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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
NATIONAL PROCESSING, INC.
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(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
N/A
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(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, without par value, of National Processing, Inc.
(2) Aggregate number of securities to which transaction applies:
53,344,125 shares of National Processing Common Stock and
options to purchase 1,586,065 shares of National Processing
Common Stock
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on
which the filing fee is calculated and state how it was
determined): The filing fee of $180,881 is equal to $126.70 per
million of the aggregate merger consideration of $1,427,635,600.
(4) Proposed maximum aggregate value of transaction: $1,427,635,600
(5) Total fee paid:
$180,881
[ ] Fee paid previously with proxy materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
[National Processing, Inc. Letterhead]
September [ ], 2004
Dear Fellow Shareholder:
You are cordially invited to attend a special meeting of shareholders of
National Processing, Inc., to be held on October [ ], 2004, at 9:00 a.m.,
Eastern time, at our principal executive offices, 1900 East Ninth Street,
Cleveland, Ohio 44114.
At the special meeting, we will ask you to adopt the merger agreement
among National Processing, Bank of America Corporation and an indirect wholly
owned subsidiary of Bank of America. If the merger is completed, each of your
National Processing common shares will be converted into the right to receive
$26.60 in cash, without interest.
Our board of directors has carefully reviewed and considered the terms and
conditions of the proposed merger. Based on its review, the board of directors
has determined that the merger is advisable to and in the best interests of our
shareholders. ACCORDINGLY, OUR BOARD OF DIRECTORS HAS APPROVED THE MERGER
AGREEMENT AND RECOMMENDS THAT YOU VOTE "FOR" THE ADOPTION OF THE MERGER
AGREEMENT.
Your vote is important. Failure to submit a signed proxy or to vote in
person at the special meeting will have the same effect as a vote against the
adoption of the merger agreement. Only holders of record of our common shares at
the close of business on [ ], 2004 will be entitled to vote at the special
meeting.
Adoption of the merger agreement requires the affirmative vote of the
holders of two-thirds of our common shares outstanding and entitled to vote at
the special meeting. National City Corporation, which owned approximately 83.2%
of our outstanding common shares as of the record date, has entered into a
shareholders agreement with Bank of America pursuant to which National City has
agreed to cause the common shares that it owns to be (i) counted as present at
the special meeting for the purpose of establishing a quorum and (ii) voted
against any other proposal for a merger, consolidation, reorganization or
similar transaction involving National Processing. Assuming that National City
votes the National Processing common shares it owns in favor of adoption of the
merger agreement, sufficient votes will be cast for adoption of the merger
agreement to ensure its passage without the vote of any other National
Processing shareholder.
Please complete, sign, date and return your proxy. If you hold your shares
in "street name," you should instruct your broker how to vote in accordance with
your voting instruction form.
This proxy statement explains the proposed merger, the merger agreement
and the transactions contemplated by the merger agreement and provides specific
information concerning the special meeting. Please read the entire proxy
statement carefully.
Sincerely,
Jon L. Gorney
Chairman and Chief Executive Officer
This proxy statement is dated September [ ], 2004, and is first being mailed to
National Processing shareholders on or about September [ ], 2004.
NATIONAL PROCESSING, INC.
1900 EAST NINTH STREET
CLEVELAND, OHIO 44114
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Shareholders of
NATIONAL PROCESSING, INC.
A special meeting of shareholders of National Processing, Inc. will be
held at our principal executive offices, 1900 East Ninth Street, Cleveland, Ohio
44114, on October [ ], 2004, at 9:00 a.m., Eastern time, for the following
purposes:
1. To consider and vote upon a proposal to adopt the Agreement and Plan
of Merger dated as of July 12, 2004, among Bank of America
Corporation, Monarch Acquisition, Inc., an indirect wholly owned
subsidiary of Bank of America, and National Processing, Inc. In the
merger National Processing, Inc. will become an indirect wholly
owned subsidiary of Bank of America, and each outstanding National
Processing common share will be converted into the right to receive
$26.60 in cash, without interest; and
2. To transact such other business that may properly come before the
special meeting or any adjournment or postponement thereof,
including a motion to adjourn the special meeting to another time or
place, if necessary, for the purpose of soliciting additional
proxies.
We will transact no other business at the special meeting except such
business as may properly be brought before the special meeting or any
adjournments or postponements thereof.
Only holders of record of our common shares at the close of business on [
], 2004, the record date for the special meeting, are entitled to notice of, and
to vote at, the special meeting and any adjournments or postponements thereof.
This proxy statement describes the proposed merger and the actions to be
taken in connection with the merger and provides additional information about
the parties involved. Please give this information your careful attention. Under
Ohio law, if you do not vote in favor of the adoption of the merger agreement
you will have the right to seek appraisal of the fair value of your National
Processing common shares under Section 1701.85 of the Ohio Revised Code if the
merger is completed, but only if you submit a written demand for an appraisal on
or before the tenth day following the special meeting and you comply with the
Ohio law procedures explained in this proxy statement. See "The Merger -
Dissenters' Appraisal Rights of National Processing Shareholders" on page 49.
NATIONAL PROCESSING'S BOARD OF DIRECTORS RECOMMENDS THAT NATIONAL
PROCESSING SHAREHOLDERS VOTE "FOR" THE ADOPTION OF THE MERGER AGREEMENT.
We cannot complete the merger unless the merger agreement is adopted by
our shareholders. Adoption of the merger agreement requires the affirmative vote
of holders of two-thirds of our common shares outstanding and entitled to vote
at the special meeting. National City Corporation, which owned approximately
83.2% of our outstanding common shares as of the record date, has entered into a
shareholders agreement with Bank of America pursuant to which National City has
agreed to cause the common shares that it owns to be (i) counted as present at
the special meeting for the purpose of establishing a quorum and (ii) voted
against any other proposal for a merger, consolidation, reorganization or
similar transaction involving National Processing. Assuming that National City
votes the National Processing common shares it owns in favor of adoption of the
merger agreement, sufficient votes will be cast for adoption of the merger
agreement to ensure its passage without the vote of any other National
Processing shareholder.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID RETURN ENVELOPE. YOU MAY REVOKE THE PROXY AT ANY TIME PRIOR TO ITS
EXERCISE AT THE SPECIAL MEETING IN THE MANNER DESCRIBED IN THIS PROXY STATEMENT.
ANY SHAREHOLDER PRESENT AT THE SPECIAL MEETING, INCLUDING ANY ADJOURNMENTS OR
POSTPONEMENTS THEREOF, MAY REVOKE SUCH SHAREHOLDER'S PROXY AND VOTE PERSONALLY
ON THE PROPOSAL TO ADOPT THE MERGER AGREEMENT. YOUR VOTE AT THE SPECIAL MEETING
WILL SUPERSEDE ANY VOTE YOU MAY HAVE PREVIOUSLY MADE. EXECUTED PROXIES WITH NO
INSTRUCTIONS INDICATED THEREON WILL BE VOTED "FOR" THE ADOPTION OF THE MERGER
AGREEMENT. IF YOU FAIL TO RETURN YOUR PROXY OR TO VOTE IN PERSON AT THE SPECIAL
MEETING, YOUR SHARES WILL NOT BE COUNTED FOR PURPOSES OF DETERMINING WHETHER A
QUORUM IS PRESENT AT THE SPECIAL MEETING, AND WILL EFFECTIVELY BE COUNTED AS A
VOTE "AGAINST" THE ADOPTION OF THE MERGER AGREEMENT.
Please complete, date and sign the enclosed proxy card and return it in
the enclosed postage-paid return envelope. Please do not send any share
certificates at this time.
By Order of the Board of Directors,
CARLTON E. LANGER
Secretary
September [ ], 2004
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE MERGER.................................. 1
SUMMARY ................................................................ 4
Information About the Companies.................................... 4
The Special Meeting................................................ 4
Board Recommendation............................................... 7
The Merger and the Merger Agreement................................ 8
Material United States Federal Income Tax Consequences............. 11
Accounting Treatment............................................... 12
Interests of National Processing Directors and Executive Officers
in the Merger.................................................... 12
Dissenters' Appraisal Rights of National Processing Shareholders... 12
The Paying Agent................................................... 13
The Shareholders Agreement......................................... 13
Certain Other Agreements........................................... 13
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE......................... 15
THE COMPANIES........................................................... 16
National Processing, Inc........................................... 16
Bank of America Corporation........................................ 16
Monarch Acquisition, Inc........................................... 16
THE SPECIAL MEETING..................................................... 17
Date, Time and Place............................................... 17
Purpose of the Special Meeting..................................... 17
Record Date; Shareholders Entitled to Vote......................... 17
Voting............................................................. 17
Revocation of Proxies.............................................. 18
Quorum ............................................................ 18
Shareholder Vote Required to Adopt the Merger Agreement............ 19
Solicitation Costs................................................. 19
Exchange of Share Certificates..................................... 20
THE MERGER.............................................................. 21
Background of the Merger........................................... 21
National Processing's Considerations Relating to the Merger........ 30
Recommendation of National Processing's Board of Directors......... 34
Opinion and Summary of Analyses of Our Financial Advisor........... 34
Certain Financial Information.................................. 41
Interests of National Processing Directors and
Executive Officers in the Merger.............................. 43
Interests of National City in the Merger....................... 47
Indemnification; Directors' and Officers' Insurance............ 47
Governmental and Regulatory Matters............................ 47
Material United States Federal Income Tax Consequences......... 48
Dissenters' Appraisal Rights of National Processing
Shareholders.................................................. 49
Fees and Expenses.............................................. 51
Other Expenses................................................. 51
Accounting Treatment........................................... 52
Delisting and Deregistration of National Processing Common
Shares........................................................ 52
THE MERGER AGREEMENT.................................................... 53
The Merger..................................................... 53
Closing and Effective Time of the Merger....................... 53
Consideration to be Received in the Merger..................... 53
Cancellation of Shares......................................... 53
Treatment of Stock Options and Restricted Shares............... 54
Payment for Shares............................................. 54
Representations and Warranties................................. 55
Material Adverse Effect........................................ 56
Covenants...................................................... 57
No Solicitation................................................ 59
Shareholder Meeting............................................ 60
Access to Information; Confidentiality......................... 61
Reasonable Best Efforts; Cooperation........................... 61
Employee Benefit Matters....................................... 62
Indemnification................................................ 64
Public Announcements........................................... 64
Termination of Tax-Sharing Agreement........................... 65
Fees and Expenses.............................................. 65
Conditions of the Merger....................................... 65
Termination.................................................... 67
Fee if the Merger Agreement is Terminated...................... 68
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Effect of Termination.......................................... 68
Amendment...................................................... 68
Extension; Waiver.............................................. 68
Bank of America Commitment..................................... 69
THE SHAREHOLDERS AGREEMENT.............................................. 70
Voting Matters................................................. 70
Transfer and Other Restrictions................................ 71
No Solicitation................................................ 71
Termination and Termination Fee................................ 71
Noncompetition and Nonsolicitation Obligations................. 72
Nondisclosure of Proprietary Information....................... 73
Taxes.......................................................... 73
Indemnification................................................ 73
Purchase Price Reimbursement................................... 75
CERTAIN OTHER AGREEMENTS................................................ 75
BENEFICIAL OWNERSHIP OF NATIONAL PROCESSING COMMON SHARES............... 77
ADDITIONAL INFORMATION.................................................. 79
SHAREHOLDER PROPOSALS FOR ANNUAL MEETINGS............................... 80
ANNEX A - AGREEMENT AND PLAN OF MERGER
ANNEX B - SHAREHOLDERS AGREEMENT
ANNEX C - OPINION OF MORGAN STANLEY & CO. INCORPORATED
ANNEX D - SECTIONS 1701.84 AND 1701.85 OF THE OHIO REVISED CODE
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. WHAT IS THE PROPOSED TRANSACTION?
A. Bank of America will acquire National Processing through the merger of an
indirect wholly owned subsidiary of Bank of America with and into National
Processing. After the merger, National Processing will continue as an
indirect wholly owned subsidiary of Bank of America.
Q. WHY IS THE NATIONAL PROCESSING BOARD OF DIRECTORS RECOMMENDING THE
ADOPTION OF THE MERGER AGREEMENT?
A. The National Processing board of directors believes that the merger is
advisable and in the best interests of National Processing and its
shareholders. The National Processing board of directors received an
opinion from Morgan Stanley & Co. Incorporated that, as of July 12, 2004,
and based on the matters and subject to the considerations set forth in
that opinion, the $26.60 per share in cash to be received by holders of
National Processing common shares is fair, from a financial point of view,
to those holders other than National City. See "The Merger - National
Processing's Considerations Relating to the Merger" on page 30 and "The
Merger - Opinion and Summary of Analyses of Our Financial Advisor" on page
34. Some directors and executive officers of National Processing have
interests in the merger that differ from or are in addition to those of
shareholders of National Processing generally. See "The Merger - Interests
of National Processing Directors and Executive Officers in the Merger" on
page 43.
Q. WHAT WILL HAPPEN TO MY NATIONAL PROCESSING COMMON SHARES AFTER THE MERGER?
A. Upon completion of the merger, each issued and outstanding National
Processing common share will automatically be converted into the right to
receive a per share amount equal to $26.60 in cash, without interest.
Q. WHAT WILL HAPPEN TO MY STOCK OPTIONS AFTER THE MERGER?
A. Pursuant to the merger agreement, we will take all action necessary to
adjust the terms of all outstanding options to acquire our common shares
so that, upon completion of the merger, each option outstanding
immediately prior to the completion of the merger will become fully vested
and will be converted into the right to receive the excess, if any, of
$26.60 over the sum of (1) the exercise price per share of the stock
option and (2) any applicable withholding tax, multiplied by the number of
common shares subject to the stock option. No payment will be made with
respect to options that have per share exercise prices equal to or greater
than $26.60.
Q. WHAT ARE THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER?
A. Generally, a holder of National Processing common shares will recognize
taxable gain or loss equal to the difference between (1) the amount of
cash such holder receives and (2)
the adjusted tax basis of such holder's National Processing common shares
exchanged therefor. Please read "The Merger - Material United States
Federal Income Tax Consequences" beginning on page 48 for a more detailed
discussion of the tax consequences of the merger. You should consult your
tax advisor on how specific tax consequences of the merger apply to you.
Q. WHAT VOTE OF OUR SHAREHOLDERS IS REQUIRED TO ADOPT THE MERGER AGREEMENT?
A. The affirmative vote of holders of two-thirds of our common shares
outstanding and entitled to vote at the special meeting is necessary to
adopt the merger agreement. National City, which owned approximately 83.2%
of our outstanding common shares as of the close of business on [ ], 2004,
the record date for the special meeting, has entered into a shareholders
agreement with Bank of America pursuant to which National City has agreed
to cause the common shares that it owns to be (i) counted as present at
the special meeting for the purpose of establishing a quorum and (ii)
voted against any other proposal for a merger, consolidation,
reorganization or similar transaction involving National Processing.
Assuming that National City votes the National Processing common shares it
owns in favor of adoption of the merger agreement, sufficient votes will
be cast for adoption of the merger agreement to ensure its passage without
the vote of any other National Processing shareholder. Nonetheless, we
encourage you to vote on the adoption of the merger agreement by
completing, dating and signing the enclosed proxy card and returning it in
the enclosed postage-paid return envelope.
Q. AM I ENTITLED TO APPRAISAL RIGHTS?
A. Yes, if you follow the procedures required by the Ohio Revised Code. Under
Ohio law, if you own our common shares and do not vote in favor of
adopting the merger agreement, you will have the right to seek appraisal
of the fair value of your National Processing common shares under Section
1701.85 of the Ohio Revised Code if the merger is completed, but only if
you submit a written demand for an appraisal on or before the tenth day
following the special meeting and you comply with the Ohio law procedures
explained in this proxy statement. We will not notify you of the
expiration of this ten-day period.
Q. WHAT DO I NEED TO DO NOW?
A. After carefully reading and considering the information contained in this
proxy statement, please complete, sign and date your proxy and return it
in the enclosed postage-paid return envelope as soon as possible, so that
your shares may be represented at the special meeting. If you sign and
send in your proxy and do not indicate how you want to vote, we will count
your proxy as a vote "FOR" the adoption of the merger agreement.
Q. WHAT HAPPENS IF I DO NOT SUBMIT A PROXY OR VOTE IN PERSON AT THE SPECIAL
MEETING?
A. Because the required vote of our shareholders is based upon the number of
our outstanding common shares rather than upon the shares actually voted,
the failure by the holder of any of our common shares to submit a proxy or
to vote in person at the special
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meeting, including abstentions and broker non-votes, will have the same
effect as a vote "AGAINST" the adoption of the merger agreement.
Q. CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY?
A. Yes. You can change your vote at any time before your proxy is voted at
the special meeting. You can do this in one of three ways. First, you can
send a written notice stating that you would like to revoke your proxy.
Second, you can complete and submit a new proxy bearing a later date. If
you choose either of these two methods, you must submit your notice of
revocation or your new proxy to us prior to the special meeting at:
National Processing, Inc., Locator Number 2174, 1900 East Ninth Street,
Cleveland, Ohio 44114, Attention: Secretary. Third, you can attend the
special meeting and deliver a signed notice of revocation, deliver a
later-dated duly executed proxy, or vote in person. Attendance at the
special meeting will not, in and of itself, result in the revocation of a
proxy or cause shares to be voted.
Q. IF MY NATIONAL PROCESSING SHARES ARE HELD IN "STREET NAME" BY MY BROKER OR
BANK, WILL MY BROKER OR BANK VOTE MY SHARES FOR ME?
A. Your broker or bank will vote your National Processing shares only if you
provide instructions on how to vote. You should follow the directions
provided by your broker or bank regarding how to instruct your broker or
bank to vote your shares. Without instructions, your shares will not be
voted, which will have the effect of a vote "AGAINST" the adoption of the
merger agreement.
Q. SHOULD I SEND IN MY SHARE CERTIFICATES NOW?
A. No. After the merger is completed, you will receive a transmittal form
with instructions for the surrender of your National Processing share
certificates. Please do not send in your share certificates with your
proxy.
Q. WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A. We are working to complete the merger as quickly as possible. In addition
to obtaining shareholder approval, we must satisfy all other closing
conditions, including the expiration or termination of applicable
regulatory waiting periods. We currently expect to complete the merger
promptly following our special meeting, which is scheduled for October [
], 2004.
Q. WHO CAN HELP ANSWER MY QUESTIONS?
A. If you have any questions about the merger or if you need additional
copies of this proxy statement or the enclosed proxy, you should contact
us at: National Processing, Inc., Locator Number 2174, 1900 East Ninth
Street, Cleveland, Ohio 44114, Telephone: (800) 622-4204, Attention:
Secretary.
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SUMMARY
This summary highlights selected information from this proxy statement and
may not contain all of the information that is important to you. You should
carefully read this entire proxy statement, including the attached annexes, and
the other documents to which we have referred you. See "Additional Information"
on page 80. We have included page references parenthetically to direct you to a
more complete description of the topics presented in this summary.
INFORMATION ABOUT THE COMPANIES (PAGE 16)
National Processing, Inc.
National Processing, Inc. and its subsidiaries are providers of electronic
payment processing services. National Processing is headquartered in Cleveland,
Ohio. National Processing's primary operating subsidiary, National Processing
Company, LLC, is located in Louisville, Kentucky. National Processing's
principal executive offices are located at 1900 East Ninth Street, Cleveland,
Ohio 44114, and its telephone number is (800) 622-4204.
Bank of America Corporation
Bank of America Corporation is a bank holding company and a financial
holding company. Bank of America provides a diversified range of banking and
nonbanking financial services and products in 29 states and the District of
Columbia and in selected international markets. Bank of America's principal
executive offices are located at Bank of America Corporate Center, 100 N. Tryon
Street, Charlotte, North Carolina 28255, and its telephone number is (704)
386-8486.
Monarch Acquisition, Inc.
Monarch Acquisition, Inc., an Ohio corporation, is an indirect wholly
owned subsidiary of Bank of America formed solely for the purpose of effecting
the merger with National Processing. Monarch Acquisition has not conducted any
unrelated activities since its organization. Monarch Acquisition's principal
executive offices are located at Bank of America Corporate Center, 100 N. Tryon
Street, Charlotte, North Carolina 28255, and its telephone number is (704)
386-8486.
THE SPECIAL MEETING (PAGE 17)
We are furnishing this proxy statement to our shareholders as part of the
solicitation of proxies by our board of directors for use at the special
meeting.
Date, Time and Place. The special meeting of our shareholders will be held
at our principal executive offices, 1900 East Ninth Street, Cleveland, Ohio
44114, at 9:00 a.m., Eastern time, on October [ ], 2004.
Purpose. You will be asked to consider and vote upon a proposal to adopt
the Agreement and Plan of Merger, dated as of July 12, 2004, by and among Bank
of America, Monarch
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Acquisition and National Processing. The merger agreement provides that Monarch
Acquisition will merge into us, and we will become an indirect wholly owned
subsidiary of Bank of America. Each National Processing common share you own
will be converted into the right to receive $26.60 in cash, without interest.
However, you will have the right to demand appraisal rights and receive the
"fair value" of your shares as determined under Ohio law. Any National
Processing common shares held by us, Bank of America or Monarch Acquisition will
be canceled in the merger.
Record Date; Shareholders Entitled to Vote. You are entitled to vote at
the special meeting if you owned our common shares as of the close of business
on [ ], 2004, the record date for the special meeting. On the record date, there
were [ ] common shares entitled to vote at the special meeting, of which a total
of [ ] common shares (or % of the total outstanding) were held by National
Processing's directors and executive officers. You will have one vote on each
matter submitted to a vote at the special meeting for each National Processing
common share that you owned as of the close of business on the record date.
Voting and Revocability of Proxies. You should complete, date and sign the
accompanying proxy and promptly return it in the enclosed postage-paid return
envelope. Brokers or banks holding shares in "street name" may vote the shares
only if you provide instructions on how to vote. Brokers or banks will provide
you with directions on how to instruct the broker or bank to vote your shares.
All properly executed proxies that we receive prior to the vote at the special
meeting, and that are not revoked, will be voted in accordance with the
instructions indicated on the proxies. If no direction is indicated on a
properly executed proxy returned to us, the underlying shares will be voted
"FOR" the adoption of the merger agreement.
We do not expect any other business to come before the special meeting. If
other business properly comes before the special meeting or any adjournments or
postponements of the special meeting, including any adjournments or
postponements for the purpose of soliciting additional proxies to adopt the
merger agreement, the enclosed proxy card gives discretionary authority to the
persons named on the card to vote the National Processing common shares
represented by the card in their discretion.
You may revoke your proxy at any time prior to the vote at the special
meeting by delivering to National Processing's Secretary a signed notice of
revocation or a later-dated, signed proxy. In addition, you may revoke your
proxy by delivering to the chairman of the special meeting, on the day of the
special meeting, a signed notice of revocation or a later-dated signed proxy.
You also may revoke your proxy by attending the special meeting and voting in
person. Attendance at the special meeting will not, in and of itself, result in
the revocation of a proxy or cause shares to be voted.
Quorum. A quorum must be present to transact business at the special
meeting. A quorum will be present at the special meeting if a majority of all of
our common shares issued and outstanding on the record date and entitled to vote
at the special meeting are represented at the special meeting in person or by a
properly executed proxy. If you submit a properly executed proxy card, even if
you abstain from voting, your shares will be counted for purposes of
5
calculating whether a quorum is present at the special meeting. In the event
that a quorum is not present at the special meeting, it is expected that the
meeting will be adjourned or postponed to solicit additional proxies. National
City has agreed, pursuant to the terms of the shareholders agreement, to cause
all of the National Processing common shares it owns to be counted as present at
any shareholders meeting for the purpose of establishing a quorum.
Vote Required. Adoption of the merger agreement requires the affirmative
vote of holders of two-thirds of our common shares outstanding and entitled to
vote at the special meeting. National City, which owns approximately 83.2% of
our outstanding common shares as of the record date, has entered into a
shareholders agreement with Bank of America pursuant to which National City has
agreed to cause the common shares that it owns to be (i) counted as present at
the special meeting for the purpose of establishing a quorum and (ii) voted
against any other proposal for a merger, consolidation, reorganization or
similar transaction involving National Processing. Assuming that National City
votes the National Processing common shares it owns in favor of adoption of the
merger agreement, sufficient votes will be cast for adoption of the merger
agreement to ensure its passage without the vote of any other National
Processing shareholder. Nonetheless, we encourage you to vote on the adoption of
the merger agreement by completing, dating and signing the enclosed proxy card
and returning it in the enclosed postage-paid return envelope.
Effect of Abstentions and Broker Non-Votes. Both abstentions and "broker
non-votes" will be counted in determining whether a quorum is present at the
special meeting. Abstentions, "broker non-votes" and shares not in attendance
and not voted at the special meeting will have the same effect as a vote
"AGAINST" the proposal to adopt the merger agreement. It is very important that
ALL National Processing shareholders vote their shares, so please promptly
complete and return the enclosed proxy card.
Solicitation of Proxies and Expenses. We will bear the cost and expense
associated with the solicitation of proxies from our shareholders. In addition
to solicitation by mail, our directors, officers and employees may solicit
proxies from our shareholders by telephone, internet, facsimile, or other
electronic means or in person. Brokerage houses, nominees, fiduciaries and other
custodians will be requested to forward soliciting materials to beneficial
owners and will be reimbursed for their reasonable expenses incurred in sending
proxy materials to beneficial owners.
[ ] will assist in our solicitation of proxies. We will pay [ ] a fee of
$[ ], plus reimbursement of certain out-of-pocket expenses, and will indemnify
[ ] against any losses arising out of its proxy solicitation services on our
behalf.
SHAREHOLDERS SHOULD NOT SEND SHARE CERTIFICATES WITH THEIR PROXIES. A
transmittal form with instructions for the surrender of certificates
representing common shares will be mailed to shareholders shortly after
completion of the merger.
6
BOARD RECOMMENDATION (PAGE 34)
National Processing's board of directors has unanimously approved the
merger agreement and unanimously recommends that National Processing's
shareholders vote "FOR" the adoption of the merger agreement.
Some directors and executive officers of National Processing have
interests in the merger that differ from or are in addition to those of
shareholders of National Processing generally. See "The Merger - Interests of
National Processing Directors and Executive Officers in the Merger" on page 43.
7
THE MERGER AND THE MERGER AGREEMENT (PAGES 21 & 53)
The rights and obligations of the parties to the merger agreement are
governed by the specific terms and conditions of the merger agreement and not by
any summary or other information in this proxy statement. Therefore, the
information in this proxy statement regarding the merger agreement and the
merger is qualified in its entirety by reference to the merger agreement, a copy
of which is attached as Annex A to this proxy statement.
Structure of the merger
At the effective time of the merger, Monarch Acquisition, an indirect
wholly owned subsidiary of Bank of America, will be merged with and into
National Processing. National Processing will continue as the surviving
corporation and become an indirect wholly owned subsidiary of Bank of America.
National Processing common shares
At the closing of the merger, each of your National Processing common
shares will be converted into the right to receive $26.60 in cash, without
interest.
National Processing stock options and restricted stock
In connection with the merger, our board of directors will take any action
necessary to make sure that each option to purchase National Processing common
shares outstanding immediately prior to the completion time of the merger will
become fully vested and will be converted into the right to receive the excess,
if any, of $26.60 over the sum of (1) the exercise price per share of the stock
option and (2) any applicable withholding tax, multiplied by the number of
common shares subject to the stock option. In addition, each National Processing
common share subject to a transfer restriction or risk of forfeiture that is
outstanding immediately prior to the completion of the merger will be converted
into the right to receive $26.60 in cash, without interest.
Opinion of financial advisor
In connection with National Processing's consideration of the merger,
National Processing received financial advice from Morgan Stanley & Co.
Incorporated. Morgan Stanley has provided its opinion dated July 12, 2004 to
National Processing's board of directors that, as of that date and subject to
the qualifications and limitations and based on the considerations in its
opinion, the merger consideration to be received by the holders of National
Processing common shares is fair from a financial point of view to the holders
of National Processing common shares other than National City.
The full text of the written opinion of Morgan Stanley, dated July 12,
2004, is attached as Annex C to this proxy statement. For a description of the
opinion, see "The Merger -- Opinion and Summary of Financial Analyses of Our
Financial Advisor" on page 34. Morgan Stanley provided its opinion for the
information and assistance of National Processing's board of directors in
connection with its consideration of the merger. The Morgan Stanley opinion is
not
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a recommendation as to how any holder of National Processing common shares
should vote with respect to the merger.
Conditions to the merger
A number of conditions must be satisfied before the merger can be
completed. These include:
- the receipt of the approval of National Processing shareholders
adopting the merger agreement, and evidence that holders of less
than 10% of National Processing's outstanding common shares are
eligible to effectively assert dissenters' rights;
- the receipt of any consents or approvals of any governmental entity
required to consummate the merger, if the failure to receive the
consent or approval is reasonably expected to materially impair the
ability of the parties to consummate the merger;
- the expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (see "The
Merger -- Governmental and Regulatory Matters" on page 47);
- the absence of any legal restraints or prohibitions preventing the
consummation of the merger;
- the accuracy of the representations and warranties of each party
contained in the merger agreement, except for any inaccuracies that
would not reasonably be expected to result in a material adverse
effect on such party; and
- the performance in all material respects of all of the obligations
of the parties contained in the merger agreement.
In addition, the obligation of Bank of America to effect the merger is
subject to the satisfaction or waiver of the following conditions:
- National Processing having obtained required consents from third
parties under certain material contracts;
- execution of certain commercial agreements between National City and
its affiliates, on the one hand, and Bank of America and National
Processing, on the other hand;
- the receipt of consents and releases from various third parties; and
- no third-party claim, litigation or proceeding seeking an
injunction, order or decree or similar legal adjudication seeking to
limit Bank of America's or its subsidiaries' business activities as
a result of the merger will be in effect.
9
Either Bank of America or National Processing may waive conditions for the
benefit of itself and its stockholders or shareholders, as applicable, and
complete the merger even though one or more of these conditions have not been
met. Bank of America and National Processing cannot give any assurance that all
of the conditions will be satisfied or waived or that the merger will occur.
Termination of the merger agreement
Bank of America and National Processing may mutually agree at any time
before the effective time of the merger to terminate the merger agreement. Also,
either party may terminate the merger agreement, without the consent of the
other, before the effective time of the merger if:
- the merger is not consummated on or before November 30, 2004,
provided that the terminating party is not in breach of the merger
agreement;
- National Processing shareholders fail to adopt the merger agreement
at the special meeting;
- any final and nonappealable order of any court or governmental
entity prohibits the merger;
- any condition to the obligation of the terminating party to effect
the merger is not capable of being satisfied prior to the
termination date;
- National Processing's board of directors has withdrawn, modified or
qualified in any manner adverse to Bank of America its
recommendation that the National Processing shareholders adopt the
merger agreement; or
- in the case of Bank of America, the occurrence of a material adverse
change with respect to National Processing.
Termination fee
A termination fee of $50,000,000 is payable by National Processing to Bank
of America in the event that (i) National Processing's board of directors
withdraws, modifies or qualifies its recommendation that National Processing
shareholders adopt the merger agreement and National Processing terminates the
merger agreement or (ii) National Processing fails to hold the special meeting
by November 19, 2004, and Bank of America terminates the merger agreement
because any condition to the obligation of both parties to effect the merger, or
any condition to the obligation of Bank of America to effect the merger, is not
capable of being satisfied by November 30, 2004.
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No Solicitation
The merger agreement provides that we will not, nor will we authorize or
permit any of our subsidiaries or our or their directors, officers, or employees
or any investment banker, attorney, accountant or other representative retained
by us or any of our subsidiaries to, directly or indirectly:
- initiate, solicit or knowingly encourage the making of any
acquisition proposal; or
- participate in any discussions or negotiations regarding, or furnish
to any person any information, or otherwise knowingly encourage the
making of an acquisition proposal.
The merger agreement provides that if at any time prior to the time that
our shareholders adopt the merger agreement we receive a bona fide written
acquisition proposal, we may, if our board of directors determines that it is
reasonably likely to be necessary to do so in order to comply with its fiduciary
duties under applicable law:
- furnish information about us to the person making such acquisition
proposal, provided that such acquisition proposal constitutes, or is
reasonably likely to result in, a transaction more favorable to our
shareholders, from a financial point of view, than the merger;
- participate in discussions or negotiations regarding such
acquisition proposal, provided that such acquisition proposal
constitutes, or is reasonably likely to result in, a transaction
more favorable to our shareholders, from a financial point of view,
than the merger; or
- recommend such acquisition proposal to our shareholders if our board
of directors determines that such acquisition proposal would be more
favorable to our shareholders, from a financial point of view, than
the merger.
Governmental Clearance
The merger is subject to clearance under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976. See "The Merger -- Governmental and Regulatory
Matters."
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES (PAGE 48)
For United States federal income tax purposes, generally you will
recognize a taxable gain or loss as a result of the merger measured by the
difference, if any, between $26.60 per share and your adjusted tax basis in that
share.
You should read "The Merger - Material United States Federal Income Tax
Consequences" beginning on page 48 for a more complete discussion of the
federal income tax consequences of the merger. Tax matters can be complicated
and the tax consequences of the merger to you will depend on your particular tax
situation. We urge you to consult your tax advisor to fully understand the tax
consequences of the merger to you.
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ACCOUNTING TREATMENT (PAGE 52)
The merger will be accounted for as a "purchase" for financial accounting
purposes.
INTERESTS OF NATIONAL PROCESSING DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER
(PAGE 43)
In considering the recommendation of National Processing's board of
directors with respect to the merger, National Processing shareholders should be
aware that some of our directors and executive officers have interests in the
merger that are different from, or are in addition to, the interests of our
shareholders generally, including those listed below:
- Outstanding options to acquire National Processing common shares,
including those that are held by National Processing's directors and
executive officers, will be canceled in exchange for a cash payment
specified in the merger agreement. Based upon the options to
purchase National Processing common shares outstanding as of July
27, 2004, the aggregate amount of the cash payment, before
withholding of applicable taxes, expected to be payable to National
Processing's directors and executive officers in respect of such
options is $3,357,180.
- The vesting of National Processing common shares held by National
Processing's executive officers that are subject to restrictions on
transfer or risk of forfeiture will be accelerated. Such shares will
be converted at the effective time of the merger into the right to
receive the merger consideration without restriction on transfer or
risk of forfeiture. The aggregate number of restricted National
Processing common shares held by the executive officers as of July
27, 2004 is 64,000.
- National Processing has entered into severance agreements with
certain executive officers which provide severance and other
benefits if the executive officers' employment with National
Processing is terminated after the merger under specified
conditions. The aggregate amount of the cash benefits that would be
payable to such executive officers if their employment was
terminated after completion of the merger under qualifying
circumstances would be $2,681,388.
DISSENTERS' APPRAISAL RIGHTS OF NATIONAL PROCESSING SHAREHOLDERS (PAGE 49)
Under Ohio law, if the merger agreement is adopted by the National
Processing shareholders, any National Processing shareholder that objects to the
merger agreement may be entitled to seek relief as a dissenting shareholder
under Section 1701.85 of the Ohio Revised Code. To perfect dissenters' rights, a
record holder must:
- not vote his or her National Processing common shares in favor of
the proposal to adopt the merger agreement at the special meeting;
- deliver a written demand for payment of the fair cash value of his
or her National Processing common shares on or before the tenth day
following the special meeting; and
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- otherwise comply with the statute.
We will not notify shareholders of the expiration of this ten -day period.
National Processing common shares held by any person who desires to dissent but
fails to perfect or who effectively withdraws or loses the right to dissent
under Section 1701.85 of the Ohio Revised Code will be converted into, as of the
effective time of the merger, the right to receive the $26.60 per share merger
consideration. Copies of Sections 1701.84 and 1701.85 of the Ohio Revised Code
are attached as Annex D to this proxy statement. See "The Merger - Dissenters'
Appraisal Rights of National Processing Shareholders."
THE PAYING AGENT
[ ] or another comparable institution will act as the paying agent in
connection with the merger.
THE SHAREHOLDERS AGREEMENT (PAGE 70)
In connection with the merger agreement, National City, which owns
approximately 83.2% of our issued and outstanding common shares as of the close
of business on the record date, entered into a shareholders agreement with Bank
of America. Under the terms of the shareholders agreement, National City has
agreed to:
- cause the National Processing common shares it owns to be counted as
present for the purpose of establishing a quorum at any National
Processing shareholder meeting held to consider the merger;
- vote the National Processing common shares it owns against any
action that would (i) cause National Processing to breach the terms
of the merger agreement or (ii) postpone or delay any National
Processing shareholder meeting held to consider the merger; and
- vote the National Processing common shares it owns against any other
merger, consolidation, reorganization, sale or transfer of material
assets or recapitalization of National Processing.
Pursuant to the shareholders agreement, National City has agreed to pay
Bank of America a $50,000,000 termination fee in the event that National City
does not vote the National Processing common shares it owns in favor of adoption
of the merger agreement. See "The Shareholders Agreement - Termination and
Termination Fee."
CERTAIN OTHER AGREEMENTS
Pursuant to, and simultaneously with the execution of, the merger
agreement, National City and certain of its affiliates entered into, or agreed
to enter into, the following agreements with us and Bank of America.
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Service and Sponsorship Agreement
National Processing and National City Bank of Kentucky ("NCBK"), a
subsidiary of National City, are parties to a sponsorship agreement entered into
on June 30, 1996. The sponsorship agreement provides, among other things, that
National Processing will indemnify NCBK against certain losses and claims,
including chargebacks for airline tickets that have been purchased pursuant to
the Charge Card Processing Agreement dated as of November 15, 2000, by and among
National Processing Company (a subsidiary of National Processing), NCBK and
United Air Lines, Inc. (the "UAL Contract").
In connection with the merger, National Processing and NCBK entered into a
Service and Sponsorship Agreement dated July 12, 2004, effective upon closing of
the merger, with respect to the UAL Contract. Pursuant to this Service and
Sponsorship Agreement, Bank of America through National Processing has agreed to
make a one-time payment of $36 million to NCBK in exchange for NCBK's agreement
to release National Processing from its obligation under the sponsorship
agreement to indemnify NCBK against any losses or claims to the extent related
to or arising from the UAL Contract. National City has also agreed, pursuant to
the Shareholders Agreement, to assume National Processing's obligations and
potential liabilities under, and to indemnify Bank of America for losses related
to, the UAL Contract.
In addition, the Service and Sponsorship Agreement provides that National
Processing will pay NCBK processing fees for NCBK's settlement of United Air
Lines transactions services less National Processing's actual costs in providing
certain services to United Air Lines. NCBK will have the opportunity to earn a
profit of approximately $1 million under the Service and Sponsorship Agreement
over the term of that agreement.
Master Referral Agreement
National City and Bank of America entered into a master referral agreement
dated July 12, 2004, effective upon closing of the merger, pursuant to which
National City is eligible to receive fees from Bank of America based on National
City's and its affiliates' use of Bank of America's merchant services. National
City and its affiliates are also eligible to receive fees in the event that
their respective business customers utilize Bank of America's merchant services.
National City and its affiliates have agreed to refer their customers'
processing business through National Processing. The fees National City is
eligible to receive are customary for agreements of this type.
Transition Services Agreement
In connection with the merger, National City and National Processing will
enter into a transition services agreement, pursuant to which National City or
its affiliates will provide, at cost for an initial term, certain services to
National Processing following the completion of the merger with respect to
information technology and human resources.
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FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
Certain statements and assumptions in this proxy statement are based on
"forward-looking" information and involve risks and uncertainties. We believe
that such statements are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements include those
that may predict, forecast, indicate or imply future results, performance or
achievements. These statements are subject to numerous risks, assumptions and
uncertainties that could cause actual results, performance or achievements to
differ materially from those suggested by our forward-looking statements.
Although we believe that the assumptions on which our forward-looking statements
are based are reasonable, any of those assumptions could prove to be inaccurate,
and, as a result, the forward-looking statements could be incorrect. Such risks
and uncertainties include our inability to complete the merger and the other
risks and factors identified from time to time in reports we file with the
Securities and Exchange Commission (the "SEC").
Words such as "anticipates," "believes," "estimates," "expects,"
"intends," "plans," "hopes," "targets" or similar expressions are intended to
identify forward-looking statements, which speak only as to the date of this
proxy statement. It is not possible to predict all risk factors or to estimate
the impact of these factors. Accordingly, shareholders should not place undue
reliance on our forward-looking statements. We do not undertake any obligation
to update or release any revisions to any forward-looking statements or to
report any events or circumstances after the date of this proxy statement or to
reflect the occurrence of unanticipated events, except as required by law.
All information contained in this proxy statement with respect to Bank of
America and Monarch Acquisition has been supplied by Bank of America.
15
THE COMPANIES
NATIONAL PROCESSING, INC.
When we refer to "we," "us," "our," and "the company" in this proxy
statement, we are referring to National Processing, Inc. and its subsidiaries
taken as a whole, unless the context requires otherwise.
We are providers of electronic payment processing services. We were
incorporated in 1996 as an Ohio corporation and, as of the record date, are
83.2% owned by National City, a financial holding company headquartered in
Cleveland, Ohio. Our primary operating subsidiary, National Processing Company,
LLC, is located in Louisville, Kentucky. As of June 30, 2004, we had
approximately 1,600 full-time and part-time employees. We lease our main
processing facility in Louisville, Kentucky, consisting of approximately 224,000
square feet. We lease a portion of this facility from National City Bank of
Kentucky, a wholly owned subsidiary of National City. We also have 18 marketing
and sales offices located throughout the United States. National Processing's
principal executive offices are located at 1900 East Ninth Street, Cleveland,
Ohio 44114, and its telephone number is (800) 622-4204.
Additional information about National Processing and its subsidiaries is
contained in its filings with the SEC. See "Additional Information."
BANK OF AMERICA CORPORATION
Bank of America Corporation is a Delaware corporation, a bank holding
company and a financial holding company. It provides a diversified range of
banking and nonbanking financial services and products in 29 states and the
District of Columbia and in selected international markets. Bank of America
provides services and products through four business segments: (1) Consumer and
Small Business Banking, (2) Commercial Banking, (3) Wealth and Investment
Management, and (4) Global Corporate and Investment Banking. Effective April 1,
2004, FleetBoston Financial Corporation, or "FleetBoston," merged with and into
Bank of America and Bank of America was the surviving corporation in the
transition. Following the FleetBoston merger, the principal banking subsidiaries
of Bank of America are Bank of America, NA and Fleet National Bank. The
principal executive offices of Bank of America are located in the Bank of
America Corporate Center, 100 N. Tryon Street, Charlotte, North Carolina 28255,
and its telephone number is (704) 386-8486.
MONARCH ACQUISITION, INC.
Monarch Acquisition, Inc. is an indirect wholly owned subsidiary of Bank
of America Corporation. Monarch Acquisition is an Ohio corporation that was
formed solely for the purpose of facilitating the merger and has not conducted
any unrelated activities since its organization. The address of its principal
executive offices is Bank of America Corporate Center, 100 N. Tryon Street,
Charlotte, North Carolina 28255, and its telephone number is (704) 386-8486.
16
THE SPECIAL MEETING
We are furnishing this proxy statement to our shareholders as part of the
solicitation of the enclosed proxy card by our board of directors for use at the
special meeting in connection with the proposed merger. This proxy statement
provides National Processing shareholders with the information they need to know
to be able to vote or instruct their vote to be cast at the special meeting.
DATE, TIME AND PLACE
We will hold the special meeting on October [ ], 2004 at 9:00 a.m.,
Eastern time at our principal executive offices, 1900 East Ninth Street,
Cleveland, Ohio 44114.
PURPOSE OF THE SPECIAL MEETING
At the special meeting, National Processing shareholders will consider and
vote upon a proposal to adopt the merger agreement. The merger agreement
provides that Monarch Acquisition will merge into us, and we will become an
indirect wholly owned subsidiary of Bank of America. Each National Processing
common share you own will be converted into the right to receive $26.60 in cash,
without interest. National Processing's board of directors unanimously
recommends that holders of National Processing common shares vote and instruct
their votes be cast "FOR" the proposal to adopt the merger agreement. Some
directors and executive officers of National Processing have interests in the
merger that are in addition to or differ from those of shareholders of National
Processing generally. See "The Merger -- Interests of National Processing
Directors and Executive Officers in the Merger."
RECORD DATE; SHAREHOLDERS ENTITLED TO VOTE
The record date for the special meeting is [ ], 2004. Record holders of
National Processing common shares at the close of business on the record date
are entitled to vote or have their votes cast at the special meeting. On the
record date, there were outstanding [ ] National Processing common shares
entitled to cast votes at the special meeting, of which a total of [ ] common
shares, or [ ]% of the total outstanding, were held by National Processing's
directors and executive officers. On the record date, 44,365,400 National
Processing common shares, or approximately 83.2% of the outstanding National
Processing common shares, were owned by National City. Accordingly, National
City can adopt the merger agreement without the vote of any other shareholder.
See " -- Shareholder Vote Required to Adopt the Merger Agreement." Shareholders
will have one vote on each matter submitted to a vote at the special meeting for
each National Processing common share they owned on the record date.
VOTING
National Processing shareholders are requested to complete, date and sign
the enclosed proxy card and promptly return it in the enclosed postage-paid
return envelope. There are two ways to vote National Processing common shares at
the special meeting:
17
- National Processing shareholders can vote by signing and returning
the enclosed proxy card. If a holder votes by proxy card, the
"proxy" (one of the individuals named on the proxy card) will vote
the holder's shares as the holder instructs on the proxy card. If a
holder signs and returns the proxy card but does not give
instructions on how to vote the shares, the shares will be voted as
recommended by National Processing's board of directors "FOR" the
proposal to adopt the merger agreement; or
- National Processing shareholders can attend the special meeting and
vote in person. We will give each shareholder a ballot when he or
she arrives at the special meeting. National Processing shareholders
who are beneficial owners of shares held in "street name" by a
broker, trustee or bank or other nominee holder on behalf of such
shareholder may vote in person at the meeting by obtaining a proxy
from the nominee holding the National Processing shares.
If a holder does not vote his or her National Processing common shares in
any of the ways described above, it will have the same effect as a vote
"AGAINST" the proposal to adopt the merger agreement.
If you have any questions about how to vote or direct a vote in respect of
your National Processing common shares, you may contact National Processing's
Investor Relations Department by phone at (800) 622-4204 or by submitting a
question to: investor.relations@nationalcity.com.
REVOCATION OF PROXIES
Any proxy given by a National Processing shareholder may be revoked at any
time before it is voted at the special meeting by doing any of the following:
- delivering a written notice bearing a date later than the date of
the first proxy to National Processing's corporate secretary stating
that the first proxy is revoked;
- signing and delivering a proxy card relating to the same shares and
bearing a later date than the date of the previous proxy; or
- attending the special meeting and revoking the proxy in open
meeting.
QUORUM
A quorum must be present to transact business at the special meeting. A
quorum will be present at the special meeting if a majority of all of our common
shares issued and outstanding on the record date and entitled to vote at the
special meeting are represented at the special meeting in person or by a
properly executed proxy. If you submit a properly executed proxy card, even if
you abstain from voting, your shares will be counted for purposes of calculating
whether a quorum is present at the special meeting. As of the record date, [ ]
National Processing common shares were outstanding.
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If a quorum is not present at the special meeting, it is expected that the
meeting will be adjourned or postponed to solicit additional proxies. If a new
record date is set for the adjourned meeting, however, then a new quorum would
have to be established. National City has agreed pursuant to the shareholders
agreement to (i) cause all of the National Processing common shares it owns to
be counted as present at any shareholders' meeting for the purpose of
establishing a quorum and (ii) vote all of the National Processing common shares
it owns against any adjournment or postponement of the special meeting.
SHAREHOLDER VOTE REQUIRED TO ADOPT THE MERGER AGREEMENT
Adoption of the merger agreement requires the affirmative vote of holders
of two-thirds of our common shares outstanding and entitled to vote at the
special meeting. National City, which owns approximately 83.2% of our
outstanding common shares as of the record date, has entered into a shareholders
agreement with Bank of America pursuant to which National City has agreed to
cause the common shares that it owns to be (i) counted as present at the special
meeting for the purpose of establishing a quorum and (ii) voted against any
other proposal for a merger, consolidation, reorganization or similar
transaction involving National Processing. Assuming that National City votes the
National Processing common shares it owns in favor of adoption of the merger
agreement, sufficient votes will be cast for adoption of the merger agreement to
ensure its passage without the vote of any other National Processing
shareholder. If a National Processing shareholder abstains from voting or does
not vote, either in person or by proxy, it will have the same effect as a vote
"AGAINST" the proposal to adopt the merger agreement. If a broker holds a
shareholder's National Processing common shares in its name and the shareholder
does not give the broker voting instructions, under the rules of the New York
Stock Exchange, the broker may not vote the shares on the proposal to adopt the
merger agreement. If a shareholder does not give a broker voting instructions
and the broker does not vote the shares, this is referred to as a "broker
non-vote." An abstention occurs when a shareholder attends the special meeting,
either in person or by proxy, but abstains from voting or does not vote.
Abstentions, broker non-votes and shares not present and not voted at the
special meeting have the same effect as a vote "AGAINST" the proposal to adopt
the merger agreement.
SOLICITATION COSTS
National Processing is soliciting the enclosed proxy card on behalf of
National Processing's board of directors. In addition to solicitation by mail,
our directors, officers and employees may solicit proxies in person, by
telephone or by electronic means. These persons will not be paid for doing this.
National Processing has retained [ ] to assist in the solicitation
process. National Processing will pay [ ] a fee of $[ ] plus reimbursement of
out-of-pocket costs and expenses. National Processing also has agreed to
indemnify [ ] against various liabilities and expenses that relate to or arise
out of [ ] solicitation of proxies.
National Processing will ask banks, brokers and other custodians, nominees
and fiduciaries to forward our proxy solicitation materials to the beneficial
owners of the National Processing common shares held of record by such nominee
holders. National Processing will
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reimburse these nominee holders for their customary clerical and mailing
expenses incurred in forwarding the proxy solicitation materials to the
beneficial owners.
EXCHANGE OF SHARE CERTIFICATES
Holders of National Processing common shares should not send share
certificates or account statements with their proxies. Separate transmittal
documents for the surrender of National Processing common share certificates in
exchange for the $26.60 per share in cash merger consideration will be mailed to
holders of National Processing common shares after the merger is completed. See
"The Merger Agreement -- Payment for Shares."
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THE MERGER
The discussion in this proxy statement of the merger, the principal terms
of the merger agreement and the shareholders agreement is subject to, and is
qualified in its entirety by reference to, the merger agreement and the
shareholders agreement, as applicable, copies of which are attached to this
proxy statement as Annex A and Annex B. You should read carefully the merger
agreement and the shareholders agreement.
BACKGROUND OF THE MERGER
In 1996, National City, which then owned 100% of National Processing,
decided to separate National Processing from National City to enhance the focus
of the business and achieve equity-based compensation arrangements critical to
attracting, retaining and motivating key employees. Proceeds from the sale of
National Processing's common shares to the public provided additional capital
for investment in National Processing's processing business. In August 1996,
National Processing completed its initial public offering at $16.50 per share.
In 1999, National City considered acquiring the publicly traded shares
outstanding of National Processing, and commenced a tender offer on June 28,
1999 to acquire the shares at $9.50 per share. The tender offer was unsuccessful
and National City let the offer expire.
On September 30, 2002, National Processing's board of directors named Jon
Gorney as National Processing's chairman and chief executive officer. Mr. Gorney
replaced Thomas A. Wimsett, formerly chief executive officer and president, who
resigned from National Processing.
Since going public, the board of directors of National Processing, as part
of its ongoing oversight and planning, has from time to time considered various
financial and other alternatives that might be available to address operational
issues and increase the value of National Processing to all of its shareholders.
Beginning in May 2003, National Processing's board of directors explored
a number of strategic alternatives designed to enhance shareholder value such
as:
- a number of operational restructuring alternatives;
- potential joint ventures; and
- acquisition, partnership and merger opportunities with participants
in the merchant processing industry.
In early March 2004, National Processing's board of directors decided to
pursue a potential sale of National Processing to a third party and continued
the evaluation of possible corporate restructurings in the event a sale of
National Processing was not effected. On March 11, 2004, National Processing
contacted Morgan Stanley to discuss exploring a potential sale of National
Processing.
On March 16, 2004, select members of the Management Team (defined below)
and National Processing's board of directors met with representatives of Morgan
Stanley to discuss a variety of issues relating to a sale process, including
timing, potential interested parties, due
21
diligence, confidentiality of the process, employee retention and other matters.
Representatives of Morgan Stanley presented a preliminary list of parties likely
to be interested in an acquisition of National Processing. After the meeting,
representatives of the Management Team contacted National Processing's legal
counsel, Jones Day, to advise them of the actions being taken in anticipation of
the sale process.
On March 19, 2004, representatives of Morgan Stanley and Jones Day
separately met with Jon Gorney, Chairman and Chief Executive Officer of National
Processing, and the three independent National Processing directors to further
discuss the process related to a potential sale of National Processing.
On March 20, 2004, Aureliano Gonzalez-Baz, Preston B. Heller, Jr. and
Jeffrey P. Gotschall, National Processing's independent directors, decided to
retain separate counsel because of the possibility of conflict between National
City, National Processing's majority shareholder, and National Processing's
minority shareholders in connection with a potential sale of National
Processing.
On March 20, 2004, National Processing's independent directors retained
the law firm of Baker & Botts, LLP, in connection with the potential sale of
National Processing. Baker & Botts had previously represented a committee of
National Processing's independent directors in 1999 in connection with National
City's tender offer for National Processing's publicly traded outstanding
shares.
On March 23, 2004, National Processing's management team, consisting of:
Mr. Gorney; Mark Pyke, Chief Operating Officer; David Fountain, Chief Financial
Officer; Kelly Lanham, Chief Accounting Officer and Controller; Eric Barth,
Senior Vice President; Sonny Martin, Executive Vice President; and Steve Cory,
Executive Vice President (collectively, the "Management Team"), met with
representatives of Morgan Stanley in Louisville for an introductory meeting and
due diligence session. Representatives of National City's corporate planning
division also attended the meeting. The Management Team provided Morgan Stanley
with extensive due diligence materials in order to further assist Morgan Stanley
in its analysis of National Processing and preparation for the potential sale
process. Following this meeting, representatives of the Management Team, with
the assistance of representatives of Morgan Stanley, began to draft a
confidential information memorandum for distribution to potential acquirers in
connection with the potential sale process.
During the week of March 29, 2004 and first two weeks of April 2004,
representatives of the Management Team, Jones Day and Morgan Stanley engaged in
a number of conference calls and meetings to continue due diligence and further
drafting of the confidential information memorandum.
In mid-April 2004, National Processing instructed representatives of
Morgan Stanley to prepare to contact a number of potential purchasers in order
to commence an auction for the sale of National Processing to a third party. The
companies selected to be contacted were chosen by representatives of the
Management Team, in consultation with Morgan Stanley and National Processing's
board of directors. The parties generated a list of 12 potential purchasers
meeting criteria which included: perceived strategic interest or overlap in the
22
merchant processing sector, financial wherewithal, ability to consummate an
acquisition in a timely fashion and perceived ability to maintain
confidentiality.
On April 19, 2004, National Processing announced its first quarter
financial results. During the week of April 19, 2004, representatives of Morgan
Stanley placed calls to each of the 12 potential buyers (including Bank of
America) in order to determine their respective levels of interest in a possible
acquisition of National Processing. Of the 12 potential buyers Morgan Stanley
initially contacted, nine expressed an interest in receiving information about,
and pursuing a review of a possible acquisition of, National Processing. On
April 20, 2004, representatives of Morgan Stanley furnished Bank of America a
customary confidentiality agreement and requested that such agreement be
executed and returned so that representatives of Morgan Stanley could provide
the confidential information memorandum to Bank of America in connection with
its preliminary evaluation of an acquisition of National Processing. In
addition, confidentiality agreements were furnished to the other eight parties
that expressed an interest in receiving information about National Processing.
Seven of the nine parties receiving confidentiality agreements executed them.
Two parties, after receiving a confidentiality agreement, determined not to
pursue a review of a possible acquisition of National Processing and were not
provided any additional information.
At a meeting of National City's board of directors held on April 27, 2004,
in Cleveland, Mr. Gorney provided the board with an update of the sale process
and actions taken as of that date.
On April 30, 2004, the seven parties that signed confidentiality
agreements were provided a copy of the confidential information memorandum,
which included information about National Processing's business operations,
technical capabilities, services shared with and provided by National City and
financial performance, including certain historical financial data and
management projections. See "-Certain Financial Information."
On May 4, 2004, National Processing's independent directors met informally
amongst themselves and with Mr. Gorney and representatives of Morgan Stanley in
Cleveland to discuss the sale process.
At a meeting of National Processing's board of directors held on May 5,
2004, in Cleveland, representatives of Morgan Stanley provided the board with an
update of the sale process and actions taken as of that date. Morgan Stanley
discussed, among other things, the degree of interest expressed by each of the
potential purchasers and the ability of those parties to consummate an
acquisition. Following the meeting, and at the board's request, representatives
of Morgan Stanley and the Management Team prepared for management presentations
to potential purchasers.
On May 5, 2004, representatives of Jones Day and Baker & Botts met with
Mr. Gonzalez-Baz, Mr. Heller, and Mr. Gotschall, National Processing's
independent directors, to discuss a variety of issues relating to the sale
process, including the independent directors' fiduciary duties, especially with
respect to the interests of National Processing's minority shareholders.
23
On May 7, 2004, Morgan Stanley sent a letter to each of the potential
purchasers requesting that such parties provide Morgan Stanley, not later than
May 26, 2004, written, non-binding preliminary indications of interest,
specifying the prices at which such parties believed they would be willing to
pursue an acquisition of National Processing, the legal and tax structure of the
deal, and certain steps required to be taken by such parties in order to
consummate an acquisition of National Processing.
In early May 2004, Morgan Stanley contacted the seven parties that had
executed confidentiality agreements and received the confidential information
memorandum to schedule meetings with representatives of the Management Team.
Beginning May 7, 2004, representatives of the Management Team held full-day
management presentations in New York and Louisville for four of the seven
potential purchasers that had received the confidential information memorandum.
Based on their review of the confidential information memorandum, three parties
believed that an acquisition of National Processing did not comport with their
strategic plans or believed it was not necessary to meet with management to
assess a potential acquisition of National Processing and, accordingly, decided
not to move further in the process and attend management presentations. On May
10, 2004, representatives of the Management Team held a full-day management
presentation in Louisville for Bank of America.
On May 10, 2004 National Processing formalized Morgan Stanley's engagement
executing a letter agreement hiring Morgan Stanley.
Throughout May 2004, representatives of Morgan Stanley, the Management
Team and Jones Day responded to questions presented by each of the potential
purchasers that attended the management presentations. During conversations with
representatives of Morgan Stanley in connection with the management
presentations, a number of the potential purchasers indicated that they would be
unwilling to consummate an acquisition of National Processing that included the
obligations and potential liabilities associated with the UAL Contract, and
expected National City to retain such obligations and potential liabilities or
provide indemnification in respect thereof. For a discussion of the UAL
Contract, see "The Shareholders Agreement-Indemnification" and "Certain Other
Agreements-Service and Sponsorship Agreement."
On May 19, 2004, National Processing's independent directors spoke by
teleconference to discuss the sale process.
By May 26, 2004, three companies (including Bank of America) gave
preliminary indications of interest based on the information they had received.
The fourth party subsequently gave its written indication on June 3, 2004. All
of the indications received highlighted a lack of willingness to assume the UAL
Contract. Bank of America's preliminary indication of interest was subject to a
number of conditions and contemplated an acquisition of National Processing for
$1 billion and the $296 million of National Processing's cash and cash
equivalents, which was equivalent to $24.18 in cash per National Processing
common share on a fully diluted basis. In addition, Bank of America's proposal
contemplated paying $100 million or the equivalent of $1.86 more per share of
consideration on a fully diluted basis if National City were to make an election
under Section 338(h)(10) of the Internal Revenue Code of 1986 to treat the
transaction,
24
for income tax purposes, as a sale of assets of National Processing and those of
its subsidiaries to which such election applied.
During the evening of May 26, 2004, Mr. Gorney and Jeffrey Kelly,
Executive Vice President and Chief Financial Officer of National City, discussed
the preliminary indications of interest with representatives of Morgan Stanley
at its offices in New York City.
On the afternoon of May 27, 2004, shortly after the close of trading on
the New York Stock Exchange, a news article speculating that National City was
pursuing a transaction to sell its majority stake in National Processing
appeared on Bloomberg News. Later that evening, National Processing issued a
press release acknowledging that it was pursuing various strategic alternatives,
including the potential sale of National Processing. The press release further
stated that National Processing could make no assurance that any transaction
would be consummated on terms acceptable to National Processing or its
shareholders or that a transaction would be at a premium to the market price for
National Processing's common shares as of May 27, 2004. The closing price for
National Processing's common shares on May 27, 2004 was $24.93 per share.
In early June 2004, Morgan Stanley received calls from 23 strategic and
financial potential purchasers inquiring about National Processing's May 27,
2004 press release. Morgan Stanley directed these callers to National
Processing's publicly available information and asked them to consider whether
an acquisition of National Processing would be feasible. After a number of
discussions, none of these parties expressed subsequent interest in discussing
with Morgan Stanley the value of National Processing's shares, structure of a
deal or financing required to consummate a possible acquisition of National
Processing.
At a meeting of National Processing's board of directors held on June 4,
2004, representatives of Morgan Stanley presented a status report with respect
to the four non-binding preliminary indications of interest received and the
sale process generally. In particular, representatives of Morgan Stanley
discussed the terms of the non-binding preliminary indications of interest
including price, form of consideration, conditions, tax issues, transaction
structure and other factors. Representatives of Morgan Stanley also updated the
board with respect to its discussions with the 23 parties who initiated contact
with Morgan Stanley following National Processing's May 27, 2004 press release.
After considering Morgan Stanley's report with respect to the non-binding
preliminary indications of interest received, National Processing's board of
directors decided to continue the sale process and instructed Morgan Stanley and
the Management Team to provide access to additional due diligence and a data
room.
Throughout early June 2004, Morgan Stanley continued to have discussions
with a number of potential purchasers, including the parties that submitted
non-binding preliminary indications of interest. None of these discussions were
as extensive as the discussions Morgan Stanley had with Bank of America.
Between June 14 and June 17, 2004, representatives of Bank of America
conducted extensive on-site due diligence at National Processing's data room in
Louisville. Bank of America's due diligence review included a series of
discussions with representatives of the
25
Management Team, Jones Day and Morgan Stanley and a review of documents
contained in the data room.
On June 14, 2004, Morgan Stanley circulated a draft merger agreement and
shareholders agreement, which had been prepared by Jones Day, to Bank of
America.
On June 24, 2004, following completion of due diligence, Bank of America
submitted a formal proposal, subject to a number of conditions, to acquire
National Processing for $1.095 billion and the $296 million of National
Processing's cash and cash equivalents, which was equivalent to $25.93 in cash
per National Processing common share on a fully diluted basis. In addition, Bank
of America's proposal contemplated paying $100 million or the equivalent of
$1.86 more per share of consideration on a fully diluted basis if National City
were to make an election under Section 338(h)(10) of the Internal Revenue Code
of 1986 to treat the transaction, for income tax purposes, as a sale of assets
of National Processing and those of its subsidiaries to which such election
applied. The Bank of America proposal, including the price per share, excluded
Bank of America's assumption of the obligations and any future or past
liabilities of National Processing or any of its subsidiaries relating to the
UAL Contract. Instead, Bank of America proposed that National City retain all of
the rights and obligations associated with the UAL Contract and provide Bank of
America indemnification in respect thereof, for which Bank of America proposed
compensating National City through a payment of $36 million. The proposal was
subject to additional conditions, including requirements for National City to
enter into non-competition and other agreements with Bank of America and other
significant changes to the terms of the proposed draft merger and shareholders
agreements.
From June 25 through July 7, 2004, representatives of the Management Team,
National City, Morgan Stanley and Bank of America spoke by teleconference to
discuss various aspects of Bank of America's formal proposal including, among
other things, price, the Section 338(h)(10) election and the assumption of the
contingent liabilities relating to the UAL Contract. National City expressed its
view that a Section 338(h)(10) election was not a desirable option for it unless
Bank of America were to increase the amount of additional consideration it was
willing to pay in order to make such an election. Bank of America indicated it
was not willing to increase the consideration beyond the $100 million value in
its proposal. With respect to the UAL Contract, Bank of America further
indicated that it would not acquire National Processing in any transaction that
required it to retain the obligations and any future or past liabilities related
to the UAL Contract.
On June 28, 2004, representatives of Morgan Stanley met with
representatives of the Management Team to further discuss the outstanding
issues. Morgan Stanley presented an analysis, prepared in conjunction with
National City's tax personnel and outside tax advisors, of the proceeds to be
received by National City relative to the cost that National City would incur as
a result of a Section 338(h)(10) election. This analysis indicated that the tax
cost to National City of a Section 338(h)(10) election substantially outweighed
what Bank of America was willing to pay National City to agree to undertake such
an election. National City's after-tax proceeds from the sale of its National
Processing common shares, assuming the terms of the Bank of America proposal,
were estimated to be greater without the 338(h)(10) election. In addition,
representatives of the Management Team and Morgan Stanley discussed the
potential exposure of National Processing with respect to contingent liabilities
relating to the UAL Contract.
At a meeting of National Processing's board of directors held on June 29,
2004, representatives of Morgan Stanley discussed the terms and conditions of
Bank of America's formal proposal. In particular, price, Bank of America's
position with respect to the assumption of liabilities associated with the UAL
Contract, and the Section 338(h)(10) election were fully discussed and
considered. Representatives of the Management Team and Jones Day also attended
the meeting. National Processing's board of directors also considered a number
of different transaction structures designed to mitigate National Processing's
exposure to future or past liabilities in respect of the UAL Contract. Among the
structures considered was the formation of an escrow trust, to be managed by an
independent trustee, which would hold the $36 million payment offered to
National City's subsidiary, NCBK, plus a portion of the purchase price in order
to provide a source of indemnification for National City in respect of any
liabilities related to the UAL Contract. National Processing's independent
directors decided against pursuing this structure. Rather than placing a portion
of the merger consideration in an escrow trust and, thereby, depriving National
Processing's shareholders of payment of the entire merger consideration at
closing, National Processing's independent directors favored Bank of America's
proposal to separately compensate National City through a $36 million payment in
exchange for National City's retention of the UAL Contract. National
Processing's board of directors determined, with the advice of its financial
advisors, to continue the sale process and move forward with negotiations with
Bank of America on an exclusive basis as Bank of America's proposal presented
the greatest opportunity to maximize value for National Processing's
shareholders. National Processing's board of directors instructed Morgan
Stanley, the Management Team and Jones Day to diligently work toward the
resolution of these issues and all other open issues by July 15, 2004. These
representatives did not propose or pursue an escrow trust structure with Bank
of America.
26
On July 1, 2004, National City, based on discussions with National
Processing's board of directors, its legal counsel and representatives of Morgan
Stanley regarding the terms of the proposed transaction with Bank of America,
decided to support the proposed transaction. As a result of this decision,
National City amended its Schedule 13D on file with the SEC with respect to
National Processing indicating that National Processing had authorized
management to commence discussions regarding a possible transaction pursuant to
which National Processing would be acquired by an unaffiliated third party.
National City further indicated that it would support a sale transaction but
that no assurance could be made that a transaction would be consummated on terms
mutually acceptable to National Processing, National City and the third party
acquirer.
On July 1, 2004, representatives of Bank of America, Morgan Stanley and
the Management Team agreed to pursue a merger without a Section 338(h)(10)
election, however, Bank of America maintained its position with respect to the
assumption of the UAL Contract liabilities. The parties continued to negotiate
the price of Bank of America's offer.
27
On July 2, 2004, representatives of National Processing and Jones Day, and
representatives of Bank of America and Helms Mulliss & Wicker PLLC, counsel to
Bank of America, began negotiating the terms of the merger agreement and the
shareholders agreement. Representatives of Bank of America, National City and
the Management Team also started to negotiate the terms of a number of
commercial agreements between National City and its subsidiaries, on the one
hand, and Bank of America and National Processing, on the other hand, to take
effect as of the closing of the merger. See "Certain Other Agreements." The
negotiations continued through July 12, 2004.
On July 9, 2004, following further negotiations, Bank of America offered a
price of $26.60 in cash per National Processing common share on a fully diluted
basis.
On July 9, 2004, National Processing's board of directors held a special
meeting to discuss and evaluate the proposed merger. During this meeting,
representatives from Jones Day, counsel to National Processing, discussed the
terms of the merger agreement, the shareholders agreement, the related
commercial agreements and the directors' fiduciary duties under Ohio law in
connection with the consideration of the proposed merger. Representatives of
Baker & Botts, counsel to the independent directors, were also in attendance.
National Processing's board of directors considered the terms of the various
commercial agreements between National City and its affiliates, on the one hand,
and Bank of America and National Processing, on the other hand, to become
effective upon the closing of the merger. In that regard, the board discussed
the financial terms of such commercial agreements, including the fact that
National City could earn a profit of approximately $1 million for services
provided pursuant to the Service and Sponsorship Agreement over the term of that
agreement. See "Certain Other Agreements." Morgan Stanley made a presentation to
the board of directors regarding its financial analyses of the proposed merger.
National Processing's board of directors further considered Bank of
America's proposal to separately compensate National City through a $36 million
payment in exchange for National City's retention of the UAL Contract, in
particular, the fact that (i) National City had historically provided credit
support to National Processing at no cost, including with respect to the credit
risk of approximately $900 million in value of unflown airline tickets under the
UAL Contract, (ii) Bank of America's willingness to consummate a transaction was
conditioned upon National City retaining the obligations under the UAL Contract,
(iii) no other potential purchaser of National Processing was willing to assume
the UAL Contract obligations, (iv) the $36 million payment represented an
arm's-length proposal by Bank of America, (v) the independent directors, after
consulting Baker & Botts, believed the $36 million payment to NCBK was
reasonable in relation to the magnitude of the potential liabilities National
City was retaining, and (vi) Morgan Stanley and members of the Management Team
advised the board they had contacted two large insurance carriers in order to
determine the premium National City would have to pay in order to obtain
insurance coverage for the potential past or future liabilities associated with
the UAL Contract and that the insurance carriers indicated that they would be
unwilling to provide insurance coverage for such potential liabilities at any
reasonable premium. Morgan Stanley further informed the board of directors that,
in the limited period of time between Bank of America's formal proposal and the
expected execution of the merger agreement, it had been unable to create or find
in the capital markets any financial product capable of adequately
28
hedging or mitigating the potential liabilities associated with the UAL
Contract, particularly in light of UAL's status in bankruptcy.
National Processing's board of directors engaged in further discussions
and deliberations regarding the proposed merger and related transactions. The
board of directors agreed to meet on July 12, 2004 to continue deliberations and
directed the Management Team and National Processing's financial and legal
advisors to negotiate the final terms of the transaction documents.
On July 12, 2004, National City's executive committee met to discuss the
terms of the proposed merger, the merger agreement, the shareholders agreement,
the related commercial agreements and the transactions contemplated thereby and
determined that it would be advisable for National City to support the proposed
merger.
On the afternoon of July 12, 2004, National Processing's board of
directors met to further consider the proposed merger and the terms of the
merger agreement, the shareholders agreement and the related commercial
agreements. Representatives of Morgan Stanley, Jones Day, counsel to National
Processing, and Baker & Botts, counsel to National Processing's independent
directors, were in attendance and updated the board of directors as to the
progress made over the previous weekend. Morgan Stanley also provided its oral
opinion to National Processing's board of directors to the effect that, as of
July 12, 2004, the consideration to be received by the National Processing
shareholders under the terms of the proposed merger agreement is fair from a
financial point of view to such shareholders other than National City. This
opinion was confirmed in a written opinion, dated July 12, 2004.
Following further deliberations by National Processing's board of
directors, National Processing's independent directors met separately to discuss
the terms of the proposed merger, the merger agreement, the shareholders
agreement, the related commercial agreements and the transactions contemplated
thereby, including the $36 million payment from Bank of America to NCBK and the
potential for National City to earn a profit of approximately $1 million under
the Service and Sponsorship Agreement over the term of that agreement. In
particular, National Processing's independent directors considered Morgan
Stanley's discussion of the absence of any insurance or financial products
available under the circumstances to mitigate the UAL Contract liabilities.
National Processing's independent directors approved the various commercial
agreements entered into by National Processing as part of the merger and
determined to recommend that the entire National Processing board of directors
approve the merger agreement and related transactions and recommend to National
Processing's shareholders that they vote for adoption of the merger agreement.
National Processing's independent directors determined that because the various
commercial agreements had been requested by Bank of America as a condition to
consummating a transaction, contained arm's-length terms with pricing provisions
at or below market rates and were an inducement to Bank of America to enter into
the merger agreement, such agreements and the merger were fair to and in the
best interests of all of National Processing's shareholders. Following National
Processing's independent directors' deliberations, they reconvened with the
entire National Processing board of directors. Upon the conclusion of its
deliberations and based on the reasons and considerations listed below in " --
National Processing's Considerations Relating to the Merger," National
Processing's board of directors unanimously voted to approve the merger
agreement and the transactions contemplated by the merger
29
agreement and related agreements, and resolved to recommend that National
Processing shareholders vote for the adoption of the merger agreement.
On July 12, 2004, the parties executed the merger agreement, the
shareholders agreement and related commercial agreements.
The execution of the merger agreement and related agreements was announced
by National Processing and Bank of America in a joint press release early in the
morning of July 13, 2004.
NATIONAL PROCESSING'S CONSIDERATIONS RELATING TO THE MERGER
During the course of reaching its decision to approve the merger and the
transactions contemplated by the merger agreement, our board of directors
considered a number of factors and consulted our senior management and outside
financial and legal advisors.
Our board of directors considered a number of potentially positive factors
in its deliberations, including, among other matters:
- discussions with our management regarding our business, financial
condition, competitive position, business strategy, strategic
options and prospects, as well as the risks involved in achieving
these prospects, the nature of our business and the industry in
which we compete, and current industry, economic and market
conditions, both on a historical and on a prospective basis, which
led our board of directors to conclude that the merger presented an
opportunity for National Processing's shareholders to realize
greater value than the value likely to be realized by shareholders
in the event we remained independent;
- our review of the possible alternatives to a sale of National
Processing, including the prospects of continuing to operate
National Processing, undertaking certain business restructuring
initiatives, or engaging in a corporate reorganization, the value to
shareholders of such alternatives and the timing and likelihood of
actually achieving additional value from these alternatives, and our
board's assessment that none of these options were reasonably likely
to create value for shareholders greater than the merger;
- that the merger was agreed to only after a lengthy "auction" process
pursuant to which twelve potential purchasers were contacted and 23
additional parties contacted our financial advisor, which process
included, for certain parties, management presentations, due
diligence sessions, and the submission of four non-binding
preliminary indications of interest;
- that the merger was agreed to by our board of directors only after
the issuance on May 27, 2004 by us of a press release regarding a
review of our strategic alternatives, significant publicity
concerning our review of strategic alternatives and the possibility
that we may be sold, and the passage of a significant period of time
between issuance of the press release and approval of the merger
agreement;
30
- the fact that no other offers to acquire National Processing were
made following our May 27, 2004 press release regarding our review
of strategic alternatives, other than offers from potential
purchasers involved in the auction process prior to such press
release;
- the current and historical market prices of our common shares
relative to the $26.60 per share merger consideration, and the fact
that $26.60 per share represented a 6.7% premium over the closing
price of our common shares on May 27, 2004, the last trading day
prior to a report on Bloomberg News that National Processing had
retained Morgan Stanley to consider a possible sale of National
Processing, and a 19.5% premium to the average closing price of our
common shares over the sixty-trading-day period up to and including
May 27, 2004;
- our assessment regarding whether our common share price was likely
to remain above the $26.60 per share merger consideration if the
merger was not consummated;
- the belief of our board of directors, after consulting with Morgan
Stanley and representatives of our Management Team regarding the
discussions and negotiations conducted with Bank of America, that we
have obtained the highest price per share that Bank of America is
willing to pay;
- our assessment as to the low likelihood that a third party would
offer a higher price than Bank of America;
- that our independent directors were requested by the full board of
directors to separately convene to consider the interests of the
minority shareholders in connection with the merger, the independent
directors retained separate legal counsel, the independent directors
met numerous times during the auction process to discuss the sale of
the company and Morgan Stanley was available during certain of those
meetings to answer questions of the independent directors;
- the fact that our independent directors separately considered the
terms of the merger, the merger agreement, the shareholders
agreement, the related commercial agreements and the transactions
contemplated thereby, including Bank of America's $36 million
payment to NCBK, a subsidiary of National City, in exchange for
National City's agreement to assume, and provide Bank of America
indemnification in respect of, National Processing's obligations and
potential liabilities related to the UAL Contract;
- the fact that following separate deliberations of our independent
directors, such directors approved the commercial agreements between
National Processing and National City, determined that such
commercial agreements and the merger were fair to and in the best
interests of all of the company's shareholders and recommended to
the rest of our board of directors that the merger agreement be
approved and recommended to National Processing's shareholders;
31
- the fact that the merger consideration consists entirely of cash,
which provides certainty of value to holders of our common shares
compared to a transaction in which shareholders receive stock or
other securities;
- the support for the merger expressed by our principal shareholder,
National City, as evidenced by the shareholders agreement;
- that, in order for Bank of America to enter into the merger
agreement, National City agreed to indemnify Bank of America with
respect to certain liabilities of National Processing, including any
and all past and future liabilities related to the UAL Contract,
including in particular a potential $900 million liability related
to refunds to customers of UAL, but that, as consideration for
National City agreeing to assume and indemnify for the UAL Contract,
Bank of America will pay NCBK, a subsidiary of National City, $36
million;
- the financial analyses of Morgan Stanley presented to our board of
directors on July 9, 2004, and the written opinion of Morgan Stanley
delivered on July 12, 2004 to our board of directors that, as of
July 12, 2004, based upon and subject to the matters set forth in
its opinion, the consideration to be received by holders of our
common shares pursuant to the merger agreement was fair, from a
financial point of view, to such holders other than National City;
- the terms of the merger agreement, as reviewed by our board of
directors with our legal advisors, including:
- sufficient operating flexibility for us to conduct our
business in the ordinary course between signing the
merger agreement and consummating the merger;
- the absence of a financing condition;
- our ability to furnish information to and conduct
negotiations with third parties under certain
circumstances, as more fully described in "The Merger
Agreement -No Solicitation"; and
- our ability to recommend a more favorable unsolicited
acquisition proposal to our shareholders and terminate
the merger agreement upon the payment of a $50,000,000
termination fee to Bank of America;
- Bank of America's financial capability and experience with
acquisitions to complete the merger; and
- the view of our board of directors, based upon the advice of senior
management after consultation with our legal counsel, that the
regulatory approvals necessary to complete the merger could be
obtained.
Our board of directors also considered a number of potentially negative
factors in its deliberations concerning the merger, including, but not limited
to:
32
- that we will no longer exist as a publicly traded company and our
shareholders will no longer participate in our growth;
- that the $26.60 per share merger consideration is less than the
closing price of $29.40 per common share on July 12, 2004, the last
trading day prior to the public announcement that we entered into
the merger agreement;
- that, in connection with the merger, National City has entered into
various commercial agreements with Bank of America and National
Processing, as the surviving corporation in the merger, on terms the
independent directors separately considered and determined were
arm's-length and that will provide certain customary fees to
National City with respect to such arrangements;
- that Bank of America will pay NCBK $36 million in exchange for
National City's agreement to assume National Processing's
obligations and potential liabilities related to the UAL Contract
and provide indemnification in respect thereof;
- that the per share merger consideration to be paid to all
shareholders of National Processing is lower than it could have been
had Bank of America and National City been able to arrive at a
valuation for the 338(h)(10) election that would have adequately
compensated National City for the tax costs it would have incurred
for making such election;
- that, under the terms of the merger agreement and the shareholders
agreement, neither we nor National City can solicit other
acquisition proposals, we must pay Bank of America a termination fee
if the merger agreement is terminated under certain circumstances,
and National City has agreed to vote approximately 83.2% of our
outstanding common shares against any other third party proposal for
a business combination with us, all of which may deter other parties
from proposing an alternative transaction that may be more
advantageous to our shareholders;
- the fact that gains from an all-cash transaction would generally be
taxable to our shareholders for United States federal income tax
purposes;
- that if the merger does not close, our employees will have expended
extensive efforts to attempt to complete the transaction and will
have experienced significant distractions from their work during the
pendency of the transaction;
- the conditions to Bank of America's obligation to complete the
merger and the right of Bank of America to terminate the merger
agreement under certain circumstances, including as a result of
actions taken by National City, see "The Merger Agreement --
Termination"; and
- risks and contingencies related to the announcement and pendency of
the merger, including the likely impact on customers and the
potential effect of the merger on existing relationships with third
parties.
33
During its consideration of the merger with Bank of America, our board of
directors was also aware that some of our directors and executive officers have
interests in the merger that are in addition to or differ from those of our
shareholders generally, as described in "The Merger - Interests of National
Processing Directors and Executive Officers in the Merger." Our board of
directors also considered the fact that National City, which owns approximately
83.2% of our outstanding common shares as of the record date, entered into
various commercial agreements with us and Bank of America in connection with the
merger and, as a result, has interests in the merger that are in addition to or
differ from those of our shareholders generally. See "Certain Other Agreements"
and "The Shareholders Agreement."
This summary is not meant to be an exhaustive description of the
information and factors considered by our board of directors but is believed to
address the material information and factors considered. In view of the wide
variety of factors considered by our board of directors, it is not possible to
quantify or to give relative weights to the various factors. After taking into
consideration all the factors set forth above, as well as other factors not
specifically described above, our board of directors unanimously approved the
merger agreement and the transactions contemplated by the merger agreement
because of its assessment that the merger is advisable to, and in the best
interests of, our shareholders.
The foregoing discussion of National Processing's board of directors'
considerations relating to the merger is forward-looking in nature. This
information should be read in light of the factors discussed under the heading
"Forward-Looking Statements May Prove Inaccurate."
RECOMMENDATION OF NATIONAL PROCESSING'S BOARD OF DIRECTORS
At its meeting on July 12, 2004, after due consideration, National
Processing's board of directors unanimously approved the merger agreement and
unanimously recommends that National Processing shareholders vote "FOR" the
adoption of the merger agreement.
OPINION AND SUMMARY OF ANALYSES OF OUR FINANCIAL ADVISOR
Pursuant to a letter agreement dated as of May 10, 2004 (the "Engagement
Letter"), we retained Morgan Stanley to provide financial advisory services and
a financial fairness opinion in connection with the merger. We selected Morgan
Stanley to act as our financial advisor based on Morgan Stanley's
qualifications, expertise and reputation and its knowledge of the business and
affairs of the company. At the meeting of our board of directors on July 12,
2004, Morgan Stanley rendered its written opinion that, as of such date and
based upon and subject to the various considerations set forth in the opinion,
the consideration of $26.60 per share in cash to be received by each of the
holders of National Processing common shares, other than National City, pursuant
to the merger agreement was fair, from a financial point of view, to such
holders.
THE FULL TEXT OF THE WRITTEN OPINION OF MORGAN STANLEY, DATED JULY 12,
2004, WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES
FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF THE REVIEW
UNDERTAKEN BY MORGAN STANLEY IN RENDERING ITS OPINION, IS ATTACHED AS ANNEX C TO
THIS PROXY STATEMENT. NATIONAL PROCESSING SHAREHOLDERS ARE URGED TO, AND SHOULD,
READ THE OPINION
34
CAREFULLY AND IN ITS ENTIRETY. MORGAN STANLEY'S OPINION IS DIRECTED TO THE BOARD
OF DIRECTORS OF NATIONAL PROCESSING AND ADDRESSES ONLY THE FAIRNESS OF THE
CONSIDERATION TO BE RECEIVED PURSUANT TO THE MERGER AGREEMENT FROM A FINANCIAL
POINT OF VIEW TO THE HOLDERS OF NATIONAL PROCESSING COMMON SHARES, OTHER THAN
NATIONAL CITY, AS OF THE DATE OF THE OPINION. THE OPINION DOES NOT ADDRESS ANY
OTHER ASPECT OF THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
HOLDER OF OUR COMMON SHARES AS TO HOW TO VOTE WITH RESPECT TO THE MERGER. THE
SUMMARY OF THE OPINION OF MORGAN STANLEY SET FORTH IN THIS PROXY STATEMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. MORGAN
STANLEY HAS NOT BEEN ASKED TO RENDER AN UPDATED FAIRNESS OPINION.
In connection with rendering its opinion, Morgan Stanley, among other
things:
- reviewed certain publicly available financial statements and other
business and financial information of the company;
- reviewed certain internal financial statements and other financial
and operating data concerning the company prepared by our
management;
- reviewed certain financial projections regarding the company
prepared by our management;
- discussed the past and current operations and financial condition
and the prospects of the company with members of our senior
management;
- reviewed the reported prices and trading activity of National
Processing common shares;
- compared the financial performance of National Processing and the
prices and trading activity of National Processing common shares
with that of certain comparable publicly-traded companies and their
securities;
- reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
- participated in discussions and negotiations among representatives
of National Processing, Bank of America and National City and their
financial and legal advisors;
- reviewed the merger agreement, the shareholders agreement and
various commercial agreements to be entered into by National City
and Bank of America in connection with the merger and certain
related documents; and
- performed such other analyses and considered such other factors as
Morgan Stanley deemed appropriate.
35
In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by it for the purposes of its opinion. With respect to the financial
projections, Morgan Stanley assumed that they were reasonably prepared on bases
reflecting the best then-currently available estimates and judgments of the
future financial performance of the company.
Morgan Stanley did not make, and did not assume any responsibility for
making, any independent valuation or appraisal of the assets or liabilities of
the company, nor was it furnished with any such appraisals. Morgan Stanley
assumed that the executed versions of the merger agreement and the shareholders
agreement would not differ in any material respect from the last drafts reviewed
by Morgan Stanley. Morgan Stanley assumed that the merger will be consummated in
accordance with the terms set forth in the merger agreement. Morgan Stanley's
opinion did not address the fairness of the merger consideration to be received
by National City pursuant to the merger agreement. Morgan Stanley's opinion was
necessarily based on financial, economic, market and other conditions as in
effect on, and the information made available to it, as of July 12, 2004.
The following is a summary of certain analyses performed by Morgan Stanley
in connection with the preparation of its written opinion letter dated July 12,
2004. Some of these summaries of financial analyses include information
presented in tabular format. In order to fully understand the financial analyses
used by Morgan Stanley, the tables must be read together with the text of each
summary. The tables alone do not constitute a complete description of the
financial analyses.
HISTORICAL SHARE PRICE PERFORMANCE. Morgan Stanley reviewed the historical
performance of National Processing common shares and also compared such
performance with the stock performance of (i) a Transaction Processing Index
comprised of Certegy, Inc., First Data Corporation, Global Payments, Inc. and
Total Systems Services, Inc. and (ii) the Standard and Poor's 500 Index (the S&P
500).
Morgan Stanley noted that for the period from August 9, 1996, the date of
National Processing's initial public offering, to May 27, 2004, the day prior to
the public announcement that National Processing was pursuing strategic
alternatives, the closing price per share for the common shares increased 31.2%
and ranged from a low of $4.38 to a high of $34.80 over the period. Morgan
Stanley noted that the all-time high price per share of $34.80 was reached on
August 15, 2001. Morgan Stanley also noted that the trading range for the
twelve-month period ended May 27, 2004 for National Processing common shares was
from $15.71 per share to $26.19 per share and compared that to the merger
consideration of $26.60 per share. Morgan Stanley also calculated the closing
and average daily closing prices for National Processing common shares for
certain time periods ending on May 27, 2004 and calculated the premium the
merger consideration of $26.60 per share represented over the closing prices.
The results of these calculations appear in the table below:
36
$26.60 / Share
Merger
Consideration
Closing Share % Premium /
Price (Discount)
----- ----------
May 27, 2004 $ 24.93 6.7%
30 Trading Day Average Ending May 27, 2004 $ 25.01 6.4%
60 Trading Day Average Ending May 27, 2004 $ 22.26 19.5%
90 Trading Day Average Ending May 27, 2004 $ 21.66 22.8%
Twelve Months Average Ending May 27, 2004 $ 20.93 27.1%
Twelve Months Ending May 27, 2004 High Price $ 26.19 1.6%
Twelve Months Ending May 27, 2004 Low Price $ 15.71 69.3%
Morgan Stanley compared the historical common share price performance of
National Processing with the Transaction Processing Index and the S&P 500 Index.
During the period from July 7, 2002 to May 27, 2004, National Processing common
shares decreased 3.0%, the Transaction Processing Index increased 16.1% and the
S&P 500 Index increased 13.4%. Morgan Stanley also noted that for the period
from May 27, 2004 to July 7, 2004, National Processing's common shares increased
16.3%, the Transaction Processing Index decreased 0.7%, and the S&P 500
decreased 0.3%.
PEER GROUP COMPARISON. Morgan Stanley compared financial information of
the company with publicly available information for the following U.S.-based
transaction processing and services companies. Morgan Stanley selected companies
for the peer group that operate in and are exposed to the transaction processing
and servicing industry and that have similar lines of business as the company.
The peer group contained:
Automatic Data Processing, Inc.;
Ceridian Corporation;
Certegy, Inc.;
DST Systems, Inc.;
eFunds Corporation;
Equifax, Inc.;
First Data Corporation;
Fiserv, Inc.;
Global Payments, Inc.;
iPayment, Inc.; and
Total Systems Services, Inc.
For this analysis, Morgan Stanley examined a range of estimates for the
peer group based on publicly available equity research analysis and company
filings with the SEC. The following table presents, as of July 7, 2004, the low,
high and median of (i) the ratio of aggregate value, defined as market
capitalization plus total debt less cash and cash equivalents, to estimated
calendar year 2004 earnings before interest, taxes, depreciation and
amortization (or EBITDA); (ii) the ratio of aggregate value to estimated
calendar year 2004 revenue; and (iii) the ratio of share price to estimated
calendar year 2004 earnings per share. Morgan Stanley then compared this
information to information for the company as of May 27, 2004, the day prior to
the public announcement that the company was pursuing strategic alternatives.
Morgan Stanley noted the
37
information used in comparing the company with the peer group was based upon our
management's estimates for the company's calendar year 2004 performance.
Aggregate Price/
Value / 2004E
2004E Earnings
EBITDA Per Share
------ ---------
Low 7.5x 15.3x
High 13.6 31.4
Median 11.0 22.9
National Processing, 8.9 23.7
as of May 27, 2004
Morgan Stanley noted that based on estimated 2004 EBITDA, a comparable
trading multiple range for the peer group companies of 8.0x to 10.0x 2004 EBITDA
would imply a National Processing share price range of $23.33 to $27.88 per
share. Morgan Stanley also noted that based on estimated 2004 earnings per share
a comparable trading multiple range for the peer group companies of 21.0x to
25.0x 2004 EPS would imply a National Processing share price range of $23.31 to
$27.75 per share. Morgan Stanley also calculated pro forma core earnings per
share, calculated as earnings excluding the after-tax interest income on cash
balances, for National Processing. Morgan Stanley noted that based on estimated
2004 core earnings per share, a comparable trading multiple range for the peer
group companies of 17.0x to 22.0x 2004 core earnings per share would imply a
National Processing share price range of $22.59 to $27.72 per share.
No company utilized in the peer group comparison analysis is identical to
National Processing. In evaluating the peer group, Morgan Stanley made judgments
and assumptions with regard to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond our
control and the control of Morgan Stanley, such as the impact of competition on
our business or the industry generally, industry growth and the absence of any
material adverse change in our financial condition and prospects or the industry
or in the financial markets in general. Mathematical analysis, such as
determining the average or median, is not in itself a meaningful method of using
peer group data.
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS. Morgan Stanley compared
statistics based on publicly available information for selected precedent
transactions and the relevant financial statistics for the company. Morgan
Stanley selected and reviewed eight transaction processing and services industry
transactions because they involved companies that operated in and were exposed
to the transaction processing and services industry and that had lines of
business similar to the company. These transactions consisted of:
38
Announcement
Acquired Company Acquiror Date
- ---------------- -------- ----
SPS Transaction Services, Inc. Associates First Capital Corporation 4/98
PMT Services, Inc. NOVA Corporation 6/98
Electronic Payment Services, Inc. Concord EFS, Inc 11/98
BA Merchant Services, Inc. Bank of America Corporation 12/98
Paymentech, Inc. First Data Corporation 3/99
NOVA Corporation U.S. Bancorp 5/01
Concord EFS, Inc. First Data Corporation 4/03
NYCE Corporation Metavante Corporation 5/04
For each of the transactions above, Morgan Stanley reviewed the price paid
and calculated the multiple of aggregate value implied by the consideration to
the acquired company's last twelve month EBITDA (or LTM EBITDA). Morgan Stanley
also calculated the multiple of share price implied by the consideration to the
acquired company's next twelve months earnings per share (or NTM Earnings per
Share). Morgan Stanley also noted the three most recent selected precedent
transactions announced since January, 2001 and calculated the median multiples
implied by the consideration offered in those transactions. Morgan Stanley
compared these calculations to the implied multiples for the company based upon
the merger consideration of $26.60 per share. This analysis indicated the
following multiples:
Aggregate Price/NTM
Value/LTM Earnings per
EBITDA Share
--------- ------------
Low 9.8x 19.1x
High 24.0 36.9
Median 12.2 22.3
Median of Transactions Announced Since 10.4 20.2
January, 2001
National Processing 10.2 25.3
Morgan Stanley observed that a transaction multiple range of 9.5x-12.0x of
LTM EBITDA for selected precedent transactions would imply a National Processing
share price range of $25.18 to $30.46 per share. Morgan Stanley noted that a
transaction multiple range of 19.0x to 22.0x 2004 estimated core earnings per
share would imply a National Processing share price range of $24.65 to $27.72.
No transaction utilized as a comparison in the selected precedent
transactions analysis is identical to the merger. In evaluating the transactions
listed above, Morgan Stanley made judgments and assumptions with regard to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond our control and the
control of Morgan Stanley, such as the impact of competition on our business or
the industry generally, industry growth and the absence of any adverse material
change in our financial
39
condition and prospects or the industry or in the financial markets in general.
Mathematical analysis, such as determining the average or median, is not in
itself a meaningful method of using comparable transaction data.
DISCOUNTED CASH FLOW ANALYSIS. Morgan Stanley performed a discounted cash
flow analysis, which is an analysis of the present value of projected unlevered
free cash flows using terminal year multiples of 2007 EBITDA and discount rates
(each, as indicated below) of the company. Morgan Stanley analyzed our business
using publicly available information, discussions with our management and
certain financial forecasts prepared by our management (the "Management Case")
for the projected fiscal years 2004 through 2007. The Management Case
projections for the fiscal year 2004 through 2005 implied a compound annual
growth rate in revenue of 10.2% and a compound annual growth rate in EBITDA of
14.1%. The terminal value was calculated using terminal multiples of estimated
2007 EBITDA ranging from 8.0x to 10.0x. For purposes of this analysis, Morgan
Stanley estimated National Processing's discounted unlevered free cash flow
value using discount rates ranging from 9.0% to 11.0%. The discounted cash flow
analysis implied a range of values for our common shares of $24.75 to $30.75 per
share.
Morgan Stanley performed a second discounted cash analysis of the company
using financial forecasts prepared using representative transaction processing
industry revenue and EBITDA growth rates (the "Industry Case"). The Industry
Case projections for the fiscal year 2004 through 2005 implied a compound annual
growth rate in EBITDA of 10.0%. The industry growth rate discounted cash flow
analysis implied a range of values for our common shares of $21.50 to $26.25.
In connection with the review of the merger by our board of directors,
Morgan Stanley performed a variety of financial and comparative analyses for
purposes of its opinion. The preparation of a fairness opinion is a complex
process and is not necessarily susceptible to partial analysis or summary
description. In arriving at its opinion, Morgan Stanley considered the results
of all of its analyses as a whole and did not attribute any particular weight to
any analysis or factor it considered. Furthermore, Morgan Stanley believes that
selecting any portion of its analyses, without considering all analyses as a
whole, would create an incomplete view of the process underlying its opinion. In
addition, Morgan Stanley may have given various analyses and factors more or
less weight than other analyses and factors and may have deemed various
assumptions more or less probable than other assumptions, so that the ranges of
valuations resulting from any particular analysis described above should not be
taken to be Morgan Stanley's view of the actual value of the company.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond our and the control of Morgan Stanley.
Any estimates contained in Morgan Stanley's analyses are not necessarily
indicative of future results or actual values, which may be significantly more
or less favorable than those suggested by such estimates. The analyses performed
were prepared solely as part of Morgan Stanley's analysis of the fairness of the
consideration to be received pursuant to the merger agreement from a financial
point of view to the holders of our common shares, other than
40
National City, and were conducted in connection with the delivery of the Morgan
Stanley opinion to our board of directors. The consideration to be received by
the holders of our common shares pursuant to the merger agreement and other
terms of the merger agreement were determined through arm's-length negotiations
between us and Bank of America and were approved by our board of directors. In
addition, as described above, Morgan Stanley's opinion and presentation to our
board of directors was one of many factors taken into consideration by our board
of directors in making its decision to approve the merger. Consequently, the
Morgan Stanley analyses as described above should not be viewed as determinative
of the opinion of our board of directors with respect to the value of the
company or of whether our board of directors would have been willing to agree to
a different consideration.
Our board of directors retained Morgan Stanley based upon Morgan Stanley's
qualifications, experience and expertise. Morgan Stanley is an internationally
recognized investment banking and advisory firm. Morgan Stanley, as part of its
investment banking and financial advisory business, is continuously engaged in
the valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. In the past, Morgan Stanley has
provided financial advisory and financing services for National City and Bank of
America and has received fees for the rendering of these services. In the
ordinary course of business, Morgan Stanley may from time to time trade in the
securities or indebtedness of National City, National Processing or Bank of
America for its own account, the accounts of investment funds and other clients
under the management of Morgan Stanley and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities or
indebtedness.
Pursuant to the Engagement Letter, Morgan Stanley provided financial
advisory services and a financial fairness opinion to our board of directors in
connection with the merger, and we agreed to pay Morgan Stanley a fee in
connection therewith. We have agreed to pay Morgan Stanley an amount equal to a
percentage of the aggregate transaction value upon completion of the merger
(which amount would be equal to approximately $6.9 million if the merger had
been completed on July 12, 2004). We have also agreed to reimburse Morgan
Stanley for its expenses incurred in performing its services. In addition, we
have agreed to indemnify Morgan Stanley and its affiliates, their respective
directors, officers, agents and employees and each person, if any, controlling
Morgan Stanley or any of its affiliates against certain liabilities and
expenses, including certain liabilities under the federal securities laws,
related to or arising out of Morgan Stanley's engagement and any related
transactions.
CERTAIN FINANCIAL INFORMATION
In the course of the sale process described under " -- Background of the
Merger", we provided Bank of America and the other potential purchasers who
signed confidentiality agreements selected, non-public financial projections
prepared by our senior management. National Processing does not as a matter of
course make public projections as to future performance or earnings and the
portions of these financial projections set forth below are included in this
proxy statement only because this information was provided to Bank of America
and the other potential purchasers on a confidential basis in connection with
National Processing's sale process. You should note that these financial
projections constitute forward-looking statements. See "Forward-Looking
Statements May Prove Inaccurate."
National Processing advised the recipients of the financial projections
that such projections are subjective in many respects. The financial projections
are based on a variety of
41
estimates and assumptions of our senior management regarding our business,
industry performance, general business, economic, market and financial
conditions and other matters, all of which are difficult to predict and any many
of which are beyond our control. In particular, these forward-looking statements
were prepared on the assumption that National Processing remained a
publicly-traded company and were based on numerous other assumptions that are
now out-dated. You should not regard the inclusion of these projections in this
proxy statement as an indication that National Processing, Bank of America or
any of their respective affiliates or representatives considered or consider the
projections to be a reliable prediction of future events, and you should not
rely on the projections as such. Accordingly, there can be no assurance that the
assumptions made in preparing the projections will prove accurate. If the
assumptions do not prove accurate, the projections will not be accurate. It is
expected that there will be differences between actual and projected results,
and actual results may be materially greater or less than those contained in the
projections. It is highly likely that the contribution of National Processing's
business to Bank of America's consolidated results will be different from
National Processing's performance on a stand-alone basis. In addition, if the
merger is not consummated, we may not be able to achieve these financial
projections. None of National Processing, Bank of America or any of their
respective affiliates or representatives has made or makes any representations
to any person regarding the ultimate performance of National Processing compared
to the information contained in the projections.
The financial projections have been prepared by, and are the
responsibility of, National Processing's senior management. Neither National
Processing's independent auditors, nor any other independent accountants, have
compiled, examined or performed any procedures with respect to the financial
projections set forth below, nor have they expressed any opinion or any other
form of assurance with respect thereto. The financial projections were not
prepared with a view toward public disclosure or compliance with published
guidelines of the SEC or the guidelines established by the American Institute of
Certified Public Accountants for preparation and presentation of prospective
financial information. We do not intend to update these out-dated financial
projections or to make other projections public in the future.
The financial projections included (in millions of dollars):
2004(1) 2005 2006
------- ---- ----
Revenue 533.2 579.6 636.0
Net Income 57.5 68.7 83.3
(1) Includes actual results for National Processing's first quarter ended
March 31, 2004, and nine months of forecasted financials.
The foregoing financial projections are based upon numerous estimates and
assumptions including, without limitation, the following: (i) annual dollar
volume and transaction growth averaging 11% and 12% respectively, resulting in
revenue growth averaging 10%, (ii) gradual margin improvement due to the excess
of revenue growth over expense growth, and (iii) an increasing interest rate
environment with short-term interest yields rising from approximately 1.2% in
2004 to 3.5% in 2006.
42
INTERESTS OF NATIONAL PROCESSING DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER
In considering the recommendation of National Processing's board of
directors to vote for the proposal to adopt the merger agreement, National
Processing shareholders should be aware that some of the directors and executive
officers of National Processing have interests in the merger that are different
from, or in addition to, the interests of National Processing shareholders
generally and that may create potential conflicts of interest. National
Processing's board of directors was aware of and considered the interests of its
directors and executive officers when it considered and approved the merger
agreement and determined to recommend to National Processing shareholders that
they vote for the proposal to adopt the merger agreement.
Treatment of stock options
The merger agreement provides that before the completion of the merger,
National Processing will amend its various stock option plans and adopt
resolutions so that each option to purchase National Processing common shares
outstanding immediately prior to the completion of the merger will become fully
vested and will be converted into the right to receive the excess, if any, of
$26.60 over the sum of (1) the exercise price per share of the stock option and
(2) any applicable withholding tax, multiplied by the number of common shares
subject to the stock option. Based upon the options to purchase National
Processing common shares outstanding as of July 27, 2004, the amount of the cash
payment, before withholding of applicable taxes, expected to be payable to the
following National Processing directors and named executive officers in respect
of such options upon consummation of the merger is as follows: Paul G. Clark --
$0; Aureliano Gonzalez-Baz -- $360,336; Jon L. Gorney -- $0; Jeffrey P.
Gotschall -- $418,713; Preston B. Heller, Jr. -- $404,086; Jeffrey D. Kelly --
$0; J. Armando Ramirez -- $0; Mark D. Pyke -- $1,605,851; Robert C. Robins --
$43,600; Steven C. Cory -- $270,750; David E. Fountain -- $116,135; and all
other executive officers as a group -- $137,710.
Treatment of restricted shares
Each National Processing common share subject to a transfer restriction or
risk of forfeiture that is outstanding immediately prior to the completion of
the merger will be converted at the effective time of the merger into the right
to receive $26.60 in cash, without interest. The number of restricted National
Processing common shares held by each director or named executive officer of
National Processing as of July 27, 2004 is as follows: Paul G. Clark -- 0;
Aureliano Gonzalez-Baz -- 0; Jon L. Gorney -- 0; Jeffrey P. Gotschall -- 0;
Preston B. Heller, Jr. -- 0; Jeffrey D. Kelly -- 0; J. Armando Ramirez -- 0;
Mark D. Pyke -- 20,500; Robert C. Robins -- 8,500; Steven C. Cory -- 10,000;
David E. Fountain -- 9,500; and all other executive officers as a group --
15,500.
Existing employment and severance arrangements
National Processing has entered into severance agreements with Messrs.
Fountain and Robins that become operative immediately upon a change in control
of National Processing. The completion of the merger will constitute a change in
control of National Processing under these agreements.
43
The severance agreements provide that following a change in control, these
executive officers will be entitled to severance compensation upon termination
for any reason other than death, disability or termination for cause (as defined
in the applicable severance agreement) or upon resignation for good reason (as
described in the applicable severance agreement) by the executive officers,
during the period commencing with the occurrence of the change in control and
continuing until the earliest of (a) the third anniversary of the occurrence of
the change in control, (b) such officers' death, or (c) attainment of age
sixty-five.
In the event these individuals are terminated or resign as described
above, the severance compensation due to each respective executive officer will
be a lump sum cash payment in an amount equal to two times (for Mr. Robins,
three times) the sum of such executive officer's (a) base pay at the highest
rate in effect for any period prior to the termination date plus (b) incentive
pay, including pursuant to National Processing's incentive plans, described
below, in an amount equal to not less than the highest aggregate annual bonus,
incentive, or other payments of cash compensation made or to be made in regard
to services rendered in any calendar year during the three calendar years
immediately preceding the year in which the change in control occurs, less the
sum of (x) any and all payments received from National Processing, National
City, or a successor or their affiliates following a change in control plus (y)
any future payments to be made in accordance with any employment agreements or
other contracts between National Processing and such other entities
(specifically excluding payments from any deferred compensation plan). For two
years (for Mr. Robins, three years) following termination or resignation as
described above, National Processing will arrange to provide these executive
officers with welfare benefits substantially similar to those they were
receiving or were entitled to receive immediately prior to the occurrence of a
change in control date, with such period qualifying as service with National
Processing for the purpose of determining service credits and benefits due and
payable under National Processing's various retirement and other benefit plans.
These executive officers may waive one year of welfare benefits and have the
lump sum severance payment reduced by an amount equal to the sum of the
executive's base pay plus incentive pay in exchange for being released from any
non-competition restrictions contained in their respective employment agreements
or otherwise applicable. National Processing has agreed to pay any and all legal
fees incurred by these executive officers in connection with the interpretation,
enforcement, or defense of their rights under the severance agreements which
arise from a change in control.
Upon completion of the merger, if either of these executive officers'
employment with National Processing is terminated without cause or if either of
these executive officers resigns for good reason, such executive officer would
receive cash severance benefits as follows: D. Fountain -- $672,320 and R.
Robins -- $1,104,228. The aggregate cash severance benefits payable to all other
National Processing executive officers as a group would be approximately
$904,840.
Mr. Fountain also has entered into an employment agreement with National
Processing. This agreement provides that if Mr. Fountain is terminated for any
reason other than for his violation of the contract or for cause (as defined in
the employment agreement), an amount equal to his base pay at the time of
termination will be paid in semi-monthly installments for one year after
termination. In the event of such a termination, the payments made to Mr.
Fountain pursuant to his employment agreement will be deducted from severance
payments due to Mr.
44
Fountain pursuant to the terms of his severance agreement, described above, and
therefore will not result in an additional cash-payment obligation of National
Processing.
Incentive Compensation Plans
Messrs. Pyke, Robins, Cory and Fountain currently participate in the
National Processing Company Short-Term Incentive Compensation Plan for Senior
Officers, which provides cash awards to participants based on the short-term
goals achieved by the individual participants and on National Processing's
results. Awards are calculated as a percentage of the participant's base salary.
The short-term incentive compensation plan provides that in the event of a
change in control of National Processing, each participant will be paid at the
effective time of the change in control the maximum benefit the participant is
entitled to receive under the short-term incentive compensation plan.
The completion of the merger will constitute a change in control pursuant
to the short-term incentive compensation plan. Accordingly, the amount of the
cash payment, before withholding of applicable taxes, expected to be payable to
the following National Processing named executive officers upon completion of
the merger is as follows: Mark D. Pyke -- $315,000; Robert C. Robins --
$225,000; Steven C. Cory -- $202,500 and David E. Fountain -- $198,000. The
aggregate cash award expected to be payable to all other National Processing
executive officers as a group under the short-term incentive compensation plan
is approximately $265,500.
Messrs. Pyke, Cory and Fountain also currently participate in the National
Processing Company Long-Term Incentive Compensation Plan for Senior Officers,
which provides cash awards to participants based on the long-term profitability
and success of National Processing. Awards are calculated as a percentage of the
participant's average annual salary during a three-year plan cycle. The
long-term incentive compensation plan provides that in the event of a change in
control of National Processing, the last day of the current plan cycle shall be
the implementation date of the change in control, and the award of each
participant for that plan cycle shall be payable in cash to the participant
within five business days after the implementation date and be in an amount
equal to the participant's maximum award for that plan cycle, prorated to
account for the shortened plan cycle, as necessary.
The completion of the merger will constitute a change in control pursuant
to the long-term incentive compensation plan. Accordingly, the amount of the
cash payment, before withholding of applicable taxes, expected to be payable to
the following National Processing named executive officers within five business
days of completion of the merger is as follows: Mark D. Pyke -- $256,247; Steven
C. Cory -- $80,000; and David E. Fountain -- $161,333. The aggregate cash award
expected to be payable to all other National Processing executive officers as a
group under the long-term incentive compensation plan is approximately $148,079.
Retention Agreement with Surviving Corporation
Mark D. Pyke has entered into a retention agreement with National
Processing to become effective upon completion of the merger. The retention
agreement would replace and supersede his current severance and employment
agreements with National Processing.
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Under the retention agreement, Mr. Pyke would have the position of
President, Merchant Services, and would report to a direct report of a member of
the Bank of America Risk and Capital Committee. He would receive base salary at
the annual rate of $400,000 and be eligible to participate in such cash and
equity incentive compensation plans and other benefit plans as similarly
situated associates of Bank of America.
In order to provide Mr. Pyke with appropriate incentives to remain with the
surviving corporation after the merger, the cash severance he would have been
eligible to receive under his National Processing severance agreement had he
terminated employment immediately after completion of the merger under
qualifying circumstances, in the amount of $1,681,620 (equal to three times his
base salary plus cash incentives), would be converted into a cash deferral
account at the effective time of the merger. The deferral account would become
50% vested on the first anniversary of the merger and 100% vested on the second
anniversary of the merger. If prior to the second anniversary of the merger Mr.
Pyke's employment is terminated by the surviving corporation with "cause" or by
Mr. Pyke without "good reason" (as those terms are defined in the retention
agreement), then the unvested portion of the deferral account would be
forfeited. However, if prior to the second anniversary of the of the merger Mr.
Pyke's employment is terminated by the surviving corporation without cause, by
Mr. Pyke with good reason, or by death or disability, then the unvested portion
of the deferral account would become fully vested on the date of termination.
The deferral account would be credited with interest during the deferral period
at the prior month's one year constant maturity treasury rate as determined each
month by the Federal Reserve and would be payable, to the extent vested, in a
lump sum within 30 days after termination of employment. Mr. Pyke could also
elect within two days after his termination of employment to waive his right to
receive $560,540 of the vested portion of the deferral account (representing one
year of base salary and cash incentives) in exchange for a release from the
post-termination covenants regarding non-competition and non-solicitation of
customers described below.
In addition, if prior to the second anniversary of the merger Mr. Pyke's
employment is terminated by the surviving corporation without cause or by Mr.
Pyke for good reason, Mr. Pyke would be eligible to receive continuation of
welfare benefits until the second anniversary of the merger, plus a lump sum
payment of the maximum matching contributions he would have been eligible to
receive under the surviving corporation's qualified and non-qualified retirement
savings plans through the second anniversary of the merger (assuming he had
deferred the amount necessary to receive such matching contributions). The
surviving corporation can elect to buy out Mr. Pyke's right to receive
continuation of welfare benefits for a cash payment equal to the aggregate
employer and employee monthly premiums for the applicable benefits times the
number of months remaining before the second anniversary is reached.
Under the retention agreement, Mr. Pyke is also subject to certain
post-termination covenants regarding non-competition, non-solicitation of
customers and employees, confidentiality and non-disparagement. As described
above, under certain circumstances Mr. Pyke may cause the surviving corporation
to release him from the covenants regarding non-competition and non-solicitation
of customers in exchange for Mr. Pyke relinquishing his rights to a certain
portion of his vested deferral account.
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INTERESTS OF NATIONAL CITY IN THE MERGER
In addition to the foregoing interests of National Processing's directors
and executive officers, National City, which owns approximately 83.2% of our
outstanding common shares as of the record date, has entered into a number of
commercial agreements with us and Bank of America in connection with the merger.
See "Certain Other Agreements" and "The Shareholders Agreement." As a result,
National City has interests in the merger that are different from, or in
addition to, the interests of National Processing shareholders generally and
that may create potential conflicts of interest. In addition, Mr. Gorney, who is
Chairman and Chief Executive Officer and a director of National Processing, is
an Executive Vice President of National City.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
Under the merger agreement, Bank of America has agreed to indemnify and
hold harmless each current and former director, officer and employee of National
Processing from liability and expenses for matters arising at or prior to the
completion of the merger to the fullest extent provided by applicable law and
National Processing's organizational documents, and to the same extent that they
would have been indemnified as a National Processing director, officer and
employee or otherwise under indemnification agreements they may have had with
National Processing. Bank of America also has agreed that for six annual periods
after the effective time of the merger, it will maintain directors' and
officers' liability insurance coverage for the benefit of the officers and
directors of National Processing that is not substantially less favorable to the
insureds than the policy maintained by National Processing immediately prior to
the effectiveness of the merger.
GOVERNMENTAL AND REGULATORY MATTERS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act") and the rules that have been promulgated thereunder by the
Federal Trade Commission (the "FTC"), certain acquisition transactions may not
be consummated unless information has been furnished to the Antitrust Division
of the United States Department of Justice (the "Antitrust Division") and the
FTC and waiting period requirements have been satisfied. The merger is subject
to these requirements and may not be completed until the expiration of a 30-day
waiting period following the filing of the required Notification and Report
Forms (the "Forms") with the Antitrust Division and the FTC. Pursuant to the
requirements of the HSR Act, National Processing completed the filing of the
required Forms with the Antitrust Division and the FTC on July 26, 2004. Bank of
America filed the Forms on July 22, 2004. The statutory waiting period
applicable to the merger pursuant to the HSR Act will expire at 11:59 p.m.,
Eastern Time, on August 25, 2004. If a request for additional information or
documentary material is received from the FTC or the Antitrust Division, the
waiting period will be further extended. In that case, the merger may not be
completed until 30 days following the substantial compliance with that request
by both parties, unless the 30-day period is earlier terminated by the Antitrust
Division or the FTC.
The Antitrust Division and the FTC frequently scrutinize the legality of
transactions under the antitrust laws. At any time before or after the
consummation of any such transactions, the Antitrust Division or the FTC could,
notwithstanding termination of the waiting period, take
47
such action under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking to enjoin the merger or seeking divestiture
of National Processing's or Bank of America's assets. Private parties and State
Attorneys General may also bring legal actions under the antitrust laws.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of material United States federal income tax
consequences of the merger to our shareholders whose common shares are converted
into the right to receive cash under the merger agreement. The discussion does
not purport to consider all aspects of United States federal income taxation
that might be relevant to our shareholders. The discussion is based on current
law which is subject to change, possibly with retroactive effect. The discussion
applies only to shareholders who hold our common shares as capital assets. This
discussion does not apply to certain types of shareholders (such as insurance
companies, tax-exempt organizations, financial institutions, traders,
broker-dealers, persons who hold or have held our common shares as part of a
straddle or a hedging, integrated constructive sale or conversion transaction
for tax purposes, and persons who acquired our common shares in compensatory
transactions) who may be subject to special rules.
This discussion does not address the tax consequences to any shareholder
who, for United States federal income tax purposes, is a non-resident alien
individual, foreign corporation, foreign partnership or foreign estate or trust,
and does not address any aspect of state, local or foreign taxation.
In general, a shareholder who surrenders our common shares for cash
pursuant to the merger will recognize a capital gain or loss for United States
federal income tax purposes equal to the difference, if any, between the amount
of cash received and the shareholder's adjusted tax basis in our common shares
surrendered. Gain or loss will be determined separately for each block of shares
(i.e., shares acquired at the same cost in a single transaction) surrendered for
cash pursuant to the merger. Such gain or loss will be long-term capital gain or
loss if a shareholder's holding period for such shares is more than one year at
the time of the completion of the merger and otherwise will constitute
short-term capital gain or loss. Capital gains of individuals derived in respect
of capital assets held for more than one year are eligible for reduced rates of
taxation. There are limitations on the deductibility of capital losses.
Backup federal withholding tax at a rate of 28% may apply with respect to
certain payments, including cash received in the merger, unless a payee of cash
received in the merger (1) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact or (2) provides a correct
taxpayer identification number, certifies as to no loss of exemption from backup
withholding and that such shareholder is a U.S. person (including a U.S.
resident alien) and otherwise complies with applicable requirements of the
backup withholding rules. Each of our shareholders and, if applicable, each
other payee should complete and sign the Substitute Form W-9 that will be
included as part of the letter of transmittal to be returned to the paying
agent, in order to provide the information and certification necessary to avoid
backup withholding tax, unless an exemption applies and is established in a
manner satisfactory to the paying agent.
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Any amounts withheld under the backup withholding rules may be allowed as
a refund or a credit against your United States federal income tax liability
provided that you furnish the required information to the IRS.
THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE ARE FOR
GENERAL INFORMATION PURPOSES ONLY AND ARE NOT INTENDED TO CONSTITUTE A COMPLETE
DESCRIPTION OF ALL TAX CONSEQUENCES RELATING TO THE MERGER. BECAUSE INDIVIDUAL
CIRCUMSTANCES MAY DIFFER, WE URGE EACH SHAREHOLDER TO CONSULT WITH HIS OR HER
TAX ADVISOR REGARDING THE APPLICABILITY OF THE RULES DISCUSSED ABOVE TO THE
SHAREHOLDER AND THE PARTICULAR TAX EFFECTS TO THE SHAREHOLDER OF THE MERGER,
INCLUDING THE APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS.
DISSENTERS' APPRAISAL RIGHTS OF NATIONAL PROCESSING SHAREHOLDERS
If the merger agreement is adopted, each National Processing shareholder
objecting to the merger agreement may be entitled to seek relief as a dissenting
shareholder under Section 1701.85 of the Ohio Revised Code. The following is a
summary of the principal steps a shareholder must take to perfect his or her
dissenters' rights under the Ohio Revised Code. This summary is qualified by
reference to a complete copy of Section 1701.85 of the Ohio Revised Code, which
is attached as Annex D to this proxy statement. Any dissenting shareholder
contemplating exercise of his or her dissenters' rights is urged to carefully
review the provisions of Section 1701.85 and to consult an attorney, since
failure to follow fully and precisely the procedural requirements of the statute
may result in termination or waiver of such rights.
To perfect dissenters' rights, a dissenting shareholder must satisfy each
of the following conditions and must otherwise comply with Section 1701.85:
- a dissenting shareholder must be a record holder on [ ], 2004, the
record date for determining entitlement to vote on the proposal to
adopt the merger agreement, of the National Processing common shares
as to which such shareholder seeks to exercise dissenters' rights.
Because only shareholders of record on the record date may exercise
dissenters' rights, any person who beneficially owns shares that are
held of record by a broker, fiduciary, nominee or other holder and
who desires to exercise dissenters' rights must, in all cases,
instruct the record holder of the shares to satisfy all of the
requirements outlined under Section 1701.85;
- a dissenting shareholder must not vote his or her shares in favor of
the proposal to adopt the merger agreement at the special meeting.
Failing to vote or abstaining from voting does not waive a
dissenting shareholder's rights. However, a proxy returned to
National Processing signed but not marked to specify voting
instructions will be voted in favor of the proposal to adopt the
merger agreement and will be deemed a waiver of dissenters' rights.
A dissenting shareholder may revoke his or her proxy at any time
before its exercise by: (i) filing with National Processing an
instrument revoking it; (ii) delivering a duly executed proxy
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bearing a later date; or (iii) by attending and giving notice of the
revocation of the proxy at the special meeting;
- a dissenting shareholder must deliver a written demand for payment
of the fair value of his or her common shares to National Processing
on or before the tenth day following the special meeting. Any
written demand must specify the shareholder's name and address, the
number and class of shares held by him or her on the record date,
and the amount claimed as the "fair cash value" of the common
shares. National Processing will not notify shareholders of the
expiration of this ten-day period; and
- if National Processing so requests, a dissenting shareholder must
submit his or her share certificates to National Processing within
fifteen days of such request for endorsement thereon by National
Processing that demand for appraisal has been made. Such a request
is not an admission by National Processing that a dissenting
shareholder is entitled to relief. National Processing will promptly
return the share certificates to the dissenting shareholder. At the
option of National Processing, a dissenting shareholder who fails to
deliver his or her certificate upon request from National Processing
may have his or her dissenter's rights terminated, unless a court
otherwise directs for good cause shown .
National Processing and a dissenting shareholder may come to agreement as
to the fair cash value of the common shares. If National Processing and any
dissenting shareholder cannot agree upon the fair cash value of the common
shares, then either may, within three months after service of demand by the
dissenting shareholder, file a petition in the Court of Common Pleas of Cuyahoga
County, Ohio, for a determination that the shareholder is entitled to exercise
dissenters' rights and to determine the fair cash value of the common shares.
The court may appoint one or more appraisers to recommend a fair cash value. The
fair cash value is to be determined as of the day prior to the date of the
special meeting. The fair cash value is the amount that a willing seller, under
no compulsion to sell, would be willing to accept, and that a willing buyer,
under no compulsion to purchase, would be willing to pay, but in no event may
the fair cash value exceed the amount specified in the dissenting shareholder's
demand. In determining this value, any appreciation or depreciation in the
market value of the common shares resulting from the merger is excluded. The
Ohio Supreme Court, in Armstrong v. Marathon Oil Company, 32 Ohio St. 3d 397
(1987), has held that fair cash value for publicly traded shares of a company
with significant trading activity will be the market price for such shares on
the date that the transaction is submitted to the shareholders or directors for
final approval, as adjusted to exclude the impact of the transaction giving rise
to the dissenters' rights. The fair cash value may ultimately be more or less
than the per share merger consideration. Interest on the fair cash value and
costs of the proceedings, including reasonable compensation to any appraisers,
are to be assessed or apportioned as the court considers equitable.
Payment of the fair cash value must be made within 30 days after the later
of the final determination of such value or the closing date of the merger. Such
payment shall be made only upon simultaneous surrender to National Processing of
the share certificates for which such payment is made.
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A dissenting shareholder's rights to receive the fair cash value of his or
her National Processing common shares will terminate if:
- the dissenting shareholder has not complied with Section 1701.85;
- the merger is abandoned or is finally enjoined or prevented from
being carried out or the National Processing shareholders rescind
their adoption of the merger agreement;
- the dissenting shareholder withdraws his or her demand with the
consent of National Processing by its board of directors; or
- the dissenting shareholder and National Processing's board of
directors have not agreed on the fair cash value per share and
neither has filed a timely complaint in the Court of Common Pleas of
Cuyahoga County, Ohio.
All rights accruing from National Processing common shares, including
voting and dividend and distribution rights, are suspended from the time a
dissenting shareholder makes demand with respect to such shares until the
termination or satisfaction of the rights and obligations of the dissenting
shareholder and National Processing arising from the demand. During this period
of suspension, any dividend or distribution paid on the common shares will be
paid to the record owner as a credit upon the fair cash value thereof. If a
shareholder's dissenters' rights are terminated other than by purchase by
National Processing of the dissenting shareholder's common shares, then at the
time of termination all rights will be restored and all distributions that would
have been made, but for suspension, will be made.
FEES AND EXPENSES
National Processing has retained [ ] as its proxy solicitor in connection
with the merger. [ ] may contact holders of National Processing common shares
personally, electronically, via the internet, by mail or by telephone and may
request brokers, dealers and other nominee shareholders to forward material
relating to the merger to beneficial owners of National Processing common
shares. National Processing will pay [ ] a fee of $[ ] plus reimbursement of
out-of-pocket costs and expenses. If [ ] makes phone calls in order to solicit
proxies, the fee per connect is $[ ]. National Processing also has agreed to
indemnify [ ] against various liabilities and expenses that relate to or arise
out of [ ]'s solicitation of proxies. In addition, National Processing
directors, officers and employees may solicit proxies personally,
electronically, via the internet or by telephone.
The fees and expenses payable by National Processing to its financial
advisor, Morgan Stanley, are described and quantified in the section entitled "
- -- Opinion of Our Financial Advisor."
OTHER EXPENSES
Except as specifically discussed in the preceding paragraphs, all costs
and expenses incurred in connection with the solicitation of proxies and the
consummation of the transactions
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contemplated by the merger agreement will be paid by the party incurring such
costs or expenses.
ACCOUNTING TREATMENT
Bank of America will account for the merger as a "purchase," as that term
is used under GAAP, for accounting and financial reporting purposes. Under
purchase accounting, the assets (including identifiable intangible assets) and
liabilities (including executory contracts and other commitments) of National
Processing as of the effective time of the merger will be recorded at their
respective fair values and added to those of Bank of America. Any excess of
purchase price over the fair value is recorded as goodwill. Financial statements
of Bank of America issued after the merger would reflect these fair values and
would not be restated retroactively to reflect the historical financial position
or results of operations of National Processing.
DELISTING AND DEREGISTRATION OF NATIONAL PROCESSING COMMON SHARES
National Processing common shares currently are listed on the New York
Stock Exchange under the symbol "NAP." Upon the consummation of the merger,
National Processing common shares will be delisted from the New York Stock
Exchange and deregistered under the Securities Exchange Act of 1934 (the
"Exchange Act").
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THE MERGER AGREEMENT
The following description of the merger agreement describes the material
provisions of the merger agreement but does not purport to describe all of the
terms of the merger agreement. The full text of the merger agreement is attached
to this proxy statement as Annex A. You are urged to read the merger agreement
in its entirety because it is the legal document that governs the merger.
THE MERGER
At the effective time of the merger, Monarch Acquisition, an indirect
wholly owned subsidiary of Bank of America, will be merged with and into
National Processing. National Processing will continue as the surviving
corporation and will become a wholly owned subsidiary of Bank of America.
Monarch Acquisition was created solely for purposes of the merger and has no
material assets or operations of its own.
CLOSING AND EFFECTIVE TIME OF THE MERGER
The closing of the merger will take place no later than the fifth business
day after the satisfaction or waiver of the conditions described below under "
- -- Conditions of the Merger" (but no earlier than October 15, 2004), unless
National Processing and Bank of America agree in writing to another time.
The merger will become effective at the time a certificate of merger is
filed with the Secretary of State of the State of Ohio, or at a later time
agreed to by National Processing and Bank of America. The certificate of merger
will be filed at the time of the closing of the merger.
CONSIDERATION TO BE RECEIVED IN THE MERGER
The merger agreement provides that at the effective time of the merger,
each issued and outstanding National Processing common share (other than
National Processing common shares owned by National Processing or any of its
subsidiaries, Bank of America, Monarch Acquisition or a National Processing
shareholder exercising dissenters' rights) will be converted into the right to
receive $26.60 in cash, without interest. At that time, each holder of National
Processing common shares will no longer have any rights with respect to the
shares, except for the right to receive the merger consideration.
CANCELLATION OF SHARES
Each National Processing common share owned by Bank of America or Monarch
Acquisition or held by National Processing or any of its subsidiaries
immediately prior to the effective time of the merger automatically will be
cancelled, and Bank of America will not pay any merger consideration for those
shares.
53
TREATMENT OF STOCK OPTIONS AND RESTRICTED SHARES
The merger agreement provides that, upon completion of the merger, each
option to purchase National Processing common shares outstanding immediately
prior to the completion of the merger, will become fully vested and will be
converted into the right to receive the excess, if any, of $26.60 over the sum
of (1) the exercise price per share of the stock option and (2) any applicable
withholding tax, multiplied by the number of common shares subject to the stock
option. The merger agreement further provides that the National Processing board
of directors will make any other changes to the National Processing option plans
as it believes are appropriate to give effect to the merger. In addition, each
National Processing common share subject to a transfer restriction or risk of
forfeiture that is outstanding immediately prior to completion of the merger
will be converted at the effective time of the merger into the right to receive
$26.60 in cash, without interest. All amounts payable may be subject to
applicable withholding taxes.
PAYMENT FOR SHARES
Prior to completion of the merger, Bank of America will appoint a bank or
trust company or other exchange agent that is reasonably acceptable to National
Processing to act as paying agent for the payment of the merger consideration.
At the effective time of the merger, Bank of America will deposit with the
paying agent funds necessary to pay the merger consideration.
Following the merger, the paying agent will mail a letter of transmittal,
which will include instructions for the delivery of certificates formerly
representing National Processing common shares to the paying agent, to all
record holders of National Processing common shares as of the time of the
completion of the merger. Former holders of National Processing common shares at
the time of the merger should use this letter of transmittal when sending
certificates formerly representing National Processing common shares to the
paying agent. After surrendering certificates formerly representing National
Processing common shares to the paying agent for cancellation, together with a
properly completed letter of transmittal, holders of these surrendered
certificates will be entitled to receive a cash payment in an amount equal to
the number of shares formerly represented by the certificate or certificates
they surrendered multiplied by the merger consideration of $26.60. EACH
CERTIFICATE REPRESENTING COMMON SHARES THAT IS SURRENDERED WILL BE CANCELED. YOU
SHOULD NOT SEND IN YOUR NATIONAL PROCESSING SHARE CERTIFICATES UNTIL YOU RECEIVE
A LETTER OF TRANSMITTAL WITH INSTRUCTIONS FROM THE PAYING AGENT.
Payment of the merger consideration may be made to a person other than the
person in whose name the surrendered certificate is registered if:
- the certificate is properly endorsed or otherwise in proper form for
transfer; and
- the person requesting the payment pays any transfer or other taxes
resulting from the payment of the merger consideration to a person
other than the registered holder of that certificate or establishes
to the satisfaction of the surviving corporation that the taxes have
been paid or are not applicable.
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All cash paid upon the surrender of certificates formerly representing
National Processing common shares in accordance with the merger agreement will
be deemed to have been paid in full satisfaction of all rights pertaining to the
National Processing common shares so surrendered. After the completion of the
merger, no transfers of National Processing common shares will be made on the
transfer books of the surviving corporation.
If your National Processing share certificate has been lost, stolen or
destroyed, you will be entitled to obtain payment of the merger consideration
only by signing an affidavit to that effect and, if required by the surviving
corporation, posting a bond in an amount sufficient to protect the surviving
corporation against claims by any other party related to your lost, stolen or
destroyed National Processing share certificate.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties
made by us, including representations and warranties relating to:
- our corporate organization and similar matters;
- our subsidiaries;
- our capital structure;
- the authorization, execution, delivery and enforceability of the
merger agreement, the absence of conflicts with or violations of
organizational documents or other obligations as a result of the
merger, and the specification of any required governmental consents
or approvals;
- the timely filing and accuracy of our reports and financial
statements filed with the SEC and the absence of any undisclosed
liabilities;
- the absence of material adverse effects;
- compliance with laws, the absence of investigations by regulatory
agencies and the status of litigation matters;
- absence of changes in benefit plans and benefit plan compliance,
including compliance with the Employee Retirement Income Security
Act of 1974, as amended;
- tax matters;
- material contracts;
- labor matters;
- intellectual property;
- shareholder voting requirements;
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- the inapplicability of state takeover statutes;
- the absence of brokers' fees payable in connection with the merger;
- the delivery of a fairness opinion by Morgan Stanley;
- environmental matters;
- employment and consulting agreements;
- payments to current or former employees of National City; and
- contracts related to the authorization, processing or other related
activities with respect to debit and credit cards honored by United
Air Lines, Inc.
The merger agreement also contains customary representations and
warranties by Bank of America and Monarch Acquisition relating to:
- corporate organization and similar matters;
- the authorization, execution, delivery and enforceability of the
merger agreement, the absence of conflicts with or violations of
organizational documents and the specification of any required
governmental consents or approvals;
- the accuracy of information supplied to National Processing for
inclusion in the proxy statement;
- litigation matters;
- the sufficiency of Bank of America's resources to pay the aggregate
merger consideration;
- the absence of brokers' fees payable in connection with the merger;
and
- the capitalization and operations of Monarch Acquisition since its
formation.
MATERIAL ADVERSE EFFECT
Many of the representations and warranties made by us or Bank of America
and Monarch Acquisition are qualified by a material adverse effect threshold.
For purposes of the merger agreement, a material adverse effect means a material
adverse effect on the financial condition, properties, assets, liabilities,
business or results of operations of the relevant entity and its subsidiaries,
taken together as a whole, or on the ability of the relevant entity to
consummate the transactions contemplated by the merger agreement, excluding (a)
changes or conditions generally affecting the United States economy, financial
markets or the industries in which the relevant entity operates (except to the
extent the relevant entity is adversely affected in a disproportionate manner),
(b) the execution and delivery of the merger agreement, or the consummation or
announcement of the merger, or (c) any outbreak of major hostilities in which
56
the United States is involved or any act of terrorism within the United States
or directed against its facilities or citizens.
COVENANTS
We have agreed that during the period from the date of the merger
agreement until the completion of the merger, we will, and will cause our
subsidiaries to:
- carry on our businesses in the ordinary course consistent with past
practice, and
- use reasonable best efforts to keep available the services of our
current officers and other key employees and maintain our respective
relationships with customers, suppliers, distributors, lessors and
others having business dealings with us.
We have also agreed that, during the period from the date of the merger
agreement until the completion of the merger, neither we nor our subsidiaries
will take any of the following actions without Bank of America's written
approval:
- declare or pay any dividend or other distribution, except for
dividends paid by our wholly owned subsidiaries;
- except pursuant to existing agreements, purchase, redeem or
otherwise acquire any shares of its capital stock or other
securities or the shares of capital stock or other securities of our
subsidiaries or any rights, warrants or options to acquire any such
shares of capital stock or other securities;
- split, combine or reclassify any of its capital stock;
- enter into any agreement with respect to voting its capital stock;
- issue, deliver, sell, pledge or otherwise encumber or subject to any
lien any shares of its capital stock, any other voting securities or
any securities convertible into, or any rights, calls, commitments,
warrants or options to acquire, any such shares, voting securities
or convertible securities, other than the issuance of shares by a
National Processing subsidiary to another subsidiary or the issuance
of National Processing common shares upon the exercise of
outstanding stock options under the National Processing stock plans;
- amend its certificate of incorporation or code of regulations;
- merge or consolidate with any other person, or acquire by purchasing
an equity interest in or the assets of, any business, corporation or
other business organization, or otherwise acquire any material
amount of assets of any other person;
- sell, lease, license, mortgage or otherwise encumber or subject to
any lien or otherwise dispose of any of its properties or assets
other than (i) dispositions of
57
properties and assets in the ordinary course consistent with past
practice, (ii) dispositions of such properties and assets that,
individually or in the aggregate, are not material, and (iii) the
granting of permitted liens and liens required under existing bank
agreements;
- except as required by law, contracts or plans in existence on or
prior to July 12, 2004: (A) except for normal increases in salary
and wages in the ordinary course consistent with past practice,
grant any increase in the compensation, bonuses and incentives, or
benefits payable by National Processing or any subsidiary to any
current or former director, officer, employee or consultant; (B)
adopt, enter into, establish, make any new grants or award of, or
amend or otherwise increase, reprice or accelerate the payment or
vesting of the amounts, benefits or rights payable or accrued or to
become payable or accrued under any National Processing benefit
plan; (C) enter into or amend any employment, severance, change in
control agreement or any similar agreement or any collective
bargaining agreement or, except as required in accordance with
National Processing's severance policy, grant any severance or
termination pay to any officer, director, consultant or employee of
National Processing or its subsidiaries; (D) pay or award any
pension, retirement, allowance or other non-equity incentive awards,
or other employee or director benefit not required by any
outstanding National Processing benefit plan; or (E) hire any
employee at a compensation level expected to be more than $200,000
per annum;
- (A) amend, terminate, or waive any material right or benefit under
any material contract, other than in the ordinary course; (B) enter
into any material contract; (C) enter into any contract that would
restrict or prevent Bank of America and its subsidiaries from
engaging or competing in any line of business or in any geographic
area; (D) enter into any contract that would restrict or prevent
National Processing or any of its subsidiaries from (1) engaging or
competing in any of Bank of America's businesses or in any
geographic area or (2) pricing, to the extent such contract contains
a provision that restricts pricing in any of Bank of America's
businesses; or (E) enter into any contract that is material that
contains a change-of-control provision that would be applicable to
the merger;
- pay, discharge, compromise or settle any litigation or other
proceedings before a governmental entity for an amount in excess of
$1,000,000, individually or in the aggregate;
- pay, discharge, settle, compromise or satisfy any material claims,
liabilities or other obligations, other than in the ordinary course,
or waive any material rights or claims other than in the ordinary
course;
- implement or adopt any change in the accounting principles or
procedures used by it unless required by GAAP or by law;
- prepare or file any tax return inconsistent in any material respect
with past practice or amend any tax returns except as required by
law or make or rescind
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any express or deemed election or settle or compromise any claim or
action relating to taxes;
- incur or modify any indebtedness or guarantee indebtedness of
another person, or issue or sell any debt, securities or warrants or
other rights to acquire any debt security of National Processing or
any of its subsidiaries, except for indebtedness for borrowed money
incurred in the ordinary course not to exceed $5,000,000 in the
aggregate;
- make any loans, advances or capital contributions to any other
person (other than to National Processing or any of its wholly owned
subsidiaries) other than in the ordinary course of business; or
- authorize, or commit or agree to take, any of the foregoing actions.
In addition, National Processing agreed to terminate, effective as of the
closing of the merger, any tax-sharing agreements between National City and
National Processing or any of its subsidiaries.
NO SOLICITATION
We have agreed that we will not, nor will we authorize or permit any of
our subsidiaries or our or their directors, officers, employees or
representatives (including any investment banker, attorney, accountant or other
representative retained by us or any of our subsidiaries) to, directly or
indirectly:
- initiate, solicit or knowingly encourage, or facilitate any
inquiries or the making of any acquisition proposal (defined below);
or
- continue or otherwise participate in any discussions or negotiations
regarding, or furnish to any person any information, or otherwise
knowingly encourage or facilitate any effort or attempt to make or
implement, an acquisition proposal.
The merger agreement provides that, notwithstanding the restrictions
described above, if at any time prior to the time that our shareholders adopt
the merger agreement we receive an unsolicited bona fide written acquisition
proposal, we may, if our board of directors determines in good faith, after
consultation with outside counsel, that it is reasonably likely to be necessary
to do so in order to comply with its fiduciary duties under applicable law, and,
subject to providing notice of our decision to do so to Bank of America:
- furnish, pursuant to a confidentiality agreement containing
provisions no more favorable to such person than the confidentiality
agreement entered into with Bank of America, information about us to
the person making such unsolicited acquisition proposal, provided
such acquisition proposal constitutes, or is reasonably likely to
result in, a transaction more favorable to our shareholders, from a
financial point of view, than the merger;
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- participate, pursuant to a confidentiality agreement containing
provisions no more favorable to such person than the confidentiality
agreement entered into with Bank of America (other than standstill
provisions), in discussions or negotiations regarding such
acquisition proposal with the person making such unsolicited
acquisition proposal, provided such acquisition proposal
constitutes, or is reasonably likely to result in, a transaction
more favorable to our shareholders, from a financial point of view,
than the merger; or
- recommend such unsolicited acquisition proposal to our shareholders
if our board of directors determines in good faith, after
consultation with outside counsel and its financial advisor, that
such acquisition proposal, if accepted, is reasonably likely to be
consummated after considering all legal, financial and regulatory
aspects of the proposal and, if consummated, would be more favorable
to our shareholders, from a financial point of view, than the merger
(including any counterproposals that Bank of America may make in
response to such an acquisition proposal), provided that any such
more favorable acquisition proposal must involve a purchase of
assets or interests representing at least 50% of our consolidated
assets rather than the 15% used in the definition of "acquisition
proposal" below.
The merger agreement provides that the term "acquisition proposal" means any
proposal or offer with respect to (i) a merger, reorganization, share exchange,
consolidation or similar transaction involving National Processing, (ii) any
purchase of an equity interest representing an amount equal to or greater than a
5% voting or economic interest in National Processing or (iii) any purchase of
assets, securities or ownership interests representing an amount equal to or
greater than 15% of the consolidated assets of National Processing and its
subsidiaries.
We have agreed to promptly notify Bank of America within two business days
of the receipt of any acquisition proposal by a third party, including the name
of the person making such proposal and the material terms and conditions of such
proposal. We have also agreed to keep Bank of America informed on a current
basis of any changes in the status and terms of any such acquisition proposals.
Nothing described above limits our ability to take actions to comply with
our disclosure obligations under Rule 14d-9 and 14e-2 of the Exchange Act with
regard to an acquisition proposal.
SHAREHOLDER MEETING
We have agreed to call and hold a meeting of our shareholders for the
purpose of obtaining the adoption of the merger agreement by the affirmative
vote of the holders of at least two-thirds of the outstanding National
Processing common shares on the record date. We will, through our board of
directors, recommend to National Processing shareholders that the merger
agreement be adopted.
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ACCESS TO INFORMATION; CONFIDENTIALITY
During the period prior to the effective time of the merger, we will
afford Bank of America and its representatives reasonable access during normal
business hours to all of our properties, books, contracts, commitments,
personnel and records. The information will be held in confidence to the extent
required by the provisions of the confidentiality agreement between us and Bank
of America.
REASONABLE BEST EFFORTS; COOPERATION
We and Bank of America have agreed to use reasonable best efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with each other in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the merger and the other transactions contemplated by the merger
agreement. This includes:
- obtaining all necessary actions or nonactions, waivers, consents and
approvals from governmental entities and making all necessary
registrations and filings and taking all reasonable steps as may be
necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by, any governmental entity;
- obtaining all necessary consents, approvals or waivers from third
parties;
- defending any lawsuits or other legal proceedings, whether judicial
or administrative, challenging the merger agreement or the
consummation of the transactions contemplated by the merger
agreement, including seeking to have any stay or temporary
restraining order entered by any court or other governmental entity
vacated or reversed; and
- executing and delivering any additional instruments necessary to
consummate the transactions contemplated by, and to fully carry out
the purposes of, the merger agreement.
We have also agreed to (i) reasonably assist and cooperate with Bank of
America in any integration planning to take effect after the effective time of
the merger and (ii) cooperate with Bank of America in connection with
implementing internal controls over financial reporting to assist Bank of
America in complying with Section 404 of the Sarbanes-Oxley Act of 2002 and the
rules and regulations promulgated thereunder by the SEC and NYSE; provided that,
in each case, such cooperation takes place during normal business hours and does
not unreasonably interrupt the operation of the business of National Processing.
National Processing and its subsidiaries will also assist in obtaining customer
and other consents required as a result of the merger agreement and related
transactions.
National Processing and Bank of America will:
- make the filings required of such party under the HSR Act with
respect to the merger within ten days after the date of the merger
agreement;
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- comply at the earliest practicable date with any request under the
HSR Act for additional information, documents or other materials
received by such party from any governmental entity in respect of
such filings or the merger; and
- cooperate with the other party in connection with making any filing
under the HSR Act and in connection with any filings, conferences or
other submissions related to resolving any investigation or other
inquiry by any such governmental entity under the HSR Act with
respect to the merger.
Subject to applicable laws relating to the exchange of information,
National Processing and Bank of America will have the right to review in
advance, and to the extent practicable each will consult the other on, all the
information relating to National Processing or Bank of America, as the case may
be, and any of their respective subsidiaries, that appear in any filing made
with any governmental entity in connection with the merger. In exercising this
right, each of National Processing and Bank of America will act reasonably and
as promptly as practicable. Each of National Processing and Bank of America
will, and will cause each of their subsidiaries to, use its reasonable best
efforts to obtain (and will cooperate with each other in obtaining) the
termination of all waiting periods under the HSR Act and not to extend any
waiting period under the HSR Act. Prior to the termination of the merger
agreement, each party will be required to prosecute, cooperate in, and defend
against any litigation instituted by the FTC or the Antitrust Division or any
other governmental entity which seeks to restrain or prohibit the consummation
of the merger or which seeks to impose material limitations on the ability of
Bank of America, National Processing or any of their respective affiliates or
subsidiaries to acquire, operate or hold, or to require Bank of America,
National Processing or any of their respective affiliates or subsidiaries to
dispose of, or hold separate, any material portion of their assets or business
after the effective time of the merger.
EMPLOYEE BENEFIT MATTERS
National Processing Stock Options
The board of directors of National Processing or, if appropriate, any
committee administering the National Processing stock option plans, will amend
the National Processing stock option plans and adopt such resolutions to:
- provide that each option to purchase National Processing common
shares outstanding immediately prior to the completion of the merger
will become fully vested and will be converted into the right to
receive the excess, if any, of $26.60 over the sum of (1) the
exercise price per share of the stock option and (2) any applicable
withholding tax, multiplied by the number of common shares subject
to the stock option; and
- make such other changes to the National Processing stock option
plans and National Processing stock options as it deems appropriate
to give effect to the merger.
Prior to the effective time of the merger, National Processing will take
all reasonable steps as may be required to cause the transactions contemplated
by the merger agreement and
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any other dispositions of equity securities of National Processing in connection
with the merger agreement by each individual who is subject to the reporting
requirements of Section 16(a) of the Exchange Act to be approved by National
Processing's board of directors or a committee of two or more non-employee
directors of National Processing for the purpose of exempting such transactions
from the "short swing profits" provisions pursuant to Rule 16b-3 promulgated
under the Exchange Act.
Benefit Plans
Bank of America has agreed to provide compensation and benefits to
National Processing employees that are substantially comparable in the aggregate
to the benefits provided to similarly situated employees of Bank of America or
its subsidiaries prior to the effective time of the merger. However, neither
Bank of America nor the surviving corporation is obligated to (x) maintain any
particular National Processing compensation or benefit plan, (y) grant or issue
any equity or equity-based awards or (z) retain the employment of any person
employed by National Processing or any of its subsidiaries immediately prior to
the effective time of the merger.
For all purposes under the employee benefit plans of Bank of America and
its affiliates providing benefits to any employees of National Processing or any
of its subsidiaries after the effective time of the merger, each such employee
shall receive credit for his or her service with National Processing and its
affiliates before the effective time of the merger (including predecessor or
acquired entities or any other entities for which National Processing and its
affiliates have given credit for prior service), for purposes of eligibility,
vesting and benefit accrual (but not (i) for purposes of eligibility for
subsidized early retirement benefits, (ii) for purposes of benefit accrual under
defined benefit pension plans and (iii) for any new program for which credit for
benefit accrual for service prior to the effective date of such program is not
given to similarly situated employees of Bank of America other than the
employees of National Processing and its subsidiaries prior to the effective
time of the merger) to the same extent as such employee was entitled, before the
effective time of the merger, to credit for such service under any similar or
comparable National Processing benefit plans (except to the extent such credit
would result in a duplication of accrual of benefits).
For purposes of each benefit plan of Bank of America or its subsidiaries
in which employees of National Processing or its subsidiaries participate, Bank
of America and its subsidiaries will cause all pre-existing condition
exclusions, waiting periods and actively-at-work requirements of such plans to
be waived for employees of National Processing and its subsidiaries and their
covered dependents, other than limitations or waiting periods that are already
in effect with respect to such employees and dependents and that have not been
satisfied as of the date such employees and dependents commence participation in
such benefit plans of Bank of America and its subsidiaries. Bank of America and
its subsidiaries will give full credit for all co-payments and deductibles to
the extent satisfied in the plan year in which the effective time of the merger
occurs as if there had been a single continuous employer.
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INDEMNIFICATION
In the event of any threatened or actual claim, action, suit, proceeding
or investigation, in which any individual who has been at any time prior to the
date of the merger agreement, or who becomes prior to the effective time of the
merger, a director, officer or employee of National Processing or its
subsidiaries is, or is threatened to be, made a party based on, or arising out
of, or pertaining to (i) the fact that such individual is or was a director,
officer or employee of National Processing or its subsidiaries or (ii) the
merger agreement or any of the transactions contemplated by the merger
agreement, whether asserted or arising before or within six years after the
effective time of the merger, the parties will cooperate and use their
reasonable best efforts to defend against and respond thereto. For a period of
six years after the effective time of the merger, Bank of America will indemnify
and hold harmless, to the fullest extent provided by applicable law, the
articles of incorporation and code of regulations of National Processing or
otherwise under indemnification agreements that they may have had with National
Processing, each such indemnified party against any losses, claims, damages,
liabilities, costs, expenses (including reimbursement for reasonable fees and
expenses incurred in advance of the final disposition of any claim, suit,
proceeding or investigation to each indemnified party as provided by the
articles of incorporation and code of regulations of National Processing or
otherwise), judgments, fines and amounts paid in settlement in connection with
any such threatened or actual claim, action, suit, proceeding or investigation.
Bank of America will use its reasonable best efforts to cause the
individuals serving as officers and directors of National Processing or its
subsidiaries immediately prior to the effective time of the merger to be covered
for six annual periods after the effective time of the merger by directors' and
officers' liability insurance not substantially less favorable to the insureds
than the policies maintained by National Processing immediately prior to the
effective time of the merger (provided that Bank of America may substitute
therefor policies, including "tail" policies, of at least the same coverage and
amounts containing terms and conditions that are not less advantageous than such
policies) with respect to acts or omissions occurring prior to the effective
time of the merger that were committed by such officers and directors in their
capacity as such.
PUBLIC ANNOUNCEMENTS
National Processing and Bank of America have agreed to consult with each
other before issuing any press release or otherwise making any public
announcement with respect to the transactions contemplated by the merger
agreement, including the merger. The parties will provide each other the
opportunity to review and comment upon any press release or other public
announcement or statement with respect to the transactions contemplated by the
merger agreement, including the merger, and will not issue any such press
release or other public announcement or statement prior to such consultation,
except as may be required by applicable law, fiduciary duties, court process or
by obligations pursuant to any listing agreement with any national securities
exchange.
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TERMINATION OF TAX-SHARING AGREEMENT
Any tax-sharing agreement between National City and the company or any of
its subsidiaries will be terminated as of the date of the closing of the merger
and will have no further effect for any taxable year.
FEES AND EXPENSES
All fees and expenses, including any fees payable to any broker,
investment banker, counsel or financial advisor, incurred in connection with the
merger, the merger agreement and the transactions contemplated by the merger
agreement will be paid by the party incurring such fees and expenses, whether or
not the merger is consummated.
CONDITIONS OF THE MERGER
The obligation of each party to effect the merger is subject to the
satisfaction or waiver on or before the closing date of the following
conditions:
- adoption of the merger agreement by National Processing
shareholders, and receipt of evidence that holders of less than 10%
of the shares of National Processing's capital stock issued and
outstanding immediately before the closing of the merger are
eligible to effectively assert dissenters' rights;
- the receipt of any consents and approvals of, and filings and
notices to, any governmental entity required to consummate the
merger, the failure of which to be obtained or taken is reasonably
expected to materially impair the ability to consummate the merger,
will have been obtained;
- the waiting period and any extension applicable to the transactions
contemplated by the merger agreement under the HSR Act will have
terminated or expired; and
- no judgment, rule, regulation or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the merger will be in effect.
The obligation of Bank of America to effect the merger is also subject to
the satisfaction or waiver of the following conditions:
- the representations and warranties of National Processing set forth
in the merger agreement are true and correct (without giving effect
to any materiality or material adverse effect qualifications) as of
July 12, 2004 and as of the closing date as though made on the
closing date, except to the extent the representation or warranty
expressly relates to an earlier date (in which case it must be true
as of such date), except where the failure of such representations
and warranties to be true and correct would not reasonably be
expected to result in, individually or in the aggregate, a material
adverse effect on National Processing;
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- National Processing has performed in all material respects all of
its obligations under the merger agreement at or prior to the
closing date;
- National Processing has delivered the following commercial
agreements: Transition Services Agreement between National
Processing and National City; and Marketing and Cash Advance
Agreements between each financial institution subsidiary of National
City, on the one hand, and Bank of America, on the other hand, and a
release (See "Certain Other Agreements");
- National Processing has obtained the consent or approval from each
person whose consent or approval is required under any material
contract of National Processing or its subsidiaries;
- Bank of America has received releases and guarantees evidencing the
allocation of liability with respect to certain agreements dealing
with the provision of authorization, processing or other related
activities with respect to debit and credit cards honored by United
Air Lines, Inc.;
- National Processing has obtained a waiver relinquishing the rights
of ABN AMRO Merchant Services, LLC and Michigan National Bank to
purchase National Processing's 70% ownership interest in ABN AMRO
Merchant Services LLC and a waiver by all applicable parties of any
restriction against competition contained in the applicable
operating agreement that affects Bank of America or the surviving
corporation after the merger; and
- no third-party claim, litigation or proceeding seeking an
injunction, order or decree on similar legal adjudication seeking to
limit Bank of America's or its subsidiaries' business activities as
a result of the merger is in effect.
The obligation of National Processing to effect the merger is also subject
to the satisfaction or waiver of the following conditions:
- the representations and warranties of Bank of America set forth in
the merger agreement are true and correct (without giving effect to
any materiality or material adverse effect qualifications) as of
July 12, 2004 and as of the closing date as though made on the
closing date, except to the extent the representation or warranty
expressly relates to an earlier date (in which case it must be true
as of such date), except where the failure of such representations
and warranties to be true and correct would not reasonably be
expected to result in, individually or in the aggregate, a material
adverse effect on Bank of America's ability to consummate the
merger; and
- Bank of America has performed in all material respects all of its
obligations under the merger agreement at or prior to the closing
date.
We can provide no assurance that all of the conditions precedent to the
merger will be satisfied or waived by the party permitted to do so.
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TERMINATION
National Processing and Bank of America may mutually agree in writing, at
any time before the effective time of the merger, to terminate the merger
agreement. Also, either party may terminate the merger agreement, without the
consent of the other, before the effective time of the merger if:
- the merger is not consummated by November 30, 2004, whether this
date is before or after the National Processing shareholder
approval, unless the party whose breach of any provision of the
merger agreement results in or causes the failure of the merger to
be consummated by such time;
- National Processing shareholders fail to adopt the merger agreement
at the special meeting; or
- any final and nonappealable order of any court or governmental
entity prohibits the merger, provided that such prohibition is not
the result of a breach of the merger agreement by the party
terminating the merger agreement.
Bank of America can terminate the merger agreement before the effective
time of the merger if:
- any condition to the obligation of both parties to effect the
merger, or any condition to the obligation of Bank of America to
effect the merger, is not capable of being satisfied prior to
November 30, 2004, provided that Bank of America gives National
Processing three business days prior notice of such termination and
the inability to fulfill the condition is not due to the failure of
Bank of America to comply with the terms of the merger agreement;
- National Processing's board of directors has withdrawn, modified or
qualified in any manner adverse to Bank of America its
recommendation that the National Processing shareholders adopt the
merger agreement; or
- there has occurred any change, effect, event, occurrence or state of
facts that results in a material adverse effect on National
Processing.
National Processing can terminate the merger agreement before the
effective time of the merger if:
- any condition to the obligation of both parties to effect the
merger, or any condition to the obligation of National Processing to
effect the merger, is not capable of being satisfied prior to
November 30, 2004, provided that National Processing gives Bank of
America three business days prior notice of such termination and the
inability to fulfill the condition is not due to the failure of
National Processing to comply with the terms of the merger
agreement; or
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- National Processing's board of directors has withdrawn, modified or
qualified in any manner adverse to Bank of America its
recommendation that the National Processing shareholders adopt the
merger agreement.
FEE IF THE MERGER AGREEMENT IS TERMINATED
A termination fee of $50,000,000 is payable by National Processing to Bank
of America in the event that (i) National Processing's board of directors
withdraws, modifies or qualifies in any manner adverse to Bank of America its
recommendation that the National Processing shareholders adopt the merger
agreement and National Processing terminates the merger agreement as a result of
such withdrawal, modification or qualification or (ii) National Processing fails
to hold the special meeting by November 19, 2004 and Bank of America terminates
the merger agreement because any condition to the obligation of both parties to
effect the merger, or any condition to the obligation of Bank of America to
effect the merger, is not capable of being satisfied by November 30, 2004.
National Processing will not be obligated to pay this termination fee in
the event that National City pays the termination fee referred to under "The
Shareholders Agreement -- Termination and Termination Fee."
EFFECT OF TERMINATION
If the merger agreement is terminated by either National Processing or
Bank of America in accordance with its terms, the merger agreement will
immediately become void and have no effect, without any liability or obligation
on the part of National Processing, Bank of America or Monarch Acquisition,
other than certain provisions relating to the payment of fees and expenses and
certain other general provisions which shall survive the termination. However,
no party will be relieved from any liability for any willful or intentional
breach of the merger agreement.
AMENDMENT
The merger agreement may be amended by the parties at any time by an
instrument in writing signed on behalf of each of the parties. However, after
the adoption of the merger agreement at the special meeting there will be no
amendment made that by law requires further approval by the National Processing
shareholders, without the further approval of the National Processing
shareholders.
EXTENSION; WAIVER
At any time before the effective time of the merger, either party may
extend the time for the performance of any of the obligations or acts of the
other party, waive any inaccuracies in any representations or warranties or
waive compliance with any of the covenants or conditions contained in the merger
agreement. Any agreement on the part of either party to any such extension or
waiver shall be valid only if in a written instrument signed on behalf of such
party. The failure of any party to the merger agreement to assert any of its
rights under the merger agreement or otherwise will not constitute a waiver of
those rights.
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BANK OF AMERICA COMMITMENT
If the merger agreement is terminated solely as a result of the inability
of National Processing to obtain a waiver relinquishing the rights of ABN AMRO
Merchant Services, LLC and Michigan National Bank to purchase National
Processing's 70% ownership interest in ABN AMRO Merchant Services, LLC, then,
for a two-year period following such termination, Bank of America and its
affiliates agree that they will not enter into any agreement with ABN AMRO Bank
N.V. or any of its affiliates for the purpose of conducting certain processing,
reporting, settlement and related transactions.
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THE SHAREHOLDERS AGREEMENT
In connection with the merger, National City, which owned approximately
83.2% of our issued and outstanding common shares as of the close of business on
the record date, entered into a shareholders agreement with Bank of America. The
following description of the shareholders agreement describes the material
provisions of the shareholders agreement but does not purport to describe all of
the terms of the shareholders agreement. The full text of the shareholders
agreement is attached to this proxy statement as Annex B. You are urged to read
the shareholders agreement in its entirety because it is a legal document that
relates to the rights between Bank of America and National City.
VOTING MATTERS
National City has agreed that prior to the completion of the merger or the
termination of the merger agreement in accordance with its terms, it will:
- appear at all National Processing shareholder meetings or otherwise
cause the National Processing shares it owns (the "Shares") to be
counted as present at such meetings for the purpose of establishing
a quorum; and
- vote the Shares against:
(i) the approval of any action, agreement or proposal that would:
- result in a breach in any representation, warranty,
covenant or obligation of National Processing in the
merger agreement;
- hinder or delay the completion of the merger;
- postpone or adjourn the special meeting (unless Bank of
America consents in writing); or
- preclude the fulfillment of a condition precedent to the
closing of the merger under the merger agreement; and
(ii) the approval of any action, agreement, merger, consolidation,
combination, control share acquisition, sale or transfer of a
material amount of assets, reorganization, going-private
transaction or recapitalization of National Processing, other
than pursuant to the merger agreement.
Except for the foregoing limitations, National City at all times retains the
right to vote the Shares in its sole discretion on all matters which are at any
time presented to the National Processing shareholders.
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TRANSFER AND OTHER RESTRICTIONS
National City has agreed that prior to completion of the merger or the
termination of the merger agreement in accordance with its terms, it will not:
- transfer any Shares or any interest in the Shares;
- grant any proxy, power of attorney, deposit any of the Shares to a
voting trust or enter into a voting agreement or arrangement
regarding the Shares; or
- take any action that would make any of its representations or
warranties in the shareholders agreement untrue or incorrect or that
would have the effect of preventing it from performing its
obligations under the shareholders agreement.
NO SOLICITATION
National City has agreed that, except as permitted for National Processing
under the terms of the merger agreement, it will not, nor will it permit any of
its subsidiaries or its or their directors, officers or other representatives
to:
- initiate, solicit, encourage or facilitate any acquisition proposal
(as described in "The Merger Agreement -- No Solicitation");
- engage in negotiations or discussions with any person concerning, or
provide information to any person relating to, an acquisition
proposal; or
- encourage or facilitate any effort or attempt to make or implement
an acquisition proposal.
TERMINATION AND TERMINATION FEE
The shareholders agreement will terminate upon the termination of the
merger agreement pursuant to its terms.
National City has agreed to pay Bank of America a termination fee of
$50,000,000 if National City:
- (i) does not vote the Shares in favor of adoption of the merger
agreement or (ii) breaches its obligations under the shareholders
agreement discussed above in " -- Voting Matters", " -- Transfer and
Other Restrictions", or " -- No Solicitation;"
and either
- National Processing or Bank of America terminates the merger
agreement because the National Processing shareholders approval is
not obtained at the special meeting; or
- the merger agreement is terminated in any of the following
circumstances at a time when Bank of America could otherwise
terminate the merger agreement in
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accordance with the immediately preceding bullet point: (i) mutual
termination by Bank of America and National Processing; (ii) the
merger is not consummated by November 30, 2004; or (iii) any
condition to the obligation of both parties, or any condition to the
obligation of Bank of America, to effect the merger is not capable
of being satisfied prior to November 30, 2004.
National City will not be obligated to pay this termination fee in the
event that National Processing pays the termination fee referred to under "The
Merger Agreement -- Fee if the Merger Agreement is Terminated."
NONCOMPETITION AND NONSOLICITATION OBLIGATIONS
National City has agreed that for a period of three years after the
effective time of the merger it will limit its ownership or control of any
person engaged in North America in the business of:
- authorizing, processing, transmitting, settling and reporting charge
card transactions for merchants;
- the settlement and reporting of commission payments for car rental
companies, cruise line operators, tour operators and hotels; and
- the collection, settlement and reporting of health-care claims
between insurance payers and health-care providers (collectively,
the "Business").
This definition does not apply to National City's and its affiliates' (i)
performance under the service and sponsorship agreement and master referral
agreement discussed below in "Certain Other Agreements", (ii) performance
relating to retaining liability for the UAL Contract, (iii) subject to
performance under the service and sponsorship agreement and master referral
agreement, performance of any third party agreement requiring a referral of
business that may compete with the Business or (iv) ownership interest in debit
card, ATM card and credit card networks (collectively, the "Permitted
Activities"), The definition of Business also excludes the authorization of
charge card transactions by a financial institution on behalf of its own charge
card holders and the collection or settlement of health-care claims by a
financial institution on behalf of its customers in connection with those
customers' use of their checking and related accounts with such financial
institution. In addition, National City's ownership of not more than 5% of any
person engaged in the Business will not constitute a breach of its obligations
under the shareholders agreement.
If, during the non-compete period described above, National City or any
downstream affiliate acquires any person engaged in the Business, and such
acquired Business has a market share less than 5% of the Business in the United
States (based on purchase volume in U.S. dollars), Bank of America will have the
option to purchase such acquired Business pursuant to specified procedures in
the event National City decides to dispose of such acquired Business.
If, during the non-compete period described above, National City or any
downstream affiliate acquires any person engaged in the Business, and such
acquired Business individually, or when aggregated with any other such acquired
Businesses, has a market share equal to or
72
greater than 5% of the Business in the United States (based on purchase volume
in U.S. dollars), National City is required to sell such acquired Business
within 18 months of consummating such acquisition and Bank of America will have
the option to purchase such acquired Business pursuant to specified procedures.
National City has also agreed that it will not:
- other than with respect to Permitted Activities, induce any
customer, supplier, licensee or other person to cease doing business
with National Processing or any of its subsidiaries or interfere
with the relationships National Processing and its subsidiaries have
with these persons;
- other than with respect to Permitted Activities, solicit the
business of any known customer of National Processing or its
subsidiaries with respect to products that compete with the
Business; or
- without the prior written approval of Bank of America, solicit or
hire or intentionally encourage or induce any other person to
solicit or hire, any employee of National Processing or its
subsidiaries as of July 12, 2004, with a base salary in excess of
$100,000, a title of vice president or above or who is employed in a
sales position, provided that (i) general solicitations not
specifically directed at such employees and (ii) actions by such
employees to contact National City and its affiliates, will be
deemed not to violate this agreement.
NONDISCLOSURE OF PROPRIETARY INFORMATION
National City has agreed not to disclose or make use of in competition
with Bank of America, National Processing or any of their respective affiliates,
confidential information concerning the Business or National Processing's
customers, except (i) to the extent National City is required to do so by law or
the disclosure requirements of an applicable stock exchange or the SEC, (ii) as
is necessary in order to perform its obligations under the Service and
Sponsorship Agreement or the Master Referral Agreement or (iii) as is necessary
in order to retain the liabilities relating to the UAL Contract.
TAXES
Bank of America and National City have agreed to prorate certain taxes and
to allocate responsibility for the preparation and filing of tax returns for the
tax periods prior to and after the closing date of the merger. In addition, Bank
of America and National City will cooperate, to the extent reasonably requested
by the other party, in connection with the filing of such tax returns and any
audit, litigation, examination or other judicial or administrative proceeding
with respect to taxes or preparation of other financial or accounting reports or
other documents.
INDEMNIFICATION
Bank of America and National City have agreed that National City will
assume and pay in a timely fashion all past, present and future liabilities for
the UAL Contract and related
73
agreements entered into by National Processing or its subsidiaries in support of
NCBK's obligations under the UAL Contract, including any liabilities in respect
of:
- National Processing's or its subsidiaries' past activities under
such agreements that may result in any charge, chargeback,
recapture, refund, fee, tax, claim or other payment made by National
Processing or any of its subsidiaries as a result of a failure by
United Air Lines to pay any of these amounts;
- any past, present or future transactions processed under the UAL
Contract and related agreements or otherwise on behalf of United Air
Lines or its affiliates, or the credit or debit card charges
incurred in connection with those transactions that may result in
any charge, chargeback, recapture, refund, fee, tax, claim or other
payment made upon National Processing or any its subsidiaries;
- National Processing's or any subsidiary's processing or transmitting
of electronic data for United Air Lines pursuant to the UAL Contract
or the Service and Sponsorship Agreement discussed in "Certain
Agreements -- Service and Sponsorship Agreement", whether prior to
or after the effective time of the merger that may result in any
charge, chargeback, recapture, refund, fee, tax, claim or other
payment made upon National Processing or any of its subsidiaries;
- any guarantee between National Processing or any of its
subsidiaries, on the one hand, and MasterCard(R), VISA(R) or any
other charge card organization, on the other hand, or any other
contractual obligation owing to such entity, arising from any
transaction processed for United Air Lines or any guarantee of the
payment of that transaction;
- any sponsor agreement, obligation or guarantee by National
Processing or any of its subsidiaries in favor of NCBK;
- any other charge, chargeback, recapture, refund, fee, tax, claim or
other payment made upon, or payments by, National Processing or any
of its subsidiaries as a result of the failure by United Air Lines
to pay any of such amounts; and
- the actual cost of National Processing or its subsidiaries for
rendering processing or subprocessing services on behalf of National
City in connection with the UAL Contract as provided in the service
and sponsorship agreement.
National City has agreed to indemnify, defend, reimburse and hold harmless
Bank of America and its affiliates and each of their respective officers,
directors and employees from all liabilities or damages asserted against or
incurred by any of them arising from:
- any litigation or other proceedings in bankruptcy initiated by or on
behalf of United Air Lines or any creditor of, or trustee for,
United Air Lines;
- the failure of National Processing, prior to the effective time of
the merger, to make or accurately report or disclose the scope of
its exposure with respect to United Air Lines as required under
applicable law;
74
- the UAL Contract, National City's relationship with United Air Lines
or any obligation of NCBK to National Processing under the service
and sponsorship agreement; and
- any breach or violation of its obligations or certain of its
representations or warranties in the shareholders agreement.
PURCHASE PRICE REIMBURSEMENT
National City has agreed to reimburse Bank of America in an amount equal
to:
- (i) $26.60 times (ii) the number of common shares issued and
outstanding at the effective time of the merger (including
restricted shares) in excess of (x) 53,344,125 plus (y) the
number of common shares underlying the National Processing
stock options identified in National Processing's disclosure
letter to the merger agreement that are exercised between July
12, 2004 and the effective time of the merger, if any; plus
- (i) the number of common shares underlying the National
Processing stock options not identified in National
Processing's disclosure letter to the merger agreement, if
any, times (ii) $26.60 less the exercise price of such stock
options; plus
- (i) 0.83 times (ii) the amount by which the cash on National
Processing's balance sheet on September 30, 2004 is less than
the sum of (x) $322 million plus (y) the aggregate exercise
price of all National Processing stock options exercised
between July 12, 2004 and September 30, 2004, provided that in
no event will the reimbursement referred to in this bullet
point exceed (A) 0.83 times (B)(1) the sum of clauses (x) plus
(y) above minus (2) $296 million.
As a result of this reimbursement obligation, National City may be
required to make a payment to Bank of America based on the foregoing formula.
Under no circumstances will any other holder of National Processing common
shares be obligated to make, or contribute to, any such payment. In addition,
Bank of America does not have any purchase price reimbursement obligation to
National City or any other National Processing shareholder.
CERTAIN OTHER AGREEMENTS
Pursuant to, and simultaneously with the execution of, the merger
agreement, National City and certain of its affiliates entered into, or agreed
to enter into, various agreements with us and Bank of America. These agreements
are discussed below.
75
Service and Sponsorship Agreement
National Processing and NCBK, a subsidiary of National City, are parties
to a Sponsorship Agreement entered into on June 30, 1996. Pursuant to the
sponsorship agreement, National Processing serves as NCBK's sole agent for the
purpose of providing electronic data authorization and capture, reporting,
settlement and clearing services for merchants who participate in Visa(R) and
MasterCard(R) programs. In connection with NCBK's role as sponsor, NCBK,
National Processing and United Air Lines, Inc. entered into the UAL Contract.
The sponsorship agreement provides, among other things, that National Processing
will indemnify NCBK against certain losses and claims, including chargebacks for
airline tickets that have been purchased pursuant to the UAL Contract.
In connection with the merger, National Processing and NCBK entered into a
Service and Sponsorship Agreement dated July 12, 2004, effective upon closing of
the merger, with respect to the UAL Contract. Pursuant to this Service and
Sponsorship Agreement, Bank of America through National Processing has agreed to
make a one-time payment of $36 million to NCBK in exchange for NCBK's agreement
to release National Processing from its obligation under the sponsorship
agreement to indemnify NCBK against any losses or claims to the extent related
to or arising from the UAL Contract. National City has also agreed, pursuant to
the Shareholders Agreement, to assume National Processing's obligations and
potential liabilities under, and to indemnify Bank of America for losses related
to, the UAL Contract. As a result of this arrangement, NCBK will remain liable
for any such losses or claims under the UAL Contract.
In addition, pursuant to the terms of the service and sponsorship
agreement, National Processing will pay NCBK processing fees for NCBK's
settlement of United Air Lines transactions services set forth in the service
and sponsorship agreement. National Processing will pass through to NCBK the
fees it receives from United Air Lines, less the cost of processing such
transactions. National City will have the opportunity to earn a profit of
approximately $1 million under the Service and Sponsorship Agreement over the
term of that agreement.
Master Referral Agreement
National City and Bank of America entered into a Master Referral Agreement
dated July 12, 2004, effective upon closing of the merger, pursuant to which
National City is eligible to receive fees from Bank of America based on National
City's and its affiliates' use of Bank of America's merchant services. National
City and its affiliates are also eligible to receive fees in the event that
their respective business customers utilize Bank of America's merchant services.
National City and its affiliates have agreed to refer their processing business
through National Processing. The agreement has a ten-year term, which includes a
repricing option after the fifth year. National City is subject to termination
fees in the event of a termination of the agreement other than in certain
limited circumstances.
Transition Services Agreement
In connection with the merger, National City and National Processing will
enter into a transition services agreement, pursuant to which National City or
its affiliates will provide, at cost, certain services to National Processing
following the completion of the merger with respect
76
to information technology and human resources. Human resources services will be
provided for up to six months following the merger and information technology
services will be provided for up to twelve months after the merger. Any
provision of services beyond the applicable term for such service will be on a
cost plus 15% basis.
BENEFICIAL OWNERSHIP OF NATIONAL PROCESSING COMMON SHARES
As of the date of this proxy statement, National Processing has one class
of equity security outstanding, National Processing common shares. Beneficial
ownership of National Processing common shares, for purposes of the beneficial
ownership disclosures in this proxy statement, has been determined in accordance
with Rule 13d-3 of the General Rules and Regulations under the Exchange Act.
Under Rule 13d-3, a person is deemed to be the beneficial owner of securities if
he or she has or shares, directly or indirectly, voting power and/or investment
power with respect to such securities or has the right to acquire beneficial
ownership within 60 days. Accordingly, the amounts shown do not purport to
represent beneficial ownership for any purpose other than as set forth under
Rule 13d-3.
The following table sets forth the beneficial security ownership of all
shareholders known to us as of July 27, 2004, to be the owner of more than five
percent of the National Processing common shares.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
NAME
AND ADDRESS AMOUNT AND
OF BENEFICIAL NATURE OF PERCENT
OWNER BENEFICIAL OWNERSHIP OF CLASS
----- -------------------- --------
National City Corporation
1900 East Ninth Street
Cleveland, OH 44114-3484 44,365,400 83.2%
The following table sets forth, as of July 27, 2004, the beneficial
security ownership (including shares with respect to which the following persons
have the right to acquire beneficial ownership within 60 days after such date)
of each director and named executive officer of National Processing and all
directors and executive officers of National Processing as a group:
BENEFICIAL SECURITY OWNERSHIP OF MANAGEMENT
AMOUNT AND
NATURE OF PERCENT
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1)(2) OF CLASS
------------------------ -------------------------- --------
Paul G. Clark 2,200 *
Steven C. Cory 10,000 *
David E. Fountain 80,501 *
Aureliano Gonzalez-Baz 42,501 *
77
Jon L. Gorney 300 *
Jeffrey P. Gotschall 32,501 *
Preston B. Heller, Jr. 42,501 *
Jeffrey D. Kelly 9,000 *
Mark D. Pyke 255,493 *
J. Armando Ramirez 2,000 *
Robert C. Robins 48,501 *
Directors and Executive Officers of
National Processing as a Group (14
persons) 610,023 *
* The percent of common shares beneficially owned is less than 1%.
(1) Beneficial ownership of the shares held by each individual consists of
sole voting power and sole investment power, or of voting power and
investment power that is shared with a spouse or a family member of the
individual, or held by trust.
(2) Includes common shares of National Processing the following individuals
had a right to acquire within 60 days after July 27, 2004: Fountain,
70,001; Gonzalez-Baz, 42,501; Gotschall, 32,501; Heller, 42,501; Pyke,
218,143; and Robins 40,001.
78
ADDITIONAL INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy this information at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549. Information on the operation of the Public Reference Room may be obtained
by calling the SEC at (800) SEC-0330. You also may obtain copies of this
information by mail from the Public Reference Room at the address set forth
above, at prescribed rates. In addition, the SEC maintains a web site that
contains reports, proxy statements and other information about issuers like Bank
of America and us who file electronically with the SEC. The address of that site
is http://www.sec.gov.
You should rely only on the information contained in this proxy statement.
We have not authorized anyone to provide you with information that is different
from what is contained in this proxy statement. This proxy statement is dated
September [ ], 2004. You should not assume that the information contained in
this proxy statement is accurate as of any date other than that date. Neither
the mailing of this proxy statement to National Processing shareholders nor the
payment of cash in the merger shall create any implication to the contrary.
79
SHAREHOLDER PROPOSALS FOR ANNUAL MEETINGS
National Processing does not currently expect to hold an annual meeting of
shareholders in 2005 because National Processing will not be a separate public
company after the merger is consummated. If the merger is not consummated and
such a meeting is held, National Processing shareholders may propose matters to
be presented at the 2005 annual meeting of shareholders and nominate persons for
election as directors as described below.
Under the SEC rules, holders of National Processing common shares who wish
to make a proposal to be included in the proxy statement for the 2005 annual
meeting of shareholders must cause such proposal to be received by National
Processing at its principal office not later than November 19, 2004. Each
proposal submitted should be accompanied by the name and address of the
shareholder submitting the proposal, the number of National Processing common
shares owned and the dates those shares were acquired by the shareholder. If the
proponent is not a shareholder of record, proof of beneficial ownership should
also be submitted. The proponent should also state his or her intention to
appear at the 2005 annual meeting of shareholders, either in person or by
representative, to present the proposal. The proxy rules of the SEC govern the
content and form of shareholder proposals and the minimum shareholding
requirement. All proposals must be made in compliance with National Processing's
articles of incorporation and code of regulations and must be a proper subject
for action at the 2005 annual meeting of shareholders.
Additionally, if properly requested, a shareholder may submit a proposal
for consideration at the 2005 annual meeting of shareholders, but not for
inclusion in the proxy statement for the 2005 annual meeting of shareholders.
Under Regulation 8(c) of the National Processing code of regulations, for
business to be properly requested by a shareholder to be brought before an
annual meeting, National Processing's Secretary must receive from the
shareholder a notice in writing of such request not more than 60 and no less
than 30 calendar days prior to the annual meeting. In addition, the shareholder
must be a shareholder of record of National Processing at the time of giving
such notice and be entitled to vote at such annual meeting.
80
ANNEX A
Execution Copy
AGREEMENT AND PLAN OF MERGER
by and among
BANK OF AMERICA CORPORATION
MONARCH ACQUISITION, INC.
and
NATIONAL PROCESSING, INC.
Dated as of July 12, 2004
TABLE OF CONTENTS
Page
----
ARTICLE I THE MERGER................................................................. A-1
Section 1.1 The Merger............................................................. A-1
Section 1.2 Closing................................................................ A-1
Section 1.3 Effective Time......................................................... A-2
Section 1.4 Articles of Incorporation and Code of Regulations...................... A-2
Section 1.5 Directors and Officers of the Surviving Corporation.................... A-2
Section 1.6 Further Assurances..................................................... A-2
ARTICLE II EFFECT OF THE MERGER ON CAPITAL STOCK; EXCHANGE OF CERTIFICATES............ A-2
Section 2.1 Effect on Capital Stock................................................ A-2
Section 2.2 Exchange of Certificates............................................... A-3
Section 2.3 Treatment of Company Options and Other Equity Awards................... A-5
Section 2.4 Dissenters' Rights..................................................... A-5
Section 2.5 Adjustments to Prevent Dilution........................................ A-6
Section 2.6 Withholding Rights..................................................... A-6
ARTICLE III REPRESENTATIONS AND WARRANTIES............................................. A-6
Section 3.1 Representations and Warranties of Company.............................. A-6
Section 3.2 Representations and Warranties of Parent and Merger Sub................ A-19
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS.................................. A-21
Section 4.1 Conduct of Business.................................................... A-21
Section 4.2 Acquisition Proposals.................................................. A-24
ARTICLE V ADDITIONAL AGREEMENTS...................................................... A-25
Section 5.1 Preparation of Proxy Statement; Shareholders Meeting................... A-25
Section 5.2 Access to Information; Confidentiality................................. A-26
Section 5.3 Reasonable Best Efforts; Cooperation................................... A-27
Section 5.4 Employee Benefits...................................................... A-28
Section 5.5 Indemnification; Directors' and Officers' Insurance.................... A-29
Section 5.6 Public Announcements................................................... A-30
Section 5.7 Section 16(b).......................................................... A-31
Section 5.8 Tax-Sharing Agreement.................................................. A-31
Section 5.9 Parent Acknowledgement................................................. A-31
-i-
TABLE OF CONTENTS
(continued)
Page
----
ARTICLE VI CONDITIONS PRECEDENT....................................................... A-31
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger............. A-31
Section 6.2 Conditions to Obligations of Parent and Merger Sub..................... A-32
Section 6.3 Conditions to Obligations of the Company............................... A-33
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.......................................... A-34
Section 7.1 Termination............................................................ A-34
Section 7.2 Effect of Termination.................................................. A-35
Section 7.3 Amendment.............................................................. A-35
Section 7.4 Extension; Waiver...................................................... A-35
Section 7.5 Fees and Expenses...................................................... A-35
ARTICLE VIII GENERAL PROVISIONS......................................................... A-36
Section 8.1 Nonsurvival of Representations and Warranties.......................... A-36
Section 8.2 Notices................................................................ A-36
Section 8.3 Interpretation......................................................... A-37
Section 8.4 Counterparts........................................................... A-38
Section 8.5 Entire Agreement; No Third-Party Beneficiaries......................... A-38
Section 8.6 Governing Law.......................................................... A-39
Section 8.7 Assignment............................................................. A-39
Section 8.8 Consent to Jurisdiction................................................ A-39
Section 8.9 Specific Enforcement................................................... A-39
Section 8.10 Severability........................................................... A-39
Section 8.11 Disclosure Letters..................................................... A-39
Section 8.12 Parent Commitment...................................................... A-40
-ii-
TABLE OF DEFINED TERMS
TERM PAGE
- ---- ----
ABN AMRO....................................... A-40
Acquisition Proposal........................... A-24
affiliate...................................... A-38
Agreement...................................... A-1
Business....................................... A-40
Certificate.................................... A-3
Certificate of Merger.......................... A-2
Charge Card.................................... A-40
Closing........................................ A-1
Closing Date................................... A-1
Code........................................... A-6
Company........................................ A-1
Company Benefit Plans.......................... A-12
Company Common Stock........................... A-2
Company Disclosure Letter...................... A-6
Company Option................................. A-5
Company Preferred Stock........................ A-7
Company Recommendation......................... A-17
Company SEC Documents.......................... A-9
Company Shareholder Approval................... A-17
Company Shareholders Meeting................... A-26
Company Subsidiaries........................... A-7
Company Subsidiary............................. A-7
Confidentiality Agreement...................... A-26
Dissenting Shareholder......................... A-5
Dissenting Shares.............................. A-5
Effective Time................................. A-2
Employees...................................... A-28
Environmental Law.............................. A-18
ERISA.......................................... A-12
ERISA Affiliate................................ A-12
Exchange Act................................... A-9
Exchange Fund.................................. A-3
Excluded Shares................................ A-3
Federal Reserve Board.......................... A-9
Foreign Antitrust Laws......................... A-9
GAAP........................................... A-10
Governmental Entity............................ A-9
Group.......................................... A-14
Hazardous Substance............................ A-18
HSR Act........................................ A-9
Indemnified Parties............................ A-29
Intellectual Property Rights................... A-17
IRS............................................ A-15
knowledge...................................... A-38
Liens.......................................... A-38
MasterCard..................................... A-40
Material Adverse Effect........................ A-7
Material Contract.............................. A-16
Merger......................................... A-1
Merger Consideration........................... A-3
Merger Sub..................................... A-1
Multiemployer Plan............................. A-14
Multiple Employer Plan......................... A-14
NCC............................................ A-15
New Plans...................................... A-28
Noncompetition Agreement....................... A-31
NYSE........................................... A-9
OGCL........................................... A-1
Old Plans...................................... A-29
Option Consideration........................... A-5
Parent......................................... A-1
Parent Disclosure Letter....................... A-19
Paying Agent................................... A-3
PBGC........................................... A-13
Permits........................................ A-11
Permitted Liens................................ A-38
person......................................... A-38
Proxy Statement................................ A-9
Representatives................................ A-24
Restraints..................................... A-32
Sarbanes-Oxley................................. A-11
SEC............................................ A-6
Securities Act................................. A-9
subsidiary..................................... A-38
Surviving Corporation.......................... A-1
Takeover Statute............................... A-17
Tax............................................ A-16
Tax Returns.................................... A-16
Termination Date............................... A-34
Termination Fee................................ A-36
UAL Agreement.................................. A-19
VISA........................................... A-40
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of July 12,
2004, by and among National Processing, Inc., an Ohio corporation (the
"Company"), Bank of America Corporation, a Delaware corporation ("Parent"), and
Monarch Acquisition, Inc., an Ohio corporation and wholly owned indirect
subsidiary of Parent ("Merger Sub").
R E C I T A L S:
A. The respective Boards of Directors of the Company and Merger Sub
have each determined that the merger of Merger Sub with and into the Company
(the "Merger") upon the terms and subject to the conditions set forth in this
Agreement is advisable, fair to and in the best interests of their respective
companies and shareholders and accordingly have agreed to effect the Merger; and
B. The Company, Parent and Merger Sub desire to make certain
representations, warranties, covenants and agreements specified herein in
connection with the Merger and also to prescribe certain conditions to the
Merger.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained in this Agreement, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and upon the terms and subject to the conditions set forth herein,
the parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. In accordance with the Ohio General Corporation
Law (the "OGCL"), Merger Sub will be merged with and into the Company at the
Effective Time and the separate corporate existence of Merger Sub will thereupon
cease. Following the Effective Time, the Company will be the surviving
corporation (the "Surviving Corporation") and will be a wholly owned subsidiary
of Parent. The Merger shall have the effects specified in the OGCL. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the property, rights, privileges, powers and franchises of the Company
and Merger Sub will be vested in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Merger Sub will become the debts,
liabilities and duties of the Surviving Corporation.
Section 1.2 Closing. Unless otherwise mutually agreed between Parent and
the Company, the closing of the Merger (the "Closing") will take place at 10:00
a.m., Eastern Time at the offices of Jones Day, 901 Lakeside Avenue, Cleveland,
Ohio 44114, no later than the fifth business day after satisfaction or waiver
(subject to applicable law) of the conditions (excluding conditions that, by
their terms, cannot be satisfied until the Closing Date but subject to the
satisfaction or waiver of those conditions) set forth in Article VI (but no
earlier than October 15, 2004). The date on which the Closing occurs is
hereinafter referred to as the "Closing Date".
Section 1.3 Effective Time. As soon as practicable on the Closing Date or
on such later date as shall be mutually agreed to by the parties to this
Agreement, the Company and Parent will cause a certificate of merger (the
"Certificate of Merger") to be executed, acknowledged and filed with the Ohio
Secretary of State in such form as is required by the relevant provisions of the
OGCL. The Merger will become effective at such time as the Certificate of Merger
is duly filed with the Secretary of State of the State of Ohio, or at such later
time as may be agreed in writing by the Company, Parent and Merger Sub and
specified in the Certificate of Merger (the "Effective Time").
Section 1.4 Articles of Incorporation and Code of Regulations. The
articles of incorporation, including any amendments thereto set forth in the
Certificate of Merger, and code of regulations of Merger Sub, as in effect
immediately before the Effective Time, will be the articles of incorporation and
code of regulations, respectively, of the Surviving Corporation (with such
changes thereto as the parties may agree), until thereafter changed or amended
as provided therein or by applicable law.
Section 1.5 Directors and Officers of the Surviving Corporation. The
directors of Merger Sub immediately prior to the Effective Time will be the
directors of the Surviving Corporation, until the earlier of their death,
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be. The officers of the Company immediately prior to
the Effective Time will be the officers of the Surviving Corporation, until the
earlier of their death, resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
Section 1.6 Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or Merger Sub, any
deeds, bills of sale, assignments or assurances and to take and do, in the name
and on behalf of the Company or Merger Sub, any other actions and things to
vest, perfect or confirm of record or otherwise in the Surviving Corporation any
and all right, title and interest in, to and under any of the rights, properties
or assets acquired or to be acquired by the Surviving Corporation as a result
of, or in connection with, the Merger.
ARTICLE II
EFFECT OF THE MERGER ON CAPITAL STOCK; EXCHANGE OF CERTIFICATES
Section 2.1 Effect on Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of
capital stock of the Company, Parent or Merger Sub:
(a) Merger Sub's Common Stock. At the Effective Time, each common share,
par value $0.01 per share, of Merger Sub issued and outstanding immediately
prior to the Effective Time will be converted into one fully paid and
nonassessable common share of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Owned Stock. Each common share,
without par value, of the Company (the "Company Common Stock") issued and
outstanding
A-2
immediately prior to the Effective Time and owned by Parent, or Merger Sub, the
Company or any Company Subsidiary (other than such shares held in a fiduciary,
collateral, custodial or similar capacity, which will be converted pursuant to
Section 2.1(c)) will automatically be canceled and retired without payment of
any consideration therefor and will cease to exist.
(c) Merger Consideration. Each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares to be
canceled in accordance with Section 2.1(b) and Dissenting Shares that are owned
by Dissenting Shareholders that have properly exercised appraisal rights
pursuant to Section 1701.85 of the OGCL (together, the "Excluded Shares")) will
automatically be converted into the right to receive $26.60, without interest,
in cash (the "Merger Consideration").
At the Effective Time, all such shares of Company Common Stock will no longer be
outstanding and will automatically be cancelled and retired and will cease to
exist and each certificate (a "Certificate") formerly representing any such
shares of Company Common Stock (other than the Excluded Shares) will cease to
have any rights with respect thereto and shall thereafter represent only the
right to receive the Merger Consideration less any required withholding Taxes
upon surrender of such Certificate in accordance with Section 2.2.
Section 2.2 Exchange of Certificates.
(a) Paying Agent. Prior to the Effective Time, Merger Sub shall appoint
the Company's registrar and transfer agent or such other exchange agent, United
States bank or trust company as may be approved in writing by the Company (such
approval not to be unreasonably withheld or delayed) to act as paying agent (the
"Paying Agent") for the payment of the Merger Consideration. At the Effective
Time, Parent shall deposit or shall cause to be deposited with the Paying Agent,
in a separate fund established for the benefit of the holders of shares of
Company Common Stock for payment in accordance with the provisions of this
Article II through the Paying Agent (the "Exchange Fund"), cash sufficient to
pay the aggregate Merger Consideration in exchange for certificates representing
Company Common Stock outstanding immediately prior to the Effective Time (other
than Excluded Shares).
(b) Payment Procedures. As soon as reasonably practicable after the
Effective Time, Parent shall cause the Paying Agent to mail to each holder of
record of a Certificate or Certificates whose shares were converted into the
right to receive the Merger Consideration pursuant to Section 2.1(c), (i) a
letter of transmittal (which must specify that delivery will be effected, and
risk of loss and title to the Certificates will pass, only upon delivery of the
Certificates to the Paying Agent and will be in such form and have such other
provisions as the Company and Merger Sub may reasonably specify) and (ii)
instructions for use in surrendering the Certificates in exchange for the Merger
Consideration. Upon surrender of a Certificate for cancellation to the Paying
Agent in accordance with the terms of such letter of transmittal, duly executed,
and such other documents as may reasonably be required by the Paying Agent, the
holder of such Certificate will be entitled to receive in exchange therefor cash
in an amount (after giving effect to any required Tax withholdings) equal to the
product of (i) the number of shares of Company Common Stock represented by such
Certificate multiplied by (ii) the Merger Consideration. The Certificate so
surrendered will forthwith be canceled. No interest will be paid or accrued on
any amount payable upon the surrender of any Certificate. If payment is to be
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made to a person other than the person in whose name the surrendered Certificate
is registered, it will be a condition of payment that the Certificate so
surrendered will be properly endorsed or otherwise in proper form for transfer
and that the person requesting such payment, shall pay any transfer or other
Taxes required by reason of the payment of the Merger Consideration to a person
other than the registered holder of the surrendered Certificate or establish to
the satisfaction of the Surviving Corporation that such Tax has been paid or is
not applicable. Until surrendered as contemplated by this Section 2.2(b) each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Merger Consideration that the
holder thereof has the right to receive in respect of such Certificate pursuant
to this provision of this Article II. The Merger Consideration shall be deemed
to have been paid in full satisfaction of all rights pertaining to the Company
Common Stock represented by such Certificate.
(c) Stock Transfer Books. After the Effective Time, there shall be no
further registration of transfers on the stock transfer books of the Surviving
Corporation of shares of Company Common Stock that were immediately outstanding
prior to the Effective Time. If, after the Effective Time, Certificates other
than Certificates evidencing Dissenting Shares are presented to the Surviving
Corporation or the Paying Agent for any reason, they will be canceled and
exchanged for cash in the proper amount pursuant to this Article II.
(d) Investment of Exchange Fund. The Paying Agent shall invest the
Exchange Fund as directed by the Surviving Corporation; provided, that any such
investment or any such payment of earnings shall not delay the receipt by
holders of Certificates of the Merger Consideration, or otherwise impair such
holders' rights hereunder. Any interest and other income resulting from such
investment will be paid to the Surviving Corporation.
(e) Termination of Exchange Fund. Any portion of the Exchange Fund
(including the proceeds of any investments thereof) that remains unclaimed by
holders of Certificates for six months after the Effective Time, may at the
option of the Surviving Corporation, be delivered to the Surviving Corporation.
Any holders of Certificates (other than with respect to Excluded Shares) who
have not heretofore complied with this Article II shall thereafter look only to
the Surviving Corporation for payment of (after giving effect to any required
Tax withholdings) the Merger Consideration upon surrender of their Certificates,
without any interest thereon.
(f) No Liability. Immediately prior to the date on which any Merger
Consideration, any cash payable to the holder of a Certificate pursuant to this
Article II or any dividends or distributions payable to the holder of a
Certificate would otherwise escheat to or become the property of any
Governmental Entity, any such Merger Consideration or cash, dividends or
distributions in respect of such Certificate will become the property of the
Surviving Corporation, free and clear of all claims of interest of any Person
previously entitled thereto. None of Merger Sub, the Company, the Surviving
Corporation, Parent or the Paying Agent shall be liable to any holder of
Certificates in respect of any amount properly delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(g) Lost, Stolen or Destroyed Certificates. If any Certificate has been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such
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Certificate to be lost, stolen or destroyed and the posting by such person of a
bond in customary amount and upon such terms as the Surviving Corporation may
require as indemnity against any claim that may be made against it with respect
to such Certificate, the Paying Agent shall issue in exchange for such lost,
stolen or destroyed Certificate the Merger Consideration (after giving effect to
any required Tax withholding) due to such person pursuant to this Agreement. Any
affidavit of loss presented pursuant to this Article II, must be in form and
substance reasonably satisfactory to the Surviving Corporation.
Section 2.3 Treatment of Company Options and Other Equity Awards.
(a) Immediately prior to the Effective Time, each option to purchase a
share of Company Common Stock (each, a "Company Option") then outstanding shall
become fully vested and shall be converted into the right to receive, upon the
exercise thereof, an amount in cash (without interest) equal to the excess, if
any, of the Merger Consideration over the sum of (x) the exercise price per
share of the Company Common Stock under the Company Option and (y) any
applicable withholding Tax (the "Option Consideration"). Each outstanding
Company Option so converted shall, immediately following such conversion, be
cancelled and the holder thereof shall be entitled to receive, as soon as
practicable thereafter, an amount of cash (without interest) equal to the
product of (i) the total number of shares of Company Common Stock subject to
such Company Option multiplied by (ii) the Option Consideration.
(b) The compensation committee of the Board of Directors of the Company
shall use commercially reasonable efforts to make such amendments and
adjustments to or make such determinations with respect to the Company Options,
restricted shares of Company Common Stock and other equity awards as are
necessary to implement the provisions of this Section 2.3.
Section 2.4 Dissenters' Rights. Shares of Company Common Stock that have
not been voted for adoption of this Agreement and with respect to which
appraisal must have been properly demanded in accordance with Section 1701.85 of
the OGCL ("Dissenting Shares") will not be converted into the right to receive
the Merger Consideration at or after the Effective Time unless and until the
holder of such shares (a "Dissenting Shareholder") fails to perfect or
effectively withdraws or loses such holder's right to dissent from the Merger in
accordance with the OGCL. Each Dissenting Shareholder shall be entitled to
receive only the payment provided by Section 1701.85 of the OGCL with respect to
shares of Company Common Stock owned by such Dissenting Shareholder. If a holder
of Dissenting Shares so fails to perfect, effectively withdraws or otherwise
becomes ineligible for such appraisal, then, as of the Effective Time or the
occurrence of such event, whichever last occurs, each of such holder's
Dissenting Shares will cease to be a Dissenting Share and will be converted into
and represent the right to receive the Merger Consideration, without interest
and less any required withholding Taxes, upon the surrender of the Certificates
representing such shares. The Company shall give Parent prompt written notice of
any demands by Dissenting Shareholders received by the Company or the Surviving
Corporation, withdrawals of such demands, and any other instruments served on
the Company or the Surviving Corporation and any material correspondence
received by the Surviving Corporation or the Company in connection with such
demands. After the Effective Time, Parent shall conduct all negotiations and
proceedings with respect to demands for appraisal under the OGCL and the Company
will be entitled to participate in such negotiations
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only as and to the extent requested by Parent. The Company shall not, except
with the prior written consent of Parent, make any payment with respect to any
demands for appraisal of Dissenting Shares, compromise or offer to settle or
settle any such demands or approve any withdrawal of any such demands. Any funds
paid to Dissenting Shareholders shall be paid out of the Exchange Fund to the
extent such payment is equal to or less than the Merger Consideration and, if
greater, the excess shall be paid out of the assets of the Surviving
Corporation.
Section 2.5 Adjustments to Prevent Dilution. In the event that the Company
changes the number of shares of Company Common Stock, or securities convertible
or exchangeable into or exercisable for shares of Company Common Stock, issued
and outstanding prior to the Effective Time as a result of a reclassification,
stock split (including a reverse stock split), stock dividend or distribution,
recapitalization, subdivision, or other similar transaction, the Merger
Consideration will be equitably adjusted to reflect such change.
Section 2.6 Withholding Rights. The Surviving Corporation, Parent or the
Paying Agent, as the case may be, shall be entitled to deduct and withhold from
the consideration otherwise payable pursuant to this Agreement to any person
such amounts, if any, as it is required to deduct and withhold with respect to
the making of such payment under the Internal Revenue Code, of 1986, as amended
(the "Code") or any provision of state, local or foreign Tax law. To the extent
that amounts are so withheld by the Surviving Corporation, Parent or the Paying
Agent, as the case may be, such amounts withheld shall be treated for purposes
of this Agreement as having been paid to such person in respect of which such
deduction and withholding was made by the Surviving Corporation, Parent or the
Paying Agent, as the case may be.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties of Company. Except as disclosed
in the Company SEC Documents filed with the Securities and Exchange Commission
(the "SEC") (it being understood that any matter set forth in the Company SEC
Documents shall be deemed to qualify any representation or warranty in this
Article III only to the extent that the description of such matter in the
Company SEC Documents would be reasonably inferred to be a qualification with
respect to such representation or warranty) or as otherwise set forth in the
company disclosure letter delivered by the Company to Parent prior to the
execution of this Agreement (the "Company Disclosure Letter"), the Company
hereby represents and warrants to Parent and Merger Sub as follows:
(a) Organization, Standing and Corporate Power. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of Ohio, and has the requisite corporate power and authority to carry on its
business as now being conducted. Each of the Company Subsidiaries is a
corporation or other legal entity duly organized, validly existing and in good
standing (with respect to jurisdictions that recognize such concept) under the
laws of the jurisdiction in which it is organized and has the requisite
corporate or other applicable entity power, as the case may be, and authority to
carry on its business as now being
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conducted, except for those jurisdictions where the failure to be so organized,
existing or in good standing, individually or in the aggregate, would not
reasonably be expected to result in a Material Adverse Effect on the Company.
The Company and each of the Company Subsidiaries is duly qualified or licensed
to do business and is in good standing (with respect to jurisdictions that
recognize such concept) in each jurisdiction in which the nature of its business
or the ownership, leasing or operation of its properties makes such
qualification or licensing necessary, except for those jurisdictions where the
failure to be so qualified or licensed or to be in good standing, individually
or in the aggregate, would not reasonably be expected to result in a Material
Adverse Effect on the Company. The Company has made available to Parent prior to
the execution of this Agreement complete and correct copies of (i) its articles
of incorporation and code of regulations, each as amended to date, and (ii) the
articles of incorporation and bylaws (or similar organizational documents) of
each of the Company Subsidiaries. As used in this Agreement, the term "Material
Adverse Effect" means a material adverse effect on the financial condition,
properties, assets, liabilities, business or results of operations of the
relevant entity and its subsidiaries, taken together as a whole, or on the
ability of the relevant entity to consummate the transactions contemplated
herein, excluding any such effect resulting from or arising out of (i) changes
or conditions generally affecting the United States economy, financial markets
or the industries in which the relevant entity operates, except to the extent
the relevant entity is materially and adversely affected in a disproportionate
manner as compared to other comparable participants in such industry, (ii) the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby or the announcement thereof, or (iii) any outbreak of major
hostilities in which the United States is involved or any act of terrorism
within the United States or directed against its facilities or citizens wherever
located.
(b) Subsidiaries. Section 3.1(b) of the Company Disclosure Letter sets
forth all the subsidiaries of the Company (each a "Company Subsidiary,"
collectively, the "Company Subsidiaries")). Except as set forth in Section
3.1(b) of the Company Disclosure Letter, all outstanding shares of capital stock
of, or other equity interests in, each Company Subsidiary (i) have been validly
issued and are fully paid and nonassessable, (ii) are free and clear of all
Liens and (iii) are free of any other restriction (including any restriction on
the right to vote, sell or otherwise dispose of such capital stock or other
ownership interests). Except as set forth in Section 3.1(b) of the Company
Disclosure Letter, all outstanding shares of capital stock (or equivalent equity
interests of entities other than corporations) of each of the Company
Subsidiaries are beneficially owned, directly or indirectly, by the Company, and
the Company does not, directly or indirectly, own more than 20% but less than
100% of the capital stock or other equity interest in any person.
(c) Capital Structure. The authorized capital stock of the Company
consists of 95,000,000 shares of Company Common Stock, and 5,000,000 preferred
shares, without par value (the "Company Preferred Stock"). At the close of
business on June 30, 2004: (i) 53,342,125 shares of Company Common Stock were
issued and outstanding; (ii) no shares of Company Preferred Stock were issued
and outstanding; and (iii) no shares of Company Common Stock were held in the
treasury of the Company. The Company has outstanding Company Options to acquire
2,810,392 shares of Company Common Stock. Section 3.1(c) of the Company
Disclosure Letter contains a true and complete list as of June 30, 2004 of all
outstanding Company Options, and stock awards and the number, exercise prices,
vesting schedules and expiration dates of each grant to such holders. There are
no phantom stock or
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other contractual rights the value of which is determined in whole or in part by
the value of any capital stock of the Company. All outstanding shares of capital
stock of the Company are, and all shares that may be issued will be, when
issued, duly authorized, validly issued, fully paid and nonassessable. Except as
set forth in this Section 3.1(c) or as permitted pursuant to Section 4.1(a), (A)
there are not issued, reserved for issuance or outstanding (1) any shares of
capital stock or other voting securities of the Company or any Company
Subsidiary, (2) any securities convertible into or exchangeable or exercisable
for shares of capital stock or voting securities of the Company or any Company
Subsidiary, or (3) any warrants, calls, options, preemptive rights, rights of
first refusal or other rights to acquire from the Company or any Company
Subsidiary, and no obligation of the Company or any Company Subsidiary to issue,
any capital stock, voting securities or securities convertible into or
exchangeable or exercisable for capital stock or voting securities of the
Company or any Company Subsidiary and (B) there are no outstanding obligations
of the Company or any Company Subsidiary to repurchase, redeem or otherwise
acquire any such securities or to issue, deliver or sell, or cause to be issued,
delivered or sold, any such securities. Neither the Company nor any Company
Subsidiary is a party to any voting agreement or proxy with respect to the
voting of any such securities. There are no outstanding bonds, debentures, notes
or other indebtedness of the Company having the right to vote (or convertible
into, or exchangeable for, securities of the Company having the right to vote)
on any matter on which the Company's shareholders may vote.
(d) Authority; Noncontravention. The Company has all requisite corporate
power and authority to enter into this Agreement, and, subject to the Company
Shareholder Approval, to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of the Company,
subject, in the case of the Merger, to the Company Shareholder Approval. This
Agreement has been duly executed and delivered by the Company, and, assuming the
due authorization, execution and delivery by Parent and Merger Sub, constitutes
the legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws generally affecting the rights of creditors and subject to general
equity principles. The execution and delivery of this Agreement by the Company
does not, and the consummation of the transactions contemplated by this
Agreement and compliance with the provisions of this Agreement by the Company
will not, (i) conflict with the articles of incorporation or code of regulations
(or comparable organizational documents) of any of the Company or any Company
Subsidiary, (ii) result in any breach, violation or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or creation or acceleration of any obligation or right of a third
party or loss of a benefit under, or result in the creation of any Lien upon any
of the properties or assets of the Company or any Company Subsidiary under, any
loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise, license or other
authorization applicable to any of the Company or any Company Subsidiary or
their respective properties or assets, (iii) subject to the governmental filings
and other matters referred to in the following sentence, conflict with or
violate any law applicable to the Company or any Company Subsidiary or their
respective properties or assets or any judgment, order or decree to which the
Company or any Company Subsidiary or their respective properties or assets have
been specifically identified as subject or (iv) cause the suspension or
revocation of any
A-8
material authorization, consent, approval or license of the Company or any
Company Subsidiary currently in effect, other than, in the case of clauses (ii)
through (iv), any such breaches, conflicts, violations, defaults, rights, losses
or Liens that, individually or in the aggregate, would not reasonably be
expected to result in a Material Adverse Effect on the Company. No consent,
approval, order or authorization of, action by or in respect of, or
registration, declaration or filing with, any federal, state, local or foreign
government, court or administrative, regulatory or other governmental agency,
commission or authority (each, a "Governmental Entity") is required by the
Company in connection with the execution and delivery of this Agreement by the
Company or the consummation by the Company of the transactions contemplated
hereby, except for: (A) the filing with the SEC of (y) a proxy statement
relating to the Company Shareholders Meeting (such proxy statement, as amended
or supplemented from time to time, the "Proxy Statement") and (z) such reports
under Section 13(a), 13(d), 15(d) or 16(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as may be required in connection with
this Agreement and the transactions contemplated hereby; (B) the filing of the
Certificate of Merger with the Secretary of State of the State of Ohio and
appropriate documents with the relevant authorities of other states in which the
Company is qualified to do business and such filings with Governmental Entities
to satisfy the requirements of state securities or "blue sky" laws; (C) the
filing of a premerger notification and report form by the Company under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act");
(D) filings required under the antitrust and competition laws of foreign
countries ("Foreign Antitrust Laws"), which are set forth on Section 3.1(d) of
the Company Disclosure Letter; (E) filings required to be made with the New York
Stock Exchange (the "NYSE"), (F) filing applications and notices, as applicable,
with the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board") under the Bank Holding Company Act of 1956, as amended, and the Federal
Reserve Act, as amended; and (G) such consents, approvals, orders,
authorizations, actions, registrations, declarations or filings the failure of
which to be made or obtained (as applicable), individually or in the aggregate,
would not reasonably be expected to result in a Material Adverse Effect on the
Company.
(e) SEC Reports and Financial Statements; Undisclosed Liabilities.
(i) The Company has timely filed all required reports, schedules,
forms, statements and other documents (including exhibits and all other
information incorporated therein) under the Securities Act of 1933, as
amended (the "Securities Act"), and the Exchange Act, with the SEC since
January 1, 2001 (as such reports, schedules, forms, statements and
documents have been amended or supplemented since the time of their
filing, collectively, the "Company SEC Documents"). As of their respective
dates, or if amended or supplemented, as of the date of the last such
amendment or supplement, the Company SEC Documents complied in all
material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such Company SEC Documents, and none
of the Company SEC Documents when filed contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. No Company
Subsidiary is required to make any filings with the SEC.
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(ii) The consolidated financial statements of the Company included
in the Company SEC Documents filed prior to the date of this Agreement
comply as to form, as of their respective dates of filing with the SEC, in
all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with United States generally accepted accounting
principles ("GAAP") (except, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto),
and fairly present in all material respects the consolidated financial
position of the Company and its subsidiaries as of the dates thereof and
the consolidated statements of income, cash flows and shareholders' equity
for the periods then ended (subject, in the case of interim financial
statements, to normal year-end audit adjustments consistent with past
practice), except that the interim financial statements do not contain all
of the footnote disclosures required by GAAP.
(iii) Except (A) as and to the extent disclosed in or reserved
against in such financial statements, including the notes thereto, (B) as
incurred in the ordinary course of business since the date of the most
recent balance sheet included in the financial statements, (C) as
disclosed in or reserved against in the Company SEC Documents or (D)
obligations and liabilities incurred in connection with this Agreement or
the transactions contemplated hereby, neither the Company nor any Company
Subsidiary has any obligations or liabilities of any nature (whether
accrued, absolute, contingent or otherwise) as of the date of this
Agreement that are required by GAAP to be disclosed in or reserved against
on a consolidated balance sheet of the Company or that have had or would
reasonably be expected to result in a Material Adverse Effect on the
Company.
(f) Absence of Certain Changes or Events. Except for liabilities
contemplated by this Agreement and the transactions contemplated hereby, and
except as disclosed in the Company SEC Documents, since January 1, 2004, (i) the
Company and each of the Company Subsidiaries has conducted its respective
operations only in the ordinary course of business consistent with past
practice, (ii) there has not been a Material Adverse Effect on the Company and
(iii) neither the Company nor any Company Subsidiary has taken any action that
if taken after the date of this Agreement, would violate the provisions of
Section 4.1(a).
(g) Compliance with Applicable Laws; Litigation.
(i) The operations of the Company and each Company Subsidiary
since January 1, 2003, have not been and are not conducted in violation of
any law, regulation of any Governmental Entity or any Permit applicable to
or held by (as the case may be) the Company or any Company Subsidiary,
except where such violations, individually or in the aggregate, would not
reasonably be expected to result in a Material Adverse Effect on the
Company. Since January 1, 2003, neither the Company nor any Company
Subsidiary has received any written notice alleging any such violation,
except where such violations, individually or in the aggregate, would not
reasonably be expected to result in a Material Adverse Effect on the
Company. Neither the Company nor any Company Subsidiary is in default
under or in violation of any of the rules and regulations
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of VISA U.S.A., Inc., VISA International, Inc., MasterCard International,
Inc. and any successor organizations or associations, except where such
default or violation would not reasonably be expected to result in a
Material Adverse Effect on the Company.
(ii) The Company and each Company Subsidiary hold all licenses,
permits, variances, consents, authorizations, waivers, grants, franchises,
concessions, exemptions, orders, registrations and approvals of
Governmental Entities necessary for the conduct of their respective
businesses as currently conducted ("Permits"), except where the failure to
hold such Permits, individually or in the aggregate, would not reasonably
be expected to result in a Material Adverse Effect on the Company. Since
January 1, 2003, neither the Company nor any Company Subsidiary has
received written notice that any Permit will be terminated or modified or
cannot be renewed in the ordinary course of business except for such
terminations, modifications or nonrenewals as, individually or in the
aggregate, would not have or result in a Material Adverse Effect on the
Company.
(iii) As of the date of this Agreement, there is no investigation by
a Governmental Entity or litigation, arbitration, or administrative
proceeding pending against or, to the knowledge of the Company, threatened
against the Company or any Company Subsidiary as of the date of this
Agreement that, if decided adversely to such person, would reasonably be
expected to result in a Material Adverse Effect on the Company, or that
seeks to enjoin or otherwise challenges the consummation of the
transactions contemplated by this Agreement. Neither the Company nor any
Company Subsidiary is a party to or subject to the provisions of any
judgment, order, writ, injunction or decree of any Governmental Entity
which, individually or in the aggregate, would reasonably be expected to
result in a Material Adverse Effect on the Company.
(iv) A list of all pending litigation, proceedings or
investigations against the Company or any Company Subsidiary involving
amounts in excess of $100,000, is included in Section 3.1(g)(iv) of the
Company Disclosure Letter.
(v) The Company and each of its officers and directors have
complied in all material respects with (i) the applicable provisions of
the Sarbanes-Oxley Act of 2002 and the related rules and regulations
promulgated under such Act or the Exchange Act ("Sarbanes-Oxley") and (ii)
the applicable listing and corporate governance rules and regulations of
the NYSE. The Company has previously disclosed to Parent any of the
information required to be disclosed by the Company and certain of its
officers to the Company's Board of Directors or any committee thereof
pursuant to the certification requirements contained in Form 10-K and Form
10-Q under the Exchange Act. Since the enactment of Sarbanes-Oxley,
neither the Company nor any of its affiliates has made any loans to any
executive officer or director of the Company in violation of Section 402
of Sarbanes-Oxley. Section 3.1(g)(v) of the Company Disclosure Letter
lists all outstanding loans from the Company to any officer or director of
the Company.
(h) Employee Benefit Plans.
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(i) With respect to (A) each bonus, pension, profit sharing,
deferred compensation, incentive compensation, stock ownership, stock
purchase, stock option, phantom stock, retirement, vacation, employment,
disability, death benefit, "cafeteria" benefits under Section 125 of the
Code, hospitalization, medical insurance, life insurance, severance or
other employee benefit plan, agreement or arrangement, including each
"employee benefit plan" within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), maintained
by the Company or any Company Subsidiary or to which the Company or any
Company Subsidiary contributes or is obligated to contribute or with
respect to which the Company or any Company Subsidiary has any liability,
other than a plan or program operated by a Governmental Entity (such as
government-operated workers' compensation or Social Security), (B) each
change of control agreement providing benefits to any current or former
employee, officer or director of the Company or any Company Subsidiary, to
which the Company or any Company Subsidiary is a party or by which the
Company or any Company Subsidiary is bound, and (C) each plan, agreement,
program or policy providing for "fringe benefits" to employees of the
Company or any Company Subsidiary (collectively, the "Company Benefit
Plans"), no event has occurred and there exists no condition or set of
circumstances in connection with which the Company or any Company
Subsidiary would be subject to any liability that, individually or in the
aggregate, would reasonably be expected to result in a Material Adverse
Effect on the Company. Section 3.1(h) of the Company Disclosure Letter
sets forth a true and complete list of each Company Benefit Plan.
(ii) Each Company Benefit Plan and its administration is in
material compliance with its terms and all applicable laws, including
ERISA, if applicable, except for any failures that, individually or in the
aggregate, would not reasonably be expected to result in a Material
Adverse Effect on the Company. Except as provided in Section 3.1(h) of the
Company Disclosure Letter, the plan sponsor of each Company Benefit Plan
that is intended to be qualified under Section 401(a), 401(k) or
4975(e)(7) of the Code either (A) has received a favorable determination
letter from the IRS as to the qualified status of such Company Benefit
Plan or (B) has filed or will file a request with the IRS for such a
favorable determination letter within the applicable remedial amendment
period. All contributions to, and payments from, the Company Benefit Plans
that are required to have been made in accordance with such Company
Benefit Plans, ERISA or the Code have been made other than any failures
that, individually or in the aggregate, would not reasonably be expected
to result in a Material Adverse Effect on the Company. To the knowledge of
the Company and any of the Company Subsidiaries, no nonexempt "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the
Code) or breach of fiduciary responsibility, which would have a Material
Adverse Effect on the Company, has occurred within the three years
preceding the date of this Agreement with respect to any Company Benefit
Plan.
(iii) Neither the Company nor any trade or business, whether or not
incorporated, which, together with the Company, would be deemed to be a
"single employer" within the meaning of Section 4001(b) of ERISA or
Sections 414(b) or (c) of the Code (an "ERISA Affiliate") has incurred any
liability under Title IV of ERISA (other than for premiums pursuant to
Section 4007 of ERISA which have been timely
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paid) or Section 4971 of the Code that has not been satisfied. No Company
Benefit Plan has within the three years preceding the date of this
Agreement, incurred an accumulated funding deficiency within the meaning
of Section 302 of ERISA or Section 412 of the Code, nor is there any
request pending before the IRS for any waiver of the minimum funding
standards of Section 302 of ERISA and Section 412 of the Code, nor has
there been any prior such request granted with respect to any Company
Benefit Plan where the minimum funding commitment has not yet been
satisfied, nor has any Lien in favor of any Company Benefit Plan arisen
under Section 412(n) of the Code or Section 302(f) of ERISA. Neither the
Company nor any ERISA Affiliate has been required to provide security to
any defined benefit pension plan pursuant to Section 401(a)(29) of the
Code that has not been released. With respect to each Company Benefit Plan
that is subject to Title IV or Section 302 of ERISA or Section 412 or 4971
of the Code, (A) the fair market value of the assets of such Company
Benefit Plan equals or exceeds the actuarial present value of all accrued
benefits under such Company Benefit Plan (whether or not vested), based
upon the actuarial assumptions used to prepare the most recent actuarial
report for such Company Benefit Plan, (B) within the three years preceding
the date of this Agreement there has been no partial termination of any
such Company Benefit Plan that has affected the Employees of the Company
or any Company Subsidiary, and (C) none of the following events has
occurred: (x) the filing of a notice of intent to terminate, (y) the
treatment of a Company Benefit Plan amendment as a termination under
Section 4041 of ERISA or (z) the commencement of proceedings by the
Pension Benefit Guaranty Corporation (the "PBGC") to terminate a Company
Benefit Plan. There has been no "reportable event" within the meaning of
Section 4043 of ERISA and the regulations and interpretations thereunder
which required a notice to the PBGC which has not been fully and
accurately reported in a timely fashion, as required, or which, whether or
not reported, would constitute grounds for the PBGC to institute
involuntary termination proceedings with respect to any Company Benefit
Plan that is subject to Title IV of ERISA.
(iv) The Company does not have any obligation under any Company
Benefit Plan or otherwise to provide health or death benefits to or in
respect of former employees of the Company, except as specifically
required by the continuation requirements of Part 6 of Title I of ERISA or
applicable state law.
(v) The consummation of the transactions contemplated by this
Agreement will not, either alone or in combination with another event, (A)
entitle any current or former employee, officer or director of the Company
or any Company Subsidiary to severance pay, unemployment compensation or
any other payment that would not have been payable if such transactions
had not been consummated, or (B) accelerate the time of payment or
vesting, or increase the amount of compensation due any such employee,
officer or director.
(vi) Neither the Company nor any Company Subsidiary is a party to
any agreement, contract or arrangement (including this Agreement) that
would result, separately or in the aggregate, in the payment of any
"excess parachute payments" within the meaning of Section 280G of the
Code. No Company Benefit Plan provides for the
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reimbursement of excise Taxes under Section 4999 of the Code or any income
Taxes under the Code.
(vii) With respect to each Company Benefit Plan, the Company has
made available to Parent a true and complete copy of: (A) each writing
constituting a current part of such Company Benefit Plan, including all
current Company Benefit Plan documents and trust agreements, and all
amendments thereto; (B) the most recent Annual Report (Form 5500 Series)
and accompanying schedules, if any; (C) the most recent annual financial
report, if any; (D) the most recent actuarial report, if any; and (E) the
most recent determination letter from the IRS, if any. Neither the Company
nor any Company Subsidiary has made an enforceable commitment to make any
new amendments to, or to adopt or approve any new, Company Benefit Plan.
There are no Company Benefit Plans that are not evidenced by the written
documents described in clause (A) above.
(viii) No Company Benefit Plan is a multiemployer plan (as defined
in Section 4001(a)(3) of ERISA) (a "Multiemployer Plan") or a plan that
has two or more contributing sponsors at least two of whom are not under
common control, within the meaning of Section 4063 of ERISA (a "Multiple
Employer Plan"). None of the Company, the Company Subsidiaries nor any of
their respective ERISA Affiliates has, at any time during the last six
years, contributed to or been obligated to contribute to any Multiemployer
Plan or Multiple Employer Plan that is subject to Title IV of ERISA.
(ix) As of the date of this Agreement, there are no pending claims
(other than claims for benefits in the ordinary course), lawsuits or
arbitrations that have been asserted or instituted, or to the Company's
knowledge, threatened against the Company Benefit Plans, any fiduciaries
thereof with respect to their duties to the Company Benefit Plans or the
assets of any of the trusts under any of the Company Benefit Plans that
could reasonably be expected to result in any material liability of the
Company or any Company Subsidiaries to the PBGC, the United States
Department of Treasury, the United States Department of Labor, any
Multiemployer Plan, any Company Benefit Plan or any participant in a
Company Benefit Plan.
(i) Taxes.
(i) The Company, each Company Subsidiary, and each consolidated,
unitary, or combined group (a "Group") of which the Company or a Company
Subsidiary has been a member, have filed all Tax Returns and reports
required to be filed by them or a request for extensions to file such
returns or reports has been timely filed, granted and has not expired, and
all such filed returns and reports are complete and accurate in all
material respects in so far as they relate to the Company or any Company
Subsidiary;
(ii) The Company and each Company Subsidiary have paid or withheld
and remitted (or the Group has paid on their behalf) all Taxes shown due
on such Tax Returns;
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(iii) The Company and each Company Subsidiary have withheld and paid
all Taxes required to have been withheld and paid in connection with any
amounts paid or owing to any employee, independent contractor, creditor,
stockholder or other third party;
(iv) There are no pending or threatened audits, examinations,
investigations or other proceedings in respect of Taxes relating to the
Company, a Company Subsidiary or any Group of which the Company or a
Company Subsidiary has been a member. There is no dispute or claim
concerning any material income Tax of any Group for any taxable period
during which the Company or any Company Subsidiary was a member. Each
deficiency resulting from any completed audit or examination relating to
any amount of Taxes by any taxing authority or any concluded litigation
has been timely paid;
(v) There are no liens for Taxes upon the assets of the Company or
any Company Subsidiary;
(vi) Neither the Company nor any Company Subsidiary has any
liability for Taxes for any person (other than the Company and the Company
Subsidiary) under Treasury Regulation Section 1.1502-6 (or any comparable
provision of state, local or foreign law);
(vii) Neither the Company, nor any Company Subsidiary, nor any Group
of which the Company or any Company Subsidiary has been a member, has
waived any statute of limitation with respect to Taxes or agreed to any
extension of time with respect to any Tax assessment or deficiency;
(viii) The Company and each Company Subsidiary have been included in
the consolidated federal income Tax Return of the affiliated group of
which National City Corporation ("NCC") is the common parent;
(ix) Neither the Company nor any Company Subsidiary has executed
or entered into with the Internal Revenue Service ("IRS"), or any taxing
authority, a closing agreement pursuant to Section 7121 of the Code, or
any similar provision of law, that will require any increase in taxable
income or alternative minimum taxable income, or any reduction in Tax
credits, for the Company or any Company Subsidiary for any taxable period
ending after the Closing Date;
(x) Neither the Company nor any Company Subsidiary has agreed to
make any adjustment pursuant to Section 481(a) of the Code (or any
predecessor provision) by reason of any change in any accounting method,
and there is no application pending with any taxing authority requesting
permission for any changes in any accounting method of the Company or any
Company Subsidiary that will or would reasonably cause any such entity to
include any adjustment in taxable income for any taxable period (or
portion thereof) ending after the Closing Date.
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(xi) In the past five years, neither the Company nor any Company
Subsidiary has distributed a corporation or has been distributed in a
transaction that is reported to qualify under Code Section 355.
(xii) As used in this Agreement, "Tax" means (A) any federal, state,
local and foreign Taxes, assessments and other governmental charges,
duties, impositions and liabilities, including Taxes based upon or
measured by gross receipts, income, profits, sales, use and occupation,
and value-added, ad valorem, transfer, franchise, withholding, payroll,
recapture, employment, excise and property Taxes, together with all
interest, penalties and additions imposed with respect to such amounts,
(B) any liability for the payment of any amounts of the type described in
clause (A) as a result of being a member of an affiliated, consolidated,
combined or unitary group for any period (including any liability for
Taxes as a member of a consolidated group under Treasury Regulation
1.1502-6) and (C) any liability for the payment of any amounts of the type
described in clauses (A) or (B) as a result of any express or implied
obligation to indemnify any other person. As used in this Agreement, "Tax
Returns" means all domestic and foreign (whether national, federal, state,
provincial, local or otherwise) Tax returns and reports required to be
filed by or with respect to the Company or any Company Subsidiary.
(j) Material Contracts. Section 3.1(j) of the Company Disclosure Letter
sets forth a complete and accurate list of every contract to which the Company
or any Company Subsidiary is a party to or bound by that (i) is a "material
contract" (as such term is defined in Item 601(b)(10) of Regulation S-K
promulgated by the SEC); or (ii) limits or restricts the Company or any Company
Subsidiary or that would, after the Effective Time, limit the Parent or any of
its affiliates, or any successor thereto, from engaging or competing in any line
of business or in any geographic area (each contract described in this Section
3.1(j), a "Material Contract"). Each Material Contract is a valid and binding
agreement of the Company or a Company Subsidiary, as the case may be, and is in
full force and effect, and neither the Company nor any Company Subsidiary, nor
to the knowledge of the Company or any Company Subsidiary, any other party
thereto, is in default or breach (or is in violation of a condition that, with
the passage of time or the giving of notice, would cause such a default) in any
respect under the terms of any such Material Contract, except for such breaches
or defaults as would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect on the Company. In addition,
Section 3.1(j) of the Company Disclosure Letter also includes a list of referral
agreements between the Company and any other party.
(k) Labor Matters. Neither the Company nor any Company Subsidiary is a
party to or otherwise bound by any collective bargaining agreement or other
contract with a labor union or labor organization. Neither the Company nor any
Company Subsidiary is subject to a dispute, strike, or work stoppage or
proceedings asserting that such entity has committed an unfair labor practice,
except as would not, individually or in the aggregate, be reasonably expected to
result in a Material Adverse Effect on the Company. To the knowledge of the
Company, as of the date of this Agreement, there are no organizational efforts
with respect to the formation of a collective bargaining unit presently being
made or threatened, involving employees of the Company or any Company Subsidiary
except for such formation as would not,
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individually or in the aggregate, be reasonably expected to result in a Material
Adverse Effect on the Company.
(l) Intellectual Property. The Company and each Company Subsidiary owns
or has a valid right to use all patents, trademarks, trade names, service marks,
domain names, copyrights, and any applications and registrations therefor,
technology, trade secrets, know-how, computer software and tangible and
intangible proprietary information and materials (collectively, "Intellectual
Property Rights") as are necessary in connection with the business of the
Company and any Company Subsidiary, taken as a whole, except where the failure
to own or have a valid right to use such Intellectual Property Right would not
reasonably be expected to result in a Material Adverse Effect on the Company.
Neither the Company nor any Company Subsidiary has infringed, misappropriated or
violated in any material respect any Intellectual Property Rights of any third
party, except where such infringement, misappropriation or violation would not
reasonably be expected to result in a Material Adverse Effect on the Company. To
the knowledge of the Company, no third party infringes, misappropriates or
violates any Intellectual Property Rights owned or exclusively licensed by or to
the Company or any Company Subsidiary, except where such infringement,
misappropriation or violation would not reasonably be expected to result in a
Material Adverse Effect on the Company.
(m) Voting Requirement. The affirmative vote of the holders of
two-thirds of the outstanding shares of Company Common Stock at the Company
Shareholders Meeting to adopt this Agreement, is the only vote of the holders of
any class or series of the Company's capital stock necessary to adopt and
approve this Agreement and the Merger and the transactions contemplated hereby
(the "Company Shareholder Approval").
(n) State Takeover Statutes. The Board of Directors of the Company has
taken all necessary action so that no "fair price," "moratorium," "control share
acquisition" or other anti-takeover law (each, a "Takeover Statute") (including
the control share acquisition provisions codified in Sections 1701.831 et seq.
of the OGCL and the moratorium provision codified in the Section 1704.01 et seq.
of the OGCL) is applicable to the Merger and the other transactions contemplated
by this Agreement. The Board of Directors of the Company has (i) duly and
validly approved this Agreement, (ii) determined that the transactions
contemplated by this Agreement are advisable and in the best interests of the
Company and its shareholders, (iii) unanimously resolved to recommend to such
shareholders that they vote in favor of the Merger (the "Company
Recommendation") and (iv) taken all corporate action required to be taken by the
Board of Directors of the Company for the consummation of the transactions
contemplated by this Agreement.
(o) Brokers. Except for Morgan Stanley & Co. Incorporated, no broker,
investment banker, financial advisor or other person is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company.
(p) Fairness Opinion. The Board of Directors of the Company has received
the opinion of Morgan Stanley & Co. Incorporated, subject to the qualifications
set forth therein, to the effect that, as of the date of such opinion, the
Merger Consideration to be received by the
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holders of shares of Company Common Stock pursuant to this Agreement is fair,
from a financial point of view, to such holders other than NCC.
(q) Environmental Matters. Except for matters that would not reasonably
be expected to result in a Material Adverse Effect on the Company: (i) the
Company and the Company Subsidiaries are in compliance with all applicable
Environmental Laws; (ii) to the knowledge of the Company, no property currently
owned or operated by the Company or any of the Company Subsidiaries (including
soils, groundwater, surface water, buildings or other structures) is
contaminated with any Hazardous Substance, which contamination would reasonably
be expected to require remediation by the Company or any of the Company
Subsidiaries pursuant to any Environmental Law; (iii) to the knowledge of the
Company, no property formerly owned or operated by the Company or any of the
Company Subsidiaries was contaminated with any Hazardous Substance during or
prior to such period of ownership or operation, which contamination would
reasonably be expected to require remediation by the Company or any of the
Company Subsidiaries pursuant to any Environmental Law; (iv) to the knowledge of
the Company, neither the Company nor any of the Company Subsidiaries is liable
for any Hazardous Substance disposal or contamination on any third party
property; (v) neither the Company nor any of the Company Subsidiaries has
received any written notice, demand, letter, claim or request for information
alleging that the Company or any of the Company Subsidiaries may be in violation
of, or subject to, liability under any Environmental Law; (vi) neither the
Company nor any of the Company Subsidiaries is subject to any written order,
decree, injunction or indemnity with any Governmental Entity or any third party
relating to liability under any Environmental Law or relating to Hazardous
Substances; and (vii) to the knowledge of the Company, there are no other
circumstances or conditions involving the Company or any of the Company
Subsidiaries that would reasonably be expected to result in any claim,
liability, investigation, cost or restriction on the ownership, use, or transfer
of any property pursuant to any Environmental Law. As used in this Agreement,
the term "Environmental Law" means any federal, state, local or foreign statute,
law, regulation, order, decree, permit, authorization, common law or legally
binding agency requirement relating to: (i) the protection, investigation or
restoration of the environment, health, safety or natural resources, (ii) the
handling, use, presence, disposal, release or threatened release of any
Hazardous Substance or (iii) noise, odor, indoor air, employee exposure,
wetlands, pollution, contamination or any injury or threat of injury to persons
or property relating to any Hazardous Substance. As used in this Agreement, the
term "Hazardous Substance" means (i) any substance that is listed, classified,
regulated or for which liability is imposed pursuant to any Environmental Law;
(ii) any petroleum product or by-product, asbestos-containing material,
lead-containing paint or plumbing, polychlorinated biphenyls, radioactive
material or radon; and (iii) any other substance that is the subject of
regulatory action by any Governmental Entity in connection with any
Environmental Law.
(r) Employment Agreements. Except as set forth in Section 3.1(r) of the
Company Disclosure Letter, there exist no written or oral employment,
consulting, noncompetition, severance, retirement, parachute, or indemnification
agreements between the Company or any Company Subsidiary and any current or
former officer, director, employee or agent of the Company or any Company
Subsidiary. The Company has made available to Parent prior to the execution of
this Agreement true and complete signed copies of each such agreement.
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(s) Payments Regarding NCC. Except as set forth in Section 3.1(s) of the
Company Disclosure Letter, there exists no arrangement pursuant to which any
officer or employee of NCC is, or may become entitled to any compensation from
the Company or benefit under an employment, consulting, noncompetition,
severance, retirement, parachute, or indemnification agreement or arrangement
with the Company or any other Company Benefit Plan. Except as set forth in
Section 3.1(s) of the Company Disclosure Letter, there are no, nor will there be
at the Effective Time any, amounts owing from the Company or any Company
Subsidiary to NCC or any of its Affiliates.
(t) UAL Transaction Agreements. Section 3.1(t) of the Company Disclosure
Letter contains a complete list of all agreements between the Company or any
Company Subsidiary, on the one hand, and any third party, on the other hand,
that deals with or relates to the provision of authorization, processing,
settlement, servicing, payment or other related activities with respect to debit
cards and credit cards honored by United Air Lines, Inc. (the "UAL Agreements").
Complete copies of the UAL Agreements have been made available to Parent.
Section 3.2 Representations and Warranties of Parent and Merger Sub.
Except as disclosed in the Parent SEC Documents filed with the SEC (it being
understood that any matter set forth in the Parent SEC Documents shall be deemed
to qualify any representation or warranty in this Article III only to the extent
that the description of such matter in the Parent SEC Documents would be
reasonably inferred to be a qualification with respect to such representation or
warranty) or as otherwise set forth in the parent disclosure letter delivered by
Parent to the Company prior to the execution of this Agreement (the "Parent
Disclosure Letter"), each of Parent and Merger Sub hereby represents and
warrants to the Company as follows:
(a) Organization, Standing and Corporate Power. Parent is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware, and has the requisite corporate power and authority to carry on its
business as now being conducted. Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of the State of Ohio and
has the requisite corporate power and authority to carry on its business as now
being conducted. Each of Parent and Merger Sub is duly qualified or licensed to
do business and is in good standing in each jurisdiction in which the nature of
its business or the ownership, leasing or operation of its properties makes such
qualification or licensing necessary, except for those jurisdictions where the
failure to be so qualified or licensed or to be in good standing, individually
or in the aggregate, would not reasonably be expected to result in a Material
Adverse Effect on Parent or Merger Sub. Parent has made available to the Company
prior to the execution of this Agreement complete and correct copies of its
certificate of incorporation and bylaws and the articles of incorporation and
code of regulations of Merger Sub, each as amended to date.
(b) Authority; Noncontravention. Each of Parent and Merger Sub has all
requisite corporate power and authority to enter into this Agreement, and to
consummate the transactions contemplated by this Agreement. The execution and
delivery of this Agreement by Parent and Merger Sub and the consummation by
Parent and Merger Sub of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and Merger
Sub. This Agreement has been duly executed and delivered by each of Parent
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and Merger Sub, and, assuming the due authorization, execution and delivery by
the Company, constitutes the legal, valid and binding obligation of each of
Parent and Merger Sub, enforceable against each of Parent and Merger Sub in
accordance with its terms, except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
generally affecting the rights of creditors and subject to general equity
principles. The execution and delivery of this Agreement by Parent and Merger
Sub does not, and the consummation of the transactions contemplated by this
Agreement and compliance with the provisions of this Agreement by Parent and
Merger Sub will not conflict with the certificate of incorporation or by-laws
(or comparable organizational documents) of Parent or Merger Sub. No consent,
approval, order or authorization of, action by or in respect of, or
registration, declaration or filing with, any Governmental Entity is required by
Parent or Merger Sub in connection with the execution and delivery of this
Agreement by Parent or Merger Sub or the consummation by Parent and Merger Sub
of the transactions contemplated hereby, except for: (i) the filing of the
Certificate of Merger with the Secretary of State of the State of Ohio and
appropriate documents with the relevant authorities of other states in which
Merger Sub is qualified to do business and such filings with Governmental
Entities to satisfy the requirements of state securities or "blue sky" laws;
(ii) the filing of a premerger notification and report form by Parent under the
HSR Act; (iii) any filings required under the Foreign Antitrust Laws; (iv) the
filings, reports, registrations, notices, consents, approvals or authorizations
required to be made by the NYSE and the Exchange Act; and (v) such consents,
approvals, orders, authorizations, actions, registrations, declarations or
filings the failure of which to be made or obtained (as applicable),
individually or in the aggregate, would not reasonably be expected to result in
a Material Adverse Effect on Parent or Merger Sub.
(c) Information Supplied. None of the information supplied or to be
supplied by or on behalf of Parent or Merger Sub specifically for inclusion or
incorporation by reference in the Proxy Statement will, at the date it is first
mailed to the Company shareholders or at the time of the Company Shareholders
Meeting contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading.
(d) Litigation. As of the date of this Agreement, there is no
investigation by a Governmental Entity or litigation, arbitration, or
administrative proceeding pending against or, to the knowledge of Parent,
threatened against Parent or Merger Sub as of the date of this Agreement that
would reasonably be expected to have the effect of preventing, delaying, making
illegal or otherwise interfering with the consummation of the transactions
contemplated by this Agreement.
(e) Financial Capability. Parent and Merger Sub, will have available at
the Effective Time sufficient funds to enable Parent and Merger Sub to pay in
full the Merger Consideration, the Option Consideration and all fees and
expenses payable by Parent and Merger Sub in connection with this Agreement and
the transactions contemplated thereby.
(f) Brokers. Except for consultants paid for by Parent, no broker,
investment banker, financial advisor or other person is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent or Merger Sub.
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(g) Merger Sub. As of the date of this Agreement, the authorized capital
stock of Merger Sub consists of 100 shares of common stock, par value $0.01 per
share, all of which are validly issued and outstanding. All of the outstanding
capital stock of Merger Sub is and at the Effect Time will be, owned by Parent
or a direct or indirect subsidiary of Parent. Merger Sub was formed solely for
the purpose of effecting the Merger and has not engaged in any business
activities or conducted any operations other than in connection with the Merger.
Except for obligations or liabilities incurred in connection with its
incorporation or organization, and except for this Agreement and any other
agreements or arrangements contemplated by this Agreement and the transactions
contemplated hereby and thereby, Merger Sub has not incurred, directly or
indirectly through any subsidiary, any obligations or liabilities or entered
into any agreement or arrangements with any person.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Conduct of Business.
(a) Conduct of Business by the Company. Except as set forth on Section
4.1(a) of the Company Disclosure Letter, or as otherwise contemplated by this
Agreement, during the period from the date of this Agreement to the Effective
Time, the Company shall, and shall cause the Company Subsidiaries to, carry on
their respective businesses in the ordinary course consistent with past practice
and, to the extent consistent therewith, use reasonable best efforts to preserve
intact their current business organizations, use reasonable best efforts to keep
available the services of their current officers and other key employees and
preserve their relationships with customers, suppliers, distributors, lessors
and other persons having business dealings with them. Without limiting the
generality of the foregoing (but subject to the above exceptions), during the
period from the date of this Agreement to the Effective Time, the Company shall
not, and shall not permit any Company Subsidiary to, without the prior written
consent of Parent:
(i) (A) other than dividends and distributions by a direct or
indirect wholly owned Company Subsidiary to the Company or another wholly
owned Company Subsidiary, declare, set aside or pay any dividends on, or
make any other distributions in respect of, any of its capital stock, (B)
split, combine or reclassify any of its capital stock, (C) except pursuant
to agreements entered into, or in existence on or prior to the date of
this Agreement (and previously disclosed to Parent), with respect to the
Company Stock Plans, purchase, redeem or otherwise acquire any shares of
capital stock of the Company or any of the Company Subsidiaries or any
other securities thereof or any rights, warrants or options to acquire any
such shares or other securities, or (D) enter into any agreement with
respect to the voting of its capital stock;
(ii) issue, deliver, sell, pledge or otherwise encumber or subject
to any Lien any shares of its capital stock, any other voting securities
or any securities convertible into, or any rights, calls, commitments,
warrants or options to acquire, any such shares, voting securities or
convertible securities, other than the issuance of shares by one Company
Subsidiary to the Company or any other Company Subsidiary or the
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issuance of shares of Company Common Stock upon the exercise of
outstanding Company Stock Options under the Company Stock Plans or in
connection with other outstanding awards under the Company Stock Plans, in
each case, and in accordance with their present terms;
(iii) adopt or propose any amendment to its articles of
incorporation or code of regulations (or other comparable organizational
documents);
(iv) merge or consolidate the Company or any Company Subsidiary
with any other person, except for any such transactions solely among
wholly-owned Company Subsidiaries, or acquire by purchasing any equity
interest in or a portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire any material amount
of assets of any other person (other than the purchase of assets from
suppliers or vendors in the ordinary course of business consistent with
past practice);
(v) sell, lease, license, mortgage or otherwise encumber or
subject to any Lien or otherwise dispose of any of its properties or
assets other than dispositions of properties and assets in the ordinary
course of business consistent with past practice or dispositions of such
properties and assets that, individually or in the aggregate, are not
material to the Company or any Company Subsidiary, and the granting of
Permitted Liens and Liens required under existing bank agreements;
(vi) except as required by law or as required by contracts or plans
entered into or in existence on or prior to the date of this Agreement
(and previously disclosed to Parent) and subject to Sections 4.1(a)(i) and
(ii), (A) except for normal increases in salary and wages in the ordinary
course of business consistent with past practice, grant any increase in
the compensation, including, without limitation, bonuses and incentives,
or benefits payable or to become payable by the Company or any Company
Subsidiary to any current or former director, officer, employee or
consultant; (B) adopt, enter into, establish, make any new grants or award
of, or amend or otherwise increase, reprice or accelerate the payment or
vesting of the amounts, benefits or rights payable or accrued or to become
payable or accrued under any Company Benefit Plan; (C) enter into or amend
any employment, severance, change in control agreement or any similar
agreement or any collective bargaining agreement or, except as required in
accordance with the Company's severance policy in effect on the date of
this Agreement and previously provided to Parent, grant any severance or
termination pay to any officer, director, consultant or employee of the
Company or any Company Subsidiaries; (D) pay or award any pension,
retirement, allowance or other non-equity incentive awards, or other
employee or director benefit not required by any outstanding Company
Benefit Plan; (E) enter into any agreement, plan or arrangement that would
be required to be listed on Section 3.1(s) of the Company Disclosure
Letter; or (F) hire any employee at a compensation level expected to be
more than $200,000 per annum;
(vii) (A) amend, terminate, or waive any material right or benefit
under any Material Contract, other than in the ordinary course of
business, (B) enter into any contract that would have been a Material
Contract had it existed on the date of this
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Agreement, (C) enter into any contract that would restrict or prevent,
after the Effective Time, Parent and its subsidiaries from engaging or
competing in any line of business or in any geographic area, (D) enter
into any contract that would restrict or prevent, after the Effective
Time, the Company or any of its subsidiaries from (1) engaging or
competing in any of Parent's businesses or in any geographic area or (2)
pricing, to the extent such contract contains a provision that restricts
pricing in any of Parent's businesses, and (E) enter into any contract
that is material that contains a change-of-control provision that would be
applicable to the Merger or the transactions contemplated by this
Agreement;
(viii) pay, discharge, compromise or settle any litigation or other
proceedings before a Governmental Entity for an amount in excess of
$1,000,000, individually or in the aggregate, or which would be reasonably
likely to have an adverse impact on the operations of the Company and the
Company Subsidiaries taken together as a whole;
(ix) pay, discharge, settle, compromise or satisfy any material
claims, liabilities or other obligations, other than in the ordinary
course of business consistent with past practice or in accordance with
their terms existing on the date hereof, or waive, release or assign any
material rights or claims other than in the ordinary course of business
consistent with past practice;
(x) implement or adopt any change in the accounting principles or
procedures used by it unless required by GAAP or by law;
(xi) prepare or file any Tax Return inconsistent in any material
respect with past practice or amend any Tax Returns except as required by
law or, except in the ordinary course of business and consistent with past
practice, make or rescind any express or deemed election or settle or
compromise any claim or action relating to Taxes, or change any of its
methods of accounting or of reporting income or deductions for Tax
purposes unless required by GAAP (or, if applicable with respect to
foreign subsidiaries, the relevant foreign generally accepted accounting
principles) or by law;
(xii) incur or modify any indebtedness for borrowed money or
guarantee such indebtedness of another person, or issue or sell any debt,
securities or warrants or other rights to acquire any debt security of the
Company or any Company Subsidiary; except for indebtedness for borrowed
money incurred in the ordinary course of business not to exceed $5,000,000
in the aggregate;
(xiii) make any loans, advances or capital contributions to any
other person (other than to the Company or any of its wholly owned
subsidiaries) other than in the ordinary course of business consistent
with past practice; or
(xiv) authorize, or commit or agree to take, any of the foregoing
actions; provided, however, that the limitations set forth in this Section
4.1(a) do not apply to any transaction to which the only parties are the
Company and wholly owned subsidiaries of the Company.
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(b) Other Actions. Except as required by law or permitted by this
Agreement, the Company and Parent shall not, and shall not permit any of their
respective subsidiaries to, voluntarily take any action that would reasonably be
expected to cause any of its representations and warranties herein to be untrue
or to result in any of the conditions to the Merger set forth in Article VI not
being satisfied.
Section 4.2 Acquisition Proposals.
(a) None of the Company, any Company Subsidiary or any of the officers
and directors of the Company or any Company Subsidiary shall, and the Company
shall cause its and the Company Subsidiaries' employees, agents and
representatives (including any investment banker, attorney or accountant
("Representatives") retained by it or any Company Subsidiary) not to, directly
or indirectly, initiate, solicit or knowingly encourage or facilitate any
inquiries or the making of any proposal or offer with respect to (i) a merger,
reorganization, share exchange, consolidation or similar transaction involving
the Company, (ii) any purchase of an equity interest representing an amount
equal to or greater than a 5% voting or economic interest in the Company or
(iii) any purchase of assets, securities or ownership interests representing an
amount equal to or greater than 15% of the consolidated assets of the Company
and the Company Subsidiaries taken as a whole (any such proposal or offer being
hereinafter referred to as an "Acquisition Proposal").
(b) None of the Company, any of the Company Subsidiaries or any of the
officers and directors of the Company or the Company Subsidiaries shall, and the
Company shall cause its and the Company Subsidiaries' employees, agents and
Representatives not to, directly or indirectly, engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any person relating to an Acquisition Proposal, or otherwise
knowingly encourage or facilitate any effort or attempt to make or implement an
Acquisition Proposal; provided, however, that nothing contained in this
Agreement shall prevent the Company or its Board of Directors from (i) complying
with its disclosure obligations under Rules 14d-9 and 14e-2 of the Exchange Act
with regard to an Acquisition Proposal and (ii) at any time prior to, but not
after, the time this Agreement is adopted by Company Shareholder Approval, (A)
providing information in response to a request therefor by a person who has made
an unsolicited bona fide written Acquisition Proposal that constitutes, or is
reasonably likely to result in, a transaction more favorable to the Company's
shareholders from a financial point of view than the transaction contemplated by
this Agreement, if the Board of Directors of the Company receives from the
person so requesting such information, an executed confidentiality agreement
containing provisions no more favorable to such person than those in the
Confidentiality Agreement; (B) engaging in any negotiations or discussions with
any person who has made an unsolicited bona fide written Acquisition Proposal
that constitutes, or is reasonably likely to result in, a transaction more
favorable to the Company's shareholders from a financial point of view than the
transaction contemplated by this Agreement, if the Board of Directors of the
Company receives from such person an executed confidentiality agreement
containing provisions no more favorable to such person than those in the
Confidentiality Agreement (other than standstill provisions); or (C)
recommending such an unsolicited bona fide written Acquisition Proposal to the
shareholders of the Company, if and only to the extent that, (x) in each such
case referred to in clause (A), (B) or (C) above, the Board of Directors of the
Company determines in good faith after consultation with outside legal counsel
that such action
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is reasonably likely to be necessary in order for its directors to act in a
manner consistent with their respective fiduciary duties under applicable law,
and (y) in the case of clause (C) above, the Board of Directors of the Company
determines in good faith (after consultation with its financial advisor and
outside counsel) that such Acquisition Proposal, if accepted, is reasonably
likely to be consummated, taking into account all legal, financial and
regulatory aspects of the proposal, the likelihood of obtaining financing, and
the person making the proposal, and if consummated, would result in a
transaction more favorable to the Company's shareholders from a financial point
of view than the transaction contemplated by this Agreement taking into account
any change in proposal proposed by Parent and Parent shall have had written
notice of the Company's intention to take the action referred to in clause (C)
at least three business days prior to the taking of such action by the Company;
provided, however, that any more favorable Acquisition Proposal referred to in
clause (y) above must involve 50% rather than the 15% used in subsection (iii)
of the definition of Acquisition Proposal.
(c) The Company will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any person conducted
heretofore with respect to any Acquisition Proposal. The Company agrees that it
will take the necessary steps to promptly inform the individuals or entities
referred to in the first sentence of Section 4.2(a) of the obligations
undertaken in this Section 4.2. The Company agrees that it will notify Parent
promptly, but in any event within two business days if any such written
inquiries, proposals or offers are received by, any such information is
requested from, or any such discussions or negotiations are sought to be
initiated or continued with, it or any of its Representatives indicating, in
connection with such notice, the name of such person and the material terms and
conditions of any proposals or offers and thereafter shall keep Parent informed
on a current basis, and, in any event, within 48 hours of any changes in the
status and terms of any such proposals or offers, including whether any such
proposal has been withdrawn or rejected. The Company also agrees to provide any
information to Parent that it is providing to another person pursuant to this
Section 4.2 at substantially the same time it provides it to such other person
and that it will promptly request each person that has heretofore executed a
confidentiality agreement in connection with its consideration of a transaction
with the Company to return all confidential information furnished prior to the
execution of this Agreement to or for the benefit of such person by or on behalf
of it or any of its Subsidiaries. The Company agrees promptly, but in any event,
within five days after the date of this Agreement, to request the return or
destruction of all information and materials provided prior to the date of this
Agreement by it, its affiliates or their respective Representatives with respect
to the consideration or making of any Acquisition Proposal.
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Preparation of Proxy Statement; Shareholders Meeting.
(a) Proxy Statement. The Company shall use its reasonable best efforts
to prepare and file, as promptly as practicable after the date of this
Agreement, the Proxy Statement with the SEC and shall promptly notify Parent of
receipt of all comments of the SEC with respect to the Proxy Statement and of
any request by the SEC for any amendment or supplement
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thereto or for additional information and shall promptly provide to Parent
copies of all correspondence between the Company and/or any of its
Representatives and the SEC with respect to the Proxy Statement. The Company
shall use its reasonable best efforts to promptly provide responses to the SEC
with respect to all comments received on the Proxy Statement and the Company
shall cause the definitive Proxy Statement to be mailed as promptly as
practicable, but in no event later than 5 business days after the date the SEC
staff advises it has no further comments thereon or that the Company may
commence mailing the Proxy Statement. Notwithstanding the foregoing, prior to
filing or mailing the Proxy Statement (or any amendment or supplement thereto)
or responding to any comments of the SEC with respect thereto, the Company (i)
shall provide Parent an opportunity to review and comment on such document or
response, (ii) shall include in such document or response all comments
reasonably proposed by Parent and (iii) shall not file or mail such document or
respond to the SEC prior to receiving Parent's approval, which approval shall
not be unreasonably withheld or delayed.
(b) The Company agrees that as to itself and each Company Subsidiary,
(x) the Proxy Statement and any amendment or supplement thereto will comply in
all material respects with the applicable provisions of the Exchange Act and the
rules and regulations promulgated thereunder by the SEC and (y) the information
supplied by or on behalf of the Company for inclusion or incorporation by
reference in the Proxy Statement shall not, on the date the Proxy Statement is
first mailed to shareholders of the Company or at the time of the Company
Shareholders Meeting, contain any untrue statement of a material fact, or omit
to state any material fact necessary in order to make the statements made in the
Proxy Statement, in light of the circumstances under which they are made, not
misleading.
(c) Company Shareholders Meeting. The Company shall, as promptly as
practicable following the date of this Agreement, convene and hold, a meeting of
its shareholders (the "Company Shareholders Meeting") in accordance with
applicable law, the Company's articles of incorporation and the Company's code
of regulations for the purpose of obtaining the Company Shareholder Approval. To
the extent necessary to act in a manner consistent with the fiduciary duties of
the Board of Directors under applicable law, the Company Recommendation shall be
included in the Proxy Statement and the Board of Directors of the Company shall
use its reasonable best efforts to solicit and obtain such Company Shareholder
Approval. In the event that subsequent to the date of this Agreement, the Board
of Directors of the Company determines after consultation with outside counsel
that it is necessary to withdraw, modify, or qualify the Company Recommendation
in a manner adverse to Parent in order to act in a manner consistent with its
fiduciary duties under applicable law, the Board of Directors may so withdraw,
modify or qualify the Company Recommendation, provided, however, unless this
Agreement is theretofore terminated, the Company shall nevertheless submit this
Agreement to the holders of shares of Company Common Stock for adoption at the
Company Shareholders Meeting.
Section 5.2 Access to Information; Confidentiality. To the extent
permitted by applicable law and subject to the Agreement, dated April 23, 2004,
between the Company and Parent (the "Confidentiality Agreement"), the Company
shall, and shall cause each Company Subsidiary to, upon reasonable notice and to
the extent permitted under applicable law and the provisions of agreements to
which the Company or a Company Subsidiary, as the case may be, is a party,
afford to Parent and its Representatives, reasonable access, during normal
business hours during the period prior to the Effective Time, to its properties,
books, contracts, commitments,
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personnel and records and other information concerning its business, properties
and personnel as Parent may reasonably request. Parent shall hold, and shall
cause its Representatives and affiliates to hold, any nonpublic information in
accordance with the terms of the Confidentiality Agreement. Any investigation
pursuant to this Section 5.2 shall be conducted in such a manner as not to
interfere unreasonably with the conduct of the business of the Company or any
Company Subsidiary; provided, however, that the foregoing shall not require the
Company to permit any inspection, or to disclose any information, that in the
reasonable judgment of the Company would violate any of its obligations with
respect to confidentiality if the Company shall have used reasonable efforts
(which shall not include the expenditure of funds) to obtain the consent of the
third party to such disclosure.
Section 5.3 Reasonable Best Efforts; Cooperation.
(a) Reasonable Best Efforts. Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties agrees to use
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the Merger and the other
transactions contemplated by this Agreement and to obtain satisfaction or waiver
of the conditions precedent to the Merger, including (i) the obtaining of all
necessary actions or nonactions, waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and filings
and the taking of all steps as may be necessary to obtain an approval or waiver
from, or to avoid an action or proceeding by, any Governmental Entity, (ii) the
obtaining of all necessary consents, approvals or waivers from third parties,
(iii) the defending of any lawsuits or other legal proceedings, whether judicial
or administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed, and (iv) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement. The Company further agrees to,
and shall direct the Company Subsidiaries to, assist in obtaining customer and
other consents required as a result of this Agreement and the transactions
contemplated hereby. Subject to applicable law, the Company further agrees to,
and shall direct the Company Subsidiaries to, reasonably assist and cooperate
with Parent in any integration planning to take effect after consummation of the
Merger; provided that any such integration planning takes place during normal
business hours and does not unreasonably interrupt the operation of the business
of the Company or the Company Subsidiaries as presently conducted. In addition,
the Company further agrees to cooperate with Parent in connection with the
implementation and assessment of internal controls over financial reporting to
assist Parent with compliance with Section 404 of Sarbanes-Oxley and to take
such other actions reasonably requested by Parent to further compliance with
Sarbanes-Oxley and the rules and regulations promulgated thereunder by the SEC
and NYSE; provided that any such cooperation takes place during normal business
hours and does not unreasonably interrupt the operation of the business of the
Company as presently conducted. Nothing set forth in this Section 5.3(a) will
limit or affect actions permitted to be taken pursuant to Section 4.2.
(b) Compliance with HSR Act. Parent and the Company shall (i) make the
filings required of such party under the HSR Act with respect to the Merger and
the other
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transactions contemplated by this Agreement within ten days after the date of
this Agreement, (ii) comply at the earliest practicable date with any request
under the HSR Act for additional information, documents or other materials
received by such party from the Federal Trade Commission or the Department of
Justice or any other Governmental Entity in respect of such filings or the
Merger and the other transactions contemplated by this Agreement, and (iii)
cooperate with the other party in connection with making any filing under the
HSR Act and in connection with any filings, conferences or other submissions
related to resolving any investigation or other inquiry by any such Governmental
Entity under the HSR Act with respect to the Merger and the other transactions
contemplated by this Agreement. Subject to applicable laws relating to the
exchange of information, Parent and the Company shall have the right to review
in advance, and to the extent practicable each will consult the other on, all
the information relating to Parent or the Company, as the case may be, and any
of their respective subsidiaries, that appear in any filing made with, or
written materials submitted to, any third party and/or any Governmental Entity
in connection with the Merger and the other transactions contemplated by this
Agreement. In exercising the foregoing right, each of the Company and Parent
shall act reasonably and as promptly as practicable. Each of Parent and the
Company will, and will cause each of their subsidiaries to, use its reasonable
best efforts to obtain (and will cooperate with each other in obtaining) the
termination of all waiting periods under the HSR Act and not to extend any
waiting period under the HSR Act. Prior to the termination of this Agreement,
each party shall be required to prosecute, cooperate in, and defend against any
litigation instituted by the Federal Trade Commission or the Department of
Justice or any other Governmental Entity which seeks to restrain or prohibit the
consummation of the Merger or which seeks to impose material limitations on the
ability of Parent, the Surviving Corporation or any of their respective
affiliates or subsidiaries to acquire, operate or hold, or to require Parent,
Surviving Corporation or any of their respective affiliates or subsidiaries to
dispose of or hold separate, any material portion of their assets or business or
the Company's assets or business after the Closing Date.
Section 5.4 Employee Benefits
(a) Parent agrees that it shall cause the Surviving Corporation to
provide compensation and benefits that are substantially comparable in the
aggregate to the benefits currently provided to similarly situated employees of
Parent or its subsidiaries, as applicable. Notwithstanding the foregoing,
nothing contained herein shall obligate Parent, the Surviving Corporation or any
affiliate of any of them to (x) maintain any particular Company compensation or
benefit plan, (y) grant or issue any equity or equity-based awards or (z) retain
the employment of any person employed by the Company or any Company Subsidiary
immediately prior to the Effective Time (the "Employees").
(b) For all purposes under the employee benefit plans of Parent and its
affiliates providing benefits to any Employees after the Effective Time (the
"New Plans"), each Employee shall receive credit for his or her service with the
Company and its affiliates before the Effective Time (including predecessor or
acquired entities or any other entities for which the Company and its affiliates
have given credit for prior service), for purposes of eligibility, vesting and
benefit accrual (but not (i) for purposes of eligibility for subsidized early
retirement benefits, (ii) for purposes of benefit accrual under defined benefit
pension plans and (iii) for any new program for which credit for benefit accrual
for service prior to the effective date of such
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program is not given to similarly situated employees of Parent other than the
Employees) to the same extent as such Employee was entitled, before the
Effective Time, to credit for such service under any similar or comparable
Company Benefit Plans (except to the extent such credit would result in a
duplication of accrual of benefits). In addition, and without limiting the
generality of the foregoing: (x) at the Effective Time, each Employee
immediately shall be eligible to participate, without any waiting time, in any
and all New Plans to the extent coverage under such New Plan replaces coverage
under a similar or comparable Company Benefit Plans in which such Employee
participated immediately before the Effective Time (such plans, collectively,
the "Old Plans"); and (y) for purposes of each New Plan providing medical,
dental, pharmaceutical and/or vision benefits to any Employee, Parent shall
cause all pre-existing condition exclusions and actively-at-work requirements of
such New Plan to be waived for such Employee and his or her covered dependents
to the extent such pre-existing condition exclusions and actively-at-work
requirements were inapplicable to or had been satisfied by such Employee and his
or her covered dependents immediately prior to the Effective Time under the
relevant Old Plan, and Parent shall cause any eligible expenses incurred by such
Employee and his or her covered dependents during the portion of the plan year
of the Old Plan ending on the date such Employee's participation in the
corresponding New Plan begins to be taken into account under such New Plan for
purposes of satisfying all deductible, coinsurance and maximum out-of-pocket
requirements applicable to such Employee and his or her covered dependents for
the applicable plan year as if such amounts had been paid in accordance with
such New Plan.
Section 5.5 Indemnification; Directors' and Officers' Insurance.
(a) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or administrative,
including any such claim, action, suit, proceeding or investigation in which any
individual who is now, or has been at any time prior to the date of this
Agreement, or who becomes prior to the Effective Time, a director, officer or
employee of the Company or any of the Company Subsidiaries or who is or was
serving at the request of the Company or any of the Company Subsidiaries as a
director, officer, employee or agent of another person (the "Indemnified
Parties"), is, or is threatened to be, made a party based in whole or in part
on, or arising in whole or in part out of, or pertaining to (i) the fact that
such individual is or was a director, officer or employee of the Company or any
Company Subsidiary or (ii) this Agreement or any of the transactions
contemplated by this Agreement, whether asserted or arising before the Effective
Time or asserted within six years after the Effective Time, the parties will
cooperate and use their reasonable best efforts to defend against and respond
thereto. For a period of six years after the Effective Time, Parent will
indemnify and hold harmless, as and to the fullest extent provided by applicable
law, the articles of incorporation and code of regulations of the Company and
any agreement specifically listed in Section 5.5 of the Company Disclosure
Letter, each such Indemnified Party against any losses, claims, damages,
liabilities, costs, expenses (including reimbursement for reasonable fees and
expenses incurred in advance of the final disposition of any claim, suit,
proceeding or investigation to each Indemnified Party as provided by the
articles of incorporation and code of regulations of the Company and any
agreement set forth in Section 5.5 of the Company Disclosure Letter), judgments,
fines and amounts paid in settlement in connection with any such threatened or
actual claim, action, suit, proceeding or investigation.
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(b) Parent will use its reasonable best efforts to cause the individuals
serving as officers and directors of the Company or any of the Company
Subsidiaries immediately prior to the Effective Time to be covered for six
annual periods after the Effective Time by directors' and officers' liability
insurance not substantially less favorable to the insureds than the policy
maintained by the Company immediately prior to the Effective Time (provided that
Parent may substitute therefor policies, including so-called "tail" policies, of
at least the same coverage and amounts containing terms and conditions that are
not less advantageous than such policy) with respect to acts or omissions
occurring prior to the Effective Time that were committed by such officers and
directors in their capacity as such.
(c) The provisions of this Section 5.5 will survive the Effective Time
and are intended to be for the benefit of, and will be enforceable by, each
Indemnified Party and his or her heirs and representatives.
(d) The rights of the Indemnified Parties and their heirs and legal
representatives under this Section 5.5 shall be in addition to any rights such
Indemnified Parties may have under the articles of incorporation or code of
regulations of the Company or any Company Subsidiary, or under any other
applicable laws.
(e) The obligations of Parent and the Surviving Corporation under this
Section 5.5 shall not be terminated or modified by Parent or the Surviving
Corporation in a manner as to adversely affect any Indemnified Party to whom
this Section 5.5 applies without the consent of the affected Indemnified Party.
In the event that either Parent or the Surviving Corporation or any of their
respective successors or assigns (A) consolidates with or merges into any other
Person or (B) transfers at least 50% of its assets or property to any Person,
then and in each such case, proper provision shall be made so that the
applicable successors and assigns or transferees assume the obligations set
forth in this Section 5.5.
Section 5.6 Public Announcements. Parent and the Company shall consult
with each other before issuing any press release or otherwise making any public
announcement with respect to the transactions contemplated by this Agreement,
including the Merger. The parties will provide each other the opportunity to
review and comment upon any press release or other public announcement or
statement with respect to the transactions contemplated by this Agreement,
including the Merger, and shall not issue any such press release or other public
announcement or statement prior to such consultation, except as may be required
by applicable law, fiduciary duties, court process or by obligations pursuant to
any listing agreement with any national securities exchange.
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Section 5.7 Section 16(b).
(a) Approval of Dispositions by Company's Board. Prior to the Effective
Time, the Company shall take all steps reasonably necessary to cause the
transactions contemplated hereby and any other dispositions of equity securities
of the Company (including derivative securities), in connection with this
Agreement by each individual who is subject to the reporting requirements of
Section 16(a) of the Exchange Act to be approved by Company's Board of Directors
or a committee of two or more Non-Employee Directors of the Company (as such
term is defined in Rule 16b-3 promulgated under the Exchange Act).
(b) Content of Approval. Such approval shall specify: (i) the name of
each officer or director, (ii) the number of securities to be disposed of for
each named person, and (iii) that the approval is granted for purposes of
exempting the transaction under Rule 16b-3 of the Exchange Act.
Section 5.8 Tax-Sharing Agreement. Any Tax-sharing agreement between NCC
and the Company or any Company Subsidiary will be terminated as of the Closing
Date and shall have no further effect for any taxable year (whether the current
year, a future year, or a past year).
Section 5.9 Parent Acknowledgement. Parent acknowledges that, after the
Effective Time, the Surviving Corporation and all of its subsidiaries shall
remain subject to the terms of that certain Noncompetition Agreement dated as of
July 11, 2001 by and among Affiliate Computer Services, Inc., ACS Data Entry,
Inc., ACS Business Process Solutions, Inc., ACS Business Process Solutions de
Mexico., S.A. de C.V., the Company, National Processing Company, LLC, NPC
Internacional S.A. de C.V. and NPC International (Barbados) Holdings Limited
(the "Noncompetition Agreement"). As required by Section 20 of the
Noncompetition Agreement, Parent agrees that it is bound by the provisions of
the Noncompetition Agreement but only with respect to the business, company or
assets acquired by it pursuant to the Merger and not as to any other business,
company or assets now or hereafter owned or operated by Parent or its
subsidiaries (other than, after the Effective Time, the Surviving Corporation
and all of its subsidiaries).
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Shareholder Approval. The Company Shareholder Approval shall have
been obtained in accordance with applicable law and the articles of
incorporation and code of regulations of the Company, and the Company shall
deliver evidence (i) of that approval and (ii) that holders of less than 10% of
the shares of the Company's capital stock issued and outstanding immediately
before the Closing are eligible to effectively assert their dissenters' rights
pursuant to Section 1701.85 of the OGCL.
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(b) Governmental and Regulatory Approvals. All consents, approvals and
actions of, filings with and notices to any Governmental Entity required of
Parent, Merger Sub, the Company or any Company Subsidiary to consummate the
Merger, the failure of which to be obtained or taken is reasonably expected to
materially impair the ability of the parties to consummate the Merger, must have
been obtained.
(c) HSR Act. The waiting period (including any extension thereof)
applicable to the consummation of the Merger under the HSR Act must have expired
or been terminated.
(d) No Injunctions or Restraints. No judgment, order, decree, statute,
law, ordinance, rule or regulation, entered, enacted, promulgated, enforced or
issued by any court or other Governmental Entity of competent jurisdiction or
other legal restraint or prohibition (collectively, "Restraints") shall be in
effect preventing the consummation of the Merger; provided, however, that each
of the parties shall have used its reasonable best efforts to prevent the entry
of any such Restraints and to appeal as promptly as possible any such Restraints
that may be entered.
Section 6.2 Conditions to Obligations of Parent and Merger Sub. The
obligation of Parent to effect the Merger is further subject to satisfaction or
waiver of the following conditions:
(a) Representations and Warranties. The representations and warranties
of the Company set forth herein must be true and correct in all respects
(without giving effect to any materiality or material adverse effect
qualifications contained therein) both when made and on and as of the Closing
Date, as though made on and as of the Closing Date (except to the extent
expressly made as of an earlier date, in which case as of such date), except
where the failure of such representations and warranties to be so true and
correct would not reasonably be expected to result in, individually or in the
aggregate, a Material Adverse Effect on the Company.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all agreements and obligations required to be
performed by it under this Agreement at or prior to the Closing Date.
(c) Officer's Certificate. The Company must have furnished Parent with a
certificate dated the Closing Date signed on its behalf by an executive officer
to the effect that the conditions set forth in Section 6.2(a) and Section 6.2(b)
have been satisfied.
(d) Commercial Agreements. The Company shall have delivered to Parent
executed copies of each of the commercial agreements between the Company and NCC
or an affiliate of NCC identified in Section 6.2(d) of the Company Disclosure
Letter in a form reasonably satisfactory to Parent.
(e) Consents Under Agreements. The Company shall have obtained the
consent or approval of each person whose consent or approval is required under
any Material Contract to which the Company or any Company Subsidiary is a party.
(f) Settlement Arrangement for the UAL Agreement. The Parent shall have
received the releases, guarantees and other agreements set forth in Schedule
6.2(f) of the
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Company Disclosure Letter or otherwise reasonably requested by Parent,
containing terms satisfactory to Parent, evidencing the allocation of liability
pursuant to the UAL Agreement; provided, however, that Parent shall have used
its reasonable best efforts to satisfy this condition, but in no event shall
Parent be required to make any payment with respect thereto.
(g) Consent Regarding ABN AMRO Merchant Services, LLC. The Company shall
have obtained a waiver relinquishing the rights of ABN AMRO Merchant Services,
LLC and Michigan National Bank to purchase the Company's 70% ownership interest
in ABN AMRO Merchant Services, LLC and a waiver by all applicable parties of any
restriction against competition contained in the applicable operating agreement
affecting Parent or the Company after the Effective Time; provided, however,
that Parent shall have used its reasonable best efforts to satisfy this
condition, but in no event shall Parent be required to make any payment with
respect thereto.
(h) No Litigation. There shall be no claim, litigation, arbitration or
administrative proceeding brought by a third-party seeking any injunction, writ,
order, ruling, judgment, decision or decree or similar legal or arbitral
adjudication seeking to limit Parent's or its Subsidiaries' business activities
as a result of the consummation of the Merger or any of the transactions
contemplated by this Agreement that has not been settled on terms satisfactory
to Parent.
Section 6.3 Conditions to Obligations of the Company. The obligation of
the Company to effect the Merger is further subject to satisfaction or waiver of
the following conditions:
(a) Representations and Warranties. The representations and warranties
of Parent and Merger Sub set forth herein must be true and correct in all
respects (without giving effect to any materiality or material adverse effect
qualifications contained therein) both when made and on and as of the Closing
Date, as though made on and as of such time (except to the extent expressly made
as of an earlier date, in which case as of such date), except where the failure
of such representations and warranties to be so true and correct would not
reasonably be expected to result in, individually or in the aggregate, a
Material Adverse Effect on Parent or Merger Sub.
(b) Performance of Obligations of Parent and Merger Sub. Each of Parent
and Merger Sub shall have performed in all material respects all agreements and
obligations required to be performed by it under this Agreement at or prior to
the Closing Date.
(c) Officer's Certificate. Each of Parent and Merger Sub must have
furnished the Company with a certificate dated the Closing Date signed on its
behalf by an executive officer to the effect that the conditions set forth in
Section 6.3(a) and Section 6.3(b) have been satisfied.
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ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination.
(a) Termination by Mutual Consent. This Agreement may be terminated at
any time prior to the Effective Time, whether before or after the Company
Shareholder Approval, by mutual written consent of Parent and the Company.
(b) Termination by Parent or the Company. This Agreement may be
terminated at any time prior to the Effective Time, by action of either Parent
or the Company:
(i) if the Merger shall not have been consummated by November 30,
2004 whether such date is before or after the Company Shareholder Approval
(the "Termination Date"); provided, however, that the right to terminate
this Agreement pursuant to this Section 7.1(b)(i) is not available to any
party whose breach of any provision of this Agreement results in or causes
the failure of the Merger to be consummated by such time;
(ii) if the Company Shareholders Meeting (including any adjournment
or postponement thereof) shall have concluded without the Company
Shareholder Approval having been obtained; or
(iii) if any Restraint having the effect set forth in Section 6.1(d)
shall be in effect and shall have become final and nonappealable;
provided, however, that the right to terminate this Agreement pursuant to
this Section 7.1(b)(iii) is not available to any party whose breach of any
provision of this Agreement results in or causes such Restraint or the
failure of such Restraint to be removed.
(c) Termination by Parent. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after the Company Shareholder
Approval, by action of Parent:
(i) if any of the conditions set forth in Section 6.1 or Section
6.2 shall have become incapable of being fulfilled at any time on or
before the Termination Date and shall not have been waived by Parent, and
Parent shall have provided the Company with written notice of its intent
to terminate this Agreement pursuant to this clause (i) at least three
business days prior to the effective date of such termination, if the
inability to fulfill the condition is not due to the failure of Parent or
Merger Sub to comply in all respects with its obligations under this
Agreement;
(ii) if the Board of Directors of the Company shall have withdrawn,
modified or qualified the Company Recommendation in a manner adverse to
Parent; or
(iii) if there shall have occurred any change, effect, event,
occurrence or state of facts that results in a Material Adverse Effect on
the Company.
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(d) Termination by the Company. This Agreement may be terminated at any
time prior to the Effective Time, whether before or after the Company
Shareholder Approval by the Company,
(i) if any of the conditions set forth in Section 6.1 or Section
6.3 shall have become incapable of being fulfilled at any time on or
before the Termination Date and shall not have been waived by the Company,
and the Company shall have provided Parent with written notice of its
intent to terminate this Agreement pursuant to this clause (i) at least
three business days prior to the effective date of such termination, if
the inability to fulfill the condition is not due to the failure of the
Company to comply in all respects with its obligations under this
Agreement; or
(ii) if the Board of Directors of the Company shall have withdrawn,
modified or qualified the Company Recommendation.
Section 7.2 Effect of Termination. In the event of termination of this
Agreement by either the Company or Parent as provided in Section 7.1, this
Agreement will forthwith become void and have no effect, without any liability
or obligation on the part of Parent, Merger Sub or the Company, other than the
provisions of this Section 7.2, Section 7.5 and Article VIII, which provisions
survive such termination; provided, however, that nothing herein will relieve
any party from any liability for any willful or intentional breach by such party
of this Agreement.
Section 7.3 Amendment. This Agreement may be amended by the parties at any
time before or after the Company Shareholder Approval; provided, however, that,
after the Company Shareholder Approval, there is not to be made any amendment
that by law requires further approval by the shareholders of the Company without
further approval of such shareholders. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties.
Section 7.4 Extension; Waiver. At any time prior to the Effective Time,
Parent and Merger Sub, on the one hand, and the Company, on the other hand, may
(a) extend the time for the performance of any of the obligations or other acts
of the other party or parties (as the case may be), (b) waive any inaccuracies
in the representations and warranties of the other party or parties (as the case
may be) contained in this Agreement or in any document delivered pursuant to
this Agreement or (c) subject to the proviso of Section 7.3, waive compliance by
the other party or parties (as the case may be) with any of the agreements or
conditions contained in this Agreement. Any agreement on the part of a party to
any such extension or waiver will be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise will not
constitute a waiver of such rights.
Section 7.5 Fees and Expenses.
(a) Except as set forth in Section 7.5(b), all fees and expenses
incurred in connection with the Merger, this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such fees and expenses,
whether or not the Merger is consummated.
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(b) If (i) the Company shall terminate this Agreement pursuant to
Section 7.1(d)(ii), or (ii) the Company shall have failed to hold the Company
Shareholder Meeting by November 19, 2004 for the purpose of obtaining the
Company Shareholder Approval and Parent terminates the Agreement pursuant to
Section 7.1(c)(i), then the Company shall pay to Parent, by wire transfer of
immediately available funds, the amount of $50,000,000 (the "Termination Fee")
on the date of such termination.
(c) The Company and Parent acknowledge that the agreements contained in
Section 7.5(b) are an integral part of the transaction contemplated in this
Agreement, and that, without these agreements, Parent would not enter into this
Agreement; accordingly, if the Company fails to promptly pay the Termination
Fee, and, in order to obtain such payment, Parent commences a suit that results
in a judgment against the Company for any of the Termination Fee, the Company
shall pay to Parent its costs and expenses (including attorneys' fees) in
connection with such suit, together with interest on the amount of the
Termination Fee at the prime rate of Parent in effect on the date such payment
was required to be made.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Nonsurvival of Representations and Warranties. None of the
representations, warranties, covenants and agreements in this Agreement will
survive the Effective Time, except the covenants and agreements contained in
Articles II and VIII and Sections 5.5 and 5.9, each of which will survive in
accordance with its terms.
Section 8.2 Notices. All notices, requests, claims, demands and other
communications under this Agreement must be in writing and will be deemed given
if delivered personally, telecopied (which is confirmed) or sent by a nationally
recognized overnight courier service (providing proof of delivery) to the
parties at the following addresses (or at such other address for a party as is
specified by like notice):
if to the Company, to:
National Processing, Inc.
1900 East Ninth Street
Cleveland, Ohio 44114
Telecopy No.: 216-222-7084
Attention: Jon Gorney
with a copy (which shall not constitute notice) to:
Jones Day
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Telecopy No.: (216) 579-0212
Attention: Lyle G. Ganske
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if to Parent, to:
Bank of America Corporation
100 North Tryon Street
NC1-007-20-01
Charlotte, North Carolina 28255
Telecopy No.: (704) 386-0181
Attention: General Counsel
with a copy (which shall not constitute notice) to:
Helms Mulliss & Wicker, PLLC
201 North Tryon Street
Charlotte, North Carolina 28202
Telecopy No.: (704) 343-2300
Attention: Boyd C. Campbell
if to Merger Sub, to:
Monarch Acquisition, Inc.
c/o: Bank of America Corporation
100 North Tryon Street
NC1-007-20-01
Charlotte, North Carolina 28255
Telecopy No.: (704) 386-0181
Attention: General Counsel
with a copy (which shall not constitute notice) to:
Helms Mulliss & Wicker, PLLC
201 North Tryon Street
Charlotte, North Carolina 28202
Telecopy No.: (704) 343-2300
Attention: Boyd C. Campbell
Section 8.3 Interpretation. When a reference is made in this Agreement to
an Article, Section or Exhibit, such reference is to an Article or Section of,
or an Exhibit to, this Agreement unless otherwise indicated. The table of
contents, table of defined terms and headings contained in this Agreement are
for reference purposes only and do not affect in any way the meaning or
interpretation of this Agreement. In the event of an ambiguity or question of
intent or interpretation, this Agreement shall be construed as if drafted
jointly by the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any provisions
of this Agreement. No provision of this Agreement will be interpreted in favor
of, or against any of the parties hereto by reason of the extent to which any
such party or its counsel participated in the drafting thereof or by reason of
the extent to which any such provision is inconsistent with any prior draft
hereof or thereof. Whenever the words "include," "includes" or "including" are
used in this Agreement, they will be deemed to be followed by the words "without
limitation." The words "hereof," "herein" and "hereunder" and
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words of similar import when used in this Agreement will refer to this Agreement
as a whole and not to any particular provision of this Agreement. All terms
defined in this Agreement will have the meanings ascribed to them herein when
used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein. The definitions contained in this Agreement
are applicable to the singular as well as the plural forms of such terms and to
the masculine as well as to the feminine and neuter genders of such term. Any
statute defined or referred to herein means such statute as is from time to time
amended or supplemented, including by succession of comparable successor
statutes. For purposes of this Agreement, (a) "person" means an individual,
corporation, partnership, limited liability company, joint venture, association,
trust, unincorporated organization or other entity (including its permitted
successors and assigns), (b) "knowledge" of any person that is not an individual
means the actual knowledge of such person's directors and executive officers,
(c) "affiliate" of any person means another person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, such first person, where "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management policies of a person, whether through the ownership of voting
securities, by contract or otherwise, (d) "Liens" means all pledges, claims,
liens, options, charges, easements, restrictions, adverse claims, covenants,
conditions of record, encroachments, encumbrances and security interests of any
kind or nature whatsoever, (e) a "subsidiary" of any person means another
person, an amount of the voting securities, other voting ownership or voting
partnership interests of which is sufficient to elect at least a majority of its
Board of Directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interest of which) is owned directly or
indirectly by such first person, (f) all dollar amounts are expressed in United
States funds, and (g) "Permitted Liens" means (i) Liens for Taxes or
governmental assessments or similar obligations the payment of which is not yet
due and payable or delinquent, or for Taxes the validity of which are being
contested in good faith by appropriate proceedings, (ii) statutory Liens of
landlords and Liens of carriers, warehousemen, mechanics, materialmen, and other
similar Liens imposed by applicable law incurred in the ordinary course of
business for sums not yet delinquent or being contested in good faith, (iii)
Liens relating to deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance, and other types of social
security, and (iv) Liens securing executory obligations under any lease,
regardless of whether it constitutes an "operating lease" or a "capitalized
lease" under GAAP.
Section 8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which will be considered one and the same agreement and
will become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 8.5 Entire Agreement; No Third-Party Beneficiaries. This Agreement
and the Confidentiality Agreement (a) constitute the entire agreement, and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter of this Agreement and (b) except
for the provisions of Section 5.5, are not intended to confer upon any person
other than the parties any rights or remedies.
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Section 8.6 Governing Law. This Agreement is to be governed by, and
construed in accordance with, the laws of the State of Ohio, regardless of the
laws that might otherwise govern under applicable principles of conflict of laws
thereof.
Section 8.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement may be assigned, in whole or in
part, by operation of law or otherwise by any of the parties hereto without the
prior written consent of each other party; provided, however, that Parent may
assign Merger Sub's rights, interests and obligations, in whole or in part,
under this Agreement to Parent or any other affiliate of Parent. Any assignment
in violation of this Section 8.7 will be void and of no effect. Subject to the
preceding two sentences, this Agreement is binding upon, inures to the benefit
of, and is enforceable by, the parties and their respective successors and
assigns.
Section 8.8 Consent to Jurisdiction. Each of the parties hereto (a)
consents to submit itself to the personal jurisdiction of the federal courts
located in the State of Ohio in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement, (b) agrees
that it will not attempt to deny or defeat such personal jurisdiction by motion
or other request for leave from any such court and (c) agrees that it will not
bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any other court.
Section 8.9 Specific Enforcement. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. The parties accordingly agree that the parties will be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any federal court
located in the State of Ohio, this being in addition to any other remedy to
which they are entitled at law or in equity.
Section 8.10 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement will
nevertheless remain in full force and effect so long as the economic and legal
substance of the transactions contemplated hereby are not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible to the fullest extent permitted by
applicable law in a mutually acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
Section 8.11 Disclosure Letters. Matters reflected in the Company
Disclosure Letter and the Parent Disclosure Letter are not necessarily limited
to matters required by this Agreement to be reflected in such Disclosure
Letters. Such additional matters may be set forth for informational purposes, do
not necessarily include other matters of a similar nature that are not required
to be reflected in such Disclosure Letters, and do not establish any standard or
definition of materiality. The Company Disclosure Letter and the Parent
Disclosure Letter have been arranged in a manner that corresponds to the
Sections of this Agreement; provided, however, that a disclosure made in any
section of the Company Disclosure Letter or the Parent
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Disclosure Letter that is sufficient to reasonably inform the recipient of
information required to be disclosed in another section of such Disclosure
Letter to avoid a misrepresentation under a Section of this Agreement shall be
deemed, for all purposes of this Agreement, to have been made under the other
section of such Disclosure Letter. The mere listing in the Company Disclosure
Letter or the Parent Disclosure Letter, however, of a document or other item
shall not be deemed adequate to disclose an exception to a representation or
warranty made in this Agreement (unless the representation or warranty has to do
with the existence of the document or other item itself or the mere listing of
the document or item in such Disclosure Letter otherwise reasonably informs the
recipient of an exception to the representation or warranty).
Section 8.12 Parent Commitment.
(a) If this Agreement is terminated solely as a result of the failure of
the condition set forth in Section 6.2(g) hereof, for a two-year period
beginning on the date of such termination, Parent and its affiliates agree that
they shall not enter into any agreement with ABN AMRO Bank, N.V. or any of its
affiliates (collectively, "ABN AMRO") for the purpose of conducting the Business
(as defined below).
(b) The provisions of this Section 8.12 shall not limit or interfere
with (i) the conduct by Parent and its affiliates of the Business as that
Business is conducted on the date hereof (including with ABN AMRO, but in such
case only to the extent so conducted on the date hereof), (ii) the ability of
Parent to acquire all or any part of the business, assets or operations of ABN
AMRO or (iii) Parent's ability in the future to conduct the Business alone or in
conjunction with any other third party (except as expressly limited in Section
8.12(a)).
(c) "Business" means the business of (i) authorizing, processing,
transmitting, settling and reporting Charge Card (as defined below) transactions
for merchants, (ii) the settlement and reporting of commission payments for car
rental companies, cruise line operators, tour operators and hotels and (iii) the
collection, settlement and reporting of health-care claims between insurance
payers and health-care providers; provided, however, that "Business" shall not
include (x) authorizing Charge Card transactions by a financial institution on
behalf of its own Charge Card holders or (y) the collection or settlement of
health-care claims by a financial institution on behalf of its customers in
connection with those customers' use of their checking, savings, money market,
Automated Clearinghouse (ACH) transfers (in connection with such financial
institution's cash management function) or similar accounts with such financial
institution. "Charge Card" means (i) a valid card issued by (A) an issuing
member of MasterCard Incorporated, International ("MasterCard") or VISA U.S.A.,
Inc. ("VISA") that contains the MasterCard service mark or the VISA Blue, White
and Gold bands design service mark (or such marks as MasterCard or VISA (or
their successors) may establish from time to time), or (B) American Express,
Discover, JCB International Co., Ltd., Diners Club or Carte Blanche and (ii) any
other card payment vehicles (including, but not limited to, on-line debit and
EBT cards).
(SIGNATURES ARE ON THE FOLLOWING PAGE.)
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement and Plan
of Merger to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
BANK OF AMERICA CORPORATION
By: /s/ Rose-Marie V. Stercay
----------------------------------------------
Name: Rose-Marie V. Stercay
Title: Senior Vice President
MONARCH ACQUISITION, INC.
By: /s/ Rose-Marie V. Stercay
----------------------------------------------
Name: Rose-Marie V. Stercay
Title: Vice President
NATIONAL PROCESSING, INC.
By: /s/ Jon L. Gorney
----------------------------------------------
Name: Jon L. Gorney
Title: Chairman and Chief Executive Officer
ANNEX B
SHAREHOLDERS AGREEMENT
This SHAREHOLDERS AGREEMENT (this "Agreement") is made and entered into as
of July 12, 2004, by and among Bank of America Corporation, a Delaware
corporation ("Parent"), and National City Corporation, a Delaware corporation
("Shareholder"), and a shareholder of National Processing, Inc., an Ohio
corporation (the "Company").
RECITALS
A. Concurrently with the execution of this Agreement, Parent,
Monarch Acquisition, Inc., an Ohio corporation and wholly owned indirect
Subsidiary of Parent ("Merger Sub"), and the Company are entering into an
Agreement and Plan of Merger, dated as of the date hereof (as such agreement may
hereafter be amended from time to time, the "Merger Agreement"), which provides
for the merger of Merger Sub with and into the Company (the "Merger"). Following
the Merger, the Company will continue as the surviving corporation (the
"Surviving Corporation"). In the Merger, each share of Company Common Stock,
other than Dissenting Shares and any shares of Company Common Stock owned by
Parent or Merger Sub or held in the treasury of the Company, will be converted
into the right to receive the Merger Consideration, on the terms and subject to
the conditions of the Merger Agreement.
B. As of the date hereof, Shareholder is the beneficial owner (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of
and has the sole right to vote and dispose of 44,365,400 shares of Company
Common Stock (the "Shares").
C. Shareholder is entering into this Agreement, and causing its
Subsidiary, National City Bank of Kentucky ("NCBK") to enter into that certain
Service and Sponsorship Agreement of even date herewith (the "Sponsorship
Agreement"), as a material inducement and consideration to each of Parent and
Merger Sub to enter into the Merger Agreement and for Parent to supply funds to
the Company to make payment under the Sponsorship Agreement.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained in this Agreement, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and upon the terms and subject to the conditions set forth herein,
the parties hereto agree as follows:
1. Definitions. Capitalized terms that are used in this Agreement
and are not otherwise defined herein will have the meanings ascribed to such
terms in the Merger Agreement.
(a) "Affiliate" of any Person means another Person that directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first Person, where "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management policies of a Person, whether through the ownership
of voting securities, by contract or otherwise.
(b) "Business" means the business of (i) authorizing, processing,
transmitting, settling and reporting Charge Card transactions for merchants,
(ii) the settlement and reporting of commission payments for car rental
companies, cruise line operators, tour operators and hotels and (iii) the
collection, settlement and reporting of health-care claims between insurance
payers and health-care providers; provided, however, that "Business" shall not
include (x) authorizing Charge Card transactions by a financial institution on
behalf of its own Charge Card holders or (y) the collection or settlement of
health-care claims by a financial institution on behalf of its customers in
connection with those customers' use of their checking, savings, money market,
Automated Clearinghouse (ACH) transfers (in connection with such financial
institution's cash management function) or similar accounts with such financial
institution.
(c) "Cash" means cash, cash equivalents and marketable securities
and excludes any cash in a settlement account at Shareholder but shall be deemed
to include any amounts paid by the Company from and including April 1, 2004
through and including September 30, 2004 for (i) legal fees and costs and
investment banking fees (including related costs) incurred by the Company in
connection with the negotiation, execution and performance of this Agreement and
the Merger Agreement and the transactions and other agreements contemplated
hereby and thereby and (ii) any severance or change in control payments made to
any employee of the Company resulting from consummation of the Merger.
(d) "Charge Card" means (i) a valid card issued by (A) an issuing
member of MasterCard International, Inc. ("MasterCard") or VISA U.S.A., Inc. or
VISA International Inc. (collectively, "VISA") that contains the MasterCard
service mark or the Visa Blue, White and Gold bands design service mark (or such
marks as MasterCard or VISA (or their successors) may establish from time to
time), or (B) American Express, Discover, JCB International Co., Ltd., Diners
Club or Carte Blanche and (ii) any other card payment vehicles (including, but
not limited to, on-line debit and EBT cards).
(e) "Commercial Agreements" means (i) the Sponsorship Agreement
and (ii) the Referral Agreement.
(f) "Person" means an individual, corporation, partnership,
limited liability company, joint venture, association, trust, unincorporated
organization or other entity (including its permitted successors and assigns).
(g) "Referral Agreement" means that certain Master Referral
Agreement of even date herewith between Parent and Shareholder.
(h) A "Subsidiary" of any Person means another Person, an amount
of voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its board of directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interest of which) is owned directly or indirectly by such first
Person.
(i) "Support Agreements" means those agreements entered into by
the Company or any Company Subsidiary in support of its obligations under the
UAL Agreement,
B-2
including agreements with MasterCard, VISA, any other Charge Card organizations
and NCBK and the Sponsorship Agreement.
(j) "Tax Returns" means all domestic and foreign (whether
national, federal, state, provincial, local or otherwise) Tax Returns and
reports required to be filed by or with respect to Shareholder, the Company or
any Company Subsidiary.
(k) "Termination Date" means the date the Merger Agreement is
terminated in accordance with its terms.
(l) "Transfer" with respect to any security means to directly or
indirectly: (i) sell, pledge, encumber, transfer or dispose of, or grant an
option with respect to, such security or any interest in such security; or
(ii) enter into an agreement or commitment providing for the sale, pledge,
encumbrance, transfer or disposition of, or grant of an option with respect to,
such security or any interest therein.
(m) "UAL Agreement" means the Charge Card Processing Agreement,
dated as of November 15, 2000, by and among National Processing, LLC (successor
by merger to National Processing Company), United Air Lines, Inc. ("UAL") and
NCBK.
2. General Representations and Warranties of Shareholder.
Shareholder hereby represents and warrants to Parent as follows:
2.1 Authority; Enforceability. Shareholder has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by Shareholder and the consummation by Shareholder of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Shareholder. This Agreement has been duly executed and delivered
by Shareholder, and, assuming the due authorization, execution and delivery by
Parent, constitutes the legal, valid and binding obligation of Shareholder,
enforceable against Shareholder in accordance with its terms, except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws generally affecting the rights of
creditors and subject to general equity principles.
2.2 Noncontravention; Consents. The execution and delivery of this
Agreement by Shareholder does not, and the consummation of the transactions
contemplated by this Agreement and compliance with the provisions of this
Agreement by Shareholder will not, (i) conflict with the Amended and Restated
Certificate of Incorporation or First Restatement of By-laws of Shareholder,
(ii) result in any breach, violation or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
creation or acceleration of any obligation or right of a third party or loss of
a benefit under, or result in the creation of any Lien upon any of the
properties or assets of Shareholder under, any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise, license or other authorization applicable to Shareholder
or its properties or assets or (iii) subject to the governmental filings and
other matters referred to in the following sentence, conflict with or violate
any law applicable to Shareholder or its properties or assets or
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any judgment, order or decree to which Shareholder or its properties or assets
have been specifically identified as subject, other than, in the case of clauses
(ii) and (iii), any such breaches, conflicts, violations, defaults, rights,
losses or Liens that, individually or in the aggregate, would not materially
impair the ability of Shareholder to consummate the transactions contemplated by
this Agreement. No consent, approval, order or authorization of, action by or in
respect of, or registration, declaration or filing with, any Governmental Entity
is required by Shareholder in connection with the execution and delivery of this
Agreement by Shareholder or the consummation by Shareholder of the transactions
contemplated hereby, except for the filing with the SEC of such reports under
Section 13(a), 13(d), 15(d) or 16(a) of the Exchange Act as may be required in
connection with this Agreement and the transactions contemplated hereby and such
consents, approvals, orders, authorizations, actions, registrations,
declarations or filings the failure of which to be made or obtained (as
applicable), individually or in the aggregate, would not materially impair the
ability of Shareholder to consummate the transactions contemplated by this
Agreement.
2.3 Shares Owned. As of the date hereof, Shareholder is the sole
record and beneficial owner of the Shares free and clear of any lien,
restriction, adverse claim, security interest or encumbrance. Shareholder holds
exclusive power to vote or transfer the Shares, subject to the limitations set
forth in this Agreement.
2.4 Employees. Since March 31, 2004, neither Shareholder nor any
of its Affiliates (other than the Company or any Company Subsidiary) has hired
any employee of the Company or any Company Subsidiary who is at a level of vice
president or above.
2.5 Taxes. Except as disclosed in Section 3.1(i) of the Company
Disclosure Letter:
(a) Shareholder has, or has caused to be, filed all Tax Returns
and reports required to be filed by it, or a request for extensions to file such
Tax Returns or reports has been timely filed, granted and has not expired, and
all such filed Tax Returns and reports are complete and accurate in all material
respects in so far as they relate to the Company and any Company Subsidiary;
(b) Shareholder, the Company, or a Company Subsidiary has paid or
withheld and remitted all Taxes shown due on such Tax Returns;
(c) Shareholder has withheld and paid, or has caused the Company
or a Company Subsidiary to withhold and pay, all Taxes required to have been
withheld and paid in connection with any amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party;
(d) There are no pending or threatened audits, examinations,
investigations or other proceedings in respect of Taxes relating to Shareholder
or any Group of which the Company or any Company Subsidiary has been a member.
There is no dispute or claim concerning any material income Tax liability of any
Group for any taxable period during which the Company or any Company Subsidiary
was a member. Each deficiency resulting from any
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completed audit or examination relating to any amount of Taxes by any taxing
authority or any concluded litigation has been timely paid;
(e) There are no liens for Taxes upon the assets of the Company or
any Company Subsidiary;
(f) Neither the Company nor any Company Subsidiary has any
liability for Taxes for any Person (other than the Company or any Company
Subsidiary under Treasury Regulation Section 1.1502-6 (or any comparable
provision of state, local or foreign law);
(g) Neither Shareholder, nor any Group of which the Company or any
Company Subsidiary has been a member, has waived any statute of limitation with
respect to Taxes attributable to the Company or any Company Subsidiary or agreed
to any extension of time with respect to any Tax assessment or deficiency;
(h) The Company and each Company Subsidiary has been included in
the consolidated federal income Tax Return of the affiliated group of which
Shareholder is the common parent;
(i) Shareholder has not executed or entered into with the IRS, or
any taxing authority, a closing agreement pursuant to Section 7121 of the Code,
or any similar provision of law, that will require any increase in taxable
income or alternative minimum taxable income, or any reduction in Tax credits,
for the Company or any Company Subsidiary for any taxable period ending after
the Closing Date;
(j) Shareholder has not agreed to make any adjustment pursuant to
Section 481(a) of the Code (or any predecessor provision) by reason of any
change in any accounting method, and there is no application pending with any
taxing authority requesting permission for any changes in any accounting method
of Shareholder, the Company or any Company Subsidiary that will or would
reasonably cause the Company or any Company Subsidiary to include any adjustment
in taxable income for any taxable period (or portion thereof) ending after the
Closing Date;
(k) In the past five years, neither the Company nor any Company
Subsidiary has distributed a corporation and has been distributed in a
transaction that is reported to qualify under Code Section 355.
3. Representations and Warranties of Parent. Parent hereby
represents and warrants to Shareholder as follows:
3.1 Authority; Enforceability. Parent has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by Parent and the consummation by Parent of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Parent. This Agreement has been duly executed and delivered by
Parent, and, assuming the due authorization, execution and delivery by
Shareholder, constitutes the legal, valid and binding obligation of Parent,
enforceable against Parent in accordance with its terms, except as the
enforcement thereof may be limited by applicable bankruptcy,
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insolvency, reorganization, moratorium or similar laws generally affecting the
rights of creditors and subject to general equity principles.
3.2 Noncontravention; Consents. The execution and delivery of this
Agreement by Parent does not, and the consummation of the transactions
contemplated by this Agreement and compliance with the provisions of this
Agreement by Parent will not conflict with the articles of association or bylaws
of Parent. No consent, approval, order or authorization of, action by or in
respect of, or registration, declaration or filing with, any Governmental Entity
is required by Parent in connection with the execution and delivery of this
Agreement by Parent or the consummation by Parent of the transactions
contemplated hereby, except for the filing with the SEC of such reports under
Section 13 or 16(a) of the Exchange Act as may be required in connection with
this Agreement and the transactions contemplated hereby and for such consents,
approvals, orders, authorizations, actions, registrations, declarations or
filings the failure of which to be made or obtained (as applicable),
individually or in the aggregate, would not materially impair the ability of
Parent to consummate the transactions contemplated by this Agreement.
4. Agreement to Vote.
4.1 Voting.
(a) Shareholder hereby covenants and agrees that, prior to the
Termination Date, at any meeting (whether annual or special and whether or not
an adjourned or postponed meeting) of the shareholders of the Company, however
called, and in any action taken by the written consent of shareholders of the
Company without a meeting, Shareholder will appear at the meeting or otherwise
cause the Shares to be counted as present thereat for purposes of establishing a
quorum and vote or consent or cause to be voted or consented the Shares:
(i) to the extent a vote is solicited in connection with the
approval of any action, agreement or proposal that would result in a breach of
any representation, warranty, covenant or obligation of the Company in the
Merger Agreement or that would delay or hinder the consummation of the Merger or
that would postpone or adjourn such meeting (unless consented to by Parent in
writing) or that would preclude fulfillment of a condition precedent to the
Closing under the Merger Agreement, against the approval of such action,
agreement or proposal; and
(ii) against approval of any action, agreement, merger,
consolidation, combination, control share acquisition, sale or transfer of a
material amount of assets, reorganization, going-private transaction or
recapitalization of the Company other than pursuant to the Merger Agreement and
the Merger.
(b) Prior to the Termination Date, Shareholder will not enter into
any agreement or understanding with any Person to vote or give instructions in
any manner inconsistent with any provision of this Section 4.1. This Agreement
is intended to bind Shareholder only with respect to the specific matters set
forth in this Agreement.
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4.2 Transfer and Other Restrictions.
(a) From the date hereof until the Termination Date, Shareholder
agrees not to, directly or indirectly:
(i) Transfer any or all of the Shares or any interest therein; or
(ii) grant any proxy, power of attorney, deposit any Shares into a
voting trust or enter into a voting agreement or arrangement with respect to the
Shares; or
(iii) take any other action that would make any representation or
warranty of Shareholder contained herein untrue or incorrect or have the effect
of preventing or disabling Shareholder from performing its obligations under
this Agreement.
(b) Shareholder agrees with, and covenants to, Parent that
Shareholder shall not request that the Company register the Transfer (book-entry
or otherwise) of any certificate or uncertificated interest representing any
Shares.
4.3 Adjustments.
(a) In the event (i) of any stock dividend, stock split,
recapitalization, reclassification, combination or exchange of shares of capital
stock or other securities of the Company on, of or affecting the Shares, or the
like, or any other action that would have the effect of changing Shareholder's
ownership of the Company's capital stock or other securities or (ii) Shareholder
becomes the beneficial owner of any additional shares of Company Common Stock or
other securities of the Company, then the terms of this Agreement will apply to
the shares of capital stock held by such Shareholder immediately following the
effectiveness of the events described in clause (i) or such Shareholder becoming
the beneficial owner thereof, as described in clause (ii), as though they were
Shares of such Shareholder hereunder.
(b) Shareholder hereby agrees, from the date hereof through the
Effective Time (or the Termination Date if the Merger Agreement is terminated in
accordance with its terms), to promptly notify the Company and Parent of the
number of any new shares of Company Common Stock or other securities of the
Company acquired by Shareholder after the date hereof.
4.4 Acquisition Proposals.
(a) Except to the extent that the Company and its Board of
Directors are permitted by Section 4.2 of the Merger Agreement, from the date
hereof through the Termination Date, none of Shareholder, any of its
Subsidiaries or any of the officers or directors of Shareholder or any of its
Subsidiaries shall, and Shareholder shall cause its and its Subsidiaries'
employees, agents and Representatives retained by it or any of its Subsidiaries
not to, directly or indirectly, initiate, solicit or knowingly encourage or
facilitate any inquiries or the making of any Acquisition Proposal.
(b) Except to the extent that the Company and its Board of
Directors are permitted by Section 4.2 of the Merger Agreement, from the date
hereof through the Termination
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Date, none of Shareholder, any of its Subsidiaries or any of the officers or
directors of Shareholder or any of its Subsidiaries shall, and Shareholder shall
cause its and its Subsidiaries' employees, agents and Representatives not to,
directly or indirectly, engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any Person
relating to an Acquisition Proposal, or otherwise knowingly encourage or
facilitate any effort or attempt to make or implement an Acquisition Proposal.
(c) Shareholder will immediately cease and cause to be terminated
any existing activities, discussions or negotiations between Shareholder and any
Person conducted heretofore with respect to any Acquisition Proposal.
Shareholder agrees that it will take the necessary steps to promptly inform the
individuals or entities referred to in the first sentence of Section 4.4(a) of
the obligations undertaken in this Section 4.4.
5. Termination.
(a) Upon the Termination Date, this Agreement will terminate and
be of no further force and effect, except for Sections 2, 5(a), 5(b), 5(c) and
10 hereof, which shall survive the Termination Date. At the Effective Time,
Sections 4, 5(b) and 5(c) hereof will terminate and be of no further force or
effect. Except as set forth in the preceding two sentences, this Agreement shall
not terminate except by mutual written agreement of Parent and Shareholder. The
termination of this Agreement or any provisions contained in this Agreement
shall not release any party from any liability for any breach of this Agreement
that occurred prior to such termination.
(b) If Shareholder (i) does not vote the Shares in favor of
adoption of the Merger Agreement or (ii) breaches its obligations under Section
4 hereof and (A) either the Company or Parent terminates the Merger Agreement
pursuant to Section 7.1(b)(ii) of the Merger Agreement or (B) the Merger
Agreement is terminated pursuant to Section 7.1(a), 7.1(b)(i) or 7.1(c) of the
Merger Agreement at a time when the Merger Agreement is terminable by Parent
pursuant to Section 7.1(b)(ii) of the Merger Agreement, Shareholder shall pay to
Parent, by wire transfer of immediately available funds, a fee in the sum of
$50.0 million (the "Termination Fee") within one business day after the date of
such termination; provided, however, that in no event will Parent be entitled to
receive the Termination Fee from Shareholder pursuant to this Section 5(b) if it
has received the termination fee from the Company pursuant to Section 7.5(b) of
the Merger Agreement.
(c) Shareholder and Parent acknowledge that the agreement
contained in Section 5(b) is an integral part of the transaction contemplated in
this Agreement and the Merger Agreement, and that, without this agreement,
Parent would not enter into this Agreement or the Merger Agreement; accordingly,
if Shareholder fails to promptly pay the Termination Fee, and, in order to
obtain such payment, Parent commences a suit that results in a judgment against
Shareholder for any of the Termination Fee, Shareholder shall pay to Parent its
costs and expenses (including attorneys' fees) in connection with such suit,
together with interest on the amount of the Termination Fee at the prime rate of
Parent in effect on the date such payment was required to be made.
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6. Noncompetition and Nonsolicitation Obligations.
6.1 Acknowledgments by Shareholder. Shareholder acknowledges that
(a) the Business prior to the Effective Time is continental in scope; (b) the
products and services related to such Business are marketed throughout North
America; (c) the Company's Business prior to the Effective Time competes with
other businesses that are or could be located in any part of North America; (d)
Parent has required that Shareholder make the covenants set forth in this
Section 6 as a condition to and inducement for Parent entering into this
Agreement and the Merger Agreement; (e) the provisions of this Section 6 are
reasonable and necessary to protect and preserve Parent's and the Company's
interests in and operation of the Business from and after the Effective Time;
(f) Parent and the Company would be irreparably damaged if Shareholder were to
breach the covenants set forth in this Section 6; and (g) the covenant in
Section 6.2(a) is reasonable with respect to its duration, geographical area and
scope. As used in this Section 6, "Territory" means (i) the United States and
(ii) North America.
6.2 Noncompetition and Nonsolicitation. For a period of three
years after the Effective Time (the "Term"):
(a) Shareholder will not, directly or indirectly (including
through a downstream Affiliate), engage or invest in, own (or have more than a
5% ownership interest in), manage, operate, control or participate in the
management, operation, control of, any Person engaged in the Business anywhere
within the Territory (a "Competing Activity"); provided, however, that a
Competing Activity shall in no case include (i) the performance by Shareholder
of its obligations under the Commercial Agreements, (ii) the performance by
Shareholder of its obligations related to retaining liability for the UAL
Agreement, (iii) subject to Shareholder's obligations under the Commercial
Agreements, Shareholder's or any of its Affiliates performing any agreement with
a third party requiring Shareholder or such Affiliate to refer business to such
third party that may compete with the Business or (iv) membership, participation
(including as a director, officer, committee or task force member or otherwise)
or an ownership interest in any debit card, ATM card, or credit card network
(the permitted activities set forth in clauses (i) and (ii) hereinafter being
referred to as the "Commercial Activities" and the permitted activities set
forth in clauses (i) through (iv) hereinafter being referred to as the
"Permitted Activities");
(b) Other than with respect to the Permitted Activities,
Shareholder will not, directly or indirectly (including through a downstream
Affiliate), induce or attempt to induce any customer, supplier, licensee or
other Person to cease doing business with the Company or any of Company
Subsidiary or in any way interfere with the relationship between any such
customer, supplier, licensee or other business entity and the Company or any
Company Subsidiary; and
(c) Other than with respect to the Permitted Activities,
Shareholder will not, directly or indirectly (including through a downstream
Affiliate), solicit the business of any Person known to Shareholder to be a
customer of the Company or any Company Subsidiary, whether or not Shareholder or
any such Affiliate had personal contact with such Person, with respect to
products or activities that compete in whole or in part with the Business.
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In the event of a breach by Shareholder or any Affiliate thereof of
any covenant set forth in this Section 6, the term of such covenant will be
extended by the period of the duration of such breach.
6.3 Exceptions.
(a) If Shareholder complies with Section 6.4 hereof, its
acquisition of a Person engaged in whole or in part (whether directly or through
another Person) in the Business (such Person's portion of the Business,
including, with respect to any interest of such Person in a joint venture, such
Person's interest in the joint venture, the "Third Party Processing Business")
will not constitute a breach of Shareholder's obligations under Section 6.2.
(b) Shareholder's acquisition by (including by merger) a Person
engaged in whole or in part in the Business will not constitute a breach of
Shareholder's obligations under Section 6.2 unless such acquisition of
Shareholder by such Person is structured as an acquisition of Shareholder for
the purpose of circumventing the restrictions contained in Section 6.2, in which
case the Third Party Processing Business of such acquiring Person shall be
subject to the provisions of Section 6.4 as if Shareholder or one of its
Affiliates were the acquiring party.
6.4 Parent Rights With Respect to Third Party Processing
Businesses.
(a) If, during the Term, Shareholder (directly or through a
downstream Affiliate) enters into a contract to acquire, and consummates its
acquisition of (whether during the Term or thereafter), a Third Party Processing
Business in the United States or any interest in any such business, except if
pursuant to Section 6.4(b) Shareholder decides not to sell such business,
Shareholder will promptly deliver to Parent (i) notice of that acquisition
accompanied by a description of the acquired business and financial information
in sufficient detail to permit Parent or a third party to determine whether
Parent desires to purchase such Third Party Processing Business and (ii) if the
Third Party Processing Business is subject to any operating or ownership
agreements, such as a joint venture or shareholders agreement, complete copies
of these documents (under standard confidentiality terms).
(b) If, during the Term, Shareholder (directly or through a
downstream Affiliate) enters into a contract to acquire, and consummates its
acquisition of (whether during the Term or thereafter), a Third Party Processing
Business that has a market share less than 5% of the Business in the United
States (based on purchase volume in U.S. dollars) and Shareholder determines to
dispose of such Third Party Processing Business, Parent shall have a right to
purchase such Third Party Processing Business under the terms described in the
following sentences in this subsection (b); provided, however, that if and when
Shareholder acquires multiple Third Party Processing Businesses that together
aggregate a market share equal to or greater than 5% of the Business in the
United States (based on purchase volume in U.S. dollars) such acquired
businesses shall be treated as the acquisition of a single Third Party
Processing Business as set forth in Section 6.4(c) hereof. Within 30 days of the
closing of Shareholder's acquisition, Shareholder shall provide to Parent the
information described in Section 6.4(a). Within 30 days after receipt of the
last of such information, Parent shall notify Shareholder in writing whether or
not it desires to purchase such Third Party Processing Business (the "Notice").
If it elects to purchase such business, (i) for a period no longer than 15 days,
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Shareholder and Parent shall attempt in good faith to agree upon an independent
valuation expert experienced in the field of valuation of merchant processing
businesses or (ii) if agreement has not been reached within such period, Parent
and Shareholder shall each select an independent valuation expert experienced in
the field of valuation of merchant processing businesses and those two
individuals shall select a third such expert (in either the case of (i) or (ii),
the "Valuation Expert"). Shareholder shall provide or cause to be provided to
the Valuation Expert information and access to personnel regarding the Third
Party Processing Business (under standard confidentiality terms) reasonably
sufficient for it to render its valuation. Within 30 days of its appointment,
using customary valuation techniques, the Valuation Expert shall render an
opinion as to the fair market value of the Third Party Processing Business,
which shall be binding (the "Fair Market Value"). If Parent has elected to
purchase the Third Party Processing Business and has caused the parties to
initiate the valuation process described above, and after such valuation
process, Parent determines that it does not want to pursue such purchase, it
shall reimburse Shareholder for its expenses related to such valuation process.
If Parent determines to pursue such purchase, Parent shall then be obligated to
purchase the Third Party Processing Business for Fair Market Value and on other
terms mutually agreed by Shareholder and Parent negotiating in good faith and
using all reasonable efforts to close such transaction within 12 months of the
date of Shareholder's acquisition of such Third Party Processing Business. If
Parent elects not to purchase the Third Party Processing Business, Shareholder
may retain such Third Party Processing Business.
(c) If, during the Term, Shareholder (directly or through a
downstream Affiliate) enters into a contract to acquire, and consummates its
acquisition of (whether during the Term or thereafter), a Third Party Processing
Business that has a market share equal to or greater than 5% of the Business in
the United States (based on purchase volume in U.S. dollars), Shareholder must
sell such Third Party Processing Business within 18 months of the closing of its
acquisition; provided, however, that if Parent elects not to purchase such Third
Party Processing Business, and Shareholder's acquisition of such Third Party
Processing Business closes after the Term, Shareholder may retain such Third
Party Processing Business. Parent shall have the right to purchase such Third
Party Processing Business under the terms described in the following sentences
in this subsection (c). Within 30 days of the closing of Shareholder's
acquisition, Shareholder shall provide to Parent the information described in
Section 6.4(a). Within 30 days after receipt of the last of such information,
Parent shall notify Shareholder in writing (i) that it desires to purchase the
applicable Third Party Processing Business or (ii) that it does not desire to
purchase such business. If Parent notifies Shareholder of its desire to purchase
such business, it must then either (x) commit to purchasing such business at a
Fair Market Value determined by a Valuation Expert selected in accordance with
the procedure set forth in Section 6.4(b) or (y) notify Shareholder to conduct
an auction process to sell the Third Party Processing Business. If Shareholder
initiates an auction process pursuant to the preceding sentence, Parent must be
permitted the opportunity to participate in such process with the same rights as
any other participant. If the purchase is to be based on Fair Market Value
determined by the Valuation Expert, Shareholder shall provide or cause to be
provided to the Valuation Expert information and access to personnel regarding
the Third Party Processing Business (under standard confidentiality terms)
reasonably sufficient for it to render its valuation. Within 30 days of its
appointment, using customary valuation techniques, the Valuation Expert shall
render an opinion as to the Fair Market Value. Parent shall then be obligated to
purchase the Third Party Processing Business for Fair Market Value and on other
terms mutually agreed by Shareholder
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and Parent negotiating in good faith and using all reasonable efforts to close
such transaction within 12 months of the date of Shareholder's acquisition of
such Third Party Processing Business.
(d) If the acquired Third Party Processing Business represents
less than 100% ownership of the entity in which such Third Party Processing
Business is conducted and such entity is subject to option or similar agreement
giving Shareholder the right to dissolve, withdraw from or otherwise acquire a
portion of the Business, the Parent shall have the right to purchase that
acquired interest using the valuation method set forth in Section 6.4(b).
(e) Notwithstanding the foregoing provisions in this Section 6.4,
with respect to any Third Party Processing Business that consists of
Shareholder's or its Affiliate's interest in a joint venture, Shareholder or its
Affiliate, as applicable, need only exercise all reasonable efforts to carry out
the intent of this Section 6.4 and shall not be required to breach any written
agreement governing that joint venture.
6.5 Restrictions on Soliciting Employees. During the Term,
Shareholder shall not, and shall cause each of its directors, officers,
employees, agents, assigns, Affiliates and Representatives (collectively, the
"Related Parties") not to, without the prior written approval of the Parent,
directly or indirectly, solicit, hire, employ, or intentionally encourage,
entice or induce, or assist any other Person in so doing, as an employee or
independent contractor, any individual who is an employee of the Company or any
Company Subsidiary as of the date hereof (i) with a base salary in excess of
$100,000, (ii) with a title of vice president or above or (iii) who is employed
in a sales position (exclusive of employees who serve in principally
administrative support position); provided, however, that the foregoing
prohibitions shall not be deemed to be violated by any general solicitation of
employment not specifically directed at such employees, including advertising of
open positions, participating in job fairs or other generalized forms of
solicitation or response to unsolicited inquiries about employment opportunities
or if any such person contacts Shareholder of his or her own initiative without
any direct or indirect solicitation by, or encouragement from, Shareholder.
6.6 Remedies. If Shareholder breaches the covenants set forth in
this Section 6, Parent and the Company will be entitled to the following
remedies: (a) other than with respect to Section 6.4, damages from Shareholder
and (b) injunctive or other equitable relief (other than the right to offset) to
restrain any breach or threatened breach or otherwise to specifically enforce
the provisions of this Section 6, it being agreed that money damages alone would
be inadequate to compensate the Company and Parent and would be an inadequate
remedy for such breach. The rights and remedies of the Company and Parent in
this Section 6 are cumulative and not alternative, and are in addition to any
other remedies the Company and Parent has under this Agreement or by law.
6.7 Severability. Whenever possible, each provision and term of
this Section 6 will be interpreted in a manner to be effective and valid, but if
any provision or term of this Section 6 is held to be prohibited or invalid,
then such provision or term will be ineffective only to the extent of such
prohibition or invalidity, without invalidating or affecting in any manner
whatsoever the remainder of such provision or term or the remaining provisions
or terms of this Section 6. If any of the covenants set forth in this Section 6
are held to be unreasonable,
B-12
arbitrary or against public policy, such covenants will be considered divisible
with respect to scope, time and geographic area, and in such lesser scope, time
and geographic area, will be effective, binding and enforceable against
Shareholder to the greatest extent permissible.
7. Nondisclosure of Proprietary Information.
(a) Other than to the extent necessary with respect to the
Commercial Activities, at any time after the Effective Time, Shareholder shall
not, and shall cause its Related Parties not to, at any time, except as required
by law or the disclosure requirements of any applicable stock exchange or the
SEC, make use of in competition with the Parent, the Company or any of their
respective Affiliates, divulge or otherwise disclose, directly or indirectly,
any trade secret, proprietary data, pricing or other confidential information
(including, but not limited to, any customer list, record or financial
information) concerning the Business or the Company's customers that Shareholder
or such Related Party may have learned as an owner, shareholder, employee,
officer or director of the Company (collectively, the "Company Proprietary
Information"). Notwithstanding the foregoing, Company Proprietary Information
shall not include (i) any information that has become generally available in the
public domain other than through a disclosure by Shareholder or a Related Party
of Shareholder that is prohibited by this Section 7(a) or (ii) is shown to have
been received by Shareholder or a Related Party of Shareholder from a Person
that is not (A) a Related Party of the Company or the Parent or (B) under a
restriction against divulging Company Proprietary Information.
(b) Notwithstanding the foregoing Section 7(a), in the event that
Shareholder or any of its Related Parties is requested or required (under
applicable laws or by oral questions, interrogatories, requests for information
or documents by any Governmental Entity or other Person in legal proceedings,
subpoenas, civil investigative demands or other similar process) to disclose any
Company Proprietary Information, such Shareholder or Related Party so requested
or required shall provide the Company with prompt written notice of any such
request or requirement so that the Company may object to production, seek a
protective order or other appropriate remedy and/or waive compliance with the
provisions of this Agreement. If, in the absence of a protective order or other
remedy or the receipt of a waiver of the Company, Shareholder or a Related Party
is nonetheless legally compelled to disclose such Company Proprietary
Information, Shareholder or such Related Party may, without liability hereunder,
disclose only that portion of the Company Proprietary Information that is
legally required to be disclosed.
8. Tax Matters.
8.1 Tax Periods Ending Before the Closing Date.
(a) Shareholder shall (i) prepare and file all federal and state
income and franchise Tax Returns for the Company or any Company Subsidiary with
respect to all periods ending before the Closing Date that are due before the
Closing Date, (ii) prepare and file or cause the Company or any Company
Subsidiary to prepare and file all other Tax Returns, reports and forms for the
Company or any Company Subsidiary that are due before the Closing Date and (iii)
pay all Taxes with respect to clause (i) shown on such Tax Returns and at the
time of such filing shall pay or shall cause the Company and any Company
Subsidiary, as applicable, to pay all
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Taxes with respect to clause (ii) shown on such returns. All such Tax Returns
shall be prepared in a manner consistent with prior practices for the Company or
any Company Subsidiary.
(b) Parent shall prepare and file, or cause the Company or a
Company Subsidiary to prepare and file, all other Tax Returns due on or after
the Closing Date (other than income Tax Returns with respect to periods for
which a consolidated, unitary or combined income Tax Return of Shareholder will
include the operation of the Company or any Company Subsidiary) with respect to
taxable periods ending before the Closing Date in a manner consistent with prior
practices for the Company or any Company Subsidiary, except for changes
necessary to comply with changes in, or application of, Tax law. Notwithstanding
preparation of such Tax Returns, Shareholder shall be solely responsible for any
Taxes incurred before the Closing Date in excess of any Taxes properly accrued
on the books of the Company and any Company Subsidiary as of the Closing Date,
excluding penalties solely attributable to the negligence of or the late filing
of such Tax Returns by Parent or the Company or any Company Subsidiary after the
Closing Date and net of any Tax overaccruals.
(c) The filing party shall submit any such federal or state income
or franchise Tax Returns to the reviewing party a reasonable number of days
before the due date thereof (including any extensions that have been properly
filed and copied to the reviewing party). The filing party shall submit all
other Tax Returns to the reviewing party a reasonable number of days before the
due date thereof (including any extensions that have been properly filed and
copied to the other) to allow for reasonable review and comment. The reviewing
party shall have the right to review and comment and consent to the form and
substance of such Tax Returns (which consent may not be unreasonably withheld).
Upon agreement with respect to the form and substance of such Tax Return, the
filing party shall cause such Tax Return to be filed. If the filing party does
not prepare and submit such Tax Return within the period set forth herein, the
reviewing party may prepare and file (or cause to be prepared and filed) such
Tax Return in a manner consistent with prior practices for the Company or any
Company Subsidiary.
8.2 Tax Periods Beginning Before and Ending After the Closing
Date.
(a) Parent shall prepare or cause to be prepared and file or cause
to be filed any Tax Returns for the Company and any Company Subsidiary for Tax
periods beginning before and ending after the Closing Date in a manner
consistent with prior practices for the Company and any Company Subsidiary,
except for changes necessary to comply with changes in, or application of, Tax
law. Notwithstanding preparation of such Tax Returns, Shareholder shall be
solely responsible for any Taxes incurred before the Closing Date in excess of
any Taxes properly accrued on the books of the Company and any Company
Subsidiary as of the Closing Date, excluding penalties solely attributable to
the negligence of or the late filing of such Tax Returns by Parent or the
Company or any Company Subsidiary after the Closing Date and net of any Tax
overaccruals.
(b) For purposes of this Section 8.2, the portion of Taxes
incurred before the Closing Date shall be allocated (i) based on an interim
closing of the books as of the Closing Date with respect to Taxes determined on
the basis of income and (ii) on a per diem basis with respect to all other
Taxes.
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(c) Parent shall submit all Tax Returns to Shareholder a
reasonable number of days before the due date thereof (including any extensions
that have been properly filed and copied to the other) to allow for reasonable
review and comment. Shareholder shall have the right to review and comment and
consent to the form and substance of any such Tax Return prepared by Parent
(which consent may not be unreasonably withheld). Upon agreement with respect to
the form and substance of such Tax Return, Parent shall cause such Tax Return to
be filed. If Parent does not prepare and submit such Tax Return within the
period set forth herein, Shareholder may prepare and file (or cause to be
prepared and filed) such Tax Return in a manner consistent with prior practices
for the Company or any Company Subsidiary, as the case may be.
8.3 Tax Periods Beginning On or After the Closing Date. Parent
shall prepare or cause to be prepared and file or cause to be filed all Tax
Returns for the Company and any Company Subsidiary for Tax periods beginning on
or after the Closing Date and shall be solely responsible for any Taxes incurred
on or after the Closing Date.
8.4 Cooperation on Tax and Other Matters.
(a) (i) Shareholder shall have the right to elect to control any
audit or examination by any taxing authority, file any amended return, contest,
resolve and defend against any assessment, notice of deficiency or other
adjustment or proposed adjustment relating or with respect to any federal or
state income Taxes of the Company and any Company Subsidiary for all Tax periods
ending before the Closing Date and (ii) Parent shall have the right to elect to
control any audit or examination by any taxing authority, initiate any claim for
refund, file any amended return, contest, resolve and defend against any
assessment, notice of deficiency or other adjustment or proposed adjustment
relating or with respect to any Taxes, other than those described in Section
8.4(a)(i), of the Company and any Company Subsidiary for all Tax periods;
provided, however, that each party shall promptly notify the other of any audit,
proceeding or other event described above in clause (i) or (ii) (each, an
"Event"), and the parties shall consult with each other with respect to the
resolution of any issue relating to Taxes arising as a result of or in
connection with each Event and shall not, without prior consent of the other
party, finally settle, compromise or resolve any matter related to such Event if
such final settlement, compromise or resolution would result in liability to the
other party. Shareholder shall not settle any audit or examination in a manner
that would adversely effect the Company or any Company Subsidiary after the
Closing Date without the prior written consent of Parent, which consent shall
not be unreasonably withheld. Parent shall not settle any audit or examination
in a manner that would adversely effect Shareholder or its Affiliates without
the prior written consent of Shareholder, which consent shall not be
unreasonably withheld. To the extent a party controls any Event as provided in
this Section 8.4(a), such party shall pay the costs and expenses relating
thereto.
(b) Shareholder shall have the right to control an Event that
relates only to its Taxes for Tax periods ending before the Closing Date. If
such Event and the resolution thereof may involve, or have any effect on, the
Taxes or liability of the Company or any Company Subsidiary or Parent after the
Effective Time, Shareholder shall promptly notify Parent of such Event, and
Shareholder shall consult with Parent with respect to the resolution of any
issue relating to Taxes arising as a result of or in connection with such Event
and shall not, without the
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prior consent of Parent, finally settle, compromise or resolve any matter
related to such Event if such final settlement, compromise or resolution would
result in liability to Parent, the Company or any Company Subsidiary. To the
extent Shareholder controls any Event as provided in this Section 8.4(b),
Shareholder shall pay the costs and expenses relating thereto, other than the
costs and expenses related to Parent's review and consultation.
(c) The parties shall cooperate fully, as and to the extent
reasonably requested by any other party, in connection with the filing of Tax
Returns pursuant to this Section 8 and any audit, litigation, examination or
other judicial or administrative proceeding with respect to Taxes or preparation
of other financial or accounting reports or other documents. Such cooperation
shall include the retention and (upon the other party's request and sole
expense) the provision of records and information that are reasonably relevant
to any such audit, litigation or other proceeding and making employees available
on a mutually convenient basis to provide additional information and explanation
of any material provided hereunder. The parties further agree, upon request,
that they will use commercially reasonable efforts to obtain any certificate or
other document from any Governmental Entity or any other Person as may be
necessary to mitigate, reduce or eliminate any Tax that could be imposed
(including with respect to the transactions contemplated hereby). Shareholder
may not make any Tax election regarding the Company or any Company Subsidiary
from the date hereof through the Closing Date without the prior written consent
of Parent, which consent may be withheld in its sole discretion. Parent may not
make any Tax election regarding the Company or any Company Subsidiary after the
Closing Date that could have an adverse impact on Shareholder or any of its
Affiliates for a Tax period ending on or prior to the Closing Date.
(d) Parent and Shareholder will provide reasonable assistance and
access to records as reasonably requested by each other, including the testimony
of employees, officers, experts and other witnesses within its control, in the
defense of any claim, lawsuit, Tax examination or other proceeding relating to
the Company or any Company Subsidiary. The requesting party shall reimburse all
direct expenses incurred by the other party in providing such assistance.
(e) Post-Closing Elections. At Shareholder's request, Parent shall
cause the Company or any Company Subsidiary to make or join with Shareholder in
making any election if the making of such election does not have an adverse
impact on Parent (or the Company or any Company Subsidiary) for any Tax period
ending after the Closing Date.
(f) Carrybacks. Shareholder shall pay to Parent any Tax refund (or
reduction in Tax liability) resulting from a carryback of a Tax attribute
arising in a taxable period beginning after the Closing Date of the Company or
any Company Subsidiary into Shareholder's consolidated Tax Return, when such
refund (or reduction) is realized by Shareholder or any Affiliate. Shareholder
shall be entitled to retain any Tax refund (or reduction in Tax liability)
resulting from a carryback of a Tax attribute arising in a taxable period ending
on or before or including the Closing Date. At Parent's request, Shareholder
will cooperate with the Company and any Company Subsidiary in obtaining a refund
(or reduction), including through the filing of amended Tax Returns or refund
claims to the extent relating to a Tax period ending after the Closing Date,
provided that the costs associated with any such filing or cooperation shall be
borne solely by Parent. Parent agrees to indemnify Shareholder for any Taxes
resulting from the
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disallowance of any post-acquisition Tax attribute on audit or otherwise.
Notwithstanding anything in this Section 8.4(f) to the contrary, in no event
will Shareholder be required to cooperate with the Company and any Company
Subsidiary in obtaining a refund (or reduction) for a Tax period ending after
the Closing Date if such action could result in an adverse Tax or financial
impact on Shareholder or any of its Affiliates.
(g) Carryovers. Shareholder shall be entitled to elect to retain
any net operating loss carryovers or capital loss carryovers of the Company or
any Company Subsidiary relating to a period ending on or prior to the Closing
Date.
(h) Tax-Sharing Agreement. Any Tax-sharing agreement between
Shareholder and the Company or any Company Subsidiary will be terminated as of
the Closing Date and shall have no further effect for any taxable year (whether
the current year, a future year, or a past year).
9. Indemnification.
9.1 UAL Liability. Parent and Shareholder agree that all
liabilities arising from the relationships between the Company and the Company
Subsidiaries, on the one hand, and United Airlines, Inc. and its Affiliates, on
the other hand, whether arising from the UAL Agreement or any other agreement or
course of conduct, shall be exclusively the obligation and liability of
Shareholder. Accordingly, the parties shall take all steps appropriate to
transfer to Shareholder, all past, present and future liability for the UAL
Agreement and the Support Agreements as fully as if Shareholder had been the
party contracting to such agreements in place of the Company, and Shareholder
shall indemnify the Parent Group (as defined below) as provided in this
Agreement. Notwithstanding the generality of the foregoing:
(a) Shareholder shall pay in a timely fashion the entire cost of
performance and shall satisfy all other obligations (other than those paid by
NCBK under the Sponsorship Agreement) under the UAL Agreement and the Support
Agreements, including, without limitation, the following (collectively, the "UAL
Agreement Liability"):
(i) the Company's (or any Company Subsidiary's) past activities
under the UAL Agreement or any Support Agreement that result from a
breach of the UAL Agreement or any Support Agreement or that result
in a third party Claim;
(ii) any transactions processed under the UAL Agreement, the
Support Agreements or otherwise on behalf of UAL or any of its
Affiliates, or the credit or debit card charges incurred in
connection with those transactions, whether past, present or future,
that may result in any charge, chargeback, recapture, refund, fee,
tax, claim or other payment made upon the Company or any Company
Subsidiary;
(iii) the Company's (or any Company Subsidiary's) processing or
transmitting of electronic data for UAL pursuant to the UAL
Agreement or the Sponsorship Agreement whether prior to or after the
Effective Time (provided that in connection with future transactions
Parent shall cause the Company to follow the reasonable, good faith
directions of Shareholder in performing under such
B-17
contract) that may result in any charge, chargeback, recapture,
refund, fee, tax, claim or other payment made upon the Company or
any Company Subsidiary;
(iv) any guarantee between the Company (or any Company Subsidiary)
and MasterCard, VISA or any other Charge Card organization as well
as any contractual obligation or commitment or payment or
reimbursement obligation owing to MasterCard, VISA or any other
Charge Card organization arising from any transaction processed for
UAL or any guarantee of the payment of that transaction;
(v) any sponsor agreement, obligation or guarantee by the Company
or any Company Subsidiary in favor of NCBK;
(vi) any charge, chargeback, recapture, refund, fee, Tax, Claim or
other payment made upon, or payments by, the Company or any Company
Subsidiary as a result of the failure by UAL to pay any of such
amounts; and
(vii) the Company's (or any Company Subsidiary's) cost for
rendering, processing or subprocessing services on behalf of
Shareholder in connection with the UAL Agreement as provided in the
Sponsorship Agreement.
(b) Shareholder shall indemnify, defend, reimburse and hold
harmless the Parent and its Affiliates, and each officer, director and employee
of the Parent or of any of its Affiliates and their respective heirs, successors
and assigns (collectively, the "Parent Group"), from and against all Claims (as
defined in Section 9.4), as asserted against, resulting to, imposed upon or
incurred by any member of the Parent Group, directly or indirectly, arising
from:
(i) any litigation or other proceedings in bankruptcy initiated by
or on behalf of UAL or any creditor of, or trustee for, UAL;
(ii) by any third party resulting from the failure or omission by
the Company, prior to the Effective Time, to make or accurately
report or disclose the scope, nature or amount of its liability,
potential liability or risk exposure with respect to UAL as required
under applicable law; and
(iii) the UAL Agreement, Shareholder's (or any of its Affiliates')
relationship with UAL or any obligation of NCBK to the Company (or
any of its Affiliates) under the Sponsorship Agreement.
9.2 General Indemnity. Upon the terms and subject to the
conditions of this Section 9, Shareholder shall indemnify, defend, reimburse and
hold harmless the Parent Group from and against all Claims, as incurred,
asserted against, resulting to, imposed upon or incurred by any member of the
Parent Group, directly or indirectly, arising from:
(a) if, and to the extent that, Parent or its Affiliate has
suffered provable monetary damages, the breach or violation of Sections 6 or 7
of this Agreement;
(b) the breach or violation of Sections 2.4, 2.5, 8 or 9.1 of this
Agreement;
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(c) any and all Taxes of any (i) member of a Group (other than the
Company or any Company Subsidiary) of which the Company or any Company
Subsidiary (or any predecessor of any of the foregoing) is or was a member on or
prior to the Closing Date, including pursuant to Treasury Regulation Section
1.1502-6 or any analogous or similar state, local, or foreign law or regulation,
and (ii) Person (other than the Company or any Company Subsidiary) imposed on
the Company or any Company Subsidiary as a transferee or successor, by contract
or pursuant to any law, rule or regulation, which Taxes relate to an event or
transaction occurring before the Effective Time.
9.3 Purchase Price Indemnity. Shareholder shall reimburse Parent:
(a) in an amount equal to (i) (A) the Merger Consideration times
(B) the number of shares of Company Common Stock issued and outstanding at the
Effective Time, including restricted shares, in excess of (1) 53,344,125 plus
(2) the number of shares of Company Common Stock underlying any Company Options
listed in Section 3.1(c) of the Company Disclosure Letter exercised between the
date hereof and the Effective Time, if any, plus (ii) (A) the number of shares
of Company Common Stock underlying any Company Options not listed in Section
3.1(c) of the Company Disclosure Letter times (B) the Merger Consideration minus
the exercise price of such Company Options; and
(b) in an amount equal to (i) 0.83 times (ii) the amount by which
the Cash on the Company's balance sheet on September 30, 2004 is less than the
sum of (A) $322 million plus (B) the aggregate exercise price of all Company
Options exercised between the date hereof and September 30, 2004 (the sum of
clauses (A) and (B), the "Threshold Amount"); provided, however, that in no
event will the amount of reimbursement pursuant to this Section 9.3(b) exceed
(x) 0.83 times (y) (1) the Threshold Amount minus (2) $296 million.
9.4 Any member of the Parent Group claiming entitlement to
indemnification pursuant to this Section 9 is hereinafter sometimes referred to
as an "Indemnified Party". The term "Claim" means and includes any and all
liabilities, losses, damages, claims, costs and expenses, Taxes, interest,
awards, charges, assessments, litigation, proceeding, investigation, settlement,
judgment or judicial compromise (whether voluntary or involuntary), judgments
and penalties (including, without limitation, reasonable attorneys' and
consultants' fees and expenses) actually suffered or incurred by any Indemnitee
(including, without limitation, any action brought or otherwise initiated by any
of them), including any consequential, punitive, special or incidental damages
paid to any third party, but excluding any consequential, punitive, special or
incidental damages awarded to Parent or its Affiliates. For purposes of
determining the amount of a Claim from an underaccrual of income Taxes, such
amount shall be reduced by any Tax benefit (including any future Tax benefit)
derived by the Company or Shareholder in connection with that underaccrual. To
avoid duplication of payments hereunder, if any, whenever following receipt of
an indemnification payment, either party receives insurance proceeds or other
third-party payment with respect to the same Claim for which indemnification has
been paid, the amount of the indemnification payment duplicated will be refunded
to the party making payment.
9.5 Procedures.
B-19
(a) An Indemnified Party shall give Shareholder written notice of
any matter that such Indemnified Party has determined has given or could give
rise to a right of indemnification under this Agreement within 20 days of such
determination, stating the indemnifiable amount, if known, and method of
computation thereof. The failure by any Indemnified Party so to notify
Shareholder shall not relieve Shareholder from any liability which it may have
to such Indemnified Party under this Section 9, except to the extent that
Shareholder demonstrates that it has been materially prejudiced by such failure
(except that Shareholder shall not be liable for any expense incurred during the
period, if any, from the date that is 20 days after such determination to the
date the Indemnified Party provides notice hereunder). If Shareholder does not
notify the Indemnified Party in writing within 20 days following its receipt of
such notice that Shareholder disputes its liability to the Indemnified Party
under this Section 9, such Claim specified by the Indemnified Party in such
notice shall be conclusively deemed a liability of Shareholder under this
Section 9 and Shareholder shall pay the amount of such liability to the
Indemnified Party on demand or, in the case of any notice in which the amount of
the Claim (or any portion thereof) is estimated, on such later date when the
amount of such Claim (or such portion thereof) becomes finally determined. If
Shareholder has timely disputed its liability with respect to such Claim, as
provided above, Shareholder and the Indemnified Party shall proceed in good
faith to negotiate a resolution of such dispute and, if not resolved through
negotiations and paid within 20 days, such dispute shall be resolved by
litigation in an appropriate court of competent jurisdiction pursuant to the
terms hereof.
(b) Shareholder shall have the right to compromise or, if
appropriate, defend any Claim at its own cost and, except as provided in the
Shareholder Disclosure Letter delivered herewith, through counsel of its own
choosing. In the event Shareholder undertakes to compromise or defend any Claim,
it shall promptly (and in any event, no later than 20 days after receipt of the
applicable notice of the Claim from the Indemnified Party) notify the
Indemnified Party in writing of its intention to do so. The Indemnified Party
shall fully cooperate with Shareholder and its counsel in the defense or
compromise of such Claim (including by making available to Shareholder all
books, records and other documents and materials that are under the direct or
indirect control of the Indemnified Party and that are reasonably necessary or
desirable for the defense of such matter). After the assumption of the defense
by Shareholder, the Indemnified Party shall not be liable for any legal or other
expenses subsequently incurred by Shareholder in connection with such Claim,
including any costs or expenses associated with the compromise or resolution of
the Claim (unless Shareholder disputes its liability for such indemnification
Claim and a final, nonappealable court order or judgment determines that
Shareholder is not liable to indemnify the Indemnified Party), but the
Indemnified Party (unless the claim involves Taxes) may participate in such
defense at its own expense. No settlement of a Claim defended by Shareholder
shall be made without the prior written consent of the Indemnified Party, such
consent not to be unreasonably withheld. Shareholder shall not, except with the
prior written consent of the Indemnified Party, consent to the entry of a
judgment or settlement of a Claim that does not include as an unconditional term
thereof, the giving by the claimant and/or plaintiff to the Indemnified Party of
an unconditional release from all liability in respect of such Claim. If notice
is given to Shareholder of a Claim and Shareholder does not, within 20 days
after the Indemnified Party's notice is given, give notice to the Indemnified
Party of its election to assume the defense of such Claim, Shareholder will be
bound by any determination made in a proceeding with respect to such Claim or
any compromise or settlement effected by the Indemnified Party.
B-20
(c) Notwithstanding the foregoing, if an Indemnified Party
determines in good faith that there is a reasonable probability that a
proceeding involving a Claim may adversely affect it or its Affiliates other
than as a result of monetary damages for which it would be entitled to
indemnification under this Agreement, the Indemnified Party may, by notice to
Shareholder, assume the exclusive right to defend, compromise or settle such
proceeding; provided, that the Indemnified Party may not settle or compromise
any such claim or demand without the prior written consent of Shareholder, such
consent not to be unreasonably withheld.
9.6 Procedure for Calculating Cash at the Effective Time. Within
30 days after the earlier to occur of October 31, 2004 or the Closing Date,
Parent shall deliver to Shareholder its calculation (in a manner consistent with
the Company's past practice) of Cash at the Effective Time with supporting
documentation (the "Calculations"). If Shareholder disputes Parent's calculation
of Cash, Shareholder shall give Parent notice within 15 days of receipt of the
Calculations, (i) setting forth Shareholder's calculation of Cash and (ii)
specifying in reasonable detail Shareholder's basis for its disagreement with
Parent's Calculations. The failure by Shareholder to notify Parent of its
disagreement within such 15 calendar-day period will constitute Shareholder's
acceptance of Parent's computation of Cash. If Shareholder and Parent are unable
to resolve any disagreement between them within 10 calendar days after
Shareholder's giving the notice of disagreement, the items in dispute will be
referred for determination to a nationally recognized accounting firm
independent of Shareholder and Parent and mutually acceptable to Shareholder and
Parent (the "Accountants"). The Accountants will make a determination as to each
of the disputed items, which determination will be (w) in writing, (x) furnished
to each of Shareholder and Parent as promptly as practicable after the referral
of the disputed items to the Accountants but in any event no later than 15
calendar days after being retained, (y) made in accordance with this Agreement
and (z) conclusive and binding on Shareholder and Parent. The fees and expenses
of the Accountants in connection with the determination referred to in this
Section 9.5 will be borne equally by Shareholder and Parent.
10. Miscellaneous.
10.1 Further Assurances. The parties shall execute such further
instruments and take such further actions as may reasonably be necessary to
carry out the intent of this Agreement. Each party hereto shall cooperate with
the other party hereto, to the extent reasonably requested by such party, to
enforce rights and obligations herein provided.
10.2 Limitation. Shareholder will retain at all times the right to
vote the Shares, in Shareholder's sole discretion, on all matters, other than
those set forth in Section 4.1, which are at any time or from time to time
presented to the Company's shareholders generally.
10.3 Severability. If any term in or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement will
nevertheless remain in full force and effect. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible to the fullest
extent permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
B-21
10.4 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties.
10.5 Extension; Waiver. Either Parent or Shareholder may (a) extend
the time for the performance of any of the obligations or other acts of the
other party, (b) waive any inaccuracies in the representations and warranties of
the other party contained in this Agreement, or (c) waive compliance by the
other party with any of the agreements contained in this Agreement. Any
agreement on the part of a party to any such extension or waiver will be valid
only if set forth in an instrument in writing signed on behalf of such party.
The failure of any party to this Agreement to assert any of its rights under
this Agreement or otherwise will not constitute a waiver of such rights.
10.6 Entire Agreement; No Third-Party Beneficiaries. This
Agreement, together with the Shareholder Disclosure Letter delivered herewith
(which shall be incorporated herein be reference) constitutes the entire
agreement, and supersedes all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter of this Agreement
and is not intended to confer upon any Person other than the parties any rights
or remedies.
10.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement may be assigned, in whole or in
part, by operation of law or otherwise by any of the parties hereto without the
prior written consent of each other party. Any assignment in violation of this
Section 10.7 will be void and of no effect. Subject to the preceding two
sentences, this Agreement is binding upon, inures to the benefit of, and is
enforceable by, the parties and their respective successors and assigns.
10.8 Governing Law. This Agreement is to be governed by, and
construed in accordance with, the laws of the State of Ohio, regardless of the
laws that might otherwise govern under applicable principles of conflict of laws
thereof.
10.9 Jurisdiction. With respect to any matter that may be litigated
hereunder, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of the federal courts located in the State of Ohio in the
event any dispute arises out of this Agreement or any of the transactions
contemplated by this Agreement, (b) agrees that it will not attempt to deny or
defeat such personal jurisdiction by motion or other request for leave from any
such court and (c) agrees that it will not bring any action relating to this
Agreement or any of the transactions contemplated by this Agreement in any other
court. The parties waive their right to jury trial.
10.10 Notices. All notices, requests, claims, demands and other
communications under this Agreement must be in writing and will be deemed given
if delivered personally, telecopied (which is confirmed) or sent by a nationally
recognized overnight courier service (providing proof of delivery) to the
parties at the following addresses (or at such other address for a party as is
specified by like notice):
B-22
If to Parent:
Bank of America Corporation
100 North Tryon Street
NC1-007-20-01
Charlotte, North Carolina 28255
Attention: General Counsel
Telecopy No.: (704) 386-0181
With a copy (which shall not constitute notice) to:
Helms Mulliss & Wicker, PLLC
201 North Tryon Street
Charlotte, North Carolina 28202
Attention: Boyd C. Campbell
Telecopy No.: (704) 343-2300
If to Shareholder:
National City Corporation
1900 East Ninth Street
Cleveland, Ohio 44114
Attention: General Counsel
Telecopy No.: (216) 222-2336
With a copy (which shall not constitute notice) to:
Jones Day
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Attention: Lyle G. Ganske
Telecopy No.: (216) 579-0212
10.11 Specific Enforcement. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. The parties accordingly agree that the parties will be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any federal court
located in the State of Ohio, this being in addition to any other remedy to
which they are entitled at law or in equity.
10.12 Counterparts. This Agreement may be executed in one or more
counterparts, all of which will be considered one and the same agreement and
will become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
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10.13 Interpretation. When a reference is made in this Agreement to
an Article, Section or Exhibit, such reference is to an Article or Section of,
or an Exhibit to, this Agreement unless otherwise indicated. The headings
contained in this Agreement are for reference purposes only and do not affect in
any way the meaning or interpretation of this Agreement. In the event an
ambiguity or question of intent or interpretation, this Agreement shall be
construed as if drafted jointly by the parties and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any provisions of this Agreement. No provision of this Agreement will be
interpreted in favor of, or against any of the parties hereto by reason of the
extent to which any such party or its counsel participated in the drafting
thereof or by reason of the extent to which any such provision is inconsistent
with any prior draft hereof or thereof. Whenever the words "include," "includes"
or "including" are used in this Agreement, they will be deemed to be followed by
the words "without limitation."
10.14 Fees and Expenses. Except as provided in Section 5 hereof or
in the Shareholder Disclosure Letter delivered pursuant hereto, all costs and
expenses incurred in connection with this Agreement shall be paid by the party
incurring such expenses.
10.15 Survival of Representations and Warranties. All
representations and warranties in this Agreement shall survive the Termination
Date.
[Intentionally Left Blank]
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IN WITNESS WHEREOF, the undersigned parties have executed this Agreement
as of the date first above written.
BANK OF AMERICA CORPORATION
By: /s/ Rose-Marie V. Stercay
--------------------------------
Name: Rose-Marie V. Stercay
Title: Senior Vice President
NATIONAL CITY CORPORATION
By: /s/ J. Armando Ramirez
--------------------------------
Name: J. Armando Ramirez
Title: Executive Vice President
B-25
ANNEX C
Letterhead of Morgan Stanley
Board of Directors
National Processing, Inc.
1231 Durrett Lane
Louisville, KY 40213
Members of the Board:
We understand that National Processing, Inc. ("National Processing" or the
"Company"), Bank of America Corporation ("Parent") and Monarch Acquisition,
Inc., a wholly owned subsidiary of Parent ("Merger Sub"), propose to enter into
an Agreement and Plan of Merger, substantially in the form of the draft dated
July 12, 2004 (the "Merger Agreement"), which provides, among other things, for
the merger (the "Merger") of Merger Sub with and into Company. Pursuant to the
Merger, Company will become a wholly owned subsidiary of Parent and each
outstanding share of common stock, no par value per share (the "Common Stock"),
of National Processing, other than shares held in treasury or held by Parent,
Merger Sub or any subsidiary of the Company (other than such shares held in a
fiduciary, collateral custodial or similar capacity) or as to which dissenters'
rights have been perfected, will be converted into the right to receive $26.60
per share in cash. The terms and conditions of the Merger are more fully set
forth in the Merger Agreement. We further understand that approximately 83.2% of
the outstanding shares of Common Stock is owned by National City Corporation
("National City"). We note that National City and Parent intend to enter into a
Shareholder Agreement and various commercial agreements in connection with the
Merger (collectively, the "National City Agreements").
You have asked for our opinion as to whether the consideration to be received by
the holders of shares of Common Stock pursuant to the Merger Agreement is fair
from a financial point of view to such holders other than National City.
For purposes of the opinion set forth herein, we have:
a) reviewed certain publicly available financial statements and other
information of the Company;
b) reviewed certain internal financial statements and other financial
and operating data concerning the Company prepared by the
management of the Company;
c) reviewed certain financial projections prepared by the management of
the Company;
d) discussed the past and current operations and financial condition
and the prospects of the Company with senior executives of the
Company;
e) reviewed the reported prices and trading activity for the Common
Stock;
f) compared the financial performance of the Company and the prices and
trading activity of the Common Stock with that of certain other
comparable publicly-traded companies and their securities;
g) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
h) participated in discussions and negotiations among representatives
of the Company, Parent and National City and their financial and
legal advisors;
i) reviewed the Merger Agreement, drafts of the National City
Agreements and certain related documents; and
j) performed such other analyses and considered such other factors as
we have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of the Company. In
addition, we have assumed that the Merger will be consummated in accordance with
the terms set forth in the Merger Agreement and that the transactions
contemplated by the National City Agreements will be consummated in accordance
with their terms. This opinion does not address the fairness of any
consideration to be received by National City pursuant to the Merger Agreement
or the National City Agreements. We have not made any independent valuation or
appraisal of the assets or liabilities of the Company, nor have we been
furnished with any such appraisals. Our opinion is necessarily based on
financial, economic, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of the Company in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for the Company and National City and
have received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that a copy of our opinion may be included in its
entirety, if required, in any filing required to be made with the Securities and
Exchange Commission in connection with the Merger. In addition, Morgan Stanley
expresses no opinion or recommendation as to how the holders of the Common Stock
should vote at the shareholders' meeting held in connection with the Merger.
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Based on and subject to the foregoing, we are of the opinion on the date hereof
that the consideration to be received by the holders of shares of Common Stock
pursuant to the Merger Agreement is fair from a financial point of view to such
holders other than National City.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ James Head
------------------------------
James Head
Managing Director
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ANNEX D
OHIO REVISED CODE SECTIONS 1701.84 AND 1701.85
SECTION 1701.84 DISSENTS IN CASE OF A MERGER, CONSOLIDATION, COMBINATION, OR
MAJORITY SHARE ACQUISITION.
The following are entitled to relief as dissenting shareholders under
section 1701.85 of the Revised Code:
(A) Shareholders of a domestic corporation that is being merged or
consolidated into a surviving or new entity, domestic or foreign,
pursuant to section 1701.78, 1701.781, 1701.79, 1701.791, or
1701.801 of the Revised Code;
(B) In the case of a merger into a domestic corporation, shareholders of
the surviving corporation who under section 1701.78 or 1701.781 of
the Revised Code are entitled to vote on the adoption of an
agreement of merger, but only as to the shares so entitling them to
vote;
(C) Shareholders, other than the parent corporation, of a domestic
subsidiary corporation that is being merged into the domestic or
foreign parent corporation pursuant to section 1701.80 of the
Revised Code;
(D) In the case of a combination or a majority share acquisition,
shareholders of the acquiring corporation who under section 1701.83
of the Revised Code are entitled to vote on such transaction, but
only as to the shares so entitling them to vote;
(E) Shareholders of a domestic subsidiary corporation into which one or
more domestic or foreign corporations are being merged pursuant to
section 1701.801 of the Revised Code.
SECTION 1701.85 PROCEDURE IN CASE OF DISSENTS.
(A) (1) A shareholder of a domestic corporation is entitled to relief
as a dissenting shareholder in respect of the proposals described in
sections 1701.74, 1701.76, and 1701.84 of the Revised Code, only in
compliance with this section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a
record holder of the shares of the corporation as to which he
seeks relief as of the date fixed for the determination of
shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and
such shares shall not have been voted in favor of the
proposal. Not later than ten days after the date on which the
vote on the proposal was taken at the meeting of the
shareholders, the dissenting shareholder shall deliver to the
corporation a written demand for payment to him of the fair
cash value of the shares as to which he seeks relief, which
demand shall state his
D-1
address, the number and class of such shares, and the amount
claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division
(C) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.80 of the Revised Code and a
dissenting shareholder entitled to relief under division (E)
of section 1701.84 of the Revised Code in the case of a merger
pursuant to section 1701.801 of the Revised Code shall be a
record holder of the shares of the corporation as to which he
seeks relief as of the date on which the agreement of merger
was adopted by the directors of that corporation. Within
twenty days after he has been sent the notice provided in
section 1701.80 or 1701.801 of the Revised Code, the
dissenting shareholder shall deliver to the corporation a
written demand for payment with the same information as that
provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on
the constituent corporation involved constitutes service on
the surviving or the new entity, whether the demand is served
before, on, or after the effective date of the merger or
consolidation.
(5) If the corporation sends to the dissenting shareholder, at the
address specified in his demand, a request for the
certificates representing the shares as to which he seeks
relief, the dissenting shareholder, within fifteen days from
the date of the sending of such request, shall deliver to the
corporation the certificates requested so that the corporation
may forthwith endorse on them a legend to the effect that
demand for the fair cash value of such shares has been made.
The corporation promptly shall return such endorsed
certificates to the dissenting shareholder. A dissenting
shareholder's failure to deliver such certificates terminates
his rights as a dissenting shareholder, at the option of the
corporation, exercised by written notice sent to the
dissenting shareholder within twenty days after the lapse of
the fifteen-day period, unless a court for good cause shown
otherwise directs. If shares represented by a certificate on
which such a legend has been endorsed are transferred, each
new certificate issued for them shall bear a similar legend,
together with the name of the original dissenting holder of
such shares. Upon receiving a demand for payment from a
dissenting shareholder who is the record holder of
uncertificated securities, the corporation shall make an
appropriate notation of the demand for payment in its
shareholder records. If uncertificated shares for which
payment has been demanded are to be transferred, any new
certificate issued for the shares shall bear the legend
required for certificated securities as provided in this
paragraph. A transferee of the shares so endorsed, or of
uncertificated securities where such notation has been made,
acquires only such rights in the corporation as the original
dissenting holder of such shares had immediately after the
service of a demand for payment of the fair cash value of the
shares. A
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request under this paragraph by the corporation is not an
admission by the corporation that the shareholder is entitled
to relief under this section.
(E) Unless the corporation and the dissenting shareholder have come to
an agreement on the fair cash value per share of the shares as to
which the dissenting shareholder seeks relief, the dissenting
shareholder or the corporation, which in case of a merger or
consolidation may be the surviving or new entity, within three
months after the service of the demand by the dissenting
shareholder, may file a complaint in the court of common pleas of
the county in which the principal office of the corporation that
issued the shares is located or was located when the proposal was
adopted by the shareholders of the corporation, or, if the proposal
was not required to be submitted to the shareholders, was approved
by the directors. Other dissenting shareholders, within that
three-month period, may join as plaintiffs or may be joined as
defendants in any such proceeding, and any two or more such
proceedings may be consolidated. The complaint shall contain a brief
statement of the facts, including the vote and the facts entitling
the dissenting shareholder to the relief demanded. No answer to such
a complaint is required. Upon the filing of such a complaint, the
court, on motion of the petitioner, shall enter an order fixing a
date for a hearing on the complaint and requiring that a copy of the
complaint and a notice of the filing and of the date for hearing be
given to the respondent or defendant in the manner in which summons
is required to be served or substituted service is required to be
made in other cases. On the day fixed for the hearing on the
complaint or any adjournment of it, the court shall determine from
the complaint and from such evidence as is submitted by either party
whether the dissenting shareholder is entitled to be paid the fair
cash value of any shares and, if so, the number and class of such
shares. If the court finds that the dissenting shareholder is so
entitled, the court may appoint one or more persons as appraisers to
receive evidence and to recommend a decision on the amount of the
fair cash value. The appraisers have such power and authority as is
specified in the order of their appointment. The court thereupon
shall make a finding as to the fair cash value of a share and shall
render judgment against the corporation for the payment of it, with
interest at such rate and from such date as the court considers
equitable. The costs of the proceeding, including reasonable
compensation to the appraisers to be fixed by the court, shall be
assessed or apportioned as the court considers equitable. The
proceeding is a special proceeding and final orders in it may be
vacated, modified, or reversed on appeal pursuant to the Rules of
Appellate Procedure and, to the extent not in conflict with those
rules, Chapter 2505 of the Revised Code. If, during the pendency of
any proceeding instituted under this section, a suit or proceeding
is or has been instituted to enjoin or otherwise to prevent the
carrying out of the action as to which the shareholder has
dissented, the proceeding instituted under this section shall be
stayed until the final determination of the other suit or
proceeding. Unless any provision in division (D) of this section is
applicable, the fair cash value of the shares that is agreed upon by
the parties or fixed under this section shall be paid within thirty
days after the date of final determination of such value under this
division, the effective date of the amendment to the articles, or
the consummation of the other action involved, whichever occurs
last. Upon the
D-3
occurrence of the last such event, payment shall be made immediately
to a holder of uncertificated securities entitled to such payment.
In the case of holders of shares represented by certificates,
payment shall be made only upon and simultaneously with the
surrender to the corporation of the certificates representing the
shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of
the corporation, fair cash value as to those shareholders shall be
determined as of the day prior to the day on which the vote by the
shareholders was taken and, in the case of a merger pursuant to
section 1701.80 or 1701.801 of the Revised Code, fair cash value as
to shareholders of a constituent subsidiary corporation shall be
determined as of the day before the adoption of the agreement of
merger by the directors of the particular subsidiary corporation.
The fair cash value of a share for the purposes of this section is
the amount that a willing seller who is under no compulsion to sell
would be willing to accept and that a willing buyer who is under no
compulsion to purchase would be willing to pay, but in no event
shall the fair cash value of a share exceed the amount specified in
the demand of the particular shareholder. In computing such fair
cash value, any appreciation or depreciation in market value
resulting from the proposal submitted to the directors or to the
shareholders shall be excluded.
(D) (1) The right and obligation of a dissenting shareholder to
receive such fair cash value and to sell such shares as to which he
seeks relief, and the right and obligation of the corporation to
purchase such shares and to pay the fair cash value of them
terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this
section, unless the corporation by its directors waives
such failure;
(b) The corporation abandons the action involved or is
finally enjoined or prevented from carrying it out, or
the shareholders rescind their adoption of the action
involved;
(c) The dissenting shareholder withdraws his demand, with
the consent of the corporation by its directors;
(d) The corporation and the dissenting shareholder have not
come to an agreement as to the fair cash value per
share, and neither the shareholder nor the corporation
has filed or joined in a complaint under division (B) of
this section within the period provided in that
division.
(2) For purposes of division (D)(1) of this section, if the merger
or consolidation has become effective and the surviving or new
entity is not a corporation, action required to be taken by
the directors of the corporation shall be taken by the general
partners of a surviving or new partnership or the comparable
representatives of any other surviving or new entity.
D-4
(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising
from it or the purchase of the shares by the corporation, all other
rights accruing from such shares, including voting and dividend or
distribution rights, are suspended. If during the suspension, any
dividend or distribution is paid in money upon shares of such class
or any dividend, distribution, or interest is paid in money upon any
securities issued in extinguishment of or in substitution for such
shares, an amount equal to the dividend, distribution, or interest
which, except for the suspension, would have been payable upon such
shares or securities, shall be paid to the holder of record as a
credit upon the fair cash value of the shares. If the right to
receive fair cash value is terminated other than by the purchase of
the shares by the corporation, all rights of the holder shall be
restored and all distributions which, except for the suspension,
would have been made shall be made to the holder of record of the
shares at the time of termination.
D-5
PROXY
PROXY SOLICITED ON BEHALF OF THE
NATIONAL PROCESSING BOARD OF DIRECTORS FOR OCTOBER __, 2004
SPECIAL MEETING
The undersigned shareholder of National Processing, Inc. hereby appoints
Thomas A. Richlovsky and Carlton E. Langer and each of them, with power of
substitution, proxies for the undersigned to vote all the shares of Common Stock
of National Processing which the undersigned is entitled to vote at the special
meeting of shareholders of National Processing to be held on October __, 2004
and any adjournment thereof as follows and in their discretion to vote and act
upon such other business as may properly come before the meeting. The Board of
Directors recommends a vote FOR the following:
1. TO ADOPT THE AGREEMENT AND PLAN OF MERGER AMONG BANK OF AMERICA
CORPORATION, MONARCH ACQUISITION, INC., AN INDIRECT WHOLLY OWNED
SUBSIDIARY OF BANK OF AMERICA, AND NATIONAL PROCESSING, INC., AS MORE
FULLY DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING OR ANY
ADJOURNMENT OR POSTPONEMENT THEREOF.
(Continued, and TO BE SIGNED, on the reverse side.)
________________________________________________________________________________
(Continued from reverse side.)
Proxy No. Shares
UNLESS OTHERWISE INDICATED, THE PROXIES ARE INSTRUCTED TO VOTE FOR THE PROPOSAL
TO ADOPT THE AGREEMENT AND PLAN OF MERGER.
Dated _________________ ___, 2004
__________________________________
__________________________________
__________________________________
(Sign here)
INSTRUCTIONS: Please sign exactly
as shown hereon. When signing as a
fiduciary or on behalf of a
corporation, bank, trust company,
or other similar entity, your
title or capacity should be shown.
PLEASE SIGN, DATE, AND RETURN YOUR PROXY PROMPTLY
IN THE ENCLOSED ENVELOPE.