Table of Contents
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported):
March 29, 2006
March 29, 2006
ALLIANCE DATA SYSTEMS CORPORATION
(Exact Name of Registrant as Specified in Charter)
| DELAWARE | 001-15749 | 31-1429215 | ||
| (State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
17655 WATERVIEW PARKWAY
DALLAS, TEXAS 75252
(Address and Zip Code of Principal Executive Offices)
DALLAS, TEXAS 75252
(Address and Zip Code of Principal Executive Offices)
(972) 348-5100
(Registrant’s Telephone Number, including Area Code)
(Registrant’s Telephone Number, including Area Code)
NOT APPLICABLE
(Former name or former address, if changed since last report)
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing
obligation of the Registrant under any of the following provisions:
| o | Written communications pursuant to Rule 425 under the Securities Act |
| o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act |
| o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act |
| o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act |
TABLE OF CONTENTS
| ITEM 1.01. Entry into a Material Definitive Agreement | ||||||||
| ITEM 9.01. Financial Statements and Exhibits | ||||||||
| SIGNATURES | ||||||||
| EXHIBIT INDEX | ||||||||
| Form of Restricted Stock Unit Award | ||||||||
Table of Contents
ITEM 1.01. Entry into a Material Definitive Agreement
On March 29, 2006, the Board of Directors (the “Board”) of Alliance Data Systems Corporation (the
“Company”) and the Compensation Committee of the Board (the “Compensation Committee”) approved the
lapsing of restrictions on performance based restricted stock (“PBRS”) awarded on February 3, 2005
to the Company’s Executive Committee of management (“EC”) and chief executive officer, J. Michael
Parks. On March 29, 2006, the Board and the Compensation Committee also amended the performance
criteria for 2006 awards of performance-based restricted stock units (“PBRSUs”) to the EC and Mr.
Parks.
2005 PBRS Vesting
As previously disclosed, each 2005 award of PBRS to the EC and Mr. Parks was to be adjusted up or
down at the time of vesting and vest based on relative cash earnings per share (“EPS”) growth
(compared to the S&P 500 GAAP EPS growth measured as of December 31, 2005), with the amount of
vesting calibrated based on over- or under-achievement of the target to between 0 and 200% of the
number of PBRS granted. The Company’s cash EPS growth rate for 2005 resulted in 113% of the 2005
PBRS awards vesting effective March 31, 2006. The specific number of shares of PBRS vesting for
Mr. Parks and the next four most highly compensated executive officers (the “Named Executive
Officers”) are specified in the table below.
| Number of Shares of | ||||||
| Name | Title | PBRS Vesting | ||||
J. Michael Parks
|
President, Chief Executive Officer and Chairman | 23,849 | ||||
Ivan M. Szeftel
|
EVP and President, Retail Credit Services | 11,030 | ||||
John W. Scullion
|
EVP and President, Loyalty and Marketing Services | 8,491 | ||||
Dwayne H. Tucker
|
EVP and President, Utility and Transaction Services | 8,543 | ||||
Edward J. Heffernan
|
EVP and Chief Financial Officer | 7,866 | ||||
2006 Performance Criteria
As previously disclosed, on February 13, 2006, the Company awarded PBRSUs to the EC and Mr. Parks,
with the same vesting criteria as for the 2005 PBRS awards. As a result of unforeseen issues
relating to the calculation of EPS growth for the S&P 500, including timing issues, the Board and
the Compensation Committee approved a modified performance measure to be used for the 2006 PBRSU
awards to the EC and Mr. Parks. Instead of comparing Company performance to S&P 500 performance
each year, a fixed grid will be used with a minimum cash EPS growth rate of 10% necessary for the
minimum 50% vesting, 18% cash EPS growth for a 100% vesting, and 36% cash EPS growth (or more) for
a maximum 200% vesting. These target growth rates were selected to emulate long-term historical
S&P 500 performance at the 50th, 75th and 90th percentiles,
respectively, recognizing, too, the expectation that growth companies like the Company grow at a
“double digit” annual rate and therefore should meet a 10% minimum threshold for vesting.
Moreover, using this fixed measure will solve timing and other calculation issues associated with
using the S&P 500 growth rate each year.
2
Table of Contents
ITEM 9.01. Financial Statements and Exhibits
(d) Exhibits
| EXHIBIT | ||
| NUMBER | DESCRIPTION | |
99.1
|
Form of Restricted Stock Unit Award for the CEO and EC Members under the 2005 Long Term Incentive Plan and Amendment Number 1 thereto. |
3
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Alliance Data Systems Corporation | ||||||
Date: April 4, 2006
|
By: | /s/ Edward J. Heffernan | ||||
| Edward J. Heffernan | ||||||
| Executive Vice President and | ||||||
| Chief Financial Officer | ||||||
4
Table of Contents
EXHIBIT INDEX
| EXHIBIT | ||
| NUMBER | DESCRIPTION | |
99.1
|
Form of Restricted Stock Unit Award for the CEO and EC Members under the 2005 Long Term Incentive Plan and Amendment Number 1 thereto. |
5
Exhibit 99.1
AMENDMENT NUMBER 1 TO
RESTRICTED STOCK UNIT AWARD AGREEMENT
UNDER THE ALLIANCE DATA SYSTEMS CORPORATION
2005 LONG-TERM INCENTIVE PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT
UNDER THE ALLIANCE DATA SYSTEMS CORPORATION
2005 LONG-TERM INCENTIVE PLAN
THIS AMENDMENT NUMBER 1 TO THE RESTRICTED STOCK UNIT AWARD AGREEMENT (the “Amendment”), made
as of March 31, 2006 (the “Amendment Date”), by and between Alliance Data Systems Corporation (the
“Company”) and NAME (the “Participant”), who is an employee of the Company or one of its
Affiliates, evidences the amendment of the Restricted Stock Unit Award Agreement (the “Agreement”)
made as of February 13, 2006 (the “Grant Date”) in accordance with the provisions of the Alliance
Data Systems Corporation 2005 Long-Term Incentive Plan (the “Plan”). Terms not otherwise defined
herein shall have the meaning ascribed to them in the Agreement. The Company and the Participant
agree as follows:
1. Modification of Performance Vesting Goal. The current Section 3(b) of the
Agreement is deleted in its entirety and replaced with the following Section 3(b).
(b) The restrictions described in this Agreement will lapse with respect to all or a portion
of the Restricted Stock Units on the date in 2007 (the “Vesting Date”) on which the Board
determines the Company’s cash Earnings Per Share (“EPS”) growth rate for the period that begins on
January 1, 2006 and ends on December 31, 2006 (the “Performance Period”); provided,
that, the performance criteria set forth below have been achieved; provided,
further, that, the Participant is still employed by the Company on such Vesting
Date. If the Participant ceases to be employed by the Company at any time prior to the Vesting
Date, the unvested Restricted Stock Units shall automatically be forfeited upon such cessation of
service. The number of Restricted Stock Units that will vest on the Vesting Date (if any) will
depend on whether a cash EPS growth threshold milestone is achieved or exceeded for the Performance
Period. The measure for the number of Restricted Stock Units vesting will be based on the
Company’s cash EPS growth rate.
“EPS” is a measure that is calculated by dividing the Company’s cash earnings during the
Performance Period by the number of its weighted average diluted shares outstanding on the last day
of the Performance Period. The cash EPS growth rate will be calculated using the difference
between 2005 cash EPS and 2006 cash EPS as approved by the Board.
1
The number of Restricted Stock Units vesting (if any) will be determined in accordance with
the following chart:
| Alliance Data Cash | ||||||||
| EPS Growth Rate | % of Target PBRSU Award | |||||||
| (1-yr Chg in EPS) | Earned | |||||||
36% and up |
Maximum | 200 | % | |||||
35% |
194 | % | ||||||
34% |
189 | % | ||||||
33% |
183 | % | ||||||
32% |
178 | % | ||||||
31% |
172 | % | ||||||
30% |
167 | % | ||||||
29% |
161 | % | ||||||
28% |
156 | % | ||||||
27% |
150 | % | ||||||
26% |
144 | % | ||||||
25% |
139 | % | ||||||
24% |
133 | % | ||||||
23% |
128 | % | ||||||
22% |
122 | % | ||||||
21% |
117 | % | ||||||
20% |
111 | % | ||||||
19% |
106 | % | ||||||
18% |
Target | 100 | % | |||||
17% |
94 | % | ||||||
16% |
88 | % | ||||||
15% |
81 | % | ||||||
14% |
75 | % | ||||||
13% |
69 | % | ||||||
12% |
63 | % | ||||||
11% |
56 | % | ||||||
10% |
Threshold | 50 | % | |||||
Below 10% |
0 | % | ||||||
The Committee shall have the discretion to reduce or eliminate the number of Restricted Stock
Units that will vest based on a subjective evaluation of the Participant’s performance. Any
Restricted Stock Units that do not vest, whether due to cash EPS performance or the exercise of
Committee discretion, will be forfeited.
2. No Other Changes. The parties agree that the Agreement is amended with respect to
Section 3(b) only and that all other terms and conditions remain as agreed to on the Grant Date.
2
3. Governing Law. This Agreement shall be construed and interpreted in accordance
with the laws of the State of Delaware without regard to its conflict of law principles.
*************************
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year
first above written.
| ALLIANCE DATA SYSTEMS | ||
| CORPORATION | ||
By:  |
||
| Transient C. Taylor | ||
| EVP, Human Resources | ||
| PARTICIPANT | ||
| NAME |
3
RESTRICTED STOCK UNIT AWARD AGREEMENT
UNDER THE ALLIANCE DATA SYSTEMS CORPORATION
2005 LONG-TERM INCENTIVE PLAN
UNDER THE ALLIANCE DATA SYSTEMS CORPORATION
2005 LONG-TERM INCENTIVE PLAN
THIS RESTRICTED STOCK UNIT AWARD AGREEMENT (the “Agreement”), made as of DATE (the “Grant
Date”) by and between Alliance Data Systems Corporation (the “Company”) and NAME (the
“Participant”) who is an employee of the Company or one of its Affiliates, evidences the grant by
the Company of an award of restricted stock units (the “Award”) to the Participant and the
Participant’s acceptance of the Award in accordance with the provisions of the Alliance Data
Systems Corporation 2005 Long-Term Incentive Plan (the “Plan”). The Company and the Participant
agree as follows:
1. Basis for Award. The Award is made under the Plan pursuant to Section 6(f) thereof
for service rendered to the Company by the Participant.
2. Restricted Stock Units Awarded.
(a) The Company hereby awards to the Participant, in the aggregate, AMOUNT Restricted Stock
Units which shall be subject to the conditions set forth in the Plan and this Agreement.
(b) Restricted Stock Units shall be evidenced by an account established and maintained for the
Participant, which shall be credited for the number of Restricted Stock Units granted to the
Participant. By accepting this Award, the Participant acknowledges that the Company does not have
an adequate remedy in damages for the breach by the Participant of the conditions and covenants set
forth in this Agreement and agrees that the Company is entitled to and may obtain an order or a
decree of specific performance against the Participant issued by any court having jurisdiction.
(c) Except as provided in the Plan or this Agreement, prior to vesting as provided in Sections
3 of this Agreement, the Restricted Stock Units will be forfeited by the Participant and all of the
Participant’s rights to stock underlying the Award shall immediately terminate without any payment
or consideration by the Company, in the event of a Participant’s termination of employment as
provided in Section 4 below.
3. Vesting.
(a) Subject to Sections 2 and 4 of this Agreement, the Award will vest upon attainment of the
Performance Goals set forth in Section 3(b) below; provided, that, the Participant
is then employed by the Company or an Affiliate. As soon as practicable after the Award vests and
consistent with Section 409A of the Code, payment shall be made in Stock (based upon the Fair
Market Value of the Stock on the day all restrictions lapse). The Committee shall cause a Stock
certificate to be delivered to the Participant or the Participant’s electronic account with respect
to such Stock free of all restrictions, or the Stock may be delivered electronically. Any number
of shares delivered shall be net of the number of shares withheld pursuant to Section 11.
4
(b) The restrictions described in this Agreement will lapse with respect to all or a portion
of the Restricted Stock Units on the date in 2007 (the “Vesting Date”) on which the Board
determines the Earnings Per Share (“EPS”) growth rate for the period that begins on January 1, 2006
and ends on December 31, 2006 (the “Performance Period”); provided, that, the
performance criteria set forth below have been achieved; provided, further,
that, the Participant is still employed by the Company on such Vesting Date. If the
Participant ceases to be employed by the Company at any time prior to the Vesting Date, the
unvested Restricted Stock Units shall automatically be forfeited upon such cessation of service.
The Restricted Stock Units will vest if the EPS milestone is achieved or exceeded for the
Performance Period. The amount of Restricted Stock Units vesting will occur based on the Company’s
EPS percentile ranking as compared to the S&P 500. EPS growth rate percentile within the S&P 500
will be determined by ranking the EPS for the Performance Period for each company that is in the
S&P 500 on the Grant Date and continues to be publicly traded on December 31, 2006.
“EPS” is a measure that is calculated by dividing a company’s net earnings during the
Performance Period by the number of its outstanding shares on the last day of the Performance
Period. EPS growth rate will be calculated using a methodology adopted by the Compensation
Committee of the Board of Directors.
Once each company’s EPS growth rate is calculated, the companies are ranked by percentile. The
amount of Restricted Stock Units vesting (if any) will then be determined in accordance with the
following chart:
5
| Alliance Data Systems | ||||||||
| Corporation Percentile | % of Target | |||||||
| Rank vs S&P 500 | PBRSU Award | |||||||
| (1-yr Chg in EPS) | Vested | |||||||
90 and up |
Maximum | 200 | % | |||||
89 |
193 | % | ||||||
88 |
187 | % | ||||||
87 |
180 | % | ||||||
86 |
173 | % | ||||||
85 |
167 | % | ||||||
84 |
160 | % | ||||||
83 |
153 | % | ||||||
82 |
147 | % | ||||||
81 |
140 | % | ||||||
80 |
133 | % | ||||||
79 |
127 | % | ||||||
78 |
120 | % | ||||||
77 |
113 | % | ||||||
76 |
107 | % | ||||||
75 |
Target | 100 | % | |||||
74 |
98 | % | ||||||
73 |
96 | % | ||||||
72 |
94 | % | ||||||
71 |
92 | % | ||||||
70 |
90 | % | ||||||
69 |
88 | % | ||||||
68 |
86 | % | ||||||
67 |
84 | % | ||||||
66 |
82 | % | ||||||
65 |
80 | % | ||||||
64 |
78 | % | ||||||
63 |
76 | % | ||||||
62 |
74 | % | ||||||
61 |
72 | % | ||||||
60 |
70 | % | ||||||
59 |
68 | % | ||||||
58 |
66 | % | ||||||
57 |
64 | % | ||||||
56 |
62 | % | ||||||
55 |
60 | % | ||||||
54 |
58 | % | ||||||
53 |
56 | % | ||||||
52 |
54 | % | ||||||
51 |
52 | % | ||||||
50 |
Threshold | 50 | % | |||||
49 and below |
0 | % | ||||||
The Committee shall have the discretion to reduce or eliminate the number of Restricted
Stock Units that will vest based on a subjective evaluation of the Participant’s performance. Any
6
Restricted Stock Units that do not vest, whether due to share price performance or the
exercise of Committee discretion, will be forfeited.
4. Termination of Employment. Unless otherwise determined by the Committee at time of
grant or thereafter or as otherwise provided in the Plan, any unvested portion of any outstanding
Award held by a Participant at the time of termination of employment or other service for any
reason will be forfeited upon such termination.
5. Company; Participant.
(a) The term “Company” as used in this Agreement with reference to employment shall include
the Company and its Affiliates, as appropriate.
(b) Whenever the word “Participant” is used in any provision of this Agreement under
circumstances where the provision should logically be construed to apply to the beneficiaries, the
executors, the administrators, or the person or persons to whom the Restricted Stock Units may be
transferred by will or by the laws of descent and distribution, the word “Participant” shall be
deemed to include such person or persons.
6. Adjustments; Change in Control.
(a) In the event that the Committee determines that any dividend or other distribution
(whether in the form of cash, Stock or other property), recapitalization, forward or reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase or exchange of Stock or
other securities, liquidation, dissolution, or other similar corporate transaction or event,
affects the Stock such that an adjustment is appropriate in order to prevent dilution or
enlargement of the rights of Participants under the Plan, then the Committee shall, in such manner
as it may deem equitable, adjust any or all of the number and kind of shares that may be issued in
respect of Restricted Stock Units. In addition, the Committee is authorized to make adjustments in
the terms and conditions of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, events described in the preceding sentence)
affecting the Company or any Affiliate or the financial statements of the Company or any Affiliate
or in response to changes in applicable laws, regulations, or accounting principles.
Notwithstanding the foregoing, no such adjustment shall be authorized with respect to Awards
subject to Section 6(g) of the Plan to the extent that such authority could cause such Awards to
fail to qualify as “qualified performance-based compensation” under Section 162(m)(4)(C) of the
Code.
(b) In connection with a Change in Control, the Committee may, in its sole discretion,
accelerate the vesting with respect to the Award. If the Award is not assumed, substituted for an
award of equal value, or otherwise continued after a Change in Control, the Award shall
automatically vest prior to the Change in Control at a time designated by the Committee. Timing of
any payment or delivery of shares of Stock under this provision shall be subject to Section 409A of
the Code.
(c) All outstanding Restricted Stock Units shall immediately vest upon a termination of
employment by the Company without Cause, within twelve months after a Change in Control.
7
7. Clawback. Notwithstanding anything in the Plan or this Agreement to the contrary,
in the event that the Participant breaches any nonsolicitation agreement entered into with, or
while acting on behalf of, the Company or any Affiliate, the Committee may (a) cancel the Award, in
whole or in part, whether or not vested, and/or (b) if such conduct or activity occurs within one
year following the vesting of any portion of the Award, require the Participant to repay to the
Company any shares received with respect to the Award (with such shares valued as of the vesting
date). Such cancellation or repayment obligation shall be effective as of the date specified by
the Committee. Any repayment obligation may be satisfied in shares of Stock or cash or a
combination thereof (based upon the Fair Market Value of the shares of Stock on the date of
repayment) and the Committee may provide for an offset to any future payments owed by the Company
or any Affiliate to the Participant if necessary to satisfy the repayment obligation;
provided, however, that if any such offset is prohibited under applicable law, the
Committee shall not permit any offsets and may require immediate repayment by the Participant.
8. Compliance with Law. Notwithstanding any of the provisions hereof, the Company
will not be obligated to issue or transfer any Stock to the Participant hereunder, if the exercise
thereof or the issuance or transfer of such Stock shall constitute a violation by the Participant
or the Company of any provisions of any law or regulation of any governmental authority. Any
determination in this connection by the Committee shall be final, binding and conclusive. The
Company shall in no event be obliged to register any securities pursuant to the Securities Act of
1933 (as now in effect or as hereafter amended) or to take any other affirmative action in order to
cause the issuance or transfer of Stock pursuant thereto to comply with any law or regulation of
any governmental authority.
9. No Right to Continued Employment. Nothing in this Agreement or in the Plan shall
confer upon the Participant any right to continue in the employ of the Company or shall interfere
with or restrict in any way the rights of the Company, which are hereby expressly reserved, to
discharge the Participant at any time for any reason whatsoever, with or without Cause.
Participant acknowledges and agrees that the continued vesting of the Restricted Stock Units
granted hereunder is premised upon attainment of the performance goals set forth herein and vesting
of such Restricted Stock Units shall not accelerate upon his termination of employment for any
reason unless specifically provided for herein.
10. Representations and Warranties of Participant. The Participant represents and
warrants to the Company that:
(a) Agrees to Terms of the Plan. The Participant has received a copy of the Plan and
has read and understands the terms of the Plan and this Agreement, and agrees to be bound by their
terms and conditions. In the event of a conflict or inconsistency between the terms and provisions
of the Plan and the provisions of this Agreement, the Plan shall govern and control. All
capitalized terms not defined herein shall have the meaning ascribed to them as set forth in the
Plan. The Participant acknowledges that there may be adverse tax consequences upon the vesting of
Restricted Stock Units or later disposition of the shares of Stock once the Award has vested, and
that the Participant should consult a tax adviser prior to such time.
(b) Cooperation. The Participant agrees to sign such additional documentation as may
reasonably be required from time to time by the Company.
8
11. Taxes and Share Withholding. At such time as the Participant has taxable income
in connection with an Award (a “Taxable Event”), the Company will require the withholding of a
portion of shares then issuable to the Participant having an aggregate Fair Market Value equal to,
but not in excess an amount equal to, the minimum federal, state and local income taxes and other
amounts as may be required by law to be withheld by the Company in connection with the Taxable
Event.
12. Notice. Every notice or other communication relating to this Agreement shall be
in writing, and shall be mailed to or delivered to the party for whom it is intended at such
address as may from time to time be designated by it in a notice mailed or delivered to the other
party as herein provided; provided, that, unless and until some other address be so
designated, all notices or communications by the Participant to the Company shall be mailed or
delivered to the Company at its principal executive office, and all notices or communications by
the Company to the Participant may be given to the Participant personally or may be mailed to him
or her at his or her address as recorded in the records of the Company. Notwithstanding the
foregoing, at such time as the Company institutes a policy for delivery of notice by e-mail, notice
may be given in accordance with such policy.
13. Governing Law. This Agreement shall be construed and interpreted in accordance
with the laws of the State of Delaware without regard to its conflict of law principles.
14. Electronic Transmission. The Company reserves the right to deliver any notice or
Award by email in accordance with its policy or practice for electronic transmission and any
written Award or notice referred to herein or under the Plan may be given in accordance with such
electronic transmission policy or practice.
* * * * * *
9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year
first above written.
| ALLIANCE DATA SYSTEMS | ||
| CORPORATION | ||
| By: |
||
| Transient C. Taylor | ||
| EVP, Human Resources | ||
| PARTICIPANT | ||
| NAME |
10