FIRST USA PAYMENTECH INC, 424B4, 1996-12-16

FIRST USA PAYMENTECH INC
424B4, 1996-12-16
BUSINESS SERVICES, NEC

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<PAGE>
Filed pursuant to Rule 424(b)(4) as per Rule 424(e)
Registration No. 33-15861

PROSPECTUS
6,800,000 SHARES

LOGO
[of First USA]

COMMON STOCK

--------------

Of the 6,800,000 shares of Common Stock (the "Common Stock") offered hereby,
2,800,000 shares are being issued and sold by First USA Paymentech, Inc. (the
"Company") and 4,000,000 shares are being sold by a subsidiary (the "Selling
Stockholder") of First USA, Inc. ("First USA"). See "Principal Stockholders
and Selling Stockholder". Of the shares of Common Stock offered hereby,
1,360,000 shares initially are being offered outside the United States and
Canada by the International Managers (the "International Offering") and
5,440,000 shares initially are being offered in a concurrent offering in the
United States and Canada by the U.S. Underwriters (the "U.S. Offering" and,
together with the International Offering, the "Offerings"). The public
offering price and the underwriting discount per share are identical for both
of the Offerings. See "Underwriting".

The Common Stock is traded on the New York Stock Exchange under the symbol
"PTI". On December 12, 1996, the last reported sale price of the Common Stock
on the New York Stock Exchange was $34 5/8 per share. See "Price Range of
Common Stock".

First USA owns approximately 77% of the outstanding Common Stock. Upon
completion of the Offerings, First USA will own 20,411,081 shares of Common
Stock, which will represent approximately 59% of the outstanding Common Stock
assuming no exercise of the Underwriters' over-allotment options, or
19,811,081 shares of Common Stock, which will represent approximately 57% of
the outstanding Common Stock, if the Underwriters' over-allotment options are
exercised in full. The Company will use its net proceeds from the Offerings
for general corporate purposes, including repayment of indebtedness. The
Company will not receive any proceeds from the sale of shares by the Selling
Stockholder. See "Use of Proceeds". The Company, First USA and the directors
and executive officers of the Company have agreed, following completion of the
Offerings, not to issue, offer, sell, contract to sell or otherwise dispose of
any shares of Common Stock or securities convertible into or exchangeable or
exercisable for Common Stock without the prior written consent of Merrill
Lynch, Pierce, Fenner & Smith Incorporated for a period of 120 days after the
date of this Prospectus, except that the Company may, without such consent,
grant options or issue shares of Common Stock pursuant to its employee benefit
plans and may in certain circumstances issue shares of Common Stock in
connection with acquisitions.

FOR INFORMATION CONCERNING CERTAIN FACTORS THAT SHOULD BE CAREFULLY
CONSIDERED BY PROSPECTIVE INVESTORS, SEE "RISK FACTORS" SET FORTH ON PAGES 8
THROUGH 10 HEREIN.

--------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2) SELLING STOCKHOLDER
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............ $34.00 $1.44 $32.56 $32.56
- -------------------------------------------------------------------------------
Total(3)............. $231,200,000 $9,792,000 $91,168,000 $130,240,000
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) The Company and the Selling Stockholder have agreed to indemnify the
several Underwriters against certain liabilities under the Securities Act
of 1933. See "Underwriting".
(2) Before deducting expenses payable by the Company estimated at $750,000.
(3) The Company has granted the International Managers and the U.S.
Underwriters 30-day options to purchase up to 84,000 and 336,000
additional shares of Common Stock, respectively, solely to cover over-
allotments, if any. The Selling Stockholder has granted the International
Managers and the U.S. Underwriters 30-day options to purchase up to
120,000 and 480,000 additional shares of Common Stock, respectively,
solely to cover over-allotments, if any. If all such additional shares are
purchased, the total Price to Public, Underwriting Discount, Proceeds to
Company and Proceeds to Selling Stockholder will be $265,880,000,
$11,260,800, $104,843,200, and $149,776,000, respectively. See
"Underwriting".

--------------

The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, and subject to
the approval of certain legal matters by counsel for the Underwriters and
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of certificates for the shares will be made in New
York, New York on or about December 18, 1996.

--------------
MERRILL LYNCH INTERNATIONAL
MONTGOMERY SECURITIES
SMITH BARNEY INC.

ABN AMRO ROTHSCHILD BARCLAYS DE ZOETE WEDD LIMITED CREDIT LYONNAIS SECURITIES

DEUTSCHE MORGAN GRENFELL J.P. MORGAN SECURITIES LTD.

--------------

The date of this Prospectus is December 12, 1996.
<PAGE>

IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall encompass any
amendment thereto) on Form S-1 under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement,
certain items of which are omitted from the Prospectus as permitted by the
rules and regulations promulgated by the Commission. For further information
with respect to the Company and the Common Stock offered in the Offerings,
reference is hereby made to the Registration Statement and the exhibits
thereto. Statements made in this Prospectus as to the provisions of any
contract, agreement or other document referred to are not necessarily
complete. With respect to each such statement as to a contract, agreement or
other document filed as an exhibit to the Registration Statement, reference is
made to the exhibit for a more complete description of the matter involved,
and each such statement shall be deemed qualified in its entirety by such
reference.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Commission. The
Registration Statement and the exhibits thereto, as well as any such reports
and other information to be filed by the Company with the Commission, may be
inspected and copied at the public reference facilities of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices at 7 World Trade Center, Suite 1300, New York, New York 10048 and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can be obtained from the public reference section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
Commission also maintains a site on the World Wide Web, the address of which
is http://www.sec.gov, that contains reports, proxy and information statements
and other information regarding issuers, such as the Company, that file
electronically with the Commission. Such reports and other information may
also be inspected at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.

2
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements
appearing elsewhere in this Prospectus. Unless the context indicates otherwise,
all references in this Prospectus to the Company include the Company and its
subsidiaries, all references to First USA include First USA and its
subsidiaries, and all references to the number of shares of Common Stock and
per share amounts (i) assume that the over-allotment options granted to the
Underwriters are not exercised and (ii) assume that outstanding employee and
director stock options are not exercised. See "Management--Executive
Compensation" and "--Compensation of Outside Directors". Without giving effect
to the Offerings, the Company is approximately 77% owned by First USA
Financial, Inc. ("First USA Financial"), itself a wholly owned subsidiary of
First USA. Upon completion of the Offerings, First USA will own 20,411,081
shares of Common Stock, which will represent approximately 59% of the
outstanding Common Stock, assuming no exercise of the Underwriters' over-
allotment options, or 19,811,081 shares of Common Stock, which will represent
approximately 57% of the outstanding Common Stock, if the Underwriters' over-
allotment options are exercised in full. Unless the context otherwise requires,
references in this Prospectus will refer to First USA instead of First USA
Financial as the parent and majority stockholder of the Company.

THE COMPANY

First USA Paymentech, Inc. (the "Company") is a Delaware corporation, which
engages in the credit card industry primarily as a payment processor of credit
and debit card transactions on behalf of merchants, financial institutions and
sales agents. According to published industry sources, the Company is the third
largest payment processor of bankcard transactions in the United States. During
fiscal 1996, the Company processed approximately $30.9 billion in sales volume
in approximately 574 million bankcard transactions. In addition, the Company
markets and issues commercial cards to businesses and other entities.
Commercial cards facilitate business-to-business payment procedures and
reporting, replacing traditional direct payment methods. Through its recently
acquired subsidiary GENSAR Holdings Inc ("GENSAR"), the Company also provides
third party credit and debit authorization services to financial institutions,
sales agents and the Company's direct merchants. See "--Recent Acquisition".
During the three months ended September 30, 1996, the Company processed
approximately $9.0 billion in sales volume in approximately 264 million total
transactions, which included GENSAR volume following the acquisition.

The Company processes credit and debit card transactions for merchants that
accept credit and debit cards as payment for goods or services. The Company
primarily derives its payment processing net revenue from fee income. The
Company views the ten largest payment processors in the United States as its
primary competitors. According to published industry sources, the ten largest
payment processors processed approximately 70% of the total bankcard sales
volume processed for the calendar year 1995. The Company is the third largest
payment processor of bankcard transactions in the United States, according to
published industry sources, and estimates that it currently processes
approximately 7% of total bankcard sales volume.

The Company primarily markets its payment processing services directly to
merchants using its direct sales force of sales representatives located in
offices throughout the country. The sales and customer support departments are
segmented by geography and line of business. The Company believes that the
alignment of services by these factors facilitates the sales cycle and leads to
increased customer satisfaction. Direct merchants represent a substantial
majority of the Company's processing volume, accounting for 84% of sales volume
processed during the three months ended September 30, 1996. Direct merchants
are the most profitable segment of the Company's merchant portfolio.

In addition, the Company markets its payment processing services indirectly
through financial institutions and sales agents which in turn market to
merchants. The Company believes that this strategy results in greater
penetration and wider distribution than would result solely from selling
directly to merchants.

3
<PAGE>

The Company serves a diverse portfolio of merchants that are concentrated in
a number of industries. The largest industry categories as of June 30, 1996
were retail (34%), direct response marketing (33%), travel and entertainment
(14%) and petroleum and convenience stores (12%). The Company provides
transaction processing for large national accounts, as well as for many
smaller, regional merchants. No one merchant represents in excess of 5% of the
Company's annual sales volume processed.

The Company employs an operating strategy of investing in technology and
product development and enhancement in order to improve its position in the
industry, while providing comprehensive service and support to its existing
customer base. The Company believes that this strategy lowers costs, generates
new sales and reduces customer attrition.

The Company, through its wholly owned subsidiary, First USA Financial
Services, Inc. ("Financial Services"), began in September 1995 to actively
market and issue commercial cards that facilitate business-to-business payment
procedures and reporting. Its product offerings include corporate cards
designed for use by medium to large companies for travel and entertainment
expenditures, purchasing cards designed for use by medium to large companies in
purchasing equipment, supplies and services and business cards designed for use
by small to medium companies for routine business purchases, including travel
and entertainment expenditures and equipment and supply purchases. Commercial
card revenue derives primarily from Visa and MasterCard interchange income, fee
income and interest income. The Company's current operating and growth
strategies are to aggressively market its cards and develop customer
relationships which will provide strategic business opportunities for growth.

RECENT ACQUISITION

On August 19, 1996, the Company purchased for approximately $170 million all
of the outstanding common stock of GENSAR and its wholly owned subsidiaries,
GENSAR Technologies Inc and GENSAR Merchant Processing Inc. GENSAR is one of
the nation's largest providers of third party credit and debit authorization
services to financial institutions, sales agents and direct merchants,
processing approximately 300 million transactions during the twelve months
ended June 30, 1996. Prior to its acquisition, GENSAR engaged in the payment
processing business and maintained a payment processing portfolio with
approximately $1 billion in annual sales volume.

The acquisition of GENSAR enables the Company to offer third party credit and
debit authorization services to financial institutions and sales agents. GENSAR
also enables the Company to directly provide its existing customers with a full
array of point-of-sale products and services that were previously primarily
outsourced. As a result of the GENSAR acquisition, the Company expects to (1)
realize cost savings through vertical integration of formerly outsourced
services, (2) enhance existing products and services and (3) generate new
revenue by establishing itself as a third-party processor.

During the first quarter of fiscal 1997, the Company recorded a one-time
merger, integration and impairment charge related to the GENSAR acquisition of
$15.5 million, or $9.7 million and $0.30 per share on an after-tax basis. The
charge includes costs related to the conversion from third-party authorization
networks to GENSAR's authorization network, the closure of certain offices and
employee severance.

4
<PAGE>

THE OFFERINGS

<TABLE>
<S> <C>
Common Stock Offered by the
Company:
U.S. Offering.................... 2,240,000 shares
International Offering........... 560,000 shares
Total.......................... 2,800,000 shares
Common Stock Offered by the Selling
Stockholder:
U.S. Offering.................... 3,200,000 shares
International Offering........... 800,000 shares
Total.......................... 4,000,000 shares
Total Common Stock Offered......... 6,800,000 shares
Common Stock to be Outstanding
after the Offerings(1)............ 34,513,501 shares
Common Stock to be Owned by First
USA after the Offerings........... 20,411,081 shares
Estimated Net Proceeds to the
Company from the Offerings(2)..... $90,418,000
Estimated Net Proceeds to the
Selling Stockholder from the
Offerings(3)...................... $130,240,000
Use of Proceeds.................... The net proceeds to the Company from the
Offerings will be used for general
corporate purposes, including repayment of
indebtedness. See "Use of Proceeds".
NYSE Symbol........................ PTI
</TABLE>
- --------
(1) Excludes 1,311,900 shares issuable upon exercise of outstanding employee
and director stock options, 276,580 of which are presently exercisable. See
"Management--Executive Compensation" and "--Compensation of Outside
Directors".
(2) Reflects the sale of shares of Common Stock by the Company in the Offerings
at the offering price of $34.00 per share (less the underwriting discount
and associated expenses). The Company will not receive any proceeds from
the sale of shares of Common Stock by the Selling Stockholder.
(3) Reflects the sale of shares of Common Stock by the Selling Stockholder in
the Offerings at the offering price of $34.00 per share (less the
underwriting discount).

5
<PAGE>

RISK FACTORS

Prior to making an investment decision, prospective purchasers should
consider all of the information set forth in this Prospectus and, in
particular, should evaluate the factors set forth in "Risk Factors".

RELATIONSHIP WITH FIRST USA

First USA currently owns approximately 77% of the outstanding Common Stock.
Upon completion of the Offerings, First USA will own 20,411,081 shares of
Common Stock, which will represent approximately 59% of the outstanding Common
Stock, assuming no exercise of the Underwriters' over-allotment options, or
19,811,081 shares of Common Stock, which will represent approximately 57% of
the outstanding Common Stock, if the Underwriters' over-allotment options are
exercised in full. Following completion of the Offerings, First USA will
continue to own a substantial number of the outstanding shares of Common Stock
and will have substantial influence over the election of the Company's Board of
Directors and over the business and affairs of the Company. See "Risk Factors--
Significant Equity Position of First USA" and "Description of Capital Stock--
Preferred Stock". The Company maintains operations, employees and contracts
substantially independent of First USA's other operating subsidiaries. However,
the Company and First USA are parties to an agreement pursuant to which First
USA has agreed to provide the Company with certain administrative services,
access to insurance coverage and certain benefit plans, and the use of
trademarks and certain facilities. The Company also is a party to a tax sharing
agreement and a registration rights agreement with First USA. First USA is
selling its shares in the Offerings pursuant to "piggy-back" rights under the
registration rights agreement. See "Relationship with First USA".

6
<PAGE>

SUMMARY FINANCIAL INFORMATION

The following table sets forth consolidated summary financial data and other
operating data of the Company as of and for the three fiscal years ended June
30, 1996 and as of and for the three months ended September 30, 1996 and 1995
which have been derived from financial information appearing elsewhere in this
Prospectus. The following table also sets forth summary pro forma financial
information for the three months ended September 30, 1996 and the fiscal year
ended June 30, 1996. See "Selected Financial Information".

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------ ----------------------------------
1996 1995 1994 1996 1995
----------------------- ----------- ----------- ---------------------- ----------
PRO PRO
ACTUAL FORMA(1) ACTUAL FORMA(1)
----------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net revenue............. $121,232 $145,714 $86,628 $63,749 $39,634 $42,046 $23,825
Other operating
expenses............... 92,548 113,742 72,518 53,438 27,773 29,980 21,334
Depreciation and
amortization........... 7,669 16,042 4,210 1,794 3,624 4,326 1,512
Merger, integration and
impairment............. -- -- -- -- 15,544 15,544 --
----------- ----------- ----------- ----------- ---------- ---------- ----------
Income (loss) from
operations............. 21,015 15,930 9,900 8,517 (7,307) (7,804) 979
Net interest income
(expense).............. 2,737 (4,512) 1,310 323 1,249 601 278
----------- ----------- ----------- ----------- ---------- ---------- ----------
Income (loss) before
income taxes........... 23,752 11,418 11,210 8,840 (6,058) (7,203) 1,257
Income tax provision
(benefit).............. 9,500 5,228 3,290 2,489 (2,774) (3,213) 568
----------- ----------- ----------- ----------- ---------- ---------- ----------
Net income (loss)...... $14,252 $6,190 $7,920 $6,351 $(3,284) $(3,990) $689
=========== =========== =========== =========== ========== ========== ==========
Net income (loss) per
share................. $0.54 $0.23 $0.32 $0.26 $(0.10) $(0.12) $0.03
=========== =========== =========== =========== ========== ========== ==========
Pro forma net loss per
share(2).............. $(0.09) $(0.10)
========== ==========
BALANCE SHEET DATA:
Purchased merchant
portfolios and
goodwill, net.......... $88,894 -- $40,024 $3,930 $298,743 -- $73,592
Total assets............ 290,221 -- 84,038 37,805 488,547 -- 143,699
Loan payable to First
USA.................... -- -- 4,000 -- 25,000 -- 38,064
Stockholders' equity.... 231,064 -- 47,232 14,728 227,832 -- 63,672
OTHER DATA:
Sales volume processed.. $30,875,857 $31,624,813 $20,059,066 $18,425,550 $9,019,655 $9,111,608 $6,041,554
Bankcard items
processed(3)........... 574,157 585,958 358,705 321,791 177,523 179,113 110,352
Total items
processed(3)........... NA NA NA NA 263,615 297,196 NA
</TABLE>
- --------
(1) On August 19, 1996, the Company purchased for approximately $170 million in
cash all of the outstanding stock of GENSAR. The unaudited pro forma
statement of income data for the three months ended September 30, 1996 and
for fiscal 1996 give effect to the GENSAR transaction as if it had occurred
on July 1, 1995. Pro forma adjustments reflecting anticipated merger
benefits are not included.
(2) Pro forma to give effect, as of July 1, 1996, to the repayment of the loan
payable to First USA in the principal amount of $25 million from the
Company's net proceeds from the Offerings. In computing pro forma net
income per share, the Company has taken into account the decreased interest
expense as a result of the repayment of the loan to First USA.
(3) Bankcard items processed include bankcard transactions derived from the
Company's merchant portfolio. Total items processed include bankcard and
other credit and debit card transactions and credit and debit authorization
transactions. Comparable information for periods prior to the fiscal
quarter ended September 30, 1996 is not available.

7
<PAGE>

RISK FACTORS

Prior to making an investment decision, prospective investors should
consider carefully all of the information set forth in this Prospectus and, in
particular, should evaluate the following risk factors.

COMPETITION AND INDUSTRY CONSOLIDATION

The payment processing industry is highly competitive, especially among the
ten largest payment processors in the United States, which the Company views
as its primary competitors. According to published industry sources, the ten
largest payment processors processed approximately 70% of the total bankcard
sales volume processed for the calendar year 1995. The Company is the third
largest payment processor of bankcard transactions in the United States,
according to published industry sources, and estimates that it currently
processes approximately 7% of total bankcard sales volume. The Company also
competes with other providers of credit and debit authorization services. The
Company faces intense competition from numerous providers of payment
processing services who may employ various competitive strategies. Such
competition requires that the Company continue to invest resources in
technological developments and restricts the prices it can charge.

Due to the market's requirement that payment processors provide advanced and
efficient technology, certain financial institutions and other payment
processors have recently left the business or merged with other providers,
resulting in significant consolidation in the payment processing industry. The
Company believes the trend toward consolidation will continue as the
technological demand on processors continues to increase. Industry
consolidation has enabled a few of the Company's competitors to have access to
significant capital, management, marketing and technological resources that
are equal to or greater than those of the Company, and there can be no
assurance that the Company will continue to be able to compete successfully
with such payment processors.

In addition, competition in the industry has made it difficult for payment
processors to pass through increases in the interchange and assessments
charged by Visa and MasterCard, and as a result some payment processors have
absorbed increased fees to maintain their merchant bases. Although the
Company's agreements with its merchants contemplate that the Company will
charge all Visa and MasterCard interchange and assessments to merchants, there
can be no assurance that competitive pressures will not require that the
Company absorb all or a portion of such fee increases in the future, or that
the Company will be able to continue to pass along fee increases to merchants
when it negotiates the renewal of such agreements. Further tightening of
margins due to fee increases or other factors may result in financial
institutions and other payment processors abandoning the payment processing
business and thus accelerating industry consolidation.

The Company also competes against issuers of commercial cards that offer
highly competitive and attractive rates, including rates which are at or below
rates charged by the Company, in order to preserve market share.

CONTINGENT LIABILITIES THROUGH MERCHANTS

Under the rules of Visa, MasterCard and other credit and debit card
organizations, the payment processor has certain contingent liabilities for
the transactions it processes on behalf of merchants. If a cardholder
purchases a product or service and is dissatisfied after the purchase, the
cardholder may be able to return the product and demand a refund. If the
merchant, after having received payment from the payment processor, refuses to
pay the refund or properly provide the product or service, a chargeback
results. The obligation to fund the chargeback is the liability of the payment
processor if the merchant does not have sufficient funds to repay the
chargeback. In most cases, this contingent liability is unlikely because the
product or service is delivered when purchased and credit is issued on
returned items. For certain industries, such as the direct response marketing
industry, where the cardholder is not present to provide a signature, the
Company's contingent liability is greater. The Company minimizes its exposure
to such contingent liabilities by conducting a thorough credit review of its
merchants initially and on a regular basis to monitor risks. The Company also
has the ability to hold a merchant's daily settlement if fraudulent activity
is suspected. In addition, at September 30, 1996, the Company had cash
deposits from certain customers aggregating approximately $18.3 million as an
offset to potential contingent liabilities that are the responsibility of such
customers. These cash deposits are primarily related to merchants in the

8
<PAGE>

direct response marketing industry. See "Business--Payment Processing--
Credit". Credit losses incurred by the Company relating to such contingent
liabilities were approximately $240,000, $215,000, $640,000, $310,000 and
$390,000 for the three months ended September 30, 1996 and 1995 and during
fiscal 1996, 1995 and 1994, respectively. The Company's payment processing
operation is not exposed to cardholder credit losses.

SIGNIFICANT EQUITY POSITION OF FIRST USA

First USA is the owner of approximately 77% of the outstanding Common Stock.
Upon completion of the Offerings, First USA will own 20,411,081 shares of
Common Stock, which will represent approximately 59% of the outstanding Common
Stock, assuming no exercise of the Underwriters' over-allotment options, or
19,811,081 shares of Common Stock, which will represent approximately 57% of
the outstanding Common Stock, if the Underwriters' over-allotment options are
exercised in full. Following completion of the Offerings, First USA will
continue to own a substantial number of the outstanding shares of Common Stock
and will have substantial influence over the election of members of the
Company's Board of Directors and over the business and affairs of the Company,
including any determinations with respect to mergers or other business
combinations involving the Company, the acquisition or disposition of assets
by the Company, the incurrence of indebtedness by the Company, the issuance of
any additional Common Stock or other equity securities and the payment of any
dividends with respect to the Common Stock. In addition, First USA will have
substantial influence in approving matters submitted to a vote of the
Company's stockholders and in causing or preventing a change in control of the
Company. Moreover, all of the members of the Company's Board of Directors are
directors or key employees of First USA. See "Description of Capital Stock--
Certificate of Incorporation and By-law Provisions".

The Company and First USA are considering various arrangements that would be
intended to provide the Company with greater operating independence from First
USA. If the Company and First USA enter into such arrangements, this would
give the Company the status of a non-controlled subsidiary of First USA, and
under current Financial Accounting Standards Board rules would also permit the
Company to use the pooling-of-interest accounting method in certain
transactions two years after the non-control status had been achieved.
However, the Company and First USA intend to maintain a strategic alliance and
continue jointly to pursue mutually beneficial business opportunities.

CONFLICTS OF INTEREST WITH FIRST USA

There is currently substantial overlap in the Boards of Directors of First
USA and the Company. Certain conflicts of interest and disagreements between
First USA and the Company could arise in connection with the interpretation of
the various intercompany agreements entered into between First USA and the
Company in connection with the Company's March 1996 initial public offering of
Common Stock. See "Relationship with First USA". In addition, First USA,
through its wholly owned subsidiary First USA Bank, and the Company both own
or have interests in entities in the business of issuing credit cards.
Although First USA has advised the Company that it does not intend to offer
payment processing products or commercial cards in competition with the
Company, First USA is not contractually prohibited from offering such
products. As a result, conflicts of interest may arise between First USA and
the Company in connection with future payment processing and commercial card
opportunities. It is anticipated that these conflicts of interest, to the
extent that they arise, will be resolved by consultation with independent
financial and legal advisors and determinations made by disinterested
directors. Such conflicts of interest will, however, be more difficult to
resolve than would be the case if First USA and the Company did not have
overlapping directors and may be resolved in a manner which may appear to be
more favorable to one of the parties.

HOLDING COMPANY STRUCTURE

As a holding company, the Company is dependent on the cash flow from its
subsidiaries, received through dividends or other intercompany transfers of
funds, to service its debt and meet its operating expenses and other
obligations. However, Financial Services may pay dividends and make certain
other intercompany transfers of funds only up to amounts permitted by banking
regulations. See "Business--Regulation of Financial Services". Dividends from
subsidiaries, together with any net proceeds from the Offerings retained by
the Company for general corporate purposes, are expected, for the foreseeable
future, to be a significant source of the Company's

9
<PAGE>

liquidity. See "Use of Proceeds". Limitations on the availability to the
Company of dividends from its subsidiaries could adversely impact the
Company's liquidity.

ANTITAKEOVER PROVISIONS

The Company's Certificate of Incorporation and By-laws contain certain
provisions that may have the effect, either alone or in combination with each
other, of making more difficult or discouraging a business combination
involving the Company that is deemed undesirable by the Company's Board of
Directors, or of delaying or preventing changes in control or management of
the Company. Although such provisions may not have substantial practical
significance to investors while First USA maintains a significant equity
interest in the Company, such provisions could become significant should First
USA reduce its ownership interest in the Company such that First USA no longer
has a substantial influence over the management of the Company. See
"Description of Capital Stock--Certificate of Incorporation and By-law
Provisions".

REGULATION OF FINANCIAL SERVICES

As a Utah-chartered industrial loan corporation, the deposits of which are
insured by the Bank Insurance Fund ("BIF") of the Federal Deposit Insurance
Corporation (the "FDIC"), Financial Services is subject to regulation under
both state and federal law. The restrictions imposed by such laws and
regulations limit Financial Services' discretion in operating its businesses.
No assurance can be given that such laws and regulations will not be amended
or construed differently, or that new laws and regulations will not be
adopted, the effect of which could be to adversely affect the operations of
the Company. See "Business--Regulation of Financial Services".

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of Common Stock in the public market following
the Offerings, or the perception that such sales could occur, could adversely
affect prevailing market prices of the Common Stock. The Company is unable to
make any prediction as to the effect, if any, that future sales of Common
Stock or the availability of Common Stock for sale will have on the market
price of the Common Stock prevailing from time to time. See "Shares Eligible
for Future Sale". The Company, First USA and the directors and executive
officers of the Company have each agreed to certain restrictions on the
disposition of shares of Common Stock after the date of this Prospectus. See
"Underwriting".

INITIAL OPERATIONS AND LOSSES OF FINANCIAL SERVICES

The Company, through its wholly owned subsidiary, Financial Services, began
in September 1995 to actively market and issue commercial cards to businesses
and other entities. Financial Services competes against other much larger and
more established commercial card issuers. There is no assurance that Financial
Services will be successful in this segment of the market. The Company expects
Financial Services to become profitable in late fiscal 1997. The losses
associated with this operation did not have a material impact on the
consolidated results of the Company in fiscal 1996 and the Company believes
that its losses associated with this operation will not have a material impact
on the consolidated results of the Company in fiscal 1997.

10
<PAGE>

THE COMPANY

GENERAL

First USA Paymentech, Inc. (the "Company") is a Delaware corporation, which
engages in the credit card industry primarily as a payment processor of credit
and debit card transactions on behalf of merchants, financial institutions and
sales agents. According to published industry sources, the Company is the
third largest payment processor of bankcard transactions in the United States.
During fiscal 1996, the Company processed approximately $30.9 billion in sales
volume in approximately 574 million bankcard transactions. In addition, the
Company markets and issues commercial cards to businesses and other entities.
Commercial cards facilitate business-to-business payment procedures and
reporting, replacing traditional direct payment methods. Through its recently
acquired subsidiary GENSAR Holdings Inc ("GENSAR"), the Company also provides
third party credit and debit authorization services to financial institutions,
sales agents and the Company's direct merchants. During the three months ended
September 30, 1996, the Company processed approximately $9.0 billion in sales
volume in approximately 264 million total transactions, which included GENSAR
volume following the acquisition.

First USA, Inc. ("First USA") is the owner of approximately 77% of the
outstanding Common Stock. Upon completion of the Offerings, First USA will own
20,411,081 shares of Common Stock, which will represent approximately 59% of
the outstanding Common Stock, assuming no exercise of the Underwriters' over-
allotment options, or 19,811,081 shares of Common Stock, which will represent
approximately 57% of the outstanding Common Stock, if the Underwriters' over-
allotment options are exercised in full. First USA is also the owner of all of
the outstanding common stock of First USA Bank, one of the largest issuers of
Visa and MasterCard credit cards in the United States, and First USA Federal
Savings Bank ("First USA FSB"), a thrift institution which offers financial
products other than credit cards, focusing on relationships with existing
cardmembers of First USA Bank.

The address of the principal executive office of the Company is 1601 Elm
Street, Dallas, Texas 75201, and its telephone number is (214) 849-2000. The
principal corporate locations of the Company outside of Dallas, Texas are
located in Salem, New Hampshire; Tampa, Florida; Salt Lake City, Utah; New
York, New York; and Cleveland, Ohio, with a number of additional offices
located throughout the United States.

PAYMENT PROCESSING

According to published industry sources, the Company is the third largest
payment processor of bankcard transactions in the United States. The Company
processes credit and debit card transactions for merchants that accept credit
and debit cards as payment for goods or services. During fiscal 1996, the
Company processed approximately $30.9 billion in sales volume in approximately
574 million bankcard transactions. The Company views the ten largest payment
processors in the United States as its primary competitors. According to
published industry sources, the ten largest payment processors processed
approximately 70% of the total bankcard sales volume processed for the
calendar year 1995. The Company estimates that it currently processes
approximately 7% of total bankcard sales volume.

The Company primarily markets its payment processing services directly to
merchants using its direct sales force of sales representatives located in
offices throughout the country. The sales and customer support departments are
segmented by geography and line of business. The Company believes that the
alignment of services by these factors facilitates the sales cycle and leads
to increased customer satisfaction. Direct merchants represent a substantial
majority of the Company's processing volume, accounting for 84% and 79% of
sales volume processed during the three months ended September 30, 1996 and
September 30, 1995, respectively, and 82%, 78% and 52% during fiscal 1996,
1995 and 1994, respectively. Direct merchants are the most profitable segment
of the Company's merchant portfolio.

11
<PAGE>

The Company's recent growth has occurred in part through acquisitions of
other processing services operations and merchant portfolios, including those
discussed below. The Company continues to consider acquisition opportunities
as a component of its growth.

On August 19, 1996, the Company purchased for approximately $170 million all
of the outstanding common stock of GENSAR. GENSAR is one of the nation's
largest providers of third party credit and debit authorization services to
financial institutions, sales agents and direct merchants, processing
approximately 300 million transactions during the twelve months ended June 30,
1996. Prior to its acquisition, GENSAR engaged in the payment processing
business and maintained a payment processing portfolio with approximately $1
billion in annual sales volume. The acquisition of GENSAR enables the Company
to offer third party credit and debit authorization services to financial
institutions and sales agents. GENSAR also enables the Company to directly
provide its existing customers with a full array of point-of-sale products and
services that were previously primarily outsourced. As a result of the GENSAR
acquisition, the Company expects to (1) realize cost savings through vertical
integration of formerly outsourced services, (2) enhance existing products and
services and (3) generate new revenue by establishing itself as a third-party
processor.

The Company also completed the acquisition in September 1995 of Litle &
Company, Inc. ("Litle") and the purchase in August 1995 of certain assets of
DMGT Corporation ("DMGT"). Prior to such acquisitions, Litle and DMGT were the
two largest independent direct response marketing payment processors in the
United States. Together they processed sales volume of $10.2 billion for the
year ended June 30, 1995, representing approximately 32% of the payment
processing for the direct response marketing industry. Approximately 58% of
that amount was processed through the Company in connection with Litle's
existing relationship as a sales agent for the Company and the remaining 42%,
or $4.3 billion, represented incremental sales volume for the Company. The
Company is realizing significant cost savings through the consolidation of the
Litle and DMGT systems and the combination of their operations into a single
state-of-the-art direct response marketing payment processing system. In
addition, as a result of the Litle acquisition, pricing of merchants
associated with Litle converted from a wholesale basis to a direct basis and
thus improved profitability for the Company.

Additionally, the Company benefits from the expansion of the market segments
that now accept credit and debit cards but have traditionally been cash
payment markets. Merchant acceptance of credit and debit cards has grown
significantly, both in terms of the types of merchants which accept credit and
debit cards as a form of payment as well as the volume of credit and debit
card transactions processed.

The Company primarily derives its payment processing net revenue from fee
income, which is offset by Visa and MasterCard interchange and assessments.
The two largest components of fee income are discount rate and transaction
fees. Direct merchants are generally billed on a discount rate basis, while
certain of the larger direct merchants and the financial institutions and
sales agents are billed on a per item or transaction fee basis. The primary
expenses for the Company are salaries and employee benefits and data
processing and communications.

12
<PAGE>

COMMERCIAL CARDS

The Company markets and issues to businesses and other entities commercial
cards that facilitate business-to-business payment procedures and reporting,
replacing traditional direct payment methods. Its product offerings include
corporate cards designed for use by medium to large companies for travel and
entertainment expenditures, purchasing cards designed for use by medium to
large companies in purchasing equipment, supplies and services and business
cards designed for use by small to medium companies for routine business
purchases, including travel and entertainment expenditures and equipment and
supply purchases. The Company's revenue derives primarily from interchange
income, fee income and interest income on its commercial card loans. Its
primary expenses include the cost of funding loans, salaries and employee
benefits, marketing expenses, data processing and communications and credit
losses.

The Company's current operating and growth strategies are to aggressively
market its cards and develop customer relationships that provide strategic
business opportunities for growth. The Company believes that it is in a unique
position to benefit in its account origination and growth and marketing
efforts from the existing partnerships and structures that the Company's
payment processing operations, First USA Bank and the Company's other
affiliates have established. In addition to developing its own partnerships
with financial institutions, corporations and other entities, the Company
realizes significant synergies from existing customer relationships
established by its affiliates, and can rely upon the telemarketing and other
sales and marketing structures already established by the Company. However,
there is no assurance that the Company will be successful in this segment of
the market. The Company expects its commercial card operation to become
profitable in late fiscal 1997. The losses associated with this operation did
not have a material impact on the consolidated results of the Company in
fiscal 1996 and the Company believes that the losses associated with this
operation will not have a material impact on the consolidated results of the
Company in fiscal 1997.

In November 1996, the Company and PHH Vehicle Management Services, Inc., a
subsidiary of PHH Corporation ("PHH"), announced their intention to form a
joint venture that will provide a single commercial card payment mechanism
that will service fleet, purchasing, travel and entertainment needs. The
Company expects that the joint venture will begin to offer the new fleet
product in early calendar 1997.

AFFILIATION WITH FIRST USA AND FIRST USA BANK

First USA Bank and First USA FSB provide financial products and services to
consumers. The Company is a payment processor and an issuer of commercial
cards designed to facilitate business-to-business payment procedures.
Accordingly, the Company believes that the businesses of the Company and First
USA Bank, as well as their respective business opportunities, are distinct.

13
<PAGE>

USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of 2,800,000
shares of Common Stock in the Offerings, after deducting applicable
underwriting discounts and estimated expenses, are estimated to be
approximately $90.4 million (approximately $104.1 million if the Underwriters'
over-allotment options are fully exercised). The Company intends to use these
net proceeds for general corporate purposes, including the repayment of all or
a portion of $100 million in principal amount of borrowings outstanding under
the Company's revolving credit facility (the "Revolving Credit Facility"), and
a loan payable to First USA in the principal amount of $25 million. The $100
million outstanding under the Revolving Credit Facility and the loan payable
to First USA bear interest at the rates of LIBOR plus 0.50% per annum and
LIBOR plus 0.25% per annum, respectively. The amount outstanding under the
Revolving Credit Facility and the loan payable to First USA were incurred in
connection with the GENSAR acquisition. The Company will not receive any of
the proceeds from the sale of shares by the Selling Stockholder.

PRICE RANGE OF COMMON STOCK

The Common Stock is traded on the New York Stock Exchange under the symbol
"PTI." The following table sets forth on a per share basis, for the periods
indicated, the high and low sales prices of the Common Stock as reported by
the New York Stock Exchange.

<TABLE>
<CAPTION>
PRICE RANGE
---------------
HIGH LOW
------- -------
<S> <C> <C>
FISCAL 1996:
Third Quarter (from March 22, 1996)............................ $37 1/4 $30 1/8
Fourth Quarter................................................. 47 3/8 34 1/2
FISCAL 1997:
First Quarter.................................................. 43 3/4 34
Second Quarter (through December 12, 1996)..................... 42 1/4 34 1/2
</TABLE>

A recent closing sale price as reported on the New York Stock Exchange is
set forth on the cover page of this Prospectus.

DIVIDEND POLICY

No dividends have been paid on the Common Stock since the completion of the
Company's initial public offering of 5.9 million shares of Common Stock,
issuance of 635,000 shares in a direct placement and issuance of 790,000
shares pursuant to a stock loan program funded by First USA (collectively, the
"Initial Offerings"), in March 1996. The Company has no current plans to pay
dividends on the Common Stock. The Company presently intends to retain
earnings to support the growth of the Company's business. The payment of any
future dividends will be determined by the Company's Board of Directors, in
light of conditions then existing, including the Company's results of
operations, financial condition, capital requirements, contractual
restrictions and other factors deemed relevant at that time by the Board of
Directors. In addition, the payment of dividends may be subject to certain
restrictions under the Company's Revolving Credit Facility. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition--
Liquidity and Capital Resources".

14
<PAGE>

CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company at September 30, 1996 and as adjusted to give effect to (i) the sale
by the Company in the Offerings of 2,800,000 shares of Common Stock (assuming
that the Underwriters' over-allotment options are not exercised) at the
offering price of $34.00 per share, and (ii) the application of a portion of
the net proceeds from such sales to repay outstanding indebtedness. See "Use
of Proceeds".

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Loan payable to First USA................................. $ 25,000 $ 25,000
-------- --------
Total long-term debt.................................. 25,000 25,000
-------- --------
Stockholders' equity
Common stock, 200,000,000 shares authorized, 31,703,181
shares issued and outstanding (34,503,181 shares
issued, as adjusted)................................... 317 345
Non-voting preferred stock, 10,000,000 shares
authorized, no shares issued and outstanding........... -- --
Additional paid-in capital.............................. 210,485 300,875
Retained earnings....................................... 17,030 17,030
-------- --------
Total stockholders' equity............................ 227,832 318,250
-------- --------
Total capitalization................................ $252,832 $343,250
======== ========
</TABLE>

15
<PAGE>

SELECTED FINANCIAL INFORMATION

The following table sets forth selected consolidated financial information
of the Company as of and for the preceding five fiscal years ended June 30,
1996, and as of and for the three months ended September 30, 1996 and 1995.
The following table also sets forth selected pro forma financial information
for the three months ended September 30, 1996 and the fiscal year ended June
30, 1996. The statement of income data for the preceding four fiscal years
ended June 30, 1996 and the balance sheet data as of June 30, 1996, 1995 and
1994 have been derived from the Company's audited Consolidated Financial
Statements and Notes thereto. The statement of income data for fiscal 1992 and
the balance sheet data as of June 30, 1993 and 1992 have been derived from the
Company's unaudited consolidated financial statements restated for the
acquisitions of Litle and MAGroup, Inc. ("MAGroup") (which have been accounted
for as poolings of interests), which, in the opinion of management, include
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation of such data. The statement of income and balance
sheet data for the three months ended September 30, 1996 and 1995 are
unaudited but include, in the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation of such data. The results of operations for the three months
ended September 30, 1996 are not necessarily indicative of the results that
may be expected for the entire fiscal year. The information set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Results of Operations and Financial Condition", the Company's Consolidated
Financial Statements and Notes thereto, the Company's unaudited Pro Forma
Condensed Consolidated Statements of Income and the Notes thereto and other
financial information included in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, SEPTEMBER 30,
----------------------------------------------------------------------- ----------------------------------
1996 1995 1994 1993 1992 1996 1995
----------------------- ----------- ----------- ----------- ---------- ---------------------- --------------
PRO PRO
ACTUAL FORMA (1) ACTUAL FORMA(1)
----------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
INCOME DATA:
Net revenue...... $121,232 $145,714 $86,628 $63,749 $51,287 $44,611 $39,634 $42,046 $23,825
Salaries and
employee
benefits........ 38,753 47,901 31,051 19,028 15,618 14,482 11,690 12,620 8,290
Data processing
and
communications.. 26,951 32,586 20,825 17,244 13,627 10,604 8,803 9,511 5,916
Occupancy and
equipment....... 6,314 7,579 4,379 2,831 2,753 2,419 2,062 2,225 1,404
Depreciation and
amortization.... 7,669 16,042 4,210 1,794 1,275 1,094 3,624 4,326 1,512
Other............ 20,530 25,676 16,263 14,335 12,210 10,439 5,218 5,624 5,724
Merger,
integration and
impairment...... -- -- -- -- -- -- 15,544 15,544 --
----------- ----------- ----------- ----------- ----------- ---------- ---------- ---------- ----------
Total operating
expense........ 100,217 129,784 76,728 55,232 45,483 39,038 46,941 49,850 22,846
----------- ----------- ----------- ----------- ----------- ---------- ---------- ---------- ----------
Income (loss)
from
operations...... 21,015 15,930 9,900 8,517 5,804 5,573 (7,307) (7,804) 979
Net interest
income
(expense)....... 2,737 (4,512) 1,310 323 29 143 1,249 601 278
----------- ----------- ----------- ----------- ----------- ---------- ---------- ---------- ----------
Income (loss)
before income
taxes........... 23,752 11,418 11,210 8,840 5,833 5,716 (6,058) (7,203) 1,257
Provision for
income taxes.... 9,500 5,228 3,290 2,489 1,714 1,459 (2,774) (3,213) 568
----------- ----------- ----------- ----------- ----------- ---------- ---------- ---------- ----------
Net income
(loss)......... $14,252 $6,190 $7,920 $6,351 $4,119 $4,257 $(3,284) $(3,990) $689
=========== =========== =========== =========== =========== ========== ========== ========== ==========
Net income
(loss) per
share.......... $0.54 $0.23 $0.32 $0.26 $0.17 $0.17 $(0.10) $(0.12) $0.03
=========== =========== =========== =========== =========== ========== ========== ========== ==========
Pro forma net
loss per
share(2)....... $(0.09) $(0.10)
========== ==========
BALANCE SHEET
DATA:
Purchased
merchant
portfolios and
goodwill, net... $88,894 -- $40,024 $3,930 $2,290 $2,910 $298,743 -- $ 73,592
Total assets..... 290,221 -- 84,038 37,805 24,500 20,511 488,547 -- 143,699
Loan payable to
First USA....... -- -- 4,000 -- -- -- 25,000 -- 38,064
Stockholders'
equity.......... 231,064 -- 47,232 14,728 11,683 10,990 227,832 -- 63,672
OTHER DATA:
Sales volume
processed....... $30,875,857 $31,624,813 $20,059,066 $18,425,550 $13,467,563 $8,291,377 $9,019,655 $9,111,608 $6,041,554
Bankcard items
processed(3).... 574,157 585,958 358,705 321,791 237,740 163,296 177,523 179,113 110,352
Total items
processed(3).... NA NA NA NA NA NA 263,615 297,196 NA
</TABLE>
- -------
(1) On August 19, 1996, the Company purchased for approximately $170 million
in cash all of the outstanding stock of GENSAR. The unaudited pro forma
statement of income data for the three months ended September 30, 1996 and
for fiscal 1996 give effect to the GENSAR transaction as if it had
occurred on July 1, 1995. Pro forma adjustments reflecting anticipated
merger benefits are not included.
(2) Pro forma to give effect, as of July 1, 1996, to the repayment of the loan
payable to First USA in the principal amount of $25 million from the
Company's net proceeds from the Offerings. In computing pro forma net
income per share, the Company has taken into account the decreased
interest expense as a result of the repayment of the loan to First USA.
(3) Bankcard items processed includes bankcard transactions derived from the
Company's merchant portfolio. Total items processed includes bankcard and
other credit and debit card transactions, and credit and debit
authorization transactions. Comparable information for periods prior to
the fiscal quarter ended September 30, 1996 is not available.

16
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

GENERAL

The Company is a Delaware corporation, which engages in the credit card
industry primarily as a payment processor of credit and debit card
transactions on behalf of merchants, financial institutions and sales agents.
According to published industry sources, the Company is the third largest
payment processor of bankcard transactions in the United States. During fiscal
1996, the Company processed approximately $30.9 billion in sales volume in
approximately 574 million bankcard transactions. In addition, the Company
markets and issues commercial cards to businesses and other entities.
Commercial cards facilitate business-to-business payment procedures and
reporting, replacing traditional direct payment methods. The results of
operations and financial condition of the Company include the results of the
Company's commercial card operations since its start-up in the first quarter
of fiscal 1996. Through its recently acquired subsidiary GENSAR, the Company
also provides third party credit and debit authorization services to financial
institutions, sales agents and the Company's direct merchants. During the
three months ended September 30, 1996, the Company processed approximately
$9.0 billion in sales volume in approximately 264 million total transactions,
which included GENSAR volume following the acquisition.

The Company is an approximately 77%-owned indirect subsidiary of First USA.
Upon completion of the Offerings, First USA will own 20,411,081 shares of
Common Stock, which will represent approximately 59% of the outstanding Common
Stock, assuming no exercise of the Underwriters' over-allotment options, or
19,811,081 shares of Common Stock, which will represent approximately 57% of
the outstanding Common Stock, if the Underwriters' over-allotment options are
exercised in full.

BUSINESS COMBINATIONS AND MERCHANT PORTFOLIO PURCHASES

In a transaction accounted for as a pooling of interests, First USA issued
common stock in September 1995 valued at $85.0 million in exchange for all the
common stock of Litle. Litle, a participant in the direct response marketing
payment processing industry, was subsequently merged with a subsidiary of the
Company. Therefore, the Company's consolidated financial statements include
Litle's operations for all prior fiscal years presented.

In August 1995, the Company paid $34.0 million in cash for certain assets of
DMGT, a participant in the direct response marketing payment processing
industry. This acquisition was accounted for as a purchase.

17
<PAGE>

During the third quarter of fiscal 1996, the Company began to combine the
operations of Litle and DMGT into a single facility. The Company is realizing
significant cost savings through the consolidation of the Litle and DMGT
systems and the combination of their operations into a single state-of-the-art
direct response marketing payment processing system. In addition, as a result
of the Litle acquisition, pricing of merchants associated with Litle converted
from a wholesale basis to a direct basis and thus improved profitability for
the Company.

RESULTS OF OPERATIONS

The following table presents, for the periods indicated, the percentage of
revenues represented by certain revenue and expense items in the Company's
consolidated statements of income:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED JUNE 30, SEPTEMBER 30,
---------------------------- -------------
1996 1995 1994 1996(1) 1995
-------- -------- -------- ------- -----
<S> <C> <C> <C> <C> <C>
NET REVENUE...................... 100.0% 100.0% 100.0% 100.0% 100.0%
OPERATING EXPENSES
Salaries and employee benefits... 32.0 35.8 29.8 29.5 34.8
Data processing and
communications.................. 22.2 24.0 27.0 22.2 24.8
Occupancy and equipment.......... 5.2 5.1 4.4 5.2 5.9
Depreciation and amortization.... 6.3 4.9 2.8 9.1 6.3
Other............................ 17.0 18.8 22.6 13.2 24.1
-------- -------- -------- ----- -----
Total operating expenses....... 82.7 88.6 86.6 79.2 95.9
-------- -------- -------- ----- -----
INCOME FROM OPERATIONS......... 17.3 11.4 13.4 20.8 4.1
Net interest income (expense)
Interest income.................. 3.8 2.2 1.0 4.4 2.7
Interest expense................. 1.5 0.7 0.5 1.3 1.5
-------- -------- -------- ----- -----
INCOME BEFORE INCOME TAXES..... 19.6 12.9 13.9 23.9 5.3
PROVISION FOR INCOME TAXES....... 7.8 3.8 3.9 7.8 2.4
-------- -------- -------- ----- -----
NET INCOME....................... 11.8% 9.1% 10.0% 16.1% 2.9%
======== ======== ======== ===== =====
</TABLE>
- --------
(1) Does not include the one-time merger, integration and impairment charge of
$15.5 million.

Three Months Ended September 30, 1996 Compared with Three Months Ended
September 30, 1995

The Company recorded a net loss for the three months ended September 30,
1996 of $3.3 million, or $0.10 per share, compared with net income of
$689,000, or $0.03 per share, for the three months ended September 30, 1995.
The results for the quarter were reduced by a one-time merger, integration and
impairment charge related to the GENSAR acquisition of $15.5 million, or $9.7
million and $0.30 per share on an after tax basis. The charge includes costs
related to the conversion from third-party authorization networks to GENSAR's
authorization network, the closure of certain offices and employee severance.
Income excluding the one-time merger, integration and impairment charge was
$6.4 million, or $0.20 per share.

Net revenue increased 66.4% to $39.6 million for the three months ended
September 30, 1996, compared with $23.8 million for the three months ended
September 30, 1995. Bankcard sales volume processed increased 49.3% to $9.0
billion for the three months ended September 30, 1996, compared with $6.0
billion for the three months ended September 30, 1995. Bankcard items
processed increased 60.9% to 178 million for the three months ended September
30, 1996, compared with 110 million for the three months ended September 30,
1995. Total items processed for the three months ended September 30, 1996 were
264 million. The increase in net revenue is the result of the increase in
sales volume processed as a result of the Company's direct sales efforts and
the acquisitions of GENSAR and several merchant portfolios.

Operating expenses, excluding the one-time merger, integration and
impairment charge and amortization of goodwill and other identifiable
intangibles, increased 31.9% to $29.6 million for the three months ended

18
<PAGE>

September 30, 1996, compared with $22.4 million for the three months ended
September 30, 1995. The increase was primarily the result of the GENSAR
acquisition and the increase in sales volume processed. Salaries and employee
benefits increased 41.0% to $11.7 million for the three months ended September
30, 1996, compared with $8.3 million for the three months ended September 30,
1995, primarily due to the increase in the number of employees to
approximately 1,000 at September 30, 1996 from approximately 800 at September
30, 1995. Such increase included employees hired as a result of the Company's
acquisitions as well as those hired to support the growth in sales volume
processed. Data processing and communications, which included the cost of
obtaining authorizations and processing transactions, increased 48.8% to $8.8
million for the three months ended September 30, 1996, compared with $5.9
million for the three months ended September 30, 1995, due to the increase in
sales volume processed partially offset by favorable price renegotiations with
communications and authorization vendors. The Company has also emphasized
converting existing merchants to, and installing new merchants on, the
Company's internal data processing systems which have operating costs that are
lower than the costs of obtaining data processing services from third party
vendors.

Depreciation and amortization was $3.6 million for the three months ended
September 30, 1996, compared with $1.5 million for the three months ended
September 30, 1995, reflecting an increase in amortization of intangibles and
depreciation of property and equipment related to acquisitions.

During the first quarter of fiscal 1997, the Company recorded a one-time
merger, integration and impairment charge of $15.5 million, or $9.7 million
and $0.30 per share on an after tax basis related to the acquisition of
GENSAR. The charge includes costs related to the conversion from third party
authorization networks to GENSAR's authorization network ($6.4 million), the
closure of certain offices ($7.6 million) and employee severance ($1.5
million). The conversion costs consist primarily of the incremental labor
costs to convert existing merchant customers to the GENSAR authorization
network. The charge of $7.6 million related to office closings includes lease
termination costs as well as the write-off of $3.7 million pertaining to
certain intangible assets related to systems that will no longer be used. The
employee related costs are primarily severance for individuals displaced as a
result of the office closings.

The Company's operating margin before the one-time merger, integration and
impairment charge was 20.8% for the three months ended September 30, 1996,
compared with 4.1% for the three months ended September 30, 1995, primarily
due to increased net revenue and the achievement of operating efficiencies.

Fiscal Year Ended June 30, 1996 Compared with Fiscal Year Ended June 30, 1995

Net income for the fiscal year ended June 30, 1996 increased 79.9% to $14.3
million, or $0.54 per share, compared with $7.9 million, or $0.32 per share,
for the fiscal year ended June 30, 1995. Net income for the fiscal year ended
June 30, 1996 included a net charge of $1.0 million related to the Litle
acquisition offset by the reversal of certain accounting estimates related to
Litle expenses, and a net loss of $1.4 million related to the initial
operations of the Company's commercial card business. Net income includes the
operating results of DMGT and Mokarow & Associates, Inc. ("Mokarow") since
their acquisition dates of August 1995 and December 1995, respectively.

Net revenue increased 39.9% to $121.2 million for the fiscal year ended June
30, 1996, compared with $86.6 million for fiscal 1995. The Company attributes
the increase in net revenue to the increase in sales volume processed as a
result of its direct sales efforts and its acquisitions of merchant portfolios
and other processing-related companies. Sales volume processed increased 53.9%
to $30.9 billion for the fiscal year ended June 30, 1996, compared with $20.1
billion for the fiscal year ended June 30, 1995. Bankcard items processed
increased 60.1% to 574 million for the fiscal year ended June 30, 1996,
compared with 359 million for the fiscal year ended June 30, 1995.

Operating expenses, excluding the amortization of purchased merchant
portfolios and goodwill, increased 29.5% to $97.8 million for the fiscal year
ended June 30, 1996, compared with $75.5 million for the fiscal year ended
June 30, 1995. The increase was primarily the result of the increase in sales
volume processed. Salaries and employee benefits increased 24.8% to $38.8
million for the fiscal year ended June 30, 1996, compared with $31.1 million
for the fiscal year ended June 30, 1995. This resulted from an increase in the
number of employees

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<PAGE>

to approximately 830 from 690, primarily as a result of the DMGT acquisition
and the start-up of the Company's commercial card operations. Data processing
and communications, which included the cost of obtaining authorizations and
processing transactions, increased 29.4% to $27.0 million for the fiscal year
ended June 30, 1996, compared with $20.8 million for the fiscal year ended
June 30, 1995. This was due to the increase in sales volume processed
partially offset by favorable price renegotiations with communications and
authorization vendors. The Company has also emphasized converting existing
merchants to, and installing new merchants on, the Company's internal data
processing systems, which have operating costs that are lower than the costs
of obtaining data processing services from third party vendors.

Depreciation and amortization was $7.7 million for the fiscal year ended
June 30, 1996, compared with $4.2 million for the same period of 1995. This
increase reflected the amortization of intangibles and goodwill, and
depreciation of property and equipment related to acquisitions as well as
investments in technology made during the year.

The Company's operating margin for the fiscal year ended June 30, 1996 was
17.3%, compared with 11.4% for the fiscal year ended June 30, 1995. This
improvement was primarily the result of increased net revenue and the
achievement of operating efficiencies.

Fiscal Year Ended June 30, 1995 Compared to Fiscal Year Ended June 30, 1994

Net income for fiscal 1995 was $7.9 million, or $0.32 per share, an increase
of 24.7% over fiscal 1994 net income of $6.4 million, or $0.26 per share. The
acquisitions of National Card Processing Systems ("NCPS") and Electronic
Processing Source, Inc. ("EPS") in July 1994 contributed $2.7 million to the
fiscal 1995 results, which reflected the change from wholesale pricing through
sales agents to direct pricing for merchants. The increase in net income for
fiscal 1995 was partially offset by the conversion in July 1994 of one of the
Company's largest sales agents to another processor. Sales volume processed
for this sales agent was $0.3 billion for fiscal 1995, compared with $3.6
billion for fiscal 1994.

Net revenue increased 35.9% to $86.6 million for fiscal 1995, compared with
$63.7 million for fiscal 1994. The growth in net revenue was attributable to
merchant portfolio and other acquisitions and the Company's continued direct
sales efforts, partially offset by the conversion of one of the Company's
largest sales agents to another processor, as described previously. Sales
volume processed increased 8.9% to $20.1 billion for fiscal 1995, compared
with $18.4 billion for fiscal 1994. Sales volume processed, excluding the
volume for the conversion as noted previously, increased 32.9% to $19.7
billion for fiscal 1995, compared with $14.9 billion for fiscal 1994.

Operating expenses, excluding the amortization of purchased merchant
portfolios and goodwill, were $75.5 million for fiscal 1995, compared with
$55.1 million for fiscal 1994, an increase of 37.0%. This increase was
primarily related to the increase in sales volume processed. Salaries and
employee benefits increased 63.2% to $31.1 million for fiscal 1995, compared
with $19.0 million for fiscal 1994, due to the 62.6% increase in employees to
approximately 690 for fiscal 1995, compared with approximately 420 for fiscal
1994. Fiscal 1995 employee growth included approximately 130 new employees
hired as a result of the Company's acquisitions, the addition of approximately
40 employees to the Company's direct sales force and additional increases to
support the growth in sales volume processed. Data processing and
communications increased 20.8% to $20.8 million for fiscal 1995, compared with
$17.2 million for fiscal 1994 due to the increase in sales volume processed.

Depreciation and amortization was $4.2 million for the fiscal year ended
1995, compared with $1.8 million for the fiscal year ended 1994, reflecting an
increase in amortization of intangibles and depreciation of property and
equipment related to recent acquisitions.

The Company's operating margin for the fiscal year ended June 30, 1995 was
11.4%, compared with 13.4% for the fiscal year ended June 30, 1994.

20
<PAGE>

SEASONALITY

The Company's revenue generally reflects the seasonal fluctuations that are
typically associated with traditional peaks in consumer retail sales. As a
result, the Company generally experiences higher revenue during the December
quarter.

COMMERCIAL CARDS

The Company, through Financial Services, began to actively market and issue
commercial cards to businesses and other entities during fiscal 1996. The
Company expects its commercial card operation to become profitable in late
fiscal 1997. The losses associated with this operation did not have a material
impact on the consolidated results of the Company in fiscal 1996 and the
Company believes that the losses associated with this operation will not have
a material impact on the consolidated results of the Company in fiscal 1997.

Financial Services received an initial capital contribution of $16.1 million
from First USA upon receiving FDIC approval in September 1995. Financial
Services' liquidity is invested in investments and overnight reverse
repurchase agreements. At September 30, 1996, Financial Services' investments
totaled $12.1 million and consisted of variable rate United States Government
agency mortgage-backed securities. Financial Services' policy is to hold
securities until maturity. The average maturity is approximately 6.74 years
with a yield of 6.8%. As loan volume increases, Financial Services' primary
methods of funding will include issuing certificates of deposit and other
borrowings.

Financial Services is subject to the capital adequacy guidelines adopted by
the FDIC. As of September 30, 1996, Financial Services' risk-based capital
ratio exceeded the level required by the FDIC to be classified as a well
capitalized bank.

LIQUIDITY AND CAPITAL RESOURCES

The Company operates independently from First USA, generating cash flow from
its operating activities. On March 27, 1996, the Company completed the Initial
Offerings. The net proceeds from the Initial Offerings were $141.4 million.
The Company used $40.6 million of the proceeds to repay a loan payable to
First USA and has used the remainder for general corporate purposes, which
included product and technology development and funding of acquisitions, of
which $75 million was used for the GENSAR acquisition in August 1996.

The Company has 10.0 million shares of authorized preferred stock, of which
no shares have been issued and outstanding. The Board of Directors of the
Company has the authority to determine the principal rights, preferences and
privileges of the authorized preferred stock.

Net cash provided by operating activities was $55.9 million for the three
months ended September 30, 1996, compared with $5.4 million for the same
period of 1995. During the three months ended September 30, 1996, the Company
paid $188.1 million to acquire GENSAR and other merchant portfolios and
processing services. The GENSAR acquisition was primarily funded by a $100
million non-interest bearing note payable to the previous stockholders of
GENSAR and a $25 million loan from First USA. During the three months ended
September 30, 1995, the Company used $36.3 million to purchase merchant
portfolios, processing services and other acquisitions.

The Company generated $20.7 million and $17.3 million of cash flow from
operating activities for the fiscal years ended June 30, 1996 and 1995,
respectively. During the fiscal years ended June 30, 1996 and 1995, the
Company used $41.4 million and $14.7 million, respectively, to purchase
merchant portfolios, processing services and other acquisitions. The Company
received noncash capital contributions from First USA of $12.0 million and
$22.6 million in the fiscal years ended June 30, 1996 and 1995, respectively,
related to the acquisitions of Mokarow and EPS. In addition, the Company
received a $16.1 million capital contribution in the form of cash from First
USA to capitalize Financial Services upon receiving FDIC approval in September
1995. In fiscal 1996, the Company purchased for $4.0 million, shares of
convertible preferred stock that represent a minority interest in First
Virtual Holdings, Inc. ("First Virtual"), a company formed to facilitate
Internet commerce. The Company accounts for its investment in First Virtual
using the cost method.

21
<PAGE>

In February 1996, the Company entered into the Revolving Credit Facility
with a bank syndicate. The Revolving Credit Facility provides a source of
additional liquidity to manage cash flow, provide capital to subsidiaries for
expansion and for other corporate uses. At September 30, 1996, the Company had
no borrowings under the Revolving Credit Facility. In October 1996, the
Company borrowed $100 million under the Revolving Credit Facility at a rate of
LIBOR plus 0.50% (currently approximately 5.9%), and increased the line of
credit to $200 million in October 1996.

In August 1996, the Company funded the acquisition of GENSAR ($170 million)
and the subsequent payoff of GENSAR's debt ($30 million) with proceeds from
the Initial Offerings ($75 million), a loan from First USA ($25 million) and
non-interest-bearing notes payable to the previous shareholders of GENSAR
($100 million) due on October 18, 1996. The Company refinanced the notes
payable to GENSAR's former stockholders through the Revolving Credit Facility.

The Company's stockholders' equity was $231.1 million at June 30, 1996,
compared with $47.2 million at June 30, 1995. The increase in stockholders'
equity primarily reflects the result of the Initial Offerings, capital
contributed to the Company in the form of purchased merchant portfolios and
processing services and cash and the results of operations.

INCOME TAXES

The Company's consolidated provision for income taxes includes state and
federal income tax components. The Company's effective tax rate was 45.8%,
45.2%, 40.0%, 29.4% and 28.2% for the three months ended September 30, 1996
and 1995 and the fiscal years ended June 30, 1996, 1995 and 1994,
respectively. As a result of the Initial Offerings, the Company began filing a
separate consolidated federal income tax return and is no longer included in
First USA's consolidated return. In connection with the Initial Offerings the
Company entered into a tax sharing agreement with First USA. See "Relationship
with First USA--Other Transactions".

The tax rates for the periods prior to the second quarter of fiscal 1996
reflect Litle as a Subchapter S corporation, which included no federal income
taxes in its financial statements since its income was taxed at the
shareholder level.

CAPITAL EXPENDITURES

The Company spent $6.1 million, $1.1 million, $21.3 million and $9.2 million
for capital expenditures for the three months ended September 30, 1996 and
1995, and in fiscal 1996 and 1995, respectively. Capital expenditures are made
generally to accommodate growth in payment processing volume, provide for
increased operating efficiencies and support future growth in the commercial
card market. Included in the 1996 capital expenditures is $11.0 million
related to facility expansions and additions.

CONTINGENT LIABILITIES THROUGH MERCHANTS

Under the rules of Visa and MasterCard and other bankcard organizations, the
Company has certain contingent liabilities for the transactions it processes
on behalf of merchants. If a cardholder purchases a product or service and is
dissatisfied after the purchase, the cardholder is able to return the product
and demand a refund. If the merchant, after having received payment from the
Company, refuses to pay the refund or properly provide the product or service,
a chargeback results. Merchants must follow certain processing procedures in
order to limit their exposure to chargebacks. The payment processor must fund
the chargeback if the merchant does not have sufficient funds to repay the
chargeback.

22
<PAGE>

The Company conducts reviews of potential merchants based upon the
merchant's industry. The contingent liability risk is greater for direct
response marketing merchants since the purchase is made before the product or
service is delivered and the applicable card is not typically present. The
Company takes these and other risks into account in making its credit
determinations with respect to new merchants. At September 30, 1996, the
Company had cash deposits from certain customers aggregating approximately
$18.3 million as an offset to potential contingent liabilities that are the
responsibility of such customers. These cash deposits are primarily related to
merchants in the direct response marketing industry. Credit losses for
merchant processing incurred by the Company relating to such contingent
liabilities were approximately $240,000, $215,000, $640,000, $310,000 and
$390,000 for the three months ended September 30, 1996 and 1995 and for fiscal
1996, 1995 and 1994, respectively, compared with total sales volume processed
in such periods of $9.0 billion, $6.0 billion, $30.9 billion, $20.1 billion
and $18.4 billion, respectively. The Company's payment processing operations
are not exposed to cardholder credit losses.

23
<PAGE>

BUSINESS

The Company engages in the credit card industry primarily as a payment
processor of credit and debit card transactions on behalf of merchants,
financial institutions and sales agents. According to published industry
sources, the Company is the third largest payment processor of bankcard
transactions in the United States. During fiscal 1996, the Company processed
approximately $30.9 billion in sales volume in approximately 574 million
bankcard transactions. In addition, the Company markets and issues commercial
cards to businesses and other entities. Commercial cards facilitate business-
to-business payment procedures and reporting, replacing traditional direct
payment methods. Through its recently acquired subsidiary GENSAR, the Company
also provides third party credit and debit authorization services to financial
institutions, sales agents and the Company's direct merchants. During the
three months ended September 30, 1996, the Company processed approximately
$9.0 billion in sales volume in approximately 264 million total transactions,
which included GENSAR volume following the acquisition. The Company believes
it is well-positioned in terms of strategy, capacity and experienced
management to continue the growth of its payment processing business and to
initiate growth in its commercial card business.

The principal executive office of the Company is located in Dallas, Texas,
with a number of additional sales and sales support offices throughout the
United States. The principal corporate operations of the Company outside of
Dallas, Texas are located in Salem, New Hampshire; Tampa, Florida; Salt Lake
City, Utah; New York, New York; and Cleveland, Ohio.

INDUSTRY OVERVIEW

Since their introduction over 40 years ago, credit and debit cards have
grown increasingly popular as a preferred method of payment, especially for
medium to large dollar purchases. According to published industry sources, as
of the end of calendar 1995 there were more than 400 million Visa and
MasterCard credit and debit cards in circulation. According to Visa and
MasterCard statistics, gross credit and debit card sales volume during
calendar 1995 totalled $575 billion.

Merchant acceptance of credit and debit cards has also grown significantly,
both in terms of the types of merchants which accept credit and debit cards as
a form of payment as well as the volume of credit and debit cards transactions
processed. As of December 1995, over three million merchant outlets in the
United States accepted Visa and MasterCard credit and debit cards as a form of
payment. Credit and debit card acceptance has been common in a number of
market segments, such as travel, retail, dining and lodging. In addition, new
merchant categories have recently emerged, including doctors' offices,
hospitals, governmental agencies, supermarkets and colleges and universities.

Most credit and debit card payment transactions were formerly processed
using cumbersome paper-based systems, a time-intensive and expensive process
that resulted in data losses and an increased risk of chargeback disputes
between consumers and merchants. During the past ten years, improvements in
point-of-sale equipment and telecommunications technology have led to a shift
away from paper-based processing. Today, electronic processing is the
preferred processing method, providing more convenience for consumers and
merchants, reduced processing costs, quicker settlement and reduced losses
from fraudulent use of credit and debit cards. Visa and MasterCard provide an
additional incentive for merchants which process their transactions
electronically by granting favorable interchange rates for such transactions.
According to published industry sources, as of December 31, 1995,
approximately 97% of credit and debit card transactions were processed
electronically.

The increasing technological requirements of the payment processing industry
have led to consolidation and specialization in the industry. While commercial
banks traditionally have provided processing services to their merchant
customers, the increased processing requirements and rapid technological
development have resulted in more specialized processors like the Company
replacing many commercial banks in the provision of payment processing
services. The Company expects this trend to continue in the future as
processing requirements become even more complicated and merchant requests for
information become more sophisticated.

24
<PAGE>

PAYMENT PROCESSING

General

According to published industry sources, the Company is the third largest
payment processor of bankcard transactions in the United States. During fiscal
1996, the Company processed approximately $30.9 billion in sales volume in
approximately 574 million bankcard transactions. The Company markets its
services directly to merchants and indirectly through financial institutions
and sales agents, which in turn market the processing services to merchants.

Payment Cycle

The following diagram illustrates the processing of credit and debit card
transactions for merchants and the settlement of funds for such transactions:

[ART]

The payment cycle includes authorizing credit and debit card transactions at
the point of sale, capturing data related to transactions, settling
transactions with the card association on behalf of the merchant and providing
transaction reporting to the merchant. In the course of processing an
electronic transaction, various parties operate together and the authorization
and capture process is usually completed within 8-15 seconds. The
authorization process includes obtaining approval from the card issuing bank
for the cardholder's purchase at the merchant location. Authorization
procedures confirm that the cardholder has the available credit to cover the
purchase, and verify that the card has not been reported lost or stolen. In
the event that the merchant is not able to connect with the electronic
authorization network, the Company provides access to a voice authorization
and automated voice response unit that is available 24 hours a day, seven days
a week.

While the transaction is being authorized, the transaction data, including
dollar amount and card number, is captured in the electronic authorization
network and transmitted to the Company for use in settling the

25
<PAGE>

transaction and preparing reports to the merchant. Depending upon the
merchant's electronic authorization network, the merchant can capture
transactions at the terminal level or the network computer level. The
Company's internal proprietary data capture system is capable of managing
multiple batches of transactions and data per day from each merchant, which is
an important feature during peak sales periods. In addition, the Company's
high-speed batch deposit system allows direct response marketing merchants to
deliver transactions to the Company and receive immediate authorization
responses.

In furtherance of the Company's strategy of converting volume to internal
systems, in August 1996, the Company acquired GENSAR, the largest independent
third party processor and one of the premier providers of electronic
authorization and third party credit and debit authorization services for
financial institutions, sales agents and direct merchants, processing
approximately 300 million transactions in the twelve months ended June 30,
1996. This acquisition provided the Company with new and advanced capabilities
and product offerings which it previously primarily outsourced. By converting
more volume to its internal systems, the Company believes it can develop and
deliver unique products to the merchant community.

Settlement involves managing a record of each merchant's transactions and
transferring funds from the issuer of the card to the merchant for payment.
The Company transmits transaction information to the card issuing bank through
Visa and MasterCard and arranges for funds to be transferred to the merchant's
bank account via Automated Clearing House or Fedwire transfer, which is
ultimately credited to the merchant's account. The cardholder is billed by the
card issuing bank. Settlement payments made to merchant accounts may reflect a
discount from the full transaction price, which generally includes the
Company's processing fee and Visa and MasterCard interchange and assessments.
Each step in the settlement process involves a number of procedures that must
be completed in accordance with Visa and MasterCard requirements. From the
time of closing a batch of transactions, the merchant's account will generally
be credited within 24 to 72 hours.

The Company uses a number of proprietary and third party national networks
for its authorization, capture and merchant accounting services, including its
internal proprietary network and settlement system. The Company has entered
into agreements with several third party vendors who provide merchant
accounting, network and other processing services to the Company. Other
services are provided by the Company's internal data processing systems. The
Company has emphasized converting existing merchants to, and installing new
merchants on, the Company's internal data processing systems, which have
operating costs that are lower than the costs of obtaining data processing
services from third party vendors. The Company's internal network provides
authorization, capture, settlement and reporting capabilities to its
merchants.

Products

The Company offers a wide range of quality products and services related to
payment processing, which are known as Paymentech Solutions. Its proprietary
and third party licensed software applications permit authorization and
capture of Visa, MasterCard, Diners Club, Carte Blanche, JCB, American
Express, Discover, private label, fleet and debit transactions, as well as
offering settlement for Visa, MasterCard, Diners Club, Carte Blanche and JCB
transactions. The Company offers third party credit and debit authorization
services to financial institutions, sales agents and the Company's direct
merchants, and also offers point-of-sale solutions for most industry segments.
These solutions include terminal, PC, and integration into point-of-sale
systems. The Company also processes debit transactions for most of the
national and regional debit networks.

The Company has unique terminal software targeted to medium-sized companies
and designed specifically for the hotel and dining industries. Lodging
Solutions enables hotels of all sizes to streamline front desk and back office
procedures by offering automatic re-authorization at checkout. Through PC-
support software and networking, it also enables hotels to consolidate
information from the gift shop, restaurant and front desk to a single PC for
night auditor or management review. Dining Solutions is the line of
specialized software applications for the dining industry, designed to provide
easy tip-editing and tab-opening functions and integrated reporting packages
that comply with the Internal Revenue Service tip reporting requirements.

26
<PAGE>

Direct Response Marketing Solutions is the Company's comprehensive batch
authorization and accounting system developed exclusively for non-face-to-face
transactions that provides fast transaction authorization and capture
capabilities and installment and deferred billing programs, combined with the
industry's most advanced fraud prevention and chargeback resolution
capabilities. The Company also offers these processing capabilities in Canada,
the United Kingdom, Germany and France, utilizing the local currency. The
system also provides for automatic address verification, which reduces fraud.
In addition to credit and debit card processing, the Company also offers
electronic check processing to merchants in the direct response marketing and
catalog industries.

The Company has several PC software products that provide deposit and
exception data to merchants. The Company has also developed the capability to
track frequent shopper information from proprietary card data and transmit the
data to the merchant's PC. Targeted marketing and demographic reporting is
being tested in cooperation with First USA Bank. The Company believes that its
processing systems and services are among the most comprehensive in the
payment processing industry.

Net Revenue

The Company's net revenue is generated primarily from fee income earned
under processing agreements with merchants, financial institutions and sales
agents, which is partially offset by Visa and MasterCard interchange and
assessments. The Company also receives income from several value-added
services it provides, such as enhanced reporting options and terminal products
it sells and leases to merchants.

The processing fees charged to a particular merchant vary with the total
dollar amount processed, average purchase amount and number of transactions
processed for the merchant. There are two primary billing methods, each using
a per-transaction basis for calculating fees. The first billing method, the
discount rate method, is the traditional billing method and is most common for
smaller merchants. Under this billing method, a discount rate is charged for
each transaction. The other billing method is the per item or transaction fee
pricing method. Under this billing method, the merchant is billed a flat fee
per transaction, plus Visa and MasterCard interchange and assessments and
certain per item fees. Larger merchants often prefer this pass-through billing
method to the discount rate method. Financial institutions and sales agents
are also generally charged using the per item or transaction fee billing
method.

The Company's principal transaction expenses are Visa and MasterCard
interchange and assessments. Interchange fees are stated fees charged by Visa
and MasterCard to reimburse card issuing banks for the risk of transaction
fraud, processing expenses and funding during the period from purchase to
payment. The fee schedules are set by Visa and MasterCard, and are based upon
the type of merchant, transaction type (electronic or paper-based) and
settlement time. Interchange fees generally range from 1.25% to 2.1% of the
transaction amount. Although interchange rates vary by merchant industry, they
are uniform among payment processors. Assessments are stated fees charged by
Visa and MasterCard to fund their internal operations. Assessments are also
uniform among payment processors.

The following table provides an example of a transaction in the amount of
$100 in the Visa network in which the discount rate charged to the merchant is
2.0%, the interchange fee is 1.25% and the Visa assessment fee is 0.08%. These
fees can vary substantially among different merchant types.

<TABLE>
<CAPTION>
THE CARD ISSUING
PAYMENTS AND FEES MERCHANT COMPANY BANK VISA
----------------- -------- -------- ------------ -----
<S> <C> <C> <C> <C>
Transaction amount............... $100.00 $(100.00) $ -- $ --
Discount......................... (2.00) 2.00 -- --
Interchange fee.................. -- (1.25) 1.25 --
Assessment fee................... -- (0.08) -- 0.08
Payment by card issuing bank..... -- 100.00 (100.00) --
Payment by cardholder............ -- -- 100.00 --
------- -------- -------- -----
Net revenue.................. $ 98.00 $ 0.67 $ 1.25 $0.08
======= ======== ======== =====
</TABLE>

27
<PAGE>

Operating Strategy

In order to remain competitive in the payment processing industry, the
Company continues to dedicate significant resources to acquiring and
developing unique products and services that will lower costs, generate new
sales and reduce customer attrition. The resulting proprietary products, along
with continuing systems enhancements and operating efficiencies, provide
improved services for its merchants, and the Company believes its dedication
to developing these products will allow it to remain highly competitive in the
industry.

The Company is committed to providing superior service and retaining its
current customer base. The Company provides an extensive package of high
quality service features to its merchants, including toll-free customer
service and terminal support 24 hours a day, seven days a week, 48-hour
terminal replacement, terminal set-up assistance and training for new
merchants and flexible reporting capabilities, both in frequency and format.
Long-term relationships are established through the continued support and
interaction of professional account managers.

The Company believes that its investment in open systems versus mainframe
technology has allowed it to implement business solutions in less time and at
a lower cost than its competitors. This approach provides a broad range of
electronic authorization products and merchant accounting systems. Through a
combination of strategic acquisitions and internally developed custom
solutions, management believes that the Company continues to deliver more
innovative choices than the competition.

The Company has obtained a license for a new artificial intelligence system
that will significantly improve chargeback and retrieval processing. A
chargeback is an action initiated by a cardholder, or an issuing bank on
behalf of a cardholder, disputing a particular transaction. A chargeback
requires a prompt response and appropriate actions to avoid the merchant being
debited for the transaction amount. The new system is called ACE (Automated
Chargeback Exchange), and its features will allow the Company to reduce the
number of chargebacks ultimately charged to its merchants as well as the back
office time and expense associated with chargeback resolutions. The new
chargeback system allows approximately 40% of all chargebacks to be resolved
automatically, without human intervention, and reduces resolution cycle times.

The Company has developed an innovative on-line risk management program to
address the credit and debit card fraud concerns of merchants. The program is
designed to effectively detect and monitor potential fraudulent activity in
merchant accounts.

The Company's disaster recovery planning system is a reliable recovery
program designed to maintain Company operations in the event of emergencies,
such as physical destruction to office buildings, natural disasters, bomb
threats or loss of network capabilities. The plan entails a hierarchy of
activities and procedures for each department to implement in the event of
such disasters that minimize service interruption as well as improve financial
security.

Growth Strategy

The Company focuses its sales and marketing efforts on four distinct areas
for obtaining new merchant customers: direct merchant sales, financial
institutions, sales agents and acquisitions. Additionally, the Company
benefits from the continuing expansion of the markets that now accept credit
and debit cards but have traditionally been cash payment markets.

Direct Merchant Sales

One aspect of the Company's growth strategy relies on sales volume growth.
Direct merchants are the most profitable segment of the Company's merchant
portfolio. The Company intends to continue to aggressively seek new direct
merchant customers of all sizes, especially within those industries in which
the Company's products and services exhibit a significant advantage, including
the dining, lodging, hospitality and direct response marketing industries. The
Company believes its fleet and debit card processing capabilities provide
competitive products for the petroleum and convenience store industries.

28
<PAGE>

The Company is dedicated to increasing the effectiveness and efficiency of
its sales team. The Company has made a significant investment in a sales force
automation system which enables it to improve the productivity of its sales
team by providing sales tools, instant data access and remote on-line
communication. This allows the representatives to pursue prequalified
prospects, and to reach potential customers using various means of
communication. The system utilizes technology to streamline operations and
contains modules which provide various services and materials needed by the
sales team. This system enables the Company to address the many challenges
inherent in a decentralized sales force.

Financial Institutions. The Company markets to local, regional and national
financial institutions. The Company offers these financial institutions
dedicated account representatives who work directly with each financial
institution's staff to develop merchant business for the financial
institution. In this program, the Company generally assumes the marketing and
support functions.

Sales Agents. Sales agents solicit new customers on behalf of the Company.
The sales agents provide varying degrees of customer service to the merchants
which the Company approves for processing. The fees charged to sales agents by
the Company vary based upon level of service provided, allocation of risk of
loss and transaction volume. As part of the process of approving a new sales
agent, an analysis of the credit of the sales agent as well as its principals
is performed. This analysis encompasses a business and personal credit review
and contacting Visa and MasterCard regarding the sales agent's relationship
with prior processors. The Company is required to register all of its sales
agents with Visa and MasterCard and file quarterly sales and activity reports.

Acquisitions. The Company has completed a number of acquisitions, including
those discussed below, and continues to consider acquisition opportunities as
a component of its growth.

On August 19, 1996, the Company purchased for approximately $170 million all
of the outstanding common stock of GENSAR. GENSAR is one of the nation's
largest providers of third party credit and debit authorization services to
financial institutions, sales agents and direct merchants, processing
approximately 300 million transactions during the twelve months ended June 30,
1996. Prior to its acquisition, GENSAR engaged in the payment processing
business and maintained a payment processing portfolio with approximately $1
billion in annual sales volume. The acquisition of GENSAR enables the Company
to offer third-party credit and debit authorization services to financial
institutions and sales agents. GENSAR also enables the Company to directly
provide its existing customers with a full array of point-of-sale products and
services that were previously primarily outsourced. As a result of the GENSAR
acquisition, the Company expects to (1) realize cost savings through vertical
integration of formerly outsourced services, (2) enhance existing products and
services and (3) generate new revenue by establishing itself as a third-party
processor.

In addition, the Company acquired Litle and certain assets of DMGT during
the first quarter of fiscal 1996, both of which were significant providers of
processing services for the direct response marketing industry. Direct
response marketing processing is a highly specialized area with unique
processing requirements, particularly in the areas of risk management and
chargeback resolution. In connection with these acquisitions, the Company
acquired approximately $10.2 billion in annual sales volume processed, of
which $4.3 billion represented additional sales volume processed for the
Company. The remaining sales volume was formerly processed by the Company for
Litle as a sales agent of the Company. As a result of the Litle acquisition,
pricing of merchants associated with Litle converted from a wholesale basis to
a direct basis and thus improved profitability for the Company.

The success of the Company's acquisition strategy will depend in part upon
the Company's ability to identify, finance (from available cash, through the
issuance of equity securities or through the incurrence of indebtedness) and
consummate acquisitions on terms deemed satisfactory to the Company. The
Company faces increasing competition from other transaction processors for
available acquisition opportunities. The success of the Company's acquisition
strategy will also depend in part upon the Company's ability to integrate and
manage acquired businesses and assets and realize anticipated cost savings.
Accordingly, there can be no assurance that the Company will be able to
successfully continue to implement its acquisition strategy.

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<PAGE>

Merchant Portfolio

The Company serves a diverse portfolio of merchant clients that are
concentrated in a number of industries. The largest industry categories as of
June 30, 1996 were retail (34%), direct response marketing (33%), travel and
entertainment (14%) and petroleum and convenience stores (12%). The Company
provides transaction processing for large national accounts, as well as for
many smaller, regional merchants. No one merchant represents in excess of 5%
of the Company's annual sales volume processed.

Merchant attrition is a normal part of the payment processing business. The
Company believes that providing cost-effective, reliable and responsive
service is the most effective long-term strategy to attract and retain
merchants in a competitive industry. In addition to the occasional loss of
merchants experienced by the Company due to attrition, in certain cases the
Company has elected not to continue processing for merchants that were
experiencing financial difficulties. The Company has also lost merchant
accounts to competitors in situations in which the Company was unwilling to
match a competitor's rates in light of the credit risks associated with the
particular merchant or its industry. The Company believes that its attrition
rates related to customer dissatisfaction and pricing have not been material.

New Product Initiatives

Given the large market potential for Internet transactions, the Company is
exploring processing methods that are secure and effective on the Internet.
The Company is testing two alternative approaches to the conduct of on-line
commerce using credit and debit card accounts. There are several solutions
designed to secure information for transacting business and transmitting
credit and debit card information over the Internet. Other solutions use off-
line means to establish a user account and verify and approve transactions
using electronic mail. Each method provides a potential solution to the
immediate need for Internet transaction processing. As a result of the
Company's involvement in these tests, the Company believes it is positioned to
benefit from the expected continuing increase of commerce transacted over the
Internet.

In fiscal 1996, the Company purchased for $4.0 million, shares of
convertible preferred stock which represent a minority interest in First
Virtual, a company formed to facilitate Internet commerce. The Company also
received warrants to acquire additional shares of First Virtual convertible
preferred stock. First Virtual offers an off-line Internet payment system that
became fully operational in October 1994. The Company has been the payment
processor of all of First Virtual's credit and debit card transactions since
its inception. The Company's President and Chief Executive Officer serves as a
director on the Board of Directors of First Virtual.

Credit

Visa and MasterCard require that an in-depth examination of the merchant be
performed prior to processing for the merchant. The Company has established a
credit review policy that exceeds the minimum Visa and MasterCard standards
and examines other significant areas identified through its experience in the
payment processing business. For each merchant, the Company conducts a
premises inspection of the merchant location that includes verifying that the
location, the merchandise, the estimated sales volume and the average ticket
appear reasonable for the type of business. A review of the relationship with
the previous processor is conducted to determine the reason the merchant is
changing processors. An acceptable Combined Terminated Merchant File Report,
which is a report derived from a Visa and MasterCard database of merchants who
have violated Visa and MasterCard rules in the past, an acceptable credit
bureau report on principals of the business and acceptable financial
statements for the business are also required.

After merchants begin processing, the Company reviews unusual activity on a
daily basis. Visa and MasterCard have established minimum standards for weekly
review. The Company believes that its daily procedures generally exceed these
standards. Volume and average ticket variations are analyzed along with
excessive even dollar transactions, duplicate amounts, duplicate cardholder
transactions, keyed transactions and chargebacks. The Company has the ability
to hold a merchant's daily settlement if fraudulent activity is suspected.
Security analysts talk to cardholder banks, cardholders, Visa and MasterCard,
as well as the merchants

30
<PAGE>

to determine if the unusual activity is legitimate or fraudulent. If
fraudulent activity is discovered, the merchant is terminated and placed in
the Combined Terminated Merchant File so that future processors will be aware
of previous problems. The Company has had minimal losses due to merchant fraud
because of the initial credit review and the extensive monitoring procedures
that are in place.

The Company also reviews potential merchants based upon the merchant's
industry. According to the rules of Visa, MasterCard and other bankcard
organizations, the Company has contingent liability for chargeback
transactions. For most industry types, a chargeback and potential Company
liability is unlikely and limited because the product or service charged by
the cardholder is delivered upon payment. However, for industries where the
card is not present at the time of the transaction, such as in the direct
response marketing industry, which includes the mail order and telephone order
businesses, the Company's potential liability is greater. The Company takes
these and other risks into account in making its credit determinations with
respect to potential new merchants. At September 30, 1996, the Company had
cash reserves from certain customers aggregating approximately $18.3 million
as an offset to potential contingent liabilities that are the responsibility
of such customers. These cash reserves are primarily related to merchants in
the direct response marketing industry. Credit losses for merchant processing
incurred by the Company relating to such contingent liabilities were
approximately $240,000, $215,000, $640,000, $310,000 and $390,000 in the three
months ended September 30, 1996 and 1995 and in fiscal 1996, 1995 and 1994,
respectively, compared to total sales volume processed in such periods of $9.0
billion, $6.0 billion, $30.9 billion, $20.1 billion and $18.4 billion,
respectively. The Company believes that this loss history is significantly
better than that of the industry. The Company's payment processing operations
are not exposed to cardholder credit losses.

Competition

The payment processing market is highly competitive. Uniform interchange
requirements and Visa and MasterCard compliance rules limit significant
pricing variances among processors. Therefore, the Company competes on the
basis of customer service, product features, processing speed and systems
reliability, and the Company believes that these are the critical factors
analyzed by merchants when choosing a payment processor.

The Company views the ten largest payment processors in the United States as
its primary competitors. According to published industry sources, the ten
largest payment processors processed approximately 70% of the total sales
volume processed for the calendar year 1995. The Company is the third largest
payment processor of bankcard transactions in the United States, according to
published industry sources, and estimates that it currently processes
approximately 7% of total bankcard sales volume. The Company also competes
with other providers of credit and debit authorization services.

The Company believes that it has reached a sufficient size whereby economies
of scale allow it to offer competitive pricing. However, it is possible that
the two larger competitors have lower costs which could potentially give them
a competitive advantage in pricing products to customers.

As a result of its single purpose focus and many years of experience in
payment processing, the Company has been able to develop operating
efficiencies which the Company believes allow it to competitively bid for new
business. In addition, the Company has continually made technological
improvements, and is thus able to respond to the unique needs of merchants in
various industries. Furthermore, such single purpose focus allows the
Company's workforce to provide more responsive customer service to merchants.

Investment in open systems has allowed the Company to implement business
solutions in less time and at a lower cost than competitors utilizing
mainframe technology. This approach provides a broad range of point-of-sale
products and merchant accounting systems. Through a combination of strategic
acquisitions and construction of custom solutions, the Company believes that
it continues to deliver more innovative choices than the competition.
Responding to the changing point-of-sale environment and rapidly evolving
payment systems is an ongoing requirement for payment processors.

The payment processing industry has consolidated significantly in the past
few years, due to the large investments required for the development of
technologically advanced systems and expanded business services.

31
<PAGE>

The Company believes this trend will continue as the technological demand on
processors continues to increase, and believes it is well positioned to
continue to grow in terms of volume and industry type.

COMMERCIAL CARDS

The Company's commercial card operations are located in Salt Lake City,
Utah. The Company markets and issues commercial cards to businesses and other
entities that facilitate business-to-business payment procedures and
reporting, replacing traditional direct payment methods. The Company began to
actively market and issue its commercial cards in September 1995, following
receipt of an initial capital contribution of $16.1 million from First USA.

The Company's current operating and growth strategies are to aggressively
market its commercial card products and develop customer relationships which
provide strategic business opportunities for growth. The Company believes that
it is in a unique position to benefit in its account origination and growth
and marketing efforts from the existing partnerships and relationships that
the Company's payment processing operations, First USA Bank and the Company's
other affiliates have established. In addition to developing its own
partnerships with financial institutions, corporations and other entities, the
Company expects to continue to realize significant synergies from existing
customer relationships established by its affiliates, and can rely upon its
existing telemarketing and other sales and marketing structures. The Company
expects its commercial card operations to become profitable in late fiscal
1997. The losses associated with this operation did not have a material impact
on the consolidated results of the Company in fiscal 1996 and the Company
believes that the losses associated with this operation will not have a
material impact on the consolidated results of the Company in fiscal 1997.

The Company offers various types of Visa and MasterCard cards to its
customers. The origination and servicing of Visa and MasterCard accounts are
subject to the terms and conditions of membership in Visa and MasterCard, and
the Company has agreed to comply with the By-laws and regulations of Visa and
MasterCard, which are subject to change.

The Company offers its products to its customers for use by officers,
directors, employees and other individuals designated by a customer in
connection with business expenditures by such individuals (each a
"Cardmember"). Each account is subject to an agreement between the customer
and the Company governing the terms and conditions of the related Visa or
MasterCard account, as well as agreements between the Company and each
individual Cardmember.

The Company's product offerings include corporate cards, which are non-
revolving charge cards designed for use by medium to large companies for
travel and entertainment expenditures. Annual fees are negotiable based upon
certain pricing assumptions made by the Company, including the number of cards
that will be issued for the account of the customer, the expected aggregate
charge volume for the cards issued, the length of the billing cycle, the
anticipated credit losses associated with the cards, the liability structure
of the card account agreements and other considerations. The Company also
charges other fees associated with corporate cards, including late, cash
advance and returned check fees. Customers generally pay daily, weekly or
pursuant to other billing options of 30 days or less from the billing date. A
standard reporting package is provided to each customer, with enhanced on-line
packages available at the customer's request. As an incentive to the customer
to encourage use of its corporate cards, the Company may in some instances pay
rebates to the customer if certain charge volume or other requirements are
met.

In addition to corporate cards, the Company offers purchasing cards, which
are non-revolving charge cards designed for use by medium to large companies,
and are used by employees who are responsible for making regular purchases of
equipment, supplies and services on behalf of the customer. The purchasing
card permits the Cardmember to charge such items in a streamlined fashion
without the need for cumbersome and paper-intensive purchase orders and
invoices. The reporting package provided by the Company in connection with the
purchasing card provides detailed information regarding the products purchased
and other relevant information required for the customer's records, thereby
helping to eliminate the need for purchase orders and invoices. As with
corporate cards, annual fees charged for purchasing cards are negotiable based
upon certain pricing

32
<PAGE>

assumptions made by the Company, and in certain instances the Company may
grant rebates if a customer meets certain charge volume or other requirements.
The Company may also charge other fees associated with the purchasing cards,
including late, cash advance and returned check fees. The Company also offers
access to a cardless account through which purchases can be made by authorized
users for specific types of charges or charges made with specific vendors. The
fees and charges associated with these accounts are similar to those charged
for corporate card and purchasing card accounts.

The Company's product offerings also include business cards designed for use
by small to medium companies for routine business purchases, including travel
and entertainment expenditures and equipment and supply purchases. Business
cards offer a revolving line of credit to Cardmembers at a floating interest
rate which adjusts monthly based upon the prime rate determined on a specified
date. Annual fees are charged to the customer based upon the number of cards
issued on the customer's account. The Company also charges other fees
associated with the business card, including late, cash advance, overlimit,
returned check and administrative fees. A standard reporting package is
provided to each customer, with enhanced reporting packages available at the
customer's request. In addition, Cardmembers have access to packages of
discounts and other services.

The Company competes with national, regional and other issuers of commercial
cards. In seeking funding from the public, the Company faces competition from
banks, savings institutions, money market funds, credit unions and a wide
variety of other entities that take deposits and/or sell debt securities. The
primary methods of funding the Financial Services commercial card operation
include issuing certificates of deposit and other borrowings. Financial
Services' liquidity is invested in overnight reverse repurchase agreements and
other short-term investments. Financial Services' Asset and Liability
Committee, consisting of executive management, reviews and manages all funding
and liquidity decisions.

In November 1996, the Company and PHH Vehicle Management Services, Inc., a
subsidiary of PHH, announced their intention to form a joint venture that will
provide a single commercial card payment mechanism that will service fleet,
purchasing, travel and entertainment needs. The Company expects that the joint
venture will begin to offer the new fleet product in early calendar 1997.

The Company has an agreement with a third party vendor for data processing
services in connection with the Company's commercial card business.

EMPLOYEES

At September 30, 1996, the Company and its subsidiaries had approximately
1,000 employees. The Company views current employee relations to be
satisfactory. None of the Company's employees are covered under collective
bargaining agreements.

PROPERTIES

First USA provides the Company with its principal office in Dallas, Texas
consisting of approximately 110,000 square feet, pursuant to an intercompany
agreement. The Company's right to use such space expires upon the expiration
of First USA's underlying leases therefor in June 2005, unless First USA
exercises its right to extend the leases for two successive five-year periods.
See "Relationship with First USA--Intercompany Agreement". The Company leases
additional facilities from which certain other operations of the Company are
conducted.

LEGAL PROCEEDINGS

Two subsidiaries of the Company ("Company Subsidiaries") and First USA filed
an action in the Dallas District Court of Texas against LitleNet L.L.C.
("LitleNet"), and LitleNet subsequently filed a companion case against the
Company Subsidiaries in the Superior Court of the State of New Hampshire. In
the Texas lawsuit, the Company Subsidiaries and First USA seek declaratory
relief that they committed no breach under an agreement entered into in
September 1995 (the "Agreement") with LitleNet and relief relating to certain
breaches of the Agreement by LitleNet. In the New Hampshire lawsuit, LitleNet
is seeking declaratory relief,

33
<PAGE>

injunctive relief and damages based upon its claim that the Company
Subsidiaries breached the Agreement. Pursuant to the Agreement, the Company
Subsidiaries provided certain software programs to LitleNet to assist it in
the development of a communication platform. LitleNet claims that the Company
Subsidiaries failed to deliver to LitleNet all of the software and related
documents required by the Agreement. In the Texas action, the court has denied
LitleNet's motion to stay pending a determination in the New Hampshire
proceeding, and set a trial date for early 1997. Discovery on the merits has
begun in both cases. In the New Hampshire action, temporary restraining orders
have been issued against termination of the relationship between the parties.

The Company believes it and its subsidiaries fully complied with the terms
of the Agreement. Accordingly, the Company intends to vigorously pursue the
action in Texas and defend against the action in New Hampshire. While it is
impossible to predict the outcome of the lawsuits, the Company believes that
they will not have a material adverse effect on the consolidated financial
position of the Company.

In addition, the Company has been named as a defendant in various additional
legal actions arising from the conduct of its normal business activities.
Although the amount of any liability that could arise with respect to these
actions cannot be accurately predicted, in the opinion of the Company, the
outcome of any such lawsuits will not have a material impact on the Company.

REGULATION OF FINANCIAL SERVICES

Financial Services is an industrial loan corporation chartered under the
laws of the State of Utah, the deposits of which are insured by the BIF of the
FDIC, up to applicable limits. Financial Services is subject to comprehensive
regulation and periodic examination by the Utah Department of Financial
Institutions and the FDIC, as administrator of the BIF.

The federal and state banking laws contain numerous provisions affecting
various aspects of the business and operations of Financial Services. The
following description of statutory and regulatory provisions, which is not
intended to be a complete description of these provisions or their effects on
Financial Services, is qualified in its entirety by reference to the
particular statutory or regulatory provisions or proposals.

Holding Company Status

Generally a company which controls a "bank," as defined in the Bank Holding
Company Act of 1956 (the "BHCA"), is required to register as a bank holding
company under the BHCA and becomes subject to regulation and examination as a
bank holding company by the Federal Reserve Board. The Company is not a bank
holding company under the BHCA, as a result of ownership of Financial
Services, and the Company's parent companies are not bank holding companies
under the BHCA, as a result of ownership of Financial Services, First USA Bank
or First USA FSB, because each of these three depository institutions meets
criteria to cause it to be exempt from the definition of "bank" under the
BHCA. Accordingly, if Financial Services, First USA Bank or First USA FSB
failed to meet the criteria for the exemption, the Company (in the case of
Financial Services failing to meet the criteria) and/or its holding companies
(in the case of any one of the institutions failing to meet the criteria)
would become subject to the provisions of the BHCA. The Company believes that
becoming a bank holding company would not materially restrict, curtail or
eliminate the Company's operations or activities at current levels.

Liability for Commonly-Controlled Institutions

A depository institution insured by the FDIC can be held liable for any loss
incurred, or reasonably anticipated to be incurred, by the FDIC in connection
with the default of any commonly-controlled FDIC-insured institution, or any
assistance provided by the FDIC to such commonly-controlled institution which
is in danger

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<PAGE>

of default. First USA Bank and First USA FSB are insured depository
institutions under common control with Financial Services for purposes of this
statutory provision.

Dividends and Transactions with Affiliates

There are various limitations under federal and Utah law on the extent to
which Financial Services can finance or otherwise supply funds, through
dividends, loans or otherwise, to the Company's and Financial Services'
affiliates. These limitations include minimum regulatory capital requirements,
Utah requirements concerning the payment of dividends out of net profits or
surplus, and Sections 23A and 23B of the Federal Reserve Act, governing
transactions between an insured depository institution and its affiliates.

Capital Maintenance and FDICIA

Financial Services is currently subject to capital adequacy guidelines
adopted by the FDIC, which provide generally for a minimum ratio of Tier 1
capital to risk-weighted assets (which are the credit risk equivalents of both
balance sheet items and certain off balance sheet items, such as stand-by
letters of credit) of 4%, and a minimum ratio of total capital (Tier 1 capital
plus Tier 2 capital) to risk-weighted assets of 8%. In addition, the
guidelines provide for a minimum leverage ratio (Tier 1 capital to total
assets) of 3% for the most highly-rated institutions, and not less than 4% for
all other institutions. The FDIC's risk-based and leverage ratios are minimum
supervisory ratios generally applicable to banks that meet certain specified
criteria, including having the highest regulatory rating. Banks not meeting
these criteria are expected to operate with capital positions well above the
minimum ratios. Failure to meet applicable capital guidelines could subject
Financial Services to a variety of enforcement remedies available to federal
regulatory authorities, including, in the most severe cases, the termination
of deposit insurance by the FDIC or placing the institution into
conservatorship or receivership. At September 30, 1996, Financial Services'
total risk-based capital ratio was 81%, its Tier 1 risk-based capital ratio
was 80% and its leverage ratio was 50%, which reflect the start-up nature of
its operations.

In addition, under the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA"), the federal bank regulatory agencies are empowered, and in
certain cases required, to take "prompt corrective action" with respect to
banks that do not meet minimum capital requirements, including, in the most
severe cases, placing an institution into conservatorship or receivership. The
extent of the agencies' powers depends upon whether the institution in
question is "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized." Among other
things, an institution in one of the three undercapitalized categories is
required to submit a capital restoration plan to its appropriate federal
regulator, and the capital restoration plan will not be accepted without the
limited guaranty of the institution's parent company. At September 30, 1996,
Financial Services met the capital requirements of a "well capitalized"
institution.

Financial Services may accept brokered deposits as part of its funding.
Under FDICIA, only "well capitalized" and "adequately capitalized" banks may
accept brokered deposits. "Adequately capitalized" banks, however, must first
obtain a waiver from the FDIC before accepting brokered deposits, and there
are limitations on the rates that may be paid on such deposits.
Undercapitalized institutions may not accept, renew or roll over brokered
deposits.

Deposit Insurance Assessments

The deposits of Financial Services are insured by the BIF, up to applicable
limits. Under the FDIC's risk-based insurance system, BIF-insured institutions
are currently assessed premiums of between 0 and 27 cents per $100 of eligible
deposits, depending upon the institution's capital position and other
supervisory factors.

Congress recently enacted legislation that, among other things, provides for
assessments against BIF-insured institutions that will be used to pay certain
Financing Corporation (FICO) obligations. From 1997 through 1999, BIF-insured
banks are expected to pay an estimated 1.3 cents per $100 of eligible deposits
toward FICO

35
<PAGE>

obligations, and an estimated 2.4 cents per $100 of eligible deposits
thereafter, in addition to any BIF insurance assessments.

Enforcement Powers of Federal and State Regulators

The FDIC has broad enforcement powers over the institutions it regulates,
including the power to terminate deposit insurance, impose substantial fines
and other civil penalties and, in the most severe cases, to appoint a
conservator or receiver. In addition, the Utah Commissioner of Financial
Institutions also has broad enforcement powers under state law, including the
power to take possession of an institution in certain circumstances.

Lending Activities

Although Financial Services' activities are commercial and not consumer-
oriented, its activities as a credit card lender may be subject to regulation
under various federal laws including the Truth-in-Lending Act, the Equal
Credit Opportunity Act and the Soldiers' and Sailors' Civil Relief Act, as
well as state lending laws. Where applicable, regulators are authorized to
impose penalties for violations of these statutes and, in certain cases, to
order Financial Services to pay restitution to injured Cardmembers.
Cardmembers may also bring actions for up to treble damages for certain
violations. Federal and state bankruptcy and debtor relief laws may also
affect Financial Services' ability to collect outstanding balances owed by
Cardmembers who seek relief under these statutes.

Change in Control

Subject to certain limited exceptions, no business entity or individual,
singly or acting in concert, may acquire control, directly or indirectly, of
Financial Services without prior notice to the FDIC. Under regulation and
interpretations of the FDIC, a business entity or individual, singly or acting
in concert, that acquires ownership, control or the power to vote 10% or more
of any class of voting securities of the Company may be presumed to have
acquired indirect control of Financial Services.

In addition, under Utah law, business entities and individuals may not
directly or indirectly acquire control of Financial Services or its holding
companies without the prior approval of the Utah Commissioner of Financial
Institutions. A business entity may be presumed to have acquired control of
Financial Services or its holding companies under state law upon the
acquisition, directly or indirectly, of the power to vote more than 5% of any
class of voting securities, among other things; and an individual may be
presumed to have acquired control upon acquiring, directly or indirectly, the
power to vote 20% or more of any class of voting securities.

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<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information regarding the executive
officers and directors of the Company and its subsidiaries as of November 18,
1996.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
John C. Tolleson...... 48 Chairman of the Board
Pamela H. Patsley..... 39 President, Chief Executive Officer and Director
Richard W. Vague...... 40 Director
Gene H. Bishop........ 66 Director
Rupinder S. Sidhu..... 40 Director
David W. Truetzel..... 39 Chief Financial Officer and Secretary
Elena R. Anderson..... 36 Group Executive of Portfolio Management
James W. Baumgartner.. 36 President and Director of Financial Services
Susan H. Cerpanya..... 46 Group Executive of Marketing
Jeffrey C. Connelly... 56 Group Executive of Network Sales
Michael P. Duffy...... 37 Group Executive of Direct Marketing Operations
Raymond J. McArdle.... 58 Group Executive of Technology
Thomas J. McHugh...... 49 Group Executive of Network Operations
Gary T. Staub......... 38 Group Executive of Business Development
</TABLE>

The Board of Directors is divided into three classes serving staggered
three-year terms. Directors for each class will be elected at the annual
meeting of stockholders held in the year in which the term for such class
expires and will serve for three years. The terms of Richard W. Vague and Gene
H. Bishop expire at the 1997 annual meeting; the term of John C. Tolleson
expires at the 1998 annual meeting; and the terms of Pamela H. Patsley and
Rupinder S. Sidhu expire at the 1999 annual meeting. The Board of Directors
currently meets at least quarterly. Directors who are employees of the Company
or First USA do not receive any compensation for serving on the Board of
Directors of the Company.

The Company's Board of Directors also has an Audit Committee and a
Compensation Committee, each comprised of the Directors who are not employees
of the Company. The Audit Committee reviews and evaluates the Company's
internal accounting and auditing procedures, recommends to the Board of
Directors the firm to be appointed as independent accountants to audit the
Company's financial statements, and reviews with management and the
independent accountants the Company's year-end and quarterly operating
results. The Compensation Committee reviews compensation arrangements for
executive officers, reviews the Company's stock option plans and, except with
respect to applicable grants of options to outside directors, has full
authority to determine the persons to whom and the times at which options
shall be granted, the number of option shares to be granted and the price and
other terms of options. Messrs. Bishop and Sidhu serve on the Audit Committee
and the Compensation Committee.

John C. Tolleson. Mr. Tolleson has been Chairman of the Board of the Company
since December 1995, and Chairman of the Board of First USA Merchant Services,
Inc. ("Merchant Services") since May 1985. Mr. Tolleson has also served as
Chairman of the Board and Chief Executive Officer of First USA since August
1989, and of First USA's predecessor since its formation in May 1985. Mr.
Tolleson has been a Director of First USA Bank since May 1985 and a Director
of First USA FSB since March 1996. Mr. Tolleson currently serves on the Boards
of Visa USA, Inc., Visa International, Inc., Capstead Mortgage Corporation and
Jayhawk Acceptance Corporation and on the Executive Board of the Cox School of
Business at Southern Methodist University.

Pamela H. Patsley. Ms. Patsley has been President, Chief Executive Officer
and a Director of the Company since December 1995. She has also served as
President and Chief Executive Officer of Merchant Services, since December
1991 and Executive Vice President and Manager since July 1990, and as Chairman
of

37
<PAGE>

the Board of Financial Services since August 1994. Ms. Patsley has also served
as Executive Vice President and Secretary of First USA since July 1989. She
has been a Director of First USA Bank since November 1993 and a Director of
First USA FSB since March 1996. Ms. Patsley was Chief Financial Officer of
First USA and its predecessor from January 1987 to April 1994 and a Senior
Vice President prior to such time. Ms. Patsley originally joined First USA's
predecessor as its Vice President and Controller in February 1985. Ms. Patsley
currently serves on the VisaNet Services Advisors' Committees of Visa USA,
Inc. and Visa International, Inc. Ms. Patsley is also a Director of First
Virtual, Adolph Coors Company and Coors Brewing Company.

Richard W. Vague. Mr. Vague has been a Director of the Company since
December 1995. Mr. Vague has also served as President of First USA since June
1990 and as a Director of First USA since August 1989. Mr. Vague has also been
Chairman of the Board and Chief Executive Officer of First USA Bank since
October 1995 and was a Director from May 1985 through October 1995. Mr. Vague
also served as President and Chief Executive Officer of First USA Bank from
1987 through October 1995. Mr. Vague has been Chairman of the Board of First
USA FSB since March 1996. Mr. Vague also serves on the Visa Marketing
Committee, the Visa International Card Products Committee and the MasterCard
Marketing Committee, and was co-founder of First USA's predecessor with Mr.
Tolleson. Mr. Vague is also a Director of Physician Support Systems, Inc.

Gene H. Bishop. Mr. Bishop has been a Director of the Company since December
1995. He has also been a Director of First USA since September 1992. Mr.
Bishop also served as Chairman and Chief Executive Officer of Life Partners
Group, Inc. from November 1991 until October 1994. From October 1990 to
November 1991, he was Vice Chairman and Chief Financial Officer of Lomas
Financial Corporation and President and Chief Operating Officer of Lomas
Mortgage USA, a wholly owned subsidiary of Lomas Financial Corporation. From
March 1975 to July 1990, he was Chairman and Chief Executive Officer of MCorp,
a bank holding company. Mr. Bishop is also a Director of Southwest Airlines
Co., Liberte Investors, Southwestern Public Service Co. and Drew Industries,
Inc.

Rupinder S. Sidhu. Mr. Sidhu has been a Director of the Company since
December 1995. He has also been a Director of First USA since August 1989. Mr.
Sidhu has been President of Merion Capital Management LLC, a private
investment company, since 1994. From 1993 to 1994, Mr. Sidhu was a Partner of
Stonington Partners, Inc. (formerly known as First Capital Partners, Inc.), a
private investment firm. Mr. Sidhu has been a member of the Board of Directors
of Merrill Lynch Capital Partners, Inc., a private investment firm affiliated
with Merrill Lynch & Co., since 1987. He is also a Director of Eckerd
Corporation, Wherehouse Entertainment, Inc. and CMI Industries, Inc.

David W. Truetzel. Mr. Truetzel has been Chief Financial Officer and
Secretary of the Company since December 1995. From June 1985 to December 1995,
Mr. Truetzel was affiliated with A.G. Edwards & Sons, Inc., where he most
recently served as a Vice President in the firm's Corporate Finance
Department. Mr. Truetzel was formerly employed by KPMG Peat Marwick, L.L.P.
and Deloitte & Touche LLP. He is also a Director of National Home Centers,
Inc.

Elena R. Anderson. Ms. Anderson has been Group Executive of Portfolio
Management since December 1995. Ms. Anderson also served as Senior Vice
President of Accounting/Finance and Risk Management from July 1992 to December
1995, and has been employed by the Company and Merchant Services since May
1985. Ms. Anderson is responsible for credit, risk monitoring, chargeback
processing, merchant settlement and portfolio acquisitions. Ms. Anderson also
serves on the Acquiror's Council of Visa USA, Inc. and the Client Advisory
Board of the Northern Trust Company.

James W. Baumgartner. Mr. Baumgartner has been President and a Director of
Financial Services since June 1996. From 1992 to June 1996, Mr. Baumgartner
was Senior Vice President and General Manager of the commercial card business
and merchant credit card business at First Bank System, Inc. From 1989 to
1992, Mr. Baumgartner was Vice President and Controller of the Electronic
Banking Division at First Bank System, Inc. Mr. Baumgartner was formerly a
Senior Manager at Ernst & Young LLP, where he was employed from 1982 to 1989.

38
<PAGE>

Susan H. Cerpanya. Ms. Cerpanya has been Group Executive of Marketing since
December 1995. Ms. Cerpanya also served as Senior Vice President--Marketing
and Product Development of Merchant Services from June 1994 to December 1995.
Her responsibilities include marketing, product development, training, network
sales and operations. Ms. Cerpanya has been employed by the Company and
Merchant Services since January 1989. Ms. Cerpanya also serves on the
Acquirer's Committee of MasterCard International Inc.

Jeffrey C. Connelly. Mr. Connelly has been Group Executive of Network Sales
since August 1996. From July 1994 to August 1996, Mr. Connelly served as
Executive Vice President of Sales and Marketing for GENSAR Technologies Inc.
He was Senior Vice President at Visa USA from April 1989 to July 1994, where
he was general manager of the business unit responsible for all point of sale
processing in the United States.

Michael P. Duffy. Mr. Duffy has served as Group Executive of Direct
Marketing Operations since December 1995. From August 1992 through December
1995, Mr. Duffy served as Vice President--Finance of Litle. Mr. Duffy also
served as Vice President and Assistant Group Controller at Equifax Credit
Information Services from November 1991 through August 1992, and Assistant
Vice President--Finance and Administration at Equifax Credit Bureau Marketing
from June 1990 to October 1991.

Raymond J. McArdle. Mr. McArdle has served as Group Executive of Technology
since December 1995. Mr. McArdle also served as Senior Vice President--
Operations for Merchant Services from May 1991 to December 1995. In these
positions, he has been responsible for back office and field operations and
the application of open systems architecture to increase the operational
efficiency and product implementation of the Company. Mr. McArdle also serves
on the Customer Advisory Board of Verifone, Inc. and has served on various ad
hoc committees of Visa USA, Inc. and MasterCard International Inc.

Thomas J. McHugh. Mr. McHugh has been Group Executive of Network Operations
since August 1996. From March 1993 to August 1996, Mr. McHugh was Executive
Vice President and Chief Operating Officer of GENSAR Technologies Inc. From
June 1982 to March 1993, Mr. McHugh was Senior Vice President at CoreStates
Financial Corp., responsible for technology and operations for electronic
payment services.

Gary T. Staub. Mr. Staub has been Group Executive of Business Development
since August 1996. From August 1992 to August 1996, Mr. Staub was Executive
Vice President of GENSAR, serving as business manager for merchant processing
services and manager of strategic initiatives and acquisitions. From 1990 to
1992, Mr. Staub was First Vice President at Mellon Bank (Network Services
Division) responsible for merchant and ATM business management, and served in
various other positions at Mellon Bank from 1981 to 1990.

39
<PAGE>

EXECUTIVE COMPENSATION

The following tables set forth certain information concerning compensation
of, and stock options held by and restricted stock granted to, the Company's
Chief Executive Officer and the other four most highly paid officers in
respect of fiscal 1996 and 1995.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------ ----------------------------------------
NUMBER OF
SECURITIES
FISCAL RESTRICTED STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) AWARDS(2) OPTIONS(3) COMPENSATION
- --------------------------- ------ -------- -------- ---------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Pamela H. Patsley....... 1996 $280,000 $300,000 $ -- 275,000 $3,388(4)
President and Chief Ex-
ecutive Officer 1995 225,000 168,750 443,750 25,000 3,617(4)
Michael P. Duffy(5)..... 1996 130,000 100,000 -- 80,000 1,013(6)
Group Executive
Susan H. Cerpanya....... 1996 135,000 75,000 -- 80,000 2,025(6)
Group Executive 1995 125,000 62,500 221,875 10,000 1,875(6)
Raymond J. McArdle...... 1996 131,000 75,000 -- 80,000 1,965(6)
Group Executive 1995 115,500 57,750 221,875 10,000 1,733(6)
Elena R. Anderson....... 1996 120,000 75,000 -- 80,000 1,800(6)
Group Executive 1995 95,500 50,000 221,875 10,000 1,433(6)
</TABLE>
- --------
(1) Bonuses for fiscal 1996 were approved by the Board of Directors of the
Company on July 16, 1996 and paid on July 31, 1996. Bonuses for fiscal
1995 were approved by the Board of Directors of First USA on July 19, 1995
and paid on July 31, 1995. The amount for Mr. Duffy represents bonus
payments made during fiscal 1996 to Mr. Duffy with respect to the period
from January 1, 1995 through June 30, 1996.
(2) No awards of restricted Common Stock were issued to the named executive
officers with respect to fiscal 1996. Awards of First USA restricted stock
for fiscal 1995 were approved by the Board of Directors of First USA on
July 19, 1995. The awards were made in recognition of the Company's and
First USA's performance and as incentive for future performance, and
entitle the recipient to all dividends paid on such shares. The values
shown for restricted stock awards granted in fiscal 1995 are shown by
multiplying the number of shares granted by $44.375, the closing price of
First USA's common stock on the last trading day of fiscal 1995. Except as
set forth below, the number and value of shares of restricted stock of
First USA held by the named executive officers on the last day of fiscal
1996 (based upon the closing price of $55 for First USA's common stock on
the last trading day of fiscal 1996) were: Ms. Patsley, 20,000 shares,
$1,100,000; Mr. Duffy, no shares; Ms. Cerpanya, 10,000 shares, $550,000;
Mr. McArdle, 10,000 shares, $550,000; and Ms. Anderson, 10,000 shares,
$550,000. The amounts in this column and footnote do not reflect any
shares of restricted stock of First USA granted to the named executive
officers following the Initial Offerings. Such shares of First USA
restricted stock were granted as compensation in recognition for services
rendered to First USA.
(3) Annual stock option grants for fiscal 1996 were approved by the Board of
Directors of the Company on July 16, 1996. Fiscal 1995 amounts represent
the number of options to purchase First USA common stock. Stock option
grants for fiscal 1995 were approved by the Board of Directors of First
USA on July 19, 1995. The awards were made in recognition of the Company's
and First USA's performance and as incentive for future performance.
Fiscal 1996 amounts represent the number of options to purchase Common
Stock granted to such individuals as follows: Ms. Patsley 75,000 annual
award shares, 100,000 Initial Offering shares and 100,000 shares issued
upon exercise of special 30-day options granted pursuant to a stock loan
program (the "Stock Loan Program") in connection with the Initial
Offerings; Mr. Duffy, 25,000 annual award shares, 25,000 Initial Offering
shares and 30,000 stock loan shares; Ms. Cerpanya, 25,000 annual award
shares, 25,000 Initial Offering shares and 30,000 stock loan shares; Mr.
McArdle, 25,000 annual award shares, 25,000 Initial Offering shares and
30,000 stock loan shares; and Ms. Anderson, 25,000 annual award shares,
25,000 Initial Offering shares and 30,000 stock loan shares.
(4) The amounts represent employer matching contributions to the First USA
Savings Restoration Plan.
(5) Mr. Duffy joined the Company in fiscal 1996 and was with Litle prior to
joining the Company.
(6) The amounts represent employer matching contributions to the First USA
Retirement Savings Plan.

40
<PAGE>

OPTION GRANTS

The following table sets forth information concerning stock option grants
made with respect to fiscal 1996 to the named executive officers to purchase
Common Stock.

OPTION GRANTS WITH RESPECT TO LAST FISCAL YEAR--COMPANY COMMON STOCK

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS EXERCISE FOR OPTION TERM(2)
OPTIONS GRANTED TO PRICE PER EXPIRATION -------------------------
NAME GRANTED EMPLOYEES(1) SHARE DATE 5% 10%
- ---- ---------- ------------ --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Pamela H. Patsley....... 75,000 3.60% $36.00 7/16/2006(3) $ 1,698,000 $ 4,303,500
100,000 4.80% 19.53 3/22/2006(3) 1,228,000 3,113,000
100,000 4.80% 19.53 4/21/1996(4) N/A N/A
Michael P. Duffy........ 25,000 1.20% 36.00 7/16/2006(3) 566,000 1,434,500
25,000 1.20% 19.53 3/22/2006(3) 307,000 778,250
30,000 1.44% 19.53 4/21/1996(4) N/A N/A
Susan H. Cerpanya....... 25,000 1.20% 36.00 7/16/2006(3) 566,000 1,434,500
25,000 1.20% 19.53 3/22/2006(3) 307,000 778,250
30,000 1.44% 19.53 4/21/1996(4) N/A N/A
Raymond J. McArdle...... 25,000 1.20% 36.00 7/16/2006(3) 566,000 1,434,500
25,000 1.20% 19.53 3/22/2006(3) 307,000 778,250
30,000 1.44% 19.53 4/21/1996(4) N/A N/A
Elena R. Anderson....... 25,000 1.20% 36.00 7/16/2006(3) 566,000 1,434,500
25,000 1.20% 19.53 3/22/2006(3) 307,000 778,250
30,000 1.44% 19.53 4/21/1996(4) N/A N/A
</TABLE>
- --------
(1) Represents percentage of total options granted to employees of the Company
with respect to the fiscal year.
(2) The dollar amounts under these columns are the result of calculations at
5% and 10% compounded annual rates set by the Commission, and therefore
are not intended to forecast future appreciation, if any, in the price of
Common Stock. The potential realizable values illustrated at 5% and 10%
compound annual appreciation of the options which expire on July 16, 2006
assume that the price of the Common Stock increases to $58.64 and $93.38
per share, respectively, over the 10-year term of the options; and the
potential realizable values illustrated at 5% and 10% compound annual
appreciation of the options which expire on March 22, 2006 assume that the
price of the Common Stock increases to $31.81 and $50.66 per share,
respectively, over the 10-year term of the options.
(3) The first and second set of options listed for each of the named executive
officers vest in increments of 20% on the date of grant and each
anniversary of the date of grant, or earlier, upon a change in control of
the Company. The first set of options listed for each of the named
officers represents annual option grants and the second set of options
represents option grants made in connection with the Initial Offerings.
(4) The third set of options listed for each of the named officers were
special 30-day options granted pursuant to the Stock Loan Program and
vested 100% on the date of grant. First USA made loans to the named
executive officers in connection with the exercise of such options. Each
loan is evidenced by an eight-year, full recourse promissory note to First
USA that bears interest at 5.38% per annum. These options expired on April
21, 1996. The closing price of the Common Stock on the New York Stock
Exchange on April 19, 1996, the last trading day prior to the option
expiration date, was $39.50. Because the term of such options has expired,
the potential realizable values illustrated at 5% and 10% compound annual
appreciation of the options have not been provided. See "Relationship with
First USA--Indebtedness of Directors and Executive Officers".

41
<PAGE>

EXERCISE OF OPTIONS

The following table sets forth information concerning the exercise of stock
options to purchase Common Stock by the named executive officers during fiscal
1996.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUE--COMPANY COMMON STOCK

<TABLE>
<CAPTION>
NUMBER OF
VALUE REALIZED UNEXERCISED VALUE OF UNEXERCISED
SHARES (MARKET PRICE OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
ACQUIRED AT EXERCISE YEAR END AT FISCAL YEAR END(2)
ON LESS EXERCISE ------------------------- -------------------------
NAME EXERCISE(1) PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Pamela H. Patsley....... 100,000 $ 0 35,000 140,000 $469,400 $1,877,600
Michael P. Duffy........ 30,000 0 10,000 40,000 122,350 489,400
Susan H. Cerpanya....... 30,000 0 10,000 40,000 122,350 489,400
Raymond J. McArdle...... 30,000 0 10,000 40,000 122,350 489,400
Elena R. Anderson....... 30,000 0 10,000 40,000 122,350 489,400
</TABLE>
- --------
(1) The options listed for each of the named officers were special 30-day
options granted pursuant to the Stock Loan Program.
(2) Calculated on the basis of the closing sale price per share for the Common
Stock on the New York Stock Exchange of $40 on June 28, 1996.

The following table sets forth information concerning the exercise of stock
options to purchase First USA common stock by the named executive officers
during fiscal 1996.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUE--FIRST USA COMMON STOCK

<TABLE>
<CAPTION>
NUMBER OF
VALUE REALIZED UNEXERCISED VALUE OF UNEXERCISED
SHARES (MARKET PRICE OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
ACQUIRED AT EXERCISE YEAR END AT FISCAL YEAR END(1)
ON LESS EXERCISE ------------------------- -------------------------
NAME EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Pamela H. Patsley....... 22,592 $1,144,600 140,496 48,000 $6,319,691 $1,033,500
Michael P. Duffy........ -- -- -- -- -- --
Susan H. Cerpanya....... 16,000 733,000 21,600 21,400 704,400 479,475
Raymond J. McArdle...... 8,000 308,575 9,200 20,800 289,300 467,700
Elena R. Anderson....... 2,500 107,406 11,000 17,000 318,625 364,500
</TABLE>
- --------
(1) Calculated on the basis of the closing sale price per share for First USA
common stock on the New York Stock Exchange of $55 on June 28, 1996.

PENSION PLANS

Pension Plan

The Company has a noncontributory, tax-qualified defined benefit, "cash
balance" retirement plan (the "Pension Plan") that provides retirement
benefits for eligible employees of the Company. Each participant's cash
balance account is credited with an amount equal to 4% of the participant's
compensation plus interest. Each participant becomes fully vested in benefits
under the Pension Plan after 5 years of employment with First USA or the
Company. Prior to that time, no portion of a participant's benefits is vested.
Benefits may be paid under the Pension Plan, subject to limitations and
conditions imposed by the Internal Revenue Code of 1986, as amended (the
"Code"), upon a participant's termination of employment, retirement (early,
normal or late) or

42
<PAGE>

death. The Pension Plan specifies various options that participants may select
for the distribution of their accrued balance, including forms of annuity
payments and lump sum distributions. The Pension Plan does not permit loans or
in-service withdrawals by participants. Contributions to the Pension Plan will
be actuarially determined and therefore cannot be attributed to individual
participants. As of July 1, 1996, the estimated annual benefit payable under
the Pension Plan to the named executive officers upon normal retirement age
(assuming the executive continues to work to age 65 at the same rate of
compensation) for Ms. Patsley, Mr. Duffy, Ms. Cerpanya, Mr. McArdle and Ms.
Anderson was $65,547, $42,253, $38,976, $11,119 and $61,851, respectively.

First USA Supplemental Executive Retirement Plan

Eligible employees of the Company also receive benefits under the First USA
Supplemental Executive Retirement Plan (the "SERP"), which operates in
conjunction with the Pension Plan to provide eligible employees with benefits
that cannot be provided under the terms and conditions of the Pension Plan due
to Code limitations on the amount of compensation that may be considered under
the Pension Plan and Code limitations on the annual benefits that may be
provided under the Pension Plan. Contributions to the SERP will be actuarially
determined and therefore cannot be attributed to individual participants. As
of July 1, 1996, the estimated annual benefit payable upon normal retirement
age (assuming the executive continues to work to age 65 at the same rate of
compensation) for Ms. Patsley, Mr. Duffy, Ms. Cerpanya, Mr. McArdle and Ms.
Anderson was $84,009, $9,092, $8,383, $1,817 and $6,269, respectively.

COMPENSATION OF OUTSIDE DIRECTORS

Members of the Company's Board of Directors who are not employees of the
Company or its affiliates receive cash compensation as follows: a $20,000
annual retainer and $1,000 for each Board meeting attended and $500 for each
committee meeting attended (chairpersons receive $1,000 per committee
meeting). Such members of the Board of Directors are also eligible to receive
options under the Company's stock option plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During fiscal 1996, Messrs. Sidhu and Bishop served as members of the
Compensation Committee of the Company. No member of the Compensation Committee
is an employee, officer, or former officer of the Company, and no such member
had a relationship with the Company during fiscal year 1996 requiring
disclosure under applicable regulations of the Commission. No relationship
existed during fiscal year 1996 that constituted a "Compensation Committee
Interlock" within the meaning of applicable regulations of the Commission.

43
<PAGE>

PRINCIPAL STOCKHOLDERS AND SELLING STOCKHOLDER

The following table sets forth certain information believed by the Company
to be accurate based on information provided to it concerning the beneficial
ownership of Common Stock by each stockholder who is known by the Company to
own beneficially in excess of 5% of the outstanding Common Stock as of the
latest practicable date, including the Selling Stockholder, and by each
director, the Company's Chief Executive Officer, each of the Company's other
four most highly compensated executive officers and all officers and directors
as a group, as of October 31, 1996. Except as otherwise indicated, all persons
listed below have (i) sole voting power and investment power with respect to
their shares, except to the extent that authority is shared by spouses under
applicable law, and (ii) record and beneficial ownership with respect to their
shares. The shares and percentages set forth below include shares of Common
Stock which were outstanding or issuable within 60 days upon the exercise of
options outstanding as of October 31, 1996.

<TABLE>
<CAPTION>
OWNERSHIP PRIOR TO OWNERSHIP AFTER
THE OFFERINGS(A) THE OFFERINGS(A)
----------------------- -----------------------
SHARES OF SHARES TO SHARES OF
NAME OF BENEFICIAL OWNER COMMON STOCK PERCENTAGE BE SOLD COMMON STOCK PERCENTAGE
- ------------------------ ------------ ---------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
First USA, Inc. (a)..... 24,411,081 77% 4,000,000 20,411,081 59%
Gene H. Bishop(b)(c).... 27,500 * 0 27,500 *
Pamela H.
Patsley(b)(c).......... 185,100 * 0 185,100 *
Rupinder S.
Sidhu(b)(c)(d)......... 27,500 * 0 27,500 *
John C. Tolleson(b)(c).. 210,000 * 0 210,000 *
Richard W. Vague(b)(c).. 210,000 * 0 210,000 *
Michael P. Duffy(c)..... 43,200 * 0 43,200 *
Susan H. Cerpanya(c).... 55,000 * 0 55,000 *
Raymond J. McArdle(c)... 55,000 * 0 55,000 *
Elena R. Anderson(c).... 50,000 * 0 50,000 *
All executive directors
as a group
(14 persons)(c)(d)..... 974,125 3.1% 0 974,125 2.8%
</TABLE>
- --------
* Less than 1.0%
(a) The address of First USA is 1601 Elm Street, 47th Floor, Dallas, Texas
75201. The record owner of such shares is First USA Financial, Inc., a
wholly owned subsidiary of First USA.
(b) Gene H. Bishop, Pamela H. Patsley, Rupinder S. Sidhu, John C. Tolleson and
Richard W. Vague are directors of the Company.
(c) The shares include shares subject to options exercisable within 60 days of
October 31, 1996 as follows: Mr. Bishop, 7,500 shares; Ms. Patsley, 35,000
shares; Mr. Sidhu, 7,500 shares; Mr. Tolleson, 10,000 shares; Mr. Vague,
10,000 shares; Mr. Duffy, 10,000 shares; Ms. Cerpanya, 10,000 shares; Mr.
McArdle, 10,000 shares; and Ms. Anderson, 10,000 shares; all executive
officers and directors as a group, 126,500 shares. The address for Messrs.
Bishop, Sidhu, Tolleson and McArdle, and Ms. Patsley, Anderson and
Cerpanya is c/o First USA Paymentech, Inc., 1601 Elm Street, 8th Floor,
Dallas, Texas 75201. The address for Mr. Vague is c/o First USA Bank,
Three Christina Centre, 201 North Walnut, Wilmington, Delaware 19801. The
address for Mr. Duffy is c/o First USA Paymentech, Inc., 4 Northeastern
Blvd., Salem, New Hampshire 03079.
(d) The shares exclude 50,000 shares held by a limited partnership, for which
Mr. Sidhu is the President of the general partner, a limited liability
company. Mr. Sidhu disclaims beneficial ownership of such shares.

44
<PAGE>

RELATIONSHIP WITH FIRST USA

The Company and First USA have entered into the following agreements and
transactions.

INTERCOMPANY AGREEMENT

License to Use the First USA Name and Certain Trademarks

The Company and First USA are parties to an Intercompany Services Agreement
(the "Intercompany Agreement") which, among other things, provides for the
grant by First USA to the Company of a license to use the name "First USA" and
certain trademarks (collectively referred to as the "Marks") in connection
with the Company's business. See "Business". The Intercompany Agreement
provides that the Company will not, without First USA's prior written consent,
take any action with respect to (i) any litigation or proceeding involving the
Marks, (ii) any new use of the Marks or changes in the purpose for which the
Marks are used, (iii) any change in the Company's names, logos and other
identifications which might reasonably be expected to affect the Marks or (iv)
if required by First USA, any advertising campaigns or strategies that use the
Marks or which refer to First USA. First USA has the right to revoke the
license to use the Marks under certain circumstances if there is a change of
control or a sale of the Company. The Company does not believe that a
revocation by First USA of the license to use the Marks would have a material
adverse effect on the Company's ability to conduct its business.

Services and Facilities

Pursuant to the Intercompany Agreement (i) First USA provides the Company
with certain office space currently used by the Company consistent with past
practice, (ii) First USA allows the Company to participate in insurance
coverage and certain benefit plans made available by First USA to its other
subsidiaries and (iii) First USA provides certain administrative services to
the Company at a rate equal to First USA's costs, calculated in a manner
consistent with past practice. The Company believes that the rates charged by
First USA for such office space and services are consistent with prevailing
market rates.

Indemnification

The Intercompany Agreement provides that the Company indemnify First USA,
its subsidiaries and each of their respective officers, directors, employees
and agents against losses from third party claims based on, arising out of or
resulting from (i) the use of the Marks (but excluding any claim relating to
First USA's rights in the Marks) and (ii) any other acts or omissions arising
out of performance of the Intercompany Agreement.

The Intercompany Agreement provides that First USA will indemnify the
Company, its subsidiaries and each of their respective officers, directors,
employees and agents against losses from third party claims based on, arising
out of or resulting from (i) any third party claims relating to First USA's
rights in the Marks and (ii) any other acts or omissions arising out of
performance of the Intercompany Agreement.

INTERCOMPANY INDEBTEDNESS

First USA loaned the Company $25 million in connection with the Company's
August 1996 acquisition of GENSAR. Such loan accrues interest at the rate of
LIBOR plus 0.25% per annum and is due on demand. Net proceeds to the Company
from the Offerings may be used in part to repay all or a portion of this loan.

The Company used $40.6 million of the proceeds from the Initial Offerings to
repay a loan payable to First USA. At December 31, 1995, the loan payable to
First USA accrued interest at the rate of one month LIBOR plus 0.375% per
annum and was primarily incurred in connection with the purchase of merchant
contracts and certain other assets from DMGT.

REGISTRATION RIGHTS AGREEMENT

First USA and the Company are parties to a Registration Rights Agreement
(the "Registration Rights Agreement"). Pursuant to the Registration Rights
Agreement, First USA has the right to require the Company to

45
<PAGE>

use its best efforts to register under the Securities Act of 1933, as amended,
and the securities or blue sky laws of any jurisdiction designated by First
USA all or a portion of the issued and outstanding Common Stock held by First
USA (the "Registrable Shares") for sale in accordance with First USA's
intended method of disposition thereof. Such demand rights would be subject to
the condition that the Company would not be required to effect more than four
demand registrations. First USA also has the right to participate, or "piggy-
back," in certain equity offerings initiated by the Company, subject to
reduction of the size of the offering on the advice of the managing
underwriter. The Company and First USA will share equally all expenses
relating to the performance of, or compliance with, demand registration
requests under the Registration Rights Agreement and the Company will pay all
expenses relating to the performance of, or compliance with, "piggy-back"
registrations under the Registration Rights Agreement. However, in either
case, First USA will be responsible for underwriters' discounts and selling
commissions with respect to the Registrable Shares being sold and the fees and
expenses of its counsel in connection with such registration. First USA is
selling its shares in the Offerings pursuant to "piggy-back" rights under the
Registration Rights Agreement.

The Registration Rights Agreement also provides that during any period in
which First USA owns at least 20% of the voting power of the outstanding
capital stock of the Company or in which First USA is required to account for
its investment in the Company under the equity method of accounting, the
Company will provide First USA with certain financial and other information.

ARRANGEMENTS WITH FIRST USA

OTHER TRANSACTIONS

The Company is a party to a Tax Sharing Agreement (the "Tax Sharing
Agreement"), which governs tax related matters affecting taxable periods
ending prior to and subsequent to the Initial Offerings, including preparation
and filing of tax returns, payment of taxes and indemnification for tax
liabilities. In general, under the Tax Sharing Agreement, the Company is
responsible for filing tax returns and paying taxes of the Company, other than
returns which are filed on a consolidated, combined or unitary basis with
First USA, in which case the Company is responsible for its proportionate
share of such taxes, determined as if the Company and its subsidiaries were a
separate consolidated group. The Tax Sharing Agreement provides that First USA
will retain control of audits affecting its consolidated, combined or unitary
returns which include the Company and its subsidiaries. The Company is allowed
to participate in, but not control, any such audits with respect to matters
for which it may be required to indemnify First USA under such Tax Sharing
Agreement.

Financial Services from time to time engages in funding and investment
transactions with First USA Bank. The terms and provisions of such
transactions between Financial Services and First USA Bank are similar to the
terms Financial Services and First USA Bank provide to non-affiliated entities
in similar transactions.

The Company solicits financial institution bankcard issuing relationships
for First USA Bank. Net revenue includes $1.9 million, $1.9 million and $2.1
million in fees paid by First USA Bank for fiscal 1996, 1995 and 1994,
respectively.

46
<PAGE>

At June 30, 1996, the Company had $86.7 million invested in First USA Bank
certificates of deposit. These certificates of deposit earn interest at a
market rate and have initial maturities of less than 90 days.

INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS

In connection with the Initial Offerings, the Company granted special stock
options under the Company's Stock Loan Program. All of such special stock
options were exercisable for a period of 30 days from the date of consummation
of the Initial Offerings. Pursuant to the Stock Loan Program, First USA made
loans in connection with the special stock options exercised during the period
immediately following the consummation of the Initial Offerings to the
recipients of such options. Each such loan is evidenced by an eight-year, full
recourse promissory note to First USA that bears interest at 5.38% per annum.
The notes provide that the then outstanding principal amount thereof and all
accrued interest thereunder will become due and payable 60 days following the
optionee's termination of employment by the Company or First USA (other than
upon Retirement, as defined in the notes) or immediately upon demand following
such employee's termination for Cause, as defined in the notes (or, if
earlier, on the maturity date of the notes). The notes also provide that the
outstanding principal amount thereof and all accrued interest thereunder will
be forgiven ratably over a period of four years, beginning with the fifth
anniversary of the consummation of the Initial Offerings or earlier, upon the
optionee's death or disability, the termination of the optionee's employment
upon Retirement or upon a Change of Control (as each such term is defined in
the Company's stock option plan). Payments under the notes are secured by the
shares of Common Stock acquired upon exercise of the special options in
connection with which the loans were made. The following directors or
executive officers of the Company received loans from First USA pursuant to
the Stock Loan Program in the amounts indicated, each of which was outstanding
as of October 31, 1996: Ms. Patsley, $1,953,000; Mr. Tolleson, $1,464,750; Mr.
Duffy, $585,900; Mr. Truetzel, $683,550; Mr. Baumgartner, $683,550; Ms.
Cerpanya, $585,900; Mr. McArdle, $585,900; Ms. Anderson, $585,900; and
Mr. Vague, $1,464,750.

SHARES ELIGIBLE FOR FUTURE SALE

The Company estimates that of the 34,513,501 shares of Common Stock that
will be outstanding following completion of the Offerings, or 34,933,501
shares, if the Underwriters' over-allotment options are exercised in full,
only approximately 13,128,295 shares, or 14,148,295 shares, if the
Underwriters' over-allotment options are exercised in full, will be freely
tradable without restrictions or further registration under the Securities
Act, except for any shares purchased by an "affiliate" of the Company within
the meaning of Rule 144 under the Securities Act (which sales will be subject
to the volume limitations and certain other restrictions described below). The
20,411,081 shares of Common Stock which are held by First USA following
completion of the Offerings, or approximately 19,811,081 shares, if the over-
allotment options are exercised in full, are deemed "restricted securities"
within the meaning of Rule 144 under the Securities Act and, as a result, may
not be sold unless they are registered under the Securities Act or sold
pursuant to an exemption from registration thereunder, including the
exemptions contained in Rule 144. See "Principal Stockholders and Selling
Stockholder".

The Company, First USA and the directors and executive officers of the
Company have agreed, following completion of the Offerings, not to issue,
offer, sell, contract to sell or otherwise dispose of any shares of Common
Stock or securities convertible into or exchangeable or exercisable for Common
Stock without the prior written consent of Merrill Lynch, Pierce, Fenner &
Smith Incorporated for a period of 120 days after the date of this Prospectus,
except that the Company may, without such consent, grant options or issue
shares of Common Stock pursuant to its employee benefit plans and may in
certain circumstances issue shares of Common Stock in connection with
acquisitions.

Upon the expiration of the applicable lock-up period described above,
1,311,900 shares of Common Stock which are issuable upon the exercise of
employee stock options outstanding at the completion of the Offerings will be
freely tradable upon issuance without restriction or further registration
under the Securities Act, except for any of those shares of Common Stock owned
at any time by an "affiliate" of the Company. In addition,

47
<PAGE>

First USA has certain rights to require the Company to use its best efforts to
register under the Securities Act of 1933, as amended, and the securities or
blue sky laws of any jurisdiction designated by First USA all or a portion of
its shares of Common Stock. See "Relationship With First USA--Registration
Rights Agreement".

In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated), including any "affiliate" of the Company, who
has beneficially owned "restricted securities" for at least two years, and
affiliates who own unrestricted securities, are entitled to sell, within any
three-month period, that number of shares that does not exceed the greater of
(i) 1% of the shares of Common Stock then outstanding or (ii) the average
weekly trading volume of the Common Stock during the four calendar weeks
preceding such sale. A person (or persons whose shares are aggregated) that is
not deemed an affiliate of the Company and that has beneficially owned
restricted securities for at least three years may sell such securities under
Rule 144 without regard to the volume limitations described above. Affiliates
will continue to be subject to such limitations. As defined in Rule 144, an
"affiliate" of an issuer is a person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, such issuer.

DESCRIPTION OF CAPITAL STOCK

GENERAL

The Company's authorized capital stock consists of 200,000,000 shares of
Common Stock and 10,000,000 shares of preferred stock. As of December 11,
1996, the Company had outstanding 31,713,501 shares of Common Stock and 243
holders of record of Common Stock. There are no shares of preferred stock
outstanding.

COMMON STOCK

Each outstanding share of Common Stock is entitled to one vote on any matter
on which stockholders are entitled to vote. The holders of shares of Common
Stock are entitled to share ratably in such dividends or distributions, if
any, as may be declared by the Board of Directors at its discretion from funds
legally available therefor. Upon dissolution, liquidation or winding-up of the
Company, holders of Common Stock are entitled to share ratably in the net
assets available for distribution to stockholders after the payment of debts
and other liabilities subject to the prior rights of any issued preferred
shares. Holders of Common Stock have no preemptive, subscription, redemption
or conversion rights. See "Dividend Policy".

The Company has no current plans to pay cash dividends on the Common Stock.
See "Dividend Policy".

The Transfer Agent and Registrar of the Common Stock is The Bank of New
York.

PREFERRED STOCK

The Company's Certificate of Incorporation authorizes the Board of Directors
(without stockholder approval) to, among other things, issue shares of
preferred stock from time to time in one or more series, each series to have
such powers, designations, preferences and rights, and qualifications,
limitations or restrictions thereof, as may be determined by the Board of
Directors. As of the date of this Prospectus, there are no outstanding shares
of preferred stock.

CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS

The summary set forth below describes certain provisions of the Company's
Certificate of Incorporation and By-laws.

Pursuant to the Certificate of Incorporation, the Board of Directors is
divided into three classes serving staggered three-year terms. See
"Management". Directors can be removed from office only for cause and only by
the affirmative vote of the holders of a majority of the then-outstanding
shares of capital stock entitled to vote generally in an election of
directors. Vacancies on the Board of Directors may be filled only by the
remaining directors and not by the stockholders.

48
<PAGE>

The Certificate of Incorporation also provides that any action required or
permitted to be taken by the stockholders of the Company may be effected only
at an annual or special meeting of stockholders, and prohibits stockholder
action by written consent in lieu of a meeting. The Company's By-laws provide
that special meetings of stockholders may be called only by the Board of
Directors, the chairman or the secretary of the Company. Stockholders are not
permitted to call a special meeting or to require that the Board of Directors
call a special meeting of stockholders.

The By-laws establish an advance notice procedure for the nomination, other
than by or at the direction of the Board of Directors, of candidates for
election as directors as well as for other stockholder proposals to be
considered at annual meetings of stockholders. In general, notice of intent to
nominate a director or raise business at such meetings must be received by the
Company not less than 60 nor more than 90 days prior to the anniversary of the
previous year's annual meeting, and must contain certain specified information
concerning the person to be nominated or the matters to be brought before the
meeting and concerning the stockholder submitting the proposal.

The existence of unissued and unreserved Common Stock and preferred stock
may enable the Board of Directors to issue shares to persons friendly to
current management or to issue preferred stock with terms that could render
more difficult or discourage an attempt to obtain control of the Company by
means of a merger, tender offer, proxy contest or otherwise, thereby
protecting the continuity of the Company's management. Certain of the
provisions of the Certificate of Incorporation and By-laws discussed above may
have the effect, either alone or in combination with each other, of making
more difficult or discouraging a business combination transaction involving
the Company that is deemed undesirable by the Board of Directors. Those
provisions include (i) a classified board of directors, (ii) restrictions on
the rights of stockholders to remove directors for cause, (iii) prohibitions
on stockholders calling a special meeting of stockholders or from acting by
unanimous written consent in lieu of a meeting and (iv) requirements for
advance notice of actions proposed by stockholders for consideration at
meetings of the stockholders.

The foregoing summary is qualified in its entirety by reference to the
provisions of the Company's Certificate of Incorporation and By-laws, copies
of which have been filed as exhibits to the Registration Statement of which
this Prospectus forms a part.

LIMITATIONS ON DIRECTORS' LIABILITY

The Company's Certificate of Incorporation provides that no director of the
Company shall be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases or (iv)
for any transaction from which the director derived an improper personal
benefit. The effect of these provisions will be to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of
fiduciary duty as a director (including breaches resulting from grossly
negligent behavior), except in the situations described above. The provisions
will not limit the liability of directors under federal securities laws.

49
<PAGE>

CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES TO NON-U.S. HOLDERS

The following is a general summary of certain United States federal income
and estate tax consequences expected to result under current law from the
purchase, ownership, sale or other taxable disposition of Common Stock by any
person or entity other than (a) a citizen or resident of the United States,
(b) a corporation, partnership, or other entity created or organized in or
under the laws of the United States or of any state thereof, or (c) an estate
or trust which is not subject to United States federal income taxation on
income from sources outside the United States, except, with respect to the
taxable year of any trust beginning after December 31, 1996, a non-U.S. Holder
shall mean a trust other than a trust whose administration is subject to the
primary supervision of a United States court and which has one or more United
States fiduciaries who have the authority to control all substantial decisions
of the trust (a "non-U.S. Holder"). This summary does not address all United
States federal income and estate tax considerations that may be relevant to a
non-U.S. Holder in light of its particular circumstances or to certain non-
U.S. Holders that may be subject to special treatment under United States
federal income tax laws. Furthermore, this summary does not discuss any
aspects of foreign, state or local taxation. This summary is based on current
provisions of the Code, existing, temporary and proposed regulations
promulgated thereunder and administrative and judicial interpretations
thereof, all of which are subject to change, possibly with retroactive effect.
Each prospective purchaser of Common Stock is advised to consult its tax
advisor with respect to the tax consequences of acquiring, holding and
disposing of Common Stock.

DIVIDENDS

Dividends paid to a non-U.S. Holder of Common Stock generally will be
subject to withholding of United States federal income tax at a 30% rate (or
such lower rate as may be specified by an applicable income tax treaty) unless
the dividend is effectively connected with the conduct of a trade or business
of the non-U.S. Holder within the United States, in which case the dividend
will be taxed at ordinary federal income tax rates. If the non-U.S. Holder is
a corporation, such effectively connected income may also be subject to an
additional "branch profits tax." A non-U.S. Holder may be required to satisfy
certain certification requirements in order to claim treaty benefits or
otherwise claim a reduction of, or exemption from, the withholding obligation
pursuant to the above described rules.

The U.S. Treasury Department has recently issued proposed regulations (the
"Proposed Regulations"), which, if enacted in their current form, could affect
the procedures to be followed by a non-U.S. Holder in establishing such
holder's status as a non-U.S. Holder for purposes of the withholding rules
(including the backup withholding rules discussed below). The Proposed
Regulations, if adopted in their current form, generally would be effective
for payments made after December 31, 1997. Prospective investors should
consult their tax advisors concerning the potential adoption of the Proposed
Regulations and the potential effect of such regulations on an investment in
the Common Stock.

SALE OR DISPOSITION OF COMMON STOCK

A non-U.S. Holder generally will not be subject to United States federal
income tax in respect of any gain recognized on the sale or other taxable
disposition of Common Stock unless (i) the gain is effectively connected with
a trade or business of the non-U.S. Holder in the United States; (ii) in the
case of a non-U.S. Holder who is an individual and holds the Common Stock as a
capital asset, the holder is present in the United States for 183 or more days
in the taxable year of the disposition and either (a) the individual has a
"tax home" for United States federal income tax purposes in the United States
or (b) the gain is attributable to an office or other fixed place of business
maintained by the individual in the United States; (iii) the non-U.S. Holder
is subject to tax pursuant to the provisions of United States federal income
tax law applicable to certain United States expatriates or (iv) the Company is
or has been during certain periods a "U.S. real property holding corporation"
for United States federal income tax purposes (which the Company does not
believe it is or is likely to become) and, assuming that the Common Stock
continues to be "regularly traded on an established securities market" for tax
purposes, the non-U.S. holder held, directly or indirectly, at any time during
the five-year period ending on the date of disposition, more than 5% of the
outstanding Common Stock.

50
<PAGE>

BACKUP WITHHOLDING AND REPORTING REQUIREMENTS

United States backup withholding tax will generally not apply to dividends
paid on Common Stock to a non-U.S. Holder at an address outside the United
States. The Company must report annually to the Internal Revenue Service
("IRS") and to each non-U.S. Holder the amount of dividends paid to, and the
tax withheld with respect to, such holder, regardless of whether any tax was
actually withheld. This information may also be made available to the tax
authorities in the non-U.S. Holder's country of residence.

Upon the sale or other taxable disposition of Common Stock by a non-U.S.
Holder to or through a United States office of a broker, the broker must
backup withhold at a rate of 31% and report the sale to the IRS, unless the
holder certifies its non-U.S. status under penalties of perjury or otherwise
establishes an exemption. Upon the sale or other taxable disposition of Common
Stock by a non-U.S. Holder to or through the foreign office of a United States
broker, or a foreign broker with certain types of relationships to the United
States, the broker must report the sale to the IRS (but not backup withhold)
unless the broker has documentary evidence in its files that the seller is a
non-U.S. Holder and/or certain other conditions are met, or the holder
otherwise establishes an exemption.

Backup withholding is not an additional tax. Amounts withheld under the
backup withholding rules are generally allowable as a refund or credit against
such non-U.S. Holder's United States federal income tax liability, if any,
provided that the required information is furnished to the IRS.

FEDERAL ESTATE TAXES

Common Stock owned or treated as owned by an individual who is not a citizen
or resident (as specially defined for United States federal estate tax
purposes) of the United States at the time of death will be included in such
individual's gross estate for United States federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise.

51
<PAGE>

UNDERWRITING

Subject to the terms and conditions set forth in a purchase agreement (the
"International Purchase Agreement"), the Company and the Selling Stockholder
have agreed to sell to each of the underwriters named below (the
"International Managers"), and each of the International Managers, for whom
Merrill Lynch International, Montgomery Securities and Smith Barney Inc. are
acting as lead managers (the "Lead Managers"), has severally agreed to
purchase, the aggregate number of shares of Common Stock set forth opposite
its name below.

<TABLE>
<CAPTION>
NUMBER
INTERNATIONAL MANAGER OF SHARES
--------------------- ---------
<S> <C>
Merrill Lynch International........................................ 386,666
Montgomery Securities.............................................. 386,667
Smith Barney Inc. ................................................. 386,667
ABN AMRO Rothschild................................................ 40,000
Barclays de Zoete Wedd Limited..................................... 40,000
Credit Lyonnais Securities......................................... 40,000
Morgan Grenfell & Co. Limited...................................... 40,000
J.P. Morgan Securities Ltd. ....................................... 40,000
---------
Total......................................................... 1,360,000
=========
</TABLE>

The Company and the Selling Stockholder have also entered into a purchase
agreement (the "U.S. Purchase Agreement" and, together with the International
Purchase Agreement, the "Purchase Agreements") with Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Montgomery Securities and Smith Barney Inc.,
acting as representatives (the "U.S. Representatives"), and certain other
underwriters in the United States and Canada (the "U.S. Underwriters" and,
together with the International Managers, the "Underwriters"). Subject to the
terms and conditions set forth in the U.S. Purchase Agreement, the Company and
the Selling Stockholder have agreed to sell to the U.S. Underwriters, and the
U.S. Underwriters have severally agreed to purchase, an aggregate of 5,440,000
shares of Common Stock.

In each Purchase Agreement, the Underwriters named therein have agreed,
subject to the terms and conditions set forth in such Purchase Agreement, to
purchase all of the shares of Common Stock being sold pursuant to such
Purchase Agreement if any of the shares of Common Stock being sold pursuant to
such Purchase Agreement are purchased. Under certain circumstances, under the
Purchase Agreements, the commitments of non-defaulting Underwriters may be
increased. Each Purchase Agreement provides that the Company and the Selling
Stockholder are not obligated to sell, and the Underwriters named therein are
not obligated to purchase, the shares of Common Stock under the terms of the
Purchase Agreement unless all of the shares of Common Stock to be sold
pursuant to the Purchase Agreements are contemporaneously sold.

The Lead Managers have advised the Company that the International Managers
propose to offer the shares of Common Stock offered hereby in the
International Offering to the public initially at the public offering price
set forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of $.85 per share of Common Stock, and
that the International Managers may allow, and such dealers may reallow, a
discount not in excess of $.10 per share of Common Stock on sales to certain
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.

The public offering price per share of Common Stock and the underwriting
discount per share of Common Stock are identical for both Offerings.

The Company has granted to the International Managers and the U.S.
Underwriters options to purchase up to an additional 84,000 and 336,000 shares
of Common Stock, respectively, at the public offering price, less the
underwriting discount. The Selling Stockholder has granted to the
International Managers and the U.S.

52
<PAGE>

Underwriters options to purchase up to an additional 120,000 and 480,000
shares of Common Stock, respectively, at the public offering price, less the
underwriting discount. Such options, which will expire 30 days after the date
of this Prospectus, may be exercised solely to cover over-allotments. To the
extent that the Underwriters exercise such options, each of the Underwriters
will have a firm commitment, subject to certain conditions, to purchase from
the Company and the Selling Stockholder, pro rata, approximately the same
percentage of the option shares that the number of shares to be purchased
initially by that Underwriter is of the 6,800,000 shares of Common Stock
initially purchased by the Underwriters.

The Company has been informed that the Underwriters have entered into an
agreement (the "Intersyndicate Agreement") providing for the coordination of
their activities. Pursuant to the Intersyndicate Agreement, the International
Managers and the U.S. Underwriters are permitted to sell shares of Common
Stock to each other for purposes of resale at the public offering price, less
an amount not greater than the selling concession.

The Company has been informed that, under the terms of the Intersyndicate
Agreement, the U.S. Underwriters and any dealer to whom they sell shares of
Common Stock will not offer to sell or resell shares of Common Stock to
persons who are non-U.S. or non-Canadian persons or to persons they believe
intend to resell to persons who are non-U.S. or non-Canadian persons, and the
International Managers and any bank, broker or dealer to whom they sell shares
of Common Stock will not offer to sell or resell shares of Common Stock to
U.S. persons or to Canadian persons or to persons they believe intend to
resell to U.S. persons or to Canadian persons, except in the case of
transactions pursuant to the Intersyndicate Agreement which, among other
things, permits the Underwriters to purchase from each other and offer for
resale such number of shares of Common Stock as the selling Underwriter or
Underwriters and the purchasing Underwriter or Underwriters may agree.

Each International Manager has agreed that (i) it has not offered or sold,
and it will not offer or sell, directly or indirectly, any shares of Common
Stock offered hereby to persons in the United Kingdom prior to the expiration
of the period of six months from the closing date except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing
of investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public within the meaning of the Public Offers of Securities
Regulations 1995, (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 with respect to anything done by
it in relation to the Common Stock in, from, or otherwise involving the United
Kingdom, and (iii) it has only issued or passed on and will only issue or pass
on to any person in the United Kingdom any document received by it in
connection with the issuance of Common Stock if that person is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom the document
may otherwise lawfully be issued or passed on.

The Common Stock is traded on the NYSE under the symbol "PTI".

The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required
to make in respect thereof.

Purchasers of the shares offered hereby may be required to pay stamp taxes
and other charges in accordance with the laws and practices of the country of
purchase, in addition to the offering price set forth on the cover page
hereof.

53
<PAGE>

LEGAL MATTERS

Certain legal matters with respect to the Common Stock will be passed upon
for the Company and the Selling Stockholder by Skadden, Arps, Slate, Meagher &
Flom LLP, New York, New York, and for the Underwriters by Brown & Wood LLP,
New York, New York.

EXPERTS

The consolidated financial statements of the Company at June 30, 1996 and
1995 and for each of the three years in the period ended June 30, 1996 have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included elsewhere herein and in the Registration Statement of
which this Prospectus is a part, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.

The consolidated financial statements of GENSAR at December 31, 1994 and
1995 and for each of the three years in the period ended December 31, 1995
included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and are
included in reliance upon the report given upon the authority of such firm as
experts in accounting and auditing.

54
<PAGE>

INDEX TO FINANCIAL STATEMENTS

CONTENTS

FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES

<TABLE>
<S> <C>
Audited Consolidated Financial Statements:
Report of Independent Auditors.......................................... F-2
Consolidated Balance Sheets as of June 30, 1996 and 1995................ F-3
Consolidated Statements of Income for each of the three years in the
period ended June 30, 1996............................................. F-4
Consolidated Statements of Changes in Stockholders' Equity for each of
the three years in the period ended June 30, 1996...................... F-5
Consolidated Statements of Cash Flows for each of the three years in the
period ended June 30, 1996............................................. F-6
Notes to Consolidated Financial Statements.............................. F-7
Unaudited Interim Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheet as of September 30, 1996........... F-16
Condensed Consolidated Statements of Income for the three months ended
September 30, 1996 and September 30, 1995.............................. F-17
Condensed Consolidated Statements of Cash Flows for the three months
ended September 30, 1996 and September 30, 1995........................ F-18
Notes to Interim Condensed Consolidated Financial Statements............ F-19
GENSAR HOLDINGS INC AND SUBSIDIARIES
Audited Consolidated Financial Statements:
Independent Auditors' Report............................................ F-21
Consolidated Balance Sheets as of December 31, 1995 and 1994............ F-22
Consolidated Statements of Operations for the Years Ended December 31,
1995, 1994 and 1993.................................................... F-23
Consolidated Statements of Shareholders' Equity (Deficiency) for the
Years Ended December 31, 1995, 1994 and 1993........................... F-24
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1994 and 1993.................................................... F-25
Notes to Consolidated Financial Statements ............................. F-26
UNAUDITED PRO FORMA FINANCIAL STATEMENTS:
Pro Forma Financial Information......................................... F-33
Pro Forma Condensed Consolidated Statements of Income for the three
months ended
September 30, 1996..................................................... F-34
Pro Forma Condensed Consolidated Statements of Income for the Year Ended
June 30, 1996.......................................................... F-35
Notes to Pro Forma Statements of Income for the Three Months Ended
September 30, 1996 and the Year Ended June 30, 1996.................... F-36
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Stockholders and Board of Directors
First USA Paymentech, Inc.

We have audited the accompanying consolidated balance sheets of First USA
Paymentech, Inc. and subsidiaries as of June 30, 1996 and 1995, and the
related consolidated statements of income, changes in stockholders' equity,
and cash flows for each of the three years in the period ended June 30, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of First USA
Paymentech, Inc. and subsidiaries at June 30, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1996, in conformity with generally
accepted accounting principles.

/s/ Ernst & Young LLP

Dallas, Texas
July 16, 1996 except for Note N,
as to which the date is August 19, 1996

F-2
<PAGE>

FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA

<TABLE>
<CAPTION>
JUNE 30,
----------------
1996 1995
-------- -------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................... $105,804 $ 4,623
Receivables................................................. 25,952 18,182
Credit card loans, net...................................... 7,012 --
Terminal inventories........................................ 3,747 3,697
Prepaid expenses and other current assets................... 7,618 4,196
-------- -------
Total current assets...................................... 150,133 30,698
Investments (market value of $12,315)......................... 12,379 --
Property and equipment, net................................... 30,344 11,769
Purchased merchant portfolios, net............................ 26,519 8,601
Goodwill, net................................................. 62,375 31,423
Other assets.................................................. 8,471 1,547
-------- -------
$290,221 $84,038
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Merchant deposits........................................... $ 18,353 $16,854
Accounts payable............................................ 15,912 1,746
Other accrued expenses...................................... 11,455 5,669
Accrued assessments......................................... 7,273 4,324
Interest-bearing deposits................................... 5,335 --
Payable to affiliates....................................... 139 4,213
-------- -------
Total current liabilities................................. 58,467 32,806
Interest-bearing deposits..................................... 690 --
Loan payable to First USA..................................... -- 4,000
Stockholders' equity:
Common stock, $0.01 par value, 200,000,000 shares
authorized, 31,701,081 and 24,411,081 issued and
outstanding at June 30, 1996 and 1995, respectively........ 317 244
Additional capital.......................................... 210,433 40,878
Retained earnings........................................... 20,314 6,110
-------- -------
231,064 47,232
-------- -------
$290,221 $84,038
======== =======
</TABLE>

See Notes to Consolidated Financial Statements.

F-3
<PAGE>

FIRST USA PAYMENTECH AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net Revenue.................................. $121,232 $86,628 $63,749
Operating Expenses
Salaries and employee benefits............... 38,753 31,051 19,028
Data processing and communications........... 26,951 20,825 17,244
Occupancy and equipment...................... 6,314 4,379 2,831
Depreciation and amortization................ 7,669 4,210 1,794
Other........................................ 20,530 16,263 14,335
-------- ------- -------
Total operating expenses................... 100,217 76,728 55,232
-------- ------- -------
Income From Operations....................... 21,015 9,900 8,517
Net Interest Income
Interest income.............................. 4,579 1,899 630
Interest expense............................. 1,842 589 307
-------- ------- -------
2,737 1,310 323
-------- ------- -------
Income Before Income Taxes................. 23,752 11,210 8,840
Provision For Income Taxes................... 9,500 3,290 2,489
-------- ------- -------
Net Income................................. $ 14,252 $ 7,920 $ 6,351
======== ======= =======
Net income per share......................... $ 0.54 $ 0.32 $ 0.26
======== ======= =======
Weighted average common and common equivalent
shares outstanding.......................... 26,429,673 24,411,081 24,411,081
========== ========== ==========
</TABLE>

See Notes to Consolidated Financial Statements.

F-4
<PAGE>

FIRST USA PAYMENTECH AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
DOLLARS IN THOUSANDS

<TABLE>
<CAPTION>
FOR THE THREE FISCAL YEARS ENDED JUNE 30, 1996
-----------------------------------------------
COMMON STOCK
----------------- ADDITIONAL RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1993....... 24,411,081 $244 $ 7,708 $ 3,731 $ 11,683
Net income................... 2,327 4,024 6,351
Cash dividends to First USA.. (3,306) (3,306)
---------- ---- -------- ------- --------
Balance at June 30, 1994....... 24,411,081 244 10,035 4,449 14,728
Net income................... 3,272 4,648 7,920
Capital contributions from
First USA................... 27,571 27,571
Cash dividends to First USA.. (2,987) (2,987)
---------- ---- -------- ------- --------
Balance at June 30, 1995....... 24,411,081 244 40,878 6,110 47,232
Net income................... 48 14,204 14,252
Capital contributions from
First USA................... 28,143 28,143
Issuance of common stock,
net......................... 7,290,000 73 141,364 141,437
---------- ---- -------- ------- --------
Balance at June 30, 1996....... 31,701,081 $317 $210,433 $20,314 $231,064
========== ==== ======== ======= ========
</TABLE>

See Notes to Consolidated Financial Statements.

F-5
<PAGE>

FIRST USA PAYMENTECH AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
------------------------------
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
Operating Activities
Net income.................................... $ 14,252 $ 7,920 $ 6,351
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for depreciation and
amortization............................... 7,669 4,210 1,794
Changes in operating assets and liabilities:
Receivables............................... (14,782) 2,292 (6,526)
Accounts payable.......................... 14,166 82 (702)
Payable to affiliates..................... (4,074) 2,144 (364)
Accrued assessments....................... 2,949 550 2,812
Other accrued expenses.................... 5,786 456 536
Merchant deposits......................... 1,499 6,497 7,978
Other operating activities................ (6,776) (6,814) (384)
--------- --------- --------
Net Cash Provided By Operating Activities... 20,689 17,337 11,495
Investing Activities
Purchases of merchant portfolios, processing
services and other acquisitions.............. (41,398) (14,665) (1,750)
Purchases of property and equipment........... (21,333) (9,229) (2,452)
Purchase of investments....................... (12,949) -- --
Proceeds from maturities of investments....... 570 -- --
Other investing activities.................... (4,000) -- --
--------- --------- --------
Net Cash Used For Investing Activities...... (79,110) (23,894) (4,202)
Financing Activities
Proceeds from initial public offering......... 141,437 -- --
Borrowings from First USA..................... 59,473 4,000 --
Payment on note payable to First USA.......... (63,473) -- --
Capital contribution from First USA........... 16,140 5,000 --
Issuance of interest-bearing deposits......... 6,025 -- --
Dividends paid to First USA................... -- (2,987) (3,306)
--------- --------- --------
Net Cash Provided By (Used For) Financing
Activities................................. 159,602 6,013 (3,306)
--------- --------- --------
Increase (Decrease) In Cash And Cash
Equivalents................................ 101,181 (544) 3,987
Cash and cash equivalents at beginning of
year.......................................... 4,623 5,167 1,180
--------- --------- --------
Cash And Cash Equivalents At End Of Year...... $105,804 $ 4,623 $ 5,167
========= ========= ========
Supplemental Cash Flow Information
Noncash financing activity:
Capital contribution from First USA........... $ 12,002 $ 22,571 $ --
========= ========= ========
</TABLE>

See Notes to Consolidated Financial Statements.

F-6
<PAGE>

FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Business

The consolidated financial statements include the accounts of First USA
Paymentech, Inc. and its wholly owned subsidiaries (the "Company"). The
Company is a 77%-owned indirect subsidiary of First USA, Inc. ("First USA").
All significant intercompany balances and transactions have been eliminated.
The company indirectly conducts its business through the two primary operating
subsidiaries, First USA Merchant Services, Inc. ("Merchant Services") and
First USA Financial Services, Inc. ("Financial Services"). Merchant Services
began payment processing in 1985 and Financial Services, a Utah industrial
loan corporation, began issuing commercial cards in September 1995. Merchant
Services is among the largest processors of merchant credit card transactions
in the United States. In addition, Financial Services during the past fiscal
year has begun to market and issue to businesses and other entities credit
cards that facilitate business-to-business payment solutions.

Cash and Cash Equivalents

The Company considers all highly liquid investments, with maturities of
three months or less when purchased, to be cash equivalents.

Receivables

Receivables primarily represent fee income earned under processing
agreements with merchants, agent banks and sales agents.

Credit Card Loans

Credit card loans represent Business, Corporate and Purchasing Visa cards.
Business cards are a revolving line of credit designed for small to medium-
size companies to make routine business purchases, including travel and
entertainment, equipment and supplies. Corporate cards are non-revolving
charge cards designed for use by medium to large companies primarily for
travel and entertainment expenditures. Purchasing cards are also non-revolving
cards designed for use by medium to large companies for purchases of
equipment, supplies and services.

Terminal Inventories

The Company maintains an inventory of point-of-sale terminals and printers
that are sold or leased to merchants. These terminals are valued at the lower
of cost or market on a specific identification basis. When leased under
operating leases, the terminals are reclassified to property and equipment and
depreciated over their estimated useful life.

Terminal Leases

Leases that are generally noncancelable by the merchant are accounted for as
operating leases. Income from the lease of point-of-sale terminals under
operating leases is recorded in accordance with the terms of the lease
agreements.

Investments

Investments are carried at cost, adjusted for amortization of premium and
accretion of discounts. The Company has both the ability and intent to hold
these investments to maturity.

F-7
<PAGE>

FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Property and Equipment

Property and equipment are carried at cost, net of accumulated depreciation
and amortization. Depreciation is provided on a straight-line basis over
periods ranging from two to seven years for furniture and equipment, and three
years for point-of-sale terminals held for lease. Leasehold improvements are
amortized over the lesser of the economic useful life of the improvement or
the term of the lease.

Purchased Merchant Portfolios and Goodwill

Purchased merchant portfolios are amortized over the estimated period to be
benefited, primarily 25 years, on a straight-line basis. Purchased merchant
portfolios are evaluated by management for impairment at each balance sheet
date through review of actual cash flows generated by each merchant portfolio
in relation to the expected cash flows and the recorded amortization expense.
If, upon review, actual cash flows indicate an impairment of the value of the
purchased merchant portfolio, amortization will be accelerated.

Goodwill represents the excess of purchase price over identifiable assets
acquired, less liabilities assumed from business combinations, and is
amortized over the estimated period to be benefited, generally 40 years, on a
straight-line basis. Goodwill is reviewed for impairment whenever events
indicate that the carrying amount may not be recoverable. If estimates of
future operating results would be insufficient to recover future charges to
goodwill amortization, then the recorded value of goodwill balances would be
reduced by the estimated deficiencies in operating results.

In March 1995, the Financial Accounting Standards Board issued Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of ("Statement No. 121"), which requires impairment
losses to be recorded on long-lived assets used in operations when indicators
of impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. Statement
No. 121 also addresses the accounting for long-lived assets that are expected
to be disposed of. The Company will adopt Statement No. 121 in the first
quarter of fiscal 1997 and, based on current circumstances, does not believe
the effect of adoption will be material.

Chargebacks and Merchant Fraud

Disputes between a cardholder and a merchant periodically arise due to
cardholder dissatisfaction with merchandise quality or a merchant's service
and the disputes may not be resolved in the merchant's favor. In some of these
cases, the transaction is "charged back" to the merchant and the purchase
price is refunded to the cardholder by Visa and MasterCard. If the merchant is
unable to fund the refund, the Company is liable for the full amount of the
transaction. The Company maintains merchant deposits from certain customers as
an offset to potential contingent liabilities that are the responsibility of
such customers. The Company evaluates its risk and estimates its potential
loss for chargebacks based on historical experience. The Company pays the
customer interest of generally 2.0% on the merchant deposits.

Net Revenue

Net revenue is primarily fees from merchants related to the processing of
transactions (including merchant discount fees) partially offset by
interchange fees payable to credit card issuing institutions and fees payable
to credit card associations and are recorded as services are performed. Net
revenue also includes fees earned from software maintenance and customer
service and fees for the deployment and repair of credit card terminals. In
addition, net revenue includes amounts from First USA Bank for soliciting
agent bank card relationships on First USA Bank's behalf.

F-8
<PAGE>

FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Retirement Benefits

Eligible employees were transferred from the First USA noncontributory
defined benefit retirement plan in March 1996 to the Company's noncontributory
defined benefit retirement plan (the "Retirement Plan"). Effective July 1,
1996, eligible employees were transferred from the First USA Retirement
Savings Plan (the "First USA Savings Plan") to the Company's Retirement
Savings Plan (the "Savings Plan").

Stock-Based Compensation

The Company accounts for stock option and stock purchase plans in accordance
with Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued
to Employees" ("APB 25"). In accordance with APB 25, no compensation expense
is recognized for stock options issued to employees since the options have an
exercise price equal to the market value of the common stock on the day of the
grant. In addition, the Company does not recognize compensation expense for
its employee stock purchase plan since it qualifies as a non-compensatory plan
under APB 25. In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation," which is effective for fiscal years beginning after
December 15, 1995. Under SFAS No. 123, the Company may elect to recognize
stock-based compensation expense based on the fair value of the awards or
continue to account for stock-based compensation under APB 25 and disclose in
the financial statements the effects of SFAS No. 123 as if the recognition
provisions were adopted. Company has evaluated its alternatives available
under the provisions of SFAS No. 123 and has determined it will not adopt the
recognition provisions of the statement. Therefore, the adoption of SFAS No.
123 will have no impact on the Company's consolidated financial statements.

Federal Income Taxes

Provision for income taxes includes a state and federal income tax
component. The income tax provision is provided for using the liability
method. Deferred tax assets and liabilities are determined based on
differences between financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

NOTE B--OFFERING

On March 27, 1996, the Company completed an initial public underwritten
offering of 5.9 million shares of its common stock, $0.01 par value, at $21.00
per share and sold 635,000 shares in a direct placement at $19.53 per share,
the offering price less the underwriters' discount, and 790,000 shares
pursuant to a stock loan program funded by First USA (the "Offering"). The net
proceeds from the Offering were $141.4 million, of which the Company used
$40.6 million of the net proceeds for repayment of a loan payable to First
USA.

F-9
<PAGE>

FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE C--BUSINESS COMBINATIONS AND ASSET PURCHASES

The Company has completed the following business combinations and merchant
portfolio purchases (in millions):

<TABLE>
<CAPTION>
CONSIDERATION FIRST USA
BUSINESS COMBINATIONS AND --------------------------- COMMON STOCK
MERCHANT PORTFOLIO PURCHASES DATE TOTAL CASH DOLLAR VALUE
---------------------------- -------------- ------ ----- ------------
<S> <C> <C> <C> <C>
Fiscal Year 1996:
Mokarow & Associates, Inc. ........... December 1995 $ 14.3 $ 2.3 $12.0
Litle & Company, Inc. ................ September 1995 85.0 -- 85.0
DMGT Corporation...................... August 1995 34.0 34.0 --
Merchant Portfolios................... Various 4.7 4.7 --
------ ----- -----
$138.0 $41.0 $97.0
====== ===== =====
Fiscal Year 1995:
NationalCard Processing Systems,
Inc. ................................ July 1994 $ 9.1 $ 9.1 $ --
Electronic Processing Source, Inc. ... July 1994 22.7 -- 22.7
Processing Services................... Various 5.3 5.3 --
Merchant Portfolios................... Various 0.3 0.3 --
------ ----- -----
$ 37.4 $14.7 $22.7
====== ===== =====
Fiscal Year 1994:
MAGroup, Inc. ........................ October 1993 $ 10.5 $ -- $10.5
Merchant Portfolios................... Various 1.8 1.8 --
------ ----- -----
$ 12.3 $ 1.8 $10.5
====== ===== =====
</TABLE>

The Litle and MAGroup transactions have been accounted for as poolings of
interests, and accordingly, the Company's consolidated financial statements
include their operations for all prior fiscal years presented. The DMGT
transaction was accounted for as a purchase, and accordingly, its operations
have been included in the Company's results of operations from August 31,
1995. All other business combinations and asset purchases have been accounted
for as purchases, and accordingly, their results have been included in the
Company's results of operations from the effective dates of such acquisitions.

Net income for the first quarter of fiscal year 1996 and for the fiscal
years ended June 30, 1995 and 1994 reflects the effect of Litle as a
Subchapter S corporation and, accordingly, Litle included no federal income
taxes in its financial statements since its income was taxed at the
shareholder level. Separate results of the Company and Litle for the three
fiscal years ended June 30, 1996 are as follows (in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
----------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Net Revenue:
Company...................................... $117,080 $63,221 $45,238
Litle........................................ 4,152 24,209 19,100
Elimination of intercompany revenue.......... -- (802) (589)
--------- -------- --------
$121,232 $86,628 $63,749
========= ======== ========
Net Income:
Company...................................... $ 14,204 $ 4,649 $ 4,024
Litle........................................ 48 3,271 2,327
--------- -------- --------
$ 14,252 $ 7,920 $ 6,351
========= ======== ========
</TABLE>

F-10
<PAGE>

FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In connection with the Litle acquisition, approximately $1.6 million of
acquisition costs ($1.0 million net of income taxes, or $0.04 per share) were
incurred and recorded as operating expense in the Company's first six months
of fiscal 1996.

First USA issued shares of its common stock in exchange for the merchant
contracts and certain other assets of EPS. First USA contributed the purchased
merchant portfolio of EPS to the Company as a capital contribution. The
Company and First USA also purchased the capital stock of Mokarow, a sales
agent, for approximately $14.3 million. First USA contributed its investment
in Mokarow to the Company as a capital contribution.

Amortization expense related to purchased merchant portfolios and goodwill
was $2.5 million, $1.2 million and $110,000 during fiscal 1996, 1995 and 1994,
respectively.

NOTE D--NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE

Net income per share is calculated as follows (dollars in thousands, except
per share data):

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-----------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net income............................. $14,252 $7,920 $6,351
=========== =========== ===========
Weighted average common shares
outstanding........................... 26,315,065 24,411,081 24,411,081
Common stock equivalents--stock
options............................... 114,608 -- --
----------- ----------- -----------
Weighted average common and common
equivalent shares outstanding......... 26,429,673 24,411,081 24,411,081
=========== =========== ===========
Net income per share................... $0.54 $0.32 $0.26
=========== =========== ===========
</TABLE>

NOTE E--PROPERTY AND EQUIPMENT

A summary of property and equipment by major class is as follows (in
thousands):

<TABLE>
<CAPTION>
JUNE 30,
-----------------
1996 1995
-------- -------
<S> <C> <C>
Furniture and equipment................................... $ 27,599 $16,341
Leasehold improvements.................................... 9,508 2,172
Credit card terminals held for lease...................... 4,622 2,139
-------- -------
41,729 20,652
Less: accumulated depreciation............................ (11,385) (8,883)
-------- -------
$ 30,344 $11,769
======== =======
</TABLE>

Depreciation expense was $5.2 million, $3.0 million and $1.7 million in
fiscal 1996, 1995 and 1994, respectively.

NOTE F--REVOLVING CREDIT FACILITY

On February 21, 1996, the Company entered into a $100 million revolving
credit facility payable to a bank syndicate ("Revolving Credit Facility"). The
Revolving Credit Facility bears interest based on the London Interbank
Offering Rate ("LIBOR") plus 0.35% to 0.90% and commitment fees ranging from
0.15% to 0.30% on the unused portion based on the Company's debt to
capitalization ratio, payable quarterly. The Revolving Credit Facility expires
in February 1999, with the option of two one-year extensions. First USA
Financial, Inc.

F-11
<PAGE>

FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

is guarantor to the Revolving Credit Facility. The Company's ability to pay
dividends is conditioned upon the observance of certain financial covenants in
the agreement. The financial covenants require the Company to maintain
specified (i) debt to capitalization ratios, (ii) debt to cash flow ratios,
(iii) minimum interest coverage ratios, and (iv) minimum levels of
consolidated stockholders' equity, and additionally the debt due to First USA
may not exceed $75 million. At June 30, 1996, the Company had no borrowings
under the Revolving Credit Facility and none of the covenants had the effect
of restricting the Company's ability to pay dividends.

The Company paid interest of $1.7 million in fiscal 1996, primarily related
to the Company's loan payable to First USA and merchant deposits. In fiscal
1995 and 1994, the Company paid $586,000 and $313,000, respectively, primarily
related to merchant deposits.

NOTE G--PREFERRED STOCK

The Board of Directors of the Company has the authority to determine the
principal rights, preferences and privileges of 10.0 million shares of
authorized preferred stock. Provisions could be included in the shares of
preferred stock, such as extraordinary voting, dividend, redemption or
conversion rights, which could discourage an unsolicited tender offer or
takeover proposal. However, the Company has no current plans to include such
provisions.

NOTE H--INCOME TAXES

The components of the provision for income taxes are as follows (in
thousands):

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-----------------------------
1996 1995 1994
-------- --------- --------
<S> <C> <C> <C>
Federal income taxes--current............... $7,610 $ 2,504 $2,052
State income taxes, net of federal tax bene-
fit--current............................... 1,890 786 437
-------- --------- --------
$9,500 $ 3,290 $2,489
======== ========= ========

The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to income before income taxes due to the
following (in thousands):

<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-----------------------------
1996 1995 1994
-------- --------- --------
<S> <C> <C> <C>
Statutory rate applied to income before in-
come taxes................................. $8,313 $ 3,924 $3,094
State income taxes, net of federal tax bene-
fit........................................ 1,229 511 284
Subchapter S status of Litle and other...... (42) (1,145) (889)
-------- --------- --------
$9,500 $ 3,290 $2,489
======== ========= ========
</TABLE>

Prior to the Offering, the Company was included in the consolidated federal
income tax return filed by First USA in accordance with the tax sharing
agreement and income tax expense was provided based on earnings reported as if
the Company filed a separate income tax return.

Pursuant to the tax-sharing agreement, the Company is required to reimburse
First USA for its current tax liabilities. In accordance with this
arrangement, the Company paid federal income tax payments of $2.8 million,
$3.2 million and $2.0 million during fiscal 1996, 1995 and 1994, respectively.

F-12
<PAGE>

FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE I--STOCK OPTIONS, STOCK PURCHASE AND RESTRICTED STOCK PLANS

The Company has adopted the First USA Paymentech, Inc. 1996 Stock Option
Plan (the "1996 Option Plan"). The 1996 Option Plan took effect upon
consummation of the Offering and provides for grants of nonqualified stock
options to certain key employees of the Company and First USA and its
subsidiaries. A maximum of 4,000,000 shares of common stock has been reserved
under the 1996 Option Plan. All stock options have an exercise price equal to
the market value of the Company's common stock on the date the option is
granted and may not be exercised more than 10 years from the date of grant.

In connection with the Offering, the Company granted special stock options
under the 1996 Option Plan relating to an aggregate of 745,000 shares of
common stock with an exercise price of $19.53, which is the initial offering
price per share (net of the per share underwriter's discount), and 45,000
shares of common stock with an exercise price of $30.63, which is the closing
price of the common stock on the New York Stock Exchange on March 28, 1996.
All of the special stock options granted were exercised prior to June 30,
1996.

Members of the Board of Directors of the Company who are not employees of
the Company or First USA and its subsidiaries on the date they become a
director receive an option to purchase 5,000 shares of common stock at an
option price equal to the fair market value of the common stock on the date of
grant. The option is granted on the date the director joins the Board. Such
directors will also receive annual grants of options to purchase 2,500 shares
of common stock at an option price equal to the fair market value of the stock
on the date of grant. Options terminate if not exercised within 90 days after
the director ceases to be a member of the Board of Directors.

Under the 1996 Option Plan, 2,401,500 common shares were available for
future grants as of June 30, 1996.

<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE NUMBER OF SHARES
SHARES PER SHARE EXERCISABLE
--------- ------------ ----------------
<S> <C> <C> <C>
Granted.............................. 1,600,500 $19.53-30.63
Exercised............................ 790,000 19.53-30.63
Forfeitures.......................... 2,000 19.53
--------- ------------
Outstanding June 30, 1996.......... 808,500 $19.53-30.63 162,100
========= ============
</TABLE>

Employees of the Company may participate in the First USA, Inc. Stock
Purchase Plan (the "Purchase Plan"). The Purchase Plan provides a means for
employees to purchase shares of First USA common stock at 85% of the fair
market value thereof.

Key officers and employees of the Company participate in the First USA, Inc.
1994 Restricted Stock Plan (the "First USA Restricted Stock Plan"). The First
USA Restricted Stock Plan authorizes the granting of awards in the form of
restricted shares of First USA common stock to key officers and employees of
the Company and First USA subject to risks of forfeiture that may be
eliminated over time based on performance criteria. Salaries and employee
benefits for fiscal 1996 and 1995 includes $450,000 and $177,000 related to
the First USA Restricted Stock Plan.

In March 1996, the Company adopted the First USA Paymentech, Inc. 1996
Restricted Stock Plan (the "Restricted Stock Plan"). The Restricted Stock Plan
authorizes the granting of awards in the form of restricted shares of the
Company's common stock to key officers and employees of the Company and First
USA subject to risks of forfeiture that may be eliminated over time based on
performance criteria. A maximum of 500,000 shares of common stock has been
reserved for issuance under the Restricted Stock Plan, subject to adjustment,
of which none had been issued at June 30, 1996.

F-13
<PAGE>

FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE J--RETIREMENT BENEFITS

In March 1996, the Company adopted a noncontributory defined benefit
retirement plan (the "Retirement Plan") that provides retirement benefits for
eligible employees. The Company's funding policy is to annually contribute the
minimum amount required under the Employee Retirement Income Security Act of
1974 ("ERISA"). Contributions are intended to provide not only for benefits
attributed to compensation to date, but also for compensation increases to be
earned in the future. Each participant's cash balance account is credited with
an amount equal to 4% of the participant's compensation plus interest. Each
participant becomes fully vested in benefits under the plan after five years
of employment. Prior to that time, no portion of a participant's benefits is
vested.

Prior to the adoption of the retirement plan, eligible employees
participated in the First USA noncontributory defined benefit retirement plan.
The plan assets, which were transferred from the First USA plan effective
March 22, 1996, consist mainly of investments in mutual funds.

The statements of income include $322,000, $156,000 and $93,000 for
contributions to the Retirement Plan for fiscal 1996, 1995 and 1994,
respectively.

During fiscal 1996, the Company's employees participated in the First USA
Savings Plan, which provides savings and investment opportunities. The First
USA Savings Plan stipulates that eligible employees with at least one year of
service may elect to contribute to the First USA Savings Plan. Pre-tax
contributions up to 3% of an eligible employee's defined compensation are
matched 50% by the Company. The consolidated statements of income include
$211,000, $288,000 and $177,000 for the contributions to the First USA Savings
Plan for fiscal 1996, 1995 and 1994, respectively.

Effective July 1, 1996, the Company adopted the Retirement Savings Plan (the
"Savings Plan"), which provides savings and investment opportunities to
employees of the Company. Upon adoption of this plan, the employees of the
Company are no longer eligible to participate in the First USA Savings Plan
and all employee and employer contributions to the plan as well as the
earnings on these contributions were transferred from the First USA Savings
Plan to the Company's Savings Plan.

NOTE K--COMMITMENTS AND CONTINGENCIES

The Company leases its office space and certain equipment under operating
leases with remaining terms ranging up to 10 years. The Company subleases its
principal office space from First USA. The office space leases contain renewal
options and generally requires the Company to pay certain operating expenses.
Future minimum lease commitments under noncancelable leases as of June 30,
1996, are as follows (in thousands):

<TABLE>
<S> <C>
1997............................................................... $ 4,954
1998............................................................... 4,365
1999............................................................... 3,488
2000............................................................... 3,078
2001............................................................... 2,963
Thereafter......................................................... 12,812
-------
$31,660
=======
</TABLE>

The consolidated statements of income include rental expense for operating
leases of $3.8 million, $2.0 million and $1.4 million for fiscal 1996, 1995
and 1994, respectively.

In the course of business, the Company is a defendant in various lawsuits.
Management believes that the resolution of these lawsuits will not have a
material impact on the Company.

F-14
<PAGE>

FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE L--FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments at June 30, 1996 and 1995 consist
primarily of cash and cash equivalents, investments and merchant deposits. At
June 30, 1995, the Company's financial instruments also included a loan
payable to First USA. Due to the short maturities of the cash and cash
equivalents, carrying amount approximates the respective fair value. The
investments are fixed rate debt securities with a market value of $12.3
million classified as held to maturity. The merchant deposits are interest
bearing and are on terms that are standard for the industry. The loan payable
to First USA is a variable rate instrument at terms the Company believes would
be available if similar financing were obtained from a non-affiliated third
party. As such, the carrying amounts of both categories of liabilities
approximate their respective fair values.

NOTE M--RELATED PARTIES

The Company solicits agent bank card issuing relationships for First USA
Bank. Net revenue includes $1.9 million, $1.9 million and $2.1 million in fees
paid by First USA Bank for fiscal 1996, 1995 and 1994, respectively.

First USA provides office space to the Company, allows the Company to
participate in insurance coverage and benefit plans and provides certain other
administrative services to the Company. The consolidated statements of income
include the allocation of these expenses incurred by First USA or one of its
subsidiaries to the Company based on specific identification, headcount or
square footage of leased properties. The Company believes this allocation is
reasonable and approximates costs that would have been incurred if the Company
was unaffiliated with First USA.

NOTE N--SUBSEQUENT EVENTS

On August 19, 1996, the Company purchased for approximately $170 million all
of the outstanding stock of GENSAR Holdings Inc which owns 100% of GENSAR
Technologies Inc. and GENSAR Merchant Processing Inc. GENSAR is one of the
nation's largest providers of electronic draft capture and authorization
services, processing approximately 300 million transactions annually and
servicing 120,000 merchant locations across the U.S. The acquisition also
includes a merchant processing portfolio with approximately $1 billion in
annual sales volume. The acquisition will be accounted for as a purchase, and
accordingly, its results will be included in the Company's results of
operations from the effective date of the acquisition.

The Company funded the acquisition of GENSAR and the subsequent payoff of
GENSAR's debt with proceeds from the Offering ($75 million), a loan from First
USA ($25 million), and non-interest-bearing notes payable to the previous
shareholders of GENSAR ($100 million) due October 18, 1996. The Company plans
to refinance the notes payable through its Revolving Credit Facility. The
Company plans to pursue an increase of its line of credit under the Revolving
Credit Facility in fiscal 1997.

F-15
<PAGE>

FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
-------------
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 72,829
Receivables..................................................... 41,036
Credit card loans, net.......................................... 10,147
Terminal inventories............................................ 5,341
Prepaid expenses and other current assets....................... 7,063
--------
Total current assets.......................................... 136,416
Investments, at cost (market value of $12,107).................... 12,110
Property and equipment, net....................................... 33,579
Purchased merchant portfolios, net................................ 90,644
Goodwill, net..................................................... 208,099
Other assets...................................................... 7,699
--------
$488,547
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts and notes payable...................................... $171,743
Other accrued expenses.......................................... 29,166
Merchant deposits............................................... 18,268
Interest-bearing deposits....................................... 8,979
Accrued assessments............................................. 6,322
--------
Total current liabilities..................................... 234,478
Loan payable to First USA......................................... 25,000
Interest-bearing deposits, bank notes and other................... 1,237
Stockholders' equity:
Common stock.................................................... 317
Additional capital.............................................. 210,485
Retained earnings............................................... 17,030
--------
227,832
--------
$488,547
========
</TABLE>

See Notes to Interim Condensed Consolidated Financial Statements.

F-16
<PAGE>

FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS
ENDED SEPTEMBER
30,
----------------
1996 1995
------- -------
<S> <C> <C>
Net Revenue.................................................. $39,634 $23,825
Operating Expenses:
Salaries and employee benefits............................. 11,690 8,290
Data processing and communications......................... 8,803 5,916
Occupancy and equipment.................................... 2,062 1,404
Depreciation and amortization.............................. 3,624 1,512
Other...................................................... 5,218 5,724
Merger, integration and impairment......................... 15,544 --
------- -------
Total operating expenses................................. 46,941 22,846
------- -------
Income (loss) from operations.......................... (7,307) 979
Net interest income.......................................... 1,249 278
------- -------
Income (loss) before income taxes...................... (6,058) 1,257
Income tax provision (benefit)............................... (2,774) 568
------- -------
Net income (loss)...................................... $(3,284) $ 689
======= =======
Net income (loss) per share.................................. $ (0.10) $ 0.03
======= =======
Weighted average common and common equivalent shares
outstanding................................................. 32,124 24,411
======= =======
</TABLE>

See Notes to Interim Condensed Consolidated Financial Statements.

F-17
<PAGE>

FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------
1996 1995
--------- --------
<S> <C> <C>
Operating Activities
Net income (loss)....................................... $ (3,284) $ 689
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Non-cash portion of merger, integration and impairment
charge............................................... 7,497 --
Provision for depreciation and amortization........... 3,624 1,512
Changes in operating assets and liabilities:
Receivables......................................... (8,138) (644)
Accounts payable and accrued expenses............... 58,721 1,049
Accrued assessments................................. (951) --
Merchant deposits................................... (795) 3,597
Other operating activities.......................... (800) (850)
--------- --------
Net cash provided by operating activities......... 55,874 5,353
Investing Activities
Purchases of merchant portfolios, processing services
and other acquisitions................................. (188,118) (36,274)
Purchases of property and equipment..................... (6,131) (1,081)
Purchase of investments................................. 269 --
--------- --------
Net cash used for investing activities............ (193,980) (37,355)
Financing Activities
Notes payable........................................... 76,556 --
Note payable to First USA Financial, Inc. .............. 25,000 29,975
Capital contribution from First USA Financial, Inc. .... -- 16,140
Issuance of interest-bearing deposits................... 3,548 --
Issuance of common stock, net........................... 52 --
Other financing activities.............................. (25) --
--------- --------
Net cash provided by financing activities......... 105,131 46,115
--------- --------
Increase (decrease) in cash and cash equivalents.. (32,975) 14,113
Cash and cash equivalents at beginning of period.......... 105,804 4,623
--------- --------
Cash and cash equivalents at end of period........ $ 72,829 $ 18,736
========= ========
</TABLE>

See Notes to Interim Condensed Consolidated Financial Statements.

F-18
<PAGE>

FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE A--BASIS OF PRESENTATION

First USA Paymentech, Inc. (the "Company"), a 77%-owned indirect subsidiary
of First USA, Inc. ("First USA") is a Delaware corporation, which engages in
the credit card industry primarily as a payment processor of credit and debit
card transactions. In addition, the Company markets and issues commercial
cards to businesses and other entities. Through its recently acquired
subsidiary GENSAR Holdings Inc, the Company also provides third party credit
and debit authorization services. During the three months ended September 30,
1996, the Company processed approximately $9.0 billion in sales volume in
approximately 264 million total transactions, which included GENSAR volume
following the acquisition.

The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
fair presentation have been included. Operating results for the three months
ended September 30, 1996 are not necessarily indicative of the results that
may be expected for the fiscal year ending June 30, 1997. For further
information, refer to the consolidated financial statements and footnotes
thereto included elsewhere in this Prospectus.

NOTE B--BUSINESS COMBINATIONS AND MERCHANT PORTFOLIO PURCHASES

On August 19, 1996 the Company purchased for approximately $170 million all
of the outstanding stock of GENSAR Holdings Inc which owns 100% of GENSAR
Technologies Inc and GENSAR Merchant Processing, Inc. The acquisition was
accounted for as a purchase, and accordingly, GENSAR's results have been
included in the Company's results of operations since acquisition.

After all market value adjustments, the purchase resulted in identifiable
intangible assets of approximately $35 million, which have lives of 8-10 years
and goodwill of approximately $165 million.

The following consolidated pro forma results give effect to the purchase of
GENSAR as if it had occurred on July 1, 1995:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED SEPTEMBER
30,
----------------
1996 1995
------- -------
<S> <C> <C>
Net revenue............................................. $42,046 $29,641
Loss from operations.................................... (7,804) (3)
Loss before income taxes................................ (7,203) (1,611)
Net loss................................................ (3,990) (856)
Net loss per share...................................... (0.12) (0.04)
</TABLE>

F-19
<PAGE>

FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)

The pro forma results include the effect of all material adjustments related
to the purchase transaction and have been prepared using calculations based on
assumptions and adjustments deemed reasonable by the Company.

The pro forma results do not purport to be indicative of the results of
operations that would have actually been obtained if the purchase had been
consummated as of the beginning of the period presented. In addition, the pro
forma results do not purport to be indicative of the results of operations
which may be achieved in the future.

During the first quarter of fiscal 1996, the Company recorded a merger,
integration and impairment charge related to the acquisition of GENSAR of
$15.5 million, which reduced net income by $9.7 million. The charge includes
costs related to the conversion from third party authorization networks to
GENSAR's authorization network, the closure of certain offices and employee
severance. The conversion costs consist primarily of the incremental labor
costs to convert existing merchant customers to the GENSAR authorization
network. The charge related to office closings includes lease termination
costs as well as the write-off of certain intangible assets related to systems
that will no longer be used. The employee related costs are primarily
severance for individuals displaced as a result of the office closings.

NOTE C--INCOME TAXES

The Company's consolidated provision for income taxes includes state and
federal income tax components. The Company's effective tax rate was 45.8% and
45.2% for three months ended September 30, 1996 and 1995, respectively.

NOTE D--SUBSEQUENT EVENTS

On November 8, 1996 the Company filed a Registration Statement on Form S-1
with the Securities and Exchange Commission in connection with 6.8 million
shares of the Company's Common Stock to be sold in a public offering. Of such
shares, 2.8 million shares will be issued and sold by the Company and 4
million shares will be sold by First USA.

In November 1996, the Company and PHH Vehicle Management Services, Inc., a
subsidiary of PHH Corporation, announced their intention to form a joint
venture that will provide a single commercial card payment mechanism that will
service fleet, purchasing, travel and entertainment needs. The Company expects
that the joint venture will begin to offer the new fleet product in early
calendar 1997.

F-20
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
GENSAR Holdings Inc.
Philadelphia, Pennsylvania

We have audited the accompanying consolidated balance sheets of GENSAR Holdings
Inc. and subsidiaries (the "Company") as of December 31, 1995 and 1994, and the
related consolidated statements of operations, shareholders' equity
(deficiency) and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 1995
and 1994, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.

/s/ Deloitte & Touche LLP

Deloitte & Touche LLP

June 13, 1996

- -----------
Deloitte Touche
Tohmatsu
International
- -----------

F-21
<PAGE>

GENSAR HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 1995 AND 1994

<TABLE>
<CAPTION>
1995 1994
ASSETS ----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents ($1,990,181 restricted
for 1995)......................................... $ 3,324,151 $ 770,141
Merchant accounts receivable, net of allowance for
doubtful accounts of $266,666 for 1995............ 6,659,245 --
Trade accounts receivable, net of allowance for
doubtful accounts of $107,675 and $112,695 for
1995 and 1994, respectively....................... 1,818,012 1,565,290
Inventory.......................................... 161,627 89,436
Prepaid expenses and other current assets.......... 181,274 98,625
Deferred tax asset................................. -- 83,746
----------- -----------
Total current assets............................. 12,144,309 2,607,238
Marketable equity securities......................... 10,744 10,744
Furniture and equipment, net......................... 1,551,842 1,429,513
Merchant contracts and noncompete agreements, net of
accumulated amortization of $135,260................ 2,869,539 --
Excess of purchase price over net assets acquired,
net of accumulated amortization of $2,663,328 and
$1,699,184 for 1995 and 1994, respectively.......... 19,426,338 14,040,839
Other assets, Net.................................... 305,799 404,467
----------- -----------
Total............................................ $36,308,571 $18,492,801
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Accounts payable and accrued expenses.............. $ 3,138,511 $ 2,395,025
Merchant reserves.................................. 7,969,643 --
Deferred compensation payable to related party..... 323,971 217,500
Demand notes....................................... 19,350,000 14,350,000
Capital lease obligations, current portion......... 273,352 131,534
Due to Principal Shareholder....................... 258,333 --
Long-term debt, current portion.................... 2,432,292 --
----------- -----------
Total current liabilities........................ 33,746,102 17,094,059
----------- -----------
Long-term debt....................................... 2,373,820 --
Deferred rent........................................ 3,275 16,743
Deferred tax liability............................... -- 83,746
Capital lease obligations............................ 554,429 751,061
----------- -----------
Total liabilities................................ 36,677,626 17,945,609
----------- -----------
Commitments:
Shareholders' equity (deficiency):
Redeemable preferred stock, $.01 par value--autho-
rized, 40,000 shares;
issued and outstanding, 4,500 shares (liquidation
preference of $4,500,000)......................... 1,289,017 848,160
Common stock $.01 par value--authorized, 800,000
shares; issued and outstanding 524,283 and 479,219
shares in 1995 and 1994, respectively............. 5,243 4,792
Additional paid-in capital......................... 8,448,570 8,439,238
Notes receivable from shareholders................. (940,653) (612,222)
Accumulated deficit................................ (9,171,232) (8,132,776)
----------- -----------
Total shareholders' equity (deficiency).......... (369,055) 547,192
----------- -----------
Total............................................ $36,308,571 $18,492,801
=========== ===========
</TABLE>

See notes to consolidated financial statements.

F-22
<PAGE>

GENSAR HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Transaction fees....................... $13,901,098 $12,587,613 $10,948,001
Processing fees........................ 8,900,034 -- --
Customer service....................... 902,098 815,512 638,058
Terminal programming and equipment
sales................................. 662,842 247,511 332,575
Other operating revenue................ 579,087 822,750 456,632
Interest income........................ 196,787 76,588 79,603
----------- ----------- -----------
Total revenues....................... 25,141,946 14,549,974 12,454,869
----------- ----------- -----------
Expenses:
Salaries, benefits and payroll taxes... 6,427,015 4,991,304 4,799,708
Processing expenses.................... 5,610,553 -- --
Transaction expenses................... 5,377,412 4,856,446 4,982,932
General and administrative............. 2,821,587 1,707,465 1,490,434
Depreciation and amortization--furni-
ture and equipment, computer software
licenses and organization costs....... 856,582 640,196 855,016
Office rent............................ 496,107 408,982 436,457
Commissions and residuals.............. 405,917 -- --
Cost of sales.......................... 281,709 -- --
Equipment maintenance and rentals...... 272,114 514,814 739,966
Application software................... 267,490 227,581 275,804
Provision for doubtful accounts........ 203,647 48,801 (8,126)
Amortization--merchant contracts and
noncompete agreements, excess of pur-
chase price over net assets acquired
and purchased software................ 1,117,559 2,240,798 2,531,187
----------- ----------- -----------
24,137,692 15,636,387 16,103,378
----------- ----------- -----------
Operating income (loss) ................. 1,004,254 (1,086,413) (3,648,509)
Interest and other debt costs.......... 1,784,377 1,080,310 965,396
Debt fee to principal shareholder...... 258,333 -- --
Income tax benefit..................... -- -- (55,241)
----------- ----------- -----------
Net loss............................. $ 1,038,456 $ 2,166,723 $ 4,558,664
=========== =========== ===========
</TABLE>

F-23
<PAGE>

GENSAR HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)

YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
REDEEMABLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------- --------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------ ---------- ------- ------ ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992..... 4,500 $ 44,425 409,376 $4,093 $8,545,242
Issuance of common stock....... 73,751 738 736,772
Redemption of common stock..... (2,970) (30) (29,670)
Interest income accrued........
Undeclared preferred stock
preferential dividends........ 396,452 (396,452)
Net loss.......................
----- ---------- ------- ------ ----------
Balance, December 31, 1993..... 4,500 440,877 480,157 4,801 8,855,892
Issuance of common stock....... 1,875 19 18,731
Redemption of common stock..... (2,813) (28) (28,102)
Interest income accrued........
Undeclared preferred stock
preferential dividends........ 407,283 (407,283)
Net loss.......................
----- ---------- ------- ------ ----------
Balance, December 31, 1994..... 4,500 848,160 479,219 4,792 8,439,238
Issuance of common stock....... 45,064 451 450,189
Repayments.....................
Interest income accrued........
Undeclared preferred stock
preferential dividend......... 440,857 (440,857)
Net loss.......................
----- ---------- ------- ------ ----------
Balance, December 31, 1995..... 4,500 $1,289,017 524,283 $5,243 $8,448,570
===== ========== ======= ====== ==========
</TABLE>

<TABLE>
<CAPTION>
NOTES RECEIVABLE ACCUMULATED
FROM SHAREHOLDERS DEFICIT TOTAL
----------------- ------------ ----------
<S> <C> <C> <C>
Balance, December 31, 1992........ $ (90,883) $ (1,407,389) $7,095,488
Issuance of common stock.......... (462,050) 275,460
Redemption of common stock........ 24,510 (5,190)
Interest income accrued........... (44,477) (44,477)
Undeclared preferred stock
preferential dividends...........
Net loss.......................... (4,558,664) (4,558,664)
---------- ------------ ----------
Balance, December 31, 1993........ (572,900) (5,966,053) 2,762,617
Issuance of common stock.......... (12,250) 6,500
Redemption of common stock........ 18,350 (9,780)
Interest income accrued........... (45,422) (45,422)
Undeclared preferred stock
preferential dividends...........
Net loss.......................... (2,166,723) (2,166,723)
---------- ------------ ----------
Balance, December 31, 1994........ (612,222) (8,132,776) 547,192
Issuance of common stock.......... (331,608) 119,032
Repayments........................ 59,000 59,000
Interest income accrued........... (55,823) (55,823)
Undeclared preferred stock
preferential dividends...........
Net loss.......................... (1,038,456) (1,038,456)
---------- ------------ ----------
Balance, December 31, 1995........ $ (940,653) $ (9,171,232) $ (369,055)
========== ============ ==========
</TABLE>

See notes to consolidated financial statements.

F-24
<PAGE>

GENSAR HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ------------
<S> <C> <C> <C>
Operating Activities:
Net loss............................. $(1,038,456) $(2,166,723) $ (4,558,664)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization...... 1,974,141 2,880,994 3,386,203
Provision for doubtful accounts.... 203,647 48,801 (8,126)
Gain on sale of equipment.......... -- (18,522) --
Changes in assets and liabilities
which provided (used) cash net of
effects from purchase of FirstNet
assets and liabilities:
Merchant accounts receivable..... (7,000,911) -- --
Trade accounts receivable........ (208,029) (8,587) (103,155)
Amount due from former sharehold-
er.............................. -- -- 1,550,000
Inventory........................ 56,816 97,814 (117,058)
Prepaid expenses and other cur-
rent assets..................... (36,133) (55,373) 59,727
Deferred tax asset............... 83,746 (35,094) 2,623
Other assets..................... (124,600) 15,501 (108,603)
Accounts payable and accrued ex-
penses.......................... 366,026 105,504 280,058
Merchant reserves................ 7,090,870 -- --
Due to Principal Shareholder..... 258,333 -- --
Deferred tax liability........... (83,746) 35,094 (57,864)
Other liabilities................ 93,003 83,071 75,736
Interest receivable.............. (55,823) (45,422) --
----------- ----------- ------------
Net cash provided by (used in)
operating activities.......... 1,578,884 937,058 400,877
----------- ----------- ------------
Investing Activities:
Capital expenditures................. (128,737) (112,578) (223,504)
Proceeds from sale of capital equip-
ment................................ 118,630 100,300 --
FirstNet Corp Acquisition:
Merchant contracts................. (3,004,799) -- --
Goodwill........................... (6,349,643) -- --
Purchase of FirstNet assets, net of
cash acquired..................... 819,945 -- --
----------- ----------- ------------
Net cash used in investing ac-
tivities...................... (8,544,604) (12,278) (223,504)
----------- ----------- ------------
Financing Activities:
Net proceeds from issuance of common
stock............................... 118,630 18,750 737,510
Redemption of common stock........... -- (28,130) (29,700)
Repayments of notes receivable due
from shareholders................... 59,000 18,350 24,510
Borrowings under demand notes........ 5,000,000 -- --
Repayments of amounts outstanding un-
der demand note..................... -- -- (1,000,000)
Borrowings under loan................ 4,924,340 -- 153,000
Issuance of notes receivable due from
shareholders........................ (331,608) (12,250) (506,527)
Repayment of long-term debt.......... (118,228) (267,472) (89,083)
Repayment of capital lease obliga-
tions............................... (132,404) (258,355) (332,071)
----------- ----------- ------------
Net cash provided by (used in)
financing activities.......... 9,519,730 (529,107) (1,042,361)
----------- ----------- ------------
Net Increase in Cash and Cash Equiva-
lents................................. 2,554,010 395,673 (864,988)
Cash and Cash Equivalents, Beginning... 770,141 374,468 1,239,456
----------- ----------- ------------
Cash and Cash Equivalents, Ending...... $ 3,324,151 $ 770,141 $ 374,468
=========== =========== ============
Supplemental Disclosures of Cash Flow
Information--Cash paid during the pe-
riod for interest..................... $ 2,038,275 $ 1,029,223 $ 976,159
=========== =========== ============
</TABLE>

GENSAR Merchant Processing acquired $1,556,233 of assets, primarily cash and
receivables, and liabilities of $1,256,233, primarily accounts payable and
accrued liabilities. Net cash acquired was $1,119,945.

See notes to consolidated financial statements.

F-25
<PAGE>

GENSAR HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

1. ORGANIZATION AND BUSINESS

GENSAR Holdings Inc. ("GENSAR Holdings"), a Delaware corporation, was formed
in 1992 to build, through acquisition and internal development, a nationwide
electronic banking network. GENSAR Holding's principal shareholder is the
investment banking firm of Golder, Thoma, Cressey & Rauner (herein "Principal
Shareholder") which owns 100% of the outstanding preferred stock and 81% of
the outstanding common stock of GENSAR Holdings.

On October 26, 1992, GENSAR Holdings acquired 100% of the capital stock of a
corporation now doing business as GENSAR Technologies Inc. ("GENSAR
Technologies"), a Delaware corporation. GENSAR Technologies is a third-party
processor of "point of sale" electronic funds transfers, credit card
authorizations, and retail data collections for financial institutions and
retail establishments.

Effective July 1, 1995, GENSAR Holdings acquired certain assets and
liabilities of FirstNet Corporation. These assets and liabilities were
recorded in GENSAR Merchant Processing, Inc. ("GENSAR Merchant Processing"),
which is a newly formed and wholly owned subsidiary of GENSAR Holdings. GENSAR
Merchant Processing, a Delaware corporation, is a Texas-based processing
provider of bankcard services for merchants in various retail and service
industries. GENSAR Merchant Processing currently processes VISA, Mastercard
and various other bankcard transactions. The cost of this acquisition was
$10,228,000 and was accounted for under the purchase method of accounting.

2. SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation--The consolidated financial statements include
the accounts of GENSAR Holdings and its wholly owned subsidiaries, GENSAR
Technologies Inc. and GENSAR Merchant Processing Inc. (collectively, the
"Company"). All significant intercompany balances and transactions have been
eliminated.

Cash and Cash Equivalents--For purposes of reporting cash flows, the Company
considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.

Merchant Accounts Receivable--Merchant accounts receivable consist primarily
of merchant funds receivable through settlement from the card issuing banks.

Trade Accounts Receivable--Trade accounts receivable consist primarily of
the monthly processing fees charged to the Company's customers and other trade
receivables, net of the allowance for doubtful accounts.

Allowance for Doubtful Accounts--The allowance for doubtful accounts
represents provisions for losses charged to earnings, less actual charge-offs
net of recoveries. Trade and merchant accounts receivable are charged against
the allowance for doubtful accounts when management believes the
collectibility of the receivable is unlikely. The provision for doubtful
accounts charged to earnings is the amount which is necessary to establish the
allowance at a level management believes will be adequate to absorb losses on
existing merchant and trade accounts receivable that become uncollectible,
based on evaluation of the collectibility of the receivables and historical
loss experience.

Inventory--Inventory is stated at the lower of cost (first-in, first-out) or
market and consists of point-of-sale terminals and printers, related software
and supplies.

F-26
<PAGE>

GENSAR HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

Furniture and Equipment--Furniture and equipment are stated at cost and are
depreciated over their estimated useful lives using the straight-line method,
with such lives ranging from 3 to 7 years. Amortization of assets recorded
under capital leases is included in depreciation expense.

Merchant Contracts and Noncompete Agreements--The costs allocated to
merchant contracts and noncompete agreements are being amortized by the
straight line method over 10 years and 3 years, respectively, from the date of
acquisition.

Excess of Purchase Price Over Net Assets Acquired--The excess of purchase
price over net assets acquired is being amortized by the straight-line method
over 20 years for the GENSAR Technologies stock acquisition and 15 years for
the GENSAR Merchant Processing asset acquisition.

Asset Impairment--At least annually, and more often if circumstances
dictate, the Company evaluates the recoverability of the net carrying value of
its furniture and equipment, merchant contracts and noncompete agreements and
the excess of purchase price over net assets acquired on a consolidated
Company-wide basis. As part of this evaluation, the fair value of these assets
is estimated based on discounted cash flows. The fair value is compared to the
carrying amount in the consolidated financial statements. A deficiency in fair
value relative to carrying amount is an indication of the need for a writedown
due to impairment. If the total of these future undiscounted cash flows were
less than the carrying amount of these assets, they would be written down to
their fair value, and a loss on impairment recognized by a charge to earnings.
The Company's accounting policy complies with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of."

Merchant Reserves--Merchant reserves represent funds collected by the
Company through the interchange system that are not remitted to the merchant
due to an unusual characteristic of a transaction. The Company then
investigates the transaction further before remitting funds to the merchant.
Merchant reserves also include amounts due merchants that management has
determined necessary as additional credit support for certain merchant
processing volumes.

Income Taxes--The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes", which requires an asset and liability approach for financial
accounting and reporting for income taxes. Deferred income tax assets and
liabilities are computed for differences between the financial statement
carrying values and tax basis of assets and liabilities that will result in
taxable or deductible amounts in the future based on enacted tax laws and
rates applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable or refundable during the period plus or minus the
change in the deferred tax assets and liabilities.

Revenue Recognition--Service revenues are recognized as services are
performed and delivered, with transaction and processing fees specifically
recognized at the time the transaction or processing is completed.

Processing Expenses--Processing expenses are comprised of the direct
processing costs related to the VISA, Mastercard and various other bankcard
transactions.

Transaction Expenses--Transaction expenses are comprised of the direct
transaction costs related to third-party processor point-of-sale electronic
funds transfers, credit card authorizations and retail data collections.

Software Development--All costs associated with internally developed
software are expensed as incurred.

Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.

F-27
<PAGE>

GENSAR HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

Reclassifications--Certain amounts have been reclassified in the 1994 and
1993 financial statements to be comparable to the financial statement
presentation for 1995.

3. FURNITURE AND EQUIPMENT

Furniture and equipment consist of the following at December 31, 1995 and
1994:

<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Furniture and fixtures.......................... $ 799,791 $ 441,916
Computer equipment.............................. 1,640,990 1,364,048
Telecommunications equipment.................... 216,777 69,793
----------- ----------
2,657,558 1,875,757
Accumulated depreciation........................ (1,105,716) (446,244)
----------- ----------
$ 1,551,842 $1,429,513
=========== ==========
</TABLE>

4. OTHER ASSETS

Other assets consist of the following at December 31, 1995 and 1994:

<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Computer software and
software licenses ac-
quired................. $ 900,028 $770,399
Other deposits and
fees................... 112,738 117,767
Organization costs...... 34,840 34,840
--------- --------
1,047,606 923,006
Accumulated amortiza-
tion................... (741,807) (518,539)
--------- --------
$ 305,799 $404,467
========= ========
</TABLE>

The Company amortizes computer software licenses acquired using the
straight-line method over a period of 5 years from the date the software is
available for its intended use. Organization costs are amortized over a one
year period.

5. MERCHANT CONTRACTS AND NONCOMPETE AGREEMENTS

Merchant contracts and noncompete agreements consist of the following at
December 31, 1995:

<TABLE>
<CAPTION>
1995
----------
<S> <C>
Merchant contracts......................................... $2,944,799
Noncompete agreement....................................... 60,000
----------
3,004,799
Accumulated amortization................................... (135,260)
----------
Total.................................................... $2,869,539
==========
</TABLE>

These amounts represent costs allocated as a result of the acquisition of
certain assets and liabilities of FirstNet Corporation. There were no such
intangibles as of December 31, 1994.

F-28
<PAGE>

GENSAR HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

6. DEMAND NOTES

The amounts outstanding under the notes are payable to a bank upon demand
with interest payable monthly at the prime rate of interest, 8.5% as of both
December 31, 1995 and 1994. Repayment of the notes is guaranteed by the
Principal Shareholder of the Company. Should the lender demand repayment on
the demand note, GENSAR Holdings would be dependent upon the Principal
Shareholder to assist in satisfying this obligation and in supporting the
operations of GENSAR Holdings. Management intends to ultimately refinance such
obligation to a long-term obligation. However, the ability to refinance is
primarily dependent upon the further growth of the Company's operations and more
favorable market conditions for borrowing opportunities.

7. LEASE OBLIGATIONS

Capital Leases--The Company leases computer and telecommunication equipment,
and furniture and fixtures under capital leases for use in its operations.

Following is a schedule of leased assets included in furniture and equipment
at December 31, 1995 and 1994:

<TABLE>
<CAPTION>
1995 1994
--------- ----------
<S> <C> <C>
Computer equipment.................................. $ 937,315 $ 877,786
Personal computer equipment......................... 79,865 79,865
Furniture and fixtures.............................. 30,650 30,650
Personal computer software.......................... 17,809 17,809
--------- ----------
1,065,639 1,006,110
Accumulated depreciation............................ (433,724) (75,816)
--------- ----------
Total............................................. $ 631,915 $ 930,294
========= ==========
</TABLE>

Capital lease obligations at December 31, 1995 are as follows:

<TABLE>
<S> <C>
Computer equipment, payable $25,266, monthly, including
interest, through October 1998............................... $ 812,999
Furniture and fixtures, payable $761 monthly, including
interest, through December 1996.............................. 8,344
Personal computer software, payable $263 monthly including in-
terest, through March 1998................................... 6,438
---------
Total....................................................... 827,781
Less current portion.......................................... (273,352)
---------
Total--long term portion...................................... $ 554,429
=========
</TABLE>

F-29
<PAGE>

GENSAR HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

Following is a schedule of future minimum payments required under the
capital leases together with their present value as of December 31, 1995.

<TABLE>
<S> <C>
1996............................................................ $ 338,313
1997............................................................ 329,184
1998............................................................ 272,605
---------
Total minimum lease payments.................................. 940,102
Less amount representing interest............................... (112,321)
---------
Present value of minimum lease payments......................... $ 827,781
=========
</TABLE>
Operating Leases--The Company leases computer equipment and office
facilities under various operating leases. Following is a schedule of future
minimum lease payments required under noncancelable operating leases with
remaining terms in excess of one year:

<TABLE>
<S> <C>
1996...................................... $ 419,024
1997...................................... 233,568
1998...................................... 101,124
1999...................................... 97,536
Thereafter................................ 174,752
----------
Total................................... $1,026,004
==========
</TABLE>

8. INCOME TAXES

As of December 31, 1995 and 1994, the Company has recorded deferred tax
assets of $0 and $83,746 and deferred tax liabilities of $0 and $83,746,
respectively. These amounts represent the approximate tax effect of temporary
differences and operating loss carryforwards that give rise to the Company's
deferred tax assets and liabilities, and the change in the valuation allowance
for such deferred tax assets.

As of December 31, 1995, the principal components of the deferred tax assets
are a net operating loss carryforward, and nondeductible accruals for
uncollectible receivables, intangibles, vacation pay and deferred
compensation. A valuation allowance of $2,445,000 and $2,368,880, as of
December 31, 1995 and 1994, respectively, has been recorded for the deferred
tax assets since it is not presently determinable as to whether the assets
will be fully realized in future periods.

At December 31, 1995 and 1994, the Company had net operating loss
carryforwards for U.S. federal income tax purposes of $2,856,000 and
$2,996,605, respectively, which expire in various years ending in the year
2010.

For the year ended December 31, 1995, the Company will file a consolidated
State of Florida income tax return. In prior years, GENSAR Technologies Inc.
filed separately in the State of Florida. At December 31, 1995 and 1994,
GENSAR Technologies Inc. had State of Florida net operating loss carryforwards
for state income tax reporting purposes of $305,000 and $571,000,
respectively, which expire in various years ending 2008. These carryforwards
may only be utilized to offset future State of Florida taxable income
generated by GENSAR Technologies Inc.

At December 31, 1995 and 1994, the Company had State of Texas business loss
carryforwards for state income tax reporting purposes of $125,326 and $0,
respectively, which expire in the year 2000.

F-30
<PAGE>

GENSAR HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

9. DEFERRED COMPENSATION

The Company has an agreement with a shareholder who is also a member of
management whereby $90,000 of the executive's compensation is deferred
annually. As of December 31, 1995 and 1994, $323,971 and
$217,500, respectively, of deferred compensation and accrued interest was
included as a liability on the Company's balance sheet. Interest is payable to
the executive to the extent of the deferred compensation balance at February
1, 1995 at a rate of 8%.

10. REDEEMABLE PREFERRED AND COMMON STOCKS

The Company is authorized to issue 40,000 shares of preferred stock. As of
December 31, 1995, 1994 and 1993, 4,500 shares were issued and outstanding.
Each preferred share has a preference liquidation value of $1,000 per share.
The preferred stock was recorded at fair value of $4,500,000 on the date of
issuance with a credit of $45 to par value and the remainder to additional
paid-in capital.

Each share of preferred stock entitles its holder to preferential dividends
equal to an amount of 8% per annum of the sum of the liquidation value and all
accumulated but unpaid dividends. At December 31, 1995, 1994 and 1993 there
were $1,289,017, $848,160 and $440,877, respectively, of undeclared and unpaid
dividends. These dividends have been reflected as an increase in preferred
stock with a corresponding decrease in additional paid-in capital.

The Company may at any time redeem all or any portion of the outstanding
shares of preferred stock. The redemption price would be equal to the
liquidation value plus all accrued and unpaid dividends thereon.

The holders of a majority of the Preferred Stock may request redemption at
any time after July 27, 1999. If such notice is given to the Company, the
Company shall be required to redeem all shares with respect to which such
redemption requests have been made. Redemption price per share shall equal the
liquidation value plus all accrued and unpaid dividends thereon.

The Company had reserved 8,750 shares of common stock, at a purchase price
of $10 per share, through agreements with the Company's senior management as
of December 31, 1994. The reserved common stock was issued in June 1995 and
there were no common shares reserved as of December 31, 1995.

11. NOTES RECEIVABLE FROM SHAREHOLDERS

Pursuant to the formation of the Company and certain employment agreements,
certain executives obtained the rights to purchase up to 71,719 shares of
common stock of GENSAR Holdings. Additional shares have also been issued to
other key members of management. These shares were purchased for a combination
of cash and the issuance of notes receivable. The notes provide for payment of
principal and interest at 8% and are payable upon demand. The notes and the
accrued interest thereon are recorded as a reduction of shareholders' equity
until paid. During the year ended December 31, 1995 there were repayments of
$59,000 on such notes.

12. DEFINED CONTRIBUTION PLANS

GENSAR Technologies has a 401(k) Plan (the "GENSAR Technologies Plan")
covering all employees who meet certain eligibility requirements. Under the
GENSAR Technologies Plan provisions, the Company matches 50% of employee
contributions up to a maximum matching amount of 2% of the employee's
compensation. Contributions for the years ended December 31, 1995, 1994 and
1993 were $49,965, $44,538 and $46,373, respectively.

F-31
<PAGE>

GENSAR HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

GENSAR Merchant Processing has a 401(k) Plan (the "GENSAR Merchant
Processing Plan") covering all employees who meet certain eligibility
requirements. Under the GENSAR Merchant Processing Plan, the Company matches
100% of employee contributions up to a maximum matching amount of 2% of the
employee's compensation. Contributions for the six months ended December 31,
1995 were $8,530. Subsequent to year end, the Company merged the GENSAR
Merchant Processing Plan into the GENSAR Technologies Plan.

13. MAJOR CUSTOMERS

Revenue generated from one customer accounted for approximately $2,612,000,
$3,426,000 and $3,949,000 or 10%, 24% and 32%, respectively, of total
consolidated revenue for the years ended December 31, 1995, 1994 and 1993.

14. RELATED PARTY TRANSACTIONS

On July 18, 1995, the Company entered into an agreement with the Principal
Shareholder for certain services. Under the terms of the agreement, the
Company is to pay a $50,000 monthly fee to be paid as long as the demand notes
outstanding as of July 26, 1995, guaranteed by the Principal Shareholder,
remain outstanding.

15. FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value of amounts reported in the consolidated financial
statements has been determined by using available market information and
appropriate valuation methodologies. The carrying value of all current assets
and current liabilities approximates fair value because of their short-term
nature. The fair value of long-term assets and long-term debt approximates
their carrying value.

16. BUSINESS COMBINATION

The Company acquired certain assets and liabilities of FirstNet Corporation
effective July 1, 1995. The following unaudited consolidated pro forma results
give effect in all material respects to the purchase of the FirstNet assets
and liabilities as if it had occurred on January 1, 1993.

<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ -------------
<S> <C> <C> <C>
Revenue....................... $ 32,745,177 $ 28,139,658 $ 23,631,215
Operating income (loss)....... 1,111,518 (680,801) (3,076,601)
Net income (loss)............. (1,382,934) (3,011,458) (5,156,628)
</TABLE>

The unaudited pro forma results do not purport to be indicative of the
results of operations that would have actually been obtained if the purchase
had been consummated as of the beginning of the period presented. In addition,
the unaudited pro forma results do not purport to be indicative of the results
of operations which may be achieved in the future.

The unaudited pro forma results have been prepared using calculations based
on assumptions and adjustments deemed reasonable by the Company.

F-32
<PAGE>

PRO FORMA FINANCIAL INFORMATION

The unaudited Pro Forma Condensed Consolidated Financial Statements of the
Company set forth on the following pages include the Condensed Consolidated
Statements of Income for the three months ended September 30, 1996 and the
fiscal year ended June 30, 1996. Because the consolidated balance sheet of the
Company at September 30, 1996 includes the assets and liabilities of GENSAR,
which were acquired by the Company in August, 1996, a pro forma consolidated
balance sheet has not been presented.

The Condensed Consolidated Statements of Income have been prepared by
combining the historical results of the Company and GENSAR Holdings Inc
("GENSAR"), adjusted to give effect to the purchase transactions as if it had
occurred July 1, 1995. Pro forma adjustments reflecting anticipated merger
benefits are not included.

Adjustments to reflect the remaining business combinations and merchant
portfolio purchases occurring during the three months ended September 30, 1996
and the fiscal year ended June 30, 1996 as if they had occurred on July 1,
1995, in aggregate, did not have a material impact on the pro forma results of
operations and therefore have not been included.

The unaudited Pro Forma Condensed Consolidated Financial Statements include
all material adjustments necessary to present the historical results in a
manner reflecting the assumptions set forth above.

The unaudited Pro Forma Condensed Consolidated Financial Statements do not
purport to be indicative of the results of operations that would have actually
been obtained if the purchase had been consummated as of the beginning of the
period presented. In addition, the unaudited Pro Forma Condensed Consolidated
Financial Statements do not purport to be indicative of the results of
operations which may be achieved in the future.

The unaudited Pro Forma Condensed Consolidated Financial Statements have
been prepared using calculations based on assumptions and adjustments deemed
reasonable by the Company. These assumptions and adjustments are set forth in
the Notes to Pro Forma Condensed Consolidated Financial Statements.

F-33
<PAGE>

FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES

PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
CONSOLIDATED
FIRST USA CONSOLIDATED PRO FORMA PRO FORMA
PAYMENTECH, INC. GENSAR(F) ADJUSTMENTS CONSOLIDATED
---------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net Revenue............. $ 39,634 $2,500 $ (88)(d) $ 42,046
Operating Expenses
Salaries and employee
benefits............... 11,690 930 -- 12,620
Data processing and com-
munications............ 8,803 796 (88)(d) 9,511
Other................... 10,904 777 494 (a) 12,175
Merger, integration and
impairment............. 15,544 -- -- 15,544
---------- ------ ----- ----------
Total operating ex-
penses............... 46,941 2,503 406 49,850
---------- ------ ----- ----------
Income (loss) from
operations......... (7,307) (3) (494) (7,804)
Net interest income (ex-
pense)................. 1,249 (184) (464)(b) 601
---------- ------ ----- ----------
Income (loss) before
income taxes....... (6,058) (187) (958) (7,203)
Provision for income
taxes.................. (2,774) -- (439)(e) (3,213)
---------- ------ ----- ----------
Net income (loss)... $ (3,284) $ (187) $(519) $ (3,990)
========== ====== ===== ==========
Net income (loss) per
share.................. $ (0.10) $ (0.12)
========== ==========
Weighted average common
shares outstanding..... 32,123,759 32,123,759
</TABLE>

See Notes to Pro Forma Condensed Consolidated Statements of Income.

F-34
<PAGE>

FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES

PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

FOR THE YEAR ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
CONSOLIDATED
FIRST USA CONSOLIDATED PRO FORMA PRO FORMA
PAYMENTECH, INC. GENSAR(C) ADJUSTMENTS CONSOLIDATED
---------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net Revenue............. $ 121,232 $ 25,091 $ (609)(d) $ 145,714
Operating expenses
Salaries and employee
benefits............... 38,753 9,148 -- 47,901
Data processing and com-
munications............ 26,951 6,244 (609)(d) 32,586
Other................... 34,513 8,860 5,924 (a) 49,297
---------- -------- -------- ----------
Total operating ex-
penses............... 100,217 24,252 5,315 129,784
---------- -------- -------- ----------
Income (loss) from
operations......... 21,015 839 (5,924) 15,930
Net interest income (ex-
pense)................. 2,737 (2,439) (4,810)(b) (4,512)
---------- -------- -------- ----------
Income (loss) before
income taxes....... 23,752 (1,600) (10,734) 11,418
Provision for income
taxes.................. 9,500 -- (4,272)(e) 5,228
---------- -------- -------- ----------
Net income (loss)... $ 14,252 $ (1,600) $ (6,462) $ 6,190
========== ======== ======== ==========
Net income per share.... $ 0.54 $ 0.23
========== ==========
Weighted average common
shares outstanding..... 26,429,673 26,429,673
</TABLE>

See Notes to Pro Forma Condensed Consolidated Statements of Income.

F-35
<PAGE>

FIRST USA PAYMENTECH, INC. AND SUBSIDIARIES

NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)

(a) To record amortization expense related to the Company's acquisition of
GENSAR. Amortization expense was calculated as if the acquisition had
occurred July 1, 1995.

(b) To record interest expense on the debt incurred as a result of the
purchase of GENSAR. Interest expense was calculated as if the acquisition
had occurred July 1, 1995.

(c) A reconciliation of the year ended June 30, 1996 pro forma statements of
income to the historical financial statements of GENSAR is as follows:

<TABLE>
<S> <C>
Net loss for the fiscal year ended June 30, 1996............... $(1,600)
Less net loss for the six months ended June 30, 1996........... (649)
Add net loss for the six months ended June 30, 1995............ (87)
-------
Net loss for the calendar year ended December 31, 1995......... $(1,038)
=======
</TABLE>

(d) To record the elimination of revenue paid by the Company to GENSAR.

(e) To record the pro forma adjustment for income tax. This adjustment results
in a consolidated effective tax rate of 45.79%, which reflects the effect of
the higher level of non-deductible intangible amortization.

(f) To include GENSAR results of operations prior to acquisition.

F-36
<PAGE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CON-
NECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN
ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 2
Prospectus Summary......................................................... 3
Risk Factors............................................................... 8
The Company................................................................ 11
Use of Proceeds............................................................ 14
Price Range of Common Stock................................................ 14
Dividend Policy............................................................ 14
Capitalization............................................................. 15
Selected Financial Information............................................. 16
Management's Discussion and
Analysis of Results of Operations and Financial Condition ................ 17
Business................................................................... 24
Management................................................................. 37
Principal Stockholders and Selling Stockholder............................. 44
Relationship with First USA................................................ 45
Shares Eligible for Future Sale............................................ 47
Description of Capital Stock............................................... 48
Certain United States Federal Tax
Consequences to Non-U.S. Holders.......................................... 50
Underwriting............................................................... 52
Legal Matters.............................................................. 54
Experts.................................................................... 54
Index to Financial Statements.............................................. F-1
</TABLE>

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6,800,000 SHARES

LOGO
[of First USA]

COMMON STOCK

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PROSPECTUS

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MERRILL LYNCH INTERNATIONAL
MONTGOMERY SECURITIES
SMITH BARNEY INC.
ABN AMRO ROTHSCHILD

BARCLAYS DE ZOETE WEDD LIMITED
CREDIT LYONNAIS SECURITIES

DEUTSCHE MORGAN GRENFELL
J.P. MORGAN SECURITIES LTD.

DECEMBER 12, 1996

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