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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934)
NATIONAL PROCESSING, INC.
(NAME OF THE ISSUER)
NATIONAL CITY CORPORATION
(NAME OF THE PERSON(S) FILING STATEMENT)
COMMON SHARES, NO PAR VALUE
(TITLE OF CLASS OF SECURITIES)
637229 10 5
(CUSIP NUMBER OF CLASS OF SECURITIES)
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DAVID L. ZOELLER, ESQ.
NATIONAL CITY CORPORATION
1900 EAST NINTH STREET
CLEVELAND, OHIO 44114
(216) 575-2000
WITH A COPY TO:
CHRISTOPHER M. KELLY, ESQ.
JONES, DAY, REAVIS & POGUE
901 LAKESIDE AVENUE
CLEVELAND, OH 44114
(216) 586-3939
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICES AND COMMUNICATIONS ON BEHALF OF PERSON(S) FILING STATEMENT)
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This statement is filed in connection with (check the appropriate box):
[ ] (a) The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under
the Securities Exchange Act of 1934.
[ ] (b) The filing of a registration statement under the Securities Act of
1933.
[X] (c) A tender offer.
[ ] (d) None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box
(a) are preliminary copies. [ ]
CALCULATION OF FILING FEE:
<TABLE>
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TRANSACTION VALUATION* AMOUNT OF FILING FEE**
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<S> <C>
$87,619,754 $17,524
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</TABLE>
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form
or schedule and the date of its filing.
Amount Previously Paid: $17,524 Filing Parties: National City
Corporation
Form or Registration No.: Schedule 14D-1 Date Filed: June 28, 1999
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* This amount assumes the purchase at $9.50 per share, pursuant to the Offer to
Purchase, of all the 6,279,251 common shares (the "Shares") of National
Processing, Inc. outstanding as of June 25, 1999, not beneficially owned by
National City Corporation and the 2,943,881 Shares issuable upon exercise of
certain options.
** The fee, calculated in accordance with Rule 0-11(d) of the Securities
Exchange Act of 1934, is 1/50 of one percent of the cash offered by the
National City Corporation.
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INTRODUCTION
This Rule 13E-3 Transaction Statement (the "Schedule 13E-3") relates to a
tender offer by National City Corporation, a Delaware corporation (the
"Purchaser"), to purchase any and all outstanding common shares, no par value
(the "Shares"), of National Processing, Inc., an Ohio corporation (the
"Company"), not currently owned by the Purchaser, for 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 the Offer to Purchase, dated June 28,
1999 (the "Offer to Purchase"), and in the related Letter of Transmittal (the
"Letter of Transmittal" and, together with the Offer to Purchase, the "Offer"),
copies of which are filed as Exhibits (a)(1) and (a)(2) respectively to the
Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1") filed by the
Purchaser with the Securities and Exchange Commission on the date hereof. This
Schedule 13E-3 is being filed by the Purchaser.
The following cross-reference sheet is being supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location in the Schedule 14D-1 of
the information required to be included in response to the items of this
Schedule 13E-3. The information set forth in the Schedule 14D-1, including all
exhibits thereto, is hereby expressly incorporated herein by reference and the
responses to each item of this Schedule 13E-3 are qualified in their entirety by
reference to the information contained in the Schedule 14D-1 and the exhibits
thereto. All cross references in this Schedule 13E-3, other than cross
references to the Schedule 14D-1, are to the Offer to Purchase.
The information contained in this Schedule 13E-3 concerning the Company,
including, without limitation, information concerning the Company's capital
structure and historical financial statements, directors and executive officers,
was obtained from the Company's publicly available filings with the Securities
and Exchange Commission. The Purchaser takes no responsibility for the accuracy
of such information.
2
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CROSS-REFERENCE SHEET TO
SCHEDULE 14D-1
<TABLE>
<CAPTION>
LOCATION OF ITEM(S)
ITEM AND CAPTION OF SCHEDULE 13E-3 IN SCHEDULE 14D-1
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<C> <S> <C>
1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a)-(c)..................................................... 1
(d)-(f)..................................................... *
2. IDENTITY AND BACKGROUND.
(a)-(g)..................................................... 2
3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a)(1)...................................................... 3(a)
(a)(2)-(b).................................................. 3(b)
4. TERMS OF THE TRANSACTION.
(a)-(b)..................................................... *
5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(g)..................................................... 5
6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)......................................................... 4(a)
(b)......................................................... *
(c)-(d)..................................................... 4(b)-(c)
7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a)-(d)..................................................... *
8. FAIRNESS OF THE TRANSACTION.
(a)-(f)..................................................... *
9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a)-(c)..................................................... *
10. INTEREST IN SECURITIES OF THE ISSUER.
(a)-(b)..................................................... 6
11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO
THE ISSUER'S SECURITIES..................................... 7
12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS
WITH REGARD TO THE TRANSACTION.
(a)-(b)..................................................... *
13. OTHER PROVISIONS OF THE TRANSACTION.
(a)-(c)..................................................... *
14. FINANCIAL INFORMATION.
(a)-(b)..................................................... *
15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a)......................................................... *
(b)......................................................... 8
16. ADDITIONAL INFORMATION...................................... 10(f)
separately included
17. MATERIAL TO BE FILED AS EXHIBITS............................ herewith
</TABLE>
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* The item is not required by Schedule 14D-1 of the Securities Exchange Act of
1934, as amended.
3
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ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a)-(c) Reference is hereby made to the information set forth in the answer
to Item 1 of the Schedule 14D-1, which is incorporated herein by reference.
Reference is also made to the information concerning the approximate number of
holders of record of the Shares set forth in the "Introduction" of the Offer to
Purchase, which is incorporated herein by reference.
(d) Reference is hereby made to the information set forth in Section 6
("Price Range of the Shares; Dividends") of the Offer to Purchase, which is
incorporated herein by reference.
(e)-(f) Reference is hereby made to the information set forth in "Special
Factors -- Background of the Offer; Contacts with the Company" and Section 8
("Certain Information Concerning the Company") of the Offer to Purchase, which
is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(g) Reference is hereby made to the information set forth in the answer
to Item 2 of the Schedule 14D-1, which is incorporated herein by reference.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a)(1) Reference is hereby made to the information set forth in the answer
to Item 3(a) of the Schedule 14D-1, which is incorporated herein by reference.
(a)(2)-(b) Reference is hereby made to the information set forth in the
answer to Item 3(b) of the Schedule 14D-1, which is incorporated herein by
reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a) Reference is hereby made to the information set forth in the
"Introduction" and Sections 1-4, 13 and 14 ("Terms of the Offer," "Acceptance
for Payment and Payment," "Procedures for Accepting the Offer and Tendering
Shares," "Withdrawal Rights," "Certain Conditions of the Offer" and "Certain
Legal Matters; Required Regulatory Approvals") of the Offer to Purchase, which
is incorporated herein by reference.
(b) Reference is hereby made to the information set forth in "Special
Factors -- Effects of the Offer and the Merger" of the Offer to Purchase, which
is incorporated herein by reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(g) Reference is hereby made to the information set forth in the answer
to Item 5 of the Schedule 14D-1, which is incorporated herein by reference.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) Reference is hereby made to the information set forth in the answer to
Item 4(a) of the Schedule 14D-1, which is incorporated herein by reference.
(b) Reference is hereby made to the information set forth in the
information set forth in Section 15 ("Certain Fees and Expenses") of the Offer
to Purchase, which is incorporated herein by reference.
(c)-(d) Reference is hereby made to the information set forth in the answer
to Item 4(b)-(c) of the Schedule 14D-1, which is incorporated herein by
reference.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a)-(d) Reference is hereby made to the information set forth in the
"Introduction," "Special Factors," Section 5 ("Certain Tax Consequences"),
Section 7 ("Possible Effects of the Offer on the Market for the Shares; NYSE
Listing; Exchange Act Registration") and Section 10 ("The Merger; Plans for the
Company") of the Offer to Purchase, which is incorporated herein by reference.
4
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ITEM 8. FAIRNESS OF THE TRANSACTION.
(a)-(e) Reference is hereby made to the information set forth in the
"Introduction" and "Special Factors -- Fairness of the Offer and the Merger" of
the Offer to Purchase, which is incorporated herein by reference.
(f) Not applicable.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a) Reference is hereby made to the information set forth in "Special
Factors" of the Offer to Purchase, which is incorporated herein by reference.
(b)-(c) Not applicable.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a)-(b) Reference is hereby made to the information set forth in the answer
to Item 6 of the Schedule 14D-1, which is incorporated herein by reference.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES.
Reference is hereby made to the answer to Item 7 of the Schedule 14D-1,
which is incorporated herein by reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION.
(a)-(b) Reference is hereby made to the information set forth in Section 8
("Certain Information Concerning the Company") of the Offer to Purchase, which
is incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) Reference is hereby made to the information set forth in Section 10
("The Merger; Plans for the Company") of the Offer to Purchase, which is
incorporated herein by reference.
(b)-(c) Not applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) Reference is hereby made to the information set forth in Section 8
("Certain Information Concerning the Company") of the Offer to Purchase, and
pages 18 through 35 of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998 and pages 1 through 10 and 12 of the Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999, which are incorporated
herein by reference. Exhibits (g)(1) and (g)(2) are hereby expressly
incorporated herein by reference pursuant to General Instruction D of Form
13E-3.
(b) Not applicable.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) Not applicable.
(b) Reference is hereby made to the information set forth in the answer to
Item 8 of the Schedule 14D-1, which is incorporated herein by reference.
ITEM 16. ADDITIONAL INFORMATION.
Reference is hereby made to the information set forth in the answer to Item
10(f) of the Schedule 14D-1, which is incorporated herein by reference.
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ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d)(1) Offer to Purchase, dated June 28, 1999.
(d)(2) Letter of Transmittal.
(d)(3) Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
(d)(4) Form of Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees.
(d)(5) Notice of Guaranteed Delivery.
(d)(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(d)(7) Text of Press Release issued by the Purchaser, dated June 22, 1999.
(e) Not applicable.
(f) Not applicable.
(g)(1) Financial Statements (including the Notes thereto) included on pages
18 through 35 in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998.
(g)(2) Financial Statements (including the Notes thereto) included on pages
1 through 10 and 12 in the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999.
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SIGNATURE
After due 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.
Dated: June 28, 1999
NATIONAL CITY CORPORATION
By: /s/ ROBERT G. SIEFERS
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Name: Robert G. Siefers
Title: Vice Chairman and
Chief Financial Officer
7
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EXHIBIT INDEX
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EXHIBIT
NUMBER DESCRIPTION
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(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d)(1) Offer to Purchase, dated June 28, 1999.
(d)(2) Letter of Transmittal.
(d)(3) Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
(d)(4) Form of Letter to Clients for use by Brokers, Dealers,
Commercial Banks, Trust Companies and Other Nominees.
(d)(5) Notice of Guaranteed Delivery.
(d)(6) Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
(d)(7) Text of Press Release issued by the Purchaser, dated June
22, 1999.
(e) Not applicable.
(f) Not applicable.
(g)(1) Financial Statements (including the Notes thereto) included
on pages 18 through 35 in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998.
(g)(2) Financial Statements (including the Notes thereto) included
on pages 1 through 10 and 12 in the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999.
</TABLE>
<PAGE> 1
Exhibit (d)(1)
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.
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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.
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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.
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The Dealer Manager for the Offer is:
MERRILL LYNCH & CO.
June 28, 1999
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TABLE OF CONTENTS
<TABLE>
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PAGE
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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
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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
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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.
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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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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.
11
<PAGE> 14
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
19
<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.
20
<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
21
<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.
22
<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
23
<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
25
<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
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<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,
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<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.
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<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
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<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
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<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.
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<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.
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<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.
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<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 (d)(2)
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
Exhibit (d)(3)
[MERRILL LYNCH LOGO]
World Financial Center
North Tower
New York, New York 10281-1305
(212) 449-8971 (Call Collect)
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.
June 28, 1999
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We have been appointed by National City Corporation, a Delaware corporation
(the "Purchaser"), to act as Dealer Manager in connection with the Purchaser's
offer 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 the Offer to Purchase,
dated June 28, 1999 (the "Offer to Purchase"), and in the related Letter of
Transmittal (which together constitute the "Offer") enclosed herewith. Holders
of Shares whose certificates for such Shares (the "Share Certificates") are not
immediately available or who cannot deliver their Share Certificates to National
City Bank (the "Depositary") or complete the procedures for book-entry transfer
prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase)
must tender their Shares according to the guaranteed delivery procedures set
forth in Section 3 of the Offer to Purchase.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED PRIOR TO THE EXPIRATION DATE OF THE OFFER AND NOT PROPERLY WITHDRAWN A
NUMBER OF SHARES WHICH REPRESENTS AT LEAST A MAJORITY OF THE 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). THE OFFER IS ALSO
SUBJECT TO THE CONDITIONS SET FORTH IN THE OFFER TO PURCHASE. THE OFFER IS NOT
CONDITIONED UPON THE PURCHASER'S OBTAINING FINANCING. SEE THE INTRODUCTION AND
SECTIONS 1, 13 AND 14 OF THE OFFER TO PURCHASE.
Please furnish copies of the enclosed materials to those of your clients
for whose accounts you hold Shares in your name or in the name of your nominee.
<PAGE> 2
For your information and for forwarding to your clients for whom you hold
Shares registered in your name or in the name of your nominee, or who hold
Shares registered in their own names, we are enclosing the following documents:
1. The Offer to Purchase, dated June 28, 1999.
2. The Letter of Transmittal to be used by holders of Shares in
accepting the Offer and tendering Shares. Facsimile copies of the Letter of
Transmittal (with manual signatures) may be used to tender Shares.
3. The Notice of Guaranteed Delivery for Shares to be used to accept
the Offer if neither of the two procedures for tendering Shares set forth
in the Offer to Purchase can be completed on a timely basis.
4. A printed form of letter which may be sent to your clients for
whose accounts you hold Shares registered in your name, with space provided
for obtaining such clients' instructions with regard to the Offer.
5. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9.
6. A return envelope addressed to the Depositary.
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 accept for payment and will pay for all Shares
validly tendered prior to the Expiration Date and not theretofore withdrawn in
accordance with Section 4 of the Offer to Purchase promptly after the later to
occur of (a) the Expiration Date and (b) the satisfaction or waiver of the
conditions set forth in Section 13 of the Offer to Purchase related to
regulatory matters. Subject to compliance with Rule 14e-1(c) under the Exchange
Act, the Purchaser expressly reserves the right to delay payment for Shares in
order to comply in whole or in part with any applicable law. See Sections 1 and
14 of the Offer to Purchase. In all cases, payment for Shares tendered and
accepted for payment pursuant to the Offer will be made only after timely
receipt by the Depositary of (i) Share Certificates or timely confirmation of a
book-entry transfer of Shares into the Depositary's account at The Depository
Trust Company, pursuant to the procedures set forth in Section 3 of the Offer to
Purchase, (ii) a properly completed and duly executed Letter of Transmittal (or
a manually signed facsimile thereof) with all required signatures guarantees or,
in the case of a book-entry transfer, an Agent's Message (as defined in Section
2 of the Offer to Purchase) and (iii) any other documents required by the Letter
of Transmittal.
The Purchaser will not pay any fees or commissions to any broker or dealer
or any other person (other than the Dealer Manager, the Information Agent and
the Depositary as described in Section 15 of the Offer to Purchase) in
connection with the solicitation of tenders of Shares pursuant to the Offer. The
Purchaser will, however, upon request, reimburse you for customary mailing and
handling expenses incurred by you in forwarding the enclosed materials to your
clients.
The Purchaser will pay any stock transfer taxes incident to the transfer to
it of validly tendered Shares except as otherwise provided in Instruction 6 of
the Letter of Transmittal.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. PLEASE NOTE THAT 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.
In order to take advantage of the Offer, (i) a duly executed and properly
completed Letter of Transmittal (or a manually signed facsimile thereof) with
any required signature guarantees, or, in the case of a book-entry transfer, an
Agent's Message (as defined in the Offer to Purchase) or other required
documents should be sent to the Depositary and (ii) Share Certificates
representing the tendered Shares
2
<PAGE> 3
on a timely Book-Entry Confirmation (as defined in the Offer to Purchase) should
be delivered to the Depositary in accordance with the instructions set forth in
the Offer to Purchase.
If holders of Shares wish to tender, but it is impracticable for them to
forward their Share Certificates or other required documents or complete the
procedures for book-entry transfer prior to the Expiration Date, a tender must
be effected by following the guaranteed delivery procedures specified in Section
3 of the Offer to Purchase.
Any inquiries you may have with respect to the Offer should be addressed to
Corporate Investor Communications, Inc., the Information Agent, or Merrill
Lynch, Pierce, Fenner & Smith Incorporated, the Dealer Manager, at their
respective addresses and telephone numbers set forth on the back cover of the
Offer to Purchase.
Additional copies of the enclosed materials may be obtained by calling the
Information Agent toll-free at (888) 976-2663 or from brokers, dealers,
commercial banks or trust companies.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR
ANY OTHER PERSON AS AN AGENT OF THE PURCHASER, THE COMPANY, THE DEPOSITARY, THE
INFORMATION AGENT, THE DEALER MANAGER, OR ANY AFFILIATE OF ANY OF THE FOREGOING,
OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENT OR USE ANY DOCUMENT
ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED
DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN.
3
<PAGE> 1
Exhibit (d)(4)
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.
June 28, 1999
To Our Clients:
Enclosed for your consideration are the Offer to Purchase, dated June 28,
1999 (the "Offer to Purchase"), and the related Letter of Transmittal (which
together constitute the "Offer") relating to the offer by National City
Corporation, a Delaware corporation (the "Purchaser"), 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 the Offer to Purchase and in the related
Letter of Transmittal enclosed herewith. 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.
WE ARE THE HOLDER OF RECORD OF SHARES HELD BY US FOR YOUR ACCOUNT. A TENDER
OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO
YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR
INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR
ACCOUNT.
Accordingly, we request instructions as to whether you wish to have us
tender on your behalf any or all Shares held by us for your account pursuant to
the terms and conditions set forth in the Offer.
Please note the following:
1. The tender price is $9.50 per Share net to you in cash without
interest thereon, upon the terms and subject to the conditions set forth in
the Offer.
2. The Offer is being made for all outstanding Shares.
3. The Offer is subject to the conditions set forth in the Offer to
Purchase. See the Introduction and Sections 1, 13 and 14 of the Offer to
Purchase.
4. Tendering shareholders will not be obligated to pay brokerage fees
or commissions or, except as otherwise provided in Instruction 6 of the
Letter of Transmittal, stock transfer taxes on the purchase of Shares by
the Purchaser pursuant to the Offer.
5. 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.
<PAGE> 2
6. Payment for Shares purchased pursuant to the Offer will in all
cases be made only after timely receipt by National City Bank (the
"Depositary") of (a) Share Certificates or timely confirmation of the
book-entry transfer of such Shares into the account maintained by the
Depositary at The Depository Trust Company (the "Book-Entry Transfer
Facility"), pursuant to the procedures set forth in Section 3 of the Offer
to Purchase, (b) the Letter of Transmittal (or a facsimile thereof),
properly completed and duly executed, with any required signature
guarantees or an Agent's Message (as defined in the Offer to Purchase), in
connection with a book-entry delivery, and (c) any other documents required
by the Letter of Transmittal. Accordingly, payment may not be made to all
tendering shareholders at the same time depending upon when certificates
for or confirmations of book-entry transfer of such Shares into the
Depositary's account at the Book-Entry Transfer Facility are actually
received by the Depositary.
If you wish to have us tender any or all of the Shares held by us for your
account, please so instruct us by completing, executing, detaching and returning
to us the instruction form set forth on the back page of this letter. IF YOU
AUTHORIZE THE TENDER OF YOUR SHARES, ALL SUCH SHARES WILL BE TENDERED UNLESS
OTHERWISE SPECIFIED ON THE BACK PAGE OF THIS LETTER. An envelope to return your
instructions to us is enclosed. Your instructions should be forwarded to us in
ample time to permit us to submit a tender on your behalf prior to the
expiration of the Offer.
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 is being made on
behalf of the Purchaser by one or more registered brokers or dealers that are
licensed under the laws of such jurisdiction.
2
<PAGE> 3
INSTRUCTIONS WITH RESPECT TO THE
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING COMMON SHARES
OF
NATIONAL PROCESSING, INC.
BY
NATIONAL CITY CORPORATION
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase, dated June 28, 1999 (the "Offer to Purchase"), and the
related Letter of Transmittal (which together constitute the "Offer") in
connection with the offer by National City Corporation, a Delaware corporation
(the "Purchaser"), to purchase all outstanding common shares, no par value (the
"Shares"), of National Processing, Inc., an Ohio corporation, 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 the Offer to Purchase.
This will instruct you to tender to the Purchaser the number of Shares
indicated below (or if no number is indicated below, all Shares) which are held
by you for the account of the undersigned, upon the terms and subject to the
conditions set forth in the Offer.
Number of Shares to be Tendered:* ___________________________________ Shares
Date: __________, 1999
SIGN HERE
Signature(s):
--------------------------------------------------------------------------
Print Name(s):
--------------------------------------------------------------------------
Print Address(es):
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Area Code and Telephone Number(s):
--------------------------------------------------------------------------
Taxpayer Identification or Social Security Number(s):
--------------------
* Unless otherwise indicated, it will be assumed that all Shares held by us for
your account are to be tendered.
THIS FORM MUST BE RETURNED TO THE BROKERAGE FIRM MAINTAINING YOUR ACCOUNT.
3
<PAGE> 1
Exhibit (d)(5)
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF COMMON SHARES
OF
NATIONAL PROCESSING, INC.
(NOT TO BE USED FOR SIGNATURE GUARANTEES)
This Notice of Guaranteed Delivery or one substantially equivalent hereto
must be used to accept the Offer (as defined below) if certificates representing
common shares, no par value (the "Shares"), of National Processing, Inc., an
Ohio corporation (the "Company"), are not immediately available or time will not
permit all required documents to reach National City Bank (the "Depositary") on
or prior to the Expiration Date (as defined in the Offer to Purchase), or the
procedures for delivery by book-entry transfer cannot be completed on a timely
basis. This Notice of Guaranteed Delivery may be delivered by hand or sent by
facsimile transmission or mail to the Depositary. See Section 3 of the Offer to
Purchase.
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>
Facsimile for Eligible Institutions:
(216) 252-9163
To Confirm Fax Only:
(216) 476-8936
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION TO A
NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal and
certificates for Shares to the Depositary within the time period shown herein.
Failure to do so could result in a financial loss to such Eligible Institution.
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to National City Corporation, a Delaware
corporation (the "Purchaser"), upon the terms and subject to the conditions set
forth in the Offer to Purchase, dated June 28, 1999 (the "Offer to Purchase"),
and in the related Letter of Transmittal (which together constitute the
"Offer"), receipt of each of which is hereby acknowledged, the number of Shares
indicated below pursuant to the guaranteed delivery procedures set forth in
Section 3 of the Offer to Purchase.
Number of Shares: ___________________________________________
Certificate No(s). (if available): __________________________
If Share(s) will be tendered by book-entry transfer, check the box. [ ]
Account Number: _____________________________________________
Date: _____________________________ Area Code and Telephone Number(s): _________
Name(s) of Record Holder(s): ___________________________________________________
(Please Print)
Signature(s): __________________________________________________________________
Address(es): ____________________________________ _________________________
(Zip Code)
THE GUARANTEE BELOW MUST BE COMPLETED
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, 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, hereby guarantees to deliver to
the Depositary at one of its addresses set forth above either the certificates
representing all tendered Shares, in proper form for transfer, a Book-Entry
Confirmation (as defined in the Offer to Purchase), together with a properly
completed and duly executed Letter of Transmittal (or facsimile thereof), with
any required signature guarantees, or, in the case of book-entry delivery of
Shares, an Agent's Message (as defined in the Offer to Purchase), and any other
documents required by the Letter of Transmittal within three NYSE trading days
after the date of execution of this Notice of Guaranteed Delivery. A "NYSE
trading day" is any day on which The New York Stock Exchange is open for
business.
Name of Firm: _______________________________ ________________________________
Authorized Signature
Address: ____________________________________ Name: __________________________
Print Type or Print
_____________________________________________ Title: _________________________
Zip Code
Area Code and Tel. No: ______________________ Dated ____________________, 1999
NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE OF GUARANTEED
DELIVERY. CERTIFICATES FOR SHARES SHOULD BE SENT WITH YOUR LETTER OF
TRANSMITTAL.
2
<PAGE> 1
Exhibit (d)(6)
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--The taxpayer identification number for an individual is the individual's
Social Security number. Social Security numbers have nine digits separated by
two hyphens: e.g., 000-00-0000. The taxpayer identification number for an entity
is the entity's Employer Identification number. Employer identification numbers
have nine digits separated by only one hyphen: e.g., 00-0000000. The table below
will help determine the number to give the payer.
<TABLE>
<C> <S> <C>
- ------------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE NAME AND
SOCIAL SECURITY
NUMBER OF--
- ------------------------------------------------------------
1. Individual The individual
2. Two or more individuals (joint The actual owner of
account) the account or, if
combined funds, the
first individual on
the account(1)
3. Husband and wife (joint account) The actual owner of
the account or, if
joint funds, either
person(1)
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint account) The adult or, if
the minor is the
only contributor,
the minor(1)
6. Account in the name of guardian or The ward, minor, or
committee for a designated ward, incompetent
minor, or incompetent person person(3)
7. a. The usual revocable savings The grantor-
trust (grantor is also trustee) trustee(1)
b. So-called trust account that is The actual owner(1)
not a legal or valid trust
under state law
- ------------------------------------------------------------
- ------------------------------------------------------------
GIVE THE NAME AND
FOR THIS TYPE OF ACCOUNT: EMPLOYER
IDENTIFICATION
NUMBER OF--
- ------------------------------------------------------------
8. Sole proprietorship The owner(4)
9. A valid trust, estate, or pension The legal entity
trust (Do not furnish the
identifying number
of the personal
representative or
trustee unless the
legal entity itself
is not designated
in the account
title.)(5)
10. Corporate The corporation
11. Association, club, religious, The organization
charitable, educational or other
tax-exempt organization
12. Partnership The partnership
13. A broker or registered nominee The broker or
nominee
14. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a state or
local government, school district,
or prison) that receives
agriculture program payments
- ------------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
Section references are to the Internal Revenue Code.
OBTAINING A NUMBER
If you do not have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service (the "IRS") and
apply for a number.
To complete the Substitute Form W-9, if you do not have a taxpayer
identification number, write "Applied For" in the space for the taxpayer
identification number in Part 1, sign and date the Form, and give it to the
requester. If the requester does not receive your taxpayer identification number
within 60 days, backup withholding, if applicable, will begin and will continue
until you furnish your taxpayer identification number to the requester.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
The following is a list of payees exempt from backup withholding and for which
no information reporting is required. For interest and dividends, all listed
payees are exempt except item (9). For broker transactions, payees listed in (1)
through (13) and a person registered under the Investment Advisers Act of 1940
who regularly acts as a broker are exempt. Payments subject to reporting under
sections 6041 and 6041A are generally exempt from backup withholding only if
made to payees described in items (1) through (7), except that a corporation
that provides medical and health care services or bills and collects payments
for such services is not exempt from backup withholding or information
reporting. Only payees described in items (2) through (6) are exempt from backup
withholding for barter exchange transactions, patronage dividends, and payments
by certain fishing boat operators.
(1) A corporation.
(2) An organization exempt from tax under section 501(a), or an individual
retirement plan ("IRA"), or a custodial account under 403(b)(7), if the
account satisfies the requirements of section 401(f)(2).
(3) The United States or any of its agencies or instrumentalities.
(4) A State, the District of Columbia, a possession of the United States, or
any of their political subdivisions or instrumentalities.
(5) A foreign government or any of its political subdivisions, agencies or
instrumentalities.
(6) An international organization or any of its agencies or
instrumentalities.
(7) A foreign central bank of issue.
(8) A dealer in securities or commodities required to register in the United
States, the District of Columbia, or a possession of the United States.
(9) A futures commission merchant registered with the Commodity Futures
Trading Commission.
(10) A real estate investment trust.
(11) An entity registered at all times during the tax year under the
Investment Company Act of 1940.
(12) A common trust fund operated by a bank under section 584(a).
(13) A financial institution.
(14) A middleman known in the investment community as a nominee or listed in
the most recent publication of the American Society of Corporate
Secretaries, Inc., Nominee List.
(15) A trust exempt from tax under section 664 or described in section 4947.
Payments of dividends and patronage dividends generally not subject to backup
withholding also include the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in a trade or business in the United
States and that have at least one nonresident partner.
- Payments of patronage dividends not paid in money.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
- Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals.
Note: You may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payer's trade or business and you
have not provided your correct taxpayer identification number to the
payer.
- Payments of tax-exempt interest (including exempt interest dividends under
section 852).
- Payments described in section 6049(b)(5) to non-resident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Mortgage interest paid by you.
Payments that are not subject to information reporting are also not subject to
backup withholding. For details see sections 6041, 6041A(a), 6042, 6044, 6045,
6049, 6050A and 6050N, and the regulations under such sections.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. ENTER YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON
THE FACE OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER.
PRIVACY ACT NOTICE--Section 6109 requires you to give your correct taxpayer
identification number to persons who must file information returns with the IRS
to report interest, dividends, and certain other income paid to you, mortgage
interest you paid, the acquisition or abandonment of secured property,
cancellation of debt, or contributions you made to an IRA. The IRS uses the
numbers for identification purposes and to help verify the accuracy of your tax
return. You must provide your taxpayer identification number whether or not you
are qualified to file a tax return. Payers must generally withhold 31% of
taxable interest, dividend, and certain other payments to a payee who does not
furnish a taxpayer identification number to a payer. Certain penalties may also
apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis that results in no backup
withholding, you are subject to a $500 penalty.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE
<PAGE> 1
EXHIBIT (d)(7)
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 (g)(1)
The following data should be read in conjunction with the consolidated financial
statements and related notes thereto and management's discussion and analysis of
financial condition and results of operations included in Item 7.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(in millions, except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:(1)
Revenues $ 483.2 $ 405.7 $ 373.7 $ 339.3 $ 319.5
Other Income 4.0 -- 3.9 -- --
Operating Expenses 242.5 193.4 182.3 173.4 161.9
Wages and Other Personnel Expenses 126.9 101.6 83.2 69.9 73.6
General and Administrative
Expenses 66.8 50.8 49.0 41.8 40.2
Restructuring Charge -- 13.3 -- -- --
Depreciation and
Amortization 26.8 17.8 12.8 10.4 9.6
-------- -------- -------- -------- --------
Income from Operations 24.2 28.8 50.3 43.8 34.2
Net Interest Income (Expense) .9 4.0 2.8 .6 (.6)
-------- -------- -------- -------- --------
Income Before Taxes 25.1 32.8 53.1 44.4 33.6
Provision for Income Taxes 9.8 11.7 21.7 18.6 14.3
-------- -------- -------- -------- --------
Net Income $ 15.3 $ 21.1 $ 31.4 $ 25.8 $ 19.3
======== ======== ======== ======== ========
Basic and Diluted Net Income
per Common Share (2) $ 0.30 $ 0.42 $ 0.68 $ 0.60 $ 0.45
======== ======== ======== ======== ========
Average Shares Outstanding
- diluted (2) 50.7 50.7 46.1 43.1 43.1
Balance Sheet Data:
Working Capital $ 72.4 $ 79.3 $ 178.8 $ 64.1 $ 45.6
Goodwill 171.4 170.3 70.6 72.6 73.5
Total Assets 512.4 523.3 418.6 281.3 288.4
Total Liabilities 159.8 186.4 102.9 107.3 140.2
Shareholders' Equity $ 352.7 $ 336.8 $ 315.7 $ 174.0 $ 148.2
</TABLE>
(1) The above information includes the impact of the following acquisitions
during the period presented: in December 1995, the Company acquired the
remittance processing business of First Data Resources, Inc.; on February
4, 1997, the Company acquired NTA, Inc. a freight payment processing
company; on June 18, 1997, the Company acquired the operating assets and
liabilities of Intracon, Inc., a freight payment processing company; on
June 20, 1997, the Company acquired the operating assets and liabilities
of MRS Jamaica, Inc., a healthcare form processing company; on September
30, 1997, the Company acquired Caribbean Data Services, Ltd., a data
processing company; on October 24, 1997, the Company acquired 79.6% of the
outstanding shares of FA Holdings, Inc., a debit and credit card processor
(the Company acquired the remaining outstanding shares of FA Holdings,
Inc. on January 2, 1998); on January 15, 1998, the Company acquired JBH
Travel Audit Inc., a company which audits fees payable to travel agencies.
These transactions were accounted for as purchases; accordingly, the
results of operations are included in the statements of income from the
respective acquisition dates.
(2) Net income per share for 1994 and 1995 has been calculated based on
43,100,000 shares outstanding which reflects the retroactive effect of the
57,465.67 to one stock split effective June 6, 1996.
<PAGE> 2
Report of Independent Auditors
The Shareholders National Processing, Inc.
We have audited the accompanying consolidated balance sheets of National
Processing, Inc. and subsidiaries (a majority owned subsidiary of National City
Corporation) as of December 31, 1998 and 1997, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of National
Processing, Inc. and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
Cleveland, Ohio
February 1, 1999
/s/ Ernst & Young LLP
<PAGE> 3
NATIONAL PROCESSING, INC.
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
1998 1997
---- ----
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 7,254 $ 40,075
Accounts receivable-trade 104,759 104,752
Check inventory 2,901 7,395
Restricted deposits--customer funds 91,484 83,183
Deferred tax assets 3,688 12,186
Other current assets 13,434 10,064
-------- --------
Total current assets 223,520 257,655
Property and equipment:
Furniture and equipment 116,420 94,976
Building and leasehold improvements 23,843 15,679
Software 23,537 16,219
Property leased from affiliate 4,173 4,173
Land and improvements 2,828 1,591
-------- --------
170,801 132,638
Accumulated depreciation and amortization 82,680 66,467
-------- --------
88,121 66,171
Other assets:
Goodwill, net of accumulated amortization
of $14,202 in 1998, $10,616 in 1997 171,489 170,327
Acquired merchant portfolios 18,255 21,115
Deferred tax assets 2,764 --
Other assets 8,284 8,004
-------- --------
Total other assets 200,792 199,446
-------- --------
Total assets $512,433 $523,272
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
NATIONAL PROCESSING, INC.
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
1998 1997
---- ----
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Restricted deposits--customer funds $ 91,484 $ 83,183
Accounts payable--trade 3,075 5,209
Merchants payable--check services 3,690 7,271
Accrued bankcard assessments 17,753 19,806
Income tax payable to NCC 4,376 5,507
Acquisition balance due -- 26,781
Other accrued liabilities 30,729 30,551
-------- --------
Total current liabilities 151,107 178,308
Obligation under property leased from affiliate 2,264 2,591
Other long-term liabilities 796 2,674
Deferred tax liabilities 5,607 2,874
-------- --------
Total liabilities 159,774 186,447
Shareholders' equity:
Preferred stock, without par value;
5,000,000 shares authorized;
no shares issued or outstanding -- --
Common stock, without par value;
95,000,000 shares authorized;
50,644,651 and 50,575,000 shares issued and
outstanding in 1998 and 1997, respectively 1 1
Contributed capital 175,799 175,215
Retained earnings 176,859 161,609
-------- --------
Total shareholders' equity 352,659 336,825
-------- --------
Total liabilities and shareholders' equity $512,433 $523,272
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
NATIONAL PROCESSING, INC.
Consolidated Statements of Income
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues $483,193 $405,661 $373,693
Other income 4,000 -- 3,868
Operating expenses 242,478 193,352 182,291
Wages and other personnel expenses 126,970 101,573 83,220
General and administrative expenses 66,814 50,750 48,959
Restructuring charge -- 13,340 --
Depreciation and amortization 26,767 17,826 12,847
-------- -------- --------
Operating profit 24,164 28,820 50,244
Net interest income 924 4,001 2,783
-------- -------- --------
Income before income taxes 25,088 32,821 53,027
Provision for income taxes 9,838 11,694 21,674
-------- -------- --------
Net income $ 15,250 $ 21,127 $ 31,353
======== ======== ========
Basic and diluted net income per common share $ 0.30 $ 0.42 $ 0.68
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
NATIONAL PROCESSING, INC.
Consolidated Statements of Changes in Shareholders' Equity
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Contributed Retained
Stock Capital Earnings Total
----- ------- -------- -----
<S> <C> <C> <C> <C>
Balance at January 1, 1996 $ 1 $ 64,825 $109,129 $173,955
Issuance of common stock (7,475,000 shares) -- 110,390 -- 110,390
Net income -- -- 31,353 31,353
---- -------- -------- --------
Balance at December 31, 1996 1 175,215 140,482 315,698
Net Income -- -- 21,127 21,127
---- -------- -------- --------
Balance at December 31, 1997 1 175,215 161,609 336,825
Stock options exercised -- 584 -- 584
Net Income -- -- 15,250 15,250
---- -------- -------- --------
Balance at December 31, 1998 $ 1 $175,799 $176,859 $352,659
==== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 7
NATIONAL PROCESSING, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Operating activities
Net income $ 15,250 $ 21,127 $ 31,353
Items not requiring cash currently:
Depreciation and amortization 26,767 17,826 12,847
Restructuring charge -- 10,552 --
Deferred income tax 6,287 (3,803) 917
Loss on disposition of assets 2,430 -- --
Changes in current assets and liabilities:
Accounts receivable 629 (4,590) (8,830)
Check inventory 4,494 (972) (47)
Accounts payable--trade (2,245) (4,694) (1,536)
Merchant payable--check services (3,581) 805 (841)
Accrued bankcard assessments (2,053) 2,588 (79)
Income taxes payable/receivable (1,131) 3,597 643
Other current assets/liabilities (3,236) (4,565) (1,325)
Other, net 998 (3,252) 1,725
--------- --------- ---------
Net cash provided by operating activities 44,609 34,619 34,827
Investing activities
Capital expenditures (42,469) (28,286) (35,345)
Purchases of securities available for sale -- (444,422) (405,886)
Proceeds from sales and maturities of securities
Available for sale -- 566,859 283,484
Acquisitions, net of cash acquired (34,118) (91,881) --
Other -- -- (6,614)
--------- --------- ---------
Net cash (used for) provided by investing activities (76,587) 2,270 (164,361)
Financing activities
Payment of note payable (1,100) -- --
Principal payments under property
leased from affiliate (327) (144) (144)
Net proceeds from issuance of common stock -- -- 110,390
Exercise of stock options 584 -- --
--------- --------- ---------
Net cash (used for) provided by financing activities (843) (144) 110,246
--------- --------- ---------
Net (decrease) increase in cash and
cash equivalents (32,821) 36,745 (19,288)
Cash and cash equivalents, beginning of period 40,075 3,330 22,618
--------- --------- ---------
Cash and cash equivalents, end of period $ 7,254 $ 40,075 $ 3,330
========= ========= =========
Supplemental Cash Flow Information:
Taxes paid to NCC $ 5,197 $ 14,358 $ 18,912
</TABLE>
See notes to consolidated financial statements.
<PAGE> 8
NATIONAL PROCESSING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Organization and Business
Organization
National Processing, Inc. and subsidiaries (the "Company") (a majority
owned subsidiary of National City Corporation ("NCC"), a bank holding company
headquartered in Cleveland, Ohio) became the owner of all of the outstanding
shares of National Processing Company ("NPC") on June 5, 1996. In connection
with its organization, the Company issued 43,100,000 shares of common stock
(after giving retroactive effect to the 57,465.67 to 1 stock split which was
effective June 6, 1996) to NCC, and NCC contributed the common stock of NPC
(then a wholly owned subsidiary of NCC) to the Company. Since both the Company
and NPC are subsidiaries of NCC, this transfer of assets was accounted for on
the basis of historical cost. The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All significant
intercompany transactions are eliminated in consolidation.
In August 1996, the Company sold 7,475,000 shares of its common stock in
an initial public offering at a price of $16.50 per share. Following the initial
public offering, NCC owned 85% of the Company's outstanding common stock. In May
1997, NCC purchased 1,265,000 shares of the Company's common stock in the open
market and currently owns approximately 88% of the Company's outstanding common
stock.
The Company and NCC are parties to a Registration Rights Agreement whereby
NCC has the right to require the Company to use its best efforts to register
under the Securities Act of 1933, as amended, all or a portion of the issued and
outstanding common stock held by NCC. NCC also has the right to participate, or
"piggy-back", in equity offerings initiated by the Company, subject to reduction
of the size of the offering on the advice of the managing underwriter. Business
The Company is a leading provider of transaction processing services and
customized processing solutions. The Company currently provides these services
in three principal areas: Merchant Services, Corporate Services and Travel
Services. Within Merchant Services, the Company focuses primarily on markets for
credit and debit card processing and for check acceptance and collection. The
Company's Corporate Services business provides integrated outsourcing solutions
for customers' remittance processing, freight bill processing, corporate
accounts payable, and imaging functions (see Note O). Customers of the Company's
Merchant Services and Corporate Services are diverse in terms of both industries
and size with no significant concentration in any particular industry or
customer type. Through an exclusive contract with the Airlines Reporting
Corporation ("ARC"), which expires in December 2001, Travel Services acts as a
processor and clearing house for all airline ticket payment transactions
generated by travel agents in the United States.
B. Summary of Significant Accounting Policies
Use of Estimates
Financial statements prepared in accordance with generally accepted
accounting principles necessitate the use of estimates and assumptions by
management that affect the reported amounts of revenues and expenses, assets and
liabilities, and the disclosure requirement for contingent assets and
liabilities during and at the date of the financial statements. Consequently,
actual results could differ from those estimates.
<PAGE> 9
Revenue Recognition
The Company recognizes as fee income the amounts charged by its various
businesses for the related processing activities. All revenues are recognized at
the time services are rendered.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid bank overnight repurchase
agreements, which are readily convertible to cash.
Financial Instruments
The Company's financial instruments consist of cash equivalents, accounts
receivable, restricted deposits, accounts payable, merchants payable, and
payables to affiliates. The carrying values of these financial instruments
approximate their fair values.
Check Inventory
The amount paid for checks submitted to the Company by merchants
participating in its various check guarantee programs are recorded at the amount
the Company deems ultimately collectible, subject to revision based on a
continual review of collection statistics. The check inventory is classified as
current in accordance with trade practice.
Restricted Deposits--Customer Funds
The Company's travel and freight processing businesses regularly receive
funds, as part of the settlement process, in advance of the related
disbursement. Such monies are set aside in restricted accounts and a liability
is recorded for an equal and offsetting amount. As such, customer funds are not
eligible for use by the Company in its operations other than to pay related
liabilities. In all cases, customer funds are invested in highly liquid,
investment grade interest bearing securities. Investment of customer funds in
equity securities is prohibited by the Company's investment guidelines
established by the Board of Directors.
Property and Equipment
Property and equipment is stated at cost and depreciated on a
straight-line basis over the estimated useful life or term of the lease,
whichever is shorter. Maintenance and repairs are expensed as incurred, while
improvements that extend the useful life of the related asset are capitalized
and depreciated over the remaining life of the related asset. The ranges of
estimated useful lives are as follows:
Furniture and equipment 3 to 10 years
Building and leasehold improvements 5 to 40 years
Property leased from affiliates 35 years
Land improvements 15 years
Software 3 to 5 years
Upon the sale or disposal of property or equipment, the cost and
accumulated depreciation accounts are adjusted accordingly and any gain or loss
is recognized in income. Depreciation expense was $18.3 million, $14.2 million,
and $10.3 million in 1998, 1997, and 1996, respectively.
The Company capitalizes certain costs incurred to develop or obtain
internal-use software. For purposes of amortization and impairment, capitalized
costs would be treated in the same manner as other long-lived assets. To be
considered as internal- use software the software is either acquired, internally
developed, or modified solely to meet the Company's internal needs with no plans
to market the software externally. Project costs that are considered research
and development costs are expensed as
<PAGE> 10
incurred. Capitalized software development and purchased software costs are
reported at unamortized cost. Commencing the month following project completion,
these costs are amortized on a straight-line basis over the estimated life of
the software, not to exceed five years. For the years ended December 31, 1998,
1997 and 1996, capitalized software amortization totaled $.8 million, $1.3
million, and $1.3 million, respectively.
In June 1998, the Company wrote-off $2,600,000 of internally developed
software and related costs, which is included in operating expenses in the
Consolidated Statements of Income, following the cancellation of a significant
customer contract.
Acquired Merchant Portfolios
Acquired merchant portfolios represent costs allocated to customer
contracts acquired through acquisitions. These costs are amortized on a
straight-line basis over periods ranging from 7 to 15 years. Deferred Contract
Costs
Other assets include $2.1 million and $3.2 million of deferred contract
costs in 1998 and 1997, respectively. Deferred contract costs primarily
represent costs incurred to acquire new customer contracts.
These costs are amortized on a straight-line basis over the life of the
customer contract. Recoverability of these costs is assessed on an ongoing basis
and writedowns to net realizable values are recorded as necessary. Acquisitions
Operations of companies acquired in purchase transactions are included in
the consolidated statements of income from the respective acquisition dates. The
excess of the purchase price over the net assets acquired (goodwill) is
amortized on a straight-line basis over 40 years.
Asset Impairment
The company records impairment losses on long-lived assets held for use
when events and circumstances indicate that the assets may be impaired and the
undiscounted net cash flows estimated to be generated by those assets are less
than their carrying amounts. Long-lived assets to be disposed of are reported at
the lower of carrying amount or fair value less cost to sell.
Merchant Payable--Check Services
As part of its check services operations, the Company reimburses merchants
for checks that are dishonored. The liability to merchants for returned checks
guaranteed by the Company is established in part based upon an estimate of the
volume of checks accepted by the various merchants which are expected to be
dishonored. Differences between the estimated and actual merchant guaranteed
check liability are recorded at the time the checks are acquired from the
merchants.
Accrued Bankcard Assessments
The liability to the VISA(R) and MasterCard(R) organizations originating
from the Company's agreements with these agencies, as an authorized processor,
is accrued and settled on a monthly and quarterly basis, respectively. The
Company recovers these assessment charges through various contractual
arrangements with its customers.
Income Taxes
The Company is included in the consolidated federal income tax return of
NCC. NCC's policy is to allocate income taxes to its subsidiaries on a separate
return basis.
<PAGE> 11
Reclassifications
Certain prior year amounts in the financial statements and notes have been
reclassified to conform with the current year presentation.
C. Recent Accounting Pronouncements
Reporting Comprehensive Income
In June 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income.
This statement establishes standards for reporting the components of
comprehensive income and requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
included in a financial statement that is displayed with the same prominence as
other financial statements. Comprehensive income includes net income as well as
certain items that are reported directly within a separate component of
stockholders' equity and bypass net income. The Company adopted the provisions
of this statement in 1998, however, any difference between net income and
comprehensive income are insignificant.
Disclosures about Segments of an Enterprise and Related Information
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131. Disclosures about Segments of an Enterprise and Related Information. The
provisions of this statement require disclosure of financial and descriptive
information about an enterprise's operating segments in annual and interim
financial reports issued to shareholders. The statement defines an operating
segment as a component of an enterprise that engages in business activities that
generate revenue and incur expense, whose operating results are regularly
reviewed by the chief operating decision maker in the determination of resource
allocation and assessment of performance, and for which discrete financial
information is available. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. The Company
adopted the provisions of this statement for 1998 annual reporting, and the
related disclosures are included in Note N to these financial statements.
Internal Use Software
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position (SOP), 98-1 Internal Use Software. This statement requires
the capitalization of costs to acquire or develop internal use software after
certain conditions are met. This statement is effective for fiscal years
beginning after December 15, 1998. Because the Company's current policy is not
significantly different from this statement, this statement will have no
significant impact on the financial position or results of operations of the
Company.
D. Acquisitions
On January 15, 1998, the Company acquired all the outstanding shares of
JBH Travel Audit Inc. ("JBH"), a company which audits fees payable to travel
agencies, for $6.3 million in cash. The purchase price is subject to increase by
as much as $2.0 million based upon the earnings of the acquired company during
1999. The acquisition, which has been accounted for as a purchase, increased the
Company's goodwill by $5.1 million which is being amortized over 40 years. The
results of JBH's operations are included in the Company's results of operations
from the date of acquisition. The pro forma effect of the JBH transaction was
not material to previously reported periods.
On February 4, 1997, the Company acquired all of the outstanding shares of
NTA, Inc., a freight payment processing company. On June 19, 1997, the Company
acquired the operating assets and liabilities of InTraCon, Inc., a freight
payment processing company. On June 20, 1997, the Company acquired the operating
assets and liabilities of MRS Jamaica, Inc., a healthcare form processing
company. On September 30, 1997, the Company acquired all of the outstanding
shares of Caribbean Data Services, Ltd., a data processing company. The combined
purchase price of these acquisitions was $30.3 million in cash and $4.3 million
in notes payable. $2.1 million of the notes were paid off in October 1997, $1.1
million were paid off in June 1998 and the $1.1 million
<PAGE> 12
balance, plus accrued interest at 5.125% is due and payable in February 1999.
The MRS Jamaica, Inc. purchase price increased by $3.3 million in 1998 based
upon the 1998 earnings of the acquired company. The acquisitions, which have
been accounted for as purchases, increased the Company's goodwill by $32.3
million which is being amortized over 40 years. The results of operations of
these acquired companies have been included in the consolidated financial
statements since their respective dates of acquisition.
The combined pro forma effect of these transactions was not material to
previously reported periods.
On October 24, 1997, the Company acquired 79.6% of the outstanding common
stock of FA Holdings, Inc., the sole owner of Financial Alliance Processing
Services, Inc. ("Financial Alliance"), for $67.2 million. Financial Alliance is
an independent sales organization specializing in selling credit and debit card
processing services to smaller merchants. The Company acquired the remaining
20.4% of the common stock for $26.8 million in January 1998. The acquisition,
which has been accounted for as a purchase, increased the Company's goodwill by
approximately $74 million which is being amortized over 40 years. The results of
operations of Financial Alliance have been included in the consolidated
financial statements since the date of its acquisition.
The follow unaudited pro forma information gives effect to the Financial
Alliance acquisition as if it occurred January 1, 1996 (in thousands, except per
share amounts).
Year Ended December 31
----------------------
1997 1996
--------- ---------
Revenues $ 432,325 $ 411,948
Income before income taxes 32,733 48,759
Net income 19,364 26,910
Basic and diluted net income per common share $ 0.38 $ 0.58
The pro forma results include the effect of all material adjustments
related to the acquisition and have been prepared using calculations based upon
assumptions deemed reasonable by the Company. The pro forma information is
presented for informational purposes only and is not necessarily indicative of
results that would have occurred had the acquisition taken place on January 1,
1996, nor are they necessarily indicative of future results.
Supplemental cash flow information related to all 1997 acquisitions is as
follows (dollars in thousands):
Net assets other than cash acquired $ (19,672)
Purchase price in excess of net assets acquired (101,190)
Notes and payables due 28,981
---------
Net cash used for acquisitions $ (91,881)
=========
E. Transactions with Affiliates
The Company leases certain facilities from National City Bank of Kentucky
("NCBK"), a wholly owned subsidiary of NCC, under long-term agreements
classified as "Property Leased From Affiliate" in the accompanying financial
statements. Future
<PAGE> 13
minimum payments under these leases, which expire between 1999 and 2019, are
$4.2 million, including interest of $1.9 million.
The Company uses the proof and transit department of NCBK to provide
processing for remittances. The charges for these services, which are included
in operating expenses, were $3.6 million in 1998, $5.5 million in 1997, and $4.1
million in 1996.
The Company receives certain administrative services, such as internal
audit and legal, from NCC and its affiliates. Charges for these services are
included in general and administrative expenses and totaled $2.1 million, $3.3
million, and $3.4 million, in 1998, 1997, and 1996, respectively.
F. Operating Leases
The Company leases various offices, facilities, and equipment under
noncancellable lease agreements with expiration dates through 2019. During the
normal course of business, most of these leases will be renewed or replaced by
other leases. Future minimum rental payments under these leases are $5.9 million
in 1999; $4.5 million in 2000; $2.8 million in 2001; $1.9 million in 2002, $1.6
million in 2003, and $8.9 million thereafter. Rent expense under operating
leases was $7.6 million, $7.0 million and $6.0 million, in 1998, 1997, and 1996,
respectively.
G. Income Taxes
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Current:
Federal $ 1,485 $ 14,354 $16,457
State 713 1,143 4,300
Deferred:
Federal 6,781 (3,803) 917
State (494) -- --
Foreign 1,353 -- --
-------- -------- -------
$ 9,838 $ 11,694 $21,674
======== ======== =======
</TABLE>
The temporary differences that gave rise to deferred tax assets and
liabilities, which are included in the income tax receivable from or payable to
NCC, are as follows (in thousands):
<TABLE>
<CAPTION>
December 31
-----------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets:
Accrued expenses $ 1,572 $ 3,608 $ 412
Pension, benefits and deferred
compensation 1,594 5,037 844
State operating losses 4,681 1,245 --
Other 1,013 2,296 --
-------- -------- --------
8,860 12,186 1,256
Valuation allowance (2,408) -- --
-------- -------- --------
6,452 12,186 1,256
Deferred tax liabilities:
Depreciation and amortization (2,998) 41 (1,433)
Purchase accounting adjustments (3,597) (1,934) --
Other 988 (981) (518)
-------- -------- --------
(5,607) (2,874) (1,951)
-------- -------- --------
Net deferred tax assets (liabilities) $ 845 $ 9,312 $ (695)
======== ======== ========
</TABLE>
<PAGE> 14
The reconciliation of the U.S. statutory income tax rate to the Company's
effective tax rate is as follows:
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
U.S. statutory rate 35.0% 35.0% 35.0%
Non-deductible amortization 5.5 2.6 1.2
State taxes, net of federal benefit .6 1.9 5.4
Tax exempt income (.5) (4.3) --
Foreign tax benefit (2.5) -- --
Other 1.1 .4 (.7)
---- ---- ----
39.2% 35.6% 40.9%
==== ==== ====
The Company has approximately $51.0 million of state net operating loss
carryforwards for income tax purposes available to offset future taxable income
in the related states from 1999 to 2013. In 1998, the Company determined that it
was more likely than not that future taxable income would be generated in these
states sufficient to justify the deferred tax assets recorded, net of the
related valuation allowance of $2.4 million.
Income before income taxes from foreign and United States operations was
approximately $4.3 million and $20.8 million, respectively in 1998. Income from
foreign operations was immaterial in 1997 and 1996.
H. Employee Benefit Plans
An employee thrift plan offers all employees, who meet certain age and
eligibility requirements, a program of regular savings and investment funded by
their own contributions and discretionary matching contributions of the Company.
The Company recorded $2.6 million, $2.8 million, and $2.3 million, respectively,
in matching contributions during 1998, 1997, and 1996.
I. Net Income Per Common Share
The calculation of net income per common share follows (in thousands
except per share amounts):
<PAGE> 15
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Basic:
Net income $15,250 $21,127 $31,353
Average common shares outstanding 50,621 50,575 46,090
Net income per common share - basic $ .30 $ .42 $ .68
Diluted:
Net income $15,250 $21,127 $31,353
Average common shares outstanding 50,621 50,575 46,090
Stock option adjustment 92 139 59
Average common shares outstanding - diluted 50,713 50,714 46,149
Net income per common share - diluted $ .30 $ .42 $ .68
</TABLE>
J. Stock Options
The Company maintains two stock-based compensation plans that allow for
the granting of stock options to eligible employees and directors. The Company
has elected not to adopt the recognition provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation," which requires a fair-value based method of
accounting for stock options and similar equity awards, and continues to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations to account for its stock-based
compensation plans.
On June 5, 1996, the Company was authorized to grant up to 4,000,000
options under an employee stock option plan (the "Employee Plan") and up to
200,000 options under a non-employee directors stock option plan (the "Directors
Plan"). These options are for the purchase of shares of common stock at their
market price at the date of grant. The Employee Plan pertains to officers and
key employees and the Directors Plan pertains to certain directors. For both
plans, these options generally become exercisable 33% annually beginning one
year from the date of grant and expire not later than ten years from the date of
grant.
A summary of stock option activity follows:
Shares Weighted
Available Shares Average Price
for Grant Outstanding Per Share
--------- ----------- ---------
Authorized 4,200,000 0
Granted (2,312,500) 2,312,500 $16.68
Canceled 81,667 (81,667) 16.50
---------- ---------
December 31, 1996 1,969,167 2,230,833 16.68
Granted (1,483,000) 1,483,000 9.33
Canceled 872,000 (872,000) 16.16
---------- --------- ------
December 31, 1997 1,358,167 2,841,833 13.00
Granted (818,300) 818,300 11.67
Canceled 646,601 (646,601) 12.66
Exercised 69,651 (69,651) 10.39
---------- --------- ------
December 31, 1998 1,256,119 2,943,881 $12.72
========== ========= ======
At December 31, 1998 and 1997, 1,158,060 and 474,444 options,
respectively, were exercisable under the Company's option plans. No options were
exercisable at December 31, 1996. The weighted average price per share of
exerciseable options was $14.40 at December 31, 1998. For options outstanding at
December 31, 1998, the option price per share ranged from $6.13 to $20.50, the
weighted average price per share of the options
<PAGE> 16
was $12.72, and the weighted-average remaining contractual life of the options
was 8.0 years.
For purposes of providing the pro forma disclosures required under SFAS
No. 123, the fair value of stock options granted in 1996, 1997, and 1998 was
estimated at the date of grant using a Black-Scholes option pricing model. The
Black-Scholes option- pricing model was originally developed for use in
estimating the fair value of traded options, which have different
characteristics than the Company's employee stock options. The model is also
sensitive to changes in the subjective assumptions, which can materially affect
the fair value estimate. As a result, management believes that the Black-Scholes
model may not necessarily provide a reliable single measure of the fair value of
employee stock options.
Had compensation cost for the Company's stock-based compensation plans
been determined consistent with SFAS No. 123, net income and earnings per share
for 1998, 1997, and 1996 would have been $12,211,000 and $.24, $18,416,000 and
$.36, and $29,756,000 and $.65, respectively. As a result of a partial year's
vesting in 1998 and 1997 and possible changes in assumptions used in the fair
value calculation, the effects of applying SFAS No. 123 in 1998 and 1997 may not
be representative of the pro forma impact in future years.
The following weighted-average assumptions were used in the option-pricing
model: a risk-free interest rate of 5.97% in 1998 and 1997 and 6.54% in 1996, an
expected life of the option of 7 years, an expected dividend yield of 0%, and a
volatility factor of .492 for 1998, .441 for 1997 and .412 for 1996. The
weighted-average grant date fair value of options granted was $6.83, $5.16, and
$9.04 in 1998, 1997, and 1996, respectively.
K. Commitments and Contingencies
In the normal course of business, the Company is involved in litigation
from time to time. In the opinion of management, the ultimate liability, if any,
arising from this litigation is not expected to have a material adverse effect
on the Company's financial condition, results of operations, or liquidity.
Under the rules of VISA U.S.A. Inc. and MasterCard International
Incorporated when the Company acquires card transactions, it has certain
contingent liabilities for the transactions it processes. This contingent
liability arises in the event of a billing dispute between the merchant and a
cardholder that is not ultimately resolved in favor of the merchant and the
amount is charged back to the merchant and the disputed amount is refunded to
the cardholder. If the Company is unable to collect this amount from the
merchant's account and if the merchant refuses or is unable due to bankruptcy or
other reasons to reimburse the Company for the chargebacks, the Company will
bear the loss for the amount of the refund to the cardholder. The Company
maintains merchant deposits from certain customers as an offset to potential
contingent liabilities that are the responsibility of such customers. The
Company evaluates its risk and estimates its potential loss for chargebacks
based on historical experience.
L. Quarterly Results of Operations: (Unaudited)
Selected quarterly data for the years ended December 31, 1998 and 1997 are as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1998
--------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues $113,649 $119,177 $121,430 $128,937 $483,193
Operating profit 8,243 2,292 5,333 8,296 24,164
Net income 4,908 1,570 3,381 5,391 15,250
Diluted net income
per share $ .10 $ .03 $ .06 $ .11 $ .30
Weighted average shares 50,833 50,950 50,691 50,644 50,713
</TABLE>
<PAGE> 17
<TABLE>
<CAPTION>
1997
--------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues $ 88,420 $ 94,969 $100,780 $121,492 $405,661
Operating (loss) profit (905) 9,658 11,099 8,968 28,820
Net income 370 7,157 7,637 5,963 21,127
Diluted net income
per share $ .01 $ .14 $ .15 $ .12 $ .42
Weighted average shares 50,575 50,689 50,764 50,764 50,714
</TABLE>
The above information includes the impact of a $6.3 million restructuring charge
in the first quarter of 1997; a $7.0 million restructuring charge in the fourth
quarter of 1997; a $2.6 million write-off of internally developed software in
the second quarter of 1998; $4.0 million in other revenue related to the
settlement of a contract cancellation in the third quarter of 1998; and a $5.2
million charge for remittance research adjustments in the third quarter of 1998.
M. Restructuring Charge
In March 1997 the Company recorded expenses of $6.3 million, including
$5.0 million for severance pay for approximately 79 employees, and $1.2 million
for other costs, related to organizational restructuring. In December 1997 the
Company recorded expenses of $7.0 million following the acquisition of FA
Holdings, Inc. The expenses resulted principally from the write-off of certain
fixed assets (totaling $5.5 million) related to several of the Company's
operating facilities which have been or are in the process of being closed and
consolidated into the Company's other current facilities. The charges decreased
1997 net income and earnings per share by approximately $8.1 million and $.16,
respectively. At December 31, 1998 and 1997, the remaining liability related to
the restructuring charge was $1.9 million and $4.0 million, respectively. The
remaining liability at December 31, 1998 is primarily related to severance and
lease liabilities that are expected to be paid in 1999.
N. Segment Reporting
National Processing, Inc. operates three business segments - merchant
services, travel services and corporate services. Merchant services authorizes,
processes and settles credit and debit card transactions and authorizes and
collects checks for a variety of merchants. Historically, the Company has
derived a substantial portion of its merchant services revenues from larger
merchants. Travel services principally settles airline ticket purchases made
through travel agents on behalf of airlines and thus derives a substantial
portion of its revenues from an exclusive contract with the Airlines Reporting
Corporation ("ARC"). The Company is compensated on a "cost plus" basis under
this contract which expires in December 2001. Revenues from corporate services
are derived from transaction fees for the processing of remittances, accounts
payable and freight bills and for providing integrated document solutions
involving electronic imaging, archival, processing and payment settlement. The
business segments are identified by the services they offer. The accounting
policies of the reportable segments are the same as those described in Note A.
The reported results reflect the underlying economics of the segments.
Indirect general and administrative expenses are allocated to the segments based
upon various methods determined by the nature of the expenses. There are no
intersegment revenues. The corporate entity reflects the restructuring charges
taken in the first quarter and fourth quarter of 1997 for severance pay and
other costs related to organizational restructuring.
<PAGE> 18
<TABLE>
<CAPTION>
(Dollars in thousands)
Merchant Corporate Consolidated
Services Travel Services Services Corporate Total
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Revenues from external customers $ 287,394 $ 49,237 $ 146,562 -- $ 483,193
Operating profit (loss) 30,939 9,898 (6,933) -- 33,904
Depreciation and amortization 12,688 3,124 10,955 -- 26,767
Net interest income (expense) 1,188 (278) 14 -- 924
Net operating assets 201,604 14,618 100,122 $ 33,461 349,805
Expenditures for long-lived assets $ 9,848 $ 1,861 $ 8,172 $ 22,588 $ 42,469
1997
Revenues from external customers 233,550 45,734 126,377 -- 405,661
Operating profit (loss) 26,488 8,978 16,620 $ (13,340) 38,746
Depreciation and amortization 8,698 2,292 6,836 -- 17,826
Restructuring charge 0 0 0 13,340 13,340
Net interest income (expense) (2,049) (694) (1,258) -- (4,001)
Net operating assets 196,939 11,745 99,797 (15,536) 292,945
Expenditures for long-lived assets $ 4,823 $ 1,532 $ 14,585 $ 7,346 $ 28,286
</TABLE>
The following represent reconciliations of the Company's reportable segment
operating profit to the consolidated operating profit and the Company's
reportable segment net operating assets to consolidated net operating assets.
1998 1997
--------- ---------
Operating Profit
Total operating profit for reportable segments $ 33,904 $ 38,746
General and administrative expenses - non-operating (7,746) (9,870)
Other (1,994) (56)
--------- ---------
Consolidated operating profit $ 24,164 $ 28,820
========= =========
Net Operating Assets
Total net operating assets for reportable segments $ 349,805 $ 292,945
Cash 7,254 40,075
Income taxes to parent (5,245) (4,262)
Deferred tax assets 6,452 10,941
Deferred tax liabilities (5,607) (2,874)
--------- ---------
Consolidated net operating assets $ 352,659 $ 336,825
========= =========
Depreciation expense for certain corporate fixed assets is allocated to the
three segments.
Corporate assets at December 31, 1997 were reduced by the restructuring related
liabilities recorded in the first and fourth quarters of 1997 as well as the
Acquisition Balance Due to Financial Alliance of approximately $26.8 million.
Revenues from foreign operations in 1998, primarily Barbados, were approximately
$50.7 million. Revenues from foreign operations were immaterial in 1997 and
1996. The net book value of foreign long-lived assets, primarily in Juarez,
Mexico, were approximately $12.1 million and $7.8 million at December 31, 1998
and 1997, respectively.
Segment information for 1996 has not been presented as it was impractical to do
so.
O. Subsequent Events (Unaudited)
In November 1998, the Company formalized a plan to restructure its
Barbados facility. As of December 31, 1998, the Company has expensed
approximately $262,000 related to the restructuring. In the first quarter of
1999, the Company expects to record approximately $1.3 million in severance
charges related to the Barbados restructuring.
<PAGE> 19
In February 1999, the Company entered into an agreement with Investment
Services International Co., LLC to sell its payables and freight business lines
for approximately $37 million in cash. In addition, in March 1999, the Company
adopted a formal plan to either sell or discontinue the check and remittance
business lines. Under the provisions of FASB statement 121, Accounting for the
Impairment of Long- Lived Assets and for Long-Lived Assets to Be Disposed of,
the Company expects to record an impairment loss of approximately $60-$70
million in the first quarter of 1999 related to these business lines.
<PAGE> 1
Exhibit (g)(2)
NATIONAL PROCESSING, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
Unaudited
March 31 December 31
1999 1998
--------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 41,313 $ 7,254
Accounts receivable-trade 83,360 104,759
Check inventory 4,882 2,901
Restricted deposits-client funds 107,046 91,484
Deferred tax assets 3,614 3,688
Other current assets 12,357 13,434
-------- --------
Total current assets 252,572 223,520
Property and equipment:
Furniture and equipment 118,240 116,420
Building and leasehold improvements 24,355 23,843
Software 23,551 23,537
Property leased from affiliate 4,173 4,173
Land and improvements 2,847 2,828
-------- --------
173,166 170,801
Accumulated depreciation and amortization 87,015 82,680
-------- --------
86,151 88,121
Other assets:
Goodwill, net of accumulated amortization of
$15,384 in 1999 and $14,202 in 1998 103,895 171,489
Acquired merchant portfolios 17,581 18,255
Deferred tax assets 2,764 2,764
Other assets 7,939 8,284
-------- --------
Total other assets 132,179 200,792
-------- --------
TOTAL ASSETS $470,902 $512,433
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Restricted deposits-client funds $107,046 $ 91,484
Accounts payable-trade 3,313 3,075
Merchant payable-check services 6,120 3,690
Accrued bankcard assessments 14,491 17,753
Income tax payable to NCC 4,173 4,376
Other accrued liabilities 43,208 30,729
-------- --------
Total current liabilities 178,351 151,107
Obligation under property leased from affiliate 2,221 2,264
Other long-term liabilities 796 796
Deferred tax liabilities 5,060 5,607
-------- --------
Total liabilities 186,428 159,774
Shareholders' equity:
Preferred stock, without par value; 5,000,000 shares
authorized; no shares issued or outstanding -- --
Common stock, without par value; 95,000,000 shares authorized; 1 1
50,644,651 shares issued and outstanding in 1999 and 1998
Contributed capital 175,799 175,799
Retained earnings 108,674 176,859
-------- --------
Total shareholders' equity 284,474 352,659
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $470,902 $512,433
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 2
NATIONAL PROCESSING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In thousands, except per share amounts)
Three Months Ended
March 31
1999 1998
--------- ---------
Revenues $ 124,463 $ 113,649
Operating expenses 60,497 52,432
Wages and other personnel expenses 31,096 32,023
General and administrative expenses 16,807 14,701
Restructuring charges 2,234 --
Impairment loss and related expenses 73,932 --
Depreciation and amortization 7,086 6,250
--------- ---------
OPERATING (LOSS) PROFIT (67,189) 8,243
Net interest income 18 341
--------- ---------
(Loss) income before income taxes (67,171) 8,584
Provision for income taxes 1,014 3,676
--------- ---------
NET (LOSS) INCOME $ (68,185) $ 4,908
========= =========
BASIC AND DILUTED NET (LOSS) INCOME PER COMMON SHARE $ (1.35) $ .10
========= =========
See notes to condensed consolidated financial statements.
<PAGE> 3
NATIONAL PROCESSING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1999 1998
--------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $(68,185) $ 4,908
Items not requiring cash currently:
Depreciation and amortization 7,086 6,250
Restructuring charge 2,234 --
Impairment loss and related expenses 73,932 --
Gain on disposition of fixed assets (8) --
Deferred income taxes 845 1,996
Change in current assets and liabilities:
Accounts receivable 21,399 37,490
Check inventory (1,981) 218
Accounts payable-trade 238 (2,106)
Merchant payable-check services 2,430 (1,128)
Accrued bankcard assessments (3,262) (4,509)
Income taxes payable (203) (605)
Other current assets/liabilities 2,492 (6,863)
Other, net 154 (3,577)
-------- --------
Net cash provided by operating activities 37,171 32,074
-------- --------
INVESTING ACTIVITIES
Capital expenditures (3,219) (13,613)
Proceeds from sale of fixed assets 150 --
Purchases of securities available for sale -- (735)
Acquisitions, net of cash acquired -- (32,797)
-------- --------
Net cash used by investing activities (3,069) (47,145)
-------- --------
FINANCING ACTIVITIES
Principal payments under property leased from affiliate (43) (73)
-------- --------
Net cash used by financing activities (43) (73)
-------- --------
Net increase (decrease) in cash and cash equivalents 34,059 (15,144)
Cash and cash equivalents, beginning of period 7,254 38,887
-------- --------
Cash and cash equivalents, end of period $ 41,313 $ 23,743
======== ========
Supplemental cash flow information:
Taxes paid $ 2,364 $ 5,160
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 4
NATIONAL PROCESSING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
1. ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim information and with the instructions to
Form 10-Q and Article 10 of regulation S-X. Accordingly, although the
balance sheet at December 31, 1998 has been derived from the audited
consolidated financial statements at that date, the accompanying condensed
consolidated financial statements do not include all the information and
footnotes required by generally accepted accounting principles. These
financial statements should be read in conjunction with National
Processing Inc.'s (the "Company") audited consolidated financial
statements for the year ended December 31, 1998 which include full
disclosure of relevant financial policies and information.
In the opinion of management, the accompanying condensed
consolidated financial statements have been prepared on a basis consistent
with accounting principles applied in the prior periods and include all
adjustments (consisting of normal recurring accruals) considered necessary
for fair presentation of the financial position, results of operations and
cash flows for the interim periods presented. The results of operations
for the interim periods are not necessarily indicative of the results that
may be expected for the full year or any other interim period.
The Company adopted the provisions of FASB Statement 130, Reporting
Comprehensive Income, in 1998. Any differences between net income and
comprehensive income are insignificant.
2. RESTRUCTURING CHARGES
During the three month period ended March 31, 1999, the Company
recorded non-recurring restructuring charges of $2.2 million, including
$1.9 million for severance pay for approximately 540 employees and $.3
million for other costs. These charges related to several of the Company's
operating facilities which have been or are in the process of being closed
and consolidated into the Company's other current facilities. These
charges decreased net income and earnings per share by approximately $1.8
million and $.04, respectively.
3. IMPAIRMENT LOSS AND RELATED EXPENSES
During the quarter, the Company entered into an agreement with
Investment Services International Co., LLC to sell its payables and
freight business lines. The Company also adopted a formal plan to exit the
check and remittance business lines. These actions will allow the Company
to focus more closely on its core business lines which include merchant
card processing, outsourcing services and travel services. A $73.9 million
pre-tax impairment loss, which included certain related expenses, was
recorded related to these planned dispositions. The loss was recorded in
accordance with the provisions of FASB Statement 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived
<PAGE> 5
Assets to be Disposed of. On an after-tax basis, the loss totaled $72.0
million and reduced earnings per share by $1.42. The pre-tax loss is shown
on the Balance Sheet as a reduction in the carrying value of long-lived
assets of $66.4 million and as an increase in other accrued liabilities of
$7.5 million.
The business lines being exited incurred declines in revenue of $.5
million, or 1.3%, from $41.1 million in the first quarter of 1998 to $40.6
million for the same period in 1999. Operating profit (loss) for the four
businesses declined $1.3 million from a profit of $.8 million for the
first quarter of 1998 to a loss of $.5 million for the same period in
1999.
Further discussion of recent developments related to these divestitures is
included in Note 9, Subsequent Events.
4. RECLASSIFICATIONS
Certain 1998 amounts have been reclassified to conform with the 1999
presentation.
5. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is involved in
litigation from time to time. In the opinion of management, the ultimate
liability, if any, arising from this litigation is not expected to have a
material adverse effect on the Company's financial condition, results of
operations or liquidity.
6. NET INCOME PER COMMON SHARE
The calculation of net income per common share follows (in thousands
except per share amounts):
<TABLE>
<CAPTION>
Three Months
Ended March 31
--------------
1999 1998
---- ----
<S> <C> <C>
BASIC
Net (loss) income $ (68,185) $ 4,908
Average common shares outstanding 50,645 50,575
Net (loss) income per common share - basic $ (1.35) $ .10
DILUTED
Net (loss) income $ (68,185) $ 4,908
Average common shares outstanding 50,645 50,575
Stock option adjustment -- 258
Average common shares outstanding - diluted 50,645 50,833
Net (loss) income per common share - diluted $ (1.35) $ .10
</TABLE>
7. SEGMENT REPORTING
National Processing, Inc. operates three business segments merchant
services, travel services and corporate services. Merchant services
authorizes, processes and settles credit and debit card transactions and
authorizes and collects checks for a variety of merchants. Travel services
principally settles airline ticket purchases
<PAGE> 6
made through travel agents on behalf of airlines and thus derives a
substantial portion of its revenues from an exclusive contract with the
Airlines Reporting Corporation ("ARC"). The Company is compensated on a
"cost plus" basis under this contract which expires in December 2001.
Revenues from corporate services are derived from transaction fees for the
processing of remittances, accounts payable and freight bills and for
providing integrated document solutions involving electronic imaging,
archival, processing and payment settlement. The business segments are
identified by the services they offer. The accounting policies of the
reportable segments are the same as those described in Note 1.
The reported results reflect the underlying economics of the segments.
Indirect general and administrative expenses are allocated to the segments
based upon various methods determined by the nature of the expenses. There
are no intersegment revenues.
<TABLE>
<CAPTION>
(Dollars in thousands) MERCHANT TRAVEL CORPORATE CONSOLIDATED
SERVICES SERVICES SERVICES CORPORATE TOTAL
-------- -------- -------- --------- -----
<S> <C> <C> <C> <C> <C>
FOR THE QUARTER ENDED MARCH 31, 1999
Revenues from external customers $ 73,792 $ 11,139 $ 39,532 $ -- $ 124,463
Impairment loss and related expenses 30,450 -- 43,482 73,932
Operating (loss) profit (24,124) 2,121 (43,436) -- (65,439)
Depreciation and amortization 3,305 966 2,815 -- 7,086
Net interest income (expense) 29 (2) (9) -- 18
Net operating assets 141,033 12,999 66,450 22,651 243,133
Expenditures for long-lived assets $ 217 $ 430 $ 891 $ 1,681 $ 3,219
FOR THE QUARTER ENDED MARCH 31, 1998
Revenues from external customers $ 63,617 $ 12,670 $ 37,362 $ -- $ 113,649
Impairment loss and related expenses -- -- -- -- --
Operating profit 5,831 2,445 1,796 -- 10,072
Depreciation and amortization 2,932 908 2,410 -- 6,250
Net interest income (expense) 341 (30) 30 -- 341
Net operating assets 174,819 22,978 97,457 23,431 318,685
Expenditures for long-lived assets $ 1,756 $ 803 $ 269 $ 10,351 $ 13,179
</TABLE>
The following represent reconciliations of the Company's reportable
segment operating profit to the consolidated operating profit and the
Company's reportable segment net operating assets to consolidated net
operating assets.
<TABLE>
<CAPTION>
(Dollars in thousands) FOR THE QUARTER ENDED MARCH 31,
1999 1998
---- ----
<S> <C> <C>
Operating (loss) profit:
Total operating profit for reportable segments $ (65,439) $ 10,072
General and administrative expenses - non-operating 1,750 1,829
--------- ---------
Consolidated operating profit $ (67,189) $ 8,243
========= =========
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
Net operating assets:
Total net operating assets for reportable segments $ 243,133 $ 349,805
Cash 41,313 7,254
Other 28 (4,400)
--------- ---------
Consolidated net operating assets $ 284,474 $ 352,659
========= =========
</TABLE>
Depreciation expense for certain corporate fixed assets is allocated
to the three segments.
<PAGE> 7
Corporate assets at March 31, 1999 were reduced by the liability
related to the impairment loss and related expenses of $73.9 million and
the restructuring related liabilities of $ 2.2 million.
Revenues from foreign operations, primarily Barbados, for the first
quarters of 1999 and 1998 were approximately $13.7 million and $12.3
million, respectively. The net book value of foreign long-lived assets,
primarily in Juarez, Mexico, was approximately $13.0 million at March 31,
1999 and $12.1 million at December 31, 1998.
8. RECENT ACCOUNTING PRONOUNCEMENTS
Internal Use Software
In March 1998, the Accounting Standards Executive committee issued
Statement of Position, 98-1 Internal Use Software. This statement requires
the capitalization of costs to acquire or develop internal use software
after certain conditions are met. The Company adopted the provisions of
this Statement effective January 1, 1999. Because the Company's previous
policy was not significantly different from the requirements of this
statement, the adoption of this statement had no significant impact on the
financial position or results of operations of the Company.
9. SUBSEQUENT EVENTS
Effective as of April 1, 1999, the Company sold its freight and payables
business lines to Investment Services International Co., LLC. As the
result of final negotiations prior to closing, the Company received $18
million in cash for the net assets of both business lines, lower than the
$37 million previously discussed in the Company's 1998 Form 10-K. An
additional cash premium of up to $7 million could be received from the
buyer provided certain conditions related to revenue levels and offshore
processing are met by September 29, 2000.
In April 1999, the Company entered into a definitive agreement with
International Payment Services, Inc. to sell its check services business
line for approximately $38 million in cash. In May 1999, the Company also
reached a definitive agreement to sell its remittance processing business
line to First Tennessee National Association, a subsidiary of First
Tennessee National Corporation, for approximately $6 million in cash.
The sale of the check services and remittance processing business lines
are expected to close in the second quarter of 1999.
