Item 1.01. Entry into a Material Definitive Agreement
Completion of Separation of Loyalty Ventures from ADS
On November 5, 2021 (the “Distribution Date”), after the Nasdaq Global Select Market
closing, the previously-announced separation (the “Separation”) of Loyalty Ventures Inc. (“Loyalty Ventures”) from Alliance Data Systems Corporation (“ADS”) was completed. The separation of Loyalty Ventures, which comprises the LoyaltyOne segment
of ADS, was achieved through ADS’ distribution (the “Distribution”) of 81% of the shares of Loyalty Ventures common stock to holders of ADS common stock as of the close of business on the record date of October 27, 2021 (the “Record Date”). ADS
stockholders of record received one share of Loyalty Ventures common stock for every two and a half shares of ADS common stock. Following the Distribution, Loyalty Ventures became an independent, publicly-traded company and ADS retains a 19%
ownership interest in Loyalty Ventures.
In connection with the Separation, ADS entered into several agreements with Loyalty Ventures on November 3, 2021
with respect to the Separation and Distribution Agreement and November 5, 2021 as to the remainder that, among other things, effect the Separation and provide a framework for Loyalty Ventures’ relationship with ADS after the Separation, including
the following agreements:
Separation and Distribution Agreement
The Separation and Distribution
Agreement governs the overall terms of the Separation. Generally, the Separation and Distribution Agreement includes ADS’ and Loyalty Ventures’ agreements relating to the restructuring steps taken to complete the Separation, including the
assets and rights transferred, liabilities assumed and related matters.
The Separation and Distribution Agreement provides for ADS and Loyalty
Ventures to transfer specified assets between the companies that operate the LoyaltyOne segment of ADS after the Distribution, on the one hand, and ADS’ remaining businesses, on the other hand. The Separation and Distribution Agreement requires
ADS and Loyalty Ventures to use commercially reasonable efforts to obtain consents and approvals required to assign the assets and liabilities transferred pursuant to the Separation and Distribution Agreement.
Unless otherwise provided in the Separation and Distribution Agreement or any
of the related ancillary agreements, all assets were transferred on an “as is, where is” basis. Generally, if the transfer of any assets or any claim or right or benefit arising thereunder required a consent that was not obtained before the
Distribution, or if the transfer or assignment of any such asset or such claim or right or benefit arising thereunder was ineffective or adversely affected the rights of the transferor thereunder, the party retaining any asset that otherwise
would have been transferred shall hold such asset in trust for the use and benefit of the party entitled thereto and retain such liability for the account of the party by whom such liability is to be assumed, and take such other action in order
to place such party, insofar as reasonably possible, in the same position as would have existed had such asset or liability been transferred prior to the Distribution.
In addition, the Separation and Distribution Agreement governs the treatment of indemnification, insurance and
litigation responsibility and management. Generally, the Separation and Distribution Agreement provides for uncapped cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of the LoyaltyOne
business with Loyalty Ventures and financial responsibility for the obligations and liabilities of ADS’ retained businesses with ADS. The Separation and Distribution Agreement also establishes procedures for handling claims subject to
indemnification and related matters.
The Tax Matters Agreement governs ADS’ and Loyalty Ventures’ respective rights,
responsibilities and obligations with respect to taxes, including taxes arising in the ordinary course of business, and taxes, if any, incurred as a result of the failure of the Distribution (and certain related transactions) to qualify for
tax-free treatment for U.S. federal income tax purposes. The Tax Matters Agreement also sets forth the respective obligations of the parties with respect to the filing of tax returns, the administration of tax contests and assistance and
cooperation on tax matters.
In general, the Tax Matters Agreement governs the rights and obligations that ADS and Loyalty Ventures have after
the Separation with respect to taxes for both pre- and post-Separation periods. Under the Tax Matters Agreement, ADS generally is responsible for all of the pre-Separation taxes of Loyalty Ventures and its subsidiaries (“Loyalty Ventures Group”)
and is entitled to all the Loyalty Ventures Group’s pre-Separation refunds, and Loyalty Ventures is generally responsible for all post-Separation taxes with respect to the Loyalty Ventures Group.
The Tax Matters Agreement further provides that:
In addition to the indemnification obligations described above, the indemnifying party is generally required to
indemnify the indemnified party against any interest, penalties, additions to tax, losses, assessments, settlements or judgments arising out of or incident to the event giving rise to the indemnification obligation, along with costs incurred in
any related contest or proceeding.
Further, the Tax Matters Agreement generally prohibits Loyalty Ventures and Loyalty Ventures’ affiliates from taking
certain actions that could cause the Separation and certain related transactions to fail to qualify for their intended tax treatment, including during the two-year period following the date of the Distribution:
In the event that the Separation and certain related transactions fail to qualify for their intended tax treatment,
in whole or in part, and ADS is subject to tax as a result of such failure, the Tax Matters Agreement will determine whether ADS must be indemnified for any such tax by Loyalty Ventures. As a general matter, under the terms of the Tax Matters
Agreement, Loyalty Ventures is required to indemnify ADS for any tax-related losses in connection with the Separation due to any action by Loyalty Ventures or any of Loyalty Ventures’ subsidiaries following the Separation. Therefore, in the event
that the Separation and/or related transactions fail to qualify for their intended tax treatment due to any action by Loyalty Ventures or any of Loyalty Ventures’ subsidiaries, Loyalty Ventures will generally be required to indemnify ADS for the
resulting taxes.
Transition Services Agreement
The Transition Services Agreement sets forth the terms on which each of
Loyalty Ventures and ADS will provide certain historically shared services to the other, on a transitional basis. Transition services will include various corporate, administrative and information technology services. Both parties are obligated,
subject to certain customary exceptions, to provide such services (“TSA Services”) in substantially the same manner as such services have been provided during the 12-month period prior to the distribution. Subject to certain conditions, and upon
the mutual agreement of the parties, certain additional TSA Services may be included under the agreement. The service provider is obligated to use its reasonable best efforts to obtain any third-party consents necessary to provide the TSA
Services, and shall bear the one-time costs of obtaining any such required consents.
The terms for which such TSA Services must be provided vary on a
service-by-service basis, generally ranging from three months to two years. Subject to certain conditions, the term of certain TSA Services may be extended (up to a certain maximum duration) upon the service recipient’s request and the service
recipient may terminate certain of the TSA Services, or any portion thereof, upon 60 days’ prior written notice to the service provider. The TSA Service agreement may be terminated by either party in the event of an uncured material breach of the
other party or if the other party becomes subject to certain insolvency events.
The fees for such TSA Services also vary on a service-by-service basis, and
or certain TSA services include both a service fee and a FTE fee. Additionally, the service recipient is obligated to pay certain service recipient-funded payments. Each party shall indemnify the other party for claims arising from gross
negligence, fraud or willful misconduct. Subject to certain customary exceptions, each party’s liability is capped at the amount of fees actually paid by the other party as service recipient under the agreement.
Employee Matters Agreement
The Employee Matters Agreement governs each of ADS and Loyalty Ventures’ respective compensation and benefit
obligations with respect to current and former employees, directors and consultants. The Employee Matters Agreement sets forth general principles relating to employee matters in connection with the Separation, such as the assignment of employees,
the assumption and retention of liabilities and related assets, expense reimbursements, workers’ compensation, leaves of absence, the provision of comparable benefits, employee service credit, the sharing of employee information and duplication
or acceleration of benefits.
The Employee Matters Agreement generally allocates liabilities and responsibilities relating to employment,
compensation and benefits-related matters, with (i) ADS generally retaining liabilities (both pre- and post-Distribution) and responsibilities with respect to (a) ADS employees and participants who will remain with (or who will otherwise transfer
to) ADS and former employees who were last actively employed by ADS primarily in its business and (b) benefit plans and programs sponsored by ADS and (ii) Loyalty Ventures generally assuming liabilities (both pre- and post-Distribution) and
responsibilities with respect to (a) employees and participants who will transfer with or be hired by Loyalty Ventures in connection with the Separation and former employees who were last actively employed primarily with Loyalty Ventures and (b)
benefit plans and programs sponsored by Loyalty Ventures. The Employee Matters Agreement provides that, , subject to the terms of the Transition Services Agreement, following the Distribution, Loyalty Ventures active employees generally will no
longer participate in benefit plans sponsored or maintained by ADS and will commence participation in Loyalty Ventures benefit plans.
In addition, during the period beginning on the Distribution and ending on the date that the Transition Services
Agreement is terminated, each of ADS and Loyalty Ventures will be subject to mutual no-hire and non-solicit restrictions, subject to certain exceptions set forth in the Employee Matters Agreement.
Effective on or prior to the Distribution, except as otherwise expressly
provided in the Employee Matters Agreement, the Transition Services Agreement or otherwise agreed between ADS and Loyalty Ventures, the employment of each non-U.S. Loyalty Ventures employee will be continued by Loyalty Ventures and each U.S.
Loyalty Ventures employee will, immediately following the Distribution, terminate employment with ADS and immediately commence employment with Loyalty Ventures or one of its subsidiaries, and Loyalty Ventures or one of its subsidiaries will
generally assume responsibility for any individual employment, retention, severance or similar agreements applicable to such Loyalty Ventures employee. Any employees who transfer to or are hired by Loyalty Ventures following the Distribution Date
(including in connection with any transition services) will be deemed a Loyalty Ventures employee as of the date of such transfer or hire, and any employees who transfer from Loyalty Ventures to ADS following the Distribution (including in
connection with any transition services) will be deemed an ADS employee as of the date of such transfer.
Each Loyalty Ventures employee participating in a cash bonus plan maintained
by ADS in respect of the 2021 fiscal year will be credited with service for any time the Loyalty Ventures employee provided services to ADS between January 1, 2021 and the Distribution, subject to the terms of the applicable bonus plan and actual
achievement of applicable performance goals determined as of the end of the performance period. The actual fiscal year 2021 cash bonuses payable to Loyalty Ventures employees will be paid by Loyalty Ventures in accordance with the terms of the
applicable ADS cash bonus plan, and ADS will reimburse Loyalty Ventures for the aggregate cost of the fiscal year 2021 bonuses in respect of the period beginning on January 1, 2021 and ending on the Distribution paid by Loyalty Ventures to
Loyalty Ventures employees.
The Employee Matters Agreement also sets forth the treatment of any outstanding equity awards. Specifically, in
connection with the Separation, (i) outstanding ADS equity awards held by individuals who will continue to be employed by or provide services to ADS employees will be equitably adjusted to reflect the difference in the value of ADS common stock
before and after the Distribution in a manner that is intended to preserve the overall intrinsic value of the awards by taking into account the relative value of ADS common stock before and after the Distribution, and (ii) outstanding Loyalty
Ventures equity awards held by individuals who are then-currently employed by or otherwise providing services to Loyalty Ventures, or whose employment or engagement will be transferred to or will commence with Loyalty Ventures in connection with
the Separation, will (i) to the extent granted more than one year prior to the date of record, immediately vest and be settled in shares of ADS common stock and (ii) to the extent granted less than one year prior to the Distribution Date be
forfeited and, as soon as reasonably practicable following the Distribution be replaced with a combination of new equity and cash awards and a cash payment, in each case in accordance with the terms of the Employee Matters Agreement in a manner
intended to equitably preserve the overall intrinsic value of the ADS equity awards by taking into account the relative value of ADS common stock before the Distribution and the value of Loyalty Ventures common stock after the Distribution.
The Employee Matters Agreement also
provides that the Distribution does not constitute a change in control under ADS’ or Loyalty Ventures’ plans, programs, agreements or arrangements.
Registration Rights Agreement
The Registration Rights Agreement provides ADS with certain customary demand registration, shelf takedown and
piggyback registration rights with respect to its shares of Loyalty Ventures’ common stock, subject to certain customary limitations.