<PAGE>
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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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF BA MERCHANT SERVICES]
ONE SOUTH VAN NESS AVENUE
SAN FRANCISCO, CALIFORNIA 94103
March 23, 1998
Dear Stockholder:
You are cordially invited to attend the 1998 annual meeting of stockholders
of BA Merchant Services, Inc. to be held at 8:00 a.m. (Pacific Time) on
Thursday, May 7, 1998, in Conference Room A, Mezzanine, 315 Montgomery Street,
San Francisco, California.
At this year's meeting, you are being asked to: (1) elect directors and (2)
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 two 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 M. Bayyari
SHARIF M. BAYYARI
President and
Chief Executive Officer
<PAGE>
BA MERCHANT SERVICES, INC.
ONE SOUTH VAN NESS AVENUE
SAN FRANCISCO, CALIFORNIA 94103
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 7, 1998
----------------
TO THE HOLDERS OF COMMON STOCK OF BA MERCHANT SERVICES, INC.:
The 1998 annual meeting of stockholders of BA Merchant Services, Inc. will
be held in Conference Room A, Mezzanine, 315 Montgomery Street, San Francisco,
California, on Thursday, May 7, 1998, at 8:00 a.m. (Pacific Time), for the
following purposes:
1. To elect seven directors;
2. To ratify the appointment of Ernst & Young LLP as independent auditors
of the company for 1998; and
3. To transact any other business as may properly come before the meeting
or upon its adjournment or postponement.
The Board of Directors has fixed March 9, 1998 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 Corporate
Secretary's Office, 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 1998 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
March 23, 1998
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>
DATE, TIME AND LOCATION.................................................... 1
INFORMATION ABOUT THE BOARD OF DIRECTORS AND BOARD COMMITTEES.............. 1
Board of Directors........................................................ 1
Board Committees.......................................................... 1
Directors' Fees and Other Compensation.................................... 2
Nominating Procedures for the Company's Board of Directors................ 2
Director Attendance....................................................... 3
EXECUTIVE COMPENSATION, BENEFITS AND RELATED MATTERS....................... 3
Executive Officers of the Company......................................... 3
Report of the Executive Personnel and Compensation Committee.............. 4
Responsibilities and Composition of the Committee........................ 4
Compensation Philosophy and Objectives................................... 4
Compensation Components and Process...................................... 4
Base Salaries............................................................ 5
Short-Term Incentive Awards.............................................. 5
Long-Term Incentive Awards............................................... 5
CEO Compensation......................................................... 5
Tax Deductibility........................................................ 6
Stockholder Return Performance Graph...................................... 7
Compensation of Executive Officers........................................ 8
Summary Compensation Table................................................ 8
Individual Grants......................................................... 9
Pension Plan.............................................................. 9
Other Benefit Plans....................................................... 10
Certain Transactions and Other Matters.................................... 10
Relationship with BankAmerica............................................. 10
OWNERSHIP OF COMPANY COMMON STOCK.......................................... 12
Security Ownership of Certain Beneficial Owners........................... 12
Security Ownership of Directors and Executive Officers.................... 13
Section 16(a) Beneficial Ownership Reporting Compliance................... 13
MATTERS TO BE CONSIDERED AT MEETING........................................ 15
Proposal 1: Election of Directors......................................... 15
Proposal 2: Ratification of Appointment of Independent Auditors........... 16
OTHER MATTERS.............................................................. 16
Other Business for the Meeting............................................ 16
Voting Tabulation and Information......................................... 17
Voting Procedures for Business Submitted by Stockholders.................. 17
Annual Report on Form 10-K/Annual Report to Stockholders.................. 18
Submission to Stockholder Proposals for 1999 Meeting...................... 18
Cost of Proxy Solicitation................................................ 18
Revocability of Proxy..................................................... 19
Your Vote is Important.................................................... 19
</TABLE>
<PAGE>
BA MERCHANT SERVICES, INC.
ONE SOUTH VAN NESS AVENUE
SAN FRANCISCO, CALIFORNIA 94103
----------------
PROXY STATEMENT
----------------
DATE, TIME AND LOCATION
We, the Board of Directors of BA Merchant Services, Inc., are sending the
enclosed proxy statement and proxy to you, the stockholder. We are first
mailing this proxy statement and the accompanying form of proxy on or about
March 23, 1998 to stockholders of record as of March 9, 1998.
We will hold the 1998 annual meeting at 8:00 a.m. (Pacific Time) on
Thursday, May 7, 1998 in Conference Room A, Mezzanine, 315 Montgomery Street,
San Francisco, California. We are sending you a copy of the Notice of Annual
Meeting with this proxy statement.
INFORMATION ABOUT THE BOARD OF DIRECTORS
AND BOARD COMMITTEES
BOARD OF DIRECTORS
Currently, there are six directors. The number of directors will increase to
seven on May 1, 1998, when Hatim A. Tyabji joins the board. We supervise the
management of the company's business and set corporate policies. We oversee
the management of the company for your benefit.
BOARD COMMITTEES
We currently have two Board committees: the Auditing and Examining Committee
and the Executive Personnel and Compensation Committee. Both committees
consist entirely of directors who are not current or former employees of the
company or any affiliate and are, in our opinion, free from any relationship
that would interfere with the exercise of independent judgment in the
discharge of their duties. The membership of the committees is as follows:
EXECUTIVE PERSONNEL
AUDITING AND EXAMINING COMMITTEE AND COMPENSATION COMMITTEE
-------------------------------- --------------------------
William E. Fisher, Chair Donald R. Dixon, Chair
Donald R. Dixon William E. Fisher
The Auditing and Examining Committee met three times in 1997. Its purpose is
to:
. Review reports of examination which are directed to the committee by the
Board of Directors or by regulatory authorities;
. Monitor the internal audit function;
. Recommend to the board the selection of independent auditors and the
terms and scope of the auditors' engagement, monitor the performance and
independence of the auditors, and review reports from the company's
independent auditors.
The Executive Personnel and Compensation Committee met four times in 1997.
Its purpose is to:
. Review and approve the compensation, including salary and perquisites, of
the company's executive officers and other senior managers as determined
by the committee;
. Oversee the administration of incentive plans and deferred compensation
programs for executive officers and other senior managers;
1
<PAGE>
. Review and approve the principles and procedures used in determining
grants and awards under the company's incentive plans; and
. Recommend to the board appropriate revisions to the company's incentive
plans.
DIRECTORS' FEES AND OTHER COMPENSATION
The company compensates directors who are not also employees of the company
or any affiliate under the company's Nonemployee Director Stock Plan. Under
this plan, the nonemployee directors receive an annual retainer in the form of
options to purchase shares of the company's Class A Common Stock. At the time
of issuance, the stock options paid as an annual retainer are valued at
$20,000 using the Black-Scholes valuation method. These options are issued on
the day after the annual meeting and vest on the day before the next annual
meeting.
Under the Nonemployee Director Stock Plan, each nonemployee director
receives an option to purchase 5,000 shares of Class A Common Stock when first
elected to the board. Annually, on the day after the annual meeting, each
nonemployee director receives a grant of options to purchase an additional
2,500 shares of Class A Common Stock. These options vest on the day before the
next annual meeting, have a 10-year term, and have 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. The company also pays
each committee chair an additional $3,000 annual retainer.
Other than the nonemployee directors, we do not pay any other director cash
compensation for services as a director. We do reimburse all directors for
expenses of attending meetings.
NOMINATING PROCEDURES FOR THE COMPANY'S BOARD OF DIRECTORS
You, as a stockholder, may submit recommendations for new directors through
the Corporate Secretary in accordance with the company's bylaws. The bylaws
provide that nominations to the Board of Directors 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 mandatory notice provisions.
In order to nominate a director at the annual meeting, you must comply with
the procedures set forth in the current bylaws. Those include providing timely
and complete notice in writing to the Corporate Secretary at the address on
page 18 of this proxy statement. To be timely, your notice must be delivered
to or mailed and received by the Corporate Secretary no fewer than 90 days or
more than 120 days prior to the date of the annual meeting, and this window
period is not affected by any adjournment of the meeting. For the 1998 annual
meeting, the window period for giving timely notice of a nomination began on
January 7, 1998 and ended on February 6, 1998.
To be complete, your notice must contain the following:
(a) As to each person you wish to nominate, state
(1) the name, age, business address and residence address of the
person;
(2) the principal occupation or employment of the person;
(3) the class and number of shares of capital stock of the company
which are owned directly or beneficially by the person;
(4) a statement as to the person's citizenship; and
(5) the person's written consent to serve as a director if elected.
(b) As to yourself, state
(1) your name and address, as they appear on the company's books;
(2) the class and number of shares of the company's stock that you own;
(3) a representation that you intend to solicit proxies in support of
your nomination, if you intend to do so.
2
<PAGE>
No person will be eligible for election as a director unless nominated in
accordance with the bylaws. A stockholder's nomination pursuant to those
provisions, however, does not create a duty to include the nominee in our
proxy statement or proxy. If the Chairman of the meeting determines:
(a) that a nomination made at the meeting was not made in accordance with
the bylaws, or
(b) that a nomination is not proper under law or rules applicable to the
meeting, or
(c) that a nomination was made by a stockholder who solicited proxies in
support of the nominee without the required representation,
then the Chairman may so declare to the meeting, and the nomination will be
disregarded.
DIRECTOR ATTENDANCE
During 1997, our board met seven 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: Sharif M. Bayyari, 100%;
Barbara J. Desoer, 86%; Donald R. Dixon, 100%; William E. Fisher, 100%; James
G. Jones, 100%; H. Eugene Lockhart, 67%. (Mr. Tyabji was appointed May 1,
1998; there were no board or committee meetings scheduled between that time
and the date of the annual meeting). In addition to attendance at board and
committee meetings, we discharge our responsibilities throughout the year by
personal meetings and telephone contact with the company's executive officers
and others regarding the business and affairs of the company.
EXECUTIVE COMPENSATION, BENEFITS AND RELATED MATTERS
EXECUTIVE OFFICERS OF THE COMPANY
We are providing you the following information about the company's executive
officers. Information about Mr. Bayyari, the President and Chief Executive
Officer of the company and a member of the Board of Directors, is contained in
the section entitled "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: 54 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 (Bank of America)
as a Group Executive Vice President and Chief Accounting
Officer and by BankAmerica Corporation (BAC) as Executive
Vice President. Before joining Bank of America 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. Seafirst Corporation became a
subsidiary of BAC in 1983.
Le Tran-Thi Ms. Tran-Thi has been the company's Senior Vice President
Age: 51 and Director of Operations and Asia Merchant Services
since the company's formation. Previously, Ms. Tran-Thi
was a Senior Vice President for Bank of America
responsible for operations of Bank of America's Asian
merchant processing businesses, joining Bank of America
in 1981.
Michael J. Sanders Mr. Sanders has been the company's Senior Vice President
Age: 48 and Director of Sales since the company's formation.
Before joining the company, Mr. Sanders was a Senior Vice
President and Sales Director for Bank of America's
merchant services business since 1993, having previously
served in various operations, customer service, sales and
sales management roles with Bank of America since 1967.
James M. Aviles Mr. Aviles has been the company's Senior Vice President
Age: 38 and Director of Product/Strategy/Technology Support since
the company's formation. Mr. Aviles joined Bank of
America's merchant services business in 1988, and in June
1993 he assumed responsibility for Bank of America's
product development, strategic planning and marketing
function for its merchant services businesses.
3
<PAGE>
REPORT OF THE EXECUTIVE PERSONNEL AND COMPENSATION COMMITTEE/1/
RESPONSIBILITIES AND COMPOSITION OF THE COMMITTEE
We, Donald R. Dixon and William E. Fisher, the members of the Executive
Personnel and Compensation Committee, submit this report. Neither of us ever
has served as an employee or officer of the company or of any of its
affiliates. We are responsible for (1) establishing compensation programs for
executive officers designed to attract, motivate and retain key executives
responsible for the success of the company, (2) administering and maintaining
the company's short-term and long-term incentive plans and deferred
compensation plans in a manner that will benefit the long-term interests of the
company and its stockholders, and (3) determining the compensation of the
company's executive officers, including awards under the company's incentive
plans. We also advise on succession planning (including the selection of the
chief executive officer) and the selection, development and performance of
executive officers. The Board of Directors adopted the committee's charter.
COMPENSATION PHILOSOPHY AND OBJECTIVES
We believe that executive officer compensation should be determined according
to a competitive framework based on overall financial results, individual
contributions, teamwork and business unit results that help build value for the
company's stockholders. We have determined that the company's executive
compensation programs should be "entrepreneurial" in nature, representing
significant opportunities as well as significant downside risk. Within this
overall philosophy, our specific objectives are to:
. Align the financial interests of executive officers with those of
stockholders by providing significant equity-based long-term incentives.
. Provide annual variable compensation awards that (1) take into account
the company's overall performance relative to corporate objectives and
competitive framework of the industry and (2) are based on individual
contributions, including teamwork, leadership, management and business
unit results that help create value for the company's stockholders.
. Offer a total compensation program that takes into account the
compensation practices of competitors, as well as the company's financial
performance.
. Emphasize performance-based and equity-based compensation for executive
officers. As officer level increases, we significantly increase the
proportion of total compensation that is equity-based and focus more on
the company's overall performance. As a result, higher-level officers
will have a greater proportion of total compensation at risk.
COMPENSATION COMPONENTS AND PROCESS
There are three major components of executive officer compensation: (1) base
salaries, (2) annual incentive awards, and (3) long-term incentive awards.
We use subjective judgment in determining executive officer compensation
levels for all of these components and take into account both qualitative and
quantitative factors. We do not assign specific weights to these factors. Among
the factors we consider are the recommendations of the chief executive officer
with respect to the compensation of other key executive officers. However, we
make the final compensation decisions concerning these officers.
- - --------
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 (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.
4
<PAGE>
In making compensation decisions for executive officers, we consider
compensation practices and financial performance of the "competitive
environment" in which the company operates. In considering the "competitive
environment," we use reports by independent compensation consultants, who for
comparison purposes review the compensation practices of publicly-held
companies with annual revenues from $100 million to $500 million, the thirty
largest U.S. bank holding companies and other service entities, and the
company's direct business competitors. We look at information provided
regarding the practices of all of the companies in the competitive environment
in setting base salaries and cash compensation, while weighting the practices
of the company's direct competitors more heavily when determining long-term
incentive awards. The consultants' reports provide us guidance, but we do not
target total executive compensation or any component thereof to any particular
point within, or outside, the range of the competitive environment. However, we
believe that compensation at or below the 50th percentile of the competitive
environment for base salaries and at or near the 75th percentile for total cash
compensation and long-term incentive awards is generally appropriate to use as
a framework for compensation decisions. Specific compensation for individual
officers will vary from these levels as the result of subjective factors
considered by us unrelated to compensation practices of the competitive
environment.
BASE SALARIES
For 1997, we set base salaries below the 50th percentile of the market.
Generally, we determined market salaries based upon the independent
compensation consultants' report and recommendations. Because the company first
became a public company in December 1996, we set salaries in 1997 by taking
into account information from three sources: a proprietary data base using
companies with annual revenues of from $100 million to $350 million; data from
companies with average market capitalization of $675 million that were involved
in an initial public offering, and data from recent prospectuses of two
selected peer companies. Now that the company has completed its initial public
offering, our independent compensation consultants will collect compensation
data from the competitive environment described above.
SHORT-TERM INCENTIVE AWARDS
We make short-term incentive awards under the company's Short-Term Incentive
Plan. These awards 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. We
base individual awards on targets set at the beginning of a performance year.
For 1997, we adopted a payout formula offering no bonus incentive pool if the
company did not meet its target earnings per share for 1997; a bonus pool if
the company met its target earnings per share; and an increasing bonus
incentive pool for performance in excess of target earnings per share. In lieu
of cash compensation, we retain discretion to award options under the Long-Term
Incentive Plan equivalent in value to cash awards under the Short-Term
Incentive Plan.
LONG-TERM INCENTIVE AWARDS
We provide long-term incentive opportunities through the company's Long-Term
Incentive Plan. These awards are designed to provide target opportunities at
the 75th percentile level of the competitive environment described above
through combinations, at our discretion, of stock options and restricted stock
awards. Because we have determined that compensation should be
"entrepreneurial" in nature, we make long-term incentive awards to executive
officers 100% in stock options.
CEO COMPENSATION
In January 1998, we reviewed Mr. Bayyari's annual base compensation of
$220,000. At that time, we made no adjustments to Mr. Bayyari's annual base
compensation. However, we will continue to review his annual base compensation
at future meetings in 1998 and may make an adjustment at a later date. In
January 1998, we approved a short-term incentive award to Mr. Bayyari for 1997
to be paid in stock options with an economic value of $165,000 based upon a
variation of the Black-Scholes valuation method. In January 1998, we also
authorized a grant to Mr. Bayyari of a long-term incentive award to be paid in
stock options with an economic value of $400,000 based upon a variation of the
Black-Scholes valuation method.
5
<PAGE>
The Board of Directors ratified all of our decisions relating to Mr.
Bayyari's compensation.
In taking these actions with respect to Mr. Bayyari's compensation, we
examined the quantitative and qualitative factors set forth below and discussed
with each of the other members of the board his or her evaluation of Mr.
Bayyari's performance based on such factors. We also considered the competitive
review performed in 1997 by an independent compensation consulting firm, the
factors considered in determining base salary levels (which are discussed
earlier under "Base Salaries"), and the factors considered in determining the
sizes of stock option awards (which are discussed earlier under "Long-Term
Incentive Awards").
In looking at quantitative factors, we reviewed the company's financial
results and compared them with those of the company's direct competitors and
with the company's pro forma results for 1996. We noted net income of
$37,428,000, an increase of $3,892,000 from 1996 pro forma net income, as
adjusted; earnings per share of $0.77, an increase of $0.08 from 1996 pro forma
earnings per share, as adjusted; a year-end common stock price of $17.75; a
return on equity for 1997 of 13.8%; a return on average assets for 1997 of
11.5%; and other quantitative factors. (Pro forma net income, as adjusted, and
pro forma earnings per share, as adjusted, from 1996 assume that the net
proceeds from the initial public offerings in the fourth quarter of 1996 were
available from January 1, 1994 and were invested in short-term investments). We
did not apply any specific quantitative formula that would assign weights to
these performance measures or establish numerical targets for any given factor.
In addition to the above quantitative accomplishments, we considered several
accomplishments that are qualitative in nature. We recognized Mr. Bayyari's
work and continued leadership in the management of a newly formed public
company. In 1997, Mr. Bayyari managed the acquisition of the Asian merchant
processing businesses from Bank of America, including the Taiwan, Philippines
and Thailand merchant processing businesses. Mr. Bayyari also managed the
company's integration of the Seafirst Corporation merchant processing
portfolio, the acquisition of the NaBANCO merchant processing portfolio from
First Data Merchant Services, Inc., and the introduction of the HostLINK(TM)
system to deliver more effective and faster processing services to merchants.
We approved the compensation of the company's other executive officers for
1997 following the principles and procedures outlined above.
TAX DEDUCTIBILITY
Section 162(m) of the Internal Revenue Code limits the tax deductibility by a
company of compensation in excess of $1 million paid to any of its five most
highly compensated executive officers. However, performance-based compensation
that has been approved by stockholders is excluded from the $1 million limit
if, among other requirements, the compensation is payable only upon attainment
of pre-established, objective performance goals and the board committee that
establishes such goals consists only of "outside directors" (as defined for
purposes of Section 162(m)). Each of us qualifies as an "outside director."
In 1997, none of the company's executive offers received compensation in
excess of $1 million. The company has executive programs designed to permit, in
the company's opinion, tax deductibility of awards in excess of $1 million, if
such awards were made. However, we have discretion to make awards that do not
qualify for tax deduction, if we determine that such awards are consistent with
our philosophy and in the best interests of the company and its shareholders.
EXECUTIVE PERSONNEL
AND COMPENSATION COMMITTEE
Donald R. Dixon, Chair
William E. Fisher
6
<PAGE>
STOCKHOLDER RETURN PERFORMANCE GRAPH
The following graph shows the percentage change in cumulative total
stockholder return on the company's Class A Common Stock since the market
close on December 19, 1996, when the stock began trading on the New York Stock
Exchange. The graph compares the cumulative percentage change in total
stockholder return with the cumulative total return on the S&P 500 index and
the S&P Computer Software Services Index over the same period. The Computer
Software Services Index is a subgroup of the S&P 500 containing nine companies
with similar standard industrial classification codes. The comparison assumes
that $100 was invested on December 19, 1996 in Class A Common Stock and in
each of the indices and assumes reinvestment of dividends, if any. Historical
stock price is not indicative of future stock price performance.
[PERFORMANCE GRAPH
BA MERCHANT SERVICES, INC.
TOTAL STOCKHOLDER RETURN]
<TABLE>
<CAPTION>
PERIOD ENDING
--------------------------------------------------
INDEX 12/19/96 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97
------------------------- -------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
BA Merchant Services Inc. 100.00 102.78 79.14 109.71 106.47 102.16
S&P 500 100.00 99.39 102.05 119.87 128.85 132.56
S&P Computer Software
Services Index 100.00 95.15 97.17 129.53 140.76 132.55
</TABLE>
(1) Source: SNL Securities
(2) This graph shows the cumulative total stockholder return on Class A Common
Stock since the market close on December 19, 1996. The graph in the 1996
Proxy Statement filed April 18, 1997, file 333-13985, measured the
cumulative total stockholder return on Class A Common Stock from the
initial public offering price.
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 BAC and its subsidiaries and affiliates.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
-------------------------- -----------------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS COMPENSATION AWARDS OPTIONS COMPENSATION(2)
- - --------------------------- ---- --------- -------- ------------ ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sharif M. Bayyari....... 1997 $220,000 -- -- -- 64,328(3) $34,539
President & Chief 1996 190,000(4) $175,000 -- 27,092(5)(6) 99,631(7) 14,994
Executive Officer 1995 168,750 130,000 -- -- 55,789(8) 8,350
James H. Williams(9).... 1997 175,000 -- -- -- 28,389(10) 45,358
Executive Vice Presi-
dent and Chief Finan-
cial Officer
Le Tran-Thi............. 1997 130,000 -- -- -- 27,376(10) 13,247
Senior Vice President 1996 115,000(4) 70,000 -- 12,000(5) 32,090(11) 9,057
and
Director, Operations & 1995 100,721 40,000 -- -- 4,000(12) 5,932
Asia Merchant Services
Michael J. Sanders...... 1997 119,167 55,683 -- -- 18,454 10,098
Senior Vice President 1996 80,916(4) 46,738 -- 12,000(5) 31,000(13) 8,570
and
Director, Sales 1995 70,000 50,435 -- 150(14) -- 292
James M. Aviles......... 1997 120,000 -- -- -- 29,132(15) 10,889
Senior Vice President 1996 84,167(4) 45,000 -- 12,000(5) 31,000(13) 5,177
and
Director of Product/ 1995 78,959 18,000 -- 150(14) -- 2,907
Strategy/Technology
Support
</TABLE>
- - -------
(1) The amounts shown include amounts deferred under the BankAmerica 401(k)
Investment Plan.
(2) The amounts shown consist of contributions made by Bank of America to the
BankAmerica 401(k) Investment Plan and Supplemental Retirement Plan.
(3) Includes 46,136 options awarded under the Long-Term Incentive Plan, as
well as 18,192 options awarded as a short-term incentive.
(4) Salary paid in 1996 to the named officers included certain amounts paid
by Bank of America as follows: Mr. Bayyari, $174,167; Ms. Le Tran-Thi,
$115,000; Mr. Sanders, $73,833; and Mr. Aviles, $76,667. Salary and bonus
paid to the named officers prior to 1996 was paid entirely by Bank of
America.
(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); 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.
(7) 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.
(Footnotes continue on next page)
8
<PAGE>
(8) 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.
(9) Compensation for Mr. Williams is not provided in this table prior to
1997, because he did not provide services to the merchant services
businesses prior to October 1996. The total salary and bonus earned by
Mr. Williams from October 1996 through December 1996 did not exceed
$100,000.
(10) Includes 20,761 options awarded under the Long-Term Incentive Plan, as
well as options awarded as a short-term incentive as follows: Mr.
Williams, 7,718; and Ms. Tran-Thi, 6,615.
(11) Represents options to purchase 90 shares of BAC common stock granted to
Ms. Tran-Thi on November 18, 1996 pursuant to Bank of America'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.
(14) 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: Mr. Sanders,
150 shares ($14,962.50); and Mr. Aviles, 150 shares ($14,962.50). 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.
(15) Includes 23,068 options awarded under the Long-Term Incentive Plan, as
well as 6,064 options awarded as a short-term incentive.
INDIVIDUAL GRANTS
The company made no grants of options to purchase Class A Common Stock to
the executive officers during 1997. Because the company went public in
December 1996, the company made grants of options to executive officers in
December 1996 that were calculated to determine competitive long-term
compensation through December 1997. Information about individual grants
awarded in 1996 is contained in BA Merchant Services, Inc.'s 1996 Proxy
Statement filed April 18, 1997, file number 333-13985.
PENSION PLAN
The company is a participating employer in the BankAmerica Pension and
Supplemental Retirement Plans, and its executive officers continue to accrue
benefits under these plans.
The named executive officers received pension benefits for 1997 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 BankAmerica 401(k) Investment Plan contributions
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 $56,341
James H. Williams....................................... 2008 121,924
Le Tran-Thi............................................. 2011 38,073
Michael J. Sanders...................................... 2014 48,633
James M. Aviles......................................... 2025 68,770
</TABLE>
9
<PAGE>
The estimated annual retirement benefits shown assume bonuses equal to the
average percentage bonus (as a percentage of year-end salary) or the cash
equivalent of a short-term incentive award received for the last three years,
a 5% interest factor, retirement at age 65 and no increase in salary.
OTHER BENEFIT PLANS
The company is also a participating employer in the other benefit programs
sponsored by BAC, 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 BAC-sponsored benefit programs is subject to the continued
authorization of BAC and the company's election to participate.
CERTAIN TRANSACTIONS AND OTHER MATTERS
In the ordinary course of business, the company may engage in transactions
with other corporations or financial institutions whose officers or directors
are also officers or directors of the company. Transactions with such
corporations and financial institutions are conducted on an arm's-length basis
and may not come to our attention or to the attention of the company's
officers or the directors or officers of the other corporations or financial
institutions involved.
None of us have been involved in any material business relationship with the
company requiring disclosure under SEC rules.
RELATIONSHIP WITH BANKAMERICA
The company incorporated in October 1996 to combine the domestic merchant
processing businesses of subsidiaries of BAC. BAC's subsidiaries transferred
these merchant processing businesses in December 1996 in exchange for an
aggregate of 30,200,000 shares of Class B Common Stock. In 1997, the company
acquired the Asian merchant processing businesses of Bank of America. On June
2, 1997, the company acquired Bank of America's merchant processing business
in Thailand in consideration for 150,000 shares of Class B Common Stock. On
July 1, 1997, the company acquired Bank of America's merchant processing
business in the Philippines in consideration for 550,000 shares of Class B
Common Stock. On September 30, 1997, the company acquired Bank of America's
merchant processing business in Taiwan and merchant processing administrative
office in Hong Kong in consideration for 1,500,000 shares of Class B Common
Stock.
The company has engaged, and continues to engage, in certain transactions
with BAC and its subsidiaries. We believe 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 BAC.
General. As of the record date, BAC, through its subsidiary, Bank of
America, owned 100% of the company's outstanding Class B Common Stock (a total
of 32,400,000 shares), which represented approximately 66.6% of the company's
outstanding Common Stock on that date. Such economic ownership represented
approximately 95.2% of the combined voting power of the company's outstanding
Common Stock on that date. BAC 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.
BAC 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 BAC 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. BAC may also at some future time transfer some or all of
its shares of Class B Common Stock from Bank of America to other affiliates of
the company.
10
<PAGE>
Intercompany Agreements and Arrangements. The company and Bank of America
engage in various intercompany transactions and arrangements, including the
provision by Bank of America of various services to the company. Such services
are provided pursuant to certain 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 Bank
of America to perform for the company certain product distribution services,
processing services, marketing services, system support services, association
and network sponsorship and representation in the Visa and MasterCard
associations, telecommunications services, tax and treasury services,
regulatory, compliance, legal, accounting and audit services, and other
miscellaneous support and administrative services. The company and Bank of
America also have entered into agreements concerning registration rights, the
allocation of tax liabilities and the leasing of certain facilities by the
company from Bank of America. All of the intercompany agreements may be
terminated by Bank of America 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 Bank of America, the
provision of services and the payments therefore, for the foreseeable future.
Because these agreements were entered into at a time when the company was
still wholly owned by Bank of America, 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.
Bank of America and the company have also entered into a Non-Competition and
Corporate Opportunities Allocation Agreement pursuant to which Bank of America
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 in the Asian countries in which the company
acquired Bank of America's merchant processing businesses. More information
regarding the intercompany agreements and the Non-Competition and Corporate
Opportunities Allocation Agreement is contained in the company's Annual Report
on Form 10-K/1997 Annual Report to Stockholders.
Payment for Services. Fees paid for services provided to the company or its
predecessors by BAC were approximately $8.2 million, $10.9 million and $7.8
million for the years ended December 31, 1995, 1996 and 1997, respectively. As
part of the intercompany arrangements, the company (or its predecessor) paid
BAC total rental expense of $2.2 million, $2.2 million and $2.6 million for
the years ended December 31, 1995, 1996 and 1997, respectively. In addition,
the company (or its predecessor) paid BAC $14.7 million, $15.9 million and
$3.9 million for the years ended December 31, 1995, 1996 and 1997,
respectively, under tax allocation arrangements.
11
<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 March 9, 1998, 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, 1997 and Schedule 13D filings:
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS NATURE OF BENEFICIAL PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- - -------------- -------------------------- -------------------- --------
<S> <C> <C> <C>
William Blair & Co.,
Class A Common Stock.... L.L.C.(1) 2,560,386(2) 15.8%
Class A Common Stock.... The Capital Group 1,231,300(4) 7.6%
Companies, Inc., Capital
Guardian Trust Company(3)
Class A Common Stock.... FMR Corp.(5) 1,008,800(6) 6.21%
Class A Common Stock.... Goldman, Sachs & Co. and 955,917(8) 5.9%
The Goldman Sachs Group,
L.P.(7)
Class A Common Stock.... Schroder Capital 1,263,100(10) 7.77%
Management International
Inc.(9)
Class B Common Stock Bank of America National 32,400,000(13) 100.00%
(11)................... Trust and Savings
Association and
BankAmerica Corporation(12)
</TABLE>
- - --------
(1) The address of the principal place of business of William Blair & Co.,
L.L.C. is 222 W. Adams St., Chicago, Illinois 60606.
(2) According to a Schedule 13G filed with the SEC on February 17, 1998,
William Blair & Co., L.L.C. has sole power to vote (or direct the vote) of
1,465,000 shares of Class A Common Stock and sole power to dispose (or
direct the disposition of) 2,560,386 shares of Class A Common Stock.
(3) The address of the principal place of business of The Capital Group
Companies and the Capital Guardian Trust Company is 333 South Hope Street,
Los Angeles, California 90071.
(4) According to a Schedule 13G filed with the SEC on February 11, 1998, The
Capital Group Companies, Inc., the parent holding company of a group of
investment management companies that hold investment power and, in some
cases, voting power over the securities, has beneficial ownership over
1,231,300 shares of Class A Common Stock. Capital Guardian Trust Company,
a bank and wholly owned subsidiary of The Capital Group Companies, Inc.
reported beneficial ownership of 1,199,300 shares of Class A Common Stock,
with the remainder of the 1,231,300 shares reported by The Capital Group
Companies to be beneficially owned by other subsidiaries of The Capital
Group Companies.
(5) The address of the principal place of business of FMR Corp. is 82
Devonshire Street, Boston, Massachusetts 02109.
(6) According to a Schedule 13G filed February 9, 1998, Fidelity Management &
Research Company, a wholly owned subsidiary of FMR Corp. and an investment
advisor to various mutual funds, is the beneficial owner of 1,008,800
shares of Class A Common Stock. FMR Corp. and Edward C. Johnson 3d,
Chairman of FMR Corp., through their control of Fidelity Management &
Research Company, have sole power to dispose (or direct the disposition)
of 1,008,800 shares of Class A Common Stock. Neither FMR Corp. nor Edward
C. Johnson 3d has the sole power to vote (or to direct the voting) of the
shares owned directly by the Fidelity Funds, which power resides with the
Funds' Boards of Trustees.
(7) The address of the principal place of business of Goldman, Sachs & Co. and
The Goldman Sachs Group, L.P. is 85 Broad Street, New York, New York
10004.
(8) According to a Schedule 13G filed February 17, 1998, Goldman, Sachs & Co.
and The Goldman Sachs Group, L.P. have shared power to vote (or to direct
the vote) and shared power to dispose (or direct the disposition of)
955,917 shares of Class A Common Stock.
(9) The address of the principal place of business of Schroder Capital
Management International Inc. is 787 Seventh Avenue, 34th Floor, New York,
New York 10019.
(Footnotes continue on next page)
12
<PAGE>
(10) According to a Schedule 13G filed February 12, 1998, Schroder Capital
Management International Inc. has sole power to vote (or to direct the
vote) and sole power to dispose (or direct the disposition) of 1,263,100
shares of Class A Common Stock.
(11) 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. The Class B Common Stock
represents approximately 66.6% of the outstanding Common Stock of the
company and 95.2% of the combined voting power of the company's
outstanding Common Stock.
(12) 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.
(13) According to a Schedule 13D filed with the SEC on October 20, 1997, Bank
of America National Trust and Savings Association and BankAmerica
Corporation have shared power to vote (or to direct the vote) and shared
power to dispose (or to direct the disposition) of 32,400,000 shares of
Class B Common Stock.
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of February 28, 1998, 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.
Mr. Bayyari and Mr. Williams each have beneficial ownership of approximately
1% of the Class A Common Stock issued and outstanding. Except for Mr. Bayyari
and Mr. Williams, each individual owns less than 1% of the company's Class A
Common Stock issued and outstanding. Each individual 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................................ 166,792
Barbara J. Desoer................................ 0
Donald R. Dixon.................................. 11,652
William E. Fisher................................ 11,652
James G. Jones................................... 0
H. Eugene Lockhart............................... 0
Hatim A. Tyabji (2).............................. 0
James H. Williams................................ 162,778
Le Tran-Thi...................................... 23,666
Michael J. Sanders............................... 23,666
James M. Aviles.................................. 23,666
All directors and executive officers as a group
(11 persons) (3)................................ 423,872
</TABLE>
- - --------
(1) All shares which the identified person or persons have the right to
acquire by exercise of options within sixty days of February 28, 1998 are
deemed to be beneficially owned.
(2) Mr. Tyabji will join the board on May 1, 1998 and is a nominee for
reelection at the annual meeting.
(3) As a group, beneficially owns approximately 2.6% of the company's Class A
Common Stock issued and outstanding.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities 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 Securities Exchange Commission to furnish
the company with copies of all Section 16(a) forms they file.
13
<PAGE>
BAC and Bank of America, beneficial owners of more than 10% of Class A
Common Stock by virtue of the convertibility of the Class B Common Stock they
hold into Class A Common Stock, did not file SEC Forms 3 (reports of initial
ownership) or Forms 4 or 5 with respect to these derivative securities
initially owned or subsequently acquired. BAC and Bank of America subsequently
filed Forms 5 reflecting initial beneficial ownership and subsequent
acquisitions; however, these Forms 5 were inadvertently filed late. Based on a
review of SEC filings, including a Schedule 13G filed with the SEC on February
17, 1998, the company believes that William Blair & Co., L.L.C., a beneficial
owner of more than 10% of Class A Common Stock, did not timely file an SEC
Form 3 (report of initial ownership) or Forms 4 or 5.
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.
We have nominated the slate of directors set forth below. The biographical
information for each director is as of February 28, 1998. Each of the nominees
except Mr. Tyabji currently serves as a director. Mr. Tyabji will join the
board on May 1, 1998. Persons elected at the annual meeting will hold office
until the 1999 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 February 28, 1998, 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, we will direct our 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 we know 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 us in the event any
nominee is unable to serve. On March 13, 1998, we set the number of directors
to be elected by the stockholders at seven. We may also vote to reduce the
number of directors to be elected.
The nominees for directors are:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE AND DIRECTOR
NAME AND AGE DIRECTORSHIPS SINCE
------------ --------------------------------------------- --------
<C> <S> <C>
Sharif M. Bayyari Mr. Bayyari has been the President and Chief 1996
Age: 53 Executive Officer and a member of the Board of
Directors of the company since its formation.
From 1993 until the company's formation, he
was Executive Vice President responsible for
managing the merchant services businesses of
Bank of America. From 1983 to 1993, he 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 Board 1996
Age: 45 of Directors of the company since November
1996. She is presently Group Executive Vice
President and head of the California Retail
Group of Bank of America, having joined Bank
of America initially in 1977.
Donald R. Dixon Mr. Dixon has served as a member of the Board 1996
Age: 50 of Directors of the company since November
1996. He 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, he was Managing
Director of Alex Brown & Sons, Incorporated
and a Vice President of Morgan Stanley. He
currently serves on the Board of Directors of
Platinum Software Corporation, Pegasus
Systems, Inc., and several privately owned
corporations.
William E. Fisher Mr. Fisher has served as a member of the Board 1996
Age: 51 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. He 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 1996
Age: 49 of Directors of the company since November
1996. He is presently Group Executive Vice
President and head of Consumer Credit
Administration for Bank of America. Before
joining Bank of America in 1992, he 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 a member of the 1997
Age: 48 Board of Directors of the company since May
1997. He is presently the President of the
Global Retail Bank for Bank of America. Prior
to joining Bank of America, he served from
1994 until 1997 as President and Chief
Executive Officer of MasterCard International.
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. He currently serves on
the Board of Directors of RJR Nabisco,
Cognizant Corp. and Niagara Mohawk.
Hatim A. Tyabji Mr. Tyabji joins the Board of Directors 1998
Age: 53 effective May 1, 1998. He is Chairman of the
Board, President and Chief Executive Officer
of VeriFone, Inc. He joined VeriFone as
President and Chief Executive Officer in 1986.
Before his appointment at VeriFone, he spent
13 years in management positions at Sperry
Corporation. He was President of the
Information Systems Products and Technologies
Group of the merged Sperry and Burroughs
organizations, which has since become Unisys
Corporation. Mr. Tyabji is a director of
Deluxe Corporation and certain privately owned
technology firms.
</TABLE>
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
We appointed Ernst & Young LLP, Certified Public Accountants, as the
company's independent auditors for 1998. This appointment is subject to
stockholder ratification. Ernst & Young LLP has been serving as the
independent auditors for the company since its formation.
If the appointment of Ernst & Young LLP as independent auditors is not
ratified by the stockholders, we 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 we would allow the appointment to stand for 1998,
unless we found other good reason for making a change sooner. Even if the
appointment is ratified, we, in our discretion, may appoint a new independent
accounting firm at any time during the year, if we feel 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
OTHER BUSINESS FOR THE MEETING
By signing the enclosed proxy card, you are giving proxyholders the
authority to vote your shares as instructed 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. We intend to
instruct the proxyholders to vote in accordance with our recommendations.
16
<PAGE>
As of the printing of this notice and proxy statement, we know of no matters
to be presented for action at the meeting other than items listed on the proxy
card.
VOTING TABULATION AND 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. As of the March 9, 1998 record
date, there were 16,253,326 shares of Class A Common Stock issued and
outstanding and 32,400,000 shares of Class B Common Stock issued and
outstanding. 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. With respect to the election of directors, you
may: (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 proposal to ratify the appointment of Ernst &
Young LLP as independent auditors of the company for 1998, you may: (1) vote
for the proposal, (2) vote against the proposal, or (3) abstain from voting on
the proposal. Shares will be voted as instructed in the accompanying proxy on
each matter submitted to stockholders. If you give no instructions, the
proxyholders will vote the shares FOR the election of the seven director
nominees named in this proxy statement and FOR ratification of the appointment
of Ernst & Young LLP as independent auditors of the company for 1998.
A stockholder's proxy may indicate that all or a portion of the shares
represented by that proxy are not being voted 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 will be
considered shares not present and not entitled to vote on such matter,
although the same 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 election of directors requires 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. 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 or not voting your 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,
ratification of the appointment of Ernst & Young LLP as independent auditors
of the company for 1998 requires 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 for the ratification of independent auditors. Shares not
voted with respect to the ratification of Ernst & Young as independent
auditors will not affect the determination of whether the matter is approved.
We do not know of any other matters to be brought before the annual meeting.
However, if any other matters properly come before the annual meeting, our
proxies intend to vote on those matters in accordance with their best
judgment.
VOTING PROCEDURES FOR BUSINESS SUBMITTED BY STOCKHOLDERS
You, as a stockholder, may submit business to be considered at the annual
meeting through the Corporate Secretary in accordance with the company's
bylaws. The bylaws provide that business may be brought before 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 at the meeting who has
complied with mandatory notice provisions.
17
<PAGE>
In order to bring business before the annual meeting, you must comply with
the procedures set forth in the current bylaws. Those include providing timely
and complete notice in writing to the Corporate Secretary at the address on
page 18 of this proxy statement. To be timely, your notice must be delivered
to, or mailed and received by the Corporate Secretary no fewer than 90 days or
more than 120 days prior to the date of the annual meeting, and this window
period is not affected by any adjournment of the meeting. For the 1998 Annual
Meeting of Stockholders, the window period for giving timely notice of
business to be brought before the annual meeting began on January 7, 1998 and
ended on February 6, 1998.
To be complete, your notice must contain the following:
(a) a brief description of the business you desire to bring before the
annual meeting and the reasons for conducting such business at the
annual meeting;
(b) your name and address, as they appear on the company's books;
(c) the class and number of shares of the company's stock that you own;
(d) a representation that you intend to solicit proxies in support of your
business, if you intend to do so.
No business will be conducted at the annual meeting unless conducted in
accordance with the bylaws. A stockholder's compliance with these provisions,
however, does not create a duty to include the stockholder's business in our
proxy statement or proxy. If the Chairman of the meeting determines:
(a) that stockholder business brought before the meeting was not done in
accordance with the bylaws, or
(b) that the stockholder business was not proper under law or rules
applicable to the meeting, or
(c) that the stockholder bringing the business solicited proxies in support
of the business without the required representation,
then the Chairman may so declare to the meeting and the business will be
disregarded.
ANNUAL REPORT ON FORM 10-K/ANNUAL REPORT TO STOCKHOLDERS
The company has provided a copy of its Annual Report on Form 10-K/1997
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, 1997 (including any financial statements
and schedules, and a list describing any exhibits not contained therein) upon
written request addressed to:
BA Merchant Services, Inc.
Corporate 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 1999 MEETING
In order to be considered for inclusion in the company's proxy materials for
the company's 1999 Annual Meeting of Stockholders, any stockholder proposal
must be received by the company on or before December 18, 1998. Proposals
should be mailed to the company at the address shown above.
COST OF PROXY SOLICITATION
The company will pay the cost of soliciting proxies. The officers or
employees may solicit proxies on our behalf 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.
18
<PAGE>
REVOCABILITY OF PROXY
You have the right to revoke your proxy at any time prior to the time your
shares are actually voted. You may revoke your proxy by delivering a written
revocation to the Corporate 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.
YOUR VOTE IS IMPORTANT
It is important that your shares be represented and voted at the annual
meeting. Please mark, date, sign and return the enclosed proxy in the enclosed
prepaid envelope.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Cheryl Sorokin
Cheryl Sorokin
Secretary
Dated: March 23, 1998
19
<PAGE>
[RECYCLING LOGO APPEARS HERE]
Printed on Recycled Paper
<PAGE>
- - --------------------------------------------------------------------------------
PLEASE MARK
YOUR VOTES [X]
FOR all AS INDICATED
nominees IN THIS EXAMPLE
listed below WITHHOLD
1. Election (except as marked AUTHORITY 2. Ratification of the appoint-
of Directors to the contrary to vote for ment of Ernst & Young LLP as
below) all nominees independent auditors of the
[_] [_] Company for 1998.
FOR AGAINST ABSTAIN
[_] [_] [_]
Sharif M. Bayyari James G. Jones
Barbara J. Desoer H. Eugene Lockhart
Donald R. Dixon Hatim A. Tyabji
William E. Fisher
3. In their discretion, to vote
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE upon such other matters as may
FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE properly come before the
THROUGH THE NOMINEE'S NAME ABOVE. 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:
1998 ------------------------,
(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.)
<PAGE>
BA MERCHANT SERVICES, INC.
Proxy for Annual Meeting of Stockholders
May 7, 1998
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 March 9, 1998, 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 PROPOSAL 2. Both proposals were proposed by the Board of Directors
of BA Merchant Services, Inc.
- - --------------------------------------------------------------------------------
FOLD AND DETACH HERE
