[OFFICIAL PAYMENTS CORP. LOGO]
June 11, 2002
To Our Stockholders:
On behalf of the Board of Directors of Official Payments Corporation (the
"Company"), I am pleased to inform you that the Company has entered into an
Agreement and Plan of Merger, dated as of May 30, 2002 (the "Merger
Agreement"), with Tier Technologies, Inc. ("Tier") and Kingfish Acquisition
Corporation, Tier's wholly owned subsidiary ("Purchaser"), pursuant to which
Purchaser has today commenced a cash tender offer (the "Offer") to purchase all
of the outstanding shares of common stock, par value $.01 per share, of the
Company (the "Shares") at a price of $3.00 per Share. Under the Merger
Agreement, the Offer will be followed by a merger (the "Merger") in which any
remaining Shares (other than Shares held by Tier or Purchaser and by
stockholders who perfect appraisal rights under Delaware law) will be converted
into the right to receive $3.00 per Share in cash. Consummation of the Offer is
subject to certain conditions, as more fully described in the enclosed
materials, including at least a majority of the Shares outstanding, determined
on a fully-diluted basis, being validly tendered and not withdrawn prior to the
expiration of the Offer.
Your Board of Directors has unanimously determined that the Merger
Agreement and the transactions contemplated thereby, including the Offer and
the Merger, are advisable, fair to, and in the best interests of, the Company's
stockholders and has approved the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger. The Board of
Directors recommends that stockholders accept the Offer and tender their shares
of Common Stock to Purchaser pursuant to the Offer.
In arriving at its recommendation, the Board of Directors gave careful
consideration to the factors described in the enclosed Schedule 14D-9,
including among other things, the written opinion of CIBC World Markets Corp.,
the Company's financial advisor, that subject to the assumptions, factors and
limitations set forth therein, the consideration to be received by the holders
of Shares pursuant to the Offer and the Merger is fair from a financial point
of view to such holders. The opinion of CIBC World Markets Corp. is attached to
the Schedule 14D-9. The Schedule 14D-9 contains other important information
relating to the Offer, and you are encouraged to read the Schedule 14D-9
carefully.
In addition to the enclosed Schedule 14D-9, also enclosed is Purchaser's
Offer to Purchase and related materials, including a Letter of Transmittal, to
be used for tendering your Shares in the Offer. These documents state the terms
and conditions of the Offer and provide instructions as to how to tender your
Shares. We urge you to read these documents carefully in making your decision
with respect to tendering your Shares pursuant to the Offer.
If you need assistance with the tendering of your Shares, please contact
the information agent for the Offer, Mellon Investor Services, at its address
or telephone number appearing on the back cover of the Offer to Purchase.
On behalf of the Board of Directors, we thank you for your support.
Very truly yours,
/s/ Thomas R. Evans
Thomas R. Evans
Chairman and Chief Executive
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
SCHEDULE 14D-9
(Rule 14d-101)
SOLICITATION/RECOMMENDATION STATEMENT UNDER SECTION 14(d)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
---------------------
OFFICIAL PAYMENTS CORPORATION
(Name of Subject Company)
OFFICIAL PAYMENTS CORPORATION
(Name of Person(s) Filing Statement)
---------------------
Common Stock, Par Value $.01 Per Share
(Title of Class of Securities)
---------------------
676235 10 4
(CUSIP Number of Class of Securities)
---------------------
Mitchell H. Gordon
Senior Vice President, General Counsel
Official Payments Corporation
Three Landmark Square
Stamford, CT 06901-2501
(203) 356-4200
(Name, address and telephone number of person authorized to receive notice and
communications on behalf of the person(s) filing statement).
---------------------
With a copy to:
Eric J. Friedman, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10036-6522
Telephone: (212) 735-3000
Facsimile: (212) 735-2000
[ ] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
================================================================================
Item 1. Subject Company Information.
Name and Address
The name of the subject company to which this Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9") relates is Official Payments
Corporation, a Delaware corporation (the "Company"). The address of the
principal executive offices of the Company is Three Landmark Square, Stamford,
Connecticut 06901-2501. The telephone number of the principal executive offices
of the Company is (203) 356-4200. The Company's Web site is located at
www.officialpayments.com.
Securities
The title of the class of equity securities to which this statement
relates is the common stock, par value $.01 per share (the "Common Stock"), of
the Company. As of the close of business on June 6, 2002 there were 22,952,876
shares of the Common Stock outstanding.
Item 2. Identity and Background of Filing Person.
Name and Address of Filing Person
The name and address of the Company, which is the person filing this
Schedule 14D-9, are set forth in Item 1 above.
Tender Offer
This Schedule 14D-9 relates to the tender offer (the "Offer") by Kingfish
Acquisition Corporation, a Delaware corporation ("Purchaser"), to purchase all
of the outstanding Common Stock at a price of $3.00 per share, net to the
selling stockholders in cash (the "Offer Price"), upon the terms and subject to
the conditions set forth in the Offer to Purchase, dated June 11, 2002 (the
"Offer to Purchase") and the related Letter of Transmittal (the "Letter of
Transmittal"). Purchaser is a wholly-owned subsidiary of Tier Technologies,
Inc., a California corporation ("Parent"). The Offer is described in a Tender
Offer Statement on Schedule TO, dated June 11, 2002 (the "Schedule TO"), which
was filed with the Securities and Exchange Commission (the "SEC") on June 11,
2002. The address and telephone number of Parent and Purchaser, as set forth in
the Schedule TO, is Tier Technologies, Inc., 1350 Treat Blvd., Suite 250,
Walnut Creek, CA 94596; (925) 937-3950.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of May 30, 2002 (as such agreement may be amended and supplemented from time
to time, the "Merger Agreement"), among Parent, Purchaser and the Company. The
Merger Agreement provides, among other things, that no later than five business
days after the satisfaction or waiver of the conditions set forth in the Merger
Agreement, in accordance with the relevant provisions of the Delaware General
Corporation Law, as amended (the "DGCL"), Purchaser will be merged with and
into the Company (the "Merger"). Following consummation of the Merger, the
Company will continue as the surviving corporation (the "Surviving
Corporation"). At the effective time of the Merger (the "Effective Time"), each
share of Common Stock then outstanding (other than shares of Common Stock held
in the Company's treasury or by Parent or any subsidiary of the Company or
Parent (all of which will be cancelled) and other than shares of Common Stock
as to which dissenters' rights of appraisal have been properly exercised in
accordance with applicable law) will be converted into the right to receive the
Offer Price, without interest (the "Merger Consideration"). A copy of the
Merger Agreement is filed as Exhibit (e)(1) to this Schedule 14D-9 and is
incorporated herein by reference.
The information contained in this Schedule 14D-9 or incorporated herein by
reference concerning Purchaser and Parent and their respective officers,
directors, representatives or affiliates, or actions or events with respect to
them, has been furnished to the Company by Purchaser and Parent, and the
Company assumes no responsibility for the accuracy or completeness of such
information.
Item 3. Past Contacts, Transactions, Negotiations and Agreements.
Except as described herein, or incorporated herein by reference, there are
no material contracts, agreements, arrangements or understandings or any actual
or potential conflicts of interest between the Company or its affiliates and
either (i) the Company, its executive officers, directors or affiliates or (ii)
Parent, Purchaser or any of their respective executive officers, directors or
affiliates.
1
Certain Arrangements between the Company and its Executive Officers,
Directors and Affiliates
Certain contracts, agreements, arrangements or understandings between the
Company or its affiliates and certain of its directors and executive officers
are, except as noted below, described in the Information Statement pursuant to
Section 14(f) of the Securities Exchange Act of 1934, as amended, and Rule
14f-1 thereunder (the "Information Statement") that is attached as Annex B
hereto and is incorporated herein by reference. Except as set forth in the
response to this Item 3, Item 4 or in Annex B, or as incorporated herein by
reference, to the knowledge of the Company, there are no material agreements,
arrangements or understandings and no actual or potential conflicts of interest
between the Company or its affiliates and (i) the Company's executive officers,
directors or affiliates and (ii) Parent or Purchaser or their respective
executive officers, directors or affiliates.
The Merger Agreement
The summary of the material terms of the Merger Agreement set forth under
the caption "ITEM 11: PURPOSE OF THE OFFER; PLANS FOR THE COMPANY--Merger
Agreement" in the Offer to Purchase is incorporated herein by reference. The
summary of the Merger Agreement contained in the Offer to Purchase should be
read in its entirety for a more complete description of the terms and
provisions of the Merger Agreement. Certain provisions of the Merger Agreement
which relate to agreements, arrangements or understandings of a type described
in the preceding paragraph, and which are not described in the Information
Statement or the Offer to Purchase, are described below. The summaries of
provisions of the Merger Agreement in the Information Statement and the Offer
to Purchase and set forth below are qualified in their entirety by reference to
the Merger Agreement.
Additional Arrangements Regarding Executive Officers of the Company.
Parent and the Company anticipate that, with the exception of Michael P.
Presto, Chief Operating Officer of the Company, the current executive officers
of the Company will not continue their employment with the Company following
consummation of the Merger. No specific terms of Mr. Presto's employment
following the Closing have been finalized.
Thomas R. Evans, Chairman and Chief Executive Officer of the Company, who
will be leaving his position following the Effective Time, has agreed to serve
on Parent's board of directors, if elected or appointed.
Treatment of Stock Options. The Merger Agreement provides that the Company
will take all actions necessary or appropriate to provide that each outstanding
option to purchase shares of Common Stock (each a "Company Stock Option" and
collectively, the "Company Stock Options") granted under the Company's stock
incentive plans which is outstanding immediately prior to the consummation of
the Offer, whether or not then exercisable, will be canceled as of the
consummation of the Offer and the holder of the Company Stock Option shall be
entitled only to the right to receive an amount in cash payable at the time of
cancellation equal to the product of (i) the excess, if any, of (A) the Offer
Price over (B) the per share exercise price of such Company Stock Option
multiplied by (ii) the number of shares of Common Stock subject to such Company
Stock Option. The cash payment described in the preceding sentence will be
subject to all required tax withholdings and the surrender of a Company Stock
Option in exchange for the consideration described in the preceding sentence
will be deemed a release of any and all rights the holder had or may have had
in respect thereof.
Set forth below is a listing of each executive officer, significant
employee, director and affiliate of the Company who will receive a cash payment
as described in the preceding paragraph. Each of the options referenced below
has an exercise price of $1.33 and had vested prior to execution of the Merger
Agreement.
Aggregate Payment upon
Number of "in the money" Cancellation of
Name Company Stock Options Company Stock Option
- ---- --------------------- --------------------
Thomas R. Evans ........... 1,370,328 $2,288,448
Michael P. Presto ......... 685,164 $1,144,224
Bruce Nelson .............. 15,000 $ 25,050
Michaella Stern ........... 199,252 $ 332,751
Stockholders Agreement
The summary of the material terms of the Stockholders Agreement, dated as
of May 30, 2002 (the "Stockholders Agreement"), among Parent, Purchaser,
Comerica Incorporated ("Comerica"), Beranson Holdings, Inc. ("Beranson") and
Michaella Stern, the controlling stockholder of Beranson and widow of Kenneth
Stern, founder and former president and director of the Company ("Stern"), set
forth under the caption "ITEM 11:
2
PURPOSE OF THE OFFER; PLANS FOR THE COMPANY--Stockholders Agreement" in the
Offer to Purchase is incorporated herein by reference. The summary of the
Stockholders Agreement contained in the Offer to Purchase should be read in its
entirety for a more complete description of the terms and provisions of the
Stockholders Agreement, but such summary is qualified in its entirety by
reference to the Stockholders Agreement (a copy of which has been filed as
Exhibit (e)(2) hereto and is incorporated herein by reference).
Insurance Agreement
The following summary is qualified in its entirety by reference to the
complete text of the Executive Liability and Indemnification Policies
Maintenance Agreement, dated as of May 30, 2002 (the "Insurance Agreement"),
entered into between the Company and Comerica Incorporated, the record owner of
approximately 52% of the Company's outstanding common stock ("Comerica"), in
connection with the Company's execution of the Merger Agreement. A copy of the
Insurance Agreement is filed as Exhibit (e)(3) hereto and incorporated herein
by reference.
Under the Insurance Agreement, Comerica has agreed to maintain in full
force and effect for six years after the Effective Time for the benefit of the
Company and its current and former employees and directors the officer and
director liability and indemnification policies (the "Comerica Current
Policies") currently held by Comerica for the benefit of such persons (in
addition to other current and former employees and directors of Comerica and
its subsidiaries). In addition, Comerica has agreed not to terminate or amend
the pre-paid officer and director liability and indemnification policies (the
"Imperial Tail Policies") that cover the officers and directors of the Company
(in addition to other officers and directors of Imperial Bancorp, the parent of
the Company's then majority stockholder ("Imperial")) for acts which occurred
prior to January 29, 2001, the date on which Comerica consummated its
acquisition of Imperial. The Insurance Agreement provides that in the event a
Comerica Current Policy terminates prior to the six-year anniversary of the
Effective Time, Comerica will procure replacement coverage on terms with
respect to coverage and amount no less favorable than, and on terms as
favorable as, Comerica provides to its then current employees and directors.
Comerica has also agreed that in the event an Imperial Tail Policy terminates
prior to the expiration of its current term (approximately 41/2 years),
Comerica will procure replacement coverage on terms with respect to coverage
and amount no less favorable than, and on terms as favorable as, Comerica
provides to all of the former officers and directors of Imperial, in general.
Confidentiality Agreement
The summary of the material terms of the Confidentiality Agreement, dated
as of April 17, 2002 (the "Confidentiality Agreement"), between the Company and
Parent, set forth under the caption "ITEM 11: PURPOSE OF THE OFFER; PLANS FOR
THE COMPANY--Confidentiality Agreement" in the Offer to Purchase is
incorporated herein by reference. The summary of the Confidentiality Agreement
contained in the Offer to Purchase should be read in its entirety for a more
complete description of the terms and provisions of the Confidentiality
Agreement, but such summary is qualified in its entirety by reference to the
Confidentiality Agreement (a copy of which has been filed as Exhibit (e)(3)
hereto and is incorporated herein by reference).
Item 4. The Solicitation or Recommendation.
Recommendation of the Board
The Board of Directors of the Company (the "Company Board") has
unanimously (i) determined that the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, are advisable, fair
to, and in the best interests of, the Company's stockholders, (ii) approved and
adopted the Merger Agreement and the transactions contemplated thereby,
including the Offer and the Merger, and approved the Stockholders Agreement,
and (iii) determined to recommend that the Company's stockholders accept the
Offer and tender their shares of Common Stock to Purchaser pursuant thereto
and, if required under applicable law, vote in favor of the Merger and approval
and adoption of the Merger Agreement.
Background
Beginning in March 2001, the Company's management, in periodic
consultation with the Company Board, began to explore the Company's strategic
options in order to maximize stockholder value. Management and the Company
Board believed that there were possible opportunities to develop strategic
relationships with different financial and industry partners. Accordingly, the
Company engaged CIBC World Markets Corp. ("CIBC World
3
Markets") on April 18, 2001 to pursue a private equity placement of existing
and potentially new shares of Common Stock (which would represent no more than
one-third of the then outstanding shares of the Common Stock) to a strategic
partner and to establish a strategic operating and marketing agreement with
such party.
CIBC World Markets solicited prospective investors between May and October
2001 and executed confidentiality agreements and provided information on behalf
of the Company to over a dozen prospective investors. Ultimately, none of these
prospective investors expressed any serious interest in entering into a
strategic relationship with the Company based upon a minority ownership
interest.
At its regular meeting in November 2001, the Company Board again reviewed
with senior management the Company's operations, capital structure and business
model. At that meeting, the Company Board approved the Company's corporate
restructuring plan to reduce significantly its operating expenses and use of
cash and indicated its support for CIBC World Markets to seek third-party
indications of interest with respect to an acquisition of all of the
outstanding shares of the Common Stock.
From November 2001 through April 2002, the Company's management and CIBC
World Markets made presentations and provided information to third parties
potentially interested in pursuing an acquisition of the Company.
On April 17, 2002, a representative of Adams, Harkness & Hill, Inc.,
Parent's financial advisor, and James L. Bildner, Chairman and CEO of Parent,
separately contacted Thomas R. Evans, Chairman and Chief Executive Officer of
the Company, to inquire about the Company's possible interest in a business
combination. Parent entered into a confidentiality agreement with the Company
on the same day and received confidential financial and operating information
from the Company. Over the ensuing two weeks, Messrs. Evans and Bildner had
follow-up phone conversations regarding a possible transaction and information
about the Company and began negotiating the preliminary terms of a possible
business combination. Also during this period, on April 25, 2002, Mr. Bildner
and James R. Weaver, President of Parent's U.S. operations, visited the
Company's offices and met with Mr. Evans and Edward J. DiMaria, the Company's
Chief Financial Officer, to discuss the Company's business and a possible
transaction.
On May 2, 2002, as a follow-up to the previous discussions between Messrs.
Evans and Bildner, Parent submitted a preliminary offer to the Company for
aggregate consideration of approximately $73 million based on various
assumptions. As a requirement to conducting further due diligence activities
and negotiating a definitive agreement with the Company, Parent requested that
the Company agree not to solicit or discuss acquisition proposals with other
third parties through May 24, 2002. At its regular meeting on May 7, 2002, the
Company Board reviewed the status of CIBC World Markets' solicitation process
and the terms of Parent's preliminary offer and non-solicitation request. After
discussion, and predicated on reserving the right to consider and negotiate
alternative acquisition proposals in accordance with the Company Board's
fiduciary duties, the Company Board authorized management to execute the
non-binding preliminary letter of intent with Parent (which included the
aforementioned non-solicitation restrictions).
From May 7, 2002 through May 30, 2002, representatives of Parent and
Parent's financial and legal advisors engaged in a due diligence review of
various legal, financial and operating information of the Company that included
facility visits and meetings with the Company's executive management and senior
personnel in the Company's finance, marketing, sales and human resources areas.
On May 10, 2002, the Company's outside legal counsel, Skadden, Arps, Slate,
Meagher and Flom LLP ("Skadden Arps"), provided a draft definitive transaction
agreement to Parent's outside legal counsel, Farella Braun + Martel LLP
("FB+M") and they began to negotiate the terms of the merger agreement. FB+M
separately furnished a draft stockholders agreement to representatives of
Comerica, Beranson and Stern.
During this period, Mr. Evans continued to update members of the Company
Board on the ongoing discussions between the Company and Parent, as well as the
status of the process regarding a potential business combination involving the
Company. On May 21, 2002, Mr. Bildner informed Mr. Evans that Parent would pay
$3.00 per share for all of the outstanding shares of Common Stock on a
fully-diluted basis (representing aggregate consideration of approximately
$74.1 million), subject to Parent's completion of its due diligence and the
negotiation of the definitive transaction documents, and contingent upon an
extension of the non-solicitation restrictions through midday on May 30, 2002.
At a meeting on May 22, 2002 and following a review of the progress in Parent's
due
4
diligence activities, as well as the ongoing negotiations between the Company
and Parent, the Company Board authorized management to continue discussions
with Parent and approved an extension of the non-solicitation restrictions
through midday on May 30, 2002.
While Parent completed its financial and operational review of the
Company, the respective attorneys for Parent and the Company negotiated the
terms of a definitive merger agreement between May 22 and May 30, 2002. In
addition, FB+M negotiated the terms of the Stockholders Agreement with the
respective legal counsel for Comerica, Beranson and Stern.
The Company Board held a special meeting on May 30, 2002 to discuss the
proposed transaction with Parent and the terms of the Merger Agreement. CIBC
World Markets made a detailed financial presentation and orally delivered its
opinion, which it subsequently confirmed in writing, to the effect that, as of
May 30, 2002, and subject to the matters set forth in the opinion, the
consideration to be received by the holders of shares of Common Stock pursuant
to the Offer and the Merger is fair from a financial point of view to such
holders. In addition, representatives of Skadden Arps summarized the terms and
conditions of the Merger Agreement and discussed the directors' fiduciary
duties under Delaware law, and the Company's general counsel summarized the
material terms of the Stockholders Agreement and described the material terms
and conditions of the Insurance Agreement.
Following the aforementioned presentations and upon consideration of the
factors and reasons described below under the section captioned "Reasons for
the Board's Recommendation; Factors Considered," the Company Board unanimously
(i) determined that the Merger Agreement and the transactions contemplated
thereby, including the Offer and the Merger, are advisable, fair to, and in the
best interests of, the Company's stockholders, (ii) approved and adopted the
Merger Agreement and the transactions contemplated thereby, including the Offer
and the Merger, and approved the Stockholders Agreement, and (iii) determined
to recommend that the Company's stockholders accept the Offer and tender their
shares of Common Stock to Purchaser pursuant thereto and, if required under
applicable law, vote in favor of the Merger and approval and adoption of the
Merger Agreement.
Following the meeting of the Company Board, during the evening of May 30,
2002, the Company, Parent and Purchaser executed the Merger Agreement; the
Company and Comerica executed the Insurance Agreement; and Parent, Purchaser,
Comerica, Beranson and Stern executed the Stockholders Agreement.
Reasons for the Board's Recommendation; Factors Considered
In approving the Merger Agreement and the transactions contemplated
thereby, including the Offer and the Merger, and recommending that all of the
Company's stockholders accept the Offer and tender their shares of Common Stock
to Purchaser pursuant to the Offer, the Company Board considered a number of
factors, including:
Financial Condition and Prospects of the Company. The Company Board
considered the financial condition, results of operation, business and
prospects of the Company if it were to remain independent. The Company Board
discussed the Company's current strategic plans, including the risks associated
with achieving and executing upon the Company's business plans, as well as the
competitive environment in which the Company operates. The Company Board also
took into account that the Company's current cash position and the continued
low market price of the Common Stock made it more expensive and difficult for
the Company to complete strategic acquisitions (including, with respect to
expansion of the Company's revenue base and attainment of operational
efficiencies).
Historical Stock Price Performance. The Company Board reviewed the
historical market price performance of the Common Stock and noted that the
consideration to be received by the Company's stockholders pursuant to the
Offer and Merger would represent a premium of 35% over the closing price of the
Common Stock on The Nasdaq National Market on May 29, 2002; 44% over the May
23, 2002 closing price, one week prior to the special meeting of the Company
Board; and 23% over the May 2, 2002 closing price, four weeks prior to the
special meeting of the Company Board. The Company Board also noted that the
consideration would represent a 50% premium over the closing price of the
Common Stock on The Nasdaq National Market on May 30, 2002 (the last trading
day prior to the announcement of the Offer).
CIBC World Markets Presentation. The Company Board took into account the
presentations and advice of CIBC World Markets, the Company's financial
advisor, with respect to the financial terms of the Offer and the Merger and
the opinion of CIBC World Markets to the effect that, as of May 30, 2002, and
subject to the matters set forth in the opinion, the consideration to be
received by the holders of shares of Common Stock pursuant to the Offer and the
Merger is fair from a financial point of view to such holders. A copy of CIBC
World Markets'
5
opinion is included as Annex A to this Schedule 14D-9 and is incorporated
herein by reference. Stockholders should read CIBC World Markets' opinion in
its entirety for a description of the procedures followed, assumptions and
qualifications made, matters considered and limitations on the review
undertaken by CIBC World Markets. CIBC World Markets' opinion was provided to
the Company Board in connection with its consideration of the Merger Agreement
and the transactions contemplated thereby, including the Offer and the Merger,
and does not constitute a recommendation to any stockholder as to whether such
stockholder should tender shares of Common Stock in the Offer or how such
stockholder should vote on matters related to the proposed transaction.
Terms and Conditions of the Offer and the Merger. The Company Board
considered the terms and conditions of the Merger Agreement, as well as the
terms of the Stockholder Agreement. The Company Board noted that the
transaction was being structured as a cash tender offer for all shares of
Common Stock, thereby providing certainty of value (as opposed to stock
consideration) and permitting all holders of Common Stock to participate on the
same basis. The Company Board noted the limited conditions to Parent's and
Purchaser's obligations to consummate the Offer, including the consents and
approvals required to consummate the Offer and the Merger, such as expiration
of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), and the favorable prospects for receiving
such consents and approvals. The Company Board also took into account the
representation of Parent that it has, and will make available to Purchaser,
sufficient funds to purchase all of the Common Stock in the Offer and the
Merger, and the fact that consummation of the Offer is not subject to any
financing condition.
Other Potential Transactions. The Company Board also considered the
information provided by CIBC World Markets and the Company's management
concerning discussions with other potential acquirors and strategic investors
since April 2001. The Company Board noted that none of those discussions had
resulted in proposals to acquire the Company that were as favorable to the
Company and its stockholders as the Offer and the Merger. The Company Board
also noted that the Merger Agreement, while prohibiting the Company from
soliciting, initiating, encouraging or entering into an agreement with respect
to any competitive proposal, does permit the Company to respond to unsolicited
proposals by furnishing information to, and participating in discussions or
negotiations with, any third party making such proposal, provided that the
Company Board determines in good faith, after consultation with outside
counsel, that it would be inconsistent with the Company Board's fiduciary
duties to the Company and its stockholders or otherwise violate applicable law
(based on the advice of outside counsel) not to take such actions and that such
third party's takeover proposal would result in a Company Superior Proposal (as
such term is defined in the Merger Agreement). Prior to furnishing information
and/or engaging in discussions or negotiations regarding an unsolicited
proposal as contemplated by the preceding sentence, the Company is required
under the Merger Agreement to (i) provide Parent 48 hours' prior written notice
of its intentions to take such actions, including in such notice the identity
of the party making the unsolicited proposal and a description of the material
terms and conditions of such proposal and (ii) enter into a confidentiality
agreement with the third party making the unsolicited proposal on terms no more
favorable than the Confidentiality Agreement (provided that such third party
confidentiality agreement may omit a standstill obligation). If the Company
Board determines in good faith, after consultation with the Company's outside
advisors, that a third party's acquisition proposal is a Company Superior
Proposal, the Company Board may terminate the Merger Agreement and, if it so
chooses, enter into an acquisition agreement. However, if the Company Board
were to decide to terminate the Merger Agreement in order to accept a Company
Superior Proposal, it would be obligated to (i) give Parent three business days
notice to negotiate with the Company to revise the Merger Agreement as would
enable Parent to proceed with the Offer and the Merger on terms and conditions
substantially equivalent to the Company Superior Proposal and (ii) pay a
termination fee of $1.75 million to Parent.
In making its recommendations, the Company Board was aware of and took
into consideration the interests of certain officers and directors of the
Company (including the Chairman and Chief Executive Officer who is a member of
the Company Board) in the Offer and the Merger as a result of the agreements
referred to in Item 3 of this Schedule 14D-9 and their holdings of Common Stock
and options to purchase Common Stock.
The Company Board did not quantify or otherwise assign relative weights to
the foregoing factors or determine that any factor was of particular
importance. Rather, the Company Board viewed its position and recommendations
as being based on the totality of the information presented to and considered
by the Company Board. In addition, individual members of the Company Board may
have given different weights to different factors. After weighing all of these
considerations, the Company Board determined to approve the Merger Agreement
and the transactions
6
contemplated thereby, including the Offer and the Merger, to approve the
Stockholders Agreement and to recommend that the Company's stockholders accept
the Offer and tender their shares of Common Stock to Purchaser pursuant
thereto.
Intent to Tender
To the Company's knowledge after reasonable inquiry, all of the Company's
executive officers, directors and affiliates currently intend to tender all
shares of Common Stock held of record or beneficially owned by them pursuant to
the Offer. The foregoing does not include any shares of Common Stock over
which, or with respect to which, any such executive officer, director or
affiliate acts in a fiduciary or representative capacity or is subject to the
instructions of a third party with respect to such tender.
Item 5. Person/Assets, Retained, Employed, Compensated or Used.
The Company has retained CIBC World Markets as its financial advisor in
connection with a sale or other transfer of all or a significant portion of the
assets or securities of the Company (excluding the sale of less than 33% of
such securities to a strategic investor) or any extraordinary transaction
involving a change of control of the Company. Pursuant to the Engagement
Letter, dated April 18, 2002, between CIBC World Markets and the Company (the
"Engagement Letter"), the Company has agreed to pay CIBC World Markets as
follows: (i) an engagement fee of $50,000, which was paid in April 2001 in
connection with the Company's initial engagement of CIBC World Markets to
arrange for a sale of up to 33% of the Company's outstanding stock to a third
party; (ii) an opinion fee of $150,000, which became payable upon delivery of
the fairness opinion to the Company Board and; and (iii) an additional
transaction fee of $300,000, payable upon the closing of the Merger.
The Company has also agreed in the Engagement Letter to reimburse CIBC
World Markets for all of its reasonable out-of-pocket expenses (including the
reasonable fees and expenses of its outside legal counsel) in connection with
the performance of its services in the engagement; provided that aggregate
expenses in excess of $25,000 requires the Company's prior consent. In
addition, the Company has agreed to indemnify CIBC World Markets and certain
related parties against certain liabilities, including certain liabilities
under the federal securities laws, relating to or arising out of its
engagement.
Except as described above, neither the Company nor any person acting on
its behalf has employed, retained or agreed to compensate any person to make
solicitations or recommendations to stockholders of the Company concerning the
Offer or the Merger. Notwithstanding the foregoing, solicitations or
recommendations may be made by directors, officers or employees of the Company,
for which services no additional compensation will be paid.
Item 6. Interest in Securities of the Subject Company.
Except as set forth below, there have been no transactions in the Common
Stock effected during the past 60 days by the Company or, to the best of the
Company's knowledge, by any executive officer, director, affiliate or
subsidiary of the Company. In addition to the open-market sales on The Nasdaq
National Market by Beranson Holdings, Inc. listed below, on May 22, 2002,
Michaella Stern completed a "cashless" exercise of options to purchase 20,000
shares of the Common Stock, paying to the Company an exercise price of $1.33
per share and receiving a sale price of $1.91 in the corresponding open-market
sale.
Name of Party Date Number of Shares Price Per Share Type of Transaction
- ------------- ---- ---------------- --------------- -------------------
Beranson Holdings Inc. .......... May 14, 2002 6,000 $ 2.18 Open Market Nasdaq Sale
May 1, 2002 12,000 $ 2.36 Open Market Nasdaq Sale
April 18, 2002 12,000 $ 2.84 Open Market Nasdaq Sale
April 2, 2002 6,000 $ 3.19 Open Market Nasdaq Sale
Item 7. Purposes of the Transaction and Plans or Proposals.
Except as set forth in this Schedule 14D-9, the Company is not engaged in
any negotiation in response to the Offer which relates to or would result in
(i) a tender offer for or other acquisition of the Company's securities by the
Company, any subsidiary of the Company or any other person; (ii) an
extraordinary transaction, such as a merger, reorganization or liquidation,
involving the Company or any subsidiary of the Company; (iii) a purchase, sale
or transfer of a material amount of assets by the Company or any subsidiary of
the Company; or (iv) any material change in the present dividend rate or
policy, or indebtedness or capitalization of the Company.
7
Except as set forth in this Schedule 14D-9, there are no transactions,
resolutions of the Board of Directors, agreements in principle or signed
contracts in response to the Offer that relate to one or more of the events
referred to in the preceding paragraph.
Item 8. Additional Information.
Delaware General Corporation Law
As a Delaware corporation, the Company is subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 would prevent an
"interested stockholder" (generally defined as a person beneficially owning 15%
or more of a corporation's voting stock) from engaging in a "business
combination" (as defined in Section 203) with a Delaware corporation for three
years following the date such person became an interested stockholder unless:
(i) before such person became an interested stockholder, the board of directors
of the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination, (ii)
upon consummation of the transaction which resulted in the interested
stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding for purposes of determining the
number of shares outstanding those shares held by directors who are also
officers and by employee stock plans that do not allow plan participants to
determine confidentially whether to tender shares), or (iii) following the
transaction in which such person became an interested stockholder, the business
combination is (x) approved by the board of directors of the corporation and
(y) authorized at a meeting of stockholders, and not by written consent, by the
affirmative vote of the holders of at least 66b% of the outstanding voting
stock of the corporation not owned by the interested stockholder. In accordance
with the provisions of Section 203, the Board of Directors has approved the
Merger Agreement and the transactions contemplated thereby and the Stockholders
Agreement, as described in Item 4 above and, therefore, the restrictions of
Section 203 are inapplicable to the Offer and the Merger and the transactions
contemplated under the Merger Agreement and the Stockholders Agreement.
Appraisal Rights
Holders of shares of Common Stock do not have appraisal rights as a result
of the Offer. However, if the Merger is consummated, holders of Common Stock
whose shares were not accepted for payment and paid for by Purchaser in the
Offer will have certain rights pursuant to the provisions of Section 262 of the
DGCL to dissent and demand appraisal of their shares of Common Stock. Under
Section 262 of the DGCL, dissenting stockholders who comply with the applicable
statutory procedures will be entitled to receive a judicial determination of
the fair value of their shares of Common Stock (exclusive of any element of
value arising from the accomplishment or expectation of the Merger) and to
receive payment of such fair value in cash, together with a fair rate of
interest, if any. Any such judicial determination of the fair value of the
shares of Common Stock could be based upon factors other than, or in addition
to, the price per share to be paid in the Merger or the market value of the
shares of Common Stock. The value so determined could be more or less than the
price per share to be paid in the Merger. See Annex A to the Offer to Purchase
for Section 262 of the DGCL.
The foregoing summary of the rights of dissenting stockholders under the
DGCL does not purport to be a complete statement of the procedures to be
followed by stockholders of the Company desiring to exercise any available
appraisal rights. The foregoing summary is qualified in its entirety by
reference to Section 262 of the DGCL. The preservation and exercise of
dissenters' rights require strict adherence to the applicable provisions of the
DGCL.
Short Form Merger
Under Section 253 of the DGCL, if Purchaser acquires pursuant to the Offer
or otherwise at least 90% of the then-outstanding shares of Common Stock,
Purchaser's board of directors will be able to, and the Merger Agreement will
require it to, adopt a plan of merger to effect the Merger without a vote of
the Company's stockholders. If Purchaser does not acquire (including its prior
holdings, if any) at least 90% of the then-issued and outstanding shares of
Common Stock pursuant to the Offer or otherwise, a vote of the Company's
stockholders will be required under the DGCL to effect the Merger, and a
significantly longer period of time will be required to effect the Merger.
Parent, Purchaser and the Company have agreed to take all necessary and
appropriate action to cause the Merger to become effective as soon as
practicable after the consummation of the Offer.
8
Director Designations by Parent
The Information Statement is being furnished to the Company's stockholders
in connection with the possible designation by Parent, pursuant to the Merger
Agreement, of certain persons to be appointed by the Company Board other than
at a meeting of the Company's stockholders.
Antitrust
Under 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 certain information has been furnished to the
Antitrust Division of the United States Department of Justice (the "Antitrust
Division") and the FTC and certain waiting period requirements have been
satisfied. The acquisition of the Common Stock by the Purchaser pursuant to the
Offer and the Merger is subject to these requirements. On June 5, 2002, Parent
filed a Premerger Notification and Report Form (the "HSR Form") with the
Antitrust Division and the FTC in connection with the purchase of the Common
Stock pursuant to the Offer. The Company is preparing to file its required HSR
Form on or prior to June 17, 2002.
Pursuant to the requirements of the HSR Act, Parent and the Company are
preparing to file the required Notification and Report Forms (the "Forms") with
the Antitrust Division and the FTC. The statutory waiting period applicable to
the purchase of Common Stock pursuant to the Offer will expire at 11:59 p.m.,
New York City time, on June 20, 2002. However, prior to such date, the
Antitrust Division or the FTC may extend the waiting periods by requesting
additional information or documentary material relevant to the acquisition. If
such a request is made, the waiting period will be extended until 11:59 p.m.,
New York City time, on the tenth day after both parties have substantially
complied with such request. Thereafter, such waiting periods can be extended
only by court order. A request is being made pursuant to the HSR Act for early
termination of the applicable waiting period. There can be no assurance,
however, that the waiting period will be terminated early.
The Antitrust Division and the FTC frequently scrutinize the legality
under the antitrust laws of transactions. At any time before or after the
consummation of any such transactions, the Antitrust Division of the FTC could,
notwithstanding termination of the waiting period, take such action under the
antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the purchase of Common Stock pursuant to the Offer
or seeking divestiture of the Common Stock so acquired or divestiture of
substantial assets of Parent, Parent's subsidiaries or the Company. Private
parties, as well as state governments, may also bring legal actions under the
antitrust laws. There can be no assurance that a challenge to the Offer on
antitrust grounds will not be made, or if such challenge is made, what the
result will be.
9
Item 9. Exhibits.
Exhibit
No. Description
- ------------- --------------------------------------------------------------------------------------------------------
(a)(1) Offer to Purchase, dated June 11, 2002.*#
(a)(2) Form of Letter of Transmittal, dated June 11, 2002.*#
(a)(3) Form of Letter to Stockholders of the Company, dated June 11, 2002.#
(a)(4) Opinion of CIBC World Markets Corp., dated May 30, 2002 (included as Annex A to this Schedule 14D-9).#
(a)(5) Press release issued by the Company on May 31, 2002.+
(e)(1) Agreement and Plan of Merger, dated as of May 30, 2002, among the Company, Parent and Purchaser.*
(e)(2) Stockholders Agreement, dated as of May 30, 2002, among the stockholders named in the signature page
thereto, Parent and Purchaser.*
(e)(3) Confidentiality Agreement, dated as of April 17, 2002, between the Company and Parent.*
(e)(4) Amended Employment Agreement, dated September 14, 1999, by and among the Company, Imperial Bank
and Thomas R. Evans (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement
on Form S-1 (No. 333-87325)).
(e)(5) Employment Agreement, dated September 30, 1999, between the Company and Michael Presto
(incorporated by reference to Exhibit 10.12 to Amendment No. 2 (dated November 5, 1999) to the
Company's Registration Statement on Form S-1 (No. 333-87325)).
(e)(6) Employment Agreement, dated August 9, 2000, between the Company and Edward J. DiMaria
(incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended June 30,
2000).
(e)(7) Severance Agreement, dated November 13, 2001, between the Company and Mitchell H. Gordon
(incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2001).
- ------------
* Filed as an exhibit to the Tender Offer Statement on Schedule TO, dated June
11, 2002, filed by Parent and Purchaser and incorporated herein by
reference.
# Included with Schedule 14D-9 mailed to stockholders.
+ Previously filed as an exhibit to the Company's Schedule 14D-9 on May 31,
2002.
10
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
By: /s/ Thomas R. Evans
---------------------------------
Name: Thomas R. Evans
Title: Chairman and Chief Executive
Officer
Dated: June 11, 2002
11
[CIBC WORLD MARKETS LOGO]
CIBC World Markets Corp.
425 Lexington Avenue
New York, NY 10017
Tel: 212-856-4000
ANNEX A
May 30, 2002
Personal and Confidential
The Board of Directors
Official Payments Corporation
3 Landmark Square
Stamford, CT 06901
Members of the Board:
You have asked CIBC World Markets Corp. ("CIBC World Markets") to render a
written opinion ("Opinion") to the Board of Directors as to the fairness, from
a financial point of view, to the holders of the common stock of Official
Payments Corporation ("OPAY" or the "Company") of the consideration to be
received pursuant to the Agreement and Plan of Merger, dated as of May 30, 2002
(the "Merger Agreement"), by and among Tier Technologies, Inc. ("Tier"),
Kingfish Acquisition Corporation, a wholly owned subsidiary of Tier ("Sub"),
and OPAY. The Merger Agreement provides for, among other things, (i) the
commencement by Sub of a tender offer to purchase all outstanding shares of the
common stock, par value $0.01 per share, of OPAY (the "OPAY Common Stock", and
such tender offer, the "Tender Offer") at a purchase price of $3.00 per share,
net to the seller in cash (the "Cash Consideration") and (ii) subsequent to the
Tender Offer, the merger of Sub with and into OPAY (the "Merger" and, together
with the Tender Offer, the "Transaction") pursuant to which each outstanding
share of OPAY Common Stock not previously tendered will be converted into the
right to receive the Cash Consideration.
In arriving at our Opinion, we:
(a) reviewed the draft Merger Agreement dated May 30, 2002 and certain related documents, including
the stockholders' agreement referred to therein;
(b) reviewed OPAY's audited financial statements for the fiscal years ended December 31, 1999,
December 31, 2000 and December 31, 2001;
(c) reviewed OPAY's unaudited financial statements for the fiscal quarter ended March 31, 2002;
(d) reviewed financial projections of OPAY prepared by the management of OPAY;
(e) reviewed the historical market prices and trading volume for OPAY Common Stock;
(f) held discussions with the senior management of OPAY with respect to the business and prospects
for future growth of OPAY;
(g) reviewed public information concerning OPAY; and
(h) performed such other analyses, reviewed such other information and considered such other factors
as we deemed appropriate.
A-1
CIBC World Markets Corp.
The Board of Directors
Official Payments Corporation
May 30, 2002
Page 2
In rendering our Opinion, we relied upon and assumed, without independent
verification or investigation, the accuracy and completeness of all of the
financial and other information provided to or discussed with us by OPAY and
its employees, representatives and affiliates. With respect to forecasts of the
future financial condition and operating results of OPAY and the liquidation
analysis provided to or discussed with us, we assumed, without independent
verification or investigation, that such forecasts and analysis were reasonably
prepared on bases reflecting the best available information, estimates and
judgments of the management of OPAY. At the direction of representatives of
OPAY, we also assumed that the final terms of the Merger Agreement will not
vary materially from those set forth in the draft reviewed by us. We have
neither made nor obtained any independent evaluations or appraisals of the
assets or the liabilities (contingent or otherwise) of OPAY. The Opinion
rendered herein does not constitute a recommendation of the Transaction over
any other alternative transaction which may be available to the Company. We are
not expressing any opinion as to the underlying valuation, future performance
or long-term viability of OPAY, or the price at which OPAY Common Stock will
trade subsequent to announcement of the Transaction. Our Opinion is necessarily
based on the information available to us and general economic, financial and
stock market conditions and circumstances as they exist and can be evaluated by
us on the date hereof. It should be understood that, although subsequent
developments may affect this Opinion, we do not have any obligation to update,
revise or reaffirm the Opinion.
As part of our investment banking business, we are regularly engaged in
valuations of businesses and securities in connection with acquisitions and
mergers, underwritings, secondary distributions of securities, private
placements and valuations for other purposes.
We have acted as financial advisor to OPAY in connection with the Transaction
and to the Board of Directors of OPAY in rendering this Opinion and will
receive a fee for our services, a significant portion of which is contingent
upon consummation of the Transaction. We have in the past provided financial
services to OPAY unrelated to the proposed Transaction, for which services we
have received compensation. In the ordinary course of business, CIBC World
Markets and its affiliates may actively trade securities of OPAY, Tier and
their affiliates for their own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Cash Consideration to be received by the holders of OPAY Common
Stock in the Transaction is fair from a financial point of view to such
holders. This Opinion is for the use of the Board of Directors of OPAY, and
does not constitute a recommendation to any stockholder as to whether such
stockholder should tender shares of OPAY Common Stock in the Tender Offer or
how such stockholder should vote on any matters relating to the proposed
Transaction. Neither this Opinion nor the services provided by CIBC World
Markets in connection herewith may be publicly disclosed or referred to in any
manner by OPAY without the prior written approval by CIBC World Markets. CIBC
World Markets consents to the inclusion of this Opinion in its entirety and any
reference to this opinion in any prospectus, proxy statement or
solicitation/recommendation statement, as the case may be required to be
distributed to the Company's shareholders in connection with the Transaction.
Very truly yours,
CIBC World Markets Corp.
A-2
ANNEX B
OFFICIAL PAYMENTS CORPORATION
Three Landmark Square
Stamford, Connecticut 06901-2501
INFORMATION STATEMENT PURSUANT TO SECTION 14F
OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about June 11, 2002 as a
part of the Solicitation/
Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9") of Official
Payments Corporation (the "Company") to the holders of record of shares of
common stock, par value $.01 per share, of the Company (the "Common Stock"). It
is being furnished in connection with an Agreement and Plan of Merger, dated as
of May 30, 2002, by and among the Company, Tier Technologies, Inc., a
California corporation ("Parent"), and Kingfish Acquisition Corporation, a
Delaware corporation and wholly owned subsidiary of Parent ("Purchaser"), in
accordance with the terms and subject to the conditions of which (i) Purchaser,
on behalf of Parent, will commence a tender offer (the "Offer") to purchase all
outstanding shares of Common Stock at a price of $3.00 per share in cash (the
"Offer Price") and (ii) following consummation of the Offer, Purchaser will be
merged with and into the Company (the "Merger"). As a result of the Offer and
the Merger, the Company will become a wholly owned subsidiary of Parent.
The Merger Agreement provides that, upon the consummation of the Offer,
the Company shall cause Parent's designees to be elected to the Board of
Directors of the Company (the "Company Board") under the circumstances
described in the Merger Agreement. This Information Statement is required by
Section 14(f) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and Rule 14f-1 thereunder. (See the section entitled "Parent Designees
to the Company Board" below).
Stockholders are urged to read this Information Statement carefully.
However, this Information Statement is being provided solely for informational
purposes and not in connection with a vote of the Company's stockholders.
Capitalized terms used herein but not otherwise defined herein shall have the
respective meanings set forth in the Schedule 14D-9.
Purchaser commenced the Offer on June 11, 2002. The Offer is scheduled to
expire at 5:00 p.m., New York City time, on Tuesday July 9, 2002. However,
Purchaser intends to extend the Offer from time to time in accordance with the
terms of the Merger Agreement, as necessary, until all of the conditions to the
Offer have been satisfied or waived.
The information contained in this Information Statement concerning
Purchaser and Parent and their respective officers, directors, representatives
or affiliates has been furnished to the Company by Purchaser and Parent, and
the Company assumes no responsibility for the accuracy or completeness of such
information.
Parent Designees to the Company Board
Under the terms of the Merger Agreement, upon consummation of the Offer by
Purchaser, Parent will be entitled to designate the number of directors
(rounded up to the next whole number) to serve on the Company Board that equals
the product of (i) the total number of directors on the Company Board (giving
effect to the election of any additional directors elected pursuant to this
provision) and (ii) the percentage that the number of shares of Common Stock
purchased by Parent and/or Purchaser pursuant to the Offer bears to the total
number of shares of Common Stock then outstanding. The Merger Agreement
provides that the Company, upon the request of Parent, will use its reasonable
best efforts promptly either to increase the size of the Company Board or to
secure the resignations of that number of incumbent directors, or both, as is
necessary to enable and cause Parent's designees to be elected to the Board. At
that time, the Company shall also cause directors designated by Parent to have
appropriate representation on each committee of the Board. After the election
of Parent's designees to the Company Board and until the effective time of the
Merger (the "Effective Time"), the Company Board shall have at least three
directors who were directors on the date of the Merger Agreement (the "Original
Directors"). In the event that the number of Original Directors falls below
three for any reason, the remaining Original Director(s) (or the other
directors if there is no remaining Original Director) shall be entitled to
designate a person who is not a
B-1
stockholder, affiliate or associate of Parent to fill each such vacancy (which
designee shall be deemed to be an Original Director).
Notwithstanding anything in the Merger Agreement to the contrary, in the
event that Parent's designees are elected to the Company Board prior to the
Effective Time, the affirmative vote of a majority of the Original Directors
will be required for the Company to (i) amend or terminate the Merger Agreement
or agree or consent to any amendment or termination of the Merger Agreement,
(ii) exercise or waive any of the Company's rights, benefits or remedies under
the Merger Agreement, (iii) extend the time for performance of Parent's or
Purchaser's respective obligations under the Merger Agreement, (iv) take any
other action by the Company Board under or in connection with the Merger
Agreement, or (v) approve any other action by the Company which could adversely
affect the interests of the Company's stockholders (other than Parent,
Purchaser and their affiliates (other than the Company) with respect to the
Offer and the Merger.
Parent has informed the Company that it will choose its designees to the
Company Board from the directors and executive officers of Parent and/or
Purchaser listed in Schedule I to the Offer to Purchase, a copy of which is
being mailed to the Company's stockholders together with the Schedule 14D-9.
Parent has informed the Company that each of the directors and executive
officers listed in Schedule I to the Offer to Purchase has consented to act as
a director of the Company, if so designated. The address of each such person is
set forth in the Offer to Purchase. The information in the Offer to Purchase is
incorporated herein by reference.
It is expected that Parent's designees to the Company Board may assume
office following consummation of the Offer, which cannot be earlier than July
9, 2002.
Voting Securities of the Company
As of the close of business on June 6, 2002, 22,952,876 shares of Common
Stock were outstanding and entitled to vote. The Common Stock is the only class
of outstanding voting securities of the Company, with each share of Common
Stock entitled to one vote.
BOARD OF DIRECTORS
The Company Board currently consists of six members. Set forth below is
the name, age and principal occupation of each member of the Company Board, as
well as such individuals' positions with the Company and business experience
during at least the last five years and the year each was first elected or
appointed a director.
ANDREW COHAN. Mr. Cohan has served as a director of the Company since
November 1999. Since November 1, 2001, Mr. Cohan has served as President,
Co-Chief Executive Officer of Access Licensing Group, an entertainment
licensing and marketing company. He was Senior Vice President, Licensing,
Marketing and Merchandising for Hyper Entertainment Inc., an entertainment
licensing and marketing company, from July 2000 through August 2001. From
September 1999 to July 2000, Mr. Cohan was Chairman and Chief Executive Officer
of Artist Marketing Corp., a marketing company for artists and
entertainment/celebrity figures. From August 1997 to September 1999, Mr. Cohan
was Senior Vice President, Worldwide Entertainment, Licensing and Marketing for
Sony Signature, an entertainment licensing and marketing company. From January
1996 to July 1997, Mr. Cohan was Senior Vice President, Chief Merchandising
Officer for Beverages and More, a start-up beverages retailer. Before that, Mr.
Cohan was Vice President, Merchandising for Emerson Radio Corporation from
February 1994. Age: 47.
THOMAS R. EVANS. Mr. Evans has served as Chairman of the Board and Chief
Executive Officer of the Company since August 1999. From April 1998 to May
1999, Mr. Evans was the President and Chief Executive Officer of GeoCities,
Inc., which was acquired by Yahoo! Inc. in May 1999. From 1992 to April 1998,
Mr. Evans served as President and Publisher of U.S. News & World Report. From
January 1997 to April 1998, Mr. Evans also served as President and Publisher of
The Atlantic Monthly. In addition, from May 1995 to April 1998, Mr. Evans
served as President and Publisher of Fast Company magazine. Age: 47.
JOHN R. HAGGERTY. Mr. Haggerty has served as a director of the Company
since April 2002. Since March 2001, he has served as Executive Vice President
in charge of Small Business Banking & Personal Financial Services for Comerica
Incorporated. Mr. Haggerty joined Comerica in July 1994 and served as President
and Chief Executive Officer of Comerica Mortgage Corporation until December
1997. From August 1997 until August 2000, Mr. Haggerty was Chairman and
President of Comerica Acceptance Corporation and served as Chairman and
President
B-2
of Comerica Bank, National Association from August 1998 until March 2001. Prior
to joining Comerica in 1994, Mr. Haggerty served as Executive Vice President of
Banc One Mortgage Corporation. Age: 58.
JOHN D. LEWIS. Mr. Lewis has served as a director of the Company since May
2001. He has served as Vice Chairman and a director of Comerica Incorporated
since January 1994 and Vice Chairman of Comerica Bank since March 1995. Mr.
Lewis also held these officer positions with Comerica Incorporated and Comerica
Bank between January 1990 and June 1992 and served as a director of Comerica
Incorporated between 1989 and 1992. Mr. Lewis was Executive Vice President of
Comerica Incorporated from June 1992 to January 1994. Age: 53.
LEE E. MIKLES. Mr. Mikles has served as a director of the Company since
November 1999. Mr. Mikles is the Chairman of Mikles/Miller Management Inc., a
registered investment advisor, and Chairman of Mikles/Miller Securities, LLC, a
registered broker/dealer. Mr. Mikles served as a director of Imperial Bancorp
from 1996 until 2000 and its wholly owned subsidiary, Imperial Bank, from 1993
to 2000. Mr. Mikles currently serves on the board of directors of Coastcast
Corp. Age: 46.
BRUCE S. NELSON. Mr. Nelson has served as a director of the Company since
November 1999. Since September 2000, Mr. Nelson has served as Executive Vice
President, Chief Marketing Officer of The Interpublic Group of Companies, Inc.
From March 1998 through September 1999, he was Vice Chairman, Chief Knowledge
Officer of Young & Rubicam Inc. Prior to that position, he worked at
McCann-Erickson Worldwide for 19 years in various positions, including as
Director of Worldwide Accounts, Director of Strategy for Worldwide Accounts and
Creative Director for Worldwide Accounts. From September 1999 to October 2001,
Mr. Nelson served as a marketing and advertising consultant to the Company (see
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS"). Age: 50.
Certain Information Concerning the Company Board
Board of Directors and Committees of the Company Board. The Company Board
held six meetings during 2001. In 2001, all incumbent directors attended at
least 75% of the aggregate number of meetings of the Company Board and
committees of the Company Board on which they served that were held after their
appointment.
The Board has established an Audit Committee and a Compensation Committee.
The Company has no nominating or similar committee; the full Company Board
performs that function.
The current members of the Audit Committee, which held five meetings in
2001, are Messrs. Cohan, Nelson and Mikles (Chairman). Mr. Nelson was appointed
to the Audit Committee on April 5, 2002. The Audit Committee operates under a
written charter adopted by the Company Board in June 2000. The Audit Committee
meets from time to time with the Company's independent auditors and has general
responsibility for reviewing the accounting and auditing affairs of the
Company. The Company Board has determined that each member of the Audit
Committee is "independent" and possesses the requisite financial literacy as
prescribed by the Marketplace Rules of the Nasdaq Stock Market.
The current members of the Compensation Committee, which held four
meetings in 2001, are Messrs. Cohan, Lewis and Nelson. Mr. Lewis was appointed
to the Compensation Committee on April 5, 2002. The Compensation Committee has
general responsibility for management and other employee compensation,
including incentive compensation and stock option plans.
Compensation of Directors. Directors who are not employees of the Company
or Comerica Incorporated (or its affiliates) receive an annual retainer of
$20,000. Directors are reimbursed for out-of-pocket expenses incurred in
connection with their service as directors. In addition, Mr. Mikles received,
upon consummation of the Company's initial public offering in November 1999,
options to purchase 75,000 shares of the Common Stock at an exercise price per
share equal to $15.00 and Messrs. Cohan and Nelson received 93,750 and 95,000
options, respectively, to purchase the Common Stock at the $15.00 per share
exercise price. Mr. Nelson also received options to purchase 15,000 shares of
Common Stock at an exercise price per share equal to $1.33. Non-employee
directors (other than employees of Comerica Incorporated or its affiliates) are
also eligible to receive option grants under the Company's 1999 Stock Incentive
Plan at the discretion of the Company Board. Directors who are officers or
employees of the Company or Comerica Incorporated (or its affiliates) do not
receive any additional compensation for their services as directors.
B-3
EXECUTIVE OFFICERS
Set forth below is information regarding the current executive officers of
the Company, who serve at the discretion of the Company Board:
NAME AGE POSITION(S)
- ---- --- -----------
Thomas R. Evans ............. 47 Chairman of the Board and Chief Executive Officer
Michael P. Presto ........... 48 Chief Operating Officer
Edward J. DiMaria ........... 36 Chief Financial Officer
Mitchell H. Gordon .......... 36 Senior Vice President, General Counsel and Secretary
The biographical information for Mr. Evans is provided in the biographical
information of the directors of the Company set forth above.
Michael P. Presto has served as the Company's Chief Operating Officer
since September 1999, and is responsible for the technology, customer service
and business operations of the Company. Mr. Presto was Senior Vice President,
Circulation and Business Development at Curtis Circulation Company from April
1998 to September 1999, where he was responsible for worldwide circulation
sales and marketing strategies. From January 1993 to April 1998, Mr. Presto was
Vice President of Consumer Marketing and Senior Vice President of Consumer
Marketing and Distribution for The New York Daily News, during which time he
also served as President of Data Comm Services Inc., an affiliated
telemarketing/fulfillment customer service business. In addition, Mr. Presto
has held executive management positions at U.S. News & World Report and
Newsweek.
Edward J. DiMaria has been the Company's Chief Financial Officer since
August 2000. From August 1994 to August 2000, Mr. DiMaria was employed by Best
Friends Pet Care, Inc., where his final position was Executive Vice President
and Chief Financial Officer. Mr. DiMaria has also held finance and accounting
positions with Business Express, Inc., Advanced Network & Services, Inc. and
KPMG Peat Marwick.
Mitchell H. Gordon has served as the Company's General Counsel since
February 2000, and is responsible for managing the Company's legal affairs and
supervising the Company's outside legal counsel. From September 1995 to
February 2000, Mr. Gordon was an attorney at Skadden, Arps, Slate, Meagher &
Flom LLP, concentrating on mergers and acquisitions and general corporate law.
SIGNIFICANT EMPLOYEE
Kevin C. Connell has served as Vice President, Sales of the Company since
December 2001 and is responsible for supervising the Company's sales and
business development activities. From the commencement of his employment with
the Company in November 1999 until assuming his new responsibilities, Mr.
Connell served as Vice President, East Coast Sales. Mr. Connell was Vice
President-New Business Development of Discover Financial Services, Inc. from
November 1996 through October 1999, and in such position served as National
Government Sales Manager. Prior to assuming such position, Mr. Connell held
various sales and management positions at Discover from 1985. Age: 35.
B-4
EXECUTIVE OFFICER COMPENSATION
The following table sets forth the compensation awarded to, earned by or
paid to (i) the person serving as the Company's Chief Executive Officer during
2001, (ii) the four other most highly compensated executive officers of the
Company in 2001 who were employed in such positions as of December 31, 2001,
and (iii) Kenneth Stern, who served as the Company's President until December
26, 2001. The compensation indicated is for services rendered in all capacities
to the Company during 2001, 2000 and 1999, as applicable. Except as set forth
below, perquisites and other personal benefits, securities and property did not
exceed the lesser of $50,000 or 10% of the total annual salary and bonus
reported for the named executive officers.
Summary Compensation Table
Long Term
Compensation
-------------
Awards
-------------
Annual Compensation Securities
----------------------------------------------------- Underlying
Other Annual Options All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($) (#) Compensation($)(a)
- ----------------------------- ------ ----------- ---------- ----------------- ------------- -------------------
Thomas R. Evans ............. 2001 350,000 -- -- -- --
Chairman and Chief 2000 200,000 100,000 -- -- 7,598
Executive Officer 1999 76,955 500,000 -- 1,370,328 --
Michael P. Presto ........... 2001 200,000 100,000 -- -- 5,250
Chief Operating Officer 2000 200,000 100,000 -- 200,000 12,848
1999 50,000 -- -- 685,164 --
Edward J. DiMaria ........... 2001 195,000 85,000 -- 50,000 5,250
Chief Financial Officer 2000 56,875 60,000 -- 200,000 --
1999 -- -- -- -- --
Mitchell H. Gordon .......... 2001 185,000 30,000 -- 50,000 4,731
Senior Vice President, 2000 151,891 43,750 -- 180,000 11,435
General Counsel 1999 -- -- -- -- --
Michael Barrett ............. 2001 200,000 -- -- -- --
Chief Internet and Sales 2000 200,000 100,000 -- -- 11,397
Officer (b) 1999 50,000 -- -- 822,196 --
Kenneth Stern ............... 2001 212,519 100,000 22,924 (d) -- 1,520,615 (e)
President (c) 2000 215,000 100,000 28,202 (d) -- 18,167
1999 198,046 -- 32,058 (d) 219,252 9,728
- ------------
(a) Except as otherwise indicated, "All Other Compensation" represents the
aggregate amount of contributions made per listed individual by the
Company or its ultimate parent company, Comerica Incorporated (beginning
January 30, 2001) or Imperial Bancorp (prior to January 30, 2001), to
various employee benefit plans offered to eligible Company employees: the
Imperial Bancorp Salary Investment Plan (the "Imperial 401(k) Plan"), the
Company's Retirement Incentive Plan (the "Company 401(k) Plan"), the
Imperial Bancorp Employee Stock Ownership Plan (the "Imperial ESOP") and
the Imperial Bancorp Profit Sharing Plan (the "Imperial PS Plan"). The
Imperial 401(k) Plan, the Imperial ESOP and the Imperial PS Plan were
terminated in 2001.
(b) Mr. Barrett's employment with the Company terminated as of January 27,
2002.
(c) Mr. Stern's employment with the Company terminated as of December 26, 2001.
Mr. Stern passed away in late January 2002.
(d) The amounts shown in 2001, 2000 and 1999 include automobile allowances of
$22,924, $24,445 and $27,196, respectively.
(e) The amount shown reflects the Company's contribution of $5,250 under the
Company 401(k) Plan and the aggregate severance payable to Mr. Stern's
lawful heir(s) pursuant to his employment agreement in connection with the
termination of his employment from the Company.
B-5
The table below discloses information concerning individual grants of
stock options made during the last completed fiscal year to the executive
officers named in the Summary Compensation Table, which stock options were
granted with exercise prices equal to the market price of the Common Stock on
the date of grant. Stock options granted generally vest over a three-year
period.
Option Grants in Last Fiscal Year
Individual Grants Potential Realizable Value at
-------------------------------------------- Assumed Annual Rates of Stock
Number of % of Total Price Appreciation for Option
Securities Options Term
Underlying Granted to Exercise ----------------------------
Options Employees in Price Expiration 5% 10%
Name Granted (#) Fiscal Year ($/Share) Date ($)(a) ($)(a)
- ---- ----------- ----------- --------- ---- ------ ------
Thomas R. Evans ............ -- -- -- -- -- --
Michael P. Presto .......... -- -- -- -- -- --
Edward J. DiMaria .......... 50,000 5.6% $ 3.29 8/27/11 $103,453 $262,170
Mitchell H. Gordon ......... 50,000 5.6% $ 7.00 2/20/11 $220,113 $557,809
Michael Barrett ............ -- -- -- -- -- --
Kenneth Stern .............. -- -- -- -- -- --
- ------------
(a) These amounts represent hypothetical gains that could be achieved for the
options if they are executed at the end of their respective terms. The
assumed 5% and 10% rates of stock price appreciation are mandated by the
rules of the Securities and Exchange Commission. They do not represent the
Company's estimate or projection of future prices of the Common Stock.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The table set forth below discloses certain information concerning the
number and value of unexercised options for the last completed fiscal year by
the executive officers named in the Summary Compensation Table. None of the
executive officers named in the Summary Compensation Table exercised options to
purchase shares of the Common Stock during the last completed fiscal year.
Aggregated Fiscal Year-End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at FY-End(#) at FY-End($)(a)
------------------------ ---------------------
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
- ---- ------------- -------------
Thomas R. Evans ............ 1,370,328/0 $2,891,392/0
Michael P. Presto .......... 885,164/0 $1,445,696/0
Edward J. DiMaria .......... 200,000/50,000 $ 0/7,500
Mitchell H. Gordon ......... 212,917/17,083(b) $ 0/0
Michael Barrett ............ 822,196/0 $1,734,834/0
Kenneth Stern .............. 219,252/0 $ 462,622/0
- ------------
(a) The value of unexercised options was determined using the $3.44 closing
price of the Common Stock on December 31, 2001, the last Nasdaq trading
day in 2001.
(b) The first ("exercisable") amount shown includes 16,251 non-qualified stock
options granted under the Company's 1999 Stock Incentive Plan, which
options are immediately exercisable but subject to a right of repurchase
by the Company, which right lapses periodically through December 2003 in
accordance with the terms of such plan. The second ("unexercisable")
amount shown represents incentive stock options granted under the 1999
Stock Incentive Plan, which are not exercisable prior to vesting.
B-6
Employment Agreements
Thomas R. Evans. The Company has entered into an employment agreement with
Thomas R. Evans, the Company's Chairman and Chief Executive Officer. The
employment agreement provides for a minimum annual base salary of $200,000,
which the Compensation Committee increased to $350,000 as of January 1, 2001.
In addition, Mr. Evans is eligible to receive unspecified annual bonuses at the
discretion of the Compensation Committee. In accordance with the employment
agreement, Mr. Evans was also granted options (the "Initial Evans Options") to
purchase 1,370,328 shares of the Common Stock at $1.33 per share under the 1999
Stock Incentive Plan. Under the terms of the employment agreement, Comerica
Bank-California (as successor to Imperial Bank) has guaranteed that the "value"
- -- as defined in the agreement -- of Mr. Evans' vested options will be
$10,000,000 on or before August 26, 2002, and Comerica Bank-California will pay
Mr. Evans an amount equal to the difference between $10,000,000 and the highest
value of the vested options calculated on certain specified dates during such
three-year period. This guarantee is solely the obligation of Comerica
Bank-California and is not an obligation of the Company. If Mr. Evans'
employment is terminated by the Company without "cause" or if he terminates his
employment for "good reason," including a "change in control," as these terms
are defined in the agreement, the Company will be required to pay him his base
salary and benefits for one year, and all of his then unvested options will
vest immediately. The merger of Imperial Bancorp (the then parent holding
company of Imperial Bank) with and into a wholly owned subsidiary of Comerica
Incorporated in January 2001 constituted a change of control of the Company for
purposes of the preceding sentence and also resulted in the full vesting of the
Initial Evans Options. If Mr. Evans' employment is terminated by the Company
with cause, the Company will be required to pay him any compensation, benefits
or reimbursements accrued through the date of termination. Mr. Evans'
employment under the agreement may be terminated by the Company on 30 days'
notice without cause, or immediately upon notice with cause, and may be
terminated by Mr. Evans on 60 days' notice without good reason, or upon 30
days' notice for good reason.
Michael P. Presto. The Company has entered into an employment agreement
with Michael P. Presto, the Company's Chief Operating Officer. The employment
agreement provides for a minimum annual base salary of $200,000, which the
Compensation Committee increased to $250,000 as of January 1, 2002. In
addition, under the terms of his agreement, Mr. Presto is eligible to receive
unspecified annual bonuses in the future at the discretion of the Compensation
Committee. In accordance with the employment agreement, Mr. Presto was also
granted options (the "Initial Presto Options") to purchase 685,164 shares of
the Common Stock at $1.33 per share under the 1999 Stock Incentive Plan. If Mr.
Presto's employment is terminated by the Company without "cause" or if he
terminates his employment for "good reason," including a "change in control,"
as these terms are defined in the agreement, the Company will be required to
pay him his base salary and benefits for one year, and all of his then unvested
options will vest immediately. The Imperial Bancorp/Comerica Incorporated
merger in January 2001 constituted a change of control of the Company for
purposes of the preceding sentence and also resulted in the full vesting of the
Initial Presto Options. If Mr. Presto's employment is terminated by the Company
with cause, the Company will be required to pay him any compensation, benefits
or reimbursements accrued through the date of termination. Mr. Presto's
employment under the agreement may be terminated by the Company on 60 days'
notice without cause, or immediately upon notice with cause, and may be
terminated by Mr. Presto on 60 days' notice without good reason, or upon 30
days' notice for good reason.
Kenneth Stern. Prior to Mr. Stern's death in late January 2002, the
Company terminated Mr. Stern's employment as President of the Company as of
December 26, 2001. This action, which was part of the Company's corporate
restructuring, constituted a "termination without cause" under the terms of Mr.
Stern's employment agreement. Accordingly, through August 23, 2006, the Company
is required to pay Mr. Stern's lawful heir(s) his minimum annual base salary of
$215,000 and minimum annual bonus of $100,000.
Edward J. DiMaria. The Company has entered into an employment agreement
with Edward J. DiMaria, the Company's Chief Financial Officer. The employment
agreement provides for a minimum annual base salary of $195,000, which the
Compensation Committee increased to $220,000 as of January 1, 2002. In
addition, under the terms of his agreement, Mr. DiMaria is eligible to receive
unspecified annual bonuses in the future at the discretion of the Compensation
Committee. In accordance with the employment agreement, upon the commencement
of his employment, Mr. DiMaria was also granted options (the "Initial DiMaria
Options") to purchase 200,000 shares of the Common Stock under the 1999 Stock
Incentive Plan at $7.12 per share, and in August 2001, he received an
additional grant of options to purchase up 50,000 shares of the Company's
common stock at $3.29 (the "Additional DiMaria Options"). If Mr. DiMaria's
employment is terminated by the Company
B-7
without "cause" or if he terminates his employment for "good reason," including
a "change in control," as these terms are defined in the agreement, the Company
will be required to pay him a lump-sum amount equal to one year of his base
salary, provide him his other employment benefits for one year. The Imperial
Bancorp/Comerica Incorporated merger in January 2001 constituted a change of
control of the Company for purposes of the preceding sentence with respect to
the full vesting of the Initial DiMaria Options; consummation of the Offer will
constitute a change of control for purposes of the preceding sentence
(including, among other things, resulting in the full vesting of the Additional
DiMaria Options). If Mr. DiMaria's employment is terminated by the Company with
cause, the Company will be required to pay him any compensation, benefits or
reimbursements accrued through the date of termination. Mr. DiMaria's
employment under the agreement may be terminated by the Company immediately
upon notice with or without cause, and may be terminated by Mr. DiMaria on 30
days' notice with or without good reason.
Michael Barrett. As part of its corporate restructuring, the Company
terminated "without cause" Mr. Barrett's employment as Chief Internet and Sales
Officer, effective January 27, 2002. Under the terms of Mr. Barrett's
employment agreement with the Company, the Company will pay Mr. Barrett his
$200,000 base salary and employee benefits through January 27, 2003.
Mitchell H. Gordon. In November 2001, the Company entered into an
agreement with Mr. Gordon, Senior Vice President, General Counsel of the
Company. Under the terms of this agreement, if Mr. Gordon's employment is
terminated by the Company without "cause" or if he terminates his employment
for "good reason," including a "change in control," as these terms are defined
in the agreement, the Company will be required to pay him his base salary and
benefits for one year, and all of his then unvested options will vest
immediately. Consummation of the Offer will constitute a change of control of
the Company for purposes of the preceding sentence. Under the agreement, Mr.
Gordon's employment may be terminated by the Company immediately with or
without cause, and may be terminated by Mr. Gordon on 30 days' notice with good
reason.
All of the aforementioned agreements (except Mr. Gordon's) generally
contain confidentiality provisions and covenants not to compete during the term
of employment and for one year after termination of employment.
COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
General
The following is the Report of the Compensation Committee of the Company
Board, describing the compensation policies and rationale applicable to the
Company's executive officers with respect to compensation paid to such
executive officers for the calendar period ended December 31, 2001. The
Compensation Committee was established in January 2000 and currently consists
of Andrew Cohan, John Lewis and Bruce Nelson. George L. Graziadio, Jr. served
as a member of the Compensation Committee until his resignation from the Board
in early April 2002 and, since he was a member at the time this Report was
approved, his name appears at the end of this Report (rather than Mr. Lewis'
name, since Mr. Lewis joined the Committee after the Committee approved this
Report). The information contained in this Report shall not be deemed
"soliciting material" or to be "filed" with the Securities and Exchange
Commission nor shall such information be deemed incorporated by reference into
any future filing under the Securities Act of 1933, as amended (the "Securities
Act"), or the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
except to the extent the Company specifically incorporates it by reference into
such filing.
The goals of the Company's compensation program are to align compensation
with business objectives and performance and to enable it to attract, retain
and reward executive officers and other key employees who contribute to the
Company's long-term success and to motivate them to enhance long-term
stockholder value. The Compensation Committee is particularly mindful of the
extremely competitive environment for attracting senior level management in the
technology sector, and the continuous and extraordinary efforts which have been
made by other technology companies to lure away management and key personnel.
To meet these goals, the Company has adopted a mix of the compensation elements
of salary, bonus and stock incentive awards.
B-8
Base Salary
The base salary of the Company's executive officers was individually
negotiated at the time each officer joined the Company or assumed his current
position. The Compensation Committee reviews each executive officer's base
salary periodically (and at least annually), and when doing so, considers
individual and corporate performance, levels of responsibility, prior
experience, breadth of knowledge and competitive pay practices. The
Compensation Committee believes that the current executive salaries are
comparable to the salaries in effect at companies that compete with the Company
for executive talent.
Bonus
The Company's bonus policy has been to award bonuses to executive officers
and key employees based on the achievement of specific goals set by the
Company, and the level of contribution made by these individuals. In
calculating bonus awards, certain Company performance objectives will be
considered, including operating, strategic and financial goals necessary for
the achievement of the Company's short and long-term objectives. Certain
executive officers have employment agreements providing for minimum bonus
awards.
Stock Incentive Awards
The purpose of the Company's stock incentive plans is to provide employees
of the Company with the opportunity to share, along with stockholders of the
Company, in the long-term performance of the Company. The Compensation
Committee makes periodic grants of stock options or restricted stock to
eligible employees, generally upon commencement of employment, following a
significant change in job responsibilities or in recognition of a significantly
noteworthy accomplishment. Stock options usually vest over three years and
expire ten years from the date of grant (provided the employee remains employed
with the Company). The exercise price of options is normally 100% of fair
market value of the underlying stock on the date of grant (other than stock
options granted prior to completion of the Company's initial public offering).
The Company's executive officers are not eligible to receive grants of stock
options or restricted stock under the 2000 Stock Incentive Plan and only
receive grants of stock options under the 1999 Stock Incentive Plan. In
awarding stock options and restricted stock, the Compensation Committee
considers individual performance, overall contribution to the Company, the
competitive climate for recruiting personnel and the total number of stock
options and shares of restricted stock to be awarded.
CEO Compensation
Compensation in 2001 for Mr. Evans, the Company's Chairman and Chief
Executive Officer, was initially established in his employment agreement with
the Company and was increased by the Compensation Committee in January 2001
(See "EXECUTIVE OFFICER COMPENSATION -- Employment Agreements"). Mr. Evans'
total compensation is heavily weighed toward equity incentives, consisting of
the stock options granted to him in 1999 when he commenced employment with the
Company. Mr. Evans' compensation was designed to align his interests with those
of the Company's stockholders by tying the value of the awards and his
eligibility for annual cash bonuses to the success qualitatively of his efforts
toward building the Company's management, business and infrastructure and
promoting the operating and financial performance of the Company.
Section 162(m) of the Code imposes limitations on the deductibility for
federal income tax purposes of compensation over $1 million paid to certain
executive officers in a taxable year. Compensation above $1 million may be
deducted if it is "performance-based compensation" within the meaning of the
Code. While the Company does not expect this limitation to affect the Company
with respect to the 2001 tax year, the Compensation Committee intends to
continue to evaluate the effects of the statute and any U.S. Treasury
Department regulations and to comply with Section 162(m) of the Code in the
future to the extent consistent with the best interests of the Company.
Compensation Committee:
Andrew Cohan
George L. Graziadio, Jr.*
Bruce Nelson
- ------------
* As noted elsewhere in this Information Statement, Mr. Graziadio resigned from
the Board of Directors in early April 2002.
B-9
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee was established in January 2000 and consists
solely of the following non-employee directors: Messrs. Cohan, Lewis (beginning
in April 2002) and Nelson. Mr. Graziadio served on the Compensation Committee
through the time of his resignation from the Company Board in April 2002. Mr.
Graziadio served as the Company's Chief Executive Officer from April 16, 1999
to July 15, 1999. Mr. Lewis is an executive officer of Comerica Incorporated,
the record owner of approximately 52% of the Company's outstanding common
stock, and Mr. Graziadio is Chairman of Comerica Bank-California, a wholly
owned subsidiary of Comerica Incorporated. During the year ended December 31,
2001, none of the Company's executive officers served:
o as a member of the compensation committee (or other board committee
performing equivalent functions or, in the absence of any such committee,
the entire board of directors) of another entity, one of whose executive
officers served on the Company's compensation committee;
o as a director of another entity, one of whose executive officers served
on the Company's compensation committee; or
o as a member of the compensation committee (or other board committee
performing equivalent functions or, in the absence of any such committee,
the entire board of directors) of another entity, one of whose executive
officers served as a director of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of the Common
Stock, to file initial reports of ownership and changes in ownership with the
Securities and Exchange Commission and the Nasdaq National Market. Such persons
are required by Securities and Exchange Commission regulations to furnish the
Company with copies of all Section 16(a) forms they file. To the best of the
Company's knowledge, the reports for all officers, directors and holders of
more than ten percent of the Common Stock were timely filed during the year
ended December 31, 2001, except that (i) in 2002 Mr. DiMaria filed late a Form
5 regarding a grant of stock options that he received in 2001 and (ii) Mr.
Graziadio did not file three Forms 4 covering a total of fifteen sale
transactions in mid-2001, all of which transactions were subsequently reversed
(due to mistake) through the applicable broker's errors account.
B-10
STOCK PERFORMANCE GRAPH
The performance graph below compares the annual percentage change in the
Company's cumulative total stockholder return on its Common Stock during a
period commencing on November 23, 1999, the date on which the Company's common
stock began publicly trading, and ending on December 31, 2001 (as measured by
dividing (i) the sum of (A) the cumulative amount of dividends for the
measurement period, assuming dividend reinvestment and (B) the difference
between the Company's share price at the end and the beginning of the
measurement period; by (ii) the share price at the beginning of the measurement
period) with the cumulative total return of each of: (a) the Nasdaq Composite
Index (Nasdaq); and (b) the Dow Jones Internet Index during such period,
assuming a $100 investment on November 23, 1999. The Company's share price at
the beginning of the measurement period was the closing price for the Common
Stock on November 23, 1999, and not the price at which the Company's shares of
common stock were initially offered for purchase in its public offering. It
should be noted that the Company has not paid any dividends on the Common
Stock, and no dividends are included in the representation of the Company's
performance.
The information contained in the performance graph shall not be deemed
"soliciting material" or to be "filed" with the Securities and Exchange
Commission nor shall such information be deemed incorporated by reference into
any future filing under the Securities Act of 1933, as amended, or the Exchange
Act, except to the extent the Company specifically incorporates it by reference
into such filing.
[THE FOLLOWING INFORMATION WAS REPRESENTED AS A LINE CHART IN THE PRINTED
MATERIAL]
Date Official Payments Corp. Nasdaq Index Dow Jones Internet Index
- ---- ----------------------- ------------ ------------------------
11/23/99 .......... $ 100.00 $ 100.00 $ 100.00
12/31/99 .......... $ 231.11 $ 121.73 $ 126.10
6/30/00 ........... $ 19.17 $ 118.64 $ 90.44
12/29/00 .......... $ 30.56 $ 73.90 $ 42.84
6/29/01 ........... $ 22.89 $ 64.65 $ 25.86
12/31/01 .......... $ 15.29 $ 58.35 $ 19.92
B-11
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Comerica Bank, a wholly owned subsidiary of Comerica Incorporated
("Comerica Bank"), is one of the merchant banks the Company uses to process
credit card transactions and perform traditional merchant credit card
settlement services. The Company has an agreement with Comerica Bank in which
the Company agrees to use its best efforts to use Comerica Bank as its provider
of credit card settlement services. Under the agreement with Comerica Bank for
processing and settlement services, Comerica Bank is paid from the Company's
sales revenues customary merchant discount fees usually charged for similar
processing services, on a product by product basis as negotiated between the
Company and Comerica Bank. During 2001, the Company paid Comerica Bank
approximately $8.2 million for performing these processing and settlement
services, which represents 33% of the total merchant discount fees paid by the
Company in 2001.
John D. Lewis and John R. Haggerty, directors of the Company, are both
senior officers of Comerica Incorporated.
Comerica Bank guarantees the performance of the Company's obligations
under six equipment leases. These leases are comprised of a master lease
agreement with one lessor for five leases for various furniture and computer
equipment and a separate lease agreement for network equipment. The Company
will seek to substitute Parent as guarantor for Comerica Bank under these
leases following consummation of the Offer.
Starting in November 2001, as a majority-owned subsidiary of Comerica
Incorporated, the Company has obtained its corporate insurance as part of
Comerica's master policies, and pays its allocated premiums for coverage to
independent third-party carriers. In addition, in 2001 the Company incurred
$11,560 of premiums payable to Comerica Assurance Ltd., another Comerica
subsidiary, for insurance on certain deductibles which otherwise would be
payable by the Company in the event of casualty losses under these master
policies.
In addition, in connection with entering into the Merger Agreement, the
Company and Comerica Incorporated entered into an Executive Liability and
Indemnification Policies Maintenance Agreement, dated as of May 30, 2002 (the
"Insurance Agreement"). A description of the material terms and conditions of
the Insurance Agreement is set forth in the section captioned "Insurance
Agreement" under Item 3 of the Schedule 14D-9.
In 1999, the Company entered into an agreement with Bruce Nelson, one of
the Company's directors, pursuant to which, among other things, Mr. Nelson
provided consulting services in connection with the Company's marketing and
advertising campaigns, analyst and other presentations and corporate
positioning strategy. Prior to the termination of that agreement (effective
October 1, 2001), the Company paid Mr. Nelson an annual fee of $50,000 for
these services. Also in connection with these services, in 1999 Mr. Nelson
received a one-time grant of options to purchase 15,000 shares of the Company's
common stock at an exercise price of $1.33 per share, as well as options to
purchase 20,000 shares of the Company's common stock at $15.00 per share. While
these options initially had a three-year vesting schedule, they fully vested in
January 2001 upon the change of control of the Company effected through the
Imperial Bancorp/Comerica Incorporated merger.
Executive officers, directors and employees of the Company may utilize the
Company's credit card payment services in order to pay federal, state and/or
municipal tax or other obligations in the ordinary course of business, and the
Company provides these persons a discount from the convenience fee charged to
unaffiliated third parties utilizing similar services.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the close of business on May 31,
2002, certain information regarding the beneficial ownership (determined in
accordance with Rule 13d-3 promulgated under the Exchange Act) of (i) the
Common Stock of each person (including any "group" as that term is used in
Section 13(d)(3) of the Exchange Act) known to the Company to beneficially own
more than 5% of the Common Stock, (ii) the Common Stock and the common stock of
Comerica Incorporated, the Company's parent, of each of the Company's directors
and named executive officers, and (iii) the Common Stock and the common stock
of Comerica Incorporated of each of the Company's directors and executive
officers as a group. None of the Company's directors, director nominees or
executive officers own any shares of Comerica Incorporated's Series E Preferred
Stock. Except as indicated below, information with respect to beneficial
ownership is based upon information furnished by the respective person. Except
as noted below, all persons referenced below have sole voting and investment
power over the shares beneficially owned by them. All shares of Common Stock
subject to options currently exercisable or exercisable within 60 days after
May 31, 2002 are deemed to be outstanding and to be beneficially owned by the
person holding
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such options for the purpose of computing the number of shares beneficially
owned and the percentage ownership of such person, but are not deemed to be
outstanding and to be beneficially owned for the purpose of computing the
percentage ownership of any other person.
Of the Total
Number of Shares
Beneficially
Owned, Shares
Total Amount of Which May Be Percent
Shares Beneficially Acquired Within of Class
Name Title and Class of Security Owned (b) 60 Days Owned
- ------------------------------------- ----------------------------- --------------------- ----------------- ---------
Principal Stockholders:
Comerica Incorporated ............... Company Common Stock 12,000,000(c) -- 52.3%
Comerica Tower at Detroit Ctr.
500 Woodward Avenue
Detroit, MI 48226
Directors and Executive Officers:
Thomas R. Evans ..................... Company Common Stock 1,370,328 1,370,328 5.6%
Comerica Common Stock 115 -- *
Andrew Cohan ........................ Company Common Stock 93,750 93,750 *
Comerica Common Stock -- -- *
John R. Haggerty .................... Company Common Stock -- -- *
Comerica Common Stock 102,922(d) 66,275 *
John D. Lewis ....................... Company Common Stock -- -- *
Comerica Common Stock 419,838(e) 311,675 *
Lee E. Mikles ....................... Company Common Stock 77,000 75,000 *
Comerica Common Stock -- -- *
Bruce S. Nelson ..................... Company Common Stock 110,000 110,000 *
Comerica Common Stock -- -- *
Michael P. Presto ................... Company Common Stock 885,664 885,164 3.7%
Comerica Common Stock 288 -- *
Edward J. DiMaria ................... Company Common Stock 200,000 200,000 *
Comerica Common Stock 10 -- *
Mitchell H. Gordon .................. Company Common Stock 212,917(f) 212,917 *
Comerica Common Stock 224 -- *
Kenneth Stern (a) ................... Company Common Stock 2,841,252(g) 199,252 11.0%
Comerica Common Stock 534 -- *
Michael Barrett ..................... Company Common Stock 282,800 282,800 1.2%
Comerica Common Stock 172 -- *
Directors and Executive Officers
as a Group (9 individuals) ......... Company Common Stock 2,949,659 2,947,159 11.4%
Comerica Common Stock 523,397 377,950 *
- ------------
* Less than 1%
(a) Mr. Stern passed away in late January 2002.
(b) With respect to shares of Comerica Incorporated common stock, unless otherwise indicated below,
represents the number of shares held in accounts for the listed persons under the Company 401(k) Plan.
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(c) Based on information contained in its Schedule 13D, dated March 28, 2001, Comerica Incorporated
beneficially owned 12,000,000 shares of the Common Stock with sole power to vote and dispose of all
such shares. On January 30, 2001, Imperial Bancorp, the parent holding company of Imperial Bank (the
then owner of the referenced shares of Common Stock), was acquired by Comerica Incorporated in a
transaction pursuant to which shareholders of Imperial Bancorp received .46 of a share of Comerica
Incorporated common stock for each of their shares of Imperial Bancorp common stock, representing an
aggregate of approximately 21 million shares of Comerica Incorporated common stock. Imperial Bank
transferred ownership of its shares of Common Stock to Comerica Incorporated on March 20, 2001.
(d) Includes 3,500 shares held jointly with his wife; 12,500 shares of restricted stock; 7,554 shares held
in the Comerica Incorporated 3-Year Incentive Plan; 785 shares held in the Comerica Incorporated
Preferred Savings Plan; 559 shares held in the Comerica Incorporated Employee Stock Purchase Plan;
and options to purchase 66,275 shares that Comerica Incorporated granted to Mr. Haggerty under its
Long-Term Incentive Plan.
(e) Includes 25,000 shares of restricted stock; 19,537 shares held in the Comerica Incorporated 3-Year
Incentive Plan; 23 shares held in the Comerica Incorporated Employee Stock Purchase Plan; 864 shares
held in the Comerica Incorporated Preferred Savings Plan; and options to purchase 311,675 shares that
Comerica Incorporated granted to Mr. Lewis under its Long-Term Incentive Plan.
(f) Includes 12,087 non-qualified stock options granted under the Company's 1999 Stock Incentive Plan,
which options are immediately exercisable but are subject to a right of repurchase by the Company,
which right lapses periodically through December 2003 in accordance with the terms of such plan.
(g) Consists of 199,252 shares of the Common Stock underlying presently exercisable options held by
Michaella Stern as Mr. Stern's lawful heir; and 2,642,000 shares of the Common Stock held by
Beranson Holdings, Inc., a California corporation controlled by Kenneth Stern (prior to his death in
January 2002) and his wife Michaella Stern (as joint tenants), with Lauren Stern (a minor and the
daughter of Mr. Stern) as the only other stockholder. According to information provided to the
Company as of May 31, 2002, Michaella Stern and Lauren Stern continue to maintain their respective
Beranson ownership interests.
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