SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
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Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
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[X] Definitive Proxy Statement Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
FIRST DATA CORPORATION
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Notes:
FIRST DATA CORPORATION
401 HACKENSACK AVENUE
HACKENSACK, NEW JERSEY 07601
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 14, 1997
----------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of First Data
Corporation, a Delaware corporation (the "Company"), will be held at the
offices of the Company's subsidiary, First Data Investor Services Group, Inc.,
at 4400 Computer Drive, Westborough, MA 01581 on Wednesday, May 14, 1997, at
11:30 a.m. (E.D.T.), for the following purposes:
1. The election of three directors;
2. The ratification of the selection of Ernst & Young LLP as independent
auditors of the Company for 1997; and
3. The transaction of such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Stockholders of record at the close of business on March 17, 1997 (the
"Record Date") will be entitled to vote at the meeting and any adjournment or
postponement thereof.
You are cordially invited to attend the meeting, but whether or not you
expect to attend in person, you are urged to mark, date and sign the enclosed
proxy and return it in the enclosed prepaid envelope.
By Order of the Board of Directors
/s/ David P. Bailis
David P. Bailis
Corporate Secretary
March 21, 1997
YOUR VOTE IS IMPORTANT
WHETHER YOU OWN A FEW OR MANY SHARES OF COMMON STOCK, YOU ARE URGED TO MARK,
DATE, SIGN AND RETURN YOUR PROXY PROMPTLY SO THAT YOUR SHARES MAY BE VOTED IN
ACCORDANCE WITH YOUR WISHES AND SO THAT THE PRESENCE OF A QUORUM MAY BE
ASSURED. THE PROMPT RETURN OF YOUR SIGNED PROXY WILL AID THE COMPANY IN
REDUCING THE EXPENSE OF PROXY SOLICITATION.
LOGO
FIRST DATA CORPORATION
PROXY STATEMENT
This Proxy Statement is furnished to the stockholders of First Data
Corporation ("FDC" or the "Company") in connection with the solicitation of
proxies by and on behalf of the Board of Directors of the Company to be voted
at the Annual Meeting of Stockholders to be held at 11:30 a.m., (E.D.T.), on
Wednesday, May 14, 1997, and any adjournment or postponement thereof. The
meeting will be held at the offices of the Company's subsidiary, First Data
Investor Services Group, Inc., at 4400 Computer Drive, Westborough, MA 01581.
A copy of the notice of the meeting is attached. This Proxy Statement and the
accompanying form of proxy are first being mailed on or about March 21, 1997
to stockholders of record as of March 17, 1997 (the "Record Date"). The only
voting securities of the Company are shares of the Company's Common Stock,
$.01 par value per share (the "Common Stock"), of which there were 448,954,370
shares outstanding as of the Record Date (excluding treasury stock).
Stockholders have the right to revoke their proxies at any time prior to the
time their shares are actually voted by a written revocation delivered to the
Secretary of the Company, by submitting another valid proxy bearing a later
date which is voted at the meeting or by attending the meeting and voting in
person. If a stockholder attends the meeting and votes in person, his or her
proxy will not be used.
COST OF PROXY SOLICITATION
The cost of soliciting proxies will be borne by the Company. Proxies may be
solicited on behalf of the Company by directors, officers or employees of the
Company in person or by mail, telephone or facsimile transmission. No
additional compensation will be paid to such directors, officers, or employees
for solicitation of proxies. The Company has engaged the firm of Morrow & Co.
to assist the Company in the distribution and solicitation of proxies for a
fee of $6,000, plus expenses.
VOTING INFORMATION
Each share of Common Stock is entitled to one vote. Votes will be counted
and certified by the Inspectors of Election, who are employees of Norwest Bank
Minnesota, National Association, the Company's independent Transfer Agent and
Registrar. The required quorum for the transaction of business at the Annual
Meeting is a majority of the shares of Common Stock issued and outstanding on
the Record Date (excluding treasury stock).
All outstanding shares of Common Stock represented by properly executed and
unrevoked proxies received in the accompanying form in time for the 1997
Annual Meeting will be voted. A stockholder may, with respect to the election
of directors (i) vote for the election of the three nominees named herein as a
director, (ii) withhold authority to vote for all of the director nominees, or
(iii) vote for the election of one or two of the three individual director
nominees while withholding authority to vote for the other nominee[s] by so
indicating on the proxy. A stockholder may, with respect to the other
proposals (i) vote "FOR" one or more of the proposals, (ii) vote "AGAINST" one
or more of the proposals, or (iii) "ABSTAIN" from voting on one or more of the
proposals. Shares will be voted as instructed in the accompanying proxy on
each matter submitted to stockholders. If no instructions are given, the
shares will be voted for (1) the election of the three nominees named herein
as a director and (2) the ratification of the selection of Ernst & Young LLP
as independent auditors of the Company for 1997.
A proxy submitted by a stockholder may indicate that all or a portion of the
shares represented by such proxy are not being voted by the stockholder with
respect to a particular matter. Moreover, in the absence of instructions from
the beneficial owner of shares, a broker holding the shares in street name may
not be permitted to vote such shares on certain matters. (The Company believes
brokers will be permitted to vote stock held in
street name on each of the proposals set forth above.) In either case, the
shares subject to any such proxy which are not being voted with respect to a
particular matter (the "non-voted shares") will be considered shares not
present and entitled to vote on such matter, although such shares may be
considered present and entitled to vote for other purposes and will count for
purposes of determining the presence of a quorum.
The affirmative vote of a plurality of the shares of Common Stock present in
person or by proxy at the meeting and entitled to vote in the election of
directors is required to elect directors. Accordingly, if a quorum is present
at the meeting, the three persons receiving the greatest number of votes will
be elected to serve as directors. Therefore, withholding authority to vote for
a director and non-voted shares with respect to the election of directors will
not affect the outcome of the election of directors. If a quorum is present at
the meeting, approval of the other resolutions requires the affirmative vote
of a majority of the shares of Common Stock present in person or by proxy at
the meeting and entitled to vote on such matter. An abstention with respect to
such a matter has the legal effect of a vote against such matter. Non-voted
shares with respect to such a matter will not affect the determination of
whether such matter is approved.
The Board of Directors does not know of any other matters to be brought
before the Annual Meeting. However, if any other matters properly come before
the Annual Meeting, it is the intention of the appointees named in the
enclosed proxy card to vote in accordance with their best judgment on such
matters.
The Company's Annual Report to Stockholders, which contains financial
statements for the year ended December 31, 1996, accompanies this Proxy
Statement. A copy of the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission may be obtained without charge from the
Company by writing to Investor Relations, First Data Corporation, 5660 New
Northside Drive, Suite 1400, Atlanta, GA 30328.
PRINCIPAL HOLDERS OF COMMON STOCK
Based upon (i) statements filed with the Securities and Exchange Commission
pursuant to Section 13(d) or 13(g) of the Securities Exchange Act of 1934 and
(ii) the number of shares of the Company's Common Stock outstanding on
December 31, 1996, the Company does not believe any person beneficially owned
more than 5% of the Common Stock as of December 31, 1996.
2
COMMON STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of January 2, 1997, the beneficial
ownership of Common Stock by all directors and nominees, each of the executive
officers named in the Summary Compensation Table contained in this Proxy
Statement and all directors and executive officers as a group. Each person has
sole voting and investment power of the shares, except as noted.
AMOUNT AND NATURE OF
NAME BENEFICIAL OWNERSHIP(1)
---- -----------------------
Lee Adrean...................................... 70,427
Ben Burdetsky................................... 21,443
Henry T. DeNero................................. 85,475
Henry C. Duques................................. 2,493,533(2)
Charles T. Fote................................. 764,686
Walter M. Hoff.................................. 534,498
Courtney F. Jones............................... 31,529
Robert J. Levenson.............................. 520,162
James D. Robinson III........................... 48,529(3)
Charles T. Russell.............................. 14,750
Bernard L. Schwartz............................. 34,405
Garen K. Staglin................................ 39,529
All directors and executive officers as a group
(14 persons)................................... 5,272,216
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(1) The number of shares reported includes shares covered by options that are
exercisable within 60 days of January 2, 1997 as follows: Mr. Adrean,
70,427; Mr. Burdetsky, 20,643; Mr. DeNero, 85,475; Mr. Duques, 2,492,040;
Mr. Fote, 763,444; Mr. Hoff, 534,220; Mr. Jones, 29,529; Mr. Levenson,
511,552; Mr. Robinson, 29,529; Mr. Russell, 14,350; Mr. Schwartz, 27,405;
Mr. Staglin, 8,921; all directors and executive officers as a group,
5,199,509.
(2) Includes 1,268 shares held by Mr. Duques' wife.
(3) Includes 5,000 shares held by Mr. Robinson's wife.
The percent of outstanding Common Stock held by all directors and executive
officers as a group is 1.16%. The percentage beneficially owned by any
director or nominee does not exceed 1%.
GOVERNANCE OF THE COMPANY
In accordance with applicable Delaware law, the business of the Company is
managed under the direction of its Board of Directors. Pursuant to the
Company's Restated Certificate of Incorporation, the Board of Directors is
comprised of eight directors. During 1996, the Board of Directors met eight
times (not including Committee meetings). With the exception of Mr. Schwartz,
each of the current directors attended at least 75 percent of the aggregate
number of meetings of the Board and Board committees on which they served.
There are presently three standing committees of the Board of Directors.
Committee membership, the functions of those committees and the number of
committee meetings held during 1996 are described below.
The current members of the Audit Committee are Courtney F. Jones (Chairman),
Ben Burdetsky and Garen K. Staglin. The Audit Committee consists solely of
directors who are not current or former employees of the Company or any
affiliate and are, in the opinion of the Board of Directors, free from any
relationship that would interfere with the exercise of independent judgment in
the discharge of the Audit Committee's duties. The Audit Committee represents
the Board of Directors in discharging its responsibilities relating to the
accounting, reporting and financial control practices of the Company and its
subsidiaries. This Committee has general responsibility for reviewing with
management the financial controls, accounting, and audit and reporting
activities of the Company and its subsidiaries. The Committee annually reviews
the qualifications of the Company's independent auditors, makes
recommendations to the Board of Directors as to their selection, reviews
3
the scope, fees and results of their audit, reviews their non-audit services
and related fees, reviews their comment letters and management's responses
thereto and reviews any major accounting changes made or contemplated. In
addition, the Committee reviews the effectiveness and efficiency of the
Company's internal audit staff. The Committee also oversees the implementation
of policies concerning and compliance with the Company's Code of Conduct, as
well as policies concerning business continuity planning. During 1996, the
Audit Committee met four times.
The members of the Compensation and Benefits Committee (the "Compensation
Committee") are Garen K. Staglin (Chairman), Ben Burdetsky, Charles T. Russell
and Bernard L. Schwartz. The Compensation Committee consists solely of
directors who are not current or former employees of the Company or any
affiliate and is responsible for the administration of all salary and
incentive compensation plans for the officers and key employees of the Company
and its subsidiaries. The Compensation Committee also reviews management's
organization and development and approves grants and otherwise administers
specific awards under the 1992 Long-Term Incentive Plan. Because of Mr.
Russell's relationship with Card Issuer Program Management (see Certain
Transactions and Other Matters), he may not be regarded as a disinterested
director for purposes of Rule 16b-3 of the Securities Exchange Act of 1934 or
Section 162(m) of the Internal Revenue Code. Accordingly, during 1996, certain
matters were acted upon by a subcommittee of the Compensation Committee
composed of all of the members other than Mr. Russell. The Compensation
Committee regularly consults with independent compensation advisors. During
1996, the Compensation Committee met five times.
The members of the Executive Committee are James D. Robinson III (Chairman),
Henry C. Duques, and Courtney F. Jones. The Executive Committee meets in place
of the full Board of Directors in intervals between meetings of the Board. The
Committee may act on behalf of the Board of Directors on all matters permitted
by the General Corporation Law of the State of Delaware. The Executive
Committee met three times in 1996.
DIRECTORS' FEES AND OTHER COMPENSATION
Directors who are not employees of the Company or its affiliates were paid
an annual retainer of $50,000. In addition, a non-employee chairman of a
standing committee receives an annual retainer of $5,000. Non-employee
directors have the option of electing to receive all or a portion of the
annual retainer fees in the form of stock option grants pursuant to the First
Data Corporation 1993 Director's Stock Option Plan. Non-employee directors
also receive annual grants of non-qualified options pursuant to the same plan.
Each director receives options for 10,000 shares of Common Stock upon
commencing services as a director and options for 4,000 shares of Common Stock
on the date of each annual stockholders' meeting thereafter, except that on
the fourth and eighth annual stockholders' meetings thereafter, instead of
options for 4,000 shares, each director receives options for 14,000 shares.
Directors are reimbursed for their actual expenses incurred in attending
Board, committee and stockholder meetings, including those for travel, food
and lodging.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors is divided into three classes serving staggered
three-year terms. The terms of office of three current directors, Messrs.
Jones, Levenson and Russell, expire at the 1997 Annual Meeting of
Stockholders. They have been nominated for reelection through the 2000 Annual
Meeting of Stockholders or until a successor is elected and qualified. In the
case of a vacancy occurring during the year in any class, the Board of
Directors may elect another director as a replacement, may leave the vacancy
unfilled or may reduce the number of directors.
The terms of Messrs. Duques and Burdetsky expire at the 1998 Annual Meeting
of Stockholders. The terms of Messrs. Robinson, Schwartz and Staglin expire at
the 1999 Annual Meeting of Stockholders.
4
Unless authority to vote is withheld, the persons specified in the enclosed
proxy intend to vote for the named nominees, who have consented to being named
in this Proxy Statement and to serving if elected. Although management knows
of no reason why any nominee would be unable to serve, shares represented by
proxy will be voted for any substitute nominee or nominees designated by the
Board of Directors in the event any nominee is unable to serve.
The following information is provided with respect to the members of the
Board of Directors:
PRINCIPAL OCCUPATION, BUSINESS DIRECTOR
NAME AND AGE EXPERIENCE AND DIRECTORSHIPS SINCE
------------ ------------------------------ --------
Ben Burdetsky.......... Professor Emeritus of the School of Business 1992
Age 68 and Public Management of The George Washing-
ton University since 1995 and Director of
the Burdetsky Labor-Management Institute at
the University. Dr. Burdetsky was a member
of the full-time faculty from January 1977
to 1994. From June 1988 until 1992, he
served as Dean, and from March 1984 to June
1988 he served as an Associate Dean, of the
School of Business and Public Management of
The George Washington University. Dr.
Burdetsky is a director of National Capital
Preferred Provider Organization.
Henry C. Duques........ Chairman and Chief Executive Officer of the 1989
Age 53 Company from April 1989 to the present. From
September 1987 to 1989, he served as Presi-
dent and Chief Executive Officer of the Data
Based Services Group of American Express
Travel Related Services Company, Inc., the
predecessor of FDC. Mr. Duques was Group
President Financial Services and a member of
the Board of Directors of Automatic Data
Processing, Inc. ("ADP") from 1984 to 1987.
Courtney F. Jones...... A Managing Director in the Investment Banking 1992
Age 57 Division of Merrill Lynch & Co., Inc. from
July 1989 to December 1990. From October
1985 until July 1989, he served as Chief Fi-
nancial Officer, Executive Vice President
and a member of the Board of Directors of
Merrill Lynch & Co., Inc. Prior to that, Mr.
Jones served as Treasurer and Secretary of
the Finance Committee of the Board of Direc-
tors of General Motors Corporation. He was
also formerly a Director of General Motors
Acceptance Corporation and General Motors
Insurance Company.
Robert J. Levenson..... Executive Vice President of the Company from 1992
Age 55 1993 to the present. Former Senior Executive
Vice President, Chief Operating Officer, and
Member of the Office of the President and
Director of Medco Containment Services,
Inc., a provider of managed care prescrip-
tion benefits, from October 1990 to December
1992. From 1985 until October 1990, he was a
Group President and Director of ADP. Mr.
Levenson is a director of Superior Telecom,
Inc. and Broadway & Seymour, Inc.
James D. Robinson III.. Chairman and Chief Executive Officer of RRE 1992
Age 61 Investors, LLC a private investment firm,
and President of J.D. Robinson Inc., a stra-
tegic advisory company. Mr. Robinson is also
Chairman of Violy Byorum & Partners and Se-
nior Advisor to Trust Company of the West.
He previously served as Chairman, Chief Ex-
ecutive Officer and as a director of Ameri-
can Express Company from 1977 to 1993. Mr.
Robinson is a director of Bristol-Myers
Squibb Company, The Coca-Cola Company, Cam-
bridge Technology Partners, and Union Pa-
cific Corporation.
5
PRINCIPAL OCCUPATION, BUSINESS DIRECTOR
NAME AND AGE EXPERIENCE AND DIRECTORSHIPS SINCE
------------ ------------------------------ --------
Charles T. Russell... Former President and Chief Executive Officer of 1994
Age 67 Visa International from 1984 to January 1994.
Mr. Russell joined Visa in 1971. Mr. Russell
serves on the Board of Visitors at the Univer-
sity of Pittsburgh's Joseph M. Katz School of
Business. Mr. Russell also is a Director of
First USA Corp., the Janol-Hydro Corp., a man-
ufacturer of automobile and truck braking
equipment, E- Funds Corp., a check processing
company, and Card Issuer Program Management
Corp., which provides management services to
credit card issuers.
Bernard L. Schwartz.. Chairman and Chief Executive Officer, Loral 1992
Age 71 Space & Communications Ltd., a high-technology
company concentrating on satellite manufactur-
ing and satellite-based services. Chairman and
Chief Executive Officer, Loral Corporation, a
manufacturer of components for information
systems, from 1972 to 1996. Chairman and Chief
Executive Officer of Globalstar Telecommunica-
tions Limited, which is developing a world-
wide, low-earth-orbit satellite-based digital
telecommunications service. He also serves as
Chairman and Chief Executive Officer of K&F
Industries Inc., world-wide supplier of air-
craft braking systems and Chairman of Space
Systems/Loral, a manufacturer of telecommuni-
cations and environmental satellites. Mr.
Schwartz is a Director of Reliance Group Hold-
ings, Inc., vice chairman of Lockheed Martin
Corp. and a trustee of New York University
Medical Center.
Garen K. Staglin..... Chairman of the Board of Directors and Chief 1992
Age 52 Executive Officer of Safelite Glass Corpora-
tion, a manufacturer and retailer of auto
glass, since August 1991. From April 1980 un-
til August 1991 Mr. Staglin served as the Cor-
porate Vice President and General Manager of
ADP's Automotive Services Group. He serves as
a Director of Quick Response Services, Inc.,
Cyber Cash, Inc., and Grimes Aerospace Corp.
Mr. Staglin also serves on the Advisory Coun-
cil of the Stanford Graduate School of Busi-
ness.
PROPOSAL 2
SELECTION OF AUDITORS
The Board of Directors recommends to the stockholders the ratification of
the selection of Ernst & Young LLP, independent auditors, to audit the
accounts of the Company and its subsidiaries for 1997. In the event the
stockholders fail to ratify the appointment, the Board of Directors will
consider it a direction to select other auditors for the subsequent year. Even
if the selection is ratified, the Board of Directors, in its discretion, may
select a new independent accounting firm at any time during the year, if the
Board of Directors feels that such a change would be in the best interest of
the Company and its stockholders.
Ernst & Young LLP has been serving as the independent auditors for the
Company or its predecessor entities since 1980. Ernst & Young LLP follows a
policy of rotating the partner in charge of the Company's audit every seven
years. Other partners and non-partner personnel are rotated on a periodic
basis.
A representative of Ernst & Young LLP will be present at the meeting with
the opportunity to make a statement if he or she desires to do so and will be
available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP.
6
EXECUTIVE COMPENSATION REPORT BY THE COMPENSATION
AND BENEFITS COMMITTEE
The Compensation Committee considers and establishes compensation policies
and recommends employee benefit plans as well as specifically sets salary
levels and bonus awards for senior management, including the Named Executives.
The Compensation Committee is composed entirely of outside, non-employee
directors. Because of Mr. Russell's relationship with Card Issuer Program
Management (see Certain Transactions and Other Matters), he may not be
regarded as a disinterested director for purposes of Rule 16b-3 of the
Securities Exchange Act of 1934 or Section 162(m) of the Internal Revenue
Code. Accordingly, during 1996, certain matters were acted upon by a
subcommittee of the Compensation Committee composed of all of the members
other than Mr. Russell.
Compensation Philosophy
The Company's executive compensation programs are based on the belief that
the interests of its Chief Executive Officer (CEO) and senior management
should be aligned with those of the stockholders. For these executives, the
Compensation Committee has determined that a significant portion of total
compensation should be comprised of "at-risk," performance based components.
The at-risk components provide longer term rewards that are not earned unless
specific, preestablished goals are met.
In furtherance of its objectives, the Compensation Committee has structured
the CEO's total compensation as a combination of base salary, a long-term
incentive award and stock options. Similarly, the Compensation Committee has
structured the total compensation of senior management as a combination of
base salary, a long-term incentive award, stock options, plus an annual
incentive award.
The Compensation Committee seeks to set executive compensation at levels
sufficient to attract, retain and motivate highly qualified executive
personnel in light of the compensation practices of a group comprised of
companies of comparable size and complexity and top-performing companies in
various business sectors in which the Company operates (the "Peer Group"). An
independent consultant surveys the Peer Group to determine compensation
practices.
The Peer Group includes the companies in the S&P Computer Software Services
Index which is part of the Performance Graph contained in this Proxy
Statement, and also includes other companies reflecting the Compensation
Committee's belief that the broader group is representative of the Company's
main competition for executive talent.
The Compensation Committee's philosophy is that base salary and annual
incentive compensation should be competitive with the Peer Group, and, based
upon the Company's financial performance both as a whole and relative to
specific targets, that long-term incentive compensation must promote corporate
performance which exceeds both a minimum rate of return and objectively
identified targets relative to the S&P 500 Index. Historically, the
Compensation Committee has considered the option granting practices within the
Peer Group and individual and Company performance in determining the number of
option grants. In 1995, the Compensation Committee approved an annual option
grant program under which the number of option grants made each January for
the Named Executives and other senior management is performance driven. One-
half of the total possible grant (50,000 options for each of the Named
Executives) is based on the performance of the Company's Common Stock as
compared to that of the companies in the S&P 500 Index and one-half is based
on the achievement of business unit performance objectives. In addition,
executives are entitled to customary benefits generally available to all
employees of the Company. From time to time the Compensation Committee
receives comparative evaluations, assessments and advice regarding the
Company's compensation practices from an independent compensation consultant.
Base Salary and Stock Options
It is the Compensation Committee's policy, in setting total compensation,
that while base salary should remain competitive, incentive compensation
should be emphasized. Accordingly, Mr. Duques' salary is targeted
7
to reflect salaries between the 25th and 50th percentile paid by the Peer
Group. The salaries of the other named executives are targeted to reflect
salaries between the 50th and 75th percentile paid by the Peer Group.
In October 1995, the Company completed a merger with First Financial
Management, significantly increasing the size and complexity of the Company.
At that time, the Committee increased the salaries of the Named Executives to
their current levels and made option grants. Accordingly, no salary increases
or annual option grant awards were made in 1996 for the Named Executives.
(Options were granted in lieu of certain long-term incentives as described
below.)
CEO Long-Term Incentive Compensation
Because a long-term orientation is considered essential for a CEO, all of
Mr. Duques' incentive compensation is tied to long-term goals. Mr. Duques'
incentive compensation is measured entirely under a Shareholder Value Plan
pursuant to a Performance Grant Agreement. Under the agreement, a unit value
is determined at the end of each year based on the performance of the
Company's Common Stock as compared to that of the companies in the S&P 500
Index during the preceding two years. The award amount is banked for a two-
year period and increases by an amount equal to 50% of the Company's return on
equity percentage or, if return on equity is negative, decreases by an amount
equal to 100% of the Company's return on equity percentage. Under the formula
specified in the agreement applicable to the two-year period ending December
31, 1996, a maximum unit value of $3,600,000 would have been allocable if the
percentage increase in the share price of the Company's Common Stock, plus
dividends paid had exceeded that of 80% of the companies in the S&P 500 Index.
If the Company had been less than that of 50% of the companies in the S&P 500
Index, the unit value of Mr. Duques' award would have been zero. In addition,
Mr. Duques' unit value would have been zero unless the annual percentage
growth in the Company's total stockholder return exceeded a minimum threshold
measured by the average two-year Treasury note interest rate for the 60-day
period prior to December 31, 1994. The Committee also retains discretion to
adjust a unit value downward. Based on the Company's performance for the two-
year period ending December 31, 1996 and the performance scale, the unit value
established for Mr. Duques at the end of 1996 would have been $1,584,000.
Because it wanted to further align Mr. Duques' interests with those of
stockholders, the Committee determined to award a unit value of zero under the
plan and to award instead 214,054 stock options to Mr. Duques at an exercise
price of $37.00 a share, the fair market value of the Company's Common Stock
on the grant date (December 31, 1996). The number was determined by dividing
$1,584,000 by 20% of the exercise price.
CEO Performance Review
Although the CEO's incentive award is formula driven (subject to the
Compensation Committee's discretion to make a downward adjustment), the
Compensation Committee in 1995 developed a formalized process for providing
performance review and feedback to Mr. Duques which was implemented in 1996.
Goals were set in five major areas: strategy and long-term objectives,
stockholder value, executive development and succession planning, the
service/profit chain, and Board utilization. In December 1996, Mr. Duques
submitted a self-assessment to the Chairman of the Committee for review and
comment. In March 1997, the assessment was distributed to the outside board
members who discussed it and provided feedback to Mr. Duques.
Incentive Compensation of the Other Named Executives
Annual Incentive Compensation. In 1996, as in prior years, the Company
adopted an annual management incentive program which provides a direct
financial incentive to its executive management, except Mr. Duques, in the
form of bonus targets payable if specific goals are achieved. The annual
incentive opportunity was reduced by 50% in 1994 and the Named Executives
(other than Mr. Duques) were made eligible for the Shareholder Value Plan in
order to tie more of the incentive opportunity to achievement of long-term
goals. The annual incentive opportunity is based on the overall performance of
the Company (with emphasis on achievement of pre-tax profit targets) and on
the performance of a business unit or staff function. The purpose of this
incentive is to tie a significant portion of annual pay directly to key
financial results and other important objectives. For 1996, the incentive
awards related directly to business performance factors, and where performance
exceeded or did not meet preestablished targets, incentive payments were
increased or decreased accordingly.
8
Long-Term Incentive Compensation. The long-term incentive compensation for
Messrs. Adrean, DeNero, Fote and Hoff, like that of Mr. Duques, is tied to the
Shareholder Value Plan. For Messrs. Adrean, DeNero, Fote and Hoff, the maximum
unit value (awarded if the percentage increase in the Company's Common Stock
for the two-year performance period is higher than that of 80% of the
companies in the S&P 500 Index) is $750,000. The Compensation Committee
retains discretion to adjust a unit value downward if it finds such an
adjustment is warranted by other factors it selects. No unit value is
established if the Company's increase does not exceed the increase of fifty
percent of the companies in the S&P 500 index. In addition, no unit value is
established if the Company's annual percentage total stockholder return does
not exceed a minimum threshold measured by the average two-year Treasury note
interest rate for the 60-day period prior to the performance period. Amounts
awarded are "banked" for a two-year period during which period they increase
by an amount equal to 50% of the Company's return on equity percentage or if
return on equity is negative decrease by an amount equal to 100% of the
Company's return on equity percentage.
Based on the Company's performance for the two-year period ending December
31, 1996, each of the Named Executives would have received a unit value award
of $330,000 for such period. Because it wanted to further align management's
interests with those of the stockholders in a meaningful way, the Committee
determined to award a unit value of zero under the plan and to award instead
44,594 stock options to each Named Executive (other than Mr. Duques) at an
exercise price of $37.00 a share, the fair market value of the Company's
Common Stock on the grant date (December 31, 1996). The number was determined
by dividing $330,000 by 20% of the exercise price.
Policy on Deductibility of Compensation
Section 162(m) of the Internal Revenue Code limits the tax deduction to $1
million for compensation paid to any of the Named Executives unless certain
requirements are met. The Company's 1992 Long-Term Incentive Plan (the "1992
Plan"), as amended and approved by stockholders at the May 11, 1994 Annual
Meeting of Stockholders and the October 26, 1995 Special Meeting of
Stockholders and the Company's Shareholder Value Plan approved by stockholders
at the May 15, 1996 Annual Meeting of Stockholders, meet the new requirements.
The Compensation Committee's present intention is to comply with the
requirements of exemption from Section 162(m) to the extent necessary to
obtain full deductibility of executive compensation unless the Compensation
Committee determines that such compliance would not be in the best interest of
the Company and its stockholders.
COMPENSATION AND BENEFITS COMMITTEE
Garen K. Staglin (Chairman)
Ben Burdetsky
Charles T. Russell
Bernard L. Schwartz
9
SUMMARY COMPENSATION TABLE
The following table shows the cash and other compensation paid or earned and
certain long-term awards made to the Named Executives for all services to the
Company in all capacities for the fiscal years ended December 31, 1996,
December 31, 1995 and December 31, 1994:
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------- ----------------------
AWARDS PAYOUT
----------- ---------
OTHER ANNUAL SECURITIES LTIP ALL OTHER
NAME AND COMPENSATION UNDERLYING PAYOUT COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)(5) OPTIONS (#) ($) ($) (7)
------------------ ---- ---------- --------- ------------ ----------- --------- ------------
Henry C. Duques........ 1996 611,541 0 0 214,054 3,315,906 65,583
Chairman of the Board 1995 501,543 0 0 300,000 0 45,129
and Chief Executive
Officer 1994 419,996 0 0 0 0 47,611
Lee Adrean............. 1996 356,743 108,000 0 44,594 0 15,200
Executive Vice
President 1995 207,688 140,616(3) 50,181 261,286(6) 0 0
and Chief Financial
Officer(1) 1994 0 0 0 0 0 0
Henry C. DeNero........ 1996 350,012 50,000(4) 0 44,594 0 13,031
Executive Vice
President(2) 1995 138,467 0(4) 21,768 325,624(6) 0 0
1994 0 0 0 0 0 0
Charles T. Fote........ 1996 400,010 120,000 0 44,594 0 19,656
Executive Vice
President 1995 314,433 140,000 0 100,000 0 14,150
1994 255,000 5,000 0 0 0 12,634
Walter M. Hoff......... 1996 399,984 110,000 124,459 44,594 0 30,504
Executive Vice
President 1995 317,500 0 0 100,000 0 19,600
1994 259,904 49,000 0 0 0 9,649
- --------
(1) Mr. Adrean commenced employment with the Company May 1, 1995.
(2) Mr. DeNero commenced employment with the Company July 24, 1995.
(3) Includes a cash signing bonus of $87,250. In lieu of receiving additional
cash as a signing bonus and as a portion of his annual bonus, Mr. Adrean
elected to receive stock options which are included among those reported
in this table.
(4) In lieu of receiving all or a portion of his bonus in 1995 and 1996, Mr.
DeNero elected to receive stock options which are included among those
reported in this table.
(5) Includes relocation, moving expense and associated reimbursement amounts
of $50,181 for Mr. Adrean in 1995, $18,776 for Mr. DeNero in 1995 and
$120,243 for Mr. Hoff in 1996. The amount of perquisites and other
personal benefits are disclosed in this column only if they exceed the
lesser of $50,000 or 10% of the total annual salary and bonus.
(6) Includes stock options which Mr. Adrean elected to receive in lieu of
bonus amounts for 1995 and which Mr. DeNero elected to receive in lieu of
bonus amounts for 1995 and 1996.
(7) Amounts shown for Messrs. Adrean, Fote and DeNero for 1996 are Company
contributions to defined contribution plans. The amount shown for Mr. Hoff
in 1996 consists of Company contributions to defined contribution plans
($27,139) and the dollar value of above-market interest on deferred
compensation ($3,365). The amount shown for Mr. Duques for 1996 consists
of Company contributions to defined contribution plans ($17,363), the
dollar value of above-market interest on deferred compensation ($14,547)
and the dollar value of split dollar life insurance premiums under a
contract originally entered into by American Express Company ($33,673).
10
OPTIONS GRANTS IN 1996
The following table contains information concerning grants of stock options
under the 1992 Plan to each of the Named Executives during the year ended
December 31, 1996:
INDIVIDUAL GRANTS
------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE GRANT
OPTIONS EMPLOYEES IN PRICE EXPIRATION DATE PRESENT
NAME GRANTED(#)(1) 1996(2) ($/SHARE) DATE VALUE($)(3)
- ---- ------------- ------------ --------- ---------- ------------
Henry C. Duques... 214,054 3.2634 $37.00 12/31/2006 2,309,643
Lee Adrean........ 44,594 .6799 $37.00 12/31/2006 481,169
Henry T. DeNero... 44,594 .6799 $37.00 12/31/2006 481,169
Charles T. Fote... 44,594 .6799 $37.00 12/31/2006 481,169
Walter M. Hoff.... 44,594 .6799 $37.00 12/31/2006 481,169
- --------
(1) All options shown in the table were granted under the 1992 Plan, carry an
exercise price of 100% of the fair-market value on the date of grant and
become exercisable in increments of one-fourth each year beginning on the
first anniversary date of the grant, provided the optionee is continuously
employed from the date of grant to the date of exercise. All option grants
reflected in the table were granted to participants in lieu of making a
cash award under the Company's Shareholder Value Plan. See Executive
Compensation Report by the Compensation and Benefits Committee.
(2) Based on options to purchase an aggregate of 6,559,152 shares granted
during 1996 to all employees.
(3) These values were calculated using the Black-Scholes option pricing model,
a formula widely used and accepted for valuing traded stock options. The
model is based on immediate exercisability and transferability which are
not features of the options shown in the table. Any ultimate value will
depend on the market value of the Company's stock at a future date. The
following assumptions were used to calculate the values shown: estimated
future dividend yield of .22%; expected price volatility of .169; risk-
free rate of return of 6.28%; and option holding period of 5 years.
AGGREGATED OPTION EXERCISES IN 1996 AND
YEAR-END 1996 OPTION VALUES
The following table sets forth information for the Named Executives
regarding the exercise of Company stock options during 1996 and unexercised
FDC stock options held as of the end of 1996:
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT DECEMBER 31, 1996 AT DECEMBER 31, 1996(1)
ACQUIRED ON VALUE ------------------------------- -------------------------------
EXERCISE(#) REALIZED($) EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE($) UNEXERCISABLE($)
----------- ----------- -------------- ---------------- -------------- ----------------
Henry C. Duques......... 0 0 2,492,040 439,054 53,910,201 1,139,063
Lee Adrean.............. 0 0 70,427 235,453 526,888 1,400,695
Henry T. DeNero......... 0 0 85,475 284,743 547,808 1,590,936
Charles T. Fote......... 0 0 763,444 119,594 17,405,632 379,688
Walter Hoff............. 130,000 3,451,125 534,220 119,594 12,452,910 379,688
- --------
(1) The amounts shown reflect the $37.00 fair market value of the Company's
stock on December 31, 1996 less the option exercise price, but they do not
reflect the impact of taxes.
11
LONG-TERM INCENTIVE PLANS--AWARDS IN 1996
The following table sets forth information regarding Long-Term Incentive
Plan awards made in 1996 for the Named Executives:
PERFORMANCE ESTIMATED FUTURE PAYOUT UNDER
NUMBER OF OR OTHER NON-STOCK PRICE-BASED PLANS
SHARES, UNITS PERIODS UNTIL ---------------------------------
OR OTHER MATURATION OR THRESHOLD TARGET MAXIMUM
RIGHTS(#)(1) PAYOUT ($)(2) ($)(3) ($)(4)
------------- ------------------------ ----------- -------- ------------
Henry C. Duques......... -0- 4 years (ending 12/31/98) 660,000 N/A 3,600,000
-0- 4 years (ending 12/31/99) 660,000 N/A 3,600,000
Lee Adrean.............. -0- 4 years (ending 12/31/98) 137,500 N/A 750,000
-0- 4 years (ending 12/31/99) 137,500 N/A 750,000
Henry T. DeNero......... -0- 4 years (ending 12/31/98) 137,500 N/A 750,000
-0- 4 years (ending 12/31/99) 137,500 N/A 750,000
Charles T. Fote......... -0- 4 years (ending 12/31/98) 137,500 N/A 750,000
-0- 4 years (ending 12/31/99) 137,500 N/A 750,000
Walter M. Hoff.......... -0- 4 years (ending 12/31/98) 137,500 N/A 750,000
-0- 4 years (ending 12/31/99) 137,500 N/A 750,000
- --------
(1) The Company's long-term incentives are not based on shares, units or
rights. Under the terms of the plan, at the end of a two-year award
period, a unit value is established for each executive based on the
performance of the Company's Common Stock as compared to the performance
of companies at the 80th, 70th, 60th and 50th percentiles in the S&P 500
Index, subject to the Committee's discretion to reduce the award produced
by the formula based on factors it determines in its discretion. Those
unit values are banked for an additional two-year period, during which
time the amount will be increased by a percentage equal to 50% of
stockholders' return on equity each year, or, if return on equity is
negative, decreased by a percentage equal to 100% of the Stockholders'
return of equity percentage. In January 1996, each of the Named Executives
received a Performance Grant for the two-year award period ending December
31, 1996, and a grant for the two-year award period ending December 31,
1997. The terms of both grants were identical and are described in the
table above. Two grants were made in 1996 in order to put the Company on a
cycle in which it is awarding grants at the beginning of the performance
periods instead of in the middle of such periods. For the two-year award
period ended December 31, 1996, the formula produced a unit value for
Messrs. Adrean, DeNero, Fote, and Hoff of $330,000 and a unit value of
$1,584,000 for Mr. Duques. The Committee, however, established a unit
value of (0) for each and awarded instead 44,594 options each to Messrs.
Adrean, DeNero, Fote and Hoff and 214,054 options to Mr. Duques. See
Executive Compensation Report by the Compensation and Benefits Committee.
(2) Two thresholds must be met before any amounts are paid to any of the Named
Executives. First, the growth in the rate of total stockholders' return
must exceed the average two-year treasury note interest rate for the 60-
day period prior to the performance period. Second, no payment is made if
the percentage increase in the Common Stock price, plus dividends, does
not exceed the percentage increase of at least 50% of the companies in the
S&P 500 Index. Amounts shown are the unit values which would be
established under the plan formula applicable to each executive if the
thresholds are met, but not exceeded. As noted in footnote 1, these
amounts will increase or decrease during the two-year period after they
are set based on the Company's return on equity.
(3) No performance level or pay level has been identified as a target.
(4) Amounts shown are the maximum unit values which may be set at the end of
the performance period. The ultimate payout is determined by the Company's
return on equity over the two-year period after the unit value is set, and
may be greater or less than the amount shown. No limit has been placed on
the potential increase or decrease.
12
RETIREMENT PLANS
Of the Named Executives, only Mr. Duques and Mr. Fote currently participate
in the Company's defined benefit pension plans. Mr. Hoff no longer
participates in the pension plans, but has a frozen benefit which would
entitle him to an annual payment at age 65 of approximately $7,500. Messrs.
Adrean and DeNero do not participate in the plans because they joined the
Company after participation was frozen. All of the Company's executives
participate in the Company's defined contribution plans. The Company's
contributions to the named executives' defined contribution plans are shown in
the "All Other Compensation" column of the Summary Compensation Table.
Mr. Duques and Mr. Fote each receive benefits pursuant to a different
formula. For each of them, compensation in excess of $235,840 is disregarded
for 1995 and prior years. In calculating benefits for later years,
compensation in excess of $1,000,000 will be disregarded. To determine the
pension benefit at retirement, the individual's average compensation for the
five-year period prior to retirement is used and the benefit for 1995 and
prior years is calculated applying the $235,840 cap and added to the
separately calculated benefit for post-1995 service to which the $1,000,000
cap applies.
The following table and accompanying text illustrates the annual pension
benefits applicable to Mr. Duques provided under the Company's defined benefit
pension plans:
YEARS OF CREDITED SERVICE
------------------------------------------------------------------
REMUNERATION 1 5 10 15 20
------------ ------- ------- -------- -------- --------
$ 235,840 $ 2,358 $11,792 $ 25,353 $ 40,682 $ 56,012
$ 300,000 $ 3,000 $15,000 $ 32,250 $ 51,750 $ 71,250
$ 400,000 $ 4,000 $20,000 $ 43,000 $ 69,000 $ 95,000
$ 500,000 $ 5,000 $25,000 $ 53,750 $ 86,250 $118,750
$ 600,000 $ 6,000 $30,000 $ 64,500 $103,500 $142,500
$ 700,000 $ 7,000 $35,000 $ 75,250 $120,750 $166,250
$ 800,000 $ 8,000 $40,000 $ 86,000 $138,000 $190,000
$ 900,000 $ 9,000 $45,000 $ 96,750 $155,250 $213,750
$1,000,000 $10,000 $50,000 $107,500 $172,500 $237,500
As of January 1, 1997, Mr. Duques had 7.5 years of credited service for 1995
and prior years, and one year of post-1995 service under the pension plans,
for purposes of computing his benefits. Mr. Duques' annual benefit will be
reduced by the benefit he will receive under a retirement plan maintained by
American Express Company, the Company's former parent, of approximately $9,500
annually.
The following table and accompanying text illustrates the annual pension
benefits applicable to Mr. Fote provided under the Company's defined benefit
pension plan beginning June 30, 1989:
YEARS OF CREDITED SERVICE
------------------------------------------------------------------
REMUNERATION 1 5 10 15 20
------------ ------- ------- -------- -------- --------
$ 235,840 $ 3,066 $15,330 $ 30,659 $ 45,989 $ 61,318
$ 300,000 $ 3,900 $19,500 $ 39,000 $ 58,500 $ 78,000
$ 400,000 $ 5,200 $26,000 $ 52,000 $ 78,000 $104,000
$ 500,000 $ 6,500 $32,500 $ 65,000 $ 97,500 $130,000
$ 600,000 $ 7,800 $39,000 $ 78,000 $117,000 $156,000
$ 700,000 $ 9,100 $45,500 $ 91,000 $136,500 $182,000
$ 800,000 $10,400 $52,000 $104,000 $156,000 $208,000
$ 900,000 $11,700 $58,500 $117,000 $175,500 $234,000
$1,000,000 $13,000 $65,000 $130,000 $195,000 $260,000
13
As of January 1, 1997, Mr. Fote had 6.5 years of credited service for years
from 1989 through 1995, respectively, and one year of post-1995 service under
the pension plans, for purposes of computing his benefits. In addition, for
years of service prior to 1989, Mr. Fote will receive a pension benefit under
an alternate formula which will result in an annual benefit at age 65 of
approximately $65,900.
The amounts shown in both tables assume retirement at age 65, and payment in
the form of a single life annuity on a monthly basis. These benefits are not
subject to deductions for Social Security benefits or other offset amounts.
Generally, compensation covered for pension purposes consists of the salary,
annual bonus and LTIP payouts reported in the Summary Compensation Table,
except that, as noted, in calculating the benefits for 1995 and prior years of
service, compensation in excess of $235,840 is disregarded and for later
years, compensation in excess of $1,000,000 is disregarded.
14
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in cumulative
total stockholder return on the Common Stock of the Company since April 9,
1992 when the Company's shares first began trading on the New York Stock
Exchange (NYSE) with the cumulative total return of the S&P 500 Index and the
S&P Computer Software Services Index (CSSI) over the same period. The
comparison assumes $100 was invested on April 9, 1992 in the Company's Common
Stock and in each of such indices and assumes reinvestment of dividends, if
any. Historic stock price is not indicative of future stock price performance.
[GRAPH APPEARS HERE]
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG FDC, CSSI INDEX AND S&P 500 INDEX
Measurement period FDC CSSI S&P 500
(Fiscal Year Covered) Index Index
- --------------------- -------- -------- --------
Measurement PT -
04/09/92 $ 100 $ 100 $ 100
FYE 12/31/92 $ 154.80 $ 117.87 $ 110.43
FYE 12/31/93 $ 184.12 $ 150.43 $ 121.56
FYE 12/31/94 $ 214.62 $ 177.82 $ 123.17
FYE 12/31/95 $ 303.58 $ 249.91 $ 169.46
FYE 12/31/96 $ 331.77 $ 388.52 $ 208.37
15
CERTAIN TRANSACTIONS AND OTHER MATTERS
In the ordinary course of business, the Company and its subsidiaries from
time to time engage in transactions with other corporations or financial
institutions whose officers or directors are also directors or officers of the
Company or a subsidiary. Transactions with such corporations and financial
institutions are conducted on an arm's-length basis and may not come to the
attention of the directors or officers of the Company or of the other
corporations or financial institutions involved.
Until April 1992, the Company was a wholly owned subsidiary of American
Express Company ("American Express"). At the end of 1996 American Express
owned less than 5% of the Common Stock of the Company. The Company has engaged
and continues to engage in certain transactions with American Express and its
subsidiaries. The Company believes that there would not have been any material
change in aggregate historical revenues or expenses of the Company had the
transactions been between unrelated parties or had the Company been operating
other than as a subsidiary of American Express. In October 1996, American
Express tendered a significant portion of its holdings of FDC Common Stock to
the holders of American Express' 6 1/4% Exchangeable Notes Due October 15,
1996. As a result of this transaction, American Express is no longer
considered a related-party with current ownership of FDC Common Stock of less
than 5%.
The Company paid $655,000 to American Express for general services such as
investment advisory services and other professional services during the year
ended December 31, 1996.
Management Agreement
Pursuant to a management agreement dated April 13, 1992 ("Management
Agreement") with American Express Travel Related Services Company, Inc., a
subsidiary of American Express ("TRS"), the Company, through its wholly owned
subsidiary, Integrated Payment Systems Inc. ("IPS"), manages a business
involving certain payment instruments issued or provided by TRS. For the
management services provided by IPS, IPS earns processing fees from TRS which
are comprised of transaction fees remitted by selling agents and an amount
based on the pretax equivalent of the earnings on the investment portfolio
(plus or minus any gains or losses with respect to securities that have been
liquidated), net of commissions subsequently paid to the selling agents. In
1996, IPS received $225.1 million in processing fees and other associated
revenues under the Management Agreement.
IPS is licensed to use certain American Express marks in connection with the
payment instruments business for a period expiring not later than April 16,
1997, pursuant to an Intercompany Agreement dated April 16, 1992 between the
Company and American Express. Upon a change of control (as defined) of IPS,
IPS will lose its license to use such marks. The license to use such marks is
not transferable, except under very limited circumstances.
Other Business Arrangements
Various of the Company's subsidiaries provide services to American Express
and its subsidiaries in the ordinary course of business. During the year ended
December 31, 1996, the Company recorded revenues of approximately $76.3
million from these services.
Intercompany Agreement
The Company and American Express entered into an Intercompany Agreement
("Intercompany Agreement") dated April 16, 1992, as amended, providing, among
other matters, for (i) the grant by American Express to the Company of a
license to use the American Express name and certain trademarks in connection
with the Company's payment instruments business as presently conducted for an
annual license fee of $1.0 million, which license extends to April 16, 1997;
(ii) American Express' agreement to provide certain other management and
administrative services to the Company on terms consistent with past
practices; (iii) American Express' agreement to reimburse the Company for (a)
up to $3.0 million of the costs and expenses incurred or
16
committed to no later than April 9, 1993 relating to the change of the
Company's name and its change in status to a publicly owned corporation (which
was fully reimbursed) and (b) up to $7.6 million of the costs and expenses,
relating to the changes referred to in clause (iii)(a) above and advertising
of the Company's payment instruments under a new name, that the Company incurs
or becomes committed to pay no later than April 9, 1997 (which was fully
reimbursed); (iv) the Company's agreement to obtain American Express' consent
before incurring any indebtedness if the effect thereof would cause the rating
of any Company indebtedness to be below investment grade; and (v) the payment
by American Express of $6.6 million in conjunction with a $22 million
settlement by the Company of a contract pricing matter in 1993. The Company
paid $1.1 million to American Express during the year ended December 31, 1996
pursuant to the Intercompany Agreement.
The Intercompany Agreement provides that until April 15, 1997, TRS shall
not, and shall cause its subsidiaries not to, compete directly or indirectly
with the payment instruments business managed by IPS. The Company has agreed
to indemnify American Express, its subsidiaries and their respective officers,
directors, employees and agents against losses from third party claims based
on, arising out of or resulting from, among other matters, the use of the
marks used in the payment instruments business managed by IPS on behalf of
TRS. In addition, the Company has agreed to pay to American Express, upon
exercise by Company employees of non-qualified options to acquire American
Express common shares, an amount equal to the option exercise price plus an
amount equal to the income realized by such individuals multiplied by the
highest marginal federal corporate income tax rate in effect at such time. The
Company has also agreed to pay to American Express, upon expiration of the
restrictive period relating to restricted stock awards of American Express
common shares to employees of the Company, an amount equal to the fair market
value of such shares multiplied by such rate.
Tax Allocation Agreement
The Company and American Express entered into a tax allocation agreement in
connection with the Company's initial public offering in April 1992 providing
for the allocation and settlement of their respective federal, state and local
income tax liabilities (including the Company's share of liability for
alternative minimum tax) and detailing the procedures that determine the
payments to be made to or by the Company with respect to those liabilities,
including payments with respect to adjustments to tax liabilities resulting
from audits or other proceedings with respect to taxes for taxable periods for
which the Company or its subsidiaries are included in any consolidated federal
or combined state or local income tax return with American Express. During
1996, the Company paid American Express approximately $269,000 pursuant to the
tax allocation agreement and predecessor arrangements.
RRE Investors
In December of 1995, the Company made a $3,000,000 limited partnership
investment in RRE Connect Investors, L.P. (the "Connect Partnership"). The
Connect Partnership invested these proceeds in securities of Connect, Inc. The
general partner of the Connect Partnership is RRE Partners LLC and the Connect
Partnership engaged RRE Advisors, LLC to manage the affairs of the Connect
Partnership. The Company is required to pay RRE Advisors, LLC an annual
management fee of 2% of its capital investment. In addition, the Limited
Partnership Agreement provides that the general partner is entitled to a 17%
carried interest in profits realized beyond the amount of the original
investment. Also, in the fourth quarter of 1996, the Company made a commitment
to invest up to $3 million as a limited partner in RRE Investors, L.P. (the
"Investors Partnership"). As of February 28, 1997, the Company has not funded,
nor received a request to fund, any portion of the commitment. The Company is
required to pay RRE Advisors, LLC an annual management fee of 2% of its
capital commitment as well as its pro rata share of certain organizational and
other expenses. In addition, the Limited Partnership Agreement provides that
the general partner is entitled to receive 20% of all distributions after
satisfaction of certain distribution preferences in favor of the limited
partners. Mr. Robinson and members of his family control and have equity
interests in RRE Investors, L.P., RRE Partners LLC and RRE Advisors, LLC
(collectively, the "RRE Entities"). Prior to authorizing the investment as
described above, Mr. Robinson disclosed his interests in the transactions to
the Board and the Board unanimously approved the investments. During 1996 the
Company paid $60,000 to the RRE Entities in connection with these investments.
17
Card Issuer Program Management
Card Issuer Program Management, Inc. ("CIPM") was formed in 1995 by
individuals who at the time were employees of the Company or its subsidiaries.
Subsidiaries of the Company and CIPM entered into an agreement under which
those subsidiaries would be the exclusive providers of processing services to
customers of CIPM. The parties are severing the relationship because of an
inability to reach agreement on the pricing of the services to be provided. To
settle the dispute and in satisfaction of certain other claims, the Company
paid CIPM $8 million in 1996 and has agreed to pay $200,000 a month to CIPM in
1997 in exchange for the right to have CIPM provide certain services to the
Company. Mr. Russell performs consulting services for CIPM and owns
approximately 7% of its outstanding stock. In 1996, CIPM paid Mr. Russell
$70,000 for his services.
Loan
In March 1995 the Company loaned $250,000 to Walter Hoff, an executive
officer of the Company, pursuant to an unsecured promissory note which
provides for interest at the rate of 7.2%, compounded annually and payable at
maturity. In March 1997 Mr. Hoff paid the Company approximately $286,000 as
prepayment in full of principal and interest due pursuant to the note.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and persons who own more than ten percent of the
Company's Common Stock ("Section 16 Persons") to file reports of ownership and
changes in ownership in the Company's Common Stock with the Securities and
Exchange Commission and the New York Stock Exchange. Based on the Company's
records and other information, the Company believes that all Section 16(a)
filing requirements for the Section 16 Persons have been complied with during
or with respect to the fiscal year ended December 31, 1996 except as described
below. In each of 1995 and 1996, each of the Company's Directors Jones,
Staglin and Robinson filed a Section 16(a) report reflecting a grant of
options on the Company's stock made to them in lieu of cash payment of their
Director's fees for those years. Due to an error by the Company, each of these
reports understated by ten percent the actual number of shares subject to
those option grants.
STOCKHOLDER PROPOSALS
In order to be considered for inclusion in the Company's proxy materials for
the Company's 1998 Annual Meeting of Stockholders, any stockholder proposal
must be received by the Company on or before November 21, 1997. Proposals
should be directed to David P. Bailis, Corporate Secretary, First Data
Corporation, 5660 New Northside Drive, Suite 1400, Atlanta, Georgia 30328.
The Company's Amended and Restated Certificate of Incorporation or By-laws
provide (i) that directors can be removed from office only for cause and only
by the affirmative vote of the holders of a majority of the then outstanding
shares of capital stock entitled to vote generally in an election of
directors, (ii) that vacancies on the Board of Directors may be filled only by
the remaining directors and not by the stockholders, and (iii) for an advance
notice procedure for the nomination, other than by or at the direction of the
Board of Directors, of candidates for election as directors as well as for
other stockholder proposals to be considered at annual meetings of
stockholders. In general, notice of intent to nominate a director or raise
business at such meetings must be received by the Secretary of the Company not
less than 60 nor more than 90 days prior to the anniversary of the previous
year's annual meeting, and must contain certain information concerning the
person to be nominated or the matters to be brought before the meeting and
concerning the stockholder submitting the proposal. Accordingly, a stockholder
proposal or nomination intended to be brought before the 1998 Annual Meeting
of Stockholders must be received by the Secretary of the Company on or after
February 13, 1998 and on or prior to March 15, 1998. The Company's Amended and
Restated Certificate of Incorporation also provides that any action required
or permitted to be taken by the stockholders of the Company may be effected
only at an annual
18
or special meeting of stockholders, and stockholder action by written consent
in lieu of a meeting is prohibited. The affirmative vote of the holders of
more than 80 percent of the voting power of the voting stock is required to
alter, amend or repeal, or adopt any provision inconsistent with, this
provision. In addition, special meetings of stockholders may be called only by
the Chairman of the Board, Chairman of the Executive Committee, the President
or the Secretary of the Company, or any such officer at the request in writing
of the Board of Directors.
With respect to the May 14, 1997 Annual Meeting of Stockholders, no
stockholder proposals or nominations were received by the Secretary of the
Company during the period from February 15, 1997 through March 15, 1997 as
required for consideration at the May 14, 1997 meeting pursuant to the
Company's Amended and Restated Certificate of Incorporation and By-laws.
Management does not know of any business to be transacted at the meeting other
than as indicated herein. Should any matter other than as indicated herein
properly come before the meeting for a vote, the persons designated as proxies
will vote thereon in accordance with their best judgment.
* * *
You are urged to mark, date, sign and return the enclosed proxy in the
prepaid envelope provided for such purpose. Prompt return of your proxy may
save the Company the expense of a second mailing.
We encourage all stockholders to attend the Annual Meeting of Stockholders
on May 14, 1997. If, due to a disability, you desire this document in an
alternative, accessible format or you will need special assistance at the
meeting, please contact the Corporate Secretary.
HENRY C. DUQUES
Chairman
19
FIRST DATA CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 14, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FIRST DATA
CORPORATION
The undersigned hereby appoints Henry C. Duques and David P. Bailis, as
Proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated below, all the shares of Common
Stock of First Data Corporation held of record by the undersigned on March 17,
1997, at the Annual Meeting of Stockholders of First Data Corporation and any
adjournment or postponement thereof, as follows:
1. ELECTION [_] FOR all nominees [_] WITHOLD AUTHORITY
OF listed below (Except to vote for all
DIRECTORS as marked to the nominees listed below
contrary below)
INSTRUCTION: To withhold authority to vote for any individual nominee, strike a
line through the nominee's name below.
Courtney F. Jones Robert J. Levenson Charles T. Russell
2. The ratification of the selection of Ernst & Young LLP as independent
auditors of the Company for 1997.
[_] FOR [_] AGAINST [_] ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
matters as may properly come before the meeting. Management is not presently
aware of any such matters to be presented for action.
[_] FOR [_] AGAINST [_] ABSTAIN
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED
FOR THE ELECTION OF THE DIRECTORS INDICATED AND FOR APPROVAL OF THE PROPOSALS
PRESENTED.
(CONTINUED, AND TO BE SIGNED AND DATED, ON THE REVERSE SIDE)
The undersigned has received the Notice of Meeting, the Proxy Statement
relating to the Annual Meeting of Stockholders to be held May 14, 1997, and the
Company's Annual Report for its fiscal year ended December 31, 1996, and hereby
ratifies and confirms all that the Proxies shall lawfully do or cause to be
done by virtue hereof and hereby revokes all proxies heretofore given to vote
such shares.
PLEASE SIGN AND RETURN PROMPTLY.
------------------------------------
Signature
------------------------------------
Signature if held jointly
Dated: _______________________, 1997
(Please sign exactly as your name or names appear to the left. When shares are
held by joint tenants, both should sign. When signing as executor,
administrator, trustee or guardian, please give the full title as such, and
where more than one executor, etc., is named, a majority must sign. If a
corporation, please sign full corporate name by president or other authorized
officer. If a partnership, please sign full partnership name by an authorized
person.)