SCHEDULE 14A
(RULE 14A-10)
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(AMENDMENT NO. 1)
Filed by the Registrant {x}
Filed by a Party other than the Registrant { }
Check the appropriate box:
{x} Preliminary Proxy Statement
{ } Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
{ } Definitive Proxy Statement
{ } Definitive Additional Materials
{ } Soliciting Material pursuant
to Rule 14a-11(c) or Rule 14a-12
SPS TRANSACTION SERVICES, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
{ } No fee required.
{x} 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:
$895,696,661
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5) Total fee paid:
$179,139.33
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{X} 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:
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<PAGE>
PRELIMINARY COPY, DATED JULY 1, 1998
[SPS LOGO]
2500 LAKE COOK ROAD
RIVERWOODS, ILLINOIS 60015
[], 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of our
stockholders that will be held on [], 1998, at [10:00 a.m. Central Time, at
the Chicago Botanic Garden, Education Center, 1000 Lake Cook Road, in Glencoe,
Illinois 60022].
At the Special Meeting, you will be asked to approve the sale by the
Company of substantially all of its assets, consisting of all the issued and
outstanding capital stock of the Company's two subsidiaries, SPS Payment
Systems, Inc. and Hurley State Bank, to Associates First Capital Corporation,
pursuant to a Stock Purchase Agreement, dated April 18, 1998, between the
Company and Associates, for a purchase price of $895,696,661 in cash (the
"Sale"). You will also be asked to adopt an Agreement and Plan of Merger (the
"Merger Agreement"), dated as of June 15, 1998, between the Company and Sail
Acquisition, Inc., a wholly owned subsidiary of NOVUS Credit Services Inc. The
Merger will be effected as soon as practicable after the closing of the Sale
and is being undertaken as a means of distributing to the public stockholders
of the Company their pro rata portion of the net proceeds of the Sale. In the
Merger, each outstanding share of the Company's common stock (other than
common stock held by NOVUS or by any stockholders who perfect their statutory
appraisal rights under Delaware law) will be converted into the right to
receive $32.02 in cash, without interest thereon. Because the Company will
bear the entire income tax liability on the gain resulting from the Sale and
Morgan Stanley Dean Witter & Co. (the parent company of NOVUS) has agreed to
contribute $500,000 to the Company to defray the expenses incurred by the
Company in connection with the Sale and Merger, the per share amount allocable
to NOVUS will be effectively less than $32.02 per share.
APPROVAL OF THE SALE AND ADOPTION OF THE MERGER AGREEMENT REQUIRE THE
AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE COMPANY'S OUTSTANDING
COMMON STOCK. NOVUS OWNS APPROXIMATELY 73.3% OF THE COMPANY'S OUTSTANDING
COMMON STOCK AND HAS AGREED WITH ASSOCIATES TO VOTE ALL OF THE SHARES OWNED BY
IT IN FAVOR OF THE SALE. IN ADDITION, NOVUS INTENDS TO VOTE ALL SUCH SHARES IN
FAVOR OF ADOPTION OF THE MERGER AGREEMENT. AS A RESULT, THE TRANSACTIONS WILL
BE APPROVED AT THE SPECIAL MEETING WITHOUT THE AFFIRMATIVE VOTE OF ANY OTHER
STOCKHOLDER.
Your Board of Directors, after careful consideration, has determined
that both the Sale and the Merger are fair to you and in your best interests.
Therefore, the Board recommends that you vote FOR approval of the Sale and
adoption of the Merger Agreement.
Detailed information concerning both the Sale and the Merger is set
forth in the attached Proxy Statement, which we urge you to read carefully.
Thank you for your support over the years.
Sincerely,
Thomas C. Schneider
Chairman of the Board
PLEASE DO NOT SEND STOCK CERTIFICATES AT THIS TIME.
<PAGE>
SPS TRANSACTION SERVICES, INC.
2500 LAKE COOK ROAD
RIVERWOODS, ILLINOIS 60015
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON __________, __________, 1998
A Special Meeting of Stockholders (the "Special Meeting") of SPS
Transaction Services, Inc. (the "Company") will be held on _____________ , 1998,
at [the Chicago Botanic Garden, Education Center, 1000 Lake Cook Road, Glencoe,
Illinois 60022 at 10:00 a.m., local time], for the following purposes:
1. To consider and vote upon a proposal to approve the sale by the
Company of substantially all of its assets, consisting of all the
issued and outstanding capital stock of the Company's two
subsidiaries, SPS Payment Systems, Inc. and Hurley State Bank, to
Associates First Capital Corporation, a Delaware corporation
("Associates"), for a purchase price of $895,696,661 in cash (the
"Sale"), upon the terms and subject to the conditions set forth in a
Stock Purchase Agreement, dated April 18, 1998 (the "Purchase
Agreement"), between the Company and Associates.
2. To consider and vote upon a proposal to adopt the Agreement and Plan
of Merger, dated as of June 15, 1998 (the "Merger Agreement"),
between the Company and Sail Acquisition, Inc., a Delaware
corporation ("Acquisition") and a wholly owned subsidiary of NOVUS
Credit Services Inc., a Delaware corporation ("NOVUS"), pursuant to
which Acquisition will be merged with and into the Company (the
"Merger"), with the Company being the surviving corporation. In the
Merger, each share of the Company's common stock, par value $0.01
per share (the "Common Stock"), outstanding at the effective time of
the Merger (other than Common Stock held by NOVUS or any
stockholders who perfect their statutory appraisal rights under
Delaware law), will be converted into the right to receive $32.02 in
cash, without interest thereon.
3. To transact such other business as may be properly brought before the
Special Meeting, or any adjournments or postponements thereof.
The Sale and the Merger are more fully described in the attached
Proxy Statement and Annexes thereto.
Stockholders not voting in favor of adoption of the Merger Agreement
and who otherwise comply with the provisions of Section 262 of the General
Corporation Law of the State of Delaware will have the right, if the Merger is
consummated, to demand appraisal of the fair market value of their shares of
Common Stock. A copy of Section 262 is attached to the Proxy Statement as
Annex II. See "PROPOSAL NO. 2--ADOPTION OF THE MERGER AGREEMENT--Appraisal
Rights" in the accompanying Proxy Statement for a description of the
procedures required to preserve and obtain appraisal rights.
Holders of record of Common Stock at the close of business on
_______________ , 1998, will be entitled to notice of and to vote on all
matters presented at the Special Meeting and at any adjournments or
postponements thereof.
By Order of the Board of Directors,
Michael J. Hartigan, Jr.
Secretary
_____________, 1998
PLEASE DO NOT SEND STOCK CERTIFICATES AT THIS TIME.
<PAGE>
PRELIMINARY COPY, DATED JULY 1, 1998
SPS LOGO
- - - - -----------------------------------------------------------------------
PROXY STATEMENT
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SPECIAL MEETING OF STOCKHOLDERS
[], 1998
- - - - -----------------------------------------------------------------------
This proxy statement is being furnished to the stockholders of SPS
Transaction Services, Inc. ("We" or the "Company") in connection with the
solicitation of proxies on behalf of the Board of Directors of the Company
(the "Board of Directors") for a Special Meeting of the Company's stockholders
(the "Stockholders") to be held on __________, 1998, [at 10:00 a.m. Central
Time, at the Chicago Botanic Garden, Education Center, 1000 Lake Cook Road,
Glencoe, Illinois 60022], and at any adjournments and postponements thereof.
The purposes of the Special Meeting are to consider and act upon (i) a
proposal to approve the sale by the Company of substantially all of its
assets, consisting of all the issued and outstanding capital stock of the
Company's two subsidiaries, SPS Payment Systems, Inc., a Delaware corporation,
and Hurley State Bank, a South Dakota state bank, to Associates First Capital
Corporation, a Delaware corporation ("Associates"), pursuant to a Stock
Purchase Agreement, dated April 18,1998 (the "Purchase Agreement"), between
the Company and Associates, for a purchase price of $895,696,661 in cash (the
"Sale") and (ii) a proposal to adopt the Agreement and Plan of Merger, dated
as of June 15, 1998 (the "Merger Agreement"), between the Company and Sail
Acquisition, Inc., a Delaware corporation ("Acquisition") and a wholly owned
subsidiary of NOVUS Credit Services Inc., a Delaware corporation ("NOVUS"),
pursuant to which Acquisition will be merged with and into the Company (the
"Merger"), with the Company being the surviving corporation.
The Merger will be effected as soon as practicable after the closing
of the Sale to distribute to the public Stockholders their pro rata portion of
the net proceeds of the Sale. In the Merger, each share of the Company's
common stock, par value $0.01 per share (the "Common Stock"), outstanding at
the effective time of the Merger (other than Common Stock held by NOVUS or by
any Stockholders who perfect their statutory appraisal rights under Delaware
law) will be converted into the right to receive $32.02 in cash, without
interest thereon. Because the Company will bear the income tax liability on
the gain resulting from the Sale and Morgan Stanley Dean Witter & Co. (the
parent company of NOVUS) has agreed to contribute $500,000 to the Company to
defray the expenses incurred by the Company in connection with the Sale and
the Merger, the per share amount allocable to NOVUS is effectively less than
$32.02 per share.
The Board of Directors, after careful consideration, has approved the
Purchase Agreement and the Merger Agreement and has determined that both the
Sale and the Merger are fair to and in the best interests of the Stockholders
and recommends that Stockholders approve the Sale and adopt the Merger
Agreement.
CONCURRENTLY WITH THE PARTIES' EXECUTION OF THE PURCHASE AGREEMENT,
NOVUS AND ASSOCIATES ENTERED INTO A VOTING AGREEMENT (THE "VOTING AGREEMENT"),
PURSUANT TO WHICH NOVUS HAS AGREED TO VOTE, OR CAUSE TO BE VOTED, ALL OF THE
SHARES OF COMMON STOCK OWNED OF RECORD OR CONTROLLED BY NOVUS (REPRESENTING
APPROXIMATELY 73.3% OF THE COMMON STOCK ISSUED AND OUTSTANDING ON THE RECORD
DATE) AND ENTITLED TO VOTE AT THE SPECIAL MEETING IN FAVOR OF THE SALE. SEE
"INTRODUCTION" AND "PROPOSAL NO. 1 -- APPROVAL OF THE SALE --ANCILLARY
AGREEMENTS -- THE VOTING AGREEMENT." IN ADDITION, NOVUS INTENDS TO VOTE IN
FAVOR OF THE ADOPTION OF THE MERGER AGREEMENT. BECAUSE NOVUS WILL VOTE THE
SHARES OF COMMON STOCK THAT IT OWNS IN FAVOR OF THE APPROVAL OF THE SALE AND
THE ADOPTION OF THE MERGER AGREEMENT, THE SALE AND THE MERGER AGREEMENT WILL
BE APPROVED AND ADOPTED, RESPECTIVELY, AT THE SPECIAL MEETING EVEN IF NO OTHER
STOCKHOLDER VOTES IN FAVOR OF THEM.
These proxy materials are being mailed on or about ______________,
1998, to holders of record on [ ], 1998 (the "Record Date") of the Common
Stock. Each outstanding share of Common Stock entitles the holder thereof to
one vote. As of the Record Date, there were [27,286,497] shares of Common
Stock outstanding. The presence in person or by proxy of 51% of such shares
shall constitute a quorum.
<PAGE>
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OF MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
You may revoke your Proxy at any time prior to its exercise by filing
with the Secretary of the Company an instrument of revocation or a duly
executed proxy bearing a later date or by attending the Special Meeting and
voting in person. Appearance at the Special Meeting by a Stockholder who has
given a valid proxy will not, by itself, constitute a revocation of such
proxy. If shares of Common Stock are represented by more than one properly
executed proxy, the executed proxy bearing the latest date will be voted at
the Special Meeting. For more information concerning proxies, see
"INTRODUCTION - Proxies."
The date of this Proxy Statement is _______________, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS.....................1
SUMMARY.......................................................................1
INTRODUCTION...................................................8
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING............................8
RECORD DATE; VOTING AT THE SPECIAL MEETING; QUORUM.........................8
PROXIES....................................................................9
SPECIAL FACTORS..............................................................10
GENERAL...................................................................10
BACKGROUND................................................................10
RECOMMENDATION OF THE BOARD OF DIRECTORS FAIRNESS OF THE TRANSACTION..12
OPINION OF FINANCIAL ADVISOR..............................................13
PROPOSAL NO. 1--APPROVAL OF THE SALE.........................................15
TERMS OF THE PURCHASE AGREEMENT...........................................16
ANCILLARY AGREEMENTS......................................................21
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS..........................21
REGULATORY APPROVALS......................................................23
PROPOSAL NO. 2--ADOPTION OF THE MERGER AGREEMENT............................23
TERMS OF THE MERGER AGREEMENT............................................24
EFFECTIVE TIME...........................................................25
PAYMENT FOR SHARES AND SURRENDER OF STOCK CERTIFICATES...................25
CERTAIN EFFECTS OF THE MERGER............................................25
ACCOUNTING TREATMENT.....................................................26
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER....................26
APPRAISAL RIGHTS.........................................................27
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA.............................30
CONTROLLING PERSONS, DIRECTORS AND EXECUTIVE OFFICERS OF MSDW, NOVUS,
ACQUISITION AND THE COMPANY...............................................32
BACKGROUND OF NAMED PERSONS..............................................32
PAST CONTACTS, TRANSACTIONS, OR NEGOTIATIONS.............................32
PLANS OR PROPOSALS.......................................................33
INTEREST IN THE COMPANY'S SECURITIES.....................................33
CONTRACTS, ARRANGEMENTS, OR UNDERSTANDINGS CONCERNING THE COMPANY'S
SECURITIES..............................................................33
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................34
MANAGEMENT SERVICES AGREEMENT WITH NOVUS.................................34
FINANCING AGREEMENTS WITH MSDW; INTEREST RATE SWAP AND CAP AGREEMENTS....34
THIRD PARTY PROCESSING AND COOPERATIVE NETWORK SERVICE AGREEMENT AND
TERMINAL SERVICE AGREEMENT WITH NOVUS SERVICES.........................34
SYSTEM ACCESS AGREEMENT WITH NOVUS SERVICES..............................35
SERVICE AGREEMENT WITH NOVUS SERVICES....................................35
DEBIT CARD PROCESSING LETTER AGREEMENT AND SALES LEAD LETTER AGREEMENT
WITH NOVUS SERVICES....................................................35
MARKETING SERVICES AGREEMENT WITH NOVUS..................................35
<PAGE>
SERVICE AGREEMENT WITH MOUNTAINWEST......................................36
OPERATIONAL OUTSOURCING SERVICE AGREEMENT WITH MOUNTAINWEST..............36
HEADQUARTERS LEASE WITH NOVUS............................................36
SERVICE AGREEMENT WITH NEW CASTLE........................................37
HISTORICAL MARKET PRICE AND DIVIDEND DATA...................................38
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..............39
FEES AND EXPENSES...........................................................40
WHERE YOU CAN FIND MORE INFORMATION.........................................42
INDEPENDENT PUBLIC ACCOUNTANTS..............................................42
OTHER MATTERS...............................................................42
ANNEX I - OPINION OF FINANCIAL ADVISOR.....................................I-1
ANNEX II - SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF
DELAWARE................................................................II-1
ANNEX III - THE MERGER AGREEMENT.........................................III-1
ANNEX IV - INFORMATION CONCERNING DIRECTORS AND OFFICERS OF THE
COMPANY, MSDW, NOVUS AND ACQUISITION.....................................IV-1
ANNEX V - COMMON STOCK PURCHASES...........................................V-1
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS
Q: Why is the Company selling its business?
A: The Board of Directors has determined that a sale of substantially
all of the Company's assets and a subsequent distribution to you of
your proportionate interest in the net proceeds from that sale is in
your best interest. The Board reached this determination after it was
informed that Morgan Stanley Dean Witter & Co. desired to dispose of
the 73.3% interest in the Company that it holds through NOVUS, and
after a long and thorough sales process where we and our financial
advisor solicited indications of interest in a possible transaction
from all candidates that we believed to be potential acquirors of the
Company.
Q: Why is the transaction structured as a sale of the stock of the
Company's subsidiaries - SPS Payment Systems, Inc. and Hurley State
Bank?
A: The sale of the stock of SPS Payment Systems and Hurley State Bank
will transfer substantially all of the Company's assets to
Associates. The transaction is structured in this way in order to
enable Associates, the Company, SPS Payment Systems and Hurley State
Bank to make certain joint elections under federal and state tax laws
to allow SPS Payment Systems and Hurley State Bank to have a higher
tax basis in their assets after their sale to Associates. This
structure benefits stockholders by enabling Associates to agree to a
higher price than if the transaction were structured as a merger.
Q: What is the purpose of the merger following the sale?
A: The purpose of the merger is to distribute to you your pro rata
portion of the net proceeds from the sale of the Company's business.
Q: What will I receive after the consummation of the sale and the
merger?
A: You will receive your pro rata portion of the net proceeds from the
sale, which will be equal to $32.02 for each share of the Company's
common stock that you own, unless you perfect your statutory
appraisal rights under Delaware law. We intend to distribute the net
proceeds from the sale as soon as practicable after the consummation
of the sale and the merger.
Q: Should I send my stock certificates now?
A: No. After the merger is completed, we will send to you written
instructions for exchanging your stock certificates for your pro rata
share of the net proceeds from the sale.
Q: What do I need to do now?
A: Just indicate on your proxy card how you want to vote, and sign and
mail it in the enclosed return envelope as soon as possible, so that
your shares may be represented at the Special Meeting. If you sign
and send in your proxy card and do not indicate how you want to vote,
your shares will be voted in favor of approval of the sale and
adoption of the merger agreement. If you do not vote or you abstain,
it will have the effect of a vote against approval of the sale and
adoption of the merger agreement.
The Special Meeting will take place on ____________, 1998. You may
attend the Special Meeting and vote your shares in person, rather
than signing and mailing your proxy card. In addition, you may take
back your proxy up to and including the day of the Special Meeting by
following the directions on page 10 and either change your vote or
attend the meeting and vote in person.
Q: If my shares are held in "street name" by my broker, will my broker
vote my shares for me?
A: Your broker will vote your shares only if you provide instructions on
how to vote. You should instruct your broker to vote your shares,
following the directions provided by your broker.
<PAGE>
Q: What vote is required to approve the transactions?
A: The affirmative vote of a majority of the outstanding shares of the
Company's common stock is required to approve the sale and adopt the
merger agreement.
NOVUS, which owns 73.3% of the Company's outstanding common stock,
has agreed with Associates to vote all of the shares owned by it in
favor of the sale. NOVUS also intends to vote in favor of adoption of
the merger agreement. Therefore, NOVUS will vote a sufficient number
of shares to approve the sale and adopt the merger agreement at the
Special Meeting without the vote of any other stockholder.
Q: When will the sale and the merger be completed?
A: We are working toward completing the sale and the merger as quickly
as possible. In addition to stockholder approval, we and Associates
also must obtain regulatory approvals. We hope to complete the
transactions as early as [August 1998.]
Q: What are my tax consequences?
A: The transactions will result in a distribution of cash to you. Your
receipt of cash in exchange for your shares of common stock will be a
taxable transaction for federal income tax purposes and may also be a
taxable transaction under applicable state, local, foreign or other
tax laws. You will recognize a gain or loss equal to the difference,
if any, between the amount of cash you receive for your stock in the
merger (i.e. $32.02 per share) and your adjusted tax basis in such
stock.
In general, you will recognize the gain or loss as of the time of the
merger. In general, such gain or loss will be a capital gain or loss,
provided the common stock is a capital asset in your hands at the
time of the merger, and will be long-term capital gain or loss if you
have held the common stock for more than eighteen months at such
time, mid-term capital gain or loss if you have held the stock for
more than one year but not more than eighteen months, or short-term
capital gain or loss if you have held the common stock for one year
or less.
Q: What will happen to the Company after the transaction?
A: After the sale and the merger, NOVUS will own 100% of the Company's
capital stock. The Company will sell substantially all of its assets
in the sale and after the merger the Company intends to cease its
current operations. The Company's assets after completion of the sale
and merger, the settlement of all expenses associated with the
transactions, and the subsequent distribution to you of your share of
the net proceeds of the sale will be the portion of the net proceeds
of the sale attributable to NOVUS' 73.3% interest and its liabilities
will include its indemnification obligations under the Purchase
Agreement and its income tax liabilities relating to the sale.
WHO CAN HELP ANSWER YOUR QUESTIONS?
If you have more questions about the sale and the merger or if you
would like additional copies of the Proxy Statement, you should contact:
SPS Transaction Services, Inc.
2500 Lake Cook Road
Riverwoods, Illinois 60016
Attention: Investor Relations
Phone Number: (847) 405-3400
<PAGE>
SUMMARY
This summary is not complete and is qualified in its entirety by the
more detailed information contained elsewhere in this Proxy Statement, the
information and documentary material in the Annexes hereto and the documents
to which we have referred you. See "Where You Can Find More Information". As
used herein, "We" or the "Company" means SPS Transaction Services, Inc., a
Delaware corporation, and one or more of its subsidiaries (including SPS
Payment Systems, Inc., a Delaware corporation ("SPS Payment"), and Hurley
State Bank, a South Dakota state chartered bank ("HSB" and together with SPS
Payment, the "Subsidiaries")). As used herein, "NOVUS" means NOVUS Credit
Services Inc. a Delaware corporation. As used herein, "Acquisition" means Sail
Acquisition, Inc., a Delaware corporation. As used herein, "Associates" means
Associates First Capital Corporation, a Delaware corporation. Cross-references
in this Summary are to the captions of sections in the Proxy Statement.
Stockholders should read the entire Proxy Statement and the Annexes hereto.
THE PARTIES
THE COMPANY
We provide technology outsourcing services to our clients. We operate
our businesses primarily through two wholly owned subsidiaries, SPS Payment
and HSB, and are a 73.3%-owned subsidiary of NOVUS. Our main businesses are
electronic processing of point-of-sale credit card transactions,
administration of private-label credit card programs, account processing for
commercial customers, and customized operating services such as software
technical support. Our principal executive offices are located at 2500 Lake
Cook Road, Riverwoods, Illinois 60015. Our telephone number is (847) 405-3400.
NOVUS
NOVUS is a wholly owned subsidiary of Morgan Stanley Dean Witter &
Co. ("MSDW"), a diversified financial services company, and is the owner of
73.3% of the issued and outstanding shares of the COMPANY'S Common Stock.
NOVUS' principal executive offices are located at 2500 Lake Cook Road,
Riverwoods, Illinois 60015. NOVUS' telephone number is (847) 405-0900.
ACQUISITION
NOVUS organized Acquisition on April 17, 1998 to facilitate the
consummation of the Merger (as defined below) and owns all of its capital
stock. Acquisition has not conducted any unrelated activities since its
organization. ACQUISITION'S PRINCIPAL EXECUTIVE OFFICES ARE LOCATED AT 2500
LAKE COOK ROAD, RIVERWOODS, ILLINOIS 60015. ACQUISITION'S TELEPHONE NUMBER IS
(847) 405-0900.
ASSOCIATES
Associates is a leading diversified consumer and commercial finance
organization which provides finance, leasing and related services to
individual consumers and businesses in the United States and internationally.
Associates believes that it is the second largest PUBLICLY-TRADED finance
company in the United States based on aggregate net finance receivables
outstanding. Associates' principal executive offices are located at 250 East
Carpenter Freeway, Irving, Texas 75062. Associates' telephone number is (972)
652-4000.
THE SPECIAL MEETING
We will hold the Special Meeting on __________, 1998 at [the Chicago
Botanic Garden, Education Center, 1000 Lake Cook Road, Glencoe, Illinois 60022
at 10:00 a.m. local time. ] At the Special Meeting, you will be asked:
0 to approve the Sale (as hereinafter defined) pursuant to the Stock
Purchase Agreement, dated April 18, 1998 (the "Purchase Agreement"),
between the Company and Associates, and
<PAGE>
0 to adopt the Agreement and Plan of Merger, dated as of June 15, 1998
(the "Merger Agreement"), between the Company and Acquisition.
RECORD DATE; VOTING POWER
You are entitled to vote at the Special Meeting if you owned shares
at the close of business on ___________, 1998 (the "Record Date"). On the
Record Date, there were [27,286,497] shares of Common Stock entitled to vote
at the Special Meeting. NOVUS owned 20,000,000 (or 73.3%) of such shares. You
will have one vote at the Special Meeting for each share of Common Stock you
owned on the Record Date.
VOTE REQUIRED
The affirmative vote of a majority of the shares of Common Stock
outstanding on the Record Date is required to approve the Sale and adopt the
Merger Agreement. NOVUS has agreed with Associates to vote all shares of
Common Stock owned by it in favor of the approval of the Sale and intends to
vote all of its shares in favor of the adoption of the Merger Agreement. As a
result, the Stockholders (AS HEREINAFTER DEFINED) will approve the Sale and
adopt the Merger Agreement even if no other Stockholder votes in favor of such
approval and adoption. See "PROPOSAL NO. 1 - APPROVAL OF THE SALE - Ancillary
Agreements - The Voting Agreement."
THE SALE
GENERAL
In the Purchase Agreement, we agreed to sell all of the capital stock
of our two wholly owned operating subsidiaries, SPS Payment and HSB, to
Associates for $895,696,661 in cash (the "Sale"). The closing of the Sale is
subject to certain conditions, including the receipt of certain regulatory
approvals and the approval by the Stockholders.
In order to provide for the distribution to the public Stockholders
of their pro rata portion of the net proceeds from the Sale, we entered into
the Merger Agreement. Pursuant to the terms of the Merger Agreement,
Acquisition will merge with and into the Company (the "Merger"), with the
Company as the surviving corporation (THE "SURVIVING CORPORATION"), and each
outstanding share of Common Stock (other than Common Stock held by NOVUS or
any Stockholders who perfect their statutory appraisal rights under Delaware
law) will be converted into the right to receive $32.02 in cash, without
interest thereon. The Merger will be consummated as soon as practicable after
the closing of the Sale. For a description of the events leading to the
approval of the Sale and the Merger Agreement by the COMPANY'S BOARD OF
DIRECTORS, SEE "SPECIAL FACTORS--BACKGROUND." For a description of the
calculation of the per share amount to be distributed in the Merger, see
"PROPOSAL NO. 2--ADOPTION OF THE MERGER AGREEMENT--TERMS OF THE MERGER
AGREEMENT--DETERMINATION of Merger Consideration."
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors has unanimously approved the Purchase
Agreement and the Merger Agreement and the related transactions, including the
Sale and the Merger, and recommends that you vote FOR the approval of the Sale
and FOR adoption of the Merger ____ Agreement. ____ See SPECIAL
FACTORS--RECOMMENDATION of the Board of Directors.; FAIRNESS OF THE
TRANSACTION."
OPINION OF THE COMPANY'S FINANCIAL ADVISOR
In deciding to approve the Sale and the Merger, the Board of
Directors considered the opinion of Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), the financial advisor to the Company. On April 17, 1998, Morgan
Stanley delivered its oral opinion to the Board of Directors to the effect
that as of such date (i) the consideration to be paid by Associates pursuant
to the Purchase Agreement is fair from a financial point of view to the
Company and
<PAGE>
(ii) the per share consideration to be paid to the Stockholders (other than
NOVUS) pursuant to the Merger Agreement is fair from a financial point of view
to such Stockholders. Morgan Stanley subsequently confirmed its oral opinion by
delivery to the Board of Directors of a written opinion dated the date hereof. A
copy of the written opinion of Morgan Stanley is attached as Annex I to this
Proxy Statement. WE ENCOURAGE YOU TO READ THIS OPINION CAREFULLY AND IN ITS
ENTIRETY. See "SPECIAL FACTORS--OPINION OF Financial Advisor."
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION.
Certain members of the Company's management and the Board of Directors
have interests in the Sale and the Merger in addition to the interests of the
COMPANY'S Stockholders generally. See "PROPOSAL NO. 1--APPROVAL OF THE
SALE--Interests of Certain Persons in the Transactions."
BACKGROUND
For a description of the events leading to the approval of the
Purchase Agreement and the Merger Agreement by the Board of Directors, see
"SPECIAL FACTORS--BACKGROUND."
Conditions to the Sale
The obligation of the Company and Associates to consummate the Sale
is subject to the satisfaction of certain conditions, including the following:
o approval of the Sale by the Stockholders;
o no legal restraints or prohibitions existing that prevent the
consummation of the Sale;
o receipt of all necessary regulatory approvals;
o the accuracy of the representations of each party to the
Purchase Agreement contained therein; and
o the repayment of all intercompany debt owing to the Company from
its subsidiaries.
Termination of the Purchase Agreement
Even if the Stockholders approve the Sale, the Company and Associates
can mutually agree to terminate the Purchase Agreement at any time. Either
party can terminate the Purchase Agreement if:
o the Sale is not completed by February 28, 1999; or
o a governmental authority prohibits the Sale.
In addition, Associates may terminate the Purchase Agreement if the Company
fails to obtain Stockholder approval at a duly held Stockholders' meeting.
Ancillary Agreements
The Voting Agreement. NOVUS has agreed with Associates to vote all
of the shares of Common Stock owned by NOVUS in favor of the Sale. On the
Record Date, NOVUS owned 20,000,000 shares of Common Stock (representing
approximately 73.3% of the then outstanding Common Stock). See
INTRODUCTION--RECORD DATE; VOTING AT THE SPECIAL MEETING" and "PROPOSAL NO.
1--APPROVAL OF THE SALE--Ancillary Agreements--The Voting Agreement."
<PAGE>
The Assumption Agreement. As a condition to the consummation of the
Sale, the Company and Associates will enter into an assumption agreement
pursuant to which Associates will assume certain liabilities and obligations
of the Company. See "PROPOSAL NO. 1--APPROVAL OF THE SALE --Ancillary
Agreements --The AssumptioN Agreement."
The Interim Servicing Agreement. As a condition to the consummation
of the Sale, NOVUS and Associates will enter into an interim servicing
agreement pursuant to which NOVUS will provide certain services to Associates
with respect to the operation of the Subsidiaries for a period of up to seven
and one-half (7 1/2) months after the closing of the Sale. See "PROPOSAL NO.
1--APPROVAL OF THE SALE --Ancillary Agreements --ThE Interim Servicing
Agreement."
THE MERGER
GENERAL
To distribute to the public Stockholders their pro rata portion of
the net proceeds from the Sale, the Company entered into the Merger Agreement
with Acquisition. Pursuant to the terms of the Merger Agreement, Acquisition
will be merged with and into the Company, with the Company as the SURVIVING
CORPORATION, and each share of Common Stock outstanding at the effective time
of the Merger (other than Common Stock held by NOVUS or any Stockholders who
perfect their statutory appraisal rights under Delaware law) will be converted
into the right to receive $32.02 in cash, without interest thereon. The Merger
will be consummated as soon as practicable after the consummation of the Sale.
PAYMENT FOR SHARES OF COMMON STOCK AND SURRENDER OF STOCK CERTIFICATES
Promptly after the effective time of the Merger, the Company will
send to you a transmittal letter containing instruction for the surrender of
certificates previously representing Common Stock. The transmittal letter will
set forth the procedure for surrendering such certificates for exchange to
__________, as the paying agent (the "Exchange Agent"). In order to receive
the payment to which you will be entitled as a result of the Merger, you will
be required, following the Merger, to surrender your stock certificate(s),
together with a duly executed and properly completed transmittal letter (and
any other required documents), to the Exchange Agent. You should surrender
certificates formerly representing shares of Common Stock only with a
transmittal letter. You should not send any stock certificates with the
enclosed proxy card. After surrendering the certificates, you will promptly
receive, in exchange for your certificates, cash in an amount equal to the
product of the number of shares of Common Stock formerly represented by your
certificate(s) and $32.02. No interest will be paid on the cash
payable upon the surrender of your certificate(s). See "PROPOSAL NO.
2--ADOPTION OF THE MERGER AGREEMENT--Payment for Shares and Surrender of Stock
Certificates."
CERTAIN EFFECTS OF THE MERGER
Following the Merger, NOVUS will own 100% of the Company's
outstanding capital stock and the holders of Common Stock immediately prior to
the Merger other than NOVUS ("Existing Stockholders") will cease to have
ownership interests in the Company or rights as Stockholders (other than
statutory appraisal rights, in the case of those Stockholders who perfect such
rights under Delaware law). The Existing Stockholders will no longer benefit
from any increases in the value of the Company or any payment of dividends on
Common Stock and will no longer bear the risk of any decreases in the value of
the Company. The Company will sell substantially all of its assets in the
Sale, and after the Merger the Company intends to cease its current
operations. The Company's assets after completion of the Sale and Merger, the
payment of all expenses associated with the transactions and the subsequent
distribution to minority Stockholders of their share of net proceeds will be
the portion of the net proceeds of the Sale attributable to NOVUS' 73.3%
interest and its liabilities will include its indemnification obligations
under the Purchase Agreement and its income tax liabilities relating to the
Sale.
As a result of the Merger, the Common Stock will cease to be quoted
on the New York Stock Exchange (THE "NYSE")
<PAGE>
and the Company will no longer be required to file periodic reports with the
Securities and Exchange Commission. See "PROPOSAL NO. 2--ADOPTION OF THE MERGER
AGREEMENT--Certain Effects of the Merger."
CONDITIONS TO THE MERGER
The obligations of the Company and Acquisition to effect the Merger
are subject to certain conditions, including the following:
o consummation of the Sale, and
o adoption of the Merger Agreement by the Stockholders.
See "PROPOSAL NO. 2--ADOPTION OF THE MERGER AGREEMENT--Terms of the Merger
Agreement--Conditions to the Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Your receipt of cash in exchange for shares of Common Stock in
connection with the Merger will be a taxable transaction for federal income
tax purposes under the Internal Revenue Code of 1986, as amended (THE "CODE"),
and also may be a taxable transaction under applicable state, local, foreign
and other tax laws. Please consult your own tax advisor with respect to the
tax consequences of the Merger to you, including the applicability and the
effect of federal, state, local, foreign and other tax laws. To review the tax
consequences to you in greater detail, see "PROPOSAL NO. 2--ADOPTION OF THE
MERGER AGREEMENT--Certain Federal Income Tax Consequences of the Merger."
APPRAISAL RIGHTS
The Company is incorporated under the laws of the State of Delaware.
Under Delaware law, if you do not vote in favor of the Merger and if you
deliver a written demand for appraisal prior to the Special Meeting, you will
have a right to obtain, upon the consummation of the Merger, a cash payment
for the "fair value" of your shares of Common Stock (excluding any element of
value arising from the accomplishment or expectation of the Merger). In order
to exercise such rights, you must comply with all the procedural requirements
provided by Delaware law, a description of which is provided in "PROPOSAL NO.
2--ADOPTION OF THE MERGER AGREEMENT--Appraisal Rights" herein. The full text
of the applicable provision of Delaware law is attached to this Proxy
Statement as Annex II. Such "fair value" would be determined in judicial
proceedings, the result of which cannot be determined. If you fail to take any
of the steps required under Delaware law, you may lose your appraisal rights.
See "PROPOSAL NO. 2--ADOPTION OF THE MERGER AGREEMENT--Terms of the Merger
Agreement" and "--AppraisaL Rights."
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The summary consolidated financial data presented below for, and as
of the end of, each of the years in the five-year period ended December 31,
1997 are derived from the consolidated financial statements of the Company,
which have been audited by Deloitte & Touche LLP, independent certified public
accountants. The summary consolidated financial data presented below for the
three-month periods ended March 31, 1998 and 1997 and as of March 31, 1998 and
1997 are derived from the unaudited consolidated financial statements of the
Company included herein. In management's opinion, the unaudited information
has been prepared on a basis consistent with the audited consolidated
financial statements of the Company. The results of operations for the three
months ended March 31, 1998 are not necessarily indicative of results which
may be expected for the entire year.
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,(1) YEAR ENDED DECEMBER 31,(1)
--------------------------- -----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Unaudited)
INCOME STATEMENT DATA
<S> <C> <C> <C> <C> <C> <C> <C>
Net operating revenues $82,264 $90,430 $346,885 $320,920 $311,992 $245,802 $205,494
Total operating 66,604 78,391 284,585 283,427 241,883 183,441 156,563
expenses
Pretax income 15,660 12,039 62,300 37,493 70,109 62,361 48,931
Income taxes 5,763 4,648 23,800 14,247 26,636 24,626 18,283
Net income 9,897 7,391 38,500 23,246 43,473 37,735 30,648
Basic earnings per 0.36 0.27 1.41 0.86 1.60 1.40 1.14
common share
Diluted earnings per 0.36 0.27 1.41 0.85 1.59 1.38 1.12
common share
1.9 1.6 1.8 1.5 2.0 6.0 6.3
=== === === === === === ===
RATIO OF
EARNINGS TO FIXED
CHARGES(2)
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31, (1) AS OF DECEMBER 31,(1)
------------------- ---------------------------------------------------------------
BALANCE SHEET DATA 1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Credit card loans $1,169,727 $1,498,421 $1,295,787 $1,637,507 $1,620,833 $679,857 $246,710
Total assets 1,389,753 1,628,517 1,512,403 1,760,785 1,777,607 768,493 309,537
Deposits 544,708 478,541 510,294 463,435 382,343 205,537 72,852
Due to affiliates 474,539 831,706 639,066 982,547 1,110,811 161,573 55,869
Stockholders' equity 274,076 231,971 263,035 224,392 199,210 155,704 116,581
Return on average 14.9% 13.1% 15.8% 11.0% 24.5% 27.7% 30.2%
stockholders' equity
Book value per $ 10.06 $ 8.53 $ 9.67 $ 8.26 $ 7.35 $ 5.76 $ 4.32
share-Basic
Book value per $ 9.98 $ 8.48 $ 9.60 $ 8.20 $ 7.28 $ 5.69 $ 4.27
share-Diluted
Supplemental Data
Total loans(3) $1,749,727 $2,078,421 $1,875,787 $2,217,507 $2,229,992 $1,109,857 $676,710
(1) In thousands, except percentages, ratios and per share data.
(2) For the purpose of calculating the ratio of earnings to
fixed changes, "earnings" consist of income before income
taxes and fixed charges. "Fixed charges" consist of interest
costs, including interest on deposits, and that portion of
rent expense estimated to be representative of the interest
factor.
(3) Total loans represent both owned and securitized credit card
loans.
</TABLE>
<PAGE>
INTRODUCTION
This Proxy Statement is being furnished to holders of common stock,
par value $0.01 per share ("Common Stock"), of SPS Transaction Services, Inc.
(the "Company") in connection with the solicitation of proxies by the Board of
Directors of the Company (the "Board") for use at a Special Meeting of the
Company's stockholders (the "Stockholders") to be held on [____________, 1998
at 10:00 am Central Time, at the Chicago Botanic Garden, Education Center,
1000 Lake Cook Road, Glencoe, Illinois 60022 ] and at any adjournments or
postponements thereof (the "Special Meeting"). This Proxy Statement, the
enclosed Notice of Special Meeting of Stockholders and the form of proxy are
first being mailed to Stockholders on or about _________, 1998.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
The purposes of the Special Meeting are to consider and act upon (i) a
proposal to approve the sale by the Company of substantially all of its assets,
consisting of all the issued and outstanding capital stock of the SUBSIDIARIES
TO ASSOCIATES, PURSUANT TO THE PURCHASE AGREEMENT for a purchase price of
$895,696,661 in cash and (ii) a proposal to adopt MERGER AGREEMENT, pursuant to
which Acquisition will be merged with and into the Company, with the Company
being the SURVIVING CORPORATION. The Merger will be effected as soon as
practicable after the closing of the Sale and is being undertaken to distribute
to the public Stockholders their pro rata portion of the net proceeds of the
Sale. Upon consummation of the Merger, each share of Common Stock (other than
Common Stock held by NOVUS or by any stockholders who perfect their statutory
appraisal rights under Delaware law) will be converted into the right to receive
$32.02 in cash, without interest thereon (the "Merger Consideration"). Since the
Company will bear the entire income tax liability on the gain resulting from the
Sale and MSDW (the parent company of NOVUS) has agreed to contribute $500,000 to
the Company to defray the expenses incurred by the Company in connection with
the Sale and the Merger, the per share amount allocable to NOVUS is effectively
less than $32.02 per share.
NOVUS BENEFICIALLY OWNS AND HAS THE RIGHT TO VOTE AT THE SPECIAL
MEETING A SUFFICIENT NUMBER OF SHARES TO APPROVE THE SALE AND ADOPT THE MERGER
AGREEMENT UNDER DELAWARE LAW WITHOUT THE APPROVAL OF ANY OTHER STOCKHOLDER.
PURSUANT TO A VOTING AGREEMENT, NOVUS HAS AGREED TO VOTE ALL SHARES OWNED BY
IT IN FAVOR OF THE SALE. IN ADDITION, NOVUS INTENDS TO VOTE ALL SUCH SHARES IN
FAVOR OF THE ADOPTION OF THE MERGER AGREEMENT. ACCORDINGLY, NO ACTION BY ANY
OTHER STOCKHOLDER IS REQUIRED TO APPROVE THE SALE AND ADOPT THE MERGER
AGREEMENT. SEE "PROSPOSAL NO. 1 - APPROVAL OF THE SALE - ANCILLARY AGREEMENTS
- - - - - THE VOTING AGREEMENT."
RECORD DATE; VOTING AT THE SPECIAL MEETING; QUORUM
The Board has fixed ____, 1998 as the Record Date RECORD DATE for the
determination of Stockholders entitled to notice of and to vote at the Special
Meeting. Accordingly, only Stockholders of record as of the close of business on
the Record Date will be entitled to notice of and to vote at the Special Meeting
and at any and all adjournments or postponements thereof. The Common Stock is
the only class of capital stock of the Company outstanding and entitled to vote
at the Special Meeting. As of the Record Date, there were outstanding _________
shares of Common Stock, held by approximately ________ holders of record. For
purposes of the Special Meeting, the presence, in person or represented by
proxy, of Stockholders entitled to cast at least 51% of the votes which all
Stockholders are entitled to cast shall constitute a quorum. The presence of
NOVUS at the Special Meeting will satisfy the quorum requirement without the
presence at the Special Meeting of any other Stockholder.
<PAGE>
Under Delaware law, the affirmative vote of the holders of a majority
of the shares of Common Stock outstanding as of the Record Date is required to
approve the Sale and adopt the Merger Agreement. NOVUS, which owns 20,000,000
shares of Common Stock (representing approximately 73.3% of the Common Stock
issued and outstanding) on the Record Date, has entered into an agreement (the
"Voting Agreement") with Associates to vote in favor of the approval of the
Sale. In addition, NOVUS intends to vote in favor of the adoption of the
Merger Agreement. As a result, the Stockholders will approve the Sale and
adopt the Merger Agreement, even if no minority Stockholders vote in favor of
such approval and adoption. For additional information concerning the Voting
Agreement, see "PROPOSAL NO. 1--APPROVAL OF THE SALE--Ancillary
Agreements--The Voting Agreement."
As of the Record Date, all executive officers and directors of the
Company as a group beneficially owned ___ shares of Common Stock (including
options to purchase ___ shares of Common Stock that are exercisable within 60
days of the date hereof), representing approximately ___% of the then
outstanding shares (assuming the exercise of such options).
Participants in the SPS TRANSACTION SERVICES, INC. START PLAN (SAVINGS
TODAY AFFORDS RETIREMENT TOMORROW) (THE "SPS START") who receive this Proxy
Statement in their capacity as such participants will receive a voting
instruction form in lieu of a proxy card. The SPS START trustee will, subject to
the requirements of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), vote the shares, in person or by proxy, in accordance with
voting instructions it receives on or before _______________, 1998. The SPS
START trustee will, subject to the requirements of ERISA, vote all shares for
which timely instructions are not received in direct proportion to the voting of
shares for which timely instructions are received.
To the knowledge of the Company, no person or group, other than NOVUS,
is the beneficial owner of more than 5% of the outstanding shares of Common
Stock. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PROXIES
All shares of Common Stock represented at the Special Meeting by
properly executed proxies received prior to or at the Special Meeting, unless
such proxies previously have been revoked, will be voted at the Special
Meeting in accordance with the specifications in the proxies. If no such
specifications are made, the proxies will be voted FOR approval of the Sale
and FOR adoption of the Merger Agreement.
Any person giving a proxy may revoke it at any time before its
exercise by filing with the Secretary of the Company an instrument of
revocation or a duly executed proxy bearing a later date, or by attending the
Special Meeting and voting in person. Management does not know of any matters
to be presented at the Special Meeting other than those set forth in this
Proxy Statement and the accompanying Notice. If other matters should properly
come before the Special Meeting, the proxy holders will vote on such matters
in accordance with their best judgment, unless such authority is withheld.
Shares of Common Stock represented at the Special Meeting by a properly
executed, dated and returned proxy will be treated as present at the Special
Meeting for purposes of determining a quorum, without regard to whether the
proxy is marked as casting a vote or abstaining. Proxies relating to shares of
Common Stock held in "street name" by brokers will be counted as shares of
Common Stock present for purposes of determining the presence of a quorum, but
will not be treated as shares having voted at the Special Meeting as to the
Sale and Merger Agreement if instructions as to how to vote thereon are not
given by the beneficial owners thereof to the broker. Abstentions will be
treated as shares of Common Stock that are present at the Special Meeting for
purposes of determining whether a quorum exists but will have the effect of
votes against approval of the Sale and the adoption of the Merger Agreement.
In light of the treatment of abstentions and broker non-votes and the fact
that the affirmative votes required to authorize the Sale and adopt the Merger
Agreement are stated percentages of the total number of outstanding shares of
Common Stock on the Record Date, abstentions and broker non-votes will have
the same effect as votes against the authorization of the Sale and adoption of
the Merger Agreement. Because of NOVUS's agreement to vote its shares in favor
of the Sale and its intention to vote its shares in favor of the adoption of
the Merger Agreement, no action of any other Stockholder is required to
approve the Sale or to adopt the Merger Agreement. See "PROPOSAL NO.
1--APPROVAL OF THE SALE--ANCILLARY AGREEMENTS--THE Voting Agreement."
<PAGE>
The Board is soliciting the proxies and all expenses of this
solicitation, including the cost of preparing and mailing this Proxy
Statement, will be paid by the Company out of the proceeds of the Sale. In
addition to solicitation by use of the mails, proxies may be solicited by
directors, officers and employees of the Company in person or by telephone,
telegram or other means of communication. Such directors, officers, and
employees will not be additionally compensated, but may be reimbursed for
out-of-pocket expenses in connection with such solicitation. Arrangements will
also be made with custodians, nominees and fiduciaries for forwarding of proxy
solicitation materials to beneficial owners of shares of Common Stock held of
record by such custodians, nominees and fiduciaries, and the Company may
reimburse such custodians, nominees and fiduciaries for reasonable expenses
incurred in connection therewith.
Stockholders have the right to demand judicial appraisal of their
shares of Common Stock in connection with the Merger by following the
procedures prescribed in Section 262 of the General Corporation Law of the
State of Delaware (the "DGCL"). See "PROPOSAL NO. 2 -- ADOPTION OF THE MERGER
AGREEMENT -- Appraisal Rights" and Annex II.
Stockholders should not send any stock certificates with their proxy
cards.
SPECIAL FACTORS
GENERAL
Upon the terms and subject to the conditions contained in the Purchase
Agreement, including the requisite vote of the Stockholders and receipt of all
necessary regulatory approvals, including applicable bank regulatory approvals
and approvals under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as
amended ("HSR Act"), the Company will sell substantially all its assets,
consisting of the stock of the Subsidiaries, to Associates for $895,696,661. To
distribute to public Stockholders the net proceeds of the Sale, the Company will
merge with Acquisition upon the terms and subject to the conditions contained in
the Merger Agreement, including adoption of the Merger Agreement by the
requisite vote of Stockholders. As a result of the Merger, public Stockholders
will receive $32.02 per share of Common Stock.
Following the Merger, NOVUS will be the sole Stockholder of the
Company, and the Company will remain liable for the taxes due that result from
the sale of its assets in the Sale and will retain certain indemnification
obligations to Associates under the Purchase Agreement. This structure was
agreed to by the Company and Associates in order to achieve the most tax
efficient structure for all parties and, thereby, the best available price for
the Stockholders.
BACKGROUND
On December 17, 1996, at a special meeting of the Company's Board of
Directors, the Board received a proposal from Dean Witter, Discover & Co. (a
predecessor to MSDW) to acquire the shares of Common Stock that NOVUS, THEN A
DEAN WITTER, DISCOVER & CO. subsidiary, did not already own. The closing price
on the NYSE for the Common Stock on that date was $15.875 per share. The Board
formed a Special Committee (the "Special Committee"), consisting entirely of its
independent directors, to consider the proposal. Dean Witter, Discover & Co.
subsequently sent to the Special Committee a letter offering to pay $18.50 per
share for the Common Stock not owned by NOVUS. The Special Committee, after
consultation with its independent financial and legal advisors, determined to
reject the offer. Dean Witter, Discover & Co. determined not to pursue the
transaction and the Special Committee was dissolved in April 1997.
At the regular meeting of the Board on October 27, 1997, MSDW
confirmed to the Board that it was no longer interested in acquiring the Common
Stock owned by the public. MSDW further informed the Board that it desired to
dispose of its 73.3% interest in the Company because of a change in its
corporate strategy following the merger between Dean Witter, Discover & Co. and
Morgan Stanley Group Inc. in May 1997 that formed MSDW. After discussion and
after receiving advice of legal counsel as to the Board's legal responsibilities
and fiduciary duties, the Board unanimously determined to explore its business
alternatives, including the possibility of a sale of
<PAGE>
the Company. The Board then invited representatives of Morgan Stanley to review
the prospects of a transaction involving the sale of the Company to a third
party.
At a special meeting held on November 19, 1997, the Board received a
presentation from Morgan Stanley that included Morgan Stanley's recommendation
on the available alternatives to effecting a sale of the Company and the
procedures to employ in connection with a sale process in order to obtain the
best available price for the Stockholders. The Board discussed the procedures
recommended by Morgan Stanley and authorized its officers to execute an
engagement letter to retain Morgan Stanley as its financial adviser on terms
approved by the independent directors. In approving such terms, the
independent directors considered an agreement by MSDW to contribute $500,000
to help defray the expenses incurred in any transaction that might result. The
engagement letter was executed on December 7, 1997.
In December 1997 and January 1998, Morgan Stanley sent information
concerning the Company to over 20 potential buyers and discussions were then
held by representatives of the Company and Morgan Stanley with those potential
buyers that expressed preliminary interest. By January 30, 1998, in accordance
with agreed procedures, the Company received indications of value from a
number of potential buyers, and the Company determined to hold further
discussions with those potential buyers that the Company, with the assistance
of Morgan Stanley, determined to have presented the highest valuations. During
this period, the Company's Chairman had several conversations with individual
members of the Board for the purpose of briefing them on the progress of the
discussions and obtaining their views on various issues.
During the first two weeks of February, there were several meetings
between Company management and representatives of certain of the potential
buyers that presented the highest valuations in order to facilitate their
continued due diligence investigations and, in particular, to discuss the
Company's recent operating results. At a regular meeting of the Board on
February 13, 1998, the Board received a presentation from management and Morgan
Stanley as to the progress of the discussions and the advantages of the
transaction being structured as a sale of assets. In order to accommodate this
structure, the Company determined that the distribution of the net proceeds from
the transaction to the public Stockholders should be effected through a cash-out
merger (which is the Merger herein). Since all of the economic terms of the
transaction would be determined through an arm's length negotiation with an
unrelated third party and the merger would be undertaken solely as a means of
distributing the pro rata portion of the net proceeds to the public Stockholders
resulting from the transaction negotiated with Associates, no person was
required to be, and accordingly no person was, retained as an unaffiliated
represenatative to act on behalf of Stockholders for purposes of negotiating the
terms of the Merger.
By March 13, 1998, pursuant to agreed procedures, the Company
received offers from several potential buyers, including Associates. At a
telephonic meeting held on March 18, 1998, the Board authorized management and
Morgan Stanley to proceed with negotiations with the potential buyers that had
submitted offers and instructed management to provide such potential buyers
with full access to Company information and data.
On April 7, 1998, following additional due diligence investigation by
the remaining potential buyers, Associates increased its offer to the
equivalent of $895,696,661, which was superior to the other offers. The
Company thereupon determined to concentrate its efforts on the negotiation of
an agreement with Associates. In a series of conference calls from April 7
through April 17, 1998, representatives of Morgan Stanley, the Company, NOVUS,
Associates and their respective legal advisors finalized the terms of the
Purchase Agreement, the Voting Agreement and the Interim Services Agreement.
At a special meeting of the Board held at the Company's headquarters
on April 17, 1998, the Board received from its financial and legal advisors
and from management detailed descriptions and analyses of the Sale and of the
Merger. Morgan Stanley delivered its oral opinion that, as of such date, the
consideration to be received by the Company in the Sale was fair to the
Company from a financial point of view and that the per share consideration to
be received by the Stockholders (other than NOVUS) pursuant to the Merger was
fair from a financial point of view. On April 18, 1998, the Board convened
another special meeting telephonically and considered the matters discussed at
the April 17 meeting as well as the various factors described below, and
approved the Sale and the Merger Agreement by the unanimous vote of all of the
directors.
<PAGE>
RECOMMENDATION OF THE BOARD OF DIRECTORS; FAIRNESS OF THE TRANSACTION
The Board believes that the terms of the Purchase Agreement and the
Merger Agreement and the transactions contemplated thereby are fair to and in
the best interests of the Company and its Stockholders. Accordingly, at a
special meeting held telephonically on April 18, 1998, the Board, by the
unanimous vote of all directors (including the Company's three independent
directors), approved the Purchase Agreement and the Merger Agreement and the
transactions contemplated thereby and determined to recommend that the
Stockholders approve the Sale and adopt the Merger Agreement.
In determining to recommend the approval of the Sale and adoption of
the Merger Agreement, the Board considered a number of factors, including the
following:
(i) that the Company's 73.3% stockholder, which could effectively
transfer control of the Company to a third party without any
Board action, had informed the Board that it wished to dispose
of its interest;
(ii) presentations by management and Morgan Stanley, the Company's
financial advisor, regarding the financial condition, results of
operations, business and prospects of the Company;
(iii) the presentations of Morgan Stanley described below under "Opinion
of Financial Advisor" and the oral opinion of Morgan Stanley
delivered April 17, 1998 to the effect that, as of such date, (i)
the consideration to be paid by Associates pursuant to the
Purchase Agreement was fair from a financial point of view to the
Company and (ii) the per share consideration to be paid to the
Stockholders (other than NOVUS) pursuant to the Merger Agreement
was fair from a financial point of view to such Stockholders;
(iv) that the Associates offer was the highest offer received by the
Company as a result of its sales process;
(v) that MSDW had agreed to contribute $500,000 to the Company to
defray the expenses incurred in connection with the Sale and the
Merger;
(vi) that NOVUS, through its 100% interest in the Company after the
Merger, would bear the federal income tax liability on the gain
resulting from the Sale; and
(vii)that the per share value represented by the purchase price to be
paid by Associates in the Sale, while slightly lower than the
CLOSING market price on April 17, 1998, THE LAST TRADING DAY PRIOR
TO THE ANNOUNCEMENT OF THE SALE, was higher than the market price
of the Common Stock that had generally prevailed during the
preceding months and was 61% higher than the closing market price
for the Common Stock on November 19, 1997 (the date the Board
determined to commence the process that resulted in the Purchase
Agreement).
The Board did not undertake a separate analysis of each of these
factors nor did the Board reach a separate conclusion with respect to each
such factor in its determination to approve the Sale and adopt the Merger
Agreement. In view of the above, and the variety of factors considered by the
Board in reaching its conclusion to approve the Sale and the Merger Agreement,
the Board did not find it practicable to and did not quantify or otherwise
assign relative weights to the specific factors considered in reaching its
determination to approve the Sale and the Merger Agreement. However, as a
general matter, the Board believed that the factors heretofore described
supported its decision to approve the Sale and the Merger Agreement.
BASED ON THE FOREGOING, THE BOARD RECOMMENDS THAT THE STOCKHOLDERS
VOTE FOR APPROVAL OF THE SALE AND FOR ADOPTION OF THE MERGER AGREEMENT.
MSDW, NOVUS and Acquisition have concluded, based solely on the
conclusions and recommendations of the Board, that the consideration to be paid
to the Stockholders in the merger is fair to, and in the best interests of, the
Stockholders. In reaching the conclusion, MSDW, NOVUS and Acquistion
<PAGE>
have taken into consideration the factors referred to above as having been taken
into account by the Board. MSDW, NOVUS and Acquisition did not find it
practicable to quantify or otherwise attach relative weights to the specific
factors considered by the Board.
OPINION OF FINANCIAL ADVISOR
The Company retained Morgan Stanley to act as its financial advisor
in connection with the Sale and related matters based upon its qualifications,
expertise and reputation, as well as Morgan Stanley's prior investment banking
relationship and familiarity with the Company. At the April 17, 1998 meeting
of the Board, Morgan Stanley delivered an oral opinion to the Board that, as
of such date and subject to certain considerations noted in such opinion, (i)
the aggregate consideration to be paid by Associates pursuant to the Purchase
Agreement was fair from a financial point of view to the Company and (ii) the
per share consideration to be paid to Stockholders (other than NOVUS) pursuant
to the Merger Agreement was fair from a financial point of view to such
holders. Morgan Stanley subsequently confirmed its April 17, 1998 oral opinion
by delivery to the Board of a written opinion dated as of the date of this
Proxy Statement
THE FULL TEXT OF MORGAN STANLEY'S OPINION, DATED AS OF THE DATE OF
THIS PROXY STATEMENT, WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE,
PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN, IS ATTACHED AS ANNEX I TO THIS PROXY STATEMENT. STOCKHOLDERS ARE
URGED TO, AND SHOULD, READ THE MORGAN STANLEY OPINION CAREFULLY AND IN ITS
ENTIRETY. MORGAN STANLEY'S OPINION IS DIRECTED TO THE BOARD AND IT DOES NOT
ADDRESS ANY OTHER ASPECT OF THE SALE OR THE MERGER NOR DOES IT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW TO VOTE AT THE SPECIAL MEETING.
THE SUMMARY OF THE OPINION OF MORGAN STANLEY SET FORTH IN THIS PROXY STATEMENT
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In connection with rendering its opinion dated as of the date of this
Proxy Statement, Morgan Stanley, among other things: (i) reviewed certain
publicly available financial statements and other information of the Company;
(ii) reviewed certain internal financial statements and other financial and
operating data concerning the Company prepared by the management of the
Company; (iii) analyzed certain financial projections of the Company prepared
by the management of the Company; (iv) discussed the past and current
operations and financial condition and the prospects of the Company with
senior executives of the Company; (v) reviewed the reported prices and trading
activity for the Common Stock; (vi) compared the financial performance of the
Company and the prices and trading activity of the Common Stock with that of
certain other comparable publicly-traded companies and their securities; (vii)
reviewed the financial terms, to the extent publicly available, of certain
comparable precedent transactions; (viii) participated in discussions and
negotiations among representatives of the Company and their financial and
legal advisors; (ix) reviewed the Purchase Agreement, Merger Agreement and
certain related documents; and (x) performed such other analyses and
considered such other factors as it deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon
without independent verification the accuracy and completeness of the
information reviewed by it. With respect to the financial projections prepared
in connection with evaluating the consideration to be received in the Sale,
Morgan Stanley assumed that they had been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the future
financial performance of the Company. Morgan Stanley has not made any
independent valuation or appraisal of the assets or liabilities of the Company,
nor has Morgan Stanley been furnished with any such appraisals. In addition,
Morgan Stanley assumed the Sale and the Merger will be consummated in accordance
with the terms set forth in the Purchase Agreement and the Merger Agreement,
respectively. Morgan Stanley's opinion is necessarily based on economic, market
and other conditions as in effect on, and the information made available to
Morgan Stanley as of, the date hereof.
The following is a summary of the financial analyses performed by
Morgan Stanley and reviewed with the Board on April 17, 1998 in connection
with rendering its oral opinion on such date.
Business Line Valuation. Morgan Stanley performed a business line
valuation of the Company that estimated values for the Company's four main
business lines (consumer credit card services, commercial account processing,
network transaction services and teleservices) and the net present value of
certain payments due to the Company through mid 2000 under its systems access
agreement with NOVUS for purposes of
<PAGE>
evaluating the fairness of the consideration to be received in the Sale. As part
of this analysis, Morgan Stanley estimated the value of the business lines by
multiplying its 1998 earnings contribution by a 1998 earnings multiple based on
an analysis of comparable companies in each business line. Morgan Stanley used
two sets of earnings projections for purposes of this analysis. One case was
based on management estimates (the "Management Case") while a second case was
based on most recently available Institutional Brokers Estimate System ("IBES")
estimates (the "IBES Case"). IBES is a data service that monitors and publishes
compilations of earnings estimates produced by selected research analysts
regarding companies of interest to institutional stockholders. The contribution
to 1998 earnings from the business lines was 57% from consumer credit card
services, 15% from commercial accounts processing, 13% from network transaction
services, 9% from teleservices and 6% from other.
Morgan Stanley analyzed certain publicly traded companies considered
to be reasonably similar to the Company in each of the four business lines
(together, the "Comparable Companies"). For purposes of the Comparable
Companies analysis, Morgan Stanley included the following companies in the
four business segments: the consumer credit card services group included MBNA,
Household and Capital One; the commercial account processing group included
Associates, CIT and FINOVA; the network transaction services group included
First Data, BA Merchant Services, Nova Corporation, PMT Services, Paymentech
and National Processing; and the teleservices group included APAC
TeleServices, National Techteam, Precision Response, Sitel, Sykes Enterprises
and Teletech.
Based on the Management Case and a weighed average range of price to
1998 earnings multiples of 12.4x to 14.6x, Morgan Stanley calculated an
implied trading valuation range of $600 million to $709 million, or $22 to $26
per share. Morgan Stanley also applied the weighted average range of price to
1998 earnings multiples to the IBES case and derived an implied trading
valuation range of $544 million to $643 million, or $20 to $23 per share.
Dividend Discount Valuation. Morgan Stanley performed a dividend
discount valuation to determine a range of present values of the Common Stock
assuming the Company continued to operate as a stand-alone entity for purposes
of evaluating the fairness of the consideration to be received in the Sale. This
range was determined by adding (i) the present value of the estimated future
dividend stream that the Company could generate and (ii) the present value of
the "terminal value" of the Common Stock at the end of year 2002. To determine a
projected dividend stream, Morgan Stanley assumed an equity/managed receivables
ratio of 13%. Morgan Stanley used the Management Case for 1998 and assumed the
same profitability in each of the business lines as 1998 for 1999 - 2003 and
assumed a 10% growth rate in earnings in consumer credit card services and
network transaction services and a 15% growth rate in commercial account
processing and teleservices. The "terminal value" of the Common Stock at the end
of the period was determined by applying two price - to - earnings multiples
(14x and 16x) to year 2003 projected earnings. The dividend stream and terminal
values were discounted to present values using discount rates of 13% and 15%,
which Morgan Stanley viewed as a reasonable discount rate range for the Company.
Based on the above assumptions, the stand - alone value of the Common Stock
ranged from $21 to $26 per share.
Implied Acquisition Valuation. As part of its analysis of the
acquisition valuation, Morgan Stanley applied a 30% control premium to the
implied valuation range derived from the business line valuation and the
dividend discount valuation. Morgan Stanley estimated the implied acquisition
values of the Common Stock to range from approximately $26 to $34 per share.
In connection with its written opinion dated as of the date of this
Proxy Statement, Morgan Stanley confirmed the appropriateness of its reliance
on the analyses used to render its April 17, 1998 opinion by performing
procedures to update certain of such analyses and by reviewing the assumptions
upon which such analyses were based and the factors considered in connection
therewith.
No company or transaction used in the business line valuation is
identical to the Company. Accordingly, an analysis of the results of the
foregoing necessarily involves complex considerations and judgments concerning
financial and operating characteristics of the Company and other factors that
could affect the public trading value of the companies to which they are being
compared. Mathematical analysis (such as determining the average or median) is
not in itself a meaningful method of using comparable transaction data or
comparable company data.
<PAGE>
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all its
analyses as a whole and did not attribute any particular weight to any
analysis or factor considered by it. Morgan Stanley believes that selecting
any portion of its analyses, without considering all analyses, would create an
incomplete view of the process underlying its opinion. In addition, Morgan
Stanley may have deemed various assumptions more or less probable than other
assumptions, so that the ranges of valuations resulting from any particular
analysis described above should not be taken to be Morgan Stanley's view of
the actual value of the Company.
In performing its analyses, Morgan Stanley made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of the Company. The
analyses performed by Morgan Stanley are not necessarily indicative of actual
values, which may be significantly more or less favorable than suggested by
such analyses. Such analyses were prepared solely as a part of Morgan
Stanley's analyses conducted in connection with the delivery of Morgan
Stanley's opinion. The analyses do not purport to be appraisals or to reflect
the prices at which the Company might actually be sold. Because such estimates
are inherently subject to uncertainty, none of the Company, Morgan Stanley or
any other person assumes responsibility for their accuracy. In addition, as
described above, Morgan Stanley's opinion and the information provided by it
to the Board were two of many factors taken into consideration by the Board in
making its determination to approve the Purchase Agreement and the Merger
Agreement and the transactions contemplated thereby. Consequently, the Morgan
Stanley analyses described above should not be viewed as determinative of the
opinion of the Board or the view of the Company management with respect to the
value of the Company or of whether the Board or the management of the Company
would have been willing to agree to different consideration. The consideration
to be received by the Company pursuant to the Purchase Agreement was
determined through negotiations between the Company and Associates and their
respective advisors and was approved by the entire Board.
Morgan Stanley acted as financial advisor to the Board in connection
with the Sale and will receive a fee for its services. The Company engaged
Morgan Stanley to act as its financial advisor based upon Morgan Stanley's
qualifications, expertise and reputation as well as Morgan Stanley's prior
investment banking relationship and familiarity with the Company. Morgan
Stanley is an internationally recognized investment banking and advisory firm.
As part of its investment banking business, Morgan Stanley is regularly
engaged in the valuation of businesses and securities in connection with
mergers and acquisitions, negotiated underwriting, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuation for estate, corporate and other purposes.
Morgan Stanley is an affiliate of MSDW, which through NOVUS (its
wholly -owned subsidiary) owns approximately 73.3% of the outstanding shares
of Common Stock of the Company, and five officers of MSDW or its affiliates
(including the chairman of the board and chief executive officer of MSDW) are
members of the Board. In addition, the Chairman of the Board and Chief
Financial Officer of the Company is an officer and director of MSDW. In the
past, Morgan Stanley and its affiliates have provided financial advisory and
financing services for the Company and have received fees for the rendering of
those services.
Pursuant to a letter dated December 7, 1997, the Company has agreed
to pay Morgan Stanley: (i) an advisory fee estimated to be between $100,000
and $150,000 that is payable if the Sale is not consummated and (ii) a
transaction fee estimated to be approximately $4.3 million that is payable
upon the consummation of the Sale. In addition, the Company has agreed, among
other things, to reimburse Morgan Stanley for all reasonable out-of-pocket
expenses incurred in connection with the services provided by Morgan Stanley,
and to indemnify and hold harmless Morgan Stanley and certain related parties
from and against certain liabilities and expenses, which may include certain
liabilities under the federal securities laws, in connection with its
engagement.
PROPOSAL NO. 1--APPROVAL OF THE SALE
Stockholders are being asked to approve the Sale pursuant to the
Purchase Agreement. The following summary of certain terms and provisions of
the Purchase Agreement is qualified in its entirety by reference to the
Purchase Agreement, which is set forth as an exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and
incorporated herein by reference. See "WHERE YOU CAN FIND MORE
<PAGE>
INFORMATION." If the Sale pursuant to the Purchase Agreement is not approved by
the Stockholders at the Special Meeting, the Sale will not be consummated and
Proposal No. 2 will not be acted upon.
TERMS OF THE PURCHASE AGREEMENT
GENERAL. The Purchase Agreement sets forth the terms and conditions
of the Sale. If the Stockholders approve the Sale in accordance with the
provisions of the DGCL, and the other conditions contained in the Purchase
Agreement are satisfied or waived, the Company will sell all of the issued and
outstanding shares of capital stock of the Subsidiaries to Associates and the
Company will receive upon closing ("Closing") of the Sale $895,696,661 in
immediately available funds. Pursuant to the terms of the Purchase Agreement,
Associates has also agreed to lend, or contribute capital to or purchase stock
of, the Subsidiaries in order to fund the payment by the Subsidiaries of all
amounts owing to the Company by the Subsidiaries or their subsidiaries (the
"Intercompany Indebtedness"). The Intercompany Indebtedness will be repaid on
the date of the Closing (the "Closing Date") immediately prior to the Closing.
REPRESENTATIONS AND WARRANTIES. The Purchase Agreement includes
representations and warranties by the Company regarding the following: (i) the
authorization, execution and delivery of the Purchase Agreement; (ii) assuming
authorization by the Stockholders, the validity, enforceability and binding
nature of the Purchase Agreement; (iii) the noncontravention (except as
specified) by the Purchase Agreement of any charter, by-law or organizational
document, of any contract, commitment, agreement or arrangement, of any
judgment, order, decree, law or statute; (iv) the absence of the need (except as
specified) of any consents, approvals, permits or authorizations; (v) the
organization, existence and good standing of the Subsidiaries; (vi) the
ownership of the capital stock of the Subsidiaries; (vii) the capitalization of
the Subsidiaries; (viii) ownership of other equity interests; (ix) compliance
with SEC THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") reporting
requirements and the accuracy of information contained in such reports; (x) the
absence of certain changes or events; (xi) pending or threatened litigation;
(xii) payment of taxes and other tax matters; (xiii) employee benefit plans;
(xiv) labor matters; (xv) the absence of the need (except as specified) of any
governmental authorizations or approvals; (xvi) the inapplicability of certain
"anti-takeover" statutes; (xvii) the required vote of the Stockholders; (xviii)
broker's and finder's fees; (xix) guarantees; (xx) computer systems; (xxi)
contracts and commitments; (xxii) insurance; (xxiii) ownership of personal
property; (xxiv) leased and owned property; (xxv) compliance with certain laws
concerning credit cards and related agreements; (xxvi) credit cardholder
agreements; and (xxvii) the accuracy of certain data and records.
The Purchase Agreement includes representations and warranties by
Associates regarding the following: (i) the organization, existence and good
standing of the Associates; (ii) the noncontravention by the Purchase
Agreement of any charter, by-law or organizational document, or any contract,
commitment, agreement or arrangement, of any judgment, order, decree, law or
statute; (iii) the accuracy of certain information to be supplied in
connection with the preparation of this Proxy Statement; (iv) the financial
ability of Associates to perform its obligations under the Purchase Agreement;
and (v) the absence of certain changes.
CONDUCT OF BUSINESS PENDING THE CLOSING. The Company has agreed that,
prior to the Closing, the Company shall (i) cause the business of the
Subsidiaries and their subsidiaries (the "Operating Companies") to be
conducted in the ordinary course in substantially the same manner as
heretofore conducted; (ii) make all reasonable efforts consistent with past
practices to preserve the Operating Companies' relationships with customers
and others with whom they deal; and (iii) maintain in effect all insurance as
to which the Operating Companies are beneficiaries. The Company has further
agreed that, prior to the Closing, except as consented to by Associates in
writing or as expressly provided for in the Purchase Agreement, neither of the
Subsidiaries shall:
(i) amend their certificate of incorporation or by-laws or
similar documents;
(ii) except for amounts necessary to repay the
Intercompany Indebtedness, declare or pay any dividend or make any
other distribution to their stockholders whether or not upon or in
respect of any shares of their capital stock except for dividends
necessary to pay any required tax payments by the Company or any
required payments on the indebtedness of the Company;
<PAGE>
(iii) redeem or otherwise acquire any shares of their
capital stock or issue any capital stock or any option, warrant or
right relating thereto or any securities convertible into or
exchangeable for any shares of capital stock;
(iv) acquire by merger or consolidation, purchase or any
other manner, any business or any corporation, partnership,
association or other business organization or division thereof or
otherwise acquire any assets that are material, individually or in
the aggregate, to the Operating Companies;
(v) sell, lease or otherwise dispose of any of their assets
that are material, individually or in the aggregate, to the Operating
Companies, except in the ordinary course of business;
(vi) enter into or amend any agreement, contract or other
arrangement by which the Operating Companies or any of their
properties or assets are bound which has an aggregate future
liability or receivable to any person in excess of $1,000,000 or is
not terminable by the Operating Companies, as the case may be, by
notice of not more than 60 days for an aggregate cost of less than
$1,000,000;
(vii) purchase any private label credit card portfolio
involving a purchase price in excess of $10,000,000; or
(viii) agree, whether in writing or otherwise, to do any of
the foregoing.
NO SOLICITATION. The Company has agreed it will not, and will not
permit its Subsidiaries or any of their respective directors, officers,
stockholders or representatives to, directly or indirectly, encourage,
solicit, initiate or participate in discussions or negotiations with, or
provide any information or assistance to, any person or group (other than
Associates and its respective representatives) concerning any merger, sale of
securities, sale of substantial assets or similar transaction involving the
Company and its Subsidiaries; provided, however, that if the officers or
directors of the Company shall be required by their fiduciary obligations
under applicable law, based upon the advice of outside counsel to the Company,
to enter into any such negotiations or discussions or to provide any such
information or assistance to any third party, the Company may do so only if
(A) the Board is advised by its financial advisor that the third party has the
financial resources to consummate a "Superior Acquisition"," and the Board
determines that the third party is likely to submit a bona fide offer to
consummate a Superior Acquisition (a "Third Party Acquisition Offer"); (B) the
Company has provided Associates, as soon as reasonably practicable and in any
event prior to such discussions, negotiations, disclosure or assistance,
notice of the Company's intent to enter into such discussions or negotiations
or to provide such information and/or assistance, the identity of such third
party and, as soon as reasonably practicable after such terms are known by the
Company, the terms of the Third Party Acquisition Offer; and (C) such third
party has signed and delivered to the Company a confidentiality agreement.
The Company has agreed to orally notify Associates immediately,
followed by prompt written notice, of the receipt and the terms of any Third
Party Acquisition Offer from any person, entity or group (other than from
Associates), or of any request for information or access, with respect to any
Third Party Acquisition Offer, or any indication from any person, entity or
group that it or another person, entity or group is considering making a Third
Party Acquisition Offer or such a request, which notice shall include the
identity of the third party.
For purposes of the foregoing paragraphs, a "Superior Acquisition" is
a transaction in which any person or group proposes to commence a tender offer
to acquire all of the outstanding company stock of the Company, or proposes a
merger, consolidation or a sale of substantially all of the assets of the
Company, pursuant to which the per share tender offer price or the per share
merger or consolidation price or, in the case of an asset sale, the quotient
obtained by dividing the aggregate purchase price for the assets by the total
number of shares of Common Stock outstanding, is higher than the quotient
obtained by dividing 895,696,661 by the total number of shares of Common Stock
outstanding.
CERTAIN OTHER COVENANTS. The Company has agreed as follows: (i) to
cause the Subsidiaries to give Associates and its officers, employees,
representatives, counsel and accountants full access, during normal business
hours and upon reasonable notice, to the assets, personnel, properties,
financial statements, contracts, books, records,
<PAGE>
working papers and other relevant information pertaining thereto of the
Subsidiaries, to cause the Subsidiaries to furnish to Associates and its
officers, employees, representatives, counsel and accountants such financial and
operating data and other information with respect to the assets and business of
the Subsidiaries as Associates shall from time to time reasonably request;
provided, however, that such access shall be in a manner that does not
unreasonably interfere with the normal operation of the Company's business; (ii)
to take all action necessary to obtain the required Stockholder approval of the
Purchase Agreement and transactions contemplated thereby (including the
preparation and filing with the SEC of any required Schedule 14A or 14C); (iii)
to discharge in full, at or immediately prior to the Closing, any and all
amounts due from the Operating Companies to the Company or companies affiliated
with the Company (other than the Operating Companies) which are outstanding at
the Closing Date; (iv) from and after the Closing Date, to refrain from
soliciting or employing former Company employees hired by Associates on the
Closing Date for a period of two years; and (v) to maintain its corporate
existence through the second anniversary of the Closing.
In addition, the Company has agreed, at its sole cost and expense,
immediately prior to Closing, to make all necessary and proper consolidation
and elimination entries between the Company and the Subsidiaries and to make a
capital contribution to the Subsidiaries such that after such contribution the
assets obtained by Associates from the purchase of all the issued and
outstanding capital stock of the Subsidiaries pursuant to the Purchase
Agreement shall have a net value to Associates in accordance with generally
accepted accounting principles equal to the net assets of the Company on a
consolidated basis, reduced by certain specified amounts. For purposes of
reference, the amount of the net assets of the Company on a consolidated basis
was equal to $263,035,000 at December 31, 1997 (audited) and $274,076,000 at
March 31, 1998 (unaudited). Therefore, the amount of net assets to be obtained
by Associates at Closing will be equal to $274,076,000 plus the amount of net
income (or less the amount of any loss, as the case may be) recognized by the
Company on a consolidated basis for the period beginning April 1, 1998 through
the Closing Date, reduced by certain specified amounts.
Associates has agreed to offer continued employment to all current
employees of the Company and its subsidiaries, including any such employees
who are absent from active employment for any reason as of the Closing Date as
well as certain specified employees of NOVUS. All such employees whose
employment is continued with Associates are referred to herein as the "Hired
Employees"." The continued employment of the Hired Employees shall not be
construed to limit the ability of Associates to terminate the employment of
any Hired Employee at any time for any reason, and the employment of the Hired
Employees shall be subject to all of Associates' practices and policies,
including its policy of employment-at-will, except to the extent such Hired
Employees are otherwise party to an employment agreement. Associates will
employ the Hired Employees at the same salary and wages and with benefits that
are, in the aggregate, substantially similar or superior to those provided by
the Company or the Subsidiaries, as the case may be, immediately prior to the
Closing Date. Subject to the provisions described below, nothing in the
Purchase Agreement shall limit Associates' right, at any time, to modify,
amend or terminate any salary and wages payable, or benefit provided, to any
or all Hired Employees on or after the Closing Date, including without
limitation any Employee Welfare Benefit Plan or any Employee Pension Benefit
Plan to the extent permitted by law; provided, however, that (i) for a period
of at least 12 months following the Closing Date, Associates and its
subsidiaries shall provide for the payment of severance benefits, salary
continuation, salary in lieu of notice and similar benefits to any Hired
Employee whose employment is terminated by Associates or its subsidiaries for
any reason other than cause or long term disability, and the amount of such
benefits shall be determined in accordance with the Company's severance policy
in effect as of the date of the Purchase Agreement and (ii) thereafter the
Hired Employees shall be entitled to such severance benefits, salary
continuation, salary in lieu of notice or similar benefits that Associates
provides to its other employees. For the purposes hereof, "Employee Pension
Benefit Plan" means any employee pension benefit plan within the meaning of
section 3(2) of ERISA, regardless of whether such plan is subject to ERISA,
"Employee Welfare Benefit Plan" means any employee welfare benefit plan within
the meaning of section 3(1) of ERISA, regardless of whether such plan is
subject to ERISA.
Associates has also agreed as follows: (i) to abide by the terms of
ITS EXISTING CONFIDENTIALITY AGREEMENT WITH THE COMPANY, except as specified;
(ii) to take certain actions if required by the Worker Adjustment and Retraining
Notification Act; (iii) to take any action necessary to secure regulatory
approval for the Sale; (iv) to supply any requested information to the Company
in connection with the preparation of the Proxy Statement and that such
information will not contain an untrue statement of material fact or omit to
state any material fact; and (v) to assume all obligations and liabilities of
the Company (except as specified) as of the Closing Date.
<PAGE>
The Company and Associates have each agreed: (i) subject to the terms
and conditions of the Purchase Agreement, to use its best efforts consistent
with applicable legal requirements to cause the Closing to occur including
cooperating in filing any necessary applications, reports or other documents
with, giving any notices to, and seeking any consents from, all governmental
entities and all third parties as may be required by the Company, on the one
hand, and Associates, on the other hand, in connection with the consummation
of the transactions contemplated by the Purchase Agreement, and in seeking
necessary consultation with and prompt favorable action by any such
governmental entity or third party; (ii) to file as promptly as practicable,
with the United States Federal Trade Commission (the "FTC") and the United
States Department of Justice (the "DOJ") the notification and report form, if
any, required for the Sale and any supplemental information requested in
connection therewith pursuant to the HSR Act and any such notification and
report form and supplemental information shall be in substantial compliance
with the requirements of the HSR Act; and (iii) when reasonably requested by
the other, to execute and deliver, or cause to be executed and delivered, all
such documents and instruments and to take, or cause to be taken, all such
further acts or other actions as the other may deem reasonably necessary or
desirable to consummate the Sale.
CONDITIONS TO CLOSING. The respective obligations of each of the
Company and Associates to effect the Sale will be subject to the following
conditions: (i) no statute, rule, regulation, executive order, decree,
temporary restraining order, preliminary or permanent injunction or other
order shall have been enacted, entered, promulgated, enforced or issued by any
governmental entity and no other legal restraint or prohibition preventing the
Sale or any related transaction shall be in effect; (ii) the waiting period
under the HSR Act applicable to the Sale will have terminated or expired;
(iii) the Company and Associates will have fulfilled all applicable filing and
reporting requirements, obtained all necessary consents and approvals and all
applicable waiting periods will have expired; (iv) the Sale and all related
transactions will have been approved by the Stockholders as required by
Delaware law; and (v) if required, the Sale and all related transactions will
have been approved by the stockholders of Associates as required by Delaware
law.
The obligation of the Company to effect the Sale will be subject to
the following additional conditions:
(i) The representations and warranties of Associates
contained in the Purchase Agreement qualified as to materiality will
be true and correct, and those not so qualified will be true and
correct in all material respects, as of April 18, 1998 and as of the
time of the Closing as though made as of such time, except to the
extent such representations and warranties expressly relate to an
earlier date (in which case such representations and warranties
qualified as to materiality shall be true and correct, and those not
so qualified shall be true and correct in all material respects, on
and as of such earlier date). Associates will have duly performed,
complied with and satisfied in all material respects all covenants,
agreements and conditions required by the Purchase Agreement to be
performed, complied with or satisfied by it by the time of the
Closing;
(ii) There shall not be threatened, instituted or pending
any suit, action, investigation, inquiry or other proceeding by or
before any court or governmental or other regulatory or
administrative agency or commission requesting an order, judgment or
decree (except those in which the Company is a plaintiff directly or
derivatively) which, in the reasonable judgment of the Company,
would, if issued, be reasonably likely to restrain or prohibit the
consummation of the Sale or require rescission of the Purchase
Agreement or such transactions or result in material damages to the
Company, and there shall not be in effect any injunction, writ,
preliminary restraining order or any order of any nature issued by a
court or governmental agency of competent jurisdiction directing that
the Sale not be consummated as so provided or any statute, rule or
regulation enacted or promulgated that makes consummation of the Sale
illegal;
(iii) Associates will have delivered the items to be
delivered and made the payments to the Company and the Subsidiaries
as required by the Purchase Agreement; and
(iv) Each Subsidiary will have discharged in full any and
all amounts due from such Subsidiary (or such Subsidiary's
subsidiary) to the Company or companies affiliated with the Company
(other than the Subsidiaries or their subsidiaries) that are
outstanding at the Closing Date.
The obligation of Associates to effect the Sale will be subject to
the following additional conditions:
<PAGE>
(i) The representations and warranties of the Company
contained in the Purchase Agreement qualified as to materiality will
be true and correct, and those not so qualified will be true and
correct in all material respects, as of April 18, 1998 and as of the
time of the Closing as though made as of such time, except to the
extent such representations and warranties expressly relate to an
earlier date (in which case such representations and warranties
qualified as to materiality shall be true and correct, and those not
so qualified shall be true and correct in all material respects, on
and as of such earlier date). The Company will have duly performed,
complied with and satisfied in all material respects all covenants,
agreements and conditions required by the Purchase Agreement to be
performed, complied with or satisfied by it by the time of the
Closing;
(ii) There shall not be threatened, instituted or pending
any suit, action, investigation, inquiry or other proceeding by or
before any court or governmental or other regulatory or
administrative agency or commission requesting an order, judgment or
decree (except those in which the Company is a plaintiff directly or
derivatively) which, in the reasonable judgment of the Company,
would, if issued, be reasonably likely to restrain or prohibit the
consummation of the Sale or require rescission of the Purchase
Agreement or such transactions or result in material damages to the
Company, and there shall not be in effect any injunction, writ,
preliminary restraining order or any order of any nature issued by a
court or governmental agency of competent jurisdiction directing that
the Sale not be consummated as so provided or any statute, rule or
regulation enacted or promulgated that makes consummation of the Sale
illegal; and
(iii) NOVUS will have executed and delivered the Interim
Servicing Agreement (AS HEREINAFTER DEFINED).
TAX MATTERS. The Company and Associates have agreed: (i) to make
joint elections (with the Subsidiaries) under Sections 338(g) and 338(h)(10)
of the Code and under any similar provisions of state law with respect to the
Sale, and (ii) for United States federal income tax purposes to mutually agree
to a purchase price and allocation of that price among the assets of the
Subsidiaries that are deemed to have been acquired pursuant to Section 338 of
the Code.
The Company has agreed to indemnify Associates for all taxes, other
than taxes for which there are reserves as of the Closing Date, imposed upon
the Subsidiaries or for which the Subsidiaries may otherwise be liable for any
taxable year or period that ends on or before the Closing Date and, with
respect to any taxable year or period beginning before and ending after the
Closing Date, the portion of such taxable year ending on and including the
Closing Date. Associates has agreed to indemnify the Company for all taxes
imposed upon the Subsidiaries or for which the Subsidiaries may otherwise be
liable for any taxable year or period that begins after the Closing Date and,
with respect to any taxable year or period beginning before and ending after
the Closing Date, the portion of such taxable year beginning after the Closing
Date. In addition, Associates has agreed to bear all transfer taxes which may
be imposed or assessed as a result of the Sale.
INDEMNIFICATION. The Company has agreed, for a specified period of
time after the Closing, to indemnify Associates in the proportion that the
number of shares of Common Stock issued and outstanding in the name of NOVUS
immediately prior to the Closing Date bears to the total number of shares of
Common Stock issued and outstanding immediately prior to the Closing Date,
against certain losses, liabilities, claims, damages or expenses (including
reasonable legal fees and expenses) ("Claims") which arise out of, or are
based upon, or result from the breach of certain of the Company's
representations contained in the Purchase Agreement, subject to such Claims
exceeding certain threshold amounts and subject to a limitation on the maximum
amount recoverable for all such Claims.
TERMINATION. The Purchase Agreement may be terminated and the Sale
may be abandoned at any time prior to the Closing: (i) by the mutual written
consent of the Company and Associates; (ii) by either the Company or
Associates if the Closing does not occur on or prior to February 28, 1999
(other than due to the failure of the party seeking to terminate the Purchase
Agreement to perform its obligations required to be performed as a condition
to Closing); (iii) by either the Company or Associates, if any governmental
entity shall have issued a judgment, order or decree or taken any other action
permanently enjoining, restraining or otherwise prohibiting any of the
transactions contemplated by the Purchase Agreement, and such judgment, order
or decree or other action shall have become final and nonappealable; or (iv)
by Associates, if approval of the Stockholders will not have been
<PAGE>
obtained by reason of the Company's failure to call a Stockholders' meeting or
the failure to obtain the required vote upon a vote held at the duly held
meeting of the Stockholders or at any adjournment thereof.
TERMINATION FEE. Associates has agreed to pay a break-up fee of $10
million to the Company if: (i) the Purchase Agreement is terminated because
the Closing has not occurred by February 28, 1999, (ii) the failure to close
by such date is due to reasons related to bank regulatory requirements
affecting Associates and (iii) the Company is not then subject to any
governmental order preventing the Company from consummating the Sale.
ANCILLARY AGREEMENTS
THE VOTING AGREEMENT. NOVUS and Associates have entered into the
Voting Agreement pursuant to which NOVUS has agreed to vote all of the shares
of Common Stock owned by it (a) in favor of the Sale and (b) against (i) any
proposal made in opposition to the Sale; (ii) any merger, consolidation, sale
of assets, business combination, or reorganization of the Company or any of
its Subsidiaries, with or involving any party other than Associates; (iii) any
liquidation or winding up of the Company; and (iv) any other action that may
reasonably be expected to impede, interfere with, delay, postpone or attempt
to discourage the Sale. In addition, NOVUS has agreed not to sell or transfer
any of the shares of Common Stock owned by it. On the Record Date, NOVUS owned
20,000,000 shares of Common Stock, representing approximately 73.3% of the
then issued and outstanding shares OF Common Stock.
NOVUS has also agreed that it will not, directly or indirectly: (i)
take any action to seek, initiate or solicit any offer from any person, entity
or group to acquire any shares of capital stock of the Company or its
subsidiaries, to merge or consolidate with the Company or its subsidiaries, or
to otherwise acquire any significant portion of the assets of the Company or
its subsidiaries except for acquisitions solely of inventory in the ordinary
course of business (a "Third Party Offer"), or (ii) engage in negotiations or
discussions concerning a Third Party Offer or the business or assets of the
Company or its subsidiaries with, or disclose financial information relating
to the Company or its subsidiaries, or any confidential or proprietary trade
or business information relating to the business of the Company or its
subsidiaries to, or afford access to the properties, books or records of the
Company or its subsidiaries to, any third party that may be considering a
Third Party Offer.
The Voting Agreement will terminate on the earliest to occur of (i)
the prior termination of the Purchase Agreement; (ii) the consummation of the
Sale; or (iii) January 18, 1999. Unless the Voting Agreement is terminated in
accordance with its terms, NOVUS' obligation to vote in favor of the Sale is
unconditional and absolute.
THE ASSUMPTION AGREEMENT. At Closing, the Company and Associates will
enter into an assumption agreement pursuant to which Associates will agree to
assume and agree to pay, perform and discharge when due any and all liabilities
and obligations of the Company whether absolute, contingent, known or unknown,
accrued or otherwise that arise out of or relate to any period prior to the
Closing; provided, however, Associates will not assume any fees and expenses
incurred by the Company in connection with the execution and delivery of the
Purchase Agreement and the consummation by the Company of the transaction
contemplated thereby.
THE INTERIM SERVICING AGREEMENT. At Closing, NOVUS and Associates
will enter into an interim servicing agreement (the "Interim Servicing
Agreement") pursuant to which, for seven and one-half months from the Closing
Date, NOVUS will provide certain administrative services to the Subsidiaries
after the Closing of the Sale.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
In considering the recommendations of the Board, Stockholders should
be aware that certain members of the Board and certain executive officers of
the Company have certain interests in the Sale and the Merger that are in
addition to the interests of the Stockholders generally and which may present
them with potential conflicts of interest in connection with the transactions.
The Board was aware of these interests and considered them, among other
matters, in approving the Purchase Agreement, the Merger Agreement and the
transactions contemplated thereby.
<PAGE>
RELATIONSHIP WITH MSDW. MSDW through NOVUS (its wholly owned
subsidiary) owns approximately 73.3% of the outstanding shares of Common
Stock. Five officers of MSDW or its affiliates (including the Chairman of the
Board and Chief Executive Officer of MSDW) are members of the Board. In
addition, the Chairman of the Board and Chief Financial Officer of the Company
is an officer and director of MSDW. Morgan Stanley, the financial advisor to
the Company, is a wholly owned subsidiary of MSDW. Morgan Stanley will receive
as compensation for its services to the Company a fee of approximately $4.3
million upon consummation of the Sale. MSDW has agreed to contribute $500,000
to the Company to defray the expenses incurred by the Company in connection
with the Sale and the Merger. In addition, since the Company will bear the
entire federal income tax liability on the gain resulting from the Sale and
will remain responsible for other tax liabilities and certain indemnification
obligations under the Purchase Agreement, the per share amount of the net
proceeds from the Sale allocable to NOVUS' shares will be effectively less
than $32.02 per share.
THE RETENTION PLAN. Certain of the Company's officers, including Mr.
Robert L. Wieseneck, the Company's President and Chief Executive Officer, are
beneficiaries (the "Plan Participants") under the Company's Senior Management
Retention Plan (the "Retention Plan"). The Retention Plan was adopted by the
Board at its special meeting on November 19, 1997. The Board adopted the
Retention Plan in order to maintain the focus of key executives of the Company
on the management of the Company's business while discussions with prospective
purchasers of the Company were in progress. The Retention Plan provides for
the creation of two retention pools. The first pool will equal one-half of the
prior year's total cash compensation (including deferred bonus) of the Plan
Participants who remain as employees in good standing as of the close of any
sale transaction and will be distributed immediately after the closing of the
Sale. The amount to be received by each Plan Participant from the first
retention pool shall be determined by the Compensation Committee of the Board
immediately prior to closing. The second retention pool will equal one-half of
the prior year's total cash compensation (including deferred bonus) of
qualifying members who (1) do not have a position with the Company, Associates
or MSDW after the closing of the Sale, (2) who leave the Company for "good
reason" (as defined in the Retention Plan) within one year after the closing
of the Sale or (3) who are terminated other than for cause by the Company or
Associates within one year of the closing of the Sale. The amount distributed
to each Plan Participant entitled to a distribution from the second retention
pool shall equal 50% of their prior year's total cash compensation (including
deferred bonus). Associates has agreed to assume all of the Company's
obligations under the Retention Plan.
THE INCENTIVE PLAN. Certain of the Company's officers, including Mr.
Wieseneck, are participants in the Company's Incentive Plan (the "Incentive
Plan"). The Incentive Plan was adopted by the Board at its special meeting in
November 19, 1997. The Board adopted the Incentive Plan to incent certain key
members of the Company's senior management to maximize the purchase price paid
on any potential sale transaction involving the Company in order to achieve
the greatest value for Stockholders. The Plan provides for the participants to
receive an amount (the "Incentive Amount") equal to 3% of the gross proceeds
of a sale of the Company or substantially all of its assets above a base price
equal to $23.00 per share multiplied by the total number of shares of Common
Stock outstanding at the time of any such sale transaction. The allocation of
the Incentive Amount to the participants in the Incentive Plan will be
determined by the Compensation Committee of the Board immediately prior to the
closing of the Sale and will be paid at Closing.
SALE OF MOUNTAINWEST RECEIVABLES. Contemporaneously with the
execution of the Purchase Agreement, MountainWest Financial Corporation, a
subsidiary of NOVUS ("MountainWest"), entered into a Sale and Purchase
Agreement with Associates Capital Bank, Inc., an indirect subsidiary of
Associates ("ACB"), pursuant to which MountainWest agreed to sell to ACB all
of its rights to certain accounts that are serviced by the Company, the
receivables related to such accounts (the "Credit Receivables") and the rights
and privileges of MountainWest under the merchant service agreements and
certain other assets relating to the accounts. ACB has agreed to pay a
purchase price equal to the total amount of Credit Receivables outstanding on
the day before the closing of the sale multiplied by 1.0345, subject to
certain post-closing adjustments.
SHARE OWNERSHIP. As of the Record Date, executive officers and
directors of the Company owned of record or beneficially an aggregate of
[564,270] shares of Common Stock for which they will receive the Merger
Consideration. In addition, the executive officers and directors of the
Company hold options to purchase an aggregate of __________ shares of Common
Stock at a weighted average exercise price of $____ per share. As of the
Effective Time (as defined below) of the Merger, such options, whether or not
otherwise vested or exercisable, shall entitle the holder thereof to payments
in cash equal to the product of (x) the total number of shares of Common
<PAGE>
Stock subject to such option, and (y) the excess of the Merger Consideration
over the per share exercise price of such option.
REGULATORY APPROVALS
HART-SCOTT-RODINO ACT. Under the HSR Act, and the rules that have
been promulgated thereunder by the FTC, the Sale may not be consummated unless
certain information has been furnished to the Antitrust Division of the DOJ
(the "Antitrust Division") and the FTC and certain waiting period requirements
have been satisfied.
The Company and Associates filed notification and report forms under
the HSR Act with the FTC and the Antitrust Division on June 10, 1998. THE
COMPANY AND ASSOCIATES RECEIVED EARLY TERMINATION OF THE required waiting period
under the HSR Act ON JUNE 19, 1998.
BANK REGULATORY APPROVALS. Under the federal Change in Bank Control
Act and the rules promulgated thereunder by the Federal Deposit Insurance
Corporation ("FDIC"), certain transactions, including the Sale, require the
submission of a notice to the FDIC. Such transactions may be consummated at
the expiration of a specified time period, if the notice is not disapproved by
the FDIC, or earlier, if the FDIC affirmatively indicates its intent not to
disapprove the notice. The specified time period also may be extended by the
FDIC. The affirmative approval of the South Dakota Division of Banking also is
required with respect to the change in control of HSB prior to consummation of
the Sale.
OTHER REGULATORY APPROVALS. The Company believes that there are no
other material approvals of regulatory bodies that are required in order to
consummate the Sale or the Merger.
PROPOSAL NO. 2--ADOPTION OF THE MERGER AGREEMENT
Stockholders are being asked to adopt the Merger Agreement. THE
PURPOSE OF THE MERGER IS TO DISTRIBUTE TO THE PUBLIC STOCKHOLDERS THEIR PRO
RATA PORTION OF THE NET PROCEEDS OF THE SALE.
<PAGE>
TERMS OF THE MERGER AGREEMENT
The following is a summary of the Merger Agreement, the full text of
which is attached hereto as Annex III. Stockholders are urged to read the
Merger Agreement in its entirety for a more complete description of the
Merger.
GENERAL. The Merger Agreement sets forth the terms and conditions upon
and subject to which the Merger is to be effected. If the Merger Agreement is
adopted by the Stockholders in accordance with the provisions of the DGCL, and
the other conditions contained in the Merger Agreement are satisfied or waived,
Acquisition will merge with and into the Company, the separate corporate
existence of Acquisition will cease, and the Company will continue as the
SURVIVING CORPORATION, operating as a direct, wholly -owned subsidiary of NOVUS.
The Merger will become effective at the time that a Certificate of Merger is
filed with the Secretary of State of the State of Delaware.
At the Effective Time, each share of Common Stock (other than shares
of Common Stock held by NOVUS and by any Stockholders who perfect their
statutory appraisal rights under the DGCL) will, by virtue of the Merger and
without any action on the part of the holder thereof, be converted solely into
the right to receive $32.02 in cash, without interest thereon. Such shares of
Common Stock will no longer be outstanding and will be cancelled. Each share of
Common Stock held by NOVUS will continue to be an issued and outstanding share
of the capital stock of the Company, with the same rights and privileges
attached to such share immediately prior to the Effective Time, but shall not be
entitled to any payment, consideration or other distribution by reason of the
Merger.
Holders of shares of Common Stock who do not vote to adopt the Merger
Agreement and who otherwise strictly comply with the provisions of the DGCL
regarding statutory appraisal rights have
the right to seek a determination of the fair value of their shares of Common
Stock and payment in cash therefor in lieu of the Merger Consideration to
which they would otherwise be entitled. See "--APPRAISAL Rights."
STOCK OPTIONS. Prior to the Effective Time, the Board shall take all
action necessary to cancel, as of the Effective Time, each option outstanding
under any of the Company's stock option plans on terms such that each option,
whether or not otherwise exercisable, will no longer be exercisable for the
purchase of shares of Common Stock, but shall entitle the holder thereof, in
cancellation and settlement therefor, to a payment in cash (less any
applicable withholding taxes, the "Cash Payment") equal to the product of (x)
the total number of shares of Common Stock subject to such option, whether or
not then vested or exercisable, and (y) the excess of the Merger Consideration
over the per-share exercise price of such option, each such Cash Payment to be
paid to each holder of an outstanding option at the Effective Time.
DETERMINATION OF MERGER CONSIDERATION. THE Merger Consideration to be
distributed in connection with the Merger was determined by deducting estimated
expenses of $14,063,000 WHICH ARE EXPECTED TO BE incurred by the Company in
connection with the Sale and the Merger and the amount payable to option holders
in the Merger from the gross proceeds of the Sale. The expenses incurred by the
Company include the payment of the Incentive Amount under the Incentive Plan,
the fee to its financial advisor, Morgan Stanley, legal fees and various other
fees and expenses incurred in connection with the Special Meeting. The
14,063,000 in expenses deducted from the gross proceeds of the Sale gives effect
to the $500,000 that MSDW has agreed to contribute to the Company to defray its
expenses incurred in connection with the Sale and the Merger. To the extent that
expenses are greater than $14,063,000, the Company will pay such expenses out of
the portion of the net proceeds of the Sale allocable to NOVUS.
CONDITIONS TO THE MERGER. The respective obligations of each of the
Company and Acquisition to effect the Merger are subject to the condition that
(i) the Sale has closed; (ii) the Merger Agreement has been adopted by the
holders of a majority of the shares of Common Stock issued and outstanding;
and (iii) no statute, rule, regulation, decree, order or injunction shall have
been promulgated, enacted, entered or enforced by any United States federal or
state government, governmental agency or authority or court which remains in
effect and prohibits, restrains, enjoins or restricts the consummation of the
Merger.
<PAGE>
ABANDONMENT. At any time prior to the Effective Time, the Merger
Agreement may be terminated, and the Merger may be abandoned by the Board,
notwithstanding adoption of the Merger Agreement by the Stockholders, or by
the stockholder of Acquisition, or both, if, in the opinion of the Board,
circumstances arise which make the Merger for any reason inadvisable.
EFFECTIVE TIME
The Merger will be effective as of the date and time of filing of a
Certificate of Merger with the Secretary of State of the State of Delaware
(the "Effective Time") in accordance with the DGCL.
PAYMENT FOR SHARES AND SURRENDER OF STOCK CERTIFICATES
As a result of the Merger, holders (other than NOVUS) of certificates
formerly evidencing shares of Common Stock will cease to have any equity
interest in the Company. Promptly after the Effective Time, the Company will
furnish each record holder of shares of Common Stock (other than NOVUS) a
transmittal letter containing instructions with respect to the surrender of
certificates previously representing shares of Common Stock. The transmittal
letter will set forth the procedure for surrendering such certificates for
exchange THE EXCHANGE AGENT. After the Effective Time and until surrendered,
each stock certificate which represented shares of Common Stock (other than
shares held by the Company, NOVUS, any of their respective subsidiaries and
Stockholders who perfect their statutory appraisal rights under Delaware law)
will evidence only the right to receive the Merger Consideration for each share
of Common Stock represented. In order to receive the Merger Consideration, each
former Stockholder will be required, following the Effective Time, to surrender
such Stockholder's stock certificate(s), together with a duly executed and
properly completed transmittal letter (and any other required documents), to the
Exchange Agent. Thereafter, the Stockholder will receive as promptly as
practicable in exchange therefor cash in an amount equal to the product of the
number of shares of Common Stock formerly represented by such Stockholder's
certificate(s) and $32.02. No interest will be paid on the cash payable upon the
surrender of such certificate(s).
After the Effective Time, there will be no transfers of shares of
Common Stock (other than shares held by NOVUS) on the stock transfer books of
the Company. If, after the Effective Time, certificates theretofore
representing shares of Common Stock (other than shares held by NOVUS) are
presented for transfer, they will be cancelled and exchanged for the Merger
Consideration pursuant to the terms of the Merger Agreement.
No transfer taxes will be payable in connection with any such payment
for shares of Common Stock, except that if the check for such payment is to be
delivered to a person other than the person in whose name the certificates
surrendered are registered, the person requesting delivery of the check must,
prior to the delivery thereof, either (a) pay to the Exchange Agent any
resulting transfer taxes or other taxes or (b) establish to the satisfaction
of the Exchange Agent that such tax has been paid or is not applicable.
Notwithstanding the foregoing, neither the Exchange Agent nor any
party to the Merger Agreement will be liable to any holder of stock
certificates for any amount paid to a public official pursuant to any
applicable abandoned property, escheat or similar law. Except as otherwise
indicated in the immediately preceding paragraph, the Company will pay all
charges and expenses, including those of the Exchange Agent, in connection
with the exchange of stock certificates for the Merger Consideration. MSDW has
agreed to contribute $500,000 to the Company to defray the expenses incurred
by the Company in connection with the Sale and the Merger.
CERTAIN EFFECTS OF THE MERGER
Following the Merger, NOVUS will own 100% of the Surviving
Corporation's outstanding capital stock and the Existing Stockholders will
cease to have any ownership interests in the Company or rights of
shareholders. The Existing Stockholders will no longer benefit from any
increases in the value of the Company or any payment of dividends on the
Common Stock of the Company and will no longer bear the risk of any decreases
in value of the Company. The Company will sell substantially all of its assets
in the Sale and, after the Merger, the Company intends to cease its current
operations. The Company's assets after completion of the Sale and the Merger,
the settlement of all expenses associated with the transactions and the
subsequent distribution to public Stockholders of
<PAGE>
their share of the net proceeds of the Sale will be the portion of the net
proceeds of the Sale attributable to NOVUS' 73.3% interest and its liabilities
will include its indemnification obligations under the Purchase Agreement and
its income tax liabilities related to the Sale.
As a result of the Merger, the Common Stock of the Company will cease
to be quoted on the NYSE and the Company will no longer be required to file
periodic reports with the Commission.
ACCOUNTING TREATMENT
The Merger will be accounted for as a "purchase," as such term is
used under generally accepted accounting principles, for accounting and
financial reporting purposes. Accordingly, a determination of the fair value
of the Company's assets and liabilities will be made in order to allocate the
purchase price to the assets acquired and the liabilities assumed.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a summary of certain federal income tax consequences
of the Merger to Stockholders who receive the Merger Consideration. This summary
is based on the CODE AND Treasury Regulations (including Proposed Regulations
and Temporary Regulations) promulgated thereunder, official pronouncements and
judicial decisions, all as in effect on the date hereof and all of which are
subject to change, possibly with retroactive effect. This summary does not
purport to discuss all tax consequences of the Merger to all Stockholders. In
particular, the summary does not discuss the tax consequences of the Merger to
any Stockholder that is subject to special tax rules, such as any Stockholder
that is an insurance company, tax-exempt organization, financial institution,
foreign person or broker dealer or who has acquired his, her or its shares upon
the exercise of options or otherwise as compensation.
The receipt of cash by a Stockholder in exchange for shares of Common
Stock pursuant to the Merger will be a taxable transaction for federal income
tax purposes and may also be a taxable transaction under applicable state,
local, foreign or other tax laws. In general, a Stockholder will recognize a
gain or loss equal to the difference, if any, between the amount of cash
received for his, her or its stock in the Merger (i.e., $32.02 per share) and
the Stockholder's adjusted tax basis in such stock. A Stockholder will recognize
such gain or loss as of the Effective Time. In general, such gain or loss will
be a capital gain or loss, provided the Common Stock is a capital asset in the
hands of the holder at the Effective Time, and will be long-term capital gain or
loss if the Common Stock has been held for more than eighteen months at such
time, mid-term capital gain or loss if the Common Stock has been held for more
than a year but not more than eighteen months at such time, or short-term
capital gain or loss if the stock has been held for one year or less.
BACKUP WITHHOLDING. The Company or the Exchange Agent will be
required to withhold 31% of the gross proceeds payable to a Stockholder or
other payee in the Merger unless the Stockholder or payee provides, in a
properly completed substitute Form W-9 included with the transmittal letter
(see "PROPOSAL NO. 2--ADOPTION OF THE MERGER AGREEMENT -- Payment for Shares
and Surrender of Stock Certificates"), the Stockholder's taxpayer
identification number and certifies under penalties of perjury that such
number is correct and that the Stockholder is not subject to backup
withholding, unless an exemption applies under applicable law and regulations.
Therefore, unless such an exemption exists and is demonstrated in a manner
satisfactory to the Company or the Exchange Agent, in accordance with the
instructions that will accompany the substitute Form W-9, each Stockholder
should complete and sign the substitute Form W-9 that will be made available
to the Stockholder with the transmittal letter, so as to provide the
information and certification necessary to avoid backup withholding.
EACH STOCKHOLDER SHOULD CONSULT THE STOCKHOLDER'S OWN TAX ADVISOR
WITH RESPECT TO THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER IN THE
STOCKHOLDER'S INDIVIDUAL CIRCUMSTANCES AND WITH RESPECT TO THE STATE, LOCAL OR
OTHER INCOME TAX CONSEQUENCES OF THE MERGER. FURTHER, ANY STOCKHOLDER WHO IS A
CITIZEN OF A COUNTRY OTHER THAN THE UNITED STATES SHOULD CONSULT THE
STOCKHOLDER'S OWN TAX ADVISOR WITH RESPECT TO THE TAX TREATMENT IN SUCH
COUNTRY OF THE MERGER AND WITH RESPECT TO THE QUESTION OF WHETHER THE TAX
CONSEQUENCES DESCRIBED ABOVE MAY BE ALTERED BY REASON OF THE PROVISIONS OF
<PAGE>
THE INTERNAL REVENUE CODE APPLICABLE TO FOREIGN PERSONS OR THE PROVISIONS OF
ANY TAX TREATY APPLICABLE TO THE STOCKHOLDER.
APPRAISAL RIGHTS
Holders of record of Common Stock who properly demand appraisal of
their shares and who otherwise comply with the applicable statutory procedures
summarized herein will be entitled to appraisal rights under Section 262 of
the DGCL in connection with the Merger. The following discussion is not a
complete statement of the law pertaining to appraisal rights under the DGCL
and is qualified in its entirety by reference to the full text of Section 262
which is reprinted in its entirety as Annex II to this Proxy Statement.
Under the DGCL, record holders of shares of Common Stock who follow
the procedures set forth in Section 262 and who have not voted in favor of the
Merger will be entitled to have their shares of Common Stock appraised by the
Delaware Court of Chancery and to receive payment in cash of the "fair value"
of such shares, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, as determined by such court. A person having a beneficial interest
in shares of Common Stock held of record in the name of another person, such
as a broker or nominee, must act promptly to cause the record holder to follow
the steps summarized below properly and in a timely manner to perfect
appraisal rights.
Under Section 262, where a merger agreement is submitted for adoption
at a meeting of stockholders, as in the case of the Special Meeting, not less
than 20 days prior to such meeting, the company must notify each of the
holders of shares of capital stock at the close of business on the record date
for such meeting that such appraisal rights are available and include in each
such notice a copy of Section 262. This Proxy Statement constitutes such
notice and the applicable statutory provision of the DGCL is attached to this
Proxy Statement as Annex II. Any Stockholder who wishes to exercise appraisal
rights should review the following discussion and Annex II carefully because
the failure to timely and properly comply with the procedures specified in
Section 262 will result in the loss of appraisal rights under the DGCL.
A Stockholder wishing to exercise appraisal rights must deliver to
the Company, before the taking of the vote on the adoption of the Merger
Agreement at the Special Meeting, a written demand for appraisal of such
holder's shares of Common Stock and such shares must not be voted in favor of
adoption of the Merger Agreement. A holder of shares wishing to exercise such
holder's appraisal rights must be the record holder of the shares on the date
the written demand for appraisal is made and must continue to hold the shares
of record through the effective date of the Merger. Accordingly, a holder of
shares who is the record holder of shares on the date the written demand for
appraisal is made, but who thereafter transfers such shares prior to the
consummation of the Merger, will lose any right to appraisal in respect of
such shares. A holder of shares who votes against adoption of the Merger
Agreement will not be deemed to have satisfied the notice requirement of such
holder with respect to appraisal rights merely by so voting. The written
demand for appraisal must be in addition to and separate from any proxy or
vote abstaining from or against adoption of the Merger Agreement.
Only a holder of record of shares of Common Stock is entitled to
assert appraisal rights for the shares of Common Stock registered in that
holder's name. A demand for appraisal should be executed by or on behalf of
the holder of record fully and correctly, as the holder's name appears on the
stock certificates.
If shares of Common Stock are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution of the demand
for appraisal should be made in that capacity, and if the shares of Common
Stock are owned of record by more than one person, as in a joint tenancy or
tenancy in common, the demand should be executed by or on behalf of all joint
owners. An authorized agent, including one for two or more joint owners, may
execute the demand for appraisal on behalf of a holder of record; however, the
agent must identify the record owner or owners and expressly disclose the fact
that, in executing the demand, he or she is acting as agent for such owner or
owners. A record holder such as a broker who holds shares of Common Stock as
nominee for several beneficial owners may exercise appraisal rights with
respect to the shares of Common Stock held for one or more beneficial owners
while not exercising such rights with respect to the shares of Common Stock
held for other beneficial owners; in such case, the written demand should set
forth the number of shares of Common Stock as to which appraisal is sought and
the number of shares of Common Stock held in the name of the record owner.
When no number of shares is expressly mentioned, the demand will be presumed
to cover all shares held in the name of
<PAGE>
the record owner. Stockholders who hold their shares of Common Stock in
brokerage accounts or other nominee forms and who wish to exercise appraisal
rights are urged to consult with their brokers to determine the appropriate
procedures for the making of a demand for appraisal by such nominee. All written
demands for appraisal of shares of Common Stock should be delivered to SPS
Transaction Services, Inc. 2500 Lake Cook Road, Riverwoods, Illinois 60015,
Attention: Secretary, so as to be received before the taking of the vote on the
adoption of the Merger Agreement and the Merger at the Special Meeting.
Within 10 days after the Effective Time, the Company, as the
Surviving Corporation, must send a notice as to the effectiveness of the
Merger to each person who has satisfied the appropriate provisions of Section
262. Within 120 days after the Effective Time, but not thereafter, the
Surviving Corporation or any such Stockholder who has satisfied the foregoing
conditions and is otherwise entitled to appraisal rights under Section 262,
may file a petition in the Delaware Court of Chancery demanding a
determination of the fair value of the shares of Common Stock held by all such
Stockholders. If no such petition is filed, appraisal rights will be lost for
all Stockholders who had previously demanded appraisal of their shares of
Common Stock. Stockholders seeking to exercise appraisal rights should assume
that the Surviving Corporation will not file a petition with respect to the
appraisal of the value of shares of Common Stock and that the Surviving
Corporation will not initiate any negotiations with respect to the "fair
value" of shares of Common Stock. Accordingly, Stockholders who wish to
exercise their appraisal rights should regard it as their obligation to take
all steps necessary to perfect their appraisal rights in the manner prescribed
in Section 262.
Within 120 days after the Effective Time, any Stockholder who has
complied with the provisions of Section 262 will be entitled, upon written
request, to receive from the Surviving Corporation a statement setting forth
the aggregate number of shares of Common Stock not voted in favor of adoption
of the Merger Agreement and with respect to which demands for appraisal were
received by the Company, and the number of holders of such shares of Common
Stock. Such statement must be mailed within ten days after the written request
therefore has been received by the Surviving Corporation or within ten days
after expiration of the time for delivery of demands for appraisal under
Section 262, whichever is later.
If a petition for appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery will determine the holders of shares
of Common Stock entitled to appraisal rights and will appraise the "fair
value" of the shares of Common Stock, exclusive of any element of value
arising from the accomplishment or expectation of the Merger, together with a
fair rate of interest, if any, to be paid upon the amount determined to be the
fair value. Stockholders considering seeking appraisal should be aware that
the fair value of their shares of Common Stock as determined under Section 262
could be more than, the same as or less than the value of the Merger
Consideration that they would otherwise receive if they did not seek appraisal
of their shares of Common Stock and that investment banking opinions as to
fairness from a financial point of view are not necessarily opinions as to
fair value under Section 262. The Delaware Supreme Court has stated that
"proof of value by any techniques or methods which are generally considered
acceptable in the financial community are otherwise admissible in court"
should be considered in the appraisal proceedings. In addition, Delaware
courts have decided that the statutory appraisal remedy, depending on factual
circumstances, may or may not be a dissenter's exclusive remedy. The Court
will also determine the amount of interest, if any, to be paid upon the
amounts to be received by persons whose shares of Common Stock have been
appraised. The costs of the action may be determined by the Court and taxed
upon the parties as the Court deems equitable. The Court may also order that
all or a portion of the expenses incurred by any holder of shares of Common
Stock in connection with an appraisal, including without limitation,
reasonable attorneys' fees and the fees and expenses of experts utilized in
the appraisal proceeding, be charged pro rata against the value of all of the
shares entitled to appraisal.
Any Stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the Effective Time, be entitled to vote his or her
shares of Common Stock for any purpose nor, after the Effective Time, be
entitled to the payment of dividends or other distributions thereon.
If no petition for an appraisal is filed within the time provided, or
if a Stockholder delivers to the Surviving Corporation a written withdrawal of
his or her demand for an appraisal and an acceptance of the Merger, within 60
days after the Effective Time or with the written approval of the Surviving
Corporation thereafter, then the right of such Stockholder to an appraisal
will cease and such Stockholder shall be entitled to receive the Merger
Consideration, without interest, as if he or she had not demanded appraisal of
his or her shares of Common Stock. However, no appraisal proceeding pending in
the Court of Chancery will be dismissed as to any Stockholder without the
approval of the Court, which approval may be conditioned on such terms as the
Court deems just.
STOCKHOLDERS DESIRING TO EXERCISE THEIR APPRAISAL RIGHTS SHOULD
STRICTLY COMPLY WITH THE PROCEDURES SET FORTH IN SECTION 262 OF THE DGCL.
FAILURE TO FOLLOW ANY OF SUCH PROCEDURES MAY RESULT IN A TERMINATION OR WAIVER
OF APPRAISAL RIGHTS UNDER SECTION 262 OF THE DGCL.
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The summary consolidated financial data presented below for, and as
of the end of, each of the years in the five-year period ended December 31,
1997 are derived from the consolidated financial statements of the Company,
which financial statements have been audited by Deloitte & Touche LLP,
independent certified public accountants. The summary consolidated financial
data presented below for the three-month periods ended March 31, 1998 and 1997
and as of March 31, 1998 and 1997 are derived from the unaudited consolidated
financial statements of the Company included herein. In management's opinion,
the unaudited information has been prepared on a basis consistent with the
audited consolidated financial statements of the Company. The results of
operations for the three months ended March 31, 1998 are not necessarily
indicative of results which may be expected for the entire year.
<TABLE>
<CAPTION>
QUARTER ENDED MARCH
31,(1) YEAR ENDED DECEMBER 31,(1)
------------------------ ------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Unaudited)
INCOME STATEMENT DATA
<S> <C> <C> <C> <C> <C> <C> <C>
Net operating revenues $82,264 $90,430 $346,885 $320,920 $311,992 $245,802 $205,494
Total operating expenses 66,604 78,391 284,585 283,427 241,883 183,441 156,563
Pretax income 15,660 12,039 62,300 37,493 70,109 62,361 48,931
Income taxes 5,763 4,648 23,800 14,247 26,636 24,626 18,283
Net Income 9,897 7,391 38,500 23,246 43,473 37,735 30,648
Basic earnings per 0.36 0.27 1.41 0.86 1.60 1.40 1.14
common share
Diluted earnings per 0.36 0.27 1.41 0.85 1.59 1.38 1.12
common share
RATIO OF EARNING TO 1.9 1.6 1.8 1.5 2.0 6.0 6.3
==================== === === === === === === ===
FIXED CHARGES(2)
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31,(1) AS OF DECEMBER 31,(1)
---------------- ----------------------------------------------------------
BALANCE SHEET DATA 1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Credit card loans $1,169,727 $1,498,421 $1,295,787 $1,637,507 $1,620,833 $679,857 $246,710
Total assets 1,389,753 1,628,517 1,512,403 1,760,785 1,777,607 768,493 309,537
Deposits 544,708 478,541 510,294 463,435 382,343 205,537 72,852
Due to affiliates 474,539 831,706 639,066 982,547 1,110,811 161,573 55,869
Stockholders' equity 274,076 231,971 263,035 224,392 199,210 155,704 116,581
Return on average 14.9% 13.1% 15.8% 11.0% 24.5% 27.7% 30.2%
stockholders' equity
Book value per $ 10.06 $ 8.53 $ 9.67 $ 8.26 $ 7.35 $ 5.76 $ 4.32
share-Basic
Book value per $ 9.98 $ 8.48 $ 9.60 $ 8.20 $ 7.28 $ 5.69 $ 4.27
share-Diluted
SUPPLEMENTAL DATA
Total loans(3) $1,749,727 $2,078,421 $1,875,787 $2,217,507 $2,229,992 $1,109,857 $676,710
</TABLE>
--------------------------
(1) In thousands, except percentages, ratios and per
share data.
(2) For the purpose of calculating the ratio of
earnings to fixed charges, "earnings" consist of
income before income taxes and fixed charges.
"Fixed charges" consist of interest costs,
including interest on deposits, and that portion of
rent expense estimated to be representative of the
interest factor.
(3) Total loans represent both owned and securitized
credit card loans.
<PAGE>
CONTROLLING PERSONS, DIRECTORS AND EXECUTIVE
OFFICERS OF MSDW, NOVUS, ACQUISITION AND
THE COMPANY
BACKGROUND OF NAMED PERSONS
THE COMPANY, MSDW, NOVUS AND ACQUISITION HAVE JOINTLY FILED A RULE
13E-3 TRANSACTION STATEMENT WITH THE COMMISSION WITH RESPECT TO THE MERGER.
THE PRINCIPAL EXECUTIVE OFFICES OF MSDW ARE LOCATED AT 1585 BROADWAY, NEW
YORK, NEW YORK 10036, TELEPHONE NUMBER (212) 761-4000. THE PRINCIPAL EXECUTIVE
OFFICES OF NOVUS, ACQUISITION AND THE COMPANY ARE SET FORTH IN THIS PROXY
STATEMENT UNDER THE CAPTION "SUMMARY - THE PARTIES." MSDW, NOVUS, ACQUISITION
AND THE COMPANY ARE ALL DELAWARE CORPORATIONS.
SET FORTH ON ANNEX IV HERETO FOR EACH CONTROLLING PERSON, DIRECTOR
AND EXECUTIVE OFFICER OF MSDW, NOVUS, ACQUISITION AND THE COMPANY
(COLLECTIVELY, THE "NAMED PERSONS") IS SUCH PERSON'S: (I) NAME; (II) BUSINESS
ADDRESS; (III) PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT, IF SUCH PERSON IS
AN INDIVIDUAL, AND THE NAME AND ADDRESS OF THE ORGANIZATION IN WHICH SUCH
INDIVIDUAL CONDUCTS SUCH PRINCIPAL OCCUPATION OR EMPLOYMENT; AND (IV) MATERIAL
OCCUPATION, POSITIONS, OFFICES AND EMPLOYMENTS DURING THE PAST FIVE YEARS, IF
SUCH PERSON IS AN INDIVIDUAL, AND THE NAME AND ADDRESS OF THE ORGANIZATIONS IN
WHICH SUCH INDIVIDUAL CONDUCTED SUCH MATERIAL OCCUPATIONS, POSITIONS, OFFICES,
AND EMPLOYMENTS. ALL OF THE NAMED PERSONS ARE UNITED STATES CITIZENS.
DURING THE PAST FIVE YEARS NEITHER THE COMPANY, MSDW, NOVUS,
ACQUISITION NOR ANY NAMED PERSON HAS BEEN CONVICTED IN A CRIMINAL PROCEEDING
(EXCLUDING TRAFFIC VIOLATIONS OR SIMILAR MISDEMEANORS) OR WAS A PARTY TO A
CIVIL PROCEEDING OF A JUDICIAL OR ADMINISTRATIVE BODY OF COMPETENT
JURISDICTION AND AS A RESULT OF SUCH PROCEEDING WAS OR IS SUBJECT TO A
JUDGMENT, DECREE, OR FINAL ORDER ENJOINING FURTHER VIOLATIONS OF, OR
PROHIBITING ACTIVITIES SUBJECT TO, FEDERAL OR STATE SECURITIES LAWS OR FINDING
ANY VIOLATIONS OF SUCH LAWS.
ALL INFORMATION IN THE PROXY STATEMENT CONCERNING THE NAMED PERSONS
AND ANY AFFILIATES AND ASSOCIATES REFERRED TO HEREIN IS TO THE BEST KNOWLEDGE
OF THE COMPANY.
PAST CONTACTS, TRANSACTIONS, OR NEGOTIATIONS
EXCEPT AS DESCRIBED IN THIS PROXY STATEMENT, SINCE JANUARY 1, 1996,
NEITHER MSDW, NOVUS, ACQUISITION NOR ANY NAMED PERSON HAS HAD ANY CONTACTS,
NEGOTIATIONS OR TRANSACTIONS WITH THE COMPANY CONCERNING ANY ACQUISITION,
ACQUISITION OF SECURITIES, CONSOLIDATION, ELECTION OF DIRECTORS, MERGER,
TENDER OFFER, OR SALE OR OTHER TRANSFER OF A MATERIAL AMOUNT OF ASSETS.
<PAGE>
PLANS OR PROPOSALS
EXCEPT AS DESCRIBED IN THIS PROXY STATEMENT, NEITHER THE COMPANY,
MSDW, NOVUS, ACQUISITION NOR ANY NAMED PERSON HAS ANY PLAN OR PROPOSAL
CONCERNING ANY EXTRAORDINARY CORPORATE TRANSACTION INVOLVING THE COMPANY, ANY
SALE OR TRANSFER OF A MATERIAL AMOUNT OF THE COMPANY'S ASSETS, ANY CHANGE IN
THE BOARD OR MANAGEMENT, ANY MATERIAL CHANGE IN THE COMPANY'S PRESENT DIVIDED
RATE OR THE COMPANY'S PRESENT POLICY ON INDEBTEDNESS OR CAPITALIZATION, OR ANY
OTHER CHANGE IN THE COMPANY'S CORPORATE STRUCTURE OR BUSINESS.
INTEREST IN THE COMPANY'S SECURITIES
EXCEPT AS DESCRIBED IN THIS PROXY STATEMENT, NEITHER THE COMPANY,
MSDW, NOVUS, ACQUISITION, ANY PENSION, PROFIT SHARING, OR SIMILAR PLAN OF THE
COMPANY, MSDW, NOVUS, OR ACQUISITION, ANY NAMED PERSON, NOR ANY ASSOCIATE OR
MAJORITY OWNED SUBSIDIARY OF THE COMPANY, MSDW, NOVUS, OR ACQUISITION
BENEFICIALLY OWNS ANY SHARES OF THE COMMON STOCK OR HAS ENGAGED IN ANY
TRANSACTION INVOLVING THE SHARES OF COMMON STOCK DURING THE PAST 60 DAYS. THE
TRUSTEE FOR THE SPS START (THE COMPANY'S 401(K) PLAN) PURCHASED 16,678 SHARES
OF COMMON STOCK ON THE OPEN MARKET ON MAY 8, 1998. IN ADDITION, THE TRUSTEE
FOR THE COMPANY'S TAX DEFERRED EQUITY PARTICIPATION PLAN BENEFICIALLY OWNS
33,486 SHARES OF COMMON STOCK.
CONTRACTS, ARRANGEMENTS, OR UNDERSTANDINGS CONCERNING THE COMPANY'S SECURITIES
EXCEPT AS DESCRIBED IN THIS PROXY STATEMENT, NEITHER THE COMPANY,
MSDW, NOVUS, ACQUISITION, NOR ANY NAMED PERSON HAS ANY ARRANGEMENT, CONTRACT,
RELATIONSHIP, OR UNDERSTANDING WITH ANY PERSON WITH RESPECT TO ANY SECURITY OF
THE COMPANY, INCLUDING ANY ARRANGEMENT, CONTRACT, RELATIONSHIP, OR
UNDERSTANDING CONCERNING THE TRANSFER OR THE VOTING OF ANY SECURITY OF THE
COMPANY, ANY JOINT VENTURE, ANY LOAN OR OPTION ARRANGEMENT, ANY PUT OR CALL,
ANY GUARANTEE OF A LOAN, ANY GUARANTEE AGAINST LOSS, OR ANY GIVING OR
WITHHOLDING OF ANY AUTHORIZATION, CONSENT, OR PROXY.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT SERVICES AGREEMENT WITH NOVUS
THE COMPANY AND NOVUS ARE PARTIES TO A MANAGEMENT SERVICES AGREEMENT,
DATED AS OF JANUARY 1, 1992 (THE "MANAGEMENT SERVICES AGREEMENT"), PURSUANT TO
WHICH NOVUS FURNISHES CERTAIN EXECUTIVE, ACCOUNTING, FINANCIAL, LEGAL, TAX,
ORGANIZATIONAL, REGULATORY, INSURANCE, PERSONNEL, EMPLOYEE BENEFIT PLANS,
MANAGEMENT INFORMATION SYSTEMS, SALES, MARKETING, PURCHASING, REAL ESTATE AND
OTHER SERVICES TO THE COMPANY UPON THE COMPANY'S REQUEST. THE NATURE AND
EXTENT OF THE SERVICES PROVIDED BY NOVUS UNDER THE MANAGEMENT SERVICES
AGREEMENT AND THE ANNUAL RATES CHARGED FOR SUCH SERVICES ARE MADE IN
ACCORDANCE WITH THE SAME POLICIES AND PROCEDURES UNDER WHICH NOVUS ESTABLISHES
SUCH CHARGES FOR ITS OTHER SUBSIDIARIES AND DIVISIONS. THE MANAGEMENT SERVICES
AGREEMENT IS AUTOMATICALLY RENEWED FOR SUCCESSIVE ONE-YEAR TERMS UNLESS
TERMINATED AS OF THE END OF ANY TERM BY EITHER PARTY UPON 180 DAYS WRITTEN
NOTICE. THE RATES CHARGED HISTORICALLY HAVE REFLECTED THE COMPANY'S
PROPORTIONATE SHARE OF DIRECT EXPENSES (BASED UPON ESTIMATES OF TIME THE
VARIOUS PERSONNEL HAVE ALLOCATED TO THE COMPANY) AND THE COMPANY'S
PROPORTIONATE SHARE OF ALLOCATED EXPENSES (BASED UPON A PRE-DETERMINED FORMULA
THAT CONSIDERS THE RELATIVE LEVEL OF PERSONNEL, REVENUES AND INCOME OF THE
COMPANY). THE MANAGEMENT SERVICES AGREEMENT DOES NOT PROHIBIT THE COMPANY FROM
OBTAINING SIMILAR SERVICES FROM THIRD PARTIES.
FINANCING AGREEMENTS WITH MSDW; INTEREST RATE SWAP AND CAP AGREEMENTS
EFFECTIVE SEPTEMBER 1, 1995, THE COMPANY AND MSDW ENTERED INTO AN
AMENDED AND RESTATED BORROWING AGREEMENT (THE "BORROWING AGREEMENT"), AN
AMENDED AND RESTATED BRIDGE AGREEMENT AND A FACILITY FEE LETTER AGREEMENT (THE
"FACILITY FEE AGREEMENT") (COLLECTIVELY, THE "FINANCING AGREEMENTS"), PURSUANT
TO WHICH MSDW HAS AGREED TO PROVIDE LOANS TO THE COMPANY. SUCH LOANS MAY BE
EITHER LONG- OR SHORT-TERM, AS DETERMINED BY MSDW AND THE COMPANY, BUT WILL IN
ANY EVENT MATURE UPON THE TERMINATION OF THE BORROWING AGREEMENT. THE MAXIMUM
AMOUNT AVAILABLE UNDER THE BORROWING AGREEMENT IS $1.1 BILLION. THE INTEREST
RATE TO BE PAID BY THE COMPANY IS EQUAL TO MSDW'S ACTUAL COST OF FUNDS. THE
BORROWING AGREEMENT EXPIRES ON NOVEMBER 20, 1998.
IN CONNECTION WITH THE COMPANY'S FINANCING AGREEMENTS WITH MSDW,
UNDER THE FACILITY FEE AGREEMENT, THE COMPANY HAS AGREED TO PAY CERTAIN
MONTHLY FACILITY FEES TO MSDW. IN ADDITION, THE COMPANY OR SPS PAYMENT MAY
ENTER INTO INTEREST RATE SWAP AND CAP AGREEMENTS FROM TIME TO TIME WITH EITHER
MSDW OR NOVUS PURSUANT TO WHICH THE COST OF FUNDS BORROWED ON A FLOATING RATE
BASIS BY THE COMPANY, SPS PAYMENT OR HSB MAY EFFECTIVELY BE FIXED.
THIRD PARTY PROCESSING AND COOPERATIVE NETWORK SERVICE AGREEMENT AND TERMINAL
SERVICE AGREEMENT WITH NOVUS
SERVICES
PURSUANT TO A THIRD PARTY PROCESSING AND COOPERATIVE NETWORK SERVICE
AGREEMENT, DATED AS OF JANUARY 2, 1992, AS AMENDED (THE "PROCESSING AND
SERVICE AGREEMENT"), NOVUS SERVICES, INC. ("NOVUS SERVICES," SUCCESSOR TO
DISCOVER CARD SERVICES, INC.), AN AFFILIATED ENTITY, AND SPS PAYMENT SHARE
ELECTRONIC DATA LINKS FOR VISA, MASTERCARD AND AMERICAN EXPRESS FOR THE
PURPOSES OF AUTHORIZING AND COMPLETING NOVUS SERVICES' TRANSACTION PROCESSING
SERVICES. EFFECTIVE JANUARY 1, 1998, SPS PAYMENT AND NOVUS SERVICES AMENDED
THE PROCESSING AND SERVICE AGREEMENT TO EXTEND ITS INITIAL TERM THROUGH
JANUARY 1, 2003. THE PROCESSING AND SERVICE AGREEMENT WILL CONTINUE IN EFFECT
THEREAFTER UNLESS TERMINATED BY EITHER PARTY UPON 180 DAYS WRITTEN NOTICE. IN
ADDITION, PURSUANT TO A TERMINAL SERVICE AGREEMENT, DATED AS OF JANUARY 1,
1992, AS AMENDED (THE "TERMINAL SERVICE AGREEMENT"), SPS PAYMENT PROVIDES
TERMINAL MAINTENANCE, REPAIR AND PREPARATION SERVICES TO NOVUS SERVICES. THE
TERMINAL SERVICE AGREEMENT IS RENEWED FOR SUCCESSIVE ONE-YEAR TERMS UNLESS THE
PARTIES FAIL TO AGREE ON PRICING FOR THE ADDITIONAL TERM AT LEAST 180 DAYS
PRIOR TO THE COMMENCEMENT OF ANY ADDITIONAL TERM. THE RATES CHARGED FOR THE
SERVICES PROVIDED BY AND TO SPS PAYMENT UNDER THE PROCESSING AND SERVICE
AGREEMENT ARE DETERMINED BY AN ALLOCATION OF COSTS (BASED ON PROPORTIONATE
TRANSACTION VOLUME). SUCH RATES CAN ONLY BE CHANGED BY THE MUTUAL AGREEMENT OF
THE PARTIES. UNDER THE TERMINAL SERVICE AGREEMENT, MAINTENANCE AND REPAIR FEES
ARE CHARGED ON A PER ITEM BASIS.
<PAGE>
SYSTEM ACCESS AGREEMENT WITH NOVUS SERVICES
SPS PAYMENT AND NOVUS SERVICES BOTH PARTICIPATE IN THE TRANSACTION
PROCESSING INDUSTRY. EACH SELLS AND LEASES TERMINALS TO ITS CUSTOMERS AND
PROVIDES CREDIT CARD TRANSACTION PROCESSING SERVICES THROUGH THESE TERMINALS.
BOTH PROCESSING PROGRAMS UTILIZE THE SAME COMMUNICATIONS NETWORK. NOVUS
SERVICES AND SPS PAYMENT ENTERED INTO A SYSTEM ACCESS AGREEMENT, EFFECTIVE
AUGUST 1, 1992, AS AMENDED (THE "SYSTEM ACCESS AGREEMENT"). PURSUANT TO THE
SYSTEM ACCESS AGREEMENT, SPS PAYMENT PROVIDES NOVUS SERVICES WITH ACCESS TO
CERTAIN APPLICATIONS OF SPS PAYMENT'S POINT-OF-SALE TRANSACTION PROCESSING
SYSTEM THAT WILL ASSIST NOVUS SERVICES IN ITS MARKETING OF THIRD-PARTY
TRANSACTION PROCESSING SERVICES. NOVUS SERVICES PAYS SPS PAYMENT A PER
TRANSACTION FEE FOR ALL POINT-OF-SALE TRANSACTIONS PROCESSED THROUGH THE
NETWORK BY SPS PAYMENT AND NOVUS SERVICES FOR NOVUS SERVICES CLIENTS, EXCEPT
FOR THOSE TRANSACTIONS GENERATED BY CERTAIN LARGE NOVUS SERVICES CLIENTS THAT
HAVE A DIRECT INTERFACE WITH THE NOVUS SERVICES AUTHORIZATION SYSTEM. NOVUS
SERVICES HAS AGREED TO ANNUAL MINIMUM USAGE REQUIREMENTS. AS CONTEMPLATED BY
THE AGREEMENT, NOVUS SERVICES MAY COMPETE WITH SPS PAYMENT IN THE PROCESSING
OF CERTAIN TRANSACTIONS, ALTHOUGH SPS PAYMENT WILL RECEIVE FEES FROM NOVUS
SERVICES FOR SUCH TRANSACTIONS. THE TERM OF THE SYSTEM ACCESS AGREEMENT
EXPIRES ON AUGUST 1, 2000.
SERVICE AGREEMENT WITH NOVUS SERVICES
EFFECTIVE SEPTEMBER 1, 1996, SPS PAYMENT ENTERED INTO A SERVICE
AGREEMENT (THE "SERVICE AGREEMENT") WITH NOVUS SERVICES IN CONNECTION WITH
NOVUS SERVICES' CO-BRAND AND AFFINITY CARD PROGRAMS, WHEREBY SPS PAYMENT
PROVIDES NOVUS SERVICES CREDIT CARD PROCESSING SERVICES, INCLUDING CREDIT
REVIEW, AUTHORIZATION, COLLECTION AND OTHER RELATED SERVICES FOR THE SPECIFIED
PROGRAMS. NOVUS SERVICES PAYS SPS PAYMENT A FEE BASED UPON THE SERVICES
PROVIDED, WHICH FEE CAN BE INCREASED IF NOVUS SERVICES DOES NOT ACHIEVE
CERTAIN MONTHLY MINIMUM USAGE REQUIREMENTS. AS LONG AS NOVUS SERVICES MEETS
SUCH MINIMUM USAGE REQUIREMENTS, SPS PAYMENT HAS AGREED NOT TO PROVIDE CERTAIN
SIMILAR SERVICES TO ANY THIRD-PARTY DIRECT COMPETITOR OF NOVUS SERVICES. THE
INITIAL TERM OF THE SERVICE AGREEMENT EXPIRES ON THE DATE TWO YEARS AFTER A
SPECIFIED MINIMUM USAGE REQUIREMENT IS FIRST ACHIEVED. THEREAFTER, THE TERM OF
THE AGREEMENT WILL BE RENEWED FOR ADDITIONAL ONE-YEAR TERMS UNLESS TERMINATED
BY EITHER PARTY UPON 90 DAYS WRITTEN NOTICE PRIOR TO THE END OF ANY TERM.
DEBIT CARD PROCESSING LETTER AGREEMENT AND SALES LEAD LETTER AGREEMENT WITH
NOVUS SERVICES
PURSUANT TO A DEBIT CARD PROCESSING LETTER AGREEMENT, DATED AUGUST
30, 1994 (THE "PROCESSING LETTER AGREEMENT"), NOVUS SERVICES FORWARDS REQUESTS
FOR DEBIT CARD TRANSACTION PROCESSING SERVICES FROM ITS MERCHANT CUSTOMERS TO
SPS PAYMENT, AND SPS PAYMENT PROVIDES SUCH SERVICES PURSUANT TO SEPARATE
AGREEMENTS WITH SUCH MERCHANTS. SPS PAYMENT THEN PAYS NOVUS SERVICES A PER
TRANSACTION FEE FOR EACH DEBIT TRANSACTION SO PROCESSED (FOR WHICH SPS PAYMENT
RECEIVES A SEPARATE FEE FROM THE MERCHANT CUSTOMERS), AND A PER LOCATION FEE
FOR EACH NEW MERCHANT LOCATION ESTABLISHED ON SPS PAYMENT'S SYSTEM THROUGH THE
PROCESSING LETTER AGREEMENT. THE PROCESSING LETTER AGREEMENT HAD AN INITIAL
TERM OF THREE YEARS AND WILL REMAIN IN EFFECT FOR SUCCESSIVE ONE-YEAR TERMS
THEREAFTER UNLESS TERMINATED BY EITHER PARTY UPON 90 DAYS WRITTEN NOTICE
BEFORE THE END OF ANY TERM. IN ADDITION, PURSUANT TO A SALES LEAD LETTER
AGREEMENT, DATED JANUARY 26, 1995 (THE "SALES LEAD LETTER AGREEMENT"), NOVUS
SERVICES PROVIDES SPS PAYMENT WITH SALES LEAD REFERRALS FOR MERCHANTS IN
CONNECTION WITH SPS PAYMENT'S ELECTRONIC TRANSACTION PROCESSING SERVICES
BUSINESS. FOR EACH SUCH REFERRED MERCHANT, SPS PAYMENT PAYS NOVUS SERVICES AN
AMOUNT EQUAL TO 10% OF THE ANNUAL NET PROFIT ATTRIBUTED TO THE TRANSACTION
PROCESSING SERVICES PROVIDED BY SPS PAYMENT TO SUCH MERCHANT. THE SALES LEAD
LETTER AGREEMENT IS RENEWED FOR ONE-YEAR TERMS EACH JANUARY 1 UNLESS
TERMINATED BY EITHER PARTY UPON 60 DAYS WRITTEN NOTICE PRIOR TO THE END OF ANY
TERM.
MARKETING SERVICES AGREEMENT WITH NOVUS
SPS PAYMENT AND NOVUS ARE PARTIES TO AN AMENDED AND RESTATED
MARKETING SERVICES AGREEMENT, DATED JANUARY 1, 1996, AS AMENDED (THE
"MARKETING SERVICES AGREEMENT"), PURSUANT TO WHICH SPS PAYMENT PROVIDES
MARKETING AND SALES SERVICES TO NOVUS FOR THE BENEFIT OF MOUNTAINWEST. AS
COMPENSATION FOR SUCH SERVICES, NOVUS HAS AGREED TO PAY TO SPS PAYMENT AN
ANNUAL FEE BASED ON MOUNTAINWEST'S AFTER-TAX RETURN ON CERTAIN OF ITS ASSETS.
THE MARKETING SERVICES AGREEMENT WILL CONTINUE UNTIL THE DAY PRECEDING THE
EARLIEST
<PAGE>
TO OCCUR OF (I) THE DATE SPS PAYMENT NO LONGER PROVIDES SERVICES TO
MOUNTAINWEST UNDER THE MOUNTAINWEST SERVICE AGREEMENT (AS HEREINAFTER
DEFINED); (II) THE ASSIGNMENT OF THE MOUNTAINWEST SERVICE AGREEMENT TO A
THIRD-PARTY THAT IS NOT AN AFFILIATE OF NOVUS; OR (III) THE DATE ON WHICH SPS
PAYMENT AND NOVUS ARE NO LONGER AFFILIATES.
SERVICE AGREEMENT WITH MOUNTAINWEST
SPS PAYMENT AND MOUNTAINWEST ARE PARTIES TO A SERVICE AGREEMENT,
DATED AS OF NOVEMBER 1, 1990, AS AMENDED (THE "MOUNTAINWEST SERVICE
AGREEMENT"), PURSUANT TO WHICH SPS PAYMENT PROVIDES AN ACCOUNTS RECEIVABLE
SYSTEM AND VARIOUS CREDIT SERVICES FOR MOUNTAINWEST. UNDER THE MOUNTAINWEST
SERVICE AGREEMENT, SPS PAYMENT ADMINISTERS THE PROGRAMS FOR PRIVATE LABEL
CREDIT CARDS ISSUED BY MOUNTAINWEST, WHICH OWNS THE CREDIT CARD LOANS THAT ARE
GENERATED THROUGH USE OF SUCH CREDIT CARDS. SPS PAYMENT GENERALLY CHARGES
MOUNTAINWEST ONE ALL-INCLUSIVE FEE FOR THE SERVICES IT PROVIDES WITH RESPECT
TO CONSUMER ACCOUNTS, AND ONE ALL-INCLUSIVE FEE FOR THOSE IT PROVIDES WITH
RESPECT TO COMMERCIAL ACCOUNTS, IN EACH CASE UNDER THE PROGRAMS OWNED BY
MOUNTAINWEST. THE FEE FOR COMMERCIAL ACCOUNTS IS GENERALLY BASED ON THE TOTAL
NUMBER OF SUCH ACCOUNTS AND RELATED CUSTOMER INQUIRIES UNDER THE PROGRAMS FOR
SUCH ACCOUNTS. THE FEE FOR CONSUMER ACCOUNTS IS BASED ON A PERCENTAGE OF THE
OUTSTANDING RECEIVABLES RELATING TO CONSUMER ACCOUNTS UNDER THE PROGRAMS FOR
SUCH ACCOUNTS. THESE ALL-INCLUSIVE FEES ARE DERIVED FROM HISTORICAL COMPONENT
PRICING FOR INDIVIDUAL SERVICES. EFFECTIVE JANUARY 1, 1996, SPS PAYMENT AND
MOUNTAINWEST AMENDED THE MOUNTAINWEST SERVICE AGREEMENT TO EXTEND ITS TERM
THROUGH DECEMBER 31, 1998. THE TERM OF THE MOUNTAINWEST SERVICE AGREEMENT
CONTINUES THEREAFTER FOR CONSECUTIVE ONE-YEAR PERIODS UNLESS TERMINATED BY
EITHER PARTY UPON 180 DAYS WRITTEN NOTICE PRIOR TO JANUARY 1 OF ANY YEAR.
OPERATIONAL OUTSOURCING SERVICE AGREEMENT WITH MOUNTAINWEST
PURSUANT TO A SERVICE AGREEMENT, DATED AS OF FEBRUARY 1, 1994, AS
AMENDED (THE "OUTSOURCING SERVICE AGREEMENT"), BETWEEN SPS PAYMENT AND
MOUNTAINWEST, SPS PAYMENT HANDLES CUSTOMER TELEPHONE INQUIRIES IN CONNECTION
WITH MOUNTAINWEST'S PRIME OPTION CREDIT CARD PROGRAM, INCLUDING INQUIRIES
REGARDING MATTERS SUCH AS ACCOUNT ACTIVATION AND BALANCES, SALES ACTIVITY,
PAYMENT HISTORY, BILLING STATEMENTS AND LOST AND STOLEN CARDS. SPS PAYMENT
GENERALLY CHARGES MOUNTAINWEST ON A PER CALL BASIS BASED ON VOLUME SERVICE
LEVELS AND THE TYPE OF SERVICES PROVIDED. THE FEES FOR SERVICES ARE CONSISTENT
WITH THE PRICING METHODOLOGY THAT SPS PAYMENT USES TO CHARGE OTHER OPERATIONAL
OUTSOURCING CLIENTS. THE INITIAL TERM OF THE OUTSOURCING SERVICE AGREEMENT
EXPIRED ON FEBRUARY 1, 1998 BUT THE AGREEMENT HAS BEEN AUTOMATICALLY RENEWED
FOR A ONE-YEAR PERIOD UNTIL FEBRUARY 1, 1999 AND WILL BE AUTOMATICALLY RENEWED
FOR ADDITIONAL ONE-YEAR TERMS UNLESS TERMINATED BY EITHER PARTY UPON 60 DAYS
WRITTEN NOTICE PRIOR TO THE TERM'S EXPIRATION. MOUNTAINWEST MAY ALSO TERMINATE
THE OUTSOURCING SERVICE AGREEMENT UPON 60 DAYS NOTICE.
HEADQUARTERS LEASE WITH NOVUS
SPS PAYMENT LEASES ITS HEADQUARTERS, WHICH COVER APPROXIMATELY 94,950
SQUARE FEET IN RIVERWOODS, ILLINOIS, FROM NOVUS PURSUANT TO A LEASE AGREEMENT,
DATED FEBRUARY 1, 1993 (THE "LEASE AGREEMENT"), FOR A SPECIFIED BASE RENT THAT
INCLUDES REAL ESTATE TAXES AND ADMINISTRATIVE AND OPERATING EXPENSES AND IS
SUBJECT TO ADJUSTMENTS SO THAT THE BASE RENTAL RATE WILL NOT EXCEED THE BASE
RENTAL RATE CHARGED TO ANY NOVUS SUBSIDIARY OR AFFILIATE THAT IS ALSO
HEADQUARTERED IN THE BUILDING. EFFECTIVE FEBRUARY 1, 1997, SPS PAYMENT AND
NOVUS AMENDED THE LEASE AGREEMENT TO EXTEND ITS TERM THROUGH JANUARY 31, 2000,
TO INCREASE THE SQUARE FOOTAGE UNDER THE LEASE AGREEMENT, AND TO PROVIDE THAT
THE LEASE AGREEMENT IS RENEWABLE AT SPS PAYMENT'S OPTION FOR ONE THREE-YEAR
TERM AT A SPECIFIED BASE RENTAL PER SQUARE FOOT. SPS PAYMENT ALSO HAS A LEASE
FOR APPROXIMATELY 2,400 ADDITIONAL SQUARE FEET OF OFFICE SPACE IN THE SAME
BUILDING IN RIVERWOODS, ILLINOIS, FROM NOVUS PURSUANT TO A LEASE AGREEMENT
MADE JANUARY 1, 1997, FOR A SPECIFIED BASE RENT THAT INCLUDES REAL ESTATE
TAXES AND ADMINISTRATIVE AND OPERATING EXPENSES AND IS SUBJECT TO ADJUSTMENTS
SO THAT THE BASE RENTAL WILL NOT EXCEED THE BASE RENTAL CHARGED TO ANY NOVUS
SUBSIDIARY OR AFFILIATE THAT IS ALSO HEADQUARTERED IN THE BUILDING. THE TERM
OF THE LEASE COVERING THIS ADDITIONAL SPACE ALSO EXPIRES JANUARY 31, 2000, AND
THE LEASE IS RENEWABLE AT SPS PAYMENT'S OPTION FOR ONE THREE-YEAR TERM AT A
SPECIFIED BASE RENTAL PER SQUARE FOOT.
<PAGE>
SERVICE AGREEMENT WITH NEW CASTLE
SPS PAYMENT AND DISCOVER CARD BANK OF NEW CASTLE ("NEW CASTLE") ARE
PARTIES TO A SERVICE AGREEMENT, DATED AS OF JANUARY 1, 1991 (THE "NEW CASTLE
SERVICE AGREEMENT"), PURSUANT TO WHICH SPS PAYMENT PROVIDES NEW CASTLE WITH AN
ACCOUNTS RECEIVABLE SYSTEM AND PERFORMS CERTAIN CREDIT SERVICES FOR NEW CASTLE
IN CONNECTION WITH ITS PRIVATE LABEL CREDIT CARD PROGRAM. AS COMPENSATION FOR
SUCH SERVICES, NEW CASTLE PAYS SPS PAYMENT A FEE CALCULATED AS A SPECIFIED
PERCENTAGE OF THE MONTHLY AVERAGE OF THE ACCOUNTS RECEIVABLE BALANCE FOR EACH
PRIVATE LABEL PROGRAM SERVICED PURSUANT TO THIS AGREEMENT. THE TERM OF THE NEW
CASTLE SERVICE AGREEMENT COMMENCED JANUARY 1, 1991, AND CONTINUES IN EFFECT
THEREAFTER UNLESS TERMINATED BY EITHER PARTY BY NOTICE GIVEN AT LEAST 180 DAYS
PRIOR TO AN ANNIVERSARY DATE OF THE NEW CASTLE SERVICE AGREEMENT.
<PAGE>
HISTORICAL MARKET PRICE AND DIVIDEND DATA
Shares of Common Stock are listed for trading on the NYSE under the
symbol "PAY"." The table below sets forth, for the calendar quarters
indicated, the reported high and low sale prices of the Common Stock as quoted
on the NYSE. As of the Record Date, the Company had ___ holders of record of
Common Stock. The closing market price for Common Stock on April 17, 1998, the
last trading day prior to the announcement of the proposed Sale, was $33.00.
On ______, 1998, the latest practicable trading day prior to the date of this
Proxy Statement, the closing market price for the Common Stock was $_____. At
the Effective Time, the shares of Common Stock will cease to be traded on the
NYSE.
The Company has never paid any cash dividends on the Common Stock.
HIGH LOW
---- ---
YEAR ENDED DECEMBER 31, 1996
First Quarter $32.50 $28.75
Second Quarter 30.75 17.00
Third Quarter 18.13 13.50
Fourth Quarter 18.75 14.00
YEAR ENDED DECEMBER 31, 1997
First Quarter 19.50 15.00
Second Quarter 20.88 15.00
Third Quarter 23.50 18.13
Fourth Quarter 23.94 19.38
YEAR ENDED DECEMBER 31, 1998
First Quarter 29.63 19.75
Second Quarter (through June 30, 1998) 34.13 27.31
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information with respect to the outstanding shares of
Common Stock and of common stock of MSDW beneficially owned by each director
of the Company, the Chief Executive Officer and the four other most highly
compensated executive officers of the Company, the directors and executive
officers of the Company as a group and all beneficial owners of more than 5%
of the Common Stock is furnished as of December 31, 1997. As of December 31,
1997, the Company was a 73.3% majority owned subsidiary of NOVUS, which in
turn is a wholly owned, direct subsidiary of MSDW.
<TABLE>
<CAPTION>
COMPANY MSDW
COMMON STOCK COMMON STOCK
------------------------------------- --------------- ------ ---------------
NUMBER OF PERCENT OF NUMBER OF PERCENT
NAME SHARES (1) PERCENT OF SHARES (1) OF CLASS (2)
---- ------------- ------ ---------------- --------------- ------ ---------------
<S> <C> <C> <C> <C>
Robert W. Archer................... 97,614 (3) * 67,400 (4) *
Richard F. Atkinson................ 87,590 (5) * 98,560 (6) *
Serge Uccetta...................... 13,170 (7) * 5,816 (8) *
David J. Peterson.................. 22,478 (9) * 4,129 (10) *
Robert L. Wieseneck................ 209,036 (11) * 246,970 (12) *
Frank T. Cary...................... 15,508 (13) * 0 --
Charles F. Moran................... 8,395 (14) * 19,076 (15) *
Mitchell M. Merin.................. 500 * 554,718 (16) *
Philip J. Purcell.................. 22,052 (17) * 2,659,866 (18) *
Thomas C. Schneider................ 1,002 * 1,117,801 (19) *
Dennie M. Welsh.................... 7,404 (20) * 0 --
Christine A. Edwards............... 2,002 * 571,976 (21) *
NOVUS Credit Services Inc.......... 20,000,000 73.3 0 --
2500 Lake Cook Road
Riverwoods, IL 60015
All directors and executive
officers as a group (17 persons)... 564,270 2.1 5,163,495 *
</TABLE>
- - - - ---------------------
1. To the knowledge of the Company, each holder has sole voting and
investment power with respect to the shares listed unless otherwise
indicated. The number of shares includes shares of Common Stock owned
through the SPS START and the Company's Employee Stock Purchase Plan and
shares of MSDW common stock owned through the SPS START, the Dean Witter
START Plan (Savings Today Affords Retirement Tomorrow) and the MSDW
Employee Stock Purchase Plan as of December 31, 1997. The number of
shares has been rounded to the nearest whole share.
2. Shares subject to options exercisable within 60 days of December 31, 1997
are considered outstanding for the purpose of determining the percent of
the class held by the holder of such option, but not for the purpose of
computing and the percentage held by others. Percentages less than one
percent are denoted by an asterisk.
3. Includes 84,384 shares subject to options and 10,000 shares held through
a partnership.
4. Includes 57,400 shares subject to options.
5. Includes 76,916 shares subject to options.
6. Includes 84,991 shares subject to options.
7. Includes 12,333 shares subject to options.
8. Includes 5,500 shares subject to options.
9. Includes 21,333 shares subject to options.
<PAGE>
10. Includes 1,625 shares subject to options.
11. Includes 166,908 shares subject to options, 15,763 owned jointly with Mr.
Wieseneck's spouse, 10,000 shares owned jointly with his brother and
12,936 shares owned by Mr. Wieseneck's children.
12. Includes 202,947 shares subject to options, 33,716 shares owned jointly
with Mr. Wieseneck's spouse, 6,206 shares owned jointly with his brother
and 4,101 shares owned by Mr. Wieseneck's children.
13. Includes 5,912 shares subject to options.
14. Includes 4,248 shares subject to options.
15. Includes 19,076 shares owned jointly with Mr. Moran's spouse.
16. INCLUDES 304,403 SHARES SUBJECT TO OPTIONS.
17. Includes 2,050 shares held in custodial accounts on behalf of Mr.
Purcell's children for which he is custodian, as to which Mr. Purcell
disclaims beneficial ownership.
18. Includes (1) 22,605 shares owned by Mr. Purcell's spouse, (2) 10,344 held
in custodial accounts on behalf of Mr. Purcell's children for which he is
custodian, as to which Mr. Purcell disclaims beneficial ownership, (3)
1,407,737 shares subject to options and (4) 56,055 shares corresponding
to stock unit awards granted under certain of MSDW's equity-based
employee benefit plans. The shares corresponding to the stock unit awards
are held in trust and subject to certain voting agreements between MSDW,
various employees of MSDW and the trustee of the trust that holds the
shares on behalf of such employees.
20. Includes (1) 489,344 shares subject to options and (2) 10,834 shares
corresponding to stock unit awards granted under certain of MSDW's
equity-based employee benefit plans. The shares corresponding to the
stock unit awards are held in trust and subject to certain voting
agreements between MSDW, various employees of MSDW and the trustee of the
trust that holds the shares on behalf of such employees.
21. Includes 7,404 shares subject to options.
22. Includes (1) 339,372 shares subject to options and (2) 9,771 shares
corresponding to stock unit awards granted under certain of MSDW's
equity-based employee benefit plans. The shares corresponding to the
stock unit awards are held in trust and subject to certain voting
agreements between MSDW, various employees of MSDW and the trustee of the
trust that holds the shares on behalf of such employees.
FEES AND EXPENSES
THE COMPANY ESTIMATES THAT THE FEES AND EXPENSES IN CONNECTION WITH
THE SALE AND MERGER WILL BE AS SET FORTH BELOW. THE COMPANY WILL PAY ALL OF
THESE FEES AND EXPENSES EXCEPT THAT MSDW HAS AGREED TO CONTRIBUTE $500,000 TO
THE COMPANY TO DEFRAY SUCH EXPENSES.
FILING FEES....................................$179,139
INVESTMENT BANKING FEES AND EXPENSES.........$4,442,258
INCENTIVE AMOUNT.............................$8,049,523
LEGAL FEES AND EXPENSES......................$1,222,000
PRINTING AND MAILING COSTS......................$65,000
EXCHANGE AGENT FEES AND EXPENSES................$15,000
MISCELLANEOUS.................................. $90,080
TOTAL ...................................$14,063,000
THE COMPANY WILL REIMBURSE BANKS, CUSTODIANS, FIDUCIARIES, NOMINEES,
SECURITIES DEALERS, TRUST COMPANIES AND OTHER PERSONS FOR THEIR REASONABLE
EXPENSES IN FORWARDING THIS PROXY STATEMENT TO THE STOCKHOLDERS. THE COMPANY
WILL ALSO REIMBURSE SUCH PERSONS FOR THEIR REASONABLE EXPENSES IN FORWARDING
TO THE BENEFICIAL OWNERS OF THE COMMON STOCK THE LETTER OF TRANSMITTAL AND THE
INSTRUCTIONS THERETO THAT THE EXCHANGE AGENT WILL SEND TO THE STOCKHOLDERS
FOLLOWING CONSUMMATION OF THE MERGER. THE COMPANY HAS ALSO
<PAGE>
AGREED TO INDEMNIFY THE EXCHANGE AGENT AGAINST CERTAIN LIABILITIES AND EXPENSES
IN CONNECTION WITH THE MERGER.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act and, in accordance therewith, files reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"), INCLUDING THE RULE 13-E TRANSACTION STATEMENT ON SCHEDULE 13E-3
FILED IN CONNECTION WITH THE Merger. Such reports and other information may be
inspected and copied or obtained by mail upon payment of the Commission's
prescribed rates at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W. Room 1024, Washington, D.C. 20549 and at
the following regional offices of the Commission: New York Regional Office, 7
World Trade Center, New York, New York 10048, and Chicago Regional Office, 500
West Madison Avenue, 14th Floor, Chicago, Illinois 60661. Certain reports,
proxy statements and other information filed by the Company may also be
obtained at the Commission's World Wide Web site, located at
http://www.sec.gov. The Company also files reports and other information with
the NYSE. Such reports and other information may be inspected at the offices
of the NYSE, 20 Broad Street, New York, New York 10005.
The Commission allows us to "incorporate by reference" information
into this Proxy Statement, which means that we can disclose important
information to you by referring you to another document filed separately with
the Commission. The information incorporated by reference is deemed to be part
of this Proxy Statement, except for any information superseded by information
in this Proxy Statement. This Proxy Statement incorporates by reference the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1997, Amendment No.1 thereto on Form 10-K/A filed on April 30, 1998, Quarterly
Report on Form 10-Q for quarter ended March 31, 1998 and Current Reports on
Form 8-K dated April 22, 1998 and May 5, 1998. These documents contain
important information about the Company and its financial performance.
We are also incorporating by reference additional documents that we
file with the Commission between the date of this Proxy Statement and date of
the Special Meeting.
Documents incorporated by reference are available from us without
charge, excluding all exhibits unless we have specifically incorporated by
reference an exhibit in this Proxy Statement. Stockholders may obtain
documents incorporated by reference in this Proxy Statement by requesting them
in writing or by telephone from SPS Transaction Services Inc., 2500 Lake Cook
Road, Riverwoods, Illinois 60015, Attention: Investor Relations, (847)
405-3400.
INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche LLP serves as the Company's independent public
accountants. A representative of Deloitte & Touche LLP will be at the Special
Meeting to answer questions, as appropriate, by Stockholders and will have the
opportunity to make a statement if so desired.
OTHER MATTERS
The Board of Directors knows of no other matter to be acted upon at
the meeting. However, if any other matters are properly brought before the
meeting, the persons named in the accompanying form of proxy will vote thereon
in accordance with their best judgment, unless such authority is withheld.
BY ORDER OF THE BOARD OF DIRECTORS
SPS TRANSACTION SERVICES, INC.
Riverwoods, Illinois
___________, 1998
<PAGE>
ANNEX I
OPINION OF FINANCIAL ADVISOR
PRELIMINARY DRAFT FOR
INFORMATION PURPOSES ONLY
JULY __, 1998
BOARD OF DIRECTORS
SPS TRANSACTION SERVICES, INC.
2500 LAKE COOK ROAD
RIVERWOODS, IL 60015
MEMBERS OF THE BOARD:
WE UNDERSTAND THAT SPS TRANSACTION SERVICES, INC. ("SPS" OR THE
"COMPANY") AND ASSOCIATES FIRST CAPITAL CORPORATION ("ASSOCIATES") HAVE
ENTERED INTO A STOCK PURCHASE AGREEMENT DATED AS OF APRIL 18, 1998 (THE "STOCK
PURCHASE AGREEMENT") WHICH PROVIDES FOR THE SALE (THE "SALE") BY SPS TO
ASSOCIATES OF ALL THE ISSUED AND OUTSTANDING CAPITAL STOCK OF SPS PAYMENT
SYSTEMS, INC. AND HURLEY STATE BANK (COLLECTIVELY, THE "SUBSIDIARIES") FOR
$895.7 MILLION IN CASH (THE "AGGREGATE CONSIDERATION"). WE FURTHER UNDERSTAND
THAT, AT OR IMMEDIATELY PRIOR TO THE CLOSING OF THE SALE, THE SUBSIDIARIES
SHALL DISCHARGE IN FULL ALL INTERCOMPANY DEBT DUE TO SPS OR ITS AFFILIATES
WHICH IS OUTSTANDING AS OF THE CLOSING. IN ADDITION, SPS AND SAIL ACQUISITION,
INC., ("SAIL ACQUISITION"), A WHOLLY OWNED SUBSIDIARY OF NOVUS CREDIT
SERVICES, INC. ("NOVUS"), HAVE ENTERED INTO AN AGREEMENT AND PLAN OF MERGER,
DATED AS OF JUNE 15, 1998 (THE "MERGER AGREEMENT"), WHICH PROVIDES FOR THE
MERGER (THE "MERGER") OF SAIL ACQUISITION WITH AN INTO SPS AS SOON AS
PRACTICABLE AFTER THE CLOSING OF THE SALE. PURSUANT TO THE MERGER, EACH ISSUED
AND OUTSTANDING SHARE OF COMMON STOCK, PAR VALUE $1 PER SHARE, OF SPS (THE
"SPS COMMON STOCK"), OTHER THAN SHARES HELD BY NOVUS OR ITS AFFILIATES OR AS
TO WHICH DISSENTERS' RIGHTS HAVE BEEN PERFECTED, WILL BE CONVERTED INTO THE
RIGHT TO RECEIVE NOT LESS THAN $32 IN CASH (THE "PER SHARE CONSIDERATION").
THE TERMS AND CONDITIONS OF THE SALE AND THE MERGER ARE MORE FULLY SET FORTH
IN THE STOCK PURCHASE AGREEMENT AND MERGER AGREEMENT, RESPECTIVELY.
YOU HAVE ASKED FOR OUR OPINION AS TO WHETHER (I) THE AGGREGATE
CONSIDERATION TO BE PAID BY ASSOCIATES PURSUANT TO THE STOCK PURCHASE
AGREEMENT IS FAIR FROM A FINANCIAL POINT OF VIEW TO SPS AND (II) THE PER SHARE
CONSIDERATION TO BE PAID TO HOLDERS OF SHARES OF SPS COMMON STOCK (OTHER THAN
NOVUS) PURSUANT TO THE MERGER AGREEMENT IS FAIR FROM A FINANCIAL POINT OF VIEW
TO SUCH HOLDERS.
FOR PURPOSES OF THE OPINION SET FORTH HEREIN, WE HAVE:
(I) REVIEWED CERTAIN PUBLICLY AVAILABLE FINANCIAL STATEMENTS AND
OTHER INFORMATION OF SPS;
(II) REVIEWED CERTAIN INTERNAL FINANCIAL STATEMENTS AND OTHER
FINANCIAL AND OPERATING DATA CONCERNING SPS PREPARED BY THE
MANAGEMENT OF SPS;
(III) ____ ANALYZED CERTAIN FINANCIAL PROJECTIONS PREPARED BY THE
MANAGEMENT OF SPS;
<PAGE>
(IV) DISCUSSED THE PAST AND CURRENT OPERATIONS AND FINANCIAL
CONDITION AND THE PROSPECTS OF SPS WITH SENIOR EXECUTIVES OF
SPS;
(V) REVIEWED THE REPORTED PRICES AND TRADING ACTIVITY OF SPS
COMMON STOCK;
(VI) COMPARED THE FINANCIAL PERFORMANCE OF SPS AND THE PRICES AND
TRADING ACTIVITY OF SPS COMMON STOCK WITH THAT OF CERTAIN
OTHER COMPARABLE PUBLICLY-TRADED COMPANIES AND THEIR
SECURITIES;
(VII) REVIEWED THE FINANCIAL TERMS, TO THE EXTENT PUBLICLY
AVAILABLE, OF CERTAIN COMPARABLE PRECEDENT TRANSACTIONS;
(VIII) PARTICIPATED IN DISCUSSIONS AND NEGOTIATIONS AMONG
REPRESENTATIVES OF SPS AND ASSOCIATES AND THEIR FINANCIAL
AND LEGAL ADVISORS;
(IX) REVIEWED THE STOCK PURCHASE AGREEMENT, MERGER AGREEMENT AND
CERTAIN RELATED DOCUMENTS; AND
(X) PERFORMED SUCH OTHER ANALYSES AND CONSIDERED SUCH OTHER
FACTORS AS WE HAVE DEEMED APPROPRIATE.
WE HAVE ASSUMED AND RELIED UPON WITHOUT INDEPENDENT VERIFICATION THE
ACCURACY AND COMPLETENESS OF THE INFORMATION REVIEWED BY US FOR THE PURPOSES
OF THIS OPINION. WITH RESPECT TO THE FINANCIAL PROJECTIONS, WE HAVE ASSUMED
THAT THEY HAVE BEEN REASONABLY PREPARED ON BASES REFLECTING THE BEST CURRENTLY
AVAILABLE ESTIMATES AND JUDGMENTS OF THE FUTURE FINANCIAL PERFORMANCE OF SPS.
WE HAVE NOT MADE ANY INDEPENDENT VALUATION OR APPRAISAL OF THE ASSETS OR
LIABILITIES OF SPS, NOR HAVE WE BEEN FURNISHED WITH ANY SUCH APPRAISALS. IN
ADDITION, WE HAVE ASSUMED THE SALE AND THE MERGER WILL BE CONSUMMATED IN
ACCORDANCE WITH THE TERMS SET FORTH IN THE STOCK PURCHASE AGREEMENT AND MERGER
AGREEMENT, RESPECTIVELY. OUR OPINION IS NECESSARILY BASED ON ECONOMIC, MARKET
AND OTHER CONDITIONS AS IN EFFECT ON, AND THE INFORMATION MADE AVAILABLE TO US
AS OF, THE DATE HEREOF.
WE HAVE ACTED AS FINANCIAL ADVISOR TO THE BOARD OF DIRECTORS OF SPS
IN CONNECTION WITH THIS TRANSACTION AND WILL RECEIVE A FEE FOR OUR SERVICES.
MORGAN STANLEY & CO. INCORPORATED IS AN AFFILIATE OF MORGAN STANLEY DEAN
WITTER & CO. ("MORGAN STANLEY"), WHICH OWNS APPROXIMATELY 73.3% OF THE
OUTSTANDING SHARES OF COMMON STOCK OF SPS, AND FIVE OFFICERS OF MORGAN STANLEY
OR ITS AFFILIATES, INCLUDING THE CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE
OFFICER OF MORGAN STANLEY ARE MEMBERS OF THE BOARD OF DIRECTORS OF SPS. IN
ADDITION, THE CHAIRMAN OF THE BOARD AND CHIEF FINANCIAL OFFICER OF SPS IS AN
OFFICER AND DIRECTOR OF MORGAN STANLEY. IN THE PAST, MORGAN STANLEY & CO.
INCORPORATED AND ITS AFFILIATES HAVE PROVIDED FINANCIAL ADVISORY AND FINANCING
SERVICES FOR SPS AND HAVE RECEIVED FEES FOR THE RENDERING OF THESE SERVICES.
IT IS UNDERSTOOD THAT THIS LETTER IS FOR THE INFORMATION OF THE BOARD
OF DIRECTORS OF SPS AND MAY NOT BE USED FOR ANY OTHER PURPOSE WITHOUT OUR
PRIOR WRITTEN CONSENT, EXCEPT THAT THIS OPINION MAY BE INCLUDED IN ITS
ENTIRETY IN ANY FILING WITH THE SECURITIES AND EXCHANGE COMMISSION IN
CONNECTION WITH THE SALE. IN ADDITION, WE EXPRESS NO OPINION OR RECOMMENDATION
AS TO HOW HOLDERS OF SPS COMMON STOCK SHOULD VOTE IN CONNECTION WITH THE SALE
AND THE MERGER.
BASED ON THE FOREGOING, WE ARE OF THE OPINION ON THE DATE HEREOF THAT
(I) THE AGGREGATE CONSIDERATION TO BE PAID BY ASSOCIATES PURSUANT TO THE STOCK
PURCHASE AGREEMENT IS FAIR FROM A FINANCIAL POINT OF VIEW TO SPS AND (II) THE
PER SHARE CONSIDERATION TO BE PAID TO HOLDERS (OTHER THAN NOVUS) OF SHARES OF
SPS COMMON STOCK PURSUANT TO THE MERGER AGREEMENT IS FAIR FROM A FINANCIAL
POINT OF VIEW TO SUCH HOLDERS.
VERY TRULY YOURS,
MORGAN STANLEY & CO. INCORPORATED
BY: ______________________________
R. BRADFORD EVANS
MANAGING DIRECTOR
<PAGE>
ANNEX II
SECTION 262 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
262 APPRAISAL RIGHTS. - (a) any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to ss.228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of the stockholder's shares of stock
under the circumstances described in subsections (b) and (c) of this section.
As used in this section, the word "stockholder " means a holder of record of
stock in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what is ordinarily
meant by those words and also membership or membership interest of a member of
a nonstock corporation; and the words "depository receipt" mean a receipt or
other instrument issued by a depository representing an interest in one or
more shares, or fractions thereof, solely of stock of a corporation, which
stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
effected pursuant to ss.251 (other than a merger effected pursuant to ss.251(g)
of this title), ss.252, ss.254, ss.257, ss.258, ss.263 or ss.264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or consolidation,
were either (i) listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or (ii) held of record by
more than 2,000 holders; and further provided that no appraisal rights shall
be available for any shares of stock of the constituent corporation surviving
a merger if the merger did not require for its approval the vote of the
stockholders of the surviving corporation as provided in subsection (f) of
ss.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant to
ss.ss.251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository receipts
in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more
than 2,000 holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a. and
b. of this paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a., b.
and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under ss.253 of this title is not owned
by the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
<PAGE>
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a meeting
of stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for such
meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of his shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to ss.228 or
ss.253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval
of the merger or consolidation and that appraisal rights are available for any
or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section; provided
that, if the notice is given on or after the effective date of the merger or
consolidation, such notice shall be given by the surviving or resulting
corporation to all such holders of any class or series of stock of a
constituent corporation that are entitled to appraisal rights. Such notice
may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date of
the merger or consolidation. Any stockholder entitled to appraisal rights may,
within 20 days after the date of mailing of such notice, demand in writing
from the surviving or resulting corporation the appraisal of such holder's
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such
notice did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a
second notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of such
constituent corporation that are entitled to appraisal rights of the effective
date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within
10 days after such effective date; provided, however, that if such second
notice is sent more than 20 days following the sending of the first notice,
such second notice need only be sent to each stockholder who is entitled to
appraisal rights and who has demanded appraisal of such holder's shares in
accordance with this subsection. An affidavit of the secretary or assistant
secretary or of the transfer agent of the corporation that is required to give
either notice that such notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be not
more than 10 days prior to the date the notice is given, provided, that if the
notice is given on or after the effective date of the merger or consolidation,
the record date shall be such effective date. If no record date is fixed and
the notice is given prior to the effective date, the record date shall be the
close of business on the day next preceding the day on which the notice is
given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the
<PAGE>
terms offered upon the merger or consolidation. Within 120 days after the
effective date of the merger or consolidation, any stockholder who has complied
with the requirements of subsections (a) and (d) hereof, upon written request,
shall be entitled to receive from the corporation surviving the merger or
resulting from the consolidation a statement setting forth the aggregate number
of shares not voted in favor of the merger or consolidation and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under subsection
(d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of
a copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree may
be enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court
and taxed upon the parties as the Court deems equitable in the circumstances.
Upon application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
<PAGE>
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by
CH. 120, L. `97, eff. 7-1-97.)
<PAGE>
ANNEX III
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, DATED AS OF JUNE 15, 1998, IS
ENTERED INTO BETWEEN SPS TRANSACTION SERVICES, INC., A DELAWARE CORPORATION
("SPS"), AND SAIL ACQUISITION, INC., A DELAWARE CORPORATION ("ACQUISITION").
SPS AND ACQUISITION ARE HEREINAFTER SOMETIMES COLLECTIVELY REFERRED TO AS THE
"CONSTITUENT CORPORATIONS."
W I T N E S S E T H :
WHEREAS, SPS AND ACQUISITION ARE CORPORATIONS DULY ORGANIZED AND
EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, GOVERNED BY THE PROVISIONS
OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE ("DGCL") AND OF THEIR
RESPECTIVE CERTIFICATES OF INCORPORATION AND BY-LAWS;
WHEREAS, ON THE DATE OF THIS AGREEMENT, SPS HAS AUTHORITY TO ISSUE
40,100,000 SHARES OF CAPITAL STOCK, DIVIDED INTO TWO CLASSES, NAMELY: 100,000
SHARES OF PREFERRED STOCK, PAR VALUE $1 PER SHARE ("PREFERRED STOCK"), AND
40,000,000 SHARES OF COMMON STOCK, PAR VALUE $1 PER SHARE ("COMMON STOCK");
WHEREAS, ON THE DATE OF THIS AGREEMENT, NOVUS CREDIT SERVICES INC.
("PARENT") IS DIRECTLY OR INDIRECTLY THE BENEFICIAL OWNER OF 20,000,000 SHARES
OF COMMON STOCK (THE "CONTROL SHARES");
WHEREAS, ACQUISITION IS A WHOLLY OWNED SUBSIDIARY OF PARENT;
WHEREAS, SPS HAS ENTERED INTO A STOCK PURCHASE AGREEMENT, DATED APRIL
18, 1998, WITH ASSOCIATES FIRST CAPITAL CORPORATION ("ASSOCIATES") PURSUANT TO
WHICH SPS HAS AGREED TO SELL TO ASSOCIATES SUBSTANTIALLY ALL OF SPS'S ASSETS,
CONSISTING OF ALL OF THE ISSUED AND OUTSTANDING CAPITAL STOCK OF SPS'S TWO
SUBSIDIARIES, SPS PAYMENT SYSTEMS, INC. AND HURLEY STATE BANK, FOR A PURCHASE
PRICE OF $895,696,661 IN CASH (THE "SALE");
WHEREAS, THE BOARD OF DIRECTORS OF SPS HAS ORDERED THE DISTRIBUTION
TO THE STOCKHOLDERS OF SPS OTHER THAN PARENT OF THEIR PROPORTIONATE SHARE OF
THE NET PROCEEDS FROM THE SALE;
WHEREAS, THE RESPECTIVE BOARDS OF DIRECTORS OF SPS AND ACQUISITION
HAVE, BY RESOLUTIONS DULY ADOPTED, APPROVED THIS AGREEMENT;
WHEREAS, PARENT HAS ADOPTED THIS AGREEMENT AS THE SOLE STOCKHOLDER OF
ACQUISITION; AND
WHEREAS, THE BOARD OF DIRECTORS OF SPS HAS DIRECTED THAT THIS
AGREEMENT BE SUBMITTED TO A VOTE OF ITS STOCKHOLDERS;
NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL AGREEMENTS AND
COVENANTS SET FORTH HEREIN, SPS AND ACQUISITION HEREBY AGREE AS FOLLOWS:
1. MERGER. ACQUISITION SHALL BE MERGED WITH AND INTO SPS (THE
"MERGER"), AND SPS SHALL BE THE SURVIVING CORPORATION (HEREINAFTER SOMETIMES
REFERRED TO AS THE "SURVIVING CORPORATION"). THE MERGER SHALL BECOME EFFECTIVE
UPON THE DATE AND AT THE TIME OF FILING OF A CERTIFICATE OF MERGER WITH THE
SECRETARY OF STATE OF THE STATE OF DELAWARE (THE "EFFECTIVE TIME").
2. GOVERNING DOCUMENTS. THE CERTIFICATE OF INCORPORATION OF SPS, AS
IN EFFECT IMMEDIATELY PRIOR TO THE EFFECTIVE TIME, SHALL BE THE CERTIFICATE OF
INCORPORATION OF THE SURVIVING CORPORATION WITHOUT CHANGE OR AMENDMENT UNTIL
THEREAFTER AMENDED IN ACCORDANCE WITH THE PROVISIONS THEREOF AND APPLICABLE
LAWS, AND THE BY-LAWS OF SPS, AS IN EFFECT IMMEDIATELY PRIOR TO THE EFFECTIVE
TIME, SHALL BE THE BY-LAWS OF THE SURVIVING CORPORATION WITHOUT CHANGE OR
AMENDMENT UNTIL THEREAFTER AMENDED IN ACCORDANCE WITH THE PROVISIONS THEREOF,
OF THE CERTIFICATE OF INCORPORATION OF THE SURVIVING CORPORATION AND
APPLICABLE LAWS.
<PAGE>
3. SUCCESSION. AT THE EFFECTIVE TIME, THE SEPARATE EXISTENCE OF
ACQUISITION SHALL CEASE, AND SPS SHALL BECOME ENTITLED TO ALL THE RIGHTS,
PRIVILEGES, POWERS AND FRANCHISES OF A PUBLIC AND PRIVATE NATURE, AND BE
SUBJECT TO ALL THE OBLIGATIONS, DUTIES, RESTRICTIONS AND DISABILITIES OF EACH
OF THE CONSTITUENT CORPORATIONS; AND ALL PROPERTY, REAL, PERSONAL AND MIXED,
AND ALL DEBTS DUE TO EACH OF THE CONSTITUENT CORPORATIONS ON WHATEVER ACCOUNT,
AS WELL AS STOCK SUBSCRIPTIONS AND ALL OTHER THINGS IN ACTION BELONGING TO
EACH OF THE CONSTITUENT CORPORATIONS, SHALL BE VESTED IN THE SURVIVING
CORPORATION; AND ALL AND EVERY OTHER INTEREST SHALL BE THEREAFTER AS
EFFECTUALLY THE PROPERTY OF THE SURVIVING CORPORATION AS THEY WERE OF THE
RESPECTIVE CONSTITUENT CORPORATIONS; AND THE TITLE TO ANY REAL ESTATE VESTED,
BY DEED OR OTHERWISE, IN EITHER OF SUCH CONSTITUENT CORPORATIONS SHALL NOT
REVERT OR BE IN ANY WAY IMPAIRED BY REASON OF THE MERGER, BUT ALL RIGHTS OF
CREDITORS AND ALL LIENS UPON ANY PROPERTY OF ACQUISITION SHALL BE PRESERVED
UNIMPAIRED. TO THE EXTENT PERMITTED BY LAW, ANY CLAIM EXISTING OR ACTION OR
PROCEEDINGS PENDING BY OR AGAINST EITHER OF THE CONSTITUENT CORPORATIONS MAY
BE PROSECUTED AS IF THE MERGER HAD NOT TAKEN PLACE. ALL DEBTS, LIABILITIES AND
DUTIES OF THE RESPECTIVE CONSTITUENT CORPORATIONS SHALL THENCEFORTH ATTACH TO
THE SURVIVING CORPORATION AND MAY BE ENFORCED AGAINST IT TO THE SAME EXTENT AS
IF SUCH DEBTS, LIABILITIES AND DUTIES HAD BEEN INCURRED OR CONTRACTED BY IT.
ALL CORPORATE ACTS, PLANS, POLICIES, AGREEMENTS, ARRANGEMENTS, APPROVALS AND
AUTHORIZATIONS OF ACQUISITION, ITS STOCKHOLDER, BOARD OF DIRECTORS AND
COMMITTEES THEREOF, OFFICERS AND AGENTS WHICH WERE VALID AND EFFECTIVE
IMMEDIATELY PRIOR TO THE EFFECTIVE TIME, SHALL BE TAKEN FOR ALL PURPOSES AS
THE ACTS, PLANS, POLICIES, AGREEMENTS, ARRANGEMENTS, APPROVALS AND
AUTHORIZATIONS OF THE SURVIVING CORPORATION AND SHALL BE AS EFFECTIVE AND
BINDING THEREON AS THE SAME WERE WITH RESPECT TO ACQUISITION. THE EMPLOYEES
AND AGENTS OF ACQUISITION SHALL BECOME THE EMPLOYEES AND AGENTS OF THE
SURVIVING CORPORATION AND CONTINUE TO BE ENTITLED TO THE SAME RIGHTS AND
BENEFITS WHICH THEY ENJOYED AS EMPLOYEES AND AGENTS OF ACQUISITION. THE
REQUIREMENTS OF ANY PLANS OR AGREEMENTS OF ACQUISITION INVOLVING THE ISSUANCE
OR PURCHASE BY ACQUISITION OF CERTAIN SHARES OF ITS CAPITAL STOCK SHALL BE
SATISFIED BY THE ISSUANCE OR PURCHASE OF A LIKE NUMBER OF SHARES OF THE
SURVIVING CORPORATION.
4. DIRECTORS. THE MEMBERS AT THE EFFECTIVE TIME OF THE BOARD OF
DIRECTORS OF SPS SHALL THEREAFTER BE THE MEMBERS OF THE BOARD OF DIRECTORS OF
THE SURVIVING CORPORATION UNTIL REMOVED OR REPLACED IN ACCORDANCE WITH THE
PROVISIONS OF THE SURVIVING CORPORATION'S BY-LAWS, CERTIFICATE OF
INCORPORATION AND APPLICABLE LAWS.
5. FURTHER ASSURANCES. FROM TIME TO TIME, AS AND WHEN REQUIRED BY
THE SURVIVING CORPORATION OR BY ITS SUCCESSORS OR ASSIGNS, THERE SHALL BE
EXECUTED AND DELIVERED ON BEHALF OF ACQUISITION SUCH DEEDS AND OTHER
INSTRUMENTS, AND THERE SHALL BE TAKEN OR CAUSED TO BE TAKEN BY IT ALL SUCH
FURTHER AND OTHER ACTION, AS SHALL BE APPROPRIATE, ADVISABLE OR NECESSARY IN
ORDER TO VEST, PERFECT OR CONFIRM, OF RECORD OR OTHERWISE, IN THE SURVIVING
CORPORATION THE TITLE TO AND POSSESSION OF ALL PROPERTY, INTERESTS, ASSETS,
RIGHTS, PRIVILEGES, IMMUNITIES, POWERS, FRANCHISES AND AUTHORITY OF
ACQUISITION, AND OTHERWISE TO CARRY OUT THE PURPOSES OF THIS AGREEMENT, AND
THE OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION ARE FULLY AUTHORIZED
IN THE NAME AND ON BEHALF OF ACQUISITION OR OTHERWISE, TO TAKE ANY AND ALL
SUCH ACTION AND TO EXECUTE AND DELIVER ANY AND ALL SUCH DEEDS AND OTHER
INSTRUMENTS.
6. CONVERSION OF SHARES. AT THE EFFECTIVE TIME, BY VIRTUE OF THE
MERGER AND WITHOUT ANY ACTION ON THE PART OF THE HOLDER THEREOF:
(A) EACH SHARE OF COMMON STOCK ISSUED AND OUTSTANDING
IMMEDIATELY PRIOR TO THE EFFECTIVE TIME, OTHER THAN THE CONTROL
SHARES, SHALL BE CANCELLED AND BE CONVERTED INTO, AND BECOME THE RIGHT
TO RECEIVE: (I) IN THE CASE OF SUCH SHARES OTHER THAN DISSENTING
SHARES (DEFINED BELOW), UPON COMPLIANCE WITH THE CONDITIONS SET FORTH
IN SECTION 9(B), A CASH PAYMENT EQUAL TO $32.02 (THE "MERGER
CONSIDERATION"), WITHOUT INTEREST; AND (II) IN THE CASE OF DISSENTING
SHARES, THE CONSIDERATION SET FORTH IN SECTION 7 HEREOF;
(B) EACH CONTROL SHARE ISSUED AND OUTSTANDING IMMEDIATELY
PRIOR TO THE EFFECTIVE TIME, SHALL CONTINUE TO BE AN ISSUED AND
OUTSTANDING SHARE OF CAPITAL STOCK OF THE SURVIVING CORPORATION, WITH
THE SAME RIGHTS AND PRIVILEGES ATTACHED TO SUCH SHARE IMMEDIATELY
PRIOR TO THE EFFECTIVE TIME, BUT SHALL NOT BE ENTITLED TO ANY PAYMENT,
CONSIDERATION OR OTHER DISTRIBUTION BY REASON OF THE MERGER; AND
<PAGE>
(C) EACH SHARE OF CAPITAL STOCK OF ACQUISITION, ISSUED AND
OUTSTANDING IMMEDIATELY PRIOR TO THE EFFECTIVE TIME, SHALL BE
CANCELLED AND EXTINGUISHED AND NO CONSIDERATION SHALL BE PAID
THEREFOR.
7. DISSENTING SHARES. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO
THE CONTRARY, SHARES OF COMMON STOCK WHICH ARE ISSUED AND OUTSTANDING
IMMEDIATELY PRIOR TO THE EFFECTIVE TIME AND WHICH ARE HELD BY STOCKHOLDERS
THAT HAVE NOT VOTED SUCH SHARES IN FAVOR OF THE MERGER BUT HAVE, INSTEAD,
DELIVERED A WRITTEN DEMAND FOR THE APPRAISAL OF SUCH SHARES IN THE MANNER
PROVIDED IN THE DGCL (SUCH SHARES, THE "DISSENTING SHARES") SHALL NOT BE
CONVERTED INTO OR REPRESENT THE RIGHT TO RECEIVE THE MERGER CONSIDERATION AND
THE HOLDERS THEREOF SHALL ONLY BE ENTITLED TO SUCH RIGHTS AS ARE GRANTED BY
SECTION 262 OF THE DGCL. EACH HOLDER OF DISSENTING SHARES THAT BECOMES
ENTITLED TO PAYMENT FOR SUCH SHARES AS PURSUANT TO SECTION 262 OF THE DGCL
SHALL RECEIVE PAYMENT THEREFOR FROM THE SURVIVING CORPORATION IN ACCORDANCE
WITH THE DGCL; PROVIDED HOWEVER, THAT (I) IF ANY SUCH HOLDER OF DISSENTING
SHARES SHALL HAVE FAILED TO ESTABLISH THAT IT IS ENTITLED TO APPRAISAL RIGHTS
AS PROVIDED IN SECTION 262 OF THE DGCL, OR (II) IF ANY SUCH HOLDER OF
DISSENTING SHARES SHALL HAVE EFFECTIVELY WITHDRAWN THE DEMAND FOR APPRAISAL OF
SUCH SHARES OR LOST THE RIGHT TO APPRAISAL AND PAYMENT OF SUCH SHARES UNDER
SECTION 262 OF THE DGCL, OR (III) IF NEITHER THE SURVIVING CORPORATION NOR
SUCH HOLDER OF DISSENTING SHARES SHALL HAVE FILED A PETITION DEMANDING A
DETERMINATION OF THE VALUE OF ALL DISSENTING SHARES WITHIN THE TIME PROVIDED
IN SECTION 262 OF THE DGCL, SUCH HOLDER OR HOLDERS (AS THE CASE MAY BE) SHALL
FORFEIT THE RIGHT TO APPRAISAL OF SUCH SHARES AND EACH SUCH SHARE OF COMMON
STOCK SHALL THEREUPON BE DEEMED TO HAVE BEEN CONVERTED, AS OF THE EFFECTIVE
TIME, INTO AND REPRESENT THE RIGHT TO RECEIVE FROM THE SURVIVING CORPORATION
THE MERGER CONSIDERATION, WITHOUT INTEREST THEREON, AS PROVIDED IN SECTION 6
HEREOF.
8. CONDITION TO MERGER. THE CONSUMMATION OF THE MERGER SHALL BE
SUBJECT TO THE FULFILLMENT AT OR PRIOR TO THE EFFECTIVE TIME OF THE FOLLOWING
CONDITIONS:
(A) CONSUMMATION OF THE SALE;
(B) THE MERGER AGREEMENT SHALL HAVE BEEN ADOPTED BY THE
HOLDERS OF A MAJORITY OF SHARES OF COMMON STOCK ISSUED AND
OUTSTANDING; AND
(C) NO STATUTE, RULE, REGULATION, DECREE, ORDER OR
INJUNCTION SHALL HAVE BEEN PROMULGATED, ENACTED, ENTERED OR ENFORCED
BY ANY UNITED STATES FEDERAL OR STATE GOVERNMENT, GOVERNMENTAL AGENCY
OR AUTHORITY OR COURT WHICH REMAINS IN EFFECT AND PROHIBITS,
RESTRAINS, ENJOINS OR RESTRICTS THE CONSUMMATION OF THE MERGER.
9. EXCHANGE OF CERTIFICATES.
(A) FROM AND AFTER THE EFFECTIVE TIME, A BANK OR TRUST
COMPANY TO BE DESIGNATED BY SPS (THE "EXCHANGE AGENT") SHALL ACT AS
EXCHANGE AGENT IN EFFECTING THE EXCHANGE OF THE MERGER CONSIDERATION
FOR CERTIFICATES REPRESENTING SHARES OF COMMON STOCK ENTITLED TO
PAYMENT PURSUANT TO SECTION 6 (THE "CERTIFICATES").
(B) PROMPTLY AFTER THE EFFECTIVE TIME, THE EXCHANGE AGENT
SHALL MAIL TO EACH RECORD HOLDER OF CERTIFICATES A LETTER OF
TRANSMITTAL (WHICH SHALL SPECIFY THAT DELIVERY SHALL BE EFFECTED, AND
RISK OF LOSS AND TITLE TO THE CERTIFICATES SHALL PASS, ONLY UPON
PROPER DELIVERY OF THE CERTIFICATES TO THE EXCHANGE AGENT) AND
INSTRUCTIONS FOR USE IN SURRENDERING CERTIFICATES AND RECEIVING THE
MERGER CONSIDERATION THEREFOR. UPON THE SURRENDER OF EACH CERTIFICATE,
TOGETHER WITH SUCH LETTER OF TRANSMITTAL DULY EXECUTED AND COMPLETED
IN ACCORDANCE WITH THE INSTRUCTIONS THERETO, THE HOLDER OF SUCH
CERTIFICATE SHALL BE UNCONDITIONALLY ENTITLED TO RECEIVE IN EXCHANGE
THEREFOR AN AMOUNT EQUAL TO THE MERGER CONSIDERATION MULTIPLIED BY THE
NUMBER OF SHARES OF COMMON STOCK FORMERLY REPRESENTED BY SUCH
CERTIFICATE, AND SUCH CERTIFICATE SHALL BE CANCELLED. UNTIL SO
SURRENDERED, EACH SUCH CERTIFICATE SHALL REPRESENT SOLELY THE RIGHT TO
RECEIVE, UPON COMPLIANCE WITH THE CONDITIONS SET FORTH IN THIS
SUBSECTION 9(B), AN AMOUNT EQUAL TO THE MERGER CONSIDERATION
MULTIPLIED BY THE NUMBER OF SHARES OF COMMON STOCK FORMERLY
REPRESENTED BY SUCH CERTIFICATE. NO INTEREST SHALL BE PAID OR ACCRUE
ON THE MERGER CONSIDERATION PAYABLE UPON THE SURRENDER OF THE
CERTIFICATES. IF ANY MERGER CONSIDERATION IS TO BE PAID TO A PERSON
(THE "PAYEE") OTHER THAN THE PERSON IN WHOSE NAME THE
<PAGE>
CERTIFICATESURRENDERED IN EXCHANGE THEREFOR IS REGISTERED (THE "RECORD
HOLDER"), SUCH CERTIFICATE SHALL BE ACCOMPANIED BY ALL DOCUMENTS
REQUIRED TO EVIDENCE AND EFFECT THE TRANSFER OF THE RIGHTS REPRESENTED
BY SUCH CERTIFICATE FROM THE RECORD HOLDER TO THE PAYEE, AND IT SHALL
BE A CONDITION TO SUCH EXCHANGE THAT THE PERSON REQUESTING SUCH
EXCHANGE SHALL PAY TO THE EXCHANGE AGENT ANY TRANSFER OR OTHER TAXES
REQUIRED BY REASON OF THE PAYMENT OF SUCH MERGER CONSIDERATION TO THE
PAYEE, OR THAT SUCH PERSON SHALL ESTABLISH TO THE SATISFACTION OF THE
EXCHANGE AGENT THAT SUCH TAX HAS BEEN PAID OR IS NOT APPLICABLE.
NOTWITHSTANDING THE FOREGOING, NEITHER THE EXCHANGE AGENT NOR ANY
PARTY HERETO SHALL BE LIABLE TO A HOLDER OF SHARES OF COMMON STOCK FOR
ANY MERGER CONSIDERATION DELIVERED TO A PUBLIC OFFICIAL PURSUANT TO
APPLICABLE ABANDONED PROPERTY, ESCHEAT AND SIMILAR LAWS.
(C) PROMPTLY FOLLOWING THE DATE WHICH IS 180 DAYS AFTER THE
EFFECTIVE TIME, THE EXCHANGE AGENT'S DUTIES SHALL TERMINATE, AND ANY
FUNDS DEPOSITED WITH THE EXCHANGE AGENT THAT REMAIN UNCLAIMED BY
HOLDERS OF CERTIFICATES SHALL BE PAID TO THE SURVIVING CORPORATION
UPON DEMAND. THEREAFTER, EACH HOLDER OF A CERTIFICATE MAY SURRENDER
SUCH CERTIFICATE TO THE SURVIVING CORPORATION ALONG WITH THE
APPLICABLE LETTER OF TRANSMITTAL AND (SUBJECT TO APPLICABLE ABANDONED
PROPERTY, ESCHEAT AND SIMILAR LAWS) RECEIVE IN EXCHANGE THEREFOR AN
AMOUNT EQUAL TO THE MERGER CONSIDERATION MULTIPLIED BY THE NUMBER OF
SHARES OF COMMON STOCK FORMERLY REPRESENTED BY SUCH CERTIFICATE,
WITHOUT ANY INTEREST THEREON, BUT SHALL HAVE NO GREATER RIGHTS AGAINST
THE SURVIVING CORPORATION THAN MAY BE ACCORDED TO GENERAL CREDITORS OF
THE SURVIVING CORPORATION.
(D) AFTER THE EFFECTIVE TIME, THERE SHALL BE NO TRANSFERS ON
THE STOCK TRANSFER BOOKS OF THE SURVIVING CORPORATION OF ANY SHARES OF
COMMON STOCK OTHER THAN THE CONTROL SHARES. IF, AFTER THE EFFECTIVE
TIME, CERTIFICATES (OTHER THAN CERTIFICATES RELATING TO THE CONTROL
SHARES) ARE PRESENTED TO THE SURVIVING CORPORATION OR THE EXCHANGE
AGENT, THEY SHALL BE CANCELED AND EXCHANGED FOR THE APPLICABLE MERGER
CONSIDERATION, AS PROVIDED HEREIN, SUBJECT TO APPLICABLE LAW IN THE
CASE OF DISSENTING SHARES.
10. OPTIONS.
(A) PRIOR TO THE EFFECTIVE TIME, THE BOARD OF DIRECTORS OF
SPS (OR, IF APPROPRIATE, ANY COMMITTEE THEREOF) SHALL ADOPT
APPROPRIATE RESOLUTIONS AND USE ITS REASONABLE GOOD FAITH EFFORTS TO
TAKE ALL OTHER ACTIONS NECESSARY TO PROVIDE FOR THE SURRENDER TO THE
ISSUER, EFFECTIVE AT THE EFFECTIVE TIME, OF ALL THE OUTSTANDING STOCK
OPTIONS, WARRANTS OR RIGHTS TO PURCHASE SHARES OF COMMON STOCK
HERETOFORE GRANTED (COLLECTIVELY, THE "OPTIONS") UNDER ANY OUTSTANDING
STOCK OPTION PLAN OR PURSUANT TO ANY OUTSTANDING WARRANT AGREEMENT OR
ANY OTHER OUTSTANDING PLAN, PROGRAM OR ARRANGEMENT OF SPS PROVIDING
FOR THE ISSUANCE OR GRANT OF ANY OTHER INTEREST IN RESPECT OF THE
CAPITAL STOCK OF SPS OR ANY SUBSIDIARY OF SPS (COLLECTIVELY, THE
"STOCK PLANS") ON TERMS SUCH THAT, IMMEDIATELY PRIOR TO THE EFFECTIVE
TIME, (I) EACH OPTION, WHETHER OR NOT THEN VESTED OR EXERCISABLE,
SHALL NO LONGER BE EXERCISABLE FOR THE PURCHASE OF SHARES OF COMMON
STOCK, BUT SHALL ENTITLE EACH HOLDER THEREOF, IN CANCELLATION AND
SETTLEMENT THEREFOR, TO PAYMENTS IN CASH (LESS ANY APPLICABLE
WITHHOLDING TAXES, THE "CASH PAYMENT"), AT THE EFFECTIVE TIME, EQUAL
TO THE PRODUCT OF (X) THE TOTAL NUMBER OF SHARES OF COMMON STOCK
SUBJECT TO SUCH OPTION, WHETHER OR NOT THEN VESTED OR EXERCISABLE, AND
(Y) THE EXCESS OF THE MERGER CONSIDERATION OVER THE PER-SHARE EXERCISE
PRICE OF SUCH OPTION, EACH SUCH CASH PAYMENT TO BE PAID TO EACH HOLDER
OF AN OUTSTANDING OPTION AT THE EFFECTIVE TIME, AND (II) EACH SHARE OF
COMMON STOCK PREVIOUSLY ISSUED IN THE FORM OF A GRANT OF RESTRICTED
STOCK OR GRANT OF CONTINGENT SHARES SHALL BECOME FULLY VESTED, WHETHER
OR NOT THEN VESTED; PROVIDED, HOWEVER, THAT WITH RESPECT TO ANY PERSON
SUBJECT TO SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, AND THE RULES AND REGULATIONS THEREUNDER (THE "EXCHANGE
ACT"), SUCH SURRENDER TO THE ISSUER UNDER EITHER CLAUSE (I) OR (II)
ABOVE SHALL BE APPROVED IN ADVANCE BY THE BOARD OF DIRECTORS OF SPS
(OR AN APPROPRIATE COMMITTEE THEREOF) SO AS TO CAUSE SUCH DISPOSITIONS
TO BE EXEMPT UNDER RULE 16B-3. ANY THEN OUTSTANDING STOCK APPRECIATION
RIGHTS OR LIMITED STOCK APPRECIATION RIGHTS SHALL BE CANCELED
IMMEDIATELY PRIOR TO THE EFFECTIVE TIME WITHOUT ANY PAYMENT THEREFOR,
NOTWITHSTANDING THE TERMS OF ANY STOCK PLAN. NOTWITHSTANDING ANY OTHER
PROVISION OF THIS SECTION 10 TO THE CONTRARY, THE CASH PAYMENT MAY BE
WITHHELD WITH RESPECT TO ANY OPTION UNTIL NECESSARY CONSENTS AND
RELEASES ARE OBTAINED.
<PAGE>
11. AMENDMENT. SUBJECT TO APPLICABLE LAW, THIS AGREEMENT MAY BE
AMENDED, MODIFIED OR SUPPLEMENTED, AT ANY TIME BEFORE OR AFTER ADOPTION OF
THIS AGREEMENT BY THE STOCKHOLDERS OF SPS, BY WRITTEN AGREEMENT OF THE PARTIES
HERETO AT ANY TIME PRIOR TO THE EFFECTIVE TIME WITH RESPECT TO ANY OF THE
TERMS CONTAINED HEREIN; PROVIDED, HOWEVER, AFTER THE ADOPTION OF THIS
AGREEMENT BY THE STOCKHOLDERS OF SPS, NO SUCH AMENDMENT SHALL BE MADE WHICH BY
LAW REQUIRES THE FURTHER APPROVAL OF THE STOCKHOLDERS OF SPS WITHOUT SUCH
FURTHER APPROVAL.
12. ABANDONMENT. AT ANY TIME PRIOR TO THE EFFECTIVE TIME, WHETHER
BEFORE OR AFTER THE ADOPTION OF THIS AGREEMENT BY THE STOCKHOLDERS OF SPS,
THIS AGREEMENT MAY BE TERMINATED, AND THE MERGER MAY BE ABANDONED BY THE BOARD
OF DIRECTORS OF SPS AND ACQUISITION, NOTWITHSTANDING APPROVAL OF THIS
AGREEMENT BY THE STOCKHOLDERS OF SPS, OR BY THE STOCKHOLDER OF ACQUISITION, OR
BOTH, IF, IN THE OPINION OF THE BOARD OF DIRECTORS OF SPS AND ACQUISITION,
CIRCUMSTANCES ARISE WHICH MAKE THE MERGER FOR ANY REASON INADVISABLE.
13. COUNTERPARTS. IN ORDER TO FACILITATE THE FILING AND RECORDING OF
THIS AGREEMENT, THE SAME MAY BE EXECUTED IN TWO COUNTERPARTS, BOTH OF WHICH
SHALL CONSTITUTE ONE AND THE SAME AGREEMENT.
14. INTERPRETATION. THE HEADINGS CONTAINED IN THIS AGREEMENT ARE FOR
REFERENCE PURPOSES ONLY AND SHALL NOT AFFECT IN ANY WAY THE MEANING OR
INTERPRETATION OF THIS AGREEMENT.
15. MISCELLANEOUS. THIS AGREEMENT (I) CONSTITUTES THE ENTIRE
AGREEMENT AND SUPERSEDES ALL OTHER PRIOR AGREEMENTS AND UNDERSTANDINGS, BOTH
WRITTEN AND ORAL, BETWEEN THE PARTIES, WITH RESPECT TO THE SUBJECT MATTER
HEREOF, (II) IS NOT INTENDED TO CONFER UPON ANY OTHER PERSON ANY RIGHTS OR
REMEDIES HEREUNDER, (III) SHALL NOT BE ASSIGNED BY OPERATION OF LAW OR
OTHERWISE AND (IV) SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
<PAGE>
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THIS AGREEMENT TO
BE SIGNED BY THEIR RESPECTIVE DULY AUTHORIZED OFFICERS AS OF THE DATE FIRST
ABOVE WRITTEN.
SPS TRANSACTION SERVICES, INC.
BY: /S/ THOMAS L. SCHNEIDER
NAME: THOMAS L. SCHNEIDER
TITLE: CHAIRMAN AND CHIEF FINANCIAL OFFICER
SAIL ACQUISITION, INC.
BY: /S/ PHILLIP J. PURCELL
NAME: PHILIP J. PURCELL
TITLE: PRESIDENT
<PAGE>
ANNEX IV
INFORMATION CONCERNING DIRECTORS AND OFFICERS OF
THE COMPANY, MSDW, NOVUS AND ACQUISITION
1. SET FORTH BELOW ARE THE NAME, AGE, BUSINESS ADDRESS, POSITION WITH
SPS TRANSACTION SERVICES, INC., PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND
FIVE-YEAR EMPLOYMENT HISTORY OF EACH DIRECTOR AND EXECUTIVE OFFICER OF SPS
TRANSACTION SERVICES, INC. DIRECTORS ARE INDICATED BY ASTERISK. EACH PERSON
LISTED BELOW IS A CITIZEN OF THE UNITED STATES. UNLESS OTHERWISE INDICATED, THE
ADDRESS OF THE FOLLOWING INDIVIDUALS IS 2500 LAKE COOK ROAD, RIVERWOODS,
ILLINOIS 60015. ALL OFFICERS SERVE AT THE PLEASURE OF THE BOARD OF DIRECTORS OF
SPS TRANSACTION SERVICES, INC.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT/MATERIAL POSITIONS
NAME (AGE) HELD DURING THE PAST FIVE YEARS
<S> <C>
THOMAS C. SCHNEIDER (61)* CHIEF FINANCIAL OFFICER AND DIRECTOR OF THE COMPANY SINCE ITS
FORMATION AND CHAIRMAN OF THE BOARD OF DIRECTORS OF THE COMPANY
SINCE APRIL 1997; EXECUTIVE VICE PRESIDENT AND DIRECTOR OF MSDW
SINCE MAY 1997; CHIEF STRATEGIC AND ADMINISTRATIVE OFFICER OF
MSDW FROM MAY 1997 UNTIL JUNE 1998; EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER OF DEAN WITTER, DISCOVER & CO. ("DWD")
FROM 1987 TO MAY 1997; EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER OF NOVUS SINCE 1987 AND DIRECTOR OF NOVUS SINCE
1986; CHIEF FINANCIAL OFFICER OF DEAN WITTER REYNOLDS INC.
("DWR") SINCE 1987, EXECUTIVE VICE PRESIDENT OF DWR SINCE 1984
AND DIRECTOR OF DWR SINCE 1981.
PHILIP J. PURCELL (54)* DIRECTOR OF THE COMPANY SINCE ITS FORMATION AND CHAIRMAN OF THE
BOARD OF DIRECTORS FROM ITS FORMATION TO APRIL 1997; CHAIRMAN OF
THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER OF MSDW SINCE
MAY 1997; CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE
OFFICER OF DWD FROM AUGUST 1986 TO MAY 1997; CHAIRMAN OF THE
BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER OF DWR AND NOVUS
SINCE 1986; TRUSTEE OR DIRECTOR OF APPROXIMATELY 87 REGISTERED
INVESTMENT COMPANIES FOR WHICH MORGAN STANLEY DEAN WITTER
ADVISORS INC. ("ADVISORS") SERVES AS INVESTMENT MANAGER OR
INVESTMENT ADVISER.
ROBERT L. WIESENECK (60)* PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR OF THE COMPANY
SINCE ITS FORMATION; PRESIDENT OF SPS PAYMENT SINCE 1987 AND
DIRECTOR OF SPS PAYMENT SINCE 1988; PRESIDENT AND DIRECTOR OF HSB
SINCE 1989; DIRECTOR OF NOVUS SINCE 1991 AND EXECUTIVE VICE
PRESIDENT OF NOVUS FROM DECEMBER 1986 TO APRIL 1987 AND SINCE
APRIL 1988.
CHRISTINE A. EDWARDS (45)* DIRECTOR OF THE COMPANY SINCE APRIL 1997, GENERAL COUNSEL OF THE
COMPANY SINCE 1993 AND SECRETARY OF THE COMPANY FROM ITS
FORMATION UNTIL 1997; EXECUTIVE VICE PRESIDENT, CHIEF LEGAL
OFFICER AND SECRETARY OF MSDW SINCE MAY 1997; EXECUTIVE VICE
PRESIDENT, GENERAL COUNSEL AND SECRETARY OF DWD FROM JANUARY 1991
TO MAY 1997; DIRECTOR, EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY OF DWR SINCE JANUARY 1991;
<PAGE>
DIRECTOR, EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY OF NOVUS SINCE JANUARY 1991.
MITCHELL M. MERIN (44)* DIRECTOR OF THE COMPANY SINCE 1994; PRESIDENT AND CHIEF EXECUTIVE
OFFICER OF ADVISORS SINCE 1997; EXECUTIVE VICE PRESIDENT AND
CHIEF ADMINISTRATIVE OFFICER OF DWD FROM 1994 UNTIL 1997;
EXECUTIVE VICE PRESIDENT OF DWR SINCE 1990 AND CHIEF
ADMINISTRATIVE OFFICER SINCE 1994; EXECUTIVE VICE PRESIDENT OF
NOVUS SINCE 1994 AND DIRECTOR SINCE 1994.
FRANK T. CARY (77)* DIRECTOR OF THE COMPANY SINCE 1992; CHIEF EXECUTIVE OFFICER OF
INTERNATIONAL BUSINESS MACHINES CORPORATION ("IBM") FROM 1973
UNTIL 1981 AND CHAIRMAN OF THE BOARD OF IBM FROM 1973 UNTIL 1983;
DIRECTOR OF CELGENE CORPORATION, CYGNUS THERAPEUTIC SYSTEMS, ICOS
CORPORATION, LEXMARK INTERNATIONAL, INC., LINCARE, INC., SEER
TECHNOLOGY INC. AND TELTREND INC.
CHARLES F. MORAN (68)* DIRECTOR OF THE COMPANY SINCE ITS FORMATION; DIRECTOR OF HSB
SINCE JANUARY 1996; SENIOR VICE PRESIDENT, ADMINISTRATION OF
SEARS, ROEBUCK AND CO. ("SEARS") FROM 1989 UNTIL HIS RETIREMENT
IN 1993; DIRECTOR OF THERMADYNE HOLDINGS INC., DONNELLEY
ENTERPRISE SOLUTIONS INC. AND ADVANTICA RESTAURANT GROUP INC.
DENNIE M. WELSH (55)* DIRECTOR OF THE COMPANY SINCE 1993; SENIOR VICE PRESIDENT OF IBM
SINCE JANUARY 1998; SENIOR VICE PRESIDENT AND GROUP EXECUTIVE,
IBM GLOBAL SERVICES FROM APRIL 1997 UNTIL DECEMBER 1997 AND
GENERAL MANAGER, IBM GLOBAL SERVICES FROM JANUARY 1995 UNTIL
APRIL 1997; CHAIRMAN OF THE BOARD OF DIRECTORS OF INTEGRATED
SYSTEMS SOLUTIONS CORPORATION, A WHOLLY OWNED SUBSIDIARY OF IBM,
AND PRESIDENT AND CHIEF EXECUTIVE OFFICER FROM 1991 UNTIL 1993.
ROBERT W. ARCHER (59) SENIOR VICE PRESIDENT - SALES/OPERATIONS OF THE COMPANY AND OF
SPS PAYMENT SINCE 1997; SENIOR VICE PRESIDENT - SALES AND SENIOR
VICE PRESIDENT OF SPS PAYMENT FROM 1994 TO 1997; VICE PRESIDENT
-- SALES FROM 1992 UNTIL 1994 AND VICE PRESIDENT OF SPS PAYMENT
FROM 1988 UNTIL 1994.
RICHARD F. ATKINSON (61) SENIOR VICE PRESIDENT -- PRIVATE LABEL CONSUMER OF THE COMPANY
AND OF SPS PAYMENT SINCE 1997; SENIOR VICE PRESIDENT --
OPERATIONS OF THE COMPANY AND SENIOR VICE PRESIDENT OF SPS
PAYMENT FROM 1994 UNTIL 1997; VICE PRESIDENT -- OPERATIONS FROM
1992 UNTIL 1994 AND VICE PRESIDENT OF SPS PAYMENT FROM 1986 UNTIL
1994; SENIOR VICE PRESIDENT OF HSB SINCE 1991.
DAVID J. PETERSON (40) SENIOR VICE PRESIDENT -- COMMERCIAL TECHNOLOGY SERVICES OF THE
COMPANY AND OF SPS PAYMENT SINCE 1997; VICE PRESIDENT -- NETWORK
SERVICES AND CORPORATE DEVELOPMENT FROM 1995 TO 1997 AND VICE
PRESIDENT -- CORPORATE DEVELOPMENT FROM 1994 UNTIL 1995;
INVESTMENT BANKER FOR DWR FROM 1987 UNTIL 1993.
RUSSELL J. BONAGUIDI (46) VICE PRESIDENT AND CONTROLLER OF THE COMPANY SINCE 1994; VICE
PRESIDENT AND CONTROLLER OF HSB AND SPS PAYMENT SINCE 1994;
<PAGE>
NATIONAL MANAGER OF CREDIT CARD BANKING FOR SEARS FROM 1992 UNTIL
1994 AND VICE PRESIDENT -- CONTROLLER OF PRIME OPTION SERVICES,
INC. (AN AFFILIATE OF THE COMPANY) FROM 1990 UNTIL 1992.
ROBERT J. FERKENHOFF (55) VICE PRESIDENT AND CHIEF INFORMATION OFFICER OF THE COMPANY SINCE
1994 AND OF SPS PAYMENT SINCE 1993; VICE PRESIDENT -- INFORMATION
TECHNOLOGY FROM 1993 UNTIL 1994 AND VICE PRESIDENT -- INFORMATION
SERVICES FOR SEARS MERCHANDISE GROUP FROM 1989 UNTIL 1993.
LARRY H. MYATT (54) VICE PRESIDENT -- MARKETING AND ADMINISTRATION OF THE COMPANY AND
OF SPS PAYMENT SINCE 1996; VICE PRESIDENT -- MARKETING AND
PRODUCT DEVELOPMENT FROM 1992 UNTIL 1996 AND VICE PRESIDENT OF
SPS PAYMENT SINCE 1986.
RUTH M. O'BRIEN (44) VICE PRESIDENT -- TELESERVICES OF THE COMPANY AND OF SPS PAYMENT
SINCE 1996; DIRECTOR OF OPERATIONAL OUTSOURCING FOR SPS PAYMENT
AND DIRECTOR OF CLIENT SERVICES FOR SPS PAYMENT FROM 1994 UNTIL
1996, AND FROM 1990 UNTIL 1994, RESPECTIVELY.
SERGE J. UCCETTA (52) VICE PRESIDENT -- PRIVATE LABEL COMMERCIAL OF THE COMPANY AND OF
SPS PAYMENT SINCE 1997; VICE PRESIDENT -- CARD SERVICES FROM 1995
TO 1996 AND VICE PRESIDENT -- CARD SERVICES OF SPS PAYMENT SINCE
1993; DIRECTOR OF COMMERCIAL ACCOUNTS FROM 1993 UNTIL 1995;
DIRECTOR -- STRATEGIC PROGRAMS OF CITIBANK FROM 1991 UNTIL 1993.
MARY ANN WARNIMENT (48) VICE PRESIDENT -- ELECTRONIC MARKETING OF THE COMPANY AND OF SPS
PAYMENT SINCE 1997; VICE PRESIDENT - ELECTRONIC INFORMATION
SERVICES FROM 1993 TO 1997 AND VICE PRESIDENT OF SPS PAYMENT
SINCE 1990; VICE PRESIDENT -- INFORMATION TECHNOLOGY FROM 1992
UNTIL 1993.
</TABLE>
<PAGE>
2. SET FORTH BELOW ARE THE NAME, AGE, BUSINESS ADDRESS, POSITION WITH
MORGAN STANLEY DEAN WITTER & CO., PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND
FIVE-YEAR EMPLOYMENT HISTORY OF EACH DIRECTOR AND EXECUTIVE OFFICER OF MORGAN
STANLEY DEAN WITTER & CO. DIRECTORS ARE INDICATED BY ASTERISK. EACH PERSON
LISTED BELOW IS A CITIZEN OF THE UNITED STATES. UNLESS OTHERWISE INDICATED, THE
ADDRESS OF THE FOLLOWING INDIVIDUALS IS 1585 BROADWAY, NEW YORK, NEW YORK 10036.
ALL OFFICERS SERVE AT THE PLEASURE OF THE BOARD OF DIRECTORS OF MORGAN STANLEY
DEAN WITTER & CO.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT/MATERIAL POSITIONS
NAME (AGE) HELD DURING THE PAST FIVE YEARS
---------- -------------------------------
<S> <C>
PHILIP J. PURCELL (54)* CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER OF
MSDW SINCE THE MERGER OF MORGAN STANLEY GROUP INC. ("MSG") WITH
AND INTO DWD ON MAY 31, 1997 (THE "MSDW MERGER"); CHAIRMAN OF THE
BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER OF DWD FROM AUGUST
1986 UNTIL THE MSDW MERGER; CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER OF DWR AND NOVUS SINCE 1986; TRUSTEE
OR DIRECTOR OF APPROXIMATELY 87 REGISTERED INVESTMENT COMPANIES
FOR WHICH ADVISORS SERVES AS INVESTMENT MANAGER OR INVESTMENT
ADVISER; DIRECTOR OF THE COMPANY SINCE ITS FORMATION AND CHAIRMAN
OF THE BOARD OF DIRECTORS FROM ITS FORMATION TO APRIL 1997.
JOHN J. MACK (53)* PRESIDENT, CHIEF OPERATING OFFICER AND DIRECTOR OF MSDW SINCE THE
MSDW MERGER; DIRECTOR AND MANAGING DIRECTOR OF MORGAN STANLEY &
CO. INCORPORATED ("MS&CO.") SINCE JANUARY 1979 AND PRESIDENT FROM
JUNE 1993 TO MAY 1997; PRESIDENT OF MSG FROM JUNE 1993 UNTIL THE
MSDW MERGER; CHAIRMAN OF MSG'S OPERATING COMMITTEE FROM MARCH
1992 UNTIL THE MSDW MERGER; DIRECTOR AND A MANAGING DIRECTOR OF
MSG FROM DECEMBER 1987 UNTIL THE MSDW MERGER.
THOMAS C. SCHNEIDER (61)* DIRECTOR AND EXECUTIVE VICE PRESIDENT OF MSDW SINCE THE MSDW
MERGER; CHIEF STRATEGIC AND ADMINISTRATIVE OFFICER OF MSDW FROM
THE MSDW MERGER UNTIL JUNE 1998; EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER OF DWD FROM 1987 TO MAY 1997; EXECUTIVE
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER OF NOVUS SINCE 1987
AND DIRECTOR OF NOVUS SINCE 1986; CHIEF FINANCIAL OFFICER OF DWR
SINCE 1987, EXECUTIVE VICE PRESIDENT OF DWR SINCE 1984 AND
DIRECTOR OF DWR SINCE 1981; CHIEF FINANCIAL OFFICER AND DIRECTOR
OF THE COMPANY SINCE ITS FORMATION AND CHAIRMAN OF THE BOARD OF
DIRECTORS SINCE APRIL 1997.
ROBERT P. BAUMAN (67)* DIRECTOR OF MSDW SINCE THE MSDW MERGER AND DIRECTOR OF MSG FROM
APRIL 1996 UNTIL THE MSDW MERGER; NON-EXECUTIVE CHAIRMAN OF
BRITISH AEROSPACE PLC FROM MAY 1994 UNTIL MAY 1998; CHAIRMAN OF
BTR PLC SINCE MAY 1998 AND DEPUTY CHAIRMAN AND NON-EXECUTIVE
DIRECTOR OF BTR PLC FROM OCTOBER 1997 UNTIL MAY 1998; CHIEF
EXECUTIVE OFFICER OF SMITHKLINE BEECHAM PLC FROM 1989 UNTIL APRIL
1994; DIRECTOR OF CIGNA CORPORATION SINCE 1990 AND UNION PACIFIC
CORPORATION SINCE 1987; NON-EXECUTIVE DIRECTOR OF REUTERS
HOLDINGS PLC SINCE MARCH 1994.
<PAGE>
EDWARD A. BRENNAN (64)* DIRECTOR OF MSDW SINCE THE MSDW MERGER AND DIRECTOR OF DWD FROM
FEBRUARY 1993 UNTIL THE MSDW MERGER; FORMER CHAIRMAN OF THE BOARD
OF DIRECTORS, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF SEARS,
HAVING SERVED IN SUCH CAPACITIES FOR MORE THAN FIVE YEARS UNTIL
HIS RETIREMENT IN AUGUST 1995; DIRECTOR OF AMR CORPORATION SINCE
OCTOBER 1997, MINNESOTA MINING AND MANUFACTURING COMPANY SINCE
MAY 1986, THE ALLSTATE CORPORATION ("ALLSTATE") SINCE FEBRUARY
1993, UNICOM CORPORATION SINCE SEPTEMBER 1995, DEAN FOODS COMPANY
AND THE SABRE GROUP HOLDINGS, INC. SINCE MARCH 1996.
DIANA D. BROOKS (47)* DIRECTOR OF MSDW SINCE DECEMBER 1997; PRESIDENT AND CHIEF
EXECUTIVE OFFICER OF SOTHEBY'S HOLDINGS, INC. SINCE APRIL 1994;
PRESIDENT AND CHIEF EXECUTIVE OFFICER OF SOTHEBY'S WORLDWIDE
AUCTION BUSINESS FROM APRIL 1993 TO APRIL 1994 AND OF SOTHEBY'S
NORTH AMERICA FROM NOVEMBER 1992 TO APRIL 1993.
CLARENCE B. ROGERS, JR. (68)* DIRECTOR OF MSDW SINCE THE MSDW MERGER AND DIRECTOR OF DWD FROM
FEBRUARY 1993 TO THE MSDW MERGER; CHAIRMAN OF THE BOARD OF
DIRECTORS OF EQUIFAX INC. SINCE OCTOBER 1992; CHAIRMAN OF THE
BOARD OF DIRECTORS OF CHOICEPOINT INC. SINCE AUGUST 1997; CHIEF
EXECUTIVE OFFICER OF EQUIFAX FOR MORE THAN FIVE YEARS UNTIL
DECEMBER 1995; DIRECTOR OF SEARS, BRIGGS & STRATTON CORPORATION,
OXFORD INDUSTRIES, INC. AND TELEPORT COMMUNICATIONS GROUP, INC.
RICHARD B. FISHER (61)* DIRECTOR AND CHAIRMAN OF THE EXECUTIVE COMMITTEE OF THE BOARD OF
DIRECTORS OF MSDW SINCE THE MSDW MERGER; CHAIRMAN OF THE BOARD OF
DIRECTORS OF MS&CO. SINCE JANUARY 1991 AND DIRECTOR AND MANAGING
DIRECTOR OF MS&CO. SINCE JULY 1970; CHAIRMAN OF THE BOARD OF
DIRECTORS AND MANAGING DIRECTOR OF MSG FROM JANUARY 1991 UNTIL
THE MSDW MERGER; MANAGING DIRECTOR OF MSG FROM JULY 1975 UNTIL
THE MSDW MERGER; DIRECTOR OF MSG FROM JULY 1975 TO DECEMBER 1990;
PRESIDENT OF MSG FROM JANUARY 1984 UNTIL JANUARY 1993.
MILES L. MARSH (50)* DIRECTOR OF MSDW SINCE THE MSDW MERGER AND DIRECTOR OF DWD FROM
DECEMBER 1996 UNTIL THE MSDW MERGER; CHAIRMAN AND CHIEF EXECUTIVE
OFFICER OF FORT JAMES CORPORATION SINCE AUGUST 1997; CHAIRMAN OF
JAMES RIVER CORPORATION FROM JANUARY 1996 UNTIL AUGUST 1997 AND
PRESIDENT AND CHIEF EXECUTIVE OFFICER FROM OCTOBER 1995 UNTIL
AUGUST 1997; CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF PET INC.
FROM MARCH 1991 TO FEBRUARY 1995; DIRECTOR OF GATX CORPORATION
AND WHIRLPOOL CORPORATION.
LAURA D'ANDREA TYSON (51)* DIRECTOR OF MSDW SINCE THE MSDW MERGER AND DIRECTOR OF MSG FROM
APRIL 1997 UNTIL THE MSDW MERGER; DEAN, HAAS SCHOOL OF BUSINESS,
UNIVERSITY OF CALIFORNIA BERKELEY SINCE JULY 1998; CLASS OF 1939
PROFESSOR OF ECONOMICS AND BUSINESS ADMINISTRATION AT THE
UNIVERSITY OF CALIFORNIA, BERKELEY SINCE JANUARY 1997; SERVED
FROM JANUARY 1993 THROUGH MARCH 1995 AS THE 16TH CHAIR OF THE
WHITE HOUSE COUNCIL OF ECONOMIC ADVISORS AND FROM APRIL 1995
THROUGH DECEMBER 1996 AS CHAIR OF THE PRESIDENT'S NATIONAL
ECONOMIC COUNCIL AND THE
<PAGE>
PRESIDENT'S NATIONAL ECONOMIC ADVISOR; DIRECTOR OF AMERITECH
CORPORATION SINCE APRIL 1997 AND EASTMAN KODAK COMPANY SINCE MAY 1997.
DANIEL B. BURKE (69)* DIRECTOR OF MSDW SINCE THE MSDW MERGER AND DIRECTOR OF MSG FROM
FEBRUARY 1994 UNTIL THE MSDW MERGER; CHIEF EXECUTIVE OFFICER OF
CAPITAL CITIES/ABC, INC. ("CAPITAL CITIES") FROM 1990 UNTIL HE
RETIRED IN FEBRUARY 1994; PRESIDENT AND CHIEF OPERATING OFFICER
OF CAPITAL CITIES FROM 1986 UNTIL FEBRUARY 1994 AND DIRECTOR FROM
1967 UNTIL FEBRUARY 1996; DIRECTOR OF CONSOLIDATED RAIL
CORPORATION, DARDEN RESTAURANTS, INC., ROHM AND HAAS COMPANY AND
THE WASHINGTON POST COMPANY.
C. ROBERT KIDDER (53)* DIRECTOR OF MSDW SINCE THE MSDW MERGER AND DIRECTOR OF DWD FROM
JULY 1993 UNTIL THE MSDW MERGER; CHAIRMAN OF THE BOARD OF
DIRECTORS AND CHIEF EXECUTIVE OFFICER OF BORDEN, INC. SINCE
JANUARY 1995; CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF DURACELL
INTERNATIONAL INC. FROM AUGUST 1991 TO OCTOBER 1994; DIRECTOR OF
AEP INDUSTRIES INC. AND ELECTRONIC DATA SYSTEMS CORPORATION.
MICHAEL A. MILES (59)* DIRECTOR OF MSDW SINCE THE MSDW MERGER AND DIRECTOR OF DWD FROM
FEBRUARY 1993 TO MAY 1994 AND FROM JANUARY 1995 TO MAY 1997;
SPECIAL LIMITED PARTNER IN FORSTMANN LITTLE & COMPANY SINCE
JANUARY 1995; CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF
EXECUTIVE OFFICER OF PHILIP MORRIS COMPANIES INC. FROM SEPTEMBER
1991 TO JULY 1994; DIRECTOR OF SEARS, ALLSTATE, TIME WARNER INC.
AND DELL COMPUTER CORPORATION.
ALLEN E. MURRAY (69)* DIRECTOR OF MSDW SINCE THE MSDW MERGER AND DIRECTOR OF MSG FROM
NOVEMBER 1992 UNTIL THE MSDW MERGER; CHAIRMAN OF THE BOARD OF
DIRECTORS AND CHIEF EXECUTIVE OFFICER OF MOBIL CORPORATION
("MOBIL") FROM FEBRUARY 1986 UNTIL HIS RETIREMENT IN MARCH 1994,
AND DIRECTOR FROM MAY 1977 UNTIL MARCH 1994; PRESIDENT AND CHIEF
OPERATING OFFICER OF MOBIL FROM NOVEMBER 1984 UNTIL MARCH 1993;
DIRECTOR OF LOCKHEED MARTIN CORPORATION, METROPOLITAN LIFE
INSURANCE COMPANY AND MINNESOTA MINING AND MANUFACTURING COMPANY.
ROBERT G. SCOTT (52) EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER OF MSDW
SINCE THE MSDW MERGER; DIRECTOR AND MANAGING DIRECTOR OF MS&CO.
SINCE 1979 AND CHIEF FINANCIAL OFFICER SINCE MAY 1997; HEAD OF
INVESTMENT BANKING FOR MS&CO. FROM 1994 TO 1996; HEAD OF
WORLDWIDE CORPORATE FINANCE FOR MS&CO. FROM 1992 TO 1994.
CHRISTINE A. EDWARDS (45) EXECUTIVE VICE PRESIDENT, CHIEF LEGAL OFFICER AND SECRETARY OF
MSDW SINCE THE MSDW MERGER; EXECUTIVE VICE PRESIDENT, GENERAL
COUNSEL AND SECRETARY OF DWD FROM JANUARY 1991 UNTIL THE MSDW
MERGER; DIRECTOR, EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY OF DWR SINCE JANUARY 1991; DIRECTOR, EXECUTIVE VICE
PRESIDENT, GENERAL COUNSEL AND SECRETARY OF NOVUS SINCE JANUARY
1991; DIRECTOR OF THE COMPANY SINCE APRIL 1997, GENERAL COUNSEL
OF THE COMPANY
<PAGE>
SINCE 1993 AND SECRETARY OF THE COMPANY FROM ITS
FORMATION UNTIL 1997.
JOHN H. SCHAEFER (46) EXECUTIVE VICE PRESIDENT AND CHIEF STRATEGIC AND ADMINISTRATIVE
OFFICER OF MSDW SINCE JUNE 1998; MANAGING DIRECTOR-STRATEGIC
PLANNING AND CAPITAL ALLOCATION OF MSDW FROM THE MSDW MERGER
UNTIL JUNE 1998; EXECUTIVE VICE PRESIDENT AND DIRECTOR OF
CORPORATE FINANCE OF DWR FROM 1991 UNTIL THE MSDW MERGER.
</TABLE>
<PAGE>
3. SET FORTH BELOW ARE THE NAME, AGE, BUSINESS ADDRESS, POSITION WITH
NOVUS CREDIT SERVICES INC., PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND
FIVE-YEAR EMPLOYMENT HISTORY OF EACH DIRECTOR AND EXECUTIVE OFFICER OF NOVUS
CREDIT SERVICES INC. DIRECTORS ARE INDICATED BY ASTERISK. EACH PERSON LISTED
BELOW IS A CITIZEN OF THE UNITED STATES. UNLESS OTHERWISE INDICATED, THE ADDRESS
OF THE FOLLOWING INDIVIDUALS IS 2500 LAKE COOK ROAD, RIVERWOODS, ILLINOIS 60015.
ALL OFFICERS SERVE AT THE PLEASURE OF THE BOARD OF DIRECTORS OF NOVUS CREDIT
SERVICES INC.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT/MATERIAL POSITIONS
NAME (AGE) HELD DURING THE PAST FIVE YEARS
<S> <C>
PHILIP J. PURCELL (54)* CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER OF
NOVUS AND DWR SINCE 1986; CHAIRMAN OF THE BOARD OF DIRECTORS AND
CHIEF EXECUTIVE OFFICER OF MSDW SINCE THE MSDW MERGER; CHAIRMAN
OF THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER OF DWD FROM
AUGUST 1986 UNTIL THE MSDW MERGER; TRUSTEE OR DIRECTOR OF
APPROXIMATELY 87 REGISTERED INVESTMENT COMPANIES FOR WHICH
ADVISORS SERVES AS INVESTMENT MANAGER OR INVESTMENT ADVISER;
DIRECTOR OF THE COMPANY SINCE ITS FORMATION AND CHAIRMAN OF THE
BOARD OF DIRECTORS FROM ITS FORMATION TO APRIL 1997.
THOMAS C. SCHNEIDER (60)* EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER OF NOVUS
SINCE 1987 AND DIRECTOR OF NOVUS SINCE 1986; EXECUTIVE VICE
PRESIDENT AND DIRECTOR OF MSDW SINCE THE MSDW MERGER; CHIEF
STRATEGIC AND ADMINISTRATIVE OFFICER OF MSDW FROM THE MSDW MERGER
TO JUNE 1998; EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER OF DWD FROM 1987 TO MAY 1997; CHIEF FINANCIAL OFFICER OF
DWR SINCE 1987, EXECUTIVE VICE PRESIDENT OF DWR SINCE 1984 AND
DIRECTOR OF DWR SINCE 1981; CHIEF FINANCIAL OFFICER AND DIRECTOR
OF THE COMPANY SINCE ITS FORMATION AND CHAIRMAN OF THE BOARD OF
DIRECTORS SINCE APRIL 1997.
ROBERT L. WIESENECK (60)* DIRECTOR OF NOVUS SINCE 1991 AND EXECUTIVE VICE PRESIDENT OF
NOVUS FROM DECEMBER 1986 TO APRIL 1987 AND SINCE APRIL 1988;
PRESIDENT OF SPS PAYMENT SINCE 1987 AND DIRECTOR OF SPS PAYMENT
SINCE 1988; PRESIDENT AND DIRECTOR OF HSB SINCE 1989; PRESIDENT,
CHIEF EXECUTIVE OFFICER AND DIRECTOR OF THE COMPANY SINCE ITS
FORMATION.
CHRISTINE A. EDWARDS (45)* DIRECTOR, EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
OF NOVUS SINCE 1991; EXECUTIVE VICE PRESIDENT, CHIEF LEGAL
OFFICER AND SECRETARY OF MSDW SINCE THE MSDW MERGER; EXECUTIVE
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY OF DWD FROM JANUARY
1991 UNTIL THE MSDW MERGER; DIRECTOR, EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY OF DWR SINCE JANUARY 1991; DIRECTOR
OF THE COMPANY SINCE APRIL 1997 AND GENERAL COUNSEL OF THE
COMPANY SINCE 1993; SECRETARY OF THE COMPANY FROM ITS FORMATION
UNTIL 1997.
MITCHELL M. MERIN (44)* EXECUTIVE VICE PRESIDENT OF NOVUS SINCE 1994 AND DIRECTOR OF
NOVUS SINCE 1994; PRESIDENT AND CHIEF EXECUTIVE OFFICER OF
ADVISORS SINCE 1997; EXECUTIVE VICE PRESIDENT AND CHIEF
<PAGE>
ADMINISTRATIVE OFFICER OF DWD FROM 1994 UNTIL 1997; EXECUTIVE
VICE PRESIDENT OF DWR SINCE 1990 AND CHIEF ADMINISTRATIVE OFFICER
OF DWR SINCE 1994; DIRECTOR OF THE COMPANY SINCE 1994.
THOMAS R. BUTLER (55)* EXECUTIVE VICE PRESIDENT AND DIRECTOR OF NOVUS SINCE 1986;
PRESIDENT OF NOVUS SERVICES FROM 1986 UNTIL 1990 AND SINCE 1995
AND CHIEF OPERATING OFFICER SINCE 1995; EXECUTIVE VICE PRESIDENT
OF DWD FROM 1993 UNTIL 1997; DIRECTOR OF THE COMPANY FROM 1992
UNTIL 1997.
NANCY S. DONOVAN (46)* DIRECTOR OF NOVUS SINCE 1986 AND EXECUTIVE VICE PRESIDENT SINCE
1989; PRESIDENT AND CHIEF OPERATING OFFICER OF NOVUS FINANCIAL
CORPORATION (FORMERLY THE CONSUMER FINANCE DIVISION OF SEARS
CONSUMER FINANCIAL CORPORATION) SINCE 1989; AND EXECUTIVE VICE
PRESIDENT OF DWD FROM 1992 UNTIL 1993.
WILLIAM L. HODGES (50)* DIRECTOR OF NOVUS SINCE 1991 AND EXECUTIVE VICE PRESIDENT FROM
1995 UNTIL 1996; EXECUTIVE VICE PRESIDENT OF NOVUS SERVICES SINCE
1994 AND SENIOR VICE PRESIDENT FROM 1988 UNTIL 1994.
ROBERT E. WOOD II (60)* DIRECTOR OF NOVUS SINCE 1987 AND SENIOR EXECUTIVE VICE PRESIDENT FROM
1993 UNTIL 1994; EXECUTIVE VICE PRESIDENT OF NOVUS SERVICES SINCE
1994; SENIOR EXECUTIVE VICE PRESIDENT AND CHIEF ADMINISTRATIVE
OFFICER OF DWD FROM 1988 UNTIL 1995; DIRECTOR OF THE COMPANY FROM
1992 UNTIL 1995.
B.J. MARTIN (64)* DIRECTOR OF NOVUS SINCE 1989 AND EXECUTIVE VICE PRESIDENT SINCE
1991; DIRECTOR OF MOUNTAINWEST SINCE 1991 AND CHAIRMAN OF THE
BOARD OF DIRECTORS OF MOUNTAINWEST FROM 1991 UNTIL 1998.
</TABLE>
<PAGE>
4. SET FORTH BELOW ARE THE NAME, AGE, BUSINESS ADDRESS, POSITION WITH
SAIL ACQUISITION, INC., PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND FIVE-YEAR
EMPLOYMENT HISTORY OF EACH DIRECTOR AND EXECUTIVE OFFICER OF SAIL ACQUISITION,
INC. DIRECTORS ARE INDICATED BY ASTERISK. EACH PERSON LISTED BELOW IS A CITIZEN
OF THE UNITED STATES. UNLESS OTHERWISE INDICATED, THE ADDRESS OF THE FOLLOWING
INDIVIDUALS IS 2500 LAKE COOK ROAD, RIVERWOODS, ILLINOIS 60015. ALL OFFICERS
SERVE AT THE PLEASURE OF THE BOARD OF DIRECTORS OF SAIL ACQUISITION, INC.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT/MATERIAL POSITIONS
NAME (AGE) HELD DURING THE PAST FIVE YEARS
<S> <C>
PHILIP J. PURCELL (54)* CHAIRMAN OF THE BOARD OF DIRECTORS AND PRESIDENT OF ACQUISITION
SINCE ITS FORMATION; CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF
EXECUTIVE OFFICER OF MSDW SINCE THE MSDW MERGER; CHAIRMAN OF THE
BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER OF DWD FROM AUGUST
1986 UNTIL THE MSDW MERGER; CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER OF DWR AND NOVUS SINCE 1986; TRUSTEE
OR DIRECTOR OF APPROXIMATELY 87 REGISTERED INVESTMENT COMPANIES
FOR WHICH ADVISORS SERVES AS INVESTMENT MANAGER OR INVESTMENT
ADVISER; DIRECTOR OF THE COMPANY SINCE ITS FORMATION AND CHAIRMAN
OF THE BOARD OF DIRECTORS FROM ITS FORMATION TO APRIL 1997.
ROBERT G. SCOTT (52)* VICE PRESIDENT, TREASURER AND DIRECTOR OF ACQUISITION SINCE ITS
FORMATION; EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
OF MSDW SINCE THE MSDW MERGER; DIRECTOR AND MANAGING DIRECTOR OF
MS&CO. SINCE 1979 AND CHIEF FINANCIAL OFFICER SINCE MAY 1997;
HEAD OF INVESTMENT BANKING FOR MS&CO. FROM 1994 TO 1996; HEAD OF
WORLDWIDE CORPORATE FINANCE FOR MS&CO. FROM 1992 TO 1994.
CHRISTINE A. EDWARDS (45)* VICE PRESIDENT, SECRETARY AND DIRECTOR OF ACQUISITION SINCE ITS
FORMATION; EXECUTIVE VICE PRESIDENT, CHIEF LEGAL OFFICER AND
SECRETARY OF MSDW SINCE THE MSDW MERGER; EXECUTIVE VICE
PRESIDENT, GENERAL COUNSEL AND SECRETARY OF DWD FROM JANUARY 1991
UNTIL THE MSDW MERGER; DIRECTOR, EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY OF DWR SINCE JANUARY 1991;
DIRECTOR, EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
OF NOVUS SINCE JANUARY 1991; DIRECTOR OF THE COMPANY SINCE APRIL
1997, GENERAL COUNSEL OF THE COMPANY SINCE 1993 AND SECRETARY OF
THE COMPANY FROM ITS FORMATION UNTIL 1997.
THOMAS C. SCHNEIDER (60)* VICE PRESIDENT AND DIRECTOR OF ACQUISITION SINCE ITS FORMATION;
EXECUTIVE VICE PRESIDENT AND DIRECTOR AND EXECUTIVE VICE
PRESIDENT OF MSDW SINCE THE MSDW MERGER; CHIEF STRATEGIC AND
ADMINISTRATIVE OFFICER OF MSDW FROM THE MSDW MERGER UNTIL JUNE
1998; EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER OF DWD
FROM 1987 TO MAY 1997; EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER OF NOVUS SINCE 1987 AND DIRECTOR OF NOVUS SINCE
1986; CHIEF FINANCIAL OFFICER OF DWR SINCE 1987, EXECUTIVE VICE
PRESIDENT OF DWR SINCE 1984 AND DIRECTOR OF DWR SINCE 1981; CHIEF
FINANCIAL OFFICER AND DIRECTOR OF THE COMPANY SINCE ITS FORMATION
AND CHAIRMAN OF THE BOARD OF DIRECTORS SINCE APRIL 1997.
<PAGE>
MICHAEL J. HARTIGAN, JR. VICE PRESIDENT AND ASSISTANT SECRETARY OF ACQUISITION SINCE
ITS FORMATION; VICE PRESIDENT, ASSOCIATE GENERAL COUNSEL AND
SECRETARY OF THE COMPANY, SPS PAYMENT AND NOVUS SINCE APRIL 1997;
VICE PRESIDENT, ASSISTANT GENERAL COUNSEL AND ASSISTANT SECRETARY
OF THE COMPANY, SPS PAYMENT AND NOVUS FROM 1992 TO APRIL 1997.
</TABLE>
<PAGE>
ANNEX V
COMMON STOCK PURCHASES
THE FOLLOWING CHART CONTAINS CERTAIN INFORMATION REGARDING PURCHASES
OF SHARES OF COMMON STOCK BY THE COMPANY FROM JANUARY 1, 1996 THROUGH AND
INCLUDING THE DATE OF THIS PROXY STATEMENT, INCLUDING THE NUMBER OF SHARES
PURCHASED, TOTAL COST (IN THOUSANDS AND INCLUDING EXPENSES), AVERAGE COST PER
SHARE (INCLUDING EXPENSES) AND RANGES OF PURCHASE PRICE.
SHARES TOTAL COST AVERAGE COST PRICE RANGE
PER SHARE
1996:
- - - - ------------------------------------------
1ST QUARTER 7,101 $220 $30.98 $30.75 - $31.25
=========== ===== ==== ====== ===============
- - - - ------------------------------------------
2ND QUARTER -- -- -- -- --
3RD QUARTER -- -- -- -- --
4TH QUARTER 17,420 $280 $16.07 $15.50 - $16.25
=========== ====== ==== ====== ===============
1997:
1ST QUARTER -- -- -- -- --
2ND QUARTER -- -- -- -- --
3RD QUARTER -- -- -- -- --
4TH QUARTER 19,000 $420 $22.11 $21.56 - $22.56
=========== ====== ==== ====== ===============
1998:
1ST QUARTER -- -- -- -- --
2ND QUARTER
THROUGH
JUNE 30, 1998 -- -- -- -- --
=================================
<PAGE>
[FRONT OF PROXY CARD]
SPS TRANSACTION SERVICES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF SPS
TRANSACTION SERVICES, INC.
THE UNDERSIGNED HEREBY APPOINTS ___________, ___________ AND
___________, OR ANY ONE OF THEM, PROXIES WITH FULL POWER OF SUBSTITUTION TO
VOTE AT THE SPECIAL MEETING OF STOCKHOLDERS OF SPS TRANSACTION SERVICES, INC.
TO BE HELD ON ____________ __, 1998, AND ANY ADJOURNMENTS OR POSTPONEMENTS
THEREOF, AS FOLLOWS:
(1) PROPOSAL TO APPROVE THE SALE BY THE COMPANY OF SUBSTANTIALLY ALL
OF ITS ASSETS, CONSISTING OF ALL THE ISSUED AND OUTSTANDING
CAPITAL STOCK OF THE COMPANY'S TWO SUBSIDIARIES, SPS PAYMENT
SYSTEMS, INC. AND HURLEY STATE BANK, TO ASSOCIATES FIRST CAPITAL
CORPORATION, A DELAWARE CORPORATION ("ASSOCIATES") FOR A
PURCHASE PRICE OF $895,696,661 IN CASH, UPON THE TERMS AND
SUBJECT TO THE CONDITIONS SET FORTH IN THE PURCHASE AGREEMENT,
DATED APRIL 18, 1998 (THE "PURCHASE AGREEMENT"), BETWEEN THE
COMPANY AND ASSOCIATES.
FOR AGAINST ABSTAIN
(2) PROPOSAL TO ADOPT THE AGREEMENT AND PLAN OF MERGER, DATED AS OF
JUNE 15, 1998 (THE "MERGER AGREEMENT"), BETWEEN THE COMPANY AND
SAIL ACQUISITION, INC., A DELAWARE CORPORATION ("ACQUISITION")
AND A WHOLLY OWNED SUBSIDIARY OF NOVUS CREDIT SERVICES INC., A
DELAWARE CORPORATION ("NOVUS"), PURSUANT TO WHICH ACQUISITION
WILL BE MERGED WITH AND INTO THE COMPANY (THE "MERGER"), WITH
THE COMPANY BEING THE SURVIVING CORPORATION. IN THE MERGER, EACH
SHARE OF THE COMPANY'S COMMON STOCK, PAR VALUE $0.01 PER SHARE
(THE "COMMON STOCK"), OUTSTANDING AT THE EFFECTIVE TIME OF THE
MERGER (OTHER THAN COMMON STOCK HELD BY NOVUS OR ANY
STOCKHOLDERS WHO PERFECT THEIR STATUTORY APPRAISAL RIGHTS UNDER
DELAWARE LAW), WILL BE CONVERTED INTO THE RIGHT TO RECEIVE
$32.02 IN CASH, WITHOUT INTEREST THEREON.
FOR AGAINST ABSTAIN
(3) IN THE DISCRETION OF THE PROXY HOLDER, ON ANY OTHER MATTER THAT
MAY PROPERLY COME BEFORE THE SPECIAL MEETING, INCLUDING ANY
ADJOURNMENTS OR POSTPONEMENTS THEREOF.
FOR AGAINST ABSTAIN
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER
DIRECTED ABOVE. IF NO DIRECTION IS MADE, IT WILL BE VOTED FOR APPROVAL OF THE
PURCHASE AGREEMENT AND ADOPTION OF THE MERGER AGREEMENT.
<PAGE>
[REVERSE OF PROXY CARD]
DISCRETIONARY AUTHORITY IS HEREBY CONFERRED AS TO ANY OTHER MATTERS
AS MAY PROPERLY COME BEFORE THE MEETING. THE UNDERSIGNED ACKNOWLEDGES RECEIPT
OF THE NOTICE OF SPECIAL MEETING OF STOCKHOLDERS AND THE PROXY STATEMENT (WITH
ALL ENCLOSURES AND ATTACHMENTS) DATED ___________ __, 1998. THE UNDERSIGNED
RATIFIES ALL THAT THE PROXIES OR ANY OF THEM OR THEIR SUBSTITUTES MAY LAWFULLY
DO OR CAUSE TO BE DONE BY VIRTUE HEREOF AND REVOKES ALL FORMER PROXIES.
DATED _________ __, 1998
SIGNATURE
SIGNATURE IF HELD JOINTLY
PLEASE SIGN THIS PROXY EXACTLY AS
YOUR NAME(S) APPEARS BELOW. IF THE
STOCK IS REGISTERED IN THE NAMES OF
TWO OR MORE PERSONS, EACH MUST
SIGN. EXECUTORS, ADMINISTRATORS,
TRUSTEES, GUARDIANS, ATTORNEYS AND
CORPORATE OFFICERS SHOULD ADD THEIR
TITLES.
IMPORTANT: PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY IN THE ENVELOPE
PROVIDED. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
