state authorities, and the Purchaser might be unable to accept for payment or
purchase Shares tendered pursuant to the Offer, or be delayed in continuing or
consummating the Offer. In such case, the Purchaser may not be obligated to
accept for purchase or pay for, any Shares tendered. See Section 13.
Antitrust. Based upon an examination of publicly available information
relating to the businesses in which the Company is engaged, the Purchaser
believes that the acquisition of Shares pursuant to the Offer and the Merger
should not violate the applicable antitrust laws. The acquisition by the
Purchaser of 12% of the voting securities of the Company is exempt under 16.
C.F.R. @ 802.30 from the reporting requirements contained in the
Hart-Scott-Rodino Antitrust Improvements Act of 1976. Nevertheless, there can be
no assurance that a challenge to the Offer and the Merger on antitrust grounds
will not be made, or, if such challenge is made, what the result will be.
Foreign Approvals. According to publicly available information, the
Company conducts business in a number of other foreign countries and
jurisdictions. In connection with the acquisition of the Shares pursuant to the
Offer or the Merger, the laws of certain of those foreign countries and
jurisdictions may require the filing of information with, or the obtaining of
the approval or consent of, governmental authorities in such countries and
jurisdictions. The governments in such countries and jurisdictions might attempt
to impose additional conditions on the Company's operations conducted in such
countries and jurisdictions as a result of the acquisition of the Shares
pursuant to the Offer or the Merger. If such approvals or consents are found to
be required, the parties intend to make the appropriate filings and
applications. In the event such a filing or application is made for the
requisite foreign approvals or consents, there can be no assurance that such
approvals or consents will be granted and, if such approvals or consents are
received, there can be no assurance as to the date of such approvals or
consents. In addition, there can be no assurance that the Purchaser will be able
to cause the Company or its subsidiaries to satisfy or comply with such laws or
that compliance or noncompliance will not have adverse consequences for the
Company or any subsidiary after purchase of the Shares pursuant to the Offer or
the Merger.
28
<PAGE> 31
15. CERTAIN FEES AND EXPENSES
Merrill Lynch is acting as the Dealer Manager in connection with the Offer
and as financial advisor to the Purchaser in connection with the proposed
acquisition of the Company. The Purchaser has paid to Merrill Lynch a retainer
and is obligated to pay aggregate fees of $2,000,000 (including the retainer)
upon the consummation of the Offer or any other direct or indirect acquisition
of at least 50% of the Publicly Held Shares. In addition, the Purchaser has
agreed to reimburse Merrill Lynch for its reasonable expenses incurred in
rendering its services under its engagement agreement with the Purchaser and has
agreed to indemnify Merrill Lynch against certain liabilities and expenses in
connection with the Offer and the Merger, including certain liabilities under
the federal securities laws. Merrill Lynch from time to time renders various
investment banking services to the Purchaser and its affiliates for which it is
paid customary fees.
The Purchaser and its affiliates previously have engaged Merrill Lynch in
the following capacities: (i) as the lead underwriter for the Purchaser's
$300,000,000 5 3/4% Subordinated Notes due February 1, 2009; (ii) as the lead
underwriter for the Purchaser's $700,000,000 6 7/8% Subordinated Notes due May
15, 2019; and (iii) as an adviser on various transactions. Merrill Lynch
continues to act as the lead underwriting agent in the Purchaser's affiliated
bank note program. Additionally, the Purchaser and its affiliates have purchased
securities from and entered into derivatives contracts with Merrill Lynch from
time to time. Merrill Lynch has received and will receive in the future
customary fees for rendering financing and financial advisory services to the
Purchaser.
In the ordinary course of its business, Merrill Lynch engages in securities
trading, market-making and brokerage activities and may, at any time, hold long
or short positions and may trade or otherwise effect transactions in securities
of the Company and the Purchaser.
Corporate Investor Communications, Inc. has been retained by the Purchaser
as Information Agent in connection with the Offer. The Information Agent may
contact holders of Shares by mail, telephone, telex, telegraph and personal
interview and may request brokers, dealers and other nominee shareholders to
forward material relating to the Offer to beneficial owners of Shares. The
Purchaser will pay the Information Agent reasonable and customary compensation
for all such services in addition to reimbursing the Information Agent for
reasonable out-of-pocket expenses in connection therewith.
In addition, National City Bank has been retained as the Depositary. The
Purchaser will pay the Depositary reasonable and customary compensation for its
services in connection with the Offer, will reimburse the Depositary for its
reasonable out-of-pocket expenses in connection therewith and will indemnify the
Depositary against certain liabilities and expenses in connection therewith,
including certain liabilities under the federal securities laws.
It is estimated that the expenses incurred in connection with the
transactions contemplated in this Offer to Purchase (other than those related to
the financing thereof) will be approximately as set forth below:
<TABLE>
<S> <C>
Filing fees................................................. 17,524
Printing and mailing fees................................... 75,000
Accounting fees............................................. --
Legal fees.................................................. 250,000
Dealer Manager fees......................................... 2,000,000
Depositary fees............................................. 20,000
Information Agent fees...................................... 7,500
Miscellaneous............................................... 4,976
----------
Total.................................................. $2,375,000
==========
</TABLE>
None of the foregoing fees will be paid by the Company.
29
<PAGE> 32
Except as set forth above, the Purchaser will not pay any fees or
commissions to any broker, dealer or other person for soliciting tenders of
Shares pursuant to the Offer. Brokers, dealers, commercial banks and trust
companies and other nominees will, upon request, be reimbursed by the Purchaser
for customary clerical and mailing expenses incurred by them in forwarding
offering materials to their customers.
16. MISCELLANEOUS
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares residing in any jurisdiction in which the making of
the Offer or the acceptance thereof would not be in compliance with the
securities, blue sky or other laws of such jurisdiction. However, the Purchaser
may, in its discretion, take such action as it may deem necessary to make the
Offer in any jurisdiction and extend the Offer to holders of Shares in such
jurisdiction.
In any jurisdiction where the securities, blue sky or other laws require
the Offer to be made by a licensed broker or dealer, the Offer will be deemed to
be made on behalf of the Purchaser by one or more registered brokers or dealers
that are licensed under the laws of such jurisdiction.
The Purchaser has filed with the Commission a Schedule 14D-1, together with
exhibits, pursuant to Rule 14d-3 of the General Rules and Regulations under the
Exchange Act, and a Schedule 13E-3, together with exhibits, pursuant to Rule
13e-3 under the Exchange Act, furnishing certain additional information with
respect to the Offer, and may file amendments thereto. Such Schedule 14D-1,
Schedule 13E-3 and any amendments thereto, including exhibits, may be examined
and copies may be obtained from the office of the Commission in the same manner
as described in Section 8 with respect to information concerning the Company,
except that copies will not be available at the regional offices of the
Commission.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF THE PURCHASER NOT CONTAINED IN THIS OFFER TO
PURCHASE OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, ANY SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
Neither the delivery of the Offer to Purchase nor any purchase pursuant to
the Offer shall under any circumstances create any implication that there has
been no change in the affairs of the Purchaser, the Company or any of their
respective subsidiaries since the date as of which information is furnished or
the date of this Offer to Purchase.
NATIONAL CITY CORPORATION
June 28, 1999
30
<PAGE> 33
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER
The name, business address, present principal occupation or employment and
five-year employment history of each of the directors and executive officers of
the Purchaser are set forth below. Unless otherwise indicated, the business
address of each such director and each such executive officer is 1900 East Ninth
Street, Cleveland, Ohio 44114. Unless otherwise indicated below, all directors
and executive officers listed below are citizens of the United States.
DIRECTORS AND OFFICERS OF THE PURCHASER
JON E. BARFIELD, Chairman and Chief Executive Officer of Bartech Inc., a
provider of contract employment and related staffing services, since 1995.
President of Bartech, Inc. from 1981 to 1995. Director of Tecumseh Products
Company. Director of the Purchaser since 1998; member of the Audit and Public
Policy Committees. Address: The Bartech Group, 17199 N. Laurel Park Drive, Suite
224, Livonia, Michigan 48152-2679. Shares of the Company owned: none.
JAMES R. BELL III, Executive Vice President, Retail Sales and Distribution,
of the Purchaser since 1996. President and Chief Executive Officer of National
City Bank of Kentucky, a commercial bank, since 1996. Vice Chairman of National
City Bank of Kentucky from 1995 to 1996 and Executive Vice President from 1994
to 1995. Shares of the Company owned: 3,030.
EDWARD B. BRANDON, Retired as Chairman of the Board of the Purchaser in
1995. Chairman of the Board and Chief Executive Officer of the Purchaser from
1987 to 1995. Director of Premier Industrial Corp., RPM, Inc. and The Standard
Products Company. Director of the Purchaser since 1986; member of the Executive
and Nominating Committees. Address: 3201 Enterprise Parkway, Suite 470,
Beechwood, Ohio 44122-7320. Shares of the Company owned: 4,250.
JOHN G. BREEN, Chairman of the Board and Chief Executive Officer of The
Sherwin-Williams Company, a manufacturer of coatings, since 1980. Director of
The Sherwin-Williams Company, The Mead Corporation, Parker-Hannifin Corporation
and Goodyear Tire & Rubber Co. Director of the Purchaser since 1979; chairman of
the Compensation and Organization Committee and member of the Executive and
Nominating Committees. Address: The Sherwin Williams Company, 101 Prospect
Avenue, N.W., Cleveland, Ohio 44115-1027. Shares of the Company owned: none.
JAMES S. BROADHURST, Chairman and Chief Executive Officer of Eat'n Park
Restaurants, a chain of family restaurants, since 1984. Director of Sheetz, Inc.
Director of the Purchaser since 1996; member of the Audit and Compensation and
Organization Committees. Address: Eat'n Park Restaurants, 100 Park Manor Drive,
Pittsburgh, Pennsylvania 15205-1099. Shares of the Company owned: none.
JOHN W. BROWN, Chairman, President and Chief Executive Officer of Stryker
Corporation, a manufacturer of surgical and medical products, since 1980. Chief
Executive Officer of Stryker Corporation from 1977 to 1980. Director of Stryker
Corporation, Lunar Corporation and Arthur D. Little. Director of the Purchaser
since 1998; member of the Compensation and Organization and Executive
Committees. Address: Stryker Corporation, 2725 Fairfield Road, Kalamazoo,
Michigan 49002. Shares of the Company owned: none.
PAUL G. CLARK, Executive Vice President of the Purchaser since 1998.
President and Chief Executive Officer of National City Bank of Michigan/Illinois
since January 1999. Executive Vice President of National City Bank of
Pennsylvania from January 1998 to January 1999. Address: National City Bank of
Michigan/Illinois, 211 South Rose Street, Kalamazoo, Michigan 49007. Shares of
the Company owned: none.
DUANE E. COLLINS, President and Chief Executive Officer of Parker Hannifin
Corporation, a durable goods manufacturer, since 1993. Director of Parker
Hannifin Corporation and The Sherwin-Williams Company. Director of the Purchaser
since 1995; member of the Compensation and Organization and
S-I-1
<PAGE> 34
Executive Committees. Address: Parker Hannifin Corporation, 6035 Parkland
Boulevard, Mayfield Heights, Ohio 44124. Shares of the Company owned: 2,500.
SANDRA AUSTIN CRAYTON, President, Physician Management Services, of
National Data Corporation and Management Consultant since 1998. President and
Chief Executive Officer of Sedona Healthcare Group in 1998. Retired as
President, Physician Services, Caremark International, a provider of health care
products and services, from 1993 to 1996. Director of Atria Communities, Inc.
and Ferro Corporation. Director of the Purchaser since 1990; chairperson of the
Investment Committee and member of the Executive Committee. Address: National
Data Corporation, One National Data Plaza, Atlanta, Georgia 30329. Shares of the
Company owned: none.
DAVID A. DABERKO, Chairman of the Board and Chief Executive Officer of the
Purchaser since 1995. President and Chief Operating Officer of the Purchaser
from 1993 to 1995. Director of the Purchaser since 1988; chairman of the
Executive and Nominating Committees. Shares of the Company owned: 12,000.
VINCENT A. DIGIROLAMO, Vice Chairman of the Purchaser since 1995. President
and Chief Executive Officer of National City Bank of Indiana from 1992 to 1995.
Shares of the Company owned: 3,030.
DANIEL E. EVANS, Chairman of the Board and Chief Executive Officer of Bob
Evans Farms, Inc., a restaurant and food products company, since 1971. Director
of the Purchaser since 1992; chairman of the Audit Committee and member of the
Compensation and Organization Committee. Address: Bob Evans Farms, Inc., 3776
South High Street, Columbus, Ohio 43207-0863. Shares of the Company owned:
1,000.
GARY A. GLASER, Executive Vice President of the Purchaser since 1988.
Chairman of National City Bank since 1997. President and Chief Executive Officer
of National City Bank of Columbus from 1991 to 1997. Address: National City
Bank, 155 East Broad Street, Columbus, Ohio 43251. Shares of the Company owned:
1,000.
THOMAS W. GOLONSKI, Executive Vice President of the Purchaser since 1996.
Chairman of National City Bank of Pennsylvania since 1999. President and Chief
Executive Officer of National City Bank of Pennsylvania from 1996 to 1999.
President of Integra Bank from 1995 to 1996. Executive Vice President,
Commercial Banking, of Integra Bank, 1994 to 1995, Chairman and Chief Executive
Officer of Integra Bank/North from 1991 to 1993. Address: National City Bank of
Pennsylvania, 20 Stanwix Street, 20th Floor, Pittsburgh, Pennsylvania
15222-4802. Shares of the Company owned: 1,000.
JON L. GORNEY, Executive Vice President, Corporate Operations and
Information Services, of the Purchaser since 1993. Senior Vice President of
National City Bank since 1988. Shares of the Company owned: 300.
CLIFFORD L. GREENWALT, Retired as Chairman of Ameren Corporation, a utility
holding company, and as President and Chief Executive Officer of Ameren CIPS, a
subsidiary of Ameren Corporation. President and Chief Executive Officer of
CIPSCO Incorporated from 1990 to 1998. President and Chief Executive Officer of
Central Illinois Public Service Company from 1989 to 1998. Director of Ameren
Corporation. Director of the Purchaser since 1998; member of the Audit and
Investment Committees. Address: 2233 Greenside Drive, Springfield, Illinois
62704. Shares of the Company owned: none.
JAMES P. GULICK, Senior Vice President and General Auditor of the Purchaser
since 1995. Vice President of the Purchaser from 1992 to 1995. Shares of the
Company owned: none.
BERNADINE P. HEALY, M.D., Professor of Medicine and Dean of Ohio State
University College of Medicine since September 1995. Sr. Policy Advisor, The
Cleveland Clinic Foundation from 1994-1995. Past Director of the National
Institutes of Health from 1991 to 1993. Director of Ashland, Inc., Medtronic
Inc. and Invacare Corporation. Director of the Purchaser since 1995 and
previously a Director from 1989 to 1990; chairperson of the Public Policy
Committee and member of the Investment Committee. Address: c/o Valerie Stump,
The Cleveland Clinic Foundation, 9300 Euclid Avenue, H18, Cleveland, Ohio
44195-5210. Shares of the Company owned: none.
S-I-2
<PAGE> 35
DOROTHY A. JOHNSON, President and Chief Executive Officer of the Council of
Michigan Foundations, an association of foundations and corporations making
charitable contributions, since 1975. Director of The Kellogg Company. Director
of the Purchaser since 1998; member of the Nominating and Public Policy
Committees. Address: Council of Michigan Foundations, One South Harbor Avenue,
Suite 3, Grand Haven, Michigan 49417. Shares of the Company owned: none.
JEFFREY D. KELLY, Executive Vice President of the Purchaser since 1994.
Senior Vice President of the Purchaser from 1990 to 1994. Shares of the Company
owned: 1,000.
HERBERT R. MARTENS, JR., Executive Vice President of the Purchaser since
1997. Chairman and Chief Executive Officer of NatCity Investments, Inc. since
1995. President and Chief Executive Officer of Raffensperger, Hughs & Co., Inc.
from 1993 to 1995. Shares of the Company owned: 20,600.
WILLIAM E. MCDONALD III, Executive Vice President of the Purchaser since
1993. President and Chief Executive Officer of National City Bank since 1997.
Shares of the Company owned: 2,000.
ROBERT J. ONDERCIK, Executive Vice President, Credit Administration, of the
Purchaser since 1989. Shares of the Company owned: none.
PAUL A. ORMOND, President and Chief Executive Officer, HCR Manor Care,
Inc., a provider of long-term care, skilled nursing, and rehabilitative
services, since 1991. President of Health Care and Retirement Corp. since 1986.
Director of HCR Manor Care, Inc. Director of the Purchaser since 1995. Address:
HCR Manor Care, Inc., 333 North Summit Street, P.O. Box 10086, Toledo, Ohio
43699-0086. Shares of the Company owned: none.
A. JOSEPH PARKER, Executive Vice President, Consumer Finance, of the
Purchaser since 1998. Senior Vice President of the Purchaser from 1994 to 1998.
Shares of the Company owned: none.
ROBERT A. PAUL, President and Chief Executive Officer of Ampco-Pittsburgh
Corporation, a manufacturer of engineered equipment and steel products, since
1994. President and Chief Operating Officer from 1979-1994. Executive Vice
President and Director of the Louis Berkman Company. Director of the Purchaser
since 1996; member of the Executive and Investment Committees. Address: Ampco-
Pittsburgh Corporation, 600 Grant Street, Suite 4600, Pittsburgh, Pennsylvania
15219-2700. Shares of the Company owned: none.
THOMAS A. RICHLOVSKY, Senior Vice President and Treasurer of the Purchaser
since 1988. Shares of the Company owned: 1,000.
WILLIAM P. ROEMER, Retired as Chairman of National City Bank of
Pennsylvania during 1998. Retired as Chairman of the Board and Chief Executive
Officer of Integra Financial Corporation, a diversified financial services
corporation, since 1996. Chairman and Chief Executive Officer of Integra
Financial Corporation from 1991 to 1996. Director of the Purchaser since 1996;
member of the Nominating and Public Policy Committees. Address: National City
Center, 20 Stanwix Street -- 20th Floor, Pittsburgh, Pennsylvania 15222-4802.
Shares of the Company owned: 5,000.
FREDERICK W. SCHANTZ, Executive Vice President of the Purchaser since 1999.
President and Chief Executive Officer of National City Bank of Kentucky since
1998. President and Chief Executive Officer of the Southwest Region of National
City Bank since 1997. President and Chief Executive Officer of National City
Bank of Dayton since 1981. Address: National City Bank of Kentucky, 101 South
Fifth Street, Louisville, Kentucky 40202. Share of the Company owned: none.
MICHAEL A. SCHULER, Chairman of the Board, President and Chief Executive
Officer of Zippo Manufacturing Company, a manufacturer of lighters and metal
products, since 1986. Director of Zippo Manufacturing Company and W.R. Case &
Sons Cutlery Company. Director of the Purchaser since 1996; member of the Audit
and Public Policy Committees. Address: Zippo Manufacturing Company, 33 Barbour
Street, Bradford, Pennsylvania 16701. Shares of the Company owned: none.
S-I-3
<PAGE> 36
ROBERT G. SIEFERS, Vice Chairman and Chief Financial Officer of the
Purchaser since August 1997. Executive Vice President and Chief Financial
Officer from 1991 to August 1997. Shares of the Company owned: 10,000.
STEPHEN A. STITLE, Chairman of the Board of National City Bank of Indiana
since 1996. Vice President, Corporate Affairs of Eli Lilly and Company, a
pharmaceutical company, from 1993 to 1995. Director of the Purchaser since 1992;
member of the Investment, Nominating and Public Policy Committees. Address:
National City Bank of Indiana, 101 West Washington Street, Suite 400E,
Indianapolis, Indiana 46255. Shares of the Company owned: none.
JEROME F. TATAR, Chairman, Chief Executive Officer and President of The
Mead Corporation since 1997. President and Chief Operating Officer of The Mead
Corporation from 1996 to 1997; Vice President and Operating Officer from 1994 to
1996. Director of The Mead Corporation and Robbins & Meyers, Inc. Director of
the Purchaser since 1998. Address: The Mead Corporation, Courthouse Plaza
Northeast, Second and Main, Dayton, Ohio 45463. Shares of the Company owned:
none.
MORRY WEISS, Chairman of the Board and Chief Executive Officer of American
Greetings Corporation, a greeting card manufacturer, since 1993. President and
Chief Executive Officer of American Greetings Corporation from 1987 to 1993.
Director of American Greetings Corporation and Barnett Inc. Director of the
Purchaser since 1992; member of the Executive, Audit and Nominating Committees.
Address: American Greetings Corporation, One American Road, Cleveland, Ohio
44144-2398. Shares of the Company owned: none.
DAVID L. ZOELLER, Senior Vice President, General Counsel and Secretary of
the Purchaser since 1992. Shares of Company owned: none.
S-I-4
<PAGE> 37
FACSIMILE COPIES OF THE LETTER OF TRANSMITTAL, PROPERLY COMPLETED AND DULY
EXECUTED, WILL BE ACCEPTED. THE LETTER OF TRANSMITTAL, SHARE CERTIFICATES AND
ANY OTHER REQUIRED DOCUMENTS SHOULD BE SENT OR DELIVERED BY EACH SHAREHOLDER OF
THE COMPANY OR HIS BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER
NOMINEE TO THE DEPOSITARY AT ONE OF ITS ADDRESSES SET FORTH BELOW:
The Depositary for the Offer is:
NATIONAL CITY BANK
<TABLE>
<S> <C>
By Mail: By Hand/Overnight Delivery:
National City Bank National City Bank
Corporate Trust Operations Corporate Trust Operations
P.O. Box 94720 3rd Floor, North Annex
Cleveland, Ohio 44101-4720 4100 West 150th Street
Cleveland, Ohio 44135
</TABLE>
Telephone:
(800) 622-6757
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
listed below. Additional copies of the Offer to Purchase, the Letter of
Transmittal and other tender offer materials may be obtained from the
Information Agent or the Dealer Manager as set forth below, and will be
furnished promptly at the Purchaser's expense. You may also contact your broker,
dealer, commercial bank, trust company or other nominee for assistance
concerning the Offer.
The Information Agent for the Offer is:
CORPORATE INVESTOR COMMUNICATIONS, INC.
111 Commerce Road
Carlstadt, New Jersey 07072
(888) 976-2663 (toll-free)
The Dealer Manager for the Offer is:
MERRILL LYNCH & CO.
North Tower
World Financial Center
250 Vesey Street
New York, New York 10281-1201
(212) 449-8971
<PAGE> 1
================================================================================
Exhibit (a)(3)
LETTER OF TRANSMITTAL
TO
TENDER COMMON SHARES
OF
NATIONAL PROCESSING, INC.
PURSUANT TO THE OFFER TO PURCHASE
DATED JUNE 28, 1999
BY
NATIONAL CITY CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON MONDAY, JULY 26, 1999, UNLESS THE OFFER IS EXTENDED.
The Depositary for the Offer Is:
NATIONAL CITY BANK
<TABLE>
<S> <C>
By Mail: By Hand/Overnight Courier:
National City Bank National City Bank
Corporate Trust Operations Corporate Trust Operations
P.O. Box 94720 3rd Floor, North Annex
Cleveland, Ohio 44101-4720 4100 West 150th Street
Cleveland, Ohio 44135
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSIONS OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION TO A
NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
YOU MUST SIGN THIS LETTER OF TRANSMITTAL IN THE APPROPRIATE SPACE THEREFOR
PROVIDED BELOW AND COMPLETE THE SUBSTITUTE FORM W-9 SET FORTH BELOW.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by shareholders either if
certificates for Shares (as defined in the Offer to Purchase dated June 28, 1999
(the "Offer to Purchase")) are to be forwarded herewith or, unless an Agent's
Message (as defined in the Offer to Purchase) is utilized, if tenders of Shares
are to be made by book-entry transfer to an account maintained by National City
Bank (the "Depositary") at The Depository Trust Company ("DTC") (the "Book-Entry
Transfer Facility") pursuant to the procedures set forth in Section 3 of the
Offer to Purchase. Shareholders who tender Shares by book-entry transfer are
referred to herein as "Book-Entry Shareholders."
Holders of Shares whose certificates for such Shares (the "Share
Certificates") are not immediately available or who cannot deliver their Share
Certificates and all other required documents to the Depositary on or prior to
the Expiration Date (as defined in the Offer to Purchase) or who cannot complete
the procedures for book-entry transfer on a timely basis, must tender their
Shares according to the guaranteed delivery procedures set forth in Section 3 of
the Offer to Purchase. See Instruction 2.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY
DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
<PAGE> 2
NOTE: SIGNATURES MUST BE PROVIDED ON THE INSIDE AND REVERSE BACK COVER. PLEASE
READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
[ ] CHECK HERE IF SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO AN
ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY TRANSFER FACILITY
AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
-----------------------------------------------------------------------------
Account Number:
-----------------------------------------------------------------------------
Transaction Code Number:
-----------------------------------------------------------------------------
[ ] CHECK HERE IF SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING.
PLEASE ENCLOSE A PHOTOCOPY OF SUCH NOTICE OF GUARANTEED DELIVERY.
Name(s) of Registered Holder(s):
-----------------------------------------------------------------------------
Window Ticket Number (if any):
-----------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
--------------------------------------------------------------------
Name of Institution which Guaranteed Delivery:
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- ------------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) SHARE CERTIFICATE(S) AND
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) SHARE(S) TENDERED
APPEAR(S) ON SHARE CERTIFICATE(S)) (ATTACH ADDITIONAL LIST, IF NECESSARY)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL NUMBER
OF SHARES
SHARE REPRESENTED BY NUMBER
CERTIFICATE OF SHARE SHARES
NUMBER(S) CERTIFICATE(S)* TENDERED
<S> <C> <C> <C>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
Total Shares
- ------------------------------------------------------------------------------------------------------------------------
* Need not be completed by Book-Entry Shareholders.
** Unless otherwise indicated it will be assumed that all Shares represented by Share Certificates delivered to the
Depositary are being tendered. See Instruction 4.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
Ladies and Gentlemen:
The undersigned hereby tenders to National City Corporation, a Delaware
corporation (the "Purchaser"), the above described common shares, no par value
(the "Shares"), of National Processing, Inc., an Ohio corporation (the
"Company"), pursuant to the Purchaser's offer to purchase all outstanding Shares
at a price of $9.50 per Share, net to the seller in cash, without interest
thereon, upon the terms and subject to the conditions set forth in the Offer to
Purchase, receipt of which is hereby acknowledged, and in this Letter of
Transmittal (which together with the Offer to Purchase constitute the "Offer").
The undersigned understands that the Purchaser reserves the right to transfer or
assign, in whole or from time to time in part, to one or more of its
subsidiaries or affiliates the right to purchase all or any portion of the
Shares tendered pursuant to the Offer.
Subject to, and effective upon, acceptance for payment of and payment for
the Shares tendered herewith in accordance with the terms and subject to the
conditions of the Offer, the undersigned hereby sells, assigns, and transfers
to, or upon the order of, the Purchaser all right, title and interest in and to
all of the Shares that are being tendered hereby and any and all dividends on
the Shares (including, without limitation, the issuance of additional Shares
pursuant to a stock dividend or stock split, the issuance of other securities,
the issuance of rights for the purchase of any securities, or any cash
dividends) that are declared or paid by the Company on or after the date of the
Offer to Purchase and are payable or distributable to shareholders of record on
a date prior to the transfer into the name of the Purchaser or its nominees or
transferees on the Company's stock transfer records of the Shares purchased
pursuant to the Offer (collectively "Distributions"), and constitutes and
irrevocably appoints the Depositary the true and lawful agent, attorney-in-fact
and proxy of the undersigned to the full extent of the undersigned's rights with
respect to such Shares (and Distributions) with full power of substitution (such
power of attorney and proxy being deemed to be an irrevocable power coupled with
an interest), to (a) deliver Share Certificates (and Distributions), or transfer
ownership of such Shares on the account books maintained by the Book-Entry
Transfer Facility, together in either such case with all accompanying evidences
of transfer and authenticity, to or upon the order of the Purchaser upon receipt
by the Depositary, as the undersigned's agent, of the purchase price, (b)
present such Shares (and Distributions) for transfer on the books of the Company
and (c) receive all benefits and otherwise exercise all rights of beneficial
ownership of such Shares (and Distributions), all in accordance with the terms
of the Offer. See Sections 10 and 12 of the Offer to Purchase.
The undersigned hereby irrevocably appoints designees of the Purchaser, and
each of them, the attorneys-in-fact and proxies of the undersigned, each with
full power of substitution, to vote in such manner as each such attorney and
proxy or his or her substitute shall, in his or her sole discretion, deem
proper, and otherwise act (including pursuant to written consent) with respect
to all of the Shares tendered hereby which have been accepted for payment by the
Purchaser prior to the time of such vote or action (and Distributions) which the
undersigned is entitled to vote at any meeting of shareholders of the Company
(whether annual or special and whether or not an adjourned meeting), or by
written consent in lieu of such meeting, or otherwise. This power of attorney
and proxy is coupled with an interest in the Company and in the Shares and is
irrevocable and is granted in consideration of, and is effective upon, the
acceptance for payment of such Shares by the Purchaser in accordance with the
terms of the Offer. Such acceptance for payment shall revoke, without further
action, any other power of attorney or proxy granted by the undersigned at any
time with respect to such Shares (and Distributions) and no subsequent powers of
attorney or proxies will be given (and if given will be deemed not to be
effective) with respect thereto by the undersigned. The undersigned understands
that the Purchaser reserves the right to require that, in order for Shares to be
deemed validly tendered, immediately upon the Purchaser's acceptance for payment
of such Shares, the Purchaser is able to exercise full voting rights with
respect to such Shares and Distributions, including voting at any meeting of
shareholders.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Shares
tendered hereby (and Distributions) and that when the same are accepted for
payment by the Purchaser, the Purchaser will acquire good, marketable and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and the same will not be subject to any adverse claim. The
undersigned, upon request, will execute and deliver any additional documents
deemed by the Depositary or the Purchaser to be necessary or desirable to
complete the sale, assignment and transfer of the Shares tendered hereby (and
Distributions). In addition, the undersigned shall promptly remit and transfer
to the Depositary for the account of the Purchaser any and all other
Distributions in respect of the Shares tendered hereby, accompanied by
appropriate documentation of transfer and, pending such remittance or
appropriate assurance thereof, the Purchaser shall be
<PAGE> 4
entitled to all rights and privileges as owner of such Distributions and may
withhold the entire purchase price or deduct from the purchase price of Shares
tendered hereby the amount or value thereof, as determined by the Purchaser in
its sole discretion.
All authority herein conferred or herein agreed to be conferred shall not
be affected by, and shall survive, the death or incapacity of the undersigned
and any obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, legal representatives, successors and assigns of the
undersigned. Tenders of Shares pursuant to the Offer are irrevocable, except
that Shares tendered pursuant to the Offer may be withdrawn at any time on or
prior to the Expiration Date.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in Section 3 of the Offer to Purchase and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Purchaser upon the terms and subject to the conditions of the Offer.
Unless otherwise indicated herein under "Special Payment Instructions,"
please issue the check for the purchase price and/or return any Share
Certificates not tendered or accepted for payment in the name(s) of the
undersigned. Similarly, unless otherwise indicated under "Special Delivery
Instructions," please mail the check for the purchase price and/or return any
Share Certificates not tendered or accepted for payment (and accompanying
documents as appropriate) to the undersigned at the address shown below the
undersigned's signature. In the event that both the "Special Delivery
Instructions" and the "Special Payment Instructions" are completed, please issue
the check for the purchase price and/or return any Share Certificates not
tendered or accepted for payment in the name(s) of, and deliver said check
and/or return certificates to, the person or persons so indicated. Shareholders
tendering Shares by book-entry transfer may request that any Shares not accepted
for payment be returned by crediting such account maintained at the Book-Entry
Transfer Facility. The undersigned recognizes that the Purchaser has no
obligation pursuant to the "Special Payment Instructions" to transfer any Shares
from the name of the registered holder thereof if the Purchaser does not accept
for payment any of such Shares.
<PAGE> 5
---------------------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if Share Certificates not tendered or not
purchased and/or the check for the purchase price of Shares purchased are
to be issued in the name of someone other than the undersigned, or if
Shares tendered by book-entry transfer which are not purchased are to be
returned by credit to an account maintained at the Book-Entry Transfer
Facility other than that designated on the front cover.
Issue check and/or certificate(s) to:
Name
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(INCLUDE ZIP CODE)
---------------------------------------------------------------------------
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NO.)
(SEE INSTRUCTION FORM W-9)
[ ] Credit unpurchased Shares tendered by book-entry transfer to the
Book-Entry Transfer Facility
---------------------------------------------------------------------------
(ACCOUNT NUMBER)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if Share Certificates not tendered or not
purchased and/or the check for the purchase price of Shares purchased are
to be sent to someone other than the undersigned, or to the undersigned at
an address other than that shown on the front cover.
Mail check and/or certificate to:
Name:
---------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(INCLUDE ZIP CODE)
---------------------------------------------------------------------------
<PAGE> 6
IMPORTANT -- SIGN HERE
SHAREHOLDER: SIGN HERE AND COMPLETE
SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURES(S) OF OWNER(S)
Dated: __________________________ ,1999
(MUST BE SIGNED BY THE REGISTERED HOLDER(S) EXACTLY AS NAME(S) APPEAR(S) ON THE
SHARE CERTIFICATE(S) OR ON A SECURITY POSITION LISTING OR BY PERSON(S)
AUTHORIZED TO BECOME REGISTERED HOLDER(S) BY CERTIFICATES AND DOCUMENTS
TRANSMITTED HEREWITH. IF SIGNATURE IS BY TRUSTEES, EXECUTORS, ADMINISTRATORS,
GUARDIANS, ATTORNEYS-IN-FACT, OFFICERS OF CORPORATIONS OR OTHERS ACTING IN A
FIDUCIARY OR REPRESENTATIVE CAPACITY, PLEASE PROVIDE THE NECESSARY INFORMATION.
SEE INSTRUCTION 5.)
Name(s):------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title):
----------------------------------------------------------------
Address:
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number:
-----------------------------------------------------
Tax Identification or Social Security No:
-------------------------------------------------
(SEE SUBSTITUTE FORM W-9)
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 5)
AFFIX MEDALLION GUARANTEE BELOW:
<PAGE> 7
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required (i) if this Letter of Transmittal is signed by the
registered holder(s) (which term, for purposes of this document, shall include
any participant in the Book-Entry Transfer Facility whose name appears on a
security position listing as the owner of Shares) of the Shares tendered
herewith, unless such holder(s) has completed either the box entitled "Special
Payment Instructions" or the box entitled "Special Delivery Instructions" on the
inside front cover hereof or (ii) if such Shares are tendered for the account of
a firm that is a bank, broker, dealer, credit union, savings association or
other entity which is a member in good standing of the Securities Transfer
Agents Medallion Program (an "Eligible Institution"). In all other cases, all
signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution. See Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES. This Letter of
Transmittal is to be used either if Share Certificates are to be forwarded
herewith or, unless an Agent's Message is utilized, if tenders are to be made
pursuant to the procedures for tender by book-entry transfer set forth in
Section 3 of the Offer to Purchase. Share Certificates, or timely confirmation
of a book-entry transfer (a "Book-Entry Confirmation") of such Shares into the
Depositary's account at the Book-Entry Transfer Facility, as well as this Letter
of Transmittal (or a facsimile hereof), properly completed and duly executed,
with any required signature guarantees, or an Agent's Message in the case of a
book-entry delivery, and any other documents required by this Letter of
Transmittal, must be received by the Depositary at one of its addresses set
forth herein prior to the Expiration Date. Shareholders whose Share Certificates
are not immediately available or who cannot deliver their Share Certificates and
all other required documents to the Depositary prior to the Expiration Date or
who cannot complete the procedures for delivery by book-entry transfer on a
timely basis may tender their Shares by properly completing and duly executing a
Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures set
forth in Section 3 of the Offer to Purchase. Pursuant to such procedure: (i)
such tender must be made by or through an Eligible Institution; (ii) a properly
completed and duly executed Notice of Guaranteed Delivery, substantially in the
form made available by the Purchaser, must be received by the Depositary on or
prior to the Expiration Date; and (iii) the Share Certificates (or a Book-Entry
Confirmation) representing all tendered Shares, in proper form for transfer
together with a properly completed and duly executed Letter of Transmittal (or a
facsimile hereof), with any required signature guarantees (or in the case of a
book-entry delivery an Agent's Message) and any other documents required by this
Letter of Transmittal, must be received by the Depositary within three NYSE
trading days after the date of execution of such Notice of Guaranteed Delivery.
A "NYSE trading day" is any day on which The New York Stock Exchange is open for
business. If Share Certificates are forwarded separately to the Depositary, a
properly completed and duly executed Letter of Transmittal (or facsimile hereof)
must accompany each such delivery.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES, THIS LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH BOOK-ENTRY TRANSFER
FACILITY, IS AT THE OPTION AND SOLE RISK OF THE TENDERING SHAREHOLDER, AND THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF
DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ENSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted, and no
fractional Shares will be purchased. All tendering shareholders, by execution of
this Letter of Transmittal or facsimile hereof, waive any right to receive any
notice of the acceptance of their Shares for payment.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares and any other required
information should be listed on a separate schedule attached hereto and
separately signed on each page thereof in the same manner as this Letter of
Transmittal is signed.
4. PARTIAL TENDERS (NOT APPLICABLE TO SHAREHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER). If fewer than all the Shares evidenced by any Share Certificate
submitted are to be tendered, fill in the number of Shares which are to be
tendered in the box entitled "Number of Shares Tendered." In such case, new
certificate(s) for the remainder of the Shares that were evidenced by your old
Share Certificate(s) will be sent to you, unless otherwise provided in the
appropriate box marked "Special Payment Instructions" and/or "Special Delivery
Instructions" on this Letter of Transmittal, as soon as practicable after the
Expiration Date. All Shares represented by Share Certificates delivered to the
Depositary will be deemed to have been tendered unless otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond exactly with the name(s) as
written on the face of the Share Certificate(s) without alteration, enlargement
or any change whatsoever.
If any of the Shares tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
<PAGE> 8
If any tendered Shares are registered in different names on several Share
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of Share
Certificates.
If this Letter of Transmittal or any Share Certificates or stock powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and proper evidence
satisfactory to the Purchaser of their authority so to act must be submitted.
When this Letter of Transmittal is signed by the registered owner(s) of the
Shares listed and transmitted hereby, no endorsements of Share Certificates or
separate stock powers are required unless payment is to be made to or Share
Certificates not tendered or purchased are to be issued in the name of a person
other than the registered owner(s). Signatures on such Share Certificates or
stock powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Shares listed, the Share Certificates must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name or names of the registered owner(s) appear(s) on the Share
Certificates. Signatures on such Share Certificates or stock powers must be
guaranteed by an Eligible Institution.
6. STOCK TRANSFER TAXES. Except as set forth in this Instruction 6, the
Purchaser will pay or cause to be paid any stock transfer taxes with respect to
the transfer and sale of purchased Shares to it or its order pursuant to the
Offer. If, however, payment of the purchase price is to be made to, or if Share
Certificates not tendered or purchased are to be registered in the name of, any
person other than the registered holder(s), or if tendered Share Certificates
are registered in the name of any person other than the person(s) signing this
Letter of Transmittal, the amount of any stock transfer taxes (whether imposed
on the registered holder(s) or such person) payable on account of the transfer
to such person will be deducted from the purchase price received by such
holder(s) pursuant to this Offer (i.e., such purchase price will be reduced)
unless satisfactory evidence of the payment of such taxes or exemption therefrom
is submitted.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE SHARE CERTIFICATES LISTED IN THIS
LETTER OF TRANSMITTAL.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If (i) a check is to be
issued in the name of and/or (ii) Share Certificates for unpurchased Shares are
to be returned to a person other than the signer of this Letter of Transmittal
or if a check is to be sent and/or such certificates are to be returned to
someone other than the signer of this Letter of Transmittal or to an address
other than that shown on the front cover hereof, the appropriate boxes on this
Letter of Transmittal should be completed. Shareholders tendering Shares by
book-entry transfer (i.e., Book-Entry Shareholders) may request that Shares not
purchased be credited to such account maintained at the Book-Entry Transfer
Facility as such Book-Entry Shareholder may designate hereon. If no such
instructions are given, such Shares not purchased will be returned by crediting
the account at the Book-Entry Transfer Facility designated above. See
Instruction 1.
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance
may be directed to the Information Agent at its addresses set forth below.
Requests for additional copies of the Offer to Purchase and this Letter of
Transmittal may be directed to the Information Agent or to brokers, dealers,
commercial banks or trust companies.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income
tax law, a shareholder whose tendered Shares are accepted for payment is
required to provide the Depositary with such shareholder's correct taxpayer
identification number ("TIN") on Substitute Form W-9 below. If the Depositary is
not provided with the correct TIN, or an adequate basis for exemption, the
Internal Revenue Service may subject the shareholder or other payee to a $50
penalty, and the gross proceeds of any payments that are made to such
shareholder or other payee with respect to Shares purchased pursuant to the
Offer may be subject to 31% backup withholding. If withholding results in an
overpayment of taxes, a refund may be obtained.
Certain shareholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, the shareholder must submit a Form W-8, signed under penalties of
perjury, attesting to that individual's exempt status. A Form W-8 can be
obtained from the Depositary. See the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for more instructions.
If backup withholding applies, the Depositary is required to withhold 31%
of any such payments made to the shareholder or other payee. Backup withholding
is not an additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.
<PAGE> 9
To prevent backup withholding on payments that are made to a shareholder
with respect to Shares purchased pursuant to the Offer, the shareholder is
required to notify the Depositary of such shareholder's correct TIN by
completing a Substitute Form W-9 certifying (i) that the TIN provided on
Substitute Form W-9 is correct (or that such shareholder is awaiting a TIN), and
(ii) that (a) such shareholder is exempt from backup withholding or (b) such
shareholder has not been notified by the Internal Revenue Service that such
shareholder is subject to backup withholding as a result of a failure to report
all interest or dividends or (c) the Internal Revenue Service has notified such
shareholder that such shareholder is no longer subject to backup withholding.
Exempt holders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. To prevent possible erroneous backup withholding, an exempt holder
must enter its correct TIN in Part 1 of Substitute Form W-9, write "Exempt" in
Part 2 of such form, and sign and date the form. See the enclosed Guidelines for
Certification of Taxpayer Identification Number of Substitute Form W-9 (the "W-9
Guidelines") for additional instructions. In order for a nonresident alien or
foreign entity to qualify as exempt, such person must submit a completed Form
W-8, "Certificate of Foreign Status" signed under penalties of perjury attesting
to such exempt status. Such forms may be obtained from the Payor.
If you do not have a TIN, consult the W-9 Guidelines for instructions on
applying for a TIN, write "Applied For" in the space for the TIN in Part 1 of
the Substitute Form W-9, and sign and date the Substitute Form W-9 and the
Certificate of Awaiting Taxpayer Identification Number set forth herein. If you
do not provide your TIN to the Payor within 60 days, backup withholding will
begin and continue until you furnish your TIN to the Payor.
NOTE: WRITING "APPLIED FOR" ON THE FORM MEANS THAT YOU HAVE ALREADY APPLIED FOR
A TIN OR THAT YOU INTEND TO APPLY FOR ONE IN THE NEAR FUTURE.
The shareholder is required to give the Depositary the TIN of the record
owner of the Shares or of the last transferee appearing on the transfers
attached to, or endorsed on, the Shares. If the Shares are in more than one name
or are not in the name of the actual owner, consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which number to report.
10. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Share Certificate(s)
has been lost, destroyed or stolen, the shareholder should promptly notify the
Depositary. The shareholder will then be instructed as to the steps that must be
taken in order to replace the Share Certificate(s). This Letter of Transmittal
and related documents cannot be processed until the procedures for replacing
lost or destroyed Share Certificates have been followed.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE COPY HEREOF) OR AN AGENT'S
MESSAGE TOGETHER WITH SHARE CERTIFICATES OR CONFIRMATION OF
BOOK-ENTRY TRANSFER OR A PROPERLY COMPLETED AND DULY EXECUTED NOTICE
OF GUARANTEED DELIVERY AND ALL OTHER REQUIRED DOCUMENTS MUST BE
RECEIVED BY THE DEPOSITARY ON OR PRIOR TO THE EXPIRATION DATE.
<PAGE> 10
TO BE COMPLETED BY ALL TENDERING SHAREHOLDERS OF SECURITIES
(SEE INSTRUCTION 9)
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
PAYOR'S NAME: NATIONAL CITY BANK
- -----------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND TIN: -----------------------
FORM W-9 CERTIFY BY SIGNING AND DATING BELOW. (Social Security Number
or Employer
Identification Number)
---------------------------------------------------------------------------------------------
Department of the
Treasury, Internal PART 2--For Payees exempt from backup withholding
Revenue Service (See Instructions)
-------------------------------------------------------------------------------------------
PAYOR'S REQUEST FOR TAX- PART 3--CERTIFICATIONS--Under penalties of perjury, I certify that:
PAYER'S IDENTIFICATION NUMBER
("TIN") AND CERTIFICATION (1) The number shown on this form is my correct Taxpayer Identification Number (or I am
waiting for a number to be issued to me) and
(2) I am not subject to backup withholding either because: (a) I am exempt from backup
withholding; or (b) I have not been notified by the Internal Revenue Service (the
"IRS") that I am subject to backup withholding as a result of failure to report all
interest or dividends, or (c) the IRS has notified me that I am no longer subject to
backup withholding.
-------------------------------------------------------------------------------------------
Signature ___________________________________ Date ________________
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
You must cross out item (2) above if you have been notified by the IRS that you
are subject to backup withholding because of underreporting interest or
dividends on your tax return. However, if after being notified by the IRS that
you were subject to backup withholding, you received another notification from
the IRS that you were no longer subject to back-up withholding, do not cross out
item (2) (also see instructions in the enclosed Guidelines).
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
WROTE "APPLIED FOR" IN PART 1 OF SUBSTITUTE FORM W-9.
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has not been issued to
me, and either (1) I have mailed or delivered an application to receive a taxpayer identification
number to the appropriate Internal Revenue Service Center or Social Security Administration
Office or (2) I intend to mail or deliver an application in the near future. I understand that if
I do not provide a taxpayer identification number to the payor within 60 days, 31% of all
reportable payments made to me will be withheld.
Signature: ______________________________________________________ Date: ______________________
- --------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
<PAGE> 11
FACSIMILE COPIES OF THE LETTER OF TRANSMITTAL, PROPERLY COMPLETED AND DULY
EXECUTED, WILL BE ACCEPTED. THE LETTER OF TRANSMITTAL, SHARE CERTIFICATES AND
ANY OTHER REQUIRED DOCUMENTS SHOULD BE SENT OR DELIVERED BY EACH SHAREHOLDER OF
THE COMPANY OR HIS BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER
NOMINEE TO THE DEPOSITARY AT ONE OF ITS ADDRESSES SET FORTH BELOW:
The Depositary for the Offer is:
NATIONAL CITY BANK
<TABLE>
<S> <C>
By Mail: By Hand/Overnight Courier:
National City Bank
National City Bank Corporate Trust Operations
Corporate Trust Operations 3rd Floor, North Annex
P.O. Box 94720 4100 West 150th Street
Cleveland, Ohio 44101-4720 Cleveland, Ohio 44135
</TABLE>
Telephone:
(800) 622-6757
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
listed below. Additional copies of the Offer to Purchase, the Letter of
Transmittal and other tender offer materials may be obtained from the
Information Agent or the Dealer Manager as set forth below, and will be
furnished promptly at the Purchaser's expense. You may also contact your broker,
dealer, commercial bank, trust company or other nominee for assistance
concerning the Offer.
The Information Agent for the Offer is:
CORPORATE INVESTOR COMMUNICATIONS, INC.
111 Commerce Road
Carlstadt, New Jersey 07072
Please call (toll-free):
(888) 976-2663
The Dealer Manager for the Offer is:
MERRILL LYNCH & CO.
North Tower
World Financial Center
250 Vesey Street
New York, New York 10281-1201
(212) 449-8971
<PAGE> 1
NPI LOGO
Exhibit (a)(5)
July 13, 1999
Dear Shareholder:
On June 22, 1999, National City Corporation announced a tender offer for
all of National Processing's shares it does not currently own at a price of
$9.50 per share in cash. National City currently owns approximately 88% of
National Processing's shares. This tender offer was made after several weeks of
discussion between representatives of National City and representatives of a
Special Committee of National Processing's board of directors comprised solely
of outside directors.
THE SPECIAL COMMITTEE HAS DETERMINED THAT THE NATIONAL CITY TENDER OFFER IS
INADEQUATE AND NOT IN THE BEST INTERESTS OF NATIONAL PROCESSING'S MINORITY
SHAREHOLDERS. ACCORDINGLY, THE SPECIAL COMMITTEE RECOMMENDS THAT YOU REJECT THE
NATIONAL CITY TENDER OFFER AND NOT TENDER YOUR SHARES.
In its recommendation to National Processing shareholders, the Special
Committee cited, among other things:
- The Special Committee's belief that National City's tender offer is
at an inadequate price that does not reflect the inherent value of
National Processing.
- The Special Committee's belief that continued pursuit of National
Processing's business plan will produce greater value for National
Processing's minority shareholders than National City's tender
offer.
- The opinion of Deutsche Bank Securities Inc., the Special
Committee's financial advisor, that National City's tender offer is
inadequate, from a financial point of view, to National Processing's
minority shareholders.
- The inappropriate timing of the tender offer, which is scheduled to
be completed before National Processing's minority shareholders have
an opportunity to fully assess National Processing's recent
divestitures, improved operating performance and increased focus on
its core businesses.
- The unfair nature of National City's tender offer, which permits
National City to waive the minimum condition to the tender offer
(which would require the tender of at least a majority of the
publicly held shares) and "squeeze out" the minority shareholders in
a second step merger if as few as 2% of National Processing's
outstanding shares (or 17% of the publicly held shares) are
tendered.
Although these factors led the Special Committee to recommend that you
reject National City's tender offer, the Special Committee recognized that if
National City is not successful in its attempt to acquire all of National
Processing's publicly held shares, the market price of any shares not tendered
may substantially decline from current levels and National City could seek to
acquire your shares at a lower price (and could even seek to unilaterally
"squeeze out" the minority shareholders at a lower price). The Special Committee
also considered that National Processing might not be successful in achieving
its business plan and/or the equity market could decline. Either of these
conditions could adversely affect the market price for the shares.
NPI ADDRESS
<PAGE> 2
These and other factors described in the attached
Solicitation/Recommendation Statement on Schedule 14D-9 being filed today with
the Securities and Exchange Commission were carefully considered by the Special
Committee. We urge you to read carefully the Schedule 14D-9 so that you will be
fully informed as to the Special Committee's recommendation. In particular, we
call your attention to Item 4 of the Schedule 14D-9 (starting on page 4), which
describes the background of the offer and the reasons for the Special
Committee's recommendation.
The Special Committee acted in good faith in an effort to reach agreement
on a fair price at which National City could acquire National Processing's
public shares and proposed that $16.50 per share would be an acceptable price.
Instead of continuing its discussions with the Special Committee, National City
unilaterally commenced a tender offer. Given the $9.50 per share price of the
tender offer, the Special Committee believes that you will be better served by
National Processing's pursuit of its business plan rather than tendering your
shares at the offer price. If you decide to tender your shares, we believe
National City will intercept the substantial inherent and upside value of
National Processing represented by your shares at an inadequate price.
On behalf of the Special Committee,
/s/ Preston B. Heller, Jr.
Preston B. Heller, Jr.
Chairman of the Special Committee
<PAGE> 1
Exhibit (a)(6)
[Letterhead of National Processing, Inc.]
FOR INFORMATION CONTACT:
Jim Cate
Executive Vice President
Chief Financial Officer
502-315-5050
For Immediate Release
NATIONAL PROCESSING ANNOUNCES SPECIAL COMMITTEE
RECOMMENDATION AGAINST NATIONAL CITY TENDER OFFER
LOUISVILLE, KENTUCKY--July 13, 1999--National Processing, Inc.
(NYSE:NAP) today announced that the Special Committee of its Board of Directors
has determined that the tender offer by National City Corporation (NYSE:NCC) is
inadequate and not in the best interests of National Processing's minority
shareholders. Accordingly, the Special Committee recommends that National
Processing's minority shareholders reject the National City tender offer and not
tender their shares. National City's tender offer was made after several weeks
of discussion between representatives of National City and representatives of a
Special Committee of National Processing's board of directors comprised solely
of outside directors. National City currently owns approximately 88% of National
Processing's shares.
In its recommendation to National Processing shareholders, the Special
Committee cited, among other things:
- The Special Committee's belief that National City's tender
offer is at an inadequate price that does not reflect the
inherent value of National Processing.
- The Special Committee's belief that continued pursuit of
National Processing's business plan will produce greater value
for National Processing's minority shareholders than National
City's tender offer.
- The opinion of Deutsche Bank Securities Inc., the Special
Committee's financial advisor, that National City's tender
offer is inadequate, from a financial point of view, to
National Processing's minority shareholders.
- The inappropriate timing of the tender offer, which is
scheduled to be completed before National Processing's
minority shareholders have an opportunity to fully assess
National Processing's recent divestitures, improved operating
performance and increased focus on its core businesses.
- The unfair nature of National City's tender offer, which
permits National City to waive the minimum condition to the
tender offer (which would require the tender of at least a
majority of the publicly held shares) and "squeeze out" the
minority shareholders in a second step merger if as few as 2%
of National Processing's outstanding shares (or 17% of the
publicly held shares) are tendered.
<PAGE> 2
Although these factors led the Special Committee to recommend that
National Processing's minority shareholders reject National City's tender offer,
the Special Committee recognized that if National City is not successful in its
attempt to acquire all of National Processing's publicly held shares, the market
price of any shares not tendered may substantially decline from current levels
and National City could seek to acquire National Processing's publicly held
shares at a lower price (and could even seek to unilaterally "squeeze out" the
minority shareholders at a lower price). The Special Committee also considered
that National Processing might not be successful in achieving its business plan
and/or the equity market could decline. Either of these conditions could
adversely affect the market price for the shares.
Mr. Preston B. Heller, Jr., Chairman of the Special Committee, made the
following statement on behalf of the Special Committee:
"The Special Committee acted in good faith in an effort to reach
agreement on a fair price at which National City could acquire National
Processing's public shares and proposed that $16.50 per share would be
an acceptable price. Instead of continuing its discussions with the
Special Committee, National City unilaterally commenced a tender offer.
Given the $9.50 per share price of the tender offer, the Special
Committee believes that National Processing's minority shareholders
will be better served by National Processing's pursuit of its business
plan rather than tendering their shares at the offer price. If National
Processing's minority shareholders decide to tender their shares, we
believe National City will intercept the substantial inherent and
upside value of National Processing represented by their shares at an
inadequate price."
National Processing is a leading provider of transaction processing
services and customized processing solutions.
Statements regarding the future value of National Processing, the
future market price of National Processing's shares and National Processing's
ability to achieve its business plan, as well as any other statements that are
not historical facts in this release, are forward-looking statements that
involve certain risks, uncertainties and assumptions. These include but are not
limited to, the risks inherent in National Processing's business and other
factors detailed in National Processing's filings with the Securities and
Exchange Commission. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those indicated.
<PAGE> 1
Exhibit (a)(7)
DIRECTOR INDEMNIFICATION AGREEMENT
----------------------------------
This Director Indemnification Agreement, dated as of
_________________, 1999 (this "Agreement"), is made by and between National
Processing, Inc., an Ohio corporation (the "Company"), and ____________________
(the "Indemnitee"), a director of the Company.
RECITALS
--------
A. The Indemnitee is presently serving as a director of the
Company, and the Company desires that the Indemnitee continue serving in that
capacity. The Indemnitee is willing, subject to certain conditions including the
execution and performance of this Agreement by the Company, to continue serving
in that capacity.
B. In addition to the indemnification to which the Indemnitee
is entitled under the Code of Regulations of the Company (the "Regulations"),
the Company has obtained, at its sole expense, insurance protecting the Company
and its officers and directors including the Indemnitee against certain losses
arising out of any threatened, pending or completed action, suit, or proceeding
to which such persons may be made or are threatened to be made parties.
NOW, THEREFORE, in order to induce the Indemnitee to continue
to serve in his present capacity, the Company and the Indemnitee agree as
follows:
1. CONTINUED SERVICE
-----------------
The Indemnitee shall continue to serve as a director of the
Company so long as he is duly elected in accordance with the Regulations or
until he resigns in writing or is removed in accordance with applicable law.
2. INITIAL INDEMNITY
-----------------
(a) The Company shall indemnify the Indemnitee, if or when he
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 Company), by
reason of the fact that he is or was a director of the Company or is or was
serving at the request of the Company as a director, trustee, officer, employee,
or agent of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, or by reason of any
action alleged to have been taken or omitted in any such capacity, against any
and all costs, charges, expenses (including fees and expenses of attorneys
and/or others; all such costs, charges and expenses being herein jointly
referred to as "Expenses"), judgments, fines, and amounts
1
<PAGE> 2
paid in settlement, actually and reasonably incurred by the Indemnitee in
connection therewith including any appeal of or from any judgment or decision,
unless it is proved by clear and convincing evidence in a court of competent
jurisdiction that the Indemnitee's action or failure to act involved an act or
omission undertaken with deliberate intent to cause injury to the Company or
undertaken with reckless disregard for the best interests of the Company. In
addition, with respect to any criminal action or proceeding, indemnification
hereunder shall be made only if the Indemnitee had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, or conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the Indemnitee did not satisfy the applicable standard of conduct.
(b) The Company shall indemnify the Indemnitee, if or when he
is a party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding by or in the right of the Company to
procure a judgment in its favor, by reason of the fact that the Indemnitee is or
was a director of the Company or is or was serving at the request of the Company
as a director, trustee, officer, employee, or agent of another corporation,
domestic or foreign, nonprofit or for profit, partnership, joint venture, trust,
or other enterprise, against any and all Expenses actually and reasonably
incurred by the Indemnitee in connection with the defense or settlement thereof
or any appeal of or from any judgment or decision, unless it is proved by clear
and convincing evidence in a court of competent jurisdiction that the
Indemnitee's action or failure to act involved an act or omission undertaken
with deliberate intent to cause injury to the Company or undertaken with
reckless disregard for the best interests of the Company, except that no
indemnification shall be made in respect of any action or suit in which the only
liability asserted against Indemnitee is pursuant to Section 1701.95 of the Ohio
Revised Code.
(c) Any indemnification under Section 2(a) or 2(b) (unless
ordered by a court) shall be made by the Company only as authorized in the
specific case upon a determination that indemnification of the Indemnitee is
proper in the circumstances because he has met the applicable standard of
conduct set forth in Section 2(a) or 2(b). Such authorization shall be made (i)
by the Board of Directors of the Company (the "Board") by a majority vote of a
quorum consisting of directors who were not and are not parties to or threatened
with such action, suit, or proceeding, or (ii) if such a quorum of disinterested
directors is not available or if a majority of such quorum so directs, in a
written opinion by independent legal counsel (designated for such purpose by the
Board), a copy of which will be delivered to Indemnitee, which shall not be an
attorney, or a firm having associated with it an attorney, who has been retained
by or who has performed services for the Company, or any person to be
indemnified, within the five years preceding such determination ("Independent
Counsel"), or (iii) by the shareholders of the Company (the "Shareholders"), or
(iv) by the court of common pleas or other court in which such action, suit, or
proceeding was brought.
(d) To the extent that the Indemnitee has been successful on
the merits or otherwise, including the dismissal of an action without prejudice,
in defense of any action, suit, or proceeding referred to in Section 2(a) or
2(b), or in defense of any claim, issue, or matter therein, he shall be
indemnified against Expenses actually and reasonably incurred by him in
connection
2
<PAGE> 3
therewith. Expenses actually and reasonably incurred by the Indemnitee in
defending any such action, suit, or proceeding shall be paid by the Company as
they are incurred in advance of the final disposition of such action, suit, or
proceeding under the procedure set forth in Section 4(b) hereof.
(e) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on the Indemnitee with respect to any employee
benefit plan; references to "serving at the request of the Company" shall
include any service as a director, officer, employee, or agent of the Company
which imposes duties on, or involves services by, the Indemnitee with respect to
an employee benefit plan, its participants or beneficiaries; references to the
masculine shall include the feminine; references to the singular shall include
the plural and vice versa; the word including is used by way of illustration
only and not by way of limitation.
(f) The Company will indemnify, and advance Expenses to,
Indemnitee to the fullest extent the Company's Articles of Incorporation (the
"Articles"), the Regulations, the laws of the State of Ohio or other applicable
law in effect on the date hereof permits. If the Articles, the Regulations, the
laws of the State of Ohio or other applicable law is amended or modified after
the date hereof, the parties hereby agree that Indemnitee shall be entitled to
any additional indemnification rights resulting from such amendment or
modification, but only to the extent that such amendment or modification permits
the Company to provide broader indemnification rights than the Articles, the
Regulations, the laws of the State of Ohio or other applicable law permitted the
Company to provide prior to such amendment or modification.
3. ADDITIONAL INDEMNIFICATION
--------------------------
(a) Pursuant to Section 1701.13(E)(6) of the General
Corporation Law of the State of Ohio (the "OCL"), without limiting any right
which the Indemnitee may have pursuant to Section 2 hereof or any other
provision of this Agreement or the Articles, the Regulations, the OCL, any
policy of insurance, or otherwise, but subject to any limitation on the maximum
permissible indemnity which may exist under applicable law at the time of any
request for indemnity hereunder and subject to the following provisions of this
Section 3, the Company shall indemnify the Indemnitee against any amount which
he is or becomes obligated to pay relating to or arising out of any claim made
against him because of any act, failure to act, or neglect or breach of duty,
including any actual or alleged error, misstatement, or misleading statement,
that he commits, suffers, permits, or acquiesces in while acting in his capacity
as a director of the Company. The payments which the Company is obligated to
make pursuant to this Section 3 shall include judgments, fines, and amounts paid
in settlement and any and all Expenses, actually and reasonably incurred by the
Indemnitee in connection therewith including any appeal of or from any judgment
or decision; provided, however, that the Company shall not be obligated under
this Section 3 to make any payment in connection with any claim against the
Indemnitee:
3
<PAGE> 4
(i) to the extent of any fine or similar
governmental imposition which the Company is
prohibited by applicable law from paying
which results from a final, nonappealable
order; or
(ii) to the extent based upon or attributable to
the Indemnitee having actually realized a
personal gain or profit to which he was not
legally entitled, including profit from the
purchase and sale by the Indemnitee of
equity securities of the Company which are
recoverable by the Company pursuant to
Section 16(b) of the Securities Exchange Act
of 1934, or profit arising from transactions
in publicly traded securities of the Company
which were effected by the Indemnitee in
violation of Section 10(b) of the Securities
Exchange Act of 1934, or Rule 10b-5
promulgated thereunder.
(b) Notwithstanding any other provision hereof, to the extent
that Indemnitee is, by reason of the fact that he is or was a director of the
Company or is or was serving at the request of the Company as a director,
trustee, officer, employee, or agent of another corporation, domestic or
foreign, nonprofit or for profit, partnership, joint venture, trust, or other
enterprise, a witness in any action, suit, or proceeding to which Indemnitee is
not a party, the Company will indemnify him against all Expenses actually and
reasonably incurred by him or on his behalf in connection therewith.
(c) A determination as to whether the Indemnitee shall be
entitled to indemnification under this Section 3 shall be made in accordance
with Section 4(a) hereof. Expenses incurred by the Indemnitee in defending any
claim to which this Section 3 applies shall be paid by the Company as they are
actually and reasonably incurred in advance of the final disposition of such
claim under the procedure set forth in Section 4(b) hereof.
4. CERTAIN PROCEDURES RELATING TO INDEMNIFICATION
----------------------------------------------
(a) For purposes of pursuing his rights to indemnification
hereunder the Indemnitee shall (i) submit to the Board a sworn statement of
request for indemnification substantially in the form of Exhibit l attached
hereto and made a part hereof (the "Indemnification Statement") averring that he
is entitled to indemnification hereunder; and (ii) present to the Company
reasonable evidence of all amounts for which indemnification is requested. The
Company shall, within 30 calendar days after submission of the Indemnification
Statement, make the payments requested in the Indemnification Statement to or
for the benefit of the Indemnitee, unless (A) a determination is made pursuant
to Section 2(c) during such 30 calendar-day-period that indemnification under
Section 2 hereof is not authorized and (B) (i) within such 30-calendar-day
period the Board shall resolve by vote of a majority of the directors at a
meeting at which a quorum is present that the Indemnitee is not entitled to
indemnification under Section 3 hereof, and (ii) such vote shall be based upon
clear and convincing evidence, and (C) the Indemnitee shall have received
4
<PAGE> 5
within such period notice in writing of such determination, which notice shall
disclose with particularity the evidence upon which the determination is based.
The foregoing notice shall be sworn to by all persons who participated in the
determination to deny indemnification. The provisions of this Section 4(a) are
intended to be procedural only and shall not affect the right of Indemnitee to
indemnification under Section 3 of this Agreement so long as Indemnitee follows
the prescribed procedure and any determination by the Board that Indemnitee is
not entitled to indemnification and any failure to make the payments requested
in the Indemnification Statement shall be subject to judicial review by any
court of competent jurisdiction.
(b) For purposes of obtaining payments of Expenses in advance
of final disposition pursuant to the second sentence of Section 2(d) or the last
sentence of Section 3 hereof, the Indemnitee shall submit to the Company a sworn
request for advancement of Expenses substantially in the form of Exhibit 2
attached hereto and made a part hereof (the "Undertaking"), averring that he has
reasonably incurred actual Expenses in defending an action, suit or proceeding
referred to in Section 2(a) or 2(b) or any claim referred to in Section 3, or
pursuant to Section 8 hereof. Unless the only liability asserted against the
Indemnitee in the subject action, suit or proceeding is pursuant to OCL Section
1701.95, the Indemnitee shall be eligible to execute Part A of the Undertaking
by which he undertakes to (a) repay such amount if it is proved by clear and
convincing evidence in a court of competent jurisdiction that the Indemnitee's
action or failure to act involved an act or omission undertaken with deliberate
intent to cause injury to the Company or undertaken with reckless disregard for
the best interests of the Company and (b) reasonably cooperate with the Company
concerning the action, suit, proceeding or claim. In all cases, the Indemnitee
shall be eligible to execute Part B of the Undertaking by which he undertakes to
repay such amount if it ultimately is determined that he is not entitled to be
indemnified by the Company under this Agreement or otherwise. In the event that
the Indemnitee is eligible to and does execute both Part A and Part B of the
Undertaking, the Expenses which are paid by the Company pursuant thereto shall
be required to be repaid by the Indemnitee only if he is required to do so under
the terms of both Part A and Part B of the Undertaking. Upon receipt of the
Undertaking, the Company shall thereafter promptly, and in any event within 10
calendar days, pay such Expenses of the Indemnitee as are noticed to the Company
in writing and in reasonable detail arising out of the matter described in the
Undertaking. No security shall be required in connection with any Undertaking,
and the Company will accept any such Undertaking without reference to the
financial ability of Indemnitee to make repayment.
(c) In making a determination with respect to entitlement to
indemnification hereunder, the person, persons or entity making that
determination must presume that Indemnitee is entitled to indemnification
hereunder if Indemnitee has submitted a request for indemnification in
accordance with Section 4(a), and the Company will have the burden of proof to
overcome that presumption by clear and convincing evidence in connection with
the making by any person, persons or entity of any determination contrary to
that presumption.
5
<PAGE> 6
5. LIMITATION ON INDEMNITY
-----------------------
Notwithstanding anything contained herein to the contrary, the
Company shall not be required hereby to indemnify the Indemnitee with respect to
any action, suit, or proceeding that was initiated by the Indemnitee unless (a)
such action, suit, or proceeding was initiated by the Indemnitee to enforce any
rights to indemnification arising hereunder, (b) authorized by another agreement
to which the Company is a party whether heretofore or hereafter entered, (c)
otherwise ordered by the court in which the suit was brought or (d) approved by
the Board.
6. SUBROGATION; DUPLICATION OF PAYMENTS
------------------------------------
(a) In the event of payment under this Agreement the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.
(b) The Company shall not be liable under this Agreement to
make any payment in connection with any claim made against Indemnitee to the
extent Indemnitee has actually received payment (under any insurance policy, the
Company's Regulations or otherwise) of the amounts otherwise payable hereunder.
7. RATIFICATION
------------
The Company may, at its option, propose at any future meeting
of Shareholders that this Agreement be ratified by the Shareholders; PROVIDED,
HOWEVER, that the Indemnitee's rights hereunder shall be fully enforceable in
accordance with the terms hereof whether or not such ratification is sought or
obtained.
8. ENFORCEMENT
-----------
(a) In the event that (i) a determination is made that
Indemnitee is not entitled to indemnification hereunder, (ii) advancement of
Expenses is not timely made pursuant hereto, or (iii) payment of indemnification
is not made within 30 calendar days after receipt by the Company of a request
therefor, Indemnitee will be entitled to an adjudication from any United States
District Court for the Northern District of Ohio of his entitlement to that
indemnification or advancement of Expenses. Alternatively, Indemnitee, at his
option, may seek an award in arbitration to be conducted by a single arbitrator
pursuant to the Commercial Arbitration Rules of the American Arbitration
Association.
6
<PAGE> 7
(b) If a determination has been made that Indemnitee is not
entitled to indemnification hereunder, any judicial proceeding or arbitration
commenced pursuant to this Section 5 will be conducted in all respects as a de
novo trial, or arbitration, on the merits and Indemnitee will not be prejudiced
by reason of that adverse determination. In any judicial proceeding or
arbitration commenced pursuant to this Section 5, the Company will have the
burden of proving that Indemnitee is not entitled to indemnification or
advancement of Expenses, as the case may be.
(c) If a determination has been made by an Independent Counsel
that Indemnitee is entitled to indemnification hereunder, the Company will be
bound by that determination in any judicial proceeding or arbitration commenced
pursuant to this Section 5, absent (i) a misstatement by Indemnitee of a
material fact, or an omission by Indemnitee of a material fact necessary to make
Indemnitee's statements not materially misleading, in connection with the
request for indemnification, or (ii) a prohibition of such indemnification under
applicable law.
(d) It is the intent of the Company that the Indemnitee not be
required to incur the expenses associated with the enforcement of his rights
under this Agreement by litigation or other legal action because the cost and
expense thereof would substantially detract from the benefits intended to be
extended to the Indemnitee hereunder. Accordingly, if it should appear to the
Indemnitee that the Company has failed to comply with any of its obligations
under this Agreement or in the event that the Company or any other person takes
any action to declare this Agreement void or unenforceable, or institutes any
action, suit or proceeding to deny, or to recover from, the Indemnitee the
benefits intended to be provided to the Indemnitee hereunder, the Company
irrevocably authorizes the Indemnitee from time to time to retain counsel of his
choice, at the expense of the Company as hereafter provided, to represent the
Indemnitee in connection with the initiation or defense of any litigation or
other legal action, whether by or against the Company or any director, officer,
shareholder, or other person affiliated with the Company, in any jurisdiction.
Regardless of the outcome thereof, the Company shall pay and be solely
responsible for any and all costs, charges, and expenses, including fees and
expenses of attorneys and others, reasonably incurred by the Indemnitee pursuant
to this Section 8.
9. MERGER OR CONSOLIDATION
-----------------------
In the event that the Company shall be a constituent
corporation in a consolidation, merger, or other reorganization, the Company, if
it shall not be the surviving, resulting, or acquiring corporation therein,
shall require as a condition thereto that the surviving, resulting, or acquiring
corporation agree to assume all of the obligations of the Company hereunder and
to indemnify the Indemnitee to the full extent provided herein. Whether or not
the Company is the resulting, surviving, or acquiring corporation in any such
transaction, the Indemnitee shall also stand in the same position under this
Agreement with respect to the resulting, surviving, or acquiring corporation as
he would have with respect to the Company if its separate existence had
continued.
7
<PAGE> 8
10. NONEXCLUSIVITY, SEVERABILITY AND INSURANCE
------------------------------------------
(a) The rights to indemnification provided by this Agreement
shall not be exclusive of any other rights of indemnification to which the
Indemnitee may be entitled under the Articles, the Regulations, the OCL or any
other statute, any insurance policy, agreement, or vote of shareholders or
directors or otherwise, as to any actions or failures to act by the Indemnitee,
and shall continue after he has ceased to be a director, officer, employee, or
agent of the Company or other entity for which his service gives rise to a right
hereunder, and shall inure to the benefit of his heirs, executors and
administrators.
(b) If any provision of this Agreement or the application of
any provision hereof to any person or circumstances is held invalid,
unenforceable, or otherwise illegal, the remainder of this Agreement and the
application of such provision to other persons or circumstances shall not be
affected, and the provision so held to be invalid, unenforceable, or otherwise
illegal shall be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid and legal.
(c) If the Company maintains an insurance policy or policies
providing liability insurance for directors, officers, employees, agents or
fiduciaries of the Company or of any other entity that any such person serves at
the written request of the Company, Indemnitee will be covered by such policy or
policies in accordance with its or their terms to the maximum extent of the
coverage available for any such director, officer, employee, agent or fiduciary
under such policy or policies.
11. SECURITY
--------
To ensure that the Company's obligations pursuant to this
Agreement can be enforced by Indemnitee, the Company may establish a trust
pursuant to which the Company's obligations pursuant to this Agreement and other
similar agreements can be funded.
12. GOVERNING LAW
-------------
This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio, without giving effect to the
principles of conflict of laws thereof.
13. MODIFICATION
------------
This Agreement and the rights and duties of the Indemnitee and
the Company hereunder may be modified only by an instrument in writing signed by
both parties hereto.
8
<PAGE> 9
14. CONTRIBUTION
------------
To the fullest extent applicable law permits, if the
indemnification this Agreement provides is unavailable to Indemnitee for any
reason whatsoever, the Company, in lieu of indemnifying Indemnitee, will
contribute to the amount incurred by Indemnitee, whether for judgments, fines,
penalties, excise taxes, amounts paid or to be paid in settlement and/or for
Expenses, in connection with any claim relating to an indemnifiable event under
this Agreement, in such proportion as is deemed fair and reasonable in light of
all the circumstances of that action, claim or proceeding in order to reflect:
(i) the relative benefits received by the Company and Indemnitee as a result of
the event(s) and/or transaction(s) giving rise to that action, claim or
proceeding; and/or (ii) the relative fault of the Company (and its directors,
officers, employees and agents) and Indemnitee in connection with such event(s)
and/or transaction(s).
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
NATIONAL PROCESSING, INC.
By__________________________
Title:______________________
_________________________
[Signature of Indemnitee]
9
<PAGE> 10
Exhibit l
---------
INDEMNIFICATION STATEMENT
-------------------------
STATE OF ______________)
) SS
COUNTY OF _____________)
I, ________________, being first duly sworn, do depose and say
as follows:
1. This Indemnification Statement is submitted pursuant to the
Indemnification Agreement, dated ___________, 1999, between National Processing,
Inc., an Ohio corporation (the "Company"), and the undersigned.
2. I am requesting indemnification against costs, charges,
expenses (which may include fees and expenses of attorneys and/or others),
judgments, fines, and amounts paid in settlement (collectively, "Liabilities"),
which have been actually and reasonably incurred by me in connection with a
claim referred to in Section 2 or 3 of the aforesaid Indemnification Agreement.
3. With respect to all matters related to any such claim, I am
entitled to be indemnified as herein contemplated pursuant to the aforesaid
Indemnification Agreement.
4. Without limiting any other rights which I have or may have,
I am requesting indemnification against Liabilities which have or may arise out
of _____________________________________________________________________________
________________________________________________________________________________
_______________________________
[Signature of Indemnitee]
Subscribed and sworn to before me, a Notary Public in and for
said County and State, this _____ day of _________ , 1999.
_______________________________
[Seal]
My commission expires the _____ day of __________ , 1999.
<PAGE> 11
Exhibit 2
---------
UNDERTAKING
-----------
STATE OF ______________)
) SS
COUNTY OF _____________)
I, _________________________________, being first duly sworn,
do depose and say as follows:
1. This Undertaking is submitted pursuant to the
Indemnification Agreement dated ____________, 1999, between National Processing,
Inc., an Ohio corporation (the "Company") and the undersigned.
2. I am requesting payment of costs, charges, and expenses
which I have reasonably incurred or will reasonably incur in defending an
action, suit or proceeding, referred to in Section 2(a) or 2(b) or any claim
referred to in Section 3, or pursuant to Section 8, of the aforesaid
Indemnification Agreement.
3. The costs, charges, and expenses for which payment is
requested are, in general, all expenses related to_____________________________
______________________________________________________________________________.
4. Part A
------
I hereby undertake to (a) repay all amounts paid pursuant
hereto if it is proved by clear and convincing evidence in a court of competent
jurisdiction that my action or failure to act which is the subject of the matter
described herein involved an act or omission undertaken with deliberate intent
to cause injury to the Company or undertaken with reckless disregard for the
best interests of the Company and (b) reasonably cooperate with the Company
concerning the action, suit, proceeding or claim.
__________________________________
[Signature of Indemnitee]
<PAGE> 12
4. Part B
------
I hereby undertake to repay all amounts paid pursuant hereto
if it ultimately is determined that I am not entitled to be indemnified by the
Company under the aforesaid Indemnification Agreement or otherwise.
-----------------------------------------------
[Signature of Indemnitee]
Subscribed and sworn to before me, a Notary Public in and for
said County and State, this _____ day of _________ , 1999.
-----------------------------------------------
[Seal]
My commission expires the ____ day of ___________ , 1999.
<PAGE> 13
DIRECTOR AND OFFICER INDEMNIFICATION AGREEMENT
----------------------------------------------
This Director and Officer Indemnification Agreement, dated as
of _________________, 1999 (this "Agreement"), is made by and between National
Processing, Inc., an Ohio corporation (the "Company"), and ____________________
(the "Indemnitee"), a director and an officer of the Company.
RECITALS
--------
A. The Indemnitee is presently serving as a director and an
officer of the Company, and the Company desires that the Indemnitee continue
serving in those capacities. The Indemnitee is willing, subject to certain
conditions including the execution and performance of this Agreement by the
Company, to continue serving in those capacities.
B. In addition to the indemnification to which the Indemnitee
is entitled under the Code of Regulations of the Company (the "Regulations"),
the Company has obtained, at its sole expense, insurance protecting the Company
and its officers and directors including the Indemnitee against certain losses
arising out of any threatened, pending or completed action, suit, or proceeding
to which such persons may be made or are threatened to be made parties.
NOW, THEREFORE, in order to induce the Indemnitee to continue
to serve in his present capacity, the Company and the Indemnitee agree as
follows:
1. CONTINUED SERVICE
-----------------
The Indemnitee shall continue to serve, at the will of the
Company or in accordance with a separate contract, to the extent that such a
contract is in effect at the time in question, as a director and an officer of
the Company so long as he is duly elected in accordance with the Regulations or
until he resigns in writing or is removed in accordance with applicable law.
2. INITIAL INDEMNITY
-----------------
(a) The Company shall indemnify the Indemnitee, if or when he
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 Company), by
reason of the fact that he is or was a Director or an officer of the Company or
is or was serving at the request of the Company as a director, trustee, officer,
employee, or agent of another corporation, domestic or foreign, nonprofit or for
profit, partnership, joint venture, trust, or other enterprise, or by reason of
any action alleged to have been taken or omitted in any such
1
<PAGE> 14
capacity, against any and all costs, charges, expenses (including fees and
expenses of attorneys and/or others; all such costs, charges and expenses being
herein jointly referred to as "Expenses"), judgments, fines, and amounts paid in
settlement, actually and reasonably incurred by the Indemnitee in connection
therewith including any appeal of or from any judgment or decision, if the
Indemnitee acted in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the Company, and, with respect to
any criminal action or proceeding, he had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, or conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the Indemnitee
did not satisfy the applicable standard of conduct.
(b) The Company shall indemnify the Indemnitee, if or when he
is a party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding by or in the right of the Company to
procure a judgment in its favor, by reason of the fact that the Indemnitee is or
was a Director or an officer of the Company or is or was serving at the request
of the Company as a director, trustee, officer, employee, or agent of another
corporation, domestic or foreign, nonprofit or for profit, partnership, joint
venture, trust, or other enterprise, against any and all Expenses actually and
reasonably incurred by the Indemnitee in connection with the defense or
settlement thereof or any appeal of or from any judgment or decision, if the
Indemnitee acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company, except that no
indemnification shall be made in respect of (i) any claim, issue, or matter as
to which the Indemnitee is adjudged to be liable for negligence or misconduct in
the performance of his duty to the Company unless, and only to the extent that,
the court of common pleas or other court in which such action, suit, or
proceeding was brought determines, notwithstanding any adjudication of
liability, that in view of all the circumstances of the case the Indemnitee is
fairly and reasonably entitled to indemnity for such expenses as such court of
common pleas or other court shall deem proper, or (ii) any action or suit in
which the only liability asserted against Indemnitee is pursuant to Section
1701.95 of the Ohio Revised Code.
(c) Any indemnification under Section or (unless ordered by a
court) shall be made by the Company only as authorized in the specific case upon
a determination that indemnification of the Indemnitee is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Section or . Such authorization shall be made (i) by the Board of directors of
the Company (the "Board") by a majority vote of a quorum consisting of directors
who were not and are not parties to or threatened with such action, suit, or
proceeding, or (ii) if such a quorum of disinterested directors is not available
or if a majority of such quorum so directs, in a written opinion by independent
legal counsel, a copy of which will be delivered to Indemnitee, (designated for
such purpose by the Board) which shall not be an attorney, or a firm having
associated with it an attorney, who has been retained by or who has performed
services for the Company, or any person to be indemnified, within the five years
preceding such determination ("Independent Counsel"), or (iii) by the
shareholders of the Company (the "Shareholders"), or (iv) by the court of common
pleas or other court in which such action, suit, or proceeding was brought.
2
<PAGE> 15
(d) To the extent that the Indemnitee has been successful on
the merits or otherwise, including the dismissal of an action without prejudice,
in defense of any action, suit, or proceeding referred to in Section 2(a) or
2(b), or in defense of any claim, issue, or matter therein, he shall be
indemnified against Expenses actually and reasonably incurred by him in
connection therewith. Expenses incurred by the Indemnitee in defending any such
action, suit, or proceeding shall be paid by the Company as they are incurred in
advance of the final disposition of such action, suit, or proceeding under the
procedure set forth in Section 4(b) hereof.
(e) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on the Indemnitee with respect to any employee
benefit plan; references to "serving at the request of the Company" shall
include any service as a director, officer, employee, or agent of the Company
which imposes duties on, or involves services by, the Indemnitee with respect to
an employee benefit plan, its participants or beneficiaries; references to the
masculine shall include the feminine; references to the singular shall include
the plural and vice versa; the word including is used by way of illustration
only and not by way of limitation; and if the Indemnitee 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 he shall be deemed to have acted in a
manner "not opposed to the best interests of the Company" as referred to herein.
(f) No amendment to the Amended Articles of Incorporation of
the Company (the "Articles") or the Regulations shall deny, diminish, or
encumber the Indemnitee's rights to indemnity pursuant to the Regulations, the
General Corporation Law of the State of Ohio (the "OCL"), or any other
applicable law as applied to any act or failure to act occurring in whole or in
part prior to the date (the "Effective Date") upon which the amendment was
approved by the Shareholders. In the event that the Company shall purport to
adopt any amendment to its Articles or Regulations or take any other action the
effect of which is to deny, diminish, or encumber the Indemnitee's rights to
indemnity pursuant to the Articles, the Regulations, the OCL, or any such other
law, such amendment shall apply only to acts or failures to act occurring
entirely after the Effective Date thereof unless the Indemnitee shall have voted
in favor of such amendment as a director or holder of record of the Company's
voting stock, as the case may be.
(g) The Company will indemnify, and advance Expenses to,
Indemnitee to the fullest extent the Company's Articles of Incorporation (the
"Articles"), the Regulations, the laws of the State of Ohio or other applicable
law in effect on the date hereof permits. If the Articles, the Regulations, the
laws of the State of Ohio or other applicable law is amended or modified after
the date hereof, the parties hereby agree that Indemnitee shall be entitled to
any additional indemnification rights resulting from such amendment or
modification, but only to the extent that such amendment or modification permits
the Company to provide broader indemnification rights than the Articles, the
Regulations, the laws of the State of Ohio or other applicable law permitted the
Company to provide prior to such amendment or modification.
3
<PAGE> 16
3. ADDITIONAL INDEMNIFICATION
--------------------------
(a) Without limiting any right which the Indemnitee may have
pursuant to Section 2 hereof or any other provision of this Agreement or the
Articles, the Regulations, the OCL, any policy of insurance, or otherwise, but
subject to any limitation on the maximum permissible indemnity which may exist
under applicable law at the time of any request for indemnity hereunder and
subject to the following provisions of this Section 3, the Company shall pay on
behalf of the Indemnitee any amount which he is or becomes obligated to pay
relating to or arising out of any claim made against him because of any act,
failure to act, or neglect or breach of duty, including any actual or alleged
error, statement, or misleading statement, that he commits, suffers, permits, or
acquiesces in while acting in his capacity as a director or an officer of the
Company. The payments which the Company is obligated to make pursuant to this
Section 3 shall include without limitation any and all Expenses, judgments,
fines, and amounts paid in settlement, actually and reasonably incurred by the
Indemnitee in connection therewith including any appeal of or from any judgment
or decision; provided, however, that the Company shall not be obligated under
this Section 3 to make any payment in connection with any claim against the
Indemnitee:
(i) for which payment is actually made to the Indemnitee
under a valid and collectible insurance policy,
except in respect of any retention or excess beyond
the amount of payment under such insurance;
(ii) for which the Indemnitee is actually and fully
indemnified by the Company otherwise than pursuant
to this Section 3;
(iii) to the extent of any fine or similar governmental
imposition which the Company is prohibited by
applicable law from paying which results from a
final, nonappealable order; or
(iv) to the extent based upon or attributable to the
Indemnitee having actually realized a personal gain
or profit to which he was not legally entitled,
including profit from the purchase and sale by the
Indemnitee of equity securities of the Company which
are recoverable by the Company pursuant to Section
16(b) of the Securities Exchange Act of 1934, or
profit arising from transactions in publicly traded
securities of the Company which were effected by the
Indemnitee in violation of Section 10(b) of the
Securities Exchange Act of 1934, or Rule 10b-5
promulgated thereunder.
(b) Notwithstanding any other provision hereof, to the extent
that Indemnitee is, by reason of the fact that he is or was a director or an
officer of the Company or is or was serving at the request of the Company as a
director, trustee, officer, employee, or agent of another corporation, domestic
or foreign, nonprofit or for profit, partnership, joint venture, trust, or other
enterprise, a witness in any action, suit, or proceeding to which Indemnitee is
not a party, the
4
<PAGE> 17
Company will indemnify him against all Expenses actually and reasonably incurred
by him or on his behalf in connection therewith.
(c) A determination as to whether the Indemnitee shall be
entitled to indemnification under this Section 4(a) shall be made in accordance
with Section hereof. Expenses incurred by the Indemnitee in defending any claim
to which this Section applies shall be paid by the Company as they are incurred
in advance of the final disposition of such claim under the procedure set forth
in Section 4(b) hereof.
4. CERTAIN PROCEDURES RELATING TO INDEMNIFICATION
----------------------------------------------
(a) For purposes of pursuing his rights to indemnification
hereunder, the Indemnitee shall submit to the Board a sworn statement of request
for indemnification substantially in the form of Exhibit 1 attached hereto and
made a part hereof (the "Indemnification Statement") averring that he is
entitled to indemnification hereunder. The Company shall, within 30 calendar
days after submission of the Indemnification Statement, make the payments
requested in the Indemnification Statement to or for the benefit of the
Indemnitee, unless (A) a determination is made pursuant to Section 2(c) during
such 30 calendar-day-period that indemnification under Section 2 hereof is not
authorized and (B) (i) within such 30-calendar-day period the Board shall
resolve by vote of a majority of the directors at a meeting at which a quorum is
present that the Indemnitee is not entitled to indemnification under Section
hereof, and (ii) such vote shall be based upon clear and convincing evidence,
and (C) the Indemnitee shall have received within such period notice in writing
of such determination, which notice shall disclose with particularity the
evidence upon which the determination is based. The foregoing notice shall be
sworn to by all persons who participated in the determination to deny
indemnification. The provisions of this Section 4(a) are intended to be
procedural only and shall not affect the right of Indemnitee to indemnification
under Section 3 of this Agreement so long as Indemnitee follows the prescribed
procedure and any determination by the Board that Indemnitee is not entitled to
indemnification and any failure to make the payments requested in the
Indemnification Statement shall be subject to judicial review by any court of
competent jurisdiction.
(b) For purposes of obtaining payments of Expenses in advance
of final disposition pursuant to the second sentence of Section 2(d) or the last
sentence of Section 3 hereof, the Indemnitee shall submit to the Company a sworn
request for advancement of Expenses substantially in the form of Exhibit 2
attached hereto and made a part hereof (the "Undertaking"), averring that he has
reasonably incurred or will reasonably incur actual Expenses in defending an
action, suit or proceeding referred to in Section 2(a) or 2(b) or any claim
referred to in Section 3, or pursuant to Section 8 hereof. Unless the only
liability asserted against the Indemnitee in the subject action, suit or
proceeding is pursuant to OCL Section 1701.95, the Indemnitee shall be eligible
to execute Part A of the Undertaking by which he undertakes to (a) repay such
amount if it is proved by clear and convincing evidence in a court of competent
jurisdiction that the Indemnitee's action or failure to act involved an act or
omission undertaken with deliberate intent to cause injury to the
5
<PAGE> 18
Company or undertaken with reckless disregard for the best interests of the
Company and (b) reasonably cooperate with the Company concerning the action,
suit, proceeding or claim. In all cases, the Indemnitee shall be eligible to
execute Part B of the Undertaking by which he undertakes to repay such amount if
it ultimately is determined that he is not entitled to be indemnified by the
Company under this Agreement or otherwise. In the event that the Indemnitee is
eligible to and does execute both Part A and Part B of the Undertaking, the
Expenses which are paid by the Company pursuant thereto shall be required to be
repaid by the Indemnitee only if he is required to do so under the terms of both
Part A and Part B of the Undertaking. Upon receipt of the Undertaking, the
Company shall thereafter promptly, and in any event within 10 calendar days, pay
such Expenses of the Indemnitee as are noticed to the Company in writing and in
reasonable detail arising out of the matter described in the Undertaking. No
security shall be required in connection with any Undertaking, and the Company
will accept any such Undertaking without reference to the financial ability of
Indemnitee to make repayment.
(c) In making a determination with respect to entitlement to
indemnification hereunder, the person, persons or entity making that
determination must presume that Indemnitee is entitled to indemnification
hereunder if Indemnitee has submitted a request for indemnification in
accordance with Section 4(a), and the Company will have the burden of proof to
overcome that presumption by clear and convincing evidence in connection with
the making by any person, persons or entity of any determination contrary to
that presumption.
5. LIMITATION ON INDEMNITY
-----------------------
(a) Notwithstanding anything contained herein to the contrary,
the Company shall not be required hereby to indemnify the Indemnitee with
respect to any action, suit, or proceeding that was initiated by the Indemnitee
unless (i) such action, suit, or proceeding was initiated by the Indemnitee to
enforce any rights to indemnification arising hereunder, (ii) authorized by
another agreement to which the Company is a party whether heretofore or
hereafter entered, (iii) otherwise ordered by the court in which the suit was
brought or (d) approved by the Board.
6. SHAREHOLDER RATIFICATION
------------------------
(a) The Company may, at its option, propose at any future
meeting of Shareholders that this Agreement be ratified by the Shareholders;
provided, however, that the Indemnitee's rights hereunder shall be fully
enforceable in accordance with the terms hereof whether or not such ratification
is sought or obtained.
<PAGE> 19
7. ENFORCEMENT
-----------
(a) In the event that (i) a determination is made that Indemnitee is
not entitled to indemnification hereunder, (ii) advancement of Expenses is not
timely made pursuant hereto, or (iii) payment of indemnification is not made
within 30 calendar days after receipt by the Company of a request therefor,
Indemnitee will be entitled to an adjudication from any United States District
Court for the Northern District of Ohio of his entitlement to that
indemnification or advancement of Expenses. Alternatively, Indemnitee, at his
option, may seek an award in arbitration to be conducted by a single arbitrator
pursuant to the Commercial Arbitration Rules of the American Arbitration
Association.
(b) If a determination has been made that Indemnitee is not entitled to
indemnification hereunder, any judicial proceeding or arbitration commenced
pursuant to this Section 5 will be conducted in all respects as a de novo trial,
or arbitration, on the merits and Indemnitee will not be prejudiced by reason of
that adverse determination. In any judicial proceeding or arbitration commenced
pursuant to this Section 5, the Company will have the burden of proving that
Indemnitee is not entitled to indemnification or advancement of Expenses, as the
case may be.
(c) If a determination has been made by an Independent Counsel that
Indemnitee is entitled to indemnification hereunder, the Company will be bound
by that determination in any judicial proceeding or arbitration commenced
pursuant to this Section 5, absent (i) a misstatement by Indemnitee of a
material fact, or an omission by Indemnitee of a material fact necessary to make
Indemnitee's statements not materially misleading, in connection with the
request for indemnification, or (ii) a prohibition of such indemnification under
applicable law.
(d) It is the intent of the Company that the Indemnitee not be required
to incur the expenses associated with the enforcement of his rights under this
Agreement by litigation or other legal action because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Indemnitee hereunder. Accordingly, if it should appear to the Indemnitee
that the Company has failed to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes any action
to declare this Agreement void or unenforceable, or institutes any action, suit
or proceeding to deny or to recover from, the Indemnitee the benefits intended
to be provided to the Indemnitee hereunder, the Company irrevocably authorizes
the Indemnitee from time to time to retain counsel of his choice, at the expense
of the Company as hereafter provided, to represent the Indemnitee in connection
with the initiation or defense of any litigation or other legal action, whether
by or against the Company or any director, officer, shareholder, or other person
affiliated with the Company, in any jurisdiction. Regardless of the outcome
thereof, the Company shall pay and be solely responsible for any and all costs,
charges, and expenses, including fees and expenses of attorneys and others,
reasonably incurred by the Indemnitee pursuant to this Section 7.
7
<PAGE> 20
8. MERGER OR CONSOLIDATION
-----------------------
In the event that the Company shall be a constituent corporation in a
consolidation, merger, or other reorganization, the Company, if it shall not be
the surviving, resulting, or acquiring corporation therein, shall require as a
condition thereto that the surviving, resulting, or acquiring corporation agree
to assume all of the obligations of the Company hereunder and to indemnify the
Indemnitee to the full extent provided herein. Whether or not the Company is the
resulting, surviving, or acquiring corporation in any such transaction, the
Indemnitee shall also stand in the same position under this Agreement with
respect to the resulting, surviving, or acquiring corporation as he would have
with respect to the Company if its separate existence had continued.
9. NONEXCLUSIVELY, SEVERABILITY, AND INSURANCE
-------------------------------------------
(a) The rights to indemnification provided by this Agreement shall not
be exclusive of any other rights of indemnification to which the Indemnitee may
be entitled under the Articles, the Regulations, the OCL or any other statute,
any insurance policy, agreement, or vote of shareholders or directors or
otherwise, as to any actions or failures to act by the Indemnitee, and shall
continue after he has ceased to be a director, officer, employee, or agent of
the Company or other entity for which his service gives rise to a right
hereunder, and shall inure to the benefit of his heirs, executors and
administrators. In the event of any payment under this Agreement, the Company
shall be subrogated to the extent thereof to all rights of recovery previously
vested in the Indemnitee, who shall execute all instruments and take all other
actions as shall be reasonably necessary for the Company to enforce such right.
(b) If any provision of this Agreement or the application of any
provision hereof to any person or circumstances is held invalid, unenforceable
or otherwise illegal, the remainder of this Agreement and the application of
such provision to other persons or circumstances shall not be affected, and the
provision so held to be invalid, unenforceable, or otherwise illegal shall be
reformed to the extent (and only to the extent) necessary to make it
enforceable, valid and legal.
(c) If the Company maintains an insurance policy or policies providing
liability insurance for directors, officers, employees, agents or fiduciaries of
the Company or of any other entity that any such person serves at the written
request of the Company, Indemnitee will be covered by such policy or policies in
accordance with its or their terms to the maximum extent of the coverage
available for any such director, officer, employee, agent or fiduciary under
such policy or policies.
10. GOVERNING LAW
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Ohio, without giving effect to the principles of
conflict of laws thereof.
8
<PAGE> 21
11. MODIFICATION
------------
This Agreement and the rights and duties of the Indemnitee and the
Company hereunder may be modified only by an instrument in writing signed by
both parties hereto.
12. CONTRIBUTION
------------
To the fullest extent applicable law permits, if the indemnification
this Agreement provides is unavailable to Indemnitee for any reason whatsoever,
the Company, in lieu of indemnifying Indemnitee, will contribute to the amount
incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes,
amounts paid or to be paid in settlement and/or for Expenses, in connection with
any claim relating to an indemnifiable event under this Agreement, in such
proportion as is deemed fair and reasonable in light of all the circumstances of
that action, claim or proceeding in order to reflect: (i) the relative benefits
received by the Company and Indemnitee as a result of the event(s) and/or
transaction(s) giving rise to that action, claim or proceeding; and/or (ii) the
relative fault of the Company (and its directors, officers, employees and
agents) and Indemnitee in connection with such event(s) and/or transaction(s).
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
NATIONAL PROCESSING, INC.
By
----------------------------------
Title
--------------------
------------------------------------
[Signature of Indemnitee]
9
<PAGE> 22
EXHIBIT 1
INDEMNIFICATION STATEMENT
-------------------------
STATE OF ______________)
) SS
COUNTY OF _____________)
I, ________________ , being first duly sworn, do depose and
say as follows:
1. This Indemnification Statement is submitted pursuant to the
Indemnification Agreement, dated __________ 1999, between National Processing,
Inc., an Ohio corporation (the "Company"), and the undersigned.
2. I am requesting indemnification against costs, charges,
expenses (which may include fees and expenses of attorneys and/or others),
judgments, fines, and amounts paid in settlement (collectively, "Liabilities"),
which have been actually and reasonably incurred by me in connection with a
claim referred to in Section 2 or 3 of the aforesaid Indemnification Agreement.
3. With respect to all matters related to any such claim, I am
entitled to be indemnified as herein contemplated pursuant to the aforesaid
Indemnification Agreement.
4. Without limiting any other rights which I have or may have,
I am requesting indemnification against Liabilities which have or may arise out
of __________________________
------------------------------
[Signature of Indemnitee]
Subscribed and sworn to before me, a Notary Public in and for
said County and State, this ____ day of ____________ 1999.
------------------------------
[Seal]
My commission expires the ____ day of _____________ 1999.
<PAGE> 23
EXHIBIT 2
UNDERTAKING
-----------
STATE OF _______________
SS
COUNTY OF ______________
I, _____________________ , being first duly sworn do depose
and say as follows:
l. This Undertaking is submitted pursuant to the
Indemnification Agreement, dated __________________ , 1999, between National
Processing, Inc., an Ohio corporation (the "Company") and the undersigned.
2. I am requesting payment of costs, charges, and expenses
which I have reasonably incurred or will reasonably incur in defending an
action, suit or proceeding, referred to in Section 2(a) or 2(b) or any claim
referred to in Section 3, or pursuant to Section 7, of the aforesaid
Indemnification Agreement.
3. The costs, charges, and expenses for which payment is
requested are, in general, all expenses related to
- ------------------------------------------------------------
- -------------------------------------------------------------.
4. PART A(1)
-------------------------------
I hereby undertake to (a) repay all amounts paid pursuant
hereto if it is proved by clear and convincing evidence in a court of competent
jurisdiction that my action or failure to act which is the subject of the matter
described herein involved an act or omission undertaken with deliberate intent
to cause injury to the Company or undertaken with reckless disregard for the
best
- -----------------------------
(1) The Indemnitee shall not be eligible to execute Part A of this Undertaking
if at the time of the Indemnitee's act or omission at issue, the Amended
Articles of Incorporation or Code of Regulations of the Company prohibit such
advances by specific reference to OCL Section l70l.l3(E)(5)(a) and unless the
only liability asserted against Indemnitee in the subject action, suit or
proceeding is pursuant to OCL Section 1701.95. In the event that the Indemnitee
is eligible to and does execute both Part A and Part B hereof, the costs,
charges and expenses which are paid by the Company pursuant hereto shall be
required to be repaid by the Indemnitee only if he is required to do so under
the terms of both Part A and Part B hereof.
<PAGE> 24
interests of the Company and (b) reasonably cooperate with the Company
concerning the action, suit, proceeding or claim.
--------------------------
[Signature of Indemnitee]
4. PART B
I hereby undertake to repay all amounts paid pursuant hereto
if it ultimately is determined that I am not entitled to be indemnified by the
Company under the aforesaid Indemnification Agreement or otherwise.
-------------------------
[Signature of Indemnitee]
Subscribed and sworn to before me, a Notary Public in and for
said County and State, this ____ day of ___________ 1999.
[Seal]
My commission expires the _____ day of _______________ 1999.
<PAGE> 1
Exhibit (c)(1)
SELECTED SECTIONS OF THE COMPANY'S
PROXY STATEMENT DATED MAY 10, 1999
COMPENSATION OF DIRECTORS
Members of the board of directors of National Processing who are not
officers of National City, National Processing or any of their subsidiaries
("Outside Directors"), receive a yearly retainer, payable in quarterly
installments, and a fee for each meeting of the board, and each committee
thereof, which they attend. The yearly retainer is $12,000. The fee for
attendance at any board meeting or any committee meeting is $1,000. The
chairperson of each committee receives a fee of $500 for each meeting of that
committee attended by that chairperson. In addition, pursuant to the National
Processing, Inc. Nonemployee Directors Stock Option Plan, each non-affiliated
director is awarded options to purchase 2,500 shares of National Processing
Common on the first Friday following each annual meeting of the National
Processing's shareholders, with an exercise price equal to the market value as
of the date of such first Friday.
Messrs. Cotsakos, Gonzalez-Baz and Heller each received non-qualified stock
options to purchase 2,500 shares in 1998.
BENEFICIAL OWNERSHIP
As of March 31, 1999, National Processing had one class of equity security
outstanding, National Processing Common without par value.
Beneficial ownership of National Processing's outstanding equity security,
for purposes of the ownership disclosures, has been determined in accordance
with Rule 13d-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934 ("Exchange Act"), under which Rule a person is deemed to be
the beneficial owner of securities if he or she has or shares voting power or
investment power in respect of such securities or has the right to acquire
beneficial ownership within 60 days. Accordingly, the amounts shown in the
following table do not purport to represent beneficial ownership for any purpose
other than as set forth under such Rule. Further, beneficial ownership as
determined in this manner does not necessarily bear on the economic incidence of
ownership of National Processing's equity securities.
The following table sets forth the beneficial security ownership of all
shareholders known to National Processing as of March 31, 1999, to be the owner
of more than five percent of National Processing Common. For purposes of this
disclosure, the amount of outstanding National Processing Common is the
aggregate number of shares of National Processing Common actually outstanding on
such date plus an amount equal to the aggregate amount of National Processing
Common which could be issued upon the exercise of stock options by such person
or firm at that date. Beneficial ownership of National Processing Common
includes, as of such date, those shares which could have been acquired by the
exercise of stock options.
1
<PAGE> 2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
(3)
(2) AMOUNT AND NATURE (4)
(1) NAME AND ADDRESS OF OF BENEFICIAL PERCENT
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
-------------- ------------------- ----------------- --------
Common Stock National City Corporation 44,365,400 88%
1900 East Ninth Street
Cleveland, OH 44114-3484
- ---------------
(1) The listed beneficial owner is not known to have had, as of March 31, 1999,
the right to acquire beneficial ownership, as specified in Rule 13d-3(d)(1)
under the Exchange Act, of any shares of National Processing Common.
BENEFICIAL SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of March 31, 1999, the beneficiary
security ownership (including shares with respect to which the following persons
have the right to acquire beneficial ownership within 60 days after such date)
of (a) each director and nominee of National Processing; (b) the chief executive
officer and the four other most highly compensated executive officers of
National Processing; (c) John J. Leehy, III, who, but for the fact that he was
not serving as an executive officer of National Processing at the end of 1998,
would have been among the four most highly compensated executive officers (other
than the chief executive officer) who were serving as executive officers of
National Processing at the end of 1998; and (d) all directors and executive
officers of National Processing as a Group:
BENEFICIAL SECURITY OWNERSHIP OF MANAGEMENT
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENT
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP OF CLASS
- --------------------- ------------------- ----------------- --------
Common Stock James R. Bell, III 3,030
Common Stock Christos M. Cotsakos 30,268(5)
Common Stock Aureliano Gonzalez-Baz 19,168(5)
Common Stock Preston B. Heller, Jr. 23,668(5)
Common Stock Robert E. Johnson(1) 125,001(6)
Common Stock Jeffrey D. Kelly 1,000
Common Stock Donald J. Kenney(2) 100,000(7)
Common Stock John J. Leehy, III(3) 33,333(8)
Common Stock Gregory W. Sahrmann(4) 25,000
2
<PAGE> 3
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENT
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP OF CLASS
- --------------------- ------------------- ----------------- --------
Common Stock Robert E. Showalter 195,201(9)
Common Stock Robert G. Siefers 10,000
Common Stock Thomas A. Wimsett 149,368(10)
Common Stock Directors and Executive 875,373 1.7
Officers of National
Processing as a Group
- ---------------
* The percent of National Processing Common beneficially owned is less than
1%.
(1) Robert E. Johnson resigned as Executive Vice President of National
Processing effective as of March 31, 1999.
(2) Donald J. Kenney resigned as Executive Vice President of National
Processing effective as of April 2, 1999.
(3) John J. Leehy, III resigned as Executive Vice President of National
Processing during July, 1998. He continues to be employed by National
Processing in an advisory capacity.
(4) Gregory W. Sahrmann resigned as Executive Vice President of National
Processing effective as of December 31, 1998.
(5) Includes 19,168 shares of National Processing Common of which the named
beneficial owner has the right to acquire beneficial ownership, as
specified in Rule 13d-3(d)(1) under the Exchange Act.
(6) Includes 125,001 shares of National Processing Common of which Robert E.
Johnson has the right to acquire beneficial ownership, as specified in
Rule 13d-3(d)(1) under the Exchange Act.
(7) Includes 100,000 shares of National Processing Common of which Donald J.
Kenney has the right to acquire beneficial ownership as specified in Rule
132-3(d)(1) under the Exchange Act.
(8) Includes 33,333 shares of National Processing Common Stock of which John
J. Leehy, III has the right to acquire beneficial ownership as specified
in Rule 132-3(d)(1) under the Exchange Act.
(9) Includes 150,001 shares of National Processing Common of which Robert E.
Showalter has the right to acquire beneficial ownership, as specified in
Rule 13d-3(d)(1) under the Exchange Act.
(10) Includes 141,668 shares of National Processing Common of which Thomas A.
Wimsett has the right to acquire beneficial ownership as specified in
Rule 132-3(d)(1) under the Exchange Act.
3
<PAGE> 4
RENUMERATION OF EXECUTIVE OFFICERS
AND TRANSACTIONS WITH MANAGEMENT
EXECUTIVE COMPENSATION
(a) COMPENSATION. The following table sets forth, together with certain
other information, the compensation earned during the fiscal year ended December
31, 1998 by (i) Robert E. Showalter, who served as President and Chief Executive
Officer of National Processing, (ii) the four other most highly compensated
executive officers of National Processing and its subsidiaries and (iii) John J.
Leehy, III who, but for the fact that he was not serving as an executive officer
of National Processing at the end of 1998 would have been among the four other
most highly compensated executive officers who were serving as executive
officers of National Processing at the end of 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------------- ---------------------------------------
AWARDS PAYOUTS
--------------------------- --------
RESTRICTED SECURITIES ALL
OTHER STOCK UNDERLYING LTIP OTHER
NAME AND PRINCIPAL ANNUAL AWARD(S) OPTIONS/ PAYOUTS COMP
POSITION YEAR SALARY ($) BONUS ($) COMP ($) ($) SARS(#)(6) ($) ($)(7)
- ------------------ ---- ---------- --------- -------- ---------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert E. Showalter(1) 1998 $320,833 $ 0 $ 0 $ 0 70,571 $140,923 $48,343
President and 1997 $284,792 $216,000 $ 0 $ 0 226,481 $ 45,753 $31,706
Chief Executive Officer 1996 $ $ $ $ $
Robert E. Johnson(2) 1998 $173,183 $ 66,000 $ 0 $ 0 25,000 $ 0 $24,483
Executive Vice President 1997 $168,683 $ 24,350 $ 0 $ 0 75,000 $ 0 $21,636
1996 $165,667 $ 71,638 $ 0 $ 0 100,000 $ 0 $21,551
Donald J. Kenney(3) 1998 $226,154 $ $ 0 $ 0 125,000 $ 0 $11,308
Executive Vice President 1997 $ $ $ $ $ $
1996 $ $ $ $ $ $
John J. Leehy, III(4) 1998 $200,000 $ 0 $ 0 $ 0 0 $ 0 $10,000
1997 $ 38,351 $ 0 $ 0 $ 0 100,000 $ 0 $ 0
1996 $ $ $ $ $ $
Gregory W. Sahrmann(5) 1998 $191,667 $ 42,000 $ 0 $ 0 75,000 $ 0 $ 9,611
1997 $ 36,215 $ 0 $ 0 $ 0 50,000 $ 0 $ 0
1996 $ $ $ $ $ $
Thomas A. Wimsett 1998 $183,333 $ 0 $ 0 $ 0 25,000 $ 0 $21,117
Executive Vice President 1997 $170,000 $ 77,700 $ 0 $ 0 100,000 $ 0 $24,600
1996 $152,500 $ 84,700 $ 0 $ 0 100,000 $ 0 $11,938
</TABLE>
- ---------------
(1) Robert E. Showalter was elected President and Chief Executive Officer of
National Processing during March, 1997.
4
<PAGE> 5
(2) Robert E. Johnson resigned as Executive Vice President of National
Processing effective as of March 31, 1999.
(3) Donald J. Kenney was elected Executive Vice President of National
Processing effective as of March 31, 1998. He resigned as Executive Vice
President of National Processing effective as of April 2, 1999.
(4) John J. Leehy, III was elected Executive Vice President of National
Processing effective as of October 24, 1997. Although he resigned as
Executive Vice President of National Processing during July, 1998, he
continues to be employed by National Processing in an advisory capacity.
(5) Gregory W. Sahrmann joined National Processing on October 24, 1997 and
was elected Executive Vice President of National Processing effective as
of May 21, 1998. He resigned as Executive Vice President of National
Processing effective as of December 31, 1998.
(6) The Securities Underlying Options/SARS pertain to options to purchase
shares of National Processing Common with the exception of Robert E.
Showalter who received options to purchase 20,571 shares of National City
Common and options to purchase 50,000 shares of National Processing
Common.
(7) All Other Compensation includes the Executive Savings Plan and the
Savings and Investment Plan matching and profit-sharing components
together with premiums paid by National Processing in connection with
split dollar insurance contracts, but does not include retirement
accruals as these are not calculable. For the year 1998, each of the
named executive officers were credited with the following matching and
profit-sharing amount under the Savings and Investment Plan: Robert E.
Showalter, $11,130; Robert E. Johnson, $11,002; Donald J. Kenney, $6,308;
John J. Leehy, III, $6,250; Gregory W. Sahrmann, $6,314; and Thomas A.
Wimsett, $4,750. The named executive officers were credited with the
following match and profit-sharing amount under the Executive Savings
Plan during the year 1998; Robert E. Showalter, $19,151; Robert E.
Johnson, $7,309; Donald J. Kenney, $5,000; John J. Leehy, III, $3,750;
Gregory W. Sahrmann, $3,297; and Thomas A. Wimsett, $16,367. All other
compensation also includes the following amounts equal to the full dollar
value of the remainder of the premiums paid by National Processing in
connection with life insurance policies issued pursuant to the Split
Dollar Life Insurance Agreements between National City and the following
named executive officers during 1998, respectively, as applicable: Robert
E. Showalter, $18,062; Robert E. Johnson, $6,172; Donald J. Kenney, $0;
John J. Leehy, III, $0; Gregory W. Sahrmann, $0; and Thomas A. Wimsett,
$0. The premiums paid by National Processing in connection with the life
insurance policies issued pursuant to such Split Dollar Life Insurance
Agreements, set forth in the preceding sentence, generally will be
recovered in full by National Processing upon the cancellation or
purchase by a named executive officer of any such life insurance policy
or the payment of any death benefits under any such life insurance
policy.
(b) OPTIONS. The following table provides information on options to acquire
National City Common and National Processing Common granted during 1998 to the
named executive officers.
5
<PAGE> 6
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
----------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED (#) FISCAL YEAR(1) ($/SH) DATE ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Robert E. Showalter............... 50,000(2) 6.22% $11.813 5/21/08 $347,000(6)
1,472(3) 7.16% 67.875 7/28/08 16,531(7)
8,528(4) 41.46% 67.875 7/28/08 95,769(7)
4,517(5) 21.96% 69.002 7/22/06 51,584(7)
6,054(5) 29.43% 69.062 7/28/07 69,137(7)
Robert E. Johnson(8).............. 25,000(2) 3.11% 11.813 5/21/08 173,500(6)
Donald J. Kenney(9)............... 100,000(2) 12.45% 12.375 3/31/08 727,000(6)
25,000(2) 3.11% 11.813 5/21/08 173,500(6)
John J. Leehy, III(10)............ 0 0%
Gregory W. Sahrmann(11)........... 75,000 9.34% 11.813 5/21/08 520,500(6)
Thomas A. Wimsett................. 25,000(2) 3.11% 11.813 5/21/08 173,500(6)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) National Processing granted options representing 803,300 shares to
National Processing employees during 1998. National City granted options
representing 20,571 shares to National Processing employees during 1998.
(2) Options are options to acquire National Processing Common. All such
options are non-qualified stock options. Subject to the named individual
remaining in the continuous employment of National Processing, the
options become exercisable 33% annually beginning one year from the date
of grant and expire not later than 10 years from the date of grant.
(3) Options are incentive stock options to acquire National City Common. One
half of each option grant becomes exercisable one year after the date of
the grant and the remainder becomes exercisable on the second anniversary
of the grant. For incentive stock options a further restriction is placed
on the exercise of options such that the maximum number of shares of
National City Common which become initially available for purchase under
all post-1986 incentive stock option grants from National City in any
calendar year shall be limited to that number of shares the aggregate
exercise price of which does not exceed $100,000. Additional Option
rights are attached to each option and Additional Options will be granted
upon exercise, subject to certain provisions, if the exercise price or
the related tax obligation is paid using shares of National City Common
owned by the optionee.
(4) Options are non-qualified stock options to acquire National City Common.
One-half of each option grant becomes exercisable one year after the date
of grant and the remainder becomes exercisable on the second anniversary
of the grant. The options have a contractual term of 10 years. Additional
Option rights are attached to each option and Additional Options will be
granted upon exercise, subject to certain provisions, if the exercise
price or the related tax obligations is paid using shares of National
City Common owned by the optionee.
(5) Options are Additional Options as defined in the Amended and Restated
National City Corporation 1993 Stock Option Plan ("Additional Options")
to acquire National City Common. Additional Options are granted at the
market price of National City Common on the date of grant and become
exercisable 6 months after the date of grant. They have a contractual
term equal to the remaining term of the original option.
(6) In accordance with Securities and Exchange Commission rules, the
Black-Scholes pricing model was used to estimate the Grant Date Present
Value. The values indicated were calculated using the following
assumptions: (i) an expected volatility of .492, (ii) an expected
dividend yield of 0%, (iii) a risk-free interest rate at the date of
grant of 5.97%, (iv) an expected option life of 7 years, and (v) no
discounts for non-transferability or risk of
6
<PAGE> 7
forfeiture. The estimated values have been included solely for purposes
of disclosure in accordance with the rules of the Securities and
Exchange Commission and represent theoretical values. The actual value,
if any, an executive may realize will depend upon the increase in the
market price of National Processing Common through the date of
exercise. Such an increase would benefit all shareholders of National
Processing.
(7) In accordance with Securities and Exchange Commission rules, the
Black-Scholes pricing model was used to estimate the Grant Date Present
Value. The values indicated were calculated using the following
assumptions: (1) an expected volatility of .208, (ii) an expected
dividend yield of 3.00%, (iii) the risk-free interest rate at the date
of grant based upon a term equal to the expected life of the option of
4.539%, (iv) an expected option life equal to the anticipated period of
time from date of grant to exercise of 3.9 years, and (v) no discounts
for non-transferability or risk of forfeiture. The estimated values
have been included solely for purposes of disclosure in accordance with
the rules of the Securities and Exchange Commission and represent
theoretical values. The actual value, if any, an executive may realize
will depend upon the increase in the market price of National City
Common through the date of exercise. Such an increase would benefit all
stockholders of National City.
(8) Robert E. Johnson resigned as Executive Vice President of National
Processing effective as of March 31, 1999. Under the terms of Mr.
Johnson's resignation, Mr. Johnson's National Processing options will
terminate on March 31, 2001.
(9) Donald J. Kenney was elected Executive Vice President of National
Processing on March 31, 1998. He resigned as Executive Vice President
of National Processing effective as of April 2, 1999. Under the terms
of Mr. Kenney's resignation, Mr. Kenney's National Processing options
will terminate on July 1, 1999.
(10) John J. Leehy, III resigned as Executive Vice President of National
Processing during July, 1998. He continues to be employed by National
Processing in an advisory capacity.
(11) Gregory W. Sahrmann resigned as Executive Vice President of National
Processing effective as of December 31, 1998. Under the terms of the
Stock Option Agreement pursuant to which Mr. Sahrmann's options were
granted, Mr. Sahrmann's options terminated unexercised upon his
resignation.
The following table sets forth the stock options for National
City Common and National Processing Common exercised by each of the named
executive officers during the calendar year 1998 and the December 31, 1998 value
of all unexercised options for National City Common and National Processing
Common held by the named executive officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISABLE IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS
12/31/98 AT 12/31/98
SHARES ------------------------------------------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($)(1) UNEXERCISABLE UNEXERCISABLE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert E. Showalter.............. 19,991(2) $403,508.31(2) 49,800/34,700(2) $1,900,882.04/$299,772.94(4)
0(3) 0(3) 66,667/183,333(3) $0.00/$0.00(5)
Robert E. Johnson(6)............. 0(2) 0(2) 14,300/100(2) $662,660.00/$4,312.50(4)
0(3) 0(3) 91,667/108,333(3) $0.00/$0.00(5)
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISABLE IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS
12/31/98 AT 12/31/98
SHARES ------------------------------------------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($)(1) UNEXERCISABLE UNEXERCISABLE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Donald J. Kenney(7).............. 0(2) 0(2) 64,260/0(2) $3,546,657.90/$0.00(4)
0(3) 0(3) 0/125,000(3) $0.00/$0.00(5)
John J. Leehy, III(8)............ 0(2) 0(2) 0/0(2) $0.00/$0.00(4)
0(3) 0(3) 33,333/0(3) $0.00/$0.00(5)
Gregory W. Sahrmann(9)........... 0(2) 0(2) 0/0(2) $0.00/$0.00(4)
0(3) 0(3) 0/0(3) $0.00/$0.00(5)
Thomas A. Wimsett................ 0(2) 0(2) 6,400/100(2) $282,587.50/$4,312.50(4)
0(3) 0(3) 100,001/124,999(3) $0.00/$0.00(5)
- ------------------------------------- ---------------- ------------------ ---------------------- --------------------------------
</TABLE>
- --------------------
(1) The "Value Realized" is equal to the difference of the fair market
value on the date of exercise less the option exercise price.
(2) Pertains to options to purchase shares of National City Common.
(3) Pertains to options to purchase shares of National Processing Common.
(4) The "Value of Unexercised In-The-Money Options/SARs at 12/31/98" is
equal to the difference (in no case less than zero) of the closing
price of National City Common on December 31, 1998, which was $72.50,
less the option/SAR exercise price.
(5) The "Value of Unexercised In-The-Money-Options/SARs at 12/31/98" is
equal to the difference (in no case less than zero) of the closing
price of National Processing Common on December 31, 1998, which was
$5.50, less the option/SAR exercise price.
(6) Robert E. Johnson resigned as Executive Vice President of National
Processing effective as of March 31, 1999.
(7) Donald J. Kenney was elected Executive Vice President of National
Processing on March 31, 1998. He resigned as Executive Vice President
of National Processing effective as of April 2, 1999.
(8) John J. Leehy, III resigned as Executive Vice President of National
Processing during July, 1998. He continues to be employed by National
Processing in an advisory capacity.
(9) Gregory W. Sahrmann resigned as Executive Vice President of National
Processing effective as of December 31, 1998.
The following table provides information on the awards of long-term
incentive plan participation during the year 1998.
8
<PAGE> 9
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK
NAME NUMBER OF PERFORMANCE OR OTHER PRICE-BASED PLANS (3)
SHARES, UNITS PERIOD UNTIL ------------------------------------------
OR OTHER MATURATION OR THRESHOLD TARGET MAXIMUM
RIGHTS(#)(1) PAYOUT(2) ($) ($) ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Robert E. Showalter............. N/A December 31, 2001 64,547 107,579 215,158
Robert E. Johnson(4)............ N/A December 31, 2000 0 0 0
Donald J. Kenney(5)............. N/A December 31, 2000 0 0 0
John J. Leehy, III.............. N/A December 31, 2000 0 0 0
Gregory W. Sahrmann(6).......... N/A December 31, 2000 0 0 0
Thomas A. Wimsett............... N/A December 31, 2000 25,220 42,033 84,067
</TABLE>
- ---------------------------
(1) Awards are cash awards based on a percentage of the individual's base
pay. No shares or other rights are granted.
(2) Mr. Showalter participates in the National City Corporation Long-Term
Incentive Compensation Plan. His award is based on a three-year cycle
starting 1/1/99 and ending 12/31/01. All other awards were made under
the National Processing Company Long-Term Incentive Compensation Plan,
and are based on a three-year cycle commencing 1/1/98 and ending
12/31/00. Mr. Wimsett was awarded the opportunity to participate in the
next three-year cycle of the National Processing Company Long-Term
Incentive Compensation Plan. Under either plan, payouts occur only at
the end of the cycle.
(3) In the case of Mr. Showalter, the payout is a percentage of his average
annual salary for the three-year cycle, determined on the basis of
National City's ranking, according to increase in total shareholder
return over the three-year cycle, relative to a peer group comprised of
high-performing banking companies. In all other cases, the payout is a
percentage of the participant's average annual salary for the
three-year cycle, determined on the basis of National Processing's
compound growth rate in earnings over the three-year cycle.
(4) Robert E. Johnson resigned as Executive Vice President of National
Processing effective March 31, 1999. Under the terms of the National
Processing Company Long-Term Incentive Compensation Plan, participants
who resign prior to the end of a three-year cycle are not entitled to
any award under the plan for that cycle. Accordingly, the estimated
future payouts to Mr. Johnson for the three-year cycle commencing
January 1, 1998 are zero.
(5) Donald J. Kenney resigned as Executive Vice President of National
Processing effective as of April 2, 1999. Under the terms of the
National Processing Company Long-Term Incentive Compensation Plan,
participants who resign prior to the end of a three-year cycle are not
entitled to any award under the plan for that cycle. Accordingly, the
estimated future payouts to Mr. Kenney for the three-year cycle
commencing January 1, 1998 are zero.
9
<PAGE> 10
(6) John J. Leehy, III resigned as Executive Vice President of National
Processing during July, 1998. He continues to be employed by National
Processing in an advisory capacity. Because the term of Mr. Leehy's
employment agreement is scheduled to expire before the end of the
three-year cycle commencing January 1, 1998, Mr. Leehy will not be
entitled to any award under the National Processing Company Long-Term
Incentive Compensation Plan for that three-year cycle. Accordingly, the
estimated future payouts to Mr. Leehy for the three-year cycle
commencing January 1, 1998 are zero.
(7) Gregory W. Sahrmann resigned as Executive Vice President of National
Processing effective as of December 31, 1998. Under the terms of the
National Processing Company Long-Term Incentive Compensation Plan,
participants who resign prior to the end of a three-year cycle are not
entitled to any award under the plan for that cycle. Accordingly, the
estimated future payouts to Mr. Sahrmann for the three-year cycle
commencing January 1, 1998 are zero.
The value of benefits paid or furnished by National Processing in 1998
to executive officers, other than those included in the preceding table, are
less than the amounts required to be disclosed pursuant to the Exchange Act.
DESCRIPTION OF NATIONAL PROCESSING'S COMPENSATION AND BENEFIT PLANS
SAVINGS PLAN. National Processing participates in the National City
Savings and Investment Plan (the "Savings Plan"). The Savings Plan is a
qualified salary reduction profit-sharing plan within the meaning of Section
401(k) of the Code. Under the Savings Plan as amended, all eligible employees
(generally, an eligible employee is one who has completed one year of continuous
service, is 21 years of age or older and has completed 1,000 hours of service)
of National Processing and its adopting subsidiaries may participate in the
Savings Plan by directing their employers to make Before-Tax Contributions (as
defined in the Savings Plan) to the Savings Plan Trust (the "Trust") for their
accounts and to reduce their compensation by an equal amount. Contributions may
be directed in any whole percentage between 1% and 10% of the employee's base
compensation. The employers also make contributions to the Trust ("Matching
Employer Contributions") in an amount equal to the Matching Employer
Contribution percentage then in effect (the Matching Employer Contribution
percentage is currently an amount equal to 100% of the first 3% of the
employee's pay contributed as a Before-Tax Contribution, plus 50% of the next 4%
of the employee's pay similarly contributed as a Before-Tax Contribution, with
no further Matching Employer Contribution for any additional pay contributed as
a Before-Tax Contribution). Amounts contributed pursuant to the Savings Plan may
be invested in certain investment choices. Before-Tax Contributions and Matching
Employer Contributions are fully vested at all times.
Prior to 1998, the Savings Plan had a profit-sharing feature based upon
National City's profitability, as measured by the percentage return on common
equity ("ROE") from year to year. The profit-sharing contribution was in
addition to the regular Matching Employer Contributions described above. The
additional amount of this profit-sharing contribution in any year was dependent
upon National City's ROE for that year and ranged, in five-cent increments from
no
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additional contribution, if a minimum ROE of 12% was not attained, to a maximum
of 50 cents for each $1.00 of an individual's Before-Tax Contributions for the
year if National City's ROE was equal to or greater than 18.5%. In 1997,
National City's ROE was 18.53%, which resulted in National City contributing 50
cents for each $1.00 of an individual's Before-Tax Contribution as a
profit-sharing contribution for the year 1997.
Effective January 1, 1998, the profit-sharing contribution for any
year, commencing with 1998, is determined on the basis of the reported growth in
National City's earnings per share ("EPS") since the end of the immediately
preceding year. Under the Savings Plan, the amount of the profit sharing
contribution for any year, commencing in 1998, will range, in five cent
increments, from zero, if growth in National City's reported EPS since the end
of the immediately preceding year is less than 8%, to a maximum of 50 cents for
each $1.00 of an individual's Before-Tax Contributions for that year if growth
in National City's reported EPS since the end of the immediately preceding year
is equal to or greater than 14.01%. The profit-sharing contribution for each
year will be made during the immediately succeeding year. Any profit-sharing
contribution will be in addition to any Regular Matching Employer Contributions.
EXECUTIVE PLAN. National Processing participates in the National City
Executive Savings Plan (the "Executive Plan"). The Executive Plan is a
non-qualified salary reduction profit-sharing plan, similar to the Savings Plan.
The Executive Plan is to supplement the Savings Plan with respect to employee
Before-Tax Contributions and the attendant Matching Employer Contributions
which, by reason of an individual's annual compensation, would not be otherwise
allowed because of the annual maximum limit of the Code or because of the
application, under the Code, of actual deferral percentage testing against
prohibited excessive deferrals by highly compensated employees. The Executive
Plan is substantially similar to the Savings Plan as to amounts of employee
Before-Tax Contributions and Matching Employer Contributions.
Participants in the Executive Plan are limited to those key officers of
National Processing or its subsidiaries who may be designated from time to time
by the Compensation Committee. The benefits of the Executive Plan are without
regard to any limitation imposed by the Code, or any other applicable law
limiting the amount payable under a qualified plan (such as the Savings Plan),
and represent unfunded general obligations of National Processing. Portions of
such benefits are subject to certain provisions for forfeiture as set forth in
the Executive Plan.
Directors of National Processing or its subsidiaries who are not also
employees of National Processing, National City or any of their subsidiaries are
not eligible to participate in the Savings Plan or the Executive Plan.
NATIONAL PROCESSING COMPANY LONG-TERM INCENTIVE COMPENSATION PLAN. The
National Processing Company Long-Term Incentive Compensation Plan (the
"Long-Term Plan") for Senior Officers focuses on maximizing returns to
shareholders and promotes the long-term profitability and success of National
Processing by providing an incentive to those key executives who are primarily
responsible for such profitability and success.
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The Long-Term Plan is administered by the Compensation Committee. Each
new fiscal year begins a new three-year plan cycle. For three-year cycles
beginning before January 1, 1998, awards under the Long-Term Plan are based on
the attainment of goals over a three-year plan cycle. Participants for plan
cycles commencing prior to January 1, 1998 may receive either a target award or
a maximum award expressed in either case as a percentage of average annual
salary for the plan cycle and determined on the basis of National Processing's
compound growth rate in earnings over the plan cycle. If National Processing has
attained a compound growth rate in earnings of 10% over the plan cycle, then
each participant for that plan cycle shall receive the target award. If National
Processing has attained a compound growth rate in earnings of 15% or more over
the plan cycle, then each participant for that plan cycle shall receive the
maximum award. In the event that National Processing's compound growth rate in
earnings over the plan cycle is greater than 10% but less than 15%, the award
for the plan cycle shall be pro-rated.
Participants for plan cycles commencing on or after January 1, 1998 may
receive a threshold award, a target award or a maximum award expressed in each
case as a percentage of average annual salary for the plan cycle and determined
on the basis of National Processing's ranking, according to increase in total
shareholder return over the plan cycle, relative to a peer group comprised of
comparable corporations. Prior to the beginning of each such plan cycle, the
Compensation Committee establishes threshold award, target award, and maximum
award performance levels for the plan cycle, against which National Processing
total stockholder return for the plan cycle shall be compared to other members
of a peer group based on ranking of plan cycle results of National Processing
and members of the peer group. At the same time, the Compensation Committee
determines membership in the peer group for the plan cycle, which is comprised
of a group of comparable corporations.
Amounts awarded under the Long-Term Plan may be in cash, in unfunded
future benefits, or a combination thereof. With the exception of the cash award,
awards are not funded, but simply remain contractual liabilities of National
Processing and are subject to payment upon the recipient's termination of
employment with National Processing or its subsidiaries. Generally, these
unfunded benefits, together with earnings thereon, are payable to the former
officer, his beneficiary, or his estate on an installment basis over 10 years.
Unfunded future benefits awards are considered as invested in the funds
described in the Savings Plan or as directed by the recipient from time to time
in the equivalent of a savings account and are subject to the gains or losses on
those investments.
The Long-Term Plan provides that, if a change in control of National
Processing shall occur, then the implementation date of that change in control
shall be the last day of all then current plan cycles, and no further plan
cycles shall commence. The award of each participant in the Long-Term Plan for
any then current plan cycle in which such participant participates shall be
payable in cash to the participant within five business days after the
implementation date of the change in control, and shall be in an amount equal to
the participant's maximum award for that plan cycle multiplied by a fraction the
numerator of which is the number of full months completed since the beginning of
that plan cycle and the denominator of which is thirty-six. In adopting this
plan, it was
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felt this change in control provision was appropriate in that those individuals
previously charged with providing superior total returns to the shareholders of
National Processing would no longer be in the same position to guide the affairs
of National Processing as they were prior to the event constituting a change in
control. Furthermore, following change in control of National Processing, no
further performance comparisons could be made.
Directors of National Processing or its subsidiaries who are not also
employees of National Processing or its subsidiaries are not eligible to
participate in the Long-Term Plan.
NATIONAL PROCESSING COMPANY SHORT-TERM INCENTIVE COMPENSATION PLAN. The
National Processing Company Short-Term Incentive Compensation Plan for Senior
Officers (the "Short-Term Plan") focuses on the short-term goals achieved by the
individual participant and on National Processing's results. Under this plan,
awards can be granted to any senior officer of National Processing, or to other
officers of National Processing or its subsidiaries as may be designated from
time to time by the Compensation Committee. Each participant in the Short-Term
Plan is evaluated annually with respect to performance on approved objectives.
Awards are based on individual results and can range from 0% to 70% of the
recipient's base salary in effect at the close of the year for which the
evaluation is made. Awards under this plan are paid or credited no later than
the end of first quarter of the following year.
Amounts awarded under the Short-Term Plan may be in cash, in unfunded
future benefits, or a combination thereof. With the exception of the cash award,
awards are not funded, but simply remain contractual liabilities of National
Processing and are subject to payment upon the recipient's termination of
employment with National Processing and its subsidiaries. Generally, these
unfunded benefits, together with earnings thereon, are payable to the former
officer, his beneficiary, or his estate on an installment basis over 10 years.
Unfunded future benefits awards are considered as invested as directed by the
recipient from time to time, in funds described in the Savings Plan or in the
equivalent of a savings account and are subject to the gains or losses on those
investments.
In the event of a change in control, the Short-Term Plan provides that
each participant will be paid at the effective time of the change in control,
the maximum benefit the participant is entitled to receive under the Short-Term
Plan.
STOCK OPTION PLAN. The National Processing, Inc. 1996 Stock Option Plan
(the "Option Plan") generally provides for the granting of options to purchase
shares of National Processing Common. The options are non-qualified options
which are not intended to qualify as Incentive Stock Options under Section 422
of the Code.
The Option Plan provides for an additional stock option grant (an
"Additional Option") when the employee has used previously owned National
Processing Common to pay the exercise price of an original option grant (a swap
transaction) or to pay the amount to be withheld under applicable federal, state
and local income tax laws in connection with the exercise of an
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option. The additional option feature typically encourages an employee to
exercise the option grant earlier than if the feature were not present, thereby
increasing the employee's level of equity ownership. Each Additional Option's
termination date is the same as the termination of the option that originally
had the additional option feature. Its option price is the market price at the
time of the exercise of the original option. An Additional Option is not
provided upon exercise of an Additional Option unless the board of directors
directs otherwise. This feature supports National Processing's focus on
increased equity ownership. The Option Plan also allows for the granting of
Appreciation Rights, but only in tandem with stock options previously granted or
contemporaneously being granted.
Under the Option Plan, no options may be granted at less than 100% of
the market value of National Processing Common on the date of the grant of the
option. Stock option awards are based on current individual performance.
Previous awards are not considered except for assuring the plan maximums are not
exceeded.
AGREEMENTS WITH EXECUTIVES. Certain key executive officers of National
Processing have employment agreements (the "Employment Agreements") with
National Processing Company ("NPC"), a subsidiary of National Processing. Each
of the Employment Agreements provides for a minimum annual base salary that does
not differ materially from the amounts shown as salary in the Summary
Compensation Table. The Employment Agreements generally provide that if the
executive officer subject thereto is terminated for any reason other than the
executive officer's violation of the contract, an amount equal to the officer's
base pay will be paid in monthly installments, for either one or two years after
termination, depending on the position held. The Employment Agreements also
generally provide for the continuation of certain employee benefits.
Each of the executive officers who has entered into an Employment
Agreement has thereby agreed not to compete with National Processing in the
United States and, in some cases, Mexico by not engaging in any capacity in any
business that is competitive with, in the case of certain executives, any
business of NPC and, in the case of the other certain executives, the business
of National Processing for which such officer bears primary managerial
responsibility. These non-competitive restrictions remain in effect for the
period in which the executive officer is entitled to receive payments under the
Employment Agreement following termination as generally described above.
SEVERANCE AGREEMENTS. In order to assure itself of both present and
future continuity of management in the event of a change in control, National
Processing has entered into severance agreements (the "Severance Agreements")
with certain of its senior executive officers and other key employees
("Executives"). The Severance Agreements become immediately operative upon a
change in control.
The Severance Agreements provide that following a change in control,
such Executives will be entitled to severance compensation upon termination of
employment during the period commencing with the occurrence of the change in
control and continuing until the earliest of
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(i) the third anniversary of the occurrence of the change in control, (ii)
death, or (iii) attainment of age sixty-five and upon the occurrence of one or
more certain additional events. As of the date of this proxy statement, there
are Severance Agreements with 14 key employees of National Processing and its
subsidiaries.
The severance compensation will be a lump sum payment in an amount
equal to three times the sum (for Executives) and two times the sum (for other
senior officers) of (i) base pay at the highest rate in effect for any period
prior to the termination date plus (ii) incentive pay in an amount equal to not
less than the highest aggregate annual bonus, incentive, or other payments of
cash compensation made or to be made in regard to services rendered in any
calendar year during the three calendar years immediately preceding the year in
which the change in control occurs, less the sum of (iii) any and all payments
received from National Processing, National City, or a successor or their
affiliates following a change in control plus (iv) any future payments to be
made in accordance with any Employment Agreements or other contracts between
National Processing and such other entities (specifically excluding payments
from any deferred compensation plan). For three years (for Executives) and two
years (for other senior officers) following termination, National Processing
will arrange to provide the Executives with welfare benefits substantially
similar to those they were receiving or were entitled to receive immediately
prior to the termination date, with such three-year period qualifying as service
with National Processing for the purpose of determining service credits and
benefits under National Processing's various retirement benefit plans. Each
Executive may waive one year of severance pay in exchange for being released
from the non-competition restrictions contained in their respective Employment
Agreements.
National Processing has agreed to pay any and all legal fees incurred
by the Executives in connection with the interpretation, enforcement, or defense
of their rights under the Severance Agreements. The term of each Severance
Agreement runs until the later of (i) the close of business on the third
anniversary of the date of that Severance Agreement or (ii) the expiration of
the three-year period of severance benefit coverage. On January 1 of each year,
the term of each Severance Agreement is automatically extended for an additional
year unless, not later than September 30 of the immediately preceding year,
National Processing or the Executive shall have given notice that the party
giving such notice does not wish to have the term extended. If, prior to a
change in control, an Executive ceases for any reason to be an employee of
National Processing or any subsidiary thereof, however, then the term of that
Executive's Severance Agreement will immediately terminate. For purposes of an
Executive's Severance Agreement, any termination of employment of the Executive
or the removal of the Executive from the office or position in National
Processing following the commencement of any discussion with a third person that
ultimately results in a change in control shall be deemed to be a termination or
removal of the Executive after a change in control.
Under the Severance Agreements, a change in control occurs upon either
of the following events: (i) National Processing is merged, consolidated or
reorganized into or with another person other than National City, a successor of
National City or an affiliate of National City or (ii) National Processing sells
or otherwise transfers all or substantially all of its assets to another
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corporation, or National Processing causes or permits the sale or transfer of
all or substantially all of its assets or assets of any subsidiary that has
assets equal to or greater than 80% of the total assets of National Processing
as reported on a consolidated basis, and as a result of such sale or transfer
less than 50% of the combined voting power of the then outstanding securities of
such corporation is held by National City.
Mr. Showalter has a severance agreement with National City. The
severance agreement was entered into upon the recommendation of the Compensation
and Organization Committee of the board of directors of National City, and the
form of the agreement was approved by National City's board of directors at its
December 19, 1994 meeting. The agreement becomes immediately operative upon a
change in control.
The severance agreement provides that upon termination of employment
with National City, a subsidiary, or a successor to National City within three
years following a change in control, unless the termination is because of death,
permanent disability, or cause, Mr. Showalter will be entitled to severance
compensation. The severance agreement also provides that following a change in
control, Mr. Showalter may terminate his own employment with National City or a
subsidiary with the right to severance compensation during the period commencing
with the occurrence of the change in control and continuing until the earliest
of (i) the third anniversary of the occurrence of the change in control, (ii)
death, or (iii) attainment of age sixty-five and upon the occurrence of one or
more certain additional events. His severance agreement also provides that in
the event of a change in control, he may terminate his employment with National
City or any subsidiary for any reason during the thirty-day period immediately
following the first anniversary of the first occurrence of a change in control
without cause with the right to severance compensation.
The severance compensation will be a lump sum payment in an amount
equal to three times the sum of (i) base pay at the highest rate in effect for
any period prior to the termination date plus (ii) incentive pay in an amount
equal to not less than the highest aggregate annual bonus, incentive, or other
payments of cash compensation made or to be made in regard to services rendered
in any calendar year during the three calendar years immediately preceding the
year in which the change in control occurs. For thirty-six months following the
termination, National City will arrange to provide Mr. Showalter with employee
benefits that are welfare benefits substantially similar to those which he was
receiving or was entitled to receive immediately prior to the termination date
and such thirty-six month period will be considered service with National City
for the purpose of determining service credits and benefits due and payable
under National City's various retirement benefit plans.
National City has agreed to bear the expense of any and all legal fees
incurred by Mr. Showalter associated with the interpretation, enforcement, or
defense of his rights under the severance agreement.
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TRANSACTIONS WITH MANAGEMENT
Aureliano Gonzalez-Baz, a director since 1996, provided various legal
services in excess of $60,000 to National Processing and its subsidiaries in the
ordinary course of business in 1998. Such services pertained to legal advice
related to National Processing's business operations in foreign countries.
Without exception, all services provided by the director were at market rates.
Similar additional services may be provided in the ordinary course of business
in the future.
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