<PAGE>
================================================================================
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
BA Merchant Services, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
<PAGE>
[LOGO OF BA MERCHANT SERVICES, INC. APPEARS HERE]
ONE SOUTH VAN NESS AVENUE
SAN FRANCISCO, CALIFORNIA 94103
April 18, 1997
Dear Stockholder:
You are cordially invited to attend the first Annual Meeting of Stockholders
of BA Merchant Services, Inc. to be held at 8:00 a.m. (Pacific Time) on
Wednesday, May 28, 1997, in Conference Room A, 8th Floor, Bank of America
Center, 555 California Street, San Francisco, California.
At this year's meeting, you are being asked to: (1) elect directors, (2)
approve the adoption of the BA Merchant Services, Inc., Long-Term Incentive
Plan, (3) approve the adoption of the BA Merchant Services, Inc., Short-Term
Incentive Plan and (4) ratify the appointment of independent auditors. The
accompanying Notice of Annual Meeting of Stockholders and Proxy Statement
describe these items. I urge you to read this information carefully.
Your Board of Directors believes that the four items referred to above are
in the best interests of BA Merchant Services, Inc. and its stockholders, and,
accordingly, recommends a vote FOR these items on the enclosed proxy card.
In addition to the formal business to be transacted, management will respond
to comments and questions of general interest to stockholders.
It is important that your shares be represented and voted whether or not you
plan to be present at the meeting. Therefore, please sign, date and promptly
mail the enclosed proxy in the return envelope provided.
Thank you.
Sincerely,
/s/ SHARIF BAYYARI
SHARIF M. BAYYARI
President and
Chief Executive Officer
<PAGE>
BA MERCHANT SERVICES, INC.
ONE SOUTH VAN NESS AVENUE
SAN FRANCISCO, CALIFORNIA
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 28, 1997
----------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of BA
Merchant Services, Inc., a Delaware corporation (the "Company"), will be held
in Conference Room A, 8th Floor, Bank of America Center, 555 California
Street, San Francisco, California, on Wednesday, May 28, 1997, at 8:00 a.m.
(Pacific Time), for the following purposes:
1. To elect seven directors;
2. To approve the adoption of the Company's Long-Term Incentive Plan;
3. To approve the adoption of the Company's Short-Term Incentive Plan;
4. To ratify the appointment of Ernst & Young LLP as independent auditors
of the Company for 1997; and
5. To transact any other business as may properly come before the meeting
or upon its adjournment or postponement.
The Board of Directors of the Company has fixed April 7, 1997 as the record
date for the determination of stockholders entitled to notice of and to vote
at the Annual Meeting. A list of stockholders of record will be available at
the Annual Meeting and for ten days prior to the Annual Meeting at the Office
of the Secretary of the Company, 6th Floor, Bank of America Center, 555
California Street, San Francisco, California. The Proxy Statement and form of
proxy for the Annual Meeting are first being mailed with and on or about the
date of this notice.
You are cordially invited to attend the Annual Meeting, but whether or not
you expect to attend in person, you are urged to mark, date and sign the
enclosed proxy and return it in the enclosed prepaid envelope.
By Order of the Board of Directors
/s/ CHERYL SOROKIN
Cheryl Sorokin
Secretary
April 18, 1997
YOUR VOTE IS IMPORTANT!
WHETHER YOU OWN A FEW OR MANY SHARES OF COMMON STOCK, YOU ARE URGED TO
MARK, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE
ENCLOSED RETURN ENVELOPE SO THAT YOUR SHARES MAY BE VOTED IN ACCORDANCE
WITH YOUR WISHES.
<PAGE>
PROXY STATEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL................................................................... 1
Cost of Proxy Solicitation............................................... 1
Voting Information....................................................... 1
Revocability of Proxies.................................................. 2
INFORMATION ABOUT THE BOARD OF DIRECTORS AND CERTAIN
COMMITTEES OF THE BOARD.................................................. 2
Board of Directors and Board Committees.................................. 2
Directors' Fees and Other Compensation................................... 3
Nominating Procedures for the Company's Board of Directors............... 3
Director Attendance...................................................... 4
EXECUTIVE COMPENSATION, BENEFITS AND RELATED MATTERS...................... 4
Executive Officers of the Company........................................ 4
Report of the Executive Personnel and Compensation Committee............. 5
Stockholder Return Performance Graph..................................... 7
Compensation of Executive Officers....................................... 8
Pension Plan............................................................. 10
Other Benefit Plans...................................................... 11
Certain Transactions and Other Matters................................... 11
Relationship with BankAmerica............................................ 11
OWNERSHIP OF COMPANY COMMON STOCK......................................... 13
Security Ownership of Certain Beneficial Owners.......................... 13
Security Ownership of Directors and Executive Officers................... 14
Section 16(a) Beneficial Ownership Reporting Compliance.................. 14
MATTERS TO BE CONSIDERED AT THE MEETING................................... 15
Proposal 1: Election of Directors........................................ 15
Proposal 2: Approval of the Adoption of the BA Merchant Services, Inc.,
Long-Term Incentive Plan................................................ 16
Proposal 3: Approval of the Adoption of the BA Merchant Services, Inc.,
Short-Term Incentive Plan............................................... 19
Proposal 4: Ratification of Appointment of Independent Auditors.......... 20
OTHER MATTERS............................................................. 20
Company Bylaws for Prior Notice of Stockholder Business.................. 20
Other Business For Meeting............................................... 21
Annual Report on Form 10-K/Annual Report to Stockholders................. 21
Submission of Stockholder Proposals for 1998 Meeting..................... 21
Your Vote is Important................................................... 22
APPENDIX A--BA Merchant Services, Inc., Long-Term Incentive Plan
APPENDIX B--BA Merchant Services, Inc., Short-Term Incentive Plan
</TABLE>
<PAGE>
BA MERCHANT SERVICES, INC.
ONE SOUTH VAN NESS AVENUE
SAN FRANCISCO, CALIFORNIA 94103
----------------
PROXY STATEMENT
MAY 28, 1997
----------------
GENERAL
BA Merchant Services, Inc. (the "Company") furnishes this proxy statement to
the stockholders of the Company, in connection with the solicitation of
proxies by and on behalf of the Board of Directors to be voted at the 1997
Annual Meeting of Stockholders and at any adjournment or postponement thereof
(the "Annual Meeting"). The Annual Meeting will be held at 8:00 a.m. (Pacific
Time) on Wednesday, May 28, 1997, in Conference Room A, 8th Floor, Bank of
America Center, 555 California Street, San Francisco, California. A copy of
the Notice of Annual Meeting is attached. This proxy statement and the
accompanying form of proxy are first being mailed on or about April 18, 1997
to stockholders of record as of April 7, 1997 (the "Record Date"). The only
voting securities of the Company are shares of the Company's Class A Common
Stock, $.01 par value ("Class A Common Stock"), of which there were 16,236,092
shares outstanding as of the Record Date, and shares of the Company's Class B
Common Stock, $.01 par value per share ("Class B Common Stock"), of which
there were 30,200,000 shares outstanding as of the Record Date. In this proxy
statement, the Class A Common Stock and the Class B Common Stock are
collectively referred to as the "Common Stock."
COST OF PROXY SOLICITATION
The Company will pay the cost of soliciting proxies. Directors, officers or
employees of the Company may solicit proxies on behalf of the Company in
person or by mail, telephone or facsimile transmission. The Company will not
pay additional compensation to directors, officers or employees for
solicitation of proxies.
VOTING INFORMATION
Each share of Class A Common Stock is entitled to one vote. Each share of
Class B Common Stock is entitled to ten votes. Votes will be counted and
certified by the Inspector of Election, ChaseMellon Shareholder Services LLC,
the Company's independent Transfer Agent and Registrar. The required quorum
for the transaction of business at the Annual Meeting is a majority of the
shares of Common Stock issued and outstanding on the Record Date, present in
person or represented by proxy.
The proxies will vote all outstanding shares of Common Stock represented by
properly executed and unrevoked proxies received in the accompanying form in
time for the Annual Meeting. As a stockholder, you may, with respect to the
election of directors: (1) vote for the election of the seven director
nominees named in this proxy statement, (2) withhold authority to vote for the
seven director nominees or (3) vote for the election of the director nominees
other than those with respect to whom you withhold authority to vote by so
indicating on the proxy. With respect to the proposals to approve the adoption
of the Company's Long-Term Incentive Plan, to approve the adoption of the
Company's Short-Term Incentive Plan and to ratify the appointment of Ernst &
Young LLP as independent auditors of the Company for 1997, you may: (1) vote
for one or more of the proposals, (2) vote against one or more of the
proposals or (3) abstain from voting on one or more of the proposals. Shares
will be voted as instructed in the accompanying proxy on each matter submitted
to stockholders. If no instructions are given, the shares will be voted FOR
the election of the seven director nominees named in this proxy statement, FOR
approval of the adoption of the Company's Long-Term Incentive Plan, FOR
approval of the adoption of the Company's Short-Term Incentive Plan and FOR
ratification of the appointment of Ernst & Young LLP as independent auditors
of the Company for 1997.
1
<PAGE>
A proxy submitted by a stockholder may indicate that all or a portion of the
shares represented by that proxy are not being voted by the stockholder with
respect to a particular matter. This could occur, for example, when a broker
is not permitted to vote stock held in street name on certain matters in the
absence of instructions from the beneficial owner of the stock. The shares
represented by a proxy which are not being voted with respect to a particular
matter (the "non-voted shares") will be considered shares not present and not
entitled to vote on such matter, although non-voted shares may be considered
present and entitled to vote for other purposes and will count for purposes of
determining the presence of a quorum.
The affirmative vote of a plurality of the shares of Common Stock present in
person or by proxy at the Annual Meeting and entitled to vote in the election
of directors is required to elect directors. Accordingly, if a quorum is
present at the Annual Meeting, the seven persons receiving the greatest number
of votes will be elected to serve as directors. Therefore, withholding
authority to vote for one or more directors and non-voted shares with respect
to the election of directors will not affect the outcome of the election of
directors. If a quorum is present at the Annual Meeting, approval of the
adoption of the Company's Long-Term Incentive Plan and the Company's Short-
Term Incentive Plan and approval of the ratification of the appointment of
Ernst & Young LLP as independent auditors of the Company for 1997 each require
the affirmative vote of a majority of the shares of Common Stock present in
person or by proxy at the Annual Meeting and entitled to vote on those
matters. An abstention with respect to any matter has the legal effect of a
vote against that matter. Non-voted shares with respect to a matter will not
affect the determination of whether the matter is approved.
The Board of Directors does not know of any other matters to be brought
before the Annual Meeting. However, if any other matters properly come before
the Annual Meeting, the Board's proxies intend to vote on those matters in
accordance with their best judgment.
REVOCABILITY OF PROXIES
As a stockholder, you have the right to revoke your proxy at any time prior
to the time your shares are actually voted by a written revocation delivered
to the Secretary of the Company, by submitting another valid proxy bearing a
later date which is voted at the Annual Meeting or by attending the Annual
Meeting and voting in person. If you attend the Annual Meeting and vote in
person, your proxy will not be used.
INFORMATION ABOUT THE BOARD OF DIRECTORS
AND CERTAIN COMMITTEES OF THE BOARD
BOARD OF DIRECTORS AND BOARD COMMITTEES
In accordance with applicable Delaware law, the business of the Company is
managed under the direction of its Board of Directors. Pursuant to the
Company's Bylaws, the Board of Directors presently is comprised of six
directors. There are presently two standing committees of the Board of
Directors. Committee membership, the functions of those committees and the
number of committee meetings held during 1996 are described below.
The current members of the Auditing and Examining Committee (the "Audit
Committee") are William E. Fisher, Chairman, and Donald R. Dixon. The Audit
Committee consists solely of directors who are not current or former employees
of the Company or any affiliate and are, in the opinion of the Board of
Directors, free from any relationship that would interfere with the exercise
of independent judgment in the discharge of the Audit Committee's duties. The
Audit Committee assists the Board of Directors in discharging its
responsibilities relating to the accounting, reporting and financial control
practices of the Company and its subsidiary, Seafirst Merchant Services, Inc.
The Audit Committee has general responsibility for reviewing with management
the financial controls, accounting, and audit and reporting activities of the
Company and its subsidiary. The Audit Committee annually reviews the
qualifications of the Company's independent auditors, makes recommendations to
the Board of Directors as to their selection, reviews the scope, fees and
results of their audit, reviews their non-audit services and related fees,
reviews their comment letters and management's responses and reviews any
2
<PAGE>
major accounting changes made or contemplated. In addition, the Audit
Committee reviews the effectiveness and efficiency of the Company's internal
audit process. The Audit Committee also reviews the implementation of
procedures concerning, and compliance with, the Company's internal policies.
During 1996, the Audit Committee, which was established in late November 1996,
did not meet. The Audit Committee will meet quarterly during 1997.
During 1996, the members of the Executive Personnel and Compensation
Committee (the "Compensation Committee") were Donald R. Dixon, Chairman, and
William E. Fisher. The Compensation Committee consists solely of directors who
are not current or former employees of the Company or any affiliate and is
responsible for the administration of all salary and incentive compensation
plans for the officers and key employees of the Company and its subsidiary.
The Compensation Committee also reviews management's organization and
development and approves grants and otherwise administers specific awards
under the BA Merchant Services, Inc., Long-Term Incentive Plan (the "LTIP")
and the BA Merchant Services, Inc., Short-Term Incentive Plan (the "STIP" and,
collectively with the LTIP, the "Incentive Plans"), which Incentive Plans are
proposed to be approved by the stockholders and are discussed on pages 16
through 19 and pages 19 through 20, respectively, in this proxy statement.
During 1996, the Compensation Committee, which was established in late
November 1996, met once.
DIRECTORS' FEES AND OTHER COMPENSATION
The Company pays directors who are not also employees of the Company or any
affiliate ("Nonemployee Directors") an annual retainer in the form of options
to purchase Class A Common Stock granted pursuant to the BA Merchant Services,
Inc. Nonemployee Director Stock Plan. The value of stock options paid as an
annual retainer (determined using a Black-Scholes option valuation method) is
equal at issuance to $20,000. These options vest on the day before the Annual
Meeting of Stockholders following the year in which service was performed.
Each Nonemployee Director received a pro rata share of the annual retainer for
1996. Under the Nonemployee Director Stock Plan, each Nonemployee Director
also receives an option to purchase 5,000 shares of the Company's Class A
Common Stock upon his or her original election to the board. Annually, on the
day after the Annual Meeting of Stockholders, each Nonemployee Director also
will be granted an option to purchase an additional 2,500 shares of the
Company's Class A Common Stock. These options, which vest on the day before
the next Annual Meeting of Stockholders, have a 10-year term and an exercise
price equal to the fair market value of a share of the Company's Class A
Common Stock on the grant date.
The Company pays each Nonemployee Director $1,000 for each board meeting
attended and $1,000 for each committee meeting attended, whether or not held
on the same day as a board meeting. The Company pays each committee chair an
additional $3,000 annual retainer. No other director receives cash
compensation for services as a director. All directors are reimbursed by the
Company for the expenses of attending meetings.
NOMINATING PROCEDURES FOR THE COMPANY'S BOARD OF DIRECTORS
Section 14 of the Company's Bylaws sets forth the procedures by which
stockholders may nominate persons for election to the Company's Board of
Directors at the 1997 Annual Meeting. Section 14 provides that such
nominations may be made at a meeting of stockholders (a) by or at the
direction of the Board of Directors or (b) by any stockholder of the Company
entitled to vote for the election of directors at the meeting who has complied
with the notice procedures set forth in Section 14. Such nominations, other
than those made by or at the direction of the Board of Directors, shall be
made pursuant to timely notice in writing to the Secretary of the Company. To
be timely, a stockholder's notice shall be delivered to or mailed and received
at the principal executive offices of the Company not less than thirty (30)
days nor more than sixty (60) days prior to the meeting; provided, however,
that if less than forty (40) days' notice of the date of the meeting is given
to stockholders, notice by the stockholder to be timely must be so received
not later than the close of business on the tenth day following the day on
which such notice of the date of the meeting was mailed. A stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a director, all information relating
to such person that is required to be disclosed in solicitations or proxies
for election of directors pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (including such
3
<PAGE>
person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); and (b) as to the stockholder giving
the notice (i) the name and address, as they appear on the Company's books, of
such stockholder and (ii) the class and number of shares of the Company's
stock which are owned by such stockholder. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Company that information
required to be set forth in a stockholder's notice of nomination which
pertains to the nominee. No person shall be eligible for election as a
director of the Company unless nominated in accordance with the procedures set
forth in Section 14. The chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination made at the meeting was
not made in accordance with the provisions of Section 14, and if he or she
should so determine and declare, the nomination shall be disregarded.
In 1997, the Company amended its Bylaw provisions for director nominations
made from the floor of an Annual Meeting. Stockholders of record of Company
Common Stock wishing to nominate directors from the floor of the 1998 Annual
Meeting and future stockholder meetings must do so in accordance with the
Company's amended Bylaws. The amended Bylaws provide that only a stockholder
of record is entitled to nominate a director and the stockholder must give the
Company's Secretary 90 to 120 days' prior notice of the nomination to be made
at a stockholder meeting. The address for mailing is listed on page 21. The
notice must include the following information: (1) with respect to each person
the stockholder proposes to nominate (a) the name, age, business address and
residence address of the person, (b) the principal occupation of the person,
(c) the class and number of shares of Company stock which are owned directly
or beneficially by the person, (d) a statement as to the person's citizenship,
and (e) such person's written consent to serve as a director if elected; (2)
as to the stockholder giving the notice (a) the name and address, as they
appear on the Company's books, of such stockholder and (b) the class and
number of shares of Company stock which are owned by such stockholder; and (3)
if the stockholder intends to solicit proxies in support of such stockholder's
nominee(s), a representation to that effect. If you wish to make a nomination
for a director for the Company's 1998 Annual Meeting and future stockholder
meetings, please obtain a copy of the Company's amended Bylaws from the
Secretary and familiarize yourself with the director nomination requirements.
DIRECTOR ATTENDANCE
During 1996, the Board of Directors met two times. The current directors
attended the following percentages of the aggregate number of meetings of the
Board of Directors and committees of which they were members: Mr. Bayyari,
100%; Ms. Desoer, 100%; Mr. Dixon, 100%; Mr. Fisher, 100%; Mr. Jones, 100%;
and Mr. Peterson, 50%.
EXECUTIVE COMPENSATION, BENEFITS AND RELATED MATTERS
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the Company's
executive officers. Information concerning Mr. Bayyari, the President and
Chief Executive Officer of the Company and a member of the Board of Directors,
is contained elsewhere in this proxy statement under the caption "Matters to
be Considered at the Meeting--Proposal 1: Election of Directors."
James H. Williams Mr. Williams has been the Executive Vice President, Chief
Age: 53 Financial Officer, Chief Accounting Officer and Treasurer
of the Company since its formation. Before joining the
Company, Mr. Williams was employed by Bank of America
National Trust and Savings Association (the "Bank"), most
recently as Group Executive Vice President and Chief
Accounting Officer, and by BankAmerica Corporation as
Executive Vice President. Before joining the Bank in
1994, Mr. Williams worked for Seafirst Corporation,
starting in 1973, and was named Chief Financial Officer
of that organization in 1984 and Manager of Operations
and Finance Group in June 1993.
4
<PAGE>
Le Tran-Thi Ms. Tran-Thi has been the Company's Senior Vice President
Age: 50 and Director of Operations and Asia Merchant Services
since the Company's formation and is President of BA Card
Services, Inc., a subsidiary of BankAmerica International
Financial Corporation. Previously, Ms. Tran-Thi was a
Senior Vice President for the Bank responsible for
operations of the Bank's Asian merchant processing
businesses, joining the Bank in 1981.
Michael J. Sanders Mr. Sanders has been the Company's Senior Vice President
Age: 47 and Director of Sales since the Company's formation.
Before joining the Company, Mr. Sanders was a Senior Vice
President and Sales Director for the Bank's merchant
services business since 1993, having previously served in
various operations, customer service, sales and sales
management roles with the Bank since 1967.
Richard D. Gale Mr. Gale has been the Company's Senior Vice President and
Age: 42 Director of Account Management and Customer Services
since the Company's formation. Before joining the
Company, Mr. Gale was a Senior Vice President of the Bank
responsible for account management and customer services
for the Bank's merchant services business. He joined the
Bank in 1973.
James M. Aviles Mr. Aviles has been the Company's Senior Vice President
Age: 37 and Director of Product/Strategy/Technology Support since
the Company's formation. Mr. Aviles joined the Bank's
merchant services business in 1988 and worked in several
capacities until, in June 1993, he assumed responsibility
for the Bank's product development, strategic planning
and marketing function for its merchant services
businesses.
REPORT OF THE EXECUTIVE PERSONNEL AND COMPENSATION COMMITTEE(1)
The Compensation Committee held its first meeting on November 25, 1996,
subsequent to the adoption of the executive compensation programs discussed
elsewhere in this proxy statement.
The Company's executive compensation programs are based on the belief that
the interests of the Company's executive officers should be aligned with those
of the stockholders. The Compensation Committee has determined that the
Company's executive compensation programs should be "entrepreneurial" in
nature, representing significant opportunities as well as significant downside
risk. In addition, the Compensation Committee believes that the programs
should be simple and flexible and provide competitive compensation
opportunities with payouts tied to "stretch" performance. In designing the
Company's executive compensation programs, the Compensation Committee received
information regarding compensation practices and recommendations regarding
salaries, target bonuses and incentive awards from independent compensation
consultants.
Salaries. Base salaries are set below the 50th percentile of the market.
Generally, the Compensation Committee determined market salaries based upon
the report and recommendations of the independent compensation consultants to
the Compensation Committee, which took into account information from three
sources: a proprietary data base using companies with annual revenues of from
$100 to $350 million; data from companies with average market capitalization
of $675 million which were involved in an initial public offering; and data
from recent prospectuses of two selected peer companies.
- --------
(1) Pursuant to Item 402(a)(9) of Regulation S-K promulgated by the Securities
and Exchange Commission ("SEC"), neither the Report of the Executive
Personnel and Compensation Committee nor the material under the caption
"Stockholder Return Performance Graph" shall be deemed to be filed with
the SEC for purposes of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), nor shall such report or such material be deemed
incorporated by reference in any past or future filing by the Company
under the Exchange Act or the Securities Act of 1933, as amended.
5
<PAGE>
Short-Term Incentive Opportunities. Short-term incentive opportunities under
the Company's Short-Term Incentive Plan are based on the Company's actual
performance, with a cash bonus pool of a maximum of two percent of the
Company's pretax net income. Individual awards are based on targets set at the
beginning of a performance year.
Long-Term Incentive Opportunities. Long-term incentive opportunities are
provided through the Long-Term Incentive Plan, described on pages 16 through
19 of this proxy statement, and are designed to provide target opportunities
at the 75th percentile level of companies in the market (determined as
described above) through a combination of stock option and restricted stock
awards.
CEO Compensation. The Compensation Committee set Mr. Bayyari's annual base
compensation at $220,000, effective as of January 1, 1997. (Prior to that
date, Mr. Bayyari's compensation was determined and paid by the Bank.) This
represented an increase over his annual base compensation rate from the Bank,
which the Compensation Committee determined was appropriate due to the market
evaluation described above, as well as the fact that, following the initial
public offering of the Company's Class A Common Stock, Mr. Bayyari would
assume the additional duties associated with the role of chief executive
officer of a public company.
Mr. Bayyari's bonus for 1996 was recommended by the Bank and approved by the
Compensation Committee based on his performance during that year, including
the significant leadership role he performed in the successful completion of
the initial public offering of the Company's Class A Common Stock. Mr.
Bayyari's bonus for the current year will be determined by the Compensation
Committee based upon the Company's pretax net income and the Compensation
Committee's evaluation of Mr. Bayyari's performance for this year; the maximum
bonus Mr. Bayyari may receive is determined under the terms of the Short-Term
Incentive Plan, and the Compensation Committee has determined that the target
bonus amount will be at the 75th percentile level of companies included in the
market data described above. Mr. Bayyari's 1996 awards of stock options and
restricted stock under the Long-Term Incentive Plan reported on pages 8
through 10 of this proxy statement also were determined with reference to the
75th percentile level of companies included in the market data described
above.
Tax Deductibility. The Company's executive compensation programs have been
designed to permit the Compensation Committee to make awards to executive
officers which may qualify for full tax deduction for federal income tax
purposes. However, the Committee may in its discretion make awards which do
not qualify for such deduction.
EXECUTIVE PERSONNEL AND COMPENSATION
COMMITTEE
Donald R. Dixon, Chair
William E. Fisher
6
<PAGE>
STOCKHOLDER RETURN PERFORMANCE GRAPH
The following graph compares the percentage change in cumulative total
stockholder return on the Class A Common Stock of the Company since December
19, 1996, when the Company's Class A Common Stock first began trading on the
New York Stock Exchange, with the cumulative total return on the S&P 500 index
and the S&P Computer Software Services Index ("CSSI") over the same period.
The CSSI is a subgroup of the S&P 500 containing nine companies with similar
standard industrial classification ("SIC") codes as the Company. The
comparison assumes $100 was invested on December 19, 1996 in the Company's
Class A Common Stock and in each of such indices and assumes reinvestment of
dividends, if any. Historical stock price is not indicative of future stock
price performance.
TOTAL STOCKHOLDER RETURN(1)
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
PERIOD ENDING
-----------------------------------------------------
INDEX 12/19/96 12/31/96 1/31/97 2/28/97 3/31/97
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BA MERCHANT SERVICES INC. 100.00 115.32 104.03 100.00 88.71
S&P 500 100.00 99.39 105.60 106.43 102.05
S&P COMPUTER SOFTWARE SERVICES INDEX 100.00 95.15 107.39 103.23 97.17
</TABLE>
(1) Source: SNL Securities
7
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain summary information concerning
compensation earned by the Company's Chief Executive Officer and the four
other most highly compensated executive officers during each of the last three
fiscal years. Certain of the amounts shown represent payments made to such
individuals by BankAmerica Corporation ("BAC") and its subsidiaries and
affiliates (collectively, "BankAmerica").
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------------- -------------------------
SECURITIES
OTHER RESTRICTED UNDERLYING
ANNUAL STOCK OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(2) BONUS COMPENSATION AWARDS SARS COMPENSATION(3)
- --------------------------- ---- --------- -------- ------------ ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sharif M. Bayyari........... 1996 $190,000(4) $175,000 -- 27,092(5)(6) 99,631(8) $14,994
President & Chief 1995 168,750 130,000 -- 55,789(9) 8,350
Executive Officer 1994 151,667 55,000 500(6) 39,052(10) 5,133
Le Tran-Thi ................ 1996 115,000(4) 70,000 -- 12,000(5) 32,090(11) 9,057
Senior Vice President 1995 100,721 40,000 -- 4,000(12) 5,932
and Director, Operations & 1994 85,579 15,000 150(7) -- 5,629
Asia Merchant Services
Michael J. Sanders........ 1996 80,916(4) 46,738 -- 12,000(5) 31,000(13) 8,570
Senior Vice President 1995 70,000 50,435 150(7) -- 292
and Director, Sales 1994 70,000 56,288 100(7) -- --
Richard D. Gale ............ 1996 86,213(4) 45,000 -- 12,000(5) 31,000(13) 7,880
Senior Vice President and 1995 74,926 35,000 150(7) -- 5,350
Director, Account 1994 73,167 30,000 100(7) -- 3,658
Management and Customer
Services
James M. Aviles............. 1996 84,167(4) 45,000 -- 12,000(5) 31,000(13) 5,177
Senior Vice President and 1995 78,959 18,000 150(7) -- 2,907
Director of Product/Strategy/ 1994 66,250 13,000 150(7) -- 3,170
Technology Support
</TABLE>
- -------
(1) Compensation information for Mr. Williams is not provided in this table
as, prior to October 1996, he was not providing services to BankAmerica's
merchant services businesses. The total salary and bonus earned by
Mr. Williams from October 1996 through December 1996 did not exceed
$100,000.
(2) The amounts shown include amounts deferred under the BankAmerica 401(k)
Investment Plan.
(3) The amounts shown consist of contributions made by BankAmerica to the
BankAmerica 401(k) Investment Plan and Supplemental Retirement Plan.
(4) Salary paid in 1996 to the named officers included certain amounts paid
by BankAmerica as follows: Mr. Bayyari, $174,167; Ms. Le Tran-Thi,
$115,000; Mr. Sanders, $73,833; Mr. Gale, $78,713; and Mr. Aviles,
$76,667. Salary and bonus paid to the named officers prior to 1996 was
paid entirely by BankAmerica.
(5) Represents shares of the Company's Class A Common Stock. The number of
shares and their value (based on the closing price in the New York Stock
Exchange Composite Transactions of the Company's Class A Common Stock at
December 31, 1996 of $17.50 per share) for each of the named officers was
as follows: Mr. Bayyari, 27,092 shares ($474,110); Ms. Le Tran-Thi,
12,000 shares ($210,000); Mr. Sanders, 12,000 shares ($210,000); Mr.
Gale, 12,000 shares ($210,000); and Mr. Aviles, 12,000 shares ($210,000).
The Company has not paid any dividends since its incorporation. It
currently intends to retain all future earnings for use in the operations
of its business and does not anticipate paying any cash dividends in the
foreseeable future.
(6) Mr. Bayyari received 500 shares of restricted BAC common stock in 1994,
of which 375 shares remained unvested at December 31, 1996. On such date,
these shares of restricted BAC common stock were exchanged for 2,092
shares of restricted Class A Common Stock.
(Footnotes continue on next page)
8
<PAGE>
(7) Represents shares of BAC common stock. The aggregate number of shares and
their value (based on the closing price in the New York Stock Exchange
Composite Transactions of BAC common stock at December 31, 1996 of $99.75
per share) for each of the named officers was as follows: Ms. Le Tran-
Thi, 150 shares ($14,963); Mr. Sanders, 250 shares ($24,938); Mr. Gale,
250 shares ($24,938); and Mr. Aviles, 300 shares ($29,925). Shares of
restricted BAC common stock vest 25% on the second anniversary of the
date of grant, and 25% annually thereafter (with full vesting occurring
on the fifth anniversary of the date of grant). Dividends are paid on all
shares of restricted stock of BAC.
(8) Includes options to purchase 8,000 shares of BAC common stock which were
exchanged for options to purchase 44,631 shares of Class A Common Stock.
(9) Represents options to purchase 10,000 shares of BAC common stock which
were exchanged for options to purchase 55,789 shares of Class A Common
Stock.
(10) Represents options to purchase 7,000 shares of BAC common stock which
were exchanged for options to purchase 39,052 shares of Class A Common
Stock.
(11) Represents options to purchase 90 shares of BAC common stock granted to
Ms. Tran-Thi on November 18, 1996 pursuant to BankAmerica's "Take
Ownership" program, options to purchase 4,000 shares of BAC common stock
and options to purchase 28,000 shares of Class A Common Stock.
(12) Represents options to purchase 4,000 shares of BAC common stock.
(13) Represents options to purchase 3,000 shares of BAC common stock and
options to purchase 28,000 shares of Class A Common Stock.
The following table provides information on options to purchase common stock
of BAC granted during 1996 to the executive officers named in the Summary
Compensation Table above (the "named executive officers").
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL GRANT
UNDERLYING OPTIONS GRANTED EXERCISE OR DATE
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(1) FISCAL YEAR(2) (PER SHARE)(3) DATE VALUE(4)
- ---- ---------- ---------------- -------------- ---------- --------
<S> <C> <C> <C> <C> <C>
Sharif M. Bayyari....... 8,000(5) -- -- -- --
Le Tran-Thi............. 4,000 .04% $83.062 8/5/06 $66,760
90(6) * 95.187 11/18/01 1,238
Michael J. Sanders...... 3,000 .03 83.062 8/5/06 50,070
Richard D. Gale......... 3,000 .03 83.062 8/5/06 50,070
James M. Aviles......... 3,000 .03 83.062 8/5/06 50,070
</TABLE>
- --------
* Less than one one-hundredth of one percent.
(1) One-third of the shares subject to each option become exercisable on each
of the first, second and third anniversaries of the date of grant.
(2) Percentage based on all options granted by BankAmerica during 1996.
(3) The exercise price of each option equals the market price of BAC common
stock on the date of grant.
(4) The estimated "grant date present value" of BAC options granted in 1996 is
based on a variation of the Black-Scholes option pricing model, which
includes the following assumptions used for the stock options awarded
during 1996: a risk-free interest rate of 6.22%, an expected option term
of 4.5 years, a return volatility of 21.2% and a dividend yield of 3.20%.
Assumptions used for the "Take Ownership" program options awarded during
1996 are a risk-free interest rate of 5.73%, an expected option term of
2.6 years, a return volatility of 20.4% and a dividend yield of 3.25%.
(5) These options to purchase shares of BAC common stock were exchanged for
options to purchase 44,631 shares of Class A Common Stock. The number of
options to purchase shares of Class A Common Stock received in exchange
for the options to purchase shares of BAC common stock was based on the
relative fair market value of the respective shares as defined by their
closing prices on the date of exchange.
(6) Represents options to purchase shares of BAC common stock granted to Ms.
Tran-Thi on November 18, 1996 pursuant to BankAmerica's "Take Ownership"
program.
9
<PAGE>
The following table provides information on options to purchase Class A
Common Stock of the Company granted during 1996 to the named executive
officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL GRANT
UNDERLYING OPTIONS GRANTED EXERCISE OR DATE
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(1) FISCAL YEAR(2) (PER SHARE)(3) DATE VALUE(4)
- ---- ---------- ---------------- -------------- ---------- --------
<S> <C> <C> <C> <C> <C>
Sharif M. Bayyari....... 55,000 16.71% $15.50 12/20/06 $266,200
Le Tran-Thi............. 28,000 8.51 15.50 12/20/06 135,520
Michael J. Sanders...... 28,000 8.51 15.50 12/20/06 135,520
Richard D. Gale......... 28,000 8.51 15.50 12/20/06 135,520
James M. Aviles......... 28,000 8.51 15.50 12/20/06 135,520
</TABLE>
- --------
(1) One-third of the shares subject to each option become exercisable on the
first anniversary of the date of grant, with the balance vesting on a
quarterly basis over the next two years (full vesting to occur on the
third anniversary of the date of grant).
(2) Percentage based on options granted by the Company in 1996, exclusive of
options granted in exchanges.
(3) The exercise price of each option equals the market price of the Company's
Class A Common Stock on the date of grant.
(4) The estimated "grant date present value" of Company options granted in
1996 is based on a variation of the Black-Scholes option pricing model,
which includes the following assumptions used for the stock options
awarded during 1996: a risk-free interest rate of 6.15%, an expected
option term of 4.5 years, an expected volatility of 23.0% and an expected
dividend yield of zero.
PENSION PLAN
The Company is a participating employer in the BankAmerica Pension and
Supplemental Retirement Plans, and the Company's executive officers continue
to accrue benefits under these plans.
The named executive officers received pension benefits for 1996 through the
BankAmerica Pension Plan, a "cash balance" defined benefit pension plan, and
the Supplemental Retirement Plan, which provides additional benefits equal to
the employer-provided benefits that plan participants do not receive under the
BankAmerica Pension Plan because of Internal Revenue Code limits. Effective
January 1, 1996, participants in the plans accrued benefits equal to 7% of
qualified earnings in excess of one-half of the Social Security wage base each
year. (Participants receive contributions to the BankAmerica 401(k) Investment
Plan on qualified earnings up to one-half of the Social Security wage base
each year.) Qualified earnings include salary and most cash incentive and
bonus payments. Participants' benefits are adjusted each year by an interest
factor. Estimated annual retirement benefits under the BankAmerica Pension and
Supplemental Retirement Plans for the named executive officers of the Company
at age 65 are as follows:
<TABLE>
<CAPTION>
YEAR REACHING AMOUNT OF
NAME AGE 65 ANNUITY
- ---- ------------- ---------
<S> <C> <C>
Sharif M. Bayyari....................................... 2010 $51,014
Le Tran-Thi............................................. 2011 32,881
Michael J. Sanders...................................... 2014 38,681
Richard D. Gale......................................... 2019 44,530
James M. Aviles......................................... 2025 46,890
</TABLE>
The estimated annual retirement benefits shown assume bonuses equal to the
average percentage bonus (as a percentage of year-end salary) received for the
last three years, a 5% interest factor, retirement at age 65 and no increases
in salary.
10
<PAGE>
OTHER BENEFIT PLANS
The Company also is a participating employer in the other benefit programs
sponsored by BankAmerica, including the BankAmerica 401(k) Investment Plan
with matching employer contributions, group health, life, accident and
disability coverage and preferred rates on certain loans and banking services.
These programs are made available to executive officers of the Company on
terms not more favorable than those offered to other employees. The
participation of the Company in BankAmerica-sponsored benefit programs is
subject to the continued authorization of BankAmerica and election by the
Company of such participation.
CERTAIN TRANSACTIONS AND OTHER MATTERS
In the ordinary course of business, the Company and its subsidiary from time
to time engage in transactions with other corporations or financial
institutions whose officers or directors are also officers or directors of the
Company or its subsidiary. Transactions with such corporations and financial
institutions are conducted on an arm's-length basis and may not come to the
attention of the directors or officers of the Company or of the other
corporations or financial institutions involved.
No director of the Company has been involved in any material business
relationship with the Company requiring disclosure under SEC rules.
RELATIONSHIP WITH BANKAMERICA
The Company was incorporated in October 1996 to combine the domestic
merchant processing businesses of subsidiaries of BankAmerica. These merchant
processing businesses were transferred to the Company in December 1996 in
exchange for an aggregate of 30,200,000 shares of Class B Common Stock of the
Company.
The Company has engaged, and continues to engage, in certain transactions
with BankAmerica and its subsidiaries. The Company believes that there would
not have been any material change in aggregate historical revenues or expenses
of the Company had the transactions been between unrelated parties or had the
Company been operating other than as a division of a subsidiary of
BankAmerica.
General. As of the Record Date, BankAmerica, through its subsidiary, Bank of
America National Trust and Savings Association (the "Bank"), owned 100% of the
Company's outstanding Class B Common Stock, which represented approximately
65.2% of the Company's outstanding Common Stock on that date. Such economic
ownership represented approximately 94.9% of the combined voting power of the
Company's outstanding Common Stock on that date. BankAmerica also has the
ability to elect all of the members of the Board of Directors of the Company
and to exercise a controlling influence over the business and affairs of the
Company.
BankAmerica could decide to sell or otherwise dispose of all or a portion of
its holdings of the Company's Class B Common Stock. Furthermore, there can be
no assurance that, in any transfer by BankAmerica of a controlling interest in
the Company, any holders of Class A Common Stock will be allowed to
participate in such a transaction or will realize any premium with respect to
their shares of Class A Common Stock. BankAmerica may also at some future time
transfer some or all of its shares of Class B Common Stock from the Bank to
other affiliates of the Company, including BAC.
Intercompany Agreements and Arrangements. The Company and BankAmerica engage
in various intercompany transactions and arrangements, including the provision
by BankAmerica of various services to the Company. Such services are provided
pursuant to certain intercompany agreements ("Intercompany Agreements") which
provide, among other things, for the grant to the Company of a license to use
the Bank of America name and certain trademarks and servicemarks, including
Bank of America(R), BankAmericard(R), VERSATEL(R) and VERSATELLER(R), in
connection with the Company's business. The Intercompany Agreements also
provide for BankAmerica to perform for the Company certain product
distribution services, processing services, marketing services, system support
services, association and network sponsorship and
11
<PAGE>
representation in the Visa(R) and MasterCard(R) associations,
telecommunications services, tax and treasury services, regulatory,
compliance, legal, accounting and audit services, and other miscellaneous
support and administrative services. The Company and BankAmerica also have
entered into agreements concerning registration rights, the allocation of tax
liabilities and the leasing of certain facilities by the Company from
BankAmerica. All of the Intercompany Agreements may be terminated by
BankAmerica if it beneficially owns shares representing less than a majority
of the voting power of the outstanding Common Stock of the Company. The
Company expects that the Intercompany Agreements and the Non-Competition and
Corporate Opportunities Allocation Agreement (described below) will govern the
relationship between the Company and BankAmerica, the provision of services
and the payments therefor, for the foreseeable future. Because these
agreements were entered into at a time when the Company was still wholly-owned
by BankAmerica, they are not the result of arm's length negotiations between
the parties, and the Company was not represented in connection therewith by
separate counsel.
BAC and the Company have also entered into a Non-Competition and Corporate
Opportunities Allocation Agreement pursuant to which BAC will not compete with
the Company for a period of five years with respect to payment processing for
merchants to the extent that such payments arise in the use of credit, charge
or debit cards for the purchase of goods and services and are authorized
through an electronic medium originating at the point of sale in the United
States and, following any transfer to the Company of the Bank's merchant
processing business in an Asian country, in such Asian country.
For more information regarding the Intercompany Agreements and the Non-
Competition and Corporate Opportunities Allocation Agreement, please refer to
the Company's Annual Report on Form 10-K/1996 Annual Report to Stockholders, a
copy of which was mailed to each stockholder on or about March 31, 1997.
Payment for Services. Fees paid for services provided to the Company or its
predecessors by BankAmerica were approximately $7.5 million, $7.7 million and
$8.3 million for the years ended December 31, 1994, 1995 and 1996,
respectively. As part of the intercompany arrangements, the Company (or its
predecessor) paid BankAmerica total rental expense of $2.3 million, $1.9
million and $1.9 million, for the years ended December 31, 1994, 1995 and
1996, respectively. In addition, the Company (or its predecessor) paid
BankAmerica $13.3 million, $14.8 million and $15.5 million for the years ended
December 31, 1994, 1995 and 1996, respectively, under tax allocation
arrangements.
12
<PAGE>
OWNERSHIP OF COMPANY COMMON STOCK
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, based on the number of shares outstanding as
of April 7, 1997, the percentage of ownership of the Common Stock of the
Company by the persons believed by the Company to own beneficially more than
5% of the Common Stock based solely upon Schedule 13G filings dated December
31, 1996:
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS NATURE OF BENEFICIAL PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- -------------- --------------------------------- -------------------- --------
<S> <C> <C> <C>
Class A Common Stock.... Chancellor LGT Asset 1,462,700 shares(5) 10.45%
Management, Inc., Chancellor
LGT Trust Company and LGT
Asset Management, Inc.(2)
Class A Common Stock.... Dean Witter, Discover & Co., 87,100 shares(6) 6.22%
Dean Witter InterCapital Inc. and
Dean Witter Reynolds Inc.(3)
Class B Common Stock(1). Bank of America National Trust 30,200,000 shares(7) 100.00%
and Savings Association and
BankAmerica Corporation(4)
</TABLE>
- --------
(1) The Class B Common Stock is convertible, upon the occurrence of certain
events set forth in the Company's Amended and Restated Certificate of
Incorporation, into Class A Common Stock. Represents approximately 65.2%
of the outstanding Common Stock of the Company and 94.9% of the combined
voting power of the Company's outstanding Common Stock.
(2) The address of the principal place of business of Chancellor LGT Asset
Management, Inc. and Chancellor LGT Trust Company is 1166 Avenue of the
Americas, New York, New York 10036. The address of the principal place of
business of LGT Asset Management, Inc. is 50 California Street, San
Francisco, California 94111.
(3) The address of the principal place of business of Dean Witter, Discover &
Co., Dean Witter InterCapital Inc. and Dean Witter Reynolds Inc. is Two
World Trade Center, New York, New York 10048.
(4) The address of the principal place of business of Bank of America National
Trust and Savings Association and BankAmerica Corporation is 555
California Street, San Francisco, California 94104.
(5) According to a Schedule 13G filed with the SEC on February 7, 1997,
Chancellor LGT Asset Management, Inc. and Chancellor LGT Trust Company, as
investment advisors for various fiduciary accounts, have sole power to
vote (or to direct the vote) and sole power to dispose (or to direct the
disposition) of 1,462,700 shares of the Class A Common Stock.
(6) According to a Schedule 13G filed with the SEC on February 22, 1997, Dean
Witter InterCapital, Inc., the investment advisor for various mutual funds
deemed to have beneficial ownership of the 87,100 shares of Class A Common
Stock, Dean Witter, Discover & Co. and Dean Witter Reynolds, Inc.,
disclaim beneficial ownership of such shares.
(7) According to a Schedule 13G filed with the SEC on March 17, 1997, Bank of
America National Trust and Savings Association has sole voting and
investment power with respect to 30,200,000 shares of the Class B Common
Stock and BankAmerica Corporation has shared voting and investment power
with respect to such shares.
13
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of March 31, 1997, the beneficial
ownership of Class A Common Stock by all directors and nominees, each of the
named executive officers and all directors and executive officers as a group.
Each individual owns less than 1% of the Company Common Stock issued and
outstanding, and each has sole investment or voting power with respect to the
shares set forth in the table that follows unless otherwise noted:
<TABLE>
<CAPTION>
AGGREGATE NUMBER OF
NAME SHARES BENEFICIALLY OWNED(1)
- ---- ----------------------------
<S> <C>
Sharif M. Bayyari................................. 70,294
Barbara J. Desoer................................. 0
Donald R. Dixon................................... 11,652
William E. Fisher................................. 11,652
James G. Jones.................................... 0
H. Eugene Lockhart................................ 0
Thomas E. Peterson................................ 0
Le Tran-Thi....................................... 0
Michael J. Sanders................................ 0
Richard D. Gale................................... 0
James M. Aviles................................... 0
All directors and executive officers as a group
(11 persons)(2).................................. 175,421
</TABLE>
- --------
(1) All shares which the identified person or persons have the right to
acquire by exercise of options within sixty days of March 31, 1997 are
deemed to be beneficially owned.
(2) As a group, beneficially owns approximately 1% of the Company's Class A
Common Stock issued and outstanding.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and persons who own more than 10% of a registered class of
the Company's equity securities to file with the SEC and the New York Stock
Exchange initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Officers, directors
and stockholders who own more than 10% of a registered class are required by
the SEC to furnish the Company with copies of all Section 16(a) forms they
file.
The executive officers and directors of the Company did not file with the
SEC Forms 3 (reports of initial ownership) and Forms 4 with respect to (1)
shares of Class A Common Stock subsequently acquired by the Nonemployee
Directors pursuant to the Nonemployee Director Stock Plan and (2) shares of
Class A Common Stock subsequently acquired by the executive officers pursuant
to the LTIP or the exchange of certain options to acquire BAC common stock for
options to acquire Class A Common Stock. Forms 5 with respect to all executive
officers and directors, reflecting initial ownership of the Class A Common
Stock and all subsequent transactions in Class A Common Stock, were
subsequently filed with the SEC; however, these Forms 5 were also
inadvertently filed late.
14
<PAGE>
MATTERS TO BE CONSIDERED AT THE MEETING
PROPOSAL 1: ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES NAMED IN THIS
PROPOSAL.
The Board of Directors has nominated the slate of directors set forth below.
With the exception of Mr. Lockhart, each of the nominees currently serves as a
director. Persons elected at the Annual Meeting will hold office until the
1998 Annual Meeting of Stockholders, or until earlier retirement, resignation
or removal.
The number of shares of the Company's Class A Common Stock owned by each
nominee, all as of March 31, 1997, is set forth above under the caption
"Ownership of Company Common Stock--Security Ownership of Directors and
Executive Officers."
Unless authority to vote is withheld, the Board will direct its proxies to
vote for the seven named nominees, each of whom has consented to being named
in this Proxy Statement and to serving if elected. Although the Board knows of
no reason why any nominee would be unable to serve, shares represented by
proxy will be voted for any substitute nominee or nominees designated by the
Board of Directors in the event any nominee is unable to serve. The Board of
Directors may also vote to reduce the number of directors to be elected.
The following information is provided with respect to the nominees for
directors.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE DIRECTOR
NAME AND AGE AND DIRECTORSHIPS SINCE
------------ ----------------------------------------- --------
<C> <S> <C>
Sharif M. Bayyari Mr. Bayyari has been the President and Chief 1996
Age:52 Executive Officer and a member of the Board
of Directors of the Company since its
formation. From 1993 until the Company's
formation, Mr. Bayyari was Executive Vice
President responsible for managing the
merchant services businesses of the Bank. From
1983 to 1993, Mr. Bayyari was with National Data
Corporation, where he served as Group Vice
President in charge of operations from 1990
to 1993. National Data Corporation is a
merchant services business.
Barbara J. Desoer Ms. Desoer has served as a member of the 1996
Age: 44 Board of Directors of the Company since
November 1996. She is presently Group
Executive Vice President and head of the
California Retail Group of the Bank, having
joined the Bank initially in 1977.
Donald R. Dixon Mr. Dixon has served as a member of the 1996
Age: 49 Board of Directors of the Company since
November 1996. Mr. Dixon has been the
President of Trident Capital, Inc., a
venture capital firm, since 1993. He was
Co-President of Partech International, a
private equity fund manager associated with
Banque Paribas, from 1988 to 1993. Before
that time, Mr. Dixon was Managing Director
of Alex Brown & Sons, Incorporated and a
Vice President of Morgan Stanley. Mr. Dixon
currently serves on the Board of Directors
of Platinum Software Corporation, Unison
Software, Inc., and several privately owned
corporations.
William E. Fisher Mr. Fisher has served as a member of the 1996
Age: 50 Board of Directors of the Company since
November 1996. He is the President, Chief
Executive Officer and Chairman of
Transaction Systems Architects, Inc., where
he has been employed since 1987. Mr. Fisher
currently serves on the Board of Directors
of Transaction Systems Architects, Inc., and
West Teleservices Corp.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE AND DIRECTOR
NAME AND AGE DIRECTORSHIPS SINCE
------------ --------------------------------------------- --------
<C> <S> <C>
James G. Jones Mr. Jones has served as a member of the Board of 1996
Age: 48 Directors of the Company since November 1996. He
is presently Group Executive Vice President and
head of Consumer Credit Administration for the
Bank. Before joining the Bank in 1992, Mr. Jones
served for nine years as Executive Vice
President and head of Consumer Credit at
Wells Fargo Bank.
H. Eugene Lockhart Mr. Lockhart has served as President and Chief --
Age: 47 Executive Officer of MasterCard International
since 1994. He was Executive Vice President of
First Manhattan Consulting Group from 1992 to
1994. Before joining First Manhattan, he was
Chief Executive of U.K. Banking and Group
Operations of Midland Bank plc. Effective May 5,
1997, he will join the Bank as President of the
Global Retail Bank. Mr. Lockhart currently
serves on the Board of Directors of RJR Nabisco,
Cognizant Corp. and Niagara Mohawk.
Thomas E. Peterson Mr. Peterson is Chairman of the Board of 1996
Age: 61 Directors and has been a member of the Board of
Directors of the Company since its formation.
He has been a Vice Chairman of the Bank since
1987. Mr. Peterson currently serves on the Board
of Directors of Visa International, Visa U.S.A.,
and VeriFone.
</TABLE>
PROPOSAL 2: APPROVAL OF THE ADOPTION OF THE BA MERCHANT SERVICES, INC., LONG-
TERM INCENTIVE PLAN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
The following is a summary of the material provisions of the BA Merchant
Services, Inc., Long-Term Incentive Plan, which is attached as Appendix A to
this Proxy Statement and is incorporated by reference into this summary
description. This summary is qualified entirely by reference to the Long-Term
Incentive Plan. Any capitalized terms which are used in this summary
description but not defined have the meanings assigned to them in the Long-
Term Incentive Plan.
Introduction. On November 22, 1996, the Board of Directors adopted the BA
Merchant Services, Inc., Long-Term Incentive Plan (the "LTIP"). A copy of the
LTIP appears as Appendix A to this proxy statement. The Board of Directors
urges stockholders to read the LTIP in its entirety. The LTIP provides for a
number of forms of stock-based compensation to eligible employees, including
incentive and nonqualified stock options, stock appreciation rights,
restricted stock, performance units and performance shares. Stock-based
compensation will typically be issued in consideration for the performance of
services to the Company. Certain awards may be subject to the satisfaction of
specific performance goals.
The Board of Directors believes that the LTIP will optimize the
profitability and growth of the Company through incentives that link the
interests of LTIP participants with those of the Company's stockholders. The
Board further believes that the LTIP will enable the Company to attract,
retain and motivate employees capable of making significant contributions to
the Company's success and to allow employees to share in the success of the
Company.
The Board of Directors expects the LTIP to link the interests of
participants with those of the Company's stockholders by giving participants
an incentive to perform at a superior level consistent with the Company's
goals and that approval of the LTIP is, therefore, in the stockholders' best
interests.
16
<PAGE>
Purpose. The objectives of the LTIP are to optimize the profitability and
growth of the Company through incentives which are consistent with the
Company's goals and which link the personal interests of employees to those of
the Company's stockholders, to provide LTIP participants with an incentive for
excellence in individual performance and to promote teamwork among employees.
Further, the Board of Directors expects the LTIP to motivate, attract and
retain employees capable of significant contributions to the Company's success
and to allow LTIP participants to share in the success of the Company.
Administration. The Compensation Committee will administer the LTIP. The
Compensation Committee selects the key employees of the Company who will
receive awards, determines the size of any award and establishes any vesting
or other conditions.
Eligibility. Officers and employees of the Company and its subsidiaries are
eligible to participate in the LTIP. Directors who are not employees of the
Company are not eligible.
Options. The Compensation Committee has discretion to award incentive stock
options ("ISOs"), which are intended to comply with Section 422 of the
Internal Revenue Code, or nonqualified stock options ("NSOs"), which are not
intended to comply with Section 422 of the Internal Revenue Code. Each option
issued under the LTIP must be exercised within a period of ten years from the
date of grant, and the exercise price of an option may not be less than the
fair market value of the underlying shares of the Company's Class A Common
Stock on the date of grant (except in the case of options granted to Mr.
Bayyari or Mr. Williams in substitution for outstanding unexercised options
granted under the BankAmerica Corporation 1992 Management Stock Plan). At the
time of exercise, the full exercise price for a stock option must be paid in
cash or, if the Compensation Committee so provides, in shares of the Company's
Class A Common Stock. Subject to the specific terms of the LTIP, the
Compensation Committee has discretion to set such additional limitations on
option grants (including vesting and expiration or termination provisions) as
it deems appropriate.
Stock Appreciation Rights. The Compensation Committee may also award stock
appreciation rights ("SARs") upon such terms and conditions as it establishes.
The grant price of a freestanding SAR (an SAR not granted in connection with a
stock option) will equal the fair market value of a share of Class A Common
Stock, while the grant price of a tandem SAR issued in connection with a stock
option will equal the exercise price of the related option. At present, the
Compensation Committee does not intend to grant SARs under the LTIP.
Restricted Stock. The Compensation Committee has authority to award shares
of restricted Class A Common Stock upon such terms and conditions as it may
establish. The participants may be required to pay a purchase price for each
share of restricted stock granted equal to the par value of a share of the
Company's Class A Common Stock. The award agreement will specify the period(s)
of restriction, the number of shares of restricted Class A Common Stock
granted, the restrictions applicable to the award (such as restrictions based
upon achievement of specific performance objectives or continued employment
with the Company) and such other provisions as the Compensation Committee
shall determine. Although recipients will have the right to vote these shares
from the date of grant, they will not have the right to sell or otherwise
transfer the shares during the applicable period of restriction or until
earlier satisfaction of other conditions imposed by the Compensation Committee
in its sole discretion. Participants will receive dividends on their shares of
restricted stock and the Compensation Committee, in its discretion, will
determine how dividends on restricted shares are to be paid.
Performance Units and Performance Shares. The Compensation Committee may
also award performance units and performance shares upon such terms and
conditions as it may establish. The Compensation Committee will determine the
initial value of performance units, while performance shares will have an
initial value equal to the fair market value of a share of Class A Common
Stock. Performance units and shares will be paid upon the satisfaction of
performance goals specified by the Compensation Committee at the time of
grant.
Ownership Counts! The Company has adopted a program within the LTIP pursuant
to which employees of the Company who are not Executive Officers may receive
periodic stock option grants for not more than 400 shares of the Company's
Class A Common Stock annually. The first such grant was made at the time of
the initial public offering of the Company's Class A Common Stock, and the
second grant is scheduled to be made in May 1997.
17
<PAGE>
Performance Measures. The performance measures upon which certain of the
LTIP awards may be based are revenues, profits, economic profit, net income,
operating expense reductions, share price, earnings per share, total
stockholder return, return on assets, return on equity, return on gross sales,
operating income, return on capital or investments or economic value added.
Following the end of a performance period, the Compensation Committee will
determine the value of the performance-based awards granted for the period
based on the attainment of the preestablished objective performance goals. The
Compensation Committee will also have discretion to reduce (but not to
increase) the value of a performance-based award.
Number of Available Shares. Up to 6,000,000 shares of the Company's Class A
Common Stock are authorized for issuance through the LTIP. Individual awards
under the LTIP are subject to annual aggregate limits as follows: stock
options, 500,000 shares; SARs, 500,000 shares; restricted stock, 250,000
shares; performance shares/units, 250,000 shares, in each case of Class A
Common Stock. The LTIP provides for appropriate adjustments in the number of
shares of the Company's Class A Common Stock subject to awards and available
for future awards in the event of changes in outstanding Class A Common Stock
by reason of a merger, stock split or certain other events.
Term of the LTIP, Amendment and Termination. The Board of Directors may
modify, amend or terminate the LTIP at any time. However, no such action will
adversely affect any outstanding awards without the affected holder's consent.
The Board of Directors will seek stockholder approval of an amendment if
necessary under Internal Revenue Service regulations, the rules of the NYSE or
any applicable law. Subject to the right of the Board of Directors to modify,
amend or terminate the LTIP, the LTIP will remain in effect until all options
and rights granted thereunder have been exercised or expired in accordance
with the terms of the plan. However, in no event will the Board of Directors
grant awards under the LTIP on or after November 30, 2006.
Federal Income Tax Consequences.
Neither the optionee nor the Company will incur any federal tax consequences
as a result of the grant of an ISO or NSO. The optionee will have no taxable
income upon exercising an ISO (except that the alternative minimum tax may
apply), and the Company will receive no deduction when an ISO is exercised.
Upon exercising an NSO, the optionee generally must recognize ordinary income
equal to the "spread" between the exercise price and the fair market value of
the stock on the date of exercise; the Company generally will be entitled to a
deduction for the same amount. The option spread at the time an NSO is
exercised is subject to income tax withholding, but the optionee generally may
elect to satisfy the withholding tax obligation by having shares of Class A
Common Stock withheld from those purchased under the NSO. The tax treatment of
a disposition of option shares acquired under the LTIP depends on how long the
shares have been held and on whether such shares were acquired by exercising
an ISO or by exercising an NSO. The Company will not be entitled to a
deduction in connection with a disposition of option shares, except in the
case of a disposition of shares acquired under an ISO before the applicable
ISO holding periods have been satisfied.
Generally, a person is not deemed to receive any taxable income at the time
an award of restricted stock is granted. The Company is not entitled to a tax
deduction at that time. Dividends received by the person on nonvested
restricted stock are treated as taxable compensation and are subject to
withholding. The Company is entitled to a deduction equal to the amount of the
dividends paid on nonvested restricted stock. When restricted stock become
vested, the employee is deemed to receive an amount of ordinary income equal
to the excess of the fair market value of the restricted stock at the time
they vest over the amount paid for the restricted stock by the participant. In
the case of an employee or former employee, such income is subject to
withholding taxes. The Company is then entitled to a tax deduction equal to
the amount of ordinary income recognized by the participant, subject to
certain limitations.
The above tax discussion is only a brief summary of current federal income
tax law. It is intended solely as general information and does not make
specific representations to any optionee. A taxpayer's particular situation
may be such that some variation of the basic rules is applicable to him or
her. In addition, the federal income tax laws and regulations frequently have
been revised and may be changed again at any time in the future. Each optionee
is urged to consult a tax advisor regarding the tax consequences to such
participant under the LTIP.
18
<PAGE>
Stockholder Approval. A majority of the shares of Common Stock present in
person or by proxy at the Annual Meeting and entitled to vote on the LTIP must
vote affirmatively on the LTIP in order for it to be adopted.
PROPOSAL 3: APPROVAL OF THE ADOPTION OF THE BA MERCHANT SERVICES, INC., SHORT-
TERM INCENTIVE PLAN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
The following is a summary of the material provisions of the BA Merchant
Services, Inc., Short-Term Incentive Plan, which is attached as Appendix B to
this Proxy Statement and is incorporated by reference into this summary
description. This summary is qualified entirely by reference to the Short-Term
Incentive Plan. Any capitalized terms which are used in this summary
description but not defined have the meanings assigned to them in the Short-
Term Incentive Plan.
Introduction. On November 22, 1996, the Board of Directors adopted the BA
Merchant Services, Inc., Short-Term Incentive Plan (the "STIP"). The STIP
provides for targeted annual incentive awards to encourage superior
performance by senior management. A copy of the STIP appears as Appendix B to
this proxy statement. The Board of Directors urges stockholders to read the
STIP in its entirety. The STIP allows for cash incentive awards to senior
management up to certain limits as determined according to a formula outlined
in the STIP. To the extent the Company achieves superior performance, the
benefits paid under this plan could significantly increase the compensation
payable to participating members of senior management.
The Board of Directors believes the STIP will enable the Company to attract,
retain and motivate highly qualified senior management capable of implementing
the Company's long-term strategic goals and objectives. The Board further
believes that, by taking into account the Senior Officer's contributions to
the Company and the Company's performance, along with any other factors that
promote the purposes of the plan, the STIP will increase stockholder value.
The Board of Directors expects the STIP to link senior management's
interests with those of stockholders by giving senior management an incentive
to perform at a superior level and that approval of the STIP is therefore in
the stockholders' best interests.
Purpose. The purpose of the STIP is to encourage superior performance by
eligible Senior Officers of the Company through the payment of annual cash
incentive awards.
Administration. The Compensation Committee will administer the STIP. The
Chief Executive Officer of the Company will make recommendations to the
Compensation Committee regarding individual awards. However, the Compensation
Committee has sole discretion to designate particular award recipients and the
amount of any such award.
Eligibility. Senior Officers of the Company are eligible to participate in
the STIP. No member of the Compensation Committee and no member of the Board
of Directors who is not also an employee of the Company is eligible to
participate in the STIP.
Determination of Awards. The STIP contains a formula for calculating the
maximum amount of annual incentive awards payable to members of senior
management under the STIP. The formula establishes a fixed percentage of
adjusted pre-tax income as the maximum aggregate amount available to be paid
to the named executive officers and other executive officers as annual
incentive awards under the STIP. The formula in the STIP also sets a maximum
annual award payable to any one executive officer at $1,000,000. The
Compensation Committee has sole discretion to designate annual award
recipients and the amount of individual awards, taking into account such
factors as the award recipient's contributions to the Company, the Company's
performance, and such other criteria as the Compensation Committee may
determine to promote the purposes of the STIP.
Amendment, Modification and Termination. The Board of Directors has the
right to modify, suspend or terminate the STIP at any time.
19
<PAGE>
Rights Not Transferable. The rights or interest of any STIP participant in
any award under the STIP shall not be transferable by voluntary or involuntary
assignment prior to actual payment of the award and any attempt to dispose of
any such interest shall be void.
Federal Income Tax Consequences. Generally, a cash incentive award under the
STIP is taxed to the recipient as ordinary income in the year in which the
award is received. The Company then is entitled to a tax deduction in an
amount equal to the ordinary income that the recipient receives, subject to
certain limitations.
The above tax discussion is only a brief summary of current federal income
tax law. It is intended solely as general information and does not make
specific representations to any optionee. A taxpayer's particular situation
may be such that some variation of the basic rules is applicable to him or
her. In addition, the federal income tax laws and regulations frequently have
been revised and may be changed again at any time in the future. Each optionee
is urged to consult a tax advisor regarding the tax consequences to such
participant under the STIP.
Stockholder Approval. A majority of the shares of Common Stock present in
person or by proxy at the Annual Meeting and entitled to vote on the STIP must
vote affirmatively on the STIP in order for it to be adopted.
PROPOSAL 4: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
The Board of Directors has appointed Ernst & Young LLP, Certified Public
Accountants, as the Company's independent auditors for 1997. This appointment
is subject to stockholder ratification. Ernst & Young LLP has been serving as
the independent auditors for the Company since its formation.
In the event the appointment of Ernst & Young LLP as independent auditors is
not ratified by the stockholders, the Board of Directors will consider it a
direction to appoint other auditors for the subsequent year. Because of the
difficulty and expense of making any change in independent auditors so long
after the beginning of the current year, it is likely the Board of Directors
would allow the appointment to stand for 1997 unless it found other good
reason for making a change sooner. Even if the appointment is ratified, the
Board of Directors, in its discretion, may appoint a new independent
accounting firm at any time during the year, if the Board of Directors feels
that such a change would be in the best interests of the Company and its
stockholders.
A representative of Ernst & Young LLP will be present at the meeting with
the opportunity to make a statement if he or she desires to do so and will be
available to respond to appropriate questions.
OTHER MATTERS
COMPANY BYLAWS FOR PRIOR NOTICE OF STOCKHOLDER BUSINESS
Stockholders of record of Company Common Stock wishing to bring business
from the floor of the 1997 Annual Meeting for a vote of the stockholders, must
do so in accordance with the Company's Bylaws. The Bylaws provide that only a
stockholder of record is entitled to bring business from the floor of the
meeting and the stockholder must give the Company's Secretary 30 to 60 days'
prior notice of any business the stockholder wishes to bring before the 1997
Annual Meeting for a vote. The earliest date for receipt of notice was March
29, 1997, and the last day for receipt of notice is April 28, 1997. The
address for mailing is listed on page 21. The notice must give the following
information with respect to any business the stockholder wishes to bring
before the meeting: a brief description of the business desired to be brought
before the Annual Meeting and the reasons for conducting such business at the
Annual Meeting, the name and address of the stockholder proposing the
business, as they appear on the Company's stock records; the class and number
of shares of Company stock the stockholder owns; and any material interest of
the stockholder in the business. If a stockholder wishes to bring stockholder
business before the Company's 1997 Annual Meeting, the stockholder should
obtain a copy of the Company's Bylaws from the Secretary and become familiar
with the stockholder business requirements.
20
<PAGE>
In 1997, the Company amended its Bylaw provisions for stockholder business
raised from the floor of the Annual Meeting. Thus, stockholders of record of
Company Common Stock wishing to bring business from the floor of the 1998
Annual Meeting and future stockholder meetings for a vote of the stockholders,
must do so in accordance with the Company's amended Bylaws. The amended Bylaws
provide that only a stockholder of record is entitled to bring business from
the floor of the meeting and the stockholder must give the Company's Secretary
90 to 120 days' prior notice of the business to be brought before an Annual
Meeting for a vote. The address for mailing is listed below. The notice must
include the following information with respect to any business the stockholder
wishes to bring before a stockholder meeting: a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting; the name and address, as they
appear on the Company's books, of the stockholder proposing such business; the
class and number of shares of the Company's stock which are owned by the
stockholder; any material interest of the stockholder in such business; and if
the stockholder intends to solicit proxies in support of such stockholder's
proposal, a representation to that effect. If a stockholder wishes to bring
stockholder business before the 1998 Annual Meeting and future stockholder
meetings, the stockholder should obtain a copy of the Company's amended Bylaws
from the Secretary and become familiar with the stockholder business
requirements.
The Company's Bylaw requirements, including time periods for advance notice,
for the business to be presented for a vote at a stockholder meeting are in
addition to the requirements and time periods specified in the SEC rules for a
stockholder to have a proposal included in the board's proxy statement.
OTHER BUSINESS FOR MEETING
By signing the enclosed proxy card, you are conferring the authority to vote
upon the persons indicated on the card. This authority includes discretionary
authority to vote your shares in accordance with the proxyholders' judgment
with respect to all matters which properly come before the meeting in addition
to the scheduled items of business. The Board of Directors intends to instruct
its proxyholders to vote in accordance with the recommendations of the Board
of Directors.
As of the printing of this notice of annual meeting of stockholders and
proxy statement, the Board of Directors knows of no matters to be presented
for action at the meeting other than items listed on the proxy card.
ANNUAL REPORT ON FORM 10-K/ANNUAL REPORT TO STOCKHOLDERS
The Company has provided a copy of its Annual Report on Form 10-K/1996
Annual Report to Stockholders to each person whose proxy is being solicited.
The Company will provide, without charge, copies of its Annual Report on Form
10-K for the year ended December 31, 1996 (including any financial statements
and schedules, and a list describing any exhibits not contained therein) upon
written request addressed to:
BA Merchant Services, Inc.
Secretary's Office #13018
Bank of America Center
555 California Street
San Francisco, California 94104
The exhibits to the Annual Report on Form 10-K are available upon payment of
charges which approximate the Company's cost of reproduction.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR 1998 MEETING
In order to be considered for inclusion in the Company's proxy materials for
the Company's 1998 Annual Meeting of Stockholders, any stockholder proposal
must be received by the Company on or before December 19, 1997. Proposals
should be mailed to the Company at the address shown above.
21
<PAGE>
YOUR VOTE IS IMPORTANT
It is important that your shares be represented and voted at the Annual
Meeting. You are urged to mark, date, sign and return the enclosed proxy in
the prepaid envelope provided for this purpose.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ CHERYL SOROKIN
Cheryl Sorokin
Secretary
Dated: April 18, 1997
22
<PAGE>
APPENDIX A
LONG-TERM INCENTIVE PLAN
BA MERCHANT SERVICES, INC.
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Article 1. Establishment, Objectives, and Duration........................ A-1
Article 2. Definitions.................................................... A-1
Article 3. Administration................................................. A-3
Article 4. Shares Subject to the Plan and Maximum Awards.................. A-4
Article 5. Eligibility and Participation.................................. A-4
Article 6. Stock Options.................................................. A-5
Article 7. Stock Appreciation Rights...................................... A-6
Article 8. Restricted Stock............................................... A-7
Article 9. Performance Units and Performance Shares....................... A-8
Article 10. Performance Measures........................................... A-9
Article 11. Beneficiary Designation........................................ A-9
Article 12. Deferrals...................................................... A-10
Article 13. Rights of Employees............................................ A-10
Article 14. Amendment, Modification, and Termination....................... A-10
Article 15. Withholding.................................................... A-10
Article 16. Indemnification................................................ A-11
Article 17. Successors..................................................... A-11
Article 18. Legal Construction............................................. A-11
</TABLE>
-i-
<PAGE>
BA MERCHANT SERVICES, INC.
LONG-TERM INCENTIVE PLAN
ARTICLE 1. ESTABLISHMENT, OBJECTIVES, AND DURATION
1.1. ESTABLISHMENT OF THE PLAN. BA Merchant Services, Inc., a Delaware
corporation (hereinafter referred to as the "Company"), hereby establishes an
incentive compensation plan to be known as the "BA Merchant Services, Inc.
Long-Term Incentive Plan" (hereinafter referred to as the "Plan"), as set
forth in this document. The Plan permits the grant of Nonqualified Stock
Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock,
Performance Shares and Performance Units.
Upon approval by the Board of Directors and the shareholders of the Company,
the Plan shall become effective upon consummation of the Company's initial
public offering (the "Effective Date") and shall remain in effect as provided
in Section 1.3 hereof.
1.2. OBJECTIVES OF THE PLAN. The objectives of the Plan are to optimize the
profitability and growth of the Company through incentives which are
consistent with the Company's goals and which link the personal interests of
Participants to those of the Company's stockholders; to provide Participants
with an incentive for excellence in individual performance; and to promote
teamwork among Participants.
The Plan is further intended to provide flexibility to the Company in its
ability to motivate, attract, and retain the services of Participants who make
significant contributions to the Company's success and to allow Participants
to share in the success of the Company.
1.3. DURATION OF THE PLAN. The Plan shall commence on the Effective Date, as
described in Section 1.1 hereof, and shall remain in effect, subject to the
right of the Board of Directors to amend or terminate the Plan at any time
pursuant to Article 14 hereof, until all Shares subject to it shall have been
purchased or acquired according to the Plan's provisions. However, in no event
may an Award be granted under the Plan on or after November 30, 2006.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings set
forth below, and when the meaning is intended, the initial letter of the word
shall be capitalized:
2.1. "AWARD" means, individually or collectively, a grant under this Plan of
Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation
Rights, Restricted Stock, Performance Shares or Performance Units.
2.2. "AWARD AGREEMENT" means an agreement entered into by the Company and
each Participant setting forth the terms and provisions applicable to Awards
granted under this Plan.
2.3. "BENEFICIAL OWNER" or "BENEFICIAL OWNERSHIP" shall have the meaning
ascribed to such term in Rule 13d-3 of the General Rules and Regulations under
the Exchange Act.
2.4. "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the
Company.
2.5. "CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
2.6. "COMMITTEE" means the Executive Personnel and Compensation Committee of
the Board, as specified in Article 3 herein, or such other Committee appointed
by the Board to administer the Plan with respect to grants of Awards.
2.7. "COMPANY" means BA Merchant Services, Inc., a Delaware corporation,
including any and all Subsidiaries, and any successor thereto as provided in
Article 17 herein.
A-1
<PAGE>
2.8. "DIRECTOR" means any individual who is a member of the Board of
Directors of the Company.
2.9. "DISABILITY" shall have the meaning ascribed to such term in the
Participant's governing long-term disability plan, or if no such plan exists,
at the discretion of the Committee.
2.10. "EFFECTIVE DATE" shall have the meaning ascribed to such term in
Section 1.1 hereof.
2.11. "EMPLOYEE" means any active employee on the Payroll of the Company or
its Affiliates. Directors who are not employed by the Company shall not be
considered Employees under this Plan. For this purpose, "Affiliate" shall
include BankAmerica Corporation and its Subsidiaries and any other entity in
which the Company holds a significant ownership interest. "Employee" does not
include (i) any individual who is compensated for services by a person other
than the Company, a Subsidiary or an Affiliate and who for any reason is
deemed to be an employee of the Company, a Subsidiary, or an Affiliate, (ii)
any individual who is not on the Payroll of the Company, a Subsidiary or an
Affiliate and who for any reason is deemed to be an employee of the Company, a
Subsidiary, or an Affiliate, and (iii) any individual who is subject to a
written agreement that provides that such individual shall not be eligible to
participate in the Plan. If, during any period, neither the Company, a
Subsidiary, nor an Affiliate has treated an individual as an Employee and, for
that reason, has not withheld employment taxes with respect to that
individual, then that individual shall not be an Employee for that period,
even in the event that the individual is determined, retroactively, to have
been an Employee during all or any portion of that period. An individual's
status as an Employee shall be determined by the Company in its
sole discretion.
2.12. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor act thereto.
2.13. "FAIR MARKET VALUE" shall be determined on the basis of the closing
sale price on the principal securities exchange on which the Shares are traded
or, if there is no such sale on the relevant date, then on the last previous
day on which a sale was reported.
2.14. "FREESTANDING SAR" means an SAR that is granted independently of any
Options, as described in Article 7 herein.
2.15. "INCENTIVE STOCK OPTION" or "ISO" means an option to purchase Shares
granted under Article 6 herein and which is designated as an Incentive Stock
Option and which is intended to meet the requirements of Code Section 422.
2.16. "INSIDER" shall mean an individual who is, on the relevant date, an
officer, director or ten percent (10%) beneficial owner of any class of the
Company's equity securities that is registered pursuant to Section 12 of the
Exchange Act, all as defined under Section 16 of the Exchange Act.
2.17. "NAMED EXECUTIVE OFFICER" means a Participant who, as of the date of
vesting and/or payout of an Award, as applicable, is one of the group of
"covered employees," as defined in the regulations promulgated under Code
Section 162(m), or any successor statute.
2.18. "NONEMPLOYEE DIRECTOR" means an individual who is a member of the
Board of Directors of the Company but who is not an Employee of the Company.
2.19. "NONQUALIFIED STOCK OPTION" or "NQSO" means an option to purchase
Shares granted under Article 6 herein and which is not intended to meet the
requirements of Code Section 422.
2.20. "OPTION" means an Incentive Stock Option or a Nonqualified Stock
Option, as described in Article 6 herein.
2.21. "OPTION PRICE" means the price at which a Share may be purchased by a
Participant pursuant to an Option.
A-2
<PAGE>
2.22. "PARTICIPANT" means an Employee who has outstanding an Award granted
under the Plan. The term "Participant" shall not include Nonemployee
Directors.
2.23. "PAYROLL" means the system used by an entity to pay those individuals
it treats as its employees for their services and to withhold employment taxes
from the compensation it pays to such employees. "Payroll" does not include
(i) any system the entity uses to pay individuals whom it does not treat as
its employees and for whom it does not actually withhold employment taxes
(including, but not limited to, individuals it treats as independent
contractors) for their services or (ii) for individuals working in the United
States, any system that does not result in the issuance of a Form W-2 to such
individual.
2.24. "PERFORMANCE-BASED EXCEPTION" means the performance-based exception
from the tax deductibility limitations of Code Section 162(m).
2.25. "PERFORMANCE SHARE" means an Award granted to a Participant, as
described in Article 9 herein.
2.26. "PERFORMANCE UNIT" means an Award granted to a Participant, as
described in Article 9 herein.
2.27. "PERIOD OF RESTRICTION" means the period during which the transfer of
Shares of Restricted Stock is limited in some way (based on the passage of
time, the achievement of performance goals, or upon the occurrence of other
events as determined by the Committee, at its discretion), and the Shares are
subject to a substantial risk of forfeiture, as provided in Article 8 herein.
2.28. "PERSON" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) thereof.
2.29. "RESTRICTED STOCK" means an Award granted to a Participant pursuant to
Article 8 herein.
2.30. "RETIREMENT" shall have the meaning ascribed to such term in the
Company's tax-qualified retirement plan.
2.31. "SHARES" means the shares of Class A Common Stock, $.01 par value per
Share of the Company.
2.32. "STOCK APPRECIATION RIGHT" or "SAR" means an Award, granted alone or
in connection with a related Option, designated as an SAR, pursuant to the
terms of Article 7 herein.
2.33. "SUBSIDIARY" means any corporation in which the Company (or, for
purposes of the definition of Employee, BankAmerica Corporation) owns
directly, or indirectly through subsidiaries, at least fifty percent (50%) of
the total combined voting power of all classes of stock, or any other entity
(including, but not limited to, partnerships and joint ventures) in which the
Company (or, for purposes of the definition of Employee, BankAmerica
Corporation) owns at least fifty percent (50%) of the combined equity thereof.
2.34. "TANDEM SAR" means an SAR that is granted in connection with a related
Option pursuant to Article 7 herein, the exercise of which shall require
forfeiture of the right to purchase a Share under the related Option (and when
a Share is purchased under the Option, the Tandem SAR shall similarly be
canceled).
ARTICLE 3. ADMINISTRATION
3.1. THE EXECUTIVE PERSONNEL AND COMMITTEE. The Plan shall be administered
by the Board or the Executive Personnel and Compensation Committee of the
Board, or by any other Committee appointed by the Board. The members of the
Committee shall be appointed from time to time by, and shall serve at the
discretion of, the Board of Directors.
3.2. AUTHORITY OF THE COMMITTEE. Except as limited by law or by the
Certificate of Incorporation or Bylaws of the Company, and subject to the
provisions herein, the Committee shall have full power to select
A-3
<PAGE>
Employees who shall participate in the Plan; determine the sizes and types of
Awards; determine the terms and conditions of Awards in a manner consistent
with the Plan; construe and interpret the Plan and any agreement or instrument
entered into under the Plan as they apply to Employees; establish, amend, or
waive rules and regulations for the Plan's administration as they apply to
Employees; and (subject to the provisions of Article 14 herein) amend the
terms and conditions of any outstanding Award to the extent such terms and
conditions are within the discretion of the Committee as provided in the Plan.
Further, the Committee shall make all other determinations which may be
necessary or advisable for the administration of the Plan, as the Plan applies
to Employees. As permitted by law, the Committee may delegate its authority as
identified herein.
3.3. DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders and
resolutions of the Board shall be final, conclusive and binding on all
persons, including the Company, its stockholders, Employees, Participants, and
their estates and beneficiaries.
ARTICLE 4. SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
4.1. NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to adjustment as
provided in Section 4.2 herein, the number of Shares hereby reserved for
issuance to Participants under the Plan shall be six million (6,000,000). The
Compensation Committee shall determine the appropriate methodology for
calculating the number of shares issued pursuant to the Plan.
Unless and until the Committee determines that an Award to a Named Executive
Officer shall not be designed to comply with the Performance-Based Exception,
the following rules shall apply to grants of such Awards under the Plan:
(a) STOCK OPTIONS: The maximum aggregate number of Shares that may be
granted in the form of Stock Options, pursuant to any Award granted in
any one fiscal year to any one single Participant shall be five hundred
thousand (500,000).
(b) SARS: The maximum aggregate number of Shares that may be granted in the
form of Stock Appreciation Rights, pursuant to any Award granted in any
one fiscal year to any one single Participant shall be five hundred
thousand (500,000).
(c) RESTRICTED STOCK: The maximum aggregate grant with respect to Awards of
Restricted Stock granted in any one fiscal year to any one Participant
shall be two hundred fifty thousand (250,000) Shares.
(d) PERFORMANCE SHARES/PERFORMANCE UNITS: The maximum aggregate payout with
respect to Awards of Performance Shares or Performance Units granted in
any one fiscal year to any one Participant shall be the value of two
hundred fifty thousand (250,000) Shares at the end of the Performance
Period.
4.2. ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change in
corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether
or not such reorganization comes within the definition of such term in Code
Section 368) or any partial or complete liquidation of the Company, such
adjustment shall be made in the number and class of Shares which may be
delivered under Section 4.1, in the number and class of and/or price of Shares
subject to outstanding Awards granted under the Plan, and in the Award limits
set forth in subsections 4.1(a), 4.1(b), 4.1(c), and 4.1(d) as may be
determined to be appropriate and equitable by the Committee, in its sole
discretion, to prevent dilution or enlargement of rights; provided, however,
that the number of Shares subject to any Award shall always be a whole number.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1. ELIGIBILITY. Persons eligible to participate in this Plan include all
Employees of the Company, including Employees who are members of the Board.
A-4
<PAGE>
5.2. ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Employees, those to
whom Awards shall be granted and shall determine the nature and amount of each
Award.
ARTICLE 6. STOCK OPTIONS
6.1. GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Participants in such number, and upon such terms,
and at any time and from time to time as shall be determined by the Committee.
6.2. AWARD AGREEMENT. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, and such other provisions as
the Committee shall determine. The Award Agreement also shall specify whether
the Option is intended to be an ISO within the meaning of Code Section 422, or
an NQSO whose grant is intended not to fall under the provisions of Code
Section 422.
6.3. OPTION PRICE. The Option Price for each grant of an Option under this
Plan shall be at least equal to one hundred percent (100%) of the Fair Market
Value of a Share on the date the Option is granted (except in the case of
Options granted in substitution for outstanding unexercised options granted
under the BankAmerica Corporation 1992 Management Stock Plan).
6.4. DURATION OF OPTIONS. Each Option granted to an Employee shall expire at
such time as the Committee shall determine at the time of grant; provided,
however, that no Option shall be exercisable later than the tenth (10th)
anniversary date of its grant.
6.5. EXERCISE OF OPTIONS. Options granted under this Article 6 shall be
exercisable at such times and be subject to such restrictions and conditions
as the Committee shall in each instance approve, which need not be the same
for each grant or for each Participant.
6.6. PAYMENT. Options granted under this Article 6 shall be exercised by the
delivery of a written notice of exercise to the Company, setting forth the
number of Shares with respect to which the Option is to be exercised,
accompanied by full payment for the Shares.
The Option Price upon exercise of any Option shall be payable to the Company
in full either: (a) in cash or its equivalent, or (b) by tendering previously
acquired Shares having an aggregate Fair Market Value at the time of exercise
equal to the total Option Price (provided that the Shares which are tendered
must have been held by the Participant for at least six (6) months prior to
their tender to satisfy the Option Price), or (c) by a combination of (a) and
(b).
The Committee also may allow cashless exercise as permitted under Federal
Reserve Board's Regulation T, subject to applicable securities law
restrictions, or by any other means which the Committee determines to be
consistent with the Plan's purpose and applicable law.
Subject to any governing rules or regulations, as soon as practicable after
receipt of a written notification of exercise and full payment, the Company
shall deliver to the Participant, in the Participant's name, Share
certificates in an appropriate amount based upon the number of Shares
purchased under the Option(s).
6.7. RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option
granted under this Article 6 as it may deem advisable, including, without
limitation, restrictions under applicable federal securities laws, under the
requirements of any stock exchange or market upon which such Shares are then
listed and/or traded, and under any blue sky or state securities laws
applicable to such Shares.
6.8. TERMINATION OF EMPLOYMENT. Each Participant's Option Award Agreement
shall set forth the extent to which the Participant shall have the right to
exercise the Option following termination of
A-5
<PAGE>
the Participant's employment with the Company. Such provisions shall be
determined in the sole discretion of the Committee, shall be included in the
Award Agreement entered into with each Participant, need not be uniform among
all Options issued pursuant to this Article 6, and may reflect distinctions
based on the reasons for termination of employment.
6.9. NONTRANSFERABILITY OF OPTIONS.
(a) INCENTIVE STOCK OPTIONS. No ISO granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution. Further,
all ISOs granted to a Participant under the Plan shall be exercisable
during his or her lifetime only by such Participant.
(b) NONQUALIFIED STOCK OPTIONS. Except as otherwise provided in a
Participant's Award Agreement, no NQSO granted under this Article 6 may
be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will, by the laws of descent and
distribution, or pursuant to a qualified domestic relations order.
Further, except as otherwise provided in a Participant's Award
Agreement, all NQSOs granted to a Participant under this Article 6
shall be exercisable during his or her lifetime only by such
Participant.
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1. GRANT OF SARS. Subject to the terms and conditions of the Plan, SARs
may be granted to Participants at any time and from time to time as shall be
determined by the Committee. The Committee may grant Freestanding SARs, Tandem
SARs, or any combination of these forms of SAR.
The Committee shall have complete discretion in determining the number of
SARs granted to each Participant (subject to Article 4 herein) and, consistent
with the provisions of the Plan, in determining the terms and conditions
pertaining to such SARs.
The grant price of a Freestanding SAR shall equal the Fair Market Value of a
Share on the date of grant of the SAR. The grant price of Tandem SARs shall
equal the Option Price of the related Option.
7.2. EXERCISE OF TANDEM SARS. Tandem SARs may be exercised for all or part
of the Shares subject to the related Option upon the surrender of the right to
exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable.
Notwithstanding any other provision of this Plan to the contrary, with
respect to a Tandem SAR granted in connection with an ISO: (i) the Tandem SAR
will expire no later than the expiration of the underlying ISO; (ii) the value
of the payout with respect to the Tandem SAR may be for no more than one
hundred percent (100%) of the difference between the Option Price of the
underlying ISO and the Fair Market Value of the Shares subject to the
underlying ISO at the time the Tandem SAR is exercised; and (iii) the Tandem
SAR may be exercised only when the Fair Market Value of the Shares subject to
the ISO exceeds the Option Price of the ISO.
7.3. EXERCISE OF FREESTANDING SARS. Freestanding SARs may be exercised upon
whatever terms and conditions the Committee, in its sole discretion, imposes
upon them.
7.4. SAR AGREEMENT. Each SAR grant shall be evidenced by an Award Agreement
that shall specify the grant price, the term of the SAR, and such other
provisions as the Committee shall determine.
7.5. TERM OF SARS. The term of an SAR granted under the Plan shall be
determined by the Committee, in its sole discretion; provided, however, that
such term shall not exceed ten (10) years.
7.6. PAYMENT OF SAR AMOUNT. Upon exercise of an SAR, a Participant shall be
entitled to receive payment from the Company in an amount determined by
multiplying:
A-6
<PAGE>
(a) The difference between the Fair Market Value of a Share on the date of
exercise over the grant price; by
(b) The number of Shares with respect to which the SAR is exercised.
At the discretion of the Committee, the payment upon SAR exercise may be in
cash, in Shares of equivalent value, or in some combination thereof.
7.7. TERMINATION OF EMPLOYMENT. Each SAR Award Agreement shall set forth the
extent to which the Participant shall have the right to exercise the SAR
following termination of the Participant's employment with the Company and/or
its subsidiaries. Such provisions shall be determined in the sole discretion
of the Committee, shall be included in the Award Agreement entered into with
Participants, need not be uniform among all SARs issued pursuant to the Plan,
and may reflect distinctions based on the reasons for termination of
employment.
7.8. NONTRANSFERABILITY OF SARS. Except as otherwise provided in a
Participant's Award Agreement, no SAR granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will, by the laws of descent and distribution, or pursuant to a
qualified domestic relations order. Further, except as otherwise provided in a
Participant's Award Agreement, all SARs granted to a Participant under the
Plan shall be exercisable during his or her lifetime only by such Participant.
ARTICLE 8. RESTRICTED STOCK
8.1. GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to Participants in such amounts as the Committee shall
determine.
8.2. RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Award Agreement that shall specify the
Period(s) of Restriction, the number of Shares of Restricted Stock granted,
and such other provisions as the Committee shall determine.
8.3. TRANSFERABILITY. Except as provided in this Article 8, the Shares of
Restricted Stock granted herein may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than by will, by the
laws of descent and distribution, or pursuant to a qualified domestic
relations order, until the end of the applicable Period of Restriction
established by the Committee and specified in the Restricted Stock Award
Agreement, or upon earlier satisfaction of any other conditions, as specified
by the Committee in its sole discretion and set forth in the Restricted Stock
Award Agreement. All rights with respect to the Restricted Stock granted to a
Participant under the Plan shall be available during his or her lifetime only
to such Participant.
8.4. OTHER RESTRICTIONS. Subject to Article 10 herein, the Committee shall
impose such other conditions and/or restrictions on any Shares of Restricted
Stock granted pursuant to the Plan as it may deem advisable including, without
limitation, a requirement that Participants pay a stipulated purchase price
for each Share of Restricted Stock, restrictions based upon the achievement of
specific performance goals (Company-wide, divisional, and/or individual),
time-based restrictions on vesting following the attainment of the performance
goals, and/or restrictions under applicable federal or state securities laws.
The Company shall retain the certificates representing Shares of Restricted
Stock in the Company's possession until such time as all conditions and/or
restrictions applicable to such Shares have been satisfied.
Except as otherwise provided in this Article 8, Shares of Restricted Stock
covered by each Restricted Stock grant made under the Plan shall become freely
transferable by the Participant after the last day of the applicable Period of
Restriction.
8.5. VOTING RIGHTS. During the Period of Restriction, Participants holding
Shares of Restricted Stock granted hereunder may exercise full voting rights
with respect to those Shares.
A-7
<PAGE>
8.6. DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder may be
credited with regular cash dividends paid with respect to the underlying
Shares while they are so held. The Committee may apply any restrictions to the
dividends that the Committee deems appropriate. Without limiting the
generality of the preceding sentence, if the grant or vesting of Restricted
Shares granted to a Named Executive Officer is designed to comply with the
requirements of the Performance-Based Exception, the Committee may apply any
restrictions it deems appropriate to the payment of dividends declared with
respect to such Restricted Shares, such that the dividends and/or
the Restricted Shares maintain eligibility for the Performance-Based
Exception.
8.7. TERMINATION OF EMPLOYMENT. Each Restricted Stock Award Agreement shall
set forth the extent to which the Participant shall have the right to receive
unvested Restricted Shares following termination of the Participant's
employment with the Company. Such provisions shall be determined in the sole
discretion of the Committee, shall be included in the Award Agreement entered
into with each Participant, need not be uniform among all Shares of Restricted
Stock issued pursuant to the Plan, and may reflect distinctions based on the
reasons for termination of employment; provided, however that, except in the
cases of terminations by reason of death or Disability, the vesting of Shares
of Restricted Stock which qualify for the Performance-Based Exception and
which are held by Named Executive Officers shall occur at the time they
otherwise would have, but for the employment termination.
ARTICLE 9. PERFORMANCE UNITS AND PERFORMANCE SHARES
9.1. GRANT OF PERFORMANCE UNITS/SHARES. Subject to the terms of the Plan,
Performance Units and/or Performance Shares may be granted to Participants in
such amounts and upon such terms, and at any time and from time to time, as
shall be determined by the Committee.
9.2. VALUE OF PERFORMANCE UNITS/SHARES. Each Performance Unit shall have an
initial value that is established by the Committee at the time of grant. Each
Performance Share shall have an initial value equal to the Fair Market Value
of a Share on the date of grant. The Committee shall set performance goals in
its discretion which, depending on the extent to which they are met, will
determine the number and/or value of Performance Units/Shares that will be
paid out to the Participant. For purposes of this Article 9, the time period
during which the performance goals must be met shall be called a "Performance
Period."
9.3. EARNING OF PERFORMANCE UNITS/SHARES. Subject to the terms of this Plan,
after the applicable Performance Period has ended, the holder of Performance
Units/Shares shall be entitled to receive payout on the number and value of
Performance Units/Shares earned by the Participant over the Performance
Period, to be determined as a function of the extent to which the
corresponding performance goals have been achieved.
9.4. FORM AND TIMING OF PAYMENT OF PERFORMANCE UNITS/SHARES. Payment of
earned Performance Units/Shares shall be made in a single lump sum following
the close of the applicable Performance Period. Subject to the terms of this
Plan, the Committee, in its sole discretion, may pay earned Performance Units/
Shares in the form of cash or in Shares (or in a combination thereof) which
have an aggregate Fair Market Value equal to the value of the earned
Performance Units/Shares at the close of the applicable Performance Period.
Such Shares may be granted subject to any restrictions deemed appropriate by
the Committee.
At the discretion of the Committee, Participants may be entitled to receive
any dividends declared with respect to Shares which have been earned in
connection with grants of Performance Units and/or Performance Shares which
have been earned, but not yet distributed to Participants (such dividends
shall be subject to the same accrual, forfeiture, and payout restrictions as
apply to dividends earned with respect to Shares of Restricted Stock, as set
forth in Section 8.6 herein). In addition, Participants may, at the discretion
of the Committee, be entitled to exercise their voting rights with respect to
such Shares.
9.5. TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR
RETIREMENT. Unless determined otherwise by the Committee and set forth in the
Participant's Award Agreement, in the event the employment of
A-8
<PAGE>
a Participant is terminated by reason of death, Disability, or Retirement
during a Performance Period, the Participant shall receive a payout of the
Performance Units/Shares which is prorated, as specified by the Committee in
its discretion.
Payment of earned Performance Units/Shares shall be made at a time specified
by the Committee in its sole discretion and set forth in the Participant's
Award Agreement. Notwithstanding the foregoing, with respect to Named
Executive Officers who retire during a Performance Period, payments shall be
made at the same time as payments are made to Participants who did not
terminate employment during the applicable Performance Period.
9.6. TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event that a
Participant's employment terminates for any reason other than those reasons
set forth in Section 9.5 herein, all Performance Units/Shares shall be
forfeited by the Participant to the Company unless determined otherwise by the
Committee, as set forth in the Participant's Award Agreement.
9.7. NONTRANSFERABILITY. Except as otherwise provided in a Participant's
Award Agreement, Performance Units/Shares may not be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated, other than by will,
by the laws of descent and distribution, or pursuant to a qualified domestic
relations order. Further, except as otherwise provided in a Participant's
Award Agreement, a Participant's rights under the Plan shall be exercisable
during the Participant's lifetime only by the Participant or the Participant's
legal representative.
ARTICLE 10. PERFORMANCE MEASURES
Unless and until the Committee proposes for shareholder vote and
shareholders approve a change in the general performance measures set forth in
this Article 10, the attainment of which may determine the degree of payout
and/or vesting with respect to Awards to Named Executive Officers which are
designed to qualify for the Performance-Based Exception, the performance
measure(s) to be used for purposes of such grants shall be chosen by the
Committee from among the following: revenues, profits, economic profit, net
income (either before or after taxes), operating expense reductions, share
price, earnings per share, total shareholder return, return on assets, return
on equity, return on gross sales, operating income, return on capital or
investments or economic value added.
The Committee shall have the discretion to adjust the determinations of the
degree of attainment of the preestablished performance goals; provided,
however, that Awards which are designed to qualify for the Performance-Based
Exception, and which are held by Named Executive Officers, may not be adjusted
upward (the Committee shall retain the discretion to adjust such Awards
downward).
In the event that applicable tax and/or securities laws change to permit
Committee discretion to alter the governing performance measures without
obtaining shareholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining shareholder approval. In
addition, in the event that the Committee determines that it is advisable to
grant Awards which shall not qualify for the Performance-Based Exception, the
Committee may make such grants without satisfying the requirements of Code
Section 162(m).
ARTICLE 11. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any beneficiary
or beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case of his or her death (and/or who
may exercise the Participant's vested Options following his or her death).
Each designation shall revoke all prior designations by the same Participant,
shall be in a form prescribed by the Company, and will be effective only when
filed by the Participant in writing with the Company during the Participant's
lifetime. In the absence of any such designation, benefits remaining unpaid at
the Participant's death shall be paid to the Participant's estate (and,
subject to the terms and provisions of the Plan, any unexercised vested
Options may be exercised by the administrator or executor of the Participant's
estate).
A-9
<PAGE>
ARTICLE 12. DEFERRALS
The Committee may permit or require a Participant to defer such
Participant's receipt of the payment of cash or the delivery of Shares that
would otherwise be due to such Participant by virtue of the exercise of an
Option or SAR, the lapse or waiver of restrictions with respect to Restricted
Stock, or the satisfaction of any requirements or goals with respect to
Performance Units/Shares. If any such deferral election is required or
permitted, the Committee shall, in its sole discretion, establish rules and
procedures for such payment deferrals.
ARTICLE 13. RIGHTS OF EMPLOYEES
13.1. EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any
way the right of the Company to terminate any Participant's employment at any
time and for any reason, nor confer upon any Participant any right to continue
in the employ of the Company.
13.2. PARTICIPATION. No Employee shall have the right to be selected to
receive an Award under this Plan, or, having been so selected, to be selected
to receive a future Award.
ARTICLE 14. AMENDMENT, MODIFICATION, AND TERMINATION
14.1. AMENDMENT, MODIFICATION, AND TERMINATION. The Board may at any time
and from time to time, alter, amend, suspend or terminate the Plan in whole or
in part.
14.2. ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
NONRECURRING EVENTS. The Committee may make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual
or nonrecurring events (including, without limitation, the events described in
Section 4.2 hereof) affecting the Company or the financial statements of the
Company or of changes in applicable laws, regulations, or accounting
principles, whenever the Committee determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan; provided that
no such adjustment shall be authorized to the extent that such authority would
be inconsistent with the Plan's meeting the requirements of Section 162(m) of
the Code, as from time to time amended.
14.3. AWARDS PREVIOUSLY GRANTED. No termination, amendment, or modification
of the Plan shall adversely affect in any material way any Award previously
granted under the Plan, without the written consent of the Participant holding
such Award.
14.4. COMPLIANCE WITH CODE SECTION 162(M). At all times when Code Section
162(m) is applicable, all Awards granted under this Plan shall comply with the
requirements of Code Section 162(m); provided, however, that in the event the
Committee determines that such compliance is not desired with respect to any
Award or Awards available for grant under the Plan, then compliance with Code
Section 162(m) will not be required. In addition, in the event that changes
are made to Code Section 162(m) to permit greater flexibility with respect to
any Award or Awards available under the Plan, the Committee may, subject to
this Article 14, make any adjustments it deems appropriate.
ARTICLE 15. WITHHOLDING
15.1. TAX WITHHOLDING. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an
amount sufficient to satisfy Federal, state, and local taxes, domestic or
foreign, required by law or regulation to be withheld or deducted with respect
to any taxable event arising as a result of this Plan.
15.2. SHARE WITHHOLDING. With respect to withholding required upon the
exercise of Options or SARs, upon the lapse of restrictions on Restricted
Stock, or upon any other taxable event arising as a result of Awards granted
hereunder, Participants may elect, subject to the approval of the Committee,
to satisfy the withholding
A-10
<PAGE>
requirement, in whole or in part, by having the Company withhold Shares having
a Fair Market Value on the date the tax is to be determined equal to the
minimum statutory total tax which could be imposed on the transaction. All
such elections shall be irrevocable, made in writing, signed by the
Participant, and shall be subject to any restrictions or limitations that the
Committee, in its sole discretion, deems appropriate.
ARTICLE 16. INDEMNIFICATION
Each person who is or shall have been a member of the Committee, or of the
Board, shall be indemnified and held harmless by the Company against and from
any loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from any claim, action,
suit, or proceeding to which he or she may be a party or in which he or she
may be involved by reason of any action taken or failure to act under the Plan
and against and from any and all amounts paid by him or her in settlement
thereof, with the Company's approval, or paid by him or her in satisfaction of
any judgement in any such action, suit, or proceeding against him or her,
provided he or she shall give the Company an opportunity, at its own expense,
to handle and defend the same before he or she undertakes to handle and defend
it on his or her own behalf. The foregoing right of indemnification shall not
be exclusive of any other rights of indemnification to which such persons may
be entitled under the Company's Articles of Incorporation or Bylaws, as a
matter of law, or otherwise, or any power that the Company may have to
indemnify them or hold them harmless.
ARTICLE 17. SUCCESSORS
All obligations of the Company under the Plan with respect to Awards granted
hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the
business and/or assets of the Company.
ARTICLE 18. LEGAL CONSTRUCTION
18.1. GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural
shall include the singular and the singular shall include the plural.
18.2. SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
18.3. REQUIREMENTS OF LAW. The granting of Awards and the issuance of Shares
under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
18.4. SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions
under this Plan are intended to comply with all applicable conditions or Rule
16b-3 or its successors under the 1934 Act. To the extent any provision of the
plan or action by the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the
Committee.
18.5. GOVERNING LAW. To the extent not preempted by federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the state of Delaware.
A-11
<PAGE>
APPENDIX B
SHORT-TERM INCENTIVE PLAN
BA MERCHANT SERVICES, INC.
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Article 1. Purposes and Effective Date..................................... B-1
Article 2. Definitions..................................................... B-1
Article 3. Designation of Participants..................................... B-1
Article 4. Determination of Incentive Pool................................. B-2
Article 5. Determination of Awards for Senior Officers..................... B-2
Article 6. Payment and Deferral............................................ B-2
Article 7. Other Provisions................................................ B-3
</TABLE>
-i-
<PAGE>
BA MERCHANT SERVICES, INC.
SHORT-TERM INCENTIVE PLAN
ARTICLE 1. PURPOSES AND EFFECTIVE DATE
The purpose of the BA Merchant Services, Inc. Short-Term Incentive Plan (the
"Plan") is to encourage superior performance by eligible Senior Officers of BA
Merchant Services, Inc. and its subsidiaries and affiliates through the
payment of annual cash incentive awards.
This Plan is effective as of the consummation of the Company's initial
public offering.
ARTICLE 2. DEFINITIONS
2.1. The following items shall have the meanings set forth below, if
capitalized.
(a) "Committee" means the Executive Personnel and Compensation
Committee of the Board of Directors of BA Merchant Services, Inc..
(b) "CEO" means the Chief Executive Officer of BA Merchant Services,
Inc.
(c) "Company" means BA Merchant Services, Inc. and any subsidiary or
affiliate of BA Merchant Services, Inc. which has been authorized
by BA Merchant Services, Inc. to participate in the Plan.
(d) "Participant" means an officer of the Company designated as a
Participant for a Plan Year under Sections 3.1 or 3.2.
(e) "Plan" means the BA Merchant Services, Inc. Short-Term Incentive
Plan as it may be amended from time to time.
(f) "Plan Year" means the calendar year.
(g) "Retirement" means early, normal or postponed retirement as defined
under the retirement policy of the Company.
(h) "Senior Officer" means an individual designated by the BA Merchant
Services, Inc. Board of Directors as an executive officer for
federal securities law purposes or an officer of the Company
designated by the CEO as a Senior Officer.
ARTICLE 3. DESIGNATION OF PARTICIPANTS
3.1. Each Senior Officer of the Company shall be a Participant in the Plan,
unless such officer participates in an annual cash incentive program within
his or her business unit or subsidiary.
3.2. No member of the Committee, and no member of the Board of Directors of
BA Merchant Services, Inc. who is not also a regular salaried employee of the
Company, shall be eligible to participate in the Plan.
3.3. The Committee may, but need not, consider for prorated or full
incentive awards Participants who have ceased employment because of death,
disability, or retirement prior to the date the Committee determines incentive
awards under the Plan. Participants who terminate employment (or give notice
of intent to terminate employment) for reasons other than death, disability,
or retirement prior to the date the Committee determines the incentive awards
under the Plan will not be eligible to be considered for an incentive award,
unless the Committee determines in its sole discretion that, because of
special circumstances, the Participant should be eligible to be considered.
3.4. Participation in the Plan shall not entitle any officer to an award
under the Plan. All awards shall be made in the sole discretion of the
Committee.
B-1
<PAGE>
ARTICLE 4. DETERMINATION OF INCENTIVE POOL
4.1. Incentive awards under the Plan shall be made from the Incentive Award
Pool established for each Plan Year. The Incentive Award Pool shall be an
amount equal to two (2) percent of BA Merchant Services, Inc.'s income for the
Plan Year before income tax expense, extraordinary items, amortized goodwill,
acquisition-related interest changes, and the cumulative effect of accounting
changes as specified in the Company's announcement of annual financial results
filed with the Securities and Exchange Commission.
4.2. The Committee may, but need not, grant incentive awards up to the full
amount of the Incentive Award Pool.
4.3. All officers are expected to maintain satisfactory operational and
financial controls for their respective areas of responsibility. As
applicable, Participants are expected to achieve satisfactory audits, both
internal and external, satisfactory credit examinations, to maintain proper
financial records and controls in accordance with applicable policy, and to
respond promptly to any control problems that might arise. The maintenance of
and adherence to internal controls is a key factor in evaluation of
performance. If the Participant fails to satisfactorily meet the requirements
described above, the Committee and CEO, in their sole judgment, may grant a
lesser award or make no award to a Participant in view of such failure.
ARTICLE 5. DETERMINATION OF AWARDS FOR SENIOR OFFICERS
5.1. The CEO shall establish a target award for each Senior Officer who is a
Participant as soon as practicable after the beginning of the Plan Year. The
CEO shall advise the Committee of the target award for each Participant. No
Participant's annual incentive award shall exceed $1,000,000.
5.2. The Committee may, in its sole discretion, and as appropriate for tax
reasons, allocate a percentage of the Incentive Award Pool to a Senior Officer
who is a Participant for the Plan Year. The allocation shall be made prior to
January 31, 1997 and prior to January 1 of each subsequent Plan Year.
5.3. After the end of the Plan Year, each Participant's performance shall be
assessed by the CEO who shall make an award recommendation to the Committee
for the Participant. For Participants with preallocated percentages in the
Incentive Award Pool, the CEO's designee shall calculate the nominal value of
each Participant's allocated percentage of the Incentive Award Pool.
5.4. The designation of annual award recipients and the amount of individual
awards shall be in sole discretion of the Committee following receipt of
recommendations from the CEO. In determining awards, the Committee may follow
the award recommendation by the CEO or may make a lesser or greater award,
taking into account the Participant's overall contribution to the Company for
the Plan Year, the corporate performance of BA Merchant Services, Inc. for the
Plan Year, and such other criteria as the Committee may determine to promote
the purposes of the Plan in an individual case. For Participants with
preallocated percentages of the Incentive Award Pool, the Committee may use
its discretion only to reduce an incentive award below the nominal value of a
Participant's allocated percentage of the Incentive Award Pool.
ARTICLE 6. PAYMENT AND DEFERRAL
6.1. Incentive awards granted by the Committee, less applicable withholding
taxes, shall be paid in cash as soon as reasonably possible after being
awarded.
6.2. The Committee may permit or require a Participant to defer such
Participant's receipt of the payment of cash that would otherwise be due to
such Participant. If any such deferral election is required or permitted, the
Committee shall, in its sole discretion, establish rules and procedures for
such payment deferrals.
B-2
<PAGE>
ARTICLE 7. OTHER PROVISIONS
7.1. The Board of Directors of BA Merchant Services, Inc. reserves the right
to modify, suspend or terminate this Plan at any time.
7.2. The Committee and CEO shall each have the power to construe and
interpret the Plan. Any decision arising out of or in connection with the
construction, interpretation and administration of the Plan shall lie within
the Committee's absolute discretion and shall be final and binding on all
parties.
7.3. The designation of an officer as a Participant or the grant of an award
to an officer shall not give such officer any right to be retained in the
employ of the Company and the ability of the Company to dismiss or discharge
the officer is specifically reserved.
7.4. No Participant shall have the right to alienate, assign, encumber,
hypothecate or pledge his or her interest in any award under the Plan,
voluntarily or involuntarily, prior to payment and any attempt to dispose of
any such interest shall be void. Notwithstanding the preceding sentence, the
Company shall have the right to offset from an unpaid or deferred award any
amounts due and owing from the Participant to the extent permitted by law. The
Company shall not be required to segregate physically any cash or to establish
any separate account or accounts to fund any awards made or to be made under
the Plan.
7.5. This document is a complete statement of the Plan and as of the date
below supersedes all prior plans, proposals, representations, promises and
inducements, written or oral, relating to its subject matter. The Company
shall not be bound by or liable to any person for any representation, promise
or inducement made by any person which is not embodied in this document or in
any authorized written amendment to the Plan.
7.6. The Plan shall be construed and enforced in accordance with Delaware
law.
B-3
<PAGE>
[LOGO]
Printed on Recycled Paper
<PAGE>
BA MERCHANT SERVICES, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 28, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF BA MERCHANT
SERVICES, INC. The undersigned hereby appoints Sharif M. Bayyari, James H.
Williams and James M. Aviles, as proxies, each with the power to appoint his
substitute, and hereby authorizes them to represent and to vote, as designated
on the reverse hereof, all the shares of Common Stock of BA Merchant Services,
Inc. held of record by the undersigned on April 7, 1997, at the Annual Meeting
of Stockholders of BA Merchant Services, Inc. and any adjournment or
postponement thereof, as follows:
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED
FOR THE ELECTION OF THE DIRECTORS NAMED ON THE REVERSE HEREOF AND FOR APPROVAL
- --- ---
OF PROPOSALS 2, 3 AND 4.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
Please mark your votes as indicated in this example. [X]
<TABLE>
<S> <C>
1. ELECTION OF [ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
DIRCTORS (except as marked to the contrary below) to vote for all nominees
Sharif M. Bayyari William E. Fisher
Barbara J. Desoer James G. Jones
Donald R. Dixon H. Eugene Lockhart
Thomas E. Peterson
</TABLE>
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH THE NOMINEE'S NAME ABOVE.
2. Approval of the adoption of the BA Merchant Services, Inc. Long-Term
Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of the adoption of the BA Merchant Services, Inc. Short-Term
Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Ratification of the appointment of Ernst & Young LLP as independent auditors
of the Company for 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In their discretion, to vote upon such other matters as may properly come
before the meeting. Management is not aware of any such matters to be
presented for action.
The undersigned hereby revokes all proxies heretofore given to vote such shares.
PLEASE SIGN, DATE AND RETURN PROMPTLY.
--------------------------------------
Signature
--------------------------------------
Signature if held jointly
Dated:___________________, 1997
(Please sign exactly as your name or names appear to the left. When signing as
an executor, administrator, trustee or guardian, please give the full title of
the capacity in which you are acting, and where more than one executor, etc. is
named, a majority must sign. If a corporation, please sign full corporate name
by president or other authorized officer. If a partnership, please sign full
partnership name by an authorized person.)
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
