UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )

Filed by the Registrant þ
Filed by a Party other than the Registrant o

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o		Preliminary Proxy Statement
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þ		Definitive Proxy Statement
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o		Soliciting Material Pursuant to §240.14a-12

 

ALLIANCE DATA SYSTEMS CORPORATION

(Name of Registrant as Specified In Its Charter)

 

N/A

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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ALLIANCE DATA SYSTEMS CORPORATION

17655 Waterview Parkway

Dallas, Texas 75252

972-348-5100

 

July 5, 2007

 

To Our Stockholders:

 

We cordially invite you to attend the special meeting of stockholders of Alliance Data Systems Corporation, a Delaware corporation (the “Company”), at our corporate headquarters, 17655 Waterview Parkway, Dallas, Texas 75252 on August 8, 2007 at 10:00 a.m. (local time).

 

At the special meeting, we will ask you to consider and vote upon a proposal to adopt the Agreement and Plan of Merger (the “Merger Agreement”), dated as of May 17, 2007, among the Company, Aladdin Holdco, Inc., a Delaware corporation (“Parent”), and Aladdin Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”). Under the terms of the Merger Agreement, Merger Sub will be merged with and into the Company, with the Company continuing as the surviving corporation (the “Merger”). Parent and Merger Sub were formed by private equity funds sponsored by The Blackstone Group solely for the purpose of entering into the Merger Agreement and consummating the Merger and other transactions contemplated thereby. If the Company’s stockholders adopt the Merger Agreement and the Merger is completed, you will be entitled to receive $81.75 in cash, without interest and less any applicable withholding taxes, for each share of Company common stock you own at the time of the Merger (unless you are entitled to and have properly exercised your appraisal rights under Delaware law with respect to the Merger).

 

After careful consideration, the Company’s board of directors by unanimous vote has determined that the Merger Agreement is advisable and in the best interests of the Company and its stockholders. Accordingly, the Company’s board of directors unanimously recommends that you vote “FOR” the adoption of the Merger Agreement. The board’s recommendation is based, in part, upon the unanimous recommendation of a special committee of the board of directors consisting of seven independent and disinterested directors. The board of directors established the special committee for the purpose of determining which, if any, strategic alternatives the Company should pursue and, in the event that a strategic alternative was to be pursued, to, among other things, determine whether such strategic alternative is fair to and in the best interests of the Company and its stockholders and make an appropriate recommendation to the board.

 

The accompanying proxy statement provides you with detailed information about the special meeting, the background of and reasons for the proposed Merger, the terms of the Merger Agreement and other important information. Please give this material your careful attention.

 

Your vote is very important regardless of the number of shares you own. The Merger cannot be completed unless holders of a majority of the outstanding shares entitled to vote at the special meeting of stockholders vote for the adoption of the Merger Agreement. We would like you to attend the special meeting. However, whether or not you plan to attend the special meeting, it is important that your shares be represented. Accordingly, please submit your proxy at your earliest convenience by following the instructions on your proxy card as soon as possible.

 

If you hold shares through a broker or other nominee, you should follow the procedures provided by your broker or nominee. If you do not vote or instruct your broker or nominee how to vote, it will have the same effect as a vote “AGAINST” the adoption of the Merger Agreement. If you complete, sign and submit your proxy card without indicating how you wish to vote, your proxy will be counted as a vote in favor of adoption of the Merger Agreement and approval of any adjournment of the special meeting. Remember, failing to vote has the same effect as a vote “AGAINST” the adoption of the Merger Agreement.

 

If you have questions or need assistance voting your shares, please call Innisfree M&A Incorporated, our proxy solicitation agent, toll free at (888) 750-5834.

 

Thank you for your continued support and we look forward to seeing you on August 8, 2007.

 

Sincerely,

 

 

J. Michael Parks

Chairman and Chief Executive Officer

 

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved of the Merger, passed upon the merits or fairness of the Merger or passed upon the adequacy or accuracy of the disclosure in the enclosed documents. Any representation to the contrary is a criminal offense.

 

The proxy statement is dated July 5, 2007, and is first being mailed to stockholders on or about July 9, 2007.

 

ALLIANCE DATA SYSTEMS CORPORATION

17655 Waterview Parkway

Dallas, Texas 75252

972-348-5100

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON AUGUST 8, 2007

 

July 5, 2007

 

To the Stockholders of Alliance Data Systems Corporation:

 

A special meeting of the stockholders of Alliance Data Systems Corporation, a Delaware corporation (the “Company”), will be held at our corporate headquarters, 17655 Waterview Parkway, Dallas, Texas 75252 on August 8, 2007 at 10:00 a.m. (local time), for the following purposes:

 

(1) to consider and vote upon a proposal to adopt the Agreement and Plan of Merger (the “Merger Agreement”), dated as of May 17, 2007, among the Company, Aladdin Holdco, Inc., a Delaware corporation (“Parent”), and Aladdin Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”), as it may be amended from time to time; and

 

(2) if necessary or appropriate, to consider and vote upon a proposal to adjourn the special meeting to solicit additional proxies if there are insufficient votes at the time of the meeting to adopt the Merger Agreement.

 

In accordance with the Company’s bylaws, the board of directors has fixed 5:00 p.m. Central Daylight Time on July 2, 2007 as the record date for the purposes of determining stockholders entitled to notice of and to vote at the special meeting and at any adjournment thereof. A list of the Company’s stockholders will be available at our principal executive offices at 17655 Waterview Parkway, Dallas, Texas 75252, during ordinary business hours for at least ten days prior to the special meeting and at the special meeting. All stockholders of record are cordially invited to attend the special meeting in person.

 

The adoption of the Merger Agreement requires the affirmative vote of a majority of the votes entitled to be cast by the holders of the outstanding shares of the Company’s common stock. Whether or not you plan to attend the special meeting, we urge you to vote your shares as promptly as possible prior to the special meeting to ensure that your shares will be represented at the special meeting if you are unable to attend. Accordingly, please submit your proxy at your earliest convenience in one of the following ways:

 

 

If you sign, date and mail your proxy card without indicating how you wish to vote, your proxy will be voted in favor of the adoption of the Merger Agreement. If you fail to return a valid proxy card and do not vote in person at the special meeting, your shares will not be counted for purposes of determining whether a quorum is present at the special meeting and, if a quorum is present, it will have the same effect as a vote “AGAINST” the adoption of the Merger Agreement. Any stockholder attending the special meeting may vote in person, even if he or she has returned a proxy card; such vote by ballot will revoke any proxy previously submitted. However, if you hold your shares through a bank or broker or other custodian, you must provide a legal proxy issued from such custodian in order to vote your shares in person at the special meeting.

 

If you plan to attend the special meeting, please note that space limitations make it necessary to limit attendance to stockholders. Each stockholder may be asked to present valid picture identification, such as a driver’s license or passport. Stockholders holding stock in brokerage accounts (“street name” holders) will need to bring a copy of a brokerage statement reflecting stock ownership as of the record date. Cameras (including cellular telephones with photographic capabilities), recording devices and other electronic devices will not be permitted at the special meeting. The special meeting will begin promptly at 10:00 a.m. (local time).

 

Stockholders who do not vote in favor of the adoption of the Merger Agreement will have the right to seek appraisal of the fair value of their shares if the Merger is completed, but only if they submit a written objection to the Merger to the Company before the vote is taken on the Merger Agreement and they comply with all applicable requirements of Delaware law, which are summarized in the accompanying proxy statement. We urge you to read the entire proxy statement carefully.

 

PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME. IF THE MERGER IS COMPLETED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF YOUR STOCK CERTIFICATES.

 

By Order of the Board of Directors

 

 

Alan M. Utay

Corporate Secretary

Dallas, Texas

 

TABLE OF CONTENTS

 

 

In this proxy statement, the terms “Company,” “Alliance Data,” “we,” “our,” “ours,” and “us” refer to Alliance Data Systems Corporation, unless the context otherwise requires.

 

This summary highlights selected information from the proxy statement and may not contain all of the information that may be important to you. Accordingly, we encourage you to read carefully this entire proxy statement and its annexes. The Agreement and Plan of Merger, dated as of May 17, 2007 (the “Merger Agreement”), among Alliance Data Systems Corporation (“Alliance Data” or the “Company”), Aladdin Holdco, Inc., a Delaware corporation (“Parent”), and Aladdin Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”), is attached as Annex A to this proxy statement. We encourage you to read the Merger Agreement because it is the legal document that governs the parties’ agreement pursuant to which Merger Sub will be merged with and into the Company (the “Merger”). Each item in this summary includes a page reference directing you to a more complete description of that item.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

If you have additional questions about the Merger or other matters discussed in this proxy statement after reading this proxy statement, please contact our proxy solicitor, Innisfree, at (888) 750-5834.

 

The following questions and answers address briefly some questions you may have regarding the proposed Merger and the special meeting. These questions and answers may not address all of the questions that may be important to you as a stockholder of the Company. To fully understand the Merger, please refer to the more detailed information contained elsewhere in this proxy statement and the annexes to this proxy statement.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

          Innisfree M&A Incorporated

          501 Madison Avenue, 20th Floor

          New York, New York 10022

 

          Stockholders call toll-free: (888) 750-5834

          Banks and Brokers call collect: (212) 750-5833

 

This proxy statement, and the documents to which we refer you in this proxy statement, contain “forward-looking” statements based on estimates and assumptions. Forward-looking statements include information concerning possible or assumed future results of operations of the Company, the expected completion and timing of the Merger and other information relating to the Merger. There are “forward-looking” statements throughout this proxy statement, including, among others, under the headings “Summary,” “Questions and Answers About the Special Meeting and the Merger,” “The Merger,” “The Merger — Opinions of Financial Advisors,” “The Merger — Financial Projections,” “The Merger — Regulatory Approvals” and “The Merger — Merger Related Litigation,” and in statements containing the words “believes,” “estimates,” “expects,” “anticipates,” “intends,” “contemplates,” “may,” “could,” “should,” or “would” or other similar expressions.

 

You should be aware that forward-looking statements involve known and unknown risks and uncertainties. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the actual results or developments we anticipate will be realized, or even if realized, that they will have the expected effects on the business or operations of the Company. These forward-looking statements speak only as of the date on which the statements were made and we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements included in this proxy statement, except as required by law.

 

In addition to other factors and matters contained in this document, we believe the following factors could cause actual results to differ materially from those discussed in the forward-looking statements:

 

 

 

 

The Company is a leading provider of marketing, loyalty and transaction services, managing over 120 million consumer relationships for some of North America’s most recognizable companies. Using transaction-rich data, the Company creates and manages customized solutions that change consumer behavior and that enable our clients to create and enhance customer loyalty to build stronger, mutually beneficial relationships with their customers. The Company employs over 9,000 associates at more than 60 locations worldwide. The Company’s brands include AIR MILES^®, North America’s premier coalition loyalty program, and Epsilon^®, a leading provider of multi-channel, data-driven technologies and marketing services.

 

The Company’s principal executive offices are located at 17655 Waterview Parkway, Dallas, Texas 75252 and its telephone number is 972-348-5100. The Company is publicly traded on the NYSE under the symbol “ADS.”

 

Parent is a Delaware corporation organized solely for the purpose of entering into and consummating the transactions contemplated by the Merger Agreement. Parent’s principal executive offices are located at c/o The Blackstone Group, 345 Park Avenue, New York, New York 10154 and its telephone number is 212-583-5000. Parent has not conducted any activities to date other than activities incidental to its formation and in connection with the Merger Agreement and the transactions contemplated by the Merger Agreement. Blackstone Capital Partners V L.P. is the current owner of Parent.

 

Merger Sub is a Delaware corporation wholly owned by Parent and organized solely for the purpose of entering into and consummating the transactions contemplated by the Merger Agreement. Merger Sub’s principal executive offices are located at c/o The Blackstone Group, 345 Park Avenue, New York, New York 10154 and its telephone number is 212-583-5000. Merger Sub has not conducted any activities to date other than activities incidental to its formation and in connection with the Merger Agreement and the transactions contemplated by the Merger Agreement. Under the terms of the Merger Agreement, Merger Sub will merge with and into the Company, the Company will survive the Merger and Merger Sub will cease to exist.

 

This proxy statement is being furnished to our stockholders as part of the solicitation of proxies by our board of directors for use at a special meeting to be held at our corporate headquarters, 17655 Waterview Parkway, Dallas, Texas 75252 on August 8, 2007 at 10:00 a.m. (local time), or at any adjournment thereof. The purpose of the special meeting is to consider and vote on the proposal to adopt the Merger Agreement and, if necessary or appropriate, to approve the adjournment of the special meeting to solicit additional proxies. If the stockholders fail to adopt the Merger Agreement, the Merger will not occur. A copy of the Merger Agreement is attached to this proxy statement as Annex A.

 

In accordance with the Company’s bylaws, the board of directors has set 5:00 p.m. Central Daylight Time on July 2, 2007 as the record date. The holders of record of Company common stock as of the record date are entitled to receive notice of and to vote at the special meeting. If you own shares that are registered in someone else’s name (for example, a broker), you need to direct that person to vote those shares or obtain an authorization from them to vote the shares yourself at the special meeting. On the record date, there were 78,695,695 shares of Company common stock outstanding held by approximately 107 holders of record.

 

The adoption of the Merger Agreement requires the approval of the holders of a majority of the outstanding shares of Company common stock entitled to vote thereon, with each share having a single vote for these purposes. The failure to vote has the same effect as a vote “AGAINST” adoption of the Merger Agreement.

 

The holders of a majority of the outstanding shares of Company common stock entitled to be voted as of the record date, represented in person or by proxy, will constitute a quorum for purposes of the special meeting. A quorum is necessary to hold the special meeting. Once a share of Company common stock is represented at the special meeting, it will be counted for the purposes of determining a quorum and for transacting all business, unless the holder is present solely to object to the special meeting. If a quorum is not present at the special meeting, it is expected that the meeting will be adjourned to solicit additional proxies. If a new record date is set for an adjourned meeting, then a new quorum will have to be established.

 

This proxy statement is being sent to you on behalf of the Company’s board of directors for the purpose of requesting that you allow your shares of Company common stock to be represented at the special meeting by the persons named in the enclosed proxy card. All shares of Company common stock represented at the special meeting by proxies voted by properly executed proxy cards will be voted in accordance with the instructions indicated on that proxy. If you sign and return a proxy card without giving voting instructions, your shares will be voted as recommended by the board of directors. After careful consideration, the board of directors unanimously recommends a vote “FOR” adoption of the Merger Agreement. In considering the recommendation of the board of directors with respect to the Merger Agreement, you should be aware that some of the Company’s directors and executive officers have interests in the Merger that are different from, or in addition to, the interests of our stockholders generally. See “The Merger — Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 60.

 

You may revoke your proxy at any time before the vote is taken at the special meeting. To revoke your proxy, you must either send a signed written notice to the Company revoking your proxy, submit a proxy by mail dated after the date of the earlier proxy you wish to change or attend the special meeting and vote your shares in person. Merely attending the special meeting without voting will not constitute revocation of your earlier proxy.

If your shares of Company common stock are held in street name, you will receive instructions from your broker, bank or other nominee that you must follow in order to have your shares voted. If you do not instruct your broker to vote your shares, it has the same effect as a vote “AGAINST” adoption of the Merger Agreement.

 

The Company will pay the cost of this proxy solicitation. In addition to soliciting proxies by mail, directors, officers and employees of the Company may solicit proxies personally and by telephone, facsimile or otherwise. None of these persons will receive additional or special compensation for soliciting proxies. The Company has retained Innisfree M&A Incorporated (“Innisfree”) to assist in its solicitation of proxies in connection with the special meeting, and has agreed to pay Innisfree $50,000, plus out-of-pocket expenses and a nominal per-call fee for its services. Innisfree may solicit proxies from individuals, banks, brokers, custodians, nominees, other institutional holders and other fiduciaries. The Company has also agreed to reimburse Innisfree for its reasonable administrative and out-of-pocket expenses, to indemnify it against certain losses, costs and expenses, and to pay its customary fees in connection with the proxy solicitation. Upon request, the Company will also reimburse brokers, banks and other nominees for their expenses in sending proxy materials to their customers who are beneficial owners and obtaining their voting instructions.

 

Most of our stockholders who hold their shares of Company common stock through a broker or bank will have the option to submit their proxies or voting instructions via the Internet or by telephone. If your shares are held in “street name,” you should check the voting instruction card provided by your broker to see which options are available and the procedures to be followed.

 

Although it is not currently expected, the special meeting may be adjourned for the purpose of soliciting additional proxies. If no quorum exists, holders of a majority of the shares of Company common stock present in person or represented by proxy and entitled to vote at the special meeting may adjourn the special meeting. Any adjournment may be made without notice, other than by an announcement made at the special meeting, until a quorum shall be present or represented. If your proxy card is signed and no instructions to the contrary are indicated on your proxy card, your shares of Company common stock will be voted “FOR” any adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies. Any adjournment of the special meeting for the purpose of soliciting additional proxies will allow the Company’s stockholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting as adjourned.

 

The discussion of the Merger in this proxy statement is qualified in its entirety by reference to the Merger Agreement, which is attached to this proxy statement as Annex A. You should read the Merger Agreement carefully.

 

As part of its ongoing evaluation of the Company’s business, our board of directors and our senior management regularly review and assess opportunities to achieve our long-term strategic goals and to maximize stockholder value. As part of this review process, our senior management has periodically made presentations to our board of directors that have included a review of potential opportunities for business combinations, acquisitions and dispositions. From time to time, our board and our senior management have evaluated a variety of options in light of the business trends and regulatory conditions impacting us or expected to impact us and the industries in which we operate. In addition, at times during the last several years various parties, including investment bankers, other companies operating in the same or similar industries as we do and financial buyers, have informally raised with members of our board of directors and senior management the possibility of a business combination with us.

 

In October 2006, Lehman Brothers Inc., or Lehman Brothers, informed management that it had received two unsolicited informal inquiries regarding the Company’s interest in a potential strategic transaction. As a result of these inquiries, and as part of its ongoing review and assessment of the Company’s business strategy, on November 3, 2006, our senior management decided to further investigate, and better understand the process and alternatives involved in, on a preliminary basis, the possibility of engaging in a business combination or other strategic transaction. Our senior management asked Banc of America Securities LLC, or Banc of America Securities, and Lehman Brothers to informally assist it in this process. Our senior management informally told members of our board of directors about this decision, and informally kept members of our board apprised of their activities during November and early December of 2006.

 

At the request of senior management, during November and early December of 2006, each of Banc of America Securities and Lehman Brothers independently developed preliminary and illustrative lists of parties that they believed might be interested in a strategic transaction with the Company. The combined lists included approximately 75 strategic and financial parties with experience in the broadly defined marketing services, payment processing, financial services, technology services or private label credit card services sectors. In reviewing the combined list and deciding how to proceed, our senior management, with the assistance of Banc of America Securities and Lehman Brothers, considered the number of parties that should be approached regarding their interest in a strategic transaction with the Company, and specifically considered:

 

 

Based on these considerations, our senior management, with the assistance of Banc of America Securities and Lehman Brothers, narrowed this list to a targeted group of 14 parties based on size, strategic fit, financial wherewithal, regulatory issues and prior interest in the Company. Seven of the parties in this targeted group were strategic parties and the other seven parties were financial parties and included the private equity funds sponsored by The Blackstone Group, or Blackstone.

 

At a regularly scheduled board meeting held on December 7, 2006, J. Michael Parks, the Company’s Chairman and Chief Executive Officer, formally updated the board with respect to the activities of the Company’s senior management, Banc of America Securities and Lehman Brothers to date regarding a potential

business combination transaction involving the Company. The board then authorized management to continue to work informally with Banc of America Securities and Lehman Brothers to investigate possible opportunities and, through them, to approach the seven strategic parties included in the targeted group regarding their interest in a potential business combination transaction with the Company.

 

As authorized by the board, following the December 7 board meeting, Mr. Parks and Edward J. Heffernan, the Company’s Executive Vice President and Chief Financial Officer, directed Banc of America Securities and Lehman Brothers to approach each of the seven strategic parties to determine if they were interested in pursuing a potential business combination transaction with the Company. Of the seven strategic parties contacted, three declined almost immediately to pursue a potential business combination transaction with the Company and, over the course of the following few weeks, two others decided not to do so as well, citing a variety of reasons, including the potential size of the transaction, conflicts with strategic direction and resistance to certain terms contained in the confidentiality agreement distributed to them. The other two strategic parties, referred to in this proxy statement as Company 1 and Company 2, respectively, entered into confidentiality agreements with the Company containing customary confidentiality and standstill provisions, including restrictions on the parties’ ability to discuss the proposed transaction with any co-investor, financing source or financial advisor without the Company’s prior consent. Company 1 and Company 2 were each provided with an executive summary of the Company’s operations, key strengths, financial performance and growth strategy, and meetings with Messrs. Parks and Heffernan were arranged for early February.

 

At a regularly scheduled board meeting held on January 31, 2007, Mr. Parks updated the board on the state of discussions with the seven strategic parties, including the fact that meetings had been scheduled for the following week with representatives of each of Company 1 and Company 2.

 

On February 6 and February 9, 2007, Messrs. Parks and Heffernan and representatives from Banc of America Securities and Lehman Brothers met with representatives of Company 2 and Company 1, respectively, to discuss the Company’s strategic business model and other publicly available information set forth in the executive summary that had been provided to each company.

 

On February 21, 2007, Company 2 notified Banc of America Securities and Lehman Brothers that it did not intend to pursue a transaction with the Company at that time given the anticipated purchase price for the Company.

 

On February 26, 2007, Messrs. Parks and Heffernan discussed with representatives of Banc of America Securities and Lehman Brothers the status of discussions with Company 1 and Company 2, although there were no significant developments to report on other than the decision of Company 2 not to pursue a transaction.

 

On February 28, 2007, our board held a special meeting at which Mr. Parks provided an update regarding the status of discussions with the potential strategic purchasers. Following a review and discussion of the Company’s performance, the Company’s prospective upside potential, including various risks to the realization of that upside, the current state of the leveraged buyout market, including the amount of capital available in the private equity markets for leveraged buyouts and the terms of debt financing in recent comparable transactions, expectations regarding consumer activity and the potential benefits to the Company’s stockholders that could result from a transaction done at a premium, the board authorized our senior management to approach, through Banc of America Securities and Lehman Brothers, each of the seven financial parties included in the targeted group to determine if they were interested in pursuing a potential transaction with the Company.

 

During the week of March 5, 2007, at the direction of our senior management, Banc of America Securities and Lehman Brothers contacted representatives of each financial party included in the targeted group, including representatives of Blackstone. Each of the seven financial parties contacted entered into a confidentiality agreement with the Company containing customary confidentiality and standstill provisions, including restrictions on the parties’ ability to discuss the proposed transaction with any co-investor, financing source or financial advisor without the Company’s prior consent, and was provided with the same executive summary of the Company’s operations, key strengths, financial performance and growth strategy that had

previously been provided to Company 1 and Company 2. Meetings between Messrs. Parks and Heffernan and representatives of these seven financial parties were arranged for mid and late March.

 

During the weeks of March 19 and March 26, 2007, Messrs. Parks and Heffernan and representatives from Banc of America Securities and Lehman Brothers met with representatives of six of the seven financial parties to discuss the Company’s strategic business model and other publicly available information set forth in the executive summary that had been provided to each party. The seventh financial party indicated on March 22, 2007, that it would not be able to participate in the process due to other commitments.

 

On March 30, 2007, at the direction of our senior management, Banc of America Securities and Lehman Brothers asked Company 1 and the six remaining financial parties that had expressed an interest in pursuing a potential transaction with the Company, including Blackstone, to submit preliminary, non-binding indications of interest on April 4, 2007.

 

On April 3, 2007, our board held a special meeting. Members of our senior management and representatives of Akin Gump Strauss Hauer & Feld LLP, or Akin Gump, the Company’s regular outside counsel, participated in the meeting. Mr. Parks first gave the board an update regarding the status of discussions with the various parties potentially interested in a transaction with the Company. Representatives of Akin Gump then reviewed with our board a representative timeline and typical sequence of events for a transaction of the type being contemplated by the Company and the need for any such transaction to be evaluated by independent and disinterested directors. Thereafter, the board discussed the advantages and disadvantages of forming a special committee to evaluate the Company’s strategic alternatives, as well as the independence of each of the directors with respect to evaluating a strategic transaction involving the Company in light of the identity of the parties that had, to date, expressed an interest in such a transaction. In particular, our board considered that, in light of his dual roles as a director and chief executive officer of the Company, Mr. Parks might be faced with a potential conflict of interest in negotiations with certain potentially interested parties, particularly financial parties. After consideration of these issues, our board determined not to form a special committee at that time. Instead, the board decided that the independent directors, consisting of all the directors other than Mr. Parks, should operate as an independent board to review and evaluate any strategic alternatives, including a transaction with the potential purchasers. Thereafter, representatives of Akin Gump made certain suggestions to our board regarding instructions to be given to management in connection with the strategic review process, including a recommendation that management be instructed not to discuss with any potential purchaser any prospective employment arrangements or the possibility of participating as an investor in the transaction. The Akin Gump representatives then reviewed with the directors their fiduciary duties, including the duty of care, the duty of loyalty and their duties in the context of a change of control transaction involving the Company. After our board formally resolved to operate as an independent board for the purposes discussed above and to adopt the recommendations of Akin Gump that management be instructed not to discuss with any potential purchaser any prospective employment arrangements or the possibility of participating as an investor in the transaction, Mr. Parks and members of management left the meeting. The independent board then discussed the need for a lead director and, after considering the qualifications of various directors for the role, chose Robert Minicucci to serve in that capacity. The members of the independent board thereafter discussed the need to hire independent legal counsel and a financial advisor to advise the independent board and identified various law firms and investment banks, including Banc of America Securities and Lehman Brothers, that could potentially serve in such roles.

 

Following this meeting, Mr. Minicucci contacted outside legal counsel, referred to in this proxy statement as the independent board counsel, to represent the independent board. This counsel held preliminary discussions with Mr. Minicucci and undertook to check whether it had any conflicts in representing the independent board.

 

On April 4, 2007, Company 1 informed Banc of America Securities and Lehman Brothers that it needed additional time before it would be able to provide its preliminary indication of interest.

 

On April 4 and 5, 2007, the six financial parties, including Blackstone, submitted preliminary indications of interest. On April 8, 2007, one of the financial parties revised its preliminary bid after adjusting an assumption it had incorrectly made in its analysis. The preliminary indications of interest valued the

Company’s stock at a range of $75.00 to $80.00 per share. Blackstone’s preliminary indication of interest valued the Company’s stock at a range of $78.00 to $80.00 per share.

 

On April 10, 2007, the independent board counsel informed Mr. Minicucci that it would not be able to continue in that role due to a conflicting representation. Thereafter, Mr. Minicucci contacted representatives of Kirkland & Ellis LLP, or Kirkland & Ellis, to see if it could act as counsel to the independent board.

 

On April 10, 2007, the independent board held a special meeting to discuss the preliminary indications of interest that had been received. Representatives of Banc of America Securities and Lehman Brothers participated in the meeting and reviewed the potential business combination partners for the Company and their preliminary financial analyses of the Company. Representatives of Banc of America Securities and Lehman Brothers also answered questions regarding their qualifications and potential conflicts of interest in representing the independent board in a potential transaction. After a discussion of the price ranges that had been submitted by the potentially interested parties, the independent board determined to continue pursuing a possible sale of the Company and instructed Banc of America Securities and Lehman Brothers to consider and recommend an appropriate process to move forward with discussions regarding a potential transaction.

 

On April 10, 2007, Company 1 submitted a preliminary indication of interest to acquire the Company in a cash and stock transaction with a value range of $76.00 to $82.00 per share.

 

On April 13, 2007, our board held a special meeting to discuss the status of the sale process, including the recent indication of interest from Company 1. Representatives of Kirkland & Ellis participated in the meeting. Based on the advice of Kirkland & Ellis, the board discussed the merits of establishing a special committee comprising the members of the independent board, including the benefits such a committee may provide under Delaware law and certain additional procedural benefits. Following this discussion, our board determined to reconstitute the independent board as a special committee. The special committee was delegated the full power and authority by our board to, among other things:

 

 

Messrs. Parks and Heffernan then reviewed with the board the Company’s recent financial performance and management’s expectations regarding the future performance of the Company’s different business lines, expressing a positive outlook for the Company, particularly our Epsilon, Canadian loyalty and retail business lines, but also noting the challenges presented by:

 

 

The board meeting was then concluded and Messrs. Parks and Heffernan left the meeting.

 

Immediately following this board meeting, the members of the special committee held a meeting. Representatives of Kirkland & Ellis participated in the meeting. The members of the special committee elected Mr. Minicucci as chairman of the special committee. The special committee also formally resolved to retain

Kirkland & Ellis as its legal counsel. The committee considered the independence of Banc of America Securities and Lehman Brothers with respect to serving as the special committee’s financial advisors and determined, subject to confirmatory discussions with each advisor regarding its independence, to engage both Banc of America Securities and Lehman Brothers to serve as financial advisors to the special committee. The special committee also discussed the appropriateness of continuing the exploration of strategic alternatives, including a possible sale of the Company, and unanimously concluded that the Company should continue the current process. Mr. Minicucci noted that:

 

 

To maximize the likelihood that PE Firm A, PE Firm B and PE Firm C would remain in the process, and in recognition of the fact that a consortia comprising all or some of these firms might be willing and able to offer a higher purchase price for the Company than any of these firms bidding alone, the special committee determined that these firms should be permitted to speak with each other regarding possible joint bids for the Company, and Banc of America Securities and Lehman Brothers were instructed to facilitate this process as necessary.

 

On April 13, 2007, at the direction of the special committee, Banc of America Securities and Lehman Brothers:

 

 

On April 15, 2007, PE Firm A, PE Firm B and PE Firm C notified Banc of America Securities and Lehman Brothers that they were joining together to form a single consortium, referred to in this proxy statement as the Consortium.

 

During the week of April 16, 2007, the Company gave the potential purchasers access to an online data room. From April 16, 2007, through April 24, 2007, the Company’s senior management team held multiple due diligence meetings with representatives of each of Blackstone, Company 1, the Independent Financial Buyer and the Consortium.

 

On April 20, 2007, the special committee held a meeting. Representatives of Kirkland & Ellis participated in the meeting. During the course of the meeting, Mr. Minicucci provided the special committee with an update on the status of discussions with potential purchasers and the special committee reviewed the terms of a draft merger agreement prepared by Kirkland & Ellis. At the meeting, the special committee decided upon May 14, 2007, as the deadline for the receipt of final offers for the potential acquisition of the Company. The special committee then discussed whether to have Banc of America Securities and Lehman Brothers offer “stapled financing” to potential purchasers. The committee noted that stapled financing might offer potential purchasers greater access to financing or more attractive financing terms than might otherwise be available to them. However, the committee also noted that all of the interested parties were sophisticated strategic or financial parties with substantial, independent access to the capital markets and that having Banc of America Securities and Lehman Brothers offer stapled financing might create a perception of a conflict of interest on their part. Mr. Minicucci noted that if Banc of America Securities and Lehman Brothers were to offer stapled

financing, the special committee should obtain a fairness opinion from a third financial advisor that would not offer such financing. The special committee decided to defer making a decision regarding this issue until its next meeting.

 

On April 23, 2007, the special committee held a meeting to discuss the potential benefits and detriments of having Banc of America Securities and Lehman Brothers offer stapled financing. Representatives of Kirkland & Ellis participated in the meeting. After a further discussion of the issues considered by the special committee at its meeting on April 20, 2007, the special committee determined that it was not inclined, at that time, to have Banc of America Securities and Lehman Brothers offer potential purchasers stapled financing, but reserved the right to reconsider this decision as the process moved forward.

 

On April 26, 2007, the special committee held a meeting to again discuss whether Banc of America Securities and Lehman Brothers should offer potential purchasers stapled financing. Representatives of Kirkland & Ellis participated in the meeting. Mr. Minicucci informed the special committee that representatives of two potential purchasers had contacted him directly to request that the special committee reconsider its decision and have Banc of America Securities and Lehman Brothers offer stapled financing. Following a further discussion of the potential advantages and disadvantages of having Banc of America Securities and Lehman Brothers offer stapled financing, the special committee concluded that having them offer stapled financing could result in enhanced bids from the potential purchasers. Accordingly, the special committee determined that Banc of America Securities and Lehman Brothers could offer stapled financing and that a third financial advisor (who would not offer such financing) should be retained to provide an additional fairness opinion. The special committee identified two investment banking firms that should be contacted regarding their availability and interest in serving as the third financial advisor to the committee and instructed Kirkland & Ellis to contact them.

 

On April 27, 2007, at the direction of the special committee, Banc of America Securities and Lehman Brothers provided a process letter and a draft of a merger agreement to each of Blackstone, Company 1, the Independent Financial Buyer and the Consortium. The process letter specified that:

 

 

On May 2, 2007, the special committee held a meeting to discuss the selection of a third investment banking firm to provide an additional fairness opinion. Representatives of Kirkland & Ellis participated in the meeting. Following a review of the expertise and relevant experience of each of two firms that Kirkland & Ellis had been instructed to contact by the special committee on April 26, 2007, and the terms of engagement proposed by each firm, the special committee authorized the engagement of the Evercore Group L.L.C., or Evercore, as the special committee’s third financial advisor.

 

During the weeks of April 30th and May 7th, 2007, members of our senior management and representatives of Banc of America Securities and Lehman Brothers held additional diligence meetings with representatives of each of Blackstone, Company 1 and the Consortium.

 

On May 3, 2007, each of Blackstone, the Independent Financial Buyer and the Consortium submitted comments on the draft merger agreement. On May 4, 2007, Company 1 submitted its comments on the draft merger agreement.

 

On May 4, 2007, the Independent Financial Buyer informed Banc of America Securities and Lehman Brothers that it was highly unlikely that it could submit a final offer to acquire the Company by May 14, 2007, due to its need to perform an extensive amount of additional due diligence, and that it would require two additional weeks before it would be prepared to submit a final offer.

 

On May 8, 2007, the Consortium informed Banc of America Securities and Lehman Brothers that PE Firm C was withdrawing from the process, citing concerns about the anticipated purchase price for the

Company, but the remaining two members of the Consortium reiterated their interest in pursuing a transaction with the Company and provided assurances that they had the ability to finance a transaction on their own.

 

On May 9, 2007, the special committee held a meeting. Representatives of Banc of America Securities, Lehman Brothers and Kirkland & Ellis participated in the meeting. At the meeting, the members of the special committee were given an update regarding recent developments in the sale process and they reviewed both the comments on the initial draft of the merger agreement that had been received from the potential purchasers and the terms of the revised draft agreement that was to be circulated that evening. The members of the special committee then discussed the timing of the process, particularly in light of the Independent Financial Buyer’s statement that it would require two additional weeks before it would be prepared to submit a final offer. Given the interest in the Company being expressed by other potential purchasers, including their indication that they would be able to submit final offers on May 14, the impact that delaying the process could have on other potential purchasers and on the sale process and the uncertainty that the Independent Financial Buyer would be in a position to make a final offer by May 28, the special committee determined that May 14th should continue to be the target date for the receipt of final offers.

 

In the evening of May 9, 2007, a revised draft of the merger agreement was circulated to the potential purchasers and the potential purchasers were reminded that final offers, including any further comments on the draft merger agreement, were due on May 14, 2007.

 

On May 10, 2007:

 

 

On May 11, 2007, Mr. Minicucci had various conversations with representatives of Kirkland & Ellis, Banc of America Securities and Lehman Brothers regarding the desirability and feasibility of contacting additional potential purchasers to assess their interest in acquiring the Company. During the course of these conversations, it was determined that, based on the parties contacted and the competitive process to date, it was highly unlikely that contacting any additional parties would elicit any more competitive bids for the Company.

 

On May 12, 2007, representatives of Kirkland & Ellis and Simpson Thacher & Bartlett, LLP, or Simpson Thacher, counsel to Blackstone, spoke briefly regarding some of Simpson Thacher’s primary concerns with the revised draft merger agreement.

 

On May 14, 2007, Blackstone and the Consortium informed Banc of America Securities and Lehman Brothers that, for various reasons, their final offers would not be submitted until the following day. At the direction of the special committee, Banc of America Securities and Lehman Brothers informed each of them that the special committee was scheduled to meet at noon EDT on May 15, 2007, to consider any offers that had been submitted and urged each party to submit its offer in advance of this meeting.

 

On the morning of May 15, 2007, Blackstone submitted its offer, together with a revised merger agreement, equity and debt commitment letters and a limited guarantee pursuant to which Blackstone would guarantee certain payment obligations of the purchaser entity, up to a specified amount. Blackstone’s offer valued the Company’s common stock at $81.50. Blackstone’s debt commitment letter was provided by financing sources other than Banc of America Securities and Lehman Brothers.

 

At noon EDT on May 15, 2007, the special committee held a meeting. Representatives of Banc of America Securities, Lehman Brothers and Kirkland & Ellis participated in the meeting. At the meeting, representatives of Banc of America Securities and Lehman Brothers reviewed the financial terms of Blackstone’s offer and informed the special committee that the Consortium had not yet submitted its final offer. Representatives of Kirkland & Ellis reviewed with the special committee selected material provisions of

the merger agreement that had been submitted by Blackstone. During the special committee meeting, Lehman Brothers received a call from representatives of the Consortium, who stated that:

 

 

The special committee discussed the relative merits of the two offers and decided that, in the event that the Consortium could not raise its offer to match or exceed the offer submitted by Blackstone and Blackstone agreed to at least a modest increase in its price, the special committee would propose entering into a brief period of exclusive negotiations with Blackstone.

 

At the direction of the special committee, Banc of America Securities and Lehman Brothers contacted each of the Consortium and Blackstone during the late afternoon of May 15, 2007. The Consortium was advised that its bid was being considered by the special committee. Blackstone was advised that it would have a better chance of securing the transaction if it raised its price.

 

The special committee met again at 6:15 p.m. EDT on May 15, 2007, with representatives of Banc of America Securities, Lehman Brothers and Kirkland & Ellis to receive an update regarding discussions with Blackstone and the Consortium. After a brief review of the afternoon’s developments, and in light of the favorable price offered by Blackstone and the limited number of significant issues raised by its comments to the draft merger agreement, the special committee authorized and directed Banc of America Securities and Lehman Brothers to inform Blackstone that the Company would agree to a period of exclusive negotiations regarding a possible transaction through 9:00 a.m. EDT on May 17, 2007, assuming that Blackstone was willing to raise its offer. Assuming Blackstone agreed to raise its per share purchase price, the special committee instructed Kirkland & Ellis to engage Simpson Thacher in negotiations regarding the merger agreement as soon as possible.

 

Blackstone responded in the evening of May 15, 2007, indicating that it would raise its offer to $81.75 in exchange for the Company’s willingness to enter exclusive negotiations with Blackstone. As authorized and directed by the special committee, Banc of America Securities and Lehman Brothers informed Blackstone that, on this basis, the Company’s representatives would negotiate exclusively with Blackstone through 9:00 a.m. EDT on May 17, 2007 to see if the terms of an agreement could be reached.

 

Kirkland & Ellis and Simpson Thacher began negotiating the terms of the merger agreement during the night of May 15, 2007. On the morning of May 16, 2007, Kirkland & Ellis circulated a revised draft of the merger agreement, reflecting the prior night’s negotiations. Throughout the day of May 16, 2007, Kirkland & Ellis and Simpson Thacher continued to negotiate the terms of the merger agreement, Blackstone’s equity and debt commitment letters and the limited guarantee. By the morning of May 17, 2007, the material terms of each agreement had been agreed to.

 

On the morning of May 16, 2007, the Consortium was informed by Banc of America Securities and Lehman Brothers that its bid was not competitive. During the afternoon of May 16, 2007, the Consortium submitted a revised offer, indicating that they would be willing to pay $80.25 per share. The Consortium was informed that the Company was currently focusing its efforts on negotiating an agreement with a different party.

 

At 6:30 a.m. EDT on May 17, 2007, the board of directors held a special meeting to review the terms of the agreement reached with Blackstone and the terms of the offer made by the Consortium. Members of our senior management and representatives of Banc of America Securities, Lehman Brothers, Evercore and Kirkland & Ellis participated in the meeting. Mr. Minicucci informed the board that on May 15, 2007, Blackstone had agreed to raise its price per share to $81.75, and that on May 16, 2007, the Consortium had

increased its offer price from $78.00 per share to $80.25 per share. The board then discussed of the status of the offers and the potential advantages and disadvantages of delaying entering into an agreement with Blackstone in order to engage the Consortium in further price negotiations.

 

Representatives of Banc of America Securities and Lehman Brothers then reviewed with the board their financial analysis of the consideration to be received in the proposed merger and each rendered to the special committee and the board of directors an oral opinion, which was confirmed by delivery of a written opinion, dated May 17, 2007, to the effect that, as of that date and based on and subject to the various assumptions and limitations described in each respective opinion, the consideration to be received in the proposed merger by holders of Company common stock was fair, from a financial point of view, to such holders. The full text of Banc of America Securities’ and Lehman Brothers’ written opinions to the special committee and the board of directors, each dated as of May 17, 2007, which describe, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken by Banc of America Securities and Lehman Brothers, are attached to this proxy statement as Annex B and Annex C, respectively and each one of them is incorporated by reference in their entirety into this proxy statement.

 

Representatives of Evercore then reviewed with the board their financial analysis of the consideration to be received in the proposed merger and rendered to the special committee and the board of directors an oral opinion, which was confirmed by delivery of a written opinion, dated May 17, 2007, to the effect that, as of that date and based on and subject to the various assumptions and limitations described in such opinion, the consideration to be received in the proposed merger by holders of Company common stock was fair, from a financial point of view, to such holders. The full text of Evercore’s written opinion to the special committee and the board of directors, dated as of May 17, 2007, which describes, among other things, the assumptions made, procedures followed, factors considered and limitations upon the review undertaken by Evercore, is attached to this proxy statement as Annex D and is incorporated by reference in its entirety into this proxy statement.

 

The holders of shares of Company common stock are urged to read all three opinions carefully in their entirety.

 

Representatives of Kirkland & Ellis then summarized the material terms of the Merger Agreement, including the proposed transaction structure, the treatment of options, restricted stock and other equity-incentive and bonus programs, the terms of the representations, warranties and covenants contained in the Merger Agreement, including the ability of the Company to consider and accept superior offers and the termination, fee payment and expense reimbursement obligations of each of the Company and Blackstone, and the terms of Blackstone’s financing. Representatives of Kirkland & Ellis also reviewed the fiduciary duties of the board under Delaware law when considering strategic alternatives, including a sale of the Company.

 

Following a question and answer period, Mr. Minicucci asked Mr. Parks to leave the meeting so that the special committee could meet with its financial and legal advisors and consider certain proposed resolutions. After deliberation and based upon the totality of the information considered during its evaluation of the Merger and the Merger Agreement, the special committee unanimously determined that the Merger is fair to and that it is in the best interests of the holders of Company common stock to consummate the transactions contemplated by the Merger Agreement, including the Merger. In addition, the special committee, having all the power and authority of the board to examine the proposed transaction, determined that the Merger Agreement and the Merger should be approved and declared advisable by the board of directors and that the board should recommend that the Company’s stockholders vote to approve the Merger and the Merger Agreement.

 

Immediately following the special committee meeting, the full board met again with representatives of Banc of America Securities, Lehman Brothers, Evercore and Kirkland & Ellis. Following a discussion regarding the recommendation of the special committee and the proposed resolutions, the board unanimously adopted the Merger Agreement and approved the transactions contemplated by the Merger Agreement and unanimously resolved to recommend that the Merger and the Merger Agreement be approved and declared advisable by the board and that the stockholders of the Company vote to adopt the Merger Agreement and approve the Merger.

Later in the morning on May 17, 2007, before the trading markets opened, the Company, Parent and Merger Sub executed the Merger Agreement and issued a press release announcing the Merger.

 

The special committee, acting with the advice and assistance of its own financial and legal advisors and of our senior management, evaluated and negotiated the Merger, including the terms and conditions of the Merger Agreement, with Blackstone. The special committee unanimously determined that the Merger is fair to and that it is in the best interests of the holders of Company common stock to consummate the transactions contemplated by the Merger Agreement, including the Merger. In addition, the special committee, having all the power and authority of the board to examine the proposed transaction, determined that the Merger Agreement and the Merger should be approved and declared advisable by the board of directors and that the board should recommend that the Company’s stockholders vote to approve the Merger and the Merger Agreement. In reaching its determination, the special committee considered a number of factors and potential benefits of the Merger, including the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

The special committee also considered and balanced against the potential benefits of the Merger a number of potentially adverse factors concerning the Merger including the following:

 

 

 

 

 

The special committee also considered a number of factors relating to the procedures involved in the negotiation of the Merger Agreement, including that the board appointed the special committee:

 

 

 

 

In view of the variety of factors and the quality and amount of information considered, as well as the complexity of these matters, the special committee did not find it practicable to, and did not attempt to, assign relative weights to the above factors or the other factors considered by it. In addition, the special committee did not reach any specific conclusion on each factor considered, but conducted an overall analysis of these factors. Individual members of the special committee may have given different weights to different factors.

 

On May 17, 2007, the special committee, by unanimous vote, determined to recommend that our board approve the proposed Merger. Immediately after the special committee resolved to recommend that the board approve the proposed Merger and the Merger Agreement, our full board:

 

 

See “ — Background of the Merger” beginning on page 25 for additional information on the recommendation of our board.

 

Such approvals, determinations and recommendations were approved by all of the members of the board. Our board believes that the Merger Agreement and the Merger are substantively and procedurally fair to the Company’s stockholders. In reaching these conclusions, our board considered:

 

 

 

The foregoing discussion of the information and factors considered by the board is not intended to be exhaustive but, we believe, includes all material factors considered by the board. In view of the wide variety of factors considered by the board in evaluating the Merger and the complexity of these matters, our board did not assign relative weights to the above factors or the other factors considered by it. In addition, the board did not reach any specific conclusion on each factor considered, but conducted an overall analysis of these factors. Individual members of the board may have given different weights to different factors.

 

Based on the factors outlined above, the board determined that the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, are advisable, fair to, and in the best interests of, the Company’s stockholders.

 

The board of directors unanimously recommends that the Company’s stockholders vote “FOR” the adoption of the Merger Agreement.

 

The Company and the special committee of the board of directors of the Company retained Banc of America Securities and Lehman Brothers as financial advisors to the special committee in connection with the Merger. Each of Banc of America Securities and Lehman Brothers is an internationally recognized investment banking firm that is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. The Company and the special committee selected Banc of America Securities and Lehman Brothers on the basis of their experience in transactions similar to the Merger, their reputation in the investment community and their familiarity with the Company and its business.

 

On May 17, 2007, at a meeting of the board of directors of the Company held to evaluate the Merger, each of Banc of America Securities and Lehman Brothers rendered to the special committee of the board of directors and the board of directors of the Company an oral opinion, which was confirmed by delivery of a written opinion dated the same date, to the effect that, as of the date of each opinion and based upon and subject to various assumptions and limitations described in each opinion, the consideration to be received in the proposed Merger by holders of Company common stock was fair, from a financial point of view, to such holders.

 

The full text of Banc of America Securities’ and Lehman Brothers’ written opinions to the special committee of the board of directors and the board of directors of the Company, each dated May 17, 2007, which describe, among other things, the assumptions made, procedures followed, factors considered and limitations upon the review undertaken by Banc of America Securities and Lehman Brothers are attached to this proxy statement as Annex B and C, respectively, and incorporated by reference in their entirety into this proxy statement. Stockholders are urged to read both opinions carefully in their entirety. The following summaries of Banc of America Securities’ and Lehman Brothers’ respective opinions and the methodology that Banc of America Securities and Lehman Brothers each used to render their respective opinions is qualified in their entirety by reference to the full text of such opinions.

 

Banc of America Securities’ and Lehman Brothers’ respective opinions were provided to, and for the benefit and use of, the special committee of the board of directors and the board of directors of the Company in connection with and for the purposes of their respective evaluation of the consideration provided for in the Merger from a financial point of view. The respective opinions of Banc of America Securities and Lehman Brothers are not intended to be and do not constitute recommendations to any stockholder as to how such stockholder should vote or act in connection with the Merger.

 

In connection with rendering its opinion, Banc of America Securities:

 

 

In arriving at its opinion, Banc of America Securities assumed and relied upon, without independent verification, the accuracy and completeness of the financial and other information reviewed by Banc of America Securities. With respect to the Company forecasts, Banc of America Securities assumed, at the direction of the Company, that they had been reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of the Company as to the future financial performance of the Company. Banc of America Securities did not make any independent appraisal or valuation of the assets or liabilities of the Company, nor was Banc of America Securities furnished with any such appraisals or valuations. Banc of America Securities assumed, with the consent of the Company, that the Merger would be consummated as provided in the Merger Agreement, with full satisfaction of all covenants and conditions set forth in the Merger Agreement and without any waivers thereof. Banc of America Securities also assumed, with the consent of the Company, that all governmental or third party consents and approvals necessary for the consummation of the Merger would be obtained without any adverse effect on the Company or the Merger.

 

Banc of America Securities expressed no view or opinion as to any terms or aspects of the Merger (other than the consideration to the extent expressly specified in its opinion), including, without limitation, the form or structure of the Merger. In addition, no opinion was expressed as to the relative merits of the Merger in comparison to other transactions available to the Company or in which the Company might engage or as to whether any transaction might be more favorable to the Company as an alternative to the Merger, nor did Banc of America Securities express any opinion as to the underlying business decision of the special

committee of the board of directors or the board of directors of the Company to proceed with or effect the Merger.

 

Banc of America Securities opinion was necessarily based on economic, market and other conditions as in effect on, and the information made available to Banc of America Securities as of, the date of its opinion. Accordingly, although subsequent developments may affect its opinion, Banc of America Securities did not assume any obligation to update, revise or reaffirm its opinion.

 

The Company has agreed to pay Banc of America Securities the following cash fees for its financial advisory services in connection with the Merger: (a) $1 million, which was payable to Banc of America Securities in connection with the rendering of its opinion relating to the Merger and (b) approximately $16 million, payable upon and concurrently with the closing of the Merger; or (c) up to $6.5 million in the event a termination fee is actually paid to the Company pursuant to the Merger Agreement, payable promptly upon the Company’s receipt of such fee. The Company also has agreed to reimburse Banc of America Securities for all reasonable expenses, including reasonable fees and disbursements of Banc of America Securities’ counsel, incurred in connection with Banc of America Securities’ engagement, and to indemnify Banc of America Securities, any controlling person of Banc of America Securities and each of their respective directors, officers, employees, agents, affiliates and representatives against specified liabilities, including liabilities under the federal securities laws.

 

Banc of America Securities and/or certain of its affiliates have provided financial advisory and financing services to the Company and have received fees for the rendering of these services, including, among other things, acting or having acted as an agent for, and lender under, certain credit facilities of the Company. In addition, Banc of America Securities or its affiliates in the past have provided, currently are providing and in the future may provide financial advisory and financing services to Blackstone and certain of its affiliates and portfolio companies and have received and in the future may receive fees for the rendering of these services, including, among other things, acting or having acted as (a) arranger of, and participant in, certain acquisition financings undertaken by Blackstone and certain of its affiliates and portfolio companies either directly or as part of an investment group, (b) financial advisor to Blackstone and certain of its affiliates and portfolio companies in connection with certain mergers and acquisitions transactions and (c) arranger and/or bookrunner for certain debt and equity offerings by Blackstone and certain of its affiliates and portfolio companies. In addition, with the approval of the special committee, Banc of America Securities and its affiliates made available to potential bidders an acquisition financing package in connection with the potential sale of the Company, and Banc of America Securities and its affiliates may provide, or participate in, the financing for the Merger for which services Banc of America Securities and its affiliates would receive compensation. Certain of Banc of America Securities’ affiliates also hold minority investments in certain funds affiliated with Blackstone. In the ordinary course of their businesses, Banc of America Securities and its affiliates may actively trade or hold securities of the Company and certain affiliates and portfolio companies of Blackstone, and may actively trade or hold loans of the Company, its affiliates and Blackstone and certain of its affiliates and portfolio companies, for their own account or for the accounts of customers, and accordingly, Banc of America Securities or its affiliates may at any time hold long or short positions in such securities or loans.

 

In connection with rendering its opinion, Lehman Brothers reviewed and analyzed:

 

 

 

In addition, Lehman Brothers had discussions with the management of the Company concerning the Company’s business, operations, assets, liabilities, financial condition and prospects and undertook such other studies, analyses and investigations as Lehman Brothers deemed appropriate.

 

In arriving at its opinion, Lehman Brothers assumed and relied upon the accuracy and completeness of the financial and other information provided to it by the Company or any other parties involved in the Merger or otherwise publicly available without assuming any responsibility for independent verification of such information and further relied upon the assurances of the management of the Company that they are not aware of any facts or circumstances that would make such information provided by or on behalf of the Company inaccurate or misleading. With respect to the financial projections of the Company, upon advice of the Company Lehman Brothers assumed that such projections were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of the Company as to the future financial performance of the Company and that the Company will perform substantially in accordance with such projections. Additionally, Lehman Brothers considered and used published estimates of independent research analysts in performing its analysis and upon discussions with the management of the Company, the management of the Company agreed with the appropriateness of, and consented to Lehman Brothers’ reliance upon, such published estimates in performing its analysis. In arriving at its opinion, Lehman Brothers did not conduct a physical inspection of the properties and facilities of the Company and did not make or obtain any evaluations or appraisals of the assets or liabilities of the Company. Lehman Brothers’ opinion necessarily was based upon market, economic and other conditions as they existed on, and could be evaluated as of, the date of such letter.

 

The Company has agreed to pay Lehman Brothers the following cash fees for its financial advisory services in connection with the Merger: (a) $1 million, which was payable to Lehman Brothers in connection with the rendering of its opinion relating to the Merger and (b) approximately $16 million, payable upon and concurrently with the closing of the Merger; or (c) up to $6.5 million in the event a termination fee is actually paid to the Company pursuant to the Merger Agreement, payable promptly upon the Company’s receipt of such fee. In addition, the Company also has agreed to reimburse Lehman Brothers for all reasonable expenses, including reasonable fees and disbursements of Lehman Brothers’ counsel, incurred in connection with Lehman Brothers’ engagement, and to indemnify Lehman Brothers and certain of its affiliates for certain liabilities that may arise out of the rendering of the opinion.

 

Lehman Brothers and/or certain of its affiliates have provided financial advisory and financing services to the Company and have received fees for the rendering of these services, including, among other things, acting or having acted as an agent for, and lender under, certain credit facilities of the Company. In addition, Lehman Brothers and/or certain of its affiliates have provided, currently are providing and in the future may provide financial advisory and financing services to Blackstone and certain of its affiliates and portfolio companies and have received and in the future may receive fees for the rendering of these services, including, among other things, acting or having acted as (a) arranger of, and participant in, certain acquisition financings undertaken by Blackstone and certain of its affiliates and portfolio companies either directly or as part of an investment group, (b) financial advisor to Blackstone and certain of its affiliates and portfolio companies in

connection with certain mergers and acquisition transactions and (c) arranger and/or bookrunner for certain debt and equity offerings by Blackstone and certain of its affiliates and portfolio companies. In addition, with the approval of the special committee, Lehman Brothers and its affiliates made an acquisition financing package available to potential bidders in connection with the potential sale of the Company, and Lehman Brothers and its affiliates may provide, or participate in, the financing for the Merger for which services Lehman Brothers and its affiliates would receive compensation. Certain of Lehman Brothers’ affiliates also hold minority investments in certain funds affiliated with Blackstone. In the ordinary course of their businesses, Lehman Brothers and its affiliates may actively trade or hold securities of the Company and certain affiliates and portfolio companies of Blackstone, and may actively trade or hold loans of the Company, its affiliates and Blackstone and certain of its affiliates and portfolio companies, for their own account or for the accounts of customers, and accordingly, Lehman Brothers or its affiliates may at any time hold long or short positions in such securities or loans.

 

A description of the material financial analyses Banc of America Securities and Lehman Brothers jointly performed in connection with the preparation of their respective opinions is set forth below. The following summary does not, however, purport to be a complete description of all the financial analyses performed by Banc of America Securities and Lehman Brothers in connection with their respective opinions. The order of the analyses described does not represent relative importance or weight given to those analyses by Banc of America Securities and Lehman Brothers. The summary includes information presented in tabular format. In order to more fully understand the financial analyses used by Banc of America Securities and Lehman Brothers, the tables must be read together with the full text of each summary. The tables alone are not a complete description of Banc of America Securities’ and Lehman Brothers’ financial analyses. Considering the data in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses performed by Banc of America Securities and Lehman Brothers. Except as otherwise noted, the following quantitative information, to the extent based on market data, is based on market data as it existed on or before May 15, 2007, and is not necessarily indicative of current market conditions.

 

Selected Publicly Traded Companies Analysis.  Banc of America Securities and Lehman Brothers reviewed certain publicly available financial and stock market information relating to the Company and 21 selected publicly traded companies that Banc of America Securities and Lehman Brothers deemed relevant to the analysis of the Company. Specifically, Banc of America Securities and Lehman Brothers selected companies in the broadly defined marketing services, transaction processing services or credit card services industries. The companies included in this analysis were:

 

Marketing Services

 

 

Transaction Processing Services

 

 

 

Credit Card Services

 

 

For purposes of this analysis, Banc of America Securities and Lehman Brothers analyzed the following statistics for comparison purposes:

 

 

 

Based on the analysis of the relevant financial multiples and ratios for each of the selected companies, Banc of America Securities and Lehman Brothers selected representative ranges of calendar year 2007 EBITDA and EPS multiples for the selected companies and applied this range of multiples to the corresponding Company financial statistic. Banc of America Securities and Lehman Brothers used estimates of EBITDA and earnings per share, referred to in this proxy statement as EPS, for calendar year 2007 derived from publicly available equity research sources as of May 15, 2007. Banc of America Securities and Lehman Brothers calculated price to estimated cash earnings multiples, which excluded amortization of intangibles and stock based compensation, for the selected companies in the marketing services and transaction processing services industries, and calculated price to estimated GAAP earnings for the selected companies in the credit card services industry. Banc of America Securities and Lehman Brothers then calculated an implied value per share of Company common stock based on the selected range of ratios of enterprise value to EBITDA and price to estimated earnings by (a) multiplying the Company’s estimated EBITDA for calendar year 2007, adjusted to exclude stock-based compensation and the impact of one-time line items as per Company management, referred to in this proxy statement as the Company’s Adjusted EBITDA, by the selected range of ratios of enterprise value to EBITDA, and then (b) multiplying the Company’s estimated cash earnings for calendar year 2007 by the selected range of ratios of price to estimated earnings. The results of this analysis are depicted in the table below:

 

Banc of America Securities and Lehman Brothers noted that the consideration per share to be received by holders of Company common stock pursuant to the Merger Agreement was $81.75.

 

No company utilized in the selected publicly traded companies analysis is identical or directly comparable to the Company or its business. In evaluating the selected companies, Banc of America Securities and Lehman Brothers made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the Company, such as the impact of competition on the businesses of the Company and the industry generally, industry growth and the absence of any adverse material change in the financial condition and prospects of the Company or the industry or in the financial markets in general. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the public trading or other values of the companies to which the Company was compared.

 

Discounted Cash Flow Analysis.  Using Company management’s financial forecasts (discussed in this proxy statement as Scenario A and Scenario B under the heading “— Financial Projections” beginning on page 55) for the second half of calendar year 2007 and calendar years 2008 to 2011, Banc of America Securities and Lehman Brothers performed an analysis of the present value of the free cash flows, discounted to June 30, 2007, that the Company could generate from the second half of 2007 and beyond. Banc of America Securities and Lehman Brothers discounted the unlevered free cash flows of the Company at an estimated weighted average cost of capital of 12%, derived by applying the capital asset pricing model and the Company’s current after-tax average debt borrowing rate and capital structure. Banc of America Securities and Lehman Brothers assumed terminal values based on a range of multiples of 9.0x to 10.0x estimated 2011 Adjusted EBITDA, based on a combination of multiples derived from the selected publicly traded companies analysis described above.

 

Based on the foregoing, Banc of America Securities and Lehman Brothers calculated an implied value per share range of Company common stock of approximately $76.00 to $83.50, as compared to the $81.75 per share in cash to be received by holders of Company common stock pursuant to the Merger Agreement.

 

Premiums Paid Analysis.  Banc of America Securities and Lehman Brothers reviewed the 1-day prior to announcement, 30-day average prior to announcement, and 52-week high prior to announcement premiums for the following types of selected transactions:

 

 

Banc of America Securities and Lehman Brothers reviewed the premiums for all the selected transactions and summarized the results as set forth below, reflected as a percentage of the 1-day, 30-day average and 52-week high prices of the target companies’ common stock:

 

 

Banc of America Securities and Lehman Brothers selected a relevant range of premiums from 10% to 20%, which were applied to the Company’s common stock price as of May 15, 2007, a range of premiums of 15% to 30%, which were applied to the Company’s 30-day average common stock price prior to May 15, 2007, and selected the high value of the Company’s 52-week stock price for the period ending May 15, 2007 as the low value of the relevant range. Based on the selected range of premiums paid in such selected transactions, Banc of America Securities and Lehman Brothers calculated an implied value per share range of Company common stock of approximately $68.00 to $83.75, as compared to the $81.75 per share in cash to be received by holders of Company common stock pursuant to the Merger Agreement.

 

No company utilized in the premiums paid analysis is identical or directly comparable to the Company or its business. Accordingly, an evaluation of the result of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the public trading or other values of the companies to which the Company was compared.

 

Selected Precedent Transactions Analysis.  Banc of America Securities and Lehman Brothers also performed a selected precedent transactions analysis, which attempts to provide an implied value of a company based on publicly available financial terms and premiums of selected transactions that share certain characteristics with the relevant transaction. In connection with its analysis, Banc of America Securities and Lehman Brothers compared publicly available statistics for 9 selected marketing services transactions announced between May 14, 2003 and May 16, 2007, and 13 selected transaction processing services transactions announced between April 2, 2003 and April 2, 2007, in each case in which the target company was publicly traded or had publicly traded debt securities. Banc of America Securities and Lehman Brothers selected these precedent transactions based on the fact that the target companies were in the marketing and/or transaction processing services sector, the same broader industries as the Company. The following is a list of these transactions:

 

Selected Precedent Transactions (Target/Acquiror)

 

Selected Marketing Services Transactions

 

 

 

Selected Transaction Processing Services Transactions

 

 

For each transaction listed above, Banc of America Securities and Lehman Brothers derived the enterprise value for each transaction, divided by the last twelve months (“LTM”) EBITDA of the target company, resulting in a reference range for the selected transactions. The resulting ratio of enterprise value to LTM EBITDA multiple range for the selected group of transactions was 7.5x to 17.4x with a median of 9.8x. Banc of America Securities and Lehman Brothers selected a representative ratio of enterprise value to LTM EBITDA multiple range of 9.0x to 11.0x based on the precedent transactions listed above and applied that range to the estimated LTM Adjusted EBITDA of the Company. The Company’s estimated LTM Adjusted EBITDA was calculated using historical numbers for the period from July 1, 2006 through March 31, 2007 and Company management’s projections for the period from April 1, 2007 through June 30, 2007. Based on the selected ratio of enterprise value to LTM EBITDA multiple range, Banc of America Securities and Lehman Brothers calculated an implied value per share range of Company common stock of approximately $54.75 to $69.00, as compared to the $81.75 per share in cash to be received by holders of Company common stock pursuant to the Merger Agreement.

 

No company or transaction utilized in the precedent transactions analysis is identical to the Company or the Merger. In evaluating the precedent transactions, Banc of America Securities and Lehman Brothers made judgments and assumptions with regard to industry performance, general business, economic, market and

financial conditions and other matters, many of which are beyond the control of the Company, such as the impact of competition on the businesses of the Company and the industry generally, industry growth and the absence of any adverse material change in the financial condition and prospects of the Company or the industry or in the financial markets in general, which could affect the public trading value of the companies and the aggregate value of the transactions to which they are being compared.

 

Leveraged Buyout Analysis.  Using the Company’s financial forecasts for the second half of calendar year 2007 and calendar years 2008 to 2011, Banc of America Securities and Lehman Brothers also analyzed the Company from the perspective of a potential purchaser that was primarily a financial buyer that would effect a leveraged buyout of the Company using a debt capital structure consistent with those transactions proposed by buyers, including the Merger. Banc of America Securities and Lehman Brothers assumed that a buyer would value its investment in the Company at December 31, 2011 at an enterprise value that represented a multiple of calendar year 2011 Adjusted EBITDA of 9.5x. Banc of America Securities and Lehman Brothers then calculated the Company’s December 31, 2011 equity value range by adding the Company’s forecasted December 31, 2011 cash balance and subtracting the Company’s forecasted December 31, 2011 debt outstanding. Based on the December 31, 2011 equity value range for the Company calculated by Banc of America Securities and Lehman Brothers and their assumption, based on their collective experience, that financial sponsors would likely target internal rates of return of approximately 17.5% to 25%, Banc of America Securities and Lehman Brothers derived a range of implied values per share that a financial sponsor might be willing to pay to acquire the Company estimated at $76.00 to $86.00, as compared to the $81.75 per share in cash to be received by holders of Company common stock pursuant to the Merger Agreement.

 

Other Factors.  In rendering their respective opinions, Banc of America Securities and Lehman Brothers also reviewed and considered other factors, including:

 

 

Miscellaneous.  The preparation of a financial opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Banc of America Securities’ opinion and Lehman Brothers’ opinion. In arriving at their respective opinions, Banc of America Securities and Lehman Brothers considered the results of all the analyses as a whole and did not attribute any particular weight to any factor or analysis considered by it. No company or transaction used in the above analyses is identical or directly comparable to the Company or the Merger.

 

In performing their joint analyses, Banc of America Securities and Lehman Brothers considered industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the Company. The estimates of the future performance of the Company provided by the management of the Company, or published by independent research analysts, in or underlying Banc of America Securities’ and Lehman Brothers’ analyses are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than those estimates or those suggested by Banc of America Securities’ and Lehman Brothers’ analyses. Banc of America Securities’ and Lehman Brothers’ analyses were prepared solely as part of their joint analyses of the financial fairness of the consideration provided for in the Merger and were provided to the special committee of the board of directors and the board of directors of the Company in connection with the delivery of their respective opinions. The analyses do not purport to be appraisals or to reflect the prices at which a Company might actually be sold or the prices at which any securities have traded or may trade at any time in the future. Accordingly, the estimates used in, and the ranges of valuations resulting from, any particular analysis described above are inherently subject to substantial uncertainty, and should not be taken to be Banc of America Securities’ or Lehman Brothers’ view of the actual value of the Company.

The type and amount of consideration provided for in the Merger was determined through negotiations between the Company and Blackstone, rather than by any financial advisors, and was approved by the special committee of the board of directors of the Company and the board of directors of the Company. The decision of the Company to enter into the Merger Agreement was solely that of the board of directors of the Company. As described above, Banc of America Securities’ opinion, Lehman Brothers’ opinion and their joint analyses were only one of many factors considered by the special committee and by the board of directors of the Company in making their determination to recommend the Merger Agreement and should not be viewed as determinative of the views of the special committee or of the board of directors of the Company or the Company management with respect to the Merger or the consideration to be paid therein.

 

Evercore was retained to provide financial advisory services to the special committee in connection with the special committee’s evaluation of strategic and financial alternatives available to the Company. Evercore is a nationally recognized investment banking firm that is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions and similar transactions. The special committee retained Evercore based on these qualifications. In the ordinary course of business, affiliates of Evercore may at any time hold long or short positions, and may trade or otherwise effect transactions, for its own account or for the account of customers in the equity and other securities of the Company, or any other parties, commodities or currencies involved in the Merger.

 

On May 17, 2007, Evercore delivered its oral opinion to the special committee and to the Company’s board of directors, which opinion was subsequently confirmed in writing, to the effect that, as of such date and based upon and subject to the factors, limitations and assumptions set forth in its opinion, the Merger Consideration to be received by the holders of Company common stock (other than holders of “dissenting shares” (as defined by the Merger Agreement) and shares to be cancelled or otherwise converted into stock of the surviving corporation pursuant to the terms of the Merger Agreement) was fair, from a financial point of view, to such holders of Company common stock.

 

The full text of the written opinion of Evercore, dated May 17, 2007, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the review undertaken in rendering its opinion, is attached as Annex D to this proxy statement and is incorporated by reference in its entirety into this proxy statement. We urge you to read the opinion in its entirety. Evercore’s opinion is directed to the special committee and the Company’s board of directors, addresses only the fairness from a financial point of view of the Merger Consideration to be received by the holders of Company common stock (other than holders of “dissenting shares” and shares to be cancelled or otherwise converted into stock of the surviving corporation pursuant to the terms of the Merger Agreement) pursuant to the Merger Agreement and does not address the relative merits of the Merger as compared to other business or financial strategies that might be available to the Company, the underlying business decision of the Company to engage in the Merger and does not constitute a recommendation to any stockholder of the Company as to how such stockholder should vote at the special meeting or respond to the Merger. The following is a summary of Evercore’s opinion and the methodology that Evercore used to render its opinion. This summary is qualified in its entirety by reference to the full text of the opinion.

 

In connection with rendering its opinion, Evercore, among other things:

 

 

 

For purposes of its analysis and opinion, Evercore assumed and relied upon, without undertaking any responsibility for independent verification of, the accuracy and completeness of the information publicly available, and the information supplied or otherwise made available to, discussed with, or reviewed by Evercore, including as to the completeness of the transaction process conducted on behalf of the Company by the advisors to the Company, and assumes no liability therefor. For purposes of rendering Evercore’s opinion, members of our management provided Evercore certain financial projections related to the Company. With respect to the financial projections, Evercore assumed that they had been reasonably prepared on bases reflecting the best available estimates and good faith judgments of the future competitive, operating and regulatory environments and related financial performance of the Company.

 

For purposes of rendering its opinion, Evercore assumed, with the Company’s consent, that the representations and warranties of each party contained in the Merger Agreement were true and correct, that each party would perform all of the covenants and agreements required to be performed by it under the Merger Agreement and that all conditions to the consummation of the Merger would be satisfied without waiver or modification thereof. Evercore further assumed that all governmental, regulatory or other consents, approvals or releases necessary for the consummation of the Merger would be obtained without any delay, limitation, restriction or condition that would have an adverse effect on the Company or the consummation of the Merger.

 

Evercore did not make, nor assume any responsibility for making, any independent valuation or appraisal of the assets or liabilities of the Company or any of its subsidiaries, nor was Evercore furnished with any such appraisals, nor did Evercore evaluate the solvency or fair value of the Company or any of its subsidiaries under any state or federal laws relating to bankruptcy, insolvency or similar matters. Evercore’s opinion was necessarily based on economic, market and other conditions as in effect on, and the information made available to Evercore as of, May 17, 2007. It was acknowledged that subsequent developments may affect Evercore’s opinion and agreed that Evercore has no obligation to update, revise or reaffirm its opinion. In connection with the Merger, Evercore was not authorized by the special committee to solicit, nor did Evercore solicit, third party indications of interest for the acquisition of all or part of the Company and did not otherwise participate in the transaction process.

 

Evercore was not asked to pass upon, and expressed no opinion with respect to, any matter other than the fairness from a financial point of view, as of May 17, 2007, to the holders of our common stock (other than holders of “dissenting shares” and shares to be cancelled or otherwise converted into stock of the surviving corporation pursuant to the terms of the Merger Agreement) of the Merger Consideration. Evercore assumed that any modification to the structure of the transaction would not vary in any respect material to its analysis. Evercore’s opinion did not address the relative merits of the Merger as compared to other business or financial strategies that might have been available to the Company, nor did it address the underlying business decision of the Company to engage in the Merger. Evercore is not a legal, regulatory, accounting or tax expert and it assumed the accuracy and completeness of assessments by the Company and its advisors with respect to legal, regulatory, accounting and tax matters.

 

Pursuant to its engagement letter, a fee of $100,000 became payable to Evercore upon the execution of the letter and a fee of $2.2 million became payable upon the special committee’s request that Evercore provide it with a written fairness opinion. In addition, the Company agreed to reimburse certain of Evercore’s expenses and to indemnify Evercore for certain liabilities arising out of its engagement.

 

Set forth below is a summary of the material financial analyses presented by Evercore to the special committee and the Company’s board of directors in connection with rendering its opinion. The following summary, however, does not purport to be a complete description of the analyses performed by Evercore. The order of the analyses described and the results of these analyses do not represent relative importance or weight given to these analyses by Evercore. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before May 16, 2007, and is not necessarily indicative of current market conditions.

 

The following summary of financial analyses includes information presented in tabular format. You should read these tables together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses.

 

Analysis of Historical Trading Prices and Implied Transaction Premiums.  Evercore reviewed the historical closing and intra-day prices of our common stock since June 8, 2001, the first day of regular way trading of our common stock after the Company’s initial public offering, calculated the average daily closing prices of our common stock over various time periods, and noted the closing and intra-day stock price on selected dates including and prior to May 16, 2007. Evercore then calculated and compared the premium that the Merger Consideration represented relative to the average daily closing prices of our common stock for the selected periods and dates. The results of these calculations are summarized below:

 

 

 

 

Leveraged Buyout Analysis.  Evercore performed a leveraged buyout analysis of the Company in order to ascertain the price of our common stock which might be attractive to a potential financial buyer based upon the financial projections set forth the Organic Scenario and the Acquisition Scenario of the financial projections (also referred to as Scenario A and Scenario B, respectively, under the heading “— Financial Projections” beginning on page 55) prepared by and furnished by our management to Evercore. For the

purposes of this analysis, earnings before interest, taxes, depreciation and amortization adjusted to exclude stock based compensation and impact of one-time items as per the Company’s management is defined as “Adjusted EBITDA”. In addition, for the purposes of this analysis, earnings before interest, taxes, depreciation and amortization adjusted to exclude stock based compensation and impact of one-time items as well as include the increase in deferred revenue liability less increase in redemption settlement assets adjusted for the foreign currency impact as per the Company’s management is defined as “Operating EBITDA”.

 

Evercore assumed the following in its analysis: (a) a capital structure for the Company consistent with the terms offered to Parent by its financing sources under the debt and financing commitment letters; (b) $180 million of transaction expenses for Parent; (c) a range of projected 2011 Adjusted EBITDA exit multiples of 9.0x to 10.0x; (d) an equity investment that would achieve an annual rate of return over the period between 2007 and 2011, which we refer to as the Projection Period, of between 20.0% and 25.0%. This analysis yielded implied per share present values of our common stock as shown below:

 

 

Discounted Cash Flow Analysis.  Evercore performed a discounted cash flow (“DCF”) analysis, which calculates the present value of a company’s future cash flow based upon assumptions with respect to such cash flow and assumed discount rates. Evercore’s DCF analysis of the Company was based upon the Organic Scenario and the Acquisition Scenario covering the Projection Period.

 

Evercore calculated a range of implied per share values for our common stock determined by:

 

(a) adding (1) the implied present value of our forecasted unlevered free cash flows (operating income less income taxes, plus depreciation and amortization, adjusted to reflect changes in working capital, acquisitions, capital expenditures, and the increase in deferred revenue liability less increase in redemption settlement asset) during the Projection Period, determined using a weighted average cost of capital range of between 11.5% and 12.5% (weighted average cost of capital is a measure of the average expected return on all of a company’s securities or loans based on the proportions of those securities or loans in such company’s capital structure), (2) the implied present value of the terminal value of our future cash flows (the value of future cash flows at a particular point in time), calculated by multiplying the estimated Adjusted EBITDA for fiscal year 2011 by a range of multiples of 9.0x to 10.0x and discounting the result using a weighted average cost of capital range of between 11.5% and 12.5%, and (3) deducting our projected debt, net of estimated cash, as of June 30, 2007; and

 

(b) dividing the amount resulting from the calculation described in clause (1) by the number of shares of our common stock outstanding, adjusted for certain restricted stock and stock options outstanding using the treasury stock method, as of the date of the Merger Agreement.

 

This analysis yielded implied per share present values of our common stock as shown below:

 

 

Precedent Transactions Analysis.  Evercore performed an analysis of selected transactions to compare multiples paid in other transactions to the multiples implied in this transaction. Evercore identified and analyzed a group of sixteen acquisition transactions classified under “Transaction Processors” and seven acquisition transactions classified under “Marketing Services” that were announced between 1995 and 2007. Evercore calculated enterprise value as a multiple of EBITDA during the last twelve months implied by these transactions. Although none of the transactions are, in Evercore’s opinion, directly comparable to the Merger, the transactions included were chosen because, in Evercore’s opinion, they may be considered similar to the Merger in certain respects for purposes of this analysis.

Transaction Processors

 

 

The range of implied multiples that Evercore calculated is summarized below:

 

 

Marketing Services

 

 

The range of implied multiples that Evercore calculated is summarized below:

 

Evercore then applied multiples ranging from 10.5x to 12.5x to the Company’s March 31, 2007 Latest Twelve Months Operating EBITDA and Adjusted EBITDA. The range of per share equity values for our common stock implied by this analysis is summarized below:

 

 

Premiums Paid Analysis.  Evercore identified and analyzed two hundred eighteen all cash acquisition transactions across all industries with transaction values greater than $1.0 billion that were announced in the period from January 1, 2002 to May 16, 2007, of which seventy-six were acquisitions by financial sponsors. Using information from Securities Data Corp, a data source that monitors and publishes information on merger and acquisition transactions, Evercore calculated the premiums paid in those transactions based on the value of the per share consideration received in the transaction relative to the closing stock price of the target company one day, one week and four weeks prior to the respective dates of announcement of the transactions. Evercore then compared the results of the analysis to the premiums implied by the Merger Consideration relative to our common stock trading levels at and prior to May 16, 2007. The results of this analysis are summarized below:

 

 

 

 

Evercore then applied premiums ranging from 20% to 30% to the closing price of our common stock one day, one week and four weeks prior to the date of announcement. The range of per share equity values for our common stock implied by this analysis is summarized below:

 

 

 

 

Public Market Trading Analysis.  Evercore calculated and compared enterprise value as a multiple of EBITDA for the Company and for selected publicly-traded companies. Evercore calculated multiples for the selected companies by dividing closing share prices as of May 16, 2007 by calendarized estimates for 2007 EBITDA for each respective company. All of these calculations were based on publicly available filings and

financial data provided by Wall Street Research. The range of implied multiples that Evercore calculated is summarized below:

 

Transaction Processors

 

 

 

 

Marketing Services

 

 

 

 

Evercore then applied multiples ranging from 9.5x to 11.5x to the Company’s 2007 estimated Adjusted EBITDA and Operating EBITDA per Management as well as an average of Wall Street analyst projections. The range of per share equity values for our common stock implied by this analysis is summarized below:

 

 

 

Research Analyst Stock Price Targets.  Evercore analyzed Bloomberg and Wall Street Research analyst estimates of potential future value for our common stock (commonly referred to as price targets) based on publicly available equity research published on the Company. As of May 16, 2007, analyst price targets for our common stock ranged from $55.00 to $80.00 and produced an average price target of $75.17.

 

General.  In connection with the review of the Merger by the special committee and the Company’s board of directors, Evercore performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary described above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Evercore’s opinion. In arriving at its fairness determination, Evercore considered the results of all the analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Evercore made its determination as to fairness on the basis of its experience and professional judgment

after considering the results of all the analyses. In addition, Evercore may have deemed various assumptions more or less probable than other assumptions, so that the range of valuations resulting from any particular analysis described above should therefore not be taken to be Evercore’s view of the value of the Company. No company used in the above analyses as a comparison is directly comparable to the Company, and no transaction used is directly comparable to the transactions contemplated by the Merger Agreement. Further, in evaluating comparable transactions, Evercore made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the Company and Evercore, such as the impact of competition on the Company and the industry generally, industry growth and the absence of any adverse material change in the financial condition of the Company or in the markets generally.

 

Evercore prepared these analyses for the purpose of providing an opinion to the special committee and the Company’s board of directors as to the fairness from a financial point of view of the Merger Consideration to be received by the holders of our common stock (other than holders of “dissenting shares” and shares to be cancelled or otherwise converted into stock of the surviving corporation pursuant to the terms of the Merger Agreement). These analyses do not purport to be appraisals or to necessarily reflect the prices at which the business or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty and are based upon numerous factors, assumptions with respect to industry performance, general business and economic conditions and other matters or events beyond the control of the Company and Evercore, neither the Company nor Evercore assumes responsibility if future results are materially different from those forecast. The Merger Consideration to be received by the holders of our common stock pursuant to the Merger Agreement was determined through arm’s length negotiations between the special committee and Blackstone and was approved by the Company’s board of directors. Evercore did not recommend any specific Merger Consideration to the Company or that any given Merger Consideration constituted the only appropriate Merger Consideration for the Merger.

 

The Company’s management does not as a matter of course make public projections as to future performance or earnings beyond the current fiscal year and is particularly wary of making projections for extended earnings periods due to the unpredictability of the assumptions and estimates underlying such projections. However, financial projections prepared by senior management were made available to our board of directors, the special committee and its financial advisors and to the strategic and financial parties that entered into confidentiality agreements with the Company in connection with their respective consideration of a possible transaction with the Company. These financial projections are included in this proxy statement to give our stockholders access to certain non-public information reviewed by our board of directors and the special committee in connection with their consideration and evaluation of the Merger.

 

The inclusion of the financial projections in this proxy statement should not be regarded as an indication that our board of directors, the special committee, its financial advisors, Blackstone or any other recipient of the information considered, or now considers, them to be a reliable prediction of future results. The financial projections were not prepared with a view toward public disclosure or with a view toward complying with the published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information or with generally accepted accounting principles (“GAAP”). Neither the Company’s independent registered public accounting firm, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the financial projections, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the financial projections. Except as required by applicable securities laws, the Company does not intend to update or otherwise revise the financial projections presented to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the assumptions are shown to be in error.

 

The financial projections were prepared based on assumptions and estimates that management believed were reasonable at the time; however, projections of this type are based on estimates and assumptions that are

subjective in nature and are inherently subject to factors such as industry performance, general business, economic, regulatory, market and financial conditions, as well as changes to the business, financial condition or results of operations of the Company, including the factors described under “Cautionary Statement Concerning Forward-Looking Information” beginning on page 21, which factors may cause the financial projections or the related underlying assumptions to be inaccurate. Accordingly, readers of this proxy statement are cautioned not to place undue reliance on the financial projections.

 

The Company prepared two scenarios of projected financial information. Management indicated that Scenario A represents projections for the existing business on an organic basis excluding future acquisitions, while Scenario B is identical to Scenario A except in that it assumes that the Company invests $420 million annually in acquiring additional businesses that yield assumed levels of returns.

 

Scenario A: Management Projections for Existing Base Business

 

The financial projections described as Scenario A are based upon certain assumptions, including but not limited to: