<PAGE> 1
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. 3)
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.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] 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
- --------------------------------------------------------------------------------
(5) Total fee paid:
$179,139.33
- --------------------------------------------------------------------------------
[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:
- --------------------------------------------------------------------------------
<PAGE> 2
PRELIMINARY COPY, DATED SEPTEMBER 17, 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
offices of the Company at 2500 Lake Cook Road, Riverwoods, Illinois 60015.
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
owner of 73.3% of the Company's outstanding common stock), pursuant to which
Acquisition will be merged with and into the Company (the "Merger"). The Merger
will be effected as soon as practicable after the closing of the Sale and is
being undertaken for the purpose 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. The proposal regarding the adoption of the Merger
Agreement is conditional upon approval of the proposal regarding the approval of
the Sale and the Merger will not be consummated if the Sale is not consummated.
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
Thomas C. Schneider
Chairman of the Board
PLEASE DO NOT SEND STOCK CERTIFICATES AT THIS TIME.
<PAGE> 3
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 (together with any adjournments and
postponements thereof, the "Special Meeting") of SPS Transaction Services, Inc.
(the "Company") will be held on , 1998, at the offices of the
Company at 2500 Lake Cook Road, Riverwoods, Illinois 60015 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. Proposal No. 2 (regarding the Merger) is
conditional upon approval of Proposal No. 1 (regarding the Sale), and the Merger
will not be consummated if the Sale is not consummated. However, NOVUS, which
owns 73.3% of the Company's Common stock, has agreed to vote for Proposal No. 1
and intends to vote for Proposal No. 2.
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 ("Section 262") 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.
Michael J. Hartigan, Jr.
Secretary
, 1998
PLEASE DO NOT SEND STOCK CERTIFICATES AT THIS TIME.
<PAGE> 4
PRELIMINARY COPY, DATED SEPTEMBER 17, 1998
[SPS LOGO]
---------------------
PROXY STATEMENT
---------------------
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 (together with any adjournments and
postponements thereof, the "Special Meeting") of the Company's stockholders (the
"Stockholders") to be held on , 1998, at 10:00 a.m. Central Time, at
the offices of the Company at 2500 Lake Cook Road, Riverwoods, Illinois 60015.
The purposes of the Special Meeting are to consider and act upon the
following matters:
1. 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
2. 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 and is being undertaken for the purpose of distributing 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.
The Company is a 73.3% owned subsidiary of NOVUS, which is a wholly owned
subsidiary of Morgan Stanley Dean Witter & Co. ("MSDW"). Because the Company
will bear the income tax liability on the gain resulting from the Sale and 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, the per share amount
allocable to NOVUS is effectively less than $32.02 per share.
On , 1998, the last reported sale price for the Common Stock on
the New York Stock Exchange ("NYSE") was $ . On April 17, 1998, the date
immediately prior to the announcement of the Sale, the last reported sale price
for the Common Stock on the NYSE was $33.00.
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 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 (AS HEREINAFTER DEFINED)) 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. AS A RESULT, THE SALE AND THE MERGER AGREEMENT WILL BE
APPROVED AND ADOPTED, RESPECTIVELY, AT THE SPECIAL MEETING EVEN IF NO
STOCKHOLDER OTHER THAN NOVUS VOTES IN FAVOR OF THE PROPOSALS.
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 27,312,030 shares of Common Stock
outstanding. The presence in person or by proxy of 51% of such shares shall
constitute a quorum.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR 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> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS................ iii
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
Transactions........................................... 12
Opinion of Financial Advisor.............................. 14
PROPOSAL NO. 1 -- APPROVAL OF THE SALE...................... 17
Terms of the Purchase Agreement........................... 17
Ancillary Agreements...................................... 23
Interests of Certain Persons in the Transactions.......... 24
Regulatory Approvals...................................... 25
PROPOSAL NO. 2 -- ADOPTION OF THE MERGER AGREEMENT.......... 26
Terms of the Merger Agreement............................. 26
Effective Time............................................ 27
Payment for Shares and Surrender of Stock Certificates.... 27
Certain Effects of the Sale and the Merger................ 28
Accounting Treatment...................................... 28
Federal Income Tax Consequences of the Merger............. 28
Appraisal Rights.......................................... 29
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA............. 32
CONTROLLING PERSONS, DIRECTORS AND EXECUTIVE OFFICERS OF
MSDW, NOVUS, ACQUISITION AND THE COMPANY.................. 33
Background of Named Persons............................... 33
Past Contacts, Transactions, or Negotiations.............. 33
Plans or Proposals........................................ 33
Interest in the Company's Securities...................... 33
Contracts, Arrangements, or Understandings Concerning the
Company's Securities................................... 34
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 35
Management Services Agreement with NOVUS.................. 35
Financing Agreements with MSDW; Interest Rate Swap and Cap
Agreements............................................. 35
Third Party Processing and Cooperative Network Service
Agreement and Terminal Service Agreement with NOVUS
Services............................................... 35
System Access Agreement with NOVUS Services............... 36
Service Agreement with NOVUS Services..................... 36
Debit Card Processing Letter Agreement and Sales Lead
Letter Agreement with NOVUS Services................... 36
Marketing Services Agreement with NOVUS................... 36
Service Agreement with MountainWest....................... 37
Operational Outsourcing Service Agreement with
MountainWest........................................... 37
Headquarters Lease with NOVUS............................. 37
Service Agreement with New Castle......................... 38
</TABLE>
i
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
HISTORICAL MARKET PRICE AND DIVIDEND DATA................... 39
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 40
FEES AND EXPENSES........................................... 41
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 -- AGREEMENT AND PLAN OF MERGER................... 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
</TABLE>
ii
<PAGE> 7
QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS
Q: Why is the Company selling its business?
A: The Board of Directors has unanimously 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 and that the transaction is fair to you. 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 sale 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 merger is a cash-out merger (i.e., a transaction in which the sole
consideration you will receive for your shares is cash), the purpose of
which is to distribute to you your pro rata portion of the net proceeds
from the sale of the Company's operating subsidiaries.
Q: Why are the net proceeds of the sale being distributed pursuant to the
merger instead of a liquidation of the Company?
A: In order to give effect to the joint tax elections described above, the
Company must preserve its corporate existence after the sale. Thus, the
distribution of the net proceeds from the sale pursuant to a liquidation of
the Company would not be practicable.
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 9 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.
iii
<PAGE> 8
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. We hope to complete the transactions by [mid-October 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 one year at such time 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 and the Company will 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 60015
Attention: Investor Relations
Phone Number: (847) 405-3400
iv
<PAGE> 9
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 offices of
the Company at 2500 Lake Cook Road, Riverwoods, Illinois 60015 at 10:00 a.m.
local time. At the Special Meeting, you will be asked:
- 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
1
<PAGE> 10
- 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 27,312,030 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
Sale and the Merger Agreement will be approved and adopted, respectively, even
if no Stockholder (as hereinafter defined) other than NOVUS 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 a purchase price of $895,696,661 in cash (the "Sale"). The purchase price
was the culmination of a four month auction process described under "SPECIAL
FACTORS -- Background" and the result of arm's-length negotiations between the
Company and Associates. The closing of the Sale is subject to certain
conditions, including receipt of 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; POSITIVE AND NEGATIVE FACTORS
CONSIDERED
The Board of Directors of the Company (the "Board") 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. In
determining to recommend the approval of the Sale and adoption of the Merger
Agreement, the Board considered a number of factors, including: (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 & Co. Incorporated ("Morgan Stanley"), the Company's financial
advisor, regarding the financial condition, results of operations, business and
prospects of the Company; (iii) the oral opinion of Morgan Stanley delivered
April 17, 1998 to the effect that, as of such date, the consideration to be paid
by Associates pursuant to the Purchase Agreement was fair from a financial point
of view to the Company and 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
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<PAGE> 11
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
price to be paid to Stockholders in the Merger was higher than the market price
of the Common Stock that had generally prevailed during the preceding months and
was 57% 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 also considered certain potentially negative
factors in its deliberations concerning the approval of the Sale and adoption of
the Merger Agreement, including: (i) that the per share price to be paid to
Stockholders in the Merger was lower than the closing market price on April 17,
1998, the last trading day prior to the announcement of the Sale; and (ii) that
the public Stockholders will cease to have ownership interests in the Company
after the transactions and will not have the opportunity to benefit from any
future increases in the value of the Company or the Subsidiaries. See "SPECIAL
FACTORS -- Recommendation of the Board of Directors; Fairness of the
Transactions."
OPINION OF THE COMPANY'S FINANCIAL ADVISOR
In deciding to approve the Sale and the Merger, the Board considered the
opinion of Morgan Stanley, the financial advisor to the Company. On April 17,
1998, Morgan Stanley delivered its oral opinion to the Board 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
(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 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 have interests in
the Sale and the Merger in addition to the interests of the Company's
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. Such
interests include: (i) that five officers of MSDW or its affiliates (including
the Chairman of the Board and the Chief Executive Officer of MSDW) are members
of the Board; (ii) that Morgan Stanley, the financial advisor to the Company, is
a wholly owned subsidiary of MSDW and will receive, as compensation for its
services to the Company, a fee of approximately $4.3 million upon consummation
of the Sale; (iii) that certain of the Company's officers will receive payments
under the Company's Senior Management Retention Plan; and (iv) that certain of
the Company's officers will receive aggregate payments of $8,049,523 under the
Company's Incentive Plan. Since MSDW had advised the Board that it would only
proceed with any sale of the Company to a third party in which the per share
price payable to public Stockholders would not be less than the per share price
payable to NOVUS, the Board concluded that such potential conflicts of interest
were no different than those in a transaction that did not involve a merger with
a related party. 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, 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:
- approval of the Sale by the Stockholders;
- no legal restraints or prohibitions existing that prevent the
consummation of the Sale;
- receipt of all necessary regulatory approvals;
3
<PAGE> 12
- the accuracy of the representations of each party to the Purchase
Agreement contained therein; and
- 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:
- the Sale is not completed by February 28, 1999; or
- 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.
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 or because a governmental entity has issued a
final and nonappealable judgment, order or decree or taken other action
permanently enjoining, restraining or otherwise prohibiting the Sale; (ii) the
termination arises out of certain bank regulatory requirements affecting
Associates; and (iii) the Company is not then subject to any governmental order
preventing the Company from consummating the Sale on the basis of a regulatory
impediment arising out the conduct of its business.
NO SOLICITATION
Pursuant to the Purchase Agreement, the Company has agreed that 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, except under certain circumstances to the extent required in order
that the Board may company with its fiduciary obligations under applicable law.
See "PROPOSAL NO. 1 -- APPROVAL OF THE SALE -- Terms of the Purchase Agreement
- -- No Solicitation."
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."
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 Associates' consummation
of the Sale, NOVUS and Associates will enter into the Interim Servicing
Agreement (as hereinafter defined). NOVUS currently provides certain services to
the Company with respect to the operation of the Subsidiaries. Pursuant to the
Interim Servicing Agreement, NOVUS will continue to provide some of such
services to the Subsidiaries for a period of up to seven and one-half (7 1/2)
months after the closing of the Sale to assist in the transition period after
the Sale. See "PROPOSAL NO. 1 -- APPROVAL OF THE SALE -- Ancillary Agreements
-- The Interim Servicing Agreement."
4
<PAGE> 13
THE MERGER
PURPOSE AND STRUCTURE OF THE MERGER
The Merger is being undertaken as the procedural means to distribute to the
public Stockholders their pro rata portion of the net proceeds from the Sale.
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, and consummation of the
Merger is contingent upon 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 First
Chicago Trust Company of New York, 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 SALE AND 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 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 public
Stockholders will no longer benefit from any increases in the value of the
Company or the Subsidiaries 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 will 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 public 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") 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."
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<PAGE> 14
CONDITIONS TO THE MERGER
The obligations of the Company and Acquisition to effect the Merger are
subject to certain conditions, including the following:
- consummation of the Sale, and
- 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."
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 --
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."
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<PAGE> 15
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 six-month
periods ended June 30, 1998 and 1997 and as of June 30, 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 six months ended
June 30, 1998 are not necessarily indicative of results which may be expected
for the entire year.
<TABLE>
<CAPTION>
SIX-MONTH PERIOD
ENDED JUNE 30,(1) YEAR ENDED DECEMBER 31,(1)
----------------------- ------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net operating revenues.......... $ 167,753 $ 178,247 $ 346,885 $ 320,920 $ 311,992 $ 245,802 $205,494
Total operating expenses........ 136,536 151,577 284,585 283,427 241,883 183,441 156,563
Pretax income................... 31,217 26,670 62,300 37,493 70,109 62,361 48,931
Income taxes.................... 11,490 10,295 23,800 14,247 26,636 24,626 18,283
Net income...................... 19,727 16,375 38,500 23,246 43,473 37,735 30,648
Basic earnings per common
share......................... 0.72 0.60 1.41 0.86 1.60 1.40 1.14
Diluted earnings per common
share......................... 0.72 0.60 1.41 0.85 1.59 1.38 1.12
Ratio of Earnings to Fixed
Charges(2).................... 1.9 1.7 1.8 1.5 2.0 6.0 6.3
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30,(1) AS OF DECEMBER 31,(1)
----------------------- ------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Credit card loans............... $1,073,914 $1,338,600 $1,295,787 $1,637,507 $1,620,833 $ 679,857 $246,710
Total assets.................... 1,276,004 1,526,846 1,512,403 1,760,785 1,777,607 768,493 309,537
Deposits........................ 563,834 494,064 510,294 463,435 382,343 205,537 72,852
Due to affiliates............... 332,303 712,194 639,066 982,547 1,110,811 161,573 55,869
Stockholders' equity............ 284,847 241,101 263,035 224,392 199,210 155,704 116,581
Return on average stockholders'
equity........................ 14.5% 14.2% 15.8% 11.0% 24.5% 27.7% 30.2%
Book value per share -- Basic... $ 10.45 $ 8.86 $ 9.67 $ 8.26 $ 7.35 $ 5.76 $ 4.32
Book value per
share -- Diluted.............. $ 10.36 $ 8.81 $ 9.60 $ 8.20 $ 7.28 $ 5.69 $ 4.27
SUPPLEMENTAL DATA
Total loans(3).................. $1,653,914 $1,918,600 $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.
7
<PAGE> 16
INTRODUCTION
This Proxy Statement is being furnished to holders of common stock, par
value $0.01 per share ("Common Stock"), of the Company in connection with the
solicitation of proxies by the Board for use at a Special Meeting of the
Company's stockholders (the "Stockholders") to be held on , 1998 at
10:00 a.m. Central Time, at the offices of the Company at 2500 Lake Cook Road,
Riverwoods, Illinois 60015 (together with 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 (1) 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 (2) a proposal to adopt the 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 as the
procedural means 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. Proposal No. 2
(regarding the Merger) is conditional upon approval of Proposal No. 1 (regarding
the Sale), and the Merger will not be consummated if the Sale is not
consummated.
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
"PROPOSAL 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 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.
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 owned 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
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<PAGE> 17
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 Sale and the Merger Agreement will be approved and adopted, respectively,
even if no Stockholder other than NOVUS votes 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 (Saving 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."
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
9
<PAGE> 18
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. The Company has retained Georgeson & Company
Inc. ("Georgeson") at an estimated cost of $7,500, plus reimbursement of
expenses, to assist in its solicitation of proxies from brokers, nominees,
institutions and individuals. 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, the Company will
sell substantially all its assets, consisting of the stock of the Subsidiaries,
to Associates for a purchase price of $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
At a special meeting of the Board held on December 17, 1996, 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 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.
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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 light of the fact that MSDW had
informed the Board of its desire to dispose of its interest in the Company and
was in a position to effectuate a sale of the entire Company without any
substantive input from the full Board by virtue of its majority ownership, the
Board determined that a sale of the Company to an unaffiliated entity pursuant
to an auction that was controlled by the Board would be the most effective means
of maximizing the value of the Company to all Stockholders and, accordingly, the
Board determined not to pursue alternatives to a sale transaction.
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 a liquidation of the Company
immediately following the sale would jeopardize the tax status of the Sale.
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 representative 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 $895,696,661 to be
paid in cash, which was more than the other offers (each of which also proposed
a taxable transaction for less consideration). 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.
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RECOMMENDATION OF THE BOARD OF DIRECTORS; FAIRNESS OF THE TRANSACTIONS
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 price to be paid to Stockholders in the
Merger, 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 57% 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 also considered certain potentially negative factors in its
deliberations concerning the approval of the Sale and adoption of the Merger
Agreement, including:
(i) that the per share price to be paid to Stockholders in the Merger
was lower than the closing market price on April 17, 1998, the last trading
day prior to the announcement of the Sale; and
(ii) that the public Stockholders will cease to have ownership
interests in the Company after the transactions and will not have the
opportunity to benefit from any future increases in the value of the
Company or the Subsidiaries.
The Board considered that MSDW, which indirectly through NOVUS controls
73.3% of the Company's Common Stock, had informed the Board that it desired to
dispose of its interest in the Company. MSDW could effectively transfer control
of the Company to a third party without any Board action. The Board believed
that the auction process it conducted was a preferable means of transferring
control of the Company in that it was more likely to result in the maximization
of value for all Stockholders. At the end of the auction process, which lasted
over four months and which included contacting over 20 potential buyers, the
Company received three proposals. The second proposal, which consisted of all
cash, and the third proposal, which was for a combination of cash and
subordinated notes, were significantly lower than Associates' proposal.
Associates' proposal was clearly the highest and provided the greatest value to
Stockholders.
The Board considered certain potential conflicts of interest between MSDW
and the Company. Since MSDW had advised the Board that it would only proceed
with any sale of the Company to a third party in
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which the per share price payable to public Stockholders would not be less than
the per share price payable to NOVUS, the Board concluded that such potential
conflicts of interest were no different than those in a transaction that did not
involve a merger with a related party. Moreover, the Board considered that the
per share amount of the net proceeds from the Sale allocable to NOVUS would be
effectively less than the per share amount of such net proceeds allocable to the
public Stockholders since the Company (which after the Merger would be a wholly
owned subsidiary of NOVUS) would bear the entire income tax liability on the
Company's gain resulting from the Sale and since MSDW had agreed to pay a
portion of the expenses attributable to the Sale. The Board considered the fact
that the public Stockholders would receive an effectively higher per share
amount of the net proceeds from the Sale than MSDW (or NOVUS) to be a positive
factor in its determination to approve the Sale and Merger.
The Board relied on the presentations and opinion of Morgan Stanley
described in clause (iii) above and considered the going concern valuation of
the Company implied by Morgan Stanley's (i) business line valuation (which
indicated an implied trading valuation range of between $600 million to $709
million (or $22 to $26 per share) or between $544 million to $643 million (or
$20 to $23 per share) (depending upon the earnings projections utilized)), (ii)
dividend discount valuation (which indicated a stand-alone value of the Common
Stock ranging from $21 to $26 per share) and (iii) implied acquisition valuation
(which indicated implied acquisition values of the Common Stock ranging from
approximately $26 to $34 per share). The Board considered that the per share
price to be paid by Associates was (i) above the implied trading valuations
calculated by Morgan Stanley pursuant to its business line valuation and
dividend discount valuation and (ii) above the mid-point range of the implied
acquisition values of the Common Stock calculated by Morgan Stanley pursuant to
its implied acquisition valuation.
The Board also considered the current and historical market price of the
Common Stock. The Board considered the fact that the per share price to be paid
by Associates in the Sale was lower than the closing market price of $33.00 per
share on April 17, 1998, the last trading day prior to the announcement of the
Sale. This was a negative factor in its consideration of the Sale. However, the
Board also considered the fact that there had been a high volume of trading in
the Common Stock preceding the announcement of the Sale in connection with which
the market price of the Common Stock rose to higher levels than had been
experienced in preceding months. The results of the sale process, moreover,
demonstrated that the price payable for a limited number of shares on the NYSE
on April 17, 1998 was not reflective of what a third party would pay for the
Company as a whole. The Board also considered that the per share price to be
received by Stockholders was higher than the market price that had generally
prevailed during the preceding months and was 57% higher than the closing market
price for the Common Stock on November 19, 1997 (the date the Board determined
to commence the sale process).
The factors discussed above related to the Board's determination to
recommend approval of the Sale. The Board also considered that as a result of
the transactions the public Stockholders would cease to have ownership interests
in the Company and would no longer have the opportunity to benefit from any
future increases in the value of the Company or the Subsidiaries and will no
longer bear the risk of any decreases in the value of the Company or the
Subsidiaries. Consummation of the Merger is contingent upon consummation of the
Sale. The Merger was approved by the Board as the most expeditious and efficient
means of distributing the net proceeds of the Sale to the public Stockholders.
In reaching this determination, the Board considered alternative means of
distributing the net proceeds to its Stockholders such as through a liquidation
of the Company following the Sale or through a dividend to its Stockholders but
rejected such alternatives since a liquidation of the Company or a dividend of
the proceeds immediately following the Sale could jeopardize the effectiveness
of certain joint tax elections made by the parties.
The fact that NOVUS would be required to enter into the Interim Servicing
Agreement was not relevant to the Board's determination that the Sale and the
Merger were fair to the public Stockholders. The requirement that NOVUS enter
into the Interim Servicing Agreement was made part of the Purchase Agreement at
the request of Associates for its own benefit to assist in the transition period
after the Sale. The execution of the Interim Servicing Agreement is a condition
to Associates' obligations under the Purchase Agreement, not the Company's
obligations. If Associates waives the condition, the Interim Servicing Agreement
will not be executed.
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The terms of the MountainWest Agreement (as hereinafter defined) were also
not relevant to the Board's determination as to the fairness of the Sale and the
Merger. While the MountainWest Agreement was executed contemporaneously with the
execution of the Purchase Agreement, the terms of the MountainWest Agreement
were negotiated independently from the Purchase Agreement and the consummation
of the transactions under the Purchase Agreement and the MountainWest Agreement
are not contingent upon each other.
The Board did not undertake a separate analysis of each of the factors
discussed above 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 positive factors heretofore
described supported its decision to approve the Sale and the Merger Agreement
and outweighed the potentially negative factors described above.
The economic terms and other conditions of the Sale were the result of an
arm's-length negotiation with an unaffiliated third party (Associates). Since
the Merger is being undertaken as a procedural means of distributing the pro
rata portion of the net proceeds from the Sale to the public Stockholders, the
Board determined that no substantive reason existed to implement certain
safeguards and mechanisms typically used in affiliated party transactions, such
as requiring the approval by a majority of the public Stockholders or appointing
an unaffiliated representative or a special committee of independent directors
to act on behalf of the public Stockholders in connection with a transaction in
which all of the terms were negotiated at arm's-length between Associates, on
the one hand, and MSDW and the Company, on the other hand, and pursuant to which
all Stockholders would participate pro rata in the proceeds. Moreover, since the
interests of MSDW and the public Stockholders were aligned in seeking to
maximize the value to be received in the sale of the Company, the Board did not
believe it was necessary to receive a fairness opinion other than from Morgan
Stanley.
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 Acquisition 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
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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 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.
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<PAGE> 24
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 a company
with the Company's risk characteristics. In estimating a reasonable discount
rate for the Company, Morgan Stanley considered a number of factors, including
the overall interest rate environment and the discount rates for the Comparable
Companies (which ranged from 12% to 16%). 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.
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,
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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. Morgan Stanley has not received any
fees for financial advisory or financing services from the Company in the past
three years.
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 (as amended by a Form 10-Q/A filed on
September 11, 1998) and incorporated herein by reference. See "WHERE YOU CAN
FIND MORE 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
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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 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;
(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
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(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, 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
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<PAGE> 28
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.
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
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<PAGE> 29
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
satisfaction or waiver of 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
satisfaction or waiver of the following additional conditions:
(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
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<PAGE> 30
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).
If any of the conditions to the consummation of the Sale which are material
to the Stockholders are waived, the Company will resolicit its Stockholders.
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 (the
"338 Elections"), 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. It is anticipated that as a result of the 338 Elections the
Company will incur a lower tax liability than it otherwise would have incurred
under alternative structures. In addition, as a result of the 338 Elections,
subsequent to the Sale, the Subsidiaries will have a higher tax basis in their
assets than their tax basis in such assets prior to the Sale.
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 obtained by reason of the Company's failure to
call a Stockholders'
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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 or because a governmental entity has
issued a final and nonappealable judgment, order or decree or taken other action
permanently enjoining, restraining or otherwise prohibiting the Sale; (ii) the
termination arises out of certain bank regulatory requirements affecting
Associates; and (iii) the Company is not then subject to any governmental order
preventing the Company from consummating the Sale on the basis of a regulatory
impediment arising out of the conduct of its business.
ANCILLARY AGREEMENTS
THE VOTING AGREEMENT. NOVUS and Associates have entered into a voting
agreement (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. The Interim Servicing Agreement provides that NOVUS will
render certain services to the Subsidiaries as Associates might request.
However, NOVUS will not be required to provide any services to the Subsidiaries
which NOVUS had not provided to the Subsidiaries prior to the closing.
Associates will pay NOVUS for services rendered on a monthly basis and at the
rate or under the formula previously charged to each Subsidiary for the service
rendered. Associates will reimburse NOVUS for any expenses incurred in
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connection with the services rendered. The terms of the Interim Servicing
Agreement were negotiated at arm's-length and the Company believes such terms to
be commercially reasonable.
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.
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. Since MSDW had advised the Board that it would only
proceed with any sale of the Company to a third party in which the per share
price payable to public Stockholders would not be less than the per share price
payable to NOVUS, the Board concluded that such potential conflicts of interest
were no different than those in a transaction that did not involve a merger with
a related party. Moreover, the terms of Morgan Stanley's arrangement with the
Company were approved by a separate vote of the independent directors of the
Board and 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 Incentive Plan provides for the
participants to receive an amount (the "Incentive Amount") equal to 3% of the
gross proceeds of a sale of
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<PAGE> 33
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 Incentive Amount
attributable to the Sale is $8,049,523. 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 (the
"MountainWest 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 (the "MountainWest Sale"). 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. Because the MountainWest Agreement
was negotiated contemporaneously with the Purchase Agreement, and because the
MountainWest Sale is to an affiliate of Associates, there existed a potential
for conflict of interest, particularly as to the consideration paid for the
Credit Receivables. However, the consummation of the Sale and the MountainWest
Sale are not contingent on one another and the negotiations for the MountainWest
Sale were conducted at arm's-length. The Company believes that both the purchase
price for the MountainWest Sale and the terms of the MountainWest Agreement are
commercially reasonable.
SHARE OWNERSHIP. As of the Record Date, executive officers and directors of
the Company owned of record or beneficially an aggregate of [122,317] 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 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 Hart-Scott-Rodino Antitrust Improvement
Act of 1976, as amended (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. On June 5, 1998, the
required notice was submitted to the FDIC. By letter dated August 4, 1998, the
FDIC conveyed its intent not to disapprove the Sale and indicated that, for the
FDIC's purposes, the Sale could proceed immediately. 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. At a hearing held on August
13, 1998, the South Dakota Division of Banking affirmatively approved the change
in control of HSB effective immediately.
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.
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<PAGE> 34
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. Proposal No. 2 (regarding the Merger) is
conditional upon approval of Proposal No. 1 (regarding the Sale), and the Merger
will not be consummated if the Sale is not consummated. However, NOVUS, which
owns 73.3% of the Company's Common Stock, has agreed to vote for Proposal No. 1
and intends to vote for Proposal No. 2. "See PROPOSAL NO. 1 -- APPROVAL OF THE
SALE -- Ancillary Agreements -- The Voting Agreement."
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, and will be 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 $13,563,000 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
$13,563,000 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 anticipated, the Company will pay such
expenses out of the portion of the net proceeds of the Sale allocable to NOVUS.
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<PAGE> 35
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.
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 to 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.
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<PAGE> 36
CERTAIN EFFECTS OF THE SALE AND THE MERGER
Following the Merger, NOVUS will own 100% of the Surviving Corporation's
outstanding capital stock and the Stockholders immediately prior to the Merger
other than NOVUS will cease to have any ownership interests in the Company or
rights of stockholders (other than statutory appraisal rights, in the case of
those Stockholders who perfect such rights under Delaware law). The Stockholders
will no longer benefit from any increases in the value of the Company or the
Subsidiaries or any payment of dividends on the Common Stock of the Company and
will no longer bear the risk of any decreases in the value of the Company or the
Subsidiaries. The Company will sell substantially all of its assets in the Sale
and after the Merger the Company will 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 their share of the net proceeds of the Sale will be
solely 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.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a summary of material 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 one year 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
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<PAGE> 37
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 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 ("Section 262") 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.
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<PAGE> 38
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 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
30
<PAGE> 39
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.
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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 six-month
periods ended June 30, 1998 and 1997 and as of June 30, 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 six months ended
June 30, 1998 are not necessarily indicative of results which may be expected
for the entire year.
<TABLE>
<CAPTION>
SIX-MONTH PERIOD
ENDED JUNE 30,(1) YEAR ENDED DECEMBER 31,(1)
----------------------- ------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net operating revenues........ $ 167,753 $ 178,247 $ 346,885 $ 320,920 $ 311,992 $ 245,802 $205,494
Total operating expenses...... 136,536 151,577 284,585 283,427 241,883 183,441 156,563
Pretax income................. 31,217 26,670 62,300 37,493 70,109 62,361 48,931
Income taxes.................. 11,490 10,295 23,800 14,247 26,636 24,626 18,283
Net Income.................... 19,727 16,375 38,500 23,246 43,473 37,735 30,648
Basic earnings per
common share................ 0.72 0.60 1.41 0.86 1.60 1.40 1.14
Diluted earnings per common
share....................... 0.72 0.60 1.41 0.85 1.59 1.38 1.12
Ratio of Earnings to Fixed
Charges(2).................. 1.9 1.7 1.8 1.5 2.0 6.0 6.3
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30,(1) AS OF DECEMBER 31,(1)
----------------------- ------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Credit card loans............. $1,073,914 $1,338,600 $1,295,787 $1,637,507 $1,620,833 $ 679,857 $246,710
Total assets.................. 1,276,004 1,526,846 1,512,403 1,760,785 1,777,607 768,493 309,537
Deposits...................... 563,834 494,064 510,294 463,435 382,343 205,537 72,852
Due to affiliates............. 332,303 712,194 639,066 982,547 1,110,811 161,573 55,869
Stockholders' equity.......... 284,847 241,101 263,035 224,392 199,210 155,704 116,581
Return on average
stockholders' equity........ 14.5% 14.2% 15.8% 11.0% 24.5% 27.7% 30.2%
Book value per
share -- Basic.............. $ 10.45 $ 8.86 $ 9.67 $ 8.26 $ 7.35 $ 5.76 $ 4.32
Book value per
share -- Diluted............ $ 10.36 $ 8.81 $ 9.60 $ 8.20 $ 7.28 $ 5.69 $ 4.27
SUPPLEMENTAL DATA
Total loans(3)................ $1,653,914 $1,918,600 $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 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.
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<PAGE> 41
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.
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 dividend 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 Company's
Tax Deferred Equity Participation Plan beneficially owns 33,486 shares of Common
Stock.
33
<PAGE> 42
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.
34
<PAGE> 43
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.
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<PAGE> 44
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 Service 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
36
<PAGE> 45
on certain of its assets. The Marketing Services Agreement will continue until
the day preceding the earliest 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.
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<PAGE> 46
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.
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<PAGE> 47
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.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
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............................................ 34.13 27.31
Third Quarter (through September 16, 1998)................ 31.75 31.25
</TABLE>
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<PAGE> 48
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 April 30, 1998. As of April 30, 1998, 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
----------------------- ----------------------
PERCENT PERCENT
NUMBER OF OF NUMBER OF OF
NAME SHARES(1) CLASS(2) SHARES(1) CLASS(2)
---- ---------- -------- --------- --------
<S> <C> <C> <C> <C>
Robert W. Archer............................. 98,028(3) * 67,400(4) *
Richard F. Atkinson.......................... 87,905(5) * 93,256(6) *
Serge Uccetta................................ 13,237(7) * 5,842(8) *
David J. Peterson............................ 27,743(9) * 4,136(10) *
Robert L. Wieseneck.......................... 209,459(11) * 247,206(12) *
Frank T. Cary................................ 17,810(13) * 0 --
Charles F. Moran............................. 10,697(14) * 19,076(15) *
Mitchell M. Merin............................ 500 * 559,400(16) *
Philip J. Purcell............................ 22,002(17) * 2,659,581(18) *
Thomas C. Schneider.......................... 1,002 * 1,151,601(19) *
Dennie M. Welsh.............................. 8,214(20) * 0 --
Christine A. Edwards......................... 2,002 * 606,458(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)......................... 650,492 2.4 5,350,148 *
</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
April 30, 1998. The number of shares has been rounded to the nearest whole
share.
2. Shares subject to options exercisable within 60 days of April 30, 1998 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 38,817 shares subject to options.
5. Includes 76,916 shares subject to options.
6. Includes 66,178 shares subject to options.
7. Includes 12,333 shares subject to options.
8. Includes 5,500 shares subject to options.
9. Includes 26,333 shares subject to options.
10. Includes 1,625 shares subject to options.
11. Includes 166,908 shares subject to options, 13,763 owned jointly with Mr.
Wieseneck's spouse, 10,000 shares owned jointly with his brother and 14,936
shares owned by Mr. Wieseneck's children.
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<PAGE> 49
12. Includes 143,188 shares subject to options, 93,675 shares owned jointly with
Mr. Wieseneck's spouse, 6,243 shares owned jointly with his brother and
4,101 shares owned by Mr. Wieseneck's children.
13. Includes 6,656 shares subject to options.
14. Includes 6,550 shares subject to options.
15. Includes 19,076 shares owned jointly with Mr. Moran's spouse.
16. Includes 332,031 shares subject to options.
17. Includes 2,000 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) 22,682 shares owned by Mr. Purcell's spouse, (2) 11,333 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.
19. Includes (1) 523,728 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.
20. Includes 6,656 shares subject to options.
21. Includes (1) 373,756 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.
<TABLE>
<S> <C>
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
===========
</TABLE>
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 agreed to indemnify
the Exchange Agent against certain liabilities and expenses in connection with
the Merger.
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<PAGE> 50
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 the quarter ended March 31, 1998, Amendment No. 1 thereto on Form 10-Q/A
filed on September 11, 1998, Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998 and Current Reports on Form 8-K dated April 22, 1998, May 5, 1998
and July 29, 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
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<PAGE> 51
ANNEX I
OPINION OF FINANCIAL ADVISOR
PRELIMINARY DRAFT FOR
INFORMATION PURPOSES ONLY
September , 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 and 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;
(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;
I-1
<PAGE> 52
(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
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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 sec.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 sec.251 (other than a merger effected pursuant to
sec.251(g) of this title), sec.252, sec.254, sec.257, sec.258, sec.263 or
sec.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 sec.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
sec.sec.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 sec.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.
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(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 such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder'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 stockholder's
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 sec.228 or
sec.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.
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(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 such stockholder's demand for appraisal and to accept the 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 such stockholder's 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
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder 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
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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 attorneys' fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded such stockholder's 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
such stockholder's 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.
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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."
WITNESSETH:
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.
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
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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
(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
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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 Certificate surrendered 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.
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(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. 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.
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.
III-4
<PAGE> 61
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.
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 C. SCHNEIDER
---------------------------------
Name: Thomas C. Schneider
Title: Chairman and Chief
Financial Officer
SAIL ACQUISITION, INC.
By: /s/ PHILIP J. PURCELL
---------------------------------
Name: Philip J. Purcell
Title: President
III-5
<PAGE> 62
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; Director, Executive Vice President, General
Counsel and Secretary of NOVUS since January 1991.
</TABLE>
IV-1
<PAGE> 63
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT/MATERIAL POSITIONS
NAME (AGE) HELD DURING THE PAST FIVE YEARS
---------- -------------------------------
<S> <C>
Mitchell M. Merin (45)*................ 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 (60).................. 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 (62)............... 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 (41)................. 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 (47).............. Vice President and Controller of the Company since 1994;
Vice President and Controller of HSB and SPS Payment since
1994; 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.
</TABLE>
IV-2
<PAGE> 64
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT/MATERIAL POSITIONS
NAME (AGE) HELD DURING THE PAST FIVE YEARS
---------- -------------------------------
<S> <C>
Robert J. Ferkenhoff (56).............. 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 (49)................ 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>
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.
</TABLE>
IV-3
<PAGE> 65
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT/MATERIAL POSITIONS
NAME (AGE) HELD DURING THE PAST FIVE YEARS
---------- -------------------------------
<S> <C>
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.
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.
</TABLE>
IV-4
<PAGE> 66
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT/MATERIAL POSITIONS
NAME (AGE) HELD DURING THE PAST FIVE YEARS
---------- -------------------------------
<S> <C>
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 December 1990.
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 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.
</TABLE>
IV-5
<PAGE> 67
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT/MATERIAL POSITIONS
NAME (AGE) HELD DURING THE PAST FIVE YEARS
---------- -------------------------------
<S> <C>
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 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>
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.
</TABLE>
IV-6
<PAGE> 68
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT/MATERIAL POSITIONS
NAME (AGE) HELD DURING THE PAST FIVE YEARS
---------- -------------------------------
<S> <C>
Thomas C. Schneider (61)*.............. 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 (45)*................ 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
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.
</TABLE>
IV-7
<PAGE> 69
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT/MATERIAL POSITIONS
NAME (AGE) HELD DURING THE PAST FIVE YEARS
---------- -------------------------------
<S> <C>
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 1994; Director of the Company from 1992 until
1994.
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>
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.
</TABLE>
IV-8
<PAGE> 70
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT/MATERIAL POSITIONS
NAME (AGE) HELD DURING THE PAST FIVE YEARS
---------- -------------------------------
<S> <C>
Thomas C. Schneider (61)*.............. 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.
Michael J. Hartigan, Jr. (47).......... 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>
IV-9
<PAGE> 71
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.
<TABLE>
<CAPTION>
AVERAGE COST
SHARES TOTAL COST PER SHARE PRICE RANGE
------ ---------- ------------ ---------------
<S> <C> <C> <C> <C>
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................................. -- -- -- --
3rd quarter (through September 16, 1998).... -- -- -- --
</TABLE>
V-1
<PAGE> 72
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SPS TRANSACTION SERVICES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF SPS TRANSACTION
SERVICES, INC.
The undersigned hereby appoints Robert L. Wieseneck, Christine A. Edwards
and Michael J. Hartigan, Jr., or either 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, between
the Company and Associates.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(2) Proposal to adopt the Agreement and Plan of Merger, dated as of June 15,
1998, 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, upon all matters presented at the
Special Meeting but which were not known to the Board of Directors at a
reasonable time before the solicitation of this proxy and upon such other
business as 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 PROPOSALS (1), (2) AND (3)
ABOVE.
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<PAGE> 73
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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
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Signature
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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.
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